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THIS PAPER DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(D) OF REGULATION S-T
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
PRUDENTIAL REALTY TRUST
(Name of Subject Company)
PRUDENTIAL REALTY TRUST
(Name of Person(s) Filing Statement)
CAPITAL SHARES OF BENEFICIAL INTEREST, PAR VALUE $0.01
(Title of Class of Securities)
74435P-20-3
(CUSIP Number of Class of Securities)
Donna M. Dellechiaie, Esq.
Associate Regional Counsel
Prudential Realty Group
3 Gateway Center
100 Mulberry Street, 14th Floor
Newark, New Jersey 07102-4077
(Name, address and telephone number of person authorized to receive notice
and communications on behalf of the person(s) filing statement)
Copy to:
Michael M. Maney, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
(212) 558-4000
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Item 1. Security and Subject Company.
The name of the subject company is Prudential Realty Trust, a
Massachusetts business trust (the "Trust"). The Trust was formed pursuant
to a Declaration of Trust dated June 19, 1985 and amended August 20, 1985
(the "Declaration") and expects to qualify for 1995 as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended. The principal executive offices of the Trust are located at 751
Broad Street, Prudential Plaza, Newark, New Jersey, 07102-3777. The class
of equity securities to which this statement relates is the Capital Shares
of Beneficial Interest, par value $0.01 per share (the "Capital Shares"),
of the Trust. In addition to the Capital Shares, the Trust has issued and
outstanding Income Shares of Beneficial Interest, par value $0.01 per share
(the "Income Shares"). The Trust owns the following properties: Maple
Plaza, located in Parsippany, Morris County, New Jersey; Huntington
Business Campus, located in Melville, Long Island, New York; and Park 100,
located in Indianapolis, Indiana (collectively, the "Properties").
Item 2. Tender Offer of the Bidder.
This statement relates to the tender offer disclosed in the
Schedule 14D-1, dated May 17, 1995 (the "Schedule 14D-1"), of Black Bear
Realty, Ltd., a newly-formed Ohio limited liability company (the "Bidder"),
of which Richard M. Osborne is the sole managing member, to purchase all of
the outstanding Capital Shares upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated May 17, 1995, and the related
Letter of Transmittal (together, the "Offer"). The Offer to Purchase states
that the business address of the Bidder and Mr. Osborne is located at 7001
Center Street, Mentor, Ohio 44060.
Item 3. Identity and Background.
(a) The name and business address of the Trust, which is the person
filing this statement, are set forth in Item 1 above.
(b)(1) The Trust has entered into an agreement (the "Advisor
Agreement"), dated August 29, 1985, amended May 14, 1987 and amended
May 10, 1993, with The Prudential Realty Advisors, Inc. (the "Advisor").
The Trust's President, and Vice President and Treasurer, who are Trustees
of the Trust, are also Officers of the Advisor. Pursuant to this agreement,
the Advisor received approximately $951,000 in 1994 for portfolio
management and other advisory services. In addition, the Advisor is
entitled to an incentive disposition fee equal to 5% of the gain, if any,
on the sale of the Properties, and a selling commission equal to 2% of the
gross sales price on the sale of the Properties for which the Advisor acts
as broker. In the event that any of the Properties are sold pursuant to the
solicitation process currently being conducted by J.P. Morgan Securities
Inc. ("J.P. Morgan"), as more fully described in Item 5(a) below, it is not
anticipated that the Advisor will earn any such incentive disposition fee
or selling commission.
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The Trust also has entered into a tax indemnification agreement
(the "Tax Indemnification Agreement"), dated March 30, 1994, with the
Advisor. Pursuant to this agreement, the Advisor will indemnify the Trust
against any taxes and related costs the Trust may incur as a result of the
Trust's failure to follow, prior to 1993, a procedural requirement of the
Internal Revenue Code of 1986, as amended.
In addition, the Trust has entered into two separate agreements
(the "Premisys Agreements"), with Premisys Real Estate Services, Inc.
("Premisys"), an affiliate of the Advisor. The first agreement was entered
into on December 31, 1990. The second agreement was entered into on May 1,
1991, and amended on September 1, 1992. Pursuant to the Premisys
Agreements, Premisys received approximately $506,600 in 1994 for property
management, construction and leasing services for the Trust's Park 100 and
Maple Plaza properties.
Copies of the Advisor Agreement, the Tax Indemnification
Agreement and the Premisys Agreements are filed as Exhibits 1 through 4
hereto, and are incorporated herein by reference. The foregoing
descriptions of the Advisor Agreement, the Tax Indemnification Agreement
and the Premisys Agreements are qualified in their entirety by reference to
the text of such agreements.
(b)(2) To the best knowledge of the Trust, there are no
material contracts, agreements, arrangements or understandings or any
actual or potential conflicts of interest, between the Trust, its executive
officers, Trustees or affiliates, on the one hand, and the Bidder, its
executive officers, directors or affiliates, on the other hand.
Item 4. The Solicitation or Recommendation.
(a) At a meeting of the Board of Trustees of the Trust (the
"Board") held on May 30, 1995, the Board carefully considered the Trust's
business, financial conditions and prospects, the terms and conditions of
the Offer and other matters, including presentations by its legal and
financial advisors. The Board had earlier met on May 18, 1995 to consider
the Bidder's unsolicited Offer. The Board, after receiving advice from its
management and professional advisors, unanimously determined to reject the
Offer.
At the May 30 meeting, the Board unanimously concluded, among
other things, that since the policy and original intention of the
Declaration is for the Trust to be completely liquidated 101/2 to 12 years
after its inception (unless there was a change in the Trust's policies and
such change was approved by 75% of each class of shareholders, voting
separately as a class), the Offer represented the first step in a plan
designed by the Bidder to prevent the liquidation of the Trust and is in
direct conflict with the long-standing policy and intent of the Trust.
Accordingly, the Board unanimously recommends that holders of Capital
Shares reject the Offer and not tender their Capital Shares pursuant to the
Offer.
A copy of a letter to shareholders communicating the Board's
recommendation and a form of press release announcing such recommendation
are filed as Exhibits 5 and 6 hereto, respectively, and are incorporated
herein by reference.
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(b)(1) In reaching the conclusions referred to in Item 4(a)
above, the Board took into account numerous factors, including but not
limited to the following:
(i) The Board's familiarity with the business, financial
condition, prospects and current business strategy of the Trust, and the
nature of the real estate industry generally.
(ii) The numerous conditions and sub-conditions to which the
Offer is subject, including the Minimum Condition pursuant to which
consummation of the Offer requires that at least 7,150,000 Capital Shares
be validly tendered and not withdrawn prior to the expiration of the Offer.
(iii) The Offer as it now stands is an offer to purchase all
(but not less than 7,150,000 shares) of the Capital Shares. As stated in
the Offer, if the Bidder acquires 7,150,000 Capital Shares pursuant to the
Offer, the Bidder and its affiliates would, together with the Capital
Shares and Income Shares currently owned by Mr. Osborne and his affiliates,
own more than 50% of the combined voting power of the Capital Shares and
Income Shares with respect to the election of Trustees of the Trust. As
such, the Bidder, Mr. Osborne and their affiliates will have sufficient
voting power to remove all of the current Trustees of the Trust and to
elect new Trustees.
(iv) As more fully described in Item 5(a) below, J.P. Morgan
has solicited bids for the Properties. While
substantial expressions of interest in acquiring the Properties have been
received by J.P. Morgan as part of that process, the best price and terms
pursuant to which potential purchasers would enter into a binding agreement
to purchase any of the Properties are not yet clear. Shareholders should
note that the Offer to Purchase indicates that if the Bidder is successful
in the Offer, the Bidder may replace the current Trustees and the process
conducted by J.P. Morgan of soliciting bids for the Properties may well be
prevented from reaching its conclusion since it is the Bidder's expressed
intent to prevent a liquidation of the Trust. Accordingly, holders of
Capital Shares who tender shares to the Bidder pursuant to the Offer would
in effect be voting such shares against the liquidation of the Trust which
would prevent holders of Income Shares from realizing the liquidation value
of their shares in the near future.
(v) The Board is not able to fully evaluate Mr. Osborne's
past record and experience in the type of business conducted by the Trust
and in the real estate industry generally. In addition, the Board is
similarly unable to assess the experience of the Bidder or the Turkey
Vulture Fund XIII, Ltd., for each of which Mr. Osborne is the sole managing
member.
(vi) The policy and original intention of the Declaration is
for the Trust to be liquidated 101/2 to 12 years after its inception
(unless there was a change in the Trust's policies and such change was
approved by 75% of each class of shareholders, voting separately as a
class), as such, the Offer represents the first step in a plan designed by
the Bidder to prevent the liquidation of the Trust and is in direct
conflict with the long-standing policy and intent of the Trust.
(b)(2) In addition to the foregoing, the Board believes that
shareholders of the Trust should consider the following factors:
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(i) Pursuant to the Offer, the Bidder intends to take all
necessary steps to prevent the liquidation of the Trust. The Bidder
currently proposes, as soon as practicable following consummation of the
Offer, to seek to have the Trust consummate a merger or similar business
combination with a self-administered, indefinite-life REIT, with a single
class of common stock, to be controlled by the Bidder or its affiliates
(the "Proposed Merger"). Under the terms of the Proposed Merger, each then
outstanding Capital Share and each then outstanding Income Share would be
converted into the right to receive a prescribed number of shares of the
new REIT, which would result in holders of Capital Shares owning
approximately 6.9% of the new REIT and holders of Income Shares owning
approximately 93.1% of the new REIT. Accordingly, if the Proposed Merger
were consummated and, contrary to the Bidder's expressed intent to not
liquidate the Trust, the Trust is subsequently liquidated, those people who
held Capital Shares at the time of the Proposed Merger would receive 6.9%
of the amount former holders of Income Shares would have otherwise received
in a liquidation under the current Declaration and former holders of Income
Shares would lose 6.9% of the amount they would have otherwise received in
a liquidation under the current Declaration. As such, under the terms of
the Proposed Merger, holders of Income Shares would lose their liquidation
preference as is set forth in the Declaration.
(ii) As more fully set forth in Item 8(c) below, the Board
believes that the Proposed Merger will require the affirmative vote of 75%
(not the majority vote referred to in the Offer to Purchase) of each class
of shareholders, voting separately as a class. Although the likelihood
that the Proposed Merger is achievable may be remote due to the 75% vote
requirement, shareholders should also consider the potential effect of such
a merger on their holdings in the Trust. Particularly, those shareholders
who hold both Capital Shares and Income Shares may be tempted to tender
their Capital Shares, and should be aware of the possible risk to the
Income Shares of doing so. As more fully set forth in Item 8(a) below, the
Trustees are of the view, after consultation with counsel, that those
shareholders voting against a merger may well have a common law right to
dissent from such a merger and be paid the fair value of their shares
("appraisal rights"). It may well be possible (although not certain) that
a person would be denied the right to invoke appraisal rights if such
person had contributed to the success of the merger by tendering his or her
Capital Shares, even if that person's Income Shares were voted against the
subsequent merger.
(iii) Holders of both Capital Shares and Income Shares should
be aware that if, pursuant to the Trust's engagement of J.P. Morgan,
acceptable bids are received for the Properties, the Trust may be
liquidated in the current year. As stated in the Annual Report on Form 10-K
of the Trust for the year ended December 31, 1994, based on appraisals
conducted as of December 31, 1994, the appraised value of the Properties
was $73,700,000 (the "Appraised Value"). If the Trust had been liquidated
as of December 31, 1994 and the Appraised Value was the proceeds from the
sale of the Properties, the Trust estimates that holders of Income Shares
would have received approximately $4.72 per Income Share. As set forth in
Item 8(b) below, Mr. Osborne has sought a declaration from the Massachusetts
court that any capital gains realized upon a sale of the Properties be
payable to holders of Capital Shares. The Trustees are of the view, after
consultation with counsel, that disposition of one or more of the Properties
at this time would immediately effect a liquidation of the Trust, and that
the proceeds from a liquidation would be payable without regard to the
characterization of the proceeds as capital gain or return of principal.
Rather, the Trustees believe that all proceeds would be aggregated and,
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after paying expenses, would be used to pay holders of Income Shares their
liquidation preference. In accordance with the Declaration, only if the
total proceeds are sufficient to pay the per share stated value ($8.00) to
holders of Income Shares would any funds be available for holders of Capital
Shares.
Although the Board disagrees with Mr. Osborne's
interpretation of the Declaration, holders of Capital Shares should also
consider that if the court accepts Mr. Osborne's interpretation and
determines that capital gains are payable to holders of Capital Shares
prior to the redemption of the Income Shares, tendering shareholders will
lose the opportunity to receive capital gains distributions, if any.
(iv) Holders of both Capital Shares and Income Shares should
consider that by tendering their Capital Shares to the Bidder pursuant to
the Offer, they in effect would be selling the corresponding vote to the
Bidder at a cheap price (in comparison to the value of the Income Shares).
As such, tendering shareholders would be aiding the Bidder in its attempt
to gain control of the Trust by paying a small fraction of the economic
value of the Trust.
(v) Shareholders should consider that the purchase of Capital
Shares pursuant to the Offer (A) would reduce the number of Capital Shares
that might otherwise be traded publicly, (B) could adversely affect the
liquidity and market value of the remaining Capital Shares or, perhaps, the
Income Shares, held by the public, and (C) could be expected to reduce the
number of holders of Capital Shares. It is not possible for the Trust to
predict whether the decrease in the number of Capital Shares that might
otherwise be traded publicly would have a negative or positive effect on
the market price for, or the marketability of, the Capital Shares or the
Income Shares, nor can the Trust predict whether such action would cause
future market prices for the Capital Shares to be greater or less than the
$0.30 per Capital Share offered pursuant to the Offer.
(vi) Shareholders should consider that the current Board holds
2,700 Capital Shares and 7,200 Income Shares. If,
however, the Offer is successful and the Bidder purchases the minimum
7,150,000 Capital Shares sought, pursuant to the information set forth in
the Offer to Purchase, Mr. Osborne and his affiliates would then control
9,310,100 Capital Shares and only 1,873,300 Income Shares. If the Bidder
subsequently replaces the current Board with a new Board elected by
Mr. Osborne and his affiliates, the new Board would be elected by share-
holders that own a disproportionate amount of Capital Shares as compared to
Income Shares. Accordingly, holders of Capital Shares who also hold Income
Shares should consider the potential impact on future dividends if the
Bidder replaces the current Board since a Board elected by Mr. Osborne and
his affiliates could adopt certain policies of the Trust that may have a
direct impact on the amount of dividends, if any, to be paid to holders of
Income Shares.
(vii) Holders of Capital Shares should be aware that on May 16,
1995, the last full trading day prior to the Offer, the reported closing
price of the Capital Shares on the NYSE Composite Tape was $0.22 per
Capital Share. On May 30, 1995, the last full trading day prior to the
filing of this Schedule 14D-9, the reported closing price of the Capital
Shares on the NYSE Composite Tape was $0.25 per Capital Share.
Since 1993, the high price for the Capital Shares has
been $0.41 per Capital Share and the low price has been $0.11 per Capital
Share.
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If the Trust had been liquidated as of December 31, 1994 and the Appraised
Value was the proceeds from the sale of the Properties, the Trust estimates
that holders of Income Shares would have received approximately $4.72 per
Income Share and holders of Capital Shares would not have received any
distribution. There can be no assurance, however, that the Properties will
be sold for the Appraised Value. Pursuant to the Offer, the Bidder has
offered $0.30 per Capital Share, net to the seller in cash, without
interest thereon.
Item 5. Persons Retained, Employed or to be Compensated.
The Trust has retained J.P. Morgan as the Trust's financial
advisors with respect to the sale or other disposition of the stock,
assets, Properties or business of the Trust. In addition, the Trust has
retained Georgeson & Company, Inc. ("Georgeson") to assist the Trust in
connection with its communications with shareholders with respect to, and
to provide other services to the Trust in connection with, the Offer.
(a) J.P. Morgan Securities Inc.
Pursuant to a Letter Agreement, dated December 28, 1994 (the
"December Letter Agreement"), the Board engaged J.P. Morgan to review and
provide recommendations on the strategic options available to maximize the
value of the Trust to its shareholders as it approaches its scheduled
liquidation date (as set forth in the Declaration). After December 31,
1994, J.P. Morgan recommended that the Trustees proceed to solicit bids for
the shares of the Trust or its assets, in the form of cash and/or stock. On
February 9, 1995, the Board accepted J.P. Morgan's and the Advisor's
recommendation and the Board approved the engagement of J.P. Morgan to
solicit bids for the Properties. Thereafter, pursuant to a Letter
Agreement, dated March 16, 1995 (the "March Letter Agreement"), the Board
engaged J.P. Morgan to diligently undertake certain services on the Trust's
behalf including, to the extent requested: (i) assisting the Trust in
preparing an offering memorandum, (ii) identifying and contacting selected
qualified acquirors acceptable to the Trust, (iii) arranging for potential
acquirors to conduct business investigations, (iv) conducting an auction of
the Trust and/or the Properties, (v) assisting the Trust in negotiating the
financial aspects of any proposed transaction, (vi) delivering an opinion
to the Board as to the fairness to the Trust's shareholders from a
financial point of view of the consideration to be received by the Trust in
any proposed transaction, (vii) assisting in the closing of any transaction,
and (viii) such other related or ancillary services as the Trust shall
reasonably request. In accordance with the March Letter Agreement, the
Trust, in its sole discretion, may reject any proposed transaction.
Pursuant to the December Letter Agreement, the Trust paid J.P.
Morgan an advisory fee of $100,000 (the "Phase I Fee") as compensation for
J.P. Morgan's evaluation and recommendations on the strategic options
available to maximize the value of the Trust to its shareholders as it
approaches its scheduled liquidation date. Under the terms of the December
Letter Agreement, J.P. Morgan was reimbursed for its reasonable out-of-
pocket expenses of approximately $2,540. In addition, the Trust agreed
to indemnify J.P. Morgan against certain liabilities, including liabilities
under the federal securities laws.
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Pursuant to the March Letter Agreement, the Trust agreed that,
if the Trust or the Properties are sold or otherwise disposed of in a
transaction by J.P. Morgan or by the Trust, or by or through any other
person during the term of the March Letter Agreement, the Trust will pay to
J.P. Morgan a contingent success fee (the "Success Fee") equal to the
specified percentage rate set forth below multiplied by the transaction
value. The applicable percentage rate was set at one and one half percent
(1.5%) of the transaction value for the Trust's Park 100 and Maple Plaza
properties, and three quarters of one percent (0.75%) of the transaction
value for the Trust's Huntington Business Campus property. Assisting J.P.
Morgan in the solicitation of bids for the Huntington Business Campus is
Sutton and Edwards, Inc. If the Huntington Business Campus is sold, Sutton
and Edwards will receive 2.00% of the gross sales price. The Success Fee
otherwise due J.P. Morgan under the March Letter Agreement is to be
reduced: (i) by one half (50%) of the amount of any expenses reimbursable
to J.P. Morgan, and (ii) in the amount of Fifty Thousand Dollars ($50,000)
representing a credit of one half (50%) of the Phase I Fee. Under the
terms of the March Letter Agreement, J.P. Morgan will be reimbursed for its
reasonable out-of-pocket expenses up to a maximum amount of $75,000 whether
or not a transaction is consummated. In addition, the Trust has agreed to
indemnify J.P. Morgan against certain liabilities, including liabilities
under the federal securities laws.
The Success Fee is deemed payable only upon "consummation" of a
transaction. A transaction is deemed "consummated" upon the earliest of
any of the following events to occur: (i) the acquisition by another person
of at least 75% of each of the Capital Shares and Income Shares; (ii) a
merger or consolidation of the Trust with another person; (iii) closing of
the acquisition of title to one or more of the Properties; (iv) the receipt
by shareholders or the Trust of any cash, securities, or other assets of
any person as payment for the Capital Shares and/or Income Shares, or for
the acquisition of one or more of the Properties; or (v) at the next annual
meeting of the Trust's shareholders, the election of three independent
Trustees who are: (x) different from the current Trustees, and (y) not
endorsed by the current Advisor to the Trust.
Copies of the December Letter Agreement and the March Letter
Agreement are filed as Exhibits 7 and 8 hereto, respectively, and are
incorporated herein by reference. The foregoing descriptions of the
December Letter Agreement and the March Letter Agreement are qualified in
their entirety by reference to the text of such agreements.
(b) Georgeson & Company, Inc.
The Trust has also retained Georgeson to assist the Trust in
connection with its communications with shareholders with respect to, and
to provide other services to the Trust in connection with, the Offer. The
Trust will pay Georgeson reasonable and customary compensation for its
services and will reimburse Georgeson for its reasonable out-of-pocket
expenses incurred in connection therewith.
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Item 6. Recent Transactions and Intent With Respect to Securities.
(a) To the best of the Trust's knowledge, no transactions in the
Capital Shares have been effected during the past 60 days by the Trust or
by any executive officer, trustee, affiliate or subsidiary of the Trust.
(b) To the best of the Trust's knowledge, none of the Trust's
executive officers, trustees, affiliates or subsidiaries presently intends
to tender to the Bidder pursuant to the Offer or sell any Capital Shares
that are held of record or beneficially owned by such persons, but rather
such persons presently intend to continue to hold such securities.
Item 7. Certain Negotiations and Transactions by the Subject Company.
(a) No negotiation is being undertaken or is underway by the Trust
in response to the Offer which relates to or would result in:
(1) An extraordinary transaction such as a merger or
reorganization, involving the Trust or any subsidiary of
the Trust;
(2) A purchase, sale or transfer of a material amount of
assets by the Trust or any subsidiary of the Trust;
(3) A tender offer for or other acquisition of securities by
or of the Trust; or
(4) Any material change in the present capitalization or
dividend policy of the Trust.
However, the Trust is continuing the process that it began in
December 1994 of evaluating all strategic options available to maximize the
value of the Trust to its shareholders as it approaches its scheduled
liquidation date. To that end, as mentioned in Item 5(a) above, J.P.
Morgan has solicited bids for the Properties and the Board is evaluating
such bids. As part of such process, representatives of the Trust have begun
to have discussions with third parties that could lead to a transaction
involving the sale of one or more of the Properties or a merger of the Trust.
There can be no assurance that any of the foregoing will result in a
transaction being recommended to the Board or that any transaction that may
be recommended will be authorized or consummated.
(b) The Board has determined that disclosure with respect to the
parties to, and the possible terms of, any transactions or proposals of the
type referred to in Item 7(a) above would jeopardize any discussions or
negotiations that the Trust may conduct. Accordingly, the Board adopted a
resolution at its May 30, 1995 meeting instructing its advisors not to
disclose the possible terms of any such transactions or proposals, or the
parties thereto, unless and until an agreement in principle relating
thereto has been reached.
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Item 8. Additional Information to be Furnished.
(a) Appraisal Rights. In the Offer to Purchase, the Bidder states
that shareholders will not have statutory appraisal rights in connection
with the Offer or the Proposed Merger. However, holders of Income Shares who
are also holders of Capital Shares may have a risk of losing common law
appraisal rights if they tender Capital Shares in the Offer and a court were
to determine that such common law appraisal rights exist and that such a
tender constituted an implicit approval of the Proposed Merger. The Offer
to Purchase fails to address possible common law appraisal rights that
holders of Income Shares may have in accordance with the Massachusetts
Supreme Judicial Court's decision in the case of Robert W. Sullivan, Jr. v.
First Massachusetts Financial Corporation, 409 Mass. 783, 569 N.E. 2d 814
(Mass. 1991). In this case, the court held that common law appraisal rights
may be available to shareholders of a Massachusetts trust company (a bank)
under certain circumstances where statutory appraisal rights under the
Massachusetts Business Corporation Law were not available. The rationale of
the Court in Sullivan may apply to shareholders of a Massachusetts common
law business trust such as the Trust so as to permit holders of Capital
Shares and/or Income Shares of the Trust who object to the Proposed Merger
and give appropriate notice of such objection and who otherwise follow
appropriate procedures to have the right to a determination of the fair
value of their Capital Shares and/or Income Shares. As the law in this area
may be uncertain, shareholders who are interested in preserving their
appraisal rights are urged to consult with their legal counsel.
(b) Litigation.
(b)(1) The Probate Action.
On April 5, 1995, Mr. Osborne commenced an action in the
Probate Court Department of the Trial Court of the Commonwealth of
Massachusetts captioned Richard M. Osborne v. Prudential Realty Trust, and
Jeffrey L. Danker, Thomas F. Murray, Joseph M. Selzer, Richard J. Boyle,
Francis L. Bryant, as Trustees of Prudential Realty Trust (Suffolk No. 95-
E-0016) (the "Probate Action"). The complaint alleges that the defendant
Trustees have engaged in a systematic course of conduct that is adverse to
the interests of, and detrimental to, the beneficiaries of the Trust by
wasting trust assets and stating their intention to prematurely liquidate
the trust estate. Specifically, the complaint alleges that the Trustees
took no action to halt a slide in the value of the Capital Shares and
allowed unreasonably high advisory and administrative costs. The complaint
also alleges that the Trustees failed to collapse the Trust's shares into a
single class of stock even after it became evident that the marketability
of the Capital Shares was being materially harmed by the two-tiered
structure. The complaint seeks the immediate removal of the Trustees.
On May 31, 1995, the Trust responded to the Probate
Action (the "Probate Response") by answering the complaint and by filing a
counterclaim for declaratory judgment seeking a determination as to whether
a 75% or a majority vote of each class of shareholders, voting separately
as a class, is necessary to effectuate the Proposed Merger.
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Copies of the Probate Action and the Probate Response are
filed as Exhibits 9 and 10 hereto, respectively, and are incorporated
herein by reference. The foregoing description of the Probate Action and
the Probate Response are qualified in their entirety by reference to the
text of such documents.
(b)(2) The Superior Court Action.
On April 14, 1995, Mr. Osborne commenced a second action
in the Superior Court Department of the Trial Court of the Commonwealth of
Massachusetts captioned Richard M. Osborne and Robert G. Stern v.
Prudential Realty Trust, and Jeffrey L. Danker, Thomas F. Murray, Joseph M.
Selzer, Richard J. Boyle, Francis L. Bryant, as Trustees of Prudential
Realty Trust (Civ. Act. No. 95-2095A) (the "Superior Court Action"). The
complaint reiterates certain allegations set forth in the Probate Action,
and further alleges that the defendants breached their fiduciary duty to
the beneficiaries of the Trust, and engaged in unfair and deceptive acts in
violation of Chapter 93A, sec.11, of the laws of the Commonwealth of
Massachusetts, by, inter alia, favoring the interests of holders of Income
Shares over the interests of holders of Capital Shares. In particular, the
complaint alleges that the Trust has wrongly interpreted the Declaration to
require that Income Shares be redeemed prior to the payment of capital
gains to holders of Capital Shares. Further, the complaint alleges that the
Trust's plan to liquidate the trust estate would harm shareholders because
there would be, at best, a modest premium over current market value paid to
holders of Income Shares and no payment at all to holders of Capital
Shares. The complaint seeks unspecified damages for the alleged breach of
fiduciary duty and requests that such damages be doubled or trebled. In
addition, the complaint seeks a declaratory judgment with respect to the
defendants' obligations in distributing proceeds of a liquidation to
holders of Capital Shares and Income Shares.
On May 31, 1995, the Trust responded to the Superior
Court Action (the "Superior Court Response") by answering the complaint and
by filing a counterclaim for declaratory judgment seeking a determination
as to whether a 75% or a majority vote of each class of shareholders,
voting separately as a class, is necessary to effectuate the Proposed Merger.
Copies of the Superior Court Action and the Superior
Court Response are filed as Exhibits 11 and 12 hereto, respectively, and
are incorporated herein by reference. The foregoing description of the
Superior Court Action and the Superior Court Response are qualified in
their entirety by reference to the text of such documents.
(b)(3) Possible Intervention by Holders of Income Shares.
To the extent that the courts do not rule on the issues
set forth above in Item 8(b)(1) and Item 8(b)(2) prior to consummation of
the Offer, it is possible that, if the Offer is successful,
<PAGE>
<PAGE> 12
the Bidder could take control of the Board and dismiss the litigation,
unless one or more holders of Income Shares has intervened in each
litigation to protect their interests.
(c) Requisite Vote for the Proposed Merger.
As stated in the Offer to Purchase, Mr. Osborne is committed to
avoiding liquidation of the Trust and, in fact, is proposing the Proposed
Merger. While the Offer to Purchase states that the Proposed Merger
requires the approval of a majority of each class of shareholders, voting
separately as a class, the Board believes that such statement is erroneous
and that the Proposed Merger requires the affirmative vote of 75% of each
class of shareholders, voting separately as a class.
The Declaration states explicitly that any amendment to the
Declaration which would have the effect of altering the policy of
liquidating the Trust 101/2 to 12 years after its inception or would
otherwise change the policies set forth in Article V of the Declaration,
shall require the affirmative vote of 75% of each class of shareholders,
voting separately as a class. While the Declaration also permits a merger
with a new entity upon a bare majority vote of each class, voting
separately as a class, the Trustees are of the view, after consultation
with counsel, that a majority vote would be permissible only if the new
entity had a certificate and bylaws which carried forward the policies set
out in the Declaration, but that a change that would have the same effect
as amending the Declaration would require a 75% vote. The proposal
advanced by Mr. Osborne would, in the view of the Trustees, require such an
affirmative vote, including the affirmative vote of 75% of the outstanding
Income Shares. It is thus quite possible that the Offer, if successful,
could result in the abandonment of the solicitation process now being
conducted by J.P. Morgan and not achieve any other objective.
Furthermore, if Mr. Osborne sought to acquire sufficient Income
Shares to ensure that he could achieve the required 75% vote, it is
quite possible that the Trust would cease to qualify as a REIT for Federal
Income Tax purposes, as that may well result in fewer than five holders
owning over 50% of the voting shares of the Trust, measured by value.
Item 9. Material to be Filed as Exhibits.
Exhibit 1 -- Management Agreement, dated August 29, 1985, amended May 14,
1987, and amended May 10, 1993, between the Trust and The
Prudential Realty Advisors, Inc.
Exhibit 2 -- Tax Indemnification Agreement, dated March 30, 1994, between
the Trust and The Prudential Realty Advisors, Inc.
Exhibit 3 -- Management Agreement, dated December 31, 1990, between the
Trust and Premisys Real Estate Services, Inc.
Exhibit 4 -- Management Agreement, dated May 1, 1991, and amended
September 1, 1992, between the Trust and Premisys Real Estate
Services, Inc.
<PAGE>
<PAGE> 13
Exhibit 5 -- Form of Letter to Shareholders of the Trust, dated May 31,
1995.*
Exhibit 6 -- Form of Press Release, dated May 31, 1995.
Exhibit 7 -- Letter Agreement dated December 28, 1994, between the Trust
and J.P. Morgan Securities, Inc.
Exhibit 8 -- Letter Agreement dated March 16, 1995, between the Trust
and J.P. Morgan Securities, Inc.
Exhibit 9 -- Probate Action, filed April 5, 1995.
Exhibit 10 -- Probate Response, filed May 31, 1995.
Exhibit 11 -- Superior Court Action, filed April 14, 1995.
Exhibit 12 -- Superior Court Response, filed May 31, 1995.
[FN]
* Included in copies mailed to shareholders of the Trust.
<PAGE>
<PAGE> 14
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: May 31, 1995
PRUDENTIAL REALTY TRUST
By: /s/ Jeffrey Danker
Name: Jeffrey Danker
Title: President
Exhibit 1
ADVISORY AGREEMENT
ADVISORY AGREEMENT dated as of August 29, 1985, between
PRUDENTIAL REALTY TRUST, a Massachusetts business trust (the
"Trust"), and THE PRUDENTIAL REALTY ADVISORS, INC., a New Jersey
corporation (the "Advisor").
The Trust was organized under a Declaration of Trust
executed June 19, 1985 (the "Declaration of Trust"). The Trust
intends to qualify as a "real estate investment trust" ("REIT")
as defined in the Internal Revenue Code of 1954, as amended (the
"Code"), and to make investments, principally consisting of the
Specified Investments (as herein defined), of the type permitted
to qualified REITs under the Code and not inconsistent with the
Declaration of Trust. The Trust desires to avail itself of the
experience, advice and assistance of the Advisor and to have the
Advisor undertake the duties and responsibilities herein set
forth, subject to the supervision of the Trustees of the Trust,
as provided herein. The Advisor is willing to undertake to
render such services, on the terms and conditions herein set
forth. Accordingly, the Trust and Advisor hereby agree as
follows:
1. Definitions. As used herein, the following terms
shall have the definitions set forth below. Where applicable,
calculations to be made pursuant to any such definition shall be
made in accordance with generally accepted accounting principles
as in effect on the date hereof, except as otherwise provided in
such definition.
"Affiliate" means, as to any Person, (i) any other
Person directly or indirectly controlling, controlled by or under
common control with such person, (ii) any other Person that owns
beneficially, directly or indirectly, five percent (5%) or more
of the outstanding capital stock, shares or equity interests of
such Person, or (iii) any officer, director, employee, general
partner or trustee of such Person or of any other Person
controlling, controlled by or under common control with such
Person (excluding trustees and persons serving in similar
capacities who are not otherwise an Affiliate of such Person).
"Average Invested Assets" for any period means the
average of the values of the Invested Assets on the last day of
each month during such period.
"Book Value" means the value of an asset or assets of
the Trust on the books of the Trust, without deduction for
depreciation or other asset valuation reserves and without
deduction for Mortgages or other security interests to which such
asset or assets are subject, except that no asset shall be valued
at more than its fair market value as determined by or under
procedures adopted by the Trustees, and the underlying assets of
a partnership, joint venture or other form of indirect ownership,
to the extent of the Trust's interest therein, shall be valued as
if owned directly by the Trust.
"Invested Assets" means the Book Value of all the Real
Estate Investments of the Trust.
"Mortgage" means a mortgage, deed of trust or other
security interest in Real Property or in rights or interests,
including leasehold interests, in Real Property.
"Mortgage Loan" means a note, debenture, bond or other
evidence of indebtedness or obligation which is negotiable or
nonnegotiable and which is secured or collateralized by a
Mortgage.
"Net Income" for any period means the net income of the
Trust (calculating the net income of the Trust from any
partnership, joint venture or other form of indirect ownership as
if the Trust directly received its proportionate share of such
entity's income, gains, expenses and losses, including non-cash
charges and imputed interest) for such period (i) excluding
realized gains and losses from the disposition of Trust assets
(after attributing to such disposition the taxes and fees paid in
connection therewith); (ii) before deducting additions to
reserves or provisions for depreciation, amortization, provision
for bad debts and other similar non-cash charges and imputed
interest; (iii) less the amount of any bad debts actually charged
to the provision therefor.
"Person" means and includes individuals, corporations,
limited partnerships, general partnerships, joint stock companies
or associations, joint ventures, associations, companies, trusts,
banks, trust companies, land trusts, business trusts, or other
entities and governments and agencies and political subdivisions
thereof.
"Real Estate Investment" means any direct or indirect
investment in any interest in Real Property or in any Mortgage
Loan, or in any Person whose principal purpose is to make any
such investment.
"Real Property" means and includes land, leasehold
interests (including but not limited to interests of a lessor or
lessee therein), rights and interests in land, and any buildings,
structures, improvements, furnishings, fixtures and equipment
located on or used in connection with land, leasehold interests
or rights in land or interests therein, but does not include
investments in Mortgages, Mortgage Loans or interests therein.
"Registration Statement" means the Registration
Statement on Form S-11 of the Trust covering the initial public
offering of the Shares of the Trust under the Securities Act of
1933.
"Securities" means any stocks, shares, voting trust
certificates, bonds, debentures, notes, or other evidences of
indebtedness or in general any instruments commonly known as
"securities" or any certificates of interest, shares or
participation in temporary or interim certificates for, receipts
for, guarantees of, or warrants, options or rights to subscribe
to, purchase or acquire any of the foregoing.
"Short-term Investments" means investments which the
Trust makes of its funds (a) on a temporary basis pending
utilization of such funds to acquire Real Estate Investments,
make distributions to Shareholders, or pay anticipated expenses
of the Trust or (b) to hold as reasonable reserves, and may
consist of any of the following: (i) U.S. government Securities
or Securities of U.S. government agencies, (ii) bankers'
acceptances, (iii) bank certificates of deposit, (iv) interest-
bearing deposits in commercial banks, (v) participation in pools
or mortgages or bonds and notes (such as Federal Home Loan
Mortgage Corporation participation sale certificates ("Freddie
Mac Pcs") Government National Mortgage Association modified pass-
through certificates ("Ginnie Mae Pass-Throughs") and Federal
National Mortgage Association bonds and notes ("Fannie Maes"));
(vi) bank repurchase agreements covering the Securities of the
United States or agencies or instrumentalities thereof; and (vii)
other similarly secured short-term investment Securities.
"Specified Investments" means the Real Estate
Investments which are specifically described in the Registration
Statement.
"Total Operating Expenses" for any period means all
operating expenses (including additional expenses paid directly
or indirectly by the Trust to the advisor, Affiliates of the
Advisor or third parties based upon their relationship with the
Trust) including loan administration, servicing, engineering,
inspection and all other expenses paid by the Trust, exclusive of
(i) interest and discounts; (ii) taxes and license fees; (iii)
expenses connected directly with the issuance, sale and
distribution, or listing on a stock exchange, of Securities of
the Trust, including, without limitation, underwriting and
brokerage discounts and commissions, private placement fees and
expenses, legal and accounting costs, printing, engraving and
mailing costs, and listing and registration fees; (iv) expenses
connected directly with the acquisition, disposition, operation
or ownership of Trust assets, including, without limitation,
costs of foreclosure; maintenance, repair and improvement of
property; maintenance and protection of the lien of mortgages;
property management fees; legal fees; premiums for insurance on
property owned by or mortgaged to the Trust; taxes; brokerage and
acquisition fees and commissions; appraisal fees; title insurance
and abstract expenses, provisions for depreciation, depletion and
amortization; disposition fees and real estate commissions; and
losses on the disposition of assets and provisions for such
losses; (v) fees and expenses payable to public accountants,
legal counsel, consultants, managers, or agents, employed for the
Trust directly by the Trustees; (vi) legal and other expenses in
connection with formal or informal administrative action or legal
proceedings which involve a challenge to the status of the Trust
as a REIT, or advice concerning obtaining or maintaining such
status, or the determination by the Trust of its taxable income,
or any claim that the activities of the Trust or any Trustee, or
Shareholder or officer or agent, of the Trust were improper;
(vii) all fees paid to the Advisor pursuant to Section 9 hereof
other than the Portfolio Management Fee described in Section 9(b)
hereof; and (viii) any other expenses related to raising capital,
for interest, taxes and direct property acquisition, operation,
maintenance and management costs; provided, however, that the
foregoing exclusions shall not include any allocation of costs of
the Advisor's overhead incurred in performing its duties
hereunder.
"Trustees" means the Trustees holding office under the
Declaration of Trust at any particular time.
"Unaffiliated Trustee" means a Trustee who, in his
individual capacity, (i) is not an Affiliate of the Advisor, (ii)
does not own any interest in the Advisor and (iii) does not
perform any other services for the Trust except as Trustee.
2. Duties of Advisor. The principal duties of the
Advisor shall be to supervise and make recommendations to the
Trust concerning the Trust's investments and to provide
administrative services with respect to the Trust and as
administrator of the Trust's day-to-day affairs, in each case
subject to the supervision of the Trustees.
Subject to the supervision of the Trustees and
consistent with the provisions of the Declaration of Trust and
Section 12 hereof, the Advisor shall:
(a) perform necessary administrative functions in the
management of the Trust;
(b) serve as the Trust's investment and financial
advisor and provide research, economic and statistical data in
connection with the Trust's investments and financial policies;
(c) investigate, select and conduct relations with
accountants, legal counsel, property managers, brokers,
investors, builders, developers, banks and other lenders, and
others as necessary in connection with the business of the Trust
and the fulfillment of the Advisors's duties hereunder.
(d) maintain bank accounts for the Trust, and arrange
for fidelity bonds with respect to fraudulent and negligent
acts, errors and omissions, in amounts specified by the
Trustees, covering all the personnel handling funds and
other assets of the Trust, with the Trust named as an
insured party;
(e) maintain appropriate records of activities on
behalf of the Trust;
(f) provide office space, office equipment and office
personnel;
(g) obtain for the Trust the services that may be
required in acquiring and disposing of investments of the
Trust, disbursing and collecting the funds of the Trust,
paying the debts and fulfilling the obligations of the
Trust, and handling, prosecuting and settling any claims of
the Trust;
(h) obtain for the Trust such services as may be
required for property management and other activities
relating to the investment portfolio of the Trust;
(i) advise in connection with negotiations by the
Trust with investment banking firms, securities brokers or
dealers and other institutions or investors in connection with
the sale of Securities of the Trust and the securing of loans for
the Trust;
(j) provide services to the Trust in connection with
the financing, refinancing, sale or other disposition of the
Trust's Real Estate Investments or any part thereof; and
(k) advise in connection with the preparation of
reports required under the Securities Exchange Act of 1934,
reports and other communications to Securities holders,
proxy solicitation materials, and any other reports required
to be filed with State or Federal governmental agencies.
In performing its various services under this Agreement, the
Advisor may from time to time call upon and utilize various
facilities, personnel and support services of other Persons
including one or more Affiliates of the Advisor.
3. No Partnership or Joint Venture. The Trust and
the Advisor are not, and shall not be deemed to be, partners or
joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or
to impose any liability as such on either of them.
4. Records. The Advisor shall keep proper books of
account and records relating to services performed hereunder,
which books of account and records shall be accessible for
inspection by the Trustees at any time during ordinary business
hours.
5. REIT Qualification, etc. The Advisor shall
refrain from any action which, in its judgement or in any
judgment of the Trustees of which the Advisor has written notice,
would adversely affect the qualification of the Trust as a REIT
or which would violate any law, rule or regulation of any
governmental body or agency having jurisdiction over the Trust or
its Securities or which would otherwise not be permitted by the
Declaration of Trust.
6. Bank Accounts. The Advisor may establish and
maintain one or more bank accounts in its own name and may
collect and deposit into and disburse from such accounts any
money on behalf of the Trust, under such terms and conditions as
the Trustees may approve, provided that no funds in any such
account shall be commingled with funds of the Advisor. The
Advisor shall from time to time render appropriate accounting of
such collections, deposits and payments to the Trustees and to
the auditors of the Trust.
7. Bond. The Advisor shall maintain a fidelity bond
with a responsible surety company, in such form and amounts as
may be required by the Trustees from time to time, covering
officers, employees and agents handling funds and any investment
documents or records pertaining to any investments of the Trust.
Such bond shall be paid for by the Trust and shall inure to the
benefit of the Trust in respect of losses of any such property
from acts of such officers, employees and agents through theft,
embezzlement or fraud. In the event that such a bond is canceled
or not renewed by the bonding company, the Advisor shall give
notice thereof to the Trustees, in which event the Trustees shall
have the right to terminate immediately this Agreement.
8. Information Furnished Advisor. The Trustees shall
at all times keep the Advisor informed concerning the investment,
financial and operating policies of the Trust. The Trustees
shall notify the Advisor promptly in writing of their intention
to make any new investments or to sell or dispose of any existing
investments. The Trust shall make available to the Advisor a
certified copy of all financial statements, a signed copy of each
report prepared by independent certified public accountants and
such other information with regard to its affairs as the Advisor
may reasonably request.
9. Compensation. The Trust shall pay to the Advisor
compensation for its services hereunder as follows:
(a) Initial Fees. The Initial Fee to be paid to the
Advisor for its services in connection with the organization
of the Trust and the acquisition of the Specified
Investments shall equal one and one tenth of one percent
(1.10%) of the gross purchase price (as stated in the
relevant contracts of sale, without regard to commissions or
expenses) of the Specified Investments. The Initial Fee
shall be due and payable at the closing with respect to each
Specified Investment.
(b) Portfolio Management Fee. The Portfolio
Management Fee shall be an annual fee paid to the Advisor in the
following manner:
Percentage of
Year Ending Average Invested
December 31, Assets
1985 (partial year) 0.25%
1986 0.55%
1987 0.75%
1988 0.90%
1989 1.00%
1990 1.10%
1991 1.20%
Each year thereafter 1.25%
The Portfolio Management Fee shall be paid in quarterly
installments in arrears within ten (10) days after the end of
each calendar quarter commencing after the closing of the initial
public offering of the Trust (based on the Average invested
Assets at that time, with adjustment to be made at the end of
each fiscal year).
(c) Incentive Disposition Fee. The Incentive
Disposition Fee shall equal five percent (5%) of the Trust's
total Economic Gain, as defined below, on the sale of the Trust's
Real Estate Investments. The Incentive Disposition Fee shall be
paid within thirty (30) days after each Real Estate Investment is
sold. In the event that this Agreement is terminated prior to
such date, the Advisor (if it acted as such at the time such sale
was agreed) shall nevertheless be entitled to the Incentive
Disposition Fee payable at such time as such Fee would have been
payable if this Agreement had not been terminated in an amount
equal to the amount of the Incentive Disposition Fee to which the
Advisor would have been entitled if this Agreement had not been
terminated. The Trust shall not delay any disposition of a Real
Estate Investment for the purpose of reducing the Incentive
Disposition Fee payable to the Advisor.
Economic Gain means the excess, if any, of the aggregate
gross proceeds (including the outstanding principal balance of
any indebtedness taken subject to or assumed by the buyer, the
principal amount of any purchase money indebtedness taken back by
the Trust (determined in accordance with generally accepted
accounting principles) and the fair market value of any other
non-cash proceeds) from the sale of Real Estate Investments over
the sum of (i) the aggregate acquisition price of the Trust's
Real Estate Investments (including the amount of any acquisition
fees and expenses incurred by the Trust in connection therewith)
(ii) the amount expended by the Trust on capital expenditures
(excluding tenant improvements and leasing commissions); (iii)
expenses of the Trust incurred in connection with the sale of its
Real Estate Investments (including as mentioned in (d) below);
and (iv) the unamortized amount expended by the Trust on tenant
improvements and leasing commissions.
(d) Selling Commission. A Selling Commission equal to
2% of such aggregate gross proceeds of sale shall be paid to
the Advisor on any sale of a Real Estate Investment in which
the Advisor (directly or through any Affiliate) acts as
broker.
10. Compensation for Additional Services. If the
Trust shall request the Advisor (or any Affiliate or any officer
or employee therof) to render services for the Trust other than
those required to be rendered by the Advisor hereunder, such
additional services, if performed, will be compensated separately
on terms to be agreed upon between such Person and the Trustees,
including a majority of the Unaffiliated Trustees, from time to
time. To the extent the Advisor or any Affiliate of the Advisor
performs any leasing, loan servicing, loan administration,
accounting, property management, legal, shareholder relations,
registrar, transfer agent, or other similar services, the
compensation for such services shall not exceed either (a) the
compensation, if any, paid to such Person by any other Person who
is not an Affiliate of such Person for any comparable services in
the same geographic area or (b) the rate generally charged for
similar services generally available in the relevant geographic
area by qualified Persons who are not Affiliates of the Advisor.
11. Statements. The Advisor shall promptly furnish to
the Trust quarterly and annual statements showing the computation
of the compensation payable to it under Section 9(b)hereof with
respect to the quarter or year then ended. All calculations of
the fees paid hereunder shall be reported upon by the Trust's
independent public accountants.
12. Expenses of Advisor. Without regard to the amount
of compensation received hereunder by the Advisor, the Advisor
shall bear the following expenses:
(a) salaries and other employment expenses of the
personnel employed by the Advisor to assist it in
performing its obligations hereunder and of Trustees,
officers and employees of the Trust who are directors,
officers of employees of the Advisor or of any Affiliate
of the Advisor, including without limitation fees, salaries,
wages, payroll taxes and the cost of employee benefit plans
and temporary help expenses, but excluding any salaries and
other expenses as to which separate compensation is per-
mitted pursuant to Section 10 hereof and excluding the
compensation to the Trustees described in the Registration
Statement under the caption "Management - Trustees and
Officers."
(b) rent, telephone, utilities, office furniture and
equipment and other office expenses of the Advisor and the
Trust, except as any of such expenses relate to an office
maintained by the Trust separate from the office of the
Advisor;
(c) travel and related out-of-pocket expenses
incurred by officers and employees of the Advisor and of
Trustees, officers and employees of the Trust who are
directors, officers or employees of the Advisor or of any
Affiliate of the Advisor, except that the Trust will bear
all travel and other out-of-pocket expenses of officers,
employees and Trustees of the Trust to the extent incurred
in furtherance of the business of the Trust; and
(d) all overhead expenses incurred by the Advisor.
13. Expenses of the Trust. Except as expressly
otherwise provided in this Agreement, the Trust shall pay all
expenses relating to services of the Advisor in the performance
of its duties hereunder, including without limitation all legal
and accounting expenses, not assumed by the Advisor.
14. Refund by the Advisor. The Advisor will refund to
the Trust, within sixty (60) days after the end of any fiscal
year of the Trust, the amount, if any, by which the Total
Operating Expenses of the Trust for any such twelve-month period
exceed the greater of (a) 2% of the Average Invested Assets for
such twelve-month period (calculated before the deduction
therefrom of such Total Operating Expenses); provided, however,
that only so much of such excess need be refunded as is
determined by the Trustees, including a majority of the
Unaffiliated Trustees, acting pursuant to Section 4.5 of the
Declaration of Trust, to be not justified.
The Advisor will furnish to the Trustees such
information as may be required to comply with the second and
third paragraphs of Section 4.5 of the Declaration of Trust.
15. Other Activities of the Advisor. Nothing herein
contained shall prevent the Advisor from engaging in other
activities, including without limitation the management of other
investments and the rendering of advice to other investors
(including in respect of other real estate programs), even if any
such investors are in competition with the Trust or any of the
Trust's Real Estate Investments; nor shall this Agreement limit
or restrict the right of any partner, director, officer, employee
or shareholder of the Advisor or any Affiliate of the Advisor to
engage in any other business (including business activities
competitive with those of the Trust) or to render services of any
kind to any other Person.
16. Trustee Action. Wherever action on the part of
the Trust or the Trustees is comtemplated in this Agreement,
unless otherwise provided herein, action by a majority of the
Trustees, including a majority of the Unaffiliated Trustees,
shall constitute the action provided for herein.
17. Term; Termination of Agreement. This Agreement
shall continue in force until December 31, 1986, and thereafter
may be extended from year to year by the affirmative vote or
written consent of a majority of the Unaffiliated Trustees.
Notice of renewal shall be given in writing by the Trust to the
Advisor not less than thirty (30) days before the expiration of
this Agreement or of any extension thereof. Notwithstanding any
other provision to the contrary, this Agreement may be terminated
without cause upon written notice given sixty (60) days in
advance by a majority of the Unaffiliated Trustees to the Advisor
and, after December 31, 1987, upon written notice given sixty
(60) days in advance by the Advisor to the Trust.
18. Amendments. This Agreement shall not be modified
or terminated except by an instrument in writing signed by both
parties hereto or otherwise as provided herein. Any amendment to
this Agreement shall require the written consent of a majority of
the Unaffiliated Trustees.
19. Assignment. The Trustees may terminate this
Agreement immediately in the event of its assignment by the
Advisor without the consent of the Trustees. Any permitted
assignement of this Agreement shall bind the assignee hereunder
in the same manner as the assignor is bound hereunder.
20. Default, Bankruptcy, etc. At the option of the
Trustees, this Agreement shall be terminated immediately upon
written notice of termination by a majority of the Unaffiliated
Trustees to the Advisor if any of the following events shall
occur:
(a) if the Advisor shall violate any provisions of
this Agreement, and after written notice of such violation
shall not cure such default within thirty (30) days; or
(b) if the Advisor shall be adjudged bankrupt or
insolvent by a court of competent jurisdiction, or any
order shall be made by a court of competent jurisdiction
for the appointment of a receiver, liquidator or trustee of
the Advisor or of all or substantially all its property by
reason of the foregoing or approving any petition filed
against the Advisor for its reorganization, and such
adjudication or order shall remain in force or unstayed for
a period of thirty (30) days; or
(c) if the Advisor shall institute proceedings for
voluntary bankruptcy or shall file a petition seeking
reorganization under the Federal bankruptcy laws, or for
relief under any law for the relief of debtors, or shall
consent to the appointment of a receiver, or shall make a
general assignment for the benefit of its creditors, or
shall admit in writing its inability to pay its debts
generally as they become due.
The Advisor agrees that if any of the events specified
in subsection (b) or (c) of this Section 20 shall occur, it will
give written notice thereof to the Trust promptly (but in any
event no later than seven days) after the occurrence of such
event.
21. Action Upon Termination. Except as provided in
Section 9 hereof, the Advisor shall not be entitled to
compensation after the date of termination of this Agreement for
further services hereunder but shall be reimbursed for all
expenses and shall be paid all compensation accruing to the date
of termination. The Advisor shall forthwith upon such
termination:
(a) pay over to the Trust all moneys collected and
held for the account of the Trust pursuant to this
Agreement, after deducting any accrued compensation and
reimbursement for its expenses to which it is then entitled;
(b) deliver to the Trust a full accounting, including
a statement showing all payments collected by it and a
statement of all moneys held by it, covering the period
following the date of the last accounting furnished to the
Trust;
(c) deliver to the Trust all property and documents
of the Trust then in the custody of the Advisor; and
(d) cooperate with the Trust and take all reasonable
steps requested to assist the Trustees in making an orderly
transition of the advisory function.
22. Change of Name. Upon termination of this
Agreement by either party, the Trustees shall, upon the request
of the Advisor, cause the name of the Trust to be changed to a
name that does not, in the reasonable opinion of the Advisor,
include any reference to the Advisor or any of its Affiliates.
23. Governing Law. The provisions of this Agreement
shall be construed and interpreted in accordance with the laws of
the State of New Jersey as at the time in effect.
24. Miscellaneous. The Advisor assumes no
responsibility under this Agreement other than to render the
services called for hereunder in good faith, and shall not be
responsible for any action of the Trust in following or declining
to follow any advice or recommendations of the Advisor. None of
the Advisor, its partners, officers or employees shall be liable
to the Trust, the Trustees or the holders of Securities of the
Trust except by reason of acts constituting bad faith, wilful
misfeasance, gross negligence or reckless disregard of their
duties.
25. Notices. Any communications given hereunder shall
be in writing delivered at the address of the respective party at
which that party most recently has established its principal
office, or at such other address as a party shall have specified
to the other party as the address for notices hereunder.
26. Trustees' and Shareholders' Liability. The
Advisor acknowledges its understanding of and agreement to the
following. The Declaration of Trust establishing Prudential
Realty Trust, dated June 19, 1985, a copy of which, together with
all amendments thereto (the "Declaration"), is duly filed in the
office of the Secretary of State of the Commonwealth of
Massachusetts, provides that the Name "Prudential Realty Trust"
refers to the Trustees under the Declaration collectively as
Trustees, but not individually or personally; and that no
Trustee, officer, shareholder, employee or agent of the Trust
shall be held to any personal liability, jointly or severally,
for any obligation of, or claim against, the Trust. All persons
dealing with the Trust, in any way, shall look only to the assets
of the Trust for the payment of any sum or the performance of any
obligation.
IN WITNESS WHEREOF, each of the Trust and the Advisor
have caused this Agreement to be executed and delivered on its
behalf as of the day first above written.
PRUDENTIAL REALTY TRUST
By: /s/Joseph M. Selzer
Joseph M. Selzer
THE PRUDENTIAL REALTY ADVISORS, INC.
By: /s/Joseph M. Selzer
Joseph M. Selzer
Exhibit 1
FIRST AMENDMENT
TO
ADVISORY AGREEMENT
This First Amendment, dated May 14, 1987, to the
Advisory Agreement between Prudential Realty Trust ("Trust")
and The Prudential Realty Advisors, Inc. ("Advisor"), dated
as of August 29, 1985.
WHEREAS, Section 2 of the Advisory Agreement sets forth
the duties of the Advisor, and
WHEREAS, the Trust and the Advisor desire to amend the
Advisory Agreement by adding thereto a new subsection (1) to
Section 2 of the Advisory Agreement to provide for the
authorization and execution of certain leases on behalf of
the Trust by either the Advisor or an affiliate of the
Advisor.
NOW THEREFORE, the Trust and the Advisor hereby agree
as follows:
Section 2 of the Advisory Agreement shall be amended by
adding thereto a new subsection (1) which shall provide as
follows:
"(1) have the authority to authorize and execute
on behalf of the Trust either directly or through its
affiliate, The Prudential Property Company, Inc.,
leases of space owned by the Trust provided that:
(i) Only persons of Director or equivalent rank or
higher may authorize or execute any leases on behalf of
the Trust.
(ii) A person of Director or equivalent rank may not
authorize leases in excess of 30,000 square feet or
having a term (including renewals) in excess of 5
years.
(iii) A Functional Vice President in a Field Office may
not authorize leases in excess of 50,000 square feet or
having a term (including renewals) in excess of 10
years.
(iv) A Functional Vice President located in the
Corporate Office and a Departmental Vice President may
not authorize leases in excess of 100,000 square feet
or having a term (including renewals) in excess of 30
years.
(v) An Executive Vice President or higher rank may not
authorize leases in excess of 250,000 square feet or
having a term (including renewals) in excess of 30
years.
(vi) Any lease in excess of 100,000 square feet or with
a primary term in excess of 10 years must also be
approved by an officer of the Trust.
(vii) Regardless of the square footage or term, any
single lease involving the entire square footage of
Maple Plaza I or Maple Plaza II must be authorized by a
majority of the Trustees.
(viii) At each quarterly meeting of the Trustees of the
Trust, the Advisor shall report to the Trustees, in
summary fashion, all leases authorized since the period
covered by the last report up to and including the
period ending two weeks prior to the making of the
current report.
IN WITNESS WHEREOF, each of the Trust and the Advisor
has caused this First Amendment to be executed and delivered
on its behalf as of the day first above written.
PRUDENTIAL REALTY TRUST
By: /s/ S. Gilmer Towell
S. Gilmer Towell
Vice President, Secretary
THE PRUDENTIAL REALTY ADVISORS,INC.
By: /s/ Cher R. Zucker
Cher R. Zucker
Vice President
Exhibit 1
SECOND AMENDMENT
TO
ADVISORY AGREEMENT
This Second amendment, dated May 10, 1993, to the
Advisory Agreement between Prudential Realty Trust
("Trust") and The Prudential Realty Advisors, Inc.
("Advisor"), dated as of August 29, 1985, as amended
May 14, 1987 ("Advisory Agreement").
WHEREAS, Section 2 of the Advisory Agreement sets
forth the duties of the Advisor, and
WHEREAS, the Trust and the Advisor desire to amend
the Advisory Agreement by restating in its entirety
subsection (1) of Section 2 of the Advisory Agreement
which provides for the authorization and execution of
certain leases on behalf of the Trust by either the
Advisor or an affiliate of the Advisor.
NOW THEREFORE, the Trust and Advisory hereby agree
as follows:
Section 2 (1) of the Advisory Agreement shall be
amended in its entirety as follows:
(1) have the authority and execute on behalf of
the Trust either directly or through its affiliate, The
Prudential Realty Group, a division of the Prudential
Investment Corporation, leases of space owned by the
Trust provided that:
(i) Any lease to The Prudential Insurance
Company of America, or any affiliate thereof,
may not be authorized pursuant hereto.
(ii) Only persons of Director (Level 52)
or equivalent rank or higher may authorize or
execute any leases on behalf of the Trust.
(iii) A Director (Level 52) may not
authorize leases in excess of 30,000 square
feet or having a term (including renewals) in
excess of 10 years.
(iv) A Vice President (Level 54) may not
authorize leases in excess of 75,000 square
feet or having a term (including renewals) in
excess of 15 years.
(v) A Senior Vice President or other
person at Level 56 or higher rank may not
authorize leases in excess of 250,000 square
feet or having a term (including renewals) in
excess of 30 years.
(vi) Any lease in excess of 25,000
square feet or with a primary term in excess
of 7 years must also be approved by an
officer of the Trust.
(vii) Regardless of the square footage or
term, any single lease involving the entire
square footage of Maple Plaza I or Maple
Plaza II must be authorized by a majority of
the Trustees.
(viii) At each quarterly meeting of the
Trustees of the Trust, the Advisor shall
report to the Trustees, in summary fashion,
all leases authorized since the period
covered by the last report up to and
including the period ending two weeks prior
to the making of the current report.
IN WITNESS WHEREOF, each of the Trust and the
Advisor has caused this Second Amendment to be executed
and delivered on its behalf as of the day first above
written.
PRUDENTIAL REALTY TRUST
By: /s/ Joseph M. Selzer
Joseph M. Selzer,
Trustee
THE PRUDENTIAL REALTY
ADVISORS, INC.
By: /s/ Brian J. Strum
Brian J. Strum
Exhibit 2
TAX INDEMNIFICATION AGREEMENT
TAX INDEMNIFICATION AGREEMENT dated March 30,
1994, (the "Agreement") between The Prudential Realty
Advisors, Inc., a New Jersey corporation (the "Advisor") and
Prudential Realty Trust, a Massachusetts business trust (the
"Trust").
WHEREAS the Trust was organized pursuant to a
Declaration of Trust dated June 19, 1985, as a real estate
investment trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code"), and regulations promulgated
thereunder;
WHEREAS the Advisor, pursuant to the terms of an
advisory contract between the Advisor and the Trust, makes
recommendations concerning the Trust's investments and
oversees the routine operations of the Trust;
WHEREAS the Advisor and the Trust desire to set
forth the terms and conditions of the Trust's right to
indemnification by the Advisor for certain Covered Tax
Liabilities (as defined below);
NOW, THEREFORE, in consideration of the mutual
covenants herein and in the documents referred to above, the
Advisor and the Trust agree as follows:
SECTION 1. DEFINITIONS.
The following terms shall have the meanings
given below for purposes of this Agreement:
"Covered Tax Liability" shall mean a Tax Liability
of the Trust attributable to the Trust's failure to qualify
as a REIT during any taxable year by reason of its failure
to solicit information from shareholders during such year as
required by Treasury Regulations Section 1.857-8(e);
"Gross-Up Items" shall mean, with respect to any
amount paid under Section 2(a) hereof, all taxes that any
federal, state or local taxing authority requires the Trust
to pay in respect of the receipt of such amount;
<PAGE>
"IRS" shall mean the Internal Revenue Service;
"Taxes" shall mean all federal, state or local
income, gross receipts, windfall profits, severance,
property, production, sales, use, license, excise,
franchise, employment, withholding or similar taxes,
together with any interest, additions or penalties with
respect thereto and any interest in respect of such
additions or penalties;
"Tax Dispute" shall mean a written proposed
adjustment to a Tax Return of the Trust that would result,
if unopposed, in the imposition of a Tax Liability upon the
Trust;
"Tax Liability" of the Trust shall mean, with
respect to any taxable period for which the Trust has filed
or is required to file a Tax Return, any amounts payable (or
any amounts that would be payable absent any setoff or
relief for losses in such period) in respect of any
assessment, demand or other notice of a liability for Taxes
issued by or on behalf of the IRS or any state or local
government or taxing authority by virtue of which the Trust
is or will become liable to make a payment of Taxes reported
on the Trust's Tax Return, including changes in any such
amounts payable attributable to amended returns,
deficiencies, claims for refund, IRS audits, IRS
examinations or proceedings or litigations resulting from
any of the foregoing events. For purposes of this
Agreement, the amount of a Tax Liability shall include any
interest, penalties, additions to tax and other costs
(including attorneys' fees) incurred in connection with such
Tax Liability or claim therefor;
"Tax Return" shall mean all federal, state or
local tax returns, informational returns, declarations of
estimated tax and other tax reports of the Trust.
SECTION 2. INDEMNIFICATION AND PAYMENT OF
ADDITIONAL AMOUNTS.
<PAGE>
(a) The Advisor agrees to pay to the Trust,
as an indemnity, an amount equal to the sum of any Covered
Tax Liability and Gross-Up Items;
(b) The Trust shall, promptly following
notice to the Trust of any event that could give rise to a
Covered Tax Liability, notify the Advisor in writing, in
reasonable detail, of the circumstances giving rise to the
Covered Tax Liability and the amount being claimed
thereunder; provided, however, that the Trust's failure to
provide such notice shall not relieve the Advisor of any
obligations hereunder;
(c) The amounts payable to the Trust under
this Agreement shall be paid within 10 business days after
the Advisor receives written notice of a Covered Tax
Liability as described in Section 2(b) hereof; provided,
however, that in the case of amounts that are being
contested in accordance with Section 4 hereof, no payment
with respect to such amounts shall be required prior to the
time provided in that Section.
SECTION 3. INTEREST ON LATE PAYMENTS.
If any payment due to be made by the Advisor under
this Agreement is not made within the period specified in
Section 3(c) hereof, simple interest shall accrue upon such
payment, from and including the day next following the last
day of such period, at a rate equal to the lesser of (i) the
prime rate of Morgan Guaranty Trust Company of New York, as
announced from time to time, plus 2 percent per annum or
(ii) the maximum rate permitted under state or local law.
SECTION 4. CONDUCT OF TAX DISPUTES.
The Trust shall promptly notify the Advisor in
writing upon receipt by the Trust of notice of any pending
or threatened federal, state or local tax audits or
assessments that may give rise to a Covered Tax Liability,
provided that the Trust's failure to comply with this
provision shall not affect the Trust's right to
indemnification hereunder. The Advisor shall have the sole
right to represent the Trust's interest in any tax audit or
administrative or court proceedings relating to Covered Tax
Liabilities and to employ counsel of the Advisor's choice at
its own expense. Notwithstanding the foregoing, the Advisor
shall not be entitled to settle, either administratively or
after the commencement of litigation, any claim for Taxes
that would have a material adverse effect on any Tax
Liability (other than a Covered Tax Liability) of the Trust,
without the Trust's prior written consent. Such consent
shall not be unreasonably withheld or delayed and shall not
be necessary to the extent that the Advisor has indemnified
the Trust against the effects of any such settlement.
<PAGE>
SECTION 5. NOTICES. Notices pursuant to this
Agreement shall be given in the manner set forth in the
Declaration of Trust.
SECTION 6. AMENDMENTS. This Agreement may be
amended in whole or in part only with the written consent of
the Trust and the Advisor.
SECTION 7. GOVERNING LAW. This Agreement, and
the rights of the Advisor and Trust, shall be governed by
and construed in accordance with the laws of the State of
New York without giving effect to conflicts-of-laws
principles.
SECTION 8. SEVERABILITY. Any term or provision
of this Agreement that is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability,
without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the
validity or enforceability of any of the terms and
provisions of this Agreement in any other jurisdiction.
SECTION 9. RECOVERY FROM OTHER PERSONS. Without
prejudice to the Advisor's obligation to make any payment
required by this Agreement, if the Trust is entitled to
recover from a person other than the Advisor (but including
any taxing or other competent authorities) any sum in
respect of any Covered Tax Liability, the Trust shall, as
soon as it becomes aware of such entitlement, promptly
notify the Advisor and, if so required by the Advisor and at
the Advisor's expense, take all appropriate steps to enforce
such recovery, keep the Advisor fully informed of the
progress of any such action, and account to the Advisor for
any amount so recovered to the extent of the amount paid by
the Advisor in respect of the Covered Tax Liability.
<PAGE>
SECTION 10. MISCELLANEOUS.
(a) The captions and titles preceding the
text of each paragraph hereof shall be disregarded in the
construction of this Agreement;
(b) This Agreement may be executed in
counterparts, all of which shall for all purposes constitute
one agreement binding on all the parties, notwithstanding
that all parties are not signatories to the same
counterpart.
IN WITNESS whereof, the parties to this Agreement
have hereby set forth their names as of this 30th day of
March, 1994.
PRUDENTIAL REALTY TRUST
By: /s/ James W. McCarthy
James W. McCarthy
THE PRUDENTIAL REALTY
ADVISORS, INC.
By: /s/ Joseph M. Selzer
Joseph M. Selzer
Exhibit 3
PRUDENTIAL BUSINESS CAMPUS
MAPLE PLAZA I AND II
MANAGEMENT AGREEMENT
BETWEEN
PRUDENTIAL REALTY - PRT
AS OWNER
AND
PREMISYS REAL ESTATE SERVICES, INC.
TABLE OF CONTENTS
Article I - Properties
Section 1.1 - List of Properties
1.2 - Withdrawal of a Particular Property
1.3 - Termination on Sale
Article 2 - Commencement Date
Article 3 - Manager's Responsibilities
Section 3.1 - Management
3.2 - Employees: Independent Contractor
3.3 - Schedule of Employees
3.4 - Compliance with Laws, Mortgages, etc.
3.5 - Approved Budgets
3.6 - Collection of Rents and Other Income
3.7 - Competitive Bidding
3.8 - Repairs
3.9 - Capital Improvements
3.10- Service Contracts
3.11- Non-Owned Properties
3.12- Taxes, Mortgages
Article 4 - Insurance
Section 4.1 - Liability Insurance
4.2 - Property Insurance
4.3 - Additional Insurance
Article 5 - Financial Reporting and Recordkeeping
Section 5.1 - Books of Accounts
5.2 - Account Classification
5.3 - Financial Reports
5.4 - Supporting Documentation
5.5 - Accounting Principals
5.6 - Tax Form Preparation
Article 6 - Owner's Right to Audit
Article 7 - Bank Accounts
Section 7.1 - Depository Account
7.2 - Concentration Account/
Short Term Investments
7.3 - Disbursement Account
7.4 - Transfer of Funds
7.5 - Security Deposit Account
7.6 - Change of Banks
7.7 - Access to Account
Article 8 - Payments of Expenses
Section 8.1 - Manager's Cost to be Reimbursed
8.2 - Costs Eligible for Payment
from Disbursement Account
Article 9 - Managers Cost Not to be Reimbursed
Article 10 - Deleted
Article 11 - Cooperation
Article 12 - Compensation
Article 13 - Termination
Section 13.1 - Termination on 30-day Notice
13.2 - Immediate Termination with Notice
13.3 - Authority to Execute Termination Notices
13.4 - Termination Without Notice
13.5 - Final Accounting
Article 14 - Subsidiaries and Affiliates
Article 15 - Notices
Article 16 - Non-Assignability, Etc.
Section 16.1 - No Assignment
16.2 - Consents and Approvals
16.3 - Pronouns
16.4 - Amendments
16.5 - Headings
16.6 - Representations
16.7 - Indemnification by Manager
16.8 - Complete Agreement
16.9 - Shareholder Responsibility
Schedules
A - Property Identification and Compensation
C - Monthly Report Forms
D - Reimbursable Employees
E - Subsidiaries and Affiliates
MANAGEMENT AGREEMENT
This AGREEMENT, dated this 31st day of December, 1990, by and between
Prudential Realty-PRT, hereinafter called "Owner" and Premisys Real
Estate Services, Inc., Property Manager, hereinafter called "Manager"
witnesseth that:
WHEREAS, the Owner owns a controlling interest in the entities which
own certain properties described in Schedule A hereto affixed and made
a part hereof, and desires to engage the Manager to manage and operate
the same.
NOW, THEREFORE, in consideration of the Premises the parties agree as
follows:
ARTICLE 1. PROPERTIES
1.1 List of Properties. Listed, described and identified
on Schedule A are the real properties to come under the terms of the
Agreement. As used in this Agreement, Schedule A shall also mean the
amended or revised list of all properties which may from time to time
be under the management of the Manager. Each property listed in
Schedule A, which may be amended from time to time, is hereinafter
referred to as a "Property" and more than on Property is referred to
as "Properties." No parcel of real property shall be subject to the
terms of this Agreement unless listed under Schedule A. Schedule A
indicates the nature of the rights of Owner with respect to each
Property, whether as Owner or otherwise, and also sets forth the
compensation payable (as provided in Section 12.1) to the Manager with
respect to each specific Property. Schedule A may be amended at any
time during the continuance of this Agreement with the mutual consent
of Owner and Manager by Owner's furnishing the Manager with a current
List of the Property(ies). This list shall contain the same
information as to each Property as in the case of other Properties
previously listed under Schedule A.
1.2 Withdrawal of a Particular Property. If Schedule A
lists more than one Property, the Owner may at any time withdraw any
Property listed on Schedule A by giving to the Manager at least thirty
(30) days notice in writing. Such withdrawal shall not affect or
impair any right which has accrued to either party prior to the date
when such withdrawal becomes effective. However, termination of this
entire Agreement, as provided in Article 13, shall be distinguished
from the withdrawal of individual Properties.
1.3 Termination on Sale. In addition to Owner's rights to
withdraw individual Properties upon notice, this Agreement shall
terminate automatically and immediately as to any specific Property
upon sale thereof by Owner or upon termination of the Owner's right to
collect the rents therefrom.
ARTICLE 2. COMMENCEMENT DATE
2.1 The Managers duties and responsibilities under this
Agreement shall begin the 20th day of August, 1990, and shall continue
until termination as provided in sections 1.2, 1.3 or ARTICLE 13.
ARTICLE 3. MANAGER'S RESPONSIBILITIES
3.1 Management. The Manager shall manage, operate and
maintain the Properties listed on Schedule A (and any amendments to
Schedule A) in an efficient and satisfactory manner. Manager shall
act in a fiduciary capacity with respect o the proper protection of
and accounting for Owner's assets. In this capacity, manager shall
deal at arms length with all third parties and Manager shall serve
Owner's interests at all times.
3.2 Employees; Independent Contractor. The Manager shall
have in its employ at all times a sufficient number of capable
employees to enable it to properly, adequately, safely and
economically manage, operate, maintain, and account for each Property.
All matters pertaining to the employment, supervision, compensation,
promotion and discharge of such employees are the responsibility of
the Manager, which is in all respects the employer of such employees.
Manager will negotiate with any union lawfully entitled to represent
such employees and may execute in its own name, and not as agent for
Owner, collective bargaining agreements or labor contracts resulting
therefrom. Manager shall fully comply with all applicable laws and
regulations having to do with worker's compensation, social security,
unemployment insurance, hours of labor, wages, working conditions, and
other employer-employee related subject. Manager represents that it
is and will continue to be an equal opportunity employer and must
advertise as such. This Agreement is not one of agency by the Manager
for Owner but one with the Manager engaged independently in the
business of managing properties on its own behalf as an independent
contractor. All employment arrangements are therefore solely its
concern and Owner shall have no liability with respect thereto.
3.3 Schedule of Employees. Manager shall provide a
schedule of employees (in the format of Schedule D attached) to be
employed "on-site" in the direct management of each Property subject
to this Agreement. This schedule shall include the number of
employees and their title and salary range and shall also indicate
which employees are bonded or are covered under the Manager's
comprehensive crime insurance policy. Manager shall identify in the
same manner those additional employees whose salaries may from time to
time be charged pro rata to each Property or Properties for direct
services rendered to each Property or Properties. Employees whose
salaries are eligible to be charged pro rata include, but are not
limited to, engineers or others to be agreed upon. Employees whose
salaries may not be charged pro rata include, but are not limited to,
general management personnel, accountants and auditors. Schedule D
may be amended from time to time by mutual agreement.
3.4 Compliance with Laws, Mortgages, etc. Manager shall
be responsible for full compliance with federal, state and municipal
laws, ordinances, regulations and orders relative to the leasing, use,
operation, repair and maintenance of each property and with the rules,
regulations or orders of the local Board of Fire Underwriters or other
similar body. Manager shall promptly remedy any violation of any such
law, ordinance, rule, regulation or order which comes to its
attention.
Expenses incurred in remedying violations may be paid from
the Disbursement Account provided such expenses do not exceed $2,500
in any one instance. When more than such amount is required or if the
violation is one for which the Property title holder might be subject
to penalty, Manager shall notify Owner by the end of the next business
day to the end that prompt arrangements may be made to remedy the
violation.
Manager shall be responsible for full compliance with all
terms and conditions contained in any ground lease, space lease,
mortgage, deed or trust or other security instrument affecting each
Property, provided, however, Manager shall not be required to make any
payment or incur any liability on account thereof.
3.5 Approved Budgets. Manager shall prepare and submit to
Owner a proposed Operating Budget and a proposed Capital Budget for
the promotion, operation, repair and maintenance of each Property for
the forthcoming calendar year. Each proposed budget shall be
delivered to Owner no later than October 1 of each calendar year or,
with respect to a newly added property to Schedule A, no later than 90
days after the addition of a Property to Schedule A.
The Owner will consider the proposed budgets and then will
consult with the Manager in the ensuing period prior to the
commencement of the forthcoming calendar year in order to agree on an
"Approved Operating Budget" and an A "Approved Capital Budget."
Manager agrees to use diligence and to employ all reasonable
efforts to ensure that the actual costs of maintaining and operating
each Property shall not exceed either Approved Budget pertaining
thereto either in total or in any one accounting category. All
expenses must be charged to the proper account as specified in the
approved Chart of Accounts and no expense may be classified or
reclassified for the purpose of avoiding an excess in the annual
budgeted amount of an accounting category.
Manager shall secure Owner's prior written approval for any
expenditure that will result in any excess of the greater of $3,000 or
5% of the annual budgeted amount in any one accounting category of the
Approved Operating Budget.
During the calendar year the Manager shall inform Owner of
any major increases in costs and expenses that were not foreseen
during the budget preparation period and thus were not reflected in
either Approved Budget. Manager will provide Owner with monthly
variance reports and quarterly budget reforecasts.
3.6 Collection of Rents and Other Income. The Manager
shall use diligent efforts to collect all rents (including escalation
billings resulting from tenant participation in increases in
expenses, taxes and common area maintenance charges) and other charges
which may become due at any time from any tenant or from others for
services provided in connection with or for the use of any Property or
any portion thereof. Manager shall collect and identify any income
due the Owner from miscellaneous services provided to tenants or the
public including, but no limited to, parking income, tenant storage,
and coin operated machines of all types (e.g., vending machines, pay
telephone, etc.). All monies so collected shall be deposited in the
Depository Account. Manager may not, without the proper written
approval of Owner, terminate any lease, lock out a tenant, institute
suite for rent or for use and occupancy, or proceedings for recover of
possession. In connection with any collection efforts only legal
counsel or a collection firm designated by Owner shall be retained.
All legal expenses incurred in bringing such approved suit or
proceeding shall be submitted to Owner for its approval. Manager
shall not write off any income items without prior approval of Owner.
3.7 Competitive Bidding. All contracts for repairs,
capital improvements, goods and services exceeding $2,500 shall be
awarded on the basis of competitive bidding, solicited in the
following manner:
(a) A minimum of 2 written bids shall be obtained for each
purchase up to $10,000. Purchases over $10,000 will
require a minimum of three bids.
(b) Each bid will be solicited in a form prescribed by
Owner so that uniformity will exist in the bid quotes.
(c) Manager may accept low bid without prior approval from
Owner, if the expenditure is for a budget approval item
and will not result in an excess of the annual budgeted
accounting category of the applicable Approved
Operating or Capital Budget. Prior approval of a bid
may be required by Owner.
(d) If Manager advises acceptance of other than the lowest
bidder, Manager shall adequately support, in writing
its recommendations to Owner.
(e) Owner shall be free to accept or reject any and all
bids.
(f) Manager may request Owner to waive competitive bidding
rules.
Owner may pay for such expenses from its own resources or
may authorize payment by Manager out of the Operating
Account.
3.8 Repairs. The Manager shall attend to the making and
supervision of all ordinary and extraordinary repairs, decorations and
alterations subject to the limits of the approved Operating Budget.
Excluded from this provision are expenditures to refurbish,
rehabilitate, remodel, or otherwise prepare areas covered by new
leases. Any lease requiring the expenditure of funds to refurbish,
rehabilitate, remodel or otherwise prepare the leased premises must be
submitted with the estimated cost for such work to owner for written
approval prior to commencement of any such work.
In cases of emergency Manager may make expenditures for
repairs which exceed the limits in Section 3.7 without prior written
approval if it is necessary to prevent damage or injury. Owner must
be informed of any such expenditures before the end of the next
business day.
3.9 Capital Improvements. The Approved Capital Budget
constitutes an authorization for Manage to expend money for projects
up to $50,000. With respect to the purchase and installation of major
items (cost in excess of $50,000) of new or replacement equipment, the
Manager shall recommend that Owner purchase these items when Manager
believes such purchase to be necessary or desirable. Owner may
arrange to purchase and install the same itself or may authorize
Manager to do so subject to prescribed supervision and specification
requirements and conditions.
The competitive bid rules outlined in 3.7 will be observed.
3.10 Service Contracts. Manager shall not enter into any
contract for cleaning, maintaining, repairing or servicing any
Property or any of the constituent parts of any Property that requires
annual payments in excess of $50,000 without the prior written consent
of Owner. As a condition to obtaining such consent, Manager shall
supply Owner with a copy of the proposed contract and shall state to
Owner the relationship, if any, between Manager (or the person or
persons in control of Manager) and the party proposed to supply such
goods or services, or both.
All service contracts shall: (a) be in the name of
Manager, (b) be assignable, at Owner's option, to Owner or Owner's
nominee, (c) include a provision for cancellation thereof by Owner or
Manager upon not more than 30 days written notice and (d) shall
require that all contractors provide evidence of sufficient insurance.
Unless Owner specifically waives such requirements, either by
memorandum or as an amendment to the procedure as specified in section
3.7. If a Property is withdrawn pursuant to specified to Section 1.2
or if this Agreement is terminated pursuant to Article 13, Manager
shall, at Owner's option, assign to Owner's nominee all services
agreements pertaining to the Property or Properties.
3.11 Non-Owner Properties. If Owner does not have title
to the Property, then notwithstanding the provisions of this Agreement
including the provisions relative to the making of repairs of
maintenance of the Properties, the Manager shall not incur any
expenses in any month in excess of the income for the individual
Property during that month. In any case in which their is doubt, the
Manager shall inform Owner of the situation so that Owner may have the
opportunity of determining what action should be taken under the
circumstances.
3.12 Taxes, Mortgages. The Manager shall, if so
requested, obtain and verify bills for real estate and personal
property taxes, improvement assessments and other like charges which
are or may become liens against each Property and recommend appeal as
in its best judgement it may decide. Manager shall pay such bills
receipted bills from the Disbursement Account and shall furnish Owner
with receipted bills therefor. Manager shall take advantage of any
discounts in paying such bills. At the direction of the Owner,
Manager shall make any payments on account of any ground lease,
mortgage, deed of trust or other security instrument, if any,
affecting any Property.
3.13 - 3.15 Intentionally Deleted
ARTICLE 4. INSURANCE
4.1 Insurance. Owner, at its expense, will obtain and
keep in force adequate insurance against physical damage (e.g., Fire
with extended coverage endorsement, boiler and machinery, etc.) and
against liability for loss, damage or injury to property or persons
which might arise out of the occupancy, management, operation or
maintenance of any of the Properties covered by this Agreement.
Manager and its officers and employees will be covered as additional
insured in all liability insurance maintained with respect to each
Property. Neither Owner nor Owner's insurance company shall be liable
for liability arising from the gross negligence, malice or willful
misconduct of Manager, its officers and employees. To the extent the
Owner self-insures, and subject to the exclusions in the preceding
sentence, Owner shall indemnify and save Manager, its officers and
employees harmless from any liability with respect to each Property
whether such lability is caused or contributed to by the negligence of
the indemnitee, which liability arises out of the occupancy,
management, operation or maintenance of any of the Properties. As a
prerequisite to indemnification, and in any event, Manager shall:
(a) notifies Owner and the insurance carrier within twenty-four
(24 hours) after Manager receives notice of any such loss,
damage or injury;
(b) takes no action (such as admission of liability) which might
bar Owner from obtaining any protection afforded by any
policy Owner may hold or which might prejudice Owner in its
defense to a claim based on such loss, damage or injury; and
(c) agrees that Owner shall have the exclusive right, at its
option, to conduct the defense to any claim, demand or suit
within limits prescribed by the policy or policies of
insurance.
Nothing herein shall be construed as indemnifying the
Manager or his employees, contractors or agents against any act or
omission for which insurance protection is not available, neither is
the foregoing intended to affect the general requirement of this
Agreement that each Property shall be managed, operated and maintained
in a safe condition and in a proper and careful manner. The Manager
shall furnish whatever information is requested by Owner for the
purpose of establishing the placement of insurance coverages and shall
aid and cooperate in every reasonable way with respect to such
insurance and any loss thereunder. Owner shall include in its hazard
policy covering each Property, personal property, fixtures and
equipment located thereon, and Manager shall include in any fire
policies for its furniture, furnishings or fixtures situated at each
Property, appropriate clauses pursuant to which the respective
insurance carriers shall waive all rights of subrogation with respect
to losses payable under such policies.
4.2 Additional Insurance. Manager must obtain and keep in
force the following insurance coverage:
(a) Worker's Compensation - statutory amount.
(b) Comprehensive General Liability coverage (to protect
Manager from their negligent acts not covered by
Owner).
(c) Employers' Liability in an amount not less than
$500,000.
(d) Automobile Liability in an amount not less than
$1,000,000.
(e) Blanket Crime Insurance in an amount not less than
$1,000,000.
(f) Umbrella/Excess insurance to be written as Employers'
Liability, Comprehensive General Liability, and Auto
Liability underlying limits with a minimum limit of
$10,000,000 each occurrence and aggregate.
Manager must obtain Owners' permission to waive any of the above
requirements. Certificates shall have attached thereto an endorsement
the Owner will be given at least 10 days prior to written notice of
cancellation of or any material change in policy. Owner will not
reimburse Manager for Manager's cost of such insurance, or for any and
all coverage that Manager obtains for its own account.
Manager shall indemnify, defend, and hold Owner and its officers and
employees harmless from any and all claims asserted against Owner, its
officers, and employees arising out of the Manager's breach of the
duties and obligations required by the contract between the two
parties.
The Managers' Worker's Compensation, Employer's Liability, and Auto
Insurance policies should waive all rights of subrogation against
Owner.
4.3 Subcontractor's Insurance. Manager shall require that
all subcontractors brought onto the Property(ies) have insurance
coverage at the subcontractor's expense, in the following minimum
amounts:
(a) Workers Compensation - Statutory Amount
(b) Employer's Liability $1,000,000 minimum;
(c) Comprehensive General Liability
(i) $100,000 Bodily Injury Per Person
$500,000 Per Occurrence
$100,000 Property Damage
OR
(ii) $500,000 Combined Single Limit
Manager must obtain the Owner's permission to waive any of
the above requirements. Higher amounts may be required if the work to
be performed is sufficiently hazardous. Manager shall obtain and keep
on file a certificate of insurance which shows that each subcontractor
is so insured.
ARTICLE 5. FINANCIAL REPORTING AND RECORDKEEPING
5.1 Books of Accounts. Manager, in the conduct of its
responsibilities to Owner, shall maintain adequate and separate books
and records for each Property, the entries to which shall be supported
by sufficient documentation to ascertain that said entries are
properly and accurately recorded to each Property. Such books and
records shall be maintained by Manager at Manager's address stated in
Article 15 or at such other location as may be mutually agreed upon in
writing. Manager shall ensure such control over accounting and
financial transactions as is reasonably required to protect Owner's
assets from theft, error or fraudulent activity on the part of
Manager's employees or other agents. Losses arising from such
instances are to be borne by Manager and shall include but not be
limited to:
(a) Theft of assets by Manager's employees or other agents,
(b) Penalties, interests, or loss of vendor discounts due
to delay in payment of invoices, bills or other like
charges,
(c) Overpayment of duplicate payment of invoices arising
from either fraud or error,
(d) Overpayment of labor costs arising from either fraud or
error,
(e) A sum equal to the value of any form of payment from
purveyors to Manager's employees or associates arising
from the purchase of goods or services for Owner's
Property, and
(f) Unauthorized use of facilities by manager's employees
or associates.
5.2 Account Classification. Manager shall adopt Owner's
Chart of Accounts.
5.3 Financial Reports. Manager shall furnish reports on
a calendar month basis, showing all collections, delinquencies,
uncollectible items, vacancies, and other matters pertaining to the
management, operation, and maintenance of each Property during the
month. The cash cutoff for the properties will be the 15th day of
each month with accurate accruals provided for the balance of the
month. The reports shall include the items listed on Schedule C
attached and a comparison of monthly and year-to date actual income
and expense with the approved operating Budget for each Property. All
reports shall be delivered to Owner no later than Manager's Premis
lockout date. A list of such dates shall be provided to Manager at
the beginning of each year. In addition, the Manager shall prepare
forms prescribed by the Owner to facilitate the input of such
financial information into the Owner's accounting system
5.4 Supporting Documentation. As additional support to
the monthly financial statement, Manager shall provide copies the
following:
(a) All bank statements, bank deposit slips and bank
reconciliations,
(b) Detailed cash receipts and disbursements records,
(c) Detailed trial balance (if available),
(d) General ledger listing (Periodically, Owner may request
copies of all invoices paid during a specified period),
(e) All invoices for capital expenditures and non-recurring
items,
(f) Summaries of adjusting journal entries, and
(g) Supporting documentation for payroll, payroll taxes and
employee benefits.
5.5 Accounting Principals. All financial statements and
reports required by Owner will be prepared in accordance with
generally accepted accounting principles.
5.6 Tax Form Preparation. Contract Manger shall prepare
and distribute to all required persons IRS from 1099, copies of which
shall be sent to Owner.
ARTICLE 6. OWNER'S RIGHT TO AUDIT
6.1 Owner reserves the right for Owner's employees, or
others appointed by Owner, to conduct examination, without
notification, of the books and records maintained for Owner by Manager
no matter where books and records are located. Owner also reserves
the right to perform any and all additional audit tests relating to
Manager's activities either at the Property or at any office of the
Manager; provided such audit tests are related to those activities
performed by Manager for Owner.
Should Owners employees or appointees discover either
weaknesses in internal control or errors in recordkeeping, Manager
shall correct such discrepancies either upen discovery or within a
reasonable period of time. Manager shall within 30 days inform Owner
in writing, of the action taken to correct such audit discrepancies.
Any and all such audits conducted either by Owner's
employees or appointees will be at the sole expense of Owner.
ARTICLE 7. BANK ACCOUNTS
7.1 Depository Account. The Manager shall deposit all
rents, security deposits, and other funds collected from the operation
of each Property, including any and all advance rents, in a bank
approved by Owner in a special account or accounts (the "Depository
Account") in the name of:
PREMISYS Real Estate Services, Inc. as Managing Agent for
Maple Plaza I, Rep Account
PREMISYS Real Estate Services, Inc. as Managing Agent for
Maple Plaza II, Rep Account
Prudential/Premisys Real Estate Services, Inc. as Managing Agent
for PBC Association Inc., Rep Account
The bank shall be informed in writing that the funds are held in trust
for the Owner. Separate and exclusive account shall be created with
a name designated by Owner for all Properties within the Owner's given
Property portfolios.
7.2 Concentration Account/Short Term Investments. A
Concentration Account shall be maintained by Manager. The bank shall
be informed in writing that the funds are held in trust for the Over.
When any Depository Account reaches the Trigger Balance as listed
below for each account, Manager shall cease all funds in the account,
except for the minimum balance as listed below for each account, to be
wire transferred to the Concentration Account where the funds will be
commingled with those of other properties which are managed by
Manager. Manager will make short term investments with funds from the
Concentration Account. Manager will keep complete and accurate
records of each Property with its proportionate share of earnings from
investments. Funds shall be invested in accordance with the
guidelines of the Prudential Treasury Department.
Depository Account Trigger Balance Minimum Balance
Maple Plaza I $ 15,000 $ 5,000
Maple Plaza II $ 15,000 $ 5,000
7.3 Disbursement Account. Disbursement Accounts for each of
the Owner's portfolios will be created by the Owner. The Manager
shall pay out of the appropriate account the operating expenses of
respective Properties and any other payments relative to the Property
as required by terms of the Agreement.
7.4 Transfer of Funds. On the 15th of each month, Manager
shall remit to Owner excess funds from the Concentration Account
determined by the following calculation for each property:
Cash Balance +$
Accounts Payable as of
15th of current month -$ (1)
Accrual for anticipated
bills not received by 15th
of current month but due
before current month end
(i.e., light bill) -$ (2)
Imprest Balance (3)
Due to Owner $
The Imprest Balance for Maple Plaza I and II shall be $5,000.
The ending cash balance as of the 15th would be the sum of (1) + (2)
+ (3).
Checks for remittances should be delivered to Owner, independent of
required financial reports, in the most expeditious manner as possible
as directed by Owner.
Schedule for transfer of funds and balance permitted to remain in the
Operating Account may be changed from time to time by written
instructions from the Owner.
At the option of the Owner, final monthly remittance shall be net of
Manager's fee. Check for the Manager's fee to be written no earlier
than the 15th of the month.
Owner reserves the right to require transfers of funds to Owner be
made by wire transfers of immediately available funds.
7.5 Security Deposit Account. Security deposits will be
deposited in the appropriate depository accounts as listed in 7.1
above. Where law requires that tenant security deposits be separately
maintained, a separate account (or separate interest bearing account)
will be opened by Manager at a bank approved by Owner. Such account
shall be maintained in accordance with applicable laws.
Manager shall maintain detailed records of all security deposits
deposited in each account, and such records will be open for
inspection by Owner's employees or appointees. Manager shall obtain
approval of Owner prior to the return of such deposits to any
particular tenant.
7.6 Change of Banks. Owner may direct the Manager to change
a depository bank or the depository arrangements.
7.7 Access to Account. Through the use of signature cards,
authorized representatives of the Owner shall be permitted access to
any and all funds in the bank accounts described in Sections 7.1, 7.2,
7.3 and 7.4. Manager's authority to draw against such accounts may be
terminated at any time by Owner without notice to Manager.
ARTICLE 8. PAYMENTS OF EXPENSES
8.1 Manager's Costs to be Reimbursed. After initial payment by
Manager, Manager may be reimbursed out of the Disbursement Account for
costs of the gross salary and wages or pro rata share thereof, payroll
taxes, insurance, worker's compensation and other benefits of
Manager's employees required to properly, adequately, safely and
economically manage, operate and maintain each Property subject to
this Agreement, provided that such employees have been identified and
enumerated on Schedule D of this Agreement.
8.2 Costs Eligible for Payment from Disbursement Account.
Manager may pay the following expenses directly from the Disbursement
Account subject to the conditions outlined in Article 3:
(a) Costs to correct any violation of Federal, State and
Municipal laws, ordinances, regulations and orders relative
to the leasing, use, repair and maintenance of such
Properties, or relative to the rules, regulations or orders
of the local Board of Fire Underwriters or other similar
body, provided such cost is not the result of Manager's
negligence.
(b) Actual and reasonable cost of making all repairs,
decorations and alterations provided such cost is not the
result of Manager's negligence.
(c) Cost incurred by Manager in connection with all service
agreements approved of by Owner.
(d) Cost of collection of delinquent rentals collected through
a collection agency which has been approved in writing in
advance by Owner.
(e) Legal fees of attorneys provided such attorneys have been
approved of (or designated as provided in Article 3.6) by
Owner in writing in advance of retention and the specific
amount of such attorney's fee has been approved of by Owner
in writing in advance of payment.
(f) Cost of capital expenditures subject to the restrictions in
Article 3.9.
(g) Cost of printed checks for each bank account required by
Owner.
(h) Cost of cash register, adding machines, personal computers
and other equipment of such type and use located a Property
and owned by the Owner.
(i) Leasing commissions payable to third parties.
(j) cost of service contracts approved by Owner and cost of
utilities.
(k) Cost of Owner approved advertising.
(l) Cost of printed forms and supplies required for use at a
Property.
ARTICLE 9. MANAGER'S COSTS NOT BE REIMBURSED
9.1 Non-reimbursable Costs. The following expenses or costs
incurred by or on behalf of Manager in connection with the
Management and leasing of any particular Property shall be
at the sole cost and expense of Manager and shall not be
reimbursed by Owner.
(a) Cost of gross salary and wages, payroll taxes, insurance,
workmen's compensation, and other benefits of Manager's
office personnel not identified in Schedule D.
ARTICLE 10. DELETED
ARTICLE 11. COOPERATION
Cooperation. Should any claims, demands, suits or other
legal proceedings be made or instituted by any person
against Owner or title holder of the Property which arise
out of any of the matters relating to this Agreement, the
Manager shall give Owner all Pertinent information and
reasonable assistance in the defense or other disposition
thereof.
ARTICLE 12. COMPENSATION
Compensation. Each month the Manager shall receive
remuneration for its services in managing and leasing the
respective Properties in accordance with the terms and tenor
of this Agreement. Either or both of the following fees may
be specified:
(a) An Annual fee, independent of income, payable in equal
monthly installments. The amount of such fee, if any is
payable, will be shown in Schedule A.
(b) A Management Fee based on income, amounting to a percentage
of the rents actually collected and remitted during the
month. Such percentage will be shown in Schedule A.
Rent for the purpose of Management Fee computation will
include all income except:
(1) Security deposits unless and not until such deposits
are applied as rental income upon termination of a
lease.
(2) Rents paid more than 30 days in advance of the due date
until the month in which such payments are to apply as
rental income.
(3) Monies collected for capital items which are paid for
by tenants.
(c) Upon remission of each Property's net cash and financial
statements as required by Section 5.3, Manager shall submit
a calculation of its fee to Owner.
ARTICLE 13. TERMINATION
13.1 Termination on 30-day Notice. In addition to the provisions
of Articles 1.2 and 1.3, either party may terminate this Agreement
without cause by giving the other party at least thirty (30) days
notice in writing.
13.2 Immediate Termination With Notice. In addition to the
provisions of Section 13.4, Owner may immediately terminate this
Agreement by the service of a written notice to that effect on the
Manager. In such cases, if Manager is entitled to a management fee
pursuant to: (a) Section 12.1 (a), Owner shall pay Manager an amount
equal to the next monthly installment of the management fee which
would normally have accrued to it on the collection of rents during
the ensuing thirty (30) days immediately following the termination
date. The foregoing provisions for payment in lieu of actual
management fee shall apply only in the case of immediate termination
pursuant to this Section 13.2.
13.3 Authority to Execute Termination Notices. Notice of
termination for the purpose of either Article 13.1 or 13.2 must be
signed by persons holding a rank or position in the Owner's company
equal to or higher than that of the individuals who signed this
Agreement on behalf of Owner.
13.4 Termination Without Notice. Dissolution or termination of
the corporate or partnership existence of the Manager by merger,
consolidation or otherwise; or termination or suspension of Manager's
real estate brokerage license, if such license is required as a
condition to managing the Property; or death of the Manager, if an
individual, or death of general partner or Manager, if partnership; or
cessation on the Managers part to continue to do business; or failure
of the Manager to properly deal with and account for trust funds; or
bankruptcy, insolvency, or assignment for the benefit of the creditors
of the Manager shall effect an immediate termination of the Agreement
without notice. Action having for its purpose a reorganization or
reconstitution of the Manager shall likewise effect an immediate
termination.
13.5 Final Accounting. Upon termination of this Agreement for
any reason or the withdrawal of any Property, Manager shall deliver to
Owner the following with respect to each Property or with respect to
the Property withdrawn, as the case may be:
(a) a final accounting, reflecting the balance of income and
expenses on each such Property as of the date of termination
or withdrawal to be delivered within thirty (30) days after
such termination or withdrawal.
(b) Any balance or monies of Owner or tenant security deposits,
or both, held by Manager with respect to each such Property
to be delivered immediately upon such termination or
withdrawal.
(c) All records, contracts, leases, receipts for deposits,
unpaid bills and other papers or documents which pertain to
each such Property to be delivered immediately upon such
termination or withdrawal. Upon such termination or
withdrawal Owner will assume authorized unpaid bills.
ARTICLE 14. SUBSIDIARIES AND AFFILIATES
14.1 On Schedule E Manager has set forth all of its subsidiary
corporations, if any, and all persons corporations or other entities,
if any, controlling Manager and all persons, corporations or other
entities, if any, owned or controlled by such persons, corporations or
other persons, if any, which control Manager. During the continuance
of this Agreement, Manager shall promptly notify Owner of any changes
or additions to the information required to be set forth on Schedule
E. Any contract or lease of any kind whatsoever between Manager and
any persons, corporation or other entity listed or to be listed on
Schedule E shall be subject to the prior written approval of Owner,
and at Owner's sole discretion approval may be withheld.
ARTICLE 15. NOTICES.
Notices. All notices, demands, consents and reports provided
for in this Agreement shall be in writing and shall be given to the
Owner or Manager at the address set forth below or at such other
address as they individually may specify thereafter in writing:
OWNER: Prudential Realty-PRT
Attention General Manager-P.B.C.
3 Gateway Center, 13th Floor
Newark, New Jersey 07102-4082
MANAGER: PREMISYS Real Estate Services, Inc.
2500 CityWest Blvd., Suite 1300
Houston, Texas 77042
Such notice or other communication may be mailed by United States
registered or certified mail, return receipt requested, postage
prepaid and may be deposited in a United States Post Office or a
depository for the receipt of mail regularly maintained by the post
office. Such notices, demands, consents and reports may also be
delivered by hand, or by any other method or means permitted by law.
For purposes of this Agreement notices will be deemed to have been
"given" upon personal delivery thereof or 48 hours after having been
deposited in the United States mails as provided above.
ARTICLE 16. NON-ASSIGNABLE, ETC.
16.1 No Assignment. This Agreement and all rights hereunder,
shall not be assignable by either party hereto (except as may be
required by a surety company in a matter of subrogation).
16.2 Consent and Approvals. Owner's consents or approvals may
be given only by representatives of Owner from time to time designated
in writing by Owner's Regional Vice President located at the address
provided in or pursuant to Article 15.1. All such consents or
approvals shall also be in writing.
16.3 Pronouns. The pronouns used in this Agreement referring to
the Manager shall be understood and construed to apply whether the
Manager be an individual, partnership, corporation or an individual or
individuals doing business under a firm or trade name.
16.4 Amendments. Except as otherwise herein provided, any and
all amendments, additions or deletions to this Agreement shall be null
and void unless approved by the parties in writing. If, however, the
only change made is in the Manger's commission or fee, the new
commission or fee shall become effective upon written notice thereof
by Owner to the Manager. Upon receipt of such notice by the Manager,
Schedule A shall be deemed to have been amended to conform. A change
in the Leasing Guidelines set forth in Schedule C may similarly be
made by Owner. A change in Schedule E may similarly be made by
Manager.
16.5 Headings. All headings herein are inserted only for
convenience and ease of reference and are not to be considered in the
construction or interpretation of any provision of this Agreement.
16.6 Representations. Manager represents and warrants that it
is fully qualified and licensed, to the extent required by law, to
manage real estate and perform all obligations assumed by Manager
hereunder. Manager agrees to comply with all such laws now or
hereafter in effect.
16.7 Indemnification by Manager. Manager shall indemnify,
defend and hold Owner harmless from any and all claims, demands,
causes of action, losses, damages, fines, penalties, liabilities,
costs and expenses, including attorney's fees and court costs, (except
to the extent covered by insurance carried by Owner pursuant to
Article 4.1) sustained or incurred by or asserted against Owner, by
reason of or arising out of Manager's breach of the duties and
obligations required by this Agreement to be performed by it.
16.8 Complete Agreement. This Agreement and Schedules A, C, D
and E, attached hereto and made a part hereof, supersedes and takes
the place of any and all previous management agreements entered into
between the parties hereto relating to the Properties covered by this
Agreement.
16.9 Shareholder Responsibility. Neither the Shareholders nor
the Trustees nor officers, employees or agents of the Trust shall be
liable hereunder and Manager shall look solely to the Trust Estate for
the payment of any amounts due hereunder or for the performance of any
term hereunder.
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this
Agreement the date and year first above written.
PRUDENTIAL REALTY-PRT
BY: THE PRUDENTIAL PROPERTY COMPANY
ATTEST: BY: /s/ John Gregorits
John Gregorits,
/s/ Richard E. Pigott ITS General Manager
Richard E. Pigott
PREMISYS REAL ESTATE SERVICES, INC.
WITNESS: BY: /s/ Joe M. Hudec
Joe M. Hudec
/s/ Michael G. Mire ITS President/CEO
Michael G. Mire
<PAGE>
<PAGE>
STATE OF NEW JERSEY}
}SS.:
COUNTY OF ESSEX }
BE IT REMEMBERED that on this 10th day of January , 1991, before
me, the subscriber, a Notary Public of the State of New Jersey,
personally appeared John S. Gregorits, General Manager of PRUDENTIAL
REALTY-PRT, who, I am satisfied, is the person who has signed the
within Instrument; and I having first made known to him the contents
thereof, he thereupon acknowledged that he signed and delivered the
said instrument as such officer aforesaid, that the within Instrument
is the voluntary act and deed of said Trust made by virtue of
authority contained in the Declaration of Trust dated June 9, 1985.
/s/Teresa E. Miller
TERESA E. MILLER
A NOTARY PUBLIC OF NEW JERSEY
My Commission Expired March 12, 1995
PRUDENTIAL BUSINESS CAMPUS
MAPLE PLAZA I AND II
SCHEDULE A
MANAGEMENT FEES
Property Identification Annual Fee
And/Or (Street Address) Type of Legal Monthly Fee 1991 &
Loan No. City Building Status 1990 Beyond
RT01-01 4 Campus Drive Office GA 2% of $1500/mo vs
Maple Plaza I collections formula below
Parsippany, NJ whichever is
greater
RT01-02 6 Campus Drive Office GA 2% of $1500/mo vs
Maple Plaza II collections formula below
Parsippany, NJ whichever is
greater
Management Fee Formula
First $ 3,000,000 of collections * 2%
Next 1,000,000 of collections 1 1/2%
Over 4,000,000 of collections 1 1/4%
* Collections as defined here is the total revenue collections of 4 & 6
Campus Drive. Fee is calculated per above formula then allocated to
buildings on a pro-rate.
SCHEDULE C
MONTHLY REPORT FORM
1. BALANCE SHEET
2. STATEMENT OF OPERATION (including budget to actual comparison with
variance explanation).
3. ACCTS. RECEIVABLE AGING
4. ACCTS. PAYABLE - Detail listing that agrees with general ledger
trial balance.
5. RENT ROLL SUMMARY
6. GENERAL LEDGER
7. SECURITY DEPOSITS
8. CASH MANAGEMENT REPORTS
(a) Monthly Collections/Delinquencies (Monthly)
(b) Recovery of Fixed and Operating Expenses (Collections)
(Quarterly)
(c) Tenant Audit Program (retail properties only) (Yearly)
9. BANK STATEMENTS AND RECONCILIATIONS FOR ALL PROPERTY BANK
ACCOUNTS.
10. COPIES OF ALL INVOICES FOR CAPITAL EXPENDITURES.
<PAGE>
<PAGE>
SCHEDULE D
REIMBURSABLE EMPLOYEES
PRUDENTIAL BUSINESS CAMPUS
Effective Date 01-01-91
PROPERTY NAME PROPERTY NO. LOCATION (CITY, STATE)
1) 7 Campus Drive REC 528.2 Parsippany, New Jersey
2) 8 Campus Drive REC 528.5 Parsippany, New Jersey
3) 9 Campus Drive REC 528.3 Parsippany, New Jersey
4) 7 Sylvan Way REC 528.4 Parsippany, New Jersey
5) Two Hilton Court REC 528.6 Parsippany, New Jersey
6) 4 Campus Drive RT01-01 Parsippany, New Jersey
7) 6 Campus Drive RT01-02 Parsippany, New Jersey
8) P.B.C. Association REC 528.10 Parsippany, New Jersey
ALLOCATION BETWEEN PROPERITES
AS A PERCENTAGE
No.
With Salary 1 2 3 4 5
1)Sr. Prop. Manager 1 80,000-90,000 5.0 15.6 15.7 15.6 15.7
2)Asst. Prop. Manager 1 28,000-38,000 5.0 15.6 15.7 15.6 15.7
3)Chief Engineer 1 48,000-60,000 - 23.5 17.0 16.0 16.8
4)Admin. Assistant 1 22,000-27,000 - 16.6 16.7 16.6 16.7
5)Maint. Engineer 3 28,000-37,000 - 23.5 17.0 16.0 16.8
6)Maint. Mechanic 2 21,000-25,000 - 23.5 17.0 16.0 16.8
7)Secretary/Recp. 1 19,000-25,000 - 16.6 16.7 16.6 16.7
8)Maint. Helper 1 17,000-21,000 - 23.5 17.0 16.0 16.8
No.
With Salary 6 7 8 Bonded
1)Sr. Prop. Manager 1 80,000-90,000 15.7 15.7 1.0 Yes
2)Asst. Prop. Manager 1 28,000-38,000 15.7 15.7 1.0 Yes
3)Chief Engineer 1 48,000-60,000 10.7 16.0 - No
4)Admin. Assistant 1 22,000-27,000 16.7 16.7 - Yes
5)Maint. Engineer 3 28,000-37,000 10.7 16.0 - No
6)Maint. Mechanic 2 21,000-25,000 10.7 16.0 - No
7)Secretary/Recp. 1 19,000-25,000 16.7 16.7 - Yes
8)Maint. Helper 1 17,000-21,000 10.7 16.0 - No
100% Prudential /PruBeta-3 Reimbursable Employees As A Payroll Accommodations
1 2 3 4 5 6 7 8 Bonded
1)Marketing Director 1 82,000-95,000 - - - - - - - - NO
2)Const. Sec/Recep. 1 20,000-25,000 - - - - - - - - NO
1. With OWNER'S prior written approval, Manager may pay, in addition to
base salary and outside of Schedule D Range, a "Year End Bonus" to
recommended employees. Said bonus shall be awarded based on the
employees' performance to defined objectives and the financial
performance of the project.
2. On-site employees' salaries do not include PT&I costs and other
employee benefits.
OWNER APPROVAL: MANAGER APPROVAL:
BY: BY:
/s/ John S. Gregorits, Vice President
TITLE: VICE PRESIDENT TITLE: PRESIDENT
DATE: 1/10/91 DATE: 12/14/90
SCHEDULE E
SUBSIDIARIES AND AFFILIATES
None.
Exhibit 4
MANAGEMENT AGREEMENT
(Prudential Realty Trust Properties)
Between
PRUDENTIAL REALTY TRUST,
a Massachusetts Business Trust
as Owner
and
PREMISYS Real Estate Services, Inc.
a Pennsylvania Corporation,
as Manager
Dated May 1, 1991
TABLE OF CONTENTS
ARTICLE HEADING Page
ARTICLE I - PROPERTIES
Section 1.1 - List of Properties
1.2 - Withdrawal of a Particular Property
1.3 - Termination on Sale
ARTICLE II - COMMENCEMENT DATE
ARTICLE III - MANAGER'S RESPONSIBILITIES
Section 3.1 - Management
3.2 - Employees: Independent Contractor
3.3 - Schedule of Employees
3.4 - Compliance with Laws, Mortgages, etc.
3.5 - Approved Budgets
3.6 - Collection of Rents and Other Income
3.7 - Competitive Bidding
3.8 - Repairs
3.9 - Capital Improvements
3.10 - Service Contracts
3.11 - Non-Owned Properties
3.12 - Taxes, Mortgages
3.13 - Leasing
3.14 - Preparation of Leases
3.15 - Advertising
3.16 - Inspection of Properties
ARTICLE IV - INSURANCE
Section 4.1 - Insurance
4.2 - Property Insurance
4.3 - Additional Insurance
4.4 - Subcontractor's Insurance
ARTICLE V - FINANCIAL REPORTING AND RECORDKEEPING
Section 5.1 - Books of Accounts
5.2 - Accounting System
5.3 - Financial Reports
5.4 - Supporting Documentation
ARTICLE HEADING Page
ARTICLE V 5.5 - IRS Form 1099
5.6 - Transfer of Funds
5.7 - Accounting Principles
ARTICLE VI - OWNER'S RIGHT TO AUDIT
ARTICLE VII - BANK ACCOUNTS
Section 7.1 - Operating Account
7.2 - Security Deposit Account
7.3 - Change of Bank
7.4 - Access to Accounts
ARTICLE VIII - PAYMENT OF EXPENSES
Section 8.1 - Manager's Cost to be Reimbursed
8.2 - Costs Eligible for Payment from
Operating Account
8.3 - Non-Reimbursable Costs
ARTICLE IX - INSUFFICIENT GROSS INCOME
Section 9.1 - Priorities
9.2 - Statement of Unpaid Items
9.3 - Segregation of Accounts
ARTICLE X - COOPERATION WITH SALES BROKER
ARTICLE XI - COOPERATION IN EVENT OF LEGAL PROCEEDINGS
ARTICLE XII - COMPENSATION
ARTICLE XIII - TERMINATION
Section 13.1 - Termination on 30-day Notice
13.2 - Immediate Termination Without Prior
Notice
13.3 - Authority to Execute Termination
Notices
13.4 - Automatic Termination
13.5 - Final Accounting
ARTICLE HEADING Page
ARTICLE XIV - SUBSIDIARIES AND AFFILIATES
ARTICLE XV - NOTICES
ARTICLE XVI - MISCELLANEOUS
Section 16.1 - No Assignment
16.2 - Consents and Approvals
16.3 - Pronouns
16.4 - Amendments
16.5 - Headings
16.6 - Representations
16.7 - Indemnification by Manager
16.8 - Applicable Law
16.9 - Partial Invalidity
16.10 - Waiver of Mechanic's Lien
16.11 - Complete Agreement
SCHEDULES
A - Property Identification, Compensation Schedule
B - (Intentionally Omitted)
C - Monthly Supporting Documentation and PREMIS Equipment
D - Employees
E - Subsidiaries and Affiliates of Manager
MANAGEMENT AGREEMENT
This AGREEMENT, dated as of the first day of May, 1991 by and
between PRUDENTIAL REALTY TRUST, a Massachusetts Business Trust,
hereinafter called "Owner", and PREMISYS Real Estate Services, Inc., a
Pennsylvania corporation, hereinafter called "Manager" witnesseth that:
WHEREAS Owner owns or has the right to collect rents from and manage
certain properties described in Schedule "A" hereto affixed and made a
part hereof, and desires to engage Manager to manage and operate the
same;
NOW, THEREFORE, in consideration of the premises the parties agree
as follows:
ARTICLE I PROPERTIES
1.1 List of Properties. Listed, described and identified on
Schedule "A" hereof are the real properties to come under the terms of
the Agreement. As used in this Agreement, Schedule "A" shall also mean
the amended or revised list of all properties which may from time to time
be under the management of Manager. Each property listed in Schedule
"A", which may be amended from time to time, is hereinafter referred to
as a "Property" and more than one Property is referred to as Properties."
No parcel of real property shall be subject to the terms of this
Agreement unless listed under Schedule "A". Schedule "A" indicates the
nature of the rights of Owner with the compensation payable (as provided
in ARTICLE XII hereof) to Manager with respect to each specific Property.
Schedule "A" may be amended at any time during the continuance of this
Agreement with the mutual consent of Owner and Manager by Owner's
furnishing Manager with a current List of the Property(ies) to be added.
This list shall contain the same information as to each such Property as
in the case of other Properties previously listed under Schedule "A".
1.2 Withdrawal of a Particular Property. Owner may at any
time withdraw any Property listed on Schedule "A" by giving to the
Manager at least thirty (30) days notice in writing. Such withdrawal
shall not affect or impair any right which has accrued to either party
prior to the date when such withdrawal becomes effective. However,
termination of this entire Agreement, as provided in ARTICLE XIII hereof,
shall be distinguished from the withdrawal of individual Properties.
1.3 Termination on Sale. In addition to Owner's rights to
withdraw individual Properties upon notice, this Agreement shall
terminate automatically and immediately as to any specific Property upon
sale thereof by Owner or upon termination of the Owner's right to collect
the rents therefrom and Owner agrees to give Manager prompt notice
thereof.
ARTICLE II COMMENCEMENT DATE
Manager's duties and responsibilities under this Agreement shall
begin the 1st day of May, 1991 and shall continue until termination as
provided in Sections 1.2, 1.3 or ARTICLE XIII hereof.
ARTICLE III MANAGER'S RESPONSIBILITIES
3.1 Management. Manager shall manage, operate and maintain the
Properties listed in Schedule "A" (and any amendments to Schedule "A")
hereof in an efficient and satisfactory manner. Manager shall act in a
fiduciary capacity with respect to the proper protection of an accounting
for Owner's assets. In this capacity, manager shall deal at arms length
with all third parties and Manager shall serve Owner's interests at all
times.
Manager acknowledges that it has a substantial influence on the financial
return of the property. Manager shall operate the property in a cost
efficient manner while providing service to the tenants comparable or
better than the standard in the Park 100 market. In particular, Manager
shall maintain rent roll and process leases, pay invoices, and provide
supervisory services with respect to capital and tenant improvements and
repair and maintenance in a timely fashion.
3.2 Employees; Independent Contractor. Manager shall have in its
employ at all times a sufficient number of capable employees to enable it
to properly, adequately, safely and economically manage, operate,
maintain, and account for each Property. All matters pertaining to the
employment, supervision, compensation, promotion and discharge of such
employees are the responsibility of Manager, which is in all respects
the employer of such employees. Manager shall negotiate with any union
lawfully entitled to represent such employees and may execute in its own
name, and not as agent for Owner, collective bargaining agreements or
labor contracts resulting therefrom. Manager shall fully comply with all
applicable laws and regulations having to do with workmen's compensation,
social security, unemployment insurance, hours of labor, wages, working
conditions, the Immigration Reform and Control Act of 1986 and other
employer/employee related subjects. Manager represents that it is and
will continue to be an equal opportunity employer and must advertise as
such. This Agreement is not one of agency by Manager for Owner but one
with Manager engaged independently in the business of managing properties
on its own behalf as an independent contractor. All employment
arrangements are therefore solely its concern and Owner shall have no
liability with respect thereto.
3.3 Schedule of Employees. Manager shall provide a schedule of
employees (in the format of Schedule "D" attached) to be employed "on-
site" in the direct management of each Property subject to this
Agreement. This schedule shall include the number of employees and their
title and salary range and shall also indicate which employees are bonded
or are covered under Manager's comprehensive crime insurance policy.
Manager shall identify in the same manner those additional employees
whose salaries from time to time be charged pro rata to each Property or
Properties for direct services rendered to each Property or Properties.
Employees whose salaries are eligible to be charged pro rata include, but
are not limited to, engineers or others to be agreed upon. Employees
whose salaries may not be charged pro rata include, but are not limited
to, general management personnel, accountants and auditors. Schedule "D"
may be amended from time to time by mutual agreement.
3.4 Compliance with Laws, Mortgages, etc. Manager shall be
responsible for full compliance with federal, state and municipal laws,
ordinances, regulations and orders relative to the leasing, use,
operation, repair and maintenance of each Property and with the rules,
regulations or orders of the local Board of Fire Underwriters or other
similar body. Manager shall promptly remedy any violation of any such
law, ordinance, rule, regulation or order which comes to its attention.
Expenses incurred in remedying violations may be paid from the
Operating Account provided such expenses do not exceed $5,000.00 in any
one instance. When more than such amount is required or if the violation
is one for which the Property title holder might be subject to penalty,
Manager shall notify Owner by the end of the next business day to the end
that prompt arrangements may be made to remedy the violation.
Manager shall be responsible for full compliance with all terms and
conditions contained in any ground lease, space lease, mortgage, deed of
trust or other security instruments affecting each Property; provided,
however, except as directed pursuant to Section 3.12 below, Manager shall
not be required to make any payment or incur any liability on account
thereof.
3.5 Approved Budgets. Manager shall prepare and submit to Owner
a proposed Operating Budget and a proposed Capital Budget for the
promotion, operation, repair and maintenance of each Property for the
forthcoming calendar year. Each proposed budget shall be delivered to
Owner within ninety (90) days after the execution of this Agreement and
each subsequent proposed budget no later than October 1 of each calendar
year or, with respect to a newly added property to Schedule "A" hereof,
no later than ninety (90) days after the addition of a Property to
Schedule "A". Notwithstanding anything above to the contrary, the mid-
September PREMIS budget reforecast shall satisfy the initial ninety (90)
days budget requirement.
Owner shall consider the proposed budgets and then will consult with
Manager in the ensuing period prior to the commencement of the
forthcoming calendar year in order to agree on an "Approved Operating
Budget" and an "Approved Capital Budget."
Manager agrees to use due diligence and to employ all reasonable
efforts to ensure that the actual costs of maintaining and operating each
Property shall not exceed either Approved Budget pertaining thereto
either in total or in any one accounting category. All expenses must be
charged to the proper account as specified in the Approved Chart of
Accounts and no expense may be classified or reclassified for the purpose
of avoiding an excess in the annual budgeted amount of an accounting
category. Manager shall secure Owner's prior written approval for any
expenditure that will result in an excess of the greater of $3,000 or 5%
of the annual budgeted amount, whichever is less, in any one accounting
category of the Approved Operating Budget.
During the calendar year Manager shall inform Owner of any major
increases in costs and expenses that were not foreseen during the budget
preparation period and thus were not reflected in either Approved Budget.
3.6 Collection of Rents and Other Income. Manager shall use
diligent efforts to collect all rents (including escalation billings
resulting from tenant participation in increases in expenses, taxes and
common area maintenance charges) and other charges which may become due
at any time from any tenant or from others for services provided in
connection with or for the use of any Property or any portion thereof.
Manager shall collect and identify any income due Owner from
miscellaneous services provided to tenants or the public including, but
not limited to, parking income, tenant storage, and coin operated
machines of all types (e.g., washers, dryers, vending machines, pay
telephone, etc.). All monies so collected shall be deposited in the
Depository Account. Manager may not, without the prior written approval
of Owner, terminate any lease, lock out a tenant, institute suit for rent
or for use and occupancy, or proceedings for recovery of possession. In
connection with any collection efforts only legal counsel or collection
firm designated by Owner shall be retained. All legal expenses incurred
in bringing such approved suit or proceeding shall be submitted to Owner
for its approval. Manager shall not write off any income items without
prior approval of Owner.
3.7 Competitive Bidding. All contracts for repairs, capital
improvements, goods and services exceeding $7,500.00 shall be awarded on
the basis of competitive bidding, solicited in the following manner:
(a) A minimum of two (2) written bids shall be obtained for
each purchase up to $10,000. Purchases over $10,000 will
require a minimum of three (3) bids.
(b) Each bid will be solicited in a manner so that uniformity
will exist in the bid quotes.
(c) Unless otherwise directed by Owner, Manager may accept a
low bid without prior approval from Owner, if the
expenditure is for a budget approved item and will not
result in an excess of the annual budgeted accounting
category of the applicable Approved Operating or Capital
Budget.
(d) If Manager advises acceptance of other than the lowest
bidder, Manager shall adequately support, in writing, its
recommendations to Owner.
(e) Owner shall be free to accept or reject any and all bids.
(f) Manager may request Owner to waive competitive bidding
rules.
Owner may pay for such expenses from its own resources or may
authorize payment by Manager out of the Operating Account.
3.8 Repairs. Manager shall attend to the making and supervision
of all ordinary and extraordinary repairs, decorations and alterations
subject to the limits of the approved Operating Budget. Excluded from
this provision are expenditures to refurbish, rehabilitate, remodel, or
otherwise prepare areas covered by new leases which are limited as
described in Schedule "B" #11 hereof.
In cases of emergency Manager may make expenditures for repairs
which exceed the limits in Section 3.7 hereof without prior written
approval if it is necessary to prevent damage or injury. Owner must be
informed of any such expenditures before the end of the next business
day.
3.9 Capital Improvements. The Approved Capital Budget constitutes
an initial authorization for Manager to expend money for projects. With
respect to the purchase and installation of major items (cost in excess
of $50,000.00) of new or replacement equipment, Manager shall recommend
that Owner purchase such items when Manager believes their purchase to be
necessary or desirable. Owner may arrange to purchase and install same
or may authorize Manager to do so, subject to prescribed supervision and
specification requirements and conditions and to the competitive bid
rules set forth in Section 3.7 hereof.
3.10 Service Contracts. Manager shall not enter into any contract
calling for annual payments in excess of $50,000.00 for cleaning,
maintaining, repairing or servicing any Property or any of the
constituent parts of any Property without the prior written consent of
Owner. As a condition to obtaining such consent, Manager shall supply
Owner with a copy of the proposed contract and shall state to Owner the
relationship, if any, between Manager (or the person or persons in
control of Manager) and the party proposed to supply such goods or
services, or both.
All service contracts shall: (a) be in the name of Manager as
Owner's agent, (b) be assignable, at Owner's option, to Owner or Owner's
nominee, (c) include a provision for cancellation thereof by Owner or
Manager upon not more than thirty (30) days written notice, and (d) shall
require that all contractors provide evidence of sufficient insurance.
Unless Owner specifically waives such requirements, either by memorandum
or as an amendment to the contract, all service contracts shall be
subject to bid under the procedure as specified in Section 3.7 hereof.
If a Property is withdrawn pursuant to Section 1.2 hereof or if this
Agreement is terminated pursuant to Article XIII hereof, Manager shall,
at Owner's option, assign to Owner or Owner's nominee all service
agreements pertaining to the Property or Properties.
3.11 Non-Owned Properties. If Owner does not have title to the
Property, then notwithstanding the provisions of this Agreement,
including the provisions relative to the making of repairs of maintenance
of the Properties, Manager shall not incur any expenses in any month in
excess of the income from such non-owned Property during that month. In
any case in which there is doubt, Manager shall inform Owner of the
situation so that Owner may have the opportunity of determining what
action should be taken under the circumstances.
3.12 Taxes, Mortgages. Manager, shall, if so requested, obtain
and verify bills for real estate and personal property taxes, improvement
assessments and other like charges which are or may become liens against
any Property and recommend payment or appeal as in its best judgement it
may decide. Manager shall forward such bills to Owner for payment by
Owner in such time to permit Owner to avoid penalty for late payment or
to permit Owner to take advantage of discounts. If Owner directs Manager
to make payment, Manager shall do so and shall furnish Owner with
receipted bills therefor. At the direction of Owner, Manager shall make
payments on account of any ground lease, mortgage, deed of trust or other
security instrument affecting any Property.
3.13 Leasing. Manager shall cooperate with the leasing agent for
each property in making every reasonable effort to obtain and keep
desirable tenants for each Property. Immediately following any vacancy,
or the addition to Schedule "A" of a Property in which a vacancy exists,
Manager shall assist such leasing agent in preparing adequate rental
listings, which are to be approved in writing by Owner prior to
distribution to reputable and active real estate brokers. After a
vacancy is so listed, Manager shall cooperate with such leasing agent and
with any outside brokers in a manner likely to aid in successfully
filling the vacancy. Manager agrees to perform whatever service may be
required in connection with the negotiation of leases or renewals,
extensions, modifications, or cancellations thereof. Leasing commissions
shall be approved by Owner and paid from the Operating Account.
3.14 Preparation of Leases. All leases are to be prepared by the
leasing agent in accordance with the leasing guidelines established by
Owner with respect to each Property covered by this Agreement.
3.15 Advertising. Manager shall cooperate with the leasing agent
in preparing advertising plans and promotional material to be used to
further rentals. Such plans or material shall only be used if approved
in advance in writing by Owners, and in conformance with such approval.
Manager and such leasing agent shall not use Owner's name in any
advertising or promotional material without Owner's expressed prior
written approval in each instance. Advertising and promotional materials
shall be prepared in full compliance with Federal, State and Municipal
fair housing and other laws, ordinances, regulations and orders.
3.16 Inspection of Properties. Each Property, whether vacant or
tenanted, shall be inspected by Manager at least once during each period
of twelve consecutive calendar months, and if tenanted, Manager shall
notify each tenant in writing of deficiencies or delinquencies, if any,
on the part of that tenant with respect to the maintenance or repair of
that portion of the Property leased to such tenant, and concurrently with
the delivery of such notice to the tenant, a copy thereof shall be
delivered to Owner. Each such notice shall demand that the tenant make
the repairs or perform the maintenance therein described within a
prescribed period which, in the judgment of Manager, is reasonable.
ARTICLE IV INSURANCE
4.1 Insurance. Owner, at its expense, shall obtain and keep in
force adequate insurance against physical damage (e.g., Fire with
extended coverage endorsement, boiler and machinery, etc.) and against
liability for loss, damage or injury to property or persons which might
arise out of the occupancy, management, operation or maintenance of any
of the Properties covered by this Agreement. Manager and its officers
and employees shall be covered as additional named insured in all
liability insurance maintained by Owner with respect to each Property,
and to the extent Owner elects to self-insure, Owner shall save Manager
harmless from any liability on account of any such loss, damage or
injury, excluding liability arising from the gross negligence, malice or
willful misconduct of Manager, its officers and employees, provided
Manager:
(a) notifies Owner and the insurance carrier within twenty-four
(24) hours after Manager receives notice of any such loss,
damage or injury;
(b) takes no action (such as admission of liability) which might
bar Owner from obtaining any protection afforded by any policy
Owner may hold or which might prejudice Owner in its defense to
a claim based on such loss, damage or injury; and
(c) agrees that Owner shall have the exclusive right, at its
option, to conduct the defense to any claim, demand or suit
within limits prescribed by the policy or policies of
insurance.
The foregoing is not intended to affect the general requirement of this
Agreement that each Property shall be managed, operated and maintained in
a safe condition and in a proper and careful manner, nor shall the
indemnification be applicable to punitive damages in any jurisdiction in
which insurance for punitive damages is not available. The Manager shall
furnish whatever information is requested by the Owner for the purpose of
establishing the placement of insurance coverage and shall aid and
cooperate in every reasonable way with respect to such insurance and any
loss covered thereunder or under Owner's indemnification. The Liability
Insurance Coverage and/or the indemnification provided for herein shall
be limited to an aggregate of $25,000,000 per occurrence.
Nothing herein shall be construed as indemnifying Manager or its
employees, contractors or agents against their negligence, malfeasance or
criminal acts or any act or omission for which insurance protection is
not available; neither is the foregoing intended to affect the general
requirement of this Agreement that each Property shall be managed,
operated and maintained in a safe condition and in a proper and careful
manner. Manager shall furnish whatever information is requested by Owner
for the purpose of establishing the placement of insurance coverages or
surety bonds and shall aid and cooperate in every reasonable way with
respect to such insurance and any loss thereunder. Owner shall include
in the standard fire and extended coverage Policy covering each Property
and its personal property, fixtures and equipment located thereon, and
Manager shall include in any fire and extended coverage policies for its
furniture, furnishings or fixtures situated at each Property appropriate
clauses pursuant to which the respective insurance carriers shall waive
all rights of subrogation with respect to losses payable under such
policies.
4.2 Property Insurance. Owner shall include in its hazard policy
covering each Property, personal property, fixtures and equipment located
thereon, and Manager shall include in any fire policies for its
furniture, furnishings and fixtures situated at each property,
appropriate clauses pursuant to which the respective insurance carriers
shall waive all rights of subrogating with respect to losses payable
under such policies.
4.3 Additional Insurance. Manager shall at all times hereunder
warrant and furnish Owner with certificates evidencing Worker's
Compensation and crime insurance in forms acceptable to Owner. Crime
insurance shall be for an amount not less than $500,000.00. The
certificates shall have attached thereto endorsements that Owner will be
given at least ten (10) days prior written notice of cancellation of or
any material change in such policies. Owner shall not reimburse Manager
for Manager's cost of such insurance, nor for any coverages that Manager
obtains for its own account.
4.4 Subcontractor's Insurance. Manager shall require that all
subcontractors brought onto any property have insurance coverage at the
subcontractor's expense, in the following minimum amounts:
(a) Workmen's Compensation: Statutory Amount
(b) Employer's Liability (in those states where it is
required): $500,000 minimum
(c) Comprehensive General Liability:
i. Bodily Injury: $500,000 per person/$1,000,000 per
occurrence
ii. Property Damage: $500,000 per claim/$1,000,000
Combined Single Limit
Manager must obtain Owner's permission to waive or alter any of the above
requirements. Higher amounts may be required if the work to be performed
is hazardous. Manager shall obtain and keep on file a Certificate of
Insurance which shows that any subcontractor is so insured.
ARTICLE V FINANCIAL REPORTING AND RECORDKEEPING
5.1 Books of Accounts. Manager, in the conduct of its
responsibilities to Owner, shall maintain adequate and separate books and
records for each Property, the entries to which shall be supported by
sufficient documentation to ascertain that said entries are properly and
accurately recorded to each Property. Such books and records shall be
maintained by Manager at Manager's address stated in ARTICLE XV hereof or
at such other location as may be mutually agreed upon in writing.
Manager shall ensure such control over accounting and financial
transactions as is reasonably required to protect Owner's assets from
theft, error or fraudulent activity on the part of Manager's employees or
other agents. Losses arising from such instances are to be borne by
Manager and shall include but not be limited to:
(a) Theft of assets by Manager's employees or other agents;
(b) Penalties, interests, or loss of vendor discounts due to
delay in payment of invoices, bills or other like charges;
(c) Overpayment or duplicate payment of invoices arising from
either fraud or error;
(d) Overpayment of labor costs arising from either fraud or
error,
(e) A sum equal to the value of any form of payment from
purveyors to Manager's employees or associates arising
from the purchase of goods or services for Owner's
Property, and
(f) Unauthorized use of facilities by Manager's employees or
associates.
5.2 Accounting Classification. Manager shall utilize the
Prudential Real Estate Management Information System (PREMIS) for the
financial reporting of each Property. Owner will provide the necessary
equipment pursuant to Schedule "C". Owner will also provide the
necessary training and operating manuals. Owner reserves the right to
replace PREMIS at its discretion and substitute a replacement system
therefor.
5.3 Financial Reports. Manager shall furnish reports of all
transactions occurring from the 16th day of the prior month to the 15th
day of the current month. Such reports are to be received by Owner no
later than seven (7) calendar days after the end of the above described
accounting period and must show all collections delinquencies,
uncollectible items, vacancies, the amount of Manager's fees and other
matters pertaining to the management, operation, and maintenance of
each Property during the month. Said reports shall include the items
listed on Schedule "C" attached hereto and made a part hereof. In
addition, Manager shall prepare forms prescribed by Owner to facilitate
the input of financial information into Owner's accounting system.
5.4 Supporting Documentation. As additional support to the
above described monthly reports, Manager shall provide the items listed
on Schedule "C" attached hereto.
5.5 IRS Form 1099. On Owner's behalf, Manager shall comply with
all applicable provisions of the Internal Revenue Service Code and
Regulations with respect to IRS Form 1099. Manager shall retain a copy
of each completed Form 1099 for its files.
5.6 Transfer of Funds. Manager shall transfer funds from the
Operating Account to Owner based upon instructions and schedules
provided by the Owner. These instructions and schedules may be changed
from time to time by written notice from Owner.
5.7 Accounting Principles. All financial statements and reports
required by Owner shall be prepared in accordance with generally
accepted accounting principles, with the exception that the statements
may be prepared on a cash basis or a modified accrual basis, as
directed by Owner.
ARTICLE VI OWNER'S RIGHT TO AUDIT
Owner reserves the right for Owner's employees, or others
appointed by Owner, to conduct examinations, without notification, of
the books and records maintained for Owner by Manager no matter where
books and records are located. Owner also reserves the right to
perform any and all additional audit tests relating to Manager's
activities either at the Property or at any office of the Manager;
provided such audit tests are related to those activities performed by
Manager for Owner.
Should Owner's employees or appointees discover either weaknesses
in internal control or errors in recordkeeping, Manager shall correct
such discrepancies either upon discovery or within a reasonable period
of time. Manager shall inform Owner in writing of the action taken to
correct such audit discrepancies.
Any and all such audits conducted either by Owner's employees or
appointees shall be at the sole expense of Owner.
ARTICLE VII BANK ACCOUNTS
7.1 Operating Account. Manager shall deposit all rents and
other funds collected from the operation of each Property, including
any and all advance rents, and shall pay out the operating expenses
thereof and any other payments relating to each such property as
required by this Agreement from an account or accounts (the "Operating
Account") for each Property in the name of:
PREMISYS Real Estate Services, Inc., REP ACCOUNT
Said bank shall be informed in writing that the funds are held in
trust for Owner, who shall designate the number of Operating Accounts
required to be maintained by manager.
7.2 Security Deposit Account Where law requires that tenant
security deposits be separately maintained, a separate account (or
separate interest-bearing account) shall be opened by Manager at a bank
approved by Owner. Such account shall be maintained in accordance with
applicable law. Such account shall be used only for maintaining tenant
security deposits and shall be designated:
PREMISYS Real Estate Services, Inc., REP ACCOUNT - SECURITY
Said bank shall be informed in writing that the funds are held in
trust for Owner. A separate account such as the one designated above
shall be created and maintained by Manager for each Property. Manager
shall maintain detailed records of all security deposits deposited in
each account, and such records shall be open for inspection by Owner's
employees or appointees. Manager shall obtain approval of Owner prior
to the return of such deposits to any particular tenant when the amount
of such return, in any single instance, exceeds $10,000,00.
7.3 Change of Bank. Owner may direct Manager to change a
depository bank or the depository arrangements.
7.4 Access to Accounts. Through the use of signature cards,
authorized representatives of Owner shall be permitted access to any
and all funds in the bank accounts described in Sections 7.1, and 7.2
above. Manager's authority to draw against such accounts may be
terminated at any time by Owner without notice to Manager.
ARTICLE VIII PAYMENTS OF EXPENSES
8.1 Manager's Costs to be Reimbursed. After initial payment by
Manager, Manager may be reimbursed out of the Operating Account for
costs of the gross salary and wages or pro rata share thereof, payroll
taxes, insurance, worker's compensation and other benefits of Manager's
employees required to properly, adequately, safely and economically
manage, operate and maintain each Property subject to this Agreement,
provided that such employees have been identified and enumerated on
Schedule "D" of this Agreement.
8.2 Costs Eligible for Payment from Operating Account. Manager
may pay the following expenses directly from the Operating Account
subject to the conditions outlined in ARTICLE III hereof:
(a) Cost to correct any violation of Federal, State and Municipal
laws, ordinances, regulations and orders relative to the
leasing, use, repair and maintenance of any Property, or
relative to the rules, regulations or orders of the local
Board of Fire Underwriters or other similar body, provided
such cost is not the result of Manager's negligence.
(b) Actual and reasonable cost of making all repairs, decorations
and alterations provided such cost is not the result of
Manager's negligence.
(c) Cost incurred by Manager in connection with all service
agreements approved by Owner.
(d) Cost of collection of delinquent rentals collected through a
collection agency which has been approved in writing in
advance by Owner.
(e) Legal fees of attorneys provided such attorneys have been
approved (or designated as provided in Article 3.6 hereof) by
Owner in writing in advance of retention and the specific
amount of such attorney's fee has been approved of by Owner
in writing in advance of payment.
(f) Cost of capital expenditures subject to the restrictions
in Article 3.9 hereof.
(g) Cost of printed checks for each bank account required by
Owner.
(h) Cost of cash register, adding machines, and other
equipment of such type and use (excluding all electronic
data processing equipment except as may be approved in
writing by Owner) located at a Property and owned by the
Owner.
(i) Leasing commissions payable to third parties.
(j) Cost of service contracts approved by Owner and cost of
on-site utilities used by Manager in connection herewith.
(k) Cost of Owner-approved advertising.
(l) Cost of printed forms and supplies required for use at a
Property.
(m) Manager's fee (to be paid no earlier than the 15th for
the month).
8.3 Non-Reimbursable Costs. The following expenses or costs
incurred by or on behalf of Manager in connection with the
management and leasing of any particular Property shall be at the
sole cost and expense of Manager and shall not be reimbursed by
Owner:
(a) Cost of gross salary and wages, payroll taxes, insurance,
workmen's compensation, and other benefits of Manager's
employees, except those identified in Schedule "D" hereof
as reimbursable.
(b) General accounting and reporting services which are
considered to be within the reasonable scope of Manager's
responsibility to Owner.
(c) Cost of forms, papers, ledgers, and other supplies and
equipment used in Manager's office at any location of the
Property or Properties.
(d) Cost of electronic data processing equipment except as
may be approved in writing by Owner, or pro rata charge
therefor, whether located at a Property or at Manager's
office of the Property or Properties..
(e) Cost of electronic data processing, or any pro rata
charge therefor, for data processing provided by computer
service companies.
(f) Political or charitable contributions, except that
certain charitable contributions may be made with prior
written consent of Owner.
(g) Cost of advances made to employees and cost of travel by
Manager's employees or agents to and from each Property.
(h) Cost of attributable to losses arising from negligence or
fraud on the part of Manager, Manager's associates or
Manager's employees or agents.
(i) Cost of comprehensive crime insurance or fidelity bond
purchased by Manager for its own account.
(j) Training expenses.
(k) Employment fees, unless specifically approved by Owner.
ARTICLE IX INSUFFICIENT GROSS INCOME
9.1 Priorities. If at any time the gross income from any
particular Property shall not be sufficient to pay the bills and
charges which may be incurred with respect to such Property, or if
such gross income is insufficient to pay the combined sum of both
bills and charges, items will be paid out of the Operating Account
in the following order of priority:
(a) First, bills and charges of third parties, including any
mortgage payment if so directed by Owner.
(b) Second, bills and charges, if any, incurred by Manager
for Manager's services provided to Owner exclusive of
Manager's fee.
9.2 Statement of Unpaid Items. After Manager has paid, to
the extent of available gross income, all bills and charges based
upon the ordered priorities set forth in Section 9.1, Manager shall
submit to Owner a statement of all remaining unpaid bills. Owner
shall provide sufficient monies to pay any unpaid expenses.
9.3 Segregation of Accounts. In each instance where Manager
manages several Properties for Owner, Manager shall segregate the
income and expenses of each Property so that gross income from each
property will be applied only to the bills and charges from that
Property.
ARTICLE X COOPERATION WITH SALES BROKER
If Owner executes a listing agreement with a broker for the
sale of any of the Properties, Manager shall cooperate with such
broker to the end that the respective activities of Manager and
broker may be carried on without friction and without interference
with tenants and occupants. Manager shall permit the broker to
exhibit any particular Property during reasonable business hours,
provided the broker has secured Manager's permission in advance.
Manager agrees that failure on its part to extend cooperation to a
broker desiring to show a property is a material default on its
part under this Agreement and is grounds (although none is needed)
for immediate termination of this Agreement.
ARTICLE XI COOPERATION IN EVENT OF LEGAL PROCEEDINGS
Should any claims, demands, suits or other legal proceedings
be made or instituted by any person against Owner or the title
holder of Property which arise out of any of the matters relating
to this Agreement, Manager shall give Owner all pertinent
information and reasonable assistance in the defense or other
disposition thereof.
ARTICLE XII COMPENSATION
Manager shall receive remuneration for its services in
managing and leasing the respective Properties in accordance with
the terms and tenor of this Agreement. Either or both of the
following fees may be specified:
(a) An Annual Fee, independent of income, payable in equal
monthly installments. The amount of such fee, if any is
payable, shall be shown in Schedule "A" hereof.
(b) A Management Fee based on income, amounting to a
percentage of the rents actually collected and remitted
during the month. Such percentage shall be shown in
Schedule "A" hereof. Rent for the purpose of Management
Fee computation shall include all income except:
(1) Security deposits unless and not until such
deposits are applied as rental income upon
termination of a lease;
(2) Rents paid more than thirty (30) days in advance of
the due date until the month in which such payments
are to apply as rental income; and
(3) Monies collected for capital items which are paid
for by tenants.
ARTICLE XIII TERMINATION
13.1 Termination on 30-day Notice. In addition to the
provisions of Articles 1.2 and 1.3 hereof, either party may
terminate this Agreement without cause by giving the other party at
least thirty (30) days notice in writing.
13.2 Immediate Termination With Notice. In addition to the
provisions of Section 13.4 hereof, Owner may immediately terminate
this Agreement by the service upon Manager of a written notice to
that effect. In such case, if Manager is entitled to a Management
Fee pursuant to ARTICLE XII hereof, Owner shall pay Manager an
amount equal to the next monthly installment of the Management Fee;
or if Manager is entitled to a Management Fee pursuant to Section
XII (b) hereof, Owner shall pay Manager the Management Fee which
would normally have accrued to it on the collection of rents during
the ensuing thirty (30) days immediately following the termination
date. The foregoing provisions for payment in lieu of actual
management fee shall apply only in the case of immediate
termination pursuant to this Section 13.2.
13.3 Authority to Execute Termination Notices. Notice of
termination for the purpose of either Section 13.1 or 13.2 hereof
must be signed by persons holding a rank or position in the Owner's
company equal to or higher than that of the individuals who signed
this Agreement on behalf of Owner.
13.4 Automatic Termination. Dissolution or termination of
the corporate or partnership existence of Manager by merger,
consolidation or otherwise; or termination or suspension of
Manager's real estate brokerage license, if such license is
required as a condition to managing the Property; or death of
Manager, if a partnership; or cessation on Manager's part to
continue to do business; or failure of Manager to properly deal
with and account for trust funds; or bankruptcy, insolvency, or
assignment for the benefit of the creditors of Manager shall effect
an immediate, automatic termination of this Agreement without
notice. Action having for its purpose a reorganization or
reconstitution of Manager shall likewise effect an immediate
termination, at the election of Owner.
13.5 Final Accounting. Upon termination of this Agreement
for any reason or the withdrawal of any Property, Manager shall
deliver to Owner the following with respect to each Property or
with respect to the Property withdrawn, as the case may be:
(a) A final accounting, reflecting the balance of income and
expenses on each such Property, as of the date of
termination or withdrawal, to be delivered within thirty
(30) days after such termination or withdrawal.
(b) Any balance or monies of Owner or tenant security
deposits, or both, held by Manager with respect to each
such Property, to be delivered immediately upon such
termination or withdrawal.
(c) All records, contracts, leases, receipts for deposits,
unpaid bills and other papers or documents which pertain
to each such Property, to be delivered immediately upon
such termination or withdrawal. Upon such termination or
withdrawal Owner shall assume responsibility for payment
of all approved or authorized unpaid bills.
ARTICLE XIV SUBSIDIARIES AND AFFILIATES
On Schedule "E" hereof, Manager has set forth all of its
subsidiary corporations, if any, and all persons, corporations or
other entities, if any, controlling Manager and all persons,
corporations or other entities, if any, owned or controlled by such
persons, corporations or other persons, if any, which control
Manager. During the continuance of this Agreement, Manager shall
promptly notify Owner of any changes or additions to the
information required to be set forth on Schedule "E" hereof. Any
contract or lease of any kind whatsoever between Manager and any
persons, corporation or other entity listed or to be listed on
Schedule "E" shall be subject to the prior written approval of
Owner, and at Owner's sole discretion approval may be withheld.
ARTICLE XV NOTICES.
All notices, demands, consents and reports provided for in
this Agreement shall be in writing and shall be served upon Owner
or Manager at the addresses set forth below or at such other
address as they individually may hereafter specify in writing:
OWNER: The Prudential Insurance Company of America
c/o The Prudential Property Company
One Prudential Plaza, Suite 1200
Chicago, Illinois 60601
Attention: Vice President,
Prudential Property Company
MANAGER: PREMISYS Real Estate Services, Inc.
2500 City West Blvd., Suite 1300
Houston, TX 77042
Attention: Joe M. Hudec, President
Such notices, demands, consents and reports shall either be
mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or delivered by hand or by any
other means permitted by law. For purposes of this Agreement,
notices shall be deemed to have been served upon personal delivery
thereof or forty-eight (48) hours after having been deposited in
the United States mails as provided above.
ARTICLE XVI MISCELLANEOUS
16.1 No Assignment. This Agreement and all rights hereunder,
shall not be assignable by either party hereto (except as may be
required by a surety company in a matter of subrogation).
16.2 Consent and Approvals. Owner's consents or approvals
may be given only by representatives of Owner from time to time
designated in writing by Owner's Vice President located at the
address provided in or pursuant to ARTICLE XV hereof. All such
consents or approvals shall be in writing.
16.3 Pronouns. The pronouns used in the Agreement referring
to the Manager shall be understood and construed to apply whether
Manager be an individual, co-partnership, corporation or an
individual or individuals doing business under a firm or trade
name.
16.4 Amendments. Except as otherwise herein provided, any
and all amendments, additions or deletions to this Agreement shall
be null and void unless approved by the parties in writing. If,
however, the only change made is in Manger's commission or fee, the
new commission or fee shall become effective upon written notice
thereof by Owner to Manager. Upon receipt of such notice by
Manager, Schedule "A" hereof shall be deemed to have been amended
to conform. A change in the Leasing Guidelines set forth in
Schedule "B" hereof and in the Monthly Report Forms set forth in
Schedule "C" hereof may similarly be made by Owner. A change in
Schedule "E" may similarly be made by Manager.
16.5 Headings. All headings herein are inserted only for
convenience and ease of reference and are not to be considered in
the construction or interpretation of any provision of this
Agreement.
16.6 Representations. Manager represents and warrants that
it is fully qualified and licensed, to the extent required by law,
to manage real estate in the state and locations contemplated
hereunder and perform all obligations assumed by Manager hereunder.
Manager agrees to comply with all such laws now or hereafter in
effect.
16.7 Indemnification by Manager. Manager shall indemnify,
defend and hold Owner, its officers and employees harmless from any
and all claims, demands, causes of action, losses, damages, fines,
penalties, liabilities, costs and expenses, including attorney's
fees and court costs, (except to the extent covered by insurance
carried by Owner pursuant to Article IV hereof) sustained or
incurred by or asserted against Owner, its officers or employees by
reason of or arising out of Manager's, its employees, agents' or
contractors' malfeasance or criminal acts or breach of the duties
or obligations required by this Agreement.
16.8 Applicable Law. The Agreement, its interpretation and
enforcement shall be governed by the laws of the state in which
property is located.
16.9 Partial Invalidity. If any term, covenant, condition or
provision of this Agreement or the application thereof to any
person or circumstance shall, to any extent be invalid,
unenforceable or violate a party's legal rights then such term,
covenant, condition or provision shall be deemed to be null and
void and unenforceable, however, all other provisions of this
Agreement, or the application of such term or provision to persons
or circumstances other than those to which are held invalid,
unenforceable or violative of legal rights, shall not be affected
thereby, and each and every other term, condition, covenant and
provision of this Agreement shall be valid and be enforced to the
fullest extent permitted by law.
16.10 Waiver of Mechanic's Lien. Manager does hereby
forever waive and release, and agrees to defend, hold harmless and
indemnify Owner against, any lien or claim or right to lien under
the statutes of the state in which the Properties are located
relative to mechanics' liens, on account of labor, material or
services furnished by Manager, or anyone claiming such lien by,
through or under Manager with respect to the Property.
16.11 Complete Agreement. This Agreement and Schedules
"A", "B", "C", "D" and "E", attached hereto and made a part hereof,
supersedes and takes the place of any and all previous management
agreements entered into between the parties hereto relating to the
Properties covered by this Agreement.
IN WITNESS WHEREOF the parties hereto have executed this
Agreement as of the date and year first above written.
OWNER:
ATTEST: PRUDENTIAL REALTY TRUST
S. Gilmer Towell By: /s/ Cher R. Zucker-Maltese
Name: S. Gilmer Towell Name: Cher R. Zucker-Maltese
Title: Secretary Title: Vice President
MANAGER:
PREMISYS Real Estate Services, Inc.
By: /s/Joe M. Hudec
Name: Joe M. Hudec
Title: President
PRUDENTIAL REALTY TRUST (THE TRUST) IS A VOLUNTARY ASSOCIATION
ESTABLISHED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS BY
A DECLARATION OF TRUST DATED JUNE 19, 1985, WHICH TOGETHER WITH ALL
AMENDMENTS THERETO, IS ON FILE WITH THE SECRETARY OF STATE OF THE
COMMONWEALTH OF MASSACHUSETTS. THE OBLIGATIONS OF THE TRUST ARE
NOT PERSONALLY BINDING UPON, NOR SHALL RESORT BE HAD TO THE PRIVATE
PROPERTY OF ANY OF THE TRUSTEES, SHAREHOLDERS, OFFICERS, EMPLOYEES
OR AGENTS OF THE TRUST, BUT THE TRUST PROPERTY ONLY SHALL BE BOUND.
SCHEDULE A
Prudential Realty Trust Industrial Properties
Wholly Owned
Indianapolis, Indiana
Property No. Address
Park 100
Bldg. 1 RT01-016 8545-47 Zionsville Road
Bldg. 2 RT01-017 8501-43 Zionsville Road
Bldg. 3 RT01-018 8201-43 Zionsville Road
Bldg. 6/7/8 RT01-019 5303 West 86th Street
Bldg. 10 RT01-005 5370 West 87th Street
Bldg. 11 RT01-020 8501 Moller Road
Bldg. 12 RT01-006 5600 West 85th Street
Bldg. 14 RT01-021 8111 Zionsville Road
Bldg. 19 RT01-007 5427 West 85th Street
Bldg. 20 RT01-015 5845 West 82nd Street
Bldg. 23 RT01-009 7908 Zionsville Road
Bldg. 24 RT01-010 5639 West 79th Street
Bldg. 29 RT01-011 7951 Zionsville Road
Bldg. 30 RT01-012 8102 Zionsville Road
Bldg. 33 RT01-013 5951 West 80th Street
Bldg. 35 RT01-014 5850 West 80th Street
Bldg. 41 RT01-008 7973 Allison Avenue
Compensation Management Fee - 3% of monthly collections
Construction Management Fee - 2% of capital expenditures and
Tenant Improvements
SCHEDULE B
LEASING GUIDELINES
(Intentionally Omitted)
SCHEDULE C
MONTHLY SUPPORTING DOCUMENTATION
and
PREMIS EQUIPMENT
Items to be submitted to PPC Investment Professional:
- Explanation of any significant operating matters, with
recommended action, and budget to actual variances.
- Comments regarding collection efforts for tenants
delinquent over 90 days or in excess of $10,0000.
- Capital Expenditures Report, to include a description of
each expenditure or reclassification of fixed assets during
the month. Report should be prepared for each building and
include monthly expenditures (actual and projected) for the
entire calendar year.
- Reconciliation of each completed tenant finish project.
- Tenant Service Request Log, to include description, date of
request, and date resolved.
- Construction Service Request Log, to include description,
date of request, and date resolved.
Items to be submitted to PPC Accounting:
- all of the above, plus:
- Copies of all capital expenditure invoices
- copies of all bank statements and bank reconciliations.
- Copy of management fee invoice, including reconciliation
when fee differs from PREMIS calculated amount.
- Copies of Prudential approvals for all disbursements which
exceed limits specified in this Management Agreement.
- Copies of Prudential approvals for all leasing commission
payments.
- Copies of Manager's periodic internal reports (sales
analyses, operating statements, etc.) concerning each
property.
- Lease Activity Report/Verification of the Tenant Master
Data.
Owner shall provide Manager with the following equipment at Owner's
sole expense:
IBM 5865-2 Unit in conjunction with IBM 5394 Controller.
SCHEDULE D
EMPLOYEES
Property No: Various RT01 Properties - see Schedule A
Location: Indianapolis, Indiana
Fidelity
Bond or
No. Employee
With Wage or Dishonesty
Reimbursable Salary Coverage Reimbursable
Employee Title Title Range (Y or N) (Y or N)
On-Site:
Property Manager 1 N/A Y N
Administrative Mgr. 1 N/A Y N
Administrative Asst. 1 N/A Y N
Secretary 1 N/A Y N
Off-Site+:
General Labor Charge $12/hour as N Y
(Trash Pick-up, repair and needed
maintenance assistant labor)
Supervisory Maint. Charge $30/hour as N Y
(Repair and maintenance, needed
labor, tenant suite $40/hour OT
alteration labor) & Sundays
Fire Protection Fee $20/week per N Y
(Regular wall valve, building
underground pipe and requiring
post indicator valve this service
inspections)
+"Off-Site employee cost is to be pro-rated based upon time
actually spent "on-site", and only the pro-rated cost is
reimbursable.
The off site personnel will consist of a Maintenance Supervisor and
a general laborer. The sum of the reimbursements for these
individual services, for oversight of capital and tenant
improvements, trash pickup, repair and maintenance, and fire
protection valve checking shall not exceed 150% of the sum of the
off site personnel salary and benefit cost annually.
SCHEDULE E
SUBSIDIARIES AND AFFILIATES OF MANAGER
NONE
<PAGE>
REVISED
SCHEDULE A
Effective 9/1/92
Prudential Realty Trust Industrial Properties
Wholly Owned
Indianapolis, Indiana
Property No Address
Park 100
Building 1 RT01-016 8545-47 Zionsville Road
Building 2 RT01-017 8501-43 Zionsville Road
Building 3 RT01-018 8201-43 Zionsville Road
Building 6,7,8 RT01-019 5303 West 86th Street
Building 10 RT01-005 5370 West 87th Street
Building 11 RT01-020 8501 Moller Road
Building 12 RT01-006 5600 West 85th Street
Building 14 RT01-021 8111 Zionsville Road
Building 19 RT01-007 5247 West 85th Street
Building 20 RT01-015 5845 West 82nd Street
Building 23 RT01-009 7908 Zionsville Road
Building 24 RT01-010 5639 West 79th Street
Building 29 RT01-011 7951 Zionsville Road
Building 30 RT01-012 8102 Zionsville Road
Building 33 RT01-013 5951 West 80th Street
Building 35 RT01-014 5850 West 80th Street
Building 41 RT01-008 7973 Allison Avenue
Compensation Management Fee - 3.5% of monthly collections
Construction Management Fee - 5% of all Tenant Improvements and 2% for all
Capital Expenditures
Renewal Leasing - For all existing tenants, whether they renew,
expand or relocate, PREMISYS will receive a market
commission for all the aforementioned transactions
as the procuring broker or cooperating broker of
2% of the gross value of the lease. However,
the total commissions paid for a renewal,
expansion, or relocation shall not exceed the
market rate when a cooperating broker is
involved. ree that the current market rate
is 4%.
OWNER APPROVAL: MANAGER APPROVAL:
PRUDENTIAL REALTY TRUST PREMISYS REAL ESTATE SERVICES, INC.
By: /s/ Joseph M. Selzer By: /s/ Joe M. Hudec
Joseph M. Selzer Joe M. Hudec
Vice President President and CEO
</page>
Exhibit 5
Dear Shareholder,
As my previous letter to you indicated, on May 17, 1995, Black
Bear Realty, Ltd., a company controlled by Richard M. Osborne,
commenced a tender offer for the outstanding Capital Shares of
Prudential Realty Trust for $0.30 per Capital Share. After
careful analysis and consideration, your Board of Trustees has
determined that the tender offer and the proposed merger plan is
in direct conflict with the long-standing policy and intent of
the Trust.
AS SUCH, THE BOARD OF TRUSTEES HAS UNANIMOUSLY REJECTED THE OFFER
AND RECOMMENDS THAT SHAREHOLDERS NOT TENDER THEIR CAPITAL SHARES.
Some of the reasons for the Board's decision are as follows:
A successful tender offer could prevent Income Shareholders
from realizing the liquidation value of their shares in the
near future. If the tender offer is successful, Mr. Osborne
intends to disrupt J.P. Morgan's bid solicitation process
that the Trust is pursuing as a strategy to maximize the
value of the Trust as it approaches its scheduled
liquidation.
Income Shareholders' liquidation preference of up to $8.00
per share would be eliminated if the tender offer and merger
proposal are approved. Based upon the Trust's current
structure and projections, Capital Shareholders are not
expected to receive any distributions upon the liquidation
of the Trust. To the detriment of Income Shareholders, the
proposed merger would transfer approximately 6.9% of Income
Shareholder equity to Capital Shareholders.
The Board of Trustees has not been able to fully evaluate
Black Bear Realty's or Mr. Osborne's past record and
experience in the real estate industry. A successful tender
will turn over control of the Trust to an unknown entity
that may be inclined to favor the Capital Shareholders. For
instance, it is possible that the dividends paid to Income
Shareholders could be reduced significantly.
A more detailed description of the Board's recommendation, a
number of other important considerations, and certain actions it
has taken as well as actions taken against it are set forth in
the Solicitation/Recommendation Statement on Schedule 14D-9 which
is enclosed for your review. We urge you to read it carefully
and completely before taking any action with respect to the
offer.
If you have questions, please call Georgeson & Company, Inc., who
has been retained by the Trust to assist with shareholder
communications at (800)-223-2064.
Sincerely Yours,
/s/ Jeffrey L. Danker
Jeffrey L. Danker
President May 31, 1995
Exhibit 6
For Immediate Release
May 31, 1995
For additional information,
please call:
201-802-4302
PRUDENTIAL REALTY TRUST REJECTS BLACK BEAR REALTY TENDER OFFER
Newark, NJ -- May 31, 1995 -- The Board of Trustees of Prudential
Realty Trust unanimously determined to reject the unsolicited
tender offer commenced on May 17, 1995 by Black Bear Realty,
Ltd., a company controlled by Richard M. Osborne, and recommended
that shareholders not tender their Capital Shares.
In a letter to be mailed to its shareholders, the Board of
Trustees set forth the reasons for its decision to reject the
offer. Among other reasons explained to the shareholders, the
Board of Trustees indicated that:
A successful tender offer could prevent Income Shareholders
from realizing the liquidation value of their shares in the
near future.
Income Shareholders' liquidation preference of up to $8.00
per share would be eliminated if Mr. Osborne's offer and
merger proposal are approved.
The Board of Trustees has not been able to fully evaluate
Black Bear Realty's or Mr. Osborne's past record and
experience in the real estate industry.
The Board also pointed out that if the tender offer is
successful, Mr. Osborne would be in a position of substantial
control of the Trust and intends to disrupt J.P. Morgan's bid
solicitation process that the Trust is pursuing as a strategy to
maximize the value of the Trust as it approaches its scheduled
liquidation.
Prudential Realty Trust is a real estate investment trust formed
in Massachusetts in 1985. The Trust has current annual revenues
of approximately $11.6 million, and owns three properties located
in New York, New Jersey and Indiana.
A copy of the letter sent to shareholders is attached.
Exhibit 7
December 28, 1994
Mr. Joseph M. Selzer
Vice President
Prudential Realty Trust
c/o Prudential Realty Group
751 Broad Street
4th Floor
Newark, NJ 07102
Dear Joe:
This letter outlines our understanding (the "Agreement") that
Prudential Realty Trust ("PRT" or the "Trust") has engaged J.P.
Morgan Securities Inc. ("J.P. Morgan") to act as financial
advisor to PRT with respect to options to maximize shareholder
value as PRT approaches its scheduled liquidation date.
Trustees' Objectives
We understand that PRT is a finite life real estate investment
trust, which, under the terms of its Declaration, is scheduled to
liquidate during the 18-month period ending approximately
September 30, 1997 (unless its term is extended for up to two
years by vote of a majority of the shareholders of each class of
stock). We understand that in order to extend the scheduled
termination date, a majority of the unaffiliated Trustees must
determine that such extension is in the best interests of the
shareholders and must recommend such extension to the
shareholders for their approval. We expect that any course of
action, scheduled liquidation, or extension will be closely
scrutinized by both classes of shareholders whose perspective and
interests may not be perfectly aligned. In this context, we
recognize the concerns of the Trustees in seeking to maximize the
values of all shareholders.
Scope of Assignment
We have structured our assignment as financial advisor to PRT in
two phases. In Phase I, we will evaluate a range of alternatives
and recommend a preferred course of action to best achieve the
objectives of PRT and its Trustees. In Phase II (should it
occur), we would review and, if appropriate, conduct the
transaction(s) and offer an opinion as to fairness of the
transaction(s) to each class of shareholder.
Phase I
Review Structure and History of PRT
We will begin by studying all relevant information on PRT
including, but not limited to, the Declaration of Trust, original
Prospectus, Advisory Agreement between PRT and The Prudential
Realty Advisors, recent Annual Reports and regulatory filings
including 10Q and 10K reports, current appraisals of the Trust's
properties, and the line of credit with First Fidelity. We will
study the capital structure of the Trust and also review the
history of the Trust's share price performance since inception.
Evaluate Net Asset Value on a Public and Private Market Basis
We will review the current appraisals and, based upon cash flow
projections provided in the appraisals or separately by PRT, we
will evaluate the private market valuation of such assets if sold
on an individual basis, if sold through combinations of certain
assets in smaller pools, and if sold as a complete portfolio.
This analysis will include an evaluation of the depth of demand
in the market for each of these alternatives with consideration
for the types of investors that would be most likely to acquire
assets of this property type. We also plan to visit each of the
properties as further due diligence in formulating our
conclusions.
Although we suspect that a public market valuation is less
appropriate in PRT's context given its finite life, we will also
review the current valuation of PRT in the public market (both
classes of stock) including the identification of comparable
REITs (and classes of stock) with an analysis of relative public
market valuation. We will then be prepared to contrast any
legitimate public market valuations with the private market
values described above.
Strategies to be Considered
With the objective of maximizing the value to holders of each
class of stock (while minimizing any adverse tax consequences),
both income and capital shares, we will evaluate the following
strategies:
(i) Disposition of assets by September, 1997, through the
following approaches:
Sale of assets individually.
Sale of pools of assets; for instance, selling Park 100 as a
pool to a single buyer.
Sale of the stock of PRT to an investor, either by public
tender or otherwise.
Merger with another public REIT or another entity with an
exchange of shares or other consideration.
Other appropriate alternatives that become evident during our
engagement.
In this context, we will identify REITS and other investors that
might be buyers of assets or shares due to similarities in
geographic focus and property type and will review and evaluate
any proposals that PRT may receive from interested parties.
(ii) Extension of the scheduled termination date. This will
include an evaluation of the current maximum net asset value
derived from all of the scenarios noted above, and based on a
review of the specific assets and competitive markets, an
estimate of the potential for further appreciation in value
assuming that the liquidation date were extended. The range of
options for liquidation at the end of the extension period will
likely be identical to those evaluated above. The conclusions,
however, may differ given the potential for change in the micro
and macro real estate market for each asset, demand and pricing
in the private equity market at large, and demand and pricing in
the public equity markets, which have lately experienced
explosive growth but considerable volatility.
We will, with the assistance as necessary of the Trust's
attorneys, accountants and other consultants, consider the full
range of regulatory, legal, tax, and reporting implications of
each of the above mentioned strategies.
Process & Timetable
As soon as possible, we will provide you with a detailed list of
documents and other information we require from PRT prior to
commencing Phase I and will also arrange a mutually convenient
time with Richard Flohr for our team to tour each of the
properties. Upon completion of our analysis, we will prepare a
detailed written report outlining our approach to the assignment,
a summary of the information considered, a detailed review of the
full range of alternatives available (including a discussion of
their relative ability to maximize shareholder value) and our
recommended course(s) of action. A complete draft of this report
will be provided to you on January 4, 1995 so that you might
review it in advance of our scheduled meeting on January 6.
Following this meeting, a final report incorporating any
necessary changes or comments will be prepared and provided to
you by January 20, so that you can distribute it to the Trustees
in advance of their scheduled February 9 meeting, at which we
will also be prepared to make a verbal presentation to the
Trustees.
PHASE II
It is difficult to specify our role in this phase given that your
precise needs have not yet been defined. However, depending on
the outcome of Phase I and the extent to which we mutually
determine that J.P. Morgan is the appropriate entity to do so, we
would assist in executing those strategies.
In addition, we anticipate that the Trustees may desire that a
fairness opinion be rendered regardless of the form of the
transaction. Without specifically outlining the tasks we would
perform in such an assignment, we would perform a sufficient
review of the transaction(s) to allow us to provide an opinion as
to fairness to all shareholders of PRT.
Compensation
PRT shall pay to J.P. Morgan an Advisory Fee of $100,000 for
Phase I of this assignment, payable upon completion of the
assignment when we present our findings and recommendations to
the Board of Trustees. Given the uncertainty at this time as to
the scope of Phase II of the assignment, it is difficult to
precisely determine the appropriate level of compensation for
that phase. Consequently, we would look to reach an agreement
following the completion of Phase I. Conceptually, however, we
would expect to receive a success fee calculated as a percentage
of the value of any disposition(s) and a flat fee for any
fairness opinion provided, with the understanding that 50% of the
Phase I fee would be creditable against these amounts. Some form
of retainer or upfront fee may also be appropriate if the
execution of Phase II takes place over an extended period of
time, again with the understanding that a portion of these fees
would be creditable against any success fees payable for Phase
II. In addition to the above described fees, PRT will reimburse
J.P. Morgan for all reasonable out-of-pocket expenses incurred by
J.P. Morgan in connection with this assignment whether or not (in
the case of Phase II) a transaction is completed, including
without limitation, travel, communication, and reasonable legal
fees and expenses; provided that such expenses shall not exceed
$10,000 without the prior approval of PRT. Notwithstanding the
forgoing, all interaction with Sullivan & Cromwell shall be
coordinated with Steven Parker, and J.P. Morgan shall not engage
independent counsel without prior approval from PRT. The
foregoing limitations, however, shall not apply in any way to any
counsel fees or expenses related to any matter for which J.P.
Morgan seeks indemnity pursuant to the provisions hereof.
Staffing
For the execution of this assignment, J.P. Morgan will establish
a team of qualified individuals from appropriate specialty areas
within the firm and its subsidiaries. From Real Estate, David
Gilbert will be primarily responsible for this assignment. The
team will also include Vice Presidents, Bob Sroka from our M&A
Department, Blake Witherington from Real Estate, and David Walker
from Equity Capital Markets, as well as Eric Brook and other
Associates as appropriate. Jon Zehner, Managing Director and
head of Real Estate, will be actively involved in the analysis
and presentation(s) as well.
Indemnity
PRT agrees to indemnify and hold harmless J.P. Morgan and its
affiliates, and the respective directors, officers, agents, and
employees of J.P. Morgan and its affiliates and each other entity
or person, if any, controlling J.P. Morgan or any of its
affiliates (J.P. Morgan and each such entity or person being
referred to as an "Indemnified Person") from and against any
losses, claims, demands, damages, or liabilities (or actions or
proceedings in respect thereof) of any kind relating to or
arising out of activities performed or services furnished
pursuant to this Agreement, or J.P. Morgan's role in connection
therewith, and to reimburse J.P. Morgan and any other Indemnified
Person for all expenses (including, without limitation, fees and
reasonable disbursements of counsel) incurred by J.P. Morgan or
any such other Indemnified Person in connection with
investigating, preparing, or defending any investigative,
administrative, judicial, or regulatory proceeding in any
jurisdiction, or any action, suit, or other proceeding in
relation thereto or in connection therewith, whether or not in
connection with pending or threatened litigation to which J.P.
Morgan (or any other Indemnified Person) or PRT or any of its
security holders is a party, in each case as such expenses are
incurred or paid. PRT will not, however, be responsible for any
such losses, actions, claims, demands, damages, liabilities, or
expenses of any Indemnified Person that are determined by final
and nonappealable judgment of a court of competent jurisdiction
to have resulted primarily from actions taken or omitted to be
taken by such Indemnified Person in bad faith or from such
Indemnified Person's negligence or misconduct.
Confidentiality
In the course of its services, J.P. Morgan will have access to
confidential information concerning PRT and its affiliates. J.P.
Morgan agrees that for a period of four years, all such
confidential information will be treated by J.P. Morgan and its
agents and employees as confidential in all respects.
The term "confidential information" shall mean all information,
whether written or oral, which is disclosed by PRT or its
affiliates to J.P. Morgan in connection with its engagement and
which is not in the public domain, but shall not include:
(a) information which, prior to disclosure to J.P.
Morgan in connection with its engagement, was
already in J.P. Morgan's possession other than on
a confidential basis;
(b) information which is hereby publicly disclosed
other than by J.P. Morgan in violation of this
Agreement;
(c) information which is obtained by J.P. Morgan from
a third party that (i) J.P. Morgan does not know
to have violated, or to have obtained such information in
violation of, any obligation to PRT or its affiliates with
respect to such information, and (ii) does not require
J.P. Morgan to refrain from disclosing such information; and
(d) information which is required to be disclosed by
J.P. Morgan or its affiliates, agents or employees
under compulsion of law (whether by oral question,
interrogatory, subpoena, civil investigative
demand, or otherwise).
Upon any termination of J.P. Morgan's engagement, J.P. Morgan
further agrees promptly upon PRT's written request (and in no
event later than 14 days thereafter) to return all written and
other material, including copies thereof, submitted to J.P.
Morgan by PRT or its affiliates, it being understood that
notwithstanding the foregoing J.P. Morgan may retain all written
or other material which J.P. Morgan has itself prepared in
connection with its assignment. Notwithstanding the return of any
such material, J.P. Morgan and its agents and employees will continue to
hold in confidence all confidential information during the term of this
Agreement.
Summary
We are pleased to have been selected to assist you with this assignment
and look forward to working with you and your team. We are confident
that working together, we can devise a financial strategy that will
enable you to achieve maximum value for all your shareholders. We look
forward to meeting with you again shortly to begin this assignment and
please call if you have any comments on this agreement. If the
foregoing correctly sets forth the agreement between PRT and J.P.
Morgan, please sign and return the enclosed copy of this Agreement,
whereupon it shall become our binding agreement to be governed by New
York law.
Sincerely,
/s/David J. Gilbert /s/R. Blake Witherington
David J. Gilbert R. Blake Witherington
Vice President Vice President
Agreed and accepted:
Prudential Realty Trust
By:/s/Joseph M. Selzer
Joseph M. Selzer
Vice President
Exhibit 8
ENGAGEMENT AGREEMENT
INVESTMENT BANKER
PRUDENTIAL REALTY TRUST
This Agreement made March 16, 1995 by and between J.P. MORGAN
SECURITIES INC., (hereinafter referred to as "Agent") and
PRUDENTIAL REALTY TRUST, (hereinafter referred to as the "Trust").
IN CONSIDERATION of the mutual agreements contained
hereinafter the Trust has engaged Agent to act as the Trust's
investment banker and exclusive financial advisor with respect to
the sale, merger, consolidation, or any other business combination,
in one or a series of transactions, involving all or a substantial
amount of the stock, assets, properties, or business of the Trust,
or any other extraordinary dividend of cash, securities or other
assets to its stockholders (the "Transaction").
The assets of the Trust consist principally of certain real
property located variously in Indianapolis, Indiana (all of Park
100 except buildings 10 & 12), Melville, Long Island (Huntington
Business Campus), and Parsippany, New Jersey (Maple Plaza),
collectively referred to as the "Properties" and individually
referred to as a "Property" or by such property's common name.
Notwithstanding the foregoing, the Trust may elect to add Buildings
10 and 12 at the Park 100 complex to this Agreement pursuant to the
terms of paragraph 19 hereof.
THE TRUST AND AGENT AGREE:
(1) Term of Agreement. This Agreement shall commence as of
the date hereof and shall expire on December 15, 1995 unless sooner
terminated pursuant to the terms hereof.
(2) Scope of Services. During the term of this Agreement,
Agent shall diligently undertake certain services on the Trust's
behalf including, to the extent requested: (i) assisting the Trust
in preparing an offering memorandum (to be approved by the Trust)
describing the Trust, its operations, properties historical
performance, and future prospects, (ii) identifying and contracting
selected qualified acquirors acceptable to the Trust, (iii)
arranging for potential acquirors to conduct business
investigations, (iv) conducting an auction of the Trust and/or the
Properties, (v) assisting the Trust in negotiating the financial
aspects of any proposed Transaction, (vi) delivering an opinion to
the Board of Trustees, as to the fairness to the Trust's
stockholders from a financial point of view of the consideration to
be received by the Trust in any proposed Transaction (a "Fairness
Opinion"), (vii) assist in the closing of any Transaction, and
(viii) such other related or ancillary services as the Trust shall
reasonably request. Any financial advice rendered by Agent
pursuant to this Agreement may not be disclosed publicly in any
manner without Agent's prior written approval and will be treated
by the Trust as confidential; provided, Agent agrees that its
Fairness Opinion may be reproduced in full in any proxy or
information statement mailed to stockholders of the Trust and
agrees to provide its written approval for such use. In the
performance of such services, Agent shall devote to the execution
of the Agreement individuals with substantial and successful
experience in completing transactions of similar size and
complexity. Owner expects to receive the services of Jon Zehner,
David Gilbert, and Bob Sroka who shall assume primary
responsibility for provision of such services. Agent shall have
the right to substitute the services of another individual for any
one of those named above provided that such individual has at least
the same level of experience and qualifications as the individual
being replaced and Agent gives Trust written notice of such
substitution. The full resources of Agent's firm shall be made
available to ensure the successful completion of the Transaction.
(3) Compensation. If the Trust or its Properties are sold or
otherwise disposed of in a Transaction by Agent, by the Trust, or
by or through any other person during the term hereof, the Trust
shall pay to Agent, and Agent agrees to accept same as full
compensation for its services in connection with this engagement,
a contingent success fee ("Success Fee") equal to the specified
percentage rate set forth below multiplied by the "Transaction
Value" for Transactions which are "consummated" during the term
hereof or, if applicable, during the "Hold Over Period" (all terms
in quotes are defined, below). The applicable percentage rate
shall be one and one half percent (1.5%) of the Transaction Value
for Park One Hundred and Maple Plaza, and three quarters of one
percent (0.75%) of the Transaction Value for Huntington Business
Campus. In the event the disposition of Huntington Business
Campus is combined with one or more of the other properties, the
Transaction Value attributable to Huntington shall be deemed to be
a proportional amount of the total consideration, computed as the
ratio of the 1994 appraisal for Huntington as compared to the
aggregate 1994 appraised value for all of the Properties.
(a) Credits. The Success Fee otherwise due Agent hereunder
shall be reduced: (i) by one half (50%) of the amount of any
expenses reimbursable to Agent pursuant to paragraph (4)
hereof, and (ii) in the amount of Fifty Thousand Dollars
($50,000) representing a credit for the fee previously paid to
Agent for its Phase I services. No additional compensation
shall be due or payable to Agent in connection with any
Fairness Opinions issued in connection with any Transaction.
(b) Transaction Value. For the purposes of this Agreement,
"Transaction Value" means the aggregate amount of
consideration received by the Trust and/or its stockholders
(treating any shares issuable upon exercise of options,
warrants, or other rights of conversion as outstanding) in
any Transaction, plus the amount of any debt securities or
other liabilities assumed, redeemed, or remaining
outstanding or equity securities redeemed or remaining
outstanding in connection with any Transaction. In no
event, however, shall the Transaction Value include the
aggregate amount of the following items which Trust may
agree to pay or which are otherwise credited to the
acquiror: all income supports, income guarantees or master
lease payments; amounts for tenant improvements and other
leasing costs; extraordinary governmental impositions (such
as, but not limited to, impact or permit fees); amounts for
capital expenditures; amounts for hazardous waste removal or
correction and all other items of a similar nature.
Provided, however, credits to the acquiror arising from
proration of ordinary operating income and expense items and
ad valorem property taxes shall not be excluded from the
Transaction Value.
(c) When Consideration is Stock. If the consideration or
other value received in any Transaction is paid in whole or
in part in the form of securities, the value of such
securities, for purposes of calculating the Success Fee,
shall be the fair market value thereof, as the parties
hereto shall mutually agree, on the day prior to the
consummation of the Transaction; provided, however, that if
such securities consist of securities with an existing
public trading market, the value thereof shall be determined
by the last sales price for such securities on the last
trading day thereof prior to such consummation. If all or a
portion of the consideration is related to or contingent
upon the future earnings or operations of the Trust, the
portion of Agent's compensation relating thereto shall be
calculated and shall be paid at the time the Transaction is
consummated based upon the estimated net present value
thereof.
(d) Multiple Transactions. If more than one Transaction is
consummated, a Success Fee shall be payable with respect to
each such Transaction in cash upon "consummation" (as
defined below) thereof and the amount of the Success Fee
payable in respect of each Transaction after the first shall
be equal to the Success Fee that would have been payable for
a Transaction having a Transaction Value equal to the
aggregate Transaction Value of such Transaction plus all
Transactions previously consummated, less the aggregate
amount of all Success Fees previously paid.
(e) Consummation Deemed When. For purposes of this
Agreement, a Transaction shall be deemed to have been
"consummated" upon the earliest of any of the following
events to occur: (i) the acquisition by another person or
entity of at least 75% of each of the outstanding classes of
stock of the Trust; (ii) a merger or consolidation of the
Trust with another person or entity; (iii) closing (deemed
to be irrevocable delivery of a deed and payment of the
consideration) of the acquisition of title to one or more of
the Trust Properties; (iv) the receipt by stockholders or
the Trust of any cash, securities, or other assets of any
person or entity as payment for the Capital and/or Income
shares in the Trust as the case may be, or for the
acquisition of one or more of the Trust Properties; or (v)
at the next annual meeting of the Trust's shareholders, the
election of three independent Trustees who are: (x)
different from the current Trustees, and (y) not endorsed
by the current Advisor to the Trust.
(f) Trust's Right to Reject Offers. Agent's Success Fee
shall be deemed earned and payable only upon consummation of
a Transaction as defined above during the basic term hereof,
or, if the provisions are applicable, during the Hold Over
Term. Agent shall not be entitled to any compensation
whatsoever for offers which shall for any reason be rejected
by the Trust.
(g) Hold Over Period. Subject to the other provisions of
this Agreement, Agent shall be entitled to the payment of
its Success Fee on any Transaction which is consummated
after the expiration of the base term hereof (the "Hold Over
Period") provided each of the following conditions are
satisfied: (i) the acquiror of the stock, assets or Property
has been registered with the Trust as a prospect in
accordance with the procedures set forth below, (ii) a
binding acquisition agreement with such prospect has been
entered into not later than 120 days following the
expiration of the base term of this Agreement , and (iii)
consummation of a Transaction with such prospect has
occurred not later than 180 days following the expiration of
the base term hereof.
Agent shall submit to the Trust within thirty (30) days
after the expiration or termination of this Agreement a list
agreed to by the Trust and Agent containing the names of
those specific prospective acquirors who have met with and
received offering materials from Agent, who have physically
inspected one or more of the Properties and documents
related thereto, and from whom Agent or the Trust has
received a written proposal (binding or non-binding) to
enter into a Transaction. Failure to submit such a list
shall relieve the Trust of any and all obligations to Agent,
including without limitation the obligation to pay any
compensation with respect to a Transaction consummated after
the expiration or termination of this Agreement.
For any completed Transaction occurring after the expiration
of the basic term hereof, if one or more of the above
conditions are not satisfied, then the Trust shall be
relieved of any obligation to pay compensation to Agent and,
thereafter, the Trust shall be free to negotiate with any
such prospect on its own behalf or through another
investment banker, agent or broker.
(4) Agent's Expenses. Subject to a maximum cap of Seventy
Five Thousand Dollars ($75,000), the Trust agrees to reimburse
Agent promptly upon request from time to time for its reasonable,
documented, out-of-pocket expenses (including, without
limitation, travel, communication, and document production
expenses, and the reasonable fees and disbursements of counsel)
incurred by Agent in performing its engagement hereunder, whether
or not a Transaction is consummated; provided that for any
individual item in excess of Five Thousand Dollars ($5,000),
Agent must receive the prior written approval of the Trust.
Notwithstanding the foregoing, except for Agent's right to engage
counsel pursuant to the indemnification provisions of Schedule 1
hereof, Agent shall not engage independent counsel without the
prior written approval of the Trust. This expense reimbursement
obligation shall survive any termination or expiration of this
Agreement.
(5) Agent's Authority. Agent acknowledges that it has no
authority to make any representation of any kind whatsoever
concerning the Trust or its Properties or to enter into any
agreements with a prospective acquiror that would bind the Trust
or subject it to any obligations or liabilities. Agent shall not
represent that it has any such authority and shall not enter into
any agreement with a prospective acquiror that would bind the
Trust or subject it to any obligations or liabilities. No
agreement or terms negotiated by Agent shall be binding upon the
Trust unless and until incorporated into a definitive contract,
which has been approved by the Board of Trustees, executed by the
acquiror and the Trust and unconditionally delivered by Trust to
the acquiror, its counsel or agent.
(6) Rights Reserved By Trust. The Trust reserves the right
to conduct all negotiations with prospective acquirors. Further,
all matters regarding pricing, marketing strategies and terms of
sale shall be subject to the prior approval of the Trust in its
sole and unfettered discretion. Agent shall assume all risks
attendant to the Trust's policies and procedures, including the
Trust's making decisions relative to pricing, marketing
strategies and terms of a Transaction with which Agent does not
agree. The Trust may adjust the offering price for the
Properties upward or downward at any time during the term of this
Agreement and shall inform Agent of such adjustments. The Trust,
acting in good faith, may reject any proposed acquiror, sale
agreement, or Transaction even if such offer shall be at the
offering price previously approved by the Trust.
(7) Cooperation by Trust. The Trust agrees to provide
Agent all financial and other information requested by it for the
purpose of its assignment hereunder. In performing its services
hereunder, Agent shall be entitled to rely upon and assume,
without independent verification, the accuracy and completeness
of all information that is publicly available and of all
information that has been furnished to it by the Trust or
otherwise reviewed by the Trust, and Agent shall not assume any
responsibility nor have any liability therefore. Agent shall
have no obligation to conduct any valuation or appraisal of any
assets or liabilities. In order to coordinate efforts with
respect to possible Transactions, during the period of Agent's
engagement hereunder neither the Trust nor any representative
thereof (other than Agent) will initiate discussions regarding a
Transaction except through Agent. If the Trust or its management
receives an inquiry regarding a Transaction, it will promptly
advise Agent of such inquiry in order that Agent can evaluate the
person making such inquiry and its interest and assist the Trust
in any resulting negotiations.
(8) Marketing Strategies. Upon execution hereof, Agent
shall: (i) review with the Trust and obtain its approval of a
list of potential acquirors, including those with whom the Trust
may have already had discussions; and (ii) recommend to the Trust
a suitable offering price and structure for sale. Agent shall
obtain the Trust's written approval of the offering materials and
offering price and structure prior to circulation or discussion
with any party of the same.
(9) Communication With the Trust. During the term of this
Agreement, Agent shall promptly inform the Trust of all offers
for the Trust or its Properties. Upon initial circulation of the
offering materials, Agent shall submit a written report to the
Trust not less than twice monthly advising the Trust of the
status of its efforts to solicit bids for the Trust including at
list of prospective acquirors who have been contacted, a list of
those who have received offering materials, and a list of those
who have made visits to the Properties, and including, an updated
list of all prospective acquirors and all inquiries with the
name, address and phone number of the prospective acquiror's or
inquirer's representative and the status of their interest in
the Trust or its Properties.
(10) Books and Records. Agent shall keep adequate books and
records in connection with all matters contemplated by this
Agreement and shall allow the Trust, at any time during business
hours during the term hereof and for a period of one year after
expiration or termination of this Agreement, to examine the same
or any correspondence pertaining to transactions arising out of
this Agreement. During such period, Agent shall make available
to the Trust all such records or correspondence relative to
specific prospective acquirors as may be necessary or helpful in
enabling the Trust to carry to completion any Transaction which
may have been partially negotiated under the terms of this
Agreement.
(11) Cooperation - Other Brokers or Investment Bankers.
Agent agrees to cooperate with all investment bankers or licensed
real estate brokers who give evidence that they have procured and
are authorized to represent a prospective acquiror of the Trust
or one or more of its Properties. Further, Agent has been advised
that a local real estate brokerage firm will be engaged by the
Trust to assist in the marketing and sale of Huntington Business
Campus. The respective roles of Agent and such broker shall be as
set forth in the letter dated January 20, 1995 from David Gilbert
to Joseph Selzer a copy of which is attached hereto as Schedule 2
and incorporated by this reference, or as otherwise determined by
the Trust. Agent acknowledges that the engagement of such local
broker shall not infringe any grant of exclusivity otherwise
granted to Agent by this Agreement, and agrees to cooperate to
the fullest extent with such broker; provided Agent shall have
the right to approve in advance all materials which are
disseminated by such broker. Upon execution of a listing
agreement with such local broker, the parties agree to append a
copy of such agreement hereto as Schedule 3.
(12) Indemnification. The parties hereto acknowledge that
the only real estate broker which has presently been engaged to
be involved in any Transaction is the firm of Sutton & Edwards;
that such broker has been so involved pursuant to an arrangement
made by the Trust, and that the Trust is obligated to pay such
broker's commission. Except for Sutton & Edwards, each party
hereby agrees to indemnify, defend and hold harmless the other
party from and against any liability, cost or expense, including
reasonable attorneys' fees, as a result of any claim for a
commission, fee or other compensation made by any real estate
broker, finder or other person and asserted against the other
party by reason of an arrangement made or alleged to have been
made by the indemnifying party. Agent agrees to indemnify and
hold harmless the Trust (including its affiliates and agents) and
any of their officers, directors or employees from and against
any suits, losses, claims, demands, damages, judgements or
liabilities of any kind whatsoever arising out of or relating to
the inaccuracy or breach of any representation or obligation of
Agent's contained in Section 16 hereof. The Trust agrees to
indemnify Agent in accordance with the provisions of Schedule 1,
attached hereto and incorporated herein by this reference. The
indemnities in this Section shall survive consummation of any
Transaction or the termination of this Agreement.
(13) Advertising. Agent shall not issue advertising, press
releases, or information regarding the purchase price or terms of
the Transaction, without first obtaining the prior written
approval of the Trust.
(14) Notice. Notice to either party shall be made in
writing, an shall be served by registered, certified, or
overnight mail, return receipt requested, and if sent to the
Trust, to:
c/o Prudential Realty Advisors
751 Broad Street
4th Floor
Newark, New Jersey 07102-3777
Attention: Joseph Selzer
and if sent to Agent, to:
J.P. Morgan Securities Inc.
60 Wall Street
New York, NY 10260-0060
Attention: David Gilbert
Any such notice shall be deemed to have been given when mailed.
(15) Termination and Payment of Litigation Expenses. Either
party hereto may terminate this Agreement at any time by written
notice to the other. Termination shall be effective not less
than five (5) days after such notice nor more than thirty (30)
days after the date of such notice at the discretion of the party
giving such notice. Except as specifically provided below, no
such termination will affect any confidentiality obligations
hereunder or Agent's rights to receive reimbursement of expenses
to the date of termination or its Success Fees for any
Transactions consummated prior to the expiration of the Hold Over
Period; provided if Agent shall terminate this Agreement for any
reason, or if Trust shall terminate this Agreement due to the
material breach by Agent of an essential term hereof, then Agent
shall not be entitled to any Success Fee whatsoever and there
shall be no Hold Over Period during which Agent would be entitled
to receive a Success Fee from previous negotiations.
In the event of litigation between the parties with respect
to Agent's termination or entitlement to its Success Fee, the
losing party shall pay all costs and expenses incurred by the
prevailing party in connection with such litigation, including
reasonable attorneys' fees and costs.
(16) Consents, Etc. The Agent represents and warrants that
it has all necessary franchises, licenses, permits, certificates,
and other authorizations from the federal, state, and local
government or governmental agencies, departments, or bodies that
are required for the due execution, delivery and performance by
the Agent of this Agreement.
(17) Waiver of Default. The failure of either party to
insist in any one or more instances upon the strict performance
of any one or more of the obligations of this Agreement, or to
exercise any right herein contained, shall not be construed as a
waiver or relinquishment for the future of the performance of
such one or more obligations of this Agreement or of the right to
exercise such right, but the same shall continue and remain in
full force and effect with respect to any subsequent breach, act
or omission.
(18) Governing Law. This Agreement shall be governed and
construed by the laws of the State of New York.
(19) Addition of Certain Assets. Notwithstanding anything
contained herein to the contrary, upon written notice from the
Trust to Agent, the Park 100 properties known as Buildings 10 and
12, may be added to this Agreement and Agent shall offer such
buildings together with the rest of the Park 100 properties.
(20) Entire Agreement. Except for the Fifty Thousand Dollar
($50,000) credit from the prior consulting agreement which the
Trust is entitled to apply against Agent's Success Fee hereunder,
this Agreement supersedes and takes the place of any and all
previous agreements, if any, between the parties concerning
disposition of the Trust or its Properties, and each respectively
acknowledges there are no covenants, promises, agreements,
representations, inducements, conditions or understandings,
either oral or written, between the Trust and Agent, other than
are set forth herein.
IN WITNESS WHEREOF, the parties have hereunto set forth
their hands as of the date above first written.
Prudential Realty Trust
By: The Prudential Realty Advisors, Agent
By:/s/ Joseph M. Selzer
Vice President
J.P. Morgan Securities Inc.
By:/s/ David Gilbert
Vice President
SCHEDULE I
1. Basic Terms of Indemnification. Prudential Realty Trust
(the "Company"), the client referred to in the attached agreement
(the "Agreement"), agrees to indemnify and hold harmless J.P.
Morgan Securities Inc. ("J.P. Morgan") and its affiliates, and
the respective directors, officers, agents, and employees of J.P.
Morgan and its affiliates and each other entity or person, if
any, controlling J.P. Morgan or any of its affiliates (J.P.
Morgan and each such entity or person being referred to as an
"Indemnified Person") from and against any losses, claims,
demands, damages, judgements or liabilities (or actions or
proceedings in respect thereof) of any kind relating to or
arising out of activities performed or services furnished pursu-
ant to the Agreement, the transactions contemplated thereby or
J.P. Morgan's role in connection therewith. The Company will not,
however, be responsible for any such losses, claims, demands,
damages, liabilities, or expenses of any Indemnified Person that
are determined by final and nonappealable judgment of a court of
competent jurisdiction to have resulted primarily from actions
taken or omitted to be taken by such Indemnified Person in bad
faith or from such Indemnified Person's negligence or willful
misconduct. The Company also agrees that no Indemnified Person
shall have any liability (whether direct or indirect, in
contract, tort or otherwise) to the Company or any of its
security holders for or in connection with the Agreement, any
transactions contemplated thereby or J.P. Morgan's role in
connection therewith, except for any such liability for losses,
claims, demands, damages, liabilities or expenses incurred by the
Company that are determined by final and nonappealable judgment
of a court of competent jurisdiction to have resulted primarily
from actions taken or omitted to be taken by such Indemnified
Person in bad faith or from such Indemnified Person's negligence
or willful misconduct.
2. Prompt Notice of Claims. Upon receipt by an Indemnified
Person of written notice of a claim, action or proceeding against
such Indemnified Person in respect of which indemnity may be
sought hereunder, such Indemnified Person shall promptly notify
the Company with respect thereto. In addition, an Indemnified
Person shall promptly notify the Company after any action is
commenced (by way of service with a summons or other legal
process giving information as to the nature and basis of the
claim) against such Indemnified Person. The failure to notify
the Company shall not relieve the Company from any liability
which the Company may have on account of this indemnity or
otherwise, except to the extent the Company shall have been
adversely affected or prejudiced by such failure.
3. Conduct of the Defense. Upon notification of a claim
covered by this indemnity, the Company will assume the defense of
any litigation or proceeding using counsel and other resources
reasonably satisfactory to J.P. Morgan. In any such litigation
or proceeding the defense of which the Company shall have so
assumed, any Indemnified Person shall, subject to the control and
direction of the counsel selected by Company, have the right to
participate. Should an Indemnified Person elect to retain
independent counsel, such person and its counsel shall enter into
a Joint Defense Agreement with the Company and its counsel on
customary terms and conditions. The fees and expenses of such
independent counsel shall be solely at the expense of such
Indemnified Person unless (i) the Company and such Indemnified
Person shall have mutually agreed in writing to the retention of
such counsel, or (ii) there is a reasonable basis to believe that
the claim may ultimately not be covered by the indemnity and
counsel selected by the Indemnified Person but otherwise
reasonably acceptable to the Company has issued an opinion that
representation of both parties by the same counsel would be
inappropriate due to actual or potential conflicts of interest
between the Company and such Indemnified Person.
4. Settlements and Similar Decisions. The Company shall have
primary responsibility for all settlement discussions and
negotiations, and shall not be liable for any settlement of any
litigation or proceeding effected without its written consent.
However, the Company will not settle any claim, action or
proceeding in respect of which indemnity may be sought hereunder,
whether or not any Indemnified Person is an actual or potential
party to such claim, action or proceeding unless (i) the
settlement includes an unconditional release of all Indemnified
Persons, or (ii) J.P. Morgan has given it written consent to the
settlement, which consent shall not be unreasonably withheld or
delayed.
5. Survival of Indemnity and Miscellaneous Provisions. The
provisions contained in this Schedule I shall be in addition to
any liability which the Company may otherwise have to J.P.
Morgan, shall be governed by the laws of the State of New York,
and shall remain operative and in full force and effect
regardless of the expiration or any termination of the Agreement
or of J.P. Morgan's engagement thereunder.
2/25/95
Exhibit 9
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. PROBATE COURT DEPARTMENT
OF THE TRIAL COURT
DOCKET NO. 95-E-0016
RICHARD M. OSBORNE and
ROBERT G. STERN,
Plaintiffs,
v. FIRST AMENDED
COMPLAINT
PRUDENTIAL REALTY TRUST, a
Massachusetts Business Trust, and
JEFFREY L. DANKER, THOMAS F.
MURRAY, JOSEPH M. SELZER,
RICHARD J. BOYLE, FRANCIS L.
BRYANT, as Trustees of the
Prudential Realty Trust,
Defendants.
COMPLAINT IN EQUITY
Introduction
Plaintiffs Richard M. Osborne, the largest shareholder in
Prudential Realty Trust, a publicly-traded Massachusetts business
trust, and Robert G. Sterns bring this complaint in equity to remove
the trustees of Prudential Realty Trust. The immediate removal of
the Trustees is necessary because the Trustees have engaged in a
systematic course of conduct that is adverse to the interest of, and
detrimental to, the beneficiaries by wasting trust assets and
stating their intention to prematurely liquidate the Trust Estate.
Parties
1. Plaintiff Richard M. Osborne ("Mr. Osborne")is an Ohio
resident and, both in his own right and as the managing member of a
limited liability company, a shareholder of Prudential Realty Trust.
2. Plaintiff Robert G. Stern ("Mr. Stern") is a Massachusetts
resident and shareholder of Prudential Realty Trust.
3. Defendant Prudential Realty Trust ("Prudential" or
"Trust") is a voluntary association established under the laws of
the Commonwealth of Massachusetts by a Declaration of Trust dated
June 19, 1985. A copy of the Declaration of Trust is attached as
Exhibit A. Prudential maintains an office in Boston, Massachusetts
and has its principal place of business at Prudential Plaza, Newark,
New Jersey. The Trust's place of business, according to paragraph
1.2 of the Trust, is Prudential Center, 4th Floor, Boston, MA 02199.
4. Defendant Jeffrey L. Danker is the President and a trustee
of Prudential. He resides at 231 Oak Ridge Avenue, Summit, New
Jersey.
5. Defendant Joseph M. Selzer is the Vice-President,
Treasurer, Principal Financial Officer and a trustee of Prudential.
He resides at 16 Lombard Drive, West Caldwell, New Jersey.
6. Defendant Richard J. Boyle is a trustee of Prudential who
resides at 83 Druid Hill Road, Summit, New Jersey.
7. Defendant Thomas F. Murray is a trustee of Prudential who
resides at 7 Midland Gardens, Bronxville, New York.
8. Defendant Francis L. Bryant is a trustee of Prudential who
resides at 2 Sturgis Road, Bronxville, New York.
Jurisdiction and Venue
9. This Court has jurisdiction over this matter pursuant to
G.L. c. 215 section 6 because this is a case and matter in which equitable
relief is sought relative to a Massachusetts business trust. This
Court also has jurisdiction over the matter since Prudential
maintains an office in Massachusetts and the terms of the
Declaration of Trust provide that the rights of all parties and the
effect and construction of every provision of the Declaration of
Trust shall be subject to and construed according to the statutes
and laws of the Commonwealth of Massachusetts.
10. Venue is proper in this Court pursuant to G.L. c. 215 section 8
because Prudential maintains an office in Boston, Suffolk County,
Massachusetts.
The Trust
11. On June 19, 1985, Prudential, a Massachusetts business
trust, was formed pursuant to a Declaration of Trust for the purpose
of investing in real property; it was further desired that the trust
qualify as a real estate investment trust ("REIT") under the REIT
provisions of the U.S. Internal Revenue Code. Shares of the trust
are traded on the New York Stock Exchange. Prudential is managed by
its trustees and the shareholders of Prudential are beneficiaries of
the trust.
12. Prudential owns in trust for its beneficiaries three
properties: two office complexes and an industrial park. These
properties were purchased by the Trust at or around the time of the
Trust's formation. On information and belief, Prudential paid
between $90 million and $100 million for the three properties.
13. Mr. Osborne, in his own right and as managing member of a
limited liability company, is the beneficial owner of 2,018,500
capital shares of beneficial interest of Prudential and 576,100
income shares of beneficial interest of Prudential. Under the terms
of the Declaration of Trust, income shares of beneficial interest
are entitled to receive dividends and a liquidation preference over
the capital shares of beneficial interest. The plaintiff currently
owns approximately twelve (12%) percent of Prudential's outstanding
shares of beneficial interests.
14. Article 3.2(l) of the Declaration of Trust granted the
trustees the express authority to sell or transfer the Trust Estate
to any person in exchange for the shares of beneficial interest in
Prudential, or to merge or consolidate the Trust with any person.
15. According to the terms of the Declaration of Trust, it was
intended that the trustees would "hold the Trust's investments in
interests in Real Property for a period of approximately 10-1/2
years after the effective date of the Registration Statement and,
after that time, the Trustees would dispose of any remaining assets
of the Trust in an orderly fashion within a period of approximately
18 months in order to achieve a complete liquidation of the Trust by
the end of the quarter in which the twelfth anniversary after the
effective date of the Registration Statement shall fall." On
information and belief, the Registration Statement became effective
on or about June 19, 1985.
16. However, the Declaration of Trust did not provide for the
automatic liquidation of the Trust. On the contrary, the
Declaration of Trust expressly provided that
The Trust's existence and the maximum holding
period for its investments may be extended beyond
such twelve year period only if (a) (i) at any
time after December 31, 1994, a majority of the
Trustees. . . affirmatively determines that such
extension would be in the best interest of the
Shareholders, taking into consideration the then
prevailing conditions in the relevant real estate
markets, and recommends to the Shareholders a
single specified extension of the aforesaid
twelve year period (not to exceed two years) and
(ii) the holders of a majority of each class of
the Shares then outstanding and entitled to vote
thereon approve such extension or (b) the Trust
is a party to any judicial . . . proceeding . . .
with respect to the Trust, which in the Trustees'
reasonable judgment makes impracticable a final
distribution in liquidation to the Shareholders.
The Trustees' Failure to Act in the
Best Interest of the Beneficiaries
17. During the nearly ten years of the Trust's existence, the
value of its shares and underlying real estate have dropped
precipitously. The capital share trading price has declined from a
high of $2.30 per share on August 30, 1985 to only $0.41 per share
on February 17, 1995. Similarly, the income share trading price
has declined from a high of $8.11 on August 30, 1985 to $4.13 per
share on February 17, 1995. Meanwhile, the appraised value of the
underlying assets has plummeted. On information and belief, the
appraised value in 1985 of the Trust Estate was between $90 million
and $100 million. In a Form 8-K Report filed on February 15, 1995,
by the Trustees with the Securities and Exchange Commission, the
appraised value of the Trust Estate by the close of 1994 was only
$73.7 million.
18. As the value of the Trust Estate and Prudential's shares
of beneficial interest declined, the Trustees took no significant
actions to halt the slide. The administrative costs of the Trust
Estate were unreasonably high at the same time that occupancy rates
in the properties was low. Moreover, even though it became evident
that the marketability of the shares was being materially harmed by
the two-tiered share structure that was constructed when the real
estate market was rapidly rising, the Trustees failed to collapse
the shares into a single class of stock as other REITs had
successfully done in the early 1990s.
19. Nonetheless, despite Prudential's historically poor
financial performance, there are signs that Prudential is finally
turning around. Modest gains in the value of the Trust Estate and
the price of the shares have been recorded during the last fifteen
months. The February 17, 1995, Form 8-K reveals that the market
value of the Trust Estate increased by 13% during the calendar year
1994. Similar increases have occurred during 1994 and 1995 in the
price of Prudential's capital and income shares.
20. Notwithstanding such a financial turnaround, and in the
face of modest gains and the opportunity to give the beneficiaries -
including the plaintiff - a long-awaited chance to recoup his
losses, the Trustees have embarked on a course of conduct intent on
liquidating the trust as quickly as possible. During the latter
half of 1994, the Trustees retained the services of J.P. Morgan
Securities, Inc. to solicit bids for the liquidation of the Trust's
assets as contemplated by the Declaration of Trust - even though
such liquidation is not called for under the terms of the
Declaration of Trust for another year.
21. On December 21, 1994, February 21, 1995 and March 16,
1995, Mr. Osborne met with representatives of Prudential to discuss
his investment in Prudential. At those meetings, Mr. Osborne noted
that he believed that Prudential's stock price was undervalued and
that Prudential was dogged by high advisory costs.
22. Because Mr. Osborne believes that the Shareholders can and
should have the opportunity to recoup their investment, Mr. Osborne
proposed to the trustees that Prudential be merged into a new entity
with a single class of common stock. In addition, Mr. Osborne has
proposed that experienced professional management be retained to
manage the Trust Estate on an ongoing basis and, in connection with
this proposal, Mr. Osborne has guaranteed that management expenses
will be reduced by at least 50%, i.e., $400,000. Mr. Osborne's
proposal also has the added advantage of providing a mechanism
through which shareholders who wish to withdraw and liquidate their
investment can do so while the remaining shareholders can continue
to hold their shares.
23. The trustees have rebuffed Mr. Osborne's attempts to
streamline the structure and management of the Trust Estate. And,
in meetings with the Trustees and their representatives, the
Trustees have indicated that they are not interested in Mr.
Osborne's proposals and that they are not inclined to bring his
proposals to a vote of the shareholders. Indeed, the Trustees have
specifically rejected Mr. Osborne's oral proposal that the parties
enter into a standstill agreement whereby the Trustees would agree
to refrain from disposing of any of the Trust Estate while the
Trustees evaluated Mr. Osborne's proposal.
24. Instead, the Trustees have continued their efforts to
liquidate the Trust Estate at the earliest available dates and, upon
information and belief, Prudential is presently negotiating the
property in Indianapolis.
25. The liquidation of the Trust Estate at this time would
cause the plaintiff and the other beneficiaries significant harm.
At best, there would be a modest premium, if any, over the current
market to the Income stockholders and no payout to the Capital
stockholders. This is because the liquidation value of the assets
of the Trust Estate is significantly lower than it is likely to be
in the coming years. It is thus anticipated that the liquidation
would not be well received in the stock market; the price of the
income shares would be less than half the price paid by the
plaintiff, and the capital shares would be virtually worthless.
COUNT I
(Remova l of Trustees Pursuant To G.L. c. 203 section 12)
26. Plaintiffs reallege and repeat paragraphs 1 through 25 as
if fully restated herein.
27. The Trustees are in direct conflict with the Trust
beneficiaries and by charging excessively high fees and by
attempting to liquidate the Trust's assets, have engaged in and are
continuing to engage in a pattern of conduct designed to waste
Prudential's assets while at the same enriching the Trustees.
Accordingly, the immediate removal of the Trustees is required.
27. The Trustees are not suitable to continue to carry out the
duties of trustee and their continuation in office puts these
interests of the beneficiaries at risk of irreparable harm.
WHEREFORE, Plaintiff requests that the Trustees be removed and
that Court appoint suitable successor trustees.
Dated: April 5, 1995
Respectfully submitted by
counsel for Richard M.
Osborne and Robert G. Stern,
/s/ Philip Y. Brown /s/ Joseph P. Davis
Philip Y. Brown(BBO #552366) Brian D. Bixby (BBO #044140)
Grant Schwartz & Brown Edwin A. McCabe (BBO #327040)
31 Newbury Street Joseph P. Davis III (BBO #551111)
Boston, Massachusetts 02116 Cuddy Bixby
(617) 421-1800 One Financial Center
Boston, Massachusetts 02116
(617) 348-3600
Exhibit 10
COMMONWEALTH OF MASSACHUSETTS
TRIAL COURT
SUFFOLK, ss. PROBATE COURT DEPT.
Docket No. 95-E-0016
* * * * * * * * * * * * * * * * * * * * * * * * *
*
RICHARD M. OSBORNE, et al., *
*
Plaintiffs, *
*
v. *
*
PRUDENTIAL REALTY TRUST, a *
Massachusetts Business Trust, et al., *
*
Defendants. *
*
***** *
*
PRUDENTIAL REALTY TRUST, a *
Massachusetts Business
Trust,
*
*
Counterclaim-Plaintiff,
*
*
v. * ANSWER AND
* COUNTERCLAIMS
RICHARD M. OSBORNE, *
ROBERT G. STERN, BLACK *
BEAR REALTY, Ltd., and *
TURKEY VULTURE FUND XIII, Ltd., *
*
Counterclaim-Defendants. *
*
* * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
ANSWER
Defendants Prudential Realty Trust, Jeffrey L. Danker,
Thomas F. Murray, Joseph M.
Selzer,
Richard J. Boyle, and Francis
L. Bryant ( Defendants ) hereby answer and respond to the
Complaint in Equity ( Complaint ) filed by plaintiffs Richard M.
Osborne and Robert G. Stern ( Plaintiffs ) in this action.
The opening paragraph of the Complaint is introductory and
contains legal conclusions which do not require an answer, but to
the extent an answer is required, Defendants deny the averments
contained in the opening paragraph.
1. Defendants admit the averments contained in paragraph 1.
2. Defendants are without knowledge or information
sufficient to form a belief as to the truth of the averments
contained in paragraph 2, and thus Defendants deny them.
3. Defendants admit the averments contained in paragraph 3.
4. Defendants admit the averments contained in paragraph 4.
5. Defendants admit the averments contained in paragraph 5.
6. Defendants admit the averments contained in paragraph 6.
7. Defendants admit the averments contained in paragraph 7.
8. Defendants admit the averments contained in paragraph 8.
9. Defendants admit the averments contained in paragraph 9.
10.Defendants admit the averments contained in paragraph
10.
11.Defendants admit the averments contained in paragraph 11
but deny that paragraph 11 is a complete or accurate summary of
the relevant provisions of the Declaration of Trust.
12. Defendants admit the averments contained in paragraph
12.
13. Defendants admit that, under the terms of the
Declaration of Trust,
Income Shares are entitled to receive
dividends and a liquidation preference over the Capital Shares.
As for the remainder of paragraph 13, defendants are without
knowledge or information sufficient to form a belief as to the
truth of the averments contained therein, and thus Defendants
deny them.
14. Defendants state that the Declaration of Trust speaks
for itself. To the extent Plaintiffs attempt to interpret the
Declaration of Trust, Defendants deny the averments contained in
paragraph 14.
15. Defendants state that the Declaration of Trust speaks
for itself. To the extent Plaintiffs attempt to interpret the
Declaration of Trust, Defendants deny the averments contained in
paragraph 15. Defendants admit that the registration statement
became effective on or about June 19, 1985.
16. Defendants deny the first sentence of paragraph 16. As
for the remainder of paragraph 16, Defendants state that the
Declaration of Trust speaks for itself. To the extent Plaintiffs
attempt to interpret the Declaration of Trust, Defendants deny
the averments contained in paragraph 16.
17. Defendants assert that the capital share trading price
was at a high of $2.25 per share on August 30, 1985, and $0.41
per share on February 17, 1995, and further assert that the
income share trading price was at a high of $8.00 per share on
August 30, 1985, and $4.13 per share on February 17, 1995.
Defendants admit that the appraised value of the Trust Estate was
between $90 million and $100 million in 1985. Defendants admit
that a Form 8-K report filed with the Securities and Exchange
Commission in February, 1995 reported that the appraised value of
the Trust Estate was $73.7 million at the close of 1994.
Defendants deny the remainder of the averments contained in
paragraph 17.
18. Defendants deny the averments contained in paragraph 18.
19. Defendants admit that a Form 8-K report filed with the
Securities and Exchange Commission in February, 1995 reported
that the market value of the Trust Estate increased by 13% during
the calendar year 1994. Defendants further admit that the
Capital Share and Income Share trading price increased during
1994 and 1995. Defendants deny the remainder of the averments
contained in paragraph 18.
20. Defendants deny the averments contained in paragraph 20.
21. Defendants admit the averments contained in paragraph
21.
22. Defendants deny the averments contained in paragraph 22.
23. Defendants deny the averments contained in paragraph 23.
24. Defendants deny the averments contained in paragraph 24.
25. Defendants deny the averments contained in paragraph 25.
26. Defendants repeat and reallege their answers to
paragraphs 1 through 25 as though fully stated herein.
27. Defendants deny the averments contained in paragraph 27.
28. Defendants deny the averments contained in paragraph 28.
(Plaintiffs styled this paragraph erroneously as paragraph 27.)
29. Defendants deny that Plaintiffs are entitled to any of
the relief requested in the Complaint.
ADDITIONAL DEFENSES
30. The Complaint fails to state a claim against the
Defendants upon which relief may be granted.
31. The claims alleged in the Complaint are barred by the
doctrine of estoppel.
32. The claims alleged in the Complaint are barred by the
doctrine of laches.
33. The claims alleged in the Complaint are barred by the
doctrine of unclean hands.
34. The claims alleged in the Complaint are barred by the
doctrine of waiver.
35. The claims alleged in the Complaint are barred because
such claims may only be brought as a derivative action and the
plaintiffs have failed to meet any of the requirements or
preconditions for bringing a derivative action pursuant to Rule
23.1 of the Massachusetts Rules of Civil Procedure.
36. The claims alleged in the Complaint are barred because
the plaintiffs do not fairly and adequately represent the
interests of the shareholders.
37. The claims alleged in the Complaint are barred because
the alleged actions of defendants Danker, Murray, Selzer, Boyle
and Bryant are protected by the business judgment rule.
38. The claims alleged in the Complaint are barred by
Article VII of the Declaration of Trust.<PAGE>
COUNTERCLAIMS
As and for its Counterclaims against counterclaim-defendants
Richard M. Osborne, Robert G. Stern, Black Bear Realty, Ltd., and
Turkey Vulture Fund XIII, Ltd., counterclaim-plaintiff Prudential
Realty Trust, a Massachusetts Business Trust, states as follows:
PARTIES
1. Counterclaim-plaintiff Prudential Realty Trust (the
Trust or Prudential ) is a Massachusetts Business Trust with
its place of business at Prudential Center, 4th Floor, Boston,
Massachusetts 02199. The Trust is qualified as a real estate
investment trust (a REIT ) under the Internal Revenue Code.
2. Counterclaim-defendant Richard M. Osborne ( Osborne )
resides at 9050 Jackson Street, Mentor, Ohio, and is both a
direct and indirect holder of both Capital Shares and Income
Shares of the Trust. Osborne s business address is 7001 Center
Street, Mentor, Ohio. Osborne is the sole managing member of
counterclaim-defendant Black Bear Realty, Ltd., and is the sole
managing member of counterclaim-defendant Turkey Vulture Fund
XIII, Ltd. Osborne controls Black Bear Realty, Ltd., and Turkey
Vulture Fund XIII, Ltd. Osborne directly and indirectly acquired
shares of the Trust, and caused Black Bear Realty, Ltd. and
Turkey Vulture Fund XIII, Ltd. to acquire shares of the Trust,
with the intent and purpose of gaining control of the Trust.
Osborne has taken actions with regard to the Trust in the
Commonwealth of Massachusetts directly and indirectly on behalf
of himself and by and through the other counterclaim-defendants,
including, among other things, the filing of the instant lawsuit
in the Probate Court Department of the Massachusetts Trial Court
and the initiation of a tender offer for shares of the Trust.
3. Counterclaim-defendant Black Bear Realty, Ltd. ( Black
Bear ) purports to be an Ohio limited liability company. Black
Bear is
organized and controlled by counterclaim-defendant
Osborne. Black Bear s business address is 7001 Center Street,
Mentor, Ohio. Black Bear was newly formed by Osborne, who is
Black Bear s sole managing member, for the sole purpose of
effectuating Osborne s scheme to gain control of the Trust.
Black Bear has not conducted any business other than in
connection with that scheme. Black Bear has acted in the
Commonwealth of Massachusetts with regard to the Trust,
including, among other things, participating with Osborne in
commencing a tender offer for
Capital Shares of the Trust and
participating in the instant lawsuit, which was filed by Osborne
directly and indirectly on behalf of Black Bear in the Probate
Court Department of the Trial Court of the Commonwealth of
Massachusetts.
4. Counterclaim-defendant Turkey Vulture Fund XIII, Ltd.
( Vulture ) purports to be an Ohio limited liability company.
Osborne is the sole managing member of Vulture. Vulture s
business address is 7001 Center Street, Mentor, Ohio. Osborne
created Vulture for the purpose of, among other things, gaining
control of the Trust. Vulture has taken actions regarding the
Trust in the Commonwealth of Massachusetts including, among other
things, purchasing Income Shares and participating directly or
indirectly with Osborne in the filing of this lawsuit in the
Probate Department of the Trial Court of the Commonwealth of
Massachusetts and in other aspects of Osborne s scheme to gain
control of the Trust.
5. Counterclaim-defendant Robert G. Stern ( Stern ) is a
Massachusetts resident, a plaintiff in this action, and a
shareholder of the Trust. Upon information and belief, Mr. Stern
is working directly and indirectly with Mr. Osborne as part of
Osborne s scheme to gain control of the Trust.
JURISDICTION AND VENUE
6. This Court has jurisdiction over this matter pursuant
to Mass. Gen. L. c. 215,
section 6, because this is a case and matter in which equitable relief
is sought relative to a Massachusetts Business Trust. This Court
also has jurisdiction over the matter since the Trust maintains
an office in Massachusetts and the terms of the Declaration of
Trust provide that the rights of all parties and the effect and
construction of every provision of the Declaration of Trust
should be subject to and construed according to the statutes and
laws of the Commonwealth of Massachusetts.
7. Venue is proper in this Court pursuant to Mass. Gen. L.
c. 215, section 8, because Prudential maintains an office in Boston,
Suffolk County, Massachusetts. Venue is also proper in this
Court for these counterclaims because this is the Court in which
the counterclaim-defendants chose to commence this action.
8. This Court has personal jurisdiction over counterclaim-
defendant Osborne pursuant to Mass. Gen. L. c. 227, section 2, since
Osborne has consented to this Court s jurisdiction by filing the
instant action. This Court also has personal jurisdiction over
Osborne pursuant to the Massachusetts long-arm statute, Mass.
Gen. L. c. 223A, since Osborne, through a tender offer conducted
ostensibly in the name of Black Bear, has transacted business
within the Commonwealth, and since, on information and belief,
Osborne recruited counterclaim-defendant Stern to participate in
filing the instant action.
9. This Court has personal jurisdiction over counterclaim-
defendant Black Bear pursuant to Mass. Gen. L. c. 227, section 2, since
Black Bear, as Osborne s alter ego, is participating in Osborne s
scheme to gain control of the Trust, including the filing of the
instant action. This Court also has personal jurisdiction over
counterclaim-defendant Black Bear Realty pursuant to the
Massachusetts long-arm statute, Mass. Gen. L. c. 223A, since
Black Bear, through its tender offer, has transacted business
within the Commonwealth, and since Black Bear is merely the alter
ego of Osborne.
10. This Court has personal jurisdiction over counterclaim-
defendant Vulture pursuant to Mass. Gen. L. c. 227, section 2, since
Vulture is participating directly or indirectly in Osborne s
scheme to gain control of the Trust, including the filing of the
instant action. This Court has personal jurisdiction over
Vulture pursuant to the Massachusetts long-arm statute, Mass.
Gen. L. c. 223A, since Vulture, through its sole managing member,
has transacted business within the Commonwealth.
11. This Court has personal jurisdiction over counterclaim-
defendant Stern under Mass. Gen. L. c. 227, section 2, since Stern has
consented to this Court s jurisdiction by filing the instant
action. This Court also has personal jurisdiction over
counterclaim-defendant Stern because Stern is a resident of the
Commonwealth of Massachusetts. This Court also has personal
jurisdiction over counterclaim-defendant Stern under the
Massachusetts long-arm statute, Mass. Gen. L. c. 223A, since
Stern has transacted business within the Commonwealth, including,
on information and belief, participating directly or indirectly
with Osborne in Osborne s scheme to gain control of the Trust.
<PAGE>
BACKGROUND TO THE ACTION
12. The Trust is a closed-end, finite-life, self-
liquidating Massachusetts business trust formed in 1985 pursuant
to a Declaration of Trust made as of June 19, 1985, and amended
August 20, 1985, (the Declaration of Trust ).
13. The Trust is governed by a Board of Trustees (the
Trustees ), a majority of whom (the Unaffiliated Trustees ) are
not affiliated with The Prudential Realty Advisors, Inc., (the
Advisor ), the advisor to the Trust.
14. The Trust has two classes of shares, Capital Shares and
Income Shares. The Trust was formed to acquire real property
with a view to providing (1) current distributions of cash flow
from operations to holders of Income Shares of the Trust in
addition to a preferential return to Income Shareholders of up to
the stated value ($8.00) of the Income Shares, depending on the
value of the Trust s properties remaining at the time of
liquidation, and (2) realizing capital appreciation for
distribution on the Capital Shares of the Trust, subject to a
liquidation preference in favor of the Income Shares.
15. Pursuant to the Declaration of Trust, the Trust is
qualified as a real estate investment trust ( REIT ) under the
provisions of the Internal Revenue Code.
16. The Trust s policies as to duration of the Trust and
liquidation of the Trust s assets are set forth in Article V of
the Declaration of Trust. Pursuant to Article V of the
Declaration of Trust, the Trust was intended at the outset to
liquidate no more than 12 years from the Trust s inception in
1985. The Trust was intended to hold its portfolio of real
properties for approximately 10 1/2 years and thereafter to
liquidate any remaining properties within a period of
approximately 18 months in order to achieve a complete
liquidation of the Trust within the 12-year period. Pursuant to
the Declaration of Trust, and consistent with the nature of the
Trust as a finite-life rather than an infinite-life investment,
the Trustees of the Trust were empowered to dispose of Trust
properties without a shareholder vote as early as five years
after the inception of the Trust, but the Trustees could only
extend the 12 year maximum life of the Trust for a period not to
exceed two years, and then only if (a) a majority of the
Trustees, including a majority of the Unaffiliated Trustees,
affirmatively determined that such an extension would be in the
best interests of the shareholders, and (b) a vote of the holders
of a majority of each class of the Trust s shares then
outstanding and entitled to vote approved such an extension of
two years or less.
17. Capital and Income Shares of the Trust were sold to the
public pursuant to a public offering in 1985. Purchasers of
either or both classes of shares of the Trust purchased their
shares with the knowledge that the Trust was a fixed-life, self-
liquidating investment pursuant to the Declaration of Trust and
that any alteration of such policies would require approval by
75% of the outstanding shares of each class, voting separately as
a class.
18. Such fixed-life investments are frequently purchased by
investors so as to provide liquidity by a fixed date in order to
meet anticipated obligations (such as payment of college tuition
for the investor s children, or to enable retirement at a certain
time).
19. In order to protect the shareholders expectations that
the Trust was a finite-life, self-liquidating investment, the
Declaration of Trust provides that none of the Trust s policies
set forth in Article V of the Declaration of Trust can be amended
without the approval of holders of 75% of each class of the
outstanding shares, voting separately as a class.
20. Consistent with the policies set forth in Article V of
the Declaration of Trust, in December, 1994, the Trustees of the
Trust engaged J.P. Morgan Securities, Inc. ( J.P. Morgan ) on
behalf of the Trust as an independent financial advisor to review
and to provide recommendations on the strategic options available
to maximize the value of the Trust to its shareholders as the
Trust approached its scheduled liquidation date. After December
31, 1994, J.P. Morgan recommended the Trustees proceed to solicit
bids for the shares of the Trust or its assets. On February 9,
1995, the Trustees accepted J.P. Morgan s and the Advisor s
recommendations and the Board approved the engagement of J.P.
Morgan to solicit bids for the Trust s properties and/or shares.
Pursuant to a letter agreement dated March 16, 1995, the Board of
Trustees of the Trust engaged J.P. Morgan to undertake certain
services in connection with the solicitation of bids and, if so
decided by the Trustees, to assist the Trust in liquidating the
Trust by selling the Trust and/or its properties. The Trustees
decision to retain J.P. Morgan to conduct this process was made
in prudent exercise of the Trustees business judgment, in good
faith and with due care, and in reliance, among other things, on
the advice of the Trust s independent financial advisor, J.P.
Morgan, that it was in the best interest of the shareholders to
solicit bids and investigate a liquidation of the Trust at this
time rather than waiting until the end of the 12-year life of the
Trust or soliciting shareholder approval for a two-year extension
of the Trust.
21. Pursuant to its engagement letter, J.P. Morgan prepared
an offering memorandum for the Trust and its properties, and has
solicited bids for the Trust and/or its properties. The deadline
for initial bids was set as May 26, 1995. J.P. Morgan received
substantial expressions of interest on or about May 26, 1995,
from a number of bidders regarding the Trust or the Trust s
properties. It is in the best interest of the shareholders for
representatives of the Trust to continue the process of
discussing such bids with the bidders in order to attempt to
maximize value for the shareholders of the Trust.
22. On information and belief, in 1994, counterclaim-
defendant Osborne, acting individually and also for and through
Vulture, conceived a plan to gain control of the Trust at a cheap
price and to take advantage of that control for his personal
profit at the detriment of holders of Income Shares. Osborne and
Vulture, acting at Osborne s direction and control, thereupon
began accumulating Capital Shares and Income Shares of the Trust
without disclosing their true intent to gain control of the
Trust. While Osborne and Vulture were aware of the finite-life,
self-liquidating nature of the Trust, Osborne s plan included
attempting to change the Trust into an infinite-life trust with
the goal of achieving personal profit for Osborne at the
detriment of holders of Income Shares. As part of and in
furtherance of this scheme, Osborne commenced the instant action
in the Probate Court Department of the Trial Court (the Probate
Court Action ) seeking to remove the current Trustees, and
subsequently commenced a virtually identical action in the
Superior Court Department of the Trial Court, Suffolk County (the
Superior Court Action ), seeking damages and a declaratory
judgment. Also as part of his scheme, Osborne, acting directly
and for and through Vulture and Black Bear, commenced a tender
offer for Capital Shares of the Trust on May 17, 1995 (the
Tender Offer ).
23. Pursuant to the Tender Offer, Osborne and his
affiliates Black Bear and Vulture seek to gain control of the
Trust by acquiring sufficient shares of Capital Stock at 30 cents
per share to increase their control to greater than 50% of the
combined voting power of the Income Shares and Capital Shares,
and thus enable Osborne to remove current Trustees following
consummation of the Tender Offer, to install an advisor
controlled by Osborne, and to seek to prevent the liquidation of
the Trust which would otherwise take place pursuant to
Article V
of the Declaration of the Trust. According to the Proposed
Merger, Osborne intends in effect to amend Article V of the
Declaration of the Trust through a process of merging
of the
Trust into an entity controlled by Osborne and to provide
remaining shareholders of the Trust with shares in this new,
Osborne-controlled entity, all without the requisite vote of 75%
of each class of shares, voting separately as a class, required
by the Declaration of Trust.
24. Osborne, Black Bear and Vulture have stated in the
Tender Offer statement filed by Black Bear in connection with the
Tender Offer that the life of the Trust may be extended to an
infinite-life trust, and the liquidation of the Trust prevented,
by a majority vote of each class of the shareholders of the
Trust, voting separately as a class, in favor of the merger
proposed by Osborne. In fact, a 75% vote of the outstanding
shares of each class, voting separately as a class, is required
to effect such a change in the Trust s policies.
25. Osborne, Black Bear and Vulture have also structured
the Tender Offer so that the counterclaim-defendants will obtain
all capital gains, if any, payable to holders of the Capital
Shares of the Trust. Osborne contends in the Superior Court
Action that capital gains will be due and owing to holders of the
Capital Shares of the Trust upon a liquidation or sale of any of
the Trust s properties. The Trustees do not believe that any
capital gains will be due and payable to any of the capital
shareholders upon a current liquidation of the Trust or its
properties. Osborne, Black Bear and Vulture have also asserted
in their Tender Offer that there would be no statutory appraisal
rights available to dissenting shareholders of the Trust should
they not wish to have the merger proposed by Osborne proceed.
The Trustees believe, however, that common law appraisal rights
may be available to certain shareholders of the Trust under
Massachusetts law given the facts and circumstances regarding the
Tender Offer and the Proposed Merger.
26. Osborne, Black Bear and Vulture have structured and
timed their attempt to gain control of the Trust, including the
initiation of the Superior Court Action, the Probate Court
Action, and the Tender Offer, intentionally to interfere with the
bidding process initiated by J.P. Morgan at the request of the
Board of Trustees and with the express intention of interfering
with that process so as to prevent shareholders of the Trust from
obtaining value for their shares pursuant to the policies set
forth in the Declaration of Trust and instead to convert the
Trust s value to the personal gain of the counterclaim-defendants
at the detriment to holders of Income Shares.
COUNT I
(Declaratory Judgment as to Shareholder
Vote Necessary to Approve the Merger
Proposed by the Counterclaim-Defendants)
27. The counterclaim-plaintiff repeats and incorporates by
reference the allegations in paragraphs 1 through 26, above, of
these counterclaims, as if set forth wholly herein.
28. Osborne and the other counterclaim-defendants have
stated in their Offer to Purchase to the shareholders of the
Trust that if the Tender Offer is successful, the counterclaim-
defendants will seek to execute a merger (the Proposed Merger )
for the purpose of preventing the liquidation of the Trust as
required by the Declaration of Trust and thereby converting the
Trust from a fixed-life Trust into a new REIT with an infinite
life.
29. Osborne and the other counterclaim-defendants have
asserted to the shareholders of the Trust in the Offer to
Purchase issued in connection with the Tender Offer that the
Proposed Merger would require a bare majority vote of each class
of shares, voting separately as a class.
30. On information and belief, Osborne and the other
counterclaim-defendants intend, if the Tender Offer is
successful, to attempt to declare the Proposed Merger as
receiving the necessary shareholder vote, and to consummate the
Proposed Merger, upon a vote of a majority of the outstanding
shares of each class, voting separately as a class, in violation
of the Declaration of Trust.
31. The Proposed Merger, which is being proposed expressly
for the purpose and effect of amending the policies set forth in
Article V of the Declaration of Trust, and which will create a
new entity without a certificate or by-laws carrying forward the
policies set forth in Article V of the Declaration, in fact
requires an affirmative vote of 75% of the outstanding shares of
each class of share, voting separately as a class.
32. Shareholders of the Trust considering whether to tender
their shares in accordance with the Tender Offer will be misled
if they tender their shares in reliance on the statements in the
Offer to Purchase that a bare majority vote of each class of
shares, voting separately as a class, would be sufficient to
approve the Proposed Merger.
33. If the Tender Offer is successful, remaining public
shareholders will be oppressed and their rights and property
misappropriated by the counterclaim-defendants should Osborne and
the other counterclaim-defendants follow through on their stated
plan to consummate the Proposed Merger upon an inadequate
majority vote.
34. Thus, there presently exists an actual and justiciable
controversy regarding the proper percentage of vote of each class
of the outstanding shares necessary to approve the Proposed
Merger. The counterclaim-plaintiff seeks declaratory relief
pursuant to Mass. Gen. L. c. 231A, and requests that the Court
determine the respective rights and obligations of the parties
thereunder.
35. Osborne, directly and through and for the other
counterclaim-defendants, has already stated their intention to
remove some or all of the current Trustees upon consummation of
the Tender Offer if necessary to further the Proposed Merger, and
thus the current Trustees may not be in a position to protect the
rights of the shareholders after consummation of the Tender
Offer
if the Tender Offer is successful
.
36. The Trustees have standing to bring this counterclaim
in the exercise of their fiduciary duties to the shareholders of
the Trust.
WHEREFORE, the counterclaim-plaintiff respectfully prays
that this Court enter an order and judgment:
(a) declaring whether an affirmative vote of 75% or a
majority vote of the outstanding shares of each class of shares,
voting separately as a class, is required to effectuate the
Proposed Merger;
<PAGE>
(b) awarding the counterclaim-plaintiff its costs and
reasonable attorneys fees in this action; and
(c) issuing such other and further relief as may be
appropriate.
PRUDENTIAL REALTY TRUST
JEFFREY L. DANKER
THOMAS F. MURRAY
JOSEPH M. SELZER
RICHARD M. BOYLE
FRANCIS L. BRYANT
By their attorneys,
/s/ Stephen D. Poss
Stephen D. Poss, P.C. (BBO No.
551760)
Dana L. McAlister (BBO No.
565398)
Gus P. Coldebella (BBO No.
566918)
GOODWIN, PROCTER & HOAR
Exchange Place
Boston, MA 02109-2881
(617) 570-1000
DATED: May 31, 1995
Exhibit 11
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT DEPARTMENT
OF THE TRIAL COURT
CIVIL ACTION NO. 95-2095A
RICHARD M. OSBORNE and
ROBERT G. STERN,
Plaintiffs,
v.
COMPLAINT
PRUDENTIAL REALTY TRUST, a
Massachusetts Business Trust, and
JEFFREY L. DANKER, THOMAS F.
MURRAY, JOSEPH M. SELZER,
RICHARD J. BOYLE, FRANCIS L.
BRYANT, as Trustees of the
Prudential Realty Trust,
Defendants.
Parties
1. Plaintiff Richard M. Osborne ("Mr. Osborne")is an Ohio
resident and, both in his own right and as the managing member of a
limited liability company, a shareholder of Prudential Realty Trust.
2. Plaintiff Robert G. Stern ("Mr. Stern") is a Massachusetts
resident and shareholder of Prudential Realty Trust.
3. Defendant Prudential Realty Trust ("Prudential" or
"Trust") is a voluntary association established under the laws of
the Commonwealth of Massachusetts by a Declaration of Trust dated
June 19, 1985. Prudential maintains an office in Boston,
Massachusetts and has its principal place of business at Prudential
Plaza, Newark, New Jersey. The Trust's place of business, according
to paragraph 1.2 of the Trust, is Prudential Center, 4th Floor,
Boston, MA 02199.
4. Defendant Jeffrey L. Danker is the President and a trustee
of Prudential. He resides at 231 Oak Ridge Avenue, Summit, New
Jersey.
5. Defendant Joseph M. Selzer is the Vice-President,
Treasurer, Principal Financial Officer and a trustee of Prudential.
He resides at 16 Lombard Drive, West Caldwell, New Jersey.
6. Defendant Richard J. Boyle is a trustee of Prudential who
resides at 83 Druid Hill Road, Summit, New Jersey.
7. Defendant Thomas F. Murray is a trustee of Prudential who
resides at 7 Midland Gardens, Bronxville, New York.
8. Defendant Francis L. Bryant is a trustee of Prudential who
resides at 2 Sturgis Road, Bronxville, New York.
Jurisdiction and Venue
9. This Court has jurisdiction over this matter in that
Prudential maintains an office in Massachusetts and the terms of the
Declaration of Trust provide that the rights of all parties and the
effect and construction of every provision of the Declaration of
Trust shall be subject to, and construed according to, the statutes
and laws of the Commonwealth of Massachusetts.
10. Venue is proper in this Court pursuant because Prudential
maintains an office in Boston, Suffolk County, Massachusetts.
The Trust
11. On June 19, 1985, Prudential, a Massachusetts business
trust, was formed pursuant to a Declaration of Trust for the purpose
of investing in real property; it was further desired that the trust
qualify as a real estate investment trust ("REIT") under the REIT
provisions of the U.S. Internal Revenue Code. Shares of the trust
are traded on the New York Stock Exchange. Prudential is managed by
its trustees and the shareholders of Prudential are beneficiaries of
the trust.
12. Prudential owns in trust for its beneficiaries three
properties: two office complexes and an industrial park. These
properties were purchased by the Trust at or around the time of the
Trust's formation. On information and belief, Prudential paid
$99.9 million for the three properties.
13. Mr. Osborne, in his own right and as managing member of a
limited liability company, is the beneficial owner of 2,043,800
capital shares of beneficial interest of Prudential (or 18.4% of the
class) and 1,011,900 income shares of beneficial interest of
Prudential (or 9.1% of the class). Mr. Stern owns 1,000 income
shares and 1,000 capital shares of beneficial interest of
Prudential. Under the terms of the Declaration of Trust, income
shares of beneficial interest are entitled to receive dividends and
a liquidation preference as to distributions (beyond any realized
capital gains) over the capital shares of beneficial interest. Mr.
Osborne currently owns approximately 13.7% percent of Prudential's
outstanding shares of beneficial interests.
14. Article 3.2(l) of the Declaration of Trust granted the
trustees the express authority to sell or transfer the Trust Estate
to any person in exchange for the shares of beneficial interest in
Prudential, or to merge or consolidate the Trust with any person.
15. According to the terms of the Declaration of Trust, it was
intended that the trustees would "hold the Trust's investments in
interests in Real Property for a period of approximately 10-1/2
years after the effective date of the Registration Statement and,
after that time, the Trustees would dispose of any remaining assets
of the Trust in an orderly fashion within a period of approximately
18 months in order to achieve a complete liquidation of the Trust by
the end of the quarter in which the twelfth anniversary after the
effective date of the Registration Statement shall fall." On
information and belief, the Registration Statement became effective
on or about August 26, 1985.
16. However, the Declaration of Trust did not provide for the
automatic liquidation of the Trust. On the contrary, the
Declaration of Trust expressly provided that
The Trust's existence and the maximum holding
period for its investments may be extended beyond
such twelve year period only if (a) (i) at any
time after December 31, 1994, a majority of the
Trustees. . . affirmatively determines that such
extension would be in the best interest of the
Shareholders, taking into consideration the then
prevailing conditions in the relevant real estate
markets, and recommends to the Shareholders a
single specified extension of the aforesaid
twelve year period (not to exceed two years) and
(ii) the holders of a majority of each class of
the Shares then outstanding and entitled to vote
thereon approve such extension or (b) the Trust
is a party to any judicial . . . proceeding . . .
with respect to the Trust, which in the Trustees'
reasonable judgment makes impracticable a final
distribution in liquidation to the Shareholders.
The Prospectus
17. The public offering of shares of Prudential was
accomplished pursuant to a Prospectus dated August 22, 1985, as
approved by the United States Securities and Exchange Commission.
Under the heading "Fiduciary Responsibility of Trustees," the
Prospectus informed shareholders that, consistent with the terms of
the Declaration of Trust and Massachusetts law, "the Trustees are
accountable to the Trust's shareholders as fiduciaries and are
required to perform their duties in good faith in a manner each
Trustee believes to be in the best interest of the Trust, with such
care, including reasonable inquiry, as a prudent person in a like
position would use under similar circumstances."
18. The Prospectus further provides that all capital gains
accrued by the Trust shall be payable to Prudential's capital
shareholders. The Prospectus defines "capital gain" as "the amount
computed consistent with the Trust's tax records in respect of any
disposition of a capital asset of the Trust and equal to the
difference between the adjusted basis of such asset and the amount
realized on disposition, net of brokers' fees and other disposition
expenses." Once the Trust has realized capital gains from the sale
or other disposition of any of the Trust's assets (i.e., one of the
three real properties owned by the Trust), the Trustees must
immediately distribute the capital gains to the holders of capital
shares. The Prospectus plainly states that, "upon any sale of a
property prior to the adoption by the Trust of a plan of
liquidation, the Trust intends promptly to distribute all Capital
Gains to the holders of the Capital Shares." Although the holders
of capital shares are entitled to receive distributions of assets,
"dividends on such shares will be payable only following the
recognition of Capital Gain (as defined) by the Trust."
19. According to the Prospectus, holders of income shares, in
addition to receiving dividends, are entitled to receive a
preference over capital shares for distributions from the
liquidation of Trust assets. The payment of dividends during the
life of the Trust, and distributions following the termination of
the Trust or the disposition of any Trust assets, are payable from
Prudential's "distributable cash," which is defined as the net
revenues of the Trust. And the Prospectus further provides:
"Distributable Cash shall not, however, include any Capital Gain
...." At the time of the termination of the Trust, holders of
income shares are entitled to the redemption of their shares in the
amount of $8.00 per share plus accrued and unpaid dividends, and
such redemption shall receive a preference in payment from the
Trust's distributable cash.
The Trustees' Failure to Act in the
Best Interest of the Beneficiaries
20. During the nearly ten years of the Trust's existence, the
value of its shares and underlying real estate have dropped
precipitously. The capital share trading price has declined from a
high of $2.30 per share on August 30, 1985 to only $0.41 per share
on February 17, 1995. Similarly, the income share trading price
has declined from a high of $8.11 on August 30, 1985 to $4.13 per
share on February 17, 1995. Meanwhile, the appraised value of the
underlying assets has plummeted. On information and belief, the
appraised value in 1985 of the Trust Estate was between $90 million
and $100 million. In a Form 8-K Report filed on February 15, 1995,
by the Trustees with the Securities and Exchange Commission, the
appraised value of the Trust Estate by the close of 1994 was only
$73.7 million.
21. As the value of the Trust Estate and Prudential's shares
of beneficial interest declined, the Trustees took no significant
actions to halt the slide. The administrative costs of the Trust
Estate were unreasonably high at the same time that occupancy rates
in the properties was low. Moreover, even though it became evident
that the marketability of the shares was being materially harmed by
the two-tiered share structure that was constructed when the real
estate market was rapidly rising, the Trustees failed to collapse
the shares into a single class of stock as other REITs had
successfully done in the early 1990s.
22. Nonetheless, despite Prudential's historically poor
financial performance, there are signs that Prudential is finally
turning around. Modest gains in the value of the Trust Estate and
the price of the shares have been recorded during the last fifteen
months. The February 17, 1995, Form 8-K reveals that the market
value of the Trust Estate increased by 13% during the calendar year
1994. Similar increases have occurred during 1994 and 1995 in the
price of Prudential's capital and income shares.
23. Notwithstanding such a financial turnaround, and in the
face of modest gains and the opportunity to give the beneficiaries -
including the plaintiff - a long-awaited chance to recoup their
losses, the Trustees have embarked on a course of conduct intent on
liquidating the trust as quickly as possible. During the latter
half of 1994, the Trustees retained the services of J.P. Morgan
Securities, Inc. to solicit bids for the liquidation of the Trust's
assets as contemplated by the Declaration of Trust - even though
such liquidation is not called for under the terms of the
Declaration of Trust for another year.
24. In addition, the Trustees have announced that they intend
to favor the interests of the income shareholders over those of the
capital shareholders in the event that they are successful in
liquidating the Trust. In their Form 10-K filing with the
Securities and Exchange Commission dated March 29, 1995, the
Trustees stated their intention to redeem the income shares at $8.00
per share plus accrued interest and unpaid dividends prior to
calculating the amount of any capital gains payable to capital
shareholders. According to the Form 10-K,
The holders of the Income Shares are entitled, in general, to
all Distributable Cash of the Trust (as defined in the
Declaration of Trust) and, at or prior to the termination of the
Trust, to redemption of such shares up to the stated
value of $8.00 per share plus accrued and unpaid dividends.
The holders of the Capital Shares are entitled to all other
shareholder distributions which will, in general, include
capital gains, if any, of the Trust.
25. Nowhere in the Declaration of Trust or Prospectus does it
state that the redemption of the income shares shall be made payable
prior to the payment of capital gains to capital shareholders. On
the contrary, the offering documents specify that the payment of
capital gains is distinct from distributions and dividends, and
shall be paid immediately upon the disposition of any trust assets
if any such capital gain is realized.
26. On December 21, 1994, February 21, 1995 and March 16,
1995, Mr. Osborne met with representatives of Prudential to discuss
his investment in Prudential. At those meetings, Mr. Osborne noted
that he believed that Prudential's stock price was undervalued and
Prudential was dogged by high advisory costs.
27. Because Mr. Osborne believes that the Shareholders can and
should have the opportunity to recoup their investment, Mr. Osborne
proposed to the trustees that Prudential be merged into a new entity
with a single class of common stock. In addition, Mr. Osborne has
proposed that experienced professional management be retained to
manage the Trust Estate on an ongoing basis and, in connection with
this proposal, Mr. Osborne has guaranteed that management expenses
will be reduced by at least 50%, i.e., $400,000. Mr. Osborne's
proposal also has the added advantage of providing a mechanism
through which shareholders who wish to withdraw and liquidate their
investment can do so while the remaining shareholders can continue
to hold their shares.
28. The trustees have rebuffed Mr. Osborne's attempts to
streamline the structure and management of the Trust Estate. And,
in meetings with the Trustees and their representatives, the
Trustees have indicated that they are not interested in Mr.
Osborne's proposals and that they are not inclined to bring his
proposals to a vote of the shareholders. Indeed, the Trustees have
specifically rejected Mr. Osborne's oral proposal that the parties
enter into a standstill agreement whereby the Trustees would agree
to refrain from disposing of any of the Trust Estate while the
Trustees evaluated Mr. Osborne's proposal.
29. Instead, the Trustees have continued their efforts to
liquidate the Trust Estate at the earliest available dates and, upon
information and belief, Prudential is presently negotiating to sell
the property in Indianapolis.
30. The liquidation of the Trust Estate at this time would
cause the plaintiffs and other beneficiaries significant harm. At
best, there would be a modest premium, if any, over the current
market to the Income stockholders and no payout to the Capital
stockholders. This is because the liquidation value of the assets
of the Trust Estate is significantly lower than it is likely to be
in the coming years. It is thus anticipated that the liquidation
would not be well received in the stock market; the price of the
income shares would be less than half the price paid by the
plaintiffs, and the capital shares would be virtually worthless.
COUNT I
(Breach of Fiduciary Duty)
31. Plaintiffs reallege and repeat paragraphs 1 through 30 as
if fully restated herein.
32. The Trustees have failed to protect the interests of all
of the Trust's beneficiaries and perform their duties in good faith
by acting in a manner that is in the best interests of the Trust,
with such care, including reasonable inquiry, as a prudent person in
a like position would use under similar circumstances. By so doing,
the Trustees' have breached their fiduciary duty of utmost good
faith and loyalty owed to the plaintiffs; this breach has caused,
and will continue to cause, the plaintiffs substantial harm and
damage.
Count Two
(Violation of G.L. c. 93A, section 11)
33. Plaintiffs reallege and repeat paragraphs 1 through 30 as
if fully restated herein.
34. The Trustees' continuing breaches of fiduciary duty
constitute unfair and deceptive acts and practices by them in
violation of Chapter 93A, section 11 of the laws of the Commonwealth
of Massachusetts. On information and belief, such conduct on the
part of the Trustees was both knowing and willful.
Count Three
(Declaratory Judgement)
35. Plaintiffs reallege and repeat paragraphs 1 through 30 as
if fully restated herein.
36. There presently exists an actual and justiciable
controversy between the parties with respect to the rights and
obligations of the Trustees under the Declaration of Trust and
Prospectus. Accordingly, the plaintiffs seek declaratory relief
pursuant to G.L. c. 231A, and ask the Court to determine the
respective rights and obligations of the parties.
WHEREFORE, plaintiffs seek the following relief:
1. That they be awarded judgement against the defendants on
Counts I and II of this complaint for the full amount of their loss
and damage;
2. That the amount of the judgement against the defendants on
Count II of this complaint be trebled, or at least doubled, and that
the plaintiffs be awarded their costs and expenses of bringing this
action, including reasonable attorneys' fees;
3. That the respective rights and responsibilities of the
parties be determined, as requested in Count III; and
4, For such other and further relief as the Court shall deem
appropriate and just.
THE PLAINTIFFS HEREBY DEMAND A TRIAL BY JURY OF ALL CLAIMS
CONTAINED IN THIS COMPLAINT WHICH ARE TRIABLE BY JURY.
Dated: April 14, 1995 The Plaintiffs,
By their counsel,
/s/ Philip Y. Brown /s/ Edwin A. McCabe
Philip Y. Brown(BBO #552366) Edwin A. McCabe (BBO #327040)
Grant Schwartz & Brown Joseph P. Davis III (BBO #551111)
31 Newbury Street Cuddy Bixby
Boston, Massachusetts 02116 One Financial Center
(617) 421-1800 Boston, Massachusetts 02116
(6170 348-3600
Exhibit 12
COMMONWEALTH OF MASSACHUSETTS
TRIAL COURT
SUFFOLK, ss. SUPERIOR COURT DEPT.
Docket No. 95-2095-A
* * * * * * * * * * * * * * * * * * * * * * * * *
*
RICHARD M.
OSBORNE,
et al., *
*
Plaintiffs, *
*
v. *
*
PRUDENTIAL REALTY TRUST, a *
Massachusetts Business Trust, et al., *
*
Defendants. *
*
***** *
*
PRUDENTIAL REALTY TRUST, a *
Massachusetts Business
Trust, *
*
Counterclaim-Plaintiff,
*
*
v. * ANSWER AND
* COUNTERCLAIMS
RICHARD M. OSBORNE, *
ROBERT G. STERN, BLACK *
BEAR REALTY, Ltd., and *
TURKEY VULTURE FUND XIII, Ltd., *
*
Counterclaim-Defendants. *
*
* * * * * * * * * * * * * * * * * * * * * * * * *
ANSWER
Defendants Prudential Realty Trust, Jeffrey L. Danker,
Thomas F. Murray, Joseph M. Selzer, Richard J. Boyle, and Francis
L. Bryant ( Defendants ) hereby answer and respond to the
Complaint ( Complaint )
filed by plaintiffs Richard M. Osborne
and Robert G. Stern ( Plaintiffs ) in this action.
1. Defendants admit the averments contained in paragraph 1.
2.
Defendants
are without knowledge or information
sufficient to form a belief as to the truth of the averments
contained in paragraph 2, and thus Defendants deny them.
3. Defendants admit the averments contained in paragraph 3.
4. Defendants admit the averments contained in paragraph 4.
5. Defendants admit the averments contained in paragraph 5.
6. Defendants admit the averments contained in paragraph 6.
7. Defendants admit the averments contained in paragraph 7.
8. Defendants admit the averments contained in paragraph 8.
9. Defendants admit the averments contained in paragraph 9.
10. Defendants admit the averments contained in paragraph
10.
11. Defendants admit the averments contained in paragraph 11
but deny that paragraph 11 is a complete or accurate summary of
the relevant provisions of the Declaration of Trust.
12. Defendants admit the averments contained in paragraph
12.
13. Defendants admit that, under the terms of the
Declaration of Trust,
Income
Shares
are entitled to receive
dividends and a liquidation preference over the
Capital
Shares.
To the extent Plaintiffs attempt to interpret the Declaration of
Trust in this sentence of paragraph 13, Defendants state that the
Declaration of Trust speaks for itself and deny the averments in
the third sentence. As for the remainder of paragraph 13,
defendants are without knowledge or information sufficient to
form a belief as to the truth of the averments contained therein,
and thus Defendants deny them.
14. Defendants state that the Declaration of Trust speaks
for itself. To the extent Plaintiffs attempt to interpret the
Declaration of Trust, Defendants deny the averments contained in
paragraph 14.
15. Defendants assert that the Declaration of Trust speaks
for itself. To the extent Plaintiffs attempt to interpret the
Declaration of Trust, Defendants deny the averments contained in
paragraph 15. Defendants assert that the registration statement
became effective on or about June 19, 1985.
16. Defendants deny the first sentence of paragraph 16. As
for the remainder of paragraph 16, Defendants state that the
Declaration of Trust speaks for itself. To the extent Plaintiffs
attempt to interpret the Declaration of Trust, Defendants deny
the averments contained in paragraph 16.
17. Defendants deny the first sentence of paragraph 17,
because the SEC does not approve prospectuses. As for the
remainder of paragraph 17, Defendants state that the Declaration
of Trust speaks for itself. To the extent Plaintiffs attempt to
interpret the Declaration of Trust, Defendants deny the averments
contained in paragraph 17.
18. Defendants state that the Declaration of Trust speaks
for itself. To the extent Plaintiffs attempt to interpret the
Declaration of Trust, Defendants deny the averments contained in
paragraph 18.
19. Defendants state that the Declaration of Trust speaks
for itself. To the extent Plaintiffs attempt to interpret the
Declaration of Trust, Defendants deny the averments contained in
paragraph 19.
20. Defendants assert that the capital share trading price
was at a high of $2.25 per share on August 30, 1985, and $0.41
per share on February 17, 1995, and further
assert
that the
income share trading price was at a high of $8.00 per share on
August 30, 1985, and $4.13 per share on February 17, 1995.
Defendants admit that the appraised value of the Trust Estate was
between $90 million and $100 million in 1985. Defendants admit
that a Form 8-K report filed with the Securities and Exchange
Commission in February, 1995 reported that the appraised value of
the Trust Estate was $73.7 million at the close of 1994.
Defendants deny the remainder of the averments contained in
paragraph 20.
21. Defendants deny the averments contained in paragraph
21.
22. Defendants admit that a Form 8-K report filed with the
Securities and Exchange Commission in February, 1995 reported
that the market value of the Trust Estate increased by 13% during
the calendar year 1994. Defendants further admit that the
Capital
Share
and
Income
Share
trading price increased during
1994 and 1995. Defendants deny the remainder of the averments
contained in paragraph 22.
23. Defendants deny the averments contained in paragraph
23.
24. Defendants state that the Form 10-K filed on March 29,
1995 speaks for itself. To the extent Plaintiffs attempt to
interpret the Form 10-K, Defendants deny the averments contained
in paragraph 24.
25. Defendants deny the averments contained in paragraph
25.
26. Defendants admit the averments contained in paragraph
26.
27. Defendants deny the averments contained in paragraph
27.
28. Defendants deny the averments contained in paragraph
28.
29. Defendants deny the averments contained in paragraph
29.
30. Defendants deny the averments contained in paragraph
30.
31. Defendants repeat and reallege their answers to
paragraphs 1 through 30 as though fully stated herein.
32. Defendants deny the averments contained in paragraph
32.
33. Defendants repeat and reallege their answers to
paragraphs 1 through 32 as though fully stated herein.
34. Defendants deny the averments contained in paragraph
34.
35. Defendants repeat and reallege their answers to
paragraphs 1 through 34 as though fully stated herein.
36. Defendants admit the averments contained in the first
sentence of paragraph 36. Defendants deny that plaintiffs are
entitled to the declaratory relief requested.
37. Defendants deny that Plaintiffs are entitled to any of
the relief requested in the Complaint.
ADDITIONAL DEFENSES
38. The Complaint fails to state a claim against the
Defendants upon which relief may be granted.
39. The claims contained in the Complaint are barred by the
doctrine of estoppel.
40. The claims contained in the Complaint are barred by the
doctrine of laches.
41. The claims contained in the Complaint are barred by the
doctrine of unclean hands.
42. The claims contained in the Complaint are barred by the
doctrine of waiver.
43. The claims alleged in the Complaint are barred because
such claims may only be brought as a derivative action and the
plaintiffs have failed to meet any of the requirements or
preconditions for bringing a derivative action pursuant to Rule
23.1 of the Massachusetts Rules of Civil Procedure.
44. The claims alleged in the Complaint are barred because
the plaintiffs do not fairly and adequately represent the
interests of the shareholders.
45. The claims alleged in the Complaint are barred because
the alleged actions of defendants Danker, Murray, Selzer, Boyle
and Bryant are protected by the business judgment rule.
46. The claims alleged in the Complaint are barred by
Article VII of the Declaration of
Trust.
COUNTERCLAIMS
As and for its Counterclaims against counterclaim-defendants
Richard M. Osborne, Robert G. Stern, Black Bear Realty, Ltd., and
Turkey Vulture Fund XIII, Ltd., counterclaim-plaintiff Prudential
Realty Trust, a Massachusetts Business Trust, states as follows:
PARTIES
1. Counterclaim-plaintiff Prudential Realty Trust (the
Trust or Prudential ) is a Massachusetts Business Trust with
its place of business at Prudential Center, 4th Floor, Boston,
Massachusetts 02199. The Trust is qualified as a real estate
investment trust (a REIT ) under the Internal Revenue Code.
2. Counterclaim-defendant Richard M. Osborne ( Osborne )
resides at 9050 Jackson Street, Mentor, Ohio, and is both a
direct and indirect holder of both Capital Shares and Income
Shares of the Trust. Osborne s business address is 7001 Center
Street, Mentor, Ohio. Osborne is the sole managing member of
counterclaim-defendant Black Bear Realty, Ltd., and is the sole
managing member of counterclaim-defendant Turkey Vulture Fund
XIII, Ltd. Osborne controls Black Bear Realty, Ltd., and Turkey
Vulture Fund XIII, Ltd. Osborne directly and indirectly acquired
shares of the Trust, and caused Black Bear Realty, Ltd. and
Turkey Vulture Fund XIII, Ltd. to acquire shares of the Trust,
with the intent and purpose of gaining control of the Trust.
Osborne has taken actions with regard to the Trust in the
Commonwealth of Massachusetts directly and indirectly on behalf
of himself and by and through the other counterclaim-defendants,
including, among other things, the filing of the instant lawsuit
in the Superior Court Department of the Massachusetts Trial Court
and the initiation of a tender offer for shares of the Trust.
3. Counterclaim-defendant Black Bear Realty, Ltd. ( Black
Bear ) purports to be an Ohio limited liability company. Black
Bear is organized and controlled by counterclaim-defendant
Osborne. Black Bear s business address is 7001 Center Street,
Mentor, Ohio. Black Bear was newly formed by Osborne, who is
Black Bear s sole managing member, for the sole purpose of
effectuating Osborne s scheme to gain control of the Trust.
Black Bear has not conducted any business other than in
connection with that scheme. Black Bear has acted in the
Commonwealth of Massachusetts with regard to the Trust,
including, among other things, participating with Osborne in
commencing a tender offer for Capital Shares of the Trust and
participating in the instant lawsuit, which was filed by Osborne
directly and indirectly on behalf of Black Bear in the Superior
Court Department of the Trial Court of the Commonwealth of
Massachusetts.
4. Counterclaim-defendant Turkey Vulture Fund XIII, Ltd.
( Vulture ) purports to be an Ohio limited liability company.
Osborne is the sole managing member of Vulture. Vulture s
business address is 7001 Center Street, Mentor, Ohio. Osborne
created Vulture for the purpose of, among other things, gaining
control of the Trust. Vulture has taken actions regarding the
Trust in the Commonwealth of Massachusetts including, among other
things, purchasing Income Shares and participating directly or
indirectly with Osborne in the filing of this lawsuit in the
Superior Department of the Trial Court of the Commonwealth of
Massachusetts and in other aspects of Osborne s scheme to gain
control of the Trust.
5. Counterclaim-defendant Robert G. Stern ( Stern ) is a
Massachusetts resident, a plaintiff in this action, and a
shareholder of the Trust. Upon information and belief, Mr. Stern
is working directly and indirectly with Mr. Osborne as part of
Osborne s scheme to gain control of the Trust.
<PAGE>
JURISDICTION AND VENUE
6. This Court has jurisdiction over this matter pursuant
to Mass. Gen. L. c. 215,
section 6, because this is a case and matter in which equitable relief
is sought relative to a Massachusetts Business Trust. This Court
also has jurisdiction over the matter since the Trust maintains
an office in Massachusetts and the terms of the Declaration of
Trust provide that the rights of all parties and the effect and
construction of every provision of the Declaration of Trust
should be subject to and construed according to the statutes and
laws of the Commonwealth of Massachusetts.
7. Venue is proper in this Court pursuant to Mass. Gen. L.
c. 215, section 8, because Prudential maintains an office in Boston,
Suffolk County, Massachusetts. Venue is also proper in this
Court for these counterclaims because this is the Court in which
the counterclaim-defendants chose to commence this action.
8. This Court has personal jurisdiction over counterclaim-
defendant Osborne pursuant to Mass. Gen. L. c. 227, section 2, since
Osborne has consented to this Court s jurisdiction by filing the
instant action. This Court also has personal jurisdiction over
Osborne pursuant to the Massachusetts long-arm statute, Mass.
Gen. L. c. 223A, since Osborne, through a tender offer conducted
ostensibly in the name of Black Bear, has transacted business
within the Commonwealth, and since, on information and belief,
Osborne recruited counterclaim-defendant Stern to participate in
filing the instant action.
9. This Court has personal jurisdiction over counterclaim-
defendant Black Bear pursuant to Mass. Gen. L. c. 227, section 2, since
Black Bear, as Osborne s alter ego, is participating in Osborne s
scheme to gain control of the Trust, including the filing of the
instant action. This Court also has personal jurisdiction over
counterclaim-defendant Black Bear Realty pursuant to the
Massachusetts long-arm statute, Mass. Gen. L. c. 223A, since
Black Bear, through its tender offer, has transacted business
within the Commonwealth, and since Black Bear is merely the alter
ego of Osborne.
10. This Court has personal jurisdiction over counterclaim-
defendant Vulture pursuant to Mass. Gen. L. c. 227, section 2, since
Vulture is participating directly or indirectly in Osborne s
scheme to gain control of the Trust, including the filing of the
instant action. This Court has personal jurisdiction over
Vulture pursuant to the Massachusetts long-arm statute, Mass.
Gen. L. c. 223A, since Vulture, through its sole managing member,
has transacted business within the Commonwealth.
11. This Court has personal jurisdiction over counterclaim-
defendant Stern under Mass. Gen. L. c. 227, section 2, since Stern has
consented to this Court s jurisdiction by filing the instant
action. This Court also has personal jurisdiction over
counterclaim-defendant Stern because Stern is a resident of the
Commonwealth of Massachusetts. This Court also has personal
jurisdiction over counterclaim-defendant Stern under the
Massachusetts long-arm statute, Mass. Gen. L. c. 223A, since
Stern has transacted business within the Commonwealth, including,
on information and belief, participating directly or indirectly
with Osborne in Osborne s scheme to gain control of the Trust.
<PAGE>
BACKGROUND TO THE ACTION
12. The Trust is a closed-end, finite-life, self-
liquidating Massachusetts business trust formed in 1985 pursuant
to a Declaration of Trust made as of June 19, 1985, and amended
August 20, 1985, (the Declaration of Trust ).
13. The Trust is governed by a Board of Trustees (the
Trustees ), a majority of whom (the Unaffiliated Trustees ) are
not affiliated with The Prudential Realty Advisors, Inc., (the
Advisor ), the advisor to the Trust.
14. The Trust has two classes of shares, Capital Shares and
Income Shares. The Trust was formed to acquire real property
with a view to providing (1) current distributions of cash flow
from operations to holders of Income Shares of the Trust in
addition to a preferential return to Income Shareholders of up to
the stated value ($8.00) of the Income Shares, depending on the
value of the Trust s properties remaining at the time of
liquidation, and (2) realizing capital appreciation for
distribution on the Capital Shares of the Trust, subject to a
liquidation preference in favor of the Income Shares.
15. Pursuant to the Declaration of Trust, the Trust is
qualified as a real estate investment trust ( REIT ) under the
provisions of the Internal Revenue Code.
16. The Trust s policies as to duration of the Trust and
liquidation of the Trust s assets are set forth in Article V of
the Declaration of Trust. Pursuant to Article V of the
Declaration of Trust, the Trust was intended at the outset to
liquidate no more than 12 years from the Trust s inception in
1985. The Trust was intended to hold its portfolio of real
properties for approximately 10 1/2 years and thereafter to
liquidate any remaining properties within a period of
approximately 18 months in order to achieve a complete
liquidation of the Trust within the 12-year period. Pursuant to
the Declaration of Trust, and consistent with the nature of the
Trust as a finite-life rather than an infinite-life investment,
the Trustees of the Trust were empowered to dispose of Trust
properties without a shareholder vote as early as five years
after the inception of the Trust, but the Trustees could only
extend the 12 year maximum life of the Trust for a period not to
exceed two years, and then only if (a) a majority of the
Trustees, including a majority of the Unaffiliated Trustees,
affirmatively determined that such an extension would be in the
best interests of the shareholders, and (b) a vote of the holders
of a majority of each class of the Trust s shares then
outstanding and entitled to vote approved such an extension of
two years or less.
17. Capital and Income Shares of the Trust were sold to the
public pursuant to a public offering in 1985. Purchasers of
either or both classes of shares of the Trust purchased their
shares with the knowledge that the Trust was a fixed-life, self-
liquidating investment pursuant to the Declaration of Trust and
that any alteration of such policies would require approval by
75% of the outstanding shares of each class, voting separately as
a class.
18. Such fixed-life investments are frequently purchased by
investors so as to provide liquidity by a fixed date in order to
meet anticipated obligations (such as payment of college tuition
for the investor s children, or to enable retirement at a certain
time).
19. In order to protect the shareholders expectations that
the Trust was a finite-life, self-liquidating investment, the
Declaration of Trust provides that none of the Trust s policies
set forth in Article V of the Declaration of Trust can be amended
without the approval of holders of 75% of each class of the
outstanding shares, voting separately as a class.
20. Consistent with the policies set forth in Article V of
the Declaration of Trust, in December, 1994, the Trustees of the
Trust engaged J.P. Morgan Securities, Inc. ( J.P. Morgan ) on
behalf of the Trust as an independent financial advisor to review
and to provide recommendations on the strategic options available
to maximize the value of the Trust to its shareholders as the
Trust approached its scheduled liquidation date. After December
31, 1994, J.P. Morgan recommended the Trustees proceed to solicit
bids for the shares of the Trust or its assets. On February 9,
1995, the Trustees accepted J.P. Morgan s and the Advisor s
recommendations and the Board approved the engagement of J.P.
Morgan to solicit bids for the Trust s properties and/or shares.
Pursuant to a letter agreement dated March 16, 1995, the Board of
Trustees of the Trust engaged J.P. Morgan to undertake certain
services in connection with the solicitation of bids and, if so
decided by the Trustees, to assist the Trust in liquidating the
Trust by selling the Trust and/or its properties. The Trustees
decision to retain J.P. Morgan to conduct this process was made
in prudent exercise of the Trustees business judgment, in good
faith and with due care, and in reliance, among other things, on
the advice of the Trust s independent financial advisor, J.P.
Morgan, that it was in the best interest of the shareholders to
solicit bids and investigate a liquidation of the Trust at this
time rather than waiting until the end of the 12-year life of the
Trust or soliciting shareholder approval for a two-year extension
of the Trust.
21. Pursuant to its engagement letter, J.P. Morgan prepared
an offering memorandum for the Trust and its properties, and has
solicited bids for the Trust and/or its properties. The deadline
for initial bids was set as May 26, 1995. J.P. Morgan received
substantial expressions of interest on or about May 26, 1995,
from a number of bidders regarding the Trust or the Trust s
properties. It is in the best interest of the shareholders for
representatives of the Trust to continue the process of
discussing such bids with the bidders in order to attempt to
maximize value for the shareholders of the Trust.
22. On information and belief, in 1994, counterclaim-
defendant Osborne, acting individually and also for and through
Vulture, conceived a plan to gain control of the Trust at a cheap
price and to take advantage of that control for his personal
profit at the detriment of holders of Income Shares. Osborne and
Vulture, acting at Osborne s direction and control, thereupon
began accumulating Capital Shares and Income Shares of the Trust
without disclosing their true intent to gain control of the
Trust. While Osborne and Vulture were aware of the finite-life,
self-liquidating nature of the Trust, Osborne s plan included
attempting to change the Trust into an infinite-life trust with
the goal of achieving personal profit for Osborne at the
detriment of holders of Income Shares. As part of and in
furtherance of this scheme, Osborne commenced the instant action
in the Superior Court Department of the Trial Court (the
Superior Court Action ) seeking to remove the current Trustees,
and subsequently commenced a virtually identical action in the
Probate Court Department of the Trial Court, Suffolk County (the
Probate Court Action ), seeking damages and a declaratory
judgment. Also as part of his scheme, Osborne, acting directly
and for and through Vulture and Black Bear, commenced a tender
offer for Capital Shares of the Trust on May 17, 1995 (the
Tender Offer ).
23. Pursuant to the Tender Offer, Osborne and his
affiliates Black Bear and Vulture seek to gain control of the
Trust by acquiring sufficient shares of Capital Stock at 30 cents
per share to increase their control to greater than 50% of the
combined voting power of the Income Shares and Capital Shares,
and thus enable Osborne to remove current Trustees following
consummation of the Tender Offer, to install an advisor
controlled by Osborne, and to seek to prevent the liquidation of
the Trust which would otherwise take place pursuant to Article V
of the Declaration of the Trust. According to the Proposed
Merger, Osborne intends in effect to amend Article V of the
Declaration of the Trust through a process of merging of the
Trust into an entity controlled by Osborne and to provide
remaining shareholders of the Trust with shares in this new,
Osborne-controlled entity, all without the requisite vote of 75%
of each class of shares, voting separately as a class, required
by the Declaration of Trust.
24. Osborne, Black Bear and Vulture have stated in the
Tender Offer statement filed by Black Bear in connection with the
Tender Offer that the life of the Trust may be extended to an
infinite-life trust, and the liquidation of the Trust prevented,
by a majority vote of each class of the shareholders of the
Trust, voting separately as a class, in favor of the merger
proposed by Osborne. In fact, a 75% vote of the outstanding
shares of each class, voting separately as a class, is required
to effect such a change in the Trust s policies.
25. Osborne, Black Bear and Vulture have also structured
the Tender Offer so that the counterclaim-defendants will obtain
all capital gains, if any, payable to holders of the Capital
Shares of the Trust. Osborne contends in the Superior Court
Action that capital gains will be due and owing to holders of the
Capital Shares of the Trust upon a liquidation or sale of any of
the Trust s properties. The Trustees do not believe that any
capital gains will be due and payable to any of the capital
shareholders upon a current liquidation of the Trust or its
properties. Osborne, Black Bear and Vulture have also asserted
in their Tender Offer that there would be no statutory appraisal
rights available to dissenting shareholders of the Trust should
they not wish to have the merger proposed by Osborne proceed.
The Trustees believe, however, that common law appraisal rights
may be available to certain shareholders of the Trust under
Massachusetts law given the facts and circumstances regarding the
Tender Offer and the Proposed Merger.
26. Osborne, Black Bear and Vulture have structured and
timed their attempt to gain control of the Trust, including the
initiation of the Superior Court Action, the Probate Court
Action, and the Tender Offer, intentionally to interfere with the
bidding process initiated by J.P. Morgan at the request of the
Board of Trustees and with the express intention of interfering
with that process so as to prevent shareholders of the Trust from
obtaining value for their shares pursuant to the policies set
forth in the Declaration of Trust and instead to convert the
Trust s value to the personal gain of the counterclaim-defendants
at the detriment to holders of Income Shares.
COUNT I
(Declaratory Judgment as to Shareholder
Vote Necessary to Approve the Merger
Proposed by the Counterclaim-Defendants)
27. The counterclaim-plaintiff repeats and incorporates by
reference the allegations in paragraphs 1 through 26, above, of
these counterclaims, as if set forth wholly herein.
28. Osborne and the other counterclaim-defendants have
stated in their Offer to Purchase to the shareholders of the
Trust that if the Tender Offer is successful, the counterclaim-
defendants will seek to execute a merger (the Proposed Merger )
for the purpose of preventing the liquidation of the Trust as
required by the Declaration of Trust and thereby converting the
Trust from a fixed-life Trust into a new REIT with an infinite
life.
29. Osborne and the other counterclaim-defendants have
asserted to the shareholders of the Trust in the Offer to
Purchase issued in connection with the Tender Offer that the
Proposed Merger would require a bare majority vote of each class
of shares, voting separately as a class.
30. On information and belief, Osborne and the other
counterclaim-defendants intend, if the Tender Offer is
successful, to attempt to declare the Proposed Merger as
receiving the necessary shareholder vote, and to consummate the
Proposed Merger, upon a vote of a majority of the outstanding
shares of each class, voting separately as a class, in violation
of the Declaration of Trust.
31. The Proposed Merger, which is being proposed expressly
for the purpose and effect of amending the policies set forth in
Article V of the Declaration of Trust, and which will create a
new entity without a certificate or by-laws carrying forward the
policies set forth in Article V of the Declaration, in fact
requires an affirmative vote of 75% of the outstanding shares of
each class of share, voting separately as a class.
32. Shareholders of the Trust considering whether to tender
their shares in accordance with the Tender Offer will be misled
if they tender their shares in reliance on the statements in the
Offer to Purchase that a bare majority vote of each class of
shares, voting separately as a class, would be sufficient to
approve the Proposed Merger.
33. If the Tender Offer is successful, remaining public
shareholders will be oppressed and their rights and property
misappropriated by the counterclaim-defendants should Osborne and
the other counterclaim-defendants follow through on their stated
plan to consummate the Proposed Merger upon an inadequate
majority vote.
34. Thus, there presently exists an actual and justiciable
controversy regarding the proper percentage of vote of each class
of the outstanding shares necessary to approve the Proposed
Merger. The counterclaim-plaintiff seeks declaratory relief
pursuant to Mass. Gen. L. c. 231A, and requests that the Court
determine the respective rights and obligations of the parties
thereunder.
35. Osborne, directly and through and for the other
counterclaim-defendants, has already stated their intention to
remove some or all of the current Trustees upon consummation of
the Tender Offer if necessary to further the Proposed Merger, and
thus the current Trustees may not be in a position to protect the
rights of the shareholders after consummation of the Tender Offer
if the Tender Offer is successful.
36. The Trustees have standing to bring this counterclaim
in the exercise of their fiduciary duties to the shareholders of
the Trust.
WHEREFORE, the counterclaim-plaintiff respectfully prays
that this Court enter an order and judgment:
(a) declaring whether an affirmative vote of 75% or a
majority vote of the outstanding shares of each class of shares,
voting separately as a class, is required to effectuate the
Proposed Merger;
<PAGE>
(b) awarding the counterclaim-plaintiff its costs and
reasonable attorneys fees in this action; and
(c) issuing such other and further relief as may be
appropriate.
PRUDENTIAL REALTY TRUST
JEFFREY L. DANKER
THOMAS F. MURRAY
JOSEPH M. SELZER
RICHARD M. BOYLE
FRANCIS L. BRYANT
By their attorneys,
/s/ Stephen D. Poss, P.C.
Stephen D. Poss, P.C. (BBO No.
551760)
Dana L. McAlister (BBO No.
565398)
Gus P. Coldebella (BBO No.
566918)
GOODWIN, PROCTER & HOAR
Exchange Place
Boston, MA 02109-2881
(617) 570-1000
DATED: May 31, 1995
