<PAGE>
As filed with the Securities and Exchange Commission on February 24, 1999
Registration Statement No. 333-67673
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 2
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)
<TABLE>
<S> <C>
Maryland 6798 04-2452367*
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code) Identification No.)
Incorporation or
Organization)
</TABLE>
Bruce A. Beal, President
177 Milk Street
Boston, Massachusetts 02109
(617) 451-2100
(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
(617) 482-4081
(Name, Address, Including Zip Code and Telephone Number, Including Area Code,
of Agent for Service)
---------------
<TABLE>
<S> <C>
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
</TABLE> (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. [_]
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.
================================================================================
<PAGE>
-----------------------------------------
PROPERTY CAPITAL TRUST
-----------------------------------------
177 Milk Street, Suite 14B, Boston, Massachusetts 02109
Proxy Statement/Prospectus
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. as the final step in the Trust's business plan to dispose of the
Trust's assets and distribute the net proceeds to you. If the merger is
approved and completed, you will receive:
. a final distribution of approximately $.25 per share which constitutes all
of the Trust's remaining assets net of existing obligations; and
. one-sixtieth of a share of common stock of PCT Inc. for each share of the
Trust you own, with one share of PCT Inc. common stock for any fractional
interest equal to or greater than .5.
PCT Inc. will issue approximately 159,737 shares of its common stock at the
time of the merger. The common stock of PCT Inc. that you will receive in the
merger will not have significant, if any, present value, but may have some
value in the future.
If holders of two-thirds of the shares of the Trust do not approve the
merger, the Trust will have to retain a portion of its assets for at least one
year to provide for contingent liabilities and will have to use a portion of
its assets to pay the expenses of maintaining a liquidating trust.
If you do not vote, or instruct your broker how to vote, it will count as a
vote against the merger.
We urge you to read this document carefully before voting and to consider the
risks associated with the merger, a discussion of which begins on page 8,
including:
. interests of management of the Trust and PCT Inc. in the merger;
. PCT Inc.'s inability to make distributions to you absent growth;
. PCT Inc.'s ability to make changes in its investment policies without your
approval; and
. PCT Inc. being taxed as a regular corporation if it fails to qualify as a
REIT.
The supplement provided with this proxy statement/prospectus also sets forth
information that you should consider before voting.
The special meeting at which you will vote upon the merger 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.
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 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, 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
and that will have the same effect as a vote against the merger.
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 you. If the merger does not occur,
the Trust will need to organize a liquidating trust which will hold a portion
of such assets for at least one year. At the end of such period, the Trust
would distribute the retained assets, but such distribution would be net of the
costs associated with running the liquidating trust and paying any contingent
liabilities that materialize.
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 or any contingent liabilities. Finally, in addition to the
distribution from the Trust, you will receive, in exchange for Trust shares you
now hold, common stock of PCT Inc. This stock has little or no value at this
time. 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. There may be value
associated with the stock at a later date, but there is no assurance of this.
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: 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............................................................. 1
The Merger.............................................................. 2
Transactions Related to the Merger...................................... 2
Summary Risk Factors.................................................... 3
The Special Meeting..................................................... 4
Background of the Merger................................................ 4
Conflicts of Interest................................................... 5
Federal Income Tax Consequences to Shareholders......................... 5
No Dissenters' Rights................................................... 5
Comparison of Shareholder Rights........................................ 5
Selected Financial Data................................................. 6
RISK FACTORS.............................................................. 8
Messrs. Beal and Manzo and the Trustees of the Trust Have Interests in
Completing the Merger That Differ From Yours........................... 8
The Beal Companies, LLP May Face a Conflict of Interest in Managing the
Operating Parnership................................................... 8
Loss of Services of The Beal Companies, LLP May Impact Results of the
Operating Partnership.................................................. 9
Management of PCT Inc. Has Not Previously Operated a REIT............... 9
Distributions by PCT Inc. Will Not Occur Absent Growth.................. 9
Changes in Investment and Financing Policies May be Made Without Your
Approval............................................................... 10
Limited Liquidity May Preclude Sale of Your Common Stock and May Impact
Trading Prices......................................................... 10
You May Recognize Gain as a Result of the Merger........................ 10
Federal Income Tax Exposure if PCT Inc. Fails to Qualify as a REIT...... 10
Stock Ownership Limits May Impede Change in Control..................... 11
Provisions of PCT Inc.'s Governing Documents May Have an Anti-Takeover
Effect................................................................. 12
Issuance of Additional Securities May Dilute Your Investment............ 12
The Operating Partnership Currently Holds Only One Property Which May
Make it Difficult to Generate Revenues Necessary to Make Distributions
to Partners............................................................ 13
Liability for Environmental Contamination May Impact Results of the
Operating Partnership.................................................. 14
WHERE YOU MAY FIND MORE INFORMATION....................................... 15
INFORMATION NOT INCLUDED IN PROSPECTUS/PROXY STATEMENT.................... 15
NOTE ON FORWARD LOOKING STATEMENTS........................................ 15
THE SPECIAL MEETING....................................................... 17
Purpose of the Special Meeting; Date, Time and Place.................... 17
Record Date; Solicitation of Proxies.................................... 17
Vote Required........................................................... 17
Proxies................................................................. 18
THE MERGER................................................................ 19
Information Regarding the Parties....................................... 19
The Merger Consideration................................................ 20
Recommendation of the Board of Trustees................................. 21
Background of and Reasons for the Merger................................ 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Fairness of the Merger to You........................................... 23
Conflicts of Interest................................................... 23
The Shares Will Not Be Listed on an Exchange............................ 24
Regulatory Approvals.................................................... 24
Related Transactions.................................................... 24
Accounting Treatment.................................................... 25
No Dissenters' Rights................................................... 25
Cancellation of the Trust's Shares...................................... 25
THE MERGER AGREEMENT...................................................... 26
Consideration to be Paid in the Merger.................................. 26
Exchange of Share Certificates.......................................... 26
Effective Time of the Merger............................................ 26
Conditions to the Merger................................................ 27
Termination............................................................. 27
Fees and Expenses....................................................... 27
Exculpation............................................................. 29
Indemnification......................................................... 29
Articles of Incorporation and By-laws................................... 29
Management after the Merger............................................. 29
PCT INC. ................................................................. 30
Description of Business of PCT Inc. .................................... 30
Business and Growth Strategy............................................ 30
Board of Directors...................................................... 32
Officers................................................................ 32
Executive Compensation.................................................. 32
Description of Property................................................. 33
Legal Proceedings....................................................... 34
Quantitative and Qualitative Disclosures about Market Risk.............. 34
The Operating Partnership............................................... 34
The Partnership Agreement of the Operating Partnership.................. 37
PRO FORMA FINANCIALS FOR MARYLAND PROPERTY CAPITAL TRUST, INC............. 39
THE TRUST................................................................. 44
Description of Business................................................. 44
Legal Proceedings....................................................... 44
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................... 44
Quantitative and Qualitative Disclosure About Market Risk............... 44
Tax Treatment of the Trust.............................................. 44
SELECTED FINANCIAL INFORMATION--THE TRUST................................. 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--THE TRUST.................................................... 46
FYA....................................................................... 52
SELECTED FINANCIAL INFORMATION--FYA....................................... 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS--FYA........ 53
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS........................... 55
Qualification as a Real Estate Investment Trust......................... 55
U.S. Federal Income Tax Consequences of the Merger...................... 55
COMPARISON OF SHAREHOLDERS' RIGHTS........................................ 56
DESCRIPTION OF THE CAPITAL STOCK OF PCT INC. ............................. 56
Description of Stock.................................................... 60
General................................................................. 60
Restrictions on Ownership............................................... 60
Restrictions on Transfers of Capital Stock.............................. 61
Anti-Takeover Provisions................................................ 62
SELECTED COMPARATIVE PER SHARE DATA....................................... 63
MARKET PRICES AND CASH DIVIDENDS INFORMATION.............................. 64
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 65
LEGAL MATTERS............................................................. 66
EXPERTS................................................................... 66
OTHER MATTERS............................................................. 66
Index to 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 which 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 19-20)
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, under 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 approximately $.25 per share in cash. The Trust
intends to declare a dividend immediately prior to the merger and distribute
this cash to you shortly after 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. Under 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 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 are:
. principals and employees of The Beal Companies;
. trusts of which the Messrs. Beal are trustees or beneficiaries; and
. private investors who are not affiliated with the 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 19-25)
In 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
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.
The following diagram illustrates the structure of PCT Inc. immediately
following the merger:
[Diagram]
Transactions Related to the Merger
(see pages 24-25)
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.
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 are currently owned by the
Trust.
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
not have significant, if any, present value. This is because the former
partners of FYA will hold equity interests in the operating partnership
2
<PAGE>
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 or increased cash flow from the existing property.
The following diagram illustrates the structure of PCT Inc. immediately after
completion of the merger and the related transactions:
[Diagram]
Summary Risk Factors
(see pages 8-14)
The merger will permit the Trust to distribute all of its remaining net
assets to you without establishing a liquidating trust to provide for
contingent liabilities. Thus, the trustees do not believe there are any
disadvantages to completing the merger. You will, however, also receive a
minority equity interest in PCT Inc. that will, at the time of the merger, have
no significant, if any, value. There are some risks associated with holding
common stock of PCT Inc. These include the following:
. the officers and directors of PCT Inc. have interests in the merger that are
different from yours and they may encounter conflicts of interest in
managing the operating partnership;
. PCT Inc. will not make distributions to you absent growth;
. PCT Inc. may make changes in its investment and financing policies without
your approval;
. PCT Inc. will be taxed as a regular corporation if it fails to qualify as a
REIT;
. you may experience difficulty in selling your common stock because the
shares will not trade on a national securities exchange;
. your shares may trade below the fair market value of PCT Inc.'s assets; and
. management of PCT Inc. has not previously operated a REIT.
In addition, the trustees of the Trust will receive benefits, consisting
primarily of indemnification by PCT Inc., as a result of the merger, which may
result in conflicts of interest.
3
<PAGE>
The Special Meeting
(see pages 17-18)
At the special meeting, you will consider and vote upon a proposal to approve
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 18.
The Board of Trustees has unanimously approved the merger and the merger
agreement and has determined that the merger is fair to you. The trustees
recommend that you vote "FOR" approval and adoption of the merger and merger
agreement and "FOR" adjournment if the required vote is not present at the
special meeting.
Background of the Merger
(see pages 21-23)
At the Trust's 1995 annual meeting, the shareholders approved a business plan
for 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, repaid its
indebtedness and made distributions to you of substantially all of the
remaining proceeds. In order to distribute its remaining assets to you
immediately, and avoid establishing a liquidating trust to hold a portion of
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 Board of
Trustees considered the following benefits to you:
1. The merger eliminates the need for a liquidating trust, which would delay
your receipt of a final distribution from the Trust and reduce the amount of
such distribution by the costs of maintaining and administering the liquidating
trust and paying any contingent liabilities that materialize.
2. The trustees will be able to declare a special dividend in the approximate
aggregate amount of $.25 per share immediately prior to the consummation of the
merger. The Trust will make this payment to you shortly after the merger. In
the absence of the merger, the liquidating trust would hold 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 no significant,
if any, value, but you have not given up any value in exchange for this common
stock.
Because the merger will allow you to receive the value of your interest in
the Trust without delay, will provide for the contingent
4
<PAGE>
liabilities of the Trust and will provide you with an equity interest in an
ongoing entity for which you 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.
Based on the above, the trustees believe that the merger and the related
transactions are fair to you.
Conflicts of Interest
(see pages 23-24)
You should be aware that the trustees and executive officers of the Trust
have interests in the merger that are 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, Robert M. Melzer, the President of the Trust and a trustee, will
receive payment from the Trust of one year's salary under a termination
agreement, which was entered into several years ago. Mr. Melzer will, however,
receive this payment even if the merger is not completed and a liquidating
trust is organized.
Federal Income Tax Consequences to Shareholders
(see page 55)
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. 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 the PCT Inc. common stock received
in exchange therefor. The common stock will not have significant, if any,
present value.
No Dissenters' Rights
(see page 25)
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 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 56-59)
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 56 the material differences
in your rights before and after the merger.
5
<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 "Where
You May Find More Information."
<TABLE>
<CAPTION>
Years Ended Five Years Ended
------------------------- Months Ended ---------------------------
December 31, December 31, December 31, July 31, July 31, July 31,
1998 1997 1996* 1996 1995 1994
------------ ------------ ------------ -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
Revenues................ $2,643 $14,717 $ 8,187 $ 21,799 $ 22,619 $ 21,623
Expenses................ 1,309 11,232 6,651 21,506 20,603 20,044
------ ------- -------- -------- -------- --------
Income before Gain on
Sale of Real Estate
Investments and
Extraordinary Item..... 1,334 3,485 1,536 293 2,016 1,579
Gain on Sale of Real
Estate Investments..... 4,083 27,812 832 6,094 3,209 2,510
------ ------- -------- -------- -------- --------
Income before
Extraordinary Item..... 5,417 31,297 2,368 6,387 5,225 4,089
Extraordinary (Loss)
Gain from
Extinguishment of
Debt................... -- -- -- (473) 88 --
------ ------- -------- -------- -------- --------
Net Income.............. $5,417 $31,297 $ 2,368 $ 5,914 $ 5,313 $ 4,089
====== ======= ======== ======== ======== ========
Per Share Data
Basic Net Income
Income before Gain on
Sale of Real Estate
Investments and
Extraordinary Item.... $ 0.14 $ 0.36 $ 0.16 $ 0.03 $ 0.23 $ 0.17
Gain on Sale of Real
Estate Investments.... .43 2.91 0.09 0.67 0.35 0.28
------ ------- -------- -------- -------- --------
Income before
Extraordinary Item.... 0.57 3.27 0.25 0.70 0.58 0.45
Extraordinary (Loss)
Gain from
Extinguishment of
Debt.................. -- -- -- (0.05) 0.01 --
------ ------- -------- -------- -------- --------
Basic Net Income per
Share.................. $ 0.57 $ 3.27 $ 0.25 $ 0.65 $ 0.59 $ 0.45
====== ======= ======== ======== ======== ========
Diluted Net Income per
Share.................. $ 0.57 $ 3.27 $ 0.25 $ 0.64 $ 0.59 $ 0.45
====== ======= ======== ======== ======== ========
Dividends Declared per
Share.................. $ 1.15 $ 8.93 $ 1.18 $ 3.23 $ 0.41 $ 0.30
====== ======= ======== ======== ======== ========
Average Shares
Outstanding............ 9,584 9,567 9,353 9,097 9,044 9,030
====== ======= ======== ======== ======== ========
Financial Position at
Year-End
Total Assets............ $3,285 $21,183 $103,294 $112,619 $169,439 $176,833
Net Real Estate
Investments............ -- 15,077 98,708 106,912 160,963 172,461
Total Debt Outstanding.. -- 8,345 36,650 36,889 71,816 81,479
Shareholders' Equity.... 2,526 6,814 61,372 70,076 93,709 91,703
</TABLE>
- --------
* The Trust's fiscal year changed from one which ended on July 31st to one
which ends on December 31st.
6
<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>
Years Ended December 31,
----------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Revenues.................................... $ 315 $ 315 $ 315 $ 314 $ 314
Costs and Operating Expenses................ 73 60 $ 67 101 113
------ ------ ------ ------ ------
Net Income.................................. $ 242 $ 255 $ 248 $ 213 $ 201
====== ====== ====== ====== ======
Financial Position at Period-End
Working Capital............................. $ 128 $ 122 $ 112 $ 103 $ 87
Total Assets................................ 1,507 1,552 1,587 1,629 1,635
Partners' Capital........................... 1,482 1,530 1,565 1,607 1,614
</TABLE>
7
<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 in
the future. As already stated, PCT Inc. does not expect to make distributions
on its common stock at this time and such stock has no significant, if any,
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.
Messrs. Beal and Manzo and the Trustees of the Trust Have Interests in
Completing the Merger That Differ From Yours
You should be aware that the officers and directors of PCT Inc. will receive
benefits as a result of the merger. 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 is different from yours.
You should also be aware that the trustees of the Trust will receive benefits
as a result of the merger. 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. 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.
The Beal Companies, LLP May Face a Conflict of Interest in Managing
the Operating Partnership
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.
8
<PAGE>
Loss of Services of The Beal Companies, LLP May Impact Results of the Operating
Partnership
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. 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.
Management of PCT Inc. Has Not Previously Operated 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. 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.
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 and the current
value of the assets to be held by the operating partnership is less than the
priority distributions. These priority distributions will prevent PCT Inc. from
currently making any distributions to you. As a result, the value, if any, of
the common stock that you will receive in the merger is not significant. PCT
Inc.'s ability to make future distributions to you depends entirely on whether
the operating partnership acquires additional assets or on future appreciation
or an increase in cash flow of the existing property. It may also depend on the
extent to which the operating partnership issues future interests, which may
have priority over PCT Inc.'s interest. 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. If the operating partnership is unable to
successfully grow its portfolio, it could materially and adversely affect its
results of operations and financial condition.
9
<PAGE>
Changes in Investment and Financing Policies May be Made Without Your 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 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. These
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.
Limited Liquidity May Preclude Sale of Your Common Stock and May Impact Trading
Prices
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
under the 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 any national exchange in the near future. As such, the shares of
common stock you receive in the merger may have only limited liquidity. In the
future, these shares also may trade at prices below the fair market value of
PCT Inc.'s assets.
You May Recognize Gain as a Result of the Merger
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 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, you will not
recognize gain or loss with respect to the receipt of common stock in exchange
for shares of the Trust. 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 the common
stock received in exchange therefor. The common stock will not have
significant, if any, present value.
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.
10
<PAGE>
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.
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 limitation of
ownership
11
<PAGE>
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. 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.
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;
. 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.
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 preferred and common 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
12
<PAGE>
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 by PCT Inc. or the operating partnership 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.
The Operating Partnership Currently Holds Only One Property Which May Make it
Difficult to Generate Revenues Necessary to Make Distributions to Partners
Upon completion of the merger, the operating partnership's sole asset will be
the property located at 51 New York Avenue, Framingham, Massachusetts. Although
the operating partnership may acquire additional properties in the future, we
cannot guarantee that this will occur. Any economic factor that affects this
single property will directly affect the operations of the REIT, with no
potential for offset that would be present in a multi-property REIT. Thus, if
the current property alone does not generate revenues sufficient to meet the
operating expenses of the REIT, 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.
The following factors, among others, may affect the revenue generated by the
property and, therefore, the REIT:
. 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;
. 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 a new lease to provide for tenant's payment of real estate
taxes;
. 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
property. 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.
13
<PAGE>
Liability for Environmental Contamination May Impact Results of the Operating
Partnership
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 hazardous materials on, under, in
or from property can be substantial, and the fact that a property has had a
release of hazardous materials, even if remediated, may 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 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
property.
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 believes 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 it believes would have such a material adverse effect. However,
we cannot assure you that:
. the environmental assessment identified all potential environmental
liabilities;
. no environmental liabilities developed since such environmental
assessment was prepared;
. 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
. future uses or conditions, including, without limitation, changes in
applicable environmental laws and regulations, will not result in the
imposition of environmental liability.
14
<PAGE>
WHERE YOU MAY FIND MORE 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 document 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 document also constitutes the proxy statement
of the Trust for the special meeting.
This document 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 in this document.
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
document 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 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 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 achievements to be materially different from any
outcomes expressed or implied by such forward-looking statements. The following
factors, among others, could affect our
15
<PAGE>
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, all of
which are difficult or impossible to predict accurately and many of
which are beyond our control.
16
<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 of the Trust 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. On 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.
17
<PAGE>
Proxies
Shares which are represented by properly executed proxies will be voted in
accordance with the instructions indicated. If you do not indicate contrary
instructions, the proxy appointees will vote your shares:
. ""FOR'' approval and adoption of the merger and the merger agreement;
. ""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 the merger if the required vote is not present, in person or by
proxy, at the special meeting; and
. ""FOR'' such other business properly brought before the special meeting
or at any adjournments or postponements of 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,
brokers will not be entitled to vote on the merger absent instructions. Shares
held by such brokers who do not receive instructions will be 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 the merger 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 provided by the Trust's
Declaration of Trust. At any reconvening of the special meeting, the proxy
appointees will vote all proxies in the same manner as the proxies would have
been voted at the special meeting, except for proxies that have been
effectively revoked prior to the 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
completed, you will be furnished instructions for exchanging your certificates.
18
<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. For a
more detailed description regarding the business of the Trust see "THE TRUST"
on page 44.
Maryland Property Capital Trust, Inc. PCT Inc. was organized on June 15, 1998
as a wholly-owned subsidiary of the Trust. Under the merger agreement, if the
holders of two-thirds of the outstanding shares approve 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 and will not own directly any real estate. At the present
time, 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 are (1) current principals
and employees of The Beal Companies and (2) trusts of which the Messrs. Beal
are trustees or beneficiaries. FYA also has a class of limited partners that
are not affiliated with the Messrs. Beal or The Beal Companies. As part of the
transactions related to the merger, FYA will borrow $1 million in cash and use
the 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.
FYA will then distribute the shares of common stock to its partners based on
their pro rata percentage interests in FYA. Following the 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 also will be entitled to a preferred return. In addition, FYA will
change its name to Property Capital Trust Limited Partnership and, while
continuing to hold its single property, become the operating partnership of PCT
Inc.
19
<PAGE>
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 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 of the
Trust you hold, with
one share of common stock for any fractional interest equal to or
greater than .5.
No shares of common stock or cash will be issued in exchange for fractional
interests of common stock less than .5.
In addition, immediately prior to the merger, the trustees intend to declare a
special dividend of approximately $.25 per share. This dividend includes the
redemption of your rights outstanding under the Trust's shareholder rights plan
at a price of $.01 per right.
The following sets forth several examples of the number of shares of common
stock you might 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>
The interests in PCT Inc. that you will receive in the merger will be
allocated to you according to the number of shares of the Trust that you own
immediately prior to the merger. However, for purposes of determining the
allocation of interests in PCT Inc. following the merger, the valuation of the
Trust was based on the fact that the Trust has successfully divested itself of
all real estate assets and, prior to the merger, will have declared a dividend
of all of its remaining cash, net of existing obligations, and a distribution
of $.01 per share to redeem the rights outstanding under the Trust's
shareholder rights plan. Thus, the trustees determined that, at the time of the
merger, you will have received the full value of your shares of the Trust. The
zero or insignificant value of the common stock of PCT Inc. that you will
receive in the merger therefore reflects this valuation of the Trust.
20
<PAGE>
The following table sets forth information regarding the calculation of the
valuation of the Trust and the allocation of interests in PCT Inc.
<TABLE>
<C> <C> <S> <C> <C>
Mortgages or Amount of
Value of the other liabilities Number of interests
Trust's of the shares of to be issued
assets Trust common stock Amount of to the
immediately immediately of PCT Inc. to interests trustees and
prior to prior to be issued to be officers
the merger the merger in the merger issued to you of the Trust
- -----------------------------------------------------------------------------------------
$0 none . approximately one-sixtieth of one-sixtieth of
159,737 a share of PCT Inc. a share of PCT Inc.
shares. common stock for common stock for
each share of each share of
the Trust you own, the Trust they own,
with one share to with one share to
. following the be exchanged be exchanged
merger for fractional for fractional
and the interest equal interest equal
related to or greater to or greater
transactions, than .5 than .5, or
the Trust's approximately
shareholders 2,617 shares.
will own
approximately
33.3% of PCT
Inc.'s common
stock.
</TABLE>
The interests of PCT Inc. allocable to the trustees and the officers of the
Trust in exchange for their shares of the Trust were determined on the same
basis as described above. Upon completion of the merger, Mr. Melzer will
receive one year's salary under a termination agreement entered into several
years ago. However, this did not impact the valuation of the Trust or the
aggregate amount of interests in PCT Inc. allocable to Mr. Melzer after the
merger.
Recommendation of the Board of Trustees
The trustees unanimously 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.
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 Trust for 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.
21
<PAGE>
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 you 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.
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 a portion of its remaining assets to the liquidating trust and
terminate its existence. The liquidating trust would then continue for at least
one year 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 a private investor in
January 1998. Pursuant to a confidentiality agreement entered into with the
investor, the Trust is unable to disclose the investor's identity or the terms
of the proposed transaction. However, the proposed transaction contemplated by
that letter of intent was never consummated as the parties could not reach a
definitive agreement before the expiration of the deadline for doing so under
the letter of intent. 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 and its Structure." Following this discussion, the trustees present
at the meeting unanimously approved the terms of the merger agreement which
would permit the Trust to distribute its assets and would permit you to
participate in the future growth of PCT Inc. 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 your right to receive a distribution of all cash from the Trust
and to participate in the growth of PCT Inc..
Reasons for the Merger and its Structure. 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:
22
<PAGE>
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 $.25 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 a portion of these funds 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.
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. The merger was structured this way, in part, to provide you with
the benefits and rights generally associated with a corporate form, including
dissenters' rights, a classified Board of Directors and limited liability. The
trustees of the Trust participated in structuring the merger and believe that
the new form will provide you with certain rights that you otherwise would not
have in the Trust's organizational form. For a detailed description of these
organizational differences and rights, see "COMPARISON OF SHAREHOLDERS' RIGHTS"
on pages 56-59.
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 involve only limited risks to you and the
trustees believe there were 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 You
Based on the considerations described above, the trustees determined that the
merger and the merger agreement are advisable, fair and in your best interests.
However, the Trust did not receive a report, opinion or appraisal from a third
party relating to the merger consideration or the fairness of such
consideration to you. While it is true that you will receive common stock of
PCT Inc., you will not be giving anything of value in exchange for the common
stock. Further, the trustees did not regard your receipt of common stock of PCT
Inc. as a reason for the merger because the structure of preferred partnership
interests in the operating partnership will preclude PCT Inc. from making
distributions 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 the trustees and executive officers of the Trust
have interests in the merger that are different from, or in addition to, yours
generally.
23
<PAGE>
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, entered into a termination
agreement with the Trust several years ago, 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. Mr. Melzer would
also have been entitled to receive this payment if the Trust had formed a
liquidating trust.
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.
The Shares Will Not Be Listed on an Exchange
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 under the
symbol PCTG. PCT Inc. intends to continue to be traded on the Bulletin Board,
but does not intend to be listed on any national 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.
24
<PAGE>
2. PCT Inc. will contribute this $1 million to the operating partnership in
exchange for 319,489 common units.
The loan and purchase of stock described in item 1 above will allow FYA to
acquire a majority position in PCT Inc. and will simultaneously fund PCT Inc.
with sufficient cash to pay the organizational expenses estimated at
approximately $1 million.
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. are currently owned by the Trust.
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 thus believes
it is receiving adequate consideration for engaging in the related
transactions. 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 34.
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.
No 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. After the merger, 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.
25
<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 trustees 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 $.25 per
share, which includes the redemption price of $.01 per right of all rights
outstanding under the Trust's rights agreement. You will receive this
distribution shortly after the completion of the merger.
Upon completion of the merger, you will receive one-sixtieth of a share of
PCT Inc. common stock for each share you own. 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 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.
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.
26
<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 certain 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.
27
<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 termination 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, but have no
procedures in place to do so
- ----------------------------------------------------------------------------
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 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
28
<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 PCT Inc. 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 32.
29
<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--The Beal Companies, LLP May Face a
Conflict of Interest In Managing the Operating Partnership" on page 8.
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 32.
30
<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.
31
<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. 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 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.
32
<PAGE>
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 direct owner
of the property. FYA undertook a major renovation of the building over the two
years following its acquisition. This property has been 100% 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.
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, or
$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 following table sets forth the effective rent per square foot of this
property during the years listed below:
<TABLE>
<CAPTION>
Rent per
Year Square Foot
---- -----------
<S> <C>
1998 $19.30
1997 $18.84
1996 $18.84
1995 $16.23
1994 $15.36
1993 $15.36
</TABLE>
33
<PAGE>
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. Neither FYA nor PCT LP currently has any plans to renovate, improve
or develop this property.
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 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 24.
Tax Basis of Real Property. As of December 31, 1998, 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 statutory life of the real property, which is 18
or 19 years. For the property 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.
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
34
<PAGE>
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;
.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:
. Bruce A. Beal, Robert L. Beal, Michael A. Manzo and Peter B. Nichols,
each of whom is a principal or an employee of The Beal Companies;
. trusts of which Robert or Bruce Beal are trustees or beneficiaries; and
. 15 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 15 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. These rights include the right
to receive distributions, to the extent available, and proceeds upon
liquidation equal to what they would have received had the related
transactions not occurred. 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
35
<PAGE>
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
and Peter B. Nichols, each of whom is a principal or an 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. These rights include the right
to receive distributions, to the extent available, and proceeds upon
liquidation equal to what they would have received had the related
transactions not occurred. 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.
36
<PAGE>
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 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.
37
<PAGE>
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, while your interests in PCT Inc. will be diluted by the
issuance of common stock in connection with a redemption, 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.
38
<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 PCT Inc. as of December
31, 1998 has been prepared to reflect the following transactions, as if each of
such transactions and adjustments had occurred on December 31, 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 PCT Inc. for the year
ended December 31, 1998 has been prepared to reflect the above transactions and
certain other adjustments, as if such transactions and adjustments had occurred
on January 1, 1998.
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.
39
<PAGE>
MARYLAND PROPERTY CAPITAL TRUST, INC.
Pro Forma Condensed Combined Balance Sheet
as of December 31, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Pro Forma PCT Inc.
FYA The Trust Adjustments Pro Forma
------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Properties, net.................. $1,012 $ -- $ -- $ 1,012
Cash and cash equivalents........ 153 3,233 (3,233)(A) 1,080
1,000 (B)
(73)(C)
Deferred rent receivable......... 314 -- -- 314
Deferred charges................. 28 -- -- 28
Other assets..................... -- 52 (52)(A) --
------ --------- --------- -------
Total assets................... $1,507 $ 3,285 $ (2,358) $ 2,434
====== ========= ========= =======
Liabilities and Shareholders'
Equity:
Mortgage debt.................... $ -- $ -- $ 1,000 (B) $ 1,000
Accounts payable and accrued
expenses........................ 14 759 (759)(A) 1,014
1,000 (E)
Other liabilities................ 11 -- -- 11
------ --------- --------- -------
Total liabilities.............. 25 759 1,241 2,025
------ --------- --------- -------
Limited Partners' Interest in
Operating Partnership............. -- -- 409 (D) 409
Owners' Equity..................... 1,482 -- (1,000)(B) --
(73)(C)
(409)(D)
Common Stock....................... -- 108,568 (108,566)(A) 5
3 (B)
Paid-in Capital.................... -- -- (2)(A) 995
997 (B)
Accumulated Deficit................ -- (106,042) 106,042 (A) (1,000)
(1,000)(E)
------ --------- --------- -------
Total shareholders' equity..... 1,482 2,526 (4,008) --
------ --------- --------- -------
Total liabilities and
shareholders' equity.......... $1,507 $ 3,285 $ (2,358) $ 2,434
====== ========= ========= =======
</TABLE>
40
<PAGE>
MARYLAND PROPERTY CAPITAL TRUST, INC.
Notes to Pro Forma Condensed Combined Balance Sheet
as of December 31, 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 $409,000 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, 1998.
41
<PAGE>
MARYLAND PROPERTY CAPITAL TRUST, INC.
Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
The Pro Forma PCT Inc.
FYA Trust Adjustments Pro Forma
---- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental............................... $311 $2,430(F) $(2,430)(F) $311
Interest............................. -- 206 (206)(F) --
Other................................ 4 7 (7) 4
---- ------ ------- ----
Total revenues..................... 315 2,643 (2,643) 315
---- ------ ------- ----
Expenses:
General and administrative........... 42 1,071 (1,071)(F) 92
50 (H)
Operating expenses................... -- 211 (211)(F) --
Professional Fees.................... -- 17 (17)(F) --
Interest............................. -- 10 (10)(F) 76
76 (G)
Depreciation and amortization........ 31 -- -- 31
---- ------ ------- ----
Total expenses..................... 73 1,309 (1,183) 199
---- ------ ------- ----
Income before Gain on Sale of Real
Estate Investments.................... 242 1,334 (1,460) 116
Gain on Sale of Real Estate
Investments........................... -- 4,083 (4,083)(F) --
---- ------ ------- ----
Net Income before limited partners'
interest in operating partnership
income................................ 242 5,417 (5,543) 116
Limited partners' interest in operating
partnership income.................... -- -- (147)(I) (147)
---- ------ ------- ----
Net income (loss)...................... $242 $5,417 $(5,690) $(31)
==== ====== ======= ====
</TABLE>
42
<PAGE>
MARYLAND PROPERTY CAPITAL TRUST, INC.
Notes to the
Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1998
(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, 1998 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 this period has been eliminated.
(G) To record additional interest expense in the amount of $76,000 for the year
ended December 31, 1998 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 $50,000 for the year ended
December 31, 1998.
(I) To reflect allocation of income to limited partners in the operating
partnership for the preferred distributions of $147,000 for the year ended
December 31, 1998.
43
<PAGE>
THE TRUST
Description of Business of the Trust
Property Capital Trust is an unincorporated business trust organized under
the laws of the Commonwealth of Massachusetts under a Declaration of Trust,
dated June 9, 1969. The Trust also is a REIT. Since 1995, the Trust has been in
the process of liquidating its real estate assets. Pursuant to a business plan
adopted by the trustees of the Trust and ratified by the shareholders of the
Trust, the Trust has sold all of its real estate investments. The Trust
currently has no active business or investments and holds no assets other than
cash.
On June 17, 1998, the Trust sold its last real estate investment. 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 approximately $.25
per share in cash which the trustees intend to distribute to shareholders
shortly after the merger. The distribution of approximately $.25 per share
includes a special dividend of approximately $.24 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 $13.90 per share to shareholders from
the net proceeds of the sale of all of its real estate investments pursuant to
the business plan.
Legal Proceedings
The Trust is involved in no pending legal proceedings, other than immaterial
proceedings in the ordinary course of business all of which are 100% covered by
the Trust's insurance, and no such proceedings are known to be contemplated by
governmental authorities.
In 1998, the state of Florida paid the Trust $328,300 in compensation for the
taking of a portion of the shopping center in Aventura, Florida in which the
Trust had an investment. The Trust subsequently instituted legal proceedings
against the State of Florida contesting the amount of compensation owed for the
taking. In June 1998, the parties entered into mediation. The Trust recently
settled its dispute with the State of Florida for an additional amount of
$291,700. The net proceeds from this settlement will be included in the
approximately $.25 per share special dividend to be distributed by the Trust
upon completion of the merger.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Quantitative and Qualitative Disclosures About Market Risk
None.
Tax Treatment of the Trust
For a description of the material aspects of the tax treatment of the Trust
under federal income tax laws, see "FEDERAL INCOME TAX CONSEQUENCES TO
SHAREHOLDERS" on page 55.
44
<PAGE>
SELECTED FINANCIAL INFORMATION--THE TRUST
The following selected financial data for the years ended December 31, 1998
and 1997, the five months ended December 31, 1996, and the years ended July 31,
1996, 1995 and 1994 are derived from the audited financial statements of the
Trust.
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 "Where You May Find More
Information."
<TABLE>
<CAPTION>
Years Ended Five Years Ended
------------------------- Months Ended ---------------------------
December 31, December 31, December 31, July 31, July 31, July 31,
1998 1997 1996* 1996 1995 1994
------------ ------------ ------------ -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
Revenues................ $2,643 $14,717 $ 8,187 $ 21,799 $ 22,619 $ 21,623
Expenses................ 1,309 11,232 6,651 21,506 20,603 20,044
------ ------- -------- -------- -------- --------
Income before Gain on
Sale of Real Estate
Investments and
Extraordinary Item..... 1,334 3,485 1,536 293 2,016 1,579
Gain on Sale of Real
Estate Investments..... 4,083 27,812 832 6,094 3,209 2,510
------ ------- -------- -------- -------- --------
Income before
Extraordinary Item..... 5,417 31,297 2,368 6,387 5,225 4,089
Extraordinary (Loss)
Gain from
Extinguishment of
Debt................... -- -- -- (473) 88 --
------ ------- -------- -------- -------- --------
Net Income.............. $5,417 $31,297 $ 2,368 $ 5,914 $ 5,313 $ 4,089
====== ======= ======== ======== ======== ========
Per Share Data
Basic Net Income
Income before Gain on
Sale of Real Estate
Investments and
Extraordinary Item.... $ 0.14 $ 0.36 $ 0.16 $ 0.03 $ 0.23 $ 0.17
Gain on Sale of Real
Estate Investments.... 0.43 2.91 0.09 0.67 0.35 0.28
------ ------- -------- -------- -------- --------
Income before
Extraordinary Item.... 0.57 3.27 0.25 0.70 0.58 0.45
Extraordinary (Loss)
Gain from
Extinguishment of
Debt.................. -- -- -- (0.05) 0.01 --
------ ------- -------- -------- -------- --------
Basic Net Income per
Share.................. $ 0.57 $ 3.27 $ 0.25 $ 0.65 $ 0.59 $ 0.45
====== ======= ======== ======== ======== ========
Diluted Net Income per
Share.................. $ 0.57 $ 3.27 $ 0.25 $ 0.64 $ 0.59 $ 0.45
====== ======= ======== ======== ======== ========
Dividends Declared per
Share.................. $ 1.15 $ 8.93 $ 1.18 $ 3.23 $ 0.41 $ 0.30
====== ======= ======== ======== ======== ========
Average Shares
Outstanding............ 9,584 9,567 9,353 9,097 9,044 9,030
====== ======= ======== ======== ======== ========
Financial Position at
Year-End
Total Assets............ $3,285 $21,183 $103,294 $112,619 $169,439 $176,833
Net Real Estate
Investments............ -- 15,077 98,708 106,912 160,963 172,461
Total Debt Outstanding.. -- 8,345 36,650 36,889 71,816 81,479
Shareholders' Equity.... 2,526 6,814 61,372 70,076 93,709 91,703
</TABLE>
- --------
* The Trust's fiscal year changed from one which ended on July 31st to one
which ends on December 31st.
45
<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 and the distribution of the proceeds, after satisfying any
liabilities, to the 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 and will not have significant, if
any, present value. At the time of the merger, the Trust's shareholders will
receive all of the Trust's remaining net worth, which is currently estimated to
be approximately $0.25 per share after giving effect to expected operating
expenses through the date of merger and accrued expenses.
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
approximately $0.01 per share per year. The Trust expects to circulate a proxy
statement to shareholders, in anticipation of a shareholder vote on the
proposed merger in March 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 $13.90 per share.
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 under the 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 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.
46
<PAGE>
Financial Condition, Liquidity and Capital Resources at December 31, 1998
The Trust has reviewed its short-term and long-term liquidity needs in view
of the completion of its business plan. The Trust's liquidity needs are to fund
normal operating expenses and to satisfy any contingent liabilities. The Trust
expects to fund these liquidity needs from cash on hand. At December 31, 1998,
the Trust's principal asset was $3,233,000 of cash and cash equivalents.
The Trust had no debt at December 31, 1998 as compared to $8,345,000 at
December 31, 1997.
Review of Real Estate Investments
The Trust's last two real estate investments, Park Place and Cincinnati
Marriott, were sold during calendar year 1998. Set forth below is a discussion
of the last portfolio sales during the year.
Office Building. On January 29, 1998, the Trust sold its only office
investment, Park Place, located in Clayton, Missouri, for $14,145,000. The
Trust received net sales proceeds of approximately $4,700,000 after deduction
of the first mortgage balance and payment of closing expenses. The first
mortgage on the property was assumed by the purchaser. The Trust realized a
gain on the sale of this property of $3,067,000. On August 1, 1996, the Trust
allocated $1,239,000 of its former allowance for possible investment losses to
this investment.
Hotel. 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 at their face amount of $4,316,000. On
August 1, 1996, the Trust had allocated $1,016,000 of its former allowance for
possible investment losses to these mortgages. As a consequence, the repayment
resulted in a gain of the Trust of $1,016,000.
Results of Operations for the Calendar Year Ended December 31, 1998 Versus the
Calendar Year Ended December 31, 1997
During 1998, the Trust disposed of its last two investments in accordance
with the business plan. As a result, the Trust's revenues, expenses and
resulting net income decreased significantly.
Revenues. Rents from Owned Properties held directly by the Trust, which
include base rent plus expense reimbursements, decreased 96% for the year ended
December 31, 1998, as compared to the prior year, primarily due to the sale, in
January 1998, of the Park Place office building, the Trust's last Owned
Property which was classified as an Asset Held for Sale directly by the Trust,
and from the write-off of approximately $152,000 of previously recorded
revenues from Loehmann's Fashion Island, which had been sold in December 1997.
Base income from Structured Transactions held directly by the Trust, which
includes land rent and mortgage interest, decreased 5% for the year ended
December 31, 1998, as compared to the prior year, due to the sale of all but
one of the Trust's Structured Transactions held directly by the Trust prior to
calendar 1998 offset by the receipt in June 1998, of $1,600,000 of land rent
and mortgage interest, earned between 1991 and 1994 but subsequently written
off, from the Cincinnati Marriott Inn. Overage income from Structured
Transactions held directly by the Trust decreased 91% for the year ended
December 31, 1998, as compared to the prior year, primarily due to the sale of
all but one of the Trust's Structured Transactions held directly by the Trust
prior to calendar 1998. The receipt and recognition of base and overage income
in the Cincinnati Marriott Inn transaction occurred in conjunction with the
disposition of these investments, the Trust's last Structured Transaction,
which was classified as an Asset Held for Sale directly by the Trust.
47
<PAGE>
Interest income decreased 70% for the year ended December 31, 1998, as
compared to the prior year. 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.
Expenses. Total expenses decreased 88% for the year ended December 31, 1998,
as compared to the prior year, primarily due to the sale of the Trust's last
two real estate investments in the first and second quarters of 1998. Included
in total expense decreases were decreases in professional fees of 90% for the
year ended December 31, 1998, as compared to the prior year, due to the
downward revision 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 58% for the year ended December
31, 1998, as compared to 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 year ended
December 31, 1998, included gains on the sale of real estate investments of
$4,083,000, or $.43 per share, comprised of $3,067,000, or $.32 per share, from
the sale of the Park Place office building in January 1998 and $1,016,000, or
$.11 per share, from the prepayment of Cincinnati Marriott Inn's leasehold
mortgages at their face amount in June 1998. These mortgages had previously
been written down by this amount.
Dividends. Dividends declared in respect of calendar year 1998 were $1.15 per
share as compared to $8.93 per share for calendar 1997. Pursuant to its
business plan, beginning in fiscal year 1996 the Trust declared special
dividends from the proceeds of its disposition of investments. The Trust
declared special dividends of $1.15 per share and $8.75 per share during
calendar years 1998 and 1997, respectively. The Trust has now disposed of all
of its investments. These dispositions have caused the Trust's revenues to
decline significantly. Consequently, management does not anticipate that the
Trust will declare any regular quarterly dividends from operations in the
future. In respect of calendar year 1998, no regular quarterly dividends were
declared as compared to $.18 per share in calendar 1997.
Inflationary and Economic Factors. As the Trust has no real estate
investments, inflation and economic factors should have no effect on the Trust.
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, which
include 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, which
includes 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.
48
<PAGE>
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.
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, or $2.91 per share, consisting of a gain of $18,577,000, or
$1.94 per share, from the sale of the land underlying City Centre Holiday Inn,
a gain of $857,000, or $.09 per share, from the sale of Telegraph Hill, a gain
of $1,944,000, or $.20 per share, from the sale of the land underlying
Lakeside Center, a gain of $4,750,000, or $.50 share, from the sale of the
land underlying Elm Creek and Sandpiper Cove, a gain of $350,000, or $.04 per
share, from the sale of the land underlying Northbrook and a gain of
$1,334,000, or $.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.
49
<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, which
include 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, which
inlcudes 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 ended July 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
50
<PAGE>
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.
Special Note Regarding Forward-Looking Statements
Certain statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--The Trust" constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
financial, operating or otherwise, or achievements of the Trust to be
materially different from any future results, performance, financial, operating
or otherwise, or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other factors include, among others,
management's estimates of future dividends, the likelihood and timing of the
merger and other factors noted in this report. As a result, no assurance can be
given as to future results, performance, financial, operating or otherwise, or
achievements of the Trust.
51
<PAGE>
FYA
FYA currently holds the Framingham, Massachusetts property and, following the
completion of the merger and the related transactions, will be the operating
partnership of PCT Inc.
SELECTED FINANCIAL INFORMATION--FYA
The selected financial information presented below as of and for the years
ended December 31, 1998, 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 year
ended December 31, 1994, 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>
Years Ended December 31,
----------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(In thousands)
Summary of Operations
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 315 $ 315 $ 315 $ 314 $ 314
Costs and Operating Expenses................ 73 60 67 101 113
------ ------ ------ ------ ------
Net Income.................................. $ 212 $ 255 $ 248 $ 213 $ 201
====== ====== ====== ====== ======
Financial Position at Period-End
Working Capital............................. $ 128 $ 122 $ 112 $ 103 $ 87
Total Assets................................ 1,507 1,552 1,587 1,629 1,635
Partners' Capital........................... 1,482 1,530 1,565 1,607 1,614
</TABLE>
52
<PAGE>
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 33.
Results of Operations for the Fiscal Year Ended December 31, 1998 as Compared
with the Fiscal Year Ended December 31, 1997
Revenues. Rental income for the years ended December 31, 1998 and 1997
totaled $310,550 and $311,338, respectively. Total income for the years ended
December 31, 1998 totaled $315,102, as compared to $315,117 for the year ended
December 31, 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
$42,037 for the year ended December 31, 1998, as compared to $29,380 for the
year ended December 31, 1997. The increase in operating expenses is due
primarily to amounts incurred in fiscal 1998 for the preparation of the audited
financial statements for the years ended 1998 and 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 years ended December 31,
1998 and 1997 totaled $10,013 and $9,774, respectively. In addition to the
audit and tax preparation fees referenced above, FYA also incurred other
expenses, including, but not limited to, travel reimbursement, dues to real
estate organizations and liability insurance.
Net Income. Net income from operations for the year ended December 31, 1998
totaled $241,973, as compared to $254,646 for the year ended December 31, 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 January 1999, FYA entered into a commitment with a
lending institution to borrow $1,000,000. The loan will be secured by the
property owned by FYA. In addition, the tenant directly pays for most of the
operating expenses. Management believes that the level of working capital
maintained by FYA is adequate to cover any extraordinary capital expenditure.
During the years ended December 31, 1998 and 1997, FYA made distributions to
its partners totaling $290,000. In January of 1999, FYA distributed an
additional $72,500 of its partners of record.
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
53
<PAGE>
income consisting primarily of interest from working capital reserves. Interest
and other income was $3,779 and $3,283 for 1997 and 1996, respectively.
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 of 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.
54
<PAGE>
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. Goodwin Procter & Hoar LLP will render an
opinion as to the status of PCT Inc. as a REIT following the merger.
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, 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, between your adjusted tax basis in
your shares of the Trust and the value of the common stock received in exchange
therefor. The common stock will not have significant, if any, present value.
55
<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 "Where You May Find More Information" on page 15.
<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>
56
<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>
57
<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>
58
<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
.Generally, the Trust includes result of active and deliberate
provisions in written dishonesty and was material to
agreements to which it is a the proceeding's cause of
party that its obligations are action.
not enforceable against .PCT Inc. and its stockholders
shareholders personally. may still obtain other relief,
.Absent willful misconduct on such as an injunction or
the shareholder's part, restriction.
shareholder liability will be .PCT Inc. will indemnify its
reimbursed by the Trust, to the directors and officers against
extent the Trust has assets fines and reasonable expenses
sufficient for such actually incurred by them in
reimbursement. any proceeding to which they
may be made a party by reason
of their service to or at the
request of PCT Inc., unless it
is established that the act or
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>
59
<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
60
<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 % of the
common stock or preferred stock and no trust or company registered under the
Investment Company Act of 1940 may own, or be deemed to own, more than 15% of
equity stock. The Board of Directors, in its sole discretion, may waive these
ownership limits 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 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. Any transfer of PCT Inc.'s 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 limits 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 PCT
Inc. being "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code or results in 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
limits, and the intended transferee 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 limits, 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 limits.
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 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.
61
<PAGE>
As soon as practicable after the trust acquires the excess stock, the trustee
will sell such shares to 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 PCT Inc., 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.
62
<PAGE>
SELECTED COMPARATIVE PER SHARE DATA
The following tables set forth certain information concerning the Trust's
shares and the shares of common stock of PCT Inc. 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 "Where You May Find More Information," and FYA's financial statements
included elsewhere in this document.
Book value per share of common stock as of December 31, 1998:
<TABLE>
<S> <C>
PCT historical...................................................... $0.26
MPCT pro forma...................................................... --
</TABLE>
Net income (loss) per share of common stock:
<TABLE>
<CAPTION>
For the Year
Ended
December 31, 1998
-----------------
<S> <C>
PCT historical.......................................... $.57
MPCT pro forma.......................................... (.06)
</TABLE>
Dividends declared per share of common stock:
<TABLE>
<CAPTION>
For the Year
Ended
December 31, 1998
-----------------
<S> <C>
PCT historical.......................................... $1.15
MPCT pro forma.......................................... --
</TABLE>
63
<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 under the 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:
<TABLE>
<S> <C> <C>
Fiscal Year Ended December 31, 1998
<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 holders of record of the Trust's
shares.
64
<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 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. Following 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.
65
<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.
In addition, Goodwin, Procter & Hoar LLP will pass upon the qualification
following the merger of PCT Inc. as a REIT for federal income tax purposes.
EXPERTS
The consolidated financial statements of the Trust at December 31, 1998 and
1997, and for the years ended December 31, 1998 and 1997, and July 31, 1996 and
for the five-month period ended December 31, 1996, included in the proxy
statement of the Trust, which is referred to and made a part of this prospectus
and registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The audited financial statements of FYA as of and for each of the four years
ended December 31, 1998 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 in this document 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
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Property Capital Trust
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated balance sheets at December 31, 1998 and 1997................. F-3
Consolidated statements of income for the years ended December 31, 1998,
December 31, 1997 and July 31, 1996 and for the five-months ended
December 31, 1996 and 1995 (unaudited)................................... F-4
Consolidated statements of cash flows for the years ended December 31,
1998,
December 31, 1997 and July 31, 1996 and for the five-months ended
December 31, 1996 and 1995 (unaudited)................................... F-6
Consolidated statements of shareholders' equity for the years ended
December 31, 1998, December 31, 1997 and July 31, 1996 and for the five-
month period ended
December 31, 1996........................................................ F-8
Notes to consolidated financial statements................................ F-9
Consolidated Quarterly Financial Data (unaudited)......................... F-28
Schedule III--Investments--Assets Held for Sale directly by the Trust..... F-29
Framingham York Associates Limited Partnership
</TABLE>
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-31
Balance sheets at December 31, 1998, 1997, 1996 and 1995.................. F-32
Statements of Income for the years ended December 31, 1998, 1997, 1996 and
1995..................................................................... F-33
Statements of Partners' Capital for the years ended December 31, 1998,
1997, 1996,
1995 and 1994............................................................ F-34
Statements of Cash Flows for the years ended December 1998, 1997, 1996 and
1995..................................................................... F-35
Notes to Financial Statements............................................. F-36
</TABLE>
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.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Property Capital Trust
We have audited the accompanying consolidated balance sheets of Property
Capital Trust (a real estate investment trust) as of December 31, 1998 and
1997, and the related consolidated statements of income, cash flows, and
shareholders' equity for the years ended December 31, 1998 and 1997, and July
31, 1996 and the five-month period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the accompanying Index.
These financial statements and schedule are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Property Capital Trust at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for the years ended December 31,
1998 and 1997, and July 31, 1996 and the five-month period ended December 31,
1996, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 18, 1999
F-2
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Assets
Real Estate Investments
Assets Held for Sale directly by the Trust...... $ -- $ 15,077,000
Cash and cash equivalents........................ 3,233,000 3,160,000
Interest and rents receivable.................... -- 280,000
Other assets..................................... 52,000 2,666,000
------------- -------------
$ 3,285,000 $ 21,183,000
============= =============
Liabilities and Shareholders' Equity
Liabilities
Accounts payable, accrued expenses and other.... $ 759,000 $ 5,983,000
Accrued interest................................ -- 41,000
Mortgage notes payable.......................... -- 8,345,000
------------- -------------
759,000 14,369,000
------------- -------------
Shareholders' Equity
Common Shares (without par value, unlimited
shares authorized, 9,584,220 issued and
9,584,220
and 9,397,369 outstanding, respectively)....... 108,568,000 108,568,000
Accumulated deficit............................. (106,042,000) (100,438,000)
------------- -------------
2,526,000 8,130,000
Less cost of Treasury Shares..................... -- (1,316,000)
------------- -------------
Total Shareholders' Equity....................... 2,526,000 6,814,000
------------- -------------
$ 3,285,000 $ 21,183,000
============= =============
</TABLE>
See accompanying notes
F-3
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
December 31, December 31, July 31,
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Revenues
Rents from Owned Properties held
directly by the Trust................. $ 470,000 $10,746,000 $12,641,000
Structured Transactions held directly
by the Trust
Base income........................... 1,853,000 1,956,000 2,664,000
Overage income........................ 107,000 1,153,000 2,297,000
Income from unconsolidated Investment
Partnerships.......................... -- 120,000 3,326,000
---------- ----------- -----------
2,430,000 13,975,000 20,928,000
Interest income........................ 206,000 695,000 486,000
Other income........................... 7,000 -- --
Advisory fee income.................... -- 47,000 385,000
---------- ----------- -----------
2,643,000 14,717,000 21,799,000
---------- ----------- -----------
Expenses
General and administrative expenses.... 963,000 2,316,000 3,518,000
Expenses on Owned Properties held
directly by the Trust................. 211,000 4,773,000 5,569,000
Trustees' fees and expenses............ 108,000 108,000 137,000
Professional fees...................... 17,000 162,000 474,000
Interest............................... 10,000 2,653,000 4,800,000
Depreciation........................... -- 1,220,000 4,008,000
Write-down of real estate investment... -- -- 3,000,000
---------- ----------- -----------
1,309,000 11,232,000 21,506,000
---------- ----------- -----------
Income before Gain on Sale of Real
Estate Investments and Extraordinary
Item.................................. 1,334,000 3,485,000 293,000
Gain on Sale of Real Estate
Investments........................... 4,083,000 27,812,000 6,094,000
---------- ----------- -----------
Income before Extraordinary Item....... 5,417,000 31,297,000 6,387,000
Extraordinary Loss from Extinguishment
of Debt............................... -- -- (473,000)
---------- ----------- -----------
Net Income............................. $5,417,000 $31,297,000 $ 5,914,000
========== =========== ===========
Net Income per Share
Income before Gain on Sale of Real
Estate Investments and Extraordinary
Item.................................. $ 0.14 $ 0.36 $ 0.03
Gain on Sale of Real Estate
Investments........................... 0.43 2.91 0.67
---------- ----------- -----------
Income before Extraordinary Item....... 0.57 3.27 0.70
Extraordinary Loss from Extinguishment
of Debt............................... -- -- (0.05)
---------- ----------- -----------
Basic Net Income per Share............. $ 0.57 $ 3.27 $ 0.65
========== =========== ===========
Diluted Net Income per Share........... $ 0.57 $ 3.27 $ 0.64
========== =========== ===========
Average Shares Outstanding............. 9,584,220 9,567,000 9,097,000
========== =========== ===========
</TABLE>
See accompanying notes
F-4
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Five Months Ended
-------------------------
December 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Revenues
Rents from Owned Properties held directly by the
Trust.............................................. $5,152,000 $5,581,000
Structured Transactions held directly by the Trust
Base income........................................ 1,103,000 1,144,000
Overage income..................................... 1,678,000 808,000
Income from unconsolidated Investment Partnerships.. 67,000 1,778,000
---------- ----------
8,000,000 9,311,000
Interest income..................................... 165,000 170,000
Advisory fee income................................. 22,000 189,000
---------- ----------
8,187,000 9,670,000
---------- ----------
Expenses
General and administrative expenses................. 1,446,000 1,357,000
Expenses on Owned Properties held directly by the
Trust.............................................. 2,314,000 2,472,000
Trustees' fees and expenses......................... 65,000 62,000
Professional fees................................... 154,000 240,000
Interest............................................ 1,267,000 2,474,000
Depreciation........................................ 1,405,000 1,532,000
---------- ----------
6,651,000 8,137,000
---------- ----------
Income before Gain on Sale of Real Estate
Investments
and Extraordinary Item............................. 1,536,000 1,533,000
Gain on Sale of Real Estate Investments............. 832,000 3,811,000
---------- ----------
Income before Extraordinary Item.................... 2,368,000 5,344,000
Extraordinary Loss from Extinguishment of Debt...... -- (186,000)
---------- ----------
Net Income.......................................... $2,368,000 $5,158,000
========== ==========
Net Income per Share
Income before Gain on Sale of Real Estate
Investments
and Extraordinary Item............................. $ 0.16 $ 0.17
Gain on Sale of Real Estate Investments............. 0.09 0.42
---------- ----------
Income before Extraordinary Item.................... 0.25 0.59
Extraordinary Loss from Extinguishment of Debt...... -- (0.02)
---------- ----------
Basic Net Income per Share.......................... $ 0.25 $ 0.57
========== ==========
Diluted Net Income per Share........................ $ 0.25 $ 0.57
========== ==========
Average Shares Outstanding.......................... 9,353,000 9,054,000
========== ==========
</TABLE>
See accompanying notes
F-5
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
---------------------------------------
December 31, December 31, July 31,
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Operating Activities
Net Income............................ $ 5,417,000 $31,297,000 $ 5,914,000
Adjustments to Net Income.............
Gain on sale of real estate
investments......................... (4,083,000) (27,812,000) (6,094,000)
Extraordinary loss from extinguishment
of debt.............................. -- -- 473,000
Depreciation and amortization......... -- 1,398,000 4,205,000
Write-down of real estate investment.. -- -- 3,000,000
Income from unconsolidated Investment
Partnerships......................... -- (120,000) (3,326,000)
Distributions of income from
Investment Partnerships.............. -- 121,000 3,326,000
Changes in assets and liabilities.....
Decrease in interest and rents
receivable.......................... 280,000 1,478,000 435,000
Decrease (increase) in other assets,
net................................. 2,614,000 (1,664,000) (137,000)
(Decrease) increase in accounts
payable, accrued expenses and other
liabilities and accrued interest.... (3,949,000) 798,000 1,418,000
----------- ----------- -----------
Net Cash Provided by Operating
Activities........................... 279,000 5,496,000 9,214,000
----------- ----------- -----------
Investing Activities
Owned Properties held directly by the
Trust................................ 4,564,000 36,288,000 10,828,000
Dispositions.........................
Additions............................ (65,000) (3,992,000) (1,075,000)
Structured Transactions held directly
by the Trust.........................
Dispositions/repayments.............. 6,316,000 47,500,000 5,101,000
Additions............................ -- -- (600,000)
Investment Partnerships...............
Distributions in excess of income.... -- 2,384,000 38,883,000
----------- ----------- -----------
Net Cash Provided by Investing
Activities........................... 10,815,000 82,180,000 53,137,000
----------- ----------- -----------
Financing Activities
Cash dividends paid................... (11,021,000) (86,416,000) (29,774,000)
Redemption/repurchase of Convertible
Subordinated Debentures.............. -- -- (31,645,000)
Prepayment of mortgage notes payable.. -- -- (3,000,000)
Scheduled amortization of mortgage
notes payable........................ -- (263,000) (256,000)
Proceeds from exercise of stock
options.............................. -- 515,000 112,000
----------- ----------- -----------
Net Cash Used in Financing
Activities........................... (11,021,000) (86,164,000) (64,563,000)
----------- ----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents..................... 73,000 1,512,000 (2,212,000)
Cash and Cash Equivalents at Beginning
of Year.............................. 3,160,000 1,648,000 5,209,000
----------- ----------- -----------
Cash and Cash Equivalents at End of
Year................................. $ 3,233,000 $ 3,160,000 $ 2,997,000
=========== =========== ===========
</TABLE>
See accompanying notes
F-6
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Five Months Ended
--------------------------
December 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Operating Activities
Net Income.......................................... $ 2,368,000 $ 5,158,000
Adjustments to Net Income...........................
Gain on sale of real estate investments............ (832,000) (3,811,000)
Extraordinary loss from extinguishment of debt..... -- 186,000
Depreciation and amortization...................... 1,480,000 1,619,000
Income from unconsolidated Investment
Partnerships...................................... (67,000) (1,778,000)
Distributions of income from Investment
Partnerships...................................... 45,000 1,477,000
Changes in assets and liabilities (Increase)
decrease in interest and rents receivable......... (14,000) 133,000
(Increase) decrease in other assets, net.......... (289,000) 294,000
(Decrease) increase in accounts payable and
accrued expenses and accrued interest............ (222,000) 95,000
------------ ------------
Net Cash Provided by Operating Activities........... 2,469,000 3,373,000
------------ ------------
Investing Activities
Owned Properties held directly by the Trust
Additions.......................................... (702,000) (481,000)
Structured Transactions held directly by the Trust
Dispositions/repayments............................ 5,000 2,949,000
Investment Partnerships Distributions in excess of
income............................................. 8,350,000 8,763,000
------------ ------------
Net Cash Provided by Investing Activities........... 7,653,000 11,231,000
------------ ------------
Financing Activities
Cash dividends paid................................. (11,346,000) (2,174,000)
Redemption/repurchase of Convertible Subordinated
Debentures......................................... -- (12,000,000)
Prepayment of mortgage notes payable................ (163,000) --
Scheduled amortization of mortgage notes payable.... (76,000) (69,000)
Proceeds from exercise of stock options............. 114,000 --
------------ ------------
Net Cash Used in Financing Activities............... (11,471,000) (14,243,000)
------------ ------------
Net (Decrease) Increase in Cash and Cash
Equivalents........................................ (1,349,000) 361,000
Cash and Cash Equivalents at Beginning of Period.... 2,997,000 5,209,000
------------ ------------
Cash and Cash Equivalents at End of Period.......... $ 1,648,000 $ 5,570,000
============ ============
</TABLE>
See accompanying notes
F-7
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------
Number of Accumulated Treasury
Shares Amount Deficit Shares
--------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Balance at August 1, 1995... 9,053,881 $106,190,000 $ (12,481,000) $ --
Common Shares issued in
payment of deferred
Trustees' compensation..... 199,542 1,344,000
Stock options exercised..... 23,640 112,000
Conversion of Convertible
Subordinated Debentures.... 1,198 26,000
Net income.................. 5,914,000
Cash dividends paid ($3.23
per share)................. (29,774,000)
Purchase of 184,639 Treasury
Shares included in Rabbi
Trust for the benefit of
Trustees................... (1,255,000)
--------- ------------ -------------- ----------
Balance at July 31, 1996.... 9,278,261 107,672,000 (36,341,000) (1,255,000)
Common Shares issued in
payment of deferred
Trustees' compensation..... 31,499 267,000
Stock options exercised..... 91,100 114,000
Net income.................. 2,368,000
Cash dividends paid ($1.21
per share)................. (11,346,000)
Purchase of 31,499 Treasury
Shares included in Rabbi
Trust for the benefit of
Trustees................... (267,000)
Distribution to Trustees of
22,211 Treasury Shares
included in Rabbi Trust for
the benefit of Trustees.... 160,000
--------- ------------ -------------- ----------
Balance at December 31,
1996....................... 9,400,860 108,053,000 (45,319,000) (1,362,000)
Stock options exercised..... 183,360 515,000
Net income.................. 31,297,000
Cash dividends paid ($9.02
per share)................. (86,416,000)
Distribution to Trustees of
7,076 Treasury Shares
included in Rabbi Trust for
the benefit of Trustees.... 46,000
Balance at December 31,
1997....................... 9,584,220 108,568,000 (100,438,000) (1,316,000)
Net income.................. 5,417,000
Cash dividends paid ($1.15
per share)................. (11,021,000)
Distribution to Trustees of
186,851 Treasury Shares
included in Rabbi Trust for
the benefit of Trustees.... 1,316,000
--------- ------------ -------------- ----------
Balance at December 31,
1998....................... 9,584,220 $108,568,000 $ (106,042,000) $ --
========= ============ ============== ==========
</TABLE>
See accompanying notes
F-8
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business Plan
Since 1995, the Trust has operated under a business plan (the "Business
Plan") which provided for the orderly disposition of all of the Trust's
investments on a property-by-property basis. As of December 31, 1998, the Trust
had disposed of all of its real estate investments and had as its principal
asset approximately $3 million in cash.
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. (the "Corporation"). Simultaneously with the
execution of the merger agreement, the Corporation entered into a series of
related agreements (the "Related Transactions") with affiliates of The Beal
Companies, LLP, a Boston based real estate development and investment company.
Due to changes in market conditions in the summer and fall of 1998, 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 Property Capital Trust's shareholders
will be junior to certain interests of affiliates of The Beal Companies, LLP in
the merged entity and will be without value. The Beal Companies, LLP has paid a
$350,000 deposit to the Trust, which is reflected in accounts payable, accrued
expenses and other in the accompanying balance sheet. Just prior to the closing
of the merger, the Trustees intend to declare a final distribution to the
Trust's shareholders equal to all of the Trust's remaining net worth (which is
currently estimated to be between $.25 and $.26 per share). This is inclusive
of the settlement reached in February 1999, of the litigation with the Florida
Department of Transportation regarding certain land that was condemned at
Loehmann's Fashion Island, one of the Trust's former properties. The
distribution is also inclusive of the payment of $.01 per share to be made to
redeem the rights outstanding pursuant to the Trust's Shareholder Rights Plan.
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, are estimated to be $100,000).
Consolidation
The consolidated financial statements of the Trust include the accounts of
its wholly owned subsidiaries and of a trust which was established to hold
certain assets of the Deferred Stock Plan as described in Note 8 (the "Rabbi
Trust"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Federal Income Taxes
The Trust has qualified and has elected to be taxed as a real estate
investment trust under Sections 856-860 of the Internal Revenue Code. The Trust
intends to continue to qualify as a real estate investment trust. Accordingly,
no provision has been made for Federal income taxes in the consolidated
financial statements.
F-9
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, the Trust considers all highly
liquid investments with an initial maturity of three months or less to be cash
equivalents.
Investment Partnerships
Certain of the Trust's investments were made through partnerships or a
participation agreement in which the Trust or one of its subsidiaries was the
general partner or lead lender and other institutional investors were limited
partners or participating lenders ("Investment Partnerships"). Based upon
generally accepted accounting principles, the Trust applied the equity method
to account for its Investment Partnerships.
Valuation of Real Estate Investments
Real estate investments were carried at cost, net of accumulated depreciation
and any impairment losses. On August 1, 1996, the Trust adopted FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", which required impairment losses to be recorded on
specific long-lived assets used in operations where indicators of impairment
were present and the undiscounted cash flows (net realizable value) estimated
to be generated by those assets were less than the assets' carrying amount.
Prior to August 1, 1996, the Trust's real estate investments were carried net
of an allowance for possible investment losses. The Trust's allowance for
possible investment losses was based upon management's estimate of the net
realizable value of each investment, and to the extent this was less than the
carrying value of an investment, an allowance for possible investment losses
was established. The adoption of Statement No. 121 did not have any effect on
the Trust's financial position or results of operations. However, the carrying
values of certain real estate assets were written down against available
reserves.
Depreciation and amortization were calculated under the straight-line method,
based upon the estimated useful lives of the assets. Properties and property
improvements were depreciated over 25 to 39 years. Leasing commissions and
tenant improvements were amortized under the straight-line method over the
terms of the related leases. Expenditures for maintenance, repairs and
betterments which did not materially prolong the normal useful life of an asset
have been charged to operations as incurred.
Assets Held for Sale
The Trust defined an "Asset Held for Sale" as an asset that had been approved
for sale by the Trustees and, if applicable, the Investment Partnership and
either was being marketed for sale or was soon to be marketed. Assets Held for
Sale were written down to the lower of cost or net realizable value and, in the
case of investments held directly by the Trust, were classified separately on
the balance sheet. Depreciation was not recorded on these assets. The revenues
and expenses of an Asset Held for Sale were not reclassified, and continued to
be recorded as they were prior to the reclassification.
F-10
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Mortgage Loans
The Trust accounted for its mortgage loans under the provisions of FASB
Statement No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by FASB Statement 118. This statement required impairment losses to be
recorded when it was probable that a creditor would be unable to collect all
amounts due according to the contractual terms of the loan agreement. The
statement required impaired loans to be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate,
or, as a practical expedient, at the loan's observable market price or the fair
value of the collateral if collateral dependent.
Stock Options
The Trust accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees."
Change in Fiscal Year
In January 1997, the Trustees authorized a change in the Trust's fiscal year
from one which ended on July 31st to one which ends on December 31. The five-
month period ended December 31, 1996 (the "Transition Period"), together with
unaudited comparative data for the five-month period ended December 31, 1995,
is presented within the body of the Trust's financial statements.
Revenue Recognition
For financial reporting purposes, the Owned Properties held directly by the
Trust were accounted for on a one-month lag. Certain space leases provided for
free rent periods and stepped minimum rents which were accounted for on a
straight-line basis over the terms of the leases. Rental income recognized
under the straight-line method was less than rent received or receivable by the
Trust for financial reporting purposes by $54,000 and $119,000 for the years
ended December 31, 1997 and July 31, 1996, respectively, and $24,000 and
$77,000 (unaudited) for the five-month periods ended December 31, 1996 and
1995, respectively. Rental income recognized in calendar 1998 equaled rent
received or receivable by the Trust in calendar 1998.
Net Income Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share." FASB Statement 128 replaced the calculation of primary
and fully diluted net income per share with basic and diluted net income per
share. Unlike primary net income per share, basic net income per share excludes
any dilutive effects of options, warrants and convertible securities. Diluted
net income per share is very similar to the previously reported fully diluted
net income per share. All net income per share amounts for all periods have
been presented and, where appropriate, restated to conform to the FASB
Statement 128 requirements.
F-11
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic net income per share is calculated by dividing net income by the
weighted average Common Shares outstanding during the year. Basic net income
per share on a quarterly basis may not total to the annual basic net income per
share due to rounding.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Reclassification
Certain items in the December 31, 1997 and July 31, 1996 financial statements
have been reclassified to conform to the December 31, 1998 presentation.
NOTE 2. REAL ESTATE INVESTMENTS
As of December 31, 1998, the Trust had no real estate investments.
The Trust's real estate investments consisted primarily of equity investments
in completed, income-producing properties located throughout the United States.
The Trust's portfolio of real estate investments consisted of Structured
Transactions and Owned Properties.
Land leasebacks and/or mortgage loans were classified as Structured
Transactions. Land leasebacks consisted of land purchased under income-
producing properties and leased back under long-term net lease arrangements.
The leases required fixed monthly base rental payments and generally also
provided for overage rental payments, which were typically computed as a
percentage of property gross receipts in excess of base amounts. The mortgage
loan investments were generally long-term loans that required fixed monthly
base interest payments and, when not payable on a self-amortizing basis,
principal payments at maturity.
Operating properties were classified as Owned Properties. Owned Properties
(which included those held in wholly owned subsidiaries) included land,
buildings, tenant improvements, and other. Tenant improvements represented the
cost of constructing or finishing tenant space under the terms of a lease for
that space. Material disbursements that constituted new assets or improvements
to existing assets that extended their useful lives and/or substantially
increased their value were capitalized.
The Trust categorized its Structured Transactions and Owned Properties into
four groups, Structured Transactions held directly by the Trust, Owned
Properties held directly by the Trust, Assets Held for Sale directly by the
Trust (investments formerly classified as Structured Transactions held directly
by the Trust and Owned Properties held directly by the Trust), and Investment
Partnerships (inclusive of Structured Transactions, Owned Properties, and
Assets Held for Sale).
F-12
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
Assets Held for Sale directly by the Trust
At December 31, 1998, there were no Assets Held for Sale directly by the
Trust. During 1998, the Trust sold its two remaining real estate investments
both of which were classified as Assets Held for Sale directly by the Trust.
Subsequent to year end, the Trust reached a settlement agreement with the
Florida Department of Transportation regarding certain land that was condemned
at Loehmann's Fashion Island, one of the Trust's former properties.
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 at their face amount of $4,316,000. In
August 1996, the Trust had 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 in 1991 through 1994,
which had previously been written off.
In January 1998, the Trust sold Park Place to an unrelated party for
$14,145,000, resulting in a gain to the Trust of $3,067,000. Previously, in
August 1996, the Trust had allocated $1,239,000 of its former allowance for
possible investment losses to this investment. The property's $8,345,000 first
mortgage was assumed by the buyer.
At December 31, 1997, the Trust had two Assets Held for Sale directly by the
Trust, Park Place, an office building previously classified as an Owned
Property held directly by the Trust, and the Trust's investments in the
Cincinnati Marriott Inn, a hotel previously classified as a Structured
Transaction held directly by the Trust. These two remaining real estate
investments had an aggregate net book value of $15,077,000 at December 31,
1997. Park Place, located in Clayton, Missouri, was acquired by a wholly owned
subsidiary of the Trust in fiscal 1991, subject to a non-recourse first
mortgage of $8,600,000. Upon the Trust's adoption of FASB Statement No. 121 in
August 1996, the Trust allocated $1,239,000 of its former allowance for
possible investment losses to this investment. At December 31, 1997, Park Place
had a net book value of $9,777,000. The Trust's investments in the Cincinnati
Marriott Inn, located in Cincinnati, Ohio, consisted of a land leaseback and
mortgage loans. During fiscal year ended July 31, 1996, the Trust loaned an
additional $600,000 to its lessee/mortgagor, secured by a junior leasehold
mortgage, to make certain approved capital improvements to the hotel. Upon the
Trust's adoption of FASB Statement No. 121 in August 1996, the Trust allocated
$1,016,000 of its former allowance for possible investment losses to these
investments. At December 31, 1997, Cincinnati Marriott Inn investments had an
aggregate net book value of $5,300,000.
During calendar year 1997, the Trust sold three Assets Held for Sale directly
by the Trust, Loehmann's Fashion Island, One Park West and Citibank Office
Plaza--Schaumburg. In December 1997, the Trust sold Loehmann's Fashion Island
shopping center to an unrelated party for $37,300,000, resulting in no gain or
loss to the Trust. Previously, in August 1996, the Trust allocated $869,000
from its former allowance for possible investment losses to this investment. In
addition, during the quarter 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 earnings and the balance was charged to
F-13
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
the Trust's previously established allowance for possible investment losses. In
October 1997, the Trust sold the One Park West office building to an unrelated
party for $20,685,000, resulting in a gain of approximately $1,334,000. In
March 1993, a wholly owned subsidiary of the Trust acquired the equity interest
of its lessee in One Park West, subject to a first mortgage loan of
$10,227,000. Upon acquisition the Trust utilized a portion of its former
allowance for possible investment losses to write down this investment by
$6,000,000. In addition at July 31, 1996, the Trust wrote down its investment
in this property by $1,519,000 when the Trust reclassified One Park West to an
Asset Held for Sale directly by the Trust, this write-down was charged against
the Trust's former allowance for possible investment losses. In August 1996,
the Trust allocated $936,000 of its former allowance for possible investment
losses to the Citibank Office Plaza-Schaumburg investment. In July 1997, the
Trust sold Citibank Office Plaza--Schaumburg to an unrelated third party for
$9,640,000, resulting in no gain or loss to the Trust.
At July 31, 1996, the Trust had one Asset Held for Sale directly by the
Trust, the One Park West office building. This investment, which had a net book
value of $18,457,000, had previously been classified as an Owned Property held
directly by the Trust. At July 31, 1996, the Trust wrote down its investment in
this property by $1,519,000 to $16,938,000. This loss was charged against the
Trust's former allowance for possible investment losses. In addition, during
fiscal 1996, the Trust sold the Citibank Office Plaza--Oak Brook building to an
unrelated third party for $11,380,000, resulting in a gain of approximately
$470,000. In fiscal 1995, this investment, which had a net book value of
$11,156,000, had previously been classified as an Owned Property held directly
by the Trust. During the quarter ended July 31, 1995, the Trust wrote down its
investment in this property by $971,000 to $10,185,000. This loss was charged
against the Trust's former allowance for possible investment losses.
Owned Properties held directly by the Trust
At December 31, 1998 and 1997, the Trust had no real estate investments
classified as Owned Properties held directly by the Trust. During the calendar
year ended December 31, 1997, the Trust reclassified three real estate
investments, Citibank Office Plaza--Schaumburg, Loehmann's Fashion Island and
Park Place to Assets Held for Sale directly by the Trust.
During fiscal year ended July 31, 1996, the Trust reclassified One Park West
to an Asset Held for Sale directly by the Trust.
F-14
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
The operating results of Owned Properties held directly by the Trust
(inclusive of Owned Properties classified as Assets Held for Sale directly by
the Trust) are reflected in the consolidated statements of income as Rents from
Owned Properties held directly by the Trust and Expenses on Owned Properties
held directly by the Trust. Rents from Owned Properties held directly by the
Trust represent base rents and expense reimbursements from tenants. Expenses on
Owned Properties held directly by the Trust are as follows:
<TABLE>
<CAPTION>
Years Ended
------------------------------------
December 31, December 31, July 31,
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Repairs and maintenance.................. $ 32,000 $1,474,000 $1,819,000
Real estate taxes........................ -- 1,157,000 1,295,000
Utilities................................ 32,000 655,000 1,002,000
General and administrative............... 103,000 1,006,000 836,000
Management fees.......................... 37,000 396,000 448,000
Insurance................................ 7,000 85,000 169,000
-------- ---------- ----------
Expenses on Owned Properties held
directly by the Trust................... $211,000 $4,773,000 $5,569,000
======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Five Months Ended
-------------------------
December 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Repairs and maintenance............................. $ 662,000 $ 776,000
Real estate taxes................................... 726,000 583,000
Utilities........................................... 338,000 496,000
General and administrative.......................... 368,000 322,000
Management fees..................................... 147,000 221,000
Insurance........................................... 73,000 74,000
---------- ----------
Expenses on Owned Properties held directly by the
Trust.............................................. $2,314,000 $2,472,000
========== ==========
</TABLE>
Structured Transactions held directly by the Trust
At December 31, 1998 and 1997, the Trust had no real estate investments
classified as Structured Transactions held directly by the Trust. During
calendar year 1997, the Trust reclassified Cincinnati Marriott Inn to an Asset
Held for Sale directly by the Trust and disposed of six Structured Transactions
held directly by the Trust. The Trust's $2,000,000 City Centre Holiday Inn land
investment was purchased by the Trust's lessee for $20,577,000, resulting in a
gain to the Trust of $18,577,000. The Trust's $350,000 Lakeside Center land
investment was purchased by the Trust's lessee for $2,350,000, resulting in a
gain to the Trust of $1,944,000 after closing costs. The Trust's $400,000
Northbrook apartments land investment was purchased by the Trust's lessee for
$750,000, resulting in a gain to the Trust of $350,000. The Trust's land and
mortgage investments in Roseburg Valley Mall were sold to the Trust's
lessee/mortgagor for $3,950,000, resulting in no gain or loss to the Trust. The
Trust's lessee/mortgagor of its $5,400,000 Sandpiper Cove apartments land
investment, its $2,230,000 Elm Creek apartments land investment and its
$7,540,000 Elm Creek apartments mortgage loan investment purchased the
investments, with an aggregate carrying value of $15,170,000, for $20,000,000,
resulting in a gain to the Trust of $4,750,000 after closing costs.
F-15
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
During fiscal year ended July 31, 1996, the Trust disposed of three
Structured Transactions held directly by the Trust. The Trust's $825,000 Bluffs
II land investment was purchased by the Trust's lessee for $2,150,000,
resulting in a gain to the Trust of $1,320,000 after closing costs. The Trust's
$135,000 Yorkshire land investment was purchased by an unrelated third party
for $460,000, resulting in a gain to the Trust of $310,000 after closing costs.
The Trust's $2,000,000 Grosvenor Airport Inn land investment was purchased by
the Trust's lessee for $2,000,000 and the Trust's related $2,000,000 mortgage
loan was prepaid for $500,000, with the resulting loss of $1,500,000 being
charged against the Trust's allowance for possible losses.
Investments in unconsolidated Investment Partnerships
As of December 31, 1998 and 1997, neither the Trust nor its subsidiaries had
investments in unconsolidated Investment Partnerships. These former investments
had been accounted for on the equity method. The Investment Partnerships
provided for the allocation of profits and losses and cash distributions in
proportion to ownership as shown below:
<TABLE>
<CAPTION>
Percent Owned
by Trust
-------------
<S> <C>
Property Capital Midwest Associates, L.P.................... 53.30%
PCA Southwest Associates Limited Partnership................ 45.45%
PCA Canyon View Associates Limited Partnership.............. 23.81%
Lisle Hilton Inn Loan Participation......................... 41.67%
PCA Crossroads Associates, Ltd.............................. 25.00%
</TABLE>
Investment Partnerships
Condensed Combined Statements of Income
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
December 31, December 31, July 31,
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Revenues................................ $ -- $1,996,000 $22,146,000
Expenses................................ -- 1,768,000 14,817,000
------ ---------- -----------
Income before Gain (Loss) on Real Estate
Investments............................ -- 228,000 7,329,000
Gain (Loss) on Real Estate Investments
Gain on sale of real estate
investments........................... -- 1,885,000 14,944,000
Write-down of real estate investments.. -- -- (11,051,000)
------ ---------- -----------
Net Income.............................. $ -- $2,113,000 $11,222,000
====== ========== ===========
Income before Gain (Loss) on Real Estate
Investments
Trust's share of income before gain
(loss) on real estate investments...... $ -- $ 120,000 $ 3,326,000
Limited Partners' share of income before
gain (loss) on real estate
investments............................ -- 108,000 4,003,000
Gain (Loss) on Real Estate Investments
Trust's share of gain on sale of real
estate investments..................... -- 857,000 3,994,000
Limited Partners' share of gain on sale
of real estate investments............. -- 1,028,000 10,950,000
Trust's share of write-down of real
estate investments (previously recorded
by the Trust).......................... -- -- (3,810,000)
Limited Partners' share of write-down of
real estate investments................ -- -- (7,241,000)
------ ---------- -----------
Net Income.............................. $ -- $2,113,000 $11,222,000
====== ========== ===========
</TABLE>
F-16
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
Investment Partnerships
Condensed Combined Statements of Income
<TABLE>
<CAPTION>
Five Months Ended
-------------------------
December 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Revenues............................................ $2,869,000 $11,332,000
Expenses............................................ 2,716,000 7,292,000
---------- -----------
Income before Gain (Loss) on Real Estate
Investments........................................ 153,000 4,040,000
========== ===========
Gain (Loss) on Real Estate Investments
Gain on sale of real estate investments............ 3,495,000 14,002,000
Write-down of real estate investments.............. (1,178,000) (7,134,000)
========== ===========
Net Income.......................................... $2,470,000 $10,908,000
========== ===========
Income before Gain (Loss) on Real Estate Investments
Trust's share of income before gain (loss) on real
estate investments................................. $ 67,000 $ 1,778,000
Limited Partners' share of income before gain (loss)
on real estate investments......................... 86,000 2,262,000
Gain (Loss) on Real Estate Investments
Trust's share of gain on sale of real estate
investments........................................ 832,000 3,501,000
Limited Partners' share of gain on sale of real
estate investments................................. 2,663,000 10,501,000
Trust's share of write-down of real estate
investments (previously recorded by the Trust)..... (576,000) (1,845,000)
Limited Partners' share of write-down of real estate
investments........................................ (602,000) (5,289,000)
---------- -----------
Net Income.......................................... $2,470,000 $10,908,000
========== ===========
</TABLE>
The Trust's share of net income (loss) (including gain on sales) from
unconsolidated Investment Partnerships was as follows:
<TABLE>
<CAPTION>
Years Ended
------------------------------------
December 31, December 31, July
1998 1997 31, 1996
------------ ------------ ----------
<S> <C> <C> <C>
Property Capital Midwest Associates, L.P.
(1)..................................... $ -- $110,000 $2,277,000
PCA Southwest Associates Limited
Partnership (2)......................... -- 868,000 721,000
PCA Canyon View Associates Limited
Partnership (3)......................... -- (1,000) 153,000
Lisle Hilton Inn Loan Participation...... -- -- 566,000
PCA Crossroads Associates, Ltd........... -- -- 3,603,000
------- -------- ----------
$ -- $977,000 $7,320,000
======= ======== ==========
</TABLE>
- --------
(1) Net of the Trust's share of depreciation of $21,000 for the year ended July
31, 1996. No depreciation was recorded in calendar 1997.
(2) Net of the Trust's share of depreciation of $52,000 and $372,000 for the
years ended December 31, 1997 and July 31, 1996, respectively.
(3) Net of the Trust's share of depreciation of $80,000 for the year ended July
31,1996. No depreciation was recorded in calendar 1997. This property
converted from a Structured Transaction to an Owned Property in August
1995.
F-17
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
<TABLE>
<CAPTION>
Five Months Ended
-------------------------
December 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Property Capital Midwest Associates, L.P. (1)........ $ 53,000 $1,066,000
PCA Southwest Associates Limited Partnership (2)..... 3,000 218,000
PCA Canyon View Associates Limited Partnership (3)... 843,000 125,000
Lisle Hilton Inn Loan Participation.................. -- 275,000
PCA Crossroads Associates, Ltd....................... -- 3,595,000
--------- ----------
$ 899,000 $5,279,000
========= ==========
</TABLE>
- --------
(1) Net of the Trust's share of depreciation of $17,000 for the five-month
period ended December 31, 1995. No depreciation was recorded in 1996.
(2) Net of the Trust's share of depreciation of $103,000 and $228,000 for the
five-month periods ended December 31, 1996 and 1995, respectively.
(3) Net of the Trust's share of depreciation of $29,000 for the five-month
period ended December 31, 1995. No depreciation was recorded in 1996. This
property converted from a Structured Transaction to an Owned Property in
August 1995.
Cash distributions received by the Trust from the unconsolidated Investment
Partnerships were as follows:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
December 31, December 31, July 31,
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Property Capital Midwest Associates,
L.P.................................... $ -- $ 654,000 $19,506,000
PCA Southwest Associates Limited
Partnership............................ -- 1,718,000 7,274,000
PCA Canyon View Associates Limited
Partnership............................ -- 133,000 256,000
Lisle Hilton Inn Loan Participation..... -- -- 9,547,000
PCA Crossroads Associates, Ltd.......... -- -- 5,626,000
------ ---------- -----------
$ -- $2,505,000 $42,209,000
====== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Five Months Ended
-------------------------
December 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Property Capital Midwest Associates, L.P............. $ 5,889,000 $ 765,000
PCA Southwest Associates Limited Partnership......... 161,000 3,410,000
PCA Canyon View Associates Limited Partnership....... 2,345,000 184,000
Lisle Hilton Inn Loan Participation.................. -- 279,000
PCA Crossroads Associates, Ltd....................... -- 5,602,000
----------- -----------
$ 8,395,000 $10,240,000
=========== ===========
</TABLE>
F-18
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
In August 1996, the Trust allocated a portion of its former allowance for
possible investment losses in the amount of $576,000 to the Investment
Partnerships. During fiscal year ended July 31, 1996, the Trust's Investment
Partnerships reclassified certain of their real estate investments to Assets
Held for Sale and wrote down these assets by $2,970,000 (the Trust's share). In
addition, PCA Southwest Associates Limited Partnership and PCA Canyon View
Associates Limited Partnership each wrote off an investment resulting in losses
to the Trust of $307,000 and $533,000 (the Trust's share), respectively. The
Trust charged these losses against its former allowance for possible investment
losses as follows:
<TABLE>
<CAPTION>
Years Ended
------------------------------------
December 31, December 31, July 31,
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Property Capital Midwest Associates,
L.P..................................... $ -- $ -- $1,255,000
PCA Southwest Associates Limited
Partnership............................. -- -- 1,017,000
PCA Canyon View Associates Limited
Partnership............................. -- -- 1,538,000
------ ------ ----------
$ -- $ -- $3,810,000
====== ====== ==========
</TABLE>
<TABLE>
<CAPTION>
Five Months Ended
-------------------------
December 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Property Capital Midwest Associates, L.P............. $ 276,000 $ --
PCA Southwest Associates Limited Partnership......... 300,000 307,000
PCA Canyon View Associates Limited Partnership....... -- 1,538,000
--------- ----------
$ 576,000 $1,845,000
========= ==========
</TABLE>
The Structured Transactions held by Investment Partnerships were similar to
those held directly by the Trust. The land leaseback leases required fixed
monthly base rental payments to the Investment Partnerships and also provided
for overage rental payments. The mortgage loans held by Investment Partnerships
were generally long-term loans that required fixed monthly base interest
payments and, when not payable on a self-amortizing basis, required principal
payments at maturity. Except for the Lisle Hilton Inn loan participation,
mortgage loans were owned in conjunction with land leaseback transactions and
were subordinate to and had cross-default provisions with the land leasebacks.
The Lisle Hilton Inn loan participation, although not owned in conjunction with
a land leaseback transaction, also required overage interest payments similar
to the land leasebacks.
During calendar year 1997, the Trust's last remaining Investment Partnership,
PCA Southwest Associates Limited Partnership ("Southwest"), reclassified its
Telegraph Hill apartments investment from an Owned Property to an Asset Held
for Sale and, in June 1997, sold the investment to an unrelated third party for
$13,750,000. The Trust realized a gain of $857,000 on this sale. During the
Transition Period ended December 31, 1996, the Trust allocated a portion of its
former allowance for possible investment losses to the Telegraph Hill
investment in the amount of $300,000. The Trust, through a wholly owned
subsidiary, had a 45.45% general partner interest in Southwest. During the
year, the Trust has received its final distributions from Southwest, PCA Canyon
View Associates
F-19
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
Limited Partnership ("Canyon View") and Property Capital Midwest Associates,
L.P. ("Midwest"). At December 31, 1997, the Trust had no investments in
Investment Partnerships.
During the Transition Period ended December 31, 1996, two Investment
Partnerships each sold an investment which was classified as an Asset Held for
Sale at July 31, 1996. Canyon View, an Investment Partnership which owned the
Canyon View II apartments in San Ramon, California, sold this property in
August 1996 to a third party. In fiscal 1996 the Trust wrote down its share of
the investment in this property by $1,005,000 and at July 31, 1996, Phase II
was reclassified from an Owned Property to an Asset Held for Sale. The sale
resulted in a gain to the Trust in the amount of $832,000. The Trust had a
23.81% general partner interest in Canyon View. Midwest, an Investment
Partnership which owned the Plaza West Retail Center, reclassified this
investment from an Owned Property to an Asset Held for Sale in fiscal year
ended July 31, 1995, and at that time wrote down the investment to its
estimated net realizable value. During the Transition Period ended December 31,
1996, the Trust allocated a portion of its former allowance for possible
investment losses to this investment in the amount of $276,000. In October
1996, Plaza West was sold to an unrelated third party at no gain or further
loss to the Trust. The Trust had a 53.3% general partner interest in Midwest.
During fiscal year ended July 31, 1996, certain of the Trust's Investment
Partnerships disposed of three Structured Transactions. PCA Crossroads
Associates, Ltd. ("Crossroads"), an Investment Partnership which owned the land
underlying the Crossroads Mall in Boulder, Colorado, sold the land to its
lessee, resulting in a gain to the Trust of $3,500,000 on its investment of
$2,000,000. The Trust had a 25.0% general partner interest in Crossroads. The
first mortgage held by the Lisle Hiton Inn loan participation ("Lisle"),
secured by the Lisle Hilton Inn located in Lisle, Illinois, was prepaid at par.
The Trust had a 41.6% interest in Lisle and received $8,942,000 from the
prepayment. Canyon View, an Investment Partnership which held Structured
Transactions in Phases I and II of the Canyon View apartments in San Ramon,
California, settled certain litigation. As a result, the Investment Partnership
received $300,000 from the first mortgagee of Phase I for permitting it to
foreclose on Phase I and the Investment Partnership took title to Phase II and
received the proceeds from two letters of credit aggregating $1,750,000. At
that time, the Trust wrote down its investment in this partnership by
$1,538,000. This write-down was charged against the Trust's allowance for
possible investment losses. At July 31, 1996, Phase II was reclassified from an
Owned Property to an Asset Held for Sale.
During fiscal 1996, two Investment Partnerships sold six Assets Held for
Sale, three of which were classified as Assets Held for Sale at July 31, 1995
and three were reclassified to Assets Held for Sale during fiscal 1996.
Southwest, an Investment Partnership which owned 2,848 apartments in Houston,
Texas at July 31, 1995, sold the Chimney Rock complex to an unrelated party
resulting in a gain to the Trust of $1,000. Two additional properties, St.
Charles and Boardwalk, were reclassified during fiscal 1996 to Assets Held for
Sale resulting in a write-down by the Trust of $710,000. This write-down was
charged against the Trust's previously established allowance for possible
investment losses. These investments were sold in June 1996 to an unrelated
third party resulting in a gain to the Trust of $50,000. Southwest also
disposed of its Telegraph Hill--Phase B investment (259 units) by allowing the
first mortgage lender to foreclose on the property and, as a result, the Trust
wrote off its
F-20
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
$307,000 net invesment in this property against the Trust's allowance for
possible investment losses. Midwest, an Investment Partnership which owned four
investments in Overland Park, Kansas, reclassified its investment in College
Hills 3 to an Asset Held for Sale in fiscal 1996. In addition, Midwest's
Financial Plaza investment, which was previously reclassified to an Asset Held
for Sale, was further written down by the Trust by $1,255,000. Financial Plaza,
College Hills 3 and College Hills 8 were sold to unrelated third parties and
the net sales prices of these properties resulted in a gain to the Trust
aggregating $443,000.
NOTE 3. INDEBTEDNESS
The Trust had no debt at December 31, 1998.
Both of the real estate investments owned on December 31, 1997, Park Place
office building and Cincinnati Marriott Inn, were subject to long-term first
mortgage financing which aggregated $18,399,000. $10,054,000 of this long-term
first mortgage financing represented debt on the Cincinnati Marriott Inn which
was not reflected on the Trust's balance sheet because the obligation to pay
such debt was that of the Trust's lessee/mortgagor. $8,345,000 of this long-
term first mortgage financing represented debt on the Park Place office
building located in Clayton, Missouri, and was reflected on the Trust's balance
sheet. This debt had an annual effective interest rate of 5.65% which was
payable semi-annually. During 1998, Park Place was sold and its first mortgage
was assumed by the buyer.
During calendar 1998 and 1997, fiscal year ended July 31, 1996 and the five-
month periods ended December 31, 1996 and 1995, cash paid for interest on all
of the Trust's debt was $128,000, $2,704,000, $5,044,000, $1,252,000 and
$2,277,000, respectively.
NOTE 4. RENTAL EXPENSE
In September 1998, the Trust's prior space lease expired and the Trust moved
its office to 177 Milk Street, Boston, Massachusetts, and entered into a lease
that expires in March 1999. Rental expense was $93,000, $116,000, and $152,000
in calendar 1998 and 1997 and fiscal year July 31, 1996, respectively. Rental
expense was $44,000 and $63,000 for the five-month periods ended December 31,
1996 and 1995, respectively. Future minimum rental payments will be $600 per
month in 1999.
NOTE 5. ADVISORY SERVICES
Effective August 1, 1992 the Trust entered into an agreement with PCA
Institutional Advisors ("PCAIA") pursuant to which the Trust assumed
responsibility for rendering services under advisory agreements (the "Advisory
Agreements") between PCAIA and the five former Investment Partnerships.
The Trust received annually the first $150,000 of amounts payable pursuant to
the Advisory Agreements as compensation for providing such services, which
amount generally corresponded to
F-21
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. ADVISORY SERVICES (continued)
the additional expenses incurred by the Trust in performance of such tasks,
plus 50% of additional amounts payable pursuant to the Advisory Agreements,
which additional amounts aggregated $235,000 in fiscal year ended July 31,
1996. No additional amount was received in calendar 1997 or 1998. PCAIA
received the remaining 50% of such payments in excess of $150,000. Excluded
from the foregoing arrangement was the termination fee provided for in the PCA
Crossroads Associates, Ltd. ("Crossroads") advisory agreement, which fee was
paid in fiscal 1996 solely to PCAIA. No amount was payable in 1998 or 1997 or
for the five months ended December 31, 1996.
NOTE 6. RELATED PARTY TRANSACTIONS
During calendar 1998 and 1997, the fiscal year ended July 31, 1996, and the
five-month periods ended December 31, 1996 and 1995, the Trust incurred legal
fees in the amount of $178,000, $145,000, $262,000, $136,000 and $150,000,
respectively (exclusive of additional amounts paid by the Trust's lessees and
borrowers, if any), from the law firm of Paul, Weiss, Rifkind, Wharton &
Garrison, of which Walter F. Leinhardt, Secretary and Trustee of the Trust, is
a partner. Not included in the above amount is the Trust's share of legal fees
incurred by the Investment Partnerships in the amount of $0, $2,000, $66,000,
$20,000 and $5,000 for those same periods, respectively.
The Trust is a party to a termination agreement with its chief executive
officer under which he will be entitled to a payment equal to 100% of his base
salary in the event of a change in control or termination of his employment,
without cause, prior to October 2000.
NOTE 7. DILUTED NET INCOME PER SHARE
The following table sets forth the computation of diluted net income per
share. The calculation is presented for the July 31, 1996 period only. The
effect of stock options and convertible debt was antidilutive for all other
periods.
<TABLE>
<CAPTION>
Year Ended
July
31, 1996
----------
<S> <C>
Numerator:
Net Income................................................. $5,914,000
Numerator for diluted net income per share--income
available to common stockholders after assumed
conversions............................................... $5,914,000
----------
Denominator:
Denominator for basic net income per share--weighted--
average shares............................................ 9,097,000
Effective of dilutive securities:
Stock options............................................. 104,000
----------
Denominator for diluted net income per share--adjusted
weighted--average shares and assumed conversions.......... 9,201,000
==========
Basic net income per share................................... $ 0.65
==========
Diluted net income per share................................. $ 0.64
==========
</TABLE>
F-22
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. SHAREHOLDERS' EQUITY
1992 Employee Stock Option Plan
The Property Capital Trust 1992 Employee Stock Option Plan (the "Plan") for
key employees of the Trust and its subsidiaries is a plan under which options
for 400,000 shares may be granted to purchase Common Shares for a purchase
price equal to, at a minimum, the fair market value of the shares on the date
of grant, subject to certain adjustments. The Compensation Committee of the
Board of Trustees administers the Plan and is responsible for selecting the
individuals eligible to receive options and for determining the number of
options to be granted to such individuals and the purchase price of the shares.
While the Plan is still in effect, no options have been granted since 1995 and
the Compensation Committee of the Board of Trustees does not intend to grant
any further options. Under the plan 20% of the options become exercisable on
each anniversary of the date of grant and all options vest once the option
price declines below $2.00 per share. The options are subject to termination
under certain circumstances. Changes in options outstanding during the period
were as follows:
<TABLE>
<CAPTION>
Number Average
of Option Price
Shares Per Share
-------- ------------
<S> <C> <C>
Granted--1993........................................... 107,750 $3.750*
Canceled--1993.......................................... (4,000) $3.750
-------- ------
Shares under option at July 31, 1993.................... 103,750 $3.750
-------- ------
Granted--1994........................................... 68,850 $6.375*
Exercised--1994......................................... (2,000) $3.750
-------- ------
Shares under option at July 31, 1994.................... 170,600 $4.809
-------- ------
Granted--1995........................................... 82,500 $6.140*
Exercised--1995......................................... (3,000) $4.625
-------- ------
Shares under option at July 31, 1995.................... 250,100 $5.251
-------- ------
Exercised--1996......................................... (23,640) $4.751
-------- ------
Shares under option at July 31, 1996.................... 226,460 $5.303
-------- ------
Exercised--Transition Period ended December 31, 1996.... (91,100) $1.256
-------- ------
Shares under option at December 31, 1996................ 135,360 $3.593
-------- ------
Exercised--calendar 1997................................ (135,360) $2.683
-------- ------
Shares under option at December 31, 1997 and 1998....... --
========
Options exercisable at December 31, 1998................ --
========
Options available for grant at beginning of year........ 144,900
========
Options available for grant at December 31, 1998........ 144,900
========
</TABLE>
- --------
* The option price was reduced as a result of distributions made in excess of
funds from operations as provided for in the Plan.
F-23
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. SHAREHOLDERS' EQUITY (continued)
1994 Stock Option Plan for Non-Employee Trustees
The Property Capital Trust 1994 Stock Option Plan for Non-Employee Trustees,
approved by the shareholders of the Trust in November 1994, was a plan under
which options for 100,000 shares could be granted to purchase Common Shares for
a purchase price equal to the fair market value of such Common Shares at the
time the option was granted, subject to certain adjustments.
Each non-employee Trustee received automatically upon election or re-election
as a Trustee at an Annual Meeting of Shareholders an option to purchase 4,000
Common Shares. The option vested on the day immediately preceding the Annual
Meeting of Shareholders next succeeding the date of grant of such option. On
December 30, 1998, the 1994 Stock Option Plan for Non-Employee Trustees was
terminated and all outstanding options were canceled.
<TABLE>
<CAPTION>
Average
Number Option Price
of Shares Per Share
--------- ------------
<S> <C> <C>
Options granted on November 30, 1994 and outstanding at
July 31, 1995......................................... 24,000 $6.125*
Options granted on December 15, 1995................... 24,000 $8.563*
------- ------
Options outstanding July 31, 1996...................... 48,000 $7.344
Options granted on December 17, 1996................... 20,000 $8.063*
------- ------
Options outstanding at December 31, 1996............... 68,000 $5.685*
Exercised--1997........................................ (48,000) $3.151
------- ------
Options outstanding at December 31, 1997............... 20,000 $4.043*
Cancellation of options upon termination of plan....... (20,000)
-------
Options outstanding at December 31, 1998............... --
=======
</TABLE>
- --------
* The option price was reduced as a result of distributions made in excess of
funds from operations as provided for in the Plan.
Amended and Restated Deferred Stock Plan for Non-Employee Trustees
In November 1994, the Amended and Restated Deferred Stock Plan for Non-
Employee Trustees (the "Deferred Stock Plan") was approved by the shareholders
of the Trust. If a Trustee elected to defer payment of Trustee fees, share
units were allocated to such Trustee's account based upon the closing price for
the Common Shares on the date the fees would have been earned. Share units were
also allocated to reflect dividends that would have been paid on such share
units. There were 250,000 Common Shares available under this Deferred Stock
Plan. This Deferred Stock Plan replaced a previous plan, the share units of
which were transferred to this Deferred Stock Plan on November 30, 1994.
In 1994, the Trust entered into a Trust Agreement with BankBoston, N.A.
(formerly BayBank), a Massachusetts corporation, whereby BankBoston, N.A.
agreed to hold the Common Shares (and dividends thereon) that were issued under
the Deferred Stock Plan (an arrangement commonly known as a "Rabbi Trust").
During the fiscal year ended July 31, 1996, the Rabbi Trust was funded with
Common Shares equal to the share units allocated under the Deferred Stock Plan.
Under accounting rules, assets of a Rabbi Trust must be accounted for as assets
of the Trust.
F-24
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. SHAREHOLDERS' EQUITY (continued)
In January 1998, the Deferred Stock Plan was terminated by the Trustees and
all assets held in the Rabbi Trust were distributed to the participating
Trustees. The Common Shares held by the Rabbi Trust had been reflected at cost
as "treasury stock," the other assets of the Rabbi Trust had been reflected as
"other assets" and the claim of the participating Trustees had been reflected
as "accounts payable and accrued expenses" in the accompanying consolidated
balance sheets.
<TABLE>
<S> <C>
Share units transferred November 30, 1994........................... 118,385
Share units issued fiscal 1995...................................... 30,983
Share units exercised fiscal 1995................................... (20,296)
--------
Share units outstanding July 31, 1995............................... 129,072
Share units issued fiscal 1996...................................... 20,922
Share units exercised fiscal 1996................................... (14,903)
--------
Share units outstanding prior to transfer to Rabbi Trust............ 135,091
Share units issued in Property Capital Trust Common Shares and
transferred to the Rabbi Trust..................................... (135,080)
--------
Share units outstanding July 31, 1996............................... 11
Share units issued Transition Period................................ 6,671
Common shares issued and transferred to the Rabbi Trust............. (6,680)
--------
Share units outstanding December 31, 1996........................... 2
Cumulative fractional share units cashed-out and invested by the
Rabbi Trust........................................................ (2)
--------
Share units outstanding December 31, 1997 and 1998.................. --
========
Common Shares issued and transferred to the Rabbi Trust............. 135,080
Dividends reinvested in Common Shares issued and transferred to the
Rabbi Trust........................................................ 49,559
--------
Total Common Shares in the Rabbi Trust July 31, 1996................ 184,639
Common Shares issued and transferred to the Rabbi Trust............. 6,680
Dividends reinvested in Common Shares issued and transferred to the
Rabbi Trust........................................................ 24,819
Distribution of Common Shares from the Rabbi Trust to retired
Trustees........................................................... (22,211)
--------
Total Common Shares in the Rabbi Trust December 31, 1996............ 193,927
Distribution of Common Shares from the Rabbi Trust to retired
Trustee............................................................ (7,076)
--------
Total Common Shares in the Rabbi Trust December 31, 1997............ 186,851
Distribution of Common Shares from the Rabbi Trust to retired
Trustee............................................................ (3,981)
Distribution of Common Shares from the Rabbi Trust to participating
Trustees upon termination of plan.................................. (182,870)
--------
Total Common Shares in the Rabbi Trust December 31, 1998............ --
========
</TABLE>
Shareholder Rights Plan
On September 28, 1990 (the "Declaration Date"), the Trustees adopted a
Shareholder Rights Plan (the "Rights Plan") and, in connection therewith,
declared a dividend distribution of one right for each of the Trust's
outstanding Common Shares to shareholders of record at the close of business on
October 12, 1990. Each right entitles the holder thereof, upon the occurrence
of certain events making such rights exercisable, to exercise the right to buy
one Common Share at a purchase price of $27.00. The rights become exercisable
(i) 10 business days following the announcement that a person or group of
persons has acquired or obtained the right to acquire 9.8% or more of the
Common
F-25
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. SHAREHOLDERS' EQUITY (continued)
Shares (with certain exceptions for persons who were shareholders on the
Declaration Date) or (ii) upon the closing of a tender offer resulting in
ownership of 9.8% or more of the Common Shares (any person acquiring in excess
of 9.8% of the Common Shares being an "Acquiror"). On the twenty-first business
day after the acquisition of 9.8% or more of the Common Shares by an Acquiror,
or upon the closing of a tender offer for 9.8% or more of the Common Shares by
an Acquiror, each right will entitle its holder to purchase, at the right's
exercise price, that number of Common Shares having a market value at that time
of twice the right's exercise price. Each right will also become exercisable to
purchase Common Shares at a 50% discount in the event that an Acquiror engages
in self-dealing transactions with the Trust. If, at any time after the rights
become exercisable, the Trust is involved in a merger or other business
combination in which the Trust is not the surviving entity, each right will
entitle its holder to purchase, at the right's exercise price, that number of
shares of the acquiring company's common stock having a market value at that
time of twice the right's exercise price. The rights will expire on the earlier
of (i) September 28, 2000 or (ii) their redemption by the Trustees at any time
prior to the date that they become exercisable, as described above, at a price
of $.01 per right.
The Trustees intend to redeem the rights issued and outstanding, prior to the
consummation of the merger, at the redemption price of $.01 per right.
F-26
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. DIVIDENDS
The Trust paid quarterly dividends approximately 55 days following each
fiscal quarter, normally equal to at least 100% of income before gains (losses)
on real estate investments. Because all of the Trust's real estate investments
have been disposed of and revenues have declined significantly, no further
quarterly dividends will be paid. Pursuant to its Business Plan, the Trust has
declared special dividends from the proceeds of its disposition of investments
which, to date, have totaled $13.65 per share. In respect of calendar years
ended 1998 and 1997, fiscal year ended July 31, 1996 and the five-month period
ended December 31, 1996, the Trust declared special dividends of $1.15 per
share, $8.75 per share, $2.75 per share and $1.00 per share, respectively.
If the merger is ratified by shareholders, it is the current intention of the
Trustees to declare a final distribution from the remaining assets of the Trust
immediately prior to the consummation of the merger. If the merger is not
consummated, the Trust intends to dissolve and distribute a portion of its
assets to its shareholders and transfer the remainder to a liquidating trust in
order to satisfy any known and contingent liabilities of the Trust. It is then
anticipated that a final distribution from the liquidating trust will be made
within one year thereafter.
<TABLE>
<CAPTION>
Years Ended
----------------------------------
December 31, December 31, July 31,
1998 1997 1996
------------ ------------ --------
<S> <C> <C> <C>
Quarterly dividends declared................. $ -- $ .18 $ .48
Special dividends declared................... 1.15 8.75 2.75
----- ----- -----
Total dividends declared..................... $1.15 $8.93 $3.23
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Five Months Ended
December 31,
-----------------
1996 1995
----- -----------
(Unaudited)
<S> <C> <C>
Quarterly dividends declared.................................. $ .18 $.24
Special dividends declared.................................... 1.00 --
----- ----
Total dividends declared...................................... $1.18 $.24
===== ====
</TABLE>
In order to qualify as a real estate investment trust, Property Capital Trust
must distribute substantially all of its taxable income to shareholders not
later than twelve months following the end of its fiscal year.
F-27
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------
March 31, June 30, September 30, December 31,
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Calendar 1998
Revenues..................... $ 869,000 $1,635,000 $ 99,000 $ 40,000
Expenses..................... 715,000 312,000 198,000 84,000
----------- ---------- ---------- ----------
Income (Loss) before Gain on
Sale of Real Estate
Investments................. 154,000 1,323,000 (99,000) (44,000)
Gain on Sale of Real Estate
Investments................. 3,067,000 1,016,000 -- --
----------- ---------- ---------- ----------
Net Income (Loss)............ $ 3,221,000 $2,339,000 $ (99,000) $ (44,000)
=========== ========== ========== ==========
Net Income (Loss) per Share
Income (Loss) before Gain on
Sale of Real Estate
Investments................. $ 0.02 $ 0.13 $ (0.01) $ --
Gain on Sale of Real Estate
Investments ................ 0.32 0.11 -- --
Basic and Diluted Net Income
(Loss) per Share............ $ 0.34 $ 0.24 $ (0.01) $ --
=========== ========== ========== ==========
Average Shares Outstanding... 9,584,220 9,584,220 9,584,220 9,584,220
=========== ========== ========== ==========
Calendar 1997
Revenues..................... $ 4,138,000 $4,135,000 $3,738,000 $2,706,000
Expenses..................... 3,616,000 2,907,000 2,676,000 2,033,000
----------- ---------- ---------- ----------
Income before Gain on Sale of
Real Estate Investments..... 522,000 1,228,000 1,062,000 673,000
Gain on Sale of Real Estate
Investments................. 18,577,000 2,801,000 4,750,000 1,684,000
----------- ---------- ---------- ----------
Net Income................... $19,099,000 $4,029,000 $5,812,000 $2,357,000
=========== ========== ========== ==========
Net Income per Share Income
before Gain on Sale of Real
Estate Investments.......... $ 0.05 $ 0.13 $ 0.11 $ 0.07
Gain on Sale of Real Estate
Investments................. 1.95 0.29 0.50 0.18
----------- ---------- ---------- ----------
Basic and Diluted Net Income
per Share................... $ 2.00 $ 0.42 $ 0.61 $ 0.25
=========== ========== ========== ==========
Average Shares Outstanding... 9,520,000 9,579,000 9,584,000 9,584,000
=========== ========== ========== ==========
</TABLE>
F-28
<PAGE>
PROPERTY CAPITAL TRUST
SCHEDULE III
December 31, 1998
At December 31, 1998, the Trust had no real estate investments.
NOTES TO SCHEDULE III
Changes in the Trust's investments in Assets Held for Sale directly by the
Trust are summarized below (dollars in thousands).
<TABLE>
<CAPTION>
Five Months
Years Ended Ended Year Ended
------------------------- ------------ ----------
December 31, December 31, December 31, July 31,
1998 1997 1996 1996
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Balance at beginning of
period..................... $15,077 $16,984 $16,938 $10,185
Acquisitions and additions.. 65 3,517 46 173
Sales to third parties...... (15,142) (62,996) -- (10,358)
Reclassified from Owned
Properties held directly by
the Trust.................. -- 67,829 -- 20,055
Reclassified from Structured
Transactions held directly
by the Trust............... -- 5,300 -- --
Investments written-down.... -- -- -- (1,519)
Write-off of accumulated
depreciation............... -- (15,557) -- (1,598)
------- ------- ------- -------
Balance at end of period.... $ -- $15,077 $16,984 $16,938
======= ======= ======= =======
</TABLE>
F-29
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
TOGETHER WITH AUDITORS' REPORT
F-30
<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,
1998, 1997, 1996 and 1995, and the related statements of income, partners'
capital and cash flows for each of the four years in the period ended December
31, 1998. 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, 1998, 1997, 1996 and 1995, and the
results of its operations and its cash flows for each of the four years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 12, 1999
F-31
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1998 1997 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets
Rental Property, at cost (Note
2(d))
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... 827,866 796,975 766,085 729,700
---------- ---------- ---------- ----------
1,012,348 1,043,239 1,074,129 1,110,514
Cash and Cash Equivalents (Note
2(c))............................. 153,094 144,079 133,392 124,798
Deferred Charges, net of
Accumulated Amortization of
$31,657 in 1998, $31,446 in 1997,
$31,245 in 1996 and $31,055 in
1995 (Notes 2(g) and 3)........... 28,313 28,514 28,715 28,916
Deferred Rent (Note 2(f)).......... 313,538 335,988 350,438 364,888
---------- ---------- ---------- ----------
$1,507,293 $1,551,820 $1,586,674 $1,629,116
========== ========== ========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued
expenses........................ $ 14,000 $ 10,500 $ 10,000 $ 10,000
Tenant security deposits......... 11,453 11,453 11,453 11,453
---------- ---------- ---------- ----------
25,453 21,953 21,453 21,453
Commitments and Contingencies (Note
5)
Partners' Capital.................. 1,481,840 1,529,867 1,565,221 1,607,663
---------- ---------- ---------- ----------
$1,507,293 $1,551,820 $1,586,674 $1,629,116
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1998 1997 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental income (Note 2(f))................. $310,550 $311,338 $311,216 $311,106
Miscellaneous income...................... 4,552 3,779 3,283 3,096
-------- -------- -------- --------
315,102 315,117 314,499 314,202
Expenses:
Administrative and financial expenses..... 42,037 29,380 30,354 29,212
Depreciation (Note 2(d)).................. 30,891 30,890 36,386 69,592
Amortization (Note 2(g)).................. 201 201 201 2,450
-------- -------- -------- --------
Net income................................ $241,973 $254,646 $247,558 $212,948
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<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 ................. (5,800) (284,200) (290,000)
Net income ................................ 4,839 237,134 241,973
------- ---------- ----------
Partners' Capital, December 31, 1998 ........ $29,907 $1,451,933 $1,481,840
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1998 1997 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income........................... $241,973 $254,646 $247,558 $212,948
Adjustments to reconcile net income
to net cash provided by operating
activities--
Depreciation and amortization....... 31,092 31,091 36,587 72,042
Decrease in tenant accounts
receivable......................... -- -- -- 2,089
Decrease in prepaid expenses........ -- -- -- 213
Decrease (increase) in deferred
rent............................... 22,450 14,450 14,450 (30,550)
Increase in accounts payable and
accrued expenses................... 3,500 500 -- 500
-------- -------- -------- --------
Total adjustments.................. 57,042 46,041 51,037 44,294
-------- -------- -------- --------
Net cash provided by operating
activities........................ 299,015 300,687 298,595 257,242
-------- -------- -------- --------
Cash Flows from Financing Activities:
Distributions to partners............ (290,000) (290,000) (290,000) (240,000)
-------- -------- -------- --------
Net cash used in financing
activities........................ (290,000) (290,000) (290,000) (240,000)
-------- -------- -------- --------
Net Increase in Cash................... 9,015 10,687 8,595 17,242
Cash and cash equivalents, beginning of
period................................ 144,079 133,392 124,797 107,556
-------- -------- -------- --------
Cash and cash equivalents, end of
period................................ $153,094 $144,079 $133,392 $124,798
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<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 located at 51 New York Avenue, Framingham,
Massachusetts.
(2) Summary of Significant Accounting Policies
During June 1998, Maryland Property Capital Trust, Inc. (PCT Inc.), a
Maryland corporation and the general partner of Property Capital Trust Limited
Partnership (PCT LP), a Massachusetts limited partnership, entered into a
merger agreement, which if fully consummated, would result in the merger of
Property Capital Trust (the Trust), a publicly traded Massachusetts business
trust, with and into PCT Inc. Upon consummation of this merger, PCT Inc. will
change its name to "Property Capital Trust, Inc." and intends to qualify as a
Real Estate Investment Trust (REIT). Immediately following this merger, FYA
will purchase, for cash, common stock of PCT Inc. for an aggregate price of
$1,000,000. FYA intends to enter into a commitment with a lending institution
to borrow $1,000,000, secured by the property located at 51 New York Avenue,
Framingham, Massachusetts, as a source of funding this purchase.
During October 1998, FYA entered into a merger agreement which, if fully
consummated, would result in PCT LP merging with and into FYA. Upon
consummation of this merger, FYA will change its name to "Property Capital
Trust Limited Partnership" and become the operating partnership of PCT Inc. FYA
will not consummate this merger until the transactions described above have
been completed.
The final implementation of these transactions also is subject to the
registration statement on Form S-4 of PCT Inc. being declared effective by the
Securities and Exchange Commission and the Trust obtaining the approval of the
holders of at least two-thirds of the shares of the Trust outstanding as of the
record date for the Trust's shareholder meeting.
(a) 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.
(b) 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.
(c) Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with original
maturities of three months or less.
F-36
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
(d) 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. Certain timing differences related
to depreciation have resulted in the depreciated cost of the property for
financial statement purposes exceeding its tax basis by $415,482 at December
31, 1998.
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.
(e) 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.
(f) 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.
(g) 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 $10,013 for 1998, $9,774 for 1997 and 1996, and $8,479 for 1995.
F-37
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
(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, 1998 were as follows:
<TABLE>
<CAPTION>
Minimum
Future
Year Rentals
---- ----------
<S> <C>
1999........................................................... $ 357,000
2000........................................................... 357,000
2001........................................................... 357,000
2002........................................................... 357,000
2003........................................................... 357,000
Thereafter..................................................... 624,750
----------
$2,409,750
==========
</TABLE>
(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.
F-38
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
(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
==========
Balance Sheet
(Unaudited)
(Amounts in Thousands)
Liabilities and Shareholders' Equity
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
==========
</TABLE>
F-39
<PAGE>
FRAMINGHAM YORK ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
Statement of Operations
(Unaudited)
(Amounts in Thousands)
<TABLE>
<S> <C>
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-40
<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
A-3
<PAGE>
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").
A-4
<PAGE>
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
A-5
<PAGE>
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
A-6
<PAGE>
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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-----------------------------------------
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. 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 filed as part of
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 material 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" beginning on page 8 and
"FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS" on page 55.
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-----------------------------------------
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. None of the distributions to
shareholders represented a return of capital. 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 five years, see "THE MERGER--
Background of and Reasons for the Merger" on pages 21-23; "MARKET PRICES AND
CASH DIVIDENDS INFORMATION" on page 64; and "SELECTED FINANCIAL INFORMATION--
The Trust" on page 45.
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 up to one
year,
. the trustees will be able to distribute to the shareholders of the trust
approximately $.25 per share, being all of the remaining assets of the
Trust net of existing obligations, shortly after consummation of the
merger, whereas a liquidating trust would have held a portion of these
funds in reserve, delaying this kind of distribution to you, and
. as a result of the merger, PCT Inc. will assume the Trust's liabilities,
without consuming any of the Trust's assets.
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. See, "PRO FORMA
FINANCIALS FOR MARYLAND CAPITAL TRUST, INC." for the pro forma financial
statements of PCT Inc. You may also refer to "SELECTED FINANCIAL INFORMATION--
THE TRUST" on page 45 for the selected financial information of the Trust.
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 one-sixtieth of a 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.
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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 26, and "THE MERGER--Background
of and Reasons for the Merger" on pages 21-23.
Transactions Related to the Merger
In connection with the transactions related to the merger, Framingham York
Associates Limited Partnership 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 24, and "PCT INC.--Description of the Property--Financing" on
page 34. For two years, PCT Inc. has agreed not to borrow any additional money
secured by the property. After such time, or if additional properties are added
to the REIT, PCT Inc. may borrow additional money to fund its growth. During
the first two years, however, the fair market value of all properties, net of
indebtedness, must equal at least $3 million at the time the money is borrowed.
PCT Inc. After the Merger
Interests in PCT Inc. will be allocated to you according to the number of
shares of the Trust that you own 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 from the settled condemnation
proceeding that was pending in a Florida state court. All of these assets,
minus any expenses and existing obligations of the Trust, will be distributed
to you shortly after the merger. 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 the method of calculating the value of the Trust and
allocating interests in PCT Inc. see "THE MERGER--Information Regarding the
Parties--Property Capital Trust" on page 19 and "--The Merger Consideration"
beginning on page 20.
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 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
trustees' deliberations and negotiations in entering into this merger, see "THE
MERGER--Background of and Reasons for the Merger" on pages 21-23, and "--
Information Regarding the Parties" on page 19.
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 30. After
completion of the merger, none of the trustees or officers of the Trust will be
involved in the business of PCT Inc.
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Risks involved in holding common stock of PCT, Inc. include changes in the
cash distribution policies and changes in the nature and extent of your
ownership interest. For a detailed description of these risks, see "RISK
FACTORS--Issuance of Additional Securities May Dilute Your Investment" on page
12; "RISK FACTORS--Changes in Investment and Financing Policies May be Made
Without Your Approval" on page 10; and "COMPARISON OF SHAREHOLDERS' RIGHTS"
beginning page 56. Furthermore, the trustees and officers of the Trust involved
in this transaction have interests that are 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--Messrs. Beal and Manzo and the
Trustees of the Trust Have Interests in Completing the Merger That Differ From
Yours" on page 8, and "THE MERGER--Conflicts of Interest" on page 23. In
addition, the fact that the common stock you receive in the merger will have
only limited liquidity may cause your shares to trade at prices below the fair
market value of PCT Inc.'s assets. For a description of this risk see, "RISK
FACTORS--Limited Liquidity May Preclude Sale of Your Common Stock and May
Impact Trading Prices" on page 10.
Fairness of the Merger and Related Transactions
This merger is occurring because, in accordance with its business plan, the
Trust has disposed of all of its real estate assets and must now complete its
liquidation at the least cost and delay to its shareholders. Shortly after
completion of the merger, the Trust will make a distribution to you of the
remaining proceeds from the disposition of its real estate assets and the
settlement of the condemnation proceeding that was pending in the state of
Florida. Thus, you will receive all of the remaining assets of the Trust, net
of existing obligations, and will also receive common stock of PCT Inc.,
although this stock will have no significant, if any, present value.
The trustees of the Trust have unanimously determined that this merger is
fair to you and in your best interests. 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 you in connection with the merger. For
a detailed discussion on the trustees' deliberations on entering into this
transaction, the background of the merger and the alternatives to the merger
considered by the trustees, see "THE MERGER--Recommendation of the Board of
Trustees" on page 21, "--Background of and Reasons for the Merger" on page 21
and "--Fairness of the Merger to You" on page 23.
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
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, however, risks in holding the common stock as a result of the
merger. These risks include, among other things, 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. These risks will
become more meaningful if, in the future, PCT Inc. grows and as a consequence,
your shares of common stock of PCT Inc. 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 9, "--The Operating Partnership
Currently Holds Only One Property Which May Make it
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Difficult to Generate Revenues Necessary to Make Distributions to Partners" on
page 13, "--Federal Income Tax Exposure if PCT Inc. Fails to Qualify as a REIT"
on page 10, and "--Management of PCT Inc. Has Not Previously Operated a REIT"
on page 9.
Comparative Information
Your 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 56-59.
The fiduciary duties that the Board of Trustees of the Trust owes to you are
substantially the same as the fiduciary duties that the officers and directors
of PCT Inc. will owe to you as a holder 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 29.
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, will receive one years salary upon completion of
the merger under a termination agreement entered into several years ago. Mr.
Melzer will receive the same payment if the merger is not approved and a
liquidating trust is organized. No other trustee or officer of the Trust will
receive compensation in connection with the merger. No trustee or officer of
the Trust will 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 32, and "THE MERGER--Conflicts of
Interest" on page 23. For information regarding compensation paid and
distributions made to the trustees for the last three fiscal years, see the
Financial Statements of the Trust beginning on page F-2.
The Trust has distributed an aggregate amount of $13.65 per share in special
dividends to you and immediately prior to the merger, the trustees intend to
declare a dividend of approximately $.25 per share, which includes redemption
of the rights outstanding pursuant to the shareholders' rights plan for a
payment of $.01 per share. Under PCT Inc.'s governing instruments, the decision
to make distributions to you is solely in the discretion of the Board of
Directors of PCT Inc., but PCT Inc. does not expect to make any distributions
to you now or in the near future. For a more detailed description of these
policies, see "COMPARISON OF SHAREHOLDERS' RIGHTS" on pages 56-59, and "PCT
Inc.--The Partnership Agreement of the Operating Partnership" beginning on
page 37. Since December 31, 1998, the Trust has not experienced any material
adverse developments and does not expect to experience any such developments in
the near future.
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 30.
Absent such growth, PCT Inc. will not make distributions to you. For a
description of the partnership agreement allocating a priority return to
certain partners, see "PCT INC.--The Operating Partnership" on page 34.
I-5
<PAGE>
Conflicts of Interest
Certain trustees and executive officers of the Trust have interests in the
merger that are different from, or may be 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, after payment of existing
obligations, will be distributed to the shareholders. 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. 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 is in the best interests of the shareholders of the
Trust. Although the Board of Trustees owed you certain fiduciary duties in
negotiating and structuring the merger, the absence of individual
representation precluded you from being involved in the structuring of the
merger at the time of its negotiation. For more information regarding the
Trustees' deliberations on the fairness of this transaction, see "THE MERGER--
Background of and Reasons for the Merger" on page 21, "--Recommendation of the
Board of Trustees" on page 21, and "--Conflicts of Interest" beginning on page
23.
Also, Mr. Melzer will receive one year's salary under a termination agreement
entered into several years ago although Mr. Melzer will receive the same
payment if the merger is not approved and a liquidating trust is organized.
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. 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 and the proceeds from the settled condemnation proceeding in the
state of Florida. 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 19 and "--The Merger Consideration" on page 19.
There are fees and expenses associated with this merger that you should
consider. These include filing fees, legal fees, accounting fees and
solicitation expenses (including printer costs).
Other than the costs associated with the special meeting and the solicitation
of proxies, PCT Inc. is responsible for these costs. The Trust shall use the
cash it is currently holding to pay its expenses. 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 which it is responsible. 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 27 and "THE MERGER--Related Transactions"
on page 24.
I-6
<PAGE>
Federal Income Tax Consequences
As a shareholder of the Trust you may experience certain Federal income tax
consequences as a result of receiving the merger consideration. For a detailed
description of some of the potential tax consequences, see "FEDERAL INCOME TAX
CONSEQUENCES TO SHAREHOLDERS" on page 55. 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.
I-7
<PAGE>
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)
**5.2 Form of Opinion of Goodwin, Procter & Hoar LLP as to qualification
of Maryland Property Capital Trust, Inc. as a REIT (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 15, 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 15,
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 Consent of Ernst & Young LLP
**23.3 Consent of Goodwin, Procter & Hoar LLP (included in opinions filed
as Exhibits
5.1 and 5.2)
*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 Exhibit deleted
</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 February 24, 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>
* President and Director February 24, 1999
_________________________________ [Principal Executive
Bruce A. Beal Officer]
/s/ Michael A. Manzo Treasurer and Director February 24, 1999
_________________________________ [Principal Financial and
Michael A. Manzo Accounting Officer]
/s/ Robert L. Beal Secretary and Director February 24, 1999
_________________________________
Robert L. Beal
*/s/ Robert L. Beal
_________________________________
By Power of Attorney
</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)
**5.2 Form of Opinion of Goodwin, Procter & Hoar LLP as to qualification
of Maryland Property Capital Trust, Inc. as a REIT (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 15, 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 15,
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 Consent of Ernst & Young LLP
**23.3 Consent of Goodwin, Procter & Hoar LLP (included in opinions filed
as Exhibits
5.1 and 5.2)
*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 Exhibit deleted
</TABLE>
- --------
* Previously filed.
** Filed herewith.
+ To be filed by amendment.
<PAGE>
EXHIBIT 5.1
[Goodwin, Procter & Hoar LLP Letterhead]
February 24, 1999
Maryland Property Capital Trust, Inc.
177 Milk Street
Boston, MA 02109
Re: Legality of Securities to be Registered
under Registration Statement on Form S-4
----------------------------------------
Ladies and Gentlemen:
This opinion is furnished in connection with the registration on Form S-4
(the "Registration Statement") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), of 159,737 shares of common stock, par value
$.01 per share, of Maryland Property Capital Trust, Inc., a Maryland corporation
(the "Corporation"), which will be issued to the shareholders of Property
Capital Trust (the "Trust") in connection with the Merger (as defined below).
We have acted as counsel to the Corporation in connection with the
preparation and filing with the Securities and Exchange Commission of the
Registration Statement and the proposed merger (the "Merger") of the Trust into
the Corporation pursuant to the Agreement and Plan of Merger, by and between the
Corporation and the Trust, dated as of June 18, 1998, as amended (the "Merger
Agreement").
In connection with rendering this opinion, we have examined the Articles of
Amendment and Restatement of the Corporation, as approved by the Board of
Directors of the Corporation and as expected to be filed with the Secretary of
State of the State of Maryland following approval by the Trust's shareholders of
the Merger and approval by the Trust as the sole shareholder of the Corporation,
which authorizes, among other things, the increase in the number of authorized
shares of the common stock of the Corporation from 100 to 10,000,000, the Bylaws
of the Corporation, such records of the corporate proceedings of the Corporation
as we deemed material, the Registration Statement and the exhibits thereto, and
such other certificates, receipts, records and documents as we considered
necessary for the purposes of this opinion. In our examination, we have assumed
the genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as certified, photostatic or
facsimile copies, the authenticity of the originals of such copies and the
authenticity of telephonic confirmations of public officials and others. As to
facts material to our opinion, we have relied upon certificates or telephonic
confirmations of public officials and certificates, documents, statements and
other information of the Corporation or representatives or officers thereof.
We express no opinion concerning the laws of any jurisdictions other than
the laws of the United States of America and the Maryland General Corporation
Law as in effect on the date hereof.
Based upon the foregoing, we are of the opinion that under the Maryland
General Corporation Law, pursuant to which the Corporation is incorporated, the
shares to be issued to the shareholders of the Trust in
<PAGE>
Maryland Property Capital Trust, Inc.
February 24, 1999
Page 2
connection with the Merger, when issued in accordance with the terms described
in the Merger Agreement, will be duly authorized, validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us with respect to this opinion
under the heading "Legal Matters" in the Prospectus which is a part of such
Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 5.2
[Goodwin, Procter & Hoar LLP Letterhead]
DRAFT
-----
February __, 1999
Maryland Property Capital Trust, Inc.
177 Milk Street
Boston, MA 02109
Ladies and Gentlemen:
This opinion is furnished in our capacity as counsel to Maryland Property
Capital Trust, Inc., a Maryland corporation (the "Company"), in connection with
the registration of 159,737 shares of common stock, par value $.01 per share,
pursuant to the Company's Registration Statement on Form S-4 (the "Registration
Statement") filed with the Securities and Exchange Commission. This opinion
relates to the Company's qualification for federal income tax purposes as a real
estate investment trust (a "REIT") within the meaning of Sections 856-860 of the
Internal Revenue Code of 1986, as amended (the "Code"), following the merger
(the "Merger") of the Company with and into Property Capital Trust, a
Massachusetts business trust (the "Trust"), as described in the Registration
Statement.
In rendering the following opinion, we have examined the [Declaration of
Trust of the Trust,] Articles of Organization of the Company, [the Articles of
Amendment and Restatement of the Company which will be in effect following the
Merger,] the By-laws of the Company, and such other records, certificates and
documents as we have deemed necessary or appropriate for purposes of rendering
the opinion set forth herein.
We have reviewed the Registration Statement and the descriptions set forth
therein of the Trust, the Company and their investments and activities. We have
relied upon the representations of the Trust and of the Company and certain
officers thereof (including, without limitation, representations contained in a
representation letter dated as of this date) regarding the manner in which the
Trust has been and the Company will be owned and operated, including a
representation of officers of the Trust based in part in reliance on the opinion
referred to in the next sentence (the "Opinion") that, to the best belief and
knowledge of such officers, the Trust has qualified as a REIT at all times prior
to the date of the Merger. We have been provided a copy of and have reviewed the
Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the Trust, with
respect to the Trust's qualification as a REIT at all times on and prior to
_______, 1998. We have neither independently investigated nor verified such
representations or Opinion, and we assume that such representations and Opinion
<PAGE>
Maryland Property Capital Trust, Inc.
February __, 1999
Page 2
are true, correct and complete and that all representations made "to the best of
the knowledge and belief" of any person(s) or party(ies) or with similar
qualification are and will be true, correct and complete as if made without such
qualification. We also assume that prior to the Merger, the Trust has been
operated, and that, following the Merger, the Company will be operated in
accordance with applicable laws and the terms and conditions of applicable
documents and that the descriptions of the Trust and its investments and the
proposed investments, activities, operations and governance of the Trust and the
Company set forth in the Registration Statement and all prior registration
statements filed with the Securities and Exchange Commission continue to be
true. Finally, we have relied on certain additional facts and assumptions
described below. Capitalized terms not otherwise defined herein shall have the
meaning ascribed to such terms in the Registration Statement.
In rendering the opinion set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us as copies, (iv) the
conformity of final documents to all documents submitted to us as drafts, (v)
the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person, (vi) the accuracy and completeness of
all records made available to us, and (vii) the factual accuracy of all
representations, warranties and other statements made by all parties. We also
have assumed, without investigation, that all documents, certificates,
warranties and covenants on which we have relied in rendering the opinion set
forth below and that were given or dated earlier than the date of this letter
continue to remain accurate, insofar as relevant to the opinion set forth
herein, from such earlier date through and including the date of this letter.
The discussion and conclusions set forth below are based upon the Code, the
Income Tax Regulations and Procedure and Administration Regulations promulgated
thereunder and existing administrative and judicial interpretations thereof, all
of which are subject to change. No assurance can therefore be given that the
federal income tax consequences described below will not be altered in the
future.
Based upon and subject to the foregoing, and provided that at all times
prior to the Merger, the Trust met the applicable asset composition, source of
income, shareholder diversification, distribution, recordkeeping and other
requirements of the Code necessary for a trust to qualify as a REIT, and,
following the Merger, the Company continues to meet the applicable asset
composition, source of income, shareholder diversification, distribution,
recordkeeping and other requirements of the Code necessary for a corporation to
qualify as a REIT, we are of the opinion that as of the date hereof the Company
is organized in conformity with the requirements for qualification as a REIT
under the Code, and the Company's method
<PAGE>
Maryland Property Capital Trust, Inc.
February __, 1999
Page 3
of operation, as described in the representations referred to above, will enable
it to meet the requirements for qualification and taxation as a REIT under the
Code for its taxable ending December, 1999 and thereafter.
We express no opinions other than those expressly set forth herein. You
should recognize that our opinion is not binding on the IRS and that the IRS may
disagree with the opinion contained herein. Although we believe that our opinion
will be sustained if challenged, there can be no assurance that this will be the
case. The opinion expressed herein is based upon the law as it currently exists.
Consequently, future changes in the law may cause the federal income tax
treatment of the transactions described herein to be materially and adversely
different from that described above.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 10.6
THIRD AMENDMENT
TO
INVESTMENT AGREEMENT
This THIRD AMENDMENT TO INVESTMENT AGREEMENT (hereinafter referred to as
this "Agreement") dated as of January 15, 1999 is made and entered into by and
---------
among Framingham York Associates Limited Partnership, a Massachusetts limited
partnership ("FYA" or the "Purchaser"), Property Capital Trust, a Massachusetts
---
business trust (the "Trust"), and Maryland Property Capital Trust, Inc., a
-----
Maryland corporation (the "Company").
-------
RECITALS
A. The parties hereto entered into an Investment Agreement on June 18,
1998 (the "Original Agreement").
------------------
B. The Original Agreement was amended by the parties hereto on August 7,
1998 (the "First Amendment").
---------------
C. The Original Agreement and First Amendment were further amended on
October 16, 1998 (the "Second Amendment").
----------------
D. The parties hereto desire to amend the Original Agreement, the First
Amendment and the Second Amendment as provided herein.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and of other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound hereby, do hereby agree as follows:
1. Section 9.1(c) is hereby amended by deleting the reference to "Monday,
February 1, 1999" and replacing it with "Monday, March 8, 1999."
2. Section 9.1(d) is hereby amended by deleting the reference to "the 60th
day" and replacing it with "the 90th day."
3. The parties hereby ratify and confirm that they continue to be bound by the
terms and provisions of the Original Agreement, the First Amendment and the
Second Amendment which, except as expressly modified hereby, shall continue in
full force and effect.
4. This Agreement may be executed in counterparts, each of which shall be
deemed an original of all which, when taken together, shall be deemed one and
the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof.
FRAMINGHAM YORK ASSOCIATES LIMITED
PARTNERSHIP
By: /s/ Bruce A. Beal
-----------------------------------------
Bruce A. Beal, as General Partner
By: /s/ Robert L. Beal
-----------------------------------------
Robert L. Beal, as General Partner
PROPERTY CAPITAL TRUST
By: /s/ Robert M. Melzer
-----------------------------------------
Robert M. Melzer, President and Chief
Executive Officer
MARYLAND PROPERTY CAPITAL TRUST, INC.
By: /s/ Bruce A. Beal
-----------------------------------------
Name: Bruce A. Beal
Title: President
2
<PAGE>
Exhibit 10.7
AMENDMENT
TO
CONTRIBUTION AND MERGER AGREEMENT
This AMENDMENT TO CONTRIBUTION AND MERGER AGREEMENT dated as of January 15,
1999 (hereinafter referred to as this "Agreement") is made and entered into by
---------
and between Property Capital Trust Limited Partnership, a Massachusetts limited
partnership and Framingham York Associates Limited Partnership, a Massachusetts
limited partnership.
RECITALS
A. The parties hereto entered into a Contribution and Merger Agreement
(the "Original Agreement") on October 16, 1998.
------------------
B. The parties hereto desire to amend the Original Agreement as provided
herein.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and of other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound hereby to hereby agree as follows.
1. Section 3.04(c) is hereby amended to read in its entirety as follows:
"At the Closing, at least a majority of the limited partners of FYA
shall, directly or through an Attorney-in-Fact, execute, acknowledge where
deemed desirable or necessary by PCT LP, and deliver to the Closing Agent, in
addition to any other documents mentioned elsewhere herein, an Addendum to
Contribution and Merger Agreement in the form attached hereto."
2. The parties hereby ratify and confirm that they continue to be bound
by the terms and provisions of the Original Agreement which, except as expressly
modified hereby, shall continue in full force and effect.
3. This Agreement may be executed in counterparts, each of which shall be
deemed an original of all which, when taken together, shall be deemed one and
the same instrument.
4. Any terms used herein and not defined shall have the meanings ascribed
to such terms in the Original Agreement, as amended.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized representatives as of the day and
year first above written.
FRAMINGHAM YORK ASSOCIATES LIMITED
PARTNERSHIP
By: /s/ Bruce A. Beal
-----------------------------------------
Bruce A. Beal, as General Partner
By: /s/ Robert L. Beal
-----------------------------------------
Robert L. Beal, as General Partner
PROPERTY CAPITAL TRUST, L.P.
By: Maryland Property Capital Trust, Inc.,
as sole General Partner
By: /s/ Bruce A. Beal
-----------------------------------------
Name: Bruce A. Beal
Title: President
2
<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 January 12, 1999 for
Framingham York Associates Limited Partnership as of December 31, 1998, 1997,
1996 and 1995 and for each of the four years in the period ended December 31,
1998, included herein and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 24, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 18, 1999, with respect to the financial
statements and schedule of Property Capital Trust included in the Registration
Statement (Form S-4 No. 333-67673) and related Prospectus of Maryland Property
Capital Trust, Inc. for the registration of 159,377 shares of its common stock.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 23, 1999
