UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission File Number 1-6613
MORTGAGE AND REALTY TRUST
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 23-1862664
------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
8380 Old York Road, Suite 300
Elkins Park, Pennsylvania 19117-1590
- - --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 881-1525
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
Number of Common Shares Outstanding at June 30, 1994:
11,226,215
<PAGE>
MORTGAGE AND REALTY TRUST
INDEX OF FINANCIAL INFORMATION
PART I
1. Unaudited Financial Statements for the periods ended
June 30, 1994 and 1993 include the following:
Balance Sheet at June 30, 1994 and
September 30, 1993
Statement of Operations for the periods ended
June 30, 1994 and 1993
Statement of Cash Flows for the nine months
ended June 30, 1994 and 1993
Statement of Shareholders' Equity for the nine
months ended June 30, 1994
Notes to the Financial Statements
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II
3. Defaults Upon Senior Securities
6. Exhibits and Reports on Form 8-K
1
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements:
- - --------------------------------------------------------------------------------
BALANCE SHEET
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1994 1993
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS:
Mortgage loans and investments:
Construction loans $ - $ 5,203,000
Standing loans 61,762,000 76,871,000
Long-term amortizing loans 4,058,000 4,731,000
Participating loans and investments 4,596,000 12,180,000
Non-earning mortgage loans - 5,208,000
------------ ------------
70,416,000 104,193,000
------------ ------------
Secured notes receivable 671,000 400,000
In-substance foreclosures:
Earning 67,112,000 69,707,000
Non-earning 5,200,000 17,462,000
Real estate:
Investment in real estate equities 56,941,000 57,213,000
Properties acquired through foreclosure and
held for sale:
Earning 64,547,000 52,586,000
Non-earning 35,339,000 36,134,000
Investment in partnerships 9,590,000 9,831,000
------------ ------------
309,816,000 347,526,000
Less allowance for losses (11,563,000) (11,808,000)
------------ ------------
298,253,000 335,718,000
Cash and cash equivalents 56,460,000 11,451,000
Interest receivable and other assets 7,929,000 6,705,000
------------ ------------
$362,642,000 $353,874,000
============ ============
LIABILITIES:
Senior secured notes $290,000,000 $290,000,000
Loan on equity investment 17,593,000 17,572,000
Accounts payable and accrued expenses 4,088,000 4,267,000
Interest payable 23,891,000 412,000
------------ ------------
335,572,000 312,251,000
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred shares, $1 par value: 3,500,000
shares authorized, none issued - -
Common shares, $1 par value: 20,000,000 shares
authorized, 11,226,000 shares issued and
outstanding 11,226,000 11,226,000
Additional paid-in capital 182,375,000 182,375,000
Accumulated deficit (166,531,000) (151,978,000)
------------ ------------
Total shareholders' equity 27,070,000 41,623,000
------------ ------------
$362,642,000 $353,874,000
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
- - --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Periods Ended June 30, (Unaudited)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------------------- --------------------------
6/30/94 6/30/93 6/30/94 6/30/93
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Income:
Interest and fee income on mortgage
loans $ 3,719,000 $ 4,884,000 $11,377,000 $ 14,694,000
Additional interest and fee income
on participating mortgage loans 8,000 4,000 16,000 13,000
Rental income 5,404,000 4,711,000 14,722,000 14,601,000
Interest on short-term investments 357,000 33,000 591,000 151,000
Other 28,000 11,000 76,000 52,000
----------- ------------ ----------- ------------
9,516,000 9,643,000 26,782,000 29,511,000
----------- ------------ ----------- ------------
EXPENSES:
Interest 8,361,000 6,919,000 23,823,000 20,609,000
Expenses of rental properties:
Depreciation and amortization 1,533,000 1,387,000 4,366,000 4,056,000
Operating 2,665,000 2,540,000 7,399,000 7,790,000
Other operating expenses 1,111,000 1,325,000 3,739,000 4,021,000
Provision for losses on mortgage
loans and related investments - 14,000,000 - 22,000,000
----------- ------------ ----------- ------------
13,670,000 26,171,000 39,327,000 58,476,000
----------- ------------ ----------- ------------
Loss before reorganization items (4,154,000) (16,528,000) (12,545,000) (28,965,000)
Reorganization items:
Professional fees (591,000) (950,000) (2,008,000) (1,677,000)
----------- ------------ ----------- ------------
Net loss $(4,745,000) $(17,478,000) $(14,553,000) $(30,642,000)
=========== ============ =========== ============
PER SHARE:
Net loss $(.43) $(1.58) $(1.30) $(2.77)
===== ====== ====== ======
Weighted average number of common
shares outstanding 11,226,000 11,076,000 11,226,000 11,076,000
</TABLE>
See accompanying notes.
3
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
- - --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
Nine Months Ended June 30, (Unaudited)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(14,553,000) $(30,642,000)
------------ ------------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation on real estate 4,366,000 4,056,000
Provision for losses - 22,000,000
Increase (decrease) in payables & accrued expenses 23,300,000 (442,000)
Increase in receivables and other assets (1,224,000) (270,000)
Net change in interest reserves, deferred income (632,000) (277,000)
Recoveries of charge offs to allowance for losses 1,019,000 -
Other 11,000 -
------------ ------------
Total adjustments 26,840,000 25,067,000
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 12,287,000 (5,575,000)
------------ ------------
Cash flows from investing activities:
Investments in real estate:
Properties acquired through foreclosure (3,662,000) (3,774,000)
In-substance foreclosures (1,222,000) (743,000)
Real estate equities (1,344,000) (1,654,000)
Partnerships - (2,035,000)
Advances on mortgage loans - (531,000)
Principal repayments on mortgage loans 24,428,000 17,909,000
Sale of foreclosed property 6,464,000 9,255,000
Repayment of in-substance foreclosure 7,929,000 350,000
Repayment on secured note receivable 129,000 -
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 32,722,000 18,777,000
------------ ------------
Cash flows from financing activities:
Payment of Senior Secured Notes - (22,000,000)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES - (22,000,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents 45,009,000 (8,798,000)
Cash and cash equivalents at beginning of period 11,451,000 12,453,000
------------ ------------
Cash and cash equivalents at end of period $56,460,000 $ 3,655,000
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTMENT AND
FINANCING ACTIVITIES:
Charge offs to allowance for losses, net of recoveries $ 245,000 $ 22,519,000
============ ============
Transfer of mortgage loans to investment
in partnerships $ - $ 5,605,000
============ ============
Transfer of mortgage loans to real estate, in-
substance foreclosures & secured notes receivable $ 10,321,000 $ 36,982,000
============ ============
Transfer of in-substance foreclosures to real estate $ 13,109,000 $ -
============ ============
Transfer of real estate to mortgage loans $ 750,000 $ 348,000
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
- - --------------------------------------------------------------------------------
STATEMENT OF SHAREHOLDERS' EQUITY
For the Nine Months Ended June 30, 1994 (Unaudited)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Common Shares Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Equity
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period 11,226,000 $11,226,000 $182,375,000 $(151,978,000) $ 41,623,000
Net loss (14,553,000) (14,553,000)
---------- ----------- ------------ ------------- ------------
Balance, end of
period 11,226,000 $11,226,000 $182,375,000 $(166,531,000) $ 27,070,000
========== =========== ============ ============= ============
</TABLE>
See accompanying notes.
5
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION AND PLAN OF REORGANIZATION -
On April 12, 1990, Mortgage and Realty Trust (the "Trust") filed for
reorganization under Chapter 11 of the United States Bankruptcy Code.
On February 27, 1991, the United States Bankruptcy Court for the
Central District of California entered an order confirming the Trust's
Plan of Reorganization (the "1991 Plan"). As a result of the
liquidity problems in the commercial real estate markets, the Trust
was not able to meet the required amortization at June 30, 1992 on
its outstanding debt and the debt was restructured in July 1992 (the
"1992 Restructuring") with the unanimous consent of the Trust's
creditors. The debt is now governed by an indenture, as amended,
(the "Indenture") dated as of July 15, 1992 between the Trust and
Wilmington Trust Company (the "Indenture Trustee") and the debt is
denominated as the Trust's Senior Secured Uncertificated Notes due
1995 (the "Senior Notes"). Pursuant to the 1992 Restructuring, the
Trust entered into the Indenture governing the Senior Notes with the
Indenture Trustee, and entered into a second amendment to the Trust's
outstanding collateral and security agreement dated as of February 21,
1991 with the Indenture Trustee and William J. Wade (the "Collateral
Agents") as collateral agents (as amended, the "Collateral
Agreement") and amended the 1991 Plan.
The Senior Notes are secured by all properties and interests in
properties of the Trust. At December 31, 1992, the principal balance
of the Senior Notes was reduced to $290 million, the maximum debt
level permitted under the Indenture at that date, and remains at that
amount at June 30, 1994.
Under the financial covenants of the Indenture governing the Senior
Notes, the Trust was required to maintain a ratio of outstanding
indenture securities to its capital base (as defined in the Indenture)
of 515% at March 31, 1993. In addition, under the Indenture the Trust
was required to maintain a ratio of outstanding securities to its
capital base of 438% at June 30, and September 30, 1993, 358% at
December 31, 1993 and March 31, 1994, and 313% at June 30, 1994, and
a ratio of earning assets (as defined in the Indenture) to outstanding
securities of 113% at June 30, and September 30, 1993, 116% at
December 31, 1993 and March 31, 1994 and 117% at June 30, 1994. The
Trust failed to meet each of these ratios, constituting events of
default under the Indenture. On May 26, 1993, the Trust received from
the holders of more than 66-2/3% of principal amount of Senior Notes a
waiver relating to the March 31, 1993 default. The Trust did not seek
or obtain waivers for any of the other defaults.
In addition, at December 31, 1993 the Trust's non-earning assets (as
defined in the Indenture) exceeded the limits prescribed in the
Indenture. In addition to constituting an event of default, the Trust
was obligated under the Indenture to pay to the holders of Senior
Notes, on or before February 14, 1994, a penalty payment equal to 1.5%
of such excess of non-earning assets, or a payment of approximately
$183,000. The Trust did not make such payment, constituting an
additional event of default under the Indenture.
Due to continued lack of liquidity in the real estate marketplace, the
Trust did not have sufficient funds to meet its $20 million required
principal payment due June 30, 1993 (taking into account permitted
deferrals). However, the Trust timely paid the June 30, and
September 30, 1993 interest payments of $6.8 million and $6.6 million,
respectively. The Trust also paid the final payment of the
restructuring fee of $812,500 on September 30, 1993. An additional
$33.8 million in principal (taking into account permitted deferrals)
6
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
and $6.6 million in interest was due on December 31, 1993; another
$6.4 million in interest was due on March 31, 1994; and an additional
$30 million in principal (taking into account permitted deferrals) and
$7.2 million in interest was due on June 30, 1994. Because the Trust
did not make otherwise required payments on June 30 1993, December 31,
1993, March 31, 1994 and June 30, 1994, at the end of the first
quarter of fiscal 1994 (ending December 31, 1993) the Trust held
approximately $17.8 million in available cash (as defined in the
Indenture), at the end of the second quarter of 1994 (ending March 31,
1994) the Trust held approximately $32.8 million in available cash,
and at the end of the third quarter of 1994 (ending June 30, 1994) the
Trust held approximately $53.2 million in available cash. Assuming no
other payment defaults, the Trust would have been obligated to pay on
December 31, 1993, March 31, 1994 and June 30, 1994 the excess of such
available cash over $10 million to Senior Note holders as additional
principal payments.
Pursuant to the agreement in principle with certain of the principal
holders of Senior Notes providing for a restructuring of the Senior
Notes reached in August 1993, the Trust agreed to pay on September 30,
1993 the interest payment due September 30, 1993 and certain
restructuring fees due December 31, 1993, but not to pay the interest
or principal due December 31, 1993. However, commencing at about the
time of the August 1993 agreement in principle, certain of the Senior
Notes began to trade. Interest in the trading of Senior Notes
increased after announcement of the terms of the proposed
restructuring and, by December 1993, in excess of 50% of the principal
amount of the Senior Notes had traded. Because of the substantial
trading in the Senior Notes and the inability of the Trust to obtain
satisfactory indications of support for the August 1993 agreement in
principle from any holders of Senior Notes, any action by the Trust
to implement the Trust's original agreed restructuring has been
suspended and it appears highly unlikely that the terms of the August
1993 agreement in principle will be implemented. The agreement not to
pay the December 1993 interest and principal was similarly non-binding
and the Trust considers it no longer effective.
Included in the Senior Notes initially traded were all of the Senior
Notes held by two of the five members of the official creditors'
committee who had negotiated the August 1993 agreement in principle.
In or about October 1993, four of the holders who had acquired Senior
Notes and who then held a significant amount of Senior Notes signed
confidentiality letters with the Trust and requested to be named to
the official creditors' committee and receive financial and operating
information relating to the Trust. The three then-remaining members
of the official creditors' committee did not grant committee
membership to the holders but acquiesced in the Trust's delivery of
confidential information to the investing holders. Subsequently,
another member of the official creditors' committee sold all of its
Senior Notes, part to a member of the official creditors' committee
and the balance to other persons. That sale left the official
creditors' committee with two members, one of whom held, as a result
of secondary claims purchases, at December 31, 1993, March 31, 1994
and June 30, 1994 in excess of 33-1/3% of the Senior Notes.
In October 1993, the investing holders commenced their due diligence
review of the Trust, which included financial and other information
provided by the Trust. At the request of the investing holders, the
Trust agreed to pay certain fees and expenses of a financial advisor
to the investing holders. In or about November 1993, the investing
7
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
holders retained a financial advisor which immediately commenced its
analysis of the financial condition and operations of the Trust and
the proposed agreement in principle. As discussed below, the
investing holders later retained counsel and a second financial
advisor in connection with the restructuring negotiation. The Trust
has agreed to pay the fees and expenses of such counsel and financial
advisor.
Consistent with the then ongoing negotiation with the principal
holders of the Senior Notes in December 1993, the Trust did not pay
the interest or principal due at December 31, 1993, constituting
additional events of default under the Senior Note Indenture. The
Trust currently has no agreement with any holders of Senior Notes
that it will not pay interest, principal or other amounts due or to
become due on the Senior Notes. However, the Trust's present
determination is to continue to suspend payment of principal and
interest payments on the Senior Notes. This policy is subject to
frequent review by the Trust and may be affected by developments in
the Trust's negotiations with its creditors or action of the Indenture
Trustee or the Collateral Agents. In any event, the Trust forecasts
that it will have continuing difficulty meeting its obligations under
the Senior Note Indenture without a substantial restructuring of such
debt.
Notwithstanding the uncured events of default, neither the Indenture
Trustee nor any holders of the Senior Notes have accelerated the
Senior Notes. On July 2, 1993 holders of approximately 81% of the
Senior Notes agreed, subject to certain conditions, not to accelerate
the Senior Notes or take any other remedial or enforcement action
during a defined standstill period (the "Standstill Period") initially
expiring July 31, 1993. The Standstill Period was extended by holders
of more than 66-2/3% of the Senior Notes on August 3, August 20,
September 23, October 5 and November 23, 1993. However, the
Standstill Period expired on December 3, 1993. At the present time,
it appears unlikely that any further extensions of the Standstill
Period will be granted. The Trust does not presently anticipate
seeking a new standstill agreement, but may do so in the future if
management determines that circumstances warrant. Subsequent to the
expiration of the Standstill Period, on or about December 8, 1993 the
Indenture Trustee (and the Collateral Agents) notified the Trust's
bank at the time, of the Indenture Trustee's security interest in the
Trust's deposit accounts and instructed the bank to freeze the Trust's
cash until otherwise instructed by the Indenture Trustee. Since that
date, the Trust has operated on an ad hoc basis with the Indenture
Trustee in administering its cash, with all cash use subject to review
and approval by the Indenture Trustee. On or about February 3, 1994,
the Trust and the Indenture Trustee and Collateral Agents reached
further understanding regarding the Trust's use of cash and
administration of its assets in the absence of a new or extended
standstill period. Pursuant to the understanding, which is terminable
at will by the Indenture Trustee or Collateral Agents, the Trust will
continue to use its cash on an ad hoc basis, subject to Indenture
Trustee and Collateral Agent approval, and the Trust will administer
its assets as if no default had occurred and was continuing. In May
1994, the Trust received formal notice from the bank which held the
Trust's operating accounts that the bank would close all of the
Trust's operating accounts with the bank on May 31, 1994. On or about
May 25, 1994, the Trust established new operating accounts at
Wilmington Trust Company and transferred all of its bank balances to
such accounts. Concurrently, the Trust and the Indenture Trustee
entered into a First Supplemental Indenture, dated as of May 25, 1994,
amending the Indenture to provide for the new accounts. The Trust
also entered into a Deposit Account Security Agreement relating to
such accounts and supplemented the February operating arrangement
8
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
with the Indenture Trustee and the Collateral Agents to provided for
the new accounts. Although the Trust has entered into the First
Supplemental Indenture and amended its operating arrangement with the
Indenture Trustee and the Collateral Agents, there can be no assurance
that the Indenture Trustee or Collateral Agents will not terminate
the amended cash use arrangement or take further or other remedial or
enforcement action with respect to the Trust's bank accounts or other
properties, including acceleration of the Senior Notes and
foreclosure. Such action, or the failure of the Indenture Trustee
and the Collateral Agents to consent to necessary use of cash or
releases of collateral in the conduct of the Trust's business, would
have a material adverse effect on the Trust's operations and could
cause the Trust to seek relief under Chapter 11 of the United States
Bankruptcy Code.
Throughout the second and third quarters of fiscal 1994, the Trust's
management and advisors continued discussions with the principal
holders of the Senior Notes and their representatives to explore
various alternatives for restructuring the Senior Notes. In March
1994, the investing holders requested the Trust to agree to pay
certain fees and expenses of legal counsel to the investing holders.
The Trust agreed, and in March 1994, the investing holders retained
counsel to advise them in the Trust's financial restructuring.
Thereafter, in June 1994, the investing holders requested the Trust
to pay certain fees and expenses of a new financial advisor to the
investing holders. The Trust agreed, and in June 1994 the investing
holders retained a new financial advisor. The negotiations among the
Trust, the various creditor constituencies and other interested
parties in the Trust's financial restructuring are continuing into the
fourth quarter of fiscal 1994. If agreement on such a restructuring
cannot be reached, or if the holders of Secured Notes or the
Indenture Trustee take action or fail to cooperate with the Trust in
such a manner that the business or operations of the Trust are
jeopardized, the Trust will consider other alternatives, including the
filing of a voluntary bankruptcy petition under Chapter 11 of the
United States Bankruptcy Code.
The financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) applicable to a
company on a "going concern" basis, which contemplates the
realization of assets and the liquidation of liabilities in the
ordinary course of business. These financial statements include
adjustments and reclassifications that have been made to reflect the
indebtedness as extended under the 1991 Plan and the Senior Note
Indenture. The conditions noted above raise substantial doubt about
the Trust's ability to continue as a going concern. These financial
statements do not include any adjustments that would be required
should the Trust be unable to continue as a going concern. These
financial statements also do not include any adjustments that could
be required as a result of the restructuring process. The Trust
anticipates that any adjustments that would be occasioned in the
restructuring process by its financial distress, by any inability of
the Trust to continue as a going concern or by any inability of the
Trust to achieve a consensual restructuring would be material and
adverse.
ADOPTION OF AUTHORITATIVE STATEMENTS - In fiscal 1993, the Trust
adopted The American Institute of Certified Public Accountants'
Statement of Position 92-3, "Accounting for Foreclosed Assets"
("SOP 92-3"). SOP 92-3 requires foreclosed assets held for sale to
be carried at the lower of (a) fair value less estimated costs to
sell or (b) cost. Fair value was determined by discounting expected
cash flows using a risk-adjusted discount rate. Prior to adopting
9
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
SOP 92-3, the Trust carried its foreclosed assets held for sale at
the lower of (a) net realizable value or (b) cost. Net realizable
value was determined using the Trust's cost of funds rate. See also
Note 1, "Significant Accounting Policies - Allowance for Losses".
GAAP and SOP 92-3 do not require or address adjustments that may be
occasioned in the future by the financial distress of the Trust in
the restructuring process or by any inability of the Trust to
continue as a going concern or achieve a consensual restructuring.
RECLASSIFICATION OF PRIOR PERIODS - Certain amounts in prior year
statements have been reclassified to conform with the current year
presentation.
INCOME TAXES - The Trust is a real estate investment trust that has
elected to be taxed under Sections 856-860 of the Internal Revenue
Code of 1986, as amended. Accordingly, no provision has been made
for income taxes in the financial statements. For the fiscal year
ended September 30, 1993 and the nine months ended June 30, 1994,
there were significant differences between taxable net loss and net
loss as reported in the financial statements. The differences were
primarily temporary differences related to the recognition of bad
debt deductions and accounting for reorganization costs. For
financial accounting purposes, these items are expensed currently,
while for tax purposes some portion of these items may be deferred
to future periods.
The Trust incurred net operating losses of $38 million, $31 million
and $12 million for tax purposes in fiscal 1993, 1992 and 1991,
respectively. These net operating losses will be available for
fifteen years as a loss carryforward to future years' taxable income.
The Trust's goal is to preserve its net operating losses, but the
transfer of more than 50% of the ownership of the Trust to its
creditors in a reorganization (as was provided in the August 1993
agreement in principle and as is likely in any alternate
restructuring) will limit the future use of its net operating losses
under Internal Revenue Code Section 382.
INTEREST INCOME - Interest income on each loan is recorded as earned.
Interest income is not recognized if, in the opinion of the Trustees,
collection is doubtful. The Trust generally considers loans as
delinquent if payment of interest and/or principal, as required by the
terms of the note, is more than 60 days past due. At this point,
accrual of interest income is generally terminated and foreclosure
proceedings are started.
LOAN FEE INCOME - Loan fees are recorded as income using the "interest
method". Accordingly, loan fees are deferred when received and are
recorded as income over the term of the loan in relation to
outstanding loan balances.
ALLOWANCE FOR LOSSES - The allowance for losses on mortgage loans and
related investments is determined in accordance with the AICPA
Statement of Position on Accounting Practices of Real Estate
Investment Trusts 75-2, as amended. This statement requires
adjustment of the carrying value of mortgage loans to the lower of
their carrying value or estimated net realizable value. Estimated net
realizable value is the estimated selling price of a property offered
for sale in the open market allowing a reasonable time to find a
buyer, reduced by the estimated cost to complete and hold the property
(including the estimated cost of capital), net of estimated cash
income. The cost of capital was computed at 9.25% at June 30, 1994
10
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
and 9.0% at September 30, 1993. Additional provisions for losses on
mortgage loans and related investments may be necessary if the
deterioration in real estate markets continues, or there is a
significant increase in the Trust's cost of capital. See also Note 1,
"Significant Accounting Policies - Basis of Financial Statement
Presentation and Plan of Reorganization". Further adjustments may
also be necessary as a result of the restructuring negotiations. The
Trust anticipates that any adjustments that would be occasioned in
the restructuring process by its financial distress, by any inability
of the Trust to continue as a going concern or by any inability of
the Trust to achieve a consensual restructuring would be material and
adverse.
PROPERTIES ACQUIRED THROUGH FORECLOSURE AND HELD FOR SALE - Properties
acquired through foreclosure and held for sale are recorded at the
lower of cost or fair value at acquisition, which becomes the cost
basis for accounting purposes. The fair value of the asset acquired,
in accordance with FASB Statement 15, is the amount that the Trust
could reasonably expect to receive in a current sale between a willing
buyer and a willing seller. Such properties are thereafter accounted
for in the same manner as any similar asset acquired for investment as
to depreciation and gain or loss upon sale. Subsequent to fore-
closure, the properties are carried at the lower of cost or fair
value less estimated costs to sell, as set forth in SOP 92-3. See
also Note 1, "Significant Accounting Policies - Basis of Financial
Statement Presentation and Plan of Reorganization".
IN-SUBSTANCE FORECLOSURE - A loan is considered an in-substance fore-
closure if: (1) the debtor has little or no equity considering the
fair value of the collateral, (2) proceeds for repayment can be
expected to come only from operation or sale of the collateral, and
(3) the debtor has either formally or effectively abandoned control
of the collateral. Loans meeting the criteria for in-substance
foreclosure are reclassified and recorded at the lower of cost or fair
value of the collateral, which establishes a new cost basis in the
same manner as a legal foreclosure.
Properties acquired through foreclosure and held for sale and in-
substance foreclosures are reclassified from non-earning to earning
status if they produce and maintain for a minimum of two consecutive
quarters an annualized return of 5% or greater cash flow yield.
NET LOSS PER SHARE - Net loss per share is computed using the
weighted average common shares outstanding during each period.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization are
computed on the straight-line method over an estimated useful life of
40 years for buildings and three to five years for other property and
lease commissions.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include short-
term investments (high grade commercial paper carried at cost of
$54.8 million at June 30, 1994) maturing from 1 to 42 days.
Included in cash and cash equivalents is $1.4 million of restricted
cash which represents the funding of the employee retention plan (see
Note 6) and $1.9 million related to borrowers' deposits included in
short-term investments. See Note 1, "Significant Accounting Policies
11
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
- Basis of Financial Statement Presentation and Plan of
Reorganization" and Item 3, "Defaults Upon Senior Securities" for
additional information regarding the establishment of new operating
accounts for the Trust, the enforcement of the Indenture Trustee's
security interest in the old deposit accounts of the Trust and the
Trust's obligation quarterly to pay the excess of available cash (as
defined in the Indenture) over $10 million to Senior Note holders.
NOTE 2. MORTGAGE LOANS AND INVESTMENT IN REAL ESTATE
The following table summarizes the Trust's mortgage loan portfolio:
<TABLE>
<CAPTION>
June 30, 1994 September 30, 1993
---------------------- ----------------------
Number of Carrying Number of Carrying
Type of Underlying Security Investments Amount Investments Amount
- - --------------------------- ----------- -------- ----------- --------
($ Amounts in Thousands)
<S> <C> <C> <C> <C>
Apartments 2 $ 1,039 3 $ 5,391
Residential/Condominium* 9 1,386 10 1,841
Office Buildings 2 1,751 1 1,135
Industrial Buildings 7 30,314 10 44,086
Research & Development 3 16,357 5 25,942
Retail Buildings 5 16,509 6 22,738
Hotel 1 3,060 1 3,060
-- ------- -- --------
Total 29 $70,416 36 $104,193
== ======= == ========
_____________
<FN>
* Includes 81 mortgage end loans on 9 projects at June 30, 1994 and 107
mortgage end loans on 10 projects at September 30, 1993.
</TABLE>
At June 30, 1994, the Trust had undisbursed commitments of $615,000,
all of which represents additional advances on partially funded
mortgage loans.
As of June 30, 1994, there were no earning loans delinquent (more
than 60 days past due) as to principal and/or interest.
The Trust has had a significant increase in the number of loans being
restructured as its borrowers continue to face deteriorating
conditions in the real estate market. It is expected that these
conditions may continue for an additional period of time requiring
the Trust, where appropriate, to continue restructuring loans.
At June 30, 1994 and 1993, loans totalling $33,693,000 and
$25,107,000, respectively, were extended beyond their original
contractual maturity dates. Loan terms are extended in the normal
course of business for various reasons, such as delays in
construction, slower leasing than originally anticipated or delay in
obtaining permanent financing.
12
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. MORTGAGE LOANS AND INVESTMENT IN REAL ESTATE (Continued)
At June 30, 1993, earning mortgage loans totalling $66,901,000 had
been subject to contractual interest rate modifications due to
financial difficulties of the borrower. Interest rate modifications
were made on mortgage loans totalling $18,313,000 during the nine
months ended June 30, 1994.
The following table summarizes the Trust's investment in in-substance
foreclosures:
<TABLE>
<CAPTION>
June 30, 1994 September 30, 1993
---------------------- ----------------------
Number of Carrying Number of Carrying
Type of Property Investments Amount Investments Amount
- - ---------------- ----------- -------- ----------- --------
($ Amounts in Thousands)
<S> <C> <C> <C> <C>
EARNING:
Office Buildings 2 $12,895 2 $12,831
Industrial Buildings 1 5,047 1 4,901
Retail Buildings 3 28,380 3 28,238
Apartments 1 6,693 1 6,689
Research & Development Bldgs. 2 14,097 3 17,048
-- ------- -- -------
Total Earning 9 67,112 10 69,707
-- ------- -- -------
NON-EARNING:
Office Buildings - - 1 7,433
Industrial Buildings 1 5,200 3 7,576
Retail Buildings - - 1 2,453
-- ------- -- -------
Total Non-Earning 1 5,200 5 17,462
-- ------- -- -------
Total 10 $72,312 15 $87,169
== ======= == =======
</TABLE>
The following table summarizes the Trust's investment in real estate
equities, net of accumulated depreciation of $9,435,000 at June 30,
1994 and $7,800,000 at September 30, 1993:
<TABLE>
<CAPTION>
June 30, 1994 September 30, 1993
---------------------- ----------------------
Number of Carrying Number of Carrying
Type of Property Investments Amount Investments Amount
- - ---------------- ----------- -------- ----------- --------
($ Amounts in Thousands)
<S> <C> <C> <C> <C>
Office Buildings 4 $26,211 4 $26,504
Industrial Buildings 1 6,543 1 6,626
Retail Buildings 1 24,187 1 24,083
-- ------- -- -------
Total 6 $56,941 6 $57,213
== ======= == =======
</TABLE>
The Trust reviews real estate equities for permanent impairment. For
the year ended September 30, 1993, the Trust charged off $2.4 million
against the allowance for losses on one of its office building
investments due to permanent impairment. There were no charge-offs
due to permanent impairment for the nine months ended June 30, 1994.
13
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. MORTGAGE LOANS AND INVESTMENT IN REAL ESTATE (Continued)
The following table summarizes the Trust's investment in properties
acquired through foreclosure and held for sale, net of accumulated
depreciation of $7,552,000 at June 30, 1994 and $6,143,000 at
September 30, 1993:
<TABLE>
<CAPTION>
June 30, 1994 September 30, 1993
---------------------- ----------------------
Number of Carrying Number of Carrying
Type of Property Investments Amount Investments Amount
- - ---------------- ----------- -------- ----------- --------
($ Amounts in Thousands)
<S> <C> <C> <C> <C>
EARNING
Apartments 3 $20,869 4 $18,631
Office Buildings 4 10,117 5 11,283
Industrial Buildings 5 20,039 5 18,399
Retail Buildings 1 7,542 1 1,394
Research & Development Bldgs. 2 5,980 1 2,879
-- ------- -- -------
Total Earning 15 64,547 16 52,586
-- ------- -- -------
NON-EARNING
Office Buildings 5 19,696 3 7,563
Industrial Buildings 4 10,630 5 15,796
Retail Buildings 2 5,013 3 12,775
-- ------- -- -------
Total Non-Earning 11 35,339 11 36,134
-- ------- -- -------
Total 26 $99,886 27 $88,720
== ======= == =======
</TABLE>
NOTE 3. ALLOWANCE FOR LOSSES
The changes in the allowance for losses for the nine months ended
June 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
6/30/94 6/30/93
------- -------
(Amounts in Thousands)
<S> <C> <C>
Balance at beginning of period $11,808 $19,353
Provisions charged to expense - 22,000
------- -------
11,808 41,353
Less charges against allowance, net of recoveries 245 21,030
------- -------
Balance at end of period $11,563 $20,323
======= =======
</TABLE>
Approximately $6,149,000 and $3,003,000 of the allowance at June 30,
1994 and 1993, respectively, are applicable to properties acquired
through foreclosure and held for sale.
14
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. SENIOR NOTES
SENIOR SECURED NOTES - The lack of liquidity in many of the commercial
real estate markets continued during the nine months ended June 30,
1994. Although the Trust was able to meet the required principal
payment at December 31, 1992, reducing the principal balance of the
Senior Notes to $290 million, it did not have sufficient funds to meet
the $20 million required principal payment due June 30, 1993 or the
$33.8 million required principal payment due December 31, 1993 or the
$30 million required principal payment due June 30, 1994 (taking into
account permitted deferrals). The Trust also did not make the $6.6
million, the $6.4 million and the $7.2 million interest payments due
December 31, 1993, March 31, 1994 and June 30, 1994, respectively.
The average borrowing rates for the nine months ended June 30, 1994
and 1993, respectively, were 10.34% and 8.88%. At June 30, 1994, the
average 10.34% interest rate on the Senior Notes was composed of
interest at 10.75% on $200 million of Senior Notes (including default
interest at 1%) and 12.75% on $90 million of deferred amounts of
Senior Notes (including default interest at 1%). The entire
unamortized cost of restructuring of the Senior Notes was charged off
during fiscal 1993 as a result of the monetary default. The Trust
expensed $3.4 million in fiscal 1993, of which $2.4 million related
to the acceleration of costs due to the June 1993 monetary default.
Prior to the default, these costs were being amortized using the
interest method over the term of the debt.
Under the financial covenants of the Indenture governing the Senior
Notes, the Trust was required to maintain a ratio of outstanding
indenture securities to its capital base (as defined in the Indenture)
of 515% at March 31, 1993. In addition, under the Indenture the Trust
was required to maintain a ratio of outstanding securities to its
capital base of 438% at June 30, and September 30, 1993, and 358% at
December 31, 1993 and March 31, 1994, and 313% at June 30, 1994 and a
ratio of earning assets (as defined in the Indenture) to outstanding
securities of 113% at June 30, and September 30, 1993, 116% at
December 31, 1993 and March 31, 1994 and 117% at June 30, 1994. The
Trust failed to meet each of these ratios, constituting events of
default under the Indenture. On May 26, 1993, the Trust received
from the holders of more than 66-2/3% of principal amount of Senior
Notes a waiver relating to the March 31, 1993 default. The Trust did
not seek or obtain waivers for any of the other defaults.
In addition, at December 31, 1993, the Trust's non-earning assets (as
defined in the Indenture) exceeded the limits prescribed in the
Indenture. In addition to constituting an event of default, the
Trust was obligated under the Indenture to pay to the holders of
Senior Notes, on or before February 14, 1994, a penalty payment equal
to 1.5% of such excess of non-earning assets, or a payment of
approximately $183,000. The Trust did not make such payment,
constituting an additional event of default under the Indenture.
See Item 3, "Defaults Upon Senior Securities" for additional
information regarding events of default. Payment of the Senior Notes
is secured by liens against all real and personal properties of the
Trust as required by the 1991 Plan and the Indenture.
LOAN ON EQUITY INVESTMENT - In November 1991, the Trust acquired full
ownership of a retail center in which it had a partnership interest.
The Trust has a construction borrowing commitment of $18.7 million of
which $17.6 million was outstanding at June 30, 1994. The
contractual interest rate on this loan is 7-3/4% (Prime + 1-1/2%,
floor of 9%), and the loan matured in May 1994 but was extended until
August 1994. The Trust is currently negotiating with the lender for
an additional extension of the loan which may require a material
principal paydown of the loan.
15
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5. SHARE OPTION PLAN
As of June 30, 1994, options to purchase 426,000 Common Shares were
outstanding under the 1984 Share Option Plan. The exercise price
per share varies from $2.50 to $14.50. Options granted other than
those granted in fiscal 1991, expire five years from the date of grant
and may be exercised at any time six months after the date of grant,
subject to the limitation that the aggregate fair market value
(determined as of the time the Option is granted) of the Shares with
respect to which Incentive Stock Options are exercisable for the first
time by any participant during any calendar year shall not exceed
$100,000. Options granted during fiscal 1991, pursuant to the
Employee Retention Plan described in Note 6, expire five years from
the date of grant but do not vest until three years from the date of
grant. Options to purchase 26,500 Common Shares at a price from
$2.50 to $14.50 terminated during the nine months ended June 30, 1994.
In addition to cash, Options may be exercised by exchanging the
Trust's Common Shares valued at the market price on the date of
exercise of the Options. During the nine months ended June 30, 1994,
no Options were exercised.
NOTE 6. EMPLOYEE RETENTION PLAN
The Trust established an Employee Retention Plan, to be administered
by the Compensation and Nominating Committee (the "Committee"), in
order to assure the continuity and performance of employees of the
Trust. The Plan contains four categories of benefits: an incentive
program, stock options, termination pay and a retention bonus.
The Committee established an incentive program for calendar year 1991.
The incentive pool was calculated based on the reduction of the
Trust's outstanding debt (the Senior Notes). On September 16, 1992,
the Committee approved a continuation of the incentive program for
1992 based on a similar formula for reducing the principal balance
of the Senior Notes. At December 31, 1992, the principal balance
of the Senior Notes was reduced to $290 million resulting in an
incentive bonus pool of $125,000.
During the quarter ended December 31, 1993, the Committee approved the
payment of a discretionary bonus totalling $123,000 for certain
officers of the Trust.
On March 29, 1991, the Committee awarded stock options for the
purchase of 197,500 Common Shares at an option price of $4.15. The
options had a three year vesting period from the date of grant and
vested on March 29, 1994.
16
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 1. Financial Statements (Continued)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6. EMPLOYEE RETENTION PLAN (Continued)
A termination pay plan has been established to cover termination of
employment without cause during the period that the Senior Notes, as
defined, are outstanding. Employees will be entitled to compensation
ranging from a minimum of twelve weeks to a maximum of eighteen
months pay. In addition, certain health benefits will continue to be
paid by the Trust over a period of time equal to the period used in
calculating severance pay. The Trust estimates that the maximum cost
of the termination pay plan would be approximately $1.4 million and
the cost is charged to expense at date of termination (as defined in
the termination pay plan).
The retention bonus, which totalled $350,000, was paid on February 28,
1992 to certain employees who remained with the Trust one year after
the Effective Date of the 1991 Plan (February 27, 1991).
NOTE 7. ISSUANCE OF SHARES
Effective April 1, 1992, the Trust terminated its Dividend
Reinvestment and Share Purchase Plan.
The Trust is authorized to issue up to 3,500,000 Preferred Shares on
terms to be established by the Trustees. No preferred shares have
been issued to date.
The Trust contributed 150,000 Common Shares (1.4% of outstanding
shares) as part of the settlement of the consolidated class actions
and the Class 5 claims remaining in the Chapter 11 proceeding. The
settlement and contribution of shares occurred on September 17, 1993.
17
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES - A Plan of Reorganization under Chapter 11 of
the Bankruptcy Code (the "1991 Plan") was confirmed at a hearing held in the
Bankruptcy Court in Los Angeles, California, on February 21, 1991, and an order
was entered February 27, 1991, confirming the 1991 Plan. As a result of the
liquidity problems in the commercial real estate markets, the Trust was not
able to meet the required amortization at June 30, 1992 on its outstanding debt
and the debt was restructured in July 1992 with the unanimous consent of the
Trust's creditors. The debt is now governed by an indenture, as amended, (the
"Indenture") dated as of July 15, 1992 between the Trust and Wilmington Trust
Company (the "Indenture Trustee") and the debt is denominated as the Trust's
Senior Secured Uncertificated Notes due 1995 (the "Senior Notes"). Pursuant to
the 1992 Restructuring, the Trust entered into the Indenture governing the
Senior Notes with the Indenture Trustee, and entered into a second amendment to
the Trust's outstanding collateral and security agreement dated as of February
21, 1991 with the Indenture Trustee and William J. Wade (the "Collateral
Agents") as collateral agents (as amended, the "Collateral Agreement") and
amended the 1991 Plan.
The Senior Notes are secured by all properties and interests in properties of
the Trust. At December 31, 1992, the principal balance of the Senior Notes was
reduced to $290 million, the maximum debt level permitted under the Indenture
at that date. The principal balance of the Senior Notes remains at that amount
at June 30, 1994.
Under the financial covenants of the Indenture governing the Senior Notes, the
Trust was required to maintain a ratio of outstanding indenture securities to
its capital base (as defined in the Indenture) of 515% at March 31, 1993.
In addition, under the Indenture the Trust was required to maintain a ratio of
outstanding securities to its capital base of 438% at June 30, and September
30, 1993, 358% at December 31, 1993 and March 31, 1994 and 313% at June 30,
1994 and a ratio of earning assets (as defined in the Indenture) to outstanding
securities of 113% at June 30, and September 30, 1993, 116% at December 31,
1993 and March 31, 1994 and 117% at June 30, 1994. The Trust failed to meet
each of these ratios, constituting events of default under the Indenture. On
May 26, 1993, the Trust received from the holders of more than 66-2/3% of
principal amount of Senior Notes a waiver relating to the March 31, 1993
default. The Trust did not seek or obtain waivers for any of the other
defaults.
In addition, at December 31, 1993 the Trust's non-earning assets (as defined
in the Indenture) exceeded the limits prescribed in the Indenture. In addition
to constituting an event of default, the Trust was obligated under the
Indenture to pay to the holders of Senior Notes, on or before February 14, 1994,
a penalty payment equal to 1.5% of such excess of non-earning assets, or a
payment of approximately $183,000. The Trust did not make such payment,
constituting an additional event of default under the Indenture.
Due to continued lack of liquidity in the real estate marketplace, the Trust
did not have sufficient funds to meet its $20 million required principal
payment due June 30, 1993 (taking into account permitted deferrals). However,
the Trust timely paid the June 30, and September 30, 1993 interest payments of
$6.8 million and $6.6 million, respectively. The Trust also paid the final
payment of the restructuring fee of $812,500 on September 30, 1993. An
additional $33.8 million in principal (taking into account permitted deferrals)
and $6.6 million in interest was due on December 31, 1993; another $6.4 million
in interest was due on March 31, 1994; and an additional $30 million in
principal (taking into account permitted deferrals) and $7.2 million in
interest was due on June 30, 1994. Because the Trust did not make otherwise
required payments on June 30, 1993, December 31, 1993, March 31, 1994, and June
18
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
30, 1994, at the end of the first quarter of fiscal 1994 (ending December 31,
1993) the Trust held approximately $17.8 million in available cash (as defined
in the Indenture), at the end of the second quarter of 1994 (ending March 31,
1994) the Trust held approximately $32.8 million in available cash and at the
end of the third quarter of 1994 (ending June 30, 1994) the Trust held
approximately $53.2 million in available cash. Assuming no other payment
defaults, the Trust would have been obligated to pay on December 31, 1993,
March 31, 1994 and June 30, 1994 the excess of such available cash over $10
million to Senior Note holders as additional principal payments.
Pursuant to the agreement in principle with certain of the principal holders
of Senior Notes providing for a restructuring of the Senior Notes reached in
August 1993, the Trust agreed to pay on September 30, 1993 the interest payment
due September 30, 1993 and certain restructuring fees due December 31, 1993, but
not to pay the interest or principal due December 31, 1993. However, because of
the substantial trading in the Senior Notes and the inability of the Trust to
obtain satisfactory indications of support for the August 1993 agreement in
principle from any holders of Senior Notes, any action by the Trust to
implement the Trust's original agreed restructuring has been suspended and it
appears highly unlikely that the terms of the August 1993 agreement in
principle will be implemented. The agreement not to pay the December 1993
interest and principal was similarly non-binding and the Trust considers it no
longer effective.
In October 1993, certain investing holders involved in the trading of Senior
Notes commenced their due diligence review of the Trust, which included
financial and other information provided by the Trust. At the request of the
investing holders, the Trust agreed to pay certain fees and expenses of a
financial advisor to the investing holders. In or about November 1993, the
investing holders retained a financial advisor who immediately commenced its
analysis of the financial condition and operations of the Trust and the
proposed agreement in principle. In December 1993 as the investing holders'
initial due diligence review was being finalized, the investing holders,
members of the Trust's official creditors' committee, management and the
respective advisors recommenced substantive negotiations for a restructuring
of the Senior Notes. Subsequently, in March 1994, the investing holders
requested the Trust to pay certain fees and expenses of legal counsel to the
investing holders. The Trust agreed and in March 1994, the investing holders
retained counsel. Thereafter, in June 1994, the investing holders requested
the Trust to pay certain fees and expenses of a new financial advisor to the
investing holders. The Trust agreed, and in June 1994 the investing holders
retained a new financial advisor.
Consistent with the then ongoing negotiations with the principal holders of the
Senior Notes, the Trust in December 1993 did not pay the interest or principal
due at December 31, 1993, constituting additional events of default under the
Senior Note Indenture. The Trust currently has no agreement with any holders
of Senior Notes that it will not pay interest, principal or other amounts due
or to become due on the Senior Notes. However, the Trust's present
determination is to continue to suspend payment of principal and interest
payments on the Senior Notes. This policy is subject to frequent review by
the Trust and may be affected by developments in the Trust's negotiations with
its creditors or action of the Indenture Trustee or the Collateral Agents.
In any event, the Trust forecasts that it will have continuing difficulty
meeting its obligations under the Senior Note Indenture without a substantial
restructuring of such debt. See Note 1 of the Notes to Financial Statements
and Item 3, "Defaults Upon Senior Securities" for information regarding
additional events of default under the Indenture and the enforcement action
taken to date in respect thereof.
19
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Management is continuing discussions with the creditors and their
representatives to explore various alternatives for restructuring the Senior
Notes. The Trust's present intention is to reach a consensual restructuring
agreement. If such an agreement cannot be reached with the Senior Note holders,
or if the holders of the Secured Notes or the Indenture Trustee or the
Collateral Agents take action or fail to cooperate with the Trust in such a
manner that the business or operations of the Trust are jeopardized, the Trust
will have to consider other alternatives, including the filing of a voluntary
bankruptcy petition under Chapter 11 of the United States Bankruptcy Code. The
holders of more than 66-2/3% of the Trust's debt securities had agreed with the
Trust to temporarily forebear further creditor action on the defaults for a
period that expired on December 3, 1993. At the present time, it appears
unlikely that a further extension of the standstill will be granted. The Trust
does not presently anticipate seeking a new standstill agreement, but may do so
in the future if management determines that circumstances warrant. Subsequent
to the expiration of the Standstill Period, on or about December 8, 1993 the
Indenture Trustee (and the Collateral Agents) notified the Trust's bank at the
time, of the Indenture Trustee's security interest in the Trust's deposit
accounts and instructed the bank to freeze the Trust's cash until otherwise
instructed by the Indenture Trustee. Since that date, the Trust has operated
on an ad hoc basis with the Indenture Trustee in administering its cash, with
all cash use subject to review and approval by the Indenture Trustee. On or
about February 3, 1994, the Trust and the Indenture Trustee and Collateral
Agents reached further understanding regarding the Trust's use of cash and
administration of its assets in the absence of a new or extended standstill
period. Pursuant to the understanding, which is terminable at will by the
Indenture Trustee or Collateral Agents, the Trust will continue to use its cash
on an ad hoc basis, subject to Indenture Trustee and Collateral Agent approval,
and the Trust will administer its assets as if no default had occurred and was
continuing. In May 1994, the Trust received formal notice from the bank which
held the Trust's operating accounts that the bank would close all of the Trust's
operating accounts with the bank on May 31, 1994. On or about May 25, 1994, the
Trust established new operating accounts at Wilmington Trust Company and
transferred all of its bank balances to such accounts. Concurrently, the Trust
and the Indenture Trustee entered into a First Supplemental Indenture, dated as
of May 25, 1994, amending the Indenture to provide for the new accounts. The
Trust also entered into a Deposit Account Security Agreement relating to such
accounts and supplemented the February operating arrangement with the
Indenture Trustee and the Collateral Agents to provide for the new accounts.
Although the Trust has entered into the First Supplemental Indenture and amended
its operating arrangement with the Indenture Trustee and the Collateral Agents,
there can be no assurance that the Indenture Trustee and the Collateral Agents
will not terminate the amended cash use arrangement or take further or other
remedial or enforcement action with respect to the Trust's bank accounts or
other properties, including acceleration of the Senior Notes and foreclosure.
Such action, or the failure of the Indenture Trustee and the Collateral Agents
to consent to necessary use of cash or releases of collateral in the conduct of
the Trust's business, would have a material adverse effect on the Trust's
operations and could cause the Trust to seek relief under Chapter 11 of the
United States Bankruptcy Code. The Trust intends to continue to operate its
business under its current operating arrangement with the Indenture Trustee and
the Collateral Agent and to seek Senior Note holder consent as such consent is
required. Although the Trust believes that such consents, if requested, would
be in the best interest of the Trust, its shareholders and the Senior Note
holders, there can be no assurance that the Trust will obtain sufficient
consents as they are required. If it becomes impossible for the Trust to
continue operations under such circumstances, it may be necessary for the Trust
to explore other alternatives, including seeking relief under Chapter 11.
20
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
At June 30, 1994, the Trust had cash and cash equivalents of $56.5 million.
Included in cash and cash equivalents are $1.4 million of restricted cash which
represents the funding of the employee retention plan and $1.9 million related
to borrowers' deposits. The Trust's unfunded loan commitments totalled
$615,000 and capital expenditure commitments on real estate owned and in-
substance foreclosures totalled $2.6 million at June 30, 1994. The Trust is
currently negotiating a 20-year lease with a retail center tenant, which if
consummated will require approximately $3.6 million of capital expenditures.
The Trust's obligations include expenditures for capital improvements, tenant
improvements, other leasing expenditures and a possible material paydown on a
construction loan which was due in May 1994 but has been extended until August
1994. The expenditures must be met from the Trust's cash and cash equivalents,
cash from operations and liquidation of existing assets. Under the 1991 Plan
and the Indenture, the Trust has been permitted to fund its existing contractual
obligations, but may not make new investments. The Trust's outstanding
principal, interest and penalty payments due on the Senior Notes (absent
acceleration) totalled $104.1 million at June 30, 1994.
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 1994 VS. NINE MONTHS ENDED
JUNE 30, 1993 - Net loss for the nine months ended June 30, 1994 was
$(14,553,000) or $(1.30) per share compared to a net loss of $(30,642,000) or
$(2.77) per share for the nine months ended June 30, 1993. The nine months
ended June 30, 1993 included a provision for losses of $22,000,000 or $1.99 per
share compared to no provision for the nine months ended June 30, 1994. The
Trust's spread (interest income on mortgage loans plus net operating income
from real estate owned less interest expense) decreased from $909,000 for the
nine months ended June 30, 1993 to $(5,107,000) for the nine months ended June
30, 1994.
Interest and fee income on mortgage loans decreased $3,317,000 to $11,377,000
for the nine months ended June 30, 1994 from $14,694,000 for the nine months
ended June 30, 1993. The decrease was due primarily to a reduction in earning
mortgage loans (including earning in-substance foreclosures) which totalled
$137.5 million at June 30, 1994 compared to $224.2 million at June 30, 1993.
Since June 30, 1993, earning mortgage loans of approximately $33.6 million
have been transferred to in-substance foreclosure, $18.7 million have been
transferred to investment in real estate and $31.1 million have been repaid.
Rental income was $14,722,000 and $14,601,000 for the nine months ended June 30,
1994 and 1993, respectively. Cash operating expenses on rental properties were
$7,399,000 and $7,790,000 for the nine months ended June 30, 1994 and 1993,
respectively. Net operating income (rental income less cash operating expenses)
was $7,323,000 and $6,811,000 for the nine months ended June 30, 1994 and 1993,
respectively. The increase in net operating income on rental properties results
from lower cash operating expenses.
Interest on short-term investments increased due to the continuing accumulation
of available cash. Available cash increased due to: (1) no payment of principal
and interest on the Senior Notes since September 30, 1993 and (2) a net increase
of $32.7 million in cash provided by investing activities.
Interest expense increased $3,214,000 to $23,823,000 in the current period from
$20,609,000 for the nine months ended June 30, 1993. This was due primarily to
an increase in the average borrowing rate from 8.88% for the nine months ended
21
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
June 30, 1993 to 10.34% for the nine months ended June 30, 1994. Offsetting
this increase was a decrease in average borrowings from $294.2 million for the
nine months ended June 30, 1993 to $290 million for the nine months ended June
30, 1994.
Reorganization professional expenses increased $331,000 to $2,008,000 for the
nine months ended June 30, 1994 compared to $1,677,000 for the nine months
ended June 30, 1993. The increase was due to greater participation by all
professionals involved in the current negotiations.
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1994 VS. QUARTER ENDED MARCH 31,
1994 - Net loss for the quarter ended June 30, 1994 was $(4,745,000) or
$(.43) per share compared to $(5,152,000) or $(.46) per share for the quarter
ended March 31, 1994.
Rental income increased $819,000 to $5,404,000 for the quarter ended June 30,
1994 from $4,585,000 for the quarter ended March 31, 1994. The increase was
due to: (1) an increase in income on some existing properties and (2) an
increase in investments in real estate due to properties transferred from
in-substance foreclosures. Cash operating expenses on rental properties were
$2,665,000 for the quarter ended June 30, 1994 and $2,360,000 for the quarter
ended March 31, 1994. The increase in expenses for the current quarter resulted
primarily from the higher level of investment in real estate.
Interest on short-term investments increased due to the continuing accumulation
of available cash.
Interest expense increased $698,000 to $8,361,000 for the quarter ended June 30,
1994 compared to $7,663,000 for the quarter ended March 31, 1994. This
increase was due primarily to an increase in the average borrowing rate from
10.14% for the quarter ended March 31, 1994 to 11.02% for the quarter ended
June 30, 1994.
Other operating expenses decreased $271,000 to $1,111,000 for the quarter
ended June 30, 1994 compared to $1,382,000 for the quarter ended March 31, 1994.
The decrease was due primarily to an adjustment for accrual of pension benefits
for the Trustees in the quarter ended March 31, 1994.
Reorganization professional expenses decreased $150,000 to $591,000 for the
quarter ended June 30, 1994 compared to $741,000 for the quarter ended March 31,
1994.
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1994 VS. QUARTER ENDED JUNE 30,
1993 - Net loss for the quarter ended June 30, 1994 was $(4,745,000) or $(.43)
per share compared to $(17,478,000) or $(1.58) per share for the quarter ended
June 30, 1993. The quarter ended June 30, 1993 included a provision for losses
of $14,000,000 or $1.26 per share compared to no provision for the quarter
ended June 30, 1994.
Interest and fee income on mortgage loans decreased $1,165,000 to $3,719,000
for the quarter ended June 30, 1994 compared to $4,884,000 for the quarter
ended June 30, 1993. The decrease was due primarily to a reduction in
earning mortgage loans (including earning in-substance foreclosures) which
totalled $137.5 million at June 30, 1994 compared to $224.2 million at June
30, 1993.
22
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Rental income was $5,404,000 and $4,711,000 for the quarters ended June 30,
1994 and 1993, respectively. Cash operating expenses on rental properties
were $2,665,000 and $2,540,000 for the quarters ended June 30, 1994 and 1993,
respectively. Net operating income (rental income less cash operating
expenses) was $2,739,000 and $2,171,000 for the quarters ended June 30, 1994
and 1993, respectively. The increase in net operating income on rental
properties results from the higher yielding assets being owned at June 30,
1994.
Interest on short-term investments increased due to the continuing accumulation
of available cash.
Interest expense increased $1,442,000 to $8,361,000 for the current quarter
compared to $6,919,000 for the quarter ended June 30, 1993. This increase
was due primarily to an increase in the average borrowing rate from 9.05% for
the quarter ended June 30, 1993 to 11.02% for the quarter ended June 30, 1994.
Other operating expenses decreased $214,000 to $1,111,000 for the quarter ended
June 30, 1994 compared to $1,325,000 for the quarter ended June 30, 1993. The
decrease was due primarily to decreases in professional fees and expenses.
Reorganization professional expenses decreased $359,000 to $591,000 for the
quarter ended June 30, 1994 compared to $950,000 for the quarter ended
June 30, 1993.
NON-EARNING LOANS AND INVESTMENTS - At June 30, 1994, the Trust's non-
earning loans, non-earning in-substance foreclosures and non-earning properties
acquired through foreclosure and held for sale were $40,539,000, representing
13.08% of invested assets compared to $44,909,000 (13.71%) at March 31, 1994
and $32,180,000 (8.45%) at June 30, 1993.
23
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
PART II
Item 3. DEFAULTS UPON SENIOR SECURITIES
The Trust did not make the $30 million required principal payment and
the $7.2 million interest payment due June 30, 1994. In addition,
the Trust did not make the $6.4 million interest payment that was
due March 31, 1994 on the Senior Notes. The Trust previously did not
make its $33.75 million required principal payment and its $6.6
million interest payment due December 31, 1993, its $20 million
required principal payment due June 30, 1993 and its $183,000 penalty
payment due February 14, 1994 on the Senior Notes. All such amounts
remain unpaid. The Trust's outstanding principal, interest and
penalty payments due on the Senior Notes (absent acceleration)
totalled $104.1 million at June 30, 1994.
In addition, based on financial results at June 30, 1994 the Trust
was in violation of certain financial covenants in the Indenture
relating to the ratio of outstanding securities to the Trust's
capital base and the ratio of earning assets to outstanding
securities. Under the financial covenants of the Indenture, the
Trust was required to maintain a ratio of outstanding indenture
securities to its capital base (as defined in the Indenture) of 313%
at June 30, 1994 and a ratio of earning assets (as defined in the
Indenture) to outstanding securities of 117% at June 30, 1994.
Failure to satisfy these covenants constitute additional events of
default under the Indenture. There are also outstanding certain
other events of default under the Indenture relating to financial
covenants in prior periods and non-payment of additional principal
payments of available cash (as defined in the Indenture) over $10
million. See Note 1 of the Notes to the Financial Statements and
Item 2 of Part I, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional information
relating to such defaults.
Notwithstanding the uncured events of default, neither the Indenture
Trustee nor any holders of the Senior Notes have accelerated the
Senior Notes. On July 2, 1993 holders of approximately 81% of the
Senior Notes agreed, subject to certain conditions, not to accelerate
the Senior Notes or take any other remedial or enforcement action
during a defined standstill period (the "Standstill Period")
initially expiring July 31, 1993. The Standstill Period was extended
by holders of more than 66-2/3% of the Senior Notes on August 3,
August 20, September 23, October 5 and November 23, 1993. However,
the Standstill Period expired on December 3, 1993. At the present
time, it appears highly unlikely that any further extensions of the
Standstill Period will be granted. The Trust does not presently
anticipate seeking a new standstill agreement, but may do so in the
future if management determines the circumstances warrant. Subsequent
to the expiration of the Standstill Period, on or about December 8,
1993 the Indenture Trustee (and the Collateral Agents) notified the
Trust's bank at the time, of the Indenture Trustee's security interest
in the Trust's deposit accounts and instructed the bank to freeze the
Trust's cash until otherwise instructed by the Indenture Trustee.
Since that date, the Trust has operated on an ad hoc basis with the
Indenture Trustee in administering its cash, with all cash use subject
to review and approval by the Indenture Trustee. On or about February
3, 1994, the Trust and the Indenture Trustee and Collateral Agents
reached further understanding regarding the Trust's use of cash and
administration of its assets in the absence of a new or extended
24
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
PART II
Item 3. DEFAULTS UPON SENIOR SECURITIES (Continued)
standstill period. Pursuant to the understanding, which is
terminable at will by the Indenture Trustee or Collateral Agents, the
Trust will continue to use its cash on an ad hoc basis, subject to
Indenture Trustee or Collateral Agent approval, and the Trust will
administer its assets as if no default had occurred and was
continuing. In May 1994, the Trust received formal notice from the
bank which held the Trust's operating accounts that the bank would
close all of the Trust's operating accounts with the bank on May 31,
1994. On or about May 25, 1994, the Trust established new
operating accounts at Wilmington Trust Company and transferred all
of its bank balances to such accounts. Concurrently, the Trust and
the Indenture Trustee entered into a First Supplemental Indenture,
dated as of May 25, 1994, amending the Indenture to provide for the
new accounts. The Trust also entered into a Deposit Account Security
Agreement relating to such accounts and supplemented the February
operating arrangement with the Indenture Trustee and the Collateral
Agents to provide for the new accounts. Although the Trust has
entered into the First Supplemental Indenture and amended its
operating arrangement with the Indenture Trustee and Collateral
Agents, there can be no assurance that the Indenture Trustee or
Collateral Agents will not terminate the amended cash use arrangement
or take further or other remedial or enforcement action with respect
to the Trust's bank accounts or other properties, including
acceleration of the Senior Notes and foreclosure. Such action, or
failure of the Indenture Trustee and the Collateral Agents to consent
to necessary use of cash or releases of collateral in the conduct of
the Trust's business, would have a material adverse effect on the
Trust's operations and could cause the Trust to seek relief under
Chapter 11 of the United States Bankruptcy Code.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibits are as set forth in the "INDEX TO EXHIBITS" on page 27.
(b) REPORTS ON FORM 8-K
On April 22, 1994, the Trust filed a report on Form 8-K dated
April 21, 1994, reporting information under Item 5 - Other
Events.
25
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MORTGAGE AND REALTY TRUST
By /s/ Victor H. Schlesinger
-------------------------------
Victor H. Schlesinger
Chairman
By /s/ Daniel F. Hennessey
-------------------------------
Daniel F. Hennessey
Treasurer
DATE: August 10, 1994
26
<PAGE>
MORTGAGE AND REALTY TRUST FORM 10Q
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
4.1* First Supplemental Indenture dated as of May 25, 1994 by and between
the Registrant and Wilmington Trust Company, as Trustee
4.2* Deposit Account Security Agreement dated as of May 25, 1994 by and
between the Registrant and Wilmington Trust Company, as Corporate
Collateral Agent and William J. Wade, as Individual Collateral
Agent
11* Schedule of Net Income (Loss) Per Share - Assuming Full Dilution
- - ------------------
* Exhibit filed with this Form 10-Q.
27
<PAGE>
Exhibit 4.1
Mortgage and Realty Trust,
a Maryland real estate investment trust
and
Wilmington Trust Company,
a Delaware banking corporation,
as Trustee
________________________________________________
First Supplemental Indenture
Dated as of May 25, 1994
To
Indenture
Dated as of July 15, 1992
Senior Secured Uncertificated Notes
Due 1995
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of May 25, 1994, by and between
Mortgage and Realty Trust, a real estate investment trust duly organized and
existing under the laws of the State of Maryland (the "Company") and
Wilmington Trust Company, a banking corporation duly organized and existing
under the laws of the State of Delaware, as trustee (the "Trustee").
RECITALS
WHEREAS, a plan of reorganization (the "Plan") of the Company was filed
with the United States Bankruptcy Court for the Central District of California
and such plan was confirmed by an order entered on February 27, 1991;
WHEREAS, pursuant to the Plan, the Company issued certain uncertificated
debt securities to Holders of unsecured claims against the Company;
WHEREAS, pursuant to the Plan, the Company entered into a Collateral and
Security Agreement, dated as of February 21, 1991, as amended by the First
Amendment to Collateral and Security Agreement, dated as of July 15, 1992 (as
amended, the "Collateral Agreement"), each by and among the Company, the
Lenders listed on Schedule A thereto, and Wilmington Trust Company and William
J. Wade as collateral agents (the "Collateral Agents"), pursuant to which the
Company granted security interests and liens in all of its property to the
Collateral Agents for the benefit of the Lenders to secure the Creditor
Obligations under the Plan;
WHEREAS, the Company and Wilmington Trust Company, as trustee (the
"Trustee") entered into an Indenture, dated as of July 15, 1992 (the "Original
Indenture") (the Original Indenture as amended by this First Supplemental
Indenture being hereinafter referred to as the "Indenture"), pursuant to which
the Company ratified, confirmed and reaffirmed the security interests and
liens in the Collateral, including certain deposit accounts, to the Trustee
for the benefit of the holders (the "Holders") of the securities, to secure
payment of Creditor Obligations re-denominated as the Company's Senior Secured
Uncertificated Notes due 1995 (the "Securities");
WHEREAS, Schedule 1 to the Original Indenture sets forth the accounts of
the Company which constitute part of the Collateral pledged for the benefit of
the Holders (the "Accounts");
WHEREAS, the Company desires to transfer the Accounts from their present
locations to new accounts established and maintained by the Collateral Agents;
<PAGE>
WHEREAS, the Company and the Trustee desire to amend Schedule 1 to the
Original Indenture to reflect the change in location of the Accounts;
WHEREAS, the Collateral Agents shall each continue to have a perfected
security interest in the Accounts following the transfer of the Accounts;
WHEREAS, Section 901 of the Original Indenture provides that the Company
and the Trustee may at any time and from time to time, enter into one or more
supplemental indentures without the consent of the Holders in form
satisfactory to the Trustee, to make any provisions with respect to matters
arising under the Original Indenture so long as such action shall not
adversely affect the interests of the Holders; and
WHEREAS, all acts and proceedings required by law, by the Indenture and
by the Declaration of Trust of the Company, necessary to make this First
Supplemental Indenture a valid and binding agreement for the uses and purposes
herein set forth and to make the Securities issued under the Indenture as
supplemented the valid and binding obligations of the Company, in accordance
with its terms, have been done and taken, and the execution and delivery of
this First Supplemental Indenture have been in all respects duly authorized.
NOW THEREFORE, for and in consideration of the foregoing premises, the
Company and the Trustee hereby agree as follows:
ARTICLE I
RELATION TO ORIGINAL INDENTURE; DEFINITIONS
SECTION 1.01. This First Supplemental Indenture constitutes an integral
part of the Original Indenture.
SECTION 1.02. For all purposes of this First Supplemental Indenture,
capitalized terms used herein and not otherwise defined shall have the
meanings assigned such terms in the Original Indenture.
ARTICLE II
AMENDMENT
SECTION 2.01. Schedule 1 to the Original Indenture is hereby deleted in
its entirety and replaced with Schedule 1 attached hereto.
<PAGE>
SECTION 2.02. (a) After the date of this First Supplemental Indenture,
any Transaction Statements and Statements of Account authenticated and
delivered in respect of Securities outstanding shall (unless textually revised
as hereinafter provided) bear the following notation which may be typewritten
or stamped thereon:
On or after May 25, 1994, the Indenture dated as of
July 15, 1992 referred to in this [Transaction Statement/
Statement of Account] has been amended by a First
Supplemental Indenture dated as of May 25, 1994 to
provide for new deposit accounts of the Company.
Reference is hereby made to said First Supplemental
Indenture, copies of which are on file with Wilmington
Trust Company, as Trustee, for a statement of the
amendment thereby made.
(b) Anything herein contained to the contrary notwithstanding, the
failure to affix the notation herein provided to any Transaction Instruction,
Transaction Statement or Statement of Account shall not affect the rights of
the Holder of the respective Securities, and the Trustee shall not at any time
be under any responsibility to require or cause any Transaction Instruction,
Transaction Statement or Statement of Account with respect to any Securities
now or hereafter Outstanding to be presented or delivered to it for any
purpose provided for in this Section 2.02.
ARTICLE III
LIMITATION OF LIABILITY
SECTION 3.01. This First Supplemental Indenture has been executed on
behalf of the Company by an officer in his capacity as a trustee of the
Company. As provided in Section 7.02 of the declaration of trust of the
Company, no trustee, officer, agent or shareholder of the Company shall be
bound or held to any personal liability in connection with the obligations of
the Company arising out of the execution of this First Supplemental Indenture.
The execution of this First Supplemental Indenture by these individuals shall
not bind the individuals and they shall not be held to any personal liability
in connection with the obligations under the Indenture as a result of such
execution.
SECTION 3.02. Wilmington Trust Company is executing this document
solely in its capacity as trustee under the Original Indenture, and in no
event shall Wilmington Trust Company incur any personal liability in
connection with this First Supplemental Indenture or the transactions
contemplated hereby.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES; COVENANTS
SECTION 4.01. The Company represents and warrants:
(a) that the Company is duly organized and validly existing in good
standing in the state of its organization and is duly qualified to do business
in each state in which it does business and in which qualification to conduct
such business is required;
(b) that this First Supplemental Indenture (i) has been duly authorized
by all necessary action on the part of the Company, (ii) has been duly
executed and delivered by the Company, and (iii) constitutes a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms;
(c) that the execution and delivery of this First Supplemental Indenture
will not (i) require any authorization, consent, approval or other action by
or any notice to or filing with, any court, governmental or administrative
body (other than the filing of precautionary UCC-1 financing statements in
Delaware, California and Pennsylvania), or (ii) conflict with any contracts,
judgments, orders, licenses or organizational documents;
(d) that to the best of the Company's knowledge after due inquiry and
consultation with its legal advisors, but for the existence of those payment
and covenant defaults listed on Schedule 2 attached hereto, there are no
Events of Default pursuant to the Indenture or any of the other Documents (as
defined in the Collateral Agreement); and
(e) that the Company's obligations under the Documents (as defined in
the Collateral Agreement) are not subject to any reduction, limitation,
impairment or termination for any reason, including any claim of waiver,
release, surrender or compromise and are not subject to any defense, set-off,
counterclaim, recoupment or termination for any reason whatsoever.
SECTION 4.02. The Company covenants and agrees that the execution and
delivery of this First Supplemental Indenture shall not adversely affect or
otherwise impair the Liens created by, through or under the Original
Indenture, the Collateral Agreement or the Existing Plan and that such Liens
are ratified, confirmed and remain validly existing and in full force and
effect.
<PAGE>
ARTICLE V
MISCELLANEOUS
SECTION 5.01. This First Supplemental Indenture shall form a part of
the Indenture for all purposes, and every Holder of a Security heretofore or
hereafter authenticated and delivered shall be bound hereby.
SECTION 5.02. All recitals to this First Supplemental Indenture are
hereby incorporated herein by reference and made a part of the Indenture.
SECTION 5.03. The headings herein are for convenience only and shall
not affect the construction hereof.
SECTION 5.04. In case any provision of this First Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 5.05. Except as amended hereby, the Original Indenture is
ratified and confirmed in all respects, and the Indenture, as heretofore
supplemented and modified, and this First Supplemental Indenture shall be
read, taken and construed as one and the same instrument.
SECTION 5.06. Nothing in this First Supplemental Indenture, express or
implied, shall give to any person, firm, corporation or other entity other
than the parties hereto and the Holders of the Securities, any right, remedy
or claim under or by reason of this First Supplemental Indenture or any
covenant, condition or stipulation hereof; all the covenants, stipulations,
promises and agreements contained in this First Supplemental Indenture are and
shall be for
the sole and exclusive benefit of the parties hereto and their successors and
the Holders of the Securities.
SECTION 5.07. This First Supplemental Indenture shall be effective as
of the close of business on the date hereof.
SECTION 5.08. This First Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed shall constitute an
original and all of which when taken together shall constitute one and the
same agreement.
SECTION 5.09. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK; PROVIDED,
HOWEVER, THAT SO LONG AS WILMINGTON TRUST COMPANY IS THE TRUSTEE, THE DUTIES
AND LIABILITIES OF THE TRUSTEE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be executed by their respective duly authorized
officers or other representatives as of the day and year first above written.
MORTGAGE AND REALTY TRUST
By:______________________
Name:
Title:
Attest:
_________________________________
Title:
(SEAL)
WILMINGTON TRUST COMPANY,
not in its individual capacity,
but solely as Trustee
By:________________________
Name:
Title:
Attest:
_________________________________
Title:
(SEAL)
<PAGE>
SCHEDULE 1
MORTGAGE AND REALTY TRUST ACCOUNTS
<TABLE>
<CAPTION>
Account in the Account Account
Name of: Type: Number: Institution:
- - ------------------------- ------- --------- --------------------------
<S> <C> <C> <C>
Mortgage and Realty Trust General 2653-6103 Wilmington Trust Company
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
ABA No. 031100092
Mortgage and Realty Trust
Payroll Account Payroll 2653-6111 Wilmington Trust Company
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
ABA No. 031100092
Mortgage and Realty Trust
Asset Sale Account Trust 28666-1 Wilmington Trust Company
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
ABA No. 031100092
</TABLE>
<PAGE>
SCHEDULE 2
Defaults of Mortgage and Realty Trust under the Indenture dated as of July
15, 1992 between Mortgage and Realty Trust and Wilmington Trust Company, as
Trustee:
Covenant Defaults
- - -----------------
March 31, 1993
Section 1005 (Ratio of Outstanding Securities to Capital Base)*
June 30, 1993
Section 1005 (Ratio of Outstanding Securities to Capital Base)
Section 1006 (Ratio of Earning Assets to Securities)
September 30, 1993
Section 1005 (Ratio of Outstanding Securities to Capital Base)
Section 1006 (Ratio of Earning Assets to Securities)
Section 1018(i) (Operating budget for succeeding year on quarterly basis)**
December 31, 1993
Section 1005 (Ratio of Outstanding Securities to Capital Base)
Section 1006 (Ratio of Earning Assets to Securities)
Section 1008 (Non-Earning Assets)
March 31, 1994
Section 1005 (Ratio of Outstanding Securities to Capital Base)
Other
Defaults that may be occasioned by the Company's continued use of cash and
administration of assets in the presence of uncured Defaults and Events of
Default
Payment Defaults
- - ----------------
June 30, 1993 - $20 million principal payment
September 30, 1993 - Additional Payment (Section 203(b))***
December 31, 1993 - $33.8 million principal payment
- $6.6 million interest payment
- Additional Payment (Section 203(b))***
February 14, 1994 - Approximately $183,000 penalty payment (Section 1008(b))
March 31, 1994 - $6.4 million interest payment
- Additional Payment (Section 203(b))***
____________________
* Waived pursuant to Act of the Holders dated on or about May 26, 1993.
** Due at least 30 days prior to year end. Because of the continuing
negotiations and the uncertain debt structure and amortization, the
Company was unable to prepare a meaningful budget. The Company did,
however, prepare and distribute all asset-specific budgets and its
annual administrative budget.
*** The Indenture contemplates that Additional Payment amounts will be
calculated after payments of principal and/or interest due on the
specified date. The existence and amount of any Additional Payment is
not readily calculable when such principal and interest payments are not
made. At the specified dates and at best calculation, if the required
principal and interest payments were made (and had been made for prior
periods), then there would have been less than $10 million of Available
Cash at each date. Therefore, no Additional Payment would have been
required. However, because the indicated principal and interest
payments were not made, on the dates specified the Company held more
than $10 million of cash and cash equivalents.
Exhibit 4.2
DEPOSIT ACCOUNT SECURITY AGREEMENT
by and among
MORTGAGE and REALTY TRUST,
WILMINGTON TRUST COMPANY,
as Corporate Collateral Agent
and
WILLIAM J. WADE,
as Individual Collateral Agent
Dated as of May 25, 1994
<PAGE>
DEPOSIT ACCOUNT SECURITY AGREEMENT
This DEPOSIT ACCOUNT SECURITY AGREEMENT (this "Security Agreement") is
entered into as of May 25, 1994, between Mortgage and Realty Trust, a real
estate investment trust organized and existing under the laws of the State of
Maryland ("MRT"), Wilmington Trust Company, a banking corporation organized
and existing under the laws of the State of Delaware (the "Corporate
Collateral Agent") and William J. Wade (the "Individual Collateral Agent"),
acting not in their individual capacities but solely as collateral agents
under the Collateral and Security Agreement referred to below (the Corporate
Collateral Agent and the Individual Collateral Agent being hereinafter
referred to as the "Collateral Agents").
RECITALS
WHEREAS, simultaneously with the execution hereof, MRT and Wilmington
Trust Company ("Wilmington Trust") are executing the First Supplemental
Indenture, dated as of May 25, 1994, by and between MRT and Wilmington Trust,
pursuant to which Schedule 1 to the Indenture will be amended to reflect the
transfer of certain Deposit Accounts from their present locations to new
accounts established and maintained by the Corporate Collateral Agent;
WHEREAS, MRT desires to grant a lien and security interest in all of its
right, title and interest in and to those Deposit Accounts;
NOW THEREFORE, for and in consideration of the foregoing premises, MRT
and the Collateral Agents hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. The following terms shall have the following respective
meanings:
"Collateral" shall have the meaning assigned such term in Section 2.01
of this Security Agreement.
"Collateral Agents" shall mean the Corporate Collateral Agent and the
Individual Collateral Agent, and their successors and assigns in such
capacity.
<PAGE>
"Collateral and Security Agreement" shall mean the Collateral and
Security Agreement, dated as of February 21, 1991, as amended by the First
Amendment to Collateral and Security Agreement, dated as of July 15, 1992,
each by and among MRT, the Lenders listed on Schedule A attached thereto, and
the Collateral Agents.
"Corporate Collateral Agent" shall mean Wilmington Trust Company, in its
capacity as collateral agent under the Collateral and Security Agreement.
"Deposit Accounts" shall have the meaning assigned such term in Section
2.01 of the Collateral and Security Agreement.
"Event of Default" shall mean an Event of Default under the Collateral
and Security Agreement.
"Holder" shall have the meaning assigned such term in the Indenture.
"Individual Collateral Agent" shall mean William J. Wade, in his
capacity as collateral agent under the Security Agreement.
"Lenders" shall mean the Holders under the terms of the Indenture.
"Lenders' Action" shall mean such action as provided, adopted and
directed by the Act of the Required Holders under the Indenture.
"Liabilities" shall mean the Creditor Obligations (as defined in the
Plan) together with any other obligations of MRT to or for the benefit of the
Lenders under, or pursuant to, the Collateral and Security Agreement, the
Plan, or the Indenture.
"MRT" shall mean Mortgage and Realty Trust, a Maryland real estate
investment trust.
"Plan" shall mean the Joint Plan of Reorganization proposed by MRT,
Creditors' Committee and Equity Committee, dated November 19, 1990 and
confirmed by the United States Bankruptcy Court for the Central District of
California by order entered on February 27, 1991.
"Security Agreement" shall mean this Deposit Account Security Agreement,
dated as of May 25, 1994, between MRT and the Collateral Agents.
"UCC" shall mean the Uniform Commercial Code as in effect in the State
of Delaware.
<PAGE>
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect in any state in which the Receivables or the Collateral may be located.
"Wilmington Trust" shall mean Wilmington Trust Company, a Delaware
banking corporation.
SECTION 1.02. Capitalized terms used in this Security Agreement and not
defined in Section 1.01 shall have the meanings assigned such terms in the
Collateral and Security Agreement or the Indenture.
ARTICLE II
ASSIGNMENT AND GRANT OF SECURITY INTEREST
SECTION 2.01. MRT hereby grants, assigns, pledges and transfers to the
Collateral Agents, for the benefit of the Lenders and as security for the
Liabilities, and hereby grants a lien and/or security interest in, all of the
now owned or existing and hereafter acquired or arising right, title and
interest of MRT in and to the deposit accounts identified on Schedule 1
attached hereto, as well as any other deposit accounts owned or controlled
directly or indirectly by MRT from time to time (the "Deposit Accounts"), any
cash balances on deposit therein and any property arising from the investment
of cash balances in such Deposit Accounts, including, without limitation, all
instruments, securities, accounts, chattel paper, general intangibles and
money (the "Collateral"). The lien and/or security interest in the Deposit
Accounts hereby also extends to any and all proceeds of the Deposit Accounts
or Collateral, including all proceeds generated from the voluntary or
involuntary conversion of the Collateral into any real or personal property.
SECTION 2.02. So long as no Event of Default has occurred and is
continuing, MRT shall have the right to use cash in the Deposit Accounts,
provided that nothing herein shall be deemed to permit a use which is in
breach or contravention of any provision or covenant in this Security
Agreement, the Collateral and Security Agreement or the Indenture.
SECTION 2.03. This Security Agreement constitutes a "security
agreement" within the meaning of the UCC.
<PAGE>
ARTICLE III
REMEDIES
SECTION 3.01. If an Event of Default occurs and is continuing, the
Collateral Agents shall have and may exercise with respect to the Deposit
Accounts and the Collateral all of the remedies set forth in the Collateral
and Security Agreement. For the purposes hereof, MRT and the Collateral
Agents acknowledge and agree that the Deposit Accounts constitute "Deposit
Accounts" within the meaning of the Collateral and Security Agreement, that
the Collateral constitutes "Collateral" within the meaning of the Collateral
and Security Agreement and that both the Collateral and the Deposit Accounts
together constitute "Collateral" within the meaning of the Collateral and
Security Agreement.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 4.01. MRT represents and warrants:
(a) that MRT is duly organized and validly existing in good standing in
the state of its organization and is duly qualified to do business in each
state in which it does business;
(b) that this Security Agreement (i) has been duly authorized by all
necessary action on the part of MRT, (ii) has been duly executed and delivered
by MRT, and (iii) constitutes a legal, valid and binding obligation of MRT,
enforceable against MRT in accordance with its terms;
(c) that the execution and delivery of this Security Agreement will not
(i) require any authorization, consent, approval or other action by or any
notice to or filing with, any court, governmental or administrative body
(other than the filing of precautionary UCC-1 financing statements with the
Secretary of State of the State of Delaware), or (ii) conflict with any
contracts, judgments, orders, licenses or organizational documents;
(d) that to the best the MRT's knowledge after due inquiry and consulta-
tion with its legal advisors, but for the existence of those payment and
covenant defaults listed on Schedule 2 attached hereto, there are no Events of
Default pursuant to the Indenture or any of the other Documents; and
(e) that MRT's obligations under this Security Agreement are not subject
to any reduction, limitation, impairment or termination for any reason,
including any
<PAGE>
claim of waiver, release, surrender or compromise and are nor subject to any
defense, set-off, counterclaim, recoupment or termination for any reason
whatsoever.
SECTION 4.02. MRT covenants and agrees that:
(a) the execution and delivery of this Security Agreement shall not
adversely affect or otherwise impair the security interests created by,
through or under the Collateral and Security Agreement or the Indenture and
that such security interests and liens are ratified, confirmed and remain
validly existing and in full force and effect.
(b) it will give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other paper that may be
necessary or desirable to create, preserve, perfect or validate the security
interests granted pursuant to this Security Agreement or to enable the
Collateral Agents to exercise and enforce their rights under this Security
Agreement with respect to such pledge and security interest;
(c) keep full and accurate books and records relating to the Deposit
Accounts and the Collateral, and stamp or otherwise mark such books and
records in such manner as the Collateral Agents may reasonably require in
order to reflect the security interest granted by this Security Agreement; and
(d) it will permit representatives of the Collateral Agents, upon
reasonable notice, to inspect and make abstracts from its books and records
pertaining to the Deposit Accounts and the Collateral, and permit
representatives of the Collateral Agents to receive communications and
remittance relating to the Deposit Accounts and the Collateral, and forward
copies of any notice or communication received by MRT with respect to the
Deposit Accounts and the Collateral, all in such manner as the Collateral
Agent may require.
SECTION 4.03. Prior to or concurrently with the execution and delivery
of this Security Agreement, MRT shall file such financing statements and other
documents in such offices as are necessary and as the Collateral Agents may
request to perfect the security interests granted by this Security Agreement.
ARTICLE V
THE COLLATERAL AGENT
SECTION 5.01. The Collateral Agents and any of their respective
directors, officers, agents, employees or attorneys shall incur no liability
for any action taken or omitted to be taken by it or them under or in
connection with this Security Agreement, except for its or their own gross
negligence or wilful misconduct.
<PAGE>
SECTION 5.02. The Collateral Agent shall receive as compensation for
its services hereunder such fees and expenses as have been separately agreed
upon by the parties hereto.
SECTION 5.03. MRT agrees to indemnify and hold harmless the Collateral
Agents and their respective directors, officers, agents, employees and
advisors (collectively, the "Indemnified Parties") from and against any and
all liabilities, obligations, losses, damages, penalties, actions, claims,
judgments, suits, costs, taxes (excluding any taxes payable by the Collateral
Agent based on any fees it receives for its services hereunder), expenses and
disbursements (including, without limitation, legal fees and expenses) of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Indemnified Parties in any way relating to or arising out of the
this Security Agreement and the transactions contemplated hereby; provided,
however, that MRT shall not be liable for any indemnity resulting from the
gross negligence or willful misconduct of such Indemnified Party.
SECTION 5.04. The Collateral Agents shall be under no duty or
obligation to take any action under this Security Agreement if the taking of
such action would (i) subject the Collateral Agents to tax in any jurisdiction
where it is not then subject to a tax, (ii) require the Collateral Agents to
qualify to do business in any jurisdiction where it is not then qualified, or
(iii) subject the Collateral Agents to jurisdiction in any jurisdiction where
it is not then so subject.
SECTION 5.05. The Collateral Agents may execute any of the rights or
powers, and perform any duties under this Security Agreement either directly
or by or through agents or attorneys-in-fact, and the Collateral Agent shall
not be responsible for the default or misconduct of such agents or attorneys-
in-fact selected by the Collateral Agent without gross negligence or willful
misconduct.
SECTION 5.06. The Collateral Agents are hereby appointed the attorneys-
in-fact of MRT for the purpose of carrying out and executing any instruments
which the Collateral Agents may deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an
interest.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. All notices and other communications provided for in this
Security Agreement shall be in writing and shall be deemed to have been given
or made when actually delivered or, in the case of facsimile, when received,
addressed in the manner set forth on Schedule 3 attached hereto and made a
part hereof, or to such other address as any of the parties hereto may notify
the other party hereto.
<PAGE>
SECTION 6.02. If any of the provisions of this Security Agreement shall
for any reason be held to be invalid, illegal or unenforceable, such
invalidity, illegality or unenforceability shall not affect any other
provision hereof, and this Security Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
SECTION 6.03. The headings contained in this Security Agreement are for
convenience of reference only and do not in any way affect, limit, amplify or
modify the terms and provisions hereof.
SECTION 6.04. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. HOWEVER, TO
THE EXTENT THE LAWS OF THE STATE IN WHICH PARTICULAR COLLATERAL MAY BE LOCATED
REQUIRES THAT THE LAW OF SUCH STATE BE APPLICABLE FOR PURPOSES OF ENFORCEMENT
OF THE COLLATERAL AGENTS' REMEDIES WITH RESPECT TO SUCH COLLATERAL, THEN FOR
SUCH LIMITED PURPOSE THE LAW OF SUCH STATE SHALL APPLY.
SECTION 6.05. This Security Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original and all of which
when taken together shall constitute but one and the same Security Agreement.
SECTION 6.06. This Security Agreement has been executed on behalf of
MRT by an officer in his capacity as a trustee and officer of MRT. As
provided in the declaration of trust of MRT, no trustee, officer, agent or
shareholder of MRT shall be bound or held to any personal liability in
connection with he obligations of MRT arising out of the execution of this
Security Agreement. The execution of this Security Agreement by this
individual shall not bind him or her and he or she shall not ne held to any
personal liability in connection with the obligations under this Security
Agreement as a result of such execution.
SECTION 6.07. No amendment of any provision of this Security Agreement
shall be effective unless it is in writing and signed by MRT and the
Collateral Agents.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this DEPOSIT ACCOUNT
SECURITY AGREEMENT to be executed by their respective duly authorized officers
or other representatives as of the day and year first above written.
MORTGAGE AND REALTY TRUST
By:_______________________
Name:
Title:
WILMINGTON TRUST COMPANY,
as Collateral Agent
By:_______________________
Name:
Title:
WILLIAM J. WADE,
as Collateral Agent
By:_______________________
<PAGE>
SCHEDULE 1
MORTGAGE AND REALTY TRUST ACCOUNTS
<TABLE>
<CAPTION>
Account in the Account Account
Name of: Type: Number: Institution:
- - ------------------------- ------- --------- --------------------------
<S> <C> <C> <C>
Mortgage and Realty Trust General 2653-6103 Wilmington Trust Company
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
ABA No. 031100092
Mortgage and Realty Trust
Payroll Account Payroll 2653-6111 Wilmington Trust Company
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
ABA No. 031100092
Mortgage and Realty Trust
Asset Sale Account Trust 28666-1 Wilmington Trust Company
Rodney Square North
1100 N. Market Street
Wilmington, DE 19890-0001
ABA No. 031100092
</TABLE>
<PAGE>
SCHEDULE 2
Defaults of Mortgage and Realty Trust under the Indenture dated as of July
15, 1992 between Mortgage and Realty Trust and Wilmington Trust Company, as
Trustee:
Covenant Defaults
- - -----------------
March 31, 1993
Section 1005 (Ratio of Outstanding Securities to Capital Base)*
June 30, 1993
Section 1005 (Ratio of Outstanding Securities to Capital Base)
Section 1006 (Ratio of Earning Assets to Securities)
September 30, 1993
Section 1005 (Ratio of Outstanding Securities to Capital Base)
Section 1006 (Ratio of Earning Assets to Securities)
Section 1018(i) (Operating budget for succeeding year on quarterly basis)**
December 31, 1993
Section 1005 (Ratio of Outstanding Securities to Capital Base)
Section 1006 (Ratio of Earning Assets to Securities)
Section 1008 (Non-Earning Assets)
March 31, 1994
Section 1005 (Ratio of Outstanding Securities to Capital Base)
Other
Defaults that may be occasioned by the Company's continued use of cash and
administration of assets in the presence of uncured Defaults and Events of
Default
Payment Defaults
- - ----------------
June 30, 1993 - $20 million principal payment
September 30, 1993 - Additional Payment (Section 203(b))***
December 31, 1993 - $33.8 million principal payment
- $6.6 million interest payment
- Additional Payment (Section 203(b))***
February 14, 1994 - Approximately $183,000 penalty payment (Section 1008(b))
March 31, 1994 - $6.4 million interest payment
- Additional Payment (Section 203(b))***
____________________
* Waived pursuant to Act of the Holders dated on or about May 26, 1993.
** Due at least 30 days prior to year end. Because of the continuing
negotiations and the uncertain debt structure and amortization, the
Company was unable to prepare a meaningful budget. The Company did,
however, prepare and distribute all asset-specific budgets and its
annual administrative budget.
*** The Indenture contemplates that Additional Payment amounts will be
calculated after payments of principal and/or interest due on the
specified date. The existence and amount of any Additional Payment is
not readily calculable when such principal and interest payments are not
made. At the specified dates and at best calculation, if the required
principal and interest payments were made (and had been made for prior
periods), then there would have been less than $10 million of Available
Cash at each date. Therefore, no Additional Payment would have been
required. However, because the indicated principal and interest
payments were not made, on the dates specified the Company held more
than $10 million of cash and cash equivalents.
<PAGE>
SCHEDULE 3
ADDRESSES FOR NOTICES
MORTGAGE AND REALTY TRUST
8380 OLD YORK ROAD
SUITE 300
ELKINS PARK, PENNSYLVANIA 19117-1590
TELECOPY: (215) 881-6483
WILMINGTON TRUST COMPANY
RODNEY SQUARE NORTH
1100 NORTH MARKET STREET
WILMINGTON, DELAWARE 19890-0001
TELECOPY: (302) 651-8882
WILLIAM J. WADE
c/o RICHARDS, LAYTON & FINGER
ONE RODNEY SQUARE
P.O. BOX 551
WILMINGTON, DELAWARE 19899
TELECOPY: (302) 658-6548
Exhibit 11
MORTGAGE AND REALTY TRUST
SCHEDULE OF NET INCOME (LOSS) PER SHARE - ASSUMING FULL DILUTION
FOR THE PERIODS ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
Quarter Nine Months
Ended Ended
------------ ------------
<S> <C> <C>
BASIS:
Net (loss) $(4,745,000) $(14,553,000)
Average common shares outstanding 11,226,000 11,226,000
20% limitation on assumed repurchase 2,245,000 2,245,000
Market price at the end of the period $.375 $.375
Options outstanding 426,000 426,000
COMPUTATION:
Proceeds:
Options 426,000 426,000
Average exercise price X $5.37 X $5.37
----------- ------------
$ 2,288,000 $ 2,288,000
=========== ============
Adjustment of proceeds:
Purchase of outstanding common shares
at market value $ 842,000 $ 842,000
Retirement of debt 1,446,000 1,446,000
----------- ------------
$ 2,288,000 $ 2,288,000
=========== ============
Adjustment of net income (loss):
Net (loss) before gain on sales of
real estate $(4,745,000) $(14,553,000)
Interest reduction 37,000 112,000
----------- ------------
Adjusted net income (loss) $(4,708,000) $(14,441,000)
=========== ============
Adjustment of shares outstanding:
Average shares outstanding 11,226,000 11,226,000
Net shares repurchased (1,819,000) (1,819,000)
----------- ------------
Adjusted shares outstanding (basis for
computation of net income per share -
assuming full dilution) 9,407,000 9,407,000
=========== ============
Fully diluted earnings per share:
Net (loss) $(.50) $(1.54)
===== ======
</TABLE>
NOTE - Primary earnings per share is based on the average number of shares
outstanding during the period.
<PAGE>
Exhibit 11
MORTGAGE AND REALTY TRUST
SCHEDULE OF NET INCOME (LOSS) PER SHARE - ASSUMING FULL DILUTION (Continued)
FOR THE PERIODS ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
Quarter Nine Months
Ended Ended
------------ -------------
<S> <C> <C>
BASIS:
Net (loss) $(17,478,000) $(30,642,000)
Average common shares outstanding 11,076,000 11,076,000
20% limitation on assumed repurchase 2,215,000 2,215,000
Market price at the end of the period $.625 $.625
Options outstanding 463,000 463,000
COMPUTATION:
Proceeds:
Options 463,000 463,000
Average exercise price X $5.39 X $5.39
------------ ------------
$ 2,496,000 $ 2,496,000
============ ============
Adjustment of proceeds:
Purchase of outstanding common shares
at market value $ 1,384,000 $ 1,384,000
Retirement of debt 1,112,000 1,112,000
------------ ------------
$ 2,496,000 $ 2,496,000
============ ============
Adjustment of net income (loss):
Net (loss) before gain on sales of
real estate $(17,478,000) $(30,642,000)
Interest reduction 25,000 75,000
------------ ------------
Adjusted net income (loss) $(17,453,000) $(30,567,000)
============ ============
Adjustment of shares outstanding:
Average shares outstanding 11,076,000 11,076,000
Net shares repurchased (1,752,000) (1,752,000)
------------ ------------
Adjusted shares outstanding (basis for
computation of net income per share -
assuming full dilution) 9,324,000 9,324,000
============ ============
Fully diluted earnings per share:
Net (loss) $(1.87) $(3.28)
====== ======
</TABLE>
NOTE - Primary earnings per share is based on the average number of shares
outstanding during the period.
