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 March 31, 1996
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
VALUE PROPERTY 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)
120 Albany Street, 8th Floor
New Brunswick, New Jersey 08901-2163
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 296-3080
<PAGE>
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 May 1, 1996: 11,226,310
<PAGE>
VALUE PROPERTY TRUST
INDEX
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at March 31, 1996 (Unaudited) and
September 30, 1995
Statement of Operations for the Three and Six Months
Ended March 31, 1996 and 1995 (Unaudited)
Statement of Cash Flows for the Six Months Ended
March 31, 1996 and 1995 (Unaudited)
Statement of Shareholders' Equity for the Six Months
Ended March 31, 1996 (Unaudited)
Notes to the Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
VALUE PROPERTY TRUST FORM 10Q
Part I: Financial Information
Item 1. Financial Statements:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------
BALANCE SHEET
(In Thousands)
- - ---------------------------------------------------------------------------------------
March 31, September 30,
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Assets Held for Sale:
Mortgage loans .......................................... $ -- $ 21,966
Investments in partnerships ............................. 5,329 5,220
Real estate owned ....................................... 43,148 42,059
-------- --------
Total assets held for sale ........................ 48,477 69,245
====== ======
Assets Held for Investment:
Mortgage loans .......................................... 860 35,013
Investments in partnerships ............................. 20,508 20,648
Real estate owned ....................................... 81,536 81,581
Notes receivable ........................................ -- 633
-------- --------
Total assets held for investment .................. 102,904 137,875
-------- --------
Total invested assets ............................. 151,381 207,120
Cash and cash equivalents .................................. 75,653 9,977
Restricted cash ............................................ 1,199 6,791
Interest receivable and other assets ....................... 3,486 8,441
-------- --------
Total assets ...................................... $231,719 $232,329
======== ========
(Continued)
<PAGE>
<CAPTION>
- - ---------------------------------------------------------------------------------------
BALANCE SHEET -- Continued
(In Thousands)
- - ---------------------------------------------------------------------------------------
March 31, September 30,
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
LIABILITIES
Senior secured notes (due 2002) ............................ $109,975 $109,975
Mortgage payable ........................................... 13,897 17,535
Accounts payable and accrued expenses ...................... 1,827 4,745
Interest payable ........................................... 3,059 --
-------- --------
Total liabilities ................................. 128,758 132,255
-------- --------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value: 3,500,000 shares authorized,
none issued ............................................. -- --
Common shares, $1 par value: 20,000,000 shares authorized,
11,226,310 and 11,226,215 shares issued and outstanding . 11,226 11,226
Additional paid-in capital ................................. 88,848 88,848
Retained earnings .......................................... 2,887 --
-------- --------
Total shareholders' equity ........................ 102,961 100,074
-------- --------
Total liabilities and shareholders' equity ........ $231,719 $232,329
======== ========
See accompanying Notes to the Financial Statements.
</TABLE>
<PAGE>
VALUE PROPERTY TRUST FORM 10Q
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (Unaudited)
(In Thousands Except Per Share Data)
- - ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------ --------------------------------
1996 | 1995 1996 | 1995
------------- | ------------- ------------- | -------------
(Post- | (Pre- (Post- | (Pre-
Confirmation) | Confirmation) Confirmation) | Confirmation)
<S> <C> <C> <C> <C>
Income: | |
Income on rental properties: | |
Rental income........................... $ 6,764 | $ 5,824 $ 13,324 | $ 11,516
Operating expense reimbursements........ 853 | 590 1,696 | 1,167
Interest and fee income on mortgage loans... 1,356 | 2,303 3,035 | 5,181
Interest on short-term investments.......... 462 | 1,042 767 | 1,864
Other....................................... 3 | 14 11 | 47
---------- | --------- ---------- | ----------
Total income............................ 9,438 | 9,773 18,833 | 19,775
| |
Expenses: | |
Interest.................................... 3,420 | 10,273 6,985 | 19,832
Expenses of rental properties: | |
Depreciation and amortization........... 630 | 1,782 1,195 | 3,486
Operating............................... 3,051 | 2,801 6,126 | 5,471
Administrative.............................. 887 | 1,045 1,640 | 2,198
Provision for losses on mortgage loans | |
and related investments................ -- | 3,000 -- | 3,000
---------- | --------- ---------- | ----------
Total expense........................... 7,988 | 18,901 15,946 | 33,987
| |
Income (loss) from operations before | |
reorganization expenses..................... 1,450 | (9,128) 2,887 | (14,212)
Reorganization expenses........................ -- | 1,135 -- | 1,505
---------- | --------- ---------- | ----------
Net income (loss).............................. $ 1,450 | $ (10,263) $ 2,887 | $ (15,717)
========== | ========= ========== | ==========
| |
Per share: | |
| |
Net income .................................... $ .13 | $ * $ .26 | $ *
========== | ========= ========== | ==========
| |
Weighted average number of common | |
shares outstanding.......................... 11,226 | 11,226 11,226 | 11,226
========== | ========= ========== | ==========
*Per share information is not meaningful due to adoption of
Fresh Start Reporting.
See accompanying Notes to the Financial Statements.
</TABLE>
<PAGE>
VALUE PROPERTY TRUST FORM 10Q
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS (Unaudited)
(In Thousands)
- - ---------------------------------------------------------------------------------------------------
Six Months Ended March 31,
------------------------------
1996 1995
(Post- (Pre-
Confirmation) Confirmation)
------------- | -------------
<S> <C> <C>
Cash flows from operating activities: |
Net income (loss) ........................................ $ 2,887 | $(15,717)
Adjustments to reconcile net income (loss) to net |
cash provided by operating activities: |
Deprecation and amortization on real estate ..... 1,195 | 3,486
Decrease in payables and accrued expenses ....... (2,918) | (335)
Increase in interest payable .................... 3,059 | 18,756
Decrease in receivables and other assets ........ 4,955 | 1,126
Provision for losses ............................ -- | 3,000
Recoveries of charge offs to allowance for losses -- | 116
-------- | --------
Total adjustments ........................................ 6,291 | 26,149
-------- | --------
Net cash provided by operating activities ..................... 9,178 | 10,432
-------- | --------
Cash flows from investing activities: |
Investment in real estate: |
Real estate equities ................................. 2,393 | (7,538)
Advances on mortgage loans ........................... (73) | (97)
Partnerships ......................................... (139) | (1,849)
Principal repayments on mortgage loans ................... 244 | 8,392
Sale of real estate ...................................... 658 | 3,350
Sale of mortgage loans and notes receivable .............. 51,123 | --
Principal repayments on notes receivable ................. 338 | 118
-------- | --------
Net cash provided by investing activities ..................... 54,544 | 2,376
-------- | --------
Cash flows from financing activities: |
Decrease in mortgage payable ............................. (3,638) | --
Decrease in restricted cash .............................. 5,592 | --
-------- | --------
Net cash provided by financing activities ..................... 1,954 | --
-------- | --------
|
Net increase in cash and cash equivalents ..................... 65,676 | 12,808
Cash and cash equivalents at beginning of period .............. 9,977 | 60,332
-------- | --------
|
Cash and cash equivalents at end of period .................... $ 75,653 | $ 73,140
======== | ========
|
(Continued)
<PAGE>
<CAPTION>
VALUE PROPERTY TRUST FORM 10Q
- - ---------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS (Unaudited) -- Continued
(In Thousands)
- - ---------------------------------------------------------------------------------------------------
Six Months Ended March 31,
------------------------------
1996 1995
(Post- (Pre-
Confirmation) Confirmation)
------------- | -------------
<S> <C> <C>
Supplemental schedule of non-cash investment and |
financing activities: |
Charge offs against allowance for losses ............. $ -- | $ 5,515
======== | ========
|
Transfer of mortgage loans to real estate and |
investment in partnerships held for investment .. $ 5,120 | $ 33,502
======== | ========
See accompanying Notes to the Financial Statements.
</TABLE>
<PAGE>
VALUE PROPERTY TRUST FORM 10Q
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
(In Thousands)
- - -------------------------------------------------------------------------------------------------------------------
For the Six Months Ended March 31, 1996
Additional Total
Common Shares Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995.......... 11,226 $ 11,226 $ 88,848 $ -- $ 100,074
Net income............................. -- -- -- 2,887 2,887
------ ----------- ----------- ----------- -----------
Balance at March 31, 1996.............. 11,226 $ 11,226 $ 88,848 $ 2,887 $ 102,961
====== =========== =========== =========== ===========
See accompanying Notes to the Financial Statements.
</TABLE>
<PAGE>
VALUE PROPERTY TRUST FORM 10Q
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. BASIS OF FINANCIAL INFORMATION AND PLAN OF REORGANIZATION
In connection with its emergence from the Chapter 11
proceeding (the "1995 Restructuring"), the Trust implemented
Fresh Start Reporting as of September 30, 1995, as set forth
in Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code". Fresh
Start Reporting was required because (1) the reorganization
value of the Trust's assets immediately before the date of
confirmation was less than the total of all post-petition
liabilities, (2) there was more than a 50% change in the
ownership of the Trust, and (3) there was a permanent and
substantive loss of control by existing shareholders. As a
result, all assets and liabilities were restated to reflect
their respective reorganization values or fair value. The
March 31, 1996 income statement and cash flow statement
amounts have been segregated by a black line in order to
signify that the fiscal 1996 income statement and cash flow
statement are that of a new reporting entity and has been
prepared on a basis not comparable to the pre- confirmation
income statement and cash flow statement.
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of
management, all adjustments, consisting of only normal
recurring accruals, considered necessary for a fair
presentation have been included. Operating results for the
three-month and six-month periods ended March 31, 1996 are not
necessarily indicative of the results that may be expected for
the fiscal year ending September 30, 1996.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements -
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. The most significant of these estimates
relate to the carrying value of the assets held for sale and
the estimated useful lives of assets held for investment.
Actual results could differ from those estimates.
<PAGE>
Income Taxes - The Trust is a real estate investment trust
("REIT") that has elected to be taxed under Sections 856-860
of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, no provision has been made for income taxes in
the financial statements.
The Trust estimates it has a net operating loss ("NOL")
carryforward of approximately $157 million for tax purposes at
fiscal year end 1995. Beginning with fiscal 1996, the NOL
carryforward available to offset taxable income for future
years will be approximately $82 million after the recognition
for tax purposes of Cancellation of Indebtedness ("COD")
income of approximately $75 million. The NOL carryforward will
be subject to Code Section 382 annual limitations on the use
of the NOL. The Trust estimates this annual limitation to be
approximately $6 million with any portion of the Section 382
limitation not used in any taxable year carried forward up to
fifteen years.
Rental Income - Rental income is recognized on a straight-line
basis over the applicable term of the lease.
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 - With the implementation of Fresh Start
Reporting, as of September 30, 1995, the allowance for loan
losses was reset to zero. Further provisions for losses on
mortgage loans and related investments in accordance with
Statement of Position 75-2, "Accounting Practices of Real
Estate Investment Trusts" may be necessary if there is
deterioration in real estate markets, or there is a
significant increase in the Trust's cost of capital.
Net Income Per Share - Net income per share is computed using
the weighted average common shares outstanding during the
three months and six months ended March 31, 1996. Per share
information is not disclosed for any period ending prior to
October 1, 1995 because such information is not meaningful due
to the implementation of Fresh Start Reporting on September
30, 1995.
Depreciation and Amortization - Real estate owned and held for
investment is depreciated using the straight line method over
their estimated useful lives.
The estimated useful lives are as follows:
Buildings 40 years
Equipment 5 years
Tenant Improvement Term of related lease
Real estate owned and held for sale is not depreciated.
<PAGE>
Cash and Cash Equivalents - Cash and cash equivalents and
restricted cash include short-term investments (high grade
commercial paper and US Treasury Bills) with original
maturities not exceeding a term greater than 90 days.
Restricted cash of $1,199,000 is restricted as to use under
terms of a termination pay plan, and various escrow and lease
agreements.
Investments in Partnerships - Investments in partnerships
represent the Trust's investment in real estate partnerships.
The Trust owns a majority percentage interest in these
partnerships and receives substantially all the cash flow. The
Trust consolidates these partnerships as real estate
investments.
Real Estate Owned - At September 30, 1995, real estate owned
and held for investment are carried at reorganization value
and are depreciated using the straight line method over their
estimated useful lives.
Real estate owned and held for sale are carried at net
realizable value which approximate reorganization value. Such
assets are not depreciated.
NOTE 3. MORTGAGE LOANS AND INVESTMENTS IN REAL ESTATE
During the second quarter of fiscal 1996, the Trust completed
the disposition of substantially all of its mortgage loan
portfolio. The Trust received $55.0 million in net cash
proceeds through a series of transactions which included loan
repayments and a bulk sale of mortgage loans. The carrying
value of the mortgage loans involved in these transactions
totaled $50.5 million. The Trust's remaining mortgage loan
holdings are currently less than $1.0 million.
The following table summarizes the Trust's investments in real
estate owned at March 31, 1996. At September 30, 1995, as a
result of Fresh Start Reporting, all assets and liabilities of
the Trust were restated to reflect their respective
reorganization values or fair value. The accumulated
depreciation on real estate owned was reset to zero as a
result of the adoption of Fresh Start Reporting.
<PAGE>
<TABLE>
<CAPTION>
Type of Number Carrying Accumulated Book
Property of Properties Amount Depreciation Value
-------- ------------- ------ ------------ -----
<S> <C> <C> <C> <C>
Real Estate Owned 34 125,710 (1,026) 124,684
Investments in Partnerships 5 26,006 (169) 25,837
-- ------- ------ -------
Total 39 151,716 (1,195) 150,521
== ======= ====== =======
</TABLE>
NOTE 4. BORROWINGS
Mortgage Payable - The Trust had a mortgage loan of
$13,897,000 (the "Mortgage Payable") outstanding at March 31,
1996. The contractual interest rate on this loan at March 31,
1996 was 10.25% (Prime + 2%, floor of 8.5%) and the loan would
have matured in December 1996. See discussion below with
respect to the Trust's prepayment of the Old Notes.
Senior Secured Notes - The Old Notes were secured obligations
(secured by a first priority lien on all of the Trust's
collateral) governed by the Old Indenture between the Trust
and Wilmington Trust Co., as Trustee, dated as of the
effective date of the Trust's reorganization (September 29,
1995). Interest on the Old Notes accrued at 11-1/8% per annum
and was payable semi-annually in arrears on each June 30 and
December 31. The Old Indenture included affirmative covenants,
negative covenants and financial covenants. At March 31, 1996,
the Trust was in compliance with all covenants under the Old
Indenture.
On March 28, 1996, the Trust entered into a financing
agreement which provided for the issuance of $67 million of
new Floating Rate Notes ("Floating Rate Notes"), which
issuance occurred on April 30, 1996. The Floating Rate Notes
bear interest at 30 day LIBOR + 1.375%, payable monthly, and
have a stated maturity date of May 1, 1999.
The indenture relative to the Floating Rate Notes (the "New
Indenture") generally requires that, on a monthly basis, the
Trust deposit into a Trapped Funds Account (as defined in the
New Indenture) maintained by the indenture trustee (the "New
Indenture Trustee") for the Floating Rate Notes all Cash Flow
and Asset Sale Proceeds (each as defined in the New
Indenture). Cash Flow from the Trapped Funds Account will be
distributed by the New Indenture Trustee to pay the New
Indenture Trustee's expenses, pay all accrued but unpaid
interest on the Floating Rate Notes and to maintain a debt
service reserve account before any monies are released to the
Trust. In the event of a sale of, or certain casualty or
indemnification events with respect to, one of the twenty-four
properties mortgaged under the terms of the debt instruments,
the proceeds therefrom will be used to retire up to 125% of a
portion of the Floating Rate Notes that has been allocated to
such property before any monies are released to the Trust. The
New Indenture includes affirmative covenants and negative
covenants.
<PAGE>
The proceeds received from the Floating Rate Notes, together
with approximately $57 million of cash on hand, were used to
prepay the Trust's Old Notes and Mortgage Payable. The face
amount outstanding of the Old Notes and the Mortgage Payable
at the time of repayment was $110.0 million and $13.9 million,
respectively. The Old Notes and Mortgage Payable were repaid
in full on April 30, 1996.
On April 24, 1996, effective April 30, 1996, the Trust entered
into an interest rate protection agreement (the "Swap") that
serves to cap the floating interest component of the Floating
Rate Notes at 8%. The Trust paid a one-time fee of $377,000 to
the counterparty to the Swap.
NOTE 5. SHARE OPTION PLAN
1995 Share Option Plan
On October 2, 1995, the Board of Trustees adopted a 1995 Share
Option Plan (the "1995 Plan") for trustees, officers,
employees and other key persons of the Trust. On February 15,
1996, the Trust's shareholders approved the adoption of the
1995 Plan at the Trust's 1996 Annual Meeting of Shareholders.
The 1995 Plan provides for the grant of options to purchase up
to 870,000 Common Shares at not less than 100% of the fair
market value of the Common Shares, subject to adjustment for
share splits, share dividends and similar events. To the
extent that awards under the 1995 Plan do not vest or
otherwise revert to the Trust, the Common Shares represented
by such awards may be the subject of subsequent awards.
The 1995 Plan provides for the grant of incentive stock
options ("Incentive Options") which qualify under Section 422
of the Code and nonqualified stock options ("non- Qualified
Options"). Holders of options also receive dividend equivalent
rights. Under the 1995 Plan, 839,000 options were granted with
an exercise price ranging from $10.00 to $10.625 per share
during the first six months of fiscal 1996. The options expire
four years from the date of grant.
<PAGE>
VALUE PROPERTY TRUST FORM 10Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following section includes a discussion and analysis of the results
of operation for the six months ended and three months ended March 31,
1996 and 1995. The Trust has, for the past several years, reported
significant net losses. As a result of the 1995 Restructuring, past
results should not be indicative of future operating performance.
Future results of operations of the Trust will not be comparable to the
historical operating performance.
Results of Operations - Six Months Ended March 31, 1996 vs. Six Months
Ended March 31, 1995 - Net income for the six months ended March 31,
1996 was $2,887,000 or $.26 per share compared to a net loss of
$15,717,000 for the six months ended March 31, 1995. Per share
information for periods prior to October 1, 1995 is not meaningful due
to the adoption of Fresh Start Reporting.
Rental income increased $1,808,000 to $13,324,000 in the six months
ended March 31, 1996 from $11,516,000 for the six months ended March
31, 1995. In addition to rental income, the Trust received from tenants
reimbursement of certain operating expenses totaling $1,696,000 and
$1,167,000 for the six months ended March 31, 1996 and 1995,
respectively. These increases were primarily due to the addition of
real estate foreclosed upon during the year.
Interest and fee income on mortgage loans decreased $2,146,000 to
$3,035,000 for the six months ended March 31, 1996 compared to
$5,181,000 for the six months ended March 31, 1995. This decrease was
due primarily to approximately $49,800,000 in carrying value of
mortgage loans foreclosed upon during the year and approximately
$20,900,000 in mortgage loan repayments. Because of the sale of
substantially all of the Trust's mortgage loan portfolio in March 1996,
interest income is expected to be substantially reduced in the future.
The Trust earned 12 days of interest in March 1996 as a result of the
timing of the bulk sale. The Trust's remaining mortgage loan portfolio
is currently less than $1.0 million.
Interest on short-term investments was $767,000 in the six months ended
March 31, 1996 compared to $1,864,000 in the six months ended March 31,
1995. The decline was due to the reduction in cash balances as a result
of the $25 million payment made on April 11, 1995 required to implement
the 1995 Restructuring and an additional $46 million payment made on
September 29, 1995. Prior to these payments, the Trust was accumulating
cash and since September 30, 1993, had not made any payments of
interest or principal on its indebtedness. Partially offsetting this
decline was interest earned on the cash proceeds of $55.0 million
received as a result of the Trust's disposition of substantially all of
its mortgage loan portfolio in March 1996.
<PAGE>
Interest expense decreased $12,847,000 to $6,985,000 for the six months
ended March 31, 1996 compared to $19,832,000 for the six months ended
March 31, 1995. The decrease was due to the reduction of the Trust's
outstanding senior secured indebtedness from $290,000,000 for the
majority of fiscal 1995 to $109,975,000 in fiscal 1996 as a result of
the 1995 Restructuring, which occurred at the end of the fourth quarter
of fiscal 1995. Another factor contributing to the decrease was the
principal reduction in the first quarter of fiscal 1996 of $3.5 million
on the Mortgage Payable.
Depreciation and amortization on rental properties decreased $2,291,000
to $1,195,000 for the six months ended March 31, 1996 from $3,486,000
for the six months ended March 31, 1995, primarily as a result of the
adoption of Fresh Start Reporting. Prior to Fresh Start Reporting, the
Trust depreciated all real estate investments. At September 30, 1995,
the Trust segregated the real estate portfolio into two categories:
Held for Sale and Held for Investment. The Trust depreciates the Held
for Investment category over the estimated useful lives of the assets.
Real estate owned and held for sale is not depreciated.
Operating expenses increased $655,000 to $6,126,000 for the six months
ended March 31, 1996 from $5,471,000 for the six months ended March 31,
1995. This increase was due to the addition of 7 real estate properties
foreclosed upon during the year.
Administrative operating expenses decreased $558,000 to $1,640,000 for
the six months ended March 31, 1996 compared to $2,198,000 for the six
months ended March 31, 1995. The decrease was due to a reduction in
staffing levels, occupancy and insurance premiums, partially offset by
an increase in professional fees.
Provision for losses on mortgage loans and related investments
decreased $3,000,000 for the six months ended March 31, 1996 from
$3,000,000 recorded in the six months ended March 31, 1995. For the
first six months of fiscal 1996, the Trust did not make a provision for
losses.
The 1995 Restructuring was completed in the fourth quarter of fiscal
1995. Reorganization expenses related to the Chapter 11 filing and debt
restructuring expenses were $1,505,000 for the six months ended March
31, 1995. These expenses reflect professional fees incurred by the
representatives of the creditors, shareholders and the Trust.
Results of Operations - Quarter Ended March 31, 1996 vs. Quarter Ended
March 31, 1995 - Net income for the quarter ended March 31, 1996 was
$1,450,000 or $.13 per share compared to a net loss of $10,263,000 for
the quarter ended March 31, 1995. Per share information for periods
prior to October 1, 1995 is not meaningful due to the adoption of Fresh
Start Reporting.
Rental income increased $940,000 to $6,764,000 in the quarter ended
March 31, 1996 from $5,824,000 for the quarter ended March 31, 1995. In
addition to rental income, the Trust received from tenants
reimbursement of certain operating expenses totaling $853,000 and
$590,000 for the quarters ended March 31, 1996 and 1995 respectively.
These increases were primarily due to the addition of real estate
foreclosed upon during the year.
<PAGE>
Interest and fee income on mortgage loans decreased $947,000 to
$1,356,000 for the quarter ended March 31, 1996 compared to $2,303,000
for the quarter ended March 31, 1995. This decrease was due primarily
to approximately $49,800,000 in carrying value of mortgage loans
foreclosed upon during the year and approximately $20,900,000 in
mortgage loan repayments. Because of the sale of substantially all of
the Trust's mortgage loan portfolio in March 1996, interest income is
expected to be substantially reduced in the future. The Trust earned 12
days of interest in March 1996 as a result of the timing of the bulk
sale. The Trust's remaining mortgage loan portfolio is currently less
than $1.0 million.
Interest on short-term investments was $462,000 in the second quarter
of fiscal 1996 compared to $1,042,000 in the second quarter of fiscal
1995. The decline was due to the reduction in cash balances as a result
of the $25 million payment made on April 11, 1995 required to implement
the 1995 Restructuring and an additional $46 million payment made on
September 29, 1995. Prior to these payments, the Trust was accumulating
cash and since September 30, 1993, had not made any payments of
interest or principal on its indebtedness. Partially offsetting the
decline was interest earned on cash proceeds of $55.0 million received
as a result of the Trust's disposition of substantially all of its
mortgage loan portfolio in March 1996.
Interest expense decreased $6,853,000 to $3,420,000 for the current
quarter compared to $10,273,000 for the quarter ended March 31, 1995.
The decrease was due to the reduction of the outstanding senior secured
indebtedness from $290,000,000 for the majority of fiscal 1995 to
$109,975,000 in fiscal 1996 as a result of the 1995 Restructuring,
which occurred at the end of the fourth quarter of fiscal 1995. Another
factor contributing to the decrease was the principal reduction in the
first quarter of fiscal 1996 of $3.5 million on the Mortgage Payable.
Depreciation and amortization on rental properties decreased $1,152,000
to $630,000 for the quarter ended March 31, 1996 from $1,782,000 for
the quarter ended March 31, 1995, primarily as a result of the adoption
of Fresh Start Reporting. Prior to Fresh Start Reporting, the Trust
depreciated all real estate investments. At September 30, 1995, the
Trust segregated the real estate portfolio into two categories: Held
for Sale and Held for Investment. The Trust depreciates the Held for
Investment category over the estimated useful lives of the assets.
Operating expenses increased $250,000 to $3,051,000 for the quarter
ended March 31, 1996 from $2,801,000 for the quarter ended March 31,
1995. This increase was primarily due to the addition of 7 real estate
properties foreclosed upon during the year.
Administrative operating expenses decreased $158,000 to $887,000 for
the quarter ended March 31, 1996 compared to $1,045,000 for the quarter
ended March 31, 1995. This decrease was due to a reduction in staffing
levels, occupancy and insurance premiums, partially offset by an
increase in professional fees.
Provision for losses on mortgage loans and related investments
decreased $3,000,000 for the quarter ended March 31, 1996 from
$3,000,000 recorded in the quarter ended March 31, 1995. For the
quarter ended March 31, 1996, the Trust did not make a provision for
losses.
<PAGE>
The 1995 Restructuring was completed in the fourth quarter of fiscal
1995. Reorganization expenses related to the Chapter 11 filing and debt
restructuring expenses were $1,135,000 for the quarter ended March 31,
1995. These expenses reflect professional fees incurred by the
representatives of the creditors, shareholders and the Trust.
Liquidity and Capital Resources - Prior to its restructuring, the Trust
faced significant liquidity problems. The Trust did not generate
sufficient cash flow from normal operations and was not able to
liquidate mortgage loans and real estate investments in order to meet
scheduled amortization on its indebtedness. As a result of the 1995
Restructuring, the Trust should no longer have the liquidity problems
that it faced in the previous years. Management believes the cash flow
from operating activities will be sufficient to meet minimum debt
service requirements. In the near term, capital expenditure needs will
be met through liquidation of existing assets and the cash available at
March 31, 1996. However, the Trust's present liquidity, cash flow from
operating activities and ability to liquidate existing assets to meet
its obligations can be adversely impacted by a negative change in the
economy, particularly as those changes may relate to real estate
assets. The Trust may, in the future, seek to raise additional capital
through the issuance of equity securities and/or the incurrance of
additional indebtedness for the purpose of meeting additional capital
expenditures or retiring or refinancing its indebtedness.
Taxable income required to be distributed will be less than taxable
income for financial reporting purposes under generally accepted
accounting principles due to differences related to depreciation,
utilization of NOL carryforward (subject to the Code Section 382
limitations) and timing differences related to bad debt deductions.
On March 28, 1996, the Trust entered into a financing agreement which
provides for the issuance of $67 million of the new Floating Rate
Notes, which issuance occurred on April 30, 1996. The Floating Rate
Notes bear interest at 30 day LIBOR + 1.375%, payable monthly, and have
a stated maturity date of May 1, 1999.
The New Indenture generally requires that, on a monthly basis, the
Trust deposit into a Trapped Funds Account (as defined in the New
Indenture) maintained by the New Indenture Trustee all Cash Flow and
Asset Sale Proceeds (each as defined in the New Indenture). Cash Flow
from the Trapped Funds Account will be distributed by the New Indenture
Trustee to pay the New Indenture Trustee's expenses, pay all accrued
but unpaid interest on the Floating Rate Notes and to maintain a debt
service reserve account before any monies are released to the Trust. In
the event of a sale of, or certain casualty or indemnification events
with respect to, any of the twenty-four properties mortgaged under the
terms of the debt instruments, the proceeds therefrom will be used to
retire up to 125% of a portion of the Floating Rate Notes that has been
allocated to such property before any monies are released to the Trust.
The New Indenture includes affirmative covenants and negative
covenants.
The proceeds received from the Floating Rate Notes, together with
approximately $57 million of cash on hand, were used to prepay the
Trust's Old Notes and Mortgage Payable. The face amount outstanding of
the Old Notes and the Mortgage Payable at the time of repayment was
$110.0 million and $13.9 million, respectively. The Old Notes were
repaid in full on April 30, 1996.
<PAGE>
On April 24, 1996, effective April 30, 1996, the Trust entered into an
interest rate protection agreement (the "Swap") that serves to cap the
floating interest component of the Floating Rate Notes at 8%. The Trust
paid a one-time fee of $377,000 to the counterparty to the Swap.
<PAGE>
PART II: Other Information
Item 1. Legal Proceedings
A third party has alleged the existence of a purchase contract
with respect to one of the Trust's properties which the Trust
disputes. This dispute has lead to litigation. However, the
Trust believes that this litigation, when resolved, will not
have a material adverse effect on the business, financial
condition or results of operations of the Trust.
Item 4. Submission of Matters to a Vote of Security Holders
The Trust held its Annual Meeting of Shareholders on Thursday,
February 15, 1996. The shareholders approved the following
proposals as set forth in the Trust's 1996 Annual Proxy
Statement:
Proposal 1 - Adoption of voting rights of certain of the
Trust's common shares that may have been precluded from voting
under the Maryland General Corporation Law.
Votes For....................2,277,491
Votes Against................ 21,380
Abstentions.................. 13,779
Proposal 2 - Election of seven (7) Trustees to serve until the
next Annual Meeting of Shareholders and until their successors
have been duly elected and qualified.
<TABLE>
<CAPTION>
Trustee For Abstentions
------- --- -----------
<S> <C> <C>
Jeffrey A. Altman.................................... 2,670,955 14,888
Carl A. Mayer, Jr.................................... 2,672,030 13,813
Martin Bernstein..................................... 2,672,022 13,821
John B. Levy......................................... 2,672,022 13,821
Richard B. Jennings.................................. 2,672,065 13,778
Richard S. Frary..................................... 2,672,065 13,778
George R. Zoffinger.................................. 2,672,065 13,778
</TABLE>
Proposal 3 - Adoption of the 1995 Share Option Plan which
provides for the grant of options to purchase up to 870,000
shares of common stock to be issued to the Trustees, officers,
employees and other key persons of the Trust and its
subsidiaries.
Votes For.......................2,285,393
Votes Against................... 22,854
Abstentions..................... 4,403
<PAGE>
Item 5. Other Information
1. On March 28, 1996, the Trust entered into a financing
agreement which provides for the issuance of $67 million of
the new Floating Rate Notes, which issuance occurred on April
30, 1996. The Floating Rate Notes bear interest at 30 day
LIBOR + 1.375%, payable monthly, and have a stated maturity
date of May 1, 1999. The New Indenture generally requires
that, on a monthly basis, the Trust deposit into a trapped
funds account maintained by the New Indenture Trustee all Cash
Flow and Asset Sale Proceeds (each as defined in the New
Indenture). Cash Flow from the trapped funds account will be
distributed by the New Indenture Trustee to pay the New
Indenture Trustee's expenses, pay all accrued but unpaid
interest on the Floating Rate Notes and to maintain a debt
service reserve account before any monies are released to the
Trust. In the event of a sale of, or certain casualty or
indemnification events with respect to, one of the twenty-four
properties mortgaged under the terms of the debt instruments,
the proceeds therefrom will be used to retire up to 125% of a
portion of the Floating Rate Notes that has been allocated to
such property before any monies are released to the Trust. The
New Indenture includes affirmative covenants and negative
covenants.
The proceeds received from the Floating Rate Notes, together
with approximately $57 million of cash on hand, were used to
prepay the Trust's Old Notes and Mortgage Payable. The face
amount outstanding of the Old Notes and the Mortgage Payable
at the time of repayment was $110.0 million and $13.9 million,
respectively. The Old Notes were repaid, in full on April 30,
1996.
On April 24, 1996, effective April 30, 1996, the Trust entered
into an interest rate protection agreement (the "Swap") that
serves to cap the floating interest component of the Floating
Rate Notes at 8%. The Trust paid a one-time fee of $377,000 to
the counterparty to the Swap.
2. THE LIQUIDITY AND CAPITAL RESOURCES SECTION OF MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND THIS PART II MAY CONTAIN FORWARD-LOOKING
STATEMENTS. IN EACH CASE THERE MAY EXIST FACTORS WHICH COULD
CAUSE ACTUAL RESULTS OR EVENTS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN SUCH STATEMENTS. THESE FACTORS INCLUDE THOSE
SET FORTH UNDER THE RELEVANT CAPTIONS IN THE REFERENCED
SECTIONS OF THE 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
10.1 Note Purchase Agreement with respect to the Floating Rate
Senior Secured Notes due 1999 between BlackRock Capital
Finance L.P. and Value Property Trust dated March 28, 1996.
(b) Reports on Form 8-K
The Trust filed a Current Report on Form 8-K dated February
15, 1996 under Item 5 of Form 8-K regarding the actions taken
at the Trust's Annual Shareholders Meeting and reported the
Trust's unaudited operating results for the first quarter
ended December 31, 1995.
The Trust filed a Current Report on Form 8-K dated March 14,
1996 under Item 2 and Item 5 of Form 8-K regarding the Trust's
disposition of substantially all of its mortgage loan
portfolio, the execution of the financing agreement with
respect to the Floating Rate Notes, and the Trust's issuance
of the notice to the Indenture Trustee for the Senior Secured
Notes, directing it to call 100% of the outstanding Senior
Secured Notes.
<PAGE>
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.
Value Property Trust
/s/ George R. Zoffinger
--------------------------------------
George R. Zoffinger
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Robert T. English
--------------------------------------
Robert T. English
Chief Financial Officer
(Principal Financial Officer)
DATE: May 15, 1996
FLOATING RATE SENIOR SECURED NOTES DUE 1999
NOTE PURCHASE AGREEMENT
March 28, 1996
BlackRock Capital Finance L.P.
345 Park Avenue
New York, New York 10154
Ladies and Gentlemen:
Value Property Trust, a Maryland real estate investment trust
(the "Company"), hereby confirms its agreement with you (the "Purchaser") as
follows:
1. The Notes. Subject to the terms and conditions herein
contained, five of the Company's wholly-owned subsidiaries (collectively, the
"Issuers"), propose to issue and sell Floating Rate Senior Secured Notes due
April 1, 1999 (the "Notes"), in an aggregate initial principal amount of
$67,379,000 to be issued under an Indenture, dated as of the Closing Date (as
hereinafter defined), between LaSalle National Bank, as trustee (the "Trustee")
and the Issuers (such indenture, which shall be substantially in the form of
Exhibit A hereto, the "Indenture"). Interest will accrue on the Notes at a per
annum rate equal to the LIBO Rate plus 1.375%. Capitalized terms used herein and
not otherwise defined shall have the meanings assigned to such terms in the
Indenture.
The Notes will be secured by the Collateral as set forth in
the Indenture. The Notes will not be insured or guaranteed by any governmental
agency or by any other Person or entity.
LaSalle National Bank will act as Trustee, Paying Agent and
Registrar with respect to the Notes.
2. Purchase Provisions. On the basis of the rep- resentations,
warranties and agreements herein contained, but subject to the terms and
conditions set forth herein, the Company will cause the Issuers to sell to the
Purchaser and the Purchaser agrees to purchase from the Issuers, all of the
Notes at a purchase price equal to 100% of the principal amount thereof. It is
also understood that the Purchaser proposes to reoffer the Notes for sale to one
or more institutional purchasers (either directly or through a securitization
transaction) in accordance with the terms of the Private Placement Memorandum
substantially in the form of Exhibit B hereto and with such changes thereto as
shall be necessary to cause it to be accurate as of its date (the "Private
Placement Memorandum").
3. Delivery of the Notes and Payment Therefor; Origination
Fee. The closing for the sale of the Notes to the Purchaser shall occur at 11
a.m., New York time, on or about April 29, 1996 (the "Closing Date") at the
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York.
Payment of the purchase price for the Notes shall be made in Federal or similar
same day available funds wired to such bank as may be designated by the Issuers
to the order of the Issuers, or paid in such other manner as may be agreed upon
by the Issuers and the Purchaser, against delivery of the Notes. The Closing
Date and the time, place and manner of delivery of the Notes may be varied by
agreement between the Purchaser and the Issuers. The Company shall pay the
Purchaser, either by an offset to the purchase price or in Federal or similar
same day available funds wired to such bank as may be designated by the
Purchaser, an origination fee equal to $1,161,955 as follows: one-half of such
origination fee is being paid to the Purchaser on the date of execution of this
Agreement, and the balance of such origination fee shall be paid to the
Purchaser on the Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to the Purchaser that:
(a) On the date of the Private Placement Memorandum and on the
Closing Date, the Private Placement Memorandum does not and will not
include any untrue statement of a material fact and does not and will
not omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation shall not apply to written
information furnished to the Issuers or the Company by the Purchaser
specifically for use in the Private Placement Memorandum.
(b) The Notes and the Indenture and the Collateral Documents
at the Closing Date, will have been duly and validly authorized,
executed and delivered by the Issuers to the extent a party thereto,
and the execution, delivery and performance thereof are within the
trust or corporate powers of the Issuers, and the Indenture and the
Collateral Documents, when duly executed and delivered, and the Notes,
when validly authenticated, issued and delivered and paid for as
contemplated hereby and by the Indenture, will constitute legal, valid
and binding obligations of the Issuers to the extent a party thereto,
enforceable in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights
generally and to general principles of equity.
(c) Neither the execution and delivery by the Company of this
Agreement, or the execution and delivery by the Issuers, to the extent
a party thereto, of the Indenture, the Collateral Documents or the
Notes nor the consummation by the Company or the Issuers of the
transactions therein contemplated, nor compliance by the Company or the
Issuers with the provisions thereof, will as of the Closing Date (i)
conflict with or result in a breach of, or constitute a default under,
any of the provisions of the certificate of incorporation or trust
agreement or by-laws of the Company or any Issuer or any law,
governmental rule or regulation or any judgment, decree or order
binding on the Company or any Issuer or their respective properties, or
any of the provisions of any indenture, mortgage, deed of trust,
material contract or other material instrument to which the Company or
any Issuer is a party or by which it is bound (except for such
conflicts, breaches or defaults that, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse
Effect), or (ii) result in the creation or imposition of any lien,
charge or encumbrance upon any of the Company's or any Issuer's
properties pursuant to the terms of any such indenture, mortgage, deed
of trust, contract or other instrument, except the liens created by the
Collateral Documents or that, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.
(d) All approvals, authorizations, consents, orders or other
actions of any Person, corporation or other organization, or of any
court, governmental agency, body or official (except with respect to
the state securities or blue sky laws of various jurisdictions)
required in connection with the valid and proper authorization,
issuance and sale of the Notes to the Purchaser pursuant to this
Agreement and the Indenture have been or will be taken or obtained on
or prior to the Closing Date.
(e) No securities of the same class (within the meaning of
Rule 144A(d)(3) under the Securities Act) as the Notes are listed on
any national securities exchange registered under Section 6 of the
Exchange Act, or quoted in a United States automated interdealer
quotation system.
(f) Assuming compliance by the Purchaser with the offering
restrictions provided for herein and in the initial transferee
certificate in the form of Exhibit C hereto to be delivered by the
Purchaser to the Company and the Trustee pursuant to Section 5 hereof,
the Notes are not required to be registered under the Securities Act
and the Indenture is not required to be qualified under the Trust
Indenture Act of 1939, as amended.
(g) The representations and warranties contained in Article 4
of each Mortgage in substantially the form attached hereto as Exhibit D
will be true and correct in all material respects as of the Closing
Date.
(h) As of the Closing Date, each of the Issuers will have
acquired the related Collateral in good faith, for value and without
notice of any claim against or claim to any of the Collateral on the
part of any Person other than in favor of the trustee under the
Indenture, dated as of September 25, 1995 (the "Existing Indenture"),
between the Company and Wilmington Trust Company, as trustee (the
"Existing Trustee") and other than the mortgage on the Real Estate
known as Paseo Padre and located in Freemont, California ("Paseo
Padre") and claims incurred in the ordinary course of business.
(i) The Company does not have any actual or constructive
knowledge or notice of any Lien on the Collateral contrary to the
Trustee's Lien under the Collateral Documents other than the lien in
favor of the Existing Trustee under the Existing Indenture and the
mortgage on Paseo Padre and claims incurred in the ordinary course of
business.
(j) As of the Closing Date, each Issuer will have the full
power, authority and legal right to transfer and convey the related
Collateral to the Trustee.
(k) Schedule I hereto lists all real property of the Company
to be transferred to the Issuers on or prior to the Closing Date and
the information set forth in Schedule I hereto will be true correct in
all material respects as of the Closing Date.
(l) Immediately after the consummation of the transactions
contemplated by this Agreement and the release of the mortgages
securing obligations under the Existing Indenture and the mortgage on
Paseo Padre, each of the Issuers will have good title to and will be
the sole owners and holders of all of the related Collateral, free and
clear of any and all adverse claims, charges or security interests
(including liens arising under the federal tax laws or the Employee
Retirement Income Security Act of 1974, as amended) and claims incurred
in the ordinary course of business.
(m) As of the Closing Date, each Issuer will be solvent, and
the pledge of the Collateral by each of the Issuers pursuant to the
Collateral Documents will not cause any of the Issuers to become
insolvent. The pledge of the Collateral by the Issuers pursuant to the
Collateral Documents will not be undertaken with the intent to hinder,
delay or defraud any of their respective creditors.
Any certificate signed by any officer of the Issuers and
delivered to you or to counsel for the Purchaser in connection with the offering
of the Notes to the Purchaser shall be deemed a representation and warranty as
to the matters covered thereby by the Issuers to the Purchaser.
5. Confirmation and Undertakings of the Pur- chaser; Initial
Transferee Certificate; Representations. (a) The Purchaser may offer the Notes
for sale (either directly or indirectly) upon the terms and conditions set forth
in the Private Placement Memorandum. The Purchaser shall pay to the Issuers on
the Closing Date $24,000 of the fees and expenses relating to the structural
surveys with respect to the Collateral. On the Closing Date, the Purchaser shall
deliver to each of the Company and the Trustee an executed initial transferee
certificate in the form of Exhibit C hereto. The Purchaser agrees with the
Company that (i) it has not and will not solicit offers for, or offer or sell,
the Notes by any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act; and (ii) it will solicit offers for the Notes only from, and will offer the
Notes only to, Persons that it reasonably believes to be (x) "qualified
institutional buyers" as defined in Rule 144A promulgated under the Securities
Act or (y) institutional accredited investors (as defined in Rule 501(a)(1),
(2), (3), (4) or (7) under the Securities Act) that, prior to their purchase of
the Notes, deliver to the Purchaser a transferee certificate substantially in
the form of Exhibit A-2 to the Indenture.
(b) The Purchaser represents and warrants that: (i) this
Agreement has been duly and validly authorized, executed and delivered by it,
and the execution, delivery and performance of this Agreement are within its
partnership powers; (ii) this Agreement constitutes a legal, valid and binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and to general principales of equity; and (iii) all
approvals, authorizations, consents, orders or other actions of any Person,
corporation or other organization, or of any court, governmental agency, body or
official (except with respect to the state securities or blue sky laws of
various jurisdictions) required in connection with the execution, delivery and
performance of this Agreement by the Purchaser and the purchase of the Notes by
the Purchaser pursuant to this Agreement have been or will be taken or obtained
on or prior to the Closing Date.
6. Covenants of the Company. The Company covenants and agrees
with the Purchaser that:
(a) If at any time prior to the date 90 days after the Closing
Date any event occurs as a result of which, in the reasonable opinion
of counsel for the Issuers or counsel for the Purchaser, the Private
Placement Memorandum would include any untrue statement of a material
fact, or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, the Company shall cause the Issuers to
promptly prepare and supply to the Purchaser an amendment or supplement
that will correct such statement or omission or an amendment that will
effect such compliance.
(b) The Company shall and it shall cause the Issuers to
furnish to the Purchaser copies of the Private Placement Memorandum and
all amendments and supplements thereto, in each case as soon as
reasonably available and in such reasonable quantities as the Purchaser
requests.
(c) The Company shall and it shall cause the Issuers to
cooperate with the Purchaser in the qualification or exemption of the
Notes for sale by the Purchaser as described in the Private Placement
Memorandum and the determination of their eligibility for investment
under the laws of such jurisdictions as you designate and will continue
to cooperate so long as required for the initial sale of the Notes by
the Purchaser, except that neither the Company nor the Issuers shall be
required in connection therewith to qualify as a foreign corporation or
to execute a general consent to service of process in any jurisdiction.
(d) Except as otherwise provided below, each party hereto
shall be responsible for its own costs and expenses prior to the
Closing Date including, in the case of the Issuers, all fees and
expenses attributable to preparing or modifying mortgages or
transferring properties to special purpose, bankruptcy remote entities.
The Company shall, and it shall cause the Issuers to, reimburse the
Purchaser regardless of whether the proposed purchase of the Notes
closes, for all third party out-of-pocket expenses, including legal and
due diligence costs, payable on the Closing Date or, if the proposed
purchase of the Notes does not close, within 10 Business Days after the
Purchaser shall have determined not to proceed with the proposed
purchase of the Notes; provided, however, that not more than $200,000
aggregate amount of such expenses shall be required to be reimbursed by
the Issuers and the Company. The Company shall, and it shall cause the
Issuers to, pay all reasonable fees and expenses of the Trustee
including, without limitation, all reasonable fees and expenses of the
Trustee incurred prior to the Closing Date in connection with the
purchase of the Notes.
(e) The Company shall and it shall cause the Issuers to pay
any documentary, stamp, reserve or similar issue tax or duty and any
related interest or penalties on the purchase and delivery of, or
otherwise in connection with, the Notes to the Purchaser.
7. Conditions of the Obligation of the Purchaser. The
obligation of the Purchaser to purchase and pay for the Notes will be subject to
the following additional conditions precedent:
(a) Subsequent to the execution of this Agreement, and at the
Closing Date, there shall not have occurred or exist a material adverse
change in the business, operations or financial or other condition of
any of the Collateral since February 2, 1996; provided, however, that
if such a material adverse change shall have occurred with regard to a
particular piece or pieces of Real Estate, such Real Estate shall not
constitute Collateral hereunder and the Purchaser shall only be
obligated to purchase and the Issuers shall only be obligated to issue
and sell an aggregate amount of the Notes equal to the Allocated Note
Amount relating to the portion of the Collateral not so affected.
(b) You shall have received the opinions shown below of, in
the case of all clauses except for clause (v), Goodwin, Procter & Hoar,
LLP, counsel for the Issuers and in the case of clause (v), counsel to
the Trustee, in each case dated the Closing Date, substantially to the
effect that:
(i) the execution and delivery by the Company of this
Agreement and the execution and delivery by the Issuers of the
Indenture and the Collateral Documents are within the trust
power of the Company and the trust or corporate power of the
Issuers and neither the execution and delivery by the Company
of this Agreement or the execution and delivery by the Issuers
of the Indenture and the Collateral Documents to the extent a
party thereto, nor the consummation by the Company and the
Issuers of the transactions herein or therein contemplated,
nor the compliance by the Company with the provisions hereof
or the compliance by the Issuers with the provisions thereof,
will (A) conflict with or violate, the trust agreement or
certificate of incorporation or by-laws of the Company or any
Issuer, (B) conflict with or result in a breach of, or
constitute a default under, to the knowledge of such counsel,
any of the provisions of any applicable law, governmental
rule, regulation, judgment, decree or order binding on the
Company, any Issuer or any of their respective properties, or
to the knowledge of such counsel, any of the provisions of any
agreement, indenture, loan agreement, note, lease, mortgage,
material contract or other material instrument specified by
such counsel in a schedule to their opinion reasonably
satisfactory to the Purchaser to which the Company or any
Issuer is a party or by which they are bound or (C) to the
knowledge of such counsel, result in the creation or
imposition of any lien, charge or encumbrance upon any of the
Company's or any Issuer's property pursuant to the terms of
any such agreement, indenture, loan agreement, note, lease,
mortgage, material contract or other material instrument,
except the liens created by the Collateral Documents;
(ii) there are no actions, proceedings or
investigations pending or, to the knowledge of such counsel,
threatened, before any court, administrative agency,
governmental body or official (A) asserting the invalidity of
this Agreement and the Indenture and the Collateral Documents
or (B) seeking to prevent the issuance of the Notes or the
consummation of the transactions contemplated in this
Agreement;
(iii) this Agreement has been duly authorized,
executed and delivered by the Company and the Indenture and
the Collateral Documents have been duly authorized, executed
and delivered by the Issuers to the extent a party thereto;
(iv) this Agreement constitutes and the Indenture and
the Security Agreement, when executed and delivered by the
Company and the Issuers to the extent a party thereto, will
constitute the valid and binding obligations of the Company
and the Issuers to the extent a party thereto, enforceable in
accordance with their respective terms, subject to (A)
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other laws relating to
creditors' rights generally as from time to time in effect,
and (B) to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or
at law);
(v) the Notes, when duly and validly authorized,
executed and delivered by the Trustee, and when authenticated
by the Trustee in accordance with the terms of the Indenture,
will be validly issued and entitled to the benefits provided
by the Indenture, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium
and similar laws affecting creditors, rights and remedies
generally;
(vi) no consent, approval, authorization or order of
any court or supervisory, regulatory, administrative or
governmental agency, body or official pursuant to those laws,
of rules and regulations of the General Corporation Law of the
State of Delaware, the State of New York and of the United
States of America which, in such counsel's experience, are
normally applicable to transactions of the type contemplated
by the Indenture and the Notes, is required in connection with
the consummation of the transactions contemplated hereby and
thereby, except such as may be required under the state
securities or "blue sky" laws of any jurisdiction;
(vii) the Indenture is not required to be qualified
under the Trust Indenture Act of 1939, as amended, and neither
the Company nor any Issuer is an "investment company" as such
term is defined in the Investment Company Act of 1940, as
amended, or under the control of an investment company;
(viii) provided that the Notes are initially sold by
the Purchaser in the manner contemplated by this Agreement and
as described in the Private Placement Memorandum and assuming
the accuracy of the Purchaser's representations set forth in
this Agreement and the initial transferee certificate to be
delivered by the Purchaser to the Company and compliance with
the requirements set forth in the Indenture, the Notes are not
required to be registered under the Securities Act; and
(ix) (A) in the event of a bankruptcy filing by the
Company, a court would not order the substantive consolidation
of the Company with the Issuers, thereby pooling the assets
and liabilities of the Company with the assets and liabilities
of the Issuers and treating all such assets and liabilities as
though the Company and the Issuers were one entity, and (B)
the transfer of the Real Estate by the Company to the Issuers
constitutes a true sale of such properties rather than a
secured financing.
In rendering such opinions, such counsel may rely upon
certificates of public officials and, as to matters of fact, on
certificates of responsible officers of the Company, the Issuers and
the Trustee. It is understood that such counsel is licensed to practice
law in certain states, and that such counsel is entitled to rely upon
opinions of other counsel as to matters involving the application of
laws of any other state, provided that the opinions of such counsel are
provided to the Purchaser. The opinion in clause (ii) above shall be
based solely upon a certificate of an officer of the Company and/or the
Issuers.
(c) You shall have received an opinion of local counsel to the
Issuers, substantially in the form of Exhibit E hereto and with such
changes thereto as would be acceptable to a prudent institutional
lender, in each state where the Real Estate subject to the Mortgages is
located.
(d) You shall have received a certificate of the Company,
executed by the President or any Vice President of the Company, dated
the Closing Date, in which such officer, to the best of his/her
knowledge based upon reasonable investigation, shall state, subject to
the proviso clause in Section 7(a) hereof, that the representations and
warranties of the Company in this Agreement are true and correct in all
material respects as if made on and as of the Closing Date, and that
the Company and the Issuers have complied with all agreements and
satisfied all conditions on their part to be performed or satisfied at
or prior to the Closing Date.
(e) The Purchaser shall have received (i) the original,
executed and authenticated Note, and (ii) original, executed copies of
the Indenture, each of the Mortgages, each of the Assignments of Leases
and a Security Agreement substantially in the form of Exhibit F hereto.
(f) The Purchaser shall have received evidence from the
Trustee satisfactory to it that the Issuers have deposited into the
Debt Service Reserve Account cash in the amount equal to three (3)
months of interest on the initial principal amount of the Notes.
(g) On or prior to the Closing Date, independent public
accountants for the Issuers shall have delivered to the Issuers and the
Purchaser an accountant's agreed upon procedures letter with respect to
the Private Placement Memorandum satisfactory to the Purchaser.
(h) The Purchaser and the Trustee shall each have received
certified copies of all documents evidencing action taken by the
Issuers, to enable them to enter into the Indenture and the Collateral
Documents to the extent a party thereto.
(i) The Purchaser shall have received filing receipts or other
evidence of UCC-1 filings with such jurisdictions as the Purchaser
shall reasonably request.
(j) The CUSIP Service Bureau shall have assigned a private
placement number for the initial Note and the Purchaser shall have
received evidence reasonably satisfactory to the Purchaser of such
number.
(k) The Purchaser shall have received a final copy of the
Private Placement Memorandum.
(l) The Purchaser and the Trustee shall each have received
signature and incumbency certificates executed by the authorized
officers of the Issuers, certifying the identities and signatures of
those officers who executed the Indenture and the Collateral Documents.
(m) The Issuers shall have entered into, with a financial
institution acceptable to the Purchaser, an interest rate protection
agreement in form and substance satisfactory to the Purchaser in an
amount equal to the initial principal amount of the Notes with a term
of not less than three (3) years. Such protection shall be in the form
of a LIBO Rate cap with an 8% strike.
(n) The certificate of incorporation, partnership agreement or
trust agreement of each Issuer shall contain the provisions set forth
on Schedule II hereto. The composition of the board of directors or
trustees of each Issuer shall be made up of George R. Zoffinger, Paul
McArthur, two of the current trustees of the Company and an independent
director, or such other composition as shall be satisfactory to the
Purchaser.
(o) The Purchaser shall have received from Goodwin, Procter &
Hoar LLP a letter stating that they have reviewed the Private Placement
Memorandum and although they have not independently verified and are
not passing upon and assume no responsibility for the accuracy,
completeness or fairness of the statements contained in the Private
Placement Memorandum no facts have come to their attention which lead
them to believe that the final Private Placement Memorandum, at any
time from the date thereof through the Closing Date, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were
made, not misleading (it being understood that they express no view
with respect to the financial and accounting data (including the data
contained in the charts regarding the real property) included in or
appended as exhibits to the Private Placement Memorandum).
(p) The Company shall have complied with the terms of the
letter agreement dated the date hereof between the Company and the
Purchaser (the "Side Letter"), and each Issuer shall have Clean Title
(as such term is defined in, and subject to, the Side Letter) to the
related Real Estate.
If any of the conditions specified in this Section 7 shall not
have been fulfilled in all material respects when and as provided in this
Agreement (subject to the proviso clause contained in Section 7(a) hereof), this
Agreement and all obligations of the Purchaser hereunder may be canceled at, or
at any time prior to, the Closing Date by the Purchaser. Notice of such
cancellation shall be given to the Issuers in writing or by telephone or
telegraph confirmed in writing.
8. Conditions of the Obligation of the Company
and the Issuers. The obligation of the Company and the
Issuers to issue the Notes will be subject to the following
conditions precedent:
(i) the accuracy of the Purchaser's representations
and warranties contained in the initial transferee certificate
to be delivered by the Purchaser to the Company and the
Trustee pursuant to Section 5 hereof;
(ii) the performance by the Purchaser of its
obligations hereunder;
(iii) the release of the Liens created under the
Existing Indenture and the mortgage on Paseo Padre; and
(iv) no judgment, order or decree shall have been
entered prohibiting the purchase of the Notes by the Purchaser
hereunder.
9. Indemnification and Contribution.
(a) The Company agrees to, and it agrees to cause the Issuers
to, indemnify and hold harmless the Purchaser, each of its directors,
each of its officers and each Person, if any, who controls the
Purchaser within the meaning of the Securities Act or the Exchange Act,
against any and all losses, claims, expenses, damages or liabilities,
joint or several, to which the Purchaser or such controlling Person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Private Placement
Memorandum, or any amendment or supplement thereto, or arise out of, or
are based upon, the omission or alleged omission to state therein a
material fact necessary to make the statements therein not misleading;
and will reimburse the Purchaser and each such controlling Person for
any legal or other expenses reasonably incurred by the Purchaser or
such controlling Person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however,
that neither the Issuers nor the Company will be liable in any such
case to the extent (i) that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission, or
alleged untrue statement or omission, made in any of such documents in
reliance upon and in conformity with written information furnished to
the Issuers or the Company by the Purchaser specifically for use
therein, (ii) the Private Placement Memorandum was not delivered to the
Person asserting any such loss, claim, damage, liability or action,
(iii) the Private Placement Memorandum was amended or supplemented
prior to the assertion of any such loss, claim, damage, liability or
action and not delivered to the Person making the assertion prior to
the assertion or (iv) the Person asserting the loss, claim, damage,
liability or action was delivered a Private Placement Memorandum after
the Company or the Issuers shall have informed the Purchaser that the
Private Placement Memorandum was no longer accurate. This indemnity
agreement will be in addition to any liability that the Issuers or the
Company may otherwise have.
(b) The Purchaser agrees to indemnify and hold harmless the
Issuers, the Company, each of their respective trustees and/or
directors, each of their respective officers and each Person, if any,
who controls the Issuers or the Company within the meaning of the
Securities Act or the Exchange Act, against any and all losses, claims,
expenses, damages or liabilities to which the Issuers or the Company or
any such director, officer or controlling Person may become subject
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Private Placement Memorandum, or any
amendment or supplement thereto, or arise out of, or are based upon,
the omission or the alleged omission to state therein a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, in each case to the extent,
but only to the extent (i) that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Issuers or the
Company by the Purchaser specifically for use therein, (ii) the Private
Placement Memorandum was not delivered to the Person asserting any such
loss, claim, damage, liability or action, (iii) the Private Placement
Memorandum was amended or supplemented prior to the assertion of any
such loss, claim, damage, liability or action and not delivered to the
Person making the assertion prior to the assertion or (iv) the Person
asserting the loss, claim, damage, liability or action was delivered a
Private Placement Memorandum after the Company or the Issuers shall
have informed the Purchaser that the Private Placement Memorandum was
no longer accurate; and will reimburse any legal or other expenses
reasonably incurred by the Issuers or the Company or any such director,
officer or controlling Person in connection with investigating or
defending any such loss, claim, damage, liability or action. This
indemnity agreement will be in addition to any liability that the
Purchaser may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 9, notify the indemnifying party
of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability that it may
have to any indemnified party otherwise than under this Agreement
unless such indemnifying party is materially prejudiced by such
omission. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate
therein, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume (at its own expense)
the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to
such indemnified party under this Section 9 of its election so to
assume the defense thereof, such indemnifying party shall not be liable
for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if the
defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably
concluded after being so advised by counsel that there may be legal
defenses available to it that are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assert such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties and the indemnifying party
shall continue to be liable for such expenses (it being understood,
however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel, approved by the Purchaser
in the case of paragraph (a) of this Section 9 and approved by the
Company in the case of paragraph (b) of this Section 9).
Notwithstanding anything else herein to the contrary, any indemnifying
party under this Section 9 shall only be liable for legal expenses to
the extent that such expenses of counsel incurred pursuant to the
preceding sentence are reasonable in amount for the services provided
and shall not be liable for any settlement payments to be made by any
indemnified party except to the extent that such payments have been
approved in writing by the indemnifying party.
(d) If recovery is not available under the foregoing
indemnification provisions of this Section 9, for any reason other than
as specified therein, the parties entitled to indemnification by the
terms thereof shall be entitled to contribution to the amount paid or
payable by such indemnified party as a result of the losses, claims,
expenses, damages or liabilities referred to in Section 9(a) or (b)
above, except to the extent that the indemnified party is guilty of
fraudulent misrepresentation within the meaning of Section 11(f) of the
Securities Act. In determining the amount of contribution to which the
respective parties are entitled, there shall be considered the relative
benefits received by each party from the offering and resale of the
Notes (taking into account the portion of the proceeds of the offering
and resale realized by each), whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Issuers,
the Company or the Purchaser, the parties' relative knowledge and
access to information concerning the matter with respect to which the
claim was asserted, the opportunity to correct and prevent any untrue
statement or omission, and any other equitable considerations
appropriate under the circumstances. The Company and the Purchaser
agree that it would not be equitable if the amount of such contribution
were to be determined by pro rata or per capita allocation or by any
other method that does not take account of the equitable considerations
referred to in the second sentence of this subsection (d).
Notwithstanding the provisions of this subsection (d), neither the
Purchaser nor any Person controlling the Purchaser shall be obligated
to make contribution hereunder that in the aggregate exceeds the
difference between (x) the purchase price paid by the Purchaser to the
Issuers for the Notes and (y) the aggregate price received by the
Purchaser in connection with any subsequent resale of the Notes.
10. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Company herein or of the Company and the Issuers in
certificates delivered pursuant hereto and of the Purchaser set forth in or made
pursuant to this Agreement shall remain operative and in full force and effect,
regardless of any investigation, or statement as to the results thereof, made by
or on behalf of the Purchaser or any controlling Person or by or on behalf of
the Issuers or the Company or any of their respective officers, directors or any
controlling Persons, and will survive delivery of and payment for the Notes. If
for any reason the purchase of the Notes by the Purchaser is not consummated
after execution of this Agreement, the Issuers, the Company and the Purchaser
shall be responsible for expenses as provided in Sections 6(d) and (e) hereof,
and the respective obligations of the Issuers, the Company and the Purchaser
pursuant to Section 9 hereof shall remain in effect.
11. Notices. All notices given pursuant to any of the
provisions of this Agreement shall be in writing and shall be delivered (a) if
to any Issuer or the Company, at 120 Albany Street, 8th Floor, New Brunswick,
New Jersey 08901, Attention: George R. Zoffinger, with a copy to Goodwin,
Procter & Hoar, LLP, Exchange Place, Boston, Massachusetts 02109-2881,
Attention: Laura C. Hodges Taylor, P.C., or (b) if to the Purchaser, at 345 Park
Avenue, New York, New York 10154, Attention: Randal A. Nardone, or in each case
to such other address as the Person to be notified may have requested in
writing.
12. Successors. The Agreement herein set forth has been and is
made solely for the benefit of the Purchaser, its successors and assigns and the
Company, and the other controlling Persons referred to in Section 9 hereof, and
no other Person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser or
transferee of the Notes from you.
13. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CHOICE OF LAW OR CONFLICTS OF LAWS PROVISIONS THEREOF.
14. Counterparts; Integration. This Agreement may be executed
in any number of counterparts, each of which shall, for all purposes, be deemed
an original and all of which shall together constitute but one and the same
instrument. This Agreement, along with the side letter agreement dated March 28,
1996 between the parties hereto constitute the complete agreement between the
parties with respect to the subject matter hereof and supersede all prior
agreements, commitments, understandings or inducements (oral or written,
expressed or implied).
15. Use of Documents. The Company authorizes the Purchaser to
use in connection with the sale of the Notes in accordance with the terms of the
Private Placement Memorandum the executed Mortgages and Indenture identified in
this Agreement.
16. Notices and Advertisements. The Purchaser may, following
the date of the issuance of the Notes, place notices thereof or advertisements
in financial and other newspapers and journals at its own expense, describing
its services to the Issuers or the Company under this Agreement and the Company
and the Issuers shall have the right to review and comment on any such notices
or advertisements.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement between the Company and the
Purchaser in accordance with its terms.
VALUE PROPERTY TRUST
By:
Name:
Title:
The foregoing Note Purchase Agreement is hereby confirmed and accepted as of the
date first above written:
BLACKROCK CAPITAL FINANCE L.P.
By:
Name:
Title:
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