<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
Commission File Number 0-5641
------
CleveTrust Realty Investors
---------------------------
(Exact name of Registrant as specified in its charter)
Massachusetts 34-1085584
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Crocker Road, Suite 400, Westlake, Ohio 44145
-------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 899-0909
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest, $1.00 Par Value
----------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X .
---
At December 2, 1996, 5,136,616 Shares of Beneficial Interest, par value $1.00
per Share, were outstanding, and the aggregate market value of the Shares of the
Registrant held by non-affiliates (based upon the closing price of the
Registrant's Shares on December 2, 1996, which was $4.875) was approximately
$7,128,000. For purposes of this information, the outstanding Shares
beneficially owned by all Trustees and Officers of the Registrant, were deemed
to be the shares held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the CleveTrust Realty Investors Proxy Statement for the 1997 Annual
Meeting of Shareholders (the "Proxy Statement") are incorporated by reference
into Part III of this report. With the exception of those portions which are
expressly incorporated by reference into this annual report on Form 10-K, the
documents incorporated by reference are not deemed filed as part of this report.
<PAGE> 2
PART I
------
Item 1. Business.
- -------- ---------
General:
- --------
CleveTrust Realty Investors (the "Trust") is a business trust organized in
Massachusetts which commenced operations in 1971. The Trust's assets are
composed principally of investments in real estate. The Trust directly manages
all of its improved properties. At September 30, 1996 the Trust had 19 full-time
employees.
On September 24, 1996 the Board of Trustees of the Trust unanimously voted to
recommend a Plan for the Orderly Liquidation of the Trust (the "Plan"). The
Plan, as proposed, would involve the sale of the Trust's properties during a
period of approximately three years. The Trustees will also consider proposals
for a merger, combination or sale of all or a portion of its properties in a
single transaction. The Plan will be submitted for approval by the Shareholders
of the Trust at the Annual Meeting to be held in February, 1997. The Trustees,
who in the aggregate own more than 70 percent of the outstanding shares of the
Trust, have agreed to vote their shares in favor of the Plan.
Portfolio:
- ----------
At September 30, 1996, the Trust's investment portfolio consisted primarily of
ownership interests in eight multi-tenanted office buildings, four
multi-tenanted shopping centers, and one retail center (collectively, the
"Properties"). Based on the above referenced announcement of the Plan, the Trust
has classified all of its Properties as "Properties held for sale" at September
30, 1996, in accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" ("SFAS No. 121"). The Trust made a review of the carrying value of
all the Properties at September 30, 1996 and determined that four of the Trust's
Properties had a carrying value higher than the anticipated net sales prices.
Therefore a valuation reserve of $3,307,000 was established. In determining the
estimated net sales prices the Trust applied an estimated capitalization rate to
the individual properties' cash flow. The Trust did not deem it necessary to
obtain appraisals of any of its properties. See Item 2 of Part I for allocation
of the valuation reserve. The significant investment portfolio activity of the
last three fiscal years is discussed under Item 7 of Part II below. Information
pertaining to the operating revenues, operating income or loss and total assets
of the Trust for each of the last three fiscal years is provided under Item 6 of
Part II below.
The Trust's primary business objective will be to sell the Trust's assets for
the highest possible price. The proceeds from these sales will be distributed to
the Shareholders after establishment of reserves, determined by Management of
the Trust which should be adequate so as to satisfy outstanding obligations of
the Trust. In order to sell the properties for the highest prices the Trust has
reviewed its operating strategy and implemented one that is intended to achieve
the Trust's business objective. One focus of this operating strategy is to
maximize funds from operations from each of the Trust's Properties, thereby
enhancing their value, through (i) rental rate increases, to the extent that
competitive conditions permit; (ii) improvements in tenant retention; (iii)
emphasis on expense controls consistent with the proper maintenance of the
Properties; and (iv) strategic capital investments in order to increase the
competitive position of the Properties. The Trust also believes that funds from
operations from its investments may increase as a result of cyclical market
recoveries and growth. The Trust strives to maintain operating expenses at its
Properties at the lowest practical levels given the need to adequately operate
and maintain its Properties, the majority of which were constructed in the
mid-1970's to mid-1980's. Maintenance is emphasized because it is considered
critical to the appreciation of the Properties.
-1-
<PAGE> 3
PART I
------
Item: 1. Business (continued):
- -------- ----------------------
The second focus of the Trust's operating strategy will be to find buyers for
the properties. The Trust has contacted and will continue to contact certain
principals to see if a direct sale can be initiated. If the Trust is unable to
find buyers by itself, then the trust will engage licensed real estate agents to
seek buyers on behalf of the Trust. The Trust has established targeted sales
prices for each of the Properties and will make every attempt to achieve or
exceed these prices during the liquidation period. However, no assurances may be
given that any or all of the Properties will be sold for the targeted prices
established by the Trust or will be sold at all.
On October 7, 1996 the Trust completed a $2,450,000 sale of the Littleton Bank
Building located in Littleton, Colorado. The sale resulted in a gain of
approximately $563,000 which will be reported in the first quarter of fiscal
year 1997. Additionally, the Trust currently has four of its properties under
contracts of sale. The Englewood Bank Building located in Englewood, Colorado is
under a contract of sale for a sales price of $5,350,000. The Executive Club
Building located in Denver, Colorado is under a contract of sale for $5,300,000.
The Spring Village Shopping Center located in Davenport, Iowa is under a
contract of sale for a sales price of $5,350,000. The Warren Plaza Shopping
Center located in Dubuque, Iowa is under a contract of sale for a sales price of
$5,950,000. All four of these contracts provide for "due diligence" periods,
during which time the buyer could cancel the contract at his option. After the
completion of the due diligence period the buyer will place a non-refundable
deposit with the Trust. Should the buyers fail to complete the sale these
deposits would be forfeited and retained by the Trust. However, no assurance may
be given that these properties will actually be sold at the prices stated. Also,
the Trust has signed letters of intent with various buyers for the sale of three
additional properties. The total gross sales prices for these three properties
is $15,640,000. Letters of intent are only agreements in principle on the most
fundamental terms and the parties do not intend that there be any binding
obligation to buy or sell the property until such time as a contract of sale is
executed by both the buyer and the Trust. In all cases, the sales prices exceed
the carrying value or the net book value of the properties.
The Trust's portfolio of Properties has generated sufficient revenue to cover
all operating expenses (excluding depreciation, a non-cash expense and in 1996
the provision for valuation reserve, also a non-cash expense), amortization of
mortgage notes payable, required amortization of bank notes payable, and capital
improvements to existing properties.
Financing and Leverage:
- -----------------------
The Trust used borrowed funds in purchasing certain properties which the Trust
believes has helped to improve the Trust's return on investment in these
properties. At September 30, 1996 two of the Trust's investments were leveraged
with long-term non-recourse individual mortgage financing and one property was
leveraged with a $2,612,000 loan of which the first $750,000 is recourse and the
balance is non-recourse. At September 30, 1996 six of the Trust's remaining
improved properties served as collateral for the Trust's bank notes payable. See
Note F of the Notes to the Financial Statements presented in Part II, Item 8 of
this report.
Effective November 30, 1994 the Trust and two banks, National City Bank of
Cleveland ("NCB") and Manufacturer's and Traders Trust Company of Buffalo ("M &
T") signed a revolving line of credit agreement for up to $25,000,000 (but
limited by the value of the collateral provided). Of this amount a maximum of
$15,000,000 is currently available and $10,000,000 will be available at the
Trust's discretion upon payment of an activation fee of 3/4 of 1% on the
$10,000,000. This loan was for an initial term of three years. The banks review
the loan annually, and if satisfied, they extend the loan for an additional year
at that time. During 1996 the banks extended the maturity date to March 1, 1999.
Therefore, the Trust will
-2-
<PAGE> 4
PART I
------
Item 1. Business (continued):
- -------- ----------------------
have an annually renewed three year loan or two years in which to replace the
loan. At the Trust's option interest on any loan will be at any of the following
rates (i) the prime lending rate plus 1/4 of 1%; (ii) 250 basis points over the
LIBOR rate; or (iii) NCB's fixed rate of interest in effect from time to time.
Real Estate Market Conditions:
- ------------------------------
Investments in real estate equities tend to be long term investments, and
accordingly, tend to limit the ability of the Trust to vary its portfolio of
real estate owned promptly in response to changing economic, financial and
investment conditions, such as overbuilding in certain markets and the resulting
intense competition for tenants. Although the Trust requires leases from all
tenants occupying space in its properties, in the event of a default by a
tenant, the Trust may modify the lease terms or evict the tenant. Tenant
evictions result in increased expenses and the possibility of lost rents until
the space is re-leased.
The tenant occupying the largest amount of space in any of the Trust's
Properties currently pays rent totaling $974,000 or 9.2% of the Trust's 1996
total revenues. This tenant has a lease which matures September 30, 2005 but the
lease contains six 10-year option provisions at the tenant's discretion which,
if exercised, would extend the maturity date to September 30, 2065. The rent
paid by this tenant is subject to an annual adjustment based on the increase or
decrease in operating expenses of the property.
The Trust, in order to remain competitive, leases space at its properties at
rates which are dictated by the market in which the property exists. The market
rates, which are quoted to both new tenants and tenants who are renewing their
leases, were at their highest levels in the early 1980's. These rates began to
decline at most of the properties in 1984 and continued to decline through 1988.
At that time, the market rates at all of the Trust's properties were at their
lowest levels. Since 1989, the market rates have tended to increase. In 1996 the
market rates at the majority of the properties were higher than those in 1988
but have not returned to the high rates that existed in 1983. The Trust is
encouraged by the current trends in rates. Additionally, the majority of leases
at the Properties include provisions for the tenant to pay additional rent if
operating expenses of the property increase.
Taxes:
- ------
Through fiscal 1992 the Trust qualified as a real estate investment trust (a
"REIT") as defined by Sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code"). Effective April 1, 1993 the Trust automatically
failed to qualify as a REIT under the Code as on such date more than 50% in
value of the Trust's shares (after the application of certain constructive
ownership rules) were owned by five or fewer individuals.
Although the Trustees had the right pursuant to Section 8.5 of the Declaration
of Trust to prevent the transfer, and/or call for the redemption of, securities
of the Trust sufficient in the opinion of the Trustees to meet requirements for
REIT status, the Trustees in their discretion determined that maximizing
proceeds from the December 1992 rights offering (the "1992 Rights Offering")
outweighed the benefits of REIT status. The primary impact on the Trust as a
result of the failure to qualify as a REIT was that the Trust is now required to
file its federal and state income tax returns as a corporation and is subject to
taxation as a corporation. As a result, distributions to shareholders are
subject to double taxation to the extent of current and accumulated earnings and
profits of the Trust. The Trust will not be able to re-qualify as a REIT until
fiscal year 1998. At September 30, 1996 the Trust has net operating and capital
loss carryforwards (NOL's) of approximately $10.2 million available to offset
taxable income. In future years, the Trust can use approximately $298,000 per
year of NOL's, plus it can apply gains on the sales of properties ("built in
-3-
<PAGE> 5
PART I
------
Item 1. Business (continued):
- ------- ---------------------
gains") for those properties which were owned by the Trust on December 28, 1992,
plus any prior year's unused portion (limited by carryforward periods) for NOL's
generated prior to December, 28, 1992. The Trust can also use NOL carryforwards
generated after December 28, 1992. These carryforwards of approximately $9.5
million expire through 2011. The balance of the carryforwards of $700,000 may be
recognized for a period through fiscal 1998 against built in gains, if any, to
the extent that fair market values of these properties exceeded their tax bases
as of December 28, 1992.
Once the Plan is approved, distributions to shareholders will be considered
liquidating distributions and reported as return of capital to shareholders to
the extent of the individual shareholders basis in their shares. Shareholders
are encouraged to consult their tax advisors for information concerning these
distributions.
Competition and Limited Resources:
- ----------------------------------
The Trust's Properties are subject to competition from similar types of
properties in the vicinities in which they are located. Additionally, the Trust
is relatively small in comparison to many of its competitors. This size limits
the Trust's resources and may limit its ability to compete effectively in the
geographic markets in which the Trust owns property. However, since the Trust's
objective is to sell its properties, the Trust will concentrate its efforts on
being able to satisfy the requirements of prospective tenants so that they lease
space in the Trust's Properties rather than the competitors'.
-4-
<PAGE> 6
PART I
------
Item 2. Properties.
- ------- -----------
General:
- --------
At September 30, 1996 the Trust had total invested assets of $39,015,000. The
invested assets included $38,896,000 of properties held for sale and $119,000 of
real estate mortgage loans.
The Trust's $38,896,000 of properties held for sale at September 30, 1996
included the following: eight office buildings with a carrying value of
$20,304,000; five commercial properties with a carrying value of $18,552,000;
and one investment in land with a carrying value of $40,000. Carrying value
represents amounts included in the Trust's Statement of Financial Condition at
September 30, 1996 after depreciation and the valuation reserve. On September
24, 1996 the Trustees of the Trust announced that they unanimously voted to
recommend a Plan for the Orderly Liquidation (the "Plan") of the Trust. Since
the Trust had previously adopted Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of" ("SFAS No. 121") the Trust, effective September 30, 1996,
classified all real estate owned as "Properties held for sale." A review of the
properties at September 30, 1996 determined that four properties required a
valuation reserve, as the market values, less cost to sell, of these properties
were less than their carrying value. Therefore a valuation reserve of $3,307,000
was established. In determining the estimated net sales prices the Trust applied
an estimated capitalization rate to the individual properties' cash flow. The
Trust did not deem it necessary to obtain appraisals of any of its properties.
Management will from time to time undertake a major renovation of a Property in
order to keep it competitive within its market. Currently, the Cannon West
Shopping Center located in Austin, Texas is having a trench drain installed at a
cost of approximately $150,000. This work is being done in order to combat a
sub-soil problem at the property. Management believes that the installation of
this trench drain will alleviate the problem. The cost of this work will be
reported in the first two quarters of fiscal year 1997. Additionally, Management
is reviewing plans for the installation of new store fronts at Tiffany Plaza, a
shopping center located in Ardmore, Oklahoma. The current estimated cost of this
work is $250,000. If the Trust proceeds with this work it should begin in the
spring of 1997.
In the opinion of Management, all Properties in the Trust's portfolio are
adequately covered by insurance. Additionally, Management believes all
properties are suitable and adequate for their intended use.
The amount of leverage varies among the Properties which the Trust owns. At
September 30, 1996 two of the Trust's Properties were leveraged with long-term
non-recourse individual mortgage financing and one property was leveraged with a
$2,612,000 loan of which the first $750,000 is recourse and the balance is
non-recourse. Additionally, as of September 30, 1996 six of the Trust's
remaining investments serve as collateral for the Trust's bank notes payable.
At September 30, 1996 the Trust owned two real estate mortgage loans with a
total balance of $119,000. Both loans are purchase money mortgages received by
the Trust in connection with sales of vacant land in Akron, Ohio. The first was
a $290,000 loan received in connection with the $834,000 March, 1994 sale of 70
acres. The second was a $212,000 loan received in connection with the $212,000
May, 1994 sale of 17.7697 acres.
-5-
<PAGE> 7
<TABLE>
<CAPTION>
PART I
------
Item 2. Properties (Continued):
- --------------------------------------
Properties Held for Sale:
- --------------------------------------
The following table analyzes the properties held for sale at September 30, 1996 by type of property.
Percentage
Year Leased Square Total Accumulated Valuation Mortgage
Description Acquired (A) (B) Footage Cost Depreciation Reserve Debt
- -------------------------------------- ---------------------------------------------------------------------------------------
OFFICE BUILDINGS: (-------------in thousands------------------)
Colorado:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Englewood Bank Bldg. - Englewood (C)(E) 1971 97% 129,000 $6,103 $3,108 $0 $0
Executive Club Bldg. - Denver (F) 1972 73 96,000 4,623 2,966 0 0
Littleton Bank Bldg. - Littleton (D) 1973 99 58,000 3,166 1,398 0 1,209
Oklahoma:
Petroleum Club Bldg. - Tulsa (G) 1972 82 115,000 6,959 4,408 551 0
Texas:
Walnut Stemmons O. P. - Dallas (H) 1975 71 60,000 2,452 1,792 0 0
Office Alpha - Dallas (I) 1983 90 103,000 11,048 3,502 2,546 0
14800 Quorum Bldg. - Dallas (J) 1994 92 104,000 4,312 272 0 2,612
Brookside Office Bldg. - Arlington(K) 1996 100 44,000 2,208 24 0 0
---------------------------------------------------------------------------
TOTAL OFFICE BUILDINGS: 88 709,000 40,871 17,470 3,097 3,821
COMMERCIAL PROPERTIES:
South Carolina:
Triangle Square - Hilton Head (L) 1976 87 93,000 1,911 1,104 0 0
Texas:
Cannon West - Austin (M) 1987 95 123,000 8,225 2,174 0 5,742
Iowa:
Spring Village - Davenport (N) 1987 99 103,000 5,579 1,078 0 0
Warren Plaza - Dubuque (O) 1987 98 90,000 5,367 1,174 0 0
Oklahoma:
Tiffany Plaza - Ardmore (P) 1989 98 147,000 4,081 948 133 0
---------------------------------------------------------------------------
TOTAL COMMERCIAL PROPERTIES: 96 556,000 25,163 6,478 133 5,742
LAND:
Ohio:
Vacant land - Akron 1975 N/A N/A 117 N/A 77 0
---------------------------------------------------
TOTAL PROPERTIES HELD FOR SALE $66,151 $23,948 $3,307 $9,563
===================================================
</TABLE>
-6-
<PAGE> 8
PART I
------
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued):
- -----------------------------------------
(A) At September 30, 1996 the Trust had 338 tenants under lease in its office
buildings (excluding the Littleton Bank Bldg., Littleton Colorado which
was sold October 7, 1996), and its commercial properties, all of which
are shopping centers, with Triangle Square also having mini-warehouse
facilities behind the retail area (excluding the mini warehouses at
Triangle Square). These tenants are under leases of one year or more.
Additionally, the Trust had 215 month-to-month leases for mini-warehouse
spaces at Triangle Square.
(B) The following lists individually those tenants who occupy 10,000 square
feet or more, and whose original lease terms expire five years or more
from September 30, 1996. Seventeen (17) other tenants occupy less than
10,000 square feet and have leases which expire in five years or more
from September 30, 1996. These are grouped together and shown as "Others"
on the table below:
<TABLE>
<CAPTION>
Expiration Square Annual
Property Tenant Date Footage Base Rent
- --------------- -------------- ----------- ------- ---------
<S> <C> <C> <C> <C>
Englewood Bank Bank One, Denver 9/30/2005 108,000 $ 974,000
Petroleum Club Petroleum Club 4/30/2003 25,000 157,000
Cannon West Premiere Lady's Fit 8/31/2001 15,000 68,000
Cannon West H. E. Butt 10/05/2001 50,000 250,000*
Spring Village Eagle Foods 6/30/2005 46,000 204,000*
Spring Village Bombay Rest. 1/31/2011 10,000 98,000*
Spring Village Walgreens 11/30/2010 11,000 67,000*
Spring Village I. H. Miss 11/30/2011 10,000 34,000
Warren Plaza HY-VEE 9/08/2013 52,000 256,000*
Tiffany Plaza Orscheln Farm 8/31/2001 30,000 102,000
Tiffany Plaza Fleming Companies 3/20/2001 42,000 87,000*
Tiffany Plaza C. R. Anthony 3/07/2001 24,000 69,000*
14800 Quorum Preston 3/21/2002 13,000 131,000
Brookside Schrickel, Rollins 8/31/2003 15,000 169,000
Various Others Various 45,000 460,000*
---------- ----------
496,000 $3,126,000
========== ==========
<FN>
* Leases marked with an asterisk have additional rent provisions
to be paid based on a percentage of the gross sales over a base
sales figure.
</TABLE>
All leases listed on the table are subject to an annual adjustment in
rent based on the increase or decrease in the operating expenses of
the Property.
The annual base rents of the tenants listed in the table equal 30% of
the total 1996 rental income, and these tenants occupy 496,000 square
feet (45%) of the total 1,100,000 square feet (excluding the Littleton
Bank Bldg. which was sold October 7, 1996) currently occupied. The
remaining 604,000 square feet are occupied by 307 tenants. These tenants'
leases expire during the next five years. The loss of rentals from any
one of these leases, if the Trust would not be able to renew or replace,
would not have a significant effect on the Trust's operations.
(C) The following is the only tenant who occupies 50% or more of a Property:
Englewood Bank Building -- Bank One, Denver -- 108,000 sq. ft. (84%).
-7-
<PAGE> 9
PART I
------
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued):
- ----------------------------------------
(D) The Littleton Bank Building was sold on October 7, 1996. The sale
resulted in a gain of approximately $563,000 which will be reported in
the first quarter of Fiscal Year 1997.
(E) ENGLEWOOD BANK BUILDING. The Englewood Bank Building is located in
Englewood, Colorado. The building contains 10 stories and is suitable and
adequate for its use as a bank and office building.
The main tenant is Bank One, Denver which occupies 84% of the building.
The balance of the building is primarily leased to small service or
professional organizations for use as general offices. The Trust's policy
is to sign leases of three to five years in order to take advantage of
changes in the market.
The Trust has been notified by the City of Englewood that the City has
recently passed a law that would require the Trust to install a sprinkler
system and fire pull stations on every floor of this property. The law
requires that this work be done over a five (5) year period starting in
1997. The Trust is currently reviewing all of its options relating to
this required work. At this time the Trust does not have any estimates as
to the costs that would be involved in undertaking this work. Other than
this required work there are no other significant renovations planned for
this property beyond normal maintenance and repairs and tenant
improvements done in conjunction with the leasing of space.
The Englewood Bank Building is subject to limited direct competition from
comparable office projects in the general vicinity. There is only one
competing high-rise office building in the area of similar size, quality,
condition and location to the Englewood Bank Building. Other competing
projects consist of low-rise office buildings and converted retail space
generally considered to be of lesser quality.
The occupancy rates for the fiscal years ended September 30, 1992 through
1996 were as follows: 89% in 1992, 91% in 1993, 98% in 1994, 97% in 1995
and 1996 . The Property's average rental rate per occupied square foot
for the same period was $6.65 in 1992, $6.69 in 1993, $6.80 in 1994,
$6.63 in 1995, and $6.67 in 1996.
Bank One, Denver is the only tenant occupying over 10% of the rentable
space. Its annual rent is currently $974,000 but is subject to an annual
adjustment based on increases or decreases in property expenses. This
lease expires September 30, 2005 and has six ten-year renewal options
available.
Based upon leases in place at September 30, 1996 lease expirations for
the next ten fiscal years ended September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base Rents
Year Expiring Expiring Rents Expiring at 9/30/96
---- -------- -------- -------------- ----------
<S> <C> <C> <C> <C>
1997 5 7,738 $ 79,356 7%
1998 2 1,826 19,824 2
1999 3 8,051 77,892 7
2000 - 2004 NONE
2005 1 107,663 973,690 84
2006 NONE
</TABLE>
-8-
<PAGE> 10
PART I
------
Item 2 Properties (Continued):
- ------ -----------------------
Investments in Real Estate: (Continued)
- ---------------------------------------
The Englewood Bank Building is depreciated for tax purposes using the
straight line method over 40 years for the building and improvements. The
depreciable tax basis was $1,896,000 at September 30, 1996. The 1995 real
estate taxes for the Property were $107,539 based on a millage rate of
$8.252 per $1,000 of assessed value. The 1996 real estate taxes are not
yet known.
(F) EXECUTIVE CLUB BUILDING. The Executive Club Building is located in
Denver, Colorado. The building contains eleven floors and has a health
club, which includes a swimming pool, located in the basement. The
building is suitable and adequate for its use as an office building.
Space in the building is leased to service and professional organizations
for use as general offices. The Trust's policy is to sign new leases with
new and renewal tenants for periods of three to five years in order to
take advantage of changes in the market.
Presently, the Trust has no plans for any significant renovations of the
property beyond normal maintenance and repairs and tenant improvements
done in conjunction with the leasing of space within the Property.
There are numerous office buildings in the direct vicinity, some of
higher quality, and numerous projects of similar age, condition and
quality that directly compete with the Executive Club Building. The Trust
believes that the advantage that this building has is that the building
caters to small tenant users, while the majority of the properties in the
area prefer larger tenants.
Occupancy for the fiscal years ended September 30, 1992 through 1996 was
as follows: 92% in 1992; 97% in 1993 and 1994; 93% in 1995 and 73% in
1996. The Property's average rental rates per occupied square foot for
the same periods were: $9.69 in 1992; $9.55 in 1993; $10.15 in 1994;
$11.63 in 1995 and $11.78 in 1996.
There are no tenants in this property occupying 10% or more of the space.
Based upon leases in place as of September 30, 1996 lease expirations for
the next ten fiscal years ended September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/96
---- -------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
1997 32 33,353 $392,920 42%
1998 20 21,688 253,392 27
1999 14 20,722 247,224 26
2000 1 1,282 15,120 2
2001 NONE
2002 1 2,169 27,108 3
2003-2006 NONE
</TABLE>
-9-
<PAGE> 11
PART I
------
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued)
- ---------------------------------------
The Executive Club Building is depreciated for tax purposes using the
straight line method with the building and improvements having a 40 year
life. The depreciable tax basis was $1,862,000 at September 30, 1996. The
1995 real estate taxes for the Property were $79,693 based on a millage
rate of $8.1161 per $1,000 of assessed value. The 1996 real estate taxes
are not yet known.
(G) PETROLEUM CLUB BUILDING. The Petroleum Club Building is located in Tulsa,
Oklahoma. The building contains sixteen floors with an attached four
level parking garage which is leased out to American Parking for an
annual rent plus a percentage rent determined at the end of each year and
offers valet, self parking both covered and uncovered. The building is
suitable and adequate for its use as an office building.
The main tenant is The Petroleum Club which occupies the top four floors.
The balance of the building is leased to service and professional
organizations for use as general offices. The Trust's policy is to sign
new leases with new and renewal tenants for periods of three to five
years in order to take advantage of changes in the market.
Presently, the Trust has no plans for any significant renovations of the
property beyond normal maintenance and repairs and tenant improvements
done in conjunction with the leasing of space within the Property.
This property is located in the downtown area of Tulsa and, as such,
there are numerous office buildings in the direct vicinity, some of
higher quality, and numerous projects of similar age, condition and
quality that directly compete with the Petroleum Club Building. The floor
size of this property is only 7,800 square feet and as such the Trust can
offer small tenants a substantial portion of a floor without the tenant
competing with larger tenants who usually dominate downtown office space.
Despite the stagnate economy of Tulsa, which depends primarily on the oil
and gas industry, the Trust has made strides in recent years in
increasing the occupancy of this property. One recent benefit has been
the Petroleum Clubs willingness to open its membership to others outside
of the petroleum industry. The majority of the tenants in the building
now belong to the Club.
Occupancy for the fiscal years ended September 30, 1992 through 1996 was
as follows: 75% in 1992; 72% in 1993; 78% in 1994; 81% in 1995; and 82%
in 1996. The property's average rental rates per occupied square foot for
the same periods were: $8.47 in 1992; $8.69 in 1993; $7.84 in 1994; $8.22
in 1995; and $8.84 in 1996.
There are no tenants in this property occupying 10% or more of the space.
-10-
<PAGE> 12
PART I
------
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued)
- ---------------------------------------
Based upon leases in place as of September 30, 1996 lease expirations for
the next ten fiscal years ended September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/96
---- -------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
1997 17 36,054 $366,996 40%
1998 3 6,346 132,444(i) 14
1999 7 24,255 223,872 24
2000 NONE
2001 1 5,741 47,364 5
2002 NONE
2003 1 24,579 155,040 17
2004-2006 NONE
<FN>
(i) Includes $69,780 for American Parking who leases the garage. Their
lease expires March 31, 1998. There is no square footage included for
this tenant.
</TABLE>
The Petroleum Club Building is depreciated for tax purposes using the
straight line method with the building and improvements having a 40 year
life. The depreciable tax basis was $2,618,000 at September 30, 1996. The
1995 real estate taxes for the Property were $27,558 based on a millage
rate of $10.021 per $1,000 of assessed value. The 1996 real estate taxes
are not yet known.
(H) WALNUT STEMMONS OFFICE PARK. Walnut Stemmons Office Park is located in
Dallas, Texas. The complex is currently composed of three single story
buildings. This property originally was composed of nine single story
buildings. Four of the buildings were sold in November, 1992. Two more
buildings were sold September 30, 1996. All six buildings were sold to
the same buyer. The remaining three buildings all have exterior entrances
for the tenants, with no common areas.
Space in the buildings is leased to small businesses, the majority of
which are just commencing operations. The Trust's policy is to sign three
to five year leases with both new and renewal tenants with the tenant
being responsible for all services within their space, such as,
electricity and cleaning.
Presently, the Trust has no plans for any significant renovations of the
property beyond normal maintenance and repairs and tenant improvements
done in conjunction with the leasing of space within the Property.
There are similar properties in the immediate area of this Property. The
surrounding area features restaurants, a bowling alley, and a
chiropractic college. Since this property is primarily leased to first
time businesses, there is significant turnover. The Trust believes that
these three buildings will be purchased by the same buyer who purchased
the other six buildings.
Occupancy for the fiscal years ended September 30, 1992 through 1996 was
as follows: 73% in 1992; 97% in 1993; 86% in 1994; 79% in 1995; and 71%
in 1996. The Property's average rental rates per occupied square foot for
the same periods were: $5.09 in 1992; $4.62 in 1993; $5.11 in 1994; $5.34
in 1995; and $5.38 in 1996.
-11-
<PAGE> 13
PART I
------
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued)
- ----------------------------------------
There are no tenants in this property occupying 10% of more of the space.
Based upon leases in place at September 30, 1996 lease expirations for the
next ten fiscal years ended September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/96
---- -------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
1997 10 15,443 $ 74,772 33%
1998 5 7,105 41,772 18
1999 5 11,426 66,576 29
2000 2 8,531 32,004 14
2001 1 1,875 11,244 6
2002-2006 NONE
<FN>
Walnut Stemmons Office Park is depreciated for tax purposes using the
straight line method with the building and improvements having a 40 year
life. The depreciable tax basis was $643,000 at September 30, 1996. The
1995 real estate taxes for the Property were $53,755 based on a millage
rate of $2.56 per $100 of assessed value. The 1996 real estate taxes are
not yet known.
</TABLE>
(I) OFFICE ALPHA. Office Alpha is located in the North-Dallas LBJ-East office
market of Dallas, Texas. Office Alpha contains five stories and is
suitable and adequate for its use as an office building.
Space in the building is leased to service and professional organizations
for use as general offices. The Trust's policy is to sign leases with new
and renewal tenants for periods of three to five years in order to take
advantage of changes in the market.
Presently, the Trust has no plans for any significant renovations of the
Property beyond normal maintenance and repairs and tenant improvements
done in conjunction with the leasing of space within the Property.
There are numerous office buildings in the direct vicinity, some of
higher quality, and numerous projects of similar age, style, condition
and quality that directly compete with Office Alpha. Leasing proposals
for both new and renewal tenants in this submarket are highly
competitive. Many of the Trust's competitors in this submarket have
substantially greater capital and resources than the Trust.
Occupancy for the fiscal years ended September 30, 1992 through 1996 was
as follows: 73% for 1992; 84% for 1993; 83% for 1994; 91% for 1995; and
90% for 1996. The Property's average rental rates per occupied square
foot for the same period were: $9.61 in 1992; $8.91 in 1993; $9.00 in
1994; $9.52 in 1995; and $10.01 in 1996.
At September 30, 1996 Jewish Family Services of Dallas, Inc., a
non-profit organization which performs social services primarily for the
Jewish community in Dallas, was the only tenant occupying 10% or more of
the space in Office Alpha. This tenant's annual rent is $98,000. Its
lease expires September 30, 1999.
-12-
<PAGE> 14
PART I
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued)
- ----------------------------------------
Based upon leases in place at September 30, 1996 lease expirations for
the next ten fiscal years ended September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/96
- ---- -------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
1997 14 18,578 $197,532 20%
1998 12 23,823 248,424 25
1999 14 35,037 353,796 35
2000 5 14,241 156,852 16
2001 2 4,517 46,830 4
2002-2006 NONE
</TABLE>
Office Alpha is depreciated for tax purposes using the straight line
basis with the building and improvements having a 15 year life. The
depreciable tax basis was $1,776,000 at September 30, 1996. The 1995 real
estate taxes for the Property were $82,636 based on a millage rate of
$2.71 per $100 of assessed value. The 1996 real estate taxes are not yet
known.
(J) 14800 QUORUM BUILDING. 14800 Quorum Building is located in the
North-Dallas, Quorum office market of Dallas, Texas. 14800 Quorum
contains five stories and is suitable and adequate for its use as an
office building.
The Trust owns this Property in fee simple, subject to a first mortgage
loan, at a rate of 8.3%, which matures August 19, 2000. The loan is
non-recourse except the first $750,000. At September 30, 1996 the balance
of this loan was $2,612,000. By maturity $174,000 of scheduled
amortization payments are required and therefore a balance of $2,438,000
will be due at maturity. There is a prepayment penalty of 2.0% if the
loan is paid off early.
Space in the building is leased to service and professional organizations
for use as general offices. The Trust's policy is to sign leases with new
and renewal tenants for periods of three to five years in order to take
advantage of changes in the market.
Presently, the Trust has no plans for any significant renovations of the
Property beyond normal maintenance and repairs and tenant improvements
done in conjunction with the leasing of space within the Property.
There are numerous office buildings in the direct vicinity, some of
higher quality, and numerous projects of similar age, style, condition
and quality that directly compete with 14800 Quorum. Leasing proposals
for both new and renewal tenants in this submarket are highly
competitive. Many of the Trust's competitors in this submarket have
substantially greater capital and resources than the Trust.
The Trust purchased the Property on August 26, 1994. The occupancy for
the two full fiscal years ended September 30, 1995 and 1996 that the
Trust has operated the Property was as follows: 90% in 1995 and 92% in
1996. The Property's average rental rates per occupied square foot for
the same two years were as follows: $9.87 in 1995 and $11.02 in 1996.
-13-
<PAGE> 15
PART I
------
Item 2. Properties (Continued)
- ------ ----------------------
Investments in Real Estate: (Continued)
- --------------------------------------
At September 30, 1996 Preston Equities, Inc., who runs executive suites for
general office use, was the only tenant occupying 10% or more of the space
in 14800 Quorum. This tenant's annual rent is $131,108. Its lease expires
March 31, 2002.
Based upon leases in place at September 30, 1996 lease expirations for the
next ten fiscal years ended September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/96
---- --------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
1997 9 20,538 $223,627 20%
1998 2 3,135 37,308 3
1999 9 29,517 358,764 32
2000 5 15,762 185,558 17
2001 5 12,973 158,628 14
2002 2 14,651 159,332 14
2003-2006 NONE
<FN>
14800 Quorum is depreciated for tax purposes using the straight line basis
with the building and improvements having a 40 year life. The depreciable
tax basis was $3,772,000 at September 30, 1996. The 1995 real estate taxes
for the Property were $93,990 based on a millage rate of $2.41 per $100 of
assessed value. The 1996 real estate taxes are not yet known.
</TABLE>
(K) BROOKSIDE OFFICE BUILDING. The Brookside Office Building is a three-story
brick office building located in Arlington, Texas. The Trust purchased the
Property on March 28, 1996. The Property is suitable and adequate for its
use as an office building.
Space in the building is leased to service and professional organizations
for use as general offices. The Property was 100% occupied at the time of
purchase and has remained such during the balance of the fiscal year. It is
the Trust's intention to sign new leases with any new and renewal tenants
for periods of three to five years in order to take advantage of changes in
the market. Several of the existing tenants have informed the Trust that
should any current tenant vacate its space they would like to expand their
space. The Trust will make every effort to accommodate these tenants should
the situation arise.
Presently, the Trust has no plans for any significant renovations of the
Property beyond normal maintenance and repairs and tenant improvements done
in conjunction with the leasing of space within the Property.
There are numerous office buildings in the direct vicinity, some of higher
quality, and numerous projects of similar age, style, condition and quality
that directly compete with the Brookside Office Building. As stated above,
with several tenants desiring to expand the Trust believes that the size of
the Property will be the only drawback in retaining tenants. Since the
Property is new to the Trust's portfolio it remains to be seen what other
competitive actions will be needed in the future to keep the Property at
100% occupied at a competitive rate.
The occupancy for the six months in the fiscal year ended September 30,
1996 that the Trust has owned the Property was 100%. The average rental
rate per occupied space for this same period was $11.69.
-14-
<PAGE> 16
PART I
------
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued)
- ---------------------------------------
At September 30, 1996 two tenants occupied more than 10% of the Property.
The first was Schrickel, Rollins and Associates, Inc., an architectural
firm. This tenant's annual rent is $168,660 and their lease expires
August 31, 2003. the second tenant was Vestal-Loftis-Kalista, Architects,
Inc., an architectural firm. This tenant's annual rent is $64,000 and
their lease expires January 31, 2000.
Based upon leases in place at September 30, 1996 lease expirations for
the next ten fiscal years ended September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/96
---- -------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
1997 4 6,836 $ 77,210 15%
1998 2 8,507 97,040 19
1999 3 7,862 96,975 19
2000 1 5,774 64,000 13
2001 NONE
2002 NONE
2003 1 14,607 168,660 34
2004-2006 NONE
<FN>
Brookside Office Building is depreciated for tax purposes using the
straight line basis with the building and improvements having a 40 year
life. The depreciable tax basis was $1,884,000 at September 30, 1996. The
1995 real estate taxes for the Property were $48,730 based on a millage
rate of $2.55 per $100 of assessed value. The 1996 real estate taxes are
not yet known.
</TABLE>
(L) TRIANGLE SQUARE SHOPPING CENTER. The Triangle Square Shopping Center is
composed of three one- story retail shopping center buildings and nine
all concrete block mini-warehouse buildings (including one two-story
building) located in Hilton Head, South Carolina. The main tenants of the
three retail buildings are service oriented businesses. The Property is
suitable and adequate for its use as a retail center and mini-warehouse
facility.
The Trust has no plans for significant renovations of the Property beyond
normal maintenance and repairs and tenant improvements done in
conjunction with the leasing of space within the Property.
There are numerous shopping centers located in the direct vicinity, some
of higher quality, and numerous projects of similar age, condition and
quality of the Property. However, the majority of these centers are
composed of retail tenants, while Triangle Square's tenant are primarily
service oriented. There are no mini-warehouse facilities in the immediate
area.
Occupancy of the combined project for the fiscal years ended September
30, 1992 through 1996 was as follows: 72% in 1992; 74% in 1993; 78% in
1994; 89% in 1995; and 88% in 1996. The average rental rate per occupied
square foot during the same period was $6.58 in 1992; $6.25 in 1993;
$5.99 in 1994; $5.74 in 1995; and $6.55 in 1996.
There are no tenants in this property occupying 10% or more of the space.
All leases for storage space in the mini-warehouses are less than one
year. At September 30, 1996 there were 215 leases for 86,570 square feet
at an annual rental of $272,400 (44% of gross annual base
-15-
<PAGE> 17
PART I
------
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued)
- ---------------------------------------
rents). Based upon leases in place as of September 30, 1996 in the three
retail buildings, lease expirations for the next ten fiscal years ended
September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/96
---- -------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
1997 11 19,830 $189,132 31%
1998 4 4,543 45,396 7
1999 5 5,927 57,144 9
2000 2 2,886 29,805 5
2001-2003 NONE
2004 1 1,745 25,488 4
2005-2006 NONE
<FN>
Triangle Square is depreciated for tax purposes using the straight line
method with the buildings and improvements having a 35 year life. The
depreciable tax basis was $723,000 at September 30, 1996. The 1995 real
estate taxes for the Property were $33,457.37 based on a millage rate of
$2.441 per $1,000 of assessed value. The 1996 real estate taxes are not
yet known.
</TABLE>
(M) CANNON WEST SHOPPING CENTER. The Cannon West Shopping Center is a
grocery-anchored neighborhood strip center located in Austin, Texas.
Cannon West's main tenants operate retail businesses. The Property is
suitable and adequate for its use as a strip shopping center.
The Trust is currently installing a Trench Drain at a cost of
approximately $150,000 at the Property. This work is being done in order
to combat a sub-soil problem at the property. Other than this work, which
is currently under way, the Trust has no other plans for significant
renovations of the Property beyond normal maintenance and repairs and
tenant improvements done in conjunction with the leasing of space within
the Property.
The Trust owns this Property in fee simple, subject to a first mortgage
loan, at a rate of 8.3%, which matures May 1, 2002. At September 30, 1996
the balance of this loan was $5,742,000. By maturity $1,231,000 of
scheduled amortization payments are required and therefore a balance of
$4,511,000 will be due at maturity.
The Cannon West Shopping Center is subject to a limited amount of direct
competition in its immediate trade area. Although there are a number of
grocery anchored shopping centers located in South Austin serving the
south-side communities that are located along William Cannon Drive -- a
major East-West highway serving the South Austin area -- Cannon West
Shopping Center is the only retail shopping center located at the
intersection of William Cannon Drive and Westgate Boulevard that serves
the immediate surrounding neighborhoods.
Occupancy for the fiscal years ended September 30, 1992 through 1996 was
as follows: 88% in 1992; 93% in 1993; 75% in 1994; 82% in 1995; and 95%
in 1996. The average rental rate, including percentage rents, per
occupied square foot during the same period was $7.44 in 1992; $7.05 in
1993; $8.38 in 1994; $9.01 in 1995; and $9.39 in 1996.
-16-
<PAGE> 18
PART I
------
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued)
- ---------------------------------------
Cannon West has two tenants that occupy more than 10% of the Property.
The first is H.E. Butt Grocery Store ("HEB"). Their annual base rent is
$250,000. The lease also calls for tax, insurance and maintenance
escalations and has a percentage rent clause. For 1996 the percentage
rent paid was $105,000. This lease expires October 5, 2001 and has four
five-year renewal options. In September, 1995 the Trust was notified by
HEB that they had purchased a parcel of land approximately one mile from
Cannon West. As of September 30, 1996 this land had not yet been rezoned
for a grocery store center, however, the Trust is of the understanding
that HEB is in the process of having this land rezoned. Should HEB build
a store and/or a shopping center on this parcel of land, it could effect
Cannon West. The second tenant is Premiere Lady's Fitness Center, a
health club, fitness center for women only. Their annual rent is $68,000.
The lease also calls for tax, insurance and maintenance escalations. This
lease expires August 31, 2001.
Based upon leases in place at September 30, 1996 lease expirations for
the ten fiscal years ended September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/96
---- -------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
1997 9 13,899 $168,886 18%
1998 5 5,951 84,696 9
1999 5 6,220 70,356 8
2000 3 11,099 157,380 17
2001 4 19,818 140,291 15
2002 1 49,585 250,000 27
2003 1 2,373 54,620 6
2004 - 2006 NONE
<FN>
The building and improvements are depreciated for tax purposes using the
straight line method over 18 years. The depreciable tax basis was
$3,624,000 at September 30, 1996. The 1995 real estate taxes were
$153,100 based on a millage rate of $2.394 per $100 of assessed value.
The 1996 real estate taxes are not yet known.
</TABLE>
(N) SPRING VILLAGE SHOPPING CENTER. The Spring Village Shopping Center is a
grocery-anchored neighborhood strip center located in Davenport, Iowa.
Spring Village's main tenants operate retail businesses. The Property is
suitable and adequate for its use as a strip shopping center.
The Trust has no plans for significant renovations of the Property beyond
normal maintenance and repairs and tenant improvements done in
conjunction with the leasing of space within the Property.
The Spring Village Shopping Center is subject to direct competition in
its immediate trade area. There are several grocery anchored shopping
centers located on Kimberly Road, the major retail East-West road
servicing Davenport. At September 30, 1996 Spring Village was 99%
occupied primarily due to the attractiveness of the center's grocery
store which was remodeled and expanded in 1994 at the cost of the Store.
-17-
<PAGE> 19
PART I
------
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued)
- ---------------------------------------
Occupancy for the fiscal years ended September 30, 1992 through 1996 was
as follows: 98% in 1992; 99% in 1993; 98% in 1994; 100% in 1995; and 99%
in 1996. The average rental rate, including percentage rents, per
occupied square foot during the same period was $8.00 in 1992; $8.00 in
1993; $8.26 in 1994; $7.89 in 1995; and $8.58 in 1996.
Spring Village has two tenants that occupy more than 10% of the Property.
The first is Eagle Food Centers, whose annual base rent is $204,000.
Their lease also calls for tax, insurance and maintenance escalations and
has a percentage rent clause. There was no percentage rent due for 1996.
This lease expires June 30, 2005. The second is the Walgreen Company,
which operates a drug store, and pays annual base rent of $67,000. Its
lease also calls for tax, insurance and maintenance escalations. This
lease expires November 30, 2010.
Based upon leases in place at September 30, 1996 lease expirations for
the ten fiscal years ended September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/96
---- -------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
1997 2 2,175 $ 26,016 4%
1998 2 4,200 47,136 7
1999 4 7,450 82,000 12
2000 3 10,825 136,535 20
2001 - 2004 NONE
2005 1 45,763 204,000 29
2006 NONE
<FN>
The building and improvements are depreciated for tax purposes using the
straight line method over 31-1/2 years. The depreciable tax basis was
$3,292,000 at September 30, 1996. The 1996 real estate taxes are $148,234
based on a millage rate of $34.5287 per $1,000 of assessed value.
</TABLE>
(O) WARREN PLAZA SHOPPING CENTER. The Warren Plaza Shopping Center is a
grocery-anchored neighborhood strip center located in Dubuque, Iowa.
Warren Plaza's main tenants operate retail businesses. The Property is
suitable and adequate for its use as a strip shopping center.
The Trust has no plans for significant renovations of the Property beyond
normal maintenance and repairs and tenant improvements done in
conjunction with the leasing of space within the Property.
In addition to the 90,000 square feet owned by the Trust, there is a
97,000 square foot Target discount store attached to the property, which
is not owned by the Trust. The Property is subject to direct competition
in its immediate trade area. There are several grocery anchored shopping
centers located on both Dodge Street and John F. Kennedy Blvd. (this
Property is located on the corner of these two streets). Across the
street from the Property is a mall, which the Trust does not consider
competition. Additionally, there is both a K-Mart and Wal-mart in the
area which compete with the Target store. For both 1994 and 1995 this
Property was 100% occupied, dropping to 98% for 1996. The Trust
attributes this high occupancy for the past two years to both the grocery
store and the Target Store. Both of these stores have been recently
remodeled and expanded at the cost of the stores.
-18-
<PAGE> 20
PART I
------
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued)
- ---------------------------------------
Occupancy for the fiscal years ended September 30, 1992 through 1996 was
as follows: 92% in 1992; 99% in 1993; 100% in 1994 and 1995; and 98% in
1996. The average rental rate, including percentage rent, per occupied
square foot during the same period was $8.86 in 1992; $8.60 in 1993;
$9.67 in 1994; $9.24 in 1995; and $9.17 in 1996.
Warren Plaza has one tenant that occupies more than 10% of the Property,
HY-VEE Food Store. Its annual base rent is $256,000. The lease also calls
for tax, insurance and maintenance escalations and has a percentage rent
clause. There was no percentage rent due for 1996. The lease expires June
30, 2013.
Based upon leases in place at September 30, 1996 lease expirations for
the ten fiscal years ended September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/96
---- -------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
1997 2 3,900 $42,010 7%
1998 1 1,050 10,680 2
1999 4 5,500 61,644 10
2000 3 11,160 168,274 27
2001 2 8,500 57,624 9
2002 1 3,200 35,736 6
2003 NONE
2004 1 1,400 14,940 2
2005 - 2006 NONE
<FN>
The building and improvements are depreciated for tax purposes using the
straight line method over 31-1/2 years. The depreciable tax basis was
$3,568,000 at September 30, 1996. The 1996 real estate taxes are $108,178
based on a millage rate of $30.85536 per $1,000 of assessed value.
</TABLE>
(P) TIFFANY PLAZA SHOPPING CENTER. The Tiffany Plaza Shopping Center is a
grocery-anchored neighborhood strip center located in Ardmore, Oklahoma.
Tiffany Plaza's main tenants operate retail businesses. The Property is
suitable and adequate for its use as a strip shopping center.
The Trust is reviewing plans for the installation of new store fronts at
the Property. The Trust believes that the Property, which was constructed
in 1975, has begun to look old and that the new store fronts will give
the center a new look. The estimated cost of this work is $250,000. If
the Trust proceeds with this work it should begin in the spring of 1997.
No other renovation work beyond normal maintenance and repairs and tenant
improvements done in conjunction with the leasing of space within the
Property is planned.
The main competition for this center is a mall and a Wal-mart center,
both of which are located more than a mile away from Tiffany Plaza.
-19-
<PAGE> 21
PART I
------
Item 2. Properties (Continued):
- ------- -----------------------
Investments in Real Estate: (Continued)
- ---------------------------------------
Occupancy for the fiscal years ended September 30, 1992 through 1996 was
as follows: 89% in 1992; 92% in 1993; 97% in 1994; 95% in 1995; and 98%
in 1996. The average rental rate, including percentage rent, per occupied
square foot during the same period was: $4.10 in 1992; $4.05 in 1993;
$3.59 in 1994; $3.66 in 1995; and $3.93 in 1996.
Tiffany plaza has three tenants who occupy more than 10% of the Property.
The first is Flemming Companies who operate a Buy-For-Less grocery store.
The annual rent is $86,625. The lease also calls for tax, insurance and
maintenance escalations and has a percentage rent clause. There was no
percentage rent due for 1996. The lease expires March 20, 2001. The
second tenant is Orscheln Farm and Home Supply, Inc., who sell farm
equipment and supplies. The annual rent is $102,000. The lease also calls
for tax, insurance and maintenance escalations. The lease expires August
31, 2001. The third tenant is CR Anthony Company, a family clothing
store. The annual rent is $69,300. The lease also calls for tax,
insurance and maintenance escalations and has a percentage rent clause.
There was no percentage rent due for 1996. The lease expires March 7,
2001.
Based upon leases in place at September 30, 1996 lease expirations for
the ten fiscal years ended September 30, 2006 are as follows:
<TABLE>
<CAPTION>
Number Total Percent of Gross
of Leases Sq. Ft. Annual Base Annual Base
Year Expiring Expiring Rents Expiring Rents at 9/30/96
---- -------- -------- -------------- ----------------
<S> <C> <C> <C> <C>
1997 6 12,774 $94,332 19%
1998 3 7,708 34,440 7
1999 4 10,986 57,624 12
2000 1 7,192 30,972 6
2001 4 100,551 258,000 53
2003 NONE
2004 1 5,108 14,928 3
2005 - 2006 NONE
<FN>
The building and improvements are depreciated for tax purposes using the
straight line method over 31-1/2 years. The depreciable tax basis was
$2,609,000 at September 30, 1996. The 1995 real estate taxes are $32,304
based on a millage rate of $8.3681 per $100 of assessed value. The 1996
real estate taxes are not yet known.
</TABLE>
-20-
<PAGE> 22
PART I
Item 2. Properties (Continued):
- ------- -----------------------
Geographic Distribution:
- ------------------------
The Trust's properties are located in six states. The table below demonstrates
the geographic distribution of the Trust's properties at September 30, 1996:
<TABLE>
<CAPTION>
Percentage of
Number of Percentage of Assets Based
Investments Rental Income on Cost
----------- ------------- -------
<S> <C> <C> <C>
Texas:
Dallas 4 23% 27%
Arlington 1 2 3
Austin 1 11 12
Colorado:
Englewood 1 11 9
Denver 1 10 7
Littleton 1 5 5
Oklahoma:
Tulsa 1 9 11
Ardmore 1 6 6
Iowa:
Davenport 1 9 8
Dubuque 1 8 8
South Carolina:
Hilton Head 1 6 3
Ohio:
Akron 1 -- 1
--- ---- ----
15 100% 100%
==== ===== ====
</TABLE>
-21-
<PAGE> 23
PART I
------
Item 3. Legal Proceedings
- ------- -----------------
The Trust is involved in a number of legal proceedings arising in the normal
course of its business activities, none of which, in the opinion of the
Management, is expected to have a material adverse effect on the financial
position or liquidity of the Trust.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
No matters were submitted to a vote of the Trust's Shareholders during the
fourth quarter of the fiscal year covered by this report.
Executive Officers of the Registrant
- ------------------------------------
The following information regarding executive officers of the Trust is provided
pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
<TABLE>
<CAPTION>
Position(s) with the Trust,
Principal Occupation,
Business, Experience,
Name (age) and Other Directorships
---------- -----------------------
<S> <C>
John C. Kikol (52) Chairman; Chairman of the Board of Trustees since 1995;
Trustee of the Trust since 1982; President of the Trust since
1974.
Michael R. Thoms (48) Vice President and Treasurer of the Trust since 1987.
Raymond C. Novinc (47) Vice President, Secretary and Counsel of the Trust since 1986.
Brian D. Griesinger (35) Vice President -- Management and Acquisitions of the
Trust since 1989
</TABLE>
-22-
<PAGE> 24
PART II
-------
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ------- -----------------------------------------------------------------
Matters
-------
Market Price Range:
- -------------------
The shares of the Trust are traded in the Nasdaq National Market (symbol CTRIS).
The table below contains the quarterly high and low closing bid prices for such
Shares.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
- --------------------------------------- -----------------------------------
Quarter Ended High Low Quarter Ended High Low
------------- ---- --- ---------------- ---- ---
<S> <C> <C> <C> <C> <C>
December 31, 1995 5-1/8 3-7/8 December 31, 1994 3-3/8 2-7/8
March 31, 1996 5-1/8 4-7/8 March 31, 1995 3-5/16 2-5/8
June 30, 1996 5 4-1/2 June 30, 1995 3-3/4 3-1/4
September 30, 1996 5 4-1/4 September 30, 1995 4-1/8 3-3/8
<FN>
The bid prices for the Trust's Shares shown in the table above are interdealer
prices and do not reflect retail mark ups, mark downs, or commissions and may
not be representative of actual transactions. As of December 2, 1996, there were
approximately 1,125 record holders of the Shares.
</TABLE>
Distributions to Shareholders:
- ------------------------------
<TABLE>
<CAPTION>
Fiscal 1996 Amount Fiscal 1995 Amount
Payment Date Per Share Payment Date Per Share
- ------------ --------- ------------ ---------
<S> <C> <C> <C>
October 20, 1995 $ .04 October 21, 1994 $ .04
January 19, 1996 .04 January 20, 1995 .04
April 19, 1996 .04 April 21, 1995 .04
July 19, 1996 .04 July 21, 1995 .04
September 20, 1996 .04 ------
------
$ .20 $ .16
====== ======
<FN>
For a discussion of the tax classification of cash distributions see
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Dividends.
Distributions are subject to a bank convenant which requires a minimum
Shareholders' Equity. At September 30, 1996 the amount of required Shareholders'
Equity was $20,000,000 and the amount free from this restriction was
approximately $2,500,000.
</TABLE>
-23-
<PAGE> 25
<TABLE>
<CAPTION>
PART II
--------------
Item 6. Selected Financial Data
- ----------------------------------------------
Year Ended September 30, 1996 1995 1994 1993 1992
- ---------------------------------- ------------ ----------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Rental income $ 10,368 $ 10,145 $ 9,650 $ 9,348 $ 9,400
Interest income 40 56 76 263 325
Dividend income 225 0 0 0 0
Other income 12 26 29 41 60
-------- -------- -------- -------- --------
Operating revenues 10,645 10,227 9,755 9,652 9,785
Provision for valuation reserve 3,307 0 0 0 0
Operating expenses other than provision
for valuation reserve 9,398 9,631 9,870 10,384 11,125
Operating income (loss) (2,060) 596 (115) (732) (1,340)
Gains on sales of real estate 40 2,499 445 563 51
Gains on sales of securities 632 0 0 0 0
Extraordinary items 0 790 253 286 0
Net income (loss) (1,388) 3,885 583 117 (1,289)
Cash distributions to shareholders 1,037 874 735 393 117
Per Share of Beneficial Interest:
Operating income (loss) $ (0.40) $ 0.11 $ (0.02) $ (0.22) $ (0.68)
Gains on sales of real estate 0.01 0.46 0.09 0.17 0.02
Gains on sales of securities 0.12 0.00 0.00 0.00 0.00
Extraordinary items 0.00 0.14 0.05 0.09 0.00
-------- -------- -------- -------- --------
Net income (loss) $ (0.27) $ 0.71 $ 0.12 $ 0.04 $ (0.66)
======== ======== ======== ======== ========
Cash distributions $ 0.20 $ 0.16 $ 0.15 $ 0.12 $ 0.06
Weighted average number of Shares of
Beneficial Interest outstanding 5,186 5,459 4,959 3,292 1,957
At September 30, 1996 1995 1994 1993 1992
- -------------------------------------- ---------- --------- --------- -------- ---------
(in thousands)
FINANCIAL CONDITION:
Properties held for sale $ 42,203 $ 203 $ 0 $ 0 $ 0
Valuation reserve (3,307) 0 0 0 0
Investments in real estate 0 40,739 45,380 49,394 51,510
Real estate mortgage loans 119 303 236 150 1,986
Allowance for possible investment losses 0 0 0 (6,089) (6,089)
Investments in securities 0 267 0 0 0
Cash and cash equivalents 1,490 188 251 315 721
Certificates of deposit 0 0 500 500 500
Insurance settlement proceeds 0 0 3,341 0 0
Total assets 43,852 43,076 51,004 45,499 50,249
Mortgage notes payable 9,563 9,266 11,111 17,126 18,807
Bank notes payable 9,800 6,600 11,180 8,800 15,626
Shareholders' equity 22,500 25,126 23,150 17,669 13,714
Number of Shares of Beneficial Interest
outstanding at September 30 5,179 5,217 5,471 3,716 1,957
</TABLE>
-24-
<PAGE> 26
PART II
-------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations.
--------------
Financial Condition
- -------------------
During the three-year period ended September 30, 1996 the Trust's total assets
decreased 4% to $43,852,000. On September 24, 1996 the Board of Trustees of the
Trust announced that they unanimously voted to recommend a Plan for the Orderly
Liquidation of the Trust (the "Plan"). The Plan, as proposed, would involve the
sale of the Trust's properties during a period of approximately three years.
Based on this announcement the Trust has reclassified all of its properties to
Properties held for sale at September 30, 1996, in accordance with Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS No. 121"). The
Trust made a review of the carrying value of all the properties at September 30,
1996 and determined that four of the Trust's properties had a carrying value
higher than the anticipated sales price. The Trust, therefore, established a
valuation reserve for these four properties which totaled $3,307,000. In
determining the estimated net sales prices the Trust applied an estimated
capitalization rate to the individual properties' cash flow. The Trust did not
deem it necessary to obtain appraisals of any of its properties. See Item 2,
Part I for allocation of the valuation reserve. In 1994 the Trust applied the
allowance for possible investment losses to three previously foreclosed
properties for which it had been previously provided. This application was done
in connection with the Trust's regular evaluation of its portfolio of
properties. The evaluation concluded that it was unlikely that these properties
would recover in value and, therefore, they were written down to their net
realizable value.
During this three-year period the carrying value of the Trust's invested assets
decreased 10% or $4,440,000 to $39,015,000. In fiscal 1996 the Trust purchased
the land on which its Englewood Bank Building, located in Englewood, Colorado,
is located. This land, which was previously leased by the Trust, was purchased
for a price of $1,263,000. Also, the Trust purchased a 52,554 square foot
suburban office building located in Arlington, Texas, for a purchase price of
$2,202,000. Additionally, during 1996 the Trust sold three improved properties.
The first was the sale during January and February of three condominium units
located in Davie, Florida, for a combined sales price of $138,000 which resulted
in a gain of $69,000. The second was the $600,000 sale of European Crossroads in
Dallas, Texas, which resulted in a loss of $313,000. The third was a $615,000
sale of two of the five buildings comprising the Walnut Stemmons Office Park
located in Dallas, Texas and resulted in a gain of $261,000. In fiscal 1995 the
Trust sold three improved properties. The first was the sale of the 197 room
Quality Hotel in St. Louis, Missouri for $2,650,000, which resulted in a gain of
$452,000. The second was the sale of the 124 unit Parkwood Place Apartments in
Greeley, Colorado for $2,595,000, which resulted in a gain of $1,859,000. The
third was the sale of the 51,000 square foot Walnut Hill West office building in
Dallas, Texas for $800,000 which resulted in a gain of $97,000. In fiscal 1994
the Trust purchased a 104,000 square foot office building located in Dallas,
Texas for $3,918,000. Of this amount, $2,170,000 was provided by a first
mortgage loan on the property which the Trust obtained at the time of the
purchase. Additionally, the Trust sold four vacant land parcels during this
three-year period. The result of the three purchases during this three-year
period was an increase of approximately $7,387,000 to the carrying value of the
Trust's portfolio of invested assets. The result of all the sales during this
three year period was a decrease of approximately $5,328,000 to the carrying
value of the Trust's portfolio of invested assets. Additionally, the recording
of $5,648,000 of depreciation, a non-cash adjustment, reduced the carrying value
during this three-year period. Also, during this three-year period, the Trust
made improvements to its existing properties of $2,491,000 and received payments
totaling $533,000 on real estate mortgage loans.
-25-
<PAGE> 27
PART II
-------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations - (Continued)
-------------
Financial Condition - (Continued)
- -------------------
During the three-year period ended September 30, 1996 the Trust's mortgage notes
payable decreased 44% or $7,563,000 to $9,563,000. This resulted from additional
borrowings of $500,000 under one of the existing mortgage loans, amortization
payments of $1,029,000, the repayment of a $7,689,000 maturing loan, and
additional repayments/paydowns which reduced the mortgage notes payable
$1,515,000. Of this $1,515,000, the actual cash outlay by the Trust was
$1,463,000 with $52,000 representing discounts obtained by the Trust.
Additionally, the Trust obtained a $2,170,000 first mortgage loan in connection
with its purchase of a 104,000 square foot office building, as referenced above.
The Trust's bank notes payable increased $1,000,000 during the three-year period
ended September 30, 1996 to $9,800,000. The Trust borrowed $10,899,000,
$7,689,000 of which was used to repay the above referenced maturing mortgage
loan and the remaining $3,200,000 was used for the purchase of properties during
1996, and made principal amortization and repayments of $9,889,000.
During the three-year period ended September 30, 1996 the Trust's shareholders'
equity increased 27% or $4,831,000 to $22,500,000. This increase was primarily
the result of the Trust receiving $5,929,000 from its 1993 rights offering,
which expired January 28, 1994, net of $1,532,000 to repurchase 38,000 of the
Trust's Shares in fiscal 1996, 253,553 of the Trust's Shares in fiscal 1995 and
103,210 of the Trust's Shares in fiscal 1994, $3,080,000 of net income and
$2,646,000 of distributions to shareholders during this three-year period. As a
result of the Trust's total debt being reduced approximately $6,563,000 and
total shareholders' equity increasing $4,831,000, the Trust's debt to
shareholders' equity ratio has decreased to .86-to-1.00 at September 30, 1996
from 1.47-to-1.00 at September 30, 1993.
Liquidity and Capital Resources
- -------------------------------
For each of the fiscal years ended September 30, 1996, 1995 and 1994, the
Trust's portfolio of invested assets generated sufficient revenues to cover all
operating expenses (excluding depreciation, a non-cash expense and in 1996 the
provision for valuation reserve, also a non-cash expense), required mortgage
notes amortization payments, required bank amortization payments, capital
improvements to existing properties, and distributions to shareholders. During
this three-year period the year end occupancy of the Trust's portfolio has been
79% at September 30, 1994, 81% at September 30, 1995, and 91% at September 30,
1996 while the average rental rates per square foot have increased from $8.47
for the year ended September 30, 1994 to $8.61 for the year ended September 30,
1995 to $9.14 for the year ended September 30, 1996. At this time Management
assumes that the Trust will be implementing its Plan of liquidation during
fiscal 1997. On October 7, 1996 the Trust completed a $2,450,000 sale of the
Littleton Bank Building located in Littleton, Colorado. This sale resulted in a
gain of approximately $563,000 which will be reported in the first quarter of
Fiscal 1997. Currently, the Trust has four of its properties under contracts of
sales. The Englewood Bank Building located in Englewood, Colorado is under a
contract of sale for a sales price of $5,350,000. The Executive Club Building
located in Denver, Colorado is under a contract of sale for $5,300,000. The
Spring Village Shopping Center located in Davenport, Iowa is under a contract of
sale for a sales price of $5,350,000. The Warren Plaza Shopping Center located
in Dubuque, Iowa is under a contract of sale for a sales price of $5,950,000.
All four of these contracts provide for due diligence periods, during which time
the buyer could cancel the contract at his option. Additionally, after the
completion of the due diligence period the buyer will place a non-refundable
deposit with the Trust. Should the buyer fail to complete the sale, these
deposits would be forfeited and retained by the Trust. Therefore,
-26-
<PAGE> 28
PART II
-------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations - (Continued)
-------------
Liquidity and Capital Resources - (Continued)
- -------------------------------
there is no guarantee that these properties will actually be sold at the prices
stated. Also, the Trust has signed Letters of Intent with various buyers for the
sales of three additional properties. The total gross sales prices for these
three properties is $15,640,000. Letters of intent are only agreements in
principle on the most fundamental terms and the parties do not intend that there
be any binding obligation to buy or sell the property until such time as a
contract of sale is executed by both the buyer and the Trust. However, even
though additional properties could be sold during fiscal 1997 the Trust's
estimate for fiscal year 1997 is that operating revenues should be sufficient to
cover all operating expenses (excluding depreciation, a non-cash expense),
required monthly mortgage amortization payments and anticipated improvements to
existing properties. Under the Plan the only distributions the Trust will make
to Shareholders will be liquidating distributions resulting from the sales of
Properties. Additionally, during 1997 the Trust will accrue certain employee
severance payments which will be made to terminated employees primarily from the
proceeds of Property sales.
Management has from time to time undertaken a major renovation of a Property in
order to keep it competitive within its market. Currently, the Cannon West
Shopping Center located in Austin, Texas is having a trench drain installed at a
cost of approximately $150,000. This work is being done in order to combat a
sub-soil problem at the property. Management believes that the installation of
the trench drain will alleviate the problem. The cost of this work will be
reported in the first two quarters of fiscal year 1997. Additionally, Management
is reviewing plans for the installation of new store fronts at Tiffany Plaza, a
shopping center located in Ardmore, Oklahoma. The current estimated cost of this
work is $250,000. If the Trust proceeds with this work it should begin in the
spring of 1997. No other renovation projects are currently contemplated or in
process.
The Trust's cash flow from operations decreased $1,213,000 (55%) when comparing
1996 to 1995. The decrease was primarily due to the net activity of the
following items:
* In 1996 the Trust had an operating loss of $2,060,000 compared to an
operating income of $596,000 in 1995, or a decrease of $2,656,000.
Included in the 1996 results was a $3,307,000 provision for valuation
reserve, which was a non-cash expense. Also, income from real estate
operations was $424,000 higher in 1996 than 1995. Additionally, 1996
included $225,000 of dividend income with no like income in 1995.
* Other assets increased $1,971,000 from 1995 to 1996. Of this amount
$1,918,000 represents the amount due the Trust on its sale of securities,
which amount was received by the Trust on October 1, 1996.
For 1996 the net cash used in investing activities was $1,995,000. As previously
discussed, the Trust purchased land and a suburban office building for a total
of $3,465,000. The Trust also purchased securities for $2,057,000. Additionally,
the Trust expended $972,000 for improvements to existing properties. Cash
inflows included proceeds from the sale of three condominiums, two small office
buildings and a retail center totaling $1,386,000, $2,929,000 from the sale of
securities and $184,000 in real estate mortgage loan repayments. During 1995, as
previously discussed, the Trust sold three improved properties and a vacant land
parcel. The proceeds from these sales totaled $5,545,000. Additionally, at the
completion of the
-27-
<PAGE> 29
PART II
-------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations - (Continued)
-------------
Liquidity and Capital Resources - (Continued)
- -------------------------------
renovation and repair project on the Tulsa, Oklahoma Petroleum Club Building the
insurance settlement proceeds exceeded the expenditures for the work by
$738,000. The Trust also received $145,000 in real estate loan repayments. The
only net cash outflow was the $666,000 (primarily tenant improvements) spent on
improvements to existing properties and the $240,000 which the Trust invested in
the purchase of 14,000 shares in a real estate company. In 1996 net cash from
financing activities totaled $2,286,000 while in 1995 net cash used in financing
activities totaled $7,809,000, a variance of $10,095,000. Mortgage notes payable
amortization payments were $203,000 in 1996 and $330,000 in 1995. Principal
prepayments were $1,463,000 in 1995, as the Trust repaid a $498,000 first
mortgage loan and settled a $1,017,000 first mortgage loan for $965,000 (the
settlement resulted in a $52,000 extraordinary income item). In 1996 the Trust
borrowed an additional $500,000 on one of its existing mortgage loans. In 1995
the Trust paid off its $3,460,000 1986 loan and paid down the 1994 Credit
(defined below) $1,089,000. In 1996 the Trust borrowed $3,200,000 which was used
in the purchase of property, as previously discussed. In 1996 the Trust
repurchased and retired 38,000 of its shares at a cost of $174,000. In 1995 the
Trust repurchased and retired 14,000 of its shares for a cost of $48,000 and
through a tender offer made to all shareholders of the Trust repurchased and
retired 239,553 of its shares for a cost of $1,014,000. In 1995 the Trust
redeemed a $500,000 certificate of deposit. In 1996 the Trust made five
distributions of $.04 per share to shareholders of the Trust for a total of
$1,037,000. In 1995 the Trust made four distributions of $.04 per share for a
total of $874,000.
On November 30, 1994 the Trust and National City Bank of Cleveland, Ohio and
Manufacturer's and Traders Trust Company of Buffalo, New York executed a
revolving line of credit agreement for a maximum of $25,000,000 (limited by the
value of the collateral provided) ("1994 Credit"). The 1994 Credit was for an
initial term of three years. Each year the lenders review the 1994 Credit with
the option of extending the credit for one additional year. During 1996 the
lenders extended the 1994 Credit to March 1, 1999. If the lenders do not extend
the credit then, absent an event of acceleration, the Trust will have two years
in which to repay all borrowings outstanding under the 1994 Credit. The loans
will bear interest at the Trust's option at any of the following rates: (i) 1/4
of 1% over the prime lending rate; (ii) 250 basis points over the LIBOR rate; or
(iii) NCB's fixed interest rate available from time to time.
In addition to the required monthly amortization payments under the terms of the
first mortgage loans the Trust currently has (see Note E to the financial
statements), during the next five fiscal years the Trust's major debt maturities
are: in fiscal 1999 the 1994 Credit, which currently has a balance of $9,800,000
outstanding and on August 19, 2000 a $2,612,000 first mortgage loan.
Since Management is currently under the assumption that the Trust will be
selling its Properties under the Plan, the 1994 Credit and the first mortgage
loans should be repaid through the sales of the Properties. The first mortgage
loans will be required to be paid off at the closing of the sale of the Property
securing the loan. The 1994 Credit will be paid down at the time any of the
Properties securing the 1994 Credit are sold.
Results of Operations
- ---------------------
FISCAL YEAR COMPARISON:
Income from real estate operations in 1996 increased $424,000 (14%) and $781,000
(29%) as compared to
-28-
<PAGE> 30
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations - (Continued)
-------------
Results of Operations - (Continued)
- ---------------------
1995 and 1994, respectively. The increases related primarily to higher rental
income in 1996 compared to both 1995 and 1994 and lower depreciation expense in
1996 compared to both 1995 and 1995. Rental income was $223,000 (2%) higher in
1996 than 1995, and $718,000 (7%) higher in 1996 than 1994. Depreciation expense
in 1996 was $16,000 (1%) and $142,000 (7%) lower than in 1995 and 1994,
respectively. Real estate operating expenses were $185,000 (4%) lower in 1996
than 1995, but $79,000 (2%) higher in 1996 than 1994. The reasons for these
variances in rental income, real estate operating expenses and depreciation
expense are described below.
The Trust considers the cyclical nature of real estate markets a normal part of
portfolio risk. The performance of the various real estate markets and economies
of the Southwest remains mixed. Improvement in the Trust's operations will
depend partially upon further economic recovery of the Southwest and, in
particular, the local markets and properties where the Trust operates,
especially Dallas, Texas.
1996 - 1995
Income from real estate operations increased $424,000 (14%) from 1995 to 1996.
Rental income increased $223,000 (2%) from 1995 to 1996. Real estate operating
expenses were $185,000 lower in 1996 than 1995. The increase in rental income
was primarily due to an increase in occupancy (91% at September 30, 1996 versus
81.5% at September 30, 1995) and an increase in average rental rates ($9.14 per
occupied square foot at September 30, 1996 versus $8.61 per occupied square foot
at September 30, 1995). The decrease in real estate operating expenses was
primarily due to the sales during 1995 of the 124 unit Parkwood Place Apartments
located in Greeley, Colorado and the 51,000 square foot Walnut Hill West office
building located in Dallas, Texas, as well as the March, 1996 sale of the
European Crossroads a office/retail complex located in Dallas, Texas. During
1996 the Trust received $225,000 of dividend income on securities owned. There
was no dividend income reported in 1995. At September 30, 1996, in accordance
with the Plan the Trust made a provision for valuation reserve of $3,307,000.
There was no provision made in 1995.
In 1996 the Trust recorded net gains on the sales of real estate totaling
$40,000 as the result of four sales. The sales were as follows: (i) In January
and February, 1996 the sale of three condominium units located in Davie, Florida
for a combined sale of $138,000, resulting in a total gain of $69,000; (ii)
March, 1996 $600,000 sale of the European Crossroads located in Dallas, Texas,
which resulted in a loss of $313,000; (iii) April, 1996 $115,000 sale of 7.42
acres of vacant land located in Akron, Ohio, which resulted in a gain of
$23,000; and (iv) September, 1996 $615,000 sale of two of the five buildings of
the Walnut Stemmons Office Park located in Dallas, Texas, which resulted in a
gain of $261,000. In 1995 the Trust reported gains on the sales of real estate
totaling $2,499,000 on the sales of four properties. These sales are described
in detail under the 1995 - 1994 analysis below.
In 1996 the Trust recorded gains on the sales of securities of $632,000. There
were no gains on the sales of securities for 1995. For 1996 there were no
extraordinary items. For 1995 the Trust reported $790,000 of extraordinary items
which are described under the 1995 - 1994 analysis below.
1995 - 1994
Income from real estate operations increased $357,000 (13%) from 1994 to 1995.
Rental income increased
-29-
<PAGE> 31
PART II
-------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations - (Continued)
-------------
Results of Operations - (Continued)
- ---------------------
$495,000 (5%) from 1994 to 1995. Real estate operating expenses were $264,000
(5%) higher in 1995 compared to 1994. The increase in rental income and real
estate operating expenses were primarily due to the Trust's purchase in August,
1994 of a 104,000 square foot office building located in Dallas, Texas.
Additionally, depreciation expense was $126,000 (6%) lower in 1995 than 1994.
The $343,000 (16%) decrease in interest expense was primarily due to lower
outstanding balances. In March, 1995 the Trust repaid a $498,000 first mortgage
loan on its shopping center located in Ardmore, Oklahoma. In May, 1995 the Trust
settled at a discount a $1,017,000 first mortgage loan on its office building
located in Englewood, Colorado. In February and March, 1995 the Trust repaid the
$3,460,000 1986 loan it had with a bank. Additionally, the Trust reduced the
1994 Credit balance from $7,689,000 to $6,600,000 (a reduction of $1,089,000)
during 1995.
In 1995 the Trust recorded gains totaling $2,499,000 as the result of four
property sales. The sales and gains were as follows: (i) February, 1995
$2,650,000 sale of the 197 room Quality Hotel located in St. Louis, Missouri,
which resulted in a gain of $452,000; (ii) March, 1995 $2,595,000 sale of the
124 unit Parkwood Place Apartments located in Greeley, Colorado which resulted
in a gain of $1,859,000; (iii) March, 1995 $800,000 sale of the 51,000 square
foot Walnut Hill West office building located in Dallas, Texas which resulted in
a gain of $97,000; and (iv) May, 1995 $212,000 sale of 17.7697 acres of vacant
land located in Akron, Ohio which resulted in a gain of $91,000. In 1994 the
Trust recorded gains on the sales of both a 69 acre and a 17 acre vacant land
parcel located in Akron, Ohio which resulted in total gains of $445,000.
In 1995 the Trust settled at a discount a $1,017,000 first mortgage loan on its
office building located in Englewood, Colorado. This settlement resulted in an
extraordinary income item of $52,000. In January 1994 the Trust's Petroleum Club
Building located in Tulsa, Oklahoma sustained a major fire. In July, 1994 the
Trust and its insurance company agreed on a settlement of $6,025,000. The Trust
has completed all necessary repairs and building improvements. Upon completion
of the work there was $738,000 of the settlement which had not been expended.
The Trust has recorded this $738,000 as an extraordinary income item in fiscal
1995. In addition $253,000 was the cost of building improvements made as part of
the building restoration. This $253,000 was capitalized as building improvements
and also was recorded as an extraordinary income item in fiscal 1994.
Dividends:
- ----------
For 1994 the Trust paid distributions to its shareholders of $735,000 or $.15
per share. For the shareholders $.07 per share of these distributions were
classified for tax purposes as dividends and $.08 per share were classified as
return of capital.
For 1995 the Trust paid distributions to its shareholders of $874,000 or $.16
per share. For the shareholders these distributions were classified for tax
purposes as dividends.
For 1996 the Trust paid distributions to its shareholders of $1,037,000 or $.20
per share. For the shareholders the $.04 per share paid in October, 1995 was
classified for tax purposes as dividends. The $.04 ($.16 total) per share paid
in January, April, July, and September, 1996 will be classified for tax purposes
as return of capital.
-30-
<PAGE> 32
PART II
-------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations - (Continued)
-------------
Income Taxes:
- -------------
At September 30, 1996 the Trust had net deferred tax assets of approximately
$3,048,000. As was the case at both September 30, 1995 and 1994 the Trust has
established a valuation allowance equal to its net tax assets as there is doubt
as to whether the net deferred tax asset will be realized.
Other:
- ------
Inflation, which has been at relatively low rates for the past three years, has
had an immaterial impact on the Trust's operations during the three-year period
ended September 30, 1996.
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
The response to this Item is submitted in a separate section of this report. See
Item 14 of this report for information concerning financial statements and
schedules filed with this report. The quarterly financial data required by this
item is included as Note L of the Notes to Financial Statements filed in Part
IV, Item 14 (a) (1) and (2).
Item 9. Disagreement on Accounting and Financial Disclosure.
- ------- ----------------------------------------------------
There has not been any change in the Trust's independent auditors, nor have
there been any disagreements concerning accounting principles, auditing
procedures, or financial statement disclosure within the twenty four (24) months
prior to the date of the most recent financial statements presented in this
report.
-31-
<PAGE> 33
PART III
Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
Except as set forth under "Executive Officers of the Registrant" following Item
4 of Part I, which is incorporated by reference, all information required by
this Item is incorporated by reference to the material under the caption
"Election of Trustees" to be contained in the definitive Proxy Statement to be
filed with the Commission not later than 120 days after the end of the fiscal
year covered by this report.
Item 11. Executive Compensation.
- -------- -----------------------
All information required by this Item is incorporated by reference to the
material under the caption "Executive Compensation" to be contained in the
definitive Proxy Statement to be filed with the Commission not later than 120
days after the end of the fiscal year covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
All information required by this Item is incorporated by reference to the
material under the caption "Beneficial Ownership of Principal Holders and
Management" of the definitive Proxy Statement to be filed with the Commission
not later than 120 days after the end of the fiscal year covered by this report.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
Information required by this Item with respect to certain relationships and
related transactions is incorporated by reference to the material under the
caption "Certain Transactions" to be contained in the definitive Proxy Statement
to be filed with the Commission not later than 120 days after the end of the
fiscal year covered by this report.
-32-
<PAGE> 34
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- -------- ----------------------------------------------------------------
(a) The following documents are filed as a part of this Report:
(1) The Financial Statements listed on the List of Financial
Statements and Financial Statement Schedules are filed as a
separate section of this Report.
(2) The Financial Statement Schedules listed on the List of the
Financial Statements and Financial Statement Schedules are
filed as a separate section of this Report.
(3) The exhibits required by Item 601 of Regulation S-K and
identified on the Exhibit Index contained in this Report.
(b) Reports on Form 8-K filed in the fourth quarter of Fiscal Year
1996:
Form 8-K dated September 24, 1996
Item 5. Other Events - - On September 24, 1996 the Board of
Trustees of CleveTrust Realty Investors (the "Trust")
determined that it would submit to the shareholders of the
Trust a plan for the orderly liquidation of the Trust
pursuant to Article XIII of the Trust's Declaration. A copy
of a News Release dated September 25, 1996 was filed as
Exhibit 99.1.
Item 7. Financial Statements and Exhibits - - Press Release
dated September 25, 1996.
(c) The exhibits being filed with this Report are identified on the
Exhibit Index contained in this Report.
(d) The Financial Statement Schedules are filed as a separate
section of this Report.
-33-
<PAGE> 35
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
CLEVETRUST REALTY INVESTORS
Dated: December 9, 1996 By: /s/ Michael R. Thoms
---------------------
Michael R. Thoms
Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*/s/ John C. Kikol Chairman of the Board of December 9, 1996
- --------------------------- Trustees, President and
John C. Kikol Principal Executive Officer
/s/ Michael R. Thoms Vice President, Treasurer
- --------------------------- Principal Financial Officer December 9, 1996
Michael R. Thoms and Principal Accounting
Officer
*/s/ Howard Amster Trustee December 9, 1996
- ---------------------------
Howard Amster
*/s/ Robert H. Kanner Trustee December 9, 1996
- --------------------------
Robert H. Kanner
*/s/ Leighton A. Rosenthal Trustee December 9, 1996
- ---------------------------
Leighton A. Rosenthal
*/s/ John D. Weil Trustee December 9, 1996
- ---------------------------
John D. Weil
*/s/ By: Michael R. Thoms December 9, 1996
- ---------------------------
Michael R. Thoms
Attorney-in-Fact
</TABLE>
-34-
<PAGE> 36
ANNUAL REPORT ON FORM 10-K
PART IV, ITEM 14(a)(1) and (2) and ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED SEPTEMBER 30, 1996
CLEVETRUST REALTY INVESTORS
WESTLAKE, OHIO
<PAGE> 37
Form 10-K -- Part IV, Item 14(a)(1) and (2)
CLEVETRUST REALTY INVESTORS
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements:
The following financial statements of CleveTrust Realty Investors are included
in Part II, Item 8:
Statement of Financial Condition -- September 30, 1996 and 1995
Statement of Operations -- Years ended September 30, 1996, 1995 and 1994
Statement of Cash Flows -- Years ended September 30, 1996, 1995 and 1994
Statement of Changes in Shareholders' Equity -- Years ended September 30,
1996, 1995 and 1994
Notes to Financial Statements
Financial Statement Schedules:
The following financial statement schedules of CleveTrust Realty Investors are
included in Part IV, Item 14(d):
Schedule III -- Real Estate and Accumulated Depreciation.
All other schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
F-1
<PAGE> 38
Report of Independent Auditors
Trustees and Shareholders
CleveTrust Realty Investors
Westlake, Ohio
We have audited the accompanying statement of financial condition of CleveTrust
Realty Investors as of September 30, 1996 and 1995, and the related statements
of operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended September 30, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perfortn 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 CleveTrust Realty Investors at
September 30, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 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.
Ernst & Young LLP
November 15, 1996
Cleveland, Ohio
F-2
<PAGE> 39
STATEMENT OF FINANCIAL CONDITION
CLEVETRUST REALTY INVESTORS
<TABLE>
<CAPTION>
September 30,
---------------------------------------------
1996 1995
-------------- --------------
(in thousands)
<S> <C> <C>
ASSETS
Invested assets - - NOTES A, C and D:
Properties held for sale $42,203 $203
Less: Valuation reserve 3,307 0
-------------- --------------
38,896 203
Investments in real estate
Improved properties 0 63,282
Less: Accumulated depreciation 0 22,543
-------------- --------------
0 40,739
Real estate mortgage loans 119 303
-------------- --------------
39,015 41,245
Cash and cash equivalents - - NOTE A 1,490 188
Investments in securities - - NOTE A 0 267
Other assets 3,347 1,376
-------------- --------------
TOTAL ASSETS $43,852 $43,076
============== ==============
LIABILITIES
Mortgage notes payable - NOTE E $9,563 $9,266
Bank notes payable - NOTE F 9,800 6,600
Accrued interest on notes payable - NOTE F 14 23
Accrued expenses and other liabilities 1,975 2,061
-------------- --------------
TOTAL LIABILITIES 21,352 17,950
SHAREHOLDERS' EQUITY
Shares of Beneficial Interest, par value $1 per Share - - NOTE G:
Authorized - - Unlimited
Issued and outstanding shares
(9/30/96 - 5,179,143; 9/30/95 - 5,217,143) 5,179 5,217
Additional paid-in capital 38,850 38,986
Accumulated deficit (21,529) (19,104)
-------------- --------------
22,500 25,099
Unrealized gains on securities 0 27
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 22,500 25,126
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $43,852 $43,076
============== ==============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 40
STATEMENT OF OPERATIONS
CLEVETRUST REALTY INVESTORS
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------
1996 1995 1994
------------ ----------- ----------
(in thousands, except per share data)
<S> <C> <C> <C>
INCOME
Real estate operations:
Rental income $10,368 $10,145 $9,650
Less:
Real estate operating expenses 5,060 5,245 4,981
Depreciation expenses 1,830 1,846 1,972
------- ------- -------
6,890 7,091 6,953
------- ------- -------
Income from real estate operations 3,478 3,054 2,697
Interest income 40 56 76
Dividend income 225 0 0
Other 12 26 29
------- ------- -------
3,755 3,136 2,082
EXPENSES
Interest:
Mortgage notes payable -- NOTE E 888 988 1,678
Bank notes payable -- NOTE F 886 789 442
------- ------- -------
1,774 1,777 2,120
General and Administrative 734 763 797
Provision for valuation reserve 3,307 0 0
------- ------- -------
5,815 2,540 2,917
------- ------- -------
OPERATING INCOME (LOSS) (2,060) 596 (115)
Net gains on sales of real estate -- NOTE D 40 2,499 445
Gains on sales of securities 632 0 0
------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (1,388) 3,095 330
Extraordinary items -- NOTES C and E 0 790 253
------- ------- -------
NET INCOME (LOSS) $(1,388) $3,885 $583
======= ======= =======
Per Share of Beneficial Interest -- NOTE A:
Operating income (loss) $(0.40) $0.11 $(0.02)
Net gains on sales of real estate 0.01 0.46 0.09
Gains on sales of securities 0.12 0.00 0.00
------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (0.27) 0.57 0.07
Extraordinary items 0.00 0.14 0.05
------- ------- -------
NET INCOME (LOSS) PER SHARE $(0.27) $0.71 $0.12
======= ======= =======
Weighted average number of Shares of
Beneficial Interest outstanding 5,186 5,459 4,959
======= ======= =======
</TABLE>
See notes to financial statements.
F-4
<PAGE> 41
STATEMENT OF CASH FLOWS
CLEVETRUST REALTY INVESTORS
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------
1996 1995 1994
---------- --------- ----------
(in thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $(1,388) $ 3,885 $ 583
Non-cash revenues and expenses included in income:
Depreciation 1,830 1,846 1,972
Provision for valuation reserve 3,307 0 0
Decrease in accrued interest on notes payable (9) (4) (33)
(Decrease) increase in accrued expenses and
other liabilities (86) (134) 351
Increase in other assets (1,971) (80) (67)
Reconciliation to net cash flow from operating activities:
Net gains on sales of real estate (40) (2,499) (445)
Gains on sales of securities (632) 0 0
Extraordinary items 0 (790) (253)
------- ------- -------
CASH FLOW FROM OPERATING ACTIVITIES 1,011 2,224 2,108
Cash flow from investing activities:
Equity investments:
Improvements to existing properties (972) (666) (853)
Purchase of property (3,465) 0 (3,918)
Proceeds from properties sold 1,386 5,545 879
Net insurance proceeds 0 738 253
Real estate mortgage loans:
Repayments 184 145 204
Investments in securities:
Securities purchased (2,057) (240) 0
Proceeds from sales of securities 2,929 0 0
------- ------- -------
NET CASH (USED IN) FROM INVESTING ACTIVITIES (1,995) 5,522 (3,435)
Cash flow from financing activities:
Mortgage notes payable:
Principal amortization payments (203) (330) (496)
Principal repayments 0 (1,463) (7,689)
Principal borrowings 500 0 2,170
Bank notes payable:
Principal amortization payments 0 (31) (147)
Principal repayments 0 (4,549) (5,162)
Principal borrowings 3,200 0 7,689
Certificate of Deposit 0 500 0
Distributions to shareholders (1,037) (874) (735)
Shares issued pursuant to rights offerings 0 0 5,929
Shares repurchased and subsequently retired (174) (1,062) (296)
------- ------- -------
NET CASH FROM (USED IN) FINANCING ACTIVITIES 2,286 (7,809) 1,263
------- ------- -------
Increase (decrease) in cash and cash equivalents 1,302 (63) (64)
Balance at beginning of year 188 251 315
------- ------- -------
Balance at end of year $ 1,490 $ 188 $ 251
======= ======= =======
</TABLE>
See notes to financial statements.
F-5
<PAGE> 42
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
CLEVETRUST REALTY INVESTORS
Years Ended September 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Shares Of Additional Unrealized Total
Beneficial Paid-In Accumulated Gains On Shareholders'
Interest Capital Deficit Securities Equity
--------- --------- ------------- ------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance October 1, 1993 $3,716 $35,916 $(21,963) $0 $17,669
Net income for the year ended
September 30, 1994 583 583
Cash distributions declared
and paid -- $.15 per share (735) (735)
Shares issued pursuant to
rights offering -- NOTE G 1,858 4,071 5,929
Shares repurchased and
subsequently retired -- NOTE G (103) (193) (296)
--------- --------- ---------- ------- ----------
Balance September 30, 1994 5,471 39,794 (22,115) 0 23,150
Net income for the year ended
September 30, 1995 3,885 3,885
Cash distributions declared
and paid -- $.16 per share (874) (874)
Shares repurchased and
subsequently retired -- NOTE G (254) (808) (1,062)
Change in unrealized gains
on securities 27 27
--------- --------- ---------- ------- ----------
Balance September 30, 1995 5,217 38,986 (19,104) 27 25,126
Net (loss) for the year ended
September 30, 1996 (1,388) (1,388)
Cash distributions declared
and paid -- $.20 per share (1,037) (1,037)
Shares repurchased and
subsequently retired -- NOTE G (38) (136) (174)
Change in unrealized gains
on securities (27) (27)
--------- --------- ---------- ------- ----------
Balance September 30, 1996 $5,179 $38,850 $(21,529) $0 $22,500
========= ========= ========== ======= ==========
</TABLE>
F-6
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS
CLEVETRUST REALTY INVESTORS
Years Ended September 30, 1996, 1995 and 1994
NOTE A - - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CleveTrust Realty Investors is a business trust organized in the State of
Massachusetts, but with its headquarters in Ohio. The Trust's primary business
objective is the ownership and operation of improved real estate.
USE OF ESTIMATES: The preparation of financial statements requires Management to
make estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which could affect the amounts
reported and disclosed herein.
INCOME RECOGNITION: Rental income from improved properties is generally recorded
as it accrues. Interest on mortgage loans is recognized as income as it accrues
during the period the loans are outstanding except where collection of interest
is considered doubtful. Contingent rents and interest are recognized as income
when determinable. Accrual of income is suspended on any investment when the
collection of rent, principal, or interest is doubtful.
REAL ESTATE: In accordance with Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" the Trust reviews long-lived assets whenever events or
changes in circumstances indicated that the carrying amount of an asset may not
be recoverable. If, based on this review, the sum of expected future cash flows
from an asset is less than the carrying amount, an impairment loss is recognized
to the extent that the carrying amount exceeds the asset's fair value.
Additionally, SFAS No. 121 requires that long-lived assets to be disposed of be
carried at the lower of amortized cost or fair market value, less cost to sell,
whichever is lower.
On September 24, 1996 the Trustees of the Trust unanimously voted to recommend a
Plan for the Orderly Liquidation of the Trust ("the Plan"). The Plan, as
proposed, would involve the sale of the Trust's properties during a period of
approximately three years. Based on this announcement the Trust has reclassified
all of its properties at September 30, 1996 in accordance with SFAS No. 121 to
Properties Held for Sale. A review of the carrying value of all the properties
at September 30, 1996 determined that certain properties had a carrying value
lower than the estimated fair market value, less cost to sell. Therefore, a
valuation reserve was established for those properties. (See NOTE C)
Prior to the adoption by the Trust of SFAS No. 121, the Trust regularly
evaluated the recoverability of each investment in the portfolio. When
appropriate, an allowance for possible investment losses was provided for
properties acquired through foreclosure or deed in lieu of foreclosures. In
fiscal 1994 the Trust applied the allowance for possible investment losses to
three previously foreclosed properties for which it had been provided. The Trust
concluded that it was unlikely that the value of these properties would recover.
Therefore, they were written down to their net realizable value through
application of the allowance.
Real estate previously acquired by the Trust pursuant to normal real estate
purchase transactions was recorded at cost. Real estate acquired by foreclosure
or deed in lieu of foreclosure was recorded at estimated fair value at the date
of acquisition, but not in excess of the unpaid balance of the related loan plus
costs of securing title to and possession of the property.
DEPRECIATION: Depreciation on equity investments is computed by the
straight-line method at rates based upon the expected economic lives of the
assets which range from 31 to 40 years for buildings, 5 to 40 years for other
property and the specific length of the tenant lease for tenant improvements.
Additionally, one building and its permanent improvements are depreciated over a
life of 55 years. In accordance with the Plan, properties held for sale will not
be depreciated in Fiscal year 1997.
F-7
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE A - - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES - - CONTINUED
REPAIRS AND CAPITAL IMPROVEMENTS: Expenditures for repairs and maintenance which
do not add to the value or prolong the useful life of property owned are charged
to expense as incurred; those expenditures for improvements which do add to the
value or extend the useful life are capitalized.
CASH AND CASH EQUIVALENTS : The Trust defines cash and cash equivalents as cash
in bank accounts and investments in marketable securities, primarily short-term
commercial paper with original maturities of three months or less.
INVESTMENTS IN SECURITIES: At September 30, 1996 the Trust did not own any
equity securities. At September 30, 1995 the Trust classified its investments in
equity securities in accordance with Statement of Financial Accounting Standards
No. 115 "Accounting for Certain Investments in Debt and Equity Securities," as
available for sale and as a result they were stated at their fair value. The
effect of the unrealized gains was included as a component of Shareholders'
Equity. Realized gains are calculated on an actual cost basis.
INCOME TAXES: Deferred income taxes are recognized for temporary differences
between the financial reporting basis of assets and liabilities and their
respective tax basis and for operating and capital loss and tax credit
carryforwards based on enacted tax rates expected to be in effect when such
amounts are realized or settled. However, deferred tax assets are recognized
only to the extent that it is more likely than not that they will be realized
based on consideration of available evidence including tax planning strategies
and other factors. The effects of changes in tax laws or rates on deferred tax
assets and liabilities are recognized in the period that includes the enactment
date.
NET INCOME PER SHARE: Net income per Share of Beneficial Interest has been
computed using the weighted average number of Shares of Beneficial Interest
outstanding each year.
RECLASSIFICATION: Certain items in previously issued financial statements have
been reclassified to conform to 1996 presentations.
NOTE B - - INCOME TAXES
The Trust's deferred tax assets and liabilities at September 30, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(in thousands)
<S> <C> <C> <C>
Deferred tax assets:
Properties held for sale - valuation reserve $ 1,124 $ -0-
Investments in real estate - write-downs -0- 1,752
Net operating and capital loss carryforwards 3,456 2,167
Other -0- 489
Deferred tax liabilities:
Depreciation (1,489) (1,841)
Other (43) -0-
------ ------
3,048 2,567
Valuation allowance (3,048) (2,567)
------ ------
Net deferred tax asset/(liability) $ -0- $ -0-
====== ======
</TABLE>
F-8
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE B - - INCOME TAXES - - CONTINUED
The Trust maintains a valuation reserve equal to its net deferred tax asset as
there is doubt as to whether the net deferred tax asset will be realized.
For the fiscal year ended September 30, 1996 the Trust had a net loss for tax
purposes and therefore had no income tax expense. Additionally, the Trust had no
income tax expense for the fiscal year ended September 30, 1995. A
reconciliation between the 1995 results and the amount of income tax expense
that would result from applying Federal statutory rates to pretax income is as
follows:
<TABLE>
<CAPTION>
9/30/96 9/30/95
------- -------
(in thousands)
<S> <C> <C>
Expected income tax expense at
Federal statutory tax rate $ (472) $1,321
Increase (decrease) in taxes resulting from:
Effect of temporary differences (853) (535)
(Recognized) unrecognized net operating
loss carryforward 1,325 (786)
------ ------
Income Tax Expense $ -0- $ -0-
====== ======
</TABLE>
At September 30, 1996 the Trust had, for federal tax purposes, net operating
loss and capital loss carryforwards of approximately $10.2 million. The use of
the net operating loss carryforwards is limited by Section 382 of the Internal
Revenue Code with effect for losses associated with years prior to December 28,
1992. Net capital loss carryforwards can only be utilized to the extent that net
capital gains are incurred during the next five year period. The Trust can use
approximately $ 298,000 per year of net operating loss carryforwards, plus gains
of the sales of properties ("built in gains"), plus any prior years' unused
portion (limited by carryforward periods) for losses generated prior to December
28, 1992. The Trust can also use carryforwards generated post December 28, 1992.
These carryforwards of approximately $9.5 million expire through 2011. The
remaining carryforwards of $700,000 may be recognized for a period through
fiscal 1998 against gains on sales of properties, if any , to the extent that
fair market values of these properties exceeded their tax bases as of December
28, 1992.
F-9
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE C - - PROPERTIES
The following is a summary of the Trust's properties held for sale and related
indebtedness at September 30, 1996:
<TABLE>
<CAPTION>
Income from
Total Accumulated Valuation Carrying Real Estate Amount of
Classification Cost Depreciation Reserve Value Operations Indebtness
- ------------------------------ ----------------- -------------- ---------- ---------- --------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Office Buildings:
Englewood, Colorado $6,103 $3,108 $0 $2,995 $375 $0
Denver, Colorado 4,623 2,966 0 1,657 351 0
Littleton, Colorado 3,166 1,398 0 1,768 210 1,209
Tulsa, Oklahoma 6,959 4,408 551 2,000 10 0
Dallas, Texas 2,452 1,792 0 660 66 0
Dallas, Texas 11,048 3,502 2,546 5,000 (3) 0
Dallas, Texas 4,312 272 0 4,040 302 2,612
Arlington, Texas 2,208 24 0 2,184 78 0
----------------- -------------- --------- ---------- ------ ----------
40,871 17,470 3,097 20,304 1,389 3,821
Commercial Properties:
Hilton Head, S. C. 1,911 1,104 0 807 277 0
Austin, Texas 8,225 2,174 0 6,051 559 5,742
Davenport, Iowa 5,579 1,078 0 4,501 472 0
Dubuque, Iowa 5,367 1,174 0 4,193 447 0
Ardmore, Oklahoma 4,081 948 133 3,000 291 0
----------------- -------------- --------- ---------- ------ ----------
25,163 6,478 133 18,552 2,046 5,742
Land 117 0 77 40 (1) 0
----------------- -------------- --------- ---------- ------ ----------
Total of all properties $66,151 $23,948 $3,307 $38,896 3,434 $9,563
================= ============== ========= ========== ====== ==========
</TABLE>
Following is a summary of activity with regards to the properties for the three
years ended September 30, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- -------------- --------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $40,942 $45,380 $49,394
Improvements to existing properties 972 666 853
Purchase of properties 3,465 0 3,918
Sales of properties - NOTE D (1,346) (3,258) (724)
Valuation reserve (3,307) 0 0
Application of allowance for investment losses 0 0 (6,089)
Depreciation (1,830) (1,846) (1,972)
----------------- -------------- --------------
Balance, end of year $38,896 $40,942 $45,380
================= ============== ==============
</TABLE>
F-10
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTES C - - PROPERTIES - - CONTINUED
On February 20, 1996 the Trust completed the purchase of the land on which its
Englewood Bank Building is located. This land, which was previously leased by
the Trust, was purchased for a price of $1,263,000.
On March 28, 1996 the Trust purchased a 52,554 square foot suburban office
building located in Arlington, Texas for a purchase price of $2,202,000.
On August 26, 1994 the Trust purchased a 104,000 square foot office building
located in Dallas, Texas for $3,918,000. Of this amount $2,170,000 was provided
by a first mortgage loan on the property, which the Trust obtained at the time
of the purchase.
On January 18, 1994 the Trust's Petroleum Club Building located in Tulsa,
Oklahoma sustained a major fire. In July, 1994 the Trust and its insurance
company agreed on a settlement of $6,025,000. The Trust has completed all
necessary repairs and building improvements for an amount less than the
settlement. The Trust has recorded $738,000 as an extraordinary income item in
fiscal 1995. The cost of building improvements made as part of the building
restoration was $253,000 was capitalized and recorded as an extraordinary income
item in fiscal 1994.
NOTE D - - REAL ESTATE SALES
The fiscal 1996 net gains on sales of real estate totaling $40,000 include the
following: (i) $69,000 which represents the gain the Trust realized on its
January and February, 1996 sales of three condominium units located in Davie,
Florida for a combined sales price of $138,000; (ii) a loss of $313,000 the
Trust realized on its March, 1996 $600,000 sale of the European Crossroads
office/retail complex on 11.5 acres of land located in Dallas, Texas; (iii)
$23,000 represents the gain the Trust realized on its April, 1996 $115,000 sale
of 7.42 acres of vacant land located in Akron, Ohio; and (iv) $261,000
represents the gain the Trust realized on its September, 1996 $615,000 sale of
two of the five buildings comprising the Walnut Stemmons Office Park located in
Dallas, Texas.
The fiscal 1995 gains on sales of real estate totaling $2,499,000 include the
following: (i) $452,000 which represents the gain the Trust realized on its
February, 1995 $2,650,000 sale of the 197 room Quality Hotel located at the
airport in St. Louis, Missouri; (ii) $1,859,000 represents the gain the Trust
realized on its March, 1995 $2,595,000 sale of the 124 unit Parkwood Place
Apartments located in Greeley, Colorado; (iii) $97,000 represents the gain the
Trust realized on its March, 1995 $800,000 sale of the 51,000 square foot Walnut
Hill West office building located in Dallas, Texas; and (iv) $91,000 represents
the gain the Trust realized on its May, 1995 $212,000 sale of 17.7697 acres of
vacant land located in Akron, Ohio. The Trust received a purchase money mortgage
for the total $212,000 purchase price in connection with the sale.
The fiscal 1994 gains on sales of real estate totaling $445,000 include the
following: (i) $361,000 which represents the gain the Trust realized on its
March, 1994 $834,000 sale of 70 acres of vacant land located in Akron, Ohio. The
Trust received a purchase money mortgage for $290,000 of the purchase price in
connection with the sale; and (ii) $84,000 which represents the gain the Trust
realized on its August, 1994 $198,000 sale of 16.6 acres of vacant land located
in Akron, Ohio.
NOTE E - - MORTGAGE NOTES PAYABLE
At September 30, 1996 the mortgage notes payable of the Trust are non-recourse
mortgages except the first $750,000 of the $2,612,000 loan maturing August 19,
2000 which is recourse to the Trust. The following data pertains to the mortgage
notes payable as of September 30, 1996.
F-11
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE E - - MORTGAGE NOTES PAYABLE - - CONTINUED
<TABLE>
<CAPTION>
Book Value
Of The
Investment
Mortgage Securing Base Interest
Notes Payable The Debt Maturity Rate
------------- -------- -------- ----
(in thousands)
<S> <C> <C> <C>
$ 5,742 $ 6,051 May 7, 2002 8.300%
2,612 4,040 Aug. 19, 2000 8.300
1,209 1,768 July 1, 2003 8.125
-------- -------
$ 9,563 $ 11,859
======== ========
</TABLE>
On October 7, 1996 the Trust completed the sale of the Littleton Bank building
located in Littleton, Colorado (see NOTE J). This property secured the above
listed $1,209,000 loan which was to mature July 1, 2003. This loan was repaid on
October 7, 1996 in connection with the sale of the property.
Required payments on the Trust's two remaining mortgage notes payable for the
succeeding five years are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30, Principal Interest Total
(in thousands)
<S> <C> <C> <C>
1997 $ 221 $ 682 $ 903
1998 240 663 903
1999 260 643 903
2000 2,712 587 3,299
2001 252 396 648
</TABLE>
Effective December 28, 1995 the Trust and its Lender modified the first mortgage
loan on the 14800 Quorum Office Building located in Dallas, Texas as follows:
The Trust borrowed an additional $500,000, which increased the outstanding
borrowings to $2,640,000 at the time of the transaction. Additionally, the
interest rate, which was 1.75% over the prime lending rate (9.5% at the time of
the modification) adjusted every two years, was changed to a fixed rate of 8.3%,
effective January 1, 1996, until the maturity date of August 19, 2000.
Effective September 1, 1996 the Trust and its Lender modified the first mortgage
loan on the Cannon West Shopping Center located in Austin, Texas as follows: The
interest rate was reduced from 9.5% to 8.3% and the maturity date was extended
five years from May 7, 1997 to May 7, 2002.
On March 16, 1995 the Trust repaid a $498,000 first mortgage loan on its
shopping center located in Ardmore, Oklahoma. This loan had a maturity date of
June 16, 1996. On May 1, 1995 the Trust settled at a discount, a $1,017,000
first mortgage loan on its office building located in Englewood, Colorado, which
had a maturity date of February 1, 1999. This settlement resulted in an
extraordinary income item of $52,000.
Total interest expense on mortgage notes payable did not differ materially from
interest paid.
F-12
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE F - - BANK NOTES PAYABLE
At September 30, 1996 the bank notes payable included $9,800,000 of borrowings
under the 1994 Credit Agreement. At September 30, 1995 the bank notes payable
included $6,600,000 of borrowings under the 1994 Credit Agreement.
Effective November 30, 1994 the Trust converted a September 30, 1994 $7,689,000
demand note to a revolving line of credit ("1994 Credit") issued by National
City Bank of Cleveland, Ohio ("NCB") and Manufacturer's and Traders Trust
Company of Buffalo, New York ("M&T"). The 1994 Credit is for up to $25,000,000
(but is limited by the value of the collateral provided). Of this amount a
maximum of $15,000,000 is currently available and $10,000,000 will be available
at the Trust's discretion upon payment of an activation fee of 3/4 of 1% on the
$10,000,000. The initial term of the 1994 Credit was three years. Each year the
lenders will review the 1994 Credit with the right to extend it for one
additional year. The lenders have extended the 1994 Credit to March 1, 1999.
Interest only payments, which is at the option of the Trust, will be at either
(i) 1/4 of 1% over the prime rate; (ii) 250 basis points over the LIBOR rate; or
(iii) NCB's fixed interest rate available from time to time. Additionally, a
commitment fee of 3/8 of 1% is due on any funds available but not borrowed. The
1994 Credit is secured by certain of the Trust's real estate investments and
contains certain covenants including a covenant for a minimum shareholders'
equity. At September 30, 1996 the amount of shareholders' equity free from such
restriction was approximately $2,500,000.
The Trust also had a loan with another bank which was scheduled to mature
December 25, 1993 but, had been extended to December 25, 1997. The interest rate
was prime plus 1% with a minimum rate of 7.5%. The Trust was required to make
monthly amortization payments based on a twenty-year amortization schedule. On
February 28, 1995 the Trust made a principal payment of $2,200,000 and on March
15, 1995 paid off the remaining balance of $1,260,000.
Total interest expense on bank notes payable did not differ materially from
interest paid.
NOTE G - - SHARES OF BENEFICIAL INTEREST
On December 7, 1995 the Trust repurchased 38,000 of its Shares of Beneficial
Interest for $174,000 in an open market purchase. These shares were retired by
the Trust.
On August 21, 1995 the Trust mailed an Offer to purchase for cash an aggregate
of 500,000 Shares of Beneficial Interest for a price of $4.00 per share to each
shareholder of the Trust. The Offer ended September 22, 1995 and at its
conclusion 239,553 shares were purchased and retired by the Trust. In addition
to the $4.00 per share the Trust incurred costs of $56,000 in connection with
the Offer.
On April 17, 1995 the Trust repurchased 14,000 of its Shares of Beneficial
Interest for $48,000 in an open market purchase. These shares were retired by
the Trust.
On June 26, 1994 the Trust repurchased 103,210 of its Shares of Beneficial
Interest for $296,000 in an open market purchase. These shares were retired by
the Trust.
On November 23, 1993 the Trust mailed a prospectus and certificate of rights to
all shareholders of record as of November 12, 1993. The certificates entitled
the shareholder to the right to purchase one Share of Beneficial Interest of the
Trust for every two Shares owned at a price of $3.25 per Share. Additionally,
this offering also provided for an oversubscription privilege which entitled
each holder of a right to subscribe for Shares not purchased by other holders of
rights. Oversubscriptions were allocated prorata based on the number of Shares
owned. The offering expired on January 28, 1994. All 1,857,969 Shares available
were sold. The net proceeds to the Trust totaled $5,929,000.
F-13
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE G - - SHARES OF BENEFICIAL INTEREST - - CONTINUED
On February 21, 1992 the shareholders of the Trust approved the amended and
extended 1983 Incentive Stock Option Plan, now titled the 1992 Stock Option Plan
("1992 Plan"). Under the 1992 Plan, an additional 200,000 Shares of Beneficial
Interest of the Trust are reserved and made available for issuance of options to
officers and employees of the Trust at the discretion of the Board of Trustees.
The original plan had reserved 100,000 Shares. The 1992 Plan is extended to
October 21, 2011. The option price is the fair market value on the date of the
grant and no option shall be exercisable for less than 100% of this value. Under
the 1992 Plan, the share appreciation rights granted previously will be
unaffected; however, no share appreciation rights will be issued with grants of
the 200,000 new Shares or the 17,500 Shares remaining from the original 100,000
Shares. Share appreciation rights entitle the holder to receive the difference
between the market value on the date of exercise and the option price in Shares,
cash or a combination thereof, at the discretion of the Board of Trustees.
In connection with the Trustees' Plan of Liquidation, the four primary officers
of the Trust have executed new employment contracts effective September 1, 1996.
As part of these contracts the officers waive all rights with respect to
unexercised options. In return, additional compensation will be paid to the
officers, based on a calculation of a minimum threshold of the distributions to
the Shareholders during the liquidation period. Such amounts will be expensed as
incurred.
NOTE H - - PENSION PLAN
The Trust has a defined contribution pension plan covering all full-time
employees of the Trust. Contributions are determined as a set percentage of each
covered employee's annual cash compensation. Contributions by the Trust are
accrued during the year and paid prior to the filing of the Trust's federal
income tax return for said year. For fiscal 1996 the Trust accrued $30,000 for
contributions to the pension plan (for fiscal 1995 - $24,000 and fiscal 1994 -
$31,000).
NOTE I - - OPERATING LEASES
Minimum future rentals due the Trust on noncancelable leases for the succeeding
five fiscal years and thereafter are as follows: 1997, $7,841,000; 1998,
$6,526,000; 1999, $5,324,000; 2000, $3,3716,000; 2001, $2,777,000; and
$9,214,000 thereafter. Certain leases provide for contingent rentals. The Trust
received $123,000 of contingent rentals for 1996 ($123,000 for 1995 and $131,000
for 1994). The Trust's carrying amount at September 30, 1996 of these real
estate investments consists of land of $7,547,000 and improvements of
$58,487,000, less accumulated depreciation of $23,948,000 and valuation reserve
of $3,307,000.
NOTE J - - SUBSEQUENT EVENTS
On October 7, 1996 the Trust completed a $2,450,000 sale of the Littleton Bank
Building located in Littleton, Colorado. This sale resulted in a gain of
approximately $563,000 which will be reported in the first quarter of Fiscal
Year 1997.
F-14
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS - - CONTINUED
NOTE K - - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended September 30, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
Quarter Ended Dec. 31 Mar. 31 June 30 Sept. 30
- ------------- ------- ------- ------- --------
(in thousands, except per share data)
1996
- ----
<S> <C> <C> <C> <C>
Operating revenues $ 2,638 $ 2,657 $ 2,693 $ 2,657
Operating income (loss) 331 316 258 (2,965)
Net Income (loss) 331 72 281 (2,072)
Operating income (loss) per share (1) .06 .06 .05 (.57)
Net Income (Loss) per share (1) .06 .01 .06 (.40)
1995
- ----
Operating revenues $ 2,666 $ 2,614 $ 2,486 $ 2,461
Operating income before
extraordinary item 67 94 255 180
Extraordinary item 0 0 52 738
Net income 67 2,502 398 918
Operating income per share before
extraordinary item (1) .01 .02 .05 .03
Extraordinary item per share (1) .00 .00 .02 .12
Net income (loss) per share (1) .01 .46 .08 .16
<FN>
(1) Per Share calculations for each of the quarters is based on a weighted
average number of shares outstanding for each period and, therefore, the
sum of the quarters may not necessarily equal full-year amounts.
</TABLE>
F-15
<PAGE> 52
SCHEULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
CLEVETRUST REALTY INVESTORS
As of September 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
Amount at which carried at
Initial Coto Trust September 30, 1996
----------------------- Cost of -----------------------------------
Description Encumbrances Land Improvements Improvements Land Improvements Total (1), (4)
--------------------- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Office Buildings:
Englewood Bank Bldg.
Englewood, CO $0 $1,263 $4,328 $512 $1,263 $4,840 $6,103
Executive Club Bldg
Denver, CO 0 165 2,834 1,624 165 4,458 4,623
Littleton Bank Bldg
Littleton, CO 1,209 0 2,738 428 0 3,166 3,166 (6)
Petroleum Club Bldg
Tulsa,OK 0 648 3,306 3,005 648 6,311 6,959 (3)
Walnut Stemmons Office Park
Dallas, TX 0 228 1,489 735 228 2,224 2,452
Office Alpha
Dallas, TX 0 1,500 8,439 1,109 1,500 9,548 11,048 (3)
14800 Quorum Bldg
Dallas, TX 2,612 335 3,583 394 335 3,977 4,312
Brookside Office Bldg
Arlington, TX 0 300 1,902 6 300 1,908 2,208
Commercial Properties:
Triangle Square
Hilton Head, SC 0 135 1,157 619 135 1,776 1,911
Cannon West
Austin, TX 5,742 874 6,758 593 874 7,351 8,225
Spring Village
Davenport, IA 0 1,013 4,373 193 1,013 4,566 5,579
Warren Plaza
Dubuque, IA 0 401 4,800 166 401 4,966 5,367
Tiffany Plaza
Ardmore, OK 0 684 2,847 550 684 3,397 4,081 (3)
Vacant Land
Akron, OH 0 117 0 0 117 0 117 (3)
-------------- ------------------------------------ -----------------------------------
Totals $9,563 $7,663 $48,554 $9,934 $7,663 $58,488 $66,151
============== ==================================== ===================================
<CAPTION>
Accumulated Construction Date Depreciation
Description Depreciation (2) Completed Acquired Lives (5)
--------------------- --------------------------------------------------------
<S> <C> <C> <C> <C>
Office Buildings: (Various from)
Englewood Bank Bldg.
Englewood, CO $3,108 1970 1971 5 to 40 years
Executive Club Bldg
Denver, CO 2,966 1971 1972 5 to 40 years
Littleton Bank Bldg
Littleton, CO 1,398 1972 1973 5 to 55 years
Petroleum Club Bldg
Tulsa,OK 4,408 1963 1972 5 to 40 years
Walnut Stemmons Office Park
Dallas, TX 1,792 1971 1975 5 to 35 years
Office Alpha
Dallas, TX 3,502 1981 1983 5 to 40 years
14800 Quorum Bldg
Dallas, TX 272 1980 1994 5 to 40 years
Brookside Office Bldg
Arlington, TX 24 1986 1996 5 to 40 years
Commercial Properties:
Triangle Square
Hilton Head, SC 1,104 1975 1976 5 to 35 years
Cannon West
Austin, TX 2,174 1981 1987 5 to 40 years
Spring Village
Davenport, IA 1,078 1980 1987 5 to 40 years
Warren Plaza
Dubuque, IA 1,174 1980 1987 5 to 40 years
Tiffany Plaza
Ardmore, OK 948 1975 1989 10 to 31 years
Vacant Land
Akron, OH 0 N/A 1975 N/A
-----------------
Totals $23,948
=================
</TABLE>
F-16
<PAGE> 53
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - - CONTINUED
CLEVETRUST REALTY INVESTORS
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1996 1995 1994
--------------- ------------ -------------
<S> <C> <C> <C>
(1) Reconciliation of real estate:
Balance of real estate at October 1, 1995,
1994 and 1993, respectively $63,485 $71,028 $73,296
Additions during period:
Cost of Improvements 972 666 853
Purchase of Property 3,465 0 3,918
--------------- ------------ -------------
Total Additions 4,437 666 4,771
--------------- ------------ -------------
67,922 71,694 78,067
Application of allowance for investment losses 0 0 6,089
Less carrying amount of real estate sold
or disposed 1,771 8,209 950
--------------- ------------ -------------
Balance of real estate at September 30,
1996, 1995 and 1994, respectively $66,151 $63,485 $71,028
=============== ============ =============
(2) Reconciliation of accumulated depreciation:
Balance of accumulated depreciation at
October 1, 1995, 1994 and 1993, respectively $22,543 $25,648 $23,902
Additions charged to expenses 1,830 1,846 1,972
--------------- ------------ -------------
24,373 27,494 25,874
Accumulated depreciation on real estate
sold or disposed 425 4,951 226
--------------- ------------ -------------
Balance of accumulated depreciation at
September 30, 1996, 1995 and 1994, respectively $23,948 $22,543 $25,648
=============== ============ =============
</TABLE>
(3) On September 24, 1996 the Trustees of the Trust unanimously voted to
recommend a Plan for the Orderly Liquidation of the Trust (the "Plan"). Since
the Trust had previously adopted Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Aseets to
be Disposed of" ("SFAS No. 121") the Trust, effective September 30, 1996,
classified all real estate owned as Property held for sale. In accordance with
this classification the Trust reviewed the fair value of all of its property.
The Trust has established a valuation reserve against four of its properties as
follows:
<TABLE>
<S> <C>
Petroleum Club Bldg - Tulsa OK $551,000
Office Alpha - Dallas, TX 2,546,000
Tiffany Plaza - Ardmore, OK 133,000
Vacant Land - Akron, OH 77,000
---------------
Total Valuation reserve $3,307,000
===============
</TABLE>
(4) The Trust's aggregate cost for federal income tax purposes at September 30,
1996 was $66,263,000. The Trust's federal income tax return for the year ended
September 30, 1996 has not yet been filed.
(5) Depreciation lives exclude tenant improvements which are depreciated over
the specific lease term involved.
(6) At September 30, 1996 the Trust owned the building improvements subject to a
long term ground lease. On October 7, 1996 the Trust sold the improvements to
gound lease holder. The Trust will recognize a gain of approximately $563,000 in
the first quarter of the fiscal year ending September 30, 1997.
F-17
<PAGE> 54
CLEVETRUST REALTY INVESTORS
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED SEPTEMBER 30, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
"Assigned" Location of
Exhibit No. * Description Exhibit
------------- ----------- -------
<S> <C> <C>
(3) (A) Second Amended and Restated Declaration Incorporated by
of Trust. reference to Exhibit
(3) to Registration
Statement on
Form S-2, File
Number, 33-46552.
(3) (B) By-Laws Incorporated by
reference to Exhibit
(3) to Report on
Form 10-K for the
fiscal year ended
September 30, 1986.
(File No. 0-5641)
(4) (1) Credit Agreement By and Amoung CleveTrust Realty Incorporated by reference
Investors, Borrower, National City Bank, as Agent, to Exhibit (4) to Form
and The Banks Identified Herein dated as of 10-K for the fiscal year
November 30, 1994. ended September 30, 1994.
(4) (2) Amendment to Credit Agreement dated as of April Incorporated by reference
28, 1995 to the Credit Agreement By and Amoung to Exhibit (4) to Form
CleveTrust Realty Investors, Borrower, National 10-K for the fiscal year
City Bank, as Agent, and The Banks Identified ended September 30, 1995.
Herein dated as of November 30, 1994.
(4) (3) Deed of Trust and Security Agreement made as of Incorporated by
May 28, 1987 between CleveTrust Realty Investors reference to Exhibit (4)
and The Northwestern Mutual Life Insurance Company. to Report on Form 10-K
for the fiscal year ended
September 30, 1987.
(File No. 0-5641)
(4) (4) Promissory Note dated May 28, 1987 in the amount Incorporated by
of $6,500,000 with respect to the Deed of Trust reference to Exhibit (4)
and Security Agreement made as of May 28, 1987 to Report on Form 10-K
between CleveTrust Realty Investors and the for the fiscal year ended
Northwestern Mutual Life Insurance Company September 30, 1987.
(File No. 0-5641)
Certain of the Registrant's assets are subject to
long-term mortgage obligations each of which
individually relates to indebtedness totaling less
than 10% of the total assets of the Registrant. The
Registrant hereby agrees to furnish a copy of such
agreements to the Commission upon its request.
</TABLE>
<PAGE> 55
CLEVETRUST REALTY INVESTORS
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED SEPTEMBER 30, 1996
EXHIBIT INDEX
--(CONTINUED)--
<TABLE>
<CAPTION>
"Assigned" Location of
Exhibit No. * Description Exhibit
------------- ----------- -------
<S> <C> <C>
Exhibits (10) (1) through (10) (5) represent Management contracts or compensation plans or arrangements.
(10) (1) Amended and Restated Employment Agreement Filed herewith
effective as of September 1, 1996 between electronically
CleveTrust Realty Investors and John C. Kikol.
(10) (2) Amended and Restated Employment Agreement Filed herewith
effective as of September 1, 1996 between electronically
CleveTrust Realty Investors and Michael R. Thoms.
(10) (3) Amended and Restated Employment Agreement Filed herewith
effective as of September 1, 1996 between electronically
CleveTrust Realty Investors and Raymond C. Novinc.
(10) (4) Amended and Restated Employment Agreement Filed herewith
effective as of September 1, 1996 between electronically
CleveTrust Realty Investors and Brian D.
Griesinger.
(10) (5) CleveTrust Realty Investors 1992 Incorporated by
Incentive Stock Option Plan. reference to Exhibit (10)
to Registration Statement
on Form S-2, File Number,
33-46552.
(11) Computation of net income (loss) per share of Filed herewith
beneficial interest. electronically
(23) Consent of Independent Auditors. Filed herewith
electronically
(24) Power of Attorney. Filed herewith
electronically
(27) Financial Data Schedule. Filed herewith
electronically
<FN>
* Exhibits 2, 9, 12, 13, 16, 18, 19, 21, 22, and 28 are either inapplicable to the Trust or require no answer.
</TABLE>
<PAGE> 1
Exhibit (10)(1)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT, (which hereinafter, along
with all Exhibits and Schedules referenced herein and attached hereto, is
referred to as the "Agreement") is made by and between CLEVETRUST REALTY
INVESTORS, a Massachusetts voluntary association of the type generally known as
a business trust (the "Trust"), and John C. Kikol ("Officer"). The Trust and the
Officer are sometimes referred to as a "party" or, collectively, as the
"parties."
R E C I T A L S:
A. The parties entered into an Amended and Restated Employment Agreement
dated as of January 1, 1993 pursuant to which the Officer was retained as the
Trust's President.
B. The Board of Trustees of the Trust (the "Board") has resolved to
recommend to the Trust's shareholders that all Trust properties be sold and that
the Trust be liquidated over a period of three years or the Trust properties be
otherwise disposed of in a merger, consolidation or similar transaction (the
"Liquidation Process"), and the Board desires to retain the Officer as President
to implement and oversee the Liquidation Process.
C. As an inducement to the Officer to continue in the employment of the
Trust as its President during the Liquidation Process, the parties desire to
amend and completely restate the terms of the Officer's employment agreement as
set forth below, effective September 1, 1996.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, the parties hereby agree as follows provided that this
Agreement is subsequently approved by the Trust's shareholders:
SECTION 1. STATUS OF PRIOR AGREEMENT.
---------- --------------------------
The Officer's current employment agreement with the Trust shall be
superseded by the terms of this Agreement effective September 1, 1996 provided
that as conditions subsequent the Trust's shareholders approve of this Agreement
and the Liquidation Process. The members of the Board who hold shares in the
Trust shall vote such shares in favor of the adoption of this Agreement and the
Liquidation Process at the time of such shareholder vote. If for any reason this
Agreement does not become effective, the Officer's current employment agreement
shall remain in force according to its terms.
<PAGE> 2
SECTION 2. CONTINUATION OF OFFICER'S SERVICES.
---------- -----------------------------------
Until such employment is terminated as provided herein, the Trust hereby
retains the Officer to render services to the Trust as its President in
connection with the management and liquidation of the Trust including the timely
sale of the Trust's properties (but subject to prior Board approval), the
payment of its expenses and liabilities, the distribution of its net assets and
the winding up of its affairs. It is the intention of the Board that the
Liquidation Process be completed by the third anniversary of the shareholder
vote approving the Liquidation Process (the "Termination Date") but subject,
however, to the Board's subsequent determination in its discretion to extend the
Liquidation Process beyond the Termination Date. During the term of this
Agreement the Officer shall devote his full time during normal working hours
(except normal vacation periods and periods of illness) and shall exert his best
efforts, knowledge, and skill to the business affairs of the Trust including the
Liquidation Process. Officer shall promptly notify the Board of his involvement
in or negotiations concerning any business or employment relationships with any
persons or entities pursuing the purchase of any properties from the Trust
during the Liquidation Process.
SECTION 3. BASE SALARY.
---------- ------------
The Trust will pay to the Officer during the period from and after the
effective date hereof through December 31, 1996 (i) base salary at a rate of
$135,000 per year, which shall be paid (net of applicable withholding taxes) in
semi-monthly installments plus (ii) a bonus of $47,000 (payable on December 1,
1996, net of applicable withholding taxes). Thereafter, during the term of this
Agreement, the Trust will pay the Officer a base salary at a rate of $182,000.00
per year, which shall be paid (net of applicable withholding taxes) in
semi-monthly installments.
SECTION 4. ADDITIONAL COMPENSATION IN LIEU OF STOCK OPTIONS.
---------- -------------------------------------------------
(a) In February, 1992, shareholders of the Trust adopted and approved the
1992 Stock Option Plan which further amended and extended the 1983 Incentive
Stock Option Plan. The Officer has been granted certain stock options to
purchase shares in the Trust in accordance with the terms of the 1992 Incentive
Stock Option Plan or otherwise.
(b) The Officer hereby waives all rights with respect to unexercised
options described in (a) above as of the effective date of this Agreement. The
Trust will make additional compensation payments to the Officer in an amount
based upon the liquidating distributions made to Trust shareholders from time to
time pursuant to the table set forth on Exhibit A attached hereto and made a
part hereof (the "Payments in Lieu of Options"). In addition to the Payments in
Lieu of Options, the Trust shall also pay to the Officer an additional amount
(the "Tax Gross Up Amount") which, when added to the Payments in
2
<PAGE> 3
Lieu of Options, would allow the Officer to retain a net amount after payment of
all federal, state and local income taxes equal to the net amount of the
Payments in Lieu of Options which the Officer would have retained after such
taxes if such Payments in Lieu of Options had been treated as long term capital
gain for federal income tax purposes and based on the assumption that the
Officer has long term capital losses of $200,000 and no other long term capital
gains. For purposes of the computation of the Gross Up Amount it is assumed that
the Officer's combined tax rate for capital gains is 35% and for ordinary income
is 46%. The computation of the Gross Up Amount is illustrated in the example set
forth on Exhibit A-1. Such Payments in Lieu of Options and the related Gross Up
Amount (net of applicable withholding taxes) shall be made at the same time as
liquidating distributions are paid to the shareholders by the Trust. If the
Trust is sold, merged or combined with another entity resulting in payments by
the buyer directly to the Trust's shareholders rather than payments to and
liquidating distributions from the Trust, the Trust shall pay the Officer as
additional compensation the amount which would be payable to him under the
foregoing provisions of this Section 4(b), as if the present cash value of the
consideration received in such sale, merger or combination would be distributed
to the shareholders as a liquidating distribution on the closing date of such
transaction. If at the termination of Officer's employment under this Agreement,
any Trust properties remain unsold, the Officer shall be entitled to further
payments (including Gross Up Amounts) at such times as additional liquidating
distributions are made to the Trust shareholders from the sale of such
properties.
SECTION 5. INCENTIVE COMPENSATION PROGRAM.
---------- -------------------------------
The Trust has established an Incentive Compensation Program with
respect to the Liquidation Process, a copy of which is attached hereto as
Exhibit B. The Officer shall participate in the Incentive Compensation Program
in accordance with its terms.
SECTION 6. OTHER BENEFITS.
---------- ---------------
During the term of his employment the Trust shall continue to provide
benefits to the Officer comparable to those presently being provided, including
a retirement plan, group life insurance, health and accident insurance,
hospitalization and other similar plans and will continue pay or reimburse the
Officer for reasonable and ordinary business expenses (including professional
dues and membership fees in professional and industry associations).
Notwithstanding any provision to the contrary in this Agreement or in any
qualified or non qualified retirement or deferred compensation plan of the
Trust, it is specifically agreed by the Officer that any payments made to him
under Sections 4, 5, 7, 8 or 9 hereof, will not be considered in determining any
benefit payments due to the Officer under any qualified or non qualified
retirement or deferred compensation plan of the Trust. The Officer will also be
entitled to the use of an automobile and to payment or reimbursement of dues at
Avon Oaks Country Club or a like amount of dues at such other club as the
Officer may choose. At the conclusion of the current lease term of the
automobile currently being used by the Officer, the Trust shall purchase the
automobile
3
<PAGE> 4
currently under lease and convey such automobile to the Officer in fulfillment
of its automobile obligation under this Section 6. The Officer currently owns
MBL Life Assurance Company Policy No. AL 164,338 on his life. The Trust shall
pay the premium payments on such policy from the date of this Agreement until
the termination of this Agreement at $600 per quarter and such premium payments
will be reported as additional income to the Officer.
SECTION 7. TERMINATION AND SEVERANCE PAYMENT.
---------- ----------------------------------
(a) The Trust and Officer shall have the right to terminate this
Agreement at any time, for any reason, without any prior notice to the other
although it is currently intended by the parties that the Officer shall continue
to be employed by the Trust under this Agreement throughout the Liquidation
Process. This Agreement shall automatically terminate upon the disability (as
described in section 2(e)(v) of Exhibit B) or the death of the Officer. In the
event of the termination of this Agreement either (i) by action of the Trust or
as a result of the Officer's death or disability either before or after the
conclusion of the Liquidation Process or (ii) by action of the Officer after a
material change in the Officer's duties (as described in (b) below), the Trust
shall pay to the Officer (or his estate in the event of his death) a severance
payment equal to $546,000 within fifteen (15) days after the event giving rise
to the payment obligation.
(b) For purposes of this Agreement, the parties acknowledge that the
Officer's duties will be changing in some respect from the duties he previously
performed as President as a result of the Liquidation Process and such changes
shall not be considered a "material change" for purposes of (a) above provided,
however, that any change of duties which results in the Officer no longer
functioning as President and chief executive officer of the Trust or any
relocation of the Officer from the greater Cleveland area without his consent
shall be considered a "material change."
(c) In the event the Officer is accused by the Trust of appropriating
$25,000 or more of the Trust's funds or property for his personal betterment,
the Trust may immediately terminate the Officer and withhold the severance
payment described in (a) above pending the adjudication of the allegation. In
the event the Officer is subsequently convicted in a court of law of embezzling
$25,000 or more from the Trust, the Trust shall have no obligation to pay any
severance payment. If, however, the Officer is not convicted of embezzlement,
the Trust shall immediately pay to the Officer the severance payment and
reimburse him for legal fees and related expenses.
(d) In consideration for the Officer's continued employment under this
Agreement and the payments and benefits provided hereunder, and particularly,
the severance payment provided hereunder and as a condition precedent to
receiving such payment, the Officer shall sign and deliver to the Trust a
Release of Claims substantially in the form as set forth on Exhibit C attached
hereto and with such changes thereto as specifically authorized by the Board.
For purposes of this Section 6(d), the Release of
4
<PAGE> 5
Claims shall not be considered delivered until the period for rescission set
forth therein has expired.
SECTION 8. LEGAL FEES AND EXPENSES.
---------- ------------------------
(a) In the event the Trust has failed to comply with any of its
obligations under this Agreement or in the event that the Trust or any other
person takes any action to declare this Agreement void or unenforceable, or
institutes any litigation designed to deny, or to recover from the Officer the
benefits intended to be provided to the Officer hereunder, the Trust irrevocably
authorizes the Officer, from time to time, to retain legal counsel of his
choice, at the expense of the Trust, to represent the Officer in connection with
the initiation or defense of any litigation or other legal action, whether by or
against the Trust or any Trustee, Officer, shareholder or other person
affiliated with the Trust, in any jurisdiction provided, however, that no such
legal fees shall be paid by the Trust with respect to any controversy with
respect to Section 5 and Exhibit B unless the controversy is asserted by the
Officer in good faith and involves an amount in excess of Fifty Thousand Dollars
($50,000). The Trust shall pay all such legal costs promptly upon receipt of a
detailed invoice and be solely responsible for any and all attorneys' and
related fees and expenses incurred by the Officer as a result of the Trust's
failure to perform this Agreement or any provision thereof or as a result of the
Trust or any person contesting the validity or enforceability of this Agreement
or any provision thereof as aforesaid; but subject to the limitations set forth
in the immediately preceding sentence with respect to Section 5 and Exhibit B.
(b) The Trust shall pay to Jason C. Blackford, legal counsel for the
Officer and certain other officers executing employment agreements with the
Trust of even date herewith, his reasonable fee for legal representation of such
officers with respect to such employment agreements in an amount not to exceed
five thousand dollars ($5,000) with respect to such representation of all such
officers in the aggregate, and the obligations of the Trust under the provisions
of this Section 8(b) shall be the only responsibility of the Trust with respect
to legal fees of Officer in connection with the negotiation and drafting of this
Agreement.
SECTION 9. GROSS UP FOR PARACHUTE PAYMENT EXCISE TAX.
---------- ------------------------------------------
If any payment hereunder to the Officer (including payments pursuant to
Exhibit A) becomes subject to the excise tax imposed by section 4999 of the
Internal Revenue Code, the Trust shall pay to the Officer an additional amount
(the "Gross Up Payment") such that the net amount retained from payments
hereunder (including payments under this Section 9) by the Officer, after the
deduction of such excise tax and any additional federal, state or local income
or excise taxes upon such Gross Up Payment, shall equal the net amount of such
payments the Officer would have retained from payments hereunder if the excise
tax imposed by Code section 4999 had not been applicable.
5
<PAGE> 6
SECTION 10. MANAGEMENT CONTRACT FOR THE PROPERTIES REMAINING
----------- ------------------------------------------------
AFTER THE LIQUIDATION PROCESS IS COMPLETED.
-------------------------------------------
If so requested by the Trust, The Officer hereby agrees to manage the
remaining unsold properties of the Trust, if any, upon completion of the
Liquidation Process, for an annual management fee equal to five percent (5%) of
the "gross property income" of such remaining properties (i.e. gross rental
receipts without reduction for customary on-site expenses or reasonable travel
expenses related to such property) pursuant to a Management Agreement
substantially in the form as set forth on Exhibit D attached hereto. All salary
and benefits payable to Officer under this Agreement shall cease at the
commencement of the term of the Management Agreement (other than amounts which
become payable under this Agreement prior to its termination). The management
fee shall be computed and paid monthly. The Officer shall not be responsible to
pay customary on-site expenses or reasonable travel expenses with respect to
such properties. This management obligation shall be at the option of the Board
and shall require a ninety (90) day written notice to the Officer prior to the
commencement of the management services. The Board may also terminate such
management services of the Officer upon ninety (90) days advance written notice
to him. Any such management services required from the Officer shall be
performed on a non-exclusive basis and the Officer shall have the right to
terminate such management services upon ninety (90) day advance written notice
to the Board or its successor in interest.
SECTION 11. NOTICE.
----------- -------
Any notice required to be given pursuant to the provisions of this
Agreement shall be deemed to be effectively given if personally delivered or if
mailed, by certified mail, postage prepaid, to the parties at the following
addresses:
To the Trust: Board of Trustees
CleveTrust Realty Investors
2001 Crocker Road, Suite 400
Westlake, OH 44145
With copies to each of the following:
Robert H. Kanner
PUBCO Corporation
3830 Kelley Avenue
Cleveland, OH 44114
John D. Weil
Clayton Management Company
200 North Broadway, Suite 825
St. Louis, MO 63102-2573
6
<PAGE> 7
Howard Amster
Everen Securities
23811 Chagrin Falls Blvd.
Chagrin Plaza East - Suite 200
Beachwood, OH 44122
Leighton A. Rosenthal
LARS Aviation, Inc.
The Halle Building, Suite 310
1228 Euclid Avenue
Cleveland, OH 44115
To Officer: John C. Kikol
505 Walmar Drive
Bay Village, OH 44140
or to such other addresses as may be designated by one party to the other in a
notice complying with the provisions of this Section 11.
SECTION 12. EXISTING AGREEMENTS AND AMENDMENTS.
----------- -----------------------------------
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and, shall supersede any and all
existing agreements between the parties with respect to the Officer's employment
by the Trust. This Agreement (except as otherwise provided in Exhibit B) may be
modified and amended only in a writing signed by each of the parties.
SECTION 13. NON-ASSIGNABILITY.
----------- ------------------
None of the rights or obligations of the Officer hereunder may be
assigned without the prior written consent of the Board.
SECTION 14. BENEFIT.
----------- --------
This Agreement shall inure to the benefit of and be binding upon the
Trust, its successors and assigns, and upon the Officer, his heirs and personal
representatives and permitted assigns.
SECTION 15. SEVERABILITY.
----------- -------------
If any provision of this Agreement shall be held invalid under any
applicable law, such invalidity shall not affect any other provision of this
Agreement which can be given
7
<PAGE> 8
effect without the invalid provisions, and, to that end, the provisions hereof
are severable and any invalid provision shall be deemed modified to the least
extent necessary to render such provision valid.
SECTION 16. EQUITABLE ADJUSTMENT.
----------- ---------------------
With respect to any payments hereunder which are computed with
reference to "per share" valuations or distributions or with respect to the
number of Trust shares outstanding, there shall be an equitable adjustment as
determined by the Board in such computations in the event of any stock split,
reverse stock split or similar transaction causing a change in the number of
Trust shares outstanding from the date this Agreement is executed to the date
such payment computation is required.
SECTION 17. WAIVER.
----------- -------
The failure or omission by any party to enforce any provision of this
Agreement, no matter how long continued, shall not be considered to be a waiver
of such provision. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any other subsequent breach or default of the same or similar or dissimilar
nature.
SECTION 18. CONTROLLING LAW.
----------- ----------------
This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Ohio.
SECTION 19. STATUS OF THE TRUST.
----------- --------------------
The Trust is a Massachusetts business trust governed by the terms of a
Second Amended and Restated Declaration of Trust dated as of February 21, 1992
as amended by an Amendment dated February 21, 1995. No obligation of the Trust
is personally binding upon, nor shall resort be had to the private property of
any of the Trustees, shareholders, officers, employees or agents of the Trust,
but the Trust property or a specific portion thereof only shall be bound.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement this
24th day of September, 1996.
CLEVETRUST REALTY INVESTORS
By /s/ John D. Weil /s/ John C. Kikol
---------------------------------- -------------------------------
John D. Weil John C. Kikol
and By /s/ Robert H. Kanner
----------------------------
and By /s/ Howard Amster
----------------------------
and By
----------------------------
Each of the undersigned hereby agrees in his individual capacity that
he will vote all shares of beneficial interest in CleveTrust Realty Investors
beneficially owned by him in favor of the adoption of the above Agreement and
the Liquidation Process.
/s/ Robert H. Kanner /s/ John D. Weil
- -------------------------------------- -------------------------------
Robert H. Kanner John D. Weil
/s/ Howard Amster /s/ Leighton A. Rosenthal
- -------------------------------------- -------------------------------
Howard Amster Leighton A. Rosenthal
9
<PAGE> 10
EXHIBIT A
Payments in Lieu of Options
---------------------------
(Pursuant to Section 4(b) of this Agreement)
Mr. Kikol is entitled to a share of each distribution when and if paid to
Trust shareholders based upon the following table:
<TABLE>
<CAPTION>
Cumulative Distributions Percentage of Total Distribution
------------------------ --------------------------------
Payable Per share Which is Payable to Kikol(1)
----------------- --------------------------
<S> <C>
first $2.62 of distribution -0-
next $0.38 of distribution 0.009299
next $0.06 of distribution 0.009857
next $2.06 of distribution 0.012647
all additional distributions 0.014527
</TABLE>
<TABLE>
<CAPTION>
Example Amount Payable to Kikol
------- -----------------------
<S> <C> <C> <C>
Amount of first distribution $2.75 $ 6,499.66(2)
Amount of second distribution $3.50 $243,894.73(3)
----------
$250,394.39 Total Payments
in Lieu of
Options Payable
to Mr. Kikol.
- ------------------------
1. The percentages were computed on the assumption that all outstanding options
would be exercised when trust distributions equaled the respective strike prices
and on the assumption that there are 5,179,143 actual shares outstanding. The
percentages will be equitably adjusted to the extent there is a change in the
number of actual shares outstanding from time to time.
2. $2.62 x 5,376,643 x 0 - -0-
$0.13 x 5,376,643 x 0.009299 - $ 6,499.66
--------
$ 6,499.66
3. $0.25 x 5,376,643 x 0.009299 - $ 12,499.35
$0.06 x 5,376 x 0.009857 - $ 3,179.85
$2.06 x 5,376,643 x 0.012647 - $140,076.71
$41.13 x 5,376,643 x 0.014507 - $ 88,138.82
----------
$243,894.73
PLEASE NOTE: This example is only meant to illustrate the calculations for a
payment in lieu of options. No inference should be drawn concerning the
prospectus for actual distributions. For the purposes of this example it is
assumed that 5,179,143 Trust shares will be outstanding so that the shares on a
fully diluted basis would equal 5,376,643. The actual calculation of payments
will be based on the actual number of fully diluted Trust shares outstanding at
the time a distribution is made.
</TABLE>
<PAGE> 11
EXHIBIT A-1
COMPUTATION OF GROSS UP AMOUNT
(PURSUANT TO SECTION 4(b) OF THIS AGREEMENT)
Assume the Payments in Lieu of Options payable to Kikol are as set
forth on Exhibit A:
<TABLE>
<CAPTION>
Payments in Lieu of Options
- ---------------------------
<S> <C>
1. $ 6,499.66
2. $243,894.73
----------
$250,394.39 Total Payments in Lieu of Options Payable to Kikol.
</TABLE>
Gross Up Amount for First Payment
- ---------------------------------
<TABLE>
<S> <C>
$6,499.66 divided by .54(1) = $12,036.41 Total amount payable to Kikol
- 6,499.66 Payment in Lieu of Options
----------
$ 5,536.75 Gross Up Amount
</TABLE>
Total amount payable at time of first payment = $12,036.41
Gross Up Amount for Second Payment
- ----------------------------------
<TABLE>
<S> <C> <C>
1. $193,500.34(5) divided by .54(1) = $358,333.96
- 193,500.34
-----------
$164,833.62 First Part of Gross Up Amount
2. $50,394.39x 20.37%(3) = $ 10,265.34 Second Part of Gross Up Amount
+ 50,394.39
-----------
$ 60,659.73
3. Total Gross Up Amount on Second Payment = $164,833.62 + $10,265.34 = $175,098.96
4. Total Amount Payable at time of Second Payment = $358,333.96 + $60,659.73 = $418,993.69
Summary
- -------
<S> <C> <C>
1. Total Payments in Lieu of Options Payable to Mr. Kikol $ 6,499.66
$243,894.73
-----------
$250,394.39
2. Total Gross Up Payments payable to Mr. Kikol $ 5,536.75
$175,098.96
-----------
$180,635.71
3. Total payments payable to Mr. Kikol under Section 4(b) $250,394.39
$180,635.71
-----------
$431,030.10
4. Tax Benefit to Trust (assuming Trust's tax rate $431,030.10
equals 40%) x 40%
----------
$172,412.04
<FN>
- --------------------
1. 100% minus his deemed combined tax rate of 46%.
2. Remaining portion of first $200,00 of Payments in Lieu of Options.
3. The spread between the deemed ordinary income rate of 46% and the deemed
capital gain rate of 35% is 11%. That percentage divided by .54 yields the
percentage to be used to determine the gross up amount for the payments which
would otherwise have been taxed at capital gains rates.
</TABLE>
2
<PAGE> 12
EXHIBIT B
INCENTIVE COMPENSATION PROGRAM
CleveTrust Realty Investors (the "Trust") hereby adopts effective
September 1, 1996 an Incentive Compensation Program for the benefit of certain
designated officers and employees of the Trust who shall be participants
hereunder as additional incentive for their efforts during the sale of the
Trust's properties and the liquidation of its assets (the "Liquidation
Process"). It is intended that the Liquidation Process be completed by the third
anniversary of the shareholder vote approving the Liquidation Process (the
"Termination Date") but the Board of Trustees of the Trust (the "Board") have
the discretion to continue the Liquidation Process beyond such Termination Date.
With the exception of Mr. John C. Kikol ("Kikol") no participant in the program
shall be guaranteed any right to participate hereunder, and the payments to each
participant, if any, shall be only pursuant to the terms and provisions
hereunder.
SECTION 1. INCENTIVE PLAN FOR EMPLOYEES.
---------- -----------------------------
A discretionary bonus pool of the two hundred thousand dollars
($200,000) is established to fund bonus payments during the Liquidation Process
to staff employees and officers of the Trust (other than Kikol). Kikol shall
have complete discretion to determine who shall receive bonus payments and when
and in what amounts, provided, however, no more than seventy-five thousand
dollars ($75,000) in the aggregate may be paid from the pool to officers of the
Trust.
SECTION 2. INCENTIVE PLAN FOR OFFICERS.
---------- ----------------------------
(a) DETERMINATION OF POOL PAYMENTS.
-------------------------------
The amount of all cash liquidation distributions of the Trust resulting
from the sale of properties after September 1, 1996, shall be calculated when
made as a present value amount as of January 1, 1997 (or the date of the
distribution if earlier than January 1, 1997) using a discount rate of 10
percent (the "Present Valued Distributions"). An Incentive Compensation Pool
(the "Pool") for Officers of the Trust shall be based upon the following
formula: (a) 10 percent of all Present Valued Distributions between $4.75 per
share and $5.50; and (b) 15 percent of all Present Valued Distributions in
excess of $5.50 per share.
<PAGE> 13
Such amounts will be payable to the Pool and available for distribution at the
same time (and from time to time) as liquidating distributions triggering
eligibility for payments to the Pool are made to shareholders after September 1,
1996. For purposes of computing the amount payable to the Pool as the result of
a distribution, the amount of cash available for contribution to the Pool shall
be considered a distribution. For example, if the Trust has cash liquidation
proceeds available of $5.05 per share (on a present value basis as described
above) the amount payable to the Pool shall be the product of $.03 (10% x $.30)
times the number of shares then outstanding even though this means the actual
Present Valued Distribution available for distribution to shareholders after the
Pool contribution is made will be $5.02 per share.
(b) DISTRIBUTION OF POOL PAYMENTS.
------------------------------
The amount to be distributed from the Pool shall be allocated as
follows:
(i) 80% shall be distributed to Kikol.
(ii) 20% shall be distributed among any one or all of the
then employed officers of the Trust (including Kikol)
in such proportions as shall be determined in the
absolute discretion of (1) Mr. John Weil, or in the
event Mr. Weil is no longer a member of the Board or is
unwilling or unable to perform such allocation, then
(2) Robert Kanner, or if Mr. Kanner is no longer a
member of the Board or is unwilling or unable to
perform such allocation, then (3) the Board. The entire
20% must be distributed, but the participant eligible
to be a recipient shall receive anywhere from 0% to
100% of such amount at the sole discretion of Mr. Weil,
Mr. Kanner or the Board, as the case may be, and
different allocations among the eligible participants
may be made with respect to each serial distribution
from the Pool.
There is no maximum limit on the amount of incentive compensation that can
potentially be earned through the Pool.
(c) POOL PAYMENTS WITH RESPECT TO UNSOLD PROPERTIES.
------------------------------------------------
In the event properties of the Trust remain unsold as of the
Termination Date (or at such later date as the Officer's employment with the
Trust is terminated if such employment continues beyond the Termination Date),
the values of such unsold properties shall be computed using a 12 percent
earnings capitalization rate based on the last twelve months of cash flow from
such properties, before debt service computed as historically reported to the
<PAGE> 14
Board and as reflected on Schedule 1 attached to this Incentive Compensation
Program. Such value shall then be adjusted as follows:
(i) subtract outstanding mortgage loan balances;
(ii) subtract an amount equal to a reasonable estimate of remaining
and anticipated Trust expenses including, but not limited to,
remaining payments on employment contracts, liabilities for taxes and
professional fees and a reasonable reserve for contingent liabilities;
and
(iii) add an amount equal to the reasonably estimated values of
remaining Trust tangible assets other than unsold properties including
but not limited to computers, furniture and fixtures.
Such adjusted value shall be deemed distributed to Trust shareholders
on the Termination Date (or such later date as described above), in order to
complete the calculations for all Present Valued Distributions during the
Liquidation Process. No such deemed distribution will be computed and no amount
will be payable under this Section 2(c) unless a minimum $3.50 per share of
actual Present Valued Distributions have been made to the shareholders of the
Trust by the Termination Date (or such later date as described above).
(d) IN KIND DISTRIBUTION IN LIEU OF POOL PAYMENTS.
----------------------------------------------
In the event there are properties of the Trust remaining unsold as of
the Termination Date, the Trust shall have the option of (i) paying to the Pool
the amount based on the deemed distribution of unsold properties described at
(c) above, or (ii) providing the equivalent adjusted value in a distribution of
ownership interests in the remaining unsold properties. For example, if the Pool
contribution with respect to deemed distributions under (c) above is calculated
at $500,000 and the Trust has two remaining unsold properties that are valued at
$5,000,000 on the same basis as described in (c) above, the Trust could make an
in kind distribution to the Pool of a 10 percent ownership interest in those
properties (or a commensurate interest in any entity formed to hold such
properties) in lieu of any further cash payments.
(e) IMPACT ON POOL OF KIKOL TERMINATION OF EMPLOYMENT.
--------------------------------------------------
Notwithstanding any provision herein to the contrary, if Kikol's
employment with the Trust terminates prior to the Termination Date under the
circumstances described below, the following provisions shall apply:
(i) If his employment is terminated by the Trust (a) during
1998 or thereafter and he has failed to sell at least
three Trust properties after September 1, 1996 and
before the end of calendar year
<PAGE> 15
1997 or (b) during 1999 or thereafter and he has failed to
sell at least three Trust properties during calendar year
1998 (all such sales to be subject to the approval of the
Board) Kikol shall be entitled to an immediate cash payment
of $250,000 in lieu of any participation in the Pool and the
Board, in its discretion, may prospectively modify or
terminate the entire Incentive Compensation Program
described above.
(ii) If his employment is terminated by the Trust (a) during
1997, or (b) during 1998 and he had sold at least three
properties after September 1, 1996 and before the end of
1997, or (c) during 1999 or thereafter and he had sold at
least three properties after September 1, 1996 and before
the end of 1997 and had sold at least three additional
properties before the end of 1998, he shall be entitled to
his payments from the Pool when Pool distributions are
payable as if his employment had not terminated and the
Board, in its discretion, may prospectively modify or
terminate all other provisions of the Incentive Compensation
Program described above.
(iii) If his employment is terminated under circumstances under
which he is not entitled to severance payment for the
reasons set out in Section 7(c) his Employment Agreement, he
shall forfeit any right to payments from the Pool and the
Board in its discretion, may prospectively modify or
terminate the entire Incentive Compensation Program
described above.
(iv) If his employment is voluntarily terminated by Kikol because
of a material change in his duties as described in Section
7(a) and (b) of his Employment Agreement, he shall be
entitled to the payments described in (ii) above. If his
employment is otherwise voluntarily terminated by Kikol the
provisions as described in (iii) above shall apply.
(v) If his employment is terminated because of his death or
disability at a time when the sum of all Present Valued
Distributions paid to the shareholders and all Present
Valued Distributions payable to the shareholders from the
proceeds of sales of Trust properties sold prior to such
death or disability equals or exceeds $4.75 per share, he
(or his personal representative, as the case may be) shall
be entitled to payments from the Pool based upon such
Present Valued Distributions (paid and
<PAGE> 16
payable) to the extent they had not been taken into account
in previous Pool payments distributed to him. If his
employment is terminated because of his death or disability
at a time other than as described in the immediately
preceding sentence, the provisions as described in (iii)
above shall apply. In the event his employment is terminated
because of his death or disability under any circumstances,
the Board, in its discretion, may prospectively modify or
terminate the entire Incentive Compensation Program provided
the payments required by the first sentence of this section
2(e)(v) are first made. For purposes of this Incentive
Compensation Program, "disability" shall mean the inability
of Kikol to carry out his duties hereunder by reason of any
medically determinable physical or mental impairment which
can be expected to result in death or which can be expected
to last for a continuous period of not less than six months.
Whether or not and when Kikol has become disabled shall be
determined by agreement between the Trust and Kikol (or
Kikol's legal representative) and failing such agreement,
then by a physician jointly approved by the Trust and Kikol
(or his legal representative) or, failing such joint
approval, by a physician appointed by the American
Arbitration Association at Cleveland, Ohio.
(f) PAYMENTS IN LIEU OF POOL PAYMENTS
IN THE EVENT OF A TRUST MERGER OR SALE.
---------------------------------------
If the Trust is sold, merged or combined with another entity prior to
the Termination Date, the Trust shall pay Kikol as incentive compensation, the
greater of (i) the amount which would have been payable to him under the Pool
based upon the Present Valued Distributions which would result if the present
cash value of the consideration received in such merger or sale were distributed
to the Trust shareholders on the closing date and, for this purpose, assuming
Kikol would have received a 100% allocation of such hypothetical Pool amount, or
(ii) $400,000. In such event the Board, in its discretion, may prospectively
modify or terminate the rest of the provisions of the Incentive Compensation
Program described above. This provision is intended to compensate Kikol for his
efforts in a successful sale or merger of the Trust, and would be in lieu of his
ability to earn a larger potential compensation benefit from the liquidation of
the Trust's assets during the Liquidation Process. For example, if the Trust
were sold for the equivalent of a net present value (computed pursuant to
Section 2(a) above) of $5.50 per share, the amount computed under clause (i) of
this Section 2(f) would equal $388,435.73 [(5.50 - 4.75) x 10% x 5,179,143
shares outstanding]. In such an example, Kikol would be paid the $400,000 under
clause (ii) of this Section 2(f).
<PAGE> 17
SECTION 3. EXAMPLE.
---------- --------
Examples of the computation of amounts payable under this Incentive
Compensation Program is set forth on Schedule 2 attached hereto.
<PAGE> 18
INCENTIVE COMPENSATION PLAN
SCHEDULE 1
In accordance with Section 2(c) entitled "Pool Payments with Respect to
Unsold Properties" attached are samples of three different property types for
Fiscal Year ending September 30, 1995. As indicated in Section 2(c) the cash
flow is the amount remaining after deducting all operating and fixed expenses
but before any interest expense and mortgage principal amortization. That figure
would be capitalized at 12 percent to calculate the valuation of such assets
remaining unsold before adjustment for items (i) through (iii) in Section 2(c).
The following summary illustrates how the calculation would be made on
three properties currently owned by the Trust.
A. OFFICE BUILDING EXAMPLE: E-13 Executive Club Building
Line Item Net Cash Flow YTD Actual reflects the year-to-date
net cash flow from the property. Such figure would be capitalized at 12 percent
to calculate the value for purposes of the unsold properties as of the
termination date, which is a defined term.
<TABLE>
<S> <C>
Net Cash Flow YTD Actual $500,206.46
Valuation Based upon 12 percent capitalization $4,168,387.40
</TABLE>
B. COMBINATION RETAIL AND MINI-WAREHOUSES EXAMPLE: E-35
TRIANGLE SQUARE
<TABLE>
<S> <C>
Net Cash Flow YTD Actual $315,490.03
Valuation Based upon 12 percent capitalization $2,629,083.50
</TABLE>
<PAGE> 19
C. RETAIL SHOPPING CENTER EXAMPLE: E-47 CANNON WEST SHP. CENTER
This is an example of a property that has an outstanding
mortgage balance.
<TABLE>
<S> <C>
Net Cash Flow YTD Actual $ 51,064.60
Add:
Principal Amortization 95,024.05
Fixed Interest Expense 560,847.95
Contingent Interest 11,551.20
-------------
TOTAL: Net Cash Flow Before Principal Amortization and
Interest Expense $ 718,487.80
Valuation Based upon 12 percent capitalization $ 5,987,398.30
</TABLE>
PLEASE NOTE: The examples used throughout the Schedules to Exhibit B are meant
as illustrations only. No inference should be drawn concerning the prospects for
actual sales proceeds or actual Trust distributions.
<PAGE> 20
INCENTIVE COMPENSATION PROGRAM
SCHEDULE 2
Complete Liquidation of CleveTrust
Distributions occurring on January 1, 1997
With Additional Distributions Occurring
Each January 1 thereafter
Final Distribution on January 1, 2000
Bonus Payable on Distributable Amount
<TABLE>
<CAPTION>
Present
Amount Net Present Cumulative Value of
Distributable Value at Gross Cumulative
Distribution Per Outstanding 10% PVD if Available Available Earned
Dates Shares 1 Distributed Amount Amount Bonus
----- --------- ----------- ------ ------ -----
<S> <C> <C> <C> <C> <C>
1/1/97 $1.92 $1.92 $1.92 $1.92 0
1/1/98 .14 .13 2.06 2.05 0
1/1/98 1.44 1.31 3.50 3.36 0
1/1/99 .21 .17 3.71 3.53 0
1/1/99 2.13 1.76 5.84 5.29 .0540
1/1/00 .67 .50 6.51 5.79 .0645
--- --- ---- ---- -----
Totals $6.51 $5.79 $6.51 $5.79 .1185
</TABLE>
Bonus Calculation Per Share:
- ----------------------------
<TABLE>
<S> <C>
1st Calculation: PVD of distributable amount - Base = Bonus eligible amount
$5.79 - $4.75= $1.04
2nd Calculation: First $0.75 of bonus eligible amount x 10% = 10% bonus
$0.75 x 10% = $.075 bonus
3rd Calculation: Balance of bonus eligible amount x 15% = 15% bonus
$0.29 x 15% = $.0435 bonus
Total bonus per share: $.075 + $0.435 = $.1185 (.0540/share payable on 1/1/99
and 0.645/share payable on 1/1/00)
Bonus Calculation Gross: (assuming 5,179,143 shares):
$.1185 x 5,179,143 = $613,728.45
Net Amount Distributed to Stockholders per Share:
In Gross Dollars: $6.51 - $0.1185 = $6.3915
In Present Dollars: $5.79 - $0.1185 = $5.6715
Net Amount to Stockholders (assuming 5,179,143 shares, including options):
In Gross Dollars: $6.3915 x 5,179,143 = $33,102,492.48
In Present Dollars: $5.6715 x 5,179,143 = $29,373,509.52
<FN>
- ---------------------------
1. 5,179,143 shares outstanding (the actual calculation will be based on the
actual number of Trust shares outstanding at the time a distribution is made.)
</TABLE>
<PAGE> 21
EXHIBIT C
RELEASE OF CLAIMS
I, _______________, the undersigned have been an employee of CleveTrust
Realty Investors (the "Trust") pursuant to an Amended and Restated Employment
Agreement dated __________, 1996 by and between the Trust and me (the
"Employment Agreement"). My employment by the Trust is terminating effective
________, 19__ and, pursuant to Section __ of the Employment Agreement and in
consideration of my employment by the Trust and the payments and benefits under
the Employment Agreement and, particularly the severance payment under Section
__ thereof, I hereby agree as follows:
(1) I hereby voluntarily agree to waive and release any and all
claims, charges and actions, known or unknown, including those
relating in any way to my employment, or to my termination from
employment with the Trust, and any claims for wrongful discharge,
breach of contract, implied contract, promissory estoppel,
tortious conduct, or claims under any federal, state or local
employment statute, law, order or ordinance, including any claims
for discrimination, and rights under the Age Discrimination in
Employment Act which I may now or in the future have or assert
against the Trust or any of its officers, trustees, employees,
representatives, shareholders or related entities. This Release
applies to all rights or claims which arise on or before the date
on which it is signed.
(2) I agree to return all property belonging to the Trust, including
all keys, credit cards, and manuals.
(3) I agree that I will not seek re-employment with the Trust or any
related entity in any capacity except, if applicable, employment
as manager pursuant to Section 10 of the Employment Agreement.
(4) I understand that I have the option to consider and reflect upon
this Release before its signing. It is advised that I consult
with an attorney and/or other professionals such as accountants,
financial advisors concerning its terms. I will be responsible
for my attorney's fees and costs should I choose to have counsel
review this Release.
(5) I understand and agree that I will not make any derogatory or
defamatory remarks about the Trust, its trustees, officers,
employees, representatives or related entities.
<PAGE> 22
(6) I agree to keep the terms of this Release and of my severance
payment under my Employment Agreement confidential, and I will
not publicize or communicate them in any newspaper, electronic
media or other public or private forum, or in any manner
whatsoever except as may be required by applicable law.
(7) For a period of seven days after I sign this Release and return
it to the Trust, I may revoke it by advising the Trust in writing
that I have decided to revoke it. This Release will not become
effective until that seven day period has expired.
(8) I acknowledge that no promise or agreement not expressed in my
Employment Agreement, in the Trust's personnel or employee
benefit documents or this Release has been made to me, and that
this Release and my Employment Agreement constitute the complete
agreement between the Trust and me.
(9) I understand and agree completely to the terms and conditions
listed above. I acknowledge that I have twenty-one (21) days
after receiving this Release to sign it and return it to the
Trust.
AGREED TO at ______________________, Ohio, this __________ day of
___________, 19__.
----------------------------------- [Employee]
-2-
<PAGE> 23
EXHIBIT D
MANAGEMENT AGREEMENT
THIS AGREEMENT is made this ____ day of ____________, 19__, by and between
____________________________ ("Owner") and JOHN C. KIKOL ("Agent").
RECITALS
ERROR! BOOKMARK NOT DEFINED.A. Owner is the owner of certain real property
(the "Properties") described in the attached Schedule of Properties. The
Properties are/were real estate assets owned by CleveTrust Realty Investors
("CleveTrust") which were unable to be sold or otherwise disposed of during
CleveTrust's three year plan of liquidation. Owner requires the services of a
manager to supervise the operation of such Properties pending their eventual
sale or other disposition and requires certain other administrative services
pending Owner's liquidation or other disposition.
Agent is/was employed as the President of CleveTrust and is, therefore,
intimately familiar with the Properties and with the day to day administrative
requirements of Owner.
It is the present intention of Owner and Agent that Agent manage the
Properties for Owner and perform those administrative services required by Owner
during the term of this Agreement. In that regard, Owner and Agent desire to set
forth their mutual understandings in writing.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth below, Owner and Agent hereby agree as follows:
SECTION 1. APPOINTMENT OF AGENT. Effective as of the date of this Agreement
and until such services are terminated as provided herein (the "Term"), Owner
hereby appoints Agent as its (i) exclusive manager of the Properties and (ii)
administrative officer responsible for Owner's ongoing business activities, and
Agent hereby accepts such appointments and agrees to serve in such capacities,
upon the terms and conditions contained herein. Agent agrees to use his best
efforts in managing the Properties for Owner, consistent with the scope of his
duties hereunder. Throughout the Term, Agent shall report and be responsive to
Owner's Board of Trustees, management committee, or other designated governing
body. No bond shall be required of Agent hereunder. It is not contemplated that
Agent shall be required to devote his full business time to the
-3-
<PAGE> 24
affairs of Owner, however, Agent shall devote such of his business time as shall
be required to carry out his duties and responsibilities under this Agreement.
SECTION 2. TERM OF AGREEMENT. The Term shall continue until terminated
(i) by either party upon not less than 90 days advance written notice; (ii) upon
the death or disability of Agent; (iii) upon the sale or other disposition by
Owner of the last of the Properties; or (iv) upon the filing of a petition in
bankruptcy by or against either Owner or Agent which is not dismissed within 10
days, or upon the filing by either Owner or Agent of an assignment for the
benefit of creditors.
SECTION 3. MANAGEMENT FEE. Owner shall pay Agent a fee (the "Management
Fee") in an amount equal to 5% of the "gross income" derived from the Properties
(gross income for purposes hereof meaning the gross rental receipts from the
Properties, without reduction for customary on-site expenses or reasonable
travel expenses to or from the Properties) which shall compensate Agent for all
of the administrative services and property management services to be rendered
by Agent under this Agreement. The Management Fee shall be computed and paid on
a monthly basis and shall be prorated for any partial month.
SECTION 4. DUTIES - ADMINISTRATIVE SERVICES. Agent shall provide all
day to day administrative services required to satisfy Owner's routine
operational obligations, including but not limited to (i) maintaining an office
and a telephone in the name of Owner; (ii) timely responding to telephonic and
written inquiries whether from shareholders/partners or other persons; (iii)
preparing and filing on a timely basis all public company reports required to be
filed to maintain in good standing Owner's and CleveTrust's public company
status; (iv) preparing and disseminating, as directed by Owner, monthly
accounting statements in sufficient detail to allow Owner to determine the then
current status of its Properties and business; (v) maintaining auditable books
and records and assisting Owner's auditors in completing a timely audit of such
books and records; (vi) preparing on a timely basis routine payroll deposit
returns and other reports and tax returns and cooperating with Owner and any
outside preparers in preparing and filing on a timely basis all annual tax
returns and other periodic reports required to be filed by Owner and CleveTrust
with Federal, state and local governmental and administrative agencies; (vii)
procuring property, casualty, liability and other types of insurance, as may be
reasonably required, to protect Owner's interests. Agent shall have the
authority to hire such full or part time assistants as Agent deems necessary to
assist Agent to accomplish the foregoing responsibilities and duties, but the
cost associated with such assistants shall be the responsibility of Agent and
shall be paid by him out of the Management Fee. Notwithstanding the foregoing,
Owner, rather than Agent, shall be responsible for the costs associated with (i)
the preparation of any accounting, audit and tax reviews by outside preparers;
(ii) the cost of any required outside legal services; and (iii) any stock
transfer fees.
-4-
<PAGE> 25
SECTION 5. DUTIES - MANAGEMENT SERVICES RELATED TO THE PROPERTIES.
Agent shall be responsible for all aspects of managing the Properties,
including, but not limited to (i) supervising on-site management personnel as
more fully described in subsection a. below; (ii) supervising accounts and
records of the Properties; (iii) coordinating advertising and marketing of the
Properties; (iv) executing leases, renewals, amendments, expansions, and
relocations; (v) cancelling existing leases due to non-performance as more fully
described in subsection b. below; (vi) coordinating the collection of rents when
due; (vii) depositing all rents and other funds collected into Owner's custodial
account; (viii) hiring, discharging, and supervising all caretaker employees;
(ix) coordinating all ordinary repairs and replacements necessary to preserve
the Properties as more fully described in subjection c. below; (x) coordinating
all alterations and decorations required to comply with lease agreements as more
fully described in subjection d. below; (xi) coordinating the purchase of all
supplies and payment of all Property-related bills; and (xii) coordinating the
delivery of those services required to be rendered to tenants or other occupants
of the Properties as more fully described in subsection e. below.
ON-SITE EMPLOYEES. Agent agrees to supervise the work of and
to hire and discharge employees of Owner performing their duties
at the Properties and agrees to use reasonable care in the hiring
of such employees. Agent's management of such employees shall
include, but not be limited to (i) maintaining good labor union
relations, (ii) computing withholding taxes, and (iii) dealing
with hospitalization, group life insurance, disability insurance
and other benefits. All of such employees shall be employees of
Owner, and not of Agent, and the wages, other compensation and
benefits attributable to such employees shall be the
responsibility of Owner. Agent shall not be liable to Owner or
others for any act or omission on the part of such employees. All
wages, salaries and other compensation paid to such employees,
including all items payable with respect to payroll, such as, but
not limited to, unemployment insurance, social security, workers
compensation, disability benefits if any, accrued vacation pay,
medical and surgical plans, now in existence or hereafter imposed
or included in union agreements which Agent may enter into shall
be considered as operating expenses of the Properties.
EVICTIONS. Agent is authorized in the name of Owner, when
directed by Owner, to institute any and all legal actions or
proceedings to effect the collection of rents or the ousting or
dispossessing of tenants or other persons from the Properties and
to employ counsel at Owner's expense to effect same.
REPAIRS AND MAINTENANCE. Agent is authorized, at the expense
of Owner, to cause to be made such ordinary repairs to the
Properties, to purchase supplies for the Properties, and to enter
into such
-5-
<PAGE> 26
service contracts as Agent shall deem advisable or necessary with
respect to the Properties. Any expense to be incurred in excess
of $2,000, shall not be incurred unless authorized in writing by
Owner, except where the same is immediately required by law, or
under circumstances which Agent reasonably deems constitutes an
emergency. Any and all discounts obtained shall be for the
benefit of Owner.
ALTERATIONS OR INSTALLATIONS. Agent is authorized on behalf
of Owner to consent to and approve tenant alterations and
installments which are provided for in the tenant's leases. With
respect to alterations and installations not provided for by
leases, Agent is authorized to approve and consent to such work
provided (i) such alterations and installations are made solely
at tenant's expense and in accordance with governmental
requirements; and (ii) such alterations and installations do not
affect the basic structure of any building on the properties or
interfere with essential Property services to other tenants.
SERVICES TO TENANTS. Agent agrees to use his best efforts to
have all services rendered to tenants occupants at a
minimum cost to Owner consistent with Owner's standards for the
Properties. No services will be promised or performed for
tenants other than the usual services provided by owners or
lessors of similar buildings unless approved in advance in
writing by Owner.
NOTICES OF VIOLATIONS. Upon obtaining knowledge thereof,
Agent shall promptly notify Owner and Owner shall promptly notify
Agent of any violation, order, rule or determination of any
Federal, State or Municipal authority affecting the Properties.
DEPOSIT OF COLLECTED FUNDS. All monies received by Agent for
or on behalf of Owner shall be and remain the property of Owner
and shall be deposited in accounts at a bank designated by and
for the benefit of Owner.
The parties agree that the following costs are not intended to be paid
out of the Management Fee and are the responsibility of Owner: (i) payment of
third party fees incurred in connection with the institution of litigation to
collect past due rentals or evict tenants; (ii) preparation of audited
statements and tax returns which shall be performed by outside accounting firms
of Owner's choice; (iii) customary on-site expenses related to the properties;
(iv) reasonable travel expenses of Agent to or from the Properties.
SECTION 6. INSURANCE. At Owner's sole expense, Agent shall procure for
Owner and Owner agrees to carry general liability insurance with a minimum limit
of at least $__________, including elevator liability insurance, contractual
liability insurance,
-6-
<PAGE> 27
steam boiler insurance, worker's compensation, superintendent's fidelity bond,
and such other insurance as may be reasonably necessary for the protection of
the interests of Owner and Agent. Agent shall be named as a co-insured on all of
such policies. The public liability, elevator liability, and contractual
liability insurance must contain a severability of interest clause and coverage
for personal injury. A certificate of insurance indicating each of the coverages
or policies of insurance, issued by the carrier, shall be delivered promptly to
Agent by Owner upon receipt.
Owner agrees (i) to hold and save Agent free and harmless from any
claim for damages or injuries to persons or property by reason of any cause
whatsoever when Agent is carrying out his duties hereunder or acting under the
express or implied directions of Owner, or due to Owner's failure or refusal to
comply with or abide by any rule, order, determination, ordinance or law of any
federal, state or municipal authority, (ii) to reimburse Agent upon demand for
any monies which Agent is reasonably required to expend for any reason in
defense of any claim or civil action, proceeding, charge or prosecution made,
instituted or maintained against Agent or against Owner and Agent, jointly or
severally, due to the condition of or use of the Properties, or acts or
omissions of Agent or employees of Owner or Agent, or arising out of or based
upon any law, regulation, requirement, contract or award relating to the hours
of employment, working conditions, wages and/or compensation of employees or
former employees of Owner, or otherwise, and (iii) to defend promptly and
diligently, at Owner's sole expense, any claim, action or proceeding brought
against Agent or against Owner and Agent, jointly or severally, arising out of
or connected with any of the foregoing, and to hold harmless and fully indemnify
Agent from any judgment, loss or settlement on account thereof. The provisions
of this paragraph shall survive the termination of this Agreement. Nothing
contained herein is intended to nor shall it relieve Agent from responsibility
to Owner rising out of the sole negligence of Agent or his intentional acts.
Owner shall procure an appropriate clause in, or endorsement on, each
of its policies of fire or extended coverage insurance and on all other forms of
property damage insurance, including, but not limited to coverage such as water
damage insurance, property damage insurance, boiler and machinery insurance,
sprinkler leakage insurance, and other insurance covering the premises on which
the Properties are located, the Properties or personal property fixtures or
equipment located thereon, whereby the insurer waives subrogation or consents to
a waiver of right of recovery against Agent and having obtained such a clause or
endorsement of waiver of subrogation or consent to a waiver of right of
recovery, Owner hereby agrees that it will not make any claim against, or seek
to recover from Agent for any loss or damage to property to the extent such
damage or loss is recovered by such insurance.
SECTION 7. NOTICES. Any notice required to be given pursuant to the
provisions of this Agreement shall be deemed to be effectively given if
personally delivered to a party or if mailed, by certified mail, postage
prepaid, to a party, or if transmitted via overnight courier service (FEDEX, UPS
Overnight, or the like), at the following addresses:
-7-
<PAGE> 28
To Owner:
To Agent: John C. Kikol
or to such other addresses as may be designated by the parties in a notice
complying with the provisions of this Section.
Where written approval from Owner is required for any activity contemplated
herein, such approval shall be valid only if signed by an executive officer of
Owner, other than Agent, if Agent is then an officer of Owner, or by a
representative of the Board of Trustees or other governing entity of Owner,
designated for such purpose.
SECTION 8. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties and may not be changed or modified except by a
written instrument executed by all parties hereto.
SECTION 9. NON-ASSIGNMENT. This Agreement may not be assigned by Agent
without the prior written consent of Owner. Owner may assign this Agreement to
any successor of the Properties and business of Owner.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
[OWNER]
By
John C. Kikol
-8-
<PAGE> 1
Exhibit (10)(2)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT, (which hereinafter,
along with all Exhibits and Schedules referenced herein and attached hereto, is
referred to as the "Agreement") is made by and between CLEVETRUST REALTY
INVESTORS, a Massachusetts voluntary association of the type generally known as
a business trust (the "Trust"), and MICHAEL R. THOMS ("Officer"). The Trust and
the Officer are sometimes referred to as a "party" or, collectively, as the
"parties."
R E C I T A L S:
A. The parties entered into an Amended and Restated Employment Agreement
dated as of January 1, 1993 pursuant to which the Officer was retained as the
Trust's Vice President and Treasurer.
B. The Board of Trustees of the Trust (the "Board") has resolved to
recommend to the Trust's shareholders that all Trust properties be sold and that
the Trust be liquidated over a period of three years or the Trust properties be
otherwise disposed of in a merger, consolidation or similar transaction (the
"Liquidation Process"), and the Board desires to retain the Officer for at least
a portion of the Liquidation Process as Vice President and Treasurer to assist
in that Process.
C. As an inducement to the Officer to continue in the employment of the
Trust as its Vice President and Treasurer for at least a portion of the
Liquidation Process, the parties desire to amend and completely restate the
terms of the Officer's employment agreement as set forth below, effective
September 1, 1996.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the parties hereby agree as follows provided that
the Liquidation process is subsequently approved by the Trust's shareholders:
Section 1. Status of Prior Agreement.
---------- --------------------------
The Officer's current employment agreement with the Trust shall be
superseded by the terms of this Agreement effective September 1, 1996 provided
that as conditions subsequent the Trust's shareholders approve this Agreement
and the Liquidation Process. If for any reason this Agreement does not become
effective, the Officer's current employment agreement shall remain in force
according to its terms.
Section 2. Continuation of Officer's Services.
---------- -----------------------------------
Until such employment is terminated as provided herein, the
<PAGE> 2
Trust hereby retains the Officer to render services to the Trust as its Vice
President and Treasurer in connection with the management and liquidation of the
Trust including the timely sale of the Trust's properties (but subject to prior
Board approval), the payment of its expenses and liabilities, the distribution
of its net assets and the winding up of its affairs. It is the intention of the
Board that the Liquidation Process be completed by the third anniversary of the
shareholder vote approving the Liquidation Process (the "Termination Date") but
subject, however, to the Board's subsequent determination in its discretion to
extend the Liquidation Process beyond the Termination Date but no guarantee is
made that Officer's employment shall continue for the entire Liquidation
Process. During the term of this Agreement the Officer shall devote his full
time during normal working hours (except normal vacation periods and periods of
illness) and shall exert his best efforts, knowledge, and skill to the business
affairs of the Trust including the Liquidation Process.
Section 3. Base Salary.
---------- ------------
The Trust will pay to the Officer during the period from and after the
effective date hereof through December 31, 1996 (i) base salary at a rate of
$76,000 per year, which shall be paid (net of applicable withholding taxes) in
semi-monthly installments plus (ii) a bonus of $16,000 (payable on December 1,
1996, net of applicable withholding taxes). Thereafter, during the term of this
Agreement, the Trust will pay the Officer a base salary at a rate of $92,000 per
year, which shall be paid (net of applicable withholding taxes) in semi-monthly
installments.
Section 4. Additional Compensation in Lieu of Stock Options.
---------- -------------------------------------------------
(a) In February, 1992, shareholders of the Trust adopted and approved
the 1992 Stock Option Plan which further amended and extended the 1983 Incentive
Stock Option Plan. The Officer has been granted certain stock options to
purchase shares in the Trust in accordance with the terms of the 1992 Incentive
Stock Option Plan or otherwise.
(b) The Officer hereby waives all rights with respect to unexercised
options described in (a) above as of the effective date of this Agreement. The
Trust will make additional compensation payments to the Officer in an amount
based upon the liquidating distributions made to Trust shareholders from time to
time pursuant to the table set forth on Exhibit A attached hereto and made a
part hereof (the "Payments in Lieu of Options"). In addition to the Payments in
Lieu of Options, the Trust shall also pay to the Officer an additional amount
(the "Tax Gross Up Amount") which, shall be based on the difference between the
ordinary income tax rate to which such payment will be subject for federal
income tax purposes and the capital gains rate which could have applied for
federal income tax purposes to the stock options. For purposes of the
computation of the Gross Up Amount it is assumed that the Officer's combined tax
rate for capital gains is 35% and for ordinary income is 46%. The computation of
the Gross Up Amount is
2
<PAGE> 3
illustrated in the example set forth on Exhibit A-l. Such Payments in Lieu of
Options and the related Gross Up Amount (net of applicable withholding taxes)
shall be made at the same time as liquidating distributions are paid to the
shareholders by the Trust. If the Trust is sold, merged or combined with another
entity resulting in payment by the Buyer directly to the Trust's shareholders
rather than payments to and liquidating distributions from the Trust, the Trust
shall pay the Officer as additional compensation the amount which would be
payable to him under the foregoing provisions of this Section 4(b) as if the
present cash value of the consideration received in such sale, merger or
combination would be distributed to the shareholders as a liquidating
distribution on the closing date of such transaction. If at the termination of
Officer's employment under this Agreement, any Trust properties remain unsold,
the Officer shall be entitled to further distributions (including Gross Up
Amounts) at such times as additional liquidating distributions are made to the
Trust shareholders from the sale of such properties.
Section 5. Other Benefits.
---------- ---------------
During the term of his employment, the Trust shall continue to provide
benefits to the Officer comparable to those presently being provided, including
a retirement plan, group life insurance, health and accident insurance,
hospitalization and other similar plans and will continue to pay or reimburse
the Officer for reasonable and ordinary business expenses (including
professional dues and membership fees in professional and industry
associations). Notwithstanding any provision to the contrary in this Agreement
or in any qualified or non qualified retirement or deferred compensation plan of
the Trust, it is specifically agreed by the Officer that any payments made to
him under Sections 4, 5 or 7 hereof, will not be considered in determining any
benefit payments due to the Officer under any qualified retirement or deferred
compensation plan of the Trust.
Section 6. Termination and Severance Payment.
---------- ----------------------------------
(a) The Trust and Officer shall have the right to terminate this
Agreement at any time, for any reason, without any prior notice to the other.
This Agreement shall automatically terminate upon the disability or the death of
the Officer. In the event of the termination of this Agreement either (i) by
action of the Trust or as a result of the Officer's death or disability either
before or after the conclusion of the Liquidation Process or (ii) by action of
the Officer after a material change in the Officer's duties (as described in (b)
below), the Trust shall pay to the Officer (or his estate in the event of his
death) a severance payment equal to $184,000 within fifteen (15) days after the
event giving rise to the payment obligation. For purposes of this Agreement,
"disability" shall mean the inability of the Officer to carry out his duties
hereunder by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which can be expected to last for a
continuous period of not less than six months.
3
<PAGE> 4
(b) For purposes of this Agreement, the parties acknowledge that the
Officer's duties will be changing in some respect from the duties he previously
performed as Vice President and Treasurer as a result of the Liquidation Process
and such changes shall not be considered a "material change" for purposes of (a)
above provided, however, that any change of duties which results in the Officer
no longer functioning as Vice President and Treasurer of the Trust or any
relocation of the Officer from the greater Cleveland area without his consent
shall be considered a "material change."
(c) In the event the Officer is accused by the Trust of appropriating
$25,000 or more of the Trust's funds or property for his personal betterment,
the Trust may immediately terminate the Officer and withhold the severance
payment described in (a) above pending the adjudication of the allegation. In
the event the Officer is subsequently convicted in a court of law of embezzling
$25,000 or more from the Trust, the Trust shall have no obligation to pay any
severance payment. If, however, the Officer is not convicted of embezzlement,
the Trust shall immediately pay to the Officer the severance payment and
reimburse him for legal fees and related expenses.
(d) In consideration for the Officer's continued employment under this
Agreement and the payments and benefits provided hereunder, and particularly,
the severance payment provided hereunder and as a condition precedent to
receiving such payment, the Officer shall sign and deliver to the Trust a
Release of Claims substantially in the form as set forth on Exhibit B attached
hereto and with such changes thereto as specifically authorized by the Board.
For purposes of this Section 6(d), the Release of Claims shall not be considered
delivered until the period for rescission set forth therein has expired.
Section 7. Legal Fees and Expenses.
---------- ------------------------
(a) In the event the Trust has failed to comply with any of its
obligations under Section 6 of this Agreement or in the event that the Trust or
any other person takes any action to declare this Agreement void or
unenforceable, or institutes any litigation designed to deny, or to recover from
the Officer the benefits intended to be provided to the Officer under Section 6
of this Agreement, the Trust irrevocably authorizes the Officer, from time to
time, to retain legal counsel of his choice, at the expense of the Trust, to
represent the Officer in connection with the initiation or defense of any
litigation or other legal action, whether by or against the Trust or any
Trustee, Officer, shareholder or other person affiliated with the Trust, in any
jurisdiction. The Trust shall pay all such legal costs promptly upon receipt of
a detailed invoice and be solely responsible for any and all attorneys' and
related fees and expenses incurred by the Officer as a result of the Trust's
failure to perform its obligation under this Section 7 or as a result of the
Trust or any person contesting the validity or enforceability of this Section 7.
(b) The Trust shall pay to Jason C. Blackford, legal counsel
4
<PAGE> 5
for the Officer and certain other officers executing employment agreements with
the Trust, his reasonable fee for legal representation of such officers with
respect to such employment agreements in an amount not to exceed five thousand
dollars ($5,000) with respect to such representation of all such officers in the
aggregate, and the obligations of the Trust under the provisions of this Section
7(b) shall be the only responsibility of the Trust with respect to legal fees of
Officer in connection with the negotiation and drafting of this Agreement.
Section 8. Notice.
---------- -------
Any notice required to be given pursuant to the provisions of this
Agreement shall be deemed to be effectively given if personally delivered or if
mailed, by certified mail, postage prepaid, to the parties at the following
addresses:
To the Trust: Board of Trustees
CleveTrust Realty Investors
2001 Crocker Road, Suite 400
Westlake, OH 44145
To Officer: MICHAEL R. THOMS
8101 Fenway Drive
Parma, Ohio 44129
or to such other addresses as may be designated by one party to the other in a
notice complying with the provisions of this Section 8.
Section 9. Existing Agreements and Amendments.
---------- -----------------------------------
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and, shall supersede any and all existing
agreements between the parties with respect to the Officer's employment by the
Trust. This Agreement may be modified and amended only in a writing signed by
each of the parties.
Section 10. Non-Assignability.
----------- ------------------
None of the rights or obligations of the Officer hereunder may be
assigned without the prior written consent of the Board.
Section 11. Benefit.
----------- --------
This Agreement shall inure to the benefit of and be binding upon the
Trust, its successors and assigns, and upon the Officer, his heirs and personal
representatives and permitted assigns.
Section 12. Severability.
----------- -------------
If any provision of this Agreement shall be held invalid under any
applicable law, such invalidity shall not affect any other
5
<PAGE> 6
provision of this Agreement which can be given effect without the invalid
provisions, and, to that end, the provisions hereof are severable and any
invalid provision shall be deemed modified to the least extent necessary to
render such provision valid.
Section 13. Equitable Adjustment.
----------- ---------------------
With respect to any payments hereunder which are computed with reference
to "per share" valuations or distributions or with respect to the number of
Trust shares outstanding, there shall be an equitable adjustment as determined
by the Board in such computations in the event of any stock split, reverse stock
split or similar transaction causing a change in the number of Trust shares
outstanding from the date this Agreement is executed to the date such payment
computation is required.
Section 14. Waiver.
----------- -------
The failure or omission by any party to enforce any provision of this
Agreement, no matter how long continued, shall not be considered to be a waiver
of such provision. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any other subsequent breach or default of the same or similar or dissimilar
nature.
Section 15. Controlling Law.
----------- ----------------
This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Ohio.
Section 16. Status of the Trust.
----------- --------------------
The Trust is a Massachusetts business trust governed by the terms of a
Second Amended and Restated Declaration of Trust dated as of February 21, 1992
as amended by an Amendment dated February 21, 1995. No obligation of the Trust
is personally binding upon, nor shall resort be had to the private property of
any of the Trustees, shareholders, officers, employees or agents of the Trust,
but the Trust property or a specific portion thereof only shall be bound.
IN WITNESS WHEREOF, the parties have executed this Agreement this
30th day of September, 1996.
CLEVETRUST REALTY INVESTORS
By /s/ John C. Kikol /s/ Michael R. Thoms
- -------------------------------------- --------------------
JOHN C. KIKOL MICHAEL R. THOMS
6
<PAGE> 7
EXHIBIT A
Payments in Lieu of Options
---------------------------
(Pursuant to Section 4(b) of this Agreement)
Mr. Thoms is entitled to a share of each distribution when and if paid
to Trust shareholders based upon the following table:
<TABLE>
<CAPTION>
Cumulative Distributions Percentage of Total Distribution
------------------------ --------------------------------
Payable Per Share Which is Payable to Mr. Thoms(1)
----------------- --------------------------------
<S> <C>
first $2.62 of distribution -0-
next $0.38 of distribution 0.004650
next $0.06 of distribution 0.004836
next $2.06 of distribution 0.006231
all additional distributions 0.007533
Example Amount Payable to Mr. Thoms
------- ---------------------------
Amount of first distribution $2.75 - $ 3,250.18(2)
Amount of second distribution $3.50 - $122,591.81(3)
-----------
$125,841.99 Total Payments in
Lieu of Options
Payable to Mr.
Thoms.
<FN>
- ----------
(1) These percentages were computed on the assumption that all outstanding options
would be exercised when Trust distributions equaled the respective strike prices
and on the assumption that there are 5,376,643 actual shares outstanding. The
percentages will be equitable adjusted to the extent there is a change in the
number of actual shares outstanding from time to time.
(2) $2.62 x 5,376,643 x 0 - -0-
$0.13 x 5,376,643 x 0.004650 - $ 3,250.18
-----------
3,250.18
(3) $0.25 x 5,376,643 x 0.004650 - $ 6,250.34
$0.06 x 5,376,643 x 0.004836 - $ 1,560.09
$2.06 x 5,376,643 x 0.006231 - $ 69,013.84
$1.13 x 5,376,643 x 0.007533 - $ 45,767.54
-----------
$122,591.81
</TABLE>
PLEASE NOTE: This example is only meant to illustrate the calculations for a
payment in lieu of options. No inference should be drawn concerning the
prospects for actual distributions. For purposes of this example it is assumed
that 5,179,143 Trust shares will be outstanding so that the shares on a fully
diluted basis would total 5,376,643. The actual calculations of payments will be
based on the actual number of fully diluted Trust shares outstanding at the time
a distribution is made.
<PAGE> 8
EXHIBIT A-1
COMPUTATION OF GROSS UP AMOUNT
(Pursuant to Section 4(b) of this Agreement)
Assume the Payments in Lieu of Options payable to Mr. Thoms are as set
forth on Exhibit A:
<TABLE>
<S> <C> <C>
Payments in Lieu of Options
- ---------------------------
1. $ 3,250.18
2. $122,591.81
-----------
$125,841.99 Total Payments in Lieu of Options Payable to Mr. Thoms
Gross Up Amount for First Payment
- ---------------------------------
$3,250.18 x 20.37%(1) = $ 622.06 Gross Up Amount
$3,250.18 Payment in Lieu of Options
---------
$3,912.24 Total Payment to Mr. Thoms
Gross Up Amount for Second Payment
- ----------------------------------
$122,591.81 x 20.37%(1) = $ 24,971.95 Gross Up Amount
$122,591.81 Payment in Lieu of Options
-----------
$147,563.76 Total Payment to Mr. Thoms
Summary
- -------
1. Total Payments in Lieu of Options Payable to Mr. Thoms $ 3,250.18
$122,591.81
-----------
$125,841.99
2. Total Gross Up Payments payable to Mr. Thoms $ 662.06
$ 24,971.95
-----------
$ 25,634.01
3. Total payments payable to Mr. Thoms under Section 4(b) $125,841.99
$ 25,634.01
-----------
$151,476.00
<FN>
- ----------
(1) The spread between the deemed ordinary income rate of 46% and the deemed
capital gain rate of 35% is 11%. That percentage divided by .54 yields
the percentage to be used to determine the gross up amount for the
payments which would otherwise have been taxed at capital gains rates.
</TABLE>
<PAGE> 9
EXHIBIT B
RELEASE OF CLAIMS
I, ____________, the undersigned have been an employee of CleveTrust
Realty Investors (the "Trust") pursuant to an Amended and Restated Employment
Agreement dated _________, 1996 by and between the Trust and me (the "Employment
Agreement"). My employment by the Trust is terminating effective _______, 19__
and, pursuant to Section 6 of the Employment Agreement and in consideration of
my employment by the Trust and the payments and benefits under the Employment
Agreement and, particularly the severance payment under Section 6 thereof, I
hereby agree as follows:
(1) I hereby voluntarily agree to waive and release any and all
claims, charges and actions, known or unknown, including those
relating in any way to my employment, or to my termination from
employment with the Trust, and any claims for wrongful
discharge, breach of contract, implied contract, promissory
estoppel, tortious conduct, or claims under any federal, state
or local employment statute, law, order or ordinance, including
any claims for discrimination, and rights under the Age
Discrimination in Employment Act which I may now or in the
future have or assert against the Trust or any of its officers,
trustees, employees, representatives, shareholders or related
entities. This Release applies to all rights or claims which
arise on or before the date on which it is signed.
(2) I agree to return all property belonging to the Trust, including
all keys, credit cards, and manuals.
(3) I agree that I will not seek re-employment with the Trust or any
related entity in any capacity.
(4) I understand that I have the option to consider and reflect upon
this Release before its signing. It is advised that I consult
with an attorney and/or other professionals such as accountants,
financial advisors concerning its terms. I will be responsible
for my attorney's fees and costs should I choose to have counsel
review this Release.
(5) I understand and agree that I will not make any derogatory or
defamatory remarks about the Trust, its trustees, officers,
employees, representatives or related entities.
(6) I agree to keep the terms of this Release and of my severance
payment under my Employment Agreement confidential, and I will
not publicize or communicate them in any newspaper, electronic
1
<PAGE> 10
media or other public or private forum, or in any manner
whatsoever except as may be required by applicable law.
(7) For a period of seven days after I sign this Release and return
it to the Trust, I may revoke it by advising the Trust in
writing that I have decided to revoke it. This Release will not
become effective until that seven day period has expired.
(8) I acknowledge that no promise or agreement not expressed in my
Employment Agreement, the Trust's personnel or employee benefit
documents or this Release has been made to me, and that this
Release and my Employment Agreement constitute the complete
agreement between the Trust and me.
(9) I understand and agree completely to the terms and conditions
listed above. I acknowledge that I have twenty-one (21) days
after receiving this Release to sign it and return it to the
Trust.
AGREED TO at __________________, Ohio, this ________ day of ___________,
19__.
_____________________________________
[Employee]
-2-
<PAGE> 1
Exhibit (10)(3)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT, (which hereinafter,
along with all Exhibits and Schedules referenced herein and attached hereto, is
referred to as the "Agreement") is made by and between CLEVETRUST REALTY
INVESTORS, a Massachusetts voluntary association of the type generally known as
a business trust (the "Trust"), and RAYMOND C. NOVINC ("Officer"). The Trust and
the Officer are sometimes referred to as a "party" or, collectively, as the
"parties."
R E C I T A L S:
A. The parties entered into an Amended and Restated Employment Agreement
dated as of January 1, 1993 pursuant to which the Officer was retained as the
Trust's Vice President, Secretary, and Counsel.
B. The Board of Trustees of the Trust (the "Board") has resolved to
recommend to the Trust's shareholders that all Trust properties be sold and that
the Trust be liquidated over a period of three years or the Trust properties be
otherwise disposed of in a merger, consolidation or similar transaction (the
"Liquidation Process"), and the Board desires to retain the Officer for at least
a portion of the Liquidation Process as Vice President, Secretary, and Counsel
to assist in that Process.
C. As an inducement to the Officer to continue in the employment of the
Trust as its Vice President, Secretary, and Counsel for at least a portion of
the Liquidation Process, the parties desire to amend and completely restate the
terms of the Officer's employment agreement as set forth below, effective
September 1, 1996.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the parties hereby agree as follows provided that
the Liquidation process is subsequently approved by the Trust's shareholders:
Section 1. Status of Prior Agreement.
---------- --------------------------
The Officer's current employment agreement with the Trust shall be
superseded by the terms of this Agreement effective September 1, 1996 provided
that as conditions subsequent the Trust's shareholders approve this Agreement
and the Liquidation Process. If for any reason this Agreement does not become
effective, the Officer's current employment agreement shall remain in force
according to its terms.
<PAGE> 2
Section 2. Continuation of Officer's Services.
---------- -----------------------------------
Until such employment is terminated as provided herein, the Trust hereby
retains the Officer to render services to the Trust as its Vice President,
Secretary, and Counsel in connection with the management and liquidation of the
Trust including the timely sale of the Trust's properties (but subject to prior
Board approval), the payment of its expenses and liabilities, the distribution
of its net assets and the winding up of its affairs. It is the intention of the
Board that the Liquidation Process be completed by the third anniversary of the
shareholder vote approving the Liquidation Process (the "Termination Date") but
subject, however, to the Board's subsequent determination in its discretion to
extend the Liquidation Process beyond the Termination Date but no guarantee is
made that Officer's employment shall continue for the entire Liquidation
Process. During the term of this Agreement the Officer shall devote his full
time during normal working hours (except normal vacation periods and periods of
illness) and shall exert his best efforts, knowledge, and skill to the business
affairs of the Trust including the Liquidation Process.
Section 3. Base Salary.
---------- ------------
The Trust will pay to the Officer during the period from and after the
effective date hereof through December 31, 1996 (i) base salary at a rate of
$80,000 per year, which shall be paid (net of applicable withholding taxes) in
semi-monthly installments plus (ii) a bonus of $12,000 (payable on December 1,
1996, net of applicable withholding taxes). Thereafter, during the term of this
Agreement, the Trust will pay the Officer a base salary at a rate of $92,000 per
year, which shall be paid (net of applicable withholding taxes) in semi-monthly
installments.
Section 4. Additional Compensation in Lieu of Stock Options.
---------- -------------------------------------------------
(a) In February, 1992, shareholders of the Trust adopted and approved
the 1992 Stock Option Plan which further amended and extended the 1983 Incentive
Stock Option Plan. The Officer has been granted certain stock options to
purchase shares in the Trust in accordance with the terms of the 1992 Incentive
Stock Option Plan or otherwise.
(b) The Officer hereby waives all rights with respect to unexercised
options described in (a) above as of the effective date of this Agreement. The
Trust will make additional compensation payments to the Officer in an amount
based upon the liquidating distributions made to Trust shareholders from time to
time pursuant to the table set forth on Exhibit A attached hereto and made a
part hereof (the "Payments in Lieu of Options"). In addition to the Payments in
Lieu of Options, the Trust shall also pay to the Officer an additional amount
(the "Tax Gross Up Amount") which, shall be based on the difference between the
ordinary income tax rate to which such payment will be subject for federal
income tax purposes and the capital gains rate which could have applied for
federal income tax purposes to the stock options. For purposes of
2
<PAGE> 3
the computation of the Gross Up Amount it is assumed that the Officer's combined
tax rate for capital gains is 35% and for ordinary income is 46%. The
computation of the Gross Up Amount is illustrated in the example set forth on
Exhibit A-l. Such Payments in Lieu of Options and the related Gross Up Amount
(net of applicable withholding taxes) shall be made at the same time as
liquidating distributions are paid to the shareholders by the Trust. If the
Trust is sold, merged or combined with another entity resulting in payment by
the Buyer directly to the Trust's shareholders rather than payments to and
liquidating distributions from the Trust, the Trust shall pay the Officer as
additional compensation the amount which would be payable to him under the
foregoing provisions of this Section 4(b) as if the present cash value of the
consideration received in such sale, merger or combination would be distributed
to the shareholders as a liquidating distribution on the closing date of such
transactions If at the termination of Officer's employment under this Agreement,
any Trust properties remain unsold, the Officer shall be entitled to further
distributions (including Gross Up Amounts) at such times as additional
liquidating distributions are made to the Trust shareholders from the sale of
such properties.
Section 5. Other Benefits.
---------- ---------------
During the term of his employment, the Trust shall continue to provide
benefits to the Officer comparable to those presently being provided, including
a retirement plan, group life insurance, health and accident insurance,
hospitalization and other similar plans and will continue to pay or reimburse
the Officer for reasonable and ordinary business expenses (including
professional dues and membership fees in professional and industry
associations). Notwithstanding any provision to the contrary in this Agreement
or in any qualified or non qualified retirement or deferred compensation plan of
the Trust, it is specifically agreed by the Officer that any payments made to
him under Sections 4, 5 or 7 hereof, will not be considered in determining any
benefit payments due to the Officer under any qualified retirement or deferred
compensation plan of the Trust.
Section 6. Termination and Severance Payment.
---------- ----------------------------------
(a) The Trust and Officer shall have the right to terminate this
Agreement at any time, for any reason, without any prior notice to the other.
This Agreement shall automatically terminate upon the disability or the death of
the Officer. In the event of the termination of this Agreement either (i) by
action of the Trust or as a result of the Officer's death or disability either
before or after the conclusion of the Liquidation Process or (ii) by action of
the Officer after a material change in the Officer's duties (as described in (b)
below), the Trust shall pay to the Officer (or his estate in the event of his
death) a severance payment equal to $184,000 within fifteen (15) days after the
event giving rise to the payment obligation. For purposes of this Agreement,
"disability" shall mean the inability of the Officer to carry out his duties
hereunder by reason of any medically
3
<PAGE> 4
determinable physical or mental impairment which can be expected to result in
death or which can be expected to last for a continuous period of not less than
six months.
(b) For purposes of this Agreement, the parties acknowledge that the
Officer's duties will be changing in some respect from the duties he previously
performed as Vice President, Secretary, and Counsel as a result of the
Liquidation Process and such changes shall not be considered a "material change"
for purposes of (a) above provided, however, that any change of duties which
results in the Officer no longer functioning as Vice President, Secretary, and
Counsel of the Trust or any relocation of the Officer from the greater Cleveland
area without his consent shall be considered a "material change."
(c) In the event the Officer is accused by the Trust of appropriating
$25,000 or more of the Trust's funds or property for his personal betterment,
the Trust may immediately terminate the Officer and withhold the severance
payment described in (a) above pending the adjudication of the allegation. In
the event the Officer is subsequently convicted in a court of law of embezzling
$25,000 or more from the Trust, the Trust shall have no obligation to pay any
severance payment. If, however, the Officer is not convicted of embezzlement,
the Trust shall immediately pay to the Officer the severance payment and
reimburse him for legal fees and related expenses.
(d) In consideration for the Officer's continued employment under this
Agreement and the payments and benefits provided hereunder, and particularly,
the severance payment provided hereunder and as a condition precedent to
receiving such payment, the Officer shall sign and deliver to the Trust a
Release of Claims substantially in the form as set forth on Exhibit B attached
hereto and with such changes thereto as specifically authorized by the Board.
For purposes of this Section 6(d), the Release of Claims shall not be considered
delivered until the period for rescission set forth therein has expired.
Section 7. Legal Fees and Expenses.
---------- ------------------------
(a) In the event the Trust has failed to comply with any of its
obligations under Section 6 of this Agreement or in the event that the Trust or
any other person takes any action to declare this Agreement void or
unenforceable, or institutes any litigation designed to deny, or to recover from
the Officer the benefits intended to be provided to the Officer under Section 6
of this Agreement, the Trust irrevocably authorizes the Officer, from time to
time, to retain legal counsel of his choice, at the expense of the Trust, to
represent the Officer in connection with the initiation or defense of any
litigation or other legal action, whether by or against the Trust or any
Trustee, Officer, shareholder or other person affiliated with the Trust, in any
jurisdiction. The Trust shall pay all such legal costs promptly upon receipt of
a detailed invoice and be solely responsible for any and all attorneys' and
related fees and expenses incurred by
4
<PAGE> 5
the Officer as a result of the Trust's failure to perform its obligation under
this Section 7 or as a result of the Trust or any person contesting the validity
or enforceability of this Section 7.
(b) The Trust shall pay to Jason C. Blackford, legal counsel for the
Officer and certain other officers executing employment agreements with the
Trust, his reasonable fee for legal representation of such officers with respect
to such employment agreements in an amount not to exceed five thousand dollars
($5,000) with respect to such representation of all such officers in the
aggregate, and the obligations of the Trust under the provisions of this Section
7(b) shall be the only responsibility of the Trust with respect to legal fees of
Officer in connection with the negotiation and drafting of this Agreement.
Section 8. Notice.
---------- -------
Any notice required to be given pursuant to the provisions of this
Agreement shall be deemed to be effectively given if personally delivered or if
mailed, by certified mail, postage prepaid, to the parties at the following
addresses:
To the Trust: Board of Trustees
CleveTrust Realty Investors
2001 Crocker Road, Suite 400
Westlake, Ohio 44145
To Officer: Raymond C. Novinc
217 Wells Court
Euclid, Ohio 44132
or to such other addresses as may be designated by one party to the other in a
notice complying with the provisions of this Section 8.
Section 9. Existing Agreements and Amendments.
---------- -----------------------------------
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and, shall supersede any and all existing
agreements between the parties with respect to the Officer's employment by the
Trust. This Agreement may be modified and amended only in a writing signed by
each of the parties.
Section 10. Non-Assignability.
----------- ------------------
None of the rights or obligations of the Officer hereunder may be
assigned without the prior written consent of the Board.
Section 11. Benefit.
----------- --------
This Agreement shall inure to the benefit of and be binding upon the
Trust, its successors and assigns, and upon the Officer, his heirs and personal
representatives and permitted assigns.
5
<PAGE> 6
Section 12. Severability.
----------- -------------
If any provision of this Agreement shall be held invalid under any
applicable law, such invalidity shall not affect any other provision of this
Agreement which can be given effect without the invalid provisions, and, to that
end, the provisions hereof are severable and any invalid provision shall be
deemed modified to the least extent necessary to render such provision valid.
Section 13. Equitable Adjustment.
----------- ---------------------
With respect to any payments hereunder which are computed with reference
to "per share" valuations or distributions or with respect to the number of
Trust shares outstanding, there shall be an equitable adjustment as determined
by the Board in such computations in the event of any stock split, reverse stock
split or similar transaction causing a change in the number of Trust shares
outstanding from the date this Agreement is executed to the date such payment
computation is required.
Section 14. Waiver.
----------- -------
The failure or omission by any party to enforce any provision of this
Agreement, no matter how long continued, shall not be considered to be a waiver
of such provision. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any other subsequent breach or default of the same or similar or dissimilar
nature.
Section 15. Controlling Law.
----------- ----------------
This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Ohio.
Section 16. Status of the Trust.
----------- --------------------
The Trust is a Massachusetts business trust governed by the terms of a
Second Amended and Restated Declaration of Trust dated as of February 21, 1992
as amended by an Amendment dated February 21, 1995. No obligation of the Trust
is personally binding upon, nor shall resort be had to the private property of
any of the Trustees, shareholders, officers, employees or agents of the Trust,
but the Trust property or a specific portion thereof only shall be bound.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement this
25th day of September, 1996.
CLEVETRUST REALTY INVESTORS
By /s/ John C. Kikol /s/ Raymond C. Novinc
- ------------------------------------- ---------------------------------------
JOHN C. KIKOL RAYMOND C. NOVINC
7
<PAGE> 8
EXHIBIT A
Payments in Lieu of Options
---------------------------
Pursuant to Section 4(b) of this Agreement)
Mr. Novinc is entitled to a share of each distribution when and if paid
to Trust shareholders based upon the following table:
<TABLE>
<CAPTION>
Cumulative Distributions Percentage of Total Distribution
------------------------ --------------------------------
Payable Per Share Which is Payable to Mr. Novinc(1)
----------------- ---------------------------------
<S> <C>
first $2.62 of distribution -0-
next $0.38 of distribution 0.004650
next $0.06 of distribution 0.004836
next $2.06 of distribution 0.006231
all additional distributions 0.007533
Example Amount Payable to Mr. Novinc
Amount of first distribution $2.75 - $3,250.18(2)
Amount of second distribution $3.50 - $122,591.81(3)
$125,841.99 Total
Payments in
Lieu of Option
Payable to Mr.
Novinc
- ----------
<FN>
(1) These percentages were computed on the assumption that all outstanding options
would be exercised when Trust distributions equaled the respective strike prices
and on the assumption that there are 5,179,143 actual shares outstanding. The
percentages will be equitably adjusted to the extent there is a change in the
number of actual shares outstanding from time to time.
(2) $2.62 x 5,376,643 x 0 - -0-
$0.13 x 5,376,643 x 0.004650 - $3,250.18
-----------
3,250.18
(3) $0.25 x 5,376,643 x 0.004650 - $ 6,250.34
$0.06 x 5,376,643 x 0.004836 - $ 1,560.09
$2.08 x 5,376,643 x 0.006231 - $ 69,013.84
$1.13 x 5,376,643 x 0.007533 - $ 45,767.54
-----------
$122,591.81
</TABLE>
PLEASE NOTE: This example is only meant to illustrate the calculations for a
payment in lieu of options. No inference should be drawn concerning the
prospects for actual distributions. For purposes of this example it is assumed
that 5,179,143 Trust shares will be outstanding so that the shares on a fully
diluted basis would total 5,376,643. The actual calculations of payments will be
based on the actual number of fully diluted Trust shares outstanding at the time
a distribution is made.
<PAGE> 9
EXHIBIT A-1
COMPUTATION OF GROSS UP AMOUNT
(Pursuant to Section 4(b) of this Agreement)
Assume the Payments in Lieu of Options payable to Mr. Novinc are as set
forth on Exhibit A:
<TABLE>
<S> <C> <C>
Payments in Lieu of Options
- ---------------------------
1. $ 3,250.18
2. $122,591.81
-----------
$125,841.99 Total Payments in Lieu of Options Payable to Mr. Novinc.
Gross Up Amount for First Payment
- ---------------------------------
$3,250.18 x 20.37%(1) = $ 622.06 Gross Up Amount
$3,250.18 Payment in Lieu of Options
---------
$3,912.24 Total Payment to Mr. Novinc
Gross Up Amount for Second Payment
- ----------------------------------
$122,591.81 x 20.37%(1) = $ 24,971.95 Gross Up Amount
$122,591.81 Payment in Lieu of Options
-----------
$147,563.76 Total Payment to Mr. Novinc
Summary
- -------
1. Total Payments in Lieu of Options Payable to Mr. Novinc $ 3,250.18
$122,591.81
-----------
$125,841.99
2. Total Gross Up Payments payable to Mr. Novinc $ 662.06
$ 24,971.95
-----------
$ 25,634.01
3. Total payments payable to Mr. Novinc under Section 4(b) $125,841.99
$ 25,634.01
-----------
$151,476.00
- ----------
<FN>
(1) The spread between the deemed ordinary income rate of 46% and the deemed
capital gain rate of 35% is 11%. That percentage divided by .54 yields
the percentage to be used to determine the gross up amount for the
payments which would otherwise have been taxed at capital gains rates.
</TABLE>
<PAGE> 10
EXHIBIT B
RELEASE OF CLAIMS
I,________________, the undersigned have been an employee of CleveTrust
Realty Investors (the "Trust") pursuant to an Amended and Restated Employment
Agreement dated _____________, 1996 by and between the Trust and me (the
"Employment Agreement"). My employment by the Trust is terminating effective
____________, 19___ and, pursuant to Section 6 of the Employment Agreement and
in consideration of my employment by the Trust and the payments and benefits
under the Employment Agreement and, particularly the severance payment under
Section 6 thereof, I hereby agree as follows:
(1) I hereby voluntarily agree to waive and release any and all
claims, charges and actions, known or unknown, including those
relating in any way to my employment, or to my termination from
employment with the Trust, and any claims for wrongful
discharge, breach of contract, implied contract, promissory
estoppel, tortious conduct, or claims under any federal, state
or local employment statute, law, order or ordinance, including
any claims for discrimination, and rights under the Age
Discrimination in Employment Act which I may now or in the
future have or assert against the Trust or any of its officers,
trustees, employees, representatives, shareholders or related
entities. This Release applies to all rights or claims which
arise on or before the date on which it is signed.
(2) I agree to return all property belonging to the Trust, including
all keys, credit cards, and manuals.
(3) I agree that I will not seek re-employment with the Trust or any
related entity in any capacity.
(4) I understand that I have the option to consider and reflect upon
this Release before its signing. It is advised that I consult
with an attorney and/or other professionals such as accountants,
financial advisors concerning its terms. I will be responsible
for my attorney's fees and costs should I choose to have counsel
review this Release.
(5) I understand and agree that I will not make any derogatory or
defamatory remarks about the Trust, its trustees, officers,
employees, representatives or related entities.
(6) I agree to keep the terms of this Release and of my severance
payment under my Employment Agreement confidential, and I will
not publicize or communicate them in any newspaper, electronic
1
<PAGE> 11
media or other public or private forum, or in any manner
whatsoever except as may be required by applicable law.
(7) For a period of seven days after I sign this Release and return
it to the Trust, I may revoke it by advising the Trust in
writing that I have decided to revoke it. This Release will not
become effective until that seven day period has expired.
(8) I acknowledge that no promise agreement not expressed in my
Employment Agreement, the Trust's personnel or employee benefit
documents or this Release has been made to me, and that this
Release and my Employment Agreement constitute the complete
agreement between the Trust and me.
(9) I understand and agree completely to the terms and conditions
listed above. I acknowledge that I have twenty-one (21) days
after receiving this Release to sign it and return it to the
Trust.
AGREED TO at ___________________, Ohio, this _________ day of
___________, 19__.
______________________________________
[Employee]
-2-
<PAGE> 1
Exhibit (10)(4)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT, (which hereinafter,
along with all Exhibits and Schedules referenced herein and attached hereto, is
referred to as the "Agreement") is made by and between CLEVETRUST REALTY
INVESTORS, a Massachusetts voluntary association of the type generally known as
a business trust (the "Trust"), and BRIAN D. GRIESINGER ("Officer"). The Trust
and the Officer are sometimes referred to as a "party" or, collectively, as the
"parties."
R E C I T A L S:
A. The parties entered into an Amended and Restated Employment Agreement
dated as of January 1, 1993 (the "Prior Agreement") pursuant to which the
Officer was retained as the Trust's Vice President - Management.
B. The Board of Trustees of the Trust (the "Board") has resolved to
recommend to the Trust's shareholders that all Trust properties be sold and that
the Trust be liquidated over a period of three years or the Trust properties be
otherwise disposed of in a merger, consolidation or similar transaction (the
"Liquidation Process"), and the Board desires to retain the Officer for at least
a portion of the Liquidation Process as Vice President - Management to assist
in that Process.
C. As an inducement to the Officer to continue in the employment of the
Trust as its Vice President - Management for at least a portion of the
Liquidation Process, the parties desire to amend and completely restate the
terms of the Officer's employment agreement as set forth below, effective
September 1, 1996.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the parties hereby agree as follows provided that
the Liquidation process is subsequently approved by the Trust's shareholders:
Section 1. Status of Prior Agreement.
---------- --------------------------
The Officer's current employment agreement with the Trust shall be
superseded by the terms of this Agreement effective September 1, 1996 provided
that as conditions subsequent the Trust's shareholders approve this Agreement
and the Liquidation Process. If for any reason this Agreement does not become
effective, the Officer's current employment agreement shall remain in force
according to its terms.
<PAGE> 2
Section 2. Continuation of Officer's Services.
---------- -----------------------------------
Until such employment is terminated as provided herein, the Trust hereby
retains the Officer to render services to the Trust as its Vice President -
Management in connection with the management and liquidation of the Trust
including the timely sale of the Trust's properties (but subject to prior Board
approval), the payment of its expenses and liabilities, the distribution of its
net assets and the winding up of its affairs. It is the intention of the Board
that the Liquidation Process be completed by the third anniversary of the
shareholder vote approving the Liquidation Process (the "Termination Date") but
subject, however, to the Board's subsequent determination in its discretion to
extend the Liquidation Process beyond the Termination Date but no guarantee is
made that Officer's employment shall continue for the entire Liquidation
Process. During the term of this Agreement the Officer shall devote his full
time during normal working hours (except normal vacation periods and periods of
illness) and shall exert his best efforts, knowledge, and skill to the business
affairs of the Trust including the Liquidation Process.
Section 3. Base Salary.
---------- ------------
The Trust will pay to the Officer during the period from and after the
effective date hereof through December 31, 1996 (i) base salary at a rate of
$80,000 per year, which shall be paid (net of applicable withholding taxes) in
semi-monthly installments plus (ii) a bonus of $17,000 (payable on December 1,
1996, net of applicable withholding taxes). Thereafter, during the term of this
Agreement, the Trust will pay the Officer a base salary at a rate of $97,000 per
year, which shall be paid (net of applicable withholding taxes) in semi-monthly
installments.
Section 4. Additional Compensation in Lieu of Stock Options.
---------- -------------------------------------------------
(a) In February, 1992, shareholders of the Trust adopted and approved the
1992 Stock Option Plan which further amended and extended the 1983 Incentive
Stock Option Plan. The Officer has been granted certain stock options to
purchase shares in the Trust in accordance with the terms of the 1992 Incentive
Stock Option Plan or otherwise.
(b) The Officer hereby waives all rights with respect to unexercised
options described in (a) above as of the effective date of this Agreement. The
Trust will make additional compensation payments to the Officer in an amount
based upon the liquidating distributions made to Trust shareholders from time to
time pursuant to the table set forth on Exhibit A attached hereto and made a
part hereof (the "Payments in Lieu of Options"). In addition to the Payments in
Lieu of Options, the Trust shall also pay to the Officer an additional amount
(the "Tax Gross Up Amount") which, shall be based on the difference between the
ordinary income tax rate to which such payment will be subject for federal
income tax purposes and the capital gains rate which could have applied for
federal income tax purposes to the stock options. For purposes of the
computation of the Gross Up Amount it is assumed that the Officer's combined tax
rate for capital gains is 35% and for ordinary income is 46%. The computation of
the Gross Up Amount is illustrated in the example set forth on Exhibit A-l. Such
Payments in Lieu of Options and the related Gross Up Amount (net of applicable
withholding taxes) shall be made at the same time as liquidating distributions
are paid to the shareholders by the Trust. If the Trust is sold, merged or
combined with another entity resulting in payment by the Buyer directly to the
Trust's
2
<PAGE> 3
shareholders rather than payments to and liquidating distributions from the
Trust, the Trust shall pay the Officer as additional compensation the amount
which would be payable to him under the foregoing provisions of this Section
4(b) as if the present cash value of the consideration received in such sale,
merger or combination would be distributed to the shareholders as a liquidating
distribution on the closing date of such transaction. If at the termination of
Officer's employment under this Agreement, any Trust properties remain unsold,
the Officer shall be entitled to further distributions (including Gross Up
Amounts) at such times as additional liquidating distributions are made to the
Trust shareholders from the sale of such properties.
Section 5. Other Benefits.
---------- ---------------
During the term of his employment, the Trust shall continue to provide
benefits to the Officer comparable to those presently being provided, including
a retirement plan, group life insurance, health and accident insurance,
hospitalization and other similar plans and will continue to pay or reimburse
the Officer for reasonable and ordinary business expenses (including
professional dues and membership fees in professional and industry
associations). Notwithstanding any provision to the contrary in this Agreement
or in any qualified or non qualified retirement or deferred compensation plan of
the Trust, it is specifically agreed by the Officer that any payments made to
him under Sections 4, 5 or 7 hereof, will not be considered in determining any
benefit payments due to the Officer under any qualified retirement or deferred
compensation plan of the Trust.
Section 6. Termination and Severance Payment.
---------- ----------------------------------
(a) The Trust and Officer shall have the right to terminate this Agreement
at any time, for any reason, without any prior notice to the other. This
Agreement shall automatically terminate upon the disability or the death of the
Officer. In the event of the termination of this Agreement either (i) by action
of the Trust or as a result of the Officer's death or disability either before
or after the conclusion of the Liquidation Process or (ii) by action of the
Officer after a material change in the Officer's duties (as described in (b)
below), the Trust shall pay to the Officer (or his estate in the event of his
death) a severance payment equal to $121,250 provided however that such amount
shall be increased for employment with the Trust after July 1, 1996 pursuant
but in applying such formula to such service, fractional years shall be counted
(rounded to the closest month of service.) Such severance payment shall be made
within fifteen (15) days after the event giving rise to the payment obligation.
For purposes of this Agreement, "disability" shall mean the inability of the
Officer to carry out his duties hereunder by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which can be expected to last for a continuous period of not less
than six months.
(b) For purposes of this Agreement, the parties acknowledge that the
Officer's duties will be changing in some respect from the duties he previously
performed as Vice President - Management as a result of the Liquidation Process
and such changes shall not be considered a "material change" for purposes of (a)
above provided, however, that any change of duties which results in the Officer
no longer functioning as Vice President - Management of the Trust or any
relocation of the Officer from the greater Cleveland area without his consent
shall be considered a "material change."
3
<PAGE> 4
(c) In the event the Officer is accused by the Trust of appropriating
$25,000 or more of the Trust's funds or property for his personal betterment,
the Trust may immediately terminate the Officer and withhold the severance
payment described in (a) above pending the adjudication of the allegation. In
the event the Officer is subsequently convicted in a court of law of embezzling
$25,000 or more from the Trust, the Trust shall have no obligation to pay any
severance payment. If, however, the Officer is not convicted of embezzlement,
the Trust shall immediately pay to the Officer the severance payment and
reimburse him for legal fees and related expenses.
(d) In consideration for the Officer's continued employment under this
Agreement and the payments and benefits provided hereunder, and particularly,
the severance payment provided hereunder and as a condition precedent to
receiving such payment, the Officer shall sign and deliver to the Trust a
Release of Claims substantially in the form as set forth on Exhibit B attached
hereto and with such changes thereto as specifically authorized by the Board.
For purposes of this Section 6(d), the Release of Claims shall not be considered
delivered until the period for rescission set forth therein has expired.
Section 7. Legal Fees and Expenses.
---------- ------------------------
(a) In the event the Trust has failed to comply with any of its obligations
under Section 6 of this Agreement or in the event that the Trust or any other
person takes any action to declare this Agreement void or unenforceable, or
institutes any litigation designed to deny, or to recover from the Officer the
benefits intended to be provided to the Officer under Section 6 of this
Agreement, the Trust irrevocably authorizes the Officer, from time to time, to
retain legal counsel of his choice, at the expense of the Trust, to represent
the Officer in connection with the initiation or defense of any litigation or
other legal action, whether by or against the Trust or any Trustee, Officer,
shareholder or other person affiliated with the Trust, in any jurisdiction. The
Trust shall pay all such legal costs promptly upon receipt of a detailed invoice
and be solely responsible for any and all attorneys' and related fees and
expenses incurred by the Officer as a result of the Trust's failure to perform
its obligation under this Section 7 or as a result of the Trust or any person
contesting the validity or enforceability of this Section 7.
(b) The Trust shall pay to Jason C. Blackford, legal counsel for the
Officer and certain other officers executing employment agreements with the
Trust, his reasonable fee for legal representation of such officers with respect
to such employment agreements in an amount not to exceed five thousand dollars
($5,000) with respect to such representation of all such officers in the
aggregate, and the obligations of the Trust under the provisions of this Section
7(b) shall be the only responsibility of the Trust with respect to legal fees of
Officer in connection with the negotiation and drafting of this Agreement.
Section 8. Notice.
---------- -------
Any notice required to be given pursuant to the provisions of this
Agreement shall be deemed to be effectively given if personally delivered or if
mailed, by certified mail, postage prepaid, to the parties at the following
addresses:
4
<PAGE> 5
To the Trust: Board of Trustees
CleveTrust Realty Investors
2001 Crocker Road, Suite 400
Westlake, OH 44145
To Officer: BRIAN D. GRIESINGER
19299 Spinnaker Circle
Strongsville, Ohio 44136
or to such other addresses as may be designated by one party to the other in a
notice complying with the provisions of this Section 8.
Section 9. Existing Agreements and Amendments.
---------- -----------------------------------
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and, shall supersede any and all existing
agreements between the parties with respect to the Officer's employment by the
Trust. This Agreement may be modified and amended only in a writing signed by
each of the parties.
Section 10. Non-Assignability.
----------- ------------------
None of the rights or obligations of the Officer hereunder may be assigned
without the prior written consent of the Board.
Section 11. Benefit.
----------- --------
This Agreement shall inure to the benefit of and be binding upon the Trust,
its successors and assigns, and upon the Officer, his heirs and personal
representatives and permitted assigns.
Section 12. Severability.
----------- -------------
If any provision of this Agreement shall be held invalid under any
applicable law, such invalidity shall not affect any other provision of this
Agreement which can be given effect without the invalid provisions, and, to that
end, the provisions hereof are severable and any invalid provision shall be
deemed modified to the least extent necessary to render such provision valid.
Section 13. Equitable Adjustment.
----------- ---------------------
With respect to any payments hereunder which are computed with reference to
"per share" valuations or distributions or with respect to the number of Trust
shares outstanding, there shall be an equitable adjustment as determined by the
Board in such computations in the event of any stock split, reverse stock split
or similar transaction causing a change in the number of Trust shares
outstanding from the date this Agreement is executed to the date such payment
computation is required.
5
<PAGE> 6
Section 14. Waiver.
--------------------
The failure or omission by any party to enforce any provision of this
Agreement, no matter how long continued, shall not be considered to be a waiver
of such provision. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any other subsequent breach or default of the same or similar or dissimilar
nature.
Section 15. Controlling Law.
----------- ----------------
This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Ohio.
Section 16. Status of the Trust.
----------- --------------------
The Trust is a Massachusetts business trust governed by the terms of a
Second Amended and Restated Declaration of Trust dated as of February 21, 1992
as amended by an Amendment dated February 21, 1995. No obligation of the Trust
is personally binding upon, nor shall resort be had to the private property of
any of the Trustees, shareholders, officers, employees or agents of the Trust,
but the Trust property or a specific portion thereof only shall be bound.
IN WITNESS WHEREOF, the parties have executed this Agreement this 25th day
of September, 1996.
CLEVETRUST REALTY INVESTORS
By /S/ John C. Kikol /S/ BRIAN D. GRIESINGER
----------------------- --------------------------
John C. Kikol BRIAN D. GRIESINGER
6
<PAGE> 7
EXHIBIT A
Payments in Lieu of Options
---------------------------
(Pursuant to Section 4(b) of this Agreement)
Mr. Griesinger is entitled to a share of each distribution when and if
paid to Trust shareholders based upon the following table:
<TABLE>
<CAPTION>
Cumulative Distributions Percentage of Total Distribution
------------------------ ------------------------------------
Payable Per Share Which is Payable to Mr. Griesinger(1)
----------------- ------------------------------------
<S> <C>
first $2.62 of distribution -0-
next $0.38 of distribution 0.004650
next $0.06 of distribution 0.004836
next $2.06 of distribution 0.006231
all additional distributions 0.007161
</TABLE>
<TABLE>
<CAPTION>
Example Amount Payable to Mr. Griesinger
------- --------------------------------
<S> <C>
Amount of first distribution $2.75 - $ 3,250.18(2)
Amount of second distribution $3.50 - $122,591.81(3)
$125,841.99 Total Payments in
Lieu of Options
Payable to Mr.
Griesinger.
- ---------------
<FN>
<CAPTION>
1 These percentages were computed on the assumption that all outstanding options
would be exercised when Trust distributions equaled the respective strike prices
and on the assumption that there are 5,179,143 actual shares outstanding. The
percentages will be equitable adjusted to the extent there is a change in the
number of actual shares outstanding from time to time.
<S> <C> <C> <C>
2 $2.62 x 5,376,643 x 0 - -0-
$0.13 x 5,376,643 x 0.004650 - $ 3,250.18
-----------
3,250.18
3 $0.25 x 5,376,643 x 0.004650 - $ 6,250.34
$0.06 x 5,376,643 x 0.004836 - $ 1,560.09
$2.06 x 5,376,643 x 0.006231 - $ 69,013.84
$1.13 x 5,376,643 x 0.007161 - $ 43,507.42
-----------
$120,331.69
PLEASE NOTE: This example is only meant to illustrate the calculations for a
payment in lieu of options. No inference should be drawn concerning the
prospects for actual distributions. For purposes of this example it is assumed
that 5,179,143 Trust shares will be outstanding so that the shares on a fully
diluted basis would total 5,376,643. The actual calculations of payments will be
based on the actual number of fully diluted Trust shares outstanding at the time
a distribution is made.
</TABLE>
<PAGE> 8
EXHIBIT A-1
COMPUTATION OF GROSS UP AMOUNT
(Pursuant to Section 4(b) of this Agreement)
Assume the Payments in Lieu of Options payable to Mr. Griesinger are
as set forth on Exhibit A:
Payments in Lieu of Options
- ---------------------------
<TABLE>
<S> <C>
1. $ 3,250.18
2. $120,331.69
-----------
$123,581.24 Total Payments in Lieu of Options Payable to Mr. Griesinger
</TABLE>
<TABLE>
<CAPTION>
Gross Up Amount for First Payment
- ---------------------------------
<S> <C> <C>
$3,250.18 x 20.37%(1) = $ 622.06 Gross Up Amount
$3,250.18 Payment in Lieu of Options
--------
$3,912.24 Total Payment to Mr. Griesinger
Gross Up Amount for Second Payment
- ----------------------------------
$120,331.69 x 20.37%(1) = $ 24,511.57 Gross Up Amount
$120,331.69 Payment in Lieu of Options
----------
$144,843.36 Total Payment to Mr. Griesinger
</TABLE>
<TABLE>
<CAPTION>
Summary
- -------
<S> <C> <C>
1. Total Payments in Lieu of Options Payable to Mr. Griesinger $ 3,250.18
$120,331.69
----------
$123,581.87
2. Total Gross Up Payments payable to Mr. Griesinger $ 662.06
$ 24,511.57
----------
$ 25,173.63
3. Total payments payable to Mr. Griesinger under Section 4(b) $123,581.87
$ 25,173.63
----------
$148,755.50
<FN>
- -----------
1 The spread between the deemed ordinary income rate of 46% and the deemed
capital gain rate of 35% is 11%. That percentage divided by .54 yields the
percentage to be used to determine the gross up amount for the payments
which would otherwise have been taxed at capital gains rates.
</TABLE>
1
<PAGE> 9
EXHIBIT B
RELEASE OF CLAIMS
I, ____________, the undersigned have been an employee of CleveTrust Realty
Investors (the "Trust") pursuant to an Amended and Restated Employment Agreement
dated _________, 1996 by and between the Trust and me (the "Employment
Agreement"). My employment by the Trust is terminating effective _______, 19
and, pursuant to Section 6 of the Employment Agreement and in consideration of
my employment by the Trust and the payments and benefits under the Employment
Agreement and, particularly the severance payment under Section 6 thereof, I
hereby agree as follows:
(1) I hereby voluntarily agree to waive and release any and all claims,
changes and actions, known or unknown, including those relating in any
way to my employment, or to my termination from employment with the
Trust, and any claims for wrongful discharge, breach of contract,
implied contract, promissory estoppel, tortious conduct, or claims
under any federal, state or local employment statute, law, order or
ordinance, including any claims for discrimination, and rights under
the Age Discrimination in Employment Act which I may now or in the
future have or assert against the Trust or any of its officers,
trustees, employees, representatives, shareholders or related
entities. This Release applies to all rights or claims which arise on
or before the date on which it is signed.
(2) I agree to return all property belonging to the Trust, including all
keys, credit cards, and manuals.
(3) I agree that I will not seek re-employment with the Trust or any
related entity in any capacity.
(4) I understand that I have the option to consider and reflect upon this
Release before its signing. It is advised that I consult with an
attorney and/or other professionals such as accountants, financial
advisors concerning its terms. I will be responsible for my attorney's
fees and costs should I choose to have counsel review this Release.
(5) I understand and agree that I will not make any derogatory or
defamatory remarks about the Trust, its trustees, officers, employees,
representatives or related entities.
(6) I agree to keep the terms of this Release and of my severance payment
under my Employment Agreement confidential, and I will not publicize
or communicate them in any newspaper, electronic
1
<PAGE> 10
media or other public or private forum, or in any maner whatsoever
except as may be required by applicable law.
(7) For a period of seven days after I sign this Release and return it to
the Trust, I may revoke it by advising the Trust in writing that I
have decided to revoke it. This Release will not become effective
until that seven day period has expired.
(8) I acknowledge that no promise or agreement not expressed in my
Employment Agreement, the Trust's personnel or employee benefit
documents or this Release has been made to me, and that this Release
and my Employment Agreement constitute the complete agreement between
the Trust and me.
(9) I understand and agree completely to the terms and conditions listed
above. I acknowledge that I have twenty-one (21) days after receiving
this Release to sign it and return it to the Trust.
AGREED TO at __________________, Ohio, this ________ day of ___________,
19__.
___________________________
[Employee]
-2-
<PAGE> 1
Exhibit (11)
EXHIBIT
COMPUTATION OF NET INCOME (LOSS) PER SHARE OF BENEFICIAL INTEREST
CLEVETRUST REALTY INVESTORS
PRIMARY NET INCOME (LOSS) PER SHARE (1)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
(in thousands, except shares and per share data)
<S> <C> <C> <C>
Operating income (loss) $(2,060) $ 596 $(115)
Net gains on sales of real estate 40 2,499 445
Gains on sales of securities 632 0 0
------------ ------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (1,388) 3,095 330
Extraordinary items 0 790 253
------------ ------------ -----------
NET INCOME (LOSS) $(1,388) $3,885 $583
============ ============ ===========
Weighted average number of Shares of Beneficial
Interest outstanding 5,186,099 5,459,377 4,958,996
============ ============ ===========
Primary net income (loss) per Share:
Operating income (loss) $(0.40) $0.11 $(0.02)
Net gains on sales of real estate 0.01 0.46 0.09
Gains on sales of securities 0.12 0.00 0.00
------------ ------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (0.27) 0.57 0.07
Extraordinary items 0.00 0.14 0.05
------------ ------------ -----------
NET INCOME (LOSS) PER SHARE $(0.27) $0.71 $0.12
============ ============ ===========
<FN>
(1) Per share data is computed using the weighted average number of shares of
Beneficial Interest outstanding. For 1995, and 1994 the exercise of the
outstanding stock options would have a dilutive effect of less than 3%.
</TABLE>
<PAGE> 1
Exhibit (23)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated November 15,
1996, with respect to the financial statements and schedule of CleveTrust
Realty Investors included in this Annual Report (Form 10-K) for the year ended
September 30, 1996 in the following:
Registration Statement Number 33-12663 on Form S-8 dated March 23,
1987;
Registration Statement Number 33-12662 on Form S-3 dated March 23, 1987;
Amendment Number 1 to Registration Statement Number 33-12662 on Form
S-3 dated December 1, 1987; and
Post-Effective Amendment Number 1 to Registration Statement Number
2-97843 on Form S-8 dated March 23, 1987.
Ernst & Young LLP
December 9, 1996
Cleveland, Ohio
<PAGE> 1
EXHIBIT 24
TRUSTEE AND OFFICER POWER OF ATTORNEY
(FORM 10-K)
CLEVETRUST REALTY INVESTORS
KNOW ALL MEN BY THESE PRESENTS: That each person whose name is signed below
has made, constituted and appointed, and by this instrument does make,
constitute and appoint John C. Kikol, Michael R. Thoms and Raymond C. Novinc and
each of them his true and lawful attorney, with full power of substitution and
resubstitution to affix for him and in his name, place and stead, as
attorney-in-fact, his signature as a trustee or officer, or both, of CleveTrust
Realty Investors, a Massachusetts business trust (the "Company"), to the
Company's Annual Report on Form 10-K for the year ending September 30, 1996,
pursuant to the Securities Exchange Act of 1934, and to any and all amendments
and exhibits to that Form 10-K, and to any and all applications and other
documents pertaining thereto, giving and granting to each such attorney-in-fact
full power and authority to do and perform every act and thing whatsoever
necessary to be done in the premises, as fully as they might or could do if
personally present, and hereby ratifying and confirming all that each of such
attorneys-in-fact or any such substitute shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed at Westlake, Ohio
as of the date indicated.
/s/ Howard Amster October 21, 1996
- -------------------------------------------- ---------------------------
Howard Amster, Trustee Date
/s/ Robert H. Kanner October 21, 1996
- -------------------------------------------- ---------------------------
Robert H. Kanner, Trustee Date
/s/ John C. Kikol October 21, 1996
- -------------------------------------------- ---------------------------
John C. Kikol, Trustee Date
/s/ Leighton A. Rosenthal October 21, 1996
- -------------------------------------------- ---------------------------
Leighton A. Rosenthal, Trustee Date
/s/ John D. Weil October 21, 1996
- -------------------------------------------- ---------------------------
John D. Weil, Trustee Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FORM 10-K FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,490
<SECURITIES> 0
<RECEIVABLES> 2,436
<ALLOWANCES> 3,307
<INVENTORY> 0
<CURRENT-ASSETS> 1,030
<PP&E> 42,203
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,852
<CURRENT-LIABILITIES> 1,975
<BONDS> 19,377
<COMMON> 5,179
0
0
<OTHER-SE> 17,321
<TOTAL-LIABILITY-AND-EQUITY> 43,852
<SALES> 0
<TOTAL-REVENUES> 10,645
<CGS> 0
<TOTAL-COSTS> 6,890
<OTHER-EXPENSES> 734
<LOSS-PROVISION> 3,307
<INTEREST-EXPENSE> 1,774
<INCOME-PRETAX> (2,060)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,060)
<DISCONTINUED> 0
<EXTRAORDINARY> 672
<CHANGES> 0
<NET-INCOME> (1,388)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
