<PAGE>
As filed with the Securities and Exchange Commission on August 4, 1998
Registration No. 333-52745
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEW AMERICA NETWORK, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 6531 23-1916759
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
---------------------------
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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)
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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. |_|
---------------------------
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.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement on Form S-1 of New America Network, Inc., a
Delaware corporation ("NAI Delaware"), contains a Prospectus for New America
International, Inc., a Maryland corporation ("NAI Maryland"). Prior to the
effectiveness of this Registration Statement, NAI Delaware will be merged with
and into NAI Maryland (the "Reincorporation Merger"), and NAI Maryland will be
the surviving corporation. The information in the Prospectus contained herein,
reflects the Reincorporation Merger and describes the registrant as it will
exist after the Reincorporation Merger. Part II of this Registration Statement
reflects information regarding the Registrant after the Reincorporation Merger.
<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 AUGUST 4 1998
PROSPECTUS
New America International, Inc.
12,005,185 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 12,005,185 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 18 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.
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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."
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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 STATE OF CALIFORNIA (OTHER THAN QUALIFIED PURCHASERS), FLORIDA,
MARYLAND, NORTH DAKOTA, SOUTH DAKOTA AND TEXAS 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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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 $2,686,000 or
46% of NAI's net revenues for fiscal year 1997). 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 $1,063,000 or 18% of
NAI's net revenues for fiscal year 1997), (ii) the sharing of fees received from
Alliance Members in sealed-bid sales, auction transactions and other real
estate-related services (approximately $170,000 or 3% of NAI's net revenues for
fiscal year 1997), and (iii) the collection of annual membership fees paid by
Broker Members and Alliance Members (approximately $1,282,000 or 22% of NAI's
net revenues for fiscal year 1997). 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.),
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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
"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
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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 ______________, 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, 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;
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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;
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
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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
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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.
Distribution Record Date................................. ____________, 1998
Distribution Effective Date.............................. ____________, 1998
Manner of Effecting the Distribution..................... Kranzco will distribute 12,005,185 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
</TABLE>
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<TABLE>
<S> <C>
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 TaxConsiderations--
Federal Income Taxation of the Distribution."
<CAPTION>
The Rights Offering
<S> <C>
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
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
</TABLE>
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<TABLE>
<S> <C>
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
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.
</TABLE>
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<TABLE>
<S> <C>
Subscription Agent....................................... First Union National Bank
Information Agent........................................ The Information Agent for the Rights Offering is
MacKenzie Partners, Inc., 156 Fifth Avenue, New
York, New York 10010, telephone: (800) 322-2885.
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."
<CAPTION>
The Concurrent Offering
<S> <C>
Executive Group Subscription
Privilege................................................ Concurrently with the Rights Offering, NAI is
offering to officers, directors and trustees of NAI
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
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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.
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.
</TABLE>
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<TABLE>
<S> <C>
Subscription Agent....................................... First Union National Bank
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,
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."
<CAPTION>
General
<S> <C>
NAI Shares Outstanding after the Rights
Offering and the Concurrent Offering.................... 36,202,806 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
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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 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 $715,000 of indebtedness (which
includes approximately $72,000 of accrued
interest), (iii) grow NAI's Corporate Services
Department and Investment Sales Department, and
(iv) strategically acquire and develop Real
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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 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,
</TABLE>
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<TABLE>
<S> <C>
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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<PAGE>
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 nine months ended
March 31, 1998 and the year ended June 30, 1997. The pro forma balance sheet
data as of March 31, 1998 has been prepared as if the Exchange Offer and the
Distribution had occurred on March 31, 1998. The pro forma operating and other
data for the nine months ended March 31, 1998 have been prepared as if the
consummation of the Exchange Offer and the Distribution had occurred on July 1,
1996. The pro forma operating and other data for the year ended June 30, 1997
have been prepared as if the foregoing transactions had occurred on July 1,
1996. 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>
Nine Months Ended March 31, Year Ended June 30,
----------------------------------- --------------------------------------
Pro Forma Historical Pro Forma Historical
--------- --------------------- ---------- -------------------------
1998 1998 1997 1997 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
OPERATING DATA: (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Commissions.............................. $ 2,836 $ 2,836 $ 2,910 $ 4,001 $ 4,001 $ 4,124 $ 4,371
License fees............................. 1,128 1,128 923 1,282 1,282 1,373 1,158
Other.................................... 474 474 563 618 618 523 470
Interest................................. 0 0 0 0 0 0 0
------- ------- ------- -------- ------- -------- -------
Total revenue............................ 4,438 4,438 4,396 5,901 5,901 6,020 5,999
------- ------- ------- -------- ------- -------- -------
Costs and expenses:
Commission expense....................... 602 602 788 1,143 1,143 1,782 1,485
Sales and marketing...................... 277 277 194 321 321 285 324
Compensation and benefits................ 1,832 1,832 1,911 2,528 2,528 2,438 1,981
Operating expense........................ 1,953 1,578 1,187 2,144 1,644 1,475 1,336
Depreciation and amortization............ 40 40 37 52 52 56 45
Interest, net............................ 47 47 47 60 60 48 46
------- ------- ------- -------- ------- -------- -------
Total costs and expenses................. 4,751 4,376 4,164 6,248 5,748 6,084 5,217
------- ------- ------- -------- ------- -------- -------
Income (loss) from operations............ (313) 62 232 (347) 153 (64) 782
------- ------- ------- -------- ------- -------- -------
Other expenses:
Equity in loss of affiliate.............. 12 12 15 25 25 5 0
Loss on sale of real estate.............. 0 0 0 0 0 0 65
------- ------- ------ -------- ------- -------- -------
Total other expenses..................... 12 12 15 25 25 5 65
------- ------- ------ -------- ------- -------- -------
Income (loss) from continuing operations
before income taxes...................... (325) 50 217 (372) 128 (69) 717
---- ----
Income taxes............................. 5 5 0 0 0 0 35
------- ------- ------ -------- ------- -------- -------
Income (loss) from continuing operations. (330) 45 217 (372) 128 (69) 682
---- ----
Loss from discontinued operations........ 0 0 162 0 223 128 392
------- ------- ------ -------- ------- -------- -------
Net income (loss)........................ (330) 45 55 (372) (95) (197) 290
---- ----
Preferred share distributions............ 0 7 8 0 11 13 15
------- ------- ------ -------- ------- -------- -------
Net income (loss) available to common
shareholders........................... $ (330) $ 38 $ 47 $ (372) $ (106) $ (210) $ 275
======= ======= ======= ======== ======= ======== =======
Net income (loss) per share.............. $ (0.02) $ 0.00 $ 0.00 $ (0.02) $(0.01) $ (0.02) $ 0.02
======= ======= ======= ======== ======= ======== =======
Other data (unaudited):
Cash flows provided by (used in)
Operating.................................. (186) 189 313 (267) 233 158 593
Investing.................................. (41) (41) (196) (260) (260) (277) (260)
Financing.................................. 18 11 (8) (156) 13 (7) (156)
Common shares outstanding.................. 17,101 12,974 12,888 16,965 12,871 12,863 12,782
Weighted average shares outstanding........ 17,075 12,954 12,888 16,981 12,883 12,860 12,648
Ratio of EBITDA to fixed charges(1)........ (2.74) 1.46 3.27 (2.32) 1.95 0.30 7.62
EBITDA(1).................................. $ (238) $ 137 $ 301 $ (260) $ 240 $ 35 $ 808
Balance sheet data (1995 unaudited):
Total assets............................... $ 1,829 $ 1,829 $ 1,807 $ 1,689 $ 1,732 $ 1,649
Total debt................................. $ 643 $ 643 $ 550 $ 575 $ 496 $ 441
Shareholders deficit....................... $(1,026) $(1,026) $ (983) $(1,090) (1,008) $ (837)
</TABLE>
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<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.
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<PAGE>
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 in the fiscal years ended June 30, 1997 and
1996 of $105,445 and $209,580, 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 $3,479,000 as of March 31, 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."
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
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<PAGE>
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.; 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.
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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."
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
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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."
Board 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 $643,000 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. 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.
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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. While NAI believes that it
has strong defenses to any alleged violation of any State Law, it has not
obtained an opinion of counsel regarding such matters, 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.
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.
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
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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.
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
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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 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
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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 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.
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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 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
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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."
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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 $715,000 of indebtedness
(which includes approximately $72,000 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) $6,666.74 aggregate
principal amount outstanding under a demand Promissory Note, dated April 29,
1996, issued by NAI to First Washington State Bank ("FWSB"), which bears
interest at a variable rate equaling FWSB's prime rate plus one percent (8.5% as
of June 30, 1998), (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) $95,000 aggregate principal amount outstanding pursuant to a
Promissory Note dated December 2, 1997, issued by NAI to FWSB pursuant to a term
loan due November 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.
-28-
<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)
------------------- --------------------- ------------------------
<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% $ 715,000 4% $ 715,000 2%
Indebtedness (including
accrued interest of
approximately $72,000)
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 $ 0 0% $ 0 0% $ 1,910,140 5%
Acquisition of Real
Estate
General corporate and $ 0 0% $ 2,778,000 14.5% $ 4,928,806 13.1%
working capital
purposes
Total Net Proceeds: $860,756 100% $19,000,000 100% $37,202,806 100%
</TABLE>
(1) $56,244 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."
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 $715,000 of indebtedness (which includes $72,000 of accrued
interest) of NAI described
-29-
<PAGE>
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.
-30-
<PAGE>
DILUTION
At March 31, 1998, NAI had a net tangible book value of $(1,026,123),
or $(0.08) per outstanding common share. Without taking into account any other
change in such net tangible book value after March 31, 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 March 31, 1998 would have been as follows given the range of the
number of Underlying Shares, Excess Shares and Additional Shares purchased:
Net Tangible
Book Value Per Share
---------- ---------
Minimum number of Underlying Shares,
Excess Shares and Additional Shares
purchased (930,378 NAI Shares) $ (166,123) $(.01)
Moderate number of Underlying Shares,
Excess Shares and Additional Shares
purchased (10,000,000 NAI Shares) $17,973,877 $.66
Maximum number of Underlying Shares,
Excess Shares and Additional Shares
purchased (19,101,403 NAI Shares) $36,176,690 $1.00
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) $(.08) $(.08) $(.08)
Increase in net tangible book value per NAI
Share attributable to the Rights Offering and
the Concurrent Offering(2)
$.07 $.74 $1.08
---- ---- -----
Net tangible book value per NAI Share after
the Rights Offering and the Concurrent
Offering(2) $(.01) $.66 $1.00
------ ---- -----
Dilution in net tangible book value per NAI
Share to new investors(3) $2.01 $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 $1,828,817 less total liabilities and redeemable convertible
preferred shares of $2,854,940) 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.
-31-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of NAI (i) as of
March 31, 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 March 31, 1998
--------------------
(In thousands)
Actual As adjusted(1)
------ --------------
<S> <C> <C>
Debt:
Stockholders loans..................................................... $ 441 $ 0
Long-term debt......................................................... 75 0
------ -------
Total debt........................................... 516 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......................................... 2,553(2) 39,245 (3)(4)
Retained earnings (deficit)............................................ (3,479) (3,479)
------ -------
(792) 36,128
Treasury stock, at cost(2)............................................. (234) 0 (3)
------ -------
Total stockholders' equity (deficit)................. (1,026) 36,128
------ -------
Total capitalization................................. $ (308) $36,128
====== =======
</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):
<TABLE>
<CAPTION>
As Adjusted
--------------
(In thousands)
(a) (b)
--- ---
<S> <C> <C>
Total debt............................................. $ 0 $ 0
Convertible preferred stock............................ $ 0 $ 0
Common stock........................................... $ 180 $ 271
Capital in excess of par value......................... $ 3,133(3)(4) $21,182(3)(4)
Retained earnings (deficit)............................ $(3,479) $(3,479)
Treasury stock......................................... $ 0(3) $ 0(3)
Total capitalization.............................. $ (166) $17,974
NAI Shares outstanding................................. 18,032 27,101
</TABLE>
(2) Includes 434,675 NAI Shares issued and held in treasury stock as of March
31, 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.
-32-
<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 nine months ended
March 31, 1998 and the year ended June 30, 1997. The pro forma balance sheet
data as of March 31, 1998 has been prepared as if the Exchange Offer and the
Distribution had occurred on March 31, 1998. The pro forma operating and other
data for the nine months ended March 31, 1998 have been prepared as if the
consummation of the Exchange Offer and the Distribution had occurred on July 1,
1997. The pro forma operating and other data for the year ended June 30, 1997
have been prepared as if the foregoing transactions had occurred on July 1,
1996. 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>
Nine Months Ended March 31, Year Ended June 30,
---------------------------------- -------------------------------------------------------------------
Pro Forma Historical Pro Forma Historical
--------- --------------------- ---------- -------------------------------------------------------
1998 1998 1997 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ----
OPERATING DATA: (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Commissions ............. $ 2,836 $ 2,836 $ 2,910 $ 4,001 $ 4,001 $ 4,124 $ 4,371 $ 2,312 $ 2,563
License fees ............ 1,128 1,128 923 1,282 1,282 1,373 1,158 1,081 1,007
Other ................... 474 474 563 618 618 523 470 427 384
Interest ................ 0 0 0 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenue ........... 4,438 4,438 4,396 5,901 5,901 6,020 5,999 3,820 3,954
------ ------ ------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Commission expense ...... 602 602 788 1,143 1,143 1,782 1,485 839 790
Sales and marketing ..... 277 277 194 321 321 285 324 274 283
Compensation and
benefits ............... 1,832 1,832 1,911 2,528 2,528 2,438 1,981 1,895 1,648
Operating expense ....... 1,953 1,578 1,187 2,144 1,644 1,475 1,336 1,161 1,018
Depreciation and
amortization ........... 40 40 37 52 52 56 45 53 152
Interest, net ........... 47 47 47 60 60 48 46 37 43
------ ------ ------ ------ ------ ------ ------ ------ ------
Total costs and
expenses ............... 4,751 4,376 4,164 6,248 5,748 6,084 5,217 4,259 33,934
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations ............. (313) 62 232 (347) 153 (64) 782 (439) 20
------ ------ ------ ------ ------ ------ ------ ------ ------
Other expenses:
Equity in loss of
affiliate .............. 12 12 15 25 25 5 0 0 0
Loss on sale of real
estate ................. 0 0 0 0 0 0 65 0 0
------ ------ ------ ------ ------ ------ ------ ------ ------
Total other expenses .... 12 12 15 25 25 5 65 0 0
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
continuing operations
before income taxes .... (325) 50 217 (372) 128 (69) 717 (439) 20
Income taxes ............ 5 5 0 0 0 0 35 0 0
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
continuing operations .. (330) 45 217 (372) 128 (69) 682 (439) 20
Loss from discontinued
operations ............ 7 0 162 0 223 128 392 0 0
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) ....... (330) 45 55 (372) (95) (197) 290 (439) 20
Preferred share
distributions .......... 0 7 8 0 11 13 15 0 0
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)
available to common
shareholders ........... $ (330) $ 38 $ 47 $ (372) $ (106) $ (210) $ 275 $ (439) $ 20
====== ====== ====== ====== ====== ====== ====== ====== ======
Net income (loss)
per share ............. $ (0.02) $ 0.00 $ 0.00 $ (0.02) $ (0.01) $ (0.02) $ 0.02 $ (0.03) $ 0.00
====== ====== ====== ====== ====== ====== ====== ====== ======
Other data (unaudited):
Cash flows provided by
(used in)
Operating ................. (186) 189 313 (267) 233 158 593 10 141
Investing ................. (41) (41) (196) (260) (260) (277) (260) (113) (241)
Financing ................. 18 11 (8) (156) 13 (7) (156) 48 (73)
Common shares outstanding.. 17,101 12,974 12,888 16,965 12,871 12,863 12,782 12,523 12,655
Weighted average shares
outstanding ............... 17,075 12,954 12,888 16,981 12,883 12,860 12,648 12,589 12,652
Ratio of EBITDA to fixed
charges(1)................ (2.74) 1.46 3.27 (2.32) 1.95 0.30 7.62 (3.88) 1.10
EBITDA(1) ................. (238) $ 137 $ 301 $ (260) $ 240 $ 35 $ 808 $ (349) $ 215
Balance sheet data
(1995 unaudited):
Total assets .............. $ 1,829 $ 1,829 $ 1,807 $ 1,689 $ 1,732 $ 1,649 $ 1,177 $ 1,447
Total debt ................ $ 643 $ 643 $ 550 $ 575 $ 496 $ 441 $ 482 $ 358
Shareholders' deficit ..... $ (1,026) $ (1,026) $ (983) $ (1,090) $ (1,008) $ (837) $ (1,176) $ (44)
</TABLE>
-33-
<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.
-34-
<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 March 31, 1998, the unaudited pro forma
condensed Statements of Operations of NAI for the nine months ended March 31,
1998 and for the year ended June 30, 1997, in each case after giving effect to
the Exchange Offer and the subsequent Distribution (the "Transactions").
The unaudited pro forma combined condensed Balance Sheet as of March
31, 1998 is presented as if the Transactions had occurred on March 31, 1998. The
unaudited pro forma condensed Statements of Operations for the nine months ended
March 31, 1998 and for the year ended June 30, 1997 are presented as if the
Transactions had occurred on July 1, 1996. However, the unaudited pro forma
combined condensed Balance Sheet as of March 31, 1998 and the unaudited pro
forma condensed Statements of Operations for the nine months ended March 31,
1998 and for the year ended June 30, 1997 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.
-35-
<PAGE>
NEW AMERICA NETWORK, INC. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
As of March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
March 31,
Historical Reincorporation Merger(A) 1998
---------- ------------------------- ---------
<S> <C> <C> <C>
Assets:
Current assets:
Cash.............................................. $ 220 $ 0 $ 220
Accounts receivable............................... 787 0 787
Commissions receivable............................ 637 0 637
Notes and other receivables....................... 6 0 6
Other current assets.............................. 20 0 20
----------- ---------- -------
Total current assets.............................. 1,670 0 1,670
----------- ---------- -------
Property and equipment (net)........................... 156 0 156
Other assets........................................... 3 0 3
----------- ---------- -------
Total assets...................................... $ 1,829 $ 0 $ 1,829
=========== ========== =======
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable and accrued expenses............. $ 1,016 $ 0 $ 1,016
Accrued interest.................................. 72 0 72
Current portion of long-term debt................. 127 0 127
Stockholder loans................................. 441 0 441
Deferred revenue.................................. 922 0 922
----------- ---------- -------
Total current liabilities......................... 2,578 0 2,578
----------- ---------- -------
Long-term debt......................................... 75 0 75
-- ---------- -------
Total liabilities................................. 2,653 0 2,653
----------- ---------- -------
Redeemable convertible preferred stock................. 202 0 202
----------- ---------- -------
Stockholders' equity:
Preferred stock................................... 0 0 0
Common stock...................................... 134 0 134
Additional paid-in capital........................ 2,553 (234)(B) 2,319
Accumulated deficit............................... (3,479) 0 (3,479)
Treasury stock, at cost........................... (234) 234(B) 0
----------- ---------- -------
Total stockholders' equity........................ (1,026) 0 (1,026)
----------- ---------- -------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity $ 1,829 $ 0 $ 1,829
=========== ========== =======
</TABLE>
NOTES AND MANAGEMENT'S ASSUMPTIONS TO NAI'S PRO FORMA BALANCE SHEET
as of March 31, 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.
-36-
<PAGE>
NEW AMERICA NETWORK, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the Nine Months Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
March 31,
Historical Reincorporation Merger(A) 1998
---------- ------------------------- ---------
<S> <C> <C> <C>
Revenue:
Commissions....................................... $ 2,836 $ 0 $2,836
License fees...................................... 1,128 0 1,128
Other............................................. 474 0 474
Interest income................................... 0 0 0
- - -
Total revenue..................................... 4,438 0 4,438
----------- ---------- -----
Costs and expenses:
Commission expense................................ 602 0 602
Sales and marketing............................... 277 0 277
Compensation and benefits......................... 1,832 0 1,832
Operating expense................................. 1,578 375 (B) 1,953
Depreciation and amortization..................... 40 0 40
Interest, net..................................... 47 0 47
----------- ---------- --
Total costs and expenses.......................... 4,376 375 4,751
----------- ---------- -----
Income (loss) from operations.......................... 62 (375) (313)
Other expenses:
Loss in investment in NAIS............................. 12 0 12
----------- ---------- --
Total other expense............................... 12 0 12
----------- ---------- --
Income taxes........................................... 5 0 5
----------- ---------- -
Net income (loss)...................................... 45 (375) (330)
Preferred share distributions.......................... 7 (7) (C) 0
----------- ---------- -
Net income (loss) available to common shareholders..... $ 38 $ (368) $ (330)
=========== ========== ======
Basic and diluted earnings per common share............ $ 0.00 $(0.02)
=========== ======
Basic and diluted earnings per
recapitalized common share........................... $ 0.00 $(0.02)
=========== ======
Weighted average number of
common shares outstanding............................ 12,954
Weighted average number of common
shares and equivalents outstanding................... 13,080
After recapitalization
Weighted average number of
common shares outstanding............................ 17,075 17,075
Weighted average number of common shares and
equivalents outstanding.............................. 17,201 17,201
</TABLE>
-37-
<PAGE>
NEW AMERICA NETWORK, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the Year Ending June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
June 30,
Historical Reincorporation Merger(A) 1997
---------- ------------------------- ---------
<S> <C> <C> <C>
Revenue:
Commissions....................................... $ 4,001 $ 0 $4,001
License fees...................................... 1,282 0 1,282
Other............................................. 618 0 618
Interest income................................... 0 0 0
----------- ---------- -
Total revenue..................................... 5,901 0 5,901
----------- ---------- -----
Costs and expenses:
Commission expense................................ 1,143 0 1,143
Sales and marketing............................... 321 0 321
Compensation and benefits......................... 2,528 0 2,528
Operating expenses................................ 1,644 500 (B) 2,144
Depreciation and amortization..................... 52 0 52
Interest, net..................................... 60 0 60
----------- ---------- --
Total costs and expenses.......................... 5,748 500 6,248
----------- ---------- -----
Income from operations................................. 153 (500) (347)
Other expenses:
Loss in investment in NAIS............................. 25 0 25
----------- ---------- --
Total other expenses.............................. 25 0 25
----------- ---------- --
Income taxes........................................... 0 0 0
----------- ---------- -
Net income (loss)...................................... 128 (500) (372)
Distributions on preferred shares...................... 11 (11) (C) 0
----------- ---------- -
Net income (loss) available to common shareholders..... $ 117 $ (489) $ (372)
=========== ========== ======
Basic and diluted earnings per common share............ $ 0.01 $(0.02)
=========== ======
Basic and diluted earnings per
recapitalized common share........................... $ 0.01 $(0.02)
=========== ======
Weighted average number of
common shares outstanding............................ 12,883
Weighted average number of common
shares and equivalents outstanding.................. 13,035
After recapitalization
Weighted average number of
common shares outstanding............................ 16,981 16,981
Weighted average number of common shares and
equivalents outstanding.............................. 17,133 17,133
The accompanying notes and management's assumptions are an integral
part of this statement.
</TABLE>
-38-
<PAGE>
Footnotes to NAI's Pro Forma Consolidated Statements of Operations for the year
ended June 30, 1997 and the Nine Months ended March 31, 1998.
The Loss from Discontinued Operations is eliminated for purposes of the Pro
Forma Consolidated Statements of Operations for the year ended June 30, 1997.
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."
Footnotes to NAI's Pro Forma Consolidated Statements of Operations for the year
ended June 30, 1997 and the Nine Months ended March 31, 1998. (Continued)
<TABLE>
<CAPTION>
June 30,
March 31, 1998 1997
-------------- --------
<S> <C> <C>
B) To reflect fees and costs payable under the Intercompany Agreement. $ 375 $ 500
C) To reflect the elimination of preferred share distributions in connection
with the redemption of the redeemable convertible preferred shares. $ 7 $ 11
</TABLE>
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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 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 March 31, 1998 NAI had approximately $220,000 of cash on hand. NAI
has generated approximately $159,000 of cash flows from operating, investing and
financing activities for the nine months ended March 31, 1998. Management
believes that NAI will be able to continue to generate such positive cash flow
at a rate sufficient to meet is short-term liquidity needs. Approximately 35% of
total liabilities as of March 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 $643,000 at March 31, 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. In addition, NAI had a bank loan
outstanding of $6,666 which requires monthly payments of principal of $3,333
with interest at the bank's prime rate (8.5% at March 31, 1998) plus 1%. NAI
also had a bank loan outstanding of $95,000 which requires monthly payments of
principal and interest of $1,667 with interest at the bank's prime rate (8.5% at
March 31, 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 March 31, 1998) plus 1%. This line was fully utilized at March 31,
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 for an aggregate repurchase price of
$202,000 indebtedness, (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
Nine months ended March 31, 1998 versus the nine months ended March 31, 1997
Net income for common shareholders decreased $9,000, or 19%, from
$47,000 for the nine months ended March 31, 1997 to $38,000 for the same period
in 1998. This decrease is due to a combination of factors as described below.
Revenue from commissions decreased $74,000, or 3%, from $2,910,000 for
the nine months ended March 31, 1997 to $2,836,000 for the same period in 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 $205,000, or 22%, from $923,000 for the nine
months ended March 31, 1997 to $1,128,000 for the same period in 1998. The
increase was due to an increase in the number of international broker members
(which resulted in approximately $125,000 of additional fees) and increased
revenue from existing membership renewals (which increased approximately 5% per
annum over prior year's fees).
Other revenue decreased $89,000, or 16%, from $563,000 for the nine
months ended March 31, 1997 to $474,000 for the nine months ended March 31,
1998. The decrease was due to a one time change in NAI's
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<PAGE>
meeting and events calendar in 1998 in which NAI did not hold one of its major
meetings, the National Council Symposium.
Commission expense decreased $186,000, or 24%, from $788,000 for the
nine months ended March 31, 1997 to $602,000 for the nine months ended March 31,
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 increased $83,000, or 43%, from $194,000
for the nine months ended March 31, 1997 to $277,000 for the nine months ended
March 31, 1998. This increase was due primarily to increased costs of NAI's
annual convention and meetings, which was offset by a decrease in costs as a
result of NAI not holding its National Council Symposium in 1998.
Compensation and benefits decreased $79,000, or 4%, from $1,911,000 for
the nine months ended March 31, 1997 to $1,832,000 for the nine months ended
March 31, 1998. This decrease was due primarily to the streamlining and
consolidation of staffing.
Other operating expenses increased $391,000, or 33%, from $1,187,000
for the nine months ended March 31, 1997 to $1,578,000 for the nine months ended
March 31, 1998. This increase was 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 $162,000
for the nine months ending March 31, 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 income (loss) for common shareholders increased $104,000, or 50%,
from a loss of ($210,000) in 1996 to a loss of ($106,000) in 1997. This increase
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 $95,000, or 18%, from $523,000 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 $90,000, or 4%, from $2,438,000 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.
Year ended June 30, 1996 versus the year ended June 30, 1995
Net income (loss) for common shareholders decreased $485,000 from
income of $275,000 in 1995 to a loss of ($210,000) in 1996. This decrease is due
to a combination of factors as described below.
Revenue from commissions decreased $247,000, or 6%, from $4,371,000 for
the year ended June 30, 1995 to $4,124,000 for the year ended June 30, 1996. The
decrease was primarily due to a decrease in the Network to Broker commissions.
In 1995, there were two major Network to Broker deals which totaled
approximately $439,000. While these fees were not similarly earned in 1996, the
decrease was partially offset by an increase in sealed bids and broker to broker
commissions.
License fees increased $215,000, or 19%, from $1,158,000 for the year
ended June 30, 1995 to $1,373,000 for the year ended June 30, 1996. The increase
was primarily due to the fees earned by the property management services
($166,000) which was a new service provided in 1996.
Other revenue increased $53,000, or 11%, from $470,000 for the year
ended June 30, 1995 to $523,000 for the year ended June 30, 1996. The increase
was primarily due to marketing assessment fees which were initiated in mid-year
in 1995 with a full year of revenues recognized in 1996.
Commission expense increased $297,000, or 20%, from $1,485,000 for the
year ended June 30, 1995 to $1,782,000 for the year ended June 30, 1996. The
increase was primarily due to an increase in sealed bid sales in fiscal year
1996.
Sales and marketing expenses decreased $39,000, or 12%, from $324,000
for the year ended June 30, 1995 to $285,000 for the year ended June 30, 1996.
This decrease was due to NAI eliminating its regional meetings in 1996 and
thereby incurring no costs with respect to these meetings.
Compensation and benefits increased $457,000, or 23%, from $1,981,000
for the year ended June 30, 1995 to $2,438,000 for the year ended June 30, 1996.
This increase was due to an increase in personnel in the Northeast and Southeast
brokerage services regions, Corporate Services, Property Management and
Headquarters staff.
Other operating expenses increased $139,000, or 10%, from $1,336,000
for the year ended June 30, 1995 to $1,475,000 for the year ended June 30, 1996.
This increase was primarily due to an increase in travel expenses for newly
hired regional staff as well as an increase in advertising and promotional
expenses.
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The loss from operations of discontinued businesses decreased $264,000,
or 67%, from $392,000 for the year ended June 30, 1995 to $128,000 for the year
ended June 30, 1996. This decrease was due to NAI recording a loss of
approximately $245,000 in 1995 related to the discontinuance of RealQuest, Inc.,
a wholly-owned subsidiary of NAI. NAI recorded a loss of approximately $147,000
and $128,000 for the discontinuance of NAFS for the years ended June 30, 1995
and 1996, respectively.
Preferred share distributions decreased $2,000, or 16%, from $15,000
for the year ended June 30, 1995 to $13,000 for the year ended June 30, 1996.
This decrease was due to a redemption of 25,000 shares of NAI's preferred stock
for $50,000.
Inflation
Most of NAI's revenue is derived from commissions on the sale or lease of
commercial property and therefore is protected from inflation since an increase
in the sales prices or lease rates would generate additional revenue. The
majority of the license agreements signed by the Broker Members have fee
increases built in for the term of the agreements which are based on fixed
increases or increases over the Consumer Price Index. These two factors help
decrease NAI's exposure to inflation.
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 $2,686,000 or
46% of NAI's net revenues for fiscal year 1997). 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 $1,063,000 or 18% of
NAI's net revenues for fiscal year 1997), (ii) the sharing of fees received from
Alliance Members in sealed-bid sales, auction transactions and other Real
Estate-Related Services (approximately $170,000 or 3% of NAI's net revenues for
fiscal year 1997), and (iii) the collection of annual membership fees paid by
Broker Members and Alliance Members (approximately $1,282,000 or 22% of NAI's
net revenues for fiscal year 1997).
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.
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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 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.
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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.
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
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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
1997, approximately $2,686,000 or 46% 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 $1,063,000 or 18% 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 $1,282,000 or 22% 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."
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
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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 calendar year ended December 31, 1997, the Network
consummated 20 investment real estate transactions with a transaction value of
approximately $100,000,000, which resulted in approximately $400,000 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 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 calendar year 1997,
approximately $475,000 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
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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 calendar year ended
December 31, 1997, NAI and Terra produced sealed-bid sales resulted in the sale
of approximately 19 properties with approximately $421,000 of revenues to NAI
(which for financial purposes are reported as commissions) and an additional
$2,500,000 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 15 auctions in the calendar year ended December 31,
1997. In the calendar year ended December 31, 1997, auction sales resulted in
approximately $50,000 of revenues to NAI and an additional $500,000 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. REALTrac(TM), 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. REALTrac(TM) allows NAI staff to
easily track multiple Client assignments, and produce portfolio activity
reports. REALNet(TM), NAI's central database information system, includes, among
other things, Broker Member profiles, Broker Member listings, transaction
histories, Client relationship information and Client profiles.
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 REALTrac(TM) and REALNet(TM)
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 REALTrac(TM)
system. This site also allows Clients to contact NAI staff that
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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."
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."
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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 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
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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. NAI believes that it has strong defenses to any alleged
violation of any State Law; however, it has not obtained an opinion of counsel
regarding such matters. Notwithstanding, 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.
RELATED TRANSACTIONS
The Exchange Agreement
On _________, 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
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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 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
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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 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
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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.
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
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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 redevelop 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;
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
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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 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.
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Manner of Effecting the Distribution
Kranzco will effect the Distribution on the Distribution Effective Date
by delivering 12,005,185 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 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
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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 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;
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(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 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
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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.
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.
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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:
<TABLE>
<S> <C>
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
</TABLE>
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.
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).
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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.
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 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
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(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.
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
Any questions or request for assistance should be directed to the
Information Agent. The Information Agent for the Rights Offering is:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Telephone: (800) 322-2885.
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:
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<TABLE>
<S> <C>
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
</TABLE>
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 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."
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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 California (other than "qualified purchasers" under the laws of
the state of California who make the California Representation), Florida,
Maryland, North Dakota, South Dakota and Texas 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.
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.
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The address to which the Subscription Forms, and payment of the
Subscription Price should be delivered is:
<TABLE>
<S> <C>
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
</TABLE>
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.
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
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have been received or accepted until all irregularities have been waived or
cured within such time as NAI determines in its sole discretion.
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.
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:
<TABLE>
<S> <C>
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
</TABLE>
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
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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 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.
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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.
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
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"reportable payments" for each calendar year and the amount of tax withheld, if
any, with respect to such payments.
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
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applying certain holding period rules) will generally be treated as a long-term
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 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
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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
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 Salesperson in the State of New Jersey. Mr. Finn is a member of the ICSC,
IDRC, NACORE and the Wharton Real Estate Center Advisory Board.
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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 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
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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 $100,000
(collectively, the "Named Executives"), during the fiscal year ended June 30,
1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation
--------------------------------------- ----------------
Name & Principal Position Year Salary Bonus Restricted
- ------------------------- ---- ------ ----- Stock Awards($)
($) ($) ---------------
<S> <C> <C> <C> <C>
Gerald C. Finn 1997 $125,000 - $7,500(2)
Chairman and Chief
Executive Officer
Jeffrey M. Finn 1997 $110,000 $20,000 $2,250(2)
President, Chief
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."
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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 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
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<PAGE>
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.
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.
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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 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.
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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 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
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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.
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.
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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 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
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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 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
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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.
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.
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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.
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.
(8) Includes 400,050 NAI Shares issuable upon options to purchase NAI
Shares.
(Footnotes continued on following page)
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(Footnotes continued from previous page)
(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, 1997, 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.
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
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<PAGE>
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 July 15, 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."
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."
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<PAGE>
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 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
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<PAGE>
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.
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
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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 5,088,815 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 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
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<PAGE>
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.
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.
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<PAGE>
INDEX TO NEW AMERICA NETWORK, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
Page
----
Index to Financial Statements......................................... F-1
Report of Independent Public Accountants.............................. F-2
Consolidated Balance Sheets........................................... F-3
Consolidated Statements of Operations................................. F-4
Consolidated Statements of Stockholders' Deficit...................... F-5
Consolidated Statements of Cash Flows................................. F-6
Notes to Consolidated Financial Statements............................ F-7
F-1
<PAGE>
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, 1997 and 1996, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
three years in the period ended June 30, 1997. 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, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1997 in conformity with generally accepted accounting
principles.
Philadelphia, Pa.,
May 8, 1998
F-2
<PAGE>
NEW AMERICA NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30
March 31, ----------------------------------------
1998 1997 1996
---------------------- -------------------- -----------------
(unaudited)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 220,246 $ 61,506 $ 75,085
Accounts receivable (net of allowance of $20,000 and
$7,439 at June 30, 1997 and 1996) 787,408 576,924 716,378
Commissions receivable 636,541 856,194 726,941
Notes and other receivables 6,299 16,829 19,566
Other current assets 19,588 20,456 20,062
------------ ------------ ------------
Total current assets 1,670,082 1,531,909 1,558,032
------------ ------------ ------------
PROPERTY AND EQUIPMENT, net 156,353 155,083 170,375
OTHER ASSETS, net 2,382 1,987 3,895
------------ ------------ ------------
Total assets $ 1,828,817 $ 1,688,979 $ 1,732,302
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,015,718 $ 1,051,859 $ 985,216
Accrued interest 71,887 127,495 95,193
Current portion of long-term debt 126,667 133,333 43,334
Stockholder loans 441,235 441,235 419,083
Deferred revenue 922,433 773,023 862,506
------------ ------------ ------------
Total current liabilities 2,577,940 2,526,945 2,405,332
------------ ------------ ------------
LONG-TERM DEBT 75,000 -- 33,333
------------ ------------ ------------
Total liabilities 2,652,940 2,526,945 2,438,665
------------ ------------ ------------
REDEEMABLE CONVERTIBLE PREFERRED
STOCK 202,000 252,000 302,000
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 8,
9 and 10)
STOCKHOLDERS' DEFICIT:
Common stock 134,091 132,939 132,687
Additional paid-in capital 2,552,779 2,526,969 2,498,604
Accumulated deficit (3,479,125) (3,517,206) (3,411,761)
Treasury stock, at cost (233,868) (232,668) (227,893)
------------ ------------ ------------
Total stockholders' deficit (1,026,123) (1,089,966) (1,008,363)
------------ ------------ ------------
Total liabilities, redeemable
convertible preferred $ 1,828,817 $ 1,688,979 $ 1,732,302
stock and stockholders' deficit ============ ============ ============
</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 Nine Months For the Year Ended
Ended March 31 June 30
------------------------------------- -------------------------------------------------
1998 1997 1997 1996 1995
-------------------- --------------- --------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE:
Commissions $ 2,836,365 $ 2,910,147 $ 4,001,168 $ 4,124,139 $ 4,370,999
License fees 1,127,575 923,100 1,281,861 1,373,418 1,157,960
Other 473,998 562,593 617,587 522,399 469,741
------------- ------------- ------------- ------------- -------------
Total revenue 4,437,938 4,395,840 5,900,616 6,019,956 5,998,700
------------- ------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Commission expense 602,534 788,193 1,142,575 1,782,292 1,485,024
Sales and marketing 276,860 193,809 321,379 284,963 323,619
Compensation and benefits 1,831,783 1,911,151 2,527,676 2,437,395 1,980,962
Other operating 1,578,222 1,186,953 1,644,040 1,475,091 1,336,179
Depreciation 39,789 36,874 52,518 56,321 44,779
Interest, net 46,906 46,678 59,639 48,035 45,811
------------- ------------- ------------- ------------- -------------
Total costs and expenses 4,376,094 4,163,658 5,747,827 6,084,097 5,216,374
------------- ------------- ------------- ------------- -------------
Income (loss) from operations 61,844 232,182 152,789 (64,141) 782,326
------------- ------------- ------------- ------------- -------------
OTHER EXPENSES:
Equity in loss of affiliate 11,603 14,866 24,863 4,763 --
Loss on sale of real estate -- -- -- -- 65,323
------------- ------------- ------------- ------------- -------------
Total other expenses 11,603 14,866 24,863 4,763 65,323
------------- ------------- ------------- ------------- -------------
Income (loss) from continuing
operations before income taxes 50,241 217,316 127,926 (68,904) 717,003
INCOME TAXES 5,600 -- -- -- 35,000
------------- ------------- ------------- ------------- -------------
Income (loss) from continuing
operations 44,641 217,316 127,926 (68,904) 682,003
LOSS FROM OPERATIONS OF
DISCONTINUED BUSINESSES,
net of tax (Note 7) -- 161,938 222,791 128,096 392,412
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) 44,641 55,378 (94,865) (197,000) 289,591
Preferred share distributions 6,560 7,935 10,580 12,580 14,580
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) AVAILABLE $ 38,081 $ 47,443 $ (105,445) $ (209,580) $ 275,011
TO COMMON SHAREHOLDERS ============= ============= ============= ============== =============
</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 Total
------------- ------------- ---------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1994* .............. 12,523,120 $128,286 $2,349,943 $(3,477,192) $(177,893) $(1,176,856)
Stock issued ........................ 358,970 3,590 80,850 84,440
Amortization of deferred
compensation....................... 30,169 30,169
Distributions on preferred stock .... (14,580) (14,580)
Treasury stock purchase ............. (100,000) (50,000) (50,000)
Net income .......................... 289,591 289,591
------------ ------- --------- ---------- -------- ----------
BALANCE, JUNE 30, 1995 .............. 12,782,090 131,876 2,460,962 (3,202,181) (227,893) (837,236)
Stock issued ........................ 81,110 811 811
Amortization of deferred
compensation....................... 37,642 37,642
Distributions on preferred stock .... (12,580) (12,580)
Net loss ............................ (197,000) (197,000)
------------ ------- --------- ---------- -------- ----------
BALANCE, JUNE 30, 1996 .............. 12,863,200 132,687 2,498,604 (3,411,761) (227,893) (1,008,363)
Stock issued ........................ 25,170 252 252
Amortization of deferred
compensation....................... 28,365 28,365
Distributions on preferred stock .... (10,580) (10,580)
Treasury stock purchase ............. (17,125) (4,775) (4,775)
Net loss ............................ (94,865) (94,865)
------------ ------- --------- ---------- -------- ----------
BALANCE, JUNE 30, 1997 .............. 12,871,245 132,939 2,526,969 (3,517,206) (232,668) (1,089,966)
Stock issued* ....................... 115,169 1,152 13,250 14,402
Amortization of deferred
compensation* ..................... 12,560 12,560
Distributions on preferred stock* ... (6,560) (6,560)
Treasury stock purchase* ............ (12,000) (1,200) (1,200)
Net income* ......................... 44,641 44,641
------------ -------- ---------- ----------- --------- -----------
BALANCE, MARCH 31, 1998* ............ 12,974,414 $134,091 $2,552,779 $(3,479,125) $(233,868) $(1,026,123)
============ ======== ========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
*Unaudited
F-5
<PAGE>
NEW AMERICA NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months For the Year Ended
Ended March 31 June 30
------------------------------------- -------------------------------------------------
1998 1997 1997 1996 1995
-------------------- --------------- --------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 44,641 $ 55,378 $ (94,865) $ (197,000) $ 289,591
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities
Discontinued operations -- 161,938 222,791 128,096 392,412
Equity in loss of affiliate 11,603 14,866 24,863 4,763 --
Depreciation 39,789 36,874 52,518 56,321 44,779
Amortization of deferred
compensation 26,962 22,092 28,617 38,453 114,609
Loss on sale of real estate -- -- -- -- 65,323
Changes in assets and liabilities-
(Increase) decrease in-
Accounts receivable (210,484) 92,074 139,454 (82,409) (113,832)
Commissions receivable 219,653 (98,337) (129,253) (25,464) (412,959)
Notes and other receivables 10,530 (2,627) 2,737 (23,479) (3,567)
Other current assets (10,735) (5,074) (25,257) 14,021 (8,084)
Other assets (395) -- 1,908 (4,140) 388
Increase (decrease) in-
Accounts payable and
accrued expenses (91,749) 33,746 98,945 225,660 14,566
Deferred revenue 149,410 1,983 (89,483) 23,416 209,684
--------- --------- --------- --------- ---------
Net cash provided by
operating activities 189,225 312,913 232,975 158,238 592,910
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Costs incurred by
discontinued operations -- (161,938) (222,791) (128,096) (392,412)
Proceeds from sale of real
estate -- -- -- -- 75,000
Disposal of property and
equipment -- -- -- -- 57,706
Purchase of property and
equipment (41,059) (33,602) (37,226) (149,060) --
--------- --------- --------- --------- ---------
Net cash used in investing
activities (41,059) (195,540) (260,017) (277,156) (259,706)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Distributions paid on
preferred stock (6,560) (7,935) (10,580) (12,580) (14,580)
Treasury stock purchase (1,200) (4,775) (4,775) -- (50,000)
Redemption of redeemable
convertible preferred
stock (50,000) (50,000) (50,000) (50,000) (50,000)
Loan proceeds 100,000 99,999 150,000 110,531 2,105
Repayment of long-term debt (31,666) (45,675) (71,182) (55,365) (43,345)
--------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities 10,574 (8,386) 13,463 (7,414) (155,820)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 158,740 108,987 (13,579) (126,332) 177,384
CASH, BEGINNING OF PERIOD 61,506 75,085 75,085 201,417 24,033
--------- --------- --------- --------- ---------
CASH, END OF PERIOD $ 220,246 $ 184,072 $ 61,506 $ 75,085 $ 201,417
========== ========== ========== ========== ==========
</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, 1997
1. ORGANIZATION AND OPERATIONS:
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 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.
The financial statements as of March 31, 1998 and for the nine-month periods
ended March 31, 1998 and 1997 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the unaudited
periods have been included. The results for the interim periods are not
necessarily indicative of the results for the full year.
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 $27,337, $16,799 and $15,937 for the
years ended June 30, 1997, 1996 and 1995, respectively, and $102,514 (unaudited)
and $16,491 (unaudited) for the nine month periods ended March 31, 1998 and
1997, respectively.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share ("SFAS") No. 128. SFAS No. 128 establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities with
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 12,883,549, 12,860,322 and 12,648,300
F-7
<PAGE>
for the years ended June 30, 1997, 1996 and 1995, respectively, and 12,954,181
(unaudited) and 12,887,632 (unaudited) for the nine-month periods ended March
31, 1998 and 1997, 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 13,034,549, 13,036,322 and 12,849,300 for the years ended June
30, 1997, 1996 and 1995, respectively, and 13,080,181 (unaudited) and 13,038,632
(unaudited) for the nine-month periods ended March 31, 1998 and 1997,
respectively.
The Company's per common share data is as follows:
<TABLE>
<CAPTION>
March 31, March 31, June 30, June 30, June 30,
1998 1997 1997 1996 1995
----------- ----------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations $ -- $ .01 $ .01 $ (.01) $ .05
Discontinued operations -- (.01) (.02) (.01) (.03)
---------------- ----------------- ---------------- ---------------- ------------
Basic and diluted net income (loss) $ -- $ -- $ (.01) $ (.02) $ .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 March 31, ---------------------------------------
Life 1998 1997 1996
------------------- ------------------- ------------------- ------------------
(unaudited)
<S> <C> <C> <C> <C>
Office equipment 7 years $ 135,614 $ 128,219 $ 128,912
Leasehold improvements 7 years 13,626 13,626 13,626
Computer equipment 3 years 185,342 151,679 127,508
------------------- ------------------- ------------------
334,582 293,524 270,046
Less - Accumulated depreciation (178,229) (138,441) (99,671)
------------------- ------------------- ------------------
Property and equipment, net $ 156,353 $ 155,083 $ 170,375
=================== =================== ==================
</TABLE>
F-8
<PAGE>
Investments
The Company accounts for its 50% investment in NAIS on the equity method. The
Company has a net (deficit) investment in NAIS of ($24,626) and $8,680 at June
30, 1997 and 1996, respectively, and is included in other current assets. The
joint venture was dissolved in February 1998.
The Company's share of NAIS' loss was $24,863, $4,763 and $0 for the years ended
June 30, 1997, 1996 and 1995, 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 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 and $0
as of June 30, 1997 and 1996, respectively. 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% (8.5% (unaudited) at March 31, 1998) with a maturity date of October
1998. The Company had no outstanding borrowings against this line of credit at
June 30, 1997 and 1996, respectively, and $100,000 (unaudited) outstanding at
March 31, 1998.
The Company has a commercial installment loan in the amount of $80,000 from
First Washington Bank which is secured by equipment and personally guaranteed by
the Chief Executive Officer of the Company. The interest rate on this loan is
prime plus 1% which was 8.5% and 8.3% at June 30, 1997 and 1996, respectively,
and 8.5% (unaudited) at March 31, 1998. The outstanding principal balance on
this loan totaled $33,333 and $76,667 as of June 30, 1997 and 1996,
respectively. At March 31, 1998 principal of $6,666 was outstanding under this
loan. Principal and interest payments of $3,333 are due monthly with all
outstanding principal and interest due in full at the loan maturity date of May
1998.
At June 30, 1997, all outstanding indebtedness was payable within one year.
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% (8.5% (unaudited) at March 31, 1998), with monthly principal payments of
$1,667 and a maturity date of November 2002. The loan is secured by a second
mortgage on the Company's office building and personally guaranteed by the Chief
Executive Officer of the Company. At March 31, 1998, principal of $95,000 was
outstanding under this loan, with remaining principal payments of $6,667 due in
fiscal year 1998, $19,992 due in fiscal years 1999 through 2002 and $8,365 due
thereafter.
F-9
<PAGE>
Stockholder Loans
The Company had loans outstanding of $441,235 and $419,083 as of June 30, 1997
and June 30, 1996, respectively, 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, 1997 and 1996, the Company incurred interest of
$41,588 and $41,369 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 1997,
1996 and 1995 the Company paid $102,000 in rent expense.
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, 1997.
The Company is required to redeem 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 75,000
shares through June 30, 1997 for a total value of $150,000. The Company paid
distributions of $10,580, $12,580 and $14,580 for the years ended June 30, 1997,
1996 and 1995, 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, 1997 and 1996. The Company had 13,293,920 shares of
common stock issued and 12,871,245 shares outstanding as of June 30, 1997. The
Company had 13,268,750 shares of common stock issued and 12,863,200 shares
outstanding as of June 30, 1996. The Company had 13,409,089 (unaudited) shares
of common stock issued and 12,974,414 (unaudited) shares outstanding as of March
31, 1998.
Treasury Stock
The Company repurchases common stock at a weighted average stock price at
management's discretion. At June 30, 1997 and 1996, the Company had 422,675
shares of treasury stock valued at $232,668 and 405,550 shares of treasury stock
valued at $227,893, respectively. At March 31, 1998, the Company had 434,675
(unaudited) shares of treasury stock valued at $233,868 (unaudited).
F-10
<PAGE>
7. INCOME TAXES:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
which adopts 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, 1997, the Company had federal net operating
loss carryforwards of approximately $2,620,000 for application against future
taxable income.
The components of income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
For the Nine Months For the Year Ended
Ended March 31 June 30
------------------------------------- -------------------------------------------------
1998 1997 1997 1996 1995
-------------------- --------------- --------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal $ -- $ -- $ -- $ -- $ --
State 5,600 -- -- -- --
-------- --------- --------- --------- ---------
5,600 -- -- -- --
-------- --------- --------- --------- ---------
Deferred:
Federal (7,140) (42,332) (56,444) 112,808 (61,028)
State -- -- -- -- 35,000
-------- --------- --------- --------- ---------
(7,140) (42,332) (56,444) 112,808 (26,028)
-------- --------- --------- --------- ---------
Valuation Allowance 7,140 42,332 56,444 (112,808) 61,028
-------- --------- --------- --------- ---------
$ 5,600 $ -- $ -- $ -- $ 35,000
======== ========= ========= ========= =========
</TABLE>
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.
F-11
<PAGE>
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
June 30
March 31, ------------------------------------
1998 1997 1996
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net operating loss carryfowards $ 984,552 $ 1,012,048 $ 993,201
Other accruals and reserves (204,115) (232,313) (269,910)
------------- ------------ ------------
780,437 779,735 723,291
------------- ------------ ------------
Valuation allowance (780,437) (779,735) (723,291)
------------- ------------ ------------
Net $ - $ - $ -
============= ============ ===========
</TABLE>
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.
8. DISCONTINUED OPERATIONS:
During 1995 and 1997, the Company adopted plans to discontinue operations of
RealQuest, Inc. ("RealQuest") and New America Financial Services ("NAFS"),
respectively. Accordingly, the operating results of RealQuest and NAFS have been
segregated from continuing operations and reported as a separate line item on
the statement of operations for all periods presented.
Operating results from these discontinued operations are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- --------------- -------------
<S> <C> <C> <C>
Total revenue $ 9,530 $ 26,250 $ 129,055
Costs and expenses:
Cost of services -- -- (44,177)
Operating expenses (232,321) (154,346) (477,290)
------------ ------------ ------------
Loss from operations of
discontinued businesses $ (222,791) $ (128,096) $ (392,412)
============ ============ ============
</TABLE>
No deferred tax benefit was recorded for these discontinued operations due to
the 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 401K plan. The
Company contributes to the plan at its own discretion. For the years ended June
30, 1997, 1996 and 1995 the Company's contribution to the plan amounted to
$7,000, $7,089 and $8,277, 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:
In March 1998, the Company signed a letter of intent to enter into a strategic
alliance with Kranzco Realty Trust ("Kranzco") that will recapitalize the
Company as a public company. The transaction is subject to certain conditions.
Under the terms of the agreement, Kranzco will conduct an exchange offer for 80%
of the outstanding common stock of the Company for $8,000,000 of Kranzco
convertible subordinated notes, convertible into common shares of beneficial
interest of Kranzco at $20 per share.
In connection with this transaction, 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, each share of the Company will
be converted into 1.316172 shares of NAI Maryland.
Kranzco is expected to spin off approximately 88% of its shares of the Company,
estimated to be approximately 12,000,000 shares or 70.2% of all outstanding
shares of the Company, to Kranzco's shareholders on a one-for-one basis. After
the spin off, 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.
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
JURISDICTION 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
Risk Factors.................................................. 18
Use of Proceeds............................................... 28
Dividend Policy............................................... 30
Dilution...................................................... 31
Capitalization................................................ 32
Selected Financial and Operating Data........................ 33
New America Network, Inc. Pro Forma Condensed
Financial Information....................................... 35
Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 40
Business...................................................... 44
Related Transactions.......................................... 52
The Distribution.............................................. 56
The Rights Offering........................................... 58
The Concurrent Offering....................................... 65
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.................................... 88
Shares Eligible for Future Sale............................... 91
Plan of Distribution.......................................... 91
Experts....................................................... 92
Legal Matters................................................. 92
Index to Financial Statements................................. F-1
---------------------------
NEW AMERICA
INTERNATION, 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.
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
II-1
<PAGE>
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.
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.
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<PAGE>
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 Proposed 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. ++
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. ++
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<PAGE>
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.
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.
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<PAGE>
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 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
II-5
<PAGE>
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. 2 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 4th day of August, 1998.
New America International, Inc.
By /s/ Gerald Finn
------------------------------------
Gerald Finn
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
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; August 4, 1998
- ------------------------- Chairman (Principal Executive
Gerald Finn Officer)
/s/ Jeffrey Finn President; Chief Operating Offering August 4, 1998
- ------------------------- and Director
Jeffrey Finn
* Director
- -------------------------
Matthew Arnold
* Director
- -------------------------
Joseph Grossman
* Director
- -------------------------
Peter Hanson
* Director
- -------------------------
Robert McMenamin
* Director
- -------------------------
Marc Shegoski
/s/ Margaret B. Smith Controller (Principal Financial August 4, 1998
- ------------------------- Officer)
Margaret B. Smith
By /s/ Gerald C. Finn August 4, 1998
----------------------
Gerald C. Finn
Attorney-in-Fact
</TABLE>
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<PAGE>
Exhibit 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated May 8, 1998 on the consolidated financial statements 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 4, 1998
