<PAGE>
As filed with the Securities and Exchange Commission on September 1, 1998
Registration No. 333-52745
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEW AMERICA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<CAPTION>
<S> <C> <C>
Maryland 6531 23-1916759
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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572 U.S. Route 130
Hightstown, NJ 08520
(609) 448-4700
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
---------------------------
Gerald C. Finn
Chief Executive Officer
572 U.S. Route 130
Hightstown, NJ 08520
(609) 448-4700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------------
With copies to:
Alan S. Pearce, Esq. Alan E. Davis, Esq.
Robinson Silverman Pearce Aronsohn & Berman LLP Hal W. Mandel, Esq.
1290 Avenue of the Americas Greenbaum, Rowe, Smith,
New York, New York 10104 Ravin, Davis & Himmel LLP
Phone (212) 541-2000 99 Wood Avenue South
Iselin, NJ 08830
Phone (732) 549-5600
Approximate date of commencement of the proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Securities Amount To Be Proposed Maximum Proposed Maximum Amount of
To Be Registered Registered Offering Price Per Share Aggregate Offering Price Registration Fee
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 12,078,640 $.01 $40,262 (1) $13.00 (1)
Common Stock, par value $.01 per share 19,101,403(2) $2.00 $38,202,806 $11,577 (3)
Rights 17,101,403 --(4) --(4) --(4)
===================================================================================================================================
</TABLE>
(1) Computed based on one-third of the of par value of the Common Stock
in accordance with Rule 457(f)(2) of the Securities Act of 1933, as
amended. The fee was paid with the initial filing of the Registration
Statement on May 15, 1998.
(2) Of such shares of Common Stock, (i) 17,101,403 of such shares are
reserved for issuance pursuant to the exercise of Rights, and to the
extent such Rights are not exercised, for issuance in connection with
the Concurrent Offering, and (ii) 2,000,000 of such Shares are
reserved for issuance in the Concurrent Offering.
(3) Of such fee $11,562 was paid with the initial filing of the
Registration Statement on May 15, 1998.
(4) Pursuant to Rule 457(g), no separate registration fee is required
with respect to the Rights.
---------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to such Section 8(a), may determine.
==============================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 1998
PROSPECTUS
New America International, Inc.
12,078,640 Shares of Common Stock and
Rights to Purchase 17,101,403 Shares of Common Stock
This Prospectus is being furnished in connection with (i) the
distribution (the "Distribution") by Kranzco Realty Trust, a Maryland real
estate investment trust ("Kranzco"), of an aggregate of 12,078,640 shares
of common stock, par value $.01 per share ("NAI Shares"), of New America
International, Inc., a Maryland corporation ("NAI"), to the holders of (a)
outstanding common shares of beneficial interest, par value $.01 per share, of
Kranzco (the "Kranzco Common Shares") and (b) outstanding Series B-1 and
Series B-2 preferred shares of beneficial interest, par value $.01 per share,
of Kranzco (the "Kranzco Series B Preferred Shares"), (ii) the distribution by
NAI of rights (the "Rights") to subscribe for purchase an aggregate of
17,101,403 NAI Shares (the "Basic Subscription Privilege"), at a price of $2
per NAI Share (the "Subscription Price"), to the holders of NAI Shares,
including the Kranzco shareholders who receive NAI Shares in the Distribution,
(the distribution of the Rights and the offer and sale of the underlying NAI
Shares (the "Underlying Shares") is referred to herein as the "Rights
Offering"), and (iii) the concurrent offering (the "Concurrent Offering") by
NAI of those Underlying Shares that are not otherwise subscribed for pursuant
to the Rights Offering ("Excess Shares"), first, to officers, directors and
trustees of NAI and Kranzco (the "Executive Group"), and then, to NAI's Broker
Members (as defined herein) and to certain of the principals, shareholders,
partners, officers, managers and licensed real estate agents of NAI's Broker
Members in the United States (the "Broker Member Group"). See "The
Distribution."
An investment in the NAI Shares involves various risks. See "Risk
Factors" beginning on Page 17 for a discussion of material risks that
should be considered in connection with an investment in the NAI Shares.
It is expected that the Distribution and Rights Offering will be made
on ______, 1998 (the "Distribution Effective Date"). The Distribution will be
made on the basis of one NAI Share for each Kranzco Common Share held by
Kranzco shareholders on _______, 1998 (the "Distribution Record Date"), and
one NAI Share for each Kranzco Common Share into which the Kranzco Series B
Preferred Shares held by Kranzco shareholders on the Distribution Record Date
are convertible (a "Kranzco Common Share Equivalent"). NAI will not receive
any proceeds from the Distribution.
Prior to the Distribution and Rights Offering, there has been no
public market for the NAI Shares. Although the NAI Shares will be eligible for
quotation and trading on the OTC Bulletin Board after the Distribution, the
NAI Shares are not currently quoted on the OTC Bulletin Board or listed on any
national securities exchange or approved for quotation on any quotation
system, and there can be no assurance that a public market for the NAI Shares
will develop or provide liquidity. Stockholders of NAI who do not exercise all
of their Rights will own less of a percentage equity ownership and voting
interest in NAI after the Rights Offering, the Concurrent Offering and the
Distribution. In addition, stockholders of NAI who do exercise all of their
rights may own less of a percentage
(continued on next page)
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND
US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
<PAGE>
(continued from cover)
equity ownership and voting interest in NAI if any Additional Shares (as
defined below) are purchased in the Concurrent Offering. There is no minimum
number of NAI Shares required to be sold as a condition to the consummation of
the Rights Offering or the Concurrent Offering. Gerald C. Finn and Jeffrey M.
Finn, individually, and as trustee of a trust for the benefit of Jeffrey M.
Finn (collectively, the "Finns"), have advised NAI that they intend to
exercise Rights to purchase an aggregate of 500,000 NAI Shares and Kranzco has
advised NAI that it intends to exercise such number of Rights to purchase NAI
Shares that would result in Kranzco owning approximately 9.8% of the issued
and outstanding NAI Shares, before the issuance of any Additional Shares.
The Rights Offering will be made on the basis of one Right for each
NAI Share held by the NAI stockholders, including the Kranzco shareholders who
receive NAI Shares in the Distribution, on the Distribution Effective Date.
Each Right will entitle its holder (a "Holder") to purchase one NAI Share. A
Holder who validly exercises all of such Holder's Rights available as part of
the Basic Subscription Privilege will also be entitled to purchase a pro rata
portion of any Underlying Shares that are not otherwise subscribed for
pursuant to the exercise of Basic Subscription Privileges (the
"Oversubscription Privilege"). Concurrently with the Rights Offering, NAI is
offering the right to purchase any Excess Shares, first, to the Executive
Group (the "Executive Group Subscription Privilege"), and then, to the Broker
Member Group (the "Broker Member Group Subscription Privilege;" together with
the Executive Group Subscription Privilege, the "Concurrent Privileges"). NAI
has authorized an additional 2,000,000 NAI Shares ("Additional Shares") for
issuance to the Broker Member Group in order to ensure that the Broker Member
Group will in the aggregate have the right to purchase a minimum of 2,000,000
NAI Shares, to the extent that the number of Excess Shares is not sufficient
to satisfy the Broker Member Group Subscription Privilege. There is no
assurance that any Excess Shares will be available for sale to the Executive
Group or the Broker Member Group. Although there will be a minimum of
2,000,000 Additional Shares available for subscription by the Broker Member
Group, there is no assurance that any member of the Broker Member Group will
receive all the Additional Shares for which such member subscribes. See "The
Rights Offering" and "Plan of Distribution."
The Rights and the Concurrent Privileges will expire at 5:00 p.m.,
New York Time, on _________ __, 1998, unless extended by NAI (such date, as it
may be extended on one or more occasions, is referred to herein as the
"Expiration Date"). In no event will the Expiration Date be extended beyond
___________, 1998. If NAI elects to extend the term of the Rights and the
Concurrent Privileges, it will issue a press release to such effect not later
than the first Business Day following the most recently announced Expiration
Date. Funds provided in payment of the Subscription Price will be held by
First Union National Bank, as the Subscription Agent, until the closing which
will occur promptly following the Expiration Date. The exercise of Rights and
the Concurrent Privileges is irrevocable once made, and no interest will be
paid to Holders exercising their Rights.
No payment need be made by, or will be accepted from, Kranzco
shareholders for the NAI Shares to be received by them in the Distribution or
from NAI stockholders for the Rights to be received by them in the Rights
Offering. Furthermore, Kranzco shareholders will not be required to surrender
or exchange Kranzco Common Shares, in order to receive NAI Shares.
- ----------------------------
THE RIGHTS MAY NOT BE EXERCISED BY A RESIDENT OF THE STATE OF CALIFORNIA
UNLESS SUCH RESIDENT IS A "QUALIFIED PURCHASER" AS SUCH TERM IS DEFINED
HEREIN. SEE "THE RIGHTS OFFERING."
THE RIGHTS MAY NOT BE EXERCISED BY RESIDENTS OF THE STATE OF NORTH DAKOTA UNLESS
SUCH RESIDENTS ARE HOLDERS OF NAI SHARES. SEE "THE RIGHTS OFFERING."
----------------------------
NAI BROKER MEMBERS AND THE PRINCIPALS, SHAREHOLDERS, PARTNERS, OFFICERS,
MANAGERS AND LICENSED REAL ESTATE BROKERS OF NAI'S BROKER MEMBERS WHO ARE
RESIDENTS OF THE STATES OF ARKANSAS, CALIFORNIA (OTHER THAN QUALIFIED
PURCHASERS), FLORIDA, MARYLAND, NORTH DAKOTA, SOUTH DAKOTA, TEXAS AND
VIRGINIA ARE NOT ELIGIBLE TO PARTICIPATE IN THE CONCURRENT OFFERING. SEE "THE
CONCURRENT OFFERING."
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<PAGE>
AVAILABLE INFORMATION
NAI has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (herein, together with all
amendments and exhibits thereto referred to as the "Registration Statement"),
of which this Prospectus forms a part, under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the NAI Shares offered
pursuant to this Prospectus. This Prospectus contains summaries of the
material terms of the documents referred to herein and therein, but does not
contain all of the information set forth in the Registration Statement
pursuant to the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement. The Registration
Statement as well as reports and other information filed by NAI can be
inspected without charge and copied at prescribed rates at the public
reference facilities maintained by the Commission at the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at its Regional Offices located as follows: Chicago Regional Office, Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511; and
New York Regional Office, Seven World Trade Center, Suite 1300, New York, New
York 10048. The Commission maintains a web site that contains reports, proxy,
and information statements and other information regarding registrants that
file electronically with the Commission. The web site is located at
http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any
contract or other document that is filed as an exhibit to the Registration
Statement are not necessarily complete, and each such statement is qualified
in its entirety by reference to the full text of such contract or document.
Upon consummation of the Distribution, NAI will be required to file
reports and other information with the Commission pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In addition to
applicable legal requirements, if any, holders of NAI Shares will receive
annual reports containing audited financial statements with a report thereon
by NAI's independent public accountants.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise stated, this Prospectus assumes that all
Underlying Shares and Additional Shares are purchased in the Rights Offering
and the Concurrent Offering, as the case may be. Unless the context otherwise
requires, all references in this Prospectus to: (i) "NAI" shall mean New
America International, Inc., a Maryland corporation which is the
successor-by-merger to New America Network, Inc., a Delaware corporation ("NAI
Delaware"), and, where applicable, "NAI" shall also refer to NAI Delaware,
(ii) "NAI Shares" shall mean NAI's common stock, par value $.01 per share.
Unless otherwise indicated, the information contained in this Prospectus
assumes that the Exchange Offer (defined below) was consummated immediately
prior to the Distribution and the Rights Offering.
NAI
New America International, Inc. ("NAI") operates a network (the
"Network") of independently owned, licensed real estate brokers ("Broker
Members") throughout the United States and, more recently, abroad. NAI,
directly and through its Broker Members, provides commercial real estate
brokerage services to local, regional, national and international businesses
("Clients"). NAI has approximately 130 affiliated Broker Members, which employ
approximately 2,600 agents, operating in approximately 300 markets, including
North, Central and South America and Western Europe. NAI believes it is
represented in more North American market areas than any national commercial
real estate brokerage company. Unlike other real estate broker networks, in
addition to managing real estate transactions generated by its Broker Members,
NAI generates its own source of real estate transactions for its Broker
Members and actively manages and tracks those transactions on behalf of
Clients. In order to increase the portfolio of services marketed to Clients
and Broker Members, NAI has entered into several alliance agreements with
entities ("Alliance Members") which provide real estate related services which
complement NAI's brokerage capabilities, including sealed-bid sales, real
estate auctions, real estate financing and appraisal services. As of June 30,
1998, the Network had an inventory of approximately 1,683 assignments to buy,
sell or lease real property (approximately 77% of which are exclusive to NAI),
with a transaction value of approximately $927 million, and which would
generate fees to NAI of approximately $6.8 million, if consummated. There is
no assurance that such inventory will result in any revenues to NAI.
NAI earns revenues primarily from the sharing of brokerage
commissions with Broker Members who earn commissions from the acquisition,
disposition or leasing of real property assigned to them by NAI (approximately
$2,395,000 or 42% of NAI's net revenues for fiscal year 1998). NAI
also earns revenues from (i) the sharing of brokerage commissions with Broker
Members who earn commissions from the acquisition and/or disposition or
leasing of real estate referred to them by other Broker Members (approximately
$791,000 or 14% of NAI's net revenues for fiscal year 1998), (ii)
the sharing of fees received from Alliance Members in sealed-bid sales,
auction transactions and other real estate-related services (approximately
$394,000 or 7% of NAI's net revenues for fiscal year 1998), and (iii)
the collection of annual membership fees paid by Broker Members and Alliance
Members (approximately $1,555,000 or 27% of NAI's net revenues for
fiscal year 1998). See "NAI Business."
NAI began forming the Network in 1978 in order to meet the growing
real estate needs of large national and international corporations in multiple
markets. NAI meets the multiple market needs of its Clients and its Broker
Members by combining local representation with the management and control
capabilities of its centralized Corporate Services Department. NAI's Corporate
Services Department is responsible for establishing and developing
relationships with Clients in order to generate assignments for the Network
and its Broker Members. Currently, NAI has 13 staff members in its Corporate
Services Department serving over 100 Clients. These Clients include retail
chains (such as Woolworth Corp.), international companies (such as
International Paper Company), service businesses (such as Roadway Services,
Inc.), and other larger owners of real estate (such as the United States
Postal Service, a new Client of NAI). NAI's Clients are often involved in real
estate transactions in multiple markets. In addition, NAI has an Investment
Sales Department which specializes in the acquisition and disposition of real
estate for
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<PAGE>
Clients who are seeking to acquire, or currently own, real estate for
investment purposes. See "Business--The Network," "--Corporate Services
Department" and "--Investment Sales."
NAI maintains a proprietary information sharing and research
intranet, in order to efficiently and effectively coordinate with its Broker
Members to meet its Clients' needs. NAI's information systems consist of a
transaction management system and a central database information system. NAI's
computerized transaction management system allows Broker Members, the
Corporate Services Department and Clients to manage and track the progress of
transactions assigned to Broker Members, including those generated by its
Broker Members. NAI's databases include, among other things, real estate
market data, demographic information, Broker Member profiles, Broker Member
listings, transaction histories, Client relationship information and Client
profiles. See "Business--NAI Technology and Information Services."
NAI's objective is to increase profitability by continuing to grow
its brokerage business, increase its international coverage, expand its
Corporate Services and Investment Sales Departments and to further develop its
non-brokerage real estate-related services, including sealed-bid sales and
real estate auctions, and to acquire or develop additional real estate-related
services (collectively, "Real Estate-Related Services"). To the extent funds
are available from the proceeds of the Rights Offering and the Concurrent
Offering referred to below, NAI's strategy will be to (i) expand NAI's
Corporate Services Department and Investment Sales Department to generate
business from additional Clients and in new markets, (ii) invest in or acquire
brokerage firms (including certain of those owned by Broker Members) and firms
which provide Real Estate-Related Services, (iii) train and support Broker
Members to generate additional business for the Network; (iv) continue to
expand the Network into international markets, (v) generate additional revenue
by providing brokerage and Real Estate-Related Services to Kranzco, (vi)
expand and enhance NAI's real estate technology and information services,
(vii) opportunistically acquire and develop real estate for its own account
and (viii) utilize Real Estate-Related Services to create and develop
relationships with Clients.
NAI's management team has extensive experience in the real estate
brokerage industry. Gerald C. Finn, founder and Chief Executive Officer of
NAI, has over 25 years experience in the real estate industry. Jeffrey M.
Finn, Gerald Finn's son and President, Chief Operating Officer and Treasurer
of NAI, has over 10 years experience in the commercial real estate services
industry.
NAI Delaware, the predecessor by merger to NAI, was incorporated
under the laws of the State of Delaware on February 5, 1974. On ________,
1998, NAI Delaware was merged (referred to herein as the "Reincorporation
Merger") with and into its wholly-owned subsidiary, NAI, a corporation formed
under the laws of the State of Maryland. The executive offices of NAI are
located at 572 Route 130, Hightstown, New Jersey 08520 and its telephone
number is (609) 448-4700.
Prior Related Transactions
On ____________, 1998, Kranzco, a self-administered and self-managed
Maryland real estate investment trust (a "REIT"), consummated an exchange
offer (the "Exchange Offer"), pursuant to which Kranzco acquired 80% of the
outstanding shares of common stock of NAI in exchange for an aggregate of
$8,000,000 of Kranzco 6% Callable Convertible Subordinated Notes Due 2008 (the
"Notes"). Immediately following the consummation of the Exchange Offer, NAI, a
Delaware corporation, was merged with and into a wholly-owned subsidiary
incorporated in the state of Maryland, in order to reincorporate in Maryland
for corporate reasons, as well as to reduce certain franchise taxes which are
payable by NAI. The Reincorporation Merger resulted in each share of NAI in
the Delaware corporation being converted into 1.318087 shares of NAI, the
Maryland corporation.
In connection with the Exchange Offer, on August 12, 1998,
Kranzco, NAI, and the Finns entered into an Exchange Agreement (the "Exchange
Agreement") which set forth certain terms and conditions of the Exchange
Offer. Upon consummation of the Distribution, NAI and Kranzco entered into an
Intercompany Agreement which provides for certain rights of first opportunity
and first notification which the companies have granted each other and also
provides for the provision of certain consulting services by Kranzco to NAI.
The Exchange Offer and the other transactions contemplated by the Exchange
Agreement,
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together with the Rights Offering, Concurrent Offering, and the
Reincorporation Merger are generally referred to herein as the "Related
Transactions." See "Related Transactions."
In connection with the Related Transactions, NAI Delaware (i) adopted
a management incentive plan which provides for the issuance of 1,700,000 NAI
Shares, which may be awarded in the form of options, share appreciation
rights, reload options, restricted share awards, performance-based awards, and
share purchase awards (80% of the NAI Shares will be reserved for officers,
employees or consultants of NAI who are not also employees of Kranzco and 20%
of the NAI Shares will be reserved for officers, employees or consultants of
NAI who are also employees of Kranzco); (ii) adopted an employee incentive
compensation plan pursuant to which certain employees of NAI would be entitled
to aggregate incentive compensation payable in up to 8,500,000 NAI Shares
issuable over 10 years; (iii) granted options to purchase an aggregate of
3,536,853 NAI Shares to officers, directors, employees and consultants of NAI
pursuant to a new employee stock option plan; and (iv) granted options to
purchase an aggregate of 60,000 NAI Shares to directors and trustees of NAI
and Kranzco. See "Management--NAI 1998 Management Incentive Plan," "--NAI 1998
Employee Incentive Compensation Plan," "--NAI 1998 Stock Option Plan," "The
Exchange Agreement" and "Related Transactions." NAI assumed the foregoing
plans and options grants as the successor-by-merger of NAI Delaware in the
Reincorporation Merger.
Reasons for the Exchange Offer and Subsequent Distribution
Kranzco is a self-administered and self-managed equity REIT engaged
in the business of owning, managing, operating, leasing, acquiring and
expanding neighborhood and community shopping centers and, to a lesser extent,
free-standing retail properties. Kranzco is limited in its activities by the
investment limitations imposed by Federal income tax laws applicable to REITs,
which (i) limit the amount of income that a REIT can realize from certain
services that are not customarily furnished or rendered in connection with the
rental of real property in a particular geographic area, and (ii) limit
Kranzco's ownership in corporations other than REITs and qualified REIT
subsidiaries (a) to 10% of the outstanding voting securities of such
corporation, and (b) in that the value of any one corporation's securities
cannot exceed 5% of the value of Kranzco's total assets. Kranzco believes that
significant opportunities are available to investors in entities which provide
brokerage and Real Estate-Related Services, own properties other than
neighborhood and community shopping centers, and which are not limited in
their activities by the investment limitations imposed by Federal income tax
laws applicable to REITs. Accordingly, in light of the limitations on
investments imposed on REITs, Kranzco believes that effecting the Exchange
Offer, the Distribution, the Rights Offering and the Concurrent Offering, and
establishing an intercompany relationship between Kranzco and NAI will yield
significant benefits to Kranzco and its shareholders similar to those which
may be obtained by investors who are not so limited, while preserving
Kranzco's REIT status. For Kranzco, these benefits include:
o increased opportunities to acquire retail properties which
become available for sale through the Network, which might
not otherwise be available to Kranzco;
o greater access to a diverse range of tenants, in order to
re-tenant vacant space owned by Kranzco, including access to
non-retail tenants looking for space appropriate for office,
warehouse or other non-retail uses;
o the ability to enter into agreements with NAI to have NAI
develop new shopping centers or re-develop distressed
shopping centers for sale to Kranzco;
o the ability to enter into new geographic areas with the
assistance of NAI's real estate professionals;
o NAI disseminating Kranzco's acquisition criteria to Broker
Members through the Network, in order to create additional
opportunities to purchase retail properties;
o increased opportunities to purchase additional retail
properties which are included in portfolios with non-retail
properties, utilizing NAI to purchase the non-retail
properties or find a purchaser for the non-retail
properties;
o access to NAI's sophisticated, real estate oriented computer
network, which includes information on real estate
transactions, market conditions and demographics;
o the ability to purchase Real Estate-Related Services at
competitive prices;
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o the ability to own an equity interest in a company which
owns real estate and provides Real Estate-Related Services
which Kranzco, as a REIT, could not directly own or provide;
and
o access to local property managers where Kranzco may own
retail properties, and the opportunity for Kranzco to manage
retail properties owned by NAI.
NAI operates a network of independently owned, licensed real estate
Broker Members throughout the United States and, more recently, abroad, to
provide commercial real estate services to regional, national and
international Clients. NAI believes that a strategic relationship between
companies which provide real estate brokerage and services, such as NAI, and
companies which own and operate real estate, such as Kranzco, would provide
significant benefits and opportunities. For NAI, the benefits of entering into
the strategic relationship and consummating the Related Transactions (and
under certain circumstances, to the extent proceeds are available through the
Rights Offering and the Concurrent Offering) include:
o the opportunity as a public company, to raise additional
capital through the Rights Offering and the Concurrent
Offering and, to the extent possible, future equity and debt
offerings;
o the ability to expand its Corporate Services Department,
Investment Sales Department and Broker Services Department;
o the ability to invest in or acquire Broker Members or other
real estate service firms in order to strengthen the
Network;
o access to new transactions by providing real estate
brokerage services to Kranzco through NAI's Network;
o the ability to accelerate the development of information
services and technology infrastructure to more efficiently
deliver services;
o the opportunity to offer to Kranzco Real Estate-Related
Services which NAI may develop;
o the opportunity to further develop existing Real
Estate-Related Services and to acquire or develop businesses
that provide Real Estate-Related Services;
o the ability to accelerate Network growth in international
markets;
o providing Broker Members the opportunity to manage
selected Kranzco shopping centers;
o the opportunity to enter into agreements with Kranzco to have
NAI develop new shopping centers or re-develop distressed
shopping centers for sale to Kranzco; and
o expansion of its business through access to the real estate
expertise of Kranzco's management.
In the past Kranzco and NAI have worked together in a mutually
beneficial relationship. In December 1997, NAI's Investment Sales Department
assisted Kranzco in arranging for the acquisition of five shopping centers,
aggregating approximately 650,000 square feet of gross leasable area ("GLA"),
for approximately $44 million. NAI's Investment Sales Department initiated
this opportunity, and assisted Kranzco in acquiring the properties. Kranzco's
acquisition of such properties generated $100,000 in fee income to NAI.
Kranzco and NAI expect that the Intercompany Agreement will set forth a
framework for a mutually beneficial relationship in the future. See "Related
Transactions--The Intercompany Agreement."
The Distribution
Distributing Company..................Kranzco Realty Trust
Distributed Company ..................New America International, Inc., a
Maryland corporation.
Distribution Agent....................The Distribution Agent is First Union
National Bank, 1525 West W.T. Harris
Boulevard, 3C3, Charlotte, North Carolina
28262-1153, telephone: (800) 829-8432.
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Distribution Record Date........................ ____________, 1998
Distribution Effective Date..................... ____________, 1998
Manner of Effecting the Distribution............ Kranzco will distribute 12,078,640 NAI Shares,
which represents approximately 70.2% of the
outstanding NAI Shares, to holders of Kranzco
Common Shares and Kranzco Common Share
Equivalents, on the basis of one NAI Share for each
Kranzco Common Share and one NAI Share for
each Kranzco Common Share Equivalent held on
the Distribution Record Date. See "The
Distribution."
Results of the Distribution.............................. Upon the consummation of the Distribution, NAI
will be an independent public company which will
continue to conduct its business of providing real
estate brokerage and related services to Clients.
Kranzco will own approximately 9.8% of the
outstanding NAI Shares, Kranzco shareholders will
own approximately 70.2% of the outstanding NAI
Shares and the persons who owned NAI Shares
prior to the Exchange Offer will own an aggregate
of approximately 20% of the NAI Shares.
Federal Income Tax Consequences
of the Distribution...................................... A Kranzco shareholder will be treated as receiving
a distribution from Kranzco in an amount equal to
the fair market value of the NAI Shares received by
such shareholder. Depending on a Kranzco
shareholder's adjusted tax basis in his or her
Kranzco Common Shares or Kranzco Common
Share Equivalents and the amount of Kranzco's
current and accumulated earnings and profits, the
Distribution will result in ordinary income, return
of capital, capital gain or a combination thereof.
Management projects that for a typical Kranzco
common shareholder, the Distribution likely will
result in an increase in the shareholder's return of
capital and capital gain, but this result cannot be
assured. See "Certain United States Federal Tax
Considerations--Federal Income Taxation of the
Distribution."
The Rights Offering
Rights................................................... Simultaneously with the Distribution, NAI will
distribute to holders of NAI Shares, including the
Kranzco shareholders who receive NAI Shares in
the Distribution, Rights to purchase an aggregate of
17,101,403 NAI Shares, on the basis of one Right
for each NAI Share held by NAI Stockholders. The
exercise of Rights is irrevocable once made, and no
Underlying Shares will be issued until the closing
of the Rights Offering. The Finns have advised NAI
</TABLE>
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that they intend to exercise Rights to purchase an
aggregate of 500,000 NAI Shares and Kranzco has
advised NAI that it intends to exercise such number
of Rights to purchase NAI Shares that would result
in Kranzco owning approximately 9.8% of the issued
and outstanding NAI Shares, before the issuance of
any Additional Shares.
Rights Record Date....................................... ______________, 1998, the "Rights Record Date"
is the same date as the Distribution Effective Date.
The Rights will also be distributed on the Rights
Record Date.
Basic Subscription Privilege............................. Holders are entitled to purchase at the Subscription
Price one NAI Share for each Right held. See "The
Rights Offering--The Rights" and "--Subscription
Privileges--Basic Subscription Privilege."
Oversubscription Privilege............................... Each Holder who elects to exercise his or her Basic
Subscription Privilege may also subscribe at the
Subscription Price for Underlying Shares, if any,
remaining unissued after satisfaction of all
subscriptions pursuant to the Basic Subscription
Privilege. If an insufficient number of Underlying
Shares is available to satisfy fully all elections to
exercise the Oversubscription Privilege, the
available Underlying Shares will be allocated on a
pro rata basis among Holders who exercise their
Oversubscription Privilege based on the respective
numbers of Underlying Shares subscribed for by
such Holders pursuant to the Basic Subscription
Privilege. See "The Rights Offering--Subscription
Privileges" and "Plan of Distribution."
Subscription Price....................................... $2.00 in cash per NAI Share.
Transferability of Rights................................ The Rights are transferable. The Basic
Subscription Privilege and the Oversubscription
Privilege are only transferable together, and any
transfer of a Right will be deemed a transfer of both
the Basic Subscription Privilege and the
Oversubscription Privilege. See "The Rights
Offering-- Method of Transferring Rights."
Although the Rights are transferable, NAI does not
intend to list the Rights on any national securities
exchange or automated quotation system.
Accordingly, a market for the Rights may not
develop and the Rights may be a highly illiquid
security. Although the Rights and NAI Shares will
be eligible for quotation and trading on the OTC
Bulletin Board after the Distribution, the NAI
Shares are not currently quoted on the OTC Bulletin
Board or listed on any national securities exchange
or approved for quotation on any quotation system,
and there can be no assurance that a public market
</TABLE>
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for the NAI Shares will develop or provide
liquidity. See "Risk Factors--Arbitrary
Determination of Offering Price; Absence of Prior
Market; Trading Prices."
Expiration Date.......................................... _______, 1998, unless extended by NAI from time
to time, provided that the Expiration Date shall not
be later than ________, 1998, unless the Board of
Directors of NAI (the "Board") determines that a
material event has occurred which necessitates one
or more further extensions of the Rights in order to
permit adequate disclosure of information
concerning such event to Holders. See "The Rights
Offering-- Expiration Date." If NAI elects to
extend the term of the Rights, it will issue a press
release to such effect not later than the first
Business Day following the most recently
announced Expiration Date. If NAI elects to extend
the term of the Rights Offering by more than 14
calendar days, it will, in addition, cause written
notice of such extension to be promptly sent to all
Holders of record on the Rights Record Date. After
the Expiration Date, the Rights will become void
and have no value.
Subscription Agent....................................... First Union National Bank
Information Agent........................................ The Company has appointed MacKenzie
Partners, Inc. as Information Agent for the Rights
Offering. Any questions or requests for
additional copies of this Prospectus, the
Instructions or the Notice of Guaranteed
Delivery may be directed to the Information
Agent at the following telephone number and
address: MacKenzie Partners, Inc., 156 Fifth
Avenue, 9th Floor, New York, NY 10010;
Telephone: (800) 322-2885. The Company will
pay the fees and expenses of the Information
Agent and has also agreed to indemnify the
Information Agent from certain liabilities in
connection with the Rights Offering.
Federal Income Tax Consequences
of the Rights Offering................................... Holders of NAI Shares (including Kranzco
shareholders who receive NAI Shares in the
Distribution) will not recognize taxable income for
Federal income tax purposes in connection with the
receipt of the Rights. See "Certain United States
Federal Tax Considerations - Federal Income
Taxation of the Rights Offering."
The Concurrent Offering
Executive Group Subscription
Privilege................................................ Concurrently with the Rights Offering, NAI is
offering to officers, directors and trustees of NAI
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and Kranzco (the "Executive Group") the right to
purchase any remaining Excess Shares, at the
Subscription Price, after the Basic Subscription
Privileges and Oversubscription Privileges have
been fulfilled. If the number of Excess Shares is
not sufficient to satisfy all subscriptions
pursuant to the Executive Group Subscription
Privilege, such Excess Shares will be allocated pro
rata (subject to the elimination of fractional
shares) among those exercising the Executive Group
Subscription Privilege, in proportion to the number
of NAI Shares requested pursuant to the Executive
Group Subscription Privilege. See "The Concurrent
Offering--Subscription Privileges" and "Plan of
Distribution."
Broker Member
Subscription Privilege................................... Also concurrently with the Rights Offering, NAI is
offering to certain of the principals, shareholders,
partners, officers, managers and licensed real estate
agents of NAI's Broker Members in the United
States (the "Broker Member Group") the right to
purchase any remaining Excess Shares, at the
Subscription Price, after the Basic Subscription
Privileges, Oversubscription Privileges and
Executive Group Subscription Privileges have been
fulfilled. NAI has authorized 2,000,000 Additional
Shares for issuance to the Broker Member Group in
order to ensure that the Broker Member Group will
in the aggregate have the right to purchase a
minimum of 2,000,000 NAI Shares, to the extent
that the number of Excess Shares is not sufficient to
satisfy the Broker Member Group Subscription
Privilege. If, after fulfillment of the Executive
Group Subscription Privilege, the number of Excess
Shares and Additional Shares is not sufficient to
satisfy all subscriptions pursuant to the Broker
Member Group Subscription Privilege, such Excess
Shares and Additional Shares will be allocated pro
rata (subject to the elimination of fractional shares)
among those exercising the Broker Member Group
Subscription Privilege, in proportion to the number
of NAI Shares requested pursuant to the Broker
Member Group Subscription Privilege. See "The
Concurrent Offering--Subscription Privileges" and
"Plan of Distribution."
Guaranteed Additional Shares
for Broker Members....................................... NAI has authorized 2,000,000 Additional Shares for
issuance to the Broker Member Group in order to
ensure that the Broker Member Group will in the
aggregate have the right to purchase a minimum of
2,000,000 NAI Shares.
Subscription Price....................................... $2.00 in cash per NAI Share.
</TABLE>
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Non-transferability of Executive Group
and Broker Member Group
Subscription Privileges.................................. The right to purchase Excess Shares pursuant to the
Executive Group Subscription Privilege and the
right to purchase Excess Shares or Additional
Shares pursuant to the Broker Member Group
Subscription Privilege is not transferable.
Expiration Date.......................................... The Executive Group Subscription Privilege and the
Broker Member Group Subscription Privilege shall
expire on the Expiration Date of the Rights. See
"The Rights Offering-- Expiration Date." If NAI
extends the term of the Executive Group
Subscription Privilege and the Broker Member
Group Subscription Privilege due to an extension of
the Rights Offering, it will issue a press release to
such effect not later than the first Business Day
following the most recently announced Expiration
Date. After the Expiration Date, the Executive
Group Subscription Privilege and the Broker
Member Group Subscription Privilege will become
void.
Subscription Agent....................................... First Union National Bank
Information Agent........................................ The Company has appointed MacKenzie
Partners, Inc. as Information Agent for the
Concurrent Offering. Any questions or requests
for additional copies of this Prospectus, the
Instructions or the Notice of Guaranteed
Delivery may be directed to the Information
Agent at the following telephone number and
address: MacKenzie Partners, Inc., 156 Fifth
Avenue, 9th Floor, New York, NY 10010;
Telephone: (800) 322-2885. The Company will
pay the fees and expenses of the Information
Agent and has also agreed to indemnify the
Information Agent from certain liabilities in
connection with the Concurrent Offering.
Federal Income Tax Consequences
of the Rights Offering................................... To the extent Underlying Shares are not purchased
by NAI Stockholders in the Rights Offering, the
remaining Excess Shares, will be subject to
purchase first, pursuant to the Management
Subscription Privilege and second, pursuant to the
Broker Member Group Subscription Privilege.
Although not entirely clear, the right to purchase
Excess Shares, as well as Additional Shares,
pursuant to the Concurrent Privileges will be treated
for Federal income tax purpose as non-qualified
stock options. As such, there are no Federal income
tax consequences at the time the Excess Shares or
Additional Shares are offered pursuant to the
Concurrent Privileges. Upon exercise of a Right,
</TABLE>
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the holder must report as ordinary income
an amount equal to the excess, if any, of
the fair market value of the NAI Shares on
the date of exercise over the exercise
price paid to acquire such shares. NAI
will be allowed a tax deduction in like
amount. The tax basis of NAI Shares
acquired through exercise of the
Concurrent Privileges will equal the price
paid therefor and the holding period of
such NAI Shares will begin on the date of
exercise. Gain or loss on the sale of such
NAI Shares will be classified as capital
gain or loss taxable in the manner
discussed in "Certain United States
Federal Tax Considerations--Federal Income
Taxation of the Rights Offering--Sale of
the Rights."
General
NAI Shares Outstanding after the Rights
Offering and the Concurrent Offering..................... 36,276,261 NAI Shares will be outstanding
after the Rights Offering and the Concurrent
Offering based on 17,101,403 NAI Shares
outstanding on the Distribution Effective Date,
assuming all of the Rights are exercised and all
Additional Shares are purchased.
Closing of Rights Offer and Concurrent
Offering and Issuance of Shares.......................... The closing will occur and certificates representing
Underlying Shares , Excess Shares and Additional
Shares will be delivered to subscribers as soon as
practicable after the closing date and after all
prorations have been effected. See "The Rights
Offering-- Subscription Privileges" and "The
Concurrent Offering--Concurrent Privileges." No
Underlying Shares, Excess Shares or Additional
Shares will be issued until the closing. Funds
delivered to the Subscription Agent for the exercise
of Subscription Privileges and the Concurrent
Privileges will be held in escrow by the
Subscription Agent until the closing. No interest
will be paid on funds held by the Subscription
Agent in respect of the Subscription Privileges and
the Concurrent Privileges. Any excess funds
submitted in connection with the Oversubscription
Privilege or the Concurrent Privileges, will be
returned as soon as practicable following the
closing of the Rights Offering and the Concurrent
Offering.
Trading Market........................................... There is currently no public market for the NAI
Shares or Rights. The NAI Shares and Rights will
be eligible for quotation and trading on the OTC
Bulletin Board after the Distribution and Rights
Offering. There can be no assurance that a public
market for the NAI Shares or Rights will develop or
</TABLE>
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provide liquidity. See "Risk Factors--Arbitrary
Determination of Offering Price; Absence of Prior
Market; Trading Prices." There will be no trading
market for the Concurrent Privileges.
Use of Proceeds.......................................... NAI will not receive any proceeds from the
Distribution. The net proceeds to be received by
NAI from the Rights Offering and the Concurrent
Offering depends on the number of Rights
exercised and the number of Underlying Shares or
Additional Shares purchased in the Concurrent
Offering, as the case may be. If all Rights are
exercised and all of the Additional Shares are
purchased, NAI expects the net proceeds available
to it from the Rights Offering and the Concurrent
Offering to be approximately $38,000,000. After
paying the expenses of the Rights Offering, the
Concurrent Offering and the Related Transactions,
the proceeds from the Rights Offering and the
Concurrent Offering will be used to (i) repay
$202,000 principal amount of indebtedness incurred
in connection with the repurchase of 101,000 shares
of Series A Preferred Stock of NAI for an aggregate
repurchase price of $202,000, (ii) repay
approximately $727,000 of indebtedness
(which includes approximately $88,000 of
accrued interest), (iii) grow NAI's Corporate
Services Department and Investment Sales
Department, and (iv) strategically acquire and
develop Real Estate-Related Services. The balance
of any proceeds will be invested in short-term
commercial paper at a rate of approximately 5.5%
per annum until used for general corporate and
working capital purposes and to opportunistically
acquire real estate.
Although the Finns have advised NAI that
they intend to exercise Rights to purchase
an aggregate of 500,000 NAI Shares and
Kranzco has advised NAI that it intends to
exercise such number of Rights to purchase
NAI Shares that would result in Kranzco
owning approximately 9.8% of the issued
and outstanding NAI Shares (before the
issuance of any Additional Shares), NAI
does not have a written commitment from
any other person to purchase any of the
Underlying Shares or Additional Shares
pursuant to the Rights Offering or the
Concurrent Offering, as the case may be.
In addition, no minimum amount of proceeds
is required for NAI to consummate the
Rights Offering or the Concurrent
Offering. Accordingly, no assurances can
be given as to the amount of gross
proceeds that NAI will realize from the
Rights Offering and the Concurrent
Offering. See "Risk Factors--No
Commitments to Purchase and
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No Minimum Size of Rights Offering or Concurrent
Offering" and "Use of Proceeds."
Dividend Policy......................................... NAI has not paid any dividends on the outstanding
NAI Shares to date. The payment of dividends, if
any, in the future is with the discretion of the Board
and will depend on NAI's earnings, its capital
requirements and financial condition. It is the
present intention of the Board to retain all earnings,
if any, for use in NAI's business operation and,
accordingly, the Board does not expect to declare or
pay any cash dividends in the foreseeable future,
except as may be required by any outstanding
shares of preferred stock of NAI.
Risk Factors............................................ Prospective investors should consider the material
risks discussed under "Risk Factors," including
risks which may arise out of general economic
conditions; interest rate levels; financial market
performance; the transactional nature of NAI's
business; the consolidation of the commercial real
estate brokerage industry and the resulting
increased competition for Broker Members and
Clients; the potential impact of government
regulations on sharing brokerage commissions,
franchises, and environmental issues; potential
conflicts of interest between NAI and Kranzco; no
experience or limited experience in certain areas in
which NAI intends to expand its business; the
absence of a public market for the NAI Shares;
NAI's limited financial resources and lack of future
funding commitments; dependence on key
employees; risk of limited growth; risks related to
the intercompany agreement; potential conflicts of
interest; historic lack of dividends; potential
dilution; the institution of anti-takeover measures;
anti-takeover effect of certain provisions of
Maryland law and of NAI's charter and bylaws; no
commitments to purchase Underlying Shares,
Excess Shares or Additional Shares; no minimum
amount of proceeds required to consummate the
Rights Offering or Concurrent Offering; and the
possible extension of the expiration date of the
Rights Offering and the Concurrent Offering.
</TABLE>
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Summary Financial and Operating Data
(In thousands, except ratio, property and per share data )
The following sets forth summary financial, operating and other
data on a historical basis for NAI. Also set forth below are summary pro forma
financial, operating and other data for NAI at and for the year ended June
30, 1998. The pro forma balance sheet data as of June 30, 1998 has
been prepared as if the Exchange Offer and the Distribution had occurred on
June 30, 1998. The pro forma operating and other data for the year
ended June 30, 1998 have been prepared as if the consummation of the
Exchange Offer and the Distribution had occurred on July 1, 1997. The pro
forma financial and operating data do not give effect to the Rights Offering
and the Concurrent Offering, and are not necessarily indicative of what the
actual financial position or results of operations of NAI would have been as
of the date or for the periods indicated, nor do they purport to represent the
results of operations or financial position for future periods. This data
should be read in conjunction with the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------
Pro Forma Historical
------------ --------------------------------------------------------------
1998 1998 1997 1996 1995 1994
---- ---- ---- -------- ---- ----
OPERATING DATA: (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Commissions.............................. $ 3,581 $ 3,581 $ 4,001 $ 4,124 $ 4,371 $ 2,312
License fees............................. 1,555 1,555 1,282 1,373 1,158 1,081
Other.................................... 610 610 618 523 470 427
Interest................................. 0 0 0 0 0 0
------- ------- -------- -------- ------- --------
Total revenue............................ 5,746 5,746 5,901 6,020 5,999 3,820
------- ------- -------- -------- ------- --------
Costs and expenses:
Commission expense....................... 834 834 1,143 1,782 1,485 839
Sales and marketing...................... 282 282 321 285 324 274
Compensation and benefits................ 2,530 2,530 2,528 2,438 1,981 1,895
Operating expense........................ 2,539 2,039 1,644 1,475 1,336 1,161
Depreciation and amortization............ 81 81 52 56 45 53
Interest, net............................ 64 64 60 48 46 37
------- ------- -------- -------- ------- --------
Total costs and expenses................. 6,330 5,830 5,748 6,084 5,217 4,259
------- ------- -------- -------- ------- --------
Income (loss) from operations............ (584) (84) 153 (64) 782 (439)
-------- -------- -------- --------- ------- ---------
Other expenses:
Equity in loss of affiliate.............. 0 0 25 5 0 0
------- -------- -------- -------- ------ -------
Loss on sale of real estate.............. 0 0 0 0 65 0
------- -------- -------- -------- ------ -------
Total other expenses..................... 0 0 25 5 65 0
------- -------- -------- -------- ------ -------
Income (loss) from continuing operations
before income taxes...................... (584) (84) 128 (69) 717 (439)
------- -------- -------- -------- ------ -------
Income taxes............................. 0 0 0 0 35 0
------- -------- -------- -------- ------ -------
Income (loss) from continuing operations. (584) (84) 128 (69) 682 (439)
------- -------- -------- -------- ------ -------
Loss from discontinued operations........ 0 0 223 128 392 0
------- -------- -------- -------- ------ -------
Net income (loss)........................ (584) (84) (95) (197) 290 (439)
------- -------- -------- -------- ------ -------
Preferred share distributions............ 0 7 11 13 15 0
------- -------- -------- -------- ------ -------
Net income (loss) available to common
shareholders........................... $ (584) $ (91) $ (106) $ (210) $ 275 $ (439)
Net income (loss) per share.............. $ (0.03) $(0.01) $ (0.01) $ (0.02) $ 0.02 $ (0.03)
Other data (unaudited):
Cash flows provided by (used in)
Operating.................................. $ (356) $ 144 $ 233 $ 158 $ 593 $ 10
Investing.................................. $ (76) $ (76) $ (260) $ (277) $ (260) $ (113)
Financing.................................. $ 14 $ 7 $ 13 $ (7) $ (156) $ 48
Common shares outstanding.................. 17,101 12,974 12,871 12,863 12,782 12,523
Weighted average shares outstanding........ 17,081 12,959 12,883 12,860 12,648 12,589
Ratio of EBITDA to fixed charges(1)........ (3.03) .40 1.95 0.30 7.62 (3.88)
EBITDA(1).................................. $ (439) $ 61 $ 240 $ 35 $ 808 $ (349)
Balance sheet data (1995 unaudited):
Total assets............................... $ 2,096 $ 2,096 $ 1,689 $ 1,732 $ 1,649 $ 1,177
Total debt................................. $ 639 $ 639 $ 575 $ 496 $ 441 $ 482
Shareholders deficit....................... $(1,151) $(1,151) $ (1,090) $ (1,008) $ (837) $(1,176)
</TABLE>
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(1) For purposes of these computations, EBITDA consists of income before
interest expense, taxes, depreciation and amortization. Fixed charges
include interest expense, depreciation and amortization, and preferred
share distributions. Management believes that EBITDA provides additional
information about the Company's ability to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not a
measure of financial performance under GAAP and should not be considered
an alternative either to net income as an indicator of NAI's performance
or to cash flows as a measure of its liquidity. EBITDA as disclosed by
other Companies may not be comparable to the Company's calculation of
EBITDA.
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RISK FACTORS
This Prospectus includes certain statements that may be deemed to be
"forward-looking statements." All statements, other than statements of
historical facts, included in this Prospectus that address activities, events
or developments that NAI expects, believes or anticipates will or may occur in
the future, including such matters as future capital expenditures, the
acquisition or development of real estate or Real Estate-Related Services
(including the amount and nature thereof), the consolidation and expansion
trends of the commercial real estate brokerage industry, business strategies,
expansion and growth of NAI's operations and other such matters are
forward-looking statements. Such statements are based on assumptions and
expectations which may not be realized and are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of
which might not even be anticipated. Prospective investors are cautioned that
any such statements are not guarantees of future performance and that actual
results or developments may differ materially from those anticipated in the
forward-looking statements. Risks and other factors that might cause
differences, some of which could be material, include, but are not limited to:
general economic conditions; interest rate levels; financial market
performance; the transactional nature of NAI's business; the consolidation of
the commercial real estate brokerage industry and the resulting increased
competition for Broker Members and Clients; the potential impact of government
regulations on sharing brokerage commissions, franchises, and environmental
issues; potential conflicts of interest between NAI and Kranzco; no experience
or limited experience in certain areas in which NAI intends to expand its
business; the absence of a public market for the NAI Shares; NAI's limited
financial resources and lack of future funding commitments; dependence on key
employees; risk of limited growth; risks related to the intercompany
agreement; potential conflicts of interest; historic lack of dividends;
potential dilution; the institution of anti-takeover measures; anti-takeover
effect of certain provisions of Maryland law and of NAI's charter and bylaws;
no commitments to purchase Underlying Shares, Excess Shares or Additional
Shares; and no minimum amount of proceeds required to consummate the Rights
Offering or the Concurrent Offering; and the possible extension of the
expiration date of the Rights Offering and the Concurrent Offering.
An investment in the NAI Shares involves various risks. Before
purchasing NAI Shares offered hereby, prospective investors should give
special consideration to the information set forth below, in addition to the
information set forth elsewhere in this Prospectus.
History of Losses and Limited Profits; Substantial Accumulated Earnings Deficit
NAI has reported net losses to common shareholders in the fiscal years
ended June 30, 1998 and 1997 of $90,765 and $105,445, respectively. See
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation" for a discussion of such losses. NAI has a
substantial accumulated earnings deficit which was $3,607,971 as of June 30,
1998.
Dilution
Purchasers of Underlying Shares, Excess Shares and Additional Shares
in the Rights Offering and the Concurrent Offering will suffer immediate and
substantial dilution of (i) $2.01 or 100% assuming that an aggregate of
930,378 Underlying Shares, Excess Shares and Additional Shares are purchased
in the Rights Offering and the Concurrent Offering (the "Minimum NAI Shares"),
(ii) $1.34 or 67% assuming that an aggregate of 10,000,000 Underlying Shares,
Excess Shares and Additional Shares are purchased in the Rights Offering and
the Concurrent Offering (the "Moderate NAI Shares"), and (iii) $1.00 or 50%
assuming that an aggregate of 19,101,403 Underlying Shares and Additional
Shares are purchased in the Rights Offering and the Concurrent Offering (the
"Maximum NAI Shares"). See "Dilution."
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NAI Stockholders who do not exercise their Basic Subscription
Privilege in full will realize a dilution in their percentage voting interest
and ownership interest in future net earnings, if any, of NAI to the extent
that rights are exercised by other Holders. In addition, even NAI Stockholders
who exercise their Basic Subscription Privilege in full will realize a
dilution in their percentage voting interest and ownership interest in future
net earnings, if any, of NAI if any Additional Shares are issued pursuant to
the Broker Member Group Subscription Privilege.
No Commitments to Purchase and No Minimum Size of Rights Offering or
Concurrent Offering
NAI does not have a written commitment from any person to purchase
any of the Underlying Shares pursuant to the Rights Offering or to purchase
any Excess Shares or Additional Shares pursuant to the Concurrent Offering.
The Finns have advised NAI that they intend to exercise Rights to purchase an
aggregate of 500,000 NAI Shares and Kranzco has advised NAI that it intends to
exercise such number of Rights to purchase NAI Shares that would result in
Kranzco owning approximately 9.8% of the issued and outstanding NAI Shares,
before the issuance of any Additional Shares. In addition, no minimum amount
of proceeds is required for NAI to consummate the Rights Offering or the
Concurrent Offering. Accordingly, no assurances can be given as to the amount
of gross proceeds that NAI will realize from the Rights Offering or the
Concurrent Offering. NAI may not be able to achieve all the benefits it would
otherwise anticipate from the strategic relationship with Kranzco and the
Related Transactions if less than all of the Underlying Shares and Additional
Shares are sold. See "The Rights Offering," "The Concurrent Offering," and
"Plan of Distribution."
Certain Proceeds to Affiliates; Benefits to Insiders
Approximately $441,235 of the proceeds of the Rights Offering and the
Concurrent Offering will be used to repay principal indebtedness owed by NAI
and its subsidiaries to Gerald C. Finn, a director and officer of NAI, and
Norma J. Finn, an officer of NAI, which bears interest at rates ranging from
10% to 12%. See "Use of Proceeds" for a description of such indebtedness.
In connection with the Related Transactions, NAI has entered into
employment agreements with each of Gerald C. Finn and Jeffrey M. Finn. See
"Management--Employment Agreements." In addition, in connection with the
Related Transactions, certain officers and directors of NAI will receive
options to purchase NAI Shares under the NAI 1998 Stock Option Plan, and will
be eligible to participate in the NAI 1998 Bonus Compensation Plan and the NAI
1998 Incentive Plan. See "Management--1998 Incentive Plan" and "--1998 Stock
Option Plan."
Limited Financial Resources; No Future Funding Commitments
NAI initially will rely primarily on its revenues and the proceeds of
the Rights Offering and the Concurrent Offering in order to finance its future
growth. NAI has not received any commitment with respect to any additional
funding from any third party (including Kranzco). Kranzco is not obligated to
provide any funds to NAI in the future or to assist NAI in obtaining
additional financing. If NAI is unable to obtain funding in the future, it may
not be able to pursue its growth strategy based on acquisitions and
development, which may have an adverse impact on the business, condition and
prospects of NAI.
Competition; Ability to Retain Broker Members and Attract Additional Broker
Members
NAI primarily seeks business from corporations, individual
owner/investors and national and international organizations with real estate
requirements in multiple market areas. NAI faces competition for clients from
(i) local and regional Commercial Real Estate Brokers, (ii) national
broker-owned companies with global alliances, and (iii) national/global
networks. Some of NAI's competitors include CB Commercial Real Estate Services
Group, Inc.; Colliers International Property Consultants; Cushman & Wakefield,
Inc.;
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Grubb & Ellis Company; Insignia Financial Group, Inc.; Trammell Crow Company.
Certain of NAI's competitors are better known and are larger, more established
companies with substantial capabilities. Consequently, NAI may be at a
disadvantage in competing with these companies in a number of markets.
NAI's ability to earn revenues is directly related to its ability to
attract and retain successful, independently owned, commercial and industrial,
licensed real estate brokers ("Commercial Real Estate Brokers") in a
substantial number of market areas as Broker Members. The number of Broker
Members in different market areas, and their strength and reputation in their
own local markets, may directly affect the anticipated volume of commissions
generated by the Network, as well as NAI's ability to obtain exclusive
assignments from a national client base. NAI is presently competing for Broker
Members with cooperative commercial broker networks, as well as large national
and regional commercial real estate brokerage firms. There has been a
consolidation of Commercial Real Estate Brokers, which are better known and
have greater resources than NAI, that are actively seeking to acquire other
real estate brokerage and service companies. Certain of NAI's competitors,
such as CB Commercial and Grubb & Ellis are attempting to grow their
businesses through acquisitions and through entering into affiliation
agreements with independent Commercial Real Estate Brokers. To the extent
these companies are successful in acquiring or entering into affiliation
agreements with independent Commercial Real Estate Brokers, there may be a
negative impact on NAI's ability to attract and retain qualified Commercial
Real Estate Brokers to join the Network as Broker Members.
In addition, approximately 60% of NAI's Broker Members are party to a
Membership Agreement which permits Broker Members to terminate the Membership
Agreement upon 45 days prior notice. Accordingly, there can be no assurance
that in light of the increased competition to retain or acquire Commercial
Real Estate Brokers, that Broker Members will not terminate, or renew their
Membership Agreements.
Collection of Fees from Broker Members
Under its standard agreement with Broker Members, NAI is entitled to
receive a predetermined percentage of any brokerage commission earned from the
acquisition, disposition or leasing of real estate covered by such agreement.
Although NAI believes that it has established sufficient controls to monitor
transactions among Broker Members and the failure of a Broker Member to pay
any such commission will cause a termination of such Broker Member's
membership in the Network, no assurance can be given that NAI will be able to
collect all commissions due it by Broker Members. Substantially all of the
revenues earned by NAI, other than the payment of the Membership Fees, are
earned by sharing in commissions with Broker Members in 47 states. Most states
permit licensed real estate brokers to enter into commission sharing
agreements with licensed real estate brokers from other jurisdictions,
however, some states impose certain requirements with respect to entering into
such agreements. While NAI believes it is in compliance with substantially all
of such requirements, to the extent NAI has violated any such state law
requirements it may not be able to enforce its Membership Agreement and may be
subject to civil liability and criminal penalties. See "Business--Membership
Agreements and Fees" and "Business--Government Regulation--State Laws
Governing Real Estate Brokers."
Effect of Increase in Membership Fees
While NAI believes that its current schedule of Membership Fees will
not have a substantial effect on the number of new Broker Members or
membership renewals by existing Broker Members, no assurance can be given that
increases in the Membership Fees for new Broker Members, as well as increases
in Membership Fees for renewals by existing Broker Members, will not have an
adverse effect on the number of new Broker Members or membership renewals. See
"Business--Broker Members--Membership Agreements and Fees" and "Risk
Factors--Competition; Ability to Retain Broker Members and Attract Additional
Broker Members."
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Dependence on Key Employees
NAI is dependent upon the experience and abilities of its founder and
Chief Executive Officer, Mr. Gerald C. Finn, and its current President and
Chief Operating Officer, Mr. Jeffrey Finn, both of whom are subject to
three-year employment agreements. However, although the employment agreements
contain certain non-competition provisions in the case that either Mr. G. Finn
and/or Mr. J. Finn leaves his employment with NAI, there is no assurance that
either Mr. G. Finn or Mr. J. Finn will continue as executives of NAI, or that
if they leave such employment with NAI, that the non-competition provisions of
the employment agreements will be enforceable. Messrs. G. Finn and J. Finn are
both directors and large stockholders and are involved in all aspects of NAI's
business. The loss of either Mr. G. Finn's or Mr. J. Finn's services would be
detrimental to the continued development of NAI and would adversely affect the
conduct of NAI's business. NAI does not maintain key-man life insurance on the
lives of Mr. G. Finn or Mr. J. Finn. See "Business" and "Management,"
"Principal Stockholders" and "Use of Proceeds."
Adverse Changes in Economic Conditions
Substantially all of the revenues earned by NAI, other than the
payment of annual membership fees ("Membership Fees") by Broker Members and
Alliance Members, are earned by sharing in commissions generated by the
Network. The commissions generated by the Network are based upon the number
and value of transactions in which NAI and its Broker Members participate. The
real estate market is subject to volatility and is effected by general
economic conditions. Periods of economic slowdown or recession, rising
interest rates or declining demand for real estate may adversely affect NAI's
business. Such economic conditions could result in a general decline in rents
and property prices, which in turn would adversely affect revenues from
brokerage commissions derived from property sales and leases. Accordingly, the
amount of revenues received by NAI may be subject to substantial variation
from year to year and prior revenues may bear no relationship to future
revenues. See "Business--Broker Members" and "--Competition; Ability to Retain
Broker Members and Attract Additional Broker Members."
Broad Discretion in Use of Proceeds
NAI may change the specific use or allocation of the net proceeds
from the Rights Offering and Concurrent Offering, except that in all events
NAI will repay $202,000 principal amount of indebtedness incurred in
connection with the repurchase of 101,000 shares of Series A Preferred Stock
of NAI for an aggregate repurchase price of $202,000, and will repay
approximately $639,000 aggregate principal amount of indebtedness of NAI
described above. See "Use of Proceeds." Management of NAI will have broad
discretion to change the allocation of the net proceeds among expanding NAI's
Corporate Services Department and Investment Sales Department, strategically
acquiring and developing Real Estate-Related Services and the opportunistic
acquisition of real estate; any change in the allocation of the net proceeds
will depend on, among other things, the opportunities which are available to
NAI. See "-- Risks of Limited Growth; Acquisition Risks."
Risk of Limited Growth; Acquisition Risks
NAI's growth strategy is to increase profitability by continuing to
enlarge the Network by attracting and retaining Broker Members or by investing
in or acquiring affiliated brokerage firms and by continuing to expand into
Real Estate-Related Services by the acquisition of Real Estate-Related Service
companies and the development of Real Estate-Related Services. Accordingly, a
significant component of the growth of NAI may be through the acquisition of
Commercial Real Estate Brokers or companies which perform Real Estate-Related
Services. There can be no assurance that suitable acquisition opportunities
will be available to NAI or its affiliates or that NAI or its affiliates will
not overpay for acquisitions or that such acquisitions will be efficiently and
adequately integrated. There may be significant competition for targeted
acquisitions.
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Some of the companies in which NAI or its affiliates acquire an interest may
have little or no operating histories, may have historical operating losses,
and have competitors that are larger and more well capitalized. Certain of the
acquisitions of NAI or its affiliates may be involved in sectors that are
subject to increasing competition. As a result, the costs incurred to acquire
or reposition companies may be significant and may not be recovered.
Furthermore, there can be no assurance that acquisitions will not be dilutive
to NAI's earnings.
Limited Experience in Certain Areas
NAI anticipates expanding the scope of its business beyond its
current focus on real estate brokerage transactions to the broader delivery of
its Real Estate-Related Services. NAI is not currently engaged in any
negotiations to provide for the acquisition or development of such Real
Estate-Related Services, and there is no assurance that NAI will be able to
acquire, develop or provide additional Real Estate-Related Services in the
future.
Potential Impact of Franchise Laws
The offer and sale of franchises is subject to a trade regulation
rule promulgated by the Federal Trade Commission ("FTC") entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures" (the "Franchise Rule") that requires a franchisor to provide
pre-sale disclosure to a prospective franchisee prior to the sale of a
franchise subject to the Franchise Rule. NAI believes that by offering and
selling memberships to its Broker Members it may have been offering a
"franchise," as defined by the Franchise Rule, but that the sale of such
memberships is a "fractional franchise" exempt from compliance with the
requirements of the Franchise Rule. See the section entitled
"Business--Government Regulation--Laws Relating to Franchising," below, as to
the conditions for meeting the "fractional franchise" exemption and the basis
for NAI's belief that it meets such conditions.
The offer and sale of franchises is also subject to certain state
franchise sales laws and state business opportunity laws (collectively, "State
Laws"). In addition, many states have laws that regulate certain substantive
aspects of the franchisor-franchisee relationship, including termination or
non-renewal of franchise agreements. NAI believes that by offering and selling
memberships to its Broker Members it may have been offering a "franchise," as
defined by the State Laws.
While NAI believes that it is exempt from the requirements of many of
the State Laws in states in which it has entered into Member Agreements, NAI
believes that there are approximately six (6) states with a State Law in which
NAI has entered into Membership Agreements for which NAI may not be exempt,
may have failed to comply with the filing or registration and disclosure
provisions of such State Law, and for which it may be subject to certain
sanctions or potential liability. Additionally, there is no assurance that the
exemptions from compliance with the Federal Rule and the State Laws in states
which NAI believes there are exemptions on which NAI is relying, have been, or
will continue to be, available. Any sanctions or potential liability would
include that NAI may be subject to civil penalties imposed by state regulatory
agencies, and legal actions by existing Members for rescission of existing
Membership Agreements, restitution, and damages as a result of any violation
of such law. NAI believes that, if any state regulatory agencies, or any of
the Members, in such states sought such remedies and any such action were
successful, its potential liability could be to refund certain fees.
NAI has also recently entered into several Membership Agreements with
Members in foreign countries. NAI believes that it either is not subject to,
or would be exempt from, such laws. If NAI were subject to, or were not exempt
from, such laws, it could be subject to actions by regulatory agencies and
legal actions by existing Members, and subject to fines, penalties, and
damages.
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Real Estate Investment Risks
To the extent funds are available, NAI intends to strategically
acquire real property. Investments in real estate are subject to the risks
incident to the ownership and operation of real estate generally. The yields
available from equity investments in real estate depend on the amount of
income generated and expenses incurred. A commercial property's revenues and
value may be adversely affected by a number of factors, including the
national, state and local economic climate and real estate conditions (such as
oversupply of or reduced demand for space and changes in market rental rates);
the perceptions of prospective tenants of the safety, convenience and
attractiveness of the properties; the ability of the owner to provide adequate
management, maintenance and insurance; the ability to collect on a timely
basis all rent from tenants; the expense of periodically renovating, repairing
and reletting spaces; and increasing operating costs (including real estate
taxes and utilities) which may not be passed through to tenants. Certain
significant expenditures associated with investments in real estate (such as
mortgage payments, real estate taxes, insurance and maintenance costs) are
generally not reduced when circumstances cause a reduction in rental revenues
from the property. If a property is mortgaged to secure the payment of
indebtedness and if the owner is unable to meet its mortgage payments, a loss
could be sustained as a result of foreclosure on the property or the exercise
of other remedies by the mortgagee. In addition, real estate values and income
from properties are also affected by such factors as compliance with laws,
including tax laws, interest rate levels and the availability of financing.
Also, the rentable square feet of commercial property available for lease is
often affected by market conditions and may therefore fluctuate over time.
Furthermore, equity real estate investments are relatively illiquid.
Real Estate Development Risks
NAI may engage in the selective development and construction of real
estate properties. Risks associated with development and construction
activities include the risks that development opportunities may be abandoned
after expending resources to determine feasibility; construction costs of a
project may exceed original estimates; occupancy rates and rents at a newly
completed property may not be sufficient to make the property profitable;
financing may not be available on favorable terms for development of a
property; and construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction costs.
Development activities are also subject to risks relating to the inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy and other required governmental permits and authorizations. In
addition, new development activities, regardless of whether they are
ultimately successful, typically require a substantial portion of management's
time and attention.
Environmental Concerns
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may
be liable for the costs of removal or remediation of certain hazardous or
toxic substances on, under or in such property. Such laws often impose such
liability whether or not the owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances, and the liability
under certain such laws may be strict and joint and several unless the harm is
divisible and there is a reasonable basis for allocating responsibility. The
costs of any required remediation or removal of such substances may be
substantial and the owner's or operator's liability therefor as to any
property is generally not limited under such laws, ordinances and regulations
and could exceed the value of the property and/or the aggregate assets of the
owner or operator. The presence of hazardous or toxic substances, or the
failure to properly remediate property affected by such substances, may
adversely affect the market value of the affected property, as well as the
owner's ability to sell or lease such property or to obtain financing using
such property as collateral.
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Risks of Intercompany Agreement; Restrictions on NAI's Opportunities
NAI and Kranzco have entered into an Intercompany Agreement to
provide both Kranzco and NAI with first opportunity rights or notification
rights with respect to certain business opportunities. See "Related
Transactions--Intercompany Agreement." While the Intercompany Agreement grants
NAI certain notification rights with respect to providing certain brokerage
and Real Estate-Related Services to Kranzco, Kranzco is not required to enter
into an agreement to purchase such services from NAI. Accordingly, there is no
assurance that the Intercompany Agreement will result in any revenues to NAI,
or that the benefits anticipated therefrom will be realized. The Intercompany
Agreement also provides Kranzco with certain first opportunity/notification
rights with respect to retail properties for sale which NAI is aware of
through the Network or otherwise; however, there is no assurance that Kranzco
will purchase such properties. Accordingly, the benefit to NAI of increased
revenue from transactions with Kranzco may not be realized.
The Intercompany Agreement restricts NAI's opportunities in certain
instances. Although NAI does not currently invest in real estate, it may
determine to acquire properties in the future. Under the Intercompany
Agreement, NAI has agreed not to acquire or make investments in retail
properties unless it has notified Kranzco of the acquisition or investment
opportunity, and Kranzco has determined not to pursue such acquisition or
investment. In addition, the Intercompany Agreement provides that NAI may not
enter into any type of strategic relationship with any other REIT or real
estate investment or operating type entity without the prior written consent
of Kranzco. NAI, however, is permitted under the Intercompany Agreement to
solicit assignments from other REITs or real estate investment or operating
type entities with respect to the purchase, sale or lease of real estate, or
the provision of Real Estate-Related Services, subject to Kranzco's first
opportunity rights. See "Related Transactions--Intercompany Agreement." The
restrictions imposed by the Intercompany Agreement may prohibit NAI from
pursuing business opportunities which it believes may be beneficial.
Potential Conflicts of Interest
Kranzco and NAI have several common members on its Board of Trustees
and Board of Directors, as the case may be, and have certain common executive
officers. Kranzco and NAI intend to operate in a relationship governed by the
Intercompany Agreement. In their relationship with Kranzco as a Client of NAI,
Kranzco and NAI may have conflicting views on the manner in which services and
opportunities are provided to Kranzco by NAI, or the manner in which
opportunities are provided to NAI by Kranzco, pursuant to the Intercompany
Agreement, and in the enforcement of the Intercompany Agreement. As a result,
the trustees and executives of Kranzco (who serve in similar capacities at
NAI) may well be presented with several decisions which provide them the
opportunity to benefit Kranzco to the detriment of NAI or benefit NAI to the
detriment of Kranzco. Such potential conflicts of interest will be present in
all of the numerous transactions between Kranzco and NAI. There is a risk that
the common management and members of the Boards of NAI and Kranzco will lead
to conflicts of interest in connection with transactions between the two
companies and opportunities presented to each of the companies. Although, the
Intercompany Agreement attempts to minimize the conflicts which may arise due
to the common management and Board membership, there is no assurance that it
will successfully cover all conflicts, or that such conflicts may not
negatively affect one or both companies. See "Related Transactions--The
Intercompany Agreement" for a description of the relationship between Kranzco
and NAI and the Intercompany Agreement.
It is intended that each of Gerald C. Finn, Co-Chairman and Chief
Executive Officer of NAI, and Jeffrey M. Finn, President and Chief Operating
Officer of NAI, will be required to spend all of his respective business time
working for NAI. However, Mr. Finn is a nominee to the Board of Trustees of
Kranzco, and will also owe a duty to the shareholders of Kranzco. In addition,
pursuant to the Intercompany Agreement, Norman M. Kranzdorf serves as the
Co-Chairman of NAI, Robert H. Dennis will serve as the Chief Financial Officer
of NAI, and Michael Kranzdorf serves as the Chief Information Officer of NAI,
in each
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case for a period of three years. Each of Messrs. N. Kranzdorf, Dennis and M.
Kranzdorf are also officers of Kranzco, and will devote a majority of their
time to Kranzco. Although each of Messrs. N. Kranzdorf, Dennis, and M.
Kranzdorf is committed to the success of NAI they are also committed to the
success of Kranzco, and none of Messrs. N. Kranzdorf, Dennis, and M. Kranzdorf
is committed to spending a particular amount of time on NAI's or Kranzco's
affairs, nor will any of them devote his full time to NAI or Kranzco.
Arbitrary Determination of Offering Price
The Subscription Price of the NAI Shares issuable upon exercise of
the Rights and the Concurrent Privileges was determined by NAI and Kranzco
based on various factors, but does not necessarily bear any direct
relationship to established value criteria such as assets, earnings or book
value. In determining the offering price, NAI and Kranzco considered such
factors as NAI's limited financial resources, NAI's development since its
organization, the nature and risks of the real estate brokerage industry, the
amount of dilution to investors in NAI, the pricing and comparison of similar
types of companies, the prospects for the real estate brokerage industry, and
the general condition of the securities markets and the potential
opportunities available to NAI if the Rights Offering and the Concurrent
Offering are fully subscribed.
Absence of Prior Market; Trading Prices
There is currently no public market for NAI Shares or the Rights. The
NAI Shares and the Rights will be eligible for quotation and trading on the
OTC Bulletin Board after the Distribution, however, there can be no assurance
that a public market for the NAI Shares will develop or provide liquidity. If
a trading market develops, there can be no assurance as to the prices at which
trading in the NAI Shares will occur.
The prices at which NAI Shares and the Rights trade will be
determined by the marketplace and may be influenced by many factors,
including, among others, the performance and prospects of NAI and its
affiliates, the depth and liquidity of the market for NAI Shares, investor
perception of NAI and its affiliates, the sectors in which they operate,
economic conditions in general, NAI's dividend policy, and general financial
and other market conditions. In addition, financial markets have experienced
extreme price and volume fluctuations that have affected the market price of
many stocks and that, at times, could be viewed as unrelated or
disproportionate to the operating performance of such companies. Such
fluctuations have also affected the share prices of many newly public issuers.
Such volatility and other factors may materially adversely affect the market
price of NAI Shares and the Rights.
While the Rights are transferable, NAI does not intend to list the
Rights on any national securities exchange or automated quotation system.
Accordingly, the Rights may be highly illiquid securities and it is unlikely
that a trading market will develop for the Rights. The Concurrent Privileges
are not transferable.
Risk of Low Priced Securities
The Commission has adopted rules which generally define a "penny
stock" as equity securities priced at under $5.00 per share which are not
listed for trading on the Nasdaq Stock Market or a national securities
exchange (unless the issuer has a net worth of $2 million and has been in
business for more than three years). The NAI Shares may not be considered a
"penny stock" if the proceeds of the Rights Offering and the Concurrent
Offering exceed approximately $3,026,000. In the event that the NAI Shares are
characterized in the future as penny stock, broker-dealers dealing in the NAI
Shares will be subject to the disclosure rules for transactions involving
penny stocks which require the broker-dealer, among other things, to (i)
determine the suitability of purchasers of the NAI Shares, and obtain the
written consent of purchasers to purchase such NAI Shares prior to the
transaction, (ii) provide customers with required risk disclosure documents,
disclose quotation and compensation information and provide monthly price
information and other required information, and (iii) disclose the best
(inside) bid and offer prices for such NAI Shares and the price at which the
broker-dealer last purchased or sold the NAI Shares. The additional burdens
imposed upon
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broker-dealers may discourage them from effecting transactions in penny
stocks, which usually reduces the liquidity of such securities.
No Dividends
NAI has not paid any dividends on the outstanding NAI Shares to date.
The payment of dividends, if any, in the future is with the discretion of the
Board and will depend on NAI's earnings, its capital requirements and
financial condition. It is the present intention of the Board to retain all
earnings, if any, for use in NAI's business operation and, accordingly, the
Board does not expect to declare or pay any cash dividends in the foreseeable
future, except as may be required by any outstanding shares of preferred stock
of NAI.
Institution of Anti-takeover Measures; Anti-takeover Effect of Certain
Provisions of Maryland Law and of NAI's Charter and Bylaws
Certain provisions of NAI Maryland's charter (the "Charter") and
bylaws (the "Bylaws") could have the effect of discouraging a third party from
pursuing a non-negotiated takeover of NAI or could delay, defer or prevent a
transaction or a change in control of NAI that might involve a premium price
for the NAI Shares or otherwise be in the best interests of NAI Stockholders.
Staggered Board. NAI's Board of Directors is divided into
three classes of directors. The initial terms of the first, second and third
classes will expire in 1999, 2000 and 2001, respectively. Beginning in 1999,
directors of each class will be chosen for three-year terms upon the
expiration of their current terms and each year one class of directors will be
elected by the stockholders. The staggered terms of directors may reduce the
possibility of a tender offer or an attempt to change control of NAI even
though a tender offer or change in control might be in the best interest of
the stockholders. See "Certain Provisions of Maryland Law and of NAI's Charter
and Bylaws -- Classification of the Board of Directors."
Blank Check Stock. The Charter authorizes the Board of
Directors to cause NAI to issue additional authorized but unissued shares of
NAI common stock and to classify or reclassify any unissued shares of stock of
NAI in one or more classes or series of stock and to set the preferences,
rights and other terms of such classified or unclassified shares. See
"Description of Securities -- Common Stock" and "-- Preferred Stock" and "--
Power to Issue Additional Shares of Common Stock and Preferred Stock."
Although the Board of Directors has no such intention at the present time, it
could establish a series of NAI Preferred Stock that could, depending on the
terms of such series, delay, defer or prevent a transaction or a change in
control of NAI that might involve a premium price for the NAI Shares or
otherwise be in the best interest of the stockholders.
Maryland Business Combination Law. Under the Maryland
General Corporation Law, as amended (the "MGCL"), certain "business
combinations" (including certain issuances of equity securities) between a
Maryland corporation and any person who beneficially owns ten percent or more
of the voting power of the corporation's shares (an "Interested Stockholder")
or an affiliate thereof are prohibited for five years after the most recent
date on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be approved by two
super-majority stockholder votes unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Stockholder for its common
shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The business combination provisions of the MGCL may
have the effect of delaying, deferring or preventing a transaction or a change
in control of NAI that might involve a premium price for the NAI Shares or
otherwise be in the best interest
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of the stockholders. See "Certain Provisions of Maryland Law and of NAI's
Charter and Bylaws -- Business Combinations."
Control Share Acquisitions. The MGCL provides that "control
shares" of a Maryland corporation acquired in a "control share acquisition"
have no voting rights except to the extent approved by a vote of two-thirds of
the votes entitled to be cast on the matter, excluding shares of stock owned
by the acquiror, by officers or by directors who are employees of the
corporation.
The control share acquisition statute does not apply (a) to
shares acquired in a merger, consolidation or share exchange if the
corporation is a party to the transaction or (b) to acquisitions approved or
exempted by the charter or bylaws of the corporation.
The Bylaws of NAI contain a provision exempting from the
control share acquisition statute any and all acquisitions by any person of
NAI's shares of stock. There can be no assurance that such provision will not
be amended or eliminated at any time in the future. If such provision is
amended or eliminated, the control share acquisition provisions of the MGCL
could have the effect of delaying, deferring or preventing a transaction or a
change in control of NAI that might involve a premium price for the NAI Shares
or otherwise be in the best interest of the stockholders. See "Certain
Provisions of Maryland Law and of NAI's Charter and Bylaws -- Control Share
Acquisitions."
Other Provisions. The Charter and Bylaws of NAI also
contain other provisions that may delay, defer or prevent a transaction or a
change in control of NAI that might involve a premium price for the NAI Shares
or otherwise be in the best interest of the stockholders. See "Certain
Provisions of Maryland Law and of NAI's Charter and Bylaws -- Removal of
Directors" and "-- Advance Notice of Director Nominations and New Business."
Possible Extension of Expiration Date
NAI has reserved the right to extend the Expiration Date for the
Rights Offering and the Concurrent Offering to as late as __________ __, 1998.
Funds deposited in payment of the Subscription Price for Underlying Shares,
Excess Shares or Additional Shares may not be withdrawn and no interest will
be paid thereon. See "The Rights Offering--Expiration Date" and "The
Concurrent Offering--Expiration Date."
-26-
<PAGE>
USE OF PROCEEDS
The net proceeds to be received from the Rights Offering and the
Concurrent Offering depend on the number of Rights exercised and the number of
Excess Shares and Additional Shares purchased. If all Rights are exercised and
all Additional Shares are purchased, NAI expects the net proceeds available to
it from the Rights Offering and the Concurrent Offering to be approximately
$38,000,000. After paying the expenses of the Rights Offering, the Concurrent
Offering and the Related Transactions, the proceeds from the Rights Offering
and the Concurrent Offering, will in the following order of priority, be used
to (i) repay $202,000 principal amount of indebtedness incurred in connection
with the repurchase of 101,000 shares of Series A Preferred Stock of NAI for
an aggregate repurchase price of $202,000, (ii) repay approximately
$727,000 of indebtedness (which includes approximately $88,000 of accrued
interest) described below, (iii) expand NAI's Corporate Services Department
and Investment Sales Department, and (iv) strategically acquire and develop
Real Estate-Related Services. The balance of any proceeds will be invested in
short-term commercial paper at a rate of approximately 5.5% per annum until
used for general corporate and working capital purposes and to
opportunistically acquire real estate.
A portion of the proceeds of the Rights Offering and the Concurrent
Offering will be used to repay (i) a 12% demand note, dated April 21, 1988, with
an outstanding principal balance of $110,500, issued by NAI to The Building
Center, Inc., an entity owned by Gerald and Norma Finn, (ii) two 10% demand
notes, dated August 12, 1994 and May 16, 1997, respectively, issued by NAI to
Gerald and Norma Finn, with outstanding principal balances of $35,000 and
$50,000, respectively, (iii) a 12% demand note, dated April 24, 1988, issued by
NAI to Gerald and Norma Finn, with an outstanding principal balance of $145,000,
(iv) three 10% demand notes, dated August 6, 1993, September 14, 1993, and
November 9, 1993, respectively, issued by REALQuest, Inc., a wholly-owned
subsidiary of NAI, to Gerald and Norma Finn, with outstanding principal balances
of $10,000, $20,000 and $10,000, respectively, (v) a 12% demand note, dated
April 24, 1991, issued by NAI to Gerald and Norma Finn, with an outstanding
principal balance of $58,235, (vi) a loan by Gerald Finn and Norma Finn dated
December 8, 1993, in the principal amount of $2,500, (vii) $7,945 aggregate
principal amount outstanding under a note, dated February 11, 1998, issued by
NAI to Premium Funding Association, which bears interest at a fixed rate of
10.5%, (viii) $100,000 aggregate principal amount outstanding under a Promissory
Note, dated October 2, 1997, issued by NAI to FWSB pursuant to a Line of Credit
(the "Line of Credit"), due October 2, 1998, which bears interest at a variable
rate equaling FWSB's prime rate plus one percent (8.5% as of June 30, 1998), and
(ix) $90,000 aggregate principal amount outstanding pursuant to a Promissory
Note dated December 2, 1997, issued by NAI to FWSB pursuant to a term loan due
December 2002, which bears interest at a variable rate equaling FWSB's prime
rate plus one percent (8.5% as of June 30, 1998). The proceeds from the Term
Loan and the Line of Credit were used for general corporate and working capital
purposes.
In the event that all of the Underlying Shares, Excess Shares and
Additional Shares are not purchased, NAI has assumed a minimum number of
Underlying Shares, Excess Shares and Additional Shares being purchased (an
aggregate of 930,378 NAI Shares) ("Minimum NAI Shares") and a moderate number
of Underlying Shares, Excess Shares and Additional Shares being purchased (an
aggregate of 10,000,000 NAI Shares) ("Moderate NAI Shares"). The Minimum NAI
Shares were estimated by NAI to be the minimum amount of Underlying Shares to
be purchased primarily by NAI, Kranzco and the officers and directors of both
Kranzco and NAI. The Moderate NAI Shares were estimated by NAI to approximate
the mid-point between the Minimum NAI Shares and the Maximum NAI Shares being
purchased. The sale of the Minimum NAI Shares will result in gross proceeds to
NAI of $1,860,756 and 18,031,781 NAI Shares being outstanding. The sale of the
Moderate NAI Shares will result in gross proceeds to NAI of $20,000,000 and
27,101,403 NAI Shares being outstanding.
-27-
<PAGE>
The below table sets forth the use of the proceeds of the Rights
Offering and the Concurrent Offering, assuming the Minimum NAI Shares,
Moderate NAI Shares and Maximum NAI Shares are sold:
<TABLE>
<CAPTION>
Use of Proceeds Assuming
-----------------------------------------------------------------------------------------------
Minimum Number of Moderate Number of Maximum Number
NAI Shares NAI Shares NAI Shares
(930,378 Shares) (10,000,000 Shares) (19,101,403 Shares)
-------------------------------- ------------------------------ ------------------------------
$ Amount % $ Amount % $ Amount %
--------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Repayment of $202,000 23% $202,000 1% $202,000 .5%
Indebtedness related to the
Repurchase of Series
A Preferred Stock
Repayment of $658,756(1) 77% $727,000 4% $727,000 2%
Indebtedness (including
accrued interest of
approximately
$88,000)
Expansion of NAI's $0 0% $2,000,000 10.5% $2,000,000 5.4%
Corporate Services
Department and
Investment Sales
Department
Acquisition and $0 0% $13,305,000 70% $27,446,860 74%
Development of Real
Estate-Related Services
Opportunistic Acquisition $0 0% $0 0% $1,910,140 5%
of Real Estate
General corporate and $0 0% $2,766,000 14.5% $4,916,806 13.1%
working capital purposes
Total Net Proceeds: $860,756 100% $19,000,000 100% $37,202,806 100%
</TABLE>
(1) $68,244 of the remaining indebtedness will be paid from NAI's cash on
hand.
NAI does not have a written commitment from any person to purchase
any of the Underlying Shares pursuant to the Rights Offering or Excess Shares
or Additional Shares in the Concurrent Offering. The Finns have advised NAI
that they intend to exercise Rights to purchase an aggregate of 500,000 NAI
Shares and Kranzco has advised NAI that it intends to exercise such number of
Rights to purchase NAI Shares that would result in Kranzco owning
approximately 9.8% of the issued and outstanding NAI Shares, before the
issuance of any Additional Shares. Accordingly, no assurances can be given as
to the amount of gross proceeds that NAI will realize from the Rights Offering
and the Concurrent Offering. No minimum amount of proceeds is required for NAI
to consummate the Rights Offering or the Concurrent Offering. See "Risk
Factors--No Commitments to Purchase and No Minimum Size of Rights Offering or
Concurrent Offering."
-28-
<PAGE>
NAI may change the specific use or allocation of the net proceeds
from the Rights Offering and Concurrent Offering, except that in all events
NAI will use at least $202,000 to repurchase 101,000 shares of Series A
Preferred Stock of NAI for an aggregate repurchase price of $202,000, and will
repay approximately $727,000 of indebtedness (which includes $88,000
of accrued interest) of NAI described above. Management of NAI will have broad
discretion to change the allocation of the net proceeds among expanding NAI's
Corporate Services Department and Investment Sales Department, strategically
acquiring and developing Real Estate-Related Services and the opportunistic
acquisition of real estate; any change in the allocation of the net proceeds
will depend upon, among other things, the opportunities which are available to
NAI.
Pending such uses, the net proceeds may be invested in short-term
income-producing investments such as investment grade commercial paper,
government and government agency securities, money market funds that invest in
government securities, certificates of deposit and interest-bearing bank
accounts.
NAI will not receive any proceeds from the Distribution.
DIVIDEND POLICY
NAI has not paid any dividends on the outstanding NAI Shares to date.
The payment of dividends, if any, in the future is with the discretion of the
Board and will depend on NAI's earnings, its capital requirements and
financial condition. It is the present intention of the Board to retain all
earnings, if any, for use in NAI's business operation and, accordingly, the
Board does not expect to declare or pay any cash dividends in the foreseeable
future, except as may be required by any outstanding shares of preferred stock
of NAI.
-29-
<PAGE>
DILUTION
At June 30, 1998, NAI had a net tangible book value of $(1,151,383),
or $(0.09) per outstanding common share. Without taking into account any other
change in such net tangible book value after June 30, 1998, other than to
give effect to the recapitalization of NAI (through the Reincorporation Merger)
at a conversion rate of 1.318087 per common share outstanding, the Rights
Offering, the Concurrent Offering and the net proceeds therefrom, the net
tangible book value of NAI at June 30, 1998 would have been as follows given
the range of the number of Underlying Shares, Excess Shares and Additional
Shares purchased:
<TABLE>
<CAPTION>
Net Tangible
Book Value Per Share
---------- ---------
<S> <C> <C>
Minimum number of Underlying Shares,
Excess Shares and Additional Shares
purchased (930,378 NAI Shares) $(290,627) $(.02)
Moderate number of Underlying Shares,
Excess Shares and Additional Shares
purchased (10,000,000 NAI Shares) $17,848,617 $.66
Maximum number of Underlying
Shares, Excess Shares and Additional
Shares purchased (19,101,403 NAI $36,051,429 $1.00
Shares) ===========
</TABLE>
This amount represents an immediate increase in net tangible book value per
NAI Share and an immediate dilution in net tangible book value per NAI Share
to new investors as illustrated in the following table:
<TABLE>
<CAPTION>
Minimum Moderate Maximum
------- -------- -------
<S> <C> <C> <C>
Subscription price per NAI Share in the
Rights Offering and the Concurrent Offering
$2.00 $2.00 $2.00
Net tangible book value per NAI Share
before the Rights Offering and the
Concurrent Offering(1) $(.09) $(.09) $(.09)
Increase in net tangible book value per NAI
Share attributable to the Rights Offering and
the Concurrent Offering(2) $.07 $.75 $1.09
----- ----- ------
Net tangible book value per NAI Share after
the Rights Offering and the Concurrent
Offering(2) $(.02) $.66 $1.00
====== ====== ======
Dilution in net tangible book value per NAI
Share to new investors(3) $2.02 $1.34 $1.00
===== ===== =====
</TABLE>
(1) Net tangible book value per NAI share before the Rights Offering and the
Concurrent Offering is determined by dividing the net tangible book value of
NAI (total assets of $2,095,828 less total liabilities and redeemable
convertible preferred shares of $3,247,211) by the number of outstanding
NAI Shares.
(2) Based on a subscription price of $2.00 per NAI Share and estimated
transaction costs of $1,000,000.
(3) Dilution is determined by subtracting net tangible book value per NAI Share
after the Rights Offering and the Concurrent Offering from the subscription
price of $2.00 per NAI Share.
-30-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of NAI (i) as of
June 30, 1998 and (ii) as adjusted to give effect to the consummation of
the Exchange Offer, the subsequent Distribution, the Rights Offering and the
Concurrent Offering and assuming all of the Underlying Shares and Additional
Shares are purchased. See "Use of Proceeds."
<TABLE>
<CAPTION>
As of June 30, 1998
-----------------------
(In thousands)
Actual As adjusted(1)
------ --------------
<S> <C> <C>
Debt:
Stockholders loans..................................................... $ 441 $ 0
Long-term debt......................................................... 70 0
------ ------
Total debt........................................... 511 0
------ ------
Convertible Preferred Stock; $0.01 par value per share;
101,000 shares issued and outstanding; (0 as adjusted) 202 0
------ ------
Stockholders' equity (deficit):
Common stock, $.01 par value; 200,000,000 authorized,
12,974,414 shares issued and outstanding; (36,202,812
as adjusted) ..................................................... 134(2) 362
Capital in excess of par value....................................... 2,556(2) 39,248 (3)(4)
Retained earnings (deficit).......................................... (3,607) (3,607)
(917) 36,003
Treasury stock, at cost(2)........................................... (234) 0(3)
----- -
Total stockholders' equity (deficit)............... (1,151) 36,003
Total capitalization............................... $ (438) $ 36,003
</TABLE>
(1) The following table presents the capitalization of NAI, as adjusted to
give effect to the consummation of the Exchange Offer, the subsequent
Distribution, the Rights Offering and the Concurrent Offering and assuming the
purchase of (a) a minimum number of Underlying Shares, Excess Shares and
Additional Shares (an aggregate of 930,000 NAI Shares) and (b) a moderate
number of Underlying Shares, Excess Shares and Additional Shares (an aggregate
of 10,000,000 NAI Shares):
As Adjusted
----------------------------------
(In thousands)
(a) (b)
Total debt..............................$ 0 $ 0
Convertible preferred stock.............$ 0 $ 0
Common stock............................$ 180 $ 271
Capital in excess of par value..........$ 3,137(3)(4) $ 21,185(3)(4)
Retained earnings (deficit).............$ (3,607) $ (3,607)
Treasury stock..........................$ 0(3) $ 0(3)
Total capitalization...............$ (290) $ 17,849
NAI Shares outstanding.................. 18,032 27,101
(2) Includes 434,675 NAI Shares issued and held in treasury stock as of
June 30, 1998.
(3) Represents the retirement of 434,675 NAI Shares of treasury stock valued
at $233,868 as adjusted.
(4) Includes approximately $1,000,000 of transaction costs reflected as a
reduction of equity.
-31-
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
(In thousands, except ratio, property data and per share data)
The following sets forth selected financial, operating and other data
on an historical basis for NAI. Also set forth below are selected pro forma
financial, operating and other data for NAI at and for the year ended June 30,
1998. The pro forma balance sheet data as of June 30, 1998 has been prepared as
if the Exchange Offer and the Distribution had occurred on June 30, 1998. The
pro forma operating and other data for the year ended June 30, 1998 have been
prepared as if the consummation of the Exchange Offer and the Distribution had
occurred on July 1, 1997. The pro forma financial and operating data do not give
effect to the Rights Offering and the Concurrent Offering, and are not
necessarily indicative of what the actual financial position or results of
operations of NAI would have been as of the date or for the periods indicated,
nor do they purport to represent the results of operations or financial position
for future periods. This data should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------
Pro Forma Historical
--------- ---------------------------------------------------
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
OPERATING DATA: (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Commissions............... $ 3,581 $ 3,581 $ 4,001 $ 4,124 $ 4,371 $ 2,312
License fees.............. 1,555 1,555 1,282 1,373 1,158 1,081
Other..................... 610 610 618 523 470 427
Interest.................. 0 0 0 0 0 0
-------- -------- ------- ------- ------- -------
Total revenue......... 5,746 5,746 5,901 6,020 5,999 3,820
-------- -------- ------- ------- ------- -------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Costs and expenses:
Commission expense.......... 834 834 1,143 1,782 1,485 839
Sales and marketing......... 282 282 321 285 324 274
Compensation and benefits... 2,530 2,530 2,528 2,438 1,981 1,895
Operating expense........... 2,539 2,039 1,644 1,475 1,336 1,161
Depreciation and amortization 81 81 52 56 45 53
Interest, net............... 64 64 60 48 46 37
-------- ----- -------- ------- ------- -------
Total costs and expenses.... 6,330 5,830 5,748 6,084 5,217 4,259
-------- ----- -------- ------- ------- -------
Income (loss) from operations (584) (84) 153 (64) 782 (439)
-------- ----- -------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Other expenses:
<S> <C> <C> <C> <C> <C> <C>
Equity in loss of affiliate. 0 0 25 5 0 0
Loss on sale of real estate. 0 0 0 0 65 0
------ ------- ------- ------- ------- -------
Total other expenses........ 0 0 25 5 65 0
------ ------- ------- ------- ------- -------
Income (loss) from continuing
operations before income
taxes (584) (84) 128 (69) 717 (439)
Income taxes................ 0 0 0 0 35 0
------ ------- ------- ------- ------- -------
Income (loss) from continuing
operations................ (584) (84) 128 (69) 682 (439)
Loss from discontinued
operations................ 0 0 223 128 392 0
------ ------- ------- ------- ------- -------
Net income (loss)........... (584) (84) (95) (197) 290 (439)
====== ======= ======= ======= ======= =======
Preferred share distributions 0 7 11 13 15 0
------ ------- ------- ------- ------- -------
Net income (loss) available to
common shareholders......... $ (584) $ (91) $ (106) $ (210) $ 275 $ (439)
Net income (loss) per share. $ (0.03) $ (0.01) $ (0.01) $ (0.02) $ 0.02 $ (0.03)
======= ======= ======= ======= ======= =======
Other data (unaudited):
Cash flows provided by (used in)
Operating..................... $ (356) $ 144 $ 233 $ 158 $ 593 $ 10
Investing..................... $ (76) $ (76) $ (260) $ (277) $ (260) $ (113)
Financing..................... $ 14 $ 7 $ 13 $ (7) $ (156) $ 48
Common shares outstanding..... 17,101 12,974 2,871 12,863 12,782 12,523
Weighted average shares
outstanding................... 17,081 12,959 12,883 12,860 12,648 12,589
Ratio of EBITDA to fixed charge (3.03) .40 1.95 0.30 7.62 (3.88)
EBITDA(1)..................... $ (439) $ 61 $ 240 $ 35 $ 808 $ (349)
Balance sheet data (1995 unaudited):
Total assets.................. $ 2,096 $ 2,096 $ 1,689 $ 1,732 $ 1,649 $ 1,177
Total debt.................... $ 639 $ 639 $ 575 $ 496 $ 441 $ 482
Shareholders' deficit......... $ (1,151) $(1,151) $(1,090) $(1,008) $ (837) $(1,176)
</TABLE>
-32-
<PAGE>
- -----------------------------------
(1) For purposes of these computations, EBITDA consists of income before
interest expense, taxes, depreciation and amortization. Fixed charges
include interest expense, depreciation and amortization, and preferred
share distributions. Management believes that EBITDA provides additional
information about the Company's ability to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not a
measure of financial performance under GAAP and should not be considered
an alternative either to net income as an indicator of NAI's performance
or to cash flows as a measure of its liquidity. EBITDA as disclosed by
other Companies may not be comparable to the Company's calculation of
EBITDA.
-33-
<PAGE>
NEW AMERICA NETWORK, INC PRO FORMA
CONDENSED FINANCIAL INFORMATION
The accompanying financial statements present the unaudited pro
forma condensed Balance Sheet of NAI as of June 30, 1998,and the unaudited
pro forma condensed Statement of Operations of NAI for the year ended
June 30, 1998 after giving effect to the Exchange Offer and the subsequent
Distribution (the "Transactions").
The unaudited pro forma combined condensed Balance Sheet as of
June 30, 1998 is presented as if the Transactions had occurred on June 30,
1998. The unaudited pro forma condensed Statement of Operations for the
year ended June 30, 1998 is presented as if the Transactions had occurred
on July 1, 1997. However, the unaudited pro forma combined condensed
Balance Sheet as of June 30, 1998 and the unaudited pro forma condensed
Statement of Operations for the year ended June 30, 1998 do not reflect
the impact of the Rights Offering or the Concurrent Offering.
Preparation of the pro forma financial information was based on
assumptions deemed appropriate by the management of NAI. The assumptions give
effect to the Transactions in accordance with generally accepted accounting
principles. The pro forma financial information is unaudited and is not
necessarily indicative of the results which actually would have occurred if
the transactions had been consummated at the beginning of the periods
presented, nor does it purport to represent the future financial position and
results of operations for future periods. The pro forma information should be
read in conjunction with the historical financial statements of NAI included
in this Prospectus.
-34-
<PAGE>
NEW AMERICA NETWORK, INC. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
June 30,
=========
Historical Reincorporation Merger(A) 1998
---------- ------------------------ ----
<S> <C> <C> <C>
Assets:
Current assets:
Cash.............................................. $ 136 $ 0 $ 136
Accounts receivable............................... 963 0 963
Commissions receivable............................ 555 0 555
Notes and other receivables....................... 13 0 13
Other current assets.............................. 56 0 56
--------- ---------- --------
Total current assets.............................. 1,723 0 1,723
--------- ---------- --------
Property and equipment (net)........................... 173 0 173
Other assets........................................... 200 0 200
--------- ---------- --------
Total assets...................................... $ 2,096 $ 0 $ 2,096
========= ========== ========
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable and accrued expenses............. $ 1,249 $ 0 $ 1,249
Accrued interest.................................. 88 0 88
Current portion of long-term debt................. 128 0 128
Stockholder loans................................. 441 0 441
Deferred revenue.................................. 1,069 0 1,069
--------- ---------- --------
Total current liabilities......................... 2,975 0 2,975
--------- ---------- --------
Long-term debt......................................... 70 0 70
--------- ---------- --------
Total liabilities................................. 3,045 0 3,045
--------- ---------- --------
Redeemable convertible preferred stock................. 202 0 202
--------- ---------- --------
Stockholders' equity:
Common stock...................................... 134 0 134
Additional paid-in capital........................ 2,556 (234)(B) 2,322
Accumulated deficit............................... (3,607) 0 (3,607)
Treasury stock, at cost........................... (234) 234(B) 0
--------- ---------- --------
Total stockholders' equity........................ (1,151) 0 (1,151)
--------- ---------- --------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity $ 2,096 $ 0 $ 2,096
========= ========== ========
</TABLE>
NOTES AND MANAGEMENT'S ASSUMPTIONS TO NAI'S PRO FORMA BALANCE SHEET
as of June 30, 1998
A) The pro forma balance sheet does not reflect the receipt of proceeds of the
Rights Offering and Concurrent Offering; because there is no standby
underwriter the proceeds of such offerings cannot be determined at that time.
See "Capitalization" and "Dilution."
B) To reflect the retirement of the Treasury Stock.
-35-
<PAGE>
NEW AMERICA NETWORK, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the Year Ending June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
June 30,
Historical Reincorporation Merger(A) 1998
<S> <C> <C> <C>
Revenue:
Commissions....................................... $ 3,581 $ 0 $ 3,581
License fees...................................... 1,555 0 1,555
Other............................................. 610 0 610
Interest income................................... 0 0 0
---------- --------- --------
Total revenue..................................... 5,746 0 5,746
---------- --------- --------
Costs and expenses:
Commission expense................................ 834 0 834
Sales and marketing............................... 282 0 282
Compensation and benefits......................... 2,530 0 2,530
Operating expense................................. 2,039 500 (B) 2,539
Depreciation and amortization..................... 81 0 81
Interest, net..................................... 64 0 64
---------- ---------- ---------
Total costs and expenses.......................... 5,830 500 6,330
---------- ---------- ---------
Income (loss) from operations.......................... (84) (500) (584)
Other expenses:
Loss in investment in NAIS............................. 0 0 0
Total other expense............................... 0 0 0
Income taxes........................................... 0 0 0
---------- --------- --------
Net income (loss)...................................... (84) (500) (584)
Preferred share distributions.......................... 7 (7) (C) 0
---------- --------- --------
Net income (loss) available to common shareholders..... $ (91) $ (493) $ (584)
=========== ========== ========
Basic and diluted earnings per common share............ $ (0.01) $ (0.05)
Basic and diluted earnings per recapitalized common share $ (0.01) $ (0.03)
Weighted average number of
common shares outstanding............................ 12,959
Weighted average number of common
shares and equivalents outstanding................... 13,085
After recapitalization
Weighted average number of
common shares outstanding............................ 17,081 17,081
Weighted average number of common shares and
equivalents outstanding.............................. 17,247 17,247
</TABLE>
-36-
<PAGE>
Footnotes to NAI's Pro Forma Consolidated Statement of Operations for the
year ended June 30, 1998
A) The pro forma balance sheet does not reflect the receipt of proceeds of the
Rights Offering and Concurrent Offering; because there is no standby
underwriter the proceeds of such offerings cannot be determined at that time.
See"Capitalization" and "Dilution."
<TABLE>
<S> <C>
B) To reflect fees and costs payable under the Intercompany Agreement. $ 500
C) To reflect the elimination of preferred share distributions in connection
with the redemption of the redeemable convertible preferred shares. $ 7
</TABLE>
-37-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
New America Network, Inc., which conducts business as New America
International, operates a network of independently owned, licensed real estate
brokers ("Broker Members") throughout the United States and abroad. NAI,
directly and through its Broker Members, provides commercial real estate
brokerage and other real estate-related services to local, regional, national
and international businesses. Unlike other real estate broker networks, in
addition to managing real estate transactions generated by its brokers, NAI
generates its own source of real estate transactions for its brokers and
actively manages and tracks those transactions on behalf of its Clients. In
order to increase the portfolio of services marketed to Clients and Broker
Members, NAI has entered into several alliance agreements with entities which
provide real estate-related services which complement NAI's brokerage
capabilities, including sealed-bid sales, real estate auctions, real estate
financing and appraisals.
NAI earns revenue primarily from the sharing of brokerage commissions
with Broker Members who earn commissions from the acquisition, disposition or
leasing of real property assigned to them by NAI. Revenue from brokerage
commissions is largely transactional in nature and subject to economic cycles.
However, NAI's geographic coverage, number of transactions and continuing
client base tend to minimize the impact of economic cycles on annual revenue.
NAI also earns revenue from (i) the sharing of brokerage commissions with
Broker Members who earn commissions from the acquisition and/or disposition or
leasing of real estate referred to them by other Broker Members, (ii) the
sharing of fees received from Alliance Members in sealed-bid sales, auction
transactions and other Real Estate-Related Services and (iii) the collection
of annual membership fees paid by Broker Members and Alliance Members
("License fees"). Other revenues of NAI include primarily (i) marketing fees
for Broker Members, which is generally calculated as a percentage of the
Broker Members' License fees, and (ii) convention and meeting revenue. A major
expense to NAI is the commission expense which is a direct function of gross
commission revenue levels. In numerous instances, NAI collects a gross
commission and must subsequently pay the Broker Member their respective
portion of the gross commission. Other operating expenses of NAI includes
professional fees, advertising and promotion expenses, rental expenses and
various other general and administrative costs incurred by NAI in their day to
day operations.
Liquidity and Capital Resources
At June 30, 1998 NAI had approximately $136,000 of cash on
hand. NAI has generated approximately $74,000 of net cash flows from
operating, investing and financing activities for the year ended June
30, 1998. Management believes that NAI will be able to continue to generate
such positive cash flow at a rate sufficient to meet its short-term
liquidity needs. Approximately 35% of total liabilities as of June 1998
represent deferred revenue that will not require the use of cash in the
future. NAI's current assets exceed the remaining current liabilities. In
addition, management believes that it can obtain additional debt or equity to
meet its long-term liquidity needs.
NAI had loans outstanding of $639,000 at June 30, 1998. Of this
amount, $441,000 was due to related parties with interest rates ranging from
10% to 12%. These loans are due on demand. NAI also had a bank loan
outstanding of $90,000 which requires monthly payments of principal and
interest of $1,667 with interest at the bank's prime rate (8.5% at June
30, 1998) plus 1%. This loan matures in November 2002. NAI also has a $100,000
line of credit with First Washington State Bank which expires October 2, 1998.
Interest on any outstanding borrowings is at the bank's prime rate (8.5% at
June 30, 1998) plus 1%. This line was fully utilized at June 30, 1998. In
addition, NAI had a bank loan outstanding of $33,333 which required monthly
payments of principal of $3,333 with interest at the bank's prime rate (8.5%
at June 30, 1998) plus 1%; this loan was repaid during the year ended June 30,
1998.
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Assuming all of the Underlying Shares and Additional Shares are
purchased in the Rights Offering and in the Concurrent Offering, NAI expects
to receive proceeds of approximately $38,000,000. Management will use such
proceeds in the following order of priority: (i) pay the expenses of the
Rights Offering, the Concurrent Offering and the Related Transactions, (ii)
repay $202,000 principal amount of indebtedness incurred in connection with
the repurchase of shares of Series A Preferred Stock of NAI (iii) repay
outstanding indebtedness, (iv) expand NAI's Corporate Services Department
and Investment Sales Department, and (v) acquire and develop Real
Estate-Related Services. See "Use of Proceeds." The balance of any proceeds
will be invested in short-term commercial paper at a rate of approximately
5.5% per annum until used for general corporate and working capital purposes
and to opportunistically acquire real estate. In the event that the full
proceeds of $38,000,000 is not received, management will use any proceeds
received in the above order.
Management believes it has adequate access to capital to continue to
meet its short-term requirements and objectives, including its needs over the
next 12 months. Management believes NAI's short-term and long-term needs may
be met from cash flow from operations. To the extent proceeds are raised in
the Rights Offering and the Concurrent Offering, NAI may use such funds to
meet any increase in NAI's long-term and short-term capital requirements which
relate to the expansion of NAI's business. See "Use of Proceeds."
NAI has established a Year 2000 compliance review process to assess
the impact of the Year 2000 on the company's business, operations and
financial condition. The process encompasses internal information technology
systems, office mechanical operation systems and the potential impact from
Broker Members and vendors. Management believes that NAI has no material
exposure to the Year 2000 issues at this time.
Commitments
In connection with a lease on NAI's corporate headquarters, NAI
pays an annual rent of $102,000, plus the payment of maintenance expenses. See
"Business--Property" In addition, pursuant to the Intercompany Agreement,
NAI will be obligated to pay an annual consulting services fee of $500,000 for
a five-year period, payable in equal monthly installments of $41,666. See
"Related Transactions Intercompany Agreement--Consulting Services."
Results of Operations
Year ended June 30, 1998 versus the year ended
Net loss for common shareholders decreased $14,000, or 13%, from
$105,000 for the year ended June 30, 1997 to $91,000 for the year ended June 30,
1998. This decrease is due to a combination of factors as described below.
Revenue from commissions decreased $420,000, or 10%, from $4,001,000
for the year ended June 30, 1997 to $3,581,000 for the year ended June 30,
1998. This decrease is due to a decrease in broker to broker commissions which
is primarily the result of a lower dollar value of transactions in the broker to
broker area.
License fees increased $273,000, or 21%, from $1,282,000 for the year
ended June 30, 1997 to $1,555,000 for the year ended June 30, 1998. The increase
was due to an increase in the number of international broker members (which
resulted in approximately $140,000 of additional fees) and increased revenue
from existing membership renewals.
Other revenue decreased $8,000, or 1%, from $618,000 for the year ended
June 30, 1997 to $610,000 for the year ended June 30,1998. The decrease was due
to a one
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time change in NAI's meeting and events calendar in 1998 in which NAI did not
hold one of its major meetings, the National Council Symposium.
Commission expense decreased $309,000, or 27%, from $1,143,000 for the
year ended June 30, 1997 to $834,000 for the year ended June 30, 1998. NAI's
commission expense is proportionately less on a Network to Broker transaction
than on a Broker to Broker transaction. Because a greater percentage of NAI's
1998 revenue was generated from its Network to Broker business than in 1997, the
total commission expense decreased.
Sales and marketing expenses decreased $39,000, or 12%, from
$321,000 for the year ended June 30, 1997 to $282,000 for the year ended June
30, 1998. This decrease was due primarily to a decrease in costs as a
result of NAI not holding its National Council Symposium in 1998, which was
offset by increased costs of NAI's annual convention and meetings.
Other operating expenses increased $395,000, 24%, or from $1,644,000
for the year ended June 30, 1997 to $2,039,000 for the year ended June 30,
1998. This increase was primarily due to an increase in public relations and
advertising relating to the change in the corporate trade name from New America
Network, Inc. to New America International, Inc.
NAI had a loss from operations of discontinued businesses of
$223,000 for the year ended June 30, 1997. NAI discontinued its New America
Financial Services ("NAFS") division which provided a wide array of financial
services. These services are currently provided by Alliance members. NAI had
no such loss for the same period in 1998.
Year ended June 30, 1997 versus the year ended June 30, 1996
Net loss for common shareholders decreased $105,000, or 50%,
from a loss of ($210,000) in 1996 to a loss of ($105,000) in 1997. This
decrease is due to a combination of factors as described below.
Revenue from commissions decreased $123,000, or 3%, from $4,124,000
for the year ended June 30, 1996 to $4,001,000 for the year ended June 30,
1997. The decrease was primarily due to a decrease in broker to broker
transactions.
License fees decreased $91,000, or 7%, from $1,373,000 for the year
ended June 30, 1996 to $1,282,000 for the year ended June 30, 1997. The
decrease was due to the discontinuance of the property management services in
early fiscal 1997. Fees were recognized for the property management services
for the entire fiscal 1996 year.
Other revenue increased $96,000, or 18%, from $522,000 for the
year ended June 30, 1996 to $618,000 for the year ended June 30, 1997. The
increase was primarily due to a new contract in 1997 in which NAI was paid
$42,000 for the use of their Real Estate Planning Guide on the internet. The
residual increase was due to a general increase in marketing assessments.
Commission expense decreased $639,000, or 36%, from $1,782,000 for
the year ended June 30, 1996 to $1,143,000 for the year ended June 30, 1997.
The decrease was primarily due to a decrease in sealed bid transactions.
Sales and marketing expenses increased $36,000, or 13%, from $285,000
for the year ended June 30, 1996 to $321,000 for the year ended June 30, 1997.
This increase was due to increased costs of conventions and meetings.
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Compensation and benefits increased $91,000, or 4%, from
$2,437,000 for the year ended June 30, 1996 to $2,528,000 for the year ended
June 30, 1997. This increase was due to the addition of personnel in the
Corporate Services and Brokerage Services areas.
Other operating expenses increased $169,000, or 11%, from $1,475,000
for the year ended June 30, 1996 to $1,644,000 for the year ended June 30,
1997. This increase was due to an increase in public relations and advertising
relating to changing the corporate trade name from New America Network, Inc.
to New America International, Inc.
The loss from operations of discontinued businesses increased
$95,000, or 74%, from $128,000 for the year ended June 30, 1996 to $223,000
for the year ended June 30, 1997. This loss represents the effect of the
discontinuance of NAFS in each respective year.
Preferred share distributions decreased $2,000, or 15%, from $13,000
for the year ended June 30, 1996 to $11,000 for the year ended June 30, 1997.
This decrease was due to a redemption of 25,000 shares of NAI's preferred
stock for $50,000.
BUSINESS
General Description
NAI operates a Network of independently owned, licensed real estate
Broker Members throughout the United States and, more recently, abroad. NAI,
directly and through its Broker Members, provides commercial real estate
brokerage services to local, regional, national and international Clients. NAI
has approximately 130 affiliated Broker Members, which employ approximately
2,600 agents, operating in approximately 300 markets, including North, Central
and South America and Western Europe. NAI believes it is represented in more
North American market areas than any national commercial real estate brokerage
company. Unlike other real estate broker networks, in addition to managing
real estate transactions generated by its Broker Members, NAI generates its
own source of real estate transactions for its Broker Members and actively
manages and tracks those transactions on behalf of Clients. In order to
increase the portfolio of services marketed to Clients and Broker Members, NAI
has entered into several alliance agreements with Alliance Members which
provide real estate related services which complement NAI's brokerage
capabilities, including sealed-bid sales, real estate auctions, real estate
financing and appraisal services. As of June 30, 1998, the Network had an
inventory of approximately 1,683 assignments to buy, sell or lease real
property (approximately 77% of which are exclusive to NAI), with a transaction
value of approximately $927 million, and which would generate fees to NAI of
approximately $6.8 million, if consummated. There is no assurance that such
inventory will result in any revenues to NAI.
NAI earns revenues primarily from the sharing of brokerage
commissions with Broker Members who earn commissions from the acquisition,
disposition or leasing of real property assigned to them by NAI (approximately
$2,395,000 or 42% of NAI's net revenues for fiscal year 1998). NAI
also earns revenues from (i) the sharing of brokerage commissions with Broker
Members who earn commissions from the acquisition and/or disposition or
leasing of real estate referred to them by other Broker Members (approximately
$791,000 or 14% of NAI's net revenues for fiscal year 1998), (ii) the
sharing of fees received from Alliance Members in sealed-bid sales, auction
transactions and other Real Estate-Related Services (approximately $394,000
or 7% of NAI's net revenues for fiscal year 1998), and (iii) the
collection of annual membership fees paid by Broker Members and Alliance
Members (approximately $1,555,000 or 27% of NAI's net revenues for
fiscal year 1998).
NAI began forming the Network in 1978 in order to meet the growing
real estate needs of large national and international corporations in multiple
markets. NAI meets the multiple market needs of its Clients and its Broker
Members by combining local representation with the management and control
capabilities of its
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centralized Corporate Services Department. NAI's Corporate Services Department
is responsible for establishing and developing relationships with Clients in
order to generate assignments for the Network and its Broker Members.
Currently, NAI has 13 staff members in its Corporate Services Department
serving over 100 Clients. These Clients include retail chains (such as
Woolworth Corp.), international companies (such as International Paper
Company), service businesses (such as Roadway Services, Inc.), and other
larger owners of real estate (such as the United States Postal Service, a new
Client of NAI). NAI's Clients are often involved in real estate transactions
in multiple markets. In addition, NAI has an Investment Sales Department which
specializes in the acquisition and disposition of real estate for Clients who
are seeking to acquire, or currently own, real estate for investment purposes.
See "--Corporate Services Department" and "--Investment Sales."
NAI maintains a proprietary information sharing and research
intranet, in order to efficiently and effectively coordinate with its Broker
Members to meet its Clients' needs. NAI's information systems consist of a
transaction management system and a central database information system. NAI's
computerized transaction management system allows Broker Members, the
Corporate Services Department and Clients to manage and track the progress of
transactions assigned to Broker Members, including those generated by its
Broker Members. NAI's databases include, among other things, real estate
market data, demographic information, Broker Member profiles, Broker Member
listings, transaction histories, Client relationship information and Client
profiles. See "--NAI Technology and Information Services."
NAI's objective is to increase profitability by continuing to grow
its brokerage business, increase its international coverage, expand its
Corporate Services and Investment Sales Departments and to further develop its
non-brokerage Real Estate-Related Services, including sealed-bid sales and
real estate auctions, and to acquire or develop additional Real Estate-Related
Services. To the extent funds are available from the proceeds of the Rights
Offering and the Concurrent Offering referred to below, NAI's strategy will be
to (i) expand NAI's Corporate Services Department and Investment Sales
Department to generate business from additional Clients and in new markets,
(ii) invest in or acquire brokerage firms (including certain of those owned by
Broker Members) and firms which provide Real Estate-Related Services, (iii)
train and support Broker Members to generate additional business for the
Network; (iv) continue to expand the Network into international markets, (v)
generate additional revenue by providing brokerage and Real Estate-Related
Services to Kranzco, (vi) expand and enhance NAI's real estate technology and
information services, (vii) opportunistically acquire and develop real estate
for its own account and (viii) utilize Real Estate-Related Services to create
and develop relationships with Clients.
The Network
NAI began forming the Network in 1978 on the premise that local
commercial real estate brokers could not efficiently service the needs of
national and international businesses due to the extremely local nature of the
commercial real estate market. Previously, local commercial brokers could only
assist a business with respect to its needs in a limited market area; however,
large national and international corporations need real estate services in
multiple market areas. NAI's affiliated Network of Broker Members throughout
the United States enables NAI to simultaneously provide real estate services
to businesses with multiple requirements in a number of market areas. NAI,
with approximately 130 Broker Members in 46 states and 10 countries, provides
real estate services to its Clients throughout the United States and, more
recently, abroad. See "--Competition" and "Risk Factor--Competition; Ability
to Retain Broker Members and Attract Additional Broker Members."
By agreeing to dispose of or acquire its real estate through the
Network, a Client can utilize one large brokerage network to simultaneously
execute numerous real estate transactions in different markets. Clients avoid
the time-consuming tasks of interviewing, establishing relationships with, and
negotiating with, different commercial real estate brokers, and minimize time
spent managing the status and progress of each transaction in multiple market
areas.
Through the use of the Network's facilities and the individual
marketing know-how of the Broker Members, a seller or lessor can quickly
establish whether there is a strong demand for its property, while a
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purchaser or lessee can immediately determine which properties being offered
across the country meet its requirements. To facilitate this process, NAI
maintains computerized information on potential lessors and lessees, types of
properties sought or available for sale in numerous markets, preferred
locations, rental rates, price and mortgage financing requirements and other
relevant information.
Broker Members
NAI established the Network as a nationally recognized marketer of
real estate services, by obtaining quality Broker Members in major
metropolitan areas and smaller cities throughout the United States, as well as
more recently in foreign countries. NAI selects its Broker Members based upon
a number of factors including (a) the Broker Member's reputation in the
industry, (b) the sales volume of the Broker Member in its local market, (c)
the Broker Member's ability and desire to work with NAI and NAI's stated
method of operations, (d) the professionalism of the sales associates as
evidenced by industry designations and memberships and (e) the Broker Member's
performance in interviews performed by NAI. As of June 30, 1998, NAI had
approximately 130 Broker Members in 46 states and 10 foreign countries.
Approximately 80 of the Network's Broker Members have been with NAI for 5
years or longer.
In order to ensure that the Network's standards for Broker Members
are consistently maintained, NAI has established a Broker Services Department.
The Broker Services Department, which consists of 11 members, focuses on
training Brokers to (i) develop and fulfill business on behalf of NAI, (ii)
adhere to NAI systems and processes, (iii) use the Network and its computer
tracking systems in order to manage real estate transactions assigned to them
through the Network and for their own internal use, (iv) effectively utilize
NAI's national and international identity, and (v) meet the needs of NAI's
Clients. After a Broker Member becomes a member of the Network, NAI performs
periodic reviews to determine whether such Broker Member is maintaining the
standards set forth in its Membership Agreement. In the past, NAI has replaced
certain Broker Members who have not met their obligations under the Membership
Agreements. NAI intends to continue this practice so that the Network can
continue to provide high quality service to its Clients.
Membership Agreements and Fees
Each Broker Member executes an agreement ("Membership Agreement")
which defines the legal relationship between NAI and the Broker Member,
including the Broker Member's obligations, the services to be provided by the
Network and the compensation to be paid for such services by the Broker Member
(including an annual membership fee and co-brokerage commission arrangements).
Under the terms of the Membership Agreement, the majority of Broker Members,
in most instances, obtain an exclusive territory and a license to use NAI's
service marks including "New America," "New America International," "NAI" and
the "NAI Globe" logo. Territories in the United States range in size from
single cities to several counties (sometimes in more than one state), or
statewide depending on the demographics of the area. International territories
range in size from single cities to, under certain circumstances, an entire
country.
In certain market areas, NAI has selected more than one Broker
Member. All such Broker Members are designated as "Specialty Members" as each
specializes in one or more types of real estate (i.e., Retail, Industrial or
Office). This practice was instituted to address situations in which no
individual commercial broker could be identified in a particular market area
meeting NAI's qualifications as a full service broker. It also reflects NAI's
recognition that in certain market areas the Network and its Clients could
best be served by Specialty Members.
Over the past 18 months NAI has been transitioning Broker Members to
a new form of Membership Agreement. The old form, which typically provided for
a three year term, permitted members to terminate the Membership Agreement at
any time upon 45 days notice. The new form of Membership Agreement, which
includes stronger identity and performance standards as well as increased
licensing fees, does not allow early termination of the Membership Agreement
except for cause. NAI may terminate such agreements for specified causes upon
forty-five (45) days written notice to a Broker Member. Approximately 60% of
the Broker Members have executed the new form of Membership Agreement.
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Each Broker Member pays NAI an annual membership fee ("Membership
Fee"), which varies depending upon the population level of a Broker Member's
exclusive territory. Each Broker Member is also required to pay an annual
marketing assessment equal to 15% of its Membership Fee. NAI has agreed to
spend a minimum of 3.5% of the total annual Membership Fees it receives on
marketing activities annually. NAI earns most of its revenue from the
co-brokerage provisions contained in the Membership Agreement. NAI's share of
any brokerage commission earned from such services ranges from 10% to 50%
depending on NAI's involvement in the transaction. Of NAI's net revenues for
fiscal year 1998, approximately $2,395,000 or 42% were earned through
the sharing of brokerage commissions with Broker Members who earn commissions
from the acquisition, disposition or leasing of real property assigned to them
by NAI, approximately $791,000 or % of NAI's net revenues were earned
through the sharing of brokerage commissions with Broker Members who earn
commissions from the acquisition and/or disposition or leasing of real estate
referred to them by other Broker Members, and approximately $1,555,000 or
27% of NAI's net revenues were earned through the collection of annual
membership fees paid by Broker Members and Alliance Members.
NAI's percentage of the Broker Member compensation may be decreased
in instances where the Network Client was introduced to the Network by a
Broker Member or where an assignment was originally identified by a Broker
Member. In those instances, the Broker Member who made the introduction or
identified the listing may be entitled to a portion of the commission.
Broker Services Group
NAI believes that in addition to obtaining assignments and Clients
for Broker Members, the Network creates a framework within which Broker
Members can assist each other in their own businesses. In order to strengthen
the relationship among Broker Members, NAI conducts annual international
conventions and regional meetings on various aspects of utilizing the Network
and structuring transactions for all Broker Members. Also, the Network
maintains a Broker Member Advisory Council consisting of 24 Broker Members,
which offers advice to NAI regarding ways in which to improve the Network and
the services offered by it.
Additional publications, advertising, promotional materials and
public relations enhance NAI's image and reputation. NAI membership and
participation is maintained in industry trade associations including the
International Council of Shopping Centers ("ICSC"), International Association
of Corporate Real Estate Executives ("NACORE"), Industrial Development
Research Council ("IDRC") and other similar groups.
To further increase the Network's capabilities to service Clients,
NAI has established five Specialty Councils addressing various issues peculiar
to industrial, office, retail, land and investment properties. Each Specialty
Council is made up of Broker Members and/or sales persons associated with such
Broker Members who specialize in those areas. Through the personal
relationships which are established, NAI believes that council members gain a
greater recognition of each other's capabilities, local market knowledge and
general expertise.
Corporate Services Department
NAI's Corporate Services Department is responsible for establishing
and developing relationships with existing and potential Clients in order to
generate assignments for the Network and its Broker Members. NAI employs
persons with backgrounds in business and finance ("Corporate Service
Executives") to solicit and secure from existing and potential Clients,
exclusive assignments to acquire, dispose of or lease commercial real estate.
The current trend of downsizing corporate real estate departments has
increased the need for Corporate Services Executives, who can assist corporate
real estate departments with multiple transactions. The Corporate Services
Department assists Clients in managing multiple transactions through NAI's
technology and information systems, which facilitate up-to-date electronic
and/or written reports which are regularly sent to Clients and Broker Members.
See "--NAI Technology and Information Systems."
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NAI's Corporate Services Department has ongoing relationships with
more than 100 Clients, including the Hertz Corporation, Pepsi-Cola, Airborne
Express, and the International Paper Company. Substantially all NAI-generated
assignments from its Clients are exclusive to NAI and many assignments
referred from one Broker Member to another Broker Member are also exclusive to
the initiating Broker Member. These assignments include acquisitions,
dispositions, buy-outs, sales, leases and auctions of office, industrial and
retail properties. Assignments are obtained in NAI's name and then directed to
the Broker Members for execution. In certain circumstances the assignment,
although secured by NAI, is placed directly with the Broker Member. Resulting
commissions are shared with NAI as prescribed in the Broker Members Membership
Agreement. See "Business--Membership Agreements and Fees". In some instances,
NAI will structure a partner relationship with a Broker Member pursuant to
which the Broker Member will act as a Corporate Service Executive with respect
to a Network Client. This typically occurs when a Broker Member has a
significant relationship with a Client with national and international real
estate needs. As of June 30, 1998, NAI employed 13 staff members for its
Corporate Services Department. Currently, the majority of the Clients of the
Corporate Service Department are located in the eastern and north central
United States; however, upon consummation of the Exchange Offer, the
Distribution, the Rights Offering and the Concurrent Offering, NAI intends to
retain additional Corporate Service Executives to solicit Clients from
throughout the United States and abroad.
Investment Sales
In order to increase transactions generated for the Network, NAI has
established an Investment Sales Department, consisting of two real estate
professionals, which specializes in the acquisition and disposition of real
estate for Clients who are seeking to acquire, or who currently own, real
estate for investment purposes, rather than for the investor's business use. A
specific target of the Investment Sales Department is the identification and
sale of properties to REITs, as well as insurance companies or pension funds
which may be interested in the acquisition of real estate investments for
their portfolios.
The Investment Sales Department works with Broker Members to assist
them in pursuing investment opportunities which the Department has identified.
The Investment Sales Department also works closely with the members of NAI's
Specialty Council for Investment Sales to stimulate Broker-to-Broker
investment referrals and to obtain sources of financing for investment
transactions.
The Investment Sales Department has previously assisted Kranzco in
pursuing Kranzco's strategy of acquiring shopping centers. In December 1997,
Kranzco acquired five shopping centers, aggregating approximately 650,000
square feet of GLA, for approximately $44 million. NAI's Investment Sales
Department initiated this opportunity, and assisted Kranzco in acquiring the
properties. Kranzco's acquisition of such properties generated $100,000 in fee
income to NAI.
During the fiscal year ended June 30, 1998, the Network
consummated 26 investment real estate transactions with a transaction value
of approximately $100,000,000, which resulted in approximately $450,000 of
revenues to NAI (which for financial purposes are reported as commissions).
Real Estate-Related Services
NAI is in the process of widening its focus from a transactional core
to include more Real Estate-Related Services. These services include real
estate auctions and sealed-bid sales, real estate tax, valuation and appraisal
services, real estate information services (providing sales and marketing data
and demographic information), lease audits (review of leases for tenants in
order to ensure no overpayments were made), loan sales (purchases of defaulted
mortgages), and senior citizen housing (an investment specialty focusing on
facilities for the growing population of senior citizens). In order to expand
into Real Estate-Related Services, NAI has entered into several agreements
with Alliance Members pursuant to which certain Real Estate-Related Services
are provided by Alliance Members to Broker Members and Clients. To date, the
only Real Estate-Related Services which have generated significant revenues,
in addition to the membership fees paid by Alliance Members, for NAI have
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related to national auctions and international sealed-bid sales. See "Business
- -- Accelerated Marketing Programs" below.
Each Alliance Member pays NAI an annual membership fee (an "Alliance
Membership Fee"), which varies depending upon the market opportunity and the
NAI Services to be provided. Of NAI's net revenues for the fiscal year
ended June 30, 1998, approximately $530,000 of NAI's net revenues were
earned through the sharing of fees received from Alliance Members in the
sealed-bid sales and auction transactions (which for financial purposes are
reported as commissions) and approximately $25,000 of NAI's net revenues were
earned through the collection of annual membership fees paid by Alliance
Members (which for financial purposes are reported as license fees). Other
Real Estate-Related Services which have not as yet provided significant
revenues to NAI have been strategically implemented in order to provide a full
range of services which may fulfill the real estate related needs of Clients.
These services include lease auditing, appraisal services; and real estate
information services.
Accelerated Marketing Program
Through its Accelerated Marketing Program, NAI markets commercial
real estate properties for disposition through alternative vehicles for real
estate sales, such as sealed-bid sales and auctions. In 1994, NAI entered into
agreements with Terra Marketing and Terra Marketing, East (collectively,
"Terra"), an Alliance Member and specialist in international sealed-bid sales.
In the sealed-bid process, Terra puts together a portfolio of commercial and
industrial properties for sale. NAI and its Broker Members may assist Terra in
creating the portfolio of properties. The properties may be in varied
locations and have different owners. Terra then markets these properties to
possible purchasers through a brochure. Purchasers interested in any property
may request additional due diligence materials for a small fee. NAI Broker
Members provide sales support by providing site tours and providing useful
local information for those purchasers interested in visiting the site. The
winning bids are selected by the seller of the property and Terra, together.
For the fiscal year ended June 30, 1998, NAI and Terra produced
sealed-bid sales resulted in the sale of approximately 14 properties with
approximately $460,000 of revenues to NAI (which for financial purposes are
reported as commissions) and an additional $2,200,000 of revenues to Terra,
participating Broker Members and other brokers. Fees earned in sealed-bid
sales are paid by Terra to NAI and its Broker Members.
In 1989, NAI entered into an alliance agreement with Michael Fox
International, Inc., a specialist in national auction services ("Fox"). NAI
and local Broker Members work with Fox to provide and assist in auction sales.
NAI and Fox worked together on 8 auctions in the fiscal year ended
June 30, 1998. In the fiscal year ended June 30, 1998, auction sales
resulted in approximately $63,000 of revenues to NAI and an additional
$400,000 of revenues to Fox, participating Broker Members and other brokers.
Fees earned in auction sales are paid by Fox to NAI and its Broker Members.
NAI Technology and Information Services
NAI has invested substantially in technology to create advanced
systems to deliver services to its Clients and Broker Members, as well as to
efficiently manage its operations. NAI believes that technology is important
to the continued growth of NAI's business and the real estate brokerage
industry generally. NAI continually refines its proprietary intranet in order
to efficiently manage and track assignments, and communicate with Broker
Members and Clients.
NAI's central information sharing and research intranet consists of
two proprietary software programs. REALTracTM, a transaction management
system, allows Broker Members, the Corporate Services Department and the
Investment Sales Department, to efficiently and effectively manage and track
the progress of transactions assigned to Broker Members. REALTracTM allows NAI
staff to easily track multiple Client assignments, and produce portfolio
activity reports. REALNetTM, NAI's central database information system,
includes, among other things, Broker Member profiles, Broker Member listings,
transaction histories, Client relationship information and Client profiles.
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NAI maintains both public-access and secure, limited-access web sites
in order to provide computer access to NAI's Broker Members and Clients, as
well as the general public. Broker Members access REALTracTM and REALNetTM
through www.members.naiweb.com, a secure, web-based system.
www.members.naiweb.com also hosts discussion groups; a site to post property
listings to NAI's internet site, www.naiweb.com; NAI's Marketing Resource
Center where Broker Members can download marketing presentations; current
press releases; and the "Market Maker" system which promotes Broker-to-Broker
opportunities. www.clients.naiweb is a secure site which has been designed to
allow Clients to log into NAI's information network and get immediate updates
on the status of any assignments which such Client has placed with the
Network. The information contained in this site is fed directly from the NAI
REALTracTM system. This site also allows Clients to contact NAI staff that is
working on their assignments. NAI's website, www.naiweb.com, is a public site
which conveys NAI's image in the marketplace, houses interactive versions of
NAI's marketing materials, and NAI's annual Real Estate Planning Guide, a
comprehensive, market-by-market commercial real estate analysis of over 140
real estate markets. Additionally, this site maintains a global property
listings database with over 1,500 active commercial property listings which
are posted by Broker Members.
NAI provides Broker Members and Clients with key demographic, mapping
and site modeling services through its New America Information Services
division ("NAIS"), previously operated as a joint venture which has been
terminated. NAIS annually licenses demographic databases from national
information providers. The information contained in these databases is then
used to produce custom demographic reports and sophisticated mapping services.
Competition
NAI primarily seeks business from corporations, individual
owner/investors and national and international organizations with real estate
requirements in multiple market areas. NAI faces competition for clients on a
local, regional and national basis from national broker-owned companies with
global alliances, and national/global networks, as well as local and regional
commercial brokerage firms. Some of NAI's largest competitors include CB
Commercial Real Estate Services Group, Inc.; Cushman & Wakefield, Inc.; Grubb
& Ellis Company; and Trammel Crow Company. However, NAI believes that it is in
more North American market areas than any of these competitors. Real estate
broker networks with which NAI competes include Colliers International; Oncor
International; and The Commercial Network. NAI distinguishes itself from other
real estate broker networks by generating its own source of real estate
transactions for its Broker Members and actively managing those transactions,
and does not simply facilitate an exchange of transactions generated solely by
network members, as is the case in other broker networks.
NAI's ability to earn revenues is directly related to its ability to
attract and retain successful, independently owned, commercial and industrial,
licensed real estate brokers ("Commercial Real Estate Brokers") in a
substantial number of market areas as Broker Members. The number of brokers in
different market areas and their strength and reputation in their own local
markets may directly affect the anticipated volume of commissions generated
through the Network, as well as NAI's ability to obtain exclusive assignments
from a national client base. NAI is presently competing for Broker Members
with cooperative commercial broker networks, as well as large national and
regional commercial real estate brokerages. There has been a consolidation of
real estate brokerage and service companies, which are better known and have
greater resources than NAI that are actively seeking to acquire other real
estate brokerage and service companies. Certain of NAI's competitors, such as
CB Commercial and Grubb & Ellis, are attempting to grow their businesses
through acquisitions, as well as by entering into affiliation agreements with
independent Commercial Real Estate Brokers. To the extent these companies are
successful in acquiring or entering into affiliation agreements with
independent Commercial Real Estate Brokers, there may be a negative impact on
NAI's ability to attract and retain qualified Commercial Real Estate Brokers
as part of the Network as Broker Members. However, approximately 80 Broker
Members have been members of the Network for 5 years or longer. See "Risk
Factors - Competition; Ability to Retain Broker Members and Attract Additional
Broker Members."
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In addition, approximately 40% of NAI's Broker Members are party to a
Membership Agreement which permits Broker Members to terminate the Agreement
upon 45 days prior notice. Certain Broker Members may not view the Related
Transactions as favorable to them. Accordingly, there can be no assurance that
in light of the increased competition to retain or acquire Commercial Real
Estate Brokers, that Broker Members will not terminate, or renew, their
Membership Agreements. See "Risk Factors - competition; ability to Retain
Broker Members and Attract Additional Broker Members."
Government Regulation
State Laws Governing Real Estate Brokers
Most states permit licensed real estate brokers to enter into
commission sharing agreements with licensed real estate brokers from other
jurisdictions. However, some states impose certain requirements with respect
to entering into such agreements. For example some states allow only the local
broker to conduct negotiations. Other states require a written commission
sharing agreement to be filed with the state real estate commission. Still
other states do not permit the out-of-state broker to conduct brokerage
activities within the state. NAI presently has real estate brokerage licenses
in New Jersey, Florida, New York, and Pennsylvania. See "Certain
Transactions." NAI presently shares commissions with brokers in 48
jurisdictions, including states in which it has a license. NAI does not
believe that it provides brokerage services or conducts negotiations in those
states in which it shares commissions. In certain instances, NAI has not filed
written fee sharing agreements with state real estate commissions. To the
extent NAI has potentially violated any state law with respect to commission
sharing, it may not be able to enforce its Membership Agreement and may be
subject to civil liability or criminal penalties.
Laws Related to Franchising
The offer and sale of franchises is subject to federal law and
certain state laws. NAI believes that it is exempt from compliance with the
Federal Trade Commission's ("FTC") trade regulation rule entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures" (the "Franchise Rule"). The Franchise Rule requires a franchisor to
provide pre-sale disclosure to a prospective franchisee prior to the sale of a
franchise subject to the Franchise Rule. Many states have franchise sales laws
that require a franchisor, prior to the offer or sale of a franchise in the
state, to comply with registration or filing requirements, and, prior to the
sale of a franchise, to provide a prospective franchisee with a current
franchise offering circular. Certain other states have business opportunity
laws that apply to some franchise agreements that also may require a seller to
comply with applicable registration or filing requirements and to provide
pre-sale disclosure. State franchise sales laws and business opportunity laws
are described below as "State Laws." In addition, many states have laws that
regulate certain substantive aspects of the franchisor-franchisee
relationship, including termination or non-renewal of franchise agreements.
NAI believes that by offering and selling memberships to its Broker
Members it may have been offering a "franchise," as defined by the Franchise
Rule, but that the offer and sale of such memberships are a "fractional
franchise" and are exempt from compliance with the requirements of the
Franchise Rule. As defined in the Franchise Rule, a "fractional franchise" is
a commercial arrangement which meets the following two conditions: (a) the
franchisee or any of its current directors or executive officers has more than
2 years of prior management experience at any time in the past in the business
represented by the franchise and (b) the parties anticipated or should have
anticipated, at the time they entered into their agreement, that the sales of
the franchisee arising from the proposed relationship would represent no more
than 20% of the total dollar volume of the franchisee's projected gross sales
within at least one year after the franchisee commences selling the goods or
services under the parties' agreement.
NAI believes that it is exempt from compliance with the Franchise
Rule, since (a) its Broker Members and their directors or executive officers
typically had more than 2 years' experience as Commercial Real Estate Brokers
at the time they entered into their agreements with NAI and (b) at the time a
Broker Member entered into
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its Membership Agreement, neither NAI nor the Broker Member anticipated or
should have anticipated that the sales proceeds of any Broker Member arising
from membership in NAI would represent 20% or more of its sales.
As of the date of the Prospectus, NAI has neither prepared nor
distributed a franchise disclosure document ("Franchise Disclosure Document").
NAI believes that it is exempt from the requirements of many of the State Laws
in states in which it has entered into Member Agreements, based on various
exemptions, including, without limitation, applicable state "fractional
franchise" exemptions (or the functional equivalent), exemptions in connection
with the licensing of a registered trademark, or sophisticated purchaser
exemptions. However, NAI appears to have been subject to certain requirements
(e.g., registration or disclosure requirements) under State Laws in certain
other states in which it has agreements with Broker Members. In some states,
although no exemptions may have been available, past violations by NAI of
claims under those State Laws would be time barred.
NAI believes that there are approximately six (6) states with a State
Law in which NAI has entered into Membership Agreements for which NAI may not
be exempt, may have failed to comply with the filing or registration and
disclosure provisions of such State Law, and for which it may be subject to
certain sanctions or potential liability. Such sanctions or potential
liability would include that NAI may be subject to civil penalties imposed by
state regulatory agencies, and legal actions by existing Broker Members for
rescission of existing Broker Membership Agreements, restitution, and damages
as a result of any violation of such law. NAI believes that, if any state
regulatory agencies or any of the Broker Members in such states sought such
remedies and any such actions were successful, its potential liability could
be to refund certain payments made to NAI. The applicability of such laws
is uncertain as applied to NAI's Membership Agreements, and there can be no
assurance that a court would not take the position that NAI should have
complied with such laws in connection with those transactions. In the future
NAI intends to comply with State Laws, where necessary, by preparation and
delivery to prospective Members of a Franchise Disclosure Document, and
registering or filing with necessary state authorities, and/or by complying
with available exemptions.
NAI has also recently entered into several Membership Agreements with
Members in foreign countries. NAI believes that it either is not subject to,
or would be exempt from, such laws. If NAI were subject to, or were not exempt
from, such laws, it could be subject to actions by regulatory agencies and
legal actions by existing Members, and subject to fines, penalties, and
damages. NAI intends to comply with such laws in the future.
Trademarks
NAI has a registered servicemark on the principal register with the
United States Patent and Trademark Office for the logo design eagle and the
initials "NAI" and the name "New America."
Legal Proceedings
There is no material litigation pending, or to its knowledge,
threatened against NAI or its properties.
Property
NAI leases approximately 8,100 square feet of office space as its
corporate headquarters located at Route 130 and Maple Stream Road, Hightstown,
New Jersey. The landlord, The Building Center, Inc., is wholly owned by Gerald
C. Finn and his wife. See "Certain Transactions." The lease provides for an
annual rental of $102,000 plus the payment of maintenance expenses. The
initial lease, which expired on August 31, 1989, has been extended by an
Extension of Lease Agreement, dated April 15, 1998, which provides for a one
year term with automatic one year renewals, unless either party gives 90 days
written notice.
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RELATED TRANSACTIONS
The Exchange Agreement
On August 12, 1998, Kranzco, NAI and the Finns entered into the
Exchange Agreement in connection with the Exchange Offer, which included
certain representations, warranties and indemnities. In the Exchange Agreement
the Finns agreed not to sell or transfer, directly or indirectly, any NAI
Shares, Notes or any Kranzco Common Shares issuable upon conversion of the
Notes held by the Finns for a period of three years from the closing of the
Exchange Offer. The Finns also agreed, with certain exceptions, not to convert
the Notes into Kranzco Common Shares until three years from the date of
issuance. NAI also agreed that if the Related Transactions are consummated,
all costs and expenses incurred by all parties in connection with the Related
Transactions will be paid by NAI.
In the Exchange Agreement NAI agreed to indemnify and hold harmless
Kranzco and its affiliates (each an "indemnified person") from and against,
any Losses (as defined in the Exchange Agreement) incurred by such indemnified
person by reason of or arising out of or in connection with the failure of NAI
to comply with (i) any Laws (as defined therein) relating to real estate
brokers or (ii) any federal or state franchise Laws.
Intercompany Agreement
Immediately following the Distribution, Kranzco and NAI will enter
into an Intercompany Agreement which provides for the manner in which NAI and
Kranzco expect to create opportunities for each other and for reducing
potential conflicts of interest.
Kranzco Right of First Opportunity; Notification Right
The Intercompany Agreement provides that, if any REIT Opportunity (as
defined below) becomes available to NAI in which NAI is acting, intends to act
or will act as principal or participate for its own account (a "Principal REIT
Opportunity"), NAI will first offer such Principal REIT Opportunity to
Kranzco. If Kranzco rejects a Principal REIT Opportunity, or accepts such
Principal REIT Opportunity but thereafter provides, or is required by the
provisions of the Intercompany Agreement to provide, written notice to NAI
that it is no longer pursuing such Principal REIT Opportunity, NAI is, for a
period of one year thereafter, entitled to consummate the Principal REIT
Opportunity or provide any other person or entity the right to consummate such
Principal REIT Opportunity at a price, and on terms and conditions, that are
not more favorable to NAI in any material respect than the price and terms and
conditions made available to Kranzco relating to such Principal REIT
Opportunity. A Principal REIT Opportunity does not include the receipt of any
commissions in cash or in kind (including an equity interest in a REIT
Opportunity) in connection with NAI serving as a broker or intermediary in
connection with the sale or lease of retail real estate. "REIT Opportunity"
means any opportunity, principally within the United States, to (i) acquire,
develop, lease, sell or make any investment in retail real estate, real estate
mortgages, real estate derivatives, or entities that invest exclusively in or
have a substantial portion of their assets in any of the foregoing, so long as
such investment would be consistent with the requirements of the Code and
regulations relating to Kranzco's status as a REIT; or (ii) make any
REIT-Qualified Investment. "REIT-Qualified Investment" means an investment, at
least 95% of the gross income from which would qualify under the 95% gross
income test set forth in section 856(c)(2) of the Code (or could be structured
so to qualify) and the ownership of which would not cause Kranzco to violate
the asset limitations set forth in section 856(c)(4) of the Code (or could be
structured not to cause Kranzco to violate the section 856(c)(4) limitations)
and which otherwise meets the federal income tax requirements applicable to
REITs, or (ii) any other investments which may be structured in a manner so as
to be REIT-Qualified Investments, as determined by Kranzco. Kranzco may from
time to time provide written notice to NAI specifying certain criteria,
reasonably acceptable to NAI, for a REIT Opportunity in addition to the
criteria specified above in this definition of REIT Opportunity. Any such
written notice from Kranzco may be canceled by written notice given by Kranzco
at any time or, with NAI's consent, which shall not be unreasonably withheld,
modified by Kranzco by written notice at any time. The definition of REIT
Opportunity will be modified as appropriate from time to time in accordance
with any such
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written notices sent by Kranzco and reasonably acceptable to NAI. A Principal
REIT Opportunity does not include the receipt of any commissions in cash or in
kind (including an equity interest in a REIT Opportunity) in connection with
NAI serving as a broker or intermediary in connection with the sale or lease
of retail real estate.
The Intercompany Agreement also provides that NAI will immediately
notify Kranzco in writing of any REIT Opportunity that becomes available or
known to NAI (through its Broker Members or otherwise) and which is not a
Principal REIT Opportunity and which in the reasonable opinion of NAI meets
the acquisition and investment criteria of Kranzco (which will be provided to
NAI by Kranzco from time to time) (a "Non-Principal REIT Opportunity"). In the
event Kranzco determines to pursue such Non-Principal REIT Opportunity, NAI
shall use good faith efforts to cause its Broker Members to assist Kranzco in
considering and consummating such Non-Principal REIT Opportunity. In the event
Kranzco consummates a transaction that constitutes a Non-Principal REIT
Opportunity, Kranzco will pay NAI a fee to be mutually agreed to by NAI and
Kranzco.
In addition, if NAI develops or becomes aware of any acquisition or
investment opportunity with respect to real estate (other than a REIT
Opportunity) in which NAI intends to or has the opportunity to act as
principal or participate in for its own account, and NAI is not interested in
pursuing such opportunity, or the opportunity is otherwise unavailable to NAI,
NAI will immediately notify Kranzco in writing of such opportunity with such
writing to contain a description of all material terms concerning such
opportunity and be delivered to Kranzco with a copy of any written material or
information in NAI's possession regarding such opportunity.
NAI will also, without any additional consideration, (i) disseminate
acquisition and investment criteria provided by Kranzco to its Broker Members,
(ii) disseminate information regarding space available for lease from Kranzco
(including tenant criteria) to its Broker Members, (iii) provide Kranzco
reasonable access to NAI personnel, NAI Broker Members and NAI's computer data
bases (other than confidential client information), (iv) cooperate with
Kranzco to develop new shopping centers or re-develop distressed shopping
centers for sale to Kranzco in a mutually agreeable manner, (v) provide
Kranzco access to local property managers within areas in which Kranzco owns
retail properties and (vi) disseminate such other materials and information
regarding Kranzco and its properties as Kranzco may reasonably request.
Limitation on Strategic Alliance
NAI has agreed not to enter into, without the consent of Kranzco, any
type of strategic relationship with any other REIT or real estate investment
or operations type entity, including, without limitation, any equity
investment by any other REIT or real estate investment or operations type
entity in NAI (other than as a result of a purchase of NAI Shares in the
public market), any equity investment by NAI in any other REIT or real estate
investment or operations type entity, entering into any agreements which
provide such entities with rights of first opportunity or contain cooperation
provisions of the type or relating to the matters contained in the
Intercompany Agreement (other than with respect to consulting arrangements).
Notwithstanding the foregoing, NAI shall be permitted to solicit assignments
from other REITs or real estate investment or operations type entities with
respect to the purchase or sale of real estate or the provision of Real Estate
Related Services, subject to Kranzco's rights of first opportunity and
notification.
NAI Right of First Opportunity for Services Opportunity
The Intercompany Agreement provides that if Kranzco requires Services
(as defined below) (a "Services Opportunity"), Kranzco shall engage in
discussions with NAI regarding such Services Opportunity prior to retaining
another service provider to perform such Services unless, in the reasonable
judgment of Kranzco, offering such Services Opportunity to NAI would be
detrimental to Kranzco. Notwithstanding the foregoing, (i) Kranzco shall have
no obligation to retain NAI to perform any Services for Kranzco and (ii) any
Services provided by NAI to Kranzco shall (a) be at market rates and (b) on
terms and conditions as attractive as the best available for comparable
services offered by NAI or, to the extent within NAI's control, any broker
member or affiliated member of NAI to third parties. "Services" means real
estate brokerage services, local management
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and other maintenance services, and certain other Real Estate-Related Services
then provided by NAI, including sealed-bid sales, due diligence and real
estate auctions.
The Intercompany Agreement also provides that in the event Kranzco
desires to purchase any retail real estate based upon an opportunity provided
to Kranzco by someone other than NAI (a "Purchase Opportunity"), Kranzco will
notify NAI of such Purchase Opportunity and will use its good faith efforts to
cause the broker for such Purchase Opportunity to share any brokerage
commissions for such Purchase Opportunity with NAI in accordance with industry
practice; provided, however, Kranzco is not required to comply with the
foregoing if the Purchase Opportunity is based upon an exclusive brokerage
arrangement or, if in the reasonable judgment of Kranzco, compliance with the
foregoing would be detrimental to the relationship between Kranzco and such
broker or would impede, inhibit or slow down the proposed transaction. In
connection with a Purchase Opportunity in which NAI will be sharing in the
brokerage commission, NAI agrees to perform, without any consideration, any
due diligence services requested by Kranzco.
In addition, in the event NAI desires to offer to Kranzco tenants any
Services currently provided by NAI (a "Tenant Services Opportunity"), NAI
shall notify Kranzco in writing of such Tenant Services Opportunity. Promptly
following the receipt of such notice, Kranzco has agreed to provide NAI with a
list of the mailing addresses of its tenants solely for purpose of NAI
soliciting such tenant with respect to such Tenant Services Opportunity. If
NAI notifies Kranzco of a Tenant Services Opportunity, Kranzco shall not for a
period of six months after NAI notifies Kranzco of a Tenant Services
Opportunity provide a list of the mailing addresses of its tenants to a
competitor of NAI with respect to such Tenant Services Opportunity.
Certain Employee Matters
NAI and Kranzco have agreed to make reasonable and ongoing efforts to
ensure that members of management of each of NAI and Kranzco are given
appropriate salary, bonus and options and other compensation as may be
reasonably necessary to incentivize management to enhance value to
shareholders of both NAI and Kranzco. The NAI Board and the Kranzco Board will
direct each of their compensation committees to take into consideration the
objective set forth in the previous sentence in establishing compensation
levels and performance criteria for management of NAI and Kranzco. In order to
further this objective, NAI will grant to selected directors, officers,
employees and consultants of Kranzco and NAI five-year options to purchase an
aggregate of 1,378,800 NAI Shares at a price of $2.00 per NAI Share.
NAI and Kranzco also agreed to use their best efforts to cause, for a
period of three years from the date of the Intercompany Agreement, (i) Norman
Kranzdorf to serve as NAI's Co-Chairman, (ii) Robert Dennis to serve as NAI's
Chief Financial Officer, and (iii) Michael Kranzdorf to serve as NAI'S Chief
Information Officer. NAI acknowledged in the Intercompany Agreement that
Norman Kranzdorf, Robert Dennis and Michael Kranzdorf, as officers of Kranzco,
will have a primary responsibility to Kranzco and that none of such
individuals are committed to devoting a specific amount of time to NAI's
affairs.
Consulting Services
Pursuant to the terms of the Intercompany Agreement, Kranzco has
agreed to provide NAI with such consulting services relating to management
administrative, corporate, accounting, financial, legal, equity offering,
insurance, tax, data processing, human resources and operational matters as
NAI shall from time to time reasonably request. In consideration for Kranzco
entering into the Intercompany Agreement and providing such consulting and
administrative services, NAI has agreed, during the term of the Intercompany
Agreement or until such earlier date as the consulting arrangement is
terminated in accordance with its terms, to pay Kranzco an annual fee of
$500,000, payable in equal monthly installments on the first day of each
month. NAI may terminate the consulting arrangement, such termination to be
effective at any time on or after the fifth anniversary of the date of the
Intercompany Agreement, by providing Kranzco 90 days prior written notice of
its intention to terminate such consulting arrangement.
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REIT Compliance
Nothing in the Intercompany Agreement obligates any party to take any
action that could cause Kranzco to lose its qualification as a REIT under the
Code.
Cooperation in Equity Offerings
The Intercompany Agreement also provides that, if either Kranzco or
NAI desires to engage in a public or private offering of its debt or equity
securities, the other party shall cooperate and provide such information and
personnel as is reasonably required in connection with such offering.
Term
The Intercompany Agreement has a term of ten years and may be
terminated by a party only if the other party or any affiliate of such other
party is in default of the Intercompany Agreement or any other agreement
entered into by the parties thereto or any of their controlled affiliates, if
such default is material and remains uncured for fifteen days after receipt of
notice thereof.
THE DISTRIBUTION
Background and Reasons for the Distribution
Kranzco is a self-administered and self-managed equity REIT engaged
in the business of owning, managing, operating, leasing, acquiring and
expanding neighborhood and community shopping centers and, to a lesser extent,
free-standing retail properties. Kranzco is limited in its activities by the
investment limitations imposed by Federal income tax laws applicable to REITs,
which (i) limit the amount of income that a REIT can realize from certain
services that are not customarily furnished or rendered in connection with the
rental of real property in a particular geographic area, and (ii) limit
Kranzco's ownership in corporations other than REITs and qualified REIT
subsidiaries (a) to 10% of the outstanding voting securities of such
corporation, and (b) in that the value of any one corporation's securities
cannot exceed 5% of the value of Kranzco's total assets. Kranzco believes that
significant opportunities are available to investors in entities which provide
brokerage and Real Estate-Related Services, own properties other than
neighborhood and community shopping centers, and which are not limited in
their activities by the investment limitations imposed by Federal income tax
laws applicable to REITs. Accordingly, in light of the limitations on
investments imposed on REITs, Kranzco believes that effecting the Exchange
Offer, the Distribution, the Rights Offering and the Concurrent Offering, and
establishing an intercompany relationship between Kranzco and NAI will yield
significant benefits to Kranzco and its shareholders similar to those which
may be obtained by investors who are not so limited, while preserving
Kranzco's REIT status. For Kranzco, these benefits include:
o increased opportunities to acquire retail properties which
become available for sale through the Network, which might
not otherwise be available to Kranzco;
o greater access to a diverse range of tenants, in order to
re-tenant vacant space owned by Kranzco, including access to
non-retail tenants looking for space appropriate for office,
warehouse or other non-retail uses;
o the ability to enter into agreements with NAI to have NAI
develop new shopping centers or re-develop distressed
shopping centers for sale to Kranzco;
o the ability to enter into new geographic areas with the
assistance of NAI's real estate professionals;
o NAI disseminating Kranzco's acquisition criteria to Broker
Members through the Network, in order to create additional
opportunities to purchase retail properties;
o increased opportunities to purchase additional retail
properties which are included in portfolios with non-retail
properties, utilizing NAI to purchase the non-retail
properties or find a purchaser for the non-retail
properties;
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o access to NAI's sophisticated, real estate oriented computer
network, which includes information on real estate
transactions, market conditions and demographics;
o the ability to purchase Real Estate-Related Services at
competitive prices;
o the ability to own an equity interest in a company which
owns real estate and provides Real Estate-Related Services
which Kranzco, as a REIT, could not directly own or provide;
and
o access to local property managers where Kranzco may own
retail properties, and the opportunity
for Kranzco to manage retail properties owned by NAI.
NAI operates a network of independently owned, licensed real estate
Broker Members throughout the United States and, more recently, abroad, to
provide commercial real estate services to regional, national and
international Clients. NAI believes that a strategic relationship between
companies which provide real estate brokerage and services, such as NAI, and
companies which own and operate real estate, such as Kranzco, would provide
significant benefits and opportunities. For NAI, the benefits of entering into
the strategic relationship and consummating the Related Transactions (and
under certain circumstances, to the extent proceeds are available through the
Rights Offering and the Concurrent Offering) include:
o the opportunity as a public company, to raise additional
capital through the Rights Offering and the Concurrent
Offering and, to the extent possible, future equity and debt
offerings;
o the ability to expand its Corporate Services Department,
Investment Sales Department and Broker Services Department;
o the ability to invest in or acquire Broker Members or other
real estate service firms in order to strengthen the
Network;
o access to new transactions by providing real estate
brokerage services to Kranzco through NAI's Network;
o the ability to accelerate the development of information
services and technology infrastructure to more efficiently
deliver services;
o the opportunity to offer to Kranzco Real Estate-Related
Services which NAI may develop; o the opportunity to further
develop existing Real Estate-Related Services and to acquire
or develop businesses that provide Real Estate-Related
Services;
o the ability to accelerate Network growth in international
markets;
o providing Broker Members the opportunity to manage selected
Kranzco shopping centers;
o the opportunity to enter into agreements with Kranzco to
have NAI develop new shopping centers or re-develop distressed
shopping centers for sale to Kranzco; and
o expansion of its business through access to the real estate
expertise of Kranzco's management.
In the past Kranzco and NAI have worked together in a mutually
beneficial relationship. In December 1997, NAI's Investment Sales Department
assisted Kranzco in arranging for the acquisition of five shopping centers,
aggregating approximately 650,000 square feet of GLA, for approximately $44
million. NAI's Investment Sales Department initiated this opportunity, and
assisted Kranzco in acquiring the properties. Kranzco's acquisition of such
properties generated $100,000 in fee income to NAI. Kranzco and NAI expect
that the Intercompany Agreement will set forth a framework for a mutually
beneficial relationship in the future. See "Related Transactions--The
Intercompany Agreement."
A small number of REITs, operating under tax provisions that no
longer are available, have shares that are "paired" or "stapled" with shares
of a related operating company. The NAI Shares and Kranzco Common Shares are
not, and will not be, paired or stapled in any manner and may be owned and
transferred separately and independently of each other. However, shareholders
who own NAI Shares and Kranzco Common Shares will in effect have the economic
equivalent of a paired investment in NAI and Kranzco.
The Kranzco Board recognized in its planning that the Distribution
would result in a transaction taxable to Kranzco stockholders (based on
Kranzco's current and accumulated earnings and profits) and possibly to
Kranzco depending on the fair market value of the NAI Shares on the
Distribution Effective Date. Upon review of this and other relevant factors,
the Kranzco Board concluded that the benefits of the Distribution would more
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than offset any negative tax consequences of the Distribution. See "Certain
United States Federal Tax Considerations--Material Federal Income Tax
Consequences of the Distribution."
Since the Distribution will be effected on the same day that Kranzco
acquires the NAI Shares, Kranzco believes that no gain or loss will be
recognized by it in connection with the Distribution because the fair market
value of the NAI Shares should be equal to their tax basis.
Distribution Agent
The Distribution Agent is First Union National Bank, 1525 West W.T.
Harris Boulevard, 3C3, Charlotte, North Carolina 28262-1153, telephone: (800)
829-8432.
Manner of Effecting the Distribution
Kranzco will effect the Distribution on the Distribution Effective
Date by delivering 12,078,640 NAI Shares, which represents approximately
70.2% of the outstanding NAI Shares, to the Distribution Agent for
distribution to the holders of the outstanding Kranzco Common Shares and
Kranzco Common Share Equivalents as of the close of business on the
Distribution Record Date. The Distribution will be made on the basis of one
NAI Share for each Kranzco Common Share and one NAI Share for each Kranzco
Common Share Equivalent held as of the close of business on the Distribution
Record Date. The NAI Shares will be fully paid and nonassessable, and the
holders thereof will not be entitled to preemptive rights. See "Description of
Securities." It is expected that certificates representing NAI Shares will be
mailed to holders of Kranzco Common Shares and Kranzco Series B Preferred
Shares as soon as practicable after the Distribution Effective Date.
HOLDERS OF KRANZCO COMMON SHARES SHOULD NOT SEND CERTIFICATES TO NAI,
KRANZCO OR THE DISTRIBUTION AGENT. THE DISTRIBUTION AGENT WILL MAIL THE STOCK
CERTIFICATES REPRESENTING NAI SHARES AS SOON AS PRACTICABLE AFTER THE
DISTRIBUTION EFFECTIVE DATE. KRANZCO SHARE CERTIFICATES WILL CONTINUE TO
REPRESENT KRANZCO COMMON SHARES AND SERIES B PREFERRED SHARES AFTER THE
DISTRIBUTION IN THE SAME AMOUNT SHOWN ON THE CERTIFICATES.
No holder of Kranzco Common Shares will be required to pay any cash
or other consideration for the NAI Shares to be received in the Distribution
or to surrender or exchange Kranzco Common Shares or to take any other action
in order to receive NAI Shares pursuant to the Distribution.
Results of the Distribution
Upon the consummation of the Distribution, NAI will be an independent
public company which will continue to conduct its business of providing real
estate brokerage and related services to Clients. Kranzco will own
approximately 9.8% of the outstanding NAI Shares, Kranzco shareholders will
own approximately 70.2% of the outstanding NAI Shares and the persons who
owned NAI Shares prior to the Exchange Offer will own an aggregate of
approximately 20% of the NAI Shares. Although the NAI Shares will be eligible
for quotation and trading on the OTC Bulletin Board after the Distribution,
the NAI Shares are not currently quoted on the OTC Bulletin Board or listed on
any national securities exchange or approved for quotation on any quotation
system, and there can be no assurance that a public market for the NAI Shares
will develop or provide liquidity. See "Risk Factors--Arbitrary Determination
of Offering Price" and "--Absence of Prior Market; Trading Prices."
THE RIGHTS OFFERING
The Rights
NAI is distributing, to the record holders of outstanding NAI Shares
as of __________ __, 1998 (the "Rights Record Date"), including holders of
Kranzco Common Shares and Kranzco Common Share Equivalents
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who receive NAI Shares in the Distribution, at no cost to them, transferable
Rights to purchase additional NAI Shares at a Subscription Price of $2.00 per
NAI Share. NAI will distribute one Right for each NAI Share held on the Rights
Record Date. Each Right will entitle its Holder to purchase one NAI Share. The
Rights to purchase NAI Shares pursuant to the Basic Subscription Privilege and
the Oversubscription Privilege will be evidenced by transferable subscription
certificates (the "Subscription Certificates"). An aggregate of 17,101,403
Underlying Shares will be sold if all Rights are exercised. The Finns have
advised NAI that they intend to exercise Rights to purchase an aggregate of
500,000 NAI Shares and Kranzco has advised NAI that it intends to exercise
such number of Rights to purchase NAI Shares that would result in Kranzco
owning approximately 9.8% of the issued and outstanding NAI Shares, before the
issuance of any Additional Shares. To the extent Underlying Shares are not
purchased in the Rights Offering such unsubscribed shares will be offered to
the Executive Group and the Broker Member Group in the Concurrent Offering. In
order to ensure that the Broker Member Group will have the right to purchase
NAI Shares, NAI has authorized an additional 2,000,000 NAI Shares for issuance
pursuant to the Broker Member Group Subscription Privilege. There is no
minimum number of Underlying Shares required to be sold as a condition to the
consummation of the Rights Offering or the Concurrent Offering.
Subscription Privileges
Basic Subscription Privilege. Each Right will entitle the Holder
thereof to receive, upon payment of the Subscription Price, one NAI Share.
Certificates representing NAI Shares purchased pursuant to the Basic
Subscription Privilege will be delivered to subscribers as soon as practicable
after the closing date, irrespective of whether the Subscription Privilege is
exercised immediately prior to the Expiration Date or earlier. Holders
exercising their Subscription Privilege will not be stockholders of record
with respect to the shares issuable pursuant to such Subscription Privilege
until the closing of the Rights Offering, which is anticipated to occur five
Business Days after the Expiration Date. The term "Business Day" shall mean
any day, other than a Saturday or Sunday, that is neither a legal holiday nor
a day on which banking institutions in New York City are authorized or
required by law, regulation or executive order to close.
Oversubscription Privilege. Subject to the allocation described
below, each Right also carries the right to subscribe at the Subscription
Price for any Underlying Shares not subscribed for through the exercise of
Basic Subscription Privileges by other Holders. If the remaining Underlying
Shares are not sufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, such Underlying Shares will be allocated pro rata
(subject to the elimination of fractional shares) among those Holders
exercising the Oversubscription Privilege, in proportion, not to the number of
shares requested pursuant to the Oversubscription Privilege, but to the number
of shares each Holder exercising the Oversubscription Privilege subscribed for
pursuant to the Basic Subscription Privilege; provided, however, that if such
pro rata allocation results in any Holder being allocated a greater number of
Underlying Shares than such Holder subscribed for pursuant to the exercise of
such holder's Oversubscription Privilege, then such Holder will be allocated
only such number of Underlying Shares as such Holder subscribed for and the
remaining Underlying Shares will be allocated among all other Holders
exercising the Oversubscription Privilege. Only beneficial holders who
exercise the Basic Subscription privilege in full will be entitled to exercise
the Oversubscription Privilege. Certificates representing the Underlying
Shares purchased pursuant to the Oversubscription Privilege will be delivered
to subscribers as soon as practicable after the closing date and after all
prorations have been effected.
The Basic Subscription Privilege and the Oversubscription Privilege
are referred to herein as the "Subscription Privileges."
Limitation on Exercise of Rights
The Rights may not be exercised by residents of the state of North
Dakota unless such residents are holders of NAI Shares. The Rights may not be
exercised by residents of the state of California unless such residents are
"qualified purchasers" under the laws of the state of California, and the
resident makes a representation that such resident is purchasing the
Underlying Shares for his or her own account (or trust account, if such
resident is a trustee) for investment and not with a view to or for sale in
connection with any distribution
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of the Underlying Shares (the "California Representation"). A "qualified
purchaser", under California law, includes:
(i) any person who purchases $150,000 or more of the securities offered in the
transaction, provided each such person meets either one of the following, or
who the issuer reasonably believes comes within either of the following: (x)
such person, or such person's professional advisor, has the capacity to
protect such person's own interests in connection with the transaction, where
by reason of their business or financial experience or the business or
financial experience of their professional advisors who are unaffiliated with
and who are not compensated by the issuer or any affiliate or selling agent of
the issuer, directly or indirectly, could be reasonably assumed to have the
capacity to protect their own interests in connection with the transaction; or
(y) the investment (including mandatory assessments) does not exceed 10% of
such person's net worth or joint net worth with that person's spouse;
(ii) any person who comes within one of the categories of an "accredited
investor" (as defined below) in Rule 501(a) of Regulation D promulgated under
the Securities Act;
(iii) any entity in which all of the equity owners are persons representing
any organization described in Section 501(c)(3) of the Internal Revenue Code,
which has total assets (including endowment, annuity and life income funds) of
not less than $5,000,000 according to its most recent audited financial
statement;
(iv) any corporation which has a net worth on a consolidated basis according
to its most recent audited financial statement of not less than $14,000,000,
provided that, if the securities being acquired pursuant to an exemption under
this subsection are common stock of a corporation or securities exchangeable
for or convertible into common stock of a corporation, (x) the holders of less
than 25% of the outstanding shares of such common stock have addresses in this
state according to the records of the issuer of such common stock; or (y) such
securities will not represent more than 5% of the total number of outstanding
shares of common stock of the issuer assuming the exchange or conversion of
all securities exchangeable for or convertible into common stock provided,
however, that the foregoing limitations with respect to transactions in common
shares or securities convertible into common shares shall not apply to a
transaction in which such securities are offered pro rata to the holders of
the outstanding common shares or which is approved by the holders of 75% or
more of the outstanding common shares;
(v) a bank, savings and loan association, trust company, insurance company,
investment company registered under the Investment Company Act of 1940,
pension or profit-sharing trust or other institutional investor or
governmental agency or instrumentality that the commissioner may designate by
rule, whether the purchaser is acting for itself or as trustee;
(vi) to any corporation with outstanding shares registered under Section 12 of
the Exchange Act or any wholly owned subsidiary of such a corporation that
after the offer and sale will own directly or indirectly 100% of the
outstanding capital stock of the issuer;
(vii) a self-employed individual retirement plan, or an individual retirement
account if the investment decisions made on behalf of the trust, plan, or
account are made solely by persons who are qualified purchasers;
(viii) an organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership,
each with total assets in excess of five million dollars ($5,000,000)
according to its most recent audited financial statements;
(ix) a natural person who, either individually or jointly with the person's
spouse, (y) has a minimum net worth of two hundred fifty thousand dollars
($250,000) and had, during the immediately preceding tax year, gross income in
excess of one hundred thousand dollars ($100,000) and reasonably expects gross
income in excess of one hundred thousand dollars ($100,000) during the current
tax year or (z) has a minimum net worth of five hundred thousand dollars
($500,000) ("net worth" shall be determined exclusive of home, home
furnishings, and
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automobile; other assets included in the computation of net worth may be
valued at fair market value); and (x) each natural person specified above, by
reason of his or her business or financial experience, or the business or
financial experience of his or her professional advisor, who is unaffiliated
with and who is not compensated, directly or indirectly, by the issuer or any
affiliate or selling agent of the issuer, can be reasonably assumed to have
the capacity to protect his or her interests in connection with the
transaction (the amount of the investment of each natural person shall not
exceed 10% of the net worth, as determined above, of that natural person).
A corporation, partnership, or other organization specifically formed
for the purpose of acquiring the securities offered by the issuer in reliance
upon this exemption may be a qualified purchaser if each of the equity owners
of the corporation, partnership, or other organization is a qualified
purchaser.
An "Accredited Investor" includes, any bank as defined in Section
3(a)(2) of the Securities Act or any savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity; any broker dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934; any insurance
company as defined in Section 2(13) of the Securities Act; any investment
company registered under the Investment Company Act of 1940 or a business
development company as defined in Section 2(a)(48) of such Act; any Small
Business Investment Company licenced by the U.S. Small Business Administration
under Section 301(c) or (d) of the Small Business Investment Act of 1958; any
plan established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000; any employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, if the investment decision is made by
a plan fiduciary, as defined in Section 3(21) of such Act, which is either a
bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000, or if a self-directed plan, with investment decisions made
solely by persons that are accredited investors; any private business
development company as defined in Section 202(a)(22) of the Investment
Advisers Act of 1940; any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000; any director,
executive officer, or general partner of the issuer of the securities being
offered or sold, or any director, executive officer, or general partner of
that issuer; any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000; any
natural person who had an individual income in excess of $200,000 in each of
the two most recent years or joint income with that person's spouse in excess
of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year; any trust with total
assets in excess of $5,000,000, not formed for the specific purpose acquiring
the securities offered, whose purchase is directed by a sophisticated person
as described in Rule 506(b)(2)(ii); and any entity in which all of the equity
owners are accredited investors.
NAI maintains the right, in its sole discretion, to limit the number
of Underlying Shares sold in any state and/or place restrictions on the
exercise of Rights in any particular state in order to comply with state
securities laws.
Expiration Date
The Rights will expire at 5:00 p.m., New York time, on __________ __,
1998 unless extended by NAI from time to time. Notwithstanding the foregoing,
the Expiration Date in no event shall be later than __________ __, 1998 [90
days after the launch of the Rights Offering]. After the Expiration Date,
unexercised Rights will be null and void. NAI will not be obligated to honor
any purported exercise of Rights received by the Subscription Agent after the
Expiration Date, regardless of when the documents relating to such exercise
were sent, except pursuant to the Guaranteed Delivery Procedures described
below.
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Exercise of Rights
Rights may be exercised by delivering to the Subscription Agent, on
or prior to 5:00 p.m., New York time, on the Expiration Date, the properly
completed and executed Subscription Certificate evidencing such Rights with
any required signatures guaranteed, together with payment in full of any
Underlying Shares being subscribed for pursuant to the Subscription Privileges
(except as permitted pursuant to clause (iii) of the next sentence). Such
payment in full must be by: (i) check or bank draft drawn upon a U.S. bank or
postal telegraphic or express money order payable to First Union National
Bank, as Subscription Agent; or (ii) wire transfer of funds to the account
maintained by the Subscription Agent for such purpose; or (iii) in such other
manner as NAI may approve in writing in the case of persons acquiring
Underlying Shares at an aggregate Subscription Price of $500,000 or more,
provided in each case that the full amount of such Subscription Price is
received by the Subscription Agent in currently available funds within five
Business Days following the Expiration Date (the payment method under (iii)
being an "Approved Payment Method"). Payment of the Subscription Price will be
deemed to have been received by the Subscription Agent only upon (a) clearance
of any uncertified check, (b) receipt by the Subscription Agent of any
certified check or bank draft drawn upon a United States bank or of any
postal, telegraphic or express money order, (c) receipt of good funds in the
Subscription Agent's account designated above, or (d) receipt of good funds by
the Subscription Agent through an Approved Payment Method.
If paying by uncertified personal check, please note that the funds
paid thereby may take at least five business days to clear. Accordingly,
Holders who wish to pay the Subscription Price by means of uncertified
personal check are urged to make payment sufficiently in advance of the
Expiration Date to ensure that such payment is received and clears by such
date and are urged to consider payment by means of certified or cashier's
check, money order or wire transfer of funds.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
By Regular Mail: By Overnight Courier:
First Union National Bank First Union National Bank
1525 West W.T. Harris Boulevard, 3C3 1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28288-1153 Charlotte, North Carolina 28262
Telephone: (800) 829-8432 Telephone: (800) 829-8432
New York Drop: Facsimile Transmission:
First Union National Bank (704) 590-7628
40 Broad Street - 5th Floor, Suite 550 Confirm by Telephone:
New York, New York 10004 (800) 829-8432
Funds received in payment of the Subscription Price for the
Underlying Shares subscribed for pursuant to the Oversubscription Privilege
will be held in a segregated account pending issuance of such Underlying
Shares. If a Holder exercising an Oversubscription Privilege is allocated less
than all of the Underlying Shares that such Holder wished to subscribe for,
the excess funds paid by such Holder in respect of the Subscription Price for
shares not issued shall be returned by mail without interest or deduction as
soon as practicable after the closing date.
A holder who holds NAI Shares for the account of others, such as a
broker, a trustee or a depository for securities, should notify the respective
beneficial owners of such shares as soon as possible to ascertain such
beneficial owner's intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the record Holder of such Rights
should complete the Subscription Certificate and submit it to the Subscription
Agent with the proper payment. In addition, the beneficial owner of NAI Shares
or Rights held through such a holder of record should contact the Holder and
request the Holder to effect transactions in accordance with the beneficial
owner's instructions.
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Unless a Subscription Certificate (i) provides that the NAI Shares to
be issued pursuant to the exercise of Right represented thereby are to be
delivered to the Holder or (ii) is submitted for the account of an Eligible
Guarantor Institution (as defined below), signatures on such Subscription
Certificate must be guaranteed by an Eligible Guarantor Institution.
If either the number of Underlying Shares being subscribed for
pursuant to the Basic Subscription Privilege is not specified on the
Subscription Certificate, or the amount delivered is not enough to pay the
Subscription Price for all Underlying Shares stated to be subscribed for, the
number of Underlying Shares subscribed for will be assumed to be the maximum
amount that could be subscribed for upon payment of such amount. If the number
of Underlying Shares being subscribed for is not specified, or payment of the
Subscription Price for the indicated number of Rights that are being exercised
exceeds the required Subscription Price, the payment will be applied, until
depleted, to subscribe for Underlying Shares in the following order: (i) to
subscribe for the number of Underlying Shares indicated, if any, pursuant to
the Basic Subscription Privilege, (ii) to subscribe for Underlying Shares
until the Basic Subscription Privilege has been fully exercised with respect
to all of the Rights represented by the Subscription Certificate; and (iii) to
subscribe for additional Underlying Shares pursuant to the Oversubscription
Privilege (subject to any applicable proration).
The Instructions included in the Subscription Certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES
TO NAI.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF
THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND
RISK OF THE RIGHTS HOLDER, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO
5:00 P.M., NEW YORK TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL
CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, THE RIGHTS HOLDER IS
STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR
CASHIERS CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
The closing of the Rights Offering will occur promptly after the
Expiration Date. If the closing of the Rights Offering does not occur promptly
upon the Expiration Date, all amounts paid by holders of Rights as payment of
the Subscription Price will be promptly refunded.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by NAI, whose
determinations will be final and binding. NAI, in its sole discretion, may
waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported
exercise of any Right. Subscriptions will not be deemed to have been received
or accepted until all irregularities have been waived or cured within such
time as NAI determines in its sole discretion. Neither the Company, the
Subscription Agent, nor the Information Agent will be under any duty to give
notification of any defect or irregularity in connection with the submission
of Subscription Certificates or incur any liability for failure to give such
notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus or the
Instructions or the Notice of Guaranteed Delivery should be directed to the
Subscription Agent, telephone number (800) 829-8432.
Late Delivery of Subscription Certificates
If a Holder wishes to exercise Rights, but time will not permit such
Holder to cause the Subscription Certificates evidencing such Rights to reach
the Subscription Agent on or prior to the Expiration Date, such
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Rights may nevertheless be exercised if all of the following conditions (the
"Guaranteed Delivery Procedures") are met:
(i) such Holder has caused payment in full of the
Subscription Price for each Underlying Share being subscribed for
pursuant to Subscription Certificate to be delivered to the
Subscription Agent on or prior to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the
Expiration Date, a guaranteed notice (a "Notice of Guaranteed
Delivery"), substantially in the form provided with the Instructions
as to Use of New America International, Inc. Subscription
Certificates (the "Instructions") distributed with the Subscription
Certificates, from an "Eligible Guarantor Institution" (as defined in
Rule 17Ad-15 under the Exchange Act), stating the name of the
exercising Holder, the number of Rights represented by the
Subscription Certificate(s) held by such exercising Holder, the
number of Underlying Shares being subscribed for pursuant to the
Subscription Privileges and guaranteeing the delivery to the
Subscription Agent of any Subscription Certificate(s) evidencing such
Rights within three Business Days following the date of the Notice of
Guaranteed Delivery; and
(iii) the properly completed Subscription Certificate(s),
with any required signatures guaranteed, is received by the
Subscription Agent within three Business Days following the date of
the Notice of Guaranteed Delivery relating thereto. The Notice of
Guaranteed Delivery may be delivered to the Subscription Agent in the
same manner as Subscription Certificates at the addresses set forth
above, or may be transmitted to the Subscription Agent by facsimile
transmission (telecopy number (704) 590-7598). Additional copies of
the form of Notice of Guaranteed Delivery are available upon request
from the Subscription Agent, whose address and telephone number are
set forth under "Subscription Agent" below.
No Revocation
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION
PRIVILEGE OR THE OVERSUBSCRIPTION PRIVILEGE SUCH EXERCISE MAY NOT BE REVOKED.
Method of Transferring Rights
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights
evidenced by a single Subscription Certificate may be transferred by
delivering to the Subscription Agent a Subscription Certificate properly
endorsed for transfer, with instructions to register such portion of the
Rights evidenced thereby in the name of the transferee and to issue a new
Subscription Certificate to the transferee evidencing such transferred
Rights). In such event, a new Subscription Certificate evidencing the balance
of the Rights will be issued to the Holder or, if the Holder so instructs, to
an additional transferee.
Holders wishing to transfer all or a portion of their Rights should
allow a sufficient amount of time prior to the Expiration Date for (i) the
transfer instruction to be received and processed by the Subscription Agent,
(ii) a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with respect to the transferred Rights, and to the
transferor with respect to retained Rights, if any, and (iii) the Rights
evidenced by such new Subscription Certificates to be exercised or sold by the
recipients thereof. If time does not permit a transferee of a Right who wishes
to exercise its Right to deliver its Subscription Certificate to the
Subscription Agent on or before the Expiration Date, such transferee should
make use of the Guaranteed Delivery procedure described under "The Rights
Offering -- Exercise of Rights." Neither NAI nor the Subscription Agent shall
have any liability to a transferee or transferor or Rights if Subscription
Certificates or new Subscription Certificates are not received in time for
exercise or sale prior to the Expiration Date.
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All commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the purchase, sale
or exercise of Rights will be for the account of the transferor or subscriber
of the Rights, and none of such commissions, fees or expenses will be paid by
NAI or the Subscription Agent.
Information Agent
The Company has appointed MacKenzie Partners, Inc. as Information
Agent for the Rights Offering. Any questions or requests for additional
copies of this Prospectus, the Instructions or the Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone number and
address below:
MacKenzie Partners, Inc.
156 Fifth Avenue
9th Floor
New York, New York 10010
Telephone: (800) 322-2885
The Company will pay the Information Agent an amount estimated to be
approximately $20,000, which includes reimbursement for out-pocket expenses
incurred in connection with the Rights Offering and the Concurrent Offering.
The Company has also agreed to indemnify the Information Agent from certain
liabilities in connection with the Rights Offering.
Subscription Agent
NAI has appointed First Union National Bank as Subscription Agent for
the Rights Offering. Any questions or requests for additional copies of this
Prospectus or the Notice of Guaranteed Delivery may be directed to the
Subscription Agent at the telephone number and address below. The Subscription
Agent's address, which is the address to which the Subscription Certificates
and payment of the Subscription Price should be delivered, as well as the
address to which Notice of Guaranteed Delivery must be delivered, and the
Subscription Agent's telephone number and facsimile number, are:
By Regular Mail: By Overnight Courier:
First Union National Bank First Union National Bank
1525 West W.T. Harris Boulevard, 3C3 1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28288-1153 Charlotte, North Carolina 28262
Telephone: (800) 829-8432 Telephone: (800) 829-8432
New York Drop: Facsimile Transmission:
First Union National Bank (704) 590-7628
40 Broad Street - 5th Floor, Suite 550 Confirm by Telephone:
New York, New York 10004 (800) 829-8432
NAI will pay the fees and expenses of the Subscription Agent, and
will also agree to indemnify it from any liability which it may incur in
connection with the Rights Offering.
THE CONCURRENT OFFERING
The Concurrent Privileges
Executive Group Subscription Privilege. Simultaneously with the
Rights Offering, NAI is offering to the Executive Group the right to purchase
any Underlying Shares that are not otherwise subscribed for pursuant to the
Rights Offering ("Excess Shares"), at the Subscription Price, after the Basic
Subscription
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Privileges and Oversubscription Privileges have been fulfilled. If the number
of Excess Shares is not sufficient to satisfy all subscriptions pursuant to
the Executive Group Subscription Privilege, such Excess Shares will be
allocated pro rata (subject to the elimination of fractional shares) among
those exercising the Executive Group Subscription Privilege, in proportion to
the number of NAI Shares requested pursuant to the Executive Group
Subscription Privilege. There is no assurance that any Excess Shares will be
available for purchase by the Executive Group pursuant to the Executive Group
Subscription Privilege.
Broker Member Group Subscription Privilege. Simultaneously with the
Rights Offering, NAI is offering to the Broker Member Group, the right to
purchase any Excess Shares, at the Subscription Price, after the Executive
Group Subscription Privileges have been fulfilled. NAI has authorized an
additional 2,000,000 Additional Shares in order to ensure that the Broker
Member Group will have the right to purchase an aggregate of 2,000,000 NAI
Shares. If, after fulfillment of the Executive Group Subscription Privilege,
the number of Excess Shares and Additional Shares is not sufficient to satisfy
all subscriptions pursuant to the Broker Member Group Subscription Privilege,
such Excess Shares and Additional Shares will be allocated pro rata (subject
to the elimination of fractional shares) among those exercising the Broker
Member Group Subscription Privilege, in proportion to the number of NAI Shares
requested pursuant to the Broker Member Group Subscription Privilege. There is
no assurance that any person subscribing pursuant to the Broker Member Group
Subscription Privilege will receive all of the NAI Shares for which such
person subscribes.
The Executive Group Subscription Privilege will be evidenced by
non-transferable subscription forms (the "Executive Group Subscription Form").
The Broker Member Group Subscription Privilege will be evidenced by
non-transferable subscription forms (the "Broker Member Subscription Form,"
together with the Executive Group Subscription Form, a "Subscription Form").
The Executive Group Subscription Privilege and the Broker Member Group
Subscription Privilege are collectively referred to herein as the "Concurrent
Privileges." Certificates representing the Excess Shares or Additional Shares,
as the case may be, purchased pursuant to the Executive Group Subscription
Privilege or the Broker Member Group Subscription Privilege will be delivered
to subscribers as soon as practicable after the closing date and after all
prorations have been effected. See "Plan of Distribution."
Expiration Date
The Concurrent Privileges will expire at 5:00 p.m., New York time, on
the Expiration Date for the Rights, currently __________ __, 1998 unless
extended by NAI from time to time. Notwithstanding the foregoing, the
Expiration Date in no event shall be later than __________ __, 1998 [90 days
after the launch of the Concurrent Offering]. After the Expiration Date,
unexercised Concurrent Privileges will be null and void. NAI will not be
obligated to honor any purported exercise of the Concurrent Privileges
received by the Subscription Agent after the Expiration Date, regardless of
when the documents relating to such exercise were sent.
Limitations on Subscriptions by Certain Broker Members
NAI's Broker Members and the principals, shareholders, partners,
officers, managers and licensed real estate agents of NAI's Broker Members in
the states of Arkansas, California (other than "qualified purchasers" under
the laws of the state of California who make the California Representation),
Florida, Maryland, North Dakota, South Dakota, Texas and Virginia are not
eligible to participate in the Concurrent Offering. In addition, in connection
with the securities laws of other states, NAI reserves the right to limit, in
its sole discretion, the number of Shares offered or sold in any state;
accordingly, members of the Broker Member Group in such other states may
receive none, or a proportionally lower number of Shares than other Broker
Members. In addition, NAI maintains the right, in its sole discretion, to
limit the ability of Broker Members in additional states from participating in
the Concurrent Offering in order to comply with state securities laws.
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Exercise of Concurrent Privileges
The Concurrent Privileges may be exercised by delivering to the
Subscription Agent, on or prior to 5:00 p.m., New York time, on the Expiration
Date, the properly completed and executed Subscription Form, evidencing such
Concurrent Privilege, together with payment in full of any Excess Shares or
Additional Shares, as the case may be, pursuant to the Concurrent Privileges
(except as permitted pursuant to clause (iii) of the next sentence). Such
payment in full must be by: (i) check or bank draft drawn upon a U.S. bank or
postal telegraphic or express money order payable to First Union National
Bank, as Subscription Agent; or (ii) wire transfer of funds to the account
maintained by the Subscription Agent for such purpose; or (iii) any Approved
Payment Method. Payment of the Subscription Price will be deemed to have been
received by the Subscription Agent only upon (a) clearance of any uncertified
check, (b) receipt by the Subscription Agent of any certified check or bank
draft drawn upon a United States bank or of any postal, telegraphic or express
money order, (c) receipt of good funds in the Subscription Agent's account
designated above, or (d) receipt of good funds by the Subscription Agent
through an Approved Payment Method.
If paying by uncertified personal check, please note that the funds
paid thereby may take at least five business days to clear. Accordingly,
persons who wish to pay the Subscription Price by means of uncertified
personal check are urged to make payment sufficiently in advance of the
Expiration Date to ensure that such payment is received and clears by such
date and are urged to consider payment by means of certified or cashier's
check, money order or wire transfer of funds.
The address to which the Subscription Forms, and payment of the
Subscription Price should be delivered is:
By Regular Mail: By Overnight Courier:
First Union National Bank First Union National Bank
1525 West W.T. Harris Boulevard, 3C3 1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28288-1153 Charlotte, North Carolina 28262
Telephone: (800) 829-8432 Telephone: (800) 829-8432
New York Drop: Facsimile Transmission:
First Union National Bank (704) 590-7628
40 Broad Street - 5th Floor, Suite 550 Confirm by Telephone:
New York, New York 10004 (800) 829-8432
Funds received in payment of the Subscription Price for the Excess
Shares and/or Additional Shares subscribed for pursuant to the Concurrent
Privileges will be held in a segregated account pending issuance of such
Excess Shares or Additional Shares, as the case may be. If a person exercising
a Concurrent Privilege is allocated less than all of the Excess Shares or
Additional Shares, as the case may be, that such Holder wished to subscribe
for, the excess funds paid by such Holder in respect of the Subscription Price
for shares not issued shall be returned by mail without interest or deduction
as soon as practicable after the closing date.
If either the number of Excess Shares being subscribed for pursuant
to the Concurrent Privileges is not specified on the Subscription Form, or the
amount delivered is not enough to pay the Subscription Price for all Excess
Shares stated to be subscribed for, the number of Excess Shares subscribed for
will be assumed to be the maximum amount that could be subscribed for upon
payment of the amount delivered with the Subscription Form. If the number of
Excess Shares or Additional Shares, as the case may be, being subscribed for
is not specified, or payment of the Subscription Price for the indicated
number of Excess Shares or Additional Shares exceeds the required Subscription
Price, the payment will be applied, until depleted, to subscribe for Excess
Shares or Additional Shares, as the case may be.
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The Instructions included in the Subscription Forms should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION FORMS TO NAI.
THE METHOD OF DELIVERY OF SUBSCRIPTION FORMS AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE HOLDER OF SUCH SUBSCRIPTION FORMS, BUT IF SENT BY MAIL IT IS
RECOMMENDED THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER
OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE
OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK TIME, ON THE EXPIRATION DATE. BECAUSE
UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, THE
SUBSCRIBER IS STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF
CERTIFIED OR CASHIERS CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
If the closing of the Rights Offering does not occur promptly after
the Expiration Date, all amounts paid by members of the Broker Member Group
and the Executive Group as payment of the Subscription Price will be promptly
refunded.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Concurrent Privileges will be determined by
NAI, whose determinations will be final and binding. NAI, in its sole
discretion, may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or reject
the purported exercise of any Concurrent Privileges. Subscriptions will not be
deemed to have been received or accepted until all irregularities have been
waived or cured within such time as NAI determines in its sole discretion.
Neither the Company, the Subscription Agent, nor the Information Agent will be
under any duty to give notification of any defect or irregularity in
connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Concurrent Privileges or requests for additional copies of this
Prospectus should be directed to the Subscription Agent, telephone number
(800) 829-8432.
No Revocation
ONCE A MEMBER OF THE EXECUTIVE GROUP OR BROKER MEMBER GROUP HAS
EXERCISED THE EXECUTIVE GROUP SUBSCRIPTION PRIVILEGE OR THE BROKER MEMBER
GROUP SUBSCRIPTION PRIVILEGE, AS THE CASE MAY BE, SUCH EXERCISE MAY NOT BE
REVOKED.
Non Transferability of Concurrent Privileges
THE EXECUTIVE GROUP SUBSCRIPTION FORM AND THE BROKER MEMBER GROUP
SUBSCRIPTION FORM ARE NOT TRANSFERABLE.
Information Agent
The Company has appointed MacKenzie Partners, Inc. as Information
Agent for the Concurrent Offering. Any questions or requests for additional
copies of this Prospectus, the Instructions or the Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone number and
address below:
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MacKenzie Partners, Inc.
156 Fifth Avenue
9th Floor
New York, New York 10010
Telephone: (800) 322-2885
The Company will pay the Information Agent an amount estimated to be
approximately $20,000, which includes reimbursement for out-pocket expenses
incurred in connection with the Rights Offering and the Concurrent Offering.
The Company has also agreed to indemnify the Information Agent from certain
liabilities in connection with the Concurrent Offering.
Subscription Agent
NAI has appointed First Union National Bank as Subscription Agent for
the Concurrent Offering. Any questions or requests for additional copies of
this Prospectus may be directed to the Subscription Agent at the telephone
number and address below. The Subscription Agent's address, which is the
address to which the Subscription Forms and payment of the Subscription Price
should be delivered, and the Subscription Agent's telephone number and
facsimile number, are:
By Regular Mail: By Overnight Courier:
First Union National Bank First Union National Bank
1525 West W.T. Harris Boulevard, 3C3 1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28288-1153 Charlotte, North Carolina 28262
Telephone: (800) 829-8432 Telephone: (800) 829-8432
New York Drop: Facsimile Transmission:
First Union National Bank (704) 590-7628
40 Broad Street - 5th Floor, Suite 550 Confirm by Telephone:
New York, New York 10004 (800) 829-8432
NAI will pay the fees and expenses of the Subscription Agent, and
will also agree to indemnify it from any liability which it may incur in
connection with the Concurrent Offering.
MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
The following general discussion summarizes certain of the material
U.S. federal income tax aspects of the Rights Offering, the Concurrent
Offering and the Distribution. This discussion is a summary for general
information only and does not consider all aspects of U.S. federal income tax
that may be relevant to an NAI stockholder or a Kranzco shareholder in light
of such stockholder's or shareholder's personal circumstances.
This discussion is limited to the U.S. federal income tax
consequences relevant to (i) a NAI Stockholder receiving Rights, (ii) a
Kranzco shareholder receiving NAI Shares in the Distribution or (iii) a member
of the Executive Group or Broker Member Group acquiring Excess Shares or
Additional Shares pursuant to the Concurrent Offering, and, in each case, who
is (i) a citizen or resident (as defined in Section 7701(b)(1) of the Code) of
the United States, (ii) treated as a domestic corporation or a domestic
partnership, or (iii) an estate or trust other than a "foreign estate" or
"foreign trust" as defined in Section 7701(a)(31) of the Code (a "U.S.
Holder"). This discussion does not address the tax consequences to a holder
that is not a U.S. Holder. This discussion is limited to (i) NAI Stockholders
who hold NAI Shares, and will hold the Rights and any NAI Shares acquired upon
the exercise of Rights as capital assets within the meaning of Section 1221 of
the Code, and (ii) Kranzco shareholders who hold Kranzco Common Shares and
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Kranzco Common Share Equivalents as capital assets within the meaning of
Section 1221 of the Code. This discussion also does not address the U.S.
federal income tax consequences to NAI Stockholders or Kranzco shareholders
subject to special treatment under the U.S. federal income tax laws, such as
dealers in securities or foreign currency, tax-exempt entities, banks, thrift
institutions, insurance companies or other financial institutions, persons
that hold Kranzco Common Shares and Kranzco Common Share Equivalents or the
Rights or NAI Shares acquired by exercising Rights as part of a "straddle," a
"hedge" against currency risk or a "conversion transaction," persons that have
a "functional currency" other than the U.S. dollar, and investors in
pass-through entities. Moreover, the effect of any applicable state, local or
foreign tax laws is not discussed.
This discussion is based on the Code, existing and proposed
regulations thereunder, and current administrative rulings and court
decisions. All the foregoing is subject to change, possibly on a retroactive
basis, and any such change could affect the continuing validity of this
discussion.
EACH NAI STOCKHOLDER, KRANZCO SHAREHOLDER, AND PARTICIPANT IN THE
CONCURRENT OFFERING IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR
CONCERNING THE APPLICATION OF FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF
ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO ITS PARTICULAR SITUATIONS.
THE CONTENTS OF THIS PROSPECTUS ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR
TAX ADVICE. EACH NAI STOCKHOLDER, KRANZCO SHAREHOLDER, AND PARTICIPANT IN THE
CONCURRENT OFFERING SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR AND/OR
TAX ADVISOR AS TO LEGAL, BUSINESS OR TAX ADVICE.
Federal Income Taxation of the Rights Offering
Distribution of the Rights
Holders of NAI Shares will not recognize taxable income for
federal income tax purposes in connection with the receipt of the Rights.
Stockholder Basis and Holding Period of the Rights
Except as provided in the following sentence, the basis of
the Rights received by a NAI Stockholder as a distribution with respect to
such stockholder's NAI Shares will be zero. If, however, either (i) the fair
market value of the Rights on the date that the Rights are distributed is 15%
or more of the fair market value of the NAI Shares with respect to which they
are received, or (ii) the stockholder properly elects, in his or her federal
income tax return for the taxable year in which the Rights are received, to
allocate basis, then part of his or her basis in NAI Shares will be allocated
between the NAI Shares and the Rights in proportion to the fair market value
of each on the date of the Rights Offering.
The holding period of a stockholder with respect to the
Rights received as a distribution on such stockholder's NAI Shares will
include the stockholder's holding period for the NAI Shares with respect to
which the Rights were issued.
Sale of the Rights
A NAI Stockholder who sells the Rights received in the
Rights Offering prior to exercise will recognize gain or loss equal to the
difference between the amount realized on the sale and such stockholder's
adjusted basis (if any) in the Rights sold. Such gain or loss will be capital
gain or loss if gain or loss from a sale of NAI Shares held by such
stockholder would be characterized as capital gain or loss at the time of such
sale.
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Generally such capital gain or loss will be classified as
short-term if the stockholder's holding period in the Rights is one year or
less and long-term if the stockholder's holding period in the Rights is more
than one year. In general, under current law, net long-term capital gains are
subject to a maximum marginal tax rate of 20% for individuals, estates and
trusts if the holding period is more than one year. Net short term capital
gains are taxed at the same rates as ordinary income. An individual may deduct
only $3,000 of net capital losses (net of capital gains) each year.
Lapse of the Rights
NAI Stockholders who allow the Rights received by them to
lapse will not recognize any gain or loss, and no adjustment will be made to
the basis of the NAI Shares, if any, owned by such stockholders.
Exercise of the Rights, Basis and Holding Period of Shares
NAI Stockholders will not recognize any gain or loss upon
the exercise of Rights. The basis of the NAI Shares acquired through exercise
of the Rights will be equal to the sum of the price paid therefor and the
stockholder's basis in such Rights (if any).
A NAI Stockholder's holding period for the NAI Shares
acquired through exercise of the Rights will begin on the date the Rights are
exercised.
Sale of Shares
The sale of NAI Shares acquired through exercise of the
Rights will result in the recognition of gain or loss to the NAI Stockholder
in an amount equal to the difference between the amount realized on the sale
and the stockholder's adjusted basis in the NAI Shares. Gain or loss on the
sale of such NAI Shares will be classified capital gain or loss taxable in the
manner discussed above in "Sale of the Rights."
Backup Withholding
A U.S. Holder of Rights or NAI Shares may be subject to
"backup withholding" at a rate of 31% with respect to certain "reportable
payments," including dividend payments and, under certain circumstances,
proceeds from the disposition of Rights or NAI Shares. These backup
withholding rules apply if the U.S. Holder, among other things, (i) fails to
furnish a social security number or other taxpayer identification number
("TIN") certified under penalties of perjury within a reasonable time after
the request therefor, (ii) furnishes an incorrect TIN, (iii) fails to report
properly interest or dividends, or (iv) under certain circumstances, fails to
provide a certified statement, signed under penalties of perjury, that the TIN
furnished is the correct number and that such U.S. Holder is not subject to
backup withholding. A U.S. Holder who does not provide NAI with its correct
TIN also may be subject to penalties. Any amount withheld from a payment to a
U.S. Holder under the backup withholding rules is creditable against the U.S.
Holder's federal income tax liability, provided the required information is
furnished to the Service. Backup withholding will not apply, however, with
respect to payments made to certain holders, including corporations and
tax-exempt organizations, provided their exemption from backup withholding is
properly established.
NAI will report to the U.S. Holders of Rights or NAI Shares and to
the Service the amount of any "reportable payments" for each calendar year and
the amount of tax withheld, if any, with respect to such payments.
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Federal Income Taxation of the Distribution
Tax Consequences to Kranzco
To the extent the fair market value of the NAI Shares
distributed in the Distribution to Kranzco Shareholders exceeds Kranzco's tax
basis in such shares, gain will be recognized by Kranzco. Since the
Distribution will be effected on the same day that Kranzco acquires the NAI
Shares (in an arm's length transaction), Kranzco believes that no gain or loss
will be recognized by it in connection with the Distribution because the fair
market value of the NAI Shares should be equal to their tax basis. Assuming
Kranzco qualifies as a REIT and has a dividends paid deduction for
distributions to its shareholders at least equal to its REIT taxable income
(as computed before taking into account the dividends paid deduction), no REIT
level tax will be incurred on account of the Distribution. In the unlikely
event Kranzco recognizes gain in connection with the Distribution, it is
believed that any such gain will not cause Kranzco to fail to meet any of the
income tests that a REIT must satisfy or to incur any significant tax
liabilities.
Tax Consequences to Kranzco Shareholders
The Kranzco Distribution. The distribution of NAI Shares
will be taxable to Kranzco Shareholders to the same extent as any other
distribution made by Kranzco to its shareholders. Thus, so long as Kranzco
qualifies for taxation as a REIT, distributions with respect to its shares of
beneficial interest (the "Kranzco Shares"), including the Distribution, made
out of current or accumulated earnings and profits allocable thereto (and not
designated as capital gain dividends) will be includible by the shareholders
as ordinary income for Federal income tax purposes. For this purpose, the
current and accumulated earnings and profits of Kranzco will be allocated
first to distributions with respect to Series A-1 Preferred Shares, Series B
Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and
then to distributions with respect to Kranzco Common Shares. None of these
distributions will be eligible for the dividends received deduction for
corporate shareholders. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent they do not
exceed Kranzco's actual net capital gain for the taxable year) without regard
to the period for which the shareholder has held his shares. Recent
legislation reduced the holding period for capital gains to be taxed at a
maximum 20% rate from more than 18 months to more than 12 months. Based on
that change it is expected that for a U.S. shareholder who is an individual or
an estate or trust, such capital gain dividends generally will be taxable at
the 20% rate applicable to gains from the sale of capital assets held for more
than one year except to the extent Kranzco designates the capital gain
dividend as a 25% rate distribution based on certain IRS guidelines. Corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income.
Effective for Kranzco's taxable years beginning on and after January
1, 1998, if Kranzco elects to retain and pay income tax on any net long term
capital gain, domestic shareholders of Kranzco would include in their income
as long term capital gain their proportionate share of such net long term
capital gain. A domestic shareholder would also receive a refundable tax
credit for such shareholder's proportionate share of the tax paid by Kranzco
on such retained capital gains and an increase in its basis in the shares of
Kranzco in an amount equal to the shareholder's includible capital gains less
its share of the tax deemed paid.
Distributions in excess of current or accumulated earnings and
profits will not be taxable to a shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's Kranzco Shares. Shareholders
will be required to reduce the tax basis of their Kranzco Shares by the amount
of such distributions until such basis has been reduced to zero, after which
such distributions will be taxable as capital gain (ordinary income in the
case of a shareholder who holds his Kranzco Shares as a dealer). The tax basis
as so reduced will be used in computing the capital gain or loss, if any,
realized upon sale of the Kranzco Shares. Any loss upon a sale or exchange of
Kranzco Shares by a shareholder who held such Kranzco Shares for six months or
less (after applying certain holding period rules) will generally be treated
as a long-term
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capital loss to the extent such shareholder previously received capital gain
distributions with respect to such Kranzco Shares.
Management projects that for a typical Kranzco common shareholder,
the Distribution likely will result in an increase in the shareholder's return
of capital and capital gain, but this result cannot be assured.
Shareholders may not include in their individual Federal income tax
returns any net operating losses or capital losses of Kranzco. In addition,
any distribution declared by Kranzco in October, November or December of any
year payable to a shareholder of record on a specified date in any such month
shall be treated as both paid by Kranzco and received by the shareholder on
December 31 of such year, provided that the distribution is actually paid by
Kranzco no later than January 31 of the following year. Kranzco may be
required to withhold a portion of capital gain distributions to any
shareholders who fail to certify their non-foreign status to Kranzco.
Basis and Holding Period of NAI Shares. A Kranzco
shareholder's basis in the NAI Shares received in the Distribution will equal
the fair market value of such NAI Shares, at the time of the Distribution. A
Kranzco shareholder's holding period for such NAI Shares will begin on the
date of the Distribution.
Sale or Exchange of NAI Shares. Upon the sale or exchange of
NAI Shares to or with a person other than NAI, a U.S. Holder will recognize
capital gain or loss equal to the difference between the amount realized on
such sale or exchange and the holder's adjusted tax basis in such shares. Any
capital gain or loss recognized by an individual, estate or trust will
generally be treated as capital gain or loss, taxable at a maximum rate of
20%, if the holder held such shares for more than one year.
Backup Withholding
A noncorporate U.S. Holder of Kranzco Shares who is not otherwise
exempt from backup withholding may be subject to backup withholding at the
rate of 31% with respect to distributions paid on, or the proceeds of a sale,
exchange or redemption of, the Kranzco Shares. Generally, backup withholding
applies only when the taxpayer (i) fails to furnish or certify his correct
taxpayer identification number to the payor in the manner requested, (ii) is
notified by the IRS that he has failed to report payments of interest or
dividends properly, or (iii) under certain circumstances, fails to certify
that he has not been notified by the IRS that he is subject to backup
withholding for failure to report interest or dividend payments. Any amounts
withheld under the backup withholding rules from a payment to a U.S. Holder
will be allowed as a credit against the holder's federal income tax liability
or as a refund, provided that the required information is furnished to the
IRS. Holders should consult their own tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining any applicable exemption.
Federal Income Taxation of the Concurrent Offering
To the extent Underlying Shares are not purchased by NAI Stockholders
in the Rights Offering, the remaining Excess Shares, will be subject to
purchase first, pursuant to the Executive Group Subscription Privilege and
second, pursuant to the Broker Member Group Subscription Privilege. NAI
believes that the Concurrent Privileges are being granted in connection with
services rendered or to be rendered by the recipients and that the grant of
the right to purchase Excess Shares, as well as Additional Shares, pursuant to
the Concurrent Privileges will be treated for Federal income tax purpose as
non-qualified stock options. As such, there are no Federal income tax
consequences at the time the Excess Shares or Additional Shares are offered
pursuant to the Concurrent Privileges. Upon exercise of the Concurrent
Privileges, the holder would recognize as ordinary income an amount equal to
the excess, if any, of the fair market value of the NAI Shares on the date of
exercise over the exercise price paid to acquire such shares. Withholding
taxes may be withheld by NAI in connection with the recognition of such
ordinary income. NAI would be allowed a tax
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deduction in like amount. The tax basis of NAI Shares acquired through
exercise of the Concurrent Privileges will equal the price paid therefor and
the holding period of such NAI Shares would begin on the date of exercise.
Gain or loss on the sale of such NAI Shares would be classified as capital
gain or loss taxable in the manner discussed in "--Federal Income Taxation of
the Rights Offering--Sale of the Rights."
To the extent that any Concurrent Privileges are determined to be not
granted in connection with services rendered or be rendered to NAI, the tax
consequences of the grant of the right to purchase Excess Shares and
Additional Shares, as well as the exercise of the Concurrent Privileges are
unclear and recipients could be taxed at the date of grant based on the fair
market value of such Concurrent Privileges. Recipients of the Concurrent
Privileges should consult with their own tax advisors concerning the tax
treatment of the Concurrent Privileges.
MANAGEMENT
Directors and Executive Officers
NAI's Board of Directors consists of eight members who are divided
into three classes as noted below. Class I consists of two directors whose
terms will expire at the 1999 Annual Meetings of Shareholders. Classes II and
III each consist of three directors whose terms will expire at the 2000 and
the 2001 Annual Meetings of Shareholders, respectively. The names and ages of
the directors and executive officers of NAI and the positions held by them are
set forth in the following table:
<TABLE>
<CAPTION>
Name Age Position Term Expires
---- --- -------- ---- -------
<S> <C> <C> <C>
Gerald C. Finn 67 Co-Chairman of the Board, Chief Executive 2001
Officer and Director
Jeffrey M. Finn 35 President, Chief Operating Officer and 2000
Treasurer and Director
Norman M. Kranzdorf 67 Co-Chairman and Director 2001
Robert H. Dennis 51 Chief Financial Officer and Director 1999
Michael Kranzdorf 37 Chief Information Officer and Director 2000
Joseph Grossman 64 Director 1999
Peter O. Hanson 64 Director 2001
Bernard J. Korman 66 Director 2000
Norma J. Finn 65 Secretary
</TABLE>
Gerald C. Finn, NAI's principal founder, has served as the Chief
Executive Officer and a Director of NAI since 1974. He also served as NAI's
President from 1974 until 1995. He was elected as Chairman of the Board in May
1990 and became Co-Chairman of the Board upon consummation of the Exchange
Offer and the Reincorporation Merger. Prior to his association with NAI, Mr.
Finn was an active real estate broker and developer for his own account and
for the account of various entities in which he had an equity interest. He is
a licensed real estate broker and a member of NACORE, ICSC and IDRC, and is a
founding member of the Wharton School Real Estate Center.
Jeffrey M. Finn, the son of Gerald C. Finn, has been employed full
time by NAI since January, 1984, and has served as Chief Operating Officer and
President since September 1995, as Treasurer of NAI since December 1987 and
has served as an Executive Vice President of NAI from 1992 to 1995. He has
worked in
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various capacities including brokerage and corporate services, as well as
Investment Sales prior to becoming Vice President-Marketing in 1988. Mr. Finn
is a graduate of Boston University's School of Management and is a licensed
Real Estate Broker in the State of New Jersey. Mr. Finn is a member of the
ICSC, IDRC, NACORE and the Wharton Real Estate Center Advisory Board.
Norman M. Kranzdorf became the Co-Chairman of the Board of Directors
of NAI upon consummation of the Reincorporation Merger. Mr. Kranzdorf, a
co-founder of Kranzco, has been a trustee and the President and Chief
Executive Officer of Kranzco since its organization in June 1992. Mr.
Kranzdorf was the President of Kranzco Realty, Inc., a general commercial real
estate management and brokerage company ("Kranzco Realty"), from 1979, when he
founded Kranzco Realty, to 1992. He served as President of Amterre
Development, Inc. ("Amterre") from 1972 to 1981. Amterre, the successor to
Food Fair Properties, Inc., owned and operated over 50 shopping centers, as
well as other single-tenant retail properties, on the Eastern seaboard. Mr.
Kranzdorf was also an officer and director of Kranzco Management, Inc., a
general commercial real estate manager and brokerage company and a
wholly-owned subsidiary of Kranzco Realty, from 1980, when it was founded, to
1992. He is a member of the Board of Governors of NAREIT and a former trustee
of the ICSC.
Robert H. Dennis became the Chief Financial Officer of NAI and a
member of the Board of Directors of NAI upon consummation of the Exchange
Offer and the Reincorporation Merger. Mr. Dennis has been a trustee of Kranzco
since June 1994 and the Chief Financial Officer and Treasurer of Kranzco since
its organization in June 1992. Prior thereto he was the Chief Financial
Officer and Assistant Secretary of Kranzco Realty from 1981 to 1992.
Michael Kranzdorf became the Chief Information Officer of NAI and a
member of the Board of Directors of NAI upon consummation of the Exchange
Offer and the Reincorporation Merger. Mr. Kranzdorf was named Director of
Information Systems at Kranzco Realty Trust in 1994 and was elected a Vice
President of Kranzco in June 1996. He has been with Kranzco since 1987 as a
programmer and designer. Mr. Kranzdorf received his B.S. from Tufts University
and his M.S. from the University of Colorado, both in Electrical Engineering.
Prior to joining Kranzco, he held positions at Texas Instruments, the
University of Colorado and owned a consulting and publishing company in
Boulder, Colorado. Mr. Kranzdorf is a member of the ICSC and serves on the
Research Committee, and he has recently accepted the first Chairmanship of
NAREIT's Technology Committee.
Joseph Grossman has served as a Director of NAI since March 1983. Mr.
Grossman has been an independent real estate developer since 1961 and has
developed shopping centers and industrial, residential and recreational
properties for his own account. Mr. Grossman is also one of the founding
members of the Tinton Falls State Bank and is a member of its advisory board.
Peter O. Hanson has been a member of the Board since June 1990. Mr
Hanson is Chairman of James E. Hanson, Inc., a broker member of NAI. Mr.
Hanson has been active in Commercial/Industrial Brokerage and Development
since 1959. A very active member of The Society of Industrial and Office
Realtors ("SIOR"), Mr. Hanson has served that organization as a leader at the
state, regional and national level. He was SIOR's International President in
1985. In addition, Mr. Hanson has been an active member of NAI's Advisory
Board and has served as Chairman of such Board. Mr. Hanson is a member of the
Board of Trustees of Meridian Trust and Meridian Industrial Trust. Other civic
and industry groups have benefitted from his participation and leadership. A
1955 graduate of Colgate University (B.A. - Sociology), Mr. Hanson also was a
captain in the United States Air Force.
Bernard J. Korman became a member of the Board of Directors of NAI
upon consummation of the Exchange Offer and the Reincorporation Merger. Mr.
Korman is Chairman of Graduate Health System, Inc., a non-profit organization,
and NutraMax Products, Inc., a consumer healthcare products company. Mr.
Korman served as President and Chief Executive Officer of MEDIQ Incorporated
from 1981 to 1995 and as
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chairman of PCI Services, Inc. from 1992 to 1996. Mr. Korman currently is a
director of The Pep Boys, Inc., Today's Man, Inc., The New America High Income
Fund, Inc., InnoServ Technologies, Inc., Omega Healthcare Investors, Inc.,
Omega Worldwide, Inc. and Kranzco.
Norma J. Finn has served as the Secretary of NAI since NAI's
inception in 1974. Ms. Finn attended the University of Delaware and has served
as secretary and a board member of a number of real estate development
corporations. She has been active in numerous charitable activities including
being President of Contact of Mercer County N.J. and on the national board of
Contact, and the board of the Delaware Valley United Fund.
Officers of NAI are elected by the Board and hold office until their
successors are chosen and qualified or until their death, resignation or
removal.
Director Compensation
It is NAI's policy to pay non-employee directors of NAI fees of $500
per meeting, as well as reimbursements for expenses incurred in attending
meetings of the Board. However, in lieu of paying outstanding directors' fees,
in January 1998, NAI issued 5,000 NAI Shares to each of Matthew Arnold, Joseph
Grossman, Peter Hanson, Robert McMenamin and Marc Shegoski, the then
non-employee directors of NAI. Such non-employee directors were owed accrued
director fees as follows: Matthew Arnold, $5,500 for 11 meetings; Joseph
Grossman, $5,000 for 10 meetings; Peter Hanson, $6,500 for 13 meetings; Robert
McMenamin $2,000 for 4 meetings; and Marc Shegoski $4,000 for 8 meetings.
In fiscal year 1997, there were two meetings of the Board of
Directors of NAI; each director attended both of the meetings, other than Mr.
Matthew Arnold, then a director of NAI Delaware, and Mr. Joseph Grossman, who
each attended one meeting.
Executive Compensation
The following table sets forth certain information with respect to
the cash and other compensation paid or accrued by NAI for services rendered
by Gerald Finn, NAI's Chief Executive Officer, and NAI's four other most
highly compensated executive officers whose salary and bonus exceeded $100,000
(collectively, the "Named Executives"), during the fiscal years ended June
30, 1997 and June 30, 1998 .
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<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation(1) Compensation
---------------------- ------------
Name & Principal Position Year Salary Bonus Restricted
($) ($) Stock Awards($)
<S> <C> <C> <C> <C>
Gerald C. Finn 1998 $125,000 -
Chairman and Chief 1997 $125,000 - $7,500(2)
Executive Officer
Jeffrey M. Finn 1998 $124,423 $25,000
President, Chief 1997 $110,000 $20,000 $2,250(2)
Operating Officer and
Treasurer
</TABLE>
- ----------
(1) The total value of all perquisites and other personal benefits
received by each individual was less than the lesser of $50,000 or
ten percent of the total salary of and bonus paid or accrued by NAI
for services rendered by each officer during the fiscal year.
(2) Reflects grant of 25,000 restricted NAI Shares and 7,500 restricted
NAI Shares to Gerald C. Finn and Jeffrey M. Finn, respectively. Such
NAI Shares were granted in NAI's fiscal year 1998 with respect to
performance in fiscal year 1997, pursuant to a Restricted Stock
Agreement. Such NAI Shares were valued at $.30 per NAI Share, the
value of the NAI Shares as determined by the Board of Directors.
See "Management--Restricted Stock Agreements."
Employment Agreements
NAI has entered into employment agreements with Messrs. G. Finn and
J. Finn (the "Senior Executives"), pursuant to which Mr. G. Finn serves as the
Co-Chairman of the Board of NAI and Mr. J. Finn serves as its President. Each
of the employment agreements with the Senior Executives have a term of 3
years, which is automatically extended for successive one-year periods unless
either the Senior Executive or NAI gives prior notice not to extend the
employment agreement, as specified in the agreement. Each of the employment
agreements provides for annual compensation of $175,000 to each of Messrs. G.
Finn and J. Finn for the first year of the term. After the first year of each
employment agreement, salary and bonus for the Senior Executives will be
determined by the Compensation Committee. Pursuant to the employment
agreements, each of the Senior Executives is also entitled to incentive
compensation to be determined by the Compensation Committee.
In the event that either of the Senior Executives is fired without
"cause," such Senior Executive shall be entitled to the lesser of two times
(i) the individual's annual base compensation or (ii) the individual's annual
base compensation remaining due under the terms of his employment agreement;
provided, however, that the Senior Executive shall not be entitled to any such
severance payment if he has received a payment upon a change in control as
described below. The employment agreements also contain certain provisions
relating to non-competition and confidentiality.
Each employment agreement provides that upon a change in control and
so long as such individual is an employee of NAI immediately prior to such a
change in control, (a) the individual shall receive a lump sum severance
payment equal to two times the individual's annual compensation during the
calendar year preceding the calendar year during which the change in control
has occurred, (b) restricted NAI Shares then owned by the individual shall
immediately vest and no longer be subject to repurchase or other forfeiture
restrictions, (c) NAI will continue to provide life, accident, medical and
dental insurance to the individual for the period of 18 months after the
change in control, and (d) in the event the individual holds any options to
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purchase NAI Shares on the date of the change in control, such individual
shall be entitled to receive an amount equal to, generally, the number of
options to purchase NAI Shares then owned by the individual multiplied by the
amount, if any, that (i) the exercise price of the options or the closing
price of the NAI Shares on the date of the change in control, whichever is
less, exceeds (i) the average closing price of the NAI Shares during the sixth
month prior to the date of the change in control. If the closing price of the
NAI Shares as of the date of the change in control is greater than the
exercise price of such option then the individual can retain the option or
receive in exchange therefor cash equal to the number of shares underlying the
options multiplied by the amount by which the closing share value exceeds the
exercise price of the options. Each Employment Agreement provides that, to the
extent that any of the foregoing benefits granted to such individual would
cause him to be liable for excise tax liabilities, the benefits available to
him shall be reduced to an amount which would not require the payment of any
such excise tax, but only if doing so yields a greater after tax amount to
such individual.
Restricted Stock Agreements
In the past, NAI has granted restricted NAI Shares to certain persons
providing services to NAI, including employees and Broker Members (each, a
"grantee"). Each grantee of restricted NAI Shares executed a form of
Restricted Stock Agreement, which contains certain representations and
warranties made by NAI and the grantee, and sets forth the terms and
conditions of the grant, including the limited conditions under which the
grantee may transfer the restricted NAI Shares. The Restricted Stock Agreement
also provides NAI with an option for a period of three years following the
date of grant to repurchase the restricted NAI Shares if the grantee's
services to NAI are terminated (a "Termination"). NAI may repurchase
restricted NAI Shares, for a period of 90 days after the date of Termination,
at the following prices: $.10 per NAI Share for a termination during the first
year after the date of grant of the restricted NAI Shares; $.20 per NAI Share
for a termination during the year after the second anniversary of the date of
grant of the restricted NAI Shares; and $.30 per NAI Share for a termination
during the year after the third anniversary of the date of grant of the
restricted NAI Shares. In connection with the Exchange Offer, NAI agreed to
eliminate the repurchase option with respect to all restricted NAI Shares
owned by NAI Stockholders after the consummation of the Exchange Offer, if
such NAI Stockholder tendered at least 80% of his or her restricted NAI
Shares. The release of any or all of the preceding restrictions could cause
the holders of restricted NAI Shares to immediately recognize ordinary income
in an amount equal to the excess of the fair market value of such NAI Shares
at the time the restrictions are released over any amounts paid to acquire
such NAI Shares. In addition, withholding taxes will be payable to NAI (or
withheld by NAI from amounts otherwise due such holders) in connection with
any such recognition of income. Holders of restricted NAI Shares are urged to
consult their tax advisors concerning the federal, state and local tax
consequences of the release of any restrictions on their NAI Shares.
NAI 1998 Incentive Plan
General. In connection with the Exchange Offer and the
Reincorporation Merger, NAI adopted the NAI 1998 Incentive Plan (the "1998
Plan"). The purpose of the 1998 Plan is to align the interests of certain of
NAI's directors, officers and other employees and consultants with those of
the shareholders and to enable NAI to attract, compensate and retain selected
individuals to serve as directors, officers and employees and consultants who
will contribute to NAI's success and provide such individuals with appropriate
incentives and rewards for their performance.
Awards to directors, officers and other employees and consultants
under the 1998 Plan may take the form of share options ("Options"), including
corresponding share appreciation rights ("SARs") and reload options,
restricted share awards, share purchase awards and performance based awards.
The maximum number of NAI Shares that may be the subject of awards under the
1998 Plan is 1,700,000 NAI Shares, or approximately 4.7% of the NAI Shares
outstanding as of June 30, 1998, assuming the Related Transactions had
occurred.
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NAI Share Authorization. NAI Shares covered by any unexercised
portions of terminated Options, NAI Shares forfeited by participants and NAI
Shares subject to any awards which are otherwise surrendered by a participant
without receiving any payment or other benefit with respect thereto may again
be subject to new awards under the 1998 Plan. In the event the purchase price
of an Option is paid in whole or in part through the delivery of NAI Shares,
the number of NAI Shares issuable in connection with the exercise of the
Option shall not again be available for the grant of awards under the 1998
Plan. NAI Shares subject to Options, or portions thereof, which have been
surrendered in connection with the exercise of SARs, are not again available
for the grant of awards under the 1998 Plan. The NAI Shares to be issued or
delivered under the 1998 Plan are authorized and unissued shares, or issued
NAI Shares that have been reacquired by NAI.
Incentive Plan Administration. The 1998 Plan will be administered by
a committee of two or more non-employee directors (the "Committee"), which
will initially consist of Messrs. Bernard J. Korman and Joseph Grossman. The
Committee will determine the directors, officers, employees and consultants
who will be eligible for and granted awards, determine the amount and type of
awards, establish rules and guidelines relating to the 1998 Plan, establish,
modify and terminate the terms and conditions of awards and take such other
action as may be necessary for the proper administration of the 1998 Plan. All
directors, employees and certain consultants are currently eligible to
participate in the 1998 Plan. Eighty percent of the NAI Shares which may be
the subject of awards under the 1998 Plan are reserved for employees of NAI
who are not also employees of Kranzco, and 20% of the NAI Shares which may be
the subject of awards under the 1998 Plan are reserved for employees and
consultants of NAI who are also employees of Kranzco.
Options. "Incentive Options" meeting the requirements of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and
"Nonqualified Options" that do not meet such requirements are both available
for grant under the 1998 Plan. The term of each Option will be determined by
the Committee, but no Option will be exercisable more than five years after
the date of grant. Options may also be subject to restrictions on exercise,
such as exercise in periodic installments, as determined by the Committee. The
exercise price for both Incentive Options and Nonqualified Options must be at
least equal to 100% of the fair market value of the NAI Shares on the date of
grant. The exercise price can be paid in cash, or if approved by the
Committee, by tendering (actually or constructively) NAI Shares owned by a
participant.
Incentive Options are not transferable except by will or the laws of
descent and distribution and may be exercised only by the participant (or his
guardian or legal representative) during his or her lifetime, except as
provided below. With the Committee's consent, Nonqualified Options may be
transferable to family members and entities for the benefit of the participant
or his family members. If a participant's employment with NAI or service as a
director terminates for any reason (other than death or disability), any
unexercised or unexpired Options held by the participant (or its permitted
transferee) will be deemed canceled and terminated on the date of such
termination, unless the Committee decides to extend the term of such Options
for a period not exceeding three months. If a participant dies while employed
by NAI, including an employee who is also a director, any unexercised or
unexpired Options will, to the extent exercisable on the date of death, be
exercisable by the holder or by the participant's estate or by any person who
acquired such Options by bequest or inheritance, at any time generally within
one year after such death. If a participant becomes totally disabled and his
employment terminates as a result of such disability, including an employee
who is also a director, the holder or the participant (or his guardian or
legal representative) will have the unqualified right to exercise any
unexercised and unexpired Options held by the participant (or its permitted
transferee) generally for one year after such termination.
NAI Share Appreciation Rights. The 1998 Plan provides that SARs may
be granted in conjunction with a grant of Options. Each SAR must be associated
with a specific Option and must be granted at the time of grant of such
Option. A SAR is exercisable only to the extent the related Option is
exercisable. Upon the exercise of a SAR, the recipient is entitled to receive
from NAI, without the payment of any cash (except for any applicable
withholding taxes), up to, but no more than, an amount in cash or NAI Shares
equal to the excess of (A) the fair market value of one NAI Share on the date
of such exercise over (B) the exercise price
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of any related Option, times the number of NAI Shares in respect of which such
SAR shall have been exercised. Upon the exercise of a SAR, the related share
Option, or the portion thereof in respect of which such SAR is exercised, will
terminate. Upon the exercise of an Option granted in tandem with a SAR, such
tandem SAR will terminate.
Reload Options. The Committee may grant, concurrently with the award
of any Option (each an "Underlying Option") to such participants, one or more
reload options (each a "Reload Option") to purchase for cash or, if
permissible under the Underlying Option, NAI Shares, a number of NAI Shares
equal to the number of NAI Shares delivered (or deemed delivered) by the
participant to NAI to exercise the Underlying Option. Although an Underlying
Option may be an Incentive Option, a Reload Option is not intended to qualify
as an Incentive Option. A Reload Option may be granted in connection with the
exercise of an Option that is itself a Reload Option. Each Reload Option will
have the same expiration date as the Underlying Option and an exercise price
equal to the fair market value of the NAI Shares on the date of grant of the
Reload Option. A Reload Option is exercisable immediately.
Reload Options permit a participant to retain, through the term of
the original Option, his or her economic interest in the sum of the NAI Shares
covered by such Options as well as the already-owned NAI Shares that could be
used to exercise such Option, by granting options on the number of NAI Shares
used to pay the exercise price of the original Option and subsequent Reload
Options. In this way, Reload Options provide a participant with the
opportunity to build up ownership of NAI Shares covered by an original Option
earlier during the Option term rather than through a single exercise at or
near the end of the Option term.
Restricted NAI Shares. NAI may award restricted NAI Shares to a
participant. Such a grant gives a participant the right to receive NAI Shares
subject to a risk of forfeiture based upon certain conditions. The forfeiture
restrictions on the NAI Shares may be based upon performance standards, length
of service or other criteria as the Committee may determine. Until all
restrictions are satisfied, lapsed or waived, NAI will maintain custody over
the restricted NAI Shares but the participant will be able to vote the NAI
Shares and will be entitled to an amount equal to all distributions, if any,
paid with respect to the NAI Shares, as provided by the Committee. During such
restrictive period, the restricted NAI Shares may not be sold, assigned,
transferred, pledged or otherwise encumbered. Upon termination of employment,
the participant generally forfeits the right to the NAI Shares to the extent
the applicable performance standards, length of service requirements, or other
measurement criteria have not been met.
NAI Share Purchase Awards. The 1998 Plan also permits the grant of
share purchase awards to participants. Participants who are granted a share
purchase award are provided with a share purchase loan to enable them to pay
the purchase price for the NAI Shares acquired pursuant to the award. The
terms of each share purchase loan will be determined by the Committee. The
purchase price of NAI Shares acquired with a share purchase loan is the fair
market value on the date of the award. The 1998 Plan provides that some or all
of the share purchase loan can be forgiven under terms determined by the
Committee. At the end of the loan term, the remainder of the share purchase
loan will be due and payable. The interest rate, if any, on a share purchase
loan will be determined by the Committee. NAI Share purchase loans may be
recourse or nonrecourse under terms determined by the Committee.
If a participant's employment with NAI is terminated for any reason,
the balance of the purchase loans to such participant will be immediately due
and payable; provided, however, if a participant's employment terminates by
reason of death, disability, by NAI without "cause" or in the event of a
charge in control, the balance of such participant's purchase loans may be
forgiven in whole or in part as of the date of such occurrence at the
discretion of the Committee.
Performance-Based Awards. Certain Awards granted under the 1998
Incentive Plan may be granted in a manner such that the Awards qualify as
"performance-based compensation"(as such term is used in Section 162(m) of the
Code and the regulations thereunder) and thus be exempt from the deduction
limitation
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imposed by Section 162(m) of the Code ("Performance-Based Awards"). In
general, to qualify as a Performance Based Award, among other things, the
Committee must be comprised solely of two or more "outside directors." The
Committee shall have complete discretion in determining the number, amount and
timing of awards granted to each participant. Such Performance-Based Awards
may take the form of, without limitation, cash, Shares or any combination
thereof. The Committee shall set performance goals at its discretion which,
depending on the extent to which they are met, will determine the number
and/or value of such Performance-Based Awards that will be paid out to the
participants, and may attach to such Performance-Based Awards one or more
restrictions. The maximum cash amount of Performance-Based Awards to be
awarded to any employee during any fiscal year shall be $1,000,000.
The Committee may use the following performance measures, among
others, (either individually or in any combination) to set performance targets
with respect to Awards intended to qualify as Performance-Based Awards: net
sales; pretax income before allocation of corporate overhead and bonus;
budget; earnings per share; net income; division, group or corporate financial
goals; return on stockholders' equity; return on assets; attainment of
strategic and operational initiatives; appreciation in and/or maintenance of
the price of the NAI Shares or any other publicly-traded securities of NAI;
market share; gross profits; earnings before taxes; earnings before interest
and taxes; earnings before interest, taxes, depreciation and amortization;
economic value-added models; comparisons with various stock market indices;
and/or reductions in costs.
Antidilution Provisions. The number of NAI Shares authorized to be
issued under the 1998 Plan and subject to outstanding awards (and the grant or
exercise price thereof) may be adjusted to prevent dilution or enlargement of
rights in the event of any dividend or other distribution, recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase or exchange of NAI Shares or other
securities, the issuance of warrants or other rights to purchase NAI Shares or
other securities, or other similar capitalization change.
Certain Federal Income Tax Consequences of the 1998 Plan. The
following is a brief summary of the principal federal income tax consequences
of awards under the 1998 Plan. The summary is based upon current federal
income tax laws and interpretations thereof, all of which are subject to
change at any time, possibly with retroactive effect. The summary is not
intended to be exhaustive and, among other things, does not describe state,
local or foreign tax consequences.
A participant is not subject to federal income tax either at the time
of grant or at the time of exercise of an Incentive Option. However, upon
exercise, the difference between the fair market value of the NAI Shares and
the exercise price is an includible item subject to the possible application
of the alternative minimum tax. If a participant does not dispose of NAI
Shares acquired through the exercise of an Incentive Option in a
"disqualifying disposition" (i.e., no disposition occurs within two years from
the date of grant of the share option nor within one year of the transfer of
the NAI Shares to the participant), then the participant will be taxed only
upon the gain, if any, from the sale of such NAI Shares, and such gain will be
taxable as gain from the sale of a capital asset.
NAI will not be allowed any tax deduction on the exercise of an
Incentive Option or, if the above holding period requirements are met, on the
sale of the underlying NAI Shares. If there is a disqualifying disposition
(i.e., one of the holding period requirements is not met), the participant
will be treated as receiving compensation subject to ordinary income tax in
the year of the disqualifying disposition and NAI will be entitled to a
deduction for compensation expense in an amount equal to the amount included
in income by the participant. The participant generally will be required to
include in income an amount equal to the difference between the fair market
value of the NAI Shares at the time of exercise and the exercise price. Any
appreciation in value after the time of exercise will be taxed as capital gain
and will not result in any deduction by NAI.
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If Nonqualified Options are granted to a participant, there are no
federal income tax consequences at the time of grant. Upon exercise of the
Option, the participant must report as ordinary income an amount equal to the
difference between the exercise price and the fair market value of the NAI
Shares on the date of exercise. NAI will be allowed a tax deduction in like
amount. Any appreciation in value after the time of exercise will be taxed as
capital gain and will not result in any deduction by NAI.
No income will be realized by a participant in connection with the
grant of any SAR. The participant must include in ordinary income the amount
of cash received and the fair market value on the exercise date of any NAI
Shares received upon the exercise of a SAR. NAI will be entitled to a
deduction equal to the amount included in such participant's income by reason
of the exercise of any SAR.
The receipt of a Reload Option by a holder of an Incentive Option or
a Nonqualified Option (including a Reload Option) who pays the exercise price
in full or in part with previously acquired NAI Shares should not affect the
tax treatment of the exercise of such Incentive or Nonqualified Option
(including the amount of ordinary income, if any, recognized upon exercise). A
participant will not be subject to tax at the time a Reload Option is granted
(except for any income recognized upon the exercise of a Nonqualified Option
at the time of grant of the Reload Option). A Reload Option will constitute a
Nonqualified Option for federal income tax purposes and will be taxed as such
in the manner set forth above.
A grant of restricted NAI Shares does not constitute a taxable event
for either a participant or NAI. However, the participant will be subject to
tax, at ordinary income rates, when the NAI Shares are no longer subject to a
substantial risk of forfeiture or they become transferable. NAI will be
entitled to take a commensurate deduction at that time.
A participant may elect to recognize taxable ordinary income at the
time restricted NAI Shares are awarded in an amount equal to the fair market
value of the NAI Shares at the time of grant, determined without regard to any
forfeiture restrictions. If such an election is made, NAI will be entitled to
a deduction at that time in the same amount. Future appreciation on the NAI
Shares will be taxed at the capital gains rate when the NAI Shares are sold.
However, if, after making such an election, the NAI Shares are forfeited, the
participant will be unable to claim a deduction.
In general, a participant who receives a share purchase award incurs
no tax liability and NAI does not receive any deduction at the time NAI Shares
are acquired through a share purchase award. However, as the share purchase
loan is forgiven, the participant will be required to recognize income in an
amount equal to the forgiven portion of the loan. NAI will be entitled to take
a commensurate deduction at such time.
Applicable withholding taxes may be withheld in connection with any
award under the 1998 Plan. In that regard, the Committee has the discretion to
allow a participant to satisfy its withholding tax obligations with NAI
Shares.
Change in Control. Depending on the terms of a particular award as
determined by the Committee, upon the occurrence of a change in control of
NAI, all options and related SARs may become immediately exercisable, the
restricted NAI Shares may fully vest and share purchase loans may be forgiven
in full.
Termination, Amendment and ERISA Status. The 1998 Plan will terminate
by its terms and without any action by the Board on May 27, 2008. No awards
may be made after that date. Awards outstanding on such date will remain valid
in accordance with their terms.
The Committee may amend or alter the terms of awards under the 1998
Plan, including to provide for the forgiveness in whole or in part of share
purchase loans, the release of the NAI Shares securing such loans or the
termination or modification of the vesting or performance provisions of the
grants of restricted NAI
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Shares but no such action shall in any way impair the rights of a participant
under any award without such participant's consent.
The Committee may amend or terminate the 1998 Plan. No such
amendments or termination of the 1998 Plan shall in any way impair the rights
of a participant under any award previously granted without such participant's
consent. In addition, any amendment or termination will be subject to
shareholder approval if approval is required by Federal or state law or
regulation or rule of any stock exchange or quotation system on which the NAI
Shares are listed or quoted.
The 1998 Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1976, as amended ("ERISA").
NAI 1998 Employee Bonus Compensation Plan
General. In connection with the Exchange Offer and the
Reincorporation Merger, NAI adopted the NAI 1998 Employee Bonus Compensation
Plan (the "Bonus Compensation Plan"). The purpose of the Bonus Compensation
Plan is to compensate outstanding performance by employees of NAI and to
enable NAI to attract, compensate and retain selected individuals to serve as
employees who will contribute to NAI's success and provide such individuals
with appropriate incentives and rewards for their performance.
Awards to employees under the Bonus Compensation Plan are in the form
of grants of NAI Shares. The maximum number of NAI Shares that may be the
subject of awards under the Bonus Compensation Plan is 8,500,000 NAI Shares
(the "Award Shares"), assuming all of the Rights are exercised, or
approximately 23.5% of the NAI Shares outstanding as of June 30, 1998,
assuming the Related Transactions had occurred. If less than all of the Rights
are exercised, the number of NAI Shares available under the Bonus Compensation
Plan will be decreased by 25% of the amount by which 34,000,000 NAI Shares
exceeds the number of NAI Shares outstanding after the Rights are exercised.
The NAI Shares to be issued or delivered under the Bonus Compensation Plan are
authorized and unissued shares, or issued NAI Shares that have been reacquired
by NAI.
NAI Share Award Formula. Subject to the maximum number of NAI Shares
remaining available under the Bonus Compensation Plan each year there shall be
available for award under the Bonus Compensation Plan, a number of NAI Shares
equal to the product of 6.25% times NAI's pre-tax net income for such year,
adjusted to exclude any deduction for the payment of the consulting fee to
Kranzco under the Intercompany Agreement ("Annual Award Shares").
Bonus Compensation Plan Administration. The Board will make grants of
the Annual Award Shares within 6 months after the end of the fiscal year with
respect to which such Award Shares become available for grant based on the
recommendation of the Chief Executive Officer and the President of NAI. All
employees are currently eligible to participate in the Bonus Compensation
Plan. The selection of employees who participate in the Bonus Compensation
Plan will be determined solely at the discretion of the Board based on the
recommendation of the Chief Executive Officer and President of NAI.
Antidilution Provisions. The number of NAI Shares authorized to be
issued under the Bonus Compensation Plan and subject to outstanding awards may
be adjusted to prevent dilution or enlargement of rights in the event of any
dividend or other distribution, recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of NAI Shares or other securities, the issuance of
warrants or other rights to purchase NAI Shares or other securities, or other
similar capitalization change.
Certain Federal Income Tax Consequences of the Bonus Compensation
Plan. The following is a brief summary of the principal federal income tax
consequences of awards under the Bonus Compensation
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Plan. The summary is based upon current federal income tax laws and
interpretations thereof, all of which are subject to change at any time,
possibly with retroactive effect. The summary is not intended to be exhaustive
and, among other things, does not describe state, local or foreign tax
consequences.
A grant of Award Shares constitutes a taxable event for a
participant. The fair market value of the Award Shares on the date of grant is
reportable by the participant as income taxable at ordinary income rates, and
will be subject to applicable federal, state and local withholding taxes at
the time of grant. In that regard, the Board has the discretion to allow a
participant to satisfy its withholding tax obligations with NAI Shares. NAI
will be entitled to take a deduction at the time of grant equal to the amount
of taxable income reportable by the participant.
Termination, Amendment and ERISA Status. The employees will first be
eligible for Award Shares under the Bonus Compensation Plan with respect to
NAI's fiscal year ended June 30, 1999. The last year employees of NAI will be
eligible for Award Shares under the Bonus Compensation Plan will be with
respect to NAI's fiscal year ended June 30, 2009.
The Board may amend or terminate the Bonus Compensation Plan;
however, the Bonus Compensation Plan may not be amended without the consent of
80% of the Board, including the consent of either Jeffrey M. Finn or Gerald C.
Finn. No such amendments or termination of the Bonus Compensation Plan shall
in any way impair the rights of a participant under any award previously
granted without such participant's consent. In addition, any amendment or
termination will be subject to shareholder approval if approval is required by
Federal or state law or regulation or rule of any stock exchange or quotation
system on which the NAI Shares are listed or quoted.
The Bonus Compensation Plan is not subject to the provisions of the
Employee Retirement Income Security Act of 1976, as amended.
NAI 1998 Stock Option Plan
General. In connection with the Exchange Offer and the
Reincorporation Merger, NAI adopted the NAI 1998 Stock Option Plan (the
"Option Plan"). The purpose of the Option Plan is to align the interests of
NAI's directors, officers, employees and consultants with those of the
shareholders and to enable NAI to attract, compensate and retain selected
individuals to serve as directors, officers, employees and consultants who
will contribute to NAI's success and provide such individuals with appropriate
incentives and rewards for their performance.
Awards to directors, officers, employees and consultants under the
Option Plan are in the form of share Options. The maximum number of NAI Shares
that may be the subject of awards under the Option Plan is 3,536,853 NAI
Shares, or approximately 9.8% of the NAI Shares outstanding as of June 30,
1998, assuming the Related Transactions had occurred. Options to purchase all
NAI Shares issuable under such plan were granted upon consummation of the
Reincorporation Merger.
Stock Option Plan Administration. The Option Plan will be
administered by a committee of two or more non-employee directors (the "Option
Plan Committee"), which will initially consist of Messrs. Joseph Grossman and
Bernard Korman. The Option Plan Committee will determine the directors,
officers, employees and consultants who will be eligible for and granted
awards, determine the amount and type of awards, establish rules and
guidelines relating to the Option Plan, establish, modify and terminate the
terms and conditions of awards and take such other action as may be necessary
for the proper administration of the Option Plan. All directors, officers,
employees and certain consultants are currently eligible to participate in the
Option Plan.
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Options. It is intended that all of the Options granted under the
Option Plan will be "Nonqualified Options" that do not meet the requirements
of Section 422 of the Code. The exercise price can be paid in cash, or if
approved by the Option Plan Committee, by tendering (actually or
constructively) NAI Shares owned by a participant.
With the Option Plan Committee's consent, Nonqualified Options may be
transferable to family members and entities for the benefit of the participant
or his family members. If a participant's employment with NAI or service as a
director or consultant terminates for any reason (other than death or
disability), any unexercised or unexpired Options held by the participant (or
its permitted transferee) will be deemed canceled and terminated on the date
of such termination, unless the Option Plan Committee decides to extend the
term of such Options for a period not exceeding three months. If a participant
dies while employed by NAI, including an employee who is also a director, any
unexercised or unexpired Options will, to the extent exercisable on the date
of death, be exercisable by the holder or by the participant's estate or by
any person who acquired such Options by bequest or inheritance, at any time
generally within one year after such death. If a participant becomes totally
disabled and his employment terminates as a result of such disability,
including an employee who is also a director, the holder or the participant
(or his guardian or legal representative) will have the unqualified right to
exercise any unexercised and unexpired Options held by the participant (or its
permitted transferee) generally for one year after such termination.
Options Outstanding Under the Option Plan. Upon the consummation of
the Reincorporation Merger, there will be outstanding five-year Nonqualified
Options to purchase 3,536,853 NAI Shares under the Option Plan at an exercise
price of $2 per NAI Share. Directors of NAI hold five-year Options to purchase
an aggregate of 1,016,150 NAI Shares under the Option Plan at an exercise
price of $2 per NAI Share. In addition, each of Gerald C. Finn and Jeffrey M.
Finn was granted a five-year Option under the Option Plan to purchase
1,547,049 and 611,004 NAI Shares, respectively, at an exercise price of $2 per
NAI Share; the exercise price of each such Option will automatically increase
$.12 each year during which such Option remains outstanding and unexercised.
Antidilution Provisions. The number of NAI Shares authorized to be
issued under the Option Plan and subject to outstanding awards (and the grant
or exercise price thereof) may be adjusted to prevent dilution or enlargement
of rights in the event of any dividend or other distribution,
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of NAI
Shares or other securities, the issuance of warrants or other rights to
purchase NAI Shares or other securities, or other similar capitalization
change.
Certain Federal Income Tax Consequences of the Option Plan. The
following is a brief summary of the principal federal income tax consequences
of awards under the Option Plan. The summary is based upon current federal
income tax laws and interpretations thereof, all of which are subject to
change at any time, possibly with retroactive effect. The summary is not
intended to be exhaustive and, among other things, does not describe state,
local or foreign tax consequences.
For Nonqualified Options, there are no federal income tax
consequences at the time of grant. Upon exercise of the Option, the
participant must report as ordinary income an amount equal to the difference
between the exercise price and the fair market value of the NAI Shares on the
date of exercise. NAI will be allowed a tax deduction in like amount. Any
appreciation in value after the time of exercise will be taxed as capital gain
and will not result in any deduction by NAI.
Applicable withholding taxes may be withheld in connection with the
exercise of any Nonqualified Option, under the Option Plan. In that regard,
the Option Plan Committee has the discretion to allow a participant to satisfy
its withholding tax obligations with NAI Shares.
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Termination, Amendment and ERISA Status. The Option Plan will
terminate by its terms and without any action by the Board on May 27, 2008. No
awards may be made after that date. Awards outstanding on such date will
remain valid in accordance with their terms.
The Option Plan Committee may amend or alter the terms of awards
under the Option Plan but no such action shall in any way impair the rights of
a participant under any award without such participant's consent.
The Option Plan Committee may amend or terminate the Option Plan. No
such amendments or termination of the Option Plan shall in any way impair the
rights of a participant under any award previously granted without such
participant's consent. In addition, any amendment or termination will be
subject to shareholder approval if approval is required by Federal or state
law or regulation or rule of any stock exchange or quotation system on which
the NAI Shares are listed or quoted.
The Option Plan is not subject to the provisions of ERISA.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of NAI Shares as of June 30, 1998 of: (i) Named Executive
Officers, (ii) NAI's executive officers and directors as a group, and (iii)
all persons known by NAI to be the beneficial owner of more than 5.0% of the
outstanding NAI Shares immediately prior to the Distribution, the Rights
Offering and the Concurrent Offering, and after giving effect to the
Distribution, the Rights Offering, the Concurrent Offering and the other
Related Transactions. Unless otherwise noted, the information contained in
this table, including the footnotes hereto, assumes that the Reincorporation
Merger occurred on June 30, 1998, and each NAI Delaware Share was converted
into 1.318087 NAI Maryland Shares. See "Management."
<TABLE>
<CAPTION>
Number of NAI Shares Percent of Class
-------------------- ----------------
After
Before Distribution, Before Distribution, After Distribution,
Distribution, Rights Rights Offering Rights Offering and Rights Offering
Offering and and Concurrent Concurrent and Concurrent
Name and Address Concurrent Offering (1) Offering (2) Offering (3) Offering (3)
- ---- --- ------- ---------- -------- --- -------- --- -------- --- -------- ---
<S> <C> <C> <C> <C>
Gerald C. Finn(4) 4,318,179(5) 4,718,179(5) 20.9% 11.9%
Jeffrey M. Finn(4) 1,588,462(6) 1,688,462(6) 7.7 4.2
Norman M. Kranzdorf(7) 400,050(8) 835,972(9) 3.0 2.1
Robert H. Dennis(7) 74,100(10) 110,890(11) 0.4 0.3
Joseph Grossman(4) 25,782(12) 41,564(12) 0.1 0.1
Peter O. Hanson(4) 78,211(13) 146,422(13) 0.4 0.4
Bernard J. Korman(4) 14,500(14) 124,478(15) 0.3 0.3
Michael Kranzdorf(7) 7,500(16) 57,232(17) 0.2 0.1
Kranzco Realty Trust(7) 13,681,122 3,351,875 8.1 8.4
Executive Officers & Directors
as a group (9) persons 5,979,549 7,177,965 30.3 18.0
</TABLE>
(1) The numbers in this column reflect NAI Share ownership assuming
the Reincorporation Merger has occurred. The actual number of NAI Delaware
Shares beneficially owned by each person on June 30, 1998, was as follows:
Gerald Finn, 9,563,390 NAI Shares; Jeffrey Finn, 2,759,522 NAI Shares; Norman
M. Kranzdorf, no NAI Shares; Robert H. Dennis, no NAI Shares; Joseph Grossman,
59,867 NAI Shares; Bernard J. Korman, no NAI Shares; Michael Kranzdorf, no NAI
Shares; Peter O. Hanson, 258,750 NAI Shares; Kranzco Realty Trust, no NAI
Shares; and Estate of John McMenamin, 535,597 NAI Shares.
(2) The numbers in this column represent NAI Shares beneficially
owned by each such person, plus any NAI Shares which such person may acquire
pursuant to the Basic Subscription Privilege.
(3) Each beneficial owner's percentage ownership is determined
assuming (i) that all NAI Shares issuable upon exercise of the Rights will be
exercised, except that (x) Gerald Finn only exercises rights to purchase
400,000 NAI Shares, (y) Jeffrey Finn only exercises rights to purchase 100,000
NAI Shares and (z) Kranzco only exercises rights to purchase 1,675,937 NAI
Shares in order to maintain approximately a 9.8% ownership interest in the
outstanding NAI Shares; (ii) that all of the Additional Shares are purchased
in the Concurrent Offering, (iii) all other convertible securities, options or
warrants held by such person (but not those held by any other person) and
which are exercisable within 60 days of June 30, 1998 have been exercised and
(iii) that each person who was an NAI Stockholder prior to the Exchange Offer
tendered 80% of his or her NAI Shares in the Exchange Offer.
(4) The address of all of the executive officers and directors of
NAI, who are not employees of Kranzco, is 572 Route 130, Hightstown, New
Jersey 08520, telephone (609) 448-4700.
(5) Includes (i) 3,944 NAI Shares owned by the Building Center, Inc.,
a corporation owned by Gerald and Norma Finn, (ii) 1,797,049 NAI Shares
issuable upon the exercise of options to purchase NAI Shares, (iii) 42,838 NAI
Shares owned by Mr. Finn's spouse and (iv) 527,235 NAI held in trust for Mr.
J. Finn, of which, in the future, Mr. G. Finn may be entitled to receive
certain NAI Shares. Does not include (i) 44,156 NAI Shares owned by Mr. G.
Finn's children, or (ii) 4,943 NAI Shares held by Mr. G. Finn as collateral
for a loan to a stockholder of NAI; Mr. Finn disclaims beneficial ownership of
such NAI Shares.
(6) Includes (i) 11,863 NAI Shares held in trust for Mr. Finn's minor
children, (ii) 4,591 NAI Shares owned by Brooktree Swim & Tennis Club, Inc., a
corporation owned by Mr. J. Finn and his spouse, (iii) 861,004 NAI Shares
issuable upon the exercise of options to purchase NAI Shares; and (iv) 527,235
NAI Shares held in a trust for the benefit of Mr. J. Finn, of which Mr. J.
Finn is trustee.
(7) The address of Kranzco Realty Trust is 128 Fayette Street,
Conshohocken, Pennsylvania 19428, and the address of executive officers and
directors of NAI who are also employees of Kranzco is c/o Kranzco Realty Trust
at such address.
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(8) Includes 400,050 NAI Shares issuable upon options to purchase NAI
Shares.
(9) Includes (i) 14,640 NAI Shares owned by Mr. Kranzdorf's spouse,
(ii) 36,000 NAI Shares owned by Mrs. Kranzdorf as trustee for the benefit of
Michael Kranzdorf and Betty Kranzdorf, (iii) 400,050 NAI Shares issuable upon
the exercise of options to purchase NAI Shares. See "Management."
(10) Includes 74,100 NAI Shares issuable upon options to purchase NAI
Shares.
(11) Includes (i) 200 NAI Shares owned by Mr. Dennis' spouse, and
(ii) 74,100 NAI Shares issuable upon the exercise of options to purchase NAI
Shares.
(12) Includes 10,000 NAI Shares issuable upon the exercise of options
to purchase NAI Shares.
(13) Includes (i) 236 NAI Shares owned by Mr. Hanson's spouse, (ii)
4,350 NAI Shares and 1,648 NAI Shares owned by James E. Hanson, Inc. and
Property Investors Associates, entities owned by Mr. Hanson, and (iii) 10,000
NAI Shares issuable upon the exercise of options to purchase NAI Shares.
(14) Includes 14,500 NAI Shares issuable upon options to purchase NAI
Shares.
(15) Includes (i) 3,900 NAI Shares owned by Mr. Korman's spouse, and
(ii) 14,500 NAI Shares issuable upon the exercise of options to purchase NAI
Shares.
(16) Includes 7,500 NAI Shares issuable upon options to purchase NAI
Shares.
(17) Includes (i) 7,500 NAI Shares issuable upon the exercise of
options to purchase NAI Shares, and (ii) 18,000 NAI Shares held in trust for
Mr. M. Kranzdorf. See note 6.
Registration Rights
Kranzco and NAI entered into a Registration Rights Agreement which
provides that at any time after the earlier of the date (i) one year from the
consummation of the Exchange Offer or (ii) that Kranzco determines, in its
sole discretion, that Kranzco is, or will in the future be, required to sell
the NAI Shares owned by it in order to maintain its status as a REIT, NAI
will, upon a written request of Kranzco, register any NAI Shares owned by
Kranzco in a Registration Statement under the Securities Act (the "Demand
Rights"). NAI has agreed to use all reasonable best efforts to keep such
Registration Statement effective for a period of two years commencing on the
effective date of the Registration Statement (or a shorter period if all the
NAI Shares owned by Kranzco have been sold or may be sold without any volume
limitations pursuant to Rule 144 under the Securities Act prior to the
expiration of such two year period). The Registration Rights Agreement
provides Kranzco with two Demand Rights, as well as piggyback Registration
Rights.
CERTAIN RELATED PARTY TRANSACTIONS
NAI currently leases space for its corporate offices in Hightstown,
New Jersey from The Building Center, Inc., a New Jersey corporation (the
"Building Center"), which is wholly owned by Gerald C. Finn and his wife,
Norma Finn. The lease provides for an annual rental of $102,000 plus the
payment of maintenance expenses. See "Business--Property." NAI believes that
the terms of this lease are at or below the fair market rental for comparable
facilities in the area.
NAI and its subsidiaries owe a director and officer of NAI, Gerald
and Norma Finn, and an entity owned by them, an aggregate principal of
$441,235. Such indebtedness bears interest at rates ranging from 10% to 12%. A
portion of the proceeds of the Rights Offering and the Concurrent Offering
will be used to repay such indebtedness. See "Use of Proceeds" for a
description of such indebtedness.
Gerald C. Finn is the licensed broker of record on the New Jersey
Real Estate Broker's License held by NAI upon which NAI's reciprocal real
estate broker's licenses in Pennsylvania and New York are based. Mr. Finn's
sister, Susan Finn, is the licensed broker of record on the Florida Real
Estate Broker's License held by NAI.
Peter O. Hanson, a director of NAI is the owner of James E. Hanson,
Inc., a Broker Member of the Network. In the fiscal year ended June 30, 1998,
James E. Hanson, Inc., paid to NAI approximately $90,000 in fees for services
and assignments received through the Network.
In connection with the Exchange Offer, Kranzco, NAI and the Finns
entered into an Exchange Agreement and have agreed to enter into certain
related transactions. In addition, immediately following the Distribution, NAI
and Kranzco intend to enter into the Intercompany Agreement. See "The Exchange
Agreement" and "Related Transactions." In addition, in the calendar year ended
December 31, 1997, with the assistance of NAI's Investment Sales Department,
Kranzco purchased certain retail properties. See "Business--Investment Sales."
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It is NAI's policy that material transactions and loans with
affiliated parties shall be on terms that are no less favorable than those
that can be obtained from unaffiliated third parties. Any forgiveness of loans
must be approved by a majority of NAI's independent directors who do not have
an interest in the transactions and who have access, at NAI's expense, to
NAI's or independent counsel.
All ongoing transactions have been ratified by a majority of the
issuer's independent directors who do not have an interest in the transactions
and who had access, at the issuer's expense, to its counsel or independent
counsel.
DESCRIPTION OF SECURITIES
The following summary of the terms of the stock of NAI does not
purport to be complete and is subject to and qualified in its entirety by
reference to NAI's Charter and NAI's Bylaws, copies of which are exhibits to
the Registration Statement of which this Prospectus is a part. See "Available
Information." This description reviews the securities of NAI rather than NAI
Delaware, because after the Exchange Offer is consummated, the Reincorporation
Merger will be effected and all NAI Delaware Shares will be converted into NAI
Shares.
General
The Charter provides that NAI may issue up to 200,000,000 shares of
common stock, $.01 par value per share (referred to herein as the "NAI
Shares"). As of June 30, 1998, after giving effect to the Reincorporation
Merger, there were 17,101,403 NAI Shares issued and outstanding, and 229
holders of record of such NAI Shares. Under Maryland law, stockholders
generally are not liable for the corporation's debts or obligations.
Common Stock
All NAI Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or series
of stock, holders of NAI Shares are entitled to receive dividends on such NAI
Shares if, as and when authorized and declared by the Board of Directors of
NAI out of assets legally available therefor and to share ratably in the
assets of NAI legally available for distribution to its stockholders in the
event of its liquidation, dissolution or winding up after payment of or
adequate provision for all known debts and liabilities of NAI.
Each outstanding NAI Share entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors and, except as provided with respect to any other class or series of
stock, the holders of such shares will possess the exclusive voting power.
There is no cumulative voting in the election of directors, which means that
the holders of a majority of the outstanding NAI Shares can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of NAI Shares have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and have no preemptive rights to
subscribe for any securities of NAI. NAI Shares will have equal dividend,
liquidation and other rights.
Under the Maryland General Corporation Law (the "MGCL"), a Maryland
corporation generally cannot dissolve, amend its charter, merge, sell all or
substantially all of its assets, engage in a share exchange or engage in
similar transactions outside the ordinary course of business unless approved
by the affirmative vote of stockholders holding at least two thirds of the
shares entitled to vote on the matter unless a lesser percentage (but not less
than a majority of all of the votes entitled to be cast on the matter) is set
forth in the corporation's charter. The charter of NAI provides for approval
of (i) a consolidation, (ii) a share exchange, (iii) a merger in which NAI is
the successor, and (iv) amendments to the charter (except for amendments to
the sections of the charter relating to the classification and removal of
directors) by the affirmative vote of stockholders holding at least a majority
of the shares entitled to vote on the matter.
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The Charter authorizes the Board of Directors to reclassify any
unissued shares of stock into other classes or series of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
Preferred Stock
The Charter authorizes the Board of Directors to classify any
unissued shares of Preferred Stock and to reclassify any previously classified
but unissued shares of any series, as authorized by the Board of Directors.
Prior to issuance of shares of each class or series, the Board is required by
the MGCL and the charter of NAI to set, subject to the provisions of the
charter regarding the restrictions on transfer of stock, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such series. Thus, the Board could authorize the issuance
of shares of Preferred Stock with terms and conditions which could have the
effect of delaying, deferring or preventing a transaction or a change in
control of NAI that might involve a premium price for holders of NAI Shares or
otherwise be in their best interest.
Power to Issue Additional Shares of Common Stock and Preferred Stock
NAI believes that the power of the Board of Directors to issue
additional authorized but unissued NAI Shares and to classify or reclassify
unissued shares of stock and thereafter to cause NAI to issue such classified
or reclassified shares of stock will provide NAI with increased flexibility in
structuring possible future financings and acquisitions and in meeting other
needs which might arise. The additional classes or series, as well as the NAI
Shares, will be available for issuance without further action by NAI's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which NAI's securities may
be listed or traded. Although the Board of Directors has no intention at the
present time of doing so, it could authorize NAI to issue a class or series
that could, depending upon the terms of such class or series, delay, defer or
prevent a transaction or a change in control of NAI that might involve a
premium price for holders of NAI Shares or otherwise be in their best
interest. In addition, the issuance of a class or series of preferred stock
with voting or conversion rights may adversely affect the voting power of
common stockholders.
Rights to Purchase NAI Shares
Each NAI Share issued in the Distribution will be accompanied by a
Right to purchase one additional NAI Share. The Rights are exercisable for 45
days from the date of the Distribution at a Subscription Price of $2.00 per
share. See "The Rights Offering."
Transfer Agent and Registrar
The transfer agent and registrar for the NAI Shares and Rights will
be First Union National Bank.
Series A Preferred Stock
On August 6, 1998 NAI entered into a letter agreement with the
holder of the 101,000 outstanding shares of Series A Preferred Stock of NAI
Delaware pursuant to which NAI redeemed all of the outstanding shares of
Series A Preferred Stock with a promissory note in the principal amount of
$202,000, due November 12, 1998. A portion of the proceeds of the Rights
Offering and the Concurrent Offering will be used to repay such note. See "Use
of Proceeds."
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CERTAIN PROVISIONS OF MARYLAND LAW AND
OF NAI'S CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of the Charter
and Bylaws of NAI does not purport to be complete and is subject to and
qualified in its entirety by reference to Maryland law and to the Charter and
Bylaws, copies of which are exhibits to the Registration Statement of which
this Prospectus is a part. See "Available Information."
Classification of the Board of Directors
The Bylaws provide that the number of directors of NAI may be
established by the Board of Directors but may not be fewer than the minimum
number required by the MGCL (which is three, unless the corporation has less
than three stockholders) nor more than 15. Any vacancy will be filled, at any
regular meeting or at any special meeting called for that purpose, by a
majority of the remaining directors, except that a vacancy resulting from an
increase in the number of directors must be filled by a majority of the entire
Board of Directors.
Pursuant to the Charter, the Board of Directors is divided into three
classes of directors. The initial terms of the Class I, Class II and Class III
directors will expire in 1999, 2000 and 2001, respectively. Beginning in 1999,
directors of each class will be chosen for three-year terms upon the
expiration of their current terms and each year one class of directors will be
elected by the stockholders. NAI believes that classification of the Board of
Directors will help to assure the continuity and stability of NAI's business
strategies and policies as determined by the Board of Directors. Holders of
NAI Shares will have no right to cumulative voting in the election of
directors. Consequently, at each annual meeting of stockholders, the holders
of a majority of the NAI Shares will be able to elect all of the successors of
the class of directors whose terms expire at that meeting.
The classified board provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult. At least
two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board of Directors. Thus, the
classified board provision could increase the likelihood that incumbent
directors will retain their positions. The staggered terms of directors may
delay, defer or prevent a tender offer or an attempt to change control of NAI,
even though a tender offer or change in control might be in the best interest
of the stockholders.
Removal of Directors
The Charter provides that a director may be removed only for cause
(as defined in the Charter) and only by the affirmative vote of at least
two-thirds of the votes entitled to be cast in the election of directors. This
provision, when coupled with the provision in the Bylaws authorizing the Board
of Directors to fill vacant directorships, precludes stockholders from
removing incumbent directors (except upon the existence of cause for removal
and a substantial affirmative vote) and filling the vacancies created by such
removal with their own nominees.
Business Combinations
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of ten percent or more of the voting power of the
then-outstanding voting stock of the corporation (an "Interested Stockholder")
or an affiliate of such an Interested Stockholder are prohibited for five
years after the most recent date on which the Interested Stockholder becomes
an Interested Stockholder. Thereafter, any such business combination must be
recommended by the board of directors of such corporation and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by
holders of outstanding shares of voting stock of the corporation and (b)
two-thirds of the votes entitled to be cast by holders of voting stock of the
corporation other
-88-
<PAGE>
than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. Each of Kranzco, Gerald Finn, Jeffrey Finn and Norman
Kranzdorf may beneficially own more than ten percent of NAI's voting shares
and would, therefore, be subject to the business combination provision of the
MGCL. However, pursuant to the statute, NAI has exempted any business
combinations involving Kranzco and, consequently, the five-year prohibition
and the super-majority vote requirements will not apply to business
combinations between it and NAI. As a result, Kranzco, may be able to enter
into business combinations with NAI that may not be in the best interest of
its stockholders without compliance by NAI with the super-majority vote
requirements and the other provisions of the statute.
Control Share Acquisitions
The MGCL provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on
the matter, excluding shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority, or (iii) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share
acquisition, upon satisfaction of certain conditions (including an undertaking
to pay expenses), may compel the board of directors of the corporation to call
a special meeting of stockholders to be held within 50 days of demand to
consider the voting rights of the shares. If no request for a meeting is made,
the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the corporation
may redeem any or all of the control shares (except those for which voting
rights have previously been approved) for fair value determined, without
regard to the absence of voting rights for the control shares, as of the date
of the last control share acquisition by the acquiror or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition.
The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the corporation is a
party to the transaction or (b) to acquisitions approved or exempted by the
charter or bylaws of the corporation.
The Bylaws contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of NAI's shares of
stock. There can be no assurance that such provision will not be amended or
eliminated at any time in the future.
-89-
<PAGE>
Dissolution of NAI
The dissolution of NAI must be approved by the affirmative vote of
the holders of not less than two thirds of all of the votes entitled to be
cast on the matter.
Advance Notice of Director Nominations and New Business
The Bylaws provide that (a) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(i) pursuant to NAI's notice of the meeting, (ii) by the Board of Directors or
(iii) by a stockholder who is entitled to vote at the meeting and has complied
with the advance notice procedures set forth in the Bylaws and (b) with
respect to special meetings of stockholders, only the business specified in
NAI's notice of meeting may be brought before the meeting of stockholders and
nominations of persons for election to the Board of Directors may be made only
(i) pursuant to NAI's notice of the meeting, (ii) by the Board of Directors or
(iii) provided that the Board of Directors has determined that directors shall
be elected at such meeting, by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice provisions set forth in the
Bylaws.
Anti-takeover Effect of Certain Provisions of Maryland Law and of the Charter
and Bylaws
The business combination provisions (with respect to stockholders
other than Kranzco) and, if the applicable provision in the Bylaws is
rescinded, the control share acquisition provisions of the MGCL, the
provisions of the Charter on classification of the Board of Directors and
removal of directors and the advance notice provisions of the Bylaws could
delay, defer or prevent a transaction or a change in control of NAI that might
involve a premium price for holders of NAI Shares or otherwise be in their
best interest.
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of NAI Shares, or the perception
that such sales could occur, could adversely affect prevailing market prices
for the NAI Shares. In addition, any such sale or perception could make it
more difficult for NAI to sell equity securities or equity related securities
in the future at a time and price that NAI deems appropriate. Upon
consummation of the Distribution, Rights Offering and the Concurrent Offering,
assuming all of the Rights are exercised and all the Additional Shares are
purchased in the Concurrent Offering, NAI will have a total of 36,202,806 NAI
Shares outstanding, of which the 31,064,306 NAI Shares offered in connection
with the Distribution and Rights Offering will be eligible for immediate sale
in the public market without restriction, unless they are held by "affiliates"
of NAI within the meaning of Rule 144 under the Securities Act. In addition,
there will be outstanding 36,202,806 NAI Shares which will be "restricted"
securities within the meaning of Rule 144 under the Securities Act.
Substantially all of such NAI Shares will be eligible for resale in accordance
with the provisions of Rule 144 immediately upon consummation of the
Distribution. Additionally, NAI has granted options to (i) certain officers,
directors, employees and consultants of NAI to purchase an aggregate of
3,536,853 NAI Shares and (ii) certain directors and trustees of NAI and
Kranzco to purchase 60,000 NAI Shares. NAI has also reserved for issuance (i)
up to 1,700,000 NAI Shares for issuance pursuant to the 1998 Plan, (ii) up to
8,500,000 NAI Shares for issuance pursuant to the Bonus Compensation Plan. See
"Principal Shareholders," "Description of Capital Stock," "Management," and
"Plan of Distribution." Gerald Finn and Jeffrey Finn have agreed not to sell
or transfer, directly or indirectly, any NAI Shares held by the Finns for a
period of three years from the closing of the Exchange Offer.
In general, under Rule 144 as currently in effect, if one year has
elapsed since the later of the date of acquisition of restricted shares from
NAI or any "affiliate" of NAI, as that term is defined under the Securities
Act, the acquiror or subsequent holder thereof is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1.0%
of the then outstanding NAI Shares or the average weekly trading volume of the
NAI Shares during the four calendar weeks preceding the date on which notice
of the sale is filed with the Commission. Sales under Rule 144 also are
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about NAI. If two years have
elapsed since the date of acquisition of
-90-
<PAGE>
restricted shares from NAI or from any "affiliate" of NAI, and the acquiror or
subsequent holder thereof is deemed not to have been an "affiliate" of NAI at
any time during the three months preceding a sale, such person would be
entitled to sell such shares in the public market under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
No prediction can be made as to the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price prevailing from time to time. Sales of substantial amounts of NAI
Shares, or the perception that such sales could occur, may affect adversely
prevailing market prices of the NAI Shares.
PLAN OF DISTRIBUTION
The NAI Shares being issued in the Distribution, are being
distributed by Kranzco directly to the holders of Kranzco Common Shares and
Kranzco Common Share Equivalents on the Distribution Record Date, on the basis
of one NAI Share for each Kranzco Common Share and for each Kranzco Common
Share Equivalent on the Distribution Record Date. NAI intends to distribute
Rights and copies of this Prospectus to stockholders of record on the Rights
Record Date promptly following the effective date of the Registration
Statement of which this prospectus forms a part.
In connection with the Concurrent Offering, NAI intends to distribute
Subscription Forms and copies of this Prospectus, to the members of the
Executive Group and the Broker Member Group, promptly following the effective
date of the Registration Statement of which this prospectus forms a part. NAI
will determine in its sole discretion whether any person is a member of the
Executive Group or the Broker Member Group. Any determinations by NAI as to
the members of the Executive Group or Broker Group is final.
Holders of Rights who desire to subscribe for the purchase of NAI
Shares in the Rights Offering are urged to complete, date and sign the
Subscription Certificate and return it to the Subscription Agent on or before
the Expiration Date, together with payment in full for the subscribed for NAI
Shares should be directed to the Subscription Agent. There is no assurance
that any Underlying Shares will be available for purchase pursuant to the
Oversubscription Privilege.
Members of the Executive Group and the Broker Member Group who desire
to subscribe for the purchase of NAI Shares in the Concurrent Offering are
urged to complete, date and sign the applicable Subscription Form and return
it to the Subscription Agent on or before the Expiration Date, together with
payment in full for the subscribed for NAI Shares should be directed to the
Subscription Agent. There is no assurance that any Excess Shares will be
available for purchase pursuant to the Executive Group Subscription Privilege
or the Broker Member Group Subscription Privilege, or that any member of the
Broker Member Group will be able to purchase all of the Additional Shares
subscribed for pursuant to the Broker Member Group Subscription Privilege.
Certain employees, officers or directors of NAI may solicit responses
from holders of Subscription Certificates and Subscription Forms, but such
individuals will not receive any commissions or compensation for such services
other than their normal employment compensation.
EXPERTS
The consolidated financial statements of NAI included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, to the extent and for the periods indicated in their reports, and
are included herein in reliance upon the authority of said firm as experts in
giving said report.
-91-
<PAGE>
LEGAL MATTERS
The validity of the Rights and the NAI Shares offered hereby will be
passed upon for NAI by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore,
Maryland. Certain matters of law will be passed upon for NAI by Robinson
Silverman Pearce Aronsohn & Berman LLP, New York, New York.
-92-
<PAGE>
INDEX TO NEW AMERICA NETWORK, INC.
----------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
TOGETHER WITH AUDITORS' REPORT
<TABLE>
<CAPTION>
Page
----
<S> <C>
Index to Consolidated Financial Statements................................................F-1
Report of Independent Public Accountants..................................................F-2
Consolidated Balance Sheets - June 30, 1998 and 1997......................................F-3
Consolidated Statements of Operations for the years ended
June 30, 1998, 1997 and 1996...........................................................F-4
Consolidated Statements of Stockholders' Deficit for the years ended
June 30, 1998, 1997 and 1996..........................................................F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996..........................................................F-6
Notes to Consolidated Financial Statements................................................F-7
</TABLE>
F-1
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of New America Network, Inc.:
We have audited the accompanying consolidated balance sheets of New America
Network, Inc. as of June 30, 1998 and 1997, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
three years in the period ended June 30, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of New America Network, Inc. as of June 30, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1998 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
August 14, 1998
F-2
<PAGE>
NEW AMERICA NETWORK, INC.
-------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
June 30
---------------------------------
1998 1997
----------------- ---------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 135,854 $ 61,506
Accounts receivable (net of allowance of $20,000
at June 30, 1998 and 1997) 962,981 576,924
Commissions receivable 554,964 856,194
Notes and other receivables 13,612 16,829
Other current assets 55,926 20,456
---------------- ---------------
Total current assets 1,723,337 1,531,909
---------------- ---------------
PROPERTY AND EQUIPMENT, net 172,655 155,083
OTHER ASSETS, net 199,836 1,987
---------------- ---------------
Total assets $ 2,095,828 $ 1,688,979
================ ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,249,268 $ 1,051,859
Accrued interest 88,290 127,495
Current portion of long-term debt 127,945 133,333
Stockholder loans 441,235 441,235
Deferred revenue 1,068,473 773,023
---------------- ---------------
Total current liabilities 2,975,211 2,526,945
---------------- ---------------
LONG-TERM DEBT 70,000 --
---------------- ---------------
Total liabilities 3,045,211 2,526,945
---------------- ---------------
REDEEMABLE CONVERTIBLE PREFERRED STOCK (Note 5) 202,000 252,000
---------------- ---------------
COMMITMENTS AND CONTINGENCIES (Notes 8, 9 and 10)
STOCKHOLDERS' DEFICIT:
Common stock 134,091 132,939
Additional paid-in capital 2,556,365 2,526,969
Accumulated deficit (3,607,971) (3,517,206)
Treasury stock, at cost (233,868) (232,668)
---------------- ---------------
Total stockholders' deficit (1,151,383) (1,089,966)
---------------- ---------------
Total liabilities, redeemable convertible preferred stock
and stockholders' deficit $ 2,095,828 $ 1,688,979
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NEW AMERICA NETWORK, INC.
-------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
June 30
----------------------------------------------
1998 1997 1996
------------- --------------- --------------
<S> <C> <C> <C>
REVENUE:
Commissions $ 3,580,598 $ 4,001,168 $ 4,124,139
License fees 1,554,808 1,281,861 1,373,418
Other 610,072 617,587 522,399
-------------- --------------- --------------
Total revenue 5,745,478 5,900,616 6,019,956
-------------- --------------- --------------
COST AND EXPENSES:
Commission expense 833,781 1,142,575 1,782,292
Sales and marketing 282,488 321,379 284,963
Compensation and benefits 2,529,740 2,527,676 2,437,395
Other operating 2,039,043 1,644,040 1,475,091
Depreciation and amortization 80,799 52,518 56,321
Interest, net 63,832 59,639 48,035
-------------- --------------- --------------
Total costs and expenses 5,829,683 5,747,827 6,084,097
-------------- --------------- --------------
Income (loss) from operations (84,205) 152,789 (64,141)
-------------- --------------- --------------
EQUITY IN LOSS OF AFFILIATE -- 24,863 4,763
Income (loss) from continuing operations
before income taxes (84,205) 127,926 (68,904)
INCOME TAXES -- -- --
-------------- --------------- --------------
Income (loss) from continuing operations (84,205) 127,926 (68,904)
LOSS FROM OPERATIONS OF DISCONTINUED
BUSINESSES, net of tax (Note 7) -- 222,791 128,096
-------------- --------------- --------------
NET LOSS (84,205) (94,865) (197,000)
Preferred share distributions 6,560 10,580 12,580
-------------- --------------- --------------
NET LOSS AVAILABLE TO
COMMON SHAREHOLDERS $ (90,765) $ (105,445) $ (209,580)
============== =============== ==============
Income (loss) from continuing operations
per common share $ (.01) $ .01 $ (.01)
-------------- --------------- --------------
Discontinued operations per common share -- (.02) (.01)
--------------- --------------- --------------
Basic and diluted net loss per common share $ (.01) $ (.01) $ (.02)
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NEW AMERICA NETWORK, INC.
-------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------- Paid-In Accumulated Treasury
Shares Par Value Capital Deficit Stock
------------- ------------ ------------ --------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1995 12,782,090 $ 131,876 $ 2,460,962 $ (3,202,181) $ (227,893)
Stock issued 81,110 811
Amortization of deferred compensation 37,642
Distributions on preferred stock (12,580)
Net loss (197,000)
-------------- ---------- --------------
BALANCE, JUNE 30, 1996 12,863,200 132,687 2,498,604 (3,411,761) (227,893)
Stock issued 25,170 252
Amortization of deferred compensation 28,365
Distributions on preferred stock (10,580)
Treasury stock purchase (17,125) (4,775)
Net loss (94,865)
-------------- ---------- ------------ -------------- --------------
BALANCE, JUNE 30, 1997 12,871,245 132,939 2,526,969 (3,517,206) (232,668)
Stock issued 115,169 1,152 13,250
Amortization of deferred compensation 16,146
Distributions on preferred stock (6,560)
Treasury stock purchase (12,000) (1,200)
Net loss (84,205)
-------------- ---------- ------------ -------------- --------------
BALANCE, JUNE 30, 1998 12,974,414 $ 134,091 $ 2,556,365 $ (3,607,971) $ (233,868)
============== ========== ============ ============== =============
<CAPTION>
Total
--------------
<S> <C>
BALANCE, JUNE 30, 1995 $ (837,236)
Stock issued 811
Amortization of deferred compensation 37,642
Distributions on preferred stock (12,580)
Net loss (197,000)
-------------
BALANCE, JUNE 30, 1996 (1,008,363)
Stock issued 252
Amortization of deferred compensation 28,365
Distributions on preferred stock (10,580)
Treasury stock purchase (4,775)
Net loss (94,865)
-------------
BALANCE, JUNE 30, 1997 (1,089,966)
Stock issued 14,402
Amortization of deferred compensation 16,146
Distributions on preferred stock (6,560)
Treasury stock purchase (1,200)
Net loss (84,205)
-------------
BALANCE, JUNE 30, 1998 $ (1,151,383)
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NEW AMERICA NETWORK, INC.
-------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
June 30
------------------------------------------
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (84,205) $ (94,865) $ (197,000)
Adjustments to reconcile net loss to net cash provided by operating
activities-
Discontinued operations -- 222,791 128,096
Equity in loss of affiliate -- 24,863 4,763
Depreciation and amortization 80,799 52,518 56,321
Amortization of deferred compensation 30,548 28,617 38,453
Changes in assets and liabilities-
(Increase) decrease in--
Accounts receivable (386,057) 139,454 (82,409)
Commissions receivable 301,230 (129,253) (25,464)
Notes and other receivables 3,217 2,737 (23,479)
Other current assets (35,470) (25,257) 14,021
Other assets (219,849) 1,908 (4,140)
Increase (decrease) in--
Accounts payable and accrued expenses 158,204 98,945 225,660
Deferred revenue 295,450 (89,483) 23,416
------------- ------------ ------------
Net cash provided by operating activities 143,867 232,975 158,238
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Costs incurred by discontinued operations -- (222,791) (128,096)
Purchase of property and equipment (76,371) (37,226) (149,060)
------------ ------------ ------------
Net cash used in investing activities (76,371) (260,017) (277,156)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid on preferred stock (6,560) (10,580) (12,580)
Treasury stock purchase (1,200) (4,775) --
Redemption of redeemable convertible
preferred stock (50,000) (50,000) (50,000)
Loan proceeds 114,301 150,000 110,531
Repayment of long-term debt (49,689) (71,182) (55,365)
------------- ------------ ------------
Net cash provided by (used in)
financing activities 6,852 13,463 (7,414)
------------- ------------
NET INCREASE (DECREASE) IN CASH 74,348 (13,579) (126,332)
CASH, BEGINNING OF PERIOD 61,506 75,085 201,417
------------- ------------
CASH, END OF PERIOD $ 135,854 $ 61,5060 $ 75,085
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NEW AMERICA NETWORK, INC.
-------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1998
-------------
1. NATURE OF BUSINESS:
-------------------
New America Network, Inc. (the "Company") is a Delaware corporation, which has
developed a network of independently owned licensed real estate brokers to
provide commercial real estate brokerage and other real estate-related
services. The independent brokers pay licensing fees to be included in the
Company's network, which enables them to share brokerage commissions on
commercial transactions. The Company services national and international
businesses which own or use real estate throughout the United States and, to a
lesser extent, abroad. The Company provides brokerage and real estate services
to institutional owners, lenders and large corporations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Statements of Cash Flows
- ------------------------
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents for purposes of the statements
of cash flows. Cash paid for interest was $103,037, $27,337 and $16,799 for
the years ended June 30, 1998, 1997 and 1996, respectively.
Earnings Per Share
- ------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS
No. 128 establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with
F-7
<PAGE>
publicly held common stock or potential common stock. This statement
simplifies the standards for computing EPS previously found in APB Opinion No.
15, "Earnings per Share," and makes them comparable to international EPS
standards.
Basic EPS is based on the weighted average number of common shares
outstanding. The weighted average number of shares outstanding used in the
Basic EPS computations was 12,958,998, 12,883,549 and 12,860,322 for the years
ended June 30, 1998, 1997 and 1996, respectively.
The Diluted EPS computations have been adjusted to give effect to common share
equivalents; specifically, redeemable convertible preferred stock outstanding.
The weighted average number of shares outstanding used in the Diluted EPS
computations was 13,084,998, 13,034,549 and 13,036,322 for the years ended
June 30, 1998, 1997 and 1996, respectively.
The Company's per common share data is as follows:
<TABLE>
<CAPTION>
For the Year Ended
June 30
-----------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income (loss) from continuing operations $ (.01) $ .01 $ (.01)
Discontinued operations -- (.02) (.01)
---------- ---------- --------
Basic and diluted net loss $ (.01) $ (.01) $ (.02)
========= ========= =========
</TABLE>
Property and Equipment
Property and equipment are stated at cost. Major renewals and betterments are
capitalized while replacements, maintenance and repairs that do not improve or
extend the life of the asset are expensed. As assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is reflected. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
as follows:
<TABLE>
<CAPTION>
June 30
--------------------------------
Useful
Life 1998 1997
-------------- ------------------ -------------
<S> <C> <C> <C>
Office equipment 7 years $ 189,273 $ 128,219
Leasehold improvements 7 years 13,626 13,626
Computer equipment 3 years 162,440 151,679
------------- -------------
365,339 293,524
Less- Accumulated depreciation (192,684) (138,441)
------------- -------------
Property and equipment, net $ 172,655 $ 155,083
============= =============
</TABLE>
Other Assets
Other assets consist primarily of certain costs directly attributable to the
proposed offering transaction described in Note 11. These costs have been
deferred and will be charged directly against the gross proceeds from the
consummated offering.
F-8
<PAGE>
Investments
- -----------
The Company accounts for its 50% investment in NAIS on the equity method. The
Company's net investment in NAIS as of June 30, 1998 and 1997, was zero. The
joint venture was operationally dissolved in June 1998 and is currently being
wound down with anticipated legal dissolution in fiscal 1999.
The Company's share of NAIS's loss was $0, $24,863 and $4,763 for the years
ended June 30, 1998, 1997 and 1996, respectively.
Revenue Recognition and Deferred Revenue
- ----------------------------------------
License fees received from the Company's member broker firms are deferred and
recognized ratably over the term of the marketing service agreement, generally
over one to three years. Commissions from real estate sales brokered by the
Company are recognized at the time of the transfer of title. Commissions from
other network transactions are primarily recognized as they are earned. Such
commissions may be collected in installments over several years.
3. INDEBTEDNESS:
-------------
Notes Payable
- -------------
The Company had available a $100,000 line of credit from First Washington
State Bank which expired on October 2, 1997. The line was secured by a second
mortgage on the Company's office building. Borrowings against this line were
$100,000 as of June 30, 1997. Interest was payable quarterly on this line at a
rate of prime plus 1%. This line was repaid on October 2, 1997.
On October 2, 1997, the Company entered into a $100,000 line of credit with
First Washington State Bank. The line is secured by a second mortgage on the
Company's office building and borrowings under the line bear interest at prime
plus 1% (prime was 8.5% at June 30, 1998) with a maturity date of October
1998. The Company had borrowings of $100,000 outstanding at June 30, 1998.
The Company had a commercial installment loan in the amount of $80,000 from
First Washington State Bank which was secured by equipment and personally
guaranteed by the Chief Executive Officer of the Company. The interest rate on
this loan was prime plus 1% (prime was 8.5% at June 30, 1997). The outstanding
principal balance on this loan totaled $33,333 as of June 30, 1997. This loan
was repaid in full during 1998.
On December 2, 1997, the Company received $100,000 of proceeds from a term
loan with First Washington State Bank. The loan bears interest at the prime
rate plus 1% (prime was 8.5% at June 30, 1998), with monthly principal
payments of $1,667 and a maturity date of December 2002. The loan is secured
by a third mortgage on the Company's office building and personally guaranteed
by the Chief Executive Officer of the Company. At June 30, 1998, principal of
$90,000 was outstanding under this loan, with remaining principal payments of
$20,000 due in fiscal years 1999 through 2002 and $10,000 due thereafter.
F-9
<PAGE>
On February 11, 1998, the Company received $14,300 of proceeds from a loan
with Premium Funding Association. The loan bears interest at a fixed rate of
10.5%. At June 30, 1998, principal of $7,945 was outstanding under this loan.
Principal and interest payments of $1,589 are due monthly with all outstanding
principal and interest due in full at the loan maturity date of November 1998.
Aggregate maturities follow:
1999 $ 127,945
2000 20,000
2001 20,000
2002 20,000
2003 10,000
---------------
Total $ 197,945
===============
Stockholder Loans
- -----------------
The Company had loans outstanding of $441,235 at June 30, 1998 and June 30,
1997, from certain of its stockholders. These amounts are due on demand and
interest is payable at rates ranging from 10% to 12%. During the years ended
June 30, 1998 and 1997, the Company incurred interest of $50,398 and $41,588
on these borrowings, respectively.
4. RELATED PARTY TRANSACTIONS:
---------------------------
The Company rents office space in Hightstown, New Jersey, under the terms of
an operating lease from an affiliate owned by two officers of the Company. The
minimum annual rent under the lease is $102,000 and the lease expires in April
1999. The lease automatically renews for successive one-year periods and
either party may terminate the lease on 90 days written notice. During fiscal
1998, 1997 and 1996, the Company paid $102,000 in rent expense under the terms
of this lease.
During fiscal 1998, the Company received commissions totaling $100,000 from
Kranzco Realty Trust ("Kranzco") for assistance in the acquisition of five
shopping center properties.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
---------------------------------------
The Company issued 201,000 shares of Series A Redeemable Convertible Preferred
Stock ("Series A Preferred Stock"), par value $.01 per share in April 1994 for
$402,000. The Series A Preferred Stock has a distribution rate of 4 percent of
the Exchange Price ($2.00). The distributions are payable in arrears on July
1, October 1, January 1, and April 1.
The holders of shares of the Series A Preferred Stock are able to convert all
or part of such shares into shares of Common Stock of the Company equal to the
lesser of $2.00 or the average NASDAQ bid price per share, as defined. Upon
such conversion, the holder of shares of Series A Preferred Stock will also
receive a warrant to purchase, for one year, shares of common stock equal to
one share of common stock for every ten shares of Series A Preferred Stock
converted at a purchase price of $1 per share. No shares of Series A Preferred
Stock have been converted through June 30, 1998.
F-10
<PAGE>
The Company is required to redeem shares of Series A Preferred Stock in five
consecutive annual installments of at least 25,000 shares on October 1, 1994
through 1998, with all remaining shares being redeemed on or before September
30, 1999. The Company has redeemed 100,000 shares through June 30, 1998 for a
total value of $200,000. The Company paid distributions of $6,560, $10,580 and
$12,580 for the years ended June 30, 1998, 1997 and 1996, respectively.
6. STOCKHOLDERS' DEFICIT:
---------------------
Common Stock
- ------------
The Company had 200,000,000 shares of Common stock, $.01 par value per share
authorized as of June 30, 1998 and 1997. The Company had 13,409,089 shares of
common stock issued and 12,974,414 shares outstanding as of June 30, 1998. The
Company had 13,293,920 shares of common stock issued and 12,871,245 shares
outstanding as of June 30, 1997.
Treasury Stock
- --------------
The Company repurchases common stock at a weighted average stock price at
management's discretion. At June 30, 1998 and 1997, the Company had 434,675
shares of treasury stock valued at $233,868 and 422,675 shares of treasury
stock valued at $232,668, respectively.
7. INCOME TAXES:
-------------
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes," that utilizes an asset and liability approach
for financial accounting and reporting for income taxes.
The Company files a consolidated federal tax return and state tax returns on a
separate company basis. At June 30, 1998, the Company had federal net
operating loss carryforwards of approximately $2,270,000 for application
against future taxable income. Such carryforwards expire between 2002 and
2012. Changes in ownership, as defined by Section 382 of the Internal Revenue
Code, could limit the amount of net operating loss carryforwards used in any
one year.
The components of income tax provision (benefit) are as follows:
For the Year Ended
June 30
-------------------------------------------------
1998 1997 1996
------------- --------------- ---------------
Current:
Federal $ -- $ -- $ --
State -- -- --
--------------- --------------- ----------------
-- -- --
--------------- --------------- ----------------
Deferred:
Federal (156,517) (56,444) 112,808
State -- --
----------------
(156,517) (56,444) 112,808
--------------- --------------- ----------------
Valuation allowance 156,517 56,444 (112,808)
--------------- --------------- ----------------
$ -- $ -- $ --
=============== =============== ================
F-11
<PAGE>
The reported provision for income taxes differs from that computed by
multiplying pre-tax income by the applicable statutory federal income tax rate
due primarily to state income taxes and the utilization of net operating loss
carryforwards.
The components of the net deferred tax asset (liability) are as follows:
June 30
-------------------------------------
1998 1997
--------------- ------------------
Net operating loss carryforwards $ 891,697 $ 1,012,048
Other accruals and reserves 44,555 (232,313)
------------------ ------------------
936,252 779,735
------------------ ------------------
Valuation allowance (936,252) (779,735)
------------------ ------------------
Net $ -- $ --
================== ------------------
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
established a valuation allowance for the entire net deferred tax asset.
8. DISCONTINUED OPERATIONS:
-----------------------
During 1997, the Company adopted plans to discontinue the operations of New
America Financial Services ("NAFS"). Accordingly, the operating results of
NAFS have been segregated from continuing operations and reported as a
separate line item on the statement of operations for the fiscal years ended
June 30, 1997 and 1996.
Operating results from discontinued operations are as follows:
1997 1996
---------------- ----------------
Total revenue $ 9,530 $ 26,250
Costs and expenses:
Cost of services -- --
Operating expenses (232,321) (154,346)
--------------- ----------------
Loss from operations of
discontinued businesses $ (222,791) $ (128,096)
=============== ================
No deferred tax benefit was recorded for discontinued operations due to the
Company's net operating loss carryforwards.
9. SEVERANCE AGREEMENT:
-------------------
On August 15, 1994, the Company entered into a severance agreement with an
employee. The Company agreed to pay the employee one year's full salary at the
higher of the employee's salary at the time of the agreement or at the time of
termination. This employee terminated on June 28, 1996, but remained as an
independent contractor until November 25, 1996, at which time severance
payments began. Payments aggregating $100,000 are to be made over a two-year
period and are included in accrued expenses.
F-12
<PAGE>
10. COMMITMENTS AND CONTINGENCIES:
-----------------------------
All full-time employees over the age of 21 and who have completed one full
year of employment are eligible to participate in the Company's 401(k) plan.
The Company contributes to the plan at its own discretion. For the years ended
June 30, 1998, 1997 and 1996, the Company's contribution to the plan amounted
to $0, $7,000, and $7,089, respectively.
In the normal course of business, there are various claims which have been
brought or asserted against the Company. After consultation with legal
counsel, in management's opinion such actions or claims will not have a
material adverse effect on the Company's financial position or results of
operations.
11. SUBSEQUENT EVENTS:
-----------------
On August 12, 1998, Kranzco commenced an exchange offer pursuant to which
Kranzco has offered to exchange an aggregate of $8,000,000 of Kranzco 6%
Callable Convertible Subordinated Notes Due 2008 for 80% of the outstanding
shares of common stock of the Company. In connection therewith, the Company
and two large stockholders entered into an Exchange Agreement with Kranzco.
The transaction is subject to certain conditions.
In connection with the Exchange Agreement, the Company has agreed to effect a
reincorporation merger by merging into New America International, Inc., a
Maryland corporation and a wholly owned subsidiary of the Company ("NAI
Maryland"). Upon the consummation of such merger, the Company will be known as
New America International, Inc. and each share of the Company will be
converted into 1.318087 shares of NAI Maryland.
Kranzco is expected to distribute to Kranzco shareholders approximately 70.2%
of the outstanding shares of the Company, estimated to be approximately
12,000,000. After the distribution, the Company will issue rights to acquire
additional shares of common stock of the Company, at $2 per share, to all of
its stockholders on a one-for-one basis, exercisable for 45 days.
On August 6, 1998, the Company executed an agreement whereby a $202,000
promissory note was issued in connection with the repurchase of 101,000 shares
of Series A Preferred Stock. Principal and accrued interest on this note are
due in full at the loan maturity date of December 1998.
F-13
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY NAI. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF
COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY
ANYONE IN ANY JURIS DICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------------------
SUMMARY TABLE OF CONTENTS
Page
Available Information.......................................................2
Prospectus Summary..........................................................3
NAI.........................................................................3
Risk Factors...............................................................18
Use of Proceeds............................................................28
Dividend Policy............................................................30
Dilution...................................................................31
Capitalization.............................................................32
New America Network, Inc Pro Forma
Condensed Financial Information.........................................35
Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 39
Business.................................................................. 42
Related Transactions...................................................... 51
The Distribution.......................................................... 54
The Rights Offering....................................................... 57
The Concurrent Offering................................................... 64
Material United States Federal
Tax Considerations.........................................................68
Management.................................................................73
Principal Stockholders.....................................................85
Certain Related Party Transactions.........................................86
Description of Securities..................................................87
Certain Provisions of Maryland Law and
of NAI's Charter and Bylaws..............................................89
Shares Eligible for Future Sale............................................91
Plan of Distribution.......................................................92
Experts....................................................................92
Legal Matters..............................................................93
Index to Financial Statements.............................................F-1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NEW AMERICA
INTERNATIONAL, INC.
Common Stock
Rights to Purchase Common Stock
------------
PROSPECTUS
------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the approximate amount of the fees
and expenses payable by the Registrant in connection with the issuance and
distribution of the Common Stock.
SEC Registration Fee.............................................$ 11,575
Blue Sky Fees and Expenses...........................................100,000
Printing and Mailing Fees............................................200,000
Counsel Fees and Expenses............................................500,000
Accountant's Fees and Expenses........................................75,000
Transfer Agent and Registrar Fees.....................................25,000
Miscellaneous.........................................................88,425
Total....................................................$1,000,000
==========
- --------------------
* Estimate
Item 14. Indemnification of Directors and Officers
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The charter of NAI
contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law.
The charter of NAI authorizes it, to the maximum extent permitted
by Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer or (b) any individual who, while a
director of NAI and at the request of NAI, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner
or trustee of such corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise from and
against any claim or liability to which such person may become subject or
which such person may incur by reason of his or her status as a present or
former director or officer of NAI. The Bylaws of NAI obligate it, to the
maximum extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
director of NAI and at the request of NAI, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner
or trustee of such corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is
made a party to the proceeding by reason of his service in that capacity. The
charter and Bylaws also permit NAI to indemnify and advance expenses to any
person who served a predecessor of NAI in any of the capacities described
above and to any employee or agent of NAI or a predecessor of NAI.
II-1
<PAGE>
The MGCL requires a corporation (unless its charter provides
otherwise, which NAI's charter does not) to indemnify a director or officer
who has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (a) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, under the
MGCL, a Maryland corporation may not indemnify for an adverse judgment in a
suit by or in the right of the corporation or for a judgment of liability on
the basis that personal benefit was improperly received, unless in either case
a court orders indemnification and then only for expenses. In addition, the
MGCL permits a corporation to advance reasonable expenses to a director or
officer upon the corporation's receipt of (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the corporation and (b) a written
undertaking by him or on his behalf to repay the amount paid or reimbursed by
the corporation if it shall ultimately be determined that the standard of
conduct was not met.
Item 15. Recent Sales of Unregistered Securities
On August 1, 1994, the Board of Directors awarded 29 employees an
aggregate of 47,095 shares of Common Stock as bonus compensation for services
performed. The Board of Directors also awarded a consultant of the Registrant
1,875 shares of Common Stock as a performance bonus.
On October 17, 1994, the Board of Directors awarded a consultant of
the Registrant 100,000 shares of Common Stock as a performance bonus.
On March 6, 1995, Joseph Grossman, Peter O. Hanson and Marc Shegoski,
members of the Board of Directors purchased 5,000, 50,000 and 10,000 shares of
Common Stock, respectively, at a price of $.50 per share.
On June 5, 1995, the Board of Directors awarded Matthew Arnold,
Derrick Mashore, David Blanchard and Jeffrey Finn, senior level employees of
the Registrant, 30,000, 50,000, 45,000 and 20,000 shares of Common Stock as
bonus compensation for services performed.
On July 10, 1995, the Board of Directors awarded 34 employees an
aggregate of 60,157 shares of Common Stock as bonus compensation for services
performed. The Board of Directors also awarded a consultant of the Registrant
6,875 shares of Common Stock as a performance bonus.
On July 27, 1995, the Board of Directors awarded 53 Broker Members an
aggregate of 14,078 shares of Common Stock as a bonus.
On July 9, 1996, the Board of Directors awarded 38 employees an
aggregate of 25,170 shares of Common Stock as bonus compensation.
On July 28, 1997, the Board of Directors awarded 34 employees an
aggregate of 89,669 shares of Common Stock as bonus compensation for services
permed. The Board also awarded a consultant of the Registrant 500 shares of
Common Stock as a performance bonus.
II-2
<PAGE>
On January 14, 1997, the Board of Directors awarded each of Matthew
Arnold, Joseph Grossman, Peter O. Hanson, Robert McMenamin and Marc Shegoski,
the non-employees directors of the Registrant, 5,000 shares of Common Stock
for their service on the Board.
The transactions listed above were made in reliance upon the
exemption from registration provisions under the Securities Act of 1933, as
amended, contained in Section 4(2) thereof.
Item 16. Exhibits and Financial Statement Schedules
(i) Exhibits.
2.1 Form of Exchange Agreement, among Kranzco Realty Trust, Gerald Finn,
Jeffrey Finn, and a trust for the benefit of Jeffrey Finn. ++
3.1 Amended and Restated Articles of Incorporation of the Registrant
(Delaware). ++
3.2 Amended and Restated Bylaws of the Registrant (Delaware). ++
3.3 Articles of Incorporation of the Registrant (Maryland). ++
3.4 Bylaws of the Registrant (Maryland). ++
4.1 Form of Common Stock Certificate. ++
4.2 Form of Subscription Certificate. ++
4.3 Executive Group Subscription Form. ++
4.4 Broker Member Group Subscription Form. ++
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP. ++
10.1 Form of Restricted Stock Agreement between New America Network, Inc.
and selected employees. +
10.2 Form of Employment Agreement with Gerald Finn. ++
10.3 Form of Employment Agreement with Jeffrey Finn. ++
10.4 Lease dated August 15, 1984 between New America Network, Inc. and The
Building Center. ++
10.5 Amendment dated April 15, 1998 to Lease Agreement between New America
Network, Inc. and The Building Center, Inc. ++
10.6 New America International, Inc. 1998 Incentive Plan. ++
10.7 New America International, Inc. 1998 Bonus Compensation Plan. ++
10.8 New America International, Inc. 1998 Stock Option Plan. ++
II-3
<PAGE>
10.9 Business Loan Agreement dated October 2, 1997 between New America
Network, Inc. and First Washington State Bank. ++
10.10 Promissory Note dated October 2, 1997, by New America Network, Inc.,
as Borrower, payable to First Washington State Bank Main-Windsor, as
Lender. ++
10.11 Commercial Guaranty, dated October 2, 1997, by Gerald C. Finn, as
Guarantor, on behalf of New America Network, Inc., as Borrower, in
favor of First Washington State Bank Main-Windsor, as Lender.++
10.12 Commercial Guaranty, dated October 2, 1997, by Norma Finn, as
Guarantor, on behalf of New America Network, Inc., as Borrower, in
favor of First Washington State Bank Main-Windsor, as Lender. ++
10.13 Commercial Security Agreement in the principal amount of $100,000,
dated October 2, 1997, between New America Network, Inc., as
Borrower, and First Washington State Bank Main-Windsor, as Lender.++
10.14 Mortgage, dated October 2, 1997, between the Building Center, Inc.,
as Grantor, and First Washington State Bank, as Lender. ++
10.15 Business Loan Agreement, dated November 25, 1997, between New America
Network, Inc., as Borrower and First Washington State Bank, as
Lender. ++
10.16 Promissory Note dated November 25, 1997, by New America Network,
Inc., as Borrower, payable to First Washington State Bank
Main-Windsor, as Lender. ++
10.17 Commercial Security Agreement in the principal amount of $100,000,
dated November 25, 1997, between New America Network, Inc., as
Borrower, and First Washington State Bank Main-Windsor, as Lender.++
10.18 Mortgage, dated November 25, 1997 between the Building Center, Inc.,
as Grantor, and First Washington State Bank, as Lender. ++
10.19 Form of Intercompany Agreement between Kranzco Realty Trust and the
Registrant. ++
21.1 List of Subsidiaries of Registrant.++
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
Exhibit 5.1). ++
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (included on Signature Page).+
27.1 Financial Data Schedule.+
+ Filed with Registration Statement on Form S-1 (File No. 333-52743)
filed with SEC on May 15, 1998.
++ Filed with Amendment No. 1 to Registration Statement on Form S-1
(File No. 333-52743) filed with SEC on May 15, 1998.
(ii) Financial Statement Schedules.
None.
II-4
<PAGE>
All other schedules have been omitted because they are not required
or not material or because the required information is included in the
financial statements included elsewhere herein.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4) For purposes of determining any liability under the Act,
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
II-5
<PAGE>
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part
of this registration statement as of the time it was declared
effective.
(5) For the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 3 to Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in
the City of Hightstown, State of New Jersey, on the 1st day of September, 1998.
New America International, Inc.
By /s/ Gerald C. Finn
---------------------------------------
Gerald C. Finn
Co-Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Gerald C. Finn and/or Jeffrey M. Finn, his or her true and lawful
attorneys-in-fact and agents, with full powers of substitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign
and to file any and all amendments, including post-effective amendments and
any registration statements filed pursuant to Rule 462(b), to this
Registration Statement with the Securities and Exchange Commission, granting
to each said attorney-in-fact and agent power and authority to perform any
other act on behalf of the undersigned required to be done in connection
therewith.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gerald C. Finn Chief Executive Officer; September 1, 1998
- ---------------------------------------- Co-Chairman and Director
Gerald C. Finn (Principal Executive Officer)
/s/ Jeffrey M. Finn President; Chief Operating Offering September 1, 1998
- ---------------------------------------- and Director
Jeffrey M. Finn
/s/ Norman M. Kranzdorf* Co-Chairman and Director September 1, 1998
- ----------------------------------------
Norman M. Kranzdorf
/s/ Robert H. Dennis* Chief Financial Officer September 1, 1998
- ---------------------------------------- and Director
Robert H. Dennis
/s/ Joseph Grossman Director September 1, 1998
- ----------------------------------------
Joseph Grossman
/s/ Peter O. Hanson Director September 1, 1998
- ----------------------------------------
Peter O. Hanson
/s/ Bernard J. Korman Director September 1, 1998
- ----------------------------------------
Bernard J. Korman
/s/ Michael Kranzdorf Chief Information Officer September 1, 1998
- ---------------------------------------- and Director
Michael Kranzdorf
/s/ Margaret B. Smith Controller (Principal Financial September 1, 1998
- ---------------------------------------- Officer)
Margaret B. Smith
</TABLE>
II-7
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated August 14, 1998 on the consolidated financial staements of New America
Network, Inc. (and to all references to our Firm) included in or made part of
this Registration Statement on Form S-1 of New America Network, Inc.
/s/ Arthur Andersen LLP
Philadelphia, Pa.
August 28, 1998
