SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 1-7172
BRT REALTY TRUST
(Exact name of registrant as specified in its charter)
Massachusetts 13-2755856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Cutter Mill Road, Great Neck, NY 11021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(516) 466-3100
Indicate the number of shares outstanding of each of the issuer's classes
of stock, as of the latest practicable date.
8,473,081 Shares of Beneficial Interest,
$3 par value, outstanding on May 5, 1997
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
March 31, 1997 September 30, 1996
Unaudited) (Audited)
<S> <C> <C>
Assets
Real estate loans - Note 3:
Earning interest $34,449 $32,813
Not earning interest 4,325 5,905
----- -----
38,774 38,718
Less allowance for possible losses 6,473 7,773
----- -----
32,301 30,945
------ ------
Real estate assets:
Foreclosed properties held for sale 47,246 48,438
Investment in real estate venture 1,552 -
----- ------
48,798 48,438
Less valuation allowance 2,128 2,128
----- -----
46,670 46,310
Cash and cash equivalents 6,217 6,209
Investment in U.S. Government obligations and securities 1,135 1,977
Interest receivable 345 354
Other assets 3,989 3,818
----- -----
Total Assets $90,657 $89,613
======= =======
Liabilities and Shareholders' Equity
Liabilities:
Notes payable, Gould Investors L.P. (a related party) $ - $1,030
Loans and mortgages payable, non-recourse 24,922 25,391
Accounts payable and accrued liabilities, including deposits of $1,688
and $1,524 2,818 2,300
------ ----- -----
Total Liabilities 27,740 28,721
------ ------
Shareholders' Equity - Note 2:
Preferred shares - $1 par value:
Authorized 10,000 shares issued - none - -
Shares of beneficial interest, $3 par value:
Authorized number of shares - unlimited, issued - 8,932 and 8,969 shares 26,795 26,906
Additional paid-in capital net of distributions of $5,171 81,717 81,857
Net unrealized gain on available-for-sale securities 161 17
Accumulated deficit (42,002) (45,249)
------- -------
66,671 63,531
Cost of 420 and 244 treasury shares of beneficial interest (3,754) (2,639)
--- --- ------ ------
Total Shareholders' Equity 62,917 60,892
------ ------
Total Liabilities and Shareholders' Equity $90,657 $89,613
======= =======
See Accompanying Notes to Consolidated Financial Statements.
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<TABLE>
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(Unaudited)
(In Thousands except for Per Share Data)
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Interest and fees on real estate loans $1,074 $1,178 $2,419 $2,489
Operating income on real estate assets 2,327 2,181 4,495 4,227
Reversal of previously provided allowances 1,000 - 1,300 -
Other, primarily investment income 76 73 199 156
-- -- --- ---
Total revenues 4,477 3,432 8,413 6,872
----- ----- ----- -----
Expenses:
Interest-notes payable and loans payable - 346 10 840
Advisor's fee 143 164 274 329
General and administrative 628 856 1,168 1,452
Operating expenses relating to real estate assets, including
interest on mortgages of $498 and $510 for the three-month
periods, and $1005 and $956 for the six month periods, 1,782 1,917 3,440 3,598
respectively
Depreciation and amortization 140 59 274 200
--- -- --- ---
Total expenses 2,693 3,342 5,166 6,419
----- ----- ----- -----
Income before gain on sale of foreclosed properties held for sale 1,784 90 3,247 453
Gain on sale of foreclosed properties held for sale - - - 227
Net income $1,784 $90 $3,247 $680
Calculation of net income applicable to common shareholders:
Net income $1,784 $90 $3,247 $680
Less: distribution on preferred stock - 68 - 135
------ -- ------ ---
Net income applicable to common shareholders $1,784 $22 $3,247 $545
====== === ====== ====
Earnings per share of Beneficial Interest - Note 2:
Primary
Income before gain on sale of foreclosed properties held for sale
applicable to common shareholders $0.21 $0.00 $0.38 $0.04
Gain on sale of foreclosed properties held for sale - - - 0.03
----- ------ ------- ----
Net income applicable to common shareholders $0.21 $0.00 $0.38 $0.07
===== ===== ===== =====
Fully Diluted $0.21 $0.00 $0.38 $0.07
===== ===== ===== =====
Weighted average number of common shares outstanding - Note 2:
Primary 8,570,942 7,457,609 8,628,927 7,401,813
========= ========= ========= =========
Fully Diluted 8,570,942 7,457,609 8,628,927 7,401,813
========= ========= ========= =========
STATEMENT OF ACCUMULATED DEFICIT
Accumulated deficit, beginning of period ($43,786) ($46,905) ($45,249) ($47,495)
Net income 1,784 90 3,247 680
----- -- ----- ---
Accumulated deficit, end of period ($42,002) ($46,815) ($42,002) ($46,815)
======== ======== ======== ========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<CAPTION>
Six Months Ended
March 31,
1997 1996
- ---------------------------------------------------------------------------------------------- -----------------------------
<S> <C> <C>
Cash flow from operating activities:
Net income $3,247 $680
Adjustments to reconcile net income to cash provided by operating activities:
Reversal of previously provided allowances (1,300) -
Depreciation and amortization 274 200
Gain on sale of foreclosed properties - (227)
Decrease in interest receivable 9 160
(Increase) decrease in prepaid expenses (162) 103
Increase (decrease) in accounts payable and accrued liabilities 297 (258)
Decrease (increase) in rent and other receivables 40 (69)
Decrease (increase) in escrow deposits 42 (187)
Increase in deferred costs (268) (281)
Other 15 112
-- ---
Net cash provided by operating activities 2,194 233
----- ---
Cash flows from investing activities:
Collections from real estate loans 6,870 1,528
Proceeds from participating lenders - 125
Additions to real estate loans (5,904) (108)
Repayments to participating lenders (1,000) -
Net costs capitalized to foreclosed properties (828) (803)
Proceeds from sale of foreclosed properties 412 1,992
Increase (decrease) in deposits payable 164 (274)
Decrease in investment in U.S. Government obligations 986 -
---
Other (17) 36
--- --
Net cash provided by investing activities 683 2,496
--- -----
Cash flow from financing activities:
Bank repayments - (9,900)
Payoff/paydown of loan and mortgages payable (1,499) (395)
Proceeds from mortgages payables - 4,800
Exercise of stock options - 1,262
Repurchase of shares of beneficial interest, a portion of which were cancelled (1,367) -
Decrease in restricted cash - 257
Other (3) (154)
-- ----
Net cash used in financing activities (2,869) (4,130)
------ ------
Net increase (decrease) in cash and cash equivalents 8 (1,401)
Cash and cash equivalents at beginning of period 6,209 7,385
----- -----
Cash and cash equivalents at end of period $6,217 $5,984
====== ======
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(In Thousands)
<CAPTION>
Six Months Ended
March 31,
1997 1996
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense $710 $1,947
==== ======
Supplemental schedule of non-cash investing and financing activities:
Transfer of a non-earning real estate loan to foreclosed properties at fair$ - $34
value
Recognition of allowance for previously provided losses - 1,286
Transfer of foreclosed property to an investment in a real estate venture 1,552 -
Recognition of valuation allowance upon sale of foreclosed properties - 244
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Basis of Preparation
The accompanying interim unaudited consolidated financial statements as of
March 31, 1997 and for the three and six months ended March 31, 1997 and 1996
reflect all normal recurring adjustments which are, in the opinion of
management, necessary for a fair statement of the results for such interim
periods. The results of operations for the three and six months ended March 31,
1997 are not necessarily indicative of the results for the full year.
Certain items on the consolidated financial statements for the preceding
periods have been reclassified to conform with the current consolidated
financial statements.
The consolidated financial statements include the accounts of BRT Realty
Trust, its wholly-owned subsidiaries, and its majority-owned or controlled real
estate entities. For financial statement and economic purposes, the
majority-owned real estate entity is wholly-owned and presented accordingly.
Investments in less than majority-owned entities have been accounted for using
the equity method. Material intercompany items and transactions have been
eliminated. Many of the wholly-owned subsidiaries were organized to take title
to various properties acquired by BRT Realty Trust. BRT Realty Trust and its
subsidiaries are hereinafter referred to as the "Trust".
These statements should be read in conjunction with the consolidated
financial statements and related notes which are included in the Trust's Annual
Report on Form 10-K for the year ended September 30, 1996.
Note 2 - Shareholders' Equity
Per Share Data
Primary earnings per share of beneficial interest is based upon the
weighted average number of common shares and the assumed equivalent shares
outstanding during each period, after giving effect to dividends relating to the
Trust's preferred stock. The preferred stock issued on September 14, 1993, is
not considered a common stock equivalent for the purpose of computing primary
earnings per share. The preferred stock was converted to shares of beneficial
interest on a one for one basis on July 1, 1996. The assumed exercise of
outstanding share options, using the treasury stock method, is not materially
dilutive for the primary earnings per share computation for the three and six
months ended March 31, 1997 and 1996, respectively.
Fully diluted earnings per share of beneficial interest amounts are based
on an increased number of common shares that would be outstanding assuming the
exercise of common share options during each period and the conversion of
preferred stock to shares of beneficial interest at the higher of the period end
or average market price. The fully diluted computation is not materially
dilutive, or is anti-dilutive, for the three and six months ended March 31, 1997
and 1996, respectively, and therefore not presented.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("FASB 128"), Earnings Per Share, which is required to be adopted on
December 31, 1997. At that time, the Trust will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
<PAGE>
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of FASB 128 on the
calculation of primary and fully diluted earnings per share is not expected to
be material.
Note 3 - Real Estate Loans
If all loans classified as non-earning were earning interest at their
contractual rates for the three and six months ended March 31, 1997 and 1996,
interest income would have increased by approximately $166,000 and $317,000 in
the respective periods in 1997, and approximately $212,000 and $401,000 in the
respective periods in 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Trust engages in the business of making and participating in short term
senior and junior real estate mortgages, secured by income producing property
and to a lesser extent by unimproved real property. Repayments of real estate
loans in the amount of $18,492,000 are due during the twelve months ending March
31, 1998, including $9,291,000 which is due on demand. There presently exists a
favorable environment for obtaining mortgage financing secured by real property
and for selling real estate. Accordingly, prior to or at maturity, borrowers in
many cases are able to refinance and repay the indebtedness due to the Trust.
However, the Trust cannot project the portion of loans maturing during the next
twelve months which will be paid or the portion of loans which will be extended
for a fixed term or on a month to month basis.
Effective September 23, 1992, the Trust entered into an Amended and
Restated Credit Agreement (the "Restated Credit Agreement") with five banks. On
August 2, 1996, the Trust repaid in full its remaining debt obligation due under
the Restated Credit Agreement. In October, 1996 the Trust entered into a
$25,000,000 credit facility with CS First Boston Mortgage Capital Corp. ("First
Boston"). The facility, a revolving credit facility, permits the Trust to
borrow, repay and reborrow, provides for an interest rate, adjusted monthly, of
prime plus 1% or Libor plus 3%, whichever is lower, and matures on October 17,
1998. The Trust has the right to extend the facility for two additional six
month periods for a fee of .25% with each extension. Borrowings under the credit
facility are secured by specific receivables and real estate assets by the
Trust, and the credit agreement provides that the loan amount will never exceed
75% of the agreed value of the collateral.
Repayment in full of the debt due under the Restated Credit Agreement
terminated the prohibition on the Trust's ability to engage in mortgage lending
activities, and therefore during the fiscal year ended September 30, 1997
("Fiscal 1997") the Trust became active in making short term real estate loans.
From the beginning of Fiscal 1997 through May 5, 1997, the Trust has funded new
real estate loans of approximately $10,200,000 with available cash on hand and
borrowings from First Boston of approximately $2,300,000. The effects of these
new loans will become meaningful, commencing with the third quarter of Fiscal
1997.
During the six months ended March 31, 1997, the Trust generated cash of
$2,194,000 from operating activities and $5,870,000 from collections from real
estate loans (net of repayments to participating lenders of $1,000,000). These
funds were used primarily to fund additions to real estate loans of $5,904,000,
to pay in full a note payable to Gould Investors LP, a related party, of
approximately $1,030,000, and to purchase 213,091 shares of beneficial interest
of the Trust at an approximate aggregate cost of $1,367,000.
On July 2, 1996, the Trust's Board of Trustees authorized the purchase from
time to time of up to 250,000 shares of beneficial interest of the Trust, and
approved the purchase of an additional 250,000 shares on January 3, 1997. As of
May 5, 1997, 304,243 shares have been purchased at an approximate aggregate cost
of $1,933,000.
<PAGE>
The Trust intends to satisfy its liquidity needs from cash and liquid
investments on hand, the credit facility with First Boston, interest received on
outstanding real estate loans and net cash flow generated from the operation of
real estate assets.
Results of Operations
Interest and fees on real estate loans decreased to $2,419,000 and
$1,074,000 for the six and three months ended March 31, 1997 as compared to
$2,489,000 and $1,178,000 for the six and three months ended March 31, 1996.
These decreases of $70,000 and $104,000, respectively, were primarily due to
payoffs and paydowns of various earning real estate loans. These decreases were
offset in part by the receipt of additional interest during the first half of
Fiscal 1997 of approximately $486,000 ($92,000 was received during the quarter
ended March 31, 1997) upon the payoff of two loans, one of which was
non-earning.
Operating income on real estate assets increased by $268,000 and $146,000
to $4,495,000 and $2,327,000 for the six and three months ended March 31, 1997
from $4,227,000 and $2,181,000 for the comparable periods in the prior fiscal
year. These increases were the result of an increase in occupancy and rental
rates at various properties, including an office building in Fairway, Kansas
(acquired in October, 1995; accordingly, Fiscal 1996 reflects only five months
of operations ), the Dover, Delaware property, and a mixed use property in
Philadelphia, Pennsylvania. Also, during the quarter ended March 31, 1997, the
Trust received a real estate tax refund of approximately $106,000 as a result of
a successful tax appeal. These increases were offset in part by the loss of
rental income upon the sale of properties.
During the six and three months ended March 31, 1997 the Trust reversed
previously provided allowances of $1,300,000 and $1,000,000, respectively, upon
the payoff in full of two real estate loans (one in each three month period).
There were no comparable reversals during the comparable periods in Fiscal 1996.
Interest expense on notes and loans payable decreased by $830,000 for the
first half of Fiscal 1997 from $840,000 to $10,000 for the six months ended
March 31, 1996 and 1997, respectively, and by $346,000 for the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996. These
decreases were a direct result of the continuing reduction and the eventual
payoff of the outstanding debt under the Restated Credit Agreement in August
1996.
The Advisor's fee decreased to $274,000 for the six months ended March 31,
1997 from $329,000 for the comparable six month period in the prior fiscal year,
a decrease of $55,000 and to $143,000 for the three months ended March 31, 1997
from $164,000 for the three months ended March 31, 1996, a decrease of $21,000.
These decreases were a result of a decrease in total invested assets, the basis
on which the advisory fee is calculated.
<PAGE>
General and administrative expenses decreased by $284,000 from $1,452,000
for the six months ended March 31, 1996 to $1,168,000 for the six months ended
March 31, 1997, and by $228,000 from $856,000 for the second quarter of Fiscal
1996 to $628,000 for the second quarter of Fiscal 1997. These decreases are
primarily the result of the recognition during the quarter ended March 31, 1996
of approximately $187,000 of additional legal, accounting and investment banking
expenses incurred in connection with a potential transaction which did not
proceed beyond the negotiation stage. There has also been a reduction in the
Trust's general overhead expenses.
Operating expenses relating to real estate assets decreased by $158,000 and
$135,000 from $3,598,000 and $1,917,000 for the six and three months ended March
31, 1996 to $3,440,000 and $1,782,000 for the six and three months ended March
31, 1997. These decreases were primarily due to the sale of foreclosed
properties offset in part by a full period of operations of an office building
in Fairway, Kansas, acquired in October, 1995 (the first half of Fiscal 1996
reflects only five months of operations).
Depreciation and amortization increased by $74,000 for the first half of
Fiscal 1997 and $81,000 for the second quarter of Fiscal 1997. These increases
were a result of the amortization of the deferred mortgage costs associated with
the financing of real estate assets and the First Boston credit facility. The
six month increase was offset in part by the reclassification, effective January
1996, of a mixed use property located in Philadelphia, Pennsylvania from an
asset held for the production of income to an asset held for sale, thereby no
longer being depreciated.
Gain on sale of foreclosed properties for the six months ended March 31,
1996 was $227,000, with no comparable gain in the six months ended March 31,
1997. It is the policy of the Trust to offer for sale all foreclosed property at
prices which management believes represents fair value in the geographic area in
which the property is located.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
The Annual Meeting of Shareholders of the Trust ("Annual Meeting"), was
held on March 21, 1997. At the meeting, the following Trustees were elected for
a term of three years or until their respective successors are elected and shall
qualify:
Name Votes Cast For Votes Withheld
Patrick J. Callan 7,805,506 423,516
Jeffrey A. Gould 8,149,621 79,401
The following Trustees remained in office after the Annual Meeting: Arthur
Hurand, Herbert C. Lust, II, Marshall Rose, Fredric H. Gould, Nathan Kupin and
Gary Hurand.
At the Annual Meeting, the shareholders also voted on the adoption of the
Trust's 1996 Stock Option Plan and reserving of 450,000 Beneficial Shares for
issuance thereunder. In that regard, reference is made to the Trust's Proxy
Statement dated January 27, 1997 and supplement thereto dated March 3, 1997.
With respect to this proposal, 4,979,405 votes were cast in favor, 1,241,926
shares against, 57,599 shares abstained and 1,950,092 shares were the subject of
broker non-votes. Since the proposal was approved by a majority of the
outstanding shares, the proposal was adopted.
The Annual Meeting also considered the appointment of Ernst & Young LLP as
the Trust's independent auditors for the fiscal year ending September 30, 1997.
With respect to the appointment, 8,178,427 shares voted in favor, 31,131 shares
against and 19,464 shares abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 1 - BRT Realty Trust 1996 Stock Option Plan.
(b) The Trust did not file any reports on Form 8-K during the quarter
ended March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRT REALTY TRUST
Registrant
05/14/97 /s/ Jeffrey Gould
Date Jeffrey Gould, President
05/14/97 /s/ David W. Kalish
Date David W. Kalish, Vice President and
Chief Financial Officer
EXHIBIT 1
BRT REALTY TRUST
1996 STOCK OPTION PLAN
1. Purpose.
-------
The purpose of this plan (the "Plan") is to secure for BRT
Realty Trust (the "Trust") and its shareholders the benefits arising from
ownership of shares of Beneficial Interest, $3.00 par value ("Beneficial
Shares") by employees, officers and trustees of, and consultants or advisors to,
the Trust who are expected to contribute to the Trust's future growth and
success. Except where the context otherwise requires, the term "Trust" shall
include all present and future subsidiaries of the Trust as defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or replaced
from time to time (the "Code"). Those provisions of the Plan which make express
reference to Section 422 shall apply only to Incentive Stock Options (as that
term is defined in the Plan).
2. Type of Options and Administration.
----------------------------------
(a) Types of Options. Options granted pursuant to the Plan
-----------------
shall be authorized by action of the Board of Trustees of the Trust and may be
either incentive stock options ("Incentive Stock Options") meeting the
requirements of Section 422 of the Code or non-statutory options which are not
intended to meet the requirements of Section 422 of the Code.
(b) Administration. The Plan will be administered by the Audit
--------------
and Compensation Committee (the "Committee") of the Board of Trustees of the
Trust (or any successor committee), whose construction and interpretation of the
terms and provisions of the Plan shall be final and conclusive. The delegation
of powers to the Committee shall be consistent with applicable laws or
regulations (including, without limitation, applicable state law and Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or
any successor rule ("Rule 16b-3")). The Committee shall have authority, subject
to the express provisions of the Plan, to construe the respective
-1-
<PAGE>
option agreements and the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of the
respective option agreements, which need not be identical, and to make all other
determinations in the judgment of the Committee necessary or desirable for the
administration of the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any option agreement
in the manner and to the extent it shall deem expedient to carry the Plan into
effect and it shall be the sole and final judge of such expediency. No director
or person acting pursuant to authority delegated by the Board of Trustees shall
be liable for any action or determination under the Plan made in good faith.
Subject to adjustment as provided in Section 15 below, the aggregate number of
Beneficial Shares that may be granted to any person in a calendar year shall not
exceed 50,000 Beneficial Shares.
(c) Applicability of Rule 16b-3. Those provisions of the Plan
---------------------------
which make express reference to Rule 16b-3 shall apply to the Trust only at such
time as the Trust's Beneficial Shares are registered under the Exchange Act,
subject to the last sentence of Section 3(b), and then only to such persons as
are required to file reports under Section 16(a) of the Exchange Act (a
"Reporting Person").
3. Eligibility.
-----------
(a) General. Options may be granted to persons who are, at the
-------
time of grant, employees, officers or trustees of, or consultants or advisors
to, the Trust or any subsidiaries of the Trust as defined in Sections 424(e) and
424(f) of the Code ("Participants") provided, that Incentive Stock Options may
--------
only be granted to individuals who are employees of the Trust (within the
meaning of Section 3401(c) of the Code). Subject to the limitation contained in
Section 2(b) above. A person who has been granted an option may, if he or she is
otherwise eligible, be granted additional options if the Board of Trustees shall
so determine.
-2-
<PAGE>
(b) Grant of Options to Reporting Persons. The selection of a
-------------------------------------
trustee (the equivalent of a director) or an officer who is a Reporting Person
(as the terms "director" and "officer" are defined for purposes of Rule 16b-3)
as a recipient of an option, the timing of the option grant, the exercise price
of the option and the number of shares subject to the option shall be determined
either (i) by the Board of Trustees, or (ii) by a committee consisting solely of
two or more trustees having full authority to act in the matter, each of whom
shall be a "Non-Employee Trustee" . For the purposes of the Plan, a Trustee
shall be deemed to be a "Non-Employee Trustee" only if such person qualifies as
a "Non-Employee Trustee" as such term is defined in Rule 16b-3, as such term is
interpreted from time to time. If at least two of the members of the Board of
Trustees do not qualify as a "Non-Employee Trustee" within the meaning of Rule
16b-3, as such term is interpreted from time to time, then the granting of
options to officers and directors who are Reporting Persons under the Plan shall
not be determined in accordance with this Section 3(b) but shall be determined
in accordance with the other provisions of the Plan.
4. Stock Subject to Plan.
---------------------
The stock subject to options granted under the Plan shall be
shares of authorized but unissued or reacquired Beneficial Shares. Subject to
adjustment as provided in Section 15 below, the maximum number of Beneficial
Shares of the Trust which may be issued and sold under the Plan is 450,000
shares. If an option granted under the Plan shall expire, terminate or is
cancelled for any reason without having been exercised in full, the unpurchased
shares subject to such option shall again be available for subsequent option
grants under the Plan.
5. Forms of Option Agreements.
--------------------------
As a condition to the grant of an option under the Plan, each
recipient of an option shall execute an option agreement in such form not
inconsistent with the Plan
-3-
<PAGE>
as may be approved by the Board of Trustees or the Committee. Such option
agreements may differ among recipients.
6. Purchase Price.
--------------
(a) General. The purchase price per share of stock deliverable
-------
upon the exercise of an option shall be determined by the Board of Trustees at
the time of grant of such option; provided, however, that in the case of an
Incentive Stock Option, the exercise price shall not be less than 100% of the
Fair Market Value (as hereinafter defined) of such stock, at the time of grant
of such option, or less than 110% of such Fair Market Value in the case of
options described in Section 11(b). "Fair Market Value" of Beneficial Shares as
of a specified date for the purposes of the Plan shall mean the closing price of
a Beneficial Share on the principal securities exchange (including the Nasdaq
National Market) on which such shares are traded on the day as of which Fair
Market Value is being determined, or on the next preceding date on which such
shares are traded if no shares were traded on such day, or if the shares are not
traded on a securities exchange, Fair Market Value shall be deemed to be the
average of the high bid and low asked prices of the shares in the
over-the-counter market on the day as of which Fair Market Value is being
determined or on the next preceding date on which such high bid and low asked
prices were recorded. If the shares are not publicly traded, Fair Market Value
of Beneficial Shares shall be determined in good faith by the Board of Trustees.
In no case shall Fair Market Value be determined with regard to restrictions
other than restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the Plan
-------------------------
may provide for the payment of the exercise price by delivery of cash or a check
to the order of the Trust in an amount equal to the exercise price of such
options, or by any other means which the Committee determines is consistent with
the purpose of the Plan and with applicable laws and regulations (including,
without limitation, the provisions of Rule 16b-3 and Regulation T promulgated by
the Federal Reserve Board).
-4-
<PAGE>
7. Option Period.
-------------
Subject to earlier termination as provided in the Plan, each
option and all rights thereunder shall expire on such date as determined by the
Board of Trustees and set forth in the applicable option agreement, provided,
that such date shall not be later than (10) ten years after the date on which
the option is granted.
8. Exercise of Options.
-------------------
Each option granted under the Plan shall be exercisable either
in full or in installments at such time or times and during such period as shall
be set forth in the option agreement evidencing such option, subject to the
provisions of the Plan. No option granted to a Reporting Person for purposes of
the Exchange Act, however, shall be exercisable during the first six months
after the date of grant. Subject to the requirements in the immediately
preceding sentence, if an option is not at the time of grant immediately
exercisable, the Board of Trustees may (i) in the agreement evidencing such
option, provide for the acceleration of the exercise date or dates of the
subject option upon the occurrence of specified events, and/or (ii) at any time
prior to the complete termination of an option, accelerate the exercise date or
dates of such option.
9. Transferability of Options.
--------------------------
Incentive Stock Options granted under the Plan shall not be
assignable in whole or in part except by will or by the laws of descent and
distribution. Options granted under this Plan which are non-statutory options
shall be assignable or otherwise transferable by the optionee in whole or in
part (i) by will or by the laws of descent and distribution, (ii) pursuant to a
qualified domestic relations order as defined in the Code, (iii) pursuant to
Title I of the Employee Retirement Income Security Act, or the rules thereunder,
(iv) to the spouse, children, grandchildren or parents of the optionee
-5-
<PAGE>
("Qualifying Relatives") or any trust created or existing for the benefit of the
optionee and/or one or more Qualifying Relatives, or (v) to any partnership or
limited liability company in which the optionee and/or one or more Qualifying
Relatives is a partner or member. The Board of Trustees or the Committee, in
their discretion, may permit the transfer of options granted under the Plan to
other persons or entities, provided that Incentive Stock Options are not
assignable or otherwise transferable except by will or the laws of descent and
distribution.
In the event an optionee dies during his employment by the
Trust or any of its subsidiaries, or during the three-month period following the
date of termination of such employment, the option shall thereafter be
exercisable, during the period specified in the option agreement, by his
executors or administrators or by any assignee or transferee to the extent to
which such option was exercisable at the time of the optionee's death during the
periods set forth in Section 10 or 11(d).
10. Effect of Termination of Employment or Other Relationship.
---------------------------------------------------------
Except as provided in Section 11(d) with respect to Incentive
Stock Options and except as otherwise determined by the Committee at the date of
grant of an Option, and subject to the provisions of the Plan, an optionee (or
any permitted assignee or transferee of an option granted hereunder), may
exercise an option at any time within three months following the termination of
the optionee's employment or other relationship with the Trust or within one (1)
year if such termination was due to the death or disability of the optionee but,
except in the case of the optionee's death, no event later than the expiration
date of the Option. If the termination of the optionee's employment is for cause
or is otherwise attributable to a breach by the optionee of an employment or
confidentiality or non-disclosure agreement, the option shall expire for all
purposes and with respect to any assignee or transferee immediately upon such
termination. The Board of Trustees shall have the power to determine what
constitutes a termination for
-6-
<PAGE>
cause or a breach of an employment or confidentiality or non-disclosure
agreement, whether an optionee has been terminated for cause or has breached
such an agreement, and the date upon which such termination for cause or breach
occurs. Any such determinations shall be final and conclusive and binding upon
the optionee and any assignee or transferee of any option granted hereunder.
11. Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be
Incentive Stock Options shall be subject to the following additional terms and
conditions:
(a) Express Designation. All Incentive Stock Options granted
-------------------
under the Plan shall, at the time of grant, be specifically designated as such
in the option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any person to whom an Incentive Stock
---------------
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Trust (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) The purchase price per Beneficial Shares subject to
such Incentive Stock Option shall not be less than 110% of the
Fair Market Value of one Beneficial Share at the time of
grant; and
(ii) the option exercise period shall not exceed five
years from the date of grant.
-7-
<PAGE>
(c) Dollar Limitation. For so long as the Code shall so
------------------
provide, options granted under the Plan (and any other incentive stock option
plans of the Trust) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for Beneficial Shares with an aggregate Fair Market Value, as of the respective
date or dates of grant, of more than $100,000.
(d) Termination of Employment, Death or Disability. No
---------------------------
Incentive Stock Option may be exercised unless, at the time of such exercise,
the optionee is, and has been continuously since the date of grant of his or her
option, employed by the Trust, except that:
(i) an Incentive Stock Option may be exercised within
the period of three months after the date the optionee ceases
to be an employee of the Trust (or within such lesser period
as may be specified in the applica ble option agreement),
provided, that the agreement with respect to such option may
--------
designate a longer exercise period and that the exercise after
such three-month period shall be treated as the exercise of a
non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the
Trust, or within three months after the optionee ceases to be
such an employee, the Incentive Stock Option may be exercised
by the person to whom it is transferred by will or the laws of
descent and distribution within the period of one year after
the date of death (or within such lesser period as may be
specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor
provisions thereto) while in the employ of the Trust, the
Incentive Stock Option may be exercised within
-8-
<PAGE>
the period of one year after the date the optionee ceases to
be such an employee because of such disability (or within such
lesser period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
---------------------
(a) Additional Option Provisions. The Board of Trustees or the
----------------------------
Committee may, in its sole discretion, include additional provisions in option
agreements covering options granted under the Plan, including without
limitation, repurchase rights, rights of first refusal, or such other provisions
as shall be determined by the Board of Trustees or the Committee as the case may
be; provided, that such additional provisions shall not be inconsistent with any
other term or condition of the Plan and such additional provisions shall not
cause any Incentive Stock Option granted under the Plan to fail to qualify as an
Incentive Stock Option within the meaning of Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board of Trustees may,
------------------------------
in its sole discretion, (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised or (ii)
extend the dates during which all, or any particular, option or options granted
under the Plan may be exercised; provided, however, that no such extension shall
be permitted if it would cause the Plan to fail to comply with Section 422 of
the Code or with Rule 16b-3 (if applicable).
<PAGE>
13. General Restrictions.
--------------------
-9
(a) Investment Representations. The Trust may require any
---------------------------
person to whom an Option is granted, as a condition of exercising such option,
to give written assurances in substance and form satisfactory to the Trust to
the effect that such person is acquiring the Beneficial Shares subject to the
option, for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Trust deems necessary or appropriate in order to comply with
federal and applicable state securities laws.
(b) Compliance With Securities Law. Each Option shall be
---------------------------------
subject to the requirement that if, at any time, counsel to the Trust shall
determine that the listing, registration or qualification of the shares subject
to such option upon any securities exchange or automated quotation system or
under any state or federal law, or the consent or approval of any governmental
or regulatory body, or that the disclosure of non-public information or the
satisfaction of any other condition is necessary as a condition of, or in
connection with the issuance or purchase of shares thereunder, such option may
not be exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall have
been effected or obtained on conditions acceptable to the Board of Trustees.
Nothing herein shall be deemed to require the Trust to apply for or to obtain
such listing, registration or qualification, or to satisfy such condition.
14. Rights as a Stockholder.
-----------------------
The holder of an option shall have no rights as a stockholder
with respect to any shares covered by the option (including, without limitation,
any rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
-10-
<PAGE>
15. Adjustment Provisions for Recapitalizations, Reorganizations
------------------------------------------------------------
and Related Transactions.
------------------------
(a) Recapitalizations and Related Transactions. If, through or
as a result of any recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar transaction, (i) the outstanding
Beneficial Shares are increased, decreased or exchanged for a different number
or kind of shares or other securities of the Trust, or (ii) additional shares or
new or different shares or other non-cash assets are distributed with respect to
such Beneficial Shares or other securities, an appropriate and proportionate
adjustment shall be made in (x) the maximum number and kind of shares reserved
for issuance under or otherwise referred to in the Plan, (y) the number and kind
of shares or other securities subject to any then outstanding options under the
Plan, and (z) the price for each share subject to any then outstanding options
under the Plan, without changing the aggregate purchase price as to which such
options remain exercisable. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Section 15 if such adjustment (i) would cause the Plan
to fail to comply with Section 422 of the Code or with Rule 16b-3 or (ii) would
be considered as the adoption of a new plan requiring stockholder approval.
(b) Reorganization, Merger and Related Transactions. All
---------------------------------------------------
outstanding Options under the Plan shall become fully exercisable for a period
of sixty (60) days following the occurrence of any Trigger Event, whether or not
such Options are then exercisable under the provisions of the applicable
agreements relating thereto. For purposes of the Plan, a "Trigger Event" is any
one of the following events:
(i) the date on which Beneficial Shares are
first purchased pursuant to a tender offer or exchange offer
(other than such an offer by the Trust, any Subsidiary, any
employee benefit plan of the Trust or of any Subsidiary or any
entity holding Beneficial Shares or other securities of the
Trust for or pursuant to the terms of such plan), whether or
not such offer
-11-
<PAGE>
is approved or opposed by the Trust and regardless of the
number of shares purchased pursuant to such offer;
(ii) the date the Trust acquires knowledge
that any person or group deemed a person under Section 13(d)-3
of the Exchange Act (other than the Trust, any Subsidiary, any
employee benefit plan of the Trust or of any Subsidiary or any
entity holding Beneficial Shares or other securities of the
Trust for or pursuant to the terms of any such plan or any
individual or entity or group or affiliate thereof which
acquired its beneficial ownership interest prior to the date
the Plan was adopted by the Board), in a transaction or series
of transactions, has become the beneficial owner, directly or
indirectly (with beneficial ownership determined as provided
in Rule 13d-3, or any successor rule, under the Exchange Act),
of securities of the Trust entitling the person or group to
30% or more of all votes (without consideration of the rights
of any class or stock to elect directors by a separate class
vote) to which all shareholders of the Trust would be entitled
if the election of the Board of Trustees were an election held
on such date;
(iii) the date, during any period of two
consecutive years, when individuals who at the beginning of
such period constitute the Board of Trustees of the Trust
cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by the stockholders of the Trust, of each new director was
approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of
such period; and
(iv) the date of approval by the
stockholders of the Trust of an agreement (a "reorganization
agreement") providing for:
-12-
<PAGE>
(A) The merger or consolidation of the Trust
with another corporation or real estate investment trust where
the stockholders of the Trust, immediately prior to the merger
or consolidation, do not beneficially own, immediately after
the merger or consolidation, shares of the entity issuing cash
or securities in the merger or consolidation entitling such
shareholders to 80% or more of all votes (without
consideration of the rights of any class of stock to elect
directors by a separate class vote) to which all stockholders
of such corporation would be entitled in the election of
directors or where the members of the Board of Trustees of the
Trust, immediately prior to the merger or consolidation, do
not, immediately after the merger or consolidation, constitute
a majority of the Board of Directors or Board of Trustees of
the entity issuing cash or securities in the merger or
consolidation; or
(B) The sale or other disposition of all or
substantially all the assets of the Trust.
(c) Board Authority to Make Adjustments. Any adjustments under
this Section 15 will be made by the Board of Trustees or the Committee, whose
determina tion as to what adjustments, if any, will be made and the extent
thereof will be final, binding and conclusive. No fractional shares will be
issued under the Plan on account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
---------------------------------------------------
(a) General. In the event of any sale, merger, transfer or
acquisition of the Trust or substantially all of the assets of the Trust in
which the Trust is not the surviving entity, and provided that after the Trust
shall have requested the acquiring or succeeding entity (or an affiliate
thereof), that equivalent options shall be substituted and such successor entity
shall have refused or failed to assume all options outstanding
-13-
<PAGE>
under the Plan or issue substantially equivalent options, then any or all
outstanding options under the Plan shall accelerate and become exercisable in
full immediately prior to such event. The Committee will notify holders of
options under the Plan that any such options shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the options will
terminate upon expiration of such notice.
(b) Substitute Options. The Trust may grant options under the
------------------
Plan in substitution for options held by employees of another entity who become
employees of the Trust, or a subsidiary of the Trust, as the result of a merger
or consolidation of the employing entity with the Trust or a subsidiary of the
Trust, or as a result of the acquisition by the Trust, or one of its
subsidiaries, of property or stock of the employing entity. The Trust may direct
that substitute options be granted on such terms and conditions as the Board of
Trustees considers appropriate in the circumstances.
17. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or in any option shall confer
upon any optionee any right with respect to the continuation of his or her
employment by the Trust or interfere in any way with the right of the Trust at
any time to terminate such employment or to increase or decrease the
compensation of the optionee.
18. Other Employee Benefits.
-----------------------
Except as to plans which by their terms include such amounts
as compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Trustees.
-14-
<PAGE>
19. Amendment of the Plan.
---------------------
(a) The Board of Trustees may at any time, and from time to
time, modify or amend the Plan in any respect; provided, however, that if at any
time the approval of the stockholders of the Trust is required under Section 422
of the Code or any successor provision with respect to Incentive Stock Options,
the Board of Trustees may not effect such modification or amendment without such
approval.
(b) The modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected, the
Board of Trustees may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Trustees shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions of
the Plan and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
20. Withholding.
-----------
(a) The Trust shall have the right to deduct from payments of
any kind otherwise due to the optionee any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued upon
exercise of options under the Plan. Subject to the prior approval of the Trust,
which may be withheld by the Trust in its sole discretion, the optionee may
elect to satisfy such obligations, in whole or in part, (i) by causing the Trust
to withhold Beneficial Shares otherwise issuable pursuant to the exercise of an
option or (ii) by delivering to the Trust Beneficial Shares already owned by the
optionee. The shares so delivered or withheld shall have a Fair Market Value
-15-
<PAGE>
equal to such withholding obligation as of the date that the amount of tax to be
withheld is to be determined. An optionee who has made an election pursuant to
this Section 20(a) may only satisfy his or her withholding obligation with
Beneficial Shares which are not subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements.
(b) The acceptance of Beneficial Shares upon exercise of an
Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Trust if any or all of such shares are disposed of by the optionee
within two years from the date the option was granted or within one year from
the date the shares were issued to the optionee pursuant to the exercise of the
option, and (ii) if required by law, to remit to the Trust, at the time of and
in the case of any such disposition, an amount sufficient to satisfy the Trust's
federal, state and local withholding tax obligations with respect to such
disposition, whether or not, as to both (i) and (ii), the optionee is in the
employ of the Trust at the time of such disposition.
(c) Notwithstanding the foregoing, in the case of a Reporting
Person whose options have been granted in accordance with the provisions of
Section 3(b) herein, no election to use shares for the payment of withholding
taxes shall be effective unless made in compliance with any applicable
requirements of Rule 16b-3.
21. Cancellation and New Grant of Options, Etc.
-------------------------------------------
The Board of Trustees shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees, (i)
the cancellation of any or all outstanding options under the Plan and the grant
in substitution therefor of new options under the Plan covering the same or
different numbers of shares and having an option exercise price per share which
may be lower or higher than the exercise price per share of the cancelled
options or (ii) the amendment of the terms of any and all outstanding options
under the Plan to provide an option exercise price per share which
-16-
<PAGE>
is higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
----------------------------------------
(a) Effective Date. The Plan shall become effective when
---------------
adopted by the Board of Trustees, but no Incentive Stock Option granted under
the Plan shall become exercisable unless and until the Plan shall have been
approved by the Trust's stockholders. If such stockholder approval is not
obtained within twelve months after the date of the Board's adoption of the
Plan, no options previously granted under the Plan shall be deemed to be
Incentive Stock Options and no Incentive Stock Options shall be granted
thereafter. Amendments to the Plan not requiring stockholder approval shall
become effective when adopted by the Board of Trustees; amendments requiring
shareholder approval (as provided in Section 21) shall become effective when
adopted by the Board of Trustees, but no Incentive Stock Option granted after
the date of such amendment shall become exercisable (to the extent that such
amendment to the Plan was required to enable the Trust to grant such Incentive
Stock Option to a particular optionee) unless and until such amendment shall
have been approved by the Trust's stockholders. If such stockholder approval is
not obtained within twelve months of the Board's adoption of such amendment, any
Incentive Stock Options granted on or after the date of such amendment shall
terminate to the extent that such amendment to the Plan was required to enable
the Trust to grant such option to a particular optionee. Subject to this
limitation, options may be granted under the Plan at any time after the
effective date and before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with
-----------
Section 16, the Plan shall terminate upon the earlier of (i) the close of
business on the day next preceding the tenth anniversary of the date of its
adoption by the Board of Trustees, or (ii) the date on which all shares
available for issuance under the Plan shall have been issued pursuant to the
exercise or cancellation of options granted under the
-17-
<PAGE>
Plan. If the date of termination is determined under (i) above, then options
outstanding on such date shall continue to have force and effect in accordance
with the provisions of the instruments evidencing such options.
23. Governing Law.
-------------
The provisions of this Plan shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts.
Adopted by the Board of Trustees on December 6, 1996
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<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,217
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0
0
<COMMON> 26,795
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