<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1996.
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
RPS REALTY TRUST
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
/ / $500 per each Party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
- --------------------------------------------------------------------------------
(5) Total fee paid:
N/A
- --------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement to:
N/A
- --------------------------------------------------------------------------------
(3) Filing Party:
N/A
- --------------------------------------------------------------------------------
(4) Date Filed:
N/A
- --------------------------------------------------------------------------------
<PAGE> 2
RPS REALTY TRUST
747 THIRD AVENUE
NEW YORK, NEW YORK 10017
March 29, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
RPS Realty Trust (the "Company") to be held at Deloitte & Touche LLP, 2 World
Financial Center, 3rd Floor, New York, New York 10281, New York, New York on
April 29, 1996, at 10:00 a.m., New York City time (the "Special Meeting").
The purpose of the Special Meeting is to consider and vote upon three
proposals (collectively, the "Proposals") relating to (i) an acquisition by the
Company of substantially all of the real estate assets, as well as the
management organization and personnel and business operations, of
Ramco-Gershenson, Inc. and its affiliates, (ii) the adoption of certain
amendments to the Company's Declaration of Trust, and (iii) the adoption of a
new stock option plan.
YOUR BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE EACH
OF THE PROPOSALS.
The accompanying Proxy Statement provides detailed information concerning
the Proposals, including, without limitation, the receipt by the executive
officers of benefits that will not be available to Shareholders, risks to
Shareholders and the fact that consummation of the transactions contemplated by
the Proposals may constitute a change in management control of the Company, all
of which you are urged to read carefully. It is important that your Shares be
represented and voted at the Special Meeting, whether or not you plan to attend.
Please sign, date and return the enclosed proxy card at your earliest
convenience to ensure that your vote on the important business matters to be
considered at the Special Meeting will be recorded.
Your Board of Trustees and management look forward to greeting personally
those Shareholders who are able to attend the Special Meeting. Your continued
interest and participation in the affairs of the Company are greatly
appreciated.
Sincerely,
Joel M. Pashcow
Chairman of the Board
and President
<PAGE> 3
RPS REALTY TRUST
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 29, 1996
------------------------
To the Shareholders of RPS Realty Trust:
Notice is hereby given that a Special Meeting of the Shareholders of RPS
Realty Trust (the "Company") will be
held at Deloitte & Touche LLP, 2 World Financial Center, 3rd Floor, New York,
New York on April 29, 1996 at 10:00 a.m., New York City time (the "Special
Meeting"), to consider and take action on the following matters:
1. To consider and vote upon a proposal to consummate an acquisition
by the Company of substantially all of the shopping center and retail
properties, as well as the management organization and personnel and
business operations, of Ramco-Gershenson, Inc. and its affiliates upon the
terms and conditions described in the Proxy Statement (the "Ramco
Acquisition");
2. To consider and vote upon a proposal to amend the Company's
Declaration of Trust to, among other things, (i) increase certain quorum
percentage requirements in connection with meetings of the Board of
Trustees, (ii) establish a Nominating Committee and Advisory Committee of
the Board of Trustees, (iii) change the Company's name to Ramco-Gershenson
Properties Trust, and (iv) authorize the Board of Trustees, on a one-time
basis in connection with the Ramco Acquisition, to combine outstanding
Shares by way of a 1 for 4 reverse split, provide for the payment of cash
in lieu of any fractional interest in a combined Share and establish
mechanics to implement any such combination;
3. To consider and vote upon a proposal to approve and ratify a new
employee share option plan for certain key employees of the Company and its
subsidiaries; and
4. The transaction of such other business as may properly come before
the Special Meeting or any adjournment thereof.
As of March 15, 1996, the Company had a total of 28,492,421 Shares
outstanding. 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 and any adjournment thereof. A list of
Shareholders entitled to vote at the Special Meeting will be available for
examination by any Shareholder, for any purpose germane to such meeting, during
ordinary business hours during the ten days prior to the meeting date, at the
offices of the Company, 747 Third Avenue, New York, New York 10017.
By Order of the Board of Trustees,
John J. Johnston, Jr.,
Vice President -- Real Estate
Counsel and Secretary
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING.
WHETHER OR NOT YOU INTEND TO BE PRESENT, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE STAMPED AND ADDRESSED ENVELOPE ENCLOSED FOR YOUR
CONVENIENCE. SHAREHOLDERS CAN HELP THE COMPANY AVOID UNNECESSARY EXPENSE AND
DELAY BY PROMPTLY RETURNING THE ENCLOSED PROXY CARD.
March 29, 1996
<PAGE> 4
RPS REALTY TRUST
747 THIRD AVENUE
NEW YORK, NEW YORK 10017
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 29, 1996
------------------------
INTRODUCTION
This Proxy Statement (the "Proxy Statement") is being furnished to the
holders of shares of beneficial interest, par value $.10 per share (the
"Shares"), of RPS Realty Trust, a Massachusetts business trust (the "Company"),
in connection with the solicitation of proxies by the Board of Trustees of the
Company for use at the Special Meeting of Shareholders of the Company to be
held at Deloitte & Touche LLP, 2 World Financial Center, 3rd Floor, New York,
New York, on April 29, 1996 at 10:00 a.m., New York City time, and at any and
all adjournments or postponements thereof (the "Special Meeting").
At the Special Meeting, the Company's shareholders (the "Shareholders")
will be asked to consider and take action on the following matters
(collectively, the "Proposals"):
1. To consider and vote upon a proposal to consummate the acquisition
by the Company of substantially all of the shopping center and retail
properties, as well as the management organization, personnel and business
operations, of Ramco-Gershenson, Inc. ("Ramco") and its affiliates (the
"Ramco Acquisition") in exchange for an approximately 25% aggregate
interest, as a limited partner, in an operating partnership (the "Operating
Partnership") formed for the purpose of effectuating this acquisition, and
the assumption of approximately $184,015,000 in 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).
Interests in the Operating Partnership will be divided into units of
limited partnership interest ("Units") which, subject to certain
limitations, will be exchangeable into the Company's shares on a
one-for-one basis (assuming the combination of the Company's Shares by
means of a 1 for 4 reverse stock split) beginning one year after the
closing of the Ramco Acquisition. As a result of the Ramco Acquisition, the
Company will succeed to the ownership of interests in 22 shopping center
and retail properties (containing an aggregate of approximately 5,114,000
square feet of total gross leasable area, of which approximately 1,408,000
square feet will be owned by certain Anchors and approximately 3,706,000
square feet will be Company owned) (the "Ramco Properties"). The Ramco
Properties are located primarily in Michigan and Ohio. The Company will
also succeed to the ownership of in excess of 95% of the economic interests
in Ramco, a shopping center property management, development and leasing
company, as well as certain development and option rights;
2. To consider and vote upon a proposal to amend the Company's
Declaration of Trust to, among other things, (i) increase certain quorum
percentage requirements in connection with meetings of the Board of
Trustees, (ii) establish a Nominating Committee and Advisory Committee of
the Board of Trustees, (iii) change the Company's name to Ramco-Gershenson
Properties Trust, and (iv) authorize the Board of Trustees, on a one-time
basis in connection with the Ramco Acquisition and the related combination
of Shares by way of a 1 for 4 reverse stock split, to combine outstanding
Shares by way of a 1 for 4 reverse split, provide for the payment of cash
in lieu of any fractional interest in a combined Share and establish
mechanics to implement any such combination;
<PAGE> 5
3. To consider and vote upon a proposal to approve and ratify a new
employee share option plan (the "New Plan"), pursuant to which the Board of
Trustees (or a committee thereof) will be empowered to grant options to
certain key employees of the Company and its subsidiaries; and
4. The transaction of such other business as may properly come before
the Special Meeting or any adjournment thereof.
Your Board of Trustees unanimously recommends a vote FOR approval of each
of the Proposals that will be considered at the Special Meeting. None of the
Proposals will be implemented unless each of them is approved.
Approval of Proposals 1 and 3, and of any other matters, if any, which come
before the Special Meeting, will require the affirmative vote of a majority of
the Shares voted, in person or by proxy, at the Special Meeting, and approval of
Proposal 2 will require the affirmative vote of a majority of the issued and
outstanding Shares, in each case, provided a quorum is present. The presence, in
person or by proxy, of Shareholders holding a majority of the Shares entitled to
vote shall constitute a quorum for the Special Meeting.
If the Proposals are not approved, the Company intends to continue to
conduct its business generally in a manner consistent with past practices, while
exploring other transactions outside the ordinary course of business designed to
convert the Company into an equity REIT. Alternatively, the Company may seek to
enter into a business combination with another REIT or may, subject to any
limitation that may be imposed by the IRS in connection with its ongoing
examination of the Company's tax returns, commence an orderly liquidation of its
assets if the Board of Trustees determines that such a liquidation would
maximize shareholder value. Any decision to liquidate might involve a special
distribution to Shareholders of a substantial portion of RPS' existing cash but
nevertheless could be subject to approval from the IRS, as more fully described
in this Proxy Statement.
This Proxy Statement and the accompanying form of proxy are first being
mailed to Shareholders on or about March 29, 1996. A Shareholder who has given a
proxy may revoke it at any time prior to its exercise.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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<S> <C>
SUMMARY............................................................................... 1
Purpose of the Special Meeting...................................................... 1
Proposal 1 -- Ramco Acquisition Proposal............................................ 1
Parties to the Ramco Acquisition................................................. 1
Risk Factors..................................................................... 2
Structure of the Ramco Acquisition............................................... 4
Proposals Regarding Alternative Transactions..................................... 6
Operations of the Company after the Ramco Acquisition............................ 7
Business Objectives and Strategy................................................. 8
Distributions.................................................................... 8
Reasons for the Ramco Acquisition................................................ 9
Ramco Properties................................................................. 10
Replacement of Trustees; Management.............................................. 12
Conditions to Consummation....................................................... 12
Appraisal Rights................................................................. 12
Tax Consequences of the Ramco Acquisition........................................ 12
Proposal 2 -- Declaration of Trust Amendment Proposal............................... 12
Proposal 3 -- New Plan Proposal..................................................... 13
Reasons for Adoption of New Plan................................................. 13
Spin-Off Transaction................................................................ 14
Interests of Management in the Ramco Acquisition Proposal........................... 15
Benefits of the Ramco Acquisition to Ramco Principals............................... 16
Meeting Date and Record Date........................................................ 16
Votes Required...................................................................... 16
Reverse Split....................................................................... 16
Recommendation of the Board of Trustees............................................. 17
Selected Historical and Pro Forma Financial Information............................. 17
The Company's Historical Data....................................................... 18
The Company's Pro Forma Data........................................................ 18
Ramco Properties Historical Data.................................................... 19
Ramco Historical Data............................................................... 19
PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL.......................................... 20
Parties to the Ramco Acquisition................................................. 20
The Company.................................................................... 20
Ramco.......................................................................... 20
Risk Factors..................................................................... 20
Conflicts of Interest of Management............................................ 20
Benefits of the Ramco Acquisition to Ramco Principals.......................... 21
Inability of Financial Advisor to Render a Fairness Opinion.................... 21
Conflicts of Interest in the Business of the Company........................... 21
Tax Consequences Upon Sale or Refinancing of Properties..................... 21
Resale of Electricity; Other Contractual Rights............................. 22
Price May Not Reflect Value of Ramco Contribution Assets....................... 22
Real Estate Investment Risks................................................... 22
General Risks............................................................... 22
Bankruptcy and Financial Condition of Tenants............................... 22
</TABLE>
i
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<S> <C>
</TABLE>
<TABLE>
<S> <C>
Competition................................................................. 23
Inability to Renew Leases and Relet of Space................................ 23
Adverse Changes in Laws..................................................... 23
Uninsured Loss.............................................................. 24
Americans with Disabilities Act Compliance.................................. 24
Real Estate Financing Risks.................................................... 24
Debt Financing and Existing Debt Maturities................................. 24
Risk of Rising Interest Rates and Variable Rate Debt........................ 24
Risks Associated with Change in Management..................................... 24
Stock Price Variations......................................................... 25
Dependence on Anchors.......................................................... 25
Substantial Payments if Ramco Acquisition Fails to Occur....................... 25
Illiquidity of Real Estate..................................................... 25
Risks Involved in Property Ownership Through Partnerships and Joint Ventures... 25
Risk of Development, Construction and Acquisition Activities................... 25
Possible Environmental Liabilities............................................. 26
Limited Geographic Diversification............................................. 26
Possible Adverse Consequences Relating to Interests in Ramco................... 26
Background of the Ramco Acquisition.............................................. 27
Structure of the Ramco Acquisition............................................... 33
Reverse Split; Conversion of Shares.............................................. 33
The Ramco Properties............................................................. 34
General........................................................................ 34
Clinton Valley Strip Center; Clinton Valley Mall............................... 34
Eastridge Commons.............................................................. 34
Edgewood Towne Centre.......................................................... 35
Ferndale Plaza................................................................. 35
Fraser Shopping Center......................................................... 35
Jackson Crossing............................................................... 35
Kentwood Towne Center.......................................................... 35
Lake Orion Plaza............................................................... 36
Naples Towne Center............................................................ 36
New Towne Plaza................................................................ 36
OfficeMax Center............................................................... 36
Oak Brook Square............................................................... 36
Roseville Plaza................................................................ 36
Southfield Plaza............................................................... 37
Southfield Plaza Expansion..................................................... 37
Spring Meadows Place........................................................... 37
Tel Twelve Mall................................................................ 37
Troy Towne Center.............................................................. 37
West Allis Towne Centre........................................................ 38
West Oaks I; West Oaks II...................................................... 38
Property Descriptions............................................................ 39
Tenant Information............................................................... 40
Rental Revenues.................................................................. 41
Additional Information with Respect to Ramco and the Ramco Properties............ 42
General........................................................................ 42
</TABLE>
ii
<PAGE> 8
<TABLE>
<CAPTION>
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<S> <C>
Management's Discussion and Analysis of Results of Operations and Financial
Condition..................................................................... 42
Ramco Properties............................................................ 42
Ramco....................................................................... 43
Seasonal Nature of Shopping Center Industry................................. 44
Future Operations................................................................ 44
Business Objectives and Strategy............................................... 44
General........................................................................ 44
Operations and Management...................................................... 44
Development.................................................................... 44
Expansions and Redevelopment................................................... 45
Acquisitions................................................................... 46
Line of Credit................................................................. 46
Mortgage Debt.................................................................... 46
Mortgage Indebtedness Outstanding After Ramco Acquisition...................... 47
Indebtedness Being Repaid or Refinanced Upon Closing of Ramco Acquisition...... 49
Ramco Preclosing Loans......................................................... 49
The Mortgage Loans............................................................. 50
The Credit Facility............................................................ 51
Distribution Policy.............................................................. 52
Environmental Matters............................................................ 55
Excluded/Option Properties....................................................... 56
Excluded Properties............................................................ 56
Summit Place Complex........................................................... 57
Park Place Shopping Center..................................................... 57
North Towne Commons............................................................ 57
Livonia Builders Square........................................................ 57
Bay Towne Shopping Center...................................................... 57
Blue Ash Commons............................................................... 57
Rivers Edge.................................................................... 57
Options on Excluded Properties................................................. 57
Certain Property Partnership Agreements.......................................... 58
Ground Leases.................................................................... 58
The Master Agreement............................................................. 59
The Transaction................................................................ 59
Lease Up Property.............................................................. 60
Jackson Crossing Property Escrow............................................... 61
Representations and Warranties................................................. 61
Certain Covenants.............................................................. 62
No Solicitation................................................................ 63
Indemnification................................................................ 63
Governance..................................................................... 64
The Closing.................................................................... 64
Conditions to Consummation of the Contemplated Transactions.................... 64
Electricity Income Reimbursement............................................... 66
Use of Cash.................................................................... 67
Termination.................................................................... 68
Liquidated Damage Amount and Expenses.......................................... 68
Survival and Indemnification Matters........................................... 69
</TABLE>
iii
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<TABLE>
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<S> <C>
Amendment and Waiver........................................................... 70
Liquidation.................................................................... 70
Property Contribution Agreements................................................. 70
Representations and Warranties................................................. 70
Operation of the Properties Prior to Closing of the Ramco Acquisition.......... 70
Conditions to Consummation..................................................... 71
Closing Adjustments............................................................ 71
Termination.................................................................... 71
Closing Conditions Agreement..................................................... 71
Operating Partnership Agreement.................................................. 72
Management..................................................................... 72
Transfer of Units.............................................................. 72
Issuance of Additional Units................................................... 72
Funding of Investments......................................................... 73
Exchange of Units.............................................................. 73
Liquidation.................................................................... 73
Term........................................................................... 74
Property Appraisals.............................................................. 74
Ramco............................................................................ 76
Management of the Company Upon Consummation of the Ramco Acquisition............. 76
Board of Trustees.............................................................. 76
Executive Officers of the Company.............................................. 77
Ramco Principals' Employment Agreements........................................ 78
Non-Competition Agreements..................................................... 79
Registration Rights and Lock-Up Agreements..................................... 79
Certain Bankruptcy Proceedings................................................. 80
Termination of Existing Employment Contracts; Termination Agreements............. 80
Benefits of the Ramco Acquisition to Ramco Principals............................ 81
Accounting Treatment of the Ramco Acquisition.................................... 81
Required Approval for Proposals; Consequences of Failure to Approve the
Proposals....................................................................... 81
Limitations on Appraisal Rights.................................................. 82
Reasons for the Ramco Acquisition; Recommendation of the Board of Trustees....... 82
Vote Required.................................................................... 83
Dean Witter...................................................................... 84
PROPOSAL 2 -- THE DECLARATION OF TRUST AMENDMENT PROPOSAL............................. 85
General.......................................................................... 85
Description of the Acquisition Amendment......................................... 85
General........................................................................ 85
Number of Trustees; Quorum..................................................... 85
Nominating and Advisory Committees of the Board................................ 85
Name........................................................................... 85
Reverse Split.................................................................. 85
Vote Required.................................................................... 85
PROPOSAL 3 -- THE NEW PLAN PROPOSAL................................................... 86
The New Plan..................................................................... 86
General........................................................................ 86
Reasons for Adoption of the New Plan........................................... 86
</TABLE>
iv
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<TABLE>
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<S> <C>
</TABLE>
<TABLE>
<S> <C>
Description of the New Plan.................................................... 86
Administration................................................................. 86
Participants................................................................... 86
Material Terms................................................................. 87
Transfer....................................................................... 87
Term........................................................................... 87
Termination of Employment...................................................... 87
Adjustments.................................................................... 88
Change of Control.............................................................. 88
Amendment...................................................................... 88
New Plan Benefits.............................................................. 88
Certain Federal Income Tax Consequences........................................ 88
Limitation on Appraisal Rights................................................... 89
Vote Required.................................................................... 89
FEDERAL INCOME TAX CONSEQUENCES....................................................... 90
Background....................................................................... 90
Requirements for Qualification as a REIT......................................... 91
Structural Considerations...................................................... 92
Rents from Real Property....................................................... 92
Ramco Acquisition................................................................ 93
Spin-Off Company................................................................. 93
REIT Qualification............................................................. 93
Tax Aspects of the Spin-Off Transaction........................................ 93
Reverse Split.................................................................... 93
Tax Aspects of the Operating Partnership......................................... 94
Classification as a Partnership................................................ 94
Income Taxation of the Operating Partnership and Its Partners.................... 94
Operating Partnership Allocations.............................................. 94
Tax Allocations in Respect of Contributed Properties........................... 95
Basis in Operating Partnership Interest........................................ 95
Depreciation Deductions Available to the Operating Partnership................. 95
Partnership Anti-Abuse Rule.................................................... 96
Possible Legislative or Other Actions Affecting Tax Consequences............... 96
THE SPIN-OFF TRANSACTION.............................................................. 97
TRUSTEES AND EXECUTIVE OFFICERS....................................................... 99
Executive Officers of the Company................................................ 99
Trustees of the Company.......................................................... 99
Committees; Meetings............................................................. 101
Compliance with Section 16(a).................................................... 101
COMPENSATION OF TRUSTEES AND EXECUTIVE OFFICERS....................................... 102
Cash Compensation................................................................ 102
Summary Compensation Table....................................................... 102
Compensation of Trustees......................................................... 103
Employment Agreements............................................................ 103
Severance and Other Arrangements with Executive Officers and Certain Key
Employees....................................................................... 105
Compensation Committee Interlocks and Insider Participation...................... 105
COMPENSATION PLANS.................................................................... 105
</TABLE>
v
<PAGE> 11
<TABLE>
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<S> <C>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF....................................... 107
Security Ownership of Certain Beneficial Owners and Management................... 107
INTEREST OF CERTAIN PERSONS........................................................... 108
GLOSSARY.............................................................................. 110
ACCOUNTANTS' REPRESENTATIVES.......................................................... 117
CERTAIN VOTING PROCEDURES; OTHER BUSINESS AND EXPENSE OF
SOLICITATION........................................................................ 117
INCORPORATION BY REFERENCE............................................................ 118
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
Annexes
<TABLE>
<S> <C>
Exhibit A -- Acquisition Amendment
Exhibit B -- New Plan
Appendix A -- Information Statement
</TABLE>
vi
<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. This summary does not contain a complete statement of all
of the material aspects of the Ramco Acquisition or the other transactions
described herein, and is qualified in its entirety by reference to the more
detailed information and financial statements contained or incorporated by
reference in this Proxy Statement. Shareholders are urged to read this Proxy
Statement in its entirety. Unless otherwise indicated, the information contained
in this Proxy Statement assumes that (x) the Company has combined its Shares by
means of a 1 for 4 reverse stock split (the "Reverse Split") and (y) the Company
has transferred its remaining mortgage loan portfolio as well as certain other
assets, which are anticipated to include interests in its Norgate Center and 9
North Wabash Avenue properties (collectively, the "Spin-Off Company Assets"), to
a newly formed real estate investment trust (the "Spin-Off Company"), shares in
which will be distributed ratably to the Shareholders (the "Spin-Off
Transaction"). Unless the context otherwise requires, all references in this
Proxy Statement to the (i) "Company" shall mean RPS Realty Trust and its
subsidiaries on a consolidated basis, (ii) "Operating Partnership" shall mean
Ramco-Gershenson Properties, L.P., through which the Company will conduct its
business following the consummation of the Ramco Acquisition, (iii) "RPS
Properties" shall mean the six properties that are currently owned by the
Company and that will be transferred to the Operating Partnership in connection
with the consummation of the Ramco Acquisition, (iv) "Ramco" shall mean
Ramco-Gershenson, Inc., (v) "Ramco Properties" shall mean the interests in 22
shopping center and retail properties that will be acquired by the Company in
the Ramco Acquisition, (vi) "Ramco Group" shall mean the current owners of the
Ramco Properties and, if applicable, their respective individual partners, as
well as the shareholders of Ramco, (vii) the "Properties" shall mean
collectively the RPS Properties and the Ramco Properties and (viii) "Shares"
shall mean the Shares of the Company prior to the occurrence of the Reverse
Split and "shares," with respect to the Company, means the Shares after the
occurrence of the Reverse Split. Unless otherwise indicated, references to the
Company after the closing of the Ramco Acquisition shall include the Operating
Partnership and Ramco. Capitalized terms used herein without definition shall
have the meanings set forth in the Glossary.
PURPOSE OF THE SPECIAL MEETING
The Special Meeting has been called to seek the approval of the Company's
Shareholders to three Proposals. Shareholder approval of each of Proposals 2 and
3 is required under the Company's Declaration of Trust, the laws of the
Commonwealth of Massachusetts and/or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the regulations thereunder. In addition,
because the Ramco Acquisition contemplates the issuance to the Ramco Group of
Units which may be exchanged into in excess of 20% of the Shares, the rules of
The New York Stock Exchange, Inc. (the "NYSE"), on which the Company's Shares
are listed, require that Shareholder approval of such issuance be obtained.
Approval of Proposal 1 (the "Ramco Acquisition Proposal") will constitute
approval of such issuance.
PROPOSAL 1 -- RAMCO ACQUISITION PROPOSAL
At the Special Meeting, the Company's Shareholders will be asked to approve
the Ramco Acquisition Proposal, as contemplated by the Amended and Restated
Master Agreement dated as of December 27, 1995 among the Company, Ramco and the
Ramco Group, as amended by the First Amendment to Amended and Restated Master
Agreement, dated as of March 19, 1996 (as so amended, the "Master Agreement"),
and the related documents (the "Transaction Documents"), pursuant to which the
Contemplated Transactions will be consummated.
Parties to the Ramco Acquisition. The Company is a real estate investment
trust ("REIT") formed in 1988. The Company is primarily engaged in the business
of owning and managing a participating mortgage loan portfolio which presently
consists of eight commercial mortgage loans, and through its wholly-owned
subsidiaries, owning and operating eight properties.
Ramco, which is controlled by principals Joel, Dennis, Richard and Bruce
Gershenson and Michael Ward (collectively, the "Ramco Principals"), is a fully
integrated private real estate company that owns,
<PAGE> 13
manages, leases, develops and acquires shopping center properties. Ramco has
more than 40 years experience as a shopping center developer and operator and
the Ramco Principals have an average of more than 25 years in the shopping
center business. As a result of the Ramco Acquisition, the Company will succeed
to the Ramco Group's ownership of interests in the Ramco Properties and
substantially all of the economic interests in Ramco's property management
business. Ramco developed or substantially redeveloped all but one of the Ramco
Properties. See "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Parties to the
Ramco Acquisition."
Risk Factors. In considering whether to approve the Ramco Acquisition
Proposal, as well as the other Proposals, Shareholders should consider the risks
discussed under "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Risk Factors."
Such risks include:
- Conflicts of interest due to the fact that certain members of
management have substantial interests in, and will receive certain benefits
from, the Ramco Acquisition that will not be generally available to
Shareholders, including the following: (i) pursuant to a termination
agreement with the Company that became effective as of February 29, 1996,
Herbert Liechtung, the former President and a Trustee of the Company,
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 Company that ran through December 31, 1998 and provided
for a current base salary of approximately $340,000 as well as certain
performance based bonuses, 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 Company's existing employee Share option
plan), (ii) pursuant to a termination agreement with the Company that will
become effective as of the closing of the Ramco Acquisition, Joel M.
Pashcow, the Chairman, President, and a Trustee of the Company, will
receive 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 Mr. Pashcow's employment agreement
with the Company that runs through December 31, 1998 and provides for a
current base salary of approximately $340,000 as well as certain
performance based bonuses, 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 Company's existing employee Share option
plan), (iii) Messrs. Liechtung and Pashcow will continue as members of the
Board of Trustees and will receive compensation to be paid to all non-
management Trustees of $20,000 per annum, (iv) certain non-continuing
employees of the Company have or will receive severance and stay bonus
payments aggregating approximately $829,000 (assuming the Ramco Acquisition
closes on April 30, 1996), including payments of $272,000, $119,000 and
$135,000 to Edwin R. Frankel, Stanley Rappoport, and John J. Johnston, Jr.,
respectively, each of whom is an executive officer of the Company, (v)
based on an offer to be made by the Company, certain non-continuing
employees of the Company (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, including Messrs. Frankel and Johnston,
Steven Liechtung, Vice President of the Company, and Nancy M. Comerford,
Director of Operations of the Company, who will receive $25,000, $25,000,
$10,000, and $2,500, respectively, and (vi) Mr. Frankel, Senior Vice
President and Treasurer of the Company, will become an executive officer of
the Spin-Off Company and receive compensation of $60,000 per annum (see
"-- Interests of Management in the Ramco Acquisition Proposal," "PROPOSAL
1 -- THE RAMCO ACQUISITION PROPOSAL -- Risk Factors -- Conflicts of
Interest of Management and -- Termination of Existing Employment Contracts;
Termination Agreements" and "COMPENSATION PLANS");
- Conflicts of interest due to the fact that the Ramco Principals
negotiated the Ramco Acquisition on behalf of the Ramco Group and that
substantial economic benefits will be received by the Ramco Principals in
connection with the transaction, including the following: (i) the Ramco
Principals will transfer their direct and indirect interests in the Ramco
Contribution Assets, which as of September 30, 1995 have a net book value
of $(57,576,000), to the Operating Partnership in exchange for an
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<PAGE> 14
approximately 18% interest (approximately 1,806,000 Units) in the Operating
Partnership, assuming the conversion of all outstanding loans made by the
Ramco Principals to 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); (ii) the Company will assume
approximately $184,015,000 of secured indebtedness, as of December 31,
1995, on the Ramco Properties; (iii) each of the Ramco Principals will
enter into three-year employment agreements with the Company providing for
annual base salaries of $100,000; (iv) the Company will grant to each of
the Ramco Principals options to purchase 24,000 shares at an exercise price
of $16.00 per share under the New Plan; (v) the structure of the Ramco
Acquisition will provide the Ramco Principals the opportunity for deferral
of tax consequences of the contribution of their interests in the Ramco
Properties to the Operating Partnership; (vi) each of Joel, Dennis, Richard
and Bruce Gershenson and Michael Ward will be released from personal
guarantees aggregating approximately $66,502,000, as of December 31, 1995,
with respect to indebtedness, for which they are jointly and severally
liable, to be repaid in the Ramco Acquisition; (vii) Joel Gershenson and
Dennis Gershenson will be nominated to the Company's Board of Trustees; and
(viii) the Company will assume and repay $3,200,000 of certain unsecured
debt associated with the Ramco Properties that is payable to affiliates of
Ramco (see "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Risk
Factors -- Benefits of the Ramco Acquisition to Ramco Principals");
- Although engaged to render a fairness opinion, the Company's
financial advisor, Dean Witter Reynolds, Inc. ("Dean Witter"), concluded
that until the Asset Issue (as defined and described under "PROPOSAL
1 -- THE RAMCO ACQUISITION PROPOSAL -- Background of the Ramco
Acquisition") was favorably resolved and the IRS examination of the
Company's tax returns was completed, it could not render a fairness opinion
to the Board of Trustees to the effect that the allocation of the 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. See "PROPOSAL 1 -- THE RAMCO ACQUISITION
PROPOSAL -- Background of the Ramco Acquisition and -- Reasons for the
Ramco Acquisition; Recommendation of the Board of Trustees;"
- Real estate investment risks associated with the ownership of
interests in 22 additional shopping center properties, such as the ability
of a property to generate revenue sufficient to meet operating expenses and
debt service payments; the ability of tenants to make rent payments; the
effects of any bankruptcies of major tenants; competition for tenants from
other shopping centers; competition from alternative forms of retailing,
including home shopping networks, mail order catalogues and on-line based
shopping services which may limit the number of retail tenants that desire
to seek space in shopping center properties generally, all which may affect
the Company's ability to make expected distributions;
- The Ramco Acquisition will result in a change in the Company's
management to persons who have no prior experience managing a REIT or a
publicly owned company;
- The possibility that the trading price of the Company's shares after
the closing of the Ramco Acquisition will be less than the assumed per
Share value of the RPS Contribution Assets;
- Lack of independent valuation or appraisals in connection with the
acquisition of the Ramco Contribution Assets giving rise to the risk that
the consideration that will be paid by the Company for the Ramco
Contribution Assets will exceed their fair market value;
- The possibility that the combined per share trading prices of the
shares of the Company and the Spin-Off Company (without giving effect to
the Reverse Split) will be less than the trading price of the Shares
immediately prior to the closing of the Ramco Acquisition;
- Because the Anchors at a number of the Ramco Properties are not
contractually obligated to maintain a presence at such properties, such
Anchors have the right at any time to vacate the space they occupy at such
properties which, in turn, is likely to result in a loss in revenue
attributable to a reduction in percentage rents and a loss of additional
tenants;
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<PAGE> 15
- Because substantially all of the Ramco Properties are located in
Michigan and Ohio, any adverse conditions in those market areas will likely
have an adverse impact on property cash flow and values;
- Risks associated with indebtedness on the Ramco Properties that is
not anticipated to be repaid at the closing of the Ramco Acquisition,
including the possibility that (i) the Company may not be able to refinance
outstanding indebtedness upon maturity or that such indebtedness might be
refinanced at higher interest rates or otherwise on terms less favorable to
the Company (after giving effect to anticipated refinancings that will
occur at the closing of the Ramco Acquisition), and (ii) interest rates on
the Company's variable rate indebtedness (which is expected to equal
approximately $17,100,000 of the Company's approximately $124,080,000 of
total indebtedness (including a pro rata share of the debt encumbering two
50%-owned Ramco Properties) upon the closing of the Ramco Acquisition), and
variable rate indebtedness on any additional borrowings made under the
Credit Facility may increase, all of which could adversely affect the
Company's ability to make expected distributions to the Shareholders;
- Conflicts of interest involving management of the Company and the
Board of Trustees in business decisions regarding the Company, including
conflicts associated with (i) sales and refinancings of the Ramco
Properties that may arise due to the adverse tax consequences of such
transactions that could result to members of the Ramco Group, (ii) the
possibility that the Company may be entitled to enforce certain contractual
rights against members of the Ramco Group, and (iii) the possibility that
the Ramco Group may be entitled to enforce certain contractual rights
against the Company, all of which may result in decisions affecting the
Company that are not in the best interests of all Shareholders;
- Factors that may limit the flexibility of the Company to vary its
investments or that may adversely affect the value of the Properties,
including the relative illiquidity of real estate and approval rights of
outside parties that own interests in two of the Ramco Properties, all of
which may affect the Company's ability to make expected distributions;
- Risks associated with the development, construction and acquisition
of shopping center properties, including risks associated with
construction, lease-up, financing, cost overruns, and delays in obtaining
necessary approvals and the risk that newly developed or acquired
properties will fail to perform as expected, all of which may affect the
Company's ability to make expected distributions to Shareholders; and
- There is contamination present on or under certain of the Ramco
Properties which, if remediated by the Company at the Company's expense,
may have a material adverse effect on the Company's financial condition and
results of operations.
Structure of the Ramco Acquisition. Pursuant to the Ramco Acquisition, the
Company will transfer to the Operating Partnership (via contribution or merger)
six properties containing an aggregate of approximately 931,000 square feet of
gross leasable area ("GLA") (the "RPS Properties") described herein under
"PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Structure of the Ramco
Acquisition" 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.
Pursuant to the Ramco Acquisition, the Ramco Group has transferred or will
transfer (via contribution or merger) to the Operating Partnership the
following: (i) the 22 Ramco 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 Company owned, (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
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<PAGE> 16
Assets"). See "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Structure of the
Ramco Acquisition -- The Ramco Properties."
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 Company 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, Jackson Crossing, 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 Company's shares. Subject to certain limitations, the Units will be
exchangeable into shares of the Company on a one-for-one basis beginning one
year after the closing of the Ramco Acquisition. The Company 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
Company's acquisition of the Ramco Properties. The Company believes that this
structure was an important factor in the Company'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 Company an important competitive advantage in
making future acquisitions.
The purchase price for the Ramco Contribution Assets was the result of
arm's-length negotiations between the Company and the Ramco Group. In
determining the purchase price paid, the Company considered (i) the relative
contribution of the RPS Contribution Assets and the Ramco Contribution Assets,
respectively, to the Company's pro forma Funds from Operations, (ii) the implied
capitalization rates of the estimated NOI 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 Company 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 Company 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, 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 Company and Dennis
Gershenson, Ramco's Vice President-Finance, will become President and Chief
Executive Officer and a trustee of the Company. Richard Gershenson, Bruce
Gershenson and Michael Ward, currently members of Ramco's senior management,
will also serve as executive officers of the Company. It is also anticipated
that all of Ramco's 146 employees will become employees of the Company. 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 Company) an approximately 18% interest
(approximately 1,806,000 Units) in the equity of the Company, 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 Company will be changed to Ramco-Gershenson
Properties Trust in order to capitalize on the reputation
5
<PAGE> 17
of Ramco in the shopping center industry, and the Company will move its
headquarters to Southfield, Michigan. Shareholders should be aware that
consummation of the Ramco Acquisition could be deemed to constitute a change of
management control of the Company.
The Company believes that the Ramco Acquisition will accomplish the
Company'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 Company will
own interests in a portfolio of 28 Properties, 26 of which will be owned 100% by
the Company and the remaining two of which will be owned 50% (through managing
general partner interests) by the Company, 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 Company owned. Shareholders
should keep in mind that the Ramco Acquisition involves certain risks. See
"-- Risk Factors" and "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Risk
Factors." Furthermore, the Company's current executive officers (two of whom are
Trustees) will receive certain benefits from the Ramco Acquisition which will
not be generally available to Shareholders and which may result in conflicts of
interest. See "-- Interests of Management in the Ramco Acquisition Proposal."
Proposals Regarding Alternative Transactions. In December 1995, the
Company received an unsolicited proposal from another public company (the
"Proposed Acquiror") regarding a proposed business combination between the
Company and the Proposed Acquiror. Consistent with the "Alternative Transaction"
provisions of 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. In February, 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 price 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 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.
Later in February 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 a 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.
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<PAGE> 18
Also, in February 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 forthcoming 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 "PROPOSAL 1 --THE RAMCO ACQUISITION PROPOSAL --
Background of the Ramco Acquisition and --The Master Agreement --No
Solicitation."
Operations of the Company after the Ramco Acquisition. After the
consummation of the Ramco Acquisition, the Company will conduct all of its
business through the Operating Partnership. The Company 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 Company'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 Company to
receive in excess of 95% of the dividend and liquidating distributions of Ramco.
The Company'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 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.
The following diagram depicts the beneficial ownership of the Company, the
Operating Partnership, Ramco and the Spin-Off Company after the consummation of
the Ramco Acquisition. See "PROPOSAL 1 -- THE RAMCO ACQUISITION
PROPOSAL -- Structure of the Ramco Acquisition."
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<PAGE> 19
STRUCTURE OF THE COMPANY
AFTER COMPLETION OF THE RAMCO ACQUISITION
STRUCTURE CHART
Business Objectives and Strategy. The Company's business objectives and
operating strategy following consummation of the Ramco Acquisition will be to
increase cash available for distribution per share. The Company 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 Company expects to achieve external
growth through the development and selective acquisition of shopping center
properties and the expansion and redevelopment of existing Properties. See
"PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Future Operations -- Business
Objectives and Strategy -- Development" for a description of certain development
projects in which Ramco is currently engaged and which will be owned by the
Company upon consummation of the Ramco Acquisition. The Company expects to
initially fund its growth by utilizing a $50 million revolving line of credit.
See "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Mortgage Debt -- The Credit
Facility."
Distributions. The Company currently pays a regular quarterly distribution
of $.08 per Share ($.32 per Share after taking into account the Reverse Split)
which, if annualized, would equal $.32 per Share ($1.28 per Share after taking
into account the Reverse Split), or an annual distribution rate equal to 7.1%
based on the closing price of $4.50 per Share ($18.00 per Share after taking
into account the Reverse Split) of the Shares on the NYSE on March 15, 1996. The
Company's current level of cash available for distribution reflects a decrease
during 1994 and 1995 in the Company's aggregate investment in participating
mortgage loans and a corresponding increase in lower-yielding short-term
investments, as well as the continuing effect of certain underperforming loans
on the performance of the Company's mortgage loan portfolio. The increase in
lower-yielding short-term investments reflects the Company's plan of
accumulating cash or cash equivalents that will be needed to fund the Ramco
Acquisition. If the Ramco Acquisition is not consummated, such cash or cash
equivalents could be invested in higher-yielding real estate assets, which, in
turn, could improve the Company's prospects for producing cash available for
distribution.
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<PAGE> 20
Following consummation of the Ramco Acquisition, the Company currently
intends to make quarterly distributions to its Shareholders. The Company
currently anticipates that it will make a pro rata distribution with respect to
the period from the closing of the Ramco Acquisition through June 30, 1996 based
upon $.42 per Share for a full quarter, after taking into account the Reverse
Split. On an annual basis, this would be $1.68 per Share, after taking into
account the Reverse Split. The Company estimates that the distribution that will
be made following the Ramco Acquisition will equal 85.9% of estimated cash
available for distribution by the Company for the 12 months following completion
of the Ramco Acquisition. Shareholders should note that this distribution rate
does not take into account distributions, if any, that may be made by the
Spin-Off Company.
The Company established this initial distribution rate based upon an
estimate of the cash available for distribution after the Ramco Acquisition
under present conditions. See "PROPOSAL 1 -- THE RAMCO ACQUISITION
PROPOSAL -- Distribution Policy." Shareholders should keep in mind that the
Board of Trustees has the absolute right to change the distribution amount in
the future if deemed to be in the best interests of the Company and the
Shareholders. Distributions by the Company will be determined by the Board of
Trustees and will be dependent upon a number of factors. The Company believes
that its estimate of cash available for distribution constitutes a reasonable
basis for setting the initial distribution; however, no assurance can be given
that the estimate will prove accurate, and actual distributions may, therefore,
be significantly different from the expected distribution. In addition, in order
to maintain its qualification as a REIT under the Code, the Company is required
to distribute 95% of its taxable income currently. The Company does not intend
to reduce the expected distribution if additional Units are issued to the Ramco
Group following the fulfillment of certain leasing plans at Jackson Crossing.
See "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- The Master
Agreement -- Lease Up Property."
Reasons for the Ramco Acquisition. The primary reasons the Board of
Trustees is recommending approval of the Ramco Acquisition Proposal are its
belief that:
- the Ramco Acquisition will permit the Company to complete its
previously announced intention to become a self-administered, self-managed
and fully integrated real estate investment trust principally engaged in
the business of owning, managing, leasing, developing, redeveloping, and
acquiring shopping center properties;
- the Ramco Properties represent a large and attractive portfolio of
high quality shopping center and retail properties that complement many of
the Company's properties;
- the Ramco Acquisition will permit the Company to have obtained the
services of an experienced team of shopping center industry professionals,
led by five senior executives who have an average of 25 years experience in
the shopping center industry, and whose interests will be aligned with the
Company's Shareholders through their substantial ownership interest in the
Company;
- the Ramco Acquisition will enhance the Company's access to equity
capital by increasing its market capitalization and diversifying its
portfolio of properties, and will improve the Company's opportunities for
growth by expanding its development and acquisition capability; and
- the Ramco Acquisition will enhance the Company's prospects for
producing distributable cash flow which the Company anticipates will permit
it to initially increase its annual distribution from $.32 per Share ($1.28
per Share after taking into account the Reverse Split) to a pro forma $.42
per Share ($1.68 per Share after taking into account the Reverse Split),
without regard to the impact of distributions, if any, that may be paid by
the Spin-Off Company.
Shareholders should keep in mind that the pro forma distribution amount is
based on the present intention of the Company and the Board of Trustees has the
absolute right to change the distribution amount in the future if deemed to be
in the best interests of the Company and the Shareholders. In addition,
Shareholders should keep in mind that the actual results of operations of the
Company and the amounts actually available for distribution will be affected by
a number of factors beyond the control of the Company. Accordingly, there can be
no assurance that anticipated distribution levels will be attained, or that any
future distributions will be made by the Company.
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<PAGE> 21
Ramco Properties. The Ramco Properties consist of two regional enclosed
malls, eleven community centers, eight power centers, and one single tenant
retail property. Regional enclosed malls are larger retail properties
(containing 400,000 to more than 1,000,000 square feet of GLA) with two or more
department stores as Anchors and a wide variety of stores along enclosed,
climate-controlled malls connecting the Anchors. This layout is intended to
maximize customer traffic for the mall stores. At many regional enclosed malls,
freestanding stores are located along the perimeter of the parking area.
Community shopping centers generally range in size up to 400,000 square
feet of GLA and are located in developed retail and commercial areas in which
other similar centers may be nearby. In addition, with respect to some of these
centers, there may be one or more regional enclosed malls nearby. Community
shopping centers generally fall into two types: traditional community centers
and power centers. Traditional community centers typically are convenient to
their trade areas and focus primarily on value-oriented and convenience goods
and services. They are designed to service a neighborhood area, and are usually
anchored by a supermarket, drugstore or discount retailer providing basic
necessities, although certain community centers are free standing single-user
buildings. Power centers are different from traditional community centers
because they are designed to serve a larger trade area and they contain at least
two Anchors which occupy a substantial portion of the GLA in the center. These
Anchors are often national retailers which are leaders in their markets or
"category killers," i.e., larger stores which offer a complete selection of a
category of items (e.g., toys, office supplies, home improvement products,
electronics, etc.) at low prices, and often in a warehouse format.
The following table sets forth certain information regarding the Ramco
Properties as of December 31, 1995:
<TABLE>
<CAPTION>
% OF
OWNERSHIP TOTAL COMPANY COMPANY OWNED
NAME OF CENTER/LOCATION PERCENTAGE ANCHORS GLA OWNED GLA GLA LEASED
- ------------------------- ---------- ------------------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Clinton Valley Mall...... 100% Montgomery Ward 156,605 156,605 99.9%
Sterling Heights, MI
Clinton Valley Strip..... 100% Service Merchandise(1) 94,360 44,360 100.0%
Sterling Heights, MI
Eastridge Commons........ 100% Target(1) 271,415 169,506 98.0%
Flint, MI TJ Maxx
F & M
Handy Andy
Edgewood Towne Center.... 100% Sam's Wholesale Club(1) 295,029 85,757 100.0%
Lansing, MI Target(1)
Ferndale Plaza........... 100% None 30,916 30,916 100.0%
Ferndale, MI
Fraser Shopping Center... 100% Oakridge Market 74,250 74,250 100.0%
Fraser, MI
Jackson Crossing......... 100% Sears Roebuck(1) 618,978 364,735 67.9%
Jackson, MI Target(1)
Kentwood Towne
Center(2)................ 50% Target(1) 268,284 166,375 100.0%
Kentwood, MI Builders Square
Lake Orion Plaza......... 100% A & P (Farmer Jack) 129,452 129,452 97.2%
Lake Orion, MI Kmart
Naples Towne Center...... 100% Florida Food & Drug(1) 148,729 44,152 100.0%
Naples, FL Kmart(1)
New Towne Center......... 100% Kmart 163,404 163,404 100.0%
Canton, MI
OfficeMax Center......... 100% OfficeMax 22,930 22,930 100.0%
Toledo, OH
Oak Brook Square......... 100% TJ Maxx 140,282 140,282 94.0%
Flint, MI Kids'R'Us
</TABLE>
10
<PAGE> 22
<TABLE>
<CAPTION>
% OF
OWNERSHIP TOTAL COMPANY COMPANY OWNED
NAME OF CENTER/LOCATION PERCENTAGE ANCHORS GLA OWNED GLA GLA LEASED
- ------------------------- ---------- ------------------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Roseville Plaza.......... 100% Marshalls 265,877 265,877 94.0%
Roseville, MI A & P
Service Merchandise
Southfield Plaza......... 100% Burlington Coat Factory 165,445 165,445 100.0%
Southfield, MI Service Merchandise
Marshalls
Southfield Plaza
Expansion(2)............. 50% None 19,410 19,410 100.0%
Southfield, MI
Spring Meadows Place..... 100% Target(1) 466,773 191,401 98.0%
Springfield Township, OH Builders Square(1)
Service Merchandise(1)
Kroger(1)
TJ Maxx
Marshalls
Tel Twelve Mall.......... 100% Crowleys 657,209 657,209 97.7%
Southfield, MI Kmart
Media Play
Office Depot
Chrysler (Land Lease)
Crowleys (Land Lease)
Montgomery Ward
Troy Towne Center........ 100% Wal-Mart(1) 226,234 135,313 94.4%
Troy, OH Uhlman's
Super Valu
West Allis Town
Centre................... 100% Kmart 329,407 329,407 100.0%
West Allis, WI Kohls
Builders Square
West Oaks I.............. 100% Service Merchandise 227,863 227,863 99.3%
Novi, MI Kmart (Land Lease)
Circuit City
West Oaks II............. 100% Toys R Us(1) 341,041 120,944 100.0%
Novi, MI Builders Square(1)
Kohls(1)
Kids R Us(1)
Marshalls
-------- -------- ----
TOTAL........... 5,113,893 3,705,593 95.2%
======== ======== ====
</TABLE>
- ---------------
(1) Anchor-owned store.
(2) 50% general partner interest.
One of the Ramco Properties (the "Lease Up Property") has not yet completed
its initial leasing plan. The Lease Up Property includes all the presently
unleased space at Jackson Crossing (the "Jackson Crossing Property"). Pursuant
to the leasing plans for the Lease Up Property, approximately 116,984 square
feet of additional GLA of the Jackson Crossing Property may be leased through
March 31, 1997 (inclusive of approximately 80,300 square feet of GLA leased to
Kohl's Department Stores on July 3, 1995). To facilitate the inclusion of the
Lease Up Property in the Company's portfolio, the Ramco Group will have the
right to receive additional consideration, in the form of additional Units,
based upon the increase in annualized net cash flow from the Lease Up Property.
The Company anticipates that, in the event the leasing plans at the Jackson
Crossing Property are fulfilled by the fiscal quarter ended March 31, 1997, a
maximum of approximately 534,858 Units would be issued. As a result of such Unit
issuances, the Company's aggregate interest in the Operating Partnership would
be reduced from approximately 75% to approximately 71%.
11
<PAGE> 23
The issuance of additional Units based upon the performance of the Lease Up
Property will be computed by independent public accountants selected by a
majority of the Independent Trustees of the Company and will be reviewed and
approved by the Independent Trustees.
Replacement of Trustees; Management. Following the closing of the Ramco
Acquisition, four of the nine current members of the Board of Trustees 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 Company) who will both be independent of
Ramco, the Company and their respective affiliates. Herbert Liechtung, Joel
Pashcow, Stephen Blank and Arthur Goldberg will remain as Trustees of the
Company. In addition, Robert A. Meister, who is independent of Ramco, the
Company and their respective affiliates, has been designated by the Company and
will become a member of the Board of Trustees prior to the closing of the Ramco
Acquisition, and will serve in such capacity following such closing. The Board
of Trustees 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.
Upon consummation of the Ramco Acquisition, the day-to-day operations of
the Company 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 Company. See "PROPOSAL 1 -- THE RAMCO ACQUISITION
PROPOSAL -- Management of the Company Upon Consummation of the Ramco
Acquisition -- Executive Officers of the Company."
Conditions to Consummation. Consummation of the Ramco Acquisition is
conditioned upon, among other things, (i) approval of each of the Proposals by
the Company's Shareholders, (ii) the ability of Ramco to obtain the requisite
consents of certain members of the Ramco Group which, directly or indirectly,
own interests in the Ramco Properties, (iii) the receipt of all required
material consents of third parties, (iv) satisfaction of the conditions to
consummation of each of the property contribution agreements relating to the
Ramco Properties and the RPS Properties, and (v) indebtedness of certain of the
Ramco Properties having been refinanced in accordance with certain terms
described herein under "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- The
Master Agreement -- Conditions to Consummation of the Contemplated
Transactions."
Appraisal Rights. In accordance with Massachusetts law, Shareholders will
not be entitled to rights of appraisal in connection with the Ramco Acquisition.
See "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Limitations on Appraisal
Rights."
Tax Consequences of the Ramco Acquisition. The receipt by the Company of
interests in the Operating Partnership in connection with the Ramco Acquisition
is not expected to be a taxable transaction to the Company or its Shareholders;
however, those Shareholders whose fractional Shares are redeemed for cash in
connection with the Reverse Split will have a taxable transaction to the extent
of the cash received by such Shareholders. In connection with the Spin-Off
Transaction, it is anticipated that (i) the Company will recognize no gain or
loss and (ii) Shareholders will recognize dividend income to the extent of the
Company's current earnings and profits (the Company has no accumulated earnings
and profits). In addition, the adjusted basis of the Shares to a recipient
Shareholder will be reduced by the excess of the fair market value of the Shares
received over the Company's current earnings and profits and the amount of such
distributions in excess of such basis is taxable as capital gain. See "FEDERAL
INCOME TAX CONSEQUENCES."
A vote "FOR" Proposal 1 will constitute a vote in favor of all aspects of
the Ramco Acquisition Proposal described herein, including, without limitation,
the issuance of Units to the Ramco Group.
PROPOSAL 2 -- DECLARATION OF TRUST AMENDMENT PROPOSAL
At the Special Meeting, Shareholders will also be asked to approve an
amendment to the Company's Declaration of Trust, the form of which amendment is
annexed as Exhibit A hereto (the "Acquisition Amendment"), which will, among
other things, (i) increase certain quorum percentage requirements in connection
with meetings of the Board of Trustees, (ii) establish a Nominating Committee
and Advisory
12
<PAGE> 24
Committee of the Board of Trustees, (iii) change the Company's name to
Ramco-Gershenson Properties Trust, and (iv) authorize the Board of Trustees, on
a one-time basis to effect the Reverse Split in connection with the Ramco
Acquisition, to combine outstanding Shares by way of 1 for 4 reverse split,
provide for the payment of cash in lieu of any fractional interest in a combined
Share and establish mechanics to implement any such combination. The Declaration
of Trust Amendment Proposal is being proposed because the Board of Trustees has
determined that it is necessary or desirable to effect such amendments in
connection with the Ramco Acquisition. The amendments contemplated by the
Declaration of Trust Amendment Proposal are described more specifically herein
under "PROPOSAL 2 -- THE DECLARATION OF TRUST AMENDMENT PROPOSAL -- Description
of the Acquisition Amendment."
A vote "FOR" Proposal 2 will constitute a vote in favor of the adoption of
the Acquisition Amendment, as well as any other actions deemed by the Company to
be necessary or desirable to effectuate such action.
PROPOSAL 3 -- NEW PLAN PROPOSAL
At the Special Meeting, the Shareholders will be asked to ratify and
approve the adoption of the New Plan, a copy of which is annexed hereto as
Exhibit B.
The New Plan will provide for the granting, from time to time, to employees
of the Company (including the Operating Partnership, Ramco and their respective
subsidiaries), of options to purchase up to an aggregate number of shares equal
to the difference between (i) 9 percent of the total number of issued and
outstanding shares (on a fully diluted basis assuming the exchange of all the
Ramco Group's Units for shares) and (ii) the number of shares subject to options
under the Company's 1989 Employees' Stock Option Plan (the "Employee Plan") and
the Company's 1989 Trustees' Stock Option Plan (the "Trustee Plan") as of the
closing of the Ramco Acquisition. Based on the number of outstanding Shares as
of March 15, 1996, options to purchase approximately 855,000 shares will be
available for grant under the New Plan (after taking into account the Reverse
Split and assuming all the options issued under the Trustee and Employee Plans
will be surrendered as of the closing of the Ramco Acquisition). See "PROPOSAL
3 -- THE NEW PLAN PROPOSAL."
In connection with the consummation of the Ramco Acquisition, the Ramco
Principals will be granted options to purchase an aggregate of 120,000 shares
under the New Plan, in each case, at an exercise price of $16.00 per share. The
balance of the options will be available for grant to management and key
employees of the Company at an exercise price equal to no less than the fair
market value of the shares of the Company on the date of grant.
Under the New Plan, the Independent Trustee members of the Compensation
Committee of the Company will be authorized to determine future option grants
and to interpret the provisions and supervise the administration of the New
Plan. The Compensation Committee may, within the limits of the New Plan, also
determine the terms and provisions of the option agreements between the Company
and the optionees. Members of the Compensation Committee will not be eligible to
participate in the New Plan and will not receive compensation for administering
the New Plan.
Reasons for Adoption of New Plan. The primary reasons that the Board of
Trustees is recommending approval of the New Plan Proposal are:
- to provide executive officers and employees of the Company with an
incentive to provide services to the Company over a long period of time and
to enhance the level of performance of the Company; and
- to promote a closer identification of interests between the
Company's executive officers and employees and the Company and its
Shareholders.
Shareholders should be aware that the exercise of options granted under the
New Plan could have the effect of immediately diluting the earnings, net
tangible book value, Funds from Operations and cash available for distribution
per share of the Company.
13
<PAGE> 25
For a more detailed description of the terms of the New Plan and discussion
of certain federal income tax considerations in connection with the adoption of
the New Plan, see "PROPOSAL 3 -- THE NEW PLAN PROPOSAL -- The New Plan."
A vote "FOR" Proposal 3 will constitute a vote in favor of the adoption of
the New Plan, as well as any other actions deemed by the Company to be necessary
or desirable to effectuate such actions.
SPIN-OFF TRANSACTION
Simultaneously with the consummation of the Ramco Acquisition, the Company
will transfer the remaining loans in its 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 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
Company 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 two shares held by each
such Shareholder (after giving effect to the Reverse Split). As a result of the
Ramco Acquisition and the Spin-Off Transaction, the Company's Shareholders will
own shares in two separate companies, the Company, 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 Company 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 Company, 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. Any extension of the
Spin-Off Company's 18-month term will not require the vote of its shareholders.
See "THE SPIN-OFF TRANSACTION" and "FEDERAL INCOME TAX
CONSEQUENCES -- Background." Additional information with respect to the Spin-Off
Company, including its audited financial statements, is set forth in the
Information Statement attached hereto as Appendix A.
In connection with the Spin-Off Transaction and pursuant to the Master
Agreement, the Spin-Off Company will assume all potential tax liability arising
out of the RPS Tax Issues (as defined in "PROPOSAL 1 -- THE RAMCO ACQUISITION
PROPOSAL -- Background of the Ramco Acquisition"). Notwithstanding the
assumption of the potential tax liability by the Spin-Off Company, a special
committee of the Board, that will consist of the Continuing Trustees, except for
Robert A. Meister (as defined in "PROPOSAL 1 -- THE RAMCO ACQUISITION
PROPOSAL -- Operating Partnership Agreement -- Liquidation"), 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 Company which, in turn, would result
in a corresponding increase in the Company'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
Company, in order to preserve its status as a REIT, would in such event declare
and pay to its Shareholders at that 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.
Accordingly, Shareholders should note that in the event a deficiency dividend is
paid under the
14
<PAGE> 26
circumstances described above, this would result in an indirect payment of cash
from the Spin-Off Company to the Shareholders of the Company at the time the
dividend payment is made.
INTERESTS OF MANAGEMENT IN THE RAMCO ACQUISITION PROPOSAL
In considering the recommendation of the Board of Trustees to approve the
Ramco Acquisition Proposal, Shareholders should be aware that certain members of
management have substantial interests in and will receive certain benefits from
the Ramco Acquisition that will not be available to Shareholders generally,
including the following: (i) pursuant to an Amended and Restated Termination
Agreement (the "Liechtung Termination Agreement"), effective as of February 29,
1996, between the Company and Herbert Liechtung, the former President and a
Trustee of the Company, 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 Company that ran through
December 31, 1998 and provided for a current base salary of approximately
$340,000 as well as certain performance based bonuses, 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), (ii) pursuant
to a Termination Agreement (the "Pashcow Termination Agreement") that will
become effective simultaneously with the closing of the Ramco Acquisition,
between the Company and Joel M. Pashcow, the Chairman, President and a Trustee
of the Company, 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 $79,900 pursuant to his existing employment agreement, in
consideration of the termination of his employment agreement with the Company
that runs through December 31, 1998 and provides for a current base salary of
$340,000 as well as certain performance based bonuses, 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), (iii) Messrs.
Liechtung and Pashcow will continue as members of the Board of Trustees of the
Company 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 Company, 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, including payments of $272,000, $119,000 and
$135,000 to Edwin R. Frankel, Stanley Rappoport, and John J. Johnston, Jr.,
respectively, each of whom is an executive officer of the Company, (v) based on
an offer to be made by the Company, certain non-continuing employees of the
Company (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,
including Messrs. Frankel and Johnston, Steven Liechtung, Vice President of the
Company, and Nancy M. Comerford, Director of Operations of the Company, who will
receive $25,000, $25,000, $10,000, and $2,500, respectively, and (vi) Mr.
Frankel, Senior Vice President and Treasurer of the Company, will become an
executive officer of the Spin-Off Company and receive compensation of $60,000
per annum. The fact that these individuals will receive the benefits described
above may result in conflicts of interest with respect to their obligations to
the Company in determining whether the Company should consummate the Ramco
Acquisition. In light of these potential conflicts of interest, the Company
established a special acquisition committee (the "Special Acquisition
Committee"), consisting of three Independent Trustees, to negotiate (together
with management) the Ramco Acquisition and the termination arrangements with
Messrs. Liechtung and Pashcow. Messrs. Blank and Goldberg, in their capacities
as members of the Special Acquisition Committee, have each received $275,000,
which payments will be retained regardless of whether the Ramco Acquisition is
consummated. Messrs. Goldberg, Glickman and Blumenfeld, in their capacities as
members of the Spin-Off Committee, have each received $25,000, which amounts
will be retained regardless of whether the Spin-Off Transaction is consummated.
See "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Termination of Existing
Employment Contracts; Termination Agreements" and "INTEREST OF CERTAIN PERSONS."
15
<PAGE> 27
BENEFITS OF THE RAMCO ACQUISITION TO RAMCO PRINCIPALS
The Ramco Principals will realize certain benefits as a result of the
consummation of the Ramco Acquisition, including the following: (i) the Ramco
Principals will transfer their direct and indirect interests in the Ramco
Contribution Assets to the Operating Partnership in exchange for an
approximately 18% limited partnership interest (approximately 1,806,000 Units)
in the Operating Partnership, assuming the conversion of all outstanding loans
made by the Ramco Principals to the Ramco Group into Units and that certain
leasing plans with respect to the Lease Up Property are fulfilled (which 18%
interest has an approximate aggregate value of $28,900,000, based on an assumed
value of $16.00 per Unit); (ii) the Company 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
Ramco Properties); (iii) each of the Ramco Principals will enter into three-year
employment agreements with the Company providing for annual base salaries of
$100,000; (iv) the Company will grant to each of the Ramco Principals options to
purchase 24,000 shares at an exercise price of $16.00 per share under the New
Plan; (v) the structure of the Ramco Acquisition will provide the Ramco
Principals the opportunity for deferral of tax consequences of the contribution
of their interests in the Ramco Properties to the Operating Partnership; (vi)
each of Joel, Dennis, Richard and Bruce Gershenson and Michael Ward will be
released from personal guarantees aggregating approximately $66,502,000, as of
December 31, 1995, with respect to indebtedness, for which they are jointly and
severally liable, to be repaid in the Ramco Acquisition; (vii) Joel Gershenson
and Dennis Gershenson will be nominated to the Company's Board of Trustees; and
(viii) the Company will assume and repay $3,200,000 of certain unsecured debt
associated with the Ramco Properties that is payable to affiliates of Ramco.
MEETING DATE AND RECORD DATE
The Special Meeting will be held at 10:00 a.m., New York City time, on
April 29, 1996 at Deloitte & Touche LLP, 2 World Financial Center, 3rd Floor,
New York, New York. The close of business on March 21, 1996 has been fixed by
the Board of Trustees as the record date for determining Shareholders entitled
to notice of and to vote at the Special Meeting (the "Record Date"). As of March
15, 1996, the Company has a total of 28,492,421 Shares outstanding, all of which
are entitled to be voted on the Proposals. Only holders of Shares as of the
Record Date are entitled to vote at the Special Meeting and any adjournment
thereof.
VOTES REQUIRED
Approval of Proposals 1 and 3, and of any other matters, if any, which come
before the Special Meeting, will require the affirmative vote of a majority of
the Shares voted, in person or by proxy, at the Special Meeting, and approval of
Proposal 2 will require the affirmative vote of holders of a majority of the
issued and outstanding Shares. None of the Proposals will be implemented unless
each of them is approved. The presence, in person or by proxy, of Shareholders
holding a majority of the Shares entitled to vote shall constitute a quorum for
the Special Meeting. See "CERTAIN VOTING PROCEDURES; OTHER BUSINESS AND EXPENSE
OF SOLICITATION."
REVERSE SPLIT
As a condition to the consummation of the Ramco Acquisition, the Company
will combine its Shares by way of a 1 for 4 reverse 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 Reverse Split shares. Share certificates should not be
surrendered until the letter of transmittal is received.
16
<PAGE> 28
RECOMMENDATION OF THE BOARD OF TRUSTEES
The Trustees unanimously recommend a vote FOR approval of each of the
Proposals. The Board of Trustees believes that the terms of the Ramco
Acquisition are fair to and in the best interests of the Company and the
Shareholders. For a discussion of the factors considered by the Board of
Trustees in reaching its decision to recommend approval of the Ramco
Acquisition, see "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Background of
the Ramco Acquisition and -- Reasons for the Ramco Acquisition; Recommendation
of the Board of Trustees."
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following tables set forth certain selected historical and pro forma
financial information for the Company. The financial information should be read
in conjunction with the financial statements and notes thereto incorporated by
reference and included herein. The pro forma operating data are presented as if
the Ramco Acquisition occurred on January 1, 1994 or as of September 30, 1995
for the balance sheet data. The data reflects certain assumptions that are
described in the notes to the pro forma financial statements included herein;
the assumptions are based upon information contained herein, in the Company's
previously filed public documents and in financial information provided by
Ramco. The pro forma financial information is not necessarily indicative of the
results that would have been reported if the Ramco Acquisition was actually
consummated on January 1, 1994, or as of September 30, 1995, nor is it
indicative of the Company's future results.
17
<PAGE> 29
The unaudited pro forma operating data are presented as if the Ramco
Acquisition had been consummated as of January 1, 1994 and as if the Company had
qualified as a REIT, distributed all of its taxable income and, therefore,
incurred no federal income tax expense during the periods from January 1, 1994
to September 30, 1994, January 1, 1994 to December 31, 1994 and January 1, 1995
to September 30, 1995. The Ramco Acquisition has been accounted for under the
purchase method of accounting.
THE COMPANY'S HISTORICAL DATA
<TABLE>
<CAPTION>
AS OF
AND FOR THE
NINE MONTHS ENDED
AS OF AND FOR THE YEAR ENDED
SEPTEMBER 30 DECEMBER 31,
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues......................... $ 12,579 $ 22,856 $ 26,406 $ 26,969 $ 29,857 $ 27,937 $ 36,985
Net Income....................... 3,528 16,938 15,642 3,051 8,839 12,758 23,756
Income per Share................. .12 .59 .55 .11 .31 .45 .82
Distributions per Share.......... .24 .24 .32 .32 .60 .70 .82
BALANCE SHEET DATA:
Cash and Short-Term
Investments.................... 72,109 -- 74,584 38,800 43,000 56,635 42,886
Mortgage Loan Receivable......... 36,218 -- 41,892 100,692 130,595 151,470 178,970
Total Assets..................... 183,073 -- 186,171 186,420 215,558 241,630 235,565
Mortgages and Notes Payable...... 0 -- 0 5,027 20,714 36,450 24,250
Shareholders' Equity............. 179,290 -- 182,599 176,313 182,559 191,171 197,802
</TABLE>
THE COMPANY'S PRO FORMA DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------- YEAR ENDED
1995 1994 DECEMBER 31, 1994
------------------ ------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Total revenues..................................... $ 35,621 $35,196 $46,863
Depreciation and amortization...................... 4,390 4,403 5,828
Operating income before interest................... 16,682 15,794 21,311
Interest expense................................... 6,805 6,790 9,064
Income (loss) from unconsolidated entities:
Partnerships.................................... 14 (103) (14)
Ramco........................................... (448) (375) (524)
Income before minority interest in Operating
Partnership..................................... 9,444 8,527 11,709
Net income......................................... 7,081 6,393 8,779
Net income per share............................... $ .99 $ .90 $ 1.23
============== ======= =============
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1995
------------------
<S> <C>
BALANCE SHEET DATA:
Investment in real estate, net..................... $268,437
Total assets....................................... 280,034
Total debt......................................... 117,670
Shareholders' equity............................... 121,741
</TABLE>
18
<PAGE> 30
RAMCO PROPERTIES HISTORICAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED AS OF AND FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- -------------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues......................... $29,540 $29,212 $39,162 $37,726 $34,455
Certain expenses....................... 12,563 12,509 16,717 16,535 15,277
------- ------- ------- ------- -------
Revenues in excess of certain
expenses............................ $16,977 $16,703 $22,445 $21,191 $19,178
======= ======= ======= ======= =======
</TABLE>
RAMCO HISTORICAL DATA
<TABLE>
<CAPTION>
AS OF AND
FOR THE AS OF AND FOR YEAR ENDED
NINE MONTHS DECEMBER 31,
ENDED -------------------------------
SEPTEMBER 30, 1995 1994 1993 1992
------------------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Total revenues............................. $ 4,312 $ 5,215 $ 4,409 $ 4,557
Depreciation and amortization.............. 35 50 71 119
Income taxes............................... 334 359 178 199
Net income................................. 651 695 401 386
BALANCE SHEET DATA:
Total assets............................... $ 2,993 $ 2,723 $ 2,265 --
Total debt................................. 1,360 1,741 1,979 --
Shareholders' equity....................... 1,633 982 286 --
</TABLE>
19
<PAGE> 31
PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL
PARTIES TO THE RAMCO ACQUISITION
The Company. The Company is a REIT formed in 1988. The Company is
primarily engaged in the business of owning and managing a participating
mortgage loan portfolio which presently consists of eight commercial mortgage
loans and, through its wholly-owned subsidiaries, owning and operating eight
properties. The Company's principal executive offices are located at 747 Third
Avenue, New York, New York 10017, and its telephone number at such location is
(212) 355-1255.
Ramco. Ramco, which is controlled by the Ramco Principals, is a fully
integrated private real estate company that owns, manages, leases, develops and
acquires shopping center properties. Ramco has more than 40 years experience as
a shopping center developer and operator, and has developed over 70 shopping
center properties throughout its history. The Ramco Principals have an average
of more than 25 years experience in the shopping center business. Ramco
currently owns or controls through its affiliates 29 shopping center and retail
properties and manages an additional 18 shopping center properties. The Ramco
Properties contain approximately 5,114,000 square feet of total GLA, of which
1,408,000 square feet will be owned by certain Anchors and 3,706,000 square feet
will be Company owned. As of December 31, 1995, such properties had an average
occupancy rate of approximately 95.2%. Ramco's principal executive offices are
located at 27600 Northwestern Highway, Suite 200, Southfield, Michigan 48034 and
its telephone number at such location is (810) 350-9900.
RISK FACTORS
Shareholders should carefully consider the following information in
conjunction with the other information contained in this Proxy Statement.
Conflicts of Interest of Management. Certain members of management have
substantial interests in, and will receive certain benefits from, the Ramco
Acquisition that will not be available to Shareholders generally. As a result of
the Ramco Acquisition, (i) pursuant to the Liechtung Termination Agreement,
Herbert Liechtung, the former President and a Trustee of the Company, 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 Mr. Liechtung's employment agreement with
the Company that ran through December 31, 1998 and provided for a current base
salary of approximately $340,000 as well as certain performance based bonuses,
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), (ii) pursuant to the Pashcow Termination Agreement, Joel M.
Pashcow, the Chairman, President, and a Trustee of the Company, will receive 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 respect of the termination of Mr.
Pashcow's employment agreement with the Company that runs through December 31,
1998 and provides for a current base salary of approximately $340,000 as well as
certain performance based bonuses, 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), (iii) Messrs. Liechtung and
Pashcow will continue as members of the Board of Trustees and will receive
compensation to be paid to all non-management Trustees of $20,000 per annum,
(iv) the non-continuing employees of the Company, 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, including payments of $272,000, $119,000 and $135,000 to Edwin R.
Frankel, Stanley Rappoport, and John J. Johnston, Jr., respectively, each of
whom is an executive officer of the Company, (v) based on an offer to be made by
the Company, certain non-continuing employees of the Company (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, including Messrs. Frankel and
Johnston, Steven Liechtung, Vice President of the Company, and Nancy M.
Comerford, Director of Operations of the Company, who will receive $25,000,
$25,000, $10,000, and $2,500, respectively, and (vi) Mr. Frankel, Senior Vice
President and Treasurer of the Company, will become an
20
<PAGE> 32
executive officer of the Spin-Off Company and receive compensation of $60,000
per annum. The fact that these individuals will receive the benefits described
above may result in conflicts of interest with respect to their obligations to
the Company in determining whether the Company should consummate the Ramco
Acquisition. See " -- Interests of Management in the Ramco Acquisition
Proposal," "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Termination of
Existing Employment Contracts; Termination Agreements," and "INTEREST OF CERTAIN
PERSONS."
Benefits of the Ramco Acquisition to Ramco Principals. The Ramco
Principals will realize certain benefits as a result of the consummation of the
Ramco Acquisition, including the following: (i) the Ramco Principals will
transfer their direct and indirect interests in the Ramco Contribution Assets to
the Operating Partnership in exchange for an approximately 18% interest
(approximately 1,806,000 Units) in the Operating Partnership, assuming the
conversion of all outstanding loans made by the Ramco Principals to the Ramco
Group into Units and that certain leasing plans with respect to the Lease Up
Property are fulfilled (which 18% interest has an approximate aggregate value of
$28,900,000, based on an assumed value of $16.00 per Unit); (ii) the Company
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 Ramco Properties); (iii) each of the Ramco Principals
will enter into three-year employment agreements with the Company providing for
annual base salaries of $100,000; (iv) the Company will grant to each of the
Ramco Principals options to purchase 24,000 shares at an exercise price of
$16.00 per share under the New Plan; (v) the structure of the Ramco Acquisition
will provide the Ramco Principals the opportunity for deferral of tax
consequences of the contribution of their interests in the Ramco Properties to
the Operating Partnership; (vi) each of Joel, Dennis, Richard and Bruce
Gershenson and Michael Ward will be released from personal guarantees
aggregating approximately $66,502,000, as of December 31, 1995, with respect to
indebtedness, for which they are jointly and severally liable, to be repaid in
the Ramco Acquisition; (vii) Joel Gershenson and Dennis Gershenson will be
nominated to the Company's Board of Trustees; and (viii) the Company will assume
and repay $3,200,000 of certain unsecured debt associated with the Ramco
Properties that is payable to affiliates of Ramco.
Inability of Financial Advisor to Render a Fairness Opinion. In connection
with the Ramco Acquisition, the Board requested that the Company's financial
advisor, Dean Witter, render a fairness opinion to the Board to the effect that
the allocation of the 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. In October 1995, Dean Witter
concluded that until the Asset Issue (as defined and described under "PROPOSAL
1 -- THE RAMCO ACQUISITION PROPOSAL -- Background of the Ramco Acquisition") was
favorably resolved and the IRS examination of the Company's tax returns was
completed, it could not render a fairness opinion. Because the Asset Issue and
the IRS examination have not been concluded, Dean Witter has not continued its
efforts to determine the fairness of the transaction. As such, Shareholders
should note that Dean Witter has never rendered a fairness opinion in connection
with the Ramco Acquisition and Dean Witter's advice as described herein does not
constitute a fairness opinion. As more fully described under "PROPOSAL 1 -- THE
RAMCO ACQUISITION PROPOSAL -- Background of the Ramco Acquisition," on the
recommendation of the Special Acquisition Committee and after deliberation of
the alternatives available to the Company, the Board of Trustees approved the
Ramco Acquisition on its current terms, without obtaining the written opinion of
an independent third party to the effect that the allocation of the 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. See "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL -- Background of the
Ramco Acquisition and -- Reasons for the Ramco Acquisition; Recommendation of
the Board of Trustees."
Conflicts of Interest in the Business of the Company.
Tax Consequences Upon Sale or Refinancing of Properties. Certain
holders of Units may suffer different and more adverse tax consequences than the
Company upon the sale or refinancing of any of the Properties and, therefore,
such holders, including the Ramco Principals, may have different objectives
regarding the appropriate pricing and timing of any sale or refinancing of such
Properties. While the Company, as the sole general partner of the Operating
Partnership, has the exclusive authority as to whether and on what
21
<PAGE> 33
terms to sell or refinance an individual Property, those members of the
Company's management and Board of Trustees of the Company who hold Units may
influence the Company not to sell or refinance the Properties even though such
sale might otherwise be financially advantageous to the Company, or may
influence the Company to refinance Properties with a high level of debt.
Resale of Electricity; Other Contractual Rights. The Ramco Principals
may have different objectives than the Company regarding any sale of the
Michigan Properties because, in the event the buyer of any such Property is
unable to receive the necessary consent to resell electricity to the tenants at
such Property in the same manner as the Ramco Group currently resells
electricity to such tenants, the Ramco Principals will be required to make
certain cash payments to the Operating Partnership. See "-- The Master
Agreement -- Electricity Income Reimbursement." While the Company, as the sole
general partner of the Operating Partnership, has the exclusive authority as to
whether to sell an individual Property, the Ramco Principals may influence the
Company not to resell the Michigan Properties even though such sale may
otherwise be financially advantageous to the Company.
In addition, the Company may be entitled to enforce certain rights against
the Ramco Group as a result of contractual breaches which are discovered or
occur after the closing of the Ramco Acquisition. The Company may be less
inclined to assert these rights than it otherwise would be because of the Ramco
Group's equity interests in, and management control over, the Company.
Price May Not Reflect Value of Ramco Contribution Assets. No independent
valuations or appraisals were obtained with respect to the Ramco Properties or
the other Ramco Contribution Assets in connection with the Ramco Acquisition.
Accordingly, there can be no assurance that the fair market value of the Ramco
Properties and the other Ramco Contribution Assets acquired by the Company will
equal or exceed the price that the Company will pay for such assets.
The valuation of Ramco was derived, in part, based on the revenue derived
from Ramco's contracts with third parties for management and leasing services.
Ramco provides management and leasing services for 25 shopping center properties
(including one office building) that will not be acquired by the Company. These
contracts are generally terminable upon 30 days' notice by either party or upon
sale of the property. In valuing Ramco and its third-party management business,
the Company assumed that its third-party contracts would remain in effect. In
the event any of these contracts are terminated, the Company's revenue from
Ramco would be adversely affected. Accordingly, if all or a substantial portion
of these contracts were to be terminated, the initial value assigned to Ramco by
the Company would not be indicative of its true fair market value.
Real Estate Investment Risks.
General Risks. Real property investments are subject to varying degrees
of risk. The yields available from equity investments in real estate depend in
large part on the amount of revenues generated and expenses incurred. If the
Properties do not generate revenues sufficient to meet operating expenses,
including debt service, tenant improvements, leasing commissions and other
capital expenditures, the Company may have to borrow additional amounts to cover
fixed costs and the Company's cash flow and ability to make distributions to its
Shareholders will be adversely affected.
The Company's revenues and the value of its Properties may be adversely
affected by a number of factors, including the national economic climate, the
local economic climate, local real estate conditions, the perceptions of
prospective tenants of the attractiveness of the property, the ability of the
Company to provide adequate management, maintenance and insurance, and increased
operating costs (including real estate taxes and utilities). In addition, real
estate values and income from properties are also affected by such factors as
applicable laws, including tax laws, interest rate levels, and the availability
of financing.
Bankruptcy and Financial Condition of Tenants. At any time, a tenant of
the Properties may seek the protection of the bankruptcy laws, which could
result in the rejection and termination of such tenant's lease and thereby cause
a reduction in the cash flow available for distribution by the Company. As of
December 31, 1995, tenants under 13 Ramco Property leases, occupying an
aggregate of approximately
22
<PAGE> 34
182,500 square feet of GLA, have filed for bankruptcy and have not yet affirmed
or rejected their leases. No assurance can be given that such leases will be
affirmed, and will not be rejected. In addition, Shareholders are advised that,
because of reports in the financial press regarding potential liquidity problems
involving Kmart Corporation ("Kmart"), the Board of Trustees has in the past
discussed the possible impact of a future bankruptcy filing by Kmart (which, as
of December 31, 1995, occupied approximately 12.8% (exclusive of its Builder's
Square unit) of Company owned GLA) on the Ramco Properties. See "PROPOSAL 1 --
THE RAMCO ACQUISITION PROPOSAL -- Background of the Ramco Acquisition Proposal."
No assurance can be given that any other tenants at the Ramco Properties, such
as Kmart, will not file for bankruptcy protection in the future or, if any
tenants file for such protection, that they will affirm their leases and
continue to make rental payments in a timely manner. In addition, a tenant from
time to time may experience a downturn in its business which may weaken its
financial condition and result in the failure to make rental payments when due.
For example, Kmart has publicly disclosed its intention to close up to 60 stores
in 1996, although the Company has no reason to believe that any of such stores
occupies space at a Ramco Property. If tenant leases are not affirmed following
bankruptcy or if a tenant's financial condition weakens, the Company's income
and cash flow may be adversely affected. See "-- The Ramco Properties."
Competition. Numerous shopping center properties compete with the
Properties in attracting tenants to lease space. Some of these competing
properties are newer, better located, better capitalized or better tenanted than
some of the Properties. Furthermore, the Company believes that it is likely that
major national or regional commercial property developers will continue to seek
development opportunities in the Michigan and Ohio markets. These developers may
have greater financial resources than the Company. The number of competitive
commercial properties in a particular area could have a material effect on the
Company's ability to lease space in the Properties or at newly developed or
acquired properties and on the rents charged. In addition, the Company may face
competition from alternate forms of retailing, including home shopping networks,
mail order catalogues and on-line based shopping services which may limit the
number of retail tenants that desire to seek space in shopping center properties
generally, all of which may affect the Company's ability to make expected
distributions.
Inability to Renew Leases and Relet of Space. The Company will be
subject to the risks that upon expiration of leases for space located in the
Ramco Properties, the leases may not be renewed, the space may not be relet or
the terms of renewal or reletting (including the cost of required renovations)
may be less favorable than current lease terms. Leases on a total of
approximately 4.6% and 10.4% of the Company owned GLA in the Ramco Properties
will expire in 1996 and 1997, respectively. The Company has estimated the
renovation and reletting expenses associated with these expirations, but no
assurance can be given that the Company has accurately estimated such expenses.
If the Company were unable to promptly relet or renew the leases for all or a
substantial portion of this space and, if the rental rates upon such renewal or
reletting were significantly lower than expected rates or if its estimates
proved inadequate, then the Company's cash flow and ability to make expected
distributions to Shareholders may be adversely affected. In addition, at
December 31, 1995, the occupancy rate at the Ramco Properties was 98.21%
(excluding Jackson Crossing, which is the Lease Up Property). If the Company was
unable to maintain its current occupancy levels at the Ramco Properties, then
the Company's cash flow and ability to make expected distributions to
Shareholders may be adversely affected.
Adverse Changes in Laws. Because increases in income, service or
transfer taxes are generally not passed through to tenants under leases, such
increases may adversely affect the Company's cash flow and its ability to make
distributions to Shareholders. The Properties are also subject to various
federal, state and local regulatory requirements, such as requirements of the
Americans with Disabilities Act and state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. The Company believes that the Properties are currently in compliance
with all such regulatory requirements. However, there can be no assurance that
these requirements will not be changed or that new requirements will not be
imposed which would require significant unanticipated expenditures by the
Company and could have an adverse effect on the Company's cash flow and expected
distributions.
23
<PAGE> 35
Uninsured Loss. The Company will initially carry comprehensive
liability, fire, flood (where appropriate), extended coverage and rental loss
insurance with respect to the Properties and the Development Land with policy
specifications and insured limits customarily carried for similar properties.
There are, however, certain types of losses (such as from wars or earthquakes)
that may be either uninsurable or not economically insurable. Should an
uninsured loss occur, the Company could lose both its capital invested in and
anticipated profits from one or more Properties.
Americans with Disabilities Act Compliance. Under the Americans with
Disabilities Act (the "ADA"), all public accommodations and commercial
facilities are required to meet certain federal requirements related to access
and use by disabled persons. These requirements became effective in 1992.
Compliance with the ADA requirements could require removal of access barriers
and non-compliance could result in imposition of fines by the U.S. government or
an award of damages to private litigants. Although the Company believes that the
Properties are substantially in compliance with these requirements, the Company
may incur additional costs to comply with the ADA. Although the Company believes
that such costs will not have a material adverse effect on the Company, if
required changes involve a greater expenditure than the Company currently
anticipates, the Company's ability to make expected distributions could be
adversely affected.
Real Estate Financing Risks.
Debt Financing and Existing Debt Maturities. The Company is subject to
risks normally associated with debt financing, including the risk that the
Company's cash flow will be insufficient to pay distributions at expected levels
and to meet required payments of principal and interest, the risk that existing
indebtedness on the Properties (which in all cases will not have been fully
amortized at maturity) will not be able to be refinanced at maturity or that the
terms of such refinancing will not be as favorable as the terms of existing
indebtedness. Upon consummation of the Ramco Acquisition, the Company expects to
have outstanding indebtedness of approximately $124,080,000 (including a pro
rata share of the debt encumbering two 50%-owned Ramco Properties), all of which
will be secured by the Company's Properties. Approximately $2,857,000 of the
debt in place after completion of the Ramco Acquisition will mature before 1998,
with most of the balance maturing between 2001 and 2010. See "-- Mortgage Debt."
If principal payments due at maturity cannot be refinanced, extended or paid
with proceeds of other capital transactions, such as new equity capital, the
Company expects that its cash flow will not be sufficient in all years to pay
distributions at expected levels and to repay all such maturing debt.
Furthermore, if prevailing interest rates or other factors at the time of
refinancing (such as the reluctance of lenders to make commercial real estate
loans) result in higher interest rates upon refinancing, the interest expense
relating to such refinanced indebtedness would increase, which would adversely
affect the Company cash flow and the amount of distributions it can make to its
Shareholders. If a Property or Properties are mortgaged to secure payment of
indebtedness and the Company is unable to meet mortgage payments, the Property
could be foreclosed upon by or otherwise transferred to the mortgagee with a
consequent loss of income and asset value to the Company.
Risk of Rising Interest Rates and Variable Rate Debt. Upon consummation
of the Ramco Acquisition, the Company expects to have outstanding $17,088,000 of
indebtedness which bears interest at a variable rate; of such amount, $7,000,000
will bear interest based on 75% of the rate of new issue long-term Capital A
rated utility bonds as reported by Salomon Brothers, and the remaining
$10,088,000 will bear interest at a floating rate equal to 175 basis points over
the reserve adjusted Eurodollar rate. The Company may incur other variable rate
indebtedness in the future, including additional borrowings under the Credit
Facility. Increases in interest rates on such indebtedness could increase the
Company's interest expense, which would adversely affect the Company's cash flow
and its ability to pay expected distributions to Shareholders.
Risks Associated with Change in Management. As a result of the Ramco
Acquisition, the executive officers of Ramco rather than the current executive
officers of the Company will be vested with the day-to-day management control of
the Company. Although the executive officers of Ramco have extensive experience
in managing shopping center properties, they have no prior experience in
managing a REIT or a publicly owned company.
24
<PAGE> 36
Stock Price Variations. The stock price of the shares of the Company and
the Spin-Off Company after the closing of the Ramco Acquisition may vary
significantly from the prices as of the date of the execution of the Master
Agreement, the date of this Proxy Statement, the date of the Special Meeting or
the closing of the Ramco Acquisition (in each case after giving effect to the
Reverse Split), due to changes in the business, operations and prospects of the
Company, market assessments of the likelihood the Ramco Acquisition will be
consummated and the timing thereof, general market and other conditions, and
other factors. In addition, the trading price of the Company's shares after the
closing of the Ramco Acquisition may be less than the assumed per Share value of
the RPS Contribution Assets. Because there has been no public market for the
Spin-Off Company Shares, there can be no assurance that an active trading market
will develop or be sustained for such shares. Accordingly, no prediction of the
price at which Spin-Off Company Shares will trade can be made. It is therefore
possible that the trading prices per Share as of the date of this Proxy
Statement, the date of the Special Meeting or the closing of the Ramco
Acquisition may be greater than the combined per share trading prices of the
Company's shares and the Spin-Off Company Shares (without giving effect to the
Reverse Split) in periods after the closing of the Ramco Acquisition.
Dependence on Anchors. A substantial portion of the GLA at several of the
Properties will be owned by Anchors and not by the Company. The success of the
Company owned GLA at such sites is largely dependent on the continued presence
of the Anchors at such sites; in addition, leases of stores in the Company owned
portion of such Properties may contain provisions which permit the tenants
thereunder to terminate such leases in the event that an Anchor no longer
occupies its space. However, the Anchors are not contractually obligated to
remain at such sites. Accordingly, in the event that an Anchor vacates its space
at such a site, the performance of the stores located in the Company owned
portion of such property would likely be adversely affected, as would the
results of operations of the Company relating to such site.
Substantial Payments if Ramco Acquisition Fails to Occur. No assurance can
be given that the Ramco Acquisition will be consummated. If the Ramco
Acquisition does not occur, under certain circumstances, the Company will be
required to reimburse Ramco for its expenses up to $1,250,000. In addition, if
the Ramco Acquisition is not consummated, the Company will have incurred
substantial expenses, including approximately $2,300,000 in deposits and
commitment fees under the Mortgage Loans, which amounts are reimbursable (in
whole or in part) by the Ramco Group or the lender under the Refinanced Loan
only in certain circumstances.
Illiquidity of Real Estate. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit the ability of the Company to vary
its portfolio promptly in response to changes in economic or other conditions.
In addition, the Code limits the Company's ability to sell properties held for
fewer than four years, which may affect the Company's ability to sell properties
without distributions to Shareholders.
Risks Involved in Property Ownership Through Partnerships and Joint
Ventures. The Company will own two of the Ramco Properties through joint
ventures with third parties. Such joint ventures involve risks not otherwise
present in the direct ownership of real estate, including the possibility that
the Company's partners or co-venturers might become bankrupt, that such partners
or co-venturers might at any time have economic or other business interests or
goals which are inconsistent with the business interests or goals of the
Company, and that such partners or co-venturers may be in a position to take
action contrary to the instructions or the requests of the Company or contrary
to the Company's policies or objectives, including the Company's policy with
respect to maintaining its qualification as a REIT. See "-- Certain Property
Partnership Agreements."
Risk of Development, Construction and Acquisition Activities. The Company
intends in the future to actively develop and construct shopping center
properties, including development on the Development Land in accordance with the
Company's development policies. See "-- Future Operations -- Business Objectives
and Strategy -- Development." Risks associated with the Company's future
development and construction activities, including activities relating to the
Development Land, may include abandonment of development opportunities;
construction costs of a property exceeding original estimates, thereby possibly
making the property uneconomical; occupancy rates and rents at a newly completed
property may not be sufficient to
25
<PAGE> 37
make the property profitable; financing may not be available on favorable terms
for development of a property; and construction and lease-up may not be
completed on schedule, resulting in increased debt service expense and
construction costs. In addition, new development activities, regardless of
whether or not they are ultimately successful, typically require a substantial
portion of management's time and attention. Development activities are also
subject to risks relating to the inability to obtain, or delays in obtaining,
all necessary zoning, land-use, building, occupancy, and other required
governmental permits and authorizations.
The Company intends in the future to actively seek selective acquisitions
of shopping center properties. See "-- Future Operations -- Business Objectives
and Strategy." Acquisitions of shopping center properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general investment risks associated with any
new real estate investment.
The Company anticipates that future developments and acquisitions will be
financed through a combination of lines of credit and other forms of secured or
unsecured financing. If new developments are financed through construction
loans, there is a risk that, upon completion of construction, permanent
financing for newly developed properties may not be available or may be
available only on disadvantageous terms.
Possible Environmental Liabilities. There is contamination present on or
under certain of the Ramco Properties and, in addition, ACMs and USTs are
present on certain of the Ramco Properties. The Company is responsible for the
maintenance and, ultimately, the removal of such ACMs and may be potentially
responsible for the remediation of such existing contamination and any future
contamination relating to such USTs, the cost of which may be material. The
Company also will be responsible for on-going compliance with environmental
regulations. Although the Company believes that the costs of any such
remediation are the responsibility of third parties, if such remediation is
required to be undertaken by the Company and at its expense, it may have a
material adverse effect on the Company's financial condition and results of
operations. See "-- Environmental Matters."
Limited Geographic Diversification. The Company's revenues and the value
of its Properties may be affected by a number of factors, including the local
economic climate (which may be adversely impacted by business layoffs or
downsizing, industry slowdowns, changing demographics and other factors) and
local real estate conditions (such as oversupply of or reduced demand for
shopping center properties). Twenty of the Ramco Properties are located in
Michigan and Ohio. The Company's performance and its ability to make
distributions to Shareholders is therefore dependent on the economic conditions
in these market areas.
Possible Adverse Consequences Relating to Interests in Ramco. The capital
stock of Ramco will be divided into two classes: voting common stock (5% of
which will be owned by the Operating Partnership and 95% of which will be owned
by the Ramco Principals), and non-voting common stock (100% of which will be
owned by the Operating Partnership). The Operating Partnership's voting common
stock and non-voting common stock will respectively represent in excess of 95%
of the economic interests in Ramco. The Ramco Principals, as the holders of 95%
of the voting common stock, will retain the ability to elect the boards of
directors of Ramco. Although the non-voting common stock and the voting common
stock of Ramco held directly by the Operating Partnership, and indirectly by the
Company, will represent a substantial share of the economic interests in Ramco,
the Operating Partnership will not be able to elect directors and its ability to
influence the day-to-day decisions of Ramco may therefore be limited. As a
result, the board of directors of Ramco may implement business policies or
decisions that would not have been implemented by persons controlled by the
Company or the Operating Partnership and that are adverse to the interests of
the Company or the Operating Partnership or that lead to adverse financial
results, which could adversely impact the Company's cash available for
distribution.
One of the requirements for maintaining REIT status is that a REIT not own
more than 10% 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 Company will own only 5% of the voting
stock and all of the non-voting stock of Ramco and therefore will comply with
this rule. However, the IRS could contend that the Company's ownership of all of
the non-voting stock of Ramco should be viewed as
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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
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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
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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
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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
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<PAGE> 42
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.
33
<PAGE> 45
THE RAMCO PROPERTIES
General. The Ramco Properties consist of two regional enclosed malls,
eleven community centers, eight power centers, and one single user retail
property. Regional enclosed malls are larger retail properties (containing
400,000 to more than 1,000,000 square feet of GLA) with two or more department
stores as Anchors and a wide variety of mall stores along enclosed,
climate-controlled malls connecting the Anchors. This layout is intended to
maximize customer traffic for the mall stores. At many regional enclosed malls,
free standing stores are located along the perimeter of the parking area.
Community shopping centers generally range in size up to 400,000 square
feet of GLA and are located in developed retail and commercial areas in which
other similar centers may be nearby. In addition, with respect to some of these
centers, there may be one or more regional enclosed malls nearby. Community
shopping centers generally fall into two types: traditional community centers
and power centers. Traditional community centers typically are convenient to
their trade areas and focus primarily on value-oriented and convenience goods
and services. They are designed to service a neighborhood area and are usually
anchored by a supermarket, drugstore or discount retailer providing basic
necessities, although certain community centers are free standing single-user
buildings. Power centers are different from traditional community centers
because they are designed to serve a larger trade area and they contain at least
two Anchors which occupy a substantial portion of the GLA in the center. These
Anchors are often national retailers which are leaders in their markets or
"category killers", i.e., larger stores which offer a complete selection of a
category of items (e.g., toys, office supplies, home improvement products,
electronics, etc.) at low prices, and often in a warehouse format.
The Ramco Properties contain in the aggregate approximately 5,114,000
square feet of total GLA, of which approximately 1,408,000 square feet is owned
by certain Anchors and the remaining 3,706,000 square feet of which is Company
owned. All but one of the Ramco Properties are located in the Midwest, including
17 in Michigan, three in Ohio, and one in Wisconsin. The remaining Ramco
Property is located in Florida. At December 31, 1995, the Ramco Properties
(other than Jackson Crossing, which is the Lease Up Property) were 98.21%
leased.
Set forth is a description of each of the Ramco Properties:
Clinton Valley Strip Center; Clinton Valley Mall. Clinton Valley Strip
Center and Clinton Valley Mall are a combined strip center/mini mall located in
Sterling Heights, Michigan, a suburb of Detroit. The center first opened in
November 1979 and was developed by Ramco. The center consists of a total of
approximately 251,000 square feet of GLA, of which approximately 201,000 square
feet of GLA will be Company owned. The shopping center consists of two
structures, an approximately 94,000 square foot strip center and an
approximately 157,000 square foot two level mini-mall. Included in the mini-mall
GLA are two out buildings leased to Montgomery Ward Tire, Battery and Auto
Center and Vic Tanny Health Club. The major Anchor in the strip center portion
is Service Merchandise, and the major Anchor in the mall portion is Montgomery
Ward. The Company owned GLA currently contains nineteen stores. At December 31,
1995, the Company owned GLA was 99.9% leased.
Montgomery Ward was added to the center in 1989, and its entire premises
was renovated to accommodate the current modern Montgomery Ward prototype store.
Recently, Old Country Buffet, an approximately 10,000 square foot cafeteria, was
added to the center. The center is located directly across the street from
Lakeside Mall, the primary enclosed super regional mall in the northeastern
sector of the Detroit metropolitan area.
Eastridge Commons. Eastridge Commons is located in Flint, Michigan, a city
with a metropolitan population of approximately 425,000 located approximately 60
miles north of Detroit. The center first opened in September 1990, and was
developed by Ramco. The major Anchors at the shopping center are Target, Handy
Andy and T J Maxx. The center is a power center of approximately 271,000 square
feet of GLA, of which approximately 101,000 square feet of GLA is owned by
Target and approximately 170,000 square feet of GLA will be Company owned. The
Company owned GLA currently contains 15 stores. At December 31, 1995, the
Company owned GLA was 98.0% leased. Handy Andy and F&M Distributors, which
currently lease approximately 72,000 and 27,000 square feet of GLA,
respectively, at a base rent of $5.00 and $7.40 per
34
<PAGE> 46
square foot, respectively, have filed for bankruptcy, Handy Andy has not
affirmed or rejected its lease, while F&N Distributors has affirmed its lease
and assigned it to Staples, Inc. See "-- Risk Factors -- Real Estate Investment
Risks -- Bankruptcy and Financial Condition of Tenants."
Edgewood Towne Centre. Edgewood Towne Centre is located in Lansing,
Michigan, a city with a metropolitan population of approximately 450,000 located
approximately 90 miles northwest of Detroit. The center first opened in July,
1990 and was developed by Ramco. The major Anchors in the shopping center are
Sam's Wholesale Club (a division of Wal-Mart), Target, and OfficeMax. The center
is a power center containing approximately 295,000 square feet of GLA, of which
approximately 209,000 feet of GLA is owned by Sam's Wholesale Club and Target,
and approximately 86,000 square feet of GLA will be Company owned. The Company
owned GLA currently contains 17 stores. At December 31, 1995, the Company owned
GLA was 100.0% leased.
Ferndale Plaza. Ferndale Plaza is located in Ferndale, Michigan, a suburb
of Detroit. The center was first opened in September, 1984 and was developed by
Ramco. The major Anchor in the shopping center is a 15,000 square foot store
leased by The Gap, which was converted in September, 1994 into an Old Navy
store, The Gap's newest prototype. The center is a community center containing
approximately 31,000 square feet of GLA, all of which will be Company owned. The
Company owned GLA currently contains six stores. At December 31, 1995, the
Company owned GLA was 100.0% leased. The center is located in the "downtown"
retail section of Ferndale, and parking for the center is provided by a public
lot located directly behind the center.
Fraser Shopping Center. Fraser Shopping Center is located in Fraser,
Michigan, a suburb of Detroit. The center was first opened in October, 1977 and
was acquired by Ramco in 1983. The major Anchor in the shopping center is
Oakridge Supermarket, a supermarket chain which currently has four stores
located in Michigan. The center is a community center containing approximately
74,000 square feet of GLA, all of which will be Company owned. The Company owned
GLA currently contains nine stores. At December 31, 1995, the Company owned GLA
was 100.0% leased.
Jackson Crossing. Jackson Crossing is a regional mall located in Jackson,
Michigan, a city with a metropolitan population of approximately 150,000 located
approximately 75 miles west of Detroit. The shopping center was acquired by
Ramco in June, 1990. Currently, the major Anchors in the shopping center are
Target, Sears, Toys "R" Us, and an 8 screen movie theater. On July 3, 1995,
Kohl's Department Stores, Inc. signed a lease for in excess of 80,000 square
feet of GLA at Jackson Crossing. At the time of acquisition, the shopping center
was a strip community center. In 1991 Ramco expanded and enclosed the shopping
center, more than doubling its size, and connected it to a free-standing Sears
store, converting the center into a regional enclosed mall containing
approximately 619,000 square feet of GLA, of which approximately 254,000 square
feet of GLA is owned by Sears and Target and approximately 365,000 square feet
of GLA will be Company owned. The Company owned GLA currently contains 58
stores. At December 31, 1995, 67.9% of the Company owned GLA was leased. The
center is currently in its post expansion leasing phase. In order to facilitate
the inclusion of this center as part of the Ramco Acquisition, the Ramco Group
will be entitled to receive additional Units based upon an increase in
annualized cash flow between January 1, 1997 and March 31, 1997. See "-- The
Master Agreement -- Lease Up Property." So-Fro Fabrics and Marianne, which
currently lease approximately 12,110 and 8,480 square feet of GLA, respectively,
at a base rent of $4.50 and $9.00 per square foot, respectively, have filed for
bankruptcy. So-Fro Fabrics has not affirmed or rejected its lease, and Marianne
has rejected its lease. See "-- Risk Factors -- Real Estate Investment Risks --
Bankruptcy and Financial Condition of Tenants."
Kentwood Towne Center. Kentwood Towne Center is located in Kentwood,
Michigan, a suburb of Grand Rapids. The shopping center was first opened in
July, 1989 and was developed by Ramco. The major Anchors in the shopping center
are Target, Builders Square and OfficeMax. The center is a power center
containing approximately 268,000 square feet of GLA, of which approximately
166,000 square feet of GLA will be Company owned. The Company owned GLA
currently contains 18 stores, including the approximately 25,000 square foot
OfficeMax store and the approximately 80,000 square foot Builders Square store.
At December 31, 1995, the Company owned GLA was 100.0% leased. The Company will
acquire a 50%
35
<PAGE> 47
managing general partner interest in the property partnership which owns the
center. See "-- Certain Property Partnership Agreements."
Lake Orion Plaza. Lake Orion Plaza is located in Lake Orion, Michigan, a
suburb of Detroit. The shopping center first opened in March 1977 and was
developed by Ramco. The major Anchors in the shopping center are Kmart and
Farmer Jack Supermarket, which is a subsidiary of A&P. The center is a community
center containing approximately 129,000 square feet of GLA, all of which will be
Company owned. The Company owned GLA currently contains eight stores. At
December 31, 1995, the Company owned GLA was 97.2% leased.
Naples Towne Center. Naples Towne Center is located in Naples, Florida, a
city with a metropolitan population of approximately 170,000. The shopping
center first opened in January 1983 and was developed by Ramco. The major
Anchors in the shopping center are Kmart, Hyde Park Supermarket and Luria's
Catalog Showroom. The center is a community center containing approximately
149,000 square feet of GLA, of which approximately 105,000 square feet of GLA is
owned by Kmart and Hyde Park Supermarket and approximately 44,000 square feet of
GLA will be Company owned. The Company owned GLA currently contains nine stores.
At December 31, 1995, the Company owned GLA was 100.0% leased. Stuart's, which
currently leases approximately 7,375 square feet of GLA at a base rent of $9.00
per square foot, has filed for bankruptcy and has rejected its lease. See
"-- Risk Factors -- Real Estate Investment Risks -- Bankruptcy and Financial
Condition of Tenants."
New Towne Plaza. New Towne Plaza is located in Canton, Michigan, a suburb
of Detroit. The center first opened in November, 1976 and was developed by
Ramco. In 1993 Ramco completely refurbished and expanded the center. The major
Anchors at the shopping center are Kmart and Jo Ann Fabric and Crafts, which was
added to the center as a part of the 1993 expansion. The center is a community
center containing approximately 163,000 square feet of GLA, all of which will be
Company owned. The Company owned GLA currently contains 16 stores. At December
31, 1995, the Company owned GLA was 100.0% leased. In connection with the
acquisition of the center the Company will acquire approximately 3.7 acres of
Development Land which could be used for expansion. Winkelman, which currently
leases approximately 8,800 square feet of GLA at a base rent of $7.71 per square
foot, has filed for bankruptcy and has not affirmed or rejected its lease. See
"-- Risk Factors -- Real Estate Investment Risks -- Bankruptcy and Financial
Condition of Tenants."
OfficeMax Center. The OfficeMax center is located in Toledo, Ohio, a city
with a metropolitan population of approximately 615,000. The OfficeMax center is
adjacent to the North Towne Commons shopping center, which is an Option Property
as described herein. See "-- Excluded/Option Properties -- North Towne Commons."
The center consists of a single user building leased by OfficeMax. The building,
which contains 23,000 square feet of Company owned GLA, was developed by Ramco
in September, 1994. At December 31, 1995, the Company owned GLA was 100% leased.
Oak Brook Square. Oak Brook Square is located in Flint, Michigan, a city
with a metropolitan population of approximately 425,000 located approximately 60
miles north of Detroit. The center first opened in July 1984, and was acquired
by Ramco in June 1989. The major Anchors in the shopping center are T. J. Maxx
and Kids "R" Us, a subsidiary of Toys "R" Us. The center is a community center
containing approximately 140,000 square feet of GLA, all of which will be
Company owned. The Company owned GLA currently contains 22 stores. At December
31, 1995, the Company owned GLA was 94.0% leased. The shopping center is located
directly across from Genessee Valley Mall, the largest enclosed regional mall in
the metropolitan Flint area. El Bee Shoes, which currently leases approximately
4,000 square feet of GLA at a base rent of $11.50 per square foot, has filed for
bankruptcy and has not affirmed or rejected its lease. See "-- Risk
Factors -- Real Estate Investment Risks -- Bankruptcy and Financial Condition of
Tenants."
Roseville Plaza. Roseville Plaza is located in Roseville, Michigan, a
suburb of Detroit. The center was acquired by Ramco in April, 1983, and was
extensively renovated by Ramco during that year. The major Anchors at the
shopping center are Farmer Jack Supermarket (a subsidiary of A&P), Service
Merchandise, and Marshalls. The center is a combination of a strip center,
enclosed mini-mall and three freestanding buildings, and contains approximately
266,000 square feet of GLA, all of which will be Company owned. The
36
<PAGE> 48
Company owned GLA currently contains 28 stores. At December 31, 1995, the
Company owned GLA was 94.0% leased.
Southfield Plaza. Southfield Plaza is located in Southfield, Michigan, a
suburb of Detroit. The center was acquired by Ramco in April 1983, and was
extensively renovated by Ramco during that year. The major Anchors at the
shopping center are Burlington Coat Factory, Marshalls and Service Merchandise.
The shopping center is a community center containing approximately 165,000
square feet of GLA. The Company owned GLA currently contains 14 stores. At
December 31, 1995, the Company owned GLA was 100.0% leased. The center is
connected to a 107,000 square foot retail development anchored by a Farmer Jack
Supermarket which is not owned by Ramco.
Southfield Plaza Expansion. In 1985, Ramco and the party owning the other
portion of Southfield Plaza jointly developed a shopping center containing
approximately 19,000 square feet of GLA adjacent to Southfield Plaza. This
center, which is known as S-12, currently contains 11 stores. At December 31,
1995, the Company owned GLA was 100.0% leased. The Company will acquire a 50%
managing general partner interest in the property partnership which owns the
center. See "-- Certain Property Partnership Agreements."
Spring Meadows Place. Spring Meadows Place is located in Springfield
Township, Ohio, which is a suburb of Toledo. The center first opened in August
1987 and was developed by Ramco. The major Anchors at the shopping center
include Service Merchandise, Marshalls, TJ Maxx, Kroger, Target, Builders Square
and Sam's Wholesale Club. The center is a power center containing approximately
467,000 square feet of GLA, of which approximately 275,000 square feet of GLA is
owned by Service Merchandise, Kroger, Target, Builders Square and Sam's
Wholesale Club and approximately 191,000 square feet of GLA will be Company
owned. The Company owned GLA currently contains 38 stores. At December 31, 1995,
the Company owned GLA was 98.0% leased. El Bee Shoes, which currently leases
approximately 3,360 square feet of GLA at a base rent of $12.00 per square foot,
has filed for bankruptcy and has not affirmed or rejected its lease. See "--
Risk Factors -- Real Estate Investment Risks -- Bankruptcy and Financial
Condition of Tenants."
Spring Meadows Place is in the center of a mixed use development which
includes, in addition to the shopping center, several hotels, a 12 screen
theater complex, and a variety of restaurants.
Tel Twelve Mall. Tel Twelve Mall is located in Southfield, Michigan, a
suburb of Detroit. This enclosed regional mall was originally opened in October
1968, and was acquired by Ramco in 1983. Ramco renovated and expanded the center
in 1984. The center has been expanded to accommodate a 50,000 square foot Media
Play store. The major Anchors in the shopping center are Kmart, Montgomery Ward,
Media Play and Crowley's (which is a local department store chain having 10
stores in the metropolitan Detroit area). The center contains approximately
657,200 square feet of GLA (including the new Media Play store) all of which
will be Company owned. The Company owned GLA contains 77 stores. At December 31,
1995, the Company owned GLA was 97.7% leased. In addition, Ramco has ground
leased a 10.4 acre parcel of land immediately south of the center to Chrysler
Realty Corporation, which is being used as a Chrysler dealership. The ground
lease, which will be acquired by the Company, provides for an annual lease
payment of $420,025 and expires on January 27, 2030. Chrysler has certain
options to purchase the property. The purchase price under such options shall
range from $5,000,000 to the greater of $6,000,000 or fair market value
depending upon when such options are exercised. Marianne and Winkelman, which
currently lease approximately 8,570 and 22,020 square feet of GLA, respectively,
at a base rent of $8.00 and $7.00 per square foot, respectively, have filed for
bankruptcy and have not affirmed or rejected their leases. See "-- Risk
Factors -- Real Estate Investment Risks -- Bankruptcy and Financial Condition of
Tenants."
Troy Towne Center. Troy Towne Center is located in Troy, Ohio, a community
located just north of Dayton, Ohio, a city with a metropolitan population of
approximately 965,000. The center first opened in June, 1990, and was developed
by Ramco. The major Anchors in the shopping center are Wal-Mart, Uhlman's
Department Store (a regional chain with 35 stores) and County Market, a division
of Super Valu Supermarkets. The center is a community center containing
approximately 226,000 square feet of GLA, of which approximately 91,000 square
feet of GLA will be owned by Wal-Mart and approximately 135,000 square feet will
be Company owned. The Company owned GLA currently contains 25 stores. At Decem-
37
<PAGE> 49
ber 31, 1995, the Company owned GLA was 94.4% leased. Wal-Mart is in the process
of expanding its store to its new prototype. El Bee Shoes, which currently
leases approximately 3,890 square feet of GLA at a base rent of $11.00 per
square foot, has filed for bankruptcy and has not affirmed or rejected its
lease. See "-- Risk Factors -- Real Estate Investment Risks -- Bankruptcy and
Financial Condition of Tenants."
West Allis Towne Centre. West Allis Town Centre is located in West Allis,
Wisconsin, a suburb of Milwaukee, Wisconsin, a city with a metropolitan
population of approximately 1,475,000. The center first opened in November 1987
and was developed by Ramco. The major Anchors in the shopping center are Kmart,
Builders Square and Kohl's Supermarket, a division of A&P. The center is a power
center containing approximately 329,000 square feet of GLA, all of which will be
Company owned. The Company owned GLA currently contains 29 stores. At December
31, 1995, the Company owned GLA was 100.0% leased.
West Oaks I; West Oaks II. West Oaks I and West Oaks II are adjacent
shopping centers connected by a common parking lot located in Novi, Michigan, a
suburb of Detroit. West Oaks I was opened in July 1981 and West Oaks II was
opened in June 1987. Both were developed by Ramco. The major Anchors in West
Oaks I include Service Merchandise, Kmart and Circuit City. The major Anchors in
West Oaks II are Builder's Square, Kohl's Department Store, Marshalls, Toys 'R'
Us and Kids 'R' Us. The centers are power centers with a combined GLA of
approximately 569,000 square feet, consisting of approximately 228,000 square
feet of GLA at West Oaks I, all of which will be Company owned, and
approximately 341,000 square feet of GLA at West Oaks II, of which approximately
220,000 square feet of GLA will be owned by Toys 'R' Us, Builders Square and
Kohl and approximately 121,000 square feet of GLA will be Company owned. At
December 31, 1995, the Company owned GLA at West Oaks I was 99.3% leased and the
Company owned GLA at West Oaks II was 100.0% leased. The Company owned GLA
currently contains 47 stores, consisting of 12 stores at West Oaks I and 35
stores at West Oaks II. West Oaks I is the subject of a ground lease. See
"-- Ground Leases." The centers are located directly across from Twelve Oaks
Mall, the primary enclosed super regional mall in the Northwestern sector of the
metropolitan Detroit suburbs. El Bee Shoes and Maternity Limited, which
currently lease approximately 3,780 and 1,030 square feet of GLA at West Oaks
II, respectively, at a base rent of $16.00 and $28.22 per square foot,
respectively, have filed for bankruptcy. El Bee Shoes has not affirmed or
rejected its lease, and Maternity Limited has affirmed its lease and assigned it
to Dan Howard Maternity. See "-- Risk Factors -- Real Estate Investment
Risks -- Bankruptcy and Financial Condition of Tenants."
38
<PAGE> 50
PROPERTY DESCRIPTIONS
The following tables and notes thereto describe the Ramco Properties as of
December 31, 1995:
<TABLE>
<CAPTION>
AVERAGE
% OF BASE RENTAL
YEAR COMPANY REVENUE/
OPENED % OF OWNED BASE RENTAL LEASED YEAR ENDING
OR ACQUIRED/ TOTAL GLA LEASED REVENUE SQ. FT. AS DECEMBER 31,
YEAR OF COMPANY COMPANY AS OF AS OF OF 1994
PROPERTY TYPE OF RENOVATION TOTAL OWNED OWNED DECEMBER 31, DECEMBER 31, DECEMBER 31, PERCENTAGE
NAME PROPERTY OR EXPANSION GLA GLA GLA 1995 1995 1995(1) RENT
- ------------- ---------- ------------ --------- --------- ------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Clinton Community 1979/
Valley Mall Center 1993 156,605 156,605 4.2% 99.9% $ 1,204,820 $ 7.69 $ 0
Clinton Community 1979/
Valley Center N/A
Strip 94,360 44,360 1.2 100.0 422,510 9.52 22,866
Eastridge Power 1990/
Commons Center N/A 271,415 169,506 4.6 98.0 1,170,918 6.91 0
Edgewood Power 1990/
Towne Center 1992
Center 295,029 85,757 2.3 100.0 721,179 8.41 14,304
Ferndale Community 1984/
Plaza Center N/A 30,916 30,916 0.8 100.0 331,561 10.72 0
Fraser Community 1983/
Shopping Center N/A
Center 74,250 74,250 2.0 100.0 341,195 4.60 27,385
Jackson Regional 1990/
Crossing Mall 1991 618,978 364,735 9.8 67.9 1,953,308 5.36 110,612
Kentwood(2) Power 1989/ 268,284 166,375 4.5 100.0 1,329,246 7.99 6,562
Center N/A
Lake Orion Community 1977/
Plaza Center N/A 129,452 129,452 3.5 97.2 533,435 4.12 23,680
Naples Towne Community 1983/
Center Center N/A 148,729 44,152 1.2 100.0 197,078 4.46 26,965
New Towne Community 1976/
Plaza Center 1993 163,404 163,404 4.4 100.0 836,975 5.12 17,351
OfficeMax Single 1994/
Center Tenant N/A 22,930 22,930 0.6 100.0 239,401 10.44 0
Retail
Oak Brook Community 1989/
Square Center N/A 140,282 140,282 3.8 94.0 1,075,162 7.66 1,577
Roseville Power 1983/
Plaza Center 1994 265,877 265,877 7.2 94.0 1,594,833 6.00 37,265
Southfield Community 1983/
Plaza Center 1983 165,445 165,445 4.5 100.0 1,241,388 7.50 0
Southfield Community 1985/
Plaza Center N/A
Expansion(2) 19,410 19,410 0.5 100.0 269,937 13.91 0
Spring Power 1987/
Meadows Center N/A
Place 466,773 191,401 5.2 98.0 1,874,197 9.79 43,978
Tel Twelve Regional 1968/
Mall Mall 1995 657,209 657,209 17.7 97.7 4,305,584 6.55 379,465
Troy Towne Community 1990/
Center Center 1992 226,234 135,313 3.7 94.4 1,067,870 7.89 9,284
West Allis Power 1987/ 329,407 329,407 8.9 100.0 2,272,930 6.90 13,599
Center N/A
West Oaks I Power 1981/ 227,863 227,863 6.1 99.3 762,996 3.35 7,838
Center N/A
West Oaks II Power 1987/ 341,041 120,944 3.3 100.0 1,492,919 12.34 28,633
Center N/A
--------- --------- ------- ----- ------------ ------ ------------
Total 5,113,893 3,705,593 100.0% 95.2% $25,239,442 $ 6.81 $771,364
======== ======== ======= ========== ========== ========== ==========
</TABLE>
- ---------------
(1) The calculation of total average base rental revenue was determined by
taking the total base rental revenue as of December 31, 1995, which was
$25,239,442, and dividing such amount by the occupied Company owned GLA.
(2) 50% general partnership interest.
39
<PAGE> 51
TENANT INFORMATION
The following table sets forth, as of December 31, 1995 information
regarding space leased to tenants which, in each case, individually account for
more than 1% of total base rental revenue from the Ramco Properties.
<TABLE>
<CAPTION>
% OF
% OF BASE RENTAL BASE RENTAL
TOTAL AGGREGATE TOTAL REVENUE REVENUE
NUMBER GLA LEASED COMPANY AS OF AS OF
TENANT OF STORES BY TENANT OWNED GLA DECEMBER 31, 1995 DECEMBER 31, 1995
- ----------------------------- ---------- ---------- --------- ----------------------- -----------------
<S> <C> <C> <C> <C> <C>
Kmart........................ 5 474,817 12.8% $ 1,391,214 5.5%
Builders Square.............. 2 160,160 4.3 945,087 3.7
Montgomery Ward.............. 2 263,338 7.1 921,138 3.7
OfficeMax.................... 4 93,323 2.5 905,462 3.6
Marshalls.................... 5 109,789 3.0 688,925 2.7
Service Merchandise.......... 3 158,348 4.3 688,024 2.7
Fashion Bug.................. 7 65,660 1.8 491,453 2.0
MC Sporting Goods............ 5 69,808 1.9 478,456 1.9
T J Maxx..................... 3 75,011 2.0 474,029 1.9
Kohls........................ 1 49,995 1.4 465,960 1.9
Famous Footwear.............. 7 49,596 1.3 444,633 1.8
Chrysler..................... 1 41,752 1.1 411,795(1) 1.6
JoAnn Fabric................. 5 62,422 1.7 385,015 1.5
A & P........................ 2 69,594 1.9 380,464 1.5
Half Off Cards............... 5 48,182 1.3 396,755 1.6
Marianne/Winkelman/Stuart's.. 5 55,238 1.5 327,524 1.3
Office Depot................. 1 27,117 0.7 332,183 1.3
Country Buffet............... 3 29,739 0.8 317,968 1.3
Gap.......................... 2 24,395 0.7 315,878 1.3
Burlington Coat Factory...... 1 49,556 1.3 297,312 1.2
Dots......................... 8 33,256 0.9 294,477 1.2
Super Value Market........... 1 40,000 1.1 270,000 1.1
Radio Shack.................. 9 20,418 0.6 252,487 1.0
---------- --------- ----------- -----
Total.............. 2,071,514 56.0 $11,876,239 47.1%
========= ========= =========== =====
</TABLE>
- ---------------
(1) Includes use of 10.4 acres at the Tel Twelve Mall.
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<PAGE> 52
The following table sets forth, as of December 31, 1995, the total GLA
leased to Anchors, retail tenants, and available space, in the aggregate, of the
Ramco Properties:
<TABLE>
<CAPTION>
% OF
AGGREGATE TOTAL BASE % OF
GLA COMPANY RENTAL REVENUE BASE RENTAL
LEASED BY OWNED AS OF REVENUE AS OF
TYPE OF TENANT TENANT GLA DECEMBER 31, 1995 DECEMBER 31, 1995
----------------------------- --------- ------- ----------------- -----------------
<S> <C> <C> <C> <C>
Anchor....................... 1,879,978 50.7 % $ 8,975,900 35.6%
Retail (non-Anchor).......... 1,649,176 44.5 16,052,701 63.6
Available.................... 176,439 4.8 210,841 .8
--------- ----- ----------- -----
Total.............. 3,705,593 100.0 % $25,239,442 100.0%
========= ===== =========== =====
</TABLE>
The following table sets forth as of December 31, 1995, the total GLA
leased to national, regional and local tenants in the aggregate at the Ramco
Properties.
<TABLE>
<CAPTION>
% OF
TOTAL BASE % OF
AGGREGATE COMPANY RENTAL REVENUE BASE RENTAL
GLA LEASED OWNED AS OF REVENUE AS OF
TYPE OF TENANT BY TENANT GLA DECEMBER 31, 1995 DECEMBER 31, 1995
- ------------------------------------ ---------- ------- ------------------ ------------------
<S> <C> <C> <C> <C>
National............................ 2,574,795 69.5% $ 16,605,921 65.8%
Regional............................ 437,632 11.8 3,372,030 13.4
Local............................... 516,727 13.9 5,050,650 20.0
Vacant.............................. 176,439 4.8 210,841 .8
--------- ----- ----------- -----
Total..................... 3,705,593 100.0% $ 25,239,442 100.0%
========= ===== =========== =====
</TABLE>
The following table sets forth lease expirations for the next five years at
the Ramco Properties assuming that no renewal options are exercised:
<TABLE>
<CAPTION>
% OF
LEASED TOTAL AVERAGE
COMPANY COMPANY BASE RENTAL % OF
OWNED GLA OWNED GLA BASE RENTAL REVENUE BASE RENTAL
EXPIRING REPRESENTED REVENUE AS OF PER SQ. FT. AS OF REVENUE AS OF
NO. OF (IN BY DECEMBER 31, 1995 DECEMBER 31, 1995 DECEMBER 31, 1995
LEASE LEASES SQUARE EXPIRING UNDER EXPIRING UNDER EXPIRING REPRESENTED BY
EXPIRATION EXPIRING FEET) LEASES LEASES LEASES EXPIRING LEASES
- ------------------- -------- --------- --------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1996............. 45 170,065 4.6% $ 1,388,934 $8.17 5.5%
1997............. 77 386,535 10.4 3,019,031 7.81 12.0
1998............. 95 492,347 13.3 4,261,302 8.66 16.9
1999............. 50 335,053 9.0 2,353,911 7.03 9.3
2000............. 68 346,978 9.4 3,124,796 9.01 12.4
</TABLE>
RENTAL REVENUES
A substantial portion of income from the Ramco Properties consists of rent
received under long-term leases. In addition, the property owner is entitled to
recover from tenants of a share of the real estate taxes, insurance, utilities
and common area maintenance of the respective shopping centers plus an
administrative fee. Substantially all of the leases at the Ramco Properties
provide for the reimbursement of certain capital costs, including roof and
parking lot repairs. A substantial number of leases at the Ramco Properties also
provide for the payment of additional rent calculated as a percentage of the
tenant's gross sales above predetermined thresholds. For the year ended December
31, 1994, recoveries from tenants, including administration charges, as a
percentage of property operating and maintenance expenses and real estate taxes
equalled 101%.
41
<PAGE> 53
The following table compares, by Ramco Property, the average base rental
rate per square foot of Company owned GLA as of December 31, 1995, leased by:
(i) national, regional and local tenants, and (ii) Anchors and small shops.
<TABLE>
<CAPTION>
TENANT SIZE
TENANT TYPE -----------------
-------------------------------- SMALL
SHOPPING CENTER NATIONAL REGIONAL LOCAL ANCHOR SHOPS
- --------------------------------------------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Clinton Valley Mall.......................... $ 7.76 $10.50 $ 7.04 $ 6.62 $10.15
Clinton Valley Strip......................... 6.54 12.17 11.94 n/a 9.52
Eastridge Commons............................ 6.32 8.48 9.29 5.82 10.32
Edgewood Towne Center........................ 8.72 7.91 7.95 n/a 8.41
Ferndale Plaza............................... 10.97 9.70 9.89 n/a 10.72
Fraser Shopping Center....................... 3.06 9.20 5.01 4.01 5.00
Jackson Crossing............................. 6.82 8.56 9.71 n/a 7.86
Kentwood Towne Center........................ 7.48 11.37 9.99 5.99 9.85
Lake Orion Plaza............................. 3.56 14.11 10.72 3.56 11.08
Naples Towne Center.......................... 5.89 1.60 9.47 n/a 4.46
New Towne Plaza.............................. 4.57 10.50 9.39 3.03 8.09
OfficeMax Center............................. 10.44 n/a n/a 10.44 n/a
Oak Brook Square............................. 7.88 10.68 10.35 6.13 9.56
Roseville Plaza.............................. 6.10 6.72 7.33 6.06 6.65
Southfield Plaza............................. 6.63 n/a 14.38 6.01 12.64
Southfield Plaza Expansion................... 16.00 16.25 12.72 n/a 13.91
Spring Meadows Place......................... 8.96 11.68 12.36 6.53 11.23
Tel Twelve Mall.............................. 5.70 21.75 9.21 3.23 15.42
Troy Towne Center............................ 7.93 7.43 10.78 6.97 9.56
West Allis Towne Centre...................... 7.14 5.95 10.53 6.50 7.67
West Oaks I.................................. 2.53 2.71 18.52 1.76 7.11
West Oaks II................................. 11.05 16.66 14.47 7.00 13.74
</TABLE>
ADDITIONAL INFORMATION WITH RESPECT TO RAMCO AND THE RAMCO PROPERTIES
General
Other than ordinary routine litigation incidental to their businesses,
neither Ramco nor any of the Ramco Properties is a party to or subject to any
material pending legal proceedings. The common stock of Ramco is not traded on
any securities exchange; all of such stock is owned by the five Ramco
Principals. No dividends have been paid on the Ramco common stock. During the
last two fiscal years, Ramco has had no changes in or disagreements with
accountants on accounting and financial disclosure of the type required to be
disclosed by Item 304 of Regulation S-K under the Securities Act of 1933, as
amended.
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Ramco Properties
Comparison of Nine Months Ended September 30, 1995 to Nine Months Ended
September 30, 1994.
Revenues increased $.3 million, or 1%, to $29.5 million for the nine months
ended September 30, 1995 from $29.2 million for the nine months ended September
30, 1994. The increase was attributable to the positive impact of contractual
rent increases and new tenant leases, which more than offset the effect of
leases expired or terminated.
Operating expenses were $12.6 million for the nine months ended September
30, 1995 as compared to $12.5 million for the comparable period in 1994.
42
<PAGE> 54
Revenues in excess of certain expenses increased $.3 million, or
approximately 2%, to approximately $17 million for the nine months ended
September 30, 1995 from the nine-month period ended September 30, 1994 due
primarily to the revenue increases discussed above.
Comparison of Year Ended December 31, 1994 to Year Ended December 31, 1993.
Revenues increased $1.4 million, or 3.8%, to $39.1 million for the year
ended December 31, 1994 from $37.7 million for the year ended December 31, 1993.
Approximately $1.1 million of the increase was attributable to increases in
minimum rents, of which $.6 million was due to the initial leasing of space at
centers under development or expansion, including Jackson Crossing, West Allis
Towne Centre and New Towne Plaza. The balance of the minimum rent increase of
$.5 million was due to continued improvements in rental rates for the releasing
of space at existing centers. Recoveries from tenants increased $.7 million due
in large part to improved occupancy levels at the development centers, offset in
part by decreases of $.3 million in real estate tax recovery caused by lower
real estate tax expenses.
Certain expenses increased $.2 million, or 1%, to $16.7 million in 1994
from $16.5 million in 1993. Higher property operating and maintenance expenses
were caused primarily by increased utility and maintenance costs were offset in
part by lower real estate taxes due to the passing of Proposal A in Michigan,
which served to reduce real estate tax expenses.
Revenues in excess of certain expenses increased $1.2 million, or
approximately 6.0%, to $22.4 million in 1994 from $21.2 million in 1993 for the
reasons stated above.
Comparison of Year Ended December 31, 1993 to Year Ended December 31, 1992.
Total revenue increased $3.3 million, or 9.5%, to $37.7 million for the
year ended December 31, 1993. Increases in minimum rents were $1.1 million, of
which $.6 million was provided from shopping centers under development.
Recoveries from tenants increased $2.1 million, with $1.0 million of the
increase due to higher utility recoveries attributable to the full year impact
of implementing or expanding electric resale programs at seven of the shopping
centers during 1992. Recoveries from tenants also increased due to both higher
property operating costs and higher recoveries at centers achieving improved
occupancy levels.
Operating expenses increased $1.2 million, or 8%, to $16.5 million in 1993
from $15.3 million in 1992. Higher property operating costs were caused by
higher utility expenses of $.7 million due to the full year impact of the
electric resale program implementation at seven shopping centers with the
balance of the increase due primarily to higher property maintenance costs.
Revenues in excess of certain expenses increased $2.0 million, or 10%, from
$19.2 million to $21.2 million, for the reasons stated above.
Ramco
Comparison of the Nine Months Ended September 30, 1995 to Nine Months Ended
September 30, 1994.
Revenues increased $.6 million, or 17.0%, to $4.3 million for the
nine-month period ended September 30, 1995 from $3.7 million for the nine-month
period ended September 30, 1994. The majority of the increase was due to
increased leasing and brokerage commission revenue in 1995.
Operating expenses increased $.25 million, or 8.0%, to $3.3 million for the
nine months ended September 30, 1995 from the nine-month period ended September
30, 1994 due primarily to increased salaries and employee benefit costs.
Comparison of Year Ended December 31, 1994 to Year Ended December 31, 1993.
Revenues increased $.8 million, or 18%, to $5.2 million in the year ended
December 31, 1994 from $4.4 million in the year ended December 31, 1993. The
increase was largely attributable to increases in leasing fees due to higher
leasing activity and development fees due to the development of three shopping
centers in 1994.
43
<PAGE> 55
Expenses increased $.3 million, or 8%, to $4.1 million in 1994 from $3.8
million in 1993. The increase was primarily due to increased salary and employee
benefit expenses.
Comparison of Year Ended December 31, 1993 to Year Ended December 31, 1992.
Revenues decreased $.15 million, or 3.25%, to $4.4 million for the year
ended December 31, 1993. This decrease was due to lower leasing fees and
development fees caused by a reduction in development activities, offset in part
by increases in cost reimbursements.
Operating expenses decreased $.15 million, or 3.5%, to $3.8 million for the
year ended December 31, 1993. This decrease was primarily a result of reduced
interest expense due to the repayments of advances from shareholders and
capitalized lease obligations.
Seasonal Nature of Shopping Center Industry
The shopping center industry is seasonal in nature. Tenant sales and
occupancy are highest in the fourth quarter due to the Christmas selling season.
Back-to-school and Easter events also result in sales fluctuations.
FUTURE OPERATIONS
Business Objectives and Strategy
General. The Company's business objectives and operating strategy
following consummation of the Ramco Acquisition will be to increase cash
available for distribution per share. The Company 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
re-leasing of available space at higher rental levels, and (iii) the selective
renovation of the Properties. The Company intends to achieve external growth
through the development of new shopping center properties, the selective
acquisition of shopping center properties and through the expansion and
redevelopment of existing Properties.
Operations and Management. Ramco will perform all property management
functions for the Properties. Ramco has more than 130 full-time employees
devoted exclusively to property management, including on-site personnel.
Following the Ramco Acquisition, property management efforts will continue to be
directed toward improving tenant sales and rents by continually repositioning
the centers. Ramco strives to meet the needs of its tenants in the areas of
promotion, marketing and ongoing management of its properties and seeks to bring
together a sufficient critical mass of complementary tenants. As part of its
property management efforts, Ramco monitors tenant mix, store size, sales
results and store locations, and works closely with tenants to improve the
overall performance of their stores. Ramco seeks to anticipate trends in the
retailing industry and introduce new retail names and concepts into its shopping
center properties in response to these trends.
Ramco's Leasing/Development Department consists of over 15 full-time
professionals. The Leasing Department, headed by Michael Ward, and the
Development Department, headed by Richard Gershenson, are responsible for
maintaining relationships with tenants in order to promote opportunities for new
development and expansion.
Development. Ramco has more than 40 years' experience as a shopping center
developer and operator, and has developed over 70 shopping center properties
throughout its history. The Ramco Principals, who will enter into three-year
employment agreements with the Company, have an average of 25 years' experience
in the shopping center industry. Ramco currently has 15 full-time employees
devoted to property development, redevelopment and leasing and maintains
in-house capability to bring a development project from conceptualization to
completion. Ramco developed or substantially redeveloped all but one of the
Ramco Properties.
Upon consummation of the Ramco Acquisition, the Company will acquire
several development opportunities, which are currently in different stages of
predevelopment activity and approval processes. The development opportunities
include option agreements, purchase agreements, leases in various stages of
negotiation, site plans, building permits, due diligence materials, governmental
approvals, and other assets.
44
<PAGE> 56
The following sets forth certain information concerning those development
opportunities which have proceeded at least to the stage of having signed
agreements for the acquisition of the land which is the subject of the
particular development opportunity.
- The Company has acquired approximately 26 acres of land located
immediately west of Jackson Crossing in Jackson, Michigan. The shopping
center under development upon such land is expected to contain at least
220,000 square feet of GLA. Leases with Lowe's Home Improvement Center
(approximately 130,000 square feet), OfficeMax (23,000 square feet) and Ben
Franklin Crafts (approximately 18,000 square feet) have been executed.
Ramco expects to open the center in the summer of 1996.
- The Company will hold options to acquire approximately 48 acres
located in Springfield Township, Ohio, upon which the Company anticipates
developing a shopping center of approximately 320,000 square feet including
six major tenants. Ramco is currently in discussion with potential users of
such space including a home improvements retailer, a home furnishings
retailer, an entertainment and media retailer, a pet food retailer, a
supermarket, and an electronics retailer. These options expire on September
30, 1996.
- The Company will hold options to acquire land located in Novi,
Michigan upon which the Company anticipates developing a shopping center
(West Oaks III) which could include over 500,000 square feet of retail
space. The new development would become part of the West Oaks complex.
These options expire on September 15, 1996.
At the closing of the Ramco Acquisition, and to the extent funds are
available under the Credit Facility described below under "Mortgage Debt -- The
Credit Facility," affiliates of the Ramco Group will be reimbursed for the costs
incurred to date in connection with the development opportunities acquired by
the Company from such affiliate of Ramco, which costs include consideration paid
to obtain or extend options to acquire real property, and in the case of the
real property acquired in Jackson, Michigan described above and one other real
property, consideration paid to acquire such real property. As of September 30,
1995, these costs were approximately $4,979,000. Thereafter, the Ramco
Principals will conduct all their retail property development activities through
the Company.
The decision as to which, if any, of the development opportunities to
pursue and the timing and scope of such developments are business judgments to
be made by the Company. The Company believes that these development
opportunities may represent attractive opportunities for growth of its cash
available for distribution. There can be no assurance that, even though the
Company will own the development opportunities, it will ultimately succeed in
obtaining the land rights, zoning and other governmental approvals, leasing
commitments, and other approvals and commitments necessary for an economically
successful development. Similarly, although the Company is expected to have
available financing under the Credit Facility, there can be no assurance that
the Company will have the financing required to develop and/or acquire all of
these properties, or that it will decide to proceed with the development and/or
acquisition of any particular property. See "-- Risk Factors -- Risk of
Development, Construction and Acquisition Activities."
Expansions and Redevelopment. Ramco is currently engaged in the following
expansions and redevelopments of its Properties. No assurance can be given,
however, that any of such expansion and redevelopments will occur after
consummation of the Ramco Acquisition.
- Troy Towne Center located in Troy, Ohio will be expanded in 1996 by
the inclusion of approximately 21,050 square foot Sears Paint & Hardware
store. It is anticipated that construction will commence in 1996 and the
tenant will take occupancy in the third quarter of 1996.
- Spring Meadows Shopping Center located in Springfield Township, Ohio
will be expanded by increasing the existing TJ Maxx store of 25,000 square
feet by an additional 7,000 square feet. It is anticipated that the
expansion will commence in the first half of 1996.
45
<PAGE> 57
- The Company is renovating the entire shopping center at Roseville
Plaza pursuant to which the front of the shopping center will be redesigned
and a new facade will be installed. Construction has commenced and will be
completed in 1996.
As part of its ongoing business strategy, the Company will in the future
seek to expand and redevelop existing Properties in its shopping center
portfolio, as well as newly acquired properties, depending on tenant demands and
market conditions.
Acquisitions. Following the Ramco Acquisition, the Company's strategy will
be to attempt to take advantage of attractive purchase opportunities by
acquiring additional shopping center properties in underserved, attractive
and/or expanding markets. The Acquisition Department will be headed by Bruce
Gershenson. The Company expects that it will leverage Ramco's regional presence
and expertise by focusing new property acquisitions in the midwestern United
States generally, and Michigan and Ohio in particular.
Following the Ramco Acquisition, the Company will also seek to acquire
other strategically located, quality shopping centers that (i) have leases at
rental rates below market rates, (ii) have potential for rental and/or occupancy
increases or (iii) offer cash flow growth or capital appreciation potential
where the Company's financial strength, relationships with retail companies or
expansion or redevelopment capabilities can enhance value, and provide
anticipated total returns that will increase the Company's cash available for
distribution per share. The Company believes that its acquisition of Ramco's
substantial in-house redevelopment and expansion capabilities provide it with
opportunities to acquire additional shopping center properties that may not
necessarily be attractive to other owners. The Company will thus seek
acquisitions that will benefit from expansions or renovations.
Line of Credit. Initially, the Company expects to fund future
acquisitions, developments, expansions and redevelopments by accessing its
unfunded borrowing capacity under the Credit Facility. See "-- Mortgage
Debt -- The Credit Facility."
MORTGAGE DEBT
On a pro forma basis as of December 31, 1995, after giving effect to the
Ramco Acquisition and the application of the RPS Cash to the Company as
described in "-- The Master Agreement -- Use of Cash," the combined total
indebtedness of the Company shown on the Company's consolidated financial
statements would be approximately $124,080,000. Of that amount, $106,992,000 is
associated with fixed rate debt and $17,088,000 is associated with floating rate
debt. Total indebtedness includes the Company's pro rata share (50% in each
case) of the debt on Kentwood Towne Center and Southfield Plaza Expansion and
$4,979,000 of debt related to costs incurred by the Ramco Group in connection
with the development of opportunities acquired by the Operating Partnership. See
"-- Credit Facility" below. As of December 31, 1995, the Company's share of the
debt encumbering Kentwood Towne Center was approximately $5,571,000, and
Southfield Plaza Expansion was approximately $887,500.
The Company's pro forma mortgage debt as of December 31, 1995, including
its 50% share of the debt on Kentwood Towne Center and Southfield Plaza
Expansion, will have principal maturities (including regularly scheduled
amortization) as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1996........................................... $ 906
1997........................................... 1,951
1998........................................... 13,996
1999........................................... 2,118
2000........................................... 7,521
Thereafter..................................... 97,588
--------
$124,080
========
</TABLE>
The floating rate debt secured by Oakbrook Plaza is evidenced by tax free
bonds, which, as of December 31, 1995, accrue interest at the rate of 5.7% per
annum. The interest rate on such debt is 75% of the
46
<PAGE> 58
rate of new issue long-term Capital A rated utility bonds as reported by Salomon
Brothers. The rate is adjusted quarterly. Although there are no current plans to
pursue an interest rate cap agreement to provide an interest rate ceiling, the
Company may consider doing so in the future or entering into other interest rate
protection agreements if appropriate with respect to such floating rate
indebtedness to reduce exposure to increases in interest rates on such debt. The
Company may also choose to incur floating rate debt in the future.
While a portion of the Company's indebtedness will be existing debt
encumbering certain of the Ramco Properties, a majority of the debt will be
incurred simultaneously with the date of the closing of the Ramco Acquisition,
by means of a mortgage loan made by an insurance company. See "-- The Mortgage
Loans." On a pro forma basis at December 31, 1995, after giving effect to the
Ramco Acquisition and the application of the RPS Cash to the Company, the
Company would have a ratio of debt-to-total market capitalization (i.e., the
aggregate of the market value of all issued and outstanding shares and Units
plus the total debt of the Company, including the Company's pro rata share of
the debt on Kentwood Towne Center and Southfield Plaza Expansion) of
approximately 45%. The debt-to-total market capitalization ratio is based upon
an assumed per share price of $16.00 which may differ from the actual trading
price of the shares. Because the ratio will ultimately be based on the market
value of the Company's equity, it will fluctuate with changes in the price of
the shares.
The following table sets forth certain information regarding the mortgage
indebtedness encumbering the Ramco Properties which will remain in place after
the Ramco Acquisition, including those Ramco Properties in which the Company
will have less than a 100% interest. All of the mortgage indebtedness will be
nonrecourse to the Company, subject to certain limited exceptions including
fraud, waste, material misrepresentation, environmental liabilities and misuse
of casualty and condemnation proceeds. The information set forth below is on a
pro forma basis as of December 31, 1995, after giving effect to the Ramco
Acquisition, the application of the RPS Cash, and the Mortgage Loans described
below.
MORTGAGE INDEBTEDNESS OUTSTANDING AFTER RAMCO ACQUISITION
<TABLE>
<CAPTION>
ANNUAL BALANCE EARLIEST
ANNUAL PRINCIPAL DEBT DUE ON DATE ON
INTEREST BALANCE SERVICE MATURITY MATURITY WHICH DEBT
RATE (000'S)(1) (000'S) DATE (000'S) CAN BE PREPAID
--------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Oak Brook Square........... 5.7%(2) $ 7,000 $ 399(2) 1/01/10 $ 7,000 Any Time
West Oaks II............... 7.75(3) 8,669 1,090 1/01/06 4,344 Any Time
Spring Meadows Place....... 7.75(4) 7,564 951 1/01/06 3,793 Any Time
Spring Meadows Place....... 8.75 1,931 197 5/31/98 1,855 8/1/96
Southfield Plaza
Expansion(5)(6).......... 8.00 887 89 12/01/95 0 Any Time
Kentwood Towne Center(5)... 9.375 5,571 566 4/15/00 5,342 Any Time
The Mortgage Loans(7)...... 8.28 78,000 7,399(7) 1/10/06 65,492 1/10/01
7.77 4,370 397 1/10/06 3,628 1/10/01
The Credit Facility(8)..... 7.75 10,088 782 4/29/99(8) 10,088 Any Time
-------- -------
Total............ $124,080 $ 11,870
======== =======
</TABLE>
- ---------------
(1) All principal balances are as of December 31, 1995, except for (i) the
Mortgage Loans, for which the principal balances are those represented by
the commitment described below under "-- The Mortgage Loans" and (ii) the
Credit Facility, for which the principal balance is that anticipated to be
drawn down as of the closing of the Ramco Acquisition. See "-- The Credit
Facility" below.
(2) Interest rate as of December 31, 1995. The outstanding mortgage indebtedness
bears interest at a floating rate per annum equal to 75% of the rate of new
issue long-term Capital A rated utility bonds as reported by Salomon
Brothers.
(3) The Company has reached an agreement in principle with the existing lender
to refinance the existing loan, less a principal paydown of $773,000, for a
term of 10 years with an interest rate of 1.75% over 10-year United States
Treasury Bonds. At the time of such agreement in principle, the effective
interest rate was 7.75%. Principal will amortize over a 20 year period. The
closing of this refinancing is a condition to the closing of the Ramco
Acquisition.
47
<PAGE> 59
(4) The Company has reached an agreement in principle with the existing lender
to refinance the existing loan, less a principal paydown of $4,311,000, for
a term of 10 years with an interest rate of 1.75% over 10-year United States
Treasury Bonds. At the time of such agreement in principle the effective
interest rate was 7.75%. Principal will amortize over a 20 year period. The
closing of this refinancing is a condition to the closing of the Ramco
Acquisition.
(5) Represents the Company's pro rata share of the indebtedness (50%).
(6) Prior to the closing of the Ramco Acquisition, Ramco is obligated to
refinance the debt on Southfield Plaza Expansion on the following terms: (i)
the principal amount of the loan shall not be more than $1,775,000, (ii) the
loan shall have a term of 20 years (subject to a lender call right at the
end of 10 years), (iii) the loan will bear interest during its first 10
years at a fixed rate of 7.5% per annum and beginning with the 11th year,
the interest rate will change every 12 months to .375% above the Moody's A
Corporate Bond Index Daily Rate as of five business days prior to the date
the rate adjusts, and (iv) the loan will amortize principal over a 20 year
period. Ramco has advised the Company that the holder of the Southfield
Plaza Expansion note has not declared the note to be in default and has
indicated that it will continue to unofficially extend the maturity date of
such note until the pending refinancing of Southfield Plaza Expansion can be
completed as described in this note (6).
(7) Pursuant to the terms of the Mortgage Loans, as more fully described below,
(i) the aggregate amount of indebtedness shall be $82,370,000, which shall
include (x) a $78,000,000 loan that will bear interest at a fixed rate of
8.28% per annum and require monthly payments of $538,200 representing
interest only through December 31, 1996 and thereafter will require monthly
payments of $616,556 representing interest and amortization of principal
over a 25 year period, and (y) a $4,370,000 loan that will bear interest at
a fixed rate of 7.77% per annum and require monthly payments of $28,296
representing interest only through December 31, 1996 and thereafter will
require monthly payments of $33,065 representing interest and the
amortization of principal over a 25 year period, (ii) the aggregate
indebtedness will be cross-collateralized by Tel Twelve Mall, Eastridge
Commons, Southfield Plaza, Roseville Plaza, New Towne Plaza, Clinton Valley
Mall, Lake Orion Plaza, West Oaks I and Jackson Crossing, and (iii) the
Mortgage Loans will mature 10 years after the closing of the Ramco
Acquisition at which time balloon payments of $65,492,000 and $3,628,000,
respectively, will be due and payable.
(8) The Credit Facility will mature three years from the closing thereof. The
Company expects to utilize the Credit Facility to fund (i) the reduction in
outstanding loan amounts for West Oaks II and Spring Meadows Place discussed
in notes (3) and (4) above ($5,109,000), and (ii) the costs to date by the
Ramco Group in connection with the development opportunities to be acquired
by the Operating Partnership ($4,979,000). The floating interest rate is the
reserve adjusted Eurodollar rate + 1.75%, which is anticipated not to exceed
7.75% at the closing of the Credit Facility.
48
<PAGE> 60
The following table sets forth certain information regarding the mortgage
indebtedness encumbering the Ramco Properties that will be repaid in connection
with the Ramco Acquisition.
INDEBTEDNESS BEING REPAID OR REFINANCED UPON CLOSING
OF RAMCO ACQUISITION
<TABLE>
<CAPTION>
ANNUAL 12/31/95
INTEREST MATURITY PRINCIPAL
PROPERTY RATE DATE BALANCE
- -------------------------------------------------- -------------- --------- ------------
<S> <C> <C> <C>
Tel Twelve Mall................................... 8.28% 1/10/06 $ 34,000,000
Prime + 1% 9/15/96 37,491
Fraser Shopping Center(1)......................... Prime + 1% 3/31/96 2,171,417
Eastridge Commons................................. 8.28% 1/10/06 6,800,000
Prime + 1% 12/26/00 674,000
Naples Towne Center(1)............................ Prime + 1% 3/31/96 938,650
Troy Towne Center................................. Treas. + 4.25% 8/31/96 7,104,288
West Allis Shopping Center(1)..................... Prime + 1% 3/31/96 14,310,000
West Oaks I....................................... 7.77% 1/10/06 5,000,000
West Oaks II...................................... 10.0% 11/1/01 9,441,892
Spring Meadows Place.............................. 9.5% 5/31/98 11,874,769
New Towne Plaza................................... Prime + 1% 12/26/00 1,588,000
8.28% 1/10/06 4,705,000
Ferndale Plaza.................................... 9.75% 6/01/97 1,759,879
Clinton Valley Strip Center....................... 10.125% 11/15/02 1,616,656
Oak Brook Square(1)............................... Prime + 1% 3/31/96 1,244,600
Clinton Valley Mall(1)............................ 8.28% 1/10/06 7,300,000
Prime + 1% 12/26/98 400,000
Prime + .5% 4/1/96 151,308
9.0% 9/02/98 198,350
Lake Orion Plaza.................................. 8.28% 1/10/06 2,950,000
Prime + 1% 12/26/00 1,431,000
Jackson Crossing.................................. Prime + 1.5% 12/31/96 25,106,215
Prime + 1% 9/15/96 21,226
Edgewood Towne Center............................. 8.28% 1/10/06 4,215,000
OfficeMax Center.................................. Prime + .75% 12/31/96 1,950,000
Roseville Plaza................................... 8.28% 1/10/06 9,850,000
Prime + 1% 12/26/00 905,000
Southfield Plaza.................................. 8.28% 1/10/06 7,550,000
Unsecured Ramco Group Debt........................ Prime Demand 3,200,000
------------
Total Ramco Debt to be Refinanced or Repaid....... $168,494,741
===========
</TABLE>
- ---------------
(1) With respect to indebtedness having a maturity date of March 31, 1996
or April 1, 1996 (the principal balance of which was $18,815,975 as of December
31, 1995), Ramco has advised the Company that it has been successful in
obtaining extensions of prior maturity dates of such loans in the past and they
anticipate that current maturity dates will continue to be extended, if
necessary, pending the consummation of the Ramco Acquisition. No assurance can
be given, however, that the respective holders of such notes will extend the
maturity dates thereof if the Ramco Acquisition has not closed prior to such
maturities.
Ramco Preclosing Loans. In December, 1995, the owners of certain of the
Ramco Properties closed a series of mortgage loans (the "Preclosing Loans") with
The Lincoln National Life Insurance Company ("Lincoln"), the insurance company
which is making the Mortgage Loans (as defined and described below under
"-- Mortgage Debt") to the Company. Each Preclosing Loan was secured by two
separate promissory notes. Certain of the Preclosing Loans were cross
collateralized and cross defaulted. Proceeds of the
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<PAGE> 61
Preclosing Loans were used to pay off the existing debt encumbering each of the
properties encumbered by the Preclosing Loans.
With the exception of the loans made with respect to West Oaks I, the
interest rate for all loans was 8.28%. The interest rate for the West Oaks I
loan was 7.77%. All loans have a ten year term. The first set of notes amortize
principal over a 20 year term, and the second set amortize principal over a 15
year term. The Ramco Principals personally and unconditionally guaranteed
payment of certain amounts of the Preclosing Loans, which guaranty reduces on a
prorata basis as the loan balances are reduced.
In connection with the closing of the Preclosing Loans, Lincoln agreed
that, on the terms set forth in this Proxy Statement, upon consummation of the
Contemplated Transactions, Lincoln will fund the Mortgage Loans, the proceeds of
which will be used to pay off the Preclosing Loans.
The following chart sets forth certain information about the Preclosing
Loans:
<TABLE>
<CAPTION>
AGGREGATE LOAN NO. 1 LOAN NO. 2
PROPERTY PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT GUARANTY AMOUNT
- ----------------------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Tel Twelve Mall.............. $ 34,000,000 $ 32,000,000 $2,000,000 $ 2,000,000
Eastridge Commons............ 6,800,000 6,050,000 750,000 750,000
Edgewood Towne Center........ 4,215,000 3,900,000 315,000 315,000
Lake Orion Plaza............. 2,950,000 2,621,500 328,500 328,500
New Towne Plaza.............. 4,705,000 4,463,250 241,750 241,750
Southfield Plaza............. 7,550,000 6,550,500 999,500 999,500
Roseville Plaza.............. 9,850,000 8,338,000 1,512,000 1,512,000
Clinton Valley Mall.......... 7,300,000 6,187,500 1,112,500 1,112,500
West Oaks I.................. 5,000,000 4,370,000 630,000 630,000
----------- ----------- ---------- ----------
Total.............. $ 82,370,000 $ 74,480,750 $7,889,250 $ 7,889,250
=========== =========== ========== ==========
</TABLE>
The Mortgage Loans. The Company has obtained a commitment for two mortgage
loans (together, the "Mortgage Loans") from Lincoln to borrow an aggregate of
$82,370,000 (consisting of a $78,000,000 loan and a $4,370,000 loan), the
proceeds of which will principally be used to retire the remaining indebtedness
on the Ramco Properties set forth above after the application of the RPS Cash to
the pay down of such indebtedness. The commitment provides that payment of
principal and interest on the Mortgage Loans will be cross-collateralized by,
among other things, a first mortgage lien on the following Ramco Properties: Tel
Twelve Mall, Eastridge Commons, Southfield Plaza, Roseville Plaza, New Towne
Plaza, Clinton Valley Mall, Lake Orion Plaza, West Oaks I and Jackson Crossing.
The Mortgage Loans will be nonrecourse loans, subject to certain limited
exceptions including the following: (i) security deposits of tenants held by the
borrower; (ii) rents collected for more than one month in advance; (iii) rents
or other income collected after a default and not properly applied in accordance
with the mortgage; (iv) fraud or material misrepresentations; (v) waste, as
defined by case law and statutes; (vi) misappropriation or misapplication of
insurance or condemnation proceeds; (vii) destruction of the premises (or any
part thereof) in or from an uninsured or underinsured casualty for which the
borrower is required to obtain insurance; (viii) real estate taxes, special
improvement assessments, if any, and renewal insurance premiums for securing the
property, subject to certain limitations; (ix) any and all costs incurred in
order to bring the property into compliance with the accessibility provisions of
the Fair Housing Act of 1988 and the ADA, subject to certain limitations; (x)
any expense, damage, loss or liability arising from, under or with respect to a
breach of the warranties to be contained in the mortgage concerning
environmental matters or a claim by the lender under the environmental indemnity
contained in the mortgage or in any separate indemnification agreement, subject
to certain limitations; (xi) seizure or forfeiture of the property, and portion
thereof or the borrower's interest therein pursuant to any federal, state or
local law; and (xii) any cost incurred by lender in connection with (i) through
(xi) above. The commitment for the Mortgage Loans expires in October, 1996.
The Mortgage Loans will bear interest at a fixed rate of 8.28% per annum on
the $78,000,000 loan and 7.77% per annum on the $4,370,000 loan. The Mortgage
Loans will require aggregate monthly payments of $566,496 (which includes
$538,200 with respect to the $78,000,000 loan and $28,296 with respect to the
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<PAGE> 62
$4,370,000 loan) representing interest only through December 31, 1996 and
thereafter will require aggregate monthly payments of $649,621 (which includes
$616,556 with respect to the $78,000,000 loan and $33,065 with respect to the
$4,370,000 loan) representing interest and the amortization of principal over a
25 year period. The Mortgage Loans will mature on January 10, 2006 at which time
balloon payments of $65,492,000 and $3,628,000, respectively, will be due and
payable.
The Mortgage Loans will not be prepayable during the first five years of
the loan term. Beginning with the sixth year of the loan term, full prepayment
is permitted, subject to a prepayment fee based upon the greater of (i) a yield
maintenance formula and (ii) one percent of the outstanding principal balance
(at the time of prepayment) of the Mortgage Loans. There will not be prepayment
fees charged if the lender applies casualty or condemnation proceeds to
repayment of the Mortgage Loans, or under certain circumstances described below.
After the fifth year of the loan term, individual properties may be
released from the collateral pool without replacement by paying the portion of
the principal of the loan allocated to that property based on a specified
formula, together with the appropriate prepayment fee, and an additional sum
equal to 25% of the principal balance being prepaid, which additional sum will
be applied at par in the lender's discretion against the remaining principal
balance. The loan documents will also include a limited right to transfer an
interest in the collateral, subject to certain conditions and payment of certain
amounts. Furthermore, the Company will have the right to substitute collateral
so long as there is no default under the Mortgage Loans and the value of the
substituted collateral, as determined by the lender, is equal or superior to the
value of the replaced collateral.
If the Company is unable to meet its obligations under the Mortgage Loans,
the lender could foreclose on any or all of the Ramco Properties which secure
the Mortgage Loans. In addition, the terms of the Mortgage Loans will include
customary representations, warranties and events of default and will require the
Company to comply with certain affirmative and negative covenants.
The Company has paid approximately $485,772 to the lender (together with
all costs and expenses incurred) for providing the Mortgage Loans. The Mortgage
Loans will be funded simultaneously with the closing of the Ramco Acquisition.
The Credit Facility. It is a condition to the closing of the Ramco
Acquisition that Ramco, on behalf of the Operating Partnership, obtain a
commitment from a bank or other financial institution for a $50,000,000 line of
credit (the "Credit Facility"). The Operating Partnership intends to use the
Credit Facility principally to fund growth opportunities. It is anticipated that
the lender under the Credit Facility shall have funded on the closing of the
Ramco Acquisition (i) approximately $5,110,000 for the purpose of retiring
mortgage debt on the West Oaks II and Spring Meadows Place Properties and (ii)
approximately $4,979,000 for the purpose of reimbursing affiliates of Ramco for
certain out of pocket costs incurred in connection with certain development
opportunities to be acquired by the Company. See "-- The Master
Agreement -- Conditions to Consummation of the Contemplated Transactions." These
out-of-pocket costs include consideration paid to obtain or extend options to
acquire real property and, in two cases, to acquire real property. See "PROPOSAL
1 -- THE RAMCO ACQUISITION PROPOSAL -- Future Operations -- Development."
The Credit Facility is anticipated to bear interest at a floating rate
equal to 175 basis points over the reserve adjusted Eurodollar rate and to
require monthly payments of interest only. It is anticipated that a fee of
$250,000 will be paid at the closing of the Credit Facility, a $37,500 agency
fee will be paid each year to the lender agent, and that the Credit Facility
will mature three years after the date such loan is closed at which time a
balloon payment of the outstanding principal balance and all accrued but unpaid
interest will be due and payable.
It is anticipated that the Credit Facility will be secured by first
mortgage liens on the eight otherwise unencumbered Ramco Properties and all of
the RPS Properties. The maximum advanced under the Credit Facility may not
exceed sixty percent of the collateral value. Subject to certain conditions, the
Company will be permitted to obtain a release of the lien on a Ramco Property or
RPS Property securing the Credit Facility by providing acceptable substitute
collateral, including new developments or acquisitions.
It is anticipated that the Credit Facility documentation will contain
customary representations, warranties and events of default and will require the
Company to comply with certain affirmative and negative covenants.
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<PAGE> 63
DISTRIBUTION POLICY
The Company currently pays a regular quarterly distribution of $.08 per
Share ($.32 per Share after taking into account the Reverse Split) which, if
annualized, would equal $.32 per Share ($1.28 per Share after taking into
account the Reverse Split) (or an annual distribution rate of 7.1% based on the
closing price of $4.50 per share ($18.00 per Share after taking into account the
Reverse Split) of the Shares on the NYSE on March 15, 1996. The Company's
current level of cash available for distribution reflects the decrease in the
Company's investment in participating mortgage loans and an increase in lower
yielding short-term investments, as well as the continuing effect of certain
underperforming loans on the performance of the Company's mortgage loan
portfolio. The Company's increase in lower yielding short-term investments
reflects the Company's plan of accumulating cash or cash equivalents that will
be needed to fund the Ramco Acquisition. If the Ramco Acquisition is not
consummated, such cash or cash equivalents could be invested in higher yielding
real estate assets which, in turn, could increase the Company's prospects for
producing cash available for distribution.
Following consummation of the Ramco Acquisition, the Company intends to
make regular quarterly distributions to its Shareholders. The Company currently
intends to make a pro rata distribution with respect to the period from the
closing of the Ramco Acquisition through June 30, 1996 based upon $.42 per Share
for a full quarter after taking into account the Reverse Split. On an annual
basis, this would be $1.68 per Share after taking into account the Reverse
Split. The Company estimates that the distribution that will be made following
the Ramco Acquisition will equal 85.9% of estimated cash available for
distribution by the Company for the 12 months following the Ramco Acquisition.
Shareholders should note that this distribution rate does not take into account
distributions, if any, that may be made by the Spin-Off Company.
The Company established this initial distribution rate based upon an
estimate of the cash available for distribution after the Ramco Acquisition
under present conditions. This estimate is based on pro forma net income for the
12 months ended September 30, 1995, as adjusted for certain events and
contractual commitments that are not reflected in the historical or pro forma
financial statements, but without giving effect to the amount of cash estimated
to be used in (i) investing activities and (ii) financing activities (other than
contractual principal payments). The Company anticipates that, except as
reflected in the table below and the notes thereto, investing and financing
activities will not have a material effect on estimated cash available for
distribution. Shareholders should keep in mind that the Board of Trustees has
the absolute right to change the distribution amount in the future if deemed to
be in the best interest of the Company and the Shareholders. Distributions by
the Company will be determined by the Board of Trustees and will be dependent
upon a number of factors. The Company believes that its estimate of cash
available for distribution constitutes a reasonable basis for setting the
initial distribution; however, no assurance can be given that the estimate will
prove accurate, and actual distributions may therefore be significantly
different from the expected distribution. The Company estimates that
approximately 43% of the 1996 distributions anticipated to be made by the
Company after the Ramco Acquisition will represent a return of capital for
federal income tax purposes. In addition, in order to maintain its qualification
as a REIT under the Code, the Company is required to distribute 95% of its
taxable income currently. The Company does not intend to cause the Operating
Partnership to reduce the expected distribution if additional Units are issued
to the Ramco Group following the fulfillment of certain leasing plans relating
to the Lease Up Property. See "-- The Master Agreement -- Lease Up Property."
THE ESTIMATES OF CASH FLOW FROM OPERATING ACTIVITIES AND CASH AVAILABLE FOR
DISTRIBUTION ARE BEING MADE SOLELY FOR THE PURPOSE OF SETTING THE DISTRIBUTION
RATE FOLLOWING THE CLOSING OF THE RAMCO ACQUISITION AND ARE NOT INTENDED TO BE A
PREDICTION OR FORECAST FOR THE COMPANY'S RESULTS OF OPERATIONS OR OF ITS
LIQUIDITY. NO ASSURANCE CAN BE GIVEN THAT THE COMPANY'S ESTIMATES WILL PROVE
ACCURATE. ACTUAL RESULTS MAY VARY SUBSTANTIALLY FROM THE ESTIMATE.
52
<PAGE> 64
The following table illustrates the adjustments made by the Company to its
pro forma net income for the twelve months ended September 30, 1995 to calculate
cash available for distribution.
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT
DISTRIBUTION
PER SHARE AND
PAYOUT RATIO)
--------------
<S> <C>
Pro forma net income before minority interest for the year ended December 31,
1994........................................................................... $ 11,709
Plus: pro forma net income before minority interest for the nine months ended
September 30, 1995............................................................. 9,444
Less: pro forma net income before minority interest for the nine months ended
September 30, 1994............................................................. (8,527)
-------
Pro forma net income before minority interest for the twelve months ended
September 30, 1995.......................................................... 12,626
Add back non-cash items:
Pro forma depreciation and amortization related to real estate for the twelve
months ended September 30, 1995 (1)......................................... 5,989
-------
Pro forma funds from operations for the twelve months ended September 30, 1995
(2)(3)......................................................................... 18,615
Adjustments:
Increase in minimum rent from leases which were in effect for only a portion of
the twelve months ended September 30, 1995 (4).............................. 1,144
Contractual rent increases for tenants in occupancy as of September 30, 1995
(5)......................................................................... 860
Signed leases scheduled to commence during the twelve months ended
September 30, 1996 (6)...................................................... 848
Decrease in minimum rent from leases terminated during the twelve months ended
September 30, 1995, which were not renewed or re-leased by September 30,
1995 (7).................................................................... (906)
Decreases in minimum rent from leases expiring during the twelve months ended
September 30, 1996 (8)...................................................... (311)
-------
Funds from operations for the twelve months ended September 30, 1996 (2)......... 20,250
Add back non-cash items:
Elimination of straight lining of rents (9).................................... (386)
Amortization of management contracts and covenants not to compete (10)......... 424
Amortization of debt issuance costs (10)....................................... 47
-------
Cash available from operating activities for the twelve months ended September
30, 1996....................................................................... 20,335
Non-revenue producing capital expenditures, tenant improvements and leasing
commissions (11)........................................................... (852)
Principal amortization (12)................................................. (904)
-------
Cash available for distribution for the twelve months ended September 30, 1996... 18,579
Less: Minority Interests' share of cash available for distribution............... (4,645)
-------
Company's share of cash available for distribution............................... 13,934
=======
Company's share of expected distribution (13).................................... 11,967
=======
Expected annual distribution per share (14)...................................... $ 1.68
=======
Expected cash available for distribution payout ratio (15)....................... 85.9%
</TABLE>
- ---------------
(1) Pro forma depreciation and amortization of $6,002 for the year ended
December 31, 1994, plus $4,521 for the nine months ended September 30,
1995, less $4,534 for the nine months ended September 30, 1994. Pro forma
depreciation and amortization for the 12 months ended September 30, 1995
includes $174,000 related to the Company's pro rata share of unconsolidated
entities.
(2) Funds from Operations, as defined by the National Association of Real
Estate Investment Trusts ("NAREIT"), represents income (loss) before
minority interest (computed in accordance with generally accepted
accounting principles), excluding gains (losses) from debt restructuring
and sales of property, plus real estate related depreciation and
amortization (excluding amortization of financing costs), and after
adjustments for unconsolidated partnerships and joint ventures. Funds from
Opera-
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<PAGE> 65
tions, therefore, does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and should not be
considered an alternative to net income as an indication of the Company's
performance or to cash flows from operating activities as a measure of
liquidity or the ability to pay distributions. Further, while net income
and cash generated from operating, investing and financing activities
determined in accordance with generally accepted accounting principles
consider capital expenditures which have been and will be incurred in the
future, the calculation of Funds from Operations does not. Management
generally considers Funds from Operations to be one measure of financial
performance of an equity REIT that provides a relevant basis for comparison
among REITs and it is presented to assist investors in analyzing the
performance of the Company.
(3) Approximately $1,618 or approximately 8.7% of the pro forma Funds from
Operations for the 12 months ended September 30, 1995 is derived from
percentage rents; of such amount, $799 relates to the RPS Properties and
$819 relates to the Ramco Properties. Because the receipt of such rents is
dependent on tenant sales, there can be no assurance that percentage rents
for the 12-month period following the closing of the Ramco Acquisition will
not be less than the percentage rents earned during the 12 months ended
September 30, 1995.
(4) Represents the incremental increase in Funds from Operations attributable
to leases signed during the 12 months ended September 30, 1995 being in
effect for the 12 months ending September 30, 1996.
(5) Represents the incremental increase in Funds from Operations attributable
to contractual rent increases for the twelve months ended September 30,
1996 (for tenants that were in occupancy at September 30, 1995) in excess
of the rents recorded from those tenants during the twelve months ended
September 30, 1995. The adjustment also reflects the expected reduction, if
any, in percentage rents that would be attributable to these contractual
rent increases and such adjustment is limited to the actual number of
months in which the increased rental rate would be in effect for each
lease.
(6) Represents the incremental increase in Funds from Operations attributable
to the increase in rents from new leases signed by September 30, 1995 and
scheduled to commence during the 12 months ended September 30, 1996. The
rents under such new leases have been included only for the portion of the
twelve months ended September 30, 1996 that the leases will be in effect
and such rents will be payable by the tenants. The Company expects that
substantially all increases in property operating expenses, if any, will be
reimbursed by tenants in the form of tenant recoveries.
(7) Represents the rents received from leases which expired during the twelve
months ended September 30, 1995 that was included in pro forma Funds from
Operations for the 12 months ended September 30, 1995.
(8) Represents the differential between rental revenue attributable to leases
that will expire in the 12 months ending September 30, 1996 and actual
rental revenues attributable to such leases included in pro forma Funds
from Operations for the 12 months ended September 30, 1995.
(9) Represents a reduction to pro forma Funds from Operations because rental
income for the 12 months ended September 30, 1995 included a $386,000
increase due to straight lining of minimum rents, which is a non-cash
adjustment required by GAAP.
(10) Pro forma amortization for the 12 months ended September 30, 1995 of
management contracts and covenants-not-to-compete in connection with the
Ramco Acquisition ($424,000) and deferred financing costs related to
refinancing of mortgage indebtedness ($47,000).
(11) Represents the Company's estimated non-revenue producing capital
expenditures ($369,000), tenant improvements ($245,000) and leasing
commissions ($238,000) related to expected leasing activity for re-leased
and vacant space. Capital expenditures relate to replacing a roof at
Sterling Mall for $105,000 and additional construction at Jackson Crossing
for $114,000. Tenant improvements were determined by multiplying the square
footage of leases expiring in 1996 (170,065) by 20% (the historical
percentage of leases not rolling over and requiring tenant improvements)
and multiplying that product by $7.00 per square foot (the estimated
average cost per square foot). Leasing commissions were determined by
54
<PAGE> 66
multiplying 80% of the square feet related to leases expected to roll over
in 1996 by $1.00 per square foot and 20% of the leases expiring in 1996
(new tenants) by $3.00 per square foot.
(12) Includes the Company's pro rata share (50%) of principal payments ($64,000)
related to the Company's interest in two shopping centers. The principal
amortization was determined by utilizing pro forma debt levels at September
30, 1995.
(13) Represents the Company's approximate 75% share of estimated distributions
from the Operating Partnership. Because additional Units may be issued if
certain leasing and expansion plans with respect to the Lease-Up Property
are fulfilled, the Company will at such time as it is required to release
its quarterly earnings, announce pro forma information which adjusts the
Company's per share earnings to reflect the effect of the Units earned by
the Ramco Group at such date but remain unissued as of such date.
(14) Based on a total number of 7,123,105 shares to be outstanding following
consummation of the Ramco Acquisition. The Company estimates that
approximately 43% of the 1996 distributions anticipated to be made will
represent a return of capital for federal income tax purposes.
(15) Calculated by dividing the expected annual distribution by the estimated
cash available for distribution. The payout ratio of the Company's share of
estimated Funds From Operations for the twelve months ending September 30,
1996 (approximately $15,188) equals 78.8%.
ENVIRONMENTAL MATTERS
Under various Federal, state and local laws, ordinances and regulations
relating to the protection of the environment ("Environmental Laws"), a current
or previous owner or operator of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances disposed,
stored, released, generated, manufactured or discharged from, on, at, onto,
under or in such property. Environmental Laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence or release of such hazardous or toxic substances. The presence of
such substances, or the failure to properly remediate such substances when
present, released or discharged, may adversely affect the owner's ability to
sell or rent such property or to borrow using such property as collateral. The
cost of any required remediation and the liability of the owner or operator
therefor as to any property is generally not limited under such Environmental
Laws and could exceed the value of the property and/or the aggregate assets of
the owner or operator. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such persons. In addition to any
action required by Federal, state or local authorities, the presence or release
of hazardous or toxic substances on or from any property could result in private
plaintiffs bringing claims for personal injury or other causes of action.
In connection with the ownership (direct or indirect), operation,
management and development of real properties, the Company may be potentially
liable for remediation, releases or injury. In addition, Environmental Laws
impose on owners or operators the requirement of on-going compliance with rules
and regulations regarding business-related activities that may affect the
environment. Such activities include, for example, the ownership or use of
transformers or underground tanks, the treatment or discharge of waste waters,
the removal or abatement of asbestos-containing materials ("ACMs") or
lead-containing paint during renovations or otherwise, or notification to the
parties concerning the potential presence of regulated matter, including ACMs.
Failure to comply with such requirements could result in difficulty in the lease
or sale of any affected property and/or the imposition of monetary penalties and
fines in addition to the costs required to attain compliance.
Each of the Ramco Properties has been the subject of a Phase I
Environmental Assessment completed by an environmental consultant, performed and
obtained in contemplation of the Ramco Acquisition (collectively "Phase I
Assessments"). The Phase I Assessments consisted of, among other activities, a
visual inspection of the Ramco Properties and nearby properties and review of
pertinent publicly available information. The Phase I Assessments, as with
standard Phase I environmental assessments, generally do not include sampling
55
<PAGE> 67
or analysis of soil, groundwater or other media; however, at certain Ramco
Properties, limited testing was performed for the presence of ACMs.
Based on the Phase I Assessments, the Company is aware of the following
environmental issues:
- The Phase I Assessments included observation and/or limited testing
for the presence of ACMs at the Ramco Properties. The Phase I Assessments
revealed that ACMs and/or suspected ACMs are present at Clinton Valley
Mall, Clinton Valley Strip, Fraser Shopping Center, Jackson Crossing, Lake
Orion Plaza, New Towne Plaza, Roseville Plaza, Southfield Plaza and Tel
Twelve Mall, primarily in the form of ceiling tiles, floor tiles, mastics,
or pipe insulation. The identified ACMs and suspected ACMs are generally
classified as non-friable and in good condition. In the course of future
operations, maintenance, renovation or demolition at such Ramco Properties
that may disturb such ACMs or suspected ACMs, whether classified as friable
or non-friable, some or all of such ACMs or suspected ACMs ultimately may
require removal.
- The Phase I Assessments indicated that underground storage tanks
("USTs") are present at Jackson Crossing and Roseville Plaza and were
formerly present at Lake Orion Plaza, New Towne Plaza, Tel Twelve Mall and
West Oaks I Shopping Center, often in connection with tenant operations at
gasoline stations or automotive tire, battery and accessory service
centers. USTs also are or were present at properties nearby certain Ramco
Properties. Certain of these tanks have or may have leaked, and
consequently the Company may incur investigation, remediation, and/or
monitoring costs, if the responsible current or former tenant or other
responsible parties are unavailable to pay such costs.
Except as described below, none of the Phase I Assessments revealed, nor is
the Company aware of, any potential environmental liability that the Company
believes could have a material adverse effect on the Company's business, assets
or results of operations. No assurance can be given that the Phase I Assessments
reveal all potential environmental liabilities, that any prior owner or tenant
did not create any material adverse environmental condition not known to the
Company, that no environmental liabilities have developed since the Phase I
Assessments were prepared, that future laws, ordinances or regulations will not
impose any material environmental requirement or liability, or that a material
adverse environmental condition does not otherwise exist.
The Phase I Assessment of Jackson Crossing revealed that as to a gasoline
station located at such property there was a release of approximately 2,300
gallons of gasoline from a product line break in August, 1986 and a release of
approximately 1,200 gallons of gasoline from a delivery line break in October,
1991. The Phase I Assessment of Lake Orion Plaza revealed that a release of
gasoline was discovered in 1987 at the time of removal of USTs from a gasoline
station located adjacent to such property. Subsequent investigations indicated
that levels of contamination exist in the ground water under such property. The
Ramco Principals, jointly and severally, have agreed to indemnify the Company,
the Operating Partnership and their respective subsidiaries and affiliates for
any and all damages arising from or in connection with such environmental
conditions at the Jackson Crossing and Lake Orion Plaza properties. On March 20,
1995, the Company received a letter from the New York Department of
Environmental Conservation regarding the release of materials to the ground
water from an off-site source and the presence of such in the well or ground
water at the Trinity Corners Shopping Center property. Although the Company
believes that the costs of any such remediation are the responsibility of third
parties, if such remediation is required to be undertaken by the Company and at
its expenses, it may have a material adverse effect on the Company's financial
condition and results of operations. The Company has agreed to indemnify the
Ramco Group for any and all damages arising from or in connection with the
environmental condition present at its Trinity Corners property.
EXCLUDED/OPTION PROPERTIES
Excluded Properties. Of the 29 shopping center and retail properties in
which the Ramco Principals have a direct ownership interest, the following seven
properties are not being included in the Ramco Acquisition because (i) their
transfer is contractually restricted or (ii) the existing capital structure is
inconsistent with the Company's investment objectives.
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Summit Place Complex. The Summit Place Complex is an approximately
1,940,000 square foot combined regional enclosed mall and power center located
in Waterford, Michigan. The Ramco Principals own a 10% non-controlling minority
interest in the Summit Place Complex.
Park Place Shopping Center. Park Place Shopping Center is an approximately
249,000 square foot power center located in Sandusky, Ohio. The Ramco Principals
own a 30% non-controlling minority interest in Park Place Shopping Center. In
addition, the center is highly leveraged.
North Towne Commons. North Towne Commons is an approximately 387,000
square foot power center located in Toledo, Ohio. The center is highly leveraged
and in addition, Phar Mor, a major tenant, recently rejected its lease in
bankruptcy and vacated the center.
Livonia Builders Square. Livonia Builders Square is an approximately
94,000 square foot builders square store located in Livonia, Michigan. The Ramco
Principals own a 1% non-controlling minority interest in this project. In
addition, the center will be highly leveraged.
Bay Towne Shopping Center. Bay Towne Shopping Center is an approximately
164,000 square foot community shopping center located in Saginaw, Michigan. The
Ramco Principals own a 25% non-controlling minority interest in Bay Towne
Shopping Center. In addition, the center is highly leveraged.
Blue Ash Commons. Blue Ash Commons is an approximately 162,000 square foot
community shopping center located in Blue Ash, Ohio. The ownership interest of
the Ramco Principals in Blue Ash Commons consists of fee ownership of the
underlying land as well as a building sale-leaseback and land subleases with a
third party.
Rivers Edge. Rivers Edge is a two story office building containing
approximately 31,400 square feet of GLA located in Southfield Michigan. Ramco
currently leases approximately 12,400 square feet of GLA at Rivers Edge at an
annual rental of $265,500. The lease expires on June 30, 1996, and is not
subject to renewal.
In addition, the Ramco Principals, through various trusts, have certain
indirect non-controlling ownership interests in other real estate assets.
Options on Excluded Properties. Except with respect to Blue Ash Commons,
the Company will have the option, exercisable at any time during the 10-year
period commencing on the closing of the Ramco Acquisition, to acquire the Ramco
affiliates' interest in any of the shopping center properties described above,
which properties have been excluded from the Ramco Acquisition (the "Option
Properties"). Except with respect to the Summit Place Complex and North Towne
Commons, the purchase price for any Option Property will equal the lesser of (i)
such affiliate's net cash investment in such property and (ii) the fair market
value of such affiliate's interest in such property payable in cash or Units, at
the option of the seller. If, at any time during the ten-year period commencing
on the closing of the Ramco Acquisition, any of the Ramco Principals' and any
affiliate of the Ramco Principals' direct or indirect interest in the Summit
Place complex, in the aggregate, equals 25% or more, the Company will have an
automatic option to acquire all of such persons' interests in such property at a
price equal to 90% of the fair market value of such interests. Each Ramco
affiliate may sell its interest in any or all Option Properties free and clear
of the option prior to the expiration of the ten-year period provided that it
gives notice to the Company and extends to the Company the first offer to
acquire such interest. The exercise of the option or right of first offer may
require approval of partners in the owner of the Option Property not affiliated
with the Ramco Group. The Ramco affiliates subject to these options will not
seek such approval until after the Company has exercised its option or right of
first offer, and there can be no assurance that such approval will be granted.
The Company will have the option (the "North Towne Option"), exercisable at
any time during the 10-year period commencing on the closing of the Ramco
Acquisition, to acquire the partnership interest of the Ramco affiliate in the
partnership which owns North Towne Commons. The option price for this interest
in North Towne Commons will equal the product of (i) the percentage interest of
the Ramco affiliates in the partnership which owns North Towne Commons and (ii)
110% of the principal amount of the mortgage loan balance as of December 31,
1994 ($13,000,000). The option price will be payable (i) by taking title to this
interest in North Towne Commons subject to a pro rata portion of the North Towne
Commons debt and
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(ii) the balance in cash or Units, at the option of the seller. The option price
is subject to certain adjustments to reflect the impact of capital transactions.
Based on the current 70% partnership interest of the Ramco affiliate in North
Towne Commons and the existing mortgage balance of $13,000,000, the purchase
price would be approximately $10,010,000. The Ramco affiliate may sell its
interest free and clear of the option prior to the expiration of the ten-year
period provided that it gives notice to the Company and extends to the Company
the first offer to acquire such interest. The exercise of the North Towne Option
or the right of first offer may require approval of other partners in the
partnership which owns North Towne Commons who are not affiliated with the Ramco
Group. The Ramco affiliate will not seek such approval until after the Company
has exercised its option or has made its first offer and there can be no
assurance that such approval will be granted. The Independent Trustees will
review and a majority of the Independent Trustees will approve the acquisition
by the Company of any of the Option Properties.
CERTAIN PROPERTY PARTNERSHIP AGREEMENTS
Pursuant to the Ramco Acquisition, the Company will not acquire title to
Kentwood Towne Center and Southfield Plaza Expansion, but will instead acquire
partnership interests in the partnerships owning such shopping centers (the
"Property Partnerships"). In each case, the Company will own a 50% managing
general partner interest in each Property Partnership, with control over the
day-to-day operations of the shopping centers. However, certain significant
decisions with respect to the ownership and operation of the shopping centers
and the Property Partnerships will or may require the consent of other partners
in the Property Partnerships (the "Outside Partners"), including, without
limitation, (a) decisions with respect to the sale or refinancing of the
shopping center, (b) entering into certain tenant leases, (c) adoption of
operating budgets and (d) expenditures in excess of budgeted amounts. Moreover,
even where the consent of the Outside Partners is not required, the Company may
have certain fiduciary responsibilities to the Outside Partners which it will
need to consider when making decisions relating to the shopping centers and the
Property Partnerships, including, without limitation, certain decisions with
respect to the timing and amount of distributions of available cash and of
additional capital contributions.
In addition, the rights to sell or transfer partnership interests in the
Property Partnerships are subject to certain limitations, consents and rights of
first refusal which may inhibit the ability of the Company to sell its interest
in the Property Partnerships to a third party. Similarly, the right of the
Company to assign or pledge its partnership interests in the Property
Partnerships may require the prior written consent of the Outside Partners. If a
dispute arises with the Outside Partners of the partnership owning the Kentwood
Towne Center with respect to the management or other decisions of such
partnership which require the consent of a majority in interest of the partners,
the interests of the Company may be subject to certain buy-out rights of such
Outside Partners, including the right of the Outside Partners to purchase the
Company's partnership interest for the fair market value of the partnership
interest, as determined by appraisal.
Following the closing of the Ramco Acquisition, the next distribution of
available cash from each Property Partnership shall be prorated between the
present owner of the partnership interest and the Company, on a per diem basis,
based on the period covered by such distribution. Additionally, in each case,
appropriate adjustments will be made so that the Company will receive cash equal
to 50% of the amount of cash the Company would have otherwise received had the
Company acquired title to the shopping centers and the adjustments and
prorations provided in the other Ramco Agreements had occurred.
GROUND LEASES
Two of the Ramco Properties are subject to ground leases as described
below.
The Lake Orion Plaza property is subject to a ground lease with respect to
approximately 1.2 acres. The ground lease terminates in February 2006 and
requires payments of $12,000 per year for the remainder of the term of the
lease. Ramco has an option to purchase the ground lease during the last two
years of the term of the lease at the appraised fair market value.
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The West Oaks I property is subject to a ground lease with respect to
approximately 21.7 acres. The ground lease terminates in December 2061 and
requires payments of $98,780 per year plus 25% of the percentage rentals
received at the property.
THE MASTER AGREEMENT
The Ramco Acquisition will be effectuated pursuant to the Master Agreement,
a copy of which has been filed as an exhibit to the Company's Current Report on
Form 8-K dated January 10, 1995, as amended by the Company's Current Report on
Form 8-K/A1 dated March 1, 1996, and, with respect to the March 19, 1996
amendment to the Master Agreement, a copy of which has been filed as an exhibit
to the Company's Current Report on Form 8-K dated March 28, 1996, and which are
otherwise available upon request from the Company. The Initial Master Agreement
has been filed as an exhibit to the Company's Current Report on Form 8-K dated
April 24, 1995. The following summary of certain provisions of the Master
Agreement, including the descriptions of certain provisions set forth elsewhere
in this Proxy Statement, is subject to and qualified in its entirety by
reference to the full text of the Master Agreement.
The Transaction. Pursuant to the Master Agreement, on the date the Ramco
Acquisition is consummated, (a) the Ramco Group will have transferred, or caused
to be transferred (via contribution or merger), to the Operating Partnership the
Ramco Properties, the Ramco Stock, the Development Land, the Option Properties
and the Outparcels and (b) the Company will transfer, or cause to be transferred
(via contribution or merger), to the Operating Partnership the RPS Properties
and the RPS Cash, in exchange for interests in the Operating Partnership. Each
of the Ramco Properties and RPS Properties to be contributed to the Operating
Partnership will be contributed pursuant to individual contribution agreements
(the "Ramco Agreements" and the "RPS Contribution Agreements" respectively) and
the Ramco Stock will be contributed pursuant to an individual contribution
agreement (the "Ramco Stock Contribution Agreement"). See "-- Structure of the
Ramco Acquisition" and "-- Property Contribution Agreements." Upon the closing
of the Ramco Acquisition, the Company will be admitted as the sole general
partner of the Operating Partnership and 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.
Pursuant to the Ramco Acquisition, the Ramco Group 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 of
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 the Lease Up Property are fulfilled, the
aggregate percentage interest to be received by the Ramco Group in the Operating
Partnership may increase to a maximum of approximately 29%. The number of Units
to be received by the Ramco Group will not fluctuate with changes in the price
of the Shares. The Company 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 Company's acquisition of the Ramco
Properties. The Company believes that this structure was an important factor in
the Company'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
Company an important competitive advantage in making future acquisitions.
The purchase price for the Ramco Contribution Assets was negotiated as
described below, by (i) analyzing the effects of the Ramco Acquisition on the
Company's Funds from Operations and (ii) calculating the value of the RPS
Contribution Assets. The Company also considered the relative contribution of
the RPS Contribution Assets and the Ramco Contribution Assets, respectively, to
the Company's pro forma Funds from Operations as well as the resulting implied
capitalization rates of the estimated NOI of the RPS Properties on the one hand,
and the Ramco Properties on the other hand. The Company's initial percentage
interest in the Operating Partnership was negotiated based on the agreed upon
value of the RPS Contribution Assets as a percentage of the agreed upon value of
the Operating Partnership. The agreed upon value of the RPS Contribution Assets
is $114,025,000, which was determined by adding to $68,000,000 (the Company's
cash contribution to the Operating Partnership), the sum of (x) the value of the
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RPS Properties as determined through negotiation based upon, among other things,
the January 1995 Appraisals, less a 3% disposition fee ($45,600,000), and (y)
the cost of certain capital improvements to be made to the RPS Properties prior
to the closing of the Ramco Acquisition ($425,000). The agreed upon value of the
Operating Partnership was determined through negotiation by capitalizing
adjusted pro forma Funds from Operations of the Operating Partnership for the
year ending December 31, 1995 at a rate of 12.35%. The assumed value per Share
was determined through negotiation by dividing the number of Shares issued and
outstanding (prior to the Ramco Acquisition) into $114,025,000 (the agreed upon
value of the RPS Contribution Assets). There can be no assurance, however, that
after the closing of the Ramco Acquisition the market value of the Shares will
equal or exceed the agreed upon value of the RPS Contribution Assets.
Lease Up Property. The Lease Up Property has not yet completed its initial
leasing plan. The Lease Up Property includes all of the presently unleased GLA
at the Jackson Crossing Property. The percentage interest in the Operating
Partnership to be issued initially to the Ramco Group in connection with the
Ramco Acquisition generally will reflect anticipated base rental revenues only
from leases in place as of September 30, 1995 and, subject to limited
exceptions, will not reflect revenues anticipated from leases to be executed or
to become effective after such date. Pursuant to the leasing plans for the Lease
Up Property, approximately 118,895 square feet of additional GLA of the Jackson
Crossing Property may be leased through March 31, 1997.
To facilitate the inclusion of the Lease Up Property in the Company's
portfolio, the Ramco Group will have the right to receive additional
consideration, in the form of additional Units, based upon the increase in
annualized net cash flow from the Lease Up Property.
The value of the additional consideration to be received by the Ramco Group
with respect to the Jackson Crossing Property will be based upon the net
improvement in NOI from such property between January 1, 1996 and March 31, 1997
(the "Jackson Lease-Up Period"). The value of additional consideration to be
received in respect of the Jackson Crossing Property will equal the net
improvement in property NOI capitalized at 12.35%, less amounts incurred or
advanced by the Operating Partnership for capital expenditures relating to
leases, tenant improvements, tenant allowances and leasing costs, plus interest
on such funds advanced at a rate equal to the greater of (i) 10% per annum and
(ii) the prime rate of the Bank of Boston plus 2%. The net improvement in NOI
will equal the annualized stabilized NOI from the Jackson Crossing Property from
Qualifying Leases during the period from January 1, 1997 through March 31, 1997
("Stabilized Jackson Income") minus the sum of (i) the NOI from the Jackson
Crossing Property for the 12 months ending December 31, 1994, as adjusted to
reflect contractual increases in base rents during the period from January 1,
1995 through December 31, 1995 attributable to Qualifying Leases existing at the
Jackson Crossing Property at December 31, 1994, (ii) the annualized positive
impact on Stabilized Jackson Income that is attributable to any automatic fixed
minimum rent escalations that had become effective during the period from
January 1, 1996 through March 31, 1997 and related to Qualifying Leases existing
at the Jackson Crossing Property as of December 31, 1994, and (iii) percentage
rents included in Stabilized Jackson Income in excess of the percentage rents
taken into consideration in computing NOI from the Jackson Crossing Property for
the 12 months ending December 31, 1994 with respect to Qualifying Leases in
place as of December 31, 1994. In calculating the net improvement in NOI of the
Jackson Crossing Property, rent with respect to any new lease will be reduced by
the amount by which tenant improvements and tenant allowances in such lease
(calculated by amortizing such amounts over the initial term of the lease)
exceed the average thereof for the type of tenant which is the subject of such
lease. Average tenant improvements and tenant allowances will be determined by
independent public accountants selected by a majority of the Company's
independent trustees and will be reviewed and approved by a majority of
independent trustees. The number of additional Units to be issued with respect
to the Jackson Crossing Property will equal the value calculated pursuant to the
preceding formula divided by the assumed per Unit value of $16.00. The assumed
Unit value will not fluctuate with changes in the trading price of the Shares.
As a result, if at the time of such issuance the trading price per share exceeds
$16.00, the issuance of these Units could have a dilutive effect on Funds from
Operations per share.
The Company anticipates that, in the event its leasing plans at the Jackson
Crossing Property are fulfilled by March 31, 1997, a maximum of approximately
534,858 Units would be issued.
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The additional Units that may be earned with respect to future leasing
activities at the Jackson Crossing Property will be issued following the
expiration of the Jackson Lease-Up Period, except that if prior to the date of
this Proxy Statement a Qualifying Lease that is the subject of more than 80% of
the space previously occupied by Phar Mor at the Jackson Crossing Property (the
"Phar Mor Space") is signed, the Ramco Group will on the date such tenant begins
paying rent be issued a portion of such Units (the "Phar Mor Space Units"). The
number of Phar Mor Space Units that will be issued at such time will be based on
the annualized NOI attributable to the lease which is the subject of the Phar
Mor Space, capitalized at 12.35%, less any amounts advanced or incurred by the
Operating Partnership for capital expenditures, tenant improvements, tenant
allowances and leasing costs attributable to such lease, plus interest on such
funds advanced at an annual rate equal to the greater of (i) 10% per annum and
(ii) the prime rate of the Bank of Boston plus 2%. If issued, the Phar Mor Space
Units will be held in escrow by the Company until the expiration of the Jackson
Lease-Up Period and the determination of the net improvement in NOI from the
Jackson Crossing Property during the Jackson Lease-Up Period. During the
pendency of such escrow, the Ramco Group will receive any and all cash
distributions attributable to such Units. If at the end of the Jackson Lease-Up
Period, there is a net decrease in property NOI, the Phar Mor Space Units will
be subject to forfeiture calculated based on the amount of such negative NOI,
capitalized at 12.35%, plus the dollar amount of all distributions or dividends
paid in respect of such Units between the date of issuance and March 31, 1997,
divided by the assumed per Unit value of $16.00 per Unit. Any Units earned by
the Ramco Group attributable to the net improvement in NOI at the Jackson
Crossing Property during the Jackson Lease-Up Period will be offset by any Phar
Mor Space Units that are issued.
The calculation of additional Units that will be earned by the Ramco Group
with respect to future leasing activities at the Jackson Crossing Property will
be calculated by independent accountants selected by the Independent Trustees
and will be reviewed and approved by a majority of the Independent Trustees.
On July 3, 1995, the Ramco Group entered into a Qualifying Lease with
Kohl's Department Stores, Inc. covering all of the Phar Mor Space plus an
additional approximately 15,000 square feet of expanded GLA at the Jackson
Crossing Property ("the Kohl's Lease"). The Kohl's Lease which covers in excess
of 80,000 square feet of GLA has an initial term of 20 years, provides for an
initial minimum rent of approximately $394,000 per annum and provides for the
tenant to pay a share of the Jackson Crossing Property's common area maintenance
charges up to a maximum of $0.75 per square foot and a pro rata share of real
estate taxes. The Kohl's Lease also provides that the landlord will reimburse
the tenant for up to $700,000 in renovation expenses, which expenses will be
paid by the Ramco Group. The tenant under the Kohl's Lease is scheduled to
commence occupancy and begin paying rent no later than March 15, 1996, in which
event the Company will issue to the Ramco Group the Phar Mor Space Units at the
closing of the Ramco Acquisition.
Jackson Crossing Property Escrow. Because of existing vacancies at the
Jackson Crossing Property, six tenants at such property, leasing an aggregate of
approximately 49,190 square feet of Company owned GLA may, in the future, have
the right to cancel their respective leases. If at the closing of the Ramco
Acquisition, the events which permit one or more of these tenants to cancel its
or their leases still exist, the Ramco Group will at the closing escrow with the
Company the number of Units which has been allocated to the applicable lease(s).
If at any time prior to March 31, 1997, any tenant under a lease pursuant to
which an escrow was established terminates its leases as a result of the
specified events, the Units allocated to such lease will be forfeited by the
Ramco Group.
Representations and Warranties. The Master Agreement contains various
representations and warranties relating to, among other things: (a) the due
organization, power, authority and standing of Ramco, the Company and the
Operating Partnership and similar corporate and partnership matters; (b) the
authorization, execution, delivery and enforceability of the Master Agreement;
(c) compliance with applicable instruments and laws; (d) the accuracy of certain
information contained in certain documents filed by the Company with the
Securities and Exchange Commission; (e) litigation; (f) the absence of certain
material adverse changes and undisclosed liabilities; (g) taxes; (h) receipt of
required consents; (i) the financial condition of the Ramco Properties; (j)
retirement and other employee benefit plans; (k) labor matters; (l) brokers' and
finders' fees with respect to the Contemplated Transactions; (m) the accuracy of
representations and warranties contained in the Ramco Agreements, the RPS
Contribution Agreements and the Ramco Stock
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Contribution Agreement; (n) the accuracy of certain information and
representations with respect to certain Ramco property leases; (o) compliance
with securities laws by Ramco in connection with the issuance of the Units; (p)
financial statements; (q) the Company's material contracts; and (r) the
capitalization of the Company and its subsidiaries.
Certain Covenants. Each member of the Ramco Group and the Company have
agreed, among other things, prior to the consummation of the Contemplated
Transactions, unless the other party agrees in writing or as otherwise required
or permitted by the Master Agreement, (i) to use its best efforts to preserve
intact its business organization and goodwill and keep available the services of
its officers and employees, (ii) promptly to notify the others of the breach in
any material respect of any representation or warranty contained in the Master
Agreement, any failure to comply with or satisfy, in any material respect, any
covenant, condition or agreement contained in the Master Agreement, any notice
of the requirement of a third party consent to the Contemplated Transactions and
any notice relating to any litigation or any order or judgment entered or
rendered therein and (iii) to obtain all necessary consents and approvals to the
Contemplated Transactions.
In addition, each member of the Ramco Group and the Company have agreed
that, among other things, prior to the consummation of the Contemplated
Transactions, unless the other parties agree in writing, it (i) will conduct its
business in the ordinary course consistent with past practice; (ii) will not
make any changes or amendment of its limited partnership agreement, declaration
of trust, certificate of incorporation or by-laws, except for, in the case of
the Company, the amendments to its Declaration of Trust and By-Laws proposed in
this Proxy Statement and, in the case of the Ramco Group, certain specified
amendments to certain partnership agreements; (iii) will not issue, sell or
otherwise dispose of any of its capital stock, or create, sell or otherwise
dispose of any options, rights, conversion rights or other agreements or
commitments of any kind relating to the issuance, sale or disposition of any of
its capital stock; (iv) will not declare or pay any dividends in cash,
securities or other property, make any other distribution with respect to its
capital stock or acquire, directly or indirectly, by redemption or otherwise,
any of its capital stock, except for, in the case of the Company, regular
quarterly distributions on its Shares or any special distributions relating to
the Spin-Off Transaction or the consummation of the Contemplated Transactions or
any sale, pledge, transfer or other disposition of the Spin-Off Company Assets;
(v) will not reclassify, split up or otherwise change any of its capital stock,
except for, in the case of the Company, effectuation of the Reverse Split; (vi)
will not be party to any merger, consolidation or other acquisition; (vii) will
not organize any new subsidiary or acquire any capital stock of any person or
any equity or ownership interest in any business, except for the issuance of the
Units to the Ramco Group and the Company; (viii) except with respect to certain
excluded assets, will not borrow any funds or otherwise become subject to,
whether directly or by way of guarantee or otherwise, any indebtedness for
borrowing money, except for the refinancing of indebtedness paid at maturity
through short-term borrowings which mature on or before the closing of the Ramco
Acquisition or borrowings which are assumed by the Spin-Off Company at the
closing of the Ramco Acquisition; (ix) will not prepay any obligation having a
maturity of more than 90 days from the date it was issued and incurred, except
for the prepayments contemplated in the Master Agreement; (x) will not enter
into any agreement or commitment that restricts it from carrying on any business
anywhere in the world; and (xi) will not waive any claims or rights of
substantial value.
The Master Agreement also provides that the foregoing restrictions will not
(a) prevent the Company from entering into an agreement providing for a Superior
Alternative Transaction (as hereinafter defined) if the Master Agreement is
thereafter terminated in accordance with its terms and (b) apply to, among other
things, the Spin-Off Transaction and the Spin-Off Company Assets.
Each member of the Ramco Group and the Company have agreed: (a) to use
commercially reasonable efforts to cooperate with one another in (i) determining
which filings are required to be made prior to the closing of the Ramco
Acquisition with, and which consents, approvals, permits or authorizations are
required to be obtained prior to the closing of the Ramco Acquisition from
governmental or regulatory authorities in connection with the execution and
delivery of the Master Agreement and the consummation of the Contemplated
Transactions and (ii) timely making all such filings and timely seeking all such
consents, approvals, permits or authorizations; (b) to use commercially
reasonable efforts to obtain in writing any consents required from third parties
necessary to consummate the Contemplated Transactions; and (c) to use
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commercially reasonable efforts to take, or cause to be taken, all other action
and do, or cause to be done, all other things necessary, proper or appropriate
to consummate and make effective the Contemplated Transactions.
In addition, the Company has agreed to use commercially reasonable efforts
to enter into consensual termination agreements with Herbert Liechtung and Joel
M. Pashcow relating to their respective employment contracts with the Company
that will become effective prior to or simultaneously with the Closing. The
Company entered into consensual termination agreements with Mr. Liechtung
effective as of February 29, 1996. As of March 26, 1996, the Company entered
into a consensual termination agreement with Mr. Pashcow that will become
effective upon the closing of the Ramco Acquisition. See "-- Termination of
Existing Employment Contracts; Termination Agreements."
No Solicitation. Subject to the fiduciary duties of the Company's Board of
Trustees under applicable law, each of the Company and each member of the Ramco
Group have agreed that each will not, directly or indirectly, through any
officer, director, trustee, employee, agent or representative or otherwise (a)
solicit or initiate the submission of proposals or offers from any other person
or entity relating to any transaction or transactions (including, without
limitation, private purchases, tender offer, exchange offer, merger,
consolidation, partnership or other business combination) whereby, directly or
indirectly, control of a material interest in the securities, assets, properties
or business of the Company is acquired by or combined with any person, provided,
however, such transaction or transactions shall not include the distribution,
transfer or sale of the Spin-Off Company Assets or any actions relating thereto,
or consummation of, the Spin-Off Transaction (an "Alternative Transaction"); (b)
cooperate with, or furnish or cause to be furnished any non-public information
concerning its business, properties or assets, or the business, properties or
assets of any of its subsidiaries, to any other person or entity in connection
with any Alternative Transaction; (c) negotiate with any other person or entity
with respect to any Alternative Transaction; or (d) enter into any agreement or
understanding with any other person or entity with the intent to effect any
Alternative Transaction. In addition, each of Ramco and the Company has also
agreed to immediately give written notice to the other of the details of any
Alternative Transaction of which it is currently or becomes aware.
Notwithstanding the foregoing, each of Ramco and the Company has agreed
that the Company or its Board of Trustees, to the extent required by their
fiduciary duties under applicable law, will not be prohibited from (i) providing
information (including, without limitation, non-public information concerning
its business, properties or assets or the business, property or assets of any of
its subsidiaries) to, or participating in discussions or negotiations with, any
person that makes an unsolicited inquiry with respect to such party if the Board
of Trustees reasonably believes such person may propose an Alternative
Transaction on terms that are superior to the terms of the Contemplated
Transactions for the Shareholders of the Company (a "Superior Alternative
Transaction") or (ii) entering into an agreement with respect to a Superior
Alternative Transaction after receipt by Ramco of written notice of (A) the
material terms of such Superior Alternative Transaction and (B) the identity of
the person making such proposal.
Each of Ramco and the Company has agreed that neither the Company nor its
Board of Trustees, respectively, will be prohibited from making any disclosure
to its Shareholders which, in the judgment of the Board of Trustees as advised
by its counsel, may be required by applicable law in connection with any such
proposal or offer or from complying with Rule 14e-2 promulgated under the
Exchange Act.
Indemnification. From and after the closing of the Ramco Acquisition, the
Company will keep in effect provisions in its Declaration of Trust and By-Laws
providing for exculpation of trustee liability and indemnification of trustees,
officers, employees and agents at least to the extent that such persons are
entitled thereto under the Declaration of Trust and By-Laws of the Company as of
the date of the Master Agreement. In addition, the Company will not amend,
repeal or otherwise modify any of the foregoing provisions of the Company's
Declaration of Trust or By-Laws for a period of five years after the closing of
the Ramco Acquisition in any manner that would adversely affect the rights
thereunder of individuals who at any time prior to the closing of the Ramco
Acquisition were trustees, officers, employees or agents of the Company in
respect of actions or omissions occurring at or prior to the closing of the
Ramco Acquisition (including, without limitation, the Contemplated
Transactions), unless such modification is required by law. The
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Company will maintain in effect for not less than five years from the closing of
the Ramco Acquisition directors' and officers' liability insurance with a policy
limit of not less than $10,000,000 and, except for the policy limit, containing
terms and conditions no less advantageous than those in the Company's current
directors' and officers' liability policies.
It is currently anticipated that if the Ramco Acquisition is consummated
the Company will purchase a run off directors' and officers' insurance policy
with a policy limit of $20,000,000. This policy, which is anticipated to have a
one time policy premium of approximately $725,000, is consistent with the
directors' and officers' insurance currently maintained by the Company and will
cover claims relating to acts or omissions occurring through the closing of the
Ramco Acquisition. It is anticipated that this policy, which would have a term
of three years, will permit the Company to lower its cost of directors' and
officers' liability in the future by excluding from the underwriting risk acts
or omissions which occurred prior to the Ramco Acquisition. The RPS Cash will
not be used to fund the cost of the policy.
Governance. The Company is obligated to seek the resignations of four
members of its Board of Trustees upon the closing of the Ramco Acquisition and
is obligated to elect Joel Gershenson and Dennis Gershenson, as well as two
other individuals designated by Ramco (but independent of Ramco, the Company and
their respective affiliates) and reasonably acceptable to the Company, as
trustees to fill such vacancies.
The Company's Board of Trustees is also required to cause Joel Gershenson,
Dennis Gershenson, Michael Ward, Richard Gershenson and Bruce Gershenson to be
elected as executive officers of the Company. In addition, if following the
closing of the Ramco Acquisition the Board of Trustees appoints an Executive
Committee, Joel Pashcow shall, so long as he remains a Trustee of the Company,
be appointed to such committee. See "-- Management of the Company Upon
Consummation of the Ramco Acquisition." In addition, upon the closing of the
Ramco Acquisition and so long as either the Company or the Operating Partnership
owns any equity securities in Ramco, the Ramco Principals shall take all
necessary action within their respective authority and power, including in their
respective capacities as trustees, directors, officers, and/or securityholders
of Ramco or the Company, as applicable, to cause there to be no commonality of
the trustees and officers of the Company, on the one hand, and the directors and
officers of Ramco, on the other hand, except that there may exist one common
officer of the Company and Ramco, provided that such individual is not a trustee
of the Company. The purpose of this provision is to help insure that the
Company's non-voting stock in Ramco will not be viewed as voting stock thereby
jeopardizing the Company's status as a REIT. See "Proposal 1 -- THE RAMCO
ACQUISITION PROPOSAL -- Risk Factors -- Possible Adverse Consequences Relating
to Interests in Ramco."
The Closing. The closing of the Ramco Acquisition is required to take
place at Battle Fowler LLP, counsel to the Company, no later than the fifth
business day (any day that is not a Saturday or Sunday or a day on which banks
located in the City of New York are authorized or required to be closed) after
the day on which the last of the conditions to consummation of the contemplated
transactions (other than such conditions which, by their terms, are not capable
of satisfaction until the closing date) is satisfied or, where permissible, is
waived, unless another place, date or time is agreed to by the Company and
Ramco; provided, however, that the closing must be no later than May 31, 1996.
Conditions to Consummation of the Contemplated Transactions. The
respective obligations of the Company and Ramco and its affiliates to consummate
the Contemplated Transactions are subject to the fulfillment or waiver of each
of the following conditions, among others: (a) the Contemplated Transactions are
approved in the manner required by applicable law or by applicable regulations
of any stock exchange by the holders of the issued and outstanding shares of
beneficial interest of the Company entitled to vote thereon; (b) none of the
parties to the Master Agreement is subject to any order or injunction against
the consummation of the Contemplated Transactions; (c) all consents,
authorizations, orders and approvals of (or filings or registrations with) any
governmental commission, board or other regulatory body or third party required
in connection with the execution, delivery and performance of the Master
Agreement are obtained or made; (d) the Mortgage Loan Assets are disposed of;
(e) the Company enters into employment agreements with each of the Ramco
Principals; (f) the New Plan is approved by the Company's Shareholders; (g) the
Declaration of Trust Amendment Proposal is approved by the Company's
Shareholders; (h) the conditions
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precedent under each Ramco Agreement and each RPS Contribution Agreement are
satisfied or waived and the transactions contemplated by such agreements are
consummated; (i) the offer, sale and issuance of the Units to members of the
Ramco Group complies with Rule 506 promulgated under the Securities Act of 1933,
as amended, and applicable blue sky and state securities laws and (j) the
Company and the Spin-Off Company shall have entered into a tax agreement
pursuant to which the Spin-Off Company will assume and indemnify the Company
against any tax liability arising out of the RPS Tax Issues (as defined in
"FEDERAL INCOME TAX CONSEQUENCES -- Background") (other than liability that
relates to events occurring or actions taken by the Company following the date
of the Spin-Off Transaction).
The obligations of the Ramco Group to effect the Contemplated Transactions
are also subject to the satisfaction on or prior to the closing of the Ramco
Acquisition of the following conditions, among others: (a) the requisite consent
to consummation of the Contemplated Transactions of certain members of the Ramco
Group is obtained and is in full force and effect; (b) the representations and
warranties of the Company set forth in the Master Agreement are true and correct
in all material respects as of the closing of the Ramco Acquisition as though
made at such time; (c) the Company contributes to the Operating Partnership
$68,000,000 in cash (reduced by the Company's advance of $2,471,000 in
connection with the application for the Mortgage Loans (the "Mortgage Loans
Advance")); (d) the Company and each holder of Units (other than the Company)
enter into a registration rights agreement; (e) the Company performs in all
material respects all obligations and agreements and complies or causes to be
complied with all covenants and conditions required by the Master Agreement to
be performed or complied with by the Company on or prior to the closing of the
Ramco Acquisition; and (f) nothing has occurred which, individually or in the
aggregate, has had or, in the reasonable judgment of Ramco and the Ramco
Principals, is reasonably likely to have, a material adverse effect on the
business, results of operations, properties, assets or financial condition of
the RPS Properties, taken as a whole.
The obligations of the Company to effect the Contemplated Transactions are
also subject to the satisfaction on or prior to the closing of the Ramco
Acquisition of the following conditions, among others: (a) the representations
and warranties of Ramco and the Ramco Principals set forth in the Master
Agreement are true and correct in all material respects as of the date of the
Initial Master Agreement and as of the closing of the Ramco Acquisition; (b) the
Mortgage Loans will close upon the following terms: (i) the principal amount of
the Mortgage Loans (after taking into account all borrowed transaction costs)
does not exceed $82,370,000, (ii) the term of the Mortgage Loans is at least 10
years, (iii) the Mortgage Loans amortizes principal ratably on a schedule of not
less than 25 years (except that until December 31, 1996 only interest payments
will be required), (iv) the Mortgage Loans and is secured by only certain Ramco
Properties, (v) the Mortgage Loans shall bear interest with respect to
$78,000,000 of principal at a fixed rate of 8.28% per annum and with respect to
$4,370,000 of principal at a fixed rate of 7.77% per annum, and (vi) the
Mortgage Loans contain such other commercially reasonable terms as determined in
good faith by the Board of Trustees of the Company (based on the existing
commitment, it is anticipated that the closing of the Mortgage Loans will
satisfy this condition); (c) the mortgage debt encumbering the West Oaks II
Property shall have been refinanced (the "West Oaks II Loan") upon the following
terms: (i) the principal amount of the West Oaks II Loan (after taking into
account all borrowed transaction costs) shall not exceed $8,745,000, (ii) the
term of the West Oaks II Loan shall be at least 10 years, (iii) the West Oaks II
Loan shall amortize principal ratably on a schedule of not less than 20 years,
(iv) the West Oaks II Loan shall bear interest at a fixed rate not to exceed
7.75% per annum, and (v) the West Oaks II Loan shall contain such other
commercially reasonable terms as determined in good faith by the Board of
Trustees of the Company; (d) the mortgage debt encumbering the Spring Meadows
Place Property shall have been refinanced (the "Spring Meadows Loan") upon the
following terms: (i) the principal amount of the Spring Meadows Loan (after
taking into account all borrowed transaction costs) shall not exceed $7,650,000,
(ii) the term of the Spring Meadows Loan shall be at least 10 years, (iii) the
Spring Meadows Loan shall amortize principal ratably on a schedule of not less
than 20 years, (iv) the Spring Meadows Loan shall bear interest at a fixed rate
not to exceed 7.75% per annum, and (v) the Spring Meadows Loan shall contain
such other commercially reasonable terms as determined in good faith by the
Board of Trustees of the Company; (e) the Operating Partnership shall have
closed the Credit Facility upon the following terms: (i) the minimum amount
available under the Credit Facility shall not be less than $50,000,000, (ii) the
term of the Credit Facility shall be at least 3 years, (iii) the Credit Facility
will
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bear interest at a floating rate per annum not in excess of 175 basis points
over LIBOR, (iv) the commitment fee under the Credit Facility shall not exceed
.5% of the maximum amount available under the Credit Facility, (v) the lender
under the Credit Facility shall have funded not more than (1) $5,109,000 for the
purpose of retiring mortgage debt on the West Oaks II and Spring Meadows Place
Properties, and (2) $4,979,000 for the purpose of reimbursing certain affiliates
of Ramco for certain out of pocket costs incurred as of September 30, 1995 in
connection with certain development opportunities to be acquired by the Company,
(vi) the Credit Facility shall contain such other commercially reasonable terms
as determined in good faith by the Board of Trustees of the Company; (f) the
mortgage debt encumbering the Southfield Plaza Expansion Property shall be on
the following terms: (i) the principal amount of the loan shall not be more than
$1,775,000, (ii) the loan shall have a term of 20 years from initial funding
(subject to a lender call right at the end of 10 years), (iii) the loan will
bear interest during its first 10 years at a fixed rate equal to 8% per annum
and beginning in the 11th year will bear interest at a rate that will change
annually to .125% over the Moody's A Corporate Bond Index Rate as of 5 business
days prior to the date the rate adjusts, (iv) the loan will amortize principal
over a 20 year amortization schedule and (v) the loan shall contain such other
commercially reasonable terms as determined in good faith by the Board of
Trustees of the Company; (g) Ramco, each of the Ramco Principals and each member
of the Ramco Group who will receive Units in connection with the Contemplated
Transactions enters into agreements, prohibiting the transfer, pledge, sale or
exchange of Units for shares of the Company for a specified period following the
closing of the Ramco Acquisition; (h) the Company and each of the Ramco
Principals enter into non-competition agreements; (i) the Company and certain
members of the Ramco Group enter into option agreements with respect to the
Option Properties and assignments of the options on the Development Land; (j)
Ramco, the Ramco Principals and the members of the Ramco Group contributing the
Ramco Properties to the Operating Partnership and their respective affiliates
execute a release releasing each of the Company (including its trustees,
officers, agents and affiliates) and the Operating Partnership from any and all
obligations to repay any indebtedness on the Ramco Properties due and owing to
such persons in excess of $3,200,000, and from any claims, demands or causes of
action (whether individual, class or derivative in nature, at law or in equity)
arising directly or indirectly from the Company's purchase of reverse repurchase
obligations during 1994; (k) the Operating Partnership and Ramco Lewis Alexis
Associates enter into an option agreement with respect to the interest of Ramco
Lewis Alexis Associates in North Towne Commons; (l) the Ramco Group performs in
all material respects all obligations and agreements and complies or causes to
be complied with all covenants and conditions required by the Master Agreement
to be performed or complied with by the Ramco Group at or prior to the closing
of the Ramco Acquisition; (m) receipt by Ramco of required consents to the
resale of electricity by the Company in accordance with past practice to the
tenants at the Ramco Properties located in Michigan; (n) nothing has occurred
which, individually or in the aggregate, has had or, in the reasonable judgment
of the Company, is reasonably likely to have, a material adverse effect on the
business, results of operations, properties, assets or financial condition of
Ramco and the Ramco Properties (taken as a whole) (provided, however, this
condition will be deemed satisfied if Ramco can demonstrate, to the reasonable
satisfaction of the Company, that annualized NOI from Ramco and the Ramco
Properties based on the operating results of such properties during the last
full month immediately preceding the closing of the Ramco Acquisition is no less
than the NOI from the Ramco Properties for the year ended December 31, 1995
(minus $250,000); (o) the Company shall have received from the Division of
Corporation Finance of the Securities and Exchange Commission a favorable
response, in form and substance satisfactory to the Company, with respect to the
Company's no-action request relating to the Spin-Off Company; and (p) the
Company shall have received an estoppel certificate from the tenant under the
Media Play lease at the Tel-Twelve Mall (the "Tel-Twelve Lease"), in form and
substance satisfactory to the Company, to the effect that (i) the Tel-Twelve
Lease is in full force and effect and (ii) the tenant under such lease is open
for business and is paying rent.
Electricity Income Reimbursement. If, following the closing of the Ramco
Acquisition, (a) the Operating Partnership sells, transfers or otherwise
disposes of any Ramco Properties located in Michigan (the "Michigan Properties")
which, during the year ended December 31, 1994 reported net income attributable
to the resale of electricity to tenants and (b) as a result of such sale,
transfer or disposition the transferee of the Michigan Property does not receive
the consents necessary to resell electricity to the tenants at such property in
accordance with the past practices of the Ramco Group as they exist as of the
date of the Master
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Agreement, the Ramco Principals shall, jointly and severally, pay to the
Operating Partnership, with respect to such Michigan Property, an amount equal
to the value paid by the Company for such electrical net income. The value of
the electrical net income will be calculated by capitalizing at 12.35% 1995
electrical net income attributable to such property. This obligation will not
apply to any sales, transfers or dispositions of Michigan Properties that occur
(i) more than eight years after the closing of the Ramco Acquisition, except for
any sales, transfers or dispositions of Michigan Properties that occur after
such date but relate to a contract entered into prior to such date or (ii) after
the date the Operating Partnership obtains a written consent, license or
authorization from the applicable utility companies and/or government bodies, in
form and substance satisfactory to the Independent Trustees, that will permit
the Operating Partnership and any future owners of the Michigan Properties to
resell electricity to tenants at such properties in accordance with the past
practices of the Ramco Group as they exist on the date of the Master Agreement
for a period not less than 15 years from the closing of the Ramco Acquisition.
Use of Cash. Pursuant to the Master Agreement, the RPS Cash will be used
as follows: (i) to pay or reimburse certain fees and expenses relating to the
Contemplated Transactions that were not paid by the Company (other than Excluded
Expenses, as defined below) up to a maximum of $3,200,000; (ii) to repay the
debt associated with the Ramco Properties that is payable to affiliates of Ramco
in an amount not to exceed $3,200,000; (iii) to pay or reimburse members of the
Ramco Group for costs incurred in connection with the assumption of and/or
prepayment of existing debt affecting the Ramco Properties, as well as the costs
of partnership restructuring and associated expenses in an amount not to exceed
$250,000; and (iv) the balance, to prepay certain debt on the Ramco Properties.
Any debt remaining on the Ramco Properties after application of the RPS Cash
will be refinanced or will remain outstanding. If the closing of the Ramco
Acquisition occurs, the Company will assign to affiliates of Ramco specified by
the Ramco Principals any refundable portion of the Refinanced Loan Advance in
partial satisfaction of the Ramco affiliate loans. Any refundable portion of the
Refinance Loan Advance that is assigned by the Company as set forth in the
preceding sentence shall be deemed a principal payment by the Operating
Partnership in respect of a Ramco affiliate loan in a principal amount equal to
the Refinanced Loan Advance so assigned. To the extent that prior to the closing
of the Ramco Acquisition the Company has paid more than $7,000,000 in fees and
expenses relating to the Contemplated Transactions (other than Excluded
Expenses), upon the closing of the Ramco Acquisition the Operating Partnership
shall reimburse the Company in cash for the portion of the excess expenses so
paid by the Company, which amount shall be treated as the payment by the
Operating Partnership of an expense of Contemplated Transactions. "Excluded
Expenses" is defined in the Master Agreement to mean (i) amounts paid or payable
to Herbert Liechtung and Joel Pashcow pursuant to any arrangements terminating
their existing employment contracts (including amounts payable to their
respective counsel), (ii) expenses required to be paid by the Ramco Contributing
Parties under the Ramco Agreements (unless specifically set forth in the Master
Agreement), (iii) expenses to be paid by the Company's subsidiaries under the
RPS Contribution Agreements (unless specifically set forth in the Master
Agreement), (iv) expenses incurred in connection with the IRS' on-going
examination of the Company's tax returns that are incurred from and after
October 31, 1995 through the closing of the Ramco Acquisition and (v) as
reasonably determined in good faith by the Company, expenses relating to the
Spin-Off Transaction.
In addition, the RPS Cash will not be used, however, to fund the
approximately $829,000 in severance and bonus payments (assuming the Ramco
Acquisition is consummated on April 30, 1996) that have been paid or will be
payable to the Company's non-continuing employees (other than Messrs. Pashcow
and Liechtung) in connection with the closing of the Ramco Acquisition. Such
amounts include severance and/or bonus payments of approximately $272,000,
$119,000 and $135,000, respectively, to each of Messrs. Frankel, Rappoport and
Johnston (assuming that the Ramco Acquisition is consummated on April 30, 1996).
The Company anticipates that it will fund such payments and certain additional
expenses (including a run-off directors' and officers' liability insurance
policy, a directors' and officers' liability insurance policy for the Spin-Off
Company, and any severence amounts that may be payable to Mr. Pashcow), which
will be expenses of the Company, either through the proceeds of certain asset
sales and/or through a borrowing that will be assumed by the Spin-Off Company.
See "-- Termination of Existing Employment Contracts; Termination Agreements"
and the Information Statement attached hereto as Appendix A.
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Termination. The Master Agreement may be terminated at any time prior to
the closing of the Ramco Acquisition, before or after the approval by the
Shareholders of the Company, in the following circumstances: (a) by the mutual
consent of Ramco and the Company; (b) by the Company: (i) if the Company's
Shareholders do not approve the Proposals; (ii) if the consummation of the
Contemplated Transactions by the Company would violate any non-appealable final
order, decree or judgment of any governmental body or agency having competent
jurisdiction; (iii) following receipt by the Company of a proposal for a
Superior Alternative Transaction, to the extent that the Board of Trustees of
the Company determines in good faith on the basis of advice of counsel that such
action is necessary or appropriate in order for the Board of Trustees of the
Company to act in a manner that is consistent with its fiduciary obligations
under applicable law; (iv) if any representation or warranty of any member of
the Ramco Group made in the Master Agreement is untrue in any material respect
(other than a change permitted or contemplated by such Agreement) and such
breach is not cured within ten days of Ramco's receipt of a notice from the
Company that such breach exists or has occurred; (v) if any member of the Ramco
Group defaults in any material respect in the performance of any material
obligation under the Master Agreement and such breach is not cured within 30
days of Ramco's receipt of notice from the Company that such default exists or
has occurred; (vi) if certain consents are not obtained on or before the date
this Proxy Statement is first mailed to the Company's Shareholders (all of which
have been obtained, except for the consent of one Ramco Group member which Ramco
has advised the Company has agreed in principle to provide the necessary consent
and which Ramco expects to obtain in the near future but in any event before the
anticipated closing of the Ramco Acquisition); or (vii) if the conditions to the
Company's obligations to consummate the Contemplated Transactions cannot
reasonably be satisfied on or prior to the closing of the Ramco Acquisition; or
(c) by Ramco: (i) if the consummation of the Contemplated Transactions by any
member of the Ramco Group would violate any non-appealable final order, decree
or judgment of any governmental body or agency having competent jurisdiction;
(ii) if any representation or warranty of the Company made in the Master
Agreement is untrue in any material respect (other than due to a change
permitted or contemplated by the terms of such Agreement) and such breach is not
cured within ten days of the Company's receipt of a notice from Ramco that such
breach exists or has occurred; (iii) if the conditions to Ramco's obligations to
consummate the Contemplated Transactions cannot reasonably be satisfied on or
prior to the closing of the Ramco Acquisition; or (iv) if the Company defaults
in any material respect in the performance of any material obligation under the
Master Agreement and such breach is not cured within 30 days of the Company's
receipt of notice from Ramco that such default exists or has occurred.
Liquidated Damage Amount and Expenses. If the Contemplated Transactions
are not consummated because the Company enters into an agreement relating to a
Superior Alternative Transaction with a third party, the Company will reimburse
Ramco and the Ramco Principals for all reasonable out-of-pocket expenses
incurred by them in connection with the Contemplated Transactions up to a
maximum of $1,250,000 (without any offset or credit for the Refinanced Loan
Advance). Other than as described in the previous sentence, if the closing of
the Ramco Acquisition does not occur, each party to the Master Agreement will
bear its own fees and expenses in connection with the Master Agreement except
that the Company will be liable for certain fees and expenses of Ramco's
accountants, Deloitte & Touche LLP.
If the closing of the Ramco Acquisition occurs, the fees and expenses
relating to the Contemplated Transactions (including, without limitation, the
non-refundable portion of the Refinance Loan Advance but excluding the Excluded
Expenses) shall be paid in the following order of priority: (a) up to $7,000,000
in such fees and expenses (as determined by the Company in its sole and absolute
discretion) shall be paid by the Company; (b) up to $3,200,000 of such fees and
expenses (as determined by the Company in its sole and absolute discretion) in
excess of those paid or payable by the Company shall be paid by the Operating
Partnership; and (c) the balance of such fees and expenses shall be paid,
jointly and severally, by the Ramco Contributing Parties and the Ramco
Principals.
Notwithstanding the foregoing, in no event will the Company or the
Operating Partnership have any liability for (a) any amounts paid or payable to
any person in order to obtain his or its consent to the Contemplated
Transactions, (b) any amounts paid or payable to any person in connection with
the purchase of such person's direct or indirect interest in any Ramco Property,
(c) any costs incurred in connection with
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the assumption of and/or the prepayment of existing debt affecting the Ramco
Properties, as well as the costs of Ramco Group partnership restructuring and
associated expenses in excess of $250,000 or (d) certain expenses required to be
paid by the Ramco Contributing Parties under the Ramco Agreements, which amounts
shall be paid, jointly and severally, by the Ramco Contributing Parties and the
Ramco Principals.
Survival and Indemnification Matters. Generally, neither the Company nor
the Ramco Principals shall have any liability (for indemnification or otherwise)
with respect to any breach of any representation, warranty or covenant to be
performed or complied with prior to the closing of the Ramco Acquisition unless
on or before April 30, 1997 a claim with respect to such breach is made. A claim
with respect to the breach of the Ramco Principals' representation and warranty
relating to the offering of Units may be made at any time before the date which
is 30 days following the expiration of the applicable statute of limitations. A
claim with respect to the breach of the Ramco Principals' representation and
warranty relating to ability of the Company to pass along the entire Michigan
Single Business Tax to tenants may be made at any time. If the Ramco Acquisition
occurs, a claim may be made in respect of the breach of a representation or
warranty only if the amount of such claim exceeds $250,000, but if a loss or
liability is in excess of such amount, a claim can be made for the entire amount
of such loss or liability. If the Ramco Acquisition occurs, the Company's
aggregate liability (for indemnification or otherwise) with respect to the
Company's failure or breach of any representation or warranty or any covenant to
be complied with prior to the closing of the Ramco Acquisition shall not exceed
$45,000,000. If the Ramco Acquisition occurs, recourse against the Ramco
Principals (for indemnification or otherwise) with respect to the Ramco Group's
failure or breach of any representation or warranty or any covenant to be
complied with prior to the closing of the Ramco Acquisition (other than with
respect to obligations under the Kohl's Lease) shall be limited to the Company's
right to pursue its rights and remedies under a pledge agreement (the "Pledge
Agreement") that will be entered into among the Company, the Ramco Principals
and certain members of the Ramco Group at the closing. See the description of
the pledged collateral below.
The Ramco Principals, jointly and severally, shall indemnify and hold
harmless the Company for any losses arising from or in connection with (a) any
inaccuracy in any of the representations and warranties of any member of the
Ramco Group, (b) any failure by any member of the Ramco Group to perform or
comply with any covenant, obligation or agreement, (c) any liabilities of any
member of the Ramco Group not specifically assumed by the Company, (d) any claim
by any person (other than Dean Witter) for brokerage or finder's fees or
commissions or similar payments, (e) certain ERISA liabilities, (f) any of the
specified environmental conditions relating to Jackson Crossing and Lake Orion
Plaza, (g) the inability of the Operating Partnership to resell electricity to
the tenants at the Michigan Properties in accordance with the past practice of
the Ramco Group but only to the extent such inability relates to the transfer of
title to such properties as a result of the consummation of the Ramco
Acquisition, (h) the violation of certain restrictions in certain leases at
Jackson Crossing, (i) any disputes regarding the division of the interests among
the Ramco Group, (j) any liability for transfer taxes relating to the transfer
of title to the Ramco Properties to the Operating Partnership in connection with
the Ramco Acquisition, (k) any liabilities of Ramco relating directly or
indirectly to Ramco's agreement to insure or act as a primary or co-insurer of
the property of any other person or (l) certain obligations of the landlord
under the Kohl's Lease.
The Company shall indemnify and hold harmless the Ramco Group for any
losses relating to (a) any inaccuracy in any of the representations and
warranties of the Company, (b) any failure by the Company to perform or comply
with any covenant, obligation or agreement, (c) any liabilities of the Company's
subsidiaries that relate to the RPS Properties but were not specifically assumed
by the Operating Partnership, (d) any claim by any person (other than Dean
Witter) for brokerage or finder's fees or commissions or similar payments based
upon any agreement or understanding alleged to have been made by such person
with the Company in connection with any of the Contemplated Transactions or (e)
any of the specified environmental conditions relating to the Trinity Corners
Shopping Center.
Simultaneously with the closing of the Ramco Acquisition and pursuant to
the terms of the Pledge Agreement, the Ramco Principals will pledge to the
Company all of their direct and indirect interest in any Units or Shares that
will be acquired by them in the Ramco Acquisition, including certain direct and
indirect interests held by such persons in the Ramco Group (the "Pledged
Collateral"). So long as an event of default
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shall not have occurred each Ramco Principal shall have the right (i) at any
time during the 12-month period following the closing, to pledge up to 25% of
the Units and shares of the Company issued or received by such Ramco Principal
upon consummation of the Ramco Acquisition to a financial institution as
collateral for any loan with respect to which such Ramco Principal is personally
liable and (ii) after the expiration of such 12-month period, to pledge up to
50% of the Units and shares of the Company issued to, or received by, such Ramco
Principal upon consummation of the Ramco Acquisition inclusive of any Units or
shares of the Company pledged pursuant to (i) above to a financial institution.
The Company's security interest in the Pledged Collateral shall terminate on
April 30, 1997, except as to Pledged Collateral having a value (as determined in
good faith by the Company) of not more than 110% of any amount claimed by the
Company.
Amendment and Waiver. The parties may not modify or amend the Master
Agreement except by a written instrument executed by the party or parties
against whom enforcement is sought. The conditions to each party's obligation to
consummate the Contemplated Transactions may be waived in whole or in part in
writing executed by the other parties.
Liquidation. The Master Agreement provides the Continuing Trustees (as
defined in "-- Operating Partnership Agreement -- Liquidation" below) with the
right, subject to Shareholder approval, if required by law, and the right of
first offer in favor of the Ramco Principals, to elect to liquidate the Company
and the Operating Partnership if the Company loses its ability to be taxed as a
REIT under the Code. This right is also contained in the Partnership Agreement
of the Operating Partnership and is more fully described under "-- Operating
Partnership Agreement -- Liquidation" below.
PROPERTY CONTRIBUTION AGREEMENTS
The Properties will have been transferred or will be transferred to the
Operating Partnership (via contribution or merger) pursuant to the Ramco
Agreements and the RPS Contribution Agreements (collectively, the "Property
Contribution Agreements"). The following summary of certain provisions of the
Property Contribution Agreements, including the descriptions of certain
provisions set forth elsewhere in this Proxy Statement, is subject to and
qualified in its entirety by reference to the full text of the particular Ramco
Agreement or RPS Contribution Agreement.
Representations and Warranties. Each Property Contribution Agreement
contains various representations and warranties relating to, among other things:
(a) the due organization, power and authority of the Property owner and similar
corporate and partnership matters; (b) the authorization, execution, delivery
and enforceability of the Property Contribution Agreement; (c) compliance with
applicable agreements, laws and governmental requirements; (d) litigation
affecting the Property owner or its assets; (e) absence of certain undisclosed
liabilities that would have a material adverse effect on the Property owner or
the Property; (f) receipt of required consents; (g) insolvency, bankruptcy or
similar proceedings pending or threatened against the Property owner or any of
its assets; (h) certain environmental matters with respect to the Property; (i)
certain engineering matters with respect to the Property, its structure and
mechanical systems; (j) leases; (k) title to the Property; (l) real estate taxes
and assessments relating to the Property; (m) insurance; (n) financial matters,
such as payment of Property expenses and costs of alterations and tenant
improvements; and (o) service agreements relating to the Property.
Generally, all representations and warranties survive until April 30, 1997.
Operation of the Properties Prior to Closing of the Ramco
Acquisition. Pursuant to the Property Contribution Agreements, each Property
owner has agreed that prior to the consummation of the Ramco Acquisition, such
owner will not enter into any new leases or modify or terminate any existing
leases except under specified terms and conditions provided in the applicable
Property Contribution Agreement.
Prior to the closing of the Ramco Acquisition, each Property owner has
agreed to operate and manage the Property in the same manner as that in which it
had been operated and managed prior to the date of the Property Contribution
Agreement. In addition, each Property owner has agreed to continue to make all
necessary repairs and replacements, whether structural or non-structural, which
are required to maintain the Property in its present condition and to complete
any repairs or capital improvements to the Property which
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the Property owner commences prior to the closing of the Ramco Acquisition.
Furthermore, each Property owner has agreed to cure, prior to the closing of the
Ramco Acquisition or, at the Operating Partnership's sole option, as soon after
closing of the Ramco Acquisition as is reasonably practical, any violation of
applicable law, unless the cost to cure the violation exceeds $250,000. In
addition, with respect to the Chester Springs Shopping Center, the Company has
agreed to complete certain roof repairs at a cost of approximately $425,000.
Conditions to Consummation. The obligation of the Operating Partnership to
consummate the transactions contemplated by each of the Property Contribution
Agreements is subject to the fulfillment or waiver of the following conditions,
among others: (a) all representations and warranties of the Property owner shall
be true in all material respects as of the date of the closing of the Ramco
Acquisition, except that changes may occur with respect to leases which do not
have a material adverse effect on the income from the Property; (b) the Property
owner shall have performed all of its obligations under the Property
Contribution Agreement; (c) title policies in the form described in the
applicable Property Contribution Agreements shall have been issued and shall be
in full force and effect; (d) tenant estoppel certificates, in form and
substance satisfactory to the Operating Partnership shall have been obtained
from (i) each tenant whose leased premises occupy a separate building or are in
excess of 7,500 square feet and (ii) other tenants which, in the aggregate,
occupy 70% or more of the leased and occupied square footage of the remainder of
the Property; (e) estoppel certificates in form and substance satisfactory to
the Operating Partnership shall have been obtained from the lessors under any
ground lease; (f) estoppel certificates in form and substance satisfactory to
the Operating Partnership shall have been obtained from any holder of an
existing mortgage on any Property, which mortgage will stay in place after
consummation of the Ramco Acquisition; and (g) the conditions precedent under
each of the Property Contribution Agreements are satisfied or waived and the
transactions contemplated by such agreements are consummated.
Closing Adjustments. Simultaneously with the closing of the Ramco
Acquisition, certain income and expenses of each Property will be apportioned,
on a per diem basis, including, but not limited to, the following: (a) minimum
and percentage rents payable under the leases, (b) real estate and personal
property taxes, (c) water and sewer rents, (d) income from and expenses for
common area maintenance, (e) electricity and other utilities and other charges
paid by tenants, licensees and concessionaires of the Property, (f) payments
under service contracts, (g) ground lease rents and (h) debt service payable
under mortgages to remain on the Property after the closing of the Ramco
Acquisition.
In addition, each Ramco Property owner has agreed to pay all real estate
transfer taxes imposed in connection with the transfer of such Ramco Property to
the Operating Partnership. The Operating Partnership will pay all real estate
transfer taxes imposed in connection with the transfer of the RPS Properties to
the Operating Partnership. Each Property owner will also pay all tenant
improvement costs, tenant allowances and other bona fide third-party costs and
expenses incurred for leases entered into on or before December 31, 1995. At the
closing of the Ramco Acquisition, the Operating Partnership will pay the
unamortized portion of all tenant improvement costs, tenant allowances and other
bona fide third-party costs and expenses incurred for leases entered into after
December 31, 1995 with respect to the Ramco Properties and the RPS Properties.
Termination. Each Property Contribution Agreement may be terminated by the
Operating Partnership at any time prior to the closing of the Ramco Acquisition
if any Property owner fails to satisfy any of the conditions contained therein.
CLOSING CONDITIONS AGREEMENT
Four of the Ramco Properties (Eastridge Commons, Fraser Shopping Centre,
Oak Brook Square and Edgewood Towne Center) were contributed to the Operating
Partnership on December 27, 1994. Pursuant to a certain Closing Conditions
Agreement between the Operating Partnership and the Company, the obligation of
the Company to consummate the transactions contemplated under the Master
Agreement is conditioned upon the continuing truth of the representations and
warranties of the Ramco Group under the Ramco Agreements relating to such
properties dated December 29, 1994, and the Ramco Group has agreed to make
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closing adjustments with the Operating Partnership as if such properties had
been contributed to the Operating Partnership on the date the Ramco Acquisition
is consummated.
OPERATING PARTNERSHIP AGREEMENT
The following summary of the Amended and Restated Partnership Agreement of
the Operating Partnership (the "Partnership Agreement") and the descriptions of
certain provisions thereof set forth elsewhere in this Proxy Statement are
qualified in its entirety by reference to the Partnership Agreement.
Management. The Operating Partnership was organized as a Delaware limited
partnership on December 21, 1994. Upon consummation of the Ramco Acquisition,
the Company will be the sole general partner of, and will initially hold
approximately 75% of the economic interests in, the Operating Partnership. The
Operating Partnership will own, directly or indirectly through subsidiaries
(including subsidiary property partnerships), all of the Properties, Development
Land, Option Properties and Outparcels, as well as the Ramco Stock.
Pursuant to the Partnership Agreement, the Company, as the sole general
partner of the Operating Partnership, will have full, exclusive and complete
responsibility and discretion in the management, operation and control of the
Operating Partnership, including the ability to cause the Operating Partnership
to enter into certain major transactions, including acquisitions, developments,
rehabilitations and dispositions of properties, refinancings of existing
indebtedness and any changes in the Operating Partnership's distribution
policies. The holders of the Units, as limited partners in the Operating
Partnership, will not have any right to participate in the management of the
Operating Partnership except that the Company (in its capacity as sole general
partner of the Operating Partnership) will be required to seek the consent of
limited partners holding 85% of the Units (i) to amend the Partnership Agreement
in any manner that would materially adversely affect the rights, privileges and
preferences of the Units, (ii) to dissolve or terminate the Operating
Partnership prior to its stated date of dissolution or termination (other than a
dissolution or termination which occurs without a vote pursuant to the
Partnership Agreement or applicable law) or (iii) to amend the Partnership
Agreement in a manner that would subject the holders of the Units to any
personal liability beyond their interest in the Operating Partnership.
Transfer of Units. The Partnership Agreement provides that the Company may
not voluntarily withdraw from the Operating Partnership, or transfer or assign
any of its general partner or limited partner interests in the Operating
Partnership, unless limited partners holding a majority of the Units (other than
limited partner interests held by the Company) consent to such transfer or
withdrawal or such transfer is to an entity which is wholly-owned by the Company
and is a qualified REIT subsidiary. In the event the Company withdraws as
general partner, its general partner interest will be converted into a limited
partner interest.
The Partnership Agreement provides that limited partners may transfer their
Units (i) to any limited partner, if such limited partner is a partnership, (ii)
to any other limited partner, and (iii) in connection with any pledge of Units
to any financial institution as collateral for any loan with respect to which
any such limited partner is personally liable (subject to certain restrictions
contained in the lock-up agreements described herein) without the consent of any
other person, and may substitute any such transferee as a limited partner. In
addition, pursuant to lock-up agreements to be executed in connection with the
Ramco Acquisition, and except for certain limited exceptions set forth in such
lock-up agreements, the Ramco Principals may not transfer Units for a period of
30 months following the closing of the Ramco Acquisition, and limited partners
other than the Ramco Principals may not transfer Units for a period of one year
after the closing of the Ramco Acquisition, without the prior written consent of
the Company as sole general partner of the Company. Limited partners must obtain
the written consent of the Company to any other transfers and may substitute any
other transferee as a limited partner only with the prior written consent of the
Company as the sole general partner of the Operating Partnership.
Issuance of Additional Units. As the sole general partner of the Operating
Partnership, the Company has the ability to cause the Operating Partnership to
issue additional units of general and limited partnership interests in the
Operating Partnership.
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Funding of Investments. The Partnership Agreement provides that if the
Operating Partnership requires additional funds to pursue its investment
objectives, the Company may fund such investments by (i) causing the Operating
Partnership to issue additional Units, (ii) making additional capital
contributions to the Operating Partnership, (iii) causing the Operating
Partnership to borrow money, (iv) making a loan to the Operating Partnership or
(v) selling any assets or properties of the Operating Partnership.
Exchange of Units. Pursuant to the Partnership Agreement, the Units issued
to Ramco will be exchangeable for shares of the Company on a one-for-one basis.
Without the prior written consent of the Company as sole general partner of the
Operating Partnership, limited partners will be prohibited from exercising their
exchange rights for a period of one year from the closing of the Ramco
Acquisition except, in the event of the death of a limited partner prior to such
time, the estate of such limited partner shall have the right to exercise such
exchange rights to the minimum extent necessary to obtain the funds needed to
pay any estate taxes that may be payable at such time. Except in connection with
a merger, acquisition or other reorganization transaction, the Company will not
exchange any of its Units as long as there are any other holders of such Units.
In the event a limited partner desires to exchange Units for shares of the
Company, the Company as the sole general partner of the Operating Partnership
will have the option (the "Cash Option") to exchange such limited partner's
Units for cash equal to the product of (i) the number of shares then issuable
upon the exchange and (ii) the current per share market price of the shares of
the Company based on the average closing prices of the Shares on the NYSE for
the five consecutive trading days ending on the date the notice of exchange was
made. The Company will be issued one Unit in respect of each Unit exchanged by
the Company pursuant to the Cash Option. Any exchange of Units for shares will
be subject to compliance with the ownership limitations included in the
Company's organizational documents.
Liquidation. The Partnership Agreement provides that if the Company,
pursuant to a Final Determination (as defined in the Glossary), loses its
ability to be taxed as a REIT under the Code, a majority of the Continuing
Trustees (as defined below) have the right to elect to cause the Operating
Partnership, subject to Shareholder approval, if required by law, and the right
of first offer described below, to sell or dispose of all of the assets of the
Operating Partnership in any manner and liquidate the Operating Partnership and
the Company (unless the Company is entitled to reelect to be taxed as a REIT
under the Code either pursuant to the Final Determination or by right for the
year immediately following the year in which the Final Determination occurs).
"Continuing Trustees" is defined in the Partnership Agreement to mean, as of any
time, those trustees of the Company then in office who were trustees of the
Company immediately prior to the closing of the Ramco Acquisition; provided,
however, if at any time the number of Continuing Trustees is less than four, the
remaining Continuing Trustees (by a majority vote) shall elect such number of
Independent Trustees to become Continuing Trustees as may be necessary to cause
the number of Continuing Trustees to equal four whereupon such Independent
Trustee(s) shall be deemed Continuing Trustees.
Pursuant to the Partnership Agreement, if the Continuing Trustees determine
to solicit proposals for the acquisition of the Operating Partnership's
properties, the Continuing Trustees must first give the Ramco Principals written
notice of such determination, which shall include all material terms and
provisions thereof, including the minimum sales price that the Continuing
Trustees would entertain for the properties. Following such notice, the Ramco
Principals have sixty (60) days to accept the offer to purchase all, but not
less than all, the properties at the price and upon the terms and provisions
outlined in the written notice. Notwithstanding the foregoing, if such a written
notice is delivered, the Ramco Principals have the right to purchase for cash
the Company's entire partnership interest in the Operating Partnership at a
price equal to the amount the Company would have been entitled to receive upon
dissolution pursuant to the liquidation formula set forth in the Partnership
Agreement if the Operating Partnership had sold all the properties for cash at
the price set forth in the written notice. Such liquidation formula generally
provides that, upon the liquidation and winding up of the affairs of the
Operating Partnership, the proceeds from the liquidation of the property of the
Operating Partnership shall be applied and distributed in the following order:
first, to the payment and discharge of all of the Operating Partnership's debts
and liabilities to creditors other than its partners; second, to the payment and
discharge of all of the Operating Partnership's debts and liabilities to its
general partner; third, to the payment and discharge of all of the Operating
Partnership's debts and liabilities to its other
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partners; and the balance, if any, to its general partner and limited partners
to the extent of and in accordance with the positive balances in their capital
accounts, after giving effect to all contributions, distributions, and
allocations for all periods. The allocation provisions of the Partnership
Agreement are designed so that generally partners in the Operating Partnership
will receive liquidating distributions in proportion to their percentage
interest in the Operating Partnership. Upon acceptance, the Continuing Trustees
and the Ramco Principals have forty-five (45) days to negotiate in good faith a
definitive acquisition agreement. If the parties are unable to conclude the
negotiation of such definitive agreement within such period or if the Ramco
Principals do not choose to exercise their right to accept the offer to
purchase, the Continuing Trustees are free to resume their efforts to sell the
properties to other prospective buyers pursuant to the offered terms. The right
of first offer is automatically terminated if at any time one of the following
events occurs: (a) the Ramco Principals collectively hold beneficially and of
record less than 600,000 Units; (b) the Units held by the Ramco Principals are
exchangeable into less than 10% of the outstanding shares of the Company; or (c)
the Ramco Principals sell, exchange, transfer or dispose of more than 50% of the
Units issued to them at the Closing.
Term. The Operating Partnership will continue in full force and effect
until December 31, 2094 or until sooner dissolved pursuant to terms of the
Partnership Agreement.
PROPERTY APPRAISALS
The Company retained Arthur Andersen to conduct market value appraisals of
the RPS Properties as well as the Company's Norgate Center and 9 North Wabash
Avenue properties (collectively, the "Appraised Properties"). The appraisals
were not prepared for purposes of allocating the number of Units to be received
by the Company, on the one hand, and the Ramco Group, on the other and no
"portfolio" value was estimated. Arthur Andersen had previously been retained by
the Company to perform appraisals on its mortgage loan portfolio and was
selected because of its background and expertise. In each instance, the Arthur
Andersen appraiser signing the report is certified in the state where the
Appraised Property is located.
In preparing its appraisals and estimating the value for the Crofton Plaza
Shopping Center ("Crofton"), the Commack Shopping Center ("Commack") and the
Norgate Center ("Norgate"), Arthur Andersen included a cost approach, an income
approach and a sales comparison approach. Because of prevailing market
conditions and certain other factors, Arthur Andersen elected not to apply a
cost approach to value the Chester Springs Shopping Center ("Chester"), the
Sunshine Plaza Shopping Center ("Sunshine"), the Lantana Shopping Center
("Lantana"), the Trinity Corners Shopping Center ("Trinity") and the 9 North
Wabash Avenue property ("9 North Wabash"). The information used by Arthur
Andersen in arriving at its estimates of value was obtained from publicly
available sources, specific market research, or was supplied by management of
the Company. No limitations were imposed by the Company or any affiliate of the
Company upon Arthur Andersen in conducting its appraisals.
Under the income approach, the gross income of each of the Appraised
Properties was estimated by including anticipated income for areas under lease,
and estimated income based on estimated market lease rates developed in an
analysis of the income of properties comparable to each of the Appraised
Properties. Gross income so derived was adjusted for expected vacancy and
recoveries. Arthur Andersen then estimated expenses, including common area
maintenance, real estate taxes, insurance and management fees. Expenses so
estimated were subtracted from estimated effective gross income to compute a
stabilized net operating income for each of the Appraised Properties. The
resulting net operating income was then capitalized using a capitalization rate
based on recent sales of comparable properties in the regions where each of the
Appraised Properties is located. Deductions were then made for the present value
of tenant improvements and leasing commissions, and the present value of any
deficient income was added to the capitalized value. An additional deduction was
made for necessary capital expenditures. Arthur Andersen also performed a
discounted cash flow analysis pursuant to which the net cash flow before debt
service in each year of the anticipated holding period for each Appraised
Property was estimated. The projected income stream was then discounted to
convert future projected income into a present value. Arthur Andersen selected a
discount rate based on a number of factors, including surveys showing the
tendency for discount rates for the type and class of each Appraised Property.
The present value of the projected reversionary sales price, estimated at the
conclusion of
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the projection period for each Appraised Property, was then added to the value
of the discounted income stream. Arthur Andersen then reconciled the values
arrived at by the direct capitalization and discounted cash flow procedures
based on a number of factors to arrive at a final value via the income approach.
Under the sales comparison approach, Arthur Andersen performed an analysis
and comparison of sales of properties located in regions where the Appraised
Properties are located and which were comparable to each of the Appraised
Properties. The net income per square foot of each of the sold properties was
compared with the actual net income of each of the Appraised Properties and
adjustments to the sales prices were made for differences among the properties.
Capital expenditures were also deducted as lump sums after the conclusion of the
unit value.
Under the cost approach, Arthur Andersen estimated the cost of replacing
the Appraised Properties including improvements and land, less an allowance for
depreciation. Arthur Andersen performed an analysis and comparison of sales of
land comparable to each of the Appraised Properties in the regions where the
Appraised Properties are located. Adjustments to each of the sale properties
were made for physical features and market differentials in comparison to the
Appraised Property. Arthur Andersen then performed an analysis of the value of
improvements to the Appraised Properties based on data published in the Marshall
Valuation Services Cost Manual and also estimated depreciation on the Appraised
Properties. Depreciation was then subtracted from each of the Appraised
Properties' replacement cost, including profit, and the land value was added to
the depreciated replacement cost. The value of the Appraised Properties was then
adjusted to the leased fee estate including the present value of leasing and
tenant improvements to bring the property to stabilization and capital expenses
were also deducted.
After applying the income, sales comparison and cost approaches, as
appropriate, Arthur Andersen arrived at a final estimate of market value for
each of the Appraised Properties by reconciling the indicators of value derived
using such approaches. The relative significance, applicability and
defensibility of the indicators of value under each approach were considered.
After performing this reconciliation, Arthur Andersen estimated final values of
each of the Appraised Properties, each as of January 1, 1995 (except for
Norgate, which is as of August 1, 1994) as follows: (i) Crofton - $11,000,000;
(ii) Chester - $18,300,000; (iii) Sunshine - $6,800,000; (iv) Commack -
$3,500,000; (v) Lantana - $5,000,000; (vi) Trinity - $2,400,000; (vii) Norgate -
$3,900,000; and (viii) 9 North Wabash - $2,400,000.
Arthur Andersen's appraisals include a set of Assumptions and Limiting
Conditions (set forth below) included in each appraisal. The following
assumptions were stipulated by the Company and included by Arthur Andersen in
each appraisal report: (a) the Appraised Properties would be sold within six to
12 months following the effective date of the appraisals; and (b) planned
capital improvements would be made. In addition, there were special assumptions
made in individual appraisals depending upon the circumstances.
Except for the August 1, 1994 appraisals, the January 1995 Appraisals and
Company's engagement of Arthur Andersen in connection with the appraisals of the
Company's mortgage loan portfolio, there has not been any material relationship
during the past two years between Arthur Andersen, its affiliates or its
unaffiliated representatives and the Company or its affiliates, and no such
relationship is contemplated. Arthur Andersen was paid approximately $113,000
for performing the appraisals. The Company has agreed to indemnify Arthur
Andersen for any losses, damages, liabilities or costs arising out of any claims
regarding the appraisals based upon the reference to Arthur Andersen, or the
description of such appraisals, in this Proxy Statement, except to the extent
that such losses, damages, liabilities or costs resulted primarily from Arthur
Andersen's willful misconduct or gross negligence.
The Company will make the January 1995 Appraisals available for inspection
and copying at its principal executive office during its regular business hours
by any interested Shareholder or his representative who has been so designated
in writing.
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RAMCO
Following the closing of the Ramco Acquisition, 95% of the voting common
stock of Ramco will continue to be owned by the Ramco Principals. Such stock
ownership will enable the Ramco Principals to control the election of the board
of directors of Ramco. The Company will own all of the non-voting common stock
and 5% of the voting common stock of Ramco. Such stock ownership will entitle
the Company to receive in excess of 95% of the dividends and liquidating
distributions of Ramco.
Following the closing of the Ramco Acquisition, Ramco will continue to
provide property management, leasing and other related services to the six
Option Properties as well as the 17 additional shopping center properties
controlled by persons other than the Ramco Principals. Under the terms of the
applicable management agreements that will be entered into prior to the closing
of the Ramco Acquisition, Ramco will be reimbursed for compensation paid to
on-site employees, leasing agents and redevelopment and construction staff, and
other administrative expenses. In addition, Ramco typically earns a management
fee equal to approximately 3% to 5% of gross rental revenue from these
properties. Management fees earned from services provided to these properties
during the years ended December 31, 1994, 1993 and 1992 were $978,000,
$1,026,000 and $1,063,000, respectively.
Pursuant to reimbursement or management agreements that will be entered
into at the closing of Ramco Acquisition, the Company and the Property
Partnerships will engage Ramco to provide property management, leasing and other
related services to the Properties. Under the terms of these agreements, Ramco
will be reimbursed for compensation paid to on-site employees, leasing agents
and redevelopment and construction staff and other administrative expenses and,
in the case of the Property Partnerships, Ramco will not earn a management fee.
MANAGEMENT OF THE COMPANY UPON CONSUMMATION OF THE RAMCO ACQUISITION
Board of Trustees. Upon the consummation of the Ramco Acquisition, Ramco
will have the right, subject to compliance with the Company's organizational
documents, to designate four trustees (not less than two of whom shall be
independent of Ramco, the Company and their respective affiliates) to serve on
the Company's nine person Board of Trustees. The Company 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 Board of Trustees.
It is anticipated that Messrs. Pashcow, Liechtung, Goldberg and Blank, as well
as Robert A. Meister, who has been designated by the Company and will become a
member of the Board of Trustees prior to the closing of the Ramco Acquisition,
will serve as Trustees of the Company following such closing. It is anticipated
that the two persons affiliated with Ramco who will become members of the Board
of Trustees on the closing of the Ramco Acquisition will be Joel Gershenson and
Dennis Gershenson. Biographies of Joel and Dennis Gershenson are set forth
below.
The Board of Trustees 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 Board of Trustees as requested.
The following is a biography of the independent person designated by the
Company to serve on the Board of Trustees:
Robert A. Meister, age 54, has been Vice Chairman of Aon Risk Services &
Co., an insurance brokerage, risk consulting, reinsurance and employee benefits
company, which is a subsidiary of Aon Corporation, since March, 1991. Prior
thereto, Mr. Meister served as a director and Vice-Chairman of Sedgwick James,
Inc., an insurance brokerage, risk advisory, employee benefits and financial
services company. He also serves as a member of the Board of Trustees of the
Syms School of Business, UJA Federation of Greater New York-Major Gifts
Division, YMCA of Greater New York, Whitehead Institute for Biomedical Research,
Riverdale County School, Jewish Theological Seminary of America-Library
Division, and the Harvard Parents Resource Council. Mr. Meister received his
B.S. Business Administration from Pennsylvania State University.
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The following is a biographical summary of the independent persons
designated by Ramco to serve on the Board of Trustees:
Mark K. Rosenfeld, age 50, has been designated by Ramco and has agreed to
serve as a member of the Board of Trustees following the closing of the Ramco
Acquisition. He has been Chairman of the Board since 1993, and Chief Executive
Officer since 1992, of Jacobson Stores, Inc., a retail fashion merchandiser, and
currently serves as a director and a member of the Executive Committee of the
Board of Jacobson. Mr. Rosenfeld served previously as President and Chief
Operating Officer of that company from 1987-1992. Mr. Rosenfeld received his
Bachelor's Degree from Amherst College and a Master of Science Degree from the
Alfred P. Sloan School of Management, M.I.T. Mr. Rosenfeld is a director of TCF
Financial Corporation ("TCF"), the holding company of federally chartered
savings banks, and Great Lakes Bancorp, A Federal Savings Bank, a subsidiary of
TCF, and serves on numerous boards of philanthropic associations in his Jackson,
Michigan community. Mr. Rosenfeld's term as a trustee will expire in 1998.
Executive Officers of the Company. Upon the consummation of the Ramco
Acquisition, it is anticipated that the Ramco Principals will hold offices of
the Company as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------------- --- --------------------------------------
<S> <C> <C>
Joel Gershenson....................... 54 Chairman
Dennis Gershenson..................... 52 President and Chief Executive Officer
Michael A. Ward....................... 53 Executive Vice President and
Chief Operating Officer
Richard Gershenson.................... 50 Executive Vice President and Secretary
Bruce Gershenson...................... 47 Executive Vice President and Treasurer
</TABLE>
The following is a biographical summary of each of the Ramco Principals:
Joel Gershenson, President of Ramco, joined the company in 1964. Initially
involved in construction and development, he has spent the last 15 years
directing the Property Management/Asset Management Department. He has been on a
number of International Council of Shopping Centers' panels and has been a guest
lecturer at Wayne State University's College of Lifelong Study. A graduate of
Tufts University, he has served on numerous boards of philanthropic agencies in
the Detroit community. Mr. Gershenson will be elected as a trustee of the
Company following the closing of the Ramco Acquisition. Mr. Gershenson's term as
a trustee will expire in 1998. Mr. Gershenson was a general partner of the
general partner of a real estate partnership that filed a voluntary petition for
bankruptcy in 1992. See "-- Certain Bankruptcy Proceedings" below.
Dennis Gershenson is Vice President -- Finance, and Treasurer, of Ramco.
Mr. Gershenson joined Ramco in 1969 and, for the past 18 years, has arranged for
all of the financing of the company's initial developments, expansions and
acquisitions. Mr. Gershenson is a graduate of Syracuse University and Wayne
State University Law School. He was a member of the Wayne State Law Review and
graduated Magna Cum Laude in 1969. He is a member of the Michigan State Bar. Mr.
Gershenson is a past regional director of the International Council of Shopping
Centers. He has been a member of the National Realty Committee and sits on the
boards of the Metropolitan Affairs Corporation, Hospice of Southeastern Michigan
and Merrill Palmer Institute. Mr. Gershenson will be elected as a trustee of the
Company following the closing of the Ramco Acquisition. Mr. Gershenson's term as
a trustee will expire in 1998. Mr. Gershenson was a general partner of the
general partner of a real estate partnership that filed a voluntary petition for
bankruptcy in 1992. See "-- Certain Bankruptcy Proceedings" below.
Michael A. Ward is Executive Vice President of Ramco. Since joining Ramco
in 1966, Mr. Ward has been active in all phases of shopping center development.
Mr. Ward's responsibilities include directing the activities of the Leasing
Department, with emphasis on major tenant negotiations. Mr. Ward attended Contra
Costa College and served as an officer in the United States Air Force. He is a
Certified Property Manager and is past president of the Michigan Chapter of the
Institute of Real Estate Management. For the past 27 years he has participated
in numerous panels and committee functions for the International Council of
Shopping Centers. He has instructed several classes in shopping center
development for the Michigan State University
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Continuing Education Program. Mr. Ward was a general partner of the general
partner of a real estate partnership that filed a voluntary petition for
bankruptcy in 1992. See "-- Certain Bankruptcy Proceedings" below.
Richard Gershenson is Vice President -- Development and Construction, and
Secretary, of Ramco. He received his bachelor's degree from Tufts University and
a J.D. Degree from Wayne State University Law School. He is a member of the
Michigan State Bar. Mr. Gershenson joined Ramco in 1970 and is instrumental in
planning for the development and construction of initial projects, expansions
and acquisitions. Mr. Gershenson has prepared articles for industry publications
relating to design criteria for shopping centers. He has also played a major
role in various committees of the International Council of Shopping Centers. Mr.
Gershenson was a general partner of the general partner of a real estate
partnership that filed a voluntary petition for bankruptcy in 1992. See
"-- Certain Bankruptcy Proceedings" below.
Bruce Gershenson is Vice President -- Land Acquisition and Sales of Ramco.
He received his bachelor's degree from the University of Michigan and a J.D.
degree from Wayne State University Law School. He joined Ramco in 1972 and is
responsible for identifying development opportunities, land acquisition and
brokerage. He is past Chairman of the Sinai Healthcare Foundation (Sinai
Hospital of Detroit) and a member of the Board of Trustees of Sinai Hospital of
Detroit. Mr. Gershenson was a general partner of the general partner of a real
estate partnership that filed a voluntary petition for bankruptcy in 1992. See
"-- Certain Bankruptcy Proceedings" below.
In addition, Ramco, on behalf of the Company, has completed a search for a
new chief financial officer who will assume that role within approximately 30
days following consummation of the Ramco Acquisition. It is currently
anticipated that such person's annual base salary will approximate $150,000 per
year. The Company intends to make a public announcement regarding the employment
of such person as soon as mutually acceptable arrangements are finalized.
Ramco Principals' Employment Agreements. As a condition to the
consummation of the Ramco Acquisition, each of the Ramco Principals will enter
into employment agreements (collectively, the "Ramco Principals' Employment
Agreements") with the Company for an initial period of three years, subject to
automatic one year extensions thereafter, provided the Board of Trustees has
considered the extension of such term not more than 90 days nor less than 30
days prior to the expiration of the term. Pursuant to such agreements each Ramco
Principal will receive an annual base salary of $100,000 and such other fringe
benefits and perquisites (including, without limitation, medical, dental,
disability and life insurance and participation in employee benefits plans) as
are generally made available to management employees of the Company. In addition
to base salary the Ramco Principals will receive annual performance-based
compensation as determined by the Compensation Committee. Each Ramco Principals'
Employment Agreement provides that such bonus shall not, for each year of such
Agreement, be less than the following: (i) if Funds From Operations per share,
on an annualized basis, for the year for which the bonus is to be paid,
increases by less than 5% from the Funds From Operations per share for the
previous year, then 0%; (ii) if Funds From Operations per share, on an
annualized basis, for the year for which the bonus is to be paid, increases by
at least 5% but less than 7% from the Funds From Operations per share for the
previous year, then 15% of the executive's base salary for the year for which
the bonus is to be paid; (iii) if Funds From Operations per share, on an
annualized basis, for the year for which the bonus is to be paid, increases by
at least 7% but less than 10% from the Funds From Operations per share for the
previous year, then 22.5% of the executive's base salary for the year for which
the bonus is to be paid; (iv) if Funds From Operations per share, on an
annualized basis, for the year for which the bonus is to be paid, increases by
at least 10% but less than 15% from Funds From Operations per share for the
previous year, then 30% of the executive's base salary for the year for which
the bonus is to be paid; and (v) if Funds From Operations per share, on an
annualized basis, for the year for which the bonus is to be paid, increases by
15% or more from Funds From Operation per share for the previous year, then 50%
of the executive's base salary for the year for which the bonus is to be paid.
In addition, pursuant to the New Plan, each of the Ramco Principals will receive
options to purchase 24,000 shares of the Company (that will vest in equal
installments over 3 years), at an exercise price equal to $16.00 per share. The
Ramco Principals' Employment Agreements also provide for certain severance
payments in the event of death or disability.
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Each of the Ramco Principals' Employment Agreements provides that if the
Ramco Principal is terminated without cause or he terminates his employment for
"good reason" (as defined below), such executive officer will be entitled to
receive a severance payment equal to the greater of (i) the aggregate of all
compensation due to such executive officer during the balance of the term of the
employment agreement and (ii) 2.99 times the "base amount" (as defined in the
Code) or, after the second anniversary of the date of such agreement, 1.99 times
and, for the duration of the term, those fringe benefits provided for under such
agreement. "Good reason" includes diminution in authority, change of location,
less than two Ramco Principals serving as members of the Board of Trustees or
the Ramco Principals constitute less than 20% of the members of the Board, and a
"change of control." A change of control will occur if any person or group of
commonly controlled persons other than the Ramco Principals or their affiliates
owns or controls, directly or indirectly, more than 25% of the voting control or
value of the capital stock (or securities convertible or exchangeable therefor)
of the Company.
The Ramco Principals' Employment Agreements provide that the Ramco
Principals will conduct all of their real estate ownership, acquisition,
management and development activities (other than certain limited activities
relating to their existing video arcade, fast food franchise and other
businesses and activities relating to certain excluded assets) through the
Company. In connection therewith, the Ramco Principals will agree to offer all
real estate opportunities of which they become aware (other than opportunities
relating to certain excluded assets) to the Company.
The Ramco Principals' Employment Agreements also provide that the Company
will indemnify each Ramco Principal to the fullest extent permitted by law, and
will advance to such executive officer all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted.
Non-Competition Agreements. In connection with the Ramco Principals'
Employment Agreements, upon consummation of the Ramco Acquisition, Richard
Gershenson, Bruce Gershenson and Michael Ward will each enter into a
non-competition agreement with the Company pursuant to which such Ramco
Principals will agree not to compete, directly or indirectly, with the Company
with respect to the ownership, acquisition, management and development of
commercial real estate (except with respect to certain excluded assets) until
the later of (i) three years from the closing of the Ramco Acquisition and (ii)
the date such Ramco Principal is no longer an officer or Trustee of the Company.
However, in the event any such Ramco Principal becomes Chairman, Vice Chairman,
President or Chief Executive Officer of the Company (or holds any other office
in the Company that is vested with similar powers and duties), the term of such
Ramco Principal's non-competition agreement will be extended until the later of
(i) four years from the closing of the Ramco Acquisition or (ii) one year after
the date such Ramco Principal is no longer an officer or Trustee of the Company.
Upon consummation of the Ramco Acquisition, Joel Gershenson and Dennis
Gershenson will each enter into a similar non-competition agreement with the
Company except that the term of such agreement will extend until the later of
(i) four years from the closing of the Ramco Acquisition or (ii) one year after
the date such Ramco Principal is no longer an officer or Trustee of the Company.
Registration Rights and Lock-Up Agreements. Upon the closing of the Ramco
Acquisition, each member of the Ramco Group will enter into a Registration
Rights Agreement and Lock-Up Agreements with the Company. The Lock-Up Agreements
will, subject to certain limited exceptions, restrict the transfer of Units (or
shares of the Company exchanged for Units) issued to each member of the Ramco
Group (other than the Ramco Principals) in connection with the Ramco Acquisition
for a period of 12 months following the closing of the Ramco Acquisition. The
Lock-Up Agreements will, subject to certain limited exceptions, restrict the
transfer of Units (or shares exchanged for Units) issued to each of the Ramco
Principals in connection with the Ramco Acquisition for a period of 30 months
following the closing of the Ramco Acquisition except (i) during the initial 12
months following the Ramco Acquisition, such Ramco Principal shall have the
right to pledge up to 25% of such Units and shares to a financial institution as
collateral for any loan with respect to which such Ramco Principal is personally
liable and (ii) after the expiration of such 12 month period, such Ramco
Principal shall have the right to pledge up to 50% of such Units and shares
(including any Units and shares pledged during the initial 12 month period) to a
financial institution as collateral for any loan with respect to which such
Ramco Principal is personally liable.
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The Registration Rights Agreement will provide that, subject to certain
limitations, and after the expiration of the applicable restriction periods, the
Ramco Group will have certain rights to have their shares included in any
registered public offering undertaken by the Company. The Company will bear all
expenses incident to its registration requirements under the registration
rights, except that such expenses shall not include any underwriting discounts
or commissions.
Certain Bankruptcy Proceedings. On January 31, 1984, North Kent Co., a
Michigan co-partnership comprised of the Ramco Principals, acquired North Kent
Mall (the "Shopping Center"), an enclosed shopping center located in Plainfield
Township, Michigan. The sale was accomplished by means of an installment
contract for the shopping center which "wrapped around" an existing first lien
mortgage loan held by Balcor Pension Investors IV ("Balcor"). Shortly
thereafter, North Kent Co. sold the improvements comprising the Shopping Center
and leased the underlying land to North Kent Mall Associates Limited
Partnership, a Michigan limited partnership (the "North Kent LP") in which North
Kent Co. was the general partner. In 1992, the North Kent LP failed to pay its
monthly debt service to Balcor because the Shopping Center was not generating
sufficient cash to pay all operating expenses and debt service under the Balcor
mortgage, and Balcor exercised its right to collect rents. After workout
negotiations proved unsuccessful, Balcor began foreclosure proceedings, and the
North Kent LP and North Kent Co. filed a petition for bankruptcy under Chapter
11 of the Bankruptcy Code. A reorganization plan was then approved which
restructured the Balcor debt and gave the North Kent LP a certain period of time
in which to either pay off the restructured debt or deliver a deed in lieu of
foreclosure to Balcor. In January 1994 the North Kent LP tendered a deed in lieu
of foreclosure conveying the Shopping Center to Balcor due to its inability to
secure new financing.
TERMINATION OF EXISTING EMPLOYMENT CONTRACTS; TERMINATION AGREEMENTS
See "The Master Agreement -- Certain Covenants," and "COMPENSATION OF
TRUSTEES AND EXECUTIVE OFFICERS -- Employment Agreements."
Pursuant to the Liechtung Termination Agreement, Mr. Liechtung agreed to
terminate his employment as President of the Company effective as of February
29, 1996. Neither the Company nor Mr. Liechtung has any further obligations
under Mr. Liechtung's employment agreement, except that the Company will
continue to be obligated to perform its indemnification obligations thereunder.
In accordance with the terms of the Liechtung Termination Agreement: (i) the
Company paid to Mr. Liechtung a lump-sum termination payment of $1,478,402 and
(ii) Mr. Liechtung surrendered to the Company for cancellation all 600,000 Share
options previously granted to him by the Company, which options were fully
vested and provided for an exercise price of $5.75 per Share (subject to
adjustment as set forth in the Employee Plan). In addition, if the Company
consummates the Ramco Acquisition on or before June 10, 1996, the Company has
agreed to make an additional payment to Mr. Liechtung equal to $159,800 which
amount represents the origination bonus Mr. Liechtung would have been entitled
to receive under his employment agreement if the Ramco Acquisition occurred
during its term.
Pursuant to the Pashcow Termination Agreement, dated as of March 26, 1996,
Mr. Pashcow agreed to terminate his employment as Chairman of the Company
effective as of the closing of the Ramco Acquisition. Neither the Company nor
Mr. Pashcow will thereafter have any further obligations under Mr. Pashcow's
employment agreement, except that the Company will continue to be obligated to
perform its indemnification obligations thereunder. In accordance with the terms
of the Pashcow Termination Agreement: (i) the Company 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), of
which up to a maximum of $1,500,000 will be deferred and paid in January 1997,
and (ii) Mr. Pashcow surrendered to the Company for cancellation all 600,000
Share options previously granted to him by the Company, which options were fully
vested and provided for an exercise price of $5.75 per Share (subject to
adjustment as set forth in the Employee Plan). In addition, upon the closing of
the Ramco Acquisition, Mr. Pashcow will receive an origination bonus in the
amount of $79,900 under his existing employment agreement.
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BENEFITS OF THE RAMCO ACQUISITION TO RAMCO PRINCIPALS
The Ramco Principals will realize certain benefits as a result of the
consummation of the Ramco Acquisition, including the following: (i) the Ramco
Group will transfer their direct and indirect interests in the Ramco
Contribution Assets to the Operating Partnership in exchange for an
approximately 18% limited partnership interest (approximately 1,806,000 Units)
in the Operating Partnership, assuming the conversion of all outstanding loans
made by the Ramco Principals to the Ramco Group into Units and that certain
leasing plans with respect to the Lease Up Property are fulfilled (which 18%
interest has an approximate aggregate value of $28,900,000, based on an assumed
value of $16.00 per Unit); (ii) the Company 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
Ramco Properties); (iii) each of the Ramco Principals will enter into three-year
employment agreements with the Company providing for annual base salaries of
$100,000; (iv) the Company will grant to each of the Ramco Principals options to
purchase 24,000 shares at an exercise price of $16.00 per Share under the New
Plan; (v) the structure of the Ramco Acquisition will provide the Ramco
Principals the opportunity for deferral of tax consequences of the contribution
of their interests in the Ramco Properties to the Operating Partnership; (vi)
Joel, Dennis, Richard and Bruce Gershenson and Michael Ward will be released
from personal guarantees aggregating approximately $66,502,000, as of December
31, 1995, with respect to indebtedness, for which they are jointly and severally
liable, to be repaid in the Ramco Acquisition; (vii) Joel Gershenson and Dennis
Gershenson will be nominated to the Company's Board of Trustees; and (viii) the
Company will assume and repay $3,200,000 of certain unsecured debt associated
with the Ramco Properties that is payable to affiliates of Ramco. The net book
value of the Ramco Contribution Assets that will be acquired by the Company 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 (assuming the conversion of all outstanding
loans made by the Ramco Principals to the Ramco Group into Units), (ii) the
assumption by the Company 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 encumbrance two 50%-owned Ramco Properties, (iii) $3,200,000 in unsecured
loan repayments, (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, who are jointly and severally
liable with respect to such amount, in connection with the Ramco Acquisition.
ACCOUNTING TREATMENT OF THE RAMCO ACQUISITION
The Ramco Acquisition will be accounted for as a purchase for accounting
and financial statement purposes.
REQUIRED APPROVAL FOR PROPOSALS; CONSEQUENCES OF FAILURE TO APPROVE THE
PROPOSALS
The Proposals will be implemented only if each of them is approved. If the
Ramco Acquisition is consummated, the actions contemplated by each of the
Proposals that has been approved will occur substantially simultaneously with
the completion of the Ramco Acquisition. If the Proposals which are a condition
to the consummation of the Ramco Acquisition are approved, the Company will have
the authority to complete the Ramco Acquisition upon the terms generally
described in this Proxy Statement subject to such modifications as the Board of
Trustees determine to be fair and in the best interests of the Shareholders. If
the terms of the Ramco Acquisition change in any material respect from those
described in this Proxy Statement, the Company will be required to resolicit
Shareholder approval of the Ramco Acquisition upon such revised terms. For a
detailed discussion of additional conditions to the consummation of the Ramco
Acquisition, see "-- The Master Agreement -- Conditions to Consummation of the
Contemplated Transactions."
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If the Proposals are not approved, the Company intends to continue to
conduct its business generally in a manner consistent with past practices, while
exploring other transactions outside the ordinary course of its business
designed to convert the Company into an equity REIT. Alternatively, the Company
may seek to enter into a business combination with another REIT or may, subject
to any limitation that may be imposed by the IRS in connection with its ongoing
examination of the Company's tax returns, commence an orderly liquidation of its
assets if the Trustees determine that such a liquidation would maximize
Shareholder value. Any decision to liquidate might involve a special
distribution to Shareholders of a substantial portion of RPS' existing cash but
nevertheless could be subject to approval from the IRS. The Company will be
required to pay approximately $9,000,000 of expenses incurred in connection with
the Contemplated Transactions; in addition, if the Ramco Acquisition does not
occur because the Company has engaged in certain alternative transactions, the
Company has agreed to reimburse Ramco for certain of its expenses incurred in
connection with the Ramco Acquisition, in an amount not to exceed $1,250,000.
Even if the Proposals which are a condition to the consummation of the Ramco
Acquisition are approved, however, there is no assurance that the Ramco
Acquisition will be consummated.
LIMITATIONS ON APPRAISAL RIGHTS
Special Massachusetts counsel to the Company has rendered its opinion to
the Board of Trustees that the facts of the Contemplated Transactions are not
such as to entitle the Company's Shareholders to dissenters' rights of appraisal
in connection with such Contemplated Transactions, including the Ramco
Acquisition.
REASONS FOR THE RAMCO ACQUISITION; RECOMMENDATION OF THE BOARD OF TRUSTEES
The Company's Board of Trustees believes that the terms of the Master
Agreement and the transactions contemplated thereby are fair to and in the best
interests of the Company and its Shareholders. Accordingly, the Company's Board
of Trustees has by a unanimous vote approved the Master Agreement and recommends
approval of the Ramco Acquisition Proposal by the Shareholders. In reaching its
determination to recommend approval of the Ramco Acquisition Proposal, the Board
of Trustees considered, among other things:
(i) the fact that the Ramco Acquisition provides the Company with the
opportunity, in a single transaction, to acquire a portfolio of interests
in 22 shopping center and retail properties, which contain an aggregate of
5,114,000 square feet of GLA, that complements the Company's existing
portfolio of properties. The Board of Trustees viewed this as favorable,
particularly given the length of time and amount of effort required of
management to locate and consummate the acquisition of a substantial number
of properties on an individual basis. In addition, the Board of Trustees
viewed as favorable to its determination that the Ramco Acquisition
(together with the consummation of the Spin-Off Transaction) will permit
the Company to complete its previously announced intention to become a
self-administered and self-managed REIT principally engaged in the business
of owning, managing, leasing, developing, redeveloping and acquiring
shopping center properties;
(ii) Ramco's development, acquisition and in-house property management
capabilities will result in the Company being a more fully integrated real
estate company. The Board of Trustees viewed as favorable the fact that
Ramco had developed or substantially redeveloped or expanded all but one of
the Ramco Properties. In this regard the Board of Trustees noted that the
five Ramco Principals, who have an average of 25 years of shopping center
experience, will enter into three year employment agreements as well as
non-competition agreements with the Company. In addition, the Board of
Trustees viewed as favorable to its determination that the five Ramco
Principals would be incentivized to improve Company performance through a
combination of a substantial interest in the Company, bonuses based on
increases in Funds from Operations and stock options. The Board of Trustees
noted and placed particular emphasis on its belief that by expanding its
development and acquisition capacity the Company would improve its
opportunities for future growth;
(iii) the Company's improved prospects for accessing the equity
capital markets that should result from the anticipated increase in its
market capitalization and the diversification of its portfolio of
properties and its conversion to an equity REIT. The Board of Trustees
believed that access to the equity capital markets could be used to fund
the Company's future growth;
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(iv) information relating to the pro forma business operations of the
Company. The Board of Trustees viewed as favorable to its determination the
fact that, based upon an estimate of cash flow that will be available for
distribution during the 12 months following the Ramco Acquisition under
present conditions, the Company would be able to increase its annual
distributions from $.32 per Share ($1.28 per Share after taking into
account the Reverse Split) to $.42 per Share ($1.68 per Share after taking
into account the Reverse Split). The Board of Trustees also viewed as
favorable that on a pro forma basis 86.2% of the Company's debt would be
fixed rate debt and that on a pro forma basis the Company would have had a
Funds from Operations coverage ratio (i.e., Funds from Operations plus
interest expense divided by interest expense) of more than 3.0 times;
(v) the terms of the Master Agreement, including the equity interest
in the Operating Partnership that would be held by the Company. In this
regard, the Board of Trustees noted that independent appraisals generally
supported the agreed upon value of the RPS Properties (the actual appraised
value of such properties was $47,000,000 compared to an agreed upon value
of $46,025,000). See "-- Structure of the Ramco Acquisition". The Board
also viewed as favorable to the determination the fact that the purchase
price for the Ramco Contribution Assets was based on arm's length
negotiations. The Board noted that the implied capitalization rate of
estimated NOI from the Ramco Properties for the year ended December 31,
1995 was more than 10.5%;
(vi) notwithstanding the fact that Dean Witter concluded it was unable
to render a fairness opinion in connection with the Ramco Acquisition (see
"Risk Factors -- Inability of Financial Adviser to Render a Fairness
Opinion"), the financial advice of Dean Witter with respect to the terms
and conditions of the Ramco Acquisition because Dean Witter is an
internationally recognized investment banking firm with substantial
experience with REITs and analyzing mergers and acquisitions. See
"-- Background of the Ramco Acquisition" and "-- Dean Witter;" and
(vii) the Company's ability to terminate the Master Agreement under
certain circumstances, if required by the fiduciary duties of the Board of
Trustees. The Board viewed such fact as favorable to its determination
because of its belief that, in the absence of significant "lock up"
arrangements, a third party wishing to make a financially superior proposal
to the Company would have an opportunity to do so.
The Board of Trustees also considered potentially negative factors in its
deliberations concerning the Ramco Acquisition Proposal, including, among
others:
(i) the significant costs involved in connection with consummating the
Ramco Acquisition;
(ii) the risk that the anticipated benefits of the Ramco Acquisition
may not be realized; and
(iii) the possibility that the shares of the Company will, following
the Ramco Acquisition, trade at an aggregate price which is less than the
fair market value of the RPS Contribution Assets or the possibility that
the aggregate future market price of the shares of the Company and the
Spin-Off Company Shares would be less than the range of recent trading
prices of the Shares prior to the announcement of the Ramco Acquisition.
In view of the wide variety of factors considered by the Board of Trustees,
the Board of Trustees did not quantify or otherwise attempt to assign relative
weights to the specific factors considered in making its determination. However,
in the view of the Board of Trustees, the potentially negative factors
considered by it were not sufficient, either individually or collectively, to
outweigh the positive factors considered by the Board of Trustees in its
deliberations relating to the Ramco Acquisition Proposal.
VOTE REQUIRED
The affirmative vote of a majority of the Shares voted, in person or by
proxy, is required to approve the Ramco Acquisition Proposal, provided a quorum
is present. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL
OF THE RAMCO ACQUISITION PROPOSAL.
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DEAN WITTER
The Board of Trustees retained Dean Witter to render financial advisory
services to the Board of Trustees (the "Engagement") with respect to the
proposed Ramco Acquisition. Dean Witter commenced performing its services under
the Engagement in November 1993, which was confirmed by a letter dated as of
June 8, 1994. Dean Witter was not engaged to, nor did it, render any advice with
respect to the Spin-Off Company or Spin-Off Transaction. Because the Asset Issue
and the IRS examination have not been concluded, Dean Witter has not continued
its efforts to determine the fairness of the transaction. As such, Shareholders
should note that Dean Witter has never rendered a fairness opinion in connection
with the Ramco Acquisition and Dean Witter's advice as described herein does not
constitute a fairness opinion.
Dean Witter has in the past rendered investment banking services to the
Board of Trustees and has received fees for such services. The Board of Trustees
was aware of these relationships when it retained Dean Witter. The Board of
Trustees selected Dean Witter as its financial advisor for the Engagement based
upon Dean Witter's experience, ability and reputation for providing advice and
fairness opinions for a wide variety of corporate transactions. Dean Witter, as
a part of its investment banking business, is regularly engaged in the valuation
of businesses and securities, including securities of real estate companies,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes.
Under the terms of the Engagement, the Company agreed to pay Dean Witter a
retainer fee of $150,000 upon execution of the written confirmation of the
Engagement, and an additional fee of $150,000 on the date the Company initiated
a proxy solicitation with the goal of effecting the Ramco Acquisition or certain
alternative transactions or series of transactions. If the Ramco Acquisition is
consummated, the Company will pay Dean Witter a cash transaction fee of
$750,000, against which the retainer and additional fees of $300,000 may be
credited. The Company also had agreed to pay $500,000 to Dean Witter if, and at
the time, Dean Witter rendered a fairness opinion; Dean Witter will not receive
any portion of that amount. In the event of consummation of a transaction or
series of transactions, pursuant to which control of or a material interest in
the securities, assets or business of the Company is acquired by or combined
with any unaffiliated third party other than Ramco, the Company will pay Dean
Witter a fee equal to 1% of the aggregate value of such transaction(s). The
Company is also obligated to reimburse Dean Witter for its out-of-pocket
expenses and to indemnify Dean Witter against certain liabilities relating to
services performed by Dean Witter.
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PROPOSAL 2 -- THE DECLARATION OF TRUST AMENDMENT PROPOSAL
GENERAL
Because the Board of Trustees has determined that it is necessary or
desirable in connection with the Ramco Acquisition to effect certain amendments
to the Company's existing Declaration of Trust, the Company is proposing an
amendment to its existing Declaration of Trust to, among other things, (i)
increase certain quorum percentage requirements in connection with meetings of
the Board of Trustees, (ii) establish a Nominating Committee and Advisory
Committee of the Board of Trustees, (iii) change the Company's name to
Ramco-Gershenson Properties Trust, and (iv) authorize the Board of Trustees, on
a one-time basis to effect the Reverse Split in connection with the Ramco
Acquisition, to combine outstanding Shares by way of a 1 for 4 reverse split,
provide for the payment of cash in lieu of any fractional interest in a combined
Share and establish mechanics to implement any such combination. If this
Proposal 2 is approved by the Shareholders and otherwise becomes effective, the
Trustees will cause the Company to adopt the Acquisition Amendment, and to take
such other actions as may be deemed necessary or desirable to effect such
action, including amending the Company's existing By-Laws, where applicable, to
reflect the amendments effected by the Acquisition Amendment. See
"-- Description of the Acquisition Amendment" below.
DESCRIPTION OF THE ACQUISITION AMENDMENT
General. The discussion set forth below does not purport to be complete
and is subject to and qualified in its entirety by reference to Massachusetts
law and also to the Company's existing Declaration of Trust and By-Laws and the
full text of the Acquisition Amendment set forth as Exhibit A to this Proxy
Statement.
Number of Trustees; Quorum. The Acquisition Amendment increases the
maximum number of Trustees constituting the Board of Trustees from nine to
fifteen. In addition, under the Company's existing Declaration of Trust, a
majority of Trustees constitutes a quorum for a meeting of the Board of
Trustees. Under the Acquisition Amendment, a quorum requires the presence of at
least 75% of the Trustees, a majority of whom must be Independent Trustees.
Nominating and Advisory Committees of the Board. The Acquisition Amendment
requires the establishment of a Nominating Committee and an Advisory Committee
which are not required by the Company's existing Declaration of Trust, and
provides that (i) such Nominating Committee shall consist of at least three
members, all of whom shall be Independent Trustees, and which shall nominate
persons for election to the Board of Trustees and (ii) such Advisory Committee
shall consist of three persons who are not Trustees, and shall have the power to
consult with and advise the Board of Trustees as requested.
Name. Under the Acquisition Amendment the Company's name shall be changed
to "Ramco-Gershenson Properties Trust."
Reverse Split. The Acquisition Amendment authorizes the Board of Trustees,
on a one-time basis to effect the Reverse Split in connection with the Ramco
Acquisition, to, in addition to its ability to issue Shares by way of dividend
or share split, combine outstanding Shares by way of a 1 for 4 reverse split,
provide for the payment of cash in lieu of any factional interest in a combined
Share, and establish mechanics to implement any such combination.
VOTE REQUIRED
The affirmative vote of a majority of the issued and outstanding Shares is
required to approve the Declaration of Trust Amendment Proposal. THE BOARD OF
TRUSTEES OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
DECLARATION OF TRUST AMENDMENT PROPOSAL.
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PROPOSAL 3 -- THE NEW PLAN PROPOSAL
The Shareholders are asked to ratify and approve the adoption of the New
Plan on terms summarized below.
THE NEW PLAN
General. The New Plan will provide for the granting, from time to time, to
employees of the Company, the Operating Partnership, Ramco, and their respective
subsidiaries, of options to purchase up to an aggregate number of shares of the
Company equal to the difference between (i) 9% of the total number of issued and
outstanding shares following the Reverse Split (on a fully diluted basis
assuming the exchange of all the Ramco Group's Units for shares) immediately
following the consummation of the Ramco Acquisition and (ii) the number of
shares of the Company (following the Reverse Split) subject to options under the
Employee Plan and the Trustee Plan as of the Closing of the Ramco Acquisition.
It is estimated that options to purchase an aggregate of approximately 855,000
shares will be available for grant under the New Plan after taking into account
the Reverse Split and assuming all the options issued under the Trustee and
Employee Plans will be surrendered as of the closing of the Ramco Acquisition),
then of such amount, options to purchase 120,000 shares, in the aggregate, will
be issued to the Ramco Principals. See "-- Description of the New Plan." The
Company intends to make offers to all existing holders of options granted under
the Employee Plan to surrender such options upon the closing of the Ramco
Acquisition. If any options under the Employee Plan are not so surrendered, the
number of options that will be available for grant under the New Plan will be
reduced by one fourth of such amount (which takes into account the Reverse
Split).
Reasons for Adoption of the New Plan. The Company recognizes the
importance of attracting and retaining employees with the requisite degree of
experience and ability and providing employees with an opportunity to share in
the growth in value of the Company, thereby aligning employees' interests with
those of Shareholders. Such employees are or may become primarily responsible
for the management, direction and financial success of the Company. In addition,
the Ramco Principals' Employment Agreements require the Company to issue options
to purchase shares to the employees pursuant to such agreements.
In the opinion of the Board of Trustees, stock options granted on proper
terms are considered essential in attracting and motivating personnel, and the
interests of the Company and its Shareholders will be advanced thereby. In the
past, the Company has granted options to employees under the Employee Plan to
serve these purposes. Currently, there are very few options remaining for grant
under the Employee Plan. In connection with the consummation of the Ramco
Acquisition, the Company expects to have a substantial number of new employees,
including the Ramco Principals, to whom the Board of Trustees would desire to
grant options. Therefore, the proposed New Plan is intended to provide the
incentives of stock options to new employees whose services are considered
valuable to the Company.
Options granted under the New Plan could, upon exercise, have the immediate
effect of diluting the earnings, net tangible book value, and Funds from
Operations and cash available for distribution per share of the Company.
Description of the New Plan
Administration. Under the New Plan, the Independent Trustee members of the
Compensation Committee of the Board of Trustees are authorized to determine the
individuals to whom and the time or times at which options will be granted, the
number of shares to be subject to each option and to interpret the provisions
and supervise the administration of the New Plan. The Committee may, within the
limits of the New Plan, also determine the terms and provisions of the option
agreements between the Company and the optionees. Members of the Committee are
not eligible for participation in the New Plan and will not receive compensation
for administering the New Plan. Each member of the Committee will be a
"Disinterested Person" under Rule 16b-3(c)(2)(i) of the Exchange Act and an
"outside director" within the meaning of Section 162(m) of the Code.
Participants. All full-time officers and other key employees (including
Trustees who are employees) of the Company, the Operating Partnership, Ramco and
their respective subsidiaries are eligible to participate in the New Plan.
Following the consummation of the Ramco Acquisition, there will be approximately
145
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officers and employees of the Company who will be eligible to participate in the
New Plan, including each of the Ramco Principals.
Options to purchase an aggregate number of shares of the Company equal to
the difference between (i) 9% of the total number of issued and outstanding
shares (on a fully diluted basis assuming the exchange of all Units for shares
of the Company) immediately following the consummation of the Ramco Acquisition
and (ii) the number of shares of the Company subject to options under the
Employee Plan and the Trustee Plan will be available for grant under the New
Plan. In connection with the consummation of the Contemplated Transactions, on
the closing of the Ramco Acquisition, each Ramco Principal will be granted
options to purchase 24,000 shares under the New Plan (collectively, the "Initial
Grants"). Options to purchase no more than 50,000 Shares (exclusive of the
Initial Grants) may be granted to any one individual during any calendar year.
Material Terms. Options granted pursuant to the New Plan will be evidenced
by agreements in such form as the Compensation Committee shall from time to time
approve, subject to the limitations set forth in the New Plan.
The Initial Grants will vest and become exercisable in equal installments
on each of the first, second and third anniversaries of the closing of the Ramco
Acquisition. All other options will become vested and exercisable as determined
by the Compensation Committee and as set forth in individual option agreements.
The exercise price per share for the Initial Grants will equal $16.00 per
share. The $16.00 per share price was based on the agreed upon value of the RPS
Contribution Assets divided by the number of shares of the Company outstanding.
The exercise price per share of all other options granted under the New Plan
will be not less than 100% of the fair market value of the shares of the Company
on the date of grant. The exercise price of the options will be paid in cash
and/or, if the Committee permits, shares having an equivalent fair market value.
In either case, such exercise price is subject to adjustment in the event of
future stock dividends, stock splits or similar reorganizations, as described
below. "Fair market value" as of a particular date is deemed to be the closing
sales price per Share if the shares of the Company are listed on the NYSE or
such other national stock exchange on which the Shares are traded. If the shares
are not listed on any national exchange, the Compensation Committee will
determine the fair market value.
Transfer. Options generally are not transferable other than by will or by
the laws of descent and distribution. Notwithstanding the foregoing, the
Compensation Committee may provide in an individual optionholder's option
agreement that an optionholder may transfer, without consideration, his or her
options to members of his or her immediate family, to trusts established for the
benefit of such family members or to partnerships in which such family members
are the only parties.
Term. Options expire no later than ten years from their date of grant as
provided in the option agreement.
Termination of Employment. Upon the death of an employee while in the
employ of the Company, the vesting of his or her options will accelerate and
remain exercisable in full immediately by the employee's legal representative
for one year from the date of the employee's death. In the event of total
disability of an employee while employed, the vesting of all unexercised options
will accelerate and remain exercisable by the employee for one year of such
disability.
In the event of the termination of employment of an employee by reason of
"retirement," options may be exercised, to the extent exercisable at the time of
such termination, for five years from the date of such termination. "Retirement"
means an employee's termination of employment after age 55 and completion of 15
years of continuous service to the Company, the Operating Partnership, Ramco
and/or any predecessor entity as a Trustee or employee.
In the event of the termination of employment of an employee for cause, all
options held by such employee will immediately terminate and be of no force and
effect, whether or not then vested.
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In the event of termination of employment of an employee for any reason
other than death, disability, retirement or for cause, options may be exercised,
to the extent exercisable at the time of such termination, for one year from the
date of such termination.
Adjustments. The New Plan provides that the number of options and shares
of the Company subject thereto, and the applicable exercise prices, are subject
to appropriate adjustment by the Committee in the event of a stock dividend,
stock split or any recapitalization. In the event of a merger, consolidation or
other like reorganization of the Company, the Compensation Committee may grant
awards under the New Plan in substitution of awards held by employees of another
corporation who as a result of the merger or consolidation become employees of
the Company or a subsidiary of the Company.
Change of Control. In the event of a change of control of the Company,
each outstanding option will become fully exercisable. In the event no provision
is made for the assumption of such options, or the substitution therefor, each
optionholder whose employment has not been terminated will receive from the
Company an amount equal to the excess of the fair market value per share as of
the date the change of control occurred over the applicable exercise price
within 30 days of the change of control.
Amendment. The Board of Trustees of the Company may at any time amend or
discontinue the New Plan, and the Committee may at any time amend or cancel any
outstanding awards under the New Plan, provided that such action will not
adversely affect rights under any outstanding award without the holder's
consent. To the extent required by the Exchange Act to ensure that options
granted under the New Plan are exempt under Rule 16b-3 promulgated under the
Exchange Act and can qualify as performance-related compensation for purposes of
Section 162(m) of the Code, amendments to the New Plan will be subject to
Shareholder approval.
A copy of the New Plan is annexed hereto as Exhibit B and the foregoing
discussion is qualified in its entirety by such reference.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
DOLLAR NUMBER EXERCISE
NAME AND POSITION(1) VALUE($)(2) OF SHARES PRICE
- ------------------------------------------------------------ ----------- --------- ---------
<S> <C> <C> <C>
Joel Gershenson -- Chairman................................. -- 24,000 16.00
Dennis Gershenson -- President and Chief Executive
Officer................................................... -- 24,000 16.00
Michael A. Ward -- Executive Vice President and Chief
Operating Officer......................................... -- 24,000 16.00
Richard Gershenson -- Executive Vice President and
Secretary................................................. -- 24,000 16.00
Bruce Gershenson -- Executive Vice President and
Treasurer................................................. -- 24,000 16.00
Executive Group............................................. -- 120,000 16.00
Non-Executive Director Group................................ -- -- --
Non-Executive Employee Group................................ -- -- --
</TABLE>
- ---------------
(1) There are no plans for any of the Company's current five most highly
compensated officers, nor any current non-executive employees, to receive
options under the New Plan.
(2) Cannot be determined at this time because the price at which the shares of
the Company will trade following the Ramco Acquisition cannot be predicted.
Certain Federal Income Tax Consequences. The following is a summary
description of the Federal income tax consequences of the New Plan. Share
options granted under the New Plan are intended to be "nonqualified stock
options" that will not be governed by the special tax treatment applicable to
"incentive stock options" described in Section 421 and 422 of the Code.
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The grant of a share option under the New Plan is not taxable to the
optionee at the time of grant. Upon the exercise of a share option by an
employee of the Company:
(1) except as described below with respect to an optionee who is
subject to Section 16(b) of the Exchange Act (a "Section 16(b) optionee"),
the optionee will recognize taxable ordinary income in an amount equal to
the excess of the fair market value of the shares acquired on the date of
exercise over the exercise price;
(2) the Company (or the subsidiary which employs the optionee)
generally will be entitled to a deduction at the same time and in the same
amount as the optionee recognizes income; and
(3) upon a sale of the shares so acquired, the optionee will have
short-term or long-term capital gain or loss, as the case may be, in an
amount equal to the difference between the amount realized on such sale and
the tax basis of the shares sold.
If payment of the exercise price is made entirely in cash, the tax basis of
the shares will be equal to their fair market value on the date of exercise, but
not less than the exercise price, and the holding period will begin on the day
after the date of exercise. If the optionee uses previously owned shares to pay
all or part of the exercise price, the transaction will not be considered to be
a taxable disposition of the previously owned shares. The optionee's tax basis
and holding period of the previously owned shares will be carried over to the
equivalent number of shares received on exercise. The tax basis of the
additional shares received upon exercise will be their fair market value on the
date of exercise, but not less than the amount of cash used in payment, and the
holding period for such additional shares will begin on the day after the date
of exercise.
If a share option is exercised within six months of the date of grant by a
Section 16(b) optionee, then, unless the optionee makes an election under
Section 83(b) of the Code within 30 days after exercise to be taxed under the
general rules described above: (i) the Section 16(b) optionee will recognize
taxable ordinary income at the end of the six-month Section 16(b) period, (ii)
the amount of such ordinary income will be equal to the excess of the fair
market value of the shares at that time over the exercise price, and the Section
16(b) optionee's tax basis for the shares will be equal to their fair market
value at that time, (iii) the Section 16(b) optionee's holding period for the
shares will begin at the end of the six-month period, and (iv) any dividends he
receives on the shares before that time will be taxable to him as compensation
income. If previously owned shares are used to pay all or part of the exercise
price, the special rules described above will apply, using the fair market value
of the shares at the end of the six-month period.
LIMITATION ON APPRAISAL RIGHTS
Special Massachusetts counsel to the Company has rendered its opinion to
the Board of Trustees that the facts of the Contemplated Transactions are not
such as to entitle the Company's Shareholders to dissenters' rights of appraisal
in connection with such Contemplated Transactions, including the New Plan
Proposal.
VOTE REQUIRED
The affirmative vote of a majority of the Shares voted, in person or by
proxy, at the Special Meeting is required to approve the New Plan Proposal,
provided a quorum is present. THE BOARD OF TRUSTEES OF THE COMPANY UNANIMOUSLY
RECOMMENDS A VOTE FOR APPROVAL OF THE NEW PLAN PROPOSAL.
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FEDERAL INCOME TAX CONSEQUENCES
The Company believes that the Ramco Acquisition is consistent with its
objective of continuing to operate in a manner so as to continue to satisfy the
Code requirements for qualification as a REIT. However, no assurance can be
given that such requirements will continue to be met or that the Company will be
so qualified at any time. Based on various assumptions relating to the
organization and operation of the Company, the Operating Partnership and the
Ramco Properties and representations made by the Company and the Operating
Partnership as to certain factual matters, and in reliance on the opinion of
Wolf, Block, Schorr and Solis-Cohen ("Wolf, Block") that the income to be
derived from the Ramco Properties is qualifying income under the REIT provisions
of the Code, in the opinion of Battle Fowler LLP ("Counsel") the Company will
continue to qualify to be taxed as a REIT under the Code after the Ramco
Acquisition. Counsel will not review the Company's operating results and no
assurance can be given that the Company's actual operating results will meet the
REIT requirements on a continuing basis.
The opinions described herein represent Counsel's best legal judgment as to
the most likely outcome of an issue if the matter were litigated. Opinions of
counsel have no binding effect or official status of any kind, and in the
absence of a ruling from the IRS, there can be no assurance that the IRS will
not challenge the conclusion or propriety of any of Counsel's opinions. The
Company does not intend to apply for a ruling from the IRS that it qualifies as
a REIT, although, as explained further below it is seeking a closing agreement
with the IRS with respect to certain REIT qualification issues.
The following summary, when read together with the discussion under
"PROPOSAL 3 -- THE NEW PLAN PROPOSAL -- Certain Federal Income Tax
Consequences," includes a discussion of all material Federal income tax
considerations associated with the Proposals. The provisions governing treatment
as a REIT are highly technical and complex, and this summary is qualified in its
entirety by the applicable Code provisions, the rules and regulations
promulgated thereunder and administrative and judicial interpretations thereof.
Moreover, this summary does not address all tax aspects that might be relevant
to a particular Shareholder in light of his personal circumstances and it does
not deal with particular types of Shareholders that are subject to special
treatment under the Code, such as tax-exempt organizations, insurance companies,
financial institutions or broker-dealers, and foreign corporations and persons
who are not citizen or residents of the United States.
BACKGROUND
The Company first elected to qualify as a REIT for the year ended December
31, 1988. Since that date, in accordance with the benefits of treatment as a
REIT for federal income tax purposes, amounts paid by the Company as
distributions to its Shareholders were not subject to corporate income taxes.
For any year in which the Company does not meet the requirements for electing to
be taxed as a REIT, it will be taxed as a corporation.
The rules relating to continued qualification as a REIT are technical and
complex. See "-- Requirements for Qualification as a REIT" below. During early
1995, the Company determined that it may have inadvertently failed to satisfy
the requirement that at least 75% of the total value of its assets, at the end
of each fiscal quarter, consist of real estate assets (including interests in
real property, 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") for the third quarter of 1994, because at the
end of such quarter more than 25% of the Company's assets were invested in
overnight bank repurchase obligations secured by United States Treasury Bills.
In a previously issued Revenue Ruling, the IRS had taken the position that
overnight bank repurchase obligations constitute neither "government securities"
nor cash items for purposes of satisfying the 75% Asset Test. The Company 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 Company relating to
the Shareholder Notice Requirements, pursuant to which the IRS has agreed not to
treat the Company as failing to qualify as a REIT despite the Company's
inadvertent failure to comply with the Shareholder Notice Requirements. The IRS
has deferred any action with respect to the Company's possible non-compliance
with the 75% Asset Test for the
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third quarter of 1994 pending the further examination of the Company's 1991-1994
tax returns. The Company believes that the IRS position in the above-described
Revenue Ruling is incorrect and further believes that even if the IRS position
in such Revenue Ruling were to be upheld, the Company'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 Company to continue to be taxed as a
REIT. However, based on developments in applicable law since the issuance of the
above-described Revenue Ruling, Counsel has rendered an opinion that the
Company's investment in Treasury Bill repurchase obligations would not adversely
affect its REIT status.
Should the IRS deny the Company's request for relief, the Company presently
intends to seek a judicial determination that it may continue to qualify as a
REIT. If the Company 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
Company 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.
The Spin-Off Company will assume all tax liabilities attributable to tax
claims against RPS arising out of the RPS Tax Issues (other than liability that
relates to events occurring or actions taken by RPS following the date of the
Spin-Off Transaction). RPS and the Spin-Off Company have received an opinion of
Wolf, Block that to the extent there is a deficiency in RPS' taxable income
arising out of the IRS examination and provided RPS 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, to satisfy the
requirement that a REIT distribute 95% of its taxable income), the
classification of RPS as a REIT for the taxable years under examination would
not be affected.
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 Company 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 contend that the Company'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 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. The Company does not have the ability to designate a
seat on the Board of Directors of Ramco and the policies and views of the
Company will not influence the policies and views of Ramco. See "PROPOSAL
1 -- THE RAMCO ACQUISITION PROPOSAL -- Risk Factors -- Possible Adverse
Consequences Relating to Interests in Ramco." Consequently, the Company does not
believe that it will be viewed as owning in excess of 10 percent of the voting
stock of Ramco.
REQUIREMENTS FOR QUALIFICATION AS A REIT
The requirements for qualification as a REIT are contained in sections
856-860 of the Code and the regulations issued thereunder. 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. In addition to the requirements of the 75% Asset Test described above,
there are 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
Company 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 Company (i.e., 95%) 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 must also distribute annually an amount generally equal to at
least 95% of its REIT taxable income.
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To the extent that the Company makes any payments that are nondeductible,
it may lose all or a portion of its net operating loss carryover or may need to
obtain funds from sources other than operations in order to satisfy the 95%
annual distribution requirement referred to above. For example, if the aggregate
amounts paid by the Company in any year to certain of its executive officers,
including any bonuses paid to, and any deductions available to the Company as a
result of the exercise of share options by, such officers were to exceed $1
million, the excess would not be deductible by the Company unless it qualified
as performance-based compensation. The compensation of the executive officers of
the Company after the Ramco Acquisition will not be at a level that would be
affected by these limits. In addition, the IRS has proposed regulations that
would treat options as performance-based compensation if the options and the
plans under which they are granted meet certain requirements. The New Plan was
drafted with the intent to qualify the share options granted thereunder as
performance-based.
Structural Considerations. In order to ensure that the "non-closely held"
requirement applicable to REIT qualification be continuously satisfied (i.e.,
five or fewer individuals do not own more than 50% of the value of the
outstanding stock of the entity during the last half of a taxable year), the
Company's existing Declaration of Trust contains an "excess shares" provision.
Such provision provides that if any transfer of Shares would result in any
individual owning in excess of 9.8% of the value of the outstanding stock of the
Company, the amount of stock in excess of 9.8% will be deemed to be offered for
sale to the Company, which can either purchase such shares or sell such shares
on behalf of the holder. In view of the IRS' holdings in recent private letter
rulings, it is likely that in the event the excess shares provision in the
Company's existing Declaration of Trust is triggered, such excess shares will
not be considered to be outstanding, which may make it more difficult for the
Company to meet the non-closely held requirement.
Rents from Real Property. As described earlier (see "PROPOSAL 1 -- RAMCO
ACQUISITION PROPOSAL -- Background of the Ramco Acquisition"), the Company will
have completed its transformation from its business of owning and managing a
participating mortgage loan portfolio to one of owning and operating real
properties (and in particular, shopping center properties). Accordingly,
substantially all of the income received by the Company subsequent to the Ramco
Acquisition is expected to be rental income instead of interest income. In order
to qualify as "rents from real property" for purposes of satisfying the 75
percent and 95 percent gross income tests, several conditions must be satisfied.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person, although rents generally will qualify if they are based
on a fixed percentage of receipts or sales. The Properties are shopping centers
and retail properties and the Company has represented that none of the rents
under the Properties' existing leases to tenants are based on income or profits.
Second, rents received from a tenant will not qualify as "rents from real
property" if the Company or an owner of 10% or more of the Company, directly or
constructively, owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, a REIT generally must not
operate or manage the property or furnish or render services to the tenants of
such property, other than through an "independent contractor" from whom the REIT
derives no income. However, the "independent contractor" requirement does not
apply to the extent the services rendered by a REIT are customarily furnished or
rendered in connection with the rental of the real property (i.e., services
which are not considered rendered to the occupant of the property). The Company
has represented that it does not and will not knowingly (i) rent any property to
a Related Party Tenant; or (ii) collect rent attributable to personal property
which is leased, together with real property, when more than 15% of the total
rent is attributable to personal property.
The Company will, through its interest in the Operating Partnership,
receive dividend income from Ramco. Ramco will provide certain services with
respect to the Properties and may provide similar services for any newly
acquired properties. The Company believes that the services provided by Ramco
are usually or customarily rendered in connection with the rental of space for
occupancy only. Consequently, the Company believes that the provision of such
services will not cause the rents received with respect to the Properties or any
newly acquired properties to fail to qualify as rents from real property for
purposes of the 75% and 95% gross income tests. If, and to the extent that, any
services furnished or performed by the Company, either
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directly or through Ramco, would cause the rents received from the Properties or
any newly-acquired properties to fail to qualify as rents from real property
under the 75% and 95% gross income tests, the Company intends to retain an
independent contractor (from whom it will derive no income) to furnish or
perform such services.
RAMCO ACQUISITION
Pursuant to the Ramco Acquisition, the Company will contribute the RPS Cash
and the RPS Properties to the Operating Partnership, in exchange for Units. A
contribution to a partnership in exchange for an interest in the partnership is
not a taxable transaction, and the Company will recognize no gain or loss as a
result of this transaction. The basis to the Company of the Units received by it
will be the same as its basis in the RPS Contribution Assets. The holding period
of the Units received by the Company will include the period the RPS
Contribution Assets were held by the Company, as long as such assets are either
capital assets or assets used in the trade or business of the Company and have
been held for longer than one year.
SPIN-OFF COMPANY
REIT Qualification. Following the Spin-Off Transaction, the Spin-Off
Company will own certain assets previously owned by the Company, which assets
produced qualifying REIT income substantially in the form of interest from
obligations secured by a mortgage on real property or rents from real property.
The shareholders of the Spin-Off Company will initially be the same as the
Shareholders of the Company immediately prior to the Spin-Off Transaction. It is
anticipated that the operations of the Spin-Off Company will be substantially
the same as the mortgage operation of the Company prior to the Ramco
Acquisition. Accordingly, based upon various assumptions relating to the
organization and operation of the Spin-Off Company and certain factual
representations made by the Spin-Off Company, in the opinion of Counsel, the
Spin-Off Company, upon making the requisite election, should qualify to be taxed
as a REIT.
Based on certain representations by the Company, the transfer of the
Spin-Off Company Assets to the Spin-Off Company will satisfy the requirements
for non-recognition treatment under the Code. Consequently, the Spin-Off Company
will not recognize any gain or loss on the receipt of the Spin-Off Company
Assets in exchange for its shares. The Spin-Off Company's initial tax basis in
the Spin-Off Company Assets will equal the tax basis of the Spin-Off Company
Assets in the hands of the Company immediately prior to the exchange. The
holding period for each of the Spin-Off Company Assets acquired in the exchange
will generally include the Company's holding period for that asset.
Tax Aspects of the Spin-Off Transaction. Because the making of mortgage
loans does not constitute engaging in an active trade or business, both the
Company and the Spin-Off Company do not satisfy a condition necessary for the
distribution by the Company to its Shareholders of the Spin-Off Company Shares
to be accorded tax-free treatment. Consequently, the distribution of the
Spin-Off Company Shares to the Shareholders will be taxable as a dividend to
such Shareholders. The Company has no accumulated earnings and profits. Each
Shareholder will recognize dividend income to the extent the Company has current
earnings and profits at the end of its taxable year. In addition, the adjusted
basis of the Shares in the hands of a recipient Shareholder will be reduced by
the excess of the fair market value of the Spin-Off Company Shares received over
the current earnings and profits of the Company. Any excess of the fair market
value of the Spin-Off Company Shares received over the adjusted basis of the
Shares owned will generally be taxed as capital gain to the Shareholder.
Further, because the Company is not distributing property which has a fair
market value in excess of its basis, the Company should recognize no gain or
loss on the distribution.
REVERSE SPLIT
In the opinion of Counsel, the Reverse Split will not be a taxable
transaction to the Shareholders. However, the Reverse Split may result in
certain Shareholders owning fractional shares of the Company. The Company will
distribute cash to such Shareholders in redemption of such shares. As long as
the distribution of cash in payment of such shares represents merely a
mechanical rounding off of the fractions in the exchange
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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.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable solely to the Company's investment in the Operating
Partnership and represents the view of Battle Fowler LLP. The discussion does
not cover state or local tax laws or any federal tax laws other than income tax
laws.
Classification as a Partnership. All of the Company's real estate
investments will be made through the Operating Partnership, which will hold
interests in two Property Partnerships. In general, partnerships are
"pass-through" entities which are not subject to federal income tax. Instead,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are subject to tax thereon,
without regard to whether the partners receive cash distributions from the
partnership. The Company will be entitled to include in its REIT taxable income
its distributive share of the income of the Operating Partnership and to deduct
its distributive share of the losses of the Operating Partnership only if the
Operating Partnership is classified for federal income tax purposes as a
partnership rather than as an association taxable as a corporation.
An organization formed as a partnership will be treated as a partnership
for federal income tax purposes rather than as a corporation only if it has no
more than two of the following four corporate characteristics: continuity of
life, centralization of management, limited liability and free transferability
of interests.
Neither the Operating Partnerships nor the Property Partnerships have
requested, nor do they intend to request, a ruling from the IRS that they will
be treated as partnerships for federal income tax purposes. Instead, at the
closing of the Ramco Acquisition, Counsel will deliver its opinion that, based
on the provisions of the partnership agreements governing the Operating
Partnership and the Property Partnerships, certain factual assumptions and
certain representations described in the opinion, the Operating Partnership and
the Property Partnerships will not possess more than two corporate
characteristics and thus will be treated (i) as partnerships for federal income
tax purposes and (ii) not as "publicly traded partnerships." Unlike a tax
ruling, an opinion of counsel is not binding on the IRS and no assurance can be
given that the IRS will not challenge the status of the Operating Partnership or
the Property Partnerships as partnerships for federal income tax purposes. If
such challenge were sustained by a court, the Operating Partnership and/or the
Property Partnerships would be treated as a corporation for federal income tax
purposes, with the federal income tax consequences described below. In addition,
the opinion of Counsel is based on existing law, which, to a great extent, is
the result of administrative and judicial interpretation. No assurance can be
given that future administrative or judicial opinions would not modify the
conclusions expressed in the opinion.
If for any reason the Operating Partnership and/or the Property
Partnerships were taxable as a corporation rather than as a partnership for
federal income tax purposes, the Company would not be able to satisfy the asset
requirements for REIT status. In addition, any change in the partnership status
of such entities for tax purposes might be treated as a taxable event in which
case the Company might incur a tax liability without any related cash
distribution. See "-- Income Taxation of the Operating Partnership and Its
Partners -- Basis in Operating Partnership Interest." Further, items of income
and deduction of such partnerships would not pass through to its partners
(including the Company), and such partners would be treated as stockholders for
tax purposes. The Operating Partnership and/or the Property Partnerships would
be required to pay income tax at corporate tax rates on its net income, and
distributions to its partners would constitute dividends that would not be
deductible in computing the relevant entity's taxable income.
INCOME TAXATION OF THE OPERATING PARTNERSHIP AND ITS PARTNERS
Operating Partnership Allocations. As noted above, the Company must
include in its REIT taxable income its distributive share of the income and
losses of any partnership in which it has any interest. Although the provisions
of a partnership agreement generally will determine the allocation of income and
losses among partners, such allocations will be disregarded for tax purposes
under Section 704(b) of the Code if they do not
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have "substantial economic effect" or otherwise do not comply with the
provisions of Section 704(b) of the Code and Treasury Regulations.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners in respect of such item. The allocations of taxable income and
loss of the Operating Partnership and the Property Partnerships are intended to
comply with the requirements of Section 704(b) of the Code and Treasury
Regulations.
Tax Allocations in Respect of Contributed Properties. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated for federal income tax purposes in
a manner such that the contributing partner benefits from, or is charged with
the unrealized gain or unrealized loss associated with the property at the time
of the contribution. The amount of such unrealized gain or unrealized loss
generally is equal to the difference between the fair market value of the
contributed property and the adjusted tax basis of such property at the time of
contribution (the "Book-Tax Difference").
The Treasury Department has recently issued final regulations under Section
704(c) of the Code (the "Regulations") which give partnerships great flexibility
in ensuring that a partner contributing property to a partnership receives the
tax burdens and benefits of any precontribution gain or loss attributable to the
contributed property. The Regulations permit partnerships to use any "reasonable
method" of accounting for Book-Tax Differences. The Regulations specifically
describe three reasonable methods, including (i) the "traditional method" under
current law, (ii) the traditional method with the use of "curative allocations"
which would permit distortions caused by a Book-Tax Difference to be rectified
on an annual basis and (iii) the remedial allocation method which is similar to
the traditional method with "curative allocations." The Company intends to use
the "traditional method" to account for Book-Tax Differences in connection with
the Ramco Acquisition.
Basis in Operating Partnership Interest. The Company's adjusted tax basis
in the Operating Partnership generally (i) will be equal to the amount of cash
and the basis of any other property contributed to such partnership by the
Company, (ii) will be increased by (a) its allocable share of such partnership's
income and (b) its allocable share of any indebtedness of such partnership and
(iii) will be reduced, but not below zero, by the Company's allocable share of
(a) the Operating Partnership's loss and (b) the amount of cash distributed to
the Company, and by constructive distributions resulting from a reduction in the
Company's share of indebtedness of such partnership.
If the Company's allocable share of the loss (or portion thereof) of the
Operating Partnership would reduce the adjusted tax basis of the Company's
partnership interest in such partnership below zero, the recognition of such
loss will be deferred until such time as the recognition of such loss (or
portion thereof) would not reduce the Company's adjusted tax basis below zero.
To the extent that distributions from a partnership to the Company, or any
decrease in the Company's share of the nonrecourse indebtedness of the Operating
Partnership (each such decrease being considered a constructive cash
distribution to the partners), would reduce the Company's adjusted tax basis
below zero, such distributions (including such constructive distributions) would
constitute taxable income to the Company. Such distributions and constructive
distributions normally would be characterized as long-term capital gain if the
Company's interest in such partnership has been held for longer than the
long-term capital gain holding period (currently one year).
Depreciation Deductions Available to the Operating Partnership. Certain
assets owned by the Operating Partnership consist of property contributed to it
by its partners. In general, when property is contributed in a tax-free
transaction under Section 721 of the Code, the transferee-partnership is treated
in the same manner as the contributing partner for purposes of computing
depreciation. The effect of this rule is to continue the historic basis, placed
in service dates and depreciation methods with respect to property contributed
to a partnership. This general rule would apply for any properties the Operating
Partnership would have acquired by reason of the deemed termination for tax
purposes of the Property Partnerships or to the extent that the
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Operating Partnership received an adjustment under Section 743(b) of the Code by
reason of the acquisition of any interests in a Property Partnership that did
not terminate for tax purposes.
As described above (see "-- Income Taxation of the Operating Partnership
and Its Partners -- Tax Allocations in Respect of Contributed Properties"), the
Treasury Department has issued Regulations which give partnerships flexibility
in ensuring that a partner contributing property to a partnership receives the
tax benefits and burden and benefits of any precontribution gain or loss
attributable to the contributed property.
The Company intends to use the "traditional method" to account for Book-Tax
Differences in connection with the Ramco Acquisition. This could result in the
Company being allocated lower depreciation deductions than those available under
a different method of accounting for Book-Tax Differences, which could cause (i)
the taxable income of the Company to be increased and possibly adversely affect
the Company's ability to comply with the distribution requirements applicable to
REITs, and (ii) the earnings and profits of the Company to be increased, thereby
decreasing the portion of distributions by the Company which may be treated as a
return of capital. The Operating Partnership has not determined which of the
alternative methods of accounting for Book-Tax Differences will be elected with
respect to any properties (if any) contributed to the Operating Partnership
subsequent to the Ramco Acquisition.
Partnership Anti-Abuse Rule. The IRS has adopted final regulations that
provide an anti-abuse rule (the "Anti-Abuse Rule") under the partnership
provisions of the Code (the "Partnership Provisions"). Under the Anti-Abuse
Rule, if a partnership is formed or availed of in connection with a transaction
with a principal purpose of substantially reducing the present value of the
partners' aggregate federal tax liability in a manner that is inconsistent with
the intent of the Partnership Provisions, the IRS can disregard the form of the
transaction and recast it for federal tax purposes. The Anti-Abuse Rule states
that the intent of the Partnership Provisions is to permit taxpayers to conduct
business for joint economic profit through a flexible arrangement that
accurately reflects the partners' economic agreement without incurring an entity
level tax. The adopted regulation goes on to provide that the Partnership
Provisions are not intended to permit taxpayers (i) to structure transactions
using a partnership to achieve tax results that are inconsistent with the
underlying economic arrangements of the parties or the substance of the
transactions or (ii) to use the existence of a partnership to avoid the purposes
of other provisions of the Code. The purposes for structuring a transaction
involving a partnership are determined based on all of the facts and
circumstances.
The final regulations contain an example which approves the use of a
partnership in connection with a REIT in order to achieve tax objectives similar
to those involved in the Ramco Acquisition. Counsel is of the opinion that the
Ramco Acquisition is not inconsistent with the Partnership Provisions and the
Anti-Abuse Rule should not apply to the Operating Partnership. However, the
facts surrounding the Ramco Acquisition, while substantially similar to the
facts contained in the example in the regulations, are not identical thereto.
Accordingly, because the Anti-Abuse Rule is potentially extremely broad in
application, it is possible that the IRS could attempt to apply the Anti-Abuse
Rule to the Ramco Acquisition, with the result that the Operating Partnership
could be treated as an association taxable as a corporation, which would
jeopardize the status of the Company as a REIT.
Possible Legislative or Other Actions Affecting Tax Consequences. The
present federal income tax treatment of an investment in the Company may be
modified by legislative, judicial or administrative action at any time and any
such action may affect investments and commitments previously made. The rules
dealing with federal income taxation are constantly under legislative and
administrative review, resulting in revisions of regulations and revised
interpretations of established concepts as well as statutory changes. Revisions
in Federal tax laws and interpretations thereof could adversely affect the tax
consequences of an investment in the Company.
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THE SPIN-OFF TRANSACTION
Pursuant to the Ramco Acquisition, the Company is required, on or prior to
the closing of the Ramco Acquisition, to transfer or otherwise dispose of the
Spin-Off Company Assets. Accordingly, simultaneously with the consummation of
the Ramco Acquisition the Company will transfer to the Spin-Off Company eight
mortgage loans and two real properties (which collectively have a net book value
(including accrued interest) as of December 31, 1995 of approximately
$46,482,000, and as of September 30, 1995 of approximately $47,682,000), as well
as certain other assets, which are anticipated to be a limited partnership
interest in a limited partnership that owns an 18-story building with
approximately 138,500 square feet of leasable space located in Chicago,
Illinois, furniture, fixtures and equipment and cash, together with all of the
liabilities relating to all of such assets, in exchange for all of the "Spin-Off
Company Shares. The Company will thereafter make a distribution to its
Shareholders of one Spin-Off Company Share for every two Shares held by each
such Shareholder (after giving effect to the Reverse Split). As a result of the
Ramco Acquisition and the Spin-Off Transaction, the Company's Shareholders will
own shares in two separate companies, the Company, an equity shopping center
REIT, and the Spin-Off Company, a finite life Maryland REIT.
Shareholders should note that, as reflected in the Information Statement
attached hereto as Appendix A, including the financial statements of the net
assets to be transferred to the Spin-Off Company, as of December 31, 1995, the
Spin-Off Company recognized an impairment of $800,000 with respect to the 9
North Wabash property, which as of December 31, 1995 was vacant, to decrease the
property's carrying value to more closely approximate the appraised value. In
addition, of the mortgage loans included in the Spin-Off Company Assets, as of
December 31, 1995, six of the mortgage loans, constituting approximately 81% of
the Spin-off Company Assets, were in arrears or considered to be "problem"
loans. One of such loans, constituting approximately 1% of the Spin-off Company
Assets, has matured and is currently in default (the Company has initiated
foreclosure proceedings with respect to that loan). Shareholders should also
note that, since September 30, 1995, (i) in December 1995, the Company sold the
New England Telephone loan and received sale proceeds of $25,000, and upon such
sale the Company recognized an additional loss of approximately $182,000, (ii)
in January 1996, the Company received proceeds of $2,008,560 from the repayment
of the Holiday Park Shopping Center loan (such proceeds consisting of the
repayment of the principal balance of $1,916,564, current interest of $24,916
and deferred interest of $67,080), (iii) in February 1996, the Company received
proceeds of $1,512,500 from the repayment of the Simmons Manufacturing Warehouse
loan (such proceeds consisting of the repayment of the principal balance of
$1,500,000 and current interest of $12,500), and (iv) based on a March 1996
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 of December 31,
1995, the Spin-Off Company financial statements included in the attached
Information Statement recognize an allowance for loss of $650,000 with respect
to such loan. See "Business -- Company Assets" and the financial statements in
the attached Information Statement for more information regarding the Spin-Off
Company Assets.
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 extended by the
vote 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 Company 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 all tax liability arising out of
the RPS Tax Issues, 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. Any extension of the Spin-Off Company's 18-month term under
such circumstances will not require the vote of its shareholders. See "PROPOSAL
1 -- THE RAMCO ACQUISITION PROPOSAL -- Background of the Ramco Acquisition" and
"FEDERAL INCOME TAX CONSEQUENCES -- Background" for a
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discussion of the RPS Tax Issues. In addition, because the Spin-Off Company has
adopted a policy not to re-invest sales proceeds in additional mortgage loans on
real estate (except to the extent necessary to satisfy applicable REIT
requirements), a merger or other business combination involving the Spin-Off
Company and another real estate entity may constitute a "roll-up transaction"
under applicable securities laws. In such case, the Spin-Off Company would be
required to comply with the heightened disclosure rules as well as special rules
relating to the proxy solicitation process and the listing of the securities of
the surviving company on any exchange or on Nasdaq. As such, application of the
roll-up rules to a company merger or business combination could delay, deter or
prevent such a transaction from occurring.
In connection with the Spin-Off Transaction and pursuant to the Master
Agreement, the Spin-Off Company will assume all potential tax liability arising
out of the RPS Tax Issues. Notwithstanding the assumption of the potential tax
liability by the Spin-Off Company, a special committee of the Board that will
consist of the Continuing Trustees, except for Robert A. Meister, 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 Company which, in turn, would result
in a corresponding increase in the Company'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
Company, in order to preserve its status as a REIT, would in such event declare
and pay to its Shareholders at that 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.
Accordingly, Shareholders should note that in the event a deficiency dividend is
paid under the circumstances described above, this would result in an indirect
payment of cash from the Spin-Off Company to the Shareholders of the Company at
the time the dividend payment is made.
The Spin-Off Company has registered its shares of beneficial interest under
Section 12(g) of the Exchange Act, and has filed a registration statement on
Form 10 with the SEC. An Information Statement which was prepared pursuant to
the requirements of Regulation 14(c) under the Exchange Act and contains
financial as well as other material information with respect to the business and
management of the Spin-Off Company and the Spin-Off Transaction, is attached to
this Proxy Statement as Appendix A.
Following the Spin-Off Transaction, it is expected that the Company and the
Spin-Off Company will conduct their respective businesses as independent
companies with their own separate employees, and the Company will retain no
ownership interest in the Spin-Off Company.
The approval of the Company's Shareholders is not required in order for the
Company to effectuate the Spin-Off Transaction, and no such approval is being
sought. Furthermore, the Spin-Off Transaction is not conditioned upon the
consummation of the Ramco Acquisition, and accordingly, the Spin-Off Transaction
may be effectuated even if the Ramco Acquisition does not occur. However, as set
forth above, disposition of the Spin-Off Company Assets is a condition of the
Ramco Acquisition, and, accordingly, the Spin-Off Company Assets must be
transferred or otherwise disposed of by the Company in order for the Ramco
Acquisition to occur.
On April 3, 1995, the Board of Trustees authorized the formation of a
committee of the Board of Trustees (the "Spin-Off Committee"), which committee
was directed to work with the Company's management in the structuring and
analysis of the Spin-Off Transaction, liquidation of the Spin-Off Company Assets
and potential mergers and combinations. Messrs. Goldberg, Blumenfeld and
Glickman are the members of the Spin-Off Committee. Each such member has
received $25,000 in his capacity as a member of the Spin-Off Committee, which
amount will be retained regardless of whether the Spin-Off Transaction occurs.
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TRUSTEES AND EXECUTIVE OFFICERS
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company 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 President August 1991
Edwin R. Frankel....................... Senior Vice President and Treasurer March 1983*
John J. Johnston, Jr................... Vice President -- Real Estate Counsel
and Secretary November 1983*
</TABLE>
- ---------------
* Includes periods served in similar capacities for the Company's predecessors.
Joel M. Pashcow, age 53, has been associated with the Company since its
inception, and assumed the office of President of the Company effective as of
February 29, 1996. 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 Company 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 Company 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.
TRUSTEES OF THE COMPANY
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 Company are as follows:
<TABLE>
<CAPTION>
HAS SERVED AS
NAME OFFICES AND POSITIONS TRUSTEE SINCE*
---- ------------------------------------------- ---------------
<S> <C> <C>
Joel M. Pashcow............... Chairman, President and Member of
Investment Committee October 1980
Herbert Liechtung**........... Member of Investment Committee October 1981
Stephen R. Blank.............. Member of the Compensation and Special
Acquisition Committees January 1990
Edward Blumenfeld............. Member of Audit, Investment and Spin-Off
Committees September 1988
Samuel M. Eisenstat........... Member of Audit Committee and Alternate
Member of Investment Committee December 1986
Edwin J. Glickman............. Member of Investment, Compensation and
Spin-Off Committees October 1980
Arthur H. Goldberg............ Member of Audit, Compensation, Spin-Off and
Special Acquisition Committees July 1988
William A. Rosoff............. Member of Special Acquisition Committee January 1990
Alfred D. Stalford............ Member of Compensation and Investment
Committees April 1983
</TABLE>
- ---------------
* Includes periods served in similar capacities for the Company's predecessors.
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** Pursuant to the Liechtung Termination Agreement, Mr. Liechtung, the former
President of the Company, ceased to be an executive officer of the Company as
of February 29, 1996. See "PROPOSAL 1 -- THE RAMCO ACQUISITION PROPOSAL --
Termination of Existing Employment Contracts; Termination Agreements."
The biographical summary for Mr. Pashcow is set forth above under
"Executive Officers of the Company."
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 Masters 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 firm principally engaged in the
development of commercial properties, since 1978.
Samuel M. Eisenstat, age 56, 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 President 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. On
February 13, 1990, Integrated Resources, Inc. filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. 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 Company since its
inception, and served as President of the Company 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 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 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
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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).
There are no family relationships between any Trustee or executive officer
and any other Trustee or executive officer of the Company; however, Steven
Liechtung, the son of Herbert Liechtung, is a Vice President of the Company.
COMMITTEES; MEETINGS
The Company has 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 Company and its Trustees,
officers, holders of 5% or more of its Shares or any affiliates, periodic review
of the Company's financial statements and meetings with the Company's
independent auditors. The Audit Committee met once during 1995.
The Company also has 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 Company 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 Employee Plan.
The Compensation Committee met once during 1995.
The Company also has 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 Company's investments,
restructurings of investments and dispositions of investments, subject only to
the restrictions on investments and investment policies set forth in the
Company's Declaration of Trust.
The Board of Trustees established the Special Acquisition Committee to
assist the Company's management in the negotiation of the Ramco Acquisition and
related transactions, as discussed elsewhere in the Proxy Statement. Messrs.
Blank, Goldberg and Rosoff are the members of the Special Acquisition Committee.
The Board of Trustees established the Spin-Off Committee to work with the
Company's management in the structuring and analysis of the Spin-Off
Transaction, liquidation of the Spin-Off Assets and potential mergers and
combinations, as discussed elsewhere in this Proxy Statement. Messrs. Goldberg,
Glickman and Blumenfeld are the members of the Spin-Off Committee.
The Trust currently does not have a Nominating Committee.
During the year ended December 31, 1995, the Board of Trustees held fifteen
meetings. All of the Trustees, except for Edward Blumenfeld (who attended 73%)
and Samuel M. Eisenstat (who attended 67%), attended at least 75% of the
aggregate of (i) the total number of meetings of the Board of Trustees and (ii)
the total number of meetings held by all committees on which such Trustee
served.
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Exchange Act requires the Company's officers and
Trustees, and persons who own more than ten percent of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "Commission") and the
New York
101
<PAGE> 113
Stock Exchange. Officers, Trustees and greater than ten percent shareholders are
required by regulation of the Commission to furnish the Company 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 Company 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.
COMPENSATION OF TRUSTEES AND EXECUTIVE OFFICERS
CASH COMPENSATION
The following table sets forth information with respect to the cash
compensation paid by the Company for services rendered during the year ended
December 31, 1995 to Mr. Pashcow, the Company's Chairman, and the four other
most highly compensated executive officers, whose total remuneration from the
Company exceeded $100,000 for such period:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
(i)
(d) OTHER
(b) (c) OTHER ANNUAL
(a) SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4)
- ---------------------------------------- ----- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Herbert Liechtung....................... 1995 331,012 -- 13,144 8,100
President(5) 1994 321,650 38,342 16,054 8,100
1993 312,561 11,023 11,049 12,735
Joel M. Pashcow......................... 1995 331,012 -- 81,531 8,100
Chairman 1994 321,650 19,172 97,828 8,100
1993 312,561 5,412 51,358 12,735
Stanley Rappoport....................... 1995 167,964 -- 2,520 8,100
Executive Vice President 1994 163,072 -- 1,404 8,100
1993 158,314 -- 1,404 8,625
Edwin R. Frankel........................ 1995 114,860 18,000 3,085 7,748
Senior Vice President and Treasurer 1994 111,514 18,000 3,029 7,535
1993 108,262 18,000 348 6,837
John J. Johnston, Jr.................... 1995 113,869 17,600 1,404 7,574
Vice President -- Real Estate Counsel 1994 110,552 17,600 1,404 7,372
and Secretary 1993 107,330 17,600 1,404 6,822
</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 represent
Distribution Incentive Bonus and Origination Bonus for that fiscal year
earned pursuant to ten-year employment agreements expiring December 31,
1998.
(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) Includes discretionary contributions by the Company to the RPS Realty Trust
Retirement Savings Plan for such named officer's account, including
forfeitures, if any.
102
<PAGE> 114
(5) Pursuant to the Liechtung Termination Agreement, Mr. Liechtung ceased to be
an executive officer of the Company as of February 29, 1996. See "PROPOSAL
1 -- THE RAMCO ACQUISITION PROPOSAL -- Termination of Existing Employment
Contracts; Termination Agreements."
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 regular committees of the Board. Messrs. Pashcow, Liechtung
and Rosoff do not receive any compensation for their services as Trustees. See
"INTEREST OF CERTAIN PERSONS" for compensation received by members of the
Special Acquisition Committee and the Spin-Off Committee.
In April 1989, the Board of Trustees adopted the Trustee Plan, which plan
was subsequently approved by the Company's Shareholders. Pursuant to the plan,
each Trustee who is not an officer or employee of the Company 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 Trustee 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 Trustee Plan became exercisable after one year
following the date of grant with respect to 50% of the Shares covered thereby,
with the remaining 50% becoming 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 (7,405 shares after taking into account the Reverse Split) at an
exercise price of $5.375 per Share ($21.50 per share after taking into account
the Reverse Split) and 20,378 Shares (5,094 shares after taking into account the
Reverse Split), at an exercise price of $5.25 per Share ($21.00 per share after
taking into account the Reverse Split), respectively. On January 29, 1990 and
January 29, 1992, each of Messrs. Rosoff and Blank were granted options to
purchase 29,622 Shares (7,405 shares after taking into account the Reverse
Split) at an exercise price of $5.75 per Share ($23.00 per share after taking
into account the Reverse Split) and 20,378 Shares (5,094 shares after taking
into account the Reverse Split) at an exercise price of $5.375 per Share ($21.50
per share after taking into account the Reverse Split), respectively. All
options granted under the plan are currently exercisable. As of September 30,
1995, to the best of the Company's knowledge, no options issued pursuant to the
Trustee Plan had been exercised. The total number of Shares for which options
may be granted under the plan and for which outstanding options may be
exercised, as well as the exercise prices of outstanding options, will be
adjusted to reflect the impact of the Reverse Split.
The Independent Trustees have advised the Company that they will surrender
their options to the Company, without consideration, upon the closing of the
Ramco Acquisition.
EMPLOYMENT AGREEMENTS
Joel M. Pashcow, the Chairman and President of the Company, is employed
pursuant to a ten-year employment agreement, expiring December 31, 1998, which
was acquired by the Trust in the Acquisition. 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.
103
<PAGE> 115
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 Company'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 Company 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 Company, 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, he is entitled to receive the Distribution Incentive Bonus through
2001, based upon a formula set forth in his employment agreement.
Mr. Pashcow receives an Origination Bonus equal to .1175% of the amount of
investments for which a formal commitment is executed by the Company 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 an
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 (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 the employment agreement, and for
two years after such time as he voluntarily ceases to be an employee of the
Company prior to the expiration of such term (except for reasons of material
breach by the Company or the occurrence of an acquisition event described in the
following paragraph), not to engage in any business ventures which compete with
the Company's mortgage lending business.
In the event of, among other things, a Business Change Event (as defined
below), Mr. Pashcow, upon the delivery of timely notice to the Company, may
terminate his employment agreement with the Company. In such event, the Company
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. The employment agreement defines "Business Change Event" to mean the
occurrence of certain events, including a change of business of the Company
having the effect that the Company business ceases to be primarily the business
of mortgage lending.
Pursuant to the Pashcow Termination Agreement, Mr. Pashcow has agreed to
terminate his employment as Chairman and President of the Company effective as
of the closing of the Ramco Acquisition, and thereafter, neither the Company nor
Mr. Pashcow will have any further obligations under Mr. Pashcow's existing
employment agreement, except that the Company will continue to be obligated to
perform its indemnification obligations thereunder.
104
<PAGE> 116
Prior to the effective date of the Liechtung Termination Agreement, Mr.
Liechtung was employed by the Company 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.
SEVERANCE AND OTHER ARRANGEMENTS WITH EXECUTIVE OFFICERS AND CERTAIN KEY
EMPLOYEES
On August 9, 1994, the Company was authorized 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 Company is terminated
after such date would be entitled to receive from the Company an amount equal to
one month's salary for each year that such employee was employed by the Company
(and/or the Company's predecessors), up to a maximum of 12 months' salary. In
addition, in connection with the negotiation of the Ramco Acquisition, the Board
determined that it was necessary to enter into arrangements with certain of the
executive officers and key employees of the Company, to induce such individuals
to remain in the employ of the Company at least through the consummation of the
Ramco Acquisition. Accordingly, on August 9, 1994, the Board authorized the
payment to Messrs. Edwin R. 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 Company
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 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, ratified 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 J.
Johnston, Jr., each of whom is an executive officer 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 COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Stephen R. Blank, Edwin
J. Glickman, Alfred D. Stalford and Arthur H. Goldberg. Messrs. Blank and
Goldberg each received $150,000 in 1995 in their capacities as members of the
Special Acquisition Committee.
COMPENSATION PLANS
The Company maintains a retirement savings plan for all full-time employees
meeting certain criteria as to age and length of employment, including the
Company'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 Company, 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
Company, 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.
105
<PAGE> 117
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.
In 1989, the Company and its Shareholders approved the Employee Plan. The
plan provides for the granting to employees of the Company of options to
purchase up to an aggregate of 1,550,000 Shares (387,000 after taking into
account the Reverse Split). The plan is administered by the Compensation
Committee of the Board of Trustees, 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.
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 Company granted options to purchase an aggregate
of 1,355,000 Shares (338,750 after taking into account the Reverse Split), at an
exercise price of $5.75 per Share ($23.00 after taking into account the Reverse
Split), under the Employee Plan, of which options to purchase 1,325,000 Shares
(331,250 after taking into account the Reverse Split) remain outstanding as of
March 15, 1996. 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 Company's five most highly compensated officers:
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
SUBJECT TO VESTED AS OF ACQUIRED UPON
NAME OF INDIVIDUAL OR NUMBER IN GROUP OPTIONS GRANTED 12/31/95 EXERCISE
- ------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Herbert Liechtung(1) 600,000(1) 600,000(1) --
Joel M. Pashcow 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 Company for cancellation.
(2) Pursuant to the Pashcow Termination Agreement, Mr. Pashcow agreed to
surrender his 600,000 Share options to the Company for cancellation upon the
closing of the Ramco Acquisition.
As of December 31, 1995, to the best of the Company's knowledge, no options
issued pursuant to the Employee Plan had been exercised.
The Company 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 Ramco
Acquisition.
See "PROPOSAL 3 -- THE NEW PLAN PROPOSAL" for information regarding the New
Plan.
106
<PAGE> 118
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 15, 1996, the following person was known by the Company to be
the beneficial owner of more than five percent of the Shares of the Company
(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 beneficial interest $.10 par
value Poff & Co. (Trustee for 1,724,595 6.1%
Policemen and Firemen Shares
Retirement System of owned
the City of Detroit) directly
c/o ComericaBank, Inc.
P.O. Box 1319 Detroit,
Michigan 48231
Shares of beneficial interest $.10 per
value Ryback Management Corp. 2,240,100 7.9%
and/or Lindner Investment Shares
Series Trust, in a owned as
fiduciary capacity for fiduciary
Lindner Growth Fund with sole
c/o Ryback Management voting and
Corporation disposition
7711 Carondelet Avenue, power
Box 16900,
St. Louis, Missouri 63105
</TABLE>
The following table sets forth as of March 15, 1996 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 PERCENT
BENEFICIAL OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(9) 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 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
107
<PAGE> 119
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 Liechtung Termination Agreement, Mr. Liechtung
ceased to be an executive officer of the Company 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, 24,400 Shares 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, 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 Share 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 Trustee Plan
which shall be surrendered to the Company without compensation, upon the
closing of the Ramco Acquisition. See "COMPENSATION OF TRUSTEES AND
EXECUTIVE OFFICERS."
INTEREST OF CERTAIN PERSONS
Certain members of management have substantial interests in the Proposals
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 Company, 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 Company that ran through
December 31, 1998 and provided for a current base salary of approximately
$340,000 as well as certain performance based bonuses, 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), (ii) pursuant
to the Pashcow Termination Agreement, Joel M. Pashcow, the Chairman, President
and a Trustee of the Company, 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 $79,900 pursuant to his existing employment agreement, in
consideration of the termination of his employment agreement with the Company
that runs through December 31, 1998 and provides for a current base salary of
approximately $340,000 as well as certain performance based bonuses, 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), (iii) Messrs. Liechtung and Pashcow will continue as members of the Board
of Trustees of the Company 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 Company,
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, including payments of $272,000,
$119,000 and $135,000 to Edwin R. Frankel, Stanley Rappoport, and John J.
Johnston, Jr., respectively, each of whom is an executive officer of the
Company, (v) based on an offer to be made by the Company, certain non-continuing
employees of the Company (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, including Messrs. Frankel and
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<PAGE> 120
Johnston, Steven Liechtung, Vice President of the Company, and Nancy M.
Comerford, Director of Operations of the Company, who will receive $25,000,
$25,000, $10,000, and $2,500, respectively, and (vi) Mr. Frankel, Senior Vice
President and Treasurer of the Company, will become an executive officer of the
Spin-Off Company and receive compensation of $60,000 per annum. See "PROPOSAL 1
- -- THE RAMCO ACQUISITION PROPOSAL -- Termination of Existing Employment
Contracts; Termination Agreements" and "COMPENSATION PLANS."
Steven Liechtung, the son of Herbert Liechtung, is a Vice President of the
Company. 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 Employee 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.
The law firm of Wolf, Block has served as special real estate counsel to
the Company in connection with the Ramco Acquisition. It is anticipated that
Wolf, Block will receive legal fees of approximately $1,160,000 from the Company
in connection with the Ramco Acquisition. William Rosoff, a member of the
Company's Board of Trustees, was a partner of Wolf, Block until January 15,
1996.
On April 17, 1994, the Board of Trustees 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 Board of Trustees 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. On April 3, 1995, in recognition of the
expectation that the Ramco Acquisition would not be consummated for several more
months, the Board of Trustees 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 Board of Trustees authorized and the Company paid the payments to
each of Messrs. Blank and Goldberg of an additional $100,000 in their capacities
of 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.
On April 13, 1995, the Board of Trustees 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.
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Proxy
Statement:
"ACMs" means asbestos-containing materials.
"Acquisition Amendment" means the proposed amendment to the Company's
Declaration of Trust, the form of which amendment is annexed as Exhibit A to the
Proxy Statement.
"ADA" means the Americans with Disabilities Act.
"Alternative Transaction" means any transaction or series of transactions
(including, without limitation, private purchases, tender offer, exchange offer,
merger, consolidation, partnership or other business combination) whereby,
directly or indirectly, control of a material interest in the securities,
assets, properties or business of the Company is acquired by or combined with
any person; provided, however, an Alternative Transaction shall not include the
disposition, transfer or sale of the Spin-Off Company Assets or any actions
relating to, or consummation of, the Spin-Off Transaction.
"Anchor" means a department store or other large retail store with more
than 20,000 square feet of GLA.
"Anti-Abuse Rule" means the recently adopted final regulations that provide
an anti-abuse rule under the Partnership Provisions.
"Arthur Andersen" means Arthur Andersen LLP.
"Asset Issue" means the facts and circumstances relating to the fact that
during the third quarter of 1994, the Company 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 an asset qualification test
applicable to REITs, based on a Revenue Ruling published in 1977.
"Book-Tax Difference" means the difference between the fair market value of
the contributed property and the adjusted tax basis of such property at the time
of contribution.
"Business Change Event" means the occurrence of certain events, including a
change of the business of the Company having the effect that the Company's
business ceases to be primarily the business of mortgage lending.
"Cash Option" means the option of the Company, as the sole general partner
of the Operating Partnership, to exchange a limited partner's Units for cash if
that limited partner desires to exchange such Units for shares of the Company.
"Closing Conditions Agreement" means the Closing Conditions Agreement dated
as of April 10, 1995 between the Operating Partnership and the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means, prior to the consummation of the Ramco Acquisition, RPS
Realty Trust, a Massachusetts business trust, and its subsidiaries on a
consolidated basis and, following the Ramco Acquisition, Ramco-Gershenson
Properties Trust, a Massachusetts business trust, and its subsidiaries on a
consolidated basis, including the Operating Partnership and Ramco.
"Compensation Committee" means a committee of the Board of Trustees of the
Company who will determine the compensation of the Company's executive officers
and who will administer the Company's stock option plans.
"Contemplated Transactions" means the transactions contemplated by each of
the Proposals and the Spin-Off Transaction.
"Continuing Trustees" means, as of any time, those trustees of the Company
then in office who were trustees of the Company immediately prior to the closing
of the Ramco Acquisition; provided, however, if at any time the number of
Continuing Trustees is less than four, the remaining Continuing Trustees (by a
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majority vote) shall elect such number of Independent Trustees to become
Continuing Trustees as may be necessary to cause the number of Continuing
Trustees to equal four, whereupon such Independent Trustee(s) shall be deemed
Continuing Trustees.
"Counsel" means Battle Fowler LLP.
"Credit Facility" means the Company's proposed $50,000,000 revolving line
of credit.
"Dean Witter" means Dean Witter Reynolds Inc.
"Declaration of Trust Amendment Proposal" means Proposal 2 of the Proxy
Statement.
"Deloitte & Touche" means Deloitte & Touche LLP, the Company's independent
auditors.
"Development Land" means the approximately 155 acres of development land
under option to be acquired by the Company in the Ramco Transaction.
"Employee Plan" means the RPS Realty Trust 1989 Employees' Stock Option
Plan.
"Employment Contracts" means the Company's employment agreements with
Messrs. Liechtung and Pashcow.
"Engagement" means the Board of Trustees' retention of Dean Witter to
render financial advisory services with respect to the proposed Ramco
Acquisition and to render a fairness opinion.
"Environmental Laws" means various Federal, state and local laws,
ordinances and regulations relating to the protection of the environment.
"Excess Amortization" means the difference, if any, between the principal
amount of the Ramco Property debt at December 31, 1994 and the principal amount
of such debt at the closing of the Ramco Acquisition.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Expenses" means (i) amounts paid or payable to Herbert Liechtung
and Joel M. Pashcow pursuant to arrangements terminating their existing
employment contracts and with respect to their surrender of options in the
Company (including amounts payable to their respective counsel), (ii) expenses
required to be paid by the Ramco Contributing Parties under the Ramco Agreements
(unless specifically set forth in the Master Agreement), (iii) expenses to be
paid by the Company's subsidiaries under the RPS Contribution Agreements (unless
specifically set forth in the Master Agreement), (iv) expenses incurred in
connection with the IRS' on-going examination of the Company's tax returns that
are incurred from and after October 31, 1995 through the closing of the Ramco
Acquisition and (v) as reasonably determined in good faith by the Company,
expenses relating to the Spin-Off Transaction.
"Excluded Properties" means the properties in which the Ramco Principals
have a direct ownership interest but are not being included in the Ramco
Acquisition.
"Final Determination" means either (i) a decision, judgment, decree or
other order by the United States Tax Court that the Company or the Spin-Off
Company (as applicable), in its sole and absolute discretion, determines not to
appeal or (ii) if there is a development in the law which occurs after the date
of the Master Agreement which would cause either the Company or the Spin-Off
Company (pursuant to the Tax Agreement referred to in Section 3.1(o) of the
Master Agreement), based on the advice of independent tax counsel, to assess the
impact of the Asset Issue significantly different from those set forth in
Counsel's opinion to the Company, a settlement with the IRS that is approved by
either the Company or the Spin-Off Company.
"Form 10-K" means the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, as amended.
"Funds from Operations" means net income (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation of real property, and after adjustments
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for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be calculated to reflect
Funds from Operations on the same basis.
"GAAP" means generally accepted accounting principles.
"GLA" means gross leasable area.
"Independent Trustees" means those Trustees on the Board of Trustees of the
Company who are not salaried employees of the Company, Ramco or their respective
subsidiaries.
"Initial Grants" means the grants under the New Plan to each Ramco
Principal of options to purchase 24,000 shares of the Company.
"Initial Master Agreement" means the Master Agreement, dated as of April
10, 1995, among the Company, Ramco and the Ramco Group which was subsequently
amended and restated by the Master Agreement.
"IRS" means the Internal Revenue Service.
"Jackson Crossing Property" means the regional mall developed by Ramco and
located at Jackson Crossing, Jackson, Michigan.
"Jackson Lease Up Period" means the period from January 1, 1996 through
March 31, 1997.
"January 1995 Appraisals" means the appraisals of the RPS Properties as of
January 1, 1995 performed by Arthur Andersen.
"Lease Up Property" means the Jackson Crossing Property.
"Letter of Intent" means the letter of intent between the Company and
Ramco, dated July 14, 1994.
"Liechtung Termination Agreement" means the Amended and Restated
Termination Agreement, dated as of February 29, 1996, between the Company and
Herbert Liechtung.
"Lock-Up Agreements" means the Lock-Up Agreements between the Company and
each member of the Ramco Group to be entered into upon the closing of the Ramco
Acquisition.
"Master Agreement" means the Amended and Restated Master Agreement, dated
as of December 27, 1995, among the Company, Ramco and the Ramco Group, as
amended by First Amendment to Amended and Restated Master Agreement, dated as of
March 19, 1996, as further amended from time to time.
"Michigan Properties" means the Ramco Properties located in Michigan.
"Mortgage Loans" means the $78,000,000 and $4,370,000 non-recourse loans to
be received from an insurance company simultaneously with the closing of the
Ramco Acquisition, the proceeds of which will principally be used to pay down
existing indebtedness on the Ramco Properties.
"Mortgage Loans Advance" shall mean the Company's advance, of $2,471,000 in
connection with the application for the Mortgage Loans.
"New Plan" means the 1996 Stock Option Plan of Ramco-Gershenson Properties
Trust adopted by the Board of Trustees of the Company.
"New Plan Proposal" means Proposal 3 of the Proxy Statement.
"NOI" means revenues from property operations, minus property operating and
maintenance expenses, management expenses, insurance and real estate taxes.
"North Towne Option" means the option held by the Company to acquire the
partnership interest of the Ramco affiliate in the partnership which owns North
Towne Commons.
"NYSE" means The New York Stock Exchange, Inc.
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"Operating Partnership" means Ramco-Gershenson Properties, L.P., a Delaware
limited partnership, through which the Company will conduct its business
following the consummation of the Ramco Acquisition.
"Option Properties" means the six shopping center properties with respect
to which the Company will have the option to acquire the interests of Ramco and
its affiliates therein.
"Outparcels" means the five outparcels totaling approximately 7.1 acres to
be acquired by the Company in the Ramco Acquisition.
"Outside Partners" means the partners, other than the Company, in the
Property Partnerships.
"Partnership Agreement" means the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership.
"Partnership Provisions" means the partnership provisions of the Code.
"Pashcow Termination Agreement" means the termination agreement, dated as
of March 26, 1996, between the Company and Joel M. Pashcow.
"Phar Mor Space" means the space previously occupied by Phar Mor at Jackson
Crossing.
"Phar Mor Space Units" means those Units which may be earned by the Ramco
Group in connection with future leasing activities at the Jackson Crossing
Property, which Units will be issued to the Ramco Group upon execution of a
Qualifying Lease for more than 80% of the Phar Mor Space.
"Phase I Assessments" means the Phase I Environmental Assessments performed
for each of the Ramco Properties.
"Pledge Agreement" means the pledge agreement to be entered into among the
Company, the Ramco Principals and certain members of the Ramco Group upon
consummation of the Ramco Acquisition.
"Pledged Collateral" means all of the Ramco Principals' direct and indirect
interest in any Units or shares of the Company that will be acquired by them in
the Ramco Acquisition, including certain direct and indirect interests held by
such persons in the Ramco Group.
"Properties" means the RPS Properties and the Ramco Properties.
"Property Contribution Agreements" means the Ramco Agreements and the RPS
Contribution Agreements.
"Property Partnerships" means the partnerships which own Kentwood Towne
Center and Southfield Plaza Expansion.
"Proposals" means each proposal to be voted on by the Shareholders at the
Special Meeting.
"Proposed Acquiror" means the public company that, on February 12, 1996,
submitted a written proposal to the Company regarding a proposed business
combination with the Company.
"Qualifying Lease" means either (i) a lease that satisfies all of the
following conditions: it is duly executed and delivered by all necessary
parties, it initially had a term of at least three years, it requires the
payment of a market rent, the tenant under the lease is a person who normally
occupies space in a retail shopping center, the tenant is open for business and
paying rent or, if it is a new lease, the tenant is scheduled to be open for
business and paying rent within three months after the lease is signed (except
if the conditions for occupancy require that more than three months elapse
before the tenant is scheduled to open for business and begin paying rent, this
condition will be satisfied if the tenant under such lease provides the Company
with an estoppel letter indicating that the lease is in full force and effect
and the tenant is scheduled to be open for business and paying rent within the
time period stated in the lease), the tenant's business, design of improvements
and type of establishment is consistent with the leasing restrictions included
in existing reciprocal easement agreements, development agreements and/or anchor
leases, it satisfies all REIT eligibility requirements, and it requires the
tenant to pay for an appropriate share of operating expenses at the property or
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(ii) certain specified leases that satisfy all of the conditions set forth in
clause (i) except that the tenant under such lease is not open for business.
"Ramco" means Ramco-Gershenson, Inc., a Michigan corporation.
"Ramco Acquisition" means the acquisition by the Company of substantially
all of the shopping center and retail properties, as well as the management
organization, personnel and business operations, of Ramco.
"Ramco Acquisition Proposal" means Proposal 1 of the Proxy Statement.
"Ramco Agreements" means the individual contribution agreements by which
the Ramco Properties have been or will be transferred to the Operating
Partnership.
"Ramco Contribution Assets" means the Outparcels, the Ramco Properties, the
Ramco Stock, the Development Land and the Option Properties.
"Ramco Group" means the current owners of the Ramco Properties and, if
applicable, their respective individual partners, as well as the shareholders of
Ramco.
"Ramco Principals" means Joel, Dennis, Richard and Bruce Gershenson and
Michael Ward.
"Ramco Principals' Employment Agreements" means the employment agreements
between each of the Ramco Principals and the Company to be executed upon
consummation of the Ramco Acquisition.
"Ramco Properties" means the interests in 22 shopping center and retail
properties that will be acquired by the Company in the Ramco Acquisition.
"Ramco Stock" means 100% of the non-voting common stock and 5% of the
voting common stock in Ramco, representing in excess of 95% of the economic
interests in Ramco which will be acquired by the Company in the Ramco
Acquisition.
"Ramco Stock Contribution Agreement" means the individual contribution
agreement by which the Ramco Stock will be contributed to the Operating
Partnership.
"Record Date" means the close of business on March 21, 1996.
"Refinanced Loan Excess" means the amount of cash, if any, equal to the
difference between the proceeds under the Mortgage Loan when combined with the
portion of the RPS Cash that is available for the prepayment of the Ramco
Property debt and the amount needed to pay off specified Ramco Property debt at
the closing of the Ramco Acquisition.
"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and each member of the Ramco Group to be entered into upon
the closing of the Ramco Acquisition.
"Regulations" means the final regulations under Section 704(c) of the Code
recently issued by the Treasury Department.
"REIT" means a real estate investment trust.
"Related Party Tenant" means a tenant that is 10% owned, either directly or
constructively, by the Company or an owner of 10% or more of the Company.
"Reverse Split" means the combination of the Company's Shares by means of a
1 for 4 reverse stock split.
"Right" means a Share Purchase Right under the Rights Agreement dated
December 6, 1989 between the Company and American Stock Trust & Transfer
Company.
"RPS Audit" means the IRS examination of the Company's 1991-1994 tax
returns.
"RPS Cash" means the $68,000,000 in cash which the Company will transfer to
the Operating Partnership pursuant to the Ramco Acquisition (less the Mortgage
Loans Advance).
"RPS Contribution Agreements" means the individual contribution agreements
by which the RPS Properties will be transferred to the Operating Partnership.
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"RPS Contribution Assets" means the RPS Properties and the RPS Cash.
"RPS Properties" means the six properties that are currently owned by the
Company and that will be transferred to the Operating Partnership pursuant to
the Ramco Acquisition.
"RPS Tax Issues" means the Asset Issues and the RPS Audit.
"Section 16(b) optionee" means an optionee who is subject to Section 16 of
the Exchange Act.
"Shareholders" means the holders of Shares of the Company.
"Shares" means, prior to the Reverse Split, the shares of beneficial
interest, par value $.10 per share, of the Company and "shares," with respect to
the Company, means the shares of beneficial interest, par value $.01 per share,
of the Company after the Reverse Split.
"Special Acquisition Committee" means a committee of the Board of Trustees
of the Company comprised of Messrs. Blank, Goldberg and Rosoff.
"Special Meeting" means the Special Meeting of Shareholders of the Company
to be held at Deloitte & Touche LLP, 2 World Financial Center, 3rd Floor, New
York, New York, on April 29, 1996 at 10:00 a.m., New York City time, and at any
and all adjournments or postponements thereof.
"Spin-Off Company Assets" means the Company's eight mortgage loans,
interests in its Norgate Center and 9 North Wabash Avenue properties, a limited
partnership interest in a limited partnership that owns an 18-story building
with approximately 138,500 square feet of leasable space located in Chicago,
Illinois, furniture, fixtures and equipment and cash which will be transferred
to the Spin-Off Company, and certain other assets.
"Spin-Off Committee" means a committee of the Board of Trustees of the
Company comprised of Messrs. Blumenfeld, Glickman and Goldberg.
"Spin-Off Company" means Atlantic Realty Trust, a Maryland real estate
investment trust.
"Spin-Off Company Shares" means shares of beneficial interest, par value
$.01 per share of the Spin-Off Company.
"Spin-Off Transaction" means the transfer of the Spin-Off Company Assets to
the Spin-Off Company and the ratable distribution of the Spin-Off Company Shares
to the Company's Shareholders.
"Spring Meadows Loan" means the refinancing of the mortgage debt
encumbering the Spring Meadows Place Property.
"Stabilized Jackson Income" means the annualized stabilized NOI from the
Jackson Crossing Property from Qualifying Leases during the period from January
1, 1997 through March 31, 1997.
"Superior Alternative Transaction" means an Alternative Transaction on
terms that are superior to the terms of the Contemplated Transactions for the
Shareholders of the Company.
"Tel-Twelve Lease" means the Media Play lease at the Tel-Twelve Mall.
"Tax Liquidation Right" means the right of the Continuing Trustees to
liquidate the Operating Partnership's assets if the Company lost its REIT status
as a result of the Asset Issue.
"Termination Agreements" means the Pashcow Termination Agreement and the
Liechtung Termination Agreement.
"Termination Payment" means the payment required to be made under each
Employment Contract upon the occurrence of certain events, including a Business
Change Event.
"Transaction Consideration" means the allocation of interests in the
Operating Partnership between the Company and the Ramco Group.
"Transaction Documents" means the documents related to the Master
Agreement.
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"Trustee Plan" means the RPS Realty Trust 1989 Trustees' Stock Option Plan.
"Units" means an undivided limited or general partner interest in the
Operating Partnership representing an interest in profits, losses and
distributions from such partnership.
"USTs" means underground storage tanks.
"West Oaks II Loan" means the refinancing of the mortgage debt encumbering
the West Oaks II Property.
"Wolf, Block" means Wolf, Block, Schorr and Solis-Cohen.
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ACCOUNTANTS' REPRESENTATIVES
It is expected that representatives of Deloitte & Touche LLP, the Company's
independent auditors, will be present at the Special Meeting to respond to
appropriate questions of Shareholders and to make a statement if they desire.
CERTAIN VOTING PROCEDURES; OTHER
BUSINESS AND EXPENSE OF SOLICITATION
Shares held of record by Shareholders or brokers who do not return a signed
and dated proxy or attend the Special Meeting and vote in person will not be
considered present or represented at the Special Meeting, will not be counted in
determining the presence of a quorum, and will not be voted. The presence, in
person or by proxy, of Shareholders holding a majority of the Shares entitled to
vote shall constitute a quorum for the Special Meeting. Abstentions and broker
non-votes will neither be counted in establishing a quorum nor be voted for or
against matters presented for Shareholder consideration. Because Proposal 2
requires the affirmative vote of holders of a majority in interest of the
outstanding Shares of the Company, and because abstentions and broker non-votes
with respect to a proposal are not counted as affirmative votes, they have the
same effect as a vote against the proposal.
A proxy executed and delivered by a Shareholder may subsequently be revoked
by written notice of revocation to the Company. A revocation may be in any
written form validly signed by the record holder as long as it clearly states
that such holder's proxy previously given is no longer effective. To prevent
confusion, the notice of revocation must be dated. Notices of revocation should
be delivered to The Herman Group, Inc., 2121 San Jacinto Street, 26th Floor,
Dallas, Texas 75201.
If a Shareholder signs, dates and delivers a proxy card to the Company, and
thereafter, on one or more occasions dates, signs and delivers a later-dated
proxy card, the latest dated proxy card is controlling as to the instructions
indicated therein and supersedes such Shareholder's prior proxy as embodied in
any previously submitted proxy card.
IF A PROXY CARD IS PROPERLY EXECUTED AND DELIVERED BUT NO INDICATION IS
MADE AS TO WHAT ACTION IS TO BE TAKEN, IT WILL BE DEEMED TO CONSTITUTE A VOTE IN
FAVOR OF ALL OF THE COMPANY PROPOSALS.
Management does not know of any other matters to be brought before the
Special Meeting except those set forth in the notice thereof. If other business
is properly presented for consideration at the Special Meeting, it is intended
that the proxies will be voted by the persons named therein in accordance with
their judgment on such matters.
The cost of solicitation of proxies in the form enclosed herewith will be
paid by the Company. In addition to the solicitation of proxies by mail, the
Trustees, officers and employees of the Company may also solicit proxies
personally or by telephone without additional compensation for such activities.
The Company will also request persons, firms and corporations holding Shares in
their names or in the names of their nominees, which are beneficially owned by
others, to send proxy materials to and obtain proxies from such beneficial
owners. The Company will reimburse such holders for their reasonable expenses.
In addition, the Company has retained The Herman Group, Inc. to assist in
the solicitation of proxies through any and all methods described above. For
those services, the Company will pay this firm certain fees estimated at
$52,000, plus reimbursement of out-of-pocket costs and expenses.
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INCORPORATION BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1994, together with the financial statements contained therein, as amended by
the Company's Form 10-K/A1, dated April 7, 1995, Form 10-K/A2, dated July 11,
1995, Form 10-K/A3, dated September 8, 1995, and Form 10-K/A4, dated September
29, 1995, the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, the Company's Current Report on Form 8-K dated April 24, 1995,
the Company's Quarterly Report on Form 10-Q for the six months ended June 30,
1995, as amended by the Company's Form 10-Q/A1 dated September 29, 1995, and the
Company's Quarterly Report on Form 10-Q for the nine months ended September 30,
1995, the Company's Current Report on Form 8-K dated January 10, 1996, as
amended by the Company's Current Report on Form 8-K/A1, dated March 1, 1996, the
Company's Current Report on Form 8-K dated March 28, 1996, and all other
documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act prior to the date of the Special Meeting are
incorporated herein by reference. The Company will provide, without charge
(other than a reasonable charge for any exhibit requested) to each Shareholder,
upon written or oral request of such Shareholder, a copy of any of the
aforementioned documents, by first class mail or other equally prompt means
within one business day of receipt of such request. Any such request should be
directed to John J. Johnston, Jr., Secretary of the Company, at 747 Third
Avenue, New York, New York 10017, telephone number (212) 355-1255.
Your cooperation in giving this matter your immediate attention and in
returning your proxies promptly will be appreciated.
By Order of the Board of Trustees
JOHN J. JOHNSTON, JR.,
Secretary
March 29, 1996
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
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PAGE
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<S> <C>
COMPANY PRO FORMA FINANCIAL STATEMENTS
Pro Forma Condensed Consolidated Balance Sheet (Unaudited) as of September 30, 1995.................. F-3
Pro forma Condensed Consolidated Statement of Income (Unaudited) for the Nine Months Ended September
30, 1995.......................................................................................... F-4
Pro Forma Condensed Consolidated Statement of Income (Unaudited) for the Year Ended December 31,
1994.............................................................................................. F-5
Pro Forma Condensed Consolidated Statement of Income (Unaudited) for the Nine Months Ended September
30, 1994.......................................................................................... F-6
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements............................. F-7
RAMCO-GERSHENSON PROPERTIES
Independent Auditors' Report......................................................................... F-11
Combined Statements of Revenues and Certain Expenses for the Years Ended December 31,
1994, 1993 and 1992 and (Unaudited) the Nine Months Ended September 30, 1995 and 1994............. F-12
Notes to Combined Statements of Revenues and Certain Expenses........................................ F-13
RAMCO-GERSHENSON, INC.
Independent Auditors' Report......................................................................... F-16
Consolidated Balance Sheets as of December 31, 1994 and 1993 and (Unaudited)
September 30, 1995................................................................................ F-17
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1993 and 1992 and
(Unaudited) the Nine Months Ended September 30, 1995 and 1994..................................... F-18
Consolidated Statements of Retained Earnings (Deficit) for the Years Ended December 31, 1994, 1993
and 1992 and (Unaudited) the Nine Months Ended September 30, 1995................................. F-19
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 and
(Unaudited) the Nine Months Ended September 30, 1995 and 1994..................................... F-20
Notes to Consolidated Financial Statements........................................................... F-21
ATLANTIC REALTY TRUST Appendix A
Independent Auditors' Report......................................................................... F-2
Balance Sheet of the Company as of December 31, 1995................................................. F-3
NET ASSETS TO BE TRANSFERRED TO ATLANTIC REALTY TRUST
Independent Auditors' Report......................................................................... F-4
Consolidated Balance Sheets of the Net Assets to be Transferred to the Company as of September 30,
1995 (Unaudited) and December 31, 1995 and 1994................................................... F-5
Consolidated Statements of Operations of the Net Assets to be Transferred to the Company for the Nine
Months Ended September 30, 1995 (Unaudited) and for the Years Ended December 31, 1995, 1994 and
1993.............................................................................................. F-6
Combined Statements of Shareholder's Equity of the Net Assets to be Transferred to the Company for
the Years Ended December 31, 1995, 1994 and 1993.................................................. F-7
Consolidated Statements of Cash Flows of the Net Assets to be Transferred to the Company for the Nine
Months Ended September 30, 1995 (Unaudited) and for the Years Ended December 31, 1995, 1994 and
1993.............................................................................................. F-8
Notes to Consolidated Financial Statements for the Nine Months Ended September 30, 1995 (Unaudited)
and for the Years Ended December 31, 1995, 1994 and 1993.......................................... F-9
PRO FORMA FINANCIAL STATEMENTS
Pro Forma Statements of Net Assets in Liquidation as of September 30, 1995 (Unaudited) and December
31, 1995 (Unaudited).............................................................................. F-18
Pro Forma Statement of Changes in Net Assets in Liquidation for the Year Ended December 31, 1995
(Unaudited)....................................................................................... F-20
Notes to Pro Forma Consolidated Financial Statements for the Nine Months Ended September 30, 1995
(Unaudited) and for the Year Ended December 31, 1995 (Unaudited).................................. F-21
HYLAN SHOPPING PLAZA
Independent Accountant's Report...................................................................... F-22
Balance Sheets of Hylan Shopping Plaza as of December 31, 1995 and 1994.............................. F-23
Statements of Operations and Capital Deficit of Hylan Shopping Plaza for the Years Ended December 31,
1995, 1994 and 1993............................................................................... F-24
Statements of Cash Flows of Hylan Shopping Plaza for the Years Ended December 31, 1995, 1994 and
1993.............................................................................................. F-25
Notes to Financial Statements of Hylan Shopping Plaza for the Years Ended December 31, 1995, 1994 and
1993.............................................................................................. F-26
</TABLE>
F-1
<PAGE> 131
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1995 and Pro Forma Condensed Consolidated Statements of Income for
the nine months ended September 30, 1995 and 1994 and the year ended December
31, 1994 have been prepared to reflect the transactions which are anticipated to
occur concurrently with and as a condition to the Contemplated Transactions
including the Ramco Acquisition and Spin-off Transaction. Those assets
contributed to Ramco-Gershenson Properties, L.P. ("Operating Partnership") by
RPS Realty Trust ("Company") ("RPS Contribution Assets") in exchange for units
of partnership interest in the Operating Partnership ("Units") were recorded on
a historical basis. The RPS Contribution Assets include 6 shopping center and
retail properties and $68 million in cash. Those assets acquired by the
Operating Partnership from The Ramco Group ("Ramco Contribution Assets") in
exchange for Units were recorded using an assumed value of $16.00 per Unit. The
Ramco Contribution Assets include 20 shopping center and retail properties, 50%
equity interests in 2 additional shopping center properties, 100% of the
non-voting common stock and 5% of the voting common stock (which collectively
represent in excess of a 95% economic interest) of Ramco-Gershenson, Inc.
("Ramco"), certain development land and out parcels as well as options on
certain development land and out parcels. The pro forma financial information is
based on the historical financial statements incorporated by reference in this
Proxy Statement and should be read in conjunction with those financial
statements and notes thereto. The Pro Forma Condensed Consolidated Balance Sheet
was prepared as if the Contemplated Transactions occurred on September 30, 1995.
The Pro Forma Condensed Consolidated Statements of Income were prepared as if
the Contemplated Transactions occurred on January 1, 1994 and January 1, 1995.
The pro forma financial information is unaudited and is not necessarily
indicative of the results which actually would have occurred if the Contemplated
Transactions had been consummated on the dates described, nor does it purport to
represent the future financial position or results of operations of the Company.
F-2
<PAGE> 132
COMPANY PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1995
(IN 000'S)
<TABLE>
<CAPTION>
SPIN-OFF
AND OTHER RPS
RPS RPS CONTRIBUTION RAMCO OTHER PRO FORMA
HISTORICAL TRANSACTIONS ASSETS ACQUISITION ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in real
estate, net....... $ 56,220 $ (7,693)(1) $ 48,527 $ 219,910(4) $268,437
Mortgage loans....... 36,218 (36,218)(1)
Other assets......... 18,526 (8,359)(1) 7,963(3) (1,777)(4) 6,186
(2,204)(3)
Investment in
unconsolidated
entities.......... 1,296(4)
4,115(4) 5,411
Cash and Short-term
investments....... 72,109 (4,275)(1) 67,834 (67,834)(4)
2,424(2)
(2,424)(2)
-------- -------- -------- -------- -------- --------
Total
Assets..... $ 183,073 $(58,749) $124,324 $ 155,710 $280,034
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt................. $ 6,500(2) $ 117,670(4) $117,670
(6,500)(2)
Other liabilities.... $ 3,783 (1,503)(1)
(2,279)(2)
Minority interest.... $ 40,623(6) 40,623
Shareholders'
Equity............ 179,290 (46,118)(1) $124,324 38,040(4) (40,623)(6) 121,741
(8,924)(2)
2,279(2)
(2,204)(3)
-------- -------- -------- -------- -------- --------
Total
Liabilities
and
Shareholders'
Equity..... $ 183,073 $(58,749) $124,324 $ 155,710 $280,034
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to pro forma condensed consolidated balance sheet.
F-3
<PAGE> 133
COMPANY PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN 000'S EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SPIN-OFF
AND OTHER RPS
RPS RPS CONTRIBUTION RAMCO OTHER PRO FORMA
HISTORICAL TRANSACTIONS ASSETS ACQUISITION ADJUSTMENTS CONSOLIDATED
----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents.................. $ 4,584 $ (579)(A) $4,005 $17,747(D) $ 21,752
Percentage rents............... 707 707 586(D) 1,293
Recoveries from tenants........ 1,523 (154)(A) 1,369 10,973(D) 12,342
Interest and other............. 5,765 (2,689)(A) 234(D) 234
(3,076)(A)
----------- ------------ ------------ ----------- ----------- ------------
Total revenues.......... 12,579 (6,498) 6,081 29,540 35,621
EXPENSES:
Property operating and
maintenance.................. 1,297 (149)(A) 981 7,886(D) $ 358(G) 9,225
(167)(C)
Real estate taxes.............. 988 (255)(A) 733 3,146(D) 3,879
Management fees................ 1,077(D) 1,077(H)
Other operating expenses....... 4,269 (3,000)(A)
(1,269)(C)
General and administrative
expenses..................... 1,587 (1,587)(A) 1,445(I) 1,445
Depreciation and
amortization................. 910 (82)(A) 680 3,710(J) 4,390
(148)(C)
----------- ------------ ------------ ----------- ----------- ------------
Total expenses.......... 9,051 (6,657) 2,394 12,109 4,436 18,939
----------- ------------ ------------ ----------- ----------- ------------
OPERATING INCOME................. 3,528 159 3,687 17,431 (4,436) 16,682
INTEREST EXPENSE................. 454(D) 6,351(K) 6,805
INCOME (LOSS) FROM UNCONSOLIDATED
ENTITIES:
Partnerships................... (63)(E) 26(L)
(131)(M) 14
182(N)
Ramco.......................... 651(F) (969)(O) (448)
(130)(P)
----------- ------------ ------------ ----------- ----------- ------------
588 (1,022) (434)
----------- ------------ ------------ ----------- ----------- ------------
INCOME BEFORE MINORITY INTEREST
IN EARNINGS OF
OPERATING PARTNERSHIP.......... 3,528 159 3,687 17,565 (11,809) 9,444
MINORITY INTEREST IN EARNINGS OF
OPERATING PARTNERSHIP.......... (2,363)(Q) (2,363)
----------- ------------ ------------ ----------- ----------- ------------
NET INCOME....................... $ 3,528 $ 159 $3,687 $17,565 $ (14,171) $ 7,081
============ =========== =========== ========== =========== ============
NET INCOME PER SHARE............. $ .50 $ .99
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING.................... 7,123,105 7,123,105
============ ============
</TABLE>
See accompanying notes to pro forma financial statements.
F-4
<PAGE> 134
COMPANY PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(IN 000'S EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SPIN-OFF
AND OTHER RPS
RPS RPS CONTRIBUTION RAMCO OTHER PRO FORMA
HISTORICAL TRANSACTIONS ASSETS ACQUISITION ADJUSTMENTS CONSOLIDATED
----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents...................... $ 4,689 $ (727)(A) $5,119 $23,405(D) $ 28,524
1,157(B)
Percentage rents................... 555 166(B) 721 765(D) 1,486
Recoveries from tenants............ 1,231 (120)(A) 1,563 14,827(D) 16,390
452(B)
Interest and other................. 19,931 (17,024)(A) 298 165(D) 463
(2,638)(C)
29(B)
---------- -------- ------ ------- ----------
Total revenues.............. 26,406 (18,705) 7,701 39,162 46,863
EXPENSES:
Property operating and
maintenance...................... 1,530 (225)(A) 1,379 10,569(D) $ 778(G) 12,726
299(B)
(225)(C)
Real estate taxes.................. 1,236 (511)(A) 946 4,125(D) 5,071
221(B)
Management fees.................... 1,426(D) (1,426)(H)
Other operating expenses........... 4,538 (3,761)(A)
(777)(C)
General and administrative
expenses......................... 2,086 (1,189)(A) 1,927(I) 1,927
(897)(C)
Depreciation and amortization...... 948 (73)(A) 882 4,946(J) 5,828
205(B)
(198)(C)
---------- -------- ------ ------- -------- ----------
Total expenses.............. 10,338 (7,131) 3,207 16,120 6,225 25,552
OPERATING INCOME..................... 16,068 (11,574) 4,494 23,042 (6,225) 21,311
INTEREST EXPENSE..................... 426 (426)(A) 596(D) 8,468(K) 9,064
INCOME (LOSS) FROM UNCONSOLIDATED
ENTITIES:
Partnerships....................... (146)(E) 34(L) (14)
(174)(M)
272(N)
Ramco.............................. 695(F) (1,119)(O) (524)
(100)(P)
---------- -------- ------ ------- -------- ----------
549 (1,087) (538)
------- -------- ----------
INCOME BEFORE MINORITY INTEREST IN
EARNINGS OF OPERATING
PARTNERSHIP........................ 15,642 (11,148) 4,494 22,995 (15,780) 11,709
MINORITY INTEREST IN EARNINGS OF
OPERATING PARTNERSHIP.............. (2,930)(Q) (2,930)
---------- -------- ------ ------- -------- ----------
NET INCOME........................... $ 15,642 $(11,148) $4,494 $22,995 $ (18,710) $ 8,779
========== ======== ====== ======= ======== ==========
NET INCOME PER SHARE................. $ 2.20 $ 1.23
========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING........................ 7,123,105 7,123,105
========== ==========
</TABLE>
See accompanying notes to pro forma financial statements.
F-5
<PAGE> 135
COMPANY PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1994
(IN 000'S EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SPIN-OFF
AND OTHER RPS
RPS RPS CONTRIBUTION RAMCO OTHER PRO FORMA
HISTORICAL TRANSACTIONS ASSETS ACQUISITION ADJUSTMENTS CONSOLIDATED
--------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents.................... $ 3,144 $ (385)(A) $3,916 $17,439(D) $ 21,355
1,157(B)
Percentage rents................. 487 166(A) 653 508(D) 1,161
Recoveries from tenants.......... 825 (60)(A) 1,217 11,143(D) 12,360
452(B)
Interest and other............... 18,400 (18,500)(A) 198 122(D) 320
298(C)
--------- -------- ------ ------- -------- ---------
Total revenues............ 22,856 (16,872) 5,984 29,212 35,196
--------- -------- ------ ------- -------- ---------
EXPENSES:
Property operating and
maintenance.................... 1,123 (177)(A) 1,077 7,879(D) $ 744(G) 9,700
299(B)
168(C)
Real estate taxes................ 618 (115)(A) 724 3,130(D) 3,854
221(B)
Management fees.................. 1,062(D) (1,062)(H)
Other operating expenses......... 1,557 (1,557)(C)
General and administrative
expenses....................... 1,511 (614)(A) 1,445(I) 1,445
(897)(B)
Depreciation and amortization.... 683 3(A) 693 3,710(J) 4,403
205(B)
(198)(C)
--------- -------- ------ ------- -------- ---------
Total expenses............ 5,492 (2,998) 2,494 12,071 4,837 19,402
--------- -------- ------ ------- -------- ---------
OPERATING INCOME................... 17,364 (13,874) 3,490 17,141 (4,837) 15,794
INTEREST EXPENSE................... 426 (426) 439(D) 6,351(K) 6,790
INCOME (LOSS) FROM UNCONSOLIDATED
ENTITIES:
26(L)
Partnerships..................... (233)(E) (131)(M) (103)
235(N)
Ramco............................ 395(F) (713)(O) (375)
(57)(P)
--------- -------- ------ ------- -------- ---------
162 (640) (478)
--------- -------- ------ ------- -------- ---------
INCOME BEFORE MINORITY INTEREST IN
EARNINGS OF
OPERATING PARTNERSHIP............ 16,938 (13,448) 3,490 16,864 (11,827) 8,527
MINORITY INTEREST IN EARNINGS OF
OPERATING PARTNERSHIP............ (2,133)(P) (2,133)
--------- -------- ------ ------- -------- ---------
NET INCOME......................... $ 16,938 $(13,448) $3,490 $16,864 $ (13,961) $ 6,393
========= ======== ====== ======= ======== =========
NET INCOME PER SHARE............... $ 0.50 $ 0.90
========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING...................... 7,123,105 7,123,105
========= =========
</TABLE>
See accompanying notes to pro forma financial statements.
F-6
<PAGE> 136
NOTES TO COMPANY UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN 000'S EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
PRO FORMA BALANCE SHEET ADJUSTMENTS
These pro forma adjustments reflect the Contemplated Transactions including
the Ramco Acquisition and the Spin-Off Transaction.
(1) Represents the effect of the Spin-Off Transaction including the
mortgage loan portfolio as well as certain other assets of RPS to a newly formed
real estate investment trust to be called Atlantic Realty Trust ("Atlantic
Realty"). All shares and per share amounts have been adjusted to reflect the
proposed 1 for 4 reverse stock split. (See Appendix A)
(2) Receipt of $2,424 of cash from RPS and $6,500 of borrowings by RPS used
to make following payments of which $6,870 will be expenses of the Company in
connection with the Contemplated Transactions:
<TABLE>
<S> <C>
Severance pay and stay bonuses...................................... $5,500
Directors' and officers' insurance.................................. 725
Miscellaneous expenses.............................................. 420
Unpaid distributions to shareholders at September 30, 1995.......... 2,279
------
$8,924
======
</TABLE>
It is anticipated that Atlantic Realty will assume $6,500 of eighteen
month, 10.00% debt (to be borrowed by RPS) in order to provide RPS the funds
necessary to make such payments.
(3) Other assets remaining after the Spin-Off Transaction and a write-off
of Deferred Acquisition Costs of $2,204 include the following:
<TABLE>
<S> <C>
Prepaid Ramco acquisition costs..................................... $7,166
Other assets, including accounts receivable......................... 797
------
$7,963
======
</TABLE>
F-7
<PAGE> 137
NOTES TO COMPANY UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(4) Represents the issuance of 2,377,492 Units to the Ramco Group at an
assumed price of $16.00 (determined by dividing the agreed upon value of the RPS
Assets by the shares outstanding after the 1 for 4 reverse stock split), the
assumption of $8,938 of mortgage indebtedness and the refinancing of $103,753 of
mortgage indebtedness related to the 20 shopping center and retail properties to
be acquired in the Ramco Acquisition. The value of the stock to be used for
financial statement purposes will be the quoted market price for a reasonable
period following the Contemplated Transaction. The following tables set forth
the adjustments:
<TABLE>
<S> <C> <C>
Increase in Investment in Real Estate................. $ 219,910
Decrease in other assets:
Capitalized loan origination costs related to
refinanced debt.................................. $ 410
Prepaid transaction costs at September 30, 1995..... (7,166)
Development Costs at September 30, 1995............. 4,979 (1,777)
-------- ---------
Purchase of Ramco-Gershenson, Inc. (Ramco) to be
accounted for on the equity method due to the
Company's ability to exercise significant influence
over Ramco's operating and financial policies. The
purchase price has been allocated to the management
contracts with outside parties ($3,193) and to
covenants not to compete ($922)..................... 4,115
Increase in investments in unconsolidated entities to
be accounted for on the equity method --
Purchase of 50% interests in two partnerships each
owning an interest in a shopping center............. 1,296
Decrease in cash and short-term investments:
Pay remainder of estimated transaction costs........ (2,506)
Repayment of debt owed to Ramco principals.......... (3,200)
Pay down existing debt.............................. (62,128) (67,834)
--------
Increase in mortgage debt:
Assumption of existing debt......................... 8,938
Refinancing of debt................................. 103,753
Debt Incurred Relating to Development Costs......... 4,979 117,670
-------- ---------
Increase in Operating Partnership equity.............. 38,040
-------- ---------
</TABLE>
(5) Following is a schedule of principal payments during the twelve months
ended September 30:
<TABLE>
<CAPTION>
EQUITY
PROPERTIES INVESTMENTS
------------ -----------
<S> <C> <C>
1996........................................ $ 840,524 $ 63,757
1997........................................ 1,879,257 69,717
1998........................................ 13,902,424 76,240
1999........................................ 2,032,936 83,375
2000........................................ 2,137,607 5,399,749
Thereafter.................................. 96,877,438 776,790
------------ -----------
Total.................................. $117,670,186 $ 6,469,628
============ ===========
</TABLE>
(6) Represents the minority interest (25%) in the Operating Partnership.
F-8
<PAGE> 138
PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
These pro forma adjustments reflect the Contemplated Transactions including
the Ramco Acquisition and the Spin-Off Transaction.
(A) Represents the effect of the Spin-Off Transaction which includes the
mortgage loan portfolio as well as certain other assets of RPS to a newly formed
real estate investment trust to be called Atlantic Realty Trust ("Atlantic
Realty"). All shares and per share amounts have been adjusted to reflect the
proposed 1 for 4 reverse stock split.
(B) Represents the pro forma results of Chester Springs which was acquired
by the Company in July 1994 as if it had been acquired as of January 1, 1994.
(C) Represents loss of interest income from short-term investments,
reduction of costs due to termination of staff and elimination of amortization
of Deferred Acquisition Costs.
(D) Represents revenues and certain expenses of Ramco-Gershenson Properties
for the nine months ended September 30, 1995 and 1994 and for the year ended
December 31, 1994. See Notes J and M for effect of depreciation and interest.
(E) Represents the effect of the acquisition of a 50% interest in 2
shopping centers to be accounted for on the equity basis:
<TABLE>
<CAPTION>
NINE MONTHS FOR THE NINE MONTHS
ENDED YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1994 1994
(000'S) (000'S) (000'S)
------------- ------------ -------------
<S> <C> <C> <C>
Revenues............................. $ 880 $ 1,130 $ 883
Expenses other than depreciation..... 761 1,004 881
Depreciation......................... 182 272 235
------- ------- -------
$ (63) $ (146) $ (233)
======= ======= =======
</TABLE>
(F) Represents the acquisition of Ramco-Gershenson, Inc. to be accounted
for on the equity basis:
<TABLE>
<S> <C> <C> <C>
Revenues............................ $ 4,311 $ 5,215 $ 3,687
Expenses other than depreciation.... 3,625 4,470 3,255
Depreciation........................ 35 50 37
------ ------ -------
Total...................... $ 651 $ 695 $ 395
====== ====== =======
</TABLE>
(G) Effect of cost reimbursement contract between
<TABLE>
<S> <C> <C> <C>
Ramco-Gershenson, Inc. and the
Operating Partnership.............. $ 445 $ 884 $ 824
Termination of insurance service
fees............................... (87) (106) (80)
------ ------ -------
$ 358 $ 778 $ 744
====== ====== =======
</TABLE>
(H) Elimination of management fees charged to 100%
<TABLE>
<S> <C> <C> <C>
owned properties to be replaced by a
cost
reimbursement agreement. ........... $(1,077) $ (1,426) $(1,062)
========== ========== ==========
</TABLE>
(I) Represents additional administrative expenses to be incurred by the
Company as a result of the Ramco Acquisition.
(J) Represents depreciation and amortization expense resulting from the
acquisition of the 20 Ramco Properties based on allocating 10% to land and
depreciating the properties on a 40 year straight-line basis.
(K) Represents additional interest expense of $6,321, $6,321 and $8,421 for
the nine months ended September 30, 1995 and 1994 and the year ended December
31, 1994, respectively, to be incurred on $103,753 aggregate principal amount of
Mortgages Payable (assumed rate of 8.28% on $78,000, 7.77% on $4,370 and 7.75%
on $21,383) and amortization of $30, $30 and $47 for the nine months ended
September 30, 1995 and 1994 and the year ended December 31, 1994, respectively
related to capitalized costs incurred in connection with the issuance of the
Mortgages Payable, amortized on a straight-line basis over 3 and ten years.
F-9
<PAGE> 139
(L) Represents reduction of interest expense of $26, $26 and $34 for the
nine months ended September 30, 1995 and 1994 and the year ended December 31,
1994, respectively, as a result of applying $151 of cash to reduce the principal
and refinancing at 8%.
(M) Represents depreciation and amortization expense adjustments resulting
from the acquisition of partnership interests in two shopping center properties
based on allocating 10% to land and depreciating the properties on a 40 year
straight-line basis. Historical depreciation had been determined on a tax basis.
(N) Reversal of historical depreciation.
(O) Represents the following adjustments to Ramco-Gershenson, Inc.:
<TABLE>
<CAPTION>
NINE MONTHS FOR THE NINE MONTHS
ENDED YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1994 1994
(000'S) (000'S) (000'S)
------------- ------------ -------------
<S> <C> <C> <C>
Elimination of management fees
charged to 100% owned
properties....................... $(1,077) $ (1,426) $(1,062)
Termination of insurance service
fees charged to 100% owned
properties....................... (87) (106) (80)
Amortization resulting from the
allocation of the purchase price
to management contracts with
outside parties based on future
expected cash flows over their
estimated lives and to the
covenants not to compete; the
management contracts are being
amortized over the expected lives
of the management contracts (15
years) and the covenants not to
compete are written off over
their respective lives of 3 and 4
years............................ (318) (424) (318)
Elimination of interest expense and
income on transactions with
affiliated entities which will be
eliminated in connection with the
Contemplated Transactions:
Interest income............. (44) (56) (24)
Interest expense............ 44 46 24
Additional costs to manage RPS
Properties. ..................... (312) (416) (312)
Elimination of taxes due to
increase in expenses and decrease
in revenues ..................... 380 379 235
Effect of cost reimbursement
agreement........................ 445 884 824
------- ------- -------
$ (969) $ (1,119) $ (713)
======= ======= =======
</TABLE>
(P) Elimination of intercompany profit on leasing fees
<TABLE>
<S> <C> <C> <C>
capitalized by shopping
centers. ........................ $ (130) $ (100) $ (57)
========== ========== ==========
</TABLE>
(Q) Represents the minority interest (25%) in the Operating Partnership.
(R) Pro Forma income per share of Common Stock is based upon shares of
Common Stock assumed to be outstanding in connection with the Contemplated
Transactions.
(S) In connection with the Contemplated Transactions, the Company expects
to charge to expense $6,645 (representing severance pay, bonuses, directors' and
officers' insurance and miscellaneous expenses) and $2,204 (representing the
write-off of Deferred Acquisition Costs). Such amounts have not been included in
the pro forma condensed statements of income.
F-10
<PAGE> 140
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ramco-Gershenson Properties
We have audited the accompanying combined statements of revenues and
certain expenses of Ramco-Gershenson Properties (the "Properties") for the years
ended December 31, 1994, 1993 and 1992. These combined financial statements are
the responsibility of the management of the Properties. Our responsibility is to
express an opinion on these combined statements of revenues and certain expenses
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 combined statements of revenues and
certain expenses are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the combined
statements of revenues and certain expenses. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the combined statements of
revenues and certain expenses. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying combined statements of revenues and certain expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the proxy statement of RPS
Realty Trust). Material amounts, described in Note 1 to the combined statements
of revenues and certain expenses, that would not be comparable to those
resulting from the proposed future operations of the Properties are excluded and
the statements are not intended to be a complete presentation of the revenues
and expenses of these properties.
In our opinion, such statements of revenues and certain expenses presents
fairly, in all material respects, the combined revenues and certain expenses of
the Properties, as described in Note 1, for the years ended December 31, 1994,
1993 and 1992 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Detroit, Michigan
July 21, 1995
F-11
<PAGE> 141
RAMCO-GERSHENSON PROPERTIES
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 AND (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31
----------------------- ---------------------------------------
1995 1994 1994 1993 1992
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Minimum rents................. $17,746,972 $17,438,580 $23,405,070 $22,326,942 $21,179,313
Percentage rents.............. 585,631 507,885 764,802 758,641 744,153
Recoveries from tenants....... 10,972,970 11,142,815 14,827,253 14,470,307 12,375,818
Interest and other............ 234,066 121,957 164,968 170,434 156,442
----------- ----------- ----------- ----------- -----------
Total................. 29,539,639 29,211,237 39,162,093 37,726,324 34,455,726
CERTAIN EXPENSES:
Property operating and
maintenance................ 7,885,871 7,879,130 10,569,106 10,173,885 9,021,935
Real estate taxes............. 3,146,054 3,129,656 4,125,354 4,462,109 4,381,485
Management fees paid to Ramco-
Gershenson, Inc............ 1,076,719 1,061,530 1,426,040 1,325,919 1,236,457
Interest on continuing debt... 454,478 438,680 596,270 573,711 637,111
----------- ----------- ----------- ----------- -----------
Total................. 12,563,122 12,508,996 16,716,770 16,535,624 15,276,988
----------- ----------- ----------- ----------- -----------
REVENUES IN EXCESS OF
CERTAIN EXPENSES.............. $16,976,517 $16,702,241 $22,445,323 $21,190,700 $19,178,738
=========== =========== =========== =========== ===========
</TABLE>
See notes to combined statements of revenues and certain expenses.
F-12
<PAGE> 142
RAMCO-GERSHENSON PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
1. DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description -- Ramco-Gershenson Properties (the "Properties") consist of 20
shopping centers. The Properties are located mainly throughout Michigan and
Ohio, are owned by various partnerships historically controlled by the
principals of Ramco-Gershenson, Inc. (the "Manager") and are as follows:
<TABLE>
<S> <C> <C>
Clinton Valley Mall Naples Towne Center Troy Towne Center
Clinton Valley Strip New Towne Plaza West Allis
Eastridge Commons OfficeMax Center West Oaks I
Edgewood Towne Center Oak Brook Square West Oaks II
Ferndale Plaza Roseville Plaza
Fraser Shopping Center Southfield Plaza
Jackson Crossing Spring Meadows Plaza
Lake Orion Plaza Tel Twelve Mall
</TABLE>
Basis of Presentation -- The statements of revenues and certain expenses
were prepared to comply with rules and regulations of the Securities and
Exchange Commission relating to the presentation of historical operating results
of real estate properties that are to be purchased. Accordingly, the statements
include only the Properties' direct revenues and operating expenses (determined
on an accrual basis) that are expected to continue after the properties have
been acquired. Revenues and expenses excluded consist of the following not
directly related to the future operation of the Properties:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Interest on debt not continuing............. $15,867,059 $15,819,444 $20,493,352
Depreciation and Amortization............... 5,778,339 5,932,062 5,879,011
Gain on Sale of Land........................ (80,715) (146,993) (222,916)
Lease Termination Income.................... (134,509) (256,868) 0
Other....................................... 318,354 96,792 565,901
</TABLE>
Revenue Recognition -- Shopping center space is generally leased to
specialty retail tenants under leases which are accounted for as operating
leases. Minimum rents are recognized on a straight-line basis over the lease
term. Percentage rents are recognized on an accrual basis as earned. Recoveries
from tenants, which represent reimbursements of common area maintenance, real
estate taxes and other operating expenses, are recognized as revenue in the
period applicable costs are incurred.
Unaudited Interim Statement -- The unaudited interim combined financial
statement has been prepared in accordance with the accounting policies described
above. In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the combined
financial statement for this interim period have been made. The results for this
interim period are not necessarily indicative of the results for a full fiscal
year.
Leases -- The Properties' rental revenue is obtained principally from
noncancelable operating leases which typically provide for guaranteed minimum
rent, percentage rent and other charges to cover certain
F-13
<PAGE> 143
RAMCO-GERSHENSON PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUES
AND CERTAIN EXPENSES -- (CONTINUED)
1. DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
operating costs. Approximate future minimum rent under noncancelable operating
leases in effect at December 31, 1994, assuming no new or renegotiated leases
nor option extensions, are as follows:
<TABLE>
<S> <C>
1995........................................... $ 23,800,000
1996........................................... 22,548,000
1997........................................... 19,990,000
1998........................................... 15,963,000
1999........................................... 13,438,000
Thereafter..................................... 88,042,000
------------
Total................................ $183,781,000
============
</TABLE>
Certain properties, as lessees, have land leases expiring at various dates
through the year 2052. Rental payments under such leases were approximately
$113,700, $112,700 and $112,700, respectively, in 1994, 1993 and 1992,
respectively. Approximate future minimum rental payments are summarized as
follows:
<TABLE>
<S> <C>
1995............................................. $ 110,800
1996............................................. 110,800
1997............................................. 110,800
1998............................................. 110,800
1999............................................. 110,800
Thereafter....................................... 5,301,100
----------
Total.................................. $5,855,100
==========
</TABLE>
2. ACQUISITION OF PROPERTIES
RPS Realty Trust (RPS) has entered into an agreement to acquire the
Properties, contingent upon, among other items, the approval of the shareholders
of RPS.
3. DEBT
Following is information regarding debt to be assumed by RPS Realty Trust
in connection with its acquisition of the Properties:
100% OWNED PROPERTIES
<TABLE>
<S> <C> <C>
Spring Meadows 8.75%, due in monthly payments of $16,433, including
interest, through May 31, 1998 $1,937,890
Oakbrook Square Variable rate (6.3% at March 31, 1995), due January 1, 2010,
with monthly interest only payments 7,000,000
-----------
$8,937,890
===========
</TABLE>
PRO-RATA SHARE OF DEBT OF 50% OWNED PROPERTIES
<TABLE>
<S> <C> <C>
Kentwood 9.375%, due in monthly installments of $47,202, including
interest, through April 15, 2000 $5,582,127
----------
</TABLE>
F-14
<PAGE> 144
RAMCO-GERSHENSON PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUES
AND CERTAIN EXPENSES -- (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES
Certain of the Properties (Roseville Plaza, Lake Orion Plaza and Jackson
Crossing) contain environmental contamination caused by underground storage
tanks. Remediation programs have been implemented at two of the above Properties
with the remaining program to be implemented in the near future. In management's
opinion, third parties will pay all costs of remediation. The Properties have
not incurred any costs in connection with the foregoing and no future costs are
expected. Management of the Properties is not aware of any other situations
which require remediation.
5. PRO FORMA INFORMATION (UNAUDITED)
The following pro forma financial statement of taxable net operating income
and estimated cash to be made available by operations is based on the combined
statements of revenues and certain expenses of the Ramco-Gershenson Properties
for the year ended December 31, 1994. The statement contains certain pro forma
adjustments made to reflect changes in operations in existence at the date of
acquisition by RPS.
<TABLE>
<S> <C>
REVENUES:
Minimum rent.......................................................... $23,405,070
Percentage rents...................................................... 764,802
Recoveries from tenants............................................... 14,827,253
Interest and other income............................................. 164,968
-----------
Total Revenues................................................ 39,162,093
-----------
EXPENSES:
Property operating and maintenance (D)................................ 11,347,106
Real estate taxes..................................................... 4,125,354
Interest (B).......................................................... 9,064,000
Depreciation and amortization (A)..................................... 4,946,000
-----------
Total Expenses................................................ 29,482,460
-----------
TAXABLE NET OPERATING INCOME............................................ 9,679,633
Add Back: Depreciation and amortization................................. 4,946,000
Amortization of deferred financing costs
included in interest expense (C)............................ 47,000
-----------
Estimated Cash to be made Available by Operations....................... $14,672,633
===========
</TABLE>
Significant Pro Forma Adjustments:
(A) Depreciation is computed using the straight line method over a
life of 40 years on a basis of $197,857,000.
(B) Interest expense on funds borrowed for acquisition totaling
approximately $103,753,000 ($78,000,000 at 8.28% per annum, $4,370,000 at
7.77% per annum and $21,383,000 at 7.75%) plus interest on continuing debt.
(C) Amortization of deferred financing costs estimated at $410,000
over the anticipated term of financing of 3 and 10 years.
(D) Effect of cost reimbursement contract between Ramco-Gershenson,
Inc. and RPS ($884,000) reduced by the termination of insurance service
fees charged by Ramco-Gershenson, Inc. ($106,000).
F-15
<PAGE> 145
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Ramco-Gershenson, Inc.
We have audited the accompanying consolidated balance sheets of
Ramco-Gershenson, Inc. and its wholly-owned subsidiary (the "Company") as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, retained earnings and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the management of the Company. 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 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 consolidated financial position of the Company at
December 31, 1994 and 1993, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1994 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Detroit, Michigan
May 4, 1995
F-16
<PAGE> 146
RAMCO-GERSHENSON, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993 AND (UNAUDITED) SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1993
PRO FORMA SEPTEMBER 30 ---------- ----------
DECEMBER 31 1995
1994 (NOTE 9) ------------
------------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Cash...................................... $ 104,600 $ 44,409 $ 104,600 $ 183,255
Accounts receivable:
Ramco-Gershenson Properties............ 1,557,697 1,724,204 1,213,815
Other.................................. 670,984 1,168,028 670,984 670,914
Prepaid expenses and other assets......... 106,778 162,440 106,778 20,114
Property and equipment -- net(Note 3)..... 78,118 43,090 78,118 127,137
Deferred income taxes..................... 17,017 38,727 50,040
---------- ---------- ---------- ----------
TOTAL ASSETS................................ $ 960,480 $ 2,992,681 $2,723,411 $2,265,275
========== ========== ========== ==========
LIABILITIES:
Accounts payable.......................... $ 302,053 $ 304,635 $ 302,053 $ 278,618
Accrued payroll and employee benefits..... 215,260 103,562 215,260 205,267
Accrued expenses.......................... 43,400 13,544 43,400 201,617
Income taxes payable...................... 214,634 275,447 214,634 160,000
Advances from shareholders(Note 6)........ 646,846 903,285 1,019,689
Capital lease obligations(Note 5)......... 62,996 15,572 62,996 113,585
---------- ---------- ---------- ----------
Total liabilities................. 838,343 1,359,606 1,741,628 1,978,776
SHAREHOLDERS' EQUITY:
Common stock ($1 par value, authorized
50,000 shares, issued and outstanding,
1,000 shares).......................... 1,000 1,000 1,000 1,000
Retained earnings......................... 121,137 1,632,075 980,783 285,499
---------- ---------- ---------- ----------
Total shareholders' equity........ 122,137 1,633,075 981,783 286,499
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................... $ 960,480 $ 2,992,681 $2,723,411 $2,265,275
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE> 147
RAMCO-GERSHENSON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 AND (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED DECEMBER 31
SEPTEMBER 30 ----------------------------------------
------------------------- PRO FORMA 1994 1993 1992
1994 1994 (NOTE 9) ---------- ---------- ----------
----------- --------------
1995 (UNAUDITED) (UNAUDITED)
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Revenue from management,
leasing and development
services (substantially
all from related
parties):
Ramco-Gershenson
Properties............ $ 2,244,647 $ 1,926,412 $2,975,165 $2,463,772 $2,325,485
Other................... 1,922,740 1,653,983 $2,073,740 2,073,740 1,780,000 2,064,711
Interest income............ 44,395 23,586 55,815 44,267 10,450
Miscellaneous income....... 100,030 82,673 109,959 120,784 156,055
---------- ---------- ---------- ---------- ---------- ----------
Total revenues..... 4,311,812 3,686,654 2,073,740 5,214,679 4,408,823 4,556,701
EXPENSES:
Management, leasing and
development............. 3,076,754 2,796,949 1,655,850 3,824,692 3,467,737 3,361,773
Other operating............ 101,866 77,309 114,161 103,802 208,114
Real estate and other
taxes................... 62,184 98,465 99,014 102,083 99,893
Interest................... 43,283 34,127 65,417 70,523 178,977
Depreciation and
amortization............ 35,058 37,430 49,912 71,424 119,041
Miscellaneous.............. 7,078 32,236 7,260 14,121 3,648
---------- ---------- ---------- ---------- ---------- ----------
Total expenses..... 3,326,223 3,076,516 1,655,850 4,160,456 3,829,690 3,971,446
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE TAXES ON
INCOME..................... 985,589 610,138 417,890 1,054,223 579,133 585,255
TAXES ON INCOME (Note 7)..... 334,297 214,646 358,939 178,313 199,060
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME................... $ 651,292 $ 395,492 $ 417,890 $ 695,284 $ 400,820 $ 386,195
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE> 148
RAMCO-GERSHENSON, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
AND (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1992......................................................... $ (501,516)
Net income..................................................................... 386,195
----------
BALANCE, DECEMBER 31, 1992....................................................... (115,321)
Net income..................................................................... 400,820
----------
BALANCE, DECEMBER 31, 1993....................................................... 285,499
Net income..................................................................... 695,284
----------
BALANCE, DECEMBER 31, 1994....................................................... 980,783
Net income (Unaudited)......................................................... 651,292
----------
BALANCE, SEPTEMBER 30, 1995 (Unaudited).......................................... $1,632,075
==========
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE> 149
RAMCO-GERSHENSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 AND (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEARS ENDED DECEMBER 31
--------------------- ---------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income......................... $ 651,292 $ 395,492 $ 695,284 $ 400,820 $ 386,195
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization... 35,058 37,430 49,912 71,424 119,041
Deferred income taxes........... 21,710 20,669 11,313 15,056 147,116
Changes in operating assets and
liabilities:
(Increase) decrease in
accounts receivable........ (330,537) (121,505) (510,459) 162,272 (578,926)
(Increase) decrease in other
assets..................... (55,662) (40,531) (86,664) (10,918) (9,196)
Increase (decrease) in
accounts payable and
accrued expenses........... (78,189) (260,460) (70,153) (102,899) 67,491
--------- --------- --------- --------- ---------
Net cash provided by
operating activities..... 243,672 31,095 89,233 535,755 131,721
INVESTING ACTIVITIES --
Purchase of property and
equipment....................... (895)
FINANCING ACTIVITIES:
Principal payments under capital
lease obligation................ (47,424) (37,309) (50,589) (68,741) (334,544)
Net repayments of advances from
shareholders.................... (256,439) (107,103) (116,404) (648,209) 429,235
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing
activities............... (303,863) (144,412) (166,993) (716,950) 94,691
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... (60,191) (113,407) (78,655) (181,195) 226,412
CASH AT BEGINNING OF PERIOD.......... 104,600 183,255 183,255 364,450 138,038
--------- --------- --------- --------- ---------
CASH AT END OF PERIOD................ $ 44,409 $ 69,848 $ 104,600 $ 183,255 $ 364,450
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID
FOR:
Income taxes....................... $ 251,775 $ 294,115 $ 294,115 $ 57,450 None
========= ========= ========= ========= =========
Interest........................... $ 44,758 $ 43,814 $ 57,957 $ 70,523 $ 173,249
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE> 150
RAMCO-GERSHENSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description -- Ramco-Gershenson, Inc. (the "Company") provides or engages
third parties to provide management, leasing and development services to
Ramco-Gershenson Properties (the "Properties") and various other entities, some
of which are related through certain common ownership. The consolidated
financial statements of the Company include the accounts of the Company and its
subsidiary, Prime Properties, Inc.
Consolidation -- All significant intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
Unaudited Interim Statements -- The unaudited interim consolidated
financial statements have been prepared in accordance with the accounting
policies described above. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the consolidated financial statements for these interim periods
have been made. The results for these interim periods are not necessarily
indicative of the results for a full fiscal year.
Revenue Recognition -- Revenue from property management, leasing and
development activities is generally based on receipts of the shopping centers,
fixed fees, cost reimbursement or commissions. Revenue is recognized as the
service is rendered.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated on the double-declining balance method over the estimated useful
lives of the assets which range from five to ten years.
2. RELATED PARTY TRANSACTIONS
Substantially all revenues and receivables for each of the three years in
the period ended December 31, 1994 resulted from transactions with related
parties under the terms of various written agreements.
Other related party transactions are described in Notes 5, 6 and 8.
3. PROPERTY AND EQUIPMENT -- NET
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Land................................................... $ 20,000 $ 20,000
Office Equipment....................................... 422,577 421,684
-------- --------
Total........................................ 442,577 441,684
Less accumulated depreciation.......................... 364,459 314,547
-------- --------
Property and equipment -- net.......................... $ 78,118 $127,137
======== ========
</TABLE>
Substantially all office equipment is leased under capital leases (Note 5).
4. RETIREMENT SAVINGS PLAN
The Company has a voluntary retirement savings plan established in 1990.
The plan is qualified in accordance with Section 401(k) of the Internal Revenue
Code (the "Code"). The Company contributes an amount equal to 25% of employee
contributions up to 5% of qualified wages. In addition, the Company may make
discretionary contributions within the limits prescribed by the plan and imposed
by the Code. These contributions were $17,916, $15,347 and $14,301 for the three
years ended December 31, 1994, 1993 and 1992, respectively.
F-21
<PAGE> 151
RAMCO-GERSHENSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES
The Company leases its office facilities from Ramco Office One Development
Company, an affiliate of the Company. Rental payments under this operating lease
were approximately $230,700, $227,900 and $236,300 for the three years ended
December 31, 1994, 1993 and 1992, respectively. The Company also leases vehicles
from unrelated parties. Approximate future rental payments under operating
leases are summarized as follows:
<TABLE>
<CAPTION>
RELATED
PARTY OTHER
-------- -------
<S> <C> <C>
1995.................................................... $236,500 $95,300
1996.................................................... 119,700 78,200
1997.................................................... 51,300
1998.................................................... 22,500
1999.................................................... 17,400
Thereafter.............................................. 1,400
</TABLE>
In addition, the Company leases its office equipment under capital leases
that expire in 1995. Future rental payments under these capital leases for 1995
are approximately $63,000.
6. ADVANCES FROM SHAREHOLDERS
The Company borrows money from shareholders. Interest expense under this
arrangement was $45,881, $52,355 and $123,643 for the three years ended December
31, 1994, 1993 and 1992, respectively. The amounts are payable on demand and
accrue interest at the adjusted federal rate rounded to the nearest full
percentage (5% at December 31, 1994).
7. INCOME TAXES
Effective January 1, 1991, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and reporting
for income tax purposes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable/deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Deferred tax assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Accrued compensation..................................... $16,247 $13,848
Depreciation............................................. 22,480 36,192
------- -------
Total.......................................... $38,727 $50,040
======= =======
</TABLE>
The provision for income taxes for the years ended December 31 consists of:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current tax expense........................ $347,626 $163,257 $ 51,944
Deferred tax expense....................... 11,313 15,056 147,116
-------- -------- --------
Total tax expense................ $358,939 $178,313 $199,060
======== ======== ========
</TABLE>
F-22
<PAGE> 152
RAMCO-GERSHENSON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INSURANCE ARRANGEMENT
Under the terms of agreements in effect between the Company and the
Properties, the Company arranges for the placement, maintenance, and payment of
all forms of insurance on behalf of the Properties. The Company charges the
Properties for providing administrative services relating to this insurance
arrangement. Fees earned were $106,587, $115,099 and $90,632 for the three years
ended December 31, 1994, 1993 and 1992, respectively. Under the insurance
arrangement, premium payments made to the Company by the Properties do not
involve a transfer of risk to the Company and are accounted for as deposits.
9. ACQUISITION OF COMPANY
RPS Realty Trust (RPS) has entered into an agreement to acquire the
Properties and other real estate assets owned by affiliates of the Company
contingent upon, among other items, the approval of the shareholders of RPS. In
addition, RPS will acquire a 95% economic interest in the Company. It is
anticipated that the acquisition of the Company will be accounted for on the
equity method due to the fact that RPS will have the ability to exercise
significant influence over the Company's operating and financial policies.
After the acquisition, the management contracts and administrative charge
relating to the insurance agreements with Ramco Properties will be replaced by a
cost reimbursement agreement. The pro forma balance sheet and income statement
as of and for the year ended December 31, 1994 reflects the effects of the
acquisition with the exception of the recording of the value of the management
contracts with outside parties and the covenants not to compete as well as the
related amortization expense. Such amounts will be recorded at the Operating
Partnership level.
The Company has never prepared formal studies to determine the cost of
providing management, leasing and development services to Ramco Properties or
others for whom it provides these services. The pro forma management, leasing
and development expenses have been estimated by allocating payroll, benefits and
other expenses based on the related historical revenues. Since individuals may
provide services to both Ramco Properties and others, and because those costs
may not vary directly with the efforts expended, such estimates may not be an
accurate indicator of the actual respective costs of providing management,
leasing and development services.
F-23
<PAGE> 153
EXHIBIT A
ACQUISITION AMENDMENT
AMENDMENT dated , 1996 to Amended and Restated Declaration of
Trust of RPS Realty Trust (the "Trust") dated October 14, 1988 (the "Declaration
of Trust");
WHEREAS, Article VIII, Section 2 of the Declaration of Trust provides for
procedures governing the amendment of the Declaration of Trust;
WHEREAS, the Trustees have determined that it is in the best interests of
the Trust and its shareholders to cause the Trust to (i) increase certain quorum
percentage requirements in connection with meetings of the Board of Trustees;
(ii) establish a Nominating Committee and an Advisory Committee of the Board of
Trustees and (iii) change the name of the Trust; and
WHEREAS, the Trustees have determined to propose (i) the addition of new
Sections to Article III of the Declaration of Trust to provide for the creation
of a Nominating Committee and an Advisory Committee of the Board of Trustees,
(ii) an amendment to Article IV, Section 8 of the Declaration of Trust to
increase certain quorum percentage requirements in connection with meetings of
the Board of Trustees and (iii) an amendment to Article I, Section 1 of the
Declaration of Trust to change the name of the Trust.
NOW, THEREFORE, the Trustees have adopted the following amendments to the
Declaration of Trust, which amendments respectively shall become effective upon
approval thereof by the holders of a majority of the Trust's issued and
outstanding shares of beneficial interest:
1. Article III of the Declaration of Trust is amended by adding the
following Sections to the end thereof (new language appearing in italics):
Section 14. NOMINATING COMMITTEE. The Board of Trustees shall appoint
from among its members a Nominating Committee, which shall consist of at
least three members, all of whom shall be Independent Trustees, and which
shall nominate persons for election to the Board of Trustees. The
Nominating Committee will consider nominees recommended by other
shareholders in accordance with Article IV, Section 1."
Section 15. ADVISORY COMMITTEE. The Board of Trustees shall appoint an
Advisory Committee, which shall consist of three Persons who are not
Trustees, and which shall have the power to consult with and advise the
Board of Trustees as requested. The initial members of the Advisory
Committee shall be Michael A. Ward, Richard Gershenson and Bruce
Gershenson.
2. The second paragraph of Article IV, Section 1 of the Declaration of
Trust is amended as follows (new language appearing in italics):
The number of Trustees shall be not less than three nor more than
fifteen, as fixed from time to time by the Board of Trustees. Unless
otherwise fixed by the Board of Trustees or the Shareholders, the number of
Trustees constituting the entire Board of Trustees shall be nine. Except
for the initial Trustees during their initial term, the Trustees shall be
elected at the annual meeting of Shareholders and each Trustee shall be
elected to serve until his successor shall be elected and shall qualify. A
Trustee shall be an individual at least 21 years of age who is not under
legal disability. A Trustee shall not be required to devote his full
business time and effort to the Trust. A Trustee shall qualify as such when
he has either signed this Declaration of Trust or agreed in writing to be
bound by it. No bond shall be required to secure the performance of a
Trustee unless the Trustees so provide or as required by law.
3. Article IV, Section 8 of the Declaration of Trust is amended as follows
(new language appearing in italics):
"Section 8. ACTIONS BY TRUSTEES. The trustees shall hold at least four
meetings per year. The Trustees may act with or without a meeting. The
presence of at least 75% of the Board of Trustees then in office, the
majority of which shall be Independent Trustees, shall be necessary to
constitute a
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quorum for the transaction of business, except to adjourn a meeting. Every
act or decision done or made by the affirmative vote of at least a majority
of the Board of Trustees at a meeting duly held at which a quorum is
present shall be regarded as an act of the Board of Trustees unless a
greater number is required by law or by the By-Laws or by this Declaration
of Trust. If at any time more than one vacancy exists on the Board of
Trustees, a quorum of the Board of Trustees shall not exist unless and
until such vacancies are filled so that no more than one vacancy exists on
the Board of Trustees. Any agreement, deed, mortgage, lease or other
instrument of writing executed by any one or more of the Trustees or by any
one or more authorized persons shall be valid and binding upon the Trustees
and upon the Trust when authorized by action of the Trustees."
4. Article I, Section 1 of the Declaration of Trust is amended as follows
(new language appearing in italics):
"Section 1. NAME. The name of Trust created by this Declaration of
Trust shall be "Ramco-Gershenson Properties Trust" and so far as may be
practicable, the Trustees of the Trust ("Trustees" or the "Board of
Trustees") shall conduct the Trust's activities, execute all documents and
sue or be sued under the name, which name (and the word "Trust" whenever
used in this Declaration of Trust, except where the context otherwise
requires) shall refer to the Trustees in their capacity as Trustees and not
individually or personally, and shall not refer to the officers or
Shareholders of the Trust or the agents or employees of the Trust or of
such Trustees. Should the Trustees determine that the use of such name is
not practicable, legal or convenient, they may use such other designation
or they may adopt such other name for the Trust as they deem proper and the
Trust may hold property and conduct its activities under such designation
or name, subject, however, to the limitations contained in the next
succeeding paragraphs."
5. Article VII, Section 1 of the Declaration of Trust is amended as follows
(new language appearing in italics):
"Section 1. SHARES. The units into which the beneficial interest in
the Trust will be divided shall be designated as Shares, which Shares shall
be of one or more classes and shall have a par value of $.10 per Share. The
certificates evidencing the Shares shall be in such forms as the Board of
Trustees may prescribe, signed by, or in the name of the Trust by, the
Chairman of the Board or the President, and by the Secretary or the
Treasurer. Where a certificate is countersigned by a transfer agent and/or
registrar other than the Trust or its employees, the signatures of such
officers may be facsimiles. There shall be no limit on the number of Shares
to be issued. The Shares may be issued for such consideration as the
Trustees shall determine, including upon the conversion of convertible
debt, or by way of share dividend or share split in the discretion of the
Trustees. In addition, solely on a one-time basis to effect the "Reverse
Split" in connection with the "Ramco Acquisition," in each case, as defined
and described in the Trust's Proxy Statement, dated March 28, 1996, the
Trustees may combine outstanding Shares by way of a 1 for 4 reverse share
split and provide for the payment of cash in lieu of any fractional
interest in a combined Share; and the mechanics authorized by the Trustees
to implement any such combination shall be binding upon all Shareholders,
holders of convertible debt, optionees and others with any interest in
Shares. Shares reacquired by the Trust may be cancelled by action of the
Trustees. All Shares shall be fully paid and non-assessable by or on behalf
of the Trust upon receipt of full consideration for which they have been
issued or without additional consideration if issued by way of share
dividend, share split, or upon the conversion of convertible debt. The
Shares shall not entitle the holder to preference, preemptive, appraisal,
conversion, exchange or cumulative voting rights of any kind."
Except as so amended, the Declaration of Trust shall remain unmodified and
in full force and effect.
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IN WITNESS WHEREOF, the undersigned, being not less than a majority of the
Trustees of RPS REALTY TRUST, have each executed this Amendment to the Amended
and Restated Declaration of Trust as of , 1996.
--------------------------------------
Joel M. Pashcow
--------------------------------------
Herbert Liechtung
--------------------------------------
Arthur Goldberg
--------------------------------------
Edwin J. Glickman
--------------------------------------
Alfred D. Stalford
--------------------------------------
Samuel M. Eisenstat
--------------------------------------
Edward Blumenfeld
--------------------------------------
William A. Rosoff
--------------------------------------
Stephen R. Blank
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<PAGE> 156
EXHIBIT B
1996 SHARE OPTION PLAN
OF
RAMCO-GERSHENSON PROPERTIES TRUST
<PAGE> 157
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS.................................. B-1
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND
DETERMINE AWARDS.......................................................... B-3
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION..................... B-4
SECTION 4. ELIGIBILITY............................................................... B-4
SECTION 5. STOCK OPTIONS............................................................. B-4
SECTION 6. TAX WITHHOLDING........................................................... B-8
SECTION 7. TRANSFER, LEAVE OF ABSENCE, ETC........................................... B-8
SECTION 8. AMENDMENTS AND TERMINATION................................................ B-8
SECTION 9. CHANGE OF CONTROL PROVISIONS.............................................. B-9
SECTION 10. GENERAL PROVISIONS........................................................ B-10
SECTION 11. EFFECTIVE DATE OF PLAN.................................................... B-10
SECTION 12. GOVERNING LAW............................................................. B-10
</TABLE>
i
<PAGE> 158
1996 SHARE OPTION PLAN
OF
RAMCO-GERSHENSON PROPERTIES TRUST
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The 1996 Share Option Plan of Ramco-Gershenson Properties Trust (the
"Plan") was adopted to encourage and enable the officers and employees of
Ramco-Gershenson Properties Trust, a Massachusetts business trust (the
"Company"), and the officers and employees of Ramco-Gershenson Properties, L.P.,
a Delaware limited partnership, (the "Operating Partnership"), Ramco-Gershenson,
Inc., a Michigan corporation (the "Management Company"), and their respective
Subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business, to acquire a proprietary
interest in the Company. It is anticipated that providing such persons with a
direct stake in the Company's welfare will assure a closer identification of
their interests with those of the Company, thereby stimulating their efforts on
the Company's behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards" means Stock Options.
"Board" means the Board of Trustees of the Company.
"Cause" (a) if an Employee is not subject to a written employment agreement
with any Employer, means the occurrence of one or more of the following: (i) an
Employee is convicted of, pleads guilty to, or confesses to any felony or any
act of fraud, misappropriation or embezzlement which has an immediate and
materially adverse effect on an Employer, as determined by the Board in good
faith in its sole discretion, (ii) an Employee engages in a fraudulent act to
the material damage or prejudice of an Employer or in conduct or activities
materially damaging to the property, business or reputation of an Employer, all
as determined by the Board in good faith in its sole discretion, (iii) any
material act or omission by an Employee involving malfeasance or negligence in
the performance of the Employee's duties to an Employer to the material
detriment of an Employer, as determined by the Board in good faith in its sole
discretion, which has not been corrected by the Employee within 30 days after
written notice of any such act or omission, (iv) failure by an Employee to
comply in any material respect with any written policies or directives of the
Board as determined by the Board in good faith in its sole discretion, which has
not been corrected by the Employee within 30 days after written notice of such
failure, or (v) material breach by an Employee of his noncompetition agreement
with an Employer, if any, as determined by the Board in good faith in its sole
discretion or (b) if an Employee is subject to a written employment agreement
with any Employer, has the meaning set forth in such employment agreement.
"Change of Control" (a) if an Employee is not subject to a written
employment agreement with any Employer, shall have the meaning set forth in
Section 9 or (b) if any Employee is subject to a written employment agreement
with any Employer, has the meaning set forth in such employment agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Committee of the Board referred to in Section 2.
"Company Subsidiary" means any corporation, partnership or other entity
(other than the Company) in an unbroken chain beginning with the Company if all
of them, in the aggregate, other than the last one in the unbroken chain, then
own stock or other interests possessing 50 percent or more of the total combined
economic interests or the total combined voting power of all classes of stock or
other interests in each of the others in such chain; provided, however, that
"Company Subsidiary" shall not include the Operating Partnership, the Management
Company or any of their Subsidiaries.
"Declaration of Trust" means the Amended and Restated Declaration of Trust
of the Company dated October 14, 1988, as amended.
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<PAGE> 159
"Disability" (a) if an Employee is not subject to a written employment
agreement with any Employer, shall mean an Employee's inability to perform his
normal required services for the Employer for a period of six consecutive months
by reason of the Employee's mental or physical disability, as determined by the
Committee in good faith in its sole discretion or (b) if an Employee is subject
to a written employment agreement with any Employer, has the meaning set forth
in such employment agreement.
"Disinterested Person" means an Independent Trustee who qualifies as such
under Rule 16b-3(c)(2)(i) promulgated under the Act, or any successor definition
under the Act.
"Effective Date" has the meaning set forth in Section 11.
"Employee" means any officer or other employee (as defined in accordance
with Section 3401(c) of the Code) of an Employer.
"Employer" means, as the context may require, the Company, the Operating
Partnership, the Management Company and their respective Subsidiaries.
"Existing Option Plan" means the RPS Realty Trust 1989 Employees' Stock
Option Plan, as amended from time to time.
"Fair Market Value" on any given date means the last reported sale price at
which Shares are traded on such date or, if no Shares are traded on such date,
the most recent date on which Shares were traded, as reflected on the New York
Stock Exchange or, if applicable, any other national stock exchange on which the
Shares are traded. If the Shares are not listed on any national exchange, the
Committee will determine the Fair Market Value.
"Independent Trustee" means a member of the Board who is not also an
Employee of the Trust and who is otherwise a Disinterested Person.
"Management Company Subsidiary" means any corporation, partnership or other
entity (other than the Management Company) in an unbroken chain beginning with
the Management Company if all of them, in the aggregate, other than the last one
in the unbroken chain, then own stock or other interests possessing 80 percent
or more of the total combined economic interests or the total combined voting
power of all classes of stock or other interests in each of the others in such
chain.
"OP Units" means units of limited partnership interest of Ramco-Gershenson
Properties, L.P., a Delaware limited partnership.
"Operating Partnership Subsidiary" means any corporation, partnership or
other entity (other than the Operating Partnership) in an unbroken chain
beginning with the Operating Partnership if all of them, in the aggregate, other
than the last one in the unbroken chain, then own stock or other interests
possessing 50 percent or more of the total combined economic interests or the
total combined voting power of all classes of stock or other interests in each
of the others in such chain.
"Option" or "Stock Option" means any option to purchase Shares granted
pursuant to Section 5.
"Predecessor Entities" means Resources Pension Shares 1, Resources Pension
Shares 2, Resources Pension Shares 3, Integrated Resources Pension Shares 4, a
California limited partnership, Resources Pension Advisory Corp., and/or any of
its affiliates, and Ramco-Gershenson, Inc., a Michigan corporation.
"Ramco Transaction" means the transaction to be effectuated by the Company,
the Operating Partnership and Ramco-Gershenson, Inc. and its affiliates pursuant
to an Amended and Restated Master Agreement dated as of December 27, 1995 (the
"Master Agreement").
"Retirement" means an Employee's Termination of Employment after attainment
of age 55 and completion of 15 years of continuous service to the Company and/or
any other Employer and/or any Predecessor Entity as a Trustee or Employee.
"Share" means the shares of beneficial interest, par value $.10 per share,
of the Company, subject to adjustments pursuant to Section 3.
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<PAGE> 160
"Share Ownership Limit" means the restrictions contained in the Company's
Declaration of Trust provided that, subject to certain exceptions, no individual
shareholder may own, or be deemed to own by virtue of the attribution provisions
of the Code, more than 9.8 percent of the aggregate number or value of the
Company's outstanding shares of beneficial interest.
"Subsidiary" means a Company Subsidiary, an Operating Partnership
Subsidiary or a Management Company Subsidiary.
"Termination of Employment" means, subject to Section 7, the time when the
employee-employer relationship between the Employer and an Employee is
terminated for any reason or, if Employee is covered by an employment agreement,
the time such employment agreement expires by its terms (provided such Employee
does not continue to serve the Employer as an Employee); provided, however,
that, if an Employer ceases to qualify as such under the Plan as a result of a
sale of shares of beneficial interest or other interests or any similar event, a
Termination of Employment of the Employees who were employed by such Employer
immediately prior to such cessation shall be deemed to have occurred. Subject to
the terms of any written employment agreement between an Employer and an
Employee, the Committee, in its sole and absolute discretion, shall determine
the effect of all other matters and questions relating to Termination of
Employment, including, but not limited to, the question of whether a Termination
of Employment resulted from Disability or for Cause, and, subject to Section 7,
all questions of whether particular leaves of absence shall constitute
Terminations of Employment.
"Trustees' Plan" means the RPS Realty Trust 1989 Trustees' Stock Option
Plan, as amended from time to time.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS
AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered by all of the Independent
Trustee members of the Compensation Committee of the Board, or any other
committee of not less than two Independent Trustees performing similar
functions, as appointed by the Board from time to time. Each member of the
Committee shall be a Disinterested Person and an "outside director" within the
meaning of Section 162(m) of the Code and the regulations promulgated thereunder
to the extent applicable.
(b) Powers of Committee. The Committee shall have the power and authority
to grant Awards consistent with the terms of the Plan, including the power and
authority:
(i) to select the officers and other Employees to whom Awards may from
time to time be granted;
(ii) to determine the time or times of grant, and the extent to which,
if any, Stock Options are granted to any one or more participants;
(iii) to determine the number of Shares to be covered by any Award;
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of any Award,
which terms and conditions may differ among individual Awards and
participants, and to approve the form of written instruments evidencing the
Awards;
(v) to accelerate the exercisability or vesting of all or any portion
of any Award;
(vi) subject to the provisions of Section 5(a)(iii), to extend the
period in which Stock Options may be exercised; and
(vii) to adopt, alter and repeal such rules, guidelines and practices
for administration of the Plan and for its own acts and proceedings as it
shall deem advisable; to interpret the terms and provisions of the Plan and
any Award (including related written instruments); to make all
determinations it deems advisable for the administration of the Plan; to
decide all disputes arising in connection with the Plan; and to otherwise
supervise the administration of the Plan.
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<PAGE> 161
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Shares Issuable. The maximum number of Shares reserved and available
for issuance under the Plan shall equal the difference between (i) 9 percent of
the total number of issued and outstanding shares of Stock (on a fully diluted
basis assuming the exchange of all OP Units for Shares) and (ii) the number of
Shares subject to options under the Existing Option Plan and the Trustees' Plan,
calculated with respect to both clauses (i) and (ii) as of the Effective Date.
For purposes of this limitation, the Shares underlying any Awards which are
forfeited, cancelled, reacquired by the Company, satisfied without the issuance
of Shares or otherwise terminated (other than by exercise) shall be added back
to the shares of Shares available for issuance under the Plan so long as the
participants to whom such Awards had been previously granted received no
benefits of ownership of the underlying Shares to which the Award related.
Subject to such overall limitation and except for the Initial Grants, Shares in
respect of Awards granted under the Plan may be issued up to such maximum
number; provided, however, that no more than 50,000 Stock Options (plus, if
applicable, any Initial Grant for 1996) may be granted to any one individual
during any calendar year. The shares available for issuance under the Plan may
be authorized but unissued Shares or Shares reacquired by the Company.
(b) Dividends, Mergers, etc. In the event of a Share dividend, Share split
or similar change in capitalization affecting the Shares, the Committee shall
make appropriate adjustments in (i) the number and kind of shares of Stock or
securities on which Awards may thereafter be granted, (ii) the number and kind
of shares remaining subject to outstanding Awards, and (iii) the option or
purchase price in respect of such shares.
(c) Substitute Awards. The Committee may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who concurrently become Employees as a result of a merger or
consolidation of the employing corporation with the Company or a Subsidiary or
the acquisition by the Company or a Subsidiary of property or stock of the
employing corporation. The Committee may direct that the substitute awards be
granted on such terms and conditions as the Committee considers appropriate in
the circumstances.
SECTION 4. ELIGIBILITY
Participants in the Plan will be the persons listed on Exhibit A and such
full- or part-time officers and other key Employees who are responsible for or
contribute to the management, growth or profitability of the Company and the
other Employers and who are selected from time to time by the Committee, in its
sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form, and shall be
evidenced by such written Option agreement, as the Committee may from time to
time approve. Stock Options granted under the Plan shall be non-qualified stock
options and are not intended to qualify as "incentive stock options," as defined
in Section 422 of the Code.
(a) Stock Options Granted to Employees. Upon the adoption of the Plan by
the Board, and subject to Section 11, the Stock Options set forth on Exhibit A
hereto shall be granted (the "Initial Grants"). Thereafter, the Committee in its
discretion may grant Stock Options to eligible Employees of the Company or any
other Employer.
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<PAGE> 162
Stock Options granted to Employees pursuant to this Section 5(a) shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
(i) Exercise Price. The exercise price per share for the Shares
covered by a Stock Option granted pursuant to this Section 5(a) shall be
determined by the Committee at the time of grant but shall not be less than
100% of the Fair Market Value on the date of grant; provided that, the
exercise price per share for the Shares covered by a Stock Option granted
as part of the Initial Grants shall be equal to the OPV (as defined in the
Master Agreement) per Share.
(ii) Grant of Discount Options in Lieu of Cash Bonus. If authorized
by the Committee, upon the request of an eligible Employee and with the
consent of the Committee, such Employee may elect each calendar year to
receive a Stock Option in lieu of a cash bonus to which he may become
entitled during the following calendar year pursuant to any other plan of
the Company or any other Employer, but only if such Employee makes an
irrevocable election to waive receipt of all or a portion of such cash
bonus. Such election shall be made on or before the date set by the
Committee which date shall be no later than 15 days preceding January 1 of
the calendar year in which the cash bonus would otherwise be paid. A Stock
Option shall be granted to each Employee who makes such an irrevocable
election on the date the waived cash bonus would otherwise have been paid;
provided, however, that with respect to an Employee who is subject to
Section 16 of the Act, if such grant date is not at least six months and
one day from the date of the election, the grant shall be delayed until the
date which is six months and one day from the date of the election (or the
next following business day, if such date is not a business day). The
exercise price per share shall be determined by the Committee but shall not
be less than 50% of the Fair Market Value of the Shares on the date the
Stock Option is granted. The number of Shares subject to the Stock Option
shall be determined by dividing the amount of the waived cash bonus by the
difference between the Fair Market Value of the Shares on the date the
Stock Option is granted and the exercise price per Stock Option. The Stock
Option shall be granted for whole number of shares so determined; the value
of any fractional share shall be paid in cash. An Employee may revoke his
election under this Section 5(a)(ii) on a prospective basis at any time;
provided, however, that with respect to an Employee who is subject to
Section 16 of the Act, such revocation shall only be effective six months
and one day following the date of such revocation.
(iii) Option Term. The term of each Stock Option shall be fixed by
the Committee at the time of grant but shall in no event be longer than 10
years from the date of grant; provided, however, the term of the Initial
Grants shall be 10 years from the date the Ramco Transaction is
consummated.
(iv) Exercisability; Rights of a Stockholder. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Committee at or after the grant
date; provided, however, that (A) Stock Options granted as part of the
Initial Grants shall become vested and exercisable in equal installments on
each of the first, second and third anniversaries of the consummation of
the Ramco Transaction and (B) Stock Options granted in lieu of a cash bonus
shall be exercisable immediately. The Committee may at any time accelerate
the exercisability of all or any portion of any Stock Option. An optionee
shall have the rights of a stockholder only as to Shares acquired upon the
exercise of a Stock Option and not as to unexercised Stock Options.
(v) Method of Exercise.
(A) Stock Options may be exercised in whole or in part, by giving
written notice of exercise to the Secretary of the Company (or its
delegate), specifying the number of shares to be purchased and payment in
full of the purchase price. A copy of such notice shall be delivered at the
same time to the Operating Partnership if the optionee is an Employee of
the Operating Partnership or an Operating Partnership Subsidiary, and to
the Management Company if the optionee is an Employee of the Management
Company or a Management Company Subsidiary. The delivery of certificates
representing the shares of Stock to be purchased pursuant to the exercise
of a Stock Option will be contingent upon receipt by the Company of the
full purchase price for such shares and the fulfillment of any other
requirements contained in the Stock Option agreement or applicable
provisions of laws.
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(B) Payment of the purchase price may be made by one or more of the
following methods:
(1) In cash, by certified or bank check or other instrument
acceptable to the Committee;
(2) In the form of Shares that are not then subject to restrictions
under any Employer plan and that have been held by the optionee for at
least six months, if permitted by the Committee in its discretion. Such
surrendered Shares shall be valued at Fair Market Value on the exercise
date; or
(3) By the optionee delivering a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver
cash or a check acceptable to the Committee to pay the purchase price;
provided that in the event the optionee chooses to pay the purchase
price as so provided, the optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other
agreements as the Committee shall prescribe as a condition of such
payment procedure. Payment instruments will be received subject to
collection.
Such payment of the purchase price shall be made to (x) the
Secretary of the Company (or its delegate) with respect to an Option of
an Employee of the Company or a Company Subsidiary, (y) the Operating
Partnership with respect to an Option of an Employee of the Operating
Partnership or an Operating Partnership Subsidiary, and (z) the
Management Company with respect to an Option of an Employee of the
Management Company or a Management Company Subsidiary.
(C) If the Stock Option being exercised is one granted to an Employee
of the Company or a Company Subsidiary, the Company shall sell such Shares
to the optionee in return for the purchase price paid to it by the
optionee.
(D) If the Stock Option being exercised is one granted to an Employee
of the Operating Partnership or an Operating Partnership Subsidiary, as
soon as practicable after the Operating Partnership receives payment of the
purchase price pursuant to Section 5(a)(v)(B):
(1) the Company shall sell to the Operating Partnership and the
Operating Partnership shall purchase the number of Shares for which such
Option is being exercised for an aggregate purchase price equal to the
product of (x) such number of Shares multiplied by (y) the Fair Market
Value of a Share on the date of the exercise; and
(2) the Operating Partnership shall sell such Shares to the
optionee in return for the purchase price paid to it by the optionee.
(E) If the Stock Option being exercised is one granted to an Employee
of the Management Company or a Management Company Subsidiary, as soon as
practicable after the Management Company receives payment of the purchase
price pursuant to Section 5(a)(v)(B):
(1) the Company shall sell to the Management Company and the
Management Company shall purchase the number of Shares for which such
Option is being exercised for an aggregate purchase price equal to the
product of (x) such number of Shares multiplied by (y) the Fair Market
Value of a Share on the date of the exercise; and
(2) the Management Company shall sell such Shares to the optionee
in return for the purchase price paid to it by the optionee.
(vi) Non-Transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution and all Stock Options shall be exercisable, during
the optionee's lifetime, only by the optionee. Notwithstanding the
foregoing, the Committee may provide in an Option agreement that the
optionee may transfer, without consideration for the transfer, his Stock
Options to members of his immediate family (i.e., children, grandchildren,
or spouse), to trusts for the benefit of such immediate family members and
to partnerships in which such family members are the only parties.
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(vii) Termination of Employment by Reason of Death. Upon an
optionee's Termination of Employment by reason of death, any Stock Option
held by him shall become fully exercisable and may thereafter be exercised
(in whole or in part) by the legal representative or legatee of the
optionee, for a period of one year (or such longer period as the Committee
shall specify at any time) from the date of death, or until the expiration
of the stated term of the Option, if earlier, at which time all rights of
the optionee's legal representative or legatee in such Stock Option shall
terminate.
(viii) Termination of Employment by Reason of Disability.
(A) Any Stock Option held by an optionee whose Termination of
Employment is by reason of Disability shall become fully exercisable and
may thereafter be exercised (in whole or in part), for a period of one year
(or such longer period as the Committee shall specify at any time) from the
date of such Termination of Employment, or until the expiration of the
stated term of the Option, if earlier, at which time all of the optionee's
rights in such Stock Option shall terminate.
(B) Except as otherwise provided by the Committee at the time of
grant, the death of an optionee during a period provided in this Section
5(a)(viii) for the exercise of a Stock Option shall extend such period for
six additional months, subject to termination on the expiration of the
stated term of the Option, if earlier.
(ix) Termination of Employment by Reason of Retirement.
(A) Any Stock Option held by an optionee whose Termination of
Employment is by reason of Retirement may thereafter be exercised, to the
extent it was exercisable at the time of such termination, for a period of
five years (or such longer period as the Committee shall specify at any
time) from the date of such termination of employment, or until the
expiration of the stated term of the Option, if earlier, at which time all
of the optionee's rights in such Stock Option shall terminate.
(B) Except as otherwise provided by the Committee at the time of
grant, the death of an optionee during a period provided in this Section
5(a)(ix) for the exercise of a Stock Option shall extend such period for
six additional months, subject to termination on the expiration of the
stated term of the Option, if earlier.
(x) Termination of Employment for Cause. If any optionee's
Termination of Employment is for Cause, any Stock Option held by such
optionee, including any Stock Option that is immediately exercisable at the
time of such termination, shall immediately terminate and be of no further
force and effect; provided, however, that the Committee may, in its sole
discretion, provide that such Stock Option can be exercised for a period of
up to 30 days from the date of Termination of Employment or until the
expiration of the stated term of the Option, if earlier.
(xi) Other Termination of Employment. Unless otherwise determined by
the Committee, and except as provided in any written employment agreement
between the optionee and any Employer if an optionee's Termination of
Employment is for any reason other than death, Disability, Retirement, or
for Cause, any Stock Option held by such optionee may thereafter be
exercised, to the extent it was exercisable on the date of Termination of
Employment, for one year (or such other period as the Committee shall
specify at any time) from the date of Termination of Employment or until
the expiration of the stated term of the Option, if earlier, at which time
all of the optionee's rights in such Stock Option shall terminate.
(xii) Form of Settlement. Shares issued upon exercise of a Stock
Option shall be free of all restrictions under the Plan, except as
otherwise provided in this Plan.
(b) Reload Options. At the discretion of the Committee, Options granted
under Section 5(a) may include a so-called "reload" feature pursuant to which an
optionee exercising an Option by the delivery of a number of Shares in
accordance with Section 5(a)(v)(B)(2) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Shares on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with
B-7
<PAGE> 165
such other terms as the Committee may provide) to purchase that number of Shares
equal to the number delivered to exercise the original Option.
SECTION 6. TAX WITHHOLDING
(a) Payment by Participant. The Company and any other Employer shall have
the right to require that each optionee shall, no later than the date as of
which the value of an Award received thereunder first becomes includible in the
gross income of the optionee for Federal income tax purposes, pay to the Company
or the Employer, or make arrangements satisfactory to the Company or the
Employer regarding payment of, any Federal, state, or local taxes of any kind
required by law to be withheld with respect to such income. The Company and the
other Employers shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the participant.
(b) Payment in Shares. If withholding is required by the Company or any
other Employer, an optionee may elect to have such tax withholding obligation
satisfied, in whole or in part, by (i) authorizing the Employer to withhold from
Shares to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Employer Shares
owned by the optionee with an aggregate Fair Market Value (as of the date the
withholding is effected) that would satisfy the withholding amount due. With
respect to any optionee who is subject to Section 16 of the Act, the following
additional restrictions shall apply:
(A) the election to satisfy tax withholding obligations relating to an
Award in the manner permitted by this Section 6(b) shall be made either (1)
during the period beginning on the third business day following the date of
release of quarterly or annual summary statements of revenues of the
Company and ending on the twelfth business day following such date, or (2)
at least six months prior to the date as of which the receipt of such an
Award first becomes a taxable event for Federal income tax purposes;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or disapproval of
the Committee; and
(D) the Shares withheld to satisfy tax withholding must pertain to an
Award which has been held by the optionee for at least six months from the
date of grant of the Award.
SECTION 7. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
Termination of Employment:
(a) a transfer to the employment of another Employer; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Employer, if the Employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 8. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the Committee
may, at any time, amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any
outstanding Award without the holder's consent. To the extent required by the
Act to ensure that Options granted under the Plan are exempt under Rule 16b-3
promulgated under the Act and can qualify as performance-related compensation
for purposes of Section 162(m) of the Code, Plan amendments shall be subject to
approval by the Company's shareholders.
B-8
<PAGE> 166
SECTION 9. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section 9:
(a) Each outstanding Stock Option shall automatically become fully
exercisable notwithstanding any provision to the contrary herein. Unless
provision is made in connection with the Change in Control for the assumption of
Stock Options theretofore granted, or the substitution of such Stock Options
with new options of the successor entity, with appropriate adjustment as to the
number and kind of shares and the per share exercise prices, each optionee who
has not had a Termination of Employment holding an outstanding Stock Option
shall receive payment from the Company in an amount equal to the excess of the
Fair Market Value per share as of the date the Change of Control occurred over
the applicable exercise price multiplied by the number of Shares covered by the
Stock Option within 30 days after the occurrence of the Change of Control.
(b) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Subsidiaries, any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan of the Company or any of its Subsidiaries), together with all
"affiliates" and "associates" (as such terms are defined in Rule 12b-2
under the Act) of such person, shall become the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 40% or more of either (A) the
combined voting power of the Company's then outstanding securities having
the right to vote in an election of the Company's Board of Trustees
("Voting Securities") or (B) the then outstanding Shares of the Company (in
either such case other than as a result of acquisition of securities
directly from the Company); or
(ii) persons who, as of the Effective Date of the Plan, constitute
the Company's Board of Trustees (the "Incumbent Trustees") cease for any
reason, including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a majority
of the Board, provided that any person becoming a director of the Company
subsequent to the Effective Date whose election or nomination for election
was approved by a vote of at least a majority of the Incumbent Trustees
shall, for purposes of this Plan, be considered an Incumbent Trustee; or
(iii) the shareholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
shareholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate 50% of the
voting shares of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any),
(B) any sale, lease, exchange or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party as a single
plan) of all or substantially all of the assets of the Company or (C) any
plan or proposal for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Stock or other Voting Securities outstanding, increases (x) the
proportionate number of Shares beneficially owned by any person to 40% or more
of the Shares then outstanding or (y) the proportionate voting power represented
by the Voting Securities beneficially owned by any person to 40% or more of the
combined voting power of all then outstanding Voting Securities; provided,
however, that if any person referred to in clause (x) or (y) of this sentence
shall thereafter become the beneficial owner of any additional Shares or other
Voting Securities (other than pursuant to a share split, stock dividend, or
similar transaction), then a "Change of Control" shall be deemed to have
occurred for purposes of the foregoing clause (i).
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<PAGE> 167
SECTION 10. GENERAL PROVISIONS
(a) No Distribution: Compliance with Legal Requirements. The Committee may
require each person acquiring Shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No Shares shall be issued pursuant to an Award until all applicable
securities law and other legal and stock exchange requirements have been
satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Awards as it deems appropriate.
(b) Ownership Restrictions.
No Shares shall be issued pursuant to an Award if, in the sole and absolute
discretion of the Committee, such issuance would likely result in any of the
following:
(i) The recipient's ownership of Shares being in violation of the
Share Ownership Limit; or
(ii) Income to the Company that could impair the Company's status as a
real estate investment trust, within the meaning of Sections 856 through
860 of the Code.
Notwithstanding any other provision of the Plan, no person shall have any
rights under this Plan to acquire Shares which would otherwise be prohibited
under the Company's Declaration of Trust.
(c) Delivery of Stock Certificates. Delivery of share certificates to
optionees under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have delivered such
certificates in the United States mail, addressed to the optionee, at the
optionee's last known address on file with the Company.
(d) Other Compensation Arrangements: No Employment Rights. Nothing
contained in this Plan shall prevent the Board or any of the Employers from
adopting other or additional compensation arrangements, including trusts,
subject to shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases. The adoption of the Plan and the grant of Awards do not confer upon any
Employee any right to continued employment with the Company or any other
Employer.
SECTION 11. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon (i) adoption by the Board, (ii)
approval by the holders of a majority of the shares of Shares of the Company
present or represented and entitled to vote at a meeting of shareholders and
(iii) consummation of the Ramco Transaction (the "Effective Date").
SECTION 12. GOVERNING LAW
This Plan shall be governed by Massachusetts law except to the extent such
law is preempted by federal law.
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<PAGE> 168
EXHIBIT A
<TABLE>
<CAPTION>
EMPLOYEE OPTION GRANT
----------------------------------------------------------------- ------------
<S> <C>
Dennis Gershenson................................................ 24,000
Bruce Gershenson................................................. 24,000
Richard Gershenson............................................... 24,000
Joel Gershenson.................................................. 24,000
Michael A. Ward.................................................. 24,000
</TABLE>
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<PAGE> 169
APPENDIX A
INFORMATION STATEMENT
<PAGE> 170
RPS REALTY TRUST
747 THIRD AVENUE
NEW YORK, NEW YORK 10017
March 29, 1996
Dear Shareholder:
Since 1993, management and the Board of Trustees of RPS Realty Trust
("RPS") have actively pursued opportunities to enable RPS to be transformed from
a real estate investment trust (a "REIT") principally engaged in the business of
mortgage lending into a shopping center equity REIT. Consistent with this goal,
and as previously announced, RPS has entered into an agreement with
Ramco-Gershenson, Inc. ("Ramco"), pursuant to which RPS will acquire
substantially all of the shopping center properties, as well as the management
organization and personnel and business operations, of Ramco and its affiliates.
As a condition to this acquisition, and in an effort to complete the
transformation of RPS from primarily a mortgage REIT to an equity REIT, RPS has
agreed to transfer or otherwise dispose of its mortgage loan portfolio and its
interest in two retail properties (which assets will not be consistent with RPS'
property portfolio following the closing of such acquisition). As a result, the
Board of Trustees of RPS has approved a distribution of one common share of
beneficial interest of its newly formed Maryland REIT subsidiary, Atlantic
Realty Trust (the "Company"), for every eight shares of beneficial interest of
RPS (which, after taking into account the impact of a 1 for 4 reverse split of
the shares of RPS, equates to a distribution ratio of one common share of the
Company for every two shares of RPS) held by shareholders of record as of the
close of business on April 12, 1996 (the "Distribution"). The Distribution will
be made on or about April 30, 1996, immediately prior to the consummation of the
Ramco acquisition. The Distribution does not require RPS shareholder approval
and no such approval is being or will be sought.
The Company has not engaged in any operations to date. The Company is
expected to own eight mortgage loans and two retail properties, as well as cash
and certain other assets currently held by RPS, which include a limited
partnership interest and furniture, fixtures and equipment. The Company does not
intend to make new loans or actively engage in either the mortgage lending or
the property acquisition business; instead, the Company intends to reduce to
cash or cash equivalents the mortgage loans, real property and other non-cash
assets owned by it as soon as practicable after the Distribution (but in no
event later than 18 months after the Distribution, subject to possible extension
as described in the attached Information Statement) and make a liquidating
distribution to its shareholders, or merge or combine operations with another
real estate entity, in either case within such period.
In this regard, Shareholders should note that in connection with the
Distribution, the Company will succeed to certain of the assets and liabilities
of RPS. Under Maryland law, trustees of a Maryland real estate investment trust,
such as the Company, are not personally liable for the obligations of the real
estate investment trust, except that trustees will be personally liable for any
act constituting bad faith, willful malfeasance, gross negligence or reckless
disregard of the trustee's duties, subject to the liability limitation provision
in the Company's Declaration of Trust. Under the common law of Massachusetts,
which applies to RPS and does not treat a trust as a separate business entity,
liabilities of a business trust are technically the liabilities of the trustees
individually, to the extent not negated by contract. However, Massachusetts
common law and RPS's declaration of trust provide that RPS' trustees are
entitled to indemnification from RPS for such liabilities. The potential effect
of such distinction is that, under Maryland law, trustees of the Company (except
as noted in the first sentence of this paragraph) would not be personally liable
for Company liabilities that related to the assets that will be contributed by
RPS to the Company, but trustees of RPS would be personally liable for such
liabilities to the extent such liabilities exceed RPS's ability to indemnify
such trustees.
Shareholders should note that in connection with the Distribution and
pursuant to a tax agreement (the "Tax Agreement") that will be entered into
between the Company and RPS, the Company will assume all
<PAGE> 171
potential tax liability arising out of the RPS Tax Issues (as defined in the
attached Information Statement under "Risk Factors -- Assumption of Potential
Tax Liabilities -- Adverse Affect on Ability to Liquidate"). Notwithstanding the
fact that the Company has assumed this potential liability, it is a condition of
the Distribution that RPS, through a special committee (the "Tax Committee") of
the Board of Trustees of RPS, control the settlement and/or disposition of the
RPS Tax Issues. Under the Tax Agreement, RPS has been granted broad authority to
negotiate a settlement of the RPS Tax Issues with the IRS. It is possible that
in connection with the resolution of the RPS Tax Issues, the IRS could disallow
certain deductions previously taken by RPS which, in turn, would result in a
corresponding increase in RPS' taxable income for the tax years in respect of
which such deductions were previously claimed. Since a REIT is required to
distribute at least 95% of its REIT taxable income in each year, RPS, in order
to preserve its status as a REIT, would in such event declare and pay to its
shareholders at that time a so called "deficiency dividend." (A deficiency
dividend is a special dividend permitted by the Internal Revenue Code of 1986,
as amended, 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.) Pursuant to the Tax Agreement, any funds needed to pay the deficiency
dividend would be provided by the Company (the "Deficiency Dividend Tax
Payment"). Accordingly, Shareholders should note that in the event a deficiency
dividend is paid under the circumstances described above, this would result in
an indirect payment of cash from the Company to the shareholders of RPS at the
time the dividend payment is made. As such, the net worth of the Company would
be reduced by the amount of the Deficiency Dividend Tax Payment and such tax
payment, if made, would inure to the benefit of the shareholders of RPS and not
the Company. Therefore, Shareholders should note that the Tax Committee has sole
authority to cause a Deficiency Dividend Tax Payment to be made, which payment
would benefit the shareholders to whom they owe a fiduciary duty, namely, the
shareholders of RPS.
The attached Information Statement contains important information with
respect to Atlantic Realty Trust and the Distribution. We urge you to read it
carefully.
Sincerely,
Joel M. Pashcow
Chairman of the Board
and President
<PAGE> 172
INFORMATION STATEMENT
ATLANTIC REALTY TRUST
SHARES OF BENEFICIAL INTEREST
This Information Statement is being furnished to holders of shares of
beneficial interest, par value $.10 per share ("RPS Shares"), of RPS Realty
Trust ("RPS") in connection with the distribution (the "Distribution") to such
holders of common shares of beneficial interest, par value $.01 per share (the
"Shares"), of Atlantic Realty Trust (the "Company").
The Company is a newly formed subsidiary of RPS which has not engaged in
any operations to date. The Company does not intend to actively engage in the
mortgage lending or any other business; instead, the Company intends to reduce
to cash or cash equivalents its remaining assets as soon as practicable after
the Distribution (but not later than 18 months after the Distribution, unless on
or before such date the holders of at least two-thirds of the outstanding Shares
approve the extension of such date or such date is automatically extended
without a shareholder vote because a contingent tax liability relating to RPS
that has been assumed by the Company has not been satisfactorily 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 period. No assurance can be given however that such objective will
be achieved. It is the intention of the Company to seek shareholder approval of
an extension of the 18-month term of the Company only in the event the Company
is unable to achieve its objectives within such period. See
"Business -- Business Objectives." Because, in connection with the Distribution,
the Company will assume certain potential tax liabilities involving RPS, the
Company will not liquidate or merge or combine operations with another real
estate entity until such claims, if any, are actually resolved. Any extension of
the 18-month term of the Company that is attributable thereto will not require a
shareholder vote. See "Risk Factors -- Assumption of Potential Tax
Liabilities -- Adverse Affect on Ability to Liquidate, -- No Company Control of
Resolution of Potential Tax Liabilities Assumed by the Company, -- Potential
Deficiency Dividend Tax Payments; Adverse Affect on the Company's Net Worth,"
"The Distribution -- Relationship Between RPS and the Company" and
"Business -- Agreements Between the Company and RPS."
The Shares will be distributed to holders of record of RPS Shares as of the
close of business on April 12, 1996 (the "Record Date"). Each such holder will
receive one Share for every eight RPS Shares held on the Record Date (which,
after taking into account the impact of a 1 for 4 reverse split of the RPS
Shares that will occur immediately prior to the Distribution, equates to a
distribution ratio of one Share for every two RPS Shares). No consideration will
be paid by RPS' shareholders for the Shares. There is no current trading market
for the Shares, although a "when issued" market for the Shares may develop after
the Record Date. The Shares have been approved, subject to notice of issuance
pursuant to the Distribution, on The Nasdaq SmallCap Market under the symbol
"ATLRS."
------------------------
NO SHAREHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT. WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS INFORMATION STATEMENT.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS INFORMATION STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Information Statement is March 29, 1996.
<PAGE> 173
TABLE OF CONTENTS
<TABLE>
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<S> <C>
SUMMARY............................................................................... 1
RISK FACTORS.......................................................................... 5
Risks of Mortgage Loans............................................................. 5
Risks of Significant "Problem Loans;" Increased Risk of Need to Foreclose........ 5
Risks Associated with Mortgage Loans Repayable in "Balloon" Payments............. 5
Risks Associated with Participating Mortgage Loans............................... 5
Adverse Affect of Finite-Life Status on Sale of Company Assets...................... 5
Assumption of Potential Tax Liabilities............................................. 6
Adverse Affect on Ability to Liquidate........................................... 6
Potential Deficiency Dividend Tax Payments; Adverse Affect on the Company's Net
Worth........................................................................... 6
No Company Control of Resolution of Potential Tax Liabilities Assumed by the
Company......................................................................... 7
Lack of Diversification of Mortgage and Real Estate Portfolio....................... 7
Real Property Carrying Value Exceeds Appraised Value................................ 7
Dependence on Qualification as a REIT; Federal Income Tax Consequences.............. 8
Roll-Up Transaction Requirements; Adverse Affect on Ability to Merge
or Combine Operations............................................................ 8
Dependence on Limited Personnel..................................................... 8
Absence of Public Market for the Shares............................................. 8
Certain Anti-Takeover Provisions Affecting Transferability of Shares................ 9
General Risks Associated with Commercial Real Estate................................ 9
Adverse Affects of Premature Sale of Short-Term and Temporary Investments........... 9
Lack of Operating History........................................................... 10
Majority Rule Binds Non-Consenting Shareholders..................................... 10
Adverse Affects of High Interest Rates.............................................. 10
Investment Company Act.............................................................. 10
INTRODUCTION.......................................................................... 11
THE DISTRIBUTION...................................................................... 12
Reasons for the Distribution........................................................ 12
Distribution Agent.................................................................. 12
Manner of Effecting the Distribution................................................ 12
Results of the Distribution......................................................... 13
Federal Income Tax Consequences of the Distribution................................. 13
Listing and Trading of the Company's Shares......................................... 14
Distribution Policy................................................................. 14
Relationship Between RPS and the Company............................................ 15
Reasons for Furnishing the Information Statement.................................... 16
BUSINESS.............................................................................. 17
Business Objectives................................................................. 17
Description of Company Assets....................................................... 18
Mortgage Loans................................................................... 18
Real Properties.................................................................. 20
Limited Partnership Interest..................................................... 21
Indebtedness........................................................................ 22
Qualification as a REIT............................................................. 22
Competition......................................................................... 24
Short-Term and Temporary Investments................................................ 24
Employees........................................................................... 24
</TABLE>
i
<PAGE> 174
<TABLE>
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<S> <C>
</TABLE>
<TABLE>
<S> <C>
Legal Proceedings................................................................... 24
Agreements Between the Company and RPS.............................................. 24
Assignment, Assumption and Indemnification Agreement............................. 24
Lease............................................................................ 25
Tax Agreement.................................................................... 25
SELECTED FINANCIAL DATA............................................................... 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 26
Capital Resources and Liquidity..................................................... 26
Results of Operations............................................................... 27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 29
MANAGEMENT............................................................................ 31
Trustees............................................................................ 31
Executive Officers.................................................................. 33
EXECUTIVE COMPENSATION................................................................ 33
Executive Officers.................................................................. 33
Trustees............................................................................ 33
DESCRIPTION OF THE COMPANY'S SHARES OF BENEFICIAL INTEREST............................ 34
General............................................................................. 34
Shares.............................................................................. 34
Excess Shares....................................................................... 35
Restrictions on Transfer............................................................ 35
Transfer Agent and Registrar........................................................ 36
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S DECLARATION OF TRUST AND
BYLAWS.............................................................................. 37
Business Combinations............................................................... 37
Control Share Acquisitions.......................................................... 37
Amendment to the Declaration of Trust............................................... 38
Dissolution of the Company.......................................................... 38
Advance Notice of Trustee Nominations and New Business.............................. 38
Anti-takeover Effect of Certain Provisions of Maryland Law and of the
Declaration of Trust and Bylaws.................................................. 39
Maryland Asset Requirements......................................................... 39
COMPARISON OF RIGHTS OF SHAREHOLDERS OF THE COMPANY AND SHAREHOLDERS OF RPS........... 39
SHARES ELIGIBLE FOR FUTURE SALE....................................................... 42
INDEMNIFICATION OF TRUSTEES AND OFFICERS.............................................. 42
INDEPENDENT PUBLIC ACCOUNTANTS........................................................ 43
ADDITIONAL INFORMATION................................................................ 43
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
ii
<PAGE> 175
SUMMARY
This summary is qualified by the more detailed information set forth
elsewhere in this Information Statement which should be read in its entirety.
Capitalized terms used but not defined in this Summary are defined elsewhere in
this Information Statement.
Distributing Company....... RPS Realty Trust ("RPS"). References herein to RPS
include its consolidated subsidiaries except where
the context otherwise requires and shall mean
Ramco-Gershenson Properties Trust, which RPS will
adopt as its new name upon consummation of the
acquisition by RPS of substantially all of the real
estate assets, as well as the management
organization and personnel and business operations
of Ramco-Gershenson, Inc. ("Ramco") and its
affiliates (the "Ramco Acquisition").
Distributed Company........ Atlantic Realty Trust, a Maryland real estate
investment trust (the "Company"), which is expected
to own eight mortgage loans and two retail
properties, as well as a limited partnership
interest, furniture, fixtures and equipment and
cash (collectively, the "Company Assets") currently
owned by RPS. See "Business -- Description of
Company Assets" and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity."
Risk Factors............... For a discussion of certain risk factors relating
to the Company and the Distribution, see "Risk
Factors" immediately following this Summary.
Duration of the Company.... Pursuant to the Company's Amended and Restated
Declaration of Trust (the "Declaration of Trust"),
the Company shall continue for a period of 18
months from the Distribution Date, during which
time it shall reduce to cash or cash equivalents
the Company Assets 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, as soon
as practicable following the Distribution and
within such 18-month period (unless on or before
the expiration of such 18-month period the holders
of at least two-thirds of the outstanding Shares
approve the extension of such date or such date is
automatically extended without a shareholder vote
because a contingent tax liability relating to RPS
that has been assumed by the Company has not been
satisfactorily resolved). It is the intention of
the Company to seek shareholder approval of the
extension of the Company's 18-month duration only
in the event the Company is unable to achieve its
objectives within such period. If the Company
enters into a definitive merger or business
combination agreement with another real estate
entity prior to the expiration of such 18-month
period, the Company shall continue automatically
until the earlier of (i) the closing of such merger
or business combination and (ii) the termination of
any definitive agreement relating thereto. The
stated 18-month duration of the Company, as such
period may or may not be extended as described
herein, is sometimes referred to in this
Information Statement as the "Term." See
"Business -- Business Objectives," "Risk
Factors -- Assumption of Potential Tax
Liabilities -- Adverse Affect on Ability to
Liquidate, -- No Company Control of Resolution of
Potential Tax Liabilities Assumed by the
Company, -- Potential Deficiency Dividend Tax
Payments; Adverse Affect on the Company's Net
Worth," "The Distribution -- Relationship Between
RPS and the Company" and "Business -- Agreements
Between the Company and RPS."
<PAGE> 176
Distribution Ratio......... One Share for every eight RPS Shares held on the
Record Date (which, after taking into account the
impact of a 1 for 4 reverse split of the RPS Shares
that will occur immediately prior to the
Distribution (the "Reverse Split"), equates to a
distribution ratio of one Share for every two RPS
Shares).
Securities to be
Distributed................ 3,561,552 Shares, based on 7,123,105 RPS Shares
outstanding on March 15, 1996 (after taking into
account the impact of the Reverse Split). The
Shares to be distributed will constitute all of the
outstanding Shares of the Company immediately after
the Distribution, except for any fractional Shares
which may result from the Reverse Split or the
distribution ratio. The Company will not issue
fractional Shares, but will instead distribute cash
to any shareholders owning fractional Shares in
redemption thereof. See "The Distribution -- Manner
of Effecting the Distribution."
Record Date................ The close of business on April 12, 1996.
Distribution Date.......... On or about April 30, 1996, which date shall be a
date immediately prior to the closing of the Ramco
Acquisition. The Distribution Agent will mail Share
certificates commencing on or about the
Distribution Date.
Tax Consequences........... Although the Distribution will be a taxable
transaction to RPS shareholders for federal income
tax purposes, it is anticipated that RPS
shareholders will recognize little, if any, gain.
See "The Distribution -- Federal Income Tax
Consequences of the Distribution."
Trading Market and
Symbol..................... The Shares have been approved, subject to notice of
issuance pursuant to the Distribution, for
inclusion on The Nasdaq SmallCap Market under the
symbol "ATLRS."
Distribution Agent,
Transfer Agent and
Registrar for the Shares... American Stock Transfer & Trust Company.
Reasons for the
Distribution............... Together with the Ramco Acquisition, the
Distribution will permit RPS to complete its
previously announced intention to become a fully
integrated real estate investment trust ("REIT")
principally engaged in the business of owning,
managing, leasing, developing, redeveloping and
acquiring shopping center properties. RPS is
undertaking the Distribution, rather than disposing
of the Company Assets itself, because Ramco was
unwilling to consummate the Ramco Acquisition if
those assets remained in RPS. Ramco was concerned
(i) that the trading price of the RPS Shares would
be adversely affected if RPS was perceived in the
market as a hybrid mortgage and equity REIT and
(ii) it would be difficult to value the mortgage
loans for purposes of determining the allocation of
interest in the operating partnership (that was
formed for the purpose of effectuating the Ramco
Acquisition) between RPS and affiliates of Ramco.
In addition, RPS did not believe it could maximize
value for the Company Assets if it attempted to
dispose of those assets on a bulk basis prior to
the closing of the Ramco Acquisition. See "PROPOSAL
1 -- THE RAMCO ACQUISITION PROPOSAL -- The Master
Agreement -- The Transaction" in the Proxy
Statement of which this Information Statement is a
part. The Company and RPS believe that the
systematic disposition of the Company Assets over
time
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to strategic buyers will achieve a premium value
for those assets over the value that could be
achieved in a bulk disposition.
Required Approvals......... The Distribution has been approved by the Board of
Trustees of RPS. No shareholder or other approval
is required in connection with the Distribution.
Relationship with RPS after
the Distribution........... RPS will have no share ownership interest in the
Company after the Distribution. The Company and RPS
have entered into several agreements, however, for
the purpose of giving effect to the Distribution
and defining their ongoing relationships, including
agreements providing for the transfer of the
Company Assets to the Company, the assumption of
certain liabilities of RPS relating to the Company
Assets upon the Distribution and indemnification by
RPS of the Company against liabilities, litigation
and claims arising out of or relating to all RPS
assets not transferred to the Company, and by the
Company of RPS against liabilities, litigation and
claims arising out of or relating to the Company
Assets. In addition, the Company has agreed to
assume certain potential tax liabilities involving
RPS. Joel M. Pashcow, Herbert Liechtung, Stephen R.
Blank, Edward Blumenfeld, Samuel M. Eisenstat,
Edwin J. Glickman, Arthur H. Goldberg, William A.
Rosoff, and Alfred D. Stalford, all of the current
trustees of RPS, will be trustees of the Company
after the Distribution, Joel M. Pashcow, the
current Chairman and President of RPS, will be
Chairman and President of the Company after the
Distribution, and Edwin R. Frankel, the current
Treasurer and Senior Vice President of RPS, will be
Executive Vice President, Chief Financial Officer
and Secretary of the Company after the
Distribution. See "The Distribution -- Relationship
Between RPS and the Company." Executive officers,
trustees and affiliates of RPS who own RPS Shares
on the Record Date will be issued Shares in the
Distribution based on the same distribution rate
applicable to all other shareholders. It is
expected that, immediately following the
Distribution, the executive officers and trustees
of the Company will beneficially own Shares in the
Company as follows: Joel M. Pashcow (93,154),
Herbert Liechtung (47,280), Stephen R. Blank (981),
Edward Blumenfeld (125), Samuel M. Eisenstat (125),
Edwin J. Glickman (0), Arthur H. Goldberg (24,487),
William A. Rosoff (2,400), Alfred D. Stalford
(500), and Edwin R. Frankel (0). See "Security
Ownership of Certain Beneficial Owners and
Management."
REIT Status................ The Company intends to qualify as a REIT for
federal income tax purposes. See
"Business -- Qualification as a REIT."
Business Objectives........ The Company intends to reduce to cash or cash
equivalents the Company Assets as soon as
practicable after the Distribution 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, prior
to the expiration of the Term. No assurance can be
given however that such objective will be achieved.
Because the Company has adopted a policy not to
re-invest sales proceeds in additional mortgage
loans on real estate (except to the extent
necessary to satisfy applicable REIT requirements),
a merger or other business combination involving
the Company and another real estate entity may
constitute a "roll-up transaction" under applicable
securities laws. In such case, the Company
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<PAGE> 178
would be required to comply with the heightened
disclosure rules as well as special rules relating
to the proxy solicitation process and the listing
of the securities of the surviving company on any
securities exchange or on Nasdaq. As such,
application of the roll-up rules to a merger or
other business combination involving the Company
could delay, defer or prevent such a transaction
from occurring. See "Business -- Business
Objectives." Because, in connection with the
Distribution, the Company will assume certain
potential tax liabilities involving RPS, the
Company will not liquidate or merge or combine
operations with another real estate entity until
such claims, if any, are satisfactorily resolved.
As discussed above, any extension of the 18-month
term of the Company that is attributable thereto
will not require a shareholder vote. See "Risk
Factors -- Assumption of Potential Tax
Liabilities -- Adverse Affect on Ability to
Liquidate, -- No Company Control of Resolution of
Potential Tax Liabilities Assumed by the
Company, -- Potential Deficiency Dividend Tax
Payments; Adverse Affect on the Company's Net
Worth," "The Distribution -- Relationship Between
RPS and the Company," and "Business -- Agreements
Between the Company and RPS."
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<PAGE> 179
RISK FACTORS
RISKS OF MORTGAGE LOANS
Risks of Significant "Problem Loans;" Increased Risk of Need to Foreclose.
The Company's mortgage loans are subject to the risk of a default by the
borrower and the need of the Company to foreclose on the underlying property or
restructure the mortgage loan in order to protect its investment. As of December
31, 1995, six of the Company's mortgage loans, constituting approximately 81% of
the Company Assets, were in arrears or considered to be "problem loans,"
including one loan, constituting approximately 1% of the Company Assets, which
has matured and currently is in default. See "Business -- Description of Company
Assets." The Company's nonperforming or problem loans will likely be valued in
the marketplace at a discount from par and their nonperforming or problem status
increases the Company's risk that it will need to foreclose on the underlying
property or restructure those mortgage loans to protect the Company's
investment. See Note 2(g) of Notes to Combined Financial Statements. In general,
the Company's mortgage loans are not personal obligations of the borrowers, and
the Company relies solely on the value of the property for its security. The
borrower's ability to make payments due under the mortgage loan and the amount
the Company may realize upon default, including bankruptcy of the borrower, will
be dependent upon the value of the underlying collateral which, in turn, is
dependent on risks generally associated with real estate investments, many of
which are beyond the control of the Company. No assurance can be given that, in
the case of a default and foreclosure, the value of the underlying collateral
that the Company may receive will be sufficient to satisfy the full obligation
of the borrower to the Company or, in the case of a restructuring of any of the
Company's "problem loans," that the Company will be able to do so on terms that
are as favorable to the Company as the current terms of any such loan. See
"-- General Risks Associated with Commercial Real Estate" below.
Risks Associated with Mortgage Loans Repayable in "Balloon" Payments. The
principal and accrued interest under certain of the Company's mortgage loans are
repayable in lump-sum "balloon" payments. Accordingly, the borrower's ability to
make such payments may be dependent upon its ability to sell the property or
obtain refinancing at the time the balloon payment is due, of which there can be
no assurance. In the event of a default under such an obligation, the Company
may be required to make a substantial investment in improvements or repairs to
maximize the property's investment potential which may have an adverse effect on
the amount of the liquidating distribution Shareholders could expect to receive
from the Company. In addition, the accrued interest components of mortgage
loans, if any, would result in recognition of taxable income by the Company in
the year of such accrual without any corresponding cash payments (until maturity
or prepayment).
Risks Associated with Participating Mortgage Loans. Certain of the
Company's mortgage loans are participating mortgage loans which provide for
basic interest as well as a share in the increase in gross revenues from the
underlying property and/or in the appreciation of the underlying property. The
value of any participation depends upon future increases in either revenues
from, or the value of, the underlying property and on the factors inherent in
any real estate investment. Accordingly, there can be no assurance that any
amounts will be realized from the Company's participation. It is possible that
as a result of the Company's interest in the gross rents or proceeds from a
sale, financing or refinancing of the property, a court may treat the Company as
a partner or joint venturer with the borrower. Such a finding could create a
risk of liability to third parties, cause the Company to lose the priority that
its security interest would otherwise have given it in such situations and/or
cause the income therefrom not to constitute REIT-Qualifying Income (as defined
in the Internal Revenue Code of 1986, as amended (the "Code")).
ADVERSE AFFECT OF FINITE-LIFE STATUS ON SALE OF COMPANY ASSETS
Pursuant to the Company's stated business objectives, the Company intends
to reduce to cash or cash equivalents the Company Assets as soon as practicable
following the Distribution 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, prior to the expiration of the Term. In seeking
to achieve this objective, the Company may be faced with opportunities to
dispose of the Company Assets at prices which are less than the Company would
expect to achieve if it intended to continue its business indefinitely. As
described below under
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<PAGE> 180
"Business -- Business Objectives," if the Company is not able to achieve its
objectives within 18 months, it may, by the vote of the holders of at least
two-thirds of the outstanding Shares, extend the period during which it is
required to liquidate its assets beyond 18 months. Nevertheless, borrowers under
the Company's existing mortgage loans and other third parties who may consider
acquiring the Company Assets will be aware of the 18-month deadline, and may
take this factor into account in their dealings with the Company. In the event
that at the end of such 18-month period the Company has not achieved its
objectives, and the shareholders of the Company have not approved an extension
of such date (or such date is not automatically extended without a shareholder
vote because an unresolved tax claim that has been assumed by the Company has
been asserted against RPS (see "Business -- Business Objectives"), the Company's
Trustees will appoint an independent third party to liquidate the Company's
remaining assets. Shareholders of the Company will not have an opportunity to
approve the appointment of such an independent party and no assurance can be
given that the independent party will be able to dispose of the Company Assets
at prices which are as favorable as the Company would expect to receive if the
Company's management negotiated such disposition or if the Company intended to
continue its business indefinitely. However, in the event that prior to the end
of such 18-month period, the Company has entered into a definitive merger or
business combination agreement with another real estate entity, the Company
shall continue automatically until the earlier of (i) the closing of such merger
or business combination and (ii) the termination of any definitive agreement
relating thereto. See "Business -- Business Objectives."
ASSUMPTION OF POTENTIAL TAX LIABILITIES
Adverse Affect on Ability to Liquidate. During the third quarter of 1994,
RPS held more than 25% of the value of its gross assets in Treasury Bill reverse
repurchase obligations ("Reverse Repos") which the United States Internal
Revenue Service (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"). RPS has requested that the IRS
enter into a closing agreement with RPS that the Asset Issue will not impact
RPS' status as a REIT. The IRS has deferred any action relating to the Asset
Issue pending the further examination of RPS' 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, RPS' counsel, Battle Fowler
LLP, has provided to RPS a legal opinion that RPS' investment in Treasury Bill
repurchase obligations would not adversely affect its REIT status. However, such
opinion is not binding upon the IRS. See "Business -- Qualification as a REIT."
In connection with the Distribution, the Company will assume all tax liability
arising out of the RPS Tax Issues. See "Business -- Agreements Between the
Company and RPS -- Tax Agreement." In connection with the assumption of such
potential liabilities, the Company and RPS will enter into a tax agreement (the
"Tax Agreement") which provides that RPS (through a special committee (the "Tax
Committee") of its Continuing Trustees, except for Robert A. Meister (as that
term is defined in the Proxy Statement of which this Information Statement is a
part)), and not the Company, will control, conduct and effect the settlement of
any tax claims against RPS relating to the RPS Tax Issues. Accordingly, the
Company will not have any control as to the timing of the resolution or
disposition of any such claims and no assurance can be given that the resolution
or disposition of any such claims will be on terms or conditions as favorable to
the Company as if they were resolved or disposed of by the Company. If the IRS
were to prevail with respect to one or more of the issues it raises, a
substantial tax liability could result, which liability would be an obligation
of the Company and would have a material adverse affect on the Company's
financial condition. In addition, the Company will not liquidate or merge or
combine operations with another real estate entity until such issues are
satisfactorily resolved. Any extension of the 18-month term of the Company that
is attributable thereto will not require a shareholder vote. See
"Business -- Business Objectives." RPS has received certain opinions of counsel
to the effect that RPS will be treated as a REIT for federal income tax
purposes. See "Business -- Qualification as a REIT." If, notwithstanding these
opinions of counsel, the IRS were to successfully challenge the status of RPS as
a REIT, the status of the Company as a REIT could be adversely affected. See
"-- Dependence on Qualification as a REIT; Federal Income Tax Consequences."
Potential Deficiency Dividend Tax Payments; Adverse Affect on the Company's
Net Worth. As discussed above under "-- Adverse Affect on Ability to
Liquidate," in connection with the Distribution and pursuant to the Tax
Agreement, the Company will assume all potential tax liability arising out of
the RPS Tax
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<PAGE> 181
Issues. Notwithstanding the fact that the Company has assumed this potential
liability, it is a condition of the Distribution that RPS, through the Tax
Committee, control the settlement and/or disposition of the RPS Tax Issues.
Under the Tax Agreement, RPS has been granted broad authority to negotiate a
settlement of the RPS Tax Issues with the IRS. It is possible that in connection
with the resolution of the RPS Tax Issues, the IRS could disallow certain
deductions previously taken by RPS which, in turn, would result in a
corresponding increase in RPS' taxable income for the tax years in respect of
which such deductions were previously claimed. Since a REIT is required to
distribute at least 95% of its REIT taxable income in each year, RPS, in order
to preserve its status as a REIT, would in such event declare and pay to its
shareholders at that 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.) Pursuant to the Tax Agreement,
any funds needed to pay the deficiency dividend would be provided by the Company
(the "Deficiency Dividend Tax Payment"). Accordingly, Shareholders should note
that in the event a deficiency dividend is paid under the circumstances
described above, this would result in an indirect payment of cash from the
Company to the shareholders of RPS at the time the dividend payment is made. As
such, the net worth of the Company would be reduced by the amount of the
Deficiency Dividend Tax Payment and such tax payment, if made, would inure to
the benefit of the shareholders of RPS and not the Company. Therefore,
Shareholders should note that the Tax Committee has sole authority to cause a
Deficiency Dividend Tax Payment to be made, which payment would benefit the
shareholders to whom they owe a fiduciary duty, namely, the shareholders of RPS.
No Company Control of Resolution of Potential Tax Liabilities Assumed by
the Company. In connection with the Company's assumption of all tax liability
arising out of the RPS Tax Issues as discussed above under "-- Adverse Affect on
Ability to Liquidate," RPS and the Company will enter into a tax agreement which
provides that RPS (through the Tax Committee), and not the Company, will have
the right to control, conduct and effect the settlement of any tax claims
arising out of the RPS Tax Issues. Because the trustees of RPS owe no duties to
the Company's shareholders, including to act in their best interests, no
assurance can be given that the resolution or disposition of any such tax claims
will be on terms or conditions as favorable to the Company as if they were
resolved or disposed of by the Company, and not RPS. See "Business -- Agreements
Between the Company and RPS -- Tax Agreement."
LACK OF DIVERSIFICATION OF MORTGAGE AND REAL ESTATE PORTFOLIO
The Company will hold a limited portfolio of participating mortgage loans
(of which six are considered to be problem loans) and two retail properties. In
addition, the Company does not expect to acquire additional mortgage loans or
properties, although the Company may in the course of its business acquire real
property subject to an existing mortgage loan pursuant to a workout,
foreclosure, deed in lieu of foreclosure, or bankruptcy proceeding. Accordingly,
adverse developments relating to a limited number of the Company's assets will
have a greater negative impact on the Company's operations than would have been
the case were the Company's assets more diversified.
REAL PROPERTY CARRYING VALUE EXCEEDS APPRAISED VALUE
An appraisal received for the Norgate property valued the property, as of
August 1, 1994, at $3,900,000, which is approximately $528,000 less than its
December 31, 1995 carrying value. No assurance can be given that the Company
will be able to realize the carrying value of this property through future
operations and the eventual disposition thereof given the expected 18-month term
of the Company. RPS has, however, signed a non-binding letter of intent for the
sale of this property at a purchase price in excess of the appraised value. 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. See
"Business -- Business Objectives and -- Description of Company Assets -- Real
Properties."
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<PAGE> 182
DEPENDENCE ON QUALIFICATION AS A REIT; FEDERAL INCOME TAX CONSEQUENCES
The Company intends to operate in a manner that will enable it to qualify
as a REIT for federal income tax purposes. Based on various assumptions relating
to the organization and operation of the Company and representations made by the
Company as to certain factual matters, Battle Fowler LLP, counsel to the
Company, has opined that the Company will qualify to be taxed as a REIT. See
"Business -- Qualification as a REIT." Qualification as a REIT, however, depends
on the ability of the Company to meet the requirements of the Code on a
continuing basis. Although the Company expects that it will satisfy such
requirements, no assurances can be given that the Company will satisfy or
continue to satisfy such requirements. If the Company so qualifies, amounts paid
by the Company as distributions to its shareholders will not be subject to
corporate income taxes. For any year in which the Company does not meet the
requirements for electing to be taxed as a REIT, it will be taxed as a
corporation and distributions to shareholders would not be deductible by the
Company in computing its taxable income. Furthermore, in such event the Company
would not be eligible to re-elect to be taxed as a REIT for five taxable years
(including the year of disqualification). Under certain other circumstances, if
the Company failed to meet certain REIT qualification rules and tests, such as,
the failure to have at least 75% of its income be derived from interests in real
estate and certain other sources, but which failure is due to reasonable cause
and not willful neglect, the Company would notwithstanding such failure continue
to qualify as a REIT, but the Company could be required to pay interest, taxes
and/or certain nondeductible penalties. The payment of any tax, interest or
penalties by the Company would reduce cash available for distribution and could
require the Company to borrow additional funds or to accelerate the liquidation
of certain of its investments. Finally, because the Company intends to reduce
the Company Assets to cash or cash equivalents, the Company may be required to
invest such cash in lower yielding assets so as to satisfy the asset and/or
income tests of the REIT requirements of the Code. RPS has received certain
opinions of counsel to the effect that RPS will be treated as a REIT for federal
income tax purposes. If, notwithstanding these opinions of counsel, the IRS were
to successfully challenge the status of RPS as a REIT, the status of the Company
as a REIT could be adversely affected. See "Business -- Qualification as a
REIT."
ROLL-UP TRANSACTION REQUIREMENTS; ADVERSE AFFECT ON ABILITY TO MERGE OR COMBINE
OPERATIONS
Because the Company has adopted a policy not to re-invest sales proceeds in
additional mortgage loans on real estate (except to the extent necessary to
satisfy applicable REIT requirements), a merger or other business combination
involving the Company and another real estate entity may constitute a "roll-up
transaction" under applicable securities laws. In such case, the Company would
be required to comply with the heightened disclosure rules as well as special
rules relating to the proxy solicitation process and the listing of the
securities of the surviving company on any securities exchange or on Nasdaq. As
such, application of the roll-up rules to a merger or other business combination
involving the Company could delay, defer or prevent such a transaction from
occurring.
DEPENDENCE ON LIMITED PERSONNEL
Given the Company's limited business objectives, the Company is expected to
have five or fewer employees. As a result, the Company's ability to take certain
actions, including acquiring the properties underlying the mortgage loans on
foreclosure, may be limited and the Company may need to engage third parties to
assist it in its pursuit of its business objectives or may have to seek less
favorable alternative transactions, which may adversely affect the Company's
cash flow and its ability to maximize the value of the Company Assets. In
addition, Joel M. Pashcow, the Company's Chairman and President, will receive no
cash compensation for serving as an executive officer of the Company and is not
employed pursuant to an employment agreement. Accordingly, no assurance can be
given that Mr. Pashcow will continue to serve in such capacity for the expected
Term of the Company.
ABSENCE OF PUBLIC MARKET FOR THE SHARES
There is not currently a public market for the Shares and there can be no
assurance that an active trading market for the Shares will develop or be
sustained. Prices at which such Shares may trade prior to the
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<PAGE> 183
Distribution on a "when-issued" basis or after the Distribution cannot be
predicted, and may be substantially below the Company's net asset value on a per
Share basis. The prices at which the Shares trade will be determined by the
marketplace and may be influenced by many factors, including, among others, the
depth and liquidity of the market for the Shares, investor perception of the
Company's ability to timely liquidate its assets for fair consideration, the
status of RPS' audit with the IRS, and general economic and market conditions.
See "The Distribution -- Listing and Trading of the Company's Shares."
CERTAIN ANTI-TAKEOVER PROVISIONS AFFECTING TRANSFERABILITY OF SHARES
Provisions of the Company's Declaration of Trust are designed to prevent a
concentration of ownership of the Company which might jeopardize its
qualification as a REIT under the Code, including a restriction on the ownership
of more than 9.8% of the outstanding Shares (in value or number) by any person
or group, unless the Board of Trustees of the Company has determined that such
ownership will not jeopardize the Company's status as a REIT. These provisions
of the Company's Declaration of Trust, certain other provisions of the
Declaration of Trust regarding classification of the board of trustees and
removal of trustees, the advance notice provisions of the Company's Amended and
Restated Bylaws (the "Bylaws"), and the provisions of applicable Maryland law
containing business combination and control share restrictions, may inhibit
market activity and the resulting opportunity for the Company's shareholders to
receive a premium that might otherwise exist, including by having anti-takeover
effects. See "Description of the Company's Shares of Beneficial Interest."
GENERAL RISKS ASSOCIATED WITH COMMERCIAL REAL ESTATE
The Company 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
Company 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 Company's income from such investments. Thus, the cost
of operating a property may exceed the rental income earned thereon, and the
Company 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 operations can be made.
ADVERSE AFFECTS OF PREMATURE SALE OF SHORT-TERM AND TEMPORARY INVESTMENTS
Pending the distribution of the net proceeds from the sale of the Company
Assets to shareholders or the merger or business combination of the Company with
another real estate entity, the Company expects that it will invest
substantially all its available funds 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 may be guaranteed by the Government National Mortgage
Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie
Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac"). These
investments will be made to the extent necessary to maintain the Company's
status as a REIT. The Company views short-term investments as those with a
maturity date which is less than one year, and temporary investments as those
that are not permanent and can easily be converted to cash. The Company expects
that it will dispose of these investments for the purpose of making a
liquidating distribution to its shareholders or effectuating a merger or
business combination with another real estate entity prior to the expiration of
the Term. To the extent interest rates rise between the date the Company
acquires and disposes of such fixed rate investments, a loss of principal may be
incurred.
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LACK OF OPERATING HISTORY
The Company is a newly formed REIT with no operating history. In addition,
the Company's management is not identical to the former RPS management that
managed the Company Assets, and the Company's business and investment objectives
differ from those of RPS. Accordingly, there can be no assurance that the
Company will achieve its stated objectives.
MAJORITY RULE BINDS NON-CONSENTING SHAREHOLDERS
A majority in interest of the shareholders may take certain actions that
would be binding on all nonconsenting shareholders. For example, although the
continuation of the business of the Company beyond 18 months after the
Distribution pursuant to a shareholder vote would require the affirmative vote
of the holders of at least two-thirds of the Company's outstanding shares,
certain mergers or business combinations involving the Company would require the
approval of only a majority in interest of the shareholders. See
"Business -- Business Objectives."
ADVERSE AFFECTS OF HIGH INTEREST RATES
The trading price of the Shares may be affected by prevailing market
interest rates, including (i) in periods of high interest rates, that the Shares
may be less attractive than alternative investments of equal or lower risk, and
(ii) that high interest rates may have a negative effect on the value of the
Company Assets.
INVESTMENT COMPANY ACT
The Company intends to conduct its business so as not to become regulated
as an investment company under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). As a result, the Company may be limited in the
types of assets it may acquire upon the disposition of the Company Assets. The
Company will monitor its portfolio so as to ensure that it will not be deemed an
investment company or that it will qualify for an exemption under the Investment
Company Act. If it were determined that the Company were not exempt from the
Investment Company Act, the Company would likely be required to liquidate or
register as an investment company.
10
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INTRODUCTION
The Board of Trustees of RPS has declared a distribution payable to the
holders of record of the RPS Shares, as of the close of business on the Record
Date, of one Share for every eight RPS Shares held on the Record Date (which,
after taking into account the impact of the Reverse Split that will occur
immediately prior to the Distribution, equates to a distribution ratio of one
Share for every two RPS Shares). As a result of the Distribution, all of the
outstanding Shares will be distributed to the RPS shareholders and the Company
will operate as an independent public company.
The Company is a newly-formed subsidiary of RPS which has not engaged in
any operations to date. The Company is expected to own eight mortgage loans and
two retail properties, as well as a 20% limited partnership interest in a
limited partnership that owns an 18-story building (see Note 3(d) to the
Financial Statements), furniture, fixtures and equipment and cash (collectively,
the "Company Assets") currently held by RPS. The Company does not intend to
actively engage in the mortgage lending or any other business; instead, the
Company intends to reduce to cash or cash equivalents the Company Assets as soon
as practicable after the Distribution and either (i) make a liquidating
distribution to its shareholders or (ii) agree to merge or combine operations
with another real estate entity, in each case, prior to the expiration of the
Term. No assurance can be given however that such objective will be achieved.
See "Business -- Business Objectives." Because the Company has adopted a policy
not to re-invest sales proceeds in additional mortgage loans on real estate
(except to the extent necessary to satisfy applicable REIT requirements), a
merger or other business combination involving the Company and another real
estate entity may constitute a "roll-up transaction" under applicable securities
laws. In such case, the Company would be required to comply with the heightened
disclosure rules as well as special rules relating to the proxy solicitation
process and the listing of the securities of the surviving company on any
securities exchange or on Nasdaq. As such, application of the roll-up rules to a
merger or other business combination involving the Company could delay, defer or
prevent such a transaction from occurring. Because, in connection with the
Distribution, the Company will assume certain potential tax liabilities
involving RPS, the Company will not liquidate or merge or combine operations
with another real estate entity until such claims, if any, are satisfactorily
resolved. Any extension of the 18-month term of the Company that is attributable
thereto will not require a shareholder vote. See "Risk Factors -- Assumption of
Potential Tax Liabilities -- Adverse Affect on Ability to Liquidate, -- No
Company Control of Resolution of Potential Tax Liabilities Assumed by the
Company, -- Potential Deficiency Dividend Tax Payments; Adverse Affect on the
Company's Net Worth," "The Distribution -- Relationship Between RPS and the
Company" and "Business -- Agreements Between the Company and RPS."
The Company's principal executive offices are located at 747 Third Avenue,
New York, New York 10017, and its telephone number is (212) 355-1255.
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THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
RPS is currently engaged in (a) the business of managing an eight-mortgage
loan portfolio, which is comprised in part by participating mortgage loans which
provide for, in addition to payment of interest, arrangements permitting RPS 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 properties, each of which was subject to mortgages held by RPS,
which properties typically were acquired by RPS as a result of negotiations with
certain of RPS' borrowers and/or in connection with (or in lieu of) foreclosure
proceedings. These property acquisitions were made pursuant to the authorization
of the Board of Trustees of RPS (the "RPS Board"), in 1991, that RPS commence
making direct and indirect investments in real property; this authorization was
in response to a decline in the national real estate market and an increase in
the number of "problem" (i.e., non-performing or under-performing) loans in the
RPS mortgage portfolio.
In 1993, the RPS Board determined that shareholder value would be maximized
if RPS were to transform itself 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. As a result, RPS 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 RPS portfolio
from mortgages and into equity investments.
As of December 27, 1995, RPS, Ramco-Gershenson, Inc., a Michigan
corporation ("Ramco"), and its affiliates entered into an Amended and Restated
Master Agreement relating to the acquisition by RPS of substantially all of the
real estate assets, as well as the management organization, personnel and
business operations, of Ramco and its affiliates (the "Ramco Acquisition").
As a condition to the Ramco Acquisition, and in an effort to complete the
transformation of RPS from primarily a mortgage REIT to an equity REIT, RPS has
agreed to transfer or otherwise dispose of the Company Assets. Accordingly,
simultaneously with the consummation of the Ramco Acquisition, RPS will transfer
the Company Assets to the Company in exchange for Shares of the Company and will
thereafter effectuate the Distribution. RPS is undertaking the Distribution,
rather than disposing of the Company Assets itself, because Ramco was unwilling
to consummate the Ramco Acquisition if those assets remained in RPS. Ramco was
concerned (i) that the trading price of the RPS Shares would be adversely
affected if RPS was perceived in the market as a hybrid mortgage and equity REIT
and (ii) it would be difficult to value the mortgage loans for purposes of
determining the allocation of interest in the operating partnership (that was
formed for the purpose of effectuating the Ramco Acquisition) between RPS and
affiliates of Ramco. In addition, RPS did not believe it could maximize value
for the Company Assets if it attempted to dispose of these assets on a bulk
basis prior to the closing of the Ramco Acquisition. See "PROPOSAL 1 -- THE
RAMCO ACQUISITION PROPOSAL -- The Master Agreement -- The Transaction" in the
Proxy Statement of which this Information Statement is a part. The Company and
RPS believe that the systematic disposition of the Company Assets over time to
strategic buyers will achieve a premium value for those assets over the value
that could be achieved in a bulk disposition.
DISTRIBUTION AGENT
The distribution agent ("the Distribution Agent") is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution will be made on or about the Distribution Date to
shareholders of record of RPS at the close of business on the Record Date. Prior
to the Distribution Date, RPS will deliver all of the outstanding Shares to the
Distribution Agent for distribution, except for any fractional Shares, which are
discussed below. The Distribution Agent will mail, beginning on or about the
Distribution Date, certificates representing the Shares to RPS shareholders of
record on the Record Date. Each RPS shareholder will receive one Share for
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<PAGE> 187
every eight RPS Shares held on the Record Date (which, after taking into account
the impact of the Reverse Split that will occur immediately prior to the
Distribution, equates to a distribution ratio of one Share for every two RPS
Shares). RPS shareholders will not be required to pay for the Shares received in
the Distribution, or to surrender or exchange RPS Shares in order to receive
Shares of the Company. No vote of RPS shareholders is required or sought in
connection with the Distribution, and RPS shareholders have no appraisal rights
in connection with the Distribution.
The Reverse Split and the distribution ratio will result in certain
shareholders of the Company owning fractional Shares. 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.
IN ORDER TO BE ENTITLED TO RECEIVE SHARES OF THE COMPANY IN THE
DISTRIBUTION, RPS SHAREHOLDERS MUST BE SHAREHOLDERS AT THE CLOSE OF BUSINESS ON
THE RECORD DATE, APRIL 12, 1996.
RESULTS OF THE DISTRIBUTION
After the Distribution, the Company will be an independent public company
which will own and manage the Company Assets. The number and identity of
shareholders of the Company immediately after the Distribution will be the same
as the number and identity of shareholders of RPS on the Record Date.
Immediately after the Distribution, the Company expects to have approximately
11,327 holders of record of Shares and approximately 3,561,552 Shares
outstanding, based on the number of record RPS shareholders and outstanding RPS
Shares on March 15, 1996 and the Distribution ratio of one Share for every eight
RPS Shares (which, after taking into account the impact of the Reverse Split
that will occur immediately prior to the Distribution, equates to a distribution
ratio of one Share for every two RPS Shares). The actual number of Shares to be
distributed will be determined as of the Record Date. The Distribution will not
affect the number of outstanding RPS Shares or any rights of RPS shareholders.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The Company intends to qualify as a REIT for federal income tax purposes.
See "Business -- Qualification as a REIT."
In general, no gain or loss is recognized upon the transfer of property to
a corporation (including a real estate investment trust such as the Company)
solely in exchange for stock in the corporation if immediately thereafter the
transferors of such property are in "control" of the corporation. Control is
defined as the ownership of 80% of the voting and non-voting stock of a
corporation.
In exchange for the Company Assets, RPS will receive all of the outstanding
Shares of the Company and will then immediately distribute all of the Shares
proportionately to the RPS shareholders. The "immediately after" and "control"
requirements of the general non-recognition rule of the Code are satisfied in
circumstances such as these even though the identities of the actual transferor
of property to the Company and the ultimate recipient of the Shares are not the
same.
RPS has represented that (i) the transfer of the Company Assets to the
Company and the Distribution are not part of any plan to achieve diversification
of assets, (ii) the transfer of the Company Assets is being undertaken as a
condition to the Ramco Acquisition and in an effort to transform RPS from
primarily a
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<PAGE> 188
mortgage REIT to an equity REIT and (iii) the Company has no knowledge of any
obligation, plan or intention by any RPS shareholder to dispose of any Shares
immediately after the Distribution, such that the RPS shareholders as a group
would own less than 80% of the outstanding Shares. Based on these
representations, it is the opinion of Battle Fowler LLP, counsel to the Company,
that the Company will not recognize any gain or loss on the receipt of the
Company Assets in exchange for its Shares. The Company's initial tax basis in
the Company Assets will equal the tax basis of the Company Assets in the hands
of RPS immediately prior to the exchange. The holding period for each of the
Company Assets acquired in the exchange will generally include RPS' holding
period for that asset.
Because the making of mortgage loans does not constitute engaging in an
active trade or business, both RPS and the Company do not satisfy a condition
necessary for the distribution by RPS to its shareholders of the Shares to be
accorded tax-free treatment. Consequently, the distribution of the Shares to the
shareholders of RPS will be taxable as a dividend to such shareholders. RPS has
no accumulated earnings and profits. Each Shareholder will recognize dividend
income to the extent RPS has current earnings and profits at the end of its
taxable year. In addition, the adjusted basis of the Shares to a recipient
shareholder will be reduced by the excess of the fair market value of the Shares
received over the current earnings and profits of RPS. Any excess of the fair
market value of the Shares received over the adjusted basis of the RPS Shares
owned will generally be taxed as capital gain to the Shareholder and any excess
of the adjusted basis of the RPS Shares owned over the fair market value of the
Shares received will generally be a capital loss to the Shareholder.
EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH SHAREHOLDER, INCLUDING THE
COMPUTATION OF THE BASIS OF HIS OR HER SHARES IN THE COMPANY. SEE
"BUSINESS -- QUALIFICATION AS A REIT."
LISTING AND TRADING OF THE COMPANY'S SHARES
The Shares have been approved, subject to notice of issuance pursuant to
the Distribution, on The Nasdaq SmallCap Market under the symbol "ATLRS."
There is not currently a public market for the Shares and there can be no
assurance that an active trading market for the Shares will develop or be
sustained. Prices at which such Shares may trade prior to the Distribution on a
"when-issued" basis or after the Distribution cannot be predicted, and may be
substantially below the Company's net asset value on a per Share basis. The
prices at which the Shares trade will be determined by the marketplace and may
be influenced by many factors, including, among others, the depth and liquidity
of the market for the Shares, investor perception of the Company's ability to
timely liquidate its assets for fair consideration, the status of RPS' audit
with the IRS and general economic and market conditions.
The Shares distributed to RPS shareholders will be freely transferable,
except for Shares received by persons who may be deemed to be "affiliates" of
the Company under the Securities Act of 1933, as amended (the "Securities Act").
Persons who may be deemed to be affiliates of the Company after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with the Company and may include certain officers and
Trustees of the Company. Persons who are affiliates of the Company will be
permitted to sell their Shares only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act.
DISTRIBUTION POLICY
Under the Code, a REIT must meet certain qualifications, including a
requirement that it distribute to its shareholders at least 95% of its REIT
taxable income, excluding capital gains and certain "excess non-cash income."
See "Business -- Qualification as a REIT." In addition, in accordance with the
Company's stated business objectives, the Company expects that prior to the
expiration of the Term it will either (i) make a liquidating distribution to its
shareholders of the net proceeds attributable to the sale of the Company Assets
or (ii) merge or combine business operations with another real estate entity.
See "Business -- Business Objectives."
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<PAGE> 189
RELATIONSHIP BETWEEN RPS AND THE COMPANY
After the Distribution, it is expected that RPS and the Company will
conduct their respective businesses as independent companies with their own
separate employees, and RPS will have no share ownership interest in the
Company.
It is anticipated that prior to the Distribution, RPS will incur
approximately $6,500,000 in indebtedness, the proceeds of which will be used
primarily to make certain required severance and bonus payments to RPS'
executive officers, to pay the cost of a run-off directors' and officers'
liability insurance policy for RPS, a directors' and officers' liability policy
for the Company, and to provide excess cash that can be distributed to the
Company as initial working capital. As set forth in the Company's pro forma
financial statements, 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 Distribution. Upon the consummation of the Distribution,
the Company will assume this indebtedness. The actual amount of such
indebtedness may be less than $6,500,000 to the extent that RPS effects the sale
of any of the Company Assets prior to the Distribution and realizes cash
proceeds therefrom or is prepaid by any of the borrowers under its mortgage
loans. In addition, several agreements have been or will be entered into among
RPS and its affiliates providing for the transfer of the Company Assets to the
Company, the assumption of liabilities relating to such assets, the
indemnification by RPS of the Company with respect to liabilities arising from
or related to RPS assets which are not Company Assets, and the indemnification
by the Company of RPS with respect to liabilities arising from or related to the
Company Assets. See "Business -- Agreements between the Company and RPS."
In past years, RPS may have inadvertently violated two technical
requirements applicable to REITs. (1) During 1988-1992 RPS failed to satisfy
certain shareholder notice requirements applicable to REITs. (2) During the
third quarter of 1994, RPS held more than 25% of the value of its gross assets
in Reverse Repos 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. RPS has entered into a closing agreement with
the IRS pursuant to which the IRS has agreed that the status of RPS as a REIT
shall not be lost solely as a result of the failure by RPS to satisfy certain
shareholder notice requirements during 1988 - 1992. Nothing in the closing
agreement affects the right of the IRS to assess a deficiency on other grounds
or to challenge the classification of RPS as a REIT on other grounds. RPS has
also received an opinion of Battle Fowler LLP that its investment in 1994 in
Reverse Repos constitutes qualifying assets for purposes of determining whether
RPS has satisfied the 75% Asset Test (as defined in "Business -- Qualification
as a REIT"). See "FEDERAL INCOME TAX CONSEQUENCES -- Background" in the Proxy
Statement of which the Information Statement is a part. The IRS is reviewing
RPS' compliance with certain requirements applicable to its qualification as a
REIT, as well as certain other federal income tax matters relating to RPS'
businesses for its 1991 - 1994 taxable years. RPS and the Company have received
an opinion of Wolf, Block Schorr and Solis-Cohen ("Special Tax Counsel") that
even if the IRS were to successfully assert a deficiency in the taxable income
of RPS for such years, that result would not affect the status of RPS as a REIT,
provided RPS timely declares and pays a deficiency dividend (i.e., a
distribution that is permitted to relate back to the year for which any such
deficiency relates) enabling it to satisfy the requirement that a REIT
distribute 95% of its taxable income.
As part of the negotiations with Ramco that related to the receipt of the
closing agreement from the IRS, RPS agreed that in connection with the
Distribution the Company will assume any tax liability arising out of the RPS
Tax Issues (other than liability that relates to events occurring or actions
taken by RPS following the date of the Distribution). Because the Company will
assume all tax liability arising out of the RPS Tax Issues, the Company will not
liquidate or merge or combine operations with another real estate entity until
such claims, if any, are satisfactorily resolved. Any extension of the
anticipated 18-month term of the Company that is attributable thereto will not
require a shareholder vote. See "Risk Factors -- Assumption of Potential Tax
Liabilities -- Adverse Affect on Ability to Liquidate and -- No Company Control
of Resolution of Potential Tax Liabilities Assumed by the Company." Shareholders
should note that notwithstanding the fact that the Company has assumed this
potential tax liability, it is a condition of the Distribution that RPS, through
the Tax Committee, control the settlement and/or disposition of the RPS Tax
Issues. Under the Tax Agreement, RPS has been granted broad authority to
negotiate a settlement of the RPS Tax Issues with the IRS. It is
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possible that in connection with the resolution of the RPS Tax Issues, the IRS
could disallow certain deductions previously taken by RPS which, in turn, would
result in a corresponding increase in RPS' taxable income for the tax years in
respect of which such deductions were previously claimed. Since a REIT is
required to distribute at least 95% of its REIT taxable income in each year,
RPS, in order to preserve its status as a REIT, would in such event declare and
pay to its shareholders at that 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.) Pursuant to
the Tax Agreement, any funds needed to pay the Deficiency Dividend Tax Payment
would be provided by the Company. Accordingly, Shareholders should note that in
the event a deficiency dividend is paid under the circumstances described above,
this would result in an indirect payment of cash from the Company to the
shareholders of RPS at the time the dividend payment is made. As such, the net
worth of the Company would be reduced by the amount of the Deficiency Dividend
Tax Payment and such tax payment, if made, would inure to the benefit of the
shareholders of RPS and not the Company. Therefore, Shareholders should note
that the Tax Committee has sole authority to cause a Deficiency Dividend Tax
Payment to be made, which payment would benefit the shareholders to whom they
owe a fiduciary duty, namely, the shareholders of RPS. See "Risk
Factors -- Assumption of Potential Tax Liabilities -- Adverse Affect on Ability
to Liquidate, -- Potential Deficiency Dividend Tax Payments; Adverse Affect on
the Company's Net Worth, -- No Company Control of Resolution of Potential Tax
Liabilities Assumed by the Company."
After the Distribution, Joel M. Pashcow, Chairman and President of the
Company, will serve as a Trustee of both the Company and RPS (which will then be
named Ramco-Gershenson Properties Trust). Mr. Pashcow will receive no cash
compensation for serving as an executive officer of the Company. In addition,
Messrs. Herbert Liechtung, Stephen R. Blank, Edward Blumenfeld, Samuel M.
Eisenstat, Edwin J. Glickman, Arthur H. Goldberg and William A. Rosoff, who will
serve as Trustees of the Company, are currently trustees of RPS, and Edwin R.
Frankel, a current executive officer of RPS, will serve as an executive officer
of the Company and receive compensation of $60,000 per annum. The Trustees,
including Mr. Pashcow, will not receive any compensation for serving as trustees
of the Company. See "Management" and "Executive Compensation."
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by RPS solely to provide
information to shareholders of RPS who will receive Shares in the Distribution.
It is not, and is not to be construed as, an inducement or encouragement to buy
or sell any securities of RPS or the Company. The information contained in this
Information Statement is believed by RPS to be accurate as of the date set forth
on its cover. Changes may occur after that date, and neither RPS nor the Company
will update the information except in the normal course of their respective
public disclosure practices.
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BUSINESS
BUSINESS OBJECTIVES
The Company is a newly formed subsidiary of RPS which has not engaged in
any operations to date.
Under the provisions of its Declaration of Trust, the Company shall
continue for a period of 18 months from the Distribution Date, during which time
it shall reduce to cash or cash equivalents the Company Assets 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, as soon as
practicable following the Distribution and within such 18-month period (unless
on or before the expiration of such 18-month period the Company has not achieved
its objective and the holders of at least two-thirds of the outstanding Shares
approve the extension of such date or such date is automatically extended
without a shareholder vote because a contingent tax liability relating to RPS
that has been assumed by the Company has not been satisfactorily resolved). It
is the intention of the Company to seek shareholder approval of the extension of
the Company's initial 18-month duration only in the event the Company is unable
to achieve its objectives within such period. If the Company enters into a
definitive merger or business combination agreement with another real estate
entity prior to the expiration of such 18-month period, the Company shall
continue automatically until the earlier of (i) the closing of such merger or
business combination and (ii) the termination of any definitive agreement
relating thereto. Any liquidating distribution effected by the Company would be
subject to the satisfaction of the Company's liabilities to its creditors. In
the event that at the end of the Term, the Company is unable to achieve its
business objectives, the Company's Trustees will appoint an independent third
party to liquidate the Company's remaining assets. Because, in connection with
the Distribution, the Company will assume all tax liability arising out of the
RPS Tax Issues, the Company will not liquidate or merge or combine operations
with another real estate entity until such claims are satisfactorily resolved,
as determined by the Board of Trustees. Any extension of the 18-month term of
the Company attributable thereto will not require a shareholder vote. See "Risk
Factors -- Assumption of Potential Tax Liabilities -- Adverse Affect on Ability
to Liquidate, -- No Company Control of Resolution of Potential Tax Liabilities
Assumed by the Company, -- Potential Deficiency Dividend Tax Payments; Adverse
Affect on the Company's Net Worth," and "The Distribution -- Relationship
Between RPS and the Company."
As a result of the Distribution, the Company will hold the Company Assets,
which are described below under " -- Description of Company Assets." The
Company's principal investment objective is to maximize shareholder value from
the reduction of the Company Assets to cash or cash equivalents as discussed
below. As part of its plan to reduce to cash or cash equivalents the Company
Assets, the Company intends, among other things, to (i) contact borrowers under
the Company's mortgage loans to explore possible prepayments, (ii) contact
strategic buyers of the Company's assets regarding possible portfolio sales
transactions, and (iii) list the Company's assets for sale with qualified real
estate brokers. The Company expects that it will be able to orderly reduce to
cash or cash equivalents the Company Assets within 12 months after the
Distribution, but in no event later than 18 months after the Distribution,
subject to extension as described below. No assurance can be given however that
such objective will be achieved. The 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
mortgaged-backed securities (or similar investment products), all or some of
which investments may be guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
See " -- Short-Term and Temporary Investments" below. Unless otherwise approved
by the shareholders, the Company does not expect that it will make new permanent
investments or raise additional capital. In addition, the Company does not
expect to acquire additional mortgage loans or properties (although the Company
may in the course of its business acquire real property subject to an existing
mortgage loan pursuant to a workout, foreclosure, deed in lieu of foreclosure,
or bankruptcy proceeding.
In addition, following the Distribution, the Company expects that it will
explore the possibility of merging or entering into a business combination with
another real estate entity. The Company expects that it will pursue such a
transaction only if it represents an attractive alternative to the distribution
to shareholders of the net proceeds from the orderly liquidation of the Company
Assets, as described above. Prior to the Distribution, RPS received preliminary
inquiries from third parties regarding a potential merger or business
combination
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involving the Company. While in some cases RPS has held preliminary discussions
with these third parties, no binding or non-binding agreements, arrangements or
understandings have been reached with such third parties regarding any
extraordinary transaction involving the Company. In addition, the merger
candidates that may be available to the Company may be limited as a result of
the amount of cash and the nature of the assets which the Company will hold.
Accordingly, there can be no assurance that the Company will successfully merge
or combine operations with another real estate entity. Because the Company has
adopted a policy not to re-invest sales proceeds in additional mortgage loans on
real estate (except to the extent necessary to satisfy applicable REIT
requirements), a merger or other business combination involving the Company and
another real estate entity may constitute a "roll-up transaction" under
applicable securities laws. In such case, the Company would be required to
comply with the heightened disclosure rules as well as special rules relating to
the proxy solicitation process and the listing of the securities of the
surviving company on any exchange or on Nasdaq. As such, application of the
roll-up rules to a company merger or business combination could delay, defer or
prevent such a transaction from occurring.
The Company intends to operate in a manner that will permit it to qualify
for the federal income tax treatment accorded to a REIT under the Code. If it so
qualifies, the Company's REIT income, with certain limited exceptions, will not
be subject to federal income tax at the corporate level. In order to maintain
its REIT status, the Company will be required, among other things, to distribute
annually (as determined under the Code) to its shareholders at least 95% of REIT
income and to meet certain asset, income and stock ownership tests. See
"-- Qualification as a REIT" below. However, the Company is not required to
distribute its net capital gains to shareholders in order to retain its
qualification as a REIT, and the Company would be subject to federal income tax
on any undistributed net capital gains. As a result, the Company expects that it
will attempt to distribute sufficient amounts to avoid any federal income tax at
the Company level as a consequence of the sale or disposition of any Company
Assets.
DESCRIPTION OF COMPANY ASSETS
As more fully described below, the Company is expected to own eight
mortgage loans, two retail properties and a 20% limited partnership interest in
a limited partnership that owns an 18-story building.
A. MORTGAGE LOANS. The Company is expected to hold 8 mortgage loans having
an aggregate net carrying amount of $39,615,749, as of December 31, 1995, based
on total funds advanced of $42,838,037, plus accrued interest of $7,009,048,
less an allowance for loss of $10,231,336. The mortgage loan portfolio is
comprised in part of participating mortgage loans which provide for, in addition
to the payment of interest, arrangements permitting RPS to share in increases in
gross revenues from and/or the appreciation of the underlying properties.
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The following table summarizes the Company's expected mortgage loan
portfolio as of December 31, 1995:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL INTEREST RATE(2)
PRINCIPAL NET DATE ---------------------
AMOUNT OF RPS FUNDS ALLOWANCE ACCRUED CARRYING FUNDED (OR MATURITY CURRENT ACCRUED
PROPERTY(1) LOAN ADVANCED(3) FOR LOSS INTEREST AMOUNT(4) MODIFIED) DATE INTEREST INTEREST(5)
- ------------------- ----------- ----------- ------------ ---------- ----------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers
Mt. Morris Commons
Genessee Township,
MI(6).............. $ 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(6)............ 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(7)..... 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%
I-5 Wabash Ave.
Chicago(6)(8)...... 2,850,000 2,850,000 (650,000) -- 2,200,000 7/93 3/96 5.00% --
Hylan Plaza
Shopping Center
Staten Island,
NY(6)............ 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(9)............ 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(6).... 3,255,596 3,255,596 (2,000,000) -- 1,255,596 3/94 3/04 0 6.00%
NCR Building
Century City,
CA(6)(10).......... 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>
- ---------------
(1) Copps Hill Plaza, Branhaven Plaza, Holiday Park, and NCR are wraparound
mortgage loans, and the remaining six loans are first mortgage loans.
(2) In addition to fixed interest, RPS 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.
(3) Payments on the amounts advanced by RPS are interest only until maturity.
These amounts represent the outstanding principal balances and do not
include accrued interest.
(4) 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(i) of Notes to Combined Financial Statements.
(5) Payments of accrued interest will be due and payable at maturity.
(6) These loans are currently in default (three monthly payments or more) or are
otherwise considered by RPS to be "problem loans."
(7) On January 19, 1996, RPS 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.
(8) On March 7, 1996, RPS reached 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. The transaction is subject to the
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<PAGE> 194
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.
(9) On February 1, 1996, RPS 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.
(10) The NCR Building loan matured on December 31, 1995 and is currently in
default. RPS 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 RPS to be "problem loans." At December 31,
1995, RPS was not accruing current and accrued interest on the Mt. Morris loan.
In addition, as of such date, RPS was not accruing deferred interest on the
Hylan Plaza Shopping Center, Copps Hill Plaza and Rector mortgage loans
described above.
The Hylan Plaza shopping center includes approximately 349,000 square feet
of leasable space located in Staten Island, New York (the "Property"). The
record owner of the Property is Berley Realty Corp. ("Berley"), which holds
title to the Property as nominee for DiLorenzo Associates, a general partnership
(collectively, the "Owner"). RPS is the holder of a note (the "Note") from
Berley in the original principal amount of $25,000,000, which Note (i) had an
outstanding principal balance of $25,000,000 as of December 31, 1995 and had
$6,275,000 in accrued but unpaid interest as of December 31, 1995, and (ii) is
secured by, among other things, a first mortgage on the Property. The Owner has
advised the Company that, as of December 31, 1995, the Property was leased to
approximately 45 tenants. Major tenants (i.e., tenants who accounted for 10% or
more of the leasable space as of December 31, 1995) include K-Mart Corp., a
department store chain ("K-Mart"), Supermarkets General Corp. d/b/a Pathmark, a
supermarket chain ("Pathmark"), and Toys "R" Us -- Nytex, Inc., a retail toy
store chain ("Toys "R" Us"). These three tenants lease approximately 105,000,
55,000 and 42,000 square feet, respectively, which constitutes 30%, 16%, and
12%, respectively, of the total leasable space. The Owner has advised the
Company that: (i) the K-Mart lease expires in January 1997 and provides for
annual rental payments of approximately $235,000; (ii) the Pathmark lease
expires in January 1997 and provides for annual rental payments of approximately
$339,000; and (iii) the Toys "R" Us lease, which was due to expire in October
1995, was extended pursuant to the tenant's exercise of a renewal option and is
due to expire in October 2005 and provides for annual rental payments of
approximately $90,000. In addition, as of December 31, 1995, approximately 98%
of the leasable square footage of space in the Property was leased to tenants
under leases.
B. REAL PROPERTIES. The Company is expected to own interests in the
following real properties:
9 North Wabash Avenue. The 9 North Wabash Avenue 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 RPS, and is owned by
that entity free and clear of any material liens or other encumbrances. The
entire Wabash property was leased to Lane Bryant, a women's apparel
retailer, pursuant to a lease which expired on June 30, 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. Lane Bryant has occupied
100% of the leasable space for each of the last five years. The property is
currently vacant. RPS has entered into an exclusive sales and lease
arrangement with a local broker to sell or lease this property. Real estate
taxes on this property for the year ended December 31, 1995 were
approximately $142,000. The Company believes the property is adequately
covered by insurance. The Company's depreciable basis in the property, as
of December 31, 1995, is approximately $3,238,000, which is depreciated
using the straight-line method and a 39-year predictable life. As of
January 1, 1995, RPS' independent real estate appraisers appraised the
value of this property at $2,400,000. As of December 31, 1995, the Company
recognized an impairment of $800,000 to decrease the property's carrying
value ($2,438,222 as of December 31, 1995) to more closely approximate the
appraised value. Upon consummation of the Ramco Acquisition, the Company
will adopt the liquidation basis of accounting at which time the property
will be classified as held for sale and will be stated at its net
20
<PAGE> 195
realizable value. See Company Pro Forma Financial Statements. While RPS has
held preliminary discussions with third parties regarding the leasing of
this property, no binding or non-binding agreements, arrangements or
understandings exist with any such third parties.
Norgate Shopping Center. The Norgate Shopping Center is a one-story
shopping center located in Indianapolis, Indiana (Marion County). The
property was acquired on June 23, 1994 by Norgate Shops, Corp., a
wholly-owned subsidiary of RPS, and is owned by that entity free and clear
of any material liens or other encumbrances. The shopping center contains
approximately 208,000 square feet of leasable space, approximately 76% of
which was leased and occupied as of December 31, 1995. Major tenants (i.e.,
tenants who accounted for 10% or more of the revenues at such property
during the 12-month period ended December 31, 1995) are Kohl's Oakland,
Inc., a department store retail chain, and Consolidated Stores, Inc., a
discount variety store retail chain. These two tenants lease approximately
65,000 and 37,300 square feet, respectively, which constitutes 31% and 18%,
respectively, of the total leasable space. The Kohl's Oakland lease expires
in January 1999 and provides for annual rental payments of approximately
$211,000 and the Consolidated Stores lease is month to month and provides
for rental payments of approximately $140,000 on an annualized basis. The
Kohl's lease contains three 5-year tenant renewal options. Leases for
approximately 39,800 feet expired on or prior to December 31, 1995 and such
space is currently leased on a month-to-month basis, and leases for
approximately 29,500 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 $3.46 (approximately $3.50 including percentage rent based
on 1995 revenues). The Company believes the property is adequately covered
by insurance. The Company's depreciable basis in the property, as of
December 31, 1995, is approximately $4,428,000, which is depreciated using
the straight-line method and a 39-year predictable life. On August 1, 1994,
RPS' independent real estate appraisers appraised the value of this
property at $3,900,000, which is approximately $528,000 less than its
December 31, 1995 carrying value ($4,427,967). The Company believes that
the decline in value represented by the appraisal is temporary because the
property's carrying value is recoverable through future operations and the
eventual disposition thereof, on a going concern basis of accounting. Upon
consummation of the Ramco Acquisition, the Company will adopt the
liquidation basis of accounting at which time the property will be
classified as held for sale and will be stated at its net realizable value.
See Company Pro Forma Financial Statements. In November, 1995, the
prospective buyer under a definitive purchase agreement relating to the
sale of the Norgate property terminated such agreement pursuant to its
terms following its due diligence review. 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.
C. LIMITED PARTNERSHIP INTEREST. The Company is expected to own a 20%
limited partnership interest in a limited partnership that owns an 18-story
building with approximately 138,500 square feet of leasable space used for
office, showroom and retail purposes, located at 5 North Wabash Avenue in
Chicago, Illinois. As of December 31, 1995, the book value of the Company's 20%
limited partnership interest was $460,000. The Company will be entitled to 20%
of the net income (loss) and distributions from the limited partnership, but
will not be allocated such net income (loss) or distributions until the mortgage
on the property is repaid and, in addition, the borrower receives $5,000,000
from the disposition of the property. Upon the consummation of the Ramco
Acquisition, the Company will adopt the liquidation basis of accounting at which
time the limited partnership interest will be stated at a net realizable value
of zero because the Company believes that, given the anticipated Term of the
Company, it will not be able to recover its interest either from the receipt of
future cash flows or from a transfer of such interest. See Note 3(c) of Notes to
Combined Financial Statements and Note 6 of Notes to Pro Forma Financial
Statements.
21
<PAGE> 196
INDEBTEDNESS
On or prior to the Distribution Date, RPS will incur approximately
$6,500,000 in indebtedness, the proceeds of which will be used primarily to make
certain required severance and bonus payments to RPS' executive officers, to pay
the cost of a run-off directors, and officers' liability insurance policy for
RPS, a directors' and officers' liability insurance policy for the Company, and
to provide excess cash that can be distributed to the Company as initial working
capital. As set forth in the Company's pro forma financial statements, 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
Distribution. Upon consummation of the Distribution, the Company will assume
this indebtedness. See "-- Agreements Between the Company and RPS." The actual
amount of such indebtedness may be less than $6,500,000 to the extent that RPS
effects the sale of any of the Company Assets prior to the Distribution and
realizes cash proceeds therefrom or is prepaid by any of the borrowers under its
mortgage loans. The Company intends to repay this indebtedness out of proceeds
from sales of the Company Assets. The Company does not intend to incur any
additional indebtedness, other than trade payables incurred in the ordinary
course of business.
QUALIFICATION AS A REIT
The Company intends to qualify as a REIT for federal income tax purposes.
If the Company so qualifies, amounts paid by the Company as distributions to its
shareholders will not be subject to corporate income taxes. For any year in
which the Company 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 Company 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 Company 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 Company 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. Furthermore, less than 30% of the annual gross
income of a REIT must be derived from the sale or other distribution of real
property or obligations secured by a mortgage on real property which has been
held for less than four years (the "30% Income Test").
The Company may invest the proceeds derived from the sale or other
disposition of the Company Assets in pass-through mortgage-backed certificates,
mortgage participation certificates and mortgage-backed securities, all or some
of which instruments may be guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
Such instruments produce qualifying income for REIT qualification purposes and
also satisfy the requirements of the 75% Asset Test.
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
Company'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 Company
must include such accrued interest in income but will not receive the
corresponding cash until some time in the future, at the same time, the Company
may have to obtain funds from other sources to satisfy the 95% distribution
requirement, although depreciation deductions attributable to the Company's
ownership of real properties should reduce the amount of such "cashless" income.
To the extent the Company's accrued interest income is not offset by
depreciation deductions, the Company 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
22
<PAGE> 197
without requiring any cash payments until maturity. In addition, the Company may
draw upon its cash reserves in order to satisfy the 95% annual distribution
requirement referred to above.
RPS has entered into a closing agreement with the IRS pursuant to which the
IRS agreed that the status of RPS as a REIT will not be lost solely because of
its failure to satisfy certain shareholder notice requirements for its taxable
years 1988 - 1992. Nothing in the closing agreement affects the rights of the
IRS to assess a deficiency on other grounds or to challenge the classification
of RPS as a REIT on other grounds. During the third quarter of 1994, more than
25% of the value of RPS' gross assets were invested in Reverse Repos, which
transactions the IRS may view as not constituting qualifying assets for purposes
of the 75% Asset Test. RPS has also received an opinion of Battle Fowler LLP
("Counsel") that its investment in Reverse Repos constitute qualifying assets
for purposes of determining whether it has satisfied the 75 percent Asset Test.
The IRS has commenced an examination of the tax returns of RPS for its 1991 -
1994 taxable years. The Company will assume all tax liabilities attributable to
tax claims against RPS arising out of the RPS Tax Issues (other than liability
that relates to events occurring or actions taken by RPS following the date of
the Distribution). RPS and the Company have received an opinion of Special Tax
Counsel, that to the extent there is a deficiency in RPS' taxable income arising
out of the IRS examination and provided RPS timely makes a deficiency dividend
(i.e., declares and pays a distribution which is permitted to relate back to the
year for which each deficiency was determined to satisfy the requirement that a
REIT distribute 95 percent of its taxable income), the classification of RPS as
a REIT for the taxable years under examination would not be affected. If
notwithstanding the above-described opinions of counsel, the IRS successfully
challenged the status of RPS as a REIT, the REIT status of the Company could be
affected, which would have a material adverse impact on the financial condition
of the Company.
The Company believes that, after the Distribution, it will operate in such
a manner so as to satisfy the Code requirements for qualification as a REIT.
However, no assurance can be given that such requirements will continue to be
met or that the Company will be so qualified at any time. Based on various
assumptions relating to the organization and operation of the Company and the
Company Assets and representations made by the Company as to certain factual
matters, in the opinion of Counsel, the Company will qualify to be taxed as a
REIT under the Code following the Distribution. Counsel will not review the
Company's operating results and no assurance can be given that the Company's
actual operating results will meet the REIT requirements on a continuing basis.
The opinions described in this section and in "The Distribution -- Federal
Income Tax Consequences of the Distribution" represent Counsel's best legal
judgment as to the most likely outcome of an issue if the matter were litigated.
Opinions of counsel have no binding effect or official status of any kind, and
in the absence of a ruling from the IRS, there can be no assurance that the IRS
will not challenge the conclusion or propriety of any of Counsel's opinions.
The foregoing summary, when read together with the discussion under "The
Distribution -- Federal Income Tax Consequences of the Distribution" and "Risk
Factors -- Dependence on Qualification as a REIT; Federal Income Tax
Consequences," includes a discussion of all material Federal income tax
considerations associated with the Distribution and the anticipated operation of
the Company. The provisions governing treatment as a REIT are highly technical
and complex and this summary is qualified in its entirety by the applicable Code
provisions, the rules and regulations promulgated thereunder and administrative
and judicial interpretations thereof. Moreover, this summary does not address
all tax aspects that might be relevant to a particular shareholder in light of
his personal circumstances and it does not deal with particular types of
shareholders that are subject to special treatment under the Code, such as
tax-exempt organizations, insurance companies, financial institutions or
broker-dealers, and foreign corporations and persons who are not citizens or
residents of the United States.
EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE
SPECIFIC FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES TO HIM OF THE
DISTRIBUTION.
23
<PAGE> 198
COMPETITION
The properties which secure the Company'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 Company and may make it more
difficult for borrowers to meet debt service payments on a current basis.
With respect to the real properties, the Company 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 Company. In addition, there may be comparable
properties and/or economic difficulties which would cause increased competition
for tenants, thereby pushing rental rates down, forcing the Company to make
greater lease concessions (e.g., to fund renovations), and/or causing increased
vacancies at the Company's properties.
SHORT-TERM AND TEMPORARY INVESTMENTS
Pending the distribution to shareholders of the net proceeds from the
disposition of the Company Assets or the merger or combination of the Company
with another real estate entity, the Company expects that it will invest
substantially all of its available funds in short-term or temporary investments,
such as pass-through mortgage-backed certificates, mortgage participation
certificates and mortgage-backed securities, all or some of which investments
may be guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac, in order to minimize
the Company's exposure to interest rate fluctuations and to provide the Company
with liquidity. Pass-through securities represent a proportional share in the
cash flows of pools of mortgage loans, or tranches of real estate mortgage
investment conduits, which are securities collateralized by pass-throughs and
structured to create various cash flows.
Ginnie Mae is a wholly-owned corporate instrumentality of the United States
within the United States Department of Housing and Urban Development.
Investments guaranteed by Ginnie Mae are backed by the full faith and credit of
the United States. Fannie Mae is a federally-chartered privately-owned
corporation and Freddie Mac is a corporate instrumentality of the United States;
the guarantees of Fannie Mae and Freddie Mac are not backed by the full faith
and credit of the United States.
EMPLOYEES
Immediately after the Distribution, the Company is expected to have fewer
than five employees. In addition, the Company will retain qualified third
parties (such as real estate brokers) to effectuate its planned dispositions of
the Company Assets.
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 Company or its property.
AGREEMENTS BETWEEN THE COMPANY AND RPS
In connection with the Distribution, the Company and RPS will enter into
several agreements for the purpose of giving effect to the Distribution and
defining their ongoing relationship.
Assignment, Assumption and Indemnification Agreement. In connection with
the Distribution, RPS and the Company will enter into an assignment, assumption
and indemnification agreement, pursuant to which the Company will assume, and
will agree generally to indemnify RPS against, all liabilities, litigation and
claims arising out of the Company Assets, and RPS will retain, and will agree
generally to indemnify the Company against, all liabilities, litigation and
claims arising out of all RPS operations not transferred to the Company. The
foregoing obligations will not entitle an indemnified party to recovery to the
extent any such
24
<PAGE> 199
liability is covered by proceeds received by such party from any third-party
insurance policy. RPS will agree to indemnify the Company against all
liabilities, litigation and claims arising out of RPS assets which are not
Company Assets. Such agreement will set forth various procedures relating to the
indemnification and other obligation of the parties thereunder, including
procedures for notification and payment of claims, use and preservation of
records and resolution of disputes.
Lease. In connection with the Distribution and the Ramco Acquisition, the
Company will assume RPS' lease relating to approximately 4,800 square feet of
office space located at 747 Third Avenue, New York, New York, and RPS will
relocate its principal executive offices to Southfield, Michigan. The lease
commenced on April 1, 1995 and will expire on April 30, 1997. The base rent
under the lease is approximately $150,000 per annum. The assignment of the lease
to the Company is subject to the receipt of the prior written consent of the
landlord of such space.
Tax Agreement. In connection with the Distribution, the Company and RPS
will enter into a tax agreement pursuant to which the Company will agree to
assume and indemnify RPS against any tax liability arising out of the RPS Tax
Issues (other than liability that relates to events occurring or actions taken
by RPS following the date of the Distribution). In addition, notwithstanding the
fact that the Company has assumed this potential tax liability, it is a
condition of the Distribution that RPS, through the Tax Committee, control the
settlement and/or disposition of the RPS Tax Issues. Under the Tax Agreement,
RPS has been granted broad authority to negotiate a settlement of the RPS Tax
Issues with the IRS. It is possible that in connection with the resolution of
the RPS Tax Issues, the IRS could disallow certain deductions previously taken
by RPS which, in turn, would result in a corresponding increase in RPS' taxable
income for the tax years in respect of which such deductions were previously
claimed. Since a REIT is required to distribute at least 95% of its REIT taxable
income in each year, RPS, in order to preserve its status as a REIT, would in
such event declare and pay to its shareholders at that 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.) Pursuant to the Tax Agreement, any funds needed to pay the Deficiency
Dividend Tax Payment would be provided by the Company. Accordingly, Shareholders
should note that in the event a deficiency dividend is paid under the
circumstances described above, this would result in an indirect payment of cash
from the Company to the shareholders of RPS at the time the dividend payment is
made. As such, the net worth of the Company would be reduced by the amount of
the Deficiency Dividend Tax Payment and such tax payment, if made, would inure
to the benefit of the shareholders of RPS and not the Company. Therefore,
Shareholders should note that the Tax Committee has sole authority to cause a
Deficiency Dividend Tax Payment to be made, which payment would benefit the
shareholders to whom they owe a fiduciary duty, namely, the shareholders of RPS.
See "Risk Factors -- Assumption of Potential Tax Liabilities -- Adverse Affect
on Ability to Liquidate, -- No Company Control of Resolution of Potential Tax
Liabilities Assumed by the Company, -- Potential Deficiency Dividend Tax
Payments; Adverse Affect on the Company's Net Worth".
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical information for
the Company and reflects the transfer to the Company of the Company Assets as a
result of the Distribution. The financial information should be read in
conjunction with the financial statements and notes thereto included herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, 1995
1995 1994 1993 1992 1991 ------------------
----------- ----------- ----------- ----------- ----------- (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Total Revenues......... $ 4,573,011 $ 4,423,519 $ 5,488,801 $ 6,810,157 $ 7,043,021 $ 3,457,790
Total Assets........... 54,230,032 56,087,512 55,616,772 63,106,268 65,408,606 54,308,639
Income (loss).......... (1,682,764) 722,058 435,891 (139,551) 5,036,716 (847,472)
</TABLE>
25
<PAGE> 200
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information is based upon the Company's consolidated
financial statements, which were derived from RPS' historical financial
statements to reflect the transfer of the Company Assets to the Company as a
result of the Distribution. The financial information, and the discussion that
follows, assumes that the Company Assets were transferred to the Company at the
beginning of the periods indicated, and that the Company and RPS were separate
companies with separate operations as of such dates. The allocation of certain
expenses between the Company and RPS was determined by using the weighted
average of the Company's total assets to RPS' total assets and the Company's
total revenues to RPS' total revenues and reflects management's best estimate of
the appropriate allocation of such expenses between the two companies. As
described below, the Company has utilized a weighted average of approximately
29%, 29%, 24% and 24% for the purpose of allocating such expenses for periods
ended September 30, 1995, December 31, 1995, 1994 and 1993, respectively. The 5%
increase in the weighted average used for the September 30, 1995 and December
31, 1995 periods primarily reflects a decrease in RPS' revenues without a
corresponding decrease in the Company's revenues.
CAPITAL RESOURCES AND LIQUIDITY
As of December 31, 1995, the Company had assets totalling $54,230,032,
consisting of $36,023,265 invested in mortgage loans (after deducting allowance
for possible loan losses of $10,231,336 and exclusive of receivables relating to
such loans), $6,866,189 (after providing for an impairment of $800,000) invested
in real properties, $3,356,995 in short-term investments, $7,523,583 in interest
and accounts receivable, and $460,000 in other assets (representing the
Company's 20% limited partnership interest in a limited partnership that owns an
18-story building). As of such date, the Company had total liabilities of
$1,063,356 (representing accounts payable and deferred commitment fees) and, in
connection with the Distribution, it is anticipated that the Company will assume
approximately $6,500,000 of indebtedness incurred by RPS in connection with the
Ramco Acquisition. See Notes 3 and 6 of Notes to Pro Forma Financial Statements.
The Company's cash receipts are derived primarily from interest income on
its mortgage loan portfolio, and, to a lesser degree, from rental income from
its investments in real properties. Accordingly, the Company is dependent upon
the ability of the borrowers under its mortgage loans to make required debt
service payments, and, to a lesser extent, on the ability of tenants to make
rental payments. The Company is aware that certain of its borrowers are
experiencing continuing financial difficulties due to increased vacancies and
lower rental rates. As of December 31, 1995 the Company had six loans that were
in arrears (three monthly payments or more) or otherwise considered to be
"problem loans" by the Company. 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, totaled $44,165,960 representing approximately 81%
of the Company's total assets at December 31, 1995. At December 31, 1995, the
Company was not 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 Company was not accruing deferred interest on
three additional loans in the aggregate approximate principal amount of
$31,820,000. The Company has established, as of December 31, 1995, an allowance
for possible loan losses of $10,231,336 relating to certain of the mortgage
loans held by the Company. Management's policy is to review each mortgage loan
in the Company's portfolio on a regular basis, at least annually (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 or decreased. The need for a provision
is assessed after reviewing mortgage loans and considering, among other factors,
the net realizable value of the underlying property or other collateral. The
provisions reflect the Company's estimates of current conditions and assumptions
concerning future expected conditions. 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 based on changes in current
circumstances. The Company may provide for additional losses in the future.
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<PAGE> 201
Upon consummation of the Distribution, the Company will assume
approximately $6,500,000 of indebtedness that is anticipated to be incurred
prior to the Distribution. The actual amount of such indebtedness may be less
than $6,500,000 to the extent that RPS effects the sale of any of the Company
Assets prior to the Distribution and realizes cash proceeds therefrom or is
prepaid by any of the borrowers under its mortgage loans. The Company intends to
repay this indebtedness out of proceeds from sales of the Company Assets. The
Company intends to fund its operations from cash from its investments and
operating activities, and from the disposition of its assets during the 12- to
18-month period after the Distribution. Except as otherwise described herein,
the Company is required to either dispose of its assets and make a final
liquidating distribution, or merge or combine operations with another real
estate entity in either case, prior to the expiration of the Term. The Company
believes that working capital, cash flow from operating activities and the
disposition of assets will be sufficient to satisfy its cash requirements for
operations during such 12- to 18-month period. However, there can be no
assurance that there will not be unanticipated additional expenses, or that the
Company will be able to dispose of all of its assets during such period. In
addition, as the Company sells or otherwise disposes of assets, net cash
generated from operating activities (which as of December 31, 1995 was
$2,884,332) will decrease as proceeds from any such sales or dispositions are
invested in short-term or temporary investments which yield lower rates of
return.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1994
Interest income on mortgage loans for the nine months ended September 30,
1995 increased by approximately $55,915 or 2.1% as compared to the nine months
ended September 30, 1994. During the 1995 period, the Company received
contingent interest of $43,862 as compared to $41,836 during the comparable 1994
period. The Company also received $19,166 in extension fee income during the
nine months of 1995. For the nine months of 1995 the Company received rental
income from its two retail properties of $768,433 as compared to $445,541 for
the first nine months of 1994. This is the result of the Company not acquiring
the Norgate Shopping Center until June 30, 1994.
During the nine months ended September 30, 1995 the Company provided
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 Company's net carrying amount of that loan at such
date. General and administrative expenses amounted to $819,664 for the first
nine months of 1995. This reflects the use of a weighted average of
approximately 29% during the first nine months of 1995 for the purpose of
allocating expenses between RPS and the Company.
CALENDAR YEAR 1995 COMPARED TO CALENDAR YEAR 1994
Total revenues before rental income during 1995 increased $22,411 or .6%
from the 1994 year. During 1995 the Company received contingent interest of
$43,862 as compared to $41,836 during the comparable 1994 period. The Company
also received $19,166 in extension fee income during 1995.
During the year ended December 31, 1995, expenses (excluding property
operating expenses, real estate taxes, and depreciation) increased $2,624,401 or
87.2% compared to the same period during 1994. This increase was primarily due
to the increasing the provision for possible loan losses. During the year ended
December 31, 1995, the Company provided allowance for possible loan losses of
$3,650,000 as compared to $2,100,000 during 1994, representing an increase of
$1,550,000 or 73.8%. $3,000,000 of the $3,650,000 allowance for possible loan
losses related to the Hylan mortgage loan was 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 Company's net carrying amount of that loan at such date.
Additionally, the Company provided an impairment of $800,000 with regard to the
9 No. Wabash building. General and administrative expenses amounted to
$1,185,161 for 1995. This reflects the use of a weighted average of
approximately 29% during 1995 for the purpose of allocating expenses between RPS
and the Company.
During 1995, the Company received rental income of $994,369 as compared to
$867,288 for the 1994 year. This increase of $127,081 or 14.7% resulted
primarily from the Company's ownership of the Norgate
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<PAGE> 202
Shopping Center property for a full 12 months during 1995 as compared with only
6 months of ownership of such property during 1994. Property operating expenses
and depreciation expense increased during the 1995 year by $74,459 and $45,858
due to the aforementioned acquisition of the Norgate Center. Real estate tax
expense decreased by $190,404 during 1995 as a result of the Company having to
pay past due real estate taxes on the Norgate property during 1994. For the year
ended December 31, 1995, the Company recognized net income from the investment
in real estate of $373,755 as compared to net income of $176,587 for 1994.
CALENDAR YEAR 1994 COMPARED TO CALENDAR YEAR 1993
Total revenues before rental income during 1994 decreased $1,763,256 or
33.1% from the previous year, primarily as a result of the Company recognizing
in 1993 deferred interest income of $1,948,269 (of which $1,764,234 of interest
income was recognized upon the partial paydown of the NCR loan) as compared to
$115,835 in the 1994 year. This resulted in a decrease of $1,832,434 or 94%.
Contingent interest income for 1994 was $41,836 as compared to $50,121 for 1993
representing a decrease of $8,285 or 16%.
During the year ended December 31, 1994, expenses (excluding property
operating expenses, real estate taxes and depreciation) decreased $1,954,332 or
39.4% compared to the same period during 1993. This decrease was primarily due
to the decrease in the provision for possible loan losses. During the year ended
December 31, 1994, the Company provided allowances for possible loan losses of
$2,100,000 as compared to $4,100,000 during 1993, representing a decrease of
$2,000,000 or 48.1%. General and administrative expenses amounted to $910,760
for 1994. This reflects the use of a weighted average of approximately 24%
during 1994 for the purpose of allocating expenses between RPS and the Company.
During 1994, the Company received rental income of $867,288 as compared to
$169,314 for the 1993 year. This increase of $697,974 or 412% is primarily as a
result of the Company owning more properties during 1994 than during the same
period in 1993. Property operating expenses, real estate taxes and depreciation
expense increased during the 1994 year by $121,827, $429,669 and $51,387,
respectively, over the 1993 year due to the aforementioned increase in the
number of properties. For the year ended December 31, 1994, the Company
recognized net income from the investment in real estate of $176,587 as compared
to net income of $81,496 for 1993.
CALENDAR YEAR 1993 COMPARED TO CALENDAR YEAR 1992
Total revenues before rental income decreased $1,490,670 or 21% from that
of the previous year. Interest from mortgage loans decreased $1,587,037 or 23%.
The reduction in interest from mortgage loans continued to be attributable
primarily to the general decline in the commercial real estate sector of the
national economy, the financial condition of certain of the Company's borrowers
and the economic conditions in certain areas where the properties securing the
Company's mortgage loans are located. The Company in 1993 recognized $1,948,269
of deferred interest as compared to $1,267,078 in 1992, an increase of $681,191
or 53%. Contingent interest income for 1993 was $50,121 as compared to $17,637
for 1992. Current interest income from mortgage loans decreased $2,204,345 or
38%, primarily as a result of an increase in "problem loans" and lower mortgage
balances.
During the year ended December 31, 1993, expenses (excluding property
operating expenses, real estate taxes and depreciation) decreased $1,913,865 or
27% compared to the same period during 1992. This decrease was primarily due to
the decrease in the provision for possible loan losses. During the year ended
December 31, 1993, the Company made provisions for possible losses of $4,100,000
as compared to $5,940,000 during 1992 representing a decrease of $1,840,000 or
31%. General and administrative expenses amounted to $865,092 for 1993. This
reflects the use of a weighted average of approximately 24% during 1993 for the
purpose of allocating expenses between RPS and the Company.
During 1993, the Company received rental income of $169,314 as compared to
none for the same period of 1992. During the year ended December 31, 1993 the
Company incurred property operating expenses, real estate taxes and depreciation
expenses totaling $87,818 as compared to none during the 1992 year. For the year
ended December 31, 1993 the Company recognized net income from the investment in
real estate of $81,496 as compared to none for 1992.
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<PAGE> 203
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
All of the Company's outstanding Shares are currently held by RPS. Based on
information known to RPS as of March 15, 1996, the following person is expected
to beneficially own more than 5% of the Shares after the Distribution (based
solely upon a Schedule 13D and a Schedule 13G filed (with respect to RPS) with
the Securities and Exchange Commission in December 1989 and February, 1996,
respectively).
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
---------------------------------------------------- --------------------------- --------
<S> <C> <C>
Poff & Co. (Trustee for Policeman and Fireman
Retirement System of the City of Detroit)......... 215,574(1) 6.05%
c/o Comerica Bank
P.O. Box 1319
Detroit, Michigan 48231
Ryback Management Corp. and/or Lindner Investment
Series Trust, in a fiduciary capacity for Lindner
Growth Fund....................................... 280,012(1) 7.86%
c/o Ryback Management Corporation
7711 Carondelet Avenue
P.O. Box 16900
St. Louis, Missouri 63105
</TABLE>
- ---------------
(1) After taking into account the impact of a 1 for 4 reverse split of the RPS
Shares that will occur prior to the Distribution.
The following table sets forth information concerning the Shares that are
expected to be beneficially owned after the Distribution by each of the Trustees
and each of the executive officers of the Company and by all Trustees and
executive officers as a group. The share ownership amounts set forth below are
based on the number of RPS Shares owned by such persons as of March 15, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) OF CLASS
------------------------------------------------------ ------------------------ --------
<S> <C> <C>
Joel M. Pashcow....................................... 93,154(3) 2.62%
Herbert Liechtung..................................... 47,280(4) 1.33
Arthur H. Goldberg.................................... 24,487(5) *
William A. Rosoff..................................... 2,400(6) *
Stephen R. Blank...................................... 981(7) *
Alfred D. Stalford.................................... 500(8) *
Edward Blumenfeld..................................... 125 *
Samuel M. Eisenstat................................... 125(9) *
Edwin J. Glickman..................................... 0 *
Edwin R. Frankel...................................... 0 *
All Trustees and executive officers as a group (10
persons)............................................ 169,052 4.75%
</TABLE>
- ---------------
* Less than 1% of class.
(1) All amounts are directly owned unless stated otherwise.
(2) After taking into account the impact of a 1 for 4 reverse split of the RPS
Shares that will occur prior to the Distribution.
(3) Includes 25,890 shares held in an IRA account for the benefit of Mr.
Pashcow, a retirement savings plan, a pension and profit sharing account and
a money purchase plan, 47,662 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 trustee (for all of which trusts Mr.
Pashcow has shared voting and investment powers). Joel Pashcow disclaims
beneficial ownership of the Shares owned by the foundation and each of the
trusts.
29
<PAGE> 204
(4) Includes 21,257 shares owned by Mr. Liechtung's wife, 26,023 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.
(5) Includes 19,563 shares owned by Mr. Goldberg's wife, 1,875 shares owned by
trusts for his daughters and 3,050 shares owned by a pension trust. Mr.
Goldberg disclaims beneficial ownership of the shares owned by his wife and
the trusts for his daughters.
(6) Includes 2,275 shares held by Mr. Rosoff as trustee for his sister, Barbara
Rosoff, pursuant to a trust indenture dated December 30, 1991.
(7) Includes 706 shares owned by trusts for Mr. Blank's daughters and 275 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.
(8) Includes 375 shares held in a rollover IRA account for which Mr. Stalford
has sole voting and investment power.
(9) Includes 125 shares held in an IRA account for which Mr. Eisenstat has sole
voting and investment power.
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<PAGE> 205
MANAGEMENT
TRUSTEES
The following sets forth information as to the persons who are expected to
serve as trustees of the Company following the Distribution.
<TABLE>
<CAPTION>
NAME AGE OFFICES AND POSITIONS
- --------------------- ---- --------------------------------------------------------------
<S> <C> <C>
Joel M. Pashcow...... 53 Associated with RPS since its inception, and assumed the
office of President of the Company effective as of February
29, 1996. 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. After the Distribution, Mr. Pashcow is
expected to serve as a trustee of Ramco-Gershenson Properties
Trust (formerly named RPS Realty Trust).
Herbert Liechtung.... 65 Trustee of RPS since 1980*, and President of RPS until
February, 1996. After the Distribution, Mr. Liechtung is
expected to serve as a trustee of Ramco-Gershenson Properties
Trust (formerly named RPS Realty Trust).
Edwin J. Glickman.... 63 Executive Vice President of Capital Lease Funding Corp. since
January 1995, which is a company engaged in commercial real
estate lending. Prior to that, Mr. Glickman was President of
the Glickman Organization, Inc. ("Glickman") from April 1991
to December 1994. Glickman conducted real estate investment
consulting services and real estate financial services,
including mortgage brokerage, arranging joint ventures and
equity financing. Prior to that, Mr. Glickman was Chairman of
the Executive Committee of Schoenfeld Glickman Maloy Inc. from
May 1989, which is a company that conducted real estate
financial services, including mortgage brokerage, arranging
joint ventures and equity financing. Also Vice Chairman of
Sybedon Corporation from 1977 to 1993, which is a company that
conducted real estate financial services, including mortgage
brokerage, arranging joint ventures and equity financing. In
all positions, Mr. Glickman has been engaged in real estate
financial services, including mortgage brokerage, arranging
joint ventures and equity financing. Trustee of RPS since
1980.*
</TABLE>
<TABLE>
<S> <C> <C>
Stephen R. Blank..... 50 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 Masters 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 Practising 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. Trustee
of RPS since 1990. After the Distribution, Mr. Blank is
expected to serve as a trustee of Ramco-Gershenson Properties
Trust (formerly named RPS Realty Trust).
</TABLE>
31
<PAGE> 206
<TABLE>
<CAPTION>
NAME AGE OFFICES AND POSITIONS
- --------------------- ---- --------------------------------------------------------------
<S> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C>
Edward Blumenfeld.... 55 A principal of Blumenfeld Development Group, Ltd, a real
estate development firm principally engaged in the development
of commercial properties, since 1978. Trustee of RPS since
1988.*
Samuel M. 56 Engaged in the private practice of law for more than five
Eisenstat.......... 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. Trustee of RPS since 1986.*
Arthur H. Goldberg... 53 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. On February 13, 1990,
Integrated Resources, Inc. filed a voluntary petition for
reorganization under Chapter 11 of the United States
Bankruptcy Code. 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. Trustee
of RPS since 1988.* After the Distribution, Mr. Goldberg is
expected to be a trustee of Ramco-Gershenson Properties Trust
(formerly named RPS Realty Trust).
William A. Rosoff.... 52 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 since 1969, a partner since 1975. Mr. Rosoff is a
past chairman of that firm's Executive Committee and is a past
chairman of its 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 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. Trustee of RPS
since 1990.
Alfred D. Stalford... 73 Previously engaged in the business of mortgage brokerage and
real estate sales, principally involving commercial
properties. He has since 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). Trustee of RPS
since 1983.*
</TABLE>
- ---------------
* Includes service with RPS' predecessors.
32
<PAGE> 207
The Company's Board of Trustees will be composed of nine Trustees, each of
whom will serve until the respective successors are elected and qualified (on
March 21, 1996, the Board of Trustees increased the number of Trustees
constituting the Board of Trustees from eight to nine, and in connection
therewith, elected Mr. Stalford to serve as a Trustee). The Audit Committee,
established in January, 1996, consists of three Trustees, Messrs. Blumenfeld,
Eisenstat and Goldberg. The Audit Committee meets with management and the
Company's independent accountants to determine the adequacy of internal controls
and other financial reporting matters.
EXECUTIVE OFFICERS
Listed below is certain information as to the Company's executive officers
who have been selected to serve after the Distribution.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- -----------------------------------------------------
<S> <C> <C>
Joel M. Pashcow........ 53 Chairman and President
Edwin R. Frankel(1).... 50 Executive Vice President, Chief Financial Officer and
Secretary
</TABLE>
- ------------------------------------
(1) Mr. Frankel succeeded Marvin D. Kenigsberg as Executive President, Chief
Financial Officer and Secretary of the Company, effective March 21, 1996.
Mr. Frankel has been associated with RPS since 1983, which includes service
with RPS' predecessors, and currently serves as its Senior Vice President and
Treasurer.
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
Mr. Pashcow will receive no cash compensation for serving as an executive
officer of the Company. See "Risk Factors -- Dependence on Limited Personnel."
Mr. Frankel will receive compensation of $60,000 per annum for serving as
Executive Vice President, Chief Financial Officer and Secretary of the Company.
TRUSTEES
The Trustees will not receive any compensation for serving as a trustee and
likewise will not receive any compensation for attending meetings or for serving
on any committees of the Board of Trustees; however, Trustees will receive
reimbursement of travel and other expenses and other out-of-pocket disbursements
incurred in connection with attending any meetings.
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<PAGE> 208
DESCRIPTION OF THE COMPANY'S SHARES OF BENEFICIAL INTEREST
The following summary of the Company's Shares does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Company's Declaration of Trust and Bylaws, copies of which are exhibits to the
Registration Statement on Form 10 registering the Shares under the Exchange Act.
See "Additional Information."
GENERAL
The Company's Declaration of Trust provides that the Company may issue up
to 10,000,000 Shares, par value $.01 per share, and 10,000,000 excess shares of
beneficial interest, par value $.01 per share ("Excess Shares"). At December 31,
1995, there were 10,000 Shares issued and outstanding. Upon completion of the
Distribution, 3,561,552 Shares will be issued and outstanding. Under the
Maryland REIT law, a shareholder is not personally liable for the obligations of
a real estate investment trust.
SHARES
All Shares, upon issuance pursuant to the Distribution, will be duly
authorized, fully paid and nonassessable. Subject to the provisions of the
Company's Declaration of Trust regarding Excess Shares, holders of Shares are
entitled to receive distributions on such Shares if, as and when authorized and
declared by the Board of Trustees of the Company out of assets legally available
therefor and to share ratably in the assets of the Company legally available for
distribution to its shareholders in the event of its liquidation, dissolution or
winding up after payment of, or adequate provision for, all known debts and
liabilities of the Company.
Subject to the provisions of the Company's Declaration of Trust regarding
Excess Shares, each outstanding Share entitles the holder to one vote on all
matters submitted to a vote of shareholders, including the election of trustees,
and the holders of Shares will possess exclusive voting power. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of the outstanding Shares can elect all of the trustees then standing
for election and the holders of the remaining Shares will not be able to elect
any trustee.
Holders of Shares shall have no preference, conversion, exchange, sinking
fund, redemption or appraisal rights, and have no preemptive rights to subscribe
for any securities of the Company. Subject to the provisions of the Company's
Declaration of Trust regarding Excess Shares, all Shares will have equal
distribution, liquidation and other rights.
Under the Maryland REIT law, a Maryland real estate investment trust
generally cannot amend its declaration of trust or merge, unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a greater or a lesser percentage (but not
less than a majority of all the votes entitled to be cast on the matter) is set
forth in the trust's declaration of trust. The Company's Declaration of Trust
permits the Company to merge, consolidate or sell all or substantially all of
the property if approved by the Board of Trustees and by shareholders entitled
to cast a majority of all the votes entitled to be cast on the matter. The
Company's Declaration of Trust provides that the Company shall continue for a
period of 18 months from the Distribution Date, during which time it shall
reduce to cash or cash equivalents the Company Assets 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, as soon as
practicable following the Distribution and within such 18-month period (unless
on or before the expiration of such 18-month period the holders of at least
two-thirds of the outstanding Shares approve the extension of such date or such
date is automatically extended without a shareholder vote because a contingent
tax liability relating to RPS that has been assumed by the Company has not been
satisfactorily resolved). If the Company enters into a definitive merger or
business combination agreement with another real estate entity prior to the
expiration of such 18-month period, the Company shall continue automatically
until the earlier of (i) the closing of such merger or business combination and
(ii) the termination of any definitive agreement relating thereto. Under the
Maryland REIT law, a declaration of trust may permit the trustees by a
two-thirds vote to amend the declaration of trust from time to time to qualify
as a REIT under the Code or the Maryland REIT
34
<PAGE> 209
law without the affirmative vote or written consent of the shareholders. The
Company's Declaration of Trust permits such action by the Board of Trustees.
EXCESS SHARES
For a description of Excess Shares, see "-- Restrictions on Transfer."
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, its shares of
beneficial interest must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months (other than the first year for
which an election to be a REIT is made) or during a proportionate part of a
shorter taxable year. Also, not more than 50% of the value of the outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year (other than the first year for which an election
to be a REIT has been made).
Because the Board of Trustees believes that it is at present essential for
the Company to qualify as a REIT, its Declaration of Trust, subject to certain
exceptions, contains restrictions on the number of shares of beneficial interest
that a person may own. The Declaration of Trust provides that no person may own,
or be deemed to own by virtue of the attribution provisions of the Code, more
than the lesser of 9.8% (the "Ownership Limit") of the number or value of the
outstanding Shares. The Company's Board of Trustees, upon receipt of a ruling
from the Internal Revenue Service, an opinion of counsel or other evidence
satisfactory to it and upon such other conditions as the Board may establish,
may exempt a proposed transferee from the Ownership Limit. (However, the Board
may not grant such an exemption to any proposed transferee whose ownership,
direct or indirect, of in excess of 9.8% of the value of the outstanding Shares
would result in the termination of the Company's status as a REIT.) As a
condition of such exemption, the intended transferee must give written notice to
the Company of the proposed transfer no later than the fifteenth day prior to
any transfer which, if consummated, would result in the intended transferee
owning shares in excess of the Ownership Limit. The Board of Trustees may
require such other information as it may request in order to determine the
effect of such transfer on the Company's status as a REIT. Any transfer of
shares of beneficial interest that would (a) create a direct or indirect
ownership of shares of beneficial interest in excess of the Ownership Limit, (b)
result in the shares of beneficial interest being owned by fewer than 100
persons or (c) result in the Company being "closely held" within the meaning of
Section 856(h) of the Code, will be null and void and the intended transferee
will acquire no rights to the shares of beneficial interest. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Trustees determines that it is no longer in the best interests of the Company to
attempt to qualify, or to continue to qualify, as a REIT.
Any purported transfer of shares that would result in a person owning
shares in excess of the Ownership Limit or cause the Company to be "closely
held" under Section 856(h) of the Code that is not otherwise permitted as
provided above will constitute Excess Shares, which will be transferred by
operation of law to a trustee of a trust for the exclusive benefit of one or
more charitable beneficiaries until such time as the trustee of the trust sells
the Excess Shares to a person, designated by the trustee, whose ownership of
such shares will not violate the Ownership Limit. Upon such sale, the interest
of the charitable beneficiary in the Excess Shares sold shall terminate and the
trustee shall distribute the net proceeds of the sale to the intended transferee
and to the charitable beneficiary. The intended transferee shall receive the
lesser of (i) the price paid by the intended transferee for the shares or, if
the intended transferee did not give value for the shares in connection with the
event causing the shares to be held in the trust (e.g., in the case of a gift,
devise or other such transaction), the fair market value of the shares on the
day of the event causing the shares to be held in the trust and (ii) the price
per share received by the trustee from the sale or other disposition of the
shares held in the trust. Any net sales proceeds in excess of the amount payable
to the intended transferee shall be immediately paid to the charitable
beneficiary. While these Excess Shares are held in trust, they will not be
entitled to vote or to share in any dividends or other distributions. In
addition, such Excess Shares held in trust are subject to purchase by the
Company at a purchase price equal to the lesser of the price paid for the shares
by the intended transferee (or, in the case of a devise or gift, the fair market
value at the time of such devise or gift) and the fair market value of the
Excess Shares on the date the Company exercises its right to purchase. Fair
market value on any date shall mean the last sale price for such shares, regular
way, or, in the case no
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such sale takes place on such day, the average of the closing bid and asked
prices, regular way, for such shares, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the Nasdaq National Market, or, if such shares
are not listed or admitted to trading on the Nasdaq National Market, as reported
on the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which such
shares are listed or admitted to trading or, if such shares are not listed or
admitted to trading on any national securities exchange, the last quoted price,
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotation system that may then be in use or, if
such shares are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in such shares selected by the Board of Trustees or, in the event that no
trading price is available for such shares, the fair market value of the shares,
as determined in good faith by the Board of Trustees. While the Excess Shares
are held in trust, the intended transferee shall not benefit economically from
ownership of such shares, shall have no rights to dividends and shall not
possess any rights to vote or other rights attributable to the Excess Shares
held in trust. The trustee of the trust shall have all voting rights and rights
to dividends or other distributions with respect to the Excess Shares held in
trust, which rights shall be exercised for the exclusive benefit of the
charitable beneficiary or beneficiaries. Any dividend or distribution paid to a
proposed transferee of Excess Shares prior to the discovery by the Company that
such shares of beneficial interest have been transferred in violation of the
provisions of the Declaration of Trust shall be repaid to the Company upon
demand and any dividend or other distribution authorized but unpaid shall be
paid when due to the trustee of the trust. Any dividends or distributions so
paid over to the trustee shall be held in trust for the charitable beneficiary
or beneficiaries. Subject to Maryland law, effective as of the date that Excess
Shares have been transferred to the trustee, the trustee shall have the
authority (at the trustee's sole discretion) (i) to rescind as void any vote
cast by an intended transferee prior to the discovery by the Company that Excess
Shares have been transferred to the trustee and (ii) to recast such vote in
accordance with the desires of the trustee acting for the benefit of the
charitable beneficiary or beneficiaries. Until the Company has received
notification that Excess Shares have been transferred into a trust, the Company
shall be entitled to rely on its share transfer and other shareholder records
for purposes of preparing lists of shareholders entitled to vote at meetings,
determining the validity and authority of proxies and otherwise conducting votes
of shareholders. If the foregoing transfer restrictions are determined to be
void or invalid by virtue of any legal decision, statute, rule or regulation,
then the intended transferee of any Excess Shares may be deemed, at the option
of the Company, to have acted as an agent on behalf of the Company in acquiring
the Excess Shares and to hold the Excess Shares on behalf of the Company.
All certificates representing Shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than five percent (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of the outstanding Shares must
give a written notice containing certain information to the Company by January
31 of each year. In addition, each shareholder shall be required to disclose to
the Company in writing such information with respect to the direct, indirect and
constructive ownership of Shares as the Board of Trustees requests, in good
faith, in order to determine the Company's status as a REIT and to comply with
the requirements of any taxing authority or governmental agency or to determine
any such compliance.
These ownership limitations could delay, defer or prevent a transaction or
a change of control on the Company that might involve a premium price for the
Shares or otherwise be in the best interest of the shareholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Shares will be American Stock
Trust & Transfer Company, New York, New York.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and the
Company's Declaration of Trust and Bylaws does not purport to be complete and is
subject to and qualified in its entirety by reference to Maryland law and to the
Company's Declaration of Trust and Bylaws, copies of which are exhibits to the
Registration Statement on Form 10 registering the Shares under the Exchange Act.
See "Additional Information."
BUSINESS COMBINATIONS
Under the Maryland General Corporation Law, as amended ("MGCL"), as
applicable to Maryland real estate investment trusts, certain "business
combinations" (including a merger, consolidation, share exchange or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland real estate investment trust and any person who
beneficially owns 10% or more of the voting power of the trust's shares or an
affiliate of the trust who, at any time within the two-year period prior to the
date in question, was the beneficial owner of 10% or more of the voting power of
the then-outstanding voting shares of beneficial interest of the trust (an
"Interested Shareholder") or an affiliate thereof are prohibited for five years
after the most recent date on which the Interested Shareholder became an
Interested Shareholder. Thereafter, any such business combination must be
recommended by the board of trustees of such trust and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding voting shares of beneficial interest of the trust and (b)
two-thirds of the votes entitled to be cast by holders of voting shares of the
trust other than shares held by the Interested Shareholder with whom (or with
whose affiliate) the business combination is to be effected, unless, among other
conditions, the trust's common shareholders receive a minimum price (as defined
in the MGCL) for their shares and the consideration is received in cash or in
the same form as previously paid by the Interested Shareholder for its shares.
These provisions of Maryland law do not apply, however, to business combinations
that are approved or exempted by the board of trustees of the trust prior to the
time that an Interested Shareholder becomes an Interested Shareholder.
CONTROL SHARE ACQUISITIONS
The MGCL, as applicable to Maryland real estate investment trusts, provides
that "control shares" of a Maryland real estate investment trust acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of the beneficial interest owned by the acquiror, by officers
or by trustees who are employees of the trust. "Control shares" are voting
shares of beneficial interest which, if aggregated with all other such shares of
beneficial interest previously acquired by the acquiror, or in respect of which
the acquiror is able to exercise or direct the exercise of voting power (except
solely by virtue of revocable proxy), would entitle the acquiror to exercise
voting power in electing trustees within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more but
less than a majority, or (iii) a majority or more of all voting power. Control
shares do not include shares of beneficial interest the acquiring person is then
entitled to vote as a result of having previously obtained shareholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider voting rights of
the shares. If no request for a meeting is made, the trust may itself present
the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a shareholders
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meeting and the acquiror becomes entitled to vote a majority of the shares of
beneficial interest entitled to vote, all other shareholders may exercise
appraisal rights. The fair value of the shares of beneficial interest as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the trust is a party to the
transaction, or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust.
The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's shares of beneficial interest. There can be no assurance that such
provision will not be amended or eliminated at any time in the future.
AMENDMENT TO THE DECLARATION OF TRUST
Under the Maryland REIT law, a real estate investment trust generally
cannot amend its declaration of trust or merge, unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all the votes entitled to be cast on the matter) is set forth in its
declaration of trust. The Company's Declaration of Trust provides for a majority
vote with respect to such matters. Under the Maryland REIT law, a declaration of
trust may permit the trustees by a two-thirds vote to amend the provisions of
the declaration of trust from time to time to qualify as a REIT under the Code
or the Maryland REIT law without the affirmative vote or written consent of the
shareholders. The Company's Declaration of Trust permits such action by the
Board of Trustees.
DISSOLUTION OF THE COMPANY
Pursuant to the Company's Declaration of Trust, the Company shall continue
for a period of 18 months from the Distribution Date, during which time it shall
reduce to cash or cash equivalents the Company Assets 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, as soon as
practicable following the Distribution and within such 18-month period (unless
on or before the expiration of such 18-month period the holders of at least
two-thirds of the outstanding Shares approve the extension of such date or such
date is automatically extended without a shareholder vote because a contingent
tax liability relating to RPS that has been assumed by the Company has not been
satisfactorily resolved). If the Company enters into a definitive merger or
business combination agreement with another real estate entity prior to the
expiration of such 18-month period, the Company shall continue automatically
until the earlier of (i) the closing of such merger or business combination and
(ii) the termination of any definitive agreement relating thereto. In the event
that at the end of the Term the Company is unable to achieve its objectives, and
the shareholders of the Company have not approved an extension of such date (or
such date is not automatically extended without a shareholder vote because a
contingent tax liability relating to RPS that has been assumed by the Company
has been satisfactorily resolved), the Company's Trustees will appoint an
independent third party to liquidate the Company's remaining assets.
ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS
The Company's Bylaws provide that (a) with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Trustees and
the proposal of business to be considered by shareholders may be made only (i)
pursuant to the Company's notice of meeting, (ii) by the Board of Trustees or
(iii) by a shareholder who is entitled to vote at the meeting and has complied
with the advance notice procedures set forth in the Bylaws and (b) with respect
to special meetings of shareholders, only the business specified in the
Company's notice of meeting may be brought before the meeting of shareholders
and nominations of persons for election to the Board of Trustees may be made
only (i) pursuant to the Company's notice of meeting, (ii) by the Board of
Trustees or (iii) provided that the Board of Trustees has determined that
trustees shall be elected at such meeting by a shareholder who is entitled to
vote at the meeting and has complied with the advance notice provisions set
forth in the Bylaws.
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ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS
The business combination provisions and, if the applicable provision in the
Bylaws is rescinded, the control share acquisition provisions of the MGCL and
the provisions of the Company's Declaration of Trust and Bylaws could delay,
defer or prevent a transaction or a change in control of the Company that might
involve a premium price for holders of Shares or otherwise be in their best
interest.
MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT law requires that the Company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage-related securities, government securities, cash and cash
equivalent items, including high-grade short-term securities and receivables.
The Maryland REIT law also prohibits using or applying land for farming,
agriculture, horticulture or similar purposes.
COMPARISON OF RIGHTS OF SHAREHOLDERS
OF THE COMPANY AND SHAREHOLDERS OF RPS
The Company is organized as a real estate investment trust under the laws
of the State of Maryland. As a Maryland real estate investment trust, the
Company is governed by Title 8 and certain other provisions of the Annotated
Code of Maryland. RPS is a common law business trust organized under the laws of
the Commonwealth of Massachusetts. As a Massachusetts business trust, the
Company is governed by Massachusetts law. Moreover, it is a general practice for
both Maryland REITs and Massachusetts business trusts to address a wide range of
governance matters through provisions contained in their declarations of trust.
The Company is governed by its Declaration of Trust and its Bylaws. Similarly,
RPS is governed by its existing Amended and Restated Declaration of Trust dated
October 14, 1988 ("RPS's Declaration") and its Bylaws ("RPS's Bylaws"). A number
of differences between Title 8 and Massachusetts law and among these various
documents are summarized below.
The discussion of the comparative rights of the Shareholders of the Company
and the shareholders of RPS set forth below does not purport to be complete and
is subject to and qualified in its entirety by reference to Title 8 and
Massachusetts law and also to the Declaration of Trust, Bylaws, RPS's
Declaration and RPS's Bylaws. Copies of the Declaration of Trust and Bylaws have
been filed as Exhibit 3.2 and 3.4, respectively, to the Company's Registration
Statement on Form 10 registering the Shares under the Exchange Act.
Personal Liability of Trustees. Title 8 provides that trustees of a
Maryland real estate investment trust are not personally liable for the
obligations of the real estate investment trust, except that trustees will be
personally liable for any act constituting bad faith, willful malfeasance, gross
negligence or reckless disregard of the Trustee's duties, subject to the
liability limitation provision in the Declaration of Trust described below.
Under the common law of Massachusetts, which does not treat a trust as a
separate business entity, liabilities of a business trust are technically the
liabilities of the trustees individually, to the extent not negated by contract.
However, Massachusetts common law and RPS's Declaration provide that RPS's
trustees are entitled to indemnification from RPS for such liabilities. The
potential effect of such distinction is that, under Title 8, trustees of the
Company (except as noted in the first sentence of this paragraph) would not be
personally liable for Company liabilities, but trustees of RPS would be
personally liable for RPS liabilities to the extent such liabilities exceed
RPS's ability to indemnify such trustees.
Certain Amendments to Declaration of Trust. Under Title 8 and the
Declaration of Trust, the trustees, by a two-thirds vote, may at any time amend
the Declaration of Trust to enable the Company to qualify as a REIT under the
Code or Title 8, without the approval of the Company's shareholders. RPS's
Declaration permits a majority of the Board of Trustees to amend or repeal any
provision of RPS's Declaration without shareholder consent to the extent such
provision conflicts with the requirements of the Code relating to REITs.
Duties and Liability of Trustees and Officers. Title 8 does not
specifically set forth the duties of the trustees of a Maryland real estate
investment trust. The Declaration of Trust permits reference to the statutory
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standard of conduct for directors of a Maryland corporation, which would require
the trustees to act in good faith, with a reasonable belief that their actions
are in the best interests of the Company and with the care of an ordinarily
prudent person in a like position under similar circumstances. Nevertheless,
pursuant to Title 8 and the Declaration of Trust, the liability of trustees and
officers of the Company to the Company or to any shareholder of the Company for
money damages has been eliminated, except (a) for actual receipt of an improper
personal benefit or profit in money, property or services and (b) for active and
deliberate dishonesty established by a final judgment as being material to the
cause of action adjudicated in the proceeding.
No Massachusetts statute specifically sets forth the duties of trustees of
a Massachusetts business trust. However, judicial decisions in Massachusetts
have equated the duties of trustees of a common law business trust with those of
corporate directors. To the extent that a court in Massachusetts might determine
that the current provisions of the Massachusetts Business Corporation Law with
respect to directors of a Massachusetts business corporation are applicable to
trustees of a common law business trust such as RPS, such trustees would have
the obligation to perform their duties as trustees in good faith, and in a
manner they reasonably believe to be in the best interests of the trust, and
with such care as an ordinarily prudent person in a like position would use
under similar circumstances. RPS's Declaration provides that a trustee, officer,
employee or agent of RPS will be liable only for liabilities arising from such
individual's breach of his duty of loyalty to RPS, his intentional acts or
omissions not in good faith or which involve knowing misconduct or knowing
violations of law, or for any transaction from which he has derived a personal
benefit.
Based on the advice of Maryland and Massachusetts counsel, the Company
believes that, as a practical matter, the duties of and the standards for
imposing liability on trustees and officers of real estate investment trusts
under Title 8 and on trustees and officers of Massachusetts business trusts are
similar, but that there may be circumstances in which the conduct of a trustee
or officer of RPS may fall within one of the exceptions to the elimination of
liability under RPS's Declaration but which would not fall within either of the
exceptions to the elimination of liability under the Declaration of Trust, as
described in the preceding two paragraphs.
Indemnification of Trustees and Officers. Under the Bylaws, the Company
will be required to indemnify any trustee or officer (a) against reasonable
expenses incurred by him in the successful defense (on the merits or otherwise)
of any proceeding to which he is made a party by reason of such status or (b)
against any claim or liability to which he may become subject by reason of such
status unless it is established that (i) the act or omission giving rise to the
claim was material to the matter giving rise to the proceeding and was committed
in bad faith or was the result of active and deliberate dishonesty, (ii) he
actually received an improper personal benefit in money, property or services,
or (iii) in the case of a criminal proceeding, he had reasonable cause to
believe that his act or omission was unlawful. The Company will also be required
by the Bylaws to pay or reimburse, in advance of a final disposition, reasonable
expenses of a trustee or officer made a party to a proceeding by reason of his
status as such upon receipt of a written affirmation by the trustee or officer
of his good faith belief that he has met the applicable standard of conduct
necessary for indemnification under the Bylaws and a written undertaking by or
on his behalf to repay such expenses if it shall ultimately be determined that
the applicable standard was not met.
RPS's Declaration contains similar indemnification requirements (including
with respect to advancing defense expenses) such that, based on the advice of
Maryland and Massachusetts counsel, the Company believes that, as a practical
matter, the rights of the trustees and officers of the Company and of RPS to
indemnification and advancing defense expenses are similar.
Restrictions on Investment and Use. To maintain its qualification as a
Maryland REIT, Title 8 requires that the Company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage-related securities, government securities, cash and cash
equivalent items, including high-grade short-term securities and receivables.
Title 8 also prohibits using or applying land for farming, agricultural,
horticultural or similar purposes, Massachusetts law contains no similar
restrictions on investments and use of assets in order for RPS to maintain its
qualification as a Massachusetts common law business trust. RPS's Declaration
contains restrictions on investment which relate to RPS's historic
mortgage-lending business. Pursuant to RPS's Declaration, the Board of Trustees
shall not: (a) invest in any foreign currency, bullion, commodities, or
commodities futures contracts; (b) invest in contracts of sale, except when held
as
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security for mortgage loans made or acquired by RPS; (c) engage in any short
sale; (d) invest in any security in any entity holding investments or engaging
in activities prohibited by RPS's Declaration; (e) invest in mortgage loans
secured by any one property or equity investments in any one property which
would exceed an amount equal to 20% of RPS's assets; (f) invest in mortgage
loans to or from any one borrower which would exceed, in the aggregate, an
amount greater than 20% of RPS's assets; (g) invest in mortgage loans on any one
property if the aggregate amount of RPS's mortgage loan and all senior
indebtedness at origination of the mortgage loan would exceed an amount equal to
85% of the appraised value of the property as determined by an independent
appraisal, unless the trustees determine that an increased amount is justified
by additional credit or collateral, such as personal guarantees or the pledge of
additional assets; (h) originate mortgage loans which are insured or guaranteed
by the federal government (although RPS may acquire such types of mortgage
loans); (i) issue "redeemable securities" (as defined in Section 2(a)(32) of the
Investment Company Act of 1940), "face amount certificates of the installment
type" (as defined in Section 2(a)(15) thereof), or "periodic payment plan
certificates" (as defined in Section 2(a)(27) thereof); and (j) until the later
of at least five years from the closing of the formation of RPS, or such date as
Arthur Goldberg ceases to be a trustee of RPS, make or sell mortgage loans to
or, except in connection with the formation of RPS, purchase or acquire mortgage
loans from, Integrated Resources, Inc. or its affiliates; obtain financing from
Integrated Resources, Inc. or its affiliates; or enter into joint investments
with Integrated Resources, Inc. or its affiliates; provided, however, that RPS
is not prohibited from (i) acquiring all of the outstanding securities or
substantially all of the assets of an entity sponsored or wholly-owned by
Integrated Resources, Inc. or its affiliates, or (ii) issuing collateralized
mortgage obligations to, or obtaining secured borrowings for, Integrated
Resources, Inc., if the independent trustees unanimously approve the
transaction.
Powers of Trustees. The Declaration of Trust grants to the trustees
general authority over the Company's business and assets and further
specifically provides that the trustees may take any and all actions that, in
their sole judgment and discretion, are necessary or desirable to conduct the
business of the Company. RPS's Declaration grants to the trustees general
authority over RPS's business and assets, as well as certain enumerated rights
and powers, subject to certain specified restrictions on investments.
Number of Trustees; Quorum. The number of trustees constituting the Board
of Trustees of the Company is nine. The number of trustees constituting the
Board of Trustees of RPS is nine. In addition, under RPS's Declaration, a
majority of trustees constitutes a quorum for a meeting of the Board of
Trustees. Under the Bylaws, a quorum requires the presence of at least a
majority of the trustees.
Certain Business Combinations. RPS's Declaration requires, in certain
circumstances, the affirmative vote of not less than 80% of the outstanding RPS
Shares (other than RPS Shares held by an "Acquiring Person," as defined in RPS's
Declaration) to approve certain business combinations or transactions with such
Acquiring Persons. The Declaration of Trust does not contain such a provision;
however, as described under "Certain Provisions of Maryland Law and of the
Company's Declaration of Trust and Bylaws," Maryland law contains provisions
which restrict certain transactions between a Maryland REIT and certain
"Interested Shareholders," as well as certain other acquisition transactions.
See "Certain Provisions of Maryland Law and of the Company's Declaration of
Trust and Bylaws."
Committees of the Board. The Bylaws permit the trustees to appoint from
among its members an Executive Committee, an Audit Committee, a Compensation
Committee and other committees, composed of two or more trustees, to serve at
the pleasure of the trustees. RPS's Declaration requires an Audit Committee
consisting of one or more Independent Trustees, and permits (but does not
require) the establishment of a Compensation Committee comprised of one or more
trustees and an Executive Committee comprised of three or more trustees, none of
whom are required to be Independent Trustees.
Shares Issuable. Under the Declaration of Trust, up to 10,000,000 shares
of beneficial interest are authorized to be issued, which number of shares may
be increased or decreased by an amendment to the Declaration of Trust adopted by
the Board of Trustees of the Company, without shareholder approval. Under RPS's
Declaration, the number of shares of beneficial interest issuable by RPS is
unlimited.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Distribution, the Company will have outstanding
approximately 3,561,552 Shares, all of which will be freely tradeable without
restrictions for further registration under the Securities Act, except for any
Shares distributed to an "affiliate" of the Company which will be subject to the
resale limitations of Rule 144 under the Securities Act and except for certain
restrictions on transfer in order to prevent ownership which might, among other
things, jeopardize the Company's status as a REIT, as described in "Description
of the Company's Shares of Beneficial Interest -- Restrictions on Transfer,"
above.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares that are
"restricted securities" for at least two years, and any person who is an
"affiliate" (as that term is defined under the Securities Act) is entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of one percent of the then outstanding shares (in the case of the
Company, approximately 35,615 Shares following completion of the Distribution)
or the average weekly trading volume in the company's common stock in composite
trading on all exchanges during the four calendar weeks preceding such sale. A
person (or persons whose shares are aggregated) who is not deemed an "affiliate"
of the Company and who has beneficially owned restricted securities for at least
three years is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. The foregoing summary of Rule 144 is not
intended to be a complete description thereof.
INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Maryland REIT law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of an improper benefit or profit
in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Company's Declaration of Trust contains such a provision which eliminates such
liability to the maximum extent permitted by Maryland law.
The Company's Declaration of Trust authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former trustee or officer or (b) any individual who, while a
trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust, corporation, partnership, joint venture,
trust, employee benefit plan, or any other enterprise as a trustee, director,
officer or partner of such real estate investment trust, corporation,
partnership, joint venture or other enterprise. The Bylaws of the Company
obligate it, to the maximum extent permitted by Maryland law, to indemnify and
to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any present or former trustee or officer who is made a party
to the proceeding by reason of his service in that capacity or (b) any
individual who, while a trustee of the Company and at the request of the
Company, serves or has served another real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan, or any other
enterprise as a trustee, director, officer or partner of such real estate
investment trust, corporation, partnership, joint venture or other enterprise
and who is made a party to the proceeding by reason of his service in that
capacity. The Declaration of Trust and Bylaws also permit the Company to
indemnify and advance expenses to any person who served a predecessor of the
Company in any of the capacities described above and to any employee or agent of
the Company or a predecessor of the Company. The Bylaws require the Company to
indemnify a trustee or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity.
The Maryland REIT law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as is permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or
42
<PAGE> 217
omission of the director or officer was material to the matter giving rise to
the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually received
an improper personal benefit in money, property or services or (c) in the case
of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, a Maryland corporation
may not indemnify for an adverse judgment in a suit by or in right of the
corporation. In accordance with the MGCL, the Bylaws of the Company require it,
as a condition to advancing expenses, to obtain (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Company as authorized by the Bylaws
and (b) a written statement by or on his behalf to repay the amount paid or
reimbursed by the Company if it shall ultimately be determined that the standard
of conduct was not met.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Trustees of the Company has appointed Deloitte & Touche LLP as
the Company's independent auditors to audit the Company's financial statements.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form 10 under the Exchange Act with
respect to the Shares being received by shareholders of RPS in the Distribution.
This Information Statement does not contain all of the information set forth in
the Form 10 Registration Statement and the exhibits thereto, to which reference
is hereby made. Statements made in this Information Statement as to the contents
of any contract, agreement or other documents referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Form 10 Registration Statement, reference is
made to such exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Form 10 Registration Statement and the exhibits thereto filed by the Company
with the Commission may be inspected at the public reference facilities of the
Commission listed below.
After the Distribution, the Company will be subject to the informational
requirements of the Exchange Act, and in accordance therewith will file reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at its principal offices at
450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material may be obtained at prescribed rates from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
43
<PAGE> 218
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ATLANTIC REALTY TRUST
Independent Auditors' Report....................................................... F-2
Balance Sheet of the Company as of December 31, 1995............................... F-3
NET ASSETS TO BE TRANSFERRED TO ATLANTIC REALTY TRUST
Independent Auditors' Report....................................................... F-4
Combined Balance Sheets of the Net Assets to be Transferred to the Company as of
September 30, 1995 (Unaudited) and December 31, 1995 and 1994................... F-5
Combined Statements of Operations of the Net Assets to be Transferred to the
Company for the Nine Months Ended September 30, 1995 (Unaudited) and for the
Years Ended December 31, 1995, 1994 and 1993.................................... F-6
Combined Statements of Shareholder's Equity of the Net Assets to be Transferred to
the Company for the Years Ended December 31, 1995, 1994 and 1993................ F-7
Combined Statements of Cash Flows of the Net Assets to be Transferred to the
Company for the Nine Months Ended September 30, 1995 (Unaudited) and for the
Years Ended December 31, 1995, 1994 and 1993.................................... F-8
Notes to Combined Financial Statements for the Nine Months Ended September 30, 1995
(Unaudited) and for the Years Ended December 31, 1995, 1994 and 1993............ F-9
COMPANY PRO FORMA FINANCIAL STATEMENTS
Pro Forma Statements of Net Assets in Liquidation as of September 30, 1995
(Unaudited) and December 31, 1995 (Unaudited)................................... F-18
Pro Forma Statement of Changes in Net Assets in Liquidation for the Year Ended
December 31, 1995 (Unaudited)................................................... F-20
Notes to Pro Forma Financial Statements for the Nine Months Ended September 30,
1995 (Unaudited) and for the Year Ended December 31, 1995 (Unaudited)........... F-21
HYLAN SHOPPING PLAZA
Independent Accountant's Report.................................................... F-22
Balance Sheets of Hylan Shopping Plaza as of December 31, 1995 and 1994............ F-23
Statements of Operations and Capital Deficit of Hylan Shopping Plaza for the Years
Ended December 31, 1995, 1994 and 1993.......................................... F-24
Statements of Cash Flows of Hylan Shopping Plaza for the Years Ended December 31,
1995, 1994 and 1993............................................................. F-25
Notes to Financial Statements of Hylan Shopping Plaza for the Years Ended December
31, 1995, 1994 and 1993......................................................... F-26
</TABLE>
F-1
<PAGE> 219
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of
Atlantic Realty Trust:
We have audited the accompanying balance sheet of Atlantic Realty Trust
(the "Trust") as of December 31, 1995. This financial statement is the
responsibility of the Trust's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Trust at December 31, 1995 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
March 5, 1996
F-2
<PAGE> 220
ATLANTIC REALTY TRUST
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSET -- Cash......................................................................... $100
====
SHAREHOLDERS' EQUITY -- Common stock (10,000 shares outstanding at $.01 par value).... $100
====
</TABLE>
- ---------------
Note: Atlantic Realty Trust (the "Trust"), a wholly-owned subsidiary of RPS
Realty Trust, was formed on July 27, 1995 and funded on October 11, 1995
for the purpose of liquidating the mortgage loan portfolio and certain
other assets and liabilities to be transferred to the Trust from RPS
Realty Trust.
F-3
<PAGE> 221
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of
RPS Realty Trust and
Atlantic Realty Trust:
We have audited the accompanying combined balance sheets of the Net Assets
to be Transferred to Atlantic Realty Trust as of December 31, 1995 and 1994 and
the related combined statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
combined financial statements are the responsibility of 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 combined 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 combined financial statements present fairly, in all
material respects, the financial position of the Net Assets to be Transferred to
Atlantic Realty Trust as of December 31, 1995 and 1994, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As more fully described in Note 1, Atlantic Realty Trust will be obligated
to adopt the liquidation basis of accounting upon completion of the Transaction.
The accompanying combined financial statements do not give effect to the
adjustments, if any, to be recorded at such time.
Deloitte & Touche LLP
New York, New York
March 7, 1996
F-4
<PAGE> 222
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
COMBINED BALANCE SHEETS
AS OF SEPTEMBER 30, 1995 (UNAUDITED), DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1995 1994 1995
----------- ----------- ------------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
MORTGAGE LOANS RECEIVABLE -- Net of allowance
for possible loan losses of $10,231,336 in
1995, $6,581,336 in 1994 and $9,581,336 at
September 30, 1995.......................... $36,023,265 $39,417,669 36,417,669
INVESTMENT IN REAL ESTATE -- Net.............. 6,866,189 7,503,105 7,693,405
SHORT-TERM INVESTMENTS........................ 3,356,995 1,342,979 2,245,447
INTEREST AND ACCOUNTS RECEIVABLE.............. 7,523,583 7,363,759 7,492,118
OTHER ASSETS.................................. 460,000 460,000 460,000
----------- ----------- -----------
TOTAL............................... $54,230,032 $56,087,512 54,308,639
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable............................ $ 717,036 $ 546,299 765,282
Deferred commitment fees.................... 346,320 346,320 346,320
----------- ----------- -----------
Total liabilities........................ 1,063,356 892,619 1,111,602
COMMITMENTS AND CONTINGENCIES................. -- -- --
SHAREHOLDERS' EQUITY.......................... 53,166,676 55,194,893 53,197,037
----------- ----------- -----------
TOTAL............................... $54,230,032 $56,087,512 $54,308,639
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
F-5
<PAGE> 223
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
COMBINED STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------- SEPTEMBER 30,
1995 1994 1993 1995
----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Interest income...................... $3,515,614 $3,514,395 $5,185,483 2,626,329
Contingent interest and fee income... 63,028 41,836 134,004 63,028
Rental income........................ 994,369 867,288 169,314 768,433
---------- ---------- ---------- ----------
Total revenues.................... 4,573,011 4,423,519 5,488,801 3,457,790
---------- ---------- ---------- ----------
EXPENSES:
Provision for possible loan losses... 3,650,000 2,100,000 4,100,000 3,000,000
Provision for impairment of real
estate............................ 800,000 -- -- --
General and administrative
expenses.......................... 1,185,161 910,760 865,092 819,664
Property operating................... 200,209 125,750 3,923 148,780
Real estate tax...................... 311,642 502,046 72,377 255,271
Depreciation......................... 108,763 62,905 11,518 81,547
---------- ---------- ---------- ----------
Total expenses.................... 6,255,775 3,701,461 5,052,910 4,305,262
---------- ---------- ---------- ----------
NET INCOME (LOSS)............ $(1,682,764) $ 722,058 $ 435,891 $ (847,472)
========== ========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-6
<PAGE> 224
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
NUMBER OF PAID-IN CUMULATIVE CONTRIBUTIONS/ SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (DISTRIBUTIONS) EQUITY
----------- ---------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993........... 28,492,421 2,849,242 195,591,125 50,166,122 (185,028,609) 63,577,880
Net Income....................... 435,891 435,891
Distributions.................... (9,244,165) (9,244,165)
---------- ---------- ------------ ----------- ------------- -----------
BALANCE, DECEMBER 31, 1993......... 28,492,421 2,849,242 195,591,125 50,602,013 (194,272,774) 54,769,606
Net Income....................... 722,058 722,058
Distributions.................... (296,771) (296,771)
---------- ---------- ------------ ----------- ------------- -----------
BALANCE, DECEMBER 31, 1994......... 28,492,421 2,849,242 195,591,125 51,324,071 (194,569,545) 55,194,893
Net Loss......................... (1,682,764) (1,682,764)
Distributions.................... (345,453) (345,453)
---------- ---------- ------------ ----------- ------------- -----------
BALANCE, DECEMBER 31, 1995......... 28,492,421 $2,849,242 $195,591,125 49,641,307 (194,914,998) 53,166,676
========== ========== ============ =========== ============= ===========
</TABLE>
See notes to combined financial statements.
F-7
<PAGE> 225
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NINE MONTHS
DECEMBER 31, ENDED
----------------------------------------- SEPTEMBER 30,
1995 1994 1993 1995
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................... $(1,682,764) $ 722,058 $ 435,891 $ (847,472 )
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Provision for possible loan losses............ 3,650,000 2,100,000 4,100,000 3,000,000
Provision for impairment of real estate....... 800,000 -- -- --
Depreciation.................................. 108,763 62,905 11,518 81,547
Changes in operating assets and liabilities:
Interest and accounts receivable............ (159,824) 216,456 1,159,963 (128,359 )
Accounts payable and deferred commitment
fees..................................... 170,737 52,737 (209,181) 218,983
----------- ----------- ----------- -----------
Net cash provided by operating
activities............................. 2,886,912 3,154,156 5,498,191 2,324,699
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Satisfaction of mortgage loans receivable....... -- 77,662 3,809,974 --
Investment in mortgage loans receivable......... (255,596) -- (64,000) --
Investment in real estate....................... (271,847) (1,592,068) -- (271,847 )
----------- ----------- ----------- -----------
Net cash used in investing activities.... (527,443) (1,514,406) 3,745,974 (271,847 )
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to RPS Realty Trust............... (345,453) (296,771) (9,244,165) (1,150,384 )
----------- ----------- ----------- -----------
Net cash used in financing activities.... (345,453) (296,771) (9,244,165) (1,150,384 )
----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS......... 2,014,016 1,342,979 -- 902,468
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 1,342,979 -- -- 1,342,979
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $ 3,356,995 $ 1,342,979 $ -- 2,245,447
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Investment in real estate....................... -- $ 2,685,460 $ 3,300,000 --
Investment in limited partnership............... -- -- 460,000 --
Interest and accounts receivable................ 3,195,876 (1,500,000) --
Use (recovery) of provision for possible loan
losses........................................ -- (381,336) 4,440,000 --
Gross mortgage receivable exchanged for real
estate........................................ -- (2,500,000) (6,700,000) --
Mortgage receivable exchanged................... (3,000,000) -- --
</TABLE>
See notes to combined financial statements.
F-8
<PAGE> 226
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Atlantic Realty Trust (the "Trust") is a newly formed Maryland real estate
investment trust formed as a condition of the Transaction described in Note 7
for the transfer from RPS Realty Trust ("RPS") of the remaining mortgage loan
portfolio, as well as certain other assets and liabilities ("Net Assets").
The combined financial statements reflect the Net Assets and the related
results of their operations for the periods presented. Historical performance of
the Net Assets is presented as if those assets were separately managed. Under
the provisions of its Declaration of Trust, the Trust is obligated to make a
final liquidating distribution of the net cash proceeds attributable to the sale
or other disposition of the Trust's assets within 18 months, or to merge or
combine operations with another real estate entity during such 18-month period,
unless on or before such date the holders of at least two-thirds of the Trust's
outstanding shares approve the extension of such date. In the event that at the
end of such 18-month period, the Trust is unable to dispose of all of its
assets, and the shareholders of the Company have not approved an extension of
such date, the Trust will appoint an independent third party to liquidate the
Trust's remaining assets.
As a result, upon completion of the Transaction, the Trust will be
obligated to adopt the liquidation basis of accounting. Under this method of
accounting, assets are stated at the amounts to be realized in liquidation and
liabilities are stated at anticipated settlement amounts. The accompanying
financial statements do not give effect to the adjustments, if any, to be
recorded upon adoption of the liquidation basis of accounting.
Certain common payroll and other general and administrative expenses have
been allocated to the Net Assets based on the average of the weighted average of
the Trust's total assets under management to the total assets of RPS and the
Trust's total revenue to the total revenue of RPS. Such averages were 29
percent, 29 percent, 24 percent, and 24 percent for the nine months ended
September 30, 1995 (unaudited) and for the years ended December 31, 1995, 1994
and 1993, respectively.
The following is a summary of significant accounting policies followed in
the preparation of the historical financial statements of the Net Assets:
a. Income Tax Status -- The Trust intends to conduct 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"). RPS conducts its operations
with the intent of meeting the requirements applicable to a REIT under
Sections 856 through 860 of the Code. For the year ended December 31, 1995,
the Trust has distributed all of its taxable income prior to filing its tax
return. As a result, the Trust will have no current and deferred tax
liabilities. See Note 6 for current developments.
b. Principles of Combination -- The combined financial statements
include the accounts of the Net Assets.
c. Cash Equivalents -- Short-term investments are considered cash
equivalents for purposes of the statement of cash flows and consist
primarily of highly liquid investments having original maturities of less
than three months.
d. Investment in Real Estate -- Investment in real estate is stated at
cost less accumulated depreciation and is depreciated using the
straight-line method over the estimated useful life of the property.
Additions and improvements which extend the estimated useful life of the
property are capitalized. Repairs and maintenance are expensed. In the
event that it appears that the cost less accumulated depreciation cannot be
recovered through operations and/or a sale over a reasonable future
F-9
<PAGE> 227
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
period, then it will be considered probable that an impairment that is
other than temporary has occurred and the net 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 in circumstances 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 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. 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. Income from operating
leases held in connection with the investments in real estate is recognized
when earned. Contingent and additional contingent income, extension fee
income and prepayment premium income are recognized as cash is received.
Certain leases at one of the Trust's real estate properties have percentage
rent features and such amounts are recognized upon receipt.
f. 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 impaired
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 provisions of
this Statement were adopted as of January 1, 1995 and the adoption of this
Statement did not have a significant impact on the carrying value of the
loans.
g. Allocation of Distributions -- Net cash flows from operating,
financing and investing activities are those amounts which would have been
distributed to RPS or received from RPS to the extent required to fulfill
the cash contributions of RPS to the Operating Partnership, as described in
Note 7.
h. 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.
F-10
<PAGE> 228
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. MORTGAGE LOANS RECEIVABLE
The principal amounts of the mortgage loans receivable at December 31, 1995
and 1994 and September 30, 1995 (unaudited) are summarized below:
<TABLE>
<CAPTION>
DECEMBER
INTEREST RATE(b) DECEMBER 31, 1995 31, 1994
----------------------------------------- ---------------------------------------- -----------
CURRENT PAY NET
AVERAGE RATE AT AMOUNT ALLOWANCE CARRYING AMOUNT
RATE OF DECEMBER 31, AVERAGE MATURITY ADVANCED FOR LOSS AMOUNT ADVANCED
DESCRIPTION LOAN 1995 ACCRUED DATE (a)(d)(i) (g)(h) (j) (a)(d)(i)
- --------------------- ------- ------------- ------- -------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping
centers/retail:
Holiday Park........ 10.0% 9.75% -- 12/95 $ 1,916,564 $ -- $ 1,916,564 $ 1,916,564
Branhaven Plaza..... 11.19 14.25 2.25 8/96 2,800,000 -- 2,800,000 2,800,000
1733 Massachusetts
Avenue............ 8.58 8.58 1.42 6/99 2,200,000 -- 2,200,000 2,200,000
Mt. Morris Commons.. 11.20 10.50 2.00 6/99 2,700,000 (1,000,000) 1,700,000 2,700,000
Copps Hill Plaza.... 6.00 6.00 0.50 7/96 3,563,948 (350,000) 3,213,948 3,563,948
Hylan Center(f) and
(Note 3a.)........ 7.50 7.50 4.50 1/01 25,000,000 (6,000,336) 18,999,664 25,000,000
Office buildings:
NCR Building(e)..... 10.00 10.00 -- 12/95 468,493 (231,000) 237,493 468,493
1-5 Wabash Avenue... 5.00 5.00 -- 3/96 2,850,000 (650,000) 2,200,000 2,850,000
Rector(c) and (Note
3a.).............. 6.00 0.00 6.00 3/04 3,255,596 (2,000,000) 1,255,596 3,000,000
Industrial/commercial:
Simmons Mfg.
Warehouse......... 10.00 10.00 2.00 8/01 1,500,000 -- 1,500,000 1,500,000
----------- ------------ ----------- -----------
$46,254,601 $(10,231,336) $36,023,265 $45,999,005
=========== ============ =========== ===========
<CAPTION>
DECEMBER 31, 1994 SEPTEMBER 30, 1995
------------------------- ---------------------------------------
NET NET
ALLOWANCE CARRYING AMOUNT ALLOWANCE CARRYING
FOR LOSS AMOUNT ADVANCED FOR LOSS AMOUNT
DESCRIPTION (g)(h) (j) (a)(d)(i) (g)(h) (j)
- --------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Shopping
centers/retail:
Holiday Park........ $ -- $ 1,916,564 $ 1,916,564 $ -- $ 1,916,564
Branhaven Plaza..... -- 2,800,000 2,800,000 -- 2,800,000
1733 Massachusetts
Avenue............ -- 2,200,000 2,200,000 -- 2,200,000
Mt. Morris Commons.. (1,000,000) 1,700,000 2,700,000 (1,000,000) 1,700,000
Copps Hill Plaza.... (350,000) 3,213,948 3,563,948 (350,000) 3,213,948
Hylan Center(f) and
(Note 3a.)........ (3,000,336) 21,999,664 25,000,000 (6,000,336) 18,999,664
Office buildings:
NCR Building(e)..... (231,000) 237,493 468,493 (231,000) 237,493
1-5 Wabash Avenue... -- 2,850,000 2,850,000 -- 2,850,000
Rector(c) and (Note
3a.).............. (2,000,000) 1,000,000 3,000,000 (2,000,000) 1,000,000
Industrial/commercial
Simmons Mfg.
Warehouse......... -- 1,500,000 1,500,000 -- 1,500,000
----------- ----------- ----------- ----------- -----------
$(6,581,336) $39,417,669 $45,999,005 $(9,581,336) $36,417,669
=========== =========== =========== =========== ===========
</TABLE>
Deferred interest due at maturity of the mortgage loans is recognized as
income based on the interest method. The amounts currently recognized through
December 31, 1995 and 1994 and September 30, 1995 (unaudited) are as follows:
<TABLE>
<CAPTION>
FOR THE NINE
FOR MONTHS ENDED
DECEMBER 31, FOR DECEMBER 31, SEPTEMBER 30,
1995 1994 1995
----------------- ----------------- -----------------
DEFERRED INTEREST DEFERRED INTEREST DEFERRED INTEREST
ACCRUED ACCRUED ACCRUED
----------------- ----------------- -----------------
<S> <C> <C> <C>
Holiday Park................................... $ 67,080 $ 67,080 $ 67,080
Branhaven Plaza................................ 345,998 267,329 326,331
1733 Massachusetts Avenue...................... 335,127 325,786 332,792
Mt. Morris Commons............................. 52,923 52,923 52,923
Hylan Center................................... 6,275,000 6,275,000 6,275,000
Simmons Mfg. Warehouse......................... 128,886 100,352 121,753
---------- ---------- ----------
Balance, end of period......................... $ 7,205,014 $ 7,088,470 $ 7,175,879
========== ========== ==========
</TABLE>
- ---------------
(a) Of the 10 loans outstanding at December 31, 1995, December 31, 1994 and
September 30, 1995, 4 are wrap around and 6 are first mortgage loans. The
wrap around mortgage loans are subordinate to prior liens held by others
with no recourse to the Trust. Such prior liens are not to be liabilities of
the Trust and, therefore, are not reflected in the accompanying financial
statements.
(b) In addition to fixed interest, on certain loans the Trust would be entitled
to contingent interest in an amount equal to a percentage of the gross rent
received by the borrower from the property securing the
F-11
<PAGE> 229
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 amounts of
$43,862, $41,836, and $50,121 was received for the years ended December 31,
1995, 1994 and 1993, respectively. During the nine months ended September
30, 1995, the Trust received contingent interest of $43,862.
(c) Pursuant to the terms of the restructuring of the collateral assignment loan
which was partially secured by a security interest in a mortgage on 19
Rector Street, the interest held was converted to a direct first mortgage
lien by delivery on September 21, 1995 of an Assignment of Senior
Participation in the mortgage loan which formerly had been only
collaterally assigned by its mortgagee in consideration of an additional
$255,596.
(d) The aggregate cost for Federal income tax purposes approximates that used
for financial reporting.
(e) The NCR Building loan matured on December 31, 1995 and is in default. The
Trust has initiated foreclosure proceedings with respect to the loan.
(f) The interest income from the Hylan loan represented more than 35% of total
revenues for the nine months ended September 30, 1995 and for the years
ended December 31, 1995, 1994 and 1993, respectively. The mortgage
receivable balance and deferred interest receivable also represented more
than 45% of total assets at September 30, 1995, December 31, 1995 and
December 31, 1994.
(g) As of December 31, 1995 and 1994 and September 30, 1995, there were six,
five and five loans respectively that were in arrears (three monthly
payments or more) or otherwise considered to be "problem loans". 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,
totaled $44,165,960, $44,467,648 and $41,060,364, representing 81 percent,
79 percent and 76 percent of total assets at December 31, 1995 and 1994 and
September 30, 1995, respectively. At December 31, 1995 and 1994 and
September 30, 1995, the Trust was not accruing current and deferred
interest on one, one and one, respectively, of the above-mentioned loans,
in the aggregate approximate principal amounts of $2,700,000, $2,700,000
and $2,700,000, respectively. In addition, as of such dates, deferred
interest on three, three and three additional loans in the aggregate
approximate principal amounts of $31,819,544, $28,000,000 and $31,563,948,
respectively, was not being accrued. There is an allowance for possible
loan losses of $10,231,336, $6,581,336 and $9,581,336 at December 31, 1995
and 1994 and September 30, 1995, respectively, which includes principal and
deferred interest that the Company does not anticipate recovering.
(h) An allowance for possible loan losses is established based upon a review of
each of the loans in the 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 the collectibility of loans is based upon future economic
events, the amounts ultimately realized at disposition may differ
materially from the carrying value as of December 31, 1995 and 1994 and
September 30, 1995.
(i) The allowance is indicative of the continued weakness and the protracted
declines in values of commercial real estate throughout the country which
resulted in part from the general economic decline in 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 meet management's expectation and that additional allowances for
possible loan losses may be required.
F-12
<PAGE> 230
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(j) A summary of mortgage receivable loan activity for the years ended December
31, 1995 and 1994 and for the nine months ended September 30, 1995 is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER
30,
1995 1994 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Balance, beginning of period.............. $39,417,669 $47,476,667 $39,417,669
Mortgage loans issued................... 255,596 -- --
Mortgage loan satisfaction.............. -- (5,958,998) --
Provision for possible loan losses...... (3,650,000) (2,100,000) (3,000,000)
----------- ----------- -----------
Balance, end of period.................... $36,023,265 $39,417,669 $36,417,669
=========== =========== ===========
</TABLE>
3. PREPAYMENTS AND OTHER ACTIVITY
(a) On January 25, 1994, a 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 in New York City (the
"Rector Property") and a shopping center located on Hylan Boulevard in Staten
Island, New York (the "Hylan Center") was restructured. Pursuant to the
restructuring, 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
was received and the collateral assignment of the Rector Property mortgage, the
principal amount of which was reduced to $3,000,000 was retained. The holder of
the first mortgage secured by the Rector Property has granted a pledge of a
senior participation interest in such mortgage. In addition, upon a foreclosure,
a direct first mortgage secured by the Rector Property will be obtained. The
restructuring was completed in October 1994.
(b) On August 23, 1993, the Norgate Shops, Corp. 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, and on motion a
receiver was appointed. On June 30, 1994, Norgate Shops, Corp., a wholly-owned
subsidiary, 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
was pre-paid at the time of such acquisition.
(c) As of April 30, 1993, a Settlement Agreement (the "Agreement") was
entered into with respect to the note secured by a mortgage on 5 and 9 North
Wabash Avenue, Chicago, Illinois. Pursuant to the Agreement, (a) a subsidiary of
RPS received title by deed in lieu of foreclosure to the property at 9 North
Wabash Avenue, (b) $1,350,000 was received and (c) another subsidiary of RPS
received a 20% limited partnership interest in a newly organized limited
partnership which owns 5 North Wabash Avenue. This interest is reflected on the
balance sheet as other assets of $460,000. A note secured by a first mortgage on
5 North Wabash Avenue in the reduced amount of $3,450,000 will continue to be
held. The note bears interest at 5% per annum, matures on March 31, 1996 and is
nonamortizing, 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, no distributions shall be made with respect thereto until the
maturity or earlier repayment of the mortgage loan. Thereafter, other than
distributions of net operating income, no cash distributions will be received
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 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 1992.
F-13
<PAGE> 231
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(d) On July 2, 1993, proceeds of $3,506,713 were received 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.
4. INVESTMENT IN REAL ESTATE
<TABLE>
<CAPTION>
CAPITAL GROSS
IMPROVEMENTS AMOUNT(1)
SEPTEMBER 30, SEPTEMBER 30,
1995 1995 PROVISION
INITIAL COST TO (UNAUDITED) (UNAUDITED) FOR ACCUMULATED ACCUMULATED
COMPANY AND AND IMPAIRMENT DEPRECIATION DEPRECIATION
----------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
LAND BUILDING 1995 1995 1995 1995 1995
---------- ---------- ------------- ------------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
9 North Wabash
Chicago, Illinois.......... $2,319,900 $ 980,100 $ -- $ 3,300,000 (800,000) $ 61,778 $ 55,495
Norgate Shopping Center
Indianapolis, Indiana...... 1,260,000 2,940,000 349,375 4,549,375 -- 121,408 100,475
---------- ---------- ------- ---------- -------- -------- ---------
Totals................ $3,579,900 $3,920,100 $ 349,375 $ 7,849,375 (800,000) $183,186 $ 155,970
========== ========== ======= ========== ======== ======== =========
<CAPTION>
NET CARRYING NET CARRYING
AMOUNT AMOUNT
DECEMBER 31, SEPTEMBER 30, DATE PREDICTABLE
1995 1995 ACQUIRED LIFE
------------ ------------- -------- -----------
(UNAUDITED)
<S> <<C> <C> <C> <C>
9 North Wabash
Chicago, Illinois.......... $2,438,222 $ 3,244,505 7/01/93 39
Norgate Shopping Center
Indianapolis, Indiana...... 4,427,967 4,448,900 6/01/94 39
Totals................ $6,866,189 $ 7,693,405
========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1994 1995
----------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
REAL ESTATE OWNED:
Balance at beginning of year................................. $7,577,528 $3,300,000 $ 7,577,528
Acquired Properties.......................................... -- 4,200,000 --
Capital Improvements......................................... 271,847 77,528 271,847
Provision for Impairment..................................... (800,000) -- --
---------- ---------- ----------
Balance at end of year............................... $7,049,375 $7,577,528 $ 7,849,375
========== ========== ==========
ACCUMULATED DEPRECIATION:
Balance at beginning of year:................................ $ 74,423 $ 11,518 $ 74,423
Depreciation Expense(2)...................................... 108,763 62,905 81,547
---------- ---------- ----------
Balance at end of year............................... $ 183,186 $ 74,423 $ 155,970
========== ========== ==========
</TABLE>
- ---------------
(1) Aggregate cost for Federal income tax purposes at December 31, 1995 and 1994
and September 30, 1995 (unaudited), approximates $7,849,375, $7,577,528 and
$7,849,375, respectively.
(2) Properties are depreciated over an estimated life of 39 years using the
straight-line method.
(3) As the sole tenant at 9 North Wabash terminated its lease on December 31,
1995, the property value was impaired and a provision for impairment of
$800,000 was recognized.
F-14
<PAGE> 232
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
RENTALS UNDER OPERATING LEASES
The following is a schedule by years of minimum future rentals to be
received on noncancelable operating leases at December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
1996............................................................. $ 353,148
1997............................................................. 337,746
1998............................................................. 337,746
1999............................................................. 144,100
2000............................................................. 126,496
Later Years...................................................... 973,509
----------
$2,272,745
==========
</TABLE>
5. FINANCIAL INSTRUMENTS
The market value of mortgage loans and receivables relating to such loans
as of December 31, 1995, and 1994 is estimated to be approximately $45,000,000
and $44,000,000, respectively. At December 31, 1995, the aggregate estimated
fair market value of five of the ten mortgage loans exceeded the aggregate
carrying value of $32,516,828 by $3,593,795. The remaining five mortgage loans
were stated at their fair market value. At December 31, 1994, the aggregate
estimated fair market value of three of the ten mortgage loans exceeded the
aggregate carrying value of $5,616,564 by $1,311,020. The remaining seven
mortgage loans were stated at their fair market value. The estimated market
value has been determined, using available market information, methodologies
deemed reasonable 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. Management believes that the estimated market value as
stated is not necessarily indicative of the price which could be realized if it
were actively attempting to sell the mortgages in its portfolio.
6. 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. Even though
the Trust will not be subject to income taxes as discussed in Note 1, since the
Trust is a public enterprise, in accordance with SFAS 109, it is required to
disclose the net differences between the assets and liabilities for tax purposes
and financial reporting purposes as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net assets, financial statements.......................... $53,166,676 $55,194,893
Interest.................................................. 7,600,000 7,600,000
Allowance for loan losses................................. 10,250,000 6,600,000
Provision for impairment of real estate................... 800,000 --
Deferred interest......................................... (7,200,000) (7,100,000)
----------- -----------
Net assets, tax reporting................................. $64,616,676 $62,294,893
=========== ===========
</TABLE>
During the third quarter of 1994, RPS 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 purposes of satisfying
an asset qualification test applicable to REITs, based on a Revenue Ruling
published in 1977 (the "Asset Issue"). RPS has requested that the United States
Internal Revenue Service (the "IRS")
F-15
<PAGE> 233
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
enter into a closing agreement with RPS that the Assets Issue will not impact
RPS' status as a REIT. The IRS has deferred any action relating to the Asset
Issue pending the further examination of RPS' 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, RPS' counsel, Battle Fowler
LLP, has rendered an opinion that RPS' investment in Treasury Bill repurchase
obligations would not adversely affect its REIT status. However, such opinion is
not binding upon the IRS. In connection with the Transaction, the Trust will
assume all tax liability arising out of the RPS Tax Issues. In connection with
the assumption of such potential liabilities, the Trust and RPS will enter into
a tax agreement which provides that RPS (under the direction of its Continuing
Trustees), and not the Trust, will control, conduct and effect the settlement of
any tax claims against RPS relating to the RPS Tax Issues. Accordingly, the
Trust will not have any control as to the timing of the resolution or
disposition of any such claims and no assurance can be given that the resolution
or disposition of any such claims will be on terms or conditions as favorable to
the Company as if they were resolved or disposed of by the Company. RPS and the
Trust also have received an opinion from legal counsel that, to the extent there
is a deficiency in RPS' taxable income arising out of the IRS examination and
provided RPS timely makes a deficiency dividend (i.e., declares and pays a
distribution which is permitted to relate back to the year for which each
deficiency was determined to satisfy the requirement that a REIT distribute 95
percent of its taxable income), the classification of RPS 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 RPS as a REIT, the REIT status of the Trust could be adversely
affected. Management estimates that this would have an effect of approximately
$600,000 for 1995 and $400,000 for 1994 which has not been provided in the
financial statements of RPS or the Trust. Such amounts do not include potential
penalties and interest. The possible effect on the Trust for subsequent periods
could be significant depending on the taxable income of either RPS or the Trust
in such periods.
7. RAMCO TRANSACTION
On December 27, 1995, RPS and Ramco-Gershenson, Inc. ("Ramco") and 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 RPS of substantially all of the real estate assets
as well as the business operations of Ramco (the "Transaction"). As part of the
Transaction, the Operating Partnership will succeed to the ownership of
interests in 22 shopping center and retail properties (the "Ramco Properties"),
as well as 100% of the nonvoting stock and 5% of the voting stock of Ramco
(representing in excess of 95% of the economic interests of Ramco). Under the
proposed revised structure to the Transaction, RPS will contribute to the
Operating Partnership six retail properties ("RPS Properties") and $68,000,000
in cash and will be liable for approximately $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.
Upon consummation of the Transaction, RPS will be the sole general partner
of and a limited partner in the Operating Partnership and under the proposed
revised structure to the Transaction will initially hold approximately 75% of
the interests therein. The members of the Ramco Group will be limited partners
in the Operating Partnership and will initially hold, in the aggregate,
approximately 25% of the interests therein. The Ramco Group could also increase
its interest in the Operating Partnership based on the future performance of
certain of the Ramco Properties; such performance incentives 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 RPS Realty Trust commencing one year after
consummation of the Transaction, subject to purchase of such OP Units for cash
by RPS Realty Trust, at RPS's option.
As part of the Transaction, it is anticipated that RPS will change its name
to Ramco-Gershenson Properties Trust and will implement a one-for-four reverse
share split.
F-16
<PAGE> 234
NET ASSETS TO BE TRANSFERRED TO
ATLANTIC REALTY TRUST
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Upon consummation of the Transaction, it is contemplated that four of the
nine current members of the Board of Trustees of RPS will resign and will be
replaced by four individuals designated by the Ramco Group, two of whom will be
independent of RPS, Ramco and their respective affiliates. In addition, the five
current principal executive officers of Ramco will become executive officers of
RPS and will be responsible for the management of the RPS's real estate
operations.
In connection with the Transaction, and as a condition thereto, RPS will
transfer its remaining mortgage loan portfolio, as well as certain other assets,
to the Trust and thereafter will distribute the shares after taking into account
the reverse stock split referred to above, to the RPS shareholders.
Additionally, pursuant to the terms of the Transaction, RPS will incur
approximately $6,500,000 in indebtedness, the proceeds of which, together with
existing resources of RPS, will be used primarily for the payment of severance
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. 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. Such interest will be included as a decrease in the
Statement of Changes in Net Assets following the consummation of the
Transaction. Upon consummation of the Transaction, the Trust will assume this
indebtedness. The actual amount of such indebtedness may be less than $6,500,000
to the extent that RPS effects the sale of any of the assets to be distributed
to the Trust or is prepaid by any of the borrowers under its mortgage loans.
8. COMMITMENTS
In March 1995 a lease was entered into for approximately 4,863 square feet
of office space at 747 Third Avenue, New York, New York. The term of the lease
commences on April 1, 1995, at an annual base rent of approximately $150,000.
The lease will expire on April 30, 1997.
9. 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
prepayment 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 March 7, 1996, the Trust reached an agreement in principle with the
borrower under the 1-5 Wabash loan for such borrower to acquire the loan for
$2,200,000 in cash.
* * * * * *
F-17
<PAGE> 235
ATLANTIC REALTY TRUST
PRO FORMA STATEMENTS OF NET ASSETS IN LIQUIDATION -- SEPTEMBER 30, 1995
AND DECEMBER 31, 1995 (UNAUDITED)
The unaudited Pro Forma Statements of Net Assets in Liquidation have been
presented as if the mortgage loan portfolio and certain other assets and
liabilities of RPS Realty Trust had been transferred to Atlantic Realty Trust
(the "Trust") on September 30, 1995 and December 31, 1995, respectively. The Pro
Forma Statements of Net Assets in Liquidation also give effect to the adoption
of the liquidation basis of accounting which the Trust will adopt upon the
transfer of assets and liabilities from RPS.
The liquidation basis of accounting is deemed appropriate as liquidation
appears imminent and the Company is no longer viewed as a going concern. Under
this method of accounting, assets are stated at their estimated net realizable
values and liabilities are stated at their anticipated settlement amounts.
The valuation of assets and liabilities requires many estimates and
assumptions, and there are substantial uncertainties in implementing the
transfer of assets and liabilities to the Trust. The actual value of any
liquidating distributions will depend upon a variety of factors including, the
proceeds from the sale of any of the Company's assets, the timing of such sales
and the actual timing of distributions.
The unaudited Pro Forma Statements of Net Assets in Liquidation should be
read in conjunction with the combined financial statements of the Net Assets to
be Transferred to the Trust included elsewhere herein. In management's opinion,
all adjustments necessary to reflect the transfer and the related transactions,
including those adjustments resulting from the adoption of the liquidation basis
of accounting have been made.
The valuations presented in the accompanying Statements of Net Assets in
Liquidation represent estimates, based on current facts and circumstances, of
the net realizable value of assets and estimated costs of liquidating the Trust.
The values ultimately realized could be higher or lower than the amounts
recorded and such differences could be material.
The unaudited Pro Forma Statements of Net Assets in Liquidation are not
necessarily indicative of what actual net assets in liquidation would have been
at September 30, 1995 and December 31, 1995, nor does it purport to present the
future net assets in liquidation of the Trust.
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF NET ASSETS IN LIQUIDATION (UNAUDITED)
---------------------------------------------------------------------
ASSETS TO BE ADJUSTMENTS
OPENING TRANSFERRED ADJUSTMENTS TO REFLECT
BALANCE IN SPIN-OFF AS OF FOR RPS LIQUIDATION STATEMENT OF
SHEET SEPTEMBER 30, 1995 TRANSACTION BASIS NET ASSETS IN
(1) (2) (3) ACCOUNTING LIQUIDATION
-------- ------------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash........................... $100 $ -- $ -- $ -- $ 100
Mortgage loans receivable...... -- 36,417,669 -- -- 36,417,669
Investment in real estate...... -- 7,693,405 -- -- 7,693,405
Short-term investments......... -- 2,245,447 -- -- 2,245,447
Interest and accounts
receivable................... -- 7,492,118 -- (346,320)(4) 7,145,798
Other assets................... -- 460,000 -- (460,000)(6) --
---- ----------- ----------- ----------- -----------
TOTAL ASSETS............ $100 $ 54,308,639 $ -- $ (806,320) $ 53,502,419
==== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY/
NET ASSETS IN LIQUIDATION
LIABILITIES:
Accounts payable............. $ -- $ 765,282 $ -- $ -- $ 765,282
Deferred commitment fees..... -- 346,320 -- (346,320)(4) --
Loan payable................. -- -- 6,500,000 -- 6,500,000
---- ----------- ----------- ----------- -----------
Total liabilities....... -- 1,111,602 6,500,000 (346,320) 7,265,282
---- ----------- ----------- ----------- -----------
Commitments and
contingencies.............. -- -- -- -- --
---- ----------- ----------- ----------- -----------
SHAREHOLDER'S EQUITY/NET
ASSETS IN
LIQUIDATION........... $100 $ 53,197,037 $(6,500,000) $ (460,000)(6) $ 46,237,137
==== =========== =========== =========== ===========
</TABLE>
F-18
<PAGE> 236
ATLANTIC REALTY TRUST
PRO FORMA STATEMENTS OF NET ASSETS IN LIQUIDATION -- SEPTEMBER 30, 1995
AND DECEMBER 31, 1995 (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF NET ASSETS IN LIQUIDATION (UNAUDITED)
---------------------------------------------------------------------
ASSETS TO BE ADJUSTMENTS
OPENING TRANSFERRED ADJUSTMENTS TO REFLECT
BALANCE IN SPIN-OFF AS OF FOR RPS LIQUIDATION STATEMENT OF
SHEET DECEMBER 31, 1995 TRANSACTION BASIS NET ASSETS IN
(1) (2) (3) ACCOUNTING LIQUIDATION
-------- ------------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash........................... $100 $ -- $ -- $ -- $ 100
Mortgage loans receivable...... -- 36,023,265 -- -- 36,023,265
Investment in real estate...... -- 6,866,189 -- -- 6,866,189
Short-term investments......... -- 3,356,995 -- -- 3,356,995
Interest and accounts
receivable................... -- 7,523,583 -- (346,320)(4) 7,177,263
Other assets................... -- 460,000 -- (460,000)(6) --
---- ----------- ----------- ----------- -----------
TOTAL ASSETS............ $100 $ 54,230,032 $ -- $ (806,320) $ 53,423,812
==== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY/
NET ASSETS IN LIQUIDATION
LIABILITIES:
Accounts payable............. $ -- $ 717,036 $ -- $ -- $ 717,036
Deferred commitment fees..... -- 346,320 -- (346,320)(4) --
Loan payable................. -- -- 6,500,000 -- 6,500,000
---- ----------- ----------- ----------- -----------
Total liabilities....... -- 1,063,356 6,500,000 (346,320) 7,217,036
---- ----------- ----------- ----------- -----------
Commitments and
contingencies.............. -- -- -- -- --
---- ----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY/NET
ASSETS IN
LIQUIDATION........... $100 $ 53,166,676 $(6,500,000) $ (460,000)(6) $ 46,206,676
==== =========== =========== =========== ===========
</TABLE>
F-19
<PAGE> 237
ATLANTIC REALTY TRUST
PRO FORMA STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
The unaudited Pro Forma Statements of Changes in Net Assets in Liquidation
have been presented as if the mortgage loan portfolio and certain other assets
and liabilities of RPS Realty Trust have been transferred to Atlantic Realty
Trust (the "Trust") on January 1, 1995 for the year ended December 31, 1995. The
Pro Forma Statement of Changes in Net Assets in Liquidation also gives effect to
the adoption of the liquidation basis of accounting which the Trust will adopt
upon the transfer of assets from RPS.
The unaudited Pro Forma Statement of Changes in Net Assets in Liquidation
should be read in conjunction with the combined financial statements of the Net
Assets to be Transferred to the Trust included elsewhere herein. In management's
opinion, all adjustments necessary to reflect the transfer and the related
transactions, including those adjustments resulting from the adoption of the
liquidation basis of accounting have been made.
The unaudited Pro Forma Statement of Changes in Net Assets in Liquidation
is not necessarily indicative of what actual net assets in liquidation would
have been had this transfer and related transaction actually occurred as of
January 1, 1995, nor does it purport to represent the results of operations of
Atlantic Realty Trust for future periods.
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF CHANGES IN NET
ASSETS IN LIQUIDATION (UNAUDITED)(5)
-------------------------------------
YEAR ENDED
DECEMBER 31, 1995
-------------------------------------
<S> <C>
Funding of Registrant......................................... $ 100(1)
Net Assets Transferred to Atlantic Realty Trust............... 53,166,676(2)
Adjustment for RPS Transaction................................ (6,500,000)(3)
Adjustment to Reflect Liquidation Basis of Accounting......... (460,000)(6)
-----------
Net Assets in Liquidation..................................... $46,206,776
===========
</TABLE>
F-20
<PAGE> 238
ATLANTIC REALTY TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
1. Represents the initial funding of the registrant and equity in the
registrant held by RPS.
2. Represents the mortgage loan portfolio and certain other assets and
liabilities of RPS Realty to be transferred to the Trust.
3. Pursuant to the terms of the Transaction, RPS will incur approximately
$6,500,000 in indebtedness, the proceeds of which, together with existing
resources of RPS, will be used primarily for the payment of severance benefits
of approximately $4,500,000, distributions to shareholders of approximately
$2,279,000, directors' and officers' insurance premiums of approximately
$1,150,000 and approximately $750,000 in working capital. Upon consummation of
the Transaction, the Trust will assume this indebtedness. 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. Such
interest will be included as a decrease in the Statement of Changes in Net
Assets following the consummation of the Transaction. The actual amount of such
indebtedness may be less than $6,500,000 to the extent that RPS effects the sale
of any of the assets to be distributed to the Trust or is prepaid by any of the
borrowers under its mortgage loans.
4. Represents deferred commitment fees relating to the Hylan Center
mortgage loan which will be written off against interest receivable on this
loan.
5. The Trust will incur general and administrative expenses of
approximately $946,000 per year (including $60,000 in compensation to the Chief
Financial Officer). Such amounts will be included as a decrease in the Statement
of Changes in Net Assets following consummation of the Transaction.
6. Represents a writedown to net realizable value of the Trust's 20%
limited partnership interest in a limited partnership. The Trust believes that,
given the anticipated 18 month term of the Trust, it will not be able to recover
its interest either from the receipt of future cash flows or from a transfer of
such interest.
In determining the net realizable values of the assets, the Trust
considered each asset's ability to generate future cash flows, offers to
purchase received from third parties, if any, and other general market
information. Such information was considered in conjunction with the Trust's
plan for disposition of assets. Computations of net realizable value necessitate
the use of assumptions and estimates. Future events, including economic
conditions that relate to real estate markets in general, may differ from those
assumed or estimated in the computations. As a result, the amounts ultimately
realized may differ from those currently reflected in these financial
statements.
F-21
<PAGE> 239
INDEPENDENT ACCOUNTANT'S REPORT
Hylan Shopping Plaza
2600 Hylan Boulevard
Staten Island, New York 10306
We have audited the accompanying Balance Sheets of Hylan Shopping Plaza as
of December 31, 1995 and 1994, and the related Statements of Operations and
Capital Deficit and Cash Flows for each of the three years in the period ended
December 31, 1995. These Financial Statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes the 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 audit provides a reasonable basis for our
opinion.
In our opinion, the Financial Statements referred to the above present
fairly, in all material respects, the financial position of Hylan Shopping Plaza
as of December 31, 1995 and 1994, and the results of its operations and capital
deficit and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Herman M. Einschlag & Company
Fort Lee, New Jersey
February 15, 1996
F-22
<PAGE> 240
HYLAN SHOPPING PLAZA
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Due from managing agent......................................... $ 605,794 $ 704,564
Tenant receivables.............................................. 157,868 84,940
Prepaid expenses................................................ 520,942 515,463
----------- -----------
TOTAL CURRENT ASSETS.................................... 1,284,604 1,304,967
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
$12,419,323 for 1994 and $14,004,314 for 1995................ 24,735,602 26,026,468
----------- -----------
OTHER ASSETS
Leasehold purchase, net......................................... 18,948 47,369
Cash in tenant security account................................. 186,435 161,395
Security deposits............................................... 1,275 1,275
----------- -----------
TOTAL OTHER ASSETS...................................... 206,658 210,039
----------- -----------
TOTAL ASSETS............................................ $26,226,864 $27,541,474
=========== ===========
LIABILITIES AND CAPITAL
CURRENT LIABILITIES
Accounts payable................................................ $ 168,830 $ 238,196
LONG TERM LIABILITIES
Mortgage payable................................................ 25,000,000 25,000,000
Deferred mortgage interest payable.............................. 9,724,987 8,599,987
----------- -----------
TOTAL LONG TERM LIABILITIES............................. 34,724,987 33,599,987
----------- -----------
OTHER LIABILITIES
Tenant security deposits payable................................ 186,435 161,395
----------- -----------
TOTAL LIABILITIES....................................... 35,080,252 33,999,578
----------- -----------
CAPITAL-DEFICIT................................................... (8,853,388) (6,458,104)
----------- -----------
TOTAL LIABILITIES AND CAPITAL........................... $26,226,864 $27,541,474
=========== ===========
</TABLE>
See Accountant's Report and Notes to Financial Statements.
F-23
<PAGE> 241
HYLAN SHOPPING PLAZA
STATEMENTS OF OPERATIONS AND CAPITAL DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Rent Income......................................... $5,320,543 $5,183,190 $5,101,146
---------- ---------- ----------
COSTS AND EXPENSES
Non C.A.M. expenses............................ 49,591 86,135 383,026
Billable C.A.M................................. 2,167,562 2,121,228 2,060,663
Non-billable C.A.M............................. 536,316 324,590 339,187
Management fees................................ 30,000 30,000 150,857
Mortgage interest expense...................... 3,000,000 3,000,000 3,000,000
Depreciation................................... 1,584,991 1,579,783 1,575,900
Amortization................................... 28,421 28,421 28,421
---------- ---------- ----------
TOTAL COSTS AND EXPENSES.................. 7,396,881 7,170,157 7,538,054
---------- ---------- ----------
NET OPERATING (LOSS)................................ (2,076,338) (1,986,967) (2,436,908)
---------- ---------- ----------
OTHER INCOME
Interest....................................... 15,428 9,819 (5,841)
Telephone commissions.......................... 13,126 7,029 (5,852)
Real estate tax refunds........................ 77,552
Lease surrendered by tenant.................... 35,000
Miscellaneous.................................. 2,500 0 (3,558)
---------- ---------- ----------
TOTAL OTHER INCOME........................ 31,054 129,400 (15,251)
---------- ---------- ----------
NET LOSS............................................ (2,045,284) (1,857,567) (2,421,657)
Capital deficit -- beginning................... (6,458,104) (4,572,803) (3,257,366)
Distributions.................................. (350,000) (27,734)
---------- ---------- ----------
Capital deficit -- ending...................... $(8,853,388) $(6,458,104) $(5,679,023)
========== ========== ==========
</TABLE>
See Accountant's Report and Notes to Financial Statements.
F-24
<PAGE> 242
HYLAN SHOPPING PLAZA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash Used for Operating Activities:
Net Loss....................................... $(2,045,284) $(1,857,567) $(2,421,657)
Add: Items not effecting cash from Operating
Activities:
Depreciation................................... 1,584,991 1,579,783 1,575,900
Amortization................................... 28,421 28,421 28,421
Tenant Receivables............................. (72,928) 8,474 (44,189)
Prepaid expenses............................... (5,479) 26,275 43,102
Tax escrow receivable-mortgagee................ 0 143,508 (127,292)
Accounts payable............................... (69,366) (777,356) 230,813
Tenant security deposits payable............... 25,040 (148,401) 1,531
---------- ---------- ----------
Net Cash Used for Operating Activities.............. (554,605) (996,863) (713,371)
---------- ---------- ----------
Cash Used for Investing Activities:
Expenditures for improvements.................. (294,125) (112,036) (190,882)
---------- ---------- ----------
Cash Provided from Financing Activities:
Deferred mortgage interest payable............. 1,125,000 1,125,000 1,125,000
Distributions.................................. (350,000) (27,734) 58,384
---------- ---------- ----------
Net Cash Provided from Financing Activities......... 775,000 1,097,266 1,183,384
---------- ---------- ----------
Total Cash (Used) Provided................ (73,730) (11,633) 279,131
Cash -- Beginning................................... 865,959 877,592 598,461
---------- ---------- ----------
Cash -- Ending...................................... $ 792,229 $ 865,959 $ 877,592
========== ========== ==========
Mortgage Interest Paid.............................. $1,875,000 $1,875,000 $1,875,000
========== ========== ==========
</TABLE>
See Accountant's Report and Notes to Financial Statements.
F-25
<PAGE> 243
HYLAN SHOPPING PLAZA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities
DiLorenzo Associates ["Company"], which operates as a partnership, owns and
operates through an independent managing agent, a 349,373 square foot shopping
center located in Staten Island, New York. Berley Realty Corp., the legal title
holder to the property is the corporate agent-nominee for the company.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method. The cost of maintenance
and repairs is expensed as incurred significant renewals and betterments are
capitalized.
2. PROPERTY AND IMPROVEMENTS
Property and improvements consist of the following:
1995
<TABLE>
<CAPTION>
NET
USEFUL ACCUMULATED BOOK
LIVES COST DEPRECIATION VALUE
------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Land........................................... -- 7,188,424 -- 7,188,424
Building....................................... 19 28,753,694 13,624,236 15,129,458
Improvements................................... 31.5 2,200,755 359,763 1,840,992
Improvements................................... 39.0 597,043 20,315 576,728
---------- ----------- ----------
38,739,916 14,004,314 24,735,602
========= ============ =========
Leasehold Purchase............................. 57 mos 135,000 116,052 18,948
========= ============ =========
</TABLE>
1994
<TABLE>
<CAPTION>
NET
USEFUL ACCUMULATED BOOK
LIVES COST DEPRECIATION VALUE
------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Land........................................... -- 7,188,424 -- 7,188,424
Building....................................... 19 28,753,694 12,110,884 16,642,810
Improvements................................... 31.5 2,200,755 299,662 1,901,093
Improvements................................... 39.0 302,918 8,777 294,141
---------- ----------- ----------
38,445,791 12,419,323 26,026,468
========= ============ =========
Leasehold Purchase............................. 57 mos 135,000 87,631 47,369
========= ============ =========
</TABLE>
F-26
<PAGE> 244
HYLAN SHOPPING PLAZA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
3. MORTGAGE PAYABLE
Mortgage payable dated December 29, 1986 in the amount of $25,000,000 bears
interest at 12% per annum payable as follows:
(a) Minimum mortgage interest in an annual amount of $1,875,000
payable in equal monthly installments of $156,250.
(b) If and to the extent that adjusted income, as defined, for any
three month period shall exceed one quarter of the Excluded Amount,
(Excluded Amount shall equal $2,175,000 for each calendar year from the
date of this mortgage through December 1996 and $2,375,000 for each
calendar year from January 1, 1997 through December 31, 2002), such excess
shall be paid as additional minimum interest. The amount of interest
payable shall be adjusted on March 31, of each year for the year ending on
the preceding December 31, so that the total interest payable pursuant to
this subparagraph (b) for such preceding year shall be the amount by which
that Adjusted Income for such preceding year exceeds the Excluded Amount.
(c) If and to the extent that the full amount of mortgage interest at
a rate of 12% per annum is not payable in accordance with (a) and (b)
above, the unpaid mortgage interest shall be deferred and paid as provided
in (g), (h), (i) below. The deferred interest as of December 31, 1995 is
$9,724,987 and as of December 31, 1994 is $8,599,987.
(d) If and to the extent that the total amount payable in accordance
with (a) and (b), above shall exceed interest at the rate of 12% per annum,
such excess shall be applied in payment of any accumulated deferred
mortgage interest and the balance if any, shall be remitted to the
Mortgagor.
(e) On December 1, 1996, a payment of $5,000,000 shall be made on
account of accumulated deferred mortgage interest and any excess shall be
applied against the principal balance. No such payment of principal shall
operate to postpone or reduce any monthly installment of interest and
principal thereafter required to be made.
(f) All unpaid deferred interest shall be paid on 12/31/2000 unless as
provided in (g) below.
(g) The Mortgagor, may elect, on or before December 31, 2000, to
extend the maturity date of any accumulated deferred interest which is
unpaid as of December 31, 2000 to December 31, 2015. If the Mortgagor shall
have so elected, such unpaid accumulated deferred interest shall be added
to the unpaid principal balances as of December 31, 2000 to form a new
principal indebtedness equal to the total of such unpaid principal balance
and such deferred interest. The unpaid principal balance secured by the
Mortgage as of December 31, 2000 or, if the Mortgagor shall have so
elected, the total of such unpaid principal balance and such deferred
interest, is herein referred to as the "New Principal Sum." The New
Principal Sum shall bear interest, computed from January 1, 2001, at the
rate of 12% per annum.
(h) The New Principal Sum, together with interest thereon, will be
payable in equal constant combined monthly installments of interest and
principal, each in an amount equal to one-twelfth of 14% of the New
Principal Sum, on February 1, 2001 and on the first day of each month
thereafter to and including December 31, 2015. Each such monthly
installment, as and when received by the Mortgagee, will be applied first
to the payment of interest and then in reduction of the New Principal Sum.
(i) The entire unpaid balance of the New Principal Sum, together with
all accrued and unpaid interest, shall be paid on December 31, 2015.
F-27
<PAGE> 245
HYLAN SHOPPING PLAZA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Mortgage Prepayment
(j) Neither the original principal balance secured by the Mortgage nor
the New Principal Sum may be prepaid, in the whole or in part, prior to
December 31, 2005. The New Principal Sum may be prepaid, in whole or in
part, on and after December 31, 2005, upon not less than sixty days' prior
written notice to the Mortgagee and the payment of all interest accrued to
the date of prepayment. The Mortgagor shall pay to the Mortgagee, as a
condition of and in consideration for such right of prepayment, a premium
equal to 3% of the principal amount so prepaid, which premium shall decline
each year after December 31, 2006 by one-half percent. Any such partial
prepayment shall be applied to the payment of principal in the inverse
order in which payments of principal are payable, and no such prepayment
shall operate to postpone or reduce any monthly installment of interest and
principal thereafter required to be made.
4. MANAGEMENT AGREEMENT
As of December 31, 1993, Berley entered into a new agreement for the
management of the shopping plaza. The terms are one year automatically renewable
on the anniversary unless notified by either party to the contrary within 60 to
90 days prior to the expiration. The agreement may also be terminated by either
party, without cause, on thirty (30) days' written notice. The agent's
compensation is $2,500 per month.
5. PAY PUBLIC TELEPHONE AGREEMENT
The company has an agreement with an independent telecommunications company
to provide and operate 17 public telephones throughout the Shopping Center. The
term is three years from February 1, 1995 and is renewable for an additional
three years. The company will receive a one time fee of $275 per phone and 25%
of the net income after phone line charges, sales taxes and excise taxes,
monthly. Rates remain unchanged throughout the term and the renewal.
6. TENANT RENT CREDITS/SUBSEQUENT EVENTS
(a) Staten Island Theater Group II - United Artist Theater
Construction rent credit of $1,000,000.00 to be amortized on a monthly
basis, commencing July 1, 1993 at a rate of $8,333.33 per month, ($100,000.00
per annum), plus interest payable at five percent per annum on the unamortized
credit at December 31, 1995 is $750,000.
If lease is terminated as a result of tenant's default, landlord's damages
resulting from the default will be adjusted by any unamortized credit due
tenant. However, company is not obligated to pay any remaining balance of the
unamortized credit.
(b) Big M. Inc - Mandee/Subsequent Event
The lease provides the tenant to receive a rent credit for "landlords
reimbursement work" as defined in the lease. As an inducement to the Tenant
waiving its right of cancellation, as contained in the Lease Agreement, the
Company paid the Tenant $108,048 on February 17, 1995 including interest for the
"Landlord's reimbursement work".
F-28
<PAGE> 246
HYLAN SHOPPING PLAZA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
7. INSURANCE COVERAGE
The Company maintains the following insurance.
<TABLE>
<CAPTION>
COVERAGE POLICY # LIMITS OF LIABILITY
--------------------------------- -------- ------------------------------
<C> <S> <C> <C>
A) Liability CPP301-27-61 1,000,000/2,000,000 Aggregate
B) Fire F605-811-50 22,000,000
C) Loss of Rents F605-811-50 5,000,000
D) Umbrella NUG-332466 20,000,000
E) Crime CPP301-27-61 25,000
F) Boiler CPP301-27-61 Replacement Cost
TERM DEDUCTIBLE
---- ----------
A) 05/09/95-05/09/96 --
B) 05/09/95-05/09/96 10,000 (Flood, Quake 25,000)
C) 05/09/95-05/09/96 10,000
D) 05/09/95-05/09/96 10,000
E) 05/09/95-05/09/96 1,000
F) 12/27/94-12/27/95 15,000
INSURANCE CARRIER ANNUAL PREMIUM
----------------- --------------
A) New Hampshire Insurance Co. 221,240
B) Commerce & Industry 40,629
C) Commerce & Industry (Included in B)
D) General Star National Insurance 38,619
E) New Hampshire Insurance Co. (Included in A)
F) New Hampshire Insurance Co. (Included in A)
</TABLE>
F-29
<PAGE> 247
DEFINITIVE PROXY MATERIAL - MARCH 28, 1996
RPS REALTY TRUST
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 29, 1996
THIS PROXY IS SOLICITATED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned, as a holder of shares of beneficial Interest, par
value $.10 per share ("Shares"), in RPS Realty Trust (the "Company"), hereby
appoints Joel M. Pashcow and Edwin R. Frankel, and each of them, with full
power of substitution, to vote all shares for which the undersigned is entitled
to vote through the execution of a proxy with respect to the Special Meeting of
the Shareholders to be held on April 29, 1996 or any adjournment thereof.
You may revoke this proxy at any time by forwarding to the Company a
subsequently dated proxy received by the Company prior to the Special Meeting.
Returned Proxy cards will be voted (1) as specified on the matters
listed below: (2) in accordance with the Board of Trustees' recommendations if
the proxy is signed but where no specification is made; and (3) in accordance
with the judgment of the proxies on any other matters that may properly come
before the meeting. Please mark your choice like this: X
YOUR BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE "FOR"
PROPOSALS 1, 2 AND 3.
The Proposals to authorize are:
1. The Ramco Acquisition Proposal - Approval of a proposal to consummate
the acquisition by the Company of substantially all of the shopping
centers and retail properties, as well as the management organization,
personnel and business operations, of Ramco-Gershenson, Inc. ("Ramco")
and its affiliates (the "Ramco Acquisition"), as more fully described in
the accompanying Proxy Statement.
/ / For / / Against / / Abstain
2. The Declaration of Trust Amendment Proposal - Approval of a proposal to
amend the Company's Declaration of Trust to, among other things, (i)
increase certain quorum percentage requirements in connection with
meetings of the Board of Trustees, (ii) establish a Nominating Committee
and Advisory Committee of the Board of Trustees, (iii) change the
Company's name to Ramco-Gershenson Properties Trust, and (iv) clarify
the authority of the Board of Trustees to combine outstanding Shares by
way of a reverse split, provide for the payment of cash in lieu of any
fractional interest in a combined Share and establish mechanics to
implement any such combination, as more fully described in the
accompanying Proxy Statement.
/ / For / / Against / / Abstain
3. The New Plan Proposal - Approval and ratification of a proposal for the
establishment of a new employee share option plan (the "New Plan"),
pursuant to which the Board of Trustees (or a committee thereof) will be
empowered to grant options to certain key employees of the Company and
its subsidiaries, as more fully described in the accompanying Proxy
Statement.
/ / For / / Against / / Abstain
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE ON THIS CARD, THIS
PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2 AND 3.
<PAGE> 248
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE OR DELIVER TO: The Herman Group, Inc., 2121 San Jacinto St.,
26th Floor, Dallas Texas 75021. If you have any questions please call (800)
747-2963. Facsimile copies of the front and the reverse sides of this Proxy,
properly completed and duly executed, will be accepted at (214) 999-9348 or
(214) 999-9323.
Dated:_________________________________
_______________________________________
Signature
_______________________________________
Signature (if held jointly)
_______________________________________
Title or Authority
Please sign your name exactly as it
appears hereon. When signing as an
attorney, executor, administrator,
trustee or guardian, please give full
title as such. Joint owners should each
sign. If a corporation, please sign as
full corporate name by President or
other authorized officer. If a
partnership, please sign in partnership
name by an authorized person.
