<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Angeles Participating Mortgage Trust
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Angeles Participating Mortgage Trust
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(l), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
- ------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- ------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:/1/
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4) Proposed maximum aggregate value of transaction:
- ------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid: $125.00
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2) Form, Schedule or Registration Statement No.: 14A
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3) Filing Party: Angeles Participating Mortgage Trust
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4) Date Filed: March 22, 1996
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/1/ Set forth the amount on which the filing fee is calculated and state how it
was determined:
(Bulletin No. 150, 4-09-93)
<PAGE>
Angeles Participating Mortgage Trust
340 N. Westlake Boulevard
Suite 230
Westlake Village, California 91362
Dear Shareholder: September 5, 1996
You are cordially invited to attend the annual meeting of shareholders of
Angeles Participating Mortgage Trust, a California business trust (the "Trust"),
to be held at the Beverly Hilton Hotel, 9876 Wilshire Blvd., Beverly Hills,
California on September 26, 1996 at 9:00 a.m. Pacific Daylight Time (the "Annual
Meeting").
At the Annual Meeting, the shareholders of the Trust (the "Shareholders")
will be asked to consider and vote upon a proposal to approve the Class A Share
Purchase Warrant issued on March 15, 1994 to SAHI Partners, and subsequently
assigned to Starwood Mezzanine Investors, L.P. ("Starwood Mezzanine"), for the
right to purchase up to 5,000,000 shares of the Trust's Class A Shares (the
"Class A Shares") at a price per share of $1.00, the Class B Share Purchase
Warrant issued March 15, 1994 to SAHI, Inc. for the right to purchase up to
2,500,000 shares of the Trust's Class B Shares (the "Class B Shares") at a price
per share of $.01 and the authorization and issuance of the Class A Shares and
Class B Shares to be issued if such warrants are exercised (the "Warrant
Proposal"). The foregoing warrants are not exercisable until the Warrant
Proposal is approved by the Shareholders. If the Warrant Proposal is approved,
the Shareholders will be asked to consider and vote on proposals to amend the
Trust's Declaration of Trust (the "Trust Amendments Proposals") to, among other
things, change the purpose and investment policy of the Trust in order to
implement a new business plan designed to allow the Trust to acquire a more
diversified portfolio of interests in real estate or real estate-related assets
(the "SAHI Business Plan"). See "PROXY STATEMENT SUMMARY -- Changes in the
Business Plan" and "WARRANT PROPOSAL -- SAHI Business Plan." If the Warrant
Proposal and the Trust Amendments Proposals are approved, the Shareholders will
also be asked to elect seven trustees to the Board of Trustees, four of whom are
affiliates of SAHI Partners, SAHI, Inc. or Starwood Mezzanine (the "SAHI
Nominees"). If all of the foregoing proposals are approved, the Shareholders
will be asked to consider and vote upon a proposal pursuant to which, among
other things, (a) the Trust will become the sole general partner of a limited
partnership (the "Partnership") to which the Trust will contribute $400,000, in
cash, plus or minus prorations, if any, in exchange for a 7.76% interest in the
Partnership subject to adjustment, and Starwood Mezzanine will become the
initial limited partner and will contribute to the Partnership its entire
interest in certain mortgage participation certificates and/or proceeds thereof
(collectively, the "Certificates"), valued by the Trust at approximately
$4,757,000 as of January 1, 1996, in the aggregate, in exchange for a 92.24%
interest in the Partnership, subject to adjustment (for a description of the
adjustments and prorations, if any, with respect to the contributions by the
parties and the initial percentage interests in the Partnership, see
"Summary--Formation of the Partnership"); (b) the Trust will be authorized to
issue Class A Shares, upon the exchange of any or all limited partnership
interests in the Partnership issued to Starwood Mezzanine and (c) Starwood
Mezzanine shall have the right, subject to certain limitations and restrictions,
to require the Trust to register for public sale, any or all of the Class A
Shares issued to it upon the exercise of the Class A Warrant or upon exchange of
the limited partnership interests in the Partnership issued to Starwood
Mezzanine upon formation of the Partnership. If all of the foregoing proposals
are approved, the Shareholders will also be asked to consider and vote on the
following additional proposals: (i) to approve the Angeles Participating
Mortgage Trust 1996 Trustees' Share Incentive Plan; (ii) to approve the Angeles
Participating Mortgage Trust 1996 Share Incentive Plan; and (iii) to ratify the
appointment of Deloitte & Touche LLP as the Trust's independent accountants for
the fiscal year ending December 31, 1996.
Details of the proposals to be voted on at the Annual Meeting (the
"Proposals") and other important matters are contained in the attached Proxy
Statement, which you are encouraged to read carefully. The adoption and
implementation of the Proposals will have the effects, and subject the
Shareholders to the risks, conflicts of interest and other factors set forth
under "Risk Factors" in the Proxy Statement, including the following:
. The Shareholders will not receive a liquidating distribution from the
Trust.
. For a substantial period of time, the Shares had been trading
at prices below the amount per share the Shareholders would receive
upon liquidation. Only recently has the trading price of the Shares
been above the estimated liquidation value. Therefore, there is a risk
that the Shares will trade at prices below the amount of money
Shareholders would receive through liquidating distributions of the
Trust.
<PAGE>
. One of the proposals to amend the Trust's Declaration of Trust, if
approved, will eliminate the right of Class A Shareholders to receive
a priority return before the Trust's former advisor is paid a fee
because such advisor is no longer providing services to the Trust.
However, the Declaration of Trust does not require that any subsequent
advisory agreements entered into by the Trust contain any such
priority return and SAHI contemplates that any such subsequent
advisory agreement entered into while the Trust is under its control
would not necessarily include a priority return. Therefore, any future
Advisor, who may be affiliated with SAHI (subject to the Shareholders
Agreement), may absorb a significant amount of the Trust's cash flow.
. The voting interests of the holders of the Trust's Class A Shares (the
"Class A Shareholders") not affiliated with SAHI Partners, SAHI, Inc.
or Starwood Mezzanine (collectively, "SAHI") will be decreased from
60.28% to 20.36% if the Class A Share Purchase Warrant and the Class B
Share Purchase Warrant (collectively, the "Warrants") are exercised in
full and will be further decreased to 12.48% in the event that
Starwood Mezzanine were to exchange all of its limited partnership
interests in the Partnership for Class A Shares, subject to
adjustment. See "Summary -- Formation of the Partnership."
. The percentage ownership interest of the Class A Shareholders not
affiliated with SAHI of the Class A Shares will be decreased from
90.43% to 30.23% if the Warrants are exercised in full and will be
further decreased to 18.53% in the event that Starwood Mezzanine were
to exchange all of its limited partnership interests in the
Partnership for Class A Shares, subject to adjustment. See "Summary --
Formation of the Partnership."
. Messrs. Sternlicht, Grose, Sugarman, Gorab and Consiglio, five of the
seven nominees to the Board of Trustees, have indirect economic
interests in properties that may compete with properties which the
Trust may acquire or which may collateralize debt investments of the
Trust in the future, thus creating a conflict of interest between the
Trust and such nominees. Messrs. Sternlicht, Grose, Sugarman, Gorab
and Consiglio will not be required to present any investment
opportunities to the Trust or invest in any type of assets through the
Trust.
. Sales of Class A Shares as a result of an exchange of limited
partnership interests in the Partnership by Starwood Mezzanine (or the
perception that such sales could occur) could adversely affect the
trading prices for the Class A Shares.
. The Trust and the Partnership will not be able to make certain types
of investments as a result of restrictions and conflicts involving
SAHI and their affiliates. Specifically, without the amendment,
termination or waiver of provisions of certain non-competition
agreements between Starwood Capital Group, L.P. and Starwood Lodging
Trust, a publicly traded hotel REIT the shares of which are paired and
trade with those of Starwood Lodging Corporation (NYSE: "HOT"), the
Trust and the Partnership are prohibited from: (i) making investments
in loans collateralized by hotel assets where it is anticipated that
the underlying equity will be acquired by the debt holder within one
(1) year from the acquisition of such debt, (ii) acquiring equity
interests in hotels (other than acquisitions of warrants, equity
participations or similar rights incidental to a debt investment by
the Trust or the Partnership or that are acquired as a result of the
exercise of remedies in respect of a loan in which the Trust or the
Partnership has an interest) or (iii) selling or contributing to or
acquiring any interests in HOT, including debt positions or equity
interests obtained by the Trust or the Partnership under, pursuant to
or by reason of the holding of debt positions. In addition, during any
period in which the SAHI Nominees shall constitute a majority of the
Board of Trustees (or SAHI, the SAHI Nominees or their respective
affiliates (individually and collectively, the "SAHI Group")
collectively control a sufficient number of voting securities to elect
a majority of the Board) and Starwood Mezzanine shall have an interest
in either the Trust or the Partnership, (i) without the approval of
the limited partners of Starwood Mezzanine (A) neither the Trust nor
the Partnership shall pursue any equity interests as a principal
purpose, excluding equity interests which are incidental to, or
acquired pursuant to the exercise of remedial rights with respect to,
a debt instrument and (B) neither the Trust nor the Partnership shall
invest in real estate related debt interests issued by obligors that
are not operating companies or originate or purchase mortgage loans
issued by obligors that are not operating companies and (ii) neither
the Trust nor the Partnership shall incur indebtedness during any
period in which the incurrence of such indebtedness would increase the
amount of UBTI to be incurred by the limited partners of Starwood
Mezzanine without the prior written consent of Starwood Mezzanine.
Furthermore, during any period in which Starwood Mezzanine shall have
an interest in either the Trust or the Partnership, without the
approval of the limited partners of Starwood Mezzanine, neither the
Trust nor the Partnership may acquire (by contribution or purchase)
any additional debt or equity securities from the SAHI Group, subject
to further restrictions. See "Partnership Proposal -- The Partnership-
Operation of the Partnership."
. The formation and capitalization of the Partnership will result in the
creation of certain conflicts of interest between the Trust and
Starwood Mezzanine. For example, prior to the exchange by Starwood
Mezzanine of its limited partnership interests in the Partnership for
Class A Shares of the Trust, Starwood Mezzanine will experience
different and possibly more adverse tax consequences than the Trust
and its Shareholders upon the sale of Partnership assets or the
restructuring or sale of certain mortgage loans. Therefore, Starwood
Mezzanine may be opposed to the sale of such assets or the
restructuring of the loans even though such a sale or restructuring
might be in the best interests of the Trust and its Shareholders. In
addition, without the prior approval of Starwood Mezzanine's limited
partners during any period in which Starwood Mezzanine shall have an
interest in either the Trust or the Partnership: (i) none of the SAHI
Group may receive performance or management fees from the Trust or the
Partnership, including, but without limitation, trustees' fees or
options or awards pursuant to the Angeles Participating Mortgage Trust
Trustees' 1996 Share Incentive Plan or the Angeles Participating
Mortgage Trust 1996 Share Incentive Plan; and (ii) the Trust and the
Partnership may not enter into any service agreements with the SAHI
Group.
<PAGE>
The failure of Starwood Mezzanine's limited partners to approve an
item or matter referred to in (i) or (ii) of the preceding sentence
could operate to reduce the SAHI Group's incentives to allocate their
or their personnel's time and efforts in furtherance of the SAHI
Business Plan or may otherwise impede the growth prospects for the
Trust and Partnership.
. The 92.24% interest in the Partnership to be received by Starwood
Mezzanine was determined based on a valuation of the Certificates at
$4,757,000 as of January 1, 1996. The cost basis of the Certificates
as of such date to Starwood Mezzanine was approximately $3,600,000,
due to the fact that Starwood Mezzanine was able to acquire the
Certificates at a significant discount. See "PARTNERSHIP PROPOSAL -
Description of the Certificates". If Starwood Mezzanine's interest in
the Partnership were determined based on the cost basis of the
Certificates, it would have received a 90% interest in the
Partnership, subject to adjustment.
. The percentage ownership interests of the Trust and Starwood Mezzanine
in the Partnership were determined based on negotiations between the
parties and no independent appraisals or opinions were obtained by the
Trust with respect to the Trust's determination of the value of the
Certificates to be contributed by Starwood Mezzanine in exchange for
its limited partnership interest in the Partnership.
. There will be risks associated with the ability of the Board of
Trustees to change the investment, financing, borrowing, distribution
and other policies of the Trust at any time without Shareholder
approval.
. In the event the Warrants are not exercised (either in whole or in
substantial part), or in the event that the Partnership is not formed
and capitalized on the basis set forth herein, and the Trust is unable
to locate alternative sources of capital, it is likely that the Trust
will be unable to implement the SAHI Business Plan (or any other
business plan consistent with the change in investment policy proposed
herein), and, consequently, the Trust may be liquidated. Although no
assurances can be given, Starwood Mezzanine has declared its intention
to exercise the Class A Warrant for at least 2,000,000 Class A Shares.
. The Shareholders will be unable to evaluate in advance the selection
of properties and debt to be acquired by the Trust.
. There will be an increase in the Trust's general real estate
investment risks, including the effect of economic and other
conditions on property values, the general illiquidity of real estate
investments, the risks of default in respect of mortgage or other debt
covenants (and risks attendant thereto, such as delays frequently
encountered by lenders in enforcing remedies or in gaining control
over the real estate collateral), the abilities of the properties
collateralizing debt instruments held by the Trust or which properties
are owned by the Trust to generate revenues sufficient to meet
operating expenses and to pay scheduled debt service, the effect of
competition from properties owned by others, liability associated with
uninsurable losses and unknown environmental liabilities.
. There will be increased risks associated with the Trust incurring debt
to finance equity or debt investments in real property, including the
fluctuation of interest rates and the Trust's ability to make debt
service payments. Such debt service payments may additionally decrease
the Trust's funds available for distribution to its Shareholders.
However, as set forth above, Starwood Mezzanine's limited partners
have imposed certain limitations on the ability of the Trust and the
Partnership to incur indebtedness without their consent.
. As a result of acquiring equity or debt interests opportunistically,
without the traditional representations and warranties and financial
statements from distressed sellers, the Trust will increase the risks
associated with unknown liabilities and losses relating to the
acquired interests.
<PAGE>
. There will be an increased risk that the Trust will be a "pension-held
REIT" and therefore that any qualified pension plan owning 10% or more
of the Trust's shares, by value, will have a portion of its dividend
income from the Trust taxed as UBTI.
YOUR BOARD OF TRUSTEES HAS UNANIMOUSLY CONCLUDED THAT THE ISSUANCE OF THE
WARRANTS, THE AMENDMENTS TO THE DECLARATION OF TRUST AND THE SUBSEQUENT CHANGE
OF THE TRUST PURPOSE AND INVESTMENT POLICY IN ORDER TO IMPLEMENT THE SAHI
BUSINESS PLAN, THE ELECTION OF THE NOMINEES AS TRUSTEES, THE PARTNERSHIP
PROPOSAL AND THE OTHER PROPOSALS ARE IN THE BEST INTEREST OF BOTH THE TRUST AND
THE SHAREHOLDERS. THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR APPROVAL
OF ALL OF THE PROPOSALS.
All shareholders are cordially invited to attend the Annual Meeting in
person. Any shareholder attending the Annual Meeting may vote in person even if
he or she previously returned a proxy.
Sincerely,
/s/ Ronald J. Consiglio, Chairman
<PAGE>
ANGELES PARTICIPATING MORTGAGE TRUST
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Angeles
Participating Mortgage Trust, a California business trust (the "Trust"), will be
held at the Beverly Hilton Hotel, 9876 Wilshire Blvd., Beverly Hills, California
on September 26, 1996 at 9:00 a.m. Pacific Daylight Time (the "Annual Meeting"),
for the following purposes as further described in the accompanying Proxy
Statement:
a. To consider and vote upon a proposal to approve the Class A Share
Purchase Warrant issued on March 15, 1994 to SAHI Partners, and subsequently
assigned to Starwood Mezzanine Investors, L.P. ("Starwood Mezzanine"), for the
right to purchase up to 5,000,000 shares of the Trust's Class A Shares (the
"Class A Shares") at a price per share of $1.00, the Class B Share Purchase
Warrant issued March 15, 1994 to SAHI, Inc. for the right to purchase up to
2,500,000 shares of the Trust's Class B Shares (the "Class B Shares") at a price
per share of $.01 and the authorization and issuance of the Class A Shares and
Class B Shares to be issued if such warrants are exercised. The foregoing
warrants are not exercisable until approved by the shareholders of the Trust
(the "Shareholders").
b. If the foregoing proposal is approved, to consider and vote upon the
following proposals to amend the Trust's Declaration of Trust:
(i) A proposal to amend the Declaration of Trust to amend the
purpose of the Trust to allow the Trust to make substantially
more debt and/or equity investments in real property;
(ii) A proposal to amend the Declaration of Trust to remove the
percentage limitation (presently 20%) on the amount of Trust
Proceeds, i.e. capital contributions of Shareholders, borrowings
by the Trust or proceeds from any future offerings by the Trust,
which may be invested directly in the equity ownership of real
estate;
(iii) A proposal to amend the Declaration of Trust to eliminate the
requirement to make monthly distributions of Net Cash, which is
generally defined as the Trust's cash flow from operations, to
Shareholders;
(iv) A proposal to amend the Declaration of Trust to make the
termination date of the Trust indefinite;
(v) A proposal to amend the Declaration of Trust to increase the
shareholder vote required to terminate the Trust from majority
to two-thirds of all of the Shareholders;
(vi) A proposal to amend the Declaration of Trust to remove the
prohibition on acquiring or funding Trust loans with an initial
term of more than 15 years;
(vii) A proposal to amend the Declaration of Trust to require the
issuance of additional Class B Shares in order to maintain the
current voting interest (33 1/3%) of the Shareholders of the
Class B Shares; and
<PAGE>
(viii) A proposal to amend the Declaration of Trust to remove the right
of Shareholders of Class A Shares to receive a priority return
before the Trust's former advisor is paid a fee since the
advisor is no longer providing services to the Trust.
Approval of each of the proposals listed in b(i) through b(viii) is
contingent upon approval of all of the proposals listed in b(i) through
b(viii).
3. If the foregoing proposals are approved, to elect to the Board of
Trustees seven members to hold office until the next Annual Meeting and until
their successors have been elected and qualified. The nominees to the Board of
Trustees are Barry Sternlicht, Madison Grose, Jay Sugarman, Eugene A. Gorab, J.
D'Arcy Chisholm, Ronald J. Consiglio and Jack E. McDonald.
4. If the foregoing proposals are approved, to consider and vote upon a
proposal pursuant to which, among other things, (a) the Trust will become the
sole general partner of a limited partnership (the "Partnership") to which the
Trust will contribute $400,000, in cash, plus or minus prorations, if any, in
exchange for a 7.76% interest in the Partnership, subject to adjustment, and
Starwood Mezzanine will be the initial limited partner and will contribute to
the Partnership its entire interest in certain mortgage participation
certificates and/or proceeds thereof (collectively, the "Certificates"), valued
by the Trust at approximately $4,757,000 million, in the aggregate as of January
1, 1996, in exchange for a 92.24% interest in the Partnership, subject to
adjustment; (b) the Trust will be authorized to issue, upon the exchange of any
or all limited partnership interests in the Partnership issued to Starwood
Mezzanine, Class A Shares representing up to 38.7% of the issued and outstanding
Class A Shares (assuming full exercise of the Class A Share Purchase Warrant
shall have occurred prior to such exchange); (c) Starwood Mezzanine shall have
the right, subject to certain limitations and restrictions, to require the Trust
to register for public sale, any or all of the Class A Shares issued to it upon
exercise of the Class A Warrant or upon exchange of the limited partnership
interests in the Partnership issued to Starwood Mezzanine upon formation of the
Partnership and (d) with the exception of the costs and expenses to be incurred
by the Trust to administer the Partnership and its investments and except with
the prior written consent of Starwood Mezzanine, the Partnership shall not be
responsible for reimbursing the Trust for any of the Trust's overhead and
expenses (including, but without limitation, overhead and expenses incurred to
meet its reporting requirements as a public company) for certain time periods.
For a more detailed description of the expenses of the Trust to be reimbursed by
the Partnership, see "Partnership Proposal--Reimbursement of the General
Partner." Initially, the Trust will not be required to operate exclusively
through the Partnership and, thus, will not have any obligation to contribute
more than the cash necessary to acquire its initial interest in the Partnership.
However, in the event the Class A Warrant is exercised for at least 2,000,000
Class A Shares, the Board of Trustees shall have the right to cause the Trust to
contribute substantially all of the Trust's theretofore uncontributed assets to
the Partnership for additional interests in the Partnership and, following any
such contribution, to cause the Trust to agree to conduct all of its real
estate-related investment activities exclusively through the Partnership.
5. If the foregoing proposals are approved, to consider and vote upon a
proposal to approve the Angeles Participating Mortgage Trust 1996 Trustees'
Share Incentive Plan.
6. If the foregoing proposals are approved, to consider and vote upon a
proposal to approve the Angeles Participating Mortgage Trust 1996 Share
Incentive Plan.
7. To ratify the appointment of Deloitte & Touche as the Trust's
independent accountants for the fiscal year ending December 31, 1996.
8. To transact such other business as may properly come before the Annual
Meeting or any postponement or adjournment thereof.
<PAGE>
The Board of Trustees has fixed August 9, 1996 as the record date for the
determination of Shareholders entitled to receive notice of and to vote at the
Annual Meeting or any postponement or adjournment thereof, and only holders of
record of Class A Shares and Class B Shares at the close of business on that day
will be entitled to vote.
By Order of the Board of Trustees
Ann Merguerian
Secretary of the Trust
Westlake Village, California
September 5, 1996
=====================================================================
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, TO
ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
=====================================================================
<PAGE>
Angeles Participating Mortgage Trust
340 N. Westlake Boulevard
Suite 230
Westlake Village, California 91362
_________________________
PROXY STATEMENT
________________________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 26, 1996
This proxy statement (the "Proxy Statement") is being sent to shareholders
of Angeles Participating Mortgage Trust, a California business trust (the
"Trust"), on or about September 5, 1996 in connection with the solicitation by
the Board of Trustees of the Trust (the "Board of Trustees") of proxies to be
voted at the Trust's 1996 annual meeting of Shareholders (the "Annual Meeting")
to be held at the Beverly Hilton Hotel, 9876 Wilshire Blvd., Beverly Hills,
California, on September 26, 1996 at 9:00 a.m. Pacific Daylight Time, or at any
postponement or adjournment thereof.
At the Annual Meeting, the shareholders of the Trust (the "Shareholders")
will be asked to consider and vote upon a proposal to approve the Class A Share
Purchase Warrant (the "Class A Warrant") issued on March 15, 1994 to SAHI
Partners, and subsequently assigned to Starwood Mezzanine Investors, L.P.
("Starwood Mezzanine"), for the right to purchase up to 5,000,000 shares of the
Trust's Class A Shares (the "Class A Shares") at a price per share of $1.00, the
Class B Share Purchase Warrant (the "Class B Warrant") issued March 15, 1994 to
SAHI, Inc. for the right to purchase up to 2,500,000 shares of the Trust's Class
B Shares (the "Class B Shares") at a price per share of $.01 and the
authorization and issuance of the Class A Shares and Class B Shares to be issued
if such warrants are exercised (the "Warrant Proposal"). The foregoing warrants
are not exercisable until the Warrant Proposal is approved by the Shareholders.
If the Warrant Proposal is approved, the Shareholders will be asked to consider
and vote on a proposal to amend the Trust's Declaration of Trust (the "Trust
Amendments Proposals") to, among other things, change the purpose and investment
policy of the Trust in order to implement a new business plan designed to allow
the Trust to acquire a more diversified portfolio of interests in real estate or
real estate-related assets (the "SAHI Business Plan"). See "PROXY STATEMENT
SUMMARY -- Changes in the Business Plan" and "WARRANT PROPOSAL -- SAHI Business
Plan." If the Warrant Proposal and the Trust Amendments Proposal are approved,
the Shareholders will also be asked to elect seven trustees to the Board of
Trustees, four of whom are affiliates of SAHI Partners, SAHI, Inc. or Starwood
Mezzanine (the "SAHI Nominees"). SAHI Partners, SAHI, Inc. and Starwood
Mezzanine are collectively referred to herein as "SAHI." If the foregoing
proposals are approved, to consider and vote upon a proposal pursuant to which,
among other things, (a) the Trust will become the sole general partner of a
limited partnership (the "Partnership") to which the Trust will contribute
$400,000, in cash, plus or minus prorations, if any, in exchange for a 7.76%
interest in the Partnership, subject to adjustment, and Starwood Mezzanine will
be the initial limited partner and will contribute to the Partnership its entire
interest in certain mortgage participation certificates and/or proceeds thereof
(collectively, the "Certificates"), valued by the Trust at approximately
$4,757,000, in the aggregate as of January 1, 1996, in exchange for a 92.24%
interest in the Partnership subject to adjustment (for a description of the
adjustments and prorations, if any, with respect to the contributions by the
parties and the initial percentage interests in the Partnership, see "Summary--
Formation of the Partnership"); (b) the Trust will be authorized to issue Class
A Shares upon the exchange of any or all limited partnership interests in the
Partnership issued to Starwood Mezzanine; and
<PAGE>
(c) Starwood Mezzanine shall have the right, subject to certain limitations and
restrictions, to cause the Trust to register for public sale, any or all of the
Class A Shares issued to it upon exercise of the Class A Warrant or upon
exchange of the limited partnership interests in the Partnership issued to
Starwood Mezzanine upon formation of the Partnership (the "Partnership
Proposal").
If the foregoing proposals are approved, the Shareholders will also be
asked to consider and vote on the following additional proposals: (i) to
approve the Angeles Participating Mortgage Trust Trustees' 1996 Share Incentive
Plan; (ii) to approve the Angeles Participating Mortgage Trust 1996 Share
Incentive Plan; and (iii) to ratify the appointment of Deloitte & Touche LLP as
the Trust's independent accountants for the fiscal year ending December 31,
1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROXY STATEMENT SUMMARY............................ 1
Changes in the Business Plan.................... 1
Summary Risk Factors............................ 2
Formation of the Partnership.................... 5
Exchange of Partnership Units................... 5
Registration Rights............................. 5
Conflicts of Interest........................... 5
Lack of Appraisal Rights........................ 6
Background of the Trust and Transactions with
SAHI........................................... 6
The Proposals................................... 8
Reasons for the Transaction; Board of Trustees
Recommendation................................. 9
Fairness Opinion With Respect to the Warrants... 9
Annual Meeting and Voting....................... 10
Selected Financial Data......................... 11
RISK FACTORS....................................... 12
Shareholders Will Not Receive a Liquidating
Distribution From the Trust.................... 12
Liquidating Distributions May be Higher than
Trading Prices of Shares....................... 12
Elimination of Priority Return to Shareholders.. 12
Change of Control and Dilution of Shareholders.. 12
Conflicts of Interest........................... 12
Limited Protection to Non-SAHI Shareholders..... 13
Failure of Starwood Mezzanine to Exercise its
Warrant........................................ 13
Possible Future Dilution........................ 13
Unspecified Investments......................... 13
Changes in Policies............................. 14
Change of Income Distribution Policy............ 14
Removal of Limited Term Restriction............. 14
Real Estate Investment Risks.................... 14
Risks of Leverage............................... 16
Limited Representations and Warranties and Lack
of Operating Histories......................... 16
Tax Limitations on Closely Held REITs........... 16
LACK OF INDEPENDENT REPRESENTATION................. 17
ANNUAL MEETING AND VOTING.......................... 18
BACKGROUND OF THE TRUST AND THE TRANSACTIONS WITH
SAHI.............................................. 19
WARRANT PROPOSAL................................... 22
Class A Warrant................................. 23
Class B Warrant................................. 23
Change of Control of the Trust.................. 23
Dilution of Class A Shareholders................ 24
Opinion of Independent Financial Advisor........ 24
Shareholders Agreement.......................... 24
Federal Income Tax Aspects of the Warrant
Proposal....................................... 25
Reasons for and Alternatives to the Issuance of
Warrants and Board of Trustees' Recommendation
Regarding the Warrant Proposal................. 30
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Considerations if the Warrant Proposal Is
Not Approved................................... 27
Interest of Certain Persons in Matters to be
Acted Upon..................................... 27
SAHI Business Plan.............................. 33
TRUST AMENDMENTS PROPOSALS......................... 30
Change of Trust's Purpose and Investment Policy. 31
Eliminate Obligation to Make Monthly
Distributions of Net Cash...................... 31
Termination Date of Trust....................... 32
Termination of Trust............................ 32
Length of Trust Loans........................... 33
Maintaining Voting Interest of Class B Shares... 33
Priority Distributions.......................... 34
Federal Income Tax Aspects of the Change of the
Trust's Purpose and Investment Policy.......... 34
ELECTION OF TRUSTEES............................... 38
Trustees and Nominees........................... 38
Information Regarding the Board of Trustees and
its Committees................................. 40
Executive Officers.............................. 41
Executive Officers' Compensation................ 41
Audit and Compensation Committee Report on
Executive Compensation......................... 42
Proposed Incentive Plans........................ 42
Audit and Compensation Committee Interlocks and
Insider Participation.......................... 42
Trustees' Compensation.......................... 43
Certain Relationships and Related Transactions.. 43
Recommendation Regarding the Board Election
Proposal....................................... 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................... 45
PARTNERSHIP PROPOSAL............................... 47
Formation Agreement............................. 47
Description of Certificates..................... 49
The Partnership................................. 50
Limited Partner Rights.......................... 50
Possible Future Exclusivity..................... 52
Reimbursement of the General Partner............ 52
Adjustments to Ownership Percentages of
Partnership.................................... 52
Federal Income Tax Aspects of the Partnership... 53
Angles Participating Mortgage Trust Unaudited
Pro Forma Consolidated Financial Statements.... 54
APT Limited
Partnership Unaudited Pro Forma Consolidated
Financial Statements........................... 54
TRUSTEES' INCENTIVE PLAN PROPOSAL.................. 55
Adoption of the Angeles Participating Mortgage
Trust 1996 Trustees' Share Incentive Plan...... 55
General......................................... 55
Stock Options................................... 56
Discussion of Federal Income Tax Consequences... 57
Awards Under the Trustees' Plan................. 58
Recommendation Regarding the Trustees' Plan..... 58
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
EMPLOYEES' INCENTIVE PLAN PROPOSAL................. 58
Adoption of the Angeles Participating Mortgage
Trust 1996 Share Incentive Plan................ 58
General......................................... 58
Awards Under the Employees' Plan................ 59
Changes in Control.............................. 62
Discussion of Federal Income Tax Consequences... 62
Awards Under the Employees' Plan................ 64
Recommendation Regarding the Employees
Incentive Plan Proposal........................ 64
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS....................................... 64
Recommendation Regarding Ratification of the
Appointment of Deloitte & Touche LLP........... 64
GLOSSARY........................................... 65
OTHER MATTERS...................................... 69
No Appraisal or Dissenter's Rights.............. 69
Annual Reports on Form 10-K..................... 69
Shareholder Proposals for 1997 Annual Meeting... 70
Solicitation Procedures......................... 70
Other Matters................................... 70
</TABLE>
EXHIBIT A Class A Warrant........................ A-1
EXHIBIT B Fairness Opinion....................... B-1
EXHIBIT C Class B Warrant........................ C-1
EXHIBIT D Restated Shareholders Agreement........ D-1
EXHIBIT E Restated Declaration of Trust.......... E-1
EXHIBIT F Trustees' Plan......................... F-1
EXHIBIT G Employees' Plan........................ G-1
EXHIBIT H Financial Statements of Frankel Warwick
Limited Partnership .................. H-1
EXHIBIT I Annual Report on Form 10-K for the Year
Ended December 31, 1995............... I-1
EXHIBIT J Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1996.......... J-1
EXHIBIT K Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1996........... K-1
(iii)
<PAGE>
PROXY STATEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Proxy Statement and the Exhibits hereto.
Each Shareholder is urged to read this Proxy Statement in its entirety.
CHANGES IN THE BUSINESS PLAN
The purpose and the investment policy of the Trust as currently stated
in its Declaration of Trust is predominantly to make mortgage loans to entities
affiliated with the Trust. However, since the liquidation of the Trust's loan
portfolio in November 1993 as more fully discussed under "PROXY STATEMENT
SUMMARY -- Background of the Trust and Transactions with SAHI", the Trust has
not pursued its stated investment policy. Instead, since November 1993, the
Trust has held most of its assets, primarily cash, in a trust as a reserve
against any potential contingent claims (the "Contingent Claims Trust") while
considering alternatives to continuing its existing operations. The Contingent
Claims Trust was terminated on August 12, 1996. See Note 8 to the table under
"Selected Financial Data." The proposal to amend the Trust's Declaration of
Trust will change the purpose and investment policy of the Trust as presently
stated in the Declaration of Trust. Such amendment will allow the Trust to
implement the "SAHI Business Plan", as defined immediately below, instead of
continuing the Trust's present course of holding its assets and distributing the
proceeds of such assets upon liquidation of the Trust. The proposed amendment to
the Declaration of Trust will change the purpose and investment policy of the
Trust to primarily (i) originating mortgage loans to and/or acquiring mortgage
loans to unrelated entities or to acquire securities collateralized, in whole or
in part, by such mortgage loans, as well as making equity investments in real
estate and real estate-related assets, (ii) acquiring direct or indirect
interests in short term, medium and long-term real estate-related debt
securities and mortgage interests under which the borrowers are unaffiliated
with the Trust, which may include warrants, equity participations or similar
rights incidental to a debt investment by the Trust, (iii) making, holding and
disposing of purchase money loans with respect to assets sold by the Trust, and
(iv) acquiring positions in non-performing and sub-performing debt for the
purpose of either restructuring it as performing debt or of obtaining shortly
thereafter primary management rights over or equity interests in the underlying
assets securing such debt (the investments referred to in (i) through (iv) above
being herein collectively referred to as the "Diversified Portfolio") subject to
the restrictions set forth below. The acquisition of the Diversified Portfolio,
together with a description of SAHI's investment criteria described below, is
herein referred to as the "SAHI Business Plan." The Diversified Portfolio may
include controlling or non-controlling equity ownership positions in any general
category of real estate assets, including, without limitation, office,
industrial, mini-storage and residential improvements and land, subject to the
restrictions as summarized below.
The Trust will not make certain types of investments as a result of
the restrictions and conflicts described below, as well as SAHI's analysis of
the current investment opportunities available to the Trust. Specifically,
without the amendment, termination or waiver of provisions of certain non-
competition agreements between Starwood Capital Group, L.P. and Starwood Lodging
Trust, a publicly traded hotel REIT the shares of which are paired and trade
with those of Starwood Lodging Corporation (NYSE: "HOT"), the Trust and the
Partnership are prohibited from: (i) making investments in loans collateralized
by hotel assets where it is anticipated that the underlying equity will be
acquired by the debt holder within one (1) year from the acquisition of such
debt, (ii) acquiring equity interests in hotels (other than acquisitions of
warrants, equity participations or similar rights incidental to a debt
investment by the Trust or the Partnership or that are acquired as a result of
the exercise of remedies in respect of a loan in which the Trust or the
Partnership has an interest) or (iii) selling or contributing to or acquiring
any interests in HOT, including debt positions or equity interests obtained by
the Trust or the Partnership under, pursuant to or by reason of the holding of
debt positions.
In addition, during any period in which the SAHI Nominees shall
constitute a majority of the Board of Trustees (or SAHI, the SAHI Nominees or
their respective affiliates (individually or collectively, the "SAHI Group")
collectively control a sufficient number of voting securities to elect a
majority of the Board) and Starwood Mezzanine shall have an interest in either
the Trust or the Partnership (i) without the approval of the limited partners of
Starwood Mezzanine (A) neither the Trust nor the Partnership shall pursue any
equity interests as a principal purpose, excluding equity interests which are
incidental to, or acquired pursuant to the exercise of remedial rights with
respect to, a debt instrument and (B) neither the Trust nor the Partnership
shall invest in real estate related debt interests issued by obligors that are
not operating companies or originate or purchase mortgage loans issued by
obligors that are not operating companies and (ii) neither the Trust nor the
Partnership shall incur indebtedness during any period in which the incurrence
of such indebtedness would increase the amount of UBTI to be incurred by the
limited partners of Starwood Mezzanine without the prior written consent of
Starwood Mezzanine. Furthermore, during any period in which Starwood Mezzanine
shall have an interest in either the Trust or the Partnership, without the
approval of the limited partners of Starwood Mezzanine, neither the Trust nor
the Partnership may acquire (by contribution or purchase) any additional debt or
equity securities from the SAHI Group, subject to further restrictions. See
"-- Conflicts of Interests" and "Partnership Proposal -- The
Partnership -- Operation of the Partnership" for additional consent rights of
the limited partners of Starwood Mezzanine. The implementation of the SAHI
Business Plan would necessitate certain amendments to the Declaration of Trust
outlined under "TRUST AMENDMENTS PROPOSAL" and approval of the proposal outlined
under "PARTNERSHIP PROPOSAL."
After the bankruptcy of Angeles and the liquidation of the Trust's loan
portfolio, the Trust considered alternatives to continuing its existing
operations. The only other alternative identified by the Board of Trustees was
to liquidate the Trust and distribute the proceeds of the Contingent Claims
Trust upon its scheduled expiration date of December 31, 1996. The Contingent
Claims Trust was terminated on August 12, 1996. The Board of Trustees estimates
that approximately $200,000 of operating expenses will be incurred by the Trust
during the remainder of this fiscal year which will leave approximately
$1,600,000 available to be distributed out to the Shareholders in a liquidating
dividend on December 31, 1996. Such dividend would equal $0.62 per Class A
Share. The Board of Trustees rejected this alternative as they determined
undertaking a transaction with SAHI presents the Shareholders a greater
potential for growth of their investment and an ultimate return on the remainder
of their investment in the Trust of greater than $0.62 per Class A Share. The
Board of Trustees concluded that undertaking a transaction with SAHI is the best
alternative currently available to the Trust and its Shareholders.
<PAGE>
SUMMARY RISK FACTORS
Summarized below are certain risks, conflicts of interest, and other
factors that Shareholders should consider before voting on the Proposals:
. The Shareholders will not be receiving a liquidating distribution from
the Trust.
. For a substantial period of time, the Shares had been trading at
prices below the amount per share the Shareholders would receive upon
liquidation. Only recently has the trading price of the Shares been
above the estimated liquidation value. Therefore, there is a risk that
the Shares will trade at prices below the amount of money Shareholders
would receive through liquidating distributions of the Trust.
2
<PAGE>
. One of the proposals to amend the Trust's Declaration of Trust, if
approved will eliminate the right of Class A Shareholders to receive a
priority return before the Trust's former advisor is paid a fee
because such advisor is no longer providing services to the Trust.
However, the Declaration of Trust does not require that any subsequent
advisory agreements entered into by the Trust contain any such
priority return and SAHI contemplates that any such subsequent
advisory agreement entered into while the Trust is under its control
would not necessarily include a priority return. Therefore, any future
Advisor, who may be affiliated with SAHI (subject to the Shareholders
Agreement), may absorb a significant amount of the Trust's cash flow.
. The voting interests of the Class A Shareholders not affiliated with
SAHI Partners, SAHI, Inc. or Starwood Mezzanine (collectively "SAHI")
will be decreased from 60.28% to 20.36% if the Class A Warrant and the
Class B Warrant (collectively, the "Warrants") are exercised in full
and will be further decreased to 12.48% in the event that Starwood
Mezzanine were to exchange all of its Units for Class A Shares,
subject to adjustment. See "--Formation of the Partnership."
. The percentage ownership interest of the Class A Shareholders not
affiliated with SAHI in the Class A Shares will be decreased from
90.43% to 30.23% if the Warrants are exercised in full and will be
further decreased to 18.53% in the event that Starwood Mezzanine were
to exchange all of its Units for Class A Shares, subject to
adjustment. See "--Formation of the Partnership."
. Messrs. Sternlicht, Grose, Sugarman, Gorab and Consiglio, five of the
seven nominees to the Board of Trustees, have indirect economic
interests in properties that may compete with properties which the
Trust may acquire or which may collateralize debt investments of the
Trust in the future, thus creating a conflict of interest between the
Trust and such nominees. Messrs. Sternlicht, Grose, Sugarman, Gorab
and Consiglio will not be required to present any investment
opportunities to the Trust or invest in any type of assets through the
Trust.
. Sales of Class A Shares as a result of an exchange of Units by
Starwood Mezzanine (or the perception that such sales could occur)
could adversely affect the trading prices for the Class A Shares.
. The Trust and the Partnership will not be able to make certain types
of investments as a result of restrictions and conflicts involving
SAHI and their affiliates. Specifically, without the amendment,
termination or waiver of provisions of certain non-competition
agreements between Starwood Capital Group, L.P. and Starwood Lodging
Trust, the Trust and the Partnership are prohibited from: (i) making
investments in loans collateralized by hotel assets where it is
anticipated that the underlying equity will be acquired by the debt
holder within one (1) year from the acquisition of such debt, (ii)
acquiring equity interests in hotels (other than acquisitions of
warrants, equity participations or similar rights incidental to a debt
investment by the Trust or the Partnership or that are acquired as a
result of the exercise of remedies in respect of a loan in which the
Trust or the Partnership has an interest) or (iii) selling or
contributing to or acquiring any interests in HOT, including debt
positions or equity interests obtained by the Trust or the Partnership
under, pursuant to or by reason of the holding of debt positions. In
addition, during any period in which the SAHI Nominees shall
constitute a majority of the Board of Trustees (or the SAHI Group
collectively control a sufficient number of voting securities to elect
a majority of the Board) and Starwood Mezzanine shall have an interest
in either the Trust or the Partnership, (i) without the approval of
the limited partners of Starwood Mezzanine (A) neither the Trust nor
the Partnership shall pursue any equity interests as a principal
purpose, excluding equity interests which are incidental to, or
acquired pursuant to the exercise of remedial rights with respect to,
a debt instrument and (B) neither the Trust nor the Partnership shall
invest in real estate related debt interests issued by obligors that
are not operating companies or originate or purchase mortgage loans
issued by obligors that are not operating companies and (ii) neither
the Trust nor the Partnership shall incur indebtedness during any
period in which the incurrence of such indebtedness would increase the
amount of UBTI to be incurred by the limited partners of Starwood
Mezzanine without the prior written consent of Starwood Mezzanine.
Furthermore, during any period in which Starwood Mezzanine shall have
an interest in either the Trust or the Partnership, without the
approval of the limited partners of Starwood Mezzanine, neither the
Trust nor the Partnership may acquire (by contribution or purchase)
any additional debt or equity securities from the SAHI Group, subject
to further restrictions. See "Partnership Proposal -- The
Partnership - Operation of the Partnership."
. The formation and capitalization of the Partnership will result in the
creation of certain conflicts of interest between the Trust and
Starwood Mezzanine. For example, prior to the exchange by Starwood
Mezzanine of its limited partnership interests in the Partnership for
Class A Shares of the Trust, Starwood Mezzanine will experience
different and possibly more adverse tax consequences than the Trust
and its Shareholders upon the sale of Partnership assets or the
restructuring or sale of certain mortgage loans. Therefore, Starwood
Mezzanine may be opposed to the sale of such assets or the
restructuring of the loans even though such a sale or restructuring
might be in the best interests of the Trust and its Shareholders. In
addition, without the prior approval of Starwood Mezzanine's limited
partners during any period in which Starwood Mezzanine shall have an
interest in either the Trust or the Partnership: (i) none of the SAHI
Group may receive performance or management fees from the Trust or
the
3
<PAGE>
Partnership, including, but without limitation, trustees' fees or
options or awards pursuant to the Angeles Participating Mortgage Trust
Trustees' 1996 Share Incentive Plan or the Angeles Participating
Mortgage Trust 1996 Share Incentive Plan; and (ii) the Trust and the
Partnership may not enter into any service agreements with the SAHI
Group. The failure of Starwood Mezzanine's limited partners to approve
an item or matter referred to in (i) or (ii) of the preceding sentence
could operate to reduce the SAHI Group's incentives to allocate their
or their personnel's time and efforts in furtherance of the SAHI
Business Plan or may otherwise impede the growth prospects for the
Trust and Partnership.
. The 92.24% interest in the Partnership to be received by Starwood
Mezzanine was determined based on a valuation of the Certificates at
$4,757,000 as of January 1, 1996. The cost basis of the Certificates
as of such date to Starwood Mezzanine was approximately $3,600,000,
due to the fact that Starwood Mezzanine was able to acquire the
Certificates at a significant discount. See "PARTNERSHIP PROPOSAL -
Description of the Certificates". If Starwood Mezzanine's interest in
the Partnership were determined based on the cost basis of the
Certificates, it would have received a 90% interest in the
Partnership, subject to adjustment.
. The percentage ownership interests of the Trust and Starwood Mezzanine
in the Partnership were determined based on negotiations between the
parties and no independent appraisals or opinions were obtained by the
Trust with respect to the Trust's determination of the value of the
Certificates to be contributed by Starwood Mezzanine in exchange for
Units.
. There will be risks associated with the ability of the Board of
Trustees to change the investment, financing, borrowing, distribution
and other policies of the Trust at any time without Shareholder
approval.
. In the event the Warrants are not exercised (either in whole or in
substantial part), or in the event that the Partnership is not formed
and capitalized on the basis set forth herein, and the Trust is unable
to locate alternative sources of capital, it is likely that the Trust
will be unable to implement the SAHI Business Plan (or any other
business plan consistent with the change in investment policy proposed
herein), and, consequently, the Trust may be liquidated. Although no
assurances can be given, Starwood Mezzanine has declared its intention
to exercise the Class A Warrant for at least 2,000,000 Class A Shares.
. The Shareholders will be unable to evaluate in advance the selection
of properties and debt to be acquired by the Trust.
. There will be an increase in the Trust's general real estate
investment risks, including the effect of economic and other
conditions on property values, the general illiquidity of real estate
investments, the risks of default in respect of mortgage or other debt
covenants (and risks attendant thereto, such as delays frequently
encountered by lenders in enforcing remedies or in gaining control
over the real estate collateral), the abilities of the properties
collateralizing debt instruments held by the Trust or which properties
are owned by the Trust to generate revenues sufficient to meet
operating expenses and to pay scheduled debt service, the effect of
competition from properties owned by others, liability associated with
uninsurable losses and unknown environmental liabilities.
. There will be increased risks associated with the Trust incurring debt
to finance equity or debt investments in real property, including the
fluctuation of interest rates and the Trust's ability to make debt
service payments. Such debt service payments may
4
<PAGE>
additionally decrease the Trust's funds available for distribution to
its Shareholders. However, as set forth above, Starwood Mezzanine's
limited partners have imposed certain limitations on the ability of
the Trust and the Partnership to incur indebtedness without their
consent.
. As a result of acquiring equity or debt interests opportunistically,
without the traditional representations and warranties and financial
statements from distressed sellers, the Trust will increase the risks
associated with unknown liabilities and losses relating to the
acquired interests.
. There will be an increased risk that the Trust will be a "pension-held
REIT" and therefore that any qualified pension plan owning 10% or more
of the Trust's shares, by value, will have a portion of its dividend
income from the Trust taxed as UBTI.
. The acquisition of the Warrants or Shares by SAHI may increase the
risk that the Trust will inadvertently lease any real estate it
acquires to tenants that are related to the Trust through the
application of various complex attribution rules, and in such case,
the rental income would not be "rents from real property" for purposes
of determining the Trust's continued qualification as a REIT.
. The amendments to the Declaration of Trust will eliminate the Trust's
obligation to endeavor to make monthly cash distributions to the
Shareholders and thereby increase the amount of the Shareholders'
investment in the Trust that remains at risk in the Trust's operations
due to the income from the Trust's investments being reinvested
instead of distributed as dividends to the Shareholders.
. There will be a risk that conversion of the Trust to, in essence, an
infinite-life entity will result in payment of compensation to the
Trustees and officers and employees of the Trust beyond its currently
scheduled liquidation date of October 16, 2004.
. The conversion of the Trust to, in essence, an infinite-life entity
creates a potential conflict of interest for the Trustees insofar as
such conversion presents the potential for the seven persons who have
been nominated for election as Trustees, or their successors, to
continue as Trustees beyond the Trust's currently scheduled
liquidation date of October 16, 2004.
. The Shareholders may be further diluted as a result of the Trust's
ability to issue additional Class A Shares to directors, officers and
employees of the Trust under the Angeles Participating Mortgage Trust
1996 Trustees' Share Incentive Plan and Angeles Participating Mortgage
Trust 1996 Share Incentive Plan (collectively, the "Incentive Plans")
proposed herein.
FORMATION OF THE PARTNERSHIP
The Partnership will be formed with the Trust as its sole general
partner and Starwood Mezzanine as its initial limited partner. The Trust will
contribute to the Partnership $400,000, in cash plus or minus prorations, if
any, in exchange for a 7.76% interest in the Partnership, subject to adjustment,
and Starwood Mezzanine will contribute to the Partnership its entire interest in
the Certificates, valued by the Trust at approximately $4,757,000, in the
aggregate as of January 1, 1996, in exchange for a 92.24% interest in the
Partnership, subject to adjustment. Interest which has accrued but not yet been
paid on the Certificates prior to or on the date of formation of the Partnership
shall be paid to Starwood Mezzanine by the Partnership within 1 day of the date
such interest is paid to the Partnership. All interest accruing on the
Certificates subsequent to the formation of the Partnership shall be payable to
the Partnership. To the extent the principal amount of the Certificates has been
reduced subsequent to January 1, 1996, Starwood Mezzanine's initial interest in
the Partnership will be reduced accordingly and the Trust's initial interest in
the Partnership will be increased accordingly. The value of the Certificates was
based on a discounted cash flow analysis. A discount rate of 12% was used to
reflect the risk associated with the cash flow stream and return of principal.
The interest of a partner in the Partnership will be evidenced by the issuance
to such partner of one or more units (the "Units"). Initially, the Trust will
not be required to operate exclusively through the Partnership and, thus, will
not have any obligation to contribute more than the cash necessary to acquire
its initial interest in the Partnership. However, in the event the Class A
Warrant is exercised for at least 2,000,000 Class A Shares, the Board of
Trustees shall have the right to cause the Trust to contribute substantially all
of the Trust's theretofore uncontributed assets to the Partnership for
additional interests in the Partnership and, following any such contribution, to
cause the Trust to agree to conduct all of its real estate-related investment
activities exclusively through the Partnership. As the sole general partner of
the Partnership, the Trust will make all decisions on behalf of the Partnership
subject to certain limitations based on conflicts of interest between Starwood
Mezzanine and the Trust. See "--Conflicts of Interest" and "PARTNERSHIP
PROPOSAL--The Partnership--Operation of the Partnership."
EXCHANGE OF PARTNERSHIP UNITS
Starwood Mezzanine will have the right to tender to the Trust, and the
Trust will have to accept, any or all of the Units issued (initially or after
the formation of the Partnership) to Starwood Mezzanine. In exchange for each
tendered Unit, the Trust will have the option to deliver either one (1) Class A
Share, cash equal to the market value of the Class A Share at the time of such
tender or, upon tender of multiple Units, a combination of cash and Class A
Shares. The right to tender Units for Class A Shares is subject to certain
limitations including a prohibition on such tender if the Trust would not
qualify following such tender as a REIT. See "PARTNERSHIP PROPOSAL -- Exchange
Rights Agreement."
REGISTRATION RIGHTS
After Starwood Mezzanine exercises the Class A Warrant for at least
2,000,000 Class A Shares, and subject to other limitations and restrictions,
Starwood Mezzanine will have the right to require the Trust to register (on a
demand and/or shelf basis) Class A Shares of Starwood Mezzanine acquired upon
exercise of the Class A Warrant and upon an exchange of the Units acquired by
Starwood Mezzanine upon formation of the Partnership. Starwood Mezzanine also
will have rights, subject to certain limitations and restrictions, to require
the Trust to include such Class A Shares in other registrations of Class A
Shares. All costs and expenses incident to such registrations (other than
underwriting discounts, selling commissions and fees and expenses of counsel to
Starwood Mezzanine) shall be borne by the Trust or the Partnership. See
"PARTNERSHIP PROPOSAL -- Registration Rights Agreement" and "--Reimbursement of
the General Partner."
CONFLICTS OF INTEREST
The SAHI Nominees are Messrs. Sternlicht, Grose, Sugarman and Gorab, all of
whom have substantial indirect economic interests in and are officers of
Starwood Capital Group, L.P., a privately-owned real estate firm ("Starwood").
Starwood and its affiliates have substantial investments in real estate-related
assets. Starwood is also the general partner of the investment partnerships
comprising or which own substantially all of the beneficial interests in SAHI.
Messrs. Sternlicht and Grose are also principal shareholders in SAHI, Inc.,
which holds various interests in real estate investments. In the event the
Trust or the Partnership were to invest in debt or equity interests in
properties similar to or in
5
<PAGE>
close proximity to properties owned by the SAHI Group, it is possible that the
properties owned by the SAHI Group may compete with the properties in which the
Trust has such interests in the future. In addition, the Trust and the
Partnership, on the one hand, and the SAHI Group, on the other hand, may
possibly compete with each other in the future with respect to the acquisition
of debt and/or equity interests. None of the SAHI Group will be required to
present any investment opportunities to the Trust and the Partnership or invest
in any class of assets through the Trust and the Partnership.
Mr. Sternlicht, the President and Chief Executive Officer of Starwood was
not directly involved in the negotiation of the Warrants nor the formulation of
the SAHI Business Plan, but rather reviewed the terms and ultimately approved
the Warrants and SAHI Business Plan. Mr. Sternlicht became a trustee of the
Trust after the Warrants were issued.
The Trust and the Partnership will not be able to make certain types of
investments as a result of restrictions and conflicts involving SAHI and their
affiliates. Specifically, without the amendment, termination or waiver of
provisions of certain non-competition agreements between Starwood Capital Group,
L.P. and Starwood Lodging Trust, the Trust and the Partnership are prohibited
from: (i) making investments in loans collateralized by hotel assets where it
is anticipated that the underlying equity will be acquired by the debt holder
within one (1) year from the acquisition of such debt, (ii) acquiring equity
interests in hotels (other than acquisitions of warrants, equity participations
or similar rights incidental to a debt investment by the Trust or the
Partnership or that are acquired as a result of the exercise of remedies in
respect of a loan in which the Trust or the Partnership has an interest) or
(iii) selling or contributing to or acquiring any interests in HOT, including
debt positions or equity interests obtained by the Trust or the Partnership
under, pursuant to or by reason of the holding of debt positions.
In addition, during any period in which the SAHI Nominees shall
constitute a majority of the Board of Trustees (or the SAHI Group collectively
control a sufficient number of voting securities to elect a majority of the
Board) and Starwood Mezzanine shall have an interest in either the Trust or the
Partnership, (i) without the approval of the limited partners of Starwood
Mezzanine (A) neither the Trust nor the Partnership shall pursue any equity
interests as a principal purpose, excluding equity interests which are
incidental to, or acquired pursuant to the exercise of remedial rights with
respect to, a debt instrument and (B) neither the Trust nor the Partnership
shall invest in real estate related debt interests issued by obligors that are
not operating companies or originate or purchase mortgage loans issued by
obligors that are not operating companies and (ii) neither the Trust nor the
Partnership shall incur indebtedness during any period in which the incurrence
of such indebtedness would increase the amount of UBTI to be incurred by the
limited partners of Starwood Mezzanine without the prior written consent of
Starwood Mezzanine. Furthermore, during any period in which Starwood Mezzanine
shall have an interest in either the Trust or the Partnership, neither the Trust
nor the Partnership may acquire (by contribution or purchase) any additional
debt or equity securities from the SAHI Group without the approval of (i) the
limited partners of Starwood Mezzanine and (ii) the general partner of the
Partnership and such acquisition shall consist of assets which enable the Trust
to maintain its status as a REIT.
In addition, without the prior approval of Starwood Mezzanine's limited
partners during any period in which Starwood Mezzanine shall have an interest in
either the Trust or the Partnership: (i) none of the SAHI Group may receive
performance or management fees from the Trust or the Partnership, including, but
without limitation, trustees' fees or options or awards pursuant to the Angeles
Participating Mortgage Trust 1996 Trustees' Share Incentive Plan or the Angeles
Participating Mortgage Trust 1996 Share Incentive Plan; and (ii) the Trust and
the Partnership may not enter into any service agreements with the SAHI Group.
The failure of Starwood Mezzanine's limited partners to approve an item or
matter referred to in (i) or (ii) of the preceding sentence could operate to
reduce the SAHI Group's incentives to allocate their or their personnel's time
and efforts in furtherance of the SAHI Business Plan or may otherwise impede the
growth prospects for the Trust and Partnership.
LACK OF APPRAISAL RIGHTS
Under California law, Shareholders do not have any statutory dissenter's
rights to appraisal of their Class A Shares or Class B Shares in connection with
the Warrant Proposal, Trust Amendments Proposals or the Partnership Proposal.
BACKGROUND OF THE TRUST AND TRANSACTIONS WITH SAHI
The Trust was originally formed by Angeles Corporation, a California
corporation ("Angeles"), for the purpose of making various types of mortgage and
other loans to entities affiliated with Angeles. In early 1993, Angeles and its
affiliates began experiencing financial difficulties which caused its affiliates
to default on their loans made by the Trust. In November 1993, the Trust sold
such loans to an unaffiliated third party and with the proceeds of such sale and
cash on hand was able to distribute $37.3 million ($14.50 per share) to the
Shareholders. In November 1993, the Trust was notified that SAHI, Inc. had
acquired from an affiliate of New Plan Realty Trust, in a privately negotiated
transaction, all
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of the outstanding shares of the Trust's Class B Shares, and, from November,
1993 through February, 1994, SAHI Partners had accumulated through open market
purchases 9.57% of the total outstanding shares of the Trust's Class A Shares.
Subsequently, SAHI Partners made the Trust a firm offer to obtain control of the
Trust. SAHI Partners and its affiliates are engaged in the business of
investing in real estate assets, including hotels, office buildings, residential
land developments and multi-family apartment projects. Through subsequent
negotiations between the Trust and SAHI Partners, it was agreed that the Trust
would issue to SAHI Partners and SAHI, Inc. warrants for the purchase of
additional Class A Shares and Class B Shares. On March 15, 1994, SAHI Partners
purchased from the Trust for $100,000 the Class A Warrant for the right to
purchase up to 5,000,000 Class A Shares at a price of $1.00 per share, and SAHI
Inc. purchased for $1,000 the Class B Warrant for the right to purchase up to
2,500,000 Class B Shares at a price of $.01 per share. The Warrants are not
exercisable until they have been approved by holders of a majority of the Class
A Shares and Class B Shares voting together as a single class. SAHI Partners
subsequently assigned the Class A Warrant to Starwood Mezzanine. Starwood
Mezzanine and SAHI, Inc. are not obligated to exercise the Warrants, either in
whole or in substantial part. After acquiring the Warrants, SAHI proposed to
change the investment focus of the Trust from making loans to Angeles affiliated
entities to acquiring equity interests and debt positions in hotel related
assets. In April, 1994, the Board of Trustees filed with the Securities and
Exchange Commission (the "SEC") a preliminary proxy statement (the "1994
Preliminary Proxy") for the purpose of obtaining the Shareholders' vote on the
issuance of the Warrants and the proposed change in the investment focus of the
Trust, as well as certain other matters. However, subsequent to filing of the
1994 Preliminary Proxy, in June, 1994, an affiliate of SAHI entered into an
agreement providing for the reorganization and recapitalization of the hotel
business conducted by another REIT. SAHI's affiliate believed the paired share
structure of the other REIT represented a superior structure for a hotel-related
REIT when compared to the structure of the Trust. However, SAHI's affiliate
believed that the Trust's structure could still be used effectively for
investments in asset classes other than hotel equities. In order to minimize
any conflicts with affiliates of SAHI, and upon further analysis of the
investment opportunities available to the Trust, the Board of Trustees and SAHI
elected to modify the investment focus of the Trust away from acquisitions of
hotel related equity interests. In May, 1995, the Board of Trustees filed a
preliminary proxy statement (the "1995 Preliminary Proxy") for the purpose of
obtaining the Shareholders' vote on the modified investment focus of the Trust,
the issuance of the Warrants and certain other matters.
However, such matters were not submitted to the Shareholders because the
Board of Trustees believed it would be in the best interests of the Trust and
the Shareholders to continue to consider alternative methods of maximizing the
Shareholders' return on their investment in the Trust. Although other third
parties expressed an initial interest in an investment in the Trust, no ongoing
discussions took place due to the fact that SAHI Partners owned 39.72% of the
voting interest of the Trust. Given that one party controlled such a large
portion of the Trust, the Trust did not solicit third parties for investment
because it believed such efforts would be unproductive. The only alternative to
the SAHI proposal analyzed by the Board of Trustees was liquidation of the
Trust.
Based upon such analysis, SAHI has informed the Trust that upon obtaining
control of the Trust through the election of SAHI-affiliated nominees to the
Board of Trustees, its current proposal is for the Trust to acquire direct or
indirect interests in the Diversified Portfolio. In addition, the Trust will
become the sole general partner of the Partnership. Although the Trust will not
be required initially to operate exclusively through the Partnership, in the
event Starwood Mezzanine exercises the Class A Warrant for at least 2,000,000
Class A Shares, the Trustees shall have the right to cause the Trust to
contribute substantially all of the Trust's theretofore uncontributed assets to
the Partnership for additional interests in the Partnership and, following any
such contribution, to cause the Trust to agree to conduct
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all of its real estate-related investment activities exclusively through the
Partnership. See "WARRANT PROPOSAL -- SAHI Business Plan" and "PARTNERSHIP
PROPOSAL." In order to carry out such intention, the current structure, purpose
and investment policy of the Trust must be modified as proposed herein. See
"TRUST AMENDMENTS PROPOSAL" and "PARTNERSHIP PROPOSAL."
THE PROPOSALS
At the Annual Meeting, the Shareholders are being asked to consider and
vote upon the following proposals:
WARRANT PROPOSAL. A proposal to approve the Class A Warrant and the Class
B Warrant. Since exercise of the Warrants will give SAHI control of the Trust,
a vote to approve such proposal is, in essence, potentially a vote to change the
Trust's investment policy and implement the SAHI Business Plan as defined and
described under "WARRANT PROPOSAL--SAHI Business Plan."
TRUST AMENDMENTS PROPOSALS. Proposals to make certain amendments to the
Declaration of Trust necessary to facilitate the Trust's change of purpose and
investment policy as contemplated by the SAHI Business Plan and to remove
provisions or terms which apply to Angeles and its affiliates because such
entities are no longer related to the Trust or involved in the Trust's
activities. Such proposals include removing the Trust's obligation to endeavor
to make monthly distributions of income to the Shareholders and changing or
postponing the date on which the Trust is currently scheduled to terminate and
distribute its assets to the Shareholders from October 16, 2004 to an indefinite
later date. See "TRUST AMENDMENTS PROPOSALS."
BOARD ELECTION PROPOSAL. A proposal to elect Barry Sternlicht, Madison
Grose, Jay Sugarman, Eugene A. Gorab, J. D'Arcy Chisholm, Ronald J. Consiglio
and Jack E. McDonald to the Board of Trustees. See "ELECTION OF TRUSTEES."
PARTNERSHIP PROPOSAL. A proposal to form the Partnership: (a) of which the
Trust will be the sole general partner and to which the Trust will contribute
$400,000 in cash, plus or minus prorations, if any, in exchange for a 7.76%
initial interest, subject to adjustment, in the Partnership; and (b) of which
Starwood Mezzanine will be the initial limited partner and to which Starwood
Mezzanine will contribute its entire interest in the Certificates, valued at
approximately $4,757,000 as of January 1, 1996 in exchange for a 92.24% initial
interest, subject to adjustment, of the Partnership. For a description of the
adjustments and prorations, if any, with respect to the contributions by the
parties and the initial percentage interests in the Partnership see "--Formation
of the Partnership". Starwood Mezzanine will have the right to exchange any or
all of the Units issued to it (initially or after the formation of the
Partnership) for Class A Shares. In addition, Starwood Mezzanine will also have
the right, subject to certain limitations and restrictions, to require the Trust
to register for public sale the Class A Shares issued to it upon exercise of the
Class A Warrant or upon exchange of the Units it receives upon the formation of
the Partnership. See "PARTNERSHIP PROPOSAL -- Limited Partner Rights."
INCENTIVE PLAN PROPOSALS. Proposals to approve the Angeles Participating
Mortgage Trust Trustees' 1996 Incentive Plan and the Angeles Participating
Mortgage Trust 1996 Share Incentive Plan (collectively, the "Incentive Plans"),
which plans provide for Class A Shares, options to purchase Class A Shares or
share appreciation rights to be granted to trustees, officers and employees of
the Trust as incentive compensation for the performance of their duties to the
Trust. See "TRUSTEES' INCENTIVE PLAN PROPOSAL" and "EMPLOYEES' INCENTIVE PLAN
PROPOSAL."
AUDITORS PROPOSAL. A proposal to ratify the appointment of Deloitte &
Touche LLP as the Trust's independent accountants for the fiscal year ending
December 31, 1996. See "RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS."
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Each of the Proposals (other than the Warrant Proposal) will not be
submitted to the Shareholders unless the Proposal(s) previously submitted to the
Shareholders at the Annual Meeting have been approved. The Board of Trustees
has been informed by SAHI Partners that it intends to vote all of the Class A
Shares and Class B Shares it owns (representing a combined 39.72% voting
interest) for each of the Proposals.
REASONS FOR THE TRANSACTION; BOARD OF TRUSTEES RECOMMENDATION
The Board of Trustees believes that the issuance of the Warrants, the
amendments to the Declaration of Trust, the subsequent change of the Trust
purpose and investment policy in order to implement the SAHI Business Plan, the
election of the nominees as Trustees, the Partnership Proposal and the other
Proposals are in the best interest of both the Trust and the Shareholders. The
Board of Trustees recommends that you vote FOR approval of the Proposals. The
only other alternative identified by the Board of Trustees was to liquidate the
Trust and distribute its assets after the expiration of the Contingent Claims
Trust which was scheduled to expire on December 31, 1996. The Contingent Claims
Trust was terminated on August 12, 1996. See Note 8 to the table under "Selected
Financial Data." The Board of Trustees estimated that approximately $1,600,000
would be available to be distributed to the Shareholders in a liquidating
dividend which would equal approximately $0.62 per Class A Share if the Trust
were liquidated on December 31, 1996. The Board of Trustees concluded that
issuing the Warrants and the implementation of the SAHI Business Plan,
including, but without limitation, the formation and capitalization of the
Partnership, provided Shareholders with a greater potential for growth of their
investment and overall return than the immediate liquidation of the Trust. The
Board's conclusion was based on: (a) Starwood Mezzanine's current intent to
exercise the Class A Warrant for at least 2,000,000 Shares which will provide an
infusion of capital to the Trust; (b) the change in the stated purpose of the
Trust to allow the Trust to broaden its investment options; and (c) the
experience and track record of SAHI in making real-estate related investments in
debt and equity. The Board of Trustees also considered that Shareholders who
desire to liquidate their investment could do so by selling their Class A Shares
on the American Stock Exchange (the "AMEX"). In making its recommendation, the
Board of Trustees also considered (i) the opinion of the Financial Advisor that
the terms and provisions of the Warrants are fair, from a financial point of
view, to the Trust and its Shareholders, and (ii) the Shareholders' Agreement
entered into between the Trust, SAHI Partners and SAHI, Inc. which contain
certain provisions designed to protect Shareholders not affiliated with SAHI.
FAIRNESS OPINION WITH RESPECT TO THE WARRANTS
The Trust retained the services of an independent financial advisor, the
investment banking firm of Chanin Capital Partners, Inc., a California
corporation (the "Financial Advisor"), to analyze the fairness of the terms and
provisions of the Warrants. The Trust selected the Financial Advisor because of
its experience in the valuation of businesses and their securities in connection
with various types of transactions. The Financial Advisor did not recommend the
consideration to be paid pursuant to the Warrants, but rather examined the
fairness of the terms and provisions of the Warrants (which were negotiated
between the Trust and SAHI Partners with respect to the Class A Warrant and
between the Trust and SAHI, Inc. with respect to the Class B Warrant), from a
financial point of view. The Financial Advisor utilized various methods of
valuing warrants in attempting to determine the fairness of the terms and
provisions of the Warrants, including the Black-Scholes Option Pricing Model.
Because the time period for exercise of the Warrants is short in comparison to
most warrants, the values produced by these various analytical methods
(including the Black-Scholes method) were negligible. The fairness opinion of
the Financial Advisor is limited to the fairness of the terms and provisions of
the Warrants and does not extend to the fairness of the overall transaction with
SAHI. The scope of the review conducted by the Financial Advisor is included in
the text of the fairness opinion attached hereto as Exhibit B. In consideration
of its services with respect to its fairness opinion in connection with the 1995
Proxy Statement, the Financial Advisor received $40,000 in fees and has been
reimbursed for its reasonable out-of-pocket expenses. In consideration of its
services with respect to the fairness opinion contained herein, the Trust has
agreed to pay the Financial Advisor $20,000. The Trust has agreed to indemnify
the Financial Advisor against certain liabilities and expenses in connection
with its services. An affiliate of the Financial Advisor, Chanin and Company,
served as a financial advisor to the Trust
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<PAGE>
during the Trust's negotiations with Angeles related to certain defaults under
the Trust Loans made to subsidiaries of Angeles (the "Restructuring"). Such
role included providing valuation and other related financial advice to the
Trust and its Board of Trustees during such negotiations, as well as
recommending certain actions taken by the Trust, including the ultimate sale of
the remaining Trust Loans to New Plan Realty Trust pursuant to the Joint
Marketing Agreement as described under "PROXY STATEMENT SUMMARY -- Background of
the Trust and Transactions With SAHI." As compensation for its services in the
Restructuring, Chanin and Company received aggregate fees and reimbursement for
expenses of $247,450.
ANNUAL MEETING AND VOTING
Shareholders of record as of the close of business on August 9, 1996 are
entitled to receive notice of and to vote at the Annual Meeting. As of
August 9, 1996, there were 2,550,000 Class A Shares and 1,275,000 Class B Shares
issued and outstanding. The presence of a majority of such shares, either in
person or by proxy, shall constitute a quorum at the Annual Meeting.
As of August 9, 1996, SAHI Partners had the right to vote an aggregate of
1,519,100 Class A Shares and Class B Shares, representing 39.72% of the total
voting interest held by Class A Shares and Class B Shares outstanding on such
date. SAHI Partners has indicated that it intends to vote all of Class A Shares
and Class B Shares held by it for approval of each of the Proposals. J. D'Arcy
Chisholm, Ronald Consiglio and Ann Merquerian (a Vice President of the Trust)
who own 773, 5,500 and 10,000 Class A Shares, respectively, have indicated that
they intend to vote all of their Class A Shares for approval of each of the
Proposals.
Accompanying this Proxy Statement is a proxy card that may be used to
indicate a Shareholder's vote on the Proposals. If no vote is indicated on such
a proxy, the Class A Shares or Class B Shares will be voted for all the
Proposals. Any Shareholder who casts a vote by proxy may revoke it at any time
by giving written notice to the Secretary of the Trust expressly revoking the
proxy, by signing and forwarding to the Trust a later dated proxy, or by
attending the annual meeting and personally voting the shares owned of record by
such Shareholder.
Cumulative voting for the election of trustees is available to the
Shareholders by the procedures set forth under "ANNUAL MEETING AND VOTING." In
voting upon any matter at the Annual Meeting, each Shareholder is entitled to
one vote for each Class A Share or Class B Share registered in the Shareholder's
name on the record date. Class A Shares and Class B Shares shall be voted
together as a single class, with a majority vote required for approval and
ratification of each matter.
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<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<TABLE>
<CAPTION>
For the six months
ended June 30, For the years ended December 31,
------------------- -------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue(1)........................... $ 29 $ 69 $ 148 $ 296 $ 2,185 $ 5,237 $ 5,448
Gain from sale of mortgages(2)....... 0 0 2,545 0 0
Costs and expenses(3)................ 285 158 283 626 982 5,783 642
------ ------ ------ ------- ------- ------- -------
Net income (loss).................... $ (256) $ (89) $ (135) $ (330) $ 3,748 $ (546) $ 4,806
====== ====== ====== ======= ======= ======= =======
Net income (loss) --
per Class A (Share)(4).............. $(0.10) $(0.03) $(0.05) $ (0.13) $ 1.45 $ (0.21) $ 1.87
Total cash distributions.............. 0 0 0 0 38,639 5,162 5,162
Cash distributions --
per Class A Share(5)................ 0 0 0 0 $ 15.01 $ 2.00 $ 2.00
OTHER DATA:
Ratio of Earnings to Fixed Charges... 0.21/(6)/ 0.60/(6)/ 0.65/(6)/ 1.23 /(7)/ 7.42 7.57
Net Cash Provided by
Operating Activities................ $ (258) $ (178) $ (184) $ (397) $ 2,531 $ 4,857 $ 5,189
BALANCE SHEET DATA:
Cash and Cash Equivalents............ $ 814 $ 659 $ 863/(8)/ $ 872/(8)/ $ 2,539/(8)/ $ 111 $ 61
Net Increase (Decrease) in Cash and
Cash Equivalents.................... (49) (213) (9) (1,667) 2,428 50 60
Total assets......................... 1,932 2,230 2,194 2,372 2,680 39,909 44,824
Shareholders' equity................. 1,899 2,201 2,155 2,290 2,519 37,410 43,118
Total Liabilities.................... 33 29 39 82 161 2,499 1,706
</TABLE>
- ------------------
(1) Revenue, primarily interest income, declined in the first six months of 1996
compared to the comparable period in 1995 and in 1995 and 1994 as compared
to 1993 and prior years due to the sale of the Trust's portfolio in 1993.
(2) During 1993, the Trust sold its entire portfolio consisting of four mortgage
loans resulting in proceeds in excess of carrying values and obligations of
$2,545,000.
(3) Includes a write-down for in-substance foreclosed property of $5,000,000 in
1992.
(4) The net income per Class A Share was based upon 2,550,000 weighted average
shares outstanding during each of the five years in the period ended
December 31, 1995, after deduction of the 1% Class B Shares' interest.
(5) Includes a $14.50 per Class A Share distribution paid in December 1993 as a
result of selling the Trust's remaining three Trust Loans.
(6) 1995 earnings were inadequate to cover fixed charges. The dollar amount of
the coverage deficiency for the six months ended June 30, 1996 and June 30,
1995 and for the year ended 1995 were $108,000, $46,000 and $81,000,
respectively.
(7) Due to the events occurring in 1993 with respect to the business operations
of the Trust, a detailed breakdown of the Trust's 1993 expenses cannot be
determined without an impracticable amount of time and expense. Accordingly,
the ratio of earnings to fixed charges for 1993 was not readily
determinable. See "Background of the Trust and Transactions with SAHI."
(8) Cash and cash equivalents include cash held in bank or invested in money
market funds with maturity terms of less than 90 days. Of the cash and cash
equivalents balances at June 30, 1996, December 31, 1995 and 1994, all of
the cash balances of $814,000, $863,000 and $872,000, respectively, and
$2,000,000 of the cash and cash equivalents balance at December 31, 1993
were held by the Contingent Claim Trust for the benefit of the Trust. Such
Contingent Claim Trust was established to provide for any contingent claims
arising from the operations of the Trust or any liability under the Trust's
indemnification agreements for its Trustees. The Contingent Claim Trust was
terminated on August 12, 1996 based on the determination by its trustee that
no contingent claims exist. The sole beneficiary of the Contingent Claim
Trust was the Trust and the operations of the Contingent Claim Trust were
under the control of the chief executive officer of the Trust. The
Contingent Claim Trust has been accounted for by the Trust on the
consolidated method of accounting, since its inception in 1993 as it was
deemed more appropriate for including the assets and operations of the
Contingent Claim Trust with those of the Trust. As the Contingent Claim
Trust is a single asset trust, the differences had it not been accounted for
under the consolidated method are minor. The net current assets, the net
current liabilities and shareholders equity would have been identical. The
only difference within the balance sheet is the caption of the asset which
in consolidation is shown as an investment in investment securities versus a
receivable from the Contingent Claim Trust. The only difference in the
statement of operations is the caption relating to the interest earned on
the investment in securities versus reporting such amount as other
income.
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<PAGE>
RISK FACTORS
The statements contained in this Proxy Statement that are not historical
facts are forward-looking statements subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. A number of important factors
could cause the Trust's actual results for 1996 and beyond to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Trust. These factors include, without limitation, the factors listed below.
The Proposals present a number of risk factors and voting considerations that
Shareholders should carefully consider prior to voting, including the following:
SHAREHOLDERS WILL NOT RECEIVE A LIQUIDATING DISTRIBUTION FROM THE
TRUST. By implementing the SAHI Business Plan, Shareholders will not be
receiving a liquidating distribution from the Trust, which amount per share may
be higher than the trading price of a Class A Share.
LIQUIDATING DISTRIBUTIONS MAY BE HIGHER THAN TRADING PRICES OF SHARES. For
a substantial period of time, the Shares had been trading at prices below the
amount per share the Shareholders would receive upon liquidation. Only recently
has the trading price of the shares been above the liquidation value.
Therefore, there is a risk that the Shares will trade at prices below the amount
of money Shareholders would receive through liquidating distributions of the
Trust. By implementing the SAHI Business Plan, Shareholders will not be
receiving a liquidating distribution from the Trust, which amount per share may
be higher than the trading price of a Class A Share.
ELIMINATION OF PRIORITY RETURN TO SHAREHOLDERS. One of the proposals to
amend the Trust's Declaration of Trust, if approved, will eliminate the right of
Class A Shareholders to receive a priority return before the Trust's former
advisor is paid a fee because such advisor is no longer providing services to
the Trust. However, the Declaration of Trust does not require that any
subsequent advisory agreements entered into by the Trust contain any such
priority return and SAHI contemplates that any such subsequent advisory
agreement entered into while the Trust is under its control would not
necessarily include a priority return. Therefore, any future Advisor, who may
be affiliated with SAHI (subject to the Shareholders Agreement), may absorb a
significant amount of the Trust's cash flow.
CHANGE OF CONTROL AND DILUTION OF SHAREHOLDERS. Upon exercise of the
Warrants, SAHI Partners, Starwood Mezzanine and SAHI, Inc. will increase their
combined voting interests in the Trust from 39.72% to 79.64% (and to 87.52% in
the event that Starwood Mezzanine were to exchange all of its limited
partnership interests in the Partnership for Class A Shares). Upon exercise of
the Warrants, the Shareholders not affiliated with SAHI will have their voting
interests reduced from 60.28% to 20.36% (and to 12.48% in the event that
Starwood Mezzanine were to exchange all of its limited partnership interests in
the Partnership for Class A Shares), subject to adjustment (See "Summary--
Formation of the Partnership") and, therefore, their ability to influence
decisions regarding the operations and policies of the Trust will be
substantially reduced. In addition, upon the exercise of the Warrants, the
Shareholders not affiliated with SAHI will have their percentage ownership
interest in the Class A Shares reduced from 90.43% to 30.23% (and to 18.53% in
the event that Starwood Mezzanine were to exchange all of its limited
partnership interests in the Partnership for Class A Shares), subject to
adjustment (See "Summary--Formation of the Partnership"). Starwood Mezzanine is
not required to exercise the Class A Warrant (in whole or in substantial part).
Although no assurances can be given, Starwood Mezzanine has declared its
intention to exercise its Class A Warrant for at least 2,000,000 Class A
Shares.
CONFLICTS OF INTEREST. The SAHI Nominees have substantial indirect economic
interests in and are officers of Starwood. Starwood and its affiliates have
substantial investments in real estate-related assets and debt secured by real
estate assets. Starwood is also the general partner of the investment
partnerships comprising or which own substantially all of the beneficial
interests in SAHI. Messrs. Sternlicht and Grose are also principal shareholders
in SAHI, Inc., which holds various interests in real estate investments. In the
event the Trust or the Partnership were to invest in debt or equity interests in
properties similar to or in close proximity to properties owned by the SAHI
Group, it is possible that the properties owned by the SAHI Group may compete
with the properties in which the Trust and the Partnership has such interests in
the future. In addition, the Trust and the Partnership, on the one hand, and the
SAHI Group, on the other hand, may possibly compete with each other in the
future with respect to the acquisition of debt and/or equity interests. None of
the SAHI Group will be required to present any investment opportunities to the
Trust or the Partnership or invest in any class of assets through the Trust or
the Partnership. Mr. Consiglio is the Chief Executive Officer, a Trustee and
Chairman of Angeles Mortgage Investment Trust ("AMIT"). AMIT currently has
investments in various types of intermediate-term loans secured by real estate,
and contemplates making similar type loans and other types of real estate
investments in the future. Therefore, the Trust and Mr. Consiglio may have
conflicts similar to those set forth above with respect to the SAHI Group. In
addition, like the SAHI Group, Mr. Consiglio will not be required to present any
investment opportunities to the Trust and the Partnership or invest in any type
of assets through the Trust and the Partnership.
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<PAGE>
The Trust and the Partnership will not be able to make certain types of
investments as a result of restrictions and conflicts involving SAHI and their
affiliates. Specifically, without the amendment, termination or waiver of
provisions of certain non-competition agreements between Starwood Capital Group,
L.P. and Starwood Lodging Trust, the Trust and the Partnership are prohibited
from: (i) making investments in loans collateralized by hotel assets where it
is anticipated that the underlying equity will be acquired by the debt holder
within one (1) year from the acquisition of such debt, (ii) acquiring equity
interests in hotels (other than acquisitions of warrants, equity participations
or similar rights incidental to a debt investment by the Trust or the
Partnership or that are acquired as a result of the exercise of remedies in
respect of a loan in which the Trust or the Partnership has an interest) or
(iii) selling or contributing to or acquiring any interests in HOT, including
debt positions or equity interests obtained by the Trust or the Partnership
under, pursuant to or by reason of the holding of debt positions.
During any period in which the SAHI Nominees shall constitute a majority of
the Board of Trustees (or the SAHI Group collectively control a sufficient
number of voting securities to elect a majority of the Board) and Starwood
Mezzanine shall have an interest in either the Trust or the Partnership, (i)
without the approval of the limited partners of Starwood Mezzanine (A) neither
the Trust nor the Partnership shall pursue any equity interests as a principal
purpose, excluding equity interests which are incidental to, or acquired
pursuant to the exercise of remedial rights with respect to, a debt instrument
and (B) neither the Trust nor the Partnership shall invest in real estate
related debt interests issued by obligors that are not operating companies or
originate or purchase mortgage loans issued by obligors that are not operating
companies and (ii) neither the Trust nor the Partnership shall incur
indebtedness during any period in which the incurrence of such indebtedness
would increase the amount of UBTI to be incurred by the limited partners of
Starwood Mezzanine without the prior written consent of Starwood Mezzanine.
Furthermore, during any period in which Starwood Mezzanine shall have an
interest in either the Trust or the Partnership, neither the Trust nor the
Partnership may acquire (by contribution or purchase) any additional debt or
equity securities from the SAHI Group without the approval of (i) the limited
partners of Starwood Mezzanine and (ii) the general partner of the Partnership
and such acquisition shall consist of assets which enable the Trust to maintain
its status as a REIT.
In addition, without the prior approval of Starwood Mezzanine's limited
partners, during any period in which Starwood Mezzanine shall have an interest
in either the Trust or the Partnership: (i) none of the SAHI Group may receive
performance or management fees from the Trust or the Partnership, including, but
without limitation, trustees' fees or options or awards pursuant to the Angeles
Participating Mortgage Trust Trustees' 1996 Share Incentive Plan or the Angeles
Participating Mortgage Trust 1996 Share Incentive Plan; and (ii) the Trust and
the Partnership may not enter into any service agreements with the SAHI Group.
The failure of Starwood Mezzanine's limited partners to approve an item or
matter referred to in (i) or (ii) of the preceding sentence could operate to
reduce the SAHI Group's incentives to allocate their or their personnel's time
and efforts in furtherance of the SAHI Business Plan or may otherwise impede the
growth prospects for the Trust and Partnership.
LIMITED PROTECTION TO NON-SAHI SHAREHOLDERS. Because the term of the
Shareholders Agreement is three years, and given that the term of the Trust, as
amended, will be indefinite, the Shareholders Agreement provides limited
protection for Shareholders not affiliated with SAHI.
FAILURE OF STARWOOD MEZZANINE TO EXERCISE ITS WARRANT. The exercise of the
Class A Warrant by Starwood Mezzanine and the formation and capitalization of
the Partnership will provide the additional capital necessary to implement the
SAHI Business Plan. However, Starwood Mezzanine is not required to exercise the
Class A Warrant (either in whole or in substantial part). Although no
assurances can be given, Starwood Mezzanine has declared its intention to
exercise its Class A Warrant for at least 2,000,000 Class A Shares. In the
event Starwood Mezzanine does not exercise its Class A Warrant (either in whole
or in substantial part), or in the event that the Partnership is not formed and
capitalized on the basis set forth herein, and the Trust is unable to locate
alternative sources of capital, it is likely that the Trust will be unable to
implement the SAHI Business Plan (or any other business plan consistent with the
change in investment policy proposed herein). There can be no assurance that
the Trust can locate such alternative sources of capital. If the SAHI Business
Plan (or such other business plan) is not implemented, the Trust will be forced
to look for alternative transactions or to liquidate the Trust and to distribute
the proceeds thereof.
POSSIBLE FUTURE DILUTION. The Board of Trustees has the authority to
authorize and issue additional shares of the Trust. Such shares may be offered
to SAHI or other parties in capital raising transactions on behalf of the Trust
and for any other corporate purpose, including the purchase of additional
properties or debt interests and the investment in, or acquisition of, interests
in other entities, including other REITs or limited partnerships whose assets
consist of investments suitable for the Trust. Such transactions may result in
dilution of then-current Shareholders' interests in the Trust. In addition, the
Trust is seeking the Shareholders' approval of the Incentive Plans pursuant to
which directors, officers and other employees of the Trust may be granted
restricted Class A Share options to acquire Class A Shares and share
appreciation rights. The exercise of any such options will have a dilutive
effect on the then-current Shareholders. See "TRUSTEES' INCENTIVE PLAN
PROPOSAL" and "EMPLOYEES' INCENTIVE PLAN PROPOSAL."
UNSPECIFIED INVESTMENTS. At the present time, the Trust has not committed
to acquire or invest in any specific properties or loans other than the
Certificates. No assurance can be given at the present time as to any such
specific properties or loans other than the Certificates. Accordingly, the
Shareholders must rely entirely on the judgment of the Board of Trustees in
investing the assets of the Trust and will be unable to evaluate, in advance,
the selection of properties and loans to be acquired by the Trust.
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Thus, no assurance can be given that the Trust will be successful in obtaining
suitable investments or that, if investments are made, the objectives of the
Trust will be realized.
CHANGES IN POLICIES. The investment and financing policies of the Trust and
its policies with respect to all other activities, including its growth, debt,
capitalization, dividends and operating policies, will be determined by the
Board of Trustees. Although the Board of Trustees has no present intention to do
so, these policies may be amended or revised at any time and from time to time
at the discretion of the Board of Trustees, without a vote of the Shareholders.
See "WARRANT PROPOSAL -- SAHI Business Plan." A change in these policies could
adversely affect the Trust's financial condition or results of operations or the
market price of the Class A Shares or Class B Shares.
CHANGE OF INCOME DISTRIBUTION POLICY. If the Proposals are approved, the
Trust's obligation, under the Declaration of Trust, to endeavor to make monthly
cash distributions will be eliminated and the Trust will only be required to
make distributions necessary to maintain its qualification as a REIT.
Additionally, a greater portion of the Trust's income will be reinvested in
other investments by the Trust.
REMOVAL OF LIMITED TERM RESTRICTION. The currently scheduled date of
October 16, 2004 (or December 31, 2020 if extended by the Shareholders) for the
liquidation of the Trust's assets and distribution of such assets to the
Shareholders will be removed. Removal of the limited term restriction could have
the following effects:
(i) For a substantial period of time, the Shares had been trading at
prices below the amount per share the Shareholders would receive upon
liquidation. Only recently has the trading price of the Shares been above the
estimated liquidation value. Therefore, there is a risk that the Shares will
trade at prices below the amount of money Shareholders would receive through
liquidating distributions of the Trust. The Trustees will not be required to
liquidate the Trust's assets by a specific date. Accordingly, any Shareholder
seeking to liquidate his, her or its investment in the Trust will be required to
do so through a sale of such holder's securities in the securities market.
According to the AMEX monthly market statistics, the aggregate monthly share
volume for the Class A Shares for June and July 1996 was 23,800 and 57,400,
respectively. The Trustees are unable to predict with any degree of certainty
the trading prices or trading volume of the Class A Shares if the limited term
restriction is removed, as such prices and volume will be determined in the
securities trading markets and will be influenced by many factors, including
general economic and market conditions.
(ii) Removal of the limited term restriction will increase the amount
of the Shareholders' investment in the Trust which remains at risk and lengthens
the time period of such risk.
(iii) Removal of the limited term restriction may result in the
payment of salaries, expenses and other compensation to the Trustee and officers
and employees of the Trust beyond the currently scheduled liquidation date of
October 16, 2004. Such payments will be made regardless of whether any
distributions are made to Shareholders, and the amount of such payments, in the
aggregate, may be substantial.
(iv) Removal of the limited term restriction will create a potential
conflict of interest for the Trustees insofar as such conversion presents the
potential for the seven (7) Trustees who have been nominated for election or
reelection as Trustees at the Annual Meeting, or their successors to continue as
Trustees beyond the currently scheduled liquidation date of October 16, 2004.
REAL ESTATE INVESTMENT RISKS. If the Proposals are approved by the
Shareholders, SAHI's current intention is for the Trust to change its investment
policy. The proposed changes in the Trust's investment policy are described
under "PROXY STATEMENT SUMMARY -- Changes in the Business Plan" and
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"WARRANT PROPOSAL -- SAHI Business Plan." The investments which SAHI
contemplates for the Trust involve various risks generally incident to the
ownership of debt and/or equity interests in real property. Some of the risks
generally incident to the ownership of debt and/or equity interests in real
property are as follows:
(i) Investments in real estate or debt interests secured by real
estate typically involve a high level of risk. One of the risks of investing in
debt or equity in interests in real estate is the possibility that the
properties acquired by the Trust will not generate income sufficient to meet
operating expenses and/or debt service or will generate income and capital
appreciation, if any, at rates lower than those anticipated or available through
investment in comparable real estate or other investments. Income from
properties and yields from investments in properties may be affected by many
factors, including the type of property involved, the form of investment,
conditions in financial markets, over-building, a reduction in rental income as
the result of the inability to maintain occupancy levels, adverse changes in
applicable tax laws, changes in general economic conditions, adverse local
conditions (such as changes in real estate zoning laws that may reduce the
desirability of real estate in the area) and acts of God, such as earthquakes or
floods. Some or all of the foregoing conditions may affect the debt and/or
equity interests in properties acquired by the Trust.
(ii) Equity real estate investments are relatively illiquid. Such
illiquidity will tend to limit the ability of the Trust to vary its portfolio
promptly in response to changes in economic or other conditions. In addition,
federal income tax provisions applicable to REITs limit the Trust's ability to
sell properties held for fewer than four years, which may affect the Trust's
ability to sell properties at a time which would be in the best interests of the
Shareholders.
(iii) The properties acquired by the Trust or which collateralize the
Trust's debt investments will be subject to all operating risks common to real
estate developments in general, any or all of which may adversely affect
occupancy or rental rates. In addition, increases in operating costs due to
inflation and other factors may not necessarily be offset by increased rents or
other revenues. If operating expenses increase, the local markets for
properties may limit the extent to which rents or other revenues may be
increased to meet increased expenses or debt service payments without decreasing
occupancy rates. If any of the above occur, the Trust's ability to make
expected distributions to Shareholders could be adversely affected.
(iv) The number of competitive properties in a particular area could
have a material effect on both the ability to lease space at the acquired
properties or at properties which collateralize the Trust's debt investments and
the rents charged or other revenues to be received. Properties collateralizing
the Trust's debt investment or owned by the Trust may be competing with those
owned by owners that have greater resources than the Trust.
(v) The Trust will seek to maintain or to require to be maintained
comprehensive liability, fire and extended coverage insurance of the type and in
the amount customarily obtained for similar properties. There are, however,
certain types of losses (generally of a catastrophic nature, such as
earthquakes, floods and wars) that either may be uninsurable or not economically
insurable. Should an uninsurable loss occur, the Trust could lose both its
invested capital and anticipated future revenues related to its equity or debt
investment in the affected property, and would continue to be obligated on any
indebtedness or other obligations related to the affected property. Any such
loss could adversely affect the Trust.
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(vi) Under various federal, state and local environmental laws,
ordinances and regulations, an owner or operator of real estate may become
liable for the costs of removal or remediation of certain hazardous substances
released on or in its property (including, without limitation, a secured lender
that succeeds to ownership or control of a property). Such laws typically
impose cleanup responsibility and liability without regard to whether the owner
or control party knew of or was responsible for the presence of the
contaminants. The costs of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to properly remediate such property, may adversely affect the owner's or
control party's ability to sell or rent or otherwise to receive revenues from
such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances also may
be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Finally, the owner or control party of a site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site.
RISKS OF LEVERAGE. The Trust currently has no outstanding debt. The Board
of Trustees has the discretion to permit the Trust to incur bank or other debt
or to issue corporate debt securities in public or private offerings and secure
any such debt with the investments of the Trust subject to the limitations
imposed by Starwood Mezzanine's limited partners described under "RISK FACTORS
- -- Conflicts of Interest." There can be no assurances that the Trust, upon the
incurrence of debt, will be able to meet its debt service obligations and, to
the extent that it cannot, the Trust risks the loss of some or all of its assets
to foreclosure. In addition, the fact that the Trust must distribute 95% of its
taxable income in order to maintain its qualification as a REIT will limit the
ability of the Trust to rely upon income or cash flow from operations to repay
its debt or to finance new acquisitions or to originate or acquire additional
debt investments. As a result, further acquisitions of additional equity or the
origination or acquisition of additional debt investments might be curtailed or
cash available for distribution to the Shareholders might be adversely affected.
Further, adverse economic conditions could result in higher interest rates which
could increase debt service requirements on floating rate debt and could reduce
the amounts available for distribution to Shareholders. The Trust may obtain
one or more forms of interest rate protection (e.g., swap agreements or collars)
to hedge against the possible adverse effects of interest rate fluctuations.
Adverse economic conditions could cause the terms on which borrowings become
available to be unfavorable. In such circumstances, if the Trust is in need of
capital to repay indebtedness in accordance with its terms or otherwise, it
could be required to liquidate one or more investments in properties at times
which may not permit realization of the maximum return on such investments.
LIMITED REPRESENTATIONS AND WARRANTIES AND LACK OF OPERATING HISTORIES.
The SAHI Business Plan's focus will be to acquire direct or indirect interests
in the Diversified Portfolio. This strategy may entail acquiring equity or debt
interests from distressed sellers and/or equity or debt interests in properties
with peculiar operating problems. As a result, the Trust may acquire assets or
debt secured by assets without traditional representations from the sellers.
Similarly, financial statements for the assets may not be available to the
Trust. Without such representations or financial statements, the Trust will
increase its exposure to unknown or unanticipated liabilities and losses
relating to the distressed assets.
TAX LIMITATIONS ON CLOSELY HELD REITS. The Trust has historically operated
as a REIT and maintained its qualification as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"). The Trust intends to operate so as to
qualify as a REIT under the Code. Although the Trustees believe that the Trust
will operate in such a manner, no assurance can be given that the Trust will
qualify
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or remain qualified as a REIT. Qualification as a REIT involves the application
of highly complex Code provisions for which there are only limited judicial and
administrative interpretations. The determination of various factual matters
and circumstances not entirely within the Trust's control may affect the Trust's
ability to qualify as a REIT. If in any taxable year the Trust were to fail to
qualify as a REIT, it would be taxed as a corporation and distributions to
Shareholders would not be deductible by the Trust in computing its taxable
income. Failure to qualify for even one taxable year could result in the Trust
incurring indebtedness (to the extent that borrowings are feasible and permitted
by limitations relating to the indebtedness of the Trust) or liquidating
investments should the Trust not have sufficient funds to pay the resulting
federal income tax liabilities, and the Trust would be disqualified from
taxation as a REIT for the next four taxable years. As a result, the funds
available for distribution to the Shareholders would be reduced for each of the
years involved. In addition, distributions would no longer be required to be
paid. To the extent the distributions to Shareholders would have been paid in
anticipation of the Trust's qualifications as a REIT, the Trust might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax. Although the Trust currently intends to operate in a manner
designed to qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause the Trustees to revoke the REIT
election.
Additionally, the Code requires that REITs not be closely held entities.
An entity is closely held if more than 50% in value of the outstanding shares is
held directly or indirectly by or for five or fewer individuals at any time
during the last half of the taxable year. Stock owned, directly or indirectly,
by or for a corporation, partnership, estate or trust, is considered to be owned
proportionately by its shareholders, partners or beneficiaries for purposes of
determining whether a REIT is closely held. If a person holds an option (e.g.,
a warrant) to acquire shares, the shares are considered to be owned by that
person. The Trust currently believes that after approval and exercise of the
Warrants it will not be considered closely held based on representations
received from a controlling affiliate of SAHI regarding SAHI's ultimate
beneficial ownership. However, based upon those representations, the Trust may
become a "pension-held REIT", the effect of which would be to cause dividends
paid or deemed paid to any qualified pension plan holding 10% or more (by value)
of the Trust's shares in any year to be recharacterized as UBTI if UBTI
comprises more than 5% of the Trust's net taxable income for such year.
Concentration of ownership of Warrants and Shares in SAHI may also lead the
Trust to inadvertently lease any real estate it acquires to tenants in which the
Trust is deemed to have a 10% or greater ownership or voting interest, which
would thereby disqualify any rental income from such properties from being
treated as "rents from real property" for purposes of the REIT income
qualification test. See "WARRANT PROPOSAL -- Federal Income Tax Considerations
of Warrant Proposal."
LACK OF INDEPENDENT REPRESENTATION
The Board of Trustees has not retained an independent representative or
representatives to act on behalf of the Shareholders in connection with the
Proposals. No group of Shareholders was empowered to negotiate the terms and
conditions of the transactions relating to the Proposals or to determine what
procedures should be in place to safeguard the rights and interests of the
Shareholders. In addition, no investment banker, attorney, financial consultant
or expert was engaged to represent the interests of the Shareholders. On the
contrary, the Board of Trustees have been the parties responsible for
structuring all such terms and conditions. If an independent representative or
representatives had been retained for the Shareholders, the terms and conditions
of the transactions relating to the Proposals might have been different, and
possibly more favorable to the Shareholders.
The Board of Trustees, prior to determining the structure of the terms and
conditions of the transactions relating to the Proposals, consulted with legal
counsel and the Financial Advisor. These
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deliberations were critical to the structuring of the Proposals and, though the
advice and counsel of such advisors were not binding upon the Board of Trustees,
affected the manner in which the transactions relating to the Proposals were
structured. With respect to the Warrant Proposal, the Financial Advisor
concluded that such proposal is fair to the Trust from a financial point of
view. Because the Board of Trustees fully analyzed the Proposals and exercised
its business judgment in determining whether the Proposals were in the best
interests of the Trust and the Shareholders, it did not believe it was necessary
to engage an independent representative to represent the interests of the
Shareholders. See "WARRANT PROPOSAL -- Opinion of Independent Financial
Advisor."
ANNUAL MEETING AND VOTING
Only holders of record of the Class A Shares and Class B Shares at the
close of business on August 9, 1996 (the "Record Date") are entitled to receive
notice of and to vote at the Annual Meeting or at any postponement or
adjournment thereof. On the Record Date, the issued and outstanding shares of
the Trust were 2,550,000 Class A Shares and 1,275,000 Class B Shares. The
presence, either in person or by proxy, of the holders of a majority of the
outstanding Class A Shares and Class B Shares counted together as a single class
on the Record Date is necessary to constitute a quorum at the Annual
Meeting.
Class A Shares and Class B Shares represented by a proxy in the
accompanying form, if such proxy is properly executed and is received by the
Trust prior to voting at the Annual Meeting, will be voted in the manner
specified on the proxy. If no such specification is made, the Class A Shares
and Class B Shares will be voted FOR the Proposals as described herein and as
recommended by the Board of Trustees with regard to all other matters in its
discretion. Any Shareholder of the Trust who casts a vote by proxy may revoke
it at any time before it is voted by giving written notice to the Secretary of
the Trust expressly revoking the proxy, by signing and forwarding to the Trust a
later dated proxy, or by attending the Annual Meeting and personally voting the
Class A Shares or Class B Shares owned of record by such Shareholder.
If, prior to voting for the election of trustees, any Shareholder of record
of Class A Shares or Class B Shares gives notice at the Annual Meeting of such
Shareholder's intention to cumulate votes, then such Shareholder is entitled to
cast a number of votes equal to the number of such Class A Shares or Class B
Shares registered in the Shareholder's name on the record date multiplied by the
number of Trustees to be elected. The Shareholder may cumulate such votes for
trustees by casting all such votes for one candidate or by distributing the
votes to which such Shareholder is entitled among as many candidates as the
Shareholder chooses. Discretionary authority to cumulate votes is being
solicited by this Proxy Statement such that the proxy holders named in the
accompanying proxy card may allocate the cumulated votes for which they have
been given proxies among the nominees in such proportions as they deem
advisable.
In voting upon any matter which may come before the Annual Meeting, each
Shareholder is entitled to one vote for each Class A Share or Class B Share
registered in the Shareholder's name on the record date. All Shareholders of
both Class A Shares and Class B Shares shall vote together as a single class,
with a majority vote of the outstanding Class A Shares and Class B Shares
required for approval and ratification of each matter.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspectors appointed for the meeting and who will determine whether
or not a quorum is present. The election inspectors will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
any matter submitted to the Shareholders for a vote. If a broker indicates on
the proxy that it does not have
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discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with respect
to that matter.
The Trust will pay the cost of soliciting proxies from its Shareholders.
In addition to solicitation by mail, certain trustees, officers and regular
employees of the Trust may solicit the return of proxies by telephone,
facsimile, personal interview or otherwise without additional remuneration. The
Trust will also reimburse brokerage firms and other persons representing the
beneficial owners of Class A Shares for their reasonable expenses in forwarding
proxy solicitation material to such beneficial owners in accordance with the
proxy solicitation rules and regulations of the Securities Exchange Commission
(the "SEC") and AMEX on which the Class A Shares are traded under the symbol
"APT."
BACKGROUND OF THE TRUST AND THE TRANSACTIONS WITH SAHI
The Trust is a California business trust which qualifies as a REIT for
Federal income tax purposes. The Trust was formed in April 1988. The Trust's
capital structure consists of Class A Shares and Class B Shares. Presently,
there are 2,550,000 Class A Shares outstanding and 1,275,000 Class B Shares
(which can be converted into 26,020 Class A Shares). All of the Class B Shares
are owned by SAHI Partners. The currently outstanding Class B Shares are
entitled to a 1% equity interest and a 33 1/3% voting interest in the Trust.
Each of the Class A Shares and Class B Shares is entitled to one vote per share.
The Trust was formed by Angeles for the purpose of making and acquiring
various types of mortgage and other loans (the "Trust Loans") which were
originally intended to be made principally to affiliated entities (the
"Affiliated Borrowers") of Angeles Funding Corporation, a California corporation
("AFC"). AFC, who previously owned all of the Class B Shares, performed the
functions of the Advisor of the Trust to whom the Trustees delegated certain
management duties relating to the Trust and its assets. AFC is a wholly-owned
subsidiary of Angeles. The Trust's objectives were to invest in Trust Loans
which would (i) provide holders of the Class A Shares with monthly cash
distributions sufficient to yield at least $2.00 per annum per Class A Share (as
noted below, this objective is not currently being realized and was not realized
in 1993, 1994 or 1995), (ii) maximize cash distributions over the life of the
Trust through (a) mortgage and other loans that allow the Trust to share in the
economic benefits of the properties securing such loans and (b) receipt of loan
fees, commitments fees and other compensation from subsidiaries of Factory
Merchant Malls, a California corporation and which was a wholly-owned subsidiary
of Angeles ("FMM") or other Affiliated Borrowers, (iii) preserve and protect the
capital of the Trust, and (iv) provide the potential for liquidity to the extent
of trading activity in Class A Shares on the AMEX.
At the beginning of 1993, the Trust's principal assets consisted of four
outstanding Trust Loans, all of which had been made to wholly-owned subsidiaries
of FMM. The FMM subsidiaries owned and operated factory outlet malls that
consisted of retail stores operated by a diversified group of nationally
recognized manufacturers who sell their first-quality goods at discount prices
by eliminating the middlemen. The FMM subsidiaries had outstanding Trust Loans
with respect to four factory outlet malls located in Barstow, California,
Branson, Missouri, Osage Beach, Missouri (the "Osage Beach Property") and Fort
Chiswell, Virginia. The Osage Beach Property was sold by FMM in February 1993
and the loan was repaid resulting in net cash to the Trust of approximately
$14.9 million.
In connection with the Trust Loans, Angeles had guaranteed that through
October 6, 1993, the Trust's Net Cash on a cumulative basis would be sufficient
to provide Class A Shareholders with a
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minimum annual distribution of $2.00 per Class A Share (the "Guaranty"). In
February 1993, Angeles notified the Trust that it was unable to satisfy the
Guaranty due to liquidity problems. Beginning in March 1993, the FMM
subsidiaries failed to meet their remaining debt obligations under their
respective Trust Loans.
As a result of Angeles' financial problems and its inability to pay debt
service on the remaining three Trust Loans, the Trust suspended its monthly
dividend policy after the payment of the April dividend. A significant portion
of the funds used to pay the dividend paid in March 1993 and all of the funds
used to pay the dividend paid in April 1993 represented a return of a portion of
the proceeds received from the repayment of the Trust Loan with respect to the
Osage Beach Property. Subsequently, in May 1993, Angeles filed for protection
under Chapter 11 of the federal bankruptcy laws.
In September 1993, the Trust entered into a Joint Marketing Agreement (the
"Joint Marketing Agreement") with the Official Unsecured Creditors' Committee of
Angeles (the "Creditor's Committee"). The Joint Marketing Agreement, to which
Angeles was not a party, set forth procedures for the Creditor's Committee and
the Trust to solicit bids for the purchase of FMM or substantially all of its
assets and the Trust's mortgages secured by FMM's assets. That process resulted
in a November 1993 sale, which included the Trust's three remaining Trust Loans,
to New Plan Realty Trust, a real estate investment trust listed on the New York
Stock Exchange (the "NYSE") and not affiliated with Angeles or the Trust. The
Trust realized approximately $26.1 million from the sale of the three Trust
Loans. Angeles, as part of this transaction, also sold its equity in FMM to the
New Plan Realty Trust. In conjunction with the sale of the remaining Trust
Loans, the Trust granted a full release to Angeles, its subsidiaries and its
affiliates from all obligations and claims relating to and further released
Angeles from the Guaranty.
Assets of the Trust prior to the sale of the three Trust Loans, consisted
of $14 million in cash and $24.5 million of Trust Loans. After the sale of the
Trust Loans for $26.1 million in November 1993, the Trust distributed $37.3
million to its Shareholders or $14.50 per share. Shareholders who purchased
their Class A Shares through the initial public offering in July 1988 at $20.00
per Class A Share had, through November 1993, received total cash distributions
of $23.89 per share or 19.5% over their original investment, representing an
annual internal rate of return of 4.21% before taxes. After the distribution,
the Trust had approximately $2.5 million in assets consisting primarily of cash.
Also in November 1993, the Trust was notified that SAHI, Inc. acquired all
of the Trust's 1,275,000 outstanding Class B Shares from New Plan Factory Malls,
Inc. an affiliate of New Plan Realty Trust. After an informal discussion (which
was initiated by Mr. Barry S. Sternlicht) between Mr. Ronald J. Consiglio, the
Chief Executive Officer and Trustee of the Trust and Mr. Sternlicht, the
President and Chief Executive Officer of Starwood in December 1993, Starwood, in
January 1994, made a formal proposal to acquire control of the Trust. Mr.
Sternlicht was not a Trustee of the Trust at that time. By February 1994, SAHI
Partners had accumulated 244,100 Class A Shares or 9.57% of the total
outstanding Class A Shares of the Trust through open market purchases. After
taking into account the November 1993 distribution to Shareholders, the prices
SAHI Partners paid on the open market for Class A Shares was $1.00 per share or
less.
On February 9, 1994, the Trust announced that it had reached an oral
agreement in principle with SAHI Partners for the sale of the Class A Warrant.
Pursuant to the Declaration of Trust and in order for the Class B Shares' voting
interest to be maintained after the exercise of the Class A Warrant, the Trust
agreed to issue to SAHI, Inc. the Class B Warrant. On March 15, 1994, SAHI
Partners purchased the Class A Warrant for $100,000, which amount will be
applied against the purchase price for the first Class A Shares purchased
pursuant to the Class A Warrant. Also on March 15, 1994, SAHI, Inc.
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purchased the Class B Warrant for $1,000, which amount will be applied against
the purchase price for the first Class B Shares purchased pursuant to the Class
B Warrant. Mr. Sternlicht, the President and Chief Executive Officer of
Starwood was not directly involved in the negotiation of the Warrants nor the
formulation of the SAHI Business Plan, but rather reviewed the terms and
ultimately approved the Warrants and SAHI Business Plan. Mr. Sternlicht became
a Trustee of the Trust after the Warrants were issued. The Warrants will not be
exercisable unless and until the issuance of the Warrants and the issuance of
the Class A Shares and Class B Shares issuable upon the exercise thereof have
been approved by holders of a majority of the Class A Shares and Class B Shares
voting together as a single class.
On March 21, 1994, SAHI Partners, with funds from capital contributions
from its partners, purchased from SAHI, Inc. the 1,275,000 Class B Shares owned
by SAHI, Inc. for an aggregate purchase price equal to SAHI, Inc.'s original
cost basis in the Class B Shares. As of March 15, 1996, SAHI Partners assigned
its interest in the Class A Warrant to Starwood Mezzanine in exchange for a
payment of $100,000 in cash. Upon exercise of the entire Class A Warrant for
5,000,000 Class A Shares and the exercise of the entire Class B Warrant for
2,500,000 Class B Shares, SAHI will own in the aggregate 69.77% of the
outstanding Class A Shares and will control 79.64% of the voting interest of the
Trust. SAHI Partners currently controls 39.72% of the voting interest of the
Trust.
After acquiring the Warrants, SAHI proposed to change the investment focus
of the Trust from making loans to Angeles affiliated entities to acquiring
equity and participating debt positions in hotels and subperforming and
nonperforming hotel debt. Both SAHI and the Board of Trustees believed that
this change in investment focus offered the Shareholders the opportunity to
participate in Trust investments with the potential for greater appreciation.
In April, 1994, the Board of Trustees filed with the SEC the Preliminary Proxy
for the purpose of obtaining the Shareholders' vote on the issuance of the
Warrants to SAHI and the proposed change in the investment focus of the Trust,
as well as certain other matters. However, in June 1994, Starwood entered into
an agreement providing for the reorganization of the hotel business conducted by
Hotel Investors Trust (subsequently renamed Starwood Lodging Trust) ("Starwood
Lodging Trust"), a REIT investing primarily in hotel related assets, the shares
of which are currently paired with those of a hotel management company, Hotel
Investors Corporation (subsequently renamed Starwood Lodging Corporation)
("Starwood Lodging Corporation") (NYSE: "HOT"). Starwood is the general partner
of the investment partnerships comprising or which own substantially all of the
beneficial interests of SAHI. Starwood entered into its agreement with the
former Hotel Investors Trust because Starwood believed that the paired share
structure of Hotel Investors Trust and Hotel Investors Corporation represented a
superior structure for a hotel-related REIT when compared to the structure of
the Trust. However, Starwood believed that the Trust's structure could still be
used effectively for investments in asset classes other than hotel equities.
The organizational documents for Starwood Lodging Trust, Starwood Lodging
Corporation and their related entities impose certain restrictions on Starwood
and its affiliates from making investments in hotel-related equity interests.
To minimize any conflicts with Starwood and its affiliates, and upon further
analysis of the investment opportunities available to the Trust, the Board of
Trustees and SAHI subsequently elected to modify the investment focus of the
Trust away from acquisitions of hotel related equity interests. In May 1995,
the Board of Trustees filed a preliminary proxy statement (the "1995 Preliminary
Proxy") for the purpose of obtaining the Shareholders' vote on the modified
investment focus of the Trust, the issuance of the Warrants and certain other
matters.
However, such matters were not submitted to the Shareholders and the Board
of Trustees believed it would be in the best interests of the Trust and the
Shareholders to continue to consider alternative methods of maximizing the
Shareholders' return on their investment in the Trust. Although other third
parties expressed an initial interest in an investment in the Trust, no ongoing
discussions took place due
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to the fact that SAHI Partners owned 39.72% of the voting interest of the Trust.
Given that one party controlled such a large portion of the Trust, the Trust did
not solicit third parties for investment because it believed such efforts would
be unproductive. The only alternative to the SAHI proposal analyzed by the
Board of Trustees was liquidation of the Trust. Based upon such analysis, SAHI
has informed the Trust that upon obtaining control of the Trust through the
election of SAHI-affiliated nominees to the Board of Trustees, its current
proposal is for the Trust to acquire direct or indirect interests in the
Diversified Portfolio. In addition, the Trust will become the sole general
partner of the Partnership. Although the Trust will not be required initially
to operate exclusively through the Partnership, in the event Starwood Mezzanine
exercises the Class A Warrant for at least 2,000,000 Class A Shares, the
Trustees shall have the right, without approval of the independent Trustees, to
cause the Trust to contribute substantially all of the Trust's theretofore
uncontributed assets to the Partnership for additional interests in the
Partnership and, following any such contribution, to cause the Trust to agree to
conduct all of its real estate-related investment activities exclusively through
the Partnership. See "WARRANT PROPOSAL -- SAHI Business Plan" and "PARTNERSHIP
PROPOSAL." In order to carry out such intention, the current structure, purpose
and investment policy of the Trust must be modified as proposed herein. See
"TRUST AMENDMENTS PROPOSAL" and "PARTNERSHIP PROPOSAL."
The Class A Shares are currently publicly traded on the AMEX. The Trust
continues to fall below the AMEX continued listing guidelines and, as a result,
there is no assurance that the Class A Shares will remain listed. The Trust is
hopeful that its implementation of its new business plan will allow its business
to be sufficient to maintain its AMEX listing.
The general policies of the Trust and its general supervision are overseen
by a Board of Trustees which at the beginning of 1993 consisted of seven
Trustees, two of whom were affiliated with Angeles. In February 1993, in
recognition of the conflicts of interest between the Trust, Angeles and Angeles'
affiliates (including FMM), a committee was formed consisting solely of Trustees
who were not affiliated with Angeles (the "Independent Committee"). The
Independent Committee was given the authority to make all decisions relating to
the Trust's dealings with Angeles or any of its affiliates (including FMM).
During 1993, AFC's advisory and administrative services to the Trust were
terminated and the two Trustees who were affiliated with Angeles resigned from
the Board of Trustees as did one independent Trustee. In March 1994, the Board
of Trustees appointed Barry S. Sternlicht as a Trustee to fill one of the three
vacancies on the Board of Trustees. Mr. Sternlicht is an executive officer of,
and an owner of direct or indirect interests, in SAHI. In August, 1994, Mr.
Frank Bryant, then a Trustee, died. There are currently three (3) vacancies on
the Board of Trustees.
WARRANT PROPOSAL
The Shareholders will be asked to consider and vote upon a proposal to
approve the Class A Warrant and the Class B Warrant and the authorization and
issuance of the Class A Shares and Class B Shares to be issued pursuant to the
exercise thereof. The Class A Warrant and Class B Warrant are not exercisable
unless and until the issuance of the Warrants and the issuance of the Class A
Shares and Class B Shares issuable upon exercise thereof have been approved by
the holders of a majority of the Class A Shares and Class B Shares voting
together as a single class.
Since exercise of the Warrants will give SAHI control of the Trust, a vote
to approve the Warrant Proposal is, in essence, a vote to change the Trust's
investment policy and to implement the SAHI Business Plan. Neither Starwood
Mezzanine nor SAHI Partners are required to exercise the Warrants (either in
whole or in substantial part). Although no assurances can be given, Starwood
Mezzanine has declared its intention to exercise the Class A Warrants for at
least 2,000,000 Class A Shares.
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CLASS A WARRANT
The following is a summary of the material terms of the Class A Warrant and
is qualified in its entirety by reference to the Class A Warrant attached hereto
as Exhibit A. The Class A Warrant was issued to SAHI Partners on March 15, 1994
pursuant to an oral agreement of February 8, 1994 and grants to SAHI Partners
the right to purchase up to 5,000,000 Class A Shares at a price per share of
$1.00. On February 8, 1994, the Class A Shares were trading at a price of $1.00
per share and on March 15, 1994, were trading at a price of $1 1/8 per share. In
consideration for the issuance of the Class A Warrant, SAHI Partners paid to the
Trust $100,000, which amount will be applied against the purchase price for the
first Class A Shares purchased pursuant to the Class A Warrant. As of March 15,
1996, SAHI Partners assigned the Class A Warrant to Starwood Mezzanine. The
Class A Warrant may be exercised at any time and from time to time for the
period beginning after the Annual Meeting and ending one hundred twenty (120)
days subsequent to the date of the Annual Meeting. If the Class A Warrant is not
approved by the Shareholders at the Annual Meeting, the $100,000 will be
promptly refunded to Starwood Mezzanine. Pursuant to the Class A Warrant, the
Trust had the right, as a condition to the first issuance of any Class A Shares
pursuant to the Class A Warrant, to obtain an opinion from an independent
financial advisor as to the fairness of the terms and provisions of the Class A
Warrant to the Trust and its Shareholders. The Trust has obtained such fairness
opinion from the Financial Advisor, which opinion is attached hereto as Exhibit
B. The Financial Advisor has issued an opinion, subject to certain
qualifications and assumptions stated therein, that the terms and provisions of
the Class A Warrant are fair to the Trust and its Shareholders from a financial
point of view. The cost of the fairness opinion has been shared equally by the
Trust and SAHI Partners.
CLASS B WARRANT
The following is a summary of the material terms of the Class B Warrant and
is qualified in its entirety by reference to the Class B Warrant attached hereto
as Exhibit C. To maintain the Class B Shareholders' 33 1/3% voting interest
after exercise of the Class A Warrant, the Trust issued the Class B Warrant to
SAHI, Inc. The Class B Warrant grants to SAHI, Inc. the right to purchase up to
2,500,000 Class B Shares at a price per share of $.01. In further consideration
of the issuance of the Class B Warrant, SAHI, Inc. paid to the Trust $1,000,
which amount will be applied against the purchase price for the first Class B
Shares purchased pursuant to the Class B Warrant. SAHI, Inc. may exercise the
purchase rights represented by the Class B Warrant only upon exercise of the
Class A Warrant and only with respect to a number of Class B Shares equal to
fifty percent (50%) of the number of Class A Shares then exercised. If the Class
B Warrant is not approved by the Shareholders at the Annual Meeting, the $1,000
will be promptly refunded to SAHI, Inc. Pursuant to the Class B Warrant the
Trust had the right, as a condition to the first issuance of any Class B Shares
pursuant to the Class B Warrant, to obtain an opinion from an independent
appraiser as to the fairness of the terms and provisions of the Class B Warrant
to the Trust and its Shareholders. The Trust has obtained a fairness opinion
from the Financial Advisor, which is also attached hereto as Exhibit B. The
Financial Advisor has issued an opinion, subject to certain qualifications and
assumptions stated therein, that the terms and provisions of the Class B Warrant
are fair to the Trust and its Shareholders from a financial point of view. The
cost of the fairness opinion has been shared equally by the Trust and SAHI,
Inc.
CHANGE OF CONTROL OF THE TRUST
SAHI Partners currently owns 244,100 Class A Shares or 9.57% of the total
outstanding Class A Shares representing a 6.38% voting interest in the Trust.
SAHI Partners currently owns all of the outstanding Class B Shares, which carry
33 1/3% voting interest in the Trust. Such holdings give SAHI Partners a 39.72%
voting interest in the Trust. SAHI Partners has indicated that it intends to
vote such shares in favor of the Warrant Proposal. Upon exercise of the entire
Class A Warrant and the entire
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Class B Warrant, SAHI will have a combined 79.64% voting interest in the Trust.
In addition, four of the persons nominated as Trustees herein are affiliates of
SAHI. See "ELECTION OF TRUSTEES -- Trustees and Nominees." Therefore, upon
complete exercise of the Class A Warrant and Class B Warrant and the election of
the nominees named herein as Trustees, SAHI will have the requisite voting power
and representation on the Board of Trustees to implement the SAHI Business Plan.
The source of funds for the exercise of the Warrants is (i) in the case of the
Class B Warrant, funds of Messrs. Sternlicht and/or Grose; and (ii) in the case
of the Class A Warrants, Starwood Mezzanine.
Because the issuance of the Warrants and the exercise thereof will shift
majority control of the Trust from the public Shareholders to SAHI, the Board of
Trustees has taken certain actions to protect the rights and interests of the
public Shareholders in such event. First, the issuance of the Warrants and the
issuance of Class A Shares and Class B Shares issuable pursuant thereto are
being submitted to a vote of the Class A Shareholders and Class B Shareholders.
Second, the Board of Trustees has obtained a fairness opinion as to the adequacy
of the consideration received by the Trust for the Warrants and the issuance of
shares thereunder. See "WARRANT PROPOSAL -- Opinion of Independent Financial
Advisor." Third, the Trust has entered into a Shareholders Agreement with SAHI,
designed to protect the interests of the public Shareholders of the Trust for a
period of three (3) years after the Annual Meeting. See "WARRANT PROPOSAL --
Shareholders Agreement."
DILUTION OF CLASS A SHAREHOLDERS
The exercise of the entire Class A Warrant will substantially dilute the
interests of the Class A Shareholders not affiliated with SAHI. Such
Shareholders currently own 90.43% of the Class A Shares but after exercise of
the entire Class A Warrant will own 30.23% of the then outstanding Class A
Shares. In addition, such Shareholders' voting interest in the trust will be
diluted from 60.28% to 20.36%.
OPINION OF INDEPENDENT FINANCIAL ADVISOR
The Trust selected the Financial Advisor because of its experience in the
valuation of businesses and their securities in connection with various types of
transactions. The Financial Advisor did not recommend the consideration to be
paid pursuant to the Warrants, but rather examined the fairness of the terms and
provisions of the Warrants (which were negotiated between the Trust and SAHI
Partners with respect to the Class A Warrant and the Trust and SAHI, Inc. with
respect to the Class B Warrant), from a financial point of view. The Financial
Advisor utilized various methods of valuing warrants in attempting to determine
the fairness of the terms and provisions of the Warrants, including the
Black-Scholes Option Pricing Model. Because the time period for exercise of the
Warrants is short in comparison to most warrants, the values produced by these
various analytical methods (including the Black-Scholes method) were negligible.
The fairness opinion of the Financial Advisor is limited to the fairness of the
terms and provisions of the Warrants and does not extend to the fairness of the
overall transaction with SAHI. The scope of the review conducted by the
Financial Advisor is included in the text of the fairness opinion attached
hereto as Exhibit B. In consideration of its services with respect to its
fairness opinion in connection with the 1995 Proxy Statement, the Financial
Advisor received $40,000 in fees and has been reimbursed for its reasonable out-
of-pocket expenses. In consideration of its services with respect to the
fairness opinion contained herein, the Trust has agreed to pay the Financial
Advisor $20,000. The Trust has agreed to indemnify the Financial Advisor against
certain liabilities and expenses in connection with its services. Chanin and
Company, an affiliate of the Financial Advisor, served as a financial advisor to
the Trust during the Trust's negotiations with Angeles related to the
Restructuring. Such role included providing valuation and other related
financial advice to the Trust and its Board of Trustees during such
negotiations, as well as recommending certain actions taken by the Trust,
including the ultimate sale of the remaining Trust Loans to New Plan Realty
Trust pursuant to the Joint Marketing Agreement as described above. As
compensation for its services in the Restructuring, Chanin and Company received
aggregate fees and reimbursement for expenses of $247,450.
SHAREHOLDERS AGREEMENT
The following is a summary of the Restated Shareholders Agreement, dated as
of March 15, 1994, restated as of April 27, 1994 and amended as of March 15,
1996 by and among SAHI, Inc., SAHI
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Partners and Starwood Mezzanine and the Trust and is qualified in its entirety
by reference to the Restated Shareholders Agreement, as amended, attached hereto
as Exhibit D (the "Shareholders Agreement"). The Shareholders Agreement
prohibits SAHI from taking certain actions with respect to the Trust without the
approval of a majority of the members of the Board of Trustees who are not
affiliated with SAHI. These actions include transactions between the Trust and
SAHI (except if such transactions are upon fair and reasonable terms comparable
to an arms-length independent third party transaction and involve less than
$500,000), actions by the Trust which would result in the Class A Shares no
longer having the attributes of public ownership, or any actions beneficial to
SAHI which would be detrimental to a material number of the public Shareholders
of the Trust (e.g., any action that would have the effect of disproportionately
diluting the voting or ownership interest of the public Shareholders as compared
to SAHI). The Shareholders Agreement terminates automatically on the third
(3rd) anniversary of the Annual Meeting.
FEDERAL INCOME TAX ASPECTS OF THE WARRANT PROPOSAL
Starwood Mezzanine has represented to the Trust that over 75% of the
capital and profits interest in that partnership is held by qualified pension
plans, each having hundreds or thousands of beneficiaries on an actuarial basis.
Under that ownership arrangement, the grant of the Warrants to SAHI will not
cause the Trust to violate the Code's prohibition against five or fewer
individuals holding 50% or more by value of a REIT's shares during the last six
months of its fiscal year. However, based upon those representations, the Trust
may become a "pension-held REIT", the effect of which would be to cause a
proportionate amount of the dividends paid or deemed paid to any qualified
pension plan holding 10% or more (by value) of the Trust's shares in any year to
be recharacterized as UBTI if UBTI comprises more than 5% of the Trust's net
taxable income for such year. Generally, any income that would not qualify for
the 95% income test under the REIT provisions of the Code would be UBTI, such as
certain fees or income from foreclosure property, as would income the Trust
recognizes from property acquired by the Trust or the Partnership with debt
financing.
Concentration of ownership of Warrants and Shares in SAHI may also lead the
Trust to inadvertently lease any real estate it acquires to tenants in which the
Trust is deemed to have a 10% or greater ownership or voting interest, which
would thereby disqualify any rental income from such properties from being
treated as "rents from real property" for purposes of the REIT income
qualification test under the Code.
REASONS FOR AND ALTERNATIVES TO THE ISSUANCE OF WARRANTS AND BOARD OF TRUSTEES'
RECOMMENDATION REGARDING THE WARRANT PROPOSAL
The Board of Trustees has unanimously approved the issuance of the Warrants
and believes that the issuance of the Warrants and the subsequent change of the
Trust's purpose and investment policy to be implemented by SAHI is in the best
interest of both the Trust and its Shareholders.
In deciding to approve the Warrant Proposal and submit it to a vote of the
Shareholders, the Board of Trustees took into account, among other things, the
following factors giving no specific weight to any one factor:
1. Liquidating Dividend May Be Higher than Market Price. If the Trust
liquidates on December 31, 1996, the liquidating dividend to Shareholders is
expected to be approximately $0.62 per share. For a substantial period of time,
the Shares had been trading at prices below $0.62. Although recently the Shares
have been trading at prices higher than $0.62, there is a risk that the Shares
will trade at prices below the amount of money Shareholders would receive
through liquidating distributions of the Trust. However, the Trust believes
that the issuance of the Warrants and the implementation of the SAHI Business
Plan will provide Shareholders with a greater potential for growth of their
investment and overall return than the immediate liquidation of the Trust. The
Trust's belief is based upon (a) Starwood Mezzanine's current intent to exercise
the Class A Warrant for at least 2,000,000 Shares which will provide an infusion
of capital to the Trust; (b) the change in the stated purpose of the Trust to
allow the Trust to broaden its investment options; and (c) the experience and
track record of SAHI in making real-estate related investments in debt and
equity. In recommending the approval of the Warrants and implementation of the
SAHI Business Plan over liquidation of the Trust, the Board is subject to a
conflict of interests.
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2. Infusion of Capital. As of August 26, 1996, the Trust's remaining
assets consisted of approximately $1,800,000 in cash and investments. The Trust
has no other remaining assets. The exercise of the Warrants would provide
necessary additional capital to fund future investments by the Trust. The Trust
may also receive additional capital contributions from SAHI and its affiliates
which may necessitate the issuance of additional Class A Shares and Class B
Shares to SAHI and the further dilution of the current Class A Shareholders not
affiliated with SAHI. Pursuant to the Shareholders Agreement, during the three
(3) year period following the Annual Meeting any such issuance (other than
issuances pursuant to the Warrants or upon exchange of Units by Starwood
Mezzanine) will have to be approved by the Trust's independent Trustees.
Starwood Mezzanine and SAHI, Inc. are not required to exercise the Warrants
(either in whole or in substantial part) or (either alone or with its
affiliates) otherwise provide additional capital to the Trust. Although no
assurances can be given, Starwood Mezzanine has declared its intention to
exercise the Class A Warrant for at least 2,000,000 Class A shares.
3. Experience and Track Record of SAHI. The Board of Trustees believes
that the Trust will benefit from SAHI's significant ownership interest in the
Trust and its substantial experience in acquiring and owning real estate assets.
Since 1991, affiliates of SAHI have acquired in excess of $1.8 billion in real
estate related assets in over 100 transactions from a variety of sellers,
including banks, insurance companies, the Resolution Trust Corporation, and the
Federal Deposit Insurance Corporation. Starwood Mezzanine was formed in 1994
with a goal to create a portfolio of high-yielding mezzanine investments with
significant current cash flow and has achieved a leading position in the
developing market for mezzanine financing. As of December 31, 1995, based on
Starwood Mezzanine's estimate, its portfolio of $207 million in investments was
generating an unleveraged current return of approximately 14.7%. The Trust
believes that, given the success and experience of SAHI, the issuance of the
Warrants and the implementation of the SAHI Business Plan will provide
Shareholders with a greater potential for growth of their investment and overall
return than the immediate liquidation of the Trust.
4. SAHI's Current Substantial Ownership. Through the acquisition of the
Class B Shares and purchases of Class A Shares, SAHI Partners currently controls
39.72% of the voting interest of the Trust and owns more shares than any other
Shareholders of the Trust. Because it is the duty of the Board of Trustees to
act in the best interests of the Shareholders and because of SAHI Partners'
substantial holdings in the Trust, the Board of Trustees believed it would be in
the best interest of all of the Shareholders to fully explore the proposal by
SAHI Partners and present it for consideration.
5. SAHI Business Plan. The implementation of the SAHI Business Plan will
change the Trust's current course of holding its cash until liquidation and also
change the Trust's investment policy as presently stated in the Declaration of
Trust. These changes in investment focus will offer the Shareholders the
opportunity to participate in Trust investments with the potential for
appreciation. The Board of Trustees has also considered the additional risks to
the Trust relating to debt and/or equity investments in real estate related
assets set forth in "RISK FACTORS" above but believes
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that the potential growth of the Trust's assets through such investments in real
estate-related assets outweighs such additional risks.
6. No Better Alternatives Identified. After the bankruptcy of Angeles
and the liquidation of the Trust's loan portfolio, the Trust considered
alternatives to continuing its existing operations. The only other alternative
identified by the Board of Trustees was to liquidate the Trust and distribute
its assets on December 31, 1996. The Board of Trustees estimates that
approximately $400,000 of operating expenses will be incurred by the Trust
during this fiscal year which will, if no contingent claims arise, leave
approximately $1,600,000 available to be distributed out to the Shareholders in
a liquidating dividend at such time. Such dividend would equal $0.62 per
Class A Share. The Board of Trustees rejected this alternative as they
determined undertaking a transaction with SAHI presents the Shareholders a
greater potential for growth of their investment and an ultimate return on the
remainder of their investment in the Trust of greater than $0.62 per Class A
Share. The Board of Trustees concluded that undertaking a transaction with SAHI
is the best alternative currently available to the Trust and its Shareholders.
7. Protection of the Unaffiliated Shareholders by the Shareholders
Agreement. The Shareholders Agreement requires the consent of a majority of the
members of the Board of Trustees who are not affiliated with SAHI for the Trust
to undertake any transaction in excess of $500,000 with SAHI, to take any
actions which would result in the Class A Shares no longer having the attributes
of public ownership, or to take any actions beneficial to SAHI which would be
detrimental to a material number of the Shareholders not affiliated with SAHI
(e.g., any action that would have the effect of disproportionately diluting the
voting or ownership interest of the public Shareholders as compared to SAHI).
The Board of Trustees required SAHI, Inc., SAHI Partners and Starwood Mezzanine
to enter into the Shareholders Agreement to protect the Shareholders not
affiliated with SAHI. The term of the Shareholders Agreement is three (3) years
from the date of the Annual Meeting.
8. Fairness Opinion. The opinion of the Financial Advisor that the terms
and provisions of the Warrants are fair, from a financial point of view, to the
Trust and its Shareholders.
The Board of Trustees recommends that you vote FOR approval of the Warrant
Proposal. Each of the foregoing factors, other than the factors listed under 1
and 4, supported the Board's recommendation.
CONSIDERATIONS IF THE WARRANT PROPOSAL IS NOT APPROVED
If the Warrant Proposal is not approved, none of the other Proposals will
be submitted to the Shareholders for their consideration and vote and a new
annual meeting will be held at which Trustees will be elected. Additionally, if
such proposals are not approved and SAHI does not subsequently implement its
business plan, the Trust will be forced to look for other capital sources and
alternative transactions or to liquidate the Trust and, upon the expiration of
the Contingent Claims Trust on December 31, 1996, to distribute the proceeds
thereof. The Trust currently has not identified any other capital sources or
potential transactions.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
In considering the recommendation of the Board of Trustees with respect to
certain proposals contained herein and in considering the named nominees for
election to the Board of Trustees, the Shareholders should be aware that certain
members of the Board of Trustees and nominees to the Board of Trustees have
certain interests which may present them with potential or actual conflicts of
interest in connection with such proposals. The SAHI Nominees have various
relationships with SAHI and their affiliates, including, as directors, officers,
employees and in some cases direct or indirect owners of
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interests in such entities. See "ELECTION OF TRUSTEES -- Trustees and Nominees."
As such, the SAHI Nominees have a significant interest in the Shareholders'
approval of the Warrant Proposal, the Trust Amendments Proposal and the
Partnership Proposal which would facilitate the transfer of majority control of
the Trust to SAHI and enable SAHI to implement the SAHI Business Plan. Mr.
Sternlicht, in his capacity as a Trustee, voted to recommend the Warrant
Proposal, the Trust Amendments Proposal, the Partnership Proposal and to elect
the named nominees including the SAHI Nominees. Additionally, all of the named
nominees for the Board of Trustees who are not also officers of the Trust have a
substantial interest in the approval of the Angeles Participating Mortgage Trust
Trustees' 1996 Share Incentive Plan, as each will participate in such plan and
may benefit financially from its implementation; provided, however, that,
without the prior approval of Starwood Mezzanine's limited partners during any
period in which Starwood Mezzanine shall have an interest in either the Trust or
the Partnership, the SAHI Nominees shall not receive any awards pursuant to the
Angeles Participating Mortgage Trust Trustees' 1996 Share Incentive Plan. See
"RISK FACTORS --Conflicts of Interest." The named nominee who is currently an
officer of the Trust (Mr. Consiglio) has a substantial interest in the approval
of the Apex Property Trust 1996 Share Incentive Plan as he will participate in
such Plan and may benefit financially from its implementation.
SAHI BUSINESS PLAN
SAHI's current intention is (i) to originate mortgage loans to and/or
acquire mortgage loans to unrelated entities or to acquire securities
collateralized, in whole or in part, by such mortgage loans, as well as making
equity investments in real estate and real estate-related assets, (ii) to
acquire direct or indirect interests in short term, medium and long-term real
estate-related debt securities and mortgage interests under which the borrowers
are unaffiliated with the Trust, which may include warrants, equity
participations or similar rights incidental to a debt investment by the Trust,
(iii) to make, hold and dispose of purchase money loans with respect to assets
sold by the Trust, and (iv) to acquire positions in non-performing and sub-
performing debt for the purpose of either restructuring it as performing debt or
of obtaining shortly thereafter primary management rights over or equity
interests in the underlying assets securing such debt (the investments referred
to in (i) through (iv) above being herein collectively referred to as the
"Diversified Portfolio"). The acquisition of the Diversified Portfolio, together
with a description of SAHI's investment criteria below, is herein referred to as
the "SAHI Business Plan." The Diversified Portfolio may include controlling or
non-controlling equity ownership positions in any general category of real
estate assets, including, without limitation, office, industrial, mini-storage
and residential improvements and land. The Trust will not make certain types of
investments as a result of the restrictions and conflicts described below, as
well as SAHI's analysis of the current investment opportunities available to the
Trust.
The Trust and the Partnership will not be able to make certain types of
investments as a result of restrictions and conflicts involving SAHI and their
affiliates. Specifically, without the amendment, termination or waiver of
provisions of certain non-competition agreements between Starwood Capital Group,
L.P. and Starwood Lodging Trust (of which Mr. Sternlicht is the Chief Executive
Officer and Chairman of the Board), the Trust and the Partnership are prohibited
from: (i) making investments in loans collateralized by hotel assets where it is
anticipated that the underlying equity will be acquired by the debt holder
within one (1) year from the acquisition of such debt, (ii) acquiring equity
interests in hotels (other than acquisitions of warrants, equity participations
or similar rights incidental to a debt investment by the Trust or the
Partnership or that are acquired as a result of the exercise of remedies in
respect of a loan in which the Trust or the Partnership has an interest) or
(iii) selling or contributing to or acquiring any interests in HOT, including
debt positions or equity interests obtained by the Trust or the Partnership
under, pursuant to or by reason of the holding of debt positions. In addition,
during any period in which the SAHI Nominees shall constitute a majority of the
Board of Trustees (or the SAHI Group collectively control a sufficient number of
voting securities to elect a majority of the Board) and Starwood Mezzanine shall
have an interest in either the Trust or the Partnership, (i) without the
approval of the limited partners of Starwood Mezzanine (A) neither the Trust nor
the Partnership shall pursue any equity interests as a principal purpose,
excluding equity interests which are incidental to, or acquired pursuant to the
exercise of remedial rights with respect to, a debt instrument and (B) neither
the Trust nor the Partnership shall invest in real estate related debt interests
issued by obligors that are not operating companies or originate or purchase
mortgage loans issued by obligors that are not operating companies and (ii)
neither the Trust nor the Partnership shall incur indebtedness during any period
in which the incurrence of such indebtedness would increase the amount of UBTI
to be incurred by the limited partners of Starwood Mezzanine without the prior
written consent of Starwood Mezzanine. Furthermore, during any period in which
Starwood Mezzanine shall have an interest in either the Trust or the
Partnership, without the approval of the limited partners of Starwood Mezzanine,
neither the Trust nor the Partnership may acquire (by contribution or purchase)
any additional debt or equity securities from the SAHI Group, subject to further
restrictions. See "Partnership Proposal -- The Partnership - Operation of the
Partnership. This proposed change in the investment focus of the Trust would
necessitate certain amendments to the Declaration of Trust outlined under "TRUST
AMENDMENTS PROPOSAL."
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In the event the Trust or the Partnership were to invest in debt or equity
interests in properties similar to or in close proximity to properties owned by
the SAHI Group, it is possible that the properties owned by the SAHI Group may
compete with the properties in which the Trust and the Partnership has such
interests in the future. In addition, the Trust and the Partnership, on the one
hand, and the SAHI Group, on the other hand, may possibly compete with each
other in the future with respect to the acquisition of debt and/or equity
interests. None of the SAHI Group will be required to present any investment
opportunities to the Trust or the Partnership or invest in any class of assets
through the Trust or the Partnership. See "RISK FACTORS -- Conflicts of
Interests."
The Board of Trustees believes that the Trust will benefit from SAHI's
significant ownership interest in the Trust and its substantial experience in
acquiring and owning real estate assets. Since 1991, affiliates of SAHI have
acquired in excess of $1.8 billion in real estate related assets in over 100
transactions from a variety of sellers, including banks, insurance companies,
the Resolution Trust Corporation, and the Federal Deposit Insurance Corporation.
Starwood Mezzanine was formed in 1994 with a goal to create a portfolio of high-
yielding mezzanine investments with significant current cash flow. Starwood
Mezzanine has achieved a leading position in the developing market for mezzanine
financing. As of December 31, 1995, based on Starwood Mezzanine's estimate, its
portfolio of $207 million in investments was generating an unleveraged current
return of approximately 14.7%. SAHI and its affiliates currently have 32
employees, including 22 experienced real estate, finance and acquisition
professionals, many of whom have invested substantial personal capital in the
investments of SAHI and its affiliates.
The Trust currently intends to focus its acquisition efforts on assets
which exhibit one or more of the following characteristics:
- Assets owned by distressed sellers.
- Assets priced below or having a deemed value for collateralization
purposes that is less than reproduction cost.
- Equity interests in, and/or debt interests secured by, assets located
in markets or submarkets experiencing population or job growth, and
which are located near historically stable employment generator bases,
such as government, University, and medical centers.
- Subject to the restrictions of Investment Company Act of 1940 (and any
other applicable Federal securities laws or the securities law of any
state), interests which are publicly traded, including other REIT
equities, limited partnership interests and debt interests.
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The Trust currently intends to acquire assets opportunistically on an all
cash basis, through the issuance of additional Class A Shares and with financing
from institutional and other lenders or sellers. The Trust will also be
permitted to raise additional capital through registered public offerings as
well as private placements of both debt and equity interests. In addition, the
Trust and/or the Partnership may acquire additional assets through contributions
from the SAHI Group subject to certain restrictions. See "Partnership Proposal
- -- The Partnership -- Operation of the Partnership."
There can be no assurance that the Trust under SAHI's control will be able
to acquire interests which meet the investment criteria outlined above.
Additionally, in response to changing market conditions and opportunities, the
Board of Trustees may revise the investment criteria and the investment policies
of the Trust (within the limits of the Declaration of Trust), from time to time,
without a vote of the Shareholders. For example, the Board of Trustees may
focus the Trust's acquisitions or investments exclusively on a specific class of
assets, and contribute and hold such assets through a partnership structure
(such as the Partnership). Initially, the Trust will not be required to operate
exclusively through the Partnership and, thus, will not have any obligation to
contribute more than the cash necessary to acquire its initial interest in the
Partnership (and thereafter, to contribute such cash as is necessary for the
Trust to maintain at least a 1% interest in the total contributed capital from
time to time to the Partnership). However, in the event that Starwood Mezzanine
exercises the Class A Warrant for at least 2,000,000 Class A Shares, the Board
of Trustees shall have the right to cause the Trust to contribute up to
substantially all of the Trust's theretofore uncontributed assets to the
Partnership for additional interests therein and, following any such
contribution, to cause the Trust to agree to conduct all of its real estate-
related investment activities exclusively through the Partnership, said
contribution and agreement to be on such terms and subject to such conditions as
the Board of Trustees may then approve.
SAHI currently intends that additional investments in debt or equity
interests in properties may be made by other entities created and controlled by
the Trust, such as the Partnership, to take advantage of the potential benefits
of structuring acquisitions through a partnership where the Trust would act as a
general partner and the persons contributing the interests would be limited
partners. SAHI intends that assets may be acquired by the Partnership directly,
with funds contributed by the Trust and/or through financing facilities arranged
for the Partnership subject to the restrictions relating to Starwood Mezzanine's
limited partners set forth above. The SAHI Group will not be required to
operate exclusively through the Trust or the Partnership and will not be
restrained from competing with the Trust and the Partnership. The SAHI Group
owns numerous debt and equity interests and intends to acquire additional debt
and equity interests in which neither the Trust nor the Partnership shall have
any interest. Starwood Mezzanine will not be obligated to contribute any
capital to the Partnership other than the Certificates.
TRUST AMENDMENTS PROPOSALS
If the Warrant Proposal is approved, the Shareholders will be asked to
consider and vote upon the following proposals to amend the Trust's Declaration
of Trust as described below and adopt the Restated Declaration of Trust attached
hereto as Exhibit E (collectively, the "Trust Amendments Proposal"). If the
Shareholders vote in favor of the issuance of the Warrants and thereby permit
the acquisition of control of the Trust by SAHI, the Declaration of Trust
amendments described below will be necessary to facilitate the Trust's change of
purpose as contemplated by SAHI and described under "WARRANT PROPOSAL -- SAHI
Business Plan." Other amendments are necessary to remove provisions or terms
which apply to Angeles and its affiliates because such entities are no longer
related to the Trust or involved in the Trust's activities.
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The following description sets forth the reasons for the proposed
amendments and the effect of their adoption, including any modifications to the
Class A Shares or Class B Shares caused by any such amendments. The following
description is qualified in its entirety by reference to the Restated
Declaration of Trust attached hereto as Exhibit E which has been marked to show
changes from the current Declaration of Trust (additions are underlined and
deletions are struck through). Approval of each of the following proposals to
amend the Declaration of Trust is contingent upon the approval of all of the
proposals to amend the Declaration of Trust.
1. CHANGE OF TRUST'S PURPOSE AND INVESTMENT POLICY.
Reasons for Amendments: Since the primary purpose of the Trust, as
presently stated in the Declaration of Trust, is making mortgage loans to
parties related to Angeles and the Trust and SAHI desires the Trust to make
equity investments in real property and make or acquire mortgage loans to
borrowers not affiliated with Angeles and not necessarily affiliated with the
Trust, as well as to acquire direct or indirect interests in the Diversified
Portfolio, SAHI has proposed that the primary purpose of the Trust be changed to
allow for implementation of the SAHI Business Plan.
Proposed Amendments:
The proposed amendments will allow the Trust to invest in the Diversified
Portfolio and implement the SAHI Business Plan. The sections of the Declaration
of Trust proposed to be amended are Sections 1.4, 1.5(e) and 1.5(mm) of Article
I, Sections 5.1 and 5.3(d) of Article V and Section 7.5 of Article VII. The
actual text of these proposed amendments is set forth in Exhibit E.
Effect of Amendments: The Trust will be making substantially more debt
and/or equity investments in real property as opposed to its current course of
holding its cash until liquidation which will increase the overall risk of the
Trust's investments but may potentially increase the returns to the Trust.
Notwithstanding the increased investment flexibility which will be allowed by
the foregoing amendments, because of certain restrictions and conflicts of
interest, the Trust will not invest in certain types of properties or loans. See
"RISK FACTORS -- Conflicts of Interest" and "WARRANT PROPOSAL --SAHI Business
Plan."
The Board of Trustees recommends that you vote FOR approval of the
foregoing proposed amendment.
2. ELIMINATE OBLIGATION TO MAKE MONTHLY DISTRIBUTIONS OF NET CASH.
Reasons for Amendment: SAHI desires that the Trust not be required to
endeavor to declare monthly distributions of Net Cash, which is generally
defined in the Declaration of Trust as cash flow from operations. SAHI desires
that the Trust reinvest a greater portion of the Trust's income in order to
increase the amount of income-producing assets held by the Trust and thereby
increase the value of the Trust. Under SAHI's control, the Trust will only be
required to make those distributions required to maintain the Trust's status as
a REIT under the Code, which may substantially decrease the amount and frequency
of distributions to the Shareholders required by the Declaration of Trust. The
Trust, in order to maintain its qualification as a REIT, is required to
distribute dividends (other than capital gain
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dividends) to its Shareholders in an amount at least equal to (i) the sum of (A)
95% of its "REIT taxable income" (computed without regard to the dividends paid
deduction and its net capital gain) and (B) 95% of the net income (after tax),
if any, from foreclosure property, minus (ii) the sum of certain items of
noncash income.
Proposed Amendment: If approved by the Shareholders, this amendment will
require the Trust to make only those distributions necessary to maintain the
Trust's status as a REIT under the Code. The text of this proposed amendment,
which affects Section 6.6(a) of Article VI of the Declaration of Trust, is set
forth in Exhibit E.
Effect of Amendment: Although the Declaration of Trust currently grants
the Board of Trustees the specific power to retain, invest and reinvest the
capital or other funds of the Trust, the Declaration of Trust also requires the
Board of Trustees to endeavor to make monthly distributions of Net Cash. By
removing this obligation of the Board of Trustees and implementing the SAHI
Business Plan, the Shareholders will receive distributions of Net Cash less
frequently and possibly in smaller amounts than if the Board of Trustees were
obligated to endeavor to make monthly distributions of Net Cash.
The Board of Trustees recommends that you vote FOR approval of the
foregoing proposed amendment.
3. TERMINATION DATE OF TRUST.
Reasons for Amendment: Pursuant to Article VIII, Section 8.1 of the
Declaration of Trust, the Trust is currently scheduled to terminate October 16,
2004, unless extended by the Shareholders, but in no event may the Trust's term
be extended beyond December 31, 2020. SAHI desires to remove such restrictions
on the duration of the Trust in order to allow the Trust (i) more flexibility
relating to the timing of the liquidation of its investments and (ii) to make
investments with time horizons in excess of the current termination dates.
Proposed Amendment: The proposed amendment will change the Trust to, in
essence, an infinite-life entity. The actual text of this amendment which
affects Section 8.1(a) of Article VIII of the Declaration of Trust, is set forth
in Exhibit E.
Effect of Amendment: Such deletion will remove the currently scheduled
liquidation date by which the Trust's assets will be completely liquidated and
distributed to the Shareholders and may, therefore, substantially delay the date
on which the Shareholders will receive liquidating distributions of the Trust's
assets. However, the duration of the Trust will remain subject to any law
similar to the common law "rule against perpetuities." In California, such rule
requires that the Trust expire within 21 years after the death of the last
survivor of certain individuals named in the Declaration of Trust.
The Board of Trustees recommends that you vote FOR approval of the
foregoing proposed amendment.
4. TERMINATION OF TRUST.
Reasons for Amendment: The Board of Trustees has determined that the
provision allowing the Shareholders to terminate the Trust upon a majority vote
should be increased because it believed that a higher consensus level among the
Shareholders should be required for the termination of the Trust.
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Proposed Amendment: The proposed amendment will increase the Shareholder
vote required to terminate the Trust from a majority vote to 66-2/3% of all of
the Trust's Shareholders. The actual text of this amendment which affects
Section 6.2(d) of Article VI of the Declaration of Trust, is set forth in
Exhibit E.
Effect of Amendment: Requiring a two-thirds vote to terminate the Trust
will make it more difficult for the Shareholders who desire to terminate the
Trust and liquidate its assets to do so. If the Warrants were exercised, the
Class A Shareholders not affiliated with SAHI will not have a sufficient number
of votes to terminate the Trust.
The Board of Trustees recommends that you vote FOR approval of the
foregoing proposed amendment.
5. LENGTH OF TRUST LOANS.
Reasons for Amendment: SAHI desires the Trust to have the flexibility to
make Trust Loans providing for an initial term in excess of 15 years, which is
currently prohibited by the Declaration of Trust.
Proposed Amendment: The proposed amendment will delete the prohibition on
acquiring or funding Trust Loans with initial terms in excess of 15 years. The
actual text of this amendment which affects Section 5.3(e) of Article V of the
Declaration of Trust, is set forth in Exhibit E.
Effect of Amendment: Lengthening the duration of Trust Loans will increase
the length of time necessary for the Trust to realize the full amount of
proceeds from such loans which, in the short term, may result in less proceeds
being available for distribution to the Shareholders but, overall, will allow
the Trust greater flexibility in making or acquiring Trust Loans.
Notwithstanding this greater flexibility, because of certain restrictions and
conflicts, the Trust will not be permitted to acquire certain equity and/or debt
interests, as more fully described in the section entitled "WARRANT PROPOSAL --
SAHI Business Plan."
The Board of Trustees recommends that you vote FOR approval of the
foregoing proposed amendment.
6. MAINTAINING VOTING INTEREST OF CLASS B SHARES.
Reasons for Amendment: Each Class A Share and Class B Share has one vote
regarding matters submitted to a vote of the Shareholders. The Class B Shares
currently account for 33 1/3% of the voting power of the Trust. Article VI,
Section 6.1 of the Declaration of Trust grants the Board of Trustees the
authority to issue additional Class B Shares at $.01 per share in order to
maintain the existing proportion of outstanding Class A Shares and Class B
Shares and thereby maintain the current proportionate voting interests of each
class. SAHI Partners, the current holder of all Class B Shares of the Trust,
desires that such issuances of additional Class B Shares be made mandatory
instead of permissive so that the voting interest of the Class B Shares will not
be diluted in the future.
Proposed Amendment: The proposed amendment will require the Board of
Trustees to issue shares of Class B Shares if necessary to maintain the voting
interest of the Class B Shareholders. The actual text of this amendment which
affects Section 6.1 of Article VI of the Declaration of Trust, is set forth in
Exhibit E.
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Effect of Amendment: The Trust will be required to issue additional Class
B Shares at $.01 per share upon the issuance of any Class A Shares and the Board
of Trustees' discretion regarding the making of such Class B Share issuances
will be removed. The Class B Shareholders as a group will be assured of
retaining a 33 1/3% voting interest in the Trust if such Shareholders elect to
purchase the Class B Shares offered by the Trust pursuant to this provision,
whereas without such amendment the Board of Trustees could elect not to make
such issuances of Class B Shares. This amendment will fix the price of the
Class B Shares at $0.01 per share. Class B Shares in an amount equal to one-
half of the number of Class A Shares outstanding have been issued by the Trust.
Class A and Class B Shares are each entitled to one vote per share with respect
to the election of Trustees and other matters. The Class B Shares are
convertible at the option of the Class B Shareholder into Class A Shares on the
basis of 49 Class B Shares for one Class A Share, regardless of the trading
value of the Class A Shares. All distributions of Net Cash will be distributed
99% to the Class A Shareholders and 1% to the Class B Shareholders. Currently,
SAHI Partners owns all of the outstanding Class B Shares.
The Board of Trustees recommends that you vote FOR approval of the
foregoing proposed amendment.
7. PRIORITY DISTRIBUTIONS.
Reasons for Amendments: The current Declaration of Trust provides that the
Class A Shareholders receive on their Adjusted Capital Investment, which
equalled $20.00 per Class A Share owned by the holder reduced by the Net Cash
distributed with respect to such Class A Share, a Priority Distribution. The
Priority Distribution refers to the Class A Shareholders' right to receive
distributions of Net Cash equal to an amount equal to their capital
contributions plus 12% per year on their Adjusted Capital Investment before AFC,
the Trust's former Advisor, received incentive compensation under its Advisory
Agreement. Because the terms "Adjusted Capital Investment" and "Priority
Distribution" relate only to the Class A Shareholders' priority right to receive
certain distributions before payments are made to AFC, who is no longer engaged
by the Trust, such provisions are not necessary and, therefore, SAHI desires to
remove the language relating to the Priority Distribution right and to delete
the definition of Adjusted Capital Investment. As the Trust may, in the future,
retain another Advisor for the Trust, SAHI desires that the language regarding
the Advisor and Advisory Agreement in the Declaration of Trust remain.
Proposed Amendments: The proposed amendment will delete the references to
"Adjusted Capital Investment" and "Priority Distribution" in the Declaration of
Trust. The actual text of this amendment which affects Section 6.6(b) of
Article VI of the Declaration of Trust, is set forth in Exhibit E.
Effect of Amendments: Since the Advisory Agreement to which the Priority
Distribution right relates has been terminated, the proposed amendments will
have no current effect on the Shareholders, as it granted them a priority over
distributions to an Advisor that no longer exists. However, the Declaration of
Trust
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<PAGE>
does not require that any subsequent Advisory Agreements entered into by the
Trust contain any such Priority Distribution right and SAHI contemplates that
any such subsequent Advisory Agreement entered into while the Trust is under its
control would not necessarily include a Priority Distribution right. Therefore,
any future Advisor, who may be affiliated with SAHI (subject to the Shareholders
Agreement), may absorb a significant amount of cash flow.
The Board of Trustees recommends that you vote FOR approval of the
foregoing proposed amendment.
FEDERAL INCOME TAX ASPECTS OF THE CHANGE OF THE TRUST'S PURPOSE AND INVESTMENT
POLICY
The broader range of assets which the Trust intends to acquire as part of
the Diversified Portfolio will increase the number and complexity of the rules
the Trust must satisfy to continue qualifying as a REIT under the Code. These
rules relate to the gross income and assets of the Trust.
The Trust must satisfy, on the last day of each calendar quarter, two tests
based on the composition of its assets. After initially meeting these tests at
the close of any quarter, the Trust will not lose its status as a REIT for
failure to satisfy the tests at the end of a later quarter solely due to changes
in value of its assets. In addition, if the failure to satisfy the asset tests
results from an acquisition during any particular quarter, the failure can be
cured by disposing of non-qualifying assets within 30 days after the close of
the quarter. The Trust will maintain adequate records of the value of its
assets to ensure compliance with these tests, and will take such other actions
within 30 days after the close of any quarter as may be required to cure any
non-compliance.
A. 75% Asset Test. At least 75% of the value of the Trust's total assets
must be represented by "real estate assets", cash, cash items (including
receivables from Trust operations) and government securities. Real estate
assets include interests in real property (including undivided interests in real
property, leaseholds of land and options to acquire land), interests in
mortgages on real property, shares in other qualifying REITs and property
attributable to temporary investment of new capital for a one year period
beginning on the date the Trust received the new capital. The Trust's
proportional share of the Certificates owned through the Partnership will
qualify as "real estate assets" for this purpose, and the Trust will endeavor to
assure that it continues to meet this test with future acquisitions.
The remaining 25% of the Trust's assets generally may be invested
without restriction by the asset tests, although if invested in securities,
such securities may not exceed either: (i) 5% of the value of the Trust's
total assets as to any one non-governmental issuer, or (ii) 10% of the
outstanding voting securities of any one issuer. A partnership interest
held by a REIT is not considered a "security" for purposes of these tests.
B. Gross Income Test. The Trust must satisfy for each calendar year
three separate tests based on the composition of its gross income, as defined
under its method of accounting.
The 75% Gross Income Test. At least 75% of the Trust's gross income
for each taxable year must result from "rents from real property" (as
defined below), interest on obligations secured by real property mortgages,
gains from the sale of interests in real property and real estate mortgages
(other than gain for property held primarily for sale to customers in the
ordinary course of the Trust's trade or business), dividends from other
qualifying REITs, certain other investments relating to real property and
mortgages thereon and, for a one year period, income from the investment of
new capital.
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Income attributable to a lease of real property will generally
qualify as "rent from real property" under the 75% gross income test,
subject to the rules discussed below.
(i) Rent from a particular tenant will not qualify if the
Trust, directly or indirectly by attribution, owns
10% or more of the stock, assets or net profits of
the tenant.
(ii) The portion of rent attributable to personal property
rented with real property will not qualify unless
such portion is 15% or less of the total rent
received under the lease.
(iii) Rent will not qualify if it is based in whole or part
on the income or profits of any person. However, rent
will not fail to qualify if it is based on a fixed
percentage (or designated varying percentages) of
receipts or sales.
(iv) Rental income will not qualify if the Trust furnishes
or renders services to tenants, other than through an
"independent contractor" from whom the Trust derives
no income, or where the services are of a type
usually or customarily rendered in connection with
the rental of space, and are not otherwise considered
rendered to the occupant.
The 95% Gross Income Test. In addition to deriving 75% of its
gross income from the sources listed above, the Trust must derive at
least 95% of its gross income for the taxable year from income
qualifying for the 75% test, or from dividends, interest or gains from
the sale or disposition of stock or securities that are not "dealer
property."
Certain types of contingent interest will not be qualifying income
under either the 75% or the 95% tests. In addition, any income from
prohibited transactions (e.g., the sale of "dealer property"), or from
foreclosure property is excluded in the application of these tests,
although the Trust will be subject to excise tax or income tax,
respectively, on such income.
If the Trust fails to satisfy either the 75% or 95% tests for any
taxable year, it may yet retain its status as a REIT for such year if the
failure was due to reasonable cause and not to willful neglect, the Trust
attaches to its tax return a schedule of the sources of its income, and any
incorrect information on the schedules was not due to fraud. If these
relief provisions are available, the Trust would remain subject to tax with
respect to the excess net income.
C. The 30% Test. The Trust must derive less than 30% of its gross income
for each taxable year from the sale or other disposition of: (i) real property
held for less than four years (other than foreclosure property and involuntary
conversions); (ii) stock or securities held for less than one year; and (iii)
property in a prohibited transaction.
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The necessity of complying with these income and asset tests may adversely
affect the Trust's ability to pursue its business plan of acquiring the
Diversified Portfolio, as well as its ability to manage that portfolio in a
cost-effective and profitable manner.
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ELECTION OF TRUSTEES
If the Warrant Proposal and the Trust Amendments Proposal are approved,
Trustees are to be elected at the Annual Meeting, to hold office until the next
Annual Meeting and until their successors are elected and qualified.
TRUSTEES AND NOMINEES
The persons named as proxy holders in the accompanying proxy card have
advised the Trust that they will vote the shares represented by the proxies
which they hold in favor of the election of the seven nominees named below as
members of the Board, unless and except to the extent that authority to vote for
one or more nominees is withheld in the proxies. In no case will proxies be
voted for a greater number of persons than the number of nominees for election
to the Board. Messrs. Consiglio, Chisholm, McDonald and Sternlicht are
presently Trustees. Their current terms of office will expire on the date of
the Annual Meeting and when their successors are elected and qualified. If a
nominee becomes unavailable to serve as a Trustee for any reason, the shares
represented by any proxy will be voted for the person, if any, who may be
designated by the Board of Trustees to replace such nominee. However, the Board
of Trustees has no reason to believe that any nominee will be unavailable to
serve as a Trustee if elected.
No arrangement or understanding exists between any nominee and any other
person or persons pursuant to which any nominee was or is to be selected as a
Trustee or nominee. None of the nominees has any family relationship between
them nor with any Trustee or executive officer of the Trust. However, Messrs.
Grose, Sugarman and Gorab are employed by an entity controlled by Mr.
Sternlicht.
The following table sets forth the name, age and the position(s) with the
Trust (if any) currently held by each person nominated as a Trustee:
<TABLE>
<CAPTION>
Name Age Title
- ---------------------------- --- ------------------------------------------
<S> <C> <C>
Ronald J. Consiglio (1)(2) 52 Trustee, Chairman, Chief Executive Officer
and President
J. D'Arcy Chisholm (1)(2)(3) 63 Trustee
Jack E. McDonald (1)(2)(3) 54 Trustee
Barry S. Sternlicht 35 Trustee
Madison F. Grose 42 Nominee for Trustee
Jay Sugarman 34 Nominee for Trustee
Eugene A. Gorab 33 Nominee for Trustee
</TABLE>
- ------------------
(1) Member of Independent Committee.
(2) Member of Audit Committee prior to March 1994
(3) Member of Audit and Compensation Committee formed in March 1994.
Mr. Ronald J. Consiglio has been a Trustee since April 1988 and has served
as the Chairman, Chief Executive Officer and President of the Trust since May
1993. In addition, Mr. Consiglio was the Chairman of the Independent Committee
from its formation in February 1993 until its dissolution in
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November 1993 and was the Chairman of the Trust's Audit Committee until March
1994. From January 1993 through June 1993, Mr. Consiglio served as Executive
Vice President and Chief Administrative Officer of Reynolds Kendrick Stratton,
Inc., a Los Angeles based securities brokerage firm. From 1990 through 1992,
Mr. Consiglio was the Senior Vice President and Chief Financial Officer of
Cantor Fitzgerald & Co., Inc. where he was responsible for operations,
administration and finance. From 1988 through 1990 he was the Senior Vice
President of the investment banking firm of Wedbush Morgan Securities, Inc.
("WMS"), and from 1984 through 1988 he was Executive Vice President of a
predecessor firm, Morgan, Olmstead, Kennedy & Gardner Incorporated. He was
responsible for WMS's investment banking activities, as well as many of the
administrative and operation functions of the firm. He is a certified public
accountant and was a partner in Deloitte Haskins & Sells from 1977 to June 1984.
In 1992, Mr. Consiglio served as the District Chairman of the National
Association of Securities Dealers' District Business Conduct Committee. Mr.
Consiglio is also an executive officer, Trustee and Chairman of AMIT and is a
business consultant.
Mr. J. D'Arcy Chisholm has been a Trustee of the Trust since September 1989
and is a member of the Audit and Compensation Committee. He has been a
consultant to real estate, business and educational entities. From 1980 until
September 1989, Mr. Chisholm was associated with the Institute for Pastoral and
Social Ministry at the University of Notre Dame, initially as a volunteer, then
as an assistant director from 1982 until 1986 and finally as an associate
director from 1986 until 1989. From 1971 until 1980, Mr. Chisholm served in
several capacities for Shareholder Services, Inc., the predecessor company to
Angeles and its subsidiaries, including president of its property management
company and president of its property sales company. Prior to 1971, Mr.
Chisholm was employed at the following real estate related firms; Real Estate
Research Corporation, Del E. Webb Corporation and Milton Meyer Company. He
holds a BA degree from the University of Notre Dame and is a graduate of the
Executive Program at UCLA's Graduate School of Business. Mr. Chisholm also
serves as a Trustee of AMIT and serves on AMIT's Audit and Compensation
Committees.
Mr. Jack E. McDonald has been a Trustee of the Trust since April 1988 and
served as Chief Financial Officer from May 1993 to December 1995. As of
December 1995, Mr. McDonald has been chairman of the Audit and Compensation
Committee. He has been Chief Executive Officer of JEM Diversified Management
Company, Inc., a Los Angeles-based business consulting firm since 1989. Mr.
McDonald is a certified public accountant, certified financial planner and tax
and business consultant and received his BS in Accounting from Cal Poly
University - Pomona in 1969. Mr. McDonald served in the tax department of Ernst
& Ernst for five years before forming a certified public accounting firm that
specialized in real estate in 1974. Mr. McDonald is a founder and former
director of a California savings and loan association and past Chapter President
of the National Association of Accountants. He is an active member of the
American Institute of Certified Public Accountants and California Society of
Certified Public Accountants. Mr. McDonald also serves as a Trustee and
executive officer of AMIT and serves on AMIT's Audit and Compensation Committee.
Mr. Barry S. Sternlicht became a Trustee and Chairman of the Audit and
Compensation Committee of the Trust in March 1994. In December 1995, Mr.
Sternlicht resigned from the Audit and Compensation Committee. In mid-1993, he
founded Starwood Capital Group, L.P., ("Starwood") a privately owned real estate
investment firm, and has been president and chief executive officer since that
time. In 1991, he founded Starwood Capital Partners, L.P., a privately owned
real estate investment firm, and has been its president since inception.
Starwood, SAHI, Inc., SAHI Partners and Starwood Mezzanine are under common
control. In addition, Starwood is the general partner of the investment
partnership that owns substantially all of the beneficial interests of SAHI
Partners. From 1986 to 1991, Mr. Sternlicht was employed by JMB Realty, most
recently as Senior Vice President in its acquisition group. Mr. Sternlicht
serves on the Board of Trustees of Equity Residential Properties Trust,
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<PAGE>
currently the largest multi-family REIT in the United States trading under the
symbol "EQR" on the New York Stock Exchange (the "NYSE"). Affiliates of
Starwood constitute the second largest partnership group that has contributed
assets to the UPREIT partnership controlled by Equity Residential Properties
Trust. In addition, Mr. Sternlicht is currently the Chief Executive Officer and
Chairman of the Board of Trustees of Starwood Lodging Trust, the shares of which
are paired with those of Starwood Lodging Corporation and trade under the symbol
"HOT" on the NYSE. Mr. Sternlicht is also a director of Starwood Lodging
Corporation, is director of privately held Westin Hotels & Resorts and is a
director of U.S. Franchise Systems. Mr. Sternlicht is on the Board of Governors
of NAREIT and is a member of the Urban Land Institute and of the National Multi-
Family Housing Council. Mr. Sternlicht received a B.A. degree from Brown
University, where he was elected to Phi Beta Kappa, and an MBA with distinction
and honors from Harvard Business School in 1986.
Mr. Madison F. Grose has been an Executive Vice President and General
Counsel of Starwood and its predecessor entity since July, 1992. Mr. Grose is a
graduate of Stanford University and received his law degree from UCLA in 1978.
Prior to joining Starwood, Mr. Grose was one of eight original partners of the
Los Angeles based law firm of Messrs. Pircher, Nichols & Meeks and established
and managed its office in New York, New York from April 1985 through June, 1992.
Mr. Grose has extensive experience in real estate acquisitions, financing and
development, having structured, negotiated and closed in excess of $2 billion in
real estate acquisitions and financings of retail shopping centers, hotels,
office buildings and multi-family housing. Mr. Grose currently is a member of
the Board of Trustees of Starwood Lodging Trust.
Mr. Jay Sugarman has been an Executive Vice President of Starwood since
December, 1993 and is the President of Starwood Mezzanine. Mr. Sugarman is a
recognized expert in structuring and acquiring high-yielding real estate debt
securities. From 1990 through 1993, Mr. Sugarman managed a diversified
investment fund on behalf of the Burden family, a branch of the Vanderbilts, and
the Ziff family, former owners of Ziff-Davis Communications. Both the Burden
and Ziff families are investors in Starwood. Mr. Sugarman is a director of
CAPREIT, a privately held multi-family REIT, and of Westinghouse Communities,
Inc., a leading residential developer in South Florida. Mr. Sugarman received a
B.A. degree, summa cum laude, from Princeton University and is a graduate of
Harvard Business School, where he was a Baker Scholar.
Mr. Eugene A. Gorab is an Executive Vice President of Starwood and has been
an executive officer of Starwood and its predecessor entity since January, 1992.
Mr. Gorab is a graduate of Bucknell University and received a Masters of
Business Administration from the University of Chicago in 1989. Mr. Gorab was an
acquisitions officer for JMB Realty Corporation in Chicago from 1989 until
joining Starwood's predecessor. At Starwood, Mr. Gorab heads the development
group and is responsible for non-hotel related single asset acquisitions. In
addition, Mr. Gorab oversees Starwood's asset management group.
INFORMATION REGARDING THE BOARD OF TRUSTEES AND ITS COMMITTEES
INDEPENDENT COMMITTEE. On February 26, 1993, in recognition of the
conflicts of interest between the Trust and Angeles, a committee was formed
consisting solely of Trustees who were not affiliated with Angeles. The
Independent Committee was given the authority to evaluate, negotiate and
implement the restructuring of the Trust's assets and liabilities, and to make
all decisions relating to the Trust's dealings with Angeles or any of its
affiliates. An independent firm of valuation consultants and independent
counsel were engaged to assist the Independent Committee. Mr. Frank Bryant, who
died in August, 1994, and Messrs. Consiglio, Chisholm and McDonald served on the
Independent Committee
40
<PAGE>
with Mr. Consiglio serving as Chairman. In November 1993, the Independent
Committee ceased to exist upon the resignation of the last remaining Trustee who
was affiliated with Angeles.
AUDIT COMMITTEE AND COMPENSATION COMMITTEE. The Board of Trustees has
delegated a portion of its authority to an Audit and Compensation Committee
comprised of the Independent Trustees. This Committee makes recommendations to
the Board of Trustees concerning the selection of the Trust's independent
auditors, oversees the financial reporting process, develops and approves plans
for the annual duties of the Trustees, reviews fees charged by the independent
auditors, reviews the scope and results of the auditors' reports and reviews and
monitors the implementation of suggestions made by the independent auditors.
The Audit and Compensation Committee is kept apprised by management of the
Trust's internal control procedures. Additionally, the Audit and Compensation
Committee reviews and monitors non-audit services provided by the independent
auditors and oversees, reviews and approves the compensation of the Trustees and
officers of the Trust. Upon Shareholder approval of the Incentive Plans
Proposals (as hereinafter defined), the Audit and Compensation Committee's
responsibilities shall include administering the Incentive Plans (as hereinafter
defined), unless the Board of Trustees establishes a committee whose sole
purpose is administering such Plans. See "TRUSTEES' INCENTIVE PLAN PROPOSAL"
and "EMPLOYEES INCENTIVE PLAN PROPOSAL." Messrs. Chisolm and McDonald serve on
the Audit and Compensation Committee with Mr. McDonald serving as Chairman.
BOARD OF TRUSTEES AND COMMITTEE MEETINGS. During the fiscal year ending
December 31, 1995, the Board of Trustees held one regular meeting, by telephone,
at which all of the Trustees participated. The Audit and Compensation Committee
met once during fiscal year 1995.
EXECUTIVE OFFICERS
The following information relates to the executive officers of the Trust
who are not Trustees and are not nominated as Trustees. Each of the officers
serves at the pleasure of the Board of Trustees and is customarily appointed as
an officer at the annual meeting of the Board of Trustees held following each
Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
Name Age Title
-------------- --- -----------------------------------------------------
<S> <C> <C>
Ann Merguerian 40 Vice President, Chief Financial Officer and
Secretary
</TABLE>
Mr. McDonald resigned as the Chief Financial Officer in December 1995.
Ms. Merguerian became the Vice President and Secretary of the Trust in
March 1994, and the Chief Financial Officer in December 1995. Prior to joining
the Trust in May 1993, she was employed by Angeles from June 1981 through April
1993. Her last position with Angeles and its subsidiaries was as a Senior Vice
President of the Asset Management Group. From September 1977 to May 1981, she
served as a Senior Accountant at Ernst & Young (which was formerly known as
Ernst & Whinney). Ms. Merguerian is a certified public accountant. Ms.
Merguerian is also a Vice President, Chief Financial Officer and Secretary of
AMIT.
EXECUTIVE OFFICERS' COMPENSATION
For the year ended December 31, 1995, Mr. Consiglio received a total of
$31,500.00 for services as an executive officer of the Trust and an additional
$12,000.00 for serving on the Board of Trustees. For the year ended December
31, 1995, Mr. McDonald was paid no compensation for his services as the Chief
Financial Officer of the Trust, and $9,000.00 as compensation for serving on the
Board of
41
<PAGE>
Trustees. No other executive officer of the Trust received compensation from
the Trust during the year ended December 31, 1995. Officers who were employees
of Angeles during the period were compensated by Angeles or one of its
subsidiaries but no such compensation was specifically granted for serving as an
officer or Trustee of the Trust.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
Compensation
------------
All Other
Name and Principal Position Year Salary Compensation
- -------------------------------------------- ---- ------------ ------------
<S> <C> <C> <C>
Ronald J. Consiglio, Chief Executive Officer 1995 $31,500 $12,000
1994 $41,850 $12,000
1993 $90,900 $21,500
Jack E. McDonald, Chief Financial Officer 1995 $ 0 $ 9,000
1994 $ 0 $13,000
1993 $ 0 $26,250
</TABLE>
AUDIT AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Audit and Compensation Committee's compensation policy for the last
fiscal year was to set salaries at levels the Audit and Compensation Committee
believes will attract, retain and motivate highly competent individuals.
Additionally, the Audit and Compensation Committee is currently seeking to
create a commonality of interest between the executives and the Shareholders by
linking the executive's total compensation to the performance of the Trust. See
"PROPOSED SHARE INCENTIVE PLANS." In determining the salary of Mr. Consiglio,
the Audit and Compensation Committee considered the responsibilities of Mr.
Consiglio as the Chief Executive Officer, President, Trustee and Chairman of the
Board of Trustees of the Trust, Mr. Consiglio's experience and the salaries paid
in the competitive marketplace for executive talent, including a comparison of
the salaries for comparable positions at other companies.
The Audit and Compensation Committee currently intends for all compensation
paid to the Trust's executive officers to be tax deductible to the Trust
pursuant to Section 162(m) of the Code ("Section 162(m)"). Section 162(m)
provides that compensation paid to executive officers in excess of $1,000,000
cannot be deducted by the Trust for federal income tax purposes unless, in
general, such compensation is performance based, is established by an
independent committee of directors, is objective and the plan or agreement
providing for such performance based compensation has been approved in advance
by the Shareholders. In the future, however, if, in the judgment of the Audit
and Compensation Committee, the benefits to the Company of a compensation
program that does not satisfy the arbitrary and inflexible conditions of Section
162(m) outweigh the costs to the Trust of failure to satisfy these conditions,
the Audit and Compensation Committee may adopt such a program.
Jack E. McDonald
J. D'Arcy Chisholm
AUDIT AND COMPENSATION COMMITTEE
PROPOSED INCENTIVE PLANS
To promote the overall financial objectives of the Trust and its
Shareholders by motivating eligible Trustees, officers and employees of the
Trust to achieve long-term growth in Shareholder equity in the Trust and to
retain the association of these individuals, the Board of Trustees has adopted,
subject
42
<PAGE>
to Shareholder approval, the Angeles Participating Mortgage Trust 1996 Trustees'
Share Incentive Plan and the Angeles Participating Mortgage Trust 1996 Share
Incentive Plan. See "TRUSTEES' INCENTIVE PLAN PROPOSAL" and "EMPLOYEES'
INCENTIVE PLAN PROPOSAL."
AUDIT AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In March 1994, the Board of Trustees reconstituted the Audit Committee to
become the Audit and Compensation Committee. The Audit and Compensation
Committee oversees, reviews and approves the compensation of the Trustees and
officers of the Trust, including administration of the Incentive Plans.
Currently, Messrs. Chisholm and McDonald serve on the Audit and Compensation
Committee, with Mr. McDonald serving as Chairman. See "ELECTION OF TRUSTEES --
Information Regarding Board of Trustees and Its Committees -- Other Committees."
TRUSTEES' COMPENSATION
Each Trustee who is not also an officer of Angeles or of any of its
subsidiaries, receives a fee of $12,000 per year, which is paid quarterly. Each
of the unaffiliated Trustees also receives an additional fee of $1,000 for each
meeting of the Board of Trustees which he attends in person, $750 for each
meeting of the Board of Trustees which he attends telephonically, and $500 for
each Audit and Compensation Committee or Independent Committee meeting which he
attends, either personally or telephonically. Trustees are also reimbursed for
any expenses incurred in attending such meetings or incurred as a result of
other work performed for the Trust. The Trustees who are affiliated with
Angeles and its subsidiaries do not receive any compensation from the Trust. If
the Proposals are approved, the SAHI Nominees will be restricted from receiving
compensation from the Trust. See "RISK FACTORS -- Conflicts of Interest."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until February 1, 1993, the Trust paid AFC monthly advisory fees for trust
administration and for non-accountable expenses equal to .25% and .20% per annum
of Trust Proceeds, respectively. The Trust also reimbursed an affiliate of AFC
for administrative expenses incurred on its behalf. In February 1993, AFC's
advisory services to the Trust were terminated. The amounts paid to AFC or its
affiliate for the one month period ended February 1, 1993 were as follows:
<TABLE>
<CAPTION>
1993
-------
<S> <C>
Advisory fees...................... $11,000
Non-accountable expense allowance.. $ 8,000
Administrative expenses............ $ 6,000
</TABLE>
The Trust did not pay any fees to Angeles or affiliated entities in 1994 and
1995.
The following graph compares the total cumulative shareholder return on the
Class A Shares from December 31, 1990 to December 31, 1995 to that of the (a)
Standard & Poor's 500 Index, and (b) NAREIT Mortgage REIT Total Return Index, an
index that included 24 companies with a market capitalization of $3.3 billion.
43
<PAGE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
==================================================================================================
December 31, December 31, December 31, December 31, December 31, December 31,
1990 1991 1992 1993 1994 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Trust $100.00 $109.31 $129.18 $128.28 $ 72.16 $ 64.14
- --------------------------------------------------------------------------------------------------
S&P 500 $100.00 $130.55 $140.56 $154.60 $156.63 $215.25
- --------------------------------------------------------------------------------------------------
Mortgage REITs $100.00 $131.83 $134.36 $153.91 $116.51 $190.39
==================================================================================================
</TABLE>
RECOMMENDATION REGARDING THE BOARD ELECTION PROPOSAL
The Board of Trustees recommends that you vote FOR the seven named nominees
to be elected as the Trustees of the Trust.
44
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of August 9, 1996 with
respect to any Class A Shares owned by the Trustees and individual Shareholders
known to be the beneficial owner of more than five percent (5%) of the issued
and outstanding Class A Shares. There are no other Trustees or officers of the
Trust who beneficially own either Class A Shares or Class B Shares. The Trust
had 1,905 Class A Shareholders of record as of August 9, 1996. All of the issued
and outstanding Class B Shares (a total of 1,275,000 Shares) are owned by SAHI
Partners.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Title of Class Name and Address of Beneficial Owner Ownership(1) of Class
- --------------- ------------------------------------------------------------ ------------ --------
<S> <C> <C> <C>
Class A Shares SAHI Partners, Three Pickwick Plaza, Suite 250, Greenwich,
CT 06830..................................................... 26,020(2) 1.0%
Class A Shares SAHI Partners................................................ 244,100 9.6%
Class A Shares SAHI, Inc., Three Pickwick Plaza, Suite 250, Greenwich, CT
06830........................................................ 270,120(3) 10.6%
Class A Shares SWL Acquisition Partners, L.P., Three Pickwick Plaza, Suite
250, Greenwich, CT 06830.................................... 270,120(3) 10.6%
Class A Shares SWL Mortgage Investors, Inc., Three Pickwick Plaza, Suite
250, Greenwich, CT 06830.................................... 270,120(3) 10.6%
Class A Shares Angelo, Gordon & Co., L.P., 245 Park Avenue, New York,
NY 10167..................................................... 254,700(4) 9.9%
Class A Shares Pure World, Inc. (formerly American Holdings, Inc.), 376
Main Street, Bedminster, NJ 07921............................ 246,400(5) 9.7%
Class A Shares The TCW Group, Inc., 865, South Figueroa Street, Los
Angeles, CA 90017............................................ 139,200(6) 5.4%
Class A Shares J. D'Arcy Chisholm, 340 N. Westlake Blvd., Suite 230,
Westlake Village, CA 91362..................................
Class A Shares Barry Sternlicht, Three Pickwick Plaza, Suite 250, 773 (7)
Greenwich, CT 06830......................................... 270,120(3) 10.6%
Class A Shares Ronald J. Consiglio, 340 N. Westlake Boulevard, Suite 230,
Westlake Village, CA 91362................................... 5,500 (7)
Class A Shares Ann Merguerian, 340 N. Westlake Boulevard, Suite 230,
Westlake Village, CA 91362................................... 10,000 (7)
Class B Shares SAHI Partners................................................ 1,275,000(3) 100%
Class B Shares Barry Sternlicht............................................. 1,275,000(3) 100%
Class B Shares SAHI, Inc.................................................... 1,275,000(3) 100%
Class B Shares SWL Acquisition Partners, L.P. .............................. 1,275,000(3) 100%
Class B Shares SWL Mortgage Investors, Inc. ................................ 1,275,000(3) 100%
Class A Shares All Executive Officers and Trustees as a group (6 persons)... 286,393(3) 11.2%
Class B Shares All Executive Officers and Trustees as a group (6 persons)... 1,275,000(3) 100%
- ------------------
</TABLE>
(1) Except as otherwise indicated and subject to applicable community property
laws and similar statutes, the person listed as beneficial owner of shares
has sole voting power and dispositive power with respect to the shares.
(2) Represents 1,275,000 Class B Shares which are presently convertible into
26,020 Class A Shares.
(3) Represents 244,100 Class A Shares currently held by SAHI Partners and
1,275,000 Class B Shares currently held by SAHI Partners which are presently
convertible into 26,020 Class A Shares. SAHI, Inc. and SWL Acquisition
Partners, L.P., a Delaware limited partnership ("SWL Partners"), are the
sole general partners of SAHI Partners. SWL Mortgage Investors, Inc., a
Delaware corporation ("SWL Mortgage"), is the sole general partner of SWL
Partners. Mr. Sternlicht is the sole stockholder of SWL Mortgage and the
controlling stockholder of SAHI, Inc. By virtue of such holdings and
relationships, Mr. Sternlicht, SAHI, Inc., SWL Partners and SWL Mortgage may
be deemed to have an indirect pecuniary interest in the Class A Shares and
Class B Shares held by SAHI Partners to the extent of his or its
proportionate direct or indirect partnership interest, as the case may be;
however, Mr. Sternlicht, SAHI, Inc., and SWL Mortgage have expressly
disclaimed such beneficial ownership.
(4) As reported on the Schedule 13G filed by Angelo, Gordon & Co. L.P. ("Angelo
Gordon"), on February 8, 1995. As of December 31, 1994, Angelo Gordon may be
deemed to be the beneficial owner of 252,700 Shares as a result of voting
and dispositive powers that it held with respect to the 49,600 Shares it
holds for its own account and 203,100 Shares held for the account of five
private investment funds for which it acts as general partner and/or
investment adviser. In addition thereto, Angelo Gordon may be deemed to have
dispositive powers, but not voting powers, with respect to 2,000 Shares
owned by clients of Angelo Gordon for whom John M. Angelo has been given
such dispositive powers. Mr. Angelo may be considered a beneficial owner of
the 252,700 Shares held by Angelo Gordon referred to above. In addition
thereto, Mr. Angelo has dispositive powers, but not voting powers, with
respect to 2,000 Shares owned by clients of Angelo Gordon. Mr. Angelo is the
chief executive officer of Angelo Gordon and is a general partner of AG
Partners, L.P., the sole general partner of Angelo Gordon. Michael L. Gordon
may be considered a beneficial owner of the 252,700 Shares held by Angelo
Gordon referred to above. Mr. Gordon is the chief operating officer of
Angelo Gordon and is the other general partner of AG Partners, L.P., the
sole general partner of Angelo Gordon.
(5) As reported on the Schedule 13D, Amendment No. 4 filed by Pure World, Inc.
(formerly American Holdings, Inc.) on February 12, 1996.
(6) As reported on the Schedule 13G filed by The TCW Group, Inc. on February 12,
1996. Robert Day, an individual who may be deemed to control The TCW Group,
Inc., may be deemed to beneficially own the Shares which may be deemed to be
beneficially owned by The TCW Group, Inc.
(7) Less than 1% of the class (a total of 2,550,000 Class A Shares are issued
outstanding).
45
<PAGE>
PARTNERSHIP PROPOSAL
If the Warrant Proposal and the Trust Amendments Proposal are approved and
the nominees for Trustees are elected, the Board will ask the Shareholders to
consider and vote upon a proposal to approve the formation and capitalization of
the Partnership, to be named "APT Limited Partnership", on the terms and
conditions hereinafter described (the "Partnership Proposal"). The following
description of the formation, capitalization and governance of the Partnership,
and related matters, describes certain provisions of the relevant agreements and
does not purport to be complete and is qualified in its entirety by reference to
the actual agreements. Defined terms used herein and not otherwise defined shall
have the meanings ascribed to them in the relevant agreements.
FORMATION AGREEMENT
The Trust and Starwood Mezzanine propose to enter into a Formation
Agreement (the "Formation Agreement") prior to shareholder approval of the
Proposals, setting forth the terms and conditions upon which the Partnership
will be formed and initially capitalized if approved by the Shareholders.
Pursuant to the Formation Agreement, on the date the formation and
capitalization of the Partnership is consummated (the "Closing Date"), the
parties have agreed that (i) the Trust and Starwood Mezzanine will execute and
deliver the Limited Partnership Agreement of the Partnership (the "Partnership
Agreement"), (ii) the Trust will contribute $400,000, in cash, plus or minus
prorations, if any, to the Partnership in exchange for a general partnership
interest in the Partnership representing a 7.76% in the Partnership subject to
adjustment, and (iii) Starwood Mezzanine will contribute its entire interest
in the Certificates to the Partnership in exchange for a limited partnership
interest in the Partnership representing a 92.24% interest in the Partnership,
subject to adjustment. Interest which has accrued but not yet been paid on the
Certificates prior to or on the date of formation of the Partnership shall be
paid to Starwood Mezzanine by the Partnership within 1 day of the date such
interest is paid to the Partnership. All interest accruing on the Certificates
subsequent to the Closing Date shall be payable to the Partnership. If the
principal amount of the Certificates has been reduced subsequent to June 30,
1996 Starwood Mezzanine's initial interest in the Partnership will be reduced
accordingly and the Trust's initial interest in the Partnership will be
increased accordingly. The Certificates will be contributed to the Partnership
free and clear of all liens, claims, encumbrances or indebtedness.
1. CONDITIONS TO FORMATION OF THE PARTNERSHIP.
The respective obligations of each of the Trust and Starwood Mezzanine to
form the Partnership and to provide it with the initial capitalization described
above will be subject to the satisfaction or waiver of the following conditions:
(i) the Shareholders shall have approved the Warrant Proposal and the Trust
Amendments Proposal and the named nominees shall have been elected to the Board
of Trustees; (ii) the absence of injunctions or other legal restraints or
prohibitions; (iii) the receipt of all necessary governmental and regulatory
approvals and consents; and (iv) execution of the Partnership Agreement, the
Exchange Agreement and the Registration Rights Agreement by each party thereto.
The obligations of the Trust to form and capitalize the Partnership will
also be subject to the satisfaction or waiver of the following conditions: (i)
the accuracy of the representations and warranties of Starwood Mezzanine
contained in the Formation Agreement; (ii) the absence of a material adverse
effect with respect to the Certificates or the collateral therefor, taken as a
whole, between the date of the Formation Agreement and the Closing Date; and
(iii) the receipt by the Trust of certain legal opinions and certificates. In
addition, the obligations of Starwood Mezzanine to consummate the formation and
capitalization of the Partnership will also be subject to the satisfaction or
waiver of the following conditions: (i) the accuracy of the representations and
warranties of the Trust contained in the Formation Agreement; (ii) the absence
of a material adverse effect on the Trust between the date of the Formation
Agreement and the Closing Date; and (iii) the receipt by Starwood Mezzanine of
certain legal opinions and certificates.
2. AMENDMENT; TERMINATION AND COSTS.
The Formation Agreement may be terminated (including the obligations of the
parties thereunder to effect the formation and capitalization of the
Partnership) prior to the Closing Date (i) by the mutual consent of the Trust
and Starwood Mezzanine; (ii) by the Trust upon a material breach of the
Formation Agreement by Starwood Mezzanine (after Starwood Mezzanine has been
given a reasonable opportunity to cure such breach) or if any condition to the
consummation of the formation and capitalization of the Partnership by the Trust
is not satisfied or waived at such time as it is no longer possible to satisfy
such condition; (iii) by Starwood Mezzanine upon a material breach by the Trust
of the Formation Agreement (after the Trust has been given a reasonable
opportunity to cure such breach) or if any condition to Starwood Mezzanine's
consummation of the formation and capitalization of the Partnership is not
satisfied or waived at such time as it is no longer possible to satisfy such
condition including if, between the date of the execution and delivery of the
Formation Agreement and the Closing Date, the AMEX shall de-list the Class A
Shares; (iv) by the Trust or Starwood Mezzanine if the Partnership is not formed
and capitalized on or before September 30, 1996 (the "Outside Date"), except
that prior to the Outside Date no party may terminate the Formation Agreement
pursuant to such provision if that party is then in material breach of its
representations, warranties or covenants in the Formation Agreement; or (v) upon
15 days written notice, by the Trust or Starwood Mezzanine if the Trust enters
into an agreement with any party other than Starwood Mezzanine or any other
entity controlled by Starwood or its principals (a "Starwood Controlled Party")
which is not consistent with the obligations of the Trust set forth in the
Formation Agreement or with the consummation of the transactions contemplated by
the Formation Agreement, so long as, in the case of any termination by the
Trust, the Trust materially complied with the provisions described under the
section entitled "No Solicitation" below. For purposes of the Formation
Agreement, an agreement with a party other than Starwood Mezzanine or a Starwood
Controlled Party will be deemed to be inconsistent with the obligations of the
Trust set forth in the Formation Agreement in the event that such agreement
would impose any exclusivity
47
<PAGE>
or non-competition agreements on the Trust or Partnership or would require a
commitment of Trust or Partnership capital in excess of $100,000, in the
aggregate.
The Formation Agreement provides that except as described below, each of
the parties thereto will bear its own costs and expenses incurred in connection
with the formation and capitalization of the Partnership. If the Formation
Agreement is terminated pursuant to clause (v) in the preceding paragraph, then
Starwood Mezzanine shall be entitled to the reimbursement of its reasonable,
out-of-pocket expenses incurred in connection with the formation and
capitalization of the Partnership (including, the negotiation, execution and
delivery of the Formation Agreement).
3. REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
The Formation Agreement contains various representations and warranties of
the Trust. These include representations and warranties as to (i) its
organization, good standing and power to carry on its business, (ii) its
authorized and outstanding shares, (iii) its authority to enter into and
consummate the formation and capitalization of the Partnership and the
enforceability of the agreements relating to the transactions described herein
entered into by the Trust, (iv) the absence of certain conflicts with certain
documents, agreements and instruments arising from the formation and
capitalization of the Partnership, (v) the absence of material undisclosed
litigation or proceedings and (vi) the accuracy of reports and statements filed
with the SEC since July 18, 1988 and of the financial statements included
therein. In addition, the Formation Agreement contains a representation and
warranty of the Trust as to its capitalization, the absence of subsidiaries, the
absence of finders fees, the absence of defaults and breaches under the
Shareholders Agreement, the amount of its assets and property and as to its
eligibility to qualify to elect to be taxed as a REIT for the taxable year
ending December 31, 1996.
The Formation Agreement also contains representations and warranties of
Starwood Mezzanine, including representations and warranties as to (i) its
organization, good standing and power to carry on its business, (ii) its
authority to enter into and consummate the formation and capitalization of the
Partnership and the enforceability of the agreements relating to the
transactions described herein entered into by Starwood Mezzanine, (iii) the
absence of undisclosed litigation or proceedings, (iv) the absence of certain
conflicts with certain documents, agreements and instruments arising from the
formation and capitalization of the Partnership and certain documents,
agreements and instruments, (v) the acquisition of Units by Starwood Mezzanine
for investment purposes, and (vi) the accuracy of information and financial
statements supplied by Starwood Mezzanine for inclusion in this Proxy Statement.
In addition, the Formation Agreement contains representations and warranties of
Starwood Mezzanine regarding the Certificates and Starwood Mezzanine's
compliance with the Employee Retirement Income Security Act of 1974, as amended.
Each of the Trust and Starwood Mezzanine has agreed to indemnify and hold
harmless each other and the Partnership (and their respective subsidiaries,
affiliates and successors) from all liabilities, losses or damages and
reasonable out-of-pocket expenses incurred in connection with (i) its respective
breach or failure to perform its obligations in the Formation Agreement or any
other agreement entered into by it in connection with the Formation Agreement
and (ii) any breach of any representation or warranty made by it respectively in
the Formation Agreement or any other agreement entered into by it in connection
with the Formation Agreement. The indemnification obligation of each of the
Trust and Starwood Mezzanine described in this paragraph is limited to $500,000
in the aggregate.
The Formation Agreement will provide that the representations and
warranties contained in the Formation Agreement will survive until the first
anniversary of the Closing Date (except for the representation of the Trust with
respect to its eligibility to qualify to elect to be taxed as a REIT for the
taxable year ending December 31, 1996 provided the Closing Date occurs prior to
September 30, 1996, which survives until the second anniversary of the Closing
Date), at which time such representations terminate, and that any claim in
respect of those representations and warranties must be asserted in writing
prior to such termination.
4. COVENANTS PRIOR TO THE CLOSING.
The Trust has agreed to cause this Proxy Statement to comply with the
Securities Exchange Act of 1934, as amended, and rules and regulations
promulgated thereunder (the "Exchange Act") and cause this Proxy Statement, at
all relevant times, to be accurate and not misleading (except to the extent any
inaccuracy is a result of information supplied by Starwood Mezzanine). Starwood
Mezzanine has agreed to furnish to the Trust all information required for this
Proxy Statement, and to cooperate in connection with any necessary amendment or
supplement to this Proxy Statement. Prior to the Closing, the Trust has agreed
not to amend or delete certain of the Proposals without Starwood Mezzanine's
approval. The Board of Trustees may at any time prior to the Closing Date
withdraw, modify or change any recommendation regarding the matters set forth in
this Proxy Statement or recommend and declare advisable any other offer,
proposal or transaction if in any such case it determines upon
48
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advice of legal counsel that the failure to so withdraw, modify or change such
recommendation could be reasonably expected to involve it in a breach of
fiduciary duties under applicable law.
In addition, the Trust and Starwood Mezzanine have each agreed that prior
to the Closing Date the Trust will carry on its business and Starwood Mezzanine
will carry on its business with respect to the assets to be contributed by it to
the Partnership only in the ordinary course and each party will not enter into
any material transaction with respect to such assets other than in the ordinary
course.
The Trust has also agreed that, prior to the Closing Date, except as
contemplated by the Formation Agreement, without the prior written consent of
Starwood Mezzanine, it will not (i) take or omit to take any action to cause the
Trust to fail to be eligible to elect and qualify to be taxed as a REIT for the
taxable year ending December 31, 1996, (ii) acquire additional real estate or
other assets, (iii) issue or agree to issue any new debt or equity securities,
(iv) declare or pay any dividends or other distributions to the holders of the
Class A or Class B Shares other than as are necessary to preserve the REIT
status of the Trust, or (v) repay indebtedness.
Starwood Mezzanine has also agreed that it will not, without the prior
written consent of the Trust, (i) voluntarily dispose of any portion of the
Certificates or of the underlying collateral therefor or (ii) voluntarily
encumber the Certificates or any of the underlying collateral therefor.
The Trust and Starwood Mezzanine have also agreed to (i) notify the
other party upon becoming aware of any material lawsuit or proceedings, (ii) to
cooperate with each other to fulfill the conditions to the other party's
obligation under the Formation Agreement and (iii) to not make any public
announcement of the transactions contemplated by the Formation Agreement without
the consent of the other party.
5. NO SOLICITATION.
The Trust has agreed that from and after the date of the Formation
Agreement, except as otherwise permitted by the Formation Agreement, it will
not, and will instruct its officers and trustees not to, solicit or otherwise
engage in any discussions or negotiations with any person other than Starwood
Mezzanine or a Starwood Controlled Party relating to any "Proposal" (as defined
below); provided, however, that the Trust and its officers and trustees may
engage in discussions or negotiations with any person (provided that the Trust
did not solicit such discussions or negotiations on or after July 1, 1995, if
the Board of Trustees determines in good faith upon advice of legal counsel that
a failure to engage in such negotiations could reasonably be expected to involve
a breach of fiduciary duties under applicable law. Notwithstanding the
foregoing, nothing shall prevent the Board of Trustees from taking, and
disclosing to the Shareholders, a position in respect of a "Proposal" as
contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act. A
"Proposal" for purposes of the Formation Agreement is a recapitalization or
restructuring of the Trust or the Partnership, the creation of any so-called
"UPREIT" or "DOWNREIT" partnership or other entity, a sale, disposition or
refinancing of all or portions of the Trust's assets, the issuance of additional
debt or equity securities of the Trust or of the Partnership, the transfer in
one transaction or a series of related transactions of more than 10% of the
existing debt or equity securities of the Trust or the appointment to the Board
of Trustees of one or more trustees designated by a single person or entity or
its affiliates, other than as designated by Starwood Mezzanine or a Starwood
Controlled Party; provided that any transaction by Starwood Mezzanine shall not
be a "Proposal."
DESCRIPTION OF CERTIFICATES
The Certificates are pass-through participation certificates which
represent 100% of the beneficial ownership interest in a $5,005,700 (as of
July 1, 1996) performing, non-recourse first mortgage loan on the Warwick Hotel
and Apartments located in Philadelphia, Pennsylvania. The hotel was originally
built in 1926 and consisted of 600 rooms. The hotel was converted to 211
apartment units and 153 hotel rooms between 1977 and 1979. The property was
appraised in 1995 at $12 million. The borrower under the mortgage is the
Frankel-Warwick Limited Partnership, which was formed in 1977 to acquire and
renovate the property. The Warwick Hotel and Apartments was previously
encumbered by a second mortgage. This mortgage was purchased by the existing
owners. Starwood Mezzanine's evaluation of the cash flow from this property
revealed that cash flow was not sufficient to cover debt service. Because
there existed a risk of default on the Certificates, Starwood Mezzanine bid a
price which was commensurate with this risk and was able to acquire the
Certificates at a substantial discount. The discounted price was determined
such that the Certificates would generate a yield to maturity of approximately
20% assuming no default or interruption of cash flows.
The mortgage bears interest at 9.0% per annum, with payments of accrued
interest and principal required to be made in equal monthly installments on the
basis of a 25-year amortization schedule. The mortgage matures November 1, 2004
but the mortgagee has the option to require repayment of the outstanding
principal on November 30, 1999. The mortgage is prepayable with a 2% premium in
1996, said premium declining at the rate of 0.50% during each subsequent
calendar year.
Nominal ownership of the mortgage is held by Key Bank of New York, which
services the loan in accordance with a participation and servicing agreement.
Such agreement may be canceled by the holder of the Certificates at any time, in
which event the holder of the Certificates would succeed to such bank as the
direct holder of the mortgagee's interest.
The cost basis (to Starwood Mezzanine) and outstanding principal balance of
the mortgage underlying the Certificates were $3,798,950 and $5,005,700,
respectively, as of July 1, 1996. Interest and amortization of principal paid on
the mortgage for the year ended December 31, 1995 was $486,544 and $369,436,
respectively, resulting in net cash flow on the mortgages of $855,980 for the
year ending December 31, 1995. As Trustees' expenses for the year ended December
31, 1995 were $6,758, the net cash flow on the Certificates for such period was
$849,222.
The following table sets forth the occupancy rate and average daily rate per
room for the Warwick Hotel and Apartments for the periods indicated:
<TABLE>
<CAPTION>
Daily
Occupancy Rate Per
Rate Room
<S> <C> <C>
1991 60% $73.91
1992 71% $71.75
1993 67% $77.94
1994 62% $88.97
1995 67% $89.31
</TABLE>
For 1995, the real estate tax rate on the Warwick Hotel and Apartments was
approximately 8.3% and the amount of real estate tax due for 1995 is
approximately $390,060. The financial statements of the entity which owns the
Warwick Hotel and Apartments is attached hereto as Exhibit H.
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THE PARTNERSHIP
OPERATION OF THE PARTNERSHIP
The Partnership will be a limited partnership to be organized under the
Delaware Revised Uniform Limited Partnership Act (the "RULPA"). The Partnership
will have the Trust as its sole general partner and, initially, Starwood
Mezzanine as its sole limited partner. As the sole general partner of the
Partnership, the Trust will manage all the business and affairs of the
Partnership. Except as hereinafter described, the Trust will have full and
complete power, authority and discretion to take all actions necessary or
appropriate to carry out the business of the Partnership. Notwithstanding the
foregoing, without the consent of all the limited partners of the Partnership,
the Trust will have no power to do any act in contravention of the Partnership
Agreement or possess any Partnership property for other than a Partnership
purpose. In addition, the Trust and the Partnership will not be able to make
certain types of investments as a result of restrictions and conflicts involving
SAHI and their affiliates. Specifically, without the amendment, termination or
waiver of provisions of certain non-competition agreements between Starwood
Capital Group, L.P. and Starwood Lodging Trust, the Trust and the Partnership
are prohibited from: (i) making investments in loans collateralized by hotel
assets where it is anticipated that the underlying equity will be acquired by
the debt holder within one (1) year from the acquisition of such debt, (ii)
acquiring equity interests in hotels (other than acquisitions of warrants,
equity participations or similar rights incidental to a debt investment by the
Trust or the Partnership or that are acquired as a result of the exercise of
remedies in respect of a loan in which the Trust or the Partnership has an
interest) or (iii) selling or contributing to or acquiring any interests in HOT,
including debt positions or equity interests obtained by the Trust or the
Partnership under, pursuant to or by reason of the holding of debt positions. In
addition, during any period in which the SAHI Nominees shall constitute a
majority of the Board of Trustees (or the SAHI Group collectively control a
sufficient number of voting securities to elect a majority of the Board) and
Starwood Mezzanine shall have an interest in either the Trust or the
Partnership, (i) without the approval of the limited partners of Starwood
Mezzanine (A) neither the Trust nor the Partnership shall pursue any equity
interests as a principal purpose, excluding equity interests which are
incidental to, or acquired pursuant to the exercise of remedial rights with
respect to, a debt instrument and (B) neither the Trust nor the Partnership
shall invest in real estate related debt interests issued by obligors that are
not operating companies or originate or purchase mortgage loans issued by
obligors that are not operating companies and (ii) neither the Trust nor the
Partnership shall incur indebtedness during any period in which the incurrence
of such indebtedness would increase the amount of UBTI to be incurred by the
limited partners of Starwood Mezzanine without the prior written consent of
Starwood Mezzanine. Furthermore, during any period in which Starwood Mezzanine
shall have an interest in either the Trust or the Partnership, neither the Trust
nor the Partnership may acquire (by contribution or purchase) any additional
debt or equity securities from the SAHI Group without the approval of (i) the
limited partners of Starwood Mezzanine and (ii) the general partner of the
Partnership and such acquisition shall consist of assets which enable the Trust
to maintain its status as a REIT. In addition, without the prior approval of
Starwood Mezzanine's limited partners during any period in which Starwood
Mezzanine shall have an interest in either the Trust or the Partnership, (i)
none of the SAHI Group may receive performance or management fees from the Trust
or the Partnership, including, but without limitation, trustees' fees or options
or awards pursuant to the Angeles Participating Mortgage Trust 1996 Trustees'
Share Incentive Plan or the Angeles Participating Mortgage Trust 1996 Share
Incentive Plan; and (ii) the Trust and the Partnership may not enter into any
service agreements with the SAHI Group. The foregoing restrictions are designed
to address the conflicts of interest issues among the SAHI Group and to ensure
that the investment purposes of the Trust and the Partnership does not conflict
with the investment purpose of Starwood Mezzanine. Because the foregoing
restrictions do not extend to the day to day operations of the Partnership and
because the investment purposes of the Trust, Partnership and Starwood Mezzanine
are substantially similar, the Trust believes these restrictions do not infringe
on its ability to unilaterally control all financial affairs of the Partnership
as the general partner. The Trust will account for its investment in the
Partnership on a consolidated basis, in accordance with generally accepted
accounting principles. After the formation and capitalization of the
Partnership, the principal executive offices of the Partnership will be located
at the Trust's principal executive offices.
TERM AND DISSOLUTION
The parties have agreed that the term of the Partnership shall be until
December 31, 2096 unless sooner dissolved and terminated in the case of (i) the
sale or other disposition of all or substantially all of the assets of the
Partnership (unless the general partner of the Partnership elects to continue
the business of the Partnership as provided in the Partnership Agreement), (ii)
the written election to dissolve the Partnership by the general partner and
limited partners holding in the aggregate more than 50% of the total number of
issued and outstanding Units, (iii) the dissolution, termination, withdrawal,
retirement, expulsion or bankruptcy of the general partner, unless such
Partnership's business is continued as provided in the Partnership Agreement,
and (iv) the entry of a decree of judicial dissolution of such Partnership
pursuant to the RULPA.
DISTRIBUTIONS AND REIMBURSEMENT
The Trust will have the authority in its discretion to cause the
Partnership to make distributions from time to time to the partners of the
Partnership. The Trust will be authorized to cause the Partnership to distribute
sufficient amounts to enable the Trust to pay dividends to Shareholders that
will satisfy the REIT Requirements. The Partnership Agreement will provide that
distributions from the Partnership shall be made no less frequently than monthly
and shall be in accordance with the partners' percentage interests in the
Partnership. The Partnership will reimburse the Trust for all expenses of the
Trust incurred in connection with the business of the Partnership. In the event
of a dissolution of the Partnership, the assets of the Partnership will be
liquidated and (after payment of creditors and establishment of any reserves to
provide for contingent liabilities) distributed to holders of Units in
accordance with the positive balances in their capital accounts.
OFFERINGS AND REDEMPTIONS OF CLASS A SHARES
If the Trust contributes to the Partnership the net proceeds to the Trust
from any offering or sale of Class A Shares (including, without limitation, any
issuance of such Shares pursuant to the exercise of options, warrants,
convertible securities or similar rights), the Partnership will issue to the
Trust an additional number of Units equal to the number of such Class A Shares
so offered. If the Trust redeems any of its outstanding Class A Shares, the
Partnership will concurrently redeem therewith an equal number of Units held by
the Trust for the same price as paid by the Trust for the redemption of such
Class A Shares.
AFFILIATE TRANSACTIONS; CERTAIN CONFLICTS; INDEMNIFICATION
The Partnership may engage in transactions with Affiliates which are on
terms fair and reasonable to the Partnership and no less favorable to the
Partnership than would be obtained from unaffiliated third parties. The Limited
Partners and their Affiliates are under no obligation to consider the separate
interests of the Partnership in connection with any business activities which
are in conflict or competition with the business of the Partnership and shall
not be liable for such activities unless such liability was a result of a
Limited Partner breaching a representation, warranty or covenant of the
Formation Agreement. The Partnership has agreed to indemnify the Trust against
certain liabilities concerning the formation, business or operations of the
Partnership providing certain standards have been met. The Partnership has
agreed to indemnify the Limited Partners against certain liabilities arising out
of the Partnership's business, subject to certain exceptions.
LIMITED PARTNER RIGHTS
Pursuant to agreements to be entered into in connection with formation of
the Partnership, Starwood Mezzanine, as a holder of Units, will have certain
rights to tender all or a portion of the Units held by it to the Trust in
exchange for Class A Shares and/or cash, and certain rights to require the Trust
to register under the Securities Act any Class A Shares which may be issued upon
such exchange.
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<PAGE>
EXCHANGE RIGHTS
Pursuant to an Exchange Rights Agreement (the "Exchange Rights Agreement")
proposed to be entered into on the Closing Date between the Trust and Starwood
Mezzanine, subject to the limitations described therein, Starwood Mezzanine will
have the right to tender to the Trust all or a portion of the Units held by
Starwood Mezzanine from time to time. The Trust will have the option to pay for
such tendered Units either (i) by delivering Class A Shares to such tendering
holders as described below (the "Share Option"), (ii) with cash (the "Cash
Option") or (iii) by delivering a combination of Shares and cash (the "Combined
Option").
The election by the Trust between those options must be made by a majority
of the disinterested Trustees. If the Trust elects the Share Option or the
Combined Option and if, as a result of the ownership limitations of the REIT
Requirements, Starwood Mezzanine cannot receive the full number of Class A
Shares otherwise issuable pursuant to such option, such tender shall be
automatically reduced so that after such tender Starwood Mezzanine receives the
maximum number of Class A Shares that Starwood Mezzanine can receive without
violating such requirements.
The number of Class A Shares issuable upon exchange of Units is subject to
adjustment from time to time after the Closing Date in the event that the Trust
pays a dividend or makes a distribution in Class A Shares to holders of Class A
Shares, subdivides the outstanding Class A Shares into a greater number of Class
A Shares or combines the outstanding Class A Shares into a smaller number of
Class A Shares. The number of Class A Shares for which Units are then
exchangeable shall be adjusted so that Starwood Mezzanine is entitled to receive
the number of Class A Shares which Starwood Mezzanine would have owned
immediately following such action had such Units been exchanged immediately
prior thereto.
The Partnership Agreement also provides that if the Trust grants, issues or
sells, on a pro rata basis to all holders of Class A Shares, options,
convertible securities or rights (collectively, "Purchase Rights") to purchase
shares of stock, warrants, securities or other property, then each holder of
Units shall be entitled to acquire rights that are substantially
similar in amount, tone and tenor to the Purchase Rights which such holder would
have received if its Units had been exchanged for Class A Shares immediately
prior to such grant, issue or sale. Other than as described above, no further
adjustments shall be made for any issuance of Class A Shares or any other
event.
If the Trust elects the Cash Option or the Combined Option, it will deliver
to Starwood Mezzanine, an amount of cash in respect of each Class A Share for
which cash is to be paid equal to the average closing price per share of the
Class A Shares on the AMEX for the ten (10) trading day period ending on the day
before the date of the related tender.
The Exchange Rights Agreement provides that no Units shall be accepted for
exchange (i) if as a result of such tender the Trust would not satisfy the REIT
Requirements in any respect (ii) prior to the expiration or termination of any
applicable waiting period under the Hart Scott Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act") or (iii) prior to the receipt of all other
governmental and regulatory approvals.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") proposed to be entered into on the Closing Date between the Trust
and Starwood Mezzanine, the Trust has agreed to grant registration rights with
respect to Class A Shares which may be acquired upon exercise of the Class A
Warrant or upon the exchange of the Units issued to Starwood Mezzanine upon the
formation of the Partnership. Pursuant to such registration rights, Starwood
Mezzanine, on behalf of holders of Class A Shares holding or, of Units
exchangeable for, not less than 250,000 Class A Shares may, subject to certain
limitations, require the Trust to effect up to one demand registration of Class
A Shares under the Securities Act (such demand registration to be maintained
effective for a period of 30 days from the date it becomes effective) and one
shelf registration of Class A Shares under the Securities Act (such shelf
registration to be maintained effective for a period of one year from the date
it becomes effective). If a demand registration pursuant to the Registration
Rights Agreement is not maintained effective for a period of at least 30 days or
such shorter period at the end of which all securities covered by such demand
registration have been sold pursuant thereto, Starwood Mezzanine is entitled to
an additional demand registration; provided the Trust shall only be obligated to
maintain effective such additional demand registration for a period equal to 30
days less the number of days the initial demand registration was effective. If a
shelf registration pursuant to the Registration Rights Agreement is suspended or
terminated and not maintained effective for a period of at least 365 days or
such shorter period at the end of which all securities covered by such shelf
registration have been sold pursuant thereto, Starwood Mezzanine has the right
to request that the Trust file an additional shelf registration statement and
keep such subsequent shelf registration effective for a period equal to 365 days
less the number of days during which the initial shelf registration was
effective. Starwood Mezzanine shall not have the right to cause the Trust to
register its Class A Shares prior to (i) one year from the date of the
Registration Rights Agreement; or (ii) such time as Starwood Mezzanine exercises
the Class A Warrant for at least 2,000,000 Class A Shares.
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<PAGE>
Holders of Units will be entitled to exercise registration rights without
first having to actually effect the exchange of Units for Class A Shares. No
such exchange shall be required until the applicable registration statement
shall have been declared or ordered "effective" by the SEC and the holder of the
Units shall have elected to exchange for Class A Shares pursuant to such
registration.
Starwood Mezzanine also has rights, subject to certain exemptions and
limitations, to request that the Trust include such Class A Shares in other
registrations of Class A Shares by the Trust under the Securities Act
("Incidental Registrations").
All expenses incident to such registrations (other than underwriting
discounts and selling commissions and fees and expenses of counsel to the
selling holders) are to be borne by the Trust subject to reimbursement for
certain expenses by the Partnership. See "Partnership Proposal -- Reimbursement
of the General Partner."
The Registration Rights Agreement specifies certain times during which a
registration of Class A Shares cannot be initiated, including (i) the 90-day
period after a registration of Class A Shares has been declared effective, (ii)
the 90-day period after Starwood Mezzanine delivers a demand for registration
that is not withdrawn and (iii) if the Trust notifies Starwood Mezzanine that
the Trust is promptly planning to register equity securities.
The Trust has the right to delay any public offering of Class A Shares
pursuant to the Registration Rights Agreement for a period of up to 90 days, if
the Trust determines that an earlier sale would require premature disclosure of,
or interfere with, certain Partnership transactions. In such event, the number
of days the registration statement must be kept effective shall be extended to
the period equal to the number of days the registration statement is not
available because of the Trust's determination. Furthermore, if the
underwriters used in connection with a public offering in an Incidental
Registration, advise the Trust that marketing factors require a limitation on
the number of Class A Shares to be sold at a given time, the size of such
offering may be reduced by decreasing the number of Class A Shares to be sold by
Starwood Mezzanine.
The Trust has agreed to indemnify Starwood Mezzanine and certain other
persons against certain liabilities, including liabilities under the Securities
Act, and to contribute to payments that Starwood Mezzanine may be required to
make in respect thereof. Starwood Mezzanine has agreed to indemnify the Trust
and certain other persons against certain limited liabilities, including limited
liabilities under the Securities Act, and to contribute to payments that the
Trust may be required to make in respect thereof; provided that such liability
shall not exceed the gross proceeds from the applicable offering received by
Starwood Mezzanine.
POSSIBLE FUTURE EXCLUSIVITY
Initially, the Trust will not be required to operate exclusively through
the Partnership and, thus, will not have any obligation to contribute more than
the cash necessary to acquire its initial interest in the Partnership (and
thereafter, to contribute such cash as is necessary for the Trust to maintain at
least a 1% interest in the total contributed capital from time to time to the
Partnership). However, in the event that Starwood Mezzanine exercises the Class
A Warrant for at least 2,000,000 Class A Shares, the Board of Trustees shall
have the right to cause the Trust to contribute up to substantially all of the
Trust's theretofore uncontributed assets to the Partnership for additional
interests therein and, following any such contribution, to cause the Trust to
agree to henceforth conduct all of its real estate-related investment activities
exclusively through the Partnership, said contribution and agreement to be on
such terms and subject to such conditions as the Board of Trustees may then
approve. SAHI will not be required to operate exclusively through the Trust or
the Partnership and will not be restrained from competing with the Trust and the
Partnership other than as described herein. See "-- The Partnership -- Operation
of the Partnership." SAHI owns numerous debt and equity interests and intends to
acquire additional debt and equity interests in which neither the Trust nor the
Partnership shall have any interest. Starwood Mezzanine will not be obligated to
contribute any capital to the Partnership other than the Certificates.
REIMBURSEMENT OF THE GENERAL PARTNER
Except for costs and expenses incurred by the Trust to administer the
Partnership and its properties, without the prior written consent of Starwood
Mezzanine, the Partnership shall not be responsible for reimbursing the Trust
for, and shall not reimburse the Trust for, any REIT Expenses or REIT Compliance
Expenses (as defined below), including, without limitation, any of the Trust's
overhead and expenses (including, without limitation, those incurred to meet
public company reporting requirements), (i) with respect to REIT Expenses, for a
period ending two (2) years from the date hereof or on such earlier date on
which (A) Starwood Mezzanine shall seek to register any Shares received by it in
exchange for its Units or (B) the Trust has contributed substantially all of its
theretofore uncontributed assets to the Partnership in accordance with Section
4.1(e), (ii) with respect to REIT Compliance Expenses, for a period ending two
(2) years from the date hereof or on such earlier date on which Starwood
Mezzanine shall seek to register any shares received by it in exchange for its
Units. Thereafter, the Partnership shall reimburse the Trust for REIT Expenses
and REIT Compliance Expenses incurred after the end of said period.
"REIT Compliance Expenses" include costs and expenses associated with
the preparation and filing of any required periodic reports by the Trust and
costs and expenses associated with compliance by the Trust with laws, rules and
regulations promulgated by any regulatory body, including the SEC. "REIT
Expenses" include costs and expenses relating to the continuity of existence of
the Trust and Registration Expenses. "Registration Expenses" mean all expenses
incurred in connection with any registration, filing, or qualification of the
Shares with respect to which Starwood Mezzanine has registration rights. See
the "Glossary" for a more detailed definition of the foregoing terms.
ADJUSTMENTS TO OWNERSHIP PERCENTAGES OF PARTNERSHIP
The Trust's ownership in the Partnership shall be increased from time to
time in the event that, subsequent to the Closing Date, the Trust contributes to
or for the benefit of the Partnership additional cash or non-cash assets (other
than amounts necessary to preserve at least a 1% interest for the Trust in the
total contributed capital to the Partnership from time to time) and said
interest shall also increase as and when Units are exchanged for Class A Shares
or are redeemed by the Partnership. The percentage of increase in the Trust's
interest in the Partnership on exchange or redemption of a Unit shall equal the
percentage interest in the Partnership that such Unit represents. The Trust's
ownership percentage in the Partnership shall be decreased (but never below 1%)
by reason of additional cash or non-cash contributions made by Starwood
Mezzanine, SAHI or new partners of the Partnership, with any dilution resulting
in such decrease to be borne by the Trust and by the other partners in
proportion to their ownership percentages prior to such additional
contributions. See "- The Partnership - Operation of the Partnership" for
restrictions on contributions to the partnership by the SAHI Group. From and
after the Closing Date, any contributions of cash or non-cash assets by Starwood
Mezzanine or other partners shall require the approval of the Trust and shall
consist of assets consistent with the preservation of the Trust's status as a
REIT.
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FEDERAL INCOME TAX ASPECTS OF THE PARTNERSHIP
1. GENERAL.
In general, partnerships are "pass-through" entities that are not subject
to federal income tax. Rather, partners are allocated their proportionate shares
of the items of income, gain, loss, deduction and credit of a partnership, and
are subject to tax thereon, without regard to whether the partners receive a
distribution from the partnership. The Trust will include in its income its
allocable share of the foregoing partnership items for purposes of the various
REIT income tests and in the computation of its REIT taxable income. Moreover,
for purposes of the REIT asset tests, the Trust will include its proportionate
share of assets held by the Partnership. The Certificates are "real estate
assets" for purposes of the Code requirements that REITs have at least 75% of
their assets be comprised of real estate assets, cash and cash items and
government securities.
2. ENTITY CLASSIFICATION.
The Trust's interest in the Partnership involve special tax considerations,
including the possibility of a challenge by the IRS of the status of the
Partnership as a partnership (as opposed to an association taxable as a
corporation) for federal income tax purposes. If the Partnership were to be
treated as an association, it would be taxable as a corporation and, therefore,
subject to an entity level tax on its income. Such an entity level tax would
substantially reduce the amount of cash available for distribution to holders of
Class A Shares. In addition, if the Partnership were to be taxable as a
corporation, the character of the Trust's assets and items of gross income would
change and could preclude the Trust from satisfying the asset tests and possibly
the income tests under the Code, which in turn would prevent the Trust from
qualifying as a REIT. Furthermore, any change in the status of the Partnership
for tax purposes might be treated as a taxable event in which case the Trust
might incur a tax liability without any related cash distributions.
An organization formed as a partnership will be treated as a partnership
for federal income tax purposes rather than as a corporation only if it has no
more than two of the four corporate characteristics that the applicable Treasury
Regulations use to distinguish a partnership from a corporation for federal
income tax purposes. The Trust has not requested nor does it intend to request a
ruling from the IRS that the Partnership will be treated as a partnership for
federal income tax purposes. Instead, Katten Muchin & Zavis will deliver its
opinion that, based on the provisions of the Partnership's partnership
agreement, and certain factual assumptions and representations described in the
opinion, the Partnership will be classified as a partnership for federal income
tax purposes. Unlike a private letter ruling, an opinion of counsel is not
binding on the IRS, and no assurance can be given that the IRS will not
challenge the status of the Partnership as a partnership for federal income tax
purposes. If such a challenge were sustained by a court, the Partnership could
be treated as an association taxable as a corporation for federal income tax
purposes. In addition, the opinion of Katten Muchin & Zavis is based on existing
law, which is to a great extent the result of administrative and judicial
interpretation. No assurance can be given that administrative or judicial
changes would not modify the conclusions expressed in the opinion.
3. PARTNERSHIP ALLOCATIONS.
Although a partnership agreement will generally determine the allocation of
income and losses among partners, such allocations will be disregarded for tax
purposes if they do not comply with the provisions of Section 704(b) of the Code
and the Treasury Regulations promulgated thereunder. Generally, Section 704(b)
of the Code and the Treasury Regulations promulgated thereunder require that
partnership allocations must respect the economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The Partnership's allocations of
taxable income and loss are intended to comply with the requirements of Section
704(b) of the Code and the Treasury Regulations promulgated thereunder.
4. TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES.
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and
do not affect the book capital accounts or other economic or legal arrangements
among the partners. The Partnership will be formed by way of contributions of
cash from the Trust and of the Certificates by Starwood Mezzanine.
Consequently, the
53
<PAGE>
partnership agreement for the Partnership requires that allocations with respect
to contributed property be made in a manner consistent with Section 704(c) of
the Code.
Under the operation of Section 704(c), in general, the partners of the
Partnership will be allocated depreciation deductions for tax purposes that are
different than such deductions would be if determined on a pro rata basis. In
the event of the disposition of any contributed assets that have a Book-Tax
Difference, all income attributable to such Book-Tax Difference will generally
be allocated to the contributing partner, and other partners will generally be
allocated only their share of capital gains attributable to appreciation, if
any, occurring after the contribution. The foregoing allocations will tend to
eliminate the Book-Tax Difference over the life of the Partnership. However, the
special allocation rules of Section 704(c) of the Code do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Partnership may cause the Trust to be
allocated lower depreciation and other deductions, and possibly an amount of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause the Trust to recognize taxable income in excess of cash proceeds, which,
in the case of the Trust, might adversely affect the Trust's ability to comply
with the REIT distribution requirements. The foregoing principles also apply in
determining the earnings and profits of the Trust for purposes of determining
the portion of distributions taxable as dividend income. The application of
these rules over time may result in a higher portion of distributions being
taxed as dividends than would have occurred had the Trust purchased the
contributed assets at their agreed values.
The Treasury Regulations under Section 704(c) of the Code allow
partnerships to use several different methods of accounting for Book-Tax
Differences so that the contributing partner receives the tax benefits and
burdens of any built-in gain or loss associated with the contributed property.
The Trust has determined that the Partnership shall use the "traditional method"
(which is specifically approved in the Treasury Regulations) for accounting for
Book-Tax Differences with respect to the Certificates initially contributed to
the Partnership. The Trust has not determined which of the alternative methods
of accounting for Book-Tax Differences will be elected with respect to any
properties contributed to the Partnership in the future.
5. SALE OF THE PARTNERSHIP'S PROPERTY.
Generally, any gain realized by a partnership on the sale of property held
by it for more than one year will be long-term capital gain, except for any
portion of such gain that is treated as (i) depreciation recapture with respect
to real estate, (ii) original issue discount or market discount with respect to
certain debt investments and (iii) certain other items expected to be minor in
amount. However, the Trust's share of any gain realized by the Partnership on
the sale of any property held by the Partnership as inventory or other property
held primarily for sale to customers in the ordinary course of the Partnership's
trade or business will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. Such prohibited transaction income may also
have an adverse effect upon the Trust's ability to satisfy the income tests for
qualification as a REIT. Under existing law, whether property is held as
inventory or primarily for sale to customers in the ordinary course of business
is a question of fact that depends on all the facts and circumstances with
respect to the particular transaction. The Partnership intends to hold its
assets for investment, with occasional sales of assets, as are consistent with
the Partnership's and the Trust's investment objectives.
6. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CLASS A SHARES.
The formation and initial capitalization of the Partnership will not result
in the recognition of gain or loss to the holders of the Class A Shares.
7. OTHER TAX CONSEQUENCES.
The Trust and the holders of Class A Shares may be subject to state or
local taxation in various jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Trust and
the holders of the Class A Shares may not conform to the federal income tax
consequences discussed above. CONSEQUENTLY, HOLDERS OF CLASS A SHARES SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS
ON THE FORMATION AND CAPITALIZATION OF THE PARTNERSHIP.
The Board of Trustees recommends that you vote FOR approval of the
Partnership Proposal.
<PAGE>
ANGELES PARTICIPATING MORTGAGE TRUST
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1996
and Pro Forma Consolidated Statements of Operations for the six months ended
June 30, 1996 and the year ended December 31, 1995 have been prepared to reflect
the contribution of the Certificates to the Partnership created concurrently
with and as condition to the contribution. The Trust will own a 7.76% interest
(subject to adjustment) in the Partnership with the remaining 92.24% (subject to
adjustment) owned by the minority investor. The Trust will account for the
Partnership on the consolidated basis. The unaudited pro forma financial
information should be read in conjunction with the historical financial
statements of the Trust. The unaudited Pro Forma Consolidated Balance Sheet was
prepared as if the contribution occurred on June 30, 1996 and the Pro Forma
Consolidated Statements of Operations were prepared as if the contribution has
occurred on January 1, 1995. The unaudited pro forma financial information is
not necessarily indicative of the results which actually would have occurred if
the contribution had occurred on the dates described, nor does it purport to
represent the Trust's future financial position or results of operations.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Consolidated
------------ ----------- ------------
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 814,000 $ 814,000
Investments 987,000 987,000
Mortgages and Certificates of Participation $4,757,000(1) 4,757,000
Other receivables 6,000 6,000
Other assets $ 125,000 $ 125,000
------------ ---------- ------------
Total assets $ 1,932,000 $4,757,000 $ 6,889,000
============ ========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 33,000 $ 33,000
------------ ------------
Total liabilities 33,000 33,000
------------ ------------
Minority Interest $4,757,000(2) 4,757,000
Shareholders' equity:
Class A Shares (2,550,000 shares issued and
outstanding, $1.00 par value, unlimited shares authorized) 2,550,000 2,550,000
Class B Shares (1,275,000 shares issued and
outstanding, $.01 par value unlimited shares authorized) 13,000 13,000
Additional paid in capital 42,329,000 42,329,000
Accumulated undistributed net realized gain from
sale of mortgage 2,545,000 2,545,000
Accumulated distributions in excess of cumulative
net income other than gain from sale of mortgages (45,538,000) (45,538,000)
------------ ------------
Total shareholders' equity 1,899,000 1,899,000
Total liabilities and shareholders' equity $ 1,932,000 $4,757,000 $ 6,689,000
============ ========== ============
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
The pro forma adjustments are to reflect the contribution of the Certificates
and formation of the Partnership.
1. Reflects the contribution of the Certificates with a face value of
$5,105,000 and a net book value of $4,757,000 to the Partnership.
2. Reflects Starwood Mezzanine's 92.24% minority interest in the Partnership.
The 92.24% minority interest is computed based on the contribution
described above and a $400,000 cash contribution by the Trust to the
Partnership.
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND THE YEAR ENDED
DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 Year Ended December 31, 1995
-------------------------------------------- ---------------------------------------
Pro Forma Pro Forma
Historical Adjustments Consolidated Historical Adjustments Consolidated
---------- ----------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Interest income from
other investments $ 29,000 $ 29,000 $ 148,000 $ 148,000
Interest income from
certificates of
participation $ 294,000(1) 294,000 $ 623,000(1) 623,000
--------- --------- --------- --------- --------- ---------
Total revenue 29,000 294,000 323,000 148,000 623,000 771,000
--------- --------- --------- --------- --------- ---------
Costs and expenses:
General and
administrative expenses 285,000 4,000(2) 289,000 283,000 7,000(2) 290,000
--------- --------- --------- --------- --------- ---------
Total costs and expense 285,000 4,000 289,000 283,000 7,000 290,000
--------- --------- --------- --------- --------- ---------
Net Income (loss) before
minority interest (256,000) 290,000 (34,000) (135,000) 616,000 481,000
Minority Interest (267,000)(3) (267,000) (568,000)(3) (568,000)
--------- --------- --------- --------- --------- ---------
Net Income $(256,000) $ 23,000 $(233,000) $(135,000) $ 48,000 $ (87,000)
========= ========= ========= ========= ========= =========
Net Income (loss) per
Class A Share $ (0.10) $ 0.01 $ (0.09) $ (0.05) $ 0.02 $ (0.03)
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
1. Reflects interest income generated from the Certificates contributed to the
Partnership. Such amount includes amortization of the discount of $139,000
and $63,000 for the year ended December 31, 1995 and the six months ended
June 30, 1996, respectively, using the effective interest method which
results in a yield of 12% to the Partnership.
2. Represents the estimated incremental general and administrative expenses
associated with the operations of the newly formed Partnership.
3. Reflects Starwood Mezzanine's 92.24% minority interest in the
Partnership.
<PAGE>
APT LIMITED PARTNERSHIP
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited Pro Forma Balance Sheet as of June 30, 1996 and Pro
Forma Statements of Operations for the six months ended June 30, 1996 and the
year ended December 31, 1995 have been prepared to reflect the formation of the
Partnership. The Trust will own a 7.76% interest (subject to adjustment) in the
Partnership with the remaining 92.24% (subject to adjustment) owned by the
minority investor. The unaudited pro forma financial information should be read
in conjunction with the historical financial statements of the Trust. The
unaudited Pro Forma Balance Sheet was prepared as if the formation and the
contributions of the Certificates and cash occurred on June 30, 1996 and the Pro
Forma Statements of Operations were prepared as if the formation and
contributions had occurred on January 1, 1995. The unaudited pro forma financial
information is not necessarily indicative of the results which actually would
have occurred if the formation and contributions had occurred on the dates
described, nor does it purport to represent the Partnership's future financial
position or results of operations.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
Pro Forma
----------
ASSETS
<S> <C>
Cash and cash equivalents $ 400,000(1)
Mortgages and Certificates of Participation 4,757,000(2)
----------
Total assets $5,157,000
==========
PARTNERS' CAPITAL
Partners' capital:
General Partner $ 400,000(1)
Limited Partner $4,757,000(2)
----------
Total partners' capital $5,157,000
==========
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
The pro forma financial statements reflect those of the Partnership as of
June 30, 1996 and the six months ended June 30, 1996 and December
31, 1995, respectively.
1. Reflects cash contributed to the Partnership by the General Partner.
2. Reflects the contribution of the Certificates with a face value of
$5,105,000 and a net book value of $4,757,000 to the Partnership which will
be classified as held to maturity. The Limited Partner's capital
contribution is equal to the value of their contribution. The Certificates
require that the unpaid principal balance is due and payable in 2004,
although the holder of the Certificates has the option to require repayment
of the outstanding principal on November 30, 1999.
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND
THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Revenue:
Interest income from certificates of participation $294,000(1) $623,000(1)
-------- --------
Total revenue 294,000 623,000
-------- --------
Costs and expenses:
General and administrative expenses 4,000(2) 7,000(2)
-------- --------
Total costs and expense 4,000 7,000
-------- --------
Net Income $290,000 $616,000
======== ========
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
1. Reflects interest income generated from the Certificates contributed to the
Partnership. Such amount includes amortization of the discount of $139,000
and $63,000 for the year ended December 31, 1995 and the six months ended
June 30, 1996, respectively, using the effective interest method which
results in a yield of 12% to the Partnership.
2. Represents the estimated incremental general and administrative expenses
associated with the operations of the newly formed Partnership.
54
<PAGE>
TRUSTEES' INCENTIVE PLAN PROPOSAL
If the Warrant Proposal, the Trust Amendments Proposals and the Partnership
Proposal are approved and the named nominees are elected to the Board of
Trustees, the Board will ask the Shareholders to consider and vote upon a
proposal to approve the Angeles Participating Mortgage Trust 1996 Trustees'
Share Incentive Plan (the "Trustees' Plan").
The Trustees' Plan as proposed is set forth as Exhibit F to this Proxy
Statement and the description of the Trustees' Plan contained herein is
qualified in its entirety by reference to Exhibit F.
ADOPTION OF THE APEX PROPERTY TRUST 1996 TRUSTEES' SHARE INCENTIVE PLAN
Subject to the approval of the Shareholders, the Board of Trustees approved
the adoption of the Trustees' Plan. Shareholder approval of the Trustees' Plan
is sought to qualify the Trustees' Plan pursuant to Rule 16b-3 under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and
thereby render certain transactions under the Trustees' Plan exempt from certain
provisions of Section 16 of the Exchange Act or as otherwise specified by the
Board of Trustees. The Trustee Plan complies with and shall be subject to all
other applicable provisions of Rule 16b-3 under the Act.
GENERAL
All Trustees who are not officers or employees of the Trust are eligible to
participate in the Trustees' Plan. There are currently three Trustees eligible
to participate in the Trustees' Plan, Messrs. Chisholm, Sternlicht and McDonald.
If elected as Trustees, Messrs. Grose, Sugarman and Gorab will also be eligible
Trustees. The purpose of Trustees' Plan is to promote the overall financial
objectives of the Trust and its Shareholders by motivating eligible Trustees to
achieve long-term growth in Shareholder equity in the Trust and to retain the
association of these individuals. The Trustees' Plan will be administered by the
Audit and Compensation Committee, unless the Board of Trustees establishes a
committee whose sole purpose is the administration of the Trustees' Plan (in any
case, the "Trustees' Plan Committee"). A member of the Trustees' Plan Committee
will not exercise any discretion respecting himself or herself under the
Trustees' Plan.
The Trustee's Plan permits the issuance of awards in the form of non-
qualified stock options only.
Up to 50,000 shares of the Class A Shares (approximately 0.66% of the
outstanding Class A Shares) are reserved and available upon exercise of the
options granted under the Trustees' Plan. In the discretion of the Trustees'
Plan Committee, Class A Shares subject to options under the Trustees' Plan that
remain unissued upon termination of such option shall become available for
additional awards under the Trustees' Plan. In the event of a share dividend,
share split, recapitalization, sale of substantially all of the assets of the
Trust, reorganization or other similar event, the Trustees' Plan Committee will
adjust the aggregate number of Class A Shares subject to options under the
Trustees' Plan and the number, class and price of such shares. On August 27,
1996, the closing price of a Class A Share as reported on AMEX was $1.00 per
share.
The Board of Trustees or Trustees' Plan Committee may amend, alter or
discontinue the Trustees' Plan at any time, but no such amendment, alteration
or discontinuation can be made which would impair the rights of a participant
under an option theretofore granted without the
55
<PAGE>
participant's consent, except such an amendment made (a) to avoid an expense
charge to the Trust or an Affiliate, (b) to cause the Plan to qualify for the
exemption provided by Rule 16b-3 or (c) permit the Trust or an Affiliate a
deduction under the Code. Any amendment is subject to Shareholder approval, if
required by applicable law. Any amendment by the Trustees' Plan Committee is
subject to approval of the Board of Trustees. The Trustees' Plan Committee may
amend the terms of any award granted under the Trustees' Plan, subject to the
consent of a participant if such amendment impairs the rights of such
participant.
STOCK OPTIONS
Each participant who is an eligible Trustee on the effective date of the
Trustees' Plan shall receive options to purchase Class A Shares, as follows:
(i) on the effective date, an option to purchase 1,000 Class A Shares, and (ii)
on each anniversary date of the effective date, an option to purchase 1,000
Class A Shares. Each participant who is not a Trustee on the effective date
shall receive options to purchase Class A Shares, as follows: (i) on the date
of joining the Board of Trustees, an option to purchase 1,000 Class A Shares,
and (ii) on each anniversary date of joining the Board of Trustees, an option to
purchase 1,000 Class A Shares. No participant may be granted options if such
grant would cause any one Trustee to possess in the aggregate unexercised
options to purchase more than 5,000 Class A Shares.
Options may be granted under the Trustees' Plan from time to time in
substitution for awards held by employees, trustees or service providers of
other entities who are about to become Trustees of the Trust or an Affiliate.
The terms and conditions of the options so granted may vary from the terms and
conditions set forth in the Trustees' Plan at the time of such grant as the
majority of the members of the Trustees' Plan Committee may deem appropriate to
conform, in whole or in part, to the provisions of the awards in substitution
for which they are granted.
The Committee may grant only non-qualified stock options to the
participants. Options granted under the Trustees' Plan will provide for the
purchase of Class A Shares at the Fair Market Value on the date the option is
granted. Fair Market Value means the closing price per share for each Class A
Share on the relevant date, as reported by AMEX. No option shall be exercisable
later than the tenth anniversary date of its grant.
Options granted under the Trustees' Plan shall be exercisable at such times
and subject to such terms and conditions as set forth in the Trustees' Plan and
as the Trustees' Plan Committee shall determine or provide in an option
agreement. Except as provided in any option agreement, options may only be
transferred under the laws of descent and distribution or pursuant to a
qualified domestic relations order (if applicable). Options shall be exercisable
only by the participant during such participant's lifetime. The option exercise
price is payable by the participant in cash, in Class A Shares having a Fair
Market Value equal to the exercise price, a combination of cash and such shares
or by evidence of debt. In addition, subject to the discretion of the Trustees'
Plan Committee, the Trust may at the request of the participant (i) lend to the
participant an amount equal to such portion of the option price as the Trustees'
Plan Committee may determine; or (ii) guarantee a loan obtained by the
participant from a third-party for the purpose of tendering the option price.
The terms and conditions of any such loan or guarantee, including the term,
interest rate, and any security interest thereunder, shall be determined by the
Trustees' Plan Committee, except that no extension of credit or guarantee shall
obligate the Trust
56
<PAGE>
for an amount to exceed the lesser of the following: (i) the aggregate Fair
Market Value on the date of exercise of the shares to be purchased upon exercise
of the option less the aggregate par value of such shares, or (ii) the amount
permitted under applicable laws or the regulations and rules of the Federal
Reserve Board and any other governmental agency having jurisdiction.
The Trustees' Plan Committee may also allow, along with other means of
exercise, cashless exercise as permitted under the Federal Reserve Board's
Regulation T, subject to applicable securities laws. In addition, the
participant may exercise the option by certifying ownership of Class A Shares
for future delivery. If a participant ceases to be a Trustee due to death or
disability, all outstanding options shall be exercisable for the shorter of
their remaining term or one year after termination as a Trustee, and a
participant's death subsequent to a disability shall not affect the foregoing.
If a participant involuntarily ceases to be a Trustee (other than due to death,
disability or as a result of termination for cause), all outstanding options
shall be exercisable for the shorter of their remaining terms or three months.
If a participant voluntarily ceases to be a Trustee or is terminated as a result
of cause, all of the outstanding options shall terminate immediately. The
termination provisions in the Trustees' Plan are subject to an option agreement
or as the Trustees' Plan Committee may otherwise determine.
Upon receipt of a notice from a participant to exercise an option, the
Trustees' Plan Committee may elect to cash out all or part of any option to be
so exercised by paying to the participant, in cash or Class A Shares, the
following amount: (i) the excess of the fair market value per share of the
Class A Shares subject to the unexercised option over the exercise price per
share of such option, multiplied times (ii) the number of Class A Shares subject
to the option.
Upon the occurrence of a Change in Control Event, the Trustee's Plan
Committee may provide, among other things, that all unexercised options shall
become immediately exercisable. A Change in Control Event is generally defined
in the Trustees' Plan to include (i) an acquisition by any person or entity
(other than the SAHI Group) of 30% of the Trust's shares, (ii) the approval by
the Shareholders of a merger, consolidation, liquidation or dissolution of the
Trust (if such transaction would result in any person or entity owning 30% of
the Trust's shares), unless such transactions involve affiliates of the Trust.
In addition, the Trustees' Plan Committee may also provide that options may be
cancelled or purchased by the Trust upon a Change in Control Event.
DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES
The following summary of tax consequences with respect to the stock option
issued under the Trustees' Plan is not comprehensive and is based upon laws and
regulations in effect as of the date of this Proxy Statement. Such laws and
regulations are subject to change.
The options will be "non-qualified" stock options issued in connection with
the recipient's performance of services. There are generally no Federal income
tax consequences either to the optionee or to the Trust upon the grant of the
option. On the exercise of the non-qualified stock option, the amount by which
the fair market value of the shares on the date of exercise exceeds the option
exercise price will generally be taxable to the optionee as compensation income
and will generally be deductible for tax purposes by the Trust. The
dispositions of shares acquired upon exercise of a non-qualified stock option
will generally result in a capital gain or loss for the optionee, but will have
no tax consequences for the Trust. In the event any payments or rights accruing
to a participant upon a Change in Control
57
<PAGE>
Event, or any other payments awarded under the Trustees' Share Plan, constitute
"parachute payments" under Section 280G of the Code, depending upon the amount
of such payments and the other income of the participant from the Trust, the
participant may be subject to an excise tax (in addition to ordinary income tax)
and the Trust may be disallowed a deduction for the amount of the actual
payment. Various payroll taxes may apply at the time the employee receives
compensation and income.
AWARDS UNDER THE TRUSTEES' PLAN
No stock options have as yet been granted under the Trustees' Plan. The
benefits to be received by participants in the Trustees' Plan are not currently
determinable, nor can the benefits which would have been received for 1994 or
1995, if the Trustees' Plan had then been in effect, be determined. Without the
prior approval of Starwood Mezzanine's limited partners during any period in
which Starwood Mezzanine shall have an interest in either the Trust or the
Partnership, none of the SAHI Group may receive options or awards under the
Trustees' Plan.
RECOMMENDATION REGARDING THE TRUSTEES' PLAN
The Board of Trustees recommends that you vote FOR approval of the Angeles
Participating Mortgage Trust 1996 Trustees' Share Incentive Plan.
EMPLOYEES' INCENTIVE PLAN PROPOSAL
If the Trustees' Plan is approved, the Board will ask the Shareholders to
consider and vote upon a proposal to approve the Angeles Participating Mortgage
Trust 1996 Share Incentive Plan (the "Employees' Plan").
The Employees' Plan as proposed is set forth as Exhibit G to this Proxy
Statement and the description of the Employees' Plan contained herein is
qualified in its entirety by reference to Exhibit G.
ADOPTION OF THE APEX PROPERTY TRUST 1996 SHARE INCENTIVE PLAN
Subject to the approval of the Shareholders, the Board of Trustees approved
the adoption of the Employees' Plan. Shareholder approval of the Employees' Plan
is sought (i) to qualify the Employees' Plan pursuant to Rule 16b-3 under the
Exchange Act, and thereby render certain transactions under the Employees' Plan
exempt from certain provisions of Section 16 of the Exchange Act or as otherwise
specified by the Board of Trustees, and (ii) qualify the Employees' Plan under
Section 162(m) of the Code, and thereby allow the Trust to deduct for Federal
income tax purposes all compensation paid to named officers of the Trust. The
Employees' Plan complies with and shall be subject to all other applicable
provisions of Rule 16b-3 under the Exchange Act.
GENERAL
The persons eligible to participate in the Employees' Plan shall be
officers, trustees, employees, independent contractors and other service
providers of (i) the Trust, (ii) any parent, subsidiary or affiliate of the
Trust, and (iii) any entity which provides services to the Trust and which, in
the opinion of Employees' Plan Committee (as defined), contributes to the growth
and success of the Trust. There are currently three officers (two of whom are
also Trustees) and no other employees of the Trust who are eligible to
participate in the Employees' Plan. The purpose of the Employees' Plan is to
promote the overall financial objectives of the Trust and its Shareholders by
motivating eligible Trustees to achieve long-term growth in Shareholder equity
in the Trust and to retain the association of these individuals. The Employees'
Plan will be administered by the Audit and Compensation Committee, unless the
Board of Trustees establishes a committee whose sole purpose is the
administration of the Employees' Plan (in
58
<PAGE>
any case, the "Employees' Plan Committee"). The Employees' Plan Committee shall
be comprised of such number of independent Trustees as is required for
application of Rule 16b-3 under the Act. A member of the Employees' Plan
Committee will not exercise any discretion respecting himself or herself under
the Employees' Plan.
The Employees' Plan is a flexible plan that will provide the Employees'
Plan Committee broad discretion to fashion the terms of the awards to provide
eligible participants with share-based incentives as the Employees' Plan
Committee deems appropriate. It will permit the issuance of awards in a variety
of forms, including: (i) non-qualified and incentive share options for the
purchase of Class A Shares, (ii) Class A Share appreciation rights ("SARs"),
(iii) restricted Class A Shares (the "Restricted Shares"), and (iv) deferred
Class A Shares (the "Deferred Shares"). Each of the awards may be granted alone
or in addition to other awards.
Awards may be granted under the Employees' Plan from time to time in
substitution for awards held by employees, directors, trustees or service
providers of other entities who are about to become officers, directors,
trustees or employees of the Trust or an Affiliate. The terms and conditions of
the awards so granted may vary from the terms and conditions set forth in the
Employees' Plan at the time of such grant as the majority of the members of the
Employees' Plan Committee may deem appropriate to conform, in whole or in part,
to the provisions of the awards in substitution for which they are granted.
The Employees' Plan provides for the grant of up to 377,500 shares of the
Class A Shares or approximately 15% of the currently outstanding Class A Shares
and 5% of the outstanding Class A Shares if the Class A Warrant is fully
exercised. In the discretion of the Employees' Plan Committee, Class A Shares
subject to an award under the Employees' Plan that remain unissued upon
termination of such award shall become available for additional awards under the
Employees' Plan. In the event of a share dividend, share split,
recapitalization, sale of substantially all of the assets of the Trust,
reorganization or other similar event, the Employees' Plan Committee will adjust
the aggregate number of Class A Shares subject to the Employees' Plan and the
number, class and price of such shares subject to outstanding awards. On
August 27, 1996, the closing price of a Class A Share as reported on AMEX was
$1.00 share.
The Board of Trustees or Employees' Plan Committee may amend, alter or
discontinue the Employees' Plan at any time, but no such amendment, alteration
or discontinuance can be made which would impair the rights of a participant
under an award theretofore granted without the participant's consent, except
such an amendment made (a) to avoid an expense charge to the Trust or an
Affiliate, (b) to cause the Plan to qualify for the exemption provided by Rule
16b-3 or (c) permit the Trust or an Affiliate a deduction under the Code. Any
amendment is subject to Shareholder approval, if required by applicable law. Any
amendment by the Employees' Plan Committee is subject to approval of the Board
of Trustees. The Employees' Plan Committee may amend the terms of any award
granted under the Employees' Plan subject to the consent of a participant if
such amendment impairs the rights of such participant.
AWARDS UNDER THE EMPLOYEES' PLAN
STOCK OPTIONS. The Employees' Plan Committee shall determine the number of
Class A Shares subject to the options to be granted to each participant. During
any calendar year, options to purchase
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no more than 125,833 Class A Shares shall be granted to any participant. The
Employees' Plan Committee may grant non-qualified stock options, incentive stock
options or a combination thereof to the participants. An incentive stock option
means any option intended to be and designated as an "incentive stock option"
within the meaning of Section 422 of the Code. A non-qualified stock option
means any option other than an "incentive stock option" within the meaning of
the Code. Only persons who on the date of the grant are employees of the Trust
or its parent or any subsidiary of the Trust may be granted options which
qualify as incentive stock options. Options granted under the Employees' Plan
will provide for the purchase of Class A Shares at prices determined by the
Employees' Plan Committee. If an option is intended to qualify as an incentive
stock option, the option price shall not be less than 100% of the Fair Market
Value thereof on the date the option is granted or where options are granted to
an individual who owns Class A Shares possessing more than 10% of the combined
voting power of all classes of shares of the Trust or its parent or any
subsidiary of the Trust, the option price shall not be less than 110% of Fair
Market Value. No non-qualified stock options shall be exercisable later than the
fifteenth anniversary date of its grant. No incentive stock option shall be
exercisable later than the tenth anniversary date of its grant. In the case of
an incentive stock option granted to a participant who owns 10% of the combined
voting power of all classes of shares of the Trust or its parent or any
subsidiary of the Trust, no incentive stock option shall be exercisable later
than the fifth anniversary date of its grant. No incentive stock option shall be
granted later than the tenth anniversary date of the adoption of the Employees'
Plan or its approval by the Shareholders of the Trust, whichever is earlier.
Options granted under the Employees' Plan shall be exercisable at such
times and subject to such terms and conditions set forth in the Employees' Plan
and as the Employees' Plan Committee shall determine or provide in an option
agreement. Except as provided in any option agreement, options may only be
transferred under the laws of descent and distribution or pursuant to a
qualified domestic relations order (if applicable). Options shall be exercisable
only by the participant during such participant's lifetime. The option exercise
price is payable by the participant (i) in cash, (ii) in shares of Class A
Shares having a Fair Market Value equal to the exercise price, (iii) by delivery
of evidence of indebtedness, (iv) by authorizing the Trust to retain Class A
Shares having a Fair Market Value equal to the exercise price, (v) by "cashless
exercise" as permitted under the Federal Reserve Board's Regulation T, (vi) by
certifying ownership of Class A Shares for future delivery or (vii) by any
combination of the foregoing. In addition, subject to the discretion of the
Employees' Plan Committee, the Trust may at the request of the participant: (i)
lend to the participant, with recourse, an amount equal to such portion of the
option price as the Employees' Plan Committee may determine; or (ii) guarantee a
loan obtained by the participant from a third-party for the purpose of tendering
the option price. The terms and conditions of any such loan or guarantee,
including the term, interest rate, and any security interest thereunder, shall
be determined by the Employees' Plan Committee, except that no extension of
credit or guarantee shall obligate the Trust for an amount to exceed the lesser
of the following: (i) the aggregate Fair Market Value on the date of exercise of
the shares to be purchased upon exercise of the option less the aggregate par
value of such shares, or (ii) the amount permitted under applicable laws or the
regulations and rules of the Federal Reserve Board and any other governmental
agency having jurisdiction.
Upon termination of a participant's employment with the Trust due to death
or disability, all unexercised options shall be exercisable for the shorter of
their remaining term or one year after termination of employment, and a disabled
participant's subsequent death shall not affect the foregoing. If a participant
retired or involuntarily ceases to be an employee of the Trust (other than due
to death, disability or as a result of termination for cause), all unexercised
options shall be exercisable for the shorter of their remaining terms or three
months after termination of employment. If a participant voluntarily ceases to
be an employee of the Trust (other than due to retirement) or is terminated as a
result of cause, all of the outstanding options shall terminate immediately. The
termination provisions
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in the Employees' Plan for unexercised options are subject to an option
agreement or as the Employees' Plan Committee may otherwise determine.
Upon receipt of a notice from a participant to exercise an option, the
Employees' Plan Committee may elect to cash out all or part of any such option
by paying the participant, in cash or Class A Shares, the following amount: (i)
the excess of the Fair Market Value per share of the Class A Shares subject to
the unexercised option over the exercise price per share of the option,
multiplied times (ii) the number of shares for which the option is to be
exercised.
SHARE APPRECIATION RIGHTS. A SAR shall entitle a participant to receive
Class A Shares, cash or a combination thereof. If granted in conjunction with an
option, the exercise of a SAR shall require the cancellation of the
corresponding portion of the option, and the exercise of the option shall
require the cancellation of the corresponding portion of the SAR. SARs may be
granted on or after the corresponding grant of non-qualified stock options, but
only at the same time as the corresponding grant of incentive stock options. The
Employees' Plan Committee in its discretion shall determine the number of SARs
awarded to a participant, but in no event shall more than 125,833 SARs be
granted to any participant during any calendar year. The Employees' Plan
Committee shall determine the terms and conditions of any SAR. The terms and
conditions shall be confirmed in and be subject to an agreement between the
Trust and the participant. If granted in conjunction with options, the SAR shall
be exercisable for and during the same period as the corresponding options. Upon
exercise of a SAR, a participant shall receive an amount in cash, Class A Shares
or both equal to (i) the excess of the Fair Market Value per share of the Class
A Shares over the option price per share (if the SAR is granted in conjunction
with an option), multiplied by (ii) the number of Class A Shares subject to the
SAR. In the case of a SAR granted on a stand alone basis, the Employees' Plan
Committee shall determine in its discretion the value to be used in lieu of the
option price. It is presently contemplated that such value shall not be less
than 100% of the Fair Market Value of Class A Shares at the time of the grant of
the SAR. In no event shall a SAR granted in tandem with an incentive stock
option be exercised unless the Fair Market Value of the Class A Shares at the
time of the exercise exceeds the option price. With respect to participants who
are subject to Section 16(b) of the Act (generally officers and trustees of the
Trust), the Employees' Plan Committee may require that the SARs be exercised in
compliance with Rule 16b-3, including the restriction that a SAR shall not be
exercisable within the first six months of its term. The transferability and
termination provisions of a SAR are as set forth above with respect to stock
options.
RESTRICTED SHARES. The Employees' Plan Committee in its discretion shall
determine the persons to whom Restricted Shares shall be granted, the number of
Restricted Shares to be granted to each participant, the period for which
Restricted Shares are restricted, and any other restrictions to which the
Restricted Shares are subject. The Employees' Plan Committee may condition the
award of Restricted Shares on such performance goals and other criteria as it
may determine. The terms and conditions of the Restricted Shares shall be
confirmed in and subject to an agreement between the Trust and the participant.
During the restriction period, the Employees' Plan Committee may require that
the certificates evidencing the Restricted Shares be held by the Trust. During
the restriction period, the Restricted Shares may not be sold, assigned,
transferred, pledged or otherwise encumbered. Other than the foregoing
restrictions imposed by the Employees' Plan Committee, the participant shall
have all the rights of a holder of Class A Shares. If a participant's
employment terminates during the restriction period due to death or disability,
the restrictions on the Restricted Shares shall lapse. If a participant's
employment shall terminate for any other reason, the remaining Restricted Shares
shall be forfeited by the participant to the Trust. The termination provisions
for Restricted Shares are subject to the Restricted Share agreement or as the
Employees' Plan Committee may otherwise determine.
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DEFERRED SHARES. The Employees' Plan Committee in its discretion shall
determine the persons to whom Deferred Shares shall be granted, the number of
Deferred Shares to be granted to each participant, the duration of the period
prior to which Deferred Shares will be delivered, the conditions under which
receipt of the Deferred Shares will be deferred, and any other terms and
conditions of the granting of the award. The terms and conditions of the
Deferred Shares shall be confirmed in and subject to an agreement between the
Trust and the participant. The Employees' Plan Committee may condition the
award of Deferred Shares on such performance goals and criteria that it may
determine. During the deferral period, the Deferred Shares may not be sold,
assigned, transferred, pledged or otherwise encumbered. At the expiration of
the deferral period, the Employees' Plan Committee may deliver to the
participant the Deferred Shares, cash equal to the Fair Market Value of the
Deferred Shares or a combination thereof. Cash dividends on Deferred Shares
shall be automatically deferred and reinvested in Deferred Shares, and shared
dividends on Deferred Shares shall be paid in the form of Deferred Shares. If a
participant's employment terminates during the deferred period due to death or
disability, the deferred restrictions shall lapse. If a participant's
employment terminates for any other reason, the remaining Deferred Shares shall
be forfeited by the participant to the Trust. The termination provisions for
the Deferred Shares are subject to the Deferred Share agreement or as the
Employees' Plan Committee may otherwise determine.
CHANGES IN CONTROL
Upon the occurrence of a Change in Control Event, the Employees' Plan
Committee may provide, among other things, that: (i) all unexercised stock
options and SARs shall become immediately exercisable, (ii) all restrictions on
the Restricted Shares and deferrals on the Deferred Shares shall lapse; or (iii)
all awards may be cancelled or purchased by the Trust.
DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES
The following summary of tax consequences with respect to the awards
granted under the Employees' Plan is not comprehensive and is based upon laws
and regulations in effect as of the date of this Proxy Statement. Such laws and
regulations are subject to change.
STOCK OPTIONS. There are generally no Federal income tax consequences
either to the optionee or to the Trust upon the grant of a stock option. On
exercise of an incentive stock option, the optionee will not recognize any
income and the Trust will not be entitled to a deduction for tax purposes,
although such exercise may give rise to liability for the optionee under the
alternative minimum tax provisions of the Code. Generally, if the optionee
disposes of shares acquired upon exercise of an incentive stock option within
two years of the date of grant or one year of the date of exercise, the optionee
will recognize compensation income and the Trust will be entitled to a deduction
for tax purposes in the amount of the excess of the fair market value of the
shares on the date of exercise over the option exercise price (or the gain on
sale, if less). Otherwise, the Trust will not be entitled to any deduction for
tax purposes upon disposition of such shares, and the entire gain for the
optionee will be treated as a capital gain. On exercise of a non-qualified stock
option, the amount by which the fair market value of the shares on the date of
exercise exceeds the option exercise price will generally be taxable to the
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optionee as compensation income and will generally be deductible for tax
purposes by the Trust. The dispositions of shares acquired upon exercise of a
non-qualified stock option will generally result in a capital gain or loss for
the optionee, but will have no tax consequences for the Trust.
SHARE APPRECIATION RIGHTS. Upon the grant of a SAR, the participant will
not recognize any taxable income and the Trust will not be entitled to a
deduction. Upon the exercise of a SAR, the consideration paid to the participant
upon exercise of the SAR will constitute compensation taxable to the participant
as ordinary income. In determining the amount of the consideration paid to the
participant upon the exercise of SAR for Class A Shares, the fair market value
of the Shares on the date of exercise is used, except that in the case of a
participant subject to the six month short swing profit recovery provision of
Section 16(b) of the Act (generally officers and trustees of the Trust) ("16(b)
Persons"), the fair market value will be determined six months after the date on
which the SAR was granted (if such date is later than the exercise date) unless
such participant elects to be taxed based on the fair market value at the date
of exercise. Any such election (a "Section 83(b) election") must be made and
filed with the Internal Revenue Service within 30 days after exercise in
accordance with the regulations under Section 83(b) of the Code. The Trust, in
computing its Federal income tax, will be entitled to a deduction in an amount
equal to the compensation taxable to the participant.
RESTRICTED SHARES. A participant who is granted Restricted Shares may make
a Section 83(b) election to have the grant taxed as compensation income at the
date of receipt, with the result that any future appreciation (or depreciation)
in the value of the shares granted shall be taxed as capital gains (or loss)
upon a subsequent sale of the shares. However, if the participant does not make
a Section 83(b) election, then the grant shall be taxed as compensation income
at the full fair market value on the date that the restrictions imposed on the
shares expire, except in the case of a 16(b) Person in which case the fair
market value will be determined six months after the date in which the
Restricted Shares were granted (if such date is later than the expiration date
of the restriction). Unless a participant makes a Section 83(b) election, any
dividends paid on stock subject to the restrictions are compensation income to
the participant and compensation expense to the Trust. The Trust is entitled to
an income deduction for any compensation income taxed to the participant,
subject to the 162(m) limitation on the deductibility of non-performance based
compensation in excess of $1,000,000 to the named officers. Restricted Shares
granted under the Incentive Plan will not qualify as performance based
compensation under Section 162(m).
DEFERRED SHARES. A recipient of an award of Deferred Shares will not
recognize taxable income until the applicable deferral period has expired and
the recipient is in receipt of the shares subject to the award or an equivalent
amount of cash, at which time he will recognize compensation income equal to the
full fair market value of the shares on such date or the amount of cash paid to
him. The Trust, in computing its Federal income tax will be entitled to a
deduction in an amount equal to the compensation taxable to the recipient of an
award at the time the deferral period expires, subject to the Section 162(m)
limitation on the deductibility of non-performance based compensation in excess
of $1,000,000 to the named officers. Deferred Shares granted under the
Incentive Plan will not qualify as performance-based compensation under Section
162(m).
In the event any payments or rights accruing to a participant upon a Change
in Control Event, or any other payments awarded under the Employees' Plan,
constitute "parachute payments" under Section 280G of the Code, depending upon
the amount of such payments accruing and the other income of the participant
from the Trust, the participant may be subject to an excise tax (in addition to
ordinary income tax) and the Trust may be disallowed a deduction for the amount
of the actual payment. Various payroll taxes may apply at the time the employee
receives compensation.
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AWARDS UNDER THE EMPLOYEES' PLAN
No awards have as yet been granted under the Employees' Plan. The benefits
to be received by participants in the Employees' Plan are not currently
determinable, nor can the benefits which would have been received for 1995, if
the Employees' Plan had then been in effect, be determined. Without the prior
approval of Starwood Mezzanine's limited partners during any period in which
Starwood Mezzanine shall have an interest in either the Trust or the
Partnership, none of the SAHI Group may receive options or awards under the
Employees' Plan.
RECOMMENDATION REGARDING THE EMPLOYEES INCENTIVE PLAN PROPOSAL
The Board of Trustees recommends that you vote FOR approval of the Angeles
Participating Mortgage Trust 1996 Share Incentive Plan.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP served as the Trust's independent auditors for the
fiscal year ended December 31, 1995. Since the formation of the Trust, such
firm or its predecessor, Deloitte Haskins & Sells, acted as independent auditors
to the Trust. Deloitte & Touche LLP has been selected by the Board of Trustees
to continue to serve as independent auditors to the Trust for the fiscal year
ending December 31, 1996, subject to the ratification by the Shareholders.
There have been no disagreements between the Trust and Deloitte & Touche LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures during the last fiscal year. The
Trust expects a member of Deloitte & Touche LLP to attend the Annual Meeting to
make a statement, if he or she desires, and to respond to appropriate questions.
RECOMMENDATION REGARDING RATIFICATION OF THE APPOINTMENT OF DELOITTE &
TOUCHE LLP
The Board of Trustees recommends that you vote FOR ratification of this
appointment.
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GLOSSARY
"ADVISOR" means a person or entity to whom the Trustees may delegate
certain management duties relating to the Trust and its assets.
"AFC" means Angeles Funding Corporation, a California corporation, who
previously owned all of the Class B Shares and was formerly the Advisor of the
Trust.
"AFFILIATE" means with respect to the Advisor, a Shareholder, or Trustee
(i) any Person directly or indirectly owning, controlling, or holding, with
power to vote, 5% or more of the outstanding voting securities of the Advisor or
such Shareholder, (ii) any Person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held, with power to
vote, by the Advisor, such Trustee, or such Shareholder, and (iii) any officer,
director, or partner of the Advisor or such Shareholder.
"AFFILIATED BORROWERS" means the partnerships, limited partnerships,
corporations, and other entities or Persons organized or managed by the Advisor
or its Affiliates, which are the obligors under the Trust Loans made or acquired
by the Trust or for which the Trust provides financial assistance, such as by
letters of credit or guarantees.
"AMEX" means the American Stock Exchange.
"ANGELES" means Angeles Corporation, a California corporation, the
corporation which originally formed the Trust.
"BORROWER" means those affiliate or unaffiliated Persons which are the
recipients of Trust Loans, guarantees, letters of credit or other financing
arrangements.
"CERTIFICATES" mean the mortgage participation certificates and/or proceeds
thereof to be contributed by Starwood Mezzanine to the Partnership in exchange
for its initial limited partnership interest in the Partnership.
"CHANGE IN CONTROL EVENT" means the happening of any of the following
events:
(a) (i) An acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person"),
other than the SAHI Group, of the beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of the then outstanding
Shares (the "Outstanding Shares") or the combined voting power of the then
outstanding voting securities of the Trust entitled to vote generally in
the election of trustees (the "Outstanding Trust Voting Securities") or
(ii) the approval by the shareholders of the Trust of a reorganization,
merger, consolidation, complete liquidation or dissolution of the Trust,
the sale or disposition of all or substantially all of the assets of the
Trust or similar trust transaction (in each case referred to as a "Trust
Transaction") or, if consummation of such Trust Transaction is subject, at
the time of such approval by shareholders, to the consent of any government
or governmental agency, the obtaining of such consent (either explicitly or
implicitly); provided such acquisition of beneficial ownership or such
Trust Transaction would result in any Person's beneficially owning (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) 30% or more
of the Outstanding Shares or 30% or more of the Outstanding Trust Voting
Securities; excluding, however, the following: (i) any acquisition by or
consummation of a Trust Transaction with the Trust or an Affiliate, or by
an employee benefit plan (or related trust) sponsored or maintained by the
Trust, (ii) the acquisition by or consummation of a Trust Transaction with
any Person who beneficially owned, immediately prior to September 26, 1996,
directly or indirectly, 30% or more of
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the Outstanding Shares or Outstanding Trust Voting Securities, (iii) an
acquisition by or consummation of a Trust Transaction with the SAHI Group
or (iv) any acquisition or Trust Transaction, if more than 70% of the
beneficial ownership of the entity resulting from the acquisition or Trust
Transaction is held by persons who held more than 70% of the beneficial
ownership of the Outstanding Shares or Outstanding Trust Voting Securities
before the acquisition or Trust Transaction; or
(b) A change in the composition of the Board such that the individuals
who, as of September 26, 1996, constitute the Board (such Board shall be
hereinafter referred to as the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual who becomes a member of the Board subsequent to September 26,
1996 and whose election, or nomination for election by the Trust's
shareholders, was approved by a vote of at least a majority of those
individuals who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the Incumbent Board;
but, provided, further, that any such individual whose initial assumption
of office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board shall not be so considered as a member of the Incumbent Board.
"CLASS A SHAREHOLDERS" means, at any particular time, those Persons who are
shown as the holders of record of all Class A Shares on the records of the Trust
at such time.
"CLASS B SHAREHOLDERS" means, at any particular time, those Persons who are
shown as the holders of record of all Class B Shares on the records of the Trust
at such time.
"CLASS A SHARES" means the shares of beneficial interest of the Trust
designated as Class A Shares with a par value of $1.00 per share.
"CLASS B SHARES" means the shares of beneficial interest of the Trust
designated as Class B Shares with a par value of $0.01 per share.
"CLASS A WARRANT" means the Class A Share Purchase Warrant issued on March
15, 1994 to SAHI Partners, and subsequently assigned to Starwood Mezzanine, for
the right to purchase 5,000,000 Class A Shares at $1.00 per share.
"CLASS B WARRANT" means the Class B Share Purchase Warrant issued on March
15, 1994 to SAHI, Inc. for the right to purchase 2,500,000 Class B Shares at
$.01 per share.
"CLOSING DATE" means the date of formation and capitalization of the
Partnership.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, including successor statutes thereto.
"CONTINGENT CLAIMS TRUST" means the trust in which the Trust has held most
of its assets since November 1993 as a reserve against any potential contingent
claims, which trust was terminated on August 12, 1996.
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"DECLARATION OF TRUST" means the declaration of trust of the Trust.
"DIVERSIFIED PORTFOLIO" is defined under "PROXY STATEMENT SUMMARY --
Changes in the Business Plan" and "WARRANT PROPOSAL -- SAHI Business Plan."
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE RIGHTS AGREEMENT" means the Exchange Rights Agreement proposed to
be entered into by the Trust and Starwood Mezzanine granting Starwood Mezzanine
the right to exchange its Units for Class A Shares, cash or a combination
thereof.
"FINANCIAL ADVISOR" means Chanin Capital Partners, Inc., a California
corporation.
"FORMATION AGREEMENT" means the agreement proposed to be entered into by
the Trust and Starwood Mezzanine setting forth the terms and conditions upon
which the Partnership will be formed and capitalized.
"GROSS PROCEEDS" means the aggregate total of the original Capital
Contributions of all the Shareholders.
"MORTGAGES" means mortgages, deeds of trust, or other security instruments
on real property or rights or interests in real property or entities owning or
controlling real property.
"NET ASSETS" means the Total Assets of the Trust Estate after deducting
therefrom any liabilities of the Trust except that depreciable assets shall be
included therein at the lesser of either (i) the cost of such assets on the
books of the Trust before provision for depreciation, amortization, and
depletion, or (ii) the fair market value of such assets in the judgment of the
Trustees.
"NET CASH" means, for a period, the interest earned on investments and
deposits made by the Trust and operating revenues of the Trust received during
such period, plus cash proceeds from Dispositions, plus reserves set aside
during prior periods pursuant to clause (iii) below which are no longer
necessary as reserves, less (i) all operating expenses of the Trust (as more
fully defined in the Declaration of Trust), other than any expenses previously
reserved against pursuant to (iii) below of the Trust paid during such period,
plus all fees and reimbursements payable to the Trustees, the Advisor, including
all incentive fees and compensation, and their Affiliates, (ii) all payments
made during such period to discharge Trust indebtedness, (iii) all amounts
established as reserves during such period, (iv) all amounts expended during
such period for the replacement or preservation of Trust assets, or any part
thereof, to the extent not previously reserved, and (v) all amounts reinvested
in new Trust Loans and other investments.
"PARTNERSHIP" means APT Limited Partnership, a Delaware limited partnership
of which the Trust will become the sole general partner and Starwood Mezzanine
will become the initial limited partner.
"PARTNERSHIP AGREEMENT" means the Partnership Agreement of APT Limited
Partnership proposed to be entered into by the Trust and Starwood Mezzanine.
"PERSON" means any individual, partnership, corporation, association,
trust, or other entity.
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"REGISTRATION EXPENSES" shall mean all expenses incurred in connection
with any registration, filing, or qualification of the Shares with respect to
which Starwood Mezzanine has registration rights, including all registration,
filing and National Association of Securities Dealers, Inc. fees, all fees and
expenses of complying with securities or blue sky laws, all printing expenses,
messenger and delivery expenses, the reasonable fees and disbursements of
counsel for the Trust and of the independent public accountants for the Trust,
including the expenses of "cold comfort" letters required by or incident to such
performance and compliance, but excluding underwriting discounts and commissions
relating to such securities and all fees and expenses of counsel for Starwood
Mezzanine.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
proposed to be entered into by the Trust and Starwood Mezzanine pursuant to
which Starwood Mezzanine will be granted the right to cause the Trust to,
subject to certain limitations and restrictions, register the Class A Shares
issued upon exchange of Starwood Mezzanine's Units and Class A Shares issued
upon exercise of the Class A Warrant.
"REIT" means a real estate investment trust as defined under the Code.
"REIT COMPLIANCE EXPENSES" shall mean (a) costs and expenses associated
with the preparation and filing of any periodic reports by the Trust under
federal, state or local laws or regulations, including filings with the SEC, (b)
costs and expenses associated with compliance by the Trust with laws, rules and
regulations promulgated by any regulatory body, including the SEC, and (c) costs
and expenses incurred in connection with the listing of the Shares on the
American Stock Exchange or any other national securities exchange or national
market system.
"REIT EXPENSES" shall mean (a) costs and expenses relating to the
continuity of existence of the Trust, including taxes (other than the Trust's
federal and state income and franchise taxes, if any), fees and assessments
associated therewith, any and all costs, expenses or fees payable to any
director or trustee of the Trust, (b) to the extent funded by the Trust for
payment by the Partnership, costs and expenses relating to any offer or
registration of securities by the Trust the net proceeds of which are to be
contributed or loaned to the Partnership and all statements, reports, fees and
expenses incidental thereto, including underwriting discounts, selling
commissions and placement fees applicable to any such offer of securities, and
(c) Registration Expenses.
"REIT REQUIREMENTS" mean the requirements for the Trust to (a) qualify as a
REIT under the Code and (b) avoid any federal income or excise tax liability.
"REIT Requirements" also include the ownership limitation provisions set forth
in Section 6.13 of the Declaration of Trust.
"SAHI" refers collectively to SAHI Partners, SAHI, Inc. and Starwood
Mezzanine.
"SAHI BUSINESS PLAN" is defined under "WARRANT PROPOSAL--SAHI Business
Plan."
"SAHI GROUP" refers collectively to SAHI Partners, SAHI, Inc., Starwood
Mezzanine, the SAHI Nominees or any of their affiliates.
"SAHI, INC." means SAHI, Inc., a Delaware corporation, which owns the Class
B Warrant.
"SAHI NOMINEES" refers to Messrs. Sternlicht, Grose, Sugarman and Gorab who
are nominees to the Board of Trustees.
"SAHI PARTNERS" means SAHI Partners, a Delaware general partnership, which
currently owns 9.57% of the outstanding Class A Shares and all of the
outstanding Class B Shares.
"SEC" means the Securities Exchange Commission.
"SECURITIES" means common and preferred stock in a corporation, shares of
beneficial interest in a trust or other unincorporated association, general
partner interests in a general partnership, interests in a joint venture,
general or limited partnership interests in a limited partnership, notes,
debentures, bonds, and other evidences of indebtedness, including Mortgages,
whether secured or unsecured, and includes any options, warrants, and rights to
subscribe to or convert into any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHAREHOLDERS" means, at any particular time, the Class A Shareholders, the
Class B Shareholders, and all other holders of record of outstanding shares of
the Trust on the records of the Trust at such time.
"SHAREHOLDERS AGREEMENT" means that certain Restated Shareholders Agreement
dated as of March 15, 1994, restated as of April 27, 1994 and amended as of
March 15, 1996 by and among SAHI, Inc., SAHI Partners, Starwood Mezzanine and
the Trust.
"SHARES" means the Class A Shares, the Class B Shares, and all other shares
of beneficial interest of the Trust issued as provided herein.
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"STARWOOD" means Starwood Capital Group, L.P., a Delaware limited
partnership, which is the general partner of the investment partnerships
comprising or which own substantially all of the beneficial interest in SAHI.
"STARWOOD MEZZANINE" means Starwood Mezzanine Investors, L.P., a Delaware
limited partnership, which is the owner of the Class A Warrant and which will
become the initial limited partner of the Partnership.
"TOTAL ASSETS OF THE TRUST ESTATE" means the value of all of the assets of
the Trust Estate as such value appears on the most recent balance sheet of the
Trust available to the Trustees without deduction for mortgage loans or other
security interests to which such assets are subject and before provision for
depreciation, depletion, amortization, and provision for bad debt loss and
similar reserves.
"TRUST" means Angeles Participating Mortgage Trust.
"TRUSTEES" means, as of any particular time, the Persons holding such
office under this Declaration at such time, whether they be the Trustees named
herein or additional or successor Trustees, but shall not include the officers,
representatives, or agents of the Trust or the Shareholders, although nothing
herein shall be deemed to preclude the Trustees from also serving as officers,
representatives, or agents of the Trust or from owning Shares.
"TRUST ESTATE" means, as of any particular time, any and all property,
real, personal, or otherwise, tangible or intangible, which is held,
transferred, conveyed, or paid to the Trust or the Trustees on behalf of the
Trust and all rents, income, profits, and gains therefrom.
"TRUST LOANS" means the notes, debentures, bonds, and other evidences of
indebtedness or obligations acquired or entered into by the Trust which are
secured or collateralized by personal property or fee or leasehold interests in
real estate or other assets, including, but not limited to, first mortgage
loans, junior mortgage loans, construction loans, development loans, equipment
loans, loans secured by general or limited partnership interests, capital stock,
or any other assets or form of equity interest or guarantee of the Borrower or
an Affiliate and any other type of loan or financial arrangement, such as
providing or arranging for letters of credit, providing guarantees of
obligations to third parties, or providing commitments for Trust Loans.
"UBTI" means unrelated business taxable income.
"UNITS" means the units of the partnership evidencing partnership interests
in the Partnership.
OTHER MATTERS
NO APPRAISAL OR DISSENTER'S RIGHTS
Under California law, Shareholders are not entitled to any statutory
dissenter's rights to appraisal of their Class A Shares or Class B Shares in
connection with the Warrants Proposal, Trust Amendments Proposal or the
Partnership Proposal.
ANNUAL REPORTS ON FORM 10-K AND QUARTERLY REPORTS ON FORM 10-Q
The Trust's Annual Report on Form 10-K for the year ended December 31,
1995, as filed with the Securities and Exchange Commission, contains detailed
information concerning the Trust and its
69
<PAGE>
operations and is attached hereto as Exhibit I. The Trust's quarterly reports on
Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996 are attached
hereto as Exhibits J and K, respectively.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1997 Annual Meeting
must be sent in writing, by certified mail, return receipt requested, to the
Trust at its principal office, addressed to the Secretary of the Trust, and must
be received by the Trust not later than January 31, 1997 for inclusion in the
1997 proxy materials.
SOLICITATION PROCEDURES
Officers and regular employees of the Trust, without extra compensation,
may solicit the return of proxies by mail, telephone, telegram or personal
interview. Certain holders of record, such as brokers, custodians and nominees,
are being requested to distribute proxy materials to beneficial owners and to
obtain such beneficial owners' instructions concerning the voting of proxies.
As a result of SAHI's decision not to proceed with the change in the
Trust's investment focus as proposed in the Preliminary Proxy, SAHI reimbursed
to the Trust $29,000 for legal expenses incurred in connection with the
preparation of the 1994 Preliminary Proxy. Except for this reimbursement, all
of the costs relating to this Proxy Statement will be paid by the Trust.
OTHER MATTERS
The management of the Trust does not intend to bring any other matters
before the Annual Meeting and knows of no other matters that are likely to come
before the meeting. In the event any other matters properly come before the
Annual Meeting, the persons named in the accompanying proxy will vote the shares
represented by such proxy in accordance with their best judgment on such
matters.
The Trust urges you to submit your vote on the accompanying proxy card by
completing, signing, dating and returning it in the accompanying postage-paid
return envelope at your earliest convenience, whether or not you presently plan
to attend the meeting in person.
By Order of the Board of Trustees
Ann Merguerian
Secretary of the Trust
Westlake Village, California
September 5, 1996
70
<PAGE>
EXHIBIT A
THIS WARRANT WAS ORIGINALLY ISSUED ON MARCH 15, 1994 AND SUCH ISSUANCE WAS NOT
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS
WARRANT MAY NOT BE TRANSFERRED IN VIOLATION OF SECTION 6 HEREOF. THIS WARRANT
MAY ONLY BE TRANSFERRED IF REGISTERED UNDER THE ACT UNLESS, IN THE OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, SUCH REGISTRATION IS UNNECESSARY
FOR SUCH TRANSFER TO COMPLY WITH THE ACT.
ANGELES PARTICIPATING MORTGAGE TRUST
CLASS A SHARE PURCHASE WARRANT
------------------------------
Date of Issuance: March 15, 1994 Certificate No. W-001
FOR VALUE RECEIVED, Angeles Participating Mortgage Trust, a California
business trust (the "Company"), hereby grants to SAHI Partners, a Delaware
general partnership, or any transferee permitted by Section 6 hereof (the
"Holder") the right to purchase from the Company 5,000,000 shares of the
Company's Class A Shares (the "Class A Shares") at a price per share of $1.00
(the "Exercise Price").
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Holder may exercise, in whole or in part
---------------
(but not as to a fractional Class A Share) the purchase rights represented by
this Warrant at any time and from time to time after the next annual
shareholders meeting of the Company occurring after the date hereof (the "Annual
Meeting"); provided, however, that the purchase rights represented by this
Warrant (i) may be exercised only if the shareholders of the Company shall have
approved the issuance of this Warrant and the issuance of any Class A Shares
hereunder at the Annual Meeting (the "Approval") and (ii) must be exercised, if
at all, on or before that date which is 120 days subsequent to the date of the
Annual Meeting.
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C
below and substantially in the form set forth in Exhibit I hereto, executed
---------
by the Person exercising all or any part of the purchase rights represented
by this Warrant (the "Purchaser");
(b) this Warrant;
<PAGE>
(c) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
----------
evidencing the assignment of this Warrant to the Purchaser, in which case
the Holder shall have complied with the provisions set forth in Section 6
and Section 7 hereof;
(d) a cashiers check payable to the Company or wire transfer of
immediately available funds to an account designated by the Company in an
amount equal to the product of the number of Class A Shares being purchased
upon such exercise multiplied by the Exercise Price (the "Aggregate
Exercise Price"); and
(e) at the Company's option, the opinion described in Section 10
below.
(ii) Certificates for Class A Shares purchased upon exercise of this
Warrant shall be delivered by the Company to the Purchaser within five business
days after the date of the Exercise Time. Unless this Warrant has expired or
all of the purchase rights represented hereby have been exercised, the Company
shall prepare a new Warrant, substantially identical hereto, representing the
rights formerly represented by this Warrant which have not expired or been
exercised and shall within such five-day period, deliver such new warrant to the
Holder.
(iii) The Class A Shares issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Class A Shares at the Exercise Time.
(iv) The issuance of certificates for Class A Shares upon exercise
of this Warrant shall be made without charge to the Holder or the Purchaser for
costs incurred by the Company in connection with such exercise and the related
issuance of Class A Shares. Each Class A Share issuable upon exercise of this
Warrant shall upon payment of the Exercise Price therefor, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any Class A Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Class A Shares
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price.
(vi) The Company shall assist and cooperate with the Holder or any
Purchaser required to make any governmental filings or obtain any governmental
approvals prior to or in connection with any exercise of this Warrant
(including, without limitation, making any filings required to be made by the
Company).
-2-
<PAGE>
(vii) The Company shall take all such actions as may be necessary to
assure that all such Class A Shares may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which Class A Shares may be listed (except for official
notice of issuance which shall be immediately delivered by the Company upon each
such issuance); and
(viii) Upon the exercise of this Warrant, the Class A Shares shall
only be issued in the name of SAHI Partners or a transferee permitted by Section
6 hereof.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement substantially in the form set forth in Exhibit I hereto shall
---------
be executed by the Purchaser or transferee permitted by Section 6 hereof. Such
Exercise Agreement shall be dated the actual date of execution thereof.
Section 2. Liquidating Dividends. If the Company declares or pays a
---------------------
dividend upon the Class A Shares payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles, consistently applied) except for a share dividend payable in Class A
Shares (a "Liquidating Dividend"), then the Company shall pay to the Holder at
the time of payment thereof the Liquidating Dividend which would have been paid
to such Holder on the Class A Shares had this Warrant been fully exercised
immediately prior to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the record holders of
Class A Shares entitled to such dividends are to be determined.
Section 3. Purchase Rights. If at any time the Company grants, issues
---------------
or sells any Options, Convertible Securities or rights to purchase stock,
shares, warrants, securities or other property pro rata to the record holders of
any class of its shares (the "Purchase Rights"), then the Holder shall be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which Holder could have acquired if Holder had held
the number of Class A Shares acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Class A Shares are to be determined for the grant,
issue or sale of such Purchase Rights.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
"Convertible Securities" means any stock, shares or securities
----------------------
(directly or indirectly) convertible into or exchangeable or exercisable for
Class A Shares.
"Options" means any rights or options to subscribe for or purchase
-------
Class A Shares or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
-3-
<PAGE>
Section 5. No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision hereof, in the absence of affirmative
action by the Holder to purchase Class A Shares, and no enumeration herein of
the rights or privileges of the Holder shall give rise to any liability of such
Holder for the Exercise Price of Class A Shares acquirable by exercise hereof or
as a shareholder of the Company.
Section 6. Warrant Transferability. This Warrant and all rights
-----------------------
hereunder are not transferable, in whole or in part, without the Company's prior
written consent, which consent shall not be unreasonably withheld or delayed as
to any transfer to an affiliate of SAHI Partners. Upon such consent, any
transfer of this Warrant, in whole or in part, shall be effected upon surrender
of this Warrant with a properly executed Assignment (in the form of Exhibit II
----------
hereto) at the principal office of the Company. Each transferee of all or any
part of this Warrant, by taking and holding the same, consents to and agrees to
be bound by the provisions of this Warrant.
Section 7. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Holder at the time
of such surrender. The date the Company initially issues this Warrant shall be
deemed to be the "Date of Issuance" hereof regardless of the number of times new
certificates representing the unexpired and exercised rights formerly
represented by this Warrant shall be issued. All Warrants representing portions
of the rights hereunder are referred to herein as the "Warrants."
Section 8. Consideration. The consideration received by the Company
-------------
for this Warrant is the sum of $100,000 cash, receipt of which is hereby
acknowledged by the Company, which amount will be applied against the first
$100,000 of the Aggregate Exercise Price for Class A Shares purchased pursuant
hereto. If the Approval is not received at the Annual Meeting, the Company shall
promptly refund to the Holder the consideration described in this Section 8 and,
following such remittance, this Warrant shall be of no further force and effect.
Any new Warrants issued pursuant hereto shall not require the payment of any
additional consideration.
Section 9. Pre-Exercise Covenants of the Company. The Company, acting
-------------------------------------
through its trustees, shall, in accordance with applicable law:
(i) duly call, give notice of, convene and hold the Annual Meeting
as soon as practicable following the date hereof. At such Annual Meeting the
Company will submit to its shareholders a proposal relating to the issuance of
this Warrant and the Class A Shares exercisable hereunder for their approval;
and
(ii) include in the proxy statement distributed to shareholders
prior to the Annual Meeting the recommendation of the trustees that the
shareholders of the Company vote to approve the proposal relating to the
issuance of this Warrant and the Class A Shares exercisable hereunder, unless
the trustees shall have determined in good faith that such
-4-
<PAGE>
recommendation could reasonably be expected to be a breach of the trustees'
fiduciary duties under applicable law.
Section 10. Fairness Opinion. The Company shall have the right, as a
----------------
condition to the first issuance of any Class A Shares pursuant to this Warrant,
to obtain an opinion from a qualified, independent third party which may include
the Company's outside auditors (the "Appraiser") as to the fairness of the terms
and provisions of this Warrant to the Company and its shareholders. In such
circumstance, if the Appraiser, for any reason, is unable to issue an opinion
that the terms and provisions of this Warrant are fair to the Company and its
stockholders, then the consideration described in Section 8 hereof shall be
promptly returned to the Holder and, following such remittance, this Warrant
shall terminate and be of no further force and effect. The cost to obtain such
opinion shall be shared equally by the Company and the Holder; provided,
however, that the Holder shall not be obligated to pay more than $25,000 toward
the aggregate cost of obtaining such opinion and any opinion regarding the Class
B Warrant originally issued to SAHI, Inc. on March 15, 1994.
Section 11. Representations of the Company. The Company hereby
------------------------------
represents and warrants that (i) this Warrant and the issuance of Class A Shares
upon exercise hereof have been unanimously approved by the Company's trustees
subject only to obtaining the Approval and (ii) neither the authorization or
issuance of this Warrant, nor the issuance of the Class A Shares upon the
exercise thereof, violates the Company's Declaration of Trust or any other
document, agreement, statute, rule, regulation, judgment, decree or order to
which the Company or any of its assets or properties is subject.
Section 12. Share Legends. Each certificate issued for Class A Shares
-------------
pursuant hereto or issued in exchange or substitution for any certificates so
issued shall bear the following legend, unless at the time of issuance of the
certificate the shares represented by such certificate are registered under the
Securities Act of 1933, as amended (the "Act") or the Company has been provided
with an opinion of counsel which shall be reasonably satisfactory in form and
substance to the Company, to the effect that the Class A Shares are no longer
restricted securities under the Act:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and they may not be sold or
offered for sale in the absence of an effective registration statement
under that Act as to said securities or an opinion, in form and substance
satisfactory to the Company and given by counsel satisfactory to the
Company, that such registration is not required. The securities which are
evidenced by this certificate were purchased under a warrant dated March
15, 1994 issued by the Company and are benefitted by and subject to the
terms and conditions of such warrant.
Section 13. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Holder shall be satisfactory)
of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing this Warrant, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon
-5-
<PAGE>
surrender of such certificate, the Company shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed, or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 14. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or three days after being deposited in the U.S. Mail (i) to the Company, at its
principal executive offices and (ii) to the Holder, at the Holder's address as
it appears in the records of the Company (unless otherwise indicated by the
Holder).
Section 15. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of this Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Holders of Warrants representing a majority of the Class A Shares obtainable
upon exercise of this Warrant.
Section 14. Descriptive Headings; Governing Law. All questions
-----------------------------------
concerning the construction, validity, enforcement and interpretation of this
Warrant shall be governed by the internal law of the State of California,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of California or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of
California.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its seal and to be dated as
of the date of issuance hereof.
ANGELES PARTICIPATING MORTGAGE
TRUST
By:/s/ Ronald J. Consiglio
--------------------------
Its:President
-------------------------
[Trust Seal]
Attest:
/s/ Ann Merguerian
- ----------------------------
Title:Secretary
----------------------
-7-
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To:_________________________ Dated:___________________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-______), hereby agrees to subscribe for and purchase
_________ Class A Shares covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
The undersigned is acquiring such Class A Shares for its own account, for
investment purposes only, and not with a view towards the sale or other
distribution thereof, in whole or in part. The undersigned understands that the
Class A Shares issued pursuant to the Warrant have not been registered under the
Securities Act of 1933, as amended.
Signature:___________________________________
Address: ___________________________________
___________________________________
___________________________________
-8-
<PAGE>
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, __________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-________) with respect to the number of shares of the
Class A Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------------- -------------------------- ---------------------
Dated:------------------------ Signature:________________________________
Address: ________________________________
________________________________
________________________________
-9-
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, SAHI PARTNERS hereby sells, assigns and transfers all
of the rights of the undersigned under the attached Warrant (Certificate No. W-
001) with respect to the number of shares of the Class A Shares covered thereby
set forth below, unto:
Names of Assignee Address No. of Shares
- ---------------------------------- -------------------- -----------------
Starwood Mezzanine Investors, L.P. Three Pickwick Plaza 5,000,000
Suite 250
Greenwich, CT 06830
Dated as of: March 15, 1996 Signature: /s/ MADISON F. GROSE
---------------------------
Address: Three Pickwick Plaza
Suite 250
Greenwich, CT 06830
ACKNOWLEDGEMENT OF ASSIGNMENT
-----------------------------
Angeles Participating Mortgage Trust hereby acknowledges and consents to
the foregoing assignment of the Warrant by SAHI Partners to Starwood Mezzanine
Investors, L.P. and acknowledges that the assignment has been effected in
accordance with Section 6 of the Class A Share Purchase Warrant.
ANGELES PARTICIPATING MORTGAGE TRUST
/s/ RONALD J. CONSIGLIO
----------------------------------
By: Ronald J. Consiglio, President
<PAGE>
Chanin Capital Partners, Inc. Los Angeles . New York . Connecticut
March 13, 1996
Board of Trustees
Angeles Participating Mortgage Trust
340 North West Lake Blvd.
Suite 230
Westlake Village, CA 91362
Attn: Mr. Ronald Consiglio, Chairman
You have asked us to consider a proposed Transaction (the "Transaction") between
Angeles Participating Mortgage Trust ("APART" or the "Trust"), a California
Business Trust, and SAHI Partners, a Delaware General Partnership, and its
affiliates (collectively, "SAHI") as described below.
THE TRANSACTION
- ---------------
It is our understanding that:
1) SAHI has purchased from APART, in exchange for $100,000, a warrant (the
"Class A Warrant") enabling SAHI to purchase up to 5,000,000 Class A
Shares at a price of $1.00 per share and, in exchange for $1,000, a
warrant (the "Class B Warrant") enabling SAHI to purchase up to
2,500,000 Class B Shares of the Trust at a price of $.01 per share;
2) When full effect is given for the exercise of such Class A and Class B
Warrants, SAHI's voting interest in the Trust would increase from its
current level of 39.72% to a fully diluted interest of 79.64%;
3) The Class A Warrant is exercisable at any time and from time to time for
the period beginning after the Annual Meeting (assuming shareholder
approval is obtained) and one hundred twenty (120) days subsequent to
the Annual Meeting and that the Class B Warrant is exercisable only in
conjunction with an exercise of
1
<PAGE>
CHANIN CAPITAL PARTNERS, INC.
Board of Trustees
Angeles Participating Mortgage Trust
March 13, 1996
Page 2
the Class A Warrant, thereby creating an effective period of
exercisability equal to that of the Class A Warrant;
4) SAHI intends to appoint a majority of the post-Transaction Trustees
of the Trust; and
5) The Trust plans to change its investment policy from predominantly
making mortgage loans to affiliated entities to primarily acquiring
equity and participating debt positions in hotels and sub-
performing and nonperforming hotel debt.
DUE DILIGENCE
-------------
As you know, our firm served as the Financial Advisor to APART's Board of
Trustees during the period that certain of the Participating Mortgages held
by APART on three (3) outlet malls owned by a subsidiary of Angeles
Corporation were in default. During that engagement as Financial Advisor,
we conducted due diligence and became familiar with the operations and
valuations of many REITs operating in the same market segment as APART, as
well as those operating in different segments.
As part of this assignment, we examined the recent stock price history of
APART, as well as the stock price performance of other similar REITs. We
analyzed the proposed strike price of the Class A Warrant vis a vis the
underlying Class A Shares and the relativity which the strike price
represents to the common stock book value per share as well as its trading
price.
We utilized various methods of valuing warrants in attempting to determine
the fairness of the Transaction, as well as analyzing the Transaction from
a purely objective standpoint. In most methods of valuing warrants to
purchase shares of a company's common stock, the predominant factor
affecting value is the length of time in which the holder of the warrant in
question has to exercise the warrant. Therefore, a warrant
2
<PAGE>
CHANIN CAPITAL PARTNERS, INC.
Board of Trustees
Angeles Participating Mortgage Trust
March 13, 1996
Page 3
with a five (5) year exercise period has much higher value than the same
warrant with a (3) year exercise period. Because the time period for
exercise of the Class A Warrant as described herein is short in comparison
to most warrants, the value produced by these various analytical methods
(including Black/Scholes) were negligible. Were that the trading price of
the underlying Class A Shares substantially higher (i.e., if the Class A
Shares were trading at a price in excess of $2.00 per share), the Class A
Warrant itself might then have meaningful value. For these purposes, we
used the following variables for the Black-Scholes analysis:
S = Stock Price Ranges: $1.25; $1.00; $0.50
X = Exercise Price: $1.00
R = Risk Free Rate: $5.096%
VOL = Volatility: 35%
RANGE OF VALUES: LESS THAN $0.10 PER SHARE
Based on the implied price to SAHI for the Class A Warrant of approximately
$0.20 per share (i.e., warrants for 5,000,000 shares for $100,000 = $0.20
per share), it appears that SAHI's price for the Class A Warrant is in
excess of the Class A Warrant's underlying value.
Furthermore, the overly large dilutive effect of Class A Warrant upon the
Class A Shares would tend to depress the already minimal value of the Class
A Warrant, since part of the value of any warrant lies in the ability to
exercise that warrant into a market which is higher than the strike price
itself.
3
<PAGE>
CHANIN CAPITAL PARTNERS, INC.
Board of Trustees
Angeles Participating Mortgage Trust
March 13, 1996
Page 4
We also conducted limited independent due diligence on the principals and
activities of SAHI Partners, including holding limited discussions with
members of senior SAHI management regarding their backgrounds, experience
and qualifications.
In our due diligence, we relied upon certain documents and data which were
made available to us by the management of APART and SAHI, as well as a
number of documents generally available to the public. We did not
independently verify the books and records of APART of SAHI, nor do we
represent herein the financial condition of APART or SAHI now or at any
time.
REVERSE TAKEOVERS
-----------------
We also examined a number of so-called "reverse takeover" transactions in
which an entity uses a merger transaction to merge into another entity -
usually a publicly traded company with little or no assets or operations -
in exchange for a substantial amount of the public company's equity. We
utilized the Securities Data Corporation database of mergers and
acquisition to examine reverse takeovers with value up to $20 mm and in
which at least 70% of the common stock was exchanged for the merged
company. It appears that in each case where data were available, the entity
which was merging into the public company was bringing some kind of assets
or operations into the publicly traded company. As a result, there was
often an issue of valuation of the merged company in order to determine the
proper percentage of share allocation to the merged company's shareholders.
In the case of this Proposed Transaction (assuming the exercise of the
Class A Warrant), what will be exchanged for the shares is United States
currency (i.e., cash). As a result, we believe there is no question as to
the value of the "assets" contributed by the merging entity as the value of
cash is its stated par value.
CONCLUSION
----------
As a result of our due diligence and our analysis of the specific
Transaction as outlined herein, it is our opinion that the Transaction is
fair to the current Class A and Class B shareholders of Angeles
Participating Mortgage Trust from a financial perspective.
Sincerely,
CHANIN CAPITAL PARTNERS, INC.
4
<PAGE>
EXHIBIT C
THIS WARRANT WAS ORIGINALLY ISSUED ON MARCH 15, 1994 AND SUCH ISSUANCE WAS NOT
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS
WARRANT MAY NOT BE TRANSFERRED IN VIOLATION OF SECTION 6 HEREOF. THIS WARRANT
MAY ONLY BE TRANSFERRED IF REGISTERED UNDER THE ACT UNLESS, IN THE OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, SUCH REGISTRATION IS UNNECESSARY
FOR SUCH TRANSFER TO COMPLY WITH THE ACT.
ANGELES PARTICIPATING MORTGAGE TRUST
CLASS B SHARE PURCHASE WARRANT
------------------------------
Date of Issuance: March 15, 1994 Certificate No. W-002
FOR VALUE RECEIVED, Angeles Participating Mortgage Trust, a California
business trust (the "Company"), hereby grants to SAHI, Inc., a Delaware
corporation, or any transferee permitted by Section 6 hereof (the "Holder") the
right to purchase from the Company up to 2,500,000 shares of the Company's Class
B Shares (the "Class B Shares") at a price per share of $.01 (the "Exercise
Price"); provided, however, the Holder may only exercise this Warrant
contemporaneous with the exercise of the Company's Class A Warrant originally
issued to SAHI Partners on March 15, 1994 (the "Class A Warrant") and only with
respect to a number of Class B Shares equal to fifty percent of the number of
Class A Shares purchased pursuant to the exercise of the Class A Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The Holder may exercise, in whole or in part
---------------
(but not as to a fractional Class B Share), the purchase rights represented by
this Warrant contemporaneous with the exercise of the Company's Class A Warrant
; provided, however, that the purchase rights represented by this Warrant (i)
may be exercised only if the shareholders of the Company shall have approved the
issuance of this Warrant and the issuance of any Class B Shares hereunder (the
"Approval") at the next annual shareholders meeting of the Company occurring
after the date hereof (the "Annual Meeting") and (ii) must be exercised, if at
all, on or before that date which is 120 days subsequent to the date of the
Annual Meeting.
1B. Exercise Procedure.
------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in
paragraph 1C below and substantially in the form set forth in Exhibit I
---------
hereto, executed by the
<PAGE>
Person exercising all or any part of the purchase rights represented by
this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
----------
evidencing the assignment of this Warrant to the Purchaser, in which case
the Holder shall have complied with the provisions set forth in Section 6
and Section 7 hereof;
(d) a check payable to the Company or wire transfer of immediately
available funds to an account designated by the Company in an amount equal
to the product of the number of Class B Shares being purchased upon such
exercise multiplied by the Exercise Price (the "Aggregate Exercise Price");
(e) at the Company's option, the opinion described in Section 10
below; and
(f) all of the deliveries necessary for the exercise of the Class A
Warrant.
(ii) Certificates for Class B Shares purchased upon exercise of this
Warrant shall be delivered by the Company to the Purchaser within five business
days after the date of the Exercise Time. Unless this Warrant has expired or
all of the purchase rights represented hereby have been exercised, the Company
shall prepare a new Warrant, substantially identical hereto, representing the
rights formerly represented by this Warrant which have not expired or been
exercised and shall within such five-day period, deliver such new warrant to the
Holder.
(iii) The Class B Shares issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Class B Shares at the Exercise Time.
(iv) The issuance of certificates for Class B Shares upon exercise of
this Warrant shall be made without charge to the Holder or the Purchaser for
costs incurred by the Company in connection with such exercise and the related
issuance of Class B Shares. Each Class B Share issuable upon exercise of this
Warrant shall upon payment of the Exercise Price therefor, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any Class B Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Class B Shares
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price.
-2-
<PAGE>
(vi) The Company shall assist and cooperate with the Holder or
any Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) The Company shall take all such actions as may be necessary
to assure that all such Class B Shares may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which Class B Shares may be listed (except for official
notice of issuance which shall be immediately delivered by the Company upon each
such issuance); and
(viii) Upon the exercise of this Warrant, the Class B Shares shall
only be issued in the name of SAHI, Inc. or a transferee permitted by Section 6
hereof.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement substantially in the form set forth in Exhibit I hereto shall
---------
be executed by the Purchaser or transferee permitted by Section 6 hereof. Such
Exercise Agreement shall be dated the actual date of execution thereof.
Section 2. Liquidating Dividends. If the Company declares or pays a
---------------------
dividend upon the Class B Shares payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles, consistently applied) except for a share dividend payable in Class B
Shares (a "Liquidating Dividend"), then the Company shall pay to the Holder at
the time of payment thereof the Liquidating Dividend which would have been paid
to such Holder on the Class B Shares had this Warrant been fully exercised
immediately prior to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the record holders of
Class B Shares entitled to such dividends are to be determined.
Section 3. Purchase Rights. If at any time the Company grants,
---------------
issues or sells any Options, Convertible Securities or rights to purchase stock,
shares, warrants, securities or other property pro rata to the record holders of
any class of its shares (the "Purchase Rights"), then the Holder shall be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which Holder could have acquired if Holder had held
the number of Class B Shares acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Class B Shares are to be determined for the grant,
issue or sale of such Purchase Rights.
Section 4. Definitions. The following terms have meanings set
-----------
forth below:
"Convertible Securities" means any stock, shares or securities
----------------------
(directly or indirectly) convertible into or exchangeable or exercisable for
Class B Shares.
"Options" means any rights or options to subscribe for or purchase
-------
Class B Shares or Convertible Securities.
-3-
<PAGE>
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
Section 5. No Voting Rights; Limitations of Liability. This Warrant
------------------------------------------
shall not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision hereof, in the absence of affirmative
action by the Holder to purchase Class B Shares, and no enumeration herein of
the rights or privileges of the Holder shall give rise to any liability of such
Holder for the Exercise Price of Class B Shares acquirable by exercise hereof or
as a shareholder of the Company.
Section 6. Warrant Transferability. This Warrant and all rights
-----------------------
hereunder are not transferable, in whole or in part, without the Company's prior
written consent, which consent shall not be unreasonably withheld or delayed as
to any transfer to an affiliate of SAHI Partners. Upon such consent, any
transfer of this Warrant, in whole or in part, shall be effected upon surrender
of this Warrant with a properly executed Assignment (in the form of Exhibit II
----------
hereto) at the principal office of the Company. Each transferee of all or any
part of this Warrant, by taking and holding the same, consents to and agrees to
be bound by the provisions of this Warrant.
Section 7. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Holder at the time
of such surrender. The date the Company initially issues this Warrant shall be
deemed to be the "Date of Issuance" hereof regardless of the number of times new
certificates representing the unexpired and exercised rights formerly
represented by this Warrant shall be issued. All Warrants representing portions
of the rights hereunder are referred to herein as the "Warrants."
Section 8. Consideration. The consideration received by the Company
-------------
for this Warrant is the sum of $1,000 cash, receipt of which is hereby
acknowledged by the Company, which amount will be applied against the first
$1,000 of the Aggregate Exercise Price for Class B Shares purchased pursuant
hereto. If the Approval is not received at the Annual Meeting, the Company
shall promptly refund to the Holder the consideration described in this Section
8 and, following such remittance, this Warrant shall be of no further force and
effect. Any new Warrants issued pursuant hereto shall not require the payment
of any additional consideration.
Section 9. Pre-Exercise Covenants of the Company. The Company,
-------------------------------------
acting through its trustees, shall, in accordance with applicable law:
(i) duly call, give notice of, convene and hold the Annual Meeting
as soon as practicable following the date hereof. At such Annual Meeting the
Company will submit to its shareholders a proposal relating to the issuance of
this Warrant and the Class B Shares exercisable hereunder for their approval;
and
-4-
<PAGE>
(ii) include in the proxy statement distributed to shareholders
prior to the Annual Meeting the recommendation of the trustees that the
shareholders of the Company vote to approve the proposal relating to the
issuance of this Warrant and the Class B Shares exercisable hereunder, unless
the trustees shall have determined in good faith that such recommendation could
reasonably be expected to be a breach of the trustees' fiduciary duties under
applicable law.
Section 10. Fairness Opinion. The Company shall have the right, as a
----------------
condition to the first issuance of any Class B Shares pursuant to this Warrant,
to obtain an opinion from a qualified, independent third party which may include
the Company's outside auditors (the "Appraiser") as to the fairness of the terms
and provisions of this Warrant to the Company and its shareholders. In such
circumstance, if the Appraiser, for any reason, is unable to issue an opinion
that the terms and provisions of this Warrant are fair to the Company and its
stockholders, then the consideration described in Section 8 hereof shall be
promptly returned to the Holder and, following such remittance, this Warrant
shall terminate and be of no further force and effect. The cost to obtain such
opinion shall be shared equally by the Company and the Holder; provided,
however, that the Holder shall not be obligated to pay more than $25,000 toward
the aggregate cost of obtaining such opinion and any opinion regarding the Class
A Warrant.
Section 11. Representations of the Company. The Company hereby
------------------------------
represents and warrants that (i) this Warrant and the issuance of Class B Shares
upon exercise hereof have been unanimously approved by the Company's trustees
subject only to obtaining the Approval and (ii) neither the authorization or
issuance of this Warrant, nor the issuance of the Class B Shares upon the
exercise thereof, violates the Company's Declaration of Trust or any other
document, agreement, statute, rule, regulation, judgment, decree or order to
which the Company or any of its assets or properties is subject.
Section 12. Share Legends. Each certificate issued for Class B
-------------
Shares pursuant hereto or issued in exchange or substitution for any
certificates so issued shall bear the following legend, unless at the time of
issuance of the certificate the shares represented by such certificate are
registered under the Securities Act of 1933, as amended (the "Act") or the
Company has been provided with an opinion of counsel which shall be reasonably
satisfactory in form and substance to the Company, to the effect that the Class
B Shares are no longer restricted securities under the Act:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and they may not be sold or
offered for sale in the absence of an effective registration statement
under that Act as to said securities or an opinion, in form and substance
satisfactory to the Company and given by counsel satisfactory to the
Company, that such registration is not required. The securities which are
evidenced by this certificate were purchased under a warrant dated March
15, 1994 issued by the Company and are benefitted by and subject to the
terms and conditions of such warrant.
Section 13. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Holder shall be satisfactory)
of the ownership
-5-
<PAGE>
and the loss, theft, destruction or mutilation of any certificate evidencing
this Warrant, and in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Company (provided that if
the holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Company shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed, or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 14. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or three days after being deposited in the U.S. Mail (i) to the Company, at its
principal executive offices and (ii) to the Holder, at the Holder's address as
it appears in the records of the Company (unless otherwise indicated by the
Holder).
Section 15. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of this Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Holders of Warrants representing a majority of the Class B Shares obtainable
upon exercise of this Warrant.
Section 16. Descriptive Headings; Governing Law. All questions
-----------------------------------
concerning the construction, validity, enforcement and interpretation of this
Warrant shall be governed by the internal law of the State of California,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of California or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of
California.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its seal and to be dated as
of the date of issuance hereof.
ANGELES PARTICIPATING MORTGAGE
TRUST
By:/s/ Ronald J. Consiglio
--------------------------
Its:President
-------------------------
[Trust Seal]
Attest:
/s/ Ann Merguerian
- -----------------------------
Title: Secretary
-----------------------
-7-
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To:____________________ Dated:__________________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-______), hereby agrees to subscribe for and purchase
_________ Class B Shares covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
The undersigned is acquiring such Class B Shares for its own account, for
investment purposes only, and not with a view towards the sale or other
distribution thereof, in whole or in part. The undersigned understands that the
Class B Shares issued pursuant to the Warrant have not been registered under the
Securities Act of 1933, as amended.
Signature:____________________________________
Address: ____________________________________
____________________________________
____________________________________
-8-
<PAGE>
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, __________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-________) with respect to the number of shares of the
Class B Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------------- ---------------------- -----------------------
Dated:___________________ Signature:_________________________________
Address: _________________________________
_________________________________
_________________________________
-9-
<PAGE>
EXHIBIT D
RESTATED SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT dated as of March 15, 1994, and restated as of April
27, 1994 by and among SAHI, Inc., a Delaware corporation ("SAHI, Inc."), SAHI
Partners, a Delaware general partnership ("SAHI Partners" and, together with
SAHI, Inc., "SAHI") and Angeles Participating Mortgage Trust, a California
Business Trust (the "Company").
WHEREAS, SAHI Partners owns 244,100 Class A shares of the Company ("Class A
Shares") and is the holder of a Warrant (the "Class A Warrant") for the right to
purchase an additional 5,000,000 Class A Shares which shares and Class A
Warrant, on a fully-diluted basis, represent 46.31 percent of the voting power
of the Company and, additionally, SAHI Partners owns 1,275,000 Class B shares of
the Company ("Class B Shares") which represent approximately 33 percent of the
voting power of the Company;
WHEREAS, SAHI, Inc. is the holder of a Warrant (the "Class B Warrant") for
the right to purchase an additional 2,500,000 Class B Shares which, if
exercised, would preserve the voting power of the Company held by the entirety
of the Class B Shares;
WHEREAS, the Class B Shares were previously owned by SAHI, Inc. and SAHI,
Inc. subsequently transferred the Class B Shares to SAHI Partners; and
WHEREAS, in order to induce the Company to issue the Class A Warrant to
SAHI Partners and the Class B Warrant to SAHI, Inc., SAHI Partners and SAHI,
Inc. agreed to enter into this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Protection of Cash Reserves. Each of SAHI Partners and
---------------------------
SAHI, Inc. agree that it shall take no action, directly or indirectly, which
would cause the cash or cash equivalent reserves of the Company to be reduced
below $2,000,000 at any time on or before December 31, 1994; below $1,000,000 at
any time on or before December 31, 1995; or below $500,000 at any time on or
before December 31, 1996 (including, without limitation, terminating or amending
or attempting to terminate or amend that certain Trust dated as of 11/23/93 by
and between the Company and Ronald J. Consiglio, as amended 3/14/94).
Section 2. Interested Transactions. Each of SAHI Partners and SAHI,
-----------------------
Inc. agree that during the three year period beginning on the date of the
Company's next annual meeting it shall take no action, directly or indirectly,
which would cause the Company to enter into any Interested Transactions (as
defined below) unless any such Interested Transaction has been approved by a
majority of the Independent Trustees (as defined below) of the Company.
Section 3. Independent Trustees. Each of SAHI Partners and SAHI,
--------------------
Inc. shall take all actions within their powers, to cause the election of at
least two Independent Trustees
<PAGE>
to serve on the Company's Board of Trustees during the three year period
beginning on the date of the Company's next annual meeting; provided that in no
event shall SAHI Partners or SAHI, Inc. be obligated to take any action which
would prevent them from electing a majority of the entire Trustees on the
Company's Board of Trustees.
Section 4. Fairness Opinion Expenses. SAHI Partners and SAHI, Inc.
-------------------------
jointly and severally agree to reimburse the Company for fifty percent of the
costs incurred by the Company in securing the fairness opinions described in
Section 10 of the Class A and Class B Warrants; provided, however, that such
reimbursement obligation shall not exceed $25,000 in the aggregate. SAHI
Partners and/or SAHI, Inc. shall make such reimbursement promptly upon receipt
of an itemized statement from the Company of such costs.
Section 5. Transfers. During the term of this Agreement, SAHI
---------
Partners and SAHI, Inc. shall not transfer or undertake a series of transfers of
Class A Shares or Class B Shares which in the aggregate represent over 9% of the
voting power of the Company unless the transferees thereof agree to be bound by
the terms hereof pursuant to a written agreement in form and substance
reasonably acceptable to the Company.
Section 6. REIT Status. SAHI Partners and SAHI, Inc. will not
-----------
intentionally engage in any actions which jeopardize or cause the Company to
violate its qualification as a Real Estate Investment Trust under Part II,
Subchapter M of Chapter 1 of Subtitle A of the Internal Revenue Code of 1986, as
amended.
Section 7. Definitions. The following terms have the meanings set
-----------
forth below:
"Interested Transactions" means to:
-----------------------
(a) merge, consolidate with, or otherwise acquire all or
any portion of the business, assets or securities of any SAHI
Affiliate or sell, transfer or assign any portion of the Company's
business, assets or securities to any SAHI Affiliate;
(b) make any loans or other advances of money to, or
guarantee with or for the benefit of, any SAHI Affiliate or any
officer, director or shareholder (both direct and indirect) of any
SAHI Affiliate;
(c) sell, lease, transfer or otherwise dispose of any
property or assets from, entertain or maintain any contract, agreement
or understanding with, or otherwise enter into, or be a party to, any
transaction with, any SAHI Affiliate or any officer, director, or
shareholder (both direct and indirect) of any SAHI Affiliate;
(d) take any actions (other than the entry into this
Agreement, the purchase of the Class A Warrant and the Class B
Warrant, and the consummation of the transactions contemplated herein
and therein) which would
-2-
<PAGE>
result in one or more publicly-traded classes of the Company's equity
securities no longer having the attributes of public ownership; or
(e) take any actions beneficial to any SAHI Affiliate which
would be detrimental to a material number of public shareholders of
the Company;
provided, however, the actions described in (a), (b) and (c) above
shall not constitute an Interested Transaction if (i) the action taken
has been determined by the Company's Board of Trustees to be pursuant
to the reasonable requirements of the Company's business and upon fair
and reasonable terms which are no less favorable to the Company than
would be obtained in a comparable arms-length transaction with an
independent third-party and (ii) the transaction involves less than
$500,000.
"Independent Trustees" shall mean a Trustee who is (i) not an
--------------------
officer, employee, agent, shareholder (direct or indirect) or representative of
the Company, SAHI Partners, SAHI, Inc., or any SAHI Affiliate, (ii) not a
spouse, sibling, lineal descendant, ancestor, aunt, uncle or first cousin of any
of the aforesaid Persons (including in-laws and adopted relationships), and
(iii) free of any relationship that would interfere with the exercise of
independent judgment, provided, however, that Ronald J. Consiglio, J. D'Arcy
Chisolm and Jack E. McDonald shall be considered Independent Trustees hereunder.
"Affiliate" of any entity means a person which directly or
---------
indirectly through one or more intermediaries control, or is controlled by, or
is under common control with, such entity.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
Section 8. Amendment and Waiver. Except as otherwise provided
--------------------
herein, no modification, amendment or waiver of any provision of this Agreement
will be effective against the Company, SAHI Partners or SAHI, Inc. unless such
modification, amendment or waiver is approved in writing by the Company, SAHI
Partners and SAHI, Inc.
Section 9. Successors and Assigns. This Agreement will bind and
----------------------
inure to the benefit of and be enforceable by (a) the Company and its successors
and assigns and (b) SAHI Partners and SAHI, Inc. and their respective successors
and assigns.
Section 10. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which will be an original and all of which taken together
will constitute one and the same agreement.
Section 11. Descriptive Headings; Interpretation. The descriptive
------------------------------------
headings in this Agreement are inserted for convenience of reference only and
are not intended to be part
-3-
<PAGE>
of or to affect the meaning or interpretation of this Agreement. The use of the
word "including" in this Agreement shall be by way of example rather than by
limitation.
Section 12. Construction. This Agreement shall be governed by and
------------
construed in accordance with the laws of the State of California, without regard
to conflicts of law principles.
Section 13. Notices. All notices, demands or other communications to
-------
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and will be deemed to have been duly given when delivered
personally to the recipient, sent to the recipient by reputable express courier
(charges prepaid) or mailed by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
will be sent to the addresses indicated below:
To the Company:
Angeles Participating Mortgage Trust
2049 Century Park East
Suite 4080
Los Angeles, California 90067
Facsimile: (310) 772-0139
Attention: Ronald J. Consiglio
With a copy to:
Katten Muchin Zavis & Weitzman
1990 Avenue of the Stars
Suite 1400
Los Angeles, CA 90067
Facsimile: (310) 788-4471
Attention: James K. Baer, Esq.
To SAHI Partners or SAHI, Inc.:
c/o Starwood Capital Group, L.P.
228 Saugatuck Avenue
Westport, CT 06880
Facsimile: (203) 221-4647
Attention: Madison Grose, Esq.
-4-
<PAGE>
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Facsimile: (312) 861-2200
Attention: Gary Silverman, Esq.
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
Section 14. Preamble; Preliminary Recitals. The Preliminary Recitals
------------------------------
set forth in the Preamble hereto are hereby incorporated and made part of this
Agreement.
Section 15. Entire Agreement. This Agreement and the Class A and
----------------
Class B Warrants set forth the entire understanding of the parties, and
supersede and preempt all prior oral or written understandings and agreements
with respect to the subject matter hereof, including the Shareholders Agreement
dated March 15, 1994.
Section 16. Third Party Beneficiaries. It is specifically
-------------------------
contemplated that the public shareholders of the Company be third party
beneficiaries of this Agreement.
Section 17. Termination. This Agreement will terminate automatically
-----------
and be of no further force and effect upon the earlier of (i) the third
anniversary of the Company's next annual meeting, or (ii) the expiration or
termination (without exercise) of the Class A and Class B Warrants.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Shareholders
Agreement as of the date set forth above.
ANGELES PARTICIPATING MORTGAGE TRUST
By: /s/ Ronald J. Consiglio
-------------------------------
Its: President
------------------------
SAHI PARTNERS
By: SAHI, Inc., a general partner
By: /s/ Madison F. Grose
--------------------------
Its: Vice President
--------------------------
SAHI, Inc.
By: /s/ Madison F. Grose
-------------------------------
Its: Vice President
-------------------------
-6-
<PAGE>
AMENDMENT NO. 1 TO RESTATED SHAREHOLDERS AGREEMENT
--------------------------------------------------
This Amendment No. 1 (this "Amendment") to the Shareholders Agreement dated
as of March 15, 1994 and restated as of April 27, 1994, is entered into as of
this 15th day of March, 1996 by and among SAHI, Inc., a Delaware corporation
("SAHI, Inc."), SAHI Partners, a Delaware general partnership, Starwood
Mezzanine Investors, L.P., a Delaware limited partnership ("Starwood Mezzanine")
and Angeles Participating Mortgage Trust, a California Business Trust (the
"Company"), with reference to the following facts:
WHEREAS, SAHI Partners, SAHI, Inc. and the Company entered into that
certain Shareholders Agreement dated as of March 15, 1994 and restated as of
April 27, 1994 ("Shareholders Agreement");
WHEREAS, SAHI Partners has assigned its Class A Warrant to Starwood
Mezzanine; and
WHEREAS, SAHI Partners, SAHI, Inc. and the Company hereby deem it to be in
their respective best interests to amend the Shareholders Agreement as set forth
herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Any initially capitalized term not defined herein shall have the meaning
ascribed thereto in the Shareholders Agreement.
2. Starwood Mezzanine hereby agrees that, upon the full or partial exercise
of the Class A Warrant, it shall become a party to the Shareholders Agreement
and further agrees to be bound by all of the terms and conditions of the
Agreement applicable to SAHI Partners and SAHI, Inc.
3. Section 7(d) of the Shareholders Agreement shall be deleted in its
entirety and replaced with the following:
"(d) take any actions (other than the (1) entry into this Agreement, (2)
the purchase of the Class A Warrant and the Class B Warrant and the
consummation of the transactions contemplated herein and therein and (3)
the issuance of Class A Shares upon the exchange of Starwood Mezzanine's
limited partnership interests in APT Limited Partnership ("Partnership")
pursuant to the partnership agreement of the Partnership and (4) the
required issuance of the Class B Shares pursuant to the Declaration of
Trust of the Company upon the issuance of Class A Shares, and the
consummation of the transactions contemplated herein and therein) which
would result in one or more publicly-traded classes of the Company's equity
securities no longer having the attributes of public ownership; or"
7
<PAGE>
4. Section 17 of the Shareholders Agreement is hereby amended to read as
follows in its entirety:
"Section 17. Termination. This Agreement will terminate
automatically and be of no further force and effect on
the third anniversary of the Company's 1996 Annual Meeting
of Shareholders."
5. Except as amended by this Amendment, the Agreement shall continue in
full force and effect.
6. This Amendment may be executed in multiple counterparts, each of which
will be an original and all of which taken together will constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
as of the date set forth above.
ANGELES PARTICIPATING MORTGAGE TRUST
By: /s/ Ronald J. Consiglio
------------------------------
Ronald J. Consiglio, President
SAHI PARTNERS
By: SAHI, Inc., a general partner
By: /s/ Madison F. Grose
--------------------------
Madison F. Grose,
Vice President
SAHI, INC.
By: /s/ Madison F. Grose
--------------------------
Madison F. Grose,
Vice President
8
<PAGE>
STARWOOD MEZZANINE INVESTORS, L.P.
By: STARWOOD CAPITAL GROUP I, L.P.,
general partner
By: BSS CAPITAL PARTNERS, L.P.,
general partner
By: STERNLICHT HOLDINGS
II, INC., general partner
By: /s/ Madison F. Grose
Name: Madison F. Grose
Title: Executive Vice
President
9
<PAGE>
EXHIBIT E
RESTATED DECLARATION OF TRUST
-----------------------------
OF
--
ANGELES PARTICIPATING MORTGAGE TRUST
------------------------------------
<PAGE>
TABLE OF CONTENTS
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ARTICLE I The Trust; Definitions............................................1
1.1 Name..............................................................1
1.2 Places of Business................................................1
1.3 Nature of Trust...................................................1
1.4 Purposes..........................................................1
1.5 Definitions.......................................................2
ARTICLE II Trustees..........................................................6
2.1 Number, Terms of Office, Qualifications of Trustees...............6
2.2 Compensation and Other Remuneration...............................7
2.3 Resignation, Removal, and Death of Trustees.......................7
2.4 Vacancies.........................................................7
2.5 Successor and Additional Trustees.................................7
2.6 Actions by Trustees and Executive Committee; Quorum...............8
ARTICLE III Trustees' Powers..................................................8
3.1 Power and Authority of Trustees...................................8
3.2 Specific Powers and Authorities...................................9
3.3 Trustees' Regulations............................................13
ARTICLE IV Advisor..........................................................13
4.1 Employment of Advisor............................................13
4.2 Term.............................................................13
4.3 Independence of Trustees and Members of Executive Committee......14
4.4 Other Activities of Advisor......................................14
4.5 Limitation on Operating Expenses.................................14
ARTICLE V Investment Policy................................................15
5.1 General Statement of Policy......................................15
5.2 Other Permissible Investments....................................16
5.3 Prohibited Investments and Activities............................16
5.4 Obligor's Default................................................16
ARTICLE VI The Shares and Shareholders......................................17
6.1 Shares...........................................................17
6.2 Voting Rights....................................................17
6.3 Legal Ownership of Trust Estate..................................19
6.4 Shares Deemed Personal Property..................................19
6.5 Share Record; Issuance and Transferability of Shares.............19
6.6 Dividends or Distributions to Shareholders.......................20
6.7 Transfer Agent, Dividend Disbursing Agent, and Registrar.........21
6.8 Shareholders' Meeting............................................21
</TABLE>
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<TABLE>
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6.9 Proxies..........................................................22
6.10 Reports to Shareholders..........................................22
6.11 Fixing Record Dates..............................................22
6.12 Notice to Shareholders...........................................22
6.13 Shareholders' Disclosures; Redemption and Stop Transfers.........22
6.14 Conversion Rights................................................23
ARTICLE VII Liability of Trustees, Shareholders, and
Officers, and Other Matters......................................25
7.1 Exculpation of Trustees and Officers.............................25
7.2 Express Exculpatory Clauses in Instruments.......................25
7.3 Liability and Indemnification of Trustees........................25
7.4 Right of Trustees and Officers to Own Shares or
Other Property and to Engage in Other Business...................26
7.5 Transactions Between the Trust and Certain Affiliates............28
7.6 Restriction of Duties and Liabilities............................28
7.7 Persons Dealing with Trustees or Officers........................28
7.8 Reliance.........................................................28
ARTICLE VIII Duration, Termination, Amendment,
and Qualification of Trust.......................................29
8.1 Duration of Trust................................................29
8.2 Termination of Trust.............................................29
8.3 Amendment Procedure..............................................30
8.4 Qualification Under the REIT Provisions of the Code..............30
ARTICLE IX Miscellaneous....................................................31
9.1 Applicable Law...................................................31
9.2 Index and Headings for Reference Only; Gender....................31
9.3 Successors in Interest...........................................31
9.4 Inspections of Records...........................................31
9.5 Counterparts.....................................................31
9.6 Correction of Provisions of Declaration..........................31
9.7 Certifications...................................................32
9.8 Recording and Filing.............................................32
</TABLE>
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<PAGE>
RESTATED DECLARATION OF TRUST
ANGELES PARTICIPATING MORTGAGE TRUST
This RESTATED DECLARATION OF TRUST originally made and entered into
as of the 15th day of April, 1988, as restated as of the 18th day of July,
1988, and as further restated as of the _____ day of __________ 1996, by
the Persons whose names appear at the end of this Declaration of Trust, as
Trustees of Angeles Participating Mortgage Trust.
The Trustees do hereby form a trust and do hereby agree to hold in trust as
Trustees any and all property, real, personal, or otherwise, tangible and
intangible, which is transferred, conveyed, or paid to the Trust or to them as
Trustees and all rents, income, profits, and gains therefrom for the benefit of
the Shareholders hereunder subject to the terms and conditions and for the uses
and purposes hereinafter set forth.
ARTICLE I
THE TRUST; DEFINITIONS
1.1 Name. The name of the Trust shall be "Angeles Participating Mortgage
Trust." As far as is practicable and except as is otherwise provided in this
Declaration, the Trustees shall conduct the Trust's activities, execute all
documents, sue or be sued, and take all actions they deem appropriate in the
name of Angeles Participating Mortgage Trust.
1.2 Places of Business. The principal office of the Trust shall be at
340 N. Westlake Boulevard, Suite 230, Westlake Village, California 91362. The
Trustees, however, may from time to time change such location and maintain other
offices or places of business.
1.3 Nature of Trust. The Trust is a business trust organized under the
laws of the State of California, and it is intended that the Trust shall qualify
as a real estate investment trust within the meaning of the Code. The Trust is
not intended to be, shall not be deemed to be, and shall not be treated as a
general partnership, limited partnership, joint stock company, or association
(but nothing herein shall preclude the Trust from being taxable as an
association under the REIT Provisions of the Code), nor shall the Trustees or
Shareholders or any of them for any purpose be, or be deemed to be treated in
any way whatsoever to be, liable or responsible hereunder as partners or joint
venturers. The relationship of the Shareholders to the Trust shall be solely
that of beneficiaries of the Trust and their rights shall be limited to those
expressly conferred upon them by this Declaration.
<PAGE>
1.4 Purposes. The primary purposes of the Trust are to acquire a
diversified portfolio of interests in real estate or real estate-related assets,
including (i) originating mortgage loans to unrelated entities or to acquire
securities collateralized, in whole or in part, by such mortgage loans, as well
as making equity investments in real estate and real estate-related assets, (ii)
acquiring direct or indirect interests in short term, medium and long-term real
estate-related debt securities and mortgage interests under which the borrowers
are unaffiliated with the Trust, which may include warrants, equity
participations or similar rights incidental to a debt investment by the Trust,
(iii) making, holding and disposing of purchase money loans with respect to
assets sold by the Trust, and (iv) acquiring positions in non-performing and
sub-performing debt for the purpose of either restructuring it as performing
debt or of obtaining shortly thereafter primary management rights over or
equity interests in the underlying assets securing such debt.
1.5 Definitions. The following terms shall, whenever used in this
Declaration, unless the context otherwise requires, have the meanings specified
in this Section 1.5. The singular shall refer to the plural, and the masculine
gender shall be deemed to refer to the feminine and neuter, and vice versa, as
the context requires.
(a) "Advisor" means the Person to whom, pursuant to the
Advisory Agreement, the Trustees delegate certain control and management of the
Trust and its assets as provided in Section 4.1.
(b) "Advisory Agreement" means the advisory agreement between the
Trust and the Advisor as described in Section 4.2.
(c) "Affiliate" means with respect to the Advisor, a Shareholder,
or Trustee (i) any Person directly or indirectly owning, controlling, or
holding, with power to vote, 5% or more of the outstanding voting securities of
the Advisor or such Shareholder, (ii) any Person 5% or more of whose outstanding
voting securities are directly or indirectly owned, controlled, or held, with
power to vote, by the Advisor, such Trustee, or such Shareholder, and (iii) any
officer, director, or partner of the Advisor or such Shareholder.
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<PAGE>
(d) "Borrower" means those affiliated or unaffiliated Persons which
are the recipients of Trust Loans, guarantees, letters of credit, or other
financing arrangements.
(e) "Capital Contributions" means the gross amount invested in the
Trust by the Shareholders. Reference to a "Capital Contribution" means the gross
amount contributed by a respective Shareholder.
(f) "Class A Shareholders" means, at any particular time, those
Persons who are shown as the holders of record of all Class A Shares on the
records of the Trust at such time.
(g) "Class B Shareholders" means, at any particular time, those
Persons who are shown as the holders of record of all Class B Shares on the
records of the Trust at such time.
(h) "Class A Shares" means the designated shares of beneficial
interest of the Trust as described in Section 6.1.
(i) "Class B Shares" means the designated shares of beneficial
interest of the Trust as described in Section 6.1.
(j) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, including successor statutes thereto.
(k) "Declaration" means this Declaration of Trust and all
amendments and modifications thereof. References in this Declaration to "herein"
and "hereunder" shall be deemed to refer to this Declaration and shall not be
limited to the particular text, article, or section in which such words
appear.
(l) "Disposition" means any Trust transaction not in the ordinary
course of its business, including, without limitation, principal repayments, all
participation (in the cash flow, income, or appreciation in value of property
securing a Trust Loan payments, prepayments, sales, or other dispositions of any
Trust Loans held by the Trust and analogous transactions involving any other
assets held by the Trust.
(m) "Disposition Price" means the total consideration received by
the Trust upon the Disposition of a Trust Loan or other asset of the Trust
(prior to payment of any commission, expense, or indebtedness related to the
Trust Loan or such asset), including all cash received and the fair market value
of any other property received.
(n) "Distributable Net Proceeds" means the portion of the proceeds
from a Disposition so defined in Section 6.6.
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<PAGE>
(o) "Gross Proceeds" means the aggregate total of the original
Capital Contributions of all of the Shareholders.
(p) "Mortgages" means mortgages, deeds of trust, or other security
instruments on real property or rights or interests in real property or entities
owning or controlling real property.
(q) "Net Assets" means the Total Assets of the Trust Estate after
deducting therefrom any liabilities of the Trust except that depreciable assets
shall be included therein at the lesser of either (i) the cost of such assets on
the books of the Trust before provision for depreciation, amortization, and
depletion, or (ii) the fair market value of such assets in the judgment of the
Trustees.
(r) "Net Cash" means, for a period, the interest earned on
investments and deposits made by the Trust and operating revenues of the Trust
received during such period, plus cash proceeds from Dispositions, plus reserves
set aside during prior periods pursuant to clause (iii) below which are no
longer necessary as reserves, less (i) all Operating Expenses (other than any
expenses previously reserved against pursuant to (iii) below) of the Trust paid
during such period, plus all fees and reimbursements payable to the Trustees,
the Advisor, including all incentive fees and compensation, and their
Affiliates, (ii) all payments made during such period to discharge Trust
indebtedness, (iii) all amounts established as reserves during such period, (iv)
all amounts expended during such period for the replacement or preservation of
Trust assets, or any part thereof, to the extent not previously reserved, and
(v) all amounts reinvested in new Trust Loans and other investments.
(s) "Non-Distributable Net Proceeds" means the portion of the
proceeds from a Disposition so defined in Section 6.6.
(t) "Offering" means the initial public offering of 5,000,000 Class
A Shares.
(u) "Operating Expenses" means the aggregate annual expenses of the
Trust of every character regarded as operating expenses in accordance with
generally accepted accounting principles, as determined by independent
accountants selected by the Trustees, exclusive of: Organization and Offering
Expenses; interest and discounts and other costs of borrowed money; taxes on
income and real property and all other taxes and assessments applicable to the
Trust and its operations; legal, auditing, underwriting, brokerage, transfer
agent's, registrar's, and indenture trustee's fees and other such fees, whether
paid to Affiliates of the Advisor or independent Persons; fees and expenses paid
to independent contractors, independent advisors, mortgage bankers, brokers, and
servicers, real property managers, leasing agents, consultants, on-site
managers, real estate brokers, insurance agents and brokers, other brokers and
agents, and all personnel employed by the Trust or on its behalf (including all
compensation and reimbursements of expenses, payable to the Advisor by the Trust
under any Advisory Agreement with the Trust referred to in Article IV hereof and
compensation payable to Affiliates of the Advisor, but excluding the Non-
Accountable Expense Allowance defined in such Advisory Agreement and the
Administration Fee paid to the Advisor or an Affiliate)
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<PAGE>
employed by or on behalf of the Trust; costs of insurance (including Trustee's
liability insurance), whether paid to Affiliates of the Advisor or independent
Persons; expenses of organizing and terminating the Trust; all expenses
connected with distributions and communications to holders of Securities of the
Trust and the other bookkeeping and clerical work necessary in maintaining
relations with holders of Securities, including the cost of printing and mailing
checks, certificates for Securities, proxy solicitation materials, and reports
to such holders; all expenses connected with the acquisition, disposition, and
ownership of Trust Loans, and all other investments by the Trust, including the
costs of appraisal, legal services, brokerage and sales commissions, processing
and foreclosure expenses, expenses for the maintenance, repair, and improvements
of Trust assets, property management fees and expenses for day-to-day management
of Trust assets, whether paid to Affiliates of the Advisor or independent
Persons; realized losses (exceeding provisions therefor) on Dispositions; and
all provisions for depletion, depreciation, amortization, and losses.
(v) "Organization and Offering Expenses" means those expenses
incurred in connection with the formation and registration of the Trust and in
qualifying and marketing the Shares or other Securities under applicable federal
and state law, and any other expenses actually incurred and directly related to
the qualification, registration, offer, and sale of the Shares or other
Securities, including such expenses as: (i) selling commissions; (ii) all
marketing expenses and payments made to broker-dealers as compensation or
reimbursement for all costs of reviewing the offerings, including due diligence
investigations and fees or expenses of their attorneys, accountants, and other
experts; (iii) registration fees, filing fees, and taxes; (iv) the costs of
printing, amending, supplementing, and distributing the Registration Statements
and Prospectuses; (v) the costs of obtaining regulatory clearances of, printing,
and distributing sales materials used in connection with the offer and sale of
the Shares or other Securities; (vi) compensation of officers and employees of
the Advisor and its Affiliates while directly engaged in organizing and forming
the Trust and in qualifying, registering, and marketing the Shares or other
Securities under applicable federal and state law; (vii) reimbursements to the
Selling Agent, selected broker-dealers, the Advisor, and its Affiliates for
special marketing and incentive programs sponsored by those entities; (viii) the
costs related to investor and broker-dealer sales meetings; (ix) accounting and
legal fees incurred in connection with any of the foregoing; and (x) a non-
accountable expense allowance equal to 1% of the Gross Proceeds payable to the
Selling Agent.
(w) "Person" means any individual, partnership, corporation,
association, trust, or other entity.
(x) "Prospectus" means the final prospectus, as filed with the
Securities and Exchange Commission, relating to the offering of up to 5,000,000
Class A Shares by the Trust, including all supplements and amendments thereto,
and any subsequent prospectus,
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<PAGE>
including all supplements and amendments thereto, relating to subsequent
securities offerings by the Trust.
(aa) "REIT Provisions of the Code" means Part II, Subchapter M of
Chapter 1 of Subtitle A of the Code, as now enacted or hereafter amended,
including successor statutes and regulations promulgated thereunder.
(bb) "Securities" means common and preferred stock in a corporation,
shares of beneficial interest in a trust or other unincorporated association,
general partner interests in a general partnership, interests in a joint
venture, general or limited partnership interests in a limited partnership,
notes, debentures, bonds, and other evidences of indebtedness, including
Mortgages, whether secured or unsecured, and includes any options, warrants, and
rights to subscribe to or convert into any of the foregoing.
(cc) "Selling Agent" means Angeles Securities Corporation.
(dd) "Shareholders" means, at any particular time, the Class A
Shareholders, the Class B Shareholders, and all other holders of record of
outstanding Shares on the records of the Trust at such time.
(ee) "Shares" means the Class A Shares, the Class B Shares, and all
other shares of beneficial interest of the Trust issued as provided herein.
(ff) "Total Assets of the Trust Estate" means the value of all of
the assets of the Trust Estate as such value appears on the most recent balance
sheet of the Trust available to the Trustees without deduction for mortgage
loans or other security interests to which such assets are subject and before
provision for depreciation, depletion, amortization, and provision for bad debt
loss and similar reserves.
(gg) "Trust" means the trust created by this Declaration.
(hh) "Trustees" means, as of any particular time, the Persons
holding such office under this Declaration at such time, whether they be the
Trustees named herein or additional or successor Trustees, but shall not include
the officers, representatives, or agents of the Trust or the Shareholders,
although nothing herein shall be deemed to preclude the Trustees from also
serving as officers, representatives, or agents of the Trust or from owning
Shares.
(ii) "Trustees' Regulations" means the regulations provided for in
Section 3.3.
(jj) "Trust Estate" means, as of any particular time, any and all
property, real, personal, or otherwise, tangible or intangible, which is held,
transferred, conveyed, or paid to the Trust or the Trustees on behalf of the
Trust and all rents, income, profits, and gains therefrom.
-6-
<PAGE>
(kk) "Trust Loans" means the notes, debentures, bonds, and other
evidences of indebtedness or obligations acquired or entered into by the Trust
which are secured or collateralized by personal property or fee or leasehold
interests in real estate or other assets, including, but not limited to, first
mortgage loans, junior mortgage loans, construction loans, development loans,
equipment loans, loans secured by general or limited partnership interests,
capital stock, or any other assets or form of equity interest or guarantee of
the Borrower or an Affiliate, and any other type of loan or financial
arrangement, such as providing or arranging for letters of credit, providing
guarantees of obligations to third parties, or providing commitments for Trust
Loans.
ARTICLE II
TRUSTEES
2.1 Number, Terms of Office, Qualifications of Trustees. The initial
number of Trustees shall be six, but such number may be changed from time to
time by a vote of the majority of Trustees then in office or by Shareholders
voting in the manner set forth in Section 6.2(e), provided that the number of
Trustees so fixed shall not be less than three nor more than 15. The initial
Trustees shall be the signatories hereto. Subject to the provisions of Section
2.3, each Trustee shall hold office until the expiration of his term and until
the election and qualification of his successor. The term of the Trustees
executing this Declaration or any successors to them duly elected hereunder
prior to the first annual meeting of Shareholders to be held within six months
after the end of the fiscal year ending in 1989, shall expire at such annual
meeting of Shareholders following the election of Trustees. Thereafter, the
term of each Trustee shall expire at the annual meeting of Shareholders
following the election of such Trustee. Trustees may be re-elected
indefinitely. A Trustee shall be an individual at least 21 years of age who is
not under legal disability. Such individual shall qualify as a Trustee when he
has either signed this Declaration or agreed in writing to be bound by it.
Unless otherwise required by law, no Trustee shall be required to give bond,
surety, or security in any jurisdiction for the performance of any duties or
obligations hereunder. The Trustees in their capacity as trustees shall not be
required to devote their entire time to the business and affairs of the Trust,
and it is understood that all or some of the Trustees may be involved in, and/or
shareholders, officers, directors, representatives, agents, partners, or
beneficiaries of, businesses and ventures which may be in direct competition
with the Trust.
2.2 Compensation and Other Remuneration. The Trustees shall be entitled
to receive such reasonable compensation for their services as Trustees as they
may determine from time to time. The Trustees, either directly or indirectly,
shall also be entitled to receive remuneration for services rendered to the
Trust in any other capacity. Such services may include, without limitation,
services as an officer of the Trust, legal, accounting, or other professional
services, or services as a broker, transfer agent, or underwriter, whether
performed by a Trustee or an Affiliate of a Trustee.
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<PAGE>
2.3 Resignation, Removal, and Death of Trustees. A Trustee may resign
at any time by giving written notice in recordable form to the remaining
Trustees at the principal office of the Trust. Such resignation shall take
effect on the date such notice is given or at any later time specified in the
notice without need for prior accounting. A Trustee may be removed for cause at
a special meeting of Shareholders voting in the manner set forth in Section 6.2,
or with cause by all remaining Trustees. "Cause" for purposes of this Section
2.3 shall mean a Trustee's willful violations of this Declaration or the
Trustees' Regulations which violations are materially against the interests of
the Shareholders or gross negligence in the performance of his duties.
Upon the resignation or removal of any Trustee, or his otherwise ceasing to
be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the conveyance of any Trust property held in his
name, shall account to the remaining Trustee or Trustees as they require for all
property which he holds as Trustee, and shall thereupon be discharged as
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall perform the acts set forth in the preceding sentence, and the discharge
mentioned therein shall run to such legal representative and to the
incapacitated Trustee or the estate of the deceased Trustee as the case may be.
2.4 Vacancies. If any or all of the Trustees cease to be Trustees
hereunder, whether by reason of resignation, removal, incapacity, death, or
otherwise, such event shall not terminate the Trust or affect its continuity.
Until vacancies are filled, the remaining Trustee or Trustees (even though less
than three) may exercise the powers of the Trustees hereunder. Vacancies
(including vacancies created by increases in number) may be filled by the
remaining Trustee or by vote of a majority of the remaining Trustees or by the
Shareholders voting in the manner set forth in Section 6.2(a). Any Trustee so
elected by the remaining Trustees or the Shareholders shall hold office until
the next annual meeting of Shareholders. If at any time there shall be no
Trustees in office, successor Trustees shall be elected by the Shareholders as
provided in Section 6.2(a).
2.5 Successor and Additional Trustees. The right, title, and interest
of the Trustees in and to the Trust Estate shall also vest in successor and
additional Trustees upon their acceptance of the office, and they shall
thereupon have all the rights and obligations of Trustees hereunder. Such
right, title, and interest shall vest in the Trustees whether or not
conveyancing documents have been executed and delivered pursuant to Section 2.3
or otherwise.
2.6 Actions by Trustees and Executive Committee; Quorum. A quorum for
all meetings of the Trustees shall be a majority of the Trustees. Unless
specifically provided otherwise in this Declaration, any action of the Trustees
may be taken at a meeting by vote of a majority of the Trustees. Any agreement,
deed, mortgage, lease, or other instrument or writing executed by one or more of
the Trustees or by any authorized Person shall be valid and binding upon the
Trustees and upon the Trust; provided that such action is pursuant to
authorization of a majority of the Trustees given either at a meeting or in
writing or as provided in the Trustees' Regulations.
The Trustees may appoint a committee (the "Executive Committee") with
authority to exercise the powers of the Trustees and consisting of three or more
of the Trustees. Unless
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<PAGE>
specifically provided otherwise in this Declaration, any action of the Executive
Committee may be taken at a meeting by vote of a majority of the members of the
Committee. A quorum for all meetings of the Executive Committee shall be a
majority of the members thereof. With respect to the actions of the Trustees and
the Executive Committee, Trustees who are Affiliates of the Advisor may be
counted for all quorum purposes.
Unless otherwise specifically provided in this Declaration, any action
required or permitted to be taken at any meeting of the Trustees or of the
Executive Committee may be taken without a meeting if all of the Trustees or
members of the Executive Committee, as the case may be, consent thereto in
writing. Trustees or members of the Executive Committee may participate in a
meeting of the Trustees or the Executive Committee, as the case may be, by means
of conference telephone or similar communications equipment by which all
individuals participating in the meeting can hear each other, and participation
in such meeting pursuant to this paragraph shall constitute presence in person
at such meeting for all purposes of this Declaration.
ARTICLE III
TRUSTEES' POWERS
3.1 Power and Authority of Trustees. The Trustees, subject only to the
specific limitations contained in this Declaration, shall have, without further
or other authorization, and free from any power or control on the part of the
Shareholders, full, absolute, and exclusive power, control, and authority (a)
over the Trust Estate and over the business and affairs of the Trust to the same
extent as if the Trustees were the sole owners thereof in their own right, and
(b) to do all such acts and things as in their sole judgment and discretion are
necessary or incidental to, or desirable for the carrying out of, any of the
purposes of the Trust or conducting the business of the Trust. Any
determination made in good faith by the Trustees of the purposes of the Trust or
the existence of any power or authority hereunder shall be conclusive as to the
Trust and its Shareholders. In construing the provisions of this Declaration,
presumption shall be in favor of the grant of powers and authority to the
Trustees. The enumeration of any specific power or authority herein shall not
be construed as limiting the general powers or authority or any other specified
power or authority conferred herein upon the Trustees.
3.2 Specific Powers and Authorities. Subject only to the express
limitations contained in this Declaration and in addition to any powers and
authorities conferred by this Declaration or which the Trustees may have by
virtue of any present or future statute or rule or law, the Trustees without any
action or consent by the Shareholders shall have and may exercise at any time
and from time to time the following powers and authorities which may be
exercised by them in their sole judgment and discretion and in such manner and
upon such terms and conditions as they may from time to time deem appropriate:
(a) To retain, invest, and reinvest the capital or other funds of
the Trust in Trust Loans and real or personal property investments of any kind,
and to purchase, invest in, or otherwise acquire for cash or other property or
through the issuance of Shares or other
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<PAGE>
Securities Trust Loans and fee, leasehold, or other participating Interests in
property, real, personal, or mixed, tangible or intangible, including notes,
bonds, or other obligations, all for such consideration as they deem appropriate
and without regard to whether any such property is authorized by law for the
investment of trust funds. In connection with any such investment, purchase, or
acquisition, the Trustees shall have the power to acquire a share of rents,
lease payments, or other gross income from, or a share of the profits from, or a
share in the equity or ownership of the security for such Trust Loans; to invest
in Trust Loans secured by the pledge or transfer of Mortgages, other assets,
and/or contractual obligations; to develop, operate, pool, unitize, grant
production payments out of or lease or otherwise dispose of mineral, oil and gas
properties, and rights.
(b) To possess and exercise all the rights, powers, and privileges
appertaining to the ownership of the Trust Estate and to increase the capital of
the Trust at any time by the issuance of additional Shares or other Securities,
in all cases for such consideration and upon such terms as they deem
appropriate.
(c) To sell, rent, lease, hire, exchange, release, partition,
assign, mortgage, pledge, hypothecate, grant security interests in, encumber,
negotiate, convey, transfer, or otherwise dispose of any and all of the Trust
Estate by deeds, trust deeds, assignments, bills of sale, transfers, leases,
Mortgages, financing statements, security agreements, and other instruments for
any of such purposes executed and delivered for and on behalf of the Trust or
the Trustees by one or more of the Trustees or by a duly authorized officer,
employee, agent, or any nominee of the Trust.
(d) To issue Shares or other Securities which may be subordinated
to any indebtedness of the Trust and may be convertible into Shares, all without
vote of or other action by the Shareholders to such Persons for such cash,
property, or other consideration (including securities issued or created by, or
interests in any Person) at such time or times and on such terms as the Trustees
may deem advisable and to list any of the Securities issued by the Trust on any
securities exchange and to purchase or otherwise acquire, hold, cancel, reissue,
sell, and transfer any of the Securities.
(e) To enter into leases, contracts, obligations, easement
agreements, party wall agreements, boundary line agreements, loan commitments of
every kind, nature, and description, guarantees, financing arrangements and
participations, and other agreements, any one of which may be for a term
extending beyond the term of office of the Trustees and beyond the possible
termination of the Trust or for a lesser term.
(f) To borrow money and give negotiable or non-negotiable
instruments therefor; to guarantee, indemnify, or act as surety with respect to
payment or performance of obligations of third parties; to enter into other
obligations on behalf of the Trust and to assign, convey, transfer, mortgage,
subordinate, pledge, grant security interests in, encumber, or hypothecate the
Trust Estate to secure any of the foregoing.
(g) To lend money, whether secured or unsecured, pursuant to Trust
Loans or otherwise.
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(h) To create reserve funds for any purpose.
(i) To incur and pay out of the Trust Estate any charges or
expenses, and disburse any funds of the Trust, which charges, expenses, or
disbursements are, in the opinion of the Trustees, necessary or incidental to or
desirable for the carrying out of any of the purposes of the Trust or conducting
the business of the Trust, including, without limitation, all Organization and
Offering Expenses, Operating Expenses, payments, reimbursements, and
compensation to the Trustees, the Advisor, and their Affiliates, taxes and other
governmental levies, charges, and assessments, of whatever kind or nature,
imposed upon or against the Trustees in connection with the Trust or the Trust
Estate or upon or against the Trust Estate or any part thereof, and for any of
the purposes herein.
(j) To deposit funds of the Trust in banks, trust companies,
savings and loan associations, and other depositories, whether or not such
deposits will draw interest, the same to be subject to withdrawal on such terms,
in such manner, and by such Person or Persons (including any one or more
Trustees, officers, agents, representatives, or the Advisor) as the Trustees may
determine.
(k) To possess and exercise all the rights, powers, and privileges
appertaining to the ownership of all or any Mortgages or Securities, issued or
created by, or interests in, any Person, forming part of the Trust Estate, to
the same extent that an individual might, and, without limiting the generality
of the foregoing, to vote or give any consent, request, or notice, or waive any
notice, either in person or by proxy or power of attorney, with or without power
of substitution, to one or more Persons, which proxies and powers of attorney
may be for meetings or action generally or for any particular meeting or action
and may include the exercise of discretionary powers.
(l) To cause to be organized or assist in organizing any Person
under the laws of any jurisdiction to acquire the Trust Estate or any part or
parts thereof or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, rent, lease, hire, convey, negotiate,
assign, exchange, or transfer the Trust Estate or any part or parts thereof to
or with any such Person in exchange for the Securities thereof or otherwise, and
to lend money to, subscribe for the Securities of, and enter into any contracts
with, any such Person the Securities or any other interest of which the Trust
holds or is about to acquire.
(m) To enter into joint ventures, general or limited partnerships,
and any other lawful combinations or associations.
(n) To elect one of themselves as Managing Trustee or Chairman of
the Board of Trustees and to elect, appoint, engage, or employ other officers
for the Trust (including a Secretary, Treasurer, and such Vice Presidents and
other officers as the Trustees may determine), who may be removed or discharged
at the discretion of the Trustees, such officers to have such powers and duties,
and to serve such terms, as may be prescribed by the Trustees or by the
Trustees' Regulations; to engage or employ any Persons (including, subject to
the provisions of Sections 7.4 and 7.5, any Trustee, officer, or employee of the
Trust or any Affiliate of any of such Trustee, officer, or employee of the
Trust) as agents, representatives,
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or employees (including, without limitation, real estate advisors, investment
advisors, transfer agents, registrars, underwriters, accountants, attorneys at
law, real estate agents, managers, appraisers, brokers, architects, engineers,
construction managers, general contractors, or otherwise) in one or more
capacities, and to pay compensation from the Trust for services in as many
capacities as such Persons may be so engaged or employed; and, except as
prohibited by law, to delegate any of the powers and duties of the Trustees to
any one or more Trustees, agents, representatives, officers, employees,
independent contractors, the Advisor, or other Persons.
(o) To determine whether monies, Securities, or other assets
received by the Trust shall be charged or credited to income or capital or
allocated between income and capital, including the power to amortize or fail to
amortize any part or all of any premium or discount, to treat any part or all of
the profit resulting from the maturity or sale of any asset whether purchased at
a premium or at a discount, as income or capital, or apportion the same between
income and capital, to apportion the sales price of any asset between income and
capital, and to determine in what manner any expenses or disbursements are to be
borne as between income and capital, whether or not in the absence of the power
and authority conferred by this subsection such moneys, Securities, or other
assets would be regarded as income or as capital or such expense or disbursement
would be charged to income or to capital; to treat any dividend or other
distribution or any investment as income or capital or apportion the same
between income and capital; to provide or fail to provide reserves for
depreciation, amortization, or obsolescence in respect of all or any part of the
Trust Estate subject to depreciation, depletion, amortization, or obsolescence
in such amounts and by such methods as they shall determine; and to determine
the method or form in which the accounts and records of the Trust shall be kept
and to change from time to time such method or form.
(p) To determine from time to time, the value of all or any part of
the Trust Estate and of any services, Securities, Trust Loans, property, or
other consideration to be furnished to or acquired by the Trust, and from time
to time to revalue all or any part of the Trust Estate in accordance with such
appraisals or other information as are, in the Trustees' sole judgment,
necessary and/or satisfactory.
(q) To collect, sue for, and receive all sums of money coming due
to the Trust, and to engage in, intervene in, prosecute, join, defend, compound,
compromise, abandon, or adjust, by arbitration or otherwise, any actions, suits,
proceedings, disputes, claims, controversies, demands, or other litigation
relating to the Trust, the Trust Estate, or the Trust's affairs, to enter into
agreements therefor, whether or not any suit is commenced or claim accrued or
asserted and, in advance of any controversy, to enter into agreements regarding
arbitration, adjudication, or settlement thereof.
(r) To renew, modify, release, compromise, extend, consolidate, or
cancel, in whole or in part, any obligation to or of the Trust.
(s) To purchase and pay for out of the Trust Estate insurance
contracts and policies insuring the Trust Estate against any and all risks and
insuring the Trust and/or any or all of the Trustees, the Shareholders, or
officers against any and all claims and liabilities of
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every nature asserted by any Person arising by reason of any action alleged to
have been taken or omitted by the Trust or by the Trustees, Shareholders, or
officers, regardless of whether such insurance contracts and policies are
provided by Persons affiliated with the Advisor or the Trustees.
(t) To cause legal title to any of the Trust Estate to be held by
and/or in the name of the Trustees, and/or, except as prohibited by law, in the
name of the Trust or one or more of the Trustees or any other Person, on such
terms, in such manner, and with such powers in such Person as the Trustees may
determine, and with or without disclosure that the Trust or Trustees are
interested therein.
(u) To adopt a fiscal year for the Trust, and from time to time
change such fiscal year.
(v) To adopt and use a seal (but the use of a seal shall not be
required for the execution of instruments or obligations of the Trust).
(w) To help ensure that (i) the objectives of the Trust (including
the objectives of providing Shareholders with a pass-through investment vehicle,
as well as minimizing unrelated business taxable income for tax-exempt
Shareholders) will not be defeated by future legislation or other action, (ii)
the Trust will not be deemed to hold assets of an employee benefit plan ("Plan
Assets") for purposes of the Employee Retirement Income Security Act of 1974
("ERISA"), and (iii) the transactions contemplated hereunder would constitute
prohibited transactions under ERISA or the Code. In order to accomplish the
foregoing, the Trustees and the Advisor have the right (upon notice to all
Shareholders but without the need to obtain the consent of any Shareholder) to
take any actions including (1) restructuring the Trust's activities and, if
deemed necessary by the Trustees and the Advisor, converting the Trust to
another type of entity (including a partnership), (2) restructuring the Trust's
activities to the extent necessary to comply with any exemption in Plan Asset
legislation or the Plan Asset regulations adopted by the Department of Labor
from time to time, including establishing a fixed percentage of Shares permitted
to be held by employee benefit plans or other tax-exempt entities, or
discontinuing sales of Securities to such investors after a given date as
necessary to obtain a prohibited transaction exemption from the Department of
Labor or to comply with any exemption in the Plan Asset legislation or Plan
Asset regulations, and/or (3) terminating the Offering or any subsequent
offering, or compelling a dissolution and termination of the Trust.
(x) To do all other such acts and things as are incident to the
foregoing and to exercise all powers which are necessary or useful to carry on
the business of the Trust, to promote any of the purposes for which the Trust is
formed, and to carry out the provisions of this Declaration.
3.3 Trustees' Regulations. The Trustees may make, adopt, amend, or
repeal regulations (the "Trustees' Regulations") containing provisions relating
to the business of the Trust, the conduct of its affairs, its rights or powers,
and the rights or powers of its Shareholders, Trustees, or officers not
inconsistent with law or with this Declaration.
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ARTICLE IV
ADVISOR
4.1 Employment of Advisor. The Trustees are responsible for the general
policies of the Trust and for such general supervision of the business of the
Trust conducted by all officers, agents, employees, advisors, managers, or
independent contractors of the Trust as may be necessary to insure that such
business conforms to the provisions of this Declaration. However, the Trustees
are not and shall not be required personally to conduct the business of the
Trust and, consistent with their ultimate responsibility as stated above, the
Trustees shall have the power to appoint, employ, or contract with any Person
(including one or more of themselves, or any Affiliate of any of them) as the
Trustees may deem necessary or proper for the transaction of the business of the
Trust. The Trustees may therefore employ or contract with such Person (herein
referred to as the "Advisor"), and the Trustees may grant or delegate such
authority to the Advisor as the Trustees may in their sole discretion deem
necessary or desirable, without regard to whether such authority is normally
granted or delegated by Trustees.
The Trustees (subject to the provisions of Section 4.5) shall have the
power to determine the terms and compensation of the Advisor or any other Person
whom they may employ or with whom they may contract. The Trustees may exercise
broad discretion in allowing the Advisor to administer and regulate the
operations of the Trust, to act as agent for the Trust, to execute documents on
behalf of the Trustees, and to make executive decisions which conform to general
policies and general principles previously established by the Trustees.
4.2 Term. The Trustees shall enter into a contract with the Advisor
("Advisory Agreement") which shall provide for an initial term of three years
and for the automatic annual extension thereafter. This Advisory Agreement may
be terminated, without penalty, after the initial three-year term, upon no less
than 60 days' written notice of the Advisor or by vote of a majority of the
Trustees or by the Shareholders voting as set forth in Section 6.2.
4.3 Independence of Trustees and Members of Executive Committee. Not
more than 49% of the total number of Trustees or of the total number of members
of the Executive Committee may be Affiliates of any Person who is then the
Advisor; provided, however, that if at any time the percentage of Trustees or
members of the Executive Committee who are Affiliates of such Person becomes
more than 49% of the total number of Trustees or members of the Executive
Committee then in office, whether because of the death, resignation, removal, or
change in affiliation of one or more Trustees or members of the Executive
Committee or otherwise, then such requirement shall not be applicable for a
period of 90 days of such event occurring, during which period the continuing
Trustees or Trustee then in office shall appoint, pursuant to Section 2.4, a
sufficient number of other individuals as Trustees or as members of the
Executive Committee so that again not more than 49% of the total number of
Trustees or members of the Executive Committee then in office are Affiliates of
such Person. The Trustees shall at all times endeavor to comply with the
requirement of this Section 4.3 as to independence, but failure so to comply
with such requirement shall not affect the validity or effectiveness of any
action of the Trustees or of the Executive Committee.
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4.4 Other Activities of Advisor. The Advisor shall not be required to
administer the Trust as its sole and exclusive function and may have other
business interests and may engage in other activities in addition to those
relating to the Trust which may be in direct competition with the Trust,
including acting as a real estate or loan broker, acting as a general partner or
manager, and rendering of advice or services of any kind to any other Person
(including, but not limited to, Affiliates of the Advisor). The Trustees may
request the Advisor and/or its Affiliates to engage in certain other activities
relating to the Trust's investments, including property management, contracting
for the construction of improvements, and the placement or brokerage of real
property, equity investments in real property, Mortgages, or other financing
arrangements; and the Advisor and/or its Affiliates may act as broker or provide
services requested by sellers, mortgagors, prospective sellers, or prospective
mortgagors to the Trust and may receive brokerage commissions and other
compensation from such sellers, mortgagors, prospective sellers, and prospective
mortgagors in addition to compensation paid to the Advisor by the Trust.
The Advisor shall be required to use its best efforts to present a
continuing and suitable investment program to the Trust which is consistent with
the investment policies and objectives of the Trust, but neither the Advisor nor
any Affiliate of the Advisor shall be obligated to present any particular
investment opportunity to the Trust even if such opportunity is of a character
which, if presented to the Trust, could be taken by the Trust, and subject to
the foregoing, each of them shall have the right to take for its own account or
to recommend to others any such particular investment opportunity. The Advisor
shall act on a basis which is fair and reasonable to the Trust and the
Shareholders in selecting from among the various investment opportunities that
come to the Advisor those investment opportunities which it presents to and
approves on behalf of the Trust. So long as there is an Advisor or other Person
performing similar functions, the Trustees shall have no responsibility to
originate investment opportunities for the Trust.
4.5 Limitation on Operating Expenses. The Operating Expenses of the
Trust for any full fiscal year shall not (except as set forth herein) exceed an
amount equal to the greater of (a) 2% of the average Net Assets of the Trust
Estate for such year or (b) 25% of the Trust's net income for such year,
determined in accordance with generally accepted accounting principles, before
deducting any non-accountable expense allowances, regular and incentive advisory
fees, administration fees and expenses, and depreciation, depletion, and
amortization. The Trustees shall limit such expenses to amounts that do not
exceed such limitations unless a majority of the Trustees who are not Affiliates
of the Advisor determine that based upon such factors as they deem sufficient, a
higher level of expenses is justified. Each contract made with the Advisor
under this Article IV shall specifically provide that in the event such Trustees
determine that such excess expenses are not justified, the Advisor shall refund
to the Trust promptly after the end of any such year of the amount, if any, by
which the Operating Expenses so exceed said amount; provided, that (i) the
maximum liability of the Advisor for such excess in any year shall be limited to
the amount of the Non-Accountable Expense Allowance and the Administration Fee
received by the Advisor during such year as defined and provided for in the
Advisory Agreement and (ii) to the extent that the Operating Expenses for any
subsequent fiscal year are less than the greater of clauses (a) or (b) above,
the Trust shall reimburse the Advisor the amount(s) it previously refunded to
the Trust pursuant to this Section 4.5.
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ARTICLE V
INVESTMENT POLICY
5.1 General Statement of Policy. While the Trustees are authorized,
pursuant to Article III, to invest the Trust estate in a wide variety of
investments, it is the present intention of the Trust that it shall be the
principal investment objectives and policy of the Trust for the Trustees to
invest the Trust Estate in the Diversified Portfolio.
Investments of the Trust may be made in various combinations and may
involve participations with other Persons, including Affiliates of the Advisor
and/or Trustees. Such investments may incorporate a variety of real property
equity and financing techniques, including, without limitation, partnerships,
joint ventures, purchase and leasebacks, land purchase-leases, net lease
financings, purchase and installment salebacks, and Mortgages.
The general purpose of the Trust is to seek real estate investment trust
income as defined in the REIT Provisions of the Code. The Trustees intend to
make investments in such a manner as to comply with the requirements of the REIT
Provisions of the Code with respect to the composition of the Trust's
investments and the derivation of its income; provided, however, that no
Trustee, director, officer, employee, or agent of the Trust or the Advisor shall
be liable to any Person, including any Shareholder, for any act or omission
resulting in the loss of tax benefits under the Code or for the Trust not being
treated for tax purposes as a "real estate investment trust" under the REIT
Provisions of the Code. Subject to Section 5.3 hereof and subject to such
restrictions as may be necessary to qualify the Trust as a "real estate
investment trust" as defined in the REIT Provisions of the Code, the Trustees
may alter the above-declared investment policy in light of changes in economic
circumstances and other relevant factors, and the methods of implementing the
Trust's investment policies may change, in the discretion of the Trustees as
economic and other conditions change.
5.2 Other Permissible Investments. To the extent that the Trust has
assets not invested in accordance with Section 5.1, the Trustees may employ such
assets by investing them in:
(a) Obligations of, or guaranteed or insured by, the United States
Government or any agency or political subdivision thereof;
(b) Obligations of, or guarantees by, any state, territory, or
possession of the United States of America or any agency or political
subdivision thereof;
(c) Evidences of deposits in, or obligations of, banking
institutions, state and federal savings and loan associations, and savings
institutions;
(d) Real and personal property and interests therein; and
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(e) Other Securities, liquid short-term investments, and property.
5.3 Prohibited Investments and Activities. The Trustees shall not
engage in any of the following investment practices or activities:
(a) Invest in commodities, foreign currencies, or bullion except in
connection with investments in other property;
(b) Engage in any material trading activities with respect to any
of the assets of the Trust Estate;
(c) Issue "redeemable securities" as defined in Section 2(a)(32) of
the Investment Company Act of 1940, as amended;
(d) Engage in the underwriting or public distribution of Securities
issued by others; and
(e) Purchase any property from or sell any property to the Advisor,
nor shall the Trust lend any funds to the Advisor.
5.4 Obligor's Default. Notwithstanding any provision in any Article of
this Declaration, when an obligor to the Trust is in default under the terms of
any obligation (including a Trust Loan) to the Trust, the Trustees or the
Advisor shall have the power to pursue any remedies permitted by law which in
their sole judgment are in the interest of the Trust, and the Trustees or the
Advisor shall have the power to receive and hold any investment and to enter
into any commitment or obligation on behalf of the Trust in connection with or
in pursuit of such remedies which, in the judgment of the Trustees or the
Advisor, is necessary or desirable for the purpose of acquiring property and
disposing of property acquired in the pursuit of such remedies.
ARTICLE VI
THE SHARES AND SHAREHOLDERS
6.1 Shares. The units into which the beneficial interest in the Trust
will be divided shall be designated as Shares, which Shares shall initially be
of two classes, Class A Shares and Class B Shares. The Class A Shares shall
have a par value of $1.00 per Share, and the Class B Shares shall have a par
value of $.01 per Share. The certificates evidencing the Shares shall be in
such form and signed (manually or by facsimile) on behalf of the Trust in such
manner as the Trustees may from time to time prescribe or as may be prescribed
in the Trustees' Regulations. The certificates shall be negotiable and title
thereto and to the Shares represented thereby shall be transferred by assignment
and delivery thereof to the same extent and in all respects as a share
certificate of a California corporation. There shall be no limit upon the
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number or classes of Shares to be issued. The Shares may be issued for such
consideration as the Trustees shall determine or by way of share dividend or
share split in the discretion of the Trustees. Shares reacquired by the Trust
shall no longer be deemed outstanding and shall have no voting or other rights
unless and until reissued. Shares reacquired by the Trust may be canceled and
restored to the status of authorized and unissued Shares by action of the
Trustees. All Shares shall be fully paid and non-assessable by or on behalf of
the Trust upon receipt of full consideration for which they have been issued or
without additional consideration if issued by way of share dividend or share
split. The Shares shall not entitle the holder to preference, pre-emptive,
appraisal, conversion, or exchange rights of any kind, except as provided in
Section 6.14.
Upon termination of the Offering, the Trustees shall issue for par a
sufficient number of Class B Shares to the Advisor and/or its nominee(s) such
that the total number of outstanding Class B Shares shall equal one-half of the
total number of outstanding Class A Shares. In order to maintain such proportion
between Class A Shares and Class B Shares, the Trustees are hereby required to
issue additional Class B Shares for par in like proportion to the extent that
(a) additional Class A Shares or other Securities convertible into Class A
Shares are issued by the Trust (provided that if and to the extent such issuance
is subject to the approval of the American Stock Exchange,) Inc. or such other
exchange or market on which the Class A Shares or other securities of the Trust
are traded, then such approval shall be obtained), and (b) the Class A Shares
are subject to any stock dividend, stock split, or other recapitalization
affecting the number of Class A Shares outstanding. For the purposes of
determining the total number of Class B Shares issued and outstanding following
the termination of this Offering and issuance of Class B Shares pursuant to this
Section 6.1 as required in Sections 6.6(a) and 6.14, all additional Class B
Shares issued pursuant to this paragraph of Section 6.1 shall be deemed to be
issued and outstanding following termination of the Offering.
6.2 Voting Rights. The Shareholders shall be entitled to vote only upon
the following matters:
(a) Election of Trustees. Trustees shall be elected annually
pursuant to an annual meeting of the Shareholders to be held at such time and
place as the Trustees' Regulations shall prescribe; provided that the initial
Trustees shall serve until the first annual meeting of the Shareholders which
shall be held within six months after the end of the fiscal year commencing in
1989. In any election of Trustees, the Class A Shareholders and the Class B
Shareholders shall vote together as a single class with each Class A Share and
Class B Share held of record entitled to one vote in person or by proxy.
Any vacancy in the office of Trustees may be filled by a vote of the Class
A Shareholders and the Class B Shareholders voting together as a single class
with each Share held of record entitled to one vote in person or by proxy, or,
in the absence of any such Shareholder vote, such vacancy may be filled by the
vote of the remaining Trustees. If the number of Trustees is increased in
accordance with this Declaration, the Trustees' Regulations, or otherwise, any
vacancy so created may be filled by the existing Trustees.
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In connection with the election or removal of Trustees as provided in this
Section 6.2(a) and in Section 6.2(b), the Shareholders shall be entitled to
cumulate their votes so that each Shareholder shall be entitle to cast in person
or by proxy as many votes as shall equal the number of Class A and Class B
Shares he holds of record multiplied by the number of Trustees to be elected or
removed by the Shareholders, and such Shareholder may cast all of such votes for
a single Trustee, or may distribute such votes among the number of Trustees to
be voted on, or for any two or more of them as he may see fit.
(b) Removal of Trustees. A Trustee may be removed for cause
(defined as willful violations of this Declaration or the Trustees' Regulations
which violations are materially against the interests of the Shareholders or
gross negligence in the performance of his duties) by majority vote or written
consent of the Shareholders with the Class A Shareholders and the Class B
Shareholders voting together as a single class with each Share held of record
entitled to one vote in person or by proxy. Any vacancy created by the removal
of a Trustee shall be filled as provided in Section 6.2(a).
(c) Termination of Advisory Agreement. The Advisory Agreement may
be terminated to the extent provided in Section 4.2 upon majority vote or
written consent of the Shareholders with the Class A Shareholders and the Class
B Shareholders voting together as a single class with each Share held of record
entitled to one vote in person or by proxy.
(d) Termination of the Trust. The Trust may be terminated at a
meeting of the Shareholders, specially called for such purpose, upon a vote by
Shareholders holding 66-2/3% of the Class A Shares and the Class B Shares voting
together as a single class with each Share of record entitled to one vote in
person or by proxy.
(e) Other Matters. All other matters to be voted on, consented to,
or ratified by the Shareholders shall be passed, consented to, or ratified by a
majority vote of the Shareholders with the Class A Shareholders and the Class B
Shareholders voting together as a single class with each Share held of record
entitled to cast one vote in person or by proxy.
Notwithstanding anything in this Article VI to the contrary, at all times
that there are no Class A Shares outstanding, the Class B Shareholders shall
have exclusive voting power on all matters upon which Shareholders are entitled
to vote pursuant to this Declaration. Wherever any provision of this
Declaration sets forth a specific percentage of the Shares outstanding and
entitled to vote which is required for approval or ratification of any action
upon which the vote of the Shareholders is required or may be obtained, such
provision shall mean such specified percentage of the votes entitled to be cast
by holders of all Shares then outstanding and entitled to vote on such action.
6.3 Legal Ownership of Trust Estate. The legal ownership of the Trust
Estate and the right to conduct the business of the Trust are vested exclusively
in the Trustees, and the Shareholders shall have no interest therein other than
beneficial interest in the Trust conferred by their Shares issued hereunder, and
they shall have no right to compel any partition, division, dividend, or
distribution of the Trust or any of the Trust Estate.
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6.4 Shares Deemed Personal Property. The Shares shall be personal
property and shall confer upon the holders thereof only the interest and rights
specifically set forth in this Declaration. The death, insolvency, or
incapacity of a Shareholder shall not dissolve or terminate the Trust or affect
its continuity nor give his legal representative any rights whatsoever, whether
against or in respect of other Shareholders, the Trustees, or the Trust Estate
or otherwise, except the sole right to demand and, subject to the provisions of
this Declaration, the Trustees' Regulations, and any requirements of law, to
receive a new certificate for Shares registered in the name of such legal
representative, in exchange for, and upon delivery pursuant to Section 6.5 of,
the certificate held by such Shareholder.
6.5 Share Record; Issuance and Transferability of Shares. Records shall
be kept by or on behalf of and under the direction of the Trustees, which shall
contain the names and addresses of the Shareholders, the number of Shares held
by them respectively, and the numbers of the certificates representing the
Shares, and in which there shall be recorded all transfers of Shares.
Certificates shall be issued, listed, and transferred in accordance with the
Trustees' Regulations. The Persons in whose names certificates are registered
on the records of the Trust shall be deemed the absolute owners of the Shares
represented thereby for all purposes of this Trust; but nothing herein shall be
deemed to preclude the Trustees or officers, or their agents or representatives,
from inquiring as to the actual ownership of Shares. Until a transfer is duly
effected on the records of the Trust, the Trustees shall not be affected by any
notice of such transfer, either actual or constructive. The receipt by the
Person in whose name any Shares are registered on the records of the Trust or of
the duly authorized agent of such Person, or if such Shares are so registered in
the names of more than one Person, the receipt of any one of such Persons, or of
the duly authorized agent of any of such Persons, shall be a sufficient
discharge for all dividends or distributions payable or deliverable in respect
of such Shares and from all liability to see to the application thereof.
Subject to the provisions of Section 6.13, Shares shall be transferable on
the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized in writing upon delivery to the Trustees or a transfer
agent of the certificate or certificates therefor, properly endorsed or
accompanied by duly executed instruments of transfer and accompanied by all
necessary documentary stamps, together with such evidence of the genuineness of
each such endorsement, execution, or authorization and of other matters as may
reasonably be required by the Trustees or such transfer agent. Upon such
delivery, the transfer shall be recorded in the records of the Trust and a new
certificate for the Shares so transferred shall be issued to the transferee and
in case of transfer of only a part of the Shares represented by any certificate,
a new certificate for the balance shall be issued to the transferor. Any Person
becoming entitled to any Shares in consequences of the death of a Shareholder or
otherwise by operation of law shall be recorded as the holder of such Shares and
shall receive a new certificate therefor, but only upon delivery to the Trustees
or a transfer agent of instruments and other evidence required by the Trustees
or the transfer agent to demonstrate such entitlement, the existing certificate
for such Shares, and such necessary releases from applicable governmental
authorities. In case of the loss, mutilation, or destruction of any certificate
for Shares, the Trustees may issue or cause to be issued a replacement
certificate on such terms and subject to such rules and regulations as the
Trustees may from time to time prescribe. Nothing
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in this Declaration shall impose upon the Trustees or a transfer agent a duty,
or limit their rights, to inquire into adverse claims.
6.6 Dividends or Distributions to Shareholders. The Trustees may from
time to time declare and pay to Shareholders such dividends or distributions in
cash or other form, out of current or accumulated income, capital, capital
gains, principal, surplus, proceeds from the increase of refinancing of Trust
obligations, or from the Disposition of portions of the Trust Estate or from any
other source as the Trustees in their discretion shall determine. The Trustees
may declare dividends or distributions as far in advance as they shall determine
in their discretion, including the advance declaration of dividends or
distributions with respect to more than one month or other period. Shareholders
shall have no right to any dividend or distribution unless and until the record
date therefor as declared by the Trustees.
(a) Distributions of Net Cash. The Trustees shall endeavor to
declare distributions of Net Cash, which shall be distributed 99% to the Class A
Shareholders and 1% to the Class B Shareholders, in amounts such that the Trust
shall maintain its status as a "real estate investment trust" under the Code. To
the extent that Class B Shareholders convert their Class B Shares into Class A
Shares as provided in Section 6.14, the percentage of distributions of Net Cash
to be distributed to the Class B Shareholders, as well as the other
distributions provided for in this Section 6.6, shall be reduced by multiplying
such 1% by a fraction, the numerator of which is the aggregate number of Class B
Shares outstanding as of the record date for any such distribution and the
denominator of which is the aggregate number of Class B Shares issued and
outstanding prior to any such conversion.
(b) Distributions of Proceeds. Upon any Disposition, the proceeds
of the Disposition shall be applied first, to the payment of any selling or
refinancing expenses, fees and commissions, including mortgage brokerage fees,
and all other fees and costs incurred in connection with the Disposition; and
second, to the payment of principal and interest owed in connection with the
asset disposed of immediately prior to the Disposition which is to be repaid in
connection with the Disposition. All proceeds remaining thereafter shall be
segregated and not commingled with the other assets of the Trust except for any
amounts thereof which the Trustees, in their absolute discretion, determine are
required for support of the operations of the Trust, or for investment in
additional Trust assets. Any portion of such remaining segregated proceeds in
the form of assets which the Trustees, in their absolute discretion, determine
cannot reasonably be distributed to the Shareholders (including any net interest
earned thereon) is herein called "Non-Distributable Net Proceeds," and any other
portion of such segregated proceeds is herein called "Distributable Net
Proceeds."
The Distributable Net Proceeds of any Disposition shall be distributed to
the Shareholders in the same manner as distributions of Net Cash by the Trust.
The Non-Distributable Net Proceeds of any Disposition shall be considered
Distributable Net Proceeds at such time as the Trustees, in their absolute
discretion, determine that the assets comprising such Non-Distributable Net
Proceeds can reasonably be distributed or such assets are transformed into
Distributable Net Proceeds. They shall be distributed to the
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Shareholders in the same manner as distributions of Net Cash by the Trust after
any such determination in the same manner as other Distributable Net Proceeds.
(c) Other Distributions. All distributions other than those
specifically provided for in Sections 6.6(a) and (b) may be declared by the
Trustees at such time that they, in their absolute discretion, determine that
the Trust has sufficient cash or other property which is not needed in the
operation of the Trust, and shall be distributed in accordance with the first
sentence of Section 6.6(a).
6.7 Transfer Agent, Dividend Disbursing Agent, and Registrar. The
Trustees shall have power to employ one or more transfer agents, dividend
disbursing agents, and registrars and to authorize them on behalf of the Trust
to keep records, to hold and disburse any dividends and distributions, and to
have and to perform in respect of all original issues and transfers of Shares,
dividends and distributions, and reports and communications to Shareholders, the
powers and duties usually had and performed by transfer agents, dividend
disbursing agents, and registrars of a California corporation.
6.8 Shareholders' Meeting. There shall be an annual meeting of the
Shareholders at such time and place as the Trustees' Regulations shall prescribe
at which the Trustees shall be elected and any other proper business may be
conducted. The annual meeting of Shareholders shall be held after delivery to
the Shareholders of the Annual Report (set forth in Section 6.10) and within six
months after the end of each fiscal year commencing with the fiscal year
starting in 1989. Special meetings of Shareholders may be called by the
Managing Trustee, if any, the Chairman of the Board of Trustees, or at least two
of the other Trustees and shall be called upon the written request of
Shareholders holding not less than 20% of the outstanding Class A Shares or 20%
of the outstanding Class B Shares, entitled to vote in the manner provided in
the Trustees' Regulations. If there shall be no Trustees, the officers of the
Trust shall promptly call a special meeting of the Shareholders for the election
of successor Trustees. Notice of any special meeting shall state the purposes
of the meeting. A majority of the outstanding Class A Shares and a majority of
the outstanding Class B Shares entitled to vote at any meeting represented in
person or by proxy shall constitute a quorum at any such meeting. Whenever
Shareholders are required or permitted to take any action, such action may be
taken without a meeting on written consent setting forth the action so taken,
signed by a sufficient proportion of the Class A Shareholders and Class B
Shareholders as would be required for a vote at meeting as provided in Section
6.2; provided that solicitation of such consents complies with Rule 706 of the
American Stock Exchange, Inc. as such Rule or its successor is then in effect.
The vote or consent of Shareholders shall not be required for the pledging,
hypothecating, granting security interests in, mortgaging, or encumbering of all
or any of the Trust Estate, or for the sale, exchange, or other Disposition of
all or any portion of the Trust Estate.
6.9 Proxies. Whenever the vote or consent of Shareholders is required
or permitted under this Declaration, such vote or consent may be given either
directly by the Shareholders or to a proxy in the form prescribed in the
Trustees' Regulations. The Trustees may solicit such proxies from the
Shareholders or any of them in any matter requiring or permitting the
Shareholders' vote or consent.
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6.10 Reports to Shareholders. Not later than 120 days after the close of
each full fiscal year of the Trust, the Trustees shall mail a report of the
business and operation of the Trust during such fiscal year to the Shareholders,
which report shall constitute the accounting of the Trustees for such fiscal
year. The report (herein "Annual Report") shall be in such form and have such
content as the Trustees deem proper. The Annual Report shall include a balance
sheet and a statement of income and surplus of the Trust. Such financial
statement shall be accompanied by the report of an independent public accountant
thereon. A manually signed copy of the accountant's report shall be filed with
the Trustees.
6.11 Fixing Record Dates. The Trustees' Regulations may provide for
fixing or, in the absence of such provision, the Trustees may fix, in advance, a
date as the record date for determining the Shareholders entitled to notice of
or to vote at any meeting of the Shareholders or to express consent to any
proposal without a meeting, or for the purpose of determining Shareholders
entitled to receive payment of any dividend or distribution (whether before or
after termination of the Trust) or any Annual Report or other communication from
the Trustees, or for any other purpose. The record date so fixed shall be not
less than ten days nor more than 90 days prior to the date of the meeting or
event for the purpose of which it is fixed.
6.12 Notice to Shareholders. Any notice of meeting or other notice,
communication, or report to any Shareholder shall be deemed duly delivered to
such Shareholder when such notice, communication, or report is deposited, with
postage thereon prepaid, in the United States mail, addressed to such
Shareholder at his address as it appears on the records of the Trust or is
delivered in person to such Shareholder.
6.13 Shareholders' Disclosures; Redemption and Stop Transfers. The
Shareholders shall upon demand disclose to the Trustees in writing such
information with respect to direct and indirect, including beneficial, ownership
of the Shares as the Trustees deem necessary. If the Trustees shall at any time
be of the opinion that direct or indirect ownership of Shares of the Trust has
or may become concentrated to an extent which may prevent the Trust from
qualifying as a real estate investment trust under the REIT Provisions of the
Code, the Trustees shall have the power by lot or other means deemed equitable
by them to prevent the transfer of such Shares, and/or to call for redemption of
a number of such Shares, sufficient in the opinion of the Trustees to maintain
or bring the direct or indirect ownership of Shares into conformity with the
requirements of the REIT Provisions of the Code. In particular, the Trustees
are specifically empowered to prohibit any Person from directly or indirectly
acquiring ownership (beneficial or otherwise) in the aggregate of more than 9.8%
of the outstanding Class A Shares (such Class A Shares in excess of 9.8%
constituting "Excess Class A Shares"). If the holder of the Excess Class A
Shares does not sell the Excess Class A Shares within 30 days of notification by
the Trust, then the Trustees are empowered (a) to prohibit the holder of Excess
Class A Shares from voting the Excess Class A Shares, (b) to place any
distributions with respect to such Excess Class A Shares in an escrow account
for payment when those Class A Shares are no longer classified as Excess Class A
Shares, and (c) to redeem any or all Excess Class A Shares for a non-interest
bearing promissory note.
The redemption price to be paid for Shares, including the Excess Shares, so
called for redemption shall be (i) the last reported sale price of the Shares on
the last business day prior
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to the redemption date on the principal national securities exchange on which
the Shares are listed or admitted to trading, or (ii) if the Shares are not
listed or admitted to trading, the latest bid quotation for the Shares on such
last business day as reported by the National Quotation Bureau Incorporated or a
similar organization selected from time to time by the Trust for the purpose, or
(iii) if not determinable as aforesaid, as determined in good faith by the
Trustees. The redemption price shall be payable by the Trust pursuant to a non-
interest bearing promissory note which shall require three equal monthly
payments commencing upon the date fixed for redemption by the Trustees. From and
after the date fixed for redemption by the Trustees, the holder of any Shares so
called for redemption, including the Excess Shares, shall cease to be entitled
to any dividends, distributions, voting rights, and other benefits with respect
to such Shares, excepting only the right to payment of the redemption price
fixed as aforesaid.
In addition, if any Person knowingly holds Excess Class A Shares and the
Trust loses its qualification as a real estate investment trust under the REIT
Provisions of the Code or becomes a personal holding company, that Person will
be required to indemnify the Trust for the full amount of any damages and
expenses resulting from the loss of its REIT qualification. This liability
might include increased corporate taxes, attorneys' fees, and administrative
costs. The Trustees may require each proposed transferee of Class A Shares to
deliver a statement or affidavit setting forth the number of Class A Shares, if
any, already owned, directly or indirectly, by such transferee and may declare
void any transfer of Class A Shares which would cause an accumulation of Class A
Shares in excess of 9.8% of the outstanding Class A Shares of the Trust.
In order to further assure that ownership of the Shares does not become so
concentrated, any transfer of Shares that would prevent the Trust from
continuing to be qualified as a real estate investment trust under the REIT
Provisions of the Code shall be void ab initio, and the intended transferee of
such Shares shall be deemed never to have had any interest therein. If the
foregoing provision is determined to be void or invalid by virtue of any legal
decision, statute, rule, or regulation, then the transferee of such Shares shall
be deemed to have acted as agent on behalf of the Trustees in acquiring such
Shares and to hold such Shares on behalf of the Trustees.
6.14 Conversion Rights. Subject to the terms and conditions of this
Section 6.14, the Class B Shareholders as a group shall at their option be
entitled to convert up to 20% of the total of the Class B Shares, issued and
outstanding following the termination of the Offering and issuance of the Class
B Shares pursuant to Section 6.1, each year commencing with 1990 into fully paid
and non-assessable Class A Shares on the basis of one Class A Share for 49 Class
B Shares. Such conversion rights may be exercised at any time after December
31, 1989, and such rights shall be cumulative for each year thereafter, so that
to the extent that less than 20% of the Class B Shares held of record by a Class
B Shareholder are converted in any year, the percentage of Class B Shares
convertible in the succeeding years shall be increased accordingly. For
example, if only 10% of the total outstanding Class B Shares were converted into
Class A Shares in 1990, up to 30% of such total number of Class B Shares shall
be convertible in 1991, and to the extent that no Class B Shares are converted
from 1990 through 1993, 100% of the total outstanding Class B Shares will be
convertible into Class A Shares in 1994 and each year thereafter. After
conversion of the Class B Shares into Class A Shares, the rights of the
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remaining Class B Shareholders with respect to distributions of Net Cash shall
be adjusted as provided in Section 6.6.
In order to exercise such conversion rights, the Class B Shareholder shall
surrender the certificate or certificates for such Class B Shares at the office
of said transfer agent (or other place as provided by the Trustees), which
certificate or certificates, if the Trustees shall so request, shall be duly
endorsed to the Trust or in blank or accompanied by proper instruments of
transfer to the Trust (such endorsements or instruments of transfer to be in
form satisfactory to the Trust), and shall give written notice to the Trust at
said office that he elects so to convert said Class B Shares in accordance with
the terms of this Section 6.14, and shall state in writing therein the name or
names in which he wishes the certificate or certificates for Class A Shares to
be registered. Every such notice of election to convert shall constitute a
binding contract between the holder of such Class B Shares and the Trust,
whereby the Class B Shareholder shall be deemed to subscribe for the amount of
Class A Shares which he shall be entitled to receive upon such conversion, and,
in satisfaction of such subscription, to deposit the Class B Shares to be
converted and to release the Trust for all liability thereunder, and thereby the
Trust shall be deemed to agree that the surrender of the certificate or
certificates therefor and the extinguishment of liability thereon shall
constitute full payment of such subscription for Class A Shares to be issued
upon such conversion.
The Trust will, as soon as practicable after such deposit of a certificate
or certificates for Class B Shares accompanied by the written notice and the
statement above prescribed, issue and deliver at the office of said transfer
agent (or other place as provided above) to the Person for whose account such
Class B Shares were so surrendered, or to his nominee or nominees, a certificate
or certificates for the number of Class A Shares to which he shall be entitled
as aforesaid. Subject to the provisions of this Section 6.14, such conversion
shall be deemed to have been made as of the date of such surrender of the Class
B Shares to be converted; and the Person or Persons entitled to receive the
Class A Shares issuable upon conversion of such Class B Shares shall be treated
for all purposes as the record holder or holders of such Class A Shares on such
date. Upon conversion of Class B Shares, the Class B Shares so converted shall
be canceled and retired by the Trust.
The issuance of certificates for Class A Shares upon conversion of Class B
Shares shall be made without charge for any stamp or other similar tax in
respect of such issuance; provided, however, that if any such certificate is to
be issued in a name other than that of the holder of the Class B Shares
converted, the Person or Persons requesting the issuance thereof shall pay to
the Trust the amount of any tax which may be payable in respect of any transfer
involved in such issuance or shall establish to the satisfaction of the Trust
that such tax has been paid or that no such tax is due.
The Trust will at all times reserve and keep available, solely for the
purpose of issuance upon conversion of the outstanding shares of Class B Shares,
such number of Class A Shares as shall be issuable upon the conversion of all
such outstanding Class B Shares; provided that nothing contained herein shall be
construed to preclude the Trust from satisfying its obligations in respect of
the conversion of the outstanding Class B Shares by delivery of Class A Shares
which are held in the treasury of the Trust. The Trust covenants that if any
Class A Shares,
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required to be reserved for purposes of conversion hereunder, require
registration with or approval of any governmental authority under any federal or
state law before such Class A Shares may be issued upon conversion, the Trust
will use its best efforts at its expense to cause such Class A Shares to be duly
registered or approved, as the case may be. The Trust will also at its expense
endeavor to list the Class A Shares required to be delivered upon conversion
prior to such delivery upon each national securities exchange, if any, upon
which the outstanding Class A Shares are listed at the time of such delivery.
The Trust covenants that all Class A Shares which shall be issued upon
conversion of the Class B Shares, will, upon issue, be fully paid and non-
assessable and not entitled to any preemptive rights.
ARTICLE VII
LIABILITY OF TRUSTEES, SHAREHOLDERS, AND
OFFICERS, AND OTHER MATTERS
7.1 Exculpation of Trustees and Officers. No Trustee or officer of the
Trust shall be liable to the Trust or to any Trustee for any act or omission of
any other Trustee, Shareholder, officer, or agent of the Trust, including the
Advisor, or be held to any personal liability whatsoever in tort, contract, or
otherwise in connection with the affairs of this Trust except only that arising
from his own willful violation of the provisions of this Declaration or of the
Trustees' Regulations which violation is materially against the interests of the
Shareholders and results in material harm to such interests, or gross negligence
in the performance of his duties.
7.2 Express Exculpatory Clauses in Instruments. The Trustees shall
cause any written instrument creating an obligation of the Trust to include a
reference to this Declaration to provide that neither the Shareholders nor the
Trustees nor officers shall be liable thereunder and that the other parties to
such instrument shall look solely to the Trust Estate for the payment of any
claim thereunder or for the performance thereof. However, the omission of such
provision from any such instrument shall not render the Shareholders or any
Trustee or officer liable nor shall the Trustees or any officer of the Trust be
liable to anyone for such omission.
7.3 Liability and Indemnification of Trustees. The Trustees, officers,
employees, and agents of the Trust, including the Advisor, and their affiliates,
shall not be liable to the Trust or the Shareholders, and the Trust shall
indemnify the Trustees, officers, employees, and agents; of the Trust, including
the Advisor, and their Affiliates, against any claim or liability by or to any
Person other than the Trust, in respect of any act or any failure to act so long
as such act or failure to act was performed in a manner determined in good faith
to be within the scope of the Trustees' authority and to be in the best interest
of the Trust, and so long as he, she, or it was not guilty of negligence,
misconduct, or a breach of his fiduciary obligations in such act or failure to
act.
The indemnification authorized by this Section 7.3 shall include payment of
(i) reasonable attorney's fees or other expenses incurred in settling any such
claim or liability or incurred in any finally adjudicated legal proceeding and
(ii) expenses incurred by the removal of any liens affecting any property of the
Person to be indemnified. Indemnification shall be made from
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assets of the Trust, and no Shareholder shall be personally liable to any Person
to be indemnified. This Section 7.3 shall inure to the benefit of the Trustees
and their Affiliates.
Notwithstanding the foregoing, the Trustees and their affiliates and any
Person acting as a broker-dealer shall not be indemnified for liabilities
arising under federal and state securities laws, unless; (a) there has been a
successful adjudication on the merits of each count involving securities law
violations as to the particular indemnitee and the court approves
indemnification of such litigation expenses; or (b) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to a particular indemnitee and the court approves indemnification of such
litigation expenses; or (c) a court of competent jurisdiction approves a
settlement of the claims against a particular indemnitee and the court approves
indemnification of such litigation expenses. In any claim for indemnification
for federal or state securities law violations, the party seeking
indemnification shall place before the court the position of the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc., and
the securities administrator or applicable state agency charged with
administration and regulation of the offer and sale of these securities with
respect to the issue of indemnification securities law violations. The Trust
shall not incur the cost of the portion of any insurance which insures any party
against any liability as to which such party is herein prohibited from being
indemnified. For the purposes of this Section 7.3 only, the term "Affiliates"
shall mean any Person performing services on behalf of the Trust who; (i)
directly or indirectly controls, is controlled by, or is under common control
with the Trustees; or (ii) owns or controls 10% or more of the outstanding
voting securities of the Trustees; or (iii) is an officer, director, partner, or
trustee of the Trustees; or (iv) is any company for which the Trustees act as an
officer, director, partner, or trustee.
7.4 Right of Trustees and Officers to Own Shares or Other Property and to
Engage in Other Business.
(a) Any Trustee, officer, agent, or employee of the Trust and the
Advisor may acquire, own, hold, and dispose of Securities of the Trust, for his
individual account, and may exercise all rights of a holder of such Securities
to the same extent and in the same manner as if he were not a Trustee, officer,
employee, agent, or the Advisor; have personal business interests and engage in
personal business activities, which interests and activities may include the
acquisition, syndication, holding, management, operation, or disposition, for
his own account or for the account of others, of interests in Mortgages, real
property, or other assets, even if the same compete directly with the actual
business being conducted by the Trust; subject to the provisions of Article IV,
be interested as trustee, officer, director, stockholder, partner, member,
advisor, or employee, or otherwise have a direct or indirect interest in a
Person who may be engaged to render advice or services to the Trust (as the
Advisor or otherwise) and receive compensation from such Person and any
Affiliate of such Person as well as compensation as Trustee, officer, agent, or
employee of the Trust; and, in a capacity of trustee, officer, director,
stockholder, partner, member, advisor, or employee of any Person, have business
interests and engage in business activities in addition to those relating to the
Trust, which interests and activities may include the acquisition, syndication,
holding, management, operation, or disposition, for his own account or for the
account of others, of interests in Mortgages, real property, or other assets, or
interests in Persons engaged in the mortgage or real estate business,
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which interests or activities may be in direct competition with the Trust; and
each Trustee, officer, employee, and agent of the Trust shall be free of any
obligation to present to the Trust any investment opportunity which comes to him
in any capacity other than solely as Trustee, officer, employee, or agent of the
Trust, even if such opportunity is of a character which, if presented to the
Trust, could be taken by the Trust; and none of the foregoing interests or
activities (singly, or in combination) shall be deemed to conflict with or be
inconsistent with his powers, duties, and responsibilities as Trustee, officer,
agent or employee of the Trust.
(b) Nothing in this Declaration shall be deemed to
(i) Prohibit a Trustee, officer, employee, or agent of the
Trust from acquiring or owning any amount or percentage of any class of
outstanding Securities of any publicly-owned Person whose shares are listed or
traded on a national securities exchange or in the over-the-counter market;
(ii) Prohibit a Trustee, officer, employee, or agent of the
Trust who is also engaged in rendering legal, accounting, financial advisory, or
other services from rendering such services to any Person or from acting as
trustee, director, member, advisor, officer, or representative of any such
Person to whom he renders or has rendered such services;
(iii) Require a Trustee, officer, employee, or agent of the
Trust to dispose of a personal business interest acquired, or to discontinue
personal business activities begun, whether acquired or begun before or when he
was a Trustee, officer, employee, or agent, regardless of whether such interests
or activities compete with the business of the Trust; or
(iv) Prohibit a Trustee, officer, employee, or agent of the
Trust from having personal business interests or engaging in personal business
activities regardless of whether:
(A) The Trustees (by vote or consent sufficient for
such purpose including the vote of the interested Trustee(s)) have decided that
such interests or activities should or should not be acquired or engaged in by
the Trust; or
(B) The Trust could have acquired such interests or
engaged in such activities without endangering the qualification of the Trust as
a real estate investment trust under the REIT Provisions of the Code or without
violating any provision of this Declaration or applicable law,
even though any such Person, interests, or activities are or could be in
competition, in any way, with the Trust, or any such Person is in the same or
similar business as the Trust.
7.5 Transactions Between the Trust and Certain Affiliates. Except as
prohibited by this Declaration and in the absence of fraud, a contract, act, or
other transaction between the Trust and any other Person, or in which the Trust
is interested, shall be valid even though (i) one or more of the Trustees,
officers of the Trust, or the Advisor are Affiliates of such other Person, or
(ii) one or more of the Trustees, officers, or the Advisor, individually or
jointly with
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others, is a party or are parties to or directly or indirectly interested in, or
connected with, such contract, act, or transaction. Neither any such Trustee,
officer, nor the Advisor shall be under any disability from or have any
liability as a result of entering into any such contract, act, or transaction,
provided that (a) such interest or connection is disclosed or known to the
Trustees and the Trustees authorized such contract, act, or other transaction by
vote sufficient for such purpose including the vote of the interested
Trustee(s), or (b) such interest or connection is disclosed or known to the
Shareholders, and such contract, act, or transaction is approved or subsequently
ratified by the Shareholders, or (c) such contract, act, or transaction is fair
and reasonable as to the Trust at the time it is authorized by the Trustees or
by the Shareholders.
Notwithstanding any other provision of this Declaration of Trust,
Affiliates of the Advisor may receive compensation from, and/or a share of the
proceeds received by, borrowers in connection with Trust Loans.
7.6 Restriction of Duties and Liabilities. To the extent that the
nature of this Trust (that is, a business trust) will permit, the duties and
liabilities of Shareholders, Trustees, and officers shall in no event be greater
than the duties and liabilities of shareholders, directors, and officers of a
California corporation. The Shareholders, Trustees, and officers shall in no
event have any greater duties or liabilities than those imposed by applicable
law as shall be in effect from time to time.
7.7 Persons Dealing with Trustees or Officers. Any act of the Trustees
or officers purporting to be done in their capacity as such, shall, as to any
Persons dealing with such Trustees or officers, be conclusively deemed to be
within the purpose of this Trust and within the powers of the Trustees and
officers. No Person dealing with the Trustees or any of them, or with the
authorized officers, agents, or representatives of the Trust, shall be bound to
see to the application of any funds or property passing into their hands or
control. The receipt of the Trustees or any of them, or of authorized officers,
agents, or representatives of the Trust, for moneys or other consideration,
shall be binding upon the Trust.
7.8 Reliance. The Trustees and officers may consult with counsel (which
may be a firm in which one or more of the Trustees or officers is or are
members) and the advice or opinion of such counsel shall be full and complete
personal protection to all of the Trustees and officers in respect of any action
taken or suffered by them in good faith and in reliance on or in accordance with
such advice or opinion. In discharging their duties, Trustees and officers,
when acting in good faith, may rely upon financial statements of the Trust
represented to them to be correct by the Managing Trustee or the Chairman of the
Board of Trustees, if any, or the officer of the Trust having charge of its
books of account, or stated in a written report by an independent public
accountant fairly to present the financial position of the Trust. The Trustees
may rely, and shall be personally protected in acting, upon any instrument or
other document believed by them to be genuine.
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ARTICLE VIII
DURATION, TERMINATION, AMENDMENT,
AND QUALIFICATION OF TRUST
8.1 Duration of Trust. In the event that it shall be finally determined
by a court of competent jurisdiction in any state in which the Trust shall own
property that the holding of such property is or shall be in contravention of a
law, whether statutory or otherwise, similar to the common law "rule against
perpetuities," then with respect to the property affected thereby, unless this
Trust shall be earlier terminated as provided in this Section 8, the Trust shall
continue only until the expiration of 20 years after the death of the last
survivor of the following named persons:
<TABLE>
<CAPTION>
NAME DATE OF BIRTH PARENTS RESIDENCE
- ---- ------------- ------- ---------
<S> <C> <C> <C>
Adam G. September 10, 1985 Mr. and Mrs. 348 South Citrus
Edwards Steven Edwards Los Angeles, CA 90036
Lindsey M. September 27, 1986 Mr. and Mrs. 5701 West 76th Street
Nicholls Donald G. Nicholls Los Angeles, CA 90045
Daniel L. December 11, 1987 Mr. and Mrs. 4745 Yarmouth Avenue
Reuben Timothy D. Reuben Encino, CA 91316
Lucas J. July 15, 1986 Mr. and Mrs. 9914 Garden Grove
Sexton Phillip J. Sexton Northridge, CA 91325
Taylor C. January 13, 1987 Mr. and Mrs. 2816 Hilary Court
Smith Michael F. Smith Thousand Oaks, CA 91362
</TABLE>
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<PAGE>
8.2 Termination of Trust.
(a) Upon termination of the Trust:
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, transfer, or otherwise dispose of all or any
part of the remaining Trust Estate to one or more Persons at a public or private
sale for consideration which may consist in whole or in part of cash,
securities, or other property of any kind, discharge or pay its liabilities, and
do all other acts appropriate to liquidate its business.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities, and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Estate, in cash or in kind or partly each, among
the Shareholders according to their respective rights and the Advisor pursuant
to the Advisory Agreement.
(b) After termination of the Trust and distribution to the
Shareholders as herein provided, the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease.
8.3 Amendment Procedure.
(a) Prior to the issuance of any Shares, this Declaration may be
amended by a majority of the Trustees. Thereafter, this Declaration may be
amended by Shareholders voting as provided in Section 6.2. The Trustees may
also amend this Declaration without the vote or consent of Shareholders if they
deem it necessary to (i) conform this Declaration to the requirements of the
REIT Provisions of the Code or to other applicable federal laws or regulations,
but the Trustees shall not be liable for failing so to do, and (ii) clarify,
supplement, correct, or otherwise revise any provision of this Declaration as
provided in Section 9.6(a).
(b) No amendment may be made, under Section 8.3(a) above, which
would change any rights with respect to any outstanding Shares of the Trust by
diminishing or eliminating any voting rights pertaining thereto, except with the
vote or consent of the holders of two-thirds of the outstanding class of Shares
affected and entitled to vote thereon.
(c) A certification in recordable form signed by a majority of the
Trustees setting forth an amendment and reciting that it was duly adopted by the
Shareholders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and
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<PAGE>
executed by a majority of the Trustees, shall be conclusive evidence of such
amendment when lodged among the records of the Trust.
8.4 Qualification Under the REIT Provisions of the Code. It is intended
that the Trust shall qualify as a "real estate investment trust" under the REIT
Provisions of the Code during such period as the Trustees shall deem it
advisable to so qualify the Trust.
ARTICLE IX
MISCELLANEOUS
9.1 Applicable Law. This Declaration is executed and acknowledged by the
Trustees in the State of California and with reference to the statutes and laws
thereof, and the rights of all parties and the construction and effect of every
provision hereof shall be subject to and construed according to statutes and
laws of said State.
9.2 Index and Headings for Reference Only; Gender. The table of contents
and heading preceding the text, articles, and sections hereof have been inserted
for convenience and reference only and shall not be construed to affect the
meaning, construction, or effect of this Declaration. Whenever the context so
requires references to the masculine gender shall include the female and neuter
genders and vice versa, and singular references shall include the plural form.
9.3 Successors in Interest. This Declaration and the Trustees'
Regulations shall be binding upon and inure to the benefit of the undersigned
Trustees and their successors, assigns, heirs, distributees, and legal
representatives, and every Shareholder and his successors, assigns, heirs,
distributees, and legal representatives.
9.4 Inspections of Records. Trust records shall be available for
inspection by Shareholders at the same time and in the same manner and to the
extent that comparable records of a California corporation would be available
for inspection by stockholders under the laws of the State of California.
Except as specifically provided for in this Declaration, Shareholders shall have
no greater right than stockholders of a California corporation to require
financial or other information from the Trust, Trustees, or officers.
9.5 Counterparts. This Declaration may be simultaneously executed in
several counterparts, each of which when so executed shall be deemed to be an
original, and such counterparts together shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
9.6 Correction of Provisions of Declaration.
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any one or more of
such provisions are in conflict with the REIT Provisions of the Code, or with
other applicable federal or state laws and
-32-
<PAGE>
regulations, or that any provision of this Declaration should be clarified or
supplemented, or contains a mistake, ambiguity, or inconsistency with any other
provision of this Declaration, or should otherwise be revised, they shall,
without the consent or vote of the Shareholders, immediately amend this
Declaration to delete such inconsistency, clarify or supplement such provision,
and/or correct such mistake or ambiguity; provided, however, that such
determination by the Trustees shall not affect or impair any of the remaining
provisions of this Declaration or render invalid or improper any action taken or
omitted (including, but not limited to, the election of Trustees) prior to such
determination. A certification in recordable form signed by a majority of the
Trustees setting forth any such determination and reciting that it was duly
adopted by the Trustees, or a copy of this Declaration, with the conflicting
provisions amended or removed pursuant to such a determination, in recordable
form, signed by a majority of the Trustees, shall be conclusive evidence of such
determination when lodged in the records of the Trust. The Trustees shall not be
liable for failure to make any determination under this Section 9.6(a). Nothing
in this Section 9.6(a) shall in any way limit or affect the right of the
Trustees to amend this Declaration as provided in Section 8.3(a).
(b) If any provisions of this Declaration shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provisions and shall not in any manner affect or render invalid or unenforceable
any other provision of this Declaration, and this Declaration shall be carried
out as if any such invalid or unenforceable provision were not contained herein.
9.7 Certifications. The following certifications shall be final and
conclusive as to any Person dealing with the Trust when made in writing by the
Secretary of the Trust or by any Trustee:
(a) A certification as to the number and identity of Persons
holding office as Trustees or officers at any particular time;
(b) A certification that a copy of this Declaration or of the
Trustees' Regulations is a true and correct copy thereof as then in force; and
(c) A certification as to any actions by Trustees, officers, or the
Advisor, other than the above.
9.8 Recording and Filing. A copy of this Declaration and any amendments
shall be recorded in the office of the County Recorder of Los Angeles County,
California, and in the office of the County Recorder or its equivalent in every
county where the Trust is or Trustees are the record owner of real property,
provided that provision is made in such county for such
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<PAGE>
recording and further provided that this Declaration is accepted for recording.
This Declaration and any amendments may also be filed or recorded as in such
other places the Trustees deem appropriate.
IN WITNESS WHEREOF, the undersigned have executed this Restated
Declaration of Trust as of the date first hereinabove set forth.
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
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<PAGE>
EXHIBIT F
ANGELES PARTICIPATING MORTGAGE TRUST
1996 TRUSTEES' SHARE INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I ESTABLISHMENT................................................. F-3
1.1 Purpose....................................................... F-3
ARTICLE II DEFINITIONS................................................... F-3
2.1 "Affiliate"................................................... F-3
2.2 "Agreement" or "Option Agreement"............................. F-3
2.3 "Beneficiary"................................................. F-3
2.4 "Board of Trustees" or "Board"................................ F-3
2.5 "Cause"....................................................... F-3
2.6 "Change in Control" and "Change in Control Price"............. F-4
2.7 "Code" or "Internal Revenue Code"............................. F-4
2.8 "Commission".................................................. F-4
2.9 "Committee"................................................... F-4
2.10 "Disability".................................................. F-4
2.11 "Effective Date".............................................. F-4
2.12 "Exchange Act"................................................ F-4
2.13 "Fair Market Value"........................................... F-4
2.14 "Grant Date".................................................. F-4
2.15 "Initial Grant Date".......................................... F-5
2.16 "Nonqualified Option"......................................... F-5
2.17 "Option"...................................................... F-5
2.18 "Option Period"............................................... F-5
2.19 "Option Price"................................................ F-5
2.20 "Participant"................................................. F-5
2.21 "Plan"........................................................ F-5
2.22 "Representative".............................................. F-5
2.23 "Rule 16b-3 and "Rule 16a-1(c)(3)"............................ F-5
2.24 "SAHI Group".................................................. F-5
2.25 "Securities Act".............................................. F-6
2.26 "Shares"...................................................... F-6
2.27 "Termination of Trusteeship".................................. F-6
2.28 "Trust"....................................................... F-6
2.29 "Trustee"..................................................... F-6
ARTICLE III ADMINISTRATION................................................ F-6
3.1 Committee Structure and Authority............................. F-6
ARTICLE IV SHARES SUBJECT TO PLAN........................................ F-8
4.1 Number of Shares.............................................. F-8
4.2 Release of Shares............................................. F-8
4.3 Restrictions on Shares........................................ F-8
4.4 Shareholder Rights............................................ F-9
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
4.5 Best Efforts To Register...................................... F-9
4.6 Anti-Dilution................................................. F-9
ARTICLE V OPTION GRANTS.................................................F-10
5.1 Eligibility...................................................F-10
5.2 Grant and Exercise............................................F-10
5.3 Terms and Conditions..........................................F-11
5.4 Termination by Reason of Death................................F-12
5.5 Termination by Reason of Disability...........................F-12
5.6 Other Termination.............................................F-12
5.7 Cashing Out of Option.........................................F-12
ARTICLE VI PROVISIONS APPLICABLE TO SHARES ACQUIRED UNDER
THE PLAN......................................................F-13
6.1 Limited Transfer During Offering..............................F-13
6.2 Committee Discretion..........................................F-13
6.3 No Trust Obligation...........................................F-13
ARTICLE VII CHANGE IN CONTROL PROVISIONS..................................F-13
7.1 Impact of Event...............................................F-13
7.2 Definition of Change in Control...............................F-14
7.3 Change in Control Price.......................................F-15
ARTICLE VIII MISCELLANEOUS.................................................F-15
8.1 Amendments and Termination....................................F-15
8.2 Unfunded Status of Plan.......................................F-15
8.3 General Provisions............................................F-16
8.4 Mitigation of Excise Tax......................................F-17
8.5 Options in Substitution for Options Granted by Other
Corporations.................................................F-17
8.6 Procedure for Adoption........................................F-17
8.7 Procedure for Withdrawal......................................F-17
8.8 Delay.........................................................F-18
8.9 Headings......................................................F-18
8.10 Severability..................................................F-18
8.11 Successors and Assigns........................................F-18
8.12 Entire Agreement..............................................F-18
</TABLE>
F-2
<PAGE>
ANGELES PARTICIPATING MORTGAGE TRUST
1996 TRUSTEES' SHARE INCENTIVE PLAN
-------------------------------------------
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose.
-------
The Angeles Participating Mortgage Trust 1996 Trustees' Share Incentive
Plan ("Plan") is hereby established by Angeles Participating Mortgage Trust
("Trust"). The purpose of the Plan is to promote the overall financial
objectives of the Trust and its shareholders by motivating trustees of the Trust
who are not officers or employees to achieve long-term growth in shareholder
equity in the Trust and to retain the association of those individuals. The Plan
and the grant of awards thereunder is expressly conditioned upon the Plan's
approval by the shareholders of the Trust. The Plan is adopted to be effective
as of September 26, 1996, subject to the approval of the shareholders of the
Trust.
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
association, limited liability company, joint-stock company, trust,
unincorporated association or other entity (other than the Trust) that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with the Trust.
2.2 "Agreement" or "Option Agreement" means, individually or
collectively, any agreement entered into pursuant to the Plan pursuant to which
an Option is granted to a Participant.
2.3 "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefit specified under the
Plan to the extent permitted. If there is no designated beneficiary, then the
term means the person or persons, trust or trusts entitled by will or the laws
of descent and distribution to receive such benefits.
2.4 "Board of Trustees" or "Board" means the Board of Trustees of the
Trust.
2.5 "Cause" shall mean, for purposes of whether and when a Participant has
incurred a Termination of Trusteeship for Cause (a) any act or failure to act
deemed to constitute cause under the Trust's or Affiliate's established
practices, policies or guidelines applicable to the Participant or (b) the
Participant's act or omission of gross misconduct with respect to the Trust or
an Affiliate in any material respect.
F-3
<PAGE>
2.6 "Change in Control" and "Change in Control Price" have the meanings
set forth in Sections 7.2 and 7.3, respectively.
2.7 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, final Treasury Regulations thereunder and any subsequent
Internal Revenue Code.
2.8 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.9 "Committee" means the person or persons appointed by the Board of
Trustees to administer the Plan, as further described in the Plan.
2.10 "Disability" means a mental or physical illness that renders a
Participant totally and permanently incapable of performing the Participant's
duties for the Trust or an Affiliate. Notwithstanding the foregoing, a
Disability shall not qualify under this Plan if it is the result of (a) a
willfully self-inflicted injury or willfully self-induced sickness; or (b) an
injury or disease contracted, suffered, or incurred, while participating in a
criminal offense. The determination of Disability shall be made by the
Committee. The determination of Disability for purposes of this Plan shall not
be construed to be an admission of disability for any other purpose.
2.11 "Effective Date" means September 26, 1996, subject to the approval of
the shareholders of the Trust.
2.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.13 "Fair Market Value" means the value per Share determined on the basis
of the good faith determination of the Committee, without regard to whether the
Shares are restricted or represent a minority interest, pursuant to the
applicable method described below:
(a) if the Shares are listed on a national securities exchange or
quoted on the NASDAQ Stock Market ("NNM"), the closing price per Share on
the relevant date, as reported by the principal national exchange on which
such shares are traded (in the case of an exchange) or by the NNM, as the
case may be;
(b) if the Shares are not listed on a national securities exchange or
quoted on the NNM, but are actively traded in the over-the-counter market,
the average of the closing bid and asked prices per Share on the relevant
date, or the most recent preceding date for which such quotations are
reported; and
(c) if, on the relevant date, the Shares are not publicly traded or
reported as described in (a) or (b), the per Share value determined in good
faith by the Committee.
2.14 "Grant Date" means the date that as of which an Option is granted
pursuant to the Plan.
F-4
<PAGE>
2.15 "Initial Grant Date" means the first business day following the date
a Trustee joins the Board, but only if the Trustee was not a Trustee on the
Effective Date.
2.16 "Nonqualified Option" means an Option to purchase Shares granted
under this Plan the taxation of which is pursuant to Section 83 of the Code.
2.17 "Option" means the right to purchase the number of Shares specified
by the Plan at a price and for a term fixed by the Plan, and subject to such
other limitations and restrictions as the Plan, the Agreement and the Committee
imposes.
2.18 "Option Period" means the period during which the Option shall be
exercisable in accordance with the Agreement and the Plan.
2.19 "Option Price" means the price per Share at which the Shares may be
purchased under an Option as provided in Section 5.2.
2.20 "Participant" means a person who satisfies the eligibility conditions
of Article V and to whom an Option has been granted by the Committee under this
Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such Representative. The term shall also include a trust for the benefit of the
Participant, a partnership the interest of which is by or for the benefit of the
Participant, the Participant's parents, spouse or descendants, or a custodian
under a uniform gifts to minors act or similar statute for the benefit of the
Participant's descendants, to the extent permitted by the Committee and not
inconsistent with Rule 16b-3 to the extent intended. Notwithstanding the
foregoing, the term "Termination of Employment" shall mean the Termination of
Employment of the employee.
2.21 "Plan" means the Angeles Participating Mortgage Trust 1996 Trustees'
Share Incentive Plan, as herein set forth and as may be amended from time to
time.
2.22 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been transferred with the permission of the
Committee or by operation of law; provided that only one of the foregoing shall
be the Representative at any point in time as determined under applicable law
and recognized by the Committee.
2.23 "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule 16a-
1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
2.24 "SAHI Group" collectively refers to SAHI Partners, a Delaware general
partnership, SAHI, Inc., a Delaware corporation, Starwood Mezzanine Investors,
L.P., Barry Sternlicht, Madison Grose, Eugene Gorab, Jay Sugarman or any of
their respective affiliates.
F-5
<PAGE>
2.25 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2.26 "Shares" means the Class A Shares, $1.00 par value, of beneficial
interest in the Trust, whether presently or hereafter issued, and any other
securities resulting from adjustment thereof as described hereinafter or the
securities of any successor to the Trust which are designated for the purpose of
the Plan.
2.27 "Termination of Trusteeship" means the occurrence of any act or event
that actually or effectively causes or results in the person's ceasing, for
whatever reason, to be a Trustee of the Trust or of any Affiliate, including,
without limitation, death, Disability, dismissal, severance at the election of
the Participant, retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer by the Trust or its Affiliates of all businesses
owned or operated by the Trust or its Affiliates.
2.28 "Trust" means the Angeles Participating Mortgage Trust, a California
business trust created by Declaration of Trust, dated April 15, 1988, and
recorded in the Official Records of the Recorder's Office of Los Angeles County,
California on August 29, 1988, and includes any successor or assignee business
trust or trusts or corporation or corporations into which the Trust may be
merged, changed or consolidated; any business trust or corporation for whose
securities the securities of the Trust shall be exchanged; and any assignee of
or successor to substantially all of the assets of the Trust.
2.29 "Trustee" means each and any trustee who serves on the Board and who
is not also an officer or employee of the Trust or any of its affiliates.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
the Committee which shall be the Audit and Compensation Committee of the Board
of Trustees, unless such committee does not exist or the Board establishes a
committee whose purpose is the administration of this Plan; provided that only
those members of the Audit and Compensation Committee of the Board who
participate in the decision relative to Options under the Plan shall be deemed
to be part of the "Committee" for purposes of the Plan. A majority of the
Committee shall constitute a quorum at any meeting thereof (including telephone
conference) and the acts of a majority of the members present, or acts approved
in writing by a majority of the entire Committee without a meeting, shall be the
acts of the Committee for purposes of this Plan. The Committee may authorize any
one or more of its members or an officer of the Trust to execute and deliver
documents on behalf of the Committee. A member of the Committee shall not
exercise any discretion respecting himself or herself under the Plan. The Board
shall have the authority to remove, replace or fill any vacancy of any member of
the Committee upon notice to the Committee and the affected member. Any member
of the Committee may resign
F-6
<PAGE>
upon notice to the Board. The Committee may allocate among one or more of its
members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan and the limitation of Section (c)(2)(ii) of Rule 16b-3, if
applicable, so that the Plan is described in that section to do the following:
(a) to determine the terms and conditions of any Option granted
hereunder (including, but not limited to, the Option Period, any exercise
restriction or limitation and any exercise acceleration or forfeiture
waiver regarding any Option and the Shares relating thereto);
(b) to adjust the terms and conditions, at any time or from time to
time, of any Option, subject to the limitations of Section 8.1;
(c) to provide for the forms of Agreement to be utilized in connection
with this Plan;
(d) to determine whether a Participant has a Disability or has
retired;
(e) to determine what securities law requirements are applicable to
the Plan, Options, and the issuance of Shares and to require of a
Participant that appropriate action be taken with respect to such
requirements;
(f) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Agreement, outstanding Options;
(g) to require as a condition of the exercise of an Option or the
issuance or transfer of a certificate of Shares, the withholding from a
Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Trust or any other employer to obtain a
deduction or as may be otherwise required by law;
(h) to determine whether and with what effect an individual has
incurred a Termination of Trusteeship;
(i) to determine whether the Trust or any other person has a right or
obligation to purchase Shares from a Participant and, if so, the terms and
conditions on which such Shares are to be purchased;
(j) to determine the restrictions or limitations on the transfer of
Shares;
(k) to determine whether an Option is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;
(l) to interpret and make a final determination with respect to the
remaining number of Shares available under this Plan;
F-7
<PAGE>
(m) to determine the permissible methods of Option exercise and
payment, including cashless exercise arrangements;
(n) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of this Plan; and
(o) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Option issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to different Options.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Option, may be made at the time of the grant of the Option or,
unless in contravention of any express term of the Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including the Trust and
Participants. Any determination shall not be subject to de novo review if
challenged in court.
ARTICLE IV
----------
SHARES SUBJECT TO PLAN
----------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of Shares reserved and available for distribution pursuant to
Options under the Plan shall be 50,000 Shares authorized for issuance on the
Effective Date. Such Shares may consist, in whole or in part, of authorized and
unissued Shares or treasury shares.
4.2 Release of Shares. The Committee shall have full authority to determine
the number of Shares available for Options, and in its discretion may include
(without limitation) as available for distribution any Shares that have ceased
to be subject to an Option, any Shares subject to any Option that are forfeited,
any Option that otherwise terminates without issuance of Shares being made to
the Participant, or any Shares (whether or not restricted) that are received by
the Trust in connection with the exercise of an Option including the
satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any Shares could not again be available for Options to a
particular Participant under any applicable law, such Shares shall be available
exclusively for Options to Participants who are not subject to such limitations.
4.3 Restrictions on Shares. Shares issued upon exercise of an Option shall
be subject to the terms and conditions specified herein and to such other terms,
conditions and restrictions as the Committee in its discretion may determine or
provide in the Option Agreement. The Trust shall not be required to issue or
deliver any certificates for Shares, cash or other property prior to (a) the
listing of such Shares on any stock exchange (or other public market) on which
F-8
<PAGE>
the Shares may then be listed (or regularly traded), (b) the completion of any
registration or qualification of such Shares under federal or state law, or any
ruling or regulation of any government body which the Committee determines to be
necessary or advisable, and (c) the satisfaction of any applicable withholding
obligation in order for the Trust or an Affiliate to obtain a deduction with
respect to the exercise of an Option. The Trust may cause any certificate for
any Shares to be delivered to be properly marked with a legend or other notation
reflecting the limitations on transfer of such Shares as provided in this Plan
or as the Committee may otherwise require. The Committee may require any person
exercising an Option to make such representations and furnish such information
as it may consider appropriate in connection with the issuance or delivery of
the Shares in compliance with applicable law or otherwise. Fractional Shares
shall not be delivered, but shall be rounded to the next lower whole number of
Shares.
4.4 Shareholder Rights. No person shall have any rights of a shareholder as
to Shares subject to an Option until, after proper exercise of the Option or
other action required, such Shares shall have been recorded on the Trust's
official shareholder records as having been issued or transferred. Upon exercise
of the Option or any portion thereof, the Trust will have a reasonable time in
which to issue the Shares, and the Participant will not be treated as a
shareholder for any purpose whatsoever prior to such issuance. No adjustment
shall be made for cash dividends or other rights for which the record date is
prior to the date such Shares are recorded as issued or transferred in the
Trust's official shareholder records, except as provided herein or in an
Agreement.
4.5 Best Efforts To Register. The Trust will register under the Securities
Act the Shares delivered or deliverable pursuant to Options on Commission Form
S-8 if available to the Trust for this purpose (or any successor or alternate
form that is substantially similar to that form to the extent available to
effect such registration), in accordance with the rules and regulations
governing such forms, as soon as such forms are available for registration to
the Trust for this purpose. The Trust will use its best efforts to cause the
registration statement to become effective as soon as possible and will file
such supplements and amendments to the registration statement as may be
necessary to keep the registration statement in effect until the earliest of (a)
one year following the expiration of the Option Period of the last Option
outstanding, (b) the date the Trust is no longer a reporting company under the
Exchange Act and (c) the date all Participants have disposed of all Shares
delivered pursuant to any Option. The Trust may delay the foregoing obligation
if the Committee determines in its sole discretion that any such registration
would adversely affect the Trust's interests, the Trust would incur unreasonable
expenses in any such registration or if there is no material benefit to
Participants.
4.6 Anti-Dilution. In the event of any Share dividend, Share split,
combination or exchange of Shares, recapitalization or other change in the
capital structure of the Trust, separation or division of the Trust (including,
but not limited to, a split-up, spin-off, split-off or distribution to Trust
shareholders other than a normal cash dividend), sale by the Trust of all or a
substantial portion of its assets (measured on either a stand-alone or
consolidated basis), reorganization, rights offering, a partial or complete
liquidation, or any other business trust transaction, Share offering or event
involving the Trust and having an effect similar to any of the foregoing, then
the Committee may adjust or substitute, as the case may be, the number of Shares
available for Options under the Plan, the number of Shares covered by
outstanding
F-9
<PAGE>
Options, the exercise price per Share of outstanding Options, and any other
characteristics or terms of the Options as the Committee shall deem necessary or
appropriate to reflect equitably the effects of such changes to the
Participants; provided, however, that any fractional Shares resulting from such
adjustment shall be eliminated by rounding to the next lower whole number of
Shares with appropriate payment for such fractional Shares as shall reasonably
be determined by the Committee.
ARTICLE V
---------
OPTION GRANTS
-------------
5.1 Eligibility. Each Trustee shall be granted Options to purchase Shares.
5.2 Grant and Exercise. Each Trustee who is a Trustee on the Effective Date
shall be granted an Option on such date to purchase 1,000 Shares without further
action by the Board or the Committee. Each Trustee who joins the Board after the
Effective Date shall be granted an Option on the Initial Grant Date to purchase
1,000 Shares without further action by the Board or the Committee. On each
anniversary date of the Initial Grant Date, if the Trustee is still a Trustee on
such anniversary date, such Trustee shall be granted an additional Option to
purchase 1,000 Shares without further action by the Board or the Committee. If
any Trustee is required to retire pursuant to the policies of the Board during
the 12-month period beginning on any anniversary of an Initial Grant Date, or if
the Director has notified the Board that he or she intends to resign for any
reason during the 12-month period beginning on any anniversary of an Initial
Grant Date, said Trustee shall instead be granted on the relevant anniversary of
an Initial Grant Date an Option to purchase the number of shares of Common Stock
equal to (i) 1,000 multiplied by (ii) a fraction, the numerator of which is the
number of full calendar months the Trustee will serve during the period
beginning on the anniversary of an Initial Grant Date and ending on the
Trustee's last date of service and the denominator of which is 12. If the number
of shares of Common Stock available to grant under the Plan on a scheduled date
of grant is insufficient to make all automatic grants required to be made
pursuant to the Plan on such date, then each eligible Trustee shall receive an
Option to purchase a pro rata number of the remaining shares of Common Stock
available under the Plan; provided further, however, that if such proration
results in fractional shares of Common Stock, then such Option shall be rounded
down to the nearest number of whole shares of Common Stock. If there is no whole
number of shares remaining to be granted, then no grants shall be made under the
Plan. Notwithstanding the foregoing, no Trustee may be granted Options if such
grant would cause the Trustee to possess in the aggregate outstanding and
unexercised Options to purchase more than 5,000 Shares. If the number of Shares
available to grant under the Plan on a scheduled date of grant is insufficient
to make all automatic grants required to be made pursuant to the Plan on such
date, then each eligible Trustee shall receive an Option to purchase a pro rata
number of the remaining Shares available under the Plan; provided, further,
however, that if such proration results in fractional Shares, then such Option
shall be rounded down to the nearest number of whole Shares. In all events, the
Option Price shall be the Fair Market Value on the date the Option is granted.
Each Option granted under this Plan shall be evidenced by an Agreement, in a
form approved by the Committee, which shall embody the terms and conditions of
such Option and which shall be subject to the express terms and conditions set
forth in the Plan. Such Agreement shall become effective upon execution by the
Participant.
F-10
<PAGE>
5.3 Terms and Conditions. Options shall be subject to such terms and
conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Option shall be ten (10)
years from the date of the grant of the Option.
(b) Exercisability. Subject to Section 7.1, Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee. If the Committee provides that any
Option is exercisable only in installments, the Committee may at any time
waive such installment exercise provisions, in whole or in part. In
addition, the Committee may at any time accelerate the exercisability of
any Option.
(c) Method of Exercise. Subject to the provisions of this Article V, a
Participant may exercise Options, in whole or in part, at any time during
the Option Period by the Participant's giving written notice of exercise on
a form provided by the Committee (if available) to the Trust specifying the
number of Shares subject to the Option to be purchased. Such notice shall
be accompanied by payment in full of the purchase price by cash or check or
such other form of payment as the Trust may accept. If approved by the
Committee (including approval at the time of exercise), payment in full or
in part may also be made (i) by delivering Shares already owned by the
Participant having a Fair Market Value on the date of such delivery equal
to the Option Price; (ii) by the execution and delivery of a note or other
evidence of indebtedness (and any security agreement thereunder)
satisfactory to the Committee and permitted in accordance with Section
5.3(d); (iii) by authorizing the Trust to retain Shares which would
otherwise be issuable upon exercise of the Option having a Fair Market
Value on the date of delivery equal to the Option Price; (iv) by the
delivery of cash by a broker-dealer to whom the Participant has submitted
an irrevocable notice of exercise (in accordance with Part 220, Chapter II,
Title 12 of the Code of Federal Regulations, so-called "cashless"
exercise); or (v) by certifying ownership of Shares owned by the
Participant to the satisfaction of the Committee for later delivery to the
Trust as specified by the Committee; or (vi) by any combination of the
foregoing.
(d) Trust Loan or Guarantee. Upon the exercise of any Option and
subject to the pertinent Agreement and the discretion of the Committee, the
Trust may at the request of the Participant:
(i) lend to the Participant an amount equal to such portion of
the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a third-
party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate, whether the loan is with recourse and any security interest
thereunder, shall be determined by the Committee, except that no extension
of credit or guarantee shall obligate the Trust for an amount to exceed the
lesser of the following: (i) the aggregate
F-11
<PAGE>
Fair Market Value on the date of exercise of the Shares to be purchased
upon exercise of the Option less the aggregate par value of such Shares, or
(ii) the amount permitted under applicable laws or the regulations and
rules of the Federal Reserve Board and any other governmental agency having
jurisdiction.
(e) Non-transferability of Options. Except as provided herein or in an
Agreement, no Option or interest therein shall be transferable by the
Participant other than by will or by the laws of descent and distribution
or by a designation of Beneficiary effective upon the death of the
Participant, and all Options shall be exercisable during the Participant's
lifetime only by the Participant. If and to the extent transferability is
permitted by Rule 16b-3 and except as otherwise provided herein or by an
Agreement, every Option granted hereunder shall be freely transferable, but
only if such transfer does not result in liability under Section 16 of the
Exchange Act to the Participant or other Participants and is consistent
with registration of the Option and sale of Shares on Form S-8 (or a
successor form) or the Committee's waiver of such condition.
5.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Trusteeship due to death, any unexpired and unexercised Option held by such
Participant shall thereafter be fully exercisable for a period of one (1) year
(or such other period or no period as the Committee may specify) immediately
following the date of such death or until the expiration of the Option Period
for such Option, whichever period is the shorter.
5.5 Termination by Reason of Disability. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Trusteeship due to a Disability, any unexpired and unexercised Option held by
such Participant shall thereafter be fully exercisable by the Participant for
the period of one (1) year (or such other period or no period as the Committee
may specify) immediately following the date of such Termination of Trusteeship
or until the expiration of the Option Period for such Option, whichever period
is shorter, and the Participant's death at any time following such Termination
of Trusteeship due to Disability shall not affect the foregoing.
5.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant's Termination of Trusteeship is
involuntary on the part of the Participant (but is not due to death, Disability
or with Cause), any Option held by such Participant shall thereupon terminate,
except that such Option, to the extent then exercisable, may be exercised for
the lesser of the three (3) month period commencing with the date of such
Termination of Trusteeship or until the expiration of the Option Period for such
Option, and the Participant's death or Disability at any time following such
involuntary Termination of Trusteeship shall not effect the foregoing. Unless
otherwise determined by the Committee, if the Participant incurs a Termination
of Trusteeship which is either (a) voluntary on the part of the Participant or
(b) with Cause, the Option shall terminate immediately.
5.7 Cashing Out of Option. On receipt of written notice of exercise, the
Committee may elect to cash out all or part of the portion of any Option by
paying the Participant an amount, in cash or Shares, equal to the excess of the
Fair Market Value of the Shares that is
F-12
<PAGE>
subject to the Option over the Option Price times the number of Shares subject
to the Option on the effective date of such cash out.
ARTICLE VI
----------
PROVISIONS APPLICABLE TO SHARES ACQUIRED UNDER THE PLAN
-------------------------------------------------------
6.1 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which Shares shall
be offered for sale in an underwritten offering, a Participant shall not, during
the period requested by the underwriters managing the registered public
offering, effect any public sale or distribution of Shares received directly or
indirectly pursuant to an exercise of an Option.
6.2 Committee Discretion. The Committee may in its sole discretion include
in any Agreement an obligation that the Trust purchase a Participant's Shares
received upon the exercise of an Option (including the purchase of any
unexercised Options which have not expired), or may obligate a Participant to
sell Shares to the Trust upon such terms and conditions as the Committee may
determine and set forth in an Agreement. The provisions of this Article VI shall
be construed by the Committee in its sole discretion, and shall be subject to
such other terms and conditions as the Committee may from time to time
determine.
6.3 No Trust Obligation. None of the Trust, an Affiliate or the Committee
shall have any duty or obligation to affirmatively disclose to a record or
beneficial holder of Shares or an Option, and such holder shall have no right to
be advised of, any material information regarding the Trust or any Affiliate at
any time prior to, upon or in connection with receipt or the exercise of an
Option or the Trust's purchase of Shares or an Option from such holder in
accordance with the terms hereof.
ARTICLE VII
-----------
CHANGE IN CONTROL PROVISIONS
----------------------------
7.1 Impact of Event. Notwithstanding any other provision of this Plan to
the contrary, in the event of a Change in Control (as defined in Section 7.2),
the Committee shall have full discretion, notwithstanding anything herein or in
an Agreement to the contrary, to do any or all of the following with respect to
an outstanding Award:
(a) to provide that the Options outstanding as of the date of the
Change in Control which are not then exercisable shall become fully
exercisable to the full extent of the original grant;
(b) to cause any Option to be cancelled, provided notice of at least
15 days thereof is provided before the date of cancellation;
(c) to provide that the securities of another entity be substituted
hereunder for the Shares and to make equitable adjustment with respect
thereto;
F-13
<PAGE>
(d) to grant the Participant the right to elect by giving notice
during a set period of time from and after a Change in Control to surrender
all or part of the Option to the Trust and to receive cash in an amount
equal to the amount by which the "Change in Control Price" (as defined in
Section 7.3) per Share on the date of the election exceeds the amount the
Participant must pay to exercise the Option per Share (the "Spread")
multiplied by the number of Shares granted under the Option; and
(e) to take any other action the Committee determines to take.
7.2 Definition of Change in Control. For purposes of the Plan, a "Change in
Control" shall mean the happening of any of the following events:
(a) (i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person")
(other than the SAHI Group) of the beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of the then outstanding
Shares (the "Outstanding Shares") or the combined voting power of the then
outstanding voting securities of the Trust entitled to vote generally in
the election of trustees (the "Outstanding Trust Voting Securities") or
(ii) the approval by the shareholders of the Trust of a reorganization,
merger, consolidation, complete liquidation or dissolution of the Trust,
the sale or disposition of all or substantially all of the assets of the
Trust or similar trust transaction (in each case referred to in this
Section 7.2 as a "Trust Transaction") or, if consummation of such Trust
Transaction is subject, at the time of such approval by shareholders, to
the consent of any government or governmental agency, the obtaining of such
consent (either explicitly or implicitly); provided such acquisition of
beneficial ownership or such Trust Transaction would result in any Person's
beneficially owning (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 30% or more of the Outstanding Trust Shares or 30% or more of
the Outstanding Trust Voting Securities; excluding, however, the following:
(i) any acquisition by or consummation of a Trust Transaction with the
Trust or an Affiliate, or by an employee benefit plan (or related trust)
sponsored or maintained by the Trust, (ii) the acquisition by or
consummation of a Trust Transaction with any Person who beneficially owned,
immediately prior to the Effective Date, directly or indirectly, 30% or
more of the Outstanding Shares or Outstanding Trust Voting Securities,
(iii) an acquisition by or consummation of a Trust Transaction with the
SAHI Group, or (iv) any acquisition or Trust Transaction, if more than 70%
of the beneficial ownership of the entity resulting from the acquisition or
Trust Transaction is held by persons who held more than 70% of the
beneficial ownership of the Outstanding Shares or Outstanding Trust Voting
Securities before the acquisition or Trust Transaction; or
(b) A change in the composition of the Board such that the individuals
who, as of the Effective Date, constitute the Board (such Board shall be
hereinafter referred to as the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, for
purposes of this Section 7.2(b), that any individual who becomes a member
of the Board subsequent to the Effective Date and whose election, or
nomination for election by the Trust's shareholders, was approved by a vote
of at least a majority of those individuals who are members of the Board
and who were also
F-14
<PAGE>
members of the Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a member of the
Incumbent Board; but, provided, further, that any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board shall not be so considered as a member of the
Incumbent Board.
7.3 Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (a) the highest reported sales price of a Share in
any transaction reported on the principal exchange on which such Shares are
listed or on NNM during the 60-day period prior to and including the date of a
Change in Control or (b) if the Change in Control is the result of a tender or
exchange offer or Trust Transaction, the highest price per Share paid in such
tender or exchange offer or a Trust Transaction. To the extent that the
consideration paid in any such transaction described above consists all or in
part of securities or other non-cash consideration, the value of such securities
or other non-cash consideration shall be determined in the sole discretion of
the Committee.
ARTICLE VIII
MISCELLANEOUS
8.1 Amendments and Termination. The Board may amend, alter or discontinue
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under an Option theretofore
granted without the Participant's consent, except such an amendment (a) made to
avoid an expense charge to the Trust or an Affiliate, (b) made to cause the Plan
to qualify for the exemption provided by Rule 16b-3, or (c) made to permit the
Trust or an Affiliate a deduction under the Code. In addition, no such amendment
shall be made without the approval of the Trust's shareholders to the extent
such approval is required by law or agreement. The Committee may amend, alter or
discontinue the terms of any Award theretofore granted, prospectively or
retroactively, on the same conditions and limitations (and exceptions to
limitations) as the Board and further subject to any approval or limitations the
Board may impose.
Notwithstanding anything in the Plan to the contrary, if any right under
this Plan or an Agreement would cause a transaction to be ineligible for pooling
of interest accounting that would, but for the right hereunder, be eligible for
such accounting treatment, the Committee may modify or adjust the right so that
pooling of interest accounting shall be available, including the substitution of
Shares having a Fair Market Value equal to the cash otherwise payable hereunder
for the right which caused the transaction to be ineligible for pooling of
interest accounting.
8.2 Unfunded Status of Plan. It is intended that the Plan be an "unfunded"
plan for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Shares or make payments; provided, however, that, unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
F-15
<PAGE>
8.3 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving Shares pursuant to an Option to represent to and agree with
the Trust in writing that such person is acquiring the Shares without a
view to the distribution thereof. The certificates for such Shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
(b) No Additional Obligation. Nothing contained in the Plan shall
prevent the Trust or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Option, the Participant shall pay
to the Trust (or other entity identified by the Committee), or make
arrangements satisfactory to the Trust or other entity identified by the
Committee regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount required in order for the Trust or an Affiliate to obtain a current
deduction. Unless otherwise determined by the Committee, withholding
obligations may be settled with Shares, including Shares that are part of
the Option that gives rise to the withholding requirement, provided that
any applicable requirements under Section 16 of the Exchange Act are
satisfied. The obligations of the Trust under the Plan shall be conditional
on such payment or arrangements, and the Trust and its Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from
any payment otherwise due to the Participant.
(d) Representation. The Committee shall establish such procedures as
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(e) Controlling Law. The Plan and all Options made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of California (other than its law respecting choice of law).
The Plan shall be construed to comply with all applicable law, and to avoid
liability to the Trust, an Affiliate or a Participant, including, without
limitation, liability under Section 16(b) of the Exchange Act.
(f) Offset. Any amounts owed to the Trust or an Affiliate by the
Participant of whatever nature may be offset by the Trust from the value of
any Shares, cash or other thing of value under this Plan or an Agreement to
be transferred to the Participant, and no Shares, cash or other thing of
value under this Plan or an Agreement shall be transferred unless and until
all disputes between the Trust and the Participant have been fully and
finally resolved and the Participant has waived all claims to such against
the Trust or an Affiliate.
(g) Fail-Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions
F-16
<PAGE>
of Rule 16b-3 or Rule 16a-1(c)(3), as applicable. To the extent any
provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee. Moreover, in the event the Plan does not
include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to be stated
herein, such provision (other than one relating to eligibility requirements
or the price and amount of Awards) shall be deemed to be incorporated by
reference into the Plan with respect to Participants subject to Section 16.
(h) Right to Capitalize. The grant of an Option shall in no way affect
the right of the Trust to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidation,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
8.4 Mitigation of Excise Tax. Subject to any agreement between the Trust
and the Participant, if any payment or right accruing to a Participant under
this Plan (without the application of this Section 8.4), either alone or
together with other payments or rights accruing to the Participant from the
Trust or an Affiliate ("Total Payments") would constitute a "parachute payment"
(as defined in Section 280G of the Code and regulations thereunder), such
payment or right shall be reduced to the largest amount or greatest right that
will result in no portion of the amount payable or right accruing under the Plan
being subject to an excise tax under Section 4999 of the Code or being
disallowed as a deduction under Section 280G of the Code. The determination of
whether any reduction in the rights or payments under this Plan is to apply
shall be made by the Committee in good faith after consultation with the
Participant, and such determination shall be conclusive and binding on the
Participant. The Participant shall cooperate in good faith with the Committee in
making such determination and providing the necessary information for this
purpose. The foregoing provisions of this Section 8.4 shall apply with respect
to any person only if after reduction for any applicable federal excise tax
imposed by Section 4999 of the Code and federal income tax imposed by the Code,
the Total Payments accruing to such person would be less than the amount of the
Total Payments as reduced, if applicable, under the foregoing provisions of the
Plan and after reduction for only federal income taxes.
8.5 Options in Substitution for Options Granted by Other Corporations.
Options may be granted under this Plan from time to time in substitution for
awards in respect of other plans of other entities. The terms and conditions of
the Options so granted may vary from the terms and conditions set forth in this
Plan at the time of such grant as the majority of the members of the Committee
may deem appropriate to conform, in whole or in part, to the provisions of the
awards in substitution for which they are granted.
8.6 Procedure for Adoption. Any Affiliate of the Trust may by resolution
of such Affiliate's board of directors or trustees, as the case may be, with the
consent of the Board of Trustees and subject to such conditions as may be
imposed by the Board of Trustees, adopt the Plan for the benefit of its
employees as of the date specified in the board resolution.
8.7 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors or trustees, as the case may be, of
such Affiliate, with the
F-17
<PAGE>
consent of the Board of Trustees and subject to such conditions as may be
imposed by the Board of Trustees, terminate its adoption of the Plan.
8.8 Delay. If at the time a Participant incurs a Termination of
Trusteeship (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period. The Trust shall have the right to suspend or delay any time period
described in the Plan or an Agreement if the Committee shall determine that the
action may constitute a violation of any law or result in liability under any
law to the Trust, an Affiliate or a shareholder of the Trust until such time as
the action required or permitted shall not constitute a violation of law or
result in liability to the Trust, an Affiliate or a shareholder of the Trust.
The Committee shall have the discretion to suspend the application of the
provisions of the Plan required solely to comply with Rule 16b-3 if the
Committee shall determine that Rule 16b-3 does not apply to the Plan.
8.9 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
8.10 Severability. If any provision of this Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
8.11 Successors and Assigns. This Plan shall inure to the benefit of and be
binding upon each successor and assign of the Trust. All obligations imposed
upon a Participant, and all rights granted to the Trust hereunder, shall be
binding upon the Participant's heirs, legal representatives and successors.
8.12 Entire Agreement. This Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan shall control.
F-18
<PAGE>
EXHIBIT G
ANGELES PARTICIPATING MORTGAGE TRUST
1996 SHARE INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I ESTABLISHMENT............................................... G-4
1.1 Purpose..................................................... G-4
ARTICLE II DEFINITIONS................................................. G-4
2.1 "Affiliate"................................................. G-4
2.2 "Agreement" or "Award Agreement"............................ G-4
2.3 "Award"..................................................... G-4
2.4 "Beneficiary"............................................... G-4
2.5 "Board of Trustees" or "Board".............................. G-4
2.6 "Cause"..................................................... G-4
2.7 "Change in Control" and "Change in Control Price"........... G-5
2.8 "Code" or "Internal Revenue Code"........................... G-5
2.9 "Commission"................................................ G-5
2.10 "Committee"................................................. G-5
2.11 "Deferred Shares"........................................... G-5
2.12 "Disability"................................................ G-5
2.13 "Effective Date"............................................ G-5
2.14 "Exchange Act".............................................. G-5
2.15 "Fair Market Value"......................................... G-5
2.16 "Grant Date"................................................ G-6
2.17 "Incentive Option".......................................... G-6
2.18 "Nonqualified Option"....................................... G-6
2.19 "Option".................................................... G-6
2.20 "Option Period"............................................. G-6
2.21 "Option Price".............................................. G-6
2.22 "Participant"............................................... G-6
2.23 "Plan"...................................................... G-6
2.24 "Representative"............................................ G-6
2.25 "Restricted Shares"......................................... G-6
2.26 "Retirement"................................................ G-7
2.27 "Rule 16b-3" and "Rule 16a-1(c)(3)"......................... G-7
2.28 "SAHI Group"................................................ G-7
2.29 "Securities Act"............................................ G-7
2.30 "Share Appreciation Right".................................. G-7
2.31 "Shares".................................................... G-7
2.32 "Termination of Employment"................................. G-7
2.33 "Trust"..................................................... G-7
ARTICLE III ADMINISTRATION.............................................. G-8
3.1 Committee Structure and Authority........................... G-8
</TABLE>
G-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE IV SHARES SUBJECT TO PLAN.......................................G-10
4.1 Number of Shares............................................ G-10
4.2 Release of Shares........................................... G-10
4.3 Restrictions on Shares...................................... G-10
4.4 Shareholder Rights.......................................... G-11
4.5 Best Efforts To Register.................................... G-11
4.6 Anti-Dilution............................................... G-11
ARTICLE V ELIGIBILITY................................................. G-12
5.1 Eligibility................................................. G-12
ARTICLE VI OPTIONS..................................................... G-12
6.1 General..................................................... G-12
6.2 Grant and Exercise.......................................... G-12
6.3 Terms and Conditions........................................ G-13
6.4 Termination by Reason of Death.............................. G-15
6.5 Termination by Reason of Disability......................... G-15
6.6 Other Termination........................................... G-15
6.7 Cashing Out of Option....................................... G-15
ARTICLE VII SHARE APPRECIATION RIGHTS................................... G-16
7.1 General..................................................... G-16
7.2 Grant....................................................... G-16
7.3 Terms and Conditions........................................ G-16
ARTICLE VIII RESTRICTED SHARES........................................... G-17
8.1 General..................................................... G-17
8.2 Awards and Certificates..................................... G-17
8.3 Terms and Conditions........................................ G-18
ARTICLE IX DEFERRED SHARES............................................. G-19
9.1 General..................................................... G-19
9.2 Terms and Conditions........................................ G-19
ARTICLE X PROVISIONS APPLICABLE TO SHARES ACQUIRED UNDER
THE PLAN.................................................... G-20
10.1 Limited Transfer During Offering............................ G-20
10.2 Committee Discretion........................................ G-20
10.3 No Trust Obligation......................................... G-20
ARTICLE XI CHANGE IN CONTROL PROVISIONS................................ G-21
11.1 Impact of Event............................................. G-21
11.2 Definition of Change in Control............................. G-21
11.3 Change in Control Price..................................... G-22
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE XII MISCELLANEOUS...............................................G-23
12.1 Amendments and Termination..................................G-23
12.2 Unfunded Status of Plan.....................................G-23
12.3 General Provisions..........................................G-23
12.4 Mitigation of Excise Tax....................................G-25
12.5 Rights with Respect to Continuance of Employment............G-25
12.6 Awards in Substitution for Awards Granted by Other
Corporations................................................G-25
12.7 Procedure for Adoption......................................G-25
12.8 Procedure for Withdrawal....................................G-25
12.9 Delay.......................................................G-26
12.10 Headings....................................................G-26
12.11 Severability................................................G-26
12.12 Successors and Assigns......................................G-26
12.13 Entire Agreement............................................G-26
</TABLE>
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<PAGE>
ANGELES PARTICIPATING MORTGAGE TRUST
1996 SHARE INCENTIVE PLAN
------------------------------------
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose.
The Angeles Participating Mortgage Trust 1996 Share Incentive Plan ("Plan")
is hereby established by Angeles Participating Mortgage Trust ("Trust"). The
purpose of the Plan is to promote the overall financial objectives of the Trust
and its shareholders by motivating those persons selected to participate in the
Plan to achieve long-term growth in shareholder equity in the Trust and by
retaining the association of those individuals who are instrumental in achieving
this growth. The Plan and the grant of awards thereunder is expressly
conditioned upon the Plan's approval by the shareholders of the Trust. The Plan
is adopted to be effective as of September 26, 1996, subject to the approval of
the shareholders of the Trust.
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
association, limited liability company, joint-stock company, trust,
unincorporated association or other entity (other than the Trust) that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, the Trust.
2.2 "Agreement" or "Award Agreement" means, individually or
collectively, any agreement entered into pursuant to the Plan pursuant to which
an Award is granted to a Participant.
2.3 "Award" means a Share Option, Share Appreciation Right, Restricted
Share or Deferred Share.
2.4 "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefit specified under the
Plan to the extent permitted. If there is no designated beneficiary, then the
term means the person or persons, trust or trusts entitled by will or the laws
of descent and distribution to receive such benefits.
2.5 "Board of Trustees" or "Board" means the Board of Trustees of the
Trust.
2.6 "Cause" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Trust to terminate the written agreement or arrangement between the
Participant and the Trust or an
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Affiliate for Cause as defined in such agreement or arrangement, or in the event
there is no such agreement or arrangement or the agreement or arrangement does
not define the term "cause," then Cause shall mean (a) any act or failure to act
deemed to constitute cause under the Trust's or Affiliate's established
practices, policies or guidelines applicable to the Participant or (b) the
Participant's act or omission of gross misconduct with respect to the Trust or
an Affiliate in any material respect.
2.7 "Change in Control" and "Change in Control Price" have the meanings
set forth in Sections 11.2 and 11.3, respectively.
2.8 "Code" or "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended, final Treasury Regulations thereunder and any subsequent
Internal Revenue Code.
2.9 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.10 "Committee" means the person or persons appointed by the Board of
Directors to administer this Plan, as further described herein; provided,
however, the Committee shall consist of directors who are "disinterested"
persons or "non-employee" directors within the meaning of Rule 16b-3 and each of
whom is an "outside" director under Section 162(m) of the Code.
2.11 "Deferred Shares" means an award made pursuant to Article IX.
2.12 "Disability" means a mental or physical illness that entitles the
Participant to receive benefits under the long term disability plan of the Trust
or an Affiliate, or if the Participant is not covered by such a plan or the
Participant is not an employee of the Trust or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Trust or an Affiliate.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (a) a willfully self-inflicted injury or willfully self-
induced sickness; or (b) an injury or disease contracted, suffered, or incurred,
while participating in a criminal offense. The determination of Disability shall
be made by the Committee. The determination of Disability for purposes of this
Plan shall not be construed to be an admission of disability for any other
purpose.
2.13 "Effective Date" means September 26, 1996, subject to the approval
of the shareholders of the Trust.
2.14 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2.15 "Fair Market Value" means the fair market value of Shares, Awards
or other property as determined by the Committee or under procedures established
by the Committee. Unless otherwise determined by the Committee, the Fair Market
Value per Share as of any date shall be the closing sale price per share
reported on a consolidated basis for stock listed on the principal stock
exchange or market on which the Shares are traded on the date as of which such
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<PAGE>
value is being determined or, if there is no sale on that date, then on the last
previous day on which a sale was reported.
2.16 "Grant Date" means the date that as of which an Award is granted
pursuant to the Plan.
2.17 "Incentive Option" means any Option intended to be and designated
as an "incentive stock option" within the meaning of Section 422 of the Code.
2.18 "Nonqualified Option" means an Option to purchase Shares granted
under this Plan the taxation of which is pursuant to Section 83 of the Code.
2.19 "Option" means an option granted under Article VI.
2.20 "Option Period" means the period during which the Option shall be
exercisable in accordance with the Agreement and Article VI.
2.21 "Option Price" means the price per Share at which the Shares may be
purchased under an Option as provided in Section 6.3.
2.22 "Participant" means a person who satisfies the eligibility
conditions of Article V and to whom an Award has been granted by the Committee
under this Plan, and in the event a Representative is appointed for a
Participant or another person becomes a Representative, then the term
"Participant" shall mean such Representative. The term shall also include a
trust for the benefit of the Participant, a partnership the interest of which is
by or for the benefit of the Participant, the Participant's parents, spouse or
descendants, or a custodian under a uniform gifts to minors act or similar
statute for the benefit of the Participant's descendants, to the extent
permitted by the Committee and not inconsistent with the Rule 16b-3 or the
status of the Option as an Incentive Option to the extent intended.
Notwithstanding the foregoing, the term "Termination of Employment" shall mean
the Termination of Employment of the employee.
2.23 "Plan" means the Angeles Participating Mortgage Trust 1996 Share
Incentive Plan, as herein set forth and as may be amended from time to time.
2.24 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been transferred with the permission of the
Committee or by operation of law; provided that only one of the foregoing shall
be the Representative at any point in time as determined under applicable law
and recognized by the Committee.
2.25 "Restricted Shares" means an award under Article VIII.
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<PAGE>
2.26 "Retirement" means the Participant's Termination of Employment from
active employment with the Trust or an Affiliate after attaining either the
minimal retirement age or the early retirement age as defined in the principal
(as defined by the Committee) tax-qualified plan of the Trust or an Affiliate,
if the Participant is covered by such plan, and if the Participant is not
covered by such a plan, the age 65, or age 55 with the accrual of 10 years of
service.
2.27 "Rule 16b-3 and" "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule 16a-
1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
2.28 "SAHI Group" collectively refers to SAHI Partners, a Delaware
general partnership, SAHI, Inc., a Delaware corporation, Starwood Mezzanine
Investors, L.P., Barry Sternlicht, Madison Grose, Eugene Gorab, Jay Sugarman or
any of their respective affiliates.
2.29 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2.30 "Share Appreciation Right" means a right granted under Article VII.
2.31 "Shares" means the Class A Shares, $1.00 par value, of beneficial
interest in the Trust, whether presently or hereafter issued, and any other
securities resulting from adjustment thereof as described hereinafter or the
securities of any successor to the Trust which is designated for the purpose of
the Plan.
2.32 "Termination of Employment" means the occurrence of any act or
event, whether pursuant to an employment agreement or otherwise, that actually
or effectively causes or results in the person's ceasing, for whatever reason,
to be an officer, independent contractor, director, trustee or employee of the
Trust or of any Affiliate, or to be an officer, independent contractor,
director, trustee or employee of any entity that provides services to the Trust
or an Affiliate, including, without limitation, death, Disability, dismissal,
severance at the election of the Participant, Retirement, or severance as a
result of the discontinuance, liquidation, sale or transfer by the Trust or its
Affiliates of all businesses owned or operated by the Trust or its Affiliates.
With respect to any person who is not an employee with respect to the Trust or
an Affiliate, the Agreement shall establish what act or event shall constitute a
Termination of Employment for purposes of the Plan. A Termination of Employment
shall occur to an employee who is employed by an Affiliate if the Affiliate
shall cease to be an Affiliate and the Participant shall not immediately
thereafter become an employee of the Trust or an Affiliate.
2.33 "Trust" means the Angeles Participating Mortgage Trust, a
California business trust created by Declaration of Trust, dated April 14, 1988,
and recorded in the Official Records of the Recorder's Office of Los Angeles
County, California on August 29, 1994, and includes any successor or assignee
business trust or trusts or corporation or corporations into which the Trust may
be merged, changed or consolidated; any business trust or corporation for whose
securities all or substantially all of the securities of the Trust shall be
exchanged; and any assignee of or successor to substantially all of the assets
of the Trust.
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<PAGE>
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
the Committee. Subject to the limitation regarding persons who may serve on the
Committee, the Committee shall be the Audit and Compensation Committee of the
Board of Trustees, unless such committee does not exist or the Board establishes
a committee whose purpose is the administration of this Plan; provided that only
those members of the Audit and Compensation Committee of the Board who
participate in the decision relative to Awards under the Plan shall be deemed to
be part of the "Committee" for purposes of the Plan. In the absence of an
appointment, the Board or the portion thereof that satisfy the conditions of
Rule 16b-3 or Section 162(m) of the Code shall be the Committee. A majority of
the Committee shall constitute a quorum at any meeting thereof (including
telephone conference) and the acts of a majority of the members present, or acts
approved in writing by a majority of the entire Committee without a meeting,
shall be the acts of the Committee for purposes of this Plan. The Committee may
authorize any one or more of its members or an officer of the Trust to execute
and deliver documents on behalf of the Committee. A member of the Committee
shall not exercise any discretion respecting himself or herself under the Plan.
The Board shall have the authority to remove, replace or fill any vacancy of any
member of the Committee upon notice to the Committee and the affected member.
Any member of the Committee may resign upon notice to the Board. The Committee
may allocate among one or more of its members, or may delegate to one or more of
its agents, such duties and responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) to select those persons to whom Awards may be granted from time to
time;
(b) to determine whether and to what extent Options, Share
Appreciation Rights, Restricted Shares and Deferred Shares or any
combination thereof are to be granted hereunder;
(c) to determine the number of Shares to be covered by each Award
granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation and any exercise
acceleration or forfeiture waiver regarding any Award and the Shares
relating thereto);
(e) to adjust the terms and conditions, at any time or from time to
time, of any Award, subject to the limitations of Section 12.1;
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<PAGE>
(f) to determine to what extent and under what circumstances Shares
and other amounts payable with respect to an Award shall be deferred;
(g) to determine under what circumstances an Award may be settled in
cash or Shares.
(h) to provide for the forms of Agreement to be utilized in connection
with this Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are applicable to
the Plan, Awards, and the issuance of Shares and to require of a
Participant that appropriate action be taken with respect to such
requirements;
(k) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Agreement, outstanding Awards;
(l) to interpret and make a final determination with respect to the
remaining number of Shares available under this Plan;
(m) to require as a condition of the exercise of an Award or the
issuance or transfer of a certificate of Shares, the withholding from a
Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Trust or any other employer to obtain a
deduction or as may be otherwise required by law;
(n) to determine whether and with what effect an individual has
incurred a Termination of Employment;
(o) to determine whether the Trust or any other person has a right or
obligation to purchase Shares from a Participant and, if so, the terms and
conditions on which such Shares are to be purchased;
(p) to determine the restrictions or limitations on the transfer of
Shares;
(q) to determine whether an Award is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;
(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of this Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
G-9
<PAGE>
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to different Awards.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express term of the Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including the Trust and
Participants. Any determination shall not be subject to de novo review if
challenged in court.
ARTICLE IV
----------
SHARES SUBJECT TO PLAN
----------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of Shares reserved and available for distribution pursuant to
Awards under the Plan shall be 377,500 Shares authorized for issuance on the
Effective Date. Such Shares may consist, in whole or in part, of authorized and
unissued Shares or treasury Shares.
4.2 Release of Shares. The Committee shall have full authority to
determine the number of Shares available for Award, and in its discretion may
include (without limitation) as available for distribution any Shares that have
ceased to be subject to an Award, any Shares subject to any Award that are
forfeited, any Award that otherwise terminates without issuance of Shares being
made to the Participant, or any Shares (whether or not restricted) that are
received by the Trust in connection with the exercise of an Award including the
satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any Shares could not again be available for Awards to a
particular Participant under any applicable law, such Shares shall be available
exclusively for Awards to Participants who are not subject to such limitations.
4.3 Restrictions on Shares. Shares issued upon exercise of an Award shall
be subject to the terms and conditions specified herein and to such other terms,
conditions and restrictions as the Committee in its discretion may determine or
provide in the Award Agreement. The Trust shall not be required to issue or
deliver any certificates for Shares, cash or other property prior to (a) the
listing of such Shares on any stock exchange (or other public market) on which
the Shares may then be listed (or regularly traded), (b) the completion of any
registration or qualification of such Shares under federal or state law, or any
ruling or regulation of any government body which the Committee determines to be
necessary or advisable, and (c) the satisfaction of any applicable withholding
obligation in order for the Trust or an Affiliate to obtain a deduction with
respect to the exercise of an Award. The Trust may cause any certificate for
any Shares to be delivered to be properly marked with a legend or other notation
reflecting the limitations on transfer of such Shares as provided in this Plan
or as the Committee may otherwise require. The Committee may require any person
exercising an Award to make such representations and furnish such information as
it may consider appropriate in connection
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<PAGE>
with the issuance or delivery of the Shares in compliance with applicable law or
otherwise. Fractional Shares shall not be delivered, but shall be rounded to
the next lower whole number of Shares.
4.4 Shareholder Rights. No person shall have any rights of a shareholder
as to Shares subject to an Award until, after proper exercise of the Award or
other action required, such Shares shall have been recorded on the Trust's
official shareholder records as having been issued or transferred. Upon exercise
of the Award or any portion thereof, the Trust will have a reasonable time in
which to issue the Shares, and the Participant will not be treated as a
shareholder for any purpose whatsoever prior to such issuance. No adjustment
shall be made for cash dividends or other rights for which the record date is
prior to the date such Shares are recorded as issued or transferred in the
Trust's official shareholder records, except as provided herein or in an
Agreement.
4.5 Best Efforts To Register. The Trust will register under the
Securities Act the Shares delivered or deliverable pursuant to Awards on
Commission Form S-8 if available to the Trust for this purpose (or any successor
or alternate form that is substantially similar to that form to the extent
available to effect such registration), in accordance with the rules and
regulations governing such forms, as soon as such forms are available for
registration to the Trust for this purpose. The Trust will use its best efforts
to cause the registration statement to become effective as soon as possible and
will file such supplements and amendments to the registration statement as may
be necessary to keep the registration statement in effect until the earliest of
(a) one year following the expiration of the Option Period of the last Option
outstanding, (b) the date the Trust is no longer a reporting company under the
Exchange Act and (c) the date all Participants have disposed of all Shares
delivered pursuant to any Award. The Trust may delay the foregoing obligation if
the Committee determines in its sole discretion that any such registration would
adversely affect the Trust's interests, the Trust would incur unreasonable
expenses in any such registration or if there is no material benefit to
Participants.
4.6 Anti-Dilution. In the event of any Share dividend, Share split,
combination or exchange of Shares, recapitalization or other change in the
capital structure of the Trust, separation or division of the Trust (including,
but not limited to, a split-up, spin-off, split-off or distribution to Trust
shareholders other than a normal cash dividend), sale by the Trust of all or a
substantial portion of its assets (measured on either a stand-alone or
consolidated basis), reorganization, rights offering, a partial or complete
liquidation, or any other business trust transaction, Share offering or event
involving the Trust and having an effect similar to any of the foregoing, then
the Committee may adjust or substitute, as the case may be, the number of Shares
available for Awards under the Plan, the number of Shares covered by outstanding
Awards, the exercise price per Share of outstanding Awards, and any other
characteristics or terms of the Awards as the Committee may deem necessary or
appropriate to reflect equitably the effects of such changes to the
Participants; provided, however, that any fractional Shares resulting from such
adjustment shall be eliminated by rounding to the next lower whole number of
Shares with appropriate payment for such fractional Shares as shall reasonably
be determined by the Committee; provided, however, that the Committee may limit
any such adjustment so as to maintain the deductibility of the Awards under
Section 162(m) of the Code, and that any fractional shares resulting from such
adjustment shall be eliminated by rounding to the next
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lower whole number of shares with appropriate payment for such fractional share
as shall reasonably be determined by the Committee.
ARTICLE V
---------
ELIGIBILITY
-----------
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those persons
who are officers, directors, trustees, employees, independent contractors or
other service providers of the Trust or any Affiliate including, without
limitation, the officers, directors, trustees and employees of any other entity
which provides services to the Trust or any Affiliate, who shall be in a
position, in the opinion of the Committee, to make contributions to the growth,
management, protection and success of the Trust and its Affiliates. Of those
persons described in the preceding sentence, the Committee may, from time to
time, select persons to be granted Awards and shall determine the terms and
conditions with respect thereto. In making any such selection and in determining
the form of the Award, the Committee may give consideration to the functions and
responsibilities of the person's contributions to the Trust and its Affiliates,
the value of the individual's service to the Trust and its Affiliates and such
other factors deemed relevant by the Committee. The Committee may designate in
writing any person who is not eligible to participate in the Plan if such person
would otherwise be eligible to participate in the Plan (and members of the
Committee are expressly excluded from participation to the extent necessary for
purposes of Rule 16b-3, Section 162(m) of the Code or any other legal reason).
ARTICLE VI
----------
OPTIONS
-------
6.1 General. The Committee shall have authority to grant Options under
the Plan at any time or from time to time. Options may be granted alone or in
addition to other Awards and may be either Incentive Options or Nonqualified
Options. An Option shall entitle the Participant to receive Shares upon exercise
of such Option, subject to the Participant's satisfaction in full of any
conditions, restrictions or limitations imposed in accordance with the Plan or
an Agreement (the terms and provisions of which may differ from other
Agreements) including without limitation, payment of the Option Price. During
any calendar year, Options to purchase no more than 125,833 Shares shall be
granted to any Participant.
6.2 Grant and Exercise. The grant of an Option shall occur as of the date
the Committee determines. Each Option granted under this Plan shall be evidenced
by an Agreement, in a form approved by the Committee, which shall embody the
terms and conditions of such Option and which shall be subject to the express
terms and conditions set forth in the Plan. Such Agreement shall become
effective upon execution by the Participant. Only a person who is a common-law
employee of the Trust, a parent corporation of the Trust or a subsidiary (as
such terms are defined in Section 424 of the Code) on the date of grant shall be
eligible to be granted an Option which is intended to be and is an Incentive
Option. To the extent that any
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Option is not designated as an Incentive Option or even if so designated does
not qualify as an Incentive Option, it shall constitute a Nonqualified Option.
6.3 Terms and Conditions. Options shall be subject to such terms and
conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Option shall be fixed by
the Committee; provided that no Nonqualified Option shall be exercisable
more than fifteen (15) years after the date the Option is granted. In the
case of an Incentive Option, the Option Period shall not exceed ten (10)
years from the date of grant or five (5) years from the date of grant in
the case of an individual who owns more than ten percent (10%) of the
combined voting power of all classes of shares of beneficial interest in
the Trust, a corporation which is a parent corporation of the Trust or any
subsidiary of the Trust (each as defined in Section 424 of the Code). No
Option which is intended to be an Incentive Option shall be granted more
than ten (10) years from the date the Plan is adopted by the Trust or the
date the Plan is approved by the shareholders of the Trust, whichever is
earlier.
(b) Option Price. The Option Price shall be determined by the
Committee. If such Option is intended to qualify as an Incentive Option,
the Option Price shall be not less than the Fair Market Value on the date
the Option is granted, or where granted to an individual who owns or who is
deemed to own Shares possessing more than ten percent (10%) of the combined
voting power of all classes of shares of beneficial interest in the Trust,
a corporation which is a parent corporation of the Trust or any subsidiary
of the Trust (each as defined in Section 424 of the Code), not less than
one hundred ten percent (110%) of such Fair Market Value.
(c) Exercisability. Subject to Section 11.1, Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee. If the Committee provides that
any Option is exercisable only in installments, the Committee may at any
time waive such installment exercise provisions, in whole or in part. In
addition, the Committee may at any time accelerate the exercisability of
any Option. If the Committee intends that an Option be an Incentive Stock
Option, the Committee shall, in its discretion, provide that the aggregate
Fair Market Value (determined at the Grant Date) of an Incentive Option
which is exercisable for the first time during the calendar year shall not
exceed $100,000.
(d) Method of Exercise. Subject to the provisions of this Article VI,
a Participant may exercise Options, in whole or in part, at any time during
the Option Period by the Participant's giving written notice of exercise on
a form provided by the Committee (if available) to the Trust specifying the
number of Shares subject to the Option to be purchased. Such notice shall
be accompanied by payment in full of the purchase price by cash or check or
such other form of payment as the Trust may accept. If approved by the
Committee (including approval at the time of exercise), payment in full or
in part may also be made (i) by delivering Shares already owned by the
Participant having a Fair Market Value on the date of such delivery equal
to the Option Price; (ii) by the execution and delivery of a note or other
evidence of indebtedness (and
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any security agreement thereunder) satisfactory to the Committee and
permitted in accordance with Section 6.3(e); (iii) by authorizing the Trust
to retain Shares which would otherwise be issuable upon exercise of the
Option having a Fair Market Value on the date of delivery equal to the
Option Price; (iv) by the delivery of cash by a broker-dealer to whom the
Participant has submitted an irrevocable notice of exercise (in accordance
with Part 220, Chapter II, Title 12 of the Code of Federal Regulations, so-
called "cashless" exercise); or (v) by certifying ownership of Shares owned
by the Participant to the satisfaction of the Committee for later delivery
to the Trust as specified by the Committee; or (vi) by any combination of
the foregoing. If payment of the Option Price of a Nonqualified Option is
made in whole or in part in the form of Restricted Shares or Deferred
Shares, the number of Shares to be received upon such exercise equal to the
number of Restricted Shares or Deferred Shares used for payment of the
Option Price shall be subject to the same forfeiture restrictions or
deferral limitations to which such Restricted Shares or Deferred Shares
were subject, unless otherwise determined by the Committee. In the case of
an Incentive Option, the right to make a payment in the form of already
owned Shares may be authorized only at the time the Option is granted. No
Shares shall be issued until full payment therefor has been made. Subject
to any forfeiture restrictions or deferral limitations that may apply if an
Option is exercised using Restricted Shares or Deferred Shares, a
Participant shall have all of the rights of a shareholder of the Trust
holding the Shares (including the right to vote the Shares and the right to
receive dividends), when the Participant has given written notice of
exercise, has paid in full for such Shares and such Shares have been
recorded on the Trust's official shareholder records as having been issued
or transferred.
(e) Trust Loan or Guarantee. Upon the exercise of any Option and
subject to the pertinent Agreement and the discretion of the Committee, the
Trust may at the request of the Participant:
(i) lend to the Participant an amount equal to such portion of
the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a third-
party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate, whether the loan is with recourse and any security interest
thereunder, shall be determined by the Committee, except that no extension
of credit or guarantee shall obligate the Trust for an amount to exceed the
lesser of the following (i) the aggregate Fair Market Value on the date of
exercise of the Shares to be purchased upon exercise of the Option less the
aggregate par value of such Shares, or (ii) the amount permitted under
applicable laws or the regulations and rules of the Federal Reserve Board
and any other governmental agency having jurisdiction.
(f) Non-transferability of Options. Except as provided herein or in
an Agreement and then only consistent with the intent that the Option be an
Incentive Option, no Option or interest therein shall be transferable by
the Participant other than by will or by the laws of descent and
distribution or by a designation of Beneficiary
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effective upon the death of the Participant, and all Options shall be
exercisable during the Participant's lifetime only by the Participant. If
and to the extent transferability is permitted by Rule 16b-3 and except as
otherwise provided herein or by an Agreement, every Option granted
hereunder shall be freely transferable, but only if such transfer does not
result in liability under Section 16 of the Exchange Act to the Participant
or other Participants and is consistent with registration of the Option and
sale of Shares on Form S-8 (or a successor form) or the Committee's waiver
of such condition.
6.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Option held by such
Participant shall thereafter be fully exercisable for a period of one (1) year
(or such other period or no period as the Committee may specify) immediately
following the date of such death or until the expiration of the Option Period
for such Option, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Option held by
such Participant shall thereafter be fully exercisable by the Participant for
the period of one (1) year (or such other period or no period as the Committee
may specify) immediately following the date of such Termination of Employment or
until the expiration of the Option Period for such Option, whichever period is
shorter, and the Participant's death at any time following such Termination of
Employment due to Disability shall not affect the foregoing. In the event of
Termination of Employment by reason of Disability, if an Incentive Option is
exercised after the expiration of the exercise periods that apply for purposes
of Section 422 of the Code, such Option will thereafter be treated as a
Nonqualified Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the Participant (but is not due to death, Disability or with Cause), any
Option held by such Participant shall thereupon terminate, except that such
Option, to the extent then exercisable, may be exercised for the lesser of the
three (3) month period commencing with the date of such Termination of
Employment or until the expiration of the Option Period for such Option, and the
Participant's death or Disability at any time following such Retirement or
involuntary Termination of Trusteeship shall not affect the foregoing. Unless
otherwise provided in an Agreement, if the Participant incurs a Termination of
Employment which is either (a) voluntary on the part of the Participant (and is
not due to Retirement) or (b) with Cause, the Option shall terminate
immediately.
6.7 Cashing Out of Option. On receipt of written notice of exercise, the
Committee may elect to cash out all or part of the portion of any Option by
paying the Participant an amount, in cash or Shares, equal to the excess of the
Fair Market Value of the Shares that is subject to the Option over the Option
Price times the number of shares of Shares subject to the Option on the
effective date of such cash out.
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ARTICLE VII
-----------
SHARE APPRECIATION RIGHTS
-------------------------
7.1 General. The Committee shall have authority to grant Share
Appreciation Rights under the Plan at any time or from time to time. Subject to
the Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement, a Share
Appreciation Right shall entitle the Participant to surrender to the Trust the
Share Appreciation Right and to be paid therefor in Shares, cash or a
combination thereof as herein provided, the amount described in Section 7.3(b).
7.2 Grant. Share Appreciation Rights may be granted in conjunction
with all or part of any Option granted under the Plan, in which case the
exercise of the Share Appreciation Right shall require the cancellation of a
corresponding portion of the Option, and the exercise of the Option shall
require the cancellation of the corresponding portion of the Share Appreciation
Right. In the case of a Nonqualified Option, such rights may be granted either
at or after the time of grant of such Option. In the case of an Incentive
Option, such rights may be granted only at the time of grant of such Option. A
Share Appreciation Right may also be granted on a stand alone basis. The grant
of a Share Appreciation Right shall occur as of the date the Committee
determines. Each Share Appreciation Right granted under this Plan shall be
evidenced by an Agreement, which shall embody the terms and conditions of such
Share Appreciation Right and which shall be subject to the terms and conditions
set forth in the Plan. During any calendar year, Share Appreciation Rights with
respect to no more than 125,833 Shares shall be granted to any Participant.
7.3 Terms and Conditions. Share Appreciation Rights shall be subject
to such terms and conditions as shall be determined by the Committee, including
the following:
(a) Period and Exercise. The term of a Share Appreciation Right
shall be established by the Committee. If granted in conjunction with a
Option, the Share Appreciation Right shall have a term which is the same as
the Option Period and shall be exercisable only at such time or times and
to the extent the related Options would be exercisable in accordance with
the provisions of Article VI. A Share Appreciation Right which is granted
on a stand alone basis shall be for such period and shall be exercisable at
such times and to the extent provided in an Agreement. Share Appreciation
Rights shall be exercised by the Participant's giving written notice of
exercise on a form provided by the Committee (if available) to the Trust
specifying the portion of the Share Appreciation Right to be exercised.
(b) Amount. Upon the exercise of a Share Appreciation Right
granted conjunction with an Option, a Participant shall be entitled to
receive an amount in cash, Shares or both as determined by the Committee or
as otherwise permitted in an Agreement equal in value to the following: (i)
the excess of the Fair Market Value over the Option Price, multiplied by
(ii) the number of Shares in respect of which the Share Appreciation Right
is exercised. In the case of a Share Appreciation Right granted on a stand
alone basis, the Agreement shall specify the value to be used in lieu of
the Option Price. The Fair Market Value shall be determined as of the date
of exercise of such Share Appreciation Right.
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(c) Special Rules. In the case of Share Appreciation Rights held by
Participants who are actually or potentially subject to Section 16(b) of
the Exchange Act the Committee may require that such Share Appreciation
Rights be exercised only in accordance with Rule 16b-3.
(d) Non-transferability of Share Appreciation Rights. Share
Appreciation Rights shall be transferable only when and to the extent that
a Option would be transferable under the Plan unless otherwise provided in
an Agreement.
(e) Termination. A Share Appreciation Right shall terminate at such
time as a Option would terminate under the Plan, unless otherwise provided
in an Agreement.
(f) Effect on Shares Under this Plan. To the extent required by Rule
16b-3, upon the exercise of a Share Appreciation Right, the Option or part
thereof to which such Share Appreciation Right is related shall be deemed
to have been exercised for the purpose of the limitation set forth in
Section 4.2 on the number of shares of Common Stock to be issued under this
Plan, but only to the extent of the number of Shares covered by the Share
Appreciation Right at the time of exercise based on the value of the Share
Appreciation Right at such time.
(g) Incentive Option. A Share Appreciation Right granted in tandem
with an Incentive Option shall not be exercisable unless the Fair Market
Value of the Shares on the date of exercise exceeds the Option Price. In
no event shall any amount paid pursuant to the Share Appreciation Right
exceed the difference between the Fair Market Value on the date of exercise
and the Option Price.
ARTICLE VIII
------------
RESTRICTED SHARES
-----------------
8.1 General. The Committee shall have authority to grant Restricted
Shares under the Plan at any time or from time to time. Restricted Shares may
be awarded either alone or in addition to other Awards granted under the Plan.
The Committee shall determine the persons to whom and the time or times at which
grants of Restricted Shares will be awarded, the number of Restricted Shares to
be awarded to any Participant, the time or times within which such Awards may be
subject to forfeiture and any other terms and conditions of the Awards. Each
Award shall be confirmed by, and be subject to the terms of, an Agreement. The
Committee may condition the grant of Restricted Shares upon the attainment of
specified performance goals by the Participant or by the Trust or an Affiliate
(including a division or department of the Trust or an Affiliate) for or within
which the Participant is primarily employed or upon such other factors or
criteria as the Committee shall determine. The provisions of Restricted Share
Awards need not be the same with respect to any Participant.
8.2 Awards and Certificates. Notwithstanding the limitations on issuance
of Shares otherwise provided in the Plan, each Participant receiving an Award of
Restricted Shares shall be issued a certificate in respect of such Restricted
Shares. Such certificate shall be registered in the name of such Participant
and shall bear an appropriate legend referring to the terms,
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<PAGE>
conditions, and restrictions applicable to such Award as determined by the
Committee. The Committee may require that the certificates evidencing such
Shares be held in custody by the Trust until the restrictions thereon shall
have lapsed and that, as a condition of any Award of Restricted Shares, the
Participant shall have delivered a stock power, endorsed in blank, relating
to the Shares covered by such Award.
8.3 Terms and Conditions. Restricted Shares shall be subject to the
following terms and conditions:
(a) Limitations on Transferability. The purchase price for Restricted
Shares shall be set by the Committee and may be zero. Subject to the
provisions of the Plan and the Agreement, during a period set by the
Committee, commencing with the date of such Award (the "Restriction
Period"), the Participant shall not be permitted to sell, assign, transfer,
pledge or otherwise encumber Restricted Shares.
(b) Rights. Except as provided in Section 8.3(a), the Participant
shall have, with respect to the Restricted Shares, all of the rights of a
shareholder of the Trust holding the Shares, including the right to vote
the Shares and the right to receive any cash dividends. Unless otherwise
determined by the Committee and subject to the Plan, cash dividends on the
Restricted Shares shall be automatically deferred and reinvested in
additional Restricted Shares, and dividends on the Restricted Shares
payable in Shares shall be paid in the form of the Restricted Shares on
which such dividend was paid.
(c) Criteria. Based on service, performance by the Participant or by
the Trust or the Affiliate, including any division or department for which
the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
restrictions in installments and may accelerate the vesting of all or any
part of any Award and waive the restrictions for all or any part of such
Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Restricted Shares. Except to the extent otherwise provided in the
applicable Agreement and the Plan, upon a Participant's Termination of
Employment for any reason during the Restriction Period other than death
or Disability, all Restricted Shares still subject to restriction shall be
forfeited by the Participant, except the Committee shall have the
discretion to waive in whole or in part any or all remaining restrictions
with respect to any or all of such Participant's Restricted Shares.
(e) Delivery. If and when the Restriction Period expires without a
prior forfeiture of the Restricted Shares subject to such Restriction
Period, unlegended certificates for such Shares shall be delivered to the
Participant.
(f) Election. A Participant may elect to further defer receipt of the
Restricted Shares for a specified period or until a specified event,
subject in each case to the Committee's approval and to such terms as are
determined by the Committee. Subject
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to any exceptions adopted by the Committee, such election must be made one
(1) year prior to completion of the Restriction Period.
ARTICLE IX
----------
DEFERRED SHARES
---------------
9.1 General. The Committee shall have authority to grant Deferred Shares
under the Plan at any time or from time to time. Deferred Shares may be awarded
either alone or in addition to other Awards granted under the Plan. The
Committee shall determine the persons to whom and the time or times at which
Deferred Shares will be awarded, the number of Deferred Shares to be awarded to
any Participant, the duration of the period (the "Deferral Period") prior to
which the Shares will be delivered, and the conditions under which receipt of
the Shares will be deferred and any other terms and conditions of the Awards.
Each Award shall be confirmed by, and be subject to the terms of, an Agreement.
The Committee may condition the grant of Deferred Shares upon the attainment of
specified performance goals by the Participant or by the Trust or an Affiliate,
including a division or department of the Trust or an Affiliate for or within
which the Participant is primarily employed or upon such other factors or
criteria as the Committee shall determine. The provisions of Deferred Shares
Awards need not be the same with respect to any Participant.
9.2 Terms and Conditions. Deferred Shares Awards shall be subject to the
following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of the
Plan and the Agreement, Deferred Shares Awards may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral Period.
At the expiration of the Deferral Period (or Elective Deferral Period as
defined in Section 9.2(e), where applicable), the Committee may elect to
deliver Shares, cash equal to the Fair Market Value of such Shares or a
combination of cash and Shares, to the Participant for the Shares covered
by the Deferred Shares Award.
(b) Rights. Unless otherwise determined by the Committee and subject
to the Plan, cash dividends on the Deferred Shares shall be automatically
deferred and reinvested in additional Deferred Shares, and dividends on the
Deferred Shares shall be paid in the form of the Deferred Shares on which
such dividend was paid.
(c) Criteria. Based on service, performance by the Participant or by
the Trust or the Affiliate, including any division or department for which
the Participant is employed or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
deferral limitations in installments and may accelerate the vesting of all
or any part of any Award and waive the deferral limitations for all or any
part of such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant
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<PAGE>
shall be fully vested in the Deferred Shares. Unless otherwise provided
in an Agreement or determined by the Committee, upon a Participant's
Termination of Employment for any reason during the Deferral Period other
than death or Disability, the rights to the Shares still covered by the
Award shall be forfeited by the Participant, except the Committee shall
have the discretion to waive in whole or in part any or all remaining
deferral limitations with respect to any or all of such Participant's
Deferred Shares.
(e) Election. A Participant may elect to further defer receipt of the
Deferred Shares payable under an Award (or an installment of an Award) for
a specified period or until a specified event, subject in each case to the
Committee's approval and to such terms as are determined by the Committee.
Subject to any exceptions adopted by the Committee, such election must be
made at one (1) year prior to completion of the Deferral Period for the
Award.
ARTICLE X
---------
PROVISIONS APPLICABLE TO SHARES ACQUIRED UNDER THE PLAN
-------------------------------------------------------
10.1 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which Shares shall
be offered for sale in an underwritten offering, a Participant shall not, during
the period requested by the underwriters managing the registered public
offering, effect any public sale or distribution of Shares received directly or
indirectly pursuant to an exercise of an Award.
10.2 Committee Discretion. The Committee may in its sole discretion
include in any Agreement an obligation that the Trust purchase a Participant's
Shares received upon the exercise of an Award (including the purchase of any
unexercised Awards which have not expired), or may obligate a Participant to
sell Shares to the Trust upon such terms and conditions as the Committee may
determine and set forth in an Agreement. The provisions of this Article X shall
be construed by the Committee in its sole discretion, and shall be subject to
such other terms and conditions as the Committee may from time to time
determine. Notwithstanding any provision herein to the contrary, the Trust may
upon determination by the Committee assign its right to purchase Shares pursuant
to this Article X, whereupon the assignee of such right shall have all the
rights, duties and obligations of the Trust with respect to purchase of the
Shares.
10.3 No Trust Obligation. None of the Trust, an Affiliate or the Committee
shall have any duty or obligation to affirmatively disclose to a record or
beneficial holder of Shares or an Award, and such holder shall have no right to
be advised of any material information regarding the Trust or any Affiliate at
any time prior to, upon or in connection with receipt or the exercise of an
Award or the Trust's purchase of Shares or an Award from such holder in
accordance with the terms hereof.
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ARTICLE XI
----------
CHANGE IN CONTROL PROVISIONS
----------------------------
11.1 Impact of Event. Notwithstanding any other provision of this Plan to
the contrary, in the event of a Change in Control (as defined in Section 11.2),
the Committee shall have full discretion, notwithstanding anything herein or in
an Agreement to the contrary, to do any or all of the following with respect to
an outstanding Award:
(a) to provide that the Options and Share Appreciation Rights
outstanding as of the date of the Change in Control which are not then
exercisable shall become fully exercisable to the full extent of the
original grant;
(b) to provide that the restrictions and deferral limitations
applicable to any Restricted Shares, or Deferred Shares shall lapse, and
such Restricted Shares, or Deferred Shares or other Award shall become free
of all restrictions and become fully vested and transferrable to the full
extent of the original grant;
(c) to cause any Award to be cancelled, provided notice of at least
15 days thereof is provided before the date of cancellation;
(d) to provide that the securities of another entity be substituted
hereunder for the Shares and to make equitable adjustment with respect
thereto;
(e) to grant the Participant the right to elect by giving notice
during a set period of time from and after a Change in Control to surrender
all or part of a stock-based Award to the Trust and to receive cash in an
amount equal to the amount by which the "Change in Control Price" (as
defined in Section 11.3) per Share on the date of the election exceeds the
amount the Participant must pay to exercise the Award per Share (the
"Spread") multiplied by the number of Shares granted under the Award; and
(f) to take any other action the Committee determines to take.
11.2 Definition of Change in Control. For purposes of the Plan, a "Change
in Control" shall mean the happening of any of the following events:
(a) (i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person")
(other than the SAHI Group) of the beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of the then outstanding
Shares (the "Outstanding Trust Shares") or the combined voting power of the
then outstanding voting securities of the Trust entitled to vote generally
in the election of directors (the "Outstanding Trust Voting Securities") or
(ii) the approval by the shareholders of the Trust of a reorganization,
merger, consolidation, complete liquidation or dissolution of the Trust,
the sale or disposition of all or substantially all of the assets of the
Trust or similar corporate transaction (in each case referred to in this
Section 11.2 as a "Trust Transaction") or, if consummation of such Trust
Transaction is subject, at the time of such approval by shareholders, to
the consent of any government or governmental agency, the obtaining of such
consent (either
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explicitly or implicitly); provided such acquisition of beneficial
ownership or such Trust Transaction would result in any Person's
beneficially owning (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 30% or more of the Outstanding Trust Shares or 30% or more of
the Outstanding Trust Voting Securities; excluding, however, the following:
(i) any acquisition by or consummation of a Trust Transaction with the
Trust or an Affiliate, or by an employee benefit plan (or related trust)
sponsored or maintained by the Trust, (ii) the acquisition by or
consummation of a Trust Transaction with any Person who beneficially owned,
immediately prior to the Effective Date, directly or indirectly, 30% or
more of the Outstanding Shares or Outstanding Trust Voting Securities,
(iii) an acquisition by or consummation of a Trust Transaction with the
SAHI Group, or (iv) any acquisition or Trust Transaction, if more than 70%
of the beneficial ownership of the entity resulting from the acquisition or
Trust Transaction is held by persons who held more than 70% of the
beneficial ownership of the Outstanding Shares or Outstanding Trust Voting
Securities before the acquisition or Trust Transaction; or
(b) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however,
for purposes of this Section 11.2(b), that any individual who becomes a
member of the Board subsequent to the Effective Date and whose election, or
nomination for election by the Trust's shareholders, was approved by a vote
of at least a majority of those individuals who are members of the Board
and who were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such individual
were a member of the Incumbent Board; but, provided, further, that any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board shall not be so considered as a member of the
Incumbent Board.
11.3 Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (a) the highest reported sales price of a Share in
any transaction reported on the principal exchange on which such Shares are
listed or on NNM during the 60-day period prior to and including the date of a
Change in Control or (b) if the Change in Control is the result of a tender or
exchange offer or Transaction, the highest price per Share paid in such tender
or exchange offer or a Transaction, except that, in the case of Incentive
Options and Share Appreciation Rights relating to Incentive Options, such price
shall be based only on the Fair Market Value of the Shares on the date such
Incentive Option or Share Appreciation Right is exercised. To the extent that
the consideration paid in any such transaction described above consists all or
in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Committee.
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ARTICLE XII
-----------
MISCELLANEOUS
-------------
12.1 Amendments and Termination. The Board may amend, alter or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would impair the rights of a Participant
under an Award theretofore granted without the Participant's consent, except
such an amendment (a) made to avoid an expense charge to the Trust or an
Affiliate, (b) made to cause the Plan to qualify for the exemption provided by
Rule 16b-3, or (c) made to permit the Trust or an Affiliate a deduction under
the Code. In addition, no such amendment shall be made without the approval of
the Trust's stockholders to the extent such approval is required by law or
agreement. The Committee may amend, alter or discontinue the terms of any Award
theretofore granted, prospectively or retroactively, on the same conditions and
limitations (and exceptions to limitations) as the Board and further subject to
any approval or limitations the Board may impose.
Notwithstanding anything in the Plan to the contrary, if any right under
this Plan or an Agreement would cause a transaction to be ineligible for pooling
of interest accounting that would, but for the right hereunder, be eligible for
such accounting treatment, the Committee may modify or adjust the right so that
pooling of interest accounting shall be available, including the substitution of
Shares having a Fair Market Value equal to the cash otherwise payable hereunder
for the right which caused the transaction to be ineligible for pooling of
interest accounting.
12.2 Unfunded Status of Plan. It is intended that the Plan be an
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Shares or make payments; provided, however,
that, unless the Committee otherwise determines, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of the Plan.
12.3 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving Shares pursuant to an Award to represent to and agree with the
Trust in writing that such person is acquiring the Shares without a view to
the distribution thereof. The certificates for such Shares may include any
legend which the Committee deems appropriate to reflect any restrictions on
transfer.
(b) No Additional Obligation. Nothing contained in the Plan shall
prevent the Trust or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Award, the Participant shall pay to
the Trust (or other entity identified by the Committee), or make
arrangements satisfactory to the Trust or other entity identified by the
Committee regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount required in order
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<PAGE>
for the Trust or an Affiliate to obtain a current deduction. Unless
otherwise determined by the Committee, withholding obligations may be
settled with Shares, including Shares that are part of the Award that gives
rise to the withholding requirement, provided that any applicable
requirements under Section 16 of the Exchange Act are satisfied. The
obligations of the Trust under the Plan shall be conditional on such
payment or arrangements, and the Trust and its Affiliates shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Participant.
(d) Reinvestment. The reinvestment of dividends in additional
Deferred or Restricted Shares at the time of any dividend payment shall
only be permissible if sufficient Shares are available for such
reinvestment (taking into account then outstanding Options and other
Awards).
(e) Representation. The Committee shall establish such procedures as
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(f) Controlling Law. The Plan and all Awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of California (other than its law respecting choice of law).
The Plan shall be construed to comply with all applicable law, and to avoid
liability to the Trust, an Affiliate or a Participant, including, without
limitation, liability under Section 16(b) of the Exchange Act.
(g) Offset. Any amounts owed to the Trust or an Affiliate by the
Participant of whatever nature may be offset by the Trust from the value of
any Shares, cash or other thing of value under this Plan or an Agreement to
be transferred to the Participant, and no Shares, cash or other thing of
value under this Plan or an Agreement shall be transferred unless and until
all disputes between the Trust and the Participant have been fully and
finally resolved and the Participant has waived all claims to such against
the Trust or an Affiliate.
(h) Fail-Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as applicable. To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee. Moreover, in the event the Plan
does not include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to
be stated herein, such provision (other than one relating to eligibility
requirements or the price and amount of Awards) shall be deemed to be
incorporated by reference into the Plan with respect to Participants
subject to Section 16.
(i) Right to Capitalize. The grant of an Award shall in no way affect
the right of the Trust to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidation,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
G-24
<PAGE>
12.4 Mitigation of Excise Tax. Subject to any agreement between the
Participant and the Trust, if any payment or right accruing to a Participant
under this Plan (without the application of this Section 12.4), either alone or
together with other payments or rights accruing to the Participant from the
Trust or an Affiliate ("Total Payments") would constitute a "parachute payment"
(as defined in Section 280G of the Code and regulations thereunder), such
payment or right shall be reduced to the largest amount or greatest right that
will result in no portion of the amount payable or right accruing under the Plan
being subject to an excise tax under Section 4999 of the Code or being
disallowed as a deduction under Section 280G of the Code. The determination of
whether any reduction in the rights or payments under this Plan is to apply
shall be made by the Committee in good faith after consultation with the
Participant, and such determination shall be conclusive and binding on the
Participant. The Participant shall cooperate in good faith with the Committee in
making such determination and providing the necessary information for this
purpose. The foregoing provisions of this Section 12.4 shall apply with respect
to any person only if after reduction for any applicable federal excise tax
imposed by Section 4999 of the Code and federal income tax imposed by the Code,
the Total Payments accruing to such person would be less than the amount of the
Total Payments as reduced, if applicable, under the foregoing provisions of the
Plan and after reduction for only federal income taxes.
12.5 Rights with Respect to Continuance of Employment. Nothing contained
herein shall be deemed to alter the relationship between the Trust or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Trust or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Trust or an Affiliate and a
Participant. The Trust or an Affiliate and each of the Participants continue to
have the right to terminate the employment or service relationship at any time
for any reason, except as provided in a written contract. The Trust or an
Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Trust or an Affiliate reserves the same
rights to terminate the Participant's employment or service as existed prior to
the individual becoming a Participant in this Plan.
12.6 Awards in Substitution for Awards Granted by Other Corporations.
Awards may be granted under this Plan from time to time in substitution for
awards in respect of other plans of other entities. The terms and conditions of
the Awards so granted may vary from the terms and conditions set forth in this
Plan at the time of such grant as the majority of the members of the Committee
may deem appropriate to conform, in whole or in part, to the provisions of the
awards in substitution for which they are granted.
12.7 Procedure for Adoption. Any Affiliate of the Trust may by resolution
of such Affiliate's board of directors or trustees, as the case may be, with the
consent of the Board of Trustees and subject to such conditions as may be
imposed by the Board of Trustees, adopt the Plan for the benefit of its
employees as of the date specified in the board resolution.
12.8 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors or trustees, as the case may be, of
such Affiliate, with the consent of the Board of Trustees and subject to such
conditions as may be imposed by the Board
G-25
<PAGE>
of Trustees, terminate its adoption of the Plan. If the Participant disposes of
Shares acquired pursuant to an Incentive Option in any transaction considered to
be a disqualifying transaction under the Code, the Participant must give written
notice of such transfer and the Trust shall have the right to deduct any taxes
required by law to be withheld from any amounts otherwise payable to the
Participant.
12.9 Delay. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, or the period for exercise of a Share Appreciation Right as provided in
the Agreement, whichever is shorter. The Trust shall have the right to suspend
or delay any time period described in the Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Trust, an Affiliate or a shareholder of the
Trust until such time as the action required or permitted shall not constitute a
violation of law or result in liability to the Trust, an Affiliate or a
shareholder of the Trust. The Committee shall have the discretion to suspend the
application of the provisions of the Plan required solely to comply with Rule
16b-3 if the Committee shall determine that Rule 16b-3 does not apply to the
Plan.
12.10 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
12.11 Severability. If any provision of this Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
12.12 Successors and Assigns. This Plan shall inure to the benefit of and
be binding upon each successor and assign of the Trust. All obligations imposed
upon a Participant, and all rights granted to the Trust hereunder, shall be
binding upon the Participant's heirs, legal representatives and successors.
12.13 Entire Agreement. This Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan shall control.
G-26
<PAGE>
EXHIBIT H
- ---------
FRANKEL-WARWICK LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
LAND, BUILDING, IMPROVEMENTS AND EQUIPMENT
Land $700,000 $ -
Building and improvements 14,241,747 13,966,121
Furniture and fixtures 3,470,753 3,446,355
Equipment 1,049,385 963,958
---------- ----------
19,461,885 18,376,434
Less accumulated depreciation 11,206,270 10,374,102
---------- ----------
8,255,615 8,002,332
OTHER ASSETS
Cash and cash equivalents 701,207 172,933
Escrowed cash 167,779 153,191
Due from Affiliate - 67,484
Tenant and guest receivables 224,045 143,317
Other receivables 155,856 94,492
Prepaid expenses and deposits 212,886 225,643
Deferred costs, net of accumulated
amortization of $209,925 in 1996 and
$206,285 in 1995 27,390 31,031
Other 833
---------- ----------
1,489,163 888,924
---------- ----------
Total Assets $9,744,778 $8,891,256
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage notes payable $5,039,209 $7,716,699
Accounts payable and accrued expenses 480,623 545,541
Due to Affiliates 241,138 96,563
Loans from Affiliates 3,194,250 959,250
Tenants' security deposits 157,109 149,759
---------- ----------
9,112,329 9,467,812
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 632,449 (576,556)
Total Liabilities and Partners' Capital $9,744,778 $8,891,256
---------- -----------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
PERIODS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Revenue
Rental
Apartments 1,006,452 1,048,816
Hotel rooms 2,585,567 2,248,783
Commercial 47,001 29,892
Restaurant and caterer
Base 53,500 12,000
Excess - -
Ancillary hotel services, net 83,598 58,361
---------- ---------
3,776,118 3,397,852
Other
Telephone, net 54,922 45,633
Interest 1,552 543
Miscellaneous 32,736 45,301
---------- ---------
89,210 91,477
Total revenue 3,865,328 3,489,329
Operating expenses
General and administrative 180,352 159,271
Payroll and related expenses 1,080,121 1,184,298
Advertising, rental and selling 205,675 243,549
Depreciation and amortization 388,756 408,478
Utilities 282,259 277,522
Repairs and maintenance 129,816 146,794
Interest 230,476 269,905
Interest-related parties 115,295 116,030
Insurance 54,888 67,136
Real estate taxes 170,318 204,482
Ground rent 0 46,907
Management fee 187,860 173,994
Other 346,327 283,232
---------- ---------
Total operating expenses 3,372,143 3,581,598
---------- ---------
NET INCOME (LOSS) $493,185 ($92,269)
========== =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
PERIODS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- ----------
<S> <C> <C>
JANUARY 1 $139,264 ($484,287)
NET INCOME(LOSS) 493,185 (92,269)
-------- ---------
JUNE 30 $632,449 ($576,556)
======== =========
</TABLE>
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOW
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 493,185 $( 92,269)
Adjustments to reconcile net loss to net cash
provided (utilized) by operating activities:
Provision for uncollectible receivables 1,298 (3,636)
Depreciation 404,960 415,418
Amortization 1,820 1,820
Changes in:
Escrowed cash (13,188) (980)
Receivables and due from Affiliate (73,118) 353,607
Prepaid expenses and deposits (153,910) (180,944)
Other assets 46,508 (833)
Accounts payable, accrued expenses and
due to Affiliates (65,488) (271,614)
Tenants' security deposits 11,100 9,308
--------- ---------
Net cash provided (utilized) by operating activities 653,167 229,877
INVESTING ACTIVITIES
Purchase of building, improvements and equipment (189,939) (300,391)
--------- ---------
Net cash provided (utilized) by investing activities (189,939) (300,391)
FINANCING ACTIVITIES
Borrowings from Affiliates 237,788 178,060
Repayment of mortgage notes payable, net (196,047) (134,254)
--------- ---------
Net cash provided (utilized) by financing activities 41,741 43,806
--------- ---------
INCREASE (DECREASE) IN CASH 504,969 (26,708)
AND CASH EQUIVALENTS
Cash and cash equivalents, beginning of year 196,238 199,641
--------- ---------
Cash and cash equivalents, end of year $ 701,207 $ 172,933
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
SELECTED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE A - INTERIM FINANCIAL STATEMENTS
In the opinion of management, these unaudited interim financial statements
reflect all adjustments which are necessary for a fair statement of the
results for the interim period presented. These interim financial
statements include all adjustments consisting of normal recurring
adjustments necessary for a fair presentation. The results for the six
months ended June 30, 1996 are not necessarily indicative of the results to
be expected for the full fiscal year ending December 31, 1996. This data
should be read in conjunction with the Partnership's year end financial
statements.
NOTE B - MORTGAGE NOTE PAYABLE
At June 30, 1996, the Partnership has a mortgage note payable to a bank
which bears interest at 9% and is payable in monthly installments of
$71,332, including interest. Under the terms of the mortgage note, the
mortgagee has the option to require repayment of the outstanding principal
on November 30, 1999. Unless this option is exercised, the mortgage note
payable is due in 2004. The outstanding balance of this mortgage note is
$5,039,209 at June 30, 1996. The building, improvements, equipment and
furniture and fixtures are pledged as collateral for the mortgage note.
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
FRANKEL-WARWICK LIMITED
PARTNERSHIP
DECEMBER 31, 1995 AND 1994
<PAGE>
[LETTERHEAD OF ASHER & COMPANY, LTD]
Independent Auditors' Report
----------------------------
The Partners
Frankel-Warwick Limited Partnership
Philadelphia, Pennsylvania
We have audited the accompanying balance sheets of Frankel-Warwick Limited
Partnership as of December 31, 1995 and 1994 and the related statements of
operations, changes in Partners' capital and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Frankel-Warwick Limited
Partnership as of December 31, 1995 and 1994 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Asher & Company, Ltd.
ASHER & COMPANY, Ltd.
March 20, 1996
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
LAND, BUILDING, IMPROVEMENTS AND EQUIPMENT
Land $ 700,000
Building and improvements 14,123,445 $13,804,896
Furniture and fixtures 3,453,263 3,432,972
Equipment 995,238 920,922
----------- -----------
19,271,946 18,158,790
Less accumulated depreciation 10,801,310 9,953,380
----------- -----------
8,470,636 8,205,410
OTHER ASSETS
Cash and cash equivalents 196,238 199,641
Escrowed cash 154,591 152,211
Due from Affiliate 15,597 13,311
Tenant and guest receivables 150,640 253,482
Other receivables 175,527 292,279
Prepaid expenses and deposits 58,976 44,699
Deferred costs, net of accumulated amortization of
$61,790 in 1995 and $58,150 in 1994 29,210 32,850
Other 46,508 -
----------- -----------
827,287 988,473
----------- -----------
Total Assets $ 9,297,923 $ 9,193,883
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
LIABILITIES
Mortgage notes payable $ 5,235,256 $ 7,850,953
Accounts payable and accrued expenses 581,093 803,234
Due to Affiliates 82,062 14,293
Loans from Affiliates 3,114,250 869,250
Tenants' security deposits 146,009 140,451
----------- -----------
9,158,670 9,678,181
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 139,253 (484,298)
----------- -----------
Total Liabilities and Partners' Capital $ 9,297,923 $ 9,193,883
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-2-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenue
Rental
Apartments $2,053,514 $1,973,096
Hotel rooms 4,407,267 4,002,070
Commercial 56,717 54,718
Restaurant and caterer
Base 32,667 22,500
Excess - 5,668
Ancillary hotel services, net 166,010 218,193
---------- ----------
6,716,175 6,276,245
Other
Telephone, net 87,906 77,659
Interest 1,145 7,651
Miscellaneous 68,200 56,093
---------- ----------
157,251 141,403
---------- ----------
Total revenue 6,873,426 6,417,648
Operating expenses
General and administrative 355,884 435,113
Payroll and related expenses 2,270,425 2,205,572
Advertising, rental and selling 449,610 456,590
Depreciation and amortization 820,596 761,703
Utilities 582,408 537,414
Repairs and maintenance 370,219 412,030
Interest 680,083 728,872
Interest-related parties 79,838 57,349
Insurance 84,875 137,284
Real estate taxes 408,962 407,876
Ground rent 85,938 93,750
Management fees 340,432 313,047
Litigation settlement - 290,000
Other 533,337 581,188
---------- ----------
Total operating expenses 7,062,607 7,417,788
---------- ----------
Loss before other income (expense) and
extraordinary item (189,181) (1,000,140)
Other income (expense)
Gain on fire insurance proceeds - 280,247
---------- ----------
Loss before extraordinary item (189,181) (719,713)
Extraordinary item
Gain on forgiveness of indebtedness 812,732 -
---------- ----------
NET INCOME (LOSS) $ 623,551 $ (719,713)
========== ==========
</TABLE>
The accompanying notes are integral part of these
financial statements.
-3-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
General
Partner Limited Partners
------- ---------------------------------------------------------------------------------------
Leonard Elizabeth
William E.J. Frankel Benjamin Frankel Thomas F. Klein Andrew Alan A.
Frankel Trust Frankel Trust Frankel Trust Frankel Steinberg
------- ------------ -------- ------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1994 $(348,426) $(348,427) $(348,427) $(348,427) $(340,878)
Net loss (182,150) (93,297) (182,150) - $ (60,716) $ (60,717) $ (60,717) (79,966)
Capital contributions 635,833 62,500 635,834 - 211,944 211,945 211,944 -
Partner transfers (126,408) 379,224 (126,408) 348,427 (158,279) (158,278) (158,278) -
--------- --------- --------- --------- --------- --------- --------- ---------
December 31, 1994 (21,151) - (21,151) - (7,051) (7,050) (7,051) (420,844)
Net income 184,758 - 184,758 - 61,584 61,584 61,584 69,283
--------- --------- --------- --------- --------- --------- --------- ---------
December 31, 1995 $ 163,607 $ - $ 163,607 $ - $ 54,533 $ 54,534 $ 54,533 $(351,561)
========= ========= ========= ========= ========= ========= ========= =========
Profit and Loss sharing
percentages 29.6300% -% 29.6300% -% 9.8763% 9.8764% 9.8763% 11.1110%
========= ========= ========= ========= ========= ========= ========= =========
Total
-----------
January 1, 1994 $(1,734,585)
Net loss (719,713)
Capital contributions 1,970,000
Partner transfers -
-----------
December 31, 1994 (484,298)
Net income 623,551
------------
December 31, 1995 $ 139,253
-----------
Profit and Loss sharing
percentages 100.0000%
===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-4-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $ 623,551 $(719,713)
Adjustments to reconcile net income (loss) to net cash
provided (utilized) by operating activities:
Provision for uncollectable receivables 18,907 61,614
Depreciation 847,930 779,326
Amortization 3,640 3,640
Gain on fire insurance proceeds - (280,427)
Gain on forgiveness of indebtedness (812,732) -
Changes in:
Escrowed cash (2,380) (23,078)
Receivable and due from Affiliate 198,401 (243,258)
Prepaid expenses and deposits (14,277) 95,875
Other assets (46,508) 7,500
Accounts payable, accrued expenses and
due to Affiliates (154,372) 34,150
Tenants' security deposits 5,558 16,285
----------- ---------
Net cash provided (utilized) by operating activities 667,718 (268,086)
INVESTING ACTIVITIES
Purchase of building, improvements and equipment (413,156) (993,763)
Insurance proceeds received, net - 732,972
----------- ---------
Net cash utilized by investing activities (413,156) (260,791)
FINANCING ACTIVITIES
Capital contributions - 250,000
Borrowings from Affiliates 2,245,000 670,000
Repayment of mortgage notes payable (2,502,965) (335,239)
----------- ---------
Net cash provided (utilized) by financing activities (257,965) 584,761
----------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,403) 55,884
Cash and cash equivalents, beginning of year 199,641 143,757
----------- ---------
Cash and cash equivalents, end of year $ 196,238 $ 199,641
----------- ---------
</TABLE>
-Continued-
-5-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 1995 AND 1994
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1995 1994
---- ----
Cash paid for interest during the year $776,493 $749,900
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1994, loans from affiliates aggregating
$1,720,000 were converted to equity and are reflected as capital
contributions in the Statement of Changes in Partners' Deficit.
During the year ended December 31, 1994, the Partnership received net
insurance proceeds in the amount of $732,972 of which $300,605 is reflected
as a reduction in the basis of building, improvements and equipment.
Proceeds of $280,427 are reflected as a gain on fire insurance proceeds,
and proceeds of $151,940 are reflected as a liability for anticipated
future costs. The previously deferred proceeds of $151,940 are reflected as
a reduction in the basis of building improvements and equipment and
expenses in 1995.
The accompanying notes are an integral part of these
financial statements.
-6-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies applied by
management in the preparation of the accompanying financial statements.
Business activity
-----------------
Frankel-Warwick Limited Partnership (the Partnership) is a Pennsylvania
limited partnership which was formed in 1977 to purchase, improve, own and
operate the Warwick Hotel in Philadelphia, Pennsylvania.
Building, improvements and equipment
------------------------------------
Building, improvements and equipment are carried at cost. Depreciation is
provided by the straight-line method over the following assets' estimated
useful lives:
Building and improvements 34 years
Furniture and fixtures 5-10 years
Equipment 5-10 years
Cash and cash equivalents
-------------------------
The Partnership considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Concentration of credit risk
----------------------------
The Partnership maintains cash accounts in commercial banks. Total cash
deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to
$100,000 per bank. As of December 31, 1995, the uninsured cash balances are
approximately $178,000.
Deferred costs
--------------
Fees and costs incurred in the acquisition of the permanent financing were
deferred and are being amortized using the straight-line method over the term
of the first mortgage note payable.
-7-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Income taxes
------------
Frankel-Warwick Limited Partnership is not a taxpaying entity for either
Federal or state income tax purposes. Instead, the Partners are liable for
individual Federal and state income taxes on their respective shares of the
Partnership's taxable income and may include, subject to certain
limitations, their respective shares of the Partnership's net operating
loss in their individual income tax returns.
Due to the Partnership's policy of capitalizing certain construction period
costs for financial reporting purposes and expensing these items for
Federal income tax reporting purposes and the use of accelerated and
straight-line depreciation methods for Federal income tax reporting
purposes, the net book value of the building, improvements and equipment
for income tax reporting purposes is approximately $3,700,000 and
$4,100,000 less than the net book value in the accompanying financial
statements at December 31, 1995 and 1994, respectively.
Partners' allocations
---------------------
In accordance with the partnership agreement, the Partners are allocated
profits and losses in proportion to their respective ownership interests.
NOTE B - RESTRUCTURING AND FORGIVENESS OF INDEBTEDNESS
On December 1, 1995, the Partnership restructured mortgage debt of
$2,249,010. Under the terms of the agreement, the Partnership paid
$2,200,000, exercising its option under the operating lease to purchase
land for $700,000 (See Note D) and in full settlement of the second
mortgage note payable plus accrued interest of $63,722. As a result of the
forgiveness of indebtedness, the Partnership recognized income in the
amount of $812,732 which is reflected as an extraordinary item in the
Statement of Operations.
-8-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE C - MORTGAGE NOTES PAYABLE
The Partnership has a mortgage note payable to a bank which bears interest
at 9% and is payable in monthly installments of $71,332, including
interest. Under the terms of the mortgage note, the mortgagee has the
option to require repayment of the outstanding principal on November 30,
1999. Unless this option is exercised, the mortgage note payable is due in
2004. The outstanding balance of this mortgage note is $5,235,256 and
$5,601,943 at December 31, 1995 and 1994, respectively.
The Partnership had a second mortgage note payable at December 31, 1994.
The outstanding balance was $2,249,010. As discussed in footnote B, this
mortgage was extinguished on December 1, 1995.
The building, improvements, equipment and furniture and fixtures are
pledged as collateral for the mortgage note.
Approximate aggregate maturities of long-term debt for the five years
subsequent to December 31, 1995 are as follows:
Years Ending December 31, Amount
------------------------- ------
1996 $401,000
1997 439,000
1998 480,000
1999 524,000
2000 574,000
NOTE D - OPERATING LEASE
In 1978, the Partnership sold the land under the building and improvements
to the holder of the second mortgage payable and leased it back for a term
of 99 years. The lease provides for a minimum annual rental payment of
$93,750 plus an additional payment equal to 50% of the cash available for
distribution, as defined. The cash available for distribution, as defined,
includes a deduction for repayment of capital improvement loans. Rental
expense amounted to $85,937 and $93,750 for the years ended December 31,
1995 and 1994, respectively. The operating lease contained an option for
the Partnership to purchase the land on or before December 31, 1997 for
$700,000 plus the outstanding principal balance on the second mortgage note
payable. As part of the debt restructuring on December 1, 1995 (See Note
B), the Partnership exercised its option to purchase the land.
-9-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTES E - RENTAL UNDER OPERATING LEASES
Minimum future rentals expected to be received from noncancellable
commercial operating leases are approximately as follows:
Years Ending December 31, Amount
------------------------- ------
1996 $171,000
1997 137,000
1998 121,000
1999 107,000
2000 55,000
Thereafter 130,000
A lease with a commercial tenant provides for contingent rentals based on
an increase in sales revenue over a specific amount as defined in the lease
agreement. There was no contingent rental income for 1995. Contingent
rental income of $5,668 is included in rental income for the year ended
December 31, 1994.
No tenant accounted for more than 10% of rental revenue in 1995 or 1994.
NOTE F - RETIREMENT PLANS
In connection with its collective bargaining agreements with the
International Brotherhood of Firemen, Oilers, Powerhouse Operators and
Maintenance Mechanics Union and the Hotel Employees and Restaurant
Employees Union, the Partnership participates with other companies in
defined contribution pension plans. Contributions to the plans are made at
rates of $27.73 and $36.00, respectively, per leased union employee per
month. The plans cover all employees leased by the Partnership, as defined,
who are members of the unions. The pension expense, representing the
Partnership's required contributions to the plans, amounted to $19,986 and
$17,199 for the years ended December 31, 1995 and 1994, respectively.
The Company has a profit sharing plan available to all eligible employees,
under Section 401(k) of the Internal Revenue Code. The effective date of
the Plan was January 1, 1994. The Company will make a matching contribution
up to 20% of an employee's contribution which is limited to 15% of the
employee's compensation. The Company's contribution was $1,766 and $1,152
for 1995 and 1994, respectively. At the discretion of the Partners, the
Company may make additional contributions to the plan. No such additional
contributions were made in 1995 or 1994. Employees are fully vested in the
Company's contributions upon completion of seven years of service.
-10-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE G - RELATED PARTY TRANSACTIONS
A related party entity leases space in the hotel for its restaurant
operations. The Partnership funded the net operating shortfalls of the
related entity managing the restaurant and will more than likely continue
to fund future operating deficits although no written agreement exists
which requires payment of such costs. These costs, amounting to $100,000
and $142,225 during 1995 and 1994, respectively, are included in other
operating expenses in the Statement of Operations. From the period April
1994 through August 1994, an unrelated entity assumed the management and
operating costs of the restaurant.
The Partnership has entered into a contract with an affiliated company to
provide for the operation and general management of the property. The
agreement is for an unspecified term and provides for a fee equal to 5% of
gross income. Under the terms of the agreement, the managing agent provides
all employees necessary for the operation of the property except for the
salary and benefits of the manager and is reimbursed by the Partnership for
its costs, including related employee benefits. The contract labor and
related employee benefits are included in the accompanying financial
statements as operating expenses under the appropriate expense
classifications. In 1995 and 1994, management fees of $340,000 and
$313,000, respectively, are included in general and administrative
expenses, in the accompanying financial statements.
As part of the debt restructuring on December 1, 1995 (See Note B), the
Partnership obtained financing from a related party in the amount of
$2,200,000. The note is unsecured and bears interest at 7.2% annually.
Interest only is payable monthly and the principal matures on November 30,
1998. Interest expense of $13,640 is included in the Statement of
Operations for 1995.
The Partnership has unsecured advances from related parties of $500,000 at
December 31, 1995 and 1994 to help fund certain building improvements.
These advances are due on demand and bear interest at the prime rate.
Interest expense of $40,120 and $34,757 is included in the Statement of
Operations for 1995 and 1994, respectively.
The Partnership has unsecured short-term advances from a related party in
the amount of $45,000 to fund operations. The advances are due on demand
and are non-interest bearing.
The Partnership has unsecured advances from an affiliate amounting to
$325,000 in principal and $44,250 of accrued interest at December 31, 1995
and 1994. These advances are due on demand and accrue interest at the prime
rate. Interest expenses of $26,077 and $22,592, is included in the
Statement of Operations for 1995 and 1994, respectively.
The Partnership leases commercial and residential space to individuals who
are related to the Partners. Rental income from these leases amounted to
$25,725 and $46,700 in 1995 and 1994, respectively.
-11-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are subjective in nature and involved uncertainties
and matters of significant judgment and therefore cannot be determined with
precision. Any changes in these assumptions could significantly affect
these estimates. Therefore, the estimated fair values of the financial
instruments are not necessarily indicative of the amounts the Partnership
might realize in actual market transactions.
The fair value of the Partnership's mortgage note payable is based on the
borrowing rates currently available to the Partnership for bank loans with
similar terms and average maturities. The fair value of the mortgage note
payable approximates carrying value.
Due to the unique terms, conditions, restrictions, sources and purposes of
the advances and loans to the from Affiliates, there may not be comparable
marketplace financial instruments. Accordingly, it was not practicable to
estimate the fair value of these financial instruments.
NOTE I - OTHER ITEMS
In 1994 the Partnership agreed to an out-of-court settlement resulting from
an alleged wrongful termination suit by a former controller against the
Partnership. The settlement resulted in a payment of $290,000 to the former
employee.
In 1994 the Warwick Hotel suffered from a fire and resulting water damage.
The gain of $280,427 represents that portion of insurance proceeds in
excess of replacement costs of the damaged property.
-12-
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
FRANKEL-WARWICK LIMITED
PARTNERSHIP
DECEMBER 31, 1994 AND 1993
<PAGE>
[LETTERHEAD OF ASHER & COMPANY, LTD.]
Independent Auditors' Report
----------------------------
THE PARTNERS
FRANKEL-WARWICK LIMITED PARTNERSHIP
PHILADELPHIA, PENNSYLVANIA
We have audited the accompanying balance sheets of FRANKEL-WARWICK LIMITED
PARTNERSHIP as of December 31, 1994 and 1993 and the related statements of
operations, changes in Partners' deficit and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FRANKEL-WARWICK LIMITED
PARTNERSHIP as of December 31, 1994 and 1993 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Asher & Company, Ltd.
ASHER & COMPANY, Ltd.
March 22, 1995
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
BUILDING, IMPROVEMENTS AND EQUIPMENT
Building and improvements $13,804,896 $13,373,124
Furniture and fixtures 3,432,972 3,216,385
Equipment 920,922 887,566
----------- -----------
18,158,790 17,477,075
Less accumulated depreciation 9,953,380 9,185,497
----------- -----------
8,205,410 8,291,578
OTHER ASSETS
Cash and cash equivalents 199,641 143,757
Escrowed cash 152,211 129,133
Due from Affiliate 13,311 35,782
Tenant and guest receivables 253,482 184,904
Other receivables 292,279 156,742
Prepaid expenses and deposits 44,699 140,574
Deferred costs, net of accumulated amortization of
$58,150 in 1994 and $54,510 in 1993 32,850 36,490
- 7,500
----------- -----------
Other 988,473 834,882
----------- -----------
Total Assets $ 9,193,883 $ 9,126,460
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage notes payable $ 7,850,953 $ 8,186,192
Accounts payable and accrued expenses 803,234 563,875
Due to Affiliates 14,293 67,562
Loans from Affiliates 869,250 1,919,250
Tenants' security deposits 140,451 124,166
----------- -----------
9,678,181 10,861,045
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIT (484,298) (1,734,585)
----------- -----------
Total Liabilities and Partners' Deficit $ 9,193,883 $ 9,126,460
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-2-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---------- -----------
<S> <C> <C>
Revenue
Rental
Apartments $1,973,096 $ 1,848,461
Hotel rooms 4,002,070 3,640,986
Commercial 54,718 85,000
Restaurant and caterer
Base 22,500 151,533
Excess 5,668 9,164
Ancillary hotel services, net 218,193 160,868
---------- -----------
6,276,245 5,896,012
Other
Telephone, net 77,659 86,417
Interest 7,651 6,875
Miscellaneous 56,093 76,660
---------- -----------
141,403 169,952
---------- -----------
Total revenue 6,417,648 6,065,964
Operating expenses
General and administrative 435,113 650,327
Payroll and related expenses 2,205,572 1,955,983
Advertising, rental and selling 456,590 404,319
Depreciation and amortization 761,703 754,789
Utilities 537,414 600,139
Repairs and maintenance 412,030 323,405
Interest 728,872 758,239
Interest related parties 57,349 107,601
Insurance 137,284 236,149
Real estate taxes 407,876 363,911
Ground rent 93,750 93,750
Management fees 313,047 284,440
Litigation Settlement 290,000 --
Other 581,188 698,419
---------- -----------
Total operating expenses 7,417,788 7,231,471
Loss before other income (1,000,140) (1,165,507)
Other income (expense)
Gain on fire insurance proceeds 280,427 --
NET LOSS $ (719,713) $(1,165,507)
========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-3-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
General
Partner Limited Partners
------- -----------------------------------------------------------------------------------
Leonard Trust FBO
William E. J. Frankel Benjamin Frankel Thomas Elizabeth Andrew Alan A.
Frankel Trust Frankel Trust Frankel Frankel Frankel Steinberg Total
------- ------------ -------- ------- ------- --------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1993 $ (89,424) $ (89,425) $ (89,425) $ (89,425) $(211,379) $ (569,078)
Net loss (259,002) (259,002) (259,002) (259,002) (129,499) (1,165,507)
--------- --------- --------- --------- --------- -----------
December 31, 1993 (348,426) (348,427) (348,427) (348,427) (340,878) (1,734,585)
Net loss (182,150) (93,297) (182,150) - $ (60,716) $ (60,717) $ (60,717) (79,966) (719,713)
Capital contributions 635,833 62,500 635,834 - 211,944 211,945 211,944 - 1,970,000
Partner transfers (126,408) 379,224 (126,408) 348,427 (158,279) (158,278) (158,278) - -
--------- --------- --------- --------- --------- --------- --------- --------- -----------
December 31, 1994 $ (21,151) $ - $ (21,151) $ - $ (7,051) $ (7,050) $ (7,051) $(420,844) $ (484,298)
========= ========= ========= ========= ========= ========= ========= ========= ===========
Profit and loss sharing
percentages 29.6300% - % 29.6300% - % 9.8764% 9.8763% 9.8763% 11.1110% 100.0000%
========= ========= ========= ========= ========= ========= ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-4-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $(719,713) $(1,165,507)
Adjustments to reconcile net loss to net cash
provided (utilized) by operating activities:
Provision for uncollectible receivables 61,614 295,100
Depreciation 779,326 771,000
Amortization 3,640 3,640
Gain on fire insurance proceeds (280,427) -
Changes in:
Escrowed cash (23,078) 100,233
Receivables and due from Affiliate (243,258) 20,312
Prepaid expenses and deposits 95,875 (23,056)
Other assets 7,500 (7,500)
Accounts payable, accrued expenses and
due to Affiliates 34,150 73,907
Tenants' security deposits 16,285 (34,762)
--------- -----------
Net cash provided (utilized) by operating activities (268,086) 33,367
INVESTING ACTIVITIES
Proceeds from sale of marketable securities, net - 446,312
Purchase of building, improvements and equipment (993,763) (280,634)
Insurance proceeds received, net 732,972 -
--------- -----------
Net cash provided (utilized) by investing activities (260,791) 165,678
FINANCING ACTIVITIES
Collections of notes receivable - 20,833
Capital contributions 250,000 -
Borrowings from Affiliates 670,000 119,500
Repayment of mortgage notes payable (335,239) (306,488)
--------- -----------
Net cash provided (utilized) by financing activities 584,761 (166,155)
--------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 55,884 32,890
Cash and cash equivalents, beginning of year 143,757 110,867
--------- -----------
Cash and cash equivalents, end of year $ 199,641 $ 143,757
========= ===========
- Continued -
-5-
</TABLE>
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1993
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash paid for interest during the year $749,900 $846,339
======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1994, loans from affiliates aggregating
$1,720,000 were converted to equity and are reflected as capital contributions
in the Statement of Changes in Partners' Deficit.
During the year ended December 31, 1994, the Partnership received net
insurance proceeds in the amount of $732,972 of which $300,605 is reflected as
a reduction in the basis of building, improvements and equipment. Proceeds of
$280,427 are reflected as a gain on fire insurance proceeds, and proceeds of
$151,940 are reflected as a liability for anticipated future costs.
The accompanying notes are an integral part of these
financial statements.
-6-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies applied by
management in the preparation of the accompanying financial statements.
Business activity
-----------------
Frankel-Warwick Limited Partnership (the Partnership) is a Pennsylvania
limited Partnership which was formed in 1977 to purchase, improve, own and
operate the Warwick Hotel in Philadelphia, Pennsylvania.
Building improvements and equipment
-----------------------------------
Building, improvements and equipment are carried at cost. Depreciation is
provided by the straight-line method over the following assets' estimated
useful lives:
Building and improvements 34 years
Furniture and fixtures 5-10 years
Equipment 5-10 years
Cash and cash equivalents
-------------------------
The Partnership considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Concentration of credit risk
----------------------------
The Partnership maintains cash accounts in commercial banks. Total cash
deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to
$100,000 per bank. As of December 31, 1994, the uninsured cash balances are
approximately $154,000.
Deferred costs
--------------
Fees and costs incurred in the acquisition of the permanent financing were
deferred and are being amortized using the straight-line method over the term
of the first mortgage note payable.
-7-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1994 AND 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
------------
Frankel-Warwick Limited Partnership is not a taxpaying entity for either
Federal or state income tax purposes. Instead, the Partners are liable for
individual Federal and state income taxes on their respective shares of the
Partnership's taxable income and may include, subject to certain limitations,
their respective shares of the Partnership's net operating loss in their
individual income tax returns.
Due to the Partnership's policy of capitalizing certain construction period
costs for financial reporting purposes and expensing these items for Federal
income tax reporting purposes and the use of accelerated and straight-line
depreciation methods for Federal income tax reporting purposes, the net book
value of the building, improvements and equipment for income tax reporting
purposes is approximately $4,100,000 and $4,550,000 less than the net book
value in the accompanying financial statements at December 31, 1994 and 1993,
respectively.
Partners' deficit
-----------------
In accordance with the partnership agreement, the Partners are allocated
profits and losses in proportion to their respective ownership interests.
NOTE B - RECEIVABLES
In October 1992, the Partnership loaned $125,000 to a tenant who operated
the cocktail lounge in the Warwick Hotel in order for the tenant to fund
improvements to the leased space. In November 1993, the tenant declared
bankruptcy and the remaining receivable of $97,917 was written off as
uncollectible.
In addition, the Partnership made non-interest bearing advances in the amount
of $97,339 to another tenant who operated the catering operation in the
Warwick Hotel. An uncollectible provision for the full $97,339 was made at
December 31, 1992. In November 1993, this tenant declared bankruptcy and the
entire receivable was written off against this reserve.
The Partnership provides a provision for uncollectible notes receivable based
upon the anticipated collectibility of each note.
-8-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE C - MORTGAGE NOTES PAYABLE
The Partnership has a mortgage note payable to a bank which bears interest at
9% and is payable in monthly installments of $71,332, including interest.
Under the terms of the mortgage note, the mortgagee has the option to require
repayment of the outstanding principal on November 30, 1999. Unless this
option is exercised, the mortgage note payable is due in 2004. The outstanding
balance of this mortgage note is $5,601,943 and $5,937,182 at December 31,
1994 and 1993, respectively.
The Partnership also has a second mortgage note payable to an insurance
company which bore interest at 9 3/8% through July 1, 1994. The note was
originally payable in equal monthly installments through November, 2004. This
mortgage note was amended whereby principal payments will be suspended from
August 1, 1992 through July 1, 1996. In addition, on August 1, 1994 the
interest rate was reduced to 7 3/8% through July 1, 1996. The difference
between the original and reduced rates will accrue to the outstanding
principal balance and will be deferred without interest until maturity. The
outstanding principal balance of this mortgage note is $2,249,010 at December
31, 1994 and 1993.
Substantially all of the building, improvements, equipment and furniture and
fixtures are pledged as collateral for the mortgage notes.
Aggregate maturities of long-term debt for the five years subsequent to
December 31, 1994 are as follows:
Years Ending December 31, Amount
------------------------- ------
1995 $369,687
1996 451,337
1997 546,536
1998 598,245
1999 654,847
NOTE D - OPERATING LEASE
In 1978, the Partnership sold the land under the building and improvements to
the holder of the second mortgage payable and leased it back for a term of 99
years. The lease provides for a minimum annual rental payment of $93,750 plus
an additional payment equal to 50% of the cash available for distribution, as
defined. The cash available for distribution, as defined, includes a deduction
for repayment of capital improvement loans. No additional rent expense was
incurred in 1994 and 1993.
-9-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE D - OPERATING LEASE (CONTINUED)
The operating lease provides options for the Partnership to purchase the land.
The Partnership may at anytime on or before December 31, 1997 exercise its
lease option to purchase the land for $700,000 plus the outstanding principal
balance on the second mortgage note payable. If the Partnership exercises its
lease option to purchase the land subsequent to December 31, 1997 and prior to
July 1, 2002, the option price will be $1,500,000 and the Partnership will not
be required to pay any remaining principal balance on the second mortgage note
payable.
This lease requires the Partnership to establish reserves for subtenants'
security deposits, real estate taxes and repairs and maintenance. The lease
was amended in August 1992 to provide that the Partnership may establish a
repairs and maintenance reserve based on available cash flow, as defined, in
an amount to be determined at the discretion of the Partnership, but not to
exceed $25,000 each month until a total of $300,000 is reserved.
The Partnership did not fund the real estate tax reserve or the repairs and
maintenance reserve in 1994 and 1993.
NOTE E - RENTALS UNDER OPERATING LEASES
Minimum future rentals expected to be received from noncancellable commercial
operating leases are as follows:
Years Ending December 31, Amount
------------------------- ------
1995 $261,700
1996 218,500
1997 209,500
1998 206,200
1999 168,400
Thereafter 182,700
A lease with a commercial tenant provides for contingent rentals based on an
increase in sales revenue over a specific amount as defined in the lease
agreement. Contingent rental income amounted to $5,668 and $9,164 and is
included in rental income for the years ended December 31, 1994 and 1993,
respectively.
-10-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE E - RENTALS UNDER OPERATING LEASES (Continued)
No tenant accounted for more than 10% of rental revenue in 1994 or 1993.
NOTE F - RETIREMENT PLANS
In connection with its collective bargaining agreements with the
International Brotherhood of Firemen, Oilers, Powerhouse Operators and
Maintenance Mechanics Union and the Hotel Employees and Restaurant
Employees Union, the Partnership participates with other companies in
defined contribution pension plans. Contributions to the plans are made at
rates of $27.73 and $30.00, respectively, per leased union employee per
month. The plans cover all employees leased by the Partnership, as defined,
who are members of the unions. The pension expense, representing the
Partnership's required contributions to the plans, amounted to $17,199 and
$13,812 for the years ended December 31, 1994 and 1993, respectively.
The Company has a profit sharing plan available to all eligible employees,
under Section 401(k) of the Internal Revenue Code. The effective date of
the Plan was January 1, 1994. The Company will make a matching contribution
up to 20% of an employee's contribution which is limited to 15% of the
employee's compensation. The Company's contribution was $1,152 for 1994. At
the discretion of the Partners, the Company may make additional
contributions to the plan. No such additional contributions were made in
1994. Employees are fully vested in the Company's contributions upon
completion of seven years of service.
NOTE G - RELATED PARTY TRANSACTIONS
In March 1989, the Partners, through a related entity in which they own a
75% interest, entered into a Partnership agreement to own and operate the
restaurant and coffee shop which lease space in the Warwick Hotel. In June
1992, the Partners, through a related entity, purchased an additional 24%
of the restaurant, and sold their 75% interest in the coffee shop to an
unrelated entity. In 1994 and 1993, the Partnership did not receive or
record rental income related to the restaurant which would have been
$36,000. From April 1994 through August 1994, an unrelated entity assumed
the management and operating costs of the restaurant. In 1993 and the
remainder of 1994 the Partnership funded the operating costs of the related
entity managing the restaurant. These costs amounting to $142,225 and
$221,739 during 1994 and 1993 respectively, are included in other operating
expenses in the statements of operations.
-11-
<PAGE>
FRANKEL-WARWICK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE G - RELATED PARTY TRANSACTIONS (CONTINUED)
The Partnership has entered into a contract with an affiliated company to
provide for the operation and general management of the property. The
agreement is for an unspecified term and provides for a fee equal to 5% of
gross income. Under the terms of the agreement, the managing agent provides
all employees necessary for the operation of the property except for the
salary and benefits of the manager and is reimbursed by the Partnership for
its costs, including related employee benefits. The contract labor and
related employee benefits are included in the accompanying financial
statements as operating expenses under the appropriate expense
classifications. In 1994 and 1993, management fees of $313,000 and
$284,440, respectively, are included in general and administrative
expenses, in the accompanying financial statements.
The Partnership has unsecured advances from related parties of $500,000 and
$1,605,000 at December 31, 1994 and 1993, respectively, to help fund
certain building improvements. These advances are due on demand and bear
interest at the prime rate. Interest expense of $34,757 and $64,521 is
included in the statement of operations for 1994 and 1993, respectively.
The Partnership has unsecured advances from an affiliate amounting to
$325,000 at December 31, 1994 and 1993. These advances are due on demand
and accrue interest at the prime rate. Interest expense of $22,592 and
$19,500 is included in the statement of operations for 1994 and 1993,
respectively.
The Partnership leases commercial and residential space to individuals who
are related to the Partners. Rental income form these leases amounted to
$46,700 and $40,800 in 1994 and 1993, respectively.
NOTE H - OTHER ITEMS
In 1994 the Partnership agreed to an out-of-court settlement resulting
from an alleged wrongful termination suit by a former controller against
the Partnership. The settlement resulted in a payment of $290,000 to the
former employee.
In 1994 the Warwick Hotel suffered from a fire and resulting water damage.
The extraordinary gain of $280,427 represents that portion of insurance
proceeds in excess of replacement costs of the damaged property. Unused
proceeds are expected to be used for anticipated future costs related to
the property.
-12-
<PAGE>
EXHIBIT I
---------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
------------------ -------------------
Commission File No. 1-10150
ANGELES PARTICIPATING MORTGAGE TRUST
(Exact name of registrant as specified in its charter)
California 95-6881527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
340 North Westlake Blvd., Suite 230 91362
Westlake Village, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (805) 449-1335
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange on which registered:
Title of each class: -------------------------------------
--------------------
Class A Shares, $1.00 par American Stock Exchange
value Angeles Participating
Mortgage Trust Units
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the Class A Shares held by non-affiliates on
February 13, 1996 was approximately $1,291,000.
As of February 13, 1996, there were 2,550,000 Shares of Angeles
Participating Mortgage Trust Class A, $1.00 par value outstanding.
I-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I................................................................ 3
ITEM 1. BUSINESS..................................................... 3
Loan Portfolio....................................................... 4
Unfunded Commitments................................................. 4
Employees............................................................ 4
ITEM 2. PROPERTIES................................................... 5
ITEM 3. LEGAL PROCEEDINGS............................................ 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 5
PART II............................................................... 6
ITEM 5. MARKET FOR THE TRUST'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS........................................................ 6
ITEM 6. SELECTED FINANCIAL DATA...................................... 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................... 8
General.............................................................. 8
Fiscal year 1995 compared to 1994.................................... 9
Fiscal year 1994 compared to 1993.................................... 9
Liquidity and Capital Resources......................................10
ITEM 8. FINANCIAL STATEMENTS.........................................11
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........20
PART III..............................................................21
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS..............................21
ITEM 11. EXECUTIVE COMPENSATION.......................................22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................................23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............24
PART IV...............................................................25
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.......25
</TABLE>
I-2
<PAGE>
PART I
ITEM 1. BUSINESS
Angeles Participating Mortgage Trust ("APART" or the "Trust") is a
California business trust which qualifies as a real estate investment trust or
"REIT" for Federal income tax purposes. The Trust was formed in April 1988.
APART's capital structure consists of Shares of Class A Common Stock ("Class A
Shares") and Class B Common Stock ("Class B Shares"). The Class A Shares are
publicly traded on the American Stock Exchange. Presently, there are 2,550,000
Class A Shares outstanding and 1,275,000 Class B Shares (which can be converted
into approximately 26,000 Class A Shares) that are owned by SAHI Partners
("SAHI"), a Delaware general partnership. The currently outstanding Class B
Shares are entitled to a 1% equity interest and a 33% voting interest in the
Trust. Each of the Class A and Class B Shares are entitled to one vote per
share.
APART was formed for the purpose of making and acquiring various types
of mortgage and other loans ("Trust Loans") which were originally intended to be
made principally to affiliated entities of Angeles Funding Corporation
("Affiliated Borrowers"). Angeles Funding Corporation ("AFC") is a wholly owned
subsidiary of Angeles Corporation ("Angeles"). The Trust's objectives were to
invest in Trust Loans which would (i) provide holders of the Trust's Class A
Shares (the "Class A Shareholders") with monthly cash distributions sufficient
to yield at least $2.00 per annum per Class A Share (as noted below, this
objective is not currently being realized and was not realized in years 1993-
95), (ii) maximize cash distributions over the life of the Trust through (a)
mortgage and other loans that allow the Trust to share in the economic benefits
of the properties securing such loans and (b) receipt of loan fees, commitments
fees and other compensation from subsidiaries of Factory Merchant Malls, Inc., a
California corporation and which was a wholly owned subsidiary of Angeles
("FMM") (or other Affiliated Borrowers), (iii) preserve and protect the capital
of the Trust and (iv) provide the potential for liquidity to the extent of
trading activity in Class A Shares on the American Stock Exchange.
At the beginning of 1993, the Trust had four outstanding loans, all of
which had been made to wholly owned subsidiaries of FMM. The FMM subsidiaries
owned and operated factory outlet malls that consisted of retail stores operated
by a diversified group of nationally recognized manufacturers. The FMM
subsidiaries had outstanding Trust Loans with respect to four factory outlet
malls located in Barstow, California (the "Barstow Property"), Branson, Missouri
(the "Branson Property"), Osage Beach, Missouri (the "Osage Beach Property") and
Fort Chiswell, Virginia (the "Fort Chiswell Property"), (collectively, the
"Properties"). The Osage Beach Property was sold by FMM in February 1993 and the
loan was repaid resulting in net cash to the Trust of approximately $14.9
million.
In February 1993, Angeles notified the Trust that it was unable to
satisfy its guaranty obligation and that through October 6, 1993, the Trust's
Net Cash on a cumulative basis (as defined in the Declaration of Trust) would be
sufficient to provide Class A shareholders with a minimum annual distribution of
$2.00 per Class A share. Beginning in March of 1993, the FMM subsidiaries failed
to meet their remaining debt obligations under their respective Trust Loans with
respect to the Properties and in November 1993 the remaining Trust Loans were
sold to an unaffiliated trust which resulted in net cash proceeds of
approximately $26.1 million. Angeles's inability to satisfy such guaranty
obligation was due to liquidity problems and subsequently, in May 1993, Angeles
filed for protection under Chapter 11 of the federal bankruptcy laws.
The general policies of the Trust and its general supervision are
overseen by a board of four trustees (the "Trustees"), all of whom are
unaffiliated with Angeles or its affiliates. On February 26, 1993, in
recognition of the conflicts of interest between the Trust, Angeles and Angeles'
affiliates, including FMM, a committee was formed consisting solely of Trustees
who were not affiliated with Angeles (the "Independent Committee"). The
Independent Committee was given the authority to make all decisions relating to
the Trust's dealings with Angeles or any of its affiliates, including FMM.
During 1993, AFC's advisory and administrative services to the Trust were
terminated and the two inside trustees who were affiliated with Angeles,
resigned from the Board of Trustees.
As a result of Angeles' financial problems and its inability to pay
debt service on the remaining three loans, the Trust suspended its monthly
dividend policy after the payment of the April dividend. A significant portion
of the funds used to pay the dividend in March 1993 and all of the funds used to
pay the dividend in April 1993 represented a return of a portion of the proceeds
received from the repayment of the Trust loan with respect to the Osage Beach
Property.
I-3
<PAGE>
On September 27, 1993, the Trust entered into a Joint Marketing
Agreement with the Official Unsecured Creditors' Committee of Angeles. The Joint
Marketing Agreement, to which Angeles was not a party, set forth procedures for
the Committee and APART to solicit bids for the purchase of both the Factory
Merchants Malls and APART's mortgages secured by these malls. That process
resulted in a November 3, 1993, sale, which included APART's three mortgage
loans, to New Plan Realty Trust, a real estate investment trust listed on the
New York Stock Exchange. APART realized approximately $26.1 million from the
sale of its mortgage portfolio. Angeles, under this agreement, sold FMM and its
interest in the Trust's Class B shares to New Plan Realty. In conjunction with
the sale of the remaining Trust loans, the Trust granted full release to
Angeles, its subsidiaries and its affiliates and further released Angeles of its
Guaranty obligation.
In November 1993, subsequent to the sale of the Trust Loans, the Trust
declared a $14.50 per Class A share distribution ($36,975,000 in total) to
shareholders of record on November 18, 1993, payable on December 3, 1993. The
Trust does not expect to have further cash distributions, if any, to
shareholders until after 1995. In addition, there can be no assurance that the
American Stock Exchange listing will be continued.
In November 1993, the Trust was notified that SAHI had acquired all of
the Trust's 1,275,000 outstanding Class B Shares from New Plan Realty.
Subsequent to the acquisition of the Class B Shares, SAHI has stated a desire to
obtain control of APART. SAHI along with affiliated entities, has accumulated
244,100 Class A Shares or 9.57% of the total outstanding Class A Shares of the
Trust.
On March 15, 1994, the Trust announced that it had entered into an
agreement with SAHI for the sale of a Warrant for the right to purchase five
million shares of the Trust's Class A Shares at a price of $1 per share. SAHI
purchased the Warrant for $100,000, which amount will be applied against the
purchase price for the first Class A Shares purchased pursuant to the Warrant.
The Warrant will not be exercisable unless and until the issuance of the Class A
Shares issuable upon the exercise thereof has been approved by holders of a
majority of the Class A Shares and Class B Shares voting together as a single
class. Upon exercise of the entire Warrant for five million shares, SAHI would
own 69% of the outstanding Class A Shares and, with the voting interest of the
Class B Shares, would control 80% of the voting interest of the Trust.
Assets of APART prior to the sale of its loan portfolio in November
1993, consisted of $14 million in cash and $24.5 million of mortgage notes
receivable. After the sale of the Trust's mortgage loan portfolio for $26.1
million and the subsequent shareholder distribution of $37.3 million, the Trust
had remaining assets in excess of $2 million consisting primarily of cash.
The Trust had not, except for investments in securities of the Federal
Home Loan Mortgage Corporation, made any real estate or mortgage loan
investments since its portfolio sale in November 1993. The Trust is currently
exploring investment opportunities with SAHI and expects to present a new
business plan to shareholders in 1996.
The Trust will terminate October 16, 2004, unless extended by the
shareholders.
LOAN PORTFOLIO
The Trust's loan portfolio remained without any investments throughout
the 1995 and 1994 years.
UNFUNDED COMMITMENTS
The Trust had no unfunded commitments as of December 31, 1995.
EMPLOYEES
The Trust has three employees. In light of the termination of AFC's
advisory and administrative services to the Trust, the Trust engaged personnel
to advise and administer the operations of the Trust. The Class A Shareholders
have no right to participate in the management or conduct of the Trust's
business and affairs.
I-4
<PAGE>
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
The Trust is unaware of any pending legal proceedings to which it is a
party other than a Proof of Claim it had filed in the Angeles bankruptcy in the
amount of $75,000. During 1995 the Trust received $3,150 as full settlement of
this claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
I-5
<PAGE>
PART II
ITEM 5. MARKET FOR THE TRUST'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Trust has 1,927 Class A Shareholders as of February 13, 1996. The
Class A Shares are traded on the American Stock Exchange under the symbol APT.
All of the Class B Shares are held by SAHI, Inc. and there is no established
public trading market for these shares.
The following table sets forth the high and low sales prices of the Trust's
Class A Shares for the quarters ended 1995 and 1994.
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
1995, Quarter ended:
December 31, 1995 $ 5/8 $ 1/2
September 30, 1995 $ 5/8 $ 1/2
June 30, 1995 $ 11/16 $ 1/2
March 31, 1995 $ 3/4 $ 7/16
1994, Quarter ended:
December 31, 1994 $ 1 1/16 $ 9/16
September 30, 1994 $ 1 1/2 $ 3/4
June 30, 1994 $ 1 11/16 $ 1
March 31, 1994 $ 1 3/8 $ 15/16
</TABLE>
On February 13, 1996, the last sale price of the Class A Shares as
reported by the American Stock Exchange was $0.56.
I-6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(Table in thousands except per share data)
For the years ended December 31,
-----------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue(1) $ 148 $ 296 $2,185 $ 5,237 $ 5,448
Gain from sales of mortgages(2) 0 0 2,545 0 0
Costs and expenses(3) 283 626 982 5,783 642
------ ------ ------ ------- -------
Net income(loss) ($135) ($330) $3,748 ($546) $ 4,806
====== ====== ====== ======= =======
Net income(loss)
-per Class A Share(4) $(0.05) $(0.13) $ 1.45 $ (0.21) $ 1.87
====== ====== ====== ======= =======
Cash distributions
-per Class A Share(5) - - $15.01 $ 2.00 $ 2.00
====== ====== ====== ======= =======
Total assets $2,194 $2,372 $2,680 $39,909 $44,824
====== ====== ====== ======= =======
Shareholders' equity $2,155 $2,290 $2,519 $37,410 $43,118
====== ====== ====== ======= =======
</TABLE>
(1) Revenue, primarily interest income, declined in 1995 and 1994 as compared
to 1993 and prior years due to the sale of the Trust's portfolio in 1993.
(2) During 1993, the Trust sold its entire portfolio consisting of four mortgage
loans resulting in proceeds in excess of carrying values and obligations of
$2,545,000.
(3) Includes a write-down for in-substance foreclosed property of $5,000,000 in
1992.
(4) The net income per Class A Share was based upon 2,550,000 weighted average
shares outstanding during each of five years ended December 31, 1995, after
deduction of the 1% Class B Shares' interest.
(5) Includes a $14.50 per Class A Share distribution paid in December 1993 as a
result of selling APART's remaining three Trust Loans.
I-7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Trust's source of cash during 1995 was from income earned on its
investments and cash and cash equivalent investments. The Trust's primary
source of cash in years prior to 1994 was interest or principal payments
received on participating mortgages ("Trust Loans") made to wholly owned
subsidiaries of Factory Merchants Malls, Inc. ("FMM"), an affiliate of Angeles
Funding Corporation ("AFC"). The FMM subsidiaries owned and operated factory
outlet malls that typically consist of retail stores operated by a diversified
group of nationally recognized manufacturers who sell their first-quality goods
at discount prices directly to the consumer. The FMM subsidiaries had
outstanding Trust Loans with respect to four factory outlet malls located in
Barstow, California (the "Barstow Property"), Branson, Missouri (the "Branson
Property"), Osage Beach, Missouri (the "Osage Beach Property") and Fort
Chiswell, Virginia (the "Fort Chiswell Property"), (collectively, the
"Properties").
APART received approximately $14.9 million of proceeds attributable to
repayment of the Trust Loan collateralized by the Osage Beach Property which was
sold in February 1993. The Trust's equity participation with respect to the
sale of the Osage Beach Property, based on increases in value, amounted to
$919,000. The Trust also earned $109,000 as a prepayment penalty because the
loan was paid during the first five years. Of these additional amounts,
$704,000 was retained by the borrower as a repayment of unearned participation
income previously paid to the Trust with respect to the Osage Beach Property
Trust Loan. The proceeds from repayment of this Trust Loan were invested in
government securities and a money market account which earned a rate of return
from approximately 2.3% to 3.0%. In view of the low rate of return that the
Trust was earning with respect to these proceeds and FMM's subsidiaries' failure
to meet their obligations under the outstanding Trust Loans, the Trust's cash
flow was insufficient to fund the Trust's dividends at the historical rate of
$2.00 per Class A share per annum.
Since March 1993, the FMM subsidiaries failed to meet their debt
obligations under their respective Trust Loans with respect to the Properties.
Although FMM's parent, Angeles had guaranteed that, through October 6, 1993, the
Trust's Net Cash on a cumulative basis (as defined in the Declaration of Trust)
would be sufficient to provide Class A Shareholders with a minimum annual
distribution of $2.00 per Class A Share, Angeles notified the Trust in February
1993 that it was unable to satisfy this guaranty obligation because of liquidity
problems caused by Angeles' inability to complete sales or refinancings of real
estate assets and to fully realize asset values in a continuing sluggish and
depressed real estate market. In February 1993, Angeles also informed the Trust
that it was unable to perform its obligations under its partial guaranty of the
amounts due under the Trust Loan to the Fort Chiswell Property. In March 1993,
the Trust established a committee (the "Independent Committee"), consisting
solely of trustees not affiliated with Angeles, to make all decisions relating
to the Trust's dealings with Angeles or any of its affiliates, including AFC and
FMM. On May 3, 1993, Angeles filed for protection under Chapter 11 of the
federal bankruptcy laws.
On November 3, 1993, the Trust, under the Joint Marketing Agreement between
the Trust and the Official Committee of Unsecured Creditors of Angeles,
completed the sale of the three remaining Trust Loans held in its portfolio to
New Plan Realty Trust ("New Plan"). The Trust received net proceeds of
$26,144,000 in cash from this sale. Angeles, under this agreement, sold its
equity in FMM to New Plan along with 1,275,000 Class B shares of the Trust.
Pursuant to the Joint Marketing Agreement, APART granted full releases to
Angeles, its subsidiaries and its affiliates and further released Angeles of its
guarantee obligations.
In November 1993, subsequent to the sale of the Trust Loans, the Trust
declared a $14.50 per Class A share distribution to shareholders of record on
November 18, 1993, payable on December 3, 1993. The Trust has announced that it
will continue to explore strategic alternatives with third parties who might
have an interest in acquiring an interest in the remaining Trust after the
shareholder distribution discussed above. The Trust is currently exploring
investment opportunities with SAHI and expects to present a new business plan to
shareholders in 1996. In an effort to obtain further value for the Trust
shareholders and to provided for minimal operating costs, liabilities, and
claims the Trust retained over $2 million in cash after the announced
shareholder distribution. As of December 31, 1995, approximately $2,000,000 in
cash and investments, is held by the APART Contingent Claim Trust for the
benefit of APART. Such Contingent Claim Trust was established to provide for
any contingent claims arising from the operations of APART or any liability
under APART's indemnification agreements for its Trustees. The Contingent Claim
Trust
I-8
<PAGE>
will terminate on the earlier of December 31, 1996 or the determination by its
trustee that no contingent claims exist. The sole trustee of the Contingent
Claim Trust is Mr. Ronald J. Consiglio, Trustee, Chairman, Chief Executive
Officer and President of APART. The Trust retained no other assets and its
shareholder equity approximates the amount of remaining cash. The Trust does not
expect to have further cash distributions, if any, to shareholders until after
1995. In addition, there can be no assurance that the American Stock Exchange
listing will be continued.
A significant portion of the funds used to pay the March 1993 dividend and
all of the funds used to pay the dividends of April and December 1993
represented a return of a portion of the proceeds received from the repayment of
the Trust Loan with respect to the Osage Beach Property in February 1993 and the
sale of the remaining loan portfolio in November 1993. Assets of APART prior to
the sale of its loan portfolio in November 1993, consisted of $14 million in
cash and $24.5 million of mortgage notes receivable. After the sale of the
Trust's mortgage loan portfolio for $26.1 million and the subsequent shareholder
distribution of $37.3 million, the Trust had remaining assets in excess of $2
million consisting primarily of cash.
On March 15, 1994, the Trust announced that it had entered into an
agreement with SAHI, for the sale of a Warrant for the right to purchase five
million shares of the Trust's Class A Shares at a price of $1 per share and
2,500,000 shares of Class B shares at a price of $.01 per share. SAHI Partners
purchased the Warrant for $101,000, which amount will be applied against the
purchase price for the first Class A and Class B Shares purchased pursuant to
the Warrant. The Warrant will not be exercisable unless and until the issuance
of the Class A and Class B Shares issuable upon the exercise thereof has been
approved by holders of a majority of the Class A Shares and Class B Shares
voting together as a single class. Upon exercise of the entire Warrant for five
million shares, SAHI would own 69% of the outstanding Class A Shares and, with
the voting interest of the Class B Shares, would control 80% of the voting
interest of the Trust.
The initial offering of Angeles Participating Mortgage Trust began in July
1988, at $20 per Class A Share. Cash distributions began in July 1988 at the
annual rate of $2 per Class A Share until April 1993. In December 1993 a
shareholder distribution of $14.50 per share was paid to Class A shareholders.
Those investors who purchased and have held their APART shares since July 1988
have now received total cash of $23.89 per share from shareholder distributions.
FISCAL YEAR 1995 COMPARED TO 1994
The Trust's primary source of income during 1995 was income earned on its
cash and cash equivalents and investments in the Federal Home Loan Mortgage
Corporation ("Government Securities"). Investments in Government Securities were
made during 1995 utilizing the $2 million held by the Contingent Claim Trust, in
order to create qualified income for the Trust to maintain its REIT status.
Interest income from investments decreased significantly from 1994 to 1995
and correspondingly interest expense decreased when compared to the same period
because during the fourth quarter of 1994 the Trust incurred significant
borrowings to generate sufficient REIT qualified income in order to maintain its
REIT status. During 1995 the Trust did not borrow any funds.
During the year ended December 31, 1995 the Trust received a minor amount
of interest income from loans in the amount of approximately $3,000. This income
is the result of a $75,000 claim filed with the Angeles bankruptcy relating to
additional interest the Trust believed it should have received on one of its
loans during 1993. The $3,000 of income received during 1995 represents a final
settlement for such claim.
The Trust's general and administrative expense decreased significantly
during fiscal 1995 due primarily to a decrease in legal costs. During 1994, the
Trust incurred greater legal fees in conjunction with the preparation of a proxy
statement and related material for a Trust shareholder meeting.
FISCAL YEAR 1994 COMPARED TO 1993
As a result of the Trust selling all of its investment loans during fiscal
1993, total revenues for fiscal 1994 decreased significantly. The Trust's only
source of income during 1994 was income earned on its cash and cash
I-9
<PAGE>
equivalents and investments in the Federal Home Loan Mortgage Corporation
("Government Securities"). Such Government Security investments were made during
1994 utilizing the $2 million held by the Contingent Claim Trust, in order to
create qualified income for the Trust to maintain its REIT status.
In conjunction with investing in the Government Securities the Trust
incurred significant borrowings and interest expense in order to generate REIT
qualified income (income from real estate related activities).
The Trust's general and administrative expense decreased significantly
during fiscal 1994 due primarily to a decrease in legal costs. During 1993, the
Trust incurred significant legal fees to protect its interests as a result of
borrower default on all loans made by the Trust.
For the fiscal year ended December 31, 1994, the Trust continues to incur
legal fees as they relate to the preparation of a proxy statement and related
material for the Trust's next shareholders meeting. The proxy statement will
include a business plan and numerous issues which will require shareholder
approval, one of which is the issuance of the warrants for additional Class A
and Class B shares to SAHI. As of December 31, 1994, the Trust used part-time
services from three employees to administer and monitor the Trust operations.
LIQUIDITY AND CAPITAL RESOURCES
The Trust's primary source of cash is from interest earned on investments
and cash and cash equivalents. Of the Trust's approximately $2.1 million and
$2.2 million of investments and cash and cash equivalents as of December 31,
1995 and December 31, 1994, respectively, approximately $2 million is held by
the APART Contingent Claim Trust for the benefit of APART. Such Contingent Claim
Trust was established to provide for any contingent claims arising from the
operations of APART or any liability under APART's indemnification agreements
for it's Trustees. The Contingent Claim Trust will terminate on the earlier of
December 31, 1996 or the determination by its trustee that no contingent claims
exist.
During 1994, in order to maintain the Trust's REIT status, the Trust
borrowed approximately $28 million and invested the proceeds from such
borrowings along with other cash into securities of the Federal Home Loan
Mortgage Corporation. Such securities were pledged as collateral on the
borrowing. The Trust did not enter into a similar transaction in 1995, although
the Trust did invest in securities of the Federal Home Loan Mortgage Corporation
in order to maintain its REIT status.
The Trust distributed the majority of its assets, $36,975,000 to Class A
shareholders of record on November 18, 1993, on December 3, 1993. Remaining
funds, approximately $2.5 million, were retained by the Trust to provide for
potential liabilities or claims, minimal operating costs and the possibility of
obtaining further value for shareholders from potential strategic alternatives
with third parties who might wish to acquire an interest in the remaining Trust.
The amount and timing of any future cash dividends, if any, is impossible to
predict at this time. Since APART has no other assets, shareholder equity
approximates the amount of remaining cash and investments.
Based upon the Trust's cash and cash equivalent balance at December 31,
1995, management believes it has sufficient cash to operate as a going concern
through the 1996 fiscal year. Additional sources of assets to the Trust may
result from the exercise of Warrants by SAHI.
The Trust expects to maintain its REIT status throughout 1996 by investing
in securities of the Federal Home Loan Mortgage Corporation until it invests
directly in real estate or mortgage loan investments.
I-10
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
ANGELES PARTICIPATING MORTGAGE TRUST
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
- --------------------------------------------------------------------------------
<S> <C>
Independent Auditors' Report 12
Financial Statements - The financial statements of the Trust required to be
included in Item 8 are listed below:
Balance Sheets at December 31, 1995 and 1994 13
Statements of Operations for each of the three years in the period
ended December 31, 1995 14
Statements of Changes in Shareholders' Equity for each of the three
years in the period ended December 31, 1995 15
Statements of Cash Flows for each of the three years in the period
ended December 31, 1995 16
Notes to Financial Statements 17
</TABLE>
I-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Shareholders of Angeles Participating Mortgage Trust:
We have audited the financial statements of Angeles Participating Mortgage Trust
(the "Trust"), listed at Item 8. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Trust as of December 31, 1995 and 1994
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
January 17, 1996
I-12
<PAGE>
Angeles Participating Mortgage Trust
Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------------------
Notes 1995 1994
------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents 2 $ 863,000 $ 872,000
Investments 3 1,196,000 1,371,000
Other receivables 10,000 16,000
Other assets 125,000 113,000
----------- -----------
Total assets $ 2,194,000 $ 2,372,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 39,000 $ 82,000
----------- -----------
Total liabilities 39,000 82,000
----------- -----------
Shareholders' equity: 6
Class A Shares (2,550,000 shares issued and outstanding,
$1.00 par value, unlimited shares authorized) 2,550,000 2,550,000
Class B Shares (1,275,000 shares issued and outstanding,
$.01 par value, unlimited shares authorized) 13,000 13,000
Additional paid in capital 42,329,000 42,329,000
Accumulated undistributed net realized gain from sale of
mortgages 5 2,545,000 2,545,000
Accumulated distributions in excess of cumulative net
income other than gain from sale of mortgages (45,282,000) (45,147,000)
----------- -----------
Total shareholders' equity 2,155,000 2,290,000
=========== ===========
Total liabilities and shareholders' equity $ 2,194,000 $ 2,372,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
I-13
<PAGE>
Angeles Participating Mortgage Trust
Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
------------ ------------ ------------
Notes 1995 1994 1993
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Income from early retirement of mortgage 5 $ - $ - $1,028,000
Interest income from loans 4 3,000 - 789,000
Interest income from investments 145,000 296,000 368,000
--------- --------- ---------
Total revenue 148,000 296,000 2,185,000
--------- --------- ---------
Costs and expenses:
Interest expense - 270,000 -
General and administrative 283,000 356,000 982,000
--------- --------- ----------
Total costs and expenses 283,000 626,000 982,000
--------- --------- ---------
Income or loss before gain on sale of mortgages (135,000) (330,000) 1,203,000
Gain from sale of mortgages 5 - - 2,545,000
--------- --------- ---------
Net income (loss) 2 $ (135,000) $ (330,000) $3,748,000
========= ========= =========
Net income (loss) per Class A Share $ (0.05) $ (0.13) $ 1.45
========= ========= =========
Cash distributions per Class A Share $ - $ - $ 15.01
========= ========= =========
Weighted average number of Class A
Shares outstanding 2,550,000 2,550,000 2,550,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
I-14
<PAGE>
Angeles Participating Mortgage Trust
Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Accumulated
Distributions
Additional in Excess of
Class A Class B Paid-In Cumulative
Shares Shares Capital Net Income (1) Total
---------- ------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $2,550,000 $13,000 $42,228,000 $ (7,381,000) $37,410,000
Income before gain on sale of mortgages 1,203,000 1,203,000
Gain from sale of mortgages - - - 2,545,000 2,545,000
Cash distributions - - - (38,639,000) (38,639,000)
---------- ------- ----------- ------------ -----------
Balance at December 31, 1993 2,550,000 13,000 42,228,000 (42,272,000) 2,519,000
Net loss - - - (330,000) (330,000)
Proceeds from sale of warrants (Note 1) - - 101,000 - 101,000
---------- ------- ----------- ------------ -----------
Balance at December 31, 1994 2,550,000 13,000 42,329,000 (42,602,000) 2,290,000
Net loss - - - (135,000) (135,000)
---------- ------- ----------- ------------ -----------
Balance at December 31, 1995 $2,550,000 $13,000 $42,329,000 $(42,737,000) $ 2,155,000
========== ======= =========== ============ ===========
</TABLE>
(1) Balances as of December 31, 1993, 1994, and 1995 include accumulated
undistributed net realized gain from sale of mortgages of $2,545,000.
<PAGE>
Angeles Participating Mortgage Trust
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
1995 1994 1993
----------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (135,000) $ (330,000) $ 3,748,000
Adjustments to reconcile net income (loss) to cash flows
from operating activities:
Decrease in interest receivable - - 573,000
Decrease (increase) in other receivables 6,000 (16,000) 25,000
Decrease (increase) in other assets (12,000) 28,000 (126,000)
Increase (decrease) in accounts payable and accrued
expenses (43,000) (79,000) 70,000
Decrease in unearned loan fee income - - (215,000)
Decrease in unearned participation income - - (1,544,000)
----------- ------------- ------------
Cash flows provided (used) by operating activities (184,000) (397,000) 2,531,000
----------- ------------- ------------
Cash flows from investing activities:
Investments in securites (165,000) (30,914,000) -
Principal collections of investment securitites 340,000 - -
Sale of investment securities - 29,543,000 -
Collection of notes receivable - - 39,400,000
----------- ------------- ------------
Cash flows provided (used) by investing activities 175,000 (1,371,000) 39,400,000
----------- ------------- ------------
Cash flows from financing activities:
Decrease in cash distributions payable - - (430,000)
Increase (decrease) in advances under yield guarantee - - (434,000)
Borrowings related to investment security purchases - 27,939,000 -
Repayment of borrowings related to investment security purchases - (27,939,000) -
Proceeds from sale of warrants - 101,000 -
Cash distributions to shareholders - - (38,639,000)
----------- ------------- ------------
Cash flows provided (used) by financing activities - 101,000 (39,503,000)
----------- ------------- ------------
Increase (decrease) in cash and cash equivalents (9,000) (1,667,000) 2,428,000
Cash and cash equivalents at beginning of period 872,000 2,539,000 111,000
----------- ------------- ------------
Cash and cash equivalents at end of period $ 863,000 $ 872,000 $ 2,539,000
=========== ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
ANGELES PARTICIPATING MORTGAGE TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - HISTORY, BUSINESS ACTIVITIES AND SIGNIFICANT EVENTS
Angeles Participating Mortgage Trust (the "Trust" or "APART") was organized
for the purpose of making and acquiring various types of mortgage and other
loans ("Trust Loans"), which were made to affiliated entities of Angeles
Corporation ("Angeles"). Angeles Funding Corporation ("AFC"), a wholly owned
subsidiary of Angeles, served as the Trust's Advisor until February 1993. The
Trust had invested primarily in first mortgage loans and junior or other
subordinated mortgage loans containing income and/or equity participations.
During 1993, Angeles and AFC filed for protection under Chapter 11 of the
federal bankruptcy laws.
The Trust's primary source of cash in years prior to 1994 was from interest
or principal payments received on participating mortgages ("Trust Loans") made
to Factory Merchant Malls, Inc., a California corporation and which was a wholly
owned subsidiary of Angeles ("FMM") or subsidiaries of FMM. The FMM subsidiaries
owned and operated factory outlet malls that typically consist of retail stores
operated by a diversified group of nationally recognized manufacturers.
APART received approximately $14.9 million of proceeds attributable to
repayment of the Trust Loan collateralized by one property which was sold in
February 1993. On November 3, 1993, the Trust, under the Joint Marketing
Agreement between the Trust and the Official Committee of Unsecured Creditors of
Angeles, completed the sale of the three remaining Trust Loans held in its
portfolio to New Plan Realty Trust ("New Plan"). The Trust received net proceeds
of $26,144,000 in cash from this sale. Angeles, under this agreement, sold its
equity in FMM to New Plan along with 1,275,000 Class B shares of the Trust.
Pursuant to the Joint Marketing Agreement, APART granted full releases to
Angeles, its subsidiaries and its affiliates and further released Angeles of its
guarantee obligations.
In November 1993, subsequent to the sale of the Trust Loans, the Trust
declared a $14.50 per Class A share distribution ($36,975,000 in total) to
shareholders of record on November 18, 1993, payable on December 3, 1993. The
Trust does not expect to have further cash distributions, if any, to
shareholders until after 1995. In addition, there can be no assurance that the
American Stock Exchange listing will be continued.
In November 1993, the Trust was notified that SAHI Partners ("SAHI")
acquired all of the Trust's 1,275,000 outstanding Class B Shares. Subsequent to
the acquisition of the Class B Shares, SAHI stated a desire to obtain control of
APART and SAHI along with affiliated entities, has accumulated 244,100 Class A
Shares or 9.57% of the total outstanding Class A Shares of the Trust.
On March 15, 1994, the Trust announced that it had entered into an
agreement with SAHI, for the sale of a Warrant for the right to purchase five
million shares of the Trust's Class A Shares at a price of $1 per share and
2,500,000 shares of Class B shares at a price of $.01 per share. Such prices
approximated market value as of March 15, 1994. SAHI purchased the Warrant for
$101,000, which amount will be applied against the purchase price for the first
Class A and Class B Shares purchased pursuant to the Warrant. The Warrant will
not be exercisable unless and until the issuance of the Class A and Class B
Shares issuable upon the exercise thereof has been approved by holders of a
majority of the Class A Shares and Class B Shares voting together as a single
class. Upon exercise of the entire Warrant for five million shares, SAHI would
own 69% of the outstanding Class A Shares and, with the voting interest of the
Class B Shares, would control 80% of the voting interest of the Trust. The Trust
is currently exploring investment opportunities with SAHI and expects to present
a new business plan to shareholders in 1996.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The financial statements of the Trust are prepared on
the accrual basis and, therefore, revenue is recorded as earned and costs and
expenses are recorded as incurred. Based upon the Trust's cash and cash
equivalent balance at December 31, 1995, management believes it has sufficient
cash to operate as a going concern through the 1996 fiscal year. Certain prior
years amounts have been reclassified to conform to current year classifications.
I-17
<PAGE>
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash held in
bank or invested in money market funds with original maturity terms of less than
90 days. Of the cash and cash equivalents balance at December 31, 1995,
approximately $823,000, is held by the APART Contingent Claim Trust for the
benefit of APART. Such Contingent Claim Trust was established to provide for any
contingent claims arising from the operations of APART or any liability under
APART's indemnification agreements for its Trustees. The Contingent Claim Trust
will terminate on the earlier of December 31, 1996 or the determination by its
trustee that no contingent claims exist. The sole trustee of the Contingent
Claim Trust is Mr. Ronald J. Consiglio, Trustee, Chairman, Chief Executive
Officer and President of APART.
The Trust includes the assets of the Contingent Claim Trust in its balance
sheet as it has not received any claims and does not expect to receive any
claims. All of the assets of the Contingent Claim Trust are expected to be
returned to the Trust on or before December 31, 1996.
INVESTMENTS - The Trust has adopted Statement of Financial Accounting
Standards No. 115, "Accounting for certain Investments in Debt and Equity
Securities" ("SFAS 115"), for the years ended December 31, 1995 and 1994. There
was no cumulative effect of adopting SFAS 115. In accordance with SFAS 115,
management determines the appropriate classification of its investments in debt
and equity securities at the date of purchase between "Held-to-Maturity",
"Available-for-Sale" and "Trading". Management re-evaluates such classification
at each balance sheet date. The investment of $1,196,000 is held by the APART
Contingent Claim Trust for the benefit of APART.
INCOME TAXES - The Trust has elected to be taxed as a Real Estate
Investment Trust ("REIT") under the Internal Revenue Code for each taxable year
of operations. As a qualified REIT, the Trust is subject to income taxation at
corporate rates on its REIT taxable income. However, the Trust is allowed a
deduction for the amount of dividends paid to its shareholders, thereby
subjecting the distributed net income of the Trust to taxation at the
shareholder level only. For income tax purposes, the Trust reports revenue and
expenses on the accrual method. No income tax provision has been shown in the
accompanying statement of operations since, in the opinion of management, the
Trust qualifies as a REIT under Sections 856 through 860 of the Internal Revenue
Code.
NET INCOME PER CLASS A SHARE - The net income per Class A Share was based
on 2,550,000 weighted average shares outstanding during each of the three years
ending December 31, 1995, after deduction of the 1% Class B Shares' interest
(see Note 6).
NOTE 3 - INVESTMENTS
The Trust entered into one investment in 1995 and two investments in 1994
to preserve its REIT status. In 1994 the Trust purchased and subsequently sold
$30 million in Federal Home Loan Mortgage Corporation securities which resulted
in interest income, before financing costs, of $226,000 and a $133,000 trading
loss which is included with interest expense. The Trust, as of December 31,
1995, continues to hold two investments in securities of the Federal Home Loan
Mortgage Corporation. The investments, held in the Contingent Claim Trust (see
Note 2, Cash and Cash Equivalents, above), have an 8.5% coupon and mature on
January 1, 1996 and June 1, 1996. The Trust maintains these investments at its
original cost which approximates market value.
NOTE 4 - LOAN PORTFOLIO
During February 1993, FMM sold the Osage property and repaid APART's note
receivable (see Note 5) and in November 1993, the Trust sold the three remaining
Trust Loans held in its portfolio (see Note 5).
NOTE 5 - REPAYMENT OF AND SALE OF TRUST LOANS
In February 1993, APART received $14,900,000 of net proceeds attributable
to the repayment of a Trust loan with respect to the Osage Beach property.
I-18
<PAGE>
In November 1993, the Trust sold its remaining three Trust Loans on the
Barstow, Branson and Fort Chiswell Properties and received $26,144,000 of net
proceeds from the sale. In conjunction with the sale (see Note 1) APART and
Angeles along with Angeles' subsidiaries and its affiliates granted mutual full
releases of any obligations that may exist. As a result of the full releases,
the Trust recognized in the fourth quarter of 1993, $791,000 of Unearned
Participation Income and $110,000 of Advances Under Yield Guarantee.
The resulting income generated from this sale transaction is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Net Proceeds from Sale of Trust Loans $ 26,144,000
Principal Balance of Notes Receivable, Net:
Barstow Property $ 7,000,000
Branson Property 12,500,000
Ft. Chiswell Property 5,000,000 (24,500,000)
-----------
Angeles and Affiliate Obligations Released
In Connection with the Sale:
Unearned Participation Income 791,000
Advances Under Yield Guarantee 110,000
------------
Gain from Sale of Mortgages $ 2,545,000
============
</TABLE>
NOTE 6 - SHAREHOLDERS' EQUITY
The shares of the Trust are of two classes: Class A Shares (par value $1.00
per share) and Class B Shares (par value $.01 per share). There is no limit on
the number of either Class A or Class B Shares which the Trust is authorized to
issue. Class B Shares in an amount equal to one-half of the number of Class A
Shares outstanding have been issued by the Trust. Class A and Class B Shares are
each entitled to one vote per share with respect to the election of Trustees and
other matters. Commencing in 1990, the Class B Shares are convertible at the
option of the Class B Shareholder into Class A Shares on the basis of 49 Class B
Shares for one Class A Share; provided that no more than 20% of the original
amount of outstanding Class B Shares (on a cumulative basis) is so convertible
in any year. All distributions of Net Cash will be distributed 99% to the Class
A Shareholders and 1% to the Class B Shareholder.
NOTE 7 - FEES AND OTHER PAYMENTS TO THE TRUST'S PRIOR ADVISOR AND ITS AFFILIATES
Until February 1, 1993, the Trust paid AFC monthly advisory fees for trust
administration and for non-accountable expenses equal to .25% and .20% per annum
of Trust proceeds, respectively. The Trust also reimbursed an affiliate of AFC
for administrative expenses incurred on its behalf. In February 1993, AFC's
advisory and administrative services to the Trust were terminated. The amount
paid to AFC or its affiliate for the one month period ended February 1, 1993
were as follows:
<TABLE>
<CAPTION>
1993
----
<S> <C>
Advisory fees $11,000
Non-accountable expense allowance $ 8,000
Administrative expenses $ 6,000
The Trust did not pay any fees to Angeles or affiliated entities in
1994 and 1995.
</TABLE>
I-19
<PAGE>
NOTE 8 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth the selected quarterly financial data for
the Trust (in thousands except for per share amounts).
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------
1995 12/31/95 9/30/95 6/30/95 3/31/95
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue $38 $41 $36 $33
Net (loss) ($38) ($8) ($44) ($45)
Net (loss) Per Class A Share ($0.01) $0.00 ($0.02) ($0.02)
Weighted average Class A Shares outstanding 2,550 2,550 2,550 2,550
1994 12/31/94 9/30/94 6/30/94 3/31/94
---------- ------- ------- -------
Revenue $242 $23 $16 $15
Net (loss) ($93) ($29) ($110) ($98)
Net (loss) per Class A Share ($0.04) ($0.01) ($0.04) ($0.04)
Weighted average Class A Shares outstanding 2,550 2,550 2,550 2,550
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
I-20
<PAGE>
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS
The current executive officers and Trustees of the Trust are listed below,
together with their ages and all Trust positions held by them:
<TABLE>
<CAPTION>
<S> <C> <C>
Ronald J. Consiglio 52 Trustee, Chairman, Chief Executive
Officer and President
Jack E. McDonald (1) 55 Trustee
J. D'Arcy Chisholm (1) 64 Trustee
Barry S. Sternlicht 35 Trustee
Anna Merguerian 40 Vice President, Chief Financial
Officer and Secretary
</TABLE>
(1) Member of Audit and Compensation Committee
Mr. Consiglio has been a Trustee since April 1988 and has served as the
Chairman, Chief Executive Officer and President of the Trust since May 1993.
From January 1993 through June 1993, Mr. Consiglio served as Executive Vice
President and Chief Administrative Officer of Reynolds Kendrick Stratton, Inc.,
a Los Angeles based securities brokerage firm. From 1990 through 1992, Mr.
Consiglio was the Senior Vice President and Chief Financial Officer of Cantor
Fitzgerald & Co., Inc. where he was responsible for operations, administration
and finance. From 1988 through 1990 he was the Senior Vice President of the
investment banking firm of Wedbush Morgan Securities, Inc. ("WMS"), and from
1984 through 1988 he was Executive Vice President of a predecessor firm, Morgan,
Olmstead, Kennedy & Gardner Incorporation. He was responsible for WMS's
investment banking activities, as well as many of the administrative and
operation functions of the firm. He is a certified public accountant and was a
partner in Deloitte Haskins & Sells from 1977 to June 1984. In 1992, Mr.
Consiglio served as the District Chairman of the National Association of
Securities Dealers' District Business Conduct Committee. Mr. Consiglio is also
an executive officer and trustee of Angeles Mortgage Investment Trust ("AMIT")
and is a business consultant.
Mr. McDonald has been a Trustee of the Trust since April 1988 and served as
Chief Financial Officer from May 1993 to December 1995. As of December 1995 Mr.
McDonald is Chairman of the Audit and Compensation Committee. He has been Chief
Executive Officer of JEM Diversified Management Company, Inc., a Los Angeles-
based business consulting firm since 1989. Mr. McDonald is a certified public
accountant, certified financial planner and tax and business consultant. Mr.
McDonald served in the tax department of Ernst & Ernst for five years before
forming a certified public accounting firm that specialized in real estate in
1974. Mr. McDonald is a founder and former director of a California savings and
loan association and past Chapter President of the National Association of
Accountants. He is an active member of the American Institute of Certified
Public Accountants and California Society of Certified Public Accountants.
Mr. Bryant who had been a Trustee since February 1990 died in August 1994
and the trustee position left vacant from his death has not been filled.
Mr. Chisholm has been a Trustee of the Trust since September 1989 and is a
member of the Audit and Compensation Committee. He has been a consultant to real
estate, business and education since 1989. From 1980 until September 1989, Mr.
Chisholm was associated with the Institute for Pastoral and Social Ministry at
the University of Notre Dame, initially as a volunteer, then as an assistant
director from 1982 until 1986 and finally as an associate director from 1986
until 1989. From 1971 until 1980, Mr. Chisholm served in several capacities for
Shareholders Capital Corporation, the predecessor company of Angeles and its
subsidiaries, including president of its property management company and
president of its property sales company. Prior to 1971, Mr. Chisholm was
employed at the following real estate related firms; Real Estate Research
Corporation, Del E. Webb Corporation and Milton Meyer Company. Mr. Chisholm also
serves as a trustee of AMIT and serves on AMIT's audit and compensation
committees.
I-21
<PAGE>
Mr. Sternlicht became a Trustee in March 1994. In mid-1993, he founded
Starwood Capital Group, L.P., ("Starwood") a privately owned real estate
investment firm, and has been president and chief executive officer since that
time. In 1991, he founded Starwood Capital Partners, L.P., a privately owned
real estate investment firm, and has been its president since inception.
Starwood, SAHI, Inc. and SAHI Partners are under common control. In addition,
Starwood is the general partner of the investment partnership that owns
substantially all of the beneficial interests of SAHI Partners. From 1986 to
1991, Mr. Sternlicht was employed by JMB Realty, most recently as Senior Vice
President in its acquisition group. Mr. Sternlicht serves on the Board of
Trustees of Equity Residential Properties Trust, currently one of the largest
multi-family REIT in the United States trading under the symbol "EQR" on the New
York Stock Exchange. Affiliates of Starwood constitute the second largest
partnership group that has contributed assets to the UPREIT partnership
controlled by Equity Residential Properties Trust. Mr. Sternlicht is also the
Chairman and Chief Executive Officer of Starwood Lodging Trust ("HOT"), a New
York Stock Exchange listed REIT that owns hotel related equity and debt
interests, as well as being director elect of Starwood Lodging Corporation, a
hotel management company the shares of which are "paired" with those of HOT.
Ms. Merguerian became the Vice President and Secretary of the Trust in
March 1994 and Chief Financial Officer of the Trust in December 1995. Prior to
joining the Trust in May 1993, she was employed by Angeles from June 1981
through April 1993. Her last position with Angeles and its subsidiaries was as a
Senior Vice President of the Asset Management Group. From September 1977 to May
1981, she served as a Senior Accountant with Ernst & Young (which was formerly
known as Ernst & Whinney). Ms. Merguerian is a certified public accountant.
INFORMATION REGARDING THE BOARD OF TRUSTEES AND ITS COMMITTEES
INDEPENDENT COMMITTEE. On February 26, 1993, in recognition of the
conflicts of interest between the Trust and Angeles, a committee was formed
consisting solely of Trustees who are not affiliated with Angeles. The
Independent Committee was given the authority to evaluate, negotiate and
implement the Restructuring of the Trust's assets and liabilities, and to make
all decisions relating to the Trust's dealings with Angeles or any of its
affiliates. An independent firm of valuation consultants and independent counsel
were engaged to assist the Independent Committee. Messrs. Consiglio, Bryant,
Chisholm and McDonald served on the Independent Committee with Mr. Consiglio
serving as Chairman. In November 1993, the Independent Committee ceased to exist
upon the resignation of the remaining Angeles affiliated Trustee.
AUDIT AND COMPENSATION COMMITTEE. The Board of Trustees has delegated a
portion of its authority to a two-member Audit and Compensation Committee
comprising independent trustees. This Committee makes recommendations to the
Board of Trustees concerning the selection of the Trust's independent auditors,
oversees the financial reporting process, develops and approves plans for the
annual duties of the Trust, reviews fees charged by the independent auditors,
reviews the scope and results of the auditors' reports and reviews and monitors
the implementation of suggestions made by the independent auditors. The
Committee is kept apprised by management of the Trust's internal control
procedures. Additionally, the Committee reviews and monitors non-audit services
provided by the independent auditors and oversees, reviews and approves the
compensation of the trustees and officers of the Trust. Messrs. Chisholm and
McDonald serve on the Audit and Compensation Committee with Mr. McDonald serving
as Chairman.
BOARD OF TRUSTEES AND COMMITTEE MEETINGS. During the fiscal year ending
December 31, 1995, the Trust's Board of Trustees held one regular meeting.
ITEM 11. EXECUTIVE COMPENSATION
REMUNERATION OF TRUSTEES. Each Trustee who is not also an officer of
Angeles or of any of its subsidiaries, receives a fee of $12,000 per year, which
is paid quarterly. Each of the unaffiliated Trustees also receives an additional
fee of $1,000 for each meeting of the Board of Trustees which he attends in
person, $750 for each meeting of the Board of Trustees which he attends
telephonically, and $500 for each Audit Committee or Independent Committee
meeting which he attends, either personally or telephonically. Trustees are also
reimbursed for any expenses incurred in attending such meetings or incurred as a
result of other work performed for the Trust.
EXECUTIVE OFFICERS' COMPENSATION. During the year ended December 31, 1995,
Mr. Consiglio received a total of $31,500 for his services as President and
Chief Executive Officer of the Trust, and an additional $12,000 as
I-22
<PAGE>
compensation for serving on the Board of Trustees. For the year ended December
31, 1995, Mr. McDonald was paid no compensation for his services as Chief
Financial Officer of the Trust, and $9,000 as compensation for serving on the
Board of Trustees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of February 13, 1996 with
respect to any Class A Shares owned by the Trustees and individual shareholders
known to be the beneficial owner of more than 5% of the issued and outstanding
Class A shares. There are no other trustees or officers of the Trust who
beneficially own either Class A or Class B Shares. The Trust had 1,927 Class A
Shareholders of record as of February 13, 1996. All of the issued and
outstanding Class B Shares (a total of 1,275,000 Shares) are owned by SAHI
Partners.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL CLASS
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP (1) OF
- -------------- ----------------------------------------------- ---------------- -----------
<S> <C> <C> <C>
Class A Shares SAHI Partners, Three Pickwick Plaza, Suite 250, 26,020 (2) 1.0%
Greenwich, CT 06830
Class A Shares SAHI Partners 244,100 9.6%
Class A Shares SAHI, Inc., Three Pickwick Plaza, Suite 250, 270,120 (3) 10.6%
Greenwich, CT 06830
Class A Shares SWL Acquisition Partners, L.P., Three Pickwick Plaza, 270,120 (3) 10.6%
Suite 250, Greenwich, CT 06830
Class A Shares SWL Mortgage Investors, Inc., Three Pickwick Plaza, 270,120 (3) 10.6%
Suite 250, Greenwich, CT 06830
Class A Shares Angelo, Gordon & Co., L.P., 245 Park Avenue, New York, 254,700 (4) 9.9%
NY 10167
Class A Shares Pure World, Inc. (formerly American Holdings, Inc.), 246,400 (5) 9.7%
376 Main Street, Bedminster, NJ 07921
Class A Shares The TCW Group, Inc., 865 S. Figueroa Street, 139,200 (6) 5.4%
Los Angeles, CA 90017
Class A Shares J. D'Arcy Chisholm, 340 N. Westlake Blvd., Suite 230, 773 - (7)
Westlake Village, CA 91362
Class A Shares Barry Sternlicht, Three Pickwick Plaza, Suite 250, 270,120 (3) 10.6%
Greenwich, CT 06830
Class B Shares SAHI Partners 1,275,000 (3) 100%
Class B Shares Barry Sternlicht 1,275,000 (3) 100%
Class B Shares SAHI, Inc. 1,275,000 (3) 100%
Class B Shares SWL Acquisition Partners, L.P. 1,275,000 (3) 100%
Class B Shares SWL Mortgage Investors, Inc. 1,275,000 (3) 100%
Class A Shares All Executive Officers and Directors as a group 270,893 (3) 10.6%
(6 persons)
Class B Shares All Executive Officers and Directors as a group 1,275,000 (3) 100%
(5 persons)
</TABLE>
- -------------------------------
(1) Except as otherwise indicated and subject to applicable community property
laws and similar statutes, the person listed as beneficial owner of shares
has sole voting power and dispositive power with respect to the shares.
(2) Represents 1,275,000 Class B Shares which are presently convertible into
26,020 Class A Shares.
(3) Represents 244,100 Class A shares currently held by SAHI Partners and
1,275,000 Class B Shares currently held by SAHI Partners which are
presently convertible into 26,020 Class A Shares. SAHI, Inc. and SWL
Acquisition Partners, L.P., a Delaware limited partnership ("SWL
Partners"), are the sole general partners of SAHI Partners. SWL Mortgage
Investors, Inc., a Delaware corporation ("SWL Mortgage"), is the sole
general partner of SWL Partners. Mr. Sternlicht is the sole stockholder of
SWL Mortgage and the controlling stockholder of SAHI, Inc. By virtue of
such holdings and relationships, Mr. Sternlicht, SAHI, Inc., SWL Partners
and SWL Mortgage may be deemed to have an indirect pecuniary interest in
the Class A Shares and Class B Shares
I-23
<PAGE>
held by SAHI Partners to the extent of his or its proportionate direct or
indirect partnership interest, as the case may be; however, Mr. Sternlicht,
SAHI, Inc., and SWL Mortgage have expressly disclaimed such beneficial
ownership.
(4) As reported on the Schedule 13G filed by Angelo, Gordon & Co., L.P. on
February 8, 1995.
(5) As reported on the Schedule 13D, Amendment 4, filed by Pure World, Inc.,
(formerly American Holdings, Inc.), on February 12, 1996.
(6) As reported on the Schedule 13G filed by The TCW Group, Inc., on February
12, 1996.
(7) Less than .01% of the class (a total of 2,550,000 Class A Shares are issued
and outstanding).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until February 1, 1993, the Trust paid AFC monthly advisory fees for trust
administration and for non-accountable expenses equal to .25% and .20% per annum
of Trust Proceeds, respectively. The Trust also reimbursed an affiliate of AFC
for administrative expenses incurred on its behalf. In February 1993, AFC's
advisory services to the Trust were terminated. The amounts paid to AFC or its
affiliate for the one month period ended February 1, 1993 were as follows:
<TABLE>
<CAPTION>
1993
----
<S> <C>
Advisory fees $11,000
Non-accountable expense allowance $ 8,000
Administrative expenses $ 6,000
</TABLE>
The Trust did not pay any fees to Angeles or affiliated entities in 1994
and 1995.
I-24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) Listed below are all financial statements filed as part of this 10-K and
herein included.
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Balance Sheets at December 31, 1995 and 1994 13
Statements of Operations for each of the three years in the
period ended December 31, 1995 14
Statements of Changes in Shareholders' Equity for each of
the three years in the period ended December 31,
1995 15
Statements of Cash Flows for each of the three years in the
period ended December 31, 1995 16
Notes to Financial Statements 17
</TABLE>
(b) A report on Form 8-K was filed during the last quarter of the year
ending December 31, 1995 as follows:
NONE.
(c) Exhibits required by Item 601 of Regulation S-K:
Refer to Exhibit Index on page 26 of this report.
(d) Supplemental schedules required by Regulation S-X are omitted because
they are not applicable or because the required information is shown in
the financial statements.
I-25
<PAGE>
ANGELES PARTICIPATING MORTGAGE TRUST
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<C> <S>
3.1 Declaration of the Trust dated July 15, 1988.(1)
10.1 Promissory Note, Secured Mortgage and Other Security relating
to the Factory Merchants Venture.(2)
10.2 Promissory Note Secured by Deed of Trust relating to the Branson
property.(3)
10.3 Promissory Note Secured by Security Agreement relating to the
Factory Merchant Venture.(3)
10.4 Promissory Note Secured by Security Agreement relating to the
Wytheville Factory Merchant Venture.(4)
10.5 Agreement to extend Promissory Note Secured by Security Agreement
for Factory Merchant Venture from January
31, 1990 to February 28, 1990.(4)
10.6 Agreement to extend Promissory Note Secured by Security Agreement
for Factory Merchant Venture from February
28, 1990 to March 31, 1990.(4)
10.7 Agreement to extend Promissory Note Secured by Security Agreement
for Factory Merchant Venture from March 31,
1990 to June 30, 1991.(4)
10.8 Promissory Note Secured by Deed of Trust dated September 20, 1991
relating to Factory Merchants Barstow
property.(5)
10.9 Promissory Note Secured by Deed of Trust dated September 20, 1991
relating to Factory Merchants Barstow and
Branson properties.(5)
10.10 Promissory Note Secured by Deed of Trust dated September 20, 1991
relating to Factory Merchants Fort Chiswell
(formerly Wytheville Factory Merchants, Ltd.)
property.(5)
10.11 Bi-Party Agreement dated August 25, 1993, between the Trust and
the Committee of Creditors Holding Unsecured
Claims for Angeles Corporation.(6)
10.12 Trust Agreement dated November 23, 1993 between the Trust and
Ronald J. Consiglio, as trustee.(7)
10.13 Amendment to Trust Agreement dated March 14, 1994 between the Trust
and Ronald J. Consiglio, as trustee.(7)
10.14 Class A Share Purchase Warrant dated March 15, 1994 issued by the
Trust to SAHI Partners.(7)
10.15 Class B Share Purchase Warrant dated March 15, 1994 issued by the
Trust to SAHI Inc.(7)
10.16 Shareholders Agreement dated as of March 15, 1994 by and among the
Trust, SAHI Partners and SAHI Inc.(7)
</TABLE>
(1) Filed as an exhibit to the Trust's Registration Statement
dated July 18, 1988, and incorporated herein by reference.
(2) Filed as an exhibit to the Trust's Form 8-K dated February
3, 1989, and incorporated herein by reference.
(3) Filed as an exhibit to the Trust's Form 10-K dated December
31, 1989, and incorporated herein by reference.
(4) Filed as an exhibit to the Trust's Form 10-K dated December
31, 1990 and incorporated herein by reference.
(5) Filed as an exhibit to the Trust's Form 10-K dated December
31, 1991 and incorporated herein by reference.
(6) Filed as an exhibit to the Trust's Form 8-K dated November
3, 1993 and incorporated herein by reference.
(7) Filed as an exhibit to the Trust's Form 10-K dated December
31, 1993 and incorporated herein by reference.
I-26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Trust has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ANGELES PARTICIPATING MORTGAGE TRUST
------------------------------------
Registrant
Date February 23, 1996 /s/ Ronald J. Consiglio
------------------------------------
Ronald J. Consiglio
Chairman of the Board of Trustees
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the Trust and
in the capacities and on the dates indicated.
Date February 23, 1996 /s/ Ronald J. Consiglio
------------------------------------
Ronald J. Consiglio
Trustee, President and Chief Executive Officer
(Chief Executive Officer)
Date February 23, 1996 /s/ J. D'Arcy Chisholm
------------------------------------
J. D'Arcy Chisholm
Trustee
Date February 23, 1996 /s/ Barry S. Sternlicht
------------------------------------
Barry S. Sternlicht
Trustee
Date February 23, 1996 /s/ Jack E. McDonald
------------------------------------
Jack E. McDonald
Trustee
Date February 23, 1996 /s/ Anna Merguerian
------------------------------------
Anna Merguerian
Vice President, Chief Financial Officer and
Secretary (Principal Financial and Accounting
Officer)
I-27
<PAGE>
EXHIBIT J
---------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
AMENDMENT TO
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter 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 1-10150
-------
ANGELES PARTICIPATING MORTGAGE TRUST
------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
California 95-6881527
- -------------------------------------- -------------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
340 North Westlake Boulevard, Suite 230, Westlake Village, California 91362
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (805) 449-1335
-----------------------------
No Change
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year If Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Which Registered
Class A Shares American Stock Exchange
- -------------------------------------- -------------------------------
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
- ----------------------------------------------------------------------
(Title of class)
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.
[X] Yes [_] No
Total Pages 10
J-1
<PAGE>
ANGELES PARTICIPATING MORTGAGE TRUST
INDEX
Page No.
--------
Part I. Financial Information
<TABLE>
<CAPTION>
<S> <C> <C>
Item I. Balance Sheets - March 31, 1996 and December 31, 1995 3
Statements of Operations - For the three months ended
March 31, 1996 and 1995 4
Statements of Cash Flows - For the three months ended
March 31, 1996 and 1995 5
Notes to the Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
</TABLE>
J-2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Angeles Participating Mortgage Trust
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 992,000 $ 863,000
Investments 988,000 1,196,000
Other receivables 5,000 10,000
Other assets 125,000 125,000
------------ ------------
Total assets $ 2,110,000 $ 2,194,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 153,000 $ 39,000
------------ ------------
Total liabilities 153,000 39,000
------------ ------------
Shareholders' equity:
Class A Shares (2,550,000 shares issued and outstanding,
$1.00 par value, unlimited shares authorized) 2,550,000 2,550,000
Class B Shares (1,275,000 shares issued and outstanding,
$.01 par value, unlimited shares authorized) 13,000 13,000
Additional paid in capital 42,329,000 42,329,000
Accumulated undistributed net realized gain from sale
of mortgages 2,545,000 2,545,000
Accumulated distributions in excess of cumulative
net income other than gain from sale of mortgages (45,480,000) (45,282,000)
------------ ------------
Total shareholders' equity 1,957,000 2,155,000
------------ ------------
Total liabilities and shareholders' equity $ 2,110,000 $ 2,194,000
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
J-3
<PAGE>
Angeles Participating Mortgage Trust
Statements of Operations--Unaudited
<TABLE>
<CAPTION>
Three months ended
March 31
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Revenue:
Interest income from investments $ 8,000 $ 33,000
--------- ---------
Total revenue 8,000 33,000
--------- ---------
Costs and expenses:
General and administrative expenses 205,000 78,000
--------- ---------
Total costs and expenses 205,000 78,000
--------- ---------
Net loss $(197,000) $ (45,000)
========= =========
Net loss per Class A Shareholders $(195,000) $ (45,000)
========= =========
Net loss per Class A Share $ (0.08) $ (0.02)
========= =========
Cash distributions per Class A Share $ - $ -
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
J-4
<PAGE>
Angeles Participating Mortgage Trust
Statements of Cash Flows - Unaudited
<TABLE>
<CAPTION>
Three months ended
March 31
-----------------------
1996 1995
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (198,000) $ (45,000)
---------- ----------
Adjustments to reconcile net income (loss) to cash
flows from operating activities:
Decrease in other receivable 5,000 7,000
Increase in deferred expenses and other assets - (15,000)
Increase (decrease) in accounts payable and accrued
expenses 114,000 (52,000)
---------- ----------
Cash flows from operating activities (79,000) (105,000)
---------- ----------
Cash flows from investing activities:
Investments in securities (1,478,000) -
Principal collections of investment securities 209,000 77,000
Sale of investment securities 1,477,000 -
---------- ----------
Cash flows from investing activities 208,000 77,000
---------- ----------
Decrease in cash and cash equivalents 129,000 (28,000)
Cash at beginning of period 863,000 872,000
---------- ----------
Cash at end of period $ 992,000 $ 844,000
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
J-5
<PAGE>
PART I. FINANCIAL INFORMATION
ANGELES PARTICIPATING MORTGAGE TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - In the opinion of management, the accompanying financial statements
contain all of the adjustments necessary to present fairly the financial
position of Angeles Participating Mortgage Trust (the "Trust" or "APART") at
March 31, 1996 and the results of operations and its cash flows for the three
months ended March 31, 1996 and 1995, in conformity with generally accepted
accounting principles applied on a consistent basis. All adjustments included
are of a normal and recurring nature. Certain prior years amounts have been
reclassified to conform to current year classifications.
NOTE 2 - The net income per Class A Share was based on 2,550,000 weighted
average shares outstanding during the three months ended March 31, 1996 and
1995, after deduction of the 1% Class B Share interest.
NOTE 3 - Cash and cash equivalents include cash held in bank or invested in
money market funds with maturity terms of less than 90 days. Of the cash and
cash equivalents balances at March 31, 1996 and December 31, 1995, all of the
cash balance of $992,000 and $823,000, respectively, is held by the APART
Contingent Claim Trust for the benefit of APART. Such Contingent Claim Trust
was established to provide for any contingent claims arising from the operations
of APART or any liability under APART's indemnification agreements for its
Trustees. The Contingent Claim Trust was terminated on August 12, 1996 based on
the determination by its trustee that no contingent claims exist.
The sole beneficiary of the Contingent Claim Trust was the Trust and the
operations of the Contingent Claim Trust were under the control of the chief
executive officer of the Trust. The Contingent Claim Trust has been accounted
for by the Trust on the consolidated method of accounting, since its inception
in 1993, as it was deemed more appropriate for including the assets and
operations of the Contingent Claim Trust with those of the Trust. As the
Contingent Claim Trust is a single asset trust, the differences had it not been
accounted for under the consolidated method are minor. The net current assets,
the net current liabilities and shareholders equity would have been identical.
The only difference within the balance sheet is the caption of the asset which
in consolidation is shown as an investment in investment securities versus a
receivable from the Contingent Claim Trust. The only difference in the
statement of operations is the caption relating to the interest earned on the
investment in securities versus reporting such amount as other income.
NOTE 4 - As of March 31, 1996, the APART Contingent Claim Trust holds an
investment in U. S. Treasury Bills, due May 30, 1996. The Trust classifies its
investment in securities as "held to maturity."
As of December 31, 1995 the Contingent Claim Trust held two security
investments in the Federal Home Loan Mortgage Corporation (the "FHLMC"), having
an 8.5% coupon rate and maturing on January 1, 1996 and June 1, 1996. During
the quarter ended March 31, 1996, one of the FHLMC investments matured and the
Trust acquired a new investment in the FHLMC with a maturity date of December
1997 and a coupon rate of 7.0%. In February 1996, the Contingent Claim Trust
sold the two FHLMC investments which had maturity dates of June 1, 1996 and
December 1997 and acquired an investment in U. S. Treasury Bills, which matures
August 29, 1996. The Trust's intent was to hold the FHLMC investments to
maturity. However, legal counsel determined that such investments may
inadvertently bring the Trust within the scope of the Investment Company Act of
1940 and based on the implementation of the Trust's new business plan, such
investments were no longer required. The Trust recognized a loss upon the sale
of the two security investments of approximately $19,000. The Trust intends to
hold its current treasury investment until its maturity date of August 29, 1996.
J-6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Trust's primary source of cash is from interest earned on investments
and cash and cash equivalents. Of the Trust's approximately $2 million and $2.1
million of investments and cash as of March 31, 1996 and December 31, 1995,
respectively, approximately $2 million is held by the APART Contingent Claim
Trust for the benefit of APART. Such Contingent Claim Trust was established to
provide for any contingent claims arising from the operations of APART or any
liability under APART's indemnification agreements for it s Trustees.
The term of the Contingent Claim Trust expires automatically on December
31, 1996 but may be terminated by the sole trustee based on a determination that
no contingent claims exist. Effective August 12, 1996 the sole trustee of the
Contingent Claim Trust, Ronald J. Consiglio, determined that there were no
pending or threatened claims existing and terminated the Contingent Claim Trust
thereby returning all assets of the Contingent Claim Trust of approximately $1.8
million to the Trust on August 12, 1996.
The Trust distributed the majority of its assets, $36,975,000 to Class A
shareholders of record on November 18, 1993 payable December 3, 1993. Remaining
funds, approximately $2.5 million, were retained by the Trust to provide for
potential liabilities or claims, minimal operating costs and the possibility of
obtaining further value for shareholders from potential strategic alternatives
with third parties who might wish to acquire an interest in the remaining Trust.
The amount and timing of any future cash dividends, if any, is impossible to
predict at this time. Since APART has no other assets, shareholder equity
approximates the amount of remaining cash and investments.
On March 15, 1994, the Trust announced that it had entered into an
agreement with a SAHI affiliate, SAHI Partners, a Delaware general partnership,
for the sale of a Warrant for the right to purchase five million shares of the
Trust's Class A Shares at a price of $1 per share and 2,550,000 shares of the
Class B Shares at a price of $0.01 per share. SAHI Partners purchased the
Warrant for $101,000, which amount will be applied against the purchase price
for the first Class A and Class B Shares purchased pursuant to the Warrant. The
Warrant will not be exercisable unless and until the issuance of the Class A and
Class B Shares issuable upon the exercise thereof has been approved by holders
of a majority of the Class A Shares and Class B Shares voting together as a
single class. Upon exercise of the entire Warrant for five million shares, SAHI
would own 69% of the outstanding Class A Shares and, with the voting interest of
the Class B Shares, would control 80% of the voting interest of the Trust. If
these warrants are exercised in their entirety, the Trust would increase its
capital by $5,025,000, and funds from such capitalization would be utilized to
acquire additional investments for the Trust based upon a defined business plan
to be approved by holders of a majority of the Class A and Class B Shares.
Based upon the Trust's cash and cash equivalent balance at March 31, 1996,
management believes it has sufficient cash to operate as a going concern through
the remainder of the 1996 fiscal year.
The Trust is currently in the process of preparing a proxy to be filed
with the Securities and Exchange Commission, which would provide the Trust along
with SAHI the ability to acquire positions in a diversified portfolio of real
estate related assets.
RESULTS OF OPERATIONS
During the three months ended March 31, 1996, total revenue decreased to
$8,000 or 76% as compared to total revenue for the three months ended March 31,
1995. This decrease is the result of the Trust selling its security investments
in the Federal Home Loan Mortgage Corporation.
J-7
<PAGE>
The increase in the Trust's total costs and expenses during the three
months ended March 31, 1996 compared to the three months ended March 31, 1995
is due to increased legal costs associated with the preparation of a proxy for
an annual shareholders meeting.
J-8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
None.
B. REPORTS ON FORM 8-K
None.
Note: All items required under Part II of Form 10-Q which are applicable have
been reported herein.
J-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Trust has duly caused this amendment to the report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ANGELES PARTICIPATING MORTGAGE TRUST
By /s/Ronald J. Consiglio
---------------------------------
Ronald J. Consiglio
President and Chief
Executive Officer
Date: August 28, 1996
J-10
<PAGE>
EXHIBIT K
---------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
AMENDMENT TO
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter period ended June 30, 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 1-10150
-------
ANGELES PARTICIPATING MORTGAGE TRUST
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
California 95-6881527
- ------------------------------------ ----------------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
340 North Westlake Boulevard, Suite 230, Westlake Village, California 91362
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (805) 449-1335
-----------------------------
No Change
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year If Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Which Registered
Class A Shares American Stock Exchange
-------------- -----------------------
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
----
(Title of class)
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.
[X] Yes [_] No
Total Pages 11
K-1
<PAGE>
ANGELES PARTICIPATING MORTGAGE TRUST
INDEX
<TABLE>
<CAPTION>
Page No.
--------
Part I. Financial Information
<S> <C> <C>
Item I. Balance Sheets - June 30, 1996 and December 31, 1995 3
Statements of Operations - For the three and six months ended
June 30, 1996 and 1995 4
Statements of Cash Flows - For the six months ended
June 30, 1996 and 1995 5
Notes to the Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
K-2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Angeles Participating Mortgage Trust
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 814,000 $ 863,000
Investments 987,000 1,196,000
Other receivables 6,000 10,000
Other assets 125,000 125,000
---------- ----------
Total assets $1,932,000 $2,194,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 33,000 $ 39,000
---------- ----------
Total liabilities 33,000 39,000
---------- ----------
Shareholders' equity:
Class A Shares (2,550,000 shares issued and outstanding,
$1.00 par value, unlimited shares authorized) 2,550,000 2,550,000
Class B Shares (1,275,000 shares issued and outstanding,
$.01 par value, unlimited shares authorized) 13,000 13,000
Additional paid in capital 42,329,000 42,329,000
Accumulated undistributed net realized gain from sale of
mortgages 2,545,000 2,545,000
Accumulated distributions in excess of cumulative net income
other than gain from sale of mortgages (45,538,000) (45,282,000)
---------- ----------
Total shareholder's equity 1,899,000 2,155,000
---------- ----------
Total liabilities and shareholder's equity $1,932,000 $2,194,000
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
K-3
<PAGE>
Angeles Participating Mortgage Trust
Statements of Operations -- Unaudited
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
---------------------- ------------------------
1996 1995 1996 1995
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenue:
Interest income from investments $ 21,000 $ 36,000 $ 29,000 $ 69,000
-------- -------- --------- --------
Total revenue 21,000 36,000 29,000 69,000
-------- -------- --------- --------
Costs and expenses:
General and administrative expenses 80,000 80,000 285,000 158,000
-------- -------- --------- --------
Total costs and expenses 80,000 80,000 285,000 158,000
-------- -------- --------- --------
Net loss $(59,000) $(44,000) $(256,000) $(89,000)
======== ======== ========= ========
Net loss per Class A Shareholders $(58,000) $(44,000) $(253,000) $(88,000)
======== ======== ========= ========
Net loss per Class A Share $ (0.02) $ (0.02) $ (0.10) $ (0.03)
======== ======== ========= ========
Cash distributions per Class A Share $ 0.00 $ 0.00 $ 0.00 $ 0.00
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
K-4
<PAGE>
ANGELES PARTICIPATING MORTGAGE TRUST
STATEMENTS OF CASH FLOWS -- UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------------------
1996 1995
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (256,000) $(89,000)
Adjustments to reconcile net income (loss) to cash flows
from operating activities:
Decrease (increase) in other receivables 4,000 (21,000)
Increase in other assets - (15,000)
Decrease in accounts payable and accrued expenses (6,000) (53,000)
---------- --------
Cash flows from operating activities (258,000) (178,000)
---------- --------
Cash flows from operating activities:
Sale of investment securities 1,478,000 -
Principal collections of investments securities 1,197,000 130,000
Investment in investment securities (2,466,000) (165,000)
---------- --------
Cash flows from investing activities 209,000 (35,000)
---------- --------
Decrease in cash and cash equivalents (49,000) (213,000)
Cash at beginning of period 863,000 872,000
---------- --------
Cash at end of period $ 814,000 $659,000
========== ========
</TABLE>
The accompanying notes are an intergral part of the financial statements.
K-5
<PAGE>
PART I. FINANCIAL INFORMATION
ANGELES PARTICIPATING MORTGAGE TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - In the opinion of management, the accompanying financial statements
contain all of the adjustments necessary to present fairly the financial
position of Angeles Participating Mortgage Trust (the "Trust" or "APART") at
June 30, 1996 and the results of operations and its cash flows for the three and
six months ended June 30, 1996 and 1995, in conformity with generally accepted
accounting principles applied on a consistent basis. All adjustments included
are of a normal and recurring nature. Certain prior years amounts have been
reclassified to conform to current year classifications.
NOTE 2 - The net income per Class A Share was based on 2,550,000 weighted
average shares outstanding during the three and six months ended June 30, 1996
and 1995, after deduction of the 1% Class B Share interest.
NOTE 3 - Cash and cash equivalents include cash held in bank or invested in
money market funds with maturity terms of less than 90 days. Of the cash and
cash equivalents balance at June 30, 1996 and December 31, 1995, all of the cash
balance of $814,000 and $863,000, respectively, is held by the APART Contingent
Claim Trust ("Contingent Claim Trust") for the benefit of APART. Such
Contingent Claim Trust was established to provide for any contingent claims
arising from the operations of APART or any liability under APART's
indemnification agreements for its Trustees. The Contingent Claim Trust was
terminated on August 12, 1996 based on the determination by its trustee that no
contingent claims exist.
The sole beneficiary of the Contingent Claim Trust was the Trust and the
operations of the Contingent Claim Trust were under the control of the chief
executive officer of the Trust. The Contingent Claim Trust has been accounted
for by the Trust on the consolidated method of accounting, since its inception
in 1993, as it was deemed more appropriate for including the assets and
operations of the Contingent Claim Trust with those of the Trust. As the
Contingent Claim Trust is a single asset trust, the differences had it not been
accounted for under the consolidated method are minor. The net current assets,
the net current liabilities and shareholders equity would have been identical.
The only difference within the balance sheet is the caption of the asset which
in consolidation is shown as an investment in investment securities versus a
receivable from the Contingent Claim Trust. The only difference in the
statement of operations is the caption relating to the interest earned on the
investment in securities versus reporting such amount as other income.
NOTE 4 - As of June 30, 1996, the Contingent Claim Trust holds an investment in
U. S. Treasury Bills, due August 29, 1996. During the quarter ended June 30,
1996, a U. S. Treasury Bill matured, which had been acquired in the prior 1996
quarter. The Trust classifies its investment in securities as "held to
maturity."
As of December 31, 1995 the Contingent Claim Trust held two security
investments in the Federal Home Loan Mortgage Corporation (the "FHLMC"), having
an 8.5% coupon rate and maturing on January 1, 1996 and June 1, 1996. During
the quarter ended March 31, 1996, one of the FHLMC investments matured and the
Trust acquired a new investment in the FHLMC with a maturity date of December
1997 and a coupon rate of 7.0%. In February 1996, the Contingent Claim Trust
sold the two FHLMC investments which had maturity dates of June 1, 1996 and
December 1997 and acquired an investment in U. S. Treasury Bills, which matures
August 29, 1996. The Trust's intent was to hold the FHLMC investments to
maturity. However, legal counsel determined that such investments may
inadvertently bring the Trust within the scope of the Investment Company Act of
1940 and based on the implementation of the Trust's new business plan, such
investments were no longer required. The Trust recognized a loss upon the
K-6
<PAGE>
sale of the two security investments of approximately $19,000. The Trust intends
to hold its current treasury investment until its maturity date of August
29, 1996.
K-7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Trust's primary source of cash is from interest earned on
investments and cash and cash equivalents. Of the Trust's approximately $1.8
million and $2.1 million of investments and cash as of June 30, 1996 and
December 31, 1995, respectively, all of it is held by the APART Contingent Claim
Trust ("Contingent Claim Trust") for the benefit of APART. Such Contingent Claim
Trust was established to provide for any contingent claims arising from the
operations of APART or any liability under APART's indemnification agreements
for its Trustees.
The term of the Contingent Claim Trust expires automatically on
December 31, 1996 but may be terminated by the sole trustee based on a
determination that no contingent claims exist. Effective August 12, 1996 the
sole trustee of the Contingent Claim Trust, Ronald J. Consiglio, determined that
there were no pending or threatened claims existing and terminated the
Contingent Claim Trust thereby returning all assets of the Contingent Claim
Trust of approximately $1.8 million to the Trust on August 12, 1996.
The Trust distributed the majority of its assets, $36,975,000 to Class
A shareholders of record on November 18, 1993 payable December 3, 1993.
Remaining funds, approximately $2.5 million, were retained by the Trust to
provide for potential liabilities or claims, minimal operating costs and the
possibility of obtaining further value for shareholders from potential strategic
alternatives with third parties who might wish to acquire an interest in the
remaining Trust. The amount and timing of any future cash dividends, if any, is
impossible to predict at this time.
On March 15, 1994, the Trust announced that it had entered into an
agreement with a SAHI affiliate, SAHI Partners, a Delaware general partnership,
for the sale of a Warrant for the right to purchase five million shares of the
Trust's Class A Shares at a price of $1 per share and 2,550,000 shares of the
Class B Shares at a price of $0.01 per share. SAHI Partners purchased the
Warrant for $101,000, which amount will be applied against the purchase price
for the first Class A and Class B Shares purchased pursuant to the Warrant. The
Warrant will not be exercisable unless and until the issuance of the Class A and
Class B Shares issuable upon the exercise thereof has been approved by holders
of a majority of the Class A Shares and Class B Shares voting together as a
single class. Upon exercise of the entire Warrant for five million shares, SAHI
would own 69% of the outstanding Class A Shares and, with the voting interest of
the Class B Shares, would control 80% of the voting interest of the Trust. If
these warrants are exercised in their entirety, the Trust would increase its
capital by $5,025,000, and funds from such capitalization would be utilized to
acquire additional investments for the Trust based upon a defined business plan
to be approved by holders of a majority of the Class A and Class B Shares.
Based upon the Trust's cash and cash equivalent balance at June 30,
1996, management believes it has sufficient cash to operate as a going concern
through the remainder of the 1996 fiscal year.
The Trust is currently in the process of preparing a proxy to be filed
with the Securities and Exchange Commission, which would provide the Trust along
with SAHI the ability to acquire positions in a diversified portfolio of real
estate related assets.
K-8
<PAGE>
RESULTS OF OPERATIONS
During the three and six months ended June 30, 1996, total revenue
decreased to $21,000 and $29,000 or 42% and 58%, respectively, as compared to
total revenue for the comparable periods in 1995. This decrease is the result of
the Trust selling its security investments in the Federal Home Loan Mortgage
Corporation.
While costs and expenses for the three months ended June 30, 1996
approximated the same amount in the same period ending 1995, such total costs
and expenses increased for the six months ended June 30, 1996 when compared to
the six months ended June 30, 1995, due to increased legal costs associated with
the preparation of a proxy for an annual shareholders meeting.
K-9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
None.
B. REPORTS ON FORM 8-K
None
Note: All items required under Part II of Form 10-Q which are applicable have
been reported herein.
K-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Trust has duly caused this amendment to the report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ANGELES PARTICIPATING MORTGAGE TRUST
By /s/Ronald J. Consiglio
--------------------------------
Ronald J. Consiglio
President and Chief
Executive Officer
Date: August 28, 1996
K-11
<PAGE>
PROXY ANGELES PARTICIPATING MORTGAGE TRUST This proxy is solicited
340 N. Westlake Boulevard on behalf of
Westlake Village, California 91362 Board of Trustees
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
To Be Held On September 26, 1996
TO VOTE AT THE ANNUAL MEETING IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE
BOARD OF TRUSTEES OF ANGELES PARTICIPATING MORTGAGE TRUST, SIGN AND DATE THE
REVERSE SIDE OF THIS CARD WITHOUT CHECKING ANY BOX.
The undersigned holder of Class A Shares or Class B Shares of Angeles
Participating Mortgage Trust (the "Trust") hereby appoints Ronald J. Consiglio
and Jack E. McDonald, or either of them, with full power of substitution in
each, as proxies to cast all votes which the undersigned shareholder is entitled
to cast at the Annual Meeting of Shareholders (the "Annual Meeting") to be held
on September 26, 1996, at 9:00 a.m. local time, at the Beverly Hilton Hotel,
9876 Wilshire Blvd., Beverly Hills, California and at any adjournments thereof,
upon the following matters. The undersigned shareholder hereby revokes any proxy
or proxies heretofore given.
1. A proposal to approve the Class A Share Purchase Warrant owned by
Starwood Mezzanine Investors, L.P. and Class B Share Purchase Warrant owned by
SAHI, Inc. and the authorization and issuance of the Class A Shares and Class B
Shares to be issued upon exercise of such warrants.
[_] For [_] Against [_] Abstain
If the foregoing proposals are approved, the following proposals to
amend the Declaration of Trust.
2. A proposal to amend the Trust's Declaration of Trust to amend the
purpose of the Trust to allow the Trust to make substantially more debt and/or
equity investments in real property.
[__] For [__] Against [__] Abstain
3. A proposal to amend the Trust's Declaration of Trust to remove the
percentage limitation (presently 20%) on the amount of Trust Proceeds, i.e.
capital contributions of Shareholders, borrowings by the Trust or proceeds from
any future offerings by the Trust, which may be invested directly in the equity
ownership of real estate.
[__] For [__] Against [__] Abstain
4. A proposal to amend the Trust's Declaration of Trust to eliminate the
requirement to make monthly distributions of Net Cash, which is generally
defined as the Trust's cash flow from operations, to Shareholders.
[__] For [__] Against [__] Abstain
5. A proposal to amend the Trust's Declaration of Trust to make the
termination date of the Trust indefinite.
[__] For [__] Against [__] Abstain
6. A proposal to amend the Trust's Declaration of Trust to increase the
shareholder vote required to terminate the Trust from majority to two-thirds of
all of the Shareholders.
[__] For [__] Against [__] Abstain
7. A proposal to amend the Trust's Declaration of Trust to remove the
prohibition on acquiring or funding Trust loans with an initial term of more
than 15 years.
[__] For [__] Against [__] Abstain
8. A proposal to amend the Trust's Declaration of Trust to require the
issuance of additional Class B Shares in order to maintain the current voting
interest (33 1/3%) of the Shareholders of the Class B Shares.
[__] For [__] Against [__] Abstain
9. A proposal to amend the Trust's Declaration of Trust to remove the right
of Shareholders of Class A Shares to receive a priority return before the
Trust's former advisor is paid a fee since the advisor is no longer providing
services to the Trust.
[__] For [__] Against [__] Abstain
Approval of each of the proposals listed in 2 through 9 is
contingent upon approval of all of the proposals listed in 2 through 9.
10. If the foregoing proposals are approved, the election of seven members
to the Board of Trustees.
[_] FOR all nominees listed below (except as marked to the contrary
below)
[_] WITHHOLD AUTHORITY to vote for all nominees listed below
(INSTRUCTIONS: SHAREHOLDERS HAVE CUMULATIVE VOTING RIGHTS IN THE
ELECTION OF TRUSTEES. TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW. IN
THE EVENT THAT A SHAREHOLDER WITHHOLDS AUTHORITY TO VOTE FOR ONE OR MORE
NOMINEES, THAT SHAREHOLDER'S CUMULATIVE VOTES WILL BE DISTRIBUTED PRO
RATA AMONG THE NOMINEES FOR WHOM AUTHORITY IS NOT WITHHELD.)
Barry Sternlicht Madison Grose Jay Sugarman Eugene A. Gorab
J. D'Arcy Chisholm Ronald J. Consiglio Jack E. McDonald
If a nominee becomes unavailable for election or unable to serve as a
trustee, the votes will be cast for a person that will be designated by
the Board of Trustees of the Trust.
11. If the foregoing proposals are approved, a proposal to approve, among
other things, the Trust's transfer of a portion of its assets to a newly-formed
limited partnership of which the Trust will be the sole general partner and
Starwood Mezzanine Investors, L.P. will be the initial limited partner.
12. If the foregoing proposals are approved, a proposal to approve the Apex
Property Trust Trustees' 1996 Share Incentive Plan.
[_] For [_] Against [_] Abstain
13. If the foregoing proposals are approved, a proposal to approve the Apex
Property Trust 1996 Share Incentive Plan.
[_] For [_] Against [_] Abstain
14. A proposal to ratify the appointment of Deloitte & Touche LLP as the
independent auditors of the Trust for the fiscal year ending December 31, 1996.
[_] For [_] Against [_] Abstain
15. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting, or any adjournments
thereof.
- --------------------------------------------------------------------------------
(continued from other side)
This proxy, when properly executed, will be voted in the manner as directed
herein by the undersigned shareholder. UNLESS CONTRARY DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 THROUGH 14 AND IN ACCORDANCE WITH THE
UNANIMOUS DETERMINATION OF THE BOARD OF TRUSTEES AS TO OTHER MATTERS. The
undersigned shareholder may revoke this proxy at any time before it is voted by
delivering to the Secretary of the Trust either a written revocation of the
proxy or a duly executed proxy bearing a later date, or by appearing at the
Annual Meeting and voting in person. The undersigned shareholder hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement.
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. If you receive more than one proxy card, please sign and return ALL
cards in the enclosed envelope.
DATED:
------------------
----------------------------------------------
Signature
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Signature (if held jointly)
Please date and sign exactly as the name
appears hereon. When signing as executor,
administrator, trustee, guardian, attorney-in-
fact or other fiduciary, please give title as
such. When signing as corporation, please sign
in full corporate name by President or other
authorized officer. If you sign for a
partnership, please sign in partnership name
by an authorized person.
