<PAGE>
As filed with the Securities and Exchange Commission on January 15, 1999
Registration Statement No. 333-67673
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
MARYLAND PROPERTY CAPITAL TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland 6798 04-2452367*
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code) Identification No.)
Incorporation or
Organization)
Bruce A. Beal, President
177 Milk Street
Boston, Massachusetts 02109
(Address, Including Zip Code, and Telephone Number, Including Area Code,
ofRegistrant's Principal Executive Office)
Bruce A. Beal, President
Maryland Property Capital Trust, Inc.
177 Milk Street
Boston, Massachusetts 02109
(Name, Address, Including Zip Code and Telephone Number, Including Area Code,
of Agent for Service)
--------------
With a copy to:
ETTORE SANTUCCI, P.C. MARK S. BERGMAN, ESQ.
Goodwin, Procter & Hoar LLP Paul, Weiss, Rifkind, Wharton &
Exchange Place Garrison
Boston, Massachusetts 02109-2881 1285 Avenue of Americas
(617) 570-1000 New York, New York 10019-6064
(212) 373-3000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of each Class of Proposed Maximum Proposed Maximum
Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered (1) Per Share (2) Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01.................. 159,737 shares $.2375 $37,937.54 $10.55(3)
</TABLE>
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(1) Based upon 9,584,220 shares of beneficial interest of Property Capital
Trust outstanding at the close of business on September 30, 1998, divided
by 60 to adjust for the proposed 1-for-60 reverse stock split to be
effected in connection with the merger of Property Capital Trust into
Maryland Property Capital Trust, Inc.
(2) Based upon the average of the bid and asked price of the shares of Property
Capital Trust as of November 16, 1998, estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457 of the Securities Act
of 1933, as amended.
(3) This registration fee has been previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
*I.R.S. Employer Identification Number of Property Capital Trust, the
predecessor to the Registrant prior to the merger described herein.
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<PAGE>
Subject to Completion Dated January 15, 1999
-----------------------------------------
PROPERTY CAPITAL TRUST
-----------------------------------------
177 Milk Street, Suite 14B, Boston, Massachusetts 02109
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the common stock to be issued under this proxy
statement/prospectus or determined if this proxy statement/prospectus is
accurate or adequate. Any representation to the contrary is a criminal
offense.
Proxy statement/prospectus dated , 1999 and first mailed to shareholders
on or about that date.
Property Capital Trust is proposing to merge with Maryland Property Capital
Trust, Inc. ("PCT Inc.") as the final step in the Trust's business plan to
dispose of the Trust's assets and distribute the net proceeds to shareholders.
The merger will enable the Trust to pay a final dividend of approximately $.22
per share, representing all of the remaining assets of the trust, and to redeem
the rights outstanding under the Trust's shareholder rights plan. If the
shareholders do not approve the merger, the Trust will not make any further
distributions for at least two years and any such distribution will be reduced
by the expenses of maintaining a liquidating trust to provide for contingent
liabilities.
For the merger to occur, at least two-thirds of the holders of the shares of
the trust must vote "FOR" the merger agreement. If you do not vote, it will
count as a vote against the merger. Thus, your vote is very important.
In the merger, after you receive the special dividend from the Trust, you
will receive one-sixtieth of a share of common stock of PCT Inc. for each share
of the Trust you own and one share of PCT Inc common stock for any fractional
interest equal to or greater than .5. You will also have the right to receive
your pro-rata share of any future proceeds received by the Trust in connection
with a condemnation proceeding that has not yet been resolved.
The common stock of PCT Inc. that you will receive in the merger will not
have significant, if any, present value. This is because such stock represents
an interest in a real estate asset being contributed by a third party in which
the Trust had no previous interest and for which the Trust has paid no
consideration. Such stock may have some greater value in the future, but we
cannot give you any such assurance.
This is the proxy statement that is being furnished to you in connection with
the solicitation of proxies for a special meeting where the merger will be
considered and voted upon. We urge you to read this document carefully before
voting and to consider the discussion of certain risks associated with the
merger which begins on page 9. The supplement provided with this proxy
statement/prospectus also sets forth information that you should consider
before voting. This proxy statement/prospectus is also the prospectus of PCT
Inc. for the common stock that will be issued to you in the merger.
The Board of Trustees unanimously recommends that you vote "FOR" the merger.
The meeting will be held on , , 1999 at 9:00 a.m. at the
offices of Goodwin, Procter & Hoar llp, Exchange Place, 2nd Floor, Boston,
Massachusetts 02109.
We hope you will attend the meeting in person, but we urge you, in any event,
to complete and return the enclosed proxy card. Please remember that shares
held in street name will not be voted unless you give your broker voting
instructions.
John A. Cervieri Jr.
Managing Trustee
<PAGE>
-----------------------------------
PROPERTY CAPITAL TRUST
-----------------------------------
177 Milk Street, Suite 14B, Boston, Massachusetts 02109
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Property Capital Trust:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Property
Capital Trust, will be held at the offices of Goodwin, Procter & Hoar LLP,
Exchange Place, 2nd Floor, Boston, Massachusetts on at 9:00 a.m.,
Eastern Standard Time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of June 18, 1998, as amended, between the Trust
and Maryland Property Capital Trust, Inc., a wholly-owned subsidiary of the
Trust ("PCT Inc."), under which the Trust will merge into PCT Inc.
2. To consider and vote upon a motion to adjourn or postpone the special
meeting to another time or place for the purpose of soliciting additional
proxies in favor of approval and adoption of the merger and the merger
agreement if the required vote is not present, in person or by proxy, at the
special meeting.
3. To transact such other business as may properly be brought before the
special meeting or at any adjournments or postponements thereof.
For the merger to occur, holders of at least two-thirds of the shares of the
trust outstanding as of the record date must affirmatively approve the merger
agreement. The accompanying proxy statement/prospectus describes the merger
agreement and the proposed merger and a series of related transactions which
will occur immediately following the merger.
The Board of Trustees has fixed the close of business on , 1999 as
the record date for the special meeting. Only shareholders of record on the
record date are entitled to notice of, and to vote at, the special meeting. On
the record date, there were [9,584,220] shares issued and outstanding.
The Board of Trustees has determined that the merger is fair and in the best
interests of the trust and its shareholders and the Board of Trustees
recommends unanimously that you vote "FOR" approval and adoption of the merger
and the merger agreement.
Whether or not you plan to attend the special meeting, please sign, date and
return the enclosed proxy card in the enclosed prepaid envelope without delay.
You may attend the special meeting and vote personally on each matter brought
before the special meeting and any proxy given by you may be revoked at any
time before it is exercised.
Please do not send any share certificates at this time.
By Order of the Trustees
WALTER F. LEINHARDT
Secretary
Boston, Massachusetts
--IMPORTANT--
If your shares are held in "street name," only your bank or broker can vote
your shares. Please contact the person responsible for your account and
instruct him or her to complete, sign, date and return the enclosed proxy card
as soon as possible. Without such instructions, your shares will not be voted.
If you have any questions or need further assistance in voting your shares,
please call Innisfree M&A Incorporated, which is assisting the Trust in
soliciting proxies, at 1-888-750-5834.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: I thought the Trust was liquidating its assets. Why is it merging with PCT
Inc.?
A:By merging with PCT Inc., the Trust will be able to distribute almost
immediately all of its remaining assets to shareholders. If the merger does not
occur, the Trust will need to organize a liquidating trust which will hold such
assets for one to three years. At the end of such period, the Trust would
distribute the assets, but such distribution would be net of the costs
associated with running the liquidating trust.
Q:How will I benefit from the merger?
A:You will receive your share of the remaining assets of the Trust sooner.
Also, you will not need to bear your portion of the costs associated with a
liquidating trust. Finally, in addition to the distribution from the Trust, you
will receive common stock of PCT Inc. Although this stock has little or no
value at this time, there may be value associated with the stock at a later
date.
Q: What are the major risks of in the merger?
A: As the common stock that you will receive as a result of the merger has
little, if any, value, there are few practical risks to the merger. Further,
these risks will be meaningful to you only if, in the future, the common stock
you receive acquires some additional value due to the diversification or
appreciation of PCT Inc.'s portfolio.
Q: What are the federal income tax consequences to the shareholders caused by
the merger?
A: The federal income tax consequences are uncertain. Please read carefully the
discussion of the possible tax risks of the merger beginning on page 42 and
consult your own tax advisor.
Q: What will the assets of PCT Inc. be after the merger?
A: PCT Inc. will own approximately 33.3% of Property Capital Trust Limited
Partnership. Immediately after the merger, the partnership will own only a
17,250 square foot office and research and development building in suburban
Boston, Massachusetts.
Q: What distributions will I receive on my PCT Inc. common stock after the
merger?
A: Because the limited partners of the partnership will be entitled to a
preferred distribution, PCT Inc. does not expect to receive any distributions
from the partnership at this time. Future distributions to PCT Inc. by the
partnership are entirely dependent on whether and when the partnership acquires
additional assets or improves the performance of the existing property. As a
result, you may not receive any distributions on your PCT Inc. common stock at
all, and your PCT Inc. common stock may continue to have little or no value.
Q: I want to vote on the merger. What do I need to do?
A: Just mail your completed, dated and signed proxy card in the enclosed return
envelope as soon as possible, so that your shares may be represented and voted
at the special meeting. If your shares are held in "street name,"please contact
the person responsible for your account and instruct him or her to complete,
sign, date and return the proxy card. Without such instructions, your shares
will not be voted.
Q: What if I want to change my vote later?
A: Just send in a later-dated, signed proxy card to the Trust's Secretary so
that it arrives before the special meeting, or attend the special meeting and
vote in person.
Q: Should I send in my share certificates now?
A: No. Do not send in your share certificates now. After the merger is
completed, we will send you written instructions for exchanging your share
certificates.
Q: When will the Merger be completed?
A: The trust and PCT Inc. hope to complete the merger shortly after the special
meeting.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION....................................................... 1
The Parties............................................................. 2
The Merger.............................................................. 2
Transactions Related to the Merger...................................... 2
The Special Meeting..................................................... 3
Background of the Merger................................................ 4
Risk Factors............................................................ 5
Conflicts of Interest................................................... 5
Federal Income Tax Consequences to Shareholders......................... 5
Dissenters' Rights...................................................... 5
Comparison of Shareholder Rights........................................ 6
Selected Financial Data................................................. 7
RISK FACTORS.............................................................. 9
Interests of Messrs. Beal and Manzo and the Trustees of the Trust in
Completing the Merger.................................................. 9
No Cause of Action Against PCT Inc. Based on Representative's
Instructions........................................................... 9
Distributions by PCT Inc. Will Not Occur Absent Growth.................. 10
Stock Ownership Limits May Impede Change in Control..................... 10
Changes in Investment and Financing Policies May be Made Without
Stockholder Approval................................................... 10
Issuance of Additional Securities May Dilute Your Investment............ 11
Limited Liquidity May Preclude Sale of Common Stock..................... 11
Changes in Economic Conditions May Impact Ability of Operating
Partnership to Make Distributions...................................... 11
Illiquidity of Real Estate May Restrict the Operating Partnership....... 12
Property Tax May Impact Results of Operating Partnership................ 12
Changes in Local Market Conditions May Impact Results of Operating
Partnership............................................................ 12
Other Office and Research and Development Properties May Compete with
PCT Inc................................................................ 13
Uninsured and Underinsured Losses May Impact Results of Operating
Partnership............................................................ 13
Potential Liability for Environmental Contamination..................... 13
Provisions of PCT Inc.'s Governing Documents May Have an Anti-Takeover
Effect................................................................. 14
Substantial Expenses and Payments if the Merger or the Related
Transactions Fail to Occur............................................. 15
Federal Income Tax Exposure if PCT Inc. Fails to Qualify as a REIT...... 16
Tax Consequences of the Merger to Shareholders.......................... 17
Dependence on The Beal Companies, LLP................................... 17
Lack of Operating History as a REIT..................................... 18
AVAILABLE INFORMATION..................................................... 19
INFORMATION NOT INCLUDED IN PROSPECTUS/PROXY STATEMENT.................... 19
NOTE ON FORWARD LOOKING STATEMENTS........................................ 19
THE SPECIAL MEETING....................................................... 21
Purpose of the Special Meeting; Date, Time and Place.................... 21
Record Date; Solicitation of Proxies.................................... 21
Vote Required........................................................... 21
Proxies................................................................. 22
THE MERGER................................................................ 23
Information Regarding the Parties....................................... 23
The Merger Consideration................................................ 24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Contingent Payment Right.................................................. 24
Recommendation of the Board of Trustees................................... 25
Background of and Reasons for the Merger.................................. 25
Fairness of the Merger to Shareholders.................................... 27
Conflicts of Interest..................................................... 27
Listing of Shares......................................................... 28
Regulatory Approvals...................................................... 28
Related Transactions...................................................... 28
Accounting Treatment...................................................... 29
Dissenters' Rights........................................................ 29
Cancellation of the Trust's Shares........................................ 29
THE MERGER AGREEMENT........................................................ 30
Consideration to be Paid in the Merger.................................... 30
Exchange of Share Certificates............................................ 30
Effective Time of the Merger.............................................. 30
Conditions to the Merger.................................................. 31
Termination............................................................... 31
Fees and Expenses......................................................... 31
Exculpation............................................................... 33
Indemnification........................................................... 33
Articles of Incorporation and By-laws..................................... 33
Management after the Merger............................................... 33
PCT INC. ................................................................... 34
Description of Business of PCT Inc. ...................................... 34
Business and Growth Strategy.............................................. 34
Board of Directors........................................................ 36
Officers.................................................................. 36
Executive Compensation.................................................... 36
Description of Property................................................... 37
Legal Proceedings......................................................... 38
Quantitative and Qualitative Disclosures about Market Risk................ 38
The Operating Partnership................................................. 38
The Partnership Agreement of the Operating Partnership.................... 40
FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS............................. 42
Qualification as a Real Estate Investment Trust........................... 42
U.S. Federal Income Tax Consequences of the Merger........................ 42
Special Tax Considerations for Foreign Shareholders....................... 43
Information Reporting Requirements and Backup Withholding Tax............. 44
COMPARISON OF SHAREHOLDERS' RIGHTS.......................................... 45
DESCRIPTION OF THE CAPITAL STOCK OF PCT INC. ............................... 49
General................................................................... 49
Description of Stock...................................................... 49
Restrictions on Ownership................................................. 49
Restrictions on Transfers of Capital Stock................................ 50
Anti-Takeover Provisions.................................................. 51
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
PRO FORMA FINANCIALS FOR MARYLAND PROPERTY CAPITAL TRUST, INC............. 52
SELECTED FINANCIAL INFORMATION--THE TRUST................................. 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--THE TRUST.................................................... 59
SELECTED FINANCIAL INFORMATION--FYA....................................... 69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS--FYA........ 70
SELECTED COMPARATIVE PER SHARE DATA....................................... 72
MARKET PRICES AND CASH DIVIDENDS INFORMATION.............................. 73
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 74
LEGAL MATTERS............................................................. 75
EXPERTS................................................................... 75
OTHER MATTERS............................................................. 75
Framingham York Associates Limited Partnership Financial Statements....... F-1
Annex A--Agreement and Plan of Merger, dated June 18, 1998, as amended, by
and between Property Capital Trust and Maryland Property Capital Trust,
Inc...................................................................... A-1
</TABLE>
iii
<PAGE>
SUMMARY INFORMATION
The following is a brief summary of certain information contained in this
document and may not contain all of the information that is important to you.
To better understand the terms of the merger between the Trust and PCT Inc.,
you should read carefully this entire document.
The Parties
(see pages 23-24)
Property Capital Trust
177 Milk Street, Suite 14B
Boston, MA 02109
(617) 482-4081
The Trust is a real estate investment trust or "REIT." The Trust currently
does not own any real estate assets because, pursuant to the business plan
adopted by the Trustees and ratified by the shareholders, the Trust has
disposed of all of its real estate investments. Therefore, immediately prior to
the merger the only assets of the Trust will be (1) approximately $.23 per
share in cash and (2) any payment that the Trust subsequently may collect in
connection with an ongoing condemnation proceeding. The Trust intends to
distribute all of its remaining assets to the shareholders prior to the merger.
Maryland Property Capital Trust, Inc.
177 Milk Street
Boston, MA 02109
(617) 451-2100
PCT Inc. is a wholly-owned subsidiary of the Trust. The directors and
officers of PCT Inc. are Bruce A. Beal, Robert L. Beal and Michael M. Manzo,
each of whom is a principal of The Beal Companies, LLP. Pursuant to the merger
agreement, the Trust will merge into PCT Inc.
Framingham York Associates Limited Partnership
177 Milk Street
Boston, MA 02109
(617) 451-2100
Framingham York Associates Limited Partnership ("FYA") is a partnership
formed by The Beal Companies, LLP. The Beal Companies is a real estate
investment and management company that, together with its principals, controls
or manages a portfolio of commercial and residential real estate of
approximately $250 million. The Beal Companies formed FYA to hold a single
property located in suburban Boston, Massachusetts. Bruce A. Beal and Robert L.
Beal are partners of The Beal Companies and are the general partners of FYA.
The limited partners of FYA include (1) principals and employees of The Beal
Companies, (2) trusts of which Messrs. Beal are beneficiaries and (3) private
investors who are not affiliated with Messrs. Beal.
Property Capital Trust Limited Partnership
177 Milk Street
Boston, MA 02109
(617) 451-2000
PCT LP is a limited partnership that has no assets at the present time. PCT
Inc. is the general partner of PCT LP.
1
<PAGE>
The Merger
(see pages 23-29)
Upon the merger of the Trust into PCT Inc., you will receive:
. one-sixtieth of a share of PCT Inc. common stock for each share of the Trust
you own and one share of common stock in exchange for any fractional
interest of common stock equal to or greater than .5; and
. the right to receive your pro rata share of the proceeds, if any, received
by the Trust in connection with the ongoing condemnation proceeding.
The merger will occur upon the filing of Articles of Merger with the State
Department of Assessments and Taxation of Maryland. Shortly thereafter you will
receive instructions for exchanging your share certificates. Do not send any
certificates now.
If the shareholders approve the merger but the Trust otherwise fails to
comply with the merger agreement, FYA may terminate the investment agreement
pursuant to which it will purchase its common stock. The merger agreement will
then terminate and the Trust will be required to pay a termination fee to FYA
equal to $250,000.
The Beal Companies have agreed to pay the legal fees of the Trust in
connection with the merger up to $150,000. In addition, The Beal Companies have
also reimbursed the Trust for its reasonable legal and accounting expenses for
the period from October 1, 1998 until the present. All other costs associated
with the merger or the related transactions will be borne by the party
incurring such costs.
The following diagram illustrates the structure of PCT Inc. immediately
following the merger:
[Diagram]
Transactions Related to the Merger
(see pages 28-29)
The following describes a series of related transactions that will occur
immediately following the merger:
1. FYA will contribute $1 million in cash to PCT Inc. in exchange for
approximately 319,489 shares of newly issued common stock. FYA will then
distribute such shares to its partners pro rata based on their percentage
interests in FYA.
2
<PAGE>
Thus, following the completion of the merger and stock purchase by FYA, PCT
Inc. will be owned as follows:
<TABLE>
<CAPTION>
Stockholders Percentage
------------ ----------
<S> <C>
FYA partners........ 66.7%
Trust shareholders.. 33.3%
</TABLE>
2. PCT LP will then merge into FYA. Immediately following such merger, FYA
will change its name to "Property Capital Trust Limited Partnership" and become
the operating partnership of PCT Inc. PCT Inc., through its pre-merger interest
in PCT LP, will own approximately a 33.3% common partnership interest in the
operating partnership, and will serve as the sole general partner of the
operating partnership. The estimated fair market value of the assets of the
operating partnership immediately following the related transactions will be
approximately $4 million. None of those assets constitute assets owned by the
Trust prior to the merger of the Trust with PCT Inc.
Upon completion of the merger and the related transactions, you will have a
minority interest in PCT Inc., which will have a minority interest in PCT LP.
You should be aware that your continuing interest in PCT Inc. represents a
speculative interest in the future business of PCT Inc. and PCT LP that will
have value only if and when the operating partnership acquires new assets or
realizes appreciation in its existing asset. This is because the former
partners of FYA will hold equity interests in the operating partnership with a
priority as to the cash flow. PCT Inc. does not expect to receive any
distributions from the operating partnership at this time. Future distributions
to PCT Inc. by the operating partnership will depend entirely on whether and
when the operating partnership acquires additional assets or realizes future
appreciation in the existing property.
The following diagram illustrates the structure of PCT Inc. immediately after
completion of the merger and the related transactions:
[Diagram]
The Special Meeting
(see pages 21-22)
The special meeting will be held at the offices of Goodwin, Procter & Hoar
LLP, Exchange Place, 2nd Floor, Boston, Massachusetts on
at 9:00 a.m. At the special meeting, you will consider and vote upon a proposal
to approve
3
<PAGE>
the merger agreement, a copy of which is attached hereto as Annex A.
The purchase of common stock by FYA and the merger of FYA and PCT LP will
occur immediately following the merger and are summarized in this document for
your information only. You will not be asked to vote on these transactions at
the special meeting.
Holders of two-thirds of the shares outstanding as of the record date must
approve the merger. If you do not vote your shares, by proxy or in person, it
will have the same effect as a vote against the merger. If your shares are held
in street name, they will not be voted at the special meeting unless you
instruct your broker to do so and how to vote. On the record date, Trustees and
executive officers of the Trust as a group beneficially owned [157,035] shares,
or [1.6]% of the total outstanding shares.
You may revoke a proxy at any time before the special meeting by following
the instructions on page 22.
The Trustees have unaminously approved the merger and the merger agreement
and have determined that the merger is fair to shareholders. The Trustees
recommend that you vote "FOR" approval and adoption of the merger and merger
agreement.
Background of the Merger
(see pages 25-27)
At the Trust's 1995 annual meeting, the shareholders approved a business plan
of the Trust under which the Trust proposed to liquidate its assets in an
orderly fashion and distribute such assets to the shareholders. Over the past
three years, the Trust has sold all of its real estate assets and made
distributions to you of the proceeds. In order to distribute its remaining
assets to you immediately, and avoid establishing a liquidating trust to hold
the assets for a period of time sufficient to provide for contingent
liabilities, the Trustees decided to pursue a more favorable alternative--
namely a merger with another entity.
In unanimously approving the merger and the merger agreement, the Trustees
considered the following benefits to shareholders:
1. The merger eliminates the need for a liquidating trust, which would have
delayed your receipt of a final distribution from the Trust and reduced the
amount of such distribution by the costs of maintaining and administering the
liquidating trust.
2. The Trustees will be able to declare a special dividend and payment of the
rights redemption price in the approximate aggregate amount of $.23 per share
immediately prior to the consummation of the merger. The Trust will make this
$.23 per share payment to you shortly after the merger. In the absence of the
merger, the liquidating trust would have held all or some of these funds as a
reserve.
3. PCT Inc. will provide for the contingent liabilities of the Trust without
the establishment of a liquidating trust.
4. You will receive common stock of PCT Inc. representing a minority equity
interest in a continuing enterprise. The common stock will have little or no
value, but you have not given up any value in exchange for this common stock.
Because the merger will allow shareholders to receive the value of their
interest in the Trust without delay, will provide for the contingent
liabilities of the Trust and will provide shareholders with an equity interest
in an ongoing entity for which they have given up no value, the Trustees
believed when they decided to enter into this transaction, that there were no
negative factors to be considered in connection with the merger.
4
<PAGE>
Based on the above, the Trustees believe that the merger and the related
transactions are fair to the shareholders.
Risk Factors
(see pages 9-18)
There is little if any risk to you associated with the merger. The merger
will permit the Trust to distribute its remaining assets to the shareholders
without establishing a liquidating trust to provide for contingent liabilities.
You will also receive a minority equity interest in PCT Inc. that will, at the
time of the merger, have little or no value. There are, however, some risks
associated with holding common stock of PCT Inc. Please read carefully the
discussion of these risk factors.
Conflicts of Interest
(see pages 27-28)
You should be aware that certain Trustees and executive officers of the Trust
have interests in the merger that may be different from, or in addition to,
yours generally. For example, under the merger agreement, the Trust and PCT
Inc. have agreed to indemnify the Trustees, officers, employees and
shareholders of the Trust for a period of six years from the effective time of
the merger.
In addition, the merger agreement designates Robert M. Melzer, the President
of the Trust and a Trustee, as the holders' representative in connection with
all matters relating to the ongoing condemnation proceeding. As the holders'
representative, Mr. Melzer will be entitled to payment for his services and
reimbursement of all expenses incurred in connection with the performance of
his duties. Such amounts will be deducted from the proceeds, if any, from the
resolution of the condemnation proceeding. Further, PCT, Inc. will indemnify
Mr. Melzer for all loss, expense or liability arising out of or in connection
with the distribution of such proceeds and the performance of his duties as the
holders' representative. Finally, Mr. Melzer will receive payment from the
trust of 1 year's salary under a termination agreement.
Federal Income Tax Consequences to Shareholders
(see pages 42-44)
The federal income tax consequences of the merger are uncertain. If the
merger qualifies as a reorganization, you will not recognize gain or loss with
respect to the receipt of PCT Inc. common stock in exchange for shares of the
Trust. Although it is not free from doubt, the receipt by you of the future
right to receive a portion of the proceeds from the condemnation action should
be treated separately for federal income tax purposes as a distribution by the
Trust. If this right is not treated separately, you will recognize gain (which
may be taxed as ordinary income), if any, but not loss, on the exchange to the
extent of the value of such right, which value is speculative. If the merger
does not qualify as a reorganization, you will recognize gain or loss equal to
the difference, if any, between your adjusted tax basis in your shares of the
Trust and the value of (i) the PCT Inc. common stock received in exchange
therefor and (ii) the future right to payment you receive. The common stock
will not have significant, if any, present value and the value of the right to
future payment is speculative.
Dissenters' Rights
(see page 29)
Shareholders sometimes prefer not to participate in transactions that the
issuers of their shares have proposed. In some cases, these shareholders have
what is referred to as "dissenter's rights." These rights often entitle the
shareholders to demand that the issuer pay them the fair market value of their
shares, essentially buying them out and allowing them to decline to participate
in the proposed transaction. You are not entitled to such
5
<PAGE>
dissenters' rights under either Massachusetts law or Maryland law with respect
to the merger. You do, however, have the right to request a list of the
shareholders of the Trust.
Comparison of Shareholder Rights
(see pages 45-48)
Your rights as a shareholder of the Trust are currently determined by the
Declaration of Trust and Massachusetts law applicable to business trusts. After
the merger, you will become a stockholder of PCT Inc. and your rights will be
determined by the Articles of Incorporation and By-Laws of PCT Inc. and
Maryland law. We have set forth in a table on page the material differences
in your rights before and after the merger.
6
<PAGE>
Selected Financial Data
The Trust: The following table sets forth financial information for the Trust
on a historical basis and should be read in conjunction with, and is qualified
in its entirety by, the historical financial statements and notes thereto of
the Trust. Such additional information is available as described under
"Available Information."
<TABLE>
<CAPTION>
Nine
Months Ended Five Years Ended
--------------------------- Year Ended Months Ended ------------------------------------
September 30, September 30, December 31, December 31, July 31, July 31, July 31, July 31,
1998 1997 1997 1996** 1996 1995 1994 1993*
------------- ------------- ------------ ------------ -------- -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Revenues................ $2,603 $12,011 $14,717 $ 8,187 $ 21,799 $ 22,619 $ 21,623 $ 16,535
Expenses................ 1,225 9,199 11,232 6,651 21,506 20,603 20,044 24,865
------ ------- ------- -------- -------- -------- -------- --------
Income (Loss) before
Gain on Sale of Real
Estate Investments and
Extraordinary Item..... 1,378 2,812 3,485 1,536 293 2,016 1,579 (8,330)
Gain on Sale of Real
Estate Investments..... 4,083 26,128 27,812 832 6,094 3,209 2,510 7,700
------ ------- ------- -------- -------- -------- -------- --------
Income (Loss) before
Extraordinary Item..... 5,461 28,940 31,297 2,368 6,387 5,225 4,089 (630)
Extraordinary (Loss)
Gain from
Extinguishment of
Debt................... -- -- -- -- (473) 88 -- --
------ ------- ------- -------- -------- -------- -------- --------
Net Income (Loss)....... $5,461 $28,940 $31,297 $ 2,368 $ 5,914 $ 5,313 $ 4,089 $ (630)
====== ======= ======= ======== ======== ======== ======== ========
Per Share Data
Basic Net Income (Loss)
Income (Loss) before
Gain on Sale of Real
Estate Investments and
Extraordinary Item.... $ 0.14 $ 0.30 $ 0.36 $ 0.16 $ 0.03 $ 0.23 $ 0.17 $ (0.93)
Gain on Sale of Real
Estate Investments.... .43 2.73 2.91 0.09 0.67 0.35 0.28 0.85
------ ------- ------- -------- -------- -------- -------- --------
Income (Loss) before
Extraordinary Item.... 0.57 3.03 3.27 0.25 0.70 0.58 0.45 (0.08)
Extraordinary (Loss)
Gain from
Extinguishment of
Debt.................. -- -- -- -- (0.05) 0.01 -- --
------ ------- ------- -------- -------- -------- -------- --------
Basic Net Income (Loss)
per Share............. $ 0.57 $ 3.03 $ 3.27 $ 0.25 $ 0.65 $ 0.59 $ 0.45 $ (0.08)
====== ======= ======= ======== ======== ======== ======== ========
Diluted Net Income
(Loss) per Share....... $ 0.57 $ 3.03 $ 3.27 $ 0.25 $ 0.64 $ 0.59 $ 0.45 $ (0.08)
====== ======= ======= ======== ======== ======== ======== ========
Dividends Declared per
Share.................. $ 1.15 $ 6.03 $ 8.93 $ 1.18 $ 3.23 $ 0.41 $ 0.30 $ 0.28
====== ======= ======= ======== ======== ======== ======== ========
Average Shares
Outstanding............ 9,584 9,561 9,567 9,353 9,097 9,044 9,030 9,029
====== ======= ======= ======== ======== ======== ======== ========
Financial Position at
Year-End
Total Assets............ $3,093 $99,274 $21,183 $103,294 $112,619 $169,439 $176,833 $179,459
Net Real Estate
Investments............ -- 69,753 15,077 98,708 106,912 160,963 172,461 176,024
Total Debt Outstanding.. -- 36,420 8,345 36,650 36,889 71,816 81,479 86,492
Shareholders' Equity.... 2,570 56,767 6,814 61,372 70,076 93,709 91,703 90,134
</TABLE>
- ------
* Restated for change in accounting method to the equity method for Investment
Partnerships. The change did not affect net income (loss) or shareholders'
equity.
** The Trust's fiscal year changed from one which ended on July 31st to one
which ends on December 31st.
7
<PAGE>
FYA: The following table sets forth financial information for FYA on a
historical basis and should be read in conjunction with, and is qualified in
its entirety by, the historical financial statements and notes thereto of FYA
included elsewhere in this document.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
----------------- ----------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Revenues................ $ 237 $ 236 $ 315 $ 315 $ 314 $ 314 $ 558
Costs and Operating
Expenses............... 48 44 60 $ 67 101 113 486
-------- -------- ------ ------ ------ ------ ------
Operating Income........ 189 192 255 248 213 201 72
Gain on Sale of Assets.. -- -- -- -- -- -- 2,220
-------- -------- ------ ------ ------ ------ ------
Net Income.............. $ 189 $ 192 $ 255 $ 248 $ 213 $ 201 $2,292
======== ======== ====== ====== ====== ====== ======
Financial Position at
Period-End
Working Capital......... $ 128 $ 121 $ 122 $ 112 $ 103 $ 87 $ (16)
Total Assets............ 1,547 1,585 1,552 1,587 1,629 1,635 1,663
Partners' Capital....... 1,502 1,540 1,530 1,565 1,607 1,614 1,558
</TABLE>
8
<PAGE>
RISK FACTORS
In addition to the other information contained in this document, you should
consider the following risk factors before you decide whether or not you wish
to approve the merger. You should be aware that the majority of these risk
factors are relevant only if the common stock being issued to you has value now
or in the future. As already pointed out, PCT Inc. does not expect to make
distributions on its common stock at this time and such stock has no present
value. Moreover, its value in the future is speculative. Accordingly, you
should consider the risk factors which affect the financial viability of PCT
Inc., the real estate owned by the operating partnership and the tax treatment
of PCT Inc. in light of the negligible value of the interest you will have in
PCT Inc. and the fact that the receipt of such stock by you was not a major
factor the Trustees of the Trust considered in making their determination to
approve the merger.
Interests of Messrs. Beal and Manzo and the Trustees of the Trust in Completing
the Merger
You should be aware that the officers and directors of PCT Inc. may have
interests in, and will receive benefits as a consequence of, the merger that
are separate from your interests generally. For example, Bruce A. Beal, Robert
L. Beal and Michael A. Manzo are executive officers of The Beal Companies, LLP
and will also serve as the sole executive officers and directors of PCT Inc. In
addition, the operating partnership of PCT Inc. will enter into a management
agreement with Beal & Company, Inc. pursuant to which Beal & Company will
provide property management services to the operating partnership. As a
consequence of the merger and the transactions related to the merger, The Beal
Companies and Messrs. Beal and Manzo will receive benefits that you will not
receive and their interest in completing the merger and the related
transactions may be different from yours.
You should also be aware that the Trustees of the Trust may have interests
in, and will receive benefits as a consequence of, the merger that are separate
from your interests generally. For example, PCT Inc. has agreed to provide
indemnification of the Trustees, officers, agents, employees and shareholders
of the Trust and to maintain directors' and officers' liability insurance
coverage for the Trust's Trustees and officers. For a more detailed description
of this indemnification, see "THE MERGER--Conflicts of Interest" on page 27.
These different interests may result in conflicts with respect to these
individuals' obligations to PCT Inc. and the Trust in determining whether they
should complete the merger.
No Cause of Action Against PCT Inc. Based on Representative's Instructions
The merger agreement designates Mr. Melzer as the shareholders'
representative to act on your behalf in all matters relating to the
distribution of proceeds, if any, from the condemnation proceeding. As your
representative in such matter, Mr. Melzer will be entitled to receive payment
for his services and reimbursement of all expenses incurred in connection with
the performance of his duties. All decisions and actions by Mr. Melzer, as the
shareholders' representative in such matter, will be binding upon all of the
shareholders and no shareholder will have the right to object, dissent, protest
or otherwise contest the same. You will not have any cause of action against
PCT Inc. for any actions taken by PCT Inc. in reliance upon the instructions or
decisions of Mr. Melzer as the shareholders' representative. This may limit
your ability to recover damages in the event you are harmed by any decision of
Mr. Melzer as the shareholders' representative .
9
<PAGE>
Distributions by PCT Inc. Will Not Occur Absent Growth
Currently, PCT Inc. does not expect to receive any distributions from its
operating partnership because the former partners of FYA will be entitled to
receive priority distributions from the operating partnership. These priority
distributions will prevent PCT Inc. from currently making any distributions to
you. As a result, the value of the common stock that you will receive in the
merger is not significant, if any. PCT Inc.'s ability to make future
distributions to you depends entirely on whether the operating partnership
acquires additional assets or on future appreciation of the existing property.
It may also depend on the extent to which the operating partnership issues
future interests. Although PCT Inc. and the operating partnership anticipate
that they will seek opportunities to acquire additional properties and
diversify their portfolio as and when market conditions improve, there is no
assurance that PCT Inc. or the operating partnership will be successful in
achieving any growth. For a description of the growth strategies of PCT Inc.,
see "PCT INC.--Business and Growth Strategy" beginning on page 34. If the
operating partnership is unable to successfully grow its portfolio, it could
materially and adversely affect its results of operations and financial
condition.
Stock Ownership Limits May Impede Change in Control
In order for PCT Inc. to qualify as a REIT under the Internal Revenue Code,
not more than 50% in value of its outstanding shares of capital stock may be
owned, directly or indirectly, by five or fewer individuals or certain types of
entities at any time during the last half of PCT Inc.'s taxable year. PCT Inc.
does not have to meet this requirement in the first taxable year for which the
election to be treated as a REIT has been made. In order to comply with this
requirement, for Federal income tax purposes and to otherwise address concerns
relating to concentration of capital stock ownership, the Articles of
Incorporation of PCT Inc. will contain a maximum percentage of ownership of
shares of common stock of PCT Inc. This generally will prohibit any single
stockholder from "beneficially
owning" more than % of the issued and outstanding shares of common stock of
PCT Inc. A stockholder is the "beneficial owner" of shares of common stock of
PCT Inc. if such stockholder either, directly or indirectly, owns such shares
or is deemed to own such shares under the Securities and Exchange Act of 1934.
Additionally, the Articles of Incorporation will prohibit certain mutual funds
and certain other widely-held entities from beneficially owning 15% or more of
the outstanding shares of PCT Inc.'s common stock. The Board of Directors of
PCT Inc. will waive or modify these ownership limits with respect to one or
more persons if it is established to the reasonable satisfaction of the Board
of Directors that such ownership would not be likely to disqualify PCT Inc. as
a REIT for Federal income tax purposes. In connection with the transactions
related to the merger, PCT Inc. will waive the ownership limit with respect to
the initial common stock ownership of Robert L. Beal, Bruce A. Beal and their
affiliates because none will jeopardize PCT Inc.'s status as a REIT for Federal
income tax purposes. PCT Inc. also may waive the ownership limit with respect
to certain other stockholders, if appropriate. In addition, these ownership
limitations may have the effect of inhibiting or impeding a change in control
and, therefore, could adversely affect your ability to realize a premium over
the then current value of the common stock, if any, in connection with such a
transaction.
Changes in Investment and Financing Policies May be Made Without Stockholder
Approval
The major policies of PCT Inc., including its investment policy and other
policies with respect to acquisitions, financing, growth, operations, debt and
distributions, will be determined by its Board of Directors, all of whom are
officers and principals of The Beal Companies, LLP. The Board of Directors will
be able to amend or revise these and other policies, or approve transactions
that
10
<PAGE>
deviate from these policies, from time to time without a vote of the
stockholders. Accordingly, you will have no control over changes in strategies
and policies of PCT Inc., other than through the election of directors, and
such changes may not serve the interests of all stockholders and could
adversely affect PCT Inc.'s financial condition or results of operations,
including its ability to make distributions to you.
Issuance of Additional Securities May Dilute Your Investment
PCT Inc. will have authority to offer shares of preferred stock, additional
shares of common stock or other equity or debt securities for cash, in exchange
for property or otherwise. PCT Inc., as the general partner of the operating
partnership, may elect to redeem common units of the operating partnership for
common stock of PCT Inc. Similarly, PCT Inc. may cause the operating
partnership to offer additional interests in the operating partnership in
exchange for cash, property or otherwise. You will have no preemptive right to
acquire any such securities and, as such, will not have the automatic right to
participate in any additional issuance of equity securities by PCT Inc. Any
such issuance of equity securities could result in dilution of your investment
in PCT Inc. As a result, your ownership interest in PCT Inc. and your voting
power may be diminished. In addition, issuance of preferred equity securities
could continue to have the effect of eliminating any distributions on your
shares of common stock even if PCT Inc. is able to grow and diversify its
portfolio.
Limited Liquidity May Preclude Sale of Common Stock
As a result of the disposition of all of the Trust's real estate investments,
the American Stock Exchange halted trading in the Trust's shares at the close
of business on July 10, 1998 and subsequently delisted the shares on October
29, 1998. The Trust is now traded on NASDAQ's over-the-counter Bulletin Board
(symbol "PCTG"). At the current time, PCT Inc. intends to maintain trading of
the common stock to be issued in connection with the merger on the Bulletin
Board. However, PCT Inc. does not intend to list the shares of common stock on
the American Stock Exchange in the near future. As such, the shares of common
stock you receive in the merger may have only limited liquidity.
The following factors will become more relevant to you if PCT Inc. achieves
growth and therefore is in a position to make distributions to you. However,
there is no assurance that this will occur.
Changes in Economic Conditions May Impact Ability of Operating Partnership to
Make Distributions
Upon completion of the merger between FYA and PCT LP, the operating
partnership's sole asset will be the property located at 51 New York Avenue,
Framingham, Massachusetts. This property is leased by a single tenant. If this
property does not generate revenues sufficient to meet operating expenses,
including debt service and capital expenditures, the operating partnership's
cash flow and ability to pay distributions to its partners will be adversely
affected. This in turn will adversely affect PCT Inc.'s ability to make
distributions to you. At this time, however, PCT Inc. does not expect to make
distributions to you. The following factors, among others, may adversely affect
the revenues generated by this property:
. changes in national economic conditions or changes in local market
conditions due to changes in general or local economic conditions and
neighborhood characteristics that would prevent the releasing of this
property;
11
<PAGE>
. changes in interest rates and in the availability, cost and terms of
future debt financings, which may preclude growth and diversification of
PCT Inc.'s portfolio;
. the impact of present or future environmental legislation and compliance
with environmental laws and other regulatory requirements;
. the ongoing need for capital improvements on this or future properties;
. failure of the tenant to pay its rent;
. failure of new lease to provide for tenant's payment of real estate tax
rates;
. the ability to provide adequate management and maintenance through Beal
& Company; and
. floods and other natural disasters, which may result in uninsured
losses, and other factors which are beyond PCT Inc.'s or the operating
partnership's control.
Certain significant expenditures associated with the property, such as loan
payments, real estate taxes, insurance and maintenance costs, will generally
not be reduced when circumstances cause a reduction in income from the
investment. For example, if PCT Inc. or the operating partnership is unable to
meet the loan payments, it could sustain a loss as a result of foreclosure on
the property or the exercise of other remedies by the lender. In addition, the
real estate value of the property and income generated from the property may
also be affected by such factors as the cost of compliance with government
regulations, including zoning and tax laws, interest rate levels and the
availability of financing. Any material changes due to such events could
adversely affect the revenues generated by this property.
Illiquidity of Real Estate May Restrict the Operating Partnership
Real estate investments are relatively illiquid. The operating partnership's
ability to diversify its portfolio in response to changes in economic and other
conditions will therefore be limited. If the operating partnership wants to
sell its property, there is no assurance that it will be able to dispose of the
property in the time period it desires or that the sales prices of the property
will recoup or exceed the amount of the operating partnership's investment.
Property Tax May Impact Results of Operating Partnership
The property is subject to real property taxes, which may increase or
decrease as property tax rates change and as the value of the property is
assessed or reassessed by taxing authorities. Under the terms of the existing
lease, the tenant is responsible for the payment of taxes. There is no
assurance that a lease with a new tenant will have similar provisions. If this
occurs, then the additional costs could adversely affect the results of the
operating partnership.
Changes in Local Market Conditions May Impact Results of Operating Partnership
The operating partnership's sole asset will be located in Massachusetts.
Consequently, economic conditions in this market will significantly influence
the operating partnership's and PCT Inc.'s future performance. Because the
operating partnership lacks geographical diversity, a decline in the economy in
Massachusetts, or in the United States generally, could materially and
adversely affect its operating results. In addition, local market and economic
conditions may significantly affect occupancy or rental rates in that market.
Occupancy and rental rates, in turn, may significantly affect the operating
partnership's profitability and its ability to satisfy its financial
obligations or make future distributions to its partners, including PCT Inc.
12
<PAGE>
Other Office and Research and Development Properties May Compete with PCT Inc.
This office and research and development building competes with other rental
alternatives in attracting tenants, including other office properties that are
available for rent. Competitive office and research and development space in
the Framingham area could adversely affect our ability to release this property
to the existing tenant or to lease our space to a new tenant. It also may
impact our ability to increase or maintain rents. There is no assurance that
the tenant will renew its lease at the end of the current term. If the tenant
does not renew its lease, then the property may remain vacant for a period of
time. If this occurs, the operating partnership will not have sufficient
revenues to make distributions to its partners. In addition, the operating
partnership may be subject to construction expenses for tenant improvements,
free rent incentives if necessary and payment of leasing commissions to
brokers. In addition, competitors for acquisitions of office properties may
have greater resources than PCT Inc. and the operating partnership, putting us
at a competitive disadvantage for potential new investments.
Uninsured and Underinsured Losses May Impact Results of Operating Partnership
After the merger, the operating partnership intends to maintain comprehensive
insurance on the property, including liability, fire and extended coverage. The
operating partnership believes such specified coverage will be of the type and
amount customarily obtained for or by an owner of office properties. However,
there are certain types of losses, generally of a catastrophic nature, such as
floods, that may be uninsurable or not economically insurable. We will use our
discretion in determining amounts, coverage limits and deductibility provisions
of insurance, with a view to maintaining appropriate insurance coverage on the
investments of PCT Inc. and the operating partnership at a reasonable cost and
on suitable terms. This may result in insurance coverage that, in the event of
a substantial loss, would not be sufficient to pay the full current market
value or current replacement cost of the property or any future investments of
PCT Inc. or the operating partnership. Inflation, changes in building codes or
ordinances, environmental considerations, and other factors also might make it
infeasible to use insurance proceeds to replace the property after the property
has been damaged or destroyed. Under such circumstances, the insurance proceeds
received by PCT Inc. or the operating partnership might not be adequate to
restore its economic position with respect to such property.
Potential Liability for Environmental Contamination
Under various federal, state and local environmental laws, regulations and
ordinances, current or former owners of real estate, as well as certain other
categories of parties, may be required to investigate and clean up hazardous or
toxic chemicals, substances or waste or petroleum product or waste releases on,
under, in or from such property, and may be held liable to governmental
entities or to third parties for certain damage and for investigation and
cleanup costs incurred by such parties in connection with the release or
threatened release of such hazardous materials. Such laws typically impose
responsibility and liability without regard to whether the owner knew of or was
responsible for the presence of such hazardous materials, and the liability
under such laws has been interpreted to be joint and several under certain
circumstances.
The costs of investigation and cleanup of such hazardous materials on, under,
in or from property can be substantial, and the fact that the property has had
a release of hazardous materials, even if remediated, may adversely affect the
value of the property and the owner's ability to sell or lease the property or
to borrow using the property as collateral. In addition, some environmental
laws
13
<PAGE>
create a lien on a property in favor of the government for damages and costs it
incurs in connection with the release or threatened release of hazardous
materials. The presence of hazardous materials on a property could result in a
claim by a private party for personal injury or a claim by a neighboring
property owner for property damage. Such costs or liabilities could exceed the
value of the affected real estate.
Other federal, state and local laws and regulations govern the removal or
encapsulation of asbestos-containing material when such material is in poor
condition or in the event of building remodeling, renovation or demolition.
Still other federal, state and local statutes, regulations and ordinances may
require the removal or upgrading of underground storage tanks that are out of
service or out of compliance. Non-compliance with environmental or health and
safety requirements may also result in the need to cease or alter operations at
a property, which could affect the financial health of a tenant and its ability
to make lease payments. Furthermore, if there is a violation of such a
requirement in connection with a tenant's operations, it is possible that the
operating partnership, as the future owner of the property, could be held
accountable by governmental authorities for such violation and could be
required to correct the violation.
The property has been the subject of Phase I environmental assessment by
independent environmental consultant and engineering firms. Phase I assessments
do not involve subsurface testing. These environmental assessments have not
revealed any environmental conditions that PCT Inc. or the operating
partnership believe will have a material adverse effect on their business,
assets or results of operations, and neither PCT Inc. nor the operating
partnership is aware of any other environmental conditions with respect to the
property that they believe would have such a material adverse effect.
We cannot assure you that:
. the environmental assessment identified all potential environmental
liabilities;
. that no prior owner created any material environmental condition not
known to us or the consultants who prepared the assessments;
. that no environmental liabilities developed since such environmental
assessment was prepared;
. that the condition of land or operations in the vicinity of our
property, such as the presence of underground storage tanks, will not
affect the environmental condition of our property; or
. that future uses or conditions, including, without limitation, changes
in applicable environmental laws and regulations, will not result in the
imposition of environmental liability.
Provisions of PCT Inc.'s Governing Documents May Have an Anti-Takeover Effect
Certain provisions of PCT Inc.'s Articles of Incorporation and By-laws could
have a potential anti-takeover effect. The following provisions could have the
effect of making it more difficult for a third party to acquire control of PCT
Inc., including certain acquisitions that stockholders may deem to be in their
best interests:
. the Articles of Incorporation and By-laws provide for a classified Board
of Directors, divided into three classes with the term of office of one
class expiring each year, which precludes a change in control of the
Board of Director from occurring in any one year;
14
<PAGE>
. following the merger, the Articles of Incorporation will permit removal
of directors of PCT Inc., other than upon expiration of their term, only
for cause and only by the affirmative vote of holders of a majority of
the common stock of PCT Inc.;
. the Articles of Incorporation contain restrictions on the number of
shares that may be owned by any stockholder or group of stockholders;
. the Articles of Incorporation will permit the issuance of one or more
series of a new class of securities with rights and preferences to be
determined by the Board of Directors; and
. the By-Laws require advance notice of stockholder proposals and director
nominations.
Substantial Expenses and Payments if the Merger or the Related Transactions
Fail to Occur
Neither the Trust nor PCT Inc. can assure you that the merger will be
completed. If the merger is not completed, the Beal Companies, LLP will have
incurred substantial expenses in connection with the transactions described in
this document. Further, the transactions related to the merger will not occur
unless the merger occurs because the completion of such related transactions is
contingent on the completion of the merger.
The Beal Companies paid the Trust a deposit towards possible liquidated
damages that may come due the Trust. If FYA or PCT Inc. terminate the
investment agreement under the following circumstances, then the Trust will be
entitled to retain the deposit as a termination payment:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Fee to be retained by
Circumstances the Trust
- -------------------------------------------------------------------------------
The Trust satisfies the conditions to the closing of up to $350,000
the transactions described herein, but FYA fails to
consummate the related transactions by the end of the
4th business day after issuance of the common stock
of PCT Inc.
- --------------------------------------------------------------------------------
</TABLE>
In addition, if the parties terminate the investment agreement with FYA under
the following circumstances, the Trust will be obligated to return a portion of
the deposit and/or make a termination payment to The Beal Companies:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Fee to be paid by
Circumstances the Trust
- -------------------------------------------------------------------------------
The shareholders of the Trust do not approve the return of up to
merger by the 90th day after delivery of this Proxy $310,000
Statement/Prospectus to the Trust for mailing to its
shareholders
- -------------------------------------------------------------------------------
The Trust fails to satisfy certain conditions to the return of up to
closing of the transactions described herein by the $310,000 plus
end of the 4th business day after issuance of the $250,000
common stock of PCT Inc. and approval of the merger
by the shareholders or the Trust fails to comply in
good faith with its covenants
- --------------------------------------------------------------------------------
</TABLE>
For a more detailed description of these expenses, see "THE MERGER AGREEMENT
- --Termination," and "--Fees and Expenses" on page 31.
15
<PAGE>
Federal Income Tax Exposure if PCT Inc. Fails to Qualify as a REIT
PCT Inc. intends to operate in a manner that will allow it to continue to
qualify as a REIT. Although PCT Inc. believes that it has been organized and
its past and present operations qualify it as a REIT, it cannot assure you that
this is true, or that it will remain qualified as a REIT in the future. This is
because qualification as a REIT involves the following:
. the application of highly technical and complex Internal Revenue Code
provisions for which there are only limited judicial or administrative
interpretations; and
. the determination of various factual matters and circumstances not
entirely within our control.
If the Trust failed to qualify as a REIT prior to the merger, this failure
could disqualify PCT Inc. as a REIT. If PCT Inc. fails to qualify as a REIT, it
will be subject to federal income tax on its taxable income at regular
corporate rates for both current and past years. In this event, PCT Inc. could
be subject to potentially significant tax liabilities, and the amount of cash
available for future distribution to you would be reduced and possibly
eliminated. Unless entitled to relief under certain statutory provisions, PCT
Inc. would also be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost.
Pursuant to the Internal Revenue Code provisions relating to REITs, PCT Inc.
must distribute annually at least 95% of its net taxable income, excluding any
net capital gain, to avoid corporate income taxation of the earnings that it
distributes. In addition, PCT Inc. will be subject to a 4% nondeductible excise
tax on the amount, if any, by which certain distributions paid or deemed paid
by it with respect to any calendar year are less than the sum of (1) 85% of its
ordinary income for that year, (2) 95% of its capital gain net income for that
year, and (3) 100% of its undistributed taxable income from prior years. The
amount of any net long-term capital gains that PCT Inc. elects to retain and
pay income tax on will be treated as distributed for purposes of the 4% excise
tax.
PCT Inc. intends to make the necessary distributions to its stockholders to
comply with the 95% distribution requirement and also to avoid the
nondeductible excise tax. However, differences in timing between the
recognition of taxable income and the actual receipt of cash could require PCT
Inc. to borrow funds on a short-term basis or sell assets on a short-term basis
to meet the 95% distribution requirement and to avoid the nondeductible excise
tax. The requirement to distribute a substantial portion of PCT Inc.'s net
taxable income could cause PCT Inc. to do any of the following:
. sell assets in adverse market conditions;
. distribute amounts that represent a return of capital; or
. distribute amounts that would otherwise be spent on future acquisitions,
capital expenditures, or repayment of debt.
Net income derived from a "prohibited transaction" is subject to a 100% tax.
According to the Internal Revenue Code, a "prohibited transaction" generally
includes a sale or other disposition of property, other than foreclosure
property, that is held primarily for sale to customers in the ordinary course
of a trade or business. Consequently, PCT Inc. will have to consider this
Internal Revenue Code provision in connection with future dispositions of its
assets and over the next four years may make bulk sales of assets, directly or
through a merger, more attractive than multiple sales of individual assets.
However, PCT Inc. will attempt to conduct its business so that it will not be
characterized as being engaged in prohibited transactions.
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<PAGE>
Tax Consequences of the Merger to Shareholders
The Federal income tax consequences of the merger are uncertain. The merger
may qualify as a reorganization described in Section 368(a)(1)(F) of the
Internal Revenue Code because it involves merely a change of form in a single
entity, and you will receive common stock of PCT Inc. in the merger. The Trust
has disposed of its assets and the common stock you receive, however, will not
have significant, if any, present value. As a result, PCT Inc. might not be
considered to be continuing the business enterprise of the Trust, and you might
not be considered to have preserved a proprietary interest in the Trust upon
receipt of the common stock. In that case, the merger will fail to qualify as a
reorganization. If the merger qualifies as a reorganization and, as discussed
below in "FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS" beginning on page
42, the right to receive the condemnation proceeds, if any, is treated
separately, you will not recognize gain or loss with respect to the receipt of
common stock in exchange for shares of the Trust, and you will be treated as
receiving a distribution in the amount of the fair market value of the right to
receive the condemnation proceeds, if any. If the merger does not qualify as a
reorganization, you will recognize gain or loss equal to the difference, if
any, between your adjusted tax basis in your shares of the Trust and the value
of (1) the common stock received in exchange therefor and (2) the proceeds from
the condemnation proceeding you receive. The common stock will not have any
significant, if any, present value and the value of the right to receive the
condemnation proceeds is speculative.
Dependence on The Beal Companies, LLP
The initial executive officers of PCT Inc. and all of the members of the
Board of Directors of PCT Inc. will also be executive officers and principals
of The Beal Companies, LLP. As such, PCT Inc. believes that its success, at
least initially, will depend to a significant extent upon the experience of
Bruce A. Beal, Robert L. Beal and Michael A. Manzo. PCT Inc. believes that
these individuals' reputations in the real estate investment industry will
assist PCT Inc. and the operating partnership in identifying potential assets
for acquisition. For a detailed description of these individuals' real estate
backgrounds, see "PCT INC.--Description of Business of PCT Inc." on page 34.
The loss of any of these individual's management services could have a material
adverse effect on the operations of PCT Inc. because PCT Inc. would have a
diminished capacity to obtain real estate investment opportunities and to
capitalize upon their relationships in the real estate industry. PCT Inc.
cannot guarantee the continued service of these individuals because PCT Inc.
does not currently intend to maintain employment agreements with its executive
officers. In addition, PCT Inc. does not currently intend to maintain key man
life insurance with respect to any of its executive officers. PCT Inc. may not
be able to successfully recruit additional personnel and any additional
personnel who are recruited may not have the requisite skills, knowledge or
experience necessary or desirable to enhance the incumbent management.
Moreover, all of PCT Inc.'s key officers will continue to be employees of The
Beal Companies. Conflicts of interest between these executives and PCT Inc. may
arise with respect to the allocation of investment opportunities between PCT
Inc. and the other clients of The Beal Companies. The directors of PCT Inc.
will evaluate and consider any investment opportunity in compliance with the
fiduciary duties they owe to the stockholders of PCT Inc. In addition, if an
investment opportunity arises when both PCT Inc. and one or more entities owned
or managed by The Beal Companies are seeking investments, such investment
opportunity will be allocated to PCT Inc. if the investment meets the following
criteria:
(1) the investment is consistent with PCT Inc.'s investment criteria then
in effect; and
(2) PCT Inc. has sufficient funds available for the investment.
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<PAGE>
Lack of Operating History as a REIT
After the consummation of the merger and the related transactions, PCT Inc.,
through the operating partnership, will continue to own and operate the
property previously owned by FYA. The executive officers of PCT Inc., as
executive officers of The Beal Companies, were involved in the management of
such property. For a description of the involvement of the executive officers
of PCT Inc. with real estate investments, generally, see "PCT INC.--Description
of Business of PCT Inc." and "--Business and Growth Strategy" beginning on page
34. However, the executive officers of PCT Inc. have no experience in managing
and operating real estate investments owned through a REIT structure. The
Federal income tax requirements for maintaining REIT status may affect the
operating policies and strategies of PCT Inc. Because PCT Inc. does not have
any operating history as a REIT, its operating policies and strategies are
untried in such structure. Therefore, as a newly organized company, PCT Inc.'s
policies and procedures are subject to change over time and may become
materially different than those described herein.
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<PAGE>
AVAILABLE INFORMATION
The Trust files annual, quarterly and special reports, proxy statements and
other information electronically with the Commission. You may read and copy any
of these reports, statements or other information that the Trust files with the
Commission at the Commission's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following Regional Offices of the Commission:
Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please
call the Commission at 1-800-SEC-0330 for further information on the Public
Reference Room. You may also obtain copies of these reports, statements and
other information at the Commission's Web Site at http://www.sec.gov.
All information contained in this proxy statement/prospectus with respect to
PCT Inc. has been supplied by PCT Inc., and all information with respect to the
Trust has been supplied by the Trust.
INFORMATION NOT INCLUDED IN PROSPECTUS/PROXY STATEMENT
This proxy statement/prospectus is part of a registration statement on Form
S-4 filed with the Commission covering the shares of common stock that PCT Inc.
will issue in connection with the merger. This proxy statement/prospectus also
constitutes the proxy statement of the Trust for the special meeting.
This proxy statement/prospectus does not contain certain information,
exhibits and undertakings contained in PCT Inc.'s registration statement. The
Trust will provide you without charge, upon your written or oral request, a
copy of any documents contained in such registration statement, but not
exhibits filed with these documents unless those exhibits are specifically
referred to. Please direct your requests for such documents to: Property
Capital Trust, 177 Milk Street, Suite 14B, Boston, MA 02109, Attention: Robert
M. Melzer, President (telephone: (617) 482-4081). The Trust will deliver such
documents by first class mail or other equally prompt means. To ensure timely
delivery of such documents, you should make requests for such documents no
later than , 1999.
You should rely only on the information contained or referred to in this
proxy statement/prospectus or any supplement. Neither the Trust nor PCT Inc.
has authorized anyone else to provide you with different or additional
information. Neither the Trust nor PCT Inc. is making an offer of PCT Inc.'s
common stock in any state where the offer is not permitted. You should not
assume that the information in this proxy statement/prospectus or any
supplement is accurate as of any date other than the date on the front of those
documents.
NOTE ON FORWARD LOOKING STATEMENTS
This document contains certain forward-looking statements with respect to,
among other things, information concerning possible or assumed future results
of operations of the Trust, PCT Inc. or the operating partnership of PCT Inc.,
the reasons for the merger and statements about the expected impact of the
merger on the Trust and PCT Inc. When we use the words "anticipate," "assume,"
"believe," "estimate," "expect," "intend" or other similar expressions in this
proxy statement/prospectus, they are generally intended to identify forward-
looking statements. You should not rely on forward-looking statements because
they involve both known and unknown risks, uncertainties and other factors that
may cause our actual results, performance or
19
<PAGE>
achievements to be materially different from any outcomes expressed or implied
by such forward-looking statements. The following factors, among others, could
affect our future results if we decide to expand and diversify PCT Inc.'s
portfolio, as to which there is no assurance, and could cause those results to
differ materially from those expressed in the forward-looking statements:
. general economic and business conditions;
. competition;
. changes in business strategy or development plans;
. availability, terms and deployment of capital;
. business abilities and judgment of personnel;
. changes in, or failure to comply with government regulations;
. the costs and other effects of legal and administrative proceedings; and
. other risks and uncertainties affecting us and our competitors
(including those that may be taken in contemplation of the merger), all
of which are difficult or impossible to predict accurately and many of
which are beyond our control.
20
<PAGE>
THE SPECIAL MEETING
This document is being furnished to you in connection with the solicitation
of proxies by or on behalf of the Trustees for use at the special meeting.
Purpose of the Special Meeting; Date, Time and Place.
The special meeting will be held at the offices of Goodwin, Procter & Hoar
LLP, Exchange Place, 2nd Floor, Boston, Massachusetts on
at 9:00 a.m., Eastern Standard Time. At the special meeting, you will be asked
to consider and vote upon a proposal to approve and adopt the merger and the
merger agreement.
Record Date; Solicitation of Proxies
The Trustees of the Trust fixed the close of business on , 1999 as
the record date for the determination of shareholders entitled to notice of,
and to vote at, the special meeting. At the record date, [9,584,220] shares
were issued and outstanding and entitled to vote at the special meeting. You
are entitled to one vote at the special meeting for each share of record you
hold on the record date.
In addition to the solicitation of proxies by use of the mails, the Trust and
its Trustees, officers and employees, who will receive no additional
compensation therefor, may also solicit proxies by telephone, facsimile
transmission and other electronic communication methods or personal interview.
The Trust will reimburse banks, brokers, custodians and other fiduciaries who
hold shares in their name or custody, or in the name of nominees for others,
for their out-of-pocket expenses incurred in forwarding copies of this document
to those persons for whom they hold such shares. The Trust will bear the costs
of the special meeting and of soliciting proxies therefor.
The Trust's proxy solicitor, Innisfree M&A Incorporated, has agreed to assist
the Trust in connection with the solicitation of proxies. Pursuant to the
Trust's agreement with Innisfree M&A Incorporated, Innisfree M&A Incorporated
will provide various proxy services for the Trust in connection with the
special meeting at a cost of approximately $7,500, plus reasonable out-of-
pocket expenses.
Any questions or requests for assistance regarding this document and related
proxy materials may be directed to Innisfree M&A Incorporated by telephone at
1-888-750-5834.
Vote Required
One-third of the outstanding shares entitled to vote as of the record date,
represented in person or by proxy, are required for a quorum at the special
meeting. The affirmative vote of holders of two-thirds of the shares
outstanding as of the record date is required for approval and adoption of the
merger and the merger agreement. If you abstain, your proxy will be counted as
present for the purpose of determining the existence of a quorum but will have
the effect of a vote against the merger.
On the record date, Trustees and executive officers of the Trust as a group,
6 persons, beneficially owned [157,035] shares of the Trust, or [1.6]% of the
total outstanding shares. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT" on page 74.
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<PAGE>
Proxies
Shares which are represented by properly executed proxies, unless such
proxies are revoked, will be voted in accordance with the instructions
indicated in such proxies. If you do not indicate contrary instructions, the
proxy appointees will vote your shares (1) "FOR" approval and adoption of the
merger and the merger agreement and (2) "FOR" a motion to adjourn or postpone
the special meeting to another time or place for the purpose of soliciting
additional proxies in favor of approval and adoption of the merger and the
merger agreement if the requisite vote is not present, in person or by proxy,
at the special meeting.
While brokers who hold shares in street name have the authority to vote on
certain items when they have not received instructions from beneficial owners,
such brokers will not be entitled to vote on the merger and the merger
agreement absent instructions. Shares held by such brokers who do not receive
instructions but which are reported as "instructions withheld" will be treated
as present, in person or by proxy, at the special meeting and counted as
present for quorum purposes. A failure by a broker to vote, however, will have
the effect of a vote against the merger and the merger agreement. It is
therefore essential that, if your shares are held by a broker, you give your
broker voting instructions.
It is not expected that any matter other than that referred to in this
document will be brought before the special meeting. If, however, other matters
are properly presented, the proxy appointees will vote in accordance with their
best judgment on such matters and consistent with the voting rights of such
shares as provided by the Trust's Declaration of Trust. At any subsequent
reconvening of the special meeting, the proxy appointees will vote all proxies
in the same manner as such proxies would have been voted at the original
convening of the special meeting, except for proxies that have been effectively
revoked prior to such reconvened meeting. The grant of a proxy will also confer
discretionary authority on the proxy appointees to vote in accordance with
their best judgment on matters incident to the conduct of the special meeting.
You may revoke a proxy at any time before it is voted by filing with the
Secretary of the Trust an instrument revoking the proxy or a duly executed
proxy bearing a later date, or by attending the special meeting and voting in
person. The last proxy executed by you will revoke all previous proxies
executed by you. Any such revocation should be sent to Property Capital Trust,
177 Milk Street, Suite 14B, Boston, MA 02109; Attention: Secretary. Attendance
at the special meeting will not by itself constitute revocation of a proxy.
The merger and the merger agreement to be considered at the special meeting
involve matters of great importance to you. Accordingly, the trustees urge you
to read and carefully consider the information presented in this proxy
statement/prospectus and the roll-up supplement. The Trustees also urge you to
complete, date, sign and promptly return the enclosed proxy card in the
accompanying prepaid envelope.
Do not send certificates with the enclosed proxy card. If the merger is
consummated, you will be furnished instructions for exchanging your
certificates.
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<PAGE>
THE MERGER
The following is a summary of the material terms of the merger. You should be
aware that this summary does not purport to be complete. This summary is
qualified in its entirety by reference to the complete text of the merger
agreement, a copy of which is included in this document as Annex A. We urge you
to review the merger agreement carefully.
Information Regarding the Parties
Property Capital Trust. The Trust was organized on June 9, 1969, and has
qualified and elected to be taxed as a REIT under the Internal Revenue Code
since its organization. In 1995, the Trustees of the Trust adopted a business
plan, which the shareholders ratified, that provided for the disposition of all
of the Trust's investments. Since that time, the Trust has been divesting
itself of its real estate investments on a property-by-property basis.
On June 17, 1998, the Trust sold its last real estate investment and the
Trustees declared a special dividend of $.80 per share payable on July 10,
1998. As a result of this sale and distribution, the Trust does not expect to
have, immediately prior to the merger any assets other than (1) approximately
$.23 per share in cash which the Trustees intend to distribute to shareholders
shortly after the merger and (2) the right to receive proceeds, if any, in
connection with an ongoing condemnation action which proceeds will be
distributed to shareholders. The distribution of approximately $.23 per share
includes a special dividend of approximately $.22 per share and a redemption of
the rights outstanding under the Trust's shareholder rights plan. These rights
are redeemable under the plan at a price of $.01 per right and each shareholder
has an equal number of shares and rights. Following its final distribution, the
Trust will have distributed approximately $13.88 per share to shareholders from
the net proceeds of the sale of all of its real estate investments pursuant to
the business plan.
Maryland Property Capital Trust, Inc. PCT Inc. was organized on June 15, 1998
as a wholly-owned subsidiary of the Trust. Pursuant to the merger agreement, if
the holders of two-thirds of the outstanding shares approve and adopt the
merger agreement, the Trust will merge into PCT Inc. and PCT Inc. will be the
surviving entity. Immediately after the merger, the corporation will change its
name to "Property Capital Trust, Inc." Following completion of the merger, PCT
Inc. will continue to elect to be treated as a REIT.
PCT Inc. does not own directly any real estate. At the present time, the PCT
Inc.'s sole asset is its general partnership interest in PCT LP. Upon
completion of the stock purchase by FYA and the partnership merger, PCT Inc.'s
sole asset will be its approximately 1% general partnership interest and
approximately 32.3% common limited partnership interest in PCT LP.
Framingham York Associates Limited Partnership. FYA was formed by The Beal
Companies, LLP, a real estate investment and management company, to hold
approximately 1.1 acres of land improved by a one story combined office and
research and development building of 17,250 square feet of rentable space.
Bruce A. Beal and Robert L. Beal are partners of The Beal Companies and are the
general partners of FYA. The limited partners of FYA include (1) current
principals and employees of The Beal Companies and (2) trusts of which Messrs.
Beal are beneficiaries. FYA also has a class of limited partners that are not
affiliated with Messrs. Beal or The Beal Companies. As part of the transactions
related to the merger, FYA will borrow $1 million in cash and use such funds to
purchase approximately 319,489 shares of newly issued PCT Inc. common stock.
PCT Inc. will contribute this cash to PCT LP, which expects to use this $1
million to pay the costs of the merger and the related transactions.
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<PAGE>
FYA will then distribute the shares of common stock to its partners based on
their pro rata percentage interests in FYA. Following such purchase and
distribution of common stock, PCT LP will merge into FYA. Thus, following the
merger and these related transactions, the partners of FYA will own common
stock of PCT Inc. and will hold limited partnership interests in PCT LP.These
partners will be entitled to a preferred return. In addition, FYA will change
its name and, while continuing to hold its single property, become the
operating partnership of PCT Inc.
Property Capital Trust Limited Partnership. PCT Inc. is the sole general
partner of PCT LP, which has no assets at the present time. As part of the
transactions related to the merger, PCT LP will merge into FYA. Pursuant to
such merger, PCT LP will cease to exist and FYA will be the surviving entity.
Immediately thereafter, FYA will change its name to "Property Capital Trust
Limited Partnership" and become the operating partnership of PCT Inc.
The Merger Consideration
Upon completion of the merger you will receive:
. one-sixtieth of a share of PCT Inc. common stock for each share you
hold, with one share of common stock to be exchanged for any fractional
interest equal to or greater than .5 and no shares of common stock or
cash issued in exchange for fractional interests of common stock less
than .5; and
. your pro rata share of the net proceeds received by the Trust in
connection with an ongoing condemnation action (a "Contingent Payment
Right").
In addition, immediately prior to the merger, the Trustees intend to declare a
special dividend of approximately $.22 per share and a redemption payment of
$.01 per right for the rights outstanding under the Trust's shareholder rights
plan.
The following sets forth several examples of the number of shares of common
stock a shareholder would receive in the merger:
<TABLE>
<CAPTION>
If you held 120,000 shares of you will receive 2,000 shares of common stock of
the Trust before the merger PCT Inc. in the merger.
- -------------------------------------------------------------------------------
<S> <C>
If you held 161,000 shares of you will receive 2,683 shares of common stock of
the Trust before the merger PCT Inc. in the merger.
- -------------------------------------------------------------------------------
If you held 299,999 shares of you will receive 5,000 shares of common stock of
the Trust before the merger PCT Inc. in the merger.
</TABLE>
Contingent Payment Right
The Contingent Payment Right represents your right to receive your pro rata
share of the net proceeds, if any, received by the Trust from the Department of
Transportation of the State of Florida as compensation for the taking of a
portion of a shopping center in Aventura, Florida in which the Trust had an
investment. The State of Florida paid the Trust approximately $325,000 as
compensation for the taking of this property. The Trust, however, has
instituted legal proceedings against the State of Florida contesting the amount
owed and is seeking an additional $1 million. Mediation between the State and
the Trust to resolve this dispute occurred in June 1998 and was
unsuccessful. A trial date has been re-scheduled for March, 1999. Any net
amounts ultimately
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<PAGE>
received by the Trust will be distributed as a Contingent Payment to holders of
the Contingent Payment Rights. No assurance can be given as to the ultimate
amount of the Contingent Payment, if any, or as to the timing of the
distribution thereof. The Trust does not expect, however, that the Contingent
Payment will exceed $.10 per share, and it could be zero.
Immediately prior to the merger, the Trust will assign all of its rights in
and to the Contingent Payment to an escrow agent and will provide such escrow
agent with a list of shareholders at the time of the merger entitled to
Contingent Payment Rights. The escrow agent will enter into an escrow agreement
with the Trust providing for the distribution of the Contingent Payment pro
rata to the shareholders holding Contingent Payment Rights upon receipt of such
funds. The Contingent Payment Rights will not be evidenced by any certificate
or other instrument, will not have voting or other rights and will not be
assignable or transferable except by operation of law. Furthermore, the
Contingent Payment Rights will not accrue or pay any dividends or interest.
Recommendation of the Board of Trustees
The Trustees unanimously have determined that the merger and the merger
agreement are advisable, fair and in the best interests of the Trust and its
shareholders. At a special meeting held on June 16, 1998 and by Consent of
Trustees in Lieu of Meeting dated as of October 16, 1998, the Trustees approved
the merger and the merger agreement, subject to the approval of the merger and
the merger agreement by PCT Inc's. Board of Directors and the shareholders of
the Trust.
The Trustees recommend that you vote "FOR" approval and adoption of the
merger and the merger agreement.
In considering the recommendation of the Trustees, you should be aware that
certain Trustees and executive officers of the Trust have an interest in
recommending the merger that may be different from, or in addition to, yours
generally. See "--Conflicts of Interest" on page 27.
Background of and Reasons for the Merger
Background of the Merger. The terms of the merger agreement are the result of
arm's-length negotiations among representatives and legal advisors of the
Trust, PCT Inc. and the other parties to the related transactions, each of
which is an affiliate of The Beal Companies, LLP. Although PCT Inc. is
currently a wholly owned subsidiary of the Trust, it was represented in such
negotiations by parties unaffiliated with the Trust. PCT Inc. is the
acquisition vehicle created by The Beal Companies exclusively in connection
with the consummation of the merger and related transactions. Simultaneously
with negotiating the terms of the merger on behalf of PCT Inc., The Beal
Companies negotiated the terms of the related transactions. The following is a
brief discussion of the factors considered by the Trustees in reaching their
decision to approve the merger and the merger agreement.
Following the adoption of the business plan at the Trust's 1995 annual
meeting, the Trust began the process of divesting itself of its real estate
investments on a property-by-property basis. Over the ensuing three years, the
Trust disposed of 27 real estate investments. The Trust utilized the net
proceeds of such sales to discharge indebtedness and pay special dividends to
its shareholders. The Trust distributed to its shareholders an aggregate amount
of $13.65 per share in special dividends from the time of approval of the
business plan by the shareholders in December 1995 through and
including July 10, 1998. These distributions exceeded the initial estimate of
$10.00 per share announced by the Trust in the Trust's 1995 proxy statement.
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<PAGE>
In the summer of 1997, management of the Trust and the Trustees began to
consider alternatives for terminating the Trust. The Trustees considered two
alternatives. Under the first alternative, the Trust would form a "liquidating
trust," transfer its remaining assets to the liquidating trust and terminate
its existence. The liquidating trust would then continue for up to three years
to ensure that all of the Trust's known and contingent liabilities were
satisfied out of the remaining cash assets contributed by the Trust.
Ultimately, the liquidating trust itself would be dissolved and its remaining
assets, after payment of liabilities of the Trust and expenses of the
liquidating trust, would be distributed. As a second alternative, management
discussed with the Trustees the possibility of the Trust's being acquired by a
real estate company that would succeed to all of its assets and liabilities.
This alternative would obviate the need for a liquidating trust and enable the
Trust to distribute all of its assets to its existing shareholders at the time
of its acquisition by such company.
In the fall of 1997, Robert Melzer, President and Chief Financial Officer and
a Trustee of the Trust began contacting persons and entities he thought might
be interested in acquiring the Trust based on their involvement in the real
estate business. As a result of these contacts, the Trust had discussions with
several parties, including representatives of The Beal Companies, regarding the
sale of the Trust. The Trust had no prior business relationship with The Beal
Companies, but believed the company might be interested in expanding its
business. The Trust entered into a letter of intent with one potential acquiror
in January 1998, but the transaction contemplated by that letter of intent was
never consummated as the parties could not reach a definitive agreement.
Thereafter, negotiations with The Beal Companies intensified and on June 16,
1998, the Trustees met and discussed the terms and provisions of the proposed
merger. At the meeting, the Trustees discussed the merits of the transaction,
including those set forth below under "--Reasons for the Merger." Following
this discussion, the Trustees present at the meeting unanimously approved the
terms of the merger agreement. On June 18, 1998, the parties finalized their
agreements and entered into the merger agreement. Thereafter, the parties
entered into amendments to the merger agreement to change in various respects
the structure of the merger and the related transactions which did not affect
the overall benefits of the merger to the shareholders.
Reasons for the Merger. In determining to approve the merger and the merger
agreement and to recommend that you approve the merger and the merger
agreement, the Trustees considered a number of factors, including the
following:
1. The merger obviates the need for a liquidating trust, which would have
delayed receipt by you of a final distribution from the Trust and would
have reduced such distribution by expenses of operating and maintaining
the liquidating trust, net of short-term investment income.
2. The Trustees will be able to distribute approximately $.23 per share,
including $.01 per share to redeem outstanding rights under the Trust's
shareholder rights plan, to you shortly after the completion of the
merger. In the absence of the merger, the liquidating trust would have
held these funds or a substantial portion thereof as a reserve.
3. The Trust's contingent liabilities will be provided for without the
establishment of a liquidating trust or the use of any of the Trust's
assets to satisfy such liabilities, if there are any.
4. The shareholders will receive the benefit, if any, of the Contingent
Payment.
Because the merger was intended by the Trust's management and Trustees to
provide a better alternative for termination of the Trust than the formation of
a liquidating trust, the merger will
26
<PAGE>
involve no meaningful risks for the shareholders and the Trustees believe there
are no negative factors to be considered.
The foregoing discussion of the information and factors considered by the
Trustees is not intended to be exhaustive, and such information and factors
were considered collectively by the Trustees in connection with their review of
the merger agreement and the related transactions. In addition, individual
Trustees may have given different weight to different factors. For a discussion
of additional factors which were considered by the Trustees, see below "--
Conflicts of Interest."
Fairness of the Merger to Shareholders
Based on the considerations described above, the Trustees determined that the
merger and the merger agreement are advisable, fair and in your best interests.
While it is true that the shareholders will receive common stock of PCT Inc.,
the Trustees did not regard this as a significant reason for the merger. The
reason is that, because of the structure of preferred partnership interests in
the operating partnership, no distributions will be paid on the common stock at
this time. The common stock will have any significant value only if PCT Inc. or
the operating partnership acquires additional assets in the future or the
existing property appreciates in value. The amount of such value of the common
stock can be affected by the future issuance of common or preferred interests
in the operating partnership or equity securities of PCT Inc. Accordingly, the
Trustees considered the common stock to have no present value.
Conflicts of Interest
You should be aware that certain Trustees and executive officers of the Trust
have interests in the merger that may be different from, or in addition to,
yours generally.
Under the merger agreement, the Trust and PCT Inc. have agreed that the
charter documents of PCT Inc. and the partnership agreement of the operating
partnership will contain provisions no less favorable with respect to
indemnification of Trustees, officers, agents, employees and shareholders (in
connection with the affairs of the Trust) than those set forth in the Trust's
Declaration of Trust as in effect on the date of the merger agreement. Further,
the Trust and PCT Inc. have agreed that they will not amend, repeal or
otherwise modify such provisions for a period of six years from the merger in
any manner that would adversely affect the rights thereunder of individuals who
at or prior to the merger were Trustees, officers, agents, employees or
shareholders of the Trust, unless such modification is required by law.
In addition, PCT Inc. will keep in effect directors' and officers' liability
insurance coverage for the Trust's Trustees and officers that provides such
Trustees and officers with tail or other coverage for six years from the
merger. Such coverage will have terms not substantially less favorable to the
insured persons than the coverage presently maintained by the Trust.
Mr. Melzer, President of the Trust and a Trustee, has certain interests in
the outcome of the merger in addition to those of other Shareholders. The
merger agreement designates Mr. Melzer as the holders' representative to act on
your behalf in all matters relating to the Contingent Payment Rights. As the
holders' representative, Mr. Melzer will be entitled to receive payment for his
services and reimbursement of all expenses incurred in connection with the
performance of his duties. Such amounts will be deducted from the Contingent
Payment. Further, PCT Inc. has agreed to indemnify Mr. Melzer for all loss,
expense or liability arising out of or in connection with the distribution of
the Contingent Payment Rights and the performance of his duties as the holders'
representative. As a
result, Mr. Melzer will bear no personal liability for his actions as the
holders' representative. All
27
<PAGE>
decisions and actions by the holders' representative will be binding upon all
of the shareholders and no shareholder will have the right to object, dissent,
protest or otherwise contest the same. You will not have any cause of action
against PCT Inc. for any actions taken by PCT Inc. in reliance upon the
instructions or decisions of the holders' representative.
Mr. Melzer has also entered into a Termination Agreement with the Trust which
will terminate upon the merger. Pursuant to the terms of such agreement, Mr.
Melzer will receive one year's salary from the Trust upon completion of the
merger.
No other Trustee or officer of the Trust will receive any other payment or
compensation as a result of the merger or the related transactions.
Listing of Shares
As a result of the disposition of all of the Trust's real estate investments,
the American Stock Exchange halted trading in the shares at the close of
business on July 10, 1998 and subsequently delisted the shares on October 29,
1998. The Trust is now traded on the over-the-counter Bulletin Board (symbol
"PCTG"). PCT Inc. intends to continue to be traded on the Bulletin Board, but
does not intend to be listed on the American Stock Exchange in the near future.
Regulatory Approvals
Other than the Commission's review of this proxy statement/prospectus and the
filing of the Articles of Merger with the State of Maryland and with The
Commonwealth of Massachusetts, neither the Trust nor PCT Inc. believes that any
filing with or approval of any governmental authority is necessary in
connection with the consummation of the merger.
Related Transactions
The following describes a series of related transactions that will be
completed immediately following the merger:
1. Simultaneously with the execution of the merger agreement, the Trust, PCT
Inc. and FYA executed an Investment Agreement, dated June 18, 1998, as amended.
Under the terms of this agreement, immediately following the merger, FYA will
contribute $1 million in cash, which FYA will borrow, to PCT Inc. in exchange
for approximately 319,489 shares of newly issued common stock of PCT Inc.
Immediately thereafter, FYA will distribute the common stock to its partners
based on their pro rata percentage interests in FYA. As a result, the partners
of FYA will own approximately 66.7% of the outstanding shares of PCT Inc.
common stock. Following the merger, the shareholders of the Trust will own the
remainder of the outstanding shares of common stock.
The loan and purchase of stock will allow FYA to acquire a majority position
in PCT Inc. and will simultaneously fund the corporation with sufficient cash
to pay the organizational expenses estimated at approximately $1 million.
2. PCT Inc. will contribute this $1 million to the operating partnership in
exchange for 319,489 common units. PCT Inc., in its capacity as general partner
of the operating partnership, expects to use this $1 million to pay the costs
of the merger and the related transactions.
28
<PAGE>
3. PCT LP, pursuant to a Contribution and Merger Agreement, dated October 16,
1998, as amended, by and between FYA and PCT LP, will merge into FYA.
Immediately thereafter, FYA will change its name to "Property Capital Trust
Limited Partnership" and become the operating partnership. PCT Inc. through its
pre-merger interest in PCT LP will own approximately a 32.3% common limited
partnership interest in the operating partnership, and will serve as the
general partner of the operating partnership with a 1% general partnership
interest. The estimated fair market value of the assets of the operating
partnership immediately after to the consummation of the related transactions
will be approximately $4 million. None of the assets of the operating
partnership or PCT Inc. were owned by the Trust prior to the merger.
The completion of the merger is subject to the compliance of all parties with
the investment agreement and partnership merger agreement. FYA benefits from
these related transactions by creating a vehicle through which it may, in the
future, attract new capital or acquire additional properties and the Trust is
able to make an immediate distribution of its remaining assets to the
shareholders. In addition, the present shareholders of the Trust will have a
minority interest in PCT Inc., which will have a minority interest in the
operating partnership which is, subject to preferred partnership interests in
the operating partnership. See "PCT INC.--The Operating Partnership" on page
38.
Accounting Treatment
As a result of the merger and the related transactions the partners of FYA
will own 66.7% of the common stock of PCT Inc. and certain partners of FYA will
control the Board of Directors. In addition, PCT Inc. will be the sole general
partner of the operating partnership. As such, for financial reporting
purposes, the merger and related transactions will be accounted for as a
reverse acquisition of PCT Inc. and the Trust by FYA.
Dissenters' Rights
You are not entitled to dissenters' rights of appraisal or other dissenters'
rights under either Massachusetts law or Maryland law with respect to the
merger or any transactions contemplated thereby.
Cancellation of the Trust's Shares
If the merger is completed, you will no longer have an equity interest in the
Trust. Instead, you will have the right to receive the merger consideration
described in "--The Merger Consideration" above, and you will have a minority
interest in PCT Inc., which has a minority interest in the operating
partnership.
As a result of the merger, all shares of the Trust will cease to be
outstanding, and will be canceled and retired. You will cease to have any
rights with respect to such shares except the right to receive the merger
consideration.
29
<PAGE>
THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement, a
copy of which is attached hereto as Annex A. The summary of the merger
agreement contained herein is not a complete description of the terms and
conditions thereof and is qualified in its entirety by reference to the merger
agreement. We urge you to review the merger agreement carefully.
The Trust and PCT Inc. have entered into the merger agreement which provides,
among other things, for the following:
. the merger consideration to be paid to the Trust's shareholders;
. the procedures for exchanging Trust shares for shares of common stock of
PCT Inc.;
. when and how the merger will occur;
. conditions that must be met for the merger to occur;
. the termination of the merger agreement under certain conditions;
. fees and expenses that must be paid by one party to the other upon such
termination;
. exculpation and indemnification of directors and officers of the Trust;
and
. governance and management of PCT Inc.
Each of these provisions is discussed in further detail below.
Consideration to be Paid in the Merger
Immediately prior to the merger, the Trustees will declare and authorize the
payment to you of a special dividend in the amount of approximately $.22 per
share and the redemption price of $.01 per share. You will receive this
distribution shortly after the completion of the Merger.
Upon completion of the merger, you will receive: (1) one-sixtieth of a share
of PCT Inc. common stock for each share you own; and (2) a Contingent Payment
Right. PCT Inc. will not issue any fractional shares of common stock or cash in
lieu of the issuance of fractional shares. Rather, PCT Inc. will issue one
share of common stock in exchange for fractional interest equal to or greater
that .5.
Exchange of Share Certificates
After the merger, PCT Inc. will deposit with the exchange agent the
certificates representing the shares of common stock and detailed instructions
with regard to the surrender of your Trust share certificates, along with a
letter of transmittal, a description of the escrow agreement relating to the
Contingent Payment Right and any other required documents, will be sent to you
by the exchange agent. The common stock will be delivered to you as promptly as
practicable following receipt by the exchange agent of your share certificates
and all other required documents. Any dividends or other distributions on the
common stock will also be paid upon the surrender of your share certificates.
You will be entitled to receive the Contingent Payment upon completion of the
pending condemnation proceeding with the State of Florida.
Effective Time of the Merger
The merger will occur upon the filing of Articles of Merger with the State
Department of Assessments and Taxation of Maryland and the Secretary of the
Commonwealth of The Commonwealth of Massachusetts.
30
<PAGE>
Conditions to the Merger
The respective obligations of each party to effect the merger are subject to
the satisfaction or waiver of the following conditions:
1. the approval of the merger agreement by the shareholders;
2. the approval of the merger agreement by the Trust as the sole
stockholder of PCT Inc.
3. the satisfaction of any obligations of the Trust pursuant to bonus
plans, compensation plans, and other employee benefit plans; and
4. the satisfaction of any out-of-pocket expenses incurred by the Trust in
connection with the merger or the related transactions other than those
expenses reimbursable under the investment agreement with FYA.
It is the intention of the Trustees to cause the conditions set forth in
items 2, 3 and 4 above to be satisfied to the extent that they have not already
been satisfied. In the event any material condition to the completion of the
merger is waived, we will resolicit your vote on the merger as required by
applicable state or federal securities laws.
Termination
PCT Inc. and the Trust may terminate the merger agreement by mutual written
consent at any time prior to the merger. In addition, the merger agreement
terminates upon the termination of the investment agreement with FYA. Upon the
termination of the merger agreement, neither party will have any further rights
or obligations pursuant to the merger agreement other than with respect to the
payment or retention of certain sums of money as described in "--Fees and
Expenses" below. If the merger agreement is terminated and the merger does not
occur, the related transactions will not be completed.
Fees and Expenses
Except as provided in the investment agreement with FYA, whether or not the
merger is completed, all costs and expenses incurred in connection with the
merger agreement and the related transactions will be paid by the party
incurring such costs or expenses. Pursuant to the terms of the investment
agreement, The Beal Companies, LLP paid the Trust an aggregate of $350,000 as a
deposit toward possible liquidated damages that may come due to the Trust. The
deposit includes amounts for reasonable legal and accounting expenses incurred
by the Trust in connection with preparing and filing the Trust's quarterly and
annual reports and financial statements with the Commission in the amount of
$40,000 and an amount equal to $9,000 per month for the period from October 1,
1998 to the closing of the merger on account of the Trust's expenses. In
addition, The Beal Companies has agreed to pay the legal fees of the Trust in
connection with the merger up to $150,000.
31
<PAGE>
The parties may terminate the investment agreement with FYA under the
following circumstances and with the payment of the following termination fees,
which, may under certain circumstances, include a liquidation fee:
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------
Circumstances of Termination Termination Fee
- ----------------------------------------------------------------------------
by mutual written consent of the the parties shall agree as to the
Trust, PTC Inc. and FYA use of the deposit
- ----------------------------------------------------------------------------
the Trust may terminate if the the Trust retains the entire
Commission has not cleared this deposit
proxy statement/
prospectus by March 8, 1999
- ----------------------------------------------------------------------------
FYA may terminate if the the Trust must return to The Beal
shareholders have not approved the Companies the deposit minus (x) the
merger and the merger agreement by sum of $40,000, the approximate
the 90th day after the Trust mails cost of legal and accounting
this document to you services for preparing the Trust's
third quarter Form 10-Q, Form 10-K
and 1998 certified financial
statements and (y) an amount equal
to $9,000 per month, prorated on a
daily basis, for each month that
elapses between October 1, 1998 and
the effective date of termination
- ----------------------------------------------------------------------------
the Trust may terminate if (i) the the Trust retains the entire
Trust has satisfied its conditions deposit
to the closing of the transactions
and (ii) FYA has failed to
consummate the related transactions
by the end of the fourth (4th)
business day after the issuance of
the common stock and the
shareholders have approved the
merger agreement
- ----------------------------------------------------------------------------
FYA may terminate if (1) the Trust the Trust must return to The Beal
fails to satisfy its conditions to Companies the deposit minus (x) the
closing the transactions by the end sum of $40,000, the approximate
of the 4th business day after the cost of legal and accounting
issuance of the common stock and services for preparing the Trust's
the shareholders have approved the third quarter Form 10-Q, Form 10-K
merger agreement, (2) FYA has and 1998 certified financial
satisfied its conditions to closing statements and (y) an amount equal
the transaction and the Trust has to $9,000 per month, prorated on a
failed to consummate the related daily basis, for each month that
transactions by the end of the 4th elapses between October 1, 1998 and
business day after the issuance of the effective date of termination,
the common stock and the plus the Trust must pay FYA an
shareholders have approved the additional $250,000
merger agreement or (3) the Trust
has failed to comply in good faith
with its covenants and agreements
- ----------------------------------------------------------------------------
</TABLE>
The Trust will bear the costs of the special meeting and of soliciting
proxies. The Trust will reimburse banks, brokers, custodians and other
fiduciaries who hold shares in their name or custody, or in the name of
nominees for others, for their out-of-pocket expenses incurred in forwarding
copies
32
<PAGE>
of the proxy materials to those persons for whom they hold such shares. The
Trust has engaged Innisfree M&A Incorporated to assist it in the solicitation
of proxies and to provide various proxy services for the Trust in connection
with the special meeting at a cost of approximately $7,500 plus reasonable out-
of-pocket expenses.
Exculpation
Pursuant to the merger agreement, the Trust and PCT Inc. have agreed that the
obligations of the Trust under the merger agreement and in connection with the
related transactions do not and will not constitute personal obligations of the
Trustees, officers, employees or shareholders of the Trust and will not involve
any claim against or personal liability on the part of any of them. The Trust
and the corporation have agreed to look only to the assets of the Trust in
respect of any such claim or obligation and not to seek recourse against the
Trustees, officers, employees or shareholders for satisfaction of any such
claim or obligation.
Indemnification
Pursuant to the merger agreement, the Trust and PCT Inc. have agreed that the
charter documents of PCT Inc. and the partnership agreement of the operating
partnership will provide for the indemnification of the Trustees, officers,
agents, employees and shareholders of the Trust for a period of six years from
the date of the merger. Such indemnification shall be no less favorable than
the indemnification provided those persons under the Declaration of Trust of
the Trust as in effect on the date of the merger agreement. PCT Inc. shall also
provide liability insurance coverage for the Trust's Trustees and officers for
a period of six years from the merger.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for Trustees, directors, officers or persons controlling the
Trust pursuant to the foregoing provisions, the Trust has been informed that in
the opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act, and is therefore unenforceable.
Articles of Incorporation and Bylaws
The Articles of Incorporation and the By-laws of PCT Inc. in effect
immediately prior to the merger, will continue as the Articles of Incorporation
and the By-laws of the surviving entity until duly amended in accordance with
applicable law.
Management after the Merger
The current management of PCT Inc. will remain unchanged following the
merger. See " PCT INC.--Board of Directors," and "--Officers" on page 36.
33
<PAGE>
PCT INC.
Description of Business of PCT Inc.
PCT Inc. is a recently-formed Maryland corporation and, currently, is wholly-
owned by the Trust. After the merger, PCT Inc. will continue to elect to be
taxed as a REIT under the Internal Revenue Code. The operating partnership is a
recently-formed Massachusetts limited partnership. PCT Inc. is the sole general
partner of the operating partnership. PCT Inc. does not own directly any real
estate, has not had any operations prior to the date of this document and has
no material net worth or assets. After the merger and the transactions related
to the merger, PCT Inc.'s sole asset will be its approximate 1% general
partnership interest and approximate 32.3% common limited partnership interest
in the operating partnership. After the merger, PCT Inc. intends to make
regular annual and quarterly reports to its stockholders as required by the
Exchange Act. The policies of PCT Inc. with respect to its business or growth
strategies described herein may be altered or changed without stockholder
approval.
PCT Inc. initially will rely heavily on the services of The Beal Companies,
Beal & Company and Bruce A. Beal, Robert L. Beal and Michael A. Manzo,
executive officers of The Beal Companies, to manage its business. The Beal
Companies, founded in 1888, is a privately held real estate company located in
Boston, Massachusetts. It provides a full compliment of real estate services,
including development, property management, consulting, appraisal, assessment,
brokerage and construction services. The Beal Companies and its principals
currently control and/or manage a $250 million portfolio of commercial and
residential real estate, which they have either developed or acquired. Bruce A.
Beal, Robert L. Beal and Michael A. Manzo, who are officers and directors of
PCT Inc., will continue as principals and officers of The Beal Companies. In
time, as PCT Inc. increases in size and financial strength, PCT Inc.
anticipates that it will hire additional personnel to assist these individuals.
Conflicts of interests between these individuals, in their dual capacities as
officers and directors of PCT Inc. and executive officers of The Beal
Companies, may arise with respect to investment opportunities. For a detailed
description of this risk, see "RISK FACTORS--Dependence on The Beal Companies,
LLP" on page 17.
Business and Growth Strategy
PCT Inc. initially will rely on the experience and knowledge of its officers
and directors to manage its growth, if any. PCT Inc. believes that its
executive officers have long-standing relationships with institutional owners,
lenders, bankers and other real estate operators and developers which PCT Inc.
anticipates may provide PCT Inc. with access to transaction activity and
investment opportunities. Bruce A. Beal and Robert L. Beal have been active in
the field of real estate since 1959 and 1965, respectively. Each has had
extensive involvement in all phases of real estate development and financing,
consulting and management. Michael A. Manzo has supervised new construction and
rehabilitation projects and directed the acquisition, development, financing
and leasing of office and other commercial properties. This operating
experience provides a unique perspective that PCT Inc. expects to be
particularly valuable as the real estate cycle changes. In addition to the
experience gained by the executive officers as senior management of The Beal
Companies, the executive officers have been active in the development,
acquisition and management of a broad spectrum of property types, including
apartment, office, retail and mixed-use projects. For a more detailed
description of the background of each executive officer of PCT Inc., see "--
Board of Directors" on page 36.
34
<PAGE>
PCT Inc. anticipates that it will position itself to produce income and
portfolio growth as the capital markets recover from the current downturn that
began in mid-1998 and as funding for real estate activities becomes more
readily available. Until PCT Inc. is satisfied that the financial markets are
sufficiently stabilized to allow growth of PCT Inc., the operating partnership
will be operated with the existing single property and with all operating
expenses maintained at the lowest levels, consistent with regulatory
requirements and other needs. Given appropriate market conditions, PCT Inc.
intends to pursue growth of PCT Inc. through a combination of the following:
. the acquisition of existing properties;
. the development of new properties;
. the active management of existing properties owned by PCT Inc. to improve
profitability;
. the addition of new equity capital; and
. the acquisition of or merger with other real estate companies.
In addition, PCT Inc. may seek to obtain a credit facility to provide funding
to acquire or develop additional properties. PCT Inc. believes it can also
pursue growth through the active management of assets of PCT Inc. as well as
the redevelopment of some acquired assets for more advantageous uses. The
ability to reposition these assets will be an important aspect of PCT Inc.'s
acquisition criteria. In conjunction with raising new funding and enlarging its
portfolio, PCT Inc. anticipates that it will increase its personnel as
appropriate to expanded operations. In time, management expects that PCT Inc.
will provide its own property management services, in-house acquisition staff
and accounting personnel. However, there is no assurance that such growth
activities will occur or that PCT Inc. will experience any growth in the
future.
Given appropriate market conditions, PCT Inc. believes that its REIT
structure will allow PCT Inc. to make tax efficient acquisitions through the
issuance of units of partnership interest of the operating partnership. PCT
Inc. also may issue equity securities of PCT Inc. that may be senior to the
shares of common stock of PCT Inc. to be issued in the merger. Under the
Articles of Incorporation of PCT Inc., the Board of Directors is authorized to
issue preferred stock of PCT Inc., without stockholder approval. Currently, PCT
Inc. does not have any plans to reacquire shares of its common stock, engage in
investments in real estate mortgages, acquire securities of other REITs or make
investments in any other type of securities.
PCT Inc. anticipates that it will seek to acquire high quality, competitively
priced properties, such as office buildings, apartment buildings or other
commercial properties, in markets that seem to be attractive growth areas.
Initially, PCT Inc. intends to focus on the New England market, including the
metropolitan areas of Boston, Massachusetts, Providence, Rhode Island, and
Hartford, Connecticut. In the future, PCT Inc. intends to evaluate the merits
of expanding its activities to other geographic areas and will depend on PCT
Inc.'s principals, each of whom have had over 25 years of experience in
developing commercial and residential property in the Boston and surrounding
areas, to make such strategic decisions. PCT Inc. intends that management will
pursue development opportunities based on these individuals' knowledge of the
local New England real estate markets and at a time when capital to develop
real estate properties is available at a cost which, in the opinion of
management, allows PCT Inc. to earn a sufficient return to justify the risk of
development. However, there is no assurance that PCT Inc. will be able to
capitalize on any such development and acquisition opportunities or that PCT
Inc. will experience any growth in the future.
35
<PAGE>
Board of Directors
PCT Inc. initially intends to be governed by a three-member Board of
Directors, all of whom will be officers of PCT Inc. and officers and principals
of The Beal Companies. PCT Inc.'s Articles of Incorporation provide for a
classified Board of Directors. Among other things, a classified Board of
Directors may have an anti-takeover effect. For a detailed description of these
provisions, see "DESCRIPTION OF THE CAPITAL STOCK OF PCT INC.--Restrictions on
Transfers of Capital Stock," and "--Anti-Takeover Provisions" beginning on page
50. Each of the directors will serve for terms expiring at the annual meeting
of stockholders in the year indicated below. The directors of PCT Inc. at and
as of the effective time of the merger will be:
<TABLE>
<S> <C> <C>
Class I Class II Class III
1999 2000 2001
Bruce A. Beal Robert L. Beal Michael A. Manzo
</TABLE>
Bruce A. Beal is a partner of The Beal Companies, is Chairman of Beal &
Company, Inc. and has served as a director and the President of PCT Inc. since
its formation. He has been active in the field of real estate and with The Beal
Companies since 1959. Mr. Beal has had extensive involvement in all phases of
real estate development and financing, consulting and appraising and
management. Mr. Beal is actively involved in directing the development and
acquisition activities of The Beal Companies and will perform similar tasks for
PCT Inc. In addition, Mr. Beal serves as a director of Americas Dredging
Company, Tweedy Browne Global Funds and Tweedy Brown American Fund.
Robert L. Beal is a partner of The Beal Companies, is President of Beal &
Company, Inc. and has served as a director and the Secretary of PCT Inc. since
its formation. Prior to 1976, when he joined The Beal Companies, he was Vice
President of The Beacon Companies, investment-builders. He joined The Beacon
Companies in 1965 upon receiving an MBA from The Harvard School of Business
Administration. Mr. Beal serves as a consultant to various private and publicly
held corporations, foreign investors and leading institutions and is actively
involved in developing and appraising real estate of all types. He will provide
similar services to PCT Inc.
Michael A. Manzo is a partner of The Beal Companies, is Senior Vice President
of Beal & Company, Inc. and has served as a director and Treasurer of PCT Inc.
since its formation. He provides supervision of new construction and
rehabilitation, project and acquisition feasibility analysis and arranges
mortgage placements for clients of The Beal Companies. Mr. Manzo will provide
similar services for PCT Inc. Prior to joining The Beal Companies in 1975, Mr.
Manzo was the Vice President for Commercial Operations with Spaulding and Slye
Corporation, a national real estate firm based in Boston.
Officers
The officers of PCT Inc. at the time of the merger will be:
Bruce A. Beal, President
Michael A. Manzo, Treasurer
Robert L. Beal, Secretary
Executive Compensation
PCT Inc. anticipates that the officers and directors of PCT Inc. will receive
nominal salaries and fees in exchange for their services to PCT Inc. so that
PCT Inc.'s expenses may be maintained at a
36
<PAGE>
level not to exceed the cash flow from its start-up portfolio. However, if the
portfolio holdings of PCT Inc. increase, then PCT Inc. intends to reevaluate
and, potentially, restructure the compensation to its officers and directors.
Description of Property
General Description. Initially, the sole real estate asset of the operating
partnership will be the property located at 51 New York Avenue, Framingham,
Massachusetts. Beal & Company will be the manager of this property. This
property consists of approximately 1.1 acres of land improved by a one story
combined office and research and development building of 17,250 square feet of
rentable space. The building was originally constructed in 1969. FYA originally
acquired this property in 1985 and, has since such time, been the fee simple
owner of the property. FYA undertook a major renovation of the building over
the two years following its acquisition. This property has been fully occupied
for each of the last five years.
Upon completion of the merger of PCT LP into FYA, competitive office and
research and development space in the Framingham area could adversely affect
the operating partnership's ability to release this property to the existing
tenant or a new tenant. After the merger, the operating partnership intends to
maintain comprehensive insurance on the property, including liability, fire and
extended coverage. However, there are certain losses, generally of a
catastrophic nature, that may be uninsurable or not economically insurable. For
a detailed description of these risks, see "RISK FACTORS--Other Office and
Research and Development Properties May Compete with PCT Inc." and "--Uninsured
and Underinsured Losses May Impact Results of Operating Partnership" on
page 13.
Leasing. The building on this property is currently leased to one tenant,
Genzyme Corporation, a biotechnology company, for a term which expires in
September 2005. The tenant has two options to extend the lease for an
additional term of five years each. The current annual rent is $357,000 ($20.70
per square foot). If the tenant exercises the extension options, then annual
base rent would be subject to escalation based on formulas summarized as
follows:
<TABLE>
<CAPTION>
Period Annual Base Rent
- ---------------------------------------------------------------------------------------
<S> <C>
October 2000 through September 2003 $357,000
- ---------------------------------------------------------------------------------------
October 2003 through September 2005 greater of $357,000 or $357,000 adjusted by
an inflation index
- ---------------------------------------------------------------------------------------
October 2005 through September 2010 appraised fair market rent, but not less
than rent for previous year
- ---------------------------------------------------------------------------------------
October 2010 through September 2015 appraised fair market rent, but not less
than rent for previous year
</TABLE>
The tenant is responsible for payment of operating expenses including real
estate taxes, which will be approximately $42,876 for fiscal year 1999,
property and casualty insurance, and all maintenance expenses. These
maintenance expenses include structural, mechanical systems and capital
improvements. During the last three years of the term of the lease, the
responsibility for capital improvements and replacements shifts to the
landlord.
Financing. In connection with the purchase of the common stock of PCT Inc. by
FYA, immediately prior to the merger of PCT LP into FYA, FYA will place a
mortgage financing of $1.0 million on this property. FYA anticipates that the
debt will have a term of three years, will bear interest at LIBOR rate plus two
percent and will be collateralized by the property. FYA will
37
<PAGE>
contribute the proceeds of this debt to PCT Inc. in exchange for shares of
common stock. For a more detailed description of this purchase of common stock
by FYA, see "THE MERGER--Related Transactions" on page 28.
Tax Basis of Real Property. As of December 31, 1997, FYA's adjusted tax basis
of depreciable real property at 51 New York Avenue for federal income tax
purposes was $1,235,600 and $402,114 for the building located on this property
and tenant improvements, respectively. Depreciation is computed on the
straight-line method over the estimated life of the real property, which is 19
years. For the tax year ending June 30, 1999, this property will be taxed at a
rate equal to $32.48 per $100 of assessed value, resulting in a total tax for
such period equal to approximately $42,876. Currently, the tenant is
responsible for making such tax payment.
Legal Proceedings
PCT Inc. is not currently involved in any legal proceedings.
Quantitative and Qualitative Disclosures about Market Risk
None.
The Operating Partnership
Management. PCT Inc. will be the sole general partner of the operating
partnership. Initially, Beal & Company will provide property management
services to the operating partnership. For a detailed description of the
management agreement to be entered into with Beal & Company, see "--Management
Agreement" below. However, in time, if the operating partnership experiences
any growth, PCT Inc. anticipates that the operating partnership will become a
self-managed real estate operating company. That is, the operating partnership
will not pay management, leasing and disposition fees, other than potentially
commission fees, to a third party, but will use the efforts of the executive
officers of PCT Inc. to manage its real estate investments. For a description
of the business of PCT Inc. and its growth strategies, see "--Description of
Business of PCT Inc.," and "--Business and Growth Strategy" on page 34.
Management Agreement. The operating partnership expects to execute
simultaneously with the consummation of the transactions related to the merger
a property management agreement with Beal & Company. The operating partnership
anticipates that the terms of such management agreement will be substantially
as follows.
Beal & Company will operate, maintain and manage the property located at 51
New York Avenue, Framingham, Massachusetts, after completion of the
transactions related to the merger. In exchange, the operating partnership will
pay Beal & Company a management fee equal to three percent (3%) of gross
receipts. Except for expenses specifically excluded, such as sales taxes, real
estate tax refunds and advertising charges paid by the tenant, gross receipts
includes any payments actually received from the tenant in connection with its
use or occupation of the property, including common area maintenance charges
and reimbursement charges. In addition, Beal & Company will be entitled to
receive a leasing fee equal to the following:
.5% of the annual base rent for the first year of the lease term;
.4% of the annual base rent for each of the second and third years of the
lease term;
.3% of the annual base rent for the fourth year of the lease term;
38
<PAGE>
.2% of the annual base rent for the fifth year of the lease term; and
.1.5% of the annual base rent for any balance of the term up to a maximum
of 10 years.
This leasing fee will be due at the time a new lease or an extension of an
existing lease with the tenant of the property is executed. Furthermore, the
operating partnership may reimburse Beal & Company for certain expenses,
including, without limitation, fees of accountants, legal counsel and data
processing. The operating partnership anticipates that Beal & Company will
provide accounting services on an as needed basis. Beal & Company will charge
the operating partnership an hourly rate determined by Beal & Company, which
will be based on its customary hourly rate plus the proportionate cost that
Beal & Company incurs in employing the personnel providing such accounting
services.
The Operating Partnership will have the right to terminate the management
agreement with or without cause by giving Beal & Company at least thirty (30)
days prior written notice. Beal & Company will have the right to terminate the
management agreement with or without cause with at least sixty (60) days prior
written notice.
Issuance of Units. In connection with the merger of PCT LP into FYA partners
of FYA, which include (1) Bruce A. Beal, Robert L. Beal, Michael A. Manzo,
Peter B. Nichols, each of whom is a principal or an employee of The Beal
Companies, (2) trusts of which Robert or Bruce Beal are beneficiaries and (3)
16 private investors, will receive, in exchange for their partnership interests
in FYA, a partnership interest in the operating partnership. Partnership
interests in the operating partnership will be in the form of units, but will
not be evidenced by certificates representing such units. The Operating
Partnership will issue three types of units:
. Class A Preferred Units. The Class A preferred units will be non-
convertible, non-participating, cumulative, redeemable units. These units
have been allocated to the 16 private investors who are currently partners
of FYA. This allocation was designed to maintain the basic economic rights
of these private investors in the current structure of FYA after the
completion of the merger of PCT LP into FYA. With respect to cash from
operations, the holders of these units will first receive all cash from
operations out of the operating partnership until such holders receive an
aggregate of $146,544 per year. If distributions do not equal such amount,
the difference will be carried over until the following year. No other unit
holders will receive any distributions until the holders of the Class A
preferred units have received their preferred distributions, including any
carry-over. In addition, if the rental income from the property is less
than $357,000 per year, then the operating partnership will decrease
distributions to the holders of the Class A preferred units in proportion
to the amount by which the rental income actually received from the
property is less than $357,000. Upon a liquidation or sale of PCT Inc. or
the operating partnership, the holders of the Class A preferred units will
receive, after payment and discharge of all debts and liabilities to the
creditors, the general partner and the other partners of the operating
partnership, from the proceeds of such liquidation or sale an aggregate of
$2,596,125. This amount represents the preference amount of the holders of
Class A preferred units based on the value of the property at the time of
the transactions related to the merger of PCT LP into FYA. The Class A
preferred units will be redeemable at any time by the operating partnership
at a price equal to the liquidation preference plus any unpaid priority
distributions.
. Class B Preferred Units. Class B preferred units will also be non-
convertible, non-participating, cumulative, redeemable Units. These units
have been allocated to (1) Bruce A. Beal, Robert L. Beal, Michael A. Manzo,
Peter B. Nichols, each of whom is a principal or an
39
<PAGE>
employee of The Beal Companies, and (2) trusts of which Robert or Bruce
Beal are beneficiaries. This allocation was designed to maintain the basic
economic rights of these persons or trusts in the current structure of FYA
after the completion of the merger of PCT LP into FYA. Once the holders of
the Class A preferred units have received their preferred distributions,
the holders of the Class B preferred units will receive cash from
operations out of the operating partnership until such holders receive an
aggregate of $143,456 per year. In addition, if the rental income from the
property is less than $357,000 per year, then the operating partnership
will decrease distributions to the holders of the Class B preferred units
in proportion to the amount by which the rental income actually received
from the property is less than $357,000. Upon a liquidation or sale of PCT
Inc. or the operating partnership, once the holders of the Class A
preferred units have received their preferred distributions, the holders of
the Class B preferred units will receive from the proceeds of such
liquidation or sale an aggregate of $403,875. This amount represents the
preference amount of the holders of the Class B Preferred units based on
the value of the property at the time of the transactions related to the
merger of PCT LP into FYA. The Class B preferred units will be redeemable
at any time by the operating partnership at a price equal to the
liquidation preference plus any unpaid priority distributions; provided,
however, that unless all of the Class A preferred units have been redeemed,
no Class B preferred units may be redeemed.
. Common Units. Upon the merger of PCT LP into FYA, all the partners of
FYA will receive common units based on their percentage interests in FYA.
In addition, PCT Inc. will contribute to the operating partnership the $1
million in cash it receives from FYA in exchange for common units. Only
after the holders of both the Class A and Class B preferred units have
received their preferred distributions will the common unit holders,
including PCT Inc., receive distributions out of cash flow from operations.
In addition, only after the holders of both the Class A and Class B
preferred units receive their preferred distributions, will the holders of
common units, including PCT Inc., receive any distributions upon the
liquidation or sale of PCT Inc. or the operating partnership. Twelve months
after the closing of the transactions related to the merger of the Trust
into PCT Inc., the operating partnership may be obligated to redeem each
common unit at the request of the holder thereof. For a description of this
obligation, see "--The Partnership Agreement of the Operating Partnership--
Redemption of Common Units" below.
Assets and Liabilities. Upon completion of the related transactions the
assets and liabilities of the operating partnership will be as follows:
(1) The assets: 51 New York Avenue, Framingham, Massachusetts, which has
been valued at $4 million.
(2) The liabilities: $1 million mortgage debt, which FYA will use to
purchase shares of common stock of PCT Inc.
(3) The equity: the value of the assets--$4 million--minus the value of the
liabilities--$1 million.
The Partnership Agreement of the Operating Partnership
Management; Exculpation; Indemnification. PCT Inc. will have the sole right
to manage the operating partnership and the limited partners of the operating
partnership will not have any rights with respect to the management of the
operating partnership. The partnership agreement will generally provide that
PCT Inc. will incur no liability to the operating partnership or any limited
partner of the operating partnership for losses sustained or liabilities
incurred as a result of errors in
40
<PAGE>
judgment or of any act or omission if PCT Inc. carried out its duties in good
faith. The partnership agreement will contain an express acknowledgment by the
limited partners of the operating partnership that PCT Inc. will be under no
obligation to consider the separate interests of such limited partners in
connection with its decisions, provided that PCT Inc. has acted in good faith.
The partnership agreement will also provide for indemnification of PCT Inc.,
the directors and officers of PCT Inc.
Redemption of Common Units. Twelve months after the merger of the Trust into
PCT Inc., the operating partnership may be obligated to redeem each issued
common unit at the request of the holder thereof for cash equal to the fair
market value of one share of common stock of PCT Inc. at the time of such
redemption. For purposes of this redemption, the fair market value of one share
of common stock of PCT Inc. will be equal to the average of the daily market
price for the 10 consecutive trading days immediately preceding the date on
which the operating partnership receives notice of election of redemption by
the holder of common units. The market price for each such trading day shall be
calculated as follows:
. if the shares of common stock are not listed or admitted to trading on
any securities exchange, the last reported sale price on such day or, if no
sale takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reliable quotation source designated
by PCT Inc.; or
. if the shares of common stock are not listed or admitted to trading on
any securities exchange and no such last reported sale price or closing bid
and asked prices are available, the average of the reported high bid and
low asked prices on such day, as reported by a reliable quotation source
designated by PCT Inc., or if there shall be no bid and asked prices on
such day, the average of the high bid and low asked prices, as so reported,
on the most recent day, not more than 10 days prior to the date in
question, for which prices have been so reported; provided that if there
are no bid and asked prices reported during the 10 days prior to the date
in question, the fair market value of the shares of common stock shall be
determined by PCT Inc. acting in good faith on the basis of such quotations
and other information as it considers, in its reasonable judgment,
appropriate.
However, PCT Inc., as general partner of the operating partnership, may elect
to acquire any such common unit presented for redemption for one share of its
common stock or an amount of cash of the same value. PCT Inc. will likely elect
to issue common stock in connection with each such redemption rather than pay
cash. Therefore, your interests in PCT Inc. will be diluted by the issuance of
common stock in connection with a redemption. Further, with each redemption or
acquisition by PCT Inc. of common units of the operating partnership, PCT
Inc.'s percentage ownership interest in the operating partnership will
increase.
Issuance of Additional Units. PCT Inc. will be authorized, without the
consent of the limited partners, to cause the operating partnership to issue
additional common units to itself, to the limited partners or to other persons
for such consideration and on such terms and conditions as PCT Inc. deems
appropriate. PCT Inc. also will be authorized to issue additional partnership
interests in the operating partnership in different series or classes, which
may be senior to the common units. Consideration for additional partnership
interests may be cash or other property or assets. No limited partner has
preemptive, preferential or similar rights with respect to additional capital
contributions to the operating partnership or the issuance or sale of any
partnership interests therein.
Lock-Up. The holders of units may not transfer their units for a period of
one year from the date of issuance.
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FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS
The following describes the material U.S. federal income tax consequences of
the merger to shareholders who receive the merger consideration. This
discussion does not address all aspects of taxation that may be relevant to you
in light of your personal investment or tax circumstances or to certain types
of shareholders, including insurance companies, financial institutions, broker-
dealers, tax-exempt entities, foreign corporations and persons who are not
citizens or residents of the United States, subject to special treatment under
the federal income tax laws, nor does it give a detailed discussion of any
state, local or foreign tax considerations. The Trust urges you to consult with
your own tax advisors as to the specific tax consequences of the merger,
including the applicable federal, state, local and foreign tax consequences to
you of the merger.
This discussion is based on the Internal Revenue Code of 1986, applicable
Department of Treasury regulations, judicial authority and administrative
rulings and practice, all as of the date of this document. There can be no
assurance that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the merger of
the Trust into PCT Inc. to the shareholders of the Trust.
Qualification as a Real Estate Investment Trust
The Trust has disposed of its real estate assets and it has distributed to
you your pro rata share of substantially all of its other remaining assets. As
a result, it is unclear whether or not the Trust would be considered to be
continuing its existence and, if so, whether or not the Trust continues to
qualify for taxation as a REIT. Tax counsel to the Trust is unable, therefore,
to render a legal opinion as to the Trust's qualification for taxation as a
REIT in the year of the merger. This discussion assumes that the Trust
qualifies for taxation as a REIT in the year of the merger and does not address
any aspects of U.S. federal income taxation to the Trust relating to its
election to be taxed as a REIT.
U.S. Federal Income Tax Consequences of the Merger
The U.S. federal income tax consequences of the merger are uncertain. The
merger may qualify as a reorganization described in Section 368(a)(1)(F) of the
Internal Revenue Code because it involves merely a change of form in a single
entity, and you will receive PCT Inc. common stock in the merger. The Trust has
disposed of substantially all of its assets and the common stock you receive,
however, will not have significant, if any, present value. As a result, PCT
Inc. might not be considered to be continuing the business enterprise of the
Trust, and you might not be considered to have preserved a proprietary interest
in the Trust upon receipt of the common stock. In that case, the merger will
fail to qualify as a reorganization. Due to this uncertainty, tax counsel to
the Trust is unable to render a legal opinion as to the U.S. federal income tax
consequences of the merger.
If the merger qualifies as a reorganization and, as described below, the
Contingent Payment Right is treated separately, you will not recognize gain or
loss with respect to the receipt of common stock of PCT Inc. in exchange for
shares of the Trust. The tax basis of common stock received by you in the
merger will be equal to the tax basis of the shares exchanged therefor and the
holding period for such common stock will include the holding period of the
shares exchanged therefor, assuming such shares are held as a capital asset at
the time of the merger.
If the merger does not qualify as a reorganization, you will recognize gain
or loss with respect to the receipt of common stock in exchange for shares of
the Trust equal to the difference, if any,
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<PAGE>
between your adjusted tax basis in your shares of the Trust and the value of
(1) the common stock received in exchange therefor and (2) the Contingent
Payment Right you receive. The common stock will not have significant, if any,
present value and the value of the Contingent Payment Right is speculative.
Assuming the merger qualifies as a reorganization, although it is not free
from doubt, the receipt by you of the Contingent Payment Right should be
treated separately for federal income tax purposes as a distribution to you in
the amount of the fair market value of the Contingent Payment Right. If the
merger qualifies as a reorganization and the Contingent Payment Right is not
treated separately, you will recognize gain, if any, but not loss, on the
exchange to the extent of the value of the Contingent Payment Right, which
value is speculative. In such case, if receipt of the Contingent Payment Right
has the effect of a dividend, you will be treated as having received a dividend
to the extent of your ratable share of the undistributed earnings and profits
of the Trust, up to the amount of gain recognized. If the merger does not
qualify as a reorganization, the receipt by you of the Contingent Payment Right
may be treated as a liquidating distribution by the Trust.
Distributions from the Trust, other than capital gain dividends, discussed
below, are taxable as ordinary income dividend to the extent of the current and
accumulated earnings and profits of the Trust. For this purpose, current
earnings and profits include earnings and profits for the entire taxable year
of the Trust in which the Contingent Payment Right is distributed, including
that portion of the taxable year following the merger. Such distributions are
not eligible for the dividends-received deduction for corporations. To the
extent that a distribution from the Trust exceeds the current and accumulated
earnings and profits of the Trust, the distribution is first treated as a tax-
free return of capital, reducing your tax basis in the shares of the Trust,
then as gain realized from the sale of such shares.
Dividends that are properly designated by the Trust as capital gains
dividends are treated as long-term capital gain, to the extent they do not
exceed the Trust's actual net capital gain, for the taxable year without regard
to the period for which shares have been held by you. Corporate shareholders,
however, may be required to treat up to 20% of certain capital gain dividends
as ordinary income. Capital gain dividends are not eligible for the dividends-
received deduction for corporations.
It is not clear whether the Trust will be able to designate the distribution
of the Contingent Payment Right as a capital gain dividend, or the extent to
which the distribution of the Contingent Payment Right will be treated, with
respect to a particular shareholder, as a tax-free return of capital or as gain
realized from the sale of shares.
As a distribution from the Trust, the Contingent Payment Right will not be
treated as passive activity income and, therefore, you will not be able to
apply any "passive losses" against such income. The receipt of the Contingent
Payment Right will be treated as investment income for purposes of the
investment interest limitation.
Special Tax Considerations for Foreign Shareholders
The rules governing U.S. federal income taxation of shareholders who are non-
resident alien individuals, foreign corporations, foreign partnerships, and
foreign trusts and estates are complex, and the following discussion is
intended only as a summary of such rules. Foreign Shareholders should consult
with their own tax advisors to determine the impact of federal, state and local
income tax
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<PAGE>
laws, including any reporting requirements, on a receipt of common stock of PCT
Inc., cash in exchange for any fractional interests and the Contingent Payment
Right, as well as the tax treatment of such receipt under their home country
laws.
In general, foreign shareholders are subject to U.S. federal income tax with
respect to their investment in the Trust if such investment is "effectively
connected" with the foreign shareholder's conduct of a trade or business in the
United States. A corporate foreign shareholder who receives income that is, or
is treated as, effectively connected with a U.S. trade or business also may be
subject to the branch profits tax under Section 884 of the Internal Revenue
Code, which is payable in addition to U.S. corporate income tax. Except as
noted, the following discussion applies to foreign shareholders whose
investment in the Trust is not so effectively connected.
As described above, the fair market value of the Contingent Payment Right
will be treated as an ordinary dividend distribution to the extent of current
or accumulated earnings and profits of the Trust. An ordinary income dividend
is subject to a U.S. withholding tax equal to 30% of the gross amount of the
distribution unless such tax is reduced or eliminated by an applicable tax
treaty. PCT Inc., as successor to the Trust, expects to withhold U.S. income
tax on the gross amount of the fair market value of the Contingent Payment
Right paid to a foreign shareholder unless (1) a lower treaty rate applies and
the required form evidencing eligibility for such reduced rate is filed with
the Trust, or (2) the foreign shareholder files an IRS Form 4224 with the
Trust, claiming that the distribution is "effectively connected" income.
Information Reporting Requirements and Backup Withholding Tax
The following discussion applies only to U.S. shareholders. Foreign
shareholders should consult their tax advisors with respect to any such
information reporting and backup withholding requirements.
PCT Inc., as successor to the Trust, will report to its U.S. shareholders and
the Internal Revenue Service the amount of the fair market value of the
Contingent Payment Right and the amount of tax withheld thereon, if any. Backup
withholding at a rate of 31% will apply to the Contingent Payment Right only if
the U.S. shareholder (1) fails to furnish its taxpayer identification number
("TIN"), (2) furnishes an incorrect TIN, (3) is notified by the Internal
Revenue Service that it has failed properly to report payments of interest and
dividends, or (4) under certain circumstances, fails to certify, under penalty
of perjury, that it has furnished a correct TIN and has not been notified by
the Internal Revenue Service that it is subject to backup withholding for
failure to report interest and dividend payments. Backup withholding will not
apply with respect to payments made to certain exempt recipients, such as
corporations and tax-exempt organizations. U.S. shareholders should consult
their own tax advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption. Backup
withholding is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a U.S. shareholder will be allowed as
a credit against such U.S. shareholder's U.S. federal income tax liability,
provided that the required information is furnished to the Internal Revenue
Service.
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<PAGE>
COMPARISON OF SHAREHOLDERS' RIGHTS
The following is a summary of the material differences between the provisions
of the Maryland General Corporation Law and the Massachusetts General Law and
the Articles of Incorporation and By-laws of PCT Inc. and the Declaration of
Trust of the Trust that will result in changes in your rights. Upon
consummation of the merger, you will become a stockholder of PCT Inc.
Differences between the provisions of Maryland law and Massachusetts law, and
the documents relating to the governance of the respective companies, will
result in several changes in your rights. It is not practical to summarize all
such changes here or to cover all of the respects in which Maryland law may
differ from Massachusetts law. You are advised to review PCT Inc.'s Articles of
Incorporation and By-laws and the Declaration of Trust of the Trust, which are
available as described under "Available Information" on page 19.
<TABLE>
<CAPTION>
Law applicable to or Law applicable to or
Subject governing instruments of the Trust governing instruments of PCT Inc.
- --------------------------------------------------------------------------------------------
<C> <S> <C>
Board of Trustees . Must consist of at least three, . The Board of Directors will
and Board of but no more than nine persons. initially consist of three
Directors . The vote of two-thirds of the directors, classified into
Trustees is required to remove three classes with the term of
a Trustee either with or office of one class expiring
without cause. each year.
. A majority of the Trustees in . A director may only be
office may fill vacancies on removed for cause and the
the Board of Trustees or newly affirmative vote of a majority
created trusteeships of the shares then entitled to
vote is required.
. A majority of the remaining
directors may fill vacancies on
the Board of Directors, except
those resulting from removal
for (1) conviction of a felony,
(2) unsound mind, (3) gross
dereliction of duty, (4)
commission of an act involving
moral turpitude or (5) knowing
violation of law that causes
benefit to the director and
harm to PCT Inc., which must be
filled by a vote of a majority
of the stockholders, or the
increase in the number of
directors, which must be filed
by a vote of the entire board.
- --------------------------------------------------------------------------------------------
Distributions to . Board of Trustees has complete . Board of Directors has complete
Shareholders discretion to make discretion to make
distributions. distributions.
. PCT Inc. will only make
distributions to its
stockholders if it receives
distributions from the
operating partnership; none are
expected now or in the near
future.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Law applicable to or Law applicable to or
Subject governing instruments of the Trust governing instruments of PCT Inc.
- --------------------------------------------------------------------------------------------
<C> <S> <C>
Meetings . The Trust may hold an annual . PCT Inc. may hold an annual
meeting of shareholders at such meeting of stockholders at such
date, time and place as the date, time and place as the
Trustees determine. Board of Directors determines.
. A special meeting may be . A special meeting may be
called by the managing Trustee called if (1) an annual meeting
or the president or upon the of stockholders has not been
request of a majority of the held for 13 months since the
Trustees or the request of one- last annual meeting of
fourth of the outstanding stockholders or (2) it is
shares entitled to vote. called by the president, a
. Shareholders must receive majority of the Board of
written notice of a Directors or the secretary upon
shareholders' meeting at least the request of a majority of
10 days and no more than 60 the stockholders entitled to
days prior to a shareholder vote at such meeting.
meeting. . Stockholders must receive
. A quorum consists of the written notice of a
holders of one-third of all the stockholders' meeting at least
outstanding shares entitled to 10 days and nor more than 90
vote, present in person or days prior to a stockholder
represented by proxy. meeting.
. Other than matters . A quorum consists of a
specifically provided for in majority of the outstanding
the Declaration of Trust, no shares of common stock entitled
action taken by the to vote at the meeting, present
shareholders at any meeting in person or represented by
binds the Trustees. proxy.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Law applicable to or Law applicable to or
Subject governing instruments of the Trust governing instruments of PCT Inc.
- --------------------------------------------------------------------------------------------
<C> <S> <C>
Approval of . The Board of Trustees, in their . The dissolution or merger of PCT
Certain Actions discretion, may amend the Inc., the sale of all or
Declaration of Trust, subject substantially all of PCT Inc.'s
to rescission by a majority of assets, a stock exchange or
shareholders at the next similar transactions require
shareholders' meeting, unless the vote of a majority of the
the amendment involves an total number of shares of all
extraordinary event, such as classes outstanding and
termination of the Trust, entitled to vote thereon.
organization of an entity to . Amendments to the Articles of
take over the Trust property, Incorporation require the vote
or sale of all or substantially of a majority of the
all of the Trust property. outstanding shares of each
. In the case of an class entitled to vote thereon
extraordinary event, either the as a class and the affirmative
affirmative vote of two-thirds vote of a majority of the
of the outstanding shares or outstanding shares entitled to
the written consent of a vote on such amendment, voting
majority of the Trustees and together as a single class,
two-thirds of the outstanding unless the amendment affects
shares entitled to vote is the Board of Directors.
required. . If an amendment affects the
Board of Directors, the
affirmative vote of two-thirds
of the outstanding shares
entitled to vote thereon as a
class and the affirmative vote
of two-thirds of the
outstanding shares entitled to
vote on such amendment, voting
together as a single class, is
required.
. Except as otherwise provided
by law, a majority of the
directors may amend or repeal
the By-laws.
- --------------------------------------------------------------------------------------------
Dissenters' . No statutory appraisal rights . Statutory appraisal rights
Appraisal Rights exist and the Declaration of available so long as
Trust does not provide for stockholder complies with
dissenters' appraisal rights. specified procedures.
. Unclear whether common law
appraisal rights exist under
Massachusetts law.
. Shareholders will not be
entitled to dissenters'
appraisal rights in connection
with the merger.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Law applicable to or Law applicable to or
Subject governing instruments of the Trust governing instruments of PCT Inc.
- --------------------------------------------------------------------------------------------
<C> <S> <C>
Limitation of . Trustees, officers, agents and . Liability of directors and
Liability and representatives have no officers for money damages
Indemnification personal liability for acts or limited to PCT Inc. and its
omissions done in good faith. stockholders, except (1) to the
. Trust indemnifies such persons extent that the director or
for any personal liability, officer actually received an
except liability arising from improper benefit or profit, or
such persons' own willful (2) if a court finds that the
breach of Trust knowingly and director's or officer's action
intentionally committed. or failure to act was the
. All persons can only look to result of active and deliberate
the Trust property for dishonesty and was material to
satisfaction of claims arising the proceeding's cause of
in connection with the affairs action.
of the Trust. . PCT Inc. and its stockholders
. Generally, the Trust includes may still obtain other relief,
provisions in written such as an injunction or
agreements to which it is a restriction.
party that its obligations are . PCT Inc. will indemnify its
not enforceable against directors, officers against
shareholders personally. fines and reasonable expenses
. Absent willful misconduct on actually incurred by them in
the shareholder's part, any proceeding to which they
shareholder liability will be may be made a party by reason
reimbursed by the Trust, to the of their service to or at the
extent the Trust has assets request of PCT Inc., unless it
sufficient for such is established that the act or
reimbursement. omission of the indemnified
party was material to the
matter giving rise to the
proceeding and (1) the act or
omission was committed in bad
faith or was the result of
active and deliberate
dishonesty, (2) the indemnified
party actually received an
improper personal benefit, or
(3) in the case of any criminal
proceeding, the indemnified
party had reasonable cause to
believe that the act or
omission was unlawful.
- --------------------------------------------------------------------------------------------
Certain provisions . Not applicable. . PCT Inc. has expressly elected
of Maryland law not to be governed by the
"business combination"
provisions of Maryland law.
. Acquisitions of shares of
common stock of PCT Inc. are
exempt from the "control
shares" provisions of Maryland
law.
</TABLE>
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<PAGE>
DESCRIPTION OF THE CAPITAL STOCK OF PCT INC.
The description of the stock set forth below does not purport to be complete
and is qualified in its entirety by reference to the charter documents of PCT
Inc. which are exhibits to the registration statement on Form S-4 of PCT Inc.
General
Following the merger, PCT Inc. will have an aggregate of 10,000,000
authorized shares of common stock, 5,000,000 shares of preferred stock and
15,000,000 shares of excess stock available for issuance. The corporation may,
from time to time, issue such shares in the discretion of the Board of
Directors for such consideration as the Board of Directors deems advisable. No
holder of any stock or other securities of the corporation will have any
preferential or preemptive rights to subscribe for or purchase any stock or any
other securities other than such rights, if any, the Board of Directors, in its
discretion, may fix.
Description of Stock
. Preferred Stock. PCT Inc. will have the authority to issue up to
5,000,000 shares of preferred stock, par value $.01 per share, none of which is
outstanding as of the date of this document. The corporation may, from time to
time, issue preferred stock in one or more series, as authorized by the Board
of Directors. The Board of Directors could, for example, authorize the issuance
of shares of preferred stock with terms and conditions that could have the
effect of discouraging a takeover or other transaction that holders of common
stock might believe to be in their best interests or in which holders of some,
or a majority, of the common stock might receive a premium for their shares
over the then market price of such common stock.
. Common Stock. PCT Inc. will have the authority to issue up to
10,000,000 shares of common stock. Subject to the provisions of PCT Inc.'s
charter regarding excess stock, each outstanding share of common stock entitles
the holder to one vote on all matters submitted to a vote of stockholders,
including the election of Directors.
Subject to the preferential rights of any other shares or series of stock and
to the provisions of the charter regarding excess stock, holders of shares of
common stock are entitled to receive dividends on common stock if, as and when
authorized and declared by the Board of Directors out of assets legally
available therefor. All common stock will have equal dividend, distribution,
liquidation and other rights.
. Excess Stock. PCT Inc. will be able to and may from time to time issue
such shares of excess stock, $.01 par value per share, as shall be necessary.
See below "--Restrictions on Transfer of Capital Stock--Restrictions Relating
to REIT Status." The excess stock is not treasury stock, but rather constitutes
a separate class of issued and outstanding stock of the corporation. In the
event of any liquidation, or winding up, or any distribution of the assets of,
the corporation, the holders of excess stock are entitled to receive, ratably
with holders of common or preferred stock of the class and series converted
into such excess stock, such assets available for distribution.
Restrictions on Ownership
For PCT Inc. to qualify as a REIT under the Internal Revenue Code, not more
than 50% in value of its outstanding capital stock may be owned, directly or
indirectly, by five or fewer
49
<PAGE>
individuals, as defined in the Internal Revenue Code to include certain
entities, during the last half of a taxable year. To assist the corporation in
meeting this requirement, the corporation may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
corporation's outstanding equity securities. See below "--Restrictions on
Transfers of Capital Stock" and "--Anti-Takeover Provisions."
Restrictions on Transfers of Capital Stock
Restrictions Relating to REIT Status. For PCT Inc. to qualify as a REIT under
the Internal Revenue Code, among other things, not more than 50% in value of
its outstanding capital stock may be owned, directly or indirectly, by five or
fewer individuals, defined in the Internal Revenue Code to include certain
entities, during the last half of a taxable year. In addition, 100 or more
persons must beneficially own such capital stock during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year, in each case, other than the first such year. To assist PCT Inc. in
continuing to remain a qualified REIT, PCT Inc.'s charter, subject to certain
exceptions, will provide that no person may own, or be deemed to own by virtue
of the attribution provisions of the Internal Revenue Code, more than % (the
"Ownership Limit") of the common stock or preferred stock ("Equity Stock") and
no trust or company registered under the Investment Company Act of 1940 may
own, or be deemed to own, more than 15% (the "Look-Through Ownership Limit") of
the Equity Stock. The Board of Directors, in its sole discretion, may waive the
Ownership Limit or the Look-Through Ownership Limit if evidence satisfactory to
the Board of Directors is presented that the changes in ownership will not then
or in the future jeopardize the corporation's status as a REIT. In connection
with the transactions related to the merger of the Trust into PCT Inc., PCT
Inc. will waive the Aggregate Stock Ownership Limit with respect to the initial
common stock ownership of Robert L. Beal, Bruce A. Beal and their affiliates
because none will jeopardize the PCT Inc.'s status as a REIT for Federal income
tax purposes. PCT Inc. also may waive the Aggregate Stock Ownership Limit with
respect to certain other stockholders, if appropriate. Any transfer of Equity
Stock, or any security convertible into Equity Stock that would create a direct
or indirect ownership of Equity Stock in excess of the Ownership Limit or the
Look-Through Ownership Limit or that would result in the disqualification of
the PCT Inc. as a REIT, including any transfer that results in the Equity Stock
being owned by fewer than 100 persons or results in the PCT Inc. being "closely
held" within the meaning of Section 856(h) of the Internal Revenue Code or
results in the PCT Inc.'s constructive ownership of a tenant or subsidiary
within the meaning of Section 856(d)(2)(B) of the Internal Revenue Code, shall
be null and void as to those shares in excess of the Ownership Limit or the
Look-Through Ownership Limit, and the intended transferee (the "Prohibited
Owner") will acquire no rights to such Equity Stock. The foregoing restrictions
on transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interests of PCT Inc. to attempt to
qualify, or to continue to qualify, as a REIT.
Equity Stock owned, or deemed to be owned, or transferred to a stockholder in
excess of the Ownership Limit or the Look-Through Ownership Limit, will
automatically be exchanged for an equal number of shares of Excess Stock that
will be transferred, by operation of law, to a trust for the exclusive benefit
of the transferees to whom such capital stock may be ultimately transferred
without violating the Ownership Limit or the Look-Through Ownership Limit. Upon
the conversion of Equity Stock into Excess Stock, PCT Inc. will automatically
retire and cancel such shares of Equity Stock. While the Excess Stock is held
in trust, it will not be entitled to vote, and it will not be considered for
purposes of any stockholder vote or the determination of a quorum for such
vote. Each share of Excess Stock will be entitled to the same dividends and
distributions as may be authorized by the
50
<PAGE>
Board of Directors with respect to shares of the class of Equity Stock that
were converted into Excess Stock. The stockholder, upon demand by PCT Inc.,
must repay any dividend or distribution paid to the holders of Excess Stock
prior to the discovery by PCT Inc. that the stockholder has transferred the
Equity Stock in violation of the provisions of the charter.
As soon as practicable after the trust acquires the Excess Stock, the trustee
will sell such shares to a permitted transferee (a "Permitted Transferee").
Prior to such sale, however, the trust shall give PCT Inc. at least five days
notice of the intended transfer and the corporation must waive its right to
purchase such shares. Following the sale of Excess Stock to a Permitted
Transferee, the Prohibited Owner of such shares will receive the proceeds of
the sale from the trust. Prohibited Owners are deemed to waive any and all
claims that they may have against the trust except for claims arising out of
gross negligence or willful misconduct. Immediately upon the transfer of the
Excess Stock to a Permitted Transferee, PCT Inc. will automatically exchange
the Excess Stock for an equal number of shares of Equity Stock of the class and
series from which it was converted originally.
In addition to the foregoing transfer restrictions, PCT Inc. will have the
right, for a period of 90 days from any event that results in the issuance of
Excess Stock, to purchase all or any portion of the Excess Stock from the
Prohibited Owner for the lesser of (1) the price per share paid for the Equity
Stock in the transaction that created such shares of Excess Stock or (2) the
market price, which will be determined in the manner set forth in the Articles
of Incorporation, of the Equity Stock on the date PCT Inc. exercises its option
to purchase.
Disclosure of Ownership. Each stockholder of any class of Equity Stock will
upon demand be required to disclose to PCT Inc. in writing any information with
respect to the direct, indirect and constructive ownership of Equity Stock as
the Board of Directors deems necessary to comply with the provisions of the
Internal Revenue Code applicable to REITs, to comply with the requirements of
any taxing authority or governmental agency or to determine any such
compliance.
Anti-Takeover Provisions
The ownership limitation described above may have the effect of precluding
acquisition of control of PCT Inc. unless the Board of Directors determines
that maintenance of REIT status is no longer in the best interests of PCT Inc.
The Board of Directors is authorized to classify and reclassify any unissued
Equity Stock by setting or changing, in any one or more respects, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption of such stock. Such authority includes, without limitation, subject
to the provisions of the charter, authority to classify or reclassify any
unissued Equity Stock into a class or classes of preferred stock, or common
stock or the issuance of any rights plan or similar plan. In certain
circumstances, the issuance of preferred stock, or the exercise by the Board of
such rights to classify or reclassify Equity Stock, could have the effect of
deterring individuals or entities from making tender offers for the common
stock or seeking to change incumbent management. In addition, the corporation's
Board of Directors will be classified into three distinct classes. This
classified board may make it more difficult for a third party to obtain control
of the corporation unless the Board of Directors consents.
51
<PAGE>
PRO FORMA FINANCIALS FOR MARYLAND PROPERTY CAPITAL TRUST, INC.
Pro Forma Condensed
Combined Financial Statements
(Unaudited)
The pro forma condensed consolidated balance sheet of the Corporation as of
September 30, 1998 has been prepared to reflect the following transactions, as
if each of such transactions and adjustments had occurred on September 30,
1998;
(1) The merger of Property Capital Trust into Maryland Property Capital
Trust, Inc.;
(2) The purchase of approximately 319,000 shares of common stock of
Maryland Property Capital Trust, Inc. by Framingham York Associates
Limited Partnership and the distribution of those shares to its
partners; and
(3) The merger of Framingham York Associates Limited Partnership with
Property Capital Trust Limited Partnership.
The pro forma condensed statement of operations of the Corporation for the
nine months ended September 30, 1998 and the year ended December 31, 1997 have
been prepared to reflect the above transactions and certain other adjustments,
as if such transactions and adjustments had occurred on January 1, 1997.
In the opinion of management, the pro forma condensed financial information
provides for all adjustments necessary to reflect the effects of the foregoing
transactions and adjustments. The pro forma information is unaudited and is not
necessarily indicative of the combined results that would have occurred if the
transactions and adjustments reflected therein had been consummated on the
dates indicated, or on any particular date in the future, nor does it purport
to represent the financial position, results of operations or changes in cash
flows for future periods.
52
<PAGE>
MARYLAND PROPERTY CAPITAL TRUST, INC.
Pro Forma Condensed Combined Balance Sheet
as of September 30, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
The Pro Forma PCT Inc.
FYA Trust Adjustments Pro Forma
------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Properties, net................... $1,020 $ -- $ -- $1,020
Cash and cash equivalents......... 174 3,085 (3,085)(A) 1,101
1,000 (B)
(73)(C)
Deferred rent receivable.......... 325 -- -- 325
Deferred charges.................. 28 -- -- 28
Other assets...................... -- 8 (8)(A) --
------ -------- -------- ------
Total assets.................... $1,547 $ 3,093 $ (2,166) $2,474
====== ======== ======== ======
Liabilities and Shareholders'
Equity:
Mortgage debt..................... $ -- $ -- $ 1,000 (B) $1,000
Accounts payable and accrued
expenses......................... 34 523 (523)(A) 1,034
1,000 (E)
Other liabilities................. 11 -- -- 11
------ -------- -------- ------
Total liabilities............... 45 523 1,477 2,045
------ -------- -------- ------
Limited Partners' Interest in
Operating Partnership.............. -- -- 429 (D) 429
Owners' Equity...................... 1,502 -- (1,000)(B) --
(73)(C)
(429)(D)
Common Stock........................ -- 108,568 (108,566)(A) 5
3 (B)
Paid-in Capital..................... -- -- (2)(A) 995
997 (B)
Accumulated Deficit................. -- (105,998) 105,998 (A) (1,000)
(1,000)(E)
------ -------- -------- ------
Total shareholders' equity...... 1,502 2,570 (3,643) --
------ -------- -------- ------
Total liabilities and
shareholders' equity........... $1,547 $ 3,093 $ (2,166) $2,474
====== ======== ======== ======
</TABLE>
53
<PAGE>
MARYLAND PROPERTY CAPITAL TRUST, INC.
Notes to Pro Forma Condensed Combined Balance Sheet
as of September 30, 1998
(Unaudited)
The Pro Forma Adjustments:
(A) Upon consummation of the merger of Property Capital Trust into Maryland
Property Capital Trust, Inc., a dividend representing the remaining net
assets of the Trust is to be declared, and will be payable to the
shareholders of the Trust as of the effective time of the merger.
Following the merger, the corporation will issue approximately 159,000
shares of common stock to the shareholders of the Trust.
(B) To record the new debt of $1,000,000 incurred by FYA. The debt is
anticipated to have a term of three years, will bear interest at LIBOR
rate plus two percent and is to be collateralized by the property owned by
FYA. The proceeds will be used to purchase approximately 319,000 shares of
corporation common stock, which will be distributed to the partners of
FYA.
(C) Prior to the consummation of the merger of the partnerships, FYA intends
to distribute cash of approximately $73,000, which represents a portion of
the net working capital of FYA.
(D) To reclassify remaining owners' equity of FYA of approximately $429,000 to
limited partners' interest in the operating partnership.
(E) To record the transaction costs of approximately $1,000,000 which is
allocable to the corporation under the terms of the operating partnership
agreement. Such amount represents a nonrecurring charge which has not been
reflected in the Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1997.
54
<PAGE>
MARYLAND PROPERTY CAPITAL TRUST, INC.
Pro Forma Condensed Combined Statement of Operations
for the Nine Months Ended September 30, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
The Pro Forma PCT Inc.
FYA Trust Adjustments Pro Forma
---- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental............................... $233 $2,429(F) $(2,429)(F) $233
Interest............................. -- 167 (167)(F) --
Other................................ 4 7 (7) 4
---- ------ ------- ----
Total revenues..................... 237 2,603 (2,603) 237
---- ------ ------- ----
Expenses:
General and administrative........... 25 999 (999)(F) 63
38 (H)
Operating expenses................... -- 210 (210)(F) --
Professional Fees.................... -- 6 (6)(F) --
Interest............................. -- 10 (10)(F) 58
58 (G)
Depreciation and amortization........ 23 -- -- 23
---- ------ ------- ----
Total expenses..................... 48 1,225 (1,129) 144
---- ------ ------- ----
Income before Gain on Sale of Real
Estate Investments.................... 189 1,378 (1,474) 93
Gain on Sale of Real Estate
Investments........................... -- 4,083 4,083 (F) --
---- ------ ------- ----
Net Income before limited partners'
interest in operating partnership
income................................ 189 5,461 (5,557) 93
Limited partners' interest in operating
partnership income.................... -- -- (110)(I) (110)
---- ------ ------- ----
Net income (loss)...................... $189 $5,461 $(5,667) $(17)
==== ====== ======= ====
</TABLE>
55
<PAGE>
MARYLAND PROPERTY CAPITAL TRUST, INC.
Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
The Pro Forma PCT Inc.
FYA Trust Adjustments Pro Forma
---- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental................................ $311 $13,975 $(13,975)(F) $311
Interest.............................. 4 695 (695)(F) 4
Other................................. -- 47 (47)(F) --
---- ------- -------- ----
Total revenues...................... 315 14,717 (14,717) 315
---- ------- -------- ----
Expenses:
General and administrative............ 29 2,424 (2,424)(F) 79
50 (H)
Operating expenses.................... -- 4,773 (4,773)(F) --
Professional fees..................... -- 162 (162)(F) --
Interest.............................. -- 2,653 (2,653)(F) 77
77 (G)
Depreciation and amortization......... 31 1,220 (1,220)(F) 31
---- ------- -------- ----
Total expenses...................... 60 11,232 (11,105) 187
---- ------- -------- ----
Income before Gain on Sale of Real
Estate Investments..................... 255 3,485 (3,612)(F) (128)
Gain on Sale of Real Estate
Investments............................ -- 27,812 (27,812)(F) --
---- ------- -------- ----
Net income before limited partners'
interest in operating partnership
loss................................... 255 31,297 (31,424) (128)
Limited partners' interest in operating
partnership income..................... -- -- (147) (147)
---- ------- -------- ----
Net income (loss)....................... $255 $31,297 $(31,571) $(19)
==== ======= ======== ====
</TABLE>
56
<PAGE>
MARYLAND PROPERTY CAPITAL TRUST, INC.
Notes to the
Pro Forma Condensed Combined Statements of Operations
for the Nine Months Ended September 30, 1998 and for
the Year Ended December 31, 1997
(Unaudited)
The Pro Forma Adjustments:
(F) As the Trust would be constructively liquidated as of the date of the
merger, assumed to be January 1, 1997 for purposes of the Pro Forma
Condensed Combined Statements of Operations, the Trust would no longer
conduct operations as of this date. Therefore, all operations of the Trust
during these periods have been eliminated.
(G) To record additional interest expense in the amounts of $58,000 and $77,000
for the nine months ended September 30, 1998 and the year ended December
31, 1997, respectively, related to the new debt incurred by FYA.
(H) To record additional general and administrative expenses for legal,
accounting, printing, distribution and filing costs for annual and
quarterly financial reporting in the amount of $38,000 and $50,000 for the
nine months ended September 30, 1998 and the year ended December 31, 1997,
respectively.
(I) To reflect allocation of income to limited partners in the operating
partnership for the preferred distributions of $110,000 and $147,000 for
the nine months ended September 30, 1998 and the year ended December 31,
1997, respectively.
57
<PAGE>
SELECTED FINANCIAL INFORMATION--THE TRUST
The following selected financial data for the year ended December 31, 1997,
the five months ended December 31, 1996, and the years ended July 31, 1996,
1995, 1994 and 1993 are derived from the audited financial statements of the
Trust. The financial data for the nine month periods ended September 30, 1998
and 1997 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, which the Trust considers necessary for a fair presentation of the
financial position and the results of operations for these periods.
Operating results for the nine months September 30, 1998 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1998. The data should be read in conjunction with the financial
statements, related notes, and other financial information of the Trust. Such
additional information is available as described under "Available Information."
<TABLE>
<CAPTION>
Nine Months Ended Five Years Ended
--------------------------- Year Ended Months Ended ------------------------------------
September 30, September 30, December 31, December 31, July 31, July 31, July 31, July 31,
1998 1997 1997 1996** 1996 1995 1994 1993*
------------- ------------- ------------ ------------ -------- -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Revenues................ $2,603 $12,011 $14,717 $ 8,187 $ 21,799 $ 22,619 $ 21,623 $ 16,535
Expenses................ 1,225 9,199 11,232 6,651 21,506 20,603 20,044 24,865
------ ------- ------- -------- -------- -------- -------- --------
Income (Loss) before
Gain on Sale of Real
Estate Investments and
Extraordinary Item..... 1,378 2,812 3,485 1,536 293 2,016 1,579 (8,330)
Gain on Sale of Real
Estate Investments..... 4,083 26,128 27,812 832 6,094 3,209 2,510 7,700
------ ------- ------- -------- -------- -------- -------- --------
Income (Loss) before
Extraordinary Item..... 5,461 28,940 31,297 2,368 6,387 5,225 4,089 (630)
Extraordinary (Loss)
Gain from
Extinguishment of
Debt................... -- -- -- -- (473) 88 -- --
------ ------- ------- -------- -------- -------- -------- --------
Net Income (Loss)....... $5,461 $28,940 $31,297 $ 2,368 $ 5,914 $ 5,313 $ 4,089 $ (630)
====== ======= ======= ======== ======== ======== ======== ========
Per Share Data
Basic Net Income (Loss)
Income (Loss) before
Gain on Sale of Real
Estate Investments and
Extraordinary Item.... $ 0.14 $ 0.30 $ 0.36 $ 0.16 $ 0.03 $ 0.23 $ 0.17 $ (0.93)
Gain on Sale of Real
Estate Investments.... 0.43 2.73 2.91 0.09 0.67 0.35 0.28 0.85
------ ------- ------- -------- -------- -------- -------- --------
Income (Loss) before
Extraordinary Item.... 0.57 3.03 3.27 0.25 0.70 0.58 0.45 (0.08)
Extraordinary (Loss)
Gain from
Extinguishment of
Debt.................. -- -- -- -- (0.05) 0.01 -- --
------ ------- ------- -------- -------- -------- -------- --------
Basic Net Income (Loss)
per Share............. $ 0.57 $ 3.03 $ 3.27 $ 0.25 $ 0.65 $ 0.59 $ 0.45 $ (0.08)
====== ======= ======= ======== ======== ======== ======== ========
Diluted Net Income
(Loss) per Share....... $ 0.57 $ 3.03 $ 3.27 $ 0.25 $ 0.64 $ 0.59 $ 0.45 $ (0.08)
====== ======= ======= ======== ======== ======== ======== ========
Dividends Declared per
Share.................. $ 1.15 $ 6.03 $ 8.93 $ 1.18 $ 3.23 $ 0.41 $ 0.30 $ 0.28
====== ======= ======= ======== ======== ======== ======== ========
Average Shares
Outstanding............ 9,584 9,561 9,567 9,353 9,097 9,044 9,030 9,029
====== ======= ======= ======== ======== ======== ======== ========
Financial Position at
Year-End
Total Assets............ $3,093 $99,274 $21,183 $103,294 $112,619 $169,439 $176,833 $179,459
Net Real Estate
Investments............ -- 69,753 15,077 98,708 106,912 160,963 172,461 176,024
Total Debt Outstanding.. -- 36,420 8,345 36,650 36,889 71,816 81,479 86,492
Shareholders' Equity.... 2,570 56,767 6,814 61,372 70,076 93,709 91,703 90,134
</TABLE>
- -------
* Restated for change in accounting method to the equity method for Investment
Partnerships. The change did not affect net income (loss) or shareholders'
equity.
** The Trust's fiscal year changed from one which ended on July 31st to one
which ends on December 31st.
58
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--THE TRUST
Business Plan
Since 1995, the Trust has operated under a business plan which provided for
the orderly disposition of all of the Trust's investments on a property-by-
property basis. As of September 30, 1998, the Trust had disposed of all of its
real estate investments and had approximately $3,000,000 in cash which it
intends to utilize to satisfy its remaining obligations in the amount of
$759,000 and then to distribute the remainder to its shareholders.
In the summer of 1997, management of the Trust and the Trustees began to
consider possible alternatives for terminating the Trust once its assets had
been sold. In June 1998, after discussions with several groups, the Trust
announced that it had entered into an agreement to merge with and into Maryland
Property Capital Trust, Inc. Simultaneously with the execution of the merger
agreement, PCT Inc. entered into a series of related agreements with affiliates
of The Beal Companies, a Boston based real estate development and investment
company. Due to recent market conditions, however, the parties renegotiated the
terms of the proposed merger and the related transactions in October 1998. As a
result of a restructuring of the merged entity's capitalization, the interests
of the Trust's shareholders will be junior to certain interests of affiliates
of The Beal Companies in the merged entity. Therefore, at the time of the
merger, while the Trust's shareholders will receive all of the Trust's
remaining net worth, which is currently estimated to be $0.23 per share after
giving affect to expected operating expenses through the date of merger and
accrued expenses, prior to the consummation of the merger, the interests of the
Trust's shareholders in the surviving entity will be without value.
The merger is subject to the approval of the Trust's shareholders and, if
approved, would eliminate the need to establish a liquidating trust to hold
reserves to meet contingent liabilities of the Trust and the expenses related
thereto (which expenses, net of interest income, were estimated to be $0.03 per
share). The Trust expects to circulate a proxy statement to shareholders, in
anticipation of a shareholder vote on the proposed merger in January 1999.
Details of the merger and its consequences will be set forth in the proxy
statement. No assurances can be given that the merger will be consummated.
To date, the Trust has distributed $13.65 per share from the proceeds of
sales of its assets. If the merger is consummated, the distributions will total
approximately $13.88 per share. In addition, the existing shareholders will be
entitled to receive the net proceeds from litigation to determine the full
compensation due for certain land that was condemned at Loehmann's Fashion
Island prior to its sale (which amount is not expected to exceed $0.10 per
share and it could be zero).
In July 1998, the American Stock Exchange halted trading the Trust's shares
because the Trust had completed the disposition of its real estate in
accordance with its business plan, and as a result, had fallen below the
exchange's guidelines for continued listing. Since the Trust did not have
sufficient tangible assets to satisfy the guidelines, and would not satisfy
such requirements after the merger, the American Stock Exchange delisted the
Trust on October 29, 1998. The Trust shares are now traded on the over-the-
counter Bulletin Board (symbol "PCTG").
As a consequence of the implementation of the business plan, the disposition
of all of its investments and the payment of special dividends from the
proceeds of sales of the Trust's
59
<PAGE>
investments, certain operating results which have historically been utilized to
judge the Trust's financial performance (such as Funds from Operations and Net
Income) have decreased and it is not anticipated that the Trust will generate
any net income in the future.
Financial Condition, Liquidity and Capital Resources at September 30, 1998
The Trust had no debt at September 30, 1998 as compared to $8,345,000 at
December 31, 1997, which was comprised solely of a mortgage loan on Park Place.
The Trust sold Park Place in January 1998 subject to its mortgage loan. The
Trust has reviewed its liquidity needs in view of its business plan. The
Trust's principal liquidity needs are to fund normal operating expenses and the
minimum dividend distribution (if any) required to maintain the Trust's REIT
status under the Internal Revenue Code. The Trust expects to fund these
liquidity needs from interest income and cash on hand.
At September 30, 1998, the Trust's entire portfolio of real estate
investments had been disposed of and its principal asset was $3,085,000 in
cash.
On June 17, 1998, the Trust's Cincinnati Marriott Inn $2,000,000 land
investment was purchased by the Trust's lessee for $2,000,000 and the Trust's
related leasehold mortgages were prepaid in their face amount of $4,316,000. In
August 1996, the Trust allocated $1,016,000 of its former allowance for
possible investment losses to these mortgages. As a consequence, the repayment
resulted in a gain to the Trust of $1,016,000. In addition, the Trust received
$1,600,000 of land rent and mortgage interest, earned between 1991 and 1994,
which had previously been written off.
On January 29, 1998, the Trust sold the Park Place office building in
Clayton, Missouri, for $14,145,000. The Trust realized a gain of $3,067,000 on
the sale of this investment.
During the first quarter of 1998, the Trust terminated the Amended and
Restated Deferred Stock Plan for Non-Employee Trustees. All of the assets of
such plan, which were held in a Rabbi Trust, were distributed to the Trustees.
Previously, in the Trust's financial statements, shares held by the Rabbi Trust
were reflected as "treasury stock," the remaining assets were reflected in
"other assets" and the fund balance was reflected in "accounts payable and
accrued expenses."
Results of Operations for the Nine Months Ended September 30, 1998 Versus the
Nine Months Ended September 30, 1997
Revenues. Rents from Owned Properties held directly by the Trust (base rent
plus expense reimbursements) decreased 95% for the nine months ended September
30, 1998, as compared to the same period in the prior year, due to the sale, in
January 1998, of the Park Place office building, the Trust's last Owned
Property held directly by the Trust, and from the adjustment at June 30, 1998
of approximately $200,000 of previously recorded revenues from Loehmann's
Fashion Island, which had been sold in December 1997. During the three months
ended September 30, 1998, the Trust received $48,000 from the new owners of
Loehmann's Fashion Island related to the time of the Trust's ownership. This
amount had not previously been accrued.
Base income from Structured Transactions held directly by the Trust increased
2% for the nine months ended September 30, 1998, as compared to the same period
in the prior year, due to the receipt, in June 1998, of $1,600,000 of land rent
and mortgage interest (earned between 1991 and 1994 but previously written off)
from the Cincinnati Marriott Inn. The receipt and recognition of this income
occurred in conjunction with the disposition of the Trust's investments in the
Cincinnati Marriott Inn.
60
<PAGE>
Overage income from Structured Transactions held directly by the Trust
decreased 89% for the nine months ended September 30, 1998, as compared to the
same period in the prior year, due to the sale of all but one of the Trust's
remaining Structured Transactions held directly by the Trust prior to calendar
1998 and the disposition of the Cincinnati Marriott Inn investments in June
1998.
Interest income decreased 45% for the nine months ended September 30, 1998,
as compared to the same period in the prior year. Interest income is earned on
net proceeds received by the Trust form the sale of its investments, which
proceeds are invested until they are distributed to shareholders in the form of
special dividends.
Expenses. Total expenses decreased 87% for the nine months ended September
30, 1998, as compared to the same period in the prior year, due to the sale of
all but one of the Trust's remaining real estate investments in the first
quarter of 1998 and the disposition of the last real estate investment in June
1998. Included in total expense decreases were decreases in professional fees
of 96% for the nine months ended September 30, 1998, as compared to the same
period in the prior year, due to the downward revision at June 30, 1998 of
approximately $140,000 accrued for estimated liabilities for legal and similar
fees payable that were, in fact, not incurred. General and administrative
expenses also decreased by 46% for the nine months ended September 30, 1998, as
compared to the same period in the prior year, primarily due to the reduction
of the Trust's management and support staff.
Gain on Sale of Real Estate Investments. Net income for the nine months ended
September 30, 1998 included a gain on sale of real estate investments of
$4,083,000, comprised of $1,016,000 from the prepayment of Cincinnati Marriott
Inn's leasehold mortgages at their face amount in June 1998 and $3,067,000 from
the sale of the Park Place office building in January 1998. For the nine months
ended September 30, 1997, net income included a gain on sale of real estate
investments of $26,128,000, comprised of $4,750,000 from the sale of Elm Creek
and Sandpiper Cove apartment investments in September 1997, $1,944,000 from the
sale of the Lakeside Center investment in June 1997, $857,000 from the sale of
the Telegraph Hill apartments in June 1997 and $18,577,000 from the sale of the
City Centre Holiday Inn investment in January 1997.
Dividends. During the nine months ended September 30, 1998, the Trust
declared and paid dividends of $1.15 per share.
On June 16, 1998, the Trustees declared a special dividend of $0.80 per
share, payable July 10, 1998 to shareholders of record on July 1, 1998. Due to
the magnitude of the dividend declared in relation to the Trust's stock price
at that time, and the halting of trading after July 10, 1998, the Trust's
shares did not trade ex-dividend on the American Stock Exchange.
On February 3, 1998, the Trustees declared a special dividend of $0.35 per
share, payable February 27, 1998 to shareholders of record on February 13,
1998. Due to the magnitude of the dividend declared in relation to the Trust's
stock price at that time, the American Stock Exchange determined that the
Trust's shares would trade ex-dividend on March 2, 1998.
Financial Condition, Liquidity and Capital Resources at December 31, 1997
The Trust has reviewed its short-term and long-term liquidity needs in view
of its business plan and the adequacy of cash provided by operating activities
and other liquidity sources to meet these needs. The Trust's principal short-
term liquidity needs are to fund normal operating expenses and the minimum
dividend distributions (if any) required to maintain the Trust's REIT status
under the
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Internal Revenue Code. The Trust expects to fund these short-term liquidity
needs from cash flows provided by operating activities and the proceeds of
sales of investments. Net proceeds from the sales of the Trust's investments
will also be used to make dividend distributions to the Trust's shareholders
and to establish any reserve necessary for the liquidating trust.
The Trust's debt at December 31, 1997 was $8,345,000, composed solely of a
mortgage note payable on Park Place, as compared to $36,889,000 at July 31,
1996 and $71,816,000 at July 31, 1995. The Trust's mortgage notes payable of
$36,889,000 at July 31, 1996 were comprised of three mortgages, two on the
Trust's Owned Properties held directly by the Trust and one on the Asset Held
for Sale directly by the trust.
The Trust acquired its lessee's interest in the Park Place office building
located in Clayton, Missouri, in January 1991, subject to an $8,600,000 non-
recourse mortgage loan. In November 1993, the Trust refinanced the first
mortgage, resulting in a reduction in the annual effective interest rate from
8.25% to 5.65%. The mortgage balance was $8,345,000 at December 31, 1997. Park
Place was sold in January 1998 subject to this mortgage.
Review of Real Estate Investments
At December 31, 1997, the Trust's principal asset was its $15,077,000
portfolio of real estate investments, which was comprised of two Assets Held
for Sale directly by the Trust (which were carried at the lower of cost or fair
value less anticipated closing costs), both of which were sold subsequent to
the end of the year. Set forth below is a discussion of significant changes in
the portfolio during the year.
Office Buildings. At December 31, 1997, the Trust had one office building
investment, Park Place, an Asset Held for Sale directly by the Trust,
(previously classified as an Owned Property held directly by the Trust). During
the year ended December 31, 1997, the Trust sold two office investments.
Citibank Office Plaza--Schaumburg, located in Schaumburg, Illinois, was sold
in July 1997 at its book value. The Trust received net sales proceeds of
approximately $8,700,000 after closing expenses. On August 1, 1996 the Trust
wrote down its investment in this property by $936,000. One Park West located
in Chevy Chase, Maryland, was sold in October 1997 for $20,685,000. The Trust
realized a gain from the sale of this property of approximately $1,334,000
($.14 per share) and net proceeds of $10,900,000 after closing expenses and
repayment of the first mortgage.
At December 31, 1997, Park Place, located in Clayton, Missouri, and
previously classified as an Owned Property held directly by the Trust, was
under contract to be sold for $14,145,000. Subsequent to the end of the year
the sale was consummated and the Trust realized a gain on the sale of this
property of $3,067,000. On August 1, 1996 the Trust wrote down its investment
in this property by $1,239,000. At the time of sale the property was subject to
a $8,345,000 first mortgage loan.
Hotels. At December 31, 1997, the Trust had one hotel investment, Cincinnati
Marriott Inn, an Asset Held For Sale directly by the Trust formerly classified
as a Structured Transaction held directly by the Trust. On August 1, 1996 the
Trust wrote down its investment in this property by $1,016,000. This property
was sold on June 17, 1998.
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During the year ended December 31, 1997, the Trust sold one hotel investment.
In January 1997, the Trust sold its $2,000,000 land investment in City Centre
Holiday Inn located in Chicago, Illinois, for $20,577,000. The Trust realized a
gain on this sale of $18,577,000 ($1.94 per share).
Apartments. At December 31, 1997, the Trust did not own any apartment
investments.
During the year ended December 31, 1997, the Trust sold four apartment
investments. In September 1997, the Trust's $5,400,000 investment in the
Sandpiper Cove apartments, located in Boynton Beach, Florida, and its
$9,770,000 investment in the Elm Creek apartments, located in Elmhurst,
Illinois, were repurchased by an affiliate of the Trust's lessee/mortgagors for
$20,000,000. The Trust realized a gain on the sale of these investments of
$4,750,000 ($.50 per share). In October 1997, the Trust's $400,000 investment
in Northbrook apartments located in San Bernardino, California was repurchased
by its lessee for $750,000. The Trust realized a gain on this property of
$350,000 ($.04 per share). Telegraph Hill apartments, located in Houston,
Texas, which was held in an Investment Partnership, was sold in June 1997. The
Trust's share of the proceeds was $1,300,000, which resulted in a gain of
$857,000 ($.09 per share). On August 1, 1996 the Trust wrote down its
investment in this property by $300,000.
Shopping Centers. At December 31, 1997, the Trust did not own any shopping
center investments.
During the year ended December 31, 1997 the Trust sold three shopping center
investments. In June 1997, the Trust's lessee of Lakeside Center located in
Burbank, California, repurchased the Trust's $350,000 land investment for
$2,350,000. The Trust realized a gain from the sale of this investment of
$1,944,000 ($.20 per share). In September 1997, the Trust's lessee/mortgagor of
Roseburg Valley Mall, located in Roseburg, Oregon, repurchased the Trust's
$3,950,000 investment at book value, resulting in no gain or loss. Loehmann's
Fashion Island located in Aventura, Florida, was reclassified to an Asset Held
for Sale directly by the Trust at March 31, 1997. On August 1, 1996 the Trust
wrote down its investment in this property by $869,000. The property was sold
at its book value of $37,300,000 in December 1997. After repayment of the first
mortgage and closing expenses, the net proceeds from this sale were
$17,000,000.
Results of Operations for the Calendar Year Ended December 31, 1997 Versus the
Fiscal Year Ended July 31, 1996
The Trust has been disposing of its investments in accordance with the
business plan. At December 31, 1997, the Trust had two assets remaining. As a
result, the Trust's revenues, expenses and resulting net income have decreased
and are expected to continue to do so.
Revenues. Revenues from Owned Properties held directly by the Trust (base
rent plus expense reimbursements) decreased 15%, primarily due to the Trust's
sales of Citibank Office Plaza--Oak Brook in January 1996, Citibank Office
Plaza--Schaumburg in July 1997, One Park West in October 1997 and Loehmann's
Fashion Island in December 1997.
Base income from Structured Transactions held directly by the Trust (land
rent and mortgage interest) decreased 27%, primarily due to the sales of
Yorkshire in December 1995, Bluffs II in May 1996, City Centre Holiday Inn in
January 1997, Lakeside Center in June 1997, Roseburg Valley Mall, Elm Creek and
Sandpiper Cove in September 1997, and Northbrook in October 1997.
Overage income decreased 50% primarily due to the sale of City Centre Holiday
Inn in January 1997 and Elm Creek and Sandpiper Cove in September 1997.
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Income from unconsolidated Investment Partnerships decreased by 96% due to
the sales of Chimney Rock in September 1995, Crossroads Mall in October 1995,
College Hills 3 in March 1996, College Hills 8 and Financial Plaza in April
1996, the Lisle Hilton Inn (a mortgage repayment) in June 1996, Boardwalk and
St. Charles in June 1996, Canyon View II in August 1996, Plaza West Retail
Center in October 1996 and Telegraph Hill in June 1997.
Interest income increased 43% for the year ended December 31, 1997. Interest
income is earned on net proceeds received by the Trust from the sale of its
investments, which proceeds are invested until they are distributed to
shareholders in the form of special dividends.
Advisory fee income decreased 88% due to the sale of the investments held by
Investment Partnerships noted above.
Expenses. Expenses on Owned Properties held directly by the Trust decreased
14% due to the sale of the properties noted above. Interest expense decreased
45% primarily due to the retirement of all of the Trust's remaining outstanding
10% and 9 3/4% Convertible Subordinated Debentures prior to June 1996 and a
$3,000,000 amortization payment made on the Loehmann's Fashion Island first
mortgage in June 1996. The decrease was also due to the sale of One Park West
in October 1997 and Loehmann's Fashion Island in December 1997, both of which
were encumbered by first mortgages.
Depreciation decreased 70% due to the elimination of depreciation on Citibank
Office Plaza--Schaumburg and Loehmann's Fashion Island in March 1997 and One
Park West in July 1996 upon their reclassification to Assets Held for Sale
directly by the Trust prior to their sale.
General and administrative expenses decreased by 34% primarily due to the
accrual of severance arrangements in prior periods for certain of the Trust's
employees in conjunction with the implementation of the business plan.
Professional fees decreased by 66% primarily due to the reduced size of the
Trust's portfolio. Trustees' fees and expenses did not change significantly in
calendar 1997 from fiscal 1996.
During the fourth quarter of the fiscal year ended July 31, 1996, the Trust
wrote down its investment in Loehmann's Fashion Island by $5,612,000, of which
$3,000,000 was charged to operations and $2,612,000 was charged to the Trust's
previously established allowance for possible investment losses.
Gain on Sale of Real Estate Investments. Net income for the calendar year
ended December 31, 1997 included a gain on the sale of real estate investments
of $27,812,000 ($2.91 per share) consisting of a gain of $18,577,000 ($1.94 per
share) from the sale of the land underlying City Centre Holiday Inn, a gain of
$857,000 ($.09 per share) from the sale of Telegraph Hill, a gain of $1,944,000
($.20 per share) from the sale of the land underlying Lakeside Center, a gain
of $4,750,000 ($.50 per share) from the sale of the land underlying Elm Creek
and Sandpiper Cove, a gain of $350,000 ($.04 per share) from the sale of the
land underlying Northbrook and a gain of $1,334,000 ($.14 per share) from the
sale of One Park West.
Extraordinary Loss from Extinguishment of Debt. Net income for the fiscal
year ended July 31, 1996 reflected an extraordinary loss from extinguishment of
debt of $473,000 related to the write-off of capitalized issuance costs when
the Trust redeemed its Convertible Subordinated Debentures.
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<PAGE>
Dividends. Dividends declared in respect of calendar year 1997 were $8.93 per
share consisting of $.18 per share in regular quarterly dividends and $8.75 per
share in special dividends.
Results of Operations for the Fiscal Year Ended July 31, 1996 Versus the Fiscal
Year Ended July 31, 1995
Revenues. Rents from Owned Properties held directly by the Trust (base rent
plus expense reimbursements) decreased 20%, primarily due to the Trust's sales
of Citibank Office Plaza--Oak Brook office building in January 1996 and 6110
Executive Boulevard office building in January 1995, and the receipt by the
Trust in the first quarter of fiscal 1995 of $404,000 of nonrecurring revenues
related to the settlement of a bankruptcy claim filed by the Trust against a
former tenant at Loehmann's Fashion Island.
There was no significant change in base income from Structured Transactions
held directly by the Trust (land rent and mortgage interest) for the year ended
July 31, 1996, as compared to the prior year. Overage income from Structured
Transactions held directly by the Trust increased 24% for the year ended July
31, 1996, as compared to the prior year, primarily due to increased overage
income from the Sandpiper Cove and City Centre Holiday Inn investments.
The Trust's share of income from unconsolidated Investment Partnerships
increased 79% for the year ended July 31, 1996, as compared to the prior year,
primarily due to the increased net income recorded by the Trust from Midwest,
an Investment Partnership in which the Trust owned a 53.3% general partner
interest. This resulted primarily from the cessation of depreciation on the
Partnership's properties when they were reclassified to Assets Held for Sale.
The increase is also due to the improved performance of certain properties in
the Southwest portfolio, and the settlement of litigation relating to Canyon
View and receipt of certain income in fiscal 1996 which had not been previously
accrued. These increases were offset by the loss of revenues due to the
prepayment of the Lisle Hilton Inn investment and the sales of the St. Charles
and Boardwalk apartments in the fourth quarter of fiscal 1996, Financial Plaza,
College Hills 3 and College Hills 8 in the third quarter of fiscal 1996, the
Crossroads Mall investment and the Chimney Rock apartments in the first quarter
of fiscal 1996 and the Braes Hill apartments in the third quarter of fiscal
1995.
Advisory fee income increased 18% for the year ended July 31, 1996, as
compared to the prior year, primarily due to the increase in operating
distributions paid by the Trust's Investment Partnerships.
Interest income was earned by the Trust in the amount of $486,000 for the
year ended July 31, 1996 as compared to $108,000 in the prior year. The
increased interest income in fiscal 1996 was primarily from the short-term
investment of sales proceeds prior to their use for the retirement of
debentures or payment of special dividends.
Expenses. Expenses on Owned Properties held directly by the Trust decreased
18% for the year ended July 31, 1996, as compared to the prior year, primarily
due to the sale of Citibank Office Plaza--Oak Brook in January 1996 and the
sale of 6110 Executive Boulevard in January 1995.
Depreciation expense decreased 4% for the year ended July 31, 1996 as
compared to the prior year, primarily due to the elimination of depreciation on
Citibank Office Plaza--Oak Brook upon its reclassification to an Asset Held for
Sale directly by the Trust in July 1995 and the sale of 6110 Executive
Boulevard in January 1995, offset in part by the write-off in the second
quarter of fiscal
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1996 of certain tenant improvements at Citibank Office Plaza--Schaumburg
related to a tenant's bankruptcy and the write-off of certain tenant
improvements at Loehmann's Fashion Island related to the early termination of
certain space leases.
Interest expense decreased 31% for the year ended July 31, 1996 as compared
to the prior year primarily due to the retirement of all of the Trust's
remaining outstanding 10% and 9 3/4% Convertible Subordinated Debentures during
fiscal 1996 and the sale of 6110 Executive Boulevard in January 1995, which was
encumbered by a first mortgage, partially offset by an increase in interest
expense related to Loehmann's Fashion Island.
General and administrative expenses increased 65% for the year ended July 31,
1996, as compared to the prior year, primarily due to the accrual of severance
arrangements for the Trust's employees in conjunction with the implementation
of the business plan.
Professional fees increased 31% for the year ended July 31, 1996 as compared
to the prior year, due to the legal fees incurred as a result of the Trust's
adoption of its business plan. Trustees' fees and expenses did not change
significantly in fiscal 1996 from fiscal 1995.
During the fourth quarter of fiscal 1996, the Trust wrote down its investment
in Loehmann's Fashion Island by $5,612,000, of which $3,000,000 was charged to
operations and $2,612,000 was charged to the Trust's previously established
allowance for possible investment losses.
Gain on Sale of Real Estate Investments. Net income for the year ended July
31, 1996 included gains on the sale of real estate investments of $6,094,000
($.67 per share), consisting of a gain of $1,320,000 ($.15 per share) from the
sale of the land underlying Bluffs II, a gain of $51,000 ($.01 per share) from
the sale of St. Charles, Chimney Rock and Boardwalk apartments, a gain of
$443,000 ($.05 per share) from the sales of certain properties held in Midwest,
primarily College Hills 8, a gain of $470,000 ($.05 per share) from the sale of
the Citibank Office Plaza--Oak Brook, a gain of $310,000 ($.03 per share) from
the sale of the land underlying Yorkshire apartments, and a gain of $3,500,000
($.38 per share) from the sale of the land underlying Crossroads Mall. In the
prior year net income included gains on the sale of real estate investments of
$3,209,000, consisting of a gain of $3,099,000 ($.34 per share) from the sale
of 6110 Executive Boulevard and a gain of $110,000 ($.01 per share) from the
sale of Braes Hill apartments.
Extraordinary Loss from Extinguishment of Debt. During fiscal 1996, the Trust
retired all of its 10% Convertible Subordinated Debentures ($29,125,000
principal amount) and 9 3/4% Convertible Subordinated Debentures ($2,546,000
principal amount). Due to the early retirement of these Convertible
Subordinated Debentures, the Trust incurred an extraordinary loss on the
extinguishment of debt from the write-off of capitalized issuance costs in the
amount of $473,000 ($.05 per share).
Dividends. Dividends declared in respect of fiscal 1996 were $3.23 per share
versus $.41 per share for fiscal 1995. Included in the 1996 dividends were
special dividends of $2.75 per share which represented the first distributions
to shareholders from the proceeds of the sale of investments under the business
plan.
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<PAGE>
Results of Operations for the Five Months Ended December 31, 1996 (the
Transition Period) Versus the Five Months Ended December 31, 1995
Revenues. Rents from Owned Properties held directly by the Trust (base rent
plus expense reimbursements) decreased 8% for the five-month Transition Period,
as compared to the same period in the prior year, primarily due to the sale of
Citibank Office Plaza--Oak Brook in January 1996, offset in part by $230,000
received from the settlement of litigation with a former tenant of Loehmann's
Fashion Island and the inclusion of rents from One Park West which was
reclassified to an Asset Held for Sale directly by the Trust at July 31, 1996.
Base income from Structured Transactions held directly by the Trust (land
rent and mortgage interest) decreased 4% for the five months ended December 31,
1996 as compared to the same period in the prior year, primarily due to the
sales of the Yorkshire apartments investment in December 1995 and the Bluffs II
apartments investment in May 1996.
Overage income from Structured Transactions held directly by the Trust
increased 108% for the five months ended December 31, 1996, as compared to the
same period in the prior year primarily due to increased overage income from
the City Centre Holiday Inn (which was sold by the Trust after the Transition
Period) and Sandpiper Cove investments.
The Trust's share of income from unconsolidated Investment Partnerships
decreased 96% for the five months ended December 31, 1996 as compared to the
same period in the prior year, primarily due to the dispositions of the Chimney
Rock apartments in September 1995, the Crossroads Mall investment in October
1995, the College Hills 3 investment in March 1996, the College Hills 8 and
Financial Plaza investments in April 1996, the St. Charles and Boardwalk
apartments investments in June 1996, the Canyon View II apartments investment
in August 1996 and the Plaza West Retail Center in October 1996, and the
repayment of the first mortgage investment in the Lisle Hilton Inn in June
1996.
Advisory fee income decreased 88% for the five months ended December 31,
1996, as compared to the same period in the prior year, due to the sale of
certain investments held by the Investment Partnerships as noted above.
Expenses. Expenses on Owned Properties held directly by the Trust decreased
6% for the five months ended December 31, 1996, as compared to the same period
in the prior year, due to the sale of Citibank Office Plaza--Oak Brook, offset
in part by an increase in real estate taxes at certain Owned Properties held
directly by the Trust.
Interest expense decreased 49% for the five months ended December 31, 1996,
as compared to the same period in the prior year, primarily due to the
retirement of all of the Trust's remaining outstanding 10% and 9 3/4%
Convertible Subordinated Debentures during the fiscal year endedJuly 31, 1996.
General and administrative expenses increased 7% for the five months ended
December 31, 1996, as compared to the same period in the prior year, primarily
due to the accrual of severance arrangements for certain of the Trust's
employees in conjunction with the implementation of the business plan.
Depreciation expense decreased 8% for the five months ended December 31,
1996, as compared to the same period in the prior year, due to the elimination
of depreciation on One Park West upon
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its reclassification to an Asset Held for Sale directly by the Trust in July
1996, offset in part by the write-off of certain tenant improvements due to
early lease terminations at Loehmann's Fashion Island.
Professional fees decreased 36% for the five months ended December 31, 1996,
as compared to the same period in the prior year, primarily due to higher legal
fees in the prior year associated with the adoption of the business plan.
Trustees' fees and expenses did not change significantly from the prior year.
Gain on Sale of Real Estate Investments. Net income for the five months ended
December 31, 1996 included a gain on the sale of real estate investments of
$832,000 from the sale of Canyon View II apartments. For the five months ended
December 31, 1995, net income included gains on the sale of real estate
investments of $3,811,000 from the sales of the Crossroads Mall, the Yorkshire
apartments and the Chimney Rock apartments investments.
Extraordinary Loss from Extinguishment of Debt. Net income for the five
months ended December 31, 1995 reflected an extraordinary loss from
extinguishment of debt of $186,000 related to the write-off of original
issuance costs when the Trust redeemed a portion of its 10% Convertible
Subordinated Debentures at face value.
Dividends. Dividends declared in respect of the Transition Period were $1.18
per share. Included in this amount was a special dividend of $1.00 per share
from the proceeds from sale of investments.
Inflationary and Economic Factors. The effect of inflation upon the Trust's
operations and real estate investments has not been material. The Trust
believes that many of the real estate markets in which the Trust operates have
improved significantly from the first half of the decade. Though not applicable
to all properties in the Trust's portfolio, rental rates at many of the
properties in 1997 increased by the rate of or in excess of inflation. Although
operating expenses are generally impacted by inflation, increases in operating
expenses in the past year caused by inflation have not been material.
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SELECTED FINANCIAL INFORMATION--FYA
The selected financial information presented below as of and for the years
ended December 31, 1997, 1996 and 1995 has been derived from FYA's Financial
Statements, which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included elsewhere in this document.
The selected financial information as of and for the nine months ended
September 30, 1998 and 1997 and as of and for the years ended December 31, 1994
and 1993, has not been audited but, in the opinion of management of FYA,
includes all adjustments (consisting only of normal, recurring adjustments)
necessary to present fairly such information in accordance with generally
accepted accounting principles applied on a consistent basis.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
----------------- ------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ----- ----- ----- ----- ------
(In thousands)
Summary of Operations
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 237 $ 236 $ 315 $ 315 $ 314 $ 314 $ 558
Costs and Operating
Expenses................... 48 44 60 67 101 113 486
-------- -------- ----- ----- ----- ----- ------
Operating Income............ 189 192 255 248 213 201 72
Gain on Sale of Assets...... -- -- -- -- -- -- 2,220
-------- -------- ----- ----- ----- ----- ------
Net Income.................. $ 189 $ 192 $ 255 $ 248 $ 213 $ 201 $2,292
======== ======== ===== ===== ===== ===== ======
Financial Position at Period-End
Working Capital............. $ 128 $ 121 $ 122 $ 112 $ 103 $ 87 $ (16)
Total Assets................ 1,547 1,585 1,552 1,587 1,629 1,635 1,663
Partners' Capital........... 1,502 1,540 1,530 1,565 1,607 1,614 1,558
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS--FYA
FYA currently owns and operates 17,250 square feet of laboratory and office
space, which is situated on 1.1 acres of land, located at 51 New York Avenue in
Framingham, Massachusetts. Genzyme Corporation is the sole tenant of the
property. The lease, as amended, is for a term of twenty years that expires in
September 2005. Genzyme Corporation has two five-year options to extend the
term of the lease. In addition, the tenant is also responsible for direct
payment of substantially all of the operating expenses including maintenance,
real estate taxes and insurance. See "PCT, INC. Description of Property" on
page 37.
Results of Operations for the Nine Months Ended September 30, 1998 as Compared
with the Nine Months Ended September 30, 1997
Revenues. Rental income for the nine months ended September 30, 1998 and 1997
totaled $232,915 and $232,912, respectively. Total income for the nine months
ended September 30, 1998 totaled $236,621, as compared to $236,431 for the nine
months ended September 30, 1997. In addition to rental income, FYA earned other
income consisting primarily of interest from working capital reserves.
Expenses. Property operating expenses not paid directly by the tenant were
$23,899 for the nine months ended September 30, 1998, as compared to $21,154
for the nine months ended September 30, 1997.
FYA pays management fees calculated at the rate of 3% of gross receipts to a
related party of FYA. Management fees paid for the nine months ended September
30, 1998 and 1997 totaled $8,148 for both periods. FYA also incurred other
expenses during this period, including, but are not limited to, audit and tax
preparation, travel reimbursement, dues to real estate organizations and
liability insurance.
Net Income. Net income from operations for the nine months ended September
30, 1998 totaled $189,403, as compared to $191,958 for the nine months ended
September 30, 1997.
Inflation. The tenant is responsible for paying substantially all of the
operating costs including the real estate taxes. FYA believes that this reduces
the risk of adverse effects of inflation on the business and operations of FYA.
Financial Condition, Liquidity and Capital Resources. FYA had no debt during
fiscal 1998 and 1997. In addition, the tenant directly pays for most of the
operating expenses. FYA believes that there is an adequate level of working
capital held by FYA to cover any type of extraordinary capital expenditure.
During the nine months ended September 30, 1998 and 1997, distributions to the
partners totaled $217,500. In October 1998, FYA also distributed an additional
$72,500.
Results of Operations for the Fiscal Year Ended December 31, 1997 as Compared
with the Fiscal Year Ended December 31, 1996
Revenues. Rental income for the year ended December 31, 1997 totaled
$311,338, as compared with $311,216 for the year ended December 31, 1996. Total
income for fiscal year 1997 and 1996 were $315,117 and $314,449, respectively.
In addition to rental income, FYA earned other income consisting primarily of
interest from working capital reserves. Interest and other income was $3,779
and $3,283 for 1997 and 1996, respectively.
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<PAGE>
Expenses. Property operating expenses not paid directly by the tenant were
$29,380 and $30,354 for the years ended 1997 and 1996, respectively.
FYA pays management fees calculated at the rate of 3% of gross receipts to a
related party of FYA. Management fees paid for the fiscal years ended 1997 and
1996 totaled $9,774 in both periods. FYA also incurred other expenses,
including, but are not limited to, audit and tax preparation, travel
reimbursement, dues to real estate organizations and liability insurance.
Net Income. Net income for the fiscal years ended 1997 and 1996 were $254,646
and $247,558, respectively.
Inflation. The tenant is responsible for paying substantially all of the
operating costs including the real estate taxes thereby reducing the risk of
adverse effects on inflation.
Financial Condition, Liquidity and Capital Resources. FYA had no debt during
1997 and 1996. In addition the tenant directly pays for most of the operating
expenses. Management feels that the level of working capital maintained by FYA
is adequate to cover any extraordinary event. During the years ended 1997 and
1996, FYA made distributions to its partners totaling $290,000.
Year 2000 Issue
The "Year 2000 Issue" has arisen because existing computer programs use only
the last two digits to refer to a year, rather than four digits. If not
corrected, many computer applications could fail or create erroneous results.
As required by recent guidance from the Securities and Exchange Commission, the
following disclosure provides more detail regarding FYA's assessment of the
Year 2000 Issue.
FYA is currently assessing the effect of the Year 2000 Issue on its financial
and computer systems and expects to implement the necessary modifications to
mitigate any negative consequences associated with the Year 2000 Issue. FYA
does not anticipate Year 2000 Issues to have any material adverse effect on its
operations. In addition, FYA does not anticipate that it shall incur
substantial costs to address Year 2000 Issues or to ensure that its systems are
Year 2000 compliant. To the extent reasonably achievable, FYA will seek to
prevent or mitigate the effects of such possible failures through its ongoing
contingency planning efforts. However, there is no guarantee that such efforts
will be completely successful.
71
<PAGE>
SELECTED COMPARATIVE PER SHARE DATA
The following tables set forth certain information concerning the Trust's
Shares and the shares of Corporation Common Stock. Entries captioned "MPCT pro
forma" represent FYA's and the Trust's historical data combined and adjusted to
give effect to the Merger and Related Transactions on the basis described in
the notes to the Pro Forma Condensed Combined Financial Statements (Unaudited).
The following data should be read in conjunction with the Pro Forma Condensed
Combined Financial Statements (Unaudited) included elsewhere in this document,
the Trust's consolidated financial statements,which are available as described
in "Available Information," and FYA's financial statements included elsewhere
in this document.
Book value per share of common stock as of September 30, 1998:
<TABLE>
<S> <C>
PCT historical...................................................... $0.27
MPCT pro forma...................................................... --
</TABLE>
Net income (loss) per share of common stock:
<TABLE>
<CAPTION>
For the Nine For the Year
Months Ended Ended
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
PCT historical....................... $0.57 $3.27
MPCT pro forma....................... (0.04) (2.13)
</TABLE>
Dividends declared per share of common stock:
<TABLE>
<CAPTION>
For the Nine For the Year
Months Ended Ended
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
PCT historical....................... $1.15 $8.93
MPCT pro forma....................... -- --
</TABLE>
72
<PAGE>
MARKET PRICES AND CASH DIVIDENDS INFORMATION
As a result of the disposition of all of the Trust's real estate investments,
the American Stock Exchange halted trading in the shares of the Trust at the
close of business on July 10, 1998 and subsequently delisted the shares on
October 29, 1998. The Trust's shares are now traded on the over-the-counter
Bulletin Board (symbol "PCTG").
The following table sets forth the high and low trading prices of the Trust's
shares during the two most recent fiscal years:
Fiscal Year Ended December 31, 1998
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
First....................................................... $1 1/2 $ 5/8
Second...................................................... 1 1/8 11/16
Third....................................................... 1 1/8 15/16
Fourth...................................................... 5/16 1/8
Fiscal Year Ended December 31, 1997
First....................................................... $8 3/4 $5 11/16
Second...................................................... 7 3/8 5 1/4
Third....................................................... 7 3/8 5 9/16
Fourth...................................................... 6 1/2 3/4
</TABLE>
On June 17, 1998, the last full trading day preceding public announcement of
the signing of the merger agreement, the high, low and closing sales prices of
a share of the Trust on the American Stock Exchange were $.9375, $.8125 and
$.875, respectively. On June 18, 1998, the date on which the signing of the
merger agreement was announced, the high, low and closing sales prices of a
share on the American Stock Exchange were $1.00, $.875 and $.9375,
respectively. On July 10, 1998, the last day of trading prior to the halt of
trading by the American Stock Exchange and the day on which the Trust
distributed an $.80 per share special dividend, the high, low and closing sales
prices of a share on the American Stock Exchange were $1.125, $1.00 and $1.125,
respectively.
The following table sets forth the cash dividends, including special
dividends, paid by the Trust on the shares for the two most recent fiscal years
and any interim period:
<TABLE>
<CAPTION>
Date
Dividend Paid
-------- --------
<S> <C> <C>
Fiscal Year Ended December 31, 1998
$ .35* 2/27/98
.80* 7/10/98
------
Total.................................................... $ 1.15
======
Fiscal Year Ended December 31, 1997
$ .09 2/24/97
2.00* 2/24/97
.06 5/23/97
.20* 5/23/97
.06 8/22/97
1.15* 8/22/97
.06 11/24/97
2.50* 11/24/97
2.90* 12/29/97
------
Total...................................................... $ 9.02
======
</TABLE>
- --------
* Note: These are special dividends
As of the record date, there were [9,584,220] holders of record of the
Trust's shares.
73
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the record date, certain information
regarding each person, including any "group" as that term is used in Section
13(d)(3) of the Exchange Act known, based solely upon filings with the
Commission prior to such date pursuant to Sections 13(d) or 13(g) of the
Exchange Act, who owns beneficially, as such term is defined in Rule 13d-3
under the Exchange Act, more than 5% of the outstanding shares of the Trust.
<TABLE>
<CAPTION>
Number
of
Shares Percent of
Name and Address Owned Outstanding Shares
---------------- ------- ------------------
<S> <C> <C>
Warren E. Buffett................................. 815,100 8.5%
1440 Kiewit Plaza
Omaha, Nebraska 68131
</TABLE>
The following table sets forth, as of the record date, information known to
the Trust with respect to the beneficial ownership of shares of the Trust by
(i) each Trustee of the Trust, (ii) each of the four most highly compensated
executive officers of the Trust and (iii) all Trustees and executive officers
of the Trust as a group:
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Beneficial of
Name and Address Ownership(1) Class
---------------- ------------ -------
<S> <C> <C>
Walter M. Cabot...................................... 22,165 (2)
John A. Cervieri Jr.................................. 0 --
Graham O. Harrison................................... 57,720 (2)
Walter F. Leinhardt.................................. 40 (2)
Robert M. Melzer..................................... 57,000(3) (2)
Glenn P. Strehle..................................... 20,110(4) (2)
All Trustees and executive officers as a group (6
persons)............................................ 157,035(5) 1.6%
</TABLE>
- --------
(1) Nature of beneficial ownership is sole voting and investment power except
as indicated in subsequent notes.
(2) Less than 1%.
(3) Includes 41,000 Shares owned by Mr. Melzer and 16,000 Shares held through
an Individual Retirement Account owned and controlled by Mr. Melzer.
(4) The Massachusetts Institute of Technology ("M.I.T.") owns 350,000 Shares
with respect to which Mr. Strehle has voting and investment power by virtue
of his position as Vice President for Finance and Treasurer of M.I.T.,
subject to the policies and procedures of the Investment Committee of
M.I.T. of which Committee Mr. Strehle is an ex-officio member. In addition,
the M.I.T. Retirement Plan owns 240,047 Shares with respect to which Mr.
Strehle has voting and investment power by virtue of his position as
Chairman of the Board of Trustees of the M.I.T. Retirement Plan. Mr.
Strehle disclaims beneficial ownership of the Shares owned by M.I.T. and
the M.I.T. Retirement Plan.
(5) Includes shares owned by members of the immediate families of certain
Trustees and officers, as to which shares the relevant Trustee or officer
disclaims beneficial ownership.
On the date of this proxy statement/prospectus, the Trust is the sole
stockholder of PCT Inc. At the effective time of the merger, the partners of
FYA will own an aggregate of 319,489 shares of common stock of PCT Inc. and the
shareholders of the Trust will own an aggregate of 159,737 shares of the common
stock.
74
<PAGE>
LEGAL MATTERS
The validity of the shares of the common stock of PCT Inc. offered by this
proxy statement/prospectus will be passed upon by Goodwin Procter & Hoar LLP.
EXPERTS
The audited financial statements of FYA as of and for each of the three years
ended December 31, 1997 included in this document have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report.
OTHER MATTERS
The Trustees do not intend to bring any other matters before the special
meeting and as of the date hereof do not know of any other matters that may be
brought before the special meeting by others. If any other matter should
properly come before the special meeting, the proxy appointees will have
discretionary authority to vote the shares thereby represented in accordance
with their best judgment.
By Order of the Trustees,
WALTER F. LEINHARDT
Secretary
75
<PAGE>
The financial statements of Maryland Property Capital Trust, Inc. and
Property Capital Trust Limited Partnership have not been separately presented
as these entities are nominally capitalized and will have minimal economic
activity until the completion of the proposed transactions.
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
TOGETHER WITH AUDITORS' REPORT
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Framingham York Associates Limited Partnership
We have audited the accompanying balance sheets of Framingham York Associates
Limited Partnership (a Massachusetts limited partnership) as of December 31,
1997, 1996 and 1995, and the related statements of income, partners' capital
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Partnership'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 financial statements referred to above present fairly, in
all material respects, the financial position of Framingham York Associates
Limited Partnership as of December 31, 1997, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 8, 1998
F-2
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
September 30, --------------------------------
1998 1997 1996 1995
------------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Rental Property, at cost (Note
2(e))
Land.......................... $ 202,500 $ 202,500 $ 202,500 $ 202,500
Building...................... 1,235,600 1,235,600 1,235,600 1,235,600
Tenant improvements........... 402,114 402,114 402,114 402,114
---------- ---------- ---------- ----------
1,840,214 1,840,214 1,840,214 1,840,214
Less--Accumulated
depreciation................. 820,143 796,975 766,085 729,700
---------- ---------- ---------- ----------
1,020,071 1,043,239 1,074,129 1,110,514
Cash and Cash Equivalents (Note
2(d)).......................... 173,824 144,079 133,392 124,798
Deferred Charges, net of
Accumulated Amortization of
$31,597 in 1998, $31,446 in
1997, $31,245 in 1996 and
$31,055 in 1995 (Notes 2(h) and
3)............................. 28,363 28,514 28,715 28,916
Deferred Rent (Note 2(g))....... 325,153 335,988 350,438 364,888
---------- ---------- ---------- ----------
$1,547,411 $1,551,820 $1,586,674 $1,629,116
========== ========== ========== ==========
Liabilities and Partners'
Capital
Liabilities:
Accounts payable and accrued
expenses..................... $ 34,188 $ 10,500 $ 10,000 $ 10,000
Tenant security deposits...... 11,453 11,453 11,453 11,453
---------- ---------- ---------- ----------
45,641 21,953 21,453 21,453
Commitments and Contingencies
(Note 5)
Partners' Capital............... 1,501,770 1,529,867 1,565,221 1,607,663
---------- ---------- ---------- ----------
$1,547,411 $1,551,820 $1,586,674 $1,629,116
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
----------------- --------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income (Note 2(g))....... $232,915 $232,912 $311,338 $311,216 $311,106
Miscellaneous income............ 3,706 3,519 3,779 3,283 3,096
-------- -------- -------- -------- --------
236,621 236,431 315,117 314,499 314,202
Expenses:
Administrative and financial
expenses....................... 23,899 21,154 29,380 30,354 29,212
Depreciation (Note 2(e))........ 23,168 23,168 30,890 36,386 69,592
Amortization (Note 2(h))........ 151 151 201 201 2,450
-------- -------- -------- -------- --------
Net income...................... $189,403 $191,958 $254,646 $247,558 $212,948
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- ---------- ----------
<S> <C> <C> <C>
Partners' Capital, December 31, 1994........ $32,966 $1,601,749 $1,634,715
Distributions to partners................. (4,800) (235,200) (240,000)
Net income................................ 4,258 208,690 212,948
------- ---------- ----------
Partners' Capital, December 31, 1995........ 32,424 1,575,239 1,607,663
Distributions to partners................. (5,800) (284,200) (290,000)
Net income................................ 4,952 242,606 247,558
------- ---------- ----------
Partners' Capital, December 31, 1996........ 31,576 1,533,645 1,565,221
Distributions to partners................. (5,800) (284,200) (290,000)
Net income................................ 5,092 249,554 254,646
------- ---------- ----------
Partners' Capital, December 31, 1997........ 30,868 1,498,999 1,529,867
Distributions to partners (unaudited)..... (4,350) (213,150) (217,500)
Net income (unaudited).................... 3,788 185,615 189,403
------- ---------- ----------
Partners' Capital, September 30, 1998
(unaudited)................................ $30,306 $1,471,464 $1,501,770
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------ ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income................. $189,403 $191,958 $254,646 $247,558 $212,948
Adjustments to reconcile
net income to net cash
provided by operating
activities--
Depreciation and
amortization............. 23,319 23,319 31,091 36,587 72,042
Decrease in tenant
accounts receivable...... -- -- -- -- 2,089
Decrease in prepaid
expenses................. -- -- -- -- 213
Decrease (increase) in
deferred rent............ 10,835 10,838 14,450 14,450 (30,550)
Increase in accounts
payable and accrued
expenses................. 23,688 23,726 500 -- 500
-------- -------- -------- -------- --------
Total adjustments........ 63,845 57,883 46,041 51,037 44,294
-------- -------- -------- -------- --------
Net cash provided by
operating activities.... 247,245 249,841 300,687 298,595 257,242
-------- -------- -------- -------- --------
Cash Flows from Financing
Activities:
Distributions to partners.. (217,500) (217,500) (290,000) (290,000) (240,000)
-------- -------- -------- -------- --------
Net cash used in
financing activities.... (217,500) (217,500) (290,000) (290,000) (240,000)
-------- -------- -------- -------- --------
Net Increase in Cash......... 29,745 32,341 10,687 8,595 17,242
Cash and cash equivalents,
beginning of period......... 144,079 133,392 133,392 124,797 107,556
-------- -------- -------- -------- --------
Cash and cash equivalents,
end of period............... $173,824 $165,733 $144,079 $133,392 $124,798
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
Framingham York Associates Limited Partnership (FYA) was formed pursuant to
the provisions of the Uniform Limited Partnership Act of Massachusetts to
acquire, hold, develop, operate and lease real property. FYA owns and operates
commercial real estate in Framingham, Massachusetts.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The financial statements and information included in these notes to the
financial statements as of September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 are unaudited. In the opinion of management, such
financial statements and information reflect all adjustments necessary for a
fair presentation of the results of the respective interim periods. All such
adjustments are of a normal, recurring nature.
(b) Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(c) Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, tenant security deposits,
accounts payable and accrued expenses are reasonable estimates of their fair
value.
(d) Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with original
maturities of three months or less.
(e) Rental Property
Rental property, which consists of a commercial building, is stated at cost.
Significant renovations and improvements that improve or extend the useful life
of the assets are capitalized. The building is being depreciated over 40 years
using the straight-line method and tenant improvements are amortized over the
initial term of the related lease, 10 years.
FYA assesses the realizability of intangible and other long-lived assets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To
Be Disposed Of. SFAS No. 121 requires, among other things, that an entity
review its long-lived assets and certain related intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. As a result of its review, FYA does not believe that
any impairment currently exists related to its long-lived assets.
F-7
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
(f) Income Taxes
No provision for income taxes has been recorded on the books of FYA, as the
respective shares of taxable income are reportable by the partners on their
separate income tax returns.
(g) Revenue Recognition
Rental income is recognized on a straight-line basis. This method normalizes
rental income by aggregating annual fixed rents over the term of the lease and
recognizing annual rental income in equal amounts. The difference between
actual rental payments and normalized rental income is capitalized as a
deferred rent asset, on the accompanying balance sheet, and is amortized over
the term of the lease.
(h) Deferred Charges
Deferred charges consist of capitalized lease acquisition costs which are
recorded at cost. The lease acquisition costs are amortized on a straight-line
basis over the respective lives of the leases. Unamortized costs are charged to
expense in the event of any early termination of the lease. The capitalized
loans costs are amortized over the term of the financing on a straight-line
basis.
(3) Related Party Transactions
Included in deferred charges in the accompanying balance sheets are leasing
fees paid to an affiliate of the general partners for services rendered in
obtaining the lease. The leasing fee had an original cost of $26,775.
Under a management contract, FYA pays an affiliate of certain partners 3% of
all receipts for property management services. The amount incurred for these
services was $9,774 for 1997 and 1996, and $8,479 for 1995.
(4) Leases
FYA, as a landlord, rents office and laboratory space located in Framingham,
Massachusetts, under an operating lease with Genzyme Corporation (see Note 6)
for the entire facility. The lease, as amended, has a term of 20 years with two
optional five-year extensions.
The tenant is fully responsible for direct payment of all operating expenses;
therefore, those amounts are not included in the table below. The approximate
minimum future rentals to be received under the operating lease for each of the
next five years and thereafter at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Minimum
Future
Year Rentals
---- ----------
<S> <C>
1998........................................................... $ 333,000
1999........................................................... 357,000
2000........................................................... 357,000
2001........................................................... 357,000
2002........................................................... 357,000
Thereafter..................................................... 981,750
----------
$2,742,750
==========
</TABLE>
F-8
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
(5) Commitments and Contingencies
(a) Concentration of Credit Risk
FYA maintains its cash and cash equivalents at financial institutions. The
combined account balances at each institution periodically exceed FDIC
insurance coverage, and, as a result, there is a concentration of credit risk
related to amounts on deposit in excess of FDIC insurance coverage. Management
of FYA believes the risk is not significant.
(b) Environmental
FYA, as an owner of real estate, is subject to various environmental laws of
federal and local governments. Compliance by FYA with existing laws has not had
a material adverse effect on FYA's financial condition and results of
operations, and management does not believe it will have such an impact in the
future. However, FYA cannot predict the impact of new or changed laws or
regulations on its current properties or on properties that it may acquire in
the future.
(6) Unaudited Summary Financial Information of Tenant
Genzyme Corporation is the sole tenant for the property. Unaudited summary
financial information for Genzyme Corporation as of and for the year ended
December 31, 1997 is presented below:
Balance Sheet
(Unaudited)
(Amounts in Thousands)
Assets
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents................................... $ 66,276
Accounts receivable, net.................................... 116,056
Inventories................................................. 137,708
Other current assets........................................ 85,483
----------
405,523
Property, plant and equipment, net.......................... 365,337
Long-term investments....................................... 91,627
Intangibles, net............................................ 243,071
Other assets................................................ 97,498
----------
Total assets.............................................. $1,203,056
==========
</TABLE>
F-9
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
Balance Sheet
(Unaudited)
(Amounts in Thousands)
Liabilities and Shareholders' Equity
<TABLE>
<S> <C>
Current Liabilities:
Accounts payable and accrued expenses....................... $ 85,274
Other current liabilities................................... 12,261
----------
97,535
Long-term debt and capital lease obligations.................. 117,978
Other liabilities............................................. 6,667
----------
Total liabilities......................................... 222,180
Shareholders' equity.......................................... 980,876
----------
Total liabilities and shareholders' equity................ $1,203,056
==========
Statement of Operations
(Unaudited)
(Amounts in Thousands)
Revenues:
Net product sales........................................... $ 529,927
Net service sales........................................... 55,835
Other....................................................... 11,441
----------
597,203
Operating costs and expenses.................................. 501,225
----------
Operating income.............................................. 95,978
Other expense, net............................................ 5,351
----------
Income before income taxes.................................... 90,627
Provision for income taxes, net............................... 13,180
----------
Net income................................................ $ 77,447
==========
</TABLE>
F-10
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
by and between
Property Capital Trust
and
Maryland Property Capital Trust, Inc.
Dated as of June 18, 1998, as amended
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE 1. THE MERGER..................................................... A-4
Section 1.1 The Merger............................................... A-4
Section 1.2 The Closing.............................................. A-4
Section 1.3 Effective Time........................................... A-4
ARTICLE 2. CHARTER AND BY-LAWS OF SURVIVING CORPORATION................... A-4
Section 2.1 Charter.................................................. A-4
Section 2.2 By-laws.................................................. A-4
ARTICLE 3. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION................ A-5
Section 3.1 Directors................................................ A-5
Section 3.2 Officers................................................. A-5
ARTICLE 4. EFFECT ON SECURITIES........................................... A-5
Section 4.1 Conversion of Shares of the Trust........................ A-5
Section 4.2 Exchange of Certificates Representing Shares............. A-6
ARTICLE 5. CONDITIONS TO CLOSING.......................................... A-8
Section 5.1 Shareholder Approval..................................... A-8
Section 5.2 Investment Agreement..................................... A-8
Section 5.3 Merger Agreements........................................ A-8
Section 5.4 Satisfaction of Obligations.............................. A-8
ARTICLE 6. INDEMNIFICATION................................................ A-8
Section 6.1 No Modification.......................................... A-8
Section 6.2 Indemnification.......................................... A-8
Section 6.3 Additional coverage...................................... A-9
Section 6.4 Third-party rights....................................... A-9
ARTICLE 7. TERMINATION.................................................... A-9
ARTICLE 8. MISCELLANEOUS.................................................. A-9
Section 8.1 Entire Agreement......................................... A-9
Section 8.2 Succession and Assignment; Third-Party Rights............ A-10
Section 8.3 Counterparts............................................. A-10
Section 8.4 Headings................................................. A-10
Section 8.5 Governing Law............................................ A-10
Section 8.6 Amendments............................................... A-10
Section 8.7 Severability............................................. A-10
Section 8.8 Expenses................................................. A-10
Section 8.9 Service of Process....................................... A-10
Section 8.10 Exculpation.............................................. A-10
</TABLE>
A-2
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER dated as of June 18, 1998 (including all
exhibits, hereinafter referred to as this "Agreement") is made and entered into
by and between Property Capital Trust, a Massachusetts business trust (the
"Trust"), and Maryland Property Capital Trust, Inc., a Maryland corporation
(the "Corporation").
RECITALS
A. The Trust was organized pursuant to a Declaration of Trust dated June 9,
1969 (as amended and restated, the "Declaration of Trust").
B. Section 3.1 of the Declaration of Trust provides that the Trustees serving
under said Declaration of Trust
"without other or further authorization, shall have the absolute power and
exclusive control, management and authority over the Trust Property, the
disposition of the Trust Property and the conduct of the business of the
Trust, to the same extent as if the Trustees were the sole owners of the
Trust Property and the sole persons interested in the Trust in their own
right, subject only to the limitations expressly stated in this
Declaration. Such powers may be exercised without order of or resort to any
court or to the Shareholders. Without restricting or limiting the
generality of the foregoing powers, authority and discretion conferred by
this Declaration or which the Trustees may have by law, the Trustees shall
have power:
F. To acquire by purchase or otherwise, or to organize under the laws of
any jurisdiction, one or more corporations, associations, trusts or other
business entities, and, subject to Sections 10.1, 10.2 and 10.3 herein, to
dissolve, terminate, reorganize or liquidate the Trust or any business
entity acquired or organized hereunder, to merge or consolidate the Trust
with any business entity and to merge or consolidate any business entity
with the Trust."
C. The Trustees presently serving under the Declaration of Trust (the
"Trustees") have determined that it is in the interest of the Trust and of the
shareholders of the Trust that the business heretofore conducted by the Trust
be conducted by, and the properties and assets of the Trust (subject to all of
the liabilities and obligations of the Trust) be owned by, a corporate entity
in which the shareholders of the Trust will, immediately following such
reorganization, have the same pro rata interest as stockholders of said
corporation as such shareholders have as shareholders of the Trust.
D. The Trustees of the Trust have determined that a corporation organized
under the Maryland General Corporation Law (the "MGCL") is a proper and
advantageous form of corporate entity to carry on the business of the Trust.
E. The Trustees have caused the organization of the Corporation, which is a
qualified REIT subsidiary, under the MGCL and the Corporation currently has 100
shares of common stock outstanding, all of which are owned and held by the
Trust.
F. The consummation of the Merger (as defined below) is conditioned upon
approval of the holders of two-thirds of the shares of beneficial interest of
the Trust.
G. A special meeting of the shareholders of the Trust shall be called by the
President of the Trust on such day and at such time and place as he determines,
for the purpose of approving the
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Merger (as defined below) pursuant to this Agreement and for such other
business as he may determine is appropriate to be considered at such meeting.
H. The appropriate officers and representatives of the Trust shall prepare
and file with the Securities and Exchange Commission and distribute to
shareholders of the Trust notice of and a proxy statement with respect to such
special meeting of shareholders in combination with, if appropriate, a
prospectus relating to the shares of stock of the Corporation to be issued in
exchange for shares of the Trust.
I. Contemporaneously with the execution of this Agreement, the Corporation
and the Trust have entered into an Investment Agreement as the same shall be
amended from time to time, (the "Investment Agreement") with the Purchasers (as
such term is defined therein) which provides for, subject to the consummation
of the Merger (as defined below), the purchase of 319,489 shares of common
stock of the Corporation by the Purchasers at a price of $3.31653 per share.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Trust and the Corporation hereby agree as
follows:
ARTICLE 1. THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3 hereof), the Trust
shall be merged with and into the Corporation in accordance with this Agreement
and the separate existence of the Trust shall thereupon cease (the "Merger").
The Corporation shall be the surviving entity in the Merger and shall change
its name to "Property Capital Trust, Inc." (sometimes hereinafter referred to
as the "Surviving Corporation"). The Merger shall have the effects specified in
Section 3-114 of the MGCL.
Section 1.2 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place (a) at
the offices of Goodwin, Procter & Hoar, Exchange Place, Boston, Massachusetts
02109 at 9:59 a.m., local time, on the business day on which the last of the
conditions set forth in Article 5 shall be fulfilled or waived in accordance
herewith or (b) at such other time, date or place as the parties hereto may
agree. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
Section 1.3 Effective Time. If all the conditions to the Merger set forth in
Article 5 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 7, the parties
hereto shall cause Articles of Merger satisfying the requirements of the MGCL
to be properly executed, verified and delivered for filing in accordance with
the MGCL on the Closing Date. The Merger shall become effective upon the
acceptance for record of the Articles of Merger by the State Department of
Assessments and Taxation of Maryland in accordance with the MGCL or at such
later time which the parties hereto shall have agreed upon and designated in
such filing in accordance with applicable law as the effective time of the
Merger (the "Effective Time").
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ARTICLE 2. CHARTER AND BY-LAWS OF SURVIVING CORPORATION
Section 2.1 Charter. The Charter (as defined in the MGCL) of the Corporation
in effect immediately prior to the Effective Time shall be the Charter of the
Surviving Corporation, until duly amended in accordance with applicable law.
Section 2.2 By-laws. The By-laws of the Corporation in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation,
until duly amended in accordance with applicable law.
ARTICLE 3. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
Section 3.1 Directors. The directors of the Surviving Corporation in office
at and as of the Effective Time to serve for terms expiring at the annual
meeting of shareholders of the Surviving Corporation held in the calendar year
indicated shall be those persons identified below:
<TABLE>
<CAPTION>
1999 2000 2001
---- ---- ----
<S> <C> <C>
Bruce A. Beal Robert L. Beal Michael A. Manzo
</TABLE>
Section 3.2 Officers. The officers of the Surviving Corporation in office at
and as of the Effective Time to serve until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the charter and the by-laws of the Surviving
Corporation shall be those persons identified below:
Bruce A. Beal, President
Michael A. Manzo, Treasurer
Robert L. Beal, Secretary
ARTICLE 4. EFFECT ON SECURITIES
Section 4.1 Conversion of Shares of the Trust.
(a) At the Effective Time, each share of beneficial interest, no par value
per share, of the Trust (the "Shares") outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the Trust, the Corporation or the holders of any of the securities of
either entity, be converted into the right to receive:
(i) a cash payment equal to the quotient obtained by dividing the
algebraic sum of:
(w) all cash and cash equivalents held by the Trust on the
Effective Date, including rent and interest received in respect of
the land underlying the Cincinnati Marriott and the subordinate
leasehold mortgages thereon (the "Cincinnati Property"), plus
(x) the proceeds from the sale of the Cincinnati Property, if such
property is sold by the Effective Date but the proceeds of such
sale have not been distributed, net of all expenses reasonably
related thereto except overhead and similar expenses, minus
(y) the aggregate amount that the Trust is obligated to repay to
The Beal Companies Inc. pursuant to Section 1.2(b)(iii) of the
Investment Agreement; minus
(z) the aggregate amount payable pursuant to the Rights Agreement
dated September 28, 1990 between the Trust and State Street Bank
and Trust Company (the "Rights
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Agreement") upon termination thereof, including amounts due in
connection with the redemption of all outstanding preemptive or
similar rights to subscribe for shares of capital stock of the
Trust or any successor of the Trust, including the Company,
by the number of shares of the Trust outstanding on the Effective Date
(together, the "Cash Consideration");
(ii) one-sixtieth of a share of the common stock, par value $.01 per
share, of the Corporation (the "Corporation Common Stock"); and
(iii) one Contingent Payment Right (as defined below) (the Cash
Consideration, the Corporation Common Stock and the Contingent Payment
Right are collectively referred to as the "Merger Consideration").
(b) A "Contingent Payment Right" represents the right of a shareholder of the
Trust (who is such immediately prior to the Effective Time) to receive such
shareholder's pro-rata share (based on the number of shares of the Trust held
by such shareholder immediately prior to the Effective Time) of the sum of (x)
the net proceeds (as such are described in subsection (a)) from the sale of the
Cincinnati Property, if such sale is effected on or after the Effective Date,
and (y) the amount payable to the Trust or the Corporation, subject to
reduction for reasonably related costs (other than overhead and similar
expenses), by the Department of Transportation of the State of Florida as
compensation for the taking of a portion of Loehmann's Fashion Island located
in Aventura, Florida, less any expenses incurred by the Holders' Representative
as set forth in the following paragraph (such sum hereinafter referred to as
the "Contingent Payment"). Immediately prior to the Effective Time, the Trust
will assign all of its rights to the Contingent Payment to an escrow agent (the
"Escrow Agent") and provide such Escrow Agent with a list of shareholders of
the Trust entitled to Contingent Payment Rights as of the Effective Time. The
Escrow Agent, promptly after its receipt of any distributions in respect of
such Contingent Payment, will distribute such distributions, net of any fees of
such Escrow Agent and net of such Escrow Agent's costs and expenses in acting
as escrow agent, pro rata to the holders of Contingent Payment Rights. The
rights of the holders of the Contingent Payment Rights to receive funds from
the Escrow Agent shall be represented by the Escrow Agreement (the "Escrow
Agreement") to be executed by and between the Trust and the Escrow Agent. The
Contingent Payment Rights will not be assignable or transferable except by
operation of law and will not be evidenced by any certificate or other
instrument. The Contingent Payment Rights will not pay any dividends or bear
any stated rate of interest and will have no voting or other rights. The
Contingent Payment Rights will represent only the contingent right to receive a
pro rata portion of the Contingent Payment as described in this Section 4.1(b).
By approving the Merger, the recipients of Contingent Payment Rights
designate Robert M. Melzer as their representative (the "Holders'
Representative") and authorize him to take all action necessary in connection
with the distribution of the Contingent Payment, or the settlement of any
dispute related thereto. All decisions and actions by the Holders'
Representative shall be binding upon all of the holders of Contingent Payment
Rights, and no Holder shall have the right to object, dissent, protest or
otherwise contest the same. The Surviving Corporation shall be able to rely
conclusively on the instructions and decisions of the Holders' Representative
as to any actions required or permitted to be taken by the holders of
Contingent Payment Rights or the Holders' Representative hereunder, and no
holder of Contingent Payment Rights hereunder shall have any cause of action
against the Surviving Corporation for any action taken by the Surviving
Corporation in reliance upon the instructions or decisions of the Holders'
Representative. All expenses incurred
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by the Holders' Representative in connection with the collection of amounts
from the State of Florida and the distribution of the Contingent Payment shall
be deducted from the Contingent Payment before the Contingent Payment is
distributed to the holders of the Contingent Payment Rights and such amount
shall be used to reimburse the Holders' Representative for such expenses. In
addition, the Holders' Representative shall be indemnified, to the extent
permitted by the Charter of the Surviving Corporation, by the Surviving
Corporation for all loss, expense or liability (including reasonable attorney's
fees and expenses) that (i) prior to the distribution of the Contingent
Payment, exceeds the amount of the Contingent Payment and (ii) following the
distribution of the Contingent Payment, arises out of or in connection with
such distribution to the extent and in the same manner as if the Holders'
Representative was acting as an officer of the Surviving Corporation. The
Holders' Representative shall be deemed to be an express third party
beneficiary of the provisions of this Section 4.1(b).
(c) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time, all Shares of the Trust shall cease to
be outstanding, shall be canceled and retired and shall cease to exist and each
holder of a certificate representing any Shares shall thereafter cease to have
any rights with respect to such Shares, except the right to receive, without
interest, the Merger Consideration in accordance with Sections 4.1(a) and
4.1(b) upon the surrender of such certificate.
(d) Each outstanding option to purchase Shares of the Trust shall be either
exercised and exchanged for Shares of the Trust prior to the Effective Time or
canceled in accordance with its terms prior to the Effective Time. The
provisions in any plan, program or arrangement providing for the issuance or
grant of any interest in respect of the Shares of the Trust shall be canceled
as of the Effective Time.
(e) Each Share issued and held in the Trust's treasury at the Effective Time,
if any, by virtue of the Merger, shall cease to be outstanding, shall be
canceled and retired and shall cease to exist and no payment of any
consideration shall be made with respect thereto.
(f) At the Effective Time, each share of Corporation Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the Corporation or the holder of
such shares, be canceled and retired without payment of any consideration
therefor.
Section 4.2 Exchange of Certificates Representing Shares.
(a) As of the Effective Time, the Corporation shall deposit, or shall cause
to be deposited, with an exchange agent selected by the Corporation on or prior
to the Effective Time (the "Exchange Agent"), for the benefit of the holders of
Shares, for exchange in accordance with this Article 4, certificates
representing the shares of Corporation Common Stock and the Cash Consideration
(such cash and certificates being hereinafter referred to as the "Exchange
Fund") to be issued pursuant to Section 4.1 and paid pursuant to this Section
4.2 in exchange for outstanding Shares.
(b) Promptly after the Effective Time, the Corporation shall cause the
Exchange Agent to mail to each holder of record of a certificate or
certificates representing Shares (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to such
certificates shall pass, only upon delivery of such certificates to the
Exchange Agent and shall be in such form and have such other provisions as the
Corporation may reasonably specify, (ii) any other required documents, (iii)
instructions for use in effecting the surrender of such certificates in
exchange for
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certificates representing shares of Corporation Common Stock and the Cash
Consideration, (iv) a description of the Contingent Payment Right and (v) a
description of the Escrow Agreement. Upon surrender of a certificate
representing Shares for cancellation to the Exchange Agent together with such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the holder of such certificate shall be entitled to
receive in exchange therefor (x) a certificate representing the number of whole
shares of Corporation Common Stock to which such holder shall be entitled and
(y) a check representing the Cash Consideration, plus the amount of any
dividends, or distributions, if any, pursuant to paragraph (c) below, after
giving effect to any required withholding tax, and the certificate for Shares
so surrendered shall forthwith be canceled. No interest will be paid or accrued
on the dividend or distribution, if any, payable to holders of certificates
representing Shares pursuant to this Section 4.2. In the event of a transfer of
ownership of Shares which is not registered in the transfer records of the
Trust, a certificate representing the proper number of shares of Corporation
Common Stock, together with a check for the Cash Consideration plus, to the
extent applicable, the amount of any dividend or distribution, if any, payable
pursuant to paragraph (c) below, may be issued to such a transferee if the
certificate representing Shares of the Trust is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and to evidence that any applicable stock transfer taxes have been
paid.
(c) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions on Corporation Common Stock shall be paid with respect to
any Shares represented by a certificate until such certificate is surrendered
for exchange as provided herein; provided, however, that subject to the effect
of applicable laws, following surrender of any such certificate, there shall be
paid to the holder of the certificates representing whole shares of Corporation
Common Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such whole
shares of Corporation Common Stock and not paid, less the amount of any
withholding taxes which may be required thereon, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent
to surrender payable with respect to such whole shares of Corporation Common
Stock, less the amount of any withholding taxes which may be required thereon.
(d) At and after the Effective Time, there shall be no transfers on the stock
transfer books of the Trust of the Shares which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for certificates for shares of Corporation Common Stock
in accordance with this Section 4.2.
(e) No fractional shares of Corporation Common Stock shall be issued pursuant
hereto. Each holder who would receive a fractional share of Corporation Common
Stock less than 0.5 of a share of Corporation Common Stock shall receive no
Corporation Common Stock in respect of such fraction and each holder who would
receive a fractional share of Corporation Common Stock equal or greater to 0.5
shall receive one (1) share of Corporation Common Stock in respect of such
fraction.
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ARTICLE 5. CONDITIONS TO CLOSING
The respective obligations of the Trust and the Corporation to consummate the
Merger are subject to the following conditions:
Section 5.1 Shareholder Approval. This Agreement shall be approved (i) by the
holders of two-thirds of the Shares of beneficial interest of the Trust and
(ii) by the Trust as sole stockholder of the Corporation, in accordance with
applicable law and the charter and the by-laws of the Corporation.
Section 5.2 Investment Agreement. The Investment Agreement shall have been
executed by all parties thereto.
Section 5.3 Merger Agreement. The Contribution and Merger Agreement by and
between Property Capital Trust Limited Partnership, a Massachusetts limited
partnership ("PCT LP"), and FYA pursuant to which PCT LP shall merge into FYA
shall have been executed.
Section 5.4 Satisfaction of Obligations. Prior to the Effective Time, the
Trust shall have satisfied all obligations of the Trust related to (i) the
bonus plans, compensation plans and other employee benefit plans listed on
Schedule 3.17 of the Investment Agreement and (ii) any out of pocket expenses
incurred by the Trust in connection with the transactions contemplated
hereunder and under the other Transaction Documents that are not reimbursable
pursuant to Section 11.10 of the Investment Agreement. In the event cash and
cash equivalents held by the Trust as of the Effective Time are insufficient to
satisfy such obligations of the Trust, the Contingent Payment shall be reduced
by the amount of such obligations.
ARTICLE 6. INDEMNIFICATION
Section 6.1 No Modification. The Surviving Corporation's Charter, the
Surviving Corporation's By-laws and the operating partnership agreement (the
"Partnership Agreement") of FYA to be in effect immediately after the merger of
PCT LP into FYA pursuant to Article 2 of the Contribution and Merger Agreement
by and between PCT LP and FYA shall each contain provisions with respect to
indemnification incorporating the terms and conditions set forth in Section 6.2
hereof, which provisions shall not be amended, repealed or otherwise modified
for a period of six (6) years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at or before the
Effective Time were trustees, officers, employees, shareholders or agents of
the Trust, unless such modification is required by law.
Section 6.2 Indemnification. The Surviving Corporation and/or FYA, as
applicable, to the fullest extent permitted under the Surviving Corporation's
Charter or such entity's By-laws, and FYA as the surviving partnership after
the merger of PCT LP into FYA, to the fullest extent permitted under the
Partnership Agreement, shall indemnify and hold harmless, each present and
former trustee, officer, employee or shareholder (in connection with the
affairs of the Trust) of the Trust (collectively, the "Indemnified Parties")
against any costs or expenses (including attorneys fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, (i) arising out of or
pertaining to the transactions contemplated by this Agreement or (ii) otherwise
with respect to any acts or omissions occurring at or prior to the Effective
Time for a period of six (6) years after the date hereof. In the event of any
such claim, action, suit, proceeding
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or investigation (whether arising before or after the Effective Time), (x) the
Surviving Corporation and/or FYA, as applicable, shall promptly pay expenses in
advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law,
(y) at its election, the Surviving Corporation and/or FYA, as applicable, shall
be entitled to control the defense of any claim, suit, proceeding or
investigation, provided that the Surviving Corporation and/or FYA, as
applicable, shall acknowledge liability to the Indemnified Party for such
claim, suit, proceeding or investigation under this Section 6.2, and, to the
extent the Surviving Corporation and/or FYA, as applicable, so elects, it may
select the counsel for such purpose (provided that such counsel shall be
reasonably satisfactory to the Indemnified Party and that the Indemnified Party
shall have the right to employ separate counsel, but the fees and expenses of
such counsel shall be at the Indemnified Party's expense unless in such claim
or action the Indemnified Party reasonably concludes, based upon advice of
legal counsel, that there is a conflict between the positions of the Surviving
Corporation and/or FYA, as applicable, and the Indemnified Party, or between
the Indemnified Party and other Indemnified Parties that would preclude or
render inadvisable joint or multiple representation of such parties, in which
case if the Indemnified Party notifies the Surviving Corporation and/or FYA, as
applicable, the Surviving Corporation and/or FYA, as applicable, shall not have
the right to assume such defense of such action on behalf of the Indemnified
Party and the Surviving Corporation and/or FYA, as applicable, shall pay the
reasonable fees and expenses of counsel for the Indemnified Party; provided,
however, that the Surviving Corporation and/or FYA, as applicable, shall not be
required to pay the fees and expenses of more than one separate counsel for all
Indemnified Parties unless there is under applicable standards of professional
conduct, a conflict between the positions of any two or more Indemnified
Parties that would preclude or render inadvisable joint or multiple
representation of such parties). Any Indemnified Party wishing to claim
indemnification under this Section 6.2, upon learning of any such claim,
action, suit, proceeding or investigation, shall notify the Surviving
Corporation and/or FYA, as applicable, thereof, provided that the failure to so
notify shall not affect the obligations of the Surviving Corporation except to
the extent such failure to notify materially prejudices such party; and (z) the
Indemnified Parties and the Surviving Corporation and/or FYA, as applicable,
will cooperate in the defense of any such matter; provided, however, that the
Surviving Corporation and/or FYA, as applicable, shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld) and the Surviving Corporation and/or FYA, as applicable,
shall not enter into a settlement without the consent of the Indemnified Party
unless such settlement contains complete exoneration of the Indemnified Party;
and provided; further, that in the event that any claim or claims for
indemnification are asserted or made within such ten-year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such claims.
Section 6.3 Additional coverage. At or prior to the Effective Time, the
Corporation shall purchase or keep in effect directors' and officers' liability
insurance coverage for the Trust's trustees and officers in a form reasonably
acceptable to the Trust which shall provide such Trustees and officers with so-
called tail or other coverage for six (6) years following the Effective Time of
not less than the existing coverage under, and have other terms not
substantially less favorable to the insured persons than, the directors' and
officers' liability insurance coverage presently maintained by the Trust.
Section 6.4 Third-party rights. This Article 6 is intended for the
irrevocable benefit of, and to grant third party rights to, the Indemnified
Parties and shall be binding on all successors and assigns of the Surviving
Corporation. Each of the Indemnified Parties shall be entitled to enforce the
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covenants contained in this Article 6. The provisions for indemnification
contained in this Section Article 6 are not intended to be exclusive and are
without prejudice to any other rights to indemnification or advancement of
funds which any Indemnified Party may otherwise have.
ARTICLE 7. TERMINATION
The parties may terminate this Agreement by mutual written consent at any
time prior to the Effective Time. Upon such termination, no party hereunder
shall have any further rights or obligations pursuant to this Agreement. In
addition, the Merger Agreement shall be terminated if, and as such time as, the
Investment Agreement is terminated.
ARTICLE 8. MISCELLANEOUS
Section 8.1 Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the parties and
supersedes any prior understandings, agreements or representations by or
between the parties, written or oral, to the extent they related in any way to
the subject matter hereof.
Section 8.2 Succession and Assignment; Third-Party Rights. This Agreement
shall be binding upon and inure to the benefit of the parties named herein and
their respective successors and permitted assigns. No party may assign either
this Agreement or any of its rights, interests or obligations hereunder without
the prior written approval of the other Party. Except as expressly provided in
Article 6 and Section 4.1(b), nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
Section 8.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
Section 8.4 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of The Commonwealth of Massachusetts
without giving effect to any choice or conflict of law provision or rule
(whether of the Commonwealth of Massachusetts or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the
Commonwealth of Massachusetts.
Section 8.6 Amendments. No amendment of any provision of this Agreement shall
be valid unless the same shall be in writing and signed by both parties.
Section 8.7 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
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Section 8.8 Expenses. Subject to Section 11.10 of the Investment Agreement,
each of the parties will bear its own costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby.
Section 8.9 Service of Process. The Corporation may be served with process in
the State of Maryland in any proceeding for the enforcement of any obligation
of the Trust, as well as for enforcement of any obligations of the Corporation
arising from the Merger, and it does hereby irrevocably appoint the Secretary
of State of the State of Maryland as its agent to accept service of process in
any such suit or other proceedings. The address to which a copy of such process
shall be mailed by the Secretary of State to the Corporation is 101 Federal
Street, Boston, MA 02110.
Section 8.10 Exculpation. The parties to this Agreement acknowledge and agree
that the obligations of the Trust hereunder do not and shall not constitute
personal obligations of the Trustees, officers, employees or shareholders of
the Trust, or any of them, and shall not involve any claim against or personal
liability on any of them, and the parties to this Agreement agree to look only
to the assets of the Trust in respect thereof and not to seek recourse against
such Trustees, officers, employees or shareholders or any of them or their
personal assets for such satisfaction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on as of
the date first above written.
PROPERTY CAPITAL TRUST
By: /s/ Robert M. Melzer
___________________________________
Name: Robert M. Melzer
Title: President and Chief Executive
Officer
MARYLAND PROPERTY CAPITAL TRUST,
INC.
By: /s/ Bruce A. Beal
___________________________________
Name: Bruce A. Beal
Title: President
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INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors, Trustees and Officers.
Maryland law permits Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Articles of
Incorporation of PCT Inc. contains such a provision which eliminates such
liability to the maximum extent permitted by Maryland law.
The charter documents of PCT Inc. limit the liability of the corporation's
directors and officers to the corporation and its stockholders to the fullest
extent permitted from time to time by Maryland law. Maryland law permits the
liability of directors and officers to a corporation or its stockholders for
money damages to be limited, except (i) to the extent that it is proved that
the director or officer actually received an improper benefit or profit, or
(ii) if a judgment or other final adjudication is entered in a proceeding based
on a finding that the director's or officer's action or failure to act was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. This provision does not limit the ability
of the corporation or its stockholders to obtain other relief, such as an
injunction or restriction.
PCT Inc.'s Bylaws require the corporation to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by Maryland law. The law permits a corporation to indemnify its directors,
officers and certain other parties against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service to or at the request of the corporation, unless it is established that
the act or omission of the indemnified party was material to the matter giving
rise to the proceeding and (i) the act or omission was committed in bad faith
or was the result of active and deliberate dishonesty, (ii) the indemnified
party actually received an improper personal benefit, or (iii) in the case of
any criminal proceeding, the indemnified party had reasonable cause to believe
that the act or omission was unlawful. It is the position of the Commission
that indemnification of directors and officers for liabilities arising under
the Securities Act is against public policy and is unenforceable pursuant to
Section 14 of the Securities Act.
The Maryland law requires a corporation (unless its charter provides
otherwise, which PCT Inc.'s charter does not) to indemnify a director or
officer who has been successful, on the merits or otherwise, in the defense of
any proceeding to which he is made a party by reason of his service in that
capacity. The Maryland law permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In addition, the Maryland law requires a
company, as a condition to advancing expenses, to obtain (a) a written
affirmation by the director or
II-1
<PAGE>
officer of good faith belief that he has met the standard of conduct necessary
for indemnification by the company as authorized by the Bylaws and (b) a
written statement by or on his behalf to repay the amount paid or reimbursed by
the company if it shall ultimately be determined that the standard of conduct
was not met.
The Declaration of Trust of the Trust provides that no Trustee, officer,
agent or representative of the Trust shall be personally responsible for any
loss or damage to Trust property or to the interests of the shareholders by
reason of any act or omission done or made in good faith and provides that each
such person and each shareholder of the Trust shall be fully indemnified by the
Trust for any personal liability incurred in connection with the
administration, property or affairs of the Trust except liability from such
person's own willful breach of trust knowingly and intentionally committed. The
Declaration of Trust also provides that all persons shall look only to the
Trust property for satisfaction of claims of any nature arising in connection
with the affairs of the Trust and that no shareholder, Trustee, officer, agent
or representative of the Trust shall have any personal liability in connection
with the property or affairs of the Trust.
The Trust has a directors and officers liability insurance policy that
insures the Trustees and officers of the Trust against loss from claimed
wrongful acts and insures the Trust for indemnifying the Trustees and officers
against such loss. The policy limit of liability is $3,000,000 each policy year
and is subject to retentions for each loss of $1,000 for each Trustee and
officer and of $100,000 for the Trust. PCT Inc. intends to maintain a policy
with similar benefits to its directors and officers and that also will cover
the Trustees and officers of the Trust for a period of six years from the
merger .
Item 21. Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*2.2 Agreement and Plan of Merger dated June 18, 1998, as amended,
between Maryland Property Capital Trust and Maryland Property
Capital Trust, Inc. (appended as Annex A to Proxy
Statement/Prospectus)
*3.1 Form of Articles of Amendment and Restatement of Property Capital
Trust, Inc.
*3.2 Form of By-laws of Maryland Property Capital Trust, Inc.
*4.1 Form of Second Amended and Restated Agreement of Limited
Partnership of Property Capital Trust Limited Partnership
**4.2 Form of Certificate representing shares of Common Stock of
Property Capital Trust, Inc.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to legality of shares of
Common Stock of Maryland Property Capital Trust, Inc. (including
consent)
*10.1 Investment Agreement, dated June 18, 1998, among Maryland Property
Capital Trust, Inc., Property Capital Trust and Framingham York
Associates Limited Partnership
*10.2 First Amendment to Investment Agreement, dated August 7, 1998,
among Framingham York Associates Limited Partnership, Property
Capital Trust and Maryland Property Capital Trust, Inc.
*10.3 Second Amendment to Investment Agreement, dated October 16, 1998,
among Framingham York Associates Limited Partnership, Property
Capital Trust and Maryland Property Capital Trust, Inc.
*10.4 Contribution and Merger Agreement, dated October 16, 1998, between
Property Capital Trust Limited Partnership and Framingham York
Associates Limited Partnership and Maryland Property Capital
Trust, Inc. (solely for purposes of Sections 6.04 and 6.05)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*10.5 Form of Management Agreement between Beal & Company, Inc. and
Property Capital Trust Limited Partnership
+10.6 Third Amendment to Investment Agreement, dated January , 1999,
among Framingham York Associates Limited Partnership, Property
Capital Trust and Maryland Property Capital Trust, Inc.
+10.7 Amendment to Contribution and Merger Agreement, dated January ,
1999, between Property Capital Trust Limited Partnership and
Framingham York Associates Limited Partnership and Maryland
Property Capital Trust, Inc.
**23.1 Consent of Arthur Andersen LLP
23.2 Exhibit deleted
*23.3 Consent of Goodwin, Procter & Hoar LLP
*24.1 Powers of Attorney
+99.1 Form of proxy card in connection with the special meeting
+99.2 Form of Letter of Transmittal to be used by shareholders of the
Trust to exchange share certificates following the merger
**99.3 Roll-up Transaction Individual Supplement (to be mailed to the
shareholders of the Trust together with the proxy statement)
</TABLE>
- --------
* Previously filed.
** Filed herewith.
+ To be filed by amendment.
Item 22. Undertakings.
(a)(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the registrant undertakes that such reoffering prospectus
will contain the information called for by the applicable registration
form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned registrant undertakes that every prospectus: (i) that
is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities
Act of 1933 (the "Securities Act") and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE>
(c) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report, to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Exchange
Act; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver,
or cause to be delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
(d) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall
be deemed to be part of this registration statement as of the time it was
declared effective; and (2) for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail
or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(h) The undersigned registrant hereby undertakes:
(1)To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i)To include any prospectus required by Section 10(a)(3) of the
Securities Act;
II-4
<PAGE>
(ii)To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2)That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3)To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Boston, Commonwealth of
Massachusetts, on January 15, 1999.
MARYLAND PROPERTY CAPITAL TRUST,
INC.
/s/ Robert L. Beal
By: _________________________________
Robert L. Beal, Secretary
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date Signed
--------- ----- -----------
<S> <C> <C>
/s/ Bruce A. Beal President and Director January 15, 1999
_________________________________ [Principal Executive
Bruce A. Beal Officer]
/s/ Michael A. Manzo Treasurer and Director January 15, 1999
_________________________________ [Principal Financial and
Michael A. Manzo Accounting Officer]
/s/ Robert L. Beal Secretary and Director January 15, 1999
_________________________________
Robert L. Beal
</TABLE>
II-6
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*2.2 Agreement and Plan of Merger dated June 18, 1998, as amended,
between Maryland Property Capital Trust and Maryland Property
Capital Trust, Inc. (appended as Annex A to Proxy
Statement/Prospectus)
*3.1 Form of Articles of Amendment and Restatement of Property Capital
Trust, Inc.
*3.2 Form of By-laws of Maryland Property Capital Trust, Inc.
*4.1 Form of Second Amended and Restated Agreement of Limited
Partnership of Property Capital Trust Limited Partnership
**4.2 Form of Certificate representing shares of Common Stock of
Property Capital Trust, Inc.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to legality of shares of
Common Stock of Maryland Property Capital Trust, Inc. (including
consent)
*10.1 Investment Agreement, dated June 18, 1998, among Maryland Property
Capital Trust, Inc., Property Capital Trust and Framingham York
Associates Limited Partnership
*10.2 First Amendment to Investment Agreement, dated August 7, 1998,
among Framingham York Associates Limited Partnership, Property
Capital Trust and Maryland Property Capital Trust, Inc.
*10.3 Second Amendment to Investment Agreement, dated October 16, 1998,
among Framingham York Associates Limited Partnership, Property
Capital Trust and Maryland Property Capital Trust, Inc.
*10.4 Contribution and Merger Agreement, dated October 16, 1998, between
Property Capital Trust Limited Partnership and Framingham York
Associates Limited Partnership and Maryland Property Capital
Trust, Inc. (solely for purposes of Sections 6.04 and 6.05)
*10.5 Form of Management Agreement between Beal & Company, Inc. and
Property Capital Trust Limited Partnership
+10.6 Third Amendment to Investment Agreement, dated January , 1999,
among Framingham York Associates Limited Partnership, Property
Capital Trust and Maryland Property Capital Trust, Inc.
+10.7 Amendment to Contribution and Merger Agreement, dated January ,
1999, between Property Capital Trust Limited Partnership and
Framingham York Associates Limited Partnership and Maryland
Property Capital Trust, Inc.
**23.1 Consent of Arthur Andersen LLP
23.2 Exhibit deleted
*23.3 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1)
*24.1 Powers of Attorney (included on page II-5)
+99.1 Form of proxy card in connection with the special meeting
+99.2 Form of Letter of Transmittal to be used by shareholders of the
Trust to exchange share certificates following the Merger
**99.3 Roll-up Transaction Individual Supplement (to be mailed to the
shareholders of the Trust together with the proxy statement)
</TABLE>
- --------
* Previously filed.
** Filed herewith.
+ To be filed by amendment.
<PAGE>
EXHIBIT 4.2
-----------
COMMON STOCK
NUMBER PROPERTY CAPITAL TRUST, INC. SHARES
_______________ INCORPORATED UNDER THE LAWS _______________
PCT OF THE STATE OF MARYLAND
_______________ _______________
THIS CERTIFICATE IS CUSIP
TRANSFERABLE IN SEE REVERSE FOR
BOSTON, MA OR CERTAIN
NEW YORK, NY DEFINITIONS AND
RESTRICTIONS
________________________________________________________________________________
THIS CERTIFIES THAT
is the owner of
________________________________________________________________________________
fully-paid and non-assessable shares of the COMMON STOCK, $.01 par value of
______________________ ______________________
__________________________PROPERTY CAPITAL TRUST, INC.__________________________
______________________ ______________________
(hereinafter called the "Corporation") transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed or assigned. This Certificate
and the shares represented hereby are issued and held subject to the laws of the
State of Maryland and the Articles of Incorporation and Bylaws of the
Corporation, as from time to time amended (copies of which are on file with the
Corporation), to all of which the holder by acceptance hereof, assents. This
Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
COUNTERSIGNED AND REGISTERED:
STATE STREET BANK AND TRUST COMPANY
(BOSTON)
BY TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
Dated
PROPERTY CAPITAL TRUST, INC.
CORPORATE
TREASURER SEAL PRESIDENT
MARYLAND
*
<PAGE>
PROPERTY CAPITAL TRUST, INC.
The shares of the Corporation represented by this certificate are subject to
restrictions set forth in the Corporation's charter, as the same may be
amended from time to time, which prohibit in general (a) any Person (other than
a Look-Through Entity) from Beneficially Owning shares of Equity Stock in excess
of the Ownership Limit, (b) any Look-Through Entity from Beneficially Owning
shares of Equity Stock in excess of the Look-Through Ownership Limit and (c) any
Person from acquiring or maintaining any ownership interest in the stock of the
Corporation that is inconsistent with (i) the requirements of the Internal
Revenue Code of 1986, as amended, pertaining to real estate investment trusts or
(ii) the charter of the Corporation, and the holder of this certificate by his,
her or its acceptance hereof consents to be bound by such restrictions.
Capitalized terms used in this paragraph and not defined herein are defined in
the Corporation's charter, as the same may be amended from time to time.
The Corporation will furnish without charge, to each stockholder who so
requests, a copy of the relevant provisions of the charter and the by-laws, each
as amended, of the Corporation, a copy of the provisions setting forth the
designations, preferences, privileges and rights of each class of stock or
series thereof that the Corporation is authorized to issue and the
qualifications, limitations and restrictions of such preferences and/or rights.
Any such request may be addressed to the Secretary of the Corporation or to the
transfer agent named on the face hereof.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-_______Custodian________
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with Act____________________
right of survivorship (State)
and not as tenants
in common
Additional abbreviations may also be used though not in the above list.
For value received,______________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
| |
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated___________________________
(Signature)__________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature Guaranteed:________________________________________________
ALL GUARANTEES MUST BE MADE BY A FINANCIAL
INSTITUTION (SUCH AS A BANK OR BROKER) WHICH IS
A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM ("STAMP"). THE NEW YORK STOCK
EXCHANGE, INC. MEDALLION SIGNATURE PROGRAM
("MSP") OR THE STOCK EXCHANGES MEDALLION PROGRAM
("SEMP") AND MUST NOT BE DATED. GUARANTEES BY A
NOTARY PUBLIC ARE NOT ACCEPTABLE.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use, in this
registration statement on Form S-4, of our report dated July 8, 1998 for
Framingham York Associates Limited Partnership as of December 31, 1997, 1996
and 1995 and for each of the three years in the period ended December 31, 1997,
included herein and to all references to our Firm included in this registration
statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 15, 1999
<PAGE>
EXHIBIT 99.3
-----------------------------------------
PROPERTY CAPITAL TRUST
-----------------------------------------
177 Milk Street, Suite 14B, Boston, Massachusetts 02109
ROLL-UP TRANSACTION
INDIVIDUAL SUPPLEMENT
Pursuant to the requirements of Rules 901 and 902 of the regulations
promulgated under the Securities Act of 1933 and the Securities Exchange Act of
1934, this Roll-Up Transaction Individual Supplement is being provided to the
shareholders of Property Capital Trust in connection with the merger of the
Trust into Maryland Property Capital Trust, Inc., a wholly-owned subsidiary of
the Trust ("PCT Inc."). As a result of the merger, the Trust's organizational
structure will be converted from that of a Massachusetts business trust to a
Maryland corporation. This Individual Supplement is filed as a supplement to
the proxy statement being simultaneously distributed to the shareholders of the
Trust in connection with the merger. This Individual Supplement also is an
exhibit to the Registration Statement on Form S-4 filed by PCT Inc. with the
Securities and Exchange Commission covering approximately 159,737 shares of
common stock of PCT Inc. that PCT Inc. will issue to the shareholders of the
Trust upon completion of the merger. No individual supplement, however, has
been prepared for PCT Inc. because the Trust is the sole shareholder of PCT
Inc.
The Trust will provide you without charge, upon your or your representative's
written request, additional copies of this Individual Supplement. Please direct
your requests for such copies to: Property Capital Trust, 177 Milk Street,
Suite 14B, Boston, MA 02109, Attention: Robert M. Melzer, President (telephone:
(617) 482-4081). The Trust will deliver such copies by first class mail or
other equally prompt means.
This Individual Supplement does not repeat information that you can find in
the proxy statement/prospectus. All cross references contained herein refer to
such proxy statement/prospectus and any term used herein and not defined shall
have the meaning ascribed to such term in the proxy statement/prospectus. The
Trust urges you to read such proxy statement/prospectus carefully.
The merger may affect shareholders of the Trust in different ways depending
on each shareholder's personal investment or tax circumstances. You should be
aware that there are certain risks involved with the merger and with holding
shares of common stock of PCT Inc. For a detailed description of each material
risk and effect of the merger, see "RISK FACTORS" on page 9 and "FEDERAL INCOME
TAX CONSEQUENCES TO SHAREHOLDERS" on pages 42-46.
<PAGE>
-----------------------------------------
PROPERTY CAPITAL TRUST
-----------------------------------------
ROLL-UP TRANSACTION
INDIVIDUAL SUPPLEMENT
Summary
In furtherance of the business plan that the Trust adopted and the
shareholders of the Trust ratified in 1995, the Trust has disposed of all of
its real estate assets. As a result of doing so, the Trust has accumulated cash
in the form of proceeds from the sales of those assets. From those proceeds, to
date, the Trust has distributed an aggregate amount of $13.65 per share in
special dividends to its shareholders. For a more detailed discussion of the
relationship between the business plan of the Trust and the special dividends
the Trust has declared in the last three years, see "THE MERGER--Background and
Reasons for the Merger" on pages 25-27; "MARKET PRICES AND CASH DIVIDENDS
INFORMATION" on page 73; and "SELECTED FINANCIAL INFORMATION--The Trust" on
page 58.
As the Trust approached the disposal of the last of its tangible assets, the
Trustees of the Trust were forced to consider various alternatives to enable
the Trust to terminate. The two principal alternatives were to establish a
liquidating trust, or to engage in a merger of this type. The Trustees, in
their independent business judgment, opted for this merger because:
. the merger obviates the need to establish a liquidating trust, which
would have delayed receipt by you of a final distribution for one to three
years,
. the Trustees will be able to distribute to the shareholders of the trust
approximately $.23 per share shortly after consummation of the merger,
whereas a liquidating trust would have held a substantial portion of these
funds in reserve, delaying this kind of distribution to you,
. as a result of the merger, PCT Inc. will assume the Trust's liabilities,
without consuming any of the Trust's assets, and
. you will receive the benefit, if any, of the proceeds, if any, from a
pending condemnation proceeding.
As a shareholder of the Trust, your ownership interest will change. You will
no longer have an equity interest in the Trust because the shares of the Trust
will cease to be outstanding. Instead, you will have the right to receive the
merger consideration, described below, and you will have an on-going minority
interest in PCT Inc. For a summary of the transactions contemplated by the
Trust, see "SUMMARY INFORMATION" beginning on page 1.
The Merger
Under the terms of the merger agreement between the Trust and PCT Inc., the
Trust will merge into PCT Inc., and PCT Inc. will be the surviving entity. As a
result of the merger, you will receive the following:
. one-sixtieth share of common stock of PCT Inc. for each share of the
Trust you hold, with one share of common stock exchanged for any fractional
interest you hold that is greater than or equal to .5, and
1
<PAGE>
.your pro rata share of the proceeds, if any, from a pending condemnation
proceeding. No shares of common stock of PCT Inc. or cash in lieu thereof
will be issued for fractional interests of common stock less than .5. For a
detailed description of the terms of the merger agreement, see "THE MERGER
AGREEMENT--Consideration to be Paid in the Merger" on page 30, and "THE
MERGER--Background and Reasons for the Merger" on pages 25-27.
Transactions Related to the Merger
In connection with the transactions related to the merger, in which
Framingham York Associates Limited Partnership ("FYA") will purchase common
stock of PCT Inc., with the proceeds of a mortgage financing of $1 million on
the property located at 51 New York Avenue, Framingham, Massachusetts. This
property will become PCT Inc.'s sole asset after Property Capital Trust Limited
Partnership merges into FYA. For a more detailed description of the related
transactions, the property and this financing arrangement, see "THE MERGER--
Related Transactions" beginning on page 28, and "PCT INC.--Description of the
Property--Financing" on page 37.
PCT Inc. After the Merger
Interests in PCT Inc. will be allocated to the current shareholders of the
Trust according to the number of shares of the Trust that each shareholder owns
before the merger. For the purposes of determining the allocation of interests
in PCT Inc. following the merger, the valuation of the Trust was based on the
fact that, pursuant to the Trust's business plan, the Trust has successfully
divested itself of all of its real estate assets. The only assets that the
Trust holds are the cash it has on hand from the sales of all of its assets and
the right to receive the proceeds, if any, from the condemnation proceeding
pending in a Florida state court, all of which will be distributed to you prior
to the merger. Accordingly, the shares of common stock of PCT Inc. that will be
owned by the current shareholders of the Trust after the merger represent the
continued ownership interest in PCT Inc. For more information on the Trust's
assets and its value, see "THE MERGER--Information Regarding the Parties--
Property Capital Trust" on page 23.
The relative ownership of PCT Inc. by the current shareholders following the
merger and the transactions related to the merger is the result of arm's length
negotiations between the Board of Trustees of the Trust and FYA, and is based
on the fair market value of the property owned by FYA, compared to the value of
the goodwill and other intangible assets of the Trust, in the absence of real
estate or other tangible assets. For a detailed discussion of the Trust's
pursuit of its business plan and of the Board's deliberations and negotiations
in entering into this merger, see "THE MERGER--Background and Reasons for the
Merger" on pages 25-27, and "--Information Regarding the Parties" on page 23.
Given appropriate market conditions, PCT Inc. intends to pursue growth
opportunities through the acquisition of existing properties, the development
of new properties, management of existing properties, adding new equity capital
and acquisitions of and mergers with other real estate companies. There is no
assurance that PCT Inc. will achieve any growth through the pursuit of these
opportunities. For a more detailed description of PCT Inc.'s growth strategies,
see "PCT INC. --Business and Growth Strategy" beginning on page 34. After
completion of the merger, none of the Trustees or officers of the Trust will be
involved in the business of PCT Inc.
There are few material risks involved in this merger. Such risks do include,
however, changes in the cash distribution policies and changes in the nature
and extent of your ownership interest. For a
2
<PAGE>
detailed description of these risks, see "RISK FACTORS--Issuance of Additional
Securities May Dilute Your Investment" "--Changes in Investment and Financing
Policies May be Made Without Stockholder Approval" on pages 10-11 and
"COMPARISON OF SHAREHOLDERS' RIGHTS" beginning page 45. Furthermore, there are
persons involved in this transaction whose interests may be different from, or
in conflict with yours. For a detailed description of the interests of these
individuals and how they may differ from yours, see "RISK FACTORS--Interests of
Messrs. Beal and Manzo and the Trustees of the Trust in Completing the Merger"
on page 9, and "THE MERGER--Conflicts of Interest" on page 27.
Fairness of the Merger and Related Transactions
There are several important reasons for this merger, many of which stem from
the fact that, in accordance with its business plan, the Trust has disposed of
all of its tangible assets and now holds only intangible assets. For example,
shortly after completion of the merger, the Trust will make a distribution to
its shareholders of the remaining proceeds from the disposition of its real
estate assets and, the shareholders will receive the benefit of the proceeds,
if any, from the pending condemnation proceeding, which is payable in the event
of a favorable resolution to pending litigation.
Thus, the Trustees of the Trust have unanimously determined that this merger
is fair to and in the best interests of the shareholders. However, the Trust
has not received any report or opinion or appraisal from a third party relating
to the merger or the fairness of the consideration offered to the shareholders
of the Trust in connection with the merger. For a detailed discussion on the
Trustees' deliberations on entering into this transaction, see "THE MERGER--
Recommendation of the Board of Trustees" on page 25, "--Background and Reasons
for the Merger" on page 27 and "Fairness of the Merger to Shareholders" on page
27.
You are not entitled to exercise dissenters' rights of appraisal or other
dissenters' rights under either Massachusetts law or Maryland law with respect
to the merger or any transactions contemplated thereby.
Risk Factors and Other Considerations
Because the common stock of PCT Inc. you will receive as a result of the
merger will initially and for the foreseeable future have no significant, if
any, value, there are few practical risks to the merger. These risks include,
among other things, the impact of the transaction on PCT Inc.'s ability to make
distributions to you, and the inherent risks of real estate investments, as
well as the risks that are specifically associated with the property which will
become PCT Inc.'s sole asset after the transactions related to the merger are
consummated, and PCT Inc.'s election to be treated as a REIT. However, these
risks will only be meaningful if, in the future, PCT Inc. is successful in
diversifying its portfolio and as a consequence, your shares of common stock of
PCT Inc. will increase in value. For a detailed discussion of the these and
other risks, see "RISK FACTORS--Distributions by PCT Inc. Will Not Occur Absent
Growth" on page 10, "--Changes in Economic Conditions May Impact Ability of
Operating Partnership to Make Distributions" on page 11, "-- Federal Income Tax
Exposure if PCT Inc. Fails to Qualify as a REIT" on page 16, and "--Lack of
Operating History as a REIT" on page 18.
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Comparative Information
The shareholders' voting rights are substantially similar under the governing
instruments and the applicable law for both the Trust and PCT Inc. There are
subtle differences that, in many cases, are attributable to the organizational
differences between the Trust and PCT Inc. For a description of these
similarities and differences, see "COMPARISON OF SHAREHOLDERS' RIGHTS" on
pages 45-48.
The fiduciary duties that the Board of Trustees of the Trust owe to the
shareholders of the Trust are substantially the same as the fiduciary duties
that the officers and directors of PCT Inc. will owe to the holders of the
common stock of PCT Inc. The Trustees and management of the Trust will not be
officers or directors of PCT Inc. following the merger. For more information
about the Trustees, officers and directors after the merger, see "THE MERGER
AGREEMENT--Indemnification" on page 33.
The officers and directors of PCT Inc. will receive nominal salaries and fees
in exchange for their services to PCT Inc. In addition, Mr. Melzer, President
of the Trust and a Trustee, has been appointed as the representative of the
shareholders of the Trust in all matters related to the right to receive the
proceeds, if any, from the condemnation action. As such, Mr. Melzer will
receive payment for his services and reimbursement for the expenses he incurs
in that capacity. No other Trustee or officer of the Trust will receive
compensation from or provide services to PCT Inc. For more information on Mr.
Melzer's and the other officer's and directors' compensation arrangements, see
"PCT Inc.--Executive Compensation" on page 36, and "THE MERGER--Conflicts of
Interest" beginning on page 27.
The Trust has distributed an aggregate amount of $13.65 per share in special
dividends to its shareholders. Under PCT Inc.'s governing instruments, the
decision to make distributions to shareholders is solely in the discretion of
the Board of Directors of PCT Inc., but PCT Inc. does not expect to make any
distributions to shareholders now or in the near future. For a more detailed
description of these policies, see "COMPARISON OF SHAREHOLDERS' RIGHTS" on
pages 45-48, and "PCT Inc.--The Partnership Agreement of the Operating
Partnership" beginning on page 40.
Given appropriate market conditions, PCT Inc. intends to pursue growth
opportunities through the acquisition of existing properties, the development
of new properties, management of existing properties, adding new equity capital
and acquisitions of and mergers with other real estate companies. There is no
assurance that PCT Inc. will achieve any growth through the pursuit of these
opportunities. PCT Inc. does not anticipate the sale of its sole asset now or
in the near future. For a more detailed description of PCT Inc.'s growth
strategies, see "PCT Inc.--Business and Growth Strategy" beginning on page 34.
Certain Trustees and executive officers of the Trust have interests in the
merger that may be different from, or contrary to yours. However, the Trust did
not retain the services of an unaffiliated representative to represent the
shareholders' interests. An unaffiliated representative was unnecessary because
the Trust holds no tangible assets except for the remaining proceeds from the
sales of its real estate assets, all of which will be distributed to the
shareholders, to the extent that such distribution is appropriate. Furthermore,
when the Trustees considered the available options for terminating the Trust,
the only alternative to this kind of merger was to establish a liquidating
trust. The arrangement of a liquidating trust would have consumed part of the
Trust's cash assets, reducing the amount of the final distribution to the
shareholders of the Trust, in addition to delaying that final distribution.
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The Trustees of the Trust, in their independent business judgement, determined
that the ability to distribute all of the Trust's tangible assets to the
current shareholders of the Trust without delay and continued ownership of
shares of common stock of PCT Inc. representing an interest in the possible
future growth and diversification of PCT Inc., are in the best interests of the
shareholders of the Trust. For more information regarding the Trustees'
deliberations on the fairness of this transaction, see "THE MERGER--Background
and Reasons for the Merger" on pages 25-27, "--Recommendation of the Board of
Trustees" on page 25, and "--Conflicts of Interest" beginning on page 27.
Source and Amount of Funds and Transactional Expenses
The consideration that will be paid to you as a result of this merger will
consist of the shares of common stock of PCT Inc. that you will receive in
exchange for your shares of the Trust, and any Contingent Payment that may
result from the resolution of pending litigation. In addition, the Trust will
make a distribution to you out of the cash assets it holds from the sale of its
real estate assets. For a detailed description of these funds and the sources
of these funds, see "THE MERGER--Information Regarding the Parties--Property
Capital Trust" on page 23, "--The Merger Consideration" on page 23, and "--
Contingent Payment Right" on page 24.
There are fees and expenses associated with this merger that you should
consider. PCT Inc. will receive $1 million from FYA in exchange for 319,489
shares of common stock of PCT Inc. pursuant to one of the transactions related
to the merger. PCT Inc. will contribute this $1 million to the operating
partnership, and as general partner of the operating partnership, PCT Inc. will
use such funds to pay the costs of the merger. For information about these fees
and expenses and PCT Inc.'s intention to pay the merger costs, see "THE MERGER
AGREEMENT--Fees and Expenses" on page 31, "THE MERGER--Related Transactions" on
page 26, and "RISK FACTORS--Substantial Expenses and Payments if the Merger or
the Related Transactions Fail to Occur" on page 15.
Federal Income Tax Consequences
As a shareholder of the Trust you may experience certain Federal income tax
consequences as a result receiving the merger consideration. For a detailed
description of some of the potential tax consequences, see "FEDERAL INCOME TAX
CONSEQUENCES TO SHAREHOLDERS" on pages 42-44. The Trust Urges You To Consult
With Your Own Tax Advisors As To The Specific Tax Consequences Of The Merger,
Including The Applicable Federal, State, Local And Foreign Tax Consequences To
You Of The Merger.
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