<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------
FORM 10-K
(Mark One)
/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
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Commission file number 1-10093
RPS REALTY TRUST
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 13-6908486
- -------------------------------------------- ---------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
747 Third Avenue, New York, New York 10017
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 212-355-1255
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Shares of Beneficial Interest,
$0.10 Par Value Per Share New York Stock Exchange
Share Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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(TITLE OF CLASS)
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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 the 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. [ X ]
Aggregate Market Value of the voting shares held by non-affiliates of the
Registrant as of March 15, 1996: approximately $117,276,000.
Approximately 28,492,421 Shares of Beneficial Interest of the Registrant
were outstanding as of March 15, 1996.
DOCUMENTS INCORPORATED BY REFERENCE: Pages 27 to 33 of the Registrant's
definitive proxy statement dated March 28, 1996 relating to a special meeting of
shareholders to be held on April 29, 1996, attached to this annual report as
Exhibit 99.1 and incorporated by reference into Part I hereof.
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TABLE OF CONTENTS
NOTE: RPS Realty Trust and its consolidated subsidiaries are sometimes
referred to in this Annual Report on Form 10-K as "Registrant" or
the "Trust".
<TABLE>
<CAPTION>
Item Page
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<S> <C> <C>
PART I 1. Business 1
2. Properties 17
3. Legal Proceedings 17
4. Submission of Matters to a Vote of Security
Holders 17
PART II 5. Market for Registrant's Common Equity
and Related Stockholder Matters 17
6. Selected Financial Data 19
7. Management's Discussion and Analysis of Financial
Condition and Results of Operation 20
8. Financial Statements and Supplementary Data 25
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 25
PART III 10. Directors and Executive Officers of the Registrant 25
11. Executive Compensation 30
12. Security Ownership of Certain Beneficial Owners
and Management 43
13. Certain Relationships and Related Transactions 45
PART IV 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 48
SIGNATURES S-1
</TABLE>
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PART I
Item 1. Business.
General
RPS Realty Trust (the "Trust") is a Massachusetts business trust organized
pursuant to a Declaration of Trust declared and accepted in Boston,
Massachusetts on June 21, 1988, as amended and restated by an Amended and
Restated Declaration of Trust dated October 14, 1988 (as amended, the
"Declaration of Trust"). The principal office of the Trust is located at 747
Third Avenue, New York, New York 10017.
The Trust is the successor entity to Resources Pension Shares 1 ("RPS 1"),
Resources Pension Shares 2 ("RPS 2"), and Resources Pension Shares 3 ("RPS 3"),
each of which was a Massachusetts business trust (collectively, the "RPS
Trusts"), and Integrated Resources Pension Shares 4, a California limited
partnership ("RPS 4") (the RPS Trusts and RPS 4 are collectively referred to as
the "Predecessor Programs"). On December 28, 1988, the Trust (i) acquired the
assets, subject to the liabilities, of the Predecessor Programs (the "Exchange")
in exchange for issuing an aggregate of 28,576,022 shares of beneficial
interest, $.10 par value per share (the "Shares"), and (ii) acquired all of the
outstanding stock of RPS Advisory Corp., a Delaware corporation, in
consideration for a note in the original principal amount of $24,250,000. The
assets of the Predecessor Programs acquired in the Exchange consisted primarily
of mortgage loan investments. Immediately prior to the Trust's acquisition of
its stock, RPS Advisory Corp. acquired certain assets (consisting primarily of
10-year employment agreements with Herbert Liechtung, the Trust's former
President, and Joel M. Pashcow, the Trust's Chairman and President,
respectively, and advisory agreements with, and the managing general partner's
right to certain management, mortgage servicing, and incentive fees from, the
Predecessor Programs). The Trust's acquisition of such stock enabled the Trust
to internalize its management.
The Trust was organized for the purposes of qualifying as a real estate
investment trust ("REIT") under Sections 856-860 of the Internal Revenue Code of
1986, as amended (the "Code").
The RPS Trusts first elected to qualify as a REIT for the years ended December
31, 1982, 1983, and 1984, respectively. The Trust first elected to qualify as a
REIT for the year ended December 31, 1988 and intends to operate so as to
continue to qualify as a REIT. See "-- Qualification as a REIT."
The Trust is currently engaged in (a) the business of managing an
eight-mortgage loan portfolio (the "Mortgage Assets"), which is comprised
principally of participating mortgage loans which provide for, in addition to
payment of interest, arrangements permitting the Trust to share in increases in
gross revenues from and/or the appreciation of the underlying properties and (b)
through its wholly-owned subsidiaries, owning and operating eight retail
properties, each of which was subject to mortgages held by the Trust, which
properties typically were acquired by the Trust as a result of negotiations with
certain of the Trust's borrowers and/or in connection with (or in lieu of)
foreclosure proceedings.
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Recent Developments; Status of Ramco Acquisition
Structure of the Ramco Acquisition
----------------------------------
On December 27, 1995, the Trust, Ramco-Gershenson, Inc., a Michigan
corporation ("Ramco"), the stockholders of Ramco and certain affiliates of
Ramco entered into the Amended and Restated Master Agreement, as amended by the
First Amendment, dated as of March 19, 1996, to the Amended and Restated Master
Agreement (as amended, the "Amended Master Agreement"), relating to the
acquisition by the Trust of certain stock interests in Ramco and substantially
all of the real estate assets of Ramco's affiliates (the "Ramco Acquisition").
Pursuant to the Ramco Acquisition, the Trust will transfer to
Ramco-Gershenson Properties, L.P. (the "Operating Partnership") (via
contribution or merger) six properties (the "RPS Properties") containing an
aggregate of approximately 931,000 square feet of gross leasable area ("GLA")
and $68,000,000 in cash (the "RPS Cash" and, together with the RPS Properties,
the "RPS Contribution Assets"), and will receive a 1% interest in the Operating
Partnership, as a general partner, and, initially, an approximately 74%
interest in the Operating Partnership, as a limited partner. In addition, the
current owners of the Ramco Properties described below and, if applicable,
their respective individual partners, as well as Ramco's shareholders
(collectively, the "Ramco Group") have transferred or will transfer (via
contribution or merger) to the Operating Partnership the following: (i) their
interests in 22 shopping center and retail properties (the "Ramco Properties"
and together with the RPS Properties, the "Properties") which contain an
aggregate of approximately 5,114,000 square feet of total GLA, of which
approximately 1,408,000 square feet will be owned by certain anchors and
approximately 3,706,000 square feet will be owned by the Operating Partnership,
(ii) 100% of the non-voting common stock and 5% of the voting common stock
(collectively, the "Ramco Stock") in Ramco (representing in excess of 95% of
the economic interests in Ramco), (iii) rights in and/or options to acquire
certain development land totalling approximately 155 acres (the "Development
Land"), (iv) options to acquire Ramco and its affiliates' interest in six
shopping center properties (the "Option Properties"), and (v) five outparcels
totalling approximately 7.1 acres (the "Outparcels," and together with the
Ramco Properties, the Ramco Stock, the Development Land and the Option
Properties, the "Ramco Contribution Assets").
Pursuant to the Ramco Acquisition, the Ramco Group will receive, in the
aggregate, an approximately 25% interest (approximately 2,377,000 Units) in the
Operating Partnership (which 25% interest has an approximate aggregate value of
$38,030,000, based on an assumed value of $16.00 per Unit), and the Trust will
assume approximately $184,015,000 of secured indebtedness, as of December 31,
1995, on the Ramco Properties (excluding principal amortization on such
indebtedness since December 31, 1995 and including a pro rata share of the debt
encumbering two 50%-owned properties). If certain leasing plans with respect to
one of the Ramco Properties are fulfilled, the aggregate percentage interest in
the Operating Partnership to be received by the Ramco Group may be increased to
a maximum of approximately 29% (approximately 2,912,500 Units) (which 29%
interest has an approximate aggregate value of $46,600,000, based on an assumed
value of $16.00 per Unit). The number of Units to be received by the Ramco Group
will not fluctuate with changes in the price of the Trust's Shares. Subject to
certain limitations, the Units will be exchangeable into Shares of the Trust on
a one-for-one basis beginning one year after the closing of the Ramco
Acquisition. The Trust is utilizing the Operating Partnership to effectuate the
Ramco Acquisition in part to permit the Ramco Group to defer all or part of the
tax consequences associated with the Trust's acquisition of the Ramco
Properties. The Trust believes that this structure was an important factor in
the Trust's ability to reach an agreement with Ramco and the Ramco Group to
acquire the Ramco Contribution Assets and that the ability to offer Units on a
tax deferred basis to potential sellers of retail properties may give the Trust
an important competitive advantage in making future acquisitions.
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The purchase price for the Ramco Contribution Assets was the result of
arm's-length negotiations between the Trust and the Ramco Group. In determining
the purchase price paid, the Trust considered (i) the relative contribution of
the RPS Contribution Assets and the Ramco Contribution Assets, respectively, to
the Trust's pro forma Funds from Operations, (ii) the implied capitalization
rates of the estimated net operating income of the RPS Properties and the Ramco
Properties, and (iii) the value of the RPS Contribution Assets. The net book
value of the Ramco Contribution Assets that will be acquired by the Trust in the
Ramco Acquisition as of September 30, 1995 is approximately ($57,576,000)
(exclusive of capitalized loan origination costs and prepaid transaction costs)
as compared to (i) a pro forma net book value as of September 30, 1995 of
approximately $38,030,000 in Units, (ii) the assumption by the Trust of
$184,015,000 of secured indebtedness, as of December 31, 1995, in the Ramco
Properties (excluding principal amortization on such indebtedness since December
31, 1995 and including a pro rata share of the debt encumbering two 50%-owned
Ramco Properties), (iii) the assumption and repayment of $3,200,000 of unsecured
indebtedness, (iv) $500,000 in base annual salary payments, (v) 120,000 share
purchase options (at an exercise price of $16.00 per share), and (vi)
approximately $66,502,000, as of December 31, 1995, in personal loan guarantee
releases that will be received directly or indirectly by each of Joel, Dennis,
Richard and Bruce Gershenson and Michael Ward (collectively, the "Ramco
Principals"), who are jointly and severally liable with respect thereto, in
connection with the Ramco Acquisition.
Upon consummation of the Ramco Acquisition, Joel Gershenson, Ramco's
President, will become Chairman and a trustee of the Trust and Dennis
Gershenson, Ramco's Vice President-Finance, will become President and Chief
Executive Officer and a trustee of the Trust. See Part III, Item 10, "Directors
and Executive Officers of the Trust" below. Richard Gershenson, Bruce
Gershenson and Michael Ward, currently members of Ramco's senior management,
will also serve as executive officers of the Trust. It is also anticipated that
all of Ramco's approximately 146 employees will become employees of the Trust.
The Ramco Principals will conduct all of their future shopping center
activities through the Operating Partnership and will collectively directly or
indirectly own (through their ownership of interests in the Operating
Partnership which are exchangeable into shares of the Trust), an approximately
18% interest (approximately 1,806,000 Units) in the equity of the Trust,
assuming the conversion of all outstanding loans made by the Ramco Group into
Units and that certain leasing plans with respect to one of the Ramco
Properties are fulfilled (which 18% interest has an approximate aggregate value
of $28,900,000 based on an assumed value of $16.00 per Unit). Upon consummation
of the Ramco Acquisition, the name of the Trust will be changed to
Ramco-Gershenson Properties Trust in order to capitalize on the reputation of
Ramco in the shopping center industry, and the Trust will move its headquarters
to Southfield, Michigan. Consummation of the Ramco Acquisition could be deemed
to constitute a change of management control of the Trust.
The Trust believes that the Ramco Acquisition will accomplish the Trust's
previously announced intention to become a self-administered, self-managed and
fully-integrated real estate investment trust principally engaged in the
business of owning, developing, acquiring and managing shopping center
properties. Upon completion of the Ramco Acquisition, the Trust will own
interests in a portfolio of 28 Properties, 26 of which will be owned 100% by the
Operating Partnership and the remaining two of which will be owned 50% (through
managing general partner interests) by the Operating Partnership, with an
aggregate of approximately 6,045,000 square feet of GLA, of which 1,408,000
square feet will be owned by certain Anchors and 4,637,000 square feet will be
owned by the Operating Partnership.
Certain members of the Trust's management have substantial interests in
the transactions contemplated by the Ramco Acquisition, which interests are
described below under Part III, Item 13, "Certain Relationships and Related
Transactions."
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Operations of the Company After the Ramco Acquisition
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After the consummation of the Ramco Acquisition, the Trust will conduct
all of its business through the Operating Partnership. The Trust will be the
sole general partner of, and will have exclusive power to manage and conduct
the business of, the Operating Partnership. The Operating Partnership will hold
substantially all of the Trust's interests in the Properties, either directly
or indirectly through subsidiaries (including subsidiary property
partnerships). The Operating Partnership will also own 100% of the non-voting
common stock and 5% of the voting common stock of Ramco. Such stock ownership
will enable the Trust to receive in excess of 95% of the dividend and
liquidating distributions of Ramco. The Trust's property management operations
will be conducted through Ramco to facilitate compliance with certain REIT
requirements under the Internal Revenue Code of 1986, as amended (the "Code").
The Ramco Acquisition will be accounted for as a purchase for accounting and
financial reporting purposes. After the closing of the Ramco Acquisition, the
income attributable to the ownership of the Ramco Stock will be accounted for
as equity income.
Business Objectives
-------------------
The Trust's business objectives and operating strategy following
consummation of the Ramco Acquisition will be to increase cash available for
distribution per share. The Trust expects to achieve internal growth and to
enhance the value of the Properties by increasing their rental income over time
through (i) contractual rent increases, (ii) the leasing and releasing of
available space at higher rental levels, and (iii) the selective renovation of
the Properties. The Trust expects to achieve external growth through the
development and selective acquisition of shopping center properties and the
expansion and redevelopment of existing Properties. The Trust expects to
initially fund its growth by utilizing a $50 million revolving line of credit.
Replacement of Trustees; Management
-----------------------------------
Following the closing of the Ramco Acquisition, four of the nine current
members of the Trust's Board of Trustees (the "RPS Board") will resign and will
be replaced by four individuals designated by Ramco. The Ramco designees will be
Joel Gershenson, who will serve as Chairman of the Board, Dennis Gershenson,
Mark K. Rosenfeld and one other individual to be designated (that is reasonably
acceptable to the Trust) who will both be independent of Ramco, the Trust and
their respective affiliates. Herbert Liechtung, Joel M. Pashcow, Stephen R.
Blank and Arthur H. Goldberg will remain as Trustees of the Trust. In addition,
Robert A. Meister, who is independent of Ramco, the Trust and their respective
affiliates, has been designated by the Trust and will become a member of the RPS
Board prior to the closing of the Ramco Acquisition, and will serve in such
capacity following such closing. The RPS Board will also appoint a non-voting
Advisory Committee, consisting of Messrs. Michael A. Ward, Richard Gershenson
and Bruce Gershenson, which will be available to consult with and advise the
Board of Trustees. See Part III, Item 10, "Directors and Executive Officers of
the Trust" below.
Upon consummation of the Ramco Acquisition, the day-to-day operations of
the Trust will be managed by the Ramco Principals and the other members of the
Ramco management team. Each of the five Ramco Principals will become an
executive officer of the Trust.
Reverse Split
-------------
As a condition to the consummation of the Ramco Acquisition, the Trust
will combine its Shares by way of a 1 for 4 reserve stock split (the "Reverse
Split"). The purpose of the Reverse Split is to increase the liquidity and
marketability of the Shares by increasing the trading prices per Share and
attracting investors and analysts who would otherwise be reluctant to deal in a
lower-priced stock. Fractional shares resulting from the Reverse Split will be
redeemed for cash. Following the Reverse Split, a letter of transmittal will be
mailed to shareholders containing instructions relating to the surrender of
outstanding certificates representing Shares in exchange for certificates
representing post Reserve Split shares.
Spin-Off Transaction
--------------------
Simultaneously with the consummation of the Ramco Acquisition, the Trust
will transfer the remaining loans in its mortgage loan portfolio (which
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currently consists of eight mortgage loans) and its interest in two real
properties, as well as certain other assets, which are anticipated to be a 20%
limited partnership interest in a limited partnership that owns an 18-story
building with approximately 138,000 square feet of leasable space located in
Chicago, Illinois, furniture, fixtures and equipment and cash (the "Spin-Off
Company Assets") (which collectively have a net book value as of September 30,
1995 of approximately $46,118,000), to a newly-formed Maryland real estate
investment trust (the "Spin-Off Company"). Thereafter, the Trust will make a
distribution to its shareholders (the "Spin-Off Transaction") of one share of
beneficial interest in the Spin-Off Company (collectively, the "Spin-Off Company
Shares") for every eight Shares held by each such shareholder (which, after
giving effect to the Reverse Split, equates to a distribution ratio of one
Spin-Off Company Share for every two Shares). As a result of the Ramco
Acquisition and the Spin-Off Transaction, the Trust's shareholders will own
shares in two separate companies, the Trust, an equity shopping center REIT,
and the Spin-Off Company, a finite life REIT. The Spin-Off Company's objectives
will be to reduce to cash or cash equivalents the Spin-Off Company Assets as
soon as practicable after the closing of the Ramco Acquisition (but not later
than 18 months after the closing of the Ramco Acquisition, unless on or before
such date the holders of at least two-thirds in interest of its shareholders
approve the extension of such date or such date is automatically extended
without a shareholder vote because a contingent tax liability relating to the
Trust that has been assumed by the Spin-Off Company has not been actually
resolved) and either (i) make a liquidating distribution to its shareholders or
(ii) agree to merge or combine operations with another real estate entity, in
either case, within such 18-month period. There can be no assurance, however
that the Spin-Off Company will be able to achieve these objectives. It is the
intention of the Spin-Off Company to seek shareholder approval of the extension
of its 18-month term only in the event the Spin-Off Company is unable to
achieve its objectives within such period. Because, in connection with the
Spin-Off Transaction, the Spin-Off Company will assume certain potential tax
liabilities involving the Trust, the Spin-Off Company will not liquidate or
merge or combine operations with another real estate entity until such claims,
if any, are actually resolved.
In connection with the Spin-Off Transaction and pursuant to the Amended
Master Agreement, the Spin-Off Company will assume all potential tax liability
arising out of the United States Internal Revenue Service's (the "IRS")
examination of the Trust's 1991-1994 tax returns and the facts and
circumstances relating to the fact that in the third quarter of 1994 the Trust
had more than 25% of the value of its gross assets in treasury bill repurchase
obligations which the IRS may view as a non-qualifying asset for purposes of
satisfying the asset qualification test applicable to REITs based on a Revenue
Ruling published in 1977 (collectively, the "RPS Tax Issues"). Notwithstanding
the assumption of the potential tax liability by the Spin-Off Company, a
special committee of the RPS Board will control the settlement and/or
disposition of the RPS Tax Issues. It is possible that in connection with the
resolution of the RPS Tax Issues, the IRS could disallow certain deductions
previously taken by the Trust which, in turn, would result in a corresponding
increase in the Trust's taxable income for the tax years in respect of which
such deductions were previously claimed. Because a REIT is required to
distribute at least 95% of its REIT taxable income in each year, the Trust, in
order to preserve its status as a REIT, would in such event declare and pay to
its shareholders at the time a so-called "deficiency dividend." (A deficiency
dividend is a special dividend permitted by the Code that relates back to the
year that a deficiency was determined in order to satisfy the requirement that
a REIT distribute at least 95% of taxable income.) Any funds needed to pay the
deficiency dividend would be provided by the Spin-Off Company.
For a description of the background and structure of the Ramco Acquisition,
see pages 27 to 33 of the Trust's definitive proxy statement, dated and filed
with the Securities and Exchange Commission on March 28, 1996, copies of which
are attached to this annual report as Exhibit 99.1 and are incorporated herein
by reference.
Additional information regarding the Ramco Acquisition and the transactions
related thereto is included in the Trust's proxy statement, dated and first
mailed to shareholders on March 29, 1996 (the "Proxy Statement"), pursuant to
which the Trust seeks the approval of its shareholders of the Ramco Acquisition
and certain related transactions at a special meeting of shareholders scheduled
for April 29, 1996. The Board of Trustees has fixed the close of business on
March 21, 1996 as the record date for the determination of shareholders entitled
to notice of and to vote at the special meeting or any adjournment thereof.
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Investments
As of December 31, 1995, the Trust had 10 mortgage loans outstanding
reflecting total funds advanced of $46,254,601 (before deducting allowance for
possible loan losses of $(10,231,336). In addition, as of December 31, 1995, the
Trust, through its wholly-owned subsidiaries, owned eight real properties with a
carrying value, net of accumulated depreciation, of $55,299,163. During the
Trust's fiscal year ended December 31, 1995, the Trust's principal business
consisted of managing its mortgage loan portfolio, and, through its wholly-owned
subsidiaries, operating the real properties described herein.
Mortgage Loan Investments
-------------------------
During the year ended December 31, 1995, the Trust received aggregate net
proceeds of $3,046,000 from the prepayment and/or partial pay-down of two
mortgage loans. The proceeds consisted, in the aggregate, of the following
amounts: repayment of $3,025,000 of principal and payment of $21,000 of current
interest.
The following table summarizes the Trust's mortgage loan portfolio as of
December 31, 1995:
<TABLE>
<CAPTION>
Average Annual
Total Interest Rate(3)
Principal Net Date ---------------------
Amount of RPS Funds Allowance Accrued Carrying Funded (or Maturity Current Accrued
Property(1)(2) Loan Advanced(4) for loss Interest Amount(5) Modified) Date Interest Interest(6)
- -------------------- ----------- ----------- ------------- ---------- ----------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers
Mt. Morris Commons
Genessee Township,
MI(7) . . . . . . $ 2,700,000 $ 2,700,000 $ (1,000,000) $ 52,923 $ 1,752,923 7/86 6/99 10.50% 2.00%
Copps Hills Plaza
Ridgefield,
CT(7) . . . . . . 9,752,284 3,563,948 (350,000) -- 3,213,948 9/92 7/96 6.00% .50%
Branhaven Plaza
Shopping Center
Branford, CT . . . 8,714,313 2,800,000 -- 345,998 3,145,998 11/95 8/96 14.25% --
Holiday Park
Shopping Center
Merrick, NY(8). . 5,966,564 1,916,564 -- 67,080 1,983,644 12/92 12/95 9.75% --
1733 Massachusetts
Avenue
Lexington, MA . . 2,200,000 2,200,000 -- 335,127 2,535,127 8/87 6/99 8.58% 1.42%
1-5 Wabash Ave.
Chicago, IL (7)(9) 2,850,000 2,850,000 (650,000) -- 2,200,000 7/93 3/96 5.00% --
Hylan Plaza
Shopping Center
Staten Island,
NY(7) . . . . . . 25,000,000 25,000,000 (6,000,336) 6,275,000 25,274,664 1/94 1/01 7.50% 4.50%
Industrial
Simmons Manufacturing
Warehouse
Jacksonville,
FL(10) . . . . . . 1,500,000 1,500,000 -- 128,886 1,628,886 8/86 8/01 10.00% 2.00%
Office Buildings
Rector Building
New York, NY(7). . 3,255,596 3,255,596 (2,000,000) -- 1,255,596 3/94 3/04 0 6.00%
NCR Building
Century City,
CA(7)(11). . . . . 4,818,493 468,493 (231,000) -- 237,493 7/93 12/95 10.00% --
----------- ----------- ------------- ---------- -----------
TOTALS . . . $66,757,250 $46,254,601 $(10,231,336) $7,205,014 $43,228,279
=========== =========== ============= ========== ===========
</TABLE>
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(1) Copps Hill Plaza, Branhaven Plaza, Holiday Park, and NCR are wraparound
mortgage loans,and the remaining six loans are first mortgage loans.
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(2) On March 26, 1996, the Trust received proceeds of $200,000 in
satisfaction of the Woodbridge Center mortgage loan that was written off
in 1993 as uncollectible.
(3) In addition to fixed interest, the Trust is entitled to contingent
interest on certain loans in an amount equal to a percentage of the gross
rent received by the borrower from the property securing the mortgage
above a base amount, payable annually, and additional contingent interest
based on a predetermined multiple of the contingent interest or a
percentage of the net value of the property at such date payable at
maturity.
(4) Payments on the amounts advanced by the Trust are interest only until
maturity. These amounts represent the outstanding principal balances and
do not include accrued interest.
(5) Because the determination of the collectibility of loans is based upon
future economic events, no assurance can be given that the amounts
ultimately realized at disposition will not be less than net carrying
values. See Note 2(g) of Notes to the Consolidated Financial Statements.
(6) Payments of accrued interest will be due and payable at maturity.
(7) These loans are currently in default (three monthly payments or more) or
are otherwise considered by the Trust to be "problem loans."
(8) On January 19, 1996, the Trust received proceeds of $2,008,560 from the
repayment of the Holiday Park Shopping Center loan. The proceeds consisted
of the repayment of the principal loan balance of $1,916,564, current
interest of $24,916 and deferred interest of $67,080.
(9) On March 7, 1996, the Trust reached an agreement in principal with the
borrower under the 1-5 Wabash loan for such borrower to acquire the
mortgage for $2,200,000 in cash. The transaction is subject to the
execution of a definitive agreement relating thereto and no assurance can
be given that such a definitive agreement will be entered into or that the
proposed transaction will be consummated.
(10) On February 1, 1996, the Trust received proceeds of $1,512,500 from the
repayment of the Simmons Manufacturing Warehouse loan. The proceeds
consisted of the repayment of the principal loan balance of $1,500,000 and
the current interest of $12,500.
(11) The NCR Building loan matured on December 31, 1995 and is currently in
default. The Trust has initiated foreclosure proceedings with respect to
such loan.
As of December 31, 1995, the Mt. Morris, Copps Hill Plaza, 1-5
Wabash, NCR, Rector and Hylan mortgage loans were in arrears (three
monthly payments or more) or were otherwise considered by the Trust to be
"problem loans." At December 31, 1995, the Trust was not accruing current
and accrued interest on the Mt. Morris loan. In addition, as of such date,
the Trust was not accruing deferred interest on the Hylan Plaza Shopping
Center, Copps Hill Plaza and Rector mortgage loans described above.
As of March 15, 1996, the Trust had six loans (including loans relating to
certain of the properties referred to above) that were in arrears (three monthly
payments or more) or otherwise considered to be "problem loans" by the Trust.
The aggregate principal amounts of these loans (before deducting loan loss
allowances), together with receivables relating to such loans comprised of
accrued interest and payments made on behalf of the borrowers for mortgage
payments relating to such properties, totalled approximately $44,166,000,
representing approximately 25% of the Trust's invested assets and approximately
89% of the Trust's funds invested in mortgage loans, before taking into account
allowance for possible loan losses. At March 15, 1996, the Trust was not
7
<PAGE> 11
accruing current and deferred interest on one of the above-mentioned loans, in
the aggregate approximate principal amount of $2,700,000; in addition, as of
such date, the Trust was not accruing deferred interest on three of the
above-mentioned loans in the aggregate approximate principal amount of
$31,820,000.
Real Property Investments
The following table and notes thereto describe the Trust's equity
investments in real properties as of December 31, 1995:
<TABLE>
<CAPTION>
Average
Base
Approximate Rental
Approximate Based Revenue/ Year
% of GLA Rental Leased Ending
Leased Revenue Sq. Ft. December
as of as of as of 31, 1995
Property Type Of Year Total December December December Percentage
Name Property Acquired GLA 31, 1995 31, 1995 31, 1995(1) Rent
- -------- -------- -------- ---- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sunshine Plaza Community 1991 241,000 88% $ 854,000 $4.02 $196,117
Shopping Center(2) Center
Tamarac, Florida
Crofton Community 1991 250,000 98 1,306,000 5.36 65,113
Plaza Center
Shopping
Center
Crofton, Maryland
Trinity Neighborhood 1992 51,000 74 252,000 6.51 0
Corners Center
Shopping
Center
Pound Ridge, New York
Commack Single Tenant 1992 47,500 100 216,000 4.35 119,122
Property Retail
Commack, New York
Lantana Neighborhood 1993 117,000 94 618,000 5.52 101,917
Shopping Center
Center
Lantana, Florida
9 North Retail 1993 52,000 0 0 0 0
Wabash Building
Avenue(3)
Chicago, Illinois
Chester Community 1994 223,000 100 2,167,000 9.72 133,064
Shopping Center
Center
Chester, New Jersey
Norgate Community 1994 208,000 76 547,000 3.46 6,973
Shopping Center
Center(3)
Indianapolis, Indiana
Total 1,189,500 $5,960,000 $5.78 $622,506
========= =========== ===== ========
</TABLE>
- -----------------
(1) The calculation of total average base rental revenue was determined by
taking the total base rental revenue as of December 31, 1995 and dividing
such amount by the occupied GLA.
8
<PAGE> 12
Sunshine Plaza Shopping Center. The Sunshine Plaza Shopping Center is a
one-story shopping center located in Tamarac (Broward County), Florida. The
property was acquired on December 19, 1991 by Sunshine Plaza Shops, Inc., a
wholly-owned subsidiary of the Trust. The shopping center contains approximately
241,000 square feet of leasable space, approximately 88% of which was leased as
of December 31, 1995. Major tenants (i.e., tenants who accounted
for 10% or more of the revenues at such property during 1995) are J. Byrons
department store, Publix supermarket, L. Luria & Sons and Eagle Fashions. These
four tenants lease approximately 50,423, 38,320, 39,249 and 23,124 square feet,
respectively, under leases which expire in November 1996, February 2001, January
1999 and December 2003, respectively. The J. Byrons lease contains three 5-year
tenant renewal options and both the Publix lease and the Eagle Fashions' lease
contain two 5-year tenant renewal options. On April 1, 1996, Eagle Fashions
vacated its space under its lease which provided for a base rental of
approximately $147,500 per year, at which time Eagle Fashions paid the Trust
approximately $120,000 pursuant to a lease termination agreement which provides
for the Trust's buyout of the remainder of the lease term. Leases for
approximately 77,158 square feet are due to expire on or prior to December 31,
1996. The average base rent per square foot paid by tenants at such property as
of December 31, 1995, excluding percentage rent and similar provisions, was
$4.02 ($4.80, including percentage rent based on 1995 revenues).
CROFTON PLAZA SHOPPING CENTER. The Crofton Plaza Shopping Center is a one-story
shopping center located in Crofton (Anne Arundel County), Maryland. The property
was acquired on May 1, 1991 by Crofton Plaza, Inc., a wholly-owned subsidiary of
the Trust. The shopping center contains approximately 250,000 square feet of
leasable space, approximately 98% of which was leased as of December 31, 1995.
Major tenants (i.e., tenants who accounted for 10% or more of the revenues at
such property during 1995) are K-Mart department store, Drug Emporium and Metro
Food Mart. These three tenants lease approximately 95,810, 30,429 and 54,800
square feet, respectively, under leases which expire in June 2000, September
2000 and August 2005, respectively. The Metro Food Mart lease provides for four
5-year tenant renewal options; the Drug Emporium and K-Mart leases each contain
ten 5-year tenant renewal options. Leases for approximately 1,500 feet are due
to expire on or prior to December 31, 1996. The average base rent per square
foot paid by tenants at such property as of December 31, 1995, excluding
percentage rent and similar provisions, was $5.36 ($5.62, including percentage
rent based on 1995 revenues).
TRINITY CORNERS SHOPPING CENTER. The Trinity Corners Shopping Center is a
one-story shopping center located in Pound Ridge (Westchester County), New
York. The property was acquired pursuant to a bankruptcy court auction sale on
December 30, 1992 by Trinity Shops, Inc., a wholly-owned subsidiary of the
Trust. The shopping center contains approximately 51,000 square feet of leasable
space, approximately 74% of which was leased as of December 31, 1995, and was
modernized during 1994. Major tenants (i.e., tenants who accounted for 10% or
more of the revenues at such property during 1995) are Scotts Corner Market and
Scotts Corner Pharmacy. These tenants lease approximately 28,515 and 4,406
square feet, respectively, under leases which expire in May 2000 and December
2000, respectively. There are no leases which are due to expire on or prior to
December 31, 1996. The average
9
<PAGE> 13
base rent per square foot paid by tenants at such property as of December 31,
1995 was $6.51.
COMMACK PROPERTY. The Commack Property is a one-story free-standing building of
approximately 47,500 square feet of leasable space located in Commack (Suffolk
County), New York. The property was acquired on December 30, 1992, by The
Commack Site, Inc., a wholly-owned subsidiary of the Trust. The entire Commack
Property is leased to Toys R Us pursuant to a lease which expires in January
2002. The lease provides for four 5-year tenant renewal options.
LANTANA SHOPPING CENTER. The Lantana Shopping Center is a one-story shopping
center located in Lantana (Palm Beach County), Florida. The property was
acquired on March 5, 1993 by Lantana Plaza Shops, Inc., a wholly-owned
subsidiary of the Trust. The shopping center contains approximately 117,000
square feet of leasable space, approximately 94% of which was leased as of
December 31, 1995. Major tenants (i.e., tenants who accounted for 10% or more of
the revenues at such property during 1995) are Publix supermarket, Pet
Supermarket and Beall's Outlet. These three tenants lease approximately 38,884,
11,000 and 11,832 square feet, respectively, under leases which expire in August
1999, June 1999 and April 1998, respectively. The Publix lease contains one
5-year tenant renewal option, the Pet Supermarket lease contains three 5-year
tenant renewal options and the Beall's lease contains four 4-year tenant renewal
options. Leases for approximately 1,600 feet are due to expire on or prior to
December 31, 1996. The average base rent per square foot paid by tenants at such
property as of December 31, 1995, excluding percentage rent and similar
provisions, was $5.52 ($6.39, including percentage rent based on 1995 revenues).
9 NORTH WABASH AVENUE. The 9 North Wabash property is a six-story building with
approximately 52,000 square feet of leasable space located in Chicago, Illinois.
The property was acquired on July 7, 1993 by 9 North Wabash Corp., a
wholly-owned subsidiary of the Trust. The entire Wabash property was leased to
Lane Bryant pursuant to a lease which expired in June 1995. However, on July 11,
1995, Lane Bryant and RPS entered into an agreement pursuant to which Lane
Bryant remained in the property through December 31, 1995, at a reduced rental
rate equal to 7% of gross sales. The property is currently vacant. The Trust has
entered into an exclusive sales and lease arrangement with a local broker to
sell or lease this property. As of December 31, 1995, the Trust recognized an
impairment of $800,000 to decrease the property's carrying value to more
closely approximate the Trust's estimate of its fair market value.
CHESTER SHOPPING CENTER. The Chester Shopping Center is a one- story shopping
center located in Chester (Morris County), New Jersey. The property was acquired
on July 12, 1994 by Chester Plaza Shops, Inc., a wholly-owned subsidiary of the
Trust. The
10
<PAGE> 14
shopping center contains approximately 223,000 square feet of leasable space,
approximately 100% of which was leased as of December 31, 1995. The major tenant
(i.e., tenant who accounted for 10% or more of the revenues at such property
during 1995) is Village Supermarket (Shop Rite). This tenant leases
approximately 60,900 square feet pursuant to an amended lease which expires in
December 2007. The lease contains two 10-year renewal options. Leases for
approximately 32,712 feet are due to expire on or prior to December 31, 1996.
The average base rent per square foot paid by tenants at such property as of
December 31, 1995, excluding percentage rent and similar provisions, was $9.72
($10.32 including percentage rent based on 1995 revenues).
NORGATE SHOPPING CENTER. The Norgate Shopping Center is a one-story
shopping center located in Indianapolis (Marion County), Indiana. The property
was acquired on June 30, 1995 by Norgate Shops, Corp., a wholly-owned subsidiary
of the Trust. The shopping center contains approximately 208,000 square feet of
leasable space, approximately 76% of which was leased as of December 31, 1995.
Major tenants (i.e., tenants who accounted for 10% or more of the revenues at
such property during 1995) are Kohl's Oakland, Inc., a department store and
retail chain, and Consolidated Stores, Inc., a discount variety store retail
chain. These two tenants lease approximately 65,000 and 37,300 square feet. The
Kohl's Oakland lease expires in January 1999 and the Consolidated Stores lease
is month-to-month. The Kohl's lease contains three 5-year tenant renewal
options. Leases for approximately 29,540 feet are due to expire on or prior to
December 31, 1996. The average base rent per square foot paid by tenants at such
property as of December 31, 1995 excluding percentage rent and similar
provisions was $3.46 ($3.50 including percentage rent based on 1995 revenues).
In addition, on February 5, 1996, RPS signed a non-binding letter of intent
for the sale of the Norgate property for a purchase price of $4,800,000 in
cash. The sale is subject to the negotiation and execution of a definitive
purchase agreement and the satisfactory completion by the purchaser of a due
diligence review. No assurance can be given that a definitive purchase
agreement will be entered into or that the proposed sale will be consummated.
As indicated above, certain of the leases at the shopping centers owned by
the Trust's subsidiaries also provide for the payment of additional "percentage
rent," which is calculated as a percentage of a tenant's gross sales above
predetermined thresholds.
Each of the properties owned by the Trust as of December 31, 1995 was
subject to a mortgage loan held by the Trust, and each
11
<PAGE> 15
of such loans, other than with respect to the Lantana Shopping Center property,
while consolidated for accounting purposes, has not been extinguished of record.
The properties are managed by the wholly-owned subsidiaries of the Trust which
own such properties (or, in the cases of the Chester and Norgate shopping
centers, by third-party property managers under the supervision of the Trust's
subsidiaries). The Trust may, in its discretion, advance costs and expenses
incurred in connection with the operation of properties owned by its
wholly-owned subsidiaries.
Consummation of the Ramco Acquisition and the related transactions would
result in the Trust having substantially all of its assets invested in real
properties, primarily shopping center properties. In making equity investments,
the Trust is subject to the risks inherent in the ownership of commercial
properties, including, without limitation, fluctuations in occupancy rates and
operating expenses, variations in rental schedules, the character of the tenancy
and the possible effect on the cash flow from a property if its tenants incur
financial difficulties. Such events may, in turn, be adversely affected by
general and local economic conditions, interest rate levels, the availability of
financing, the supply of and demand for properties of the types in which the
Trust invests, environmental laws and regulations, zoning laws, federal and
local rent controls, other laws and regulations and real property tax rates.
Certain expenditures associated with real estate equity investments (principally
real estate taxes and maintenance costs) are not necessarily decreased by events
adversely affecting the Trust's income from such investments. Thus, the cost of
operating a property may exceed the rental income earned thereon, and the Trust
may have to advance funds in order to protect its investment or may be required
to dispose of the property at a loss. For these and other reasons, no assurance
of profitable operation can be made.
As a condition to the Ramco Acquisition, and in an effort to complete
the transformation of the Trust from primarily a mortgage REIT to an equity
REIT, RPS has agreed to transfer or otherwise dispose of the Spin-Off Company
Assets, which include eight mortgage loans (as discussed and described above),
and interests in the 9 North Wabash Avenue property and Norgate Shopping Center
property. Accordingly, simultaneously with the consummation of the Ramco
Acquisition, the Trust will transfer to the Spin-Off Company the Spin-Off
Company Assets.
The Spin-Off Company's principal investment objective will be to
maximize shareholder value by reducing the Spin-Off Company Assets to cash or
cash equivalents. As part of its plan to reduce the Spin-Off Company Assets to
cash or cash equivalents, the Spin-Off Company intends, among other things, to
(i) contact borrowers under the mortgage loans to explore possible prepayments,
(ii) contact strategic buyers of the Spin-Off Company's assets regarding
possible portfolio sales transactions, and (iii) list the Spin-Off Company's
assets for sale with qualified real estate brokers. The Spin-Off Company
expects that it will be able to orderly reduce to cash or cash equivalents the
Spin-Off Company Assets within twelve months after the Spin-Off Company
Transaction, but in no event later than eighteen months after the Spin-Off
Company Transaction, subject to extension as described below. No assurance can
be given that such objective will be achieved. The Spin-Off Company expects to
invest the net proceeds of such sales in short-term or temporary investments,
such as pass-through mortgage-backed certificates, mortgage participation
certificates and mortgage-backed securities (or similar investment products),
all or some of which investments may be guaranteed by Ginnie Mae, Fannie Mae or
Freddie Mac. Unless otherwise approved by its shareholders, the Spin-Off
Company does not expect to acquire additional mortgage loans or properties.
Qualification as a REIT
The Trust first elected to qualify as a REIT for the year ended December
31, 1988. The Trust's policy is to qualify as a REIT for federal income tax
purposes. If the Trust so qualifies, amounts paid by the Trust as distributions
to its shareholders will not be subject to corporate income taxes. For any year
in which the Trust does not meet the requirements for electing to be taxed as a
REIT, it will be taxed as a corporation.
The requirements for qualification as a REIT are contained in sections
856-860 of the Code and the regulations issued thereunder. The following
discussion is a brief summary of some of those requirements. Such requirements
include certain provisions relating to the nature of a REIT's assets, the
sources of its income, the ownership of its stock, and the distribution of its
income. Among other things, at the end of each fiscal quarter, at least 75% of
the value of the total assets of the
12
<PAGE> 16
Trust must consist of real estate assets (including interests in mortgage loans
secured by real property and interests in other REITs) as well as cash, cash
items and government securities (the "75% Asset Test"). There are also certain
limitations on the amount of other types of securities which can be held by a
REIT. Additionally, at least 75% of the gross income of the Trust for the
taxable year must be derived from certain sources, which include "rents from
real property," and interest secured by mortgages on real property. An
additional 20% of the gross income of the Trust must be derived from these same
sources or from dividends, interest from any source, or gains from the sale or
other disposition of stock or securities or any combination of the foregoing.
There are also restrictions on the percentage of gross income derived from the
sale or disposition of certain assets within certain time periods.
A REIT is also required to distribute at least 95% of its REIT Taxable
Income (as defined in the Code) to its shareholders. A significant number of the
Trust's mortgage loans do not require the current payment of a portion of the
interest as it accrues. Because, for federal income tax purposes, the Trust must
include such accrued interest in income but will not receive the corresponding
cash at the same time, the Trust may have to obtain funds from other sources to
satisfy the 95% distribution requirement, although depreciation deductions
attributable to the Trust's ownership of real properties held through its
wholly-owned subsidiaries should reduce the amount of such "cashless" income. To
the extent the Trust's accrued interest income is not offset by depreciation
deductions, the Trust expects to obtain deferred interest financing, if
available, which would reduce REIT Taxable Income by the amount of interest
accruing each year on such financing without requiring any cash payments until
maturity. In addition, the Trust may draw upon its cash reserves or issue equity
securities (including those issued pursuant to the Distribution Reinvestment
Plan) in order to satisfy the 95% annual distribution requirement referred to
above.
During early 1995, the Trust's management determined that the Trust may
have inadvertently failed to satisfy the 75% Asset Test for the third quarter
of 1994, because at the end of such quarter more than 25% of the Trust's assets
were invested in overnight bank repurchase obligations secured by United States
Treasury Bills. In previously issued Revenue Ruling 77-59, the IRS took the
position that overnight bank repurchase obligations
13
<PAGE> 17
constitute neither "government securities" nor cash items for purposes of
satisfying the 75% Asset Test. The Trust's management also determined that it
may have inadvertently failed to comply in previous years with certain
shareholder notice requirements of the Code (the "Shareholder Notice
Requirements").
The IRS has entered into a closing agreement with the Trust relating to the
Shareholder Notice Requirements, pursuant to which the IRS has agreed not to
treat the Trust as failing to qualify as a REIT despite the Trust's inadvertent
failure to comply with the Shareholder Notice Requirements. The IRS has deferred
any action with respect to the Trust's possible non-compliance with the 75%
Asset Test for the third quarter of 1994 pending the further examination of the
Trust's 1991-1994 tax returns. The Trust believes that the IRS position in the
above-described Revenue Ruling is not applicable to the United States Treasury
Bill repurchase obligation owned by the Trust. The Trust further believes that
even if the IRS position in such Revenue Ruling were upheld, the Trust's
inadvertent failure to satisfy the 75% Asset Test for one quarter was due to
reasonable cause and not to willful neglect and, therefore, the mitigation
provisions applicable to REITs under the Code should apply to permit the Trust
to continue to be taxed as a REIT. Based on developments in applicable law since
the issuance of the above-referenced Revenue Ruling, the Trust's legal counsel
has rendered an opinion that the Trust's investment in Treasury Bill repurchase
obligations would not adversely affect its REIT status for 1994. In addition,
the Trust has received an opinion of special tax counsel, to the effect that
issues raised by the IRS with respect to its audit of the Trust's 1991-1994
tax returns will not result in the loss of the Trust's REIT status as long as
it timely declares and pays a deficiency dividend with respect to any
deficiency in income tax resulting from an increase in the Trust's taxable
income asserted by the IRS concerning the years under examination.
Should the IRS deny the Trust's request for relief, the Trust presently
intends to seek a judicial determination that it may continue to qualify as a
REIT. If the Trust does not ultimately prevail in its position, it would be
taxable as a regular "C" corporation for 1994 and possibly 1995 but, because of
the incurrence of a net operating loss for each such year, would have no
federal income tax liability for 1994 or 1995. However, it is anticipated that
the Trust would have a state and local tax liability of approximately $600,000
for 1995 and $400,000 for 1994, exclusive of any applicable interest and
penalties.
One of the requirements for qualification as a REIT is that a REIT cannot
own more than 10 percent of the voting stock of a corporation other than the
stock of a qualified REIT subsidiary (of which the REIT is required to own all
of such stock) and stock in another REIT. The Trust will own only 5 percent of
the voting stock and all of the non-voting stock of Ramco and therefore will
comply with this rule. However, the IRS could
14
<PAGE> 18
contend that the Trust's ownership of all of the non-voting stock of Ramco
should be viewed as voting stock because of its substantial economic position in
Ramco. If the IRS were to be successful in such a contention, the Trust's status
as a REIT would be lost and the Trust would become subject to federal corporate
income tax on its net income, which would have a material adverse affect on the
Trust's cash available for distribution. The Trust does not have the ability to
designate a seat on the Board of Directors of Ramco and the policies and views
of the Trust will not influence the policies and views of Ramco. Consequently,
the Trust does not believe that it will be viewed as owning in excess of 10
percent of the voting stock of Ramco.
Competition
The properties which secure the Trust's mortgage loans may face competition
from similar properties in the vicinity where they are located. To the extent
such competition reduces the gross revenues from the operation of such
properties and/or decreases any appreciation in the value of such properties,
such competition will reduce any contingent interest or additional contingent
interest otherwise payable to the Trust and may make it more difficult for
borrowers to meet debt service payments on a current basis.
With respect to the Trust's investments in real properties, the Trust may
experience competition from other investors in real estate equities, including
private investors (both domestic and international), as well as banks, pension
funds, insurance companies, real estate investment trusts and other investors,
many of whom have resources greater than that of the Trust. In addition, in
areas where the Trust's subsidiaries own real properties, there may be
comparable properties and/or economic difficulties which would cause increased
competition for tenants, thereby pushing rental rates down, forcing the Trust's
subsidiaries to make greater lease concessions (e.g., to fund renovations),
and/or causing increased vacancies at the Trust's properties.
Employees
As of December 31, 1995, the Trust employed 12 persons. See Item 10,
"Directors and Executive Officers of the Trust."
15
<PAGE> 19
Executive Officers of the Trust
The executive officers of the Trust are as follows:
<TABLE>
<CAPTION>
HAS SERVED AS
NAME OFFICES OFFICER SINCE
- ---- ------- -------------
<S> <C> <C>
Joel M. Pashcow Chairman and President* October 1980**
Stanley Rappoport Executive Vice August 1991
President
Edwin R. Frankel Senior Vice President March 1983**
and Treasurer
John J. Johnston, Jr. Vice President- November 1983**
Real Estate Counsel
and Secretary
</TABLE>
Joel M. Pashcow, age 53, has been associated with the Trust since its
inception. He has been a member of the Bar of the State of New York since
1968. He is a graduate of Cornell University and the Harvard Law School.
Stanley Rappoport, age 65, has been associated with the Trust since August
1991. From January 1989 until August 1991 Mr. Rappoport served as an independent
consultant to NPI Management Corp. and was active as a real estate broker and in
the management of real estate investments. Mr. Rappoport is a licensed real
estate broker and insurance broker in the State of New York and a Certified
Review Appraiser. He is a graduate of New York University.
Edwin R. Frankel, age 50, has been associated with the Trust since its
inception.
John J. Johnston, Jr., age 64, has been associated with the Trust since its
inception. Mr. Johnston graduated from Hunter College in 1955 with a degree in
economics and from Columbia Law School in 1958. He is a member of the Bar of the
State of New York.
- ---------------
* Until February 29, 1996, Herbert Liechtung held the office of President of
the Trust. On February 29, 1996, the Trust mutually agreed with Mr. Liechtung
on a buy-out of his employment agreement effective as of that date. Joel M.
Pashcow, the Chairman of the Trust, assumed Mr. Liechtung's duties as of
such date. See Item 11, "Executive Compensation -- Employment Agreements
and -- Liechtung Termination Agreement."
** Includes periods served in similar capacities for the Predecessor Programs.
16
<PAGE> 20
Item 2. Properties.
From January 1, 1995 to March 31, 1995, the Trust leased approximately
6,400 square feet of office space at 733 Third Avenue, New York, New York at an
annual base rental of $194,666 (including electricity). This lease expired on
March 31, 1995. Commencing April 1, 1995, the Trust entered into a lease for
approximately 4,800 square feet of office space at 747 Third Avenue, New York,
New York at an annual base rental of approximately $150,000. This lease will
expire on April 30, 1997. The lease does not permit the Trust to terminate the
lease before the expiration of its term, to assign the lease or to sub-lease
the leased space without the consent of the landlord. Upon consummation of the
Ramco Acquisition, subject to receipt of the prior written consent of the
landlord of such space, the Spin-Off Company will assume this lease and the
Trust will relocate its principal executive offices to Southfield, Michigan.
In addition, the Trust leases office space at 801 Brickell Avenue,
Miami, Florida, for a monthly rental of $1,284. This lease is due to expire on
November 20, 1996. The Trust is currently negotiating with the landlord to
terminate the lease as of May 31, 1996, however, the material terms of such
proposed termination have not been agreed upon and no assurance can be given
that such a termination agreement will be reached.
Item 3. Legal Proceedings.
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business (including, without limitation,
foreclosure proceedings), against or involving the Trust or its properties.
Item 4. Submission of Matters to a Vote of Security Holders.
The Trust did not submit any matter to a vote of its shareholders
during the fourth quarter of 1995.
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
(a) Market Information
The Shares have been traded on the New York Stock Exchange since
December 28, 1988.
Set forth below is the range of high and low sales prices for the
Shares for each of the quarters during the years ended December 31, 1994 and
December 31, 1995:
17
<PAGE> 21
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
First Quarter 1994 $4-1/8 $3-3/4
Second Quarter 1994 $4-1/4 $3-1/2
Third Quarter 1994 $4-1/2 $4
Fourth Quarter 1994 $4-3/8 $3-7/8
First Quarter 1995 $4-5/8 $4-1/8
Second Quarter 1995 $5-1/8 $4-1/4
Third Quarter 1995 $4-5/8 $4-1/8
Fourth Quarter 1995 $4-5/8 $4-1/8
</TABLE>
(b) Approximate Number of Equity Security Holders
<TABLE>
<CAPTION>
Approximate Number of
Record Holders
Title of Class (as of March 15, 1996)
-------------- ----------------------
<S> <C>
Shares of Beneficial
Interest, $0.10 par value 11,327
</TABLE>
(c) Dividend Information
Under the Code, a REIT must meet certain qualifications
including a requirement that it distribute annually to its shareholders at least
95% of its REIT Taxable Income. The Trust has continued the cash distribution
policy of the Predecessor Programs by making quarterly distributions to its
shareholders in amounts such that annual distributions equal 100% of REIT
Taxable Income, thereby complying with the distribution requirements of the
federal income tax laws applicable to REITs. See "Qualification as a REIT" in
Item 1 above.
The Trust declared the following cash distributions to
shareholders for the year ended December 31, 1994:
<TABLE>
<CAPTION>
Payment
Quarter Distribution Date
------- ------------ -------
<S> <C> <C>
First Quarter 1994 $.08 5/17/94
Second Quarter 1994 $.08 8/17/94
Third Quarter 1994 $.08 11/16/94
Fourth Quarter 1994 $.08 1/27/95
</TABLE>
The Trust declared the following cash distributions to
shareholders for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Payment
Quarter Distribution Date
------- ------------ -------
<S> <C> <C>
First Quarter 1995 $.08 05/17/95
Second Quarter 1995 $.08 08/17/95
Third Quarter 1995 $.08 11/17/95
Fourth Quarter 1995 $.08 01/25/96
</TABLE>
18
<PAGE> 22
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $16,716,960 $26,406,761 $26,968,505 $29,857,260 $27,936,678
Net Income(1) $ 3,538,019 $15,641,876 $ 3,051,266 $ 8,838,836 $12,758,266
Net Income
Per
Share(1)(2) $ .12 $ .55 $ .11 $ .31 $ .45
Cash Distributions
Declared Per
Share $ .32 $ .32 $ .32 $ .60 $ .70
Statement of
Financial
Position December 31, December 31, December 31, December 31, December 31,
at year end 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ --------
Total Assets $180,581,201 $186,170,822 $186,419,996 $215,558,387 $241,629,537
Shareholders'
Equity $177,019,611 $182,599,168 $176,312,600 $182,558,951 $191,171,414
</TABLE>
- --------------------
(1) Net income for the year ended December 31, 1992 includes extraordinary
items (gains on early extinguishment of debt). See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 6 and 7 to Item 8, "Financial Statements and
Supplementary Data."
(2) Net income per Share for 1995, 1994, 1993, 1992 and 1991 is based on the
weighted average number of Shares outstanding of 28,492,421, 28,494,379,
28,582,344, 28,599,637 and 28,653,103, respectively.
19
<PAGE> 23
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation.
Capital Resources and Liquidity
As of December 31, 1995, the Trust had $36,023,265 invested in mortgage
loans (after deducting allowance for possible loan losses of $10,231,336),
$55,299,163 invested in real properties, $58,098,854 invested in REMIC
investments and $10,299,545 invested in short-term investments.
During 1995 the Trust's cash receipts were derived primarily from rental
income from its investments in real properties and, to a lesser degree, income
from its mortgage loans, its interests in REMIC investments and short term
investments. These receipts were used to fund operating expenses and pay cash
distributions to shareholders.
In order to make the necessary distributions to shareholders required to
allow the Trust to continue to qualify as a REIT, to the extent that there are
not sufficient funds available due to timing differences between the realization
of taxable income and net cash flow, including the portion of accrued interest
on mortgage loans required to be included currently in the Trust's taxable
income, the Trust may require additional cash. Deductions for depreciation on
the Trust's real estate investments reduce REIT Taxable Income with no
corresponding payment of cash. To the extent the Trust's accrued interest income
is not offset by depreciation deductions attributable to its equity investments
in real property, the Trust may draw upon its cash reserves, if available. To
the extent cash reserves are not available, the Trust may need to obtain
financing and/or issue additional Shares (including those issued Shares to be
acquired pursuant to the Trust's Distribution Reinvestment Plan). During 1995,
75% of the Trust's distributions to shareholders were classified as return of
capital, because the Trust recognized a taxable loss for 1995.
The Trust believes that its working capital will be sufficient to satisfy
its requirements for its operations. However, there can be no assurances that
there will not be unanticipated additional expenses.
It is anticipated that prior to the consummation of the Ramco
Acquisition, the Trust will incur approximately $6,500,000 in indebtedness, the
proceeds of which, together with existing resources of the Trust, will be used
primarily for the payment of certain required severance and bonus payments to
the Trust executive officers, distributions to shareholders of the Trust, a
run-off directors' and officers' liability insurance policy for the Trust, a
directors' and officers' liability policy for the Spin-Off Company, and to
provide excess cash that can be distributed to the Spin-Off Company as initial
working capital. It is anticipated that such indebtedness will accrue interest
at a rate of approximately 10% per annum and mature on the date which is 18
months after the Spin-Off Company Transaction. Upon the consummation of the
Spin-Off Company Transaction, the Spin-Off Company will assume this
indebtedness. The actual amount of such indebtedness may be less than
$6,500,000 to the extent that the Trust effects the sale of any of the Spin-Off
Company Assets prior to the Spin-Off Company Transaction and realizes cash
proceeds therefrom or is prepaid by any of the borrowers under its mortgage
loans.
As stated above, the Trust's (and following the Spin-Off Transaction,
the Spin-Off Company's) cash receipts are derived primarily from interest
income generated by its mortgage loan portfolio. As a result, the Trust is
dependent upon the ability of the borrowers under such mortgage loans to make
required debt service payments. While the Trust has addressed certain of these
20
<PAGE> 24
issues by, among other things, selling or foreclosing upon certain of its
mortgage loans, the Trust is aware that certain of its borrowers are
experiencing continuing financial difficulties due to increased vacancies and
lower rental rates. In addition, following the Spin-Off Transaction, as the
Spin-Off Company disposes of assets, net cash generated from operating
activities will decrease as proceeds from any sales or dispositions are
invested in short-term or temporary investments which yield lower rates of
return.
As of December 31, 1995 and 1994, the Trust had six and seven,
respectively, loans that were in arrears (three monthly payments or more) or
otherwise considered to be "problem loans" by the Trust. The aggregate gross
principal amounts of these loans, together with receivables relating to such
loans comprised of accrued interest and payments made on behalf of the borrowers
for mortgage payments relating to such properties, total $44,165,960 and
$46,343,547, representing approximately 25% and 25% of the Trust's invested
assets at December 31, 1995 and 1994, respectively. At December 31, 1995 and
1994, the Trust was not accruing current and deferred interest on one and four
of the above-mentioned loans, in the aggregate approximate principal amounts of
$2,700,000 and $10,250,000, respectively. In addition, as of such dates, the
Trust was not accruing deferred interest in the aggregate approximate principal
amounts of $31,820,000 and $25,000,000, respectively, on three and one
additional loan. The Trust has an allowance for possible losses of $10,231,336
and $11,657,236, respectively, at December 31, 1995 and 1994.
These allowances are indicative of the overall decline in the value of real
estate nationally and of the properties securing the Trust's mortgage loans.
Management's policy is to review each mortgage loan in the Trust's portfolio on
a regular basis (which review includes a periodic assessment of the value and
collectibility of the individual mortgage loans) for the purpose of determining
whether a provision for loan losses need be established or increased. Subject to
the foregoing, the allowance for possible loan losses is maintained at a level
which management believes is adequate to absorb potential losses on outstanding
mortgage loans; however, ultimate losses may vary from current estimates. The
Trust may provide for additional losses in the future.
21
<PAGE> 25
RESULTS OF OPERATIONS
Calendar Year 1995 Compared to Calendar Year 1994
- -------------------------------------------------
Total revenues (before rental income) for the year ended December 31, 1995
decreased $11,861,518 or 60% as compared to the year ended December 31, 1994.
During the 1994 year the Trust received $8,405,813 in additional contingent
interest and pre-payment premium income as compared to none in 1995. Interest
from mortgage loans decreased in the 1995 year as compared to the 1994 year by
$4,905,727 or 57%. The reduction in interest from mortgage loans is attributable
to the reduction in the size of the Trust's mortgage loan portfolio during the
1995 period as compared to the 1994 period. Current interest income from
mortgage loans decreased $2,757,416 or 44%, primarily as a result of lower
mortgage balances. The Trust in 1995 recognized $116,544 in deferred interest as
compared to $1,812,701 in 1994, a decrease of $1,696,157 or 94%. Contingent
interest income for 1995 was $43,862 as compared to $440,688 in 1994. This
represents a decrease of $396,826 or 90%. Income from mortgage backed securities
(REMICs) increased 100% or $1,516,398 as a result of the Trust investing in
Mortgage Backed Securities to maintain REIT qualifying income.
During the year ended December 31, 1995, expenses (excluding interest on
mortgages, property operating expenses, real estate taxes and depreciation)
increased $2,133,784 or 32%. This increase was primarily due to the increase in
the allowance for possible loan losses expense and the increase in the provision
for impairment on real estate expense. The Trust during the first quarter of
1995 provided an additional allowance for possible loan losses of $3,000,000
based on an offer for the sale of the Hylan mortgage received in the first
quarter of 1995 which was $3,000,000 less than the Trust's net carrying amount
of the loan at such date. The Trust also during the fourth quarter of 1995
provided an additional allowance for possible loan losses of $650,000 based on
an agreement in principle with the borrower under the 1-5 Wabash loan for such
borrower to acquire the mortgage for $2,200,000 in cash. As a result of these
two increases, the Trust made allowance for possible loan losses of $3,650,000
in 1995 as compared to $2,500,000 in 1994 representing an increase of $1,150,000
or 46%. The Trust during 1995 recognized a loss of $182,284 as a result of the
Trust selling the New England Telephone Company loan. During 1994 the Trust
22
<PAGE> 26
recognized a loss of $227,708 as a result of the Trust selling the Saratoga
Office Building. General and administrative expenses increased during
1995 by $369,056 or 18% as compared to the 1994 year. This increase was
primarily due to increased costs associated with the formation of Atlantic
Realty Trust and the increase in professional fees paid by the Trust. Payroll
and related expenses decreased $139,848 or 8% during the 1995 year as compared
to the 1994 year. Additionally, the Trust provided an impairment of $800,000
with regard to the 9 No. Wabash building during the fourth quarter of 1995.
During 1995, the Trust received rental income of $8,936,111 as compared to
$6,764,394 for the 1994 year. This increase of $2,171,717 or 32% is primarily as
a result of the Trust receiving rental income on 8 properties during the entire
1995 period as compared to receiving income on 6 properties during the entire
1994 period. Interest expense on mortgage payable in 1995 decreased 100% or
$426,414 due to the Trust exercising its right to prepay the first mortgage loan
relating to the Crofton Plaza Shopping Center property on September 30, 1994.
Property operating expenses, real estate taxes and depreciation expense
increased during the 1995 year by $404,473 or 26%, $35,470 or 3% and $266,743 or
36% respectively over the 1994 year due to the aforementioned increase in number
of properties. For the year ended December 31, 1995, the Trust recognized net
income from the investment of real estate of $4,714,329 as compared to
$2,822,884 for the year ended December 31, 1995.
As a result of the foregoing factors, the Trust's net earnings for the 1995
year as compared to the 1994 year decreased $12,103,857 or 77%.
Calendar Year 1994 Compared to Calendar Year 1993
- -------------------------------------------------
Total revenues before rental income received during 1994 decreased
$3,239,288 or 14.2% from that of the previous year. Interest from mortgage loans
received by the Trust during 1994 decreased $5,393,200 or 38.5% compared to
1993. The reduction in interest from mortgage loans is attributable to the
reduction in the Trust's mortgage loan portfolio as well as the financial
condition of certain of the Trust's borrowers and the economic condition in
certain areas where the properties securing the Trust's mortgage loans are
located. Current interest income from mortgage loans decreased $4,301,629 or
40.0%, primarily as a result of lower mortgage balances. The Trust in 1994
received $1,696,866 of previously unrecognized deferred interest as compared to
$2,651,098 in 1993, a decrease of $954,232 or 36.0%.
Contingent interest income for 1994 was $440,688 as compared to $578,027
for 1993. This represents a decrease of $137,339 or 23.8%. During the year ended
December 31, 1994 the Trust received additional contingent interest and
prepayment penalty income (equity participation) totalling $8,405,813 as
compared to $3,433,116 in 1993, an increase of $4,972,697 or 144.8%. Short-
23
<PAGE> 27
term interest income increased $1,499,722 or 135.8% as a result of higher
balances. During 1993 the Trust received $3,942,513 in gains resulting from the
sale of its 270,000 shares of Kimco Realty Corporation common stock, as well as
dividend income of $395,185 from such shares.
During the year ended December 31, 1994, expenses (excluding interest on
mortgages, property operating expenses, real estate taxes and depreciation)
decreased $14,029,955 or 67.3% compared to the same period during 1993. This
decrease was primarily due to the decrease in the allowance for possible loan
losses expense. During the year ended December 31, 1994, the Trust made
allowances for possible loan losses of $2,500,000 as compared to $15,000,000
during 1993, representing a decrease of $12,500,000 or 83.3%. During 1994 the
Trust did not incur interest on notes payable as compared to $2,019,710 in 1993.
On December 28, 1993 the Trust exercised its option to redeem in full the note
issued pursuant to the Note Issuance Agreement dated as of December 28, 1988.
The Trust during 1994 recognized a loss of $227,708 as a result of the Trust
selling the Saratoga Office Building. General and administrative expenses and
payroll and related expenses increased $174,090 and $87,957, respectively.
During 1994, the Trust received rental income of $6,764,394 as compared to
$4,086,850 for the 1993 year. This increase of $2,677,544 or 65.5% is primarily
as a result of the Trust owning more properties during 1994 than during the 1993
period. Interest expense on mortgages payable in 1994 decreased $176,738 or
29.3% due to the Trust exercising its right to prepay the first mortgage loan
relating to the Crofton Plaza Shopping Center property on September 30, 1994.
Property operating expenses, real estate taxes and depreciation expense
increased during the 1994 year by $323,729, $531,733 and $198,877, respectively
over the 1993 year due to the aforementioned increase in the number of
properties. For the year ended December 31, 1994, the Trust recognized net
income from the investment of real estate of $2,822,884 as compared to
$1,022,941 for 1993.
Net earnings for the year ended December 31, 1994 as compared to the year
ended December 31, 1993 increased by $12,590,610 as a result of the items
discussed above.
24
<PAGE> 28
Item 8. Financial Statements and Supplementary Data.
See pages F-1 - F-22, which are included herein.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Declaration of Trust which governs the Trust provides for not less than
three nor more than nine Trustees, a majority of whom must not perform any
services for the Trust, other than as a Trustee, and must not be directors,
officers or employees of Integrated ("Independent Trustees"), except for a
period of 60 days after the death, removal or resignation of an Independent
Trustee. There are currently nine Trustees (increased from seven in January
1990) of the Trust, eight of whom are currently Independent Trustees.
The Trustees are divided into three classes. Messrs. Eisenstat, Blumenfeld
and Rosoff are Class I Trustees, for a term to expire in 1998. Messrs. Goldberg,
Glickman and Stalford are Class II Trustees, for a term to expire in 1996.
Messrs. Pashcow, Liechtung and Blank are Class III Trustees, for a term to
expire in 1997. Trustees hold office until their successors are duly elected and
qualified.
The Trustees of the Trust are as follows:
<TABLE>
<CAPTION>
Offices and Has Served as
Name Positions Trustee Since*
- ---- --------- --------------
<S> <C> <C>
Joel M. Pashcow Chairman, President October 1980
and Member of
Investment Committee
Herbert Liechtung** Member of Investment October 1981
Committee
Stephen R. Blank Member of the Compen- January 1990
sation and Special
Acquisition Committees
Edward Blumenfeld Member of Audit, September 1988
Investment and Spin-Off
Committees
</TABLE>
25
<PAGE> 29
<TABLE>
<S> <C> <C>
Samuel M. Eisenstat Member of Audit December 1986
Committee and
Alternate Member of
Investment Committee
Edwin J. Glickman Member of Investment, October 1980
Compensation and
Spin-Off Committees
Arthur H. Goldberg Member of Audit, July 1988
Compensation, Special
Acquisition and Spin-Off
Committees
William A. Rosoff Member of the Special January 1990
Acquisition Committee
Alfred D. Stalford Member of Compensation April 1983
and Investment
Committees
</TABLE>
- --------------------
* Includes periods served in similar capacities for the Predecessor Programs.
** Mr. Liechtung, the former President of the Trust, ceased to be an
executive officer of the Trust as of February 29, 1996. See Item 1 of this
report.
Mr. Pashcow's biography is included under "Business - Executive Officers of
the Trust" in Item 1 of this report.
Stephen R. Blank, age 50, has been a Managing Director of Oppenheimer &
Co., Inc. since November 1, 1993. Prior to joining Oppenheimer Mr. Blank was a
Managing Director, Real Estate Corporate Finance, of Cushman & Wakefield, Inc.
for four years. Prior to joining Cushman & Wakefield, Mr. Blank was associated
for ten years with Kidder, Peabody & Co. Incorporated as a Managing Director of
the firm's Real Estate Group. Mr. Blank graduated from Syracuse University in
1967 and was awarded a Master's Degree in Business Administration (Finance
Concentration) by Adelphi University in 1971. He is a member of the Urban Land
Institute and the American Society of Real Estate Counselors. He has lectured
before the Practicing Law Institute, the New York University Real Estate
Institute, the Urban Land Institute and the International Council of Shopping
Centers. He is a Trustee of the Crohn's & Colitis Foundation of America, Inc.
Edward Blumenfeld, age 55, has been a principal of Blumenfeld Development
Group, Ltd., a real estate development
26
<PAGE> 30
firm principally engaged in the development of commercial properties, since
1978.
Samuel M. Eisenstat, age 55, has been engaged in the private practice of
law for more than five years. Mr. Eisenstat serves as a director of various
mutual funds managed by Sun America Asset Management and of UMB Bank & Trust Co.
Mr. Eisenstat received a B.S. degree from New York University School of Commerce
in 1961 and graduated from New York University School of Law.
Edwin J. Glickman, age 63, has been Executive Vice President of Capital
Lease Funding Corp. since January, 1995. Capital Lease makes loans to owners of
properties net leased to investment grade tenants, funding such loans through
securitization. Prior to that, Mr. Glickman was Chairman of the Glickman
Organization, Inc. from April, 1991 to December 1994, and Chairman of the
Executive Committee of Schoenfeld Glickman Maloy Inc. from May 1989. From 1977
to 1993 he was also associated with Sybedon Corporation as Vice Chairman. In
such positions he has been engaged in real estate financial services, including
mortgage brokerage, arranging joint ventures and equity financing. Mr. Glickman
is a graduate of Dartmouth College. He is a guest speaker on real estate-related
subjects at a number of conferences. Mr. Glickman is an Adjunct Assistant
Professor of the Real Estate Institute of New York University.
Arthur H. Goldberg, age 53, has been President of Manhattan Associates,
LLC, a merchant and investment banking firm since February 1994. Prior to that,
Mr. Goldberg was Chairman of Reich & Company, Inc. (formerly, Vantage Services,
Inc.), a securities brokerage and investment brokerage firm from January 1990 to
December 1993. Mr. Goldberg was employed by Integrated Resources, Inc. from its
inception in December 1968, as President and Chief Operating Officer from May
1973 and as Chief Executive Officer from February 1989, until January 1990. Mr.
Goldberg has been a member of the Bar of the State of New York since 1967. He is
a graduate of New York University School of Commerce and its School of Law.
Herbert Liechtung, age 65, has been associated with the Trust since its
inception, and served as President of the Trust until February 29, 1996.
William A. Rosoff, age 52, has been the Vice Chairman of Advanta
Corporation, a financial services company, since January, 1996. Prior thereto,
Mr. Rosoff was associated with the law firm of Wolf, Block, Schorr and
Solis-Cohen ("Wolf, Block") since 1969, a partner since 1975. Mr. Rosoff is a
past chairman of the firm's Executive Committee and is a past chairman of the
firm's tax department. Mr. Rosoff serves on the Legal Activities Policy Board of
Tax Analysts, the Tax Practice Advisory Board for Little, Brown & Company, and
the Advisory Board for Warren, Gorham and Lamont's Journal of Partnership
Taxation. He is a fellow of the American College of Tax Counsel. Mr. Rosoff
serves as a member of the Board of Directors of the Philadelphia Chapter
27
<PAGE> 31
of the American Jewish Congress, and is a member of the Board of Regents of the
Philadelphia chapter of the American Society for Technion. Mr. Rosoff earned a
B.S. degree with honors from Temple University in 1964, and earned an LL.B.
magna cum laude from the University of Pennsylvania Law School in 1967.
Alfred D. Stalford, age 73, was previously engaged in the business of
mortgage brokerage and real estate sales, principally involving commercial
properties. He is presently retired from the mortgage brokerage business. Mr.
Stalford has extensive mortgage loan and real estate experience and has served
on a number of government commissions, including the California Commission of
Housing and Community Development, the Board of Directors of the National
Housing Conference, vice chairman of the Special Advisory Committee on
Disposition of certain California surplus land and the Board of Directors of the
California Exposition and Fair Corporation, a nonprofit corporation established
by the State of California (of which he served as Chairman of the Board for a
period of time).
In addition, the Trust has established an Audit Committee which is
presently comprised of Messrs. Blumenfeld, Eisenstat and Goldberg. The Audit
Committee's duties include the review and oversight of all transactions between
the Trust and its Trustees, officers, holders of 5% or more of its Shares or any
affiliates, periodic review of the Trust's financial statements and meetings
with the Trust's independent auditors. The Audit Committee met once during 1995.
The Trust has also established a Compensation Committee which is presently
comprised of Messrs. Blank, Glickman, Goldberg and Stalford. The Compensation
Committee's duties include reviewing all compensation arrangements of the Trust
with its officers and employees and considering changes and/or additions to such
compensation arrangements, including stock option, pension and profit-sharing
plans. The Compensation Committee acts as administrator of the 1989 Employee's
Stock Option Plan. The Compensation Committee met once during 1995.
The Trust has also established an Investment Committee which is presently
comprised of Messrs. Blumenfeld, Glickman, Liechtung, Pashcow and Stalford. Mr.
Eisenstat is presently an alternate member of the Investment Committee. The
Investment Committee's duties include the approval of the Trust's investments,
restructurings of investments and dispositions of investments, subject only to
the restrictions on investments and investment policies set forth in the Trust's
Declaration of Trust.
The Board of Trustees established the Special Acquisition Committee to
assist the Trust's management in the negotiation of the Ramco Acquisition.
Messrs. Blank, Goldberg and Rosoff are the members of the Special Acquisition
Committee.
28
<PAGE> 32
The Board of Trustees established the Spin-Off Committee to work with the
Trust's management in the structuring and analysis of the Spin-Off Transaction
and liquidation of certain assets of the Spin-Off Company. Messrs. Goldberg,
Glickman and Blumenfeld are the members of the Spin-Off Committee.
The Trust currently does not have a Nominating Committee.
See Item 11, "Executive Compensation -- Compensation of Trustees" for a
description of the compensation paid to (a) Messrs. Blumenfeld, Glickman and
Goldberg for their services as members of the Spin-Off Committee and
(b) Messrs. Blank and Goldberg for their services as members of the Special
Acquisition Committee.
There are no family relationships between any Trustee or executive officer
and any other Trustee or executive officer of the Trust; however, Steven
Liechtung, the son of Herbert Liechtung, is a Vice President of the Trust.
Upon the consummation of the Ramco Acquisition, Ramco will have the right,
subject to compliance with the Trust's organizational documents, to designate
four trustees (not less than two of whom shall be independent of Ramco, the
Trust and their respective affiliates) to serve on the RPS Board. The Trust has
agreed to exercise its best efforts to secure the resignation of four of its
trustees as is necessary to enable the Ramco designees to be elected to the RPS
Board. It is anticipated that Messrs. Pashcow, Liechtung, Goldberg and Blank,
as well as Robert A. Meister, who has been designated by the Trust and will
become a member of the RPS Board prior to the closing of the Ramco Acquisition,
will serve as trustees of the Trust following such closing. It is anticipated
that the two persons affiliated with Ramco who will become members of the RPS
Board on the closing of the Ramco Acquisition will be Joel Gershenson and
Dennis Gershenson.
In addition, upon the consummation of the Ramco Acquisition, the RPS Board
will appoint a non-voting Advisory Committee consisting of Michael A. Ward,
Richard Gershenson and Bruce Gershenson. The members of the Advisory Committee
will be available to consult with and advise the RPS Board as requested.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Trust's officers and Trustees, and persons who own more than ten percent of
a registered class of the Trust's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission") and the New York Stock Exchange. Officers, Trustees and
greater than ten percent shareholders are required by regulation of the
Commission to furnish the Trust with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Trust believes that, during the fiscal year
ended December 31, 1995, all filing requirements applicable to its officers,
Trustees and greater than ten percent beneficial owners were complied with.
29
<PAGE> 33
Item 11. Executive Compensation.
Cash Compensation
The following table sets forth information with respect to the cash
compensation paid by the Trust for services rendered during the year ended
December 31, 1995 to Mr. Pashcow, the Trust's Chairman, and the four other most
highly compensated executive officers, whose total remuneration from the Trust
exceeded $100,000 for such period:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards
--------------------------------------------------- ------
(a) (b) (c) (d) (e) (g) (i)
Other Securities All
Annual Underlying Other
Name and Compen- Options/ Compen-
Principal Salary Bonus sation SARs sation
Position Year ($)(1) ($)(2) ($)(3) (#) (4) ($)(5)
- --------- ---- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Joel M. 1995 331,012 -- 81,531 8,100
Pashcow 1994 321,650 19,172 97,828 8,100
Chairman(7) 1993 312,561 5,412 51,358 12,735
Herbert 1995 331,012 -- 13,144 8,100
Liechtung 1994 321,650 38,342 16,054 8,100
President(6) 1993 312,561 11,023 11,049 12,735
Stanley 1995 167,964 -- 2,520 8,100
Rappoport 1994 163,072 -- 1,404 8,100
Executive 1993 158,314 -- 1,404 8,625
Vice
President
Edwin R. 1995 114,860 18,000 3,085 7,748
Frankel 1994 111,514 18,000 3,029 7,535
Senior Vice 1993 108,262 18,000 348 6,837
President and
Treasurer
John J. 1995 113,869 17,600 1,404 7,574
Johnston, Jr. 1994 110,552 17,600 1,404 7,372
Vice Presi- 1993 107,330 17,600 1,404 6,822
dent-Real
Estate Counsel
and Secretary
</TABLE>
- ---------------------
(1) Includes car allowances payable to Messrs. Liechtung and Pashcow
pursuant to the terms of their respective employment agreements.
(2) Bonus amounts earned by Messrs. Liechtung and Pashcow for any year
represents Distribution Incentive Bonus and Origination Bonus for
that fiscal year earned pursuant to ten-year employment agreements
expiring December 31, 1998.
30
<PAGE> 34
(3) Includes perquisites and other personal benefits for such officer,
including certain life insurance premium payments paid on behalf of
the named officers. Of the amounts reflected for Mr. Pashcow,
$76,857 was paid during 1994 for tax and accounting services
performed on behalf of Mr. Pashcow for the years 1992, 1993 and
1994 and $42,357 was paid for such services for 1995.
(4) Each of the named officers were granted options to purchase Shares
on December 6, 1989 at an exercise price of $5.75 per Share. In
addition, pursuant to the Liechtung Termination Agreement (which is
defined and described in "Employment Agreements--Liechtung
Termination Agreement" below), Mr. Liechtung surrendered for
cancellation his fully vested options to acquire 600,000 Shares.
Pursuant to the Pashcow Termination Agreement (which is defined and
described under "--Employment Agreements" below), Mr. Pashcow
agreed to surrender for cancellation upon the closing of the Ramco
Acquisition his fully vested options to acquire 600,000 Shares.
Based on an offer to be made by the Trust, it is expected that the
Trust will acquire simultaneously with the closing of the Ramco
Acquisition the fully vested options held by Messrs. Frankel and
Johnston, which aggregate 100,000 options, for a price of $.50 per
option.
(5) Includes discretionary contributions by the Trust to the RPS Realty
Trust Retirement Savings Plan for such named officer's account,
including forfeitures, if any.
(6) Pursuant to the Liechtung Termination Agreement, Mr. Liechtung
ceased to be an officer of the Trust as of February 29, 1996.
See "-- Employment Agreements -- Liechtung Termination Agreement"
below.
(7) Pursuant to the Pashcow Termination Agreement, Mr. Pashcow will
cease to be an executive officer of the Trust upon the consummation
of the Ramco Acquisition. See "--Employment Agreements--Pashcow
Termination Agreement" below.
31
<PAGE> 35
Employment Agreements
Existing Employment Arrangements. Joel M. Pashcow, the Chairman and
President of the Trust, is employed pursuant to a ten-year employment agreement,
expiring December 31, 1998. The employment agreement provides Mr. Pashcow with a
base annual salary, adjusted annually by a percentage equal to the increase in
the Consumer Price Index - All Items for the New York Metropolitan Area (which
increase in any year may not be less than 3% nor more than 8%). Mr. Pashcow's
base annual salary for the years ended December 31, 1994 and December 31, 1995
was $312,050 and $321,412, respectively.
Pursuant to the terms of his employment agreement, Mr. Pashcow is entitled
to receive a Distribution Incentive Bonus in an amount equal to 3.75% of the
amount, if any, by which the Trust's Qualifying Distributions (as defined below)
in any calendar year exceed the Target Distribution (as defined below) for that
year. The Target Distribution is determined on a cumulative, non-interest
bearing basis, commencing January 1, 1989. "Qualifying Distributions" are
defined as all distributions by the Trust attributable to any taxable year to
the extent they do not exceed 100% of REIT Taxable Income (as defined in the
Code). The "Target Distribution" for each year is $22,000,000, subject to
certain adjustments. Mr. Pashcow did not receive a Distribution Incentive Bonus
for either 1994 or 1995.
Mr. Pashcow is entitled to receive 100% of the Distribution Incentive Bonus
for any period he is employed by the Trust, through the year 2001. If Mr.
Pashcow's employment terminates prior to December 31, 1998, he is entitled to
receive a portion of the Distribution Incentive Bonus payable in the year of
such termination, based upon a vesting schedule set forth in his employment
agreement; based upon such schedule, as of December 31, 1995, Mr. Pashcow would
be entitled to receive 100% of any such bonus payable upon termination of his
employment. If the employment of Mr. Pashcow is terminated on or after December
31, 1998, Mr. Pashcow is entitled to receive the Distribution Incentive Bonus
through 2001, based upon a formula set forth in his employment agreement.
Mr. Pashcow received an Origination Bonus equal to .1175% of the amount of
investments for which a formal commitment is executed by the Trust during the
term of his employment agreement and which are subsequently consummated, subject
to reduction for investments of less than three years. Mr. Pashcow received an
Origination Bonus of $19,172 during 1994. Mr. Pashcow did not receive and
Origination Bonus during 1995.
In the event of death during the term of the employment agreement, the
officer's legal representatives will be entitled to receive his base salary for
an additional period equal to the lesser of (i) the remaining term of the
employment agreement or
32
<PAGE> 36
(ii) 24 months from the date of death, as well as any Distribution Incentive
Bonuses and Origination Bonuses due or to become payable. In the event an
officer is unable to perform his duties on account of illness, injury or other
physical or mental incapacity which continues for a period of more than six
months, the Trust may terminate the employment agreement. In such event, the
officer will be entitled to receive his base salary for an additional period
equal to the lesser of (i) the remaining term of the employment agreement or
(ii) 24 months from the date of termination, as well as any Distribution
Incentive Bonuses and Origination Bonuses due or to become payable.
Mr. Pashcow has agreed during the term of his employment agreement, and for
two years after such time as he voluntarily ceases to be an employee of the
Trust prior to the expiration of such term (except for reasons of material
breach by the Trust or the occurrence of an acquisition event described in the
following paragraph), not to engage in any business ventures which compete with
the Trust's mortgage lending business.
In the event of, among other things, a change in the business carried on by
the Trust having the effect that its business ceases to be primarily the
business of mortgage lending (an "Acquisition Event"), Mr. Pashcow, upon the
delivery of timely notice to the Trust, may terminate his employment agreement
with the Trust. In such event, the Trust must pay to the officer a sum
calculated by multiplying the average of the officer's annual compensation for
the three calendar years prior to the year in which the event occurs by: (i)
four, if the event occurs in calendar years 1993 through 1995; or (ii) three, if
the event occurs in calendar years 1996 through 1998.
Pursuant to the Pashcow Termination Agreement, dated as of March 26, 1996
between the Trust and Joel M. Pashcow, Chairman and President of the Trust (the
"Pashcow Termination Agreement"), Mr. Pashcow will receive two severance
payments totaling an aggregate of $1,910,416 (exclusive of interest at a rate of
7.75% on $1,600,000 of which will be deferred and paid on January 15, 1997) and
will receive an origination bonus of $79,800 pursuant to his existing employment
agreement, in consideration of the termination of his employment agreement with
the Trust that runs through December 31, 1998 and provides for a current base
salary of approximately $340,000 as well as certain performance based bonuses
(discussed above), and the surrender of his fully vested options to acquire
600,000 Shares at an exercise price of $5.75 per Share (subject to adjustment as
set forth in the 1989 Employees' Stock Option Plan (the "Employee Plan")).
Liechtung Termination Agreement. Prior to the effective date of the Amended
and Restated Liechtung Termination Agreement dated as of February 29, 1996 (the
"Liechtung Termination Agreement"), Mr. Liechtung was employed by the Trust
pursuant to an employment agreement substantially identical to that of Mr.
Pashcow as described above, except that Mr. Liechtung was entitled to receive an
annual Origination Bonus equal to .235% of the amount of investments for which a
formal commitment is executed, as described above. Pursuant to the Liechtung
Termination Agreement, effective as of February 29, 1996, Mr. Liechtung received
a lump sum severance payment of $1,478,402, and will receive an origination
bonus of $159,800 if the Ramco Acquisition is consummated on or before June 10,
1996, in consideration of the termination of his employment agreement with the
Trust
33
<PAGE> 37
and the surrender of his fully vested options to acquire 600,000 Shares at an
exercise price of $5.75 per Share (subject to adjustment as set forth in the
Employee Plan). Neither the Trust nor Mr. Liechtung has any further obligations
under Mr. Liechtung's employment agreement, except that the Trust continues to
be obligated to perform its indemnification obligations thereunder.
Severance and Other Arrangements with Executive Officers and
Certain Key Employees
On August 9, 1994, the RPS Board adopted a resolution authorizing the Trust
to adopt a severance policy pursuant to which each employee (other than Messrs.
Liechtung and Pashcow, who are not covered by such policy) whose employment with
the Trust is terminated after such date would be entitled to receive from the
Trust an amount equal to one month's salary for each year that such employee was
employed by the Trust (and/or the Trust's predecessors), up to a maximum of 12
months' salary. In addition, in connection with the negotiation of the Ramco
Acquisition, the RPS Board determined that it was necessary to enter into
arrangements with certain of the executive officers and key employees of the
Trust, to induce such individuals to remain in the employ of the Trust at least
through the consummation of the Ramco Acquisition. Accordingly, on August 9,
1994, the RPS Board authorized the payment to Messrs. Edwin Frankel, Stanley
Rappoport and Steven Liechtung of bonuses (in addition to the severance
arrangements described above) equal to 100% of six months' salary (with respect
to Mr. Frankel) and 25% of six months' salary (with respect to Messrs. Rappoport
and Steven Liechtung), which bonuses would be paid only in the event that such
employee is employed by the Trust upon the consummation of the Ramco
Acquisition. On February 8, 1995, in recognition of the fact that the Ramco
Acquisition was not expected to be consummated for several more months, the
Compensation Committee of the RPS Board and the members of the Special
Acquisition Committee authorized an increase in Mr. Frankel's bonus to 100% of
seven months' salary; authorized the payment to Mr. Rappoport of severance pay
equal to 100% of six months' base salary (in
34
<PAGE> 38
lieu of the standard severance arrangements described above), in addition to the
bonus payment referred to above; and authorized an increase in Mr. Steven
Liechtung's bonus to 100% of four months' salary. On March 15, 1996, the
Compensation Committee, upon the recommendation of the Special Acquisition
Committee, approved an additional bonus of $50,000 payable to Mr. Frankel. The
payments made and to be made to each of Messrs. Frankel, Rappoport and Johnston,
each of whom are executive officers of the Trust, pursuant to the severance
and/or bonus arrangements described above, will be approximately $272,000,
$119,000 and $135,000, respectively, assuming the Ramco Acquisition is
consummated on April 30, 1996.
Compensation Plans
The Trust maintains a retirement savings plan for all full-time employees
meeting certain criteria as to age and length of employment, including the
Trust's officers. The plan permits eligible employees to provide for salary
reduction contributions in amounts not in excess of the lesser of 20% of their
annual compensation or an amount established annually by the Secretary of the
Treasury, which was $9,240 for the year ended December 31, 1994). The plan
permits the Trust, in its discretion, to make matching contributions for those
employees who provide for salary reduction contributions, in amounts equal to
25% multiplied by the lesser of (i) the employee's elective salary reduction or
(ii) 9% of the employee's annual compensation. The plan also permits the Trust,
in its discretion, to make an additional contribution in such amount as it deems
appropriate, to be allocated among all eligible employees, whether or not they
have made elective salary reductions. The total of all contributions, including
elective salary reductions, matching contributions, and additional employer
contributions may not exceed 15% of the annual compensation of all participants.
Participants in the plan are 100% vested in their elective accounts at all
times. Vesting in the matching and additional employer contributions is 20%
after two years of service, and 20% each year thereafter, with 100% vesting
after six years of service. Withdrawals may not be made prior to attaining the
age of 59-1/2 years, except in the event of total and permanent disability,
retirement, termination of employment or proven hardship.
Pursuant to the terms of the Ramco Acquisition, it is currently
anticipated that the Trust's retirement savings plan will be terminated.
The Trust adopted and its shareholders approved the Employee Plan. The
Employee Plan provides for the granting to employees of the Trust of
options to purchase up to an aggregate of 1,550,000 Shares. The plan is
administered by the Compensation Committee of the RPS Board, which determines
the individuals to whom and the times at which options are granted and the
number of Shares to be subject to each option.
35
<PAGE> 39
Options granted under the Employee Plan become exercisable after one
year following the date of grant with respect to 20% of the Shares covered
thereby, with additional 20% increments becoming exercisable cumulatively on
the next four succeeding anniversary dates from the date of grant. Shares
subject to options may be purchased for cash and/or by delivery of Shares
having an equivalent fair market value. The exercise price is 100% of the fair
market value of the Shares on the date of grant. Unexercised options expire ten
years from their date of grant.
On December 6, 1989, the Trust granted options to purchase an aggregate
of 1,355,000 Shares at an exercise price of $5.75 per Share under the Employee
Plan, of which options to purchase 1,325,000 Shares remain outstanding as of
December 31, 1995. The following table sets forth information as to all options
to purchase the Shares which were granted pursuant to the Employee Plan to each
of the Trust's five most highly compensated officers:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
NAME OF INDIVIDUAL SHARES SUBJECT SHARES VESTED SHARES ACQUIRED
OR NUMBER IN GROUP TO OPTIONS GRANTED(1)(3) AS OF 3/15/96(1)(3) UPON EXERCISE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Herbert Liechtung(1) -- -- --
Joel M. Pashcow(2) 600,000(2) 600,000(2) --
Edwin R. Frankel 50,000 50,000 --
John J. Johnston, Jr. 50,000 50,000 --
Stanley Rappoport -- -- --
--------- ---------
</TABLE>
- --------------------
(1) Pursuant to the Liechtung Termination Agreement, Mr. Liechtung surrendered
his 600,000 Share options to the Trust for cancellation.
(2) Pursuant to the Pashcow Termination Agreement, Mr. Pashcow agreed to
surrender his 600,000 Share options to the Trust upon the closing of the
Ramco Acquisition.
(3) In connection with the Ramco Acquisition, the Trust intends to make an
offer to all employees of the Trust (other than Mr. Pashcow), who
collectively hold an aggregate of 125,000 fully vested options, to
acquire their respective options at an exercise price of $.50 per option.
As of March 15, 1996, to the best of the Trust's knowledge, no options
issued pursuant to the Employee Plan had been exercised. Upon the closing of
the Ramco Acquisition, it is expected that all of the options previously
granted under the Employee Plan will have been surrendered for cancellation.
36
<PAGE> 40
Compensation Committee Report
The Compensation Committee of the RPS Board (the "Compensation
Committee") is responsible for administering the Trust's senior management
compensation program. The Compensation Committee is composed entirely of
independent Trustees who are not employees of the Trust; the individual members
are listed below. None of these individuals has any interlocking or other
relationships with the Trust that would call into question their independence as
Compensation Committee members.
Except as otherwise described below, the Compensation Committee has
general review authority over compensation levels of, and sets the compensation
of, all corporate officers and key management personnel of the Trust. The
Compensation Committee also administers employee benefit and incentive
compensation programs, and considers and recommends to the Board new benefit
programs.
Pursuant to recently adopted rules designed to enhance disclosure of
companies' policies toward executive compensation, set forth below is a report
of the Compensation Committee addressing the Trust's compensation policies for
1995 as they affected the Trust's principal executive officer, Joel M. Pashcow,
the Chairman and President of the Trust, and its four other most highly paid
executives, Herbert Liechtung, Stanley Rappoport, John J. Johnston, Jr. and
Edwin R. Frankel, the former President, Executive Vice President, Vice
President-Real Estate Counsel and Secretary and Senior Vice President and
Treasurer, respectively, of the Trust.
The compensation of Mr. Pashcow is set pursuant to a ten-year
employment agreement between Mr. Pashcow and the Trust, the terms of which are
described above under the heading "--Employment Agreements." As described in
such section, this employment agreement contains provisions for, among other
things,calculating the base salary paid to Pashcow, as well as the formula
used to determine bonus payments to Mr. Pashcow.
Base salary for Mr. Pashcow is adjusted annually to reflect
cost-of-living increases, subject to certain limitations. The bonus payments
payable to Mr. Pashcow pursuant to his employment contract relates directly to
the Trust's performance and the individual performance of Mr. Pashcow; the
Distribution Incentive Bonus is payable only to the extent that distributions to
the Trust's shareholders during a fiscal year exceed a specified amount, and the
Origination Bonus is paid only to the extent that the Trust succeeds in making
certain long-term investments. As described above, Mr. Pashcow did not receive a
Distribution Incentive Bonus for either 1994 or 1995, and an Origination Bonus
paid during 1994 equalled $19,172 for Mr. Pashcow. The Trust also provided
certain other benefits to Mr. Pashcow during 1995 pursuant to such employment
agreement in the form of non-cash compensation, for items such as professional
fees and insurance. In addition, as described above under the heading
"Compensation Plans," in 1989 the Trust issued to Mr.
37
<PAGE> 41
Pashcow, pursuant to the provisions of the Trust's 1989 Employees' Stock Option
Plan, options to purchase up to 600,000 of the Trust's Shares. Mr. Pashcow also
participates in medical, retirement and other benefit plans available to other
officers and employees of the Trust. Mr. Pashcow has participated in the
deliberations of the Compensation Committee, but did not vote, with respect to
the compensation of the other members of the Trust's senior management.
The Compensation Committee did not negotiate or separately pass upon
the payments to be made to Messrs. Liechtung or Pashcow pursuant to the
Liechtung Termination Agreement or the Pashcow Termination Agreement,
respectively. As described above, the terms of the Liechtung Termination
Agreement and the Pashcow Termination Agreement were negotiated by the Special
Acquisition Committee, and were unanimously approved by the members of the RPS
Board (other than Messrs. Liechtung and Pashcow).
The compensation package offered by the Trust to its senior
executives is intended to enable the Trust to attract, motivate and retain
qualified senior management, taking into account both annual and long-term
performance goals of the Trust and recognizing individual initiative and
achievements. Executive compensation generally consists of base salary and
annual bonus, as well as a combination of benefit programs. Annual bonus
payments for such officers were generally set at a minimum level and are viewed
by the Compensation Committee and such officers as a component of base
compensation. Bonus payments in excess of such minimum amount may be paid by the
Trust, upon the recommendation of the Compensation Committee after taking into
account the views of Messrs. Liechtung and Pashcow, to reward superior
individual performance and improvement in the performance of the Trust. Mr.
Rappoport receives no annual bonus payment; his entire compensation package is
comprised of base salary plus participation in the Trust's benefit programs.
In view of the recent adverse economic climate and its effect on the
real estate industry generally and the Trust's performance specifically,
compensation increases for Messrs. Rappoport, Johnston and Frankel were limited
this past year to cost-of-living adjustments to base salary. In addition,
Messrs. Johnston and Frankel received bonus payments equal to the bonus payments
paid to such officers for 1994. As stated above, these bonuses constitute a
component of such officers' base compensation; the Compensation Committee
believes that failure to pay such bonuses could adversely affect morale and put
the Trust at a competitive disadvantage in its ability to attract and retain
qualified individuals. The aggregate compensation paid to Messrs. Rappoport,
Johnston and Frankel for 1995 is less than that paid in 1994, after taking into
account the impact of inflation. In addition to the compensation described
above, Messrs. Johnston and Frankel each received, in 1989, options to purchase
the Trust's Shares pursuant to the Employee Plan.
38
<PAGE> 42
In addition, as described above under "Severance and Other
Arrangements with Executive Officers and Certain Key Employees," the
Compensation Committee reviewed the additional bonuses and other payments to be
paid to Messrs. Frankel and Rappoport which were authorized by the RPS Board in
order to induce such individuals to remain in the employment of the Trust
through the consummation of the Ramco Acquisition. (The Compensation Committee
did not separately approve the severance and other arrangements approved by the
RPS Board in August, 1994). As described above, the Compensation Committee,
after taking into account the extended time period during which the Ramco
Acquisition was expected to be consummated, determined to increase such payments
(as described above). The Compensation Committee determined that the services
provided by Messrs. Frankel and Rappoport were essential to the Trust's
well-being, and that failure to retain the services of such individuals, at a
time when the Ramco Acquisition has not been consummated, could have an adverse
effect on the Trust. Accordingly, the Compensation Committee, together with the
Special Acquisition Committee, authorized the special bonus and other payments
to Messrs. Frankel and Rappoport which are described above.
The Compensation Committee has reviewed the Trust's compensation
policies in light of the addition of Section 162(m) to the Code, which generally
limits deductions for compensation paid to certain executive officers to
$1,000,000 per annum (certain performance based compensation is not subject to
that limit), and has determined that the compensation levels of the Trust's
executive officers (other than Messrs. Liechtung and Pashcow, whose compensation
is not determined by the Compensation Committee) are not at a level which would
be affected by such amendments. The Compensation Committee intends to continue
to review the application of Section 162(m) to the Trust with respect to any
future compensation programs which are considered by the Trust.
Members of the Compensation Committee:
Stephen R. Blank Arthur H. Goldberg
Edwin J. Glickman Alfred D. Stalford
Compensation of Trustees
The Independent Trustees each received $20,000 in compensation for
serving as a Trustee in 1995, plus reimbursement of travel expenses and other
out-of-pocket disbursements incurred in connection with attending any meetings.
Trustees do not receive any additional compensation for attending meetings or
for serving on any committees of the Board. Messrs. Pashcow, Liechtung and
Rosoff do not receive any compensation for their services as Trustees.
39
<PAGE> 43
In April 1989, the Board of Trustees adopted the 1989 Trustees' Stock
Option Plan, which plan was subsequently approved by the its shareholders.
Pursuant to the plan, each Trustee who is not an officer or employee of the
Trust automatically received, on the later of the date of approval of the plan
or the initial date of election as a Trustee, and every two years thereafter if
he continued as a Trustee, an option to purchase the number of Shares equal to
0.1% of the aggregate number of shares then outstanding. In October 1991, the
Board of Trustees modified and amended the 1989 Trustees' Stock Option Plan to
provide that the remaining options due to be issued after October 8, 1991 be
issued pro rata to each of the seven eligible Trustees, notwithstanding the date
on which such Trustees became eligible to receive such options. All options
available for grant under the plan have been granted.
Options granted under the 1989 Trustees' Stock Option Plan became
exercisable after one year following the date of grant with respect to 50% of
the Shares covered thereby, and the remaining 50% became exercisable on the
next succeeding anniversary date from the date of grant. Shares subject to the
options may be purchased for cash and/or by delivery of Shares having an
equivalent fair market value. The exercise price is 100% of the fair market
value of the Shares on the date of grant. Unexercised options expire ten years
from their date of grant.
On November 28, 1989 and November 28, 1991, each of Messrs.
Blumenfeld, Eisenstat, Glickman, Goldberg and Stalford were granted options to
purchase 29,622 Shares at an exercise price of $5.375 per Share and 20,378
Shares at an exercise price of $5.25 per Share, respectively. On January 29,
1990 and January 29, 1992, each of Messrs. Rosoff and Blank were granted options
to purchase 29,622 Shares at an exercise price of $5.75 per Share and 20,378
shares at an exercise price of $5.375 per Share, respectively. All options
granted under the 1989 Trustees' Stock Option Plan are currently exercisable. To
the best of the Trust's knowledge, as of March 15, 1995 no options issued
pursuant to the 1989 Trustees' Stock Option Plan had been exercised.
All Trustees who have been granted options under the 1989 Trustees'
Stock Option Plan have advised the Trust that they will surrender their options
to the Trust, without consideration, upon the closing of the Ramco Acquisition.
Compensation of Certain Special Acquisition Committee Members
On April 17, 1994, the RPS Board authorized the payment of $75,000 to
be paid to each of Messrs. Blank and Goldberg in their capacities as members of
the Special Acquisition Committee. On October 11, 1994, in recognition of the
expectation that the Ramco Acquisition would not be consummated for several more
months, the RPS Board authorized the payments to each of Messrs. Blank and
Goldberg of an additional $50,000 in their capacities
40
<PAGE> 44
as members of the Special Acquisition Committee. On April 3, 1995, in
recognition of the expectation that the Ramco Acquisition would not be
consummated for several more months, the RPS Board authorized the payments to
each of Messrs. Blank and Goldberg of an additional $50,000 in their capacities
as members of the Special Acquisition Committee. In December 1995, in
recognition of the expectation that the Ramco Acquisition would not be
consummated for several more months, the RPS Board authorized and the Trust paid
the payments to each of Messrs. Blank and Goldberg of an additional $100,000 in
their capacities as members of the Special Acquisition Committee. Mr. Rosoff
does not receive any compensation for his service on such committee. These
payments have already been made and will be retained by Messrs. Blank and
Goldberg regardless of whether the Ramco Acquisition is consummated.
Compensation of Spin-Off Committee Members
On April 13, 1995, the RPS Board authorized the payment of $25,000 to
be paid to each of Messrs. Goldberg, Blumenfeld and Glickman in their capacities
as members of the Spin-Off Committee. These payments have already been made and
will be retained by Messrs. Goldberg, Blumenfeld and Glickman regardless of
whether the Spin-Off Transaction occurs.
41
<PAGE> 45
Performance Graph
<TABLE>
<CAPTION>
Date Mortgage Equity S&P 500 RPS RPS Value of
REIT REIT Price Shares
Index Index
<S> <C> <C> <C> <C> <C> <C> <C>
1 Dec-90 100 100 100 100 5.375 5985.819574
2 Jan-91 107.81 110.94 104.42 104 5.375 6230.820562
3 Feb-91 115.94 112.95 111.9 111 5.75 6665.528973
4 Mar-91 123.28 122.74 114.56 119 6.125 7100.237384
5 Apr-91 125.93 125.85 114.88 111 5.75 6665.528973
6 May-91 131.74 127.25 119.8 122 6.125 7332.08187
7 Jun-91 128.72 123.7 114.32 125 6.25 7481.716194
8 Jul-91 130.24 126.19 119.67 122 6.125 7332.08187
9 Aug-91 130.86 125.68 122.49 119 5.75 7117.499882
10 Sep-91 134.68 128.76 120.48 119 5.75 7117.499882
11 Oct-91 136.87 127.34 122.09 106 5.125 6343.858591
12 Nov-91 136.83 126.64 117.16 112 5.25 6693.544455
13 Dec-91 131.83 135.7 130.55 104 4.875 6215.434136
14 Jan-92 141.06 142.3 128.12 115 5.25 6884.788582
15 Feb-92 139.06 138.9 129.76 120 5.5 7212.635657
16 Mar-92 138.22 136.6 127.22 112 5.125 6720.865044
17 Apr-92 140.23 136.11 130.92 107 4.875 6393.017969
18 May-92 140.24 142.06 131.63 119 5.25 7096.628231
19 Jun-92 138.26 140.2 129.72 121 5.375 7265.595569
20 Jul-92 138.72 146.29 134.95 127 5.625 7603.530247
21 Aug-92 130.34 146.74 132.22 128 5.5 7632.817919
22 Sep-92 134.2 149.76 133.74 128 5.5 7632.817919
23 Oct-92 132.35 149.57 134.22 125 5.375 7459.344785
24 Nov-92 133.65 152.74 138.75 128 5.375 7672.468921
25 Dec-92 134.36 155.49 140.56 119 5 7137.180392
26 Jan-93 144.07 165.47 141.59 126 5.125 7529.725313
27 Feb-93 146.24 174.37 143.5 129 5.25 7713.37715
28 Mar-93 149.12 189.14 146.59 104 4.25 6244.162455
29 Apr-93 139.86 180.81 142.99 95 3.875 5693.206944
30 May-93 140.47 177.95 146.86 97 3.875 5807.071083
31 Jun-93 142.71 183.71 147.34 88 3.5 5245.096462
32 Jul-93 145.57 186.92 146.65 88 3.5 5245.096462
33 Aug-93 147.48 191.54 152.23 93 3.625 5556.590966
34 Sep-93 153.61 200.89 151.11 93 3.625 5556.590966
35 Oct-93 155.36 197.06 154.18 106 4.125 6323.017307
36 Nov-93 152.75 186.37 152.73 98 3.75 5866.870017
37 Dec-93 153.91 186.06 154.6 101 3.875 6062.432351
38 Jan-94 160.7 191.47 159.78 103 3.875 6191.764241
39 Feb-94 154.96 199.79 155.47 107 4 6391.498571
40 Mar-94 142.93 192.39 148.71 103 3.875 6191.764241
41 Apr-94 143.24 195.66 150.64 93 3.5 5592.56125
42 May-94 141.55 200.01 153.1 112 4.125 6723.05756
43 Jun-94 137.38 195.93 149.31 116 4.25 6926.786577
44 Jul-94 140.47 194.97 154.26 119 4.375 7130.515594
45 Aug-94 144.02 195.55 160.53 121 4.375 7260.902165
46 Sep-94 136.67 191.92 156.67 121 4.375 7260.902165
47 Oct-94 129.33 185.27 160.25 114 4.125 6845.99347
48 Nov-94 121.77 178.9 154.37 117 4.125 6978.764252
49 Dec-94 116.51 191.95 156.63 124 4.375 7401.719661
50 Jan-95 124.81 187.76 160.7 117 4.125 6978.764252
51 Feb-95 140.47 192.4 166.93 124 4.375 7401.719661
52 Mar-95 141.17 191.63 171.87 131 4.625 7824.67507
53 Apr-95 144.25 191.58 176.88 131 4.625 7824.67507
54 May-95 154.18 199.72 183.86 133 4.625 7953.079995
55 Jun-95 157.13 202.9 188.18 129 4.5 7738.131887
56 Jul-95 158.68 206.4 194.45 122 4.25 7308.235671
57 Aug-95 171 208.87 194.98 128 4.375 7664.79665
58 Sep-95 173.67 212.46 203.14 132 4.5 7883.79084
59 Oct-95 177.37 207.9 202.43 124 4.25 7445.80246
60 Nov-95 181.56 209.8 211.34 130 4.375 7804.952931
61 Dec-95 190.39 221.26 215.25 138 4.625 8250.950242
</TABLE>
42
<PAGE> 46
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 15, 1996, the following person was known by the Trust to
be the beneficial owner of more than five percent of the Shares of the Trust
(based solely upon a Schedule 13D and a Schedule 13G filed with the Securities
and Exchange Commission in December 1989 and February 5, 1996, respectively):
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND NATURE OF PERCENT
ADDRESS OF BENEFICIAL OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS
- -------------- ---------------- ---------- -------
<S> <C> <C> <C>
Shares of Poff & Co. (Trustee for 1,724,595 6.1%
beneficial Policemen and Firemen Shares
interest, Retirement System of owned
$.10 par value the City of Detroit) directly
c/o Manufacturers National
Bank of Detroit
P.O. Box 1319
Detroit, Michigan 48231
Shares of Ryback Management Corp. 2,240,100 7.9%
beneficial and/or Lindner Shares
interest, Investment Series Trust, owned as
$.10 par in a fiduciary capacity fiduciary
value for Lindner Growth Fund with sole
c/o Ryback Management voting and
Corporation disposition
7711 Carondelet Avenue, power
Box 16900,
St. Louis, Missouri
63105
</TABLE>
43
<PAGE> 47
The following table sets forth as of March 15, 1995 information as to
security ownership of each Trustee and of all Trustees and executive officers as
a group, of the Shares:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(9) OF CLASS(9)
- ------------------------ --------- --------
<S> <C> <C>
Joel M. Pashcow(2) 1,345,234 4.7%
Herbert Liechtung(3) 378,243 1.3%
Arthur H. Goldberg(4) 245,900 *
Alfred D. Stalford(5) 54,000 *
Stephen R. Blank(6) 57,850 *
Samuel M. Eisenstat(7) 51,000 *
Edward Blumenfeld 51,000 *
William A. Rosoff(8) 69,200 *
Edwin J. Glickman 50,000 *
All Trustees and executive
officers as a group
(12 persons) 2,431,077 8.5%
</TABLE>
- -----------------------
* Less than 1% of class.
(1) All amounts are owned directly unless stated otherwise.
(2) Includes 207,127 Shares held in an IRA account for the benefit of Mr.
Pashcow, a retirement savings plan and a pension and profit sharing
account, 381,300 Shares owned by an irrevocable trust of which Mr.
Pashcow is a trustee, an irrevocable trust for his daughter and a
foundation of which Mr. Pashcow is a trustee (for all of which trusts Mr.
Pashcow has shared voting and investment powers) and 600,000 Shares which
Mr. Pashcow has a currently exercisable option to purchase, but which Mr.
Pashcow has agreed to surrender for cancellation upon the closing of the
Ramco Acquisition pursuant to the Pashcow Termination Agreement. Mr.
Pashcow disclaims beneficial ownership of the Shares owned by the
foundation and each of the trusts.
(3) Includes 170,058 Shares owned by Mr. Liechtung's wife, 208,184 Shares
held in an IRA account for the benefit of Mr. Liechtung and a retirement
savings plan. Mr. Liechtung disclaims beneficial ownership of the Shares
owned by his wife. Pursuant to the terms of the Liechtung Termination
Agreement, Mr. Liechtung ceased to be an executive officer of the Trust
as of February 29, 1996.
(4) Includes 156,500 Shares owned by Mr. Goldberg's wife, 15,000 Shares owned
by trusts for his daughters and 24,400 Shares
44
<PAGE> 48
owned by a pension trust. Mr. Goldberg disclaims beneficial ownership of
the Shares owned by his wife and the trusts for his daughters.
(5) Includes 3,000 Shares held in an IRA account for which Mr. Stalford has
sole voting and investment power.
(6) Includes 5,650 Shares owned by trusts for Mr. Blank's daughters and 2,200
Shares held in an IRA account for the benefit of Mr. Blank. Mr. Blank
disclaims beneficial ownership of the Shares owned by the trusts for his
daughters.
(7) Includes 1,000 Shares held in an IRA account for which Mr. Eisenstat has
sole voting and investment power.
(8) Includes 18,200 Shares held by Mr. Rosoff as trustee for his sister,
Barbara Rosoff, pursuant to a trust indenture dated December 30, 1991.
(9) Includes Shares subject to stock options granted by the Trust which are
currently exercisable or which will become exercisable within sixty days,
including options issued to Independent Trustees under the 1989 Trustees'
Stock Option Plan which shall be surrendered to the Trust, without
consideration, upon the closing of the Ramco Acquisition. See Item 11,
"Executive Compensation -- Compensation of Trustees."
Item 13. Certain Relationships and Related Transactions.
Certain members of management have substantial interests in the
transactions contemplated by the Ramco Acquisition that will not be available to
shareholders generally, including the following (i) pursuant to the Liechtung
Termination Agreement, Herbert Liechtung, the former President and a Trustee of
the Trust, received a lump sum severance payment of $1,478,402, and will receive
an origination bonus of $159,800 if the Ramco Acquisition is consummated on or
before June 10, 1996, in consideration of the termination of his employment
agreement with the Trust and the surrender of his fully vested options to
acquire 600,000 shares at an exercise price of $5.75 per share, (ii) pursuant to
the Pashcow Termination Agreement, the Trust will pay to Mr. Pashcow, following
the closing of the Ramco Acquisition, two severance payments totaling an
aggregate of $1,910,416 (exclusive of interest at a rate of approximately 7.75%
on $1,600,000 of which will be deferred and paid on January 15, 1997), and will
receive an origination bonus of $79,900 pursuant to his existing employment
agreement, in consideration of the termination of his employment agreement with
the Trust and the surrender of his fully vested
45
<PAGE> 49
options to acquire 600,000 shares at an exercise price of $5.75 per share, (iii)
Messrs. Liechtung and Pashcow and will continue as members of the RPS Board of
the Trust upon consummation of the Ramco Acquisition pursuant to which they will
receive compensation to be paid to all non-management Trustees of $20,000 per
annum, (iv) the non-continuing employees of the Trust, other than Messrs.
Liechtung and Pashcow, have or will receive severance and stay bonus payments
aggregating approximately $829,000, assuming the Ramco Acquisition is
consummated on April 30, 1996, (v) based on an offer to be made by the Trust,
certain non-continuing employees (other than Mr. Pashcow) who hold fully vested
options to acquire an aggregate of 125,000 Shares at an exercise price of $5.75
per Share will receive an aggregate of $62,500 in consideration of the surrender
of such options, and (vi) Edwin R. Frankel, Senior Vice President and Treasurer
of the Trust, will become an executive officer of the Spin-Off Company and
receive compensation of $60,000 per annum upon the closing of the Ramco
Acquisition.
Steven Liechtung, the son of Herbert Liechtung, is a Vice President of
the Trust. Steven Liechtung received compensation aggregating $136,241 for
services rendered in all capacities to the Trust during the year ended December
31, 1995. In addition, on December 6, 1989, Steven Liechtung was granted options
to purchase 20,000 Shares, at an exercise price of $5.75 per share, pursuant to
the 1989 Employees' Stock Option Plan. The options are currently exercisable
with respect to 100% of the Shares covered thereby. In addition, Steven
Liechtung is eligible to receive certain severance and other payments described
above.
On August 9, 1994, the RPS Board adopted a resolution authorizing the
Trust to adopt a severance policy pursuant to which each employee (other than
Messrs. Liechtung and Pashcow, who are not covered by such policy) whose
employment with the Trust is terminated after such date would be entitled to
receive from the Trust an amount equal to one month's salary for each year that
such employee was employed by the Trust (and/or the Trust's predecessors), up to
a maximum of 12 months' salary. In addition, in connection with the negotiation
of the Ramco Acquisition, the RPS Board determined that it was necessary to
enter into arrangements with certain of the executive officers and key employees
of the Trust, to induce such individuals to remain in the employ of the Trust at
least through the consummation of the Ramco Acquisition. Accordingly, on August
9, 1994, the RPS Board authorized the payment to Messrs. Edwin Frankel, Stanley
Rappoport and Steven Liechtung of bonuses (in addition to the severance
arrangements described above) equal to 100% of six month's salary (with respect
to Mr. Frankel) and 25% of six months' salary (with respect to Messrs. Rappoport
and Steven Liechtung), which bonuses would be paid only in the event that such
employee is employed by the Trust upon the consummation of the Ramco
Acquisition. On February 8, 1995, in recognition of the fact that the Ramco
Acquisition was not expected to be consummated for several more months, the
46
<PAGE> 50
Compensation Committee of the RPS Board and the members of the Special
Acquisition Committee authorized an increase in Mr. Frankel's bonus to 100% of
seven months' salary; authorized the payment to Mr. Rappoport of severance pay
equal to 100% of six months' base salary (in lieu of the standard severance
arrangements described above), in addition to the bonus payment referred to
above; and authorized an increase in Mr. Steven Liechtung's bonus to 100% of
four months' salary. On March 15, 1996, the Compensation Committee, upon the
recommendation of the Special Acquisition Committee, approved an additional
bonus of $50,000 payable to Mr. Frankel. The payments made and to be made to
each of Messrs. Frankel, Rappoport and John Johnston, Jr., each of whom are
executive officers of the Trust, pursuant to the severance and/or bonus
arrangements described above, will be $272,000, $119,000 and $135,000,
respectively, assuming the Ramco Acquisition is consummated on April 30, 1996.
The law firm of Wolf, Block has served as special real estate and Tax
counsel to the Trust in connection with the Ramco Acquisition. During 1995,
Wolf, Black received approximately $809,615 in legal fees for services provided
to the Trust in connection with the Ramco Acquisition and other matters. William
A. Rosoff, a member of the RPS Board, was a partner of Wolf, Block until January
15, 1996.
See Item 11, "Executive Compensation -- Compensation of Certain Special
Acquisition Committee Members and -- Compensation of Spin-Off Committee
Members" above for a discussion of payments made by the Trust to certain
members of the Special Acquisition Committee and to members of the Spin-Off
Committee during 1995.
47
<PAGE> 51
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Financial Statements, Schedules and Exhibits
(a)(1) Financial Statements
See pages F-1 through F-22, which are included herein.
(a)(2) Financial Statement Schedules
All schedules have been omitted because they are inapplicable, not
required, or the information is included in the financial statements
or notes thereto.
(a)(3) Exhibits Sequential
Page No.
----------
3.1 Amended and Restated Declaration of Trust of the
Trust, dated October 14, 1988, incorporated by
reference to Exhibit 3, 4(a) to the Trust's
Registration Statement on Form S-4, File No.
33-25272.
3.2 By-Laws of the Trust adopted December 6, 1989,
incorporated by reference to Exhibit 4.2 to the
Trust's Current Report on Form 8-K, dated December
6, 1989.
48
<PAGE> 52
4. Rights Agreement dated as of December 6, 1989
between the Trust and American Stock Transfer &
Trust Company, incorporated by reference to Exhibit
1 to the Trust's Registration Statement on Form
8-A, File No. 1-10093, for the registration of
Share Purchase Rights.
10.1 Exchange Agreement, dated as of November 1, 1988
between the Trust and RPS 1, incorporated by
reference to Exhibit 2A to the Trust's Current
Report on Form 8-K, dated December 28, 1988.
10.2 Exchange Agreement dated as of November 1, 1988
between the Trust and RPS 2, incorporated by
reference to Exhibit 2B to the Trust's Current
Report on Form 8-K, dated December 28, 1988.
10.3 Exchange Agreement, dated as of November 1, 1988
between the Trust and RPS 3, incorporated by
reference to Exhibit 2C to the Trust's Current
Report on Form 8-K, dated December 28, 1988.
10.4 Exchange Agreement, dated as of November 1, 1988
between the Trust and RPS 4, incorporated by
reference to Exhibit 2D to the Trust's Current
Report on Form 8-K, dated December 28, 1988.
49
<PAGE> 53
10.5 Asset and Stock Purchase Agreement dated as of
November 1, 1988 among Integrated, RPS Advisory
Corp., Resources Pension Advisory Corp. and the
Trust, including as exhibits: (i) Note Issuance
Agreement, dated as of Decem- ber 28, 1988, by and
between Integrated, Resources Pension Advisory
Corp., and the Trust; and (ii) Note of the Trust
dated December 28, 1988, incorporated by reference
to Exhibit 2E to the Trust's Current Report on Form
8-K, dated December 28, 1988.
10.6 Employment Agreement, dated October 24, 1988,
between Resources Pension Advisory Corp. and Joel
Pashcow, incorporated by reference to Exhibit 10.6
to the Trust's Annual Report on Form 10-K for the
year ended December 31, 1988.
10.7 Employment Agreement, dated October 24, 1988,
between Resources Pension Advisory Corp. and
Herbert Liechtung, incorporated by reference to
Exhibit 10.7 to the Trust's Annual Report on Form
10-K for the year ended December 31, 1988.
10.8 1989 Trustees' Stock Option Plan, incorporated by
reference to Exhibit A to the Trust's Proxy
Statement dated October 18, 1989.
10.9 1989 Employees' Stock Option Plan, incorporated by
reference to Exhibit B to the Trust's Proxy
Statement dated October 18, 1989.
10.10 Retirement Savings Plan of the Trust dated
September 13, 1989 incorporated by reference to the
Trust's Annual Report on Form 10-K for the year
ended December 31, 1989.
50
<PAGE> 54
10.11 Secured Promissory Note, dated February 23, 1990,
executed by Rector Hylan Corporation, incorporated
by reference to Exhibit 10.1 to the Trust's Current
Report on Form 8-K dated February 23, 1990.
10.12 Collateral Assignment of Mortgage and Security
Agreement, dated February 23, 1990, between Rector
Hylan Corporation and the Trust, incorporated by
reference to Exhibit 10.2 to the Trust's Current
Report on Form 8-K dated February 23, 1990.
10.13 Note Purchase Agreement, dated December 27, 1991,
between the Trust and The Capitol Life Insurance
Company, incorporated by reference to Exhibit 10.13
to the Trust's Annual Report on Form 10-K for the
year ended December 31, 1991.
10.14 Reissued Note Number 5, dated December 28, 1992,
executed by the Trust in favor of Anchor National
Life Insurance Company, incorporated by reference
to Exhibit 10.14 to the Trust's Annual Report on
Form 10-K for the year ended December 31, 1993.
10.15 Loan Purchase Agreement dated December 3, 1993
between the Trust and Merged Centers, incorporated
by reference to Exhibit 10.15 to the Trust's Annual
Report on Form 10-K for the year ended December 31,
1993.
10.16 Agreement dated as of January 25, 1994, among the
Trust, Rector Hylan Corporation, Rector Acquisition
Corp. and Shalva Company, Inc., incorporated by
reference to Exhibit 10.16 to the Trust's Annual
Report on Form 10-K for the year ended December 31,
1993.
51
<PAGE> 55
10.17 Assignment of Mortgages dated January 25, 1994
between Rector Hylan Corporation and the Trust,
incorporated by reference to Exhibit 10.17 to the
Trust's Annual Report on Form 10-K for the year
ended December 31, 1994.
10.18 Certificate of Reduction of Debt dated January 25,
1995, executed by the Trust, incorporated by
reference to Exhibit 10.18 to the Trust's Annual
Report on Form 10-K for the year ended December 31,
1994.
10.19 Agreement of Sale dated May 20, 1993 between
Morristown-Chester Plaza Associates, L.P. and
Chester Plaza Shops, Inc., as contemplated by an
amendment thereto dated July 11, 1994, incorporated
by reference to Exhibit 10.19 to the Trust's Annual
Report on Form 10-K for the year ended December 31,
1994.
10.20 Bargain and Sale Deed dated July 11, 1994 between
Morristown- Chester Plaza Associates, L.P. and
Chester Plaza Shops, Inc., incorporated by
reference to Exhibit 10.20 to the Trust's Annual
Report on Form 10-K for the year ended December 31,
1994.
10.21 Settlement Agreement dated as of June, 1994 between
the Trust and Norgate Plaza Limited Partnership,
incorporated by reference to Exhibit 10.21 to the
Trust's Annual Report on Form 10-K for the year
ended December 31, 1994.
10.22 Addendum to Settlement Agreement dated June, 1994
between the Trust and Norgate Plaza Limited
Partnership, incorporated by reference to Exhibit
10.22 to the Trust's Annual Report on Form 10-K for
the year ended December 31, 1994.
52
<PAGE> 56
10.23 Purchase Agreement dated June, 1994 between Norgate
Plaza Limited Partnership and Norgate Shops Corp.,
incorporated by reference to Exhibit 10.23 to the
Trust's Annual Report on Form 10-K for the year
ended December 31, 1994
10.24 Addendum to Purchase Agreement dated June, 1994
between Norgate Shops Corp. and Norgate Plaza
Limited Partnership, incorporated by reference to
Exhibit 10.24 to the Trust's Annual Report on Form
10-K for the year ended December 31, 1994.
10.25 Quitclaim Deed dated June 13, 1994 between Norgate
Plaza Limited Partnership and Norgate Shops Corp.,
incorporated by reference to Exhibit 10.25 to the
Trust's Annual Report on Form 10-K for the year
ended December 31, 1994
10.26 Letter of Intent dated July 14, 1994 between the
Trust and Ramco-Gershenson, Inc. (incorporated by
reference to Exhibit 99 to the Trust's Current
Report on Form 8-K dated July 28, 1994).
10.27 Letter Agreement dated as of June 8, 1994 between
the Trust and Dean Witter Reynolds, Inc.,
incorporated by reference to Exhibit 10.27 of the
Trust's Annual Report on Form 10-K for the year
ended December 31, 1994.
10.28 Master Agreement, dated as of April 10, 1995 between
the Trust, Ramco-Gershenson, Inc. and each of the parties
signatory thereto (incorporated by reference to Exhibit
2.1 to the Trust's Current Report on Form 8-K dated
April 24, 1995).
10.29 Amended and Restated Termination Agreement, dated
as of February 29, 1995 between the Trust and
Herbert Liechtung.
10.30 Amended and Restated Master Agreement dated as of
December 27, 1995 between the Trust, Ramco-
Gershenson, Inc. and each of the parties signatory
thereto (incorporated by reference to Exhibit 2.1
to the Trust's Current Report on Form 8-K dated
January 10, 1996).
53
<PAGE> 57
10.31 First Amendment to Amended and Restated Master
Agreement dated as of March 19, 1996 (incorporated
by reference to the Trust's Current Report on Form
8-K dated March 28, 1996).
10.32 Termination Agreement dated as of March 28, 1996
between the Trust and Joel M. Pashcow, Chairman and
President of the Trust.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors with respect to the
Trust's Registration Statement on Form S-3, filed
with the Commission on April 25, 1989.
23.2 Consent of Independent Auditors with respect to the
Trust's Registration Statement on Form S-8, filed
with the Commission on November 22, 1990.
27.1 Financial Data Schedule.
28.1 Distribution Reinvestment and Trust Agreement,
including Distribution Reinvestment Plan, made as
of January 1, 1991 between the Trust and American
Stock Transfer and Trust Company, incorporated by
reference to Exhibit 28.1 to the Trust's Annual
Report on Form 10-K for the year ended December 31,
1990.
28.2 Description of Rector Hylan loan, incorporated by
reference into Item 1 of this Report, from the
Trust's Current Report on Form 8-K dated February
23, 1990.
99.1 Pages 27 to 33 of the Trust's definitive proxy
statement, dated and filed with the Securities and
Exchange Commission on March 28, 1996, relating to a
special meeting of shareholders to be held on April
29, 1996.
(b) Reports on Form 8-K filed during the last quarter of the fiscal
year: None.
54
<PAGE> 58
RPS REALTY TRUST AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets, December 31, 1995 and 1994 F-3
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1995, 1994 and 1993 F-7
</TABLE>
<PAGE> 59
To the Board of Trustees of
RPS Realty Trust
We have audited the accompanying consolidated balance sheets of RPS Realty
Trust and subsidiaries (the "Trust") as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Trust'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 audit to obtain
reasonable assurance about whether the consolidated 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 consolidated financial statements present fairly, in all
material respects, the financial position of RPS Realty Trust and subsidiaries
as of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, NY
April 3, 1996
F-2
<PAGE> 60
RPS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Investment in real estate - Net $ 55,299,163 $ 56,109,381
Mortgage loans receivable - Net
of allowance for possible loan
losses of $10,231,336 in 1995
and $11,657,236 in 1994 36,023,265 41,891,769
REMIC investments 58,098,854 --
Short-term investments 10,299,545 73,781,582
Interest and accounts receivable 7,748,511 8,607,992
Transaction advances 2,471,100 --
Cash 1,166,958 802,384
Deferred acquisition expenses -
Net of accumulated amortization
of $1,517,570 in 1995 and
$1,319,706 in 1994 2,154,243 2,352,107
Other assets 7,319,562 2,625,607
------------ ------------
TOTAL ASSETS $180,581,201 $186,170,822
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 2,279,394 $2,279,394
Accounts payable and accrued expenses 1,282,196 1,292,260
------------ ----------
Total liabilities 3,561,590 3,571,654
Commitments and contingencies -- --
SHAREHOLDERS' EQUITY 177,019,611 182,599,168
------------ -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $180,581,201 $186,170,822
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 61
RPS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
REVENUES:
Rental income 8,936,111 6,764,394 4,086,850
Interest income:
Mortgage loans $ 3,691,892 $ 8,597,619 $13,990,819
Short-term investments 2,531,466 2,604,284 1,104,562
REMIC Investments 1,516,398 -- --
Additional contingent interest
and prepayment premium income 8,405,813 3,433,116
Gain on sale of marketable securities -- -- 3,942,513
Dividend income -- -- 395,185
Other 41,093 34,651 15,460
----------- ----------- -----------
16,716,960 26,406,761 26,968,505
----------- ----------- -----------
EXPENSES:
Allowance for possible loan losses 3,650,000 2,500,000 15,000,000
Provision for impairment of
real estate 800,000 -- --
Interest on note payable -- -- 2,019,710
Interest on mortgages payable -- 426,414 603,152
General and administrative 2,455,374 2,086,318 1,912,228
Payroll and related 1,671,637 1,811,485 1,723,528
Property operating 1,934,204 1,529,731 1,206,002
Real estate tax 1,271,431 1,235,961 704,228
Depreciation 1,016,147 749,404 550,527
Losses on disposition of real
estate/loans 182,284 227,708 --
Amortization of deferred
acquisition expense 197,864 197,864 197,864
----------- ----------- -----------
13,178,941 10,764,885 23,917,239
----------- ----------- -----------
NET INCOME $ 3,538,019 $15,641,876 $ 3,051,266
=========== =========== ===========
NET INCOME PER SHARE $ 0.12 $ 0.55 $ 0.11
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 62
RPS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Number of Paid-In Cumulative Cumulative Shareholders'
Shares Amount Capital Earnings Distributions Equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 28,596,321 $2,859,632 $195,303,664 $69,048,385 $ (84,652,730) $182,558,951
Shares repurchased and retired (43,400) (4,340) (147,750) -- -- (152,090)
Net income -- -- -- 3,051,266 -- 3,051,266
Cash distributions declared -- -- -- -- (9,145,527) (9,145,527)
---------- --------- ----------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1993 28,552,921 2,855,292 195,155,914 72,099,651 (93,798,257) 176,312,600
Shares repurchased and retired (60,500) (6,050) (231,683) (237,733)
Net income -- -- -- 15,641,876 -- 15,641,876
Cash distributions declared -- -- -- -- (9,117,575) (9,117,575)
---------- --------- ----------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1994 28,492,421 2,849,242 194,924,231 87,741,527 (102,915,832) 182,599,168
Net income -- -- -- 3,538,019 -- 3,538,019
Cash distributions declared -- -- -- -- (9,117,576) (9,117,576)
---------- --------- ----------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995 28,492,421 $2,849,242 $194,924,231 $91,279,546 $(112,033,408) $177,019,611
========== ========== ============ =========== ============= ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 63
RPS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,538,019 $15,641,876 $ 3,051,266
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 3,650,000 2,500,000 15,000,000
Provision for impairment of real estate 800,000 -- --
Loss on disposition of real estate/loans 182,284 227,708 --
Amortization of deferred acquision expense 197,864 197,864 197,864
Depreciation 1,016,147 749,404 550,527
Gain on sale of marketable securities -- -- (3,942,513)
Changes in operating assets and
liabilities:
Interest and accounts receivable 126,297 (391,122) 444,197
Other assets (4,693,955) (2,131,770) (166,789)
Transaction advances (2,471,100) -- --
Interest on note payable -- -- (6,532,559)
Deposits on sale of loans -- -- 1,365,042
Accounts payable and accrued expenses (10,064) (2,342,457) (32,985)
------------ ----------- -----------
Net cash provided by operating
activities 2,335,492 14,451,503 9,934,050
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of REMIC Investments (58,098,854) -- --
Satisfaction of mortgage loans receivable 3,025,000 45,903,575 16,902,474
Investment in mortgage loans receivable (255,596) -- (3,064,000)
Investment in real estate (1,005,929) (8,832,548) (1,426,743)
Proceeds from sale of marketable
securities -- -- 9,294,453
Sale of real estate -- 112,500 --
------------ ----------- -----------
Net cash provided by (used in)
investing activities (56,335,379) 37,183,527 21,706,184
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends declared and paid (9,117,576) (9,123,240) (11,149,917)
Shares repurchased -- (237,733) (152,090)
Repayment of note payable -- -- (14,482,500)
Repayment of mortgages payable -- (6,490,854) (4,703,555)
------------ ----------- -----------
Net cash used in financing
activities (9,117,576) (15,851,827) (30,488,062)
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (63,117,463) 35,783,203 1,152,172
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 74,583,966 38,800,763 37,648,591
------------ ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR 11,466,503 74,583,966 38,800,763
============ =========== ============
CASH AND CASH EQUIVALENTS,
END OF YEAR
Cash $ 1,166,958 $ 802,384 $ 1,053,375
Short-term investments 10,299,545 73,781,582 37,747,388
------------ ----------- -----------
$ 11,466,503 $ 74,583,966 $ 38,800,763
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ -- $ 426,414 $ 9,155,421
------------ ------------ ------------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Investment in real estate $ -- $ 14,626,242 $ 8,490,000
Investment in limited partnership -- -- 460,000
Mortgages payable assumed -- (1,463,831) (3,498,907)
Interest and accounts receivable (733,184) (1,761,023) (2,806,571)
Use of allowance for possible loan losses 5,075,900 14,567,301 6,155,478
Gross mortgages receivable exchanged
for real estate -- (9,500,000) (8,800,000)
Mortgage receivable exchanged -- (3,000,000) --
Net mortgages receivable sold (4,342,716) (13,829,129) --
Accounts payable -- (839,402) --
Deposit on sale of loans -- 1,365,042 --
Other assets -- (165,200) --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 64
RPS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
RPS Realty Trust (the "Trust"), a Massachusetts business trust, was formed
on June 21, 1988 to be a diversified, growth-oriented real estate
investment trust.
a. Income Tax Status -- The Trust conducts its operations with the intent
of meeting the requirements applicable to a real estate investment trust
("REIT") under Sections 856 through 860 of the Internal Revenue Code
of 1986 as amended (the "Code"). For the year ended December 31, 1995,
the Trust intends to distribute all of its taxable income prior to
filing its tax return. See Note 14 for other developments.
b. Principles of Consolidation -- The consolidated financial statements
include the accounts of the Trust and all majority owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
c. Investments -- Effective January 1, 1994 the Trust has adopted
Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities"
which resulted in a change accounting for debt and equity securities.
Prior to January 1, 1994 the Trust carried debt and equity securities
at the lower of aggregate cost or market value. In accordance with
SFAS 115, the Trust's debt and equity securities are now considered as
either held-to-maturity or available for sale. The adoption of
SFAS 115 did not have a significant impact on the financial
statements.
Held-to-maturity securities represent those securities that the Trust
has both the positive intent and ability to hold to maturity and are
carried at amortized cost. Available for sale securities represent
those securities that do not meet the classification of held-to-
maturity, are not actively traded and are carried at fair value.
Short term investments are considered cash equivalents for the
purposes of the statement of cash flows and consist primarily of
highly liquid investments having original maturities of less than
three months. Accordingly, the Trust classifies its short term
investments as held-to-maturity and carries such investments at
amortized cost, which approximates fair value.
The Trust's investments in REMICS, which consist of collateralized
mortgage backed securities which are guaranteed by the Federal
National Mortgage Association ("FNMA"), Government National
Mortgage Association ("GNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"), do not meet the classification of held-to-
maturity and are therefore classified as available-for-sale. These
investments bear interest from 40-50 basis points above the 1 month
Libor rate and have average lives of 3 to 5 years. At December 31,
1995, the cost of such securities approximates fair value and
accordingly, there are no unrealized gains and losses.
d. Investment in Real Estate -- Investment in real estate is stated at
the lower of cost less accumulated depreciation or market.
Depreciation is calculated using the straight-line method over the
estimated useful life of the property. The market value for real
estate is determined based on
F-7
<PAGE> 65
independent appraisals obtained for the property. Additions and
improvements which extend the estimated useful life of the
property are capitalized. Repairs and maintenance are expensed.
In the event it appears that the cost less accumulated depreciation
cannot be recovered through operations and/or a sale over a
reasonable future period, then it will be considered probable that an
impairment that is other than temporary has occurred and the cost less
accumulated depreciation will be written down to market value and a
new cost basis will be established. In March 1995, the Financial
Accounting Standards Board issued Statement No. 121 "Accounting for
the Impairment of Long-Lived Assets and Assets to be Disposed of"
which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes indicate that the carrying
amount of an asset may not be recoverable. The adoption of the
Statement is required for years beginning after December 15, 1995.
The provisions of this Statement will be adopted as of January 1, 1996
and the adoption of this Statement will not have a significant impact
on the carrying value of the real estate. The Company records
properties received in foreclosures or by deed in lieu of foreclosure
at the lower of the of the carrying value of the related mortgage
loan, plus accrued interest and costs incurred in connection with the
foreclosure or the market value of the property.
e. Investment in Mortgage Loans Receivable-Investments in mortgage
loans receivable are stated at the lower of the carrying amount
of the loan or the market value of the underlying real estate.
Market values are determined based upon accepted appraisal techni-
ques including present value of expected cash flows for the
underlying real estate and other observable market comparables. An
allowance for possible loan losses is established based upon a
review of each of the properties in the Trust's portfolio. In
performing the review, management considers the estimated net
realizable value of the property or collateral as well as other
factors, such as the current occupancy, the amount and status of
senior debt, if any, the prospects for the property, the credit
worthiness and current financial position of the borrower and the
economic situation in the region where the property is located.
Because this determination of net realizable value is based upon
future economic events, the amounts ultimately realized at disposi-
tion may differ materially from the carrying value as of December 31,
1995.
f. Income Recognition-Current interest income on mortgage loans is
recognized on the accrual method during the periods in which the
mortgage loans are outstanding. Deferred interest, due at the
maturity of the mortgage loan, is recognized as income based on the
interest method using the implicit rate of interest on the mortgage
loan. Contingent and additional contingent income, extension fee
income and prepayment premium income are recognized as cash is received.
g. Deferred Acquisition Expenses-Deferred advisory fees were paid to
buy out the management contracts of the advisors to the predecessor
entities of the Trust in connection with its formation in 1988. Such
amounts are being amortized over periods of 13 to 20 years repre-
senting the expected period over which such fees would have been paid.
h. Transaction Costs-Direct costs associated with the proposed Ramco
Transaction have been capitalized and are included in other assets.
Depending upon the outcome of the transaction these costs will
either be allocated as part of the purchase price of the assets
acquired or expensed in their entirety.
i. Income Per Share-The weighted average number of shares outstanding
used in computing income per share for the years ended December 31,
1995, 1994 and 1993 were 28,492,421, 28,494,379 and 28,582,344,
respectively. The stock options outstanding at December 31, 1995,
1994 and 1993
F-8
<PAGE> 66
were not considered in computing income per share since they
were anti-dilutive.
j. Impairment of Loans-In May 1993, the Financial Accounting
Standards Board issued Statement No. 114, "Accounting by
Creditors for Impairment of a Loan," which requires creditors
to account for loans at the present value of their future
cash flows or at the fair value of the collateral, if the
loan is collateral dependent. The Trust has adopted the
provisions of this statement and the adoption of this state-
ment did not have a significant impact on the carrying value
of the loans.
k. Use of Estimates-The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
l. Reclassifications-Certain reclassifications have been made
to prior year financial statements to conform with current
year's presentation.
F-9
<PAGE> 67
2. MORTGAGE LOANS RECEIVABLE
The principal amounts of the Trust's mortgage loans receivable
at December 31, 1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31, 1995(a)(h)
INTEREST RATE(b) ---------------------------------------------------------
CURRENT RATE AT NET
DECEMBER 31, AVERAGE MATURITY AMOUNT ALLOWANCE CARRYING
DESCRIPTION AVERAGE 1995 ACCRUED DATE ADVANCED(c) FOR LOSS AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping centers/retail:
Coral Way 9.00% 9.00% -% 3/95 $ - $ - $ -
Holiday Park 8.25 9.75 - 12/95 1,916,564 - 1,916,564
Branhaven Plaza 11.19 14.25 - 8/96 2,800,000 - 2,800,000
Madison Heights(j) 9.30 9.50 2.70 9/94 - - -
1733 Massachusetts 8.58 8.58 1.42 6/99 2,200,000 - 2,200,000
Avenue
Mt. Morris Commons 11.20 10.50 2.00 6/99 2,700,000 (1,000,000) 1,700,000
Copps Hill Plaza 6.00 6.00 0.50 7/96 3,563,948 (350,000) 3,213,948
Hylan Center(e) 12.00 7.50 4.50 1/01 25,000,000 (6,000,336) 18,999,664
Office buildings:
NCR Building(d) 10.00 10.00 - 12/95 468,493 (231,000) 237,493
New England
Telephone Co. 6.92 8.27 3.58 12/99 - - -
1-5 Wabash Avenue 5.00 5.00 - 3/96 2,850,000 (650,000) 2,200,000
Rector (e) 6.00 - 6.00 3/04 3,255,596 (2,000,000) 1,255,596
Industrial/commercial:
Simmons Mfg. Warehouse 10.00 10.00 2.00 8/01 1,500,000 - 1,500,000
----------- ------------- -----------
$46,254,601 $(10,231,336) $36,023,265
----------- ------------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------------
NET
AMOUNT ALLOWANCE CARRYING
DESCRIPTION ADVANCED(C) FOR LOSS AMOUNT
<S> <C> <C> <C>
Shopping centers/retail:
Coral Way 3,000,000 $ - $ 3,000,000
Holiday Park 1,916,564 - 1,916,564
Branhaven Plaza 2,800,000 - 2,800,000
Madison Heights(j) 1,550,000 (1,875,900) (325,900)
1733 Massachusetts 2,200,000 - 2,200,000
Avenue
Mt. Morris Commons 2,700,000 (1,000,000) 1,700,000
Copps Hill Plaza 3,563,948 (350,000) 3,213,948
Hylan Center(e) 25,000,000 (3,000,336) 21,999,664
Office buildings:
NCR Building(d) 468,493 (231,000) 237,493
New England
Telephone Co. 3,000,000 (3,200,000) (200,000)
1-5 Wabash Avenue 2,850,000 - 2,850,000
Rector (e) 3,000,000 (2,000,000) 1,000,000
Industrial/Commercial:
Simmons Mfg. Warehouse 1,500,000 - 1,500,000
---------- ----------- ----------
$53,549,005 $(11,657,236) $41,891,769
----------- ----------- ----------
</TABLE>
Deferred interest due at maturity of the mortgage loans is recognized as income
based on the interest method. The amounts currently recognized, which are
included on the consolidated balance sheet in Interest and Accounts Receivable,
through December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
<S> <C> <C>
Holiday Park $ 67,080 $ 67,080
Branhaven Plaza 345,998 267,329
Madison Heights - 128,933
1733 Massachusetts Avenue 335,127 325,786
Mt. Morris Commons 52,923 52,923
Hylan Center 6,275,000 6,275,000
New England Telephone Co. - 407,284
Simmons Mfg. Warehouse 128,886 100,352
Rector - -
----------- ----------
Total $ 7,205,014 $7,624,687
----------- ----------
</TABLE>
F-10
<PAGE> 68
(a) Of the 10 loans outstanding, 4 are wraparound mortgage loans and 6 are
first mortgage loans. The wraparound mortgage loans are subordinate to
prior liens held by others with no recourse to the Trust. Such prior liens
are not liabilities of the Trust and, therefore, are not reflected in the
accompanying financial statements.
(b) In addition to fixed interest, the Trust is entitled, on certain loans, to
contingent interest in an amount equal to a percentage of the gross rent
received by the borrower from the property securing the mortgage above a
base amount, payable annually, and additional contingent interest based on
a predetermined multiple of the contingent interest or a percentage of the
net value of the property at such date, payable at maturity (equity
participation). Contingent interest in the amount of $43,862, $440,688 and
$578,027 was received for the years ended December 31, 1995, 1994 and 1993,
respectively. Additional contingent interest of $5,505,813 and $3,433,116
was received in the years ended December 31, 1994 and 1993, respectively.
Additionally, the Trust received extension fee income of $19,166 for the
year ended December 31, 1995 and prepayment premium income (in lieu of
equity participations) of $2,900,000 for the year ended December 31, 1994.
(c) The aggregate cost for Federal income tax purposes approximates that used
for financial reporting.
(d) The NCR building loan matured on December 31, 1995 and is in default. The
Trust has initiated foreclosure proceedings with respect to the loan.
(e) The interest income from this loan represented more than 11 percent, 7
percent and 7 percent of the Trust's total revenue for the years ended
December 31, 1995, 1994 and 1993, respectively. The mortgage receivable
balance also represents more than 10 percent of the Trust's total assets at
December 31, 1995 and 1994.
(f) As of December 31, 1995 and 1994, the Trust had six and seven,
respectively, loans that were in arrears (three monthly payments or more)
or otherwise considered to be "problem loans" by the Trust. The aggregate
gross principal amounts of these loans, together with receivables relating
to such loans comprised of accrued interest and payments made on behalf of
the borrowers for mortgage payments relating to such properties, total
$44,165,960 and $46,343,547, representing 24.7% and 25.1% of the Trust's
invested assets at December 31, 1995 and 1994, respectively. At December
31, 1995 and 1994, the Trust was not accruing current and deferred interest
on one and four of the above-mentioned loans, in the aggregate approximate
principal amounts of $2,700,000 and $10,250,000, respectively. In addition,
as of such dates, the Trust was not accruing deferred interest on three and
one additional loans, respectively, in the aggregate approximate principal
amount of $31,819,544 and $25,000,000, respectively. The Trust has an
allowance for possible loan losses of $10,231,336 and $11,657,236 at
December 31, 1995 and 1994.
(g) An allowance for possible loan losses is established based upon a review of
each of the properties in the Trust's portfolio. In performing the review,
management considers the estimated net realizable value of the property or
collateral as well as other factors, such as the current occupancy, the
amount and status of senior debt, if any, the prospects for the property,
the credit worthiness and current financial position of the borrower and
the economic situation in the region where the property is located. Because
this determination of net realizable value is based upon future economic
events, the amounts ultimately realized at disposition may differ
materially from the carrying value as of December 31, 1995.
The allowance is indicative of the continued and the protracted declines in
values of commercial real estate throughout the country which resulted in
part from the general economic decline in
F-11
<PAGE> 69
earlier years and the continuing lack of readily available credit
sources for commercial real estate. The allowance is inherently
subjective and is based on management's best estimates of current
conditions and assumptions about expected future conditions. It is
reasonably possible that future conditions during 1996 may not
perform in accordance with management's expectation and that
additional allowances for possible loan losses may be required.
(h) A summary of mortgage receivable loan activity for the years ended
December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ------------
<S> <C> <C>
Balance, beginning of year $41,891,769 $100,692,130
Mortgage loans issued 255,596 --
Mortgage loan satisfaction, net of allowance for
possible loan losses of $5,075,900 in 1995 and
14,567,301 in 1994 (2,474,100) (56,300,361)
Provision for possible loan losses (3,650,000) (2,500,000)
----------- ------------
Balance, end of year $36,023,265 $ 41,891,769
=========== ============
</TABLE>
(i) The allowance for possible loan losses at December 31, 1995 and
1994 also includes estimates of uncollectible accrued interest.
3. PREPAYMENTS AND OTHER ACTIVITY
a. On December 28, 1995, the Trust received proceeds of $25,000 from
the disposition of the New England Telephone loan. The mortgage
principal balance of $3,000,000 and deferred interest of $407,284
were written off upon disposition. The allowance for possible loan
losses in 1994 included an allowance of $3,200,000, representing the
outstanding principal plus accrued interest. The Trust recognized a
loss on disposition of $182,284.
b. Pursuant to the terms of the restructuring of the collateral
assignment loan which was partially secured by a security interest
in the mortgage on 19 Rector Street, the interest held by the Trust
was converted to a direct first mortgage lien by delivery to the
Trust on September 21, 1995 of an Assignment of Senior Participation
in the mortgage loan which formerly had been only collaterally
assigned by its mortgagee to the Trust in consideration of an
additional $255,596 loan.
c. On March 1, 1995, the Trust received proceeds of $3,021,000 from the
prepayment of the Coral Way Shopping Center mortgage loan. The
proceeds consisted of the repayment of the principal loan balance of
$3,000,000 and current interest of $21,000.
d. On February 14, 1995, the holder of the first mortgage loan secured
by the Madison Heights Shopping Center, whose loan was superior to
the Trust's wraparound mortgage loan with respect to such property,
foreclosed upon such property. The shopping center was sold at
auction and the interest of the Trust was eliminated. The allowance
for possible loan losses in 1994 included an allowance of
$1,875,900, which represented the outstanding principal balance plus
accrued
F-12
<PAGE> 70
interest that was written off upon foreclosure. No additional loss was
recognized at the date of foreclosure.
e. On September 29, 1994, the Trust received proceeds of $11,805,825 from the
prepayment of the Plainview Shopping Center mortgage loan. The proceeds
consisted of the repayment of the principal loan balance of $5,250,000,
payment of accrued interest of $994,187, current interest of $55,825 and
additional contingent interest (equity participation) of $5,505,813.
f. On August 15, 1994 the Trust received proceeds of $18,354,047 from the
prepayment of the Meadowlands Industrial Park mortgage loan. The proceeds
consisted of the repayment of the principal loan balance of $15,350,000,
payment of current interest of $104,047 and prepayment premium income (in
lieu of equity participation) of $2,900,000.
g. On July 12, 1994, Chester Plaza Shops, Inc., a wholly-owned subsidiary of
the Trust acquired title to the Chester Springs Shopping Center, an
approximately 216,000 square foot community-type shopping center located in
Chester, New Jersey. The purchase price for the property was approximately
$18,262,000.
h. On January 25, 1994, the Trust restructured its mortgage loan in the
original principal amount of $31,000,000 which was secured by a collateral
assignment of mortgages on two properties, an office building located on
Rector Street, New York City (the "Rector Property") and a shopping center
located on Hylan Boulevard, Staten Island, New York (the "Hylan Center").
Pursuant to the restructuring, the Trust received a direct assignment of the
first mortgage with a principal amount of $25,000,000 and accrued interest
of $7,881,250 secured by the Hylan Center and retained the collateral
assignment of the Rector Property mortgage, the principal amount of which
was reduced to $3,000,000. The holder of the first mortgage secured by the
Rector Property has granted the Trust a pledge of a senior participation
interest in such mortgage. In addition, upon a foreclosure, the Trust will
obtain a direct first mortgage secured by the Rector Property. The
restructuring was completed in October 1994.
i. On January 3, 1994, the Trust sold the following mortgage loans: (i) its
wrap-around mortgage loan secured by the Tampa Plaza shopping center located
in Northridge, California (the "Tampa Loan"); (ii) its wrap-around mortgage
loan secured by the Wellesley Plaza office building located in Los Angeles,
California (the "Wellesley Loan"); and (iii) its first mortgage loan secured
by the Tackett Center mixed-use retail center located in Palm Springs,
California (the "Tackett Loan"). On January 7, 1994, the Trust sold its
first mortgage loan secured by the Janss Mall shopping center located in
Thousand Oaks, California (the "Janss Mall Loan", and collectively, the
"California Mortgage Loans"). The California Mortgage Loans at closing had
an approximate aggregate outstanding balance of $39,698,000 before taking
into consideration allowance for possible losses of approximately
$14,567,000. The Tampa, Tackett and Janss Mall Loans were sold pursuant to a
competitive offering process, pursuant to which bids for each of the Loans
were solicited; the Wellesley Loan was offered in the competitive offering
process, but was sold in an arms-length negotiation outside of the
competitive offering process. Secured Capital Corp. of Los Angeles,
California acted as the Trust's representative with respect to the offering
and sale of the California Mortgage Loans. In the aggregate, the Trust
received cash proceeds of $25,500,000 from the sale of the California
Mortgage Loans, before deduction of costs, fees and expenses relating to
such transactions, including the payment of a fee to Secured Capital Corp.
j. On December 30, 1993, the Trust received proceeds of $18,028,776 from the
prepayment of the Sayre Woods mortgage loan. The proceeds consisted of the
repayment of the principal loan
F-13
<PAGE> 71
balance of $13,080,000, payment of accrued interest of $1,183,990, current
interest of $118,354, contingent interest of $213,316 and additional
contingent interest (equity participation) of $3,433,116.
k. On August 23, 1993, the Trust exercised its right to receive rental payments
pursuant to an Assignment of Rents for its approximately $2,500,000 mortgage
loan secured by the Norgate Plaza Shopping Center property. On September 21,
1993, a foreclosure action was commenced by the Trust, and on motion by the
Trust a Receiver was appointed. On June 30, 1994, Norgate Shops, Corp.,
a wholly-owned subsidiary of the Trust, acquired title to the Norgate
Shopping Center property. The property was subject to a first mortgage in
the approximate amount of $1,463,830, which the Trust pre-paid at the time
of such acquisition.
l. On July 2, 1993, the Trust received proceeds of $3,506,713 from the partial
prepayment of the NCR mortgage loan. The original principal balance of
$2,300,000 was reduced to $468,493. The remaining principal amount matured
on December 31, 1995 and bears current interest of 10% payable quarterly.
Also included in the proceeds was approximately $1,675,000 of deferred
interest. The NCR building loan is in default and the Trust has initiated
foreclosure proceedings.
m. The Trust entered into a Settlement Agreement (the "Agreement") as of April
30, 1993 with respect to the note it held secured by a mortgage on 5 and 9
North Wabash Avenue, Chicago, Illinois. Pursuant to the Agreement, (a) a
subsidiary of the Trust received title by deed in lieu of foreclosure to the
property at 9 North Wabash Avenue, b) the Trust received $1,350,000 and c)
another subsidiary of the Trust received a 20% limited partnership interest
in a newly organized limited partnership which owns 5 North Wabash Avenue.
The Trust will continue to hold a note secured by a first mortgage on 5
North Wabash Avenue in the reduced amount of $3,450,000. The note bears
interest at 5% per annum, matures on March 31, 1996 and is non-amortizing,
except for a $600,000 principal reduction payment made on December 20, 1993.
The maturity date of the note may be extended to March 31, 1997 at the
option of the borrower under the note, provided, among other things, that
the principal amount of the note is reduced by an additional $600,000
payment prior to its initial maturity. Interest during the extension
period shall be at 7% per annum. As to the limited partnership interest to
be held by a subsidiary of the Trust, no distributions shall be made with
respect thereto until the maturity or earlier repayment of the mortgage
loan held by the Trust. Thereafter, other than distributions of net
operating income, the Trust will not receive cash distributions from
refinancing or a sale of the property on account of its limited partnership
interest until the general and initial limited partner of the limited
partnership have received $1,550,000 and any payments reducing the Trust
loan balance below $3,450,000 in aggregate distributions from such sources.
The transaction closed on July 7, 1993 and resulted in a taxable loss
approximating $4,500,000, which amount was previously recognized for
accounting purposes in 1993.
F-14
<PAGE> 72
4. INVESTMENT IN REAL ESTATE
The Trust's investments in real estate for the years ended December 31,
1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
INITIAL COST TO
COMPANY CAPITAL GROSS PROVISION FOR
DESCRIPTION LAND BUILDING IMPROVEMENTS AMOUNT(1) IMPAIRMENT
- ----------- --------------- -------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Sunshine Plaza Shopping Center $ 1,748,000 $ 7,452,000 $ 664,546 $ 9,864,546 $ --
Tamarac, Florida
Crofton Plaza Shopping Center 3,201,000 6,499,000 988,935 10,688,935 --
Crofton, Maryland
Commack Shopping Center 1,160,000 1,740,000 -- 2,900,000 --
Commack, New York
Trinity Shopping Center 1,250,000 1,250,000 499,318 2,999,318 --
Pound Ridge, New York
Lantana Shopping Center 2,589,810 2,600,190 442,816 5,632,816 --
Lantana, Florida
9 North Wabash 2,319,900 980,100 -- 3,300,000 (800,000)
Chicago, Illinois
Norgate Shopping Center 1,260,000 2,940,000 349,375 4,549,375 --
Indianapolis, Indiana
Chester Shopping Center 4,930,740 13,331,260 649,473 18,911,473 --
Chester, New Jersey
----------- ----------- ---------- ----------- ---------
Totals $18,459,450 $36,792,550 $3,594,463 $58,846,463 $(800,000)
=========== =========== ========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
NET
ACCUMULATED CARRYING DATE PREDICTABLE
DESCRIPTION DEPRECIATION AMOUNT ACQUIRED LIFE
- ----------- ------------ -------- -------- -----------
<S> <C> <C> <C> <C>
Sunshine Plaza Shopping Center $ 779,799 $ 9,084,747 12/19/91 40
Tamarac, Florida
Crofton Plaza Shopping Center 806,533 9,882,402 5/1/91 40
Crofton, Maryland
Commack Shopping Center 132,313 2,767,687 12/30/92 40
Commack, New York
Trinity Shopping Center 126,809 2,872,509 12/30/92 40
Pound Ridge, New York
Lantana Shopping Center 208,148 5,424,668 3/1/93 39
Lantana, Florida
9 North Wabash 61,778 2,438,222 7/1/93 39
Chicago, Illinois
Norgate Shopping Center 121,408 4,427,967 6/1/94 39
Indianapolis, Indiana
Chester Shopping Center 510,512 18,400,961 7/15/94 39
Chester, New Jersey
---------- -----------
Totals $2,747,300 $55,299,163
========== ===========
</TABLE>
F-15
<PAGE> 73
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REAL ESTATE OWNED:
Balance at beginning of year: $57,840,534 $34,751,743 $26,415,000
Acquired Properties -- 22,462,000 8,490,000
Capital Improvements 1,005,929 996,791 1,426,743
Disposition of Saratoga(3) -- (370,000) --
----------- ----------- -----------
58,846,463 57,840,534 36,331,743
Provision for Impairment (800,000) -- (1,580,000)
----------- ----------- -----------
Balance at end of year $58,046,463 $57,840,534 $34,751,743
=========== =========== ===========
ACCUMULATED DEPRECIATION:
Balance at beginning of year: $ 1,731,153 $ 1,011,541 $ 461,014
Depreciation Expense(2) 1,016,147 749,404 550,527
Disposition of Saratoga(3) -- (29,792) --
----------- ----------- -----------
Balance at end of year $ 2,747,300 $ 1,731,153 $ 1,011,541
=========== =========== ===========
</TABLE>
- ---------------
(1) Aggregate cost for Federal income tax purposes approximates $58,846,463.
(2) Properties are depreciated over an estimated life of 39 or 40 years using
the straight-line method.
(3) On September 28, 1994, the Trust sold the capital stock of The Saratoga
Building, Inc., a wholly owned subsidiary of the Trust for $12,500. The
Trust had previously provided an allowance for impairment of $1,580,000
against this asset. The sale resulted in an additional loss of
approximately $227,708.
Rentals under Operating Leases -- The following is a schedule by years of
minimum future rentals on noncancelable operating leases at December 31, 1995:
Year Ending
December 31, Amount
1996 $ 5,615,313
1997 5,710,800
1998 5,598,606
1999 5,202,260
2000 4,518,791
Later Years 7,319,812
----------
$33,965,582
==========
5. MARKETABLE SECURITIES
During the period May 21, 1993 through December 31, 1993, the Trust received
cumulative proceeds of $9,294,453 representing the sale of all 270,000 of
its shares of common stock of Kimco Realty Corporation at an average price
of $34.42 per share. The Trust realized a gain from these sales of
$3,942,513.
F-16
<PAGE> 74
6. TRANSACTION ADVANCES
In connection with the Transaction described in Note 15, the Trust advanced
the sum of $2,471,100 to the members of the Ramco Group (the "Ramco
Advance") to be used for the sole purpose of paying application fees,
commitment fees and other fees and charges in connection with a refinancing
loan to be obtained in connection with the Transaction. The Ramco Advance is
evidenced by a promissory note (the "Ramco Note") which accrues interest at
a per annum rate equal to the prime rate of the Bank of Boston, and matures
on April 13, 1996; the Ramco Note is secured by the pledge of certain
partnership and stock interests owned by the members of the Ramco Group who
are the obligors under the Ramco Note. Upon the occurrence of certain
events, the Ramco Advance will be converted into a Transaction expense of
the Trust, and the Ramco Note will be canceled. In such event, the
$68,000,000 to be contributed by the Trust to the Operating Partnership will
be reduced by the amount of the Ramco Advance.
7. SHARE PURCHASE RIGHTS
On December 6, 1989, the Trust's Board of Trustees (the "Board") declared a
dividend distribution of one share purchase right for each outstanding share
of beneficial interest, $.10 par value per share, to shareholders of record
at the close of business on December 18, 1989. These rights may be exercised
to purchase one share of beneficial interest at a price of $20 per share,
subject to adjustment, under certain specified conditions at the Board's
option. These rights are not exercisable or transferable apart from the
shares of beneficial interest until the distribution date, which is the
earlier of (i) 10 days following a public announcement that any person or
group has acquired beneficial ownership of 20 percent or more of the
outstanding shares (the "Share Acquisition Date"), (ii) 10 days following
the commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 20 percent of more of the outstanding
shares or (iii) the day the Board determines that any person or group has
become the beneficial owner of an amount of shares the Board determines to
be substantial (which amount shall in no event be less than 10 percent of
the shares outstanding) and the Board shall determine that such beneficial
ownership is intended to cause the Trust to repurchase the shares owned by
such person or group or is reasonably likely to cause a material adverse
impact on the Trust's business. The rights, which do not have voting
rights, expire on December 6, 1999 and may be redeemed by the Trust at a
price of $.01 per right at any time until rights expire or, if earlier, 10
days following the Share Acquisition Date.
Upon the occurrence of certain events following the distribution date,
the holder of each right will have the right to receive, upon exercise,
shares (or, in certain circumstances, cash, property or other securities
of the Trust) having a value equal to two times the exercise price of
the right. In certain events in which the Trust is not a surviving
entity or has transferred 50 percent or more of its assets or earnings
power, the rights will entitle the holder, upon exercise, to receive
equity securities of the acquiring company having a value equal to two
times the exercise price of the right.
8. STOCK OPTION PLANS
a. 1989 Trustees' Stock Option Plan - On April 4, 1989, the Board
approved the establishment of the 1989 Trustees' Stock Option Plan
(the "Plan") which permits the Trust to grant options to purchase
up to 350,000 shares of beneficial interest in the Trust at the
fair market value at the date of the grant. Each member of the
Board who is not an officer or employee of the Trust is eligible to
participate in the Plan. Each participant is granted an option to
purchase that number of shares equal to 0.1 percent of the shares
then outstanding on each of (a) the later of (i) November 28, 1989
or (ii) the date on which the participant first becomes a member of
the Board and (b) the second anniversary of the date of the
preceding grant. In October 1991, the Board modified and amended
the Plan to provide that the remaining options due to be issued
after October 8, 1991 be issued pro rata to each of the eligible
Trustees. Options granted under the Plan become exercisable, with
respect to 50 percent of the shares covered thereby, on the first
anniversary of the date of grant and on a cumulative basis with
respect to the remaining shares on the second anniversary of the
date of grant. Options granted under this plan expire ten years
from the date of grant.
F-17
<PAGE> 75
The Trust has 350,000 options outstanding under the Plan at
December 31, 1995 and 1994. The fair market value of the shares and
exercise price of such options at the dates of grant ranged from
$5.25 to $5.75.
All Trustees who have been granted options under the Plan have
advised the Trust that they will surrender their options to the
Trust, without consideration, upon the closing of the Transaction
(as defined in Note 15).
b. 1989 Employee's Stock Option Plan - On June 21, 1989, the Board
approved the establishment of the 1989 Employee Stock Option Plan
which permits the Trust to grant options to purchase up to
1,550,000 shares of beneficial interest in the Trust at the fair
market value at the date of grant. The options are exercisable each
year starting one year from the date of grant, on a cumulative
basis, at the annual rate of 20 percent of the total number of
shares covered by the option. Options granted under the plan expire
10 years from the date of grant. On December 6, 1989, 1,355,000
options were granted. At December 31, 1995 and 1994, 1,325,000 and
1,325,000 options were outstanding under such plan. The fair market
value of the shares and exercise price of these options at the date
of the grant was $5.75.
At December 31, 1995, there were 1,325,000 shares of common stock
reserved for exercise of stock options.
The Trust intends to make offers to holders of options under the
Employee Plan, other than Mr. Pashcow, to purchase all outstanding
options (which, as of March 15, 1996, aggregated 125,000 options,
excluding options held by Mr. Pashcow) at a price of $.50 per
option on or prior to the closing of the Transaction.
9. COMMITMENTS
a. In March 1995 the Trust entered into a lease for approximately
4,800 sq. ft. of office space at 747 Third Ave. New York, New York.
The term of the lease commenced on April 1, 1995, at an annual base
rent of approximately $150,000. The lease will expire on April 30,
1997.
b. During 1995, Joel M. Pashcow and Herbert Liechtung, Chairman and
President of the Trust and the former President of the Trust,
respectively, were employed pursuant to their respective ten-year
employment agreements, each of which were scheduled to expire on
December 31, 1998. The employment agreements provided Mr. Pashcow and
Mr. Liechtung with a base annual salary, distribution incentive bonus
and origination bonus. Additionally, in accordance with the terms of
his employment agreement, the occurrence of certain events, including
the sale of substantially all of the Trust's assets, a significant
change in the Trust's ownership or a change in the Trust's operations
such that it is no longer primarily in the business of mortgage lending
would result in additional compensation to be paid.
The Trust and Mr. Pashcow executed a termination agreement,
dated as of March 26, 1996, pursuant to which Mr. Pashcow agreed to
terminate his employment as Chairman and President of the Trust
effective as of the closing of the Transaction. Mr. Pashcow will
receive two severance payments totalling $1,910,416 (exclusive of
interest at a rate of approximately 7.75% on $1,600,000 of which will
be deferred and paid on January 15, 1997) and will receive an
origination bonus of $79,900 pursuant to his employment agreement in
consideration of the termination of his employment agreement.
The Trust and Mr. Liechtung executed a termination agreement,
dated as of February 29, 1996, pursuant to which Mr. Liechtung, the
former President of the Trust, received a lump sum severance payment
of $1,478,402, and will receive an origination bonus of $159,800 if
the Transaction is consummated on or before June 10, 1996 in
consideration of the termination of his employment agreement.
c. On April 4, 1989, the Board approved the establishment of a 401(k)
employee savings plan and a discretionary profit-sharing retirement
plan for employees meeting certain service requirements. Pursuant to
the terms of the Transaction, it is anticipated that the Trust's
401(k) employee savings plan and discretionary profit-sharing
retirement plan will be terminated.
F-18
<PAGE> 76
10. DIVIDENDS/DISTRIBUTIONS TO SHAREHOLDERS
Under the Internal Revenue Code, a REIT must meet certain qualifications,
including a requirement that it distribute annually to its shareholders at
least 95 percent of its taxable income. The Trust's policy is to distribute
to shareholders all taxable income. Dividend distributions for the years
ended December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
DIVIDEND
RECORD DATE DISTRIBUTIONS PAYMENT DATE
<S> <C> <C>
April 28, 1994 0.08 May 17, 1994
July 28, 1994 0.08 August 17, 1994
October 27, 1994 0.08 November 16, 1994
December 28, 1994 0.08 January 27, 1995
April 27, 1995 0.08 May 17, 1995
July 28, 1995 0.08 August 17, 1995
October 27, 1995 0.08 November 17, 1995
December 27, 1995 0.08 January 25, 1996
</TABLE>
The difference, if any, between dividends declared and net income result
from timing differences related to the recognition of income and expenses
between financial reporting and income tax purposes.
11. DIVIDEND REINVESTMENT PLAN
The Trust has a dividend reinvestment plan that allows for participating
shareholders to have their dividend distributions automatically invested in
additional shares of beneficial interest in the Trust based on the average
price of the shares acquired for the distribution.
12. SHARE REPURCHASES
In April 1990, the Board of Trustees approved a $6,000,000 share repurchase
program for the purchase of the Trust's shares at prevailing market prices.
Pursuant to this program during 1993 the Trust purchased 43,400 shares at
prices ranging from $3.42 to $3.79 per share, and during 1994 the Trust
purchased 60,500 shares at prices ranging from $3.79 to $4.04. There were no
shares repurchased in 1995.
13. FINANCIAL INSTRUMENTS
The market value of the Trust's mortgage loans and receivables relating to
such loans as of December 31, 1995 and 1994 is estimated to be approximately
$45,000,000 and $47,000,000, respectively. At December 31, 1995, the
aggregate estimated fair market value of five of the Trust's ten mortgage
loans exceeded the aggregate carrying value of $32,516,828 by $4,243,795.
The remaining five mortgage loans are stated at their fair market value.
At December 31, 1994, the aggregate estimated fair market value of four of
the Trust's thirteen mortgage loans exceeded the aggregate carrying value of
$8,616,564 by $1,328,028. The remaining nine mortgage loans are stated at
their fair market value. The estimated market value has been determined by
the Trust, using available market information, methodologies deemed
reasonable by the Trust and the present value of estimated future cash flows
using a discount rate commensurate with the risks involved. Estimated market
values represent management's estimate as of the date of the valuation and
are based on facts and conditions existing on the date of the valuation and
on a number of assumptions concerning future circumstances, which
assumptions may or may not prove to be accurate. The Trust believes that the
estimated market value as stated is not necessarily indicative of the price
the Trust could realize if it were actively attempting to sell the mortgages
in its portfolio.
F-19
<PAGE> 77
14. INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
No. 109, "Accounting for Income Taxes" ("SFAS 109"). The adoption of the
statement is required for years beginning after December 15, 1992. The
Trust is a public enterprise and is not subject to income taxes, as
discussed under Income Tax Status above (Note 1). In accordance with SFAS
109, the net differences between the Trust's assets and liabilities for
tax purposes and financial reporting purposes are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net assets, financial statements $177,019,611 $182,599,168
Interest 7,600,000 8,100,000
Allowance for loan losses 10,231,000 11,700,000
Provision for impairment of real estate 800,000 --
Deferred interest (7,200,000) (7,600,000)
Amortization of organization expenses (3,700,000) (3,200,000)
------------ ------------
Net assets, tax reporting $184,750,611 $191,599,168
============ ============
</TABLE>
During the third quarter of 1994, the Trust held more than 25% of the value
of its gross assets in overnight Treasury Bill reverse repurchase
transactions which the IRS may view as non-qualifying assets for the
purpose of satisfying an asset qualification test applicable to REITs, (the
"Asset Issue"). The Trust has requested that the United States Internal
Revenue Service (the "IRS") enter into a closing agreement with the Trust
that the Asset Issue will not impact the Trust's status as a REIT for its
taxable year 1994. The IRS has deferred any action relating to the Asset
Issue pending the further examination of the Trust's 1991-1994 tax returns
(the "Trust Audit," and together with the Asset Issue, "the Trust Tax
Issues"). Based on developments in the tax law, the Trust's counsel, Battle
Fowler LLP, has rendered an opinion that the Trust's investments in
Treasury Bill repurchase transactions would not adversely affect its REIT
status for 1994. However, such opinion is not binding upon the IRS. In
connection with the Transaction described in Note 15, the Spin-Off
Company as defined in Note 15, will assume all tax liability arising out
of the Trust Tax Issues. The Trust has received an opinion from special
tax counsel that, to the extent there is a deficiency in the Trust's
taxable income arising out of the IRS examination and provided that the
Trust timely makes a deficiency dividend (i.e., declares and pays a
distribution which is permitted to relate back to the year for which
such deficiency was determined in order to satisfy the requirement that
a REIT distribute 95 percent of its taxable income), the classification
of the Trust as a REIT for the taxable years under examination would not
be affected. If, notwithstanding the above described opinions of legal
counsel, the IRS successfully challenged the status of the Trust as a
REIT, the REIT status of the Trust could be lost. Management estimates
that this would have an effect of approximately $600,000 for 1995 and
$400,000 for 1994 in state and local tax liabilities, exclusive of
applicable interest and penalties, which have not been provided for in
the financial statements of the Trust. The possible effect of the loss
of REIT status of the Trust for subsequent periods could be significant
depending on the taxable income of the Trust in such periods.
15. RAMCO TRANSACTION
On December 27, 1995, the Trust and Ramco-Gershenson, Inc.
("Ramco") and certain of its affiliates (the "Ramco Group") entered
into an amended and restated agreement relating to the acquisition
through an operating partnership (the "Operating Partnership")
controlled by the Trust of substantially all of the real estate assets
as well as the business operations of Ramco (the "Transaction"). As
part of the Transaction, the Trust will succeed to, among other things,
the ownership of interests in 22 shopping center and retail properties
(the "Ramco Properties"), as well as 100% of the non-voting stock and
5% of the voting stock of Ramco (representing in excess of 95% of the
economic interests of Ramco). Pursuant to the terms of the Transaction,
the Trust will contribute to the Operating Partnership six retail
properties (the "RPS Properties") and $68,000,000 in cash and will be
liable for up to $7,000,000 of Transaction expenses. Following the
closing of the Transaction, Ramco will manage the Ramco Properties, the
RPS Properties and properties of certain third parties and other Ramco
affiliates.
F-20
<PAGE> 78
Upon consummation of the Transaction, the Trust will be the sole general
partner of and a limited partner in the Operating Partnership and
initially will hold an approximately 75% aggregate interest therein. The
members of the Ramco Group will be limited partners in the Operating
Partnership and will initially hold, in the aggregate, an approximately
25% interest therein. Pursuant to the terms of the Transaction,
the Ramco Group could also increase its interests in the Operating
Partnership based on the fulfillment of certain leasing plans with
respect to one of the Ramco Properties; the fulfillment of such leasing
plans could increase the Ramco Group's interest in the Operating
Partnership to approximately 29% in the aggregate. The Ramco Group's
units in the Operating Partnership will be exchangeable for shares of
the Trust commencing one year after consummation of the Transaction,
subject to purchase of such OP Units for cash by the Trust, at the
Trust's option.
As part of the Transaction, the Trust will change its name to
Ramco-Gershenson Properties Trust and will implement a one-for-four
reverse share split.
Upon consummation of the Transaction, four of the nine current members
of the Board of Trustees will resign and will be replaced by four
individuals designated by the Ramco Group, two of whom will be independent
of the Trust, Ramco and their respective affiliates. In addition, the five
current principal executive officers of Ramco will become executive
officers of the Trust and will be responsible for the day to day management
of the Trust's real estate operation.
In connection with the Transaction, and as a condition thereto,
the Trust will transfer its remaining mortgage loan portfolio and its
interest in two real properties, as well as certain other assets, which
are anticipated to be a 20% limited partnership interest in a limited
partnership that owns an 18-story building located in Chicago,
Illinois, furniture, fixtures and equipment and cash, to a newly-formed
Maryland real estate investment trust (the "Spin-Off Company"), and
thereafter will make a distribution to its shareholders of one share of
beneficial interest in the Spin-Off Company for every two shares of the
Trust held by each such shareholder (after giving effect to the
one-for-four reverse split described above). In addition, pursuant to
the Transaction, it is anticipated that the Trust will incur
approximately $6,500,000 in indebtedness, the proceeds of which,
together with existing resources of the Trust, will be used primarily
for the payment of severence benefits of approximately $4,500,000,
distributions to shareholders of approximately $2,279,000 and
directors' and officers' insurance premiums of approximately $1,150,000
and approximately $750,000 in working capital for the Spin-Off Company.
It is anticipated that such indebtedness will accrue interest at 10%
per annum (approximately $650,000 per year) and mature on the date
which is 18 months after the Transaction. Upon consummation of the
Transaction, the Spin-Off Company will assume this indebtedness.
16. SUBSEQUENT EVENTS
On January 19, 1996, the Trust received proceeds of $2,008,560 from the
repayment of the Holiday Park loan. The proceeds consisted of the
repayment of the principal loan balance of $1,916,564, current interest
of $24,916 and deferred interest of $67,080.
On February 1, 1996, the Trust received proceeds of $1,512,500 from the
repayment of the Simmons Manufacturing Warehouse loan. The proceeds
consisted of the repayment of the principal loan balance of $1,500,000
and current interest of $12,500.
On February 5, 1996, Norgate Shops, Inc., a wholly-owned subsidiary of
the Trust, signed a non-binding letter of intent for the sale of the
Norgate property for a purchase price of $4,800,000 in cash. The sale is
subject to several conditions and there is no assurance that the
proposed sale will be consummated.
On February 29, 1996 the Trust and Mr. Liechtung, the Trust's president,
agreed on a buy out of Mr. Liechtung's employment agreement. Mr.
Liechtung will continue to serve the Trust as a member of its Board of
Trustees.
F-21
<PAGE> 79
On March 7, 1996, the Trust reached an agreement in principal
with the borrower under the 1-5 Wabash loan for such borrower to
acquire the loan for 2,200,000 in cash. The transaction is subject to
the execution of a definitive agreement relating thereto and no
assurance can be given that such a definitive agreement will be entered
into or that the proposed transaction will be consummated.
On March 26, 1996, the Trust received proceeds of $200,000 in
satisfaction of the Woodbridge Center mortgage loan. The loan was
written off as uncollectible in 1993.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1994 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 4,246,339 4,041,221 4,078,738 3,596,750 4,254,253 15,217,749 4,137,630 3,551,041
Net income (loss)(1) (704,649) 2,298,555 1,938,885 1,943,874 2,294,493 12,695,481 9,290 (1,296,034)
Per share:
Net income (loss) $ (0.02) $ 0.08 $ 0.06 $ 0.07 $ 0.08 $ 0.44 $ 0.00 $ (0.04)
</TABLE>
Notes: (1) During the fourth quarter of 1994 and the first and fourth quarters
of 1995, the Trust recorded provisions for possible loan losses of
$2,500,000 $3,000,000, and 650,000 respectively. In addition, the
Trust provided $800,000 for the impairment in value of real estate
in the fourth quarter of 1995.
* * * * * *
F-22
<PAGE> 80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
RPS REALTY TRUST
Dated: April 16, 1996 By: /s/ Joel M. Pashcow
--------------------------------
Joel M. Pashcow,
Chairman and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
registrant and in the capacities and on the dates indicated.
Dated: April 16, 1996 By: /s/ Joel M. Pashcow
--------------------------------
Joel M. Pashcow,
Trustee, Chairman and
President
(Principal Executive Officer)
Dated: April 16, 1996 By: /s/ Herbert Liechtung
--------------------------------
Herbert Liechtung,
Trustee
Dated: April 16, 1996 By: /s/ Stephen R. Blank
--------------------------------
Stephen R. Blank,
Trustee
Dated: April 16, 1996 By: /s/ Edward Blumenfeld
--------------------------------
Edward Blumenfeld,
Trustee
Dated: April 16, 1996 By: /s/ Samuel M. Eisenstat
--------------------------------
Samuel M. Eisenstat,
Trustee
Dated: April 16, 1996 By: /s/ Edwin J. Glickman
--------------------------------
Edwin J. Glickman,
Trustee
S-1
<PAGE> 81
Dated: April 16, 1996 By: /s/ Arthur H. Goldberg
--------------------------------
Arthur H. Goldberg,
Trustee
Dated: April 16, 1996 By: /s/ William A. Rosoff
--------------------------------
William A. Rosoff,
Trustee
Dated: April 16, 1996 By: /s/ Alfred D. Stalford
--------------------------------
Alfred D. Stalford,
Trustee
Dated: April 16, 1996 By: /s/ Edwin R. Frankel
--------------------------------
Edwin R. Frankel,
Senior Vice President,
Treasurer
(Principal Financial and
Accounting Officer)
S-2
<PAGE> 82
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Number Exhibit Page No.
- ------ ------- ----------
<S> <C>
3.1 Amended and Restated Declaration of Trust of the
Trust, dated October 14, 1988, incorporated by
reference to Exhibit 3, 4(a) to the Trust's
Registration Statement on Form S-4, File No.
33-25272.
3.2 By-Laws of the Trust adopted December 6, 1989,
incorporated by reference to Exhibit 4.2 to the
Trust's Current Report on Form 8-K, dated December
6, 1989.
4. Rights Agreement dated as of December 6, 1989
between the Trust and American Stock Transfer &
Trust Company, incorporated by reference to
Exhibit 1 to the Trust's Registration Statement on
Form 8-A, File No. 1-10093, for the registration
of Share Purchase Rights.
10.1 Exchange Agreement, dated as of November 1, 1988
between the Trust and RPS 1, incorporated by
reference to Exhibit 2A to the Trust's Current
Report on Form 8-K, dated December 28, 1988.
10.2 Exchange Agreement dated as of November 1, 1988
between the Trust and RPS 2, incorporated by
reference to Exhibit 2B to the Trust's Current
Report on Form 8-K, dated December 28, 1988.
10.3 Exchange Agreement, dated as of November 1, 1988
between the Trust and RPS 3, incorporated by
reference to Exhibit 2C to the Trust's Current
Report on Form 8-K, dated December 28, 1988.
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
Sequential
Number Exhibit Page No.
- ------ ------- ----------
<S> <C>
10.4 Exchange Agreement, dated as of November 1, 1988
between the Trust and RPS 4, incorporated by
reference to Exhibit 2D to the Trust's Current
Report on Form 8-K, dated December 28, 1988.
10.5 Asset and Stock Purchase Agreement dated as of
November 1, 1988 among Integrated, RPS Advisory
Corp., Resources Pension Advisory Corp. and the
Trust, including as exhibits: (i) Note Issuance
Agreement, dated as of December 28, 1988, by and
between Integrated, Resources Pension Advisory
Corp., and the Trust; and (ii) Note of the Trust
dated December 28, 1988, incorporated by reference
to Exhibit 2E to the Trust's Current Report on
Form 8-K, dated December 28, 1988.
10.6 Employment Agreement, dated October 24, 1988,
between Resources Pension Advisory Corp. and Joel
Pashcow, incorporated by reference to Exhibit 10.6
to the Trust's Annual Report on Form 10-K for the
year ended December 31, 1988.
10.7 Employment Agreement, dated October 24, 1988,
between Resources Pension Advisory Corp. and
Herbert Liechtung, incorporated by reference to
Exhibit 10.7 to the Trust's Annual Report on Form
10-K for the year ended December 31, 1988.
10.8 1989 Trustees' Stock Option Plan, incorporated by
reference to Exhibit A to the Trust's Proxy
Statement dated October 18, 1989.
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
Sequential
Number Exhibit Page No.
- ------ ------- ----------
<S> <C>
10.9 1989 Employees' Stock Option Plan, incorporated
by reference to Exhibit B to the Trust's Proxy
Statement dated October 18, 1989.
10.10 Retirement Savings Plan of the Trust dated
September 13, 1989 incorporated by reference to
the Trust's Annual Report on Form 10-K for the
year ended December 31, 1989.
10.11 Secured Promissory Note, dated February 23, 1990,
executed by Rector Hylan Corporation, incorporated
by reference to Exhibit 10.1 to the Trust's
Current Report on Form 8-K dated February 23,
1990.
10.12 Collateral Assignment of Mortgage and Security
Agreement, dated February 23, 1990, between Rector
Hylan Corporation and the Trust, incorporated by
reference to Exhibit 10.2 to the Trust's Current
Report on Form 8-K dated February 23, 1990.
10.13 Note Purchase Agreement, dated December 27, 1991,
between the Trust and The Capitol Life Insurance
Company, incorporated by reference to Exhibit
10.13 to the Trust's Annual Report on Form 10-K
for the year ended December 31, 1991.
10.14 Reissued Note Number 5, dated December 28, 1992,
executed by the Trust in favor of Anchor National
Life Insurance Company, incorporated by reference
to Exhibit 10.14 to the Trust's Annual Report on
Form 10-K for the year ended December 31, 1993.
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
Sequential
Number Exhibit Page No.
- ------ ------- ----------
<S> <C>
10.15 Loan Purchase Agreement dated December 3, 1993
between the Trust and Merged Centers, incorporated
by reference to Exhibit 10.15 to the Trust's
Annual Report on Form 10-K for the year ended
December 31, 1993.
10.16 Agreement dated as of January 25, 1994, among the
Trust, Rector Hylan Corporation, Rector
Acquisition Corp. and Shalva Company, Inc.,
incorporated by reference to Exhibit 10.16 to the
Trust's Annual Report on Form 10-K for the year
ended December 31, 1993.
10.17 Assignment of Mortgages dated January 25, 1994
between Rector Hylan Corporation and the Trust,
incorporated by reference to Exhibit 10.17 to the
Trust's Annual Report on Form 10-K for the year
ended December 31, 1994.
10.18 Certificate of Reduction of Debt dated January 25,
1995, executed by the Trust, incorporated by
reference to Exhibit 10.18 to the Trust's Annual
Report on Form 10-K for the year ended December
31, 1994.
10.19 Agreement of Sale dated May 20, 1993 between
Morristown-Chester Plaza Associates, L.P. and
Chester Plaza Shops, Inc., as contemplated by an
amendment thereto dated July 11, 1994,
incorporated by reference to Exhibit 10.19 to the
Trust's Annual Report on Form 10-K for the year
ended December 31, 1994.
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
Sequential
Number Exhibit Page No.
- ------ ------- ----------
<S> <C>
10.20 Bargain and Sale Deed dated July 11, 1994 between
Morristown-Chester Plaza Associates, L.P. and
Chester Plaza Shops, Inc., incorporated by
reference to Exhibit 10.20 to the Trust's Annual
Report on Form 10-K for the year ended December
31, 1994.
10.21 Settlement Agreement dated as of June, 1994
between the Trust and Norgate Plaza Limited
Partnership, incorporated by reference to Exhibit
10.21 to the Trust's Annual Report on Form 10-K
for the year ended December 31, 1994.
10.22 Addendum to Settlement Agreement dated June, 1994
between the Trust and Norgate Plaza Limited
Partnership, incorporated by reference to Exhibit
10.22 to the Trust's Annual Report on Form 10-K
for the year ended December 31, 1994.
10.23 Purchase Agreement dated June, 1994 between
Norgate Plaza Limited Partnership and Norgate
Shops Corp., incorporated by reference to Exhibit
10.23 to the Trust's Annual Report on Form 10-K
for the year ended December 31, 1994
10.24 Addendum to Purchase Agreement dated June, 1994
between Norgate Shops Corp. and Norgate Plaza
Limited Partnership, incorporated by reference to
Exhibit 10.24 to the Trust's Annual Report on Form
10-K for the year ended December 31, 1994.
10.25 Quitclaim Deed dated June 13, 1994 between Norgate
Plaza Limited Partnership and Norgate Shops Corp.,
incorporated by reference to Exhibit 10.25 to the
Trust's Annual Report on Form 10-K for the year
ended December 31, 1994
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
Sequential
Number Exhibit Page No.
- ------ ------- ----------
<S> <C>
10.26 Letter of Intent dated July 14, 1994 between the
Trust and Ramco-Gershenson, Inc. (incorporated by
reference to Exhibit 99 to the Trust's Current
Report on Form 8-K dated July 28, 1994).
10.27 Letter Agreement dated as of June 8, 1994 between
the Trust and Dean Witter Reynolds, Inc.,
incorporated by reference to Exhibit 10.27 of the
Trust's Annual Report on Form 10-K for the year
ended December 31, 1994.
10.28 Master Agreement, dated as of April 10, 1995 between
the Trust, Ramco-Gershenson, Inc. and each of the
parties signatory thereto (incorporated by reference
to the Trust's Current Report on Form 8-K dated
April 24, 1995).
10.29 Amended and Restated Termination Agreement, dated
as of February 29, 1995 between the Trust and
Herbert Liechtung.
10.30 Amended and Restated Master Agreement dated as of
December 27, 1995 between the Trust, Ramco-
Gershenson, Inc. and each of the parties signatory
thereto (incorporated by reference to Exhibit 2.1
to the Trust's Current Report on Form 8-K dated
January 10, 1996).
10.31 First Amendment to Amended and Restated Master
Agreement dated as of March 19, 1996 (incorporated
by reference to the Trust's Current Report on Form
8-K dated March 28, 1996).
10.32 Termination Agreement dated as of March 28, 1996
between the Trust and Joel M. Pashcow, Chairman
and President of the Trust.
21.1 List of Subsidiaries.
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
Sequential
Number Exhibit Page No.
- ------ ------- ----------
<S> <C>
23.1 Consent of Independent Auditors with respect to
the Trust's Registration Statement on Form S-3,
filed with the Commission on April 25, 1989.
23.2 Consent of Independent Auditors with respect to
the Trust's Registration Statement on Form S-8,
filed with the Commission on November 22, 1990.
27.1 Financial Data Schedule.
28.1 Distribution Reinvestment and Trust Agreement,
including Distribution Reinvestment Plan, made as
of January 1, 1991 between the Trust and American
Stock Transfer and Trust Company, incorporated by
reference to Exhibit 28.1 to the Trust's Annual
Report on Form 10-K for the year ended December
31, 1990.
28.2 Description of Rector Hylan loan, incorporated by
reference into Item 1. of this Report, from the
Trust's Current Report on Form 8-K dated
February 23, 1990.
99.1 Pages 27 to 33 of the Trust's definitive proxy
statement, dated and filed with the Securities and
Exchange Commission on March 28, 1996, relating to a
special meeting of shareholders to be held on
April 29, 1996.
</TABLE>
<PAGE> 1
Exhibit 10.29
AMENDED AND RESTATED TERMINATION AGREEMENT
AMENDED AND RESTATED TERMINATION AGREEMENT, dated as of
February 29, 1996, between RPS Realty Trust, a Massachusetts business trust
(the "Trust"), and Herbert Liechtung, the President of the Trust ("Employee").
R E C I T A L S:
A. The Trust and Employee are parties to an Employment
Agreement dated as of October 24, 1988 (the "Employment Agreement") and such
agreement provides that the Trust intends to engage in the business of mortgage
lending.
B. Under paragraph 3 of the Employment Agreement, upon
the occurrence of a Business Change Event (as defined below), and provided
Employee is at such time employed by the Trust, Employee may, at his option, by
giving written notice to the Trust within 12 months of the occurrence of the
Business Change Event, cause the Term of the Employment Agreement to terminate
two months after such notice.
C. Pursuant to paragraph 3 of the Employment Agreement,
if Employee elects to terminate his employment with the Trust as a result of a
Business Change Event, the Trust is obligated to pay Employee a stated amount
based on his average compensation (the "Business Change Event Payment").
<PAGE> 2
D. In 1991, the Board of Trustees of the Trust
authorized the Trust to make direct and indirect equity investments in real
property. Since such time, the Trust has acquired nine real properties by
means of negotiated transactions with its borrowers or in connection with (or
in lieu of) foreclosure, and has made only one new mortgage loan.
E. In 1993, the Trust announced that it intended to
acquire equity interests in real properties, other than as a result of
negotiated transactions with its borrowers and foreclosure. In connection
therewith, during 1993 and early 1994 the Trust focused on several transactions
which, if consummated, would have resulted in a significant increase in the
Trust's assets invested in real properties, primarily shopping center
properties.
F. In January 1994, the Trust sold its California
mortgage loan portfolio.
G. In furtherance of the Trust's efforts to focus on
direct equity investments, the Trust entered into a Master Agreement, dated as
of April 10, 1995 (the "Original Master Agreement"), with Ramco-Gershenson,
Inc. and its affiliates named therein (collectively "Ramco") pursuant to which
the Trust agreed to acquire through an operating partnership interests in 22
Ramco properties (the "Ramco Transaction"). Pursuant to the Original Master
Agreement, the Trust agreed that simultaneously with the
-2-
<PAGE> 3
closing of the Ramco Transaction or prior thereto, the Trust will dispose of
its remaining mortgage loan assets or contribute such mortgage loan assets to a
qualified REIT subsidiary, the stock of which will be distributed to the
Trust's shareholders.
H. As of December 27, 1995, the Trust and Ramco entered
into an Amended and Restated Master Agreement (the "Amended Master Agreement")
pursuant to which the Trust and Ramco agreed on certain amended terms for the
consummation of the Ramco Transaction.
I. The Trust and Employee agree that the execution of
the Original Master Agreement constituted a Business Change Event within the
meaning of the Employment Agreement entitling Employee to terminate the
Employment Agreement.
J. The Trust and Employee have entered into an agreement
dated as of March 1, 1995 relating to the termination of the Employment
Agreement and the Employee's employment as President of the Trust (the
"Original Termination Agreement"), which agreement the parties now desire to
amend and restate in its entirety.
NOW, THEREFORE, the parties intending to be legally bound
hereby, agree as follows:
1. DEFINITIONS. All capitalized terms not otherwise
-3-
<PAGE> 4
defined in this Agreement shall have the meanings set forth in the Employment
Agreement.
(a) "Business Change Event" -- For purposes of this
Agreement and the Employment Agreement, a "Business Change Event" includes a
change of the business carried on by the Trust having the effect that the
Trust's business ceases to be primarily the business of mortgage lending.
2. TERMINATION. Effective as of the date hereof, the
Employment Agreement and Employee's employment by the Trust shall, without any
further action on the part of any party, be automatically terminated. From and
after the date hereof, neither party to the Employment Agreement shall have any
liability, rights or obligations with respect to such agreement, except that,
notwithstanding such termination, the Trust shall remain obligated to perform
its indemnification obligations under the Employment Agreement.
3. PAYMENTS IN CONNECTION WITH TERMINATION.
a. Simultaneously herewith, the Trust has paid to
Employee all accrued but unpaid salary and bonuses and any unreimbursed
expenses owed to Employee under the Employment Agreement. Such amount has been
paid to Employee in cash by means of certified check or wire transfer and has
been evidenced by a written receipt executed by Employee.
b. In accordance with the terms of the Employment
-4-
<PAGE> 5
Agreement and in consideration of the termination of such agreement and
Employee's employment by the Trust, on the date hereof, the Trust has paid
Employee an amount equal to $1,478,402 (the "Termination Payment") in cash by
means of certified check or wire transfer, in complete satisfaction and in lieu
of its obligation to make the Business Change Event Payment. The Termination
Payment has been evidenced by a written receipt executed by Employee.
4. OPTION PLAN. On the date hereof, Employee has
surrendered and the Trust has cancelled all share purchase options ("Stock
Options") granted to Employee pursuant to the Trust's 1989 Employees' Stock
Option Plan. The Trust and Employee hereby agree that all Stock Options are
terminated, cancelled and have no further force and effect. Employee hereby
agrees to execute, furnish and deliver, at the expense of the Trust, all such
additional releases and such other further documents, instruments and
agreements, as may be reasonably requested by the Trust in order to effect and
evidence more fully the matters covered by this paragraph 4.
5. CONTINUATION OF MEDICAL COVERAGE. Until June 10,
1996, the Trust shall provide Employee with medical coverage no less favorable
than the medical coverage Employee is currently receiving under the Trust's
health plan in existence on the date hereof.
-5-
<PAGE> 6
6. ASSIGNMENT OF LIFE INSURANCE POLICY. On the date
hereof, the Trust has assigned to Employee or his designee the key man life
insurance policy maintained by the Trust on Employee's life.
7. OFFICE AND SECRETARY. Until April 15, 1996, the
Trust shall maintain its office space and equipment in Miami, Florida and shall
continue to employ a part-time secretary at such office, in a manner consistent
with past practice. Employee shall use such secretarial support, office space
and equipment in his reasonable discretion, it being understood that the use of
such secretarial support, office space and equipment shall not be devoted
exclusively to the affairs of the Trust but rather shall also be devoted in
part to Employee's personal and other activities.
8. PUBLIC ANNOUNCEMENT. Neither the Trust,on the one
hand, nor Employee on the other hand, shall (and each such party shall use its
reasonable efforts to cause its Affiliates, trustees, officers and employees,
agents and representatives not to), issue any press release, make any public
announcement or furnish any written statement to its employees or shareholders
generally concerning the events contemplated by this Agreement without the
consent of the other party (which consent shall not be unreasonably withheld),
except to the extent required by applicable law or the applicable requirements
of the New York Stock Exchange, Inc. (and
-6-
<PAGE> 7
in either such case such party shall to the extent consistent with timely
compliance with such requirement consult with the other party prior to making
the required release announcement or statement).
9. BOARD OF TRUSTEES. The termination of Employee's
employment by the Trust hereunder shall not impact Employee's status as a
trustee of the Trust. Following the date hereof, Employee shall be deemed as
an Independent Trustee under the Trust's Amended and Restated Declaration of
Trust dated June 21, 1988.
10. EXCHANGE OF RELEASES. On the date hereof, (i)
Employee executed and delivered to the Trust a release, substantially in the
form of Exhibit A attached hereto and (ii) the Trust executed and delivered to
Employee a release, substantially in the form of Exhibit B attached hereto.
11. LEGAL FEES. The Trust will pay or reimburse
Employee for reasonable legal fees (including reasonable disbursements)
incurred by Employee in connection with this Agreement and the Original
Termination Agreement and Employee's personal tax and estate planning in an
amount up to $70,000.
12. ADDITIONAL ORIGINATION BONUS. If, on or before June
10, 1996, the Trust consummates the Ramco Transaction, then on the
-7-
<PAGE> 8
date the Ramco Transaction is consummated, the Trust shall pay Employee an
Origination Bonus equal to $159,800.
13. MISCELLANEOUS.
a. Assignment. This Agreement may not be
assigned by Employee. This Agreement shall be binding upon and inure to the
benefit of Employee and his successors and legal representatives.
b. Attorney's Fees. In any action or proceeding
brought by a party to enforce any provision of the Agreement, the prevailing
party shall be entitled to recover the reasonable costs and expenses incurred
by such party in connection with that action or proceeding (including, but not
limited to, attorney fees).
c. Exclusive Agreement; Amendment. This
Agreement supersedes all prior agreements (including, without limitation, the
Original Termination Agreement) among the parties with respect to its subject
matter, is intended as a complete and exclusive statement of the terms of the
Agreement between the parties with respect thereto and cannot be changed or
terminated except by a written instrument executed by the Trust and Employee.
d. Governing Law. This Agreement and all
amendments hereof shall be governed by the internal law of the State of New
York, without regard to conflicts of law principles thereof.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the first date written above.
RPS REALTY TRUST
By: /s/ Joel M. Pashcow
------------------------------------
Name:
Title:
/s/ Herbert Liechtung
------------------------------------
Herbert Liechtung
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<PAGE> 10
EXHIBIT A
FORM OF RELEASE
Herbert Liechtung, for himself and on behalf of his heirs,
executors, administrators, successors and assigns (collectively, the
"Releasor"), hereby remises, releases and forever discharges RPS Realty Trust
(the "Trust") and its direct and indirect subsidiaries, shareholders, trustees,
affiliates, predecessors, successors and assigns, and its present and former
trustees, officers, employees, agents, attorneys and its heirs, executors,
administrators, successors and assigns (collectively, the "Releasees"), and
each of them, of and from any and all claims, demands, or causes of action
whatsoever from the beginning of the world to the date present, whether
individual, class or derivative in nature, at law or in equity, whether based
on any federal, state or foreign law or right of action, foreseen or
unforeseen, matured or unmatured, known or unknown, accrued or not accrued,
arising out of or in connection with the Employment Agreement dated October 24,
1988 between Releasor and the Trust (the "Employment Agreement") and Releasor's
employment by the Trust and/or the Trust's predecessors (including Resources
Pension Shares 1, Resources Pension Shares 2, Resources Pension Shares 3 and
Integrated Resources Pension Shares 4) which any Releasor has, had or have or
can, shall, or may hereafter have against the Releasees, or any of them with
the exception of any rights to indemnification under paragraph 13 of the
Employment Agreement and any rights under the
A-1
<PAGE> 11
Amended and Restated Termination Agreement dated as of February 29, 1996
between Releasor and the Trust (the "Surviving Claims").
Releasor hereby acknowledges that he may hereafter discover
facts in addition to or different from those he now knows or believes to be
true with respect to the subject matter of this release but that it is his
intention to, and he does hereby, fully, finally and forever settle and release
any and all claims, demands, and causes of action, known or unknown, suspected
or unsuspected, of every kind and nature whatsoever, which may now exist, may
hereafter exist or may heretofore have existed with respect to the subject
matter of this release; in furtherance of such intention, he acknowledges that
this release shall be and remain in effect as a full and complete release of
any and all claims or matters he has, may have or may hereafter have against
any Releasee arising out of or in connection with the Employment Agreement,
with the exception of the Surviving Claims, notwithstanding the subsequent
discovery or existence of such additional or different facts.
IN WITNESS WHEREOF, the undersigned has duly executed this
release as of the 29th day of February, 1996.
------------------------------------
Herbert Liechtung
A-2
<PAGE> 12
EXHIBIT B
FORM OF RELEASE
RPS Realty Trust (the "Trust"), for itself and on behalf of
its direct and indirect subsidiaries, shareholders, trustees, affiliates
predecessors, successors and assigns, and its present and former trustees,
officers, employees, agents, attorneys and its heirs, executors,
administrators, successors and assigns (collectively, the "Releasor"), hereby
remises, releases and forever discharges Herbert Liechtung and his heirs,
executors, administrators, successors and assigns (collectively, the
"Releasee"), of and from any and all claims, demands, or causes of action
whatsoever from the beginning of the world to the date present, whether
individual, class or derivative in nature, at law or in equity, whether based
on any federal, state or foreign law or right of action, foreseen or
unforeseen, matured or unmatured, known or unknown, accrued or not accrued,
arising out of or in connection with the Employment Agreement dated October 24,
1988 between Releasee and the Trust (the "Employment Agreement") and Releasee's
employment by the Trust and/or the Trust's predecessors (including Resources
Pension Shares 1, Resources Pension Shares 2, Resources Pension Shares 3 and
Integrated Resources Pension Shares 4) which any Releasor has, had or have or
can, shall, or may hereafter have against the Releasee, with the exception of
any rights under the Amended and Restated Termination Agreement dated as of
February 29, 1996 between Releasor and the Trust (the "Surviving Claims").
B-1
<PAGE> 13
Releasor hereby acknowledges that it may hereafter discover
facts in addition to or different from those it now knows or believes to be
true with respect to the subject matter of this release but that it is its
intention to, and it does hereby, fully, finally and forever settle and release
any and all claims, demands, and causes of action, known or unknown, suspected
or unsuspected, of every kind and nature whatsoever, which may now exist, may
hereafter exist or may heretofore have existed with respect to the subject
matter of this release; in furtherance of such intention, it acknowledges that
this release shall be and remain in effect as a full and complete release of
any and all claims or matters it has, may have or may hereafter have against
any Releasee arising out of or in connection with the Employment Agreement,
with the exception of the Surviving Claims, notwithstanding the subsequent
discovery or existence of such additional or different facts.
IN WITNESS WHEREOF, the undersigned has duly executed this
release as of the 29th day of February, 1996.
RPS REALTY TRUST
By:
---------------------------------
B-2
<PAGE> 1
Exhibit 10.32
TERMINATION AGREEMENT
TERMINATION AGREEMENT, dated as of March 26, 1996, between RPS
Realty Trust, a Massachusetts business trust (the "Trust"), and Joel M.
Pashcow, the Chairman and President of the Trust ("Employee").
R E C I T A L S:
K. The Trust and Employee are parties to an Employment
Agreement dated as of October 24, 1988 (the "Employment Agreement") and such
agreement provides that the Trust intends to engage in the business of mortgage
lending.
L. Under paragraph 3 of the Employment Agreement, upon
the occurrence of a Business Change Event (as defined below), and provided
Employee is at such time employed by the Trust, Employee may, at his option, by
giving written notice to the Trust within 12 months of the occurrence of the
Business Change Event, cause the Term of the Employment Agreement to terminate
two months after such notice. For purposes of this Agreement and the
Employment Agreement, a "Business Change Event" includes a change of the
business carried on by the Trust having the effect that the Trust's business
ceases to be primarily the business of mortgage lending.
M. Pursuant to paragraph 3 of the Employment Agreement,
if Employee elects to terminate his employment with the Trust as a
<PAGE> 2
result of a Business Change Event, the Trust is obligated to pay Employee a
stated amount based on his average compensation (the "Business Change Event
Payment").
N. In 1991, the Board of Trustees of the Trust
authorized the Trust to make direct and indirect equity investments in real
property. Since such time, the Trust has acquired nine real properties by
means of negotiated transactions with its borrowers or in connection with (or
in lieu of) foreclosure, and has made only one new mortgage loan.
O. In 1993, the Trust announced that it intended to
acquire equity interests in real properties, other than as a result of
negotiated transactions with its borrowers and foreclosure. In connection
therewith, during 1993 and early 1994 the Trust focused on several transactions
which, if consummated, would have resulted in a significant increase in the
Trust's assets invested in real properties, primarily shopping center
properties.
P. In January 1994, the Trust sold its California
mortgage loan portfolio.
Q. In furtherance of the Trust's efforts to focus on
direct equity investments, the Trust entered into a Master Agreement, dated as
of April 10, 1995 (the "Original Master Agreement"), with Ramco-Gershenson,
Inc. and its affiliates named therein (collectively "Ramco") pursuant to which
the Trust agreed
-2-
<PAGE> 3
to acquire through an operating partnership interests in 22 Ramco properties
(the "Ramco Transaction"). Pursuant to the Original Master Agreement, the
Trust agreed that simultaneously with the closing of the Ramco Transaction or
prior thereto, the Trust will dispose of its remaining mortgage loan assets or
contribute such mortgage loan assets to a qualified REIT subsidiary, the stock
of which will be distributed to the Trust's shareholders.
R. As of December 27, 1995, the Trust and Ramco entered
into an Amended and Restated Master Agreement (the "Amended Master Agreement")
pursuant to which the Trust and Ramco agreed on certain amended terms for the
consummation of the Ramco Transaction.
S. The Trust and Employee agree that the closing of the
transaction contemplated by the Amended Master Agreement will constitute a
Business Change Event within the meaning of the Employment Agreement entitling
Employee to terminate the Employment Agreement.
T. The Trust and Employee have agreed to terminate the
Employment Agreement simultaneously with the closing of the transaction
contemplated by the Amended Master Agreement upon the terms and conditions set
forth herein.
NOW, THEREFORE, the parties intending to be legally bound
hereby, agree as follows:
-3-
<PAGE> 4
1. DEFINITIONS. a. All capitalized terms not otherwise
defined in this Agreement shall have the meanings set forth in the Employment
Agreement.
b. "Spin-Off Company" means Atlantic Realty Trust, a
Maryland real estate investment trust, that will succeed to ownership of the
Spin-Off Company Assets pursuant to the Ramco Transaction.
c. "Spin-Off Company Assets" means the Trust
mortgage loans and properties listed on Schedule 1 hereto.
2. TERMINATION. Subject to earlier termination as set
forth in the Employment Agreement, Employee shall remain employed as Chairman
and President of the Trust and all provisions of the Employment Agreement shall
remain in full force and effect until the date of consummation (the
"Transaction Date") of the transactions contemplated by the Amended Master
Agreement (the "Ramco Transaction"). Effective upon the Transaction Date, the
Employment Agreement and Employee's employment by the Trust shall, without any
further action on the part of any party, be automatically terminated. From and
after the termination of the Employment Agreement and Employee's employment by
the Trust, neither party to the Employment Agreement shall have any liability,
rights or obligations with respect to such agreement, except that,
notwithstanding such termination, the Trust shall remain obligated to perform
its indemnification obligations under the Employment Agreement.
3. PAYMENTS IN CONNECTION WITH TERMINATION.
a. On the Transaction Date, the Trust shall pay
-4-
<PAGE> 5
Employee all accrued but unpaid salary and bonuses and any unreimbursed
expenses owed to Employee under the Employment Agreement through the
Transaction Date, including without limitation, the Origination Bonus payable
pursuant to paragraph 6 of the Employment Agreement in connection with the
Trust's consummation of the Ramco Transaction. Such amount shall be paid to
Employee in cash by means of certified check or wire transfer.
b. In addition to the amounts payable under
Paragraph 3(b) above and in accordance with the terms of the Employment
Agreement and in consideration of the termination of such agreement and
Employee's employment by the Trust, on the Transaction Date the Trust shall be
obligated to pay Employee an amount equal to $1,910,416 (the "Termination
Payment") in full satisfaction of amounts owed to Employee under the Employment
Agreement, including without limitation, the Business Change Event Payment.
The Termination Payment shall be made as follows: (i) $310,416 on the
Transaction Date in cash by means of certified check or wire transfer and (ii)
$1,600,000 on January 15, 1997 plus interest on such amount at the rate of
7.75% per annum from and after the Transaction Date through and including
January 15, 1997 in cash by means of certified check or wire transfer. In the
event the payment required by this paragraph 3(b) is not made to Employee when
due, the Trust shall make the payment required by this paragraph 3(b) with
interest from the date such payment was due at the rate of 12% per annum.
-5-
<PAGE> 6
c. The amounts payable to Employee pursuant to
paragraph 3(b)(ii) shall be paid by the Trust in all events on or before
January 15, 1997, and such payment shall not be subject to any rights of setoff
or any right to interpose counterclaims or crossclaims.
4. OPTION PLAN. On the date the Ramco Transaction is
consummated, Employee shall surrender and the Trust shall cancel all share
purchase options ("Stock Options") granted to Employee pursuant to the Trust's
1989 Employees' Stock Option Plan. On the date the Ramco Transaction is
consummated, without any further action on the part of the Trust or Employee,
all of the Stock Options shall be terminated, cancelled and have no further
force and effect. Employee hereby agrees to execute, furnish and deliver, at
the expense of the Trust, all such other further documents, instruments and
agreements, as may be reasonably requested by the Trust in order to effect and
evidence more fully the matters covered by this paragraph 4.
5. CONTRIBUTION TO SAVINGS PLAN. The Trust shall make a
pro rata contribution to the Trust's Retirement Savings Plan for Employee's
account for any portion of a year in which the Employment Agreement remains in
effect.
6. CONTINUATION OF MEDICAL COVERAGE. Following the
termination of the Employment Agreement and Employee's employment by the Trust
pursuant to this Agreement and until the later of (i) the date Employee is no
longer an executive officer of the Spin-Off Company and (ii) the date which is
425 days after the Transaction Date, the Trust shall, or it will cause the
Spin-Off Company to,
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<PAGE> 7
provide Employee with comparable medical coverage to the medical coverage
Employee is currently receiving under the Trust's health plan in existence on
the date hereof.
7. ASSIGNMENT OF LIFE INSURANCE POLICY. On the
Transaction Date, the Trust, at the Employee's election, shall assign to
Employee the key man life insurance policy maintained by the Trust on
Employee's life provided that Employee simultaneously reimburses the Trust for
any premiums paid by the Trust on behalf of the Employee which are unearned by
Employee as of such date.
8. EXCHANGE OF RELEASES. Upon termination of the
Employment Agreement and Employee's employment by the Trust pursuant to this
Agreement (i) Employee shall execute and deliver to the Trust a release,
substantially in the form of Exhibit A attached hereto and (ii) the Trust shall
execute and deliver to Employee a release, substantially in the form of Exhibit
B attached hereto.
9. LEGAL FEES. The Trust shall reimburse Employee for
reasonable legal fees (including reasonable disbursements) incurred by Employee
in connection with this Agreement and Employee's tax planning in an amount up
to a maximum of $70,000. The Trust shall make the payment within 10 days after
receipt of reasonably appropriate documentation evidencing the incurrence of
such legal fees.
10. PUBLIC ANNOUNCEMENT. Neither the Trust,on the one
hand, nor Employee on the other hand, shall (and each such party shall use its
reasonable efforts to cause its Affiliates, trustees, officers and employees,
agents and representatives not to), issue
-7-
<PAGE> 8
any press release, make any public announcement or furnish any written
statement to its employees or shareholders generally concerning the events
contemplated by this Agreement without the consent of the other party (which
consent shall not be unreasonably withheld), except to the extent required by
applicable law or the applicable requirements of the New York Stock Exchange,
Inc. (and in either such case such party shall to the extent consistent with
timely compliance with such requirement consult with the other party prior to
making the required release announcement or statement).
11. BOARD OF TRUSTEES. The termination of Employee's
employment by the Trust hereunder shall not impact Employee's status as a
trustee of the Trust.
12. MISCELLANEOUS.
a. Assignment. This Agreement shall be binding
upon and inure to the benefit of Employee and his successors and legal
representatives.
b. Attorney's Fees. In the event Employee shall
refer this Agreement to an attorney in order to enforce the provisions of
paragraph 3(b), the Trust agrees to pay, in addition to all amounts due to
Employee, all costs and expenses incurred in attempting or effecting collection
hereunder, including reasonable attorneys fees, whether or not suit is
instituted. In any action or proceeding brought by a party to enforce any
provision of the Agreement (other than as set forth in paragraph 3(b)), the
-8-
<PAGE> 9
prevailing party shall be entitled to recover the reasonable costs and expenses
incurred by such party in connection with that action or proceeding (including,
but not limited to, attorney fees).
c. Exclusive Agreement; Amendment. This
Agreement supersedes all prior agreements among the parties with respect to its
subject matter, is intended as a complete and exclusive statement of the terms
of the Agreement between the parties with respect thereto and cannot be changed
or terminated except by a written instrument executed by the Trust and
Employee.
d. Termination. The representations,
warranties, covenants and agreements of the parties as set forth in this
Agreement shall automatically terminate in the event (i) the Employment
Agreement is terminated pursuant to its terms on a date which precedes the
termination of the Employment Agreement pursuant to the terms of this Agreement
or (ii) the Transaction Date occurs after December 31, 1996.
e. Additional Parties. In the event the Trust
completes a transaction which involves the transfer of a material portion of
its assets to one or more subsidiaries or controlled affiliates or the
acquisition of a material amount of assets by one or more subsidiaries or
controlled affiliates, the Trust will cause each such subsidiary or affiliate,
except for subsidiaries or other affiliates succeeding to ownership of the
Spin-Off Company Assets or third parties purchasing one or more of the Spin-Off
Company Assets, to assume on a joint and several basis with the Trust and each
other all obligations of the Trust hereunder. In the event the Trust completes
a transfer of a material portion of its assets
-9-
<PAGE> 10
to an unrelated third party, the Trust shall prior to making a distribution to
its shareholders adequately reserve for any remaining labilities under this
Agreement.
f. Jurisdiction. The parties hereto irrevocably
consent to the jurisdiction of the courts of the State of New York and of any
federal court located in such state in connection with any action or proceeding
arising out of or relating to this Agreement. All of the parties hereby
irrevocably consent to the service of any and all process in any such action or
proceeding by the mailing of copies of such process to any of such parties, as
the case may be, to their respective addresses as follows (or to such other
addresses as a party may designate as to himself or itself by notice to the
other party):
(1) If to Employee:
Joel M. Pashcow
21 Fir Drive
Great Neck, New York 11024
(2) If to the Trust:
RPS Realty Trust
747 Third Avenue
New York, New York 10017
g. Governing Law. This Agreement and all
amendments hereof shall be governed by the internal law of the State of New
York, without regard to conflicts of law principles thereof.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the date first above- written.
RPS REALTY TRUST
By: /s/ Stephen R. Blank
--------------------------------
Name:
Title:
/s/ Joel M. Pashcow
------------------------------------
Joel M. Pashcow
-11-
<PAGE> 12
EXHIBIT A
FORM OF RELEASE
Joel M. Pashcow, for himself and on behalf of his heirs,
executors, administrators, successors and assigns (collectively, the
"Releasor"), hereby remises, releases and forever discharges RPS Realty Trust
(the "Trust") and its direct and indirect subsidiaries, shareholders, trustees,
affiliates, predecessors, successors and assigns, and its present and former
trustees, officers, employees, agents, attorneys and its heirs, executors,
administrators, successors and assigns (collectively, the "Releasees"), and
each of them, of and from any and all claims, demands, or causes of action
whatsoever from the beginning of the world to the date present, whether
individual, class or derivative in nature, at law or in equity, whether based
on any federal, state or foreign law or right of action, foreseen or
unforeseen, matured or unmatured, known or unknown, accrued or not accrued,
based on the Employment Agreement dated October 24, 1988 between Releasor and
the Trust (the "Employment Agreement") and Releasor's employment by the Trust
and/or the Trust's predecessors (including Resources Pension Shares 1,
Resources Pension Shares 2, Resources Pension Shares 3 and Integrated Resources
Pension Shares 4) which any Releasor has, had or have or can, shall, or may
hereafter have against the Releasees, or any of them with the exception of (i)
any rights to indemnification under paragraph 13 of the Employment Agreement or
contained in the Trust's Amended and Restated Declaration of Trust, Bylaws, or
otherwise, (ii) any rights under the Termination Agreement dated March 26, 1996
between Releasor and
A-1
<PAGE> 13
the Trust, (iii) any rights as a beneficiary under the Trust's Retirement
Savings Plan and Section 401(k) Plan, or (iv) any rights as a third party
beneficiary of certain provisions of the Amended Master Agreement including,
without limitation, Section 6.8 of the Amended Master Agreement (the "Surviving
Claims").
IN WITNESS WHEREOF, the undersigned has duly executed this
release as of the ____ day of ________, 1996.
------------------------------------
Joel M. Pashcow
A-2
<PAGE> 14
EXHIBIT B
FORM OF RELEASE
RPS Realty Trust (the "Trust"), for itself and on behalf of
its direct and indirect subsidiaries, shareholders, trustees, affiliates
predecessors, successors and assigns, and its present and former trustees,
officers, employees, agents, attorneys and its heirs, executors,
administrators, successors and assigns (collectively, the "Releasor"), hereby
remises, releases and forever discharges Joel M. Pashcow and his heirs,
executors, administrators, successors and assigns (collectively, the
"Releasee"), of and from any and all claims, demands, or causes of action
whatsoever from the beginning of the world to the date present, whether
individual, class or derivative in nature, at law or in equity, whether based
on any federal, state or foreign law or right of action, foreseen or
unforeseen, matured or unmatured, known or unknown, accrued or not accrued,
arising out of or in connection with the Employment Agreement dated October 24,
1988 between Releasee and the Trust (the "Employment Agreement") and Releasee's
employment by the Trust and/or the Trust's predecessors (including Resources
Pension Shares 1, Resources Pension Shares 2, Resources Pension Shares 3 and
Integrated Resources Pension Shares 4) which any Releasor has, had or have or
can, shall, or may hereafter have against the Releasee, or any of them with the
exception of any rights Releasor may have under the Termination Agreement dated
March 28, 1996 between the Trust and Joel M. Pashcow (the "Surviving Claims").
B-1
<PAGE> 15
IN WITNESS WHEREOF, the undersigned has duly executed this
release as of the day of , 1996.
---- --------
RPS REALTY TRUST
By:
---------------------------------
B-2
<PAGE> 16
Schedule 1
Spin-Off Company Assets
Mortgage Loans
<TABLE>
<CAPTION>
Name of Loan Advance
------------ -------
<S> <C>
1-5 North Wabash Avenue 2,850,000
1733-53 Mass Avenue 2,200,000
Mt. Morris Common Shopping Center 2,700,000
19 Rector Street Office Building 3,255,596
Hylan Plaza Shopping Center 25,000,000
NCR Building 468,493
Branhaven Plaza Shopping Center 2,800,000
Copps Hill Shopping Center 3,563,948
</TABLE>
Real Property
Norgate Center, Indianapolis, Indiana
9 North Wabash Avenue, Chicago, Illinois
<PAGE> 1
Exhibit 21.1
List of Subsidiaries
<TABLE>
<CAPTION>
Name of State of
Subsidiary Incorporation
- ---------- -------------
<S> <C>
Crofton Plaza Inc. Maryland
Sunshine Plaza Shops, Inc. Florida
Lantana Plaza Shops, Inc. Florida
Trinity Shops, Inc. Delaware
The Commack Site, Inc. Delaware
Chester Plaza Shops, Inc. Delaware
9 North Wabash Corp. Delaware
Madison North Wabash Corp. Delaware
Norgate Shops Corp. Delaware
Hylan Plaza Shops, Inc. Delaware
</TABLE>
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-37925 of RPS Realty Trust on Form S-3 of our report dated April 3, 1996,
appearing in this Annual Report on Form 10-K of RPS Realty Trust for the year
ended December 31, 1995.
/s/ Deloitte & Touche LLP
- -------------------------
New York, New York
April 15, 1996
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-37925 of RPS Realty Trust on Form S-8 of our report dated April 3, 1996,
appearing in this Annual Report on Form 10-K of RPS Realty Trust for the year
ended December 31, 1995.
/s/ Deloitte & Touche LLP
- -------------------------
New York, New York
April 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,466,503
<SECURITIES> 58,098,854
<RECEIVABLES> 54,003,112
<ALLOWANCES> 10,231,836
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 58,046,463
<DEPRECIATION> 2,747,300
<TOTAL-ASSETS> 180,581,201
<CURRENT-LIABILITIES> 3,561,590
<BONDS> 0
0
0
<COMMON> 2,849,242
<OTHER-SE> 174,170,369
<TOTAL-LIABILITY-AND-EQUITY> 180,581,201
<SALES> 0
<TOTAL-REVENUES> 16,716,960
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,728,941
<LOSS-PROVISION> 4,450,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,538,019
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,538,019
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,538,019
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
<PAGE> 1
Exhibit 99.1
voting stock because of its substantial economic position in Ramco. If the IRS
were to be successful in such a contention, the Company's status as a REIT would
be lost and the Company would become subject to federal corporate income tax on
its net income, which would have a material adverse affect on the Company's cash
available for distribution. See "FEDERAL INCOME TAX CONSEQUENCES -- Background."
BACKGROUND OF THE RAMCO ACQUISITION
The Company commenced operations in December 1988. As of December 28, 1988,
the date on which the Company's formation transaction was consummated, the
Company owned 42 mortgage loans with an aggregate outstanding principal balance
of approximately $178,939,000. During 1989 and 1990, the Company originated two
new mortgage loans, made additional advances under certain of its existing
mortgage loans, and otherwise operated its mortgage loan portfolio in the
ordinary course of business.
However, in 1990 and 1991, as the decline of the national real estate
market accelerated, the performance of the Company's mortgage loan portfolio
began to deteriorate, as reflected by a higher rate of default interest payments
by borrowers and the need for the Company to make "protective advances" (i.e.,
payment by the Company of underlying loan payments, real estate taxes and
required maintenance) on behalf of certain borrowers. As a result of the
nationwide decrease in real estate values and its impact on the results of
operations of the Company's mortgage portfolio, the Board of Trustees of the
Company determined, in May 1991, to authorize the Company's management to make
direct and indirect equity investments in real property.
During 1991 and 1992, as a result of foreclosure proceedings (or transfers
in lieu of such proceedings) with respect to certain of the properties which
were subject to mortgages held by the Company, as well as negotiated
transactions with borrowers, the Company, through separately incorporated,
wholly-owned subsidiaries, took title to five properties, four of which were
shopping centers and one of which was an office building. During this time, the
Company continued to manage its mortgage loan portfolio, but its mortgage
origination activities declined dramatically.
In 1993, the Board of Trustees determined that shareholder value could be
enhanced if the Company were to convert from a REIT principally engaged in the
business of mortgage lending into an equity REIT primarily engaged in the
operation and development of real properties (and, in particular, shopping
center properties). As a result, the Company announced its intention to acquire
equity interests in real properties, other than in connection with foreclosure
proceedings or as a result of negotiated transactions with its borrowers, in an
effort to accelerate the transformation of the Company's portfolio from
mortgages into equity investments. During 1993, the Company, through its
wholly-owned subsidiaries, acquired title to two retail properties which were
previously subject to mortgages held by the Company.
During 1993 and early 1994, the Company engaged in discussions and
negotiations with several parties with respect to one or more transactions
which, if consummated, would have resulted in, among other things, a significant
increase in the portion of the Company's assets invested in real properties. In
furtherance of the Company's intent to focus on equity investments, the Trustees
determined to dispose of the Company's mortgage loans secured by property
located in California. The sale of substantially all of the Company's California
mortgage loan portfolio was consummated during January 1994. In addition, during
1994 the Company, through the exercise of a right of first refusal and receipt
of a deed in lieu of foreclosure, acquired (through two wholly-owned
subsidiaries) title to two shopping centers which were previously subject to
mortgages held by the Company. The Company also received during 1994
approximately $30,000,000 from the prepayment of two of its mortgage loans.
As part of the Company's program of seeking additional properties and
expanding its equity business, Herbert Liechtung, then the President of the
Company, identified Ramco as a possible acquisition candidate because of its
property portfolio, as well as its property management and development
capabilities. The Company was familiar with Ramco as a result of a participating
mortgage loan, secured by Tel Twelve Mall, made to the owner of such property by
one of the Company's predecessors, which was prepaid in full (with additional
contingent interest) in 1992. In October 1993, Mr. Liechtung contacted Dennis
Gershenson, Vice President-Finance of Ramco, to discuss Ramco's potential
interest in pursuing a transaction with the
27
<PAGE> 2
Company with the goal of creating a larger entity with development capabilities
that was capable of accessing the capital markets to fund future growth. Mr.
Gershenson expressed interest in such discussions, and subsequently discussed
the transaction with his partners. Following further conversations between Mr.
Liechtung and Mr. Gershenson regarding the potential benefits of the proposed
transaction, the Company and Ramco entered into mutual confidentiality
agreements for the purpose of exchanging non-public information. The Board of
Trustees also authorized the formation of the Special Acquisition Committee, to
be comprised of Stephen R. Blank, Arthur H. Goldberg and William A. Rosoff, as a
result of the conflicts of interest that existed for Messrs. Liechtung and
Pashcow, namely that the proposed transactions with Ramco would constitute a
"Business Change Event" under their respective employment agreements entitling
such executive officers to terminate such contracts and to trigger significant
severance payments. As a result of this conflict, such committee was directed to
work with the Company's management in the negotiation, structuring and analysis
of a proposed transaction with Ramco and related transactions. At that time, the
Company contacted Dean Witter to inquire if it would act as financial advisor to
the Company in connection with a proposed acquisition.
In November 1993, the Company, the Special Acquisition Committee, Dean
Witter and the Company's legal counsel met with management of Ramco and Ramco's
legal counsel to discuss the structure of a potential acquisition. Negotiations
continued through the end of 1993 and the first half of 1994 with respect to a
letter of intent. Throughout these negotiations Ramco had requested that any
transaction be subject to the prior termination of the Company's existing
employment agreements (the "Employment Contracts") with Messrs. Pashcow and
Liechtung and the satisfaction of the Company's remaining obligations
thereunder. The Trustees were also aware that consummation of the transaction of
the type being discussed with Ramco would be considered a "Business Change
Event" under the Employment Contracts, entitling each of Messrs. Liechtung and
Pashcow to terminate his Employment Contract, and triggering certain termination
payments thereunder. See "-- Termination of Existing Employment Contracts;
Termination Agreements." In view of, among other things, the Company's desire to
pursue a transaction with Ramco, it was apparent to the Trustees that it would
be necessary to agree on means for terminating the Employment Contracts and
satisfying the Company's obligations thereunder; accordingly, the Company,
represented by the Special Acquisition Committee, commenced negotiations with
Messrs. Liechtung and Pashcow with respect to the termination and/or
satisfaction of the Employment Contracts.
During this period the Company engaged an independent appraiser to appraise
each of the RPS Properties, as well as its Norgate Center and 9 North Wabash
Avenue properties. The Company's management believed these appraisals, which
estimated the market values of each of the properties in "as is" condition,
could be used to create a basis for valuing these properties in the Operating
Partnership. As of August 1, 1994, the independent appraiser valued the RPS
Properties (on an individual basis) at an aggregate value of $48,000,000.
In June 1994, the Company engaged Dean Witter as the Company's financial
advisor and to render a fairness opinion in connection with the proposed
transaction with Ramco or any other third party transaction. In late June 1994,
negotiations conducted by the Special Acquisition Committee and management with
respect to a proposed letter of intent between the Company and Ramco, and by the
Special Acquisition Committee with respect to the material terms of proposed
termination agreements with Messrs. Liechtung and Pashcow, each neared
completion. On July 5, 1994, the Board of Trustees met with its legal and
financial advisors to discuss the proposed letter of intent and the material
terms of such termination agreements. At this meeting, the Trustees were
informed of and discussed extensively the strategic rationale for, and the
potential risks and benefits of, the proposed acquisition, as well as the
material terms of the proposed letter of intent. Dean Witter discussed several
methodologies it would use in the preparation of a fairness opinion and the
Company's legal advisors discussed the terms of the proposed letter of intent.
After extensive discussions, the Trustees determined to defer action with
respect to the proposed letter of intent and the material terms of the
Termination Agreements pending further discussion at a meeting scheduled the
following week.
On July 12, 1994, of the Board of Trustees met again to deliberate with
respect to the proposed letter of intent and the material terms of the proposed
termination agreements with Messrs. Liechtung and Pashcow. At the end of such
meeting, the Trustees authorized the Company to enter into the proposed letter
of intent
28
<PAGE> 3
with Ramco and approved the material terms of such termination agreements,
substantially as described to the Board of Trustees.
On July 14, 1994, the Company and Ramco entered into a letter of intent
(the "Letter of Intent"), which committed the Company and Ramco to proceed on a
prompt basis with the negotiation, execution and delivery of a definitive
agreement embodying the terms of the proposed transactions as contemplated by
such Letter of Intent. Following the close of business on such date, the Company
and Ramco issued a press release announcing the execution of such Letter of
Intent and the material terms thereof. Shortly after such date, the Company
commenced a full due diligence review of Ramco and its properties that included
financial, legal, environmental and engineering due diligence. The Company also
directed its legal counsel to commence preparation of definitive documentation
required to consummate the Ramco Acquisition.
Due diligence continued throughout the remainder of 1994. During this
period, the trading prices of the securities of most publicly-traded retail and
shopping center REITs declined from earlier levels, while long-term interest
rates increased. In December 1994, the Company's management, the Special
Acquisition Committee, the Company's legal and financial advisors, Ramco's
management and Ramco's legal advisors met to discuss these changes in economic
circumstances and the need to consider certain modifications to the terms of the
proposed acquisition.
Negotiations and due diligence continued between the parties throughout the
winter of 1995. These negotiations primarily involved an appropriate valuation
of the RPS Properties, on the one hand, and the Ramco Properties, as well as the
business of Ramco, on the other hand. Because of the length of the negotiations
and the ensuing economic conditions, the parties determined that it would be
appropriate to update the appraisals of the RPS Properties. As of January 1,
1995, the same independent appraiser appraised the RPS Properties (on an
individual basis) at an aggregate value of $47,000,000 (the "January 1995
Appraisals"). See "-- Property Appraisals" for additional information with
respect to the appraisals performed on the RPS Properties.
By March 1995, substantially all of each company's due diligence was
completed and revised drafts of the definitive master agreement and the other
ancillary agreements were prepared. The Board of Trustees held a special meeting
on March 29, 1995 to consider the proposed master agreement and the transactions
contemplated thereby. At such meeting, Mr. Pashcow and certain other members of
the Company's management, together with its legal and financial advisors,
reviewed with the Board of Trustees, among other things, the background of the
proposed acquisition, the strategic rationale for, and the potential risks and
benefits of, the proposed acquisition, a summary of the due diligence findings
regarding Ramco and the Ramco Properties, a valuation analysis of the proposed
acquisition and the terms of the proposed master agreement and the related
agreements. In addition, at this meeting, Dean Witter made an oral presentation
of its analysis performed to date relating to the fairness opinion it was asked
to deliver to the Board of Trustees to the effect that, based on and subject to
certain matters, the proposed Transaction Consideration, defined as the
allocation of interests in the Operating Partnership between the Company and the
Ramco Group, in the Ramco Acquisition is fair to the Company's Shareholders from
a financial point of view. Such oral presentation did not constitute Dean
Witter's fairness opinion. A discussion followed concerning certain terms of the
proposed master agreement and as a result of these discussions, the Board of
Trustees instructed Mr. Pashcow, together with the Special Acquisition
Committee, to continue to negotiate certain terms of the proposed master
agreement.
As a result of negotiations which continued during the following week, (i)
the Ramco Principals agreed to make certain payments to the Operating
Partnership if, during the eight years following the closing of the Ramco
Acquisition, a Ramco Property located in Michigan were sold and the buyer did
not receive the necessary consents to resell electricity to tenants at a profit
and (ii) Ramco agreed to use commercially reasonable efforts to obtain all its
third party consents no later than June 15, 1995. On April 3, 1995, the Board of
Trustees, by the unanimous vote of all Trustees present, approved the proposed
master agreement and the transactions contemplated thereby, and authorized Mr.
Pashcow, with the consent of the Special Committee, to resolve any open issues
and to execute the master agreement. On April 9, 1995, Mr. Pashcow, the Special
Acquisition Committee, Dean Witter and the Company's legal counsel met via
telephone conference to
29
<PAGE> 4
discuss and review the final modifications to the master agreement. During the
call, Mr. Pashcow and each member of the Special Acquisition Committee approved
the final master agreement (the "Initial Master Agreement"). The Initial Master
Agreement was executed by the parties thereto on April 10, 1995.
Closing under the Initial Master Agreement was conditioned on the Company's
receipt of a closing agreement from the IRS that would permit the Company
following the Closing to be taxed as a REIT for federal income tax purposes
notwithstanding the Company's inadvertent failure to satisfy two possible
technical REIT requirements. (1) During 1988-1992 the Company failed to satisfy
certain shareholder notice requirements applicable to REITs. (2) During the
third quarter of 1994, the Company held more than 25% of the value of its gross
assets in Treasury Bill repurchase obligations which the IRS may view as a non-
qualifying asset for purposes of satisfying an asset qualification test
applicable to REITs, based on a Revenue Ruling published in 1977 (the "Asset
Issue"). On October 6, 1995, the Company entered into a satisfactory closing
agreement with the IRS relating to the first matter, but the IRS deferred any
action relating to the Asset Issue pending the further examination of the
Company's 1991-1994 tax returns (the "RPS Audit," and together with the Asset
Issue, the "RPS Tax Issues"). Based on developments in the law which occurred
since 1977, the Company's legal counsel advised the Company that it would render
an opinion that the Company's investment in Treasury Bill repurchase obligations
would not adversely affect its REIT status. Such opinion, however, is not
binding upon the IRS and, notwithstanding such opinion, the IRS could make an
adverse determination against the Company.
In early October 1995, Dean Witter, in its capacity as financial advisor,
advised the Special Acquisition Committee that if the Ramco Acquisition was to
be consummated before the IRS favorably determined the Asset Issue and completed
its examination of the Company's tax returns, the terms of the Ramco Acquisition
should be modified in order to mitigate the adverse impact on the Company's
Shares caused by the uncertainty of the Company's REIT status. Such
modifications related primarily to (i) the elimination of certain proposed
amendments to the Company's existing option plans and certain share option
grants, (ii) the reduction of the Ramco Group's initial interest in the
Operating Partnership such that on a pro forma basis the Company could increase
its proposed distribution from a pro forma $1.62 per share to a pro forma $1.68
per share, and (iii) the treatment of transaction expenses, including the
creation of a cap on the maximum amount of transaction expenses for which the
Company and the Operating Partnership would have liability if the Contemplated
Transactions were consummated.
Thereafter, the Special Acquisition Committee asked Ramco if it was willing
to proceed with the transaction (i) without an IRS closing agreement on the
Asset Issue, and (ii) on the amended terms suggested by Dean Witter. The Special
Acquisition Committee indicated to Ramco that the Company intended to have the
Spin-Off Company assume any tax liability arising from the Asset Issue and the
IRS' on-going examination of the Company's tax returns. Ramco responded that it
needed some time to consider the proposal. On October 18, 1995, the Trustees met
for the purpose of discussing developments with Dean Witter and the IRS. At this
meeting, the Trustees discussed the advantages and disadvantages of the
following alternatives: (i) delaying the Ramco Acquisition until the IRS
examination of the Company's tax returns is completed, (ii) completing the Ramco
Acquisition without a fairness opinion, (iii) seeking an alternative fairness
opinion, and (iv) terminating the Initial Master Agreement and seeking an
alternative transaction or liquidating after the IRS examination is completed.
The Trustees determined to defer any action until they received Ramco's
definitive response as well as Dean Witter's position on its willingness to
render a fairness opinion with the Asset Issue and the IRS' on-going
examinations of the Company's tax returns unresolved.
Ultimately Dean Witter concluded that until the Asset Issue was favorably
resolved and the IRS examination was completed, it could not render a fairness
opinion. Because the Asset Issue and the IRS examination had not been concluded,
Dean Witter did not thereafter continue its efforts to determine the fairness of
the transaction. On October 26, 1995, the Special Acquisition Committee met with
management and legal counsel to discuss the alternatives which previously were
considered by the Board as described above. In reaching this conclusion, the
Special Acquisition Committee took into account: (i) its view of the benefits
the Ramco transaction offers to the Company and its Shareholders, (ii) changes
to the transaction structure based on the suggestion of Dean Witter, which the
Board intended to follow, (iii) legal counsel's advice that the Company would
prevail on the Asset Issue, and (iv) the negative aspects of the alternatives,
which included (x) the uncertainty and delay in obtaining either
30
<PAGE> 5
an IRS closing agreement on the Asset Issue or an alternative fairness opinion,
(y) the time and effort required to identify and consummate an alternative
acquisition, and (z) the potential inability to liquidate until the resolution
of all unresolved tax issues. The Special Acquisition Committee recommended that
the Board pursue the Ramco Acquisition without a Dean Witter fairness opinion.
On October 30, 1995, the Board of Trustees met, received Special
Acquisition Committee recommendations, considered the report of one of the
Company's legal advisors with respect to the status of the IRS examination of
the Company's tax returns and the Asset Issue, and the report of legal counsel
with respect to the status of the discussions with Ramco regarding the modified
terms of the Ramco Acquisition, and determined to pursue the Ramco Acquisition
without a fairness opinion. In reaching its conclusion, the Board of Trustees
took into account the same considerations that were taken into account by the
Special Acquisition Committee at the time it reached its decision that it would
recommend to the Board that the Company proceed with the Ramco Acquisition
without a Fairness Opinion.
The Board also determined that certain additional due diligence should be
performed on the Ramco Properties, which primarily included a review of the
Ramco Property's financial statements for the quarter ended September 30, 1995,
the impact of certain existing bankrupt tenants at the Ramco Properties on
future business operations and the possible impact of any bankruptcy filing by
Kmart on the Ramco Properties' operations. It also adopted a Special Acquisition
Committee proposal that would give the Continuing Trustees the right to
liquidate the Operating Partnership's assets if the Company lost its REIT status
as a result of the Asset Issue (the "Tax Liquidation Right"). The provision was
intended to ensure that the Board's existing Trustees (or their successors)
would have the ability to control whether the Company would remain in existence
if it lost REIT status. The Board instructed the Special Acquisition Committee
to advise Ramco that the Company would proceed with the proposed transaction on
the terms suggested by Dean Witter, subject to completion of further due
diligence and Ramco's acceptance of the Tax Liquidation Right. See "-- Operating
Partnership Agreement -- Liquidation."
On November 1, 1995, the Company's position was conveyed to Dennis
Gershenson and negotiations ensued. These negotiations related primarily to (i)
the valuation of the Ramco Properties and the percentage interest the Ramco
Group would receive in the Operating Partnership, (ii) the structure and form of
the Tax Liquidation Right, and (iii) the allocation between the parties of
liability for transaction expenses. On November 9, 1995, a tentative agreement
between the parties was reached and the Special Acquisition Committee instructed
legal counsel to prepare an amended and restated master agreement. Specifically,
the parties agreed that (x) the Ramco Group's maximum ownership interest in the
Operating Partnership would be reduced from approximately 31.5% to 29.0%, (y)
the Company's Continuing Trustees would receive the right, subject to
Shareholder approval, if required by law, and the right of first offer in favor
of the Ramco Principals, to liquidate the assets of the Operating Partnership if
the Company lost its REIT status as a result of the Asset Issue, and (z) that
the Company would pay up to $7,000,000 of specified transaction expenses, the
Operating Partnership would pay up to $3,200,000 of specified transaction
expenses and the Ramco Group would pay the balance of such specified transaction
expenses (under the Initial Master Agreement the Operating Partnership was
obliged to pay 100% of the specified transaction expenses). See "-- The Master
Agreement -- Use of Cash" below. The Trustees met on December 24, 1995 to
consider the then-completed Master Agreement; reports of the Company's legal
advisors regarding the modifications to the Ramco Acquisition reflected in the
Master Agreement; and a summary by management of the additional due diligence
findings. Specifically, management indicated that it reviewed (x) unaudited
internal financial statements for the Ramco Properties for the nine months ended
September 30, 1995 and found them generally consistent with the operating
results that were anticipated for this period, (y) the existing terms of the
Kmart and Fashion Bug leases for the purpose of assessing the prospects for
releasing the space occupied by these tenants at comparable rents in the event
they filed for bankruptcy and rejected their leases and found that such
prospects were reasonable, and (z) the leases for the Petrie Stores tenants
(Stuart's, Winkelman and Marianne), which have filed for bankruptcy, for the
purpose of assessing the prospects for releasing the space occupied by these
tenants at comparable rents in the event they reject these leases pursuant to
the Petrie Stores existing bankruptcy proceeding and found that such prospects
were reasonable. The Board of Trustees
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approved the transaction on the revised terms. On December 27, 1995, all parties
executed the Master Agreement.
In December 1995, the Company received an unsolicited proposal from the
Proposed Acquiror regarding a proposed business combination between the Company
and the Proposed Acquiror. Consistent with the "Alternative Transaction"
provisions set forth in the Master Agreement and under the terms of a
confidentiality agreement, the Company provided information regarding its
operations and assets to the Proposed Acquiror and held discussions regarding
the terms of a proposed business combination. On February 13, 1996, the Company
received a written proposal from the Proposed Acquiror to acquire the Company in
a merger transaction. As proposed, Shareholders would receive aggregate
consideration of up to approximately $5.40 per Share based on market prices as
of the time the proposal was made consisting of (x) approximately $4.70 per
Share in stock of the Proposed Acquiror (subject to certain adjustments based on
changes in the Proposed Acquiror's stock prior to the mailing of the proxy
statement/prospectus relating to the merger) and (y) up to $.70 per Share in
cash (the "Cash Consideration"). Under the proposal, the Cash Consideration
would be placed in escrow and would be available to pay certain contingent
liabilities. Alternatively, the Proposed Acquiror indicated it would be willing
to pay approximately $5.16 per Share (based on market prices as of the time the
proposal was made) for the Company's Shares (subject to the same adjustments
described above), without a reserve for these contingent liabilities. Any merger
transaction contemplated by the proposal was subject to (i) the receipt of
satisfactory legal opinions from Battle Fowler LLP and Wolf, Block, Schorr and
Solis-Cohen stating that since its inception the Company has been a REIT for
federal income tax purposes, (ii) a favorable determination from the IRS that
the Company is not precluded from making an election to be taxed as a REIT for
the taxable year ended December 31, 1995, (iii) a $4,000,000 break-up fee and
(iv) termination of the Master Agreement. The proposal also indicated that it
was subject to approval by the Proposed Acquiror's board of directors and
execution of a definitive merger agreement. The proposal also provided that it
would immediately terminate if it was publicly disclosed.
On February 27, 1996, the Board of Trustees met to consider this proposed
acquisition of the Company. After discussion, including the recommendation of
the Special Acquisition Committee, the Board rejected this proposal because its
conditions were unacceptable. In particular, the Special Acquisition Committee
and the Board determined that, in their judgment, it would not be in the best
interests of the Company's Shareholders to terminate the Master Agreement
pursuant to which the Ramco Acquisition would be consummated in light of the
uncertain time frame in which the Company believed it could obtain the required
favorable determination from the IRS. Notwithstanding the fact that the Proposed
Acquiror may in the future eliminate or modify the conditions in its proposal in
a manner which is acceptable to the Company, there can be no assurance that (i)
the Board will view any modified proposal as superior to the Ramco Acquisition,
(ii) even if any modified proposal is viewed as superior to the Ramco
Acquisition, the Company will successfully enter into definitive merger
agreement with the Proposed Acquiror, and (iii) even if the Company enters into
a merger agreement with the Proposed Acquiror, the contemplated merger with the
Proposed Acquiror will ultimately close.
Also, on February 16, 1996, the Company received another unsolicited
proposal from a public company to acquire the Company in a stock-for-stock
merger transaction. This proposal, which was preliminary in nature, was subject
to the completion of due diligence and the execution of definitive
documentation. Consistent with the "Alternative Transaction" provisions set
forth in the Master Agreement and under the terms of a confidentiality
agreement, the Company provided information regarding its operations and assets
to this potential acquiror. Following completion of some preliminary due
diligence, this proposal was withdrawn. There can be no assurance that a future
definitive proposal from this company will be made and, if made, there can be no
assurance that (x) the Board of Trustees will view such proposal as superior to
the Ramco Acquisition, (y) even if such proposal is viewed as superior to the
Ramco Acquisition, the Company will successfully enter into a merger agreement
with the person making such proposal, or (z) even if the Company enters into a
merger agreement with the person making such proposal, the proposed merger will
ultimately be consummated. See "-- The Master Agreement -- No Solicitation."
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STRUCTURE OF THE RAMCO ACQUISITION
Pursuant to the Ramco Acquisition, the Company will transfer to the
Operating Partnership (via contribution or merger) the RPS Contribution Assets,
which will consist of the RPS Cash and the following RPS Properties: Sunshine
Plaza Shopping Center, Lantana Shopping Center; Commack Shopping Center;
Trinity Corners Shopping Center; Crofton Plaza Shopping Center; and Chester
Springs Shopping Center. For a description of such properties, see Item 1 of
the Company's Annual Report on Form 10-K for the year ended December 31, 1994,
as amended by the Company's Form 10-K/A1, dated April 7, 1995, the Form 10-K/A2,
dated July 11, 1995, the Form 10-K/A3, dated September 8, 1995, and the Form
10-K/A4, dated September 29, 1995 (collectively, the "Form 10-K"), which is
incorporated herein by reference. The Company initially will receive a 1%
interest in the Operating Partnership, as a general partner, and an
approximately 74% interest in the Operating Partnership, as a limited partner.
The Company's Norgate Center and 9 North Wabash Avenue properties are not being
contributed to the Operating Partnership and will be transferred to the
Spin-Off Company in connection with the Spin-Off Transaction. See "THE SPIN-OFF
TRANSACTION." The Norgate Center property has been excluded from the Ramco
Acquisition because such property is being held for sale. The 9 North Wabash
Avenue property has been excluded from the Ramco Acquisition because it is a
single tenant property with an expired tenant lease and is not otherwise
consistent with most of the Company's property portfolio.
Pursuant to the Ramco Acquisition, the Ramco Group has transferred or
will transfer (via contribution or merger) to the Operating Partnership the
Ramco Contribution Assets which will consist of interests in the 22 Ramco
Properties, the Development Land, the Option Properties, the Outparcels and the
Ramco Stock. In connection with the Ramco Acquisition, the Ramco Group
initially will receive, in the aggregate, an approximately 25% interest in the
Operating Partnership, as a limited partner, and the Company will assume
approximately $184,015,000 in secured indebtedness, as of December 31, 1995,
on the Ramco Properties (excluding principal amortization on such indebtedness
since December 31, 1995 and including a pro rata share of the debt encumbering
two 50%-owned Ramco Properties). If certain leasing plans with respect to the
Lease Up Property are fulfilled, the aggregate percentage interest in the
Operating Partnership to be received by the Ramco Group may increase to a
maximum of approximately 29%. See "-- The Master Agreement -- Lease Up
Property."
REVERSE SPLIT; CONVERSION OF SHARES
If the Ramco Acquisition Proposal becomes effective, each four
outstanding Shares will automatically be combined into one share of the
Company. The purpose of the Reverse Split is to increase the liquidity and
marketability of the Shares by increasing the trading price per Share and
attracting investors and analysts who would otherwise be reluctant to deal in a
lower-priced stock.
The Reverse Split will result in certain Shareholders owning fractional
shares of the Company. The Company will not issue fractional shares, but will
instead distribute cash to such Shareholders in redemption of such fractional
shares. To make such payments, fractional shares will be aggregated into whole
shares and a certificate evidencing those shares will be sold by an independent
agent in the open market on behalf of Shareholders who otherwise would be
entitled to receive fractional shares. Those Shareholders will receive a cash
payment in the amount of their pro rata share of the total sales proceeds. The
independent agent will make such sales at times in the amounts and through
broker-dealers selected in the sole discretion of the independent agent. None
of the independent agent's actions will be subject to the control of the
Company. As long as the distribution of cash in payment for such fractional
shares represents merely a mechanical rounding off of the fractions in the
exchange and is not a separately bargained-for consideration,the payments will
be treated as redemptions, which should result in the recognition of capital
gain or loss, and not ordinary income, to the Shareholders. Promptly after the
occurrence of the Reverse Split, a letter of transmittal will be mailed to
Shareholders containing instructions relating to the surrender of outstanding
certificates representing Shares in exchange for certificates representing
post-Reverse Split shares. SHARE CERTIFICATES SHOULD NOT BE SURRENDERED
UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED.
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