<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy StatemenT [_] 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
RETAIL PROPERTY INVESTORS, INC.
(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 appropriate box):
[_] $125 per Exchange Act Rule 0-11(c)(1)(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:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[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;
2) Form, Schedule or Registration Statement No.:
3) Filing Party;
4) Date Filed:
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
1285 Avenue of the Americas
New York, New York 10019
August 23, 1996
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Retail Property Investors, Inc. (the "Company") to be held on October 16,
1996, at 9:00 a.m., local time, at the offices of PaineWebber Properties
Incorporated, 1285 Avenue of the Americas, 38th Floor, New York, New York
10019.
At the Special Meeting, you will be asked to consider and approve, among
other things, the complete and voluntary liquidation and dissolution of the
Company pursuant to the Plan of Liquidation and Dissolution of the Company. As
part of the overall transaction, the Company will sell substantially all of
its assets to Glimcher Realty Trust for an aggregate purchase price of
$197,000,000, plus prepayment penalties and assumption fees, in accordance
with the terms of the Purchase and Sale Agreement, dated as of March 11, 1996,
by and among Glimcher, the Company and certain other entities affiliated with
the Company, as amended from time to time. After the prepayment or assumption
of all of the Company's mortgage indebtedness and the payment of all
prepayment penalties, assumption fees and certain closing costs by Glimcher,
the Company will receive, upon the closing of the sale, net proceeds estimated
to be equal to $37,401,126 in the aggregate. ASSUMING SHAREHOLDER APPROVAL IS
OBTAINED AT THE SPECIAL MEETING, THE BOARD ANTICIPATES THAT, BY DECEMBER 31,
1996, THE COMPANY WILL LIQUIDATE ANY AND ALL OF ITS REMAINING ASSETS AND WILL
DISTRIBUTE TO ITS SHAREHOLDERS AN ESTIMATED AMOUNT OF $42,585,000 IN THE
AGGREGATE OR APPROXIMATELY $8.50 PER SHARE OF COMMON STOCK. YOUR BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE SALE AND THE DISSOLUTION OF THE COMPANY
AND HAS DETERMINED THAT THE OVERALL TRANSACTION IS IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE TRANSACTION.
The aggregate amount to be distributed to shareholders represents the
distribution of the net proceeds of the sale of the Company's assets to
Glimcher and of any disposition of any remaining assets plus all accumulated
cash reserves, together with any interest thereon (after payment of, or making
provision for the payment of, all of the Company's remaining liabilities). In
the event it is not possible or practical for the Company to complete final
liquidating distributions of cash to the shareholders by December 31, 1996,
the shareholders will also receive beneficial interests in a liquidating
trust, established to liquidate such assets and satisfy or provide for such
claims, in proportion to their respective holdings of the outstanding shares
of common stock of the Company. After making final liquidating distributions
to the shareholders, including distributions of interests in a liquidating
trust, the separate corporate existence of the Company will cease.
SHAREHOLDERS ARE URGED TO GIVE THE ATTACHED PROXY STATEMENT THEIR CAREFUL
AND PROMPT ATTENTION. APPROVAL OF THE TRANSACTION REQUIRES THE AFFIRMATIVE
VOTE OF THE HOLDERS OF MORE THAN 66 2/3% OF ALL THE VOTES ENTITLED TO BE CAST
ON THE TRANSACTION. AS SUCH, YOUR FAILURE TO VOTE WILL BE EQUIVALENT TO A VOTE
AGAINST THE TRANSACTION. IF THE TRANSACTION IS NOT APPROVED, THE BOARD OF
DIRECTORS DOES NOT ANTICIPATE THAT THE COMPANY WILL BE ABLE TO REINSTATE THE
REGULAR PAYMENT OF QUARTERLY DIVIDENDS IN THE FORESEEABLE FUTURE. ACCORDINGLY,
SHAREHOLDERS ARE URGED TO APPROVE THE TRANSACTION BY SIGNING, DATING AND
MAILING THE ENCLOSED PROXY CARD TODAY.
On behalf of your Board of Directors, thank you for your cooperation and
continued support.
Sincerely,
Lawrence A. Cohen
President and Chief Executive
Officer
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
1285 Avenue of the Americas
New York, New York 10019
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 16, 1996
----------------
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders of Retail
Property Investors, Inc., a Virginia corporation (the "Company"), will be held
on October 16, 1996, at 9:00 a.m., local time, at the offices of PaineWebber
Properties Incorporated, 1285 Avenue of the Americas, 38th Floor, New York,
New York 10019 (the "Special Meeting"), for the following purposes:
1. To consider and vote upon a single proposal (the "Transaction") to
approve and adopt (i) the Purchase and Sale Agreement by and among Glimcher
Realty Trust, a Maryland real estate investment trust ("Glimcher"), the
Company, PaineWebber Retail Property Investments, Ltd., PaineWebber Retail
Property Investments Joint Venture, PaineWebber College Plaza, L.P. and
PaineWebber Marion Towne, L.P., dated as of March 11, 1996, as amended from
time to time and as assigned by Glimcher to its affiliate, Glimcher
Properties Limited Partnership, a Delaware limited partnership (the "Sale
Agreement"); (ii) the sale of substantially all of the Company's assets to
Glimcher, pursuant to the Sale Agreement (the "Sale"); (iii) the Plan of
Liquidation and Dissolution of the Company, approved by the Board of
Directors of the Company on April 23, 1996 (the "Plan"), which provides,
among other things, for the Sale; and (iv) the complete and voluntary
liquidation and dissolution of the Company, in accordance with the terms of
the Plan (the "Liquidation"). Copies of the Sale Agreement and the Plan are
attached to the accompanying Proxy Statement as Annex A and Annex C,
respectively. A vote in favor of the Transaction will constitute a vote in
favor of the Sale Agreement, the Sale, the Plan and the Liquidation,
including the terms thereof and each of the transactions contemplated
thereby.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The Board of Directors of the Company has fixed the close of business on
August 21, 1996 as the record date. Only holders of shares of the common
stock, par value $.01 per share, of the Company of record at the close of
business on that date are entitled to notice of and to vote at the Special
Meeting and any adjournment or postponement thereof. The Transaction and the
other related matters are more fully described in the accompanying Proxy
Statement and the Annexes thereto, which form a part of this Notice.
By Order of the Board of Directors
Linda Z. MacDonald
Assistant Secretary
Boston, Massachusetts
August 23, 1996
IT IS IMPORTANT THAT YOUR PROXY BE RETURNED PROMPTLY, WHICH WILL HELP YOUR
COMPANY AVOID ADDITIONAL SOLICITATION COSTS. THEREFORE, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN, DATE AND MAIL THE ENCLOSED
PROXY CARD IN THE ENCLOSED, POSTAGE PAID ENVELOPE. YOU MAY, IF YOU WISH,
REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED, INCLUDING BY
VOTING IN PERSON AT THE SPECIAL MEETING. IF YOU HAVE ANY QUESTIONS OR REQUIRE
ASSISTANCE IN VOTING YOUR SHARES, PLEASE CALL D.F. KING & CO., INC., WHICH IS
ASSISTING YOUR COMPANY, TOLL-FREE AT 1-800-290-6431.
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
1285 Avenue of the Americas
New York, New York 10019
(800) 225-1174
----------------
PROXY STATEMENT
----------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 16, 1996
This Proxy Statement is being furnished to the holders (collectively, the
"Shareholders" and individually, a "Shareholder") of common stock, par value
$.01 per share ("Common Stock"), of Retail Property Investors, Inc., a
Virginia corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company (the "Board") for use at a
Special Meeting of Shareholders of the Company to be held on October 16, 1996,
at 9:00 a.m., local time, at the offices of PaineWebber Properties
Incorporated, 1285 Avenue of the Americas, 38th Floor, New York, New York
10019 and at any adjournment or postponement thereof (the "Special Meeting").
This Proxy Statement, the Notice of Special Meeting of Shareholders and the
accompanying proxy card are first being mailed to the Shareholders on or about
August 23, 1996, in connection with the solicitation of proxies for the
Special Meeting.
At the Special Meeting, Shareholders entitled to notice of and to vote at
the Special Meeting will be asked to consider and vote upon the overall
transaction (the "Transaction") more fully described below, involving the sale
of substantially all of the Company's assets to Glimcher Realty Trust, a
Maryland real estate investment trust ("Glimcher"), and the complete and
voluntary liquidation and dissolution of the Company (the "Liquidation") in
accordance with the Plan of Liquidation and Dissolution of the Company,
approved by the Board on April 23, 1996 (the "Plan"), and to transact such
other business as may properly come before the Special Meeting or any
adjournment or postponement thereof. ASSUMING SHAREHOLDER APPROVAL IS OBTAINED
AT THE SPECIAL MEETING, THE BOARD ANTICIPATES THAT, BY DECEMBER 31, 1996, THE
COMPANY WILL LIQUIDATE ANY AND ALL OF ITS REMAINING ASSETS AND WILL DISTRIBUTE
TO ITS SHAREHOLDERS AN ESTIMATED AMOUNT OF $42,585,000 IN THE AGGREGATE OR
APPROXIMATELY $8.50 PER SHARE OF COMMON STOCK.
As part of the Transaction, the Company will sell substantially all of its
assets to Glimcher for an aggregate purchase price of $197,000,000 (the
"Sale"), pursuant to the Purchase and Sale Agreement by and among Glimcher and
the Company, PaineWebber Retail Property Investments, Ltd., PaineWebber Retail
Property Investments Joint Venture, PaineWebber College Plaza, L.P. and
PaineWebber Marion Towne, L.P. (collectively, the "Sellers" and each, a
"Seller"), dated as of March 11, 1996 (the "Original Sale Agreement"), as
amended by the letter agreements by and among Glimcher and the Sellers, dated
as of May 12, 1996, May 14, 1996, May 30, 1996, June 6, 1996, June 13, 1996,
June 19, 1996 and June 27, 1996 (each, an "Amendment" and collectively, the
"Amendments") (as amended, the "Sale Agreement"). After the prepayment or
assumption of all of the Company's mortgage indebtedness and the payment by
Glimcher of all prepayment penalties, assumption fees and certain closing
costs, the Company will receive, upon consummation of the Sale, net proceeds
estimated to be equal to $37,401,126 in the aggregate. Glimcher deposited into
escrow on June 27, 1996 sufficient funds to cover such payment in the form of
four (4) irrevocable letters of credit. Pursuant to a certain Assignment of
Purchase and Sale Agreement (the "Assignment"), dated as of June 27, 1996,
between Glimcher and its affiliate, Glimcher Properties Limited Partnership, a
Delaware limited partnership ("GPLP"), Glimcher assigned all of its right,
title and interest under the Sale Agreement to GPLP, though Glimcher remains
<PAGE>
primarily liable for its obligations under the Sale Agreement. Consummation of
the Sale is conditioned upon, among other things, approval thereof by the
Shareholders. See "The Transaction--The Proposed Sale" and "Summary of Certain
Agreements--The Sale Agreement."
Anticipated distributions to the Shareholders in an estimated amount of
$42,585,000 in the aggregate represent the distribution of the net proceeds of
the Sale and of any disposition of any remaining assets plus all accumulated
cash reserves, together with any interest thereon (after payment of, or making
provision for the payment of, all of the Company's remaining liabilities),
pursuant to the terms of the Plan. The Company plans to make such
distributions to the Shareholders by December 31, 1996 in part because the
Company does not anticipate that it will be able to continue to qualify as a
real estate investment trust ("REIT") thereafter. See "The Transaction--
Certain Federal Income Tax Consequences." In the event it is not possible or
practical for the Company fully to liquidate its remaining assets and satisfy
all remaining claims by December 31, 1996, however, the Shareholders will
receive by such date (i) a partial distribution of cash representing a
substantial portion of the total anticipated distributions, and (ii)
beneficial interests in a liquidating trust, established to liquidate such
assets and satisfy or provide for such claims (the "Liquidating Trust"), in
proportion to their respective holdings of the outstanding shares of Common
Stock. A vote to approve the Transaction constitutes approval of Fleet
National Bank to act as trustee of such Liquidating Trust and authorization of
the transfer of all of the Company's remaining assets to such Liquidating
Trust in accordance with the Plan. The Board may modify, amend, revoke or
abandon the Plan, or delay or revoke the dissolution of the Company, pursuant
to the terms thereof at any time without Shareholder approval, if it
determines that such action will be in the best interests of the Company or
its Shareholders. See "The Transaction--The Proposed Liquidation; Net Proceeds
of the Transaction" and "Summary of Certain Agreements--The Plan."
All summaries and references to the Sale Agreement and the Plan in this
Proxy Statement are qualified in their entirety by reference to the text of
the Sale Agreement and the Plan, which are attached hereto as Annex A and
Annex C, respectively. A vote in favor of the Transaction will constitute a
vote in favor of the Sale Agreement, the Sale, the Plan and the Liquidation,
including the terms thereof and each of the transactions contemplated thereby.
THE BOARD BELIEVES THAT THE TRANSACTION IS FAIR TO AND IN THE BEST INTEREST
OF THE COMPANY AND ITS SHAREHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED THE
TRANSACTION AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
TRANSACTION.
It is not anticipated that any other matter will be brought before the
Special Meeting. If, however, other matters are properly presented, proxies
will be voted in accordance with the best judgment of the proxy holders.
IN DETERMINING WHETHER TO APPROVE THE TRANSACTION AT THE SPECIAL MEETING,
SHAREHOLDERS SHOULD CONSIDER ALL OF THE INFORMATION INCLUDED OR INCORPORATED
BY REFERENCE IN THIS PROXY STATEMENT.
----------------
The date of this Proxy Statement is August 23, 1996.
Shareholders should not surrender any certificate for shares of Common Stock
with their proxy. Following approval of the Transaction, Shareholders will
receive separate instructions for surrendering their certificates.
(ii)
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational filing requirements of the
Securities Exchange Act of 1934, and the rules and regulations promulgated
thereunder, as amended from time to time (the "Exchange Act"), and, in
accordance therewith, files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission")
relating to its business, financial condition and other matters. Such reports,
proxy statements and other information may be inspected and copied at the
Commission's public reference facilities at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and also should be available for
inspection and copying at the regional offices of the Commission located at 73
Tremont Street, Boston, Massachusetts 02108-3912 and at 75 Park Place, Room
1400, 14th floor, New York, New York 10007. Copies of such material may be
obtained upon payment of the Commission's customary fees by writing to its
principal office at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549.
INCORPORATION BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act accompany this Proxy Statement as Annex E and Annex F,
respectively, and are incorporated herein by reference: the Company's Annual
Report, as amended, on Form 10-K for the fiscal year ended August 31, 1995
(Commission File No. 0-18247) (the "1995 Form 10-K") and the Company's
Quarterly Report on Form 10-Q for the quarter ended May 31, 1996 (Commission
File No. 0-18247) (the "May 31, 1996 Form 10-Q"). The following documents
filed by the Company with the Commission under the Exchange Act (Commission
File No. 0-18247) are also incorporated herein by reference:
(a) the Company's Annual Report on Form 10-K/A-2 for the fiscal year
ended August 31, 1995 filed with the Commission on July 18, 1996;
(b) the Company's Annual Report on Form 10-K/A-1 for the fiscal year
ended August 31, 1995 filed with the Commission on April 25, 1996;
(c) the Company's Current Report on Form 8-K filed March 15, 1996;
(d) the Company's Quarterly Report on Form 10-Q for the quarter ended
February 29, 1996; and
(e) the Company's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1995.
In addition, all documents filed by the Company with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to August
31, 1995 are hereby incorporated by reference into this Proxy Statement and
shall be deemed a part hereof from the date of filing of such documents. The
Company will provide without charge to each person to whom a copy of this
Proxy Statement is delivered, on the written or oral request of such person
and by first class mail or other equally prompt means within one business day
of receipt of such request, a copy of any and all such documents which may
have been or may be incorporated by reference in this Proxy Statement but not
attached hereto. Such written or oral request should be directed to Linda Z.
MacDonald, Assistant Secretary, Retail Property Investors, Inc., 265 Franklin
Street, Boston, Massachusetts 02110, telephone number (800) 225-1174.
All statements contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently filed document
which also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
(iii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
The Company............................................................. 1
Terms of the Transaction................................................ 1
The Proposed Sale..................................................... 1
The Proposed Liquidation.............................................. 2
Required Vote for Approval of the Transaction........................... 2
Reasons for Transaction; Recommendation of the Board.................... 3
Fairness Opinion of the Financial Advisor............................... 4
Conflicts of Interest; Interest of Certain Affiliates in the
Transaction............................................................ 4
Certain Federal Income Tax Consequences................................. 5
Accounting Treatment.................................................... 6
Regulatory and Other Approvals.......................................... 6
Dissenters' Rights...................................................... 7
Alternatives to the Transaction......................................... 7
Pro Forma Financial Statements.......................................... 7
The Sale Agreement...................................................... 7
General............................................................... 7
Purchase Price........................................................ 8
Acquisition Proposals................................................. 8
Shareholder Approval.................................................. 8
Termination After Escrow Closing...................................... 9
The Closing Escrow Agreement............................................ 10
The Management Agreement................................................ 10
General Terms......................................................... 10
Compensation of GPLP.................................................. 11
Termination Rights.................................................... 11
Non-Competition....................................................... 11
The Plan................................................................ 11
Liquidating Distributions............................................. 11
Liquidating Trust..................................................... 12
Amendments, Revocation and Termination................................ 12
Certain Legal Proceedings............................................... 12
The Special Meeting..................................................... 13
THE TRANSACTION........................................................... 14
Background of the Company............................................... 14
Corporate Structure of the Company and Related Entities................. 15
The Proposed Sale....................................................... 16
The Proposed Liquidation; Net Proceeds of the Transaction............... 17
Reasons for Transaction; Recommendation of the Board.................... 18
Fairness Opinion of the Financial Advisor............................... 23
Extensive Marketing and Auction Process............................... 24
Internal Lehman Valuation............................................. 25
Analysis of Appraised Values.......................................... 25
Background of the Transaction........................................... 26
Conflicts of Interest; Interest of Certain Affiliates in the
Transaction............................................................ 34
The Advisory Agreement................................................ 34
Services by Other Affiliates of the Company........................... 35
PaineWebber Obligations............................................... 35
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Glimcher............................................................... 37
Certain Federal Income Tax Consequences.................................. 37
The Sale and Liquidation............................................... 37
Tax Consequences of Liquidation to the Company......................... 37
Tax Consequences of Liquidation to Shareholders........................ 39
Liquidating Trust...................................................... 40
Taxation of Non-United States Shareholders............................. 40
State and Local Income Tax............................................. 40
Backup Withholding..................................................... 40
Pending Legislation.................................................... 40
Accounting Treatment..................................................... 41
Regulatory and Other Approvals........................................... 41
Hart-Scott-Rodino...................................................... 41
Other Approvals........................................................ 41
Dissenters' Rights....................................................... 41
PRO FORMA FINANCIAL STATEMENTS............................................. 42
SUMMARY OF CERTAIN AGREEMENTS.............................................. 48
The Sale Agreement....................................................... 48
Parties; Sale of Assets................................................ 48
Deposit; Due Diligence................................................. 48
Purchase Price......................................................... 48
Representations and Warranties......................................... 48
Indemnification........................................................ 49
Indebtedness........................................................... 49
Acquisition Proposals.................................................. 50
Shareholder Approval................................................... 50
Escrow Closing......................................................... 50
Defaults and Remedies.................................................. 51
Termination After Escrow Closing....................................... 51
Liquidated Damages; Protection of REIT Status.......................... 52
Prorations and Adjustments at Escrow Closing........................... 52
The Closing Escrow Agreement............................................. 52
The Management Agreement................................................. 53
General Terms.......................................................... 53
Collection of Rents and Revenues....................................... 54
Leasing and Operation of the Properties................................ 54
Compensation of GPLP................................................... 54
Indemnification........................................................ 55
Termination Rights..................................................... 55
Non-Competition........................................................ 55
The Plan................................................................. 55
Sale of the Properties................................................. 55
Reserve for Liabilities................................................ 56
Liquidating Distributions.............................................. 56
Liquidating Trust...................................................... 56
Stock Certificates..................................................... 56
Dissolution............................................................ 57
Amendments, Revocation and Termination................................. 57
Indemnification/Insurance.............................................. 57
REIT Qualification..................................................... 57
</TABLE>
(v)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFORMATION ABOUT THE COMPANY.............................................. 57
Market for Common Stock.................................................. 57
Dividends and Liquidity.................................................. 58
Dividends.............................................................. 58
Liquidity.............................................................. 58
Certain Legal Proceedings................................................ 58
Principal Executive Offices and Telephone Number......................... 59
Additional Information................................................... 59
THE SPECIAL MEETING........................................................ 59
Date, Time and Place of Special Meeting.................................. 59
Record Date and Outstanding Shares....................................... 59
Record Date............................................................ 59
Common Stock........................................................... 60
Voting Rights and Quorum................................................. 60
Voting Rights.......................................................... 60
Reason for Seeking Shareholder Approval................................ 60
Quorum................................................................. 60
Vote Required to Approve the Transaction................................. 60
Other Matters............................................................ 60
Proxies and Revocation................................................... 60
Solicitation of Proxies and Expenses..................................... 61
Presence of Accountants.................................................. 61
Security Ownership....................................................... 61
Submission of Shareholder Proposals...................................... 62
</TABLE>
ANNEXES TO PROXY STATEMENT
ANNEX A:PURCHASE AND SALE AGREEMENT, AS AMENDED
ANNEX B:CLOSING ESCROW AGREEMENT, AS AMENDED
ANNEX C:PLAN OF LIQUIDATION AND DISSOLUTION
ANNEX D:FAIRNESS OPINION OF LEHMAN BROTHERS INC.
ANNEX E:FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 31, 1995
ANNEX F:FORM 10-Q FOR THE QUARTER ENDED MAY 31, 1996
(vi)
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement and the Annexes hereto relating to the proposed
Transaction, pursuant to which the Company will (i) sell substantially all of
its assets to Glimcher for an aggregate purchase price of $197,000,000, (ii)
liquidate any and all of its remaining assets; (iii) pay or provide for payment
of its remaining liabilities and (iv) distribute to its Shareholders an
estimated amount of $8.50 per share of Common Stock by December 31, 1996. The
separate corporate existence of the Company will thereafter cease. Unless the
context indicates otherwise, all references to the Company include on a
consolidated basis the following affiliated partnerships and joint venture
(collectively, the "Partnerships") through which the Company owns all of its 22
shopping centers: PaineWebber Retail Property Investments, Ltd., PaineWebber
Retail Property Investments Joint Venture, PaineWebber College Plaza, L.P. and
PaineWebber Marion Towne, L.P. This summary does not purport to contain all
material information relating to the Sale, the Sale Agreement, the Liquidation
and the Plan, and is qualified in its entirety by the more detailed information
and financial statements contained or incorporated by reference in this Proxy
Statement. SHAREHOLDERS SHOULD READ THIS PROXY STATEMENT AND THE ANNEXES
ATTACHED HERETO IN THEIR ENTIRETY.
THE COMPANY
The Company is a Virginia corporation, originally organized in 1989 under the
name "PaineWebber Retail Property Investments, Inc.," that has qualified under
the Internal Revenue Code of 1986, as amended (the "Code"), as a REIT. The
Company focuses on the ownership and operation of retail shopping centers,
primarily containing Wal-Mart Stores, Inc. ("Wal-Mart") as the principal anchor
tenant. At May 31, 1996, the Company owned and operated, indirectly through the
Partnerships, 22 properties containing approximately 4.4 million square feet of
leasable space. The Company is externally advised by PaineWebber Realty
Advisors, L.P., a Virginia limited partnership (the "Advisor"), and its
properties were, prior to June 27, 1996, externally managed by several
managers. See page 15 of this Proxy Statement for a diagram of the corporate
structure of the Company, the relationship of the Company to the Advisor and
the defined terms for certain related entities. At the present time, there is
no established public market for the resale of the shares of Common Stock. In
addition, secondary share trading has been temporarily suspended since May 17,
1996 in connection with the closing of the Sale into escrow and will be
reopened within two (2) weeks of the distribution to the Shareholders of this
Proxy Statement. The payment of regular quarterly dividends to Shareholders has
been suspended since the second quarter of fiscal 1994. For more information
regarding the Company, see the 1995 Form 10-K and the May 31, 1996 Form 10-Q,
both of which accompany this Proxy Statement. The Company's principal executive
offices are located at 1285 Avenue of the Americas, New York, New York 10019.
Its telephone number is (800) 225-1174. See "Information About the Company."
TERMS OF THE TRANSACTION
The Proposed Sale. The Board has approved the Transaction, including the
Sale, the Sale Agreement, a copy of which is attached hereto as Annex A, the
Liquidation and the Plan, a copy of which is attached hereto as Annex C.
Pursuant to the Sale Agreement, as amended through June 27, 1996, the Company
will sell to Glimcher its entire portfolio of properties, consisting of 22
retail shopping centers more fully described in the 1995 Form 10-K attached
hereto as Annex E (collectively with all personal property used in connection
therewith, the "Properties" and each, a "Property") for an aggregate purchase
price of $197,000,000. The Company and Glimcher had previously entered into the
Original Sale Agreement on March 11, 1996, providing for an aggregate purchase
price for the Properties of $203,000,000 and a 60-day due diligence period
during which Glimcher could notify the Company of any material engineering,
structural, environmental and/or title matters concerning the Properties and/or
material facts concerning the Assumed Indebtedness (as hereinafter defined),
the leases, tenancies or rents and/or prepayment of premiums on the Prepaid
Indebtedness (as hereinafter defined) (each, a "Material Concern"). As a result
of its due diligence, Glimcher raised several Material Concerns during
<PAGE>
that period. Based on consideration of those Material Concerns and certain
other factors described herein, the Company and Glimcher agreed to a reduced
aggregate purchase price for the Properties of $197,000,000. See "The
Transaction--Background of the Transaction."
On June 27, 1996 (the "Escrow Closing Date"), the parties closed the Sale
into escrow by delivery to Lawyers Title Insurance Corporation (the "Closing
Escrow Agent") of a portion of the purchase price (not including that portion
representing assumption of indebtedness) in the form of four (4) irrevocable
letters of credit, instruments of transfer and assignment and other customary
closing documents. On the Escrow Closing Date, Glimcher assigned all of its
right, title and interest under the Sale Agreement to GPLP, though Glimcher
remains primarily liable for its obligations under the Sale Agreement. GPLP
began managing the Properties on the Escrow Closing Date, subject to certain
approval rights of the Company, pursuant to an Exclusive Commercial Property
Management Agreement by and among the Company, Glimcher and GPLP (the
"Management Agreement"). Immediately upon fulfillment (or waiver) of the
conditions set forth in the Sale Agreement (including approval thereof by the
Shareholders) on or prior to October 31, 1996 (or such later date as may be
mutually agreed upon by the Sellers and Glimcher, the "Outside Date"), Glimcher
will prepay or assume all of the Company's mortgage indebtedness and will pay
all prepayment penalties, assumption fees and certain related closing costs,
and the Company will receive from the Closing Escrow Agent, net proceeds
estimated to be equal to $37,401,126 in the aggregate. As a result of the
Assignment, GPLP will become the owner of the Properties upon consummation of
the Sale. See "The Transaction--The Proposed Sale," "Summary of Certain
Agreements--The Sale Agreement," "Summary of Certain Agreements--The Closing
Escrow Agreement" and "Summary of Certain Agreements--The Management
Agreement."
The Proposed Liquidation. Immediately thereafter, the Company intends to
liquidate any remaining assets, pay or provide for the payment of all remaining
liabilities and distribute net proceeds of the Sale and of any disposition of
any remaining assets of the Company plus accumulated cash reserves, together
with any interest thereon, to the Shareholders in complete liquidation of the
Company. Based on an estimate of the Company's expenses and liabilities
remaining after consummation of the Sale, the Company anticipates that it will
make liquidating distributions to the Shareholders in an estimated amount of
$42,585,000 in the aggregate, or approximately $8.50 per share, by December 31,
1996. It should be noted, however, that these values are estimates and
represent the estimated liquidating distributions as of the date of this Proxy
Statement, and that, pending completion of the Transaction, such values could
change. Under the Plan, if the Board deems it advisable for any reason, the
Company may at any time create a Liquidating Trust for the purpose of (i)
finally determining and satisfying or providing for all then remaining claims
of creditors and other liabilities of the Company and (ii) thereupon, making
liquidating distributions to the Shareholders of any remaining money, property
or assets. Upon transfer to the Liquidating Trust of all of the Company's
remaining assets, each of the Shareholders would become a holder of a
beneficial interest in the Liquidating Trust equal to the portion that such
Shareholder then holds of the outstanding shares of Common Stock. In the event
a Liquidating Trust is created, the Board anticipates making, by December 31,
1996, a partial distribution of cash to the Shareholders representing a
substantial portion of the total anticipated distributions and a distribution
of beneficial interests in the Liquidating Trust representing the remainder of
the net assets of the Company. A vote to approve the Transaction constitutes
approval of the appointment by the Board of Fleet National Bank as trustee of
the Liquidating Trust and authorization of the transfer of all of the Company's
remaining assets to the Liquidating Trust. Following the adoption of the Plan
by the Shareholders at the Special Meeting, the Board may modify, amend, revoke
or abandon the Plan, or delay or revoke the dissolution of the Company, at any
time without Shareholder approval if it determines that such action will be in
the best interests of the Company or its Shareholders. The Plan will terminate
if the Sale Agreement is terminated without the Sale having occurred. See "The
Transaction--The Proposed Liquidation; Net Proceeds of the Transaction
Agreements" and "Summary of Certain Agreements--The Plan."
REQUIRED VOTE FOR APPROVAL OF THE TRANSACTION
A quorum being present, the affirmative vote by Shareholders holding more
than two-thirds of all the votes
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entitled to be cast on the Transaction is required to approve the Transaction.
Approval of the Transaction by the Shareholders is required under Virginia law
and the Restated and Amended Articles of Incorporation of the Company (as
amended from time to time, the "Articles of Incorporation") and is a condition
to consummation of the Sale pursuant to the terms of the Sale Agreement. See
"Summary of Certain Agreements--The Sale Agreement" and "The Special Meeting--
Vote Required to Approve the Transaction."
REASONS FOR TRANSACTION; RECOMMENDATION OF THE BOARD
The Board believes that the Transaction is fair to and in the best interests
of the Company and its Shareholders. The Board has unanimously approved and
adopted the Sale, the Sale Agreement, the Liquidation, the Plan and the
transactions contemplated thereby and unanimously recommends that the
Shareholders vote for the Transaction. The primary factors that the Board
considered in reaching the foregoing conclusions were:
(i) the Board's belief that ownership of the existing portfolio
represented a continued risk to Shareholders, given the historical
financial performance, condition and business operations of the Company;
(ii) the Board's belief that the strategic changes in Wal-Mart's
corporate growth plans, and the possible Wal-Mart relocations resulting
from such changes, jeopardized the Company's leasing status of its non-Wal-
Mart space, threatened the future ability of the Company to be profitable
and resulted in potential buyers attributing a higher leasing risk to the
Company's portfolio of Properties;
(iii) the refinancing risk to which the Company has been and would remain
subject in the event that it continued to hold its Properties for long term
investment purposes, including the risk that the terms of any such
refinanced debt might be significantly less favorable to the Company;
(iv) the likely impact on the Company's future performance of the
challenging economic conditions of the retail market, in general, and the
Company's exposure to its retailing tenants, in particular;
(v) the Board's belief that there appeared to be no feasible alternatives
available to the Company that were as likely in the near term to provide
significant market value appreciation, and the belief that the Company, as
a stand-alone entity, would likely experience continued difficulty in
accessing the capital markets on acceptable terms in the future;
(vi) the Board's belief, based in part on the formal bidding process and
analyses conducted by Lehman Brothers Inc., the Company's financial advisor
("Lehman"), that the Sale to Glimcher was the best offer reasonably
available for the Shareholders;
(vii) the likelihood that the undiversified portfolio of the Company
would command a higher aggregate price if sold in bulk rather than on an
individual basis; and
(viii) the terms of the Plan, the Sale Agreement and the structure of the
Sale, including its fixed price and the closing of the Sale into escrow
following completion of Glimcher's due diligence period, pending
Shareholder approval.
In making its recommendation, the Board also considered the opinion, analyses
and presentations of Lehman, including its oral opinion of February 27, 1996,
which was confirmed by a written opinion dated March 11, 1996, and its updated
oral opinion of May 14, 1996, which was confirmed in writing on the date
hereof, to the effect that, as of the date of such opinion, and based upon and
subject to certain matters stated therein, the consideration to be received by
the Company in the Sale was fair to the Company from a financial point of view.
See "The Transaction--Fairness Opinion of the Financial Advisor."
In addition, the Board considered several potentially negative factors in its
deliberations concerning approval of the Transaction and concluded that such
negative factors were not sufficient to outweigh the positive factors
considered by the Board in its deliberations. The negative factors considered
by the Board were as follows: the reduction of the aggregate purchase price for
the Properties from $203,000,000 to $197,000,000, the various conditions to
Glimcher's obligations to consummate the Sale, the use of letters of credit
rather than cash for the initial deposit and the escrowed portion of the
purchase price, restrictions under the Sale Agreement on solicitation of other
proposals, the possibility that the Company might be required to pay Glimcher a
termination
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fee of $4,000,000 in certain circumstances, the risk that the anticipated
benefits of the Sale to the Shareholders might not be realized as a result of
the uncertainty of the amount and timing of actual final liquidating
distributions to the Shareholders, the possibility that the Company might seek
to reduce its reporting requirements under the Exchange Act during the
liquidation process in order to reduce administrative costs and the potential
liability of Shareholders to return distributions made to them under certain
circumstances in the event that the Company would be insolvent after any such
distributions.
For a discussion of the circumstances surrounding the Transaction and the
reasons for the recommendation of the Board, see "The Transaction--Reasons for
Transaction; Recommendation of the Board" and "The Transaction--Background of
the Transaction."
FAIRNESS OPINION OF THE FINANCIAL ADVISOR
On February 27, 1996, Lehman delivered its oral opinion to the Board to the
effect that, as of such date, and based upon and subject to certain matters
stated therein, the consideration to be received by the Company in the Sale was
fair to the Company from a financial point of view. Lehman confirmed such
opinion in writing on March 11, 1996. In connection with the Board's
consideration of the Material Concerns raised by Glimcher and approval of
certain of the Amendments reducing the aggregate purchase price for the
Properties from $203,000,000 to $197,000,000, Lehman delivered an updated oral
opinion to the Board on May 14, 1996 and confirmed such updated opinion in
writing as of the date of this Proxy Statement, the full text of which
accompanies this Proxy Statement as Annex D. Lehman's opinion is directed to
the Board and addresses only the fairness from a financial point of view of the
consideration to be received by the Company pursuant to the Sale Agreement.
Lehman's opinion does not address any other aspect of the Transaction nor does
it constitute a recommendation to any Shareholder as to how to vote at the
Special Meeting. For a description of Lehman's opinion, including the
procedures followed, the matter considered and the assumptions made by Lehman
in arriving at its opinion, see "The Transaction--Fairness Opinion of the
Financial Advisor."
CONFLICTS OF INTEREST; INTEREST OF CERTAIN AFFILIATES IN THE TRANSACTION
In considering the recommendation of the Board to approve the Transaction,
the Shareholders should be aware that potential conflicts of interest exist
because certain executive officers of the Company (collectively, "Management")
and a member of the Board are also, or previously have been, affiliated with
PaineWebber (as defined in the footnotes to the diagram on page 15 hereof). The
Advisor provides various services to the Company in connection with the
management of the Company and the acquisition, management and disposition of
the Company's investments in exchange for various fees and reimbursements.
Affiliates of the Advisor also provide services to the Company in exchange for
fees and reimbursements, including certain accounting, tax preparation,
securities law compliance and investor communication and relations services;
cash management services; and consulting services related to mortgage loan
refinancings and acquisition due diligence activities.
Effective March 1, 1995, the Advisor and its affiliates agreed, in order to
maximize the Company's earnings and cash flow, to waive certain deferred fees
as well as certain fees that it may earn in the future. Except for fees paid
for cash management services, the Company does not expect the Advisor or its
affiliates will earn any fees above those already paid by the Company as a
result of the Transaction. In addition to the waiver of those service fees,
PaineWebber has agreed, in connection with the Transaction: (i) to forgive the
unsecured indebtedness of the Company to PaineWebber Properties Incorporated
("PWPI") with an outstanding principal balance of $1,136,000 as of June 1,
1996; (ii) to waive any rights to indemnification by the Company it may have
with respect to any action or class action that has been or may be asserted by
or on behalf of purchasers of securities offered by the Company relating to
conduct prior to April 1, 1996, including, without limitation, with respect to
the Class Actions (as defined below); (iii) to pay the fees of special counsel
retained by the directors of the Company who are not affiliated with
PaineWebber (the "Independent Directors") and certain other expenses associated
with the Transaction; (iv) to reimburse the Company for Lehman's fees and
expenses; (v) to assume certain responsibilities under the Sale Agreement,
including certain indemnification obligations of the Company
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<PAGE>
to Glimcher and the payment of certain expenses of Glimcher in certain
circumstances; and (vi) to indemnify the Independent Directors against certain
liabilities and expenses in the event coverage therefor is unavailable pursuant
to, and is denied under, certain insurance policies maintained by the Company
for the benefit of the Company's directors. Other potential conflicts of
interest exist because PaineWebber and its affiliates have provided financial,
advisory and investment banking services to Glimcher and have received fees for
the rendering of those services and may provide such services in the future.
Such services have included, without limitation, acting as lead underwriter for
the January 1994 initial public offering of $320,400,000 of common stock of
Glimcher and acting as co-manager of Glimcher's offering in June 1995 of
$73,500,000 of its common stock. PaineWebber also has provided Glimcher with
investment banking advice with regard to potential acquisition opportunities
and, in connection therewith, has discussed the possibility of providing
Glimcher with debt financing. Moreover, in the ordinary course of PaineWebber's
business, PaineWebber may actively trade the securities of Glimcher for its own
account and for the account of its customers and, accordingly, PaineWebber may
at any time hold long or short positions in such securities. See "The
Transaction--Conflicts of Interest; Interest of Certain Affiliates in the
Transaction" and "Summary of Certain Agreements--The Sale Agreement."
Because of these potential conflicts of interest, the Independent Directors
retained their own independent counsel and separately voted to approve the
Transaction. The Company believes that the Shareholders were not adversely
affected by any of the conflicts of interest outlined above.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is not covered by an opinion of counsel, nor did the
Company request a private letter ruling from the Internal Revenue Service (the
"IRS") with respect to any tax consequence of the Transaction. Accordingly, no
assurance can be given that the IRS will agree with the statements that appear
below.
The Sale will result in a tax gain of approximately $4,675,000 for the
Company. In addition, the Company will recognize income from discharge of
indebtedness in the amount of the forgiven balance of the unsecured loan from
PWPI ($1,136,000 as of June 1, 1996). However, as noted below, it is
anticipated that the Company will continue to qualify as a REIT through
December 31, 1996 and that the liquidating distributions made on or before
December 31, 1996 will eliminate any corporate level tax on such gain or
income.
If certain detailed conditions imposed by the REIT provisions of the Code are
met, entities such as the Company that invest primarily in real estate and that
otherwise would be treated for federal income tax purposes as corporations
generally are not taxed at the corporate level on their "real estate investment
trust taxable income" that is currently distributed to shareholders. This
treatment substantially eliminates the "double taxation" on earnings (i.e.,
taxation at both the corporate and shareholder levels) that generally results
from the use of corporations. Prior to the consummation of the Sale, the
Company has operated in a manner intended to allow it to qualify as a REIT. The
Company intends to operate following the Sale in a manner so that it will
continue to qualify as a REIT throughout the period of the Liquidation. If the
liquidation and dissolution of the Company are not completed by December 31,
1996, the Company does not anticipate that it will be able to continue to
qualify as a REIT in taxable year 1997. For that reason, the Plan provides that
final liquidating distributions, including distributions of beneficial
interests in a Liquidating Trust, will be made to the Shareholders by December
31, 1996. If, however, final liquidating distributions are not made by December
31, 1996 or the Company otherwise fails to qualify as a REIT in any taxable
year, the Company will be subject to federal income taxation as if it were a
domestic corporation, and the Company could be subject to potentially
significant tax liabilities which could reduce or eliminate cash available for
distribution to Shareholders. Unless entitled to relief under certain Code
provisions, the Company also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.
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<PAGE>
In the context of the liquidation of a REIT, the Code provides a special
rule, which will classify distributions in liquidation as dividends if certain
conditions are met. If a REIT is liquidated within the 24-month period
following the adoption of a plan of liquidation, distributions pursuant to such
plan will, to the extent of the distributing corporation's earnings and profits
for the year of the distribution, be treated as dividends for purposes of
computing the REIT's dividends paid deduction. Adoption of the Plan by the
Shareholders, which provides for the complete liquidation and dissolution of
the Company by December 31, 1996, will constitute adoption of a plan of
liquidation for this purpose, allowing the Company to take advantage of that
special rule. The rule further provides that, for purposes of determining a
REIT's dividends paid deduction, a REIT's earnings and profits for a taxable
year are to be increased by the total amount of gain recognized on the sale or
exchange of real property during that year. Thus, there should be sufficient
earnings and profits to allow distribution of such gain on sale to qualify as a
dividend. It is anticipated that the Company will have no REIT taxable income
as a result of the Liquidation under the rules described above.
The Company believes that liquidating distributions to Shareholders pursuant
to the Plan will be treated as distributions in complete liquidation of the
Company; that is, they will not be treated as dividends, but rather as if each
Shareholder had sold his or her shares of Common Stock. Gain or loss recognized
by a Shareholder will be capital gain or loss, provided the shares of Common
Stock are held by the Shareholder as capital assets. Any losses may be
recognized by a Shareholder only after the Company has made its final
liquidating distribution or after the last substantial liquidating distribution
is determinable with reasonable certainty. However, it is possible that pending
litigation, to which the Company is not a party but with respect to which the
Shareholders are potential beneficiaries, may delay the recognition of any
losses. The Company estimates that Shareholders will recognize a loss with
respect to their shares of Common Stock, exclusive of any recovery through the
pending litigation, in the range of $5.89 to $6.73 per share. See "The
Transaction--Certain Federal Income Tax Consequences" and "Information About
The Company--Certain Legal Proceedings."
For a more detailed discussion of the tax consequences of the Transaction,
see "The Transaction--Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
Upon the receipt of the requisite Shareholder vote to approve the Sale, the
Company will adopt the liquidation basis of accounting whereby all assets will
be carried at their estimated net realizable values and liabilities will be
stated at their estimated settlement amounts. See "The Transaction--Accounting
Treatment."
REGULATORY AND OTHER APPROVALS
The Company and Glimcher believe that the Sale may be consummated without
notification being given or certain information being furnished to the Federal
Trade Commission (the "FTC") or the Antitrust Division of the Department of
Justice (the "Antitrust Division") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and that no waiting
period requirements under the HSR Act are applicable to the Sale. However,
there can be no assurance that the consummation of the Sale will not be delayed
by reason of the HSR Act. At any time before or after consummation of the Sale,
the Antitrust Division or the FTC could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the consummation of the Sale. At any time before or after the
closing of the Sale, any state could also take such action under its own
antitrust laws as it deems necessary or desirable. Private parties may also
seek to take legal action under antitrust laws under certain circumstances.
The Company believes that, other than Shareholder approval, no further
approvals are necessary for consummation of the Sale, as all required consents
and estoppel certificates were obtained by the parties during the due diligence
period and were delivered into escrow on the Escrow Closing Date. See "The
Transaction--Regulatory and Other Approvals" and "Summary of Certain
Agreements--The Sale Agreement."
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DISSENTERS' RIGHTS
Under Virginia law, Shareholders who object to or vote against the
Transaction will not be entitled to any appraisal, dissenters' or similar
rights with respect to their shares of Common Stock.
ALTERNATIVES TO THE TRANSACTION
In the event the Sale is not consummated for any reason, the Company intends
to continue to pursue its business objectives of maximizing Shareholder value.
In addition, the Company may seek another strategic combination or a sale, in
one transaction or a series of transactions, of substantially all of its
assets. The Board believes there are no feasible alternatives to the Sale
available to the Company at the present time that are likely to result in
greater Shareholder value. In addition, if the Transaction is not approved by
more than two-thirds of all votes entitled to be cast, the Board does not
anticipate that the Company will be able to reinstate the regular payment of
quarterly dividends in the foreseeable future.
PRO FORMA FINANCIAL STATEMENTS
Unaudited pro forma financial statements are presented in this Proxy
Statement to illustrate the effect of certain adjustments to the Company's
historical financial statements that would result from: (i) the approval by the
Shareholders of the Sale Agreement and the Plan; and (ii) the consummation of
the Sale, pursuant to the Sale Agreement. The unaudited pro forma financial
statements do not reflect the final completion of the Liquidation, in
accordance with the terms of the Plan. The unaudited pro forma statement of net
assets in liquidation presents the net assets of the Company on a liquidation
basis as if the foregoing events had occurred as of May 31, 1996. The unaudited
pro forma statements of operations present the Company's net operating results
as if these events had occurred as of September 1, 1994. The unaudited pro
forma financial statements and related notes should be read in conjunction with
the Company's historical financial statements and notes thereto included in the
1995 Form 10-K and the May 31, 1996 Form 10-Q, attached to this Proxy Statement
as Annex E and Annex F, respectively. The unaudited pro forma financial
statements are not necessarily indicative of what the actual results of the
Company would have been assuming such events had been completed as of May 31,
1996 with respect to the pro forma statement of net assets in liquidation and
as of September 1, 1994 with respect to the pro forma statements of operations,
nor do they purport to represent the future results of the Company. See "Pro
Forma Financial Statements."
THE SALE AGREEMENT
General. On March 11, 1996, the Original Sale Agreement, which provided for
an aggregate purchase price for the Properties of $203,000,000, was executed
and delivered, and Glimcher delivered into escrow an initial deposit of
$2,000,000 in the form of an irrevocable letter of credit. For a period of 60
days following the execution and delivery of the Original Sale Agreement,
Glimcher conducted due diligence on the Properties. Glimcher had the ability to
terminate the Sale Agreement and to receive a refund of the deposit if its
diligence revealed any Material Concerns. Based on consideration of the
Material Concerns raised by Glimcher during that period and certain other
factors described herein, the Company and Glimcher agreed to reduce the
aggregate purchase price for the Properties from $203,000,000 to $197,000,000.
All Material Concerns raised by Glimcher during its due diligence period have
been resolved by mutual agreement of the Company and Glimcher pursuant to the
Amendments, and Glimcher no longer has the right to terminate the Sale
Agreement for any such Material Concerns. The Sale Agreement contains certain
representations and warranties made by the Sellers and by Glimcher that are
customarily made by sellers and purchasers, respectively, in transactions of
the type contemplated by the Sale Agreement. In addition, PaineWebber
Incorporated ("PWI"), which is a party to the Sale Agreement for the sole
purpose of binding itself to Glimcher with respect to its obligations as set
forth therein, also made certain representations and warranties. The
representations and warranties of the parties must be true and correct as of
the date of the Sale Agreement, as of the Escrow Closing Date and as of the
closing of the Sale. Under certain circumstances in the event the Sale is
consummated, PWI has agreed to indemnify
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Glimcher against any liabilities and expenses arising out of any inaccurate
representation or warranty made by the Sellers or PWI or as a result of the
Sellers not maintaining their legal existence and/or having the financial
ability to make the required post-closing adjustments or to satisfy certain
indemnification obligations relating to broker fees and commissions. Pursuant
to the Assignment, Glimcher assigned all of its right, title and interest under
the Sale Agreement to GPLP on the Escrow Closing Date, though Glimcher remains
primarily liable for its obligations under the Sale Agreement. As a result of
the Assignment, GPLP will become the owner of the Properties upon consummation
of the Sale.
Purchase Price. Pursuant to the Sale Agreement, the aggregate purchase price
for the Properties is $197,000,000, plus certain prepayment and assumption fees
and subject to adjustment as described below (the "Purchase Price"). On the
Escrow Closing Date, the Sellers, Glimcher, GPLP and the Closing Escrow Agent
entered into an agreement (the "Closing Escrow Agreement") governing the
delivery and release of the Purchase Price and the documents required to close
the transactions contemplated by the Sale Agreement. On such date, $81,221,009
of the Purchase Price (the "Escrowed Purchase Price") was deposited into escrow
with the Closing Escrow Agent in the form of four (4) irrevocable letters of
credit (the "Escrow Closing"). The balance of the Purchase Price will be paid
by the assumption of certain mortgage indebtedness of the Company. The amount
of the Escrowed Purchase Price was determined by subtracting from the Purchase
Price the principal balance of the indebtedness being assumed as of the Escrow
Closing Date and adding thereto prepayment premiums on all of the Sellers'
other mortgage indebtedness (which, pursuant to the Sale Agreement, will be
prepaid upon consummation of the Sale), assumption fees and certain of
Glimcher's closing costs. The Sellers have the ability to cause the Closing
Escrow Agent to draw on the letters of credit and, therefore, to hold all or a
portion of the Escrowed Purchase Price in immediately available funds. If the
Sellers cause the Closing Escrow Agent to draw on the letters of credit and
either the Sale is consummated or the Sale Agreement is terminated because of
the failure to receive the requisite approval of the Shareholders, PWI has
agreed to pay the amount by which Glimcher's actual interest expense on such
funds exceeds the amount of interest actually earned on such amount.
Acquisition Proposals. Unless and until the Sale Agreement is terminated in
accordance with its terms, the Sellers and PWI have agreed, either directly or
indirectly, not to solicit, initiate or knowingly encourage the submission of
any Acquisition Proposal. The Sale Agreement defines "Acquisition Proposal" as
(i) any proposal for a merger or other business combination involving the
Company or any other Seller or (ii) any proposal to acquire in any manner,
directly or indirectly, without limitation, by tender offer, exchange offer or
similar transaction, more than 15% of (a) the capital stock of the Company or
any other Seller which is a corporation, (b) the partnership interests of any
Seller which is a partnership or (c) the consolidated assets of the Sellers,
other than the transactions contemplated by the Sale Agreement.
Sellers may, however, participate in discussions or negotiations with, and
furnish information to, any third party in response to any unsolicited proposal
if the Board determines, based on the advice of legal counsel, that failure to
do so would reasonably be expected to violate the fiduciary duties of the Board
to the Shareholders. The Board may also disclose its position with respect to
any tender offer in accordance with applicable securities laws.
The Board may withdraw or modify its recommendation of approval of the Sale
Agreement, recommend or enter into an agreement with respect to a different
Acquisition Proposal or terminate the Sale Agreement if (i) an Acquisition
Proposal is communicated to the Company and (ii) the Board determines, based on
the advice of legal counsel, that such action is required in order to comply
with its fiduciary duties to the Shareholders. In the event the Board is
prepared to accept an Acquisition Proposal, the Board must notify Glimcher
forty-eight (48) hours prior to terminating the Sale Agreement or the Closing
Escrow Agreement, if applicable, and entering into a definitive agreement with
respect to such Acquisition Proposal.
Shareholder Approval. The Sale Agreement and the transactions contemplated
thereby must be approved by the affirmative vote of the Shareholders holding
more than two-thirds of all the votes entitled to be cast on such matters (the
"Required Shareholder Vote"), as a condition to consummation of the Sale under
the Sale
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Agreement. The Company agreed under the Sale Agreement to take all action
necessary (in accordance with applicable law and its organizational documents)
promptly to convene a special meeting of Shareholders to consider and vote upon
the approval of the Sale Agreement and the transactions contemplated thereby.
Furthermore, the Board is required to recommend approval of the Sale Agreement,
and the Company must use reasonable efforts to obtain such approval. However,
the Board is not required to take such actions if, based upon the advice of
legal counsel, such actions would reasonably be expected to violate the
fiduciary duties of the Board to the Shareholders. Failure to obtain
Shareholder approval of the Sale Agreement due to such fiduciary duties does
not constitute a default under the Agreement.
Termination After Escrow Closing. The Sale Agreement and the Closing Escrow
Agreement may only be terminated after the Escrow Closing Date for any one of
the following reasons: (a) by mutual written agreement of Glimcher and the
Sellers; (b) by Glimcher or the Sellers if any United States federal or state
court of competent jurisdiction or other governmental entity issues a final and
non-appealable order, decree or ruling or takes any other final and non-
appealable action, restraining or otherwise prohibiting the delivery or
recordation, as the case may be, of the documents deposited in escrow at the
Escrow Closing and/or the payment to the Sellers of the Escrowed Purchase
Price; provided that the party seeking to terminate uses its reasonable efforts
to appeal such order, decree, ruling or other action, unless such order,
decree, ruling or other action is against or with respect to the non-
terminating party, in which event no such reasonable efforts are required; (c)
by Glimcher or the Sellers if the Sale Agreement and the transactions
contemplated thereby fail to receive the Required Shareholder Vote; (d) by
Glimcher if an event of bankruptcy, receivership or other similar event of any
Seller occurs; (e) by the Sellers if an event of bankruptcy, receivership or
other similar event of Glimcher occurs; (f) by Glimcher or the Sellers, if the
Board (i) withdraws its recommendation to the Shareholders to approve the Sale
Agreement and the transactions contemplated thereby or (ii) recommends to the
Shareholders approval or acceptance of an Acquisition Proposal by a person
other than Glimcher; or (g) by Glimcher or the Sellers if no vote of the
Shareholders occurs on or before the Outside Date.
In the event the Sale Agreement is terminated pursuant to any of the above
provisions (and subject to the following paragraphs), (i) the Closing Escrow
Agent is required to deliver the Escrowed Purchase Price, together with all
interest thereon, to Glimcher, (ii) the documents deposited in escrow at the
Escrow Closing are required to be returned to the party that deposited the same
(or are to be destroyed if executed by more than one party), (iii) the
Management Agreement continues in full force and effect in accordance with the
terms thereof and (iv) the Sellers are required to reimburse Glimcher for Lease
Costs and Advances, as defined in the Management Agreement.
In addition, if Glimcher or the Sellers terminate the Sale Agreement pursuant
to provision (c) above, then PWI is required to pay Glimcher (i) one-half of
Glimcher's reasonable, documented, out-of-pocket, third party expenses (up to a
maximum payment under this subsection of $1,000,000) and (ii) to the extent the
Escrowed Purchase Price is held in immediately available funds as a result of
the Sellers' request that the Closing Escrow Agent draw on the letters of
credit held under the Closing Escrow Agreement, the amount by which Glimcher's
actual interest expense on such funds exceeds the interest actually earned on
such amount.
If Glimcher terminates the Sale Agreement pursuant to provision (d) above,
Glimcher is entitled to have the Escrowed Purchase Price returned, and the
Sellers are required to pay Glimcher $3,000,000 as liquidated damages and up to
an additional $500,000 as reimbursement for its reasonable and documented out-
of-pocket expenses. Similarly, if the Sellers terminate the Sale Agreement
pursuant to provision (e) above, the Sellers are entitled to receive out of the
Escrowed Purchase Price $3,000,000 as liquidated damages and up to an
additional $500,000 as reimbursement for the Sellers' reasonable and documented
out-of-pocket expenses.
Finally, if Glimcher or the Sellers terminate the Sale Agreement pursuant to
provision (f) above and, in the event of termination pursuant to subsection (i)
of such provision (f), the Company enters into a definitive purchase agreement
with respect to an Acquisition Proposal by a person other than Glimcher at any
time prior to
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six (6) months after the Outside Date, the Sellers are required to pay Glimcher
$4,000,000 as liquidated damages; provided, however, that, in the event of
termination pursuant to provision (f)(i) above, the Sellers are not required to
pay Glimcher and Glimcher will not be entitled to any such liquidated damages
in the event the Board reasonably determines that Glimcher is unlikely to be
able to perform any of its material obligations under the Sale Agreement in a
timely manner and provides an officer's certificate to Glimcher to that effect.
The Sale Agreement allocates to the Sellers the burden of proof in a challenge
by Glimcher that such standard has not been met by the Board. Glimcher's
performance of its material obligations under the Sale Agreement will be deemed
not to be able to be timely performed unless Glimcher is able to perform its
material obligations within fourteen (14) days after the Special Meeting. In
considering the ability to perform its obligations timely, the Sellers have no
obligation to postpone or otherwise reschedule the Special Meeting for any
reason whatsoever in order to enable Glimcher to perform its obligations under
the Sale Agreement in a timely manner. See "Summary of Certain Agreements--The
Sale Agreement."
THE CLOSING ESCROW AGREEMENT
The Closing Escrow Agreement provides for the administration and transfer of
documents and funds required by the Sale Agreement. The Closing Escrow Agent is
not paid a fee, but is entitled to reimbursement for its out-of-pocket storage
costs (of which the Company and GPLP are each liable for one-half), and if the
Closing occurs, will be paid by Glimcher for issuing title insurance policies.
Under the terms and conditions of the Closing Escrow Agreement, the Closing
Escrow Agent is only liable to the Sellers or Glimcher to the extent of loss or
damage caused by its acts of gross negligence and/or willful misconduct.
Pursuant to the Closing Escrow Agreement, the Sellers are required to notify
the Closing Escrow Agent and Glimcher that the Company has received the
Required Shareholder Vote. Thereafter, when the Company submits to the Closing
Escrow Agent an opinion of counsel, updated exhibits, notices to tenants and
contract vendors, a certificate from the transfer agent indicating that the
Company has received the Required Shareholder Vote and a notice of the amount
of cash flow in dispute, if any, under the Management Agreement, the Closing
occurs and the Closing Escrow Agent disburses the net proceeds of the Sale to
the Company. After such distribution, Glimcher is required to pay the Closing
Escrow Agent any deficiency required to satisfy in full the indebtedness being
prepaid (including all prepayment penalties and fees) and certain of Glimcher's
closing costs. When the Closing Escrow Agent has sufficient funds, it is then
authorized to complete the transaction by, among other things, paying in full
the holders of the indebtedness being prepaid, recording the deeds and any
other title documents, paying all transfer taxes and recording fees, disbursing
to Glimcher the balance of the Escrowed Purchase Price, disbursing to Glimcher
the cash flow from the Properties since May 14, 1996 less an amount required to
be held back as a result of disputes, if any, and notifying the Company and
Glimcher of any such held back amount. As a result of the Assignment, GPLP will
become the owner of the Properties upon the consummation of the Sale. See
"Summary of Certain Agreements--The Closing Escrow Agreement."
THE MANAGEMENT AGREEMENT
General Terms. The Management Agreement provides for GPLP to be appointed the
managing, collecting and exclusive leasing agent for the Properties as of the
Escrow Closing Date, subject to certain approval rights of the Company. The
Management Agreement became effective as of the Escrow Closing Date and
continues in full force and effect until the lapse of the Closing Escrow
Agreement or the earlier termination of the Sale Agreement (the "Initial
Term"). Upon the expiration of the Initial Term, the Management Agreement
continues in full force and effect on a month-to-month basis terminable by the
Company on 15 days written notice to GPLP and terminable by GPLP on 45 days
written notice to the Company. In addition, the Management Agreement may be
terminated upon the occurrence of certain other events set forth therein and
more fully described in this Proxy Statement.
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Compensation of GPLP. In general, GPLP receives compensation comparable to
that previously provided to the Company's former property managers. GPLP
receives a management fee equal to 3% of gross revenues, which consists of all
revenues received from (i) tenant rentals, (ii) cleaning, security and damage
deposits, if and when forfeited, (iii) payments by tenants for taxes, insurance
and maintenance expenses and (iv) vending machines and other miscellaneous
income. GPLP, however, does not receive any management fee for gross revenues
attributable to the first 30 days of the Initial Term. Though GPLP immediately
began to manage the Properties as of the Escrow Closing Date, the Company was
required to pay each of its former property managers a management fee for an
additional 30 days because their management agreements provided for termination
only upon 30 days prior written notice and because the Company did not give
such notice until the Escrow Closing. GPLP also receives a leasing fee equal to
(i) $1.50 per square foot for spaces newly leased of less than 20,000 square
feet, (ii) $1.00 per square foot for spaces newly leased of 20,000 square feet
or more and (iii) $0.75 per square foot for spaces the lease on which is being
renewed. No leasing fees are payable by the Company to GPLP during the Initial
Term; provided, however, that if such term should end without the purchase of
the Properties by Glimcher, then all leasing fees earned as of that date will
be immediately due. In the event that Glimcher does purchase the Properties,
Glimcher will earn an incentive management fee equal to the net cash flow of
the Properties attributable to the period commencing on May 14, 1996 and ending
on the date of expiration of the Initial Term. For purposes of the Management
Agreement, net cash flow is defined as revenues less actual expenses, including
but not limited to principal and interest payments on the Company's
indebtedness.
Termination Rights. The Company may terminate the Management Agreement if (i)
either GPLP or Glimcher fails to perform any material provision of the
Management Agreement, (ii) either GPLP or Glimcher is subject to a bankruptcy,
dissolution or other similar occurrence, (iii) GPLP engages in any act
constituting gross negligence with respect to its obligations under the
Management Agreement, (iv) GPLP commits an act of fraud or embezzlement, (v)
GPLP fails to provide the reports required to be furnished by the Management
Agreement or (vi) the Sale Agreement is terminated by reason of Glimcher's
default, and, in each case, GPLP or Glimcher, as the case may be, fails to cure
such condition within the applicable time period as set forth in the Management
Agreement. GPLP may terminate the Management Agreement if the Company fails to
perform any material provision of such agreement and the Company fails to cure
such condition within the applicable time period as set forth in the Management
Agreement.
Non-Competition. So long as the Management Agreement remains in effect, GPLP,
Glimcher and their affiliates must not solicit any of the Company's tenants for
any space within 7.5 miles of any of the Company's Properties, and each must
notify the Company of its intent to solicit tenants for or to own, manage,
lease or develop any property with 10 miles of any of the Properties. See
"Summary of Certain Agreements--The Management Agreement."
THE PLAN
Liquidating Distributions. Pursuant to the Plan, the proceeds of the Sale and
of any sale, exchange or disposition of any remaining assets, and any interest
or other return thereon, less costs of sale, the repayment of debt, any
provision for reserves and costs of liquidating the Company, will be
distributed to the Shareholders as soon as practicable after consummation of
the Sale, at such times and in such amounts as shall be determined by the
Board, in its sole discretion, but in no event later than December 31, 1996.
The proceeds of the Sale and of any sale, exchange or disposition of any
remaining assets will, pending any such liquidating distributions, be invested
by the Board in any manner it deems appropriate, subject to the limitation that
such investments do not result in the Company becoming an Investment Company
under the Investment Company Act of 1940.
All assets set aside for distribution that are not distributed because a
Shareholder cannot be located will be transferred to an appropriate custodian,
state official, trustee or other person authorized by law to receive
distributions for the benefit of such unlocated Shareholders.
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The amount and timing of any liquidating distributions will be determined by
the Board and will be contingent upon, among other things, the consummation of
the Sale and the amounts that the Board deems necessary or appropriate to set
aside for liabilities and continuing expenses of the Company. The Board
anticipates that liquidating distributions in an estimated amount equal to
$42,585,000 in the aggregate or approximately $8.50 per share will be made to
the Shareholders of the Company by December 31, 1996 in part because the
Company does not expect that it will be able to continue to qualify as a REIT
thereafter. See "The Transaction--Certain Federal Income Tax Consequences."
Nevertheless, the Board is unable to predict exactly when the Sale will be
consummated and therefore when any distributions will be made, and if made, the
precise amount that will be distributed to the Shareholders.
Liquidating Trust. If the Board deems it advisable for any reason, the
Company may at any time, in the Board's sole discretion and on behalf of the
Shareholders, create a Liquidating Trust by entering into a trust agreement
(the "Trust Agreement") for the purpose of (i) finally determining and
satisfying or providing for all then remaining claims of creditors and other
liabilities of the Company and (ii) thereupon, making liquidating distributions
to the Shareholders of any remaining money, property or assets. Concurrently
with the execution of the Trust Agreement, the Company would transfer and
assign to the trustees of the Liquidating Trust all of Company's right, title
and interest in and to all of its remaining assets. Effective upon such
transfer, each of the Shareholders, on such date or as of any record date
established in connection therewith, would become a holder of a beneficial
interest in the Liquidating Trust equal to the proportion that such Shareholder
held of the outstanding shares of Common Stock of the Company. The Board may
appoint Fleet National Bank to act as trustee of the Liquidating Trust. In the
event a Liquidating Trust is created, the Board anticipates making, by
December 31, 1996, (i) a partial distribution of cash to the Shareholders
representing a substantial portion of the total anticipated distributions and
(ii) a distribution of beneficial interests in the Liquidating Trust
representing the remainder of the net assets of the Company.
IT SHOULD BE NOTED THAT A VOTE TO APPROVE THE TRANSACTION ALSO CONSTITUTES
APPROVAL OF ANY SUCH APPOINTED TRUSTEE AND AUTHORIZATION OF THE TRANSFER OF ALL
OF THE COMPANY'S REMAINING ASSETS TO THE LIQUIDATING TRUST.
Amendments, Revocation and Termination. Following the adoption of the Plan by
the Shareholders at the Special Meeting, the Board may modify, amend, revoke or
abandon the Plan, or delay or revoke the dissolution of the Company, at any
time without Shareholder approval if it determines that such action will be in
the best interests of the Company or its Shareholders. The Plan will terminate
if the Sale Agreement is terminated without the Sale having occurred. See
"Summary of Certain Agreements--The Plan."
CERTAIN LEGAL PROCEEDINGS
A settlement was announced in January 1996 of a series of class actions (the
"Class Actions") filed against, among others, PWI and PaineWebber Group, Inc.
(together, the "PaineWebber Defendants") in connection with the sale of
interests in approximately 70 entities between 1980 and 1992, including shares
of Common Stock of the Company. Under the terms of such settlement, the
PaineWebber Defendants agreed to deposit $125,000,000 irrevocably in an escrow
fund to be used to resolve and settle the Class Actions in accordance with the
terms of a definitive settlement agreement and a plan of allocation, which the
parties expect to submit to the court for its consideration and approval within
the next several months. Upon final approval by the court of the definitive
settlement agreement and plan of allocation, it is anticipated that the court
will direct plaintiffs' counsel to distribute the $125,000,000 in escrowed
funds to the plaintiff class, subject to a deduction for attorneys' fees and
other expenses. The Company is not yet in a position to determine the amount of
the distribution on a per share basis that will be made to Shareholders as a
result of the settlement.
The Company is not a defendant in the Class Actions. In addition, PaineWebber
has waived any right it may have to indemnification by the Company in
connection with the Class Actions and any other action or class action that has
been or may be asserted by or on behalf of purchasers of securities offered by
the Company relating to conduct prior to April 1, 1996. As a result, the
Company will not be making any cash payments or
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other contributions to fund the settlement of the Class Actions. See
"Information About the Company--Certain Legal Proceedings."
THE SPECIAL MEETING
The Special Meeting will be held on October 16, 1996, at 9:00 a.m., local
time, at the offices of PaineWebber Properties Incorporated, 1285 Avenue of the
Americas, 38th Floor, New York, New York 10019. The purposes of the Special
Meeting are to consider and vote upon a proposal to approve and adopt the
Transaction (including the Sale, the Sale Agreement, the Liquidation and the
Plan and the terms thereof and the transactions contemplated thereby) and to
transact such other business as may properly come before the Special Meeting or
any adjournment or postponement thereof. See "The Special Meeting."
The Board has fixed the close of business on August 21, 1996 as the record
date for determination of Shareholders entitled to notice of and to vote at the
Special Meeting (the "Record Date"). Only Shareholders of record at the close
of business on the Record Date are entitled to notice of and to vote at the
Special Meeting or any adjournment or postponement thereof. As of such date,
the Company had issued and outstanding 5,010,050 shares of Common Stock, held
by approximately 5,917 Shareholders of record. The securities that can be voted
at the Special Meeting consist of issued and outstanding shares of Common
Stock, with each share entitling its owner to one vote on all matters. There is
no cumulative voting of shares. See "The Special Meeting--Record Date and
Outstanding Shares."
The by-laws of the Company (as amended from time to time, the "By-laws")
provide that the presence in person or by proxy of a majority of the
outstanding shares of Common Stock entitled to vote at the Special Meeting
shall constitute a quorum. Abstentions and broker non-votes (i.e., shares
represented at the Special Meeting held by brokers or nominees as to which
instructions have not been received from the beneficial owners or persons
entitled to vote such shares and with respect to which the broker or nominee
does not have discretionary voting power to vote such shares) will be treated
as shares that are present, or represented, and entitled to vote for purposes
of determining the presence of a quorum at the Special Meeting. A quorum being
present, the affirmative vote by Shareholders holding more than two-thirds of
all the votes entitled to be cast on the Transaction is required to approve the
Transaction. Under Virginia law, abstentions and broker non-votes on this
proposal have the same effect as votes AGAINST the Transaction.
Shareholders as of the Record Date may grant proxies by signing, dating and
mailing the proxy card accompanying this Proxy Statement. The shares of Common
Stock represented at the Special Meeting by properly executed proxies received
prior to or at the Special Meeting, and not subsequently revoked, will be voted
at the Special Meeting in accordance with the instructions contained therein.
IF A PROXY CARD IS RETURNED TO THE COMPANY AND NO SPECIFICATION IS MADE, A
PROXY WILL BE VOTED FOR THE TRANSACTION. IF SHAREHOLDERS DO NOT VOTE AT ALL,
THEIR SHARES WILL BE TREATED AS HAVING BEEN VOTED AGAINST THE TRANSACTION. A
Shareholder giving a proxy in the form accompanying this Proxy Statement has
the power to revoke the proxy prior to its exercise by (i) filing prior to the
Special Meeting a written notice of revocation bearing a later date than the
proxy with Linda Z. McDonald, Assistant Secretary, Retail Property Investors,
Inc., 265 Franklin Street, Boston, Massachusetts 02110, (ii) delivering to the
Company at or before the Special Meeting a duly executed proxy, relating to the
same shares of Common Stock, bearing a later date or (iii) attending the
Special Meeting and voting in person.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
TRANSACTION AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL
OF THE TRANSACTION. SEE "THE TRANSACTION--BACKGROUND OF THE TRANSACTION," "THE
TRANSACTION--REASONS FOR THE TRANSACTION; RECOMMENDATION OF THE BOARD" AND "THE
TRANSACTION--CONFLICTS OF INTEREST; INTERESTS OF CERTAIN AFFILIATES IN THE
TRANSACTION."
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THE TRANSACTION
The following discussion summarizes the material aspects of the Transaction,
as set forth in the Sale Agreement and the Plan. This summary is not intended
to be a complete description of the Sale Agreement or the Plan, and is subject
to, and qualified in its entirety by, reference to the Sale Agreement, the
Closing Escrow Agreement and the Plan, copies of which are attached hereto as
Annexes and incorporated herein by reference.
BACKGROUND OF THE COMPANY
The Company was originally organized as a finite-life, non-traded REIT for
the purpose of investing in a portfolio of retail shopping centers primarily
containing Wal-Mart as the principal anchor tenant. The Company raised
$100,201,000 in an initial public offering between October 1989 and December
1990 and completed the investment of the initial net offering proceeds during
its fiscal year ended August 31, 1993 with the acquisition of the last of its
22 retail shopping centers. These centers, which were financed with
approximately 75% leverage, contain approximately 4.4 million square feet of
leasable space. Of the total gross leasable square footage at the Company's
Properties, 49% is leased to Wal-Mart and its affiliates and 40% is leased to
other national and regional credit tenants, including Goody's and Food Lion.
The overall portfolio leasing level on an aggregate square foot basis was 98%
as of May 31, 1996. Each of the Properties is directly owned by one of the
four Partnerships and was, prior to the Escrow Closing, externally managed by
one of several managers. Pursuant to an advisory agreement (the "Advisory
Agreement"), the Company is externally advised by the Advisor, which provides
various services to the Company in connection with the management of the day-
to-day operations of the Company and the acquisition and the management and
disposition of the Company's investments. Certain members of Management and a
member of the Board are also, or previously have been, affiliated with the
Advisor. The corporate structure of the Company, the relationship of the
Company to the Advisor and the defined terms for certain related entities are
set forth on the following page.
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CORPORATE STRUCTURE OF THE COMPANY AND RELATED ENTITIES
[CHART AND FOOTNOTES APPEAR HERE]
[The Company is a publicly owned Virginia corporation. The Company is the
general partner, and PaineWebber Properties Incorporated, a Delaware
corporation("PWPI"), is the sole limited partner, of PaineWebber Retail Property
Investments, Ltd., a Texas limited partnership, PaineWebber College Plaza, L.P.,
a Texas limited partnership, and PaineWebber Marion Towne, L.P., a Texas limited
partnership. The Company is the managing venturer, and PWPI is the other
venturer, of PaineWebber Property Investments Joint Venture, a Texas joint
venture. PaineWebber Retail Property Investments, Ltd. owns the following
properties directly: Village Plaza, Cross Creek Plaza, Audubon Village, Cypress
Bay Plaza, Walterboro Plaza I & II, Piedmont Plaza, Artesian Square, Logan
Place, East Pointe Plaza, Barren River Plaza, Cumberland Crossing, Lexington
Parkway Plaza, Roane County Plaza, Applewood Village, Franklin Square, Aviation
Plaza, Crossing Meadows and Southside Plaza. PaineWebber College Plaza, L.P.
owns College Plaza directly. PaineWebber Marion Towne, L.P. owns Marion Towne
directly. PaineWebber Retail Property Investments Joint Venture owns the
following properties directly: Sycamore Square and Crossroads Centre.
PWPI is 100% owned by PaineWebber Incorporated, a Delaware corporation
("PWI"). PWI is 100% owned by PaineWebber Group Inc., a Delaware corporation
("PaineWebber Group"). PWPI is the general partner of PaineWebber Realty
Advisors, L.P., a Virginia limited partnership (the "Advisor"). PaineWebber
Group, PWI, PWPI and the Advisor are sometimes collectively referred to herein
as "PaineWebber." The Company entered into the Advisory Agreement with the
Advisor to provide various services to the Company in connection with the
management of the Company and the acquisition, management and disposition of the
Company's investments. The Advisory Agreement is renewable on an annual basis at
the discretion of the Board of Directors of the Company.]
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THE PROPOSED SALE
On March 11, 1996, the Sellers entered into the Original Sale Agreement with
Glimcher, pursuant to which the Sellers agreed to sell to Glimcher their
entire portfolio of Properties, consisting of 22 retail shopping centers. Upon
execution of the Original Sale Agreement, Glimcher delivered into escrow a
deposit of $2,000,000 in the form of an irrevocable letter of credit issued by
The Huntington National Bank with an expiration date of June 11, 1996, which
was extended to June 30, 1996 in accordance with the terms of the Amendments
(the "Deposit"). The Deposit was returned to Glimcher, and the Sale was closed
into escrow on the Escrow Closing Date by delivery to the Closing Escrow Agent
of the Escrowed Purchase Price equal to $81,221,009 in the form of four (4)
irrevocable letters of credit, instruments of transfer and assignment and
other customary closing documents. The Escrowed Purchase Price deposited into
escrow by Glimcher is equal to the Purchase Price under the Sale Agreement of
$197,000,000, plus $1,673,611 in assumption fees, prepayment penalties and
certain other closing costs to be paid by Glimcher and minus the outstanding
principal balance of certain indebtedness of the Company being assumed by
Glimcher in the amount of $117,452,602 (the "Assumed Indebtedness"). The
Company, as of the Escrow Closing Date, retained available cash and cash
equivalents of $6,382,000, a capital improvement reserve of $1,331,000 and
certain tenant-related accounts receivable of approximately $1,312,000.
Pursuant to the Assignment, Glimcher assigned all of its right, title and
interest under the Sale Agreement to GPLP on the Escrow Closing Date, though
Glimcher remains primarily liable under the Sale Agreement. As a result of
such Assignment, GPLP will become the owner of the Properties upon
consummation of the Sale.
On the Escrow Closing Date, the Sellers, Glimcher and GPLP entered into the
Management Agreement, pursuant to which GPLP began managing the Properties.
Pursuant to the terms thereof, GPLP is responsible for providing all necessary
property management and leasing services, maintaining all books and records in
connection with the Properties, collecting all rents and other revenues due to
the Company, paying all expenses related thereto and acting as the exclusive
leasing agent. Under the terms of the Management Agreement, GPLP receives
compensation comparable to that previously provided to the Company's former
property managers; namely, a management fee equal to 3% of gross revenues and
a leasing fee equal to between $1.50 and $0.75 per square foot, depending on
the square footage of the space leased and whether the lease is new or is
being renewed. Though GPLP immediately began to manage the Properties as of
the Escrow Closing Date, the Company was required to pay each of its former
property managers a management fee for an additional 30 days thereafter,
pursuant to their respective management agreements, which provide for
termination only upon 30 days prior written notice, because the Company did
not give such notice until the Escrow Closing Date. Accordingly, during the
first 30 days after the Escrow Closing Date, no management fees or leasing
fees are payable by the Company to GPLP. See "Summary of Certain Agreements--
The Management Agreement."
Assuming Shareholders approve the Transaction prior to the Outside Date, the
Sale will close immediately thereafter, unless one of the following events
occurs prior to the date of such approval: (i) a final and non-appealable
ruling or other action taken by any court or other governmental entity
enjoining the Sale or any of the deliveries or recordations necessary to
consummate the Sale; (ii) an event of bankruptcy, receivership or other
similar event of any of the Sellers or of Glimcher; (iii) a recommendation by
the Board to the Shareholders to approve an Acquisition Proposal by a person
other than Glimcher; or (iv) the withdrawal of the Board's recommendation to
the Shareholders to approve the Sale and the Sale Agreement. It is anticipated
that upon such closing, the Closing Escrow Agent will distribute to the
Company net proceeds estimated to be equal to $37,401,126 in the aggregate,
after assumption of the Assumed Indebtedness by Glimcher, prepayment of the
Company's remaining mortgage indebtedness with an outstanding principal
balance of $42,146,272 as of the Escrow Closing Date (the "Prepaid
Indebtedness") and payment by Glimcher of certain closing costs in connection
with the Sale. In addition, upon consummation of the Sale, Glimcher will earn
an incentive management fee equal to the net cash flow of the Properties
attributable to the period commencing on May 14, 1996 and ending on the date
of lapse of the Closing Escrow Agreement or the earlier termination of the
Sale Agreement. See "Summary of Certain Agreements--The Sale Agreement" and
"Summary of Certain Agreements--The Management Agreement."
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In the event that the Sale Agreement is terminated by the Sellers or
Glimcher because of the occurrence of any of the events described above,
because a meeting of the Shareholders is not held prior to the Outside Date or
because the Shareholders do not approve the Sale by the vote of two-thirds in
interest of the shares of Common Stock entitled to vote, (i) the Closing
Escrow Agent is required to deliver the amount of the Escrowed Purchase Price,
together with all interest thereon, to Glimcher, (ii) the documents deposited
in escrow are required to be returned to the party that deposited the same (or
destroyed if executed by more than one party), (iii) the Management Agreement
continues in full force and effect in accordance with the terms thereof on a
month-to-month basis, terminable by the Company on 15 days written notice to
GPLP and terminable by GPLP on 45 days written notice to the Company, and (iv)
the Sellers are required to reimburse Glimcher for certain Lease Costs and
Advances, as defined in the Management Agreement. Additionally, if the Sale
Agreement is terminated because the Company fails to obtain the requisite
Shareholder approval, the Company is not required to pay any liquidated
damages to Glimcher, but PWI is required to pay one-half of Glimcher's
reasonable, documented, out-of-pocket, third party expenses (up to a maximum
payment of $1,000,000) and to reimburse Glimcher for the amount by which
Glimcher's actual interest expense on the portion of the Escrowed Purchase
Price held in immediately available funds exceeds the interest actually earned
on such amount. In the event of the bankruptcy, receivership or other similar
event of either party, the other party is entitled to receive $3,000,000 as
liquidated damages and up to an additional $500,000 as reimbursement for its
reasonable and documented out-of-pocket expenses. If the Sale Agreement is
terminated because the Board (x) recommends to the Shareholders approval of an
Acquisition Proposal by a person other than Glimcher or (y) withdraws its
recommendation to the Shareholders of approval of the Sale Agreement and the
Company enters into a definitive purchase agreement with respect to an
Acquisition Proposal by a person other than Glimcher at any time within six
(6) months of the Outside Date, the Sellers are required to pay Glimcher
$4,000,000 as liquidated damages, subject to certain conditions more fully
described below. Finally, in the event of a default by either party under the
Sale Agreement or the Closing Escrow Agreement, the non-defaulting party may
elect, as its sole and exclusive remedy, either to terminate the Sale
Agreement and receive $3,000,000 as liquidated damages and up to an additional
$500,000 as reimbursement for its reasonable and documented out-of-pocket
expenses or to seek specific performance. See "Summary of Certain Agreements--
The Sale Agreement" and "Summary of Certain Agreements--The Closing Escrow
Agreement."
THE PROPOSED LIQUIDATION; NET PROCEEDS OF THE TRANSACTION
The activities of the Company after consummation of the Sale will
principally include (i) the collection or disposition of any remaining assets,
(ii) the temporary investment of the proceeds of the Sale and of any
disposition of any remaining assets of the Company pending completion of the
Liquidation, (iii) the discharge or making provision for the discharge of any
remaining liabilities of the Company and (iv) the distribution of the net
proceeds of the Sale and of any disposition of any remaining assets of the
Company plus accumulated cash reserves, together with any interest thereon, to
the Shareholders in complete liquidation of the Company by December 31, 1996.
See "Summary of Certain Agreements--The Plan." Prior to any such liquidating
distribution to the Shareholders, the Company will use the net proceeds of the
Sale and of the disposition of any remaining assets and accumulated cash
reserves to satisfy the remaining outstanding liabilities of the Company,
including the costs and expenses incurred by the Company in connection with
the Transaction. Before final liquidating distributions of the Company's
assets to the Shareholders, the Common Stock will continue to be transferable
and the Shareholders will continue to have such rights as applicable law
confers upon shareholders. In addition, the Company anticipates that, during
the Liquidation, the shares of Common Stock will remain registered under the
Exchange Act, and the Company will continue to comply with the reporting
requirements thereunder.
Under the Plan, if the Board deems it advisable for any reason, the Company
may at any time create a Liquidating Trust by entering into a Trust Agreement
for the purpose of (i) finally determining and satisfying or providing for all
then remaining claims of creditors and other liabilities of the Company and
(ii) thereupon, making liquidating distributions to the Shareholders of any
remaining money, property or assets. Upon transfer to the Liquidating Trust of
all of the Company's right, title and interest in and to all of its remaining
assets, each
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of the Shareholders would become a holder of a beneficial interest in the
Liquidating Trust equal to the portion that such Shareholder then holds of the
outstanding shares of Common Stock. A vote to approve the Transaction
constitutes approval of the appointment by the Board of Fleet National Bank as
trustee of the Liquidating Trust and authorization of the transfer of all of
the Company's remaining assets to the Liquidating Trust. See "Summary of
Certain Agreements--The Plan--Liquidating Trust."
Following the adoption of the Plan by the Shareholders at the Special
Meeting, the terms of the Plan provide that the Board may modify, amend,
revoke or abandon the Plan, or delay or revoke the dissolution of the Company,
at any time without Shareholder approval if it determines that such action is
in the best interests of the Company or its Shareholders. The Plan terminates
if the Sale Agreement is terminated without the Sale having occurred.
The Board anticipates that the net proceeds of the Sale and the Liquidation
will result in the full satisfaction of the Company's outstanding prior debts
to creditors. Based on estimated Sale-related expenses of approximately
$2,585,000, capital expenditure commitments of approximately $800,000 and
Liquidation-related expenses of approximately $643,000, the Company
anticipates that it will make liquidating distributions to the Shareholders in
an estimated amount of $42,585,000 in the aggregate, or approximately $8.50
per share, by December 31, 1996. The Board, therefore, does not currently
intend to reserve any amount as of the date of any liquidating distribution
for potential contingent claims that may arise against the Company after the
date hereof. In the event a Liquidating Trust is created, the Board
anticipates making, by December 31, 1996, (i) a partial distribution of cash
to the Shareholders representing a substantial portion of the total
anticipated distributions and (ii) a distribution of beneficial interests in
the Liquidating Trust representing the remainder of the net assets of the
Company. It should be noted, however, that these values are estimates and
represent the estimated liquidating distributions as of the date of this Proxy
Statement, and that, pending completion of the Transaction, such values could
change. In addition, estimates of costs, expenses and reserves for contingent
liabilities may not prove accurate. In particular, the Board may establish
reserves for any claim against the Company arising between the date hereof and
the date of any liquidating distribution to the Shareholders in accordance
with its obligations to do so under Virginia law. As a result of these and
other factors, the aggregate amount of any liquidating distributions pursuant
to the Plan may be materially lower.
REASONS FOR TRANSACTION; RECOMMENDATION OF THE BOARD
At a special meeting of the Board held on February 27, 1996, Management and
the Company's legal and financial advisors made presentations concerning the
business and prospects of the Company and the potential Sale of the Company to
Glimcher. The Board also reviewed the terms of the Original Sale Agreement
with Management and the Company's legal and financial advisors. After further
consideration, the Board unanimously approved the Sale, the Original Sale
Agreement and the transactions contemplated thereby. On April 23, 1996, the
Board held another special meeting, among other reasons, to approve the Plan
and the Liquidation pursuant thereto. At such meeting, the Board reviewed with
Management and the Company's legal and financial advisors the events since its
meeting on February 27, 1996 and the terms of the proposed Liquidation and the
Plan. Following such discussion, the Board unanimously approved the
Liquidation, the Plan and the transactions contemplated thereby. During the
due diligence period provided to Glimcher under the terms of the Original Sale
Agreement, Glimcher notified the Company of certain Material Concerns it had
with respect to its due diligence. During the period from completion of
Glimcher's due diligence on May 10, 1996 through the Escrow Closing Date, the
Board held several special meetings to review with its legal and financial
advisors the final negotiations between the parties and the terms of the
Amendments to the Sale Agreement. In particular, on May 14, 1996, after
consideration of the Material Concerns raised by Glimcher and certain other
factors described herein, the Board approved an Amendment reducing the
aggregate purchase price for the Properties from $203,000,000 to $197,000,000.
BY UNANIMOUS VOTE, THE BOARD DETERMINED THAT THE TRANSACTION IS FAIR TO, AND
IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS, APPROVED AND
ADOPTED THE SALE, THE SALE AGREEMENT (AS AMENDED), THE LIQUIDATION, THE PLAN
AND THE TRANSACTIONS CONTEMPLATED THEREBY, AND RESOLVED TO RECOMMEND THAT THE
SHAREHOLDERS APPROVE THE TRANSACTION. See "--Background of the Transaction."
In making its determination with respect to the Transaction, the Board
considered a number of factors, including, without limitation, the factors
listed below (all of which the Board deemed to support approval of the
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Transaction). In view of the wide variety of factors considered by the Board,
the Board did not quantify or otherwise attempt to assign relative weights to
the specific factors considered in making its determination:
(i) information relating to the financial performance, condition and
business operations of the Company. The Board noted that the Company has
generated net book losses since its fiscal year ended August 31, 1992, has
not paid dividends since the second quarter of fiscal 1994 and, with its
Properties financed with approximately 75% leverage, has a generally high
level of debt. Because of the uncertainty related to the portfolio's
performance, the Board believed that ownership of the existing portfolio
represented a continued risk to Shareholders.
(ii) increasing exposure of the Company to the risk that Wal-Mart will
relocate from its existing stores at the Properties, threatening the long-
term prospects of the Company. Since the Company's inception, Wal-Mart has
significantly changed its prototype store concept, requiring larger stores
with additional expansion space to accommodate increasing per store sales
volume. In addition, Wal-Mart had begun building "supercenters," each of
which contains up to 200,000 square feet and includes a grocery store
component in addition to a Wal-Mart discount store. This practice reflects
a recent trend among retailers to maximize selling areas and reduce costs
by constructing supercenters or by emphasizing larger properties and
closing smaller stores. The Board noted that, as a result, Wal-Mart had
delayed an anticipated expansion at Cross Creek Plaza in order to re-
evaluate its prototype store requirements in that market area and was
expected (at the time of the Board's initial deliberations) to vacate its
existing stores at Audubon Village, Applewood Village and Piedmont Plaza.
The Board was concerned that there could be additional Wal-Mart relocations
as a result of this trend toward supercenter construction, which would
adversely affect certain of the Properties over the course of the next
several years. In the event Wal-Mart were to vacate any of the Properties,
it would remain obligated to pay rent and its share of operating expenses
through the remaining terms of the leases, which have scheduled expiration
dates between the years 2007 and 2012. Unless a suitable replacement anchor
tenant could be located, however, the Board recognized that such a
relocation of a Wal-Mart store would have a long-term negative impact on
renewals by other tenants and on the long-term performance of the affected
shopping center. In addition, certain tenants of the Properties have co-
tenancy clauses in their lease agreements which stipulate that if the Wal-
Mart anchor space is vacant, those tenants are entitled to pay a reduced
amount of rent and, in some cases, retain the right to terminate their
lease agreements. The Board believed that the strategic changes in Wal-
Mart's corporate growth plans, and the possible Wal-Mart relocations
resulting from such changes, jeopardized the Company's leasing status of
its non-Wal-Mart space, threatened the future ability of the Company to be
profitable and resulted in potential buyers attributing a higher leasing
risk to the Company's portfolio of Properties.
(iii) the refinancing risk to which the Company has been and would remain
subject in the event that it continued to hold its Properties for long term
investment purposes. All but three of the Company's loans have terms that
expire prior to the end of its fiscal year ending August 31, 2002.
Consequently, the Board noted, the Company would continue to face the
refinancing risk associated with mortgage loans that had already been
refinanced (in connection with which the Company paid approximately
$1,500,000 in closing costs) as well as with significant new loan
maturities in the short-term. Specifically, the aggregate balloon principal
payments required on the Company's debt maturing (i) in calendar year 1996
is $13,477,388 and (ii) in calendar year 1997 is $28,127,661. The Board
also noted that the Company was exposed, through these refinancings as well
as through its floating interest rate indebtedness, to increases in
interest rates, which would (absent interest rate protection or cap
agreements) adversely affect the Company's net income, FFO and cash
available for distribution. Though the Company has obtained commitments for
the renewal of the 1996 loans through March 31, 1997, the Board noted that
there were no assurances that the Company would be able to refinance the
majority of the debt scheduled to mature in the next few years, and that
the terms of any such renegotiated or refinanced debt might be
significantly less favorable to the Company.
(iv) information relating to current industry, economic and market
conditions in general, the conditions of the retail market in particular,
the Company's credit exposure to its retailing tenants and the prospects of
the Company. The Board noted the differences in the retailing market in
1989 as compared to today, and the likely future trends in retailing. All
of the Company's Properties consist of retail shopping centers
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catering to retail tenants, and, therefore, the Company's performance is
linked to economic conditions of the market for retail space generally. In
this regard, the Board noted that the market for retail space has been
adversely affected by the ongoing consolidation in the retail sector, the
adverse financial condition of certain large companies in this sector and
the excess amount of retail space in certain markets. To the extent that
these conditions continue to impact the market rents for retail space, the
Board recognized that such conditions could result in a reduction of net
income, FFO and cash available for distribution. Moreover, since
substantially all of the Company's income is derived from rental income
from retail shopping centers, the Board noted that the Company's net
income, FFO and cash available for distribution would also be adversely
affected if a significant number of the Company's tenants were unable to
meet their obligations to the Company or if the Company were unable to
lease, on economically favorable terms, a significant amount of space in
its shopping centers. The Board noted that sales were weak both for general
merchandise and specialty retailers and that a tenant of the Properties
might experience a downturn in its business, which could weaken its
financial condition and result in a reduction in or failure to make rental
payments when due. With weak sales and eroding margins, the Board
recognized that cost cutting has become a top priority for all discount
retailers, and underperforming stores are being closed. The Board believed
that the continuing weakness in the retail market would have a negative
impact on the Company's performance in the future.
(v) the possible alternatives to the Sale for enhancing Shareholder
value, such as raising additional capital and acquiring new properties. In
this regard, the Board noted that there appeared to be no feasible
alternatives available to the Company that were as likely in the near term
to provide significant market value appreciation. The Board further noted
the Company's earlier recapitalization efforts in 1993 and 1994 and
concluded that the Company, as a stand-alone entity, would likely
experience continued difficulty in accessing the capital markets on
acceptable terms in the future. Because of these factors, the Board
concluded that it was unlikely that an offering of the Company's securities
would be successful. In light of the declining business prospects of the
Company, the conditions of the retail market in general and the extensive
analysis conducted by Management, the Board and the Advisor with respect to
strategic options available to the Company, the Board decided that the
Transaction represented the best available course of action for the Company
and its Shareholders.
(vi) the Board believed that the Sale to Glimcher was the best offer
reasonably available for the Shareholders. The Board noted that there were
no other prospective purchasers that had both the financial ability to
complete the transaction and the willingness to pay an aggregate fixed
purchase price for the Properties greater than that to be paid by Glimcher.
In seeking to maximize value to the Shareholders, the Company and Lehman
solicited the interest of nearly 50 investor groups for potential strategic
scenarios for the Company (including mergers and sales of assets), screened
prospects, received and reviewed seven (7) preliminary indications of
interest and solicited revised indications of interest in November 1995.
Three (3) definitive proposals were submitted in December 1995, all of
which were indications to buy the Company's entire real estate portfolio.
Out of the three (3) proposals, Glimcher's proposal offered the highest
fixed gross purchase price and corresponding estimated value to
Shareholders. After review of these bids and an analysis of other options
available to the Company, the Board unanimously selected Glimcher as the
final bidder at its meeting on December 21, 1995. In connection with the
Board's consideration of the Material Concerns raised by Glimcher during
its due diligence period and the associated $6 million reduction in the
Purchase Price for the Properties, the Board considered re-soliciting
interest in the Company's portfolio from other prospective purchasers.
After advice from Lehman, the Board decided against a re-solicitation, in
part, due to concerns that such other prospective purchasers, if re-
solicited, might consider the portfolio to be damaged. Moreover, the Board
concluded, based on the Advisor's analysis, that certain of the Material
Concerns identified by Glimcher would most likely have a negative impact on
the value of the portfolio and could also be raised by other prospective
purchasers should interest in the Company's portfolio be re-solicited from
them. The Board concluded, based on these concerns and other factors more
fully described herein, that the Sale to Glimcher at the reduced purchase
price of $197,000,000 was still the best offer reasonably available for the
Shareholders. See "--Background of the Transaction."
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(vii) the fact that the Company's portfolio consists of only one property
type. Because the Company's portfolio is undiversified, the Board believed
that the portfolio would be attractive to other REITs and, therefore, would
most likely command a higher aggregate price if sold in bulk rather than on
an individual basis. If the Properties were sold piecemeal, the liquidation
period would be greatly extended. Given the known risks of the retail
market, Wal-Mart relocations and refinancing of the Company's indebtedness,
the Board noted that the ownership and maintenance of the portfolio over an
extended period would present additional risks to Shareholder value. The
Board believed that the Company would incur material incremental expenses
if the Company were liquidated by selling the Properties on an individual
basis, including the high costs associated with operating a public REIT
with fewer and fewer assets. This belief was substantiated by the fact that
all indications of interest received during the extensive bidding process
conducted by Lehman were indications of interest in purchasing the
Company's entire portfolio, except Glimcher's original bid for 14 of the
Properties, which was subsequently revised to include the entire portfolio.
(viii) the terms of the Plan, the Sale Agreement and the structure of the
Sale, including the fixed purchase price and the closing of the Sale into
escrow immediately following completion of Glimcher's due diligence period,
pending Shareholder approval. In this regard, the Board noted that the
terms of the Sale Agreement satisfied its concerns to avoid a formula
purchase price and adjustments to the purchase price based on changes in
the operations of the Properties prior to consummation of the Sale. See
"Summary of Certain Agreements--The Sale Agreement" and "Summary of Certain
Agreements--The Plan."
(ix) the opinion, analyses and presentations of Lehman described below
under "--Background of the Transaction," to the effect that, on the date of
execution of the Original Sale Agreement (confirmed in writing on March 11,
1996) and on the date of the Board's approval of the Amendment reducing the
Purchase Price to $197,000,000 (confirmed in writing as of the date of this
Proxy Statement), the consideration to be received by the Company in the
Sale was fair to the Company from a financial point of view. The Board
viewed Lehman's opinion as favorable to its determination, in part, because
Lehman is an internationally recognized investment banking firm with
experience in the valuation of businesses and their securities in
connection with transactions similar to the Sale and in providing advisory
services for companies in the real estate industry. See "--Fairness Opinion
of the Financial Advisor."
The Board also considered the following potentially negative factors in its
deliberations concerning approval of the Transaction:
(i) the reduction of the aggregate purchase price for the Properties from
$203,000,000 to $197,000,000 and the various conditions to Glimcher's
obligations to consummate the Sale. The Board noted that Glimcher had 60
days after execution of the Original Sale Agreement to conduct due
diligence on the Properties. In that regard, the Board noted that Glimcher
had a right to terminate the Sale Agreement prior to the Escrow Closing
Date, pursuant to its terms, in the event it notified the Company of any
Material Concerns and the parties were unable to agree on a resolution of
any such matter. As more fully described herein, Glimcher raised several
Material Concerns during its due diligence period, in connection with which
the parties agreed upon certain Amendments to the Original Sale Agreement,
among other things, reducing the aggregate purchase price for the
Properties from $203,000,000 to $197,000,000. See "--Background of the
Transaction." Even after the Escrow Closing Date, the Sale Agreement could
be terminated upon the occurrence of any of the following events: (i) a
final and non-appealable ruling or other action taken by any court or other
governmental entity enjoining the Sale or any of the deliveries or
recordations necessary to consummate the Sale; (ii) an event of bankruptcy,
receivership or similar event of any of the Sellers or of Glimcher; (iii)
the failure of the Board to recommend to the Shareholders approval of the
Sale or the withdrawal of such recommendation and (iv) the failure to
obtain the requisite Shareholder vote by the Outside Date. The Board
recognized that there were no assurances that these conditions would in
fact be met. See "Summary of Certain Agreements--The Sale Agreement."
(ii) the use of letters of credit rather than cash for the Deposit and
the Escrowed Purchase Price, the effect of Glimcher's financial condition
on the ability of the Company to draw on the letters of credit and the
bankruptcy risk of the issuing banks. See "Summary of Certain Agreements--
The Sale Agreement--
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Purchase Price." In this regard, the Board noted the declining price per
share of Glimcher's common stock and evaluated the potential risk of the
issuing bank or other creditors of Glimcher attaching the funds held in
escrow for the benefit of the Company because of a default by Glimcher
under its credit facility or other obligations, thereby preventing the
Company from drawing on the letters of credit. In addition, the Board
recognized that the Company would be subject to the additional risk of a
potential bankruptcy of the issuing bank, which could cause the Company to
experience significant delays and to incur substantial costs in enforcing
its rights under the letters of credit. The Board noted, however, that the
Company had the ability under the terms of the Sale Agreement to cause the
Closing Escrow Agent to draw on the letters of credit.
(iii) the fact that, under the terms of the Sale Agreement, the Company,
PaineWebber and their directors, officers, employees, agents and
representatives, including Lehman, would be prohibited from soliciting,
initiating or knowingly encouraging the submission of a proposal of an
Acquisition Proposal and from participating in discussions or negotiations
with such other party unless the Board determined, based on the advice of
counsel, that such discussion or negotiation was required for the Board to
comply with its fiduciary duties to the Shareholders under applicable law;
Glimcher's right to notice at least 48 hours prior to the Board's
acceptance of an Acquisition Proposal by a person other than Glimcher; and
the possibility that the Company might be required, if the Sale Agreement
is terminated under certain circumstances, to pay Glimcher a termination
fee of $4,000,000 (approximately 2.0% of the transaction value). See
"Summary of Certain Agreements--The Sale Agreement--Acquisition Proposals."
The Board recognized that the inclusion of such provisions in the Sale
Agreement would render it less likely that a more attractive offer for the
acquisition of the Company would be presented to the Company and its
Shareholders; however, the Board believed that, based on its efforts to
find a buyer for the Company and Lehman's fairness opinion, the Sale
represented the best offer reasonably available to the Company and its
Shareholders. In addition, the Board found reasonable the views of its
advisors that a 2.0% termination fee was within the range of fees payable
in comparable transactions and that such a break-up fee was typically given
in comparable transactions in exchange for a fiduciary out provision.
(iv) the risk that the anticipated benefits of the Sale to the
Shareholders might not be realized as a result of the uncertainty of the
amount and timing of actual final liquidating distributions to the
Shareholders. The Board recognized that a number of factors could affect
the amount which would be distributed as liquidating distributions under
the Plan, including costs of the Liquidation and other matters, many of
which are beyond the control of the Company. As a result, there could be no
assurances as to the timing or amount of such liquidating distributions to
Shareholders. In addition, the Board noted that it might be necessary to
create a Liquidating Trust to provide for outstanding liabilities of the
Company, to which all of the Company's remaining assets would be
transferred. In that event, each Shareholder would receive a beneficial
interest in the Liquidating Trust in proportion to its holdings of the
outstanding shares of Common Stock. The Board noted that it could not
estimate when final distributions from any such Liquidating Trust might be
made. See "Summary of Certain Agreements--The Plan--Liquidating Trust."
(v) the effect of the Transaction on the registration of the Common Stock
under the Exchange Act. The Board anticipated that following the approval
of the Plan, the shares of Common Stock would remain registered under the
Exchange Act, and the Company would continue to comply with the
registration and reporting requirements under the Exchange Act until the
completion of the liquidation and dissolution of the Company. The Board
noted, however, that the Company might seek to reduce its reporting
requirements at some time during the liquidation process in order to reduce
administrative costs. Moreover, in the event that assets are transferred to
a Liquidating Trust, the Board recognized that the beneficial interests in
the Liquidating Trust received by the Shareholders would not be registered
under the Exchange Act, and that the Liquidating Trust might not be subject
to the full reporting requirements of the Exchange Act. Though the Board
did not anticipate that the Liquidating Trust would file the full range of
reports required under the Exchange Act, primarily in an effort to maximize
Shareholder value by minimizing costs of the Liquidating Trust, the Board
did intend that the Liquidating Trust would issue annual reports to the
holders of the beneficial interests in the Liquidating Trust and, when
warranted in the opinion of the trustee, interim reports.
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(vi) the potential liability of Shareholders. The Board noted that it
expects to provide adequately for all of the Company's liabilities prior to
distributing any of the net proceeds of the Sale or of any disposition of
any remaining assets of the Company to the Shareholders. In that regard,
the Board noted the ability of the Company to establish a Liquidating Trust
under the Plan. If, however, the Company would be insolvent after any
distribution to the Shareholders, the Board recognized that the
Shareholders receiving such distribution could, in certain circumstances,
be liable to return to the Company the amount causing the Company to be
insolvent, but not exceeding the total amount distributed in all of such
distributions.
In the view of the Board, the potentially negative factors considered by it
were not sufficient to outweigh the positive factors considered by the Board
in its deliberations relating to the Transaction.
In the event the Sale is not consummated for any reason, the Company intends
to continue to transact business as a REIT and to pursue its business
objectives of maximizing Shareholder value. The Company may seek another
strategic combination or a sale, in one transaction or a series of
transactions, of substantially all of its assets. In light of the general and
Company-specific retail market conditions affecting the business prospects of
the Company and the other reasons summarized above, the Board believes there
are no feasible alternatives to the Transaction available to the Company that
are likely to prevent further erosion of the Shareholders' equity or to result
in greater Shareholder value.
FOR THE REASONS SUMMARIZED ABOVE, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU
VOTE TO APPROVE THE TRANSACTION.
FAIRNESS OPINION OF THE FINANCIAL ADVISOR
The Board engaged Lehman as of May 12, 1995 to provide financial and
strategic advisory services to the Board regarding strategic options available
to the Company based upon Lehman's qualifications, experience and reputation.
At a telephonic meeting of the Board on February 27, 1996, Lehman rendered an
oral opinion to the Board that, as of such date, the consideration to be
received by the Company pursuant to the Sale Agreement is fair to the Company
from a financial point of view. Lehman subsequently confirmed its oral opinion
by delivery of a written opinion dated March 11, 1996 and updated its opinion
in connection with the Board's approval of the Amendments orally on May 14,
1996 and by delivery of a written opinion as of the date of this Proxy
Statement.
The full text of Lehman's written opinion dated as of August 23, 1996 is
attached as Annex D to this Proxy Statement and is incorporated herein by
reference. Shareholders may read Lehman's opinion for a discussion of
assumptions made, matters considered and limitations on the review undertaken
by Lehman in rendering the Lehman Opinion. The summary of Lehman's opinion set
forth in this Proxy Statement is qualified in its entirety be reference to the
full text of such opinion.
In arriving at its opinion, Lehman reviewed and analyzed (i) the Sale
Agreement and the specific financial terms of the Sale; (ii) publicly-
available information concerning the Company, including the Company's initial
public offering prospectus dated October 6, 1989 and all supplements attached
thereto, all of the Company's previously filed Annual Reports on Form 10-K,
all of the Company's previously filed Current Reports on Form 8-K and the
Company's Quarterly Report on Form 10-Q for the quarters ended November 30,
1995, February 29, 1996 and May 31, 1996; (iii) financial, operating and
market information with respect to the business, operations and prospects of
the Properties furnished to Lehman by the Company and by the Advisor; (iv) an
appraisal of the Properties as of December 31, 1994 performed by Arthur
Andersen LLP, Real Estate Services Group; (v) certain market information
obtained by Lehman from independent sources regarding conditions and trends in
the retail property real estate market generally as well as the retailing
industry, including the trading patterns of retail property REIT stocks and
the trading patterns and publicly available information of major retailing
companies (such as Wal-Mart and Kmart) and the largest retailing companies
that are tenants in the Company's portfolio (such as Wal-Mart, Goody's Family
Clothing, Inc., Cato Corporation and Winn Dixie); (vi) a comparison of the
financial terms (particularly average price per square foot and implied
capitalization rates)
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of the Sale with the financial terms of other retail property sale
transactions contained within the appraisals performed by Arthur Andersen LLP,
Real Estate Services Group; and (vii) the results of its efforts to solicit
proposals and offers from third parties with respect to a purchase of the
Properties and the amount and nature of the offers received from other
potential acquirers in the bidding process. In addition, Lehman had
discussions with the management of the Company and the Advisor concerning the
business, operations, financial conditions and prospects of the Properties and
undertook such other studies, analyses and investigations as it deemed
appropriate.
In arriving at its opinion, Lehman assumed and relied upon the accuracy and
completeness of the financial and other information used by it without
assuming any responsibility for independent verification of such information
and further relied upon the assurances of Management and the Advisor that they
were not aware of any facts that would make such information inaccurate or
misleading. In arriving at its opinion, Lehman did not conduct a physical
inspection of the Properties. Lehman's opinion is necessarily based upon
market, economic and other conditions as they exist on, and can be evaluated
as of, the date of its opinion.
No limitations were imposed by the Company on the scope of Lehman's
investigation or the procedures to be followed by Lehman in rendering its
opinion, except that, under the terms of the Sale Agreement, Lehman was
prohibited from soliciting the submission of any other Acquisition Proposal
following execution of the Original Sale Agreement, and therefore, Lehman did
not recontact any other potential acquirors. Lehman was not requested to and
did not make any recommendation to the Board as to the form or amount of the
consideration to be received by the Company in the Sale, which was determined
through arm's-length negotiations between the parties. In arriving at its
opinion, Lehman did not ascribe a specific range of value to the Company, but
made its determination as to the fairness, from a financial point of view, of
the consideration to be received by the Company in the Sale on the basis of
the financial and comparative analyses described below. Lehman's opinion is
for the use and benefit of the Board and was rendered to the Board in
connection with its consideration of the Sale. Lehman's opinion does not
constitute a recommendation to any Shareholder of the Company as to how such
Shareholder should vote with respect to the Sale. Lehman was not requested to
opine as to, and its opinion does not address, the Company's underlying
business decision to proceed with or effect the Sale or the allocation or use
of proceeds from the Sale.
In connection with the preparation and delivery of its opinion to the Board,
Lehman performed a variety of financial and comparative analyses, as
summarized below. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Furthermore, in arriving at its fairness opinion, Lehman did not
attribute any particular weight to any analysis and factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Lehman believes that its analyses must
be considered as a whole and that considering any portion of such analyses and
of the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying its opinion.
In its analyses, Lehman made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of the Company. Any estimates contained in
these analyses are not necessarily indicative of actual values or predictive
of future result or values, which may be significantly more or less favorable
than as set forth therein.
Extensive Marketing and Auction Process. As more fully described in "--
Background of the Transaction," Lehman conducted an extensive marketing and
auction process for the portfolio. Specifically, Lehman contacted 49 investor
groups in several investment markets, including publicly traded REITs, private
investors, pension funds, pension fund advisors, insurance companies, real
estate funds and foreign investors to solicit indications of interest in the
Company and its portfolio. Of those 49 investors, 21 indicated further
interest and were sent information on the Company. Those investors were given
approximately nine (9) weeks to evaluate the materials and submit preliminary
indications of interest concerning several types of transactions, including
purchasing the Company, all of its assets or certain selected assets of the
Company. Lehman conducted three rounds of bidding, resulting in three final
bids offering a gross purchase price between $198,373,476 and $203,000,000.
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Internal Lehman Valuation. Lehman conducted an independent review and
performed an independent valuation of the Properties during September 1995,
prior to receiving any offers or indications of interest for the portfolio.
The valuation was based upon financial information provided by the Company and
market data obtained by third parties. A valuation of $203,665,713 was
obtained based upon derived capitalization rates and financial information of
the Company as of August 31, 1995.
Because the conditions in the retail sector continued to change subsequent
to the internal valuation performed by Lehman, Lehman believed it was
inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis, and accordingly made qualitative judgments concerning
the internal valuation. Such qualitative judgments included the state of the
retail industry, the likely trends in retailing, the adverse financial
condition of certain large companies in the retailing sector and the
increasing exposure of the Company to the risk that Wal-Mart would relocate
from its existing stores at the Properties because of the changing Wal-Mart
prototype store.
Analysis of Appraised Values. Lehman reviewed the appraisals of the
Properties performed by Arthur Andersen LLP, Real Estate Services Group as of
December 31, 1994 which valued the portfolio of 22 properties at $210,700,000.
In reviewing the appraisals, Lehman analyzed the assumptions which Arthur
Andersen LLP had used, the comparable sales transactions within the
appraisals, and considered the changes to the Properties subsequent to the
date of the appraisals, the change in the retailing sector subsequent to the
date of the appraisals and other factors Lehman deemed relevant.
In connection with evaluating the financial terms of other retail property
sales transactions, Lehman reviewed the nine property sales transactions
contained within the appraisals performed by Arthur Andersen Real Estate
Services Group. In evaluating the property sales transactions, Lehman focused
primarily on the Net Operating Income Capitalization Analysis. In general,
Lehman evaluated the capitalization rates derived by Arthur Andersen, which
for the nine property sales transactions ranged from 9.64% to 10.61% with an
overall average of 10.1%. In addition to the Net Operating Income
Capitalization Analysis, Lehman reviewed the sales price per square foot
figures also derived by Arthur Andersen, which for the nine property sales
transactions ranged from $18.40 to $72.18 per square foot with an overall
average of $47.34 per square foot. Lehman then reviewed each property sales
transaction and made qualitative judgments about the derived capitalization
rates and sales price per square foot. Specifically, Lehman considered the
trends in the credit ratings of the anchor tenants and other companies in the
retailing sector, the remaining terms of the anchor tenant leases, the change
in the retailing sector subsequent to the date of the appraisals and of the
comparable sale transactions and other factors Lehman deemed relevant.
Lehman noted that the overall average capitalization rate for the nine
property sales transactions was 10.1% versus 10.7%, which was the derived
capitalization rate for Glimcher's bid (calculated by using the net operating
income figures provided to Lehman by the Company, before income adjustments
made by Glimcher, divided by $197,000,000), and that the overall sales price
per square foot for the nine property sales transaction was $47.34 per square
foot, as compared to $45.55 per square foot for Glimcher's bid.
Because the conditions in the retail sector changed significantly between
the time the appraisals were performed in 1994 and the time of Lehman's review
in 1995, Lehman believed that it was inappropriate to, and therefore did not,
rely solely on the quantitative results of the appraisals, and accordingly
made qualitative judgments concerning the appraised values. Specifically,
Lehman considered the state of the retail industry, the differences in the
retailing market in 1994 as compared to today, the likely trends in retailing,
the adverse financial condition of certain large companies in the retailing
sector, the fact that four major retailers had recently filed for bankruptcy
and the fact that Moody's Investor Services had placed Wal-Mart debt under
review for a possible downgrade.
In arriving at its updated opinion on May 14, 1996 regarding the reduced
purchase price of $197,000,000 negotiated between the Company and Glimcher,
Lehman considered, in addition to the analyses discussed above, the market,
economic and other conditions as they existed on the date of the updated
opinion, including changes in the retail sector. Lehman also considered the
likelihood that other prospective purchasers would raise similar
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concerns as those expressed by Glimcher following the conclusion of Glimcher's
due diligence and, therefore, that it was unlikely a re-solicitation of other
prospective purchasers would result in a higher purchase price. Lehman
remained of the opinion that, as of the date of the updated opinion, the
consideration to be received by the Company pursuant to the Sale Agreement was
fair from a financial point of view.
Pursuant to an agreement dated as of May 12, 1995 (the "Engagement Letter"),
Lehman was retained until November 12, 1996 as the Company's sole and
exclusive financial advisor for the purpose of (a) providing financial and
strategic advisory services to the Board regarding recapitalization
alternatives and other strategic options available to the Company; (b)
providing financial and strategic advisory services to the Board regarding
merger, acquisition and sale opportunities for the Company or any of its
assets, including general business, financial and transaction feasibility
analysis; (c) identifying opportunities for the merger or sale of the Company
or any of its assets; (d) providing advice to the Board concerning
opportunities for such merger or sale of the Company or any of its assets,
whether or not identified by Lehman; and (e) as requested by the Board,
participating in negotiations concerning any merger or sale of the Company or
any of its assets. See "--Background of the Transaction." The Board retained
Lehman as its financial advisor based upon its experience, qualifications and
reputation. Lehman is a nationally recognized investment banking firm with
experience in transactions similar to the Sale and is familiar with the
Company and its business. As part of its investment banking business, Lehman
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, competitive biddings, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
Lehman does not beneficially own, nor has it ever beneficially owned, any
equity interest in the Company. Pursuant to the Engagement Letter, Lehman
receives a retainer fee of $25,000 per month. If the Sale occurs, Lehman is
entitled to receive a fee of $1,000,000 less any amounts it received as a
retainer. If the Sale does not occur, Lehman is entitled to receive a fee of
$250,000 less any amounts it received as a retainer. In either event, the
Company must also reimburse Lehman for its reasonable expenses, not to exceed
$100,000 without written approval, which are payable upon consummation of the
Sale. The Company has further agreed to indemnify Lehman for certain
liabilities that might arise out of the rendering of its opinion. See "--
Conflicts of Interest--PaineWebber Obligations" for a discussion of
PaineWebber's agreement to reimburse the Company for Lehman's fees and
expenses and any indemnification obligations of the Company under the
Engagement Letter.
BACKGROUND OF THE TRANSACTION
Throughout 1993, the Company pursued a potential acquisition of a private
real estate management company. As part of the proposed acquisition, it was
anticipated that the Company would simultaneously consummate an offering of
its Common Stock. In connection therewith, the Shareholders authorized, among
other things, the conversion of the Company to an infinite-life corporation
and the execution of a 2 for 1 reverse stock split. The Board, however,
unanimously voted at its meeting on December 7, 1993 not to conclude the
proposed acquisition based upon the terms and conditions then under discussion
and agreed that the Company should continue to pursue other strategic
alternatives.
During 1994, the Company sought to raise approximately $185,000,000 through
a secondary public offering. It was anticipated that the proceeds of this
offering would be used, among other things, to repay existing indebtedness and
to acquire additional properties. In connection with the proposed offering,
the Shareholders authorized, among other things, an increase in the number of
authorized shares of Common Stock to 50,000,000 and amendments to the
Company's Articles of Incorporation, reducing the percentage of Shareholders
necessary to approve a merger to a majority of outstanding shares of Common
Stock and redesignating the Common Stock into two series (this later amendment
would only become effective upon the completion of the secondary public
offering). By the end of 1994, however, because of, among other reasons, the
negative conditions of the public markets for REITs, the Board believed that
it was unlikely that the proposed equity offering would be successful, and
thereafter, the Board began exploring the Company's other various strategic
alternatives.
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In connection with its review of strategic alternatives, the Company
retained the law firm of Hutchins, Wheeler & Dittmar, A Professional
Corporation ("Hutchins Wheeler") in April 1995 to serve as special counsel to
the Independent Directors, because persons affiliated with the Advisor could
potentially be viewed as having conflicts of interest with the Company. The
Board noted that the Company was an externally-advised REIT and that its
executive officers and one of its directors were officers of its Advisor.
Moreover, the Company's regular outside counsel, Campbell & Riggs, also
represented PWPI. The Board ultimately decided to retain special independent
counsel in order to avoid existing conflicts of interest and conflicts that
may arise in the future.
On May 12, 1995, the Company retained Lehman as its exclusive financial
advisor for the purpose of providing financial and strategic advisory services
to the Board regarding the various alternatives available, including a
recapitalization and the sale of the Company or any of its assets. In an
effort to determine what alternatives were available to the Company to enhance
Shareholder value, Lehman contacted 49 potential investors in several
investment markets, including publicly traded REITs, private investors,
pension funds, pension fund advisors, insurance companies, real estate funds
and foreign investors, to determine their interest in the Company and its
portfolio. Of those 49 investors, 21 indicated further interest and obtained
information packages subject to confidentiality agreements. Those 21 investors
were given approximately nine (9) weeks to evaluate the materials and submit
preliminary indications of interest concerning several types of transactions,
including purchasing the Company, all of its assets or certain select assets
of the Company. On September 22, 1995, seven (7) bidders submitted preliminary
indications of interest for the Company. All of the proposals were indications
of interest from third parties to buy the Company's entire real estate
portfolio, except for a bid by Glimcher with a gross cash purchase price of
$126,351,230 that excluded eight (8) Properties with an appraised value of
$64,900,000. The six (6) other bids offered a gross purchase price between
$178,250,000 and $200,000,000 and a corresponding approximate value to
Shareholders of between $17,504,533 and $40,396,649. Two (2) of these
preliminary indications of interest included consideration to the Company in
the form of securities.
For purposes of comparison, Lehman prepared a formula to estimate the
approximate value to Shareholders of each of the indications of interest
received by the Company, based on various assumptions as to penalties, fees
and expenses provided by the Company. Pursuant to this formula, using
estimated amounts of certain expenses and fees provided to the bidders as of
September 1, 1995 and the terms of the bids, approximate value to Shareholders
is equal to the gross purchase price plus an estimated cash balance of
$7,000,000 minus the following: (i) indebtedness proposed to be assumed, (ii)
indebtedness proposed to be paid off, (iii) prepayment penalties to be paid by
the Company, (iv) assumption fees to be paid by the Company, and (v) estimated
closing costs.
On September 28, 1995, the Board met to consider the seven (7) bids which
had been received. All of these bids were below the independent appraisals of
the Properties previously prepared by Arthur Andersen LLP, Real Estate
Services Group of approximately $210,700,000 as of December 31, 1994. At that
meeting, Lehman made a presentation to the Board concerning the bidders and
their proposals. After discussion among the Board and the Company's legal and
financial advisors concerning those indications of interest, the Board
instructed Lehman to continue discussions with each of the bidders to clarify
certain aspects their bids and to request that they submit a new bid, which
would include a property-by-property valuation of the assets that the bidder
sought to acquire. On November 6, 1995, revised indications of interest were
received from five (5) of the original seven (7) bidders, including Glimcher,
two (2) other public REITs and two (2) privately held real estate companies;
the other two (2) original bidders removed themselves from the bidding process
prior to such date.
On November 10, 1995, a meeting of the Board was held to consider the bids
that had been received and the strategic options available to the Company. At
that meeting, Lehman made a presentation concerning the terms of the five (5)
revised indications of interest that had been received. The Advisor then made
a presentation concerning the Company's future operational and financial
strategies and reviewed with the Board certain financial models reflecting
potential results of various strategies. Among other strategies, the Board
discussed the liquidation of the assets of the Company over a period of
several years as opposed to a sale of the entire
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portfolio. The Board noted, among other factors, business and industry risks
involved in continuing to hold the portfolio and risks involved in selling the
portfolio. The Board concluded that it would be in the Shareholders' best
interests to proceed with the process of obtaining bids to acquire the Company
or its entire portfolio. The Board's conclusion was based, in part, on the
perceived risks associated with a long holding period in the then-current
retail environment, including the high costs of operating a public REIT with
few assets and the premium anticipated to be received for a bulk sale of the
Properties. The Board then discussed the revised indications of interest, the
bidders who submitted them and the ability of each bidder to close a
transaction with the Company.
At that meeting on November 10, 1995, the Board selected, from the five (5)
bids, three (3) finalists: (i) Glimcher, (ii) a privately held real estate
management company (the "Private Bidder") and (iii) a public REIT (the "Public
Bidder"). The Board based its selection of those three (3) finalists on, among
other factors, (i) the estimated value of each offer to the Shareholders and
(ii) the ability of each bidder to close a transaction. All five (5) revised
indications of interest submitted contemplated the acquisition of all 22
Properties or the stock of the Company and offered a gross purchase price
between $195,704,735 and $201,000,220. Though Glimcher's revised bid offered
the highest gross purchase price of the five (5) revised indications of
interest, it produced the lowest net equity to the Company because Glimcher's
revised bid contemplated the assumption of only two (2) mortgage loans and the
payment of all prepayment and assumption fees by the Company. At that point,
Glimcher had performed extensive due diligence, including certain site visits,
and was perceived by Lehman to have the ability to close a transaction. The
Private Bidder offered the highest estimated net value to Shareholders. The
Board believed there was little risk that the Private Bidder would renegotiate
the price because it had performed extensive due diligence by that point. The
Public Bidder submitted two proposals--one involving the exchange of Common
Stock for perpetual preferred stock of the Public Bidder and one involving an
all cash transaction with a gross purchase price of $198,373,476. The Public
Bidder had performed fairly extensive due diligence,
and Lehman advised the Board that it believed the Public Bidder had the
ability to close a transaction. The other public REIT that submitted a revised
indication of interest was rejected because the consideration to be received
for the sale included preferred convertible stock of the bidder with a below
market preferred dividend and because of the risk that the bid would be
renegotiated because such bidder had performed only minimal due diligence
prior to the date of its bid. In general, the Board viewed cash consideration
to be more favorable to the Company and its Shareholders than any of the stock
consideration offered by the various bids primarily because of concerns about
the issuing company, concerns regarding the security offered and because the
Board believed the interests of the Shareholders would be better served by
distributing cash proceeds so that the Shareholders would then be free to make
their own investment decisions as to where to invest such proceeds. The fifth
revised indication of interest, submitted by a private real estate developer,
was also rejected for a number of reasons, including, without limitation, the
following: (i) it offered the lowest gross purchase price and approximate
value to Shareholders of the five (5) revised indications of interest; (ii) it
required issuance of additional stock of the Company; (iii) it consisted of an
investment in the Company, with the current Shareholders remaining in place;
and (iv) it was contingent upon the bidder obtaining bank financing to close
the transaction. The Board requested that Lehman obtain two (2) bids from each
of the three (3) remaining bidders: one based on the Properties with the
current debt in place and a separate bid based on the delivery of all
Properties free and clear of any debt. In addition, at the Board's direction,
a preliminary purchase and sale agreement was drafted by the Company and sent
to each of the three (3) final bidders for comment.
In connection with those bids, the Board met again on December 4, 1995 with
Management, the Advisor and Lehman to discuss the draft of the purchase and
sale agreement prepared by counsel and the procedures that would be followed
upon receipt by the Company of the final bids. It was agreed that final bids
would be received by December 15, 1995, and Lehman would make a presentation
to the Board at its next meeting which was scheduled for December 21, 1995.
At the December 21, 1995 meeting, Lehman reported to the Board that it
believed all three (3) finalists were credible bidders with the capability to
close a transaction and had performed significant due diligence prior to
submitting their bids. Though the resulting three (3) final bids, in Lehman's
opinion, were fairly similar, the bid submitted by the Private Bidder was
significantly lower than the bids from Glimcher and the Public Bidder.
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Lehman disclosed that the bids based on the current indebtedness remaining in
place offered a gross all-cash purchase price ranging from $198,373,476 to
$203,000,000, with corresponding approximate value to Shareholders of between
$39,627,496 and $46,769,565, while bids based on the delivery of the
Properties free and clear of any indebtedness offered a gross all-cash
purchase price ranging from $200,000,000 to $203,000,000, with corresponding
approximate value to Shareholders of between $36,298,277 and $39,857,277.
According to Lehman, in both cases, Glimcher's bid was the highest. After
these final indications of interest were received and evaluated, Lehman
received on December 20, 1995, a revised bid by the Public Bidder offering an
adjustable purchase price based on a formula for net operating income and a
capitalization rate of 10.25%. The actual gross purchase price would be
determined based on such multiple of net operating income (calculated in
accordance with such formula) as of the closing date of the sale transaction.
The bid further provided that the Public Bidder would pay all prepayment
penalties but that the Company would pay approximately $840,000 to cover
assumption fees.
The Board discussed with Lehman at the December 21, 1995 meeting the basis
of the bids submitted by Glimcher and the Public Bidder and the specific
ability of each bidder to perform under a purchase and sale agreement. Lehman
indicated that there are several criteria that are significant in evaluating a
particular offer, including the purchase price, the level of due diligence
performed at the time the bid is submitted, the relative credibility of the
purchaser, the relative benefit of the transaction to the purchaser and the
current obligations of the purchaser that may affect its ability to perform.
Lehman noted that the purchase price offered by the Public Bidder was based
upon a formula using net operating income, while the Glimcher offer was for a
firm amount. The Board noted the inherent risk associated with a formula bid,
especially given the continuing decline in the prospects of the Company and
the long period of time between execution of a definitive agreement and
consummation of the Sale. The Board recognized that the actual amount of the
Public Bidder's bid could not be finally determined until the closing of the
Sale. In that regard, the Board believed that the bid by the Public Bidder was
more likely to be adjusted downward in light of its dependence on net
operating income numbers, which had not yet been verified by the bidder, and
the projected decrease in the net operating income of the Company. Though the
new bid by the Public Bidder indicated that, assuming net operating income of
$21,000,000, it would provide a cash purchase price of $204,878,048 (not
including prepayment penalties payable by the Public Bidder), the Company's
actual net operating income as determined using the formula contained in the
Public Bidder's bid was approximately $20,600,000. With the 10.25%
capitalization rate provided for in the bid, the Board noted that the Public
Bidder's bid actually offered a gross purchase price as of that date of
approximately $201,000,000, which when added to the approximately $2,500,000
in prepayment penalties that the Public Bidder agreed to pay, equaled an
aggregate purchase price of approximately $203,500,000. In comparison, the
Board estimated that Glimcher's bid actually offered an aggregate purchase
price of approximately $206,350,000, determined by adding to its $203,000,000
bid estimated prepayment penalties and assumption fees to be paid by Glimcher
of approximately $3,350,000. In connection with its advice, Lehman advised
that it believed Glimcher had also performed more due diligence than the
Public Bidder at the date of their bids. With respect to capacity to perform
and existing obligations of the bidders, Lehman indicated that Glimcher
appeared to have the ability to close a transaction without raising capital or
obtaining additional financing, while the Public Bidder's financing had not
yet been finalized and required the sale of certain assets by the Public
Bidder. In light of the issues raised above, as well as the Board's concerns
that the Glimcher might walk away from the deal if the process was delayed,
the Board decided to proceed with Glimcher's bid.
Following Lehman's presentation, Hutchins Wheeler then advised the Board as
to the members' duties as directors of the Company and summarized the process
by which the Board had reached the decision that the best strategic option for
the Company was the sale of the Properties. After further discussion among the
Board members, the Independent Directors first voted upon the bids and then
the entire Board voted upon the bids, with both votes unanimously resolving
that Glimcher was selected as the final bidder and that Management was
authorized to enter into negotiations with Glimcher for the execution of a
definitive purchase and sale agreement.
Negotiations with Glimcher focused primarily on the following issues: (i)
the length of the period from execution of the Original Sale Agreement during
which Glimcher would conduct its due diligence and have a
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right to terminate the agreement for certain issues raised by its due
diligence; (ii) Glimcher's ability to terminate the Sale Agreement, adjust the
purchase price or elect not to purchase certain properties in the event of any
Material Concern on the part of Glimcher with regard to the Properties and/or
the Company's business; (iii) parameters for the operations of the Properties
in the period between the signing of the definitive purchase agreement and the
consummation of the Sale; (iv) the survivability of the Company's
representations and warranties after consummation of the Sale and
indemnification for breaches of those representations and warranties; (v) the
Company's right to terminate the Sale Agreement in connection with the Board's
fiduciary duties to the Company's Shareholders; (vi) the amount of the break-
up fee due to Glimcher in the event an alternative Acquisition Proposal is
recommended to the Shareholders; (vii) the amount of the deposit required to
be posted by Glimcher upon execution of the Original Sale Agreement and the
method of payment; (viii) pending Shareholder approval, the method of payment
for the purchase price (i.e., in the form of a letter of credit or in cash);
and (ix) the treatment of the Company's outstanding indebtedness and the
release of the Company thereunder. On January 5, 1996, Management met with the
Advisor, Lehman and various legal counsel for the Company to discuss the
issues outlined above. Following these discussions, the Company sent a revised
Sale Agreement to Glimcher on January 10, 1996.
Glimcher, the Company and their respective counsel met in Boston on Tuesday,
January 16, 1996 to discuss the Company's responses to the comments made by
Glimcher in its letter to the Board, which accompanied its final bid submitted
on December 15, 1995, and to negotiate the open issues under the Sale
Agreement. Based on extensive negotiations at that meeting, a revised draft of
the Sale Agreement was redistributed to the parties on January 19, 1996.
Counsel for Glimcher responded to the revised Sale Agreement by letter dated
January 23, 1996, in which it described its major business and legal issues.
As a result of the comments contained in that letter, the parties met in New
York City on January 26, 1996 to discuss the overall structure of the
transaction. Negotiations at that meeting continued to focus on the issues
outlined in the paragraph above. Glimcher's primary concern was to preserve
and protect the current status of the Properties and their operations during
the period between execution of the Original Sale Agreement and consummation
of the Sale. In furtherance of such goal, Glimcher requested a pre-determined
ability to adjust the purchase price and/or to elect not to purchase certain
Properties based on a change in the operation of the Properties or an adverse
condition or issue arising between execution of the Original Sale Agreement
and the closing of the Sale. Glimcher proposed that the adjustment be based on
differences between a final and initial rent roll and on terminations of any
tenant leases or conversions to percentage rent associated with Wal-Mart
vacating any lease or acquiring property within a two mile radius of any
Property, whether such terminations and conversions occurred before or after
the closing of the Sale. During these negotiations, the Company's primary
concern was to avoid such an adjustment to the purchase price prior to
consummation of the Sale as a result of Glimcher's due diligence or changes in
the results of operation of the Properties, especially given that the Board,
in selecting Glimcher, relied upon the fact that Glimcher's offer was for a
firm amount and not based on a net operating income formula. The Company,
therefore, refused to agree to such an adjustment, believing that it would, in
effect, convert Glimcher's fixed price bid into a formula bid, which was
unacceptable to the Board.
In order to address each party's concerns, the Company and Glimcher agreed,
at the January 26, 1996 meeting in New York City, to restructure the
transaction. Under the terms of the restructured transaction, the parties
would close the Sale into escrow shortly after completion of the due diligence
period, upon which Glimcher would immediately begin to manage the Properties,
subject to certain guidelines and approval rights of the Company. If requisite
Shareholder consent was obtained, all economic benefits and burdens would flow
to Glimcher (including cash flow from the Properties and the benefits of debt
amortization from the date of the escrow closing) as if Glimcher owned the
Properties, subject to a management agreement, as of the date on which the
transaction closed into escrow. If requisite Shareholder consent was not
obtained, the Company would retain the economic benefits and burdens of
ownership, Glimcher would receive its deposit back and be reimbursed by the
Company for leasing costs incurred and Glimcher's management agreement would
continue on a month-to-month basis. Unlike the original purchase and sale
agreement, Glimcher would be required to purchase all of the Properties; there
would be no provision that would allow Glimcher to elect not to purchase
certain Properties. By restructuring the transaction, Glimcher's concerns
regarding the operation of the Properties prior to
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consummation of the Sale were alleviated and the Board's concerns to avoid a
formula purchase price were addressed. On January 30, 1996, the Company's
counsel circulated a transaction summary describing in concept the
restructured transaction, and in accordance with such summary, circulated on
February 1, 1996 a revised Sale Agreement reflecting the new structure.
The Board met on February 2, 1996 to discuss with counsel certain issues
arising under the revised draft of the Sale Agreement. In particular, the
Board indicated that, because the Company had to reimburse Glimcher for
leasing costs incurred after the escrow closing if requisite Shareholder
consent was not obtained, the Company should have the ability to approve any
such leasing costs that were not budgeted. The Board also discussed the
treatment of the Company's outstanding indebtedness with counsel, explaining
that the debt would be serviced by cash flow from the Properties and that
Glimcher would get the benefit of amortization of the debt from the date of
the escrow closing, assuming the Sale closes. Counsel also discussed the time
line for the negotiation of the Sale Agreement and the consummation of the
Sale, along with timing issues associated with the change in management that
would occur on the date of the escrow closing. After discussing certain
obligations of PaineWebber under the Sale Agreement, the Board turned to a
consideration of Glimcher's ability to pay the purchase price. Lehman
indicated to the Board that, although Glimcher's debt to capitalization ratio
was above the market average, Lehman believed that the transaction would
nevertheless be accretive and that the purchase of the Company's portfolio
would increase the quality of Glimcher's portfolio. In addition, the Board
noted that any financial risk was minimized by the restructured transaction,
which only provided for 75 days between execution and closing of the Sale into
escrow.
Between February 5, 1996 and February 9, 1996, the parties participated in
several conference calls to negotiate the terms of the revised Sale Agreement.
These negotiations continued to focus on the issues listed above. The Company
agreed to increase the length of the due diligence period with respect to all
matters to 60 days, from what was originally 45 days. Whereas it was initially
contemplated under the restructured transaction that the parties would close
into escrow within 15 days after expiration of the due diligence period, the
parties agreed to close the Sale into escrow immediately upon termination of
such period. It was agreed that the existence of a 15-day delay raised the
same concerns on behalf of the parties as existed before the transaction was
restructured. Because the Company's management agreements with its then
property managers provided for termination upon 30 days prior written notice,
Glimcher and the Company also agreed that Glimcher would immediately take over
the management of the Properties upon termination of the due diligence period
but would waive its management fee for the first 30 days. At the same time,
the Company would give its then property managers notice of termination of
their management agreements and, though they would continue to be paid their
management fees for the next 30 days, they would immediately terminate
management of the Properties. With regard to Glimcher having a letter of
credit issued for the purchase price, the Board repeatedly indicated its
desire to have cash rather than a letter of credit, noting that a letter of
credit presented additional risks in the event that the issuing bank failed.
The parties then discussed the different events that would trigger a payment
to Glimcher by the Company of a break-up fee. In addition to the Board
actually recommending to the Shareholders an Acquisition Proposal by a person
other than Glimcher, the parties agreed that Glimcher would be entitled to a
break-up fee in the event that the Board withdrew its recommendation to the
Shareholders to approve the Sale or failed to give such a recommendation.
After negotiations, and several discussions with the Board, the parties agreed
that in the event of a withdrawal of, or failure to make, such recommendation,
the break-up fee would be payable to Glimcher only if the Company entered into
another agreement with respect to an Acquisition Proposal by a person other
than Glimcher within six (6) months of the Outside Date, unless the Board
previously presented a certificate to Glimcher stating that it had reasonably
determined that Glimcher was unlikely to be able to perform its obligations
under the Sale Agreement in a timely manner. In exchange for its ability to
present such a certificate, the Company agreed that it would have the burden
of proof in a litigation that the Board met that standard. Though the Board
rejected Glimcher's initial proposition of a $5,000,000 break-up fee,
suggesting instead a break-up fee in the amount of $3,500,000, the parties
agreed to a $3,000,000 break-up fee if the termination occurred prior to the
expiration of the due diligence period and a $4,000,000 break-up fee if the
termination occurred after the expiration of the due diligence period. The
parties also negotiated during this period the proposed terms of Glimcher's
Management Agreement with the Company. Glimcher's comments
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focused on, among other things, the reconciliation of the terms of the
Management Agreement with the terms of the Sale Agreement, especially in
connection with certain adjustments and prorations to be made, the integration
of the Company's system with that of Glimcher's, the Company's approval
rights, including without limitation with respect to leasing costs, the effect
of termination of Glimcher as manager and/or a default by Glimcher under the
Management Agreement and the use of cash flows after the Escrow Closing.
The Board held a special meeting on February 9, 1996 to receive an update on
the status of the discussions with Glimcher. At such meeting, Management and
the Company's legal advisors gave the Board a presentation on the issues under
the Sale Agreement then being negotiated between the parties, with the Board
raising particular concern over the use of a letter of credit for the purchase
price. The Board met again on February 15, 1996 to discuss the use of a letter
of credit for the purchase price, at which meeting the Board acknowledged that
the only material difference between cash and the letter of credit was the
creditworthiness of the issuing bank. The Board therefore agreed, after
deliberation, that they would accept a letter of credit for the purchase
price, provided that an interest factor be added to reflect the fact that the
Company would have received interest on the cash portion of the purchase price
deposited into escrow. In response to other comments by Glimcher, the Board
increased Glimcher's remedy upon a default by the Company to $3,000,000 plus
up to an additional $500,000 as reimbursement for its out-of-pocket expenses,
in exchange for which the Board requested mutuality in the default provisions,
including a right of the Company to specific performance upon a breach by
Glimcher.
On February 27, 1996, the Company's Board held a special meeting to approve
the Sale and the Sale Agreement. At such meeting, Management and the Company's
legal and financial advisors updated the Board on the events since its last
meeting on February 15, 1996, including the terms of the proposed Sale
Agreement and the proposed Management Agreement with Glimcher. Legal counsel
also gave a presentation to the Board on the timetable concerning the
execution of definitive documentation relating to the transaction and certain
disclosure issues relating thereto. Lehman then reviewed with the Board its
financial analysis of the transaction and rendered its oral fairness opinion
to the Board that, as of such date, based upon the facts and circumstances as
they existed at that time, and subject to certain assumptions, factors and
limitations set forth in such opinion, the consideration to be received by the
Company pursuant to the Sale Agreement was fair to the Company, from a
financial point of view. See "--Fairness Opinion of the Financial Advisor."
Following such discussion, the Board unanimously approved the Sale, the
proposed Original Sale Agreement and the transactions contemplated thereby.
Following that Board meeting, the Company concluded negotiations with Glimcher
on the Original Sale Agreement, and turned to extensive discussions with
respect to the schedules and exhibits thereto, including Glimcher's Management
Agreement. On February 27, 1996, the Board approved, and as of March 11, 1996,
the Company entered into the Original Sale Agreement with Glimcher, providing
for the sale of substantially all of the Company's assets to Glimcher for
$203,000,000 in accordance with the terms summarized below. See "Summary of
Certain Agreements--The Sale Agreement."
The Board held another special meeting on April 23, 1996, among other
reasons, to approve the Plan and the Liquidation pursuant thereto. At such
meeting, the Board reviewed with Management and the Company's legal and
financial advisors the events since its meeting on February 27, 1996 and the
terms of the proposed Liquidation and the Plan. Following such discussion, the
Board unanimously approved the Liquidation, the Plan and the transactions
contemplated thereby.
During the sixty-day period following the execution and delivery of the
Original Sale Agreement, Glimcher conducted due diligence on the Properties.
Glimcher had the ability to notify the Company during this period if its
diligence revealed any Material Concerns. In the event Glimcher and the
Company were unable to agree upon a resolution of any such matters prior to
the Escrow Closing Date, the Sale Agreement would automatically terminate. As
a result of its due diligence and in accordance with the terms of the Sale
Agreement, Glimcher delivered to the Company three (3) notices of Material
Concern. In the first notice of Material Concern, dated March 28, 1996,
Glimcher rejected the proposed interest rate resets on the indebtedness
secured by Barren River Plaza, East Pointe Plaza and Cumberland Crossing as
being above market rate. The second notice of Material Concern, dated April 8,
1996, identified the need to repair those portions of the roofs on Barren
River Plaza and
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Applewood that contain phenolic foam insulation. The third and final notice of
Material Concern, dated May 3, 1996, reasserted the above-mentioned Material
Concerns and identified the following four additional Material Concerns: (i)
the failure of certain lenders to consent to the assignment to Glimcher of
their loans in the amounts requested; (ii) reports indicating the need for
various repairs estimated by Glimcher's engineers to cost approximately
$5,800,000; (iii) review of the leases indicating that net income available
from the Properties was less than anticipated by Glimcher; and (iv) review of
the title reports and updated surveys revealing certain issues.
Between April 17, 1996 and May 9, 1996, the Board held a number of special
meetings, among other reasons, to discuss the merits of the above-referenced
notices of Material Concerns and to decide how to proceed with Glimcher in
resolving the Material Concerns raised in such notices. Upon expiration of
Glimcher's sixty-day due diligence period on May 10, 1996, Management and
Glimcher met in Ohio in an effort to reach mutually satisfactory resolution of
the Material Concerns prior to the date on which the Sale Agreement would
expire. At that meeting, the parties had extensive discussions regarding
possible resolutions of the Material Concerns described above. While the
Company disagreed with many of the issues raised by Glimcher, it became
evident that Glimcher intended to resolve its Material Concerns, in part, by a
significant reduction in the purchase price for the Properties. Based on these
negotiations, Glimcher offered to settle its Material Concerns in exchange for
a reduction in the purchase price of the Properties to $189,910,000. This
reduced price was immediately rejected by the Company.
The Board met several times between the May 10, 1996 meeting of the parties
and May 14, 1996, to provide Management with appropriate guidelines and
parameters within which to negotiate with Glimcher the resolution of the open
issues between the parties. As of May 12, 1996, the Board approved and the
Company entered into the first Amendment with Glimcher, extending the Escrow
Closing Date to May 14, 1996 in order to give the parties sufficient time to
resolve, and document the resolution of, Glimcher's Material Concerns. Based
on extensive negotiations during this period, the parties agreed to a reduced
purchase price of $197,000,000. During this period, the Board considered
whether to reject the reduced purchase price and re-solicit interest in the
Company's portfolio from other prospective purchasers. As part of its
consideration, the Board was advised by Lehman that the market might consider
the Company's properties to be of a reduced value during, and as a result of,
any re-solicitation. The Advisor also provided the Board with advice
concerning the Material Concerns raised by Glimcher. After consideration of
this advice of Lehman and the Advisor, the Board noted that it shared Lehman's
concerns that other prospective purchasers, if re-solicited, might consider
the portfolio to be damaged. Moreover, the Board concluded, based on the
Advisor's analysis, that certain of the Material Concerns identified by
Glimcher would most likely have a negative impact on the value of the
portfolio and could also be raised by other prospective purchasers should
interest in the Company's portfolio be re-solicited from them. In addition to
considering this advice of Lehman and the Advisor, the Board also considered
the implications of Glimcher's disclosure, during this period, that it was
considering a potential acquisition of Marathon U.S. Realties, Inc.'s
portfolio of retail properties. Upon learning of this, the Board was concerned
that, with the possibility of this alternative acquisition, Glimcher might be
more inclined to reject any proposed resolution of its Material Concerns and
walk away from the Sale. The Board further learned at the end of this period
that PaineWebber had offered to assist Glimcher in financing such acquisition.
See "--Conflicts of Interest; Interest of Certain Affiliates in the
Transaction." At that time, the members of the Board expressed to PaineWebber
their concern that enabling Glimcher to acquire a competing portfolio of
retail properties could adversely affect the Company's ability to close the
Sale with Glimcher and requested PaineWebber to cease its involvement with
Glimcher in the potential acquisition. The Board was subsequently advised that
Marathon U.S. Realties, Inc. had entered into an agreement to sell its
portfolio to a third party unrelated to Glimcher and that PaineWebber was not
involved in that transaction. In addition to weighing these concerns and the
advice of its advisors, the Board considered the reduced purchase price in
light of the capital markets generally, the retail industry in particular and
the transaction costs which had been incurred to date and which would be
incurred in the event the Board re-solicited interest in the market. Based on
its consideration of all of the factors set forth above, the Board determined
that it was in the best interests of the Shareholders not to terminate the
Sale Agreement and instead to recommend that the Shareholders approve the Sale
to Glimcher at the reduced price of $197,000,000.
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On May 14, 1996, the Board held a special meeting to review the final
negotiations between the parties, the terms of the proposed Amendment dated
May 14, 1996 and the other alternatives available to the Company. In
connection with the Board's consideration of the reduced purchase price, at
that meeting, Lehman orally updated its fairness opinion, to the effect that
the consideration to be received by the Company under the terms of the Sale
Agreement, as amended, was fair to the Company from a financial point of view.
This updated fairness opinion was confirmed in writing as of August 23, 1996.
See "--Fairness Opinion of the Financial Advisor." After consideration of the
issues set forth above, the Board unanimously approved the Sale Agreement (as
amended by the Amendment dated as of May 14, 1996) and the transactions
contemplated thereby. As of May 14, 1996, the Company entered into the second
Amendment with Glimcher, which, among other things, extended the Escrow
Closing Date to May 30, 1996, reduced the purchase price to $197,000,000,
revised the indebtedness being assumed and being prepaid and provided for the
Company to perform budgeted structural work and roof repairs with respect to
certain of the Properties.
In order to accommodate the parties' need for additional time to prepare for
the closing of the Sale into escrow, the Board unanimously approved the
execution and delivery of, and the Company entered into, the other Amendments
with Glimcher, extending the Escrow Closing Date to June 27, 1996. In addition
to extending the Escrow Closing Date, the Amendments, among other things,
provide that (i) Glimcher generally waives all future Material Concerns; (ii)
Glimcher will receive the net cash flow of the Properties, in the event
Shareholder approval of the Transaction is obtained and the Sale closes out of
escrow, from May 14, 1996, rather than from the Escrow Closing Date; and (iii)
the Company will receive interest on that portion of the Escrowed Purchase
Price paid to the Company at the closing of the Sale (or an interest factor
thereon in the event immediately available funds are not held in escrow) in
the event Shareholder approval of the Transaction is obtained and the Sale
closes out of escrow, with such interest or interest factor, as applicable,
being deemed to accrue as of June 20, 1996, rather than as of the Escrow
Closing Date. In addition, the Company consented to the assignment by Glimcher
of all of its right, title and interest under the Sale Agreement to GPLP, with
Glimcher remaining primarily liable for its obligations under the Sale
Agreement. In accordance with the terms of the Sale Agreement, as amended by
the Amendments thereto, the Company and Glimcher closed the Sale into escrow
on June 27, 1996 by delivery to Lawyer's Title Insurance Corporation, as
escrow agent, of the Escrowed Purchase Price in the aggregate amount of
$81,221,009 in the form of four (4) irrevocable letters of credit, the
Property deeds, documents evidencing the indebtedness on the Properties and
other closing documents.
CONFLICTS OF INTEREST; INTEREST OF CERTAIN AFFILIATES IN THE TRANSACTION
The Advisory Agreement. The Company entered into the Advisory Agreement with
the Advisor to provide various services to the Company in connection with the
original sale of the Company's shares of Common Stock, the management of the
Company and the acquisition, management and disposition of the Company's
investments. The Advisory Agreement is renewable on an annual basis at the
discretion of the Board. Certain members of Management and the Board of the
Company are also, or previously have been, executive officers and/or directors
of PWPI, the general partner of the Advisor. The types of compensation paid by
the Company to the Advisor and its affiliates under the terms of the Advisory
Agreement are as follows.
Under the Advisory Agreement, the Advisor has specific management
responsibilities to perform day-to-day operations of the Company and to act as
the investment advisor and consultant for the Company in connection with
general policy and investment decisions. The Advisor receives an annual "Asset
Management Fee" and an annual "Advisory Incentive Fee," each of which is equal
to 0.25% of the capital contributions of the Company. The Advisory Incentive
Fee is subordinated to the Shareholders' receipt of distributions of net cash
sufficient to provide a return equal to 8% per annum on their Invested Capital
(as defined in the Advisory Agreement). During the quarter ended February 28,
1994, the payment of regular quarterly distributions was temporarily suspended
and has not been reinstated. Accordingly, the Advisor has not earned any
Advisory Incentive Fees since December 1, 1993. In order to maximize the
Company's earnings and cash flow, the Advisor agreed to waive, effective March
1, 1995, its deferred Advisory Incentive Fees in the aggregate amount of
$76,000 as well as all
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Asset Management Fees, including deferred Asset Management Fees of $125,000
for the year ended August 31, 1995, which reflected Asset Management Fees
earned between September 1, 1994 and February 28, 1995.
The Advisory Agreement provides that, for its services in finding and
recommending investments and for analyzing, structuring and negotiating the
purchase of Properties by the Company, PWPI will receive non-recurring
"Acquisition Fees" equal to 3% of the capital contributions of the Company.
PWPI has received Acquisition Fees in connection with the Company's real
estate investments in the amount of $3,006,000 since inception of the Company.
The Advisory Agreement further provides that, for its services in obtaining
financing and refinancing, the Advisor will be paid fees equal to 0.5% of any
financing and 1% of any refinancing obtained by the Company for which the
Advisor renders substantial services and for which no fees are paid to a third
party. The Advisor had earned no such fees as of May 31, 1996.
Upon disposition of the Company's investments, the Advisor may also earn
sales commissions and disposition fees under the Advisory Agreement. These
fees and commissions are subordinated to the repayment to the Shareholders of
their capital contributions plus certain minimum returns on their Invested
Capital (as defined in the Advisory Agreement). In no event may the
disposition fees exceed an amount equal to 15% of certain proceeds remaining
after the Shareholders have received an amount equal to their capital
contributions plus a return on Invested Capital (as defined in the Advisory
Agreement) of 6% per annum, cumulative and noncompounded. The Advisor had not
earned any disposition fees or sales commissions as of May 31, 1996, and will
not earn any such fees or commissions as a result of the Transaction.
Services by Other Affiliates of the Company. An affiliate of the Advisor
performs certain accounting, tax preparation, securities law compliance and
investor communication and relations services for the Company. The total costs
incurred by this affiliate in providing these services are allocated among
several entities, including the Company. As with the fees discussed above, the
Advisor has agreed to waive these service fees, effective March 1, 1995, in
order to maximize the Company's earnings and cash flow. For the year ended
August 31, 1995, the Company paid $111,000 to this affiliate, representing
reimbursements from September 1, 1994 through February 28, 1995 for providing
the above services to the Company.
Mitchell Hutchins Institutional Investors, Inc. ("Mitchell Hutchins")
provides cash management services with respect to the Company's cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc.,
an independently operated subsidiary of PaineWebber. For the year ended August
31, 1995, Mitchell Hutchins earned fees of $8,000 for managing the Company's
cash assets. For the nine months ended May 31, 1996, Mitchell Hutchins earned
fees of $21,000 for managing the Company's cash assets. Fees charged by
Mitchell Hutchins are based on a percentage of invested cash reserves which
varies based on the total amount of invested cash that Mitchell Hutchins
manages on behalf of PWPI.
The Company has engaged the services of a consulting firm for certain
professional services related to its mortgage loan refinancing and acquisition
due diligence activities. The consulting firm is a partnership in which Mr.
Robert J. Pansegrau is one of two current partners. Mr. Pansegrau is formerly
a Senior Vice President of the Company who resigned effective March 31, 1993.
The consulting firm received fee compensation from the Company totaling
approximately $186,000 for the year ended August 31, 1995. The consulting firm
also received reimbursement for out-of-pocket expenses of approximately
$79,000 and $23,000 for the periods ended August 31, 1995 and May 31, 1996,
respectively. The Company no longer engages the services of this consulting
firm.
PaineWebber Obligations. In order to enhance the best interests of the
Shareholders, PaineWebber has assumed and waived certain obligations of the
Company in connection with the consummation of the Sale. First, PaineWebber
has forgiven the unsecured indebtedness of the Company with an outstanding
principal balance of $1,136,000 as of June 1, 1996 in connection with the
Transaction. The original Applewood Village loan, which had been held by PWPI
since September 1993, had a principal balance of $5,175,000. On June 14, 1995,
the Company refinanced that loan by securing a new mortgage loan in the amount
of $4,000,000, which repaid a
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portion of the PWPI loan. The lower principal balance on the new mortgage loan
reflects the uncertainty associated with the relocation of the Wal-Mart anchor
store at the Applewood property. Though the Board explored the possibility of
an absolute forgiveness of the shortfall at that time, PWPI agreed instead to
take back an unsecured loan for the difference, in the amount of $1,175,000.
That unsecured loan had a 15-year term and carried an interest rate tied to
PWPI's cost of funds, not to exceed 8% per annum. As of June 1, 1996,
PaineWebber forgave this unsecured indebtedness of the Company, which, as of
such date, had an outstanding principal of $1,136,000. See "--Reasons for
Transaction; Recommendation of the Board."
Second, PaineWebber has waived any rights to indemnification it may have
with respect to the Class Actions or any other action or class action that has
been or may be asserted by or on behalf of purchasers of securities offered by
the Company relating to conduct prior to April 1, 1996, under the terms of the
Advisory Agreement with the Company, the Articles of Incorporation and certain
other agreements.
Third, PaineWebber agreed to reimburse the Company for the fees and expenses
of Hutchins Wheeler, which has had no prior relationship with PaineWebber or
any of its affiliates, and certain other expenses associated with the
Transaction.
Fourth, at the March 17, 1995 meeting of the Board, during which, among
other issues, the need to obtain an analysis of how to maximize Shareholder
value and to hire an independent financial advisor was discussed, PaineWebber
indicated that it intended to work with the Board in achieving the best
interests of the Shareholders and offered to waive its fees effective March 1,
1995, as more fully described above. In accordance with this offer,
PaineWebber entered into a new Advisory Agreement effective as of March 1,
1996 waiving all fees thereunder.
Fifth, PaineWebber agreed to reimburse the Company for Lehman's fees and
expenses, including any indemnification obligations of the Company under the
Engagement Letter.
Sixth, as described more fully below, PaineWebber has agreed to assume
certain responsibilities of the Company under the Sale Agreement. PaineWebber
agreed to indemnify Glimcher against any loss arising out of any of the
Sellers' representations and warranties or arising as a result of the Sellers'
failure to maintain their legal existence and/or financial inability to make
certain post-closing adjustments or to satisfy certain indemnification
obligations with regard to broker's fees. Such indemnification is enforceable
only with respect to claims asserted within one year from the Escrow Closing
Date and then only for matters for which estoppel certificates were not
delivered at the Escrow Closing. Along with the Sellers, PaineWebber also
agreed not to solicit the submission of a different Acquisition Proposal.
Moreover, in the event the Sale Agreement is terminated because of the failure
to receive the requisite approval of the Shareholders, PaineWebber agreed to
pay Glimcher (i) one-half of Glimcher's reasonable, documented, out-of-pocket
third party expenses up to $1,000,000 and (ii) to the extent the Escrowed
Purchase Price is held in immediately available funds, the amount by which
Glimcher's actual interest expense on such funds exceeds the interest actually
earned on such an amount, if immediately available funds are held as a result
of the Sellers' request that the escrow agent draw on a letter of credit.
PaineWebber also agreed to pay to Glimcher such interest arbitrage in the
event the Sale closes. See "Summary of Certain Agreements--The Sale
Agreement."
Seventh, pursuant to a certain Indemnification Agreement, dated as of August
16, 1996, among PWI and the Independent Directors (the "Indemnification
Agreement"), PWI has agreed to indemnify the Independent Directors against
certain liabilities and expenses actually and reasonably incurred (and to
advance amounts therefor) in connection with any proceeding to which any
Independent Director is made a party by reason of the fact that he is or was a
director of the Company, if such director acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Company. Indemnification thereunder is limited to a maximum payment of $5
million in the aggregate for and in respect of all claims and all Independent
Directors. PWI's obligation to provide such indemnification takes effect if
and only if coverage or advancement of expenses is denied or is otherwise
unavailable for any reason under certain insurance policies maintained by the
Company for the benefit of the Company's directors. The Indemnification
Agreement only covers claims made by written notice to and received by PWI
within six (6) years of the date of the distribution of substantially all of
the assets of the Company to the Shareholders.
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Glimcher. PaineWebber and its affiliates have provided financial, advisory
and investment banking services to Glimcher and have received fees for the
rendering of these services and may provide such services in the future. Such
services have included, without limitation, acting as lead underwriter for the
January 1994 initial public offering of $320,400,000 of common stock of
Glimcher and acting as co-manager of Glimcher's offering in June 1995 of
$73,500,000 of its common stock. PaineWebber also has provided Glimcher with
investment banking advice with regard to potential acquisition opportunities
and, in connection therewith, has discussed the possibility of providing
Glimcher with debt financing. These investment banking services included an
offer by PaineWebber in April 1996 to provide Glimcher with approximately
$225,000,000 in financing for its proposed acquisition of Marathon U.S.
Realties, Inc.'s portfolio of retail properties. The Company has been advised
that Marathon U.S. Realties, Inc. has entered into an agreement to sell its
portfolio to a third party unrelated to Glimcher and that PaineWebber was not
involved in that transaction. See "The Transaction--Background of the
Transaction." In the ordinary course of PaineWebber's business, PaineWebber
may actively trade the securities of Glimcher for its own account and for the
account of its customers and, accordingly, PaineWebber may at any time hold
long or short positions in such securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income tax
consequences to the Shareholders relevant to consummation of the Sale and the
Company's adoption and implementation of the Plan. The discussion does not
deal with all of the tax consequences of the Transaction that may be relevant
to every Shareholder. SHAREHOLDERS SHOULD THEREFORE CONSULT THEIR OWN TAX
ADVISORS AS TO THE TAX CONSEQUENCES OF THE TRANSACTION TO THEM UNDER
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. The discussion of tax
consequences that follows is based upon the Code, Treasury Regulations, IRS
rulings and judicial decisions now in effect, all of which are subject to
change at any time; any such changes may be applied retroactively. The
discussion is not covered by
an opinion of counsel, nor did the Company request a private letter ruling
from the IRS with respect to any tax consequence of the Transaction.
Accordingly, no assurance can be given that the IRS will agree with the
statements that appear below.
The Sale and Liquidation. The Sale will be a taxable transaction to the
Company. Net of accumulated depreciation and amortization, the adjusted cost
basis of the Company's portfolio of operating properties will be approximately
$192,325,000 as of October 31, 1996. Given a purchase price of $197,000,000
(payable $79,547,398 in cash and $117,452,602 in assumption of indebtedness),
the Company anticipates that the Sale will result, for tax purposes, in a gain
of approximately $4,675,000 for the Company. In addition, the Company will
recognize income from discharge of indebtedness in the amount of the forgiven
balance of the unsecured loan from PWPI ($1,136,000 as of June 1, 1996). As
discussed below, provided the Company qualifies for taxation as a REIT, it
generally is not subject to federal income taxation to the extent it
distributes its taxable income currently to its Shareholders.
Tax Consequences of Liquidation to the Company. For federal income tax
purposes, the Company is taxed as a REIT. In order for the Company to continue
to qualify as a REIT, it must satisfy a number of asset, income and
distribution tests. First, at least 75% of the value of the Company's assets
at the close of each quarter of the Company's taxable year must be represented
by real estate assets, cash, cash items (including receivables arising in the
ordinary course of the Company's operations) and government securities. The
Company may not have more than 25% of its total assets represented by non-
government securities and, in connection with investments in such non-
government securities, not more than 5% of the value of the Company's total
assets may be invested in such securities of any one issuer. In addition, the
Company may not hold more than 10% of the outstanding voting securities of any
one issuer.
The Company must also meet a threefold source of income test. First, at
least 75% of the Company's gross income must be derived from rents from real
property, interest on obligations secured by mortgages on real property and
other sources directly related to its real estate activities. Second, at least
95% of the Company's gross income must be derived from the sources described
above and from dividends, interest and gains from
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sales or other dispositions of stock or securities. Third, no more than 30% of
the Company's gross income may be derived from the sale or other disposition
of stock or securities, gain from prohibited transactions and gain from the
sale or other disposition of real property held for less than four (4) years.
In the case of a taxable year in which a REIT is completely liquidated, any
gain from the sale or other disposition of any property after the adoption of
the plan of complete liquidation is not taken into account under this 30%
gross income test. Finally, the Company must distribute 95% of its REIT
taxable income (determined without regard to the dividends paid deduction and
by excluding any net capital gain) to its Shareholders each taxable year.
The Company anticipates that it will remain qualified under the foregoing
tests throughout the period of the Liquidation. However, given the changes in
the nature of the Company's assets and in the Company's sources of income
which may result from sales of assets in the Liquidation, and the need to
retain assets to meet liabilities, there can be no assurance that the
qualification tests will be met. If the Company ceases to qualify as a REIT
for any taxable year, it would not be entitled to deduct dividends paid to
Shareholders from its taxable income and would, therefore, be liable for
federal income taxes with respect to (i) its gains from sales of assets, (ii)
any income from discharge of indebtedness and (iii) its income from operations
for that year and for subsequent taxable years, although any net operating
loss carryforwards would be available to offset most of such income. Net
operating loss carryforwards are, however, allowed to offset a maximum of 90%
of a corporation's alternative minimum taxable income. In addition, certain
states impose restrictions on a corporation's use of net operating
carryforwards. Thus, if the Company fails to maintain its qualification as a
REIT and has taxable income for a taxable year, some federal and state taxes
will be owing in spite of any net operating loss carryforwards.
For purposes of calculating a REIT's taxable income for a given year,
Section 857(b) of the Code allows the REIT a deduction for dividends paid to
its shareholders during that taxable year, and, therefore, a REIT generally is
not subject to federal income tax to the extent it distributes its taxable
income to its shareholders as a dividend. In order to be entitled to this
deduction, a REIT's distributions to shareholders must be dividends, but
distributions in liquidation of a corporation are generally treated as being
in full payment for a shareholder's interest in the corporation. In the
context of the liquidation of a REIT, Section 562(b) of the Code provides a
special rule which will classify distributions in liquidation as dividends if
certain conditions are met. Section 562(b) provides that, if a REIT is
liquidated within the 24-month period following the adoption of a plan of
liquidation, distributions pursuant to such Plan will, to the extent of the
distributing corporation's earnings and profits for the year of the
distribution, be treated as dividends for purposes of computing the
corporation's dividends paid deduction.
Adoption of the Plan by the Shareholders will constitute adoption of a plan
of liquidation for this purpose. The Plan provides for the complete
liquidation and dissolution of the Company by December 31, 1996. See "Summary
of Certain Agreements--The Plan." It is therefore anticipated that the Company
will completely liquidate within 24 months of the adoption of the Plan so as
to take advantage of Section 562(b), but no assurance can be provided that
this timetable will, in fact, be met. If the end of the 24-month period
approaches (or earlier, in accordance with the terms of the Plan), the Company
will evaluate the then current situation and will consider whether
distribution of its remaining assets and liabilities to a Liquidating Trust
(which would satisfy the complete liquidation requirement) would be
appropriate, or whether existing circumstances, taken as a whole, indicate
that Shareholders would be advantaged by a course of action which might forego
the benefits of Section 562(b). If for any reason a dividend paid deduction
were not available to eliminate the Company's taxable income, net operating
loss carryforwards of the Company, if any, would offset such income, provided,
as noted above, that such net operating loss carryforwards may only offset a
maximum of 90% of a corporation's alternative minimum taxable income.
Although Section 562(b) may treat liquidating distributions as dividends, it
only does so to the extent of the earnings and profits of the corporation for
the taxable year of the distribution. Section 562(e) of the Code provides
that, for purposes of determining a REIT's dividends paid deduction, a REIT's
earnings and profits for a taxable year are to be increased by the total
amount of gain recognized on the sale or exchange of real property during that
year. Thus, there should be sufficient earnings and profits to allow
distribution of such gain on sale to
38
<PAGE>
qualify as a dividend. It is anticipated that the Company will distribute
sufficient amounts to the Shareholders each year that it remains in existence
after the Sale so that it will remain qualified as a REIT under the rules
described above and that the Company will have no REIT taxable income as a
result of the Liquidation.
The Company is also subject to a 100% excise tax on any gain from a
"prohibited transaction." The term "prohibited transaction" means the sale or
other disposition of Company property which is held for sale to customers in
the ordinary course of the Company's trade or business. The determination of
whether property is held for sale to customers in the ordinary course of the
Company's trade or business is inherently factual in nature and, thus, cannot
be predicted with certainty. The Code does provide a "safe harbor" which, if
all its conditions are met, would protect a REIT's property sales from being
considered prohibited transactions, but the Company may not be able to satisfy
these conditions in every case, either because the Liquidation will result in
more sales in a year than permitted under the safe harbor or because certain
expenses directly incurred by the Company may be too high. While, as noted
above, this determination is inherently factual, the Company does not believe
that any of its Property is held for sale to customers in the ordinary course
of business, but rather that the Properties are all held for investment and
the production of rental income.
Tax Consequences of Liquidation to Shareholders. The Company believes that
liquidating distributions to Shareholders pursuant to the Plan will be treated
as distributions in complete liquidation of the Company; that is, they will
not be treated as dividends, but rather as if each Shareholder had sold his or
her stock. In such case, a Shareholder will recognize gain or loss with
respect to each share of Common Stock held by the Shareholder, measured by the
difference between (i) the Shareholder's basis in that share and (ii) the
total amount of cash and fair market value of other property, if any, received
by the Shareholder with respect to such shares pursuant to the Plan. See "--
Liquidating Trust" for consequences to Shareholders if the Company's assets
are dispersed to a Liquidating Trust. If a Shareholder holds more than one
block of Common Stock (groups of shares acquired at different times or at
different costs), each liquidating distribution will be allocated ratably
among the various blocks of shares of Common Stock and gain or loss will be
computed separately with respect to each block of shares of Common Stock. The
Company estimates that Shareholders will recognize a loss with respect to
their shares of Common Stock, exclusive of any recovery through the pending
litigation, in the range of $5.89 to $6.73 per share.
Gain or loss recognized by a Shareholder will be capital gain or loss
provided the shares of Common Stock are held by the Shareholder as capital
assets; capital gain or loss will be long-term if the shares were held for
more than one year. Corporate Shareholders may deduct capital losses
recognized in a taxable year only to the extent of capital gains recognized
during such year. Unused capital losses of a corporation may be carried back
three years and forward for five years, but may not be carried to any year in
which they would create or increase a net operating loss. On the other hand,
individual Shareholders may deduct capital losses to the extent of their
capital gains, plus $3,000. Any unused capital loss may be carried forward
indefinitely until the individual taxpayer recognizes sufficient capital gains
to absorb them. Capital losses may not be carried back by an individual.
If the Plan results in more than one liquidating distribution to the
Shareholders, each liquidating distribution will be first applied against the
adjusted tax basis of each of a Shareholder's shares of Common Stock and gain
will be recognized with respect to a share only after an amount equal to the
adjusted tax basis of such share has been fully recovered. Any losses with
respect to a share of Common Stock may be recognized by a Shareholder only
after the Company has made its final liquidating distribution or after the
last substantial liquidating distribution is determinable with reasonable
certainty. As a consequence of the foregoing, Shareholders incurring losses
under the Plan will likely be prevented from recognizing such losses until the
receipt of the final liquidating distribution.
The Shareholders are potential beneficiaries of certain pending litigation
relating to their investment in the Company. See "Information About The
Company--Certain Legal Proceedings" for a discussion of the relevant
litigation. The Company is not a party to such litigation. It is likely that
any proceeds received by the Shareholders through such litigation will occur
after December 31, 1996, and it is not known whether the amount
39
<PAGE>
to be received by the Shareholders will even be known at the time of the
proposed final liquidation in December 1996. Accordingly, while it is believed
that the potential receipt of proceeds through such litigation should not
delay the recognition of any loss by the Shareholders upon receipt of the
final liquidating distribution from the Company, it is possible that
Shareholders will be prevented from recognizing any loss with respect to their
shares of Common Stock until they have received the last of the proceeds to
which they may be entitled from litigation with respect to their investment in
the Company, or until it is finally determined that they will not be entitled
to any additional proceeds. Alternatively, the Shareholders may be required to
estimate and treat as a reduction of their loss the anticipated amount of the
proceeds from such litigation. The tax consequences of the pending litigation
to the Shareholders are unclear and may vary depending upon the Shareholders'
relative entitlement to litigation proceeds and any actions they may have
taken relating to the litigation. Because the tax implications of the pending
litigation are complex, uncertain and potentially taxpayer-specific,
Shareholders are urged to consult their own tax advisors.
Liquidating Trust. If the Company's assets are distributed to a Liquidating
Trust, such distribution would be treated, for federal income tax purposes, as
a distribution of the Company's assets to the Shareholders followed by a
contribution by the Shareholders of the assets to the Liquidating Trust. As a
result, each Shareholder would recognize gain or loss upon the transfer of
assets to the Liquidating Trust based upon the value of the assets
transferred, reduced by fixed liabilities assumed by the Liquidating Trust. If
gain is recognized by a Shareholder on the transfer of assets to the
Liquidating Trust, that Shareholder will be liable for the payment of any
resulting tax, whether or not any distribution of cash has been made to the
Shareholder. In addition, the Shareholders would be taxed on all income earned
by the Liquidating Trust, whether or not such income is distributed. Further,
if a contingent liability of the Company is paid by the Liquidating Trust, the
payment would give rise to a capital loss to the Shareholders.
Taxation of Non-United States Shareholders. Because the liquidating
distributions pursuant to the Plan will be treated as paid in exchange for a
Shareholder's shares of Common Stock and not as dividends, such distributions
to non-resident alien individuals, foreign corporations, foreign partnerships
and foreign trusts and estates (collectively, "Non-U.S. Shareholders")
generally will not be subject to federal income taxation or withholding unless
the Common Stock constitutes a "United States real property interest" within
the meaning of the Foreign Investment in Real Property Tax Act, commonly known
as "FIRPTA." The Common Stock will not constitute a United States real
property interest if the Company is a "domestically controlled REIT." The
Company will be considered a domestically-controlled REIT with respect to a
liquidating distribution if at all times during the five-year period preceding
the distribution less than 50% in value of its shares was held directly or
indirectly by Non-U.S. Shareholders. It is currently anticipated that the
Company will be a domestically-controlled REIT and that liquidating
distributions with respect to its Common Stock accordingly will not be subject
to taxation under FIRPTA. However, because the Common Stock is freely
transferable, no assurance can be given that the Company will continue to be a
domestically-controlled REIT. Notwithstanding the foregoing, capital gains not
subject to FIRPTA will be taxable to a Non-U.S. Shareholder (under rules
generally applicable to U.S. Shareholders) if the Non-U.S. Shareholder is a
non-resident alien individual who is present in the United States for 183 days
or more during the taxable year and certain other conditions apply.
State and Local Income Tax. Shareholders of the Company may also be subject
to state or local taxes with respect to distributions received by them
pursuant to the Plan and should consult their tax advisors regarding such
taxes.
Backup Withholding. Liquidating distributions will not be subject to back-up
withholding.
Pending Legislation. Shareholders of the Company should be aware that a
variety of tax-related legislation is currently pending in Congress, some of
which could affect the tax treatment of transactions described in this proxy.
Neither the Company nor its counsel can predict whether any of these proposals
will ultimately be enacted or whether any enactments would have an adverse
effect on the Company or any Shareholder. Shareholders are urged to contact
their own tax advisors regarding the effect any proposed changes may have on
their own individual situations.
40
<PAGE>
ACCOUNTING TREATMENT
As a result of the decision by the Board to solicit offers to purchase the
Company's portfolio of Properties, the operating investment Properties and
certain related assets have been classified as investment properties held for
sale in the Company's financial statements prepared in accordance with
generally accepted accounting principles. The balances of investment
properties held for sale are net of an allowance for possible impairment loss
of $4,360,000 and $3,850,000 at May 31, 1996 and August 31, 1995,
respectively, which reflect the writedown of such assets to the lower of
adjusted cost or net realizable value. Such allowance applies only to the
Properties for which losses are expected based on their estimated individual
fair values. The expected gains on Properties for which the estimated fair
value less costs to sell exceeds the adjusted cost basis would be recognized
in the period in which the Sale is completed. Based on the aggregate Purchase
Price for the Company's assets discussed elsewhere in this Proxy Statement,
the Company would have recognized a net gain of approximately $9,000,000 for
financial reporting purposes if the Sale had been completed as of May 31,
1996. The Company will continue to recognize depreciation on its assets held
for sale through the date of disposal, which would increase the amount of the
aggregate gain recognized upon the completion of the Sale. Such gain would be
offset, in part, by the write-off of unamortized loan buydown fees which would
be reflected as a loss on the early extinguishment of debt. The unamortized
portion of such buydown fees, which are being amortized into interest expense
using the effective interest method over the terms of the respective mortgage
loans, totaled approximately $3,911,000 as of May 31, 1996. The costs to proxy
the Shareholders and complete the potential Sale have been and will continue
to be expensed as incurred. Upon the receipt of the requisite Shareholder vote
to approve the Sale, the Company will adopt the liquidation basis of
accounting whereby all assets will be carried at their estimated net
realizable values and liabilities will be stated at their estimated settlement
amounts.
REGULATORY AND OTHER APPROVALS
Hart-Scott-Rodino. The Company and Glimcher believe that the Sale may be
consummated without notification being given or certain information being
furnished to the FTC or the Antitrust Division, pursuant to the HSR Act, and
that no waiting period requirements under the HSR Act are applicable to the
Sale. However, there can be no assurance that the consummation of the Sale
will not be delayed by reason of the HSR Act. At any time before or after
consummation of the Sale, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the consummation of the Sale. At
any time before or after the closing of the Sale, any state could also take
such action under its own antitrust laws as it deems necessary or desirable.
Private parties may also seek to take legal action under antitrust laws under
certain circumstances.
Other Approvals. Under the terms of the Sale Agreement, the consent of the
Company's lenders to the Sale is required, except for those lenders who are
being paid at the closing, some of whom must consent to the change in manager.
In addition, estoppel certificates from all anchor tenants of the Properties
and 75% of all non-anchor tenants must be obtained. Each of the required
consents and estoppel certificates were obtained by the parties during the due
diligence period and were delivered into escrow on the Escrow Closing Date.
See "Summary of Certain Agreements--The Sale Agreement." Therefore, no further
approvals are necessary for consummation of the Sale, other than the approval
of the Shareholders of the Transaction.
DISSENTERS' RIGHTS.
Under Virginia law, Shareholders who object to or vote against the
Transaction will not be entitled to any appraisal, dissenters' or similar
rights with respect to their shares of Common Stock. Article 15 of the
Virginia Stock Corporation Act (the "Virginia Act") provides that shareholders
do not have dissenters' rights in the event of a sale of all, or substantially
all, of the property of a corporation for cash pursuant to a plan by which
all, or substantially all, of the net proceeds of the sale will be distributed
to the shareholders within one (1) year of the consummation of the sale. The
Plan being submitted to the Shareholders of the Company at the Special Meeting
provides for the distribution of net proceeds from the Sale (after payment of
all remaining fixed liabilities and provision of adequate reserves for
contingent liabilities) within such one-year period. The Company anticipates
that such distribution or distributions will be made by December 31, 1996.
41
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The accompanying unaudited pro forma financial statements are presented to
illustrate the effect of certain adjustments to the Company's historical
financial statements that would result from: (i) the approval by the
Shareholders of the Sale Agreement and the Plan; and (ii) the consummation of
the Sale pursuant to the Sale Agreement. The unaudited pro forma financial
statements do not reflect the final completion of the liquidation and
dissolution of the Company, in accordance with the terms of the Plan. The
unaudited pro forma statement of net assets in liquidation presents the net
assets of the Company on a liquidation basis as if the foregoing events had
occurred as of May 31, 1996. The unaudited pro forma statements of operations
present the Company's net operating results as if these events had occurred as
of September 1, 1994.
As a result of the decision by the Company's Board of Directors to solicit
offers to purchase the Company's portfolio of properties, the operating
investment properties and certain related assets have been classified as
investment properties held for sale in the Company's historical financial
statements beginning in the fourth quarter of fiscal 1995. The balance of
investment properties held for sale is net of an allowance for possible
impairment loss of $4,360,000 at May 31, 1996, which reflects the writedown of
such assets to the lower of adjusted cost or net realizable value. Such
allowance applies only to those properties for which losses are expected based
on their estimated individual fair values. The expected gains on properties
for which the estimated fair value less costs to sell exceeds the adjusted
cost basis would be recognized in the period in which the Sale is completed.
The Company would have recognized a gain of approximately $9,000,000 if the
proposed Sale had occurred as of May 31, 1996. The Company will continue to
recognize depreciation expense on its assets held for sale through the date of
disposal, which would increase the actual gain recognized upon the successful
completion of the Sale. Such gain will be offset, in part, by the write-off of
unamortized loan buydown fees which would be reflected as a loss on the early
extinguishment of debt. Costs of obtaining Shareholder approval and completing
the potential Sale have been and will continue to be expensed as incurred.
Upon the receipt of the requisite Shareholder vote to approve the Sale, the
Company will adopt the liquidation basis of accounting whereby all assets will
be carried at their estimated net realizable values and liabilities will be
stated at their estimated settlement amounts. Accordingly, the accompanying
unaudited pro forma financial statements reflect the liquidation basis
presentation in the statement of net assets in liquidation.
The unaudited pro forma financial statements and related notes should be
read in conjunction with the Company's historical financial statements and
notes thereto included elsewhere in this Proxy Statement. In management's
opinion, all adjustments necessary to reflect the effects of these events have
been made. The unaudited pro forma financial statements are not necessarily
indicative of what the actual results of the Company would have been assuming
such events had been completed as of May 31, 1996 with respect to the pro
forma statement of net assets in liquidation and as of September 1, 1994 with
respect to the pro forma statements of operations, nor do they purport to
represent the future results of the Company.
42
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
PRO FORMA STATEMENT OF NET ASSETS IN LIQUIDATION
AS OF MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
RPI PRO FORMA RPI
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Operating investment properties held for $187,601 $(187,601)(A) $ --
sale, net................................
Cash and cash equivalents................. 7,057 197,000 (A)
(427)(A)
(159,660)(B)
(527)(C)
(316)(D)
(143)(E)
75 (F) 43,059
Capital improvement reserve............... 1,331 (800)(G) 531
Escrowed cash............................. 1,167 (1,092)(H)
(75)(F) --
Receivables and prepaid expenses.......... 1,106 -- 1,106
Other assets.............................. 45 (45)(I) --
Deferred expenses, net.................... 1,100 (1,100)(I) --
-------- --------- -------
199,407 (154,711) 44,696
LIABILITIES
Mortgage notes payable, net............... 155,749 (159,660)(B)
3,911 (I) --
Note payable--affiliate................... 1,136 (1,136)(J) --
Accounts payable and accrued expenses..... 1,743 (1,092)(H) 651
Mortgage interest payable................. 316 (316)(D) --
Other liabilities......................... 153 (143)(E) 10
Accounts payable--affiliate............... 16 -- 16
Estimated costs during period of -- 992 (C) 992
liquidation..............................
-------- --------- -------
159,113 (157,444) 1,669
-------- --------- -------
Net assets in liquidation................. $ 40,294 $ 2,733 (K) $43,027
======== ========= =======
</TABLE>
See accompanying notes
43
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO PRO FORMA STATEMENT OF NET ASSETS IN LIQUIDATION
AS OF MAY 31, 1996
(UNAUDITED)
A. Reflects the Sale of the Properties at the agreed upon price of
$197,000,000, net of closing costs of $427,000. The difference between the
net proceeds of $196,573,000 and the net carrying value of the operating
investment properties as of May 31, 1996, of $187,601,000, would have been
reflected as a gain on sale of $8,972,000 if the Sale had closed on May 31,
1996. The net carrying value of the operating investment properties as of
May 31, 1996 is comprised of the following amounts (in thousands):
<TABLE>
<CAPTION>
MAY 31
--------
<S> <C>
Land............................................................. $ 37,845
Buildings and improvements....................................... 175,837
Furniture and equipment.......................................... 9,676
--------
223,358
Less: accumulated depreciation................................... (32,131)
--------
191,227
Deferred rent receivable......................................... 305
Deferred leasing commissions, net................................ 429
--------
191,961
Less: Allowance for possible impairment loss..................... (4,360)
--------
$187,601
========
</TABLE>
B. Adjustment to record the assumption or prepayment of the outstanding
mortgage debt secured by the Company's operating investment Properties upon
the closing of the Sale. The adjustment amount reflects the outstanding
principal balances of the mortgage loans as of May 31, 1996 (see note I
below).
C. Adjustment to accrue the estimated costs of obtaining Shareholder approval,
completing the Sale and operating the Company and winding up its affairs
through the date of the final liquidation, net of costs already incurred
through May 31, 1996. This adjustment reflects the estimated costs expected
to be incurred on or before the date of the closing of the Sale ($527,000),
as well as an accrual for the estimated expenses to be incurred subsequent
to the closing of the Sale but prior to the final liquidation of the
Company. Such an accrual would be made upon the adoption of the liquidation
basis of accounting. The Company will adopt the liquidation basis in the
event that the proposed Sale is approved by the Shareholders. For purposes
of this pro forma financial statement, such approval is assumed to have
been received effective as of May 31, 1996 (see note K below).
D. Adjustment to reflect the payment of accrued interest on outstanding
mortgage loans, which would be settled upon the closing of the Sale.
E. Reflects the transfer of tenant security deposit funds to Glimcher upon the
closing of the Sale.
F. Reflects the release of certain escrowed funds held by one of the Company's
mortgage lenders. Upon the sale of the related operating investment
Properties, such funds would be released by the lender and applied to the
repayment of the outstanding loan balances.
G. Adjustment to reflect the use of the Company's capital improvement reserve
to fund the costs of certain required capital repair work to be performed
prior to the closing of the Sale, in the amount of $500,000, and the
obligation of the Company to establish a repair program for two roofs for
which the Company is
44
<PAGE>
proceeding on claims against the manufacturer. The cost of such repair
program has been estimated at $300,000.
H. Adjustment to use funds escrowed for taxes and insurance, in the amount of
$1,092,000, to settle the Company's portion of the prorated liability for
real estate taxes and insurance through the date of the Sale.
I. Reflects the write-off of deferred expenses, other non-realizable assets
and unamortized loan buydown fees in conjunction with the assumed closing
of the proposed Sale.
J. Adjustment to write-off the liability to repay an affiliate, PaineWebber
Properties Incorporated ("PWPI"), under the terms of an unsecured
promissory note taken back in connection with the refinancing of the
Applewood Village mortgage loan in fiscal 1995. As discussed elsewhere in
this Proxy Statement (see pages 35-36), effective June 1, 1996 PWPI agreed
to forgive the remaining balance of this note. The Company will recognize a
gain on forgiveness of indebtedness in the amount of the outstanding
balance of this note payable.
K. The net impact of the pro forma adjustments on the Company's net assets in
liquidation as of May 31, 1996 reflects the nonrecurring gains and losses
and other expenses which are directly attributable to the Sale. The amounts
of such gains, losses and other expenses, calculated as if the Sale closed
on May 31, 1996, can be summarized as follows (in thousands):
<TABLE>
<S> <C>
Net gain on sale of operating investment properties (see A
above).......................................................... $8,972
Gain on forgiveness of indebtedness (see J above)................ 1,136
Repairs and maintenance expenses (see G above)................... (800)
Portfolio sale expenses and estimated liquidation costs (see C
above)(1)....................................................... (1,519)
Loss on early extinguishment of debt (see I above)............... (5,011)
Write-off of other assets (see I above).......................... (45)
------
$2,733
======
</TABLE>
--------
(1) The gross components of this estimate of portfolio sale expenses and
estimated liquidation costs, which does not include portfolio sale
expenses totaling $1,282 that has already been incurred and accrued
as of May 31, 1996, are as follows (in thousands):
<TABLE>
<S> <C>
Legal fees....................................... $ 759
Audit and tax fees............................... 114
Shareholder proxy expenses....................... 100
Directors and officers liability insurance....... 200
State income and franchise taxes................. 80
Printing and mailing expenses.................... 42
Shareholder database management.................. 57
Directors' compensation and reimbursements....... 57
Miscellaneous liquidation expenses............... 110
------
$1,519
======
</TABLE>
45
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MAY 31, 1996 AND THE YEAR ENDED AUGUST 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31, 1996 YEAR ENDED AUGUST 31, 1995
----------------------------------- -----------------------------------
RPI PRO FORMA RPI RPI PRO FORMA RPI
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income and
expense
reimbursements....... $18,960 $(18,960)(A) $ -- $24,682 $(24,682)(A) $ --
Interest income....... 363 -- 363 327 -- 327
------- -------- ------ ------- -------- -------
Total revenues...... 19,323 (18,960) 363 25,009 (24,682) 327
Expenses:
Interest expense and
related fees......... 11,093 (11,093)(A) -- 15,283 (15,283)(A) --
Depreciation and
amortization......... 4,837 (4,837)(A) -- 6,495 (6,495)(A) --
Real estate taxes..... 1,084 (1,084)(A) -- 1,329 (1,329)(A) --
Property expenses..... 1,933 (1,933)(A) -- 2,348 (2,348)(A) --
Portfolio sale
expenses............. 1,282 (1,282)(B) -- -- -- --
Loss on impairment of
assets held for
sale................. 510 (510)(C) -- 3,850 (3,850)(C) --
General and
administrative....... 712 -- 712 1,731 -- 1,731
Management fees paid
to affiliates........ -- -- -- 125 -- 125
Financial and investor
servicing expenses... -- -- -- 111 -- 111
Investment analysis
expense.............. -- -- -- 101 (101)(A) --
------- -------- ------ ------- -------- -------
21,451 (20,739) 712 31,373 (29,406) 1,967
------- -------- ------ ------- -------- -------
Net loss................ $(2,128) $ (349)(D) $(6,364) $(1,640)(D)
======= ====== ======= =======
Net loss per common
share (5,010,050 shares
outstanding)........... $ (0.42) $(0.07) $ (1.27) $ (0.33)
======= ====== ======= =======
</TABLE>
See accompanying notes
46
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MAY 31, 1996 AND THE YEAR ENDED AUGUST 31, 1995
(UNAUDITED)
A. Adjustment to eliminate all items of revenues and expenses attributable to
the operating investment Properties, which, for purposes of these pro forma
statements of operations, are assumed to have been sold as of September 1,
1994. Interest expense and related fees pertaining to the mortgage loans
secured by the operating investment Properties have been eliminated because
such debt would have been settled at the time of the assumed Sale.
B. Reflects the elimination of portfolio sale expenses recorded in the
Company's historical financial statements for the nine months ended May 31,
1996. Since these pro forma statements of operations assume a sale of the
operating investment Properties as of September 1, 1994, all expenses
related to the transaction are assumed to have been incurred as of the sale
date.
C. Adjustment to eliminate the loss on impairment of assets held for sale
recognized in the Company's historical financial statements for the nine
months ended May 31, 1996 and the year ended August 31, 1995. Since these
pro forma statements of operations assume a sale of the operating
investment Properties as of September 1, 1994, no such reserves would have
been recorded.
D. The accompanying pro forma statements of operations do not include any
nonrecurring gains or losses or other expenses directly attributable to the
Sale. The amounts of such gains, losses and other expenses computed as if
the Sale closed on May 31, 1996 can be summarized as follows (in
thousands):
<TABLE>
<S> <C>
Net gain on sale of operating investment properties............... $ 8,972
Gain on forgiveness of indebtedness............................... 1,136
Repairs and maintenance expenses.................................. (800)
Portfolio sale expenses and estimated liquidation costs(1)........ 1,519)
Loss on early extinguishment of debt.............................. (5,011)
Write-off of other assets......................................... (45)
-------
Net nonrecurring gains and losses and other expenses.............. $ 2,733
=======
</TABLE>
--------
(1) The gross components of this estimate of portfolio sale expenses
and estimated liquidation costs, which does not include portfolio
sale expenses totaling $1,282 that has already been incurred and
accrued as of May 31, 1996, are as follows (in thousands):
<TABLE>
<S> <C>
Legal fees....................................... $ 759
Audit and tax fees............................... 114
Shareholder proxy expenses....................... 100
Directors and officers liability insurance....... 200
State income and franchise taxes................. 80
Printing and mailing expenses.................... 42
Shareholder database management.................. 57
Directors' compensation and reimbursements....... 57
Miscellaneous liquidation expenses............... 110
------
$1,519
======
</TABLE>
47
<PAGE>
SUMMARY OF CERTAIN AGREEMENTS
The following is a brief summary of the material provisions of the Sale
Agreement, the Closing Escrow Agreement, the Management Agreement and the
Plan. The description is qualified in its entirety by, and made subject to,
the more complete information set forth in the Sale Agreement, the Closing
Escrow Agreement and the Plan, which are attached to this Proxy Statement as
Annex A, Annex B and Annex C, respectively, and incorporated herein by
reference.
THE SALE AGREEMENT
Parties; Sale of Assets. Pursuant to the Sale Agreement, Glimcher has agreed
to purchase the Properties from the Sellers. PWI is a party to the Sale
Agreement for the sole purpose of binding itself to Glimcher with respect to
its obligations as set forth in the Sale Agreement. Pursuant to the
Assignment, the Company consented to the assignment by Glimcher of all of its
right, title and interest under the Sale Agreement to GPLP, with Glimcher
remaining primarily liable for its obligations under the Sale Agreement. As a
result of the Assignment, GPLP will become the owner of the Properties upon
consummation of the Sale.
Deposit; Due Diligence. On March 11, 1996, the Original Sale Agreement was
executed and delivered, and Glimcher delivered into escrow the Deposit of
$2,000,000 in the form of an irrevocable letter of credit. For a period of 60
days following the execution and delivery of the Original Sale Agreement,
Glimcher conducted due diligence on the Properties. Glimcher had the ability
to terminate the Sale Agreement and to receive a refund of the Deposit if its
diligence revealed a Material Concern, including material title, engineering,
structural or environmental matters concerning the Properties or material
facts concerning the Assumed Indebtedness, leases, tenancies or rents or
prepayment premiums on the Prepaid Indebtedness. All Material Concerns raised
by Glimcher during its due diligence period have been resolved by mutual
agreement of the Company and Glimcher pursuant to the Amendments, and Glimcher
no longer has the right to terminate the Sale Agreement for any such Material
Concerns. In connection with the resolution of Glimcher's Material Concerns,
the Company agreed to reduce the aggregate purchase price from $203,000,000 to
$197,000,000, to have certain budgeted structural work performed on the
Properties in an amount not to exceed $500,000 and to repair or institute a
repair program for those portions of the roofs on Barren River Plaza and
Applewood that contain phenolic foam insulation, at an estimated cost to the
Company of $300,000. See "The Transaction--Background of the Transaction."
Purchase Price. Pursuant to the Sale Agreement, the aggregate Purchase Price
for the Properties is $197,000,000, plus certain prepayment and assumption
fees and subject to adjustment as described below. On the Escrow Closing Date,
the Escrowed Purchase Price, in an aggregate amount equal to $81,221,009, was
deposited into escrow with the Closing Escrow Agent in the form of four (4)
irrevocable letters of credit. The balance of the Purchase Price will be paid
by the assumption of the Assumed Indebtedness, which is described in detail
below. The amount of the Escrowed Purchase Price was determined by subtracting
from the Purchase Price the principal balance of the Assumed Indebtedness as
of the Escrow Closing Date and adding thereto prepayment premiums on all of
the Sellers' other mortgage indebtedness (which, pursuant to the Sale
Agreement, will be prepaid upon consummation of the Sale), certain of
Glimcher's closing costs and assumption fees. The Sellers have the ability to
cause the Closing Escrow Agent to draw on the letters of credit and,
therefore, to hold all or a portion of the Escrowed Purchase Price in
immediately available funds. If the Sellers cause the Closing Escrow Agent to
draw on the letters of credit and either the Sale is consummated or the Sale
Agreement is terminated because of the failure to receive the requisite
approval of the Shareholders, PWI has agreed to pay the amount by which
Glimcher's actual interest expense on such funds exceeds the amount of
interest actually earned on such amount.
Representations and Warranties. The Sale Agreement contains certain
representations and warranties made by the Sellers, which are customarily made
by sellers in transactions of the type contemplated by the Sale Agreement,
relating to, among other things: (i) due organization of the Sellers; (ii)
validity of leases; (iii) rent rolls; (iv) service contracts; (v)
environmental matters; (vi) policies of insurance; (vii) litigation; (viii)
indebtedness; and (ix) power and authority of the Sellers to enter into the
Sale Agreement. In addition, PWI
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represents and warrants as to its due organization and its power and authority
to enter into the Sale Agreement. These representations and warranties must be
true and correct as of the date of the Sale Agreement, as of the Escrow
Closing Date and as of the closing of the Sale.
The Sale Agreement also contains certain representations and warranties made
by Glimcher, which are customarily made by purchasers in transactions of the
type contemplated by the Sale Agreement, relating to, among other things: (i)
its due organization; (ii) its due authorization; and (iii) its REIT status.
Indemnification. Pursuant to the Sale Agreement, PWI has agreed, if the
closing of the Sale (the "Closing") occurs, to indemnify and hold harmless
Glimcher (and its respective subsidiaries and affiliates and persons serving
as trustees, officers or directors thereof) against any damages, liabilities,
losses, taxes, fines, penalties, costs and expenses (including, without
limitation, reasonable fees of counsel) of any kind whatsoever which (i) may
be sustained or suffered by any of them arising out of or based upon any
representation or warranty made by the Sellers or PWI being inaccurate when
made or (ii) arise as a result of the Sellers not maintaining their legal
existence and/or not having the financial ability to make the required post-
Closing adjustments or to satisfy their indemnification obligations relating
to broker fees and commissions. Notwithstanding the foregoing, indemnification
by PWI will be enforceable only with respect to claims asserted or made prior
to the date which is one year from the Escrow Closing Date in connection with
matters for which estoppel certificates were not delivered at the Escrow
Closing.
The Sale Agreement also provides that Glimcher must indemnify and hold
harmless each Seller from and against any mechanics' and materialmen's liens
and other liens or claims, suits, actions, debts, liabilities, damages, costs,
charges and expenses (including court costs and reasonable attorneys' fees)
that any such Seller may suffer or incur by reason of any action or inaction
of Glimcher, Glimcher's agents, or Glimcher's contractors, or entry onto,
inspection or physical testing of the Properties.
Indebtedness. Under the terms of the Sale Agreement, the following
Properties will be conveyed subject to the applicable Assumed Indebtedness as
more fully described herein: Applewood Village, Artesian Square, Audubon
Village, Aviation Plaza, Barren River Plaza, Crossing Meadows, Crossroads
Center, Cumberland Crossing, East Pointe Plaza, Lexington Parkway Plaza, Logan
Place, Marion Towne Center, Piedmont Plaza, Roane County Plaza, Southside
Plaza and Village Plaza. The interest rates on the Assumed Indebtedness with
respect to Barren River Plaza, Cumberland Crossing, East Pointe Plaza and
Marian Towne Center have been reset, and a portion of the existing
indebtedness with respect to Crossroads Center and Logan Place are being
prepaid, as specified below. The outstanding principal balance of the Assumed
Indebtedness on the Escrow Closing Date was $117,452,602. Holders of the
Assumed Indebtedness are required to be paid assumption fees of $1,174,526 in
the aggregate, and Glimcher has agreed to pay all such fees. The Sellers and
Glimcher obtained the consents of the holders of the Assumed Indebtedness to
the transactions contemplated by the Sale Agreement. Holders of the Assumed
Indebtedness have either agreed to release the Sellers from liability, or
Glimcher has agreed to assume such indebtedness and to indemnify, defend and
hold the Sellers harmless from any and all obligations that arise under the
Assumed Indebtedness.
Under the terms of the Sale Agreement, the following Properties will be
conveyed after prepayment of the applicable Prepaid Indebtedness thereon:
College Plaza, Cross Creek Plaza, Crossroads Center ($740,000 principal
reduction required), Cypress Bay Plaza, Franklin Square, Logan Place
($1,315,000 principal reduction required), Sycamore Square and Walterboro
Plaza. The outstanding principal balance of the Prepaid Indebtedness on the
Escrow Closing Date was $42,146,272. Certain of the holders of the Prepaid
Indebtedness are entitled to prepayment fees or premiums when the debt is
paid. Prepayment premiums or fees in the amount of $343,684 would have been
due if the Prepaid Indebtedness was satisfied in full on the Escrow Closing
Date. As a material part of the consideration paid under the Sale Agreement,
Glimcher has agreed to pay, in addition to the Purchase Price, the actual
prepayment premiums or fees due to the holders of the Prepaid Indebtedness at
the Closing; therefore, any increase in the prepayment premiums or fees
between the Escrow Closing Date and the date of the Closing will be Glimcher's
obligation and any decrease in the prepayment premiums or fees between the
Escrow Closing Date and the date of the Closing inures to Glimcher's benefit.
The Sellers and Glimcher have
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obtained the consent of the holders of the Prepaid Indebtedness to the change
in manager in each instance in which a change in manager of the applicable
Property requires the consent of the holder of such Prepaid Indebtedness and
would constitute, without such consent, a default or an event of default under
such Prepaid Indebtedness. Glimcher and the Sellers have also obtained payoff
letters from the holders of the Prepaid Indebtedness, containing calculations
of prepayment premiums and fees, as of the Escrow Closing Date, if any.
Other than with respect to specific agreed-upon terms and conditions, the
Sellers have agreed otherwise not to modify, alter or amend any Assumed
Indebtedness or Prepaid Indebtedness without Glimcher's prior written consent.
After the Escrow Closing Date, Glimcher has the right to contact holders of
the existing indebtedness of the Company in an effort to negotiate
modifications to such indebtedness. The Sellers, however, are not obligated to
execute any documents in connection with such negotiations or proposed
modifications, and no such modifications will be effective unless the Sale is
consummated.
Acquisition Proposals. Unless and until the Sale Agreement is terminated in
accordance with its terms, the Sellers and PWI have agreed, either directly or
indirectly, not to solicit, initiate or knowingly encourage the submission of
any Acquisition Proposal. The Sale Agreement defines "Acquisition Proposal" as
(i) any proposal for a merger or other business combination involving the
Company or any other Seller or (ii) any proposal to acquire in any manner,
directly or indirectly, without limitation, by tender offer, exchange offer or
similar transaction, more than 15% of (a) the capital stock of the Company or
any other Seller which is a corporation, (b) the partnership interests of any
Seller which is a partnership or (c) the consolidated assets of the Sellers,
other than the transactions contemplated by the Sale Agreement.
Sellers may, however, participate in discussions or negotiations with, and
furnish information to, any third party in response to any unsolicited
proposal if the Board determines, based on the advice of legal counsel, that
failure to do so would reasonably be expected to violate the fiduciary duties
of the Board to the Shareholders. The Board may also disclose its position
with respect to any tender offer in accordance with applicable securities
laws.
The Board may withdraw or modify its recommendation of approval of the Sale
Agreement, recommend or enter into an agreement with respect to a different
Acquisition Proposal or terminate the Sale Agreement if (i) an Acquisition
Proposal is communicated to the Company and (ii) the Board determines, based
on the advice of legal counsel, that such action is required in order to
comply with its fiduciary duties to the Shareholders. In the event the Board
is prepared to accept an Acquisition Proposal, the Board must notify Glimcher
forty-eight (48) hours prior to terminating the Sale Agreement or the Closing
Escrow Agreement, if applicable, and entering into a definitive agreement with
respect to such Acquisition Proposal.
Shareholder Approval. The Sale Agreement and the transactions contemplated
thereby must be approved by the Required Shareholder Vote, as a condition to
consummation of the Sale under the Sale Agreement. See "--Termination After
Escrow Closing." The Company agreed under the Sale Agreement to take all
action necessary (in accordance with applicable law and its organizational
documents) promptly to convene a special meeting of Shareholders to consider
and vote upon the approval of the Sale Agreement and the transactions
contemplated thereby. Furthermore, the Board is required to recommend approval
of the Sale Agreement, and the Company must use reasonable efforts to obtain
such approval. However, the Board is not required to take such actions if,
based upon the advice of legal counsel, such actions would reasonably be
expected to violate the fiduciary duties of the Board to the Shareholders.
Failure to obtain Shareholder approval of the Sale Agreement due to such
fiduciary duties will not constitute a default under the Agreement.
Escrow Closing. On the Escrow Closing Date, the Sellers, Glimcher, GPLP and
the Closing Escrow Agent entered into the Closing Escrow Agreement, governing
the delivery and release of the Escrowed Purchase Price and the documents
required to close the transactions contemplated by the Sale Agreement.
Pursuant to the Closing Escrow Agreement, on the Escrow Closing Date, the
Sellers delivered the following documents to the
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Closing Escrow Agent: special warranty deeds, assignment and assumption
agreements, indemnity agreements, original option agreements, leases and
service contracts, affidavits relating to taxpayer identification numbers,
evidence of each Seller's and PWI's authority to enter into the transaction,
forms of opinions of counsel regarding the enforceability of the Sale
Agreement, affidavits regarding parties in possession and mechanics liens,
final rent rolls, notices to tenants, vendors and lenders regarding the change
in manager and the sale of assets, bills, option parcel conveyance documents,
transfer tax returns, settlement statements, tenant estoppel certificates and
lender consents. Pursuant to the Closing Escrow Agreement, on the Escrow
Closing Date, Glimcher delivered to the Closing Escrow Agent the Escrowed
Purchase Price (in the form of three (3) irrevocable letters of credit issued
to the Closing Escrow Agent by The Huntington National Bank and one (1)
irrevocable letter of credit issued to the Closing Escrow Agent by KeyBank
National Association), together with the following documents: evidence that
Glimcher is in existence and in good standing under the laws of the State of
Maryland, assignment and assumption agreements, indemnity agreements, evidence
of Glimcher's authority to enter into the Transaction, an opinion of counsel
regarding the enforceability of the Sale Agreement, transfer tax returns and
settlement statements. On the Escrow Closing Date, the Sellers, Glimcher and
GPLP entered into a Management Agreement, pursuant to which GPLP began
managing the Properties. See "--The Closing Escrow Agreement" and "--The
Management Agreement."
Defaults and Remedies. If the Sellers default under the Sale Agreement or
the Closing Escrow Agreement, Glimcher may elect, as its sole and exclusive
remedy: (i) to terminate the Sale Agreement, in which event the Escrowed
Purchase Price will be returned to Glimcher, and the Sellers must pay to
Glimcher $3,000,000 as liquidated damages and up to an additional $500,000 as
reimbursement for its reasonable and documented out-of-pocket expenses; or
(ii) to seek specific performance of the Sellers' obligations. If Glimcher
defaults under the Sale Agreement or the Closing Escrow Agreement, the Sellers
may elect, as their sole and exclusive remedy: (x) to terminate the Sale
Agreement, in which event the Sellers will be entitled to receive out of the
Escrowed Purchase Price $3,000,000 as liquidated damages and up to and
additional $500,000 as reimbursement for the Sellers' reasonable and
documented out-of-pocket expenses, and Glimcher will receive the balance of
the Escrowed Purchase Price, or (y) to seek specific performance of Glimcher's
obligations.
Termination After Escrow Closing. The Sale Agreement and the Closing Escrow
Agreement may only be terminated after the Escrow Closing Date for any one of
the following reasons: (a) by mutual written agreement of Glimcher and the
Sellers; (b) by Glimcher or the Sellers if any United States federal or state
court of competent jurisdiction or other governmental entity has issued an
order, decree or ruling or taken any other action, restraining or otherwise
prohibiting the delivery or recordation, as the case may be, of the documents
deposited in escrow at the Escrow Closing and/or the payment to the Sellers of
the Escrowed Purchase Price and such order, decree, ruling or other action has
become final and non-appealable; provided that the party seeking to terminate
used its reasonable efforts to appeal such order, decree, ruling or other
action, unless such order, decree, ruling or other action was against or with
respect to the non-terminating party, in which event no such reasonable
efforts are required; (c) by Glimcher or the Sellers if the Sale Agreement and
the transactions contemplated thereby shall have failed to receive the
Required Shareholder Vote; (d) by Glimcher if an event of bankruptcy,
receivership or other similar event of any Seller occurs; (e) by the Sellers
if an event of bankruptcy, receivership or other similar event of Glimcher
occurs; (f) by Glimcher or the Sellers, if the Board (i) does not recommend to
the Shareholders approval of the Sale Agreement and the transactions
contemplated thereby or withdraws any such recommendation or (ii) recommends
to the Shareholders approval or acceptance of an Acquisition Proposal by a
person other than Glimcher; or (g) by Glimcher or the Sellers if no vote of
the Shareholders has occurred on or before the Outside Date.
In the event the Sale Agreement is terminated pursuant to any of the above
provisions (and subject to the following paragraphs), (i) the Closing Escrow
Agent is required to deliver the Escrowed Purchase Price, together with all
interest thereon, to Glimcher, (ii) the documents deposited in escrow at the
Escrow Closing are required to be returned to the party that deposited the
same (or are to be destroyed if executed by more than one party), (iii) the
Management Agreement continues in full force and effect in accordance with the
terms thereof and (iv) the Sellers are required to reimburse Glimcher for
Lease Costs and Advances, as defined in the Management Agreement.
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In addition, if Glimcher or the Sellers terminate the Sale Agreement
pursuant to provision (c) above, then PWI is required to pay Glimcher (i) one-
half of Glimcher's reasonable, documented, out-of-pocket, third party expenses
(up to a maximum payment under this subsection of $1,000,000) and (ii) (A) to
the extent the Escrowed Purchase Price is held in immediately available funds
as a result of the Sellers' request that the Closing Escrow Agent draw on the
letters of credit held under the Closing Escrow Agreement, the amount by which
Glimcher's actual interest expense on such funds exceeds the interest actually
earned on such amount, and (B) to the extent any portion of the Escrowed
Purchase Price is held in immediately available funds as a result of
Glimcher's election, one-half of the amount by which Glimcher's actual
interest expense on such funds exceeds the interest actually earned on such
amount (up to a maximum payment under this subsection of $500,000).
If Glimcher terminates the Sale Agreement pursuant to provision (d) above,
Glimcher is entitled to have the Escrowed Purchase Price returned, and the
Sellers are required to pay Glimcher $3,000,000 as liquidated damages and up
to an additional $500,000 as reimbursement for its reasonable and documented
out-of-pocket expenses. Similarly, if the Sellers terminate the Sale Agreement
pursuant to provision (e) above, the Sellers are entitled to receive out of
the Escrowed Purchase Price $3,000,000 as liquidated damages and up to an
additional $500,000 as reimbursement for the Sellers' reasonable and
documented out-of-pocket expenses.
Finally, if Glimcher or the Sellers terminate the Sale Agreement pursuant to
provision (f) above and, in the event of termination pursuant to subsection
(i) of such provision (f), the Company enters into a definitive purchase
agreement with respect to an Acquisition Proposal by a person other than
Glimcher at any time prior to six (6) months after the Outside Date, the
Sellers are required to pay Glimcher $4,000,000 as liquidated damages;
provided, however, that, in the event of termination pursuant to provision
(f)(i) above, the Sellers are not required to pay Glimcher and Glimcher will
not be entitled to any such liquidated damages in the event the Board
reasonably determines that Glimcher is unlikely to be able to perform any of
its material obligations under the Sale Agreement in a timely manner (the
"Fiduciary Standard") and provides an officer's certificate to Glimcher to
that effect. The Sale Agreement allocates to the Sellers the burden of proof
in a challenge by Glimcher that the Fiduciary Standard has not been met by the
Board. Glimcher's performance of its material obligations under the Sale
Agreement will be deemed not to be able to be timely performed unless Glimcher
is able to perform its material obligations within fourteen (14) days after
the Special Meeting. In considering the ability to perform its obligations
timely, the Sellers have no obligation to postpone or otherwise reschedule
such Special Meeting for any reason whatsoever in order to enable Glimcher to
perform its obligations under the Sale Agreement in a timely manner.
Liquidated Damages; Protection of REIT Status. Pursuant to the Sale
Agreement and other related agreements among the parties, the parties have
agreed that any payments made from one party to the other pursuant to the
above-mentioned termination events shall be construed to be "liquidated
damages." In order to protect the REIT status of the Company and Glimcher, all
such liquidated damages will only be paid directly to the party entitled
thereto to the extent such payment does not cause such party to fail to meet
the requirements of Sections 856(c)(2) and 856(c)(3) of the Code. Any amount
not paid to the party that is owed the liquidated damages is required to be
paid into escrow and thereafter to be released over a period of five years, in
each case only to the extent the release would either (i) constitute
"Qualifying Income" as described in Sections 856(c)(2)(A)-(H) and
856(c)(3)(A)-(I) of the Code or (ii) be excluded from gross income within
Sections 856(c)(2) and 856(c)(3) of the Code. If any liquidated damages remain
in escrow after five years, the amount remaining in escrow will be returned to
the party which made the liquidated damages payment.
Prorations and Adjustments at Escrow Closing. The Sale Agreement provides
for certain prorations and adjustments that are customary for transactions of
the type contemplated by the Sale Agreement, relating to, among other things:
(i) real property taxes and assessments; (ii) rents; (iii) security deposits;
(iv) utilities; (v) income and expenses of the Properties; and (vi) closing
costs.
THE CLOSING ESCROW AGREEMENT
The Closing Escrow Agreement provides for the administration and transfer of
documents and funds required by the Sale Agreement. The Closing Escrow Agent
is not paid a fee, but is entitled to reimbursement of
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its out-of-pocket storage costs (of which the Company and GPLP are each liable
for one-half), and if the Closing occurs, will be paid by Glimcher for issuing
title insurance policies. Under the terms and conditions of the Closing Escrow
Agreement, the Closing Escrow Agent is only liable to the Sellers or Glimcher
to the extent of loss or damage caused by its acts of gross negligence and/or
willful misconduct.
Pursuant to the Closing Escrow Agreement, the Sellers are required to notify
the Closing Escrow Agent and Glimcher that the Company has received the
Required Shareholder Vote. Thereafter, when the Company submits to the Closing
Escrow Agent an opinion of counsel, updated exhibits, notices to tenants and
contract vendors, a certificate from the transfer agent indicating that the
Company has received the Required Shareholder Vote and a notice of the amount
of cash flow in dispute, if any, under the Management Agreement, the Closing
occurs and the Closing Escrow Agent disburses the equity distribution, as
described below.
The equity distribution is equal to (A) that portion of the Escrowed
Purchase Price not otherwise required to satisfy outstanding principal and
interest on Prepaid Indebtedness and to pay the Company's closing costs, (B)
plus interest on the cash portion of the Escrowed Purchase Price and an
interest factor on the letter of credit portion of the Escrowed Purchase
Price, as the case may be, with such interest or interest factor being deemed
to accrue as of June 20, 1996, (C) less the amount (the "Holdback Amount")
required to be held back as a result of disputes, if any, over the cash flow
under the terms and conditions of the Management Agreement, (D) less the
amount by which Glimcher's actual interest expense on the Escrowed Purchase
Price, if any, exceeds the interest actually earned on the Escrowed Purchase
Price, if the Sellers require the Closing Escrow Agent to call on the letters
of credit and (E) less the amount representing the cash flow from the
Properties during the period from May 14, 1996 through the Escrow Closing
Date, if such amount has not already been made available to Glimcher.
After the equity distribution, Glimcher is required to pay the Closing
Escrow Agent any deficiency required to satisfy the Prepaid Indebtedness in
full (including all prepayment penalties and fees) and certain of Glimcher's
closing costs. When the Closing Escrow Agent has sufficient funds, it is then
authorized to complete the transaction by paying the holders of the Prepaid
Indebtedness in full, recording the deeds and any other title documents,
paying all transfer taxes and recording fees, disbursing to Glimcher the
balance of the Escrowed Purchase Price, disbursing to Glimcher the cash flow
from the Properties since May 14, 1996 less the Holdback Amount, if any,
delivering the Purchaser's Escrow Closing Deliveries (as defined in the Sale
Agreement), delivering the Seller's Escrow Closing Deliveries (as defined in
the Sale Agreement) and notifying the Company and Glimcher of any Holdback
Amount. As a result of the Assignment, GPLP will become the owner of the
Properties upon consummation of the Sale.
The Closing Escrow Agreement may be terminated if: (i) Glimcher and the
Company mutually agree in a written agreement, (ii) either the Company or
Glimcher are subject to bankruptcy, receivership or similar event, (iii) a
government entity issues an order or decree restraining or prohibiting the
transaction, (iv) the Sellers fail to receive the Required Shareholder Vote,
(v) the Board does not recommend approval of the Sale Agreement, (vi) the
Board recommends approval or acceptance of an Acquisition Proposal by a person
other than Glimcher, or (vii) no vote of the Shareholders has occurred on or
before the Outside Date. If so terminated, the Closing Escrow Agent may
resign. Documents shall be returned to the party that signed them. The effect
of termination is addressed under the terms of the Sale Agreement. See "--The
Sale Agreement--Termination After Escrow Closing."
THE MANAGEMENT AGREEMENT.
General Terms. The Management Agreement provides for GPLP to be appointed
the managing, collecting and exclusive leasing agent for the Properties as of
the Escrow Closing Date. The Management Agreement became effective as of the
Escrow Closing Date and continues in full force and effect during the Initial
Term, which ends upon the lapse of the Closing Escrow Agreement or the earlier
termination of the Sale Agreement. Upon the expiration of the Initial Term,
the Management Agreement continues in full force and effect on a month-to-
month basis terminable by the Company on 15 days written notice to GPLP and
terminable by GPLP
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on 45 days written notice to the Company. In addition, the Management
Agreement may be terminated upon the occurrence of any event described in the
section below entitled "Termination Rights."
Pursuant to the terms and conditions of the Management Agreement, GPLP is
responsible for providing all property management and leasing services
necessary to preserve, protect and maintain the Properties. GPLP is required
either to employ personnel or negotiate and contract with third parties to
perform all routine services and repairs for all of the Properties, provided
that the payments for such services and repairs not exceed the budgeted
amounts for such items approved by the Company. In the event that the Sale
does not occur, the Company will assume the obligations of all third party
contracts made by GPLP and is required to indemnify GPLP for all liabilities,
costs and expenses associated therewith. If the Closing does occur, Glimcher
will assume the obligations of all third party contracts made by GPLP and must
indemnify the Company for all liabilities, costs and expenses associated
therewith.
Subject to the Company's right of inspection, GPLP is required to keep all
books and records in connection with the Properties at its offices. GPLP must
periodically provide to the Company the financial and other reports described
in the Management Agreement, and GPLP must propose annually for the Company's
approval an operating budget for each Property. In addition, GPLP is required
to procure and maintain, at its own expense, certain insurance coverage with
respect to the Properties.
Collection of Rents and Revenues. GPLP is required to collect all of the
rents and other revenues due to the Company and to deposit all such funds in
non-commingled bank accounts. Except for payments of real estate taxes or debt
service, GPLP must obtain the Company's prior written consent prior to the
payment of any amounts in excess of certain thresholds. During the Initial
Term, GPLP must remit the excess revenues to the Closing Escrow Agent and,
after the expiration of the Initial Term without the purchase of the
Properties by Glimcher, to the Company, after the deduction of all management
fees then due. If, during the Initial Term, GPLP has insufficient funds to pay
all the expenses, Glimcher is obligated to advance any deficiency. In the
event the Initial Term expires without the purchase of the Properties by
Glimcher, the Company will be obligated to reimburse Glimcher for any amounts
paid to cover deficiencies, and the Company will be obligated to cover any
future deficiencies.
Leasing and Operation of the Properties. Pursuant to the Sale Agreement and
the Management Agreement, Glimcher and the Sellers have agreed to allocate
responsibility for certain costs and expenses associated with the ongoing
leasing and operation of the Properties. Glimcher has agreed to pay for tenant
improvements agreed to or incurred prior to the Escrow Closing Date for leases
that it approves. The Sellers are responsible for such costs which are agreed
to prior to the Escrow Closing Date if the lease is not consented to by
Glimcher. Glimcher has agreed to pay the leasing costs for all leases entered
into after the Escrow Closing Date; provided, that if the Closing does not
occur, the Sellers have agreed to reimburse Glimcher for all such costs,
together with any interest thereon. In addition to covenants and agreements
described herein under separate headings, the Sale Agreement contains certain
covenants of the Sellers and Glimcher, relating to, among other things, the
Sellers' operation of the Properties prior to the Escrow Closing Date and
leases. With respect to leases, the Sellers agreed, prior to the Escrow
Closing Date, (i) not to effect any change in any lease or enter into any new
lease without Glimcher's written consent and (ii) to keep Glimcher informed
and to consult with Glimcher regarding negotiations with respect to new leases
and amendments to, and assignments of, existing leases. Notwithstanding the
foregoing, the Sellers had the unilateral right to amend or enter into any
lease which complied with certain agreed-upon leasing guidelines. As of the
Escrow Closing Date, GPLP is the exclusive leasing agent for the Properties
pursuant to the Management Agreement. As such, GPLP may approve any new lease
with respect to the Company's Properties; provided, however, that any lease
which does not conform with the guidelines set forth in the Management
Agreement requires the Company's prior written approval.
Compensation of GPLP. In general, GPLP receives compensation comparable to
that previously provided to the Company's former property managers. GPLP
receives a management fee equal to 3% of gross revenues, which consists of all
revenues received from (i) tenant rentals, (ii) cleaning, security and damage
deposits, if and when forfeited, (iii) payments by tenants for taxes,
insurance and maintenance expenses and (iv) vending
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machines and other miscellaneous income. GPLP, however, does not receive any
management fee for gross revenues attributable to the first 30 days of the
Initial Term. Though GPLP immediately began to manage the Properties as of the
Escrow Closing Date, the Company was required to pay each of its former
Property managers a management fee for an additional 30 days because their
management agreements provided for termination only upon 30 days prior written
notice and because the Company did not give such notice until the Escrow
Closing.
GPLP receives a leasing fee equal to (i) $1.50 per square foot for spaces
newly leased of less than 20,000 square feet, (ii) $1.00 per square foot for
spaces newly leased of 20,000 square feet or more and (iii) $0.75 per square
foot for spaces the lease on which is being renewed. No leasing fees are
payable by the Company to GPLP during the Initial Term; provided, however,
that if such term should end without the purchase of the Properties by
Glimcher, then all leasing fees earned as of that date will be immediately
due. In the event that Glimcher does purchase the Company's Properties,
Glimcher will earn an incentive management fee equal to the net cash flow of
the Properties attributable to the period commencing on May 14, 1996 and
ending on the date of expiration of the Initial Term. For purposes of the
Management Agreement, net cash flow is defined as revenues less actual
expenses, including but not limited to principal and interest payments on the
Company's indebtedness.
Indemnification. In the event that the Management Agreement terminates
without Glimcher's purchase of the Properties, so long as GPLP acts within the
scope of its authority under the Management Agreement and is not guilty of any
willful misconduct or negligence, the Company has agreed to indemnify and hold
harmless GPLP from any loss resulting from its management of the Properties.
In the event that the Management Agreement terminates without Glimcher's
purchase of the Properties, so long as the Company is not guilty of any
willful misconduct or negligence, GPLP must indemnify and hold harmless the
Company for any acts outside the scope of the Management Agreement and for
losses due to GPLP's willful misconduct or negligence, which is not covered by
insurance required of the Company under the Management Agreement. In the event
the Sale occurs, Glimcher and GPLP have agreed to indemnify and hold harmless
the Company for any loss resulting from the operation, leasing and condition
of the Properties or from GPLP's willful misconduct or negligence, which is
not covered by insurance required of the Company under the Management
Agreement.
Termination Rights. The Company may terminate the Management Agreement if
(i) either GPLP or Glimcher fails to perform any material provision of the
Management Agreement, (ii) either GPLP or Glimcher is subject to a bankruptcy,
dissolution or other similar occurrence, (iii) GPLP engages in any act
constituting gross negligence with respect to its obligations under the
Management Agreement, (iv) GPLP commits an act of fraud or embezzlement, (v)
GPLP fails to provide the reports required to be furnished by the Management
Agreement or (vi) the Sale Agreement is terminated by reason of Glimcher's
default, and, in each case, GPLP or Glimcher fails to cure such condition
within the applicable time period as set forth in the Management Agreement.
GPLP may terminate the Management Agreement if the Company fails to perform
any material provision of such agreement and the Company fails to cure such
condition within the applicable time period as set forth in the Management
Agreement.
Non-Competition. So long as the Management Agreement remains in effect,
GPLP, Glimcher and their affiliates must not solicit any of the Company's
tenants for any space within 7.5 miles of any of the Company's Properties, and
each must notify the Company of its intent to solicit tenants for or to own,
manage, lease or develop any property with 10 miles of any of the Properties.
THE PLAN
Sale of the Properties. Upon approval of the Transaction by the
Shareholders, the Company will take all steps necessary to consummate the Sale
and otherwise to effect the sale, exchange or other disposition of all of its
assets during the liquidation period, which will begin on the date of
Shareholder approval of the Transaction at the Special Meeting and end on
December 31, 1996 (the "Liquidation Period"). The proceeds of the Sale and of
any sale, exchange or disposition of any remaining assets will, pending any
liquidating distributions, be
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<PAGE>
invested by the Board in any manner it deems appropriate, subject to the
limitation that such investments do not result in the Company becoming an
Investment Company under the Investment Company Act of 1940.
Reserve for Liabilities. Within the Liquidation Period, the Company will pay
or discharge, or set aside a reserve fund for, or otherwise provide for, all
of its liabilities and obligations, including contingent liabilities.
Liquidating Distributions. The proceeds of the Sale and of any sale,
exchange or disposition of any remaining assets, and any interest or other
return thereon, less costs of sale, the repayment of debt, any provision for
reserves and costs of liquidating the Company, will be distributed to the
Shareholders as soon as practicable after consummation of the Sale, at such
times and in such amounts as shall be determined by the Board, in its sole
discretion. At such time as the Board authorizes any liquidating distribution
to be made to the Shareholders, the Board will cause the aggregate amount of
funds, securities or other assets (the "Distributable Assets") to be
distributed to the Shareholders of record on the record date fixed with
respect to such distribution (the "Eligible Shareholders") to be set aside.
All Distributable Assets set aside for distribution will be distributed
through the Company's transfer agent, or some other agent of the Company, to
the Eligible Shareholders. The Company will distribute its assets to its
Shareholders from time to time to the end that, by the end of the Liquidation
Period, it will have distributed to its Shareholders all of its assets,
including the proceeds of the Sale and any sale, exchange or disposition of
any remaining assets.
All Distributable Assets set aside for distribution that are not distributed
because an Eligible Shareholder cannot be located will be transferred to an
appropriate custodian, state official, trustee or other person authorized by
law to receive distributions for the benefit of such unlocated Shareholders.
The amount and timing of any liquidating distributions will be determined by
the Board and will be contingent upon, among other things, the consummation of
the Sale and the amounts that the Board deems necessary or appropriate to set
aside for liabilities and continuing expenses of the Company. The Board
anticipates that liquidating distributions in an estimated amount equal to
$42,585,000 in the aggregate or approximately $8.50 per share will be made to
the Shareholders of the Company by December 31, 1996 in part because the
Company does not expect that it will be able to continue to qualify as a REIT
thereafter. See "The Transaction--Certain Federal Income Tax Consequences."
Nevertheless, the Board is unable, however, to predict exactly when the Sale
will be consummated and therefore when any distributions will be made, and if
made, the precise amount that will be distributed to the Shareholders.
Liquidating Trust. If the Board deems it advisable for any reason, the
Company may at any time, in the Board's sole discretion and on behalf of the
Shareholders, create a Liquidating Trust by entering into a Trust Agreement
for the purpose of (i) finally determining and satisfying or providing for all
then remaining claims of creditors and other liabilities of the Company and
(ii) thereupon, making liquidating distributions to the Eligible Shareholders
of any remaining money, property or assets. See "The Transaction--Certain
Federal Income Tax Consequences." Concurrently with the execution of the Trust
Agreement, the Company would transfer and assign to the trustees of the
Liquidating Trust all of Company's right, title and interest in and to all of
its remaining assets. Effective upon such transfer, each of the Shareholders,
on such date or as of any record date established in connection therewith,
would become a holder of a beneficial interest in the Liquidating Trust equal
to the proportion that such Shareholder held of the outstanding shares of
Common Stock of the Company. The Board may appoint Fleet National Bank to act
as trustee of the Liquidating Trust. In the event a Liquidating Trust is
created, the Board anticipates making, by December 31, 1996, (i) a partial
distribution of cash to the Shareholders representing a substantial portion of
the total anticipated distributions and (ii) a distribution of beneficial
interests in the Liquidating Trust representing the remainder of the net
assets of the Company.
IT SHOULD BE NOTED THAT A VOTE TO APPROVE THE TRANSACTION ALSO CONSTITUTES
APPROVAL OF ANY SUCH APPOINTED TRUSTEE AND AUTHORIZATION OF THE TRANSFER OF
ALL OF THE COMPANY'S REMAINING ASSETS TO THE LIQUIDATING TRUST.
Stock Certificates. Upon request, the Shareholders shall surrender to the
Company all of their certificates representing shares of the Company's Common
Stock for cancellation. The Company may delay distributions to
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<PAGE>
those Shareholders who have not surrendered their certificates or who have not
provided acceptable documentation and indemnities for lost certificates.
Dissolution. At such time as the Board determines, the Company will (a) give
notice of dissolution to all its known creditors of its intended dissolution,
(b) cause Articles of Dissolution to be prepared, executed and filed with and
accepted for record by the State Corporation Commission of Virginia (the
"SCC") and any required notice to its Shareholders of the filing thereof to be
made, (c) cause any documentation required by federal tax authorities to be
prepared, executed and filed, (d) after making final liquidating distributions
(or transferring its assets to a Liquidating Trust), cause Articles of
Termination to be prepared, executed and filed with and accepted for record by
the SCC and (e) withdraw its ability to do business as a foreign corporation
in any state in which it presently has such authority.
Amendments, Revocation and Termination. Following the adoption of the Plan
by the Shareholders at the Special Meeting, the Board may modify, amend,
revoke or abandon the Plan, or delay or revoke the dissolution of the Company,
at any time without Shareholder approval if it determines that such action
will be in the best interests of the Company or its Shareholders. The Plan
will terminate if the Sale Agreement is terminated without the Sale having
occurred.
Indemnification/Insurance. The Board shall have the power and authority
after the effective date of the Plan to purchase and/or maintain insurance
covering acts or omissions of its directors and officers and the Company's
indemnification obligations to its directors and officers. The Board will also
have the power and authority to satisfy any of the indemnification obligations
of the Company out of the assets of the Company.
REIT Qualification. Under the terms of the Plan, the Board shall take all
steps necessary to cause the Company to maintain its status as a REIT until
the Company is terminated. See "The Transaction--Certain Federal Income Tax
Consequences."
INFORMATION ABOUT THE COMPANY
MARKET FOR COMMON STOCK
During the initial public offering period, which commenced October 23, 1989
and closed in the second quarter of fiscal 1991, the selling price of the
shares of Common Stock was $10.00 per share (prior to the effect of the 2 for
1 reverse stock split which was effected in fiscal 1994). As of the date of
this Proxy Statement, there were 5,917 record holders of the Company's Common
Stock. At the present time, there is no established public market for the
resale of the shares of Common Stock. Secondary share trading has been
temporarily suspended since May 17, 1996 in connection with the final
negotiations between the parties, the Escrow Closing on June 27, 1996 and the
distribution to the Shareholders of this Proxy Statement.
In the Company's Quarterly Report for the quarter ended November 30, 1995,
the Company provided Shareholders with an internally prepared estimated net
asset value of $9.50 per share at December 31, 1995, based upon the
information known as of that date about a potential portfolio sale. As the
Company noted at that time, it is only an estimate and may not be indicative
of resale value in any secondary market trading. That estimated net asset
value may not have any relationship to the current market price of the
Company's shares or to the distribution per share that will be made following
the successful completion of the Sale and does not take into account any
discount for, among other things, a lack of liquidity of the Common Stock. The
1995 estimated net asset value of $9.50 per share compares to the estimated
value at December 31, 1994 of $10.74 per share and to the estimated
liquidating distributions to be made to the Shareholders pursuant to the
Transaction of approximately $8.50 per share.
While the values for most other securities are generally obtained by looking
at market trading prices as quoted on the stock exchanges, the shares of
Common Stock are not traded on any organized stock exchange and only a limited
number of shares change hands during the year. As a result, prices obtained
from isolated
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<PAGE>
secondary market transactions, if any, may not be reliable indicators of the
value of a share in the Company. During the period from April 25, 1996, when
trading of the Common Stock resumed, through May 17, 1996, when trading was
re-suspended for the reasons set forth above, six (6) trades were effected of
an aggregate of approximately 14,971 shares at a price per share ranging from
$5.23 to $7.44.
DIVIDENDS AND LIQUIDITY
Dividends. The Company is required to make annual distributions to the
Shareholders in an amount equal to at least 95% of its REIT taxable income
(which does not include capital gains) in order to continue to qualify as a
REIT under the Code. During the Company's acquisition period, the Company
supported a portion of its quarterly dividend payments to Shareholders by
returning capital reserves. In the second quarter of fiscal 1994, the Board
suspended the payment of regular quarterly dividends to Shareholders to meet
the cash and working capital needs of the Company. The Company incurred a loss
for both book and tax purposes in 1995 and, therefore, was not required to pay
cash dividends in order to retain its REIT status. Due to the non-cash
depreciation and amortization charges that will continue to be recognized for
both book and tax purposes, losses are expected to be reported in 1996 as
well, and therefore, the Company is not expected to be required to pay a
dividend during 1996 in order to retain its REIT status. The Board has
periodically reviewed the cash position of the Company and the policy of
suspending dividends, and, based on the Board's decision to recommend approval
of the Transaction by the Shareholders, pursuant to which final liquidating
distributions will be made to the Shareholders by December 31, 1996, the
payment of regular quarterly dividends will not be reinstated.
Through the date of the dividend suspension in fiscal 1994, Shareholders had
received total dividend payments of approximately $30,800,000, of which
approximately $9,700,000 was from cash reserves. As of the date of suspension
of dividends, the earliest Shareholders had received $6.56 per share in
distributions, of which approximately $4.63 per share was income from real
estate operations after the payment of Company expenses and costs capitalized
subsequent to acquisition for new leases, tenant renewals and expansions, and
approximately $1.93 per share was a return of original capital. If the
Shareholders approve the Transaction, it is anticipated that liquidating
distributions of accumulated cash reserves, net sales proceeds and interest
thereon, after payment of all Transaction-related expenses and payment of or
provision for the payment of all of the Company's remaining liabilities, will
be made to the Shareholders in an estimated amount of $42,585,000 in the
aggregate or approximately $8.50 per share, pursuant to the Plan.
Liquidity. As of May 31, 1996, the Company had available cash and cash
equivalents of approximately $7,057,000 and a capital improvement reserve of
approximately $1,331,000. The source of future liquidity and dividends to the
Shareholders is expected to be through cash generated from the operations of
the income producing Properties, interest income on working capital reserves
and proceeds from the Sale or refinancing of the Properties. Such sources of
liquidity are expected to be sufficient to meet the Company's needs through
the liquidation and dissolution of the Company.
CERTAIN LEGAL PROCEEDINGS
In November 1994, the Class Actions were filed in the United States District
Court for the Southern District of New York against, among others, the
PaineWebber Defendants in connection with the sale of interests in
approximately 70 limited partnerships and other entities between 1980 and
1992, including shares of Common Stock of the Company. The Company is not a
defendant in the Class Actions and has not incurred and does not expect to
incur any expense or liability of any kind whatsoever in connection with the
Class Actions. The Class Actions, which were brought by dissatisfied investors
in such partnerships and other entities, were certified by the Court on May
30, 1995. In connection with the sale of such interests, the amended complaint
in the Class Actions alleged that the PaineWebber Defendants (1) failed to
provide adequate disclosure of the risks involved with each investment; (2)
made false and misleading representations about the safety of the investments
and their anticipated performance; and (3) marketed those products to
investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in proprietary
public limited partnerships and other entities, including the Company, sold by
the PaineWebber Defendants between
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1980 and 1992, also alleged that following the sale of these interests, the
defendants misrepresented information about the investments' value and
performance. The amended complaint alleged that the defendants violated the
Racketeer Influenced and Corrupt Organizations Act ("RICO") and the federal
securities laws. The plaintiffs sought unspecified damages, including
reimbursement for all sums invested by them in those entities. In addition,
the plaintiffs also sought treble damages under RICO.
Under the terms of the settlement of the Class Actions announced in January
1996, the PaineWebber Defendants agreed to deposit $125,000,000 irrevocably in
an escrow fund under the supervision of the United States District Court for
the Southern District of New York. These monies are to be used to resolve and
settle the Class Actions in accordance with the terms of the definitive
settlement agreement and plan of allocation, which was preliminarily approved
by the Court on July 17, 1996, pending a hearing on the matter currently
scheduled in October 1996. Upon final approval by the Court of the definitive
settlement agreement and plan of allocation, it is anticipated that the Court
will direct plaintiffs' counsel to distribute the $125,000,000 in escrowed
funds to the plaintiff class, subject to a deduction for attorneys' fees and
other expenses. The Company is not yet in a position to determine the amount
of the distribution on a per share basis that will be made to Shareholders as
a result of the settlement.
The Company is not a defendant in the Class Actions. Under the terms of its
Articles of Incorporation, its Advisory Agreement with the Advisor and certain
other agreements, the Company may be required to indemnify PaineWebber for the
costs and liabilities of litigation in certain limited circumstances.
PaineWebber has waived any such right to indemnification in connection with
the Class Actions and any other action or class action that has been or may be
asserted by or on behalf of purchasers of securities offered by the Company
relating to actions prior to April 1, 1996. As a result, the Company will not
be making any cash payments or other contributions to fund the settlement of
the Class Actions.
PRINCIPAL EXECUTIVE OFFICES AND TELEPHONE NUMBER
Principal executive offices of the Company are located at 1285 Avenue of the
Americas, New York, New York 10019, and its telephone number is (800) 225-
1174.
ADDITIONAL INFORMATION
More detailed information about the Company can be found in the copies of
the 1995 Form 10-K and the May 31, 1996 Form 10-Q, which are attached to this
Proxy Statement as Annex E and Annex F, respectively. These documents, as well
as certain other documents filed by the Company with the Commission under the
Exchange Act, are incorporated by reference into this Proxy Statement and
shall be deemed a part hereof from the date of filing of such documents. See
"Incorporation by Reference."
THE SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting will be held on October 16, 1996, at 9:00 a.m., local
time, at the offices of PaineWebber Properties Incorporated, 1285 Avenue of
the Americas, 38th Floor, New York, New York 10019.
RECORD DATE AND OUTSTANDING SHARES
Record Date. The Board has fixed the close of business on August 21, 1996 as
the Record Date for determination of Shareholders entitled to notice of and to
vote at the Special Meeting. Only Shareholders of record at the close of
business on the Record Date are entitled to notice of and to vote at the
Special Meeting or any adjournment or postponement thereof.
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Common Stock. The Company's authorized capital stock consists of 50,000,000
shares of Common Stock. On the Record Date, the Company had issued and
outstanding 5,010,050 shares of Common Stock, held by approximately 5,917
Shareholders of record. Pursuant to the Company's Articles of Incorporation,
the Board may, in its discretion, issue additional shares of Common Stock or
other equity of the Company, including options, warrants and other rights, on
such terms as the Board may deem advisable. The Board does not, however, have
any present intention or plan to issue any such additional shares of Common
Stock or other equity of the Company.
VOTING RIGHTS AND QUORUM
Voting Rights. The securities that can be voted at the Special Meeting
consist of issued and outstanding shares of Common Stock, with each share
entitling its owner to one vote on all matters. There is no cumulative voting
of shares. Shareholders' votes will be tabulated by the persons appointed by
the chairman of the Special Meeting to act as inspectors of election for the
Special Meeting.
Reason for Seeking Shareholder Approval. Approval of the Transaction by the
Shareholders is required under Virginia law and the Articles of Incorporation
and is a condition to consummation of the Sale pursuant to the terms of the
Sale Agreement. See "Summary of Certain Agreements--The Sale Agreement--
Shareholder Approval." If the requisite Shareholder vote is not obtained, the
Sale will not be consummated and the Liquidation will not occur, in which
case, the Company will continue to transact business as a REIT and to pursue
strategic options available to the Company.
Quorum. The By-laws provide that the presence in person or by proxy of a
majority of the outstanding shares of Common Stock entitled to vote at the
Special Meeting shall constitute a quorum. Abstentions and broker non-votes
(i.e., shares represented at the Special Meeting held by brokers or nominees
as to which instructions have not been received from the beneficial owners or
persons entitled to vote such shares and with respect to which the broker or
nominee does not have discretionary voting power to vote such shares) will be
treated as shares that are present, or represented, and entitled to vote for
purposes of determining the presence of a quorum at the Special Meeting.
VOTE REQUIRED TO APPROVE THE TRANSACTION
A quorum being present, the affirmative vote by Shareholders holding more
than two-thirds of all the votes entitled to be cast on the Transaction is
required to approve the Transaction. Under Virginia law, abstentions and
broker non-votes on this proposal have the same effect as votes against the
Transaction. Approval of the Sale and the Sale Agreement by Shareholders
holding two-thirds in interest of the shares of Common Stock entitled to vote
on the Transaction is a condition to consummation of the Sale under the terms
of the Sale Agreement. See "Summary of Certain Agreements--The Sale
Agreement--Shareholder Approval." The receipt of the requisite Shareholder
approval will therefore satisfy Virginia law, the Articles of Incorporation
and the terms of the Sale Agreement.
OTHER MATTERS
Management knows of no matters other than those described above which are
expected to be presented at the Special Meeting. However, if any other matters
are properly presented at the Special Meeting for action, the persons named in
the proxies and acting thereunder will have discretion to vote on such matters
in accordance with their best judgment.
PROXIES AND REVOCATION
The shares of Common Stock represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting, and not
subsequently revoked, will be voted at the Special Meeting in accordance with
the instructions contained therein. If no specification is made, a proxy will
be voted FOR the Transaction.
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The presence of a Shareholder at the Special Meeting will not automatically
revoke such Shareholder's proxy. However, a Shareholder giving a proxy in the
form accompanying this Proxy Statement has the power to revoke the proxy prior
to its exercise by (i) filing prior to the Special Meeting a written notice of
revocation bearing a later date than the proxy with Linda Z. MacDonald,
Assistant Secretary, Retail Property Investors, Inc., 265 Franklin Street,
Boston, Massachusetts 02110, (ii) delivering to the Company at or before the
Special Meeting a duly executed proxy, relating to the same shares of Common
Stock, bearing a later date or (iii) attending the Special Meeting and voting
in person.
If the Special Meeting is adjourned for any reason, at any subsequent
reconvening of the Special Meeting, all proxies will be voted in the same
manner as such proxies would have been voted at the original convening of the
Special Meeting (except for any proxies that have theretofore effectively been
revoked or withdrawn).
Shareholders are requested to sign and date the enclosed proxy card and mail
it promptly to the Company in the postage-paid envelope that has been
provided.
SOLICITATION OF PROXIES AND EXPENSES
The cost of soliciting proxies from the Shareholders will be borne by the
Company. In addition to the use of the mails, proxies may be solicited
personally or by telephone or facsimile transmission by officers, directors
and employees of the Company and by brokers employed by PWI, who will not be
specifically compensated for such solicitation activities, and/or by D.F. King
& Co., Inc., who will receive a fee of $15,000 (plus out-of-pocket expenses)
for its services for soliciting such proxies. Arrangements also will be made
with brokerage houses and other custodians, nominees and fiduciaries for
forwarding solicitation materials to the beneficial owners of shares of Common
Stock held of record by such persons, and the Company will reimburse such
persons for their reasonable expenses incurred in that connection.
PRESENCE OF ACCOUNTANTS
The Company's independent accountants for the current year and for the most
recently completed fiscal year are Price Waterhouse LLP. Representatives of
Price Waterhouse LLP are expected to be present at the Special Meeting, will
have the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
SECURITY OWNERSHIP
As of the Record Date, there are no persons known to the Company who
beneficially own more than 5% of the outstanding shares of the Company's
Common Stock.
The following table sets forth, to the best knowledge and belief of the
Company, certain information regarding the beneficial ownership of the
Company's Common Stock as of the Record Date by (i) each of the Company's
directors, (ii) each of the executive officers of the Company and (iii) all
the directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
DIRECTORS AND EXECUTIVE OFFICERS OWNED(1) CLASS(2)
- -------------------------------- ------------ ----------
<S> <C> <C>
Lawrence S. Bacow(3)................................... 0 --
Lawrence A. Cohen(4)................................... 350 *
Joseph W. Robertson, Jr.(3)............................ 0 --
J. William Sharman, Jr.(3)............................. 0 --
All directors and executive officers as a group (12
persons).............................................. 350 *
</TABLE>
- --------
*Less than 1%.
(1) Beneficial share ownership is determined pursuant to Rule 13d-3 under the
Exchange Act. Accordingly, a beneficial owner of a security includes any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares the power to vote
such security or the power to dispose of such security. The amounts set
forth as beneficially owned include shares owned, if any, by spouses and
relatives living in the same home as to which beneficial ownership may be
disclaimed.
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The amounts set forth as beneficially owned include shares of Common Stock
which such directors or officers has the right to acquire within 60 days,
including upon exercise of stock options or conversion of a convertible
security.
(2) Percentages are calculated on the basis of 5,010,050 shares of Common Stock
outstanding as of August 21, 1996.
(3) Lawrence S. Bacow, Joseph W. Robertson, Jr. and J. William Sharman, Jr. are
Independent Directors and members of the Audit Committee.
(4) Lawrence A. Cohen is President, Chief Executive Officer and a director of
the Company and was previously affiliated with the Advisor.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the next annual meeting of
Shareholders must be received by the Company at the Company's principal
executive offices, located at 265 Franklin Street, Boston, Massachusetts 02110,
on or before June 11, 1997 in order to be considered for inclusion in the
Company's proxy statement and form of proxy for that meeting. In addition, such
a proposal must comply with the requirements as to form and substance
established by applicable laws and regulations.
By Order of the Board of Directors
Linda Z. MacDonald
Assistant Secretary
Boston, Massachusetts
August 23, 1996
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ANNEXES TO PROXY STATEMENT
ANNEX A: PURCHASE AND SALE AGREEMENT, AS AMENDED
ANNEX B: CLOSING ESCROW AGREEMENT, AS AMENDED
ANNEX C: PLAN OF LIQUIDATION AND DISSOLUTION
ANNEX D: FAIRNESS OPINION OF LEHMAN BROTHERS INC.
ANNEX E: FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 31, 1995
ANNEX F: FORM 10-Q FOR THE QUARTER ENDED MAY 31, 1996
<PAGE>
ANNEX A
PURCHASE AND SALE AGREEMENT
BY AND AMONG
GLIMCHER REALTY TRUST, AS PURCHASER
AND
RETAIL PROPERTY INVESTORS, INC.,
PAINEWEBBER RETAIL PROPERTY INVESTMENTS, LTD.,
PAINEWEBBER RETAIL PROPERTY INVESTMENTS JOINT VENTURE,
PAINEWEBBER COLLEGE PLAZA, L.P. AND
PAINEWEBBER MARION TOWNE, L.P., COLLECTIVELY, AS SELLERS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <C> <S> <C>
1. Introduction...................................................... 1
2. Definitions....................................................... 1
3. Purchase and Sale................................................. 5
3.1 Purchase Price................................................ 5
3.2 Allocation of Purchase Price.................................. 6
4. Due Diligence..................................................... 6
4.1 Title Insurance............................................... 6
4.2 Other Information............................................. 6
4.3 Surveys....................................................... 7
4.4 Inspection.................................................... 7
4.5 Notice of Material Concern.................................... 7
4.6 Failure to Deliver Notice of Material Concern................. 8
5. Deposit........................................................... 8
5.1 Immediately Available Funds................................... 8
5.2 Letter of Credit.............................................. 8
5.3 Failure to Make Deposit....................................... 8
6. Representations and Warranties of Sellers......................... 8
6.1 Representations and Warranties................................ 8
6.2 Survival of Representations and Warranties.................... 9
6.3 Indemnification by PaineWebber................................ 9
6.4 Limitations on Indemnification by PaineWebber................. 9
6.5 Notice; Defense of Claims..................................... 9
7. Representations and Warranties of Purchaser....................... 10
7.1 Organization.................................................. 10
7.2 Due Authorization............................................. 10
7.3 REIT Status................................................... 10
7.4 Indemnity..................................................... 10
7.5 Restoration of Properties..................................... 11
7.6 No Conflict................................................... 11
7.7 Bankruptcy.................................................... 11
8. Covenants of Purchaser and Sellers................................ 11
8.1 Sellers' Operation of the Properties.......................... 11
8.2 Leases........................................................ 11
8.3 Existing Indebtedness......................................... 12
8.4 Sellers' Agreement Regarding Acquisition Proposals............ 13
8.5 Shareholder Meeting and Proxy................................. 14
8.6 Estoppel Certificates......................................... 14
8.7 Indebtedness.................................................. 15
8.8 Confidentiality Agreement..................................... 15
9. Escrow Closing, Deliveries, Disclaimer of Warranties.............. 15
9.1 Escrow Closing................................................ 15
9.2 Sellers' Deliveries at the Escrow Closing..................... 15
9.3 Purchaser's Deliveries at the Escrow Closing.................. 16
9.4 Escrow........................................................ 16
9.5 Disclaimer of Warranties; Limitation of Liability............. 16
</TABLE>
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<TABLE>
<C> <C> <S> <C>
10. Conditions to Obligations to Close into Escrow.................... 16
10.1 Conditions to Obligation of Purchaser........................ 17
10.2 Conditions to Obligations of Sellers......................... 17
10.3 Conditions to Release from Escrow............................ 17
11. Defaults and Remedies............................................. 18
11.1 Sellers' Default............................................. 18
11.2 Purchaser's Default.......................................... 18
12. Termination and Effect of Termination............................. 19
12.1 Termination Prior to Escrow Closing.......................... 20
12.2 Effect of Termination prior to Escrow Closing................ 20
12.3 Termination After Escrow Closing............................. 21
12.4 Effect of Termination After Escrow Closing................... 21
12.5 Liquidated Damages........................................... 22
13. Prorations and Adjustments at Escrow Closing...................... 24
13.1 Taxes and Assessments........................................ 24
13.2 Rents........................................................ 24
13.3 Security Deposits............................................ 25
13.4 Utilities.................................................... 25
13.5 Other Income and Expenses.................................... 25
13.6 Closing Costs................................................ 25
13.7 Payments during Escrow Period................................ 25
13.8 Closing...................................................... 25
13.9 Post Closing Adjustment...................................... 26
14. Fees and Commissions.............................................. 26
15. Survival of Provisions............................................ 26
16. Notices........................................................... 27
17. Applicable Law.................................................... 27
18. Attorneys' Fees................................................... 27
19. Construction...................................................... 28
20. No Third-Party Beneficiaries...................................... 28
21. No Assignment..................................................... 28
22. Deposit or Escrowed Purchase Price................................ 28
23. Entire Agreement.................................................. 28
24. Publicity......................................................... 28
25. Regulatory Filings................................................ 29
26. Exculpation....................................................... 29
27. Liability of Sellers.............................................. 29
</TABLE>
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<TABLE>
<C> <S>
EXHIBITS
EXHIBIT A-1 -- List of Improvements
EXHIBIT A-2 -- Legal Description of Tracts
EXHIBIT B -- Form of Letter of Credit
EXHIBIT C -- Deposit Escrow Agreement
EXHIBIT D -- Closing Escrow Agreement
EXHIBIT E -- Management Agreement
EXHIBIT F -- Form of Purchaser's Tenant Estoppel Certificate
SCHEDULES
SCHEDULE 2a -- Assumed Indebtedness
SCHEDULE 2o(m) -- Option Parcel Reimbursement and Adjustment
SCHEDULE 2p -- Prepaid Indebtedness
SCHEDULE 3.2 -- Allocation of Purchase Price
-- Locations; Index of Sellers' Supplemental Information
SCHEDULE 4.2 Deliveries
SCHEDULE 4.5 -- Known Conditions
SCHEDULE 6.1 -- Sellers' Representations and Warranties
SCHEDULE 6.7 -- Leases
SCHEDULE 6.8 -- Schedule of Tenant Defaults and Landlord Work
SCHEDULE 6.9 -- Initial Rent Rolls
SCHEDULE 6.10 -- Leasing Commissions
SCHEDULE 6.12 -- Service Contracts
SCHEDULE 6.17 -- Environmental Matters
SCHEDULE 6.18 -- Schedule of Insurance Coverages
SCHEDULE 6.19 -- Litigation
SCHEDULE 6.26 -- Material Guaranties and Warranties
SCHEDULE 6.27a -- Existing Indebtedness Documents
SCHEDULE 6.27b -- Outstanding Principal Balance
SCHEDULE 6.32 -- Option Agreements
SCHEDULE 8.2 -- Leasing Guidelines
SCHEDULE 8.3a -- Assumed Indebtedness which may be modified
SCHEDULE 10.1 -- Estoppel Carve Out
SCHEDULE 24(a) -- Form of Initial RPI Press Release
SCHEDULE 24(b) -- Form of Initial Glimcher Press Release
</TABLE>
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<PAGE>
PURCHASE AND SALE AGREEMENT
This Agreement dated as of March 11, 1996 (this "Agreement") is by and among
GLIMCHER REALTY TRUST, a Maryland real estate investment trust ("Purchaser"),
RETAIL PROPERTY INVESTORS, INC., a Virginia corporation ("RPI"), PAINEWEBBER
RETAIL PROPERTY INVESTMENTS, LTD., a Texas limited partnership ("PWRPI"),
PAINEWEBBER RETAIL PROPERTY INVESTMENTS JOINT VENTURE, a Texas joint venture
("JV"), PAINEWEBBER COLLEGE PLAZA, L.P., a Texas limited partnership
("College"), and PAINEWEBBER MARION TOWNE, L.P., a Texas limited partnership
("Marion"). RPI, PWRPI, JV, College and Marion are referred to herein
individually as "Seller" and collectively as "Sellers."
1. Introduction. Sellers are the owners of the Properties, as hereinafter
defined. Purchaser has responded to a request from Lehman, as hereinafter
defined, for offers to acquire all of the real estate assets of Sellers.
Purchaser has been selected as the entity with which Sellers will enter into a
definitive purchase agreement. Sellers desire to enter into this Agreement to
sell the Properties to Purchaser on the terms and conditions herein contained
and Purchaser desires to enter into this Agreement to acquire the Properties
from Sellers on the terms and conditions herein contained. Upon execution and
delivery of this Agreement and making the Deposit, as hereinafter defined, the
parties hereto shall each act in good faith and deal fairly with each other
with respect to the matters contained in this Agreement.
2. Definitions. In addition to other terms defined herein, the following
terms have the following meanings when used in this Agreement:
"Acquisition Proposal." "Acquisition Proposal" shall have the meaning set
forth in Section 8.4(a).
"Additional Rents." "Additional Rents" shall have the meaning set forth
in Section 13.2.
"Agreement." "Agreement" shall have the meaning set forth in the first
paragraph of this Agreement.
"Anchor Tenants." "Anchor Tenants" shall refer to any tenant under a
Lease in any Project who rents and occupies at least 20,000 square feet of
gross leasable area.
"Assumed Indebtedness." "Assumed Indebtedness" shall refer to the then
current outstanding principal balance of the indebtedness under those loans
made to PWRPI, JV, College, Marion or RPI set forth on Schedule 2a attached
hereto, as the same may be updated and amended pursuant to the terms and
conditions of this Agreement.
"Basic Rents." "Basic Rents" shall have the meaning set forth in Section
13.2.
"Bear." "Bear" shall refer to Bear Stearns & Co., Inc.
"Business Day." "Business Day" shall mean any day other than a Saturday,
Sunday, or other day on which commercial banks in New York are not open for
business.
"Closing." "Closing" shall mean the adjustment of the Escrowed Purchase
Price, the release to Sellers out of escrow of the Escrowed Purchase Price
(as adjusted) and the delivery of the closing documents out of escrow as
set forth in the Closing Escrow Agreement.
"Closing Date." "Closing Date" shall mean the date on which the Escrowed
Purchase Price is adjusted under Section 13.8 below and released out of
escrow to Sellers and the closing documents are delivered as set forth in
the Closing Escrow Agreement.
"Closing Escrow Agent." "Closing Escrow Agent" shall mean Lawyers Title
Insurance Corporation and any substitute or successor appointed under the
terms and conditions of the Closing Escrow Agreement.
"Closing Escrow Agreement." "Closing Escrow Agreement" shall have the
meaning set forth in Section 9.1.
"Code." "Code" shall refer to the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated thereunder.
"College." "College" shall have the meaning set forth in the first
paragraph of this Agreement.
<PAGE>
"Confidentiality Agreement." "Confidentiality Agreement" shall refer to
the confidentiality agreement by and between RPI and Glimcher Properties
Limited Partnership, dated May 11, 1995.
"Deposit." "Deposit" shall have the meaning set forth in Section 3.1.
"Deposit Escrow Agent." "Deposit Escrow Agent" shall mean Lawyers Title
Insurance Corporation and any substitute or successor appointed under the
terms and conditions of the Deposit Escrow Agreement.
"Deposit Escrow Agreement." "Deposit Escrow Agreement" shall have the
meaning set forth in Section 5.1.
"Effective Date." "Effective Date" of this Agreement shall mean the date
first above written.
"Escrow Closing." "Escrow Closing" shall have the meaning set forth in
Section 9.1.
"Escrow Closing Date." "Escrow Closing Date" shall have the meaning set
forth in Section 9.1.
"Escrowed Purchase Price." "Escrowed Purchase Price" shall have the
meaning set forth in Section 3.1.
"Estoppel Certificates." "Estoppel Certificates" shall have the meaning
set forth in Section 8.6.
"Exchange Act." "Exchange Act" shall refer to the Securities Exchange Act
of 1934, as amended from time to time, and the rules and regulations
promulgated thereunder.
"Existing Indebtedness." "Existing Indebtedness" shall mean the Prepaid
Indebtedness and the Assumed Indebtedness.
"Existing Indebtedness Documents." "Existing Indebtedness Documents"
shall mean all instruments evidencing or securing Existing Indebtedness.
"Final Rent Rolls." "Final Rent Rolls" shall have the meaning set forth
in Section 9.2.
"Improvements." "Improvements" shall refer to the shopping centers listed
by name on Exhibit A-1 attached hereto. The Improvements are located on the
Tracts.
"Indemnification Cut-off Date." "Indemnification Cut-off Date" shall have
the meaning set forth in Section 6.4.
"Initial Rent Rolls." "Initial Rent Rolls" shall have the meaning set
forth in Section 4.2.
"IRS." "IRS" shall have the meaning set forth in Section 12.5.
"JV." "JV" shall have the meaning set forth in the first paragraph of
this Agreement.
"Leases." "Leases" shall mean all written leases (including amendments
thereto) (i) referenced on Schedule 6.7, (ii) entered into pursuant to
Section 8.2, and/or (iii) entered into pursuant to and in accordance with
the terms and conditions contained in the Management Agreement.
"Leasing Costs." "Leasing Costs" shall have the meaning set forth in
Section 8.2.
"Leasing Guidelines." "Leasing Guidelines" shall have the meaning set
forth in Section 8.2.
"Legal Counsel." "Legal Counsel" shall have the meaning set forth in
Section 8.4.
"Lehman." "Lehman" shall refer to Lehman Brothers, Inc.
"Liquidated Damage Amount." "Liquidated Damage Amount" shall have the
meaning set forth in Section 12.5.
"Management Agreement." "Management Agreement" shall refer to the
Exclusive Commercial Property Management Agreement by and among Sellers,
Purchaser and Manager in the form attached hereto as Exhibit E.
"Manager." "Manager" shall refer to Purchaser's affiliate, Glimcher
Properties Limited Partnership.
"Marion." "Marion" shall have the meaning set forth in the first
paragraph of this Agreement.
"Material Concern." A "Material Concern" means a concern of Purchaser
(other than any matter listed on Schedule 4.5 hereof) with regard to
material engineering, structural, environmental and/or title
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matters concerning the Properties and/or material facts concerning the
Assumed Indebtedness, the Leases, tenancies or rents and/or prepayment
premiums on Prepaid Indebtedness.
"Notice of Material Concern." "Notice of Material Concern" shall have the
meaning set forth in Section 4.5.
"Option Agreements." "Option Agreements" shall mean the agreements listed
on Schedule 6.32.
"Option Parcels." "Option Parcels" shall have the meaning set forth in
clause (m) of the definition of Other Interests.
"Other Interests." "Other Interests" shall mean the rights, title and
interests of Sellers in and to the following:
(a) Any catalogs, booklets, manuals, files, logs, records,
correspondence, purchaser prospect lists, tenant lists, tenant prospect
lists and other mailing lists, sales brochures and materials, leasing
brochures and materials, advertisement materials and other items,
including without limitation, title information, soil, engineering and
environmental inspections, studies and reports, and similar inspections
with respect to the sale, management, leasing, promotion, ownership,
maintenance, use, occupancy and operation of the Projects;
(b) Any name, trade name, trademark, service mark or logo (and all
goodwill associated therewith) by which the Projects or any part
thereof may be known or which may be used in connection with the
Projects, and all other fictitious names used on the date hereof or
which Sellers have the right to use in connection with the ownership,
use, occupancy or operation of the Projects (collectively, "Names")
together with all registrations, if any, for such Names;
(c) All tenant security deposits held by Sellers and any bank or
other depository accounts relating thereto, except to the extent that
(i) the same have been forfeited or applied against rents prior to the
Effective Date or (ii) the terms of the Lease in question require that
such security deposit be applied against rents for a period following
the date of this Agreement (but prior to the Escrow Closing), other
than on account of the default of the tenant thereunder;
(d) Any bond, guaranty, warranty or repair agreements existing and
outstanding on the Effective Date (and any additional bond, guaranty,
warranty or repair agreements existing and outstanding at the date of
the Closing) concerning the Projects or any part thereof, including
without limitation, any bond, guaranty or warranty (including, any
fidelity bonds) relating to construction, use, maintenance, occupancy
or operation of the Improvements and the Personalty;
(e) Any licenses, permits, franchise approvals and certificates of
any governmental authorities required or used in or relating to the
ownership, use, maintenance, occupancy or operation of any part of the
Projects;
(f) Any surveys of, and plans or specifications relating to, the
Projects;
(g) Any unrecorded utility agreements including any deposits made
thereunder;
(h) The Service Contracts (as hereinafter defined);
(i) The Leases;
(j) Any unpaid awards for any taking by condemnation or any damage to
the Projects by reason of a change of grade of any street or highway,
or any award paid to any Seller and not used or applied by Sellers to
the restoration of the Projects; provided, however, that in the event
of a temporary taking occurring between the Effective Date and the
Escrow Closing Date, the Other Interests shall not include that portion
of the award for such taking which is attributable to the period prior
to the Escrow Closing Date;
(k) Any unpaid proceeds for any unrepaired damage to the Projects by
reason of fire or other casualty occurring after the Effective Date, or
any proceeds paid to Sellers in connection with any fire or other
casualty occurring after the Effective Date and not used or applied by
Sellers to the restoration of the Projects;
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(l) Any development rights with respect to the Projects; and
(m) Any options or expansion parcels which exist on the Closing Date,
if any (the "Option Parcels"), subject to the adjustments and
reimbursements described on Schedule 2o(m) attached hereto.
"Outside Date." "Outside Date" shall mean October 31, 1996; provided,
however, that Sellers and Purchaser may, by mutual agreement, extend the
Outside Date to a date not later than December 31, 1996.
"PaineWebber." "PaineWebber" shall mean PaineWebber Incorporated.
"Past Due Rent." "Past Due Rent" shall have the meaning set forth in
Section 13.2.
"Percentage Rents." "Percentage Rents" shall have the meaning set forth
in Section 13.2.
"Pearson." "Pearson" shall mean Pearson Partners, Inc.
"Permitted Exceptions." "Permitted Exceptions" shall mean all liens and
encumbrances and other matters of record or shown on the Survey (as
hereinafter defined) for each Project as of the expiration of the Study
Period, unless objected to by Purchaser in writing prior to the lapse of
the Study Period pursuant to Section 4.5.
"Personalty." "Personalty" shall mean the rights, title and interests of
Sellers in and to all fixtures, machinery, equipment, furnishings,
appliances, supplies, operational records and other personal property owned
by any Seller and used in connection with the operation of a Project,
including, without limitation, all fittings, heating, air cooling, air
conditioning, freezing, lighting, laundry, incinerating, and power
equipment and apparatus; all engines, pipes, pumps, tanks, motors,
conduits, switch boards, plumbing, lifting, cleaning, fire prevention, fire
extinguishing and refrigerating equipment and apparatus; all furnaces, oil
burners or units thereof; all appliances, vacuum cleaning systems, awnings,
screens, storm doors and windows, cabinets, partitions, ducts and
compressors, furniture and furnishings, hot water heaters, garbage
receptacles and containers above and below ground, janitorial supplies,
landscaping, materials, lawn mowers, tools, vehicles and articles of a
nature similar to the foregoing; and all future additions to or
substitutions for the foregoing, or any part thereof, between the Effective
Date and the Closing Date and all other personal property upon, on the
Effective Date, or thereafter placed on any Project which is used in
connection with the operation of such Project and owned by any Seller and
all warranties and guarantees to and right of action of Sellers therefor,
if any.
"Prepaid Indebtedness." "Prepaid Indebtedness" shall refer to the then
current outstanding principal balance of the indebtedness under those loans
made to PWRPI, JV, College, Marion or RPI set forth on Schedule 2p attached
hereto, as the same may be updated and amended pursuant to the terms and
conditions of this Agreement.
"Projects." "Projects" refers to the Tracts and the Improvements.
"Properties." "Properties" means, collectively, the Projects, the
Personalty and the Other Interests.
"Proxy Statement." "Proxy Statement" means the Proxy Statement to be
delivered to the shareholders of RPI for the purpose of soliciting their
approval of this Agreement and the consummation of the transactions
contemplated herein.
"Purchase Price." The aggregate purchase price of all Properties, as more
particularly described in Section 3.1.
"Purchaser." "Purchaser" shall have the meaning set forth in the first
paragraph of this Agreement.
"Purchaser Indemnified Party" and "Purchaser Indemnified Parties."
"Purchaser Indemnified Party" and "Purchaser Indemnified Parties" shall
have the meanings set forth in Section 6.3.
"Purchaser's Expenses." "Purchaser's Expenses" shall have the meaning set
forth in Section 11.1.
"Purchaser's Title Commitments." "Purchaser's Title Commitments" shall
have the meaning set forth in Section 4.4.
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"PW Response." "PW Response" shall have the meaning set forth in Section
6.5.
"PWRPI." "PWRPI" shall have the meaning set forth in the first paragraph
of this Agreement.
"Qualifying Income." "Qualifying Income" shall have the meaning set forth
in Section 12.5.
"RPI." "RPI" shall have the meaning set forth in the first paragraph of
this Agreement.
"SEC." "SEC" shall have the meaning set forth in Section 8.5.
"Seller" and "Sellers." "Seller" and "Sellers" shall have the meanings
set forth in the first paragraph of this Agreement.
"Sellers' Due Diligence Deliveries." "Sellers' Due Diligence Deliveries"
shall have the meaning set forth in Section 4.2.
"Sellers' Expenses." "Sellers' Expenses" shall have the meaning set forth
in Section 11.2.
"Sellers' Title Documents." "Sellers' Title Documents" shall have the
meaning set forth in Section 4.1.
"Service Contracts." "Service Contracts" shall mean all contracts,
agreements and the like referenced on Schedule 6.12 attached hereto.
"Study Period." "Study Period" shall refer to the period commencing on
the Effective Date and ending at 5:00 P.M., E.S.T., on the sixtieth (60th)
day after the Effective Date; provided, however, that in the event the
sixtieth (60th) day after the Effective Date is not a Business Day, at 5:00
P.M. E.S.T. on the next succeeding Business Day.
"Surveys." "Surveys" shall have the meaning set forth in Section 4.3.
"Tracts." "Tracts" shall mean the tracts of real property described in
Exhibit A-2 attached hereto, together with all easements, privileges,
right-of-ways and appurtenances pertaining to or accruing to the benefit of
the Properties.
3. Purchase and Sale. Subject to and on the terms and conditions set forth
herein, Purchaser agrees to purchase from Sellers, and each Seller agrees to
sell to Purchaser, fee simple title in and to the Properties owned by such
Seller, subject only to the Permitted Exceptions, the Leases, the Management
Agreement and any encumbrance created by or consented to in writing by
Purchaser.
3.1 Purchase Price. The Purchase Price for the Properties shall be Two
Hundred Three Million Dollars ($203,000,000.00), which, subject to the
terms and conditions hereinafter set forth, shall be paid as follows:
(a) On the Effective Date, Purchaser shall deliver to Deposit Escrow
Agent either (i) Two Million Dollars ($2,000,000.00) in immediately
available federal funds to be held in escrow in accordance with the
provisions of Section 5 hereof or (ii) an irrevocable, standby letter
of credit issued by The Huntington National Bank (or such other
financial institution as may be acceptable to Sellers, in their sole
and absolute discretion) with an expiration date not earlier than the
ninety (90) days after the Effective Date; provided, however, that
Purchaser shall be obligated to extend the expiration thereof or make
the deposit referenced in clause (i) above if this Agreement has not
been terminated and the Escrow Closing has not occurred, in the face
amount of Two Million Dollars ($2,000,000.00), together with any other
documents required to be delivered under the Deposit Escrow Agreement,
which letter of credit shall be in the form attached hereto as Exhibit
B (the "Deposit"), to be held in escrow in accordance with the
provisions of Section 5 hereof.
(b) On the Escrow Closing Date, Purchaser shall deliver to Closing
Escrow Agent, at Purchaser's option, by wire transfer of immediately
available federal funds and/or in the form of an irrevocable, standby
letter of credit issued by The Huntington National Bank (or such other
financial institution as may be acceptable to Sellers, in their sole
and absolute discretion) with an expiration date not earlier than the
Outside Date that in the aggregate are an amount (the "Escrowed
Purchase Price") equal to the Purchase Price less any portion of the
Deposit made in immediately available federal funds less the
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then outstanding principal balance of the Assumed Indebtedness plus all
of Purchaser's closing costs described in Section 13.6 below. On the
Escrow Closing Date, Purchaser shall be entitled to receive from
Deposit Escrow Agent any letter of credit delivered as part of the
Deposit.
(c) As a material part of the Purchase Price, at the Closing,
Purchaser shall (A) acquire title to the Properties subject to the
Assumed Indebtedness and (B) assume and agree to pay (x) all prepayment
premiums on Prepaid Indebtedness and (y) such other costs and expenses
referenced in Section 13.6 below that are to be paid by Purchaser.
(d) The Escrowed Purchase Price shall, upon satisfaction or waiver of
the conditions precedent to release from escrow listed in Section 10.3
hereof and in the Closing Escrow Agreement, be adjusted as described in
Section 13.8 below and shall be disbursed in accordance with the terms
and conditions of the Closing Escrow Agreement.
(e) Time is of the essence of each and every provision of this
Agreement.
3.2 Allocation of Purchase Price. The Purchase Price (and all other
capitalized costs and other amounts treated as purchase price for federal
income tax purposes) shall be allocated among the Properties as agreed by
the parties and set forth in Schedule 3.2. The values used to allocate the
Purchase Price among the Properties have been agreed upon solely for
federal, state and local tax reporting purposes. The Purchaser and Sellers
agree to file IRS Form 8594 and any replacement or supplement thereto,
based upon such agreed upon allocation.
4. Due Diligence.
4.1 Title Insurance. To the extent Sellers have not already delivered
the same to Purchaser, Sellers shall deliver to Purchaser copies of its
existing policies of title insurance (together with copies of all documents
listed as exceptions therein, to the extent copies of such documents are in
Sellers' possession) (collectively, "Sellers' Title Documents") within five
(5) Business Days after the Effective Date. Sellers shall have no
obligation to obtain title updates or commitments for Purchaser.
4.2 Other Information. To the extent Sellers have not already delivered
the same to Purchaser, Sellers shall deliver, or make available to
Purchaser in the locations indicated on Schedule 4.2, no later than five
(5) Business Days after the Effective Date, the following (collectively,
along with Sellers' Title Documents and the Surveys, "Sellers' Due
Diligence Deliveries"):
(a) Rent rolls for the Projects dated no earlier than January 31,
1996 (the "Initial Rent Rolls") together with a list of delinquencies
and a detailed aging report, each dated as of the date of the
applicable Initial Rent Roll;
(b) Copies of any plans and specifications in Sellers' possession for
the Improvements or portions thereof, which are delivered to Purchaser
without recourse to, or warranty by, Sellers of any kind, other than
any representation or warranty contained in Section 6 below;
(c) Copies of Service Contracts in Sellers' possession, including any
modifications or amendments thereto;
(d) Copies of all (i) annual operating statements for the Projects
for fiscal years ending August 31, 1993, August 31, 1994 and August 31,
1995 and (ii) monthly and quarterly operating statements for the
Projects from August 31, 1994 through January 31, 1996;
(e) Copies of the ad valorem and personal property tax statements for
the Properties for calendar or fiscal year 1995 and, to the extent
Sellers have copies in their possession, calendar or fiscal years 1993,
1994 and 1996;
(f) Copies of certificates of insurance or policies evidencing the
property insurance maintained by Sellers covering the Properties;
(g) Copies of all Existing Indebtedness Documents;
(h) Copies of all utility bills for the Projects (including gas,
water and electricity) for the twelve (12) full calendar months
immediately preceding the Effective Date;
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(i) Copies of all Leases and Option Agreements;
(j) Copies of any environmental, engineering and/or other property
inspection reports concerning the Properties in Sellers' possession,
which reports are delivered to Purchaser without recourse to, or
warranty by, Sellers of any kind, other than any representation or
warranty contained in Section 6 below;
(k) Copies of all organizational documents of Sellers;
(l) Copies of all reports filed by Sellers with the SEC since August
31, 1995;
(m) Copies of documents relating to any litigation with respect to
one or more of the Projects to which any Seller is a party; and
(n) Such other documents and instruments set forth on Schedule 4.2.
In no event shall the failure by Sellers to have delivered or made
available every item of Sellers' Due Diligence Deliveries to Purchaser be
deemed to toll the Study Period or to be a default of Sellers hereunder.
Purchaser hereby agrees to coordinate requests and/or questions regarding
Sellers' Due Diligence Deliveries by making written requests of Mark Dunne
or such other authorized individual which Sellers notify Purchaser of in
writing. Purchaser shall not be authorized to contact Sellers' agents,
employees, attorneys or managers without making arrangements through
Sellers' authorized representative. Sellers shall cooperate with Purchaser
by promptly providing or making available in the locations set forth on
Schedule 4.2 any omitted Sellers' Due Diligence Deliveries and other
information regarding the Projects which is brought to Sellers' attention
or discovered by Sellers after the Effective Date.
4.3 Surveys. To the extent Sellers have not already delivered the same to
Purchaser, within five (5) Business Days after the Effective Date, Sellers
shall provide Purchaser with copies of Sellers' most current as-built
surveys of the Projects (the "Surveys"), which are delivered without
recourse to, or warranty by, Sellers of any kind, other than any
representation or warranty contained in Section 6 below.
4.4 Inspection. From the Effective Date to the earlier to occur of (i)
any termination of this Agreement or (ii) the expiration of the Study
Period, Purchaser shall use diligent efforts to inspect the Properties
during normal business hours upon two (2) Business Days' prior written
notice to Sellers, review Sellers' Due Diligence Deliveries and review any
of Sellers' books, records and general correspondence relating to the
Properties and such other information made available to Purchaser;
provided, however, that, in carrying out any such inspection of the
Properties, Purchaser (i) shall obtain Sellers' prior written consent to
perform physical testing at the Properties (which consent shall not be
unreasonably withheld or delayed) and (ii) shall not unreasonably interfere
with the rights of any tenant or other occupant of the Properties in
violation of the Lease or other agreement by which such tenant or occupant
occupies space in the Properties. Purchaser shall restore the Properties to
their original condition following any inspection or testing and shall
commit no act, nor permit any agent of Purchaser to commit an act, that
would impair or void any manufacturer's warranty. In exercising Purchaser's
diligence, Purchaser shall obtain title commitments for each of the
Projects from one or more nationally recognized title insurance companies
("Purchaser's Title Commitments"). Sellers acknowledge that Purchaser may,
upon reasonable prior written notice, interview the tenants of the
Properties. Sellers acknowledge that Purchaser may communicate with the
holders of the Existing Indebtedness regarding the prepayment or assumption
thereof, as the case may be. Sellers agree, upon reasonable prior written
notice, to use their reasonable efforts to make available to Purchaser the
managers of the Properties and such other persons employed by or under
contract with any Seller who have knowledge of the operation of the
Properties. Sellers shall be entitled to have a representative present
during all inspection and testing of the Properties and, at Sellers'
option, present at or included in interviews with tenants conducted at any
location other than the Properties, with managers of the Properties, with
holders of the Existing Indebtedness or with such other persons who have
knowledge of the operation of the Properties.
4.5 Notice of Material Concern. In the event Purchaser's diligence
reveals matters which are of a Material Concern to Purchaser, Purchaser
shall notify Sellers in writing within five (5) Business Days of discovery
of the matter of Material Concern, and in any event, Purchaser shall notify
Sellers in writing on or before the expiration of the Study Period ("Notice
of Material Concern"). In the event that Purchaser
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does not obtain updated surveys on the Projects during the Study Period,
then in no event shall any title company's failure to delete survey-related
exceptions be deemed to be a Material Concern to Purchaser. If Sellers
receive a Notice of Material Concern prior to the expiration of the Study
Period and Sellers and Purchaser are unable to agree, prior to the Escrow
Closing Date, on resolution of such matters or if Sellers receive a Notice
of Material Concern after the expiration of the Study Period but prior to
the Escrow Closing Date with respect to any Material Concern which arises
after the expiration of the Study Period and Sellers and Purchaser are
unable to agree, prior to the Escrow Closing Date, on resolution of such
matter, this Agreement automatically shall terminate and Purchaser promptly
shall receive the Deposit, together with all interest earned thereon, if
any, and neither party shall have any further recourse to the other under
this Agreement. Purchaser hereby acknowledges that it has taken the matters
described on Schedule 4.5 into account in the Purchase Price, and
therefore, the matters listed on Schedule 4.5 attached hereto are not
matters of Material Concern for which a valid Notice of Material Concern
may be given. Any Notice of Material Concern that relates to any matters
listed on Schedule 4.5 shall be deemed to be void with respect to matters
listed on Schedule 4.5.
4.6 Failure to Deliver Notice of Material Concern. Subject to the
provisions of Sections 11 and 12 below, in the event there is no Notice of
Material Concern given or if given, the matters listed therein relate
solely to matters listed on Schedule 4.5 or are resolved by mutual
agreement of Sellers and Purchaser, the Deposit shall be and become
nonrefundable and all of Purchaser's rights to terminate this Agreement as
a result of any matter contained in Sellers' Due Diligence Deliveries, or
found by or revealed to Purchaser during the Study Period as a result of
Purchaser's inspection of the Properties or otherwise found or discovered
in any reports generated by or for Purchaser during the Study Period shall
be deemed to be waived.
5. Deposit.
5.1 Immediately Available Funds. To the extent any portion of the Deposit
is made in immediately available funds, such funds and all interest earned
thereon shall be held in escrow and disbursed by Deposit Escrow Agent in
accordance with the escrow agreement attached hereto as Exhibit C (the
"Deposit Escrow Agreement").
5.2 Letter of Credit. To the extent any portion of the Deposit is made
with a letter of credit in accordance with Section 3.1(a) above, such
letter of credit shall be held by Deposit Escrow Agent in accordance with
the terms of the Deposit Escrow Agreement and shall be returned to
Purchaser in accordance with the terms of the Deposit Escrow Agreement.
5.3 Failure to Make Deposit. In the event Purchaser does not timely make
the Deposit, this Agreement shall be void and shall not become effective.
6. Representations and Warranties of Sellers.
6.1 Representations and Warranties. Sellers hereby jointly and severally
represent, warrant and agree that, as of the Effective Date and as of the
Escrow Closing Date, the representations and warranties set forth as items
6.1 through 6.29 and 6.32 on Schedule 6.1 attached hereto are (or shall be,
as the case may be) true and correct (except as otherwise disclosed to
Purchaser during the Study Period as a result of any matter contained in
Seller's Due Diligence Deliveries, documents, books, records,
correspondence and other written information delivered or made available to
Purchaser in the locations set forth on Schedule 4.2, Purchaser's
investigations or pursuant to any estoppel certificate or otherwise) and in
each case subject to the qualifications contained in the introductory
paragraph of Schedule 6.1. Sellers hereby jointly and severally represent
and warrant that as of the Closing Date the representations and warranties
set forth in items 6.1 through 6.6 and items 6.28, 6.29 and 6.32 of
Schedule 6.1 shall be true and correct. PaineWebber hereby represents and
warrants that as of the Effective Date, as of the Escrow Closing Date and
as of the Closing Date the representations and warranties set forth in
items 6.30 and 6.31 of Schedule 6.1 are or shall be true and correct, as
the case may be. In no event shall Purchaser have any recourse to any
Seller after the Escrow Closing Date for any such breach of representations
or warranties under this Agreement, and
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Purchaser hereby agrees to look solely to PaineWebber for any such breach
of representations and warranties as provided in Section 6.3 of this
Agreement.
6.2 Survival of Representations and Warranties. Subject to the provisions
of Sections 6.1, 6.3, 6.4 and 6.5, each of the representations and
warranties set forth on Schedule 6.1 shall, unless otherwise so provided
for in Schedule 6.1, survive the Escrow Closing Date but only through the
Indemnification Cut-Off Date (as hereinafter defined).
6.3 Indemnification by PaineWebber. Subject to the terms of this
Agreement, PaineWebber agrees, if the Closing occurs, to indemnify and hold
Purchaser and its respective subsidiaries and affiliates and persons
serving as trustees, officers or directors thereof (individually a
"Purchaser Indemnified Party" and collectively the "Purchaser Indemnified
Parties") harmless from and against any damages, liabilities, losses,
taxes, fines, penalties, cost, and expenses (including, without limitation,
reasonable fees of counsel) of any kind or nature whatsoever (whether or
not arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) which (i) may be
sustained or suffered by any of them arising out of or based upon any
representation or warranty set forth on Schedule 6.1 (subject to the
standard contained in the introductory paragraph of Schedule 6.1) being
inaccurate on the Escrow Closing Date and/or the Closing Date, if such
representation or warranty is made as of the Closing Date under Section 6.1
above, as the case may be, or (ii) arise as a result of Sellers not
maintaining their legal existence and/or not having the financial ability
to make the post-Closing adjustments described in Section 13 or to satisfy
the indemnification obligations contained in Section 14.
6.4 Limitations on Indemnification by PaineWebber. Notwithstanding the
foregoing, the right of Purchaser Indemnified Parties to indemnification
under Section 6.3 shall be enforceable only with respect to (i) claims
asserted or made by any Purchaser Indemnified Party in accordance with
Section 6.5 prior to the date which is one year from the Escrow Closing
Date (the "Indemnification Cut-Off Date") and (ii) matters for which
estoppel certificates were not delivered at the Escrow Closing.
6.5 Notice; Defense of Claims. A Purchaser Indemnified Party may make
claims for indemnification hereunder by giving written notice thereof to
PaineWebber prior to the Indemnification Cut-Off Date. If indemnification
is sought for a claim or liability asserted by a third party, the Purchaser
Indemnified Party must also give written notice thereof to PaineWebber
promptly after it receives notice of the claim or liability being asserted,
but in each event prior to the Indemnification Cut-Off Date. Such notice
shall summarize the basis for the claim for indemnification and any claim
or liability being asserted by a third party. Within ten (10) Business Days
after receiving such notice, PaineWebber shall give written notice to the
Purchaser Indemnified Party (the "PW Response") stating whether it disputes
the claim for indemnification and whether it will defend against any third
party claim or liability at its own cost and expense. If PaineWebber
disputes its obligation of indemnification or defense of a claim or
liability, written notice of which is given by PaineWebber in accordance
with the terms of this Agreement, PaineWebber's obligation of
indemnification and defense shall automatically terminate unless (i) a
lawsuit regarding such claim or liability is filed with a court of
competent jurisdiction prior to the Indemnification Cutoff Date or within
twenty (20) Business Days after the date of the PW Response, whichever is
later, and (ii) such court of competent jurisdiction (subject to appeal by
PaineWebber) determines that PaineWebber is obligated to provide
indemnification for and to defend such claim or liability. PaineWebber
shall be entitled to direct the defense against a third party claim or
liability with counsel selected by it (subject to the consent of the
Purchaser Indemnified Party who made the claim for indemnification, which
consent shall not be unreasonably withheld or delayed) as long as
PaineWebber is conducting a good faith and diligent defense. PaineWebber
shall have the right to compromise or settle any claim against a Purchaser
Indemnified Party with respect to which PaineWebber has undertaken the
defense, if the remedy sought is monetary damages and/or equitable relief.
If there is criminal liability sought, PaineWebber cannot settle without
the Purchaser Indemnified Party's prior written consent. In all cases where
PaineWebber settles, PaineWebber must use its best efforts to obtain a
release of the Purchaser Indemnified Party or other adequate protection or
assurances. Nothing contained herein shall be deemed to grant authority to
PaineWebber to commit or obligate any Purchaser Indemnified Party to any
obligation, liability or restraint. The Purchaser Indemnified
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Party shall at all times have the right to participate fully in the defense
of a third party claim or liability directly or through counsel (at its own
expense from and after the date PaineWebber notifies such Purchaser
Indemnified Party that it will undertake such defense); provided, however,
that if the named parties to the action or proceeding include both Sellers
and the Purchaser Indemnified Party and PaineWebber is advised that
representation of both parties by the same counsel would be inappropriate
under applicable standards of professional conduct, the Purchaser
Indemnified Party may engage separate counsel at the expense of PaineWebber
but in no event shall PaineWebber be obligated to indemnify Purchaser
Indemnified Parties for the cost and expense of more than one such counsel.
If no such notice of intent to dispute and defend a third party claim or
liability is given by PaineWebber, or if such good faith and diligent
defense is not being or ceases to be conducted by PaineWebber, the
Purchaser Indemnified Party shall have the right, at the expense of
PaineWebber, to undertake the defense of such claim or liability (with
counsel selected by the Purchaser Indemnified Party), and to compromise or
settle it, exercising reasonable business judgment, so long as neither
Sellers nor PaineWebber are defendants in such action. If either Sellers or
PaineWebber are defendants in any such action and criminal liability is
sought, the Purchaser Indemnified Party cannot settle without PaineWebber's
prior written consent. In all cases where the Purchaser Indemnified Party
settles, the Purchaser Indemnified Party must use its best efforts to
obtain a release of all Sellers and PaineWebber if such Sellers or
PaineWebber are a defendant in such action or other adequate protection or
assurances. If the third party claim or liability is one that by its nature
cannot be defended solely by PaineWebber, then the Purchaser Indemnified
Party shall make available such information and assistance as PaineWebber
may reasonably request and shall cooperate with PaineWebber in such
defense, at the expense of PaineWebber.
7. Representations and Warranties of Purchaser. Purchaser represents,
warrants and agrees that, as of the Effective Date of this Agreement and as of
the Escrow Closing Date:
7.1 Organization. Purchaser is a real estate investment trust duly
organized and validly existing under the laws of the State of Maryland and
has all requisite power and authority to enter into this Agreement and to
perform its obligations hereunder.
7.2 Due Authorization. This Agreement has been duly authorized, executed
and delivered by Purchaser and constitutes a legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with
its terms, and the consent of no person, including, but not limited to,
directors, shareholders, partners or creditors of Purchaser, is required
for Purchaser to execute, deliver or perform its obligations under this
Agreement.
7.3 REIT Status. The Purchaser has elected to be treated as a real estate
investment trust within the meaning of Sections 856-860 of the Code, and
has satisfied the requirements of the Code and all regulations promulgated
thereunder to maintain its status as a real estate investment trust for the
years 1993 and 1994 and has operated and intends to continue to operate in
such manner as to qualify as a real estate investment trust for 1995 and
1996.
7.4 Indemnity. Purchaser shall indemnify and hold harmless each Seller
from and against any mechanics' and materialmen's liens and other liens or
claims, suits, actions, debts, liabilities, damages, costs, charges and
expenses, including court costs and reasonable attorneys' fees, which any
such Seller may suffer or incur by reason of any action or inaction of
Purchaser prior to the Escrow Closing Date in connection with Purchaser's,
Purchaser's agents, or Purchaser's contractors, entry onto, inspection or
physical testing of the Properties. This indemnification shall survive the
termination of this Agreement, notwithstanding anything else to the
contrary contained herein. Any such Seller may make claims for
indemnification hereunder by giving written notice thereof to Purchaser. If
indemnification is sought for a claim or liability asserted by a third
party, Sellers must also give written notice thereof to Purchaser promptly
after they receive notice of the claim or liability being asserted. The
notice must summarize the basis for the claim for indemnification and any
claims or liability being asserted by a third party. Purchaser shall be
entitled to direct the defense against the third party claim or liability
with counsel selected by it (subject to the consent of the applicable
Sellers, which consent shall not be unreasonably withheld or delayed) as
long as Purchaser is conducting a good faith and diligent defense.
Purchaser shall have the right to compromise or settle any claim against
Sellers with respect to which Purchaser has undertaken the
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defense, if the remedy sought is monetary damages and/or equitable relief.
If there is criminal liability sought, Purchaser cannot settle without
Sellers' prior written consent. In all cases where Purchaser settles,
Purchaser must use its best efforts to obtain a release of the applicable
Sellers or other adequate protection or assurances. Nothing contained
herein shall be deemed to grant authority to Purchaser to commit or
obligate Sellers to any obligation, liability or restraint. If any third
party claim or liability is one that by its nature cannot be defended
solely by Purchaser, then the applicable Sellers shall make available such
information and assistance as Purchaser may reasonably request and shall
cooperate with Purchaser in such defense, at the expense of Purchaser.
7.5 Restoration of Properties. Purchaser shall restore or shall cause the
Properties to be restored to substantially the condition existing prior to
any tests or studies conducted or caused to be conducted by Purchaser if
any damage or change in condition of the Properties results from such tests
or studies. Such obligation shall survive the termination of this Agreement
notwithstanding anything else to the contrary contained herein.
7.6 No Conflict. Purchaser has the requisite power and authority to enter
into this Agreement and to create thereby the binding obligation of
Purchaser and to perform its obligations hereunder, in each case, without
the consent or approval of any other persons or entities. The execution and
delivery by Purchaser of this Agreement does not, and the performance by
Purchaser of its covenants and agreements under this Agreement, will not
(a) violate any material requirement of applicable law, (b) violate or
contravene any provision of Purchaser's organizational documents or any
law, rule, regulation, order, writ, judgment, decree, determination or
award applicable to Purchaser or (c) violate, contravene or result in a
breach of or constitute a default under any indenture, lease, loan or other
agreement or any instrument to which Purchaser is party or by which its
properties may be bound or affected.
7.7 Bankruptcy. No bankruptcy, insolvency, rearrangement or similar
action involving Purchaser whether voluntary or involuntary, is pending or
to Purchaser's actual knowledge, threatened; and Purchaser has no intention
of filing any such action or proceeding.
8. Covenants of Purchaser and Sellers.
8.1 Sellers' Operation of the Properties. Between the Effective Date and
the Escrow Closing Date or any earlier termination of this Agreement,
Sellers shall (a) continue to maintain and to make all ordinary and non-
structural repairs and replacements to the Projects so as to keep them in
substantially their present condition (reasonable wear and tear and damage
by casualty and eminent domain excepted), (b) continue to expend funds for
advertising and capital improvements with respect to the Projects in
accordance with Sellers' existing plans, budgets and pro formas for fiscal
year ending August 31, 1996, (c) maintain in full force and effect the
insurance described on Schedule 6.18, (d) not enter into any new Service
Contract or modify existing Service Contracts unless same may be terminated
by Sellers without penalty on thirty (30) days (or less) notice unless not
practicable, in which case Sellers shall request Purchaser's consent
therefor in writing and Purchaser shall not unreasonably withhold or delay
its consent thereto, (e) not allow material agreements necessary to operate
the Properties to expire without replacing the same after obtaining
Purchaser's prior written consent therefor, which consent shall not be
unreasonably withheld or delayed, (f) perform all of its obligations under
the Existing Indebtedness, (g) not apply security deposits to cure defaults
of tenants except in the case of those Leases terminated prior to the
Escrow Closing Date or where the Lease otherwise requires. Beginning on the
Escrow Closing Date, operation of the Properties shall be governed by the
Management Agreement, (h) deliver to Purchaser within ten (10) days after
the last day of each month during such period rent rolls for the Projects
dated as of the last day of each month during such period together with a
list of delinquencies and a detailed aging report, (i) deliver to Purchaser
within ten (10) days after the last day of each month during such period
monthly and quarterly operating statements for the Projects for the period
from and after February 1, 1996, and (j) promptly deliver to Purchaser
copies of all publicly available reports filed by Sellers with the SEC
during such period.
8.2 Leases. Between the Effective Date and the Escrow Closing Date,
unless this Agreement is terminated as provided hereunder, Sellers shall
not, without the written consent of Purchaser, which consent
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may be withheld in Purchaser's sole discretion, effect any change in any
Lease or enter into any new Lease which does not comply with the leasing
guidelines set forth on Schedule 8.2 (the "Leasing Guidelines"). Sellers
shall keep Purchaser informed and shall consult with Purchaser regarding
negotiations with respect to new Leases and amendments to, and assignments
of, existing Leases. Sellers shall provide copies of all executed
agreements (together with copies of all contracts, plans and specifications
for any tenant improvements contemplated thereunder) to Purchaser promptly
after the execution thereof. Schedule 6.7 shall be deemed to be amended to
include any Leases or amendments entered into in accordance with the terms
of this Section 8.2. Sellers shall not grant consent to any assignment of a
Lease for which Sellers have discretionary ability to so consent, without
Purchaser's prior written consent, which consent shall not be unreasonably
withheld or delayed. Sellers shall notify Purchaser of all notices of
assignment and all requests for consent to assignment. Although Sellers
have agreed to keep Purchaser informed and consult with Purchaser regarding
negotiations of new Leases and/or Lease modification, Sellers shall have
the unilateral right to amend or enter into any Lease which complies with
the Leasing Guidelines. When seeking consent to a new or modified Lease,
Sellers shall provide notice of the identity of the tenant, a term sheet or
letter of intent containing material business terms (including base rent,
percentage rent, co-tenancy requirements, exclusive requirements, expense
base, concessions, tenant improvement allowances, brokerage commissions,
expansion and extension options and copies of all contracts, plans and
specifications for the contemplated tenant improvements) and whatever
credit and background information, if any, Sellers then possess with
respect to such tenant. Purchaser shall be deemed to have consented to any
proposed new Lease or Lease modification which does not meet the Leasing
Guidelines if it has not responded to Sellers within five (5) Business Days
after receipt of such information. Purchaser hereby designates Herbert
Glimcher, David Glimcher and Fred Zantello as individuals who, acting
singly, will each be authorized to grant approvals under this Section 8.2.
Notwithstanding any provision of this Section 8.2 to the contrary, Sellers
may, without the prior written consent of the Purchaser, cancel or
terminate any Lease or commence collection, unlawful detainer or other
remedial action against any tenant upon the occurrence of a default by the
tenant under said Lease. Sellers shall promptly notify Purchaser of any
such termination or remedial action.
In the event Purchaser consents in writing to a new Lease or an amendment
to any existing Lease, the tenant improvement costs, leasing commissions
and similar leasing expenses thereunder (the "Leasing Costs") that are
actually incurred by Sellers on or prior to the Escrow Closing Date shall
be added to the Escrowed Purchase Price. With respect to Leases entered
into prior to the Escrow Closing Date for which Purchaser's consent has not
been obtained, the tenant improvement costs, leasing commissions and
similar leasing expenses thereunder shall be paid by Sellers (regardless of
when such costs are incurred). Beginning on the Escrow Closing Date,
decisions with respect to leasing matters and responsibility for expenses
incurred in connection with Leases and/or Lease modifications entered into
after the Escrow Closing Date shall be allocated between Purchaser and
Sellers as provided in the Management Agreement.
8.3 Existing Indebtedness. Schedule 8.3a attached hereto lists loans
which are included in the definition of Assumed Indebtedness and which
Sellers may revise prior to the Closing Date to address the items listed in
Schedule 8.3a. All such revisions will be on the terms and conditions set
forth on Schedule 8.3a, without adjustment to the Purchase Price. Sellers
shall forward all drafts of documentation evidencing such revisions and
shall consult with Purchaser regarding such drafts and the status of such
negotiations. Sellers shall provide Purchaser with copies of all executed
agreements promptly after the execution thereof. Except as specifically
provided above, prior to the Closing Date, if this Agreement shall not have
been terminated as provided hereunder, Sellers shall not, without the prior
written consent of Purchaser, which consent may be withheld in Purchaser's
sole discretion, otherwise modify, alter or amend the terms of any Assumed
Indebtedness. When seeking consent for any such other amendment to the
Assumed Indebtedness, Sellers shall provide copies of the proposed terms
and conditions and documentation to evidence such amendment. Purchaser
shall be deemed to have rejected any such amendment if it has not responded
to Sellers within five (5) Business Days after receipt of such information.
Purchaser hereby designates Herbert Glimcher, David Glimcher and Fred
Zantello as individuals who, acting singly, will each be authorized to
grant approvals under this Section 8.3. Sellers shall be entitled to
request waivers of defaults under the Existing Indebtedness without prior
written consent of the Purchaser.
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8.4 Sellers' Agreement Regarding Acquisition Proposals.
(a) Unless and until this Agreement and, if applicable, the Closing
Escrow Agreement shall have been terminated, Sellers hereby covenant
and agree that prior to the Closing Date, Sellers and PaineWebber shall
not, nor shall Sellers or PaineWebber authorize any officer, director,
partner or employee, investment banker, attorney or other advisor or
representative of any Seller or PaineWebber to, directly or indirectly,
solicit, initiate or knowingly encourage the submission of, any
Acquisition Proposal. For purposes of this Agreement, "Acquisition
Proposal" means (i) any proposal for a merger or other business
combination involving RPI or any other Seller or (ii) any proposal to
acquire in any manner, directly or indirectly, including, without
limitation, by tender offer, exchange offer or similar transaction,
more than 15% of (a) the capital stock of RPI or any other Seller which
is a corporation, (b) the partnership interests of any Seller which is
a partnership, or (c) the consolidated assets of Sellers, other than
the transactions contemplated by this Agreement.
(b) Notwithstanding any provision of this Agreement to the contrary:
(i) Sellers may participate in discussions or negotiations with, and
may furnish information to any third party which (without any
solicitation, initiation or encouragement in violation of Section
8.4(a)) seeks to engage in such discussions or negotiations or requests
such information, if the Board of Directors of RPI determines, based on
the advice of Goodwin, Procter & Hoar or Campbell & Riggs as counsel to
RPI or Hutchins, Wheeler & Dittmar as counsel to the independent
directors of RPI or such other legal counsel which RPI or the
independent directors of RPI may select and which other legal counsel
are reasonably acceptable to Purchaser ("Legal Counsel"), that failing
to engage in such discussions or negotiations or to provide such
information would reasonably be expected to violate the fiduciary
duties of the Board of Directors of RPI to the stockholders of RPI; and
(ii) the Board of Directors of RPI may take and disclose to RPI's
stockholders a position contemplated by Rules 14e-2 and 14a-9
promulgated under the Exchange Act with respect to any tender offer and
may make such disclosure to the stockholders of RPI as may be required
under applicable law; provided, that the Board of Directors of RPI
shall not recommend that the stockholders of RPI tender their shares
unless such recommendation is permitted by Section 8.4(c).
(c) Notwithstanding anything to the contrary in this Agreement, the
Board of Directors of RPI shall be permitted from time to time to take
the following actions in the circumstances described below: (i) to
withdraw or modify its approval or recommendation of this Agreement or
the transactions contemplated hereby in a manner adverse to Purchaser;
(ii) to approve or recommend or enter into an agreement with respect to
an Acquisition Proposal; or (iii) to terminate this Agreement, if, in
each case: (A) an Acquisition Proposal is commenced, publicly proposed,
publicly disclosed or otherwise communicated to RPI and (B) the Board
of Directors of RPI determines, based on the advice of Legal Counsel,
that such action is required in order to comply with its fiduciary
duties to the stockholders of RPI. No such action by the Board of
Directors of RPI shall constitute a breach of this Agreement by RPI or
any Seller.
(d) In the event the Board of Directors of RPI is prepared to accept
an Acquisition Proposal (other than an Acquisition Proposal which is in
the form of a tender offer, exchange offer or similar transaction), the
Board of Directors of RPI shall so notify Purchaser at least forty-
eight (48) hours prior to terminating this Agreement or the Closing
Escrow Agreement, if applicable, and entering into a definitive
agreement with respect to such Acquisition Proposal. Notwithstanding
anything set forth in Sections 7(iii) and 7(v) of the Confidentiality
Agreement and without being in breach thereof, Purchaser shall have the
right to communicate and discuss with Sellers and their officers and
directors proposed modifications of the terms and conditions set forth
in this Agreement for the purchase of the Properties, but not to
communicate or discuss with, or make any written or oral proposal or
offer to, any of Sellers' other employees or shareholders with respect
thereto. Nothing contained in this Section 8.4(d) shall be construed to
permit Purchaser (hereunder and under the Confidentiality Agreement),
and Purchaser hereby agrees not, (i) to seek to advise, encourage, or
influence any person with respect to the voting of any securities of
RPI, or induce, attempt to induce or in any manner assist any other
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person in initiating any stockholder proposal or a tender or exchange
offer for securities of RPI or any change of control of RPI, or for the
purpose of convening a stockholders' meeting of RPI; or (ii) to make
any public announcement or make any written or oral proposal or
invitation to discuss any possibility, intention, plan or arrangement,
relating to a tender or exchange offer for securities of RPI or a
business combination (or other similar transaction which would result
in a change of control), sale of assets (other than as provided in the
immediately preceding sentence), liquidation or other extraordinary
corporate transaction between Purchaser or any of Purchaser's
affiliates and any of the Sellers or take any action that might require
RPI to make a public announcement regarding any of the foregoing,
except, in each case, as provided in Section 7 of the Confidentiality
Agreement.
8.5 Shareholder Meeting and Proxy. RPI shall take all action necessary in
accordance with applicable law and its organizational documents to convene
a meeting of its stockholders as promptly as practicable to consider and
vote upon the approval of this Agreement and the transactions contemplated
hereby. The Board of Directors of RPI shall recommend that its stockholders
approve this Agreement and the transactions contemplated hereby, and RPI
shall use its reasonable efforts to obtain such approval, including,
without limitation, by timely mailing the proxy statement described below
to its stockholders; provided, however, that nothing contained in this
Section 8.5 shall prohibit the Board of Directors of RPI from failing to:
(i) convene such meeting, (ii) make such recommendation or (iii) use its
reasonable efforts to obtain such approval if the Board of Directors of RPI
has determined, after consultation with and based upon the advice of Legal
Counsel, that convening such meeting, making such recommendation or using
its reasonable efforts to obtain such approval would reasonably be expected
to violate the fiduciary duties of the Board of Directors of RPI to its
stockholders. In the event that the stockholders of RPI do not approve this
Agreement or the transactions contemplated hereby, the failure to obtain
such approval shall not be a default by Sellers under this Agreement if
Sellers have complied with the foregoing provisions of this Section 8.5.
Notwithstanding the recommendation of approval by the Board of Directors,
the Board of Directors of RPI shall be entitled to disclose all risks of
and alternatives to the transaction. RPI shall promptly prepare and, after
the Escrow Closing Date, file with the Securities and Exchange Commission
(the "SEC") a proxy statement pursuant to Section 14 of the Exchange Act
with respect to the meeting of the stockholders of RPI in connection with
the sale of the Properties to Purchaser (the "Proxy Statement"). RPI will
cause the Proxy Statement to comply as to form in all material respects
with the applicable provisions of the Exchange Act. Purchaser shall furnish
all information about itself and its business and operations and all
necessary financial information to RPI and its counsel as RPI may
reasonably request in connection with the preparation of the Proxy
Statement. Purchaser agrees that the information provided by it for
inclusion in the Proxy Statement and each amendment or supplement thereto,
at the time of mailing thereof and at the time of the meeting of
stockholders of RPI, will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Purchaser shall promptly
furnish RPI with any such information necessary to correct any statement in
the Proxy Statement or any amendment or supplement thereto that has become
false or misleading. RPI will advise and deliver copies to Purchaser of any
request by the SEC for amendment of the Proxy Statement or comments thereon
and responses thereto or requests by the SEC for additional information,
promptly after RPI receives notice thereof.
8.6 Estoppel Certificates. Within fifteen (15) days after the Effective
Date, Sellers shall request estoppel certificates (the "Estoppel
Certificates") from all tenants of the Projects, in each case, in the form
attached to or required by the applicable Lease, or the form commonly used
by the applicable tenant or, if no form is attached to or required by the
Lease or commonly used by the applicable tenant, in the form attached
hereto as Exhibit F. Sellers shall use good faith efforts to obtain
Estoppel Certificates from all tenants of the Projects; provided, however,
that nothing contained herein shall require Sellers to pay money to any
tenant, commence litigation, threaten litigation or otherwise adversely
affect relations with tenants. Sellers shall promptly provide Purchaser
with a copy of all Estoppel Certificates received by Sellers and shall
notify Purchaser of any tenant that refuses to deliver an Estoppel
Certificate and the reason for such refusal, if known. Nothing contained in
this Section 8.6 is intended to change the percentage of Estoppel
Certificates required to be delivered under Section 10.1(d).
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8.7 Indebtedness. Purchaser and Sellers shall each use reasonable efforts
to obtain the consent of the holders of the Assumed Indebtedness to the
transactions contemplated herein (including, but not limited to the change
in manager, the Escrow Closing, and the transfer of the Projects to the
Purchaser) and to the release of the applicable Seller (and any other
obligor thereunder or guarantor thereof) from liability under the Assumed
Indebtedness. Purchaser and Sellers shall also each use reasonable efforts
to cause the holders of the Assumed Indebtedness to deliver estoppel
certificates with respect to the status of the Assumed Indebtedness. In the
event, despite such reasonable efforts, the holder of any Assumed
Indebtedness is unwilling to so release the applicable Seller (and any
other obligor thereunder or guarantor thereof) and the failure to obtain
the release prevents the liquidation of any Seller or has the effect of
requiring the establishment or increase in reserves upon liquidation of any
Seller, this Agreement shall terminate and Purchaser shall be entitled to a
return of the Deposit. Purchaser and Sellers shall each use reasonable
efforts to obtain the consent of the holders of the Prepaid Indebtedness to
the change in manager, in the event a change in manager of the applicable
Project requires the consent of the holder of such Prepaid Indebtedness or
would constitute a default or an event of default under such Prepaid
Indebtedness. In the event, despite such reasonable efforts, the holder of
any Prepaid Indebtedness whose consent is required as set forth above is
unwilling to consent to the change in manager, any Seller, PaineWebber, and
Purchaser may each, in the order listed herein, attempt to purchase such
Prepaid Indebtedness, failing such purchase, this Agreement may be
terminated by Purchaser or Sellers, and the Purchaser shall be entitled to
a return of the Deposit. Purchaser and Sellers shall also use reasonable
efforts to obtain payoff letters from the holders of the Prepaid
Indebtedness containing a calculation of prepayment premiums, if any.
8.8 Confidentiality Agreement. Purchaser understands and agrees that it
is still bound by and subject to the terms of the Confidentiality Agreement
(subject to the modifications thereof contained in Section 8.4(d) above),
the terms and conditions of which are incorporated herein by this
reference. In addition, during the period in which the provisions of
Section 8.5 above are applicable, Purchaser hereby covenants and agrees
that it will not, nor will it permit or allow, directly or indirectly, any
officer, director or employee of or any investment banker, attorney or
other advisor or representative of Purchaser to request RPI or the Board of
Directors of RPI, directly or indirectly, to amend or waive Section 7 or
Section 8 of the Confidentiality Agreement. Any material breach by
Purchaser of the Confidentiality Agreement or this Section 8.8 shall
constitute a default by Purchaser hereunder.
9. Escrow Closing, Deliveries, Disclaimer of Warranties.
9.1 Escrow Closing. Subject to the terms of this Agreement, Sellers and
the Purchaser have agreed to close the purchase and sale of the Properties
in escrow (the "Escrow Closing") at the offices of Goodwin, Procter & Hoar,
Exchange Place, Boston, MA (or such other place as may be mutually agreed
to by Sellers and Purchaser) at 10:00 A.M. Boston time on the first (1st)
Business Day following the expiration of the Study Period (the "Escrow
Closing Date"), or such other date and time as may be mutually agreed upon
in writing by Sellers and Purchaser; provided, however, that Sellers and
Purchaser shall each have the right to one extension of the Escrow Closing
Date without cost or penalty for a period of up to five (5) Business Days
by notice to the other for the exclusive purpose of satisfying the
conditions contained in Sections 10.1 and 10.2 below. The Escrow Closing
and the delivery of documents and funds required under Sections 9.2 and 9.3
below shall be effectuated by the use of a single escrow agreement
substantially in the form attached hereto as Exhibit D (the "Closing Escrow
Agreement").
9.2 Sellers' Deliveries at the Escrow Closing. At the Escrow Closing,
Sellers shall deliver the following (collectively, the "Sellers' Escrow
Closing Deliveries") to the Closing Escrow Agent to be held by the Closing
Escrow Agent, subject to the terms and conditions of the Closing Escrow
Agreement:
(a) Special Warranty Deeds in form acceptable to Purchaser, conveying
good and indefeasible title in fee simple to the Properties free and
clear of any and all liens, leases, tenancies, encumbrances,
conditions, easements, assessments, restrictions, and other conditions
except for the Permitted Exceptions, the Leases, the Service Contracts,
the Management Agreement and any encumbrance created, caused or
consented to in writing by Purchaser.
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(b) Assignment and Assumption Agreements for the Leases and
Assignment Agreements for the Service Contracts, Management Agreement,
licenses, warranties and approvals and Indemnity Agreements for the
Assumed Indebtedness, Service Contracts, Management Agreement,
licenses, warranties and approvals.
(c) Original counterparts of the Option Agreements, Leases and
Service Contracts and documents evidencing and/or securing Assumed
Indebtedness, in each case, to the extent in Sellers' possession, or
copies thereof if originals are unavailable and copies thereof have not
been previously delivered to Purchaser.
(d) Affidavits in form and substance satisfactory to Purchaser
stating each Seller's taxpayer identification number and that such
Seller is not a "Foreign Person" as provided in Section 1445 of the
Code.
(e) Evidence of each Seller's capacity and authority (subject only to
the affirmative vote of the shareholders of RPI holding two-thirds in
interest of the shares of RPI's common stock entitled to vote on such
matter) to enter into and close this transaction, and evidence of
PaineWebber's capacity and authority to enter into and close this
transaction.
(f) An opinion of counsel to PaineWebber in form and substance
satisfactory to Purchaser and its counsel opining as to the
enforceability of this Agreement with respect to PaineWebber's
obligations hereunder and the authorization of PaineWebber to enter
into this Agreement and perform its obligations hereunder.
(g) An opinion of counsel to Sellers in form and substance
satisfactory to Purchaser and its counsel opining as to the
enforceability of this Agreement with respect to Sellers and the
authorization of Sellers to enter into this Agreement and to perform
their respective obligations hereunder.
(h) Affidavits addressed to the Closing Escrow Agent or the
applicable title insurance company (in each case dated as of the Escrow
Closing Date) regarding parties in possession and mechanics liens and
such other affidavits, indemnities and certificates as are customarily
and reasonably required by the Closing Escrow Agent or the applicable
title insurance company in transactions of a similar size and nature
including, without limitation, gap indemnities with respect to matters
created by, consented to or caused by Sellers.
(i) Rent rolls for the Projects dated no earlier than one (1)
Business Day prior to the Escrow Closing Date (the "Final Rent Rolls")
together with a list of delinquencies with a detailed aging report.
(j) The Estoppel Certificates which are received as a result of the
requests required under Section 8.6 above.
(k) Notices, dated as of the Escrow Closing Date, addressed to all
tenants under the Leases and all vendors under all contracts and all
holders of Existing Indebtedness regarding the change in manager for
the Projects.
(l) Notices, dated in blank, addressed to tenants under the Leases
and all vendors under all contracts and all holders of Assumed
Indebtedness regarding the sale of the Projects.
(m) All bills with respect to the Projects for 1996 and other current
lease years and such other information as shall allow Purchaser to bill
tenants for Additional Rents under the Leases.
(n) Such other documents, affidavits and certificates as are
customarily and reasonably required in transactions of a similar size
and nature or in a jurisdiction in which the applicable Property is
located.
(o) Such documents as are reasonably required to convey Sellers'
interest in the Option Parcels.
(p) Transfer tax returns, if any.
(q) Settlement statements.
(r) Such documents as are reasonably required to substitute Purchaser
as the party in interest in any tax appeal.
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9.3 Purchaser's Deliveries at the Escrow Closing. At the Escrow Closing,
Purchaser shall deliver the following (collectively, the "Purchaser's
Escrow Closing Deliveries") to the Closing Escrow Agent to be held by the
Closing Escrow Agent, subject to the terms and conditions of the Closing
Escrow Agreement:
(a) The Escrowed Purchase Price (as adjusted hereunder) and all
closing costs for which Purchaser is responsible (including, without
limitation, all prepayment fees which would be due under the Prepaid
Indebtedness as of the Escrow Closing Date if such loans were in fact
paid on such date).
(b) To the extent obtained from the holders thereof, evidence of
releases of Sellers and other obligors and guarantors from all
obligations under the Assumed Indebtedness.
(c) Evidence of consent of the holders of the Existing Indebtedness
to the transactions contemplated hereby (to the extent required as set
forth in Section 8.7), estoppel certificates from holders of the
Assumed Indebtedness and payoff letters from the holders of the Prepaid
Indebtedness.
(d) Assignment and Assumption Agreements for the Leases and
Assignment Agreements for the Service Contracts, Management Agreement,
licenses, warranties and approvals and Indemnity Agreements for the
Assumed Indebtedness, the Service Contracts, Management Agreement,
licenses, warranties and approvals.
(e) Evidence of Purchaser's capacity and authority to enter into and
close this transaction.
(f) An opinion of counsel to Purchaser in form and substance
satisfactory to Sellers and Legal Counsel opining as to the
enforceability of this Agreement with respect to Purchaser and the
authorization of Purchaser to enter into this Agreement and to perform
its obligations hereunder.
(g) Forms of Affidavits addressed to the Closing Escrow Agent or the
applicable title insurance company (in each case with regard to the
period from the Escrow Closing Date to the date of recording of the
deeds) regarding parties in possession and mechanics liens and such
other affidavits, indemnities and certificates as are currently and
reasonably required by the Closing Escrow Agent or the applicable title
insurance company in transactions of a similar size and nature,
including, without limitation, gap indemnities with respect to matters
created or caused by Purchaser.
(h) Such other documents, affidavits and certificates as are
customarily and reasonably required in transactions of a similar size
and nature or in a jurisdiction in which the applicable Property is
located.
(i) Transfer tax returns, if any.
(j) Settlement statements.
9.4 Escrow. All deeds, agreements, documents, funds, letters of credit,
affidavits and indemnities deposited in escrow with the Closing Escrow
Agent in connection with the Escrow Closing shall be held and disbursed by
the Closing Escrow Agent strictly in accordance with the terms and
conditions of the Closing Escrow Agreement and the terms and conditions
hereof, if applicable.
9.5 Disclaimer of Warranties; Limitation of Liability. Notwithstanding
anything to the contrary contained in this Agreement or any document
related hereto, except as otherwise specifically provided in this Section
9.5 to the contrary, Purchaser and Sellers acknowledge and Purchaser agrees
that the Properties will be sold to Purchaser in the condition the
Properties are in on the Escrow Closing Date "AS IS, WHERE IS", with all
faults, and without any warranty, express or implied, as to fitness,
habitability, use, merchantability, quality of construction, workmanship,
or otherwise. Purchaser represents and warrants to Sellers that Purchaser
is entering into this Agreement and shall purchase the Properties (subject
to the terms hereof) solely on the basis of Purchaser's own independent
investigations without relying upon any statement, information or
projection made or furnished by Sellers, their agents, employees or
contractors except for the representations and warranties made herein by
Sellers and in no event shall any Seller or PaineWebber be liable to
Purchaser for any consequential damages related thereto.
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10. Conditions to Obligations to Close into Escrow.
10.1 Conditions to Obligation of Purchaser. The obligation of Purchaser
to consummate the transactions to be performed by it in connection with the
Escrow Closing is subject to satisfaction of the following conditions:
(a) The representations and warranties of Sellers referred to in
Section 6 above shall be true and correct in all material respects at
and as of the Escrow Closing Date.
(b) Each Seller and PaineWebber shall have furnished Purchaser
evidence that each such Seller and PaineWebber is in existence and in
good standing under the laws of the state of its organization.
(c) Sellers shall have executed and delivered the Management
Agreement and the Closing Escrow Agreement, delivered the documents set
forth in Section 9.2 hereof and otherwise complied with their covenants
in this Agreement.
(d) Sellers shall have furnished Estoppel Certificates from (i) all
Anchor Tenants, other than those Anchor Tenants listed on Schedule 10.1
attached hereto and (ii) at least seventy-five percent (75%) of non-
Anchor Tenants in each Project, in each case in the form attached to or
required by the applicable Lease, in the form then commonly used by the
applicable Tenant or if no form is attached to or required by the
Lease, or commonly used by the applicable Tenant, in the form attached
hereto as Exhibit F (with such reasonable modifications to such form as
may be required by such tenant). Failure of Sellers to satisfy the
conditions contained in this Section 10.1(d) shall be deemed to be a
failure of a condition precedent and shall not constitute a default
hereunder.
(e) Sellers shall have received all consents described in Section 8.7
above. Failure of Sellers to satisfy the conditions contained in this
Section 10.1(e) shall be deemed a failure of a condition precedent and
shall not constitute a default hereunder.
10.2 Conditions to Obligations of Sellers. The obligations of Sellers to
consummate the transactions to be performed by them in connection with the
Escrow Closing are subject to satisfaction of the following conditions:
(a) The representations and warranties of Purchaser set forth in
Section 7 above shall be true and correct in all material respects at
and as of the Escrow Closing Date.
(b) Purchaser shall have furnished Sellers evidence that Purchaser is
in existence and in good standing under the laws of the State of
Maryland.
(c) Purchaser shall have executed and delivered the Management
Agreement and the Closing Escrow Agreement, delivered the Escrowed
Purchase Price and the documents set forth in Section 9.3 and otherwise
complied with its covenants in this Agreement.
(d) Sellers shall have received evidence of the releases under the
Assumed Indebtedness of the applicable Seller (and any other obligor
thereunder or guarantor thereof) or shall have received evidence (which
may be in the form of an opinion of counsel to Sellers) that the
failure to obtain any such release does not prevent the liquidation of
any Seller and will not have the effect of requiring or increasing
reserves to be held upon liquidation of any Seller. Failure of Sellers
to satisfy the conditions contained in this Section 10.2(d) shall be
deemed to be a failure of a condition precedent and shall not
constitute or default hereunder.
(e) Sellers shall have received all consents described in Section 8.7
above. Failure of Sellers to satisfy the conditions contained in this
Section 10.2(e) shall be deemed to be a failure of a condition
precedent and shall not constitute or default hereunder.
10.3 Conditions to Release from Escrow. Upon the execution and delivery
of the Closing Escrow Agreement and the occurrence of the Escrow Closing,
the Closing Escrow Agreement shall provide that the provisions in Section
12.3 shall constitute the sole conditions under which the Closing Escrow
Agreement may be terminated. The Closing Escrow Agreement shall also
provide that upon delivery of (x) evidence of the approval of this
Agreement and the transactions contemplated hereby by the stockholders of
RPI holding two-thirds in interest of the shares of RPI's common stock
entitled to vote on such matter at a duly convened meeting of stockholders
and (y) the executed opinion of counsel to Sellers in the form delivered at
the
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Escrow Closing pursuant to Section 9.2(g), the Escrowed Purchase Price
shall be adjusted pursuant to Section 13.8 and disbursed in accordance with
the Closing Escrow Agreement. The Closing Escrow Agreement shall also
provide (i) that Purchaser shall be obligated to provide the Closing Escrow
Agent on or before the Closing Date with immediately available funds (which
funds shall be deemed to be added to and included under the definition of
the Escrowed Purchase Price) necessary to pay (A) net increases in
prepayment premiums, if any, for Prepaid Indebtedness, and (B) the Interest
Factor, (ii) that the deeds and other title documents shall be recorded,
(iii) that the remaining documents shall be delivered in accordance with
the Closing Escrow Agreement, (iv) Closing Escrow Agent shall date the
notices to tenants, vendors and holders of Assumed Indebtedness and (v)
that Sellers shall update exhibits to the agreements listed in Section
9.2(b). In the event immediately available federal funds are held in escrow
under the Closing Escrow Agreement, (a) Purchaser shall be entitled to the
interest earned on the portion of the Escrowed Purchase Price which will be
paid to parties other than Sellers, and (b) Sellers shall be entitled to
the interest on the remaining portion of the Escrowed Purchase Price. In
the event immediately available federal funds are not held in escrow under
the Closing Escrow Agreement Purchaser shall pay to Sellers at Closing an
amount (the "Interest Factor") equal to the product of that portion of the
Escrowed Purchase Price paid to Sellers at the Closing multiplied by an
interest rate per annum equal to the six (6) month U.S. Treasury Bill rate
published in the Wall Street Journal on the Escrow Closing Date for the
number of days from the Escrow Closing Date through and including the
Closing Date.
11. Defaults and Remedies.
11.1 Sellers' Default.
(a) Except as otherwise specifically provided herein, in the event
that this Agreement is not terminated prior to the Escrow Closing Date
and the Escrow Closing is not consummated due to default by Sellers
under this Agreement, Purchaser shall have the election of one of the
following remedies as Purchaser's sole and exclusive remedy hereunder
at law or in equity: (i) to terminate this Agreement by giving written
notice to Sellers, Deposit Escrow Agent, as the case may be, in which
event the Deposit shall be returned to Purchaser by Deposit Escrow
Agent after notification of such cancellation, and Sellers promptly
shall pay to Purchaser $2,000,000 as liquidated damages and neither
Sellers nor Purchaser shall have any further duties or obligations
hereunder or (ii) to seek specific performance of Sellers' obligations
under this Agreement in a court of competent jurisdiction.
(b) After the Escrow Closing, in the event Sellers are in default
under this Agreement or the Closing Escrow Agreement, Purchaser shall
have the election of one of the following remedies as Purchaser's sole
and exclusive remedy hereunder at law or in equity: (i) to terminate
this Agreement by giving written notice to Sellers and Closing Escrow
Agent in which event the Escrowed Purchase Price shall be returned to
Purchaser by Closing Escrow Agent after notification of such
cancellation, and Sellers shall promptly pay to Purchaser $3,000,000.00
as liquidated damages and up to an additional $500,000 as reimbursement
of Purchaser's reasonable and documented out-of-pocket, third-party
expenses incurred in connection herewith, including, without
limitation, fees and disbursements of accountants, attorneys and
investment bankers ("Purchaser's Expenses"), and neither Sellers nor
Purchaser shall have any further duties or obligations hereunder or
(ii) to seek specific performance of Sellers' obligations under this
Agreement and/or the Closing Escrow Agreement, as the case may be, in a
court of competent jurisdiction.
11.2 Purchaser's Default. In the event that this Agreement is not
terminated prior to the Escrow Closing Date and the Escrow Closing is not
consummated due to default by Purchaser under this Agreement, upon written
notice from Sellers to Purchaser and Deposit Escrow Agent, this Agreement
shall terminate, and Sellers shall be entitled to receive the Deposit as
liquidated damages as the sole and exclusive remedy at law or in equity.
After the Escrow Closing, in the event Purchaser is in default under this
Agreement or the Closing Escrow Agreement, Sellers shall have the election
of one of the following remedies as Sellers' sole and exclusive remedy
hereunder at law or in equity: (i) to terminate this Agreement by giving
written notice to Purchaser and Closing Escrow Agent, in which event
Sellers shall be entitled to receive out of the Escrowed Purchase Price
$3,000,000.00 as liquidated damages and up to an additional
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$500,000.00 for the reimbursement of Sellers' reasonable and documented
out-of-pocket, third party costs and expenses incurred in connection
herewith, including, without limitation, fees and disbursements of
accountants, attorneys, proxy solicitors and investment bankers ("Sellers'
Expenses"), Purchaser shall be entitled to receive the balance of the
Escrowed Purchase Price, and neither Sellers nor Purchaser shall have any
further duties or obligations hereunder or (ii) to seek specific
performance of Purchaser's obligations under this Agreement and/or the
Closing Escrow Agreement, as the case may be, in a court of competent
jurisdiction.
12. Termination and Effect of Termination.
12.1 Termination Prior to Escrow Closing. At any time prior to the Escrow
Closing Date, this Agreement may be terminated as follows:
(a) by mutual written consent of Purchaser and Sellers;
(b) by Purchaser or Sellers if any United States federal or state
court of competent jurisdiction or other governmental entity shall have
issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the purchase and sale
of any of the Properties and such order, decree, ruling or other action
shall have become final and non-appealable, provided that the party
seeking to terminate shall have used its reasonable efforts to appeal
such order, decree, ruling or other action unless such order, decree,
ruling or other action was against or with respect to the non-
terminating party, in which event no such reasonable efforts shall be
required;
(c) by Purchaser upon (i) a material breach of a material
representation, warranty, covenant or agreement on the part of Sellers
set forth in this Agreement, or if any material representation or
warranty of Sellers shall have become materially untrue, in either
case, after written notice from Purchaser and a reasonable period to
cure such breach (in any event not less than thirty (30) days and for
such longer period as is reasonably required to so cure; provided, that
Sellers have commenced such cure and are diligently pursuing the same),
such that the condition set forth in Section 10.1(a) would be incapable
of being satisfied by the Escrow Closing Date, (ii) delivery of a valid
Notice of Material Concern which is not resolved by mutual agreement
prior to the Escrow Closing Date or (iii) an event of bankruptcy,
receivership or other similar event of any Seller or any filing with
respect thereto;
(d) by Sellers upon (i) a material breach of a material
representation, warranty, covenant or agreement on the part of
Purchaser set forth in this Agreement, or if any material
representation or warranty of Purchaser shall have become materially
untrue, in either case, after written notice from Sellers and a
reasonable period to cure such breach (in any event not less than
thirty (30) days and for such longer period as is reasonably required
to so cure; provided, that Purchaser has commenced such cure and is
diligently pursuing the same), such that the conditions set forth in
Section 10.2(a) would be incapable of being satisfied by the Escrow
Closing Date or (ii) an event of bankruptcy, receivership or other
similar event of Purchaser or any filing with respect thereto;
(e) by Purchaser or Sellers, if the Board of Directors of RPI
recommends to RPI's stockholders approval or acceptance of an
Acquisition Proposal by a person other than Purchaser; or
(f) by Purchaser if the debt rating of Wal-Mart is reduced to BBB or
lower by Standard & Poor's Rating Group or their successors or to Baa3
or lower by Moody's Investors Service, Inc. or their successors.
12.2 Effect of Termination prior to Escrow Closing.
(a) In the event of the termination of this Agreement pursuant to
Section 12.1, this Agreement shall forthwith become void and have no
effect (except as otherwise expressly provided herein), without any
liability on the part of any party hereto or its partners, affiliates,
directors, trustees, holders of beneficial interest, officers or
stockholders and all rights and obligations of any party hereto shall
cease; provided, however, that the provisions of this Section 12.2
shall survive such termination. Except as otherwise provided in this
Agreement, upon such termination, Deposit Escrow Agent shall promptly
return the Deposit to Purchaser.
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(b) If Purchaser terminates this Agreement pursuant to Section
12.1(c)(i) or Section 12.1(c)(iii), Purchaser shall be entitled to the
remedy provided in Section 11.1(i). Any payment required by this
subsection shall be payable by Sellers within three (3) Business Days
after demand by Purchaser.
(c) If Sellers terminate this Agreement pursuant to Section 12.1(d),
Sellers shall be entitled to receive the Deposit, together with
interest thereon, if any.
(d) If Purchaser or Sellers terminate this Agreement pursuant to
Section 12.1(e), Sellers shall pay Purchaser $3,000,000.00 as
liquidated damages which shall be deemed to include payment for all of
Purchaser's Expenses, and this shall be Purchaser's sole and exclusive
remedy under this Agreement, it being understood that Section 11.1
shall not apply, and Purchaser shall be entitled to any payment
required under this subsection within three (3) Business Days after
demand by Purchaser; provided, however, if this payment is made (either
directly to Purchaser or in escrow as provided in Section 12.5 below)
and Sellers and Purchaser subsequently enter into a new agreement for
the purchase of the Properties, then the purchase price payable
thereunder in the absence of this provision shall be increased in the
amount of $3,000,000.00.
12.3 Termination After Escrow Closing. After the Escrow Closing, this
Agreement and the Closing Escrow Agreement may only be terminated for any
one of the following reasons:
(a) By mutual written agreement of Purchaser and Sellers.
(b) By Purchaser or Sellers if any United States federal or state
court of competent jurisdiction or other governmental entity shall have
issued an order, decree or ruling or taken any other action,
restraining or otherwise prohibiting the delivery or recordation, as
the case may be, of the documents deposited in escrow at the Escrow
Closing and/or the payment to Sellers of the Escrowed Purchase Price
and such order, decree, ruling or other action shall have become final
and non-appealable; provided that the party seeking to terminate shall
have used its reasonable efforts to appeal such order, decree, ruling
or other action, unless such order, decree, ruling or other action was
against or with respect to the non-terminating party, in which event no
such reasonable efforts shall be required.
(c) By Purchaser or Sellers if this Agreement and the transactions
contemplated hereby shall have failed to receive the affirmative vote
of the stockholders of RPI holding two-thirds in interest of the shares
of RPI's common stock entitled to vote on such matter at a duly
convened annual meeting of stockholders or a special meeting of
stockholders duly convened for that purpose.
(d) By Purchaser if an event of bankruptcy, receivership or other
similar event of any Seller occurs.
(e) By Sellers if an event of bankruptcy, receivership or other
similar event of Purchaser occurs.
(f) By Purchaser or Sellers, if the Board of Directors of RPI (i)
does not recommend to the stockholders of RPI approval of this
Agreement and the transactions contemplated hereby or withdraws any
such recommendation or (ii) recommends to RPI's stockholders approval
or acceptance of an Acquisition Proposal by a person other than
Purchaser.
(g) By Purchaser or Sellers if no vote of the stockholders of RPI has
occurred on or before the Outside Date.
12.4 Effect of Termination After Escrow Closing.
(a) In the event of the termination of this Agreement pursuant to
Section 12.3, this Agreement and the Closing Escrow Agreement shall
forthwith terminate and become void and have no force or effect (except
as otherwise expressly provided herein and therein), without any
liability on the part of any parties hereto or their partners,
affiliates, directors, trustees, holders of beneficial interest,
officers, or stockholders and all rights and obligations of any party
hereto shall cease; provided, however, that the provisions of this
Section 12.4 shall survive such termination. Upon such termination, (i)
the Closing Escrow Agent shall deliver the Escrowed Purchase Price
together with all interest thereon to the Purchaser, (ii) the documents
deposited in Escrow at the Closing Escrow shall be returned to the
party which deposited the same (or shall be destroyed if executed by
more than one party), (iii) the
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Management Agreement shall continue in full force and effect in
accordance with the terms thereof and (iv) Sellers shall reimburse
Purchaser for Lease Costs and Advances, as defined in the Management
Agreement, as provided in the Management Agreement.
(b) If Purchaser or Sellers terminate this Agreement pursuant to
Section 12.3(c), then PaineWebber shall pay Purchaser (i) one-half of
Purchaser's reasonable, documented, out-of-pocket, third party expenses
but in no event shall PaineWebber be obligated to pay Purchaser more
than $1,000,000.00 and (ii) (A) to the extent the Escrowed Purchase
Price is held in immediately available funds as a result of Sellers'
request that the Closing Escrow Agent draw on a letter of credit held
under the Closing Escrow Agreement, the amount by which Purchaser's
actual interest expense on such funds exceeds the interest actually
earned on such amount, or (B) to the extent any portion of the Escrowed
Purchase Price is held in immediately available funds as a result of
Purchaser's election under Section 3.1(b), one-half of the amount by
which Purchaser's actual interest expense on such funds exceeds the
amount of interest actually earned on such amount up to a maximum of
$500,000.00 and Purchaser shall have no further recourse against
Sellers or PaineWebber at law or in equity, it being understood that
Section 11.1 shall not apply. Any payment required under this
subsection shall be payable by PaineWebber to Purchaser within three
(3) Business Days after demand by Purchaser.
(c) If Purchaser terminates this Agreement pursuant to Section
12.3(d), Purchaser shall be entitled to the remedy described in Section
11.1(i). Any payment required under this subsection shall be payable by
Sellers within three (3) Business Days after demand by Purchaser.
(d) If Sellers terminate this Agreement pursuant to Section 12.3(e),
Sellers shall be entitled to the remedy described in the ultimate
sentence of Section 11.2.
(e) If Purchaser or Sellers terminate this Agreement pursuant to
Section 12.3(f) and, in the event of termination pursuant to subsection
(i) of such Section 12.3(f), RPI enters into a definitive purchase
agreement (notwithstanding the fact that such agreement may be subject
to contingencies and/or conditions, such as, by way of example and not
limitation, a due diligence period and/or shareholder approval) with
respect to an Acquisition Proposal by a person other than Purchaser at
any time prior to six (6) months after the Outside Date, Sellers shall
pay Purchaser $4,000,000.00 as liquidated damages which shall be deemed
to include payment for all of Purchaser's Expenses, and this shall be
Purchaser's sole and exclusive remedy at law or in equity under this
Agreement, it being understood that Section 11.1 shall not apply, and
Purchaser shall be entitled to any payment required under this
subsection within three (3) Business Days after demand by Purchaser;
provided, however, that, in the event of termination pursuant to
Section 12.3(f)(i), Sellers shall not pay Purchaser and Purchaser shall
not be entitled to any such liquidated damages in the event the Board
of Directors of RPI reasonably determines that Purchaser is unlikely to
be able to perform any of its material obligations under this Agreement
in a timely manner (the "Fiduciary Standard") and provides an officer's
certificate to Purchaser to that effect. Sellers shall have the burden
of proof in a challenge by Purchaser that the Fiduciary Standard has
not been met by RPI's Board of Directors. Purchaser and Sellers further
agree that Purchaser's performance of its material obligations
hereunder will be deemed not to be able to be timely performed unless
Purchaser is able to perform its material obigations within fourteen
(14) days after the meeting of the stockholders of RPI referenced in
Section 8.5 hereof. Sellers shall have no obligation to postpone or
otherwise reschedule such meeting of stockholders for any reason
whatsoever in order to enable Purchaser to timely perform its
obligations hereunder. In the event payment is made pursuant to this
subsection 12.4(e) (either directly to Purchaser or in escrow as
provided in Section 12.5 below), and Sellers and Purchaser subsequently
enter into a new agreement for the purchase of the Properties, then the
purchase price payable thereunder shall be increased in the amount of
$4,000,000.00.
12.5 Liquidated Damages.
(a) The parties acknowledge and agree that the provisions for payment
of Purchaser's Expenses and Sellers' Expenses and liquidated damages
are included herein in order to induce each party to enter into this
Agreement and to reimburse each respective party for incurring the
costs and expenses related
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to entering into this Agreement and consummating the transactions
contemplated by this Agreement. The parties hereto agree that the
payment of Purchaser's Expenses and/or liquidated damages, as the case
may be, by Sellers to Purchaser shall constitute liquidated damages
with respect to any claim for damages or any other claim which
Purchaser would otherwise be entitled to assert against Sellers with
respect to this Agreement and the transactions contemplated hereby and
shall constitute the only remedy at law or in equity to which Purchaser
shall be entitled in connection therewith. The parties further agree
that the receipt of the Deposit by Sellers and the payment of Sellers'
Expenses by Purchaser to Sellers shall constitute liquidated damages
with respect to any claim for damages or any other claim which Sellers
would otherwise be entitled to assert against Purchasers with respect
to this Agreement and the transactions contemplated hereby and shall
constitute the only remedy at law or in equity to which Sellers shall
be entitled in connection therewith. Except for nonpayment of the
amounts set forth in this Section 12, the parties hereby agree that in
no event shall either party seek or obtain any recovery or judgment
against any of the other party's assets or against any of the other
party's partners (or their constituent partners) or any director,
officer, employee or shareholder of any of the foregoing. The parties
hereby agree that in no event shall either party be entitled to seek or
obtain any other damages of any kind, including, without limitation,
consequential, indirect or punitive damages.
(b) In the event that Sellers are obligated to pay Purchaser the
amounts set forth in subsections 12.2(b), 12.2(d), 12.4(b) or 12.4(e)
(in each case, the "Liquidated Damage Amount"), Sellers shall pay to
Purchaser an amount equal to the lesser of (i) the Liquidated Damage
Amount or (ii) the sum of (A) the maximum amount that can be paid to
Purchaser without causing Purchaser to fail to meet the requirements of
Sections 856(c)(2) and 856(c)(3) of the Code, determined as if the
payment of such amount did not constitute income described in Section
856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying
Income"), as determined by Purchaser's certified public accountants,
plus (B) in the event Purchaser receives either (x) a letter from
Purchaser's counsel indicating that Purchaser has received a ruling
from the Internal Revenue Service (the "IRS") described in clauses (ii)
or (iii) of the following paragraph, or (y) an opinion from Purchaser's
counsel as described in clause (iv) of the following paragraph, an
amount equal to the Liquidated Damage Amount less the amount payable
under clause (A) above and the balance (the "Balance") shall be
deposited in escrow in accordance with the next succeeding sentence.
Sellers shall deposit into escrow an amount in immediately available
federal funds equal to the Balance, with an escrow agent selected by
Purchaser (reasonably acceptable to Sellers) and on such terms (subject
to the terms of the following paragraph) as shall be agreed upon by
Purchaser and the escrow agent. All payments by Sellers pursuant to
this paragraph shall be made by wire transfer or bank check within
three (3) Business Days after demand by Purchaser. Payment to the
Purchaser of the Liquidated Damage Amount or deposit into escrow of an
amount equal to the Liquidated Damage Amount, as the case may be, shall
satisfy Sellers' obligations in full under the terms and conditions of
this Section 12.5(b).
The escrow agreement shall provide that the amount in escrow or any
portion thereof shall not be released to Purchaser unless the escrow
agent receives any one or combination of the following: (i) a letter
from Purchaser's certified public accountants indicating the maximum
amount that can be paid by the escrow agent to Purchaser without
causing Purchaser to fail to meet the requirements of Sections
856(c)(2) and 856(c)(3) of the Code, determined as if the payment of
such amount did not constitute Qualifying Income, or a subsequent
letter revising such amount, in which case the escrow agent shall
release such amount to Purchaser, (ii) a letter from Purchaser's
counsel indicating that Purchaser received a ruling from the IRS
holding that the receipt by Purchaser of the Liquidated Damage Amount
would either constitute Qualifying Income or would be excluded from
gross income within the meaning of Sections 856(c)(2) and 856(c)(3) of
the Code, in which case the escrow agent shall release the remainder of
the Liquidated Damage Amount to Purchaser, (iii) a letter from
Purchaser's counsel indicating that Purchaser received a ruling from
the IRS holding that the receipt by Purchaser of the remaining balance
of the Liquidated Damage Amount following the receipt of and pursuant
to such ruling would not be deemed constructively received prior
thereto or (iv) an opinion of Purchaser's legal counsel to the effect
that the receipt by Purchaser of the Liquidated Damage Amount would
either
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constitute Qualifying Income or would be excluded from gross income
within the meaning of Sections 856(c)(2) and 856(c)(3) of the Code, in
which case the escrow agent shall release the remainder of the
Liquidated Damage Amount to Purchaser. Sellers agree to amend this
paragraph and the immediately preceding paragraph at the request of
Purchaser in order (x) to maximize the portion of the Liquidated Damage
Amount that may be distributed to Purchaser hereunder without causing
Purchaser to fail to meet the requirements of Sections 856(c)(2) and
856(c)(3) of the Code or (y) to improve Purchaser's chances of securing
a favorable ruling described in this Section 12.2(b), provided that no
such amendment may result in any additional cost or expense to Sellers
or prevent the liquidation of any Seller or cause any Seller to
maintain or increase any reserves upon liquidation. The escrow
agreement shall also provide that any portion of the Liquidated Damage
Amount then held in escrow after the expiration of five (5) years from
the date of such escrow shall be released by the escrow agent to
Sellers, if then in existence, and if not then in existence, as
directed by PaineWebber. Sellers shall not be a party (other than a
contingent beneficiary) to such escrow agreement and shall not bear any
cost of or have liability resulting from the escrow agreement.
13. Prorations and Adjustments at Escrow Closing. On the Escrow Closing
Date, in addition to any adjustments expressly provided for in this Agreement,
the following items relating to the Properties shall be adjusted or prorated
between Purchaser and Sellers (without affecting the Escrowed Purchase Price).
The provisions of Section 13 shall survive the Closing.
13.1 Taxes and Assessments. All real and personal property taxes and
assessments with respect to the Projects shall have been paid by Sellers
(or Wal-Mart, or such other Anchor Tenant which is responsible for the
direct payment thereof, as the case may be) through the fiscal year prior
to the tax fiscal year in which the Escrow Closing Date occurs. With regard
to real and personal property taxes and assessments for the tax fiscal year
in which the Escrow Closing Date occurs, the parties agree that there will
be proration of such taxes which are not paid directly by Wal-Mart or such
other Anchor Tenant between Purchaser and Sellers at Escrow Closing, with
Sellers liable for taxes for the tax fiscal year in which the Escrow
Closing occurs up to the Escrow Closing Date and if the Closing occurs,
Purchaser liable for such taxes on and after the Escrow Closing Date. If
tax assessments for the tax fiscal year during which the Escrow Closing
Date occurs are not then finally determined, then the tax figures for the
immediately preceding tax fiscal year shall be used for the purposes of
prorating taxes on the Escrow Closing Date and within ten (10) Business
Days after receipt of information setting forth the actual taxes for the
tax fiscal year in which the Escrow Closing occurs, Purchaser and Seller
shall further adjust for the taxes.
13.2 Rents. Sellers and Purchaser shall prorate at Escrow Closing all
base or fixed rents ("Basic Rents") and any escalations or pass through of
operating and other similar expenses ("Additional Rents") received from all
tenants and occupants of the Properties as of the Escrow Closing Date.
Amounts payable by tenants and occupants of the Properties relating to
sales made or gross receipts realized during the year in which the Escrow
Closing Date occurs ("Percentage Rents") shall not be adjusted for at
Escrow Closing but rather shall be adjusted within thirty (30) days of
receipt of such amounts from the applicable tenants of the Projects.
Percentage Rent shall be adjusted as of the Escrow Closing Date based on
the number of days of ownership.
All Basic Rents, Additional Rents and Percentage Rents uncollected as of
the Escrow Closing Date and owed by tenants or occupants of the Properties
on the Escrow Closing Date for any period during the three (3) months
immediately preceding the Escrow Closing Date (collectively, the "Past Due
Rent") or any monies due under promissory notes for aged receivables, shall
be reimbursed to Sellers by Purchaser following Purchaser's collection of
such Past Due Rents or any monies due under promissory notes for aged
receivables, provided that all Basic Rents, Additional Rents and Percentage
Rents collected by Purchaser shall be applied first to the month in which
the Escrow Closing occurs, then to the current rents due and finally to
Past Due Rent. All Additional Rents collected by Purchaser on an annual
basis shall be applied first to the year in which the Escrow Closing occurs
then to Past Due Rent. Purchaser shall use reasonable efforts to collect
such Past Due Rent or any monies due under promissory notes for aged
receivables in the usual course of operation of the Properties, and any
such uncollected Past Due Rent or any monies due
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under promissory notes for aged receivables collected by Purchaser after
the Closing shall be paid to Sellers within ten (10) Business Days
following the end of the month in which collection thereof occurred, after
deducting the reasonable expenses incurred in connection with the
collection thereof.
Sellers shall retain all rights relating to all past due Basic Rents,
Additional Rents and Percentage Rents owed by non-occupants of the
Properties on the Escrow Closing Date for any period prior to the Escrow
Closing Date (including the right to collect such rents and charges), and
there shall be no proration of the same as between Sellers and Purchaser.
13.3 Security Deposits. Sellers shall deposit, in segregated accounts
established under the Management Agreement, the amount of any and all
deposits paid to Sellers by tenants of the Properties, including without
limitation, all rental, security, cleaning, utility, key, damage and other
deposits, together with interest thereon which is due to any tenant of the
Properties under the provisions of its lease or applicable law.
13.4 Utilities. Charges for water, electricity, sewer, gas, telephone and
all other utilities shall be apportioned between Purchaser and Sellers
(without adjustment to the Escrowed Purchase Price) as of the Escrow
Closing Date based on meter readings, if reasonably available, or, if not
so available on a per diem, based upon the bill therefor for the month
immediately preceding the month in which the Escrow Closing Date occurs
with an appropriate adjustment, if necessary once the actual bill is
received. All such utility adjustments shall be effectuated under the
Management Agreement.
13.5 Other Income and Expenses. All other income and ordinary operating
expenses of the Projects, including without limitation, interest and
amortization under Existing Indebtedness, public utility charges to the
extent not adjusted pursuant to Section 13.4 above, maintenance, interest
and principal on the Existing Indebtedness accruing on and after the Escrow
Closing Date and other service charges, shall be prorated at the Escrow
Closing effective as of the Escrow Closing Date (without adjustment of the
Escrowed Purchase Price).
13.6 Closing Costs. As a material part of the consideration hereunder, as
part of the Escrowed Purchased Price, Purchaser shall be responsible for
the payment of any and all assumption fees, consent fees, mortgage taxes,
and any and all other costs and expenses which may be due in connection
with the acquisition of the Properties subject to the Assumed Indebtedness.
In addition, Purchaser shall be responsible for the payment of any and all
prepayment fees due under the Prepaid Indebtedness. Sellers shall pay
transfer taxes and any other taxes imposed by the jurisdictions in which
the Properties are located as a result of the transfers of title to the
Properties from Sellers to Purchaser, and the amount thereof shall, at
Closing, at Sellers' option, either be paid by Sellers to the Closing
Escrow Agent or deducted from the Escrowed Purchase Price and paid by
Purchaser.
13.7 Payments during Escrow Period. Income of the Projects received from
and after the Escrow Closing Date and expenses of the Projects incurred
from and after the Escrow Closing shall be allocated between Sellers and
Purchaser as set forth in the Management Agreement.
13.8 Closing. Upon satisfaction of the conditions to Closing contained in
Section 10.3 above, the Closing Escrow Agent shall disburse funds held in
escrow in accordance with this Agreement and the Closing Escrow Agreement
and shall distribute all documents in accordance with the Closing Escrow
Agreement and, if applicable, this Agreement. Except as otherwise provided
herein or in the Management Agreement, there shall be no other adjustments.
The Closing Escrow Agreement shall provide that the Escrowed Purchase
Price, together with any additional payments required under this Section
13.8, shall be disbursed (i) to satisfy the Prepaid Indebtedness and the
closing costs referenced in Section 13.6, and (ii) the balance, together
with all interest earned, if any, on the Escrowed Purchase Price from the
Escrow Closing Date through the date the same is disbursed to Sellers,
shall be disbursed to Sellers. Notwithstanding the previous sentence, in
the event the Manager reasonably disputes the incentive management fee
payable pursuant to Section 6E of the Management Agreement, the amount in
dispute (the "Holdback Amount") shall be withheld from the amounts paid to
Sellers and shall be held in escrow by the Closing Escrow Agent pursuant to
the Closing Escrow Agreement. The Holdback Amount shall be
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disbursed as directed by mutual agreement of Purchaser and Sellers unless
Purchaser and Sellers are unable to so agree on such disbursement within
thirty (30) days after the Closing, in which case Closing Escrow Agent
shall deposit the Holdback Amount with a court of competent jurisdiction to
be thereafter disbursed as directed by such court.
13.9 Post Closing Adjustment. Notwithstanding the provisions of this
Section 13 to the contrary, Sellers and Purchaser agree on or before
February 15, 1997 to adjust any amounts required to be adjusted pursuant to
this Section 13 which were not previously adjusted.
14. Fees and Commissions. Purchaser has engaged Bear and Pearson as its
financial advisers in connection with this Agreement, and Purchaser shall be
solely responsible for the fees and expenses of Bear and Pearson. Sellers have
engaged Lehman as their financial adviser, and Sellers shall be solely
responsible for the fees and expenses of Lehman. Purchaser hereby represents
and warrants to each Seller that Purchaser has not contacted or entered into
any agreement with any real estate broker, agent, finder, or any other party
in connection with the transactions contemplated by this Agreement (other than
Bear, Pearson and Lehman). Purchaser further represents and warrants that it
has not taken any action other than the execution and delivery of this
Agreement which could, if any Seller has an exclusive agreement to sell the
Properties result in any such fees or commissions being payable; provided,
however, that Purchaser has no knowledge of any such agreement. Purchaser
hereby indemnifies and agrees to hold harmless each Seller from any loss,
liability, damage, cost, or expense (including reasonable attorneys' fees and
court costs) due to Bear or Pearson or which arise as a result of a breach of
the representation and warranty made by Purchaser herein. Sellers hereby
represent and warrant to Purchaser that Sellers have not contacted or entered
into any agreement with any real estate broker, agent, finder or any other
party in connection with the transactions contemplated by this Agreement
(other than Bear and Lehman), and that they have not taken any action which
would result in any real estate brokers, finders or other fees or commissions
being due or payable to any other party with respect to the transactions
contemplated hereby. Sellers hereby indemnify and agree to hold harmless
Purchaser from any loss, liability, damage, cost or expense (including
reasonable attorneys' fees and court costs) due to Lehman or which arise as a
result of a breach of a representation and warranty made by Seller herein. The
indemnities set forth in this Sections 13 and 14 shall survive the Closing.
15. Survival of Provisions. Sections 7.4, 7.5 and 12.4 of this Agreement
survive termination of this Agreement or the Escrow Closing Date, as
applicable. Section 12.2 of this Agreement survives termination of this
Agreement prior to the Escrow Closing Date. Section 6.2 of this Agreement
survives the Escrow Closing Date through the Indemnification Cut-Off Date, and
Section 14 of this Agreement survive the Closing.
16. Notices. Any notice permitted or required hereunder shall be in writing
and shall be sent either by United States Mail, certified with return receipt
requested, postage prepaid, properly addressed, by hand delivery, or by
reputable overnight courier service and shall be deemed given upon receipt or
refusal to accept receipt, in each case, addressed:
To Purchaser: Gimcher Realty Trust
20 South Third Street
Columbus, Ohio 43215
Attn: Herbert Glimcher, Chairman
Fred A. Zantello
Copies to: Robinson Silverman
Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attn: Alan S. Pearce, Esq.
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To Sellers: PaineWebber Properties Incorporated
265 Franklin Street, 16th Floor
Boston, Massachusetts 02110
Attn: Lawrence A. Cohen, President and
CEO
Copies to: Goodwin, Procter & Hoar
Exchange Place
Boston MA 02109
Attn: Gilbert G. Menna, P.C.
Campbell & Riggs
1980 Post Oak Boulevard
Suite 2300
Houston, Texas 77056
Attn: Carole R. Riggs, Esq.
To PaineWebber: PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Attn: Terrence E. Fancher, Managing
Director
Copies to: Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, NW
Suite 800
Washington, DC 20004
Attn: Matt T. Morley, Esq.
Any party by written notice to the other parties hereto may designate a new
or different address for receipt of subsequent notices.
17. Applicable Law. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of New York (without regard to
the conflict of laws provisions thereof) and the applicable federal laws of
the United States of America and such laws shall govern the validity,
construction, enforcement, and interpretation of this Agreement.
18. Attorneys' Fees. Any party to this Agreement who is the prevailing
party in any legal proceeding against any other party to this Agreement
brought under or in relation to this Agreement or transaction shall be
additionally entitled to recover court costs and reasonable attorneys' fees
from the non-prevailing party.
19. Construction. The parties acknowledge that each party and its legal
counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed
in the interpretation of this Agreement or any other documents evidencing the
consummation of the transactions described herein, or any amendments, annexes
or exhibits hereto or thereto.
20. No Third-Party Beneficiaries. This Agreement shall, subject to the
limitations on assignability herein set forth, inure to the benefit of the
parties hereto and their successors and assigns. No agreement herein contained
shall inure to the benefit of any person or entity not a party to this
Agreement except any assignee of any party hereto pursuant to a written
assignment permitted by the terms of this Agreement.
21. No Assignment. This Agreement may not be assigned by any party hereto
without the prior written consent of all the other parties hereto, and any
purported assignment without such consent shall be null and void.
Notwithstanding the foregoing, Purchaser may assign this Agreement prior to
the Escrow Closing Date without Sellers' consent to any entities wholly owned,
directly or indirectly, by Purchaser provided notice thereof is given
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to Sellers prior to the Escrow Closing Date. In addition, Purchaser may
designate one or more such entities to acquire title to any of the Properties
by notice to Sellers prior to the Escrow Closing Date. In either such event,
Purchaser shall remain primarily liable for all obligations hereunder
including those that survive the termination of the Agreement or Closing.
22. Deposit or Escrowed Purchase Price. In the event any party hereto
becomes entitled to the Deposit or a portion of the Escrowed Purchase Price,
as the case may be, in accordance with the terms of this Agreement and any
other party hereto (or representatives for the other party) fails or refuses
to deliver an instruction letter to the Deposit Escrow Agent or the Closing
Escrow Agent, as the case may be, directing a disbursement of the Deposit or a
portion of the Escrowed Purchase Price, as the case may be, after written
request from the party entitled thereto, such escrow agent may deliver the
Deposit or such portion of the Escrowed Purchase Price, as the case may be,
into a court of competent jurisdiction in an interpleader action, and the
prevailing party in such interpleader action, as well as such escrow agent as
the interpleading party, shall be entitled to a reimbursement of court costs
and reasonable attorneys' fees incurred in connection with such action from
the non-prevailing party, upon the final order of the court with appropriate
jurisdiction stating that such other party is entitled to a disbursement of
the Deposit or a portion of the Escrowed Purchase Price, as the case may be.
23. Entire Agreement. This Agreement, the Deposit Escrow Agreement and any
letter agreements entered into contemporaneously with this Agreement,
including the Schedules and Exhibits attached hereto, and the Confidentiality
Agreement embody the entire agreement between the parties with regard to the
subject matter hereof and cannot be varied except by the written agreement of
the parties.
24. Publicity. RPI currently intends on issuing a press release on or after
the Effective Date in the form of Schedule 24(a) attached hereto. Purchaser
currently intends on issuing a press release on or after the Effective Date in
the form of Schedule 24(b) attached hereto. Purchaser and Sellers shall
thereafter consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or any
transaction contemplated herein and shall not issue any such press release or
make any such public statement without the prior written consent of the other
party, which consent shall not be unreasonably withheld; provided, however,
that a party may, without the prior written consent of the other party, issue
such press release or make such public statement as may be legally necessary
for securities filings, or as required by law or the rules of any applicable
stock exchange if it has used its reasonable efforts to consult with the other
party and to obtain such party's consent but has been unable to do so in a
timely manner. Except with regard to any press release issued pursuant hereto,
Purchaser and Sellers shall keep confidential all negotiations and terms
regarding this Agreement and the transactions contemplated hereunder
(including the existence hereof), except as legally necessary for securities
filings, compliance with the rules and regulations of any applicable stock
exchange and reporting, legal, accounting and financing purposes. In the event
this Agreement is terminated prior to the Closing, Purchaser agrees to return
to Sellers all information and documents provided to Purchaser by Sellers
under this Agreement and, to the extent Sellers reimburse Purchaser for costs
incurred in connection with Purchaser's due diligence, to furnish Sellers
copies of all reports, appraisals and memoranda obtained or created by
Purchaser or Purchaser's agents in connection with Purchaser's due diligence
investigation of the Properties; provided, however, that if Sellers terminate
this Agreement because of Purchaser's default, Sellers shall not be required
to reimburse Purchaser for such costs.
25. Regulatory Filings. Purchaser and Sellers shall also use all reasonable
efforts to cooperate with one another in (i) determining the filings which are
required to be made prior to the Closing with, and which consents, approvals,
permits or authorizations are required to be obtained prior to the Closing
from, governmental or regulatory authorities of the United States, the several
states and foreign jurisdictions and any third parties in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement, (ii) timely making all such
filings and timely seeking and obtaining all such consents, approvals, permits
or authorizations and (iii) providing all information necessary for Sellers'
preparation and filing of any reports which may be required by the Exchange
Act, except that Purchaser shall only be required to provide information
regarding itself.
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26. Exculpation. (a) This Agreement and all documents, agreements,
understandings and arrangements relating to the transactions contemplated
hereby have been or will be executed or entered into on behalf of Purchaser by
the undersigned, in his capacity as an officer or trustee of Purchaser, which
has been formed as a Maryland real estate investment trust, pursuant to a
Declaration of Trust of Purchaser dated as of September 1, 1993, as amended
and restated, and not individually, and neither the trustees, officers nor
shareholders of Purchaser shall be bound or have any personal liability
hereunder or thereunder. Sellers shall look solely to the assets of Purchaser
for satisfaction of any liability of Purchaser in respect hereof, and all
documents, agreements, understandings and arrangements relating hereto, and
will not seek recourse or commence any action against any of the trustees,
officers or shareholders of Purchaser or any of their personal assets for the
performance or payment of any obligation of Purchaser hereunder or thereunder.
The foregoing shall also apply to any future documents, agreements,
understandings, arrangements and transactions hereunder between Purchaser and
Sellers and/or PaineWebber.
(b) This Agreement and all documents, agreements, understandings and
arrangements relating to the transactions contemplated hereby have been or
will be executed or entered into on behalf of each of the Sellers and of
PaineWebber by the undersigned, in their respective capacities as an officer
of such Seller and PaineWebber and not individually, and neither the trustees,
partners, directors, officers nor shareholders of any of the Sellers or
PaineWebber shall be bound or have any personal liability hereunder or
thereafter. Purchaser shall look solely to the assets of Sellers, and in
certain express instances set forth herein, of PaineWebber, for satisfaction
of any liability of Sellers or PaineWebber in respect hereof, and all
documents, agreements, understandings and arrangements relating hereto, and
will not seek recourse or commence any action against any of the trustees,
partners, directors, officers or shareholders of any of the Sellers or
PaineWebber or any of their personal assets for the performance or payment of
any obligation of any of the Sellers or PaineWebber hereunder or thereunder.
The foregoing shall also apply to any future documents, agreements,
understandings, arrangements and transactions hereunder between Purchaser and
Sellers and/or PaineWebber.
27. Liability of Sellers. Except as otherwise set forth herein, the
obligations of Sellers hereunder shall be joint and several, and Purchaser may
pursue any one or more Sellers without pursuing all Sellers to obtain the
remedies set forth herein; provided that such remedies shall not be
cumulative.
A-29
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Purchase and Sale
Agreement as of the Effective Date.
Glimcher Realty Trust
/s/ Herbert Glimcher
By:__________________________________
Name: Herbert Glimcher
Title: Chairman
Retail Property Investors, Inc.
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
PaineWebber Retail Property
Investments, Ltd.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
PaineWebber Retail Property
Investments Joint Venture
By: Retail Property Investors, Inc.,
A Venturer thereof
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
By: PaineWebber Properties
Incorporated, A Venturer thereof
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
A-30
<PAGE>
PaineWebber College Plaza, L.P.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
PaineWebber Marion Towne, L.P.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
The undersigned hereby executes, delivers and joins in this Agreement for
the sole purpose of binding itself to Purchaser with respect to the
undersigned's obligations set forth in the provisions of Sections 6, 8.4(a)
and 12.4(b) of this Agreement.
PaineWebber Incorporated
/s/ Terrence E. Fancher
By:__________________________________
Name: Terrence E. Fancher
Title: Managing Director
The undersigned Deposit Escrow Agent executes this Agreement for the sole
purpose of (a) acknowledging receipt of the Deposit and a fully-executed copy
of this Agreement and (b) agreeing to hold the Deposit in accordance with the
terms and conditions hereof and of the Deposit Escrow Agreement.
Lawyers Title Insurance Corporation
/s/ Michael T. Bebon
By:__________________________________
Name: Michael T. Bebon
Title: Vice President
Date: March 12, 1996
A-31
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
PAINEWEBBER RETAIL PROPERTY INVESTORS, LTD.
PAINEWEBBER RETAIL PROPERTY INVESTMENTS JOINT VENTURE
PAINEWEBBER COLLEGE PLAZA, L.P.
PAINEWEBBER MARION TOWNE, L.P.
C/O PAINEWEBBER PROPERTIES INCORPORATED
265 FRANKLIN STREET, 16TH FLOOR
BOSTON, MA 02110
May 12, 1996
BY HAND
Glimcher Realty Trust
20 South Third Street
Columbus, Ohio 43215
Attn: Herbert Glimcher, Chairman
and Fred A. Zantello
and
Lawyers Title Insurance Corporation
708 Third Avenue
New York, New York 10017
Attn: Kathryn Andriko, Esq.
RE: Extension under that certain Purchase and Sale Agreement (the "Sale
Agreement") dated as of March 11, 1996 by and among Retail Property
Investors, Inc., et al (collectively, the "Sellers") and Glimcher
Realty Trust (the "Purchaser")
Ladies and Gentlemen:
Reference is made to (a) the Sale Agreement and (b) that certain Deposit
Escrow Agreement (the "Deposit Escrow Agent") dated as of March 11, 1996 by
and among the Sellers, Purchaser and Lawyers Title Insurance Corporation (the
"Deposit Escrow Agent"). All initially capitalized terms used herein shall
have the meanings set forth in the Sale Agreement.
The Study Period expired at 5:00 pm on May 10, 1996. The Purchaser has given
certain Notices of Material Concern with regard to (i) certain debt related
matters, (ii) certain lease and revenue related matters and (iii) certain
structural related matters (collectively, the "Material Concerns"). Sellers
and Purchaser are in the process of attempting to resolve the Material
Concerns.
Under the terms of the Sale Agreement, unless all Material Concerns are
resolved by 10:00 am on the Business Day following the expiration of the Study
Period, the Sale Agreement terminates. Purchaser and Sellers desire to attempt
to resolve the Material Concerns. Sellers and Purchaser hereby acknowledge and
agree that the execution and delivery of this extension does not waive any
claims which any party may have against the other whether or not such claim
arose prior to the execution of this extension.
Purchaser and Sellers hereby agree to delete the first sentence of Section
9.1 of the Sale Agreement and replace the following therefor: (changes from
Sale Agreement shown in italics)
Subject to the terms of this Agreement, Sellers and the Purchaser have
agreed to close the purchase and sale of the Properties in escrow (the
"Escrow Closing") at the offices of Goodwin, Procter & Hoar, Exchange
Place, Boston, MA (or such other place as may be mutually agreed to by
Sellers and Purchaser)
A-32
<PAGE>
at 5:00 pm Boston time on the Second (2nd) Business Day following the
expiration of the Study Period (the "Escrow Closing Date"), or such other
date and time as may be mutually agreed upon in writing by Sellers and
Purchaser; provided, however, that if all Material Concerns have been
resolved on or before the Escrow Closing Date, Sellers and Purchaser shall
each have the right to one extension of the date on which the Escrow
Closing will occur without cost or penalty for a period of up to five (5)
Business Days by notice to the other for the exclusive purpose of
satisfying the conditions contained in Sections 10.1 and 10.2 below.
Sellers and Purchaser hereby agree to amend Section 16 of the Sale Agreement
and Section 7 of the Deposit Escrow Agreement to include delivery of notices by
facsimile if sent to the addressee at the number indicated below and also
concurrently sent by one of the methods listed in Section 16 of the Sale
Agreement and Section 7 of the Deposit Escrow Agreement, respectively:
If to Purchaser: Attn: Herbert Glimcher and Fred Zantello (614) 621-9321
If to Robinson Silverman Pearce Aronsohn & Berman LLP: Attn: Alan Pearce (212)
541-4630
If to Sellers: Attn: Lawrence A. Cohen (212) 713-1372
If to Goodwin, Procter & Hoar: Attn: Gilbert G. Menna, P.C. (617) 523-1231
If to Campbell & Riggs: Attn: Carole Riggs (713) 621-5453
If to PaineWebber: Attn: Terrence Fancher (212) 713-7949
If to Fried, Frank, Harris, Shriver & Jacobson: Attn: Matt Morley (202) 639-
7003
Except as expressly modified herein the Sale Agreement and the Deposit Escrow
Agreement are hereby ratified and confirmed in all respects.
This letter agreement is executed as an instrument under seal in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Retail Property Investors, Inc.
/s/ Lawrence A. Cohen
By: _________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
PaineWebber Retail Property
Investments, Ltd.
By: Retail Property Investors,
Inc.,General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
A-33
<PAGE>
PaineWebber Retail Property
Investments Joint Venture
By: Retail Property Investors,
Inc.,a Venturer thereof
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
By: PaineWebber Properties
Incorporated,a Venturer thereof
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
PaineWebber College Plaza, L.P.
By: Retail Property Investors,
Inc.,General Partner
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
PaineWebber Marion Towne, L.P.
By: Retail Property Investors,
Inc.,General Partner
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: Chief Executive Officer
and President
Acknowledged and agreed to:
PaineWebber Incorporated
/s/ Terrence E. Fancher
By:__________________________________
Name: Terrence E. Fancher
Title: Managing Director
Acknowledged and agreed to:
Glimcher Realty Trust
/s/ Herbert Glimcher
By:__________________________________
Name: Herbert Glimcher
Title: Chairman
A-34
<PAGE>
GLIMCHER REALTY TRUST
20 SOUTH THIRD STREET
COLUMBUS, OHIO 43215
As of May 14, 1996
Retail Property Investors, Inc.
PaineWebber Retail Property Investors, Ltd.
PaineWebber Retail Property Investments Joint Venture
PaineWebber College Plaza, L.P.
PaineWebber Marion Towne, L.P.
c/oPaineWebber Properties Incorporated
265 Franklin Street, 16th Floor
Boston, MA 02110
Re: Amendment to Purchase and Sale Agreement (the "Sale Agreement") dated
as of March 11, 1996 by and among Retail Property Investors, Inc., et
al (collectively, the "Sellers") and Glimcher Realty Trust (the
"Purchaser")
Gentlemen:
Reference is made to (a) the Sale Agreement and (b) that certain Deposit
Escrow Agreement (the "Deposit Escrow Agent") dated as of March 11, 1996 by
and among the Sellers, Purchaser and Lawyers Title Insurance Corporation (the
"Deposit Escrow Agent"). All initially capitalized terms used herein shall
have the meanings set forth in the Sale Agreement.
The Study Period expired at 5:00 pm on May 10, 1996. The Purchaser has given
certain Notices of Material Concern with regard to (i) certain debt related
matters, (ii) certain lease and revenue related matters (including issues
related to tenant estoppel certificates) and (iii) certain structural related
matters (collectively, the "Material Concerns"). Sellers and Purchaser
extended to May 14, 1996 the Escrow Closing Date pursuant to that certain
letter agreement dated May 12, 1996. In consideration of the resolution of the
Material Concerns, Sellers and Purchaser have agreed to amend the Sale
Agreement on the terms and conditions herein contained.
Sellers and Purchaser have agreed that for purposes of raising Material
Concerns and for calculating "Cash Flow" during the "Initial Term" (as such
terms are defined in the Management Agreement) of the Management Agreement,
the Escrow Closing Date shall be deemed to be May 14, 1996.
Schedules 2(a) and 2(p) to the Sale Agreement are hereby deleted and
Schedules 2(a.1) and 2(p.1) attached hereto are replaced therefor.
Schedule 3.2 and the first and second sentences of Section 3.2 of the Sale
Agreement are hereby deleted and the following replaced therefor:
The Purchase Price (and all other capitalized costs and other amounts
treated as purchase price for federal income tax purposes) shall be
allocated among the Properties (solely for federal, state and local tax
reporting purposes) as indicated by the Purchaser at the Escrow Closing
with the prior consent of the Sellers, which consent will not be
unreasonably withheld.
The first clause of Section 3.1 of the Sale Agreement is hereby deleted and
the following replaced therefor:
3.1 Purchase Price. The Purchase Price for the Properties shall be One
Hundred Ninety Seven Million Dollars ($197,000,000.00), which, subject to
the terms and conditions hereinafter set forth, shall be paid as follows:
A-35
<PAGE>
The first sentence of Section 9.1 of the Sale Agreement is hereby deleted
and the following replaced therefor:
The Escrow Closing shall occur at the offices of Goodwin Procter & Hoar
LLP, Exchange Place, Boston, MA at 10:00 am on May 30, 1996 (or such other
date, time and place as may be mutually agreed upon by Sellers and
Purchaser) (except as provided above, the "Escrow Closing Date"); provided,
however, that Sellers and Purchaser shall each have the right to one
extension of the date on which the Escrow Closing would occur without cost
or penalty for a period of up to five (5) Business Days by notice to the
other for the exclusive purpose of satisfying the conditions contained in
Sections 10.1 and 10.2 below.
In the event the Escrow Closing has not occurred on or before June 6, 1996
Purchaser shall extend the expiration of the Letter of Credit representing the
Deposit to not sooner than ten (10) Business Days after the then anticipated
date on which the Escrow Closing would occur. If the Letter of Credit has not
been so extended on or before June 7, 1996, Sellers and Purchaser each hereby
direct the Deposit Escrow Agent to draw upon the Letter of Credit and hold the
proceeds thereof in escrow under the terms of the Deposit Escrow Agreement.
Notwithstanding the terms and conditions of the Sale Agreement and this
Amendment to the contrary, Sellers agree to work with Purchaser and to cause
their certified public accountants, lawyers and tax advisors to work with
Purchaser and Purchaser's certified public accountants, lawyers and tax
advisors in an effort to increase the Purchase Price (to be finally determined
on or before the Escrow Closing Date) by up to $4,000,000, with the amount of
any such increase to be deposited into escrow at Closing for Purchaser to make
capital expenditures to the Properties; provided, however, that the failure to
reach mutually acceptable agreement on such an increase in the Purchase Price
shall not be a condition precedent to performance or default by either party
under the Sale Agreement. Nothing contained in this paragraph is intended to
change the net proceeds which would be payable to Sellers at Closing.
Purchaser has conducted extensive investigations during the Study Period and
Sellers and Purchaser therefore each acknowledge and agree that all existing
Material Concerns have been resolved by mutual agreement pursuant to this
amendment and no further Material Concerns may be raised under the Sale
Agreement (except to the extent the holders of the Existing Indebtedness on
Crossroads Center and/or Logan Place require prepayment of principal
(exclusive of premiums thereon, if any) in amounts materially greater than
those set forth on Schedule 2(p.1)).
Purchaser has consented to the Sellers entering into the those certain
Amendment to Mortgage and Release of Cross Collateralization Agreements with
respect to the Properties which were subject to Existing Indebtedness held by
Aetna on the date of the Sale Agreement, substantially in the form forwarded
by Campbell and Riggs to Fred Zantello under cover dated April 26, 1996 (the
"Aetna Amendments"). Sellers agree to execute and deliver the Aetna Amendments
on or before the Escrow Closing.
Sellers shall authorize and approve, under the terms of the Management
Agreement, the Manager entering into contracts to perform the work described
on the excerpt from the Fiscal 1996 Annual Budget attached hereto (the
"Capital Budget"). The contracts shall be in amounts not to exceed the then
unexpended amount budgeted therefor in the Capital Budget. Sellers shall cause
the invoices rendered under such contracts to be paid outside of the
calculation of "Cash Flow" under the Management Agreement. Nothing contained
in this paragraph is intended otherwise to change the duties and obligations
of the parties under the Management Agreement.
Sellers hereby covenant and agree to use their diligent efforts to obtain
consent of the holders of the applicable Assumed Indebtedness and if such
consent is obtained, to convey Applewood and Piedmont to the holder of the
Assumed Indebtedness on each such Property at or prior to Closing in
satisfaction of the Assumed Indebtedness secured exclusively by such Property;
provided, however, that such diligent efforts shall not require Sellers to
threaten or commence litigation or expend funds and shall in all cases be
without liability to Sellers and without continuing liability to Sellers (i.e.
the debt shall be satisfied as if it were Prepaid Indebtedness). Although the
net proceeds payable to Sellers will not change, if such transactions are
accomplished, the Purchase Price under such a scenario would be reduced by the
amount of the then outstanding principal balance of the
A-36
<PAGE>
Assumed Indebtedness secured exclusively by such Property and the Purchaser
shall not assume the loans secured by the applicable Property and Schedule
2(a.1) shall be deemed to be revised accordingly. Purchaser's obligations
under the Sale Agreement are not conditioned on the accomplishment by Sellers
of the conveyance referenced in the first sentence of this paragraph.
Sellers hereby covenant and agree to cause those portions of the roofs on
Barren River Plaza and Applewood (if conveyed to Purchaser) that contain
phenolic foam insulation to be repaired or to have a repair program in place
at Closing, in each case in accordance with the recommendations of a roofing
engineer mutually acceptable to Sellers and Purchaser. Sellers shall cause the
costs for such repairs to be paid outside of the calculation of "Cash Flow"
under the Management Agreement, in the event such repairs are made prior to
the Closing, and if such repairs are made on or after the Closing, at no cost
to Purchaser. Sellers intend to pursue warranty claims with manufacturers of
the phenolic foam insulation. Purchaser hereby acknowledges and agrees that
Sellers shall be entitled to retain any and all claims against such
manufacturers, Purchaser shall assign any such claims to Sellers to the extent
necessary to enable Sellers to pursue such claims after the Closing, and
Purchaser shall cooperate with Sellers in the pursuit of such claims. In the
event Purchasers receives any payments from such manufacturers for such
claims, all such receipts shall be remitted to Sellers.
The provisions of Section 26 of the Sale Agreement are hereby incorporated
herein by this reference.
The following is hereby added to the end of Section 8.7:
Purchaser shall have the right to contact holders of the Existing
Indebtedness after the Escrow Closing Date in an effort to negotiate
modifications to such Existing Indebtedness; provided, however, that
Sellers shall not be obligated to execute any documents in connection with
such negotiations or proposed modifications and no such modifications shall
be effective unless the Closing occurs. Purchaser shall notify Sellers at
least five (5) days prior to any contact with the holders of any Existing
Indebtedness and shall keep Sellers informed about the substance of the
proposed negotiations and shall forward drafts of any proposed
modifications to Sellers and shall consult with Sellers regarding such
drafts and the status of such negotiations.
Except as expressly modified herein, the Sale Agreement and the Deposit
Escrow Agreement are hereby ratified and confirmed in all respects.
This letter agreement is executed as an instrument under seal in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Glimcher Realty Trust
/s/ Herbert Glimcher
By: _________________________________
Name:Herbert Glimcher
Title:Chairman
Agreed to and Acknowledged by:
Retail Property Investors, Inc.
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
A-37
<PAGE>
PaineWebber Retail Property
Investments, Ltd.
By: Retail Property Investors,
Inc.,General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber Retail Property
Investments Joint Venture
By: Retail Property Investors, Inc.,
a Venturer thereof
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
By: PaineWebber Properties
Incorporated, a Venturer thereof
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber College Plaza, L.P.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber Marion Towne, L.P.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
Acknowledged and agreed to:
PaineWebber Incorporated
/s/ Terrence E. Fancher
By: _________________________________
Name:Terrence E. Fancher
Title:Managing Director
A-38
<PAGE>
GLIMCHER REALTY TRUST
20 SOUTH THIRD STREET
COLUMBUS, OHIO 43215
May 30, 1996
Retail Property Investors, Inc.
PaineWebber Retail Property Investors, Ltd.
PaineWebber Retail Property Investments Joint Venture
PaineWebber College Plaza, L.P.
PaineWebber Marion Towne, L.P.
c/oPaineWebber Properties Incorporated
265 Franklin Street, 16th Floor
Boston, MA 02110
Re: Amendment to Purchase and Sale Agreement (the "Sale Agreement") dated
as of March 11, 1996 by and among Retail Property Investors, Inc., et
al (collectively, the "Sellers") and Glimcher Realty Trust (the
"Purchaser")
Gentlemen:
Reference is made to (a) the Sale Agreement, as amended by Letter Agreement
(the "First Amendment") dated as of May 14, 1996 and (b) that certain Deposit
Escrow Agreement (the "Deposit Escrow Agent") dated as of March 11, 1996 by
and among the Sellers, Purchaser and Lawyers Title Insurance Corporation (the
"Deposit Escrow Agent"). All initially capitalized terms used herein shall
have the meanings set forth in the Sale Agreement.
By mutual agreement, the first sentence of Section 9.1 of the Sale Agreement
is hereby deleted and the following replaced therefor:
The Escrow Closing shall occur at the offices of Goodwin Procter & Hoar
LLP, Exchange Place, Boston, MA at 10:00 am on June 6, 1996 (or such other
date, time and place as may be mutually agreed upon by Sellers and
Purchaser) (except as provided in the First Amendment, the "Escrow Closing
Date"); provided, however, that Sellers and Purchaser shall each have the
right to one extension of the date on which the Escrow Closing would occur
without cost or penalty for a period of up to five (5) Business Days by
notice to the other for the exclusive purpose of satisfying the conditions
contained in Sections 10.1 and 10.2 below.
In the event the Escrow Closing has not occurred on or before June 6, 1996
Purchaser shall extend the expiration of the Letter of Credit representing the
Deposit to not sooner than ten (10) Business Days after the then anticipated
date on which the Escrow Closing would occur. If the Letter of Credit has not
been so extended on or before June 7, 1996, Sellers and Purchaser each hereby
direct the Deposit Escrow Agent to draw upon the Letter of Credit and hold the
proceeds thereof in escrow under the terms of the Deposit Escrow Agreement.
This letter agreement is executed as an instrument under seal in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Glimcher Realty Trust
/s/ Herbert Glimcher
By:__________________________________
Name: Herbert Glimcher
Title: Chairman
A-39
<PAGE>
Agreed to and Acknowledged by:
Retail Property Investors, Inc.
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber Retail Property
Investments, Ltd.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber Retail Property
Investments Joint Venture
By: Retail Property Investors, Inc.,
a Venturer thereof
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
By: PaineWebber Properties
Incorporated, a Venturer thereof
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber College Plaza, L.P.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
A-40
<PAGE>
PaineWebber Marion Towne, L.P.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
Acknowledged and Agreed to:
PaineWebber Incorporated
/s/ Terrence E. Fancher
By: _________________________________
Name:Terrence E. Fancher
Title:Managing Director
A-41
<PAGE>
GLIMCHER REALTY TRUST
20 SOUTH THIRD STREET
COLUMBUS, OHIO 43215
June 6, 1996
Retail Property Investors, Inc.
PaineWebber Retail Property Investors, Ltd.
PaineWebber Retail Property Investments Joint Venture
PaineWebber College Plaza, L.P.
PaineWebber Marion Towne, L.P.
c/oPaineWebber Properties Incorporated
265 Franklin Street, 16th Floor
Boston, MA 02110
Re: Amendment to Purchase and Sale Agreement (the "Sale Agreement") dated
as of March 11, 1996 by and among Retail Property Investors, Inc., et
al (collectively, the "Sellers") and Glimcher Realty Trust (the
"Purchaser")
Gentlemen:
Reference is made to (a) the Sale Agreement, as amended to date and (b) that
certain Deposit Escrow Agreement (the "Deposit Escrow Agent") dated as of
March 11, 1996 by and among the Sellers, Purchaser and Lawyers Title Insurance
Corporation (the "Deposit Escrow Agent"). All initially capitalized terms used
herein shall have the meanings set forth in the Sale Agreement.
By mutual agreement, the first sentence of Section 9.1 of the Sale Agreement
is hereby deleted and the following replaced therefor:
The Escrow Closing shall occur at the offices of Goodwin Procter & Hoar
LLP, Exchange Place, Boston, MA at 10:00 am on June 13, 1996 (or such other
date, time and place as may be mutually agreed upon by Sellers and
Purchaser) (except as provided in the First Amendment, the "Escrow Closing
Date"); provided, however, that Sellers and Purchaser shall each have the
right to one extension of the date on which the Escrow Closing would occur
without cost or penalty for a period of up to five (5) Business Days by
notice to the other for the exclusive purpose of satisfying the conditions
contained in Sections 10.1 and 10.2 below.
Attached hereto as Exhibit 1 is a copy of the extension of the expiration
date of the Letter of Credit, the original of which has been delivered to the
Deposit Escrow Agent under the terms and conditions of the Deposit Escrow
Agreement. Execution of this letter agreement and delivery of an executed copy
hereof to the Deposit Escrow Agent shall constitute the mutual written notice
and instruction to the Deposit Escrow Agent regarding the extension of the
expiration date of the Letter of Credit and of the change in the Escrow
Closing Date.
This letter agreement is executed as an instrument under seal in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Glimcher Realty Trust
/s/ George A. Schmidt
By:__________________________________
Name:George A. Schmidt
Title:Secretary
A-42
<PAGE>
Agreed to and Acknowledged by:
Retail Property Investors, Inc.
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: President and Chief
Executive Officer
PaineWebber Retail
PropertyInvestments, Ltd.
By: Retail Property Investors,
Inc., General Partner
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: President and Chief
Executive Officer
PaineWebber Retail
PropertyInvestments Joint Venture
By: Retail Property Investors,
Inc., a Venturer thereof
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: President and Chief
Executive Officer
By: PaineWebber Properties
Incorporated, a Venturer thereof
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: President and Chief
Executive Officer
PaineWebber College Plaza, L.P.
By: Retail Property Investors,
Inc., General Partner
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title: President and Chief
Executive Officer
A-43
<PAGE>
PaineWebber Marion Towne, L.P.
By: Retail Property Investors,
Inc.,General Partner
/s/ Lawrence A. Cohen
By:__________________________________
Name: Lawrence A. Cohen
Title:President and Chief
Executive Officer
Acknowledged and Agreed to:
PaineWebber Incorporated
/s/ Terrence E. Fancher
By:__________________________________
Name: Terrence E. Fancher
Title:Managing Director
A-44
<PAGE>
GLIMCHER REALTY TRUST
20 SOUTH THIRD STREET
COLUMBUS, OHIO 43215
June 13, 1996
Retail Property Investors, Inc.
PaineWebber Retail Property Investors, Ltd.
PaineWebber Retail Property Investments Joint Venture
PaineWebber College Plaza, L.P.
PaineWebber Marion Towne, L.P.
c/oPaineWebber Properties Incorporated
265 Franklin Street, 16th Floor
Boston, MA 02110
Re: Amendment to Purchase and Sale Agreement (as amended to date, the
"Sale Agreement") dated as of March 11, 1996 by and among Retail
Property Investors, Inc., et al (collectively, the "Sellers") and
Glimcher Realty Trust (the "Purchaser")
Gentlemen:
Reference is made to (a) the Sale Agreement and (b) that certain Deposit
Escrow Agreement (the "Deposit Escrow Agent") dated as of March 11, 1996 by
and among the Sellers, Purchaser and Lawyers Title Insurance Corporation (the
"Deposit Escrow Agent"). All initially capitalized terms used herein shall
have the meanings set forth in the Sale Agreement.
By mutual agreement, the first sentence of Section 9.1 of the Sale Agreement
is hereby deleted and the following replaced therefor:
The Escrow Closing shall occur at the offices of Goodwin Procter & Hoar
LLP, Exchange Place, Boston, MA at 10:00 am on June 20, 1996 (or such other
date, time and place as may be mutually agreed upon by Sellers and
Purchaser) (except as provided in the First Amendment, the "Escrow Closing
Date"); provided, however, that for the exclusive purpose of satisfying the
conditions contained in Sections 10.1 and 10.2 below, either Sellers or
Purchaser shall have the right to extend the date on which the Escrow
Closing would occur without cost or penalty to not later than June 27, 1996
by written notice to the other.
Section 3.1(b) of the Sale Agreement is hereby deleted and the following
paragraph replaced therefor:
(b) On the Escrow Closing Date, Purchaser shall deliver to Closing Escrow
Agent, at Purchaser's option, by wire transfer of immediately available
federal funds and/or in the form of an irrevocable, standby letter of
credit issued by The Huntington National Bank (or such other financial
institution as may be acceptable to Sellers, in their sole and absolute
discretion) with an expiration date not earlier than the Outside Date that
in the aggregate are an amount (the "Escrowed Purchase Price") equal to the
Purchase Price less any portion of the Deposit made in immediately
available federal funds which are delivered to the Closing Escrow Agent as
part of the Escrow Closing Cash Deposit under the terms and conditions of
the Closing Escrow Agreement LESS the principal balance of the Assumed
Indebtedness outstanding on the date upon which the Escrow Closing occurs
PLUS all of Purchaser's closing costs described in Section 13.6 below. On
the Escrow Closing Date, Purchaser shall be entitled to receive from
Deposit Escrow Agent any letter of credit delivered as part of the Deposit.
Sellers and Purchaser hereby agree that the third paragraph of that certain
letter agreement among the Purchaser and the Sellers dated as of May 14, 1996
is hereby deleted.
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<PAGE>
Sellers and Purchaser hereby agree that the following shall be added to
section 6E of the Management Agreement to be executed at the Escrow Closing:
", together with the Cash Flow attributed to the period from May 14, 1996
through the Escrow Closing Date; provided, however, that if the Escrow Closing
does not commence on June 20, 1996 the Cash Flow attributed to the period from
June 20, 1996 through the Escrow Closing Date shall be excluded."
Execution of this letter agreement and delivery of an executed copy hereof
to the Deposit Escrow Agent shall constitute the mutual written notice to the
Deposit Escrow Agent regarding the change in the Escrow Closing Date.
This letter agreement is executed as an instrument under seal in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Glimcher Realty Trust
/s/ Herbert Glimcher
By:__________________________________
Name: Herbert Glimcher
Title:Chairman
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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<PAGE>
Agreed to and Acknowledged by:
Retail Property Investors, Inc.
/s/ Lawrence A. Cohen
By: _________________________________
Name: Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber Retail Property
Investments, Ltd.
By: Retail Property Investors,
Inc., General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name: Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber Retail Property
Investments Joint Venture
By: Retail Property Investors,
Inc., a Venturer thereof
/s/ Lawrence A. Cohen
By: _________________________________
Name: Lawrence A. Cohen
Title:President and Chief
Executive Officer
By: PaineWebber Properties
Incorporated, a Venturer thereof
/s/ Lawrence A. Cohen
By: _________________________________
Name: Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber College Plaza, L.P.
By: Retail Property Investors,
Inc., General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name: Lawrence A. Cohen
Title:President and Chief
Executive Officer
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<PAGE>
PaineWebber Marion Towne, L.P.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
Acknowledged and Agreed to:
PaineWebber Incorporated
/s/ Terrence E. Fancher
By: _________________________________
Name:Terrence E. Fancher
Title:Managing Director
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<PAGE>
GLIMCHER REALTY TRUST
20 SOUTH THIRD STREET
COLUMBUS, OHIO 43215
June 19, 1996
Retail Property Investors, Inc.
PaineWebber Retail Property Investors, Ltd.
PaineWebber Retail Property Investments Joint Venture
PaineWebber College Plaza, L.P.
PaineWebber Marion Towne, L.P.
c/oPaineWebber Properties Incorporated
265 Franklin Street, 16th Floor
Boston, MA 02110
Re: Amendment to Purchase and Sale Agreement (as amended to date, the
"Sale Agreement") dated as of March 11, 1996 by and among Retail
Property Investors, Inc., et al (collectively, the "Sellers") and
Glimcher Realty Trust (the "Purchaser")
Gentlemen:
Reference is made to (a) the Sale Agreement and (b) that certain Deposit
Escrow Agreement (the "Deposit Escrow Agent") dated as of March 11, 1996 by
and among the Sellers, Purchaser and Lawyers Title Insurance Corporation (the
"Deposit Escrow Agent"). All initially capitalized terms used herein shall
have the meanings set forth in the Sale Agreement.
Sellers and Purchaser hereby mutually agree to commence the Escrow Closing
on June 24, 1996 in the offices of Goodwin Procter & Hoar LLP, Exchange Place,
Boston, MA at 10:00 am; provided, however, that nothing contained herein is
intended to extend the Escrow Closing Date, time remaining of the essence of
the Sale Agreement.
By mutual agreement, the first sentence of Section 9.1 of the Sale Agreement
is hereby deleted and the following replaced therefor:
The Escrow Closing shall occur at the offices of Goodwin Procter & Hoar
LLP, Exchange Place, Boston, MA at 10:00 am on June 27, 1996 (or such other
date, time and place as may be mutually agreed upon by Sellers and
Purchaser) (the "Escrow Closing Date").
Sellers and Purchaser hereby agree that the final clause of Section 6E of
the Management Agreement to be executed at the Escrow Closing (added by letter
agreement dated June 13, 1996) shall be as follows: ", together with the Cash
Flow attributed to the period from May 14, 1996 through the Escrow Closing
Date."
Sellers and Purchaser hereby agree that the last two sentences of Section
10.3 of the Sale Agreement are hereby deleted and the following are replaced
therefor:
In the event immediately available federal funds are held in escrow under
the Closing Escrow Agreement, (a) Purchaser shall be entitled to the
interest earned on the portion of the Escrowed Purchase Price which will be
paid to parties other than Sellers, and (b) Sellers shall be entitled to
the interest on the remaining portion of the Escrowed Purchase Price with
interest being deemed to begin to accrue as of June 20, 1996. In the event
immediately available federal funds are not held in escrow under the
Closing Escrow Agreement Purchaser shall pay to Sellers at Closing an
amount (the "Interest Factor") equal to the product of that portion of the
Escrowed Purchase Price paid to Sellers at the Closing multiplied by an
interest rate per annum equal to the six (6) month U.S. Treasury Bill rate
published in the Wall Street Journal on June 20, 1996 for the number of
days from June 20, 1996 through and including the Closing Date.
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<PAGE>
Sellers and Purchaser hereby delete Section 13.2 of the Sale Agreement and
replace the following therefor:
13.2 Rents. Sellers and Purchaser shall prorate at Escrow Closing all
base or fixed rents ("Basic Rents") and any escalations or pass through of
operating and other similar expenses ("Additional Rents") and any prepaid
Basic Rents or Additional Rents received from all tenants and occupants of
the Properties as of the Escrow Closing Date for the month in which the
Escrow Closing occurs.
All prorations and adjustments made hereunder will be made based upon the
number of days of ownership of each party in the period to which the
payment or billing relates, treating the Escrow Closing Date as the date of
transfer of ownership if the Closing occurs.
Amounts payable by tenants and occupants of the Properties relating to
sales made or gross receipts realized during the year in which the Escrow
Closing Date occurs ("Percentage Rents") shall not be adjusted for at
Escrow Closing but rather shall be adjusted within thirty (30) days of
receipt of such amounts from the applicable tenants of the Projects.
In addition, (i) all Basic Rents, Additional Rents and Percentage Rents
uncollected as of the Escrow Closing Date and owed by tenants or occupants
of the Properties on the Escrow Closing Date for any period during the
three (3) months immediately preceding the Escrow Closing Date, (ii) any
monies due under promissory notes owed by tenants or occupants of the
Properties which are not included in clause (i) and (iii) of this
paragraph, a list of which is attached hereto and (iii) any monies
otherwise due to Sellers for aged receivables listed on the May 31, 1996
Aged Account Receivable Report, a property level summary of which is
attached hereto (collectively, (i), (ii) and (iii), the "Past Due Rent"),
shall be reimbursed to Sellers by Purchaser following Purchaser's
collection thereof, provided that all Basic Rents, Additional Rents and
Percentage Rents collected by Purchaser shall be applied first to the month
in which the Escrow Closing occurs (if not previously collected), then to
the current rents due and payable and finally to Past Due Rent; provided,
however, that for purposes of the foregoing application, prepayments of
Basic Rents, Additional Rents and Percentage Rents shall be applied to the
immediately succeeding month prior to being applied to Past Due Rent.
All Additional Rents collected by Purchaser on and after the Escrow
Closing Date which are not due and payable on the Escrow Closing Date shall
be prorated based upon the number of days in the period to which the
payment or billing therefor relates. Purchaser shall use reasonable efforts
to collect (i) all Past Due Rent and (ii) all Additional Rents on and after
the Escrow Closing Date which are not due and payable on the Escrow Closing
Date in the usual course of operation of the Properties, and any such
amounts shall be paid to Sellers within ten (10) Business Days following
the end of the month in which collection thereof occurred, after deducting
the reasonable expenses incurred in connection with the collection thereof.
Sellers shall retain all rights relating to all Basic Rents, Additional
Rents and Percentage Rents not included in Past Due Rents which are owed by
non-occupants of the Properties on the Escrow Closing Date for any period
prior to the Escrow Closing Date (including the right to collect such rents
and charges), and there shall be no proration of the same as between
Sellers and Purchaser. If any such amounts are paid to Purchaser they shall
be promptly remitted to Sellers.
Execution of this letter agreement and delivery of an executed copy hereof
to the Deposit Escrow Agent shall constitute the mutual written notice to the
Deposit Escrow Agent regarding the change in the Escrow Closing Date and the
commencement of the Escrow Closing.
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<PAGE>
This letter agreement is executed as an instrument under seal in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Glimcher Realty Trust
/s/ Herbert Glimcher
By: _________________________________
Name:Herbert Glimcher
Title:Chairman
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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<PAGE>
Agreed to and Acknowledged by:
Retail Property Investors, Inc.
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber Retail
PropertyInvestments, Ltd.
By: Retail Property Investors,
Inc.,General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber Retail Property
Investments Joint Venture
By: Retail Property Investors,
Inc.,a Venturer thereof
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
By: PaineWebber Properties
Incorporated,a Venturer thereof
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
PaineWebber College Plaza, L.P.
By: Retail Property Investors,
Inc.,General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
A-52
<PAGE>
PaineWebber Marion Towne, L.P.
By: Retail Property Investors,
Inc.,General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:President and Chief
Executive Officer
Acknowledged and Agreed to:
PaineWebber Incorporated
/s/ Bruce Rubin
By: _________________________________
Name:Bruce Rubin
Title:Senior Vice President
A-53
<PAGE>
GLIMCHER REALTY TRUST
GLIMCHER PROPERTIES LIMITED PARTNERSHIP
20 SOUTH THIRD STREET
COLUMBUS, OHIO 43215
June 27, 1996
Retail Property Investors, Inc.
PaineWebber Retail Property Investors, Ltd.
PaineWebber Retail Property Investments Joint Venture
PaineWebber College Plaza, L.P.
PaineWebber Marion Towne, L.P.
c/oPaineWebber Properties Incorporated
265 Franklin Street, 16th Floor
Boston, MA 02110
Re: Purchase and Sale Agreement (as amended to date, the "Sale Agreement")
dated as of March 11, 1996 by and among Retail Property Investors,
Inc., et al (collectively, the "Sellers") and Glimcher Realty Trust
(the "Purchaser")
Gentlemen:
Reference is made to (a) the Sale Agreement and (b) that certain Deposit
Escrow Agreement (the "Deposit Escrow Agreement") dated as of March 11, 1996
by and among the Sellers, Purchaser and Lawyers Title Insurance Corporation
(the "Deposit Escrow Agent"). All initially capitalized terms used herein
shall have the meanings set forth in the Sale Agreement.
Pursuant to the terms of the Sale Agreement, Sellers and Purchaser commenced
the Escrow Closing on June 24, 1996 in the offices of Goodwin Procter & Hoar
LLP, Exchange Place, Boston, MA at 10:00 a.m. and the Escrow Closing occurred
on and the Escrow Closing Date is June 27, 1996.
Purchaser assigned all of its right, title and interest under the Sale
Agreement to Glimcher Properties Limited Partnership ("GPLP") pursuant to that
certain Assignment and Assumption of Purchase and Sale Agreement of even date.
The Closing Escrow Agreement has been executed and delivered and the Escrow
Closing Letters of Credit have been deposited with Lawyers Title Insurance
Corporation (the "Closing Escrow Agent"). GPLP and Sellers have either
performed or waived all conditions precedent to Escrow Closing contained in
Sections 10.1 and 10.2 of the Sale Agreement (and all Sellers' Escrow Closing
Deliveries and Purchaser's Escrow Closing Deliveries under Sections 9.2 and
9.3 of the Sale Agreement have been delivered or waived). By forwarding a copy
of this Agreement to the Deposit Escrow Agent, Sellers, Purchaser and GPLP
hereby direct the Deposit Escrow Agent to return the Deposit Escrow Letter of
Credit to The Huntington National Bank, N.A., 41 South High Street, Columbus,
Ohio 43216.
Notwithstanding the provisions of Section 13.2 of the Sale Agreement to the
contrary, Sellers and GPLP have agreed that neither GPLP (nor any manager or
any other entity claiming by, through or under GPLP including, but not limited
to, Gumberg Realty Advisors, Inc. ("Gumberg") shall bill tenants which are
billed annually for reimbursements for any fiscal period which includes the
Escrow Closing Date unless and until Sellers have agreed on the billing for
such reimbursements. GPLP hereby agrees to use diligent good faith efforts to
complete its calculation of such annual billings and deliver the same to
Sellers on or before February 28, 1997. Sellers and GPLP hereby agree to use
diligent good faith efforts in an attempt to agree on the billings for such
reimbursements on or before March 14, 1997. In the event, despite such
diligent good faith efforts, Sellers and GPLP have not agreed on the billings
for such reimbursements on or before March 14, 1997, Sellers and GPLP
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<PAGE>
hereby agree to submit the matter to binding arbitration according to the
rules attached hereto as Exhibit 1. Sellers have delivered to GPLP the
Sellers' calculation of such reimbursements as listed on Exhibit 2 attached
hereto. Any amounts collected by GPLP pursuant to such billings shall be
apportioned as set forth in the Sale Agreement.
With respect to the lease amendment and easement attached as Exhibit 3
hereto, the applicable Seller has executed such lease amendment and easement
and has deposited the same in escrow with the Closing Escrow Agent. Said
amendment and easement shall be released from escrow (provided such documents
have not been revoked by the tenant thereunder) upon the earlier to occur of
(i) receipt of the written consent of the holder of the Existing Indebtedness
on the Property to which the lease amendment and easement relate or (ii) the
Closing. In the event the Closing does not occur, said amendment and easement
shall be returned to the applicable Seller. The applicable Seller shall use
diligent good faith efforts to obtain the consent of the holder of the
Existing Indebtedness on the Property to which the lease amendment and
easement relate.
With respect to each of the lease amendments and easements attached as
Exhibit 4 hereto, the applicable Sellers hereby covenant (i) to execute such
documents which have been approved by Sellers and GPLP in the forms attached
hereto (provided such documents are not revoked by the tenant thereunder) upon
the receipt of the written consent of the holders of the Existing Indebtedness
on the Property to which each such lease amendment and easement relates or
(ii) at GPLP's option, (a) to execute any or all such documents (provided such
documents have not been revoked by the tenant thereunder) at the Closing or
(b) assign Sellers' rights under any or all such documents to GPLP at the
Closing. Sellers shall use diligent good faith efforts to obtain the consent
of the holders of the Existing Indebtedness on the Properties to which the
lease amendments and easements relate and shall permit GPLP to participate in
any negotiation or discussions with respect thereto. GPLP hereby authorizes
and approves any action (or inaction) required hereunder with respect to such
documents and to the extent necessary, waives any and all provisions of the
Sale Agreement to the contrary (including, but not limited to title matters
and any and all other documents executed and delivered in connection with the
Escrow Closing) and agrees that the Schedules to the Sale Agreement shall be
deemed amended to reflect same. If, for any reason the holder of the Existing
Indebtedness on any Property to which any such lease amendment and easement
relate does not permit the assumption of said indebtedness as a result of the
matters described herein, GPLP hereby acknowledges and agrees that the Equity
Distribution set forth in the Closing Escrow Agreement shall not be impacted
in any way as a result of the holder of the Existing Indebtedness on the
Properties described in this paragraph refusing to consent to the transfer of
the applicable Property to GPLP and the assumption of the applicable Existing
Indebtedness, it being acknowledged and agreed that all risk of loss with
respect to the matters described in this paragraph (other than the explicit
covenants of Sellers granted in this paragraph) shall be GPLP's.
Certain of the documents received from holders of the Assumed Indebtedness
provide that the original borrower thereunder is responsible for payment of
assumption and other fees thereunder. Sellers are willing to execute,
acknowledge and deliver into escrow the foregoing documents notwithstanding
Sellers and GPLP's explicit agreement to the contrary. Purchaser and GPLP
hereby acknowledge and agree that notwithstanding the provisions of such
assumption documents GPLP is and shall be responsible for such fees under
Section 13.6 of the Sale Agreement. Any loss sustained by Sellers as a result
of the execution of the foregoing assignment and assumption documents shall be
deemed a loss under the Indemnity Agreement of even date from GRT for the
benefit of Sellers.
Given that the Escrow Closing is being completed after banking hours,
Sellers have not swept property level bank accounts and shall be entitled to
do so on June 28, 1996; provided, that Sellers leave on deposit with Gumberg
funds in the aggregate of $1,197,379.09 (including separate security deposits,
all as detailed in the Closing Statement of even date).
Pursuant to the Sale Agreement, in the event the Closing occurs, GPLP is
entitled to Cash Flow, as defined in the Management Agreement, for the period
from May 14, 1996 through the Escrow Closing Date. Sellers have retained Cash
Flow for the period from May 14, 1996 through the Escrow Closing Date. If the
Closing occurs,
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<PAGE>
GPLP shall be entitled to Cash Flow for such period (as finally adjusted under
the Settlement Statement) together with interest thereon, to be calculated as
if such amount was deposited on the Escrow Closing Date into the Cash Flow
Deposit established under the Closing Escrow Agreement and invested pursuant
to the investment parameters described thereunder.
In the event Aetna Property and Casualty (Travelers) requires real estate
tax escrows to be established during the period between the Escrow Closing
Date and the Closing, Sellers hereby agree to post amounts relating to their
period of ownership (prior to the Escrow Closing Date) on account of Sellers'
obligation to pay taxes for such period for such Properties under Section 13.1
of the Sale Agreement.
This letter agreement is executed as an instrument under seal in one or more
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Glimcher Realty Trust
/s/ Fred A. Zantello
By: _________________________________
Name: Fred A. Zantello,
Executive Vice President
Glimcher Properties Limited
Partnership
By: Glimcher Properties
Corporation,General Partner
/s/ Fred A. Zantello
By: _________________________________
Name: Fred A. Zantello,
Executive Vice President
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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<PAGE>
Executed by the undersigned this 27th day of June, 1996.
Retail Property Investors, Inc., a
Virginia corporation
/s/ Walter V. Arnold
By: _________________________________
Name: Walter V. Arnold
Title: Senior Vice President
PaineWebber Retail Property
Investments, Ltd., a Texas limited
partnership
By: Retail Property Investors, Inc.,
General Partner
/s/ Walter V. Arnold
By: _________________________________
Name: Walter V. Arnold
Title: Senior Vice President
PaineWebber Retail Property
Investments Joint Venture, a Texas
Joint Venture
By: Retail Property Investors, Inc.,
a Venturer thereof
/s/ Walter V. Arnold
By: _________________________________
Name: Walter V. Arnold
Title: Senior Vice President
By: PaineWebber Properties
Incorporated, a Venturer thereof
/s/ Walter V. Arnold
By: _________________________________
Name: Walter V. Arnold
Title: Senior Vice President
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<PAGE>
PaineWebber College Plaza, L.P.,a
Texas limited partnership
By: Retail Property Investors, Inc.,
General Partner
/s/ Walter V. Arnold
By: _________________________________
Name: Walter V. Arnold
Title: Senior Vice President
PaineWebber Marion Towne, L.P.,a
Texas limited partnership
By: Retail Property Investors, Inc.,
General Partner
/s/ Walter V. Arnold
By: _________________________________
Name: Walter V. Arnold
Title: Senior Vice President
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<PAGE>
ANNEX B
CLOSING ESCROW AGREEMENT
This Closing Escrow Agreement ("Agreement") is made this 27th day of June,
1996 by and among RETAIL PROPERTY INVESTORS, INC., a Virginia corporation
("RPI"), PAINEWEBBER RETAIL PROPERTY INVESTMENTS, LTD., a Texas limited
partnership ("PWRPI"), PAINEWEBBER RETAIL PROPERTY INVESTMENTS JOINT VENTURE,
a Texas joint venture ("JV"), PAINEWEBBER COLLEGE PLAZA, L.P., a Texas limited
partnership ("College"), and PAINEWEBBER MARION TOWNE, L.P., a Texas limited
partnership ("Marion"). RPI, PWRPI, JV, College and Marion are referred to
herein individually as "Seller" and collectively as "Sellers", GLIMCHER REALTY
TRUST, a Maryland real estate investment trust ("GRT"), GLIMCHER PROPERTIES
LIMITED PARTNERSHIP, a Delaware limited partnership ("Purchaser"), and LAWYERS
TITLE INSURANCE CORPORATION, with an address of 708 Third Avenue, New York,
New York 10017 ("Closing Escrow Agent"). All capitalized terms used herein and
not otherwise defined herein shall have the meanings ascribed thereto in the
Sale Agreement (as hereinafter defined).
WHEREAS, Sellers and GRT have entered into a Purchase and Sale Agreement
dated as of March 11, 1996, as amended (the "Sale Agreement") for the improved
premises owned by Sellers and more fully described therein;
WHEREAS, GRT has assigned all of its right, title and interest in the Sale
Agreement to Purchaser;
WHEREAS, pursuant to the terms of the Sale Agreement, Sellers and Purchaser
desire to hold the Escrow Closing;
WHEREAS, as a condition to the Escrow Closing and pursuant to Sections 3.1,
9.2 and 9.3 of the Sale Agreement, (a) Purchaser has agreed to deliver
Purchaser's Escrow Closing Deliveries to Closing Escrow Agent including,
without limitation, the Escrowed Purchase Price in the form of either (i)
funds immediately available for reinvestment by Closing Escrow Agent in New
York, New York (the "Escrow Closing Cash Deposit"), or (ii) one or more
irrevocable letter(s) of credit in the aggregate amount of the Escrowed
Purchase Price for the benefit of Closing Escrow Agent and for a term which in
no event shall lapse prior to the Outside Date (whether one or more, the
"Escrow Closing Letter of Credit"), and (b) Sellers have agreed to deliver
Sellers' Escrow Closing Deliveries to the Closing Escrow Agent. The Escrow
Closing Letter of Credit and any other letter of credit documentation
delivered in connection therewith are sometimes hereinafter collectively
referred to as the "Escrow Closing Letter of Credit Documents," and whichever
of the Escrow Closing Cash Deposit or the Escrow Closing Letter of Credit
Documents is delivered by Purchaser to Closing Escrow Agent pursuant to
Section 1 below hereinafter shall be referred to as the "Escrow Closing
Deposit". In the event the Escrow Closing Deposit consists of the Escrow
Closing Cash Deposit, the term Escrow Closing Deposit as used herein shall
include all interest earned on the Escrow Closing Cash Deposit;
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Sellers, GRT and Purchaser have entered into an Exclusive Commercial Property
Management Agreement of even date (the "Management Agreement") pursuant to
which the parties thereto have agreed that Purchaser, in its capacity as
manager under the Management Agreement, shall deliver the Cash Flow (as
defined in the Management Agreement) to Closing Escrow Agent on a periodic
basis (such periodic deliveries of Cash Flow being hereinafter referred to
collectively as the "Cash Flow Deposit" and together with the Closing Escrow
Deposit, sometimes hereinafter collectively referred to as the "Deposits").
The term Cash Flow Deposit as used herein shall include all interest earned on
the Cash Flow Deposit;
WHEREAS, Sellers, GRT and Purchaser are willing to perform their respective
obligations under the Sale Agreement as they relate to the Escrow Closing
provided the Deposits are held in escrow and administered pursuant to the
terms and conditions of this Agreement; and
<PAGE>
WHEREAS, Closing Escrow Agent is willing to hold and administer the Deposits
in the manner and upon the conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, Sellers, GRT, Purchaser and Closing Escrow Agent agree as
follows:
1. Simultaneously herewith, GRT and/or Purchaser have made Purchaser's
Escrow Closing Deliveries (including, without limitation, the Escrow Closing
Letter of Credit Documents) to Closing Escrow Agent to be held in escrow
pursuant to the terms and conditions stipulated in this Agreement.
Simultaneously with the occurrence of the Escrow Closing, Sellers have made
Sellers' Escrow Closing Deliveries to Closing Escrow Agent to be held in
escrow pursuant to the terms and conditions stipulated in this Agreement. The
documents comprising Purchaser's Escrow Closing Deliveries and Sellers' Escrow
Closing Deliveries are listed on Exhibit A. Closing Escrow Agent hereby
acknowledges receipt of Purchaser's Escrow Closing Deliveries (including the
Escrow Closing Letter of Credit Documents) and Sellers' Escrow Closing
Deliveries GRT and Sellers hereby agree to cause Purchaser to deliver the Cash
Flow Deposit to Closing Escrow Agent in accordance with the terms of the
Management Agreement and Purchaser hereby agrees to deliver the Cash Flow
Deposit to the Closing Escrow Agent in accordance with the terms of the
Management Agreement. In no event shall GRT, Purchaser or Closing Escrow Agent
amend or modify any Escrow Closing Letter of Credit Documents without the
prior written consent of Sellers which consent may be withheld in Sellers'
sole discretion.
2. Sellers, GRT and Purchaser hereby designate Closing Escrow Agent to serve
as Closing Escrow Agent in accordance with the terms and conditions hereof.
Closing Escrow Agent hereby accepts such appointment and upon receipt thereof
agrees to hold the Deposits, Purchaser's Escrow Closing Deliveries and
Sellers' Escrow Closing Deliveries in escrow pursuant to the terms and
conditions stipulated herein. Closing Escrow Agent will not be paid an escrow
fee for its services hereunder, but shall be entitled to reimbursement of its
out of pocket storage costs for Purchaser's Escrow Closing Deliveries and
Seller's Escrow Closing Deliveries. Sellers and Purchaser shall each be liable
for one-half of such costs and Sellers shall reimburse Purchaser for one-half
of the $2,500 already paid by Purchaser to Closing Escrow Agent for such
costs. In the event Closing Escrow Agent receives the Escrow Closing Cash
Deposit, or at any time Closing Escrow Agent draws upon the Escrow Closing
Letter of Credit pursuant to this Agreement, Closing Escrow Agent immediately
shall place the Escrow Closing Cash Deposit or the proceeds from the draw on
of the Escrow Closing Letter of Credit in an account at Chemical Bank, N.A.
(or such other bank which may be agreed upon by Closing Escrow Agent, Sellers,
GRT and Purchaser) to be invested or held by such bank in accordance with the
investment instructions set forth on Schedule A attached hereto and by this
reference incorporated herein. Upon receipt of any installment of the Cash
Flow Deposit, Closing Escrow Agent immediately shall place such installment in
a separate interest bearing account at Chemical Bank, N.A. (or such other bank
which may be agreed upon by Closing Escrow Agent, Sellers, GRT and Purchaser)
to be invested or held by such bank in accordance with the investment
instructions set forth on Schedule A. Closing Escrow Agent shall provide
Sellers with prior notice of the time and place of Closing Escrow Agent's
presentation of the Escrow Closing Letter of Credit so that a representative
of Sellers may assist in the preparation of and accompany Closing Escrow Agent
to such presentation.
3. Subsequent to the Escrow Closing but prior to the Closing, in the event
that either Purchaser or Sellers (the "Terminating Party") shall terminate the
Sale Agreement pursuant to Section 12.3 thereof, the Terminating Party shall
notify Closing Escrow Agent of such termination in a manner required under
Section 9 hereof (the "Post-Escrow Closing Termination Notice"), which Post-
Escrow Closing Termination Notice shall direct Closing Escrow Agent to deliver
the Deposits to the parties entitled thereto under the Sale Agreement and
direct the Closing Escrow Agent to deliver Sellers' Escrow Closing Deliveries
and Purchaser's Escrow Closing Deliveries as follows: documents executed
solely by or on behalf of GRT or Purchaser shall be returned to GRT or
Purchaser, as the case may be, documents executed by GRT and Purchaser shall
be returned to Purchaser, documents executed solely by or on behalf of Sellers
shall be returned to Sellers, documents which are executed by GRT, Purchaser
and Sellers shall be destroyed absent mutual written agreement from GRT or
Purchaser (as the case may be) and Sellers to the contrary, any Escrow Closing
Letter of Credit Documents shall be returned to GRT or Purchaser, as the case
may be, unless Sellers are entitled to liquidated damages under Section 11.2
or
B-2
<PAGE>
Section 12.4 of the Sale Agreement and Sellers shall be entitled to receive
the Cash Flow Deposit. Upon receipt of the Post-Escrow Closing Termination
Notice, Closing Escrow Agent shall notify (in the manner required by Section 9
hereof) the non-terminating party of Closing Escrow Agent's receipt of the
Post-Escrow Closing Termination Notice (the "Post-Escrow Closing Release
Notice") and Closing Escrow Agent shall then release the Deposits, Sellers'
Escrow Closing Deliveries and Purchaser's Escrow Closing Deliveries as
directed in the Post-Escrow Closing Termination Notice provided the non-
terminating party has not notified (in the manner required by Section 9
hereof) Closing Escrow Agent of its objection (the "Post-Escrow Closing
Objection Notice") to such release within five (5) Business Days of such non-
terminating party's receipt of the Post-Escrow Closing Release Notice. Any
Post-Escrow Closing Objection Notice shall contain an explanation of the
objection. In the event the Closing Escrow Agent receives a timely Post-Escrow
Closing Objection Notice, Closing Escrow Agent shall continue to hold the
Deposits, Sellers' Escrow Closing Deliveries and Purchaser's Escrow Closing
Deliveries pursuant to this Agreement and at its sole election may avail
itself of all rights it may have hereunder.
In the event the Post-Escrow Closing Termination Notice is given to Closing
Escrow Agent pursuant to Subsection 12.3(e) of the Sale Agreement or if
Sellers are otherwise entitled to the remedy in the ultimate sentence of
Section 11.2 of the Sale Agreement, then Closing Escrow Agent shall pay out of
the Escrow Closing Deposit (in the manner set forth in the preceding paragraph
after drawing on the Escrow Closing Letter of Credit in the manner described
in this Agreement, if necessary) any liquidated damages due Sellers under the
Sale Agreement, in accordance with Schedule D attached hereto.
This Agreement automatically shall terminate upon delivery of the Deposits,
Sellers' Escrow Closing Deliveries and Purchaser's Escrow Closing Deliveries
pursuant to this Section 3.
4. In the event that the Escrow Closing Letter of Credit Documents
constitute the Escrow Closing Deposit, then at any time Closing Escrow Agent
receives written notice from Sellers requesting that the Escrow Closing Letter
of Credit be drawn (the "Presentation Notice"), Closing Escrow Agent
immediately and without obligation to notify or obtain the consent of any
other party shall present the Escrow Closing Letter of Credit Documents to the
issuing bank and shall draw upon the Escrow Closing Letter of Credit, and GRT
and Purchaser hereby authorize and direct Closing Escrow Agent to so present
the Escrow Closing Letter of Credit upon Closing Escrow Agent's receipt of the
Presentation Notice. Closing Escrow Agent shall provide Sellers with
reasonable prior notice of the time and place of the Closing Escrow Agent's
presentation of the Escrow Closing Letter of Credit so that representatives of
Sellers may assist in the preparation of and accompany Closing Escrow Agent in
such presentation. Upon receipt of the proceeds from such draw, Closing Escrow
Agent shall deposit such proceeds as required under Section 2 hereof and shall
hold such proceeds as the Escrow Closing Deposit hereunder and shall disburse
such proceeds in accordance with the terms of this Agreement.
Sellers shall keep Closing Escrow Agent informed as to the anticipated date
of the meeting of the stockholders of RPI and the anticipated Closing Date.
Sellers, Purchaser and Closing Escrow Agent shall request payoff letters for
the Prepaid Indebtedness as of the anticipated Closing Date (as revised from
time to time).
5. If at any time subsequent to Escrow Closing but prior to the termination
of the Sale Agreement Sellers (i) shall notify Closing Escrow Agent, GRT and
Purchaser that Sellers have received the affirmative vote of stockholders of
RPI holding two-thirds or greater in interest of the shares of RPI's common
stock entitled to vote on the transaction contemplated by the Sale Agreement
at a duly convened meeting of stockholders ("Sellers' Closing Notice"), and
(ii) shall deliver (A) an opinion of counsel to Sellers in the form delivered
as a Sellers' Escrow Closing Delivery, (B) updated exhibits to the instruments
set forth in Section 9.2(b) of the Sale Agreement which are being held by
Closing Escrow Agent as part of Sellers' Escrow Closing Deliveries and notices
to tenants and contract vendors listed on such schedules in the form delivered
to the Closing Escrow Agent simultaneously herewith, (C) a certificate from
the transfer agent indicating that RPI has received the affirmative vote of
stockholders of RPI holding two thirds or greater in interest of the shares of
RPI's common stock and (D) notice of the amount, if any, of the Cash Flow
Deposit which Sellers reasonably dispute as payable as an incentive management
fee under the Management Agreement ("Sellers' Holdback Amount"), then Closing
B-3
<PAGE>
Escrow Agent immediately and without any obligation to obtain the consent of
any other party shall take the actions set forth on Schedule B-1 attached
hereto and by this reference incorporated herein (such actions hereinafter
being referred to as the "Equity Distribution"). GRT and Purchaser hereby
authorize and direct the Closing Escrow Agent to make the Equity Distribution
in accordance with the terms hereof and Sellers' Closing Notice upon Closing
Escrow Agent's receipt of Sellers' Closing Notice.
6. Upon completion of the Equity Distribution, Closing Escrow Agent shall
notify GRT and Purchaser thereof and upon receipt of such notice, if Closing
Escrow Agent has sufficient funds to pay the Prepaid Indebtedness and all
assumption fees, consent fees, mortgage taxes and any and all other costs and
expenses which may be due in connection with the acquisition of all Properties
subject to the Assumed Indebtedness, and all prepayment fees under the Prepaid
Indebtedness, Closing Escrow Agent shall take the actions described on
Schedule B-2 attached hereto and by this reference incorporated herein. If the
Closing Escrow Agent does not have sufficient funds to complete the
transaction, Purchaser and/or Purchaser shall deposit such shortfall with the
Closing Escrow Agent who shall then be authorized to take the actions
described on Schedule B-2. Sellers hereby authorize and direct Closing Escrow
Agent to take such actions as directed by Purchaser in accordance with this
Section 6 once sufficient funds have been deposited with the Closing Escrow
Agent to complete the transaction.
In the event Closing Escrow Agent shall continue to hold either the Sellers'
Holdback Amount or the Holdback Amount in escrow pursuant to the terms hereof,
Closing Escrow Agent shall disburse such amounts only upon the receipt of
written instructions therefor from Sellers and Purchaser within thirty (30)
days after the Closing.
7. Purchaser and Sellers do hereby jointly and severally agree that Closing
Escrow Agent shall incur no liability whatsoever in connection with its good
faith performance under this Agreement, and do hereby jointly and severally
release and waive any claims they may have against Closing Escrow Agent which
may result from its performance in good faith of its duties and obligations
under this Agreement. Closing Escrow Agent shall be liable only to the extent
of loss or damage caused by its acts of gross negligence and/or willful
misconduct.
Closing Escrow Agent shall be entitled to rely upon the authenticity of any
signature and the genuineness and validity of any writing received by it
relating to this Agreement. Closing Escrow Agent may rely upon any oral
identification of a party notifying Closing Escrow Agent orally as to
explanatory matters relating to this Agreement, if such oral notification is
permitted hereunder, it being understood that under no circumstances will
Closing Escrow Agent disburse or release funds or the Deposits except in
conformance with the procedures for notice (and objections thereto) provided
for herein. Closing Escrow Agent shall have no duty to investigate the
accuracy of any statement in any notification received in connection with this
Agreement. Closing Escrow Agent's duties and obligations hereunder shall be
governed solely by the provisions of this Agreement and Closing Escrow Agent
shall not have any duties other than the duties expressly imposed herein and
shall not be required to take any action other than under and in accordance
with the terms hereof.
Except as provided in Sections 4, 5 and 6 of this Agreement where no mutual
consent of GRT, and/or Purchaser, on the one hand, and Sellers, on the other
hand, is required, in the event of any disagreement between Purchaser and
Sellers resulting in conflicting instructions to, or adverse claims or demands
upon, or objections registered with, Closing Escrow Agent with respect to the
transfer or release of the Deposits as provided in this Agreement, Closing
Escrow Agent may refuse to comply with any such instructions, claims or
demands so long as such disagreement shall continue and in so refusing Closing
Escrow Agent may decline to release the Escrow Closing Deposit and/or the Cash
Flow Deposit. Closing Escrow Agent shall not be or become liable in any way
for its failure or refusal to comply with any such conflicting instructions or
adverse claims or demands and it shall be entitled to continue to refrain from
acting until such conflicting instructions or adverse claims or demands (a)
shall have been resolved and Closing Escrow Agent shall have been notified in
writing thereof by Purchaser and Sellers; or (b) shall have finally been
determined by a court of competent jurisdiction. In the event such conflicting
instructions or adverse claims or demands are not resolved pursuant to clause
(a) or (b) of the immediately preceding sentence at least five (5) business
days prior to the Outside Date and the Escrow Closing
B-4
<PAGE>
Letter of Credit Documents constitute the Escrow Closing Deposit or any
portion thereof, the Escrow Closing Agent shall present the Escrow Closing
Letter of Credit Documents to the issuing bank and shall draw upon the Escrow
Closing Letter of Credit and upon receipt of proceeds therefrom shall deliver
and hold such proceeds as the Escrow Closing Deposit hereunder.
In the event the Sale Agreement is terminated as a result of the occurrence
of any of the events set forth in Schedule C, Closing Escrow Agent may, at its
sole discretion, (i) resign by giving thirty (30) days written notice of its
intention to resign to GRT, Purchaser and Sellers; and (ii) be permitted not
to issue title policies under any commitment issued at the Escrow Closing and
GRT, Purchaser and Sellers shall jointly furnish to Closing Escrow Agent
written instructions for the transfer or release of the Deposits. If Closing
Escrow Agent shall not have received such joint written instructions within
said thirty (30) days, Closing Escrow Agent may petition any court of
competent jurisdiction for the appointment of a successor Closing Escrow Agent
and upon such appointment, deliver the Deposits to such successor or, in the
alternative, Closing Escrow Agent shall be entitled to deliver the Deposits to
any court of competent jurisdiction and to petition such court to determine
the respective rights of GRT, Purchaser and Sellers in the Deposits, whereupon
Closing Escrow Agent shall be relieved of all further responsibilities under
this Agreement. In the event of the foregoing where the Escrow Closing Letter
of Credit Documents constitute the Escrow Closing Deposit, and no substitute
Escrow Agent has been agreed upon, then prior to delivery of the Deposits to a
court of competent jurisdiction, Closing Escrow Agent first shall present the
Escrow Closing Letter of Credit Documents to the issuing bank and shall draw
upon the Escrow Closing Letter of Credit and upon receipt of the proceeds
therefrom, shall deliver such proceeds as the Escrow Closing Deposit
hereunder.
8. Notwithstanding any other provision of this Agreement, GRT, Purchaser and
Sellers agree to indemnify and hold harmless Closing Escrow Agent against any
loss, liability or expense incurred without gross negligence or wilful
misconduct on Closing Escrow Agent's part and existing out of or in connection
with its services under the terms of this Agreement, including the cost and
exposure of defending itself against any claim of liability not resulting from
gross negligence or wilful misconduct on the part of Closing Escrow Agent.
9. Any notice required or permitted to be given under this Agreement or by
law shall be in writing and unless a specific form of delivery is required by
applicable law, may be sent by (i) registered or certified United States mail,
postage prepaid, (ii) reputable, overnight express mail service that provides
tracing and proof of receipt, or (iii) delivered in person, in each case, to
the address or addresses set forth below or such other addresses in the
continental U.S. as the parties may designate in writing pursuant to the
provisions hereof:
To GRT: Glimcher Realty Trust
20 South Third Street
Columbus, Ohio 43215
Attn: Herbert Glimcher, Chairman and Fred A. Zantello
Copies to: Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attn: Alan S. Pearce, Esq.
To Purchaser: Glimcher Properties Limited Partnership
20 South Third Street
Columbus, Ohio 43215
Attn: Herbert Glimcher, Chairman and Fred A. Zantello
Copies to: Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attn: Alan S. Pearce, Esq.
B-5
<PAGE>
To Sellers: Retail Property Investors, Inc.
PaineWebber Properties Incorporated
265 Franklin Street, 16th Floor
Boston, Massachusetts 02110
Attn: Lawrence A. Cohen, President and CEO
Copies to: PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Attn:Terrence Fancher, Managing Director
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, NW
Suite 800
Washington, DC 20004
Attn: Matt Morley, Esq.
Goodwin, Procter & Hoar
Exchange Place
Boston MA 02109
Attn:Gilbert G. Menna, P.C.
Campbell & Riggs
1980 Post Oak Boulevard
Suite 2300
Houston, Texas 77056
Attn:Carole R. Riggs, Esq.
If to Lawyers Title Insurance Corporation
Deposit 708 Third Avenue
Closing New York, New York 10017
Escrow Attn:Kathryn Andriko, Esq.
Agent:
Any such notice shall be deemed to have been given upon the earlier of
receipt, or upon any party's refusal of delivery.
10. All of the provisions of this Agreement shall be binding on the
successors and assigns of GRT, Purchaser, Sellers and Closing Escrow Agent and
shall inure to the benefit of the successors and assigns of GRT, Purchaser,
Sellers and Closing Escrow Agent. No modification of this Agreement shall be
valid unless the same is in writing and is signed by all the parties hereto.
This Agreement may not be assigned by Sellers, GRT or Purchaser, except in
connection with assignment of the Sale Agreement in accordance with the
provisions thereof, or by Closing Escrow Agent, except as provided in Section
7 above.
11. This Agreement, may be executed in counterparts, and if so executed,
shall be deemed fully executed when each party hereto has executed, delivered
and received at least one such counterpart.
12. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to the conflicts of law
principles of the State of New York.
13. Until such time as the Deposits are released to the party or parties
entitled thereto, the Deposits shall not deemed for any purpose to be, and
will not be, an asset of such party, and will not be subject to the claims of
any creditor of any such party whatsoever, including, without limitation, any
lien, garnishment or other form of trustee or attachment process.
B-6
<PAGE>
14. (a) This Agreement and all documents, agreements, understandings and
arrangements relating to the transactions contemplated hereby have been or
will be executed or entered into on behalf of GRT by the undersigned, in his
capacity as an officer or trustee of GRT, which has been formed as a Maryland
real estate investment trust, pursuant to a Declaration of Trust of GRT dated
as of September 1, 1993, as amended and restated, and not individually, and
neither the trustees, officers nor shareholders of GRT shall be bound or have
any personal liability hereunder or thereunder. Sellers and Closing Escrow
Agent shall look solely to the assets of GRT for satisfaction of any liability
of GRT in respect hereof, and all documents, agreements, understandings and
arrangements relating hereto, and will not seek recourse or commence any
action against any of the trustees, officers or shareholders of GRT or any of
their personal assets for the performance or payment of any obligation of GRT
hereunder or thereunder. The foregoing shall also apply to any future
documents, agreements, understandings, arrangements and transactions hereunder
between GRT, Sellers and Closing Escrow Agent.
(b) This Agreement and all documents, agreements, understandings and
arrangements relating to the transactions contemplated hereby have been or
will be executed or entered into on behalf of each of the Sellers and of
Closing Escrow Agent by the undersigned, in their respective capacities as an
officer of such Seller and Closing Escrow Agent and not individually, and
neither the trustees, partners, directors, officers nor shareholders of any of
the Sellers or Closing Escrow Agent shall be bound or have any personal
liability hereunder or thereafter. GRT and Closing Escrow Agent shall look
solely to the assets of Sellers, and in certain express instances set forth
herein, of Closing Escrow Agent, for satisfaction of any liability of Sellers
or Closing Escrow Agent in respect hereof, and all documents, agreements,
understandings and arrangements relating hereto, and will not seek recourse or
commence any action against any of the trustees, partners, directors, officers
or shareholders of any of the Sellers or Closing Escrow Agent or any of their
personal assets for the performance or payment of any obligation of any of the
Sellers or Closing Escrow Agent hereunder or thereunder. The foregoing shall
also apply to any future documents, agreements, understandings, arrangements
and transactions hereunder between GRT and Sellers and/or Closing Escrow
Agent.
15. Except as otherwise set forth herein, the obligations of Sellers
hereunder shall be joint and several, and Closing Escrow Agent and/or GRT
and/or Purchaser may pursue any one or more Sellers without pursuing all
Sellers to obtain the remedies set forth herein; provided, however, that such
remedies shall not be cumulative. Except as otherwise set forth herein, the
obligations of GRT and Purchaser hereunder shall be joint and several, and
Closing Escrow Agent and/or Sellers may pursue either or both of GRT and
Purchaser to obtain the remedies set forth herein; provided, however, that
such remedies shall not be cumulative.
16. Interest earned on the Deposits shall be reported by the Escrow Agent as
interest income of the party which receives such interest. Sellers and
Purchaser shall provide Escrow Agent with evidence of their taxpayer
identification numbers on or before the Escrow Closing Date.
17. In order to comply with information reporting requirements of Section
6045(e) of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations thereunder, Purchaser and Sellers agree (i) to execute an IRS Form
1099-S Designation Agreement to designate Closing Escrow Agent as the party
who shall be responsible for reporting the sale of the Projects to the
Internal Revenue Service (the "IRS") on IRS Form 1099-S and (ii) to provide
the Closing Escrow Agent with the information necessary to complete Form 1099-
S. The Closing Escrow Agent shall provide all parties to this transaction with
copies of the IRS Forms 1099-S filed with the IRS and with any other documents
used to complete IRS Form 1099-S.
B-7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this instrument as
of the date set forth above.
PURCHASER:
Glimcher Realty Trust
/s/ Fred A. Zantello
By: _________________________________
Name:Fred A. Zantello
Title:Executive Vice President
PURCHASER:
Glimcher Properties Limited
Partnership
By: Glimcher Properties Corporation,
General Partner
/s/ Fred A. Zantello
By: _________________________________
Name:Fred A. Zantello
Title:Executive Vice President
SELLERS:
Retail Property Investors, Inc.
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:Chief Executive Officer and
President
PaineWebber Retail Property
Investments, Ltd.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:Chief Executive Officer and
President
PaineWebber Retail Property
Investments Joint Venture
By: Retail Property Investors, Inc.,
a Venturer thereof
/s/ Lawence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:Chief Executive Officer and
President
B-8
<PAGE>
By:PaineWebber Properties
Incorporated, a
Venturer thereof
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:Chief Executive Officer and
President
PaineWebber College Plaza, L.P.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:Chief Executive Officer and
President
PaineWebber Marion Towne, L.P.
By: Retail Property Investors, Inc.,
General Partner
/s/ Lawrence A. Cohen
By: _________________________________
Name:Lawrence A. Cohen
Title:Chief Executive Officer and
President
CLOSING ESCROW AGENT:
Lawyers Title Insurance Corporation
/s/ Kathryn Andriko
By: _________________________________
Name:Kathryn Andriko
Title:Commercial Transaction
Counsel
Date:6/27/96
B-9
<PAGE>
SCHEDULE A
INVESTMENT INSTRUCTIONS
A. In the Escrow Closing Cash Deposit, other proceeds from the draw on the
Escrow Closing Letters of Credit, Short Term Direct Treasury Obligations of
the United States of America with maturities not to exceed thirty (30) days;
provided, however, that maturities for any such thirty (30) day obligations
shall not extend beyond August 27, 1996 and shall thereafter have maturities
not to exceed twenty-four (24) hours; in each case for the benefit of Retail
Property Investors, Inc. (EIN# 04-3060233).
B. In the Cash Flow Deposit, Short Term Direct Treasury Obligations of the
United States of America with maturities not to exceed thirty (30) days;
provided, however, that maturities for any such thirty (30) day obligations
shall not extend beyond August 27, 1996 and shall thereafter have maturities
not to exceed twenty-four (24) hours; in each case for the benefit of Glimcher
Properties Limited Partnership (EIN# 31-1390925)
B-10
<PAGE>
SCHEDULE B-1
THE EQUITY DISTRIBUTION
1. In the event the Escrow Closing Letter of Credit Documents constitute the
Escrow Closing Deposit, unless the Purchaser or Purchaser has previously
deposited immediately available funds with the Closing Escrow Agent, then
Closing Escrow Agent promptly shall present the Escrow Closing Letter of
Credit Documents to the issuing bank and draw on the Escrow Closing Letter of
Credit.
2. The Closing Escrow Agent shall disburse to Sellers, from the Escrow
Closing Deposit, the amount set forth in Sellers' Closing Notice which amount
shall equal:
(a) that portion of the Escrowed Purchase Price not otherwise required to
(i) satisfy outstanding principal and interest on Prepaid Indebtedness (and
any prepayment penalty due thereon to the extent the Prepaid Indebtedness
would have been paid in full at the Escrow Closing) and (ii) pay Sellers'
closing costs under Section 13.6 of the Sale Agreement,
plus
(b) either (i) in the event that the Escrow Closing Letter of Credit
Documents constituted all or any portion of the Escrow Closing Deposit, the
Interest Factor on such portion and/or (ii) in the event that the Escrow
Closing Cash Deposit constituted the Escrow Closing Deposit or any portion
thereof (without duplication), the interest earned thereon;
less
(c) the Holdback Amount, if any, of which Closing Escrow Agent has been
notified in writing by Purchaser as of the date of Closing Escrow Agent's
receipt of Seller's Closing Notice;
less
(d) in the event the Escrow Closing Deposit is held in immediately
available funds as a result of Sellers' request that the Closing Escrow
Agent draw upon the Escrow Closing Letter of Credit, the amount by which
Purchaser's actual interest expense on such funds exceeds interest actually
earned on such funds; provided, however, that if funds are not immediately
available on the day on which Sellers' Closing Notice and the additional
deliveries required to be made under Section 5 (ii) of the Closing Escrow
Agreement for the Equity Distribution to be made are delivered to the
Closing Escrow Agent as a result of funds under the Escrow Closing Letter
of Credit not being immediately available, Sellers shall not be responsible
for the amount determined in this subsection (d) from such date through the
Closing Date; and
less
(e) the amount agreed to by Sellers and Purchaser in accordance with the
letter agreement dated as of the date hereof, representing the Cash Flow
for the period May 14, 1996 through the Escrow Closing Date if Sellers have
not otherwise deposited the Cash Flow for such period in the Cash Flow
Deposit or made such Cash Flow available to Purchaser.
B-11
<PAGE>
SCHEDULE B-2
1. Pay to the holders thereof all Prepaid Indebtedness in full (including,
without limitation any prepayment penalties thereon).
2. Record the Deeds and any other title documents and in connection therewith,
pay any and all transfer taxes and recording fees associated therewith and
provided for under Section 13.6 of the Sale Agreement.
3. Disburse to Purchaser the balance of the Escrow Closing Deposit.
4. Disburse to Purchaser the Cash Flow Deposit less any Sellers' Holdback
Amount.
5. Deliver the Purchaser's Escrow Closing Deliveries in accordance with
instructions given to the Closing Escrow Agent on the Escrow Closing Date.
6. Deliver the Sellers' Escrow Closing Deliveries in accordance with
instructions given to the Closing Escrow Agent on the Escrow Closing Date.
7. Notify Sellers and Purchaser of any Seller Holdback Amount or Holdback
Amount that Closing Escrow Agent continues to hold in escrow.
B-12
<PAGE>
SCHEDULE C
Termination After Escrow Closing. After the Escrow Closing, the Sale
Agreement and this Closing Escrow Agreement may only be terminated for any one
of the following reasons:
(a) By mutual written agreement of Purchaser and Sellers.
(b) By Purchaser or Sellers if any United States federal or state court
of competent jurisdiction or other governmental entity shall have issued an
order, decree or ruling or taken any other action, restraining or otherwise
prohibiting the delivery or recordation, as the case may be, of the
documents deposited in escrow at the Escrow Closing and/or the payment to
Sellers of the Escrowed Purchase Price and such order, decree, ruling or
other action shall have become final and non-appealable; provided that the
party seeking to terminate shall have used its reasonable efforts to appeal
such order, decree, ruling or other action, unless such order, decree,
ruling or other action was against or with respect to the non-terminating
party, in which event no such reasonable efforts shall be required.
(c) By Purchaser or Sellers if the Sale Agreement and the transactions
contemplated thereby shall have failed to receive the affirmative vote of
the stockholders of RPI holding two-thirds in interest of the shares of
RPI's common stock entitled to vote on such matter at a duly convened
annual meeting of stockholders or a special meeting of stockholders duly
convened for that purpose.
(d) By Purchaser if an event of bankruptcy, receivership or other similar
event of any Seller occurs.
(e) By Sellers if an event of bankruptcy, receivership or other similar
event of Purchaser occurs.
(f) By Purchaser or Sellers, if the Board of Directors of RPI (i) does
not recommend to the stockholders of RPI approval of the Sale Agreement and
the transactions contemplated thereby or withdraws any such recommendation
or (ii) recommends to RPI's stockholders approval or acceptance of an
Acquisition Proposal by a person other than Purchaser.
(g) By Purchaser or Sellers if no vote of the stockholders of RPI has
occurred on or before the Outside Date.
B-13
<PAGE>
SCHEDULE D
In the event that Purchaser is obligated to pay Sellers the amounts set
forth in subsections 11.2 or 12.4(d) of the Sale Agreement (in each case, the
"Purchaser's Liquidated Damage Amount"), Purchaser shall pay to Sellers an
amount equal to the lesser of (i) the Purchaser's Liquidated Damage Amount or
(ii) the sum of (A) the maximum amount that can be paid to Sellers without
causing Sellers to fail to meet the requirements of Sections 856(c)(2) and
856(c)(3) of the Code, determined as if the payment of such amount did not
constitute income described in Section 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I)
of the Code ("Qualifying Income"), as determined by Sellers' certified public
accountants, plus (B) in the event Sellers receive either (x) a letter from
Sellers' counsel indicating that Sellers have received a ruling from the
Internal Revenue Service (the "IRS") described in clauses (ii) or (iii) of the
following paragraph, or (y) an opinion from Sellers' counsel as described in
clause (iv) of the following paragraph, an amount equal to the Purchaser's
Liquidated Damage Amount less the amount payable under clause (A) above and
the balance (the "Balance") shall be deposited in escrow in accordance with
the next succeeding sentence. Purchaser shall deposit into escrow an amount in
immediately available federal funds equal to the Balance, with an escrow agent
selected by Sellers (reasonably acceptable to Purchaser) and on such terms
(subject to the terms of the following paragraph) as shall be agreed upon by
Sellers and the escrow agent. All payments by Purchaser pursuant to this
paragraph shall be made by wire transfer or bank check within three (3)
Business Days after demand by Sellers. Payment to the Sellers of the
Purchaser's Liquidated Damage Amount or deposit into escrow of an amount equal
to the Purchaser's Liquidated Damage Amount, as the case may be, shall satisfy
Purchaser's obligations in full under the terms and conditions of this
Schedule D.
The escrow agreement shall provide that the amount in escrow or any portion
thereof shall not be released to Sellers unless the escrow agent receives any
one or combination of the following: (i) a letter from Sellers' certified
public accountants indicating the maximum amount that can be paid by the
escrow agent to Sellers without causing Sellers to fail to meet the
requirements of Sections 856(c)(2) and 856(c)(3) of the Code, determined as if
the payment of such amount did not constitute Qualifying Income, or a
subsequent letter revising such amount, in which case the escrow agent shall
release such amount to Sellers, (ii) a letter from Sellers' counsel indicating
that Sellers received a ruling from the IRS holding that the receipt by
Sellers of the Purchaser's Liquidated Damage Amount would either constitute
Qualifying Income or would be excluded from gross income within the meaning of
Sections 856(c)(2) and 856(c)(3) of the Code, in which case the escrow agent
shall release the remainder of the Purchaser's Liquidated Damage Amount to
Sellers, (iii) a letter from Sellers' counsel indicating that Sellers received
a ruling from the IRS holding that the receipt by Sellers of the remaining
balance of the Purchaser's Liquidated Damage Amount following the receipt of
and pursuant to such ruling would not be deemed constructively received prior
thereto or (iv) an opinion of Sellers' legal counsel to the effect that the
receipt by Sellers of the Purchaser's Liquidated Damage Amount would either
constitute Qualifying Income or would be excluded from gross income within the
meaning of Sections 856(c)(2) and 856(c)(3) of the Code, in which case the
escrow agent shall release the remainder of the Purchaser's Liquidated Damage
Amount to Sellers. Purchaser agree to amend this paragraph and the immediately
preceding paragraph at the request of Sellers in order (x) to maximize the
portion of the Purchaser's Liquidated Damage Amount that may be distributed to
Sellers hereunder without causing Sellers to fail to meet the requirements of
Sections 856(c)(2) and 856(c)(3) of the Code or (y) to improve Sellers'
chances of securing a favorable ruling described in this Schedule D, provided
that no such amendment may result in any additional cost or expense to
Purchaser. The escrow agreement shall also provide that any portion of the
Purchaser's Liquidated Damage Amount then held in escrow after the expiration
of five (5) years from the date of such escrow shall be released by the escrow
agent to Purchaser. Purchaser shall not be a party (other than a contingent
beneficiary) to such escrow agreement and shall not bear any cost of or have
liability resulting from the escrow agreement.
B-14
<PAGE>
ANNEX C
RETAIL PROPERTY INVESTORS, INC.
PLAN OF LIQUIDATION AND DISSOLUTION
1. Scope and Adoption of the Plan. This Plan of Liquidation and Dissolution
(the "Plan") provides for the complete and voluntary liquidation and
dissolution of Retail Property Investors, Inc., a Virginia corporation (the
"Company"). The Plan has been duly authorized and approved by the Board of
Directors of the Company (the "Board") as being expedient and in the best
interests of the Company and the holders of its capital stock (the
"Shareholders"). The Board has directed that this Plan be submitted to the
Shareholders at a duly convened meeting of Shareholders, has recommended
approval of the Plan and has authorized the distribution of a proxy statement
in connection with the solicitation of proxies for such a meeting (the "Proxy
Statement"). Upon such adoption, the Company shall completely liquidate in
accordance with the Virginia Stock Corporation Act (the "Act"), as follows:
2. Effective Date. The effective date of this Plan (the "Effective Date")
shall be the date on which it is approved and adopted by the Shareholders.
3. Filing of Articles of Dissolution. As soon as practicable after the
Effective Date, the Company shall file Articles of Dissolution with the State
Corporation Commission of Virginia (the "Commission"). On the date that a
Certificate of Dissolution is issued by the Commission (the "Dissolution
Date"), the dissolution of the Company shall become effective and the Company
shall be dissolved; provided, however, that the Company shall continue to
exist to the extent necessary to wind up and liquidate its business and
affairs, as provided herein.
4. Continuance of Corporate Existence After the Dissolution Date. The
Company shall continue to exist after the Dissolution Date for the purposes of
winding up and liquidating its business and affairs, including, without
limitation, collecting its assets, disposing of its properties that will not
be distributed in kind to the Shareholders, discharging its liabilities,
distributing its remaining assets and prosecuting and defending suits,
actions, proceedings and claims by or against it; provided that all or
substantially all of the net proceeds of the Sale must be distributed to the
Shareholders within the Liquidation Period (as defined below).
5. Federal Taxes. Within thirty (30) days of the Effective Date, unless the
Board, within its sole discretion, otherwise determines, the Company shall
file IRS Form 966 and a certified copy of the Shareholders' vote authorizing
this Plan with the appropriate office of the Internal Revenue Service.
6. Sale of Assets. Within the period beginning on the Effective Date and
ending on December 31, 1996 (the "Liquidation Period"), the Company shall have
the authority to engage in such transactions, to execute such documents and to
make such filings as may be appropriate or desirable for the purpose of
effecting the complete liquidation and dissolution of the Company, including,
without limitation, the sale of substantially all of the Company's assets (the
"Sale") to Glimcher Realty Trust, a Maryland real estate investment trust
("Glimcher"), pursuant to the Purchase and Sale Agreement, dated March 11,
1996, by and among Glimcher, the Company, PaineWebber Retail Property
Investments, Ltd., PaineWebber Retail Property Investments Joint Venture,
PaineWebber College Plaza, L.P. and PaineWebber Marion Towne, L.P. as amended
from time to time (the "Sale Agreement"). Without limiting the foregoing, the
Board and such officers, agents, attorneys or other employees of the Company
as the Board shall authorize, shall have the power and authority to consummate
the Sale and other transactions described in the Proxy Statement, and to sell,
exchange or otherwise dispose of all or any part of its other assets, in one
or more transactions, to such persons or entities and upon such terms and
conditions as the Board (or such officers, agents, attorneys or other
employees of the Company as the Board shall authorize), shall determine with
no further approvals by the Shareholders except as required by law.
<PAGE>
7. Reserve for Liabilities. Within the Liquidation Period, the Board shall
be entitled, from time to time and within its sole discretion, to seek to
cause the Company to pay, or make adequate provision for the payment of, all
known liabilities of the Company (including the expenses of the Sale)
remaining after the Sale, and to set aside from any assets or funds of the
Company, including, without limitation, the proceeds of the Sale, such
additional amounts as the Board determines in its sole discretion to be
reasonably necessary for the payment of unascertained or contingent
liabilities of the Company (including claims, if any, brought by Glimcher).
8. Partial Liquidating Distribution. As soon as practicable after the
consummation of the Sale, and at such time as the Board shall determine in its
sole discretion that adequate provision has been made for the payment of all
known, contingent and unascertained liabilities of the Company, but in any
event within the Liquidation Period, the Board may seek to cause the Company
to make a pro rata partial liquidating distribution to Shareholders of record
on a date to be determined by the Board. The amount and timing of this
distribution shall be within the sole discretion of the Board, and the Board
shall not be required to make, or in any manner be liable for not making, any
partial liquidating distribution to Shareholders.
9. Final Liquidating Distribution. Except as otherwise provided below, the
Board, at such time as it shall determine in its sole discretion that all
known, contingent and unascertained liabilities of the Company, including
costs and expenses of liquidation, have been paid or provided for, but in any
event within the Liquidation Period, shall seek to cause the Company to
distribute pro rata any funds or other property then held by, or for the
account of, the Company, including, without limitation, proceeds of the Sale
and other dispositions, to Shareholders of record on a date to be determined
by the Board.
10. Liquidating Trust. In the event that it should not be possible or
practical for the Company to make the final liquidating distribution to
Shareholders within the Liquidation Period, or for any other reason the Board
may deem in its sole discretion to be appropriate, the Company may establish a
liquidating trust (the "Liquidating Trust") for the benefit of the
Shareholders, appoint a trustee as specified in Exhibit A attached hereto (the
"Liquidating Trustee") and establish its powers and responsibilities in a
trust agreement substantially in the form of Exhibit A attached hereto (the
"Trust Agreement"), and transfer to the Liquidating Trust all or part of the
assets of the Company, subject to any of its liabilities if the Board so
determines.
In connection with such a transfer to the Liquidating Trust, the Board shall
report to the Shareholders that such transfer has occurred and the terms and
conditions thereof. All rights and entitlements of the Shareholders shall
thereafter be determined in accordance with the Trust Agreement.
11. Unlocated Shareholders. Any cash or other property held by or for the
account of the Company or by the Liquidating Trustee for distribution to
Shareholders who can not be located shall, at the time of the final
liquidating distribution, be transferred by the Company or the Liquidating
Trustee, as the case may be, to a custodian, state official, trustee, or other
person authorized by law to receive distributions for the benefit of such
unlocated Shareholders, in such manner as may be determined by the Board or
the Liquidating Trustee, as the case may be. Such cash or other property shall
thereafter be held by such person solely for the benefit of and ultimate
distribution, without interest thereon, to such former Shareholder or
Shareholders entitled to receive such assets, who shall constitute the sole
equitable owners thereof, subject only to such escheat or other laws as may be
applicable to unclaimed funds or property, and thereupon all responsibilities
and liabilities of the Company, the directors of the Company or the
Liquidating Trustee, as the case may be, with respect thereto shall be
satisfied and extinguished.
12. Filing of Articles of Termination of Corporate Existence. When the
Company has distributed all of its assets to its creditors and Shareholders
(including distributions, if any, made to a Liquidating Trust) and voluntary
dissolution proceedings have not been revoked, the Company shall close the
stock transfer books of the Company and file Articles of Termination of
Corporate Existence with the Commission. Upon the issuance
C-2
<PAGE>
of a Certificate of Termination of Corporate Existence by the Commission, the
existence of the Company shall cease, except for the limited purposes
described in Section 13.1-750 of the Act, and the directors of the Company
shall be discharged of and released from all further powers, authorities,
duties, responsibilities, and liabilities as directors.
13. Stock Certificates. Upon request, the Shareholders of the Company shall
surrender to the Company all of their certificates for the Company's capital
stock for cancellation. The Company may delay distributions to the
Shareholders who have not surrendered their certificates or have not provided
acceptable documentation and indemnities for lost certificates. In the event
that the Company transfers its assets and liabilities to a Liquidating Trust
pursuant to Paragraph 10, at the time of such transfer, the Liquidating
Trustee will notify the Shareholders of their respective percentage beneficial
interests in the assets held by the Liquidating Trust.
14. REIT Qualification. The Board shall take such steps as may be necessary
to cause the Company to maintain its status as a real estate investment trust
for federal income tax purposes until the Company is terminated in accordance
with this Plan.
15. Amendment or Revocation of Plan. The Board may, without any further
Shareholder approval, modify, amend, revoke or abandon the Plan, or delay or
revoke the dissolution of the Company, at any time or times if it determines
that such action would be in the best interests of the Company or the
Shareholders.
16. Termination of Plan. This Plan shall terminate if the Sale Agreement
shall have been terminated; provided, however, that such termination shall not
affect any contract entered into or other action taken pursuant to this Plan
prior to such termination.
C-3
<PAGE>
ANNEX D
LEHMAN BROTHERS
August 23, 1996
Board of Directors
Retail Property Investors, Inc.
1285 Avenue of the Americas
New York, New York 10019
Members of the Board:
We understand that Glimcher Realty Trust ("Glimcher") is considering the
acquisition of 22 retail shopping centers (the "Properties") currently owned
directly or indirectly by Retail Property Investors, Inc. (the "Company") for
$197,000,000 in cash (the "Proposed Transaction"). We further understand that
pursuant to the Proposed Transaction, the Company will retain any cash and
cash equivalents it currently holds and that Glimcher will acquire the
properties subject to certain outstanding indebtedness and will pay the amount
of any fees or penalties associated with the prepayment of certain other
indebtedness currently outstanding. The terms and conditions of the Proposed
Transaction are set forth in more detail in a Purchase and Sale Agreement
dated March 11, 1996 between the Company and Glimcher, as amended by certain
letter agreements dated as of May 12, 1996, May 14, 1996, May 30, 1996, June
6, 1996, June 13, 1996, June 19, 1996 and June 27, 1996, and the Exhibits and
Schedules attached thereto (as amended, the "Agreement").
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to
the Company of the consideration to be received by the Company pursuant to the
Proposed Transaction. We have not been requested to opine as to, and our
opinion does not in any manner address, the underlying business decision to
sell the Properties or the allocation or use of proceeds from the sale of the
Properties.
In arriving at our opinion, we reviewed and analyzed:
(i) the Agreement and the specific financial terms of the Proposed
Transaction;
(ii) publicly-available information concerning the Company, including
the Company's November 30, 1995, February 29, 1996 and May 31, 1996
Form 10-Q's and August 31, 1995 Form 10-K;
(iii) financial, operating and market information with respect to the
business, operations and prospects of the Properties furnished to us
by the Company and by PaineWebber Realty Advisors, L.P. (the
"Advisor");
(iv) an appraisal of the Properties as of December 31, 1994 performed by
Arthur Andersen LLP, Real Estate Services Group;
(v) certain market information obtained by us from independent sources
regarding conditions and trends in the retail property real estate
market generally as well as the retailing industry;
(vi) a comparison of the financial terms of the Proposed Transaction
with the financial terms of other retail property sale transactions
that we deemed relevant; and
(vii) the results of our efforts to solicit proposals and offers from
third parties with respect to a purchase of the Properties and the
amount and nature of the offers received from other potential
acquirers in the bidding process. Under the terms of the Agreement,
we were prohibited from soliciting the submission of any other
acquisition proposal following execution of the Agreement, and
therefore we did not re-contact any other potential acquirors.
In addition, we have had discussions with the management of the Company and
the Advisor concerning the business, operations, financial condition and
prospects of the Properties and undertook such other studies, analyses and
investigations as we deemed appropriate.
D-1
<PAGE>
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information
and have further relied upon the assurances of management of the Company and
the Advisor that they are not aware of any facts that would make such
information inaccurate or misleading. In arriving at our opinion, we have not
conducted a physical inspection of the Properties. Our opinion is necessarily
based upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
received by the Company pursuant to the Proposed Transaction is fair to the
Company.
We have acted as financial advisor to the Company in connection with the
sale of the Properties and will receive a fee for our services. In addition,
the Company has agreed to indemnify us for certain liabilities that might
arise out of the rendering of this opinion.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any shareholder of the Company as
to how such shareholder should vote with respect to the Proposed Transaction.
Very truly yours,
Lehman Brothers
D-2
<PAGE>
ANNEX E
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(AS AMENDED)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR FISCAL YEAR ENDED: AUGUST 31, 1995
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-18247
RETAIL PROPERTY INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 04-3060233
(STATE OF ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1285 AVENUE OF THE AMERICAS, NEW 10019
YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(212) 713-4264
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
NONE REGISTERED
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
SHARES OF COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X].
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Shares of common stock outstanding as of August 31, 1995: 5,010,050. The
aggregate sales price of the shares sold was $100,201,000. This does not
reflect market value. There is no current market for these shares.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS FORM 10-K REFERENCE
ORIGINAL OFFERING PROSPECTUS OF PART IV
REGISTRANT DATED OCTOBER 6, 1989, AS
SUPPLEMENTED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
1995 FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
------ -----------
<C> <S> <C>
Item 1 Business................................................ I-1
Item 2 Properties.............................................. I-5
Item 3 Legal Proceedings....................................... I-8
Item 4 Submission of Matters to a Vote of Security Holders..... I-8
<CAPTION>
PART II
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<C> <S> <C>
Item 5 Market for the Registrant's Shares and Related
Stockholder Matters.................................... II-1
Item 6 Selected Financial Data................................. II-1
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... II-2
Item 8 Financial Statements and Supplementary Data............. II-8
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... II-8
<CAPTION>
PART
III
----
<C> <S> <C>
Item 10 Directors and Executive Officers of the Registrant...... III-1
Item 11 Executive Compensation.................................. III-3
Item 12 Security Ownership of Certain Beneficial Owners and
Management............................................. III-4
Item 13 Certain Relationships and Related Transactions.......... III-4
<CAPTION>
PART IV
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<C> <S> <C>
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K............................................... IV-1
Signatures...................................................... IV-2
Index to Exhibits............................................... IV-3
Financial Statements and Supplementary Data..................... F-1 to F-27
</TABLE>
E-2
<PAGE>
PART I
ITEM 1. BUSINESS
Retail Property Investors, Inc. (the "Company"), formerly PaineWebber Retail
Property Investments, Inc., is a corporation organized on August 9, 1989 in
the Commonwealth of Virginia for the purpose of investing in a portfolio of
retail shopping centers located throughout the midwestern, southern and
southeastern United States. The Company has elected and intends to continue to
qualify to be taxed as a Real Estate Investment Trust ("REIT") under the
Internal Revenue Code of 1986, as amended, for each taxable year of
operations. As a REIT, the Company is allowed a tax deduction for the amount
of dividends paid to its shareholders, thereby effectively subjecting the
distributed net income of the Company to taxation at the shareholder level
only. On October 23, 1989, the Company commenced an initial public offering of
up to 10,000,000 shares of its Common Stock (the "Shares"), priced at $10 per
Share, pursuant to a Registration Statement filed on Form S-11 under the
Securities Act of 1933 (Registration Statement No. 33-29755). The initial
offering closed during the second quarter of fiscal 1991, after 10,020,100
shares had been sold (including the sale of 20,100 shares to an affiliate,
PaineWebber Group, Inc.), representing gross proceeds of $100,201,000. The
Company was originally organized as a finite-life, non-traded REIT that had a
stated investment policy of investing exclusively in shopping centers in which
Wal-Mart Stores Inc. ("Wal-Mart") was or would be an anchor tenant. The
Company invested the net proceeds of the initial public offering in 22 Wal-
Mart anchored shopping centers, as discussed in more detail below. During
fiscal 1993, the Company's Board of Directors proposed three amendments to the
Company's Articles of Incorporation and two resolutions, all of which were
approved at a Special Meeting of Shareholders which was held on September 7,
1993. The amendments to the Articles of Incorporation changed the Company from
a "finite-life" corporation to an "infinite-life" corporation, increased the
number of authorized shares of the Company's Common Stock from 12,500,000 to
25,000,000 and changed the Company's name. The resolutions approved a 1 for 2
Reverse Stock Split of the Company's outstanding shares of Common Stock and
affirmed the Company's investment authority under the Articles of
Incorporation and Bylaws to invest in property other than shopping centers
anchored by Wal-Mart stores.
The amendments to the Company's Articles of Incorporation and the
resolutions which were approved in September 1993 were proposed as part of a
plan to reposition the Company in response to changes in the market for
publicly held REITs at that time. As reported by the National Association of
Real Estate Investment Trusts, Inc., capital formation by REITs in 1993 was
the greatest in the industry's 33-year history. The increased activity
represented a potentially attractive source of capital for the Company to
refinance its outstanding mortgage indebtedness and to take advantage of
future growth opportunities in the improving real estate market which existed
at that time. During 1993, the Board of Directors determined that in order to
best position the Company to access the public capital markets, it would be in
the Company's best interests to convert from an externally advised REIT to a
self-administered REIT. The Company also investigated the possibility of
acquiring a third-party property management and leasing company which would
enable property management activities to be conducted internally. In
conjunction with these initiatives, the Board of Directors presented several
proposals for consideration at the Annual Meeting of Shareholders which was
held on November 4, 1994. Approval of these proposals, which involved further
amendments to the Company's Articles of Incorporation and Bylaws, was required
in order to enable the Company to proceed with an equity offering of its
common stock, to pursue listing of the Company's common stock on a national
securities exchange and to permit a conversion to self-administration. All of
the proposals were approved at the Annual Meeting by the required affirmative
vote of the shareholders.
As discussed further in Item 7, due to changes in interest rate levels and
other market factors which adversely affected the market for new public REIT
equity offerings during the latter half of calendar 1994 and the first half of
calendar 1995, the Company has not completed the final phase of its
restructuring plans. In view of the existing capital market conditions, the
Company's Board of Directors engaged the investment banking firm of Lehman
Brothers Inc. ("Lehman") in June of 1995 to act as its financial adviser and
to provide financial and strategic advisory services to the Board of Directors
regarding options available to the Company. The
E-3
<PAGE>
strategic options considered included, among other things, a recapitalization
of the Company, sales of the Company's assets and the exploration of merger
opportunities. In November 1995, Lehman presented a summary to the Board of
the proposals received to date. All of the proposals were indications of
interest from third parties to buy the Company's real estate assets. At such
time, the Board concluded that it would be in the shareholders' best interests
to immediately initiate the process of soliciting firm offers to purchase the
Company's portfolio of operating investment properties. The Directors have
instructed Lehman to work with the various third parties that have expressed
an interest in such a transaction to obtain transaction terms most favorable
to the Company and its shareholders. At the conclusion of this process, which
will include all required buyer's due diligence, the Directors expect to
submit and recommend for approval by the shareholders what, in their judgment,
is the most favorable proposal. Pursuant to the Company's Articles of
Incorporation, the sale of all, or substantially all, of the Company's real
estate assets would require shareholder approval. Because the sale of the
Company's real estate assets remains contingent upon, among other things,
satisfactory completion of buyers' due diligence, negotiation of a definitive
sales agreement and the required shareholder approval of such a transaction,
there are no assurances that a portfolio sale transaction will be completed.
As of August 31, 1995, the Company owned 22 retail shopping centers located
in nine central and eastern states aggregating approximately 4.4 million
square feet of gross leasable area. All of the properties acquired to date are
anchored by Wal-Mart stores. The typical property profile for the Company
portfolio is a community shopping center of roughly 180,000 square feet (they
range in size from 93,304 to 490,970 square feet) anchored by Wal-Mart and a
major grocery chain store. The Wal-Mart anchors range in size from 41,000 to
149,000 square feet. The properties generally include designated expansion
areas or available land parcels for expansion. At many of the centers, in
addition to the Wal-Mart and grocery anchors, there are also national credit
tenants such as Sears, JC Penney, Goody's and Lowe's, among others. All
centers contain a moderate amount of shop space which is leased to both credit
and non-credit tenants. Of the gross leasable space at the Company's
properties, 49% is leased to Wal-Mart and its affiliates and 40% is leased to
other national and regional credit tenants. The Company's properties are
generally located on major state and federal highways, with many at
intersections of primary thoroughfares. The majority of the properties are
located in county seat markets with a few located in smaller metropolitan
areas or at the fringe of larger metropolitan areas.
Shopping center leases typically provide for a minimum base rental per
square foot which the tenant is obligated to pay in all cases ("Minimum Base
Rent"), plus additional rentals equal to a negotiated percentage of gross
receipts or gross sales above a stated sales volume ("Percentage Rentals").
Small tenants typically pay from 3% to 6% in Percentage Rentals. Anchor
tenants or other significant tenants often pay lower Percentage Rentals, and
sometimes no Percentage Rentals. The typical Wal-Mart department store lease
provides that no Percentage Rentals will be paid during the first seven years.
Thereafter, Percentage Rentals will equal only .5% to .75% of gross receipts
in excess of the gross receipts during the seventh year of the lease, up to a
maximum of $1.00 per square foot. The Company has not realized a significant
amount of income from Percentage Rentals to date. In addition to rentals,
tenants are ordinarily required to pay their pro rata share of real estate
taxes, certain insurance premiums, and other common area maintenance costs.
However, the Wal-Mart leases generally contain a limit on Wal-Mart's share of
such costs. Certain other costs are usually not paid by the tenants. For
example, the landlord is usually responsible for maintaining roofs, exterior
walls, foundations and parking areas to some extent.
E-4
<PAGE>
As of August 31, 1995, the Company owned the investment properties referred
to below:
<TABLE>
<CAPTION>
PROPERTY NAME
AND LOCATION (1) TYPE OF PROPERTY DATE OF INVESTMENT SIZE
- ---------------- ---------------- ------------------ ---------------
<S> <C> <C> <C>
Village Plaza............. Shopping Center 8/16/89 490,970 Sq. Ft.
Augusta, GA
Logan Place............... Shopping Center 1/18/90 114,748 Sq. Ft.
Russellville, KY
Piedmont Plaza............ Shopping Center 1/19/90 249,052 Sq. Ft.
Greenwood, SC
Artesian Square........... Shopping Center 1/30/90 177,428 Sq. Ft.
Martinsville, IN
Sycamore Square........... Shopping Center 4/26/90 93,304 Sq. Ft.
Ashland City, TN
Audubon Village........... Shopping Center 5/22/90 124,592 Sq. Ft.
Henderson, KY
Crossroads Centre......... Shopping Center 6/15/90 242,430 Sq. Ft.
Knoxville, TN
East Pointe Plaza......... Shopping Center 8/7/90 238,722 Sq. Ft.
Columbia, SC
Cross Creek Plaza......... Shopping Center 12/19/90 237,801 Sq. Ft.
Beaufort, SC
Cypress Bay Plaza......... Shopping Center 12/19/90 258,245 Sq. Ft.
Morehead City, NC
Walterboro Plaza.......... Shopping Center 12/19/90 132,130 Sq. Ft.
Walterboro, SC
Lexington Parkway Plaza... Shopping Center 3/5/91 210,190 Sq. Ft.
Lexington, NC
Roane County Plaza........ Shopping Center 3/5/91 160,198 Sq. Ft.
Rockwood, TN
Franklin Square........... Shopping Center 6/21/91 237,062 Sq. Ft.
Spartanburg, SC
Barren River Plaza........ Shopping Center 8/9/91 234,795 Sq. Ft.
Glasgow, KY
Cumberland Crossing....... Shopping Center 8/9/91 144,734 Sq. Ft.
LaFollette, TN
Applewood Village......... Shopping Center 10/25/91 140,039 Sq. Ft.
Fremont, OH
Aviation Plaza............ Shopping Center 8/31/92 174,715 Sq. Ft.
Osh Kosh, WI
Crossing Meadows.......... Shopping Center 8/31/92 233,984 Sq. Ft.
Onalaska, WI
Southside Plaza........... Shopping Center 10/21/92 172,293 Sq. Ft.
Sanford, NC
College Plaza............. Shopping Center 4/29/93 178,431 Sq. Ft.
Bluefield, VA
Marion Towne Center....... Shopping Center 6/23/93 156,558 Sq. Ft.
Marion, SC
</TABLE>
- --------
(1) See Notes to the Financial Statements filed with this Annual Report for a
description of the mortgage debt encumbering these real estate
investments.
E-5
<PAGE>
Wal-Mart remains one of the leading and fastest growing discount mass
merchandisers in the United States. As a principal anchor tenant, Wal-Mart
frequently participates with the developer during the site planning stage and
may influence the developer's decisions regarding site development,
architectural design and other aspects of retail center development. An anchor
tenant usually commits to a long-term lease with an initial term of 10 to 20
years or more with a succession of renewal options. All of the Company's Wal-
Mart leases have an initial term of 20 years. Anchor tenants frequently pay
lower rents than non-anchor tenants; however, commitments of anchor tenants
who are creditworthy and have proven track records may enable a developer to
obtain financing and reduce the speculative risk of the development. The
presence of a stable anchor tenant also lends economic stability to the
shopping center because of its long-term lease. It has been demonstrated that
the presence of a strong anchor tenant will attract more customers, which in
turn may support the business of other tenants. As discussed further in Item
7, Wal-Mart has begun building "supercenters", which contain up to 200,000
square feet and include a grocery store component in addition to a Wal-Mart
discount store. This practice reflects a broad trend among retailers to
maximize selling areas and reduce costs by constructing supercenters or by
emphasizing larger properties and closing smaller, marginal stores. In
response to these changes, which occurred during the Company's initial
acquisition phase, management became particularly selective in its purchase of
existing centers in an effort to address Wal-Mart's changing needs by
generally purchasing centers with larger Wal-Mart stores which also had future
expansion capabilities. Despite such efforts to alter the Company's
acquisition criteria to accommodate Wal-Mart's strategic growth plans, there
are no assurances that the Company will be able to satisfy Wal-Mart's space
and location preferences in any markets in which Wal-Mart determines that
expansion of its existing facilities is desirable. In the event Wal-Mart were
to vacate any of the Company's properties, it would remain obligated to pay
rent and its share of operating expenses through the remaining terms of the
leases. However, unless a suitable replacement anchor tenant could be located,
such a relocation of a Wal-Mart store would have a long-term negative impact
on renewals by other tenants and on the long-term performance of the affected
shopping center. Certain tenants of the Company's properties have co-tenancy
clauses in their lease agreements which stipulate that if the Wal-Mart anchor
space is vacant these tenants are entitled to pay a reduced amount of rent
and, in some cases, retain the right to terminate their lease agreements.
Management expects that there will be Wal-Mart relocation vacancies at certain
of its properties as a result of this trend toward supercenter construction.
Wal-Mart's business, as with most retail sales, is seasonal to an extent, with
the highest volume of sales occurring between the months of November and
January and the lowest volume of sales occurring between the months of
February and April. The Wal-Mart discount stores compete with other
department, discount department, grocery, drug variety and specialty stores,
many of which are national or regional chains. The Company competes for retail
tenants with other properties of similar type in the markets in which its
shopping centers are located, generally on the basis of location, rental
rates, tenant improvement allowances, and tenant mix.
The Company is engaged solely in the business of real estate investment.
Therefore, a presentation of information about industry segments is not
applicable.
There currently are four directors of the Company, three of whom are not
affiliated with the Advisor. The Directors are subject to removal by the vote
of the holders of a majority of the outstanding Shares. The Directors are
responsible for the general policies of the Company, but they are not required
to conduct personally the business of the Company. Subject to the supervision
of the Company's Board of Directors, the business of the Company has been
managed to date by PaineWebber Realty Advisors, L.P. (the "Advisor"), a
limited partnership composed of PaineWebber Properties Incorporated ("PWPI"),
a Delaware corporation, and Properties Associates, L.P., a Virginia limited
partnership. Both partners of the Advisor are affiliates of PaineWebber
Incorporated ("PWI"). PWI is a subsidiary of PaineWebber Group Inc.
("PaineWebber").
The terms of transactions between the Company and the Advisor and its
affiliates are set forth in Items 11 and 13 below to which reference is hereby
made for a description of such terms and transactions.
E-6
<PAGE>
ITEM 2. PROPERTIES
The Company owns directly, or through a partnership interest, the operating
properties referred to under Item 1 above to which reference is made for the
description, name and location of such properties.
Occupancy figures for each fiscal quarter during 1995, along with an average
for the year, are presented below for each property:
<TABLE>
<CAPTION>
PERCENT LEASED AT
--------------------------------------------
FISCAL 1995
11/30/94 2/28/95 5/31/95 8/31/95 AVERAGE
-------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Village Plaza...................... 100% 100% 100% 100% 100%
Logan Place........................ 97% 97% 98% 98% 98%
Piedmont Plaza..................... 100% 100% 100% 100% 100%
Artesian Square.................... 100% 100% 100% 100% 100%
Sycamore Square.................... 93% 87% 87% 89% 89%
Audubon Village.................... 93% 94% 94% 94% 94%
Crossroads Centre.................. 100% 100% 99% 100% 100%
East Pointe Plaza.................. 82% 82% 82% 82% 82%
Cross Creek Plaza.................. 98% 98% 98% 98% 98%
Cypress Bay Plaza.................. 98% 98% 98% 98% 98%
Walterboro Plaza................... 95% 95% 95% 95% 95%
Lexington Parkway Plaza............ 96% 96% 88% 88% 92%
Roane County Plaza................. 100% 100% 100% 100% 100%
Franklin Square.................... 100% 100% 100% 100% 100%
Barren River Plaza................. 100% 100% 100% 100% 100%
Cumberland Crossing................ 100% 100% 100% 100% 100%
Applewood Village.................. 100% 100% 100% 100% 100%
Aviation Plaza..................... 99% 99% 99% 99% 99%
Crossing Meadows................... 100% 100% 100% 100% 100%
Southside Plaza.................... 100% 100% 100% 100% 100%
College Plaza...................... 100% 100% 100% 100% 100%
Marion Towne Center................ 100% 100% 100% 100% 100%
</TABLE>
The Village Plaza shopping center, located in Augusta, Georgia, is the
Company's largest property, representing 11% of the Company's total assets as
of August 31, 1995 and 11% of the Company's total revenues for the year ended
August 31, 1995. The Village Plaza property is encumbered by a mortgage loan
with a principal balance of $18,900,000 as of August 31, 1995. The loan bears
interest at 8% (after the effect a loan buydown fee paid at inception) and
requires monthly payments of interest-only through November 1996. Thereafter,
monthly payments of principal and interest totalling $138,682 are due through
maturity on November 1, 1999. At maturity, a balloon payment of $18,401,949
would be due. For calendar year 1995, the Company owed real estate taxes with
respect to Village Plaza at a rate of $27.22 per $1,000 of assessed value.
Such taxes amounted to $101,339.
Certain information concerning the Federal income tax basis of the Village
Plaza property and the methods of depreciation used for Federal income tax
purposes is summarized below (in thousands):
<TABLE>
<CAPTION>
FEDERAL INCOME
TAX BASIS METHOD OF
PROPERTY COMPONENT AS OF 9/30/95 DEPRECIATION USED
- ------------------ -------------- ---------------------
<S> <C> <C>
Land....................................... $ 6,307 N/A
Land improvements.......................... 3,556 20 year straight-line
Building................................... 14,321 40 year straight-line
Personal property.......................... 971 12 year straight-line
Tenant improvements........................ 40 12 year straight-line
-------
$25,195
=======
</TABLE>
E-7
<PAGE>
As of August 31, 1995, three tenants leased greater than 10% of the leasable
square footage at Village Plaza. Certain information regarding these tenants
and their leases is summarized below:
<TABLE>
<CAPTION>
ANNUAL LEASE
SQUARE FEET BASE EXPIRATION RENEWAL
TENANT MERCHANDISE OCCUPIED RENT DATE OPTIONS
------ ------------------------ ----------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Wal-Mart................ Discount Department 149,211 $380,937 10/28/08 5 successive
Store 5-year
options
Sam's Club.............. Member Warehouse 106,728 $531,505 7/11/08 5 successive
(Wal-Mart affiliate) 5-year
options
Home Quarters........... Home Improvements 95,971 $434,874 1/31/09 4 successive
5-year
options
</TABLE>
Scheduled lease expirations at Village Plaza over the next ten years are
summarized as follows:
<TABLE>
<CAPTION>
SQUARE ANNUAL
NUMBER FOOTAGE OF BASE RENT OF PERCENT
OF LEASES EXPIRING EXPIRING OF TOTAL
YEAR ENDED AUGUST 31 EXPIRING LEASES LEASES BASE RENT
- -------------------- --------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
1996................................ 3 5,600 $ 69,700 3%
1997................................ 1 1,600 $ 21,600 1%
1998................................ 5 15,500 $175,699 7%
1999................................ 3 48,960 $355,236 14%
2000................................ 4 8,400 $ 96,000 4%
2001................................ -- -- -- --
2002................................ 1 23,000 $184,000 7%
2003................................ -- -- -- --
2004................................ -- -- -- --
2005................................ -- -- -- --
</TABLE>
The average leased percentage and effective rent per square foot for Village
Plaza for each of the past five fiscal years is summarized as follows:
<TABLE>
<CAPTION>
FISCAL 1991 FISCAL 1992 FISCAL 1993 FISCAL 1994 FISCAL 1995
- ----------------- ---------------- ---------------- ---------------- ----------------
EFFECTIVE EFFECTIVE EFFECTIVE EFFECTIVE EFFECTIVE
RENT RENT RENT RENT RENT
PER PER PER PER PER
AVERAGE % SQUARE AVERAGE % SQUARE AVERAGE % SQUARE AVERAGE % SQUARE AVERAGE % SQUARE
LEASED FOOT * LEASED FOOT * LEASED FOOT * LEASED FOOT* LEASED FOOT*
- --------- ------ --------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
94% $5.99 98% $5.61 100% $5.90 100% $5.95 100% $5.98
</TABLE>
- --------
* Effective rent per square foot is calculated as total annualized base and
percentage rent divided by average occupied square feet. The amount of
occupied square feet used for this calculation excludes two expansions of
the Wal-Mart anchor store at Village Plaza because the expansions are not
owned by the Company and, therefore, are not covered under the terms of the
lease agreement.
E-8
<PAGE>
The average leased percentage and effective rent per square foot for each
property (other than Village Plaza) for each of the past three fiscal years is
summarized as follows:
<TABLE>
<CAPTION>
FISCAL 1993 FISCAL 1994 FISCAL 1995
------------------- ------------------- -------------------
EFFECTIVE EFFECTIVE EFFECTIVE
RENT RENT RENT
PER PER PER
AVERAGE % SQUARE AVERAGE % SQUARE AVERAGE % SQUARE
LEASED FOOT * LEASED FOOT* LEASED FOOT*
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Logan Place............. 92% $4.10 95% $3.99 98% $4.01
Piedmont Plaza.......... 99% $5.50 100% $5.50 100% $5.76
Artesian Square......... 98% $4.84 100% $5.17 100% $5.23
Sycamore Square......... 79% $4.79 86% $4.52 89% $4.54
Audubon Village......... 96% $5.52 93% $5.25 94% $5.33
Crossroads Centre....... 98% $4.85 99% $4.66 100% $4.70
East Pointe Plaza....... 73% $6.00 76% $5.90 82% $5.86
Cross Creek Plaza....... 96% $5.82 96% $5.94 98% $5.92
Cypress Bay Plaza....... 93% $5.21 97% $5.38 98% $5.66
Walterboro Plaza........ 98% $5.16 97% $5.17 95% $5.22
Lexington Parkway
Plaza.................. 99% $4.86 98% $4.99 92% $4.98
Roane County Plaza...... 99% $4.75 99% $4.76 100% $4.80
Franklin Square......... 100% $5.07 100% $5.18 100% $5.27
Barren River Plaza...... 99% $5.24 100% $5.15 100% $5.26
Cumberland Crossing..... 97% $5.17 100% $5.22 100% $5.32
Applewood Village....... 99% $4.99 100% $5.09 100% $5.15
Aviation Plaza.......... 100% $5.26 100% $5.28 99% $5.31
Crossing Meadows........ 98% $5.36 100% $5.49 100% $5.61
Southside Plaza......... 100% $5.99 100% $5.91 100% $5.88
College Plaza........... 100% $6.24 100% $6.26 100% $6.30
Marion Towne Center..... 100% $5.68 100% $5.70 100% $5.64
</TABLE>
- --------
* Effective rent per square foot is calculated as total annualized base and
percentage rent divided by average occupied square feet. The amount of
occupied square feet used for this calculation excludes certain expansions
of the Wal-Mart anchor stores at five of the properties because such
expansions are not owned by the Company and, therefore, are not covered
under the terms of the respective lease agreements.
ITEM 3. LEGAL PROCEEDINGS
In November 1994, a series of purported class actions (the "New York Limited
Partnership Actions") were filed in the United States District Court for the
Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership interests and common stock,
including the securities offered by the Company. The lawsuits were brought
against PaineWebber Incorporated and Paine Webber Group, Inc. (together,
"PaineWebber"), among others, by allegedly dissatisfied investors. In March
1995, after the actions were consolidated under the title In re PaineWebber
Limited Partnership Litigation, the plaintiffs amended their complaint to
assert claims against a variety of other defendants, including PaineWebber
Properties Incorporated, which is the General Partner of the Advisor. The
Company is not a defendant in the New York Limited Partnership Actions. On May
30, 1995, the court certified class action treatment of the claims asserted in
the litigation.
The amended complaint in the New York Limited Partnership Actions alleges,
among other things, that, in connection with the sale of common stock of the
Company, the defendants (1) failed to provide adequate disclosure of the risks
involved; (2) made false and misleading representations about the safety of
the investments and the Company's anticipated performance; and (3) marketed
the Company to investors for whom such investments were not suitable. The
plaintiffs, who are not shareholders of the Company but are suing on behalf
E-9
<PAGE>
of all persons who invested in the Company, also allege that following the
sale of the common stock of the Company the defendants misrepresented
financial information about the Company's value and performance. The amended
complaint alleges that the defendants violated the Racketeer Influenced and
Corrupt Organizations Act ("RICO") and the federal securities laws. The
plaintiffs seek unspecified damages, including reimbursement for all sums
invested by them in the Company, as well as disgorgement of all fees and other
income derived by PaineWebber from the Company. In addition, the plaintiffs
also seek treble damages under RICO.
The defendant's time to move against or answer the complaint has not yet
expired, but the Company is informed that PWPI intends to vigorously contest
the allegations of this litigation. The Advisory Agreement and the Company's
Articles of Incorporation require the Company to indemnify the Advisor and
other PaineWebber affiliates for costs and liabilities of litigation in
certain limited circumstances. Management has had discussions with
representatives of PaineWebber, and, based on such discussions, the Company
does not believe that PaineWebber intends to invoke the indemnity. However, if
PaineWebber were to demand the indemnity and such obligation were deemed
applicable and enforceable in connection with the New York Limited Partnership
Actions, the indemnity could have a material adverse effect on the Company's
financial statements, taken as a whole.
In addition, two of the Company's shareholders initiated proceedings in
Virginia state court during fiscal 1995 to compel the Company to deliver the
names and addresses of shareholders. One shareholder has withdrawn his suit
and settled out of court in a confidential settlement with PaineWebber
Incorporated. In the second suit, the circuit court found in favor of the
plaintiff and ordered the Company to provide the names and addresses of
shareholders. As of the date of this report, the circuit court has stayed the
order pending the Company's application for review by the Supreme Court of
Virginia. Management believes that this action will be resolved without
material adverse effect on the Company's financial statements, taken as a
whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
E-10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED STOCKHOLDER MATTERS
During the initial public offering period, which commenced October 23, 1989
and closed in the second quarter of fiscal 1991, the selling price of the
shares of common stock was $10 per Share (prior to the effect of the 1 for 2
reverse stock split which was effected in fiscal 1994). As of August 31, 1995,
there were 5,986 record holders of the Company's Shares. At the present time,
there is no established public market for the resale of the Shares.
The Company is required to make distributions to shareholders in an amount
equal to at least 95% of its taxable income in order to continue to qualify as
a REIT. The Company incurred a taxable loss in fiscal 1995 and therefore, was
not required to pay a cash dividend in order to retain its REIT status.
ITEM 6. SELECTED FINANCIAL DATA
RETAIL PROPERTY INVESTORS, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED AUGUST 31, 1995, 1994, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues...................... $ 25,009 $ 24,590 $ 22,606 $ 18,582 $ 14,485
Net income (loss) before
cumulative effect of change
in accounting method......... $ (6,364) $ (6,070) $ (1,732) $ (1,990) $ 78
Cumulative effect on prior
periods (to August 31, 1990)
of change in accounting
method....................... $ -- $ -- $ -- $ -- $ 338
Net income (loss)............. $ (6,364) $ (6,070) $ (1,732) $ (1,990) $ 416
Per share amounts (1):
Net income (loss) before
cumulative effect of change
in accounting method....... $ (1.27) $ (1.21) $ (0.35) $ (0.40) $ 0.02
Cumulative effect on prior
periods (to August 31,
1990) of change in
accounting method.......... $ -- $ -- $ -- $ -- $ 0.06
Net income (loss)........... $ (1.27) $ (1.21) $ (0.35) $ (0.40) $ 0.08
Cash dividends declared..... $ -- $ 0.80 $ 1.60 $ 1.60 $ 1.52
Mortgage notes payable, net... $156,508 $157,599 $156,547 $135,978 $113,528
Total assets.................. $202,544 $208,910 $219,086 $207,619 $199,568
</TABLE>
- --------
(1) The above per share amounts have been adjusted to give effect to a 1 for 2
reverse stock split of the common stock effective as of September 7, 1993.
See the accompanying financial statements of the Company for further
details regarding the reverse stock split.
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
The above earnings and cash dividends declared per share of common stock are
based upon the weighted average number of shares outstanding on a daily basis
during the years ended August 31, 1995, 1994, 1993, 1992 and 1991, as adjusted
for the 1 for 2 reverse stock split effective September 7, 1993 (5,010,050,
5,010,050, 5,010,050, 5,010,050 and 4,927,517, respectively). The actual per
share computation for each shareholder for periods prior to fiscal 1992 will
vary according to when the shareholder's shares were issued.
E-11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company was formed for the purpose of investing in a portfolio of retail
shopping centers anchored primarily by discount retailers and has invested in
centers containing Wal-Mart Stores, Inc. ("Wal-Mart") as the principal anchor
tenant. The Company raised $100,201,000 in an initial public offering between
October 1989 and December 1990 and completed the investment of the initial net
offering proceeds in fiscal 1993 with the acquisition of the last of its 22
shopping centers. These centers, which were financed with approximately 75%
leverage, contain approximately 4.4 million square feet of leasable space and
include other national and regional credit tenants. Of the total gross
leasable square footage at the Company's properties, 49% is leased to Wal-Mart
and its affiliates and 40% is leased to other national and regional credit
tenants. The overall portfolio occupancy level was 99% as of August 31, 1995.
The Company was originally organized as a finite-life, non-traded REIT. During
fiscal 1993, management of the Company began to pursue a plan to reposition
the Company in response to changes in the market for publicly held REITs at
that time. As reported by the National Association of Real Estate Investment
Trusts, Inc., capital formation by REITs in 1993 was the greatest in the
industry's 33-year history. The increased activity represented a potentially
attractive source of capital for the Company to refinance its outstanding
mortgage indebtedness and to take advantage of future growth opportunities in
the improving real estate market which existed at that time. In order to
position the Company to access the public capital markets, certain changes to
the Company's Articles of Incorporation and Bylaws were required. Such
changes, which were approved by the required affirmative vote of the
shareholders, involved, among other things, the conversion of the Company from
a "finite-life" corporation to an "infinite-life" corporation, an increase in
the number of authorized shares of the Company's common stock from 12,500,000
to 25,000,000, the completion of a 1 for 2 Reverse Stock Split of the
Company's outstanding shares of common stock and the conversion from an
externally advised REIT to a self-administered REIT.
Due to changes in interest rate levels and other market factors which
adversely affected the market for new public REIT equity offerings during the
latter half of calendar 1994 and the first half of calendar 1995, the Company
has not completed the final phase of its restructuring plans, which included
the conversion to self-administration, the completion of a second equity
offering of its common stock and the listing of the Company's common stock on
a national securities exchange. In view of the existing capital market
conditions and the resulting possibility that such restructuring plans might
not be feasible in the near term, the Company's Board of Directors engaged the
investment banking firm of Lehman Brothers Inc. ("Lehman") in June of 1995 to
act as its financial adviser and to provide financial and strategic advisory
services to the Board of Directors regarding options available to the Company.
The strategic options considered included, among other things, a
recapitalization of the Company, sales of the Company's assets and the
exploration of merger opportunities. Lehman's services have included the
solicitation and identification of potential transactions for the Company, the
evaluation of these transactions, and the provision of advice to the Board
regarding them. In November 1995, Lehman presented a summary to the Board of
the proposals received to date. All of the proposals were indications of
interest from third parties to buy the Company's real estate assets. At such
time, the Board concluded that it would be in the shareholders' best interests
to immediately initiate the process of soliciting firm offers to purchase the
Company's portfolio of operating investment properties. The Directors have
instructed Lehman to work with the various third parties that have expressed
an interest in such a transaction to obtain transaction terms most favorable
to the Company and its shareholders. At the conclusion of this process, which
will include all required buyer's due diligence, the Directors expect to
submit and recommend for approval by the shareholders what, in their judgment,
is the most favorable proposal. Pursuant to the Company's Articles of
Incorporation, the sale of all, or substantially all, of the Company's real
estate assets would require shareholder approval. Because the sale of the
Company's real estate assets remains contingent upon, among other things,
satisfactory completion of buyer's due diligence, negotiation of a definitive
sales agreement and the required shareholder approval, there are no assurances
that such a transaction will be completed.
The Company's original investment objectives were to (1) provide quarterly
cash distributions, a substantial portion of which was expected to have
deferred federal income tax liability; (ii) achieve long-term capital
E-12
<PAGE>
appreciation through potential appreciation in the values of the Company's
properties; and (iii) preserve and protect the shareholders' capital. The
Company, for the most part, has not achieved these original objectives. From
its inception in 1989 through the end of fiscal 1993, the Company was in the
process of investing the net proceeds of its initial public offering. Delays
in the placement of such proceeds in real estate assets resulted from a number
of unforeseen changes in the real estate and mortgage financing markets.
Because the acquisition period was longer than originally anticipated and
because there was a significant decline in short-term reinvestment rates
during the acquisition period, the Company had lower than anticipated earnings
during this period. In addition to the extended acquisition period, the
Company's earnings were affected by changes in its acquisition criteria. As
Wal-Mart accelerated its in-house development activity and increased the size
of its prototype store, the Company attempted to keep pace with these
developments by modifying its acquisition criteria. As a result, acquisition
costs exceeded the original budgets for legal and investment analysis
expenses. The consequences of these conditions are that the Company supported
a portion of its quarterly dividend payments to shareholders during this
period by returning capital from cash reserves. The use of cash reserves in
this manner, along with the need for funds to pay for the initial costs of
pursuing the desired restructuring and recapitalization transactions, led to
the Directors' decision to suspend dividend payments in the second quarter of
fiscal 1994. Through the date of the dividend suspension in fiscal 1994,
shareholders had received total dividend payments of approximately $30.8
million, of which approximately $9.7 million was from cash reserves. Based on
the preliminary results of Lehman's solicitation of potential transactions, it
does not appear that the Company will realize any appreciation in the
aggregate value of the operating investment properties if, as expected, it
completes a portfolio sale transaction in the near term. The unadjusted cost
basis of the Company's portfolio of operating properties totalled $222,974,000
(including capitalized acquisition fees and expenses of $6.7 million) as of
August 31, 1995. Real estate values for retail shopping centers in many
markets have begun to be affected by the effects of overbuilding and
consolidations among retailers which have resulted in an oversupply of space.
In addition, the conditions in the capital markets for public REIT stocks
discussed further above have resulted in a drop off in acquisition demand from
large institutional buyers of retail properties. Lastly, certain strategic
changes in Wal-Mart's corporate growth plans, which are discussed in more
detail below, appear to have resulted in potential buyers attributing a higher
leasing risk to the Company's portfolio of properties. In light of such
conditions, the Board of Directors believes that a bulk sale of the portfolio
of properties may result in higher net proceeds than if the properties were
sold on an individual basis, and therefore may represent the best available
course of action for the Company's shareholders.
Based on the Board's decision to solicit offers to purchase the Company's
portfolio of properties in the near term, the payment of regular quarterly
dividends will not be reinstated at this time. A distribution of net sales
proceeds and accumulated cash reserves, after payment of all liquidation-
related expenses, would be made subsequent to the completion of a sale
transaction. As a result of the Company's plans to pursue a course of action
which is expected to result in the sale of all of the operating investment
properties during fiscal 1996, the Company's financial statements as of August
31, 1995 reflect the reclassification of the operating investment properties
and certain related assets to operating investment properties held for sale
and the writedown of the individual properties to the lower of adjusted cost
or net realizable value. The Company recorded an impairment loss for financial
reporting purposes of $3,850,000 in fiscal 1995 in connection with this
accounting treatment. The resulting writedown applies only to the properties
for which losses are expected based on the estimated fair values. The expected
gains on properties for which fair value less costs to sell exceeds the
adjusted cost basis will be recognized in the period in which a sale
transaction is completed.
Over the past several years, Wal-Mart has significantly changed its
prototype store concept, requiring larger stores with additional expansion
space to accommodate increasing per store sales volume. Additionally, Wal-Mart
has begun building "supercenters", which contain up to 200,000 square feet and
include a grocery store component in addition to a Wal-Mart discount store.
This practice reflects a broad trend among retailers to maximize selling areas
and reduce costs by constructing supercenters or by emphasizing larger
properties and closing smaller, marginal stores. In response to these changes,
which occurred during the Company's initial acquisition phase, management
became particularly selective in its purchase of existing centers in an effort
to address Wal-Mart's changing needs by generally purchasing centers with
larger Wal-Mart stores which also had
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<PAGE>
future expansion capabilities. Despite such efforts to alter the Company's
acquisition criteria to accommodate Wal-Mart's strategic growth plans, there
are no assurances that the Company will be able to satisfy Wal-Mart's space
and location preferences in any markets in which Wal-Mart determines that
expansion of its existing facilities is desirable. In the event Wal-Mart were
to vacate any of the Company's properties, it would remain obligated to pay
rent and its share of operating expenses through the remaining terms of the
leases, which have scheduled expiration dates between the years 2007 and 2012.
However, unless a suitable replacement anchor tenant could be located, such a
relocation of a Wal-Mart store would have a long-term negative impact on
renewals by other tenants and on the long-term performance of the affected
shopping center. Certain tenants of the Company's properties have co-tenancy
clauses in their lease agreements which stipulate that if the Wal-Mart anchor
space is vacant these tenants are entitled to pay a reduced amount of rent
and, in some cases, retain the right to terminate their lease agreements. To
date, Wal-Mart has completed or begun expansions of its existing stores at 6
of the Company's 22 properties. At both the Village Plaza and Franklin Square
properties, two separate expansions of the original Wal-Mart space have been
completed to date. Such Wal-Mart expansions have been constructed and financed
by Wal-Mart and, as a result, do not generate any additional rental income for
the Company. However, benefits to the Company include increased shopper
traffic as described above which generally strengthens the performance of
other tenants in the center, cost savings which result from sharing fixed
operational expenses over a larger tenant base, and a reinforcement of Wal-
Mart's long-term commitment to the respective center. As previously reported,
the Company had been working with Wal-Mart on plans to redevelop and expand
its store at Applewood Village. However, Wal-Mart has exercised an option on
an alternative site and it appears likely that Wal-Mart will relocate in this
market. In addition, it was previously reported that a Wal-Mart expansion at
Cross Creek Plaza was expected to start shortly. During the third quarter of
fiscal 1995, the Company was informed that Wal-Mart is not proceeding with the
expansion at this time in order to re-evaluate its prototype store
requirements in this market area, and does not anticipate any expansion until
1997. Subsequent to year end, Wal-Mart announced plans to build a 200,000
square foot supercenter on land secured by the Company adjacent to Audubon
Village. The construction of this supercenter will be financed by Wal-Mart,
which will purchase the option to buy the land from the Company. The fact that
this new supercenter will be located adjacent to the Company's property should
mitigate the impact on property operations of this Wal-Mart relocation. The
construction and operation of the Wal-Mart supercenter is expected to solidify
the Audubon Village property's location as the retail hub in the market area
and enhance leasing activities for the remaining shop space. Although Wal-Mart
will close its store in Audubon Village when it opens its new supercenter, it
will remain obligated to pay rent and its pro-rata share of the shopping
center's expenses. Furthermore, the increased level of shopper traffic that is
expected to be generated by the new Wal-Mart supercenter may provide an
opportunity to re-lease the vacated Wal-Mart store at Audubon Village to
another single anchor tenant or multiple tenants under more favorable lease
terms than the present Wal-Mart lease would provide. However, there are no
assurances that such leasing results will be achieved. Management expects that
there will be additional Wal-Mart relocations which could affect certain of
the Company's properties over the course of the next several years as a result
of this trend toward supercenter construction. Management has been and will
continue, over the Company's remaining holding period, to be proactive in
securing additional land, relocating tenants and working with Wal-Mart to
accommodate its expansion plans in order to attempt to minimize the Company's
Wal-Mart relocation risk.
At the present time, the leasing status of the Company's non-Wal-Mart space
remains strong. All but three of the properties maintained overall occupancy
levels of 94% or better as of year end. The remaining vacancy at East Pointe
Plaza, which was 82% leased as of August 31, 1995, consists primarily of the
40,000 square foot anchor space vacated in fiscal 1993 by a national chain
that declared bankruptcy. A lease has been executed for 16,400 square feet of
this space with a strong regional clothing retailer. Lease negotiations are
ongoing with a pet supply superstore for the remaining 23,600 square feet. The
Company expects to spend approximately $380,000 to re-configure this space to
accommodate these two tenants. If both of these tenants take occupancy at East
Pointe, the center would be 98% occupied. The same regional clothing retailer
moving into East Pointe has also executed a lease at Lexington Parkway Plaza
for the vacant 17,050 square foot space at that property, which was 92% leased
as of August 31, 1995. Subsequent to year end, the Company spent approximately
$87,000 on tenant improvements to prepare the space for this tenant, which
will open for business in December 1995. Once
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<PAGE>
this tenant takes occupancy, the property will be 100% leased. The only other
property with any significant vacancy is Sycamore Square, which was 89% leased
as of year end. This shopping center, which is located in Ashland, Tennessee,
is the smallest of the Company's properties, with 93,000 square feet of
leasable space. As previously reported, the Company had been considering the
acquisition of an adjacent parcel of land at Aviation Plaza to construct a
50,000 square foot anchor space for a national credit tenant plus 15,000
square feet of additional shop space. During the second quarter of fiscal
1995, negotiations regarding this potential development reached an impasse,
and the Company did not extend its option to purchase the required parcel of
land. However, an unrelated entity is proceeding with a development of a JC
Penney store on this site, which should have a favorable impact on traffic at
Aviation Plaza. At College Plaza, the Company reviewed a possible land
acquisition and development plan for an expansion which would consist of a new
30,000 square foot junior department store plus 15,000 square feet of
additional shop space. For the present time, management has postponed pursuit
of these expansion plans.
In addition to the general retail market conditions and Wal-Mart relocation
risk discussed above, the decision by the Directors to pursue a sale of the
Company's real estate assets at the present time is also partly based on the
refinancing risk to which the Company has been and would remain subject in the
event that it continues to hold the operating properties for long-term
investment purposes. As noted above, the Company financed approximately 75% of
the original purchase prices of its 22 Wal-Mart anchored shopping centers with
loans having terms of between 4 and 10 years. The first phase of these
maturity dates occurred between December 1994 and September 1995. During
fiscal 1995 the Company completed the refinancings of all of the mortgage
loans maturing in fiscal 1995 and the first half of fiscal 1996. At such time,
the Company was still pursuing its restructuring plans. Accordingly, the
Company sought to obtain the flexible prepayment terms and/or shorter term
loans which would accommodate such plans. In total, mortgage loans
representing 28% of the originally issued debt secured by seven of the
Company's operating investment properties have been refinanced. The mortgage
loans that were repaid had outstanding principal balances which totalled
$47,290,000 and effective interest rates ranging from 9.34% to 10.02% per
annum. The new mortgage loans, together with an unsecured note in the amount
of $1,175,000 which was taken back by an affiliate, had initial principal
balances aggregating $47,000,000 and all require monthly principal and
interest payments throughout their terms, which range from 3 to 20 years. One
mortgage loan in the initial principal amount of $24,200,000, which is secured
by three operating investment properties, carries a variable interest rate
equal to the 30-day LIBOR rate plus 3.5% per annum for the first twelve
months, 30-day LIBOR plus 3.75% for the next twelve months and 30-day LIBOR
plus 4.25% for the final twelve months. The 30-day LIBOR rate was equal to
6.06% per annum as of August 31, 1995. The rest of the new mortgage loans bear
interest at fixed rates ranging from 8.75% to 9.125% per annum. The Company
paid approximately $1,439,000 toward the closing of these new loans to cover
third-party financing fees and transaction costs. The Company also paid
$290,000 toward the reduction of the principal balances of the loans. The
Applewood Village loan, which had been held by an affiliate, PaineWebber
Properties Incorporated ("PWPI"), since September 1993, had a principal
balance of $5,175,000. On June 14, 1995, the Company secured a new mortgage
loan in the amount of $4,000,000 which repaid a portion of the PWPI loan. PWPI
agreed to take back an unsecured loan for the difference, in the amount of
$1,175,000. The unsecured loan has a 15-year term and carries an interest rate
tied to PWPI's cost of funds, not to exceed 8% per annum. The lower principal
balance on the new mortgage loan reflects the uncertainty associated with the
relocation of the Wal-Mart anchor store at the Applewood property, as
discussed further above.
Certain of the Company's outstanding mortgage loans include substantial
prepayment penalties. In the event that the Company proceeds with a portfolio
sale transaction in the near term, such penalties would be payable to the
lenders unless the prospective buyer agrees to assume the outstanding loan, if
permitted under the terms of the loan agreement, or unless the Company can
negotiate any reduction in the contractual amounts owed. The evaluation of any
firm purchase offers received will include an assessment of the impact of the
terms of such offers on any debt prepayment penalties which would be borne by
the Company. The remaining fiscal 1996 loan maturities, totalling $13,498,000,
are scheduled for the spring of 1996 and will occur prior to the expected
completion date of a portfolio sale transaction. Accordingly, management is
evaluating the refinancing options available to the Company in addition to
initiating discussions with the current lenders regarding possible
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<PAGE>
extensions of the scheduled maturity dates. The goal for any contemplated
refinancings, in light of the Company's potential portfolio sale plans, would
be to minimize transaction costs while obtaining attractive and assumable
terms. Management believes that with the current favorable interest rate
environment and the strong supply of capital which continues to be available
for real estate lending, completing the required refinancing or extension
transactions for these maturing obligations should be achievable. In addition,
the Company has accumulated significant liquidity as a result of the
suspension of dividend payments which could be used in the event that market
conditions change and additional equity is required to be contributed to
complete such transactions. The next significant loan maturities are not
scheduled until fiscal 1998.
As reported on the Company's Statements of Cash Flows, net cash provided by
operating activities increased by approximately $3,473,000 in fiscal 1995 as
compared to the prior year. As discussed in more detail below, in fiscal 1994
the Company incurred significant expenses in pursuing its restructuring plans
which were charged to operations as a result of the delays in the plans for a
secondary equity offering. Net cash provided by investing activities totalled
$132,000 during fiscal 1995, as compared to net cash used for investing
activities of $1,315,000 for fiscal 1994. This increase in net cash flows from
investing activities primarily reflects a decrease in funds spent on tenant
improvements in fiscal 1995 and the initial funding of the capital improvement
reserve in fiscal 1994. The Company had net cash used for financing activities
of $2,928,000 in fiscal 1995, as compared to $4,528,000 for fiscal 1994. This
change is a direct result of the suspension of dividends which took place in
the second quarter of fiscal 1994. This elimination of dividend payments for
all of fiscal 1995 was partially offset by the use of funds to pay down
principal on the Company's mortgage loans and pay transactions costs as part
of the refinancing transactions discussed further above.
As of August 31, 1995, the Company had available cash and cash equivalents
of approximately $5,943,000. Such amounts will be used for leasing costs,
financing expenses and the Company's working capital requirements. In
addition, as of August 31, 1995 the Company had a capital improvement reserve
of approximately $1.2 million which is available, in part, to pay for the
costs of required capital improvements to the operating properties. The source
of future liquidity and dividends to the shareholders is expected to be
through cash generated from the operations of the income-producing properties,
interest income on working capital reserves and proceeds from the sale or
refinancing of the investment properties. Such sources of liquidity are
expected to be sufficient to meet the Company's needs on both a short-term and
long-term basis. The Company generally will be obligated to distribute
annually at least 95% of its taxable income to its shareholders in order to
continue to qualify as a REIT under the Internal Revenue Code. The Company
incurred a loss for both book and tax purposes in fiscal 1995 and, therefore,
was not required to pay a cash dividend in order to retain its REIT status.
Due to the non-cash depreciation and amortization charges which will continue
to be recognized for both book and tax purposes, losses are expected to be
reported in 1996 as well.
RESULTS OF OPERATIONS
1995 Compared to 1994
The Company reported a net loss of $6,364,000 for the year ended August 31,
1995, as compared to a net loss of $6,070,000 for the prior year. The increase
in net loss occurred despite a decrease in non-recurring charges recorded in
fiscal 1995 as compared to the prior year. Due to changing conditions in the
debt and equity markets which impacted the Company's restructuring plans, the
Company took significant charges against earnings in fiscal 1994 to reflect
certain costs incurred in connection with the restructuring plans which were
either no longer expected to have future economic benefit or were no longer
deferrable because the prospects for a second equity offering were uncertain
as of the end of fiscal 1994. Acquisition due diligence costs totalling
approximately $2,015,000 and non-deferrable offering expenses of $1,561,000
were charged to earnings in fiscal 1994. In addition, interest expense and
related fees in fiscal 1994 included $760,000 paid to one of the Company's
mortgage lenders to extend a debt prepayment agreement, which was entered into
as part of the Company's restructuring plans, but which was allowed to lapse
due to increases in market interest rates. Such non-recurring charges, which
totalled $4.3 million, were approximately $400,000 greater than the non-
recurring charges reflected in the fiscal 1995 net loss, which consist
primarily of the writedown of the Company's assets
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<PAGE>
to the lower of adjusted cost or fair value less costs to sell at August 31,
1995, in the amount of $3.9 million, as discussed further above.
The unfavorable change in the Company's net operating results for fiscal
1995 was primarily the result of increases in interest expense, depreciation
and amortization and general and administrative expenses during fiscal 1995.
Interest expense, net of the prior year prepayment extension fees referred to
above, increased by $584,000 mainly due to the write-off of unamortized loan
buydown fees totalling $336,000 at the time of the Lexington Parkway, Roane
County and Applewood Village mortgage loan refinancings. Interest expense also
increased due to additional amortization of deferred loan costs associated
with the loans refinanced in the current year and increases in the prime
lending rate, upon which the variable rate College Plaza loan is based. Non-
cash depreciation and amortization charges increased by $161,000 due to
property expansion and tenant improvement costs, as well as the related
leasing commissions, which have been incurred over the past two years. General
and administrative expenses increased by $734,000 in fiscal 1995 partly as a
result of certain costs, totalling approximately $289,000, which were incurred
in connection with an independent valuation of the Company's operating
properties which was commissioned in fiscal 1995 as part of management's
ongoing refinancing and portfolio management efforts. In addition, fiscal 1995
general and administrative expenses include certain professional fees and
other costs, of approximately $258,000, which were incurred during the first
quarter in connection with the Company's planned conversion to self-
administration and self-management.
An increase in revenues of $419,000 and decreases in bad debt expense, REIT
management fees and financial and investor servicing expenses for the year
ended August 31, 1995 served to partially offset the unfavorable changes
referred to above. The increase in revenues is mainly due to a 1% increase in
base rental income and a $179,000 increase in interest income. The increase in
base rental income is attributable to base rent increases on lease renewals as
well as the signing of several new leases during fiscal 1995. The increase in
interest income was achieved due to the higher average invested cash reserve
balances which have resulted from the suspension of the Company's dividend
payments to shareholders. REIT management fees and financial and investor
servicing fees declined by a total of $261,000 due to the Advisor's decision
to waive collection of such amounts effective March 1, 1995. The Advisor
agreed to forego payments for its services for a period of at least one year
as an accommodation to the Company in order to maximize earnings and cash flow
while the strategic plans regarding the Company's future operations are
evaluated and implemented.
1994 Compared to 1993
The Company reported a net loss of approximately $6,070,000 for fiscal 1994,
as compared to a net loss of approximately $1,732,000 for the prior year. The
increase in net loss was due, in large part, to the expenses incurred in
pursuing certain shareholder approvals and restructuring plans. Due to the
changing conditions in the debt and equity markets which impacted the
Company's restructuring plans, the Company took significant charges against
earnings in fiscal 1994 to reflect certain costs incurred in connection with
the restructuring plans which were either no longer expected to have future
economic benefit or were no longer deferrable because the prospects for a
second equity offering were uncertain as of the end of fiscal 1994.
Acquisition due diligence costs totalling approximately $2,015,000 related to
certain properties that were reviewed for potential acquisition as part of the
planned public offering, but were withdrawn by the sellers due to delays in
the timing of the offering, were written off to investment analysis expense
during fiscal 1994. All expenses incurred in connection with the planned
equity offering, as well as a possible securitized debt offering, were written
off to non-deferrable offering expenses. The non-deferrable offering expenses,
which totalled approximately $1,562,000, include legal, regulatory and rating
agency expenses, in addition to costs incurred in determining the appropriate
terms for the proposed equity offering and preparing required filings for
regulatory purposes. Additionally, extension fees of $760,000 related to the
debt prepayment agreement which lapsed during fiscal 1994, were included in
the balance of interest expense and related fees in fiscal 1994.
Net operating income from the Company's shopping centers, before
depreciation expense and amortization of loan buydown fees increased from
approximately $6,640,000 for fiscal 1993 to approximately $7,526,000 for
fiscal 1994. The increase in net operating income from the properties resulted
mainly from the additional
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<PAGE>
contribution of operating income from the three shopping centers purchased
during fiscal 1993. In addition, leasing gains at several of the properties
accounted for a portion of the increase in rental income and expense
reimbursements during fiscal 1994. As of August 31, 1994, the portfolio was
99% leased on average. Non-cash depreciation and amortization charges
increased by approximately $764,000 in fiscal 1994, mainly due to
acquisitions, property expansions and tenant improvements.
1993 Compared to 1992
The Company reported a net loss of approximately $1,732,000 for fiscal 1993
as compared to a net loss of approximately $1,990,000 in fiscal 1992. As of
August 31, 1993, the Company had acquired 22 retail shopping centers. The
Company had 19 shopping centers in its portfolio at the end of fiscal 1992.
Accordingly, the results of operations for the twelve months ended August 31,
1993 are not directly comparable to fiscal 1992 as a result of new
acquisitions in 1993 and the reflection of partial year operations for
acquisitions in the prior year.
Net operating income from the Company's shopping centers, before
depreciation expense and amortization of loan buydown fees increased from
approximately $4,355,000 for fiscal 1992 to approximately $6,640,000 for
fiscal 1993. The increase in net operating income from the properties resulted
primarily from the incremental contribution of operating income from the six
shopping centers purchased during the 24 months ended August 31, 1993. In
addition, base rental revenues increased at 10 of the 16 properties that the
Company owned for all of fiscal 1992 and 1993. Offsetting the increase in
property operating income was a decline in interest income of approximately
$1,019,000 which reflected both the investment of offering proceeds in real
estate assets and a decline in interest rates earned on reserves and
uninvested proceeds. General and administrative expenses decreased in fiscal
1993 as a result of lower professional fees associated with the management of
the Company's assets. Professional fees declined in fiscal 1993 in part due to
a reduction in required legal fees associated with administering certain loan
and acquisition escrow reserves and due to the expiration, or impending
expiration, of a number of the Company's master lease agreements.
Inflation
The Company commenced operations on August 9, 1989 and completed its sixth
full year of operations in fiscal 1995. The effects of inflation and changes
in prices on the Company's operating results to date have not been
significant. Inflation in future periods is likely to have a minimal effect on
the Company's net cash flow. Virtually all of the tenants in the Company's
retail properties have leases which require the tenants to bear certain costs
of maintenance, insurance, and property taxes. As a result, inflationary
increases in such expenses would be passed through to the tenants, thereby
limiting the Company's exposure to property operating expenses attributable to
vacant space. In addition, the majority of the tenant leases provide for the
payment of additional rentals calculated as a percentage of tenant revenues
over stated base amounts. Tenant revenues would be expected to rise during
periods of inflation. Such increases in tenant reimbursements and percentage
rentals would be expected to offset, for the most part, increases in property
and Company operating expenses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are included under Item 14
of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There currently are four directors of the Company, three of whom are not
affiliated with the Advisor. The directors are subject to removal by the vote
of the holders of a majority of the outstanding shares. The directors are
responsible for the general policies of the Company, but they are not required
to conduct personally the business of the Company.
(a) and (b) The names and ages of the directors and executive officers of
the Company are as follows:
<TABLE>
<CAPTION>
DATE ELECTED
NAME OFFICE AGE TO OFFICE
- ---- ------------------------------------------------- --- ------------
<S> <C> <C> <C>
Lawrence A. Cohen....... President, Chief Executive Officer and Director 42 5/15/91
Lawrence S. Bacow (1)... Director 44 8/20/93
Joseph W. Robertson, Jr.
(1).................... Director 48 10/20/89
J. William Sharman, Jr.
(1).................... Director 55 10/20/89
Walter V. Arnold........ Senior Vice President and Chief Financial Officer 48 10/20/89
James A. Snyder......... Senior Vice President 50 7/6/92
John B. Watts III....... Senior Vice President 42 5/31/91
Timothy J. Medlock...... Vice President and Treasurer 34 10/20/89
Rock M. D'Errico........ Vice President 39 11/01/89
Dorothy F. Haughey...... Secretary 69 10/20/89
</TABLE>
- --------
(1) Member of the Audit Committee. The Board of Directors of the Company has
established an Audit Committee that consists of the Independent Directors.
Independent Directors are those Directors who are not affiliated, directly
or indirectly, with an affiliate of the Company. The Audit Committee was
established to make recommendations concerning the engagement of
independent public accountants, review with the independent public
accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants,
review the independence of the independent public accountants, consider
the range of audit fees and review the adequacy of the Company's internal
accounting controls.
(c) PaineWebber Properties Incorporated ("PWPI"), a general partner of the
Advisor, assists the directors and officers of the Company in the management
and control of the Company's affairs. The principal executive officers of PWPI
are as follows:
<TABLE>
<CAPTION>
NAME OFFICE AGE
- ---- ------------------------------------------------- ---
<S> <C> <C>
Lawrence A. Cohen......... President and Chief Executive Officer 42
Walter V. Arnold.......... Senior Vice President and Chief Financial Officer 48
James A. Snyder........... Senior Vice President 50
John B. Watts III......... Senior Vice President 42
David F. Brooks........... First Vice President and Assistant Treasurer 53
Timothy J. Medlock........ Vice President and Treasurer 34
Thomas W. Boland.......... Vice President 33
</TABLE>
(d) There is no family relationship among any of the foregoing directors or
officers. All of the foregoing directors and officers of the Company have been
elected to serve until the Company's next annual meeting.
(e) The business experience of each of the directors and officers of the
Company, as well as the principal executive officers of PWPI, is as follows:
Lawrence A. Cohen has served as President, Chief Executive Officer and
Director of the Company since 1991. Mr. Cohen is also President and Chief
Executive Officer of PWPI. Mr. Cohen joined PWPI in January 1989 as its
Executive Vice President and Director of Marketing and Sales. He is a member
of the Board of
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<PAGE>
Directors and the Investment Committee of PWPI. Mr. Cohen is also a member of
the board of directors of PaineWebber Independent Living Mortgage Fund, Inc.
("PWIL I") and PaineWebber Independent Living Mortgage Inc. II ("PWIL II").
PWIL I and PWIL II are REITs that were formed to invest in mortgage loans
secured by rental housing projects for independent senior citizens. From 1984
to 1988, Mr. Cohen was First Vice President of VMS Realty Partners where he
was responsible for origination and structuring of real estate investment
programs and for managing national broker-dealer relationships. Mr. Cohen
received his L.L.M (in Taxation) from New York University School of Law and
his J.D. degree from St. John's University School of Law. Mr. Cohen received
his B.B.A degree in Accounting from George Washington University. He is a
member of the New York Bar and is a Certified Public Accountant.
Lawrence S. Bacow is a professor at the Massachusetts Institute of
Technology ("M.I.T.") where he is on the faculty of the M.I.T. Center for Real
Estate and the M.I.T. Department of Urban Studies and Planning. He joined the
Company as a director in August 1993. Professor Bacow joined the M.I.T.
faculty in 1977 and served as a director of the Center for Real Estate from
1990 until 1992. While on leave from M.I.T. from 1985 to 1987, Professor Bacow
served as Chief Operating Officer of Spaulding Investment Company, a New
England-based real estate firm. From 1990 to 1992, he was a principal of Artel
Associates, Inc., a provider of real estate advisory services to investment
entities. Professor Bacow is a director of Northland Investment Corporation
and Grubb & Ellis. He received his B.S. in economics from M.I.T., his J.D.
from Harvard Law School, and his Ph. D. from Harvard's Kennedy School of
Government.
Joseph W. Robertson, Jr. has served as a director of the Company since 1989.
Mr. Robertson is Executive Vice President and Chief Financial Officer of
Weingarten Realty Investors, a REIT that owns, develops and operates shopping
centers and other commercial real estate. In 1971, Mr. Robertson joined
Weingarten Realty, Inc., the predecessor of Weingarten Realty Investors, and
served as Executive Vice President and Chief Financial Officer from 1980 to
1985 when Weingarten Realty Investors was formed. Mr. Robertson serves as a
trustee of Weingarten Realty Investors and as a director of Weingarten
Properties, Inc.
J. William Sharman, Jr. is a director of the Company and has held such
position since he was elected to the Board of Directors as of October 20,
1989. Mr. Sharman is also a director of PWIL 1 and PWIL II. Mr. Sharman is the
Chairman of the Board and President of Lancaster Hotel Management, L.C., a
hotel management company, and Bayou Equities, Inc. , a hotel development
company. Mr. Sharman served for ten years as Chairman of the Board and
President of The Lancaster Group, Inc., a real estate development firm based
in Houston, Texas, which is the predecessor of Lancaster Hotel Management,
L.C., and Bayou Equities, Inc. Mr. Sharman is Vice Chairman of Small Luxury
Hotels, Ltd. of the United Kingdom, an international hotel marketing and
reservations firm. He has a Bachelor of Science degree in Civil Engineering
from the University of Notre Dame. In April 1991, Mr. Sharman filed personal
bankruptcy and was discharged in October 1991 without exceptions or
objections. Mr. Sharman's bankruptcy resulted from the refusal of an RTC
successor-lender to renegotiate repayment terms of a commercial mortgage
personally guaranteed by Mr. Sharman on a hotel owned by a partnership in
which Mr. Sharman was a limited partner.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Company and Senior Vice President and Chief Financial Officer of PWPI
which he joined in October 1985. Mr. Arnold joined PWI in 1983 with the
acquisition of Rotan Mosle, Inc. where he had been First Vice President and
Controller since 1978, and where he continued until joining PWPI. He began his
career in 1974 with Arthur Young & Company in Houston. Mr. Arnold is a
Certified Public Accountant licensed in the state of Texas.
James A. Snyder is a Senior Vice President of the Company and a Senior Vice
President and Member of the Investment Committee of PWPI. Mr. Snyder re-joined
PWPI in July 1992 having served previously as an officer of PWPI from July
1980 to August 1987. From January 1991 to July 1992, Mr. Snyder was with the
Resolution Trust Corporation, where he served as the Vice President of Asset
Sales prior to re-joining PWPI. From February 1989 to October 1990, he was
President of Kan Am Investors, Inc., a real estate investment company. During
the period August 1987 to February 1989, Mr. Snyder was Executive Vice
President and Chief Financial Officer of Southeast Regional Management Inc., a
real estate development company.
E-20
<PAGE>
John B. Watts III is a Senior Vice President of the Managing General Partner
and a Senior Vice President of the Adviser which he joined in June 1988. Mr.
Watts has had over 16 years of experience in acquisitions, dispositions and
finance of real estate. He received degrees of Bachelor of Architecture,
Bachelor of Arts and Master of Business Administration from the University of
Arkansas.
David F. Brooks is a First Vice President and Assistant Treasurer of PWPI.
Mr. Brooks joined PWPI in March 1980. From 1972 to 1980, Mr. Brooks was an
Assistant Treasurer of Property Capital Advisors, Inc. and also, from March
1974 to February 1980, the Assistant Treasurer of Capital for Real Estate,
which provided real estate investment, asset management and consulting
services.
Timothy J. Medlock is Vice President and Treasurer of the Company and a Vice
President and Treasurer of PWPI which he joined in 1986. From June 1988 to
August 1989, Mr. Medlock served as the Controller of PWPI. From 1983 to 1986,
Mr. Medlock was associated with Deloitte Haskins & Sells. Mr. Medlock
graduated from Colgate University in 1983 and received his Masters in
Accounting from New York University in 1985.
Rock M. D'Errico is Vice President of the Company and a Vice President of
PWPI which he joined in 1986. Previously he was associated with First Winthrop
Corporation and John Hancock Mutual Life Insurance Company as a Real Estate
Asset Manager.
Thomas W. Boland is a Vice President and Manager of Financial Reporting of
PWPI which he joined in 1988. From 1984 to 1987 Mr. Boland was associated with
Arthur Young & Company. Mr. Boland is a Certified Public Accountant licensed
in the state of Massachusetts. He holds a B.S. in Accounting from Merrimack
College and an M.B.A. from Boston University.
Dorothy F. Haughey is Secretary of the Company, Assistant Secretary of
PaineWebber and Secretary of PWI and PWPI. Ms. Haughey joined PaineWebber in
1962.
(f) None of the directors and officers was involved in legal proceedings
which are material to an evaluation of his or her ability or integrity as a
director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Company, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file certain reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
ten-percent beneficial holders are required by SEC regulations 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, the
Company believes that, during the year ended August 31, 1995, all filing
requirements applicable to its officers, directors and ten-percent beneficial
holders were complied with.
ITEM 11. EXECUTIVE COMPENSATION
The three unaffiliated directors each receive an annual fee of $12,000, plus
$1,000 for each meeting attended, and reimbursement for expenses incurred in
attending meetings and as a result of other work performed for the Company.
The affiliated director does not receive any compensation from the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) As of the date hereof, no person of record owns or is known by the
Registrant to own beneficially more than five percent of the outstanding
shares of common stock of the Company.
(b) The following table sets forth the ownership of shares owned directly or
indirectly by the Directors and principal officers of the Company as of August
31, 1995:
E-21
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNED OF CLASS
-------------- -------------------------------------- ------------ ------------
<S> <C> <C> <C>
Shares of Common Stock.. Lawrence A. Cohen 350 Shares Less than 1%
All Directors and Officers of the
Company, as a group 350 Shares Less than 1%
</TABLE>
(c) There exists no arrangement, known to the Company, the operation of
which may at a subsequent date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into an advisory agreement with PaineWebber Realty
Advisors, L.P. (the "Advisor") to perform various services in connection with
the sale of the Shares, the management of the Company and the acquisition,
management and disposition of the Company's investments. The Advisor is a
limited partnership composed of PaineWebber Properties Incorporated ("PWPI")
as the general partner and Properties Associates, L.P. ("PA") as the limited
partner. Both partners of the Advisor are affiliates of PaineWebber
Incorporated ("PWI"), which is a wholly owned subsidiary of PaineWebber Group,
Inc. ("PaineWebber"). The advisory agreement is renewable on an annual basis
at the discretion of the Company's Board of Directors. The type of
compensation to be paid by the Company to the Advisor and its affiliates under
the terms of the Advisory Agreement is as follows:
(i) Under the Advisory Agreement, the Advisor has specific management
responsibilities to perform day-to-day operations of the Company and to act
as the investment advisor and consultant for the Company in connection with
general policy and investment decisions. The Advisor will receive an annual
Asset Management Fee and an Advisory Incentive Fee of 0.25% and 0.25%,
respectively, of the Capital Contributions of the Company. The Advisory
Incentive Fee is subordinated to the shareholders' receipt of distributions
of net cash sufficient to provide a return equal to 8% per annum on their
Invested Capital, as defined. During the quarter ended February 28, 1994,
the payment of regular quarterly distributions was temporarily suspended.
Accordingly, the Advisor has not earned any Advisory Incentive Fees since
December 1, 1993. Effective March 1, 1995, the Advisor agreed to
indefinitely waive its management fees in order to maximize the Company's
earnings and cash flow while certain strategic plans regarding the
Company's future operations are evaluated and implemented. The Advisor
earned asset management fees of $125,000 for the year ended August 31, 1995
which reflects management fees paid from September 1, 1994 through February
28, 1995.
(ii) For its services in finding and recommending investments, and for
analyzing, structuring and negotiating the purchase of properties by the
Company, PWPI will receive non-recurring Acquisition Fees equal to 3% of
the Capital Contributions. PWPI received acquisition fees in connection
with the Company's real estate investments in the amount of $3,006,000.
(iii) Fees equal to 1/2 of 1% of any financing and 1% of any refinancing
obtained by the Company for which the Advisor renders substantial services,
and for which no fees are paid to a third party, will be paid to the
Advisor as compensation for such services. No such fees had been earned as
of August 31, 1995.
(iv) Upon disposition of the Company's investments, the Advisor may earn
sales commissions and disposition fees. These fees and commissions will be
subordinated to the repayment to shareholders of their Capital
Contributions plus certain minimum returns on their Invested Capital. In no
event will the disposition fees exceed an amount equal to 15% of
Disposition Proceeds remaining after the shareholders have received an
amount equal to their Capital Contributions plus a return on Invested
Capital of 6% per annum, cumulative and noncompounded. No disposition fees
or sales commissions have been earned as of August 31, 1995.
An affiliate of the Advisor performs certain accounting, tax preparation,
securities law compliance and investor communications and relations services
for Company. Total costs incurred by this affiliate in providing
E-22
<PAGE>
these services are allocated among several entities, including the Company.
Effective March 1, 1995, the Advisor agreed that it will not be reimbursed for
providing these services to the Company. As with the management fees discussed
above, the Advisor has agreed to waive these servicing fees in order to
maximize the Company's earnings and cash flow while certain strategic plans
regarding the Company's future operations are evaluated and implemented. For
the year ended August 31, 1995, the Company paid $111,000 to this affiliate,
representing reimbursements from September 1, 1994 through February 28, 1995
for providing the above services to the Company.
Mitchell Hutchins Institutional Investors, Inc. ("Mitchell Hutchins")
provides cash management services with respect to the Company's cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc.,
an independently operated subsidiary of PaineWebber. For the year ended August
31, 1995, Mitchell Hutchins earned fees of $8,000 for managing the Company's
cash assets. Fees charged by Mitchell Hutchins are based on a percentage of
invested cash reserves which varies based on the total amount of invested cash
which Mitchell Hutchins manages on behalf of PWPI.
The Company has engaged the services of a consulting firm for certain
professional services related to its mortgage loan refinancing and acquisition
due diligence activities. The consulting firm is a partnership in which Mr.
Robert J. Pansegrau is one of two current partners. Mr. Pansegrau is formerly
a Senior Vice President of the Company who resigned effective March 31, 1993.
The consulting firm received fee compensation from the Company totalling
approximately $186,000 for the year ended August 31, 1995. The consulting firm
also received reimbursement for out-of-pocket expenses of approximately
$79,000 for the year ended August 31, 1995.
E-23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedule:
The response to this portion of Item 14 is submitted as a separate
section of this report. See Index to Financial Statements and Financial
Statement Schedule at page F-1.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at page IV-
3 are filed as part of this Report.
(b) No Current Reports on Form 8-K were filed during the last quarter of
fiscal 1995.
(c) Exhibits:
See (a)(3) above.
(d) Financial Statement Schedule:
The response to this portion of Item 14 is submitted as a separate
section of this report. See Index to Financial Statements and Financial
Statement Schedule at page F-1.
E-24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Retail Property Investors, Inc.
/s/ Lawrence A. Cohen
By: _________________________________
Name: Lawrence A. Cohen
Title: President, Chief Executive
Officer and Director
/s/ Walter V. Arnold
By: _________________________________
Name: Walter V. Arnold
Title: Senior Vice President and
Chief Financial Officer
(additionally functioning as chief
accounting officer)
Dated: December 11, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacity and on the dates indicated.
/s/ Lawrence S. Bacow Date: December 11, 1995
By: _________________________________
Name: Lawrence S. Bacow
Title: Director
/s/ Joseph W. Robertson, Jr. Date: December 11, 1995
By: _________________________________
Name: Joseph W. Robertson, Jr.
Title: Director
/s/ J. William Sharman, Jr. Date: December 11, 1995
By: _________________________________
Name: J. William Sharman, Jr.
Title: Director
E-25
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(3)
RETAIL PROPERTY INVESTORS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE NUMBER IN THE REPORT
EXHIBIT NO. DESCRIPTION OF DOCUMENT OR OTHER REFERENCE
----------- ----------------------- -------------------------
<S> <C> <C>
(3) and (4) Prospectus of the Registrant Filed with the Commission
dated October 6, 1989, as pursuant to Rule 424(c)
supplemented. and incorporated herein by
reference.
(10) Material contracts Filed with the Commission
previously filed as exhibits pursuant to Section 13 or
to registration statements 15(d) of the Securities
and amendments thereto of Exchange Act of 1934 and
the registrant together with incorporated herein by
all such contracts filed as reference.
exhibits of previously filed
Forms 8-K and Forms 10-K are
hereby incorporated herein
by reference.
(13) Annual Report to No Annual Report for the
Stockholders year ended August 31, 1995
has been sent to the
shareholders. An Annual
Report will be sent to the
shareholders subsequent to
this filing.
</TABLE>
E-26
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(1) AND (2)
RETAIL PROPERTY INVESTORS, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
REFERENCE
---------
<S> <C>
RETAIL PROPERTY INVESTORS, INC.:
Report of Independent Accountants.................................. F-2
Balance sheets at August 31, 1995 and 1994......................... F-3
Statements of operations for the years ended August 31, 1995, 1994
and 1993.......................................................... F-4
Statements of changes in shareholders' equity for the years ended
August 31, 1995, 1994 and 1993.................................... F-5
Statements of cash flows for the years ended August 31, 1995, 1994
and 1993.......................................................... F-6
Notes to financial statements...................................... F-7
Schedule III--Real Estate and Accumulated Depreciation............. F-24
</TABLE>
Other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements, including the notes thereto.
E-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Retail Property Investors, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) and (2) on page F-1 present fairly, in all material respects,
the financial position of Retail Property Investors, Inc. (the "Company") at
August 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended August 31, 1995, in conformity
with generally accepted accounting principles. 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 audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 11, 1995, except as to Note 8
which is as of July 17, 1996
E-28
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
BALANCE SHEETS
AUGUST 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
ASSETS
Operating investment properties:
Operating investment properties held for sale, net
(Note 4)............................................... $ 192,311 $ --
Land.................................................... -- 37,845
Buildings and improvements.............................. -- 175,293
Furniture and equipment................................. -- 9,676
--------- --------
192,311 222,814
Less: accumulated depreciation.......................... -- (21,080)
--------- --------
192,311 201,734
Cash and cash equivalents................................. 5,943 3,282
Escrowed cash............................................. 1,067 1,378
Accounts receivable, net of allowance for doubtful
accounts of $80 ($91 in 1994)............................ 170 497
Other assets.............................................. 77 69
Prepaid expenses.......................................... 308 260
Capital improvement reserve............................... 1,201 1,182
Deferred expenses, net of accumulated amortization of $446
($296 in 1994)........................................... 1,467 508
--------- --------
$ 202,544 $208,910
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable--affiliates.............................. $ 4 $ 67
Accounts payable and accrued expenses..................... 1,316 1,343
Mortgage interest payable................................. 358 167
Note payable--affiliate................................... 1,168 --
Security deposits and other liabilities................... 768 948
Mortgage notes payable, net............................... 156,508 157,599
--------- --------
Total liabilities..................................... 160,122 160,124
Contingencies (Note 7)
Shareholders' equity (Note 2.I):
Common stock, $.01 par value, 50,000,000 shares
authorized, 5,010,050 shares issued and outstanding.... 50 50
Additional paid-in capital, net of offering costs....... 87,181 87,181
Accumulated deficit..................................... (44,809) (38,445)
--------- --------
Total shareholders' equity............................ 42,422 48,786
--------- --------
$ 202,544 $208,910
========= ========
</TABLE>
See accompanying notes to financial statements.
E-29
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenues:
Rental income and expense reimbursements.......... $24,682 $24,442 $22,175
Interest income................................... 327 148 431
------- ------- -------
25,009 24,590 22,606
Expenses:
Interest expense and related fees................. 15,283 15,459 13,620
Depreciation and amortization..................... 6,495 6,334 5,571
Property expenses................................. 2,348 2,207 1,996
Real estate taxes................................. 1,329 1,370 1,296
General and administrative........................ 1,702 968 900
Financial and investor servicing expenses......... 111 260 262
REIT management fees.............................. 125 237 501
Bad debt expense.................................. 21 241 72
Cash management fees.............................. 8 8 40
Non-deferrable offering expenses.................. -- 1,561 --
Investment analysis expense....................... 101 2,015 80
Loss on impairment of assets held for sale........ 3,850 -- --
------- ------- -------
31,373 30,660 24,338
------- ------- -------
Net loss............................................ $(6,364) $(6,070) $(1,732)
======= ======= =======
Per share amounts (Note 2.I):
Net loss.......................................... $ (1.27) $ (1.21) $ (0.35)
======= ======= =======
Cash dividends declared........................... $ -- $ 0.80 $ 1.60
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
E-30
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE ADDITIONAL
------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
Shareholders' equity at
August 31, 1992............ 10,020,100 $100 $87,131 $(18,619) $68,612
Adjustment to give effect to
a 1 for 2 reverse stock
split effective as of
September 7, 1993
(Note 2.I)................. (5,010,050) (50) 50 -- --
Cash dividends declared..... -- -- -- (8,016) (8,016)
Net loss.................... -- -- -- ( 1,732) ( 1,732)
---------- ---- ------- -------- -------
Shareholders' equity at
August 31, 1993............ 5,010,050 50 87,181 (28,367) 58,864
Cash dividends declared..... -- -- -- (4,008) (4,008)
Net loss.................... -- -- -- (6,070) (6,070)
---------- ---- ------- -------- -------
Shareholders' equity at
August 31, 1994............ 5,010,050 50 87,181 (38,445) 48,786
Net loss.................... -- -- -- (6,364) (6,364)
---------- ---- ------- -------- -------
Shareholders' equity at
August 31, 1995............ 5,010,050 $ 50 $87,181 $(44,809) $42,422
========== ==== ======= ======== =======
</TABLE>
See accompanying notes to financial statements.
E-31
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (6,364) $ (6,070) $ (1,732)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................ 6,495 6,334 5,571
Amortization of loan buydown fees............ 1,566 1,572 1,420
Amortization of deferred financing costs..... 265 29 29
Loss on impairment of assets held for sale... 3,850 -- --
Changes in assets and liabilities:
Accounts receivable........................ 22 543 (245)
Other assets............................... (8) 422 527
Prepaid expenses........................... (48) 66 (55)
Deferred expenses.......................... (224) 238 --
Accounts payable--affiliates............... (63) (578) 128
Accounts payable and accrued expenses...... (27) 202 (50)
Mortgage interest payable.................. 191 (60) (53)
Security deposits and other liabilities.... (180) (714) 621
-------- -------- --------
Total adjustments........................ 11,839 8,054 7,893
-------- -------- --------
Net cash provided by operating
activities.............................. 5,475 1,984 6,161
-------- -------- --------
Cash flows from investing activities:
Additions to operating investment properties... (178) (767) (29,772)
Use of (additions to) escrowed cash............ 311 65 (897)
Additions to capital improvement reserve....... (19) (939) (243)
Restricted cash used to fund commitments....... -- -- 6,747
Master lease payments received................. -- 326 708
-------- -------- --------
Net cash provided by (used for) investing
activities.............................. 114 (1,315) (23,457)
-------- -------- --------
Cash flows from financing activities:
Dividends paid to shareholders................. -- (4,008) (8,016)
Proceeds from issuance of mortgage notes
payable....................................... 45,825 100 21,383
Payment of debt issuance costs................. (1,439) -- (653)
Proceeds from issuance of unsecured note
payable....................................... 1,175 -- --
Payment of loan buydown fees................... -- -- (452)
Repayment of principal on mortgage notes
payable....................................... (48,482) (620) (444)
Repayment of principal on unsecured note
payable....................................... (7) -- --
-------- -------- --------
Net cash (used for) provided by financing
activities.............................. (2,928) (4,528) 11,818
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 2,661 (3,859) (5,478)
Cash and cash equivalents, beginning of year..... 3,282 7,141 12,619
-------- -------- --------
Cash and cash equivalents, end of year........... $ 5,943 $ 3,282 $ 7,141
======== ======== ========
SUPPLEMENTAL DISCLOSURE:
Cash paid during the year for interest........... $ 13,261 $ 13,917 $ 12,224
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
E-32
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND RECENT BUSINESS DEVELOPMENTS
Retail Property Investors, Inc. (the "Company"), formerly PaineWebber Retail
Property Investments, Inc., is a corporation organized on August 9, 1989 in
the Commonwealth of Virginia for the purpose of investing in a portfolio of
retail shopping centers located throughout the midwestern, southern and
southeastern United States. The Company commenced an initial public offering
of up to 10,000,000 shares of its common stock (the "Shares"), priced at $10
per Share, on October 23, 1989 pursuant to a Registration Statement filed on
Form S-11 under the Securities Act of 1933 (Registration Statement No. 33-
29755). The initial offering closed on December 24, 1990, after 10,020,100
shares had been sold. The Company received capital contributions of
$100,201,000, of which $201,000 was received from the sale of 20,100 shares to
an affiliate, PaineWebber Group, Inc. ("PaineWebber"). As of October 15, 1995,
PaineWebber held 38,000 shares of the Company's common stock. The Company was
originally organized as a finite-life, non-traded real estate investment trust
that had a stated investment policy of investing exclusively in shopping
centers in which Wal-Mart Stores, Inc. ("Wal-Mart") was or would be an anchor
tenant. During fiscal 1993, the Company's Board of Directors proposed three
amendments to the Company's Articles of Incorporation and two resolutions, all
of which were approved at a Special Meeting of Shareholders which was held on
September 7, 1993. The amendments to the Articles of Incorporation changed the
Company from a "finite-life" corporation to an "infinite-life" corporation,
increased the number of authorized shares of the Company's Common Stock from
12,500,000 to 25,000,000 and changed the Company's name. The resolutions
approved a 1 for 2 Reverse Stock Split of the Company's outstanding shares of
Common Stock and affirmed the Company's investment authority under the
Articles of Incorporation and Bylaws to invest in property other than shopping
centers anchored by Wal-Mart stores.
1994 Developments
The amendments to the Company's Articles of Incorporation and the
resolutions which were approved in September 1993 were proposed as part of a
plan to reposition the Company to take advantage of the liquidity and
potentially attractive source of capital available in the market for publicly
held REITs at that time. During 1993, the Board of Directors determined that
in order to best position the Company to access the public capital markets, it
would be in the Company's best interests to convert from an externally advised
REIT to a self-administered REIT. The Company also investigated the
possibility of acquiring a third-party property management and leasing company
which would enable property management activities to be conducted internally.
In conjunction with these initiatives, the Board of Directors presented
several proposals for consideration at the Annual Meeting of Shareholders
which was held November 4, 1994. Approval of these proposals, which involved
further amendments to the Company's Articles of Incorporation and Bylaws, was
required in order to enable the Company to proceed with an equity offering of
its common stock, to pursue listing of the Company's common stock on a
national securities exchange and to permit a conversion to self-
administration. All of the proposals were approved at the Annual Meeting by
the required affirmative vote of the shareholders. However, due to a
deterioration in the public equity markets for REIT stocks during the latter
part of 1994, management delayed its plans to proceed with a public offering
and subsequent listing of the Company's common stock on a national securities
exchange pending an improvement in the market conditions. As a result of the
delays in the timing of the planned public offering which had been
contemplated in fiscal 1994, the Company took significant charges against
earnings in fiscal 1994 to reflect certain costs incurred in connection with
the Company's restructuring plans which were either no longer expected to have
future economic benefit or were no longer deferrable because the prospects for
a second equity offering were uncertain. Acquisition due diligence costs
totalling approximately $2,015,000 related to certain properties that had been
reviewed for potential acquisition as part of the planned public offering were
written off to investment analysis expense during fiscal 1994 (see Note 4).
All expenses incurred in connection with the planned equity offering, as well
as a possible securitized debt offering, in the aggregate amount of
approximately $1,561,000, were written off to non-
E-33
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
deferrable offering expenses. In addition, extension fees of $760,000 related
to a debt prepayment agreement which lapsed during fiscal 1994 were written
off to interest expense during the year.
1995 Developments
Due to changes in interest rate levels and other market factors which
adversely affected the market for new public REIT equity offerings during the
latter half of calendar 1994 and the first half of calendar 1995, the Company
has not completed the final phase of its restructuring plans. In view of the
existing capital market conditions, the Company's Board of Directors engaged
the investment banking firm of Lehman Brothers Inc. ("Lehman") in June of 1995
to act as its financial adviser and to provide financial and strategic
advisory services to the Board of Directors regarding options available to the
Company. The strategic options considered included, among other things, a
recapitalization of the Company, sales of the Company's assets and the
exploration of merger opportunities. Lehman's services have included the
solicitation and identification of potential transactions for the Company, the
evaluation of these transactions, and the provision of advice to the Board
regarding them. In November 1995, Lehman presented a summary to the Board of
the proposals received to date. All of the proposals were indications of
interest from third parties to buy the Company's real estate assets. At such
time, the Board concluded that it would be in the shareholders' best interests
to immediately initiate the process of soliciting firm offers to purchase the
Company's portfolio of operating investment properties. The Directors have
instructed Lehman to work with the various third parties that have expressed
an interest in such a transaction to obtain transaction terms most favorable
to the Company and its shareholders. At the conclusion of this process, which
will include all required buyer's due diligence, the Directors expect to
submit and recommend for approval by the shareholders what, in their judgment,
is the most favorable proposal. Pursuant to the Company's Articles of
Incorporation, the sale of all, or substantially all, of the Company's real
estate assets would require shareholder approval. Because the sale of the
Company's real estate assets remains contingent upon, among other things,
satisfactory completion of buyer's due diligence, negotiation of a definitive
sales agreement and the required shareholder approval, there are no assurances
that such a transaction will be completed. Nonetheless, since the Directors
have committed to pursue this course of action, the Company's financial
statements as of August 31, 1995 reflect the reclassification of operating
investment properties and certain related assets as operating investment
properties held for sale and the writedown of the individual operating
properties to the lower of adjusted cost or net realizable value. The Company
recorded a loss for financial reporting purposes of $3,850,000 in fiscal 1995
in connection with this accounting treatment. See Notes 2 and 4 for a further
discussion.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. INCOME TAXES
The Company has elected and intends to continue to qualify to be taxed as
a Real Estate Investment Trust ("REIT") under the Internal Revenue Code of
1986, as amended, for each taxable year of operations. As a REIT, the
Company is allowed a tax deduction for the amount of dividends paid to its
shareholders, thereby effectively subjecting the distributed net income of
the Company to taxation at the shareholder level only, provided it
distributes at least 95% of its real estate investment trust taxable income
and meets certain other requirements for qualifying as a REIT. The Company
incurred a loss for both book and tax purposes in fiscal 1995 and,
therefore, was not required to pay a cash dividend in order to retain its
REIT status.
B. OPERATING INVESTMENT PROPERTIES
Operating investment properties are carried at the lower of cost, reduced
by guaranteed master lease payments (see Note 4) and accumulated
depreciation, or net realizable value. The net realizable value of a
property held for long-term investment purposes is measured by the
recoverability of the Company's
E-34
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
investment through expected future cash flows on an undiscounted basis,
which may exceed the property's current market value. The net realizable
value of a property held for sale approximates its current market value,
less disposal costs, plus depreciation through the expected date of sale.
As of August 31, 1994, the operating investment properties were held for
long-term investment purposes and were recorded at adjusted cost on the
accompanying balance sheet. As discussed further in Notes 1 and 4, all of
the Company's operating investment properties were held for sale as of
August 31, 1995. Accordingly, the Company has reclassified the operating
properties and certain related assets to operating investment properties
held for sale and has recorded each property at the lower of adjusted cost
or net realizable value as of August 31, 1995.
Depreciation expense has been computed using the straight-line method
over an estimated useful life of forty years for the buildings and
improvements, twenty years for land improvements and twelve years for
personal property. Certain costs and fees (including the acquisition fees
paid to an affiliate, as described in Note 3) related to the acquisition of
the properties have been capitalized and are included in the cost of the
operating investment properties. Major additions and betterments are
capitalized, while minor repairs and maintenance are charged to expense.
C. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts held in banks and money market accounts and
overnight, investment-grade commercial paper investments administered by
Mitchell Hutchins Institutional Investors, Inc. (see Note 3).
D. ESCROWED CASH
Escrowed cash consists of master lease escrows, various lender escrows
and real estate tax and insurance premium escrows. The master lease escrows
represented funds the Company received directly as collateral, or obtained
by drawing on letters of credit which were used as collateral, under
certain master lease agreements (see Note 4). The balance of these escrows
was approximately $428,000 at August 31, 1994. Corresponding amounts,
representing unearned master lease payments for fiscal 1994, are included
in the balance of security deposits and other liabilities on the
accompanying balance sheet as of August 31, 1994. During fiscal 1995, the
remaining cash collateral held by the Company was returned to the sellers
as a result of the expiration or termination of their respective master
lease agreements.
The lender escrows are amounts held by various mortgage lenders to be
released upon the completion of certain construction projects and other
events relating to the individual property refinancings or acquisitions.
The balance of the lender escrows amounted to approximately $75,000 and
$172,000 at August 31, 1995 and 1994, respectively.
The Company maintains separate real estate tax and insurance premium
escrows for each property. The balance of these escrows was approximately
$992,000 and $778,000 at August 31, 1995 and 1994, respectively. Real
estate tax and insurance premium escrows for Cross Creek Plaza, Cypress Bay
Plaza, Marion Towne Center, Southside Plaza and Walterboro Plaza are
controlled by the respective mortgage lenders. The remainder of the funds
segregated for the payment of real estate taxes and insurance premiums are
not restricted by third parties.
E. CAPITAL IMPROVEMENT RESERVE
The Company has elected to fund a capital improvement reserve to cover
the cost of future capital improvement expenditures. The balance of the
capital improvement reserve at August 31, 1995 and 1994
E-35
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
was approximately $1,201,000 and $1,182,000, respectively. The Company is
currently funding $.06 per square foot of leasable space owned
(approximately 4.4 million square feet as of August 31, 1995), on an annual
basis, to the reserve. The amount funded may be adjusted by the Company,
from time to time, when considered appropriate given the amount of capital
improvements anticipated.
The reserve also includes funds that were retained by the Company at the
acquisition of certain properties to pay for items deemed to be the
responsibility of the sellers. As of August 31, 1995 and 1994, these funds
included in the capital improvement reserve totalled $50,000 and $62,000,
respectively. The capital improvement reserve is not restricted by any
third parties.
F. ORGANIZATION COSTS AND DEFERRED EXPENSES
Organization costs consisted of legal fees incurred in connection with
the organization of the Company. Organization costs were amortized using
the straight-line method over a 60-month period and were fully amortized as
of August 31, 1994. Deferred expenses as of August 31, 1995 and 1994
include costs incurred in connection with the mortgage notes payable,
leasing commissions and computer software. Capitalized loan costs are
amortized using the straight-line method over the term of the related
loans, which range from 3 to 20 years (see Note 5). The amortization of
capitalized loan costs is included in interest expense on the accompanying
statements of operations. Leasing commissions are amortized using the
straight-line method over the term of the related lease, generally 3 to 5
years. Software costs are being amortized using the straight-line method
over a 60-month period. As discussed further in Note 4, due to the
Company's plans to pursue a sale of its operating investment properties,
deferred leasing commissions as of August 31, 1995 were reclassified as
part of the balance of operating investment properties held for sale for
purposes of measuring the expected losses to be incurred upon disposal.
G. OFFERING COSTS
Offering costs consist primarily of selling commissions and other costs
such as printing and mailing costs, legal fees, filing fees and other
marketing costs associated with the initial offering of Shares. Selling
commissions incurred in connection with the Company's initial public
offering were equal to approximately 8% of the gross proceeds raised.
Commissions totalling $7,984,000 were paid to PaineWebber Incorporated in
connection with the sale of Shares from the initial public offering. All of
the offering costs associated with the initial public offering are shown as
a reduction of additional paid-in capital on the accompanying balance
sheets.
H. REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the life of
the related lease agreements. The revenue recognition method takes into
consideration scheduled rent increases. As of August 31, 1995 and 1994, the
difference between the revenue recorded on the straight-line method and the
payments made in accordance with the lease agreements totalled $305,000 and
$255,000, respectively. The amount of such deferred rent receivable is
included in the balance of interest and other receivables as of August 31,
1994. As discussed further in Note 4, due to the Company's plans to pursue
a sale of its operating investment properties, deferred rent receivable as
of August 31, 1995 was reclassified as part of the balance of operating
investment properties held for sale for purposes of measuring the expected
losses to be incurred upon disposal. The Company uses the allowance method
to account for bad debt expense on its tenant receivables.
I. COMMON STOCK AND EARNINGS PER SHARE OF COMMON STOCK
Effective September 7, 1993, the shareholders voted to increase the
number of authorized shares of common stock from 12,500,000 to 25,000,000
and approved a 1 for 2 reverse stock split to shareholders of
E-36
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
record on such date. The stated par value per share of common stock was not
changed from $.01. A total of $50,100 was reclassified from the stated
value of common stock to additional paid-in capital in connection with the
reverse stock split. Effective November 4, 1994, the shareholders voted to
increase the number of authorized shares of common stock from 25,000,000 to
50,000,000.
The earnings and cash dividends declared per share of common stock on the
accompanying statements of operations are based upon the weighted average
number of shares outstanding on a daily basis during each of the three
years in the period ended August 31, 1995, of 5,010,050, as adjusted for
the 1 for 2 reverse stock split.
J. FAIR VALUE DISCLOSURES
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments" ("SFAS 107"), requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. SFAS 107 excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported on the
balance sheet for cash and cash equivalents approximates its fair
value.
Escrowed cash: The carrying amount reported on the balance sheet for
escrowed cash approximates its fair value.
Capital improvement reserve: The carrying amount reported on the
balance sheet for capital improvement reserve approximates its fair
value.
Note payable--affiliate: The fair value of the long-term note payable
to an affiliate was estimated using discounted cash flow analyses based
on the Company's current incremental borrowing rate for long-term
indebtedness.
Mortgage notes payable: The fair value of the Company's long-term
mortgage indebtedness was estimated using discounted cash flow analyses
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial
instruments at August 31, 1995 are as follows (amounts in thousands):
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
Cash and cash equivalents....................... $ 5,943 $ 5,943
Escrowed cash................................... 1,067 1,067
Capital improvement reserve..................... 1,201 1,201
Note payable--affiliate......................... 1,168 914
Mortgage notes payable, net..................... 156,508 165,206
</TABLE>
E-37
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. THE ADVISORY AGREEMENT AND RELATED PARTY TRANSACTIONS
The Company has entered into an advisory agreement with PaineWebber Realty
Advisors, L.P. (the "Advisor") to perform various services in connection with
the sale of the Shares, the management of the Company and the acquisition,
management and disposition of the Company's investments. The Advisor is a
limited partnership composed of PaineWebber Properties Incorporated ("PWPI")
as the general partner and Properties Associates, L.P. ("PA") as the limited
partner. Both partners of the Advisor are affiliates of PaineWebber
Incorporated ("PWI"), which is a wholly owned subsidiary of PaineWebber Group
Inc. ("PaineWebber"). The advisory agreement is renewable on an annual basis
at the discretion of the Company's Board of Directors. The type of
compensation to be paid by the Company to the Advisor and its affiliates under
the terms of the Advisory Agreement is as follows:
(i) Under the Advisory Agreement, the Advisor has specific management
responsibilities to perform day-to-day operations of the Company and to
act as the investment advisor and consultant for the Company in
connection with general policy and investment decisions. The Advisor
will receive an annual Asset Management Fee and an Advisory Incentive
Fee of 0.25% and 0.25%, respectively, of the Capital Contributions of
the Company. The Advisory Incentive Fee is subordinated to the
shareholders' receipt of distributions of net cash sufficient to
provide a return equal to 8% per annum on their Invested Capital, as
defined. During the quarter ended February 28, 1994, the payment of
regular quarterly distributions was temporarily suspended. Accordingly,
the Advisor has not earned any Advisory Incentive Fees since December
1, 1993. Furthermore, during the quarter ended May 31, 1994 the Advisor
agreed to waive its rights to the collection of previously deferred
Advisory Incentive Fees in the aggregate amount of $76,000. This amount
is reflected as a reduction of management fee expense for the year
ended August 31, 1994. Effective March 1, 1995, the Advisor agreed to
waive its management fees for a period of at least one year in order to
maximize the Company's earnings and cash flow while certain strategic
plans regarding the Company's future operations are evaluated and
implemented. The Advisor earned total management fees of $125,000,
$237,000 and $501,000 for the period September 1, 1994 through February
28, 1995 and the years ended August 31, 1994 and 1993, respectively.
Accounts payable--affiliates at August 31, 1994 included management
fees payable to the Advisor totalling $62,000.
(ii) For its services in finding and recommending investments, and for
analyzing, structuring and negotiating the purchase of properties by
the Company, PWPI was to receive non-recurring Acquisition Fees equal
to 3% of the Capital Contributions. PWPI received acquisition fees in
connection with the Company's real estate investments in the amount of
$3,006,000.
(iii) Fees equal to 1/2 of 1% of any financing and 1% of any refinancing
obtained by the Company for which the Advisor renders substantial
services, and for which no fees are paid to a third party, will be
paid to the Advisor as compensation for such services. No such fees
had been earned as of August 31, 1995.
(iv) Upon disposition of the Company's investments, the Advisor may earn
sales commissions and disposition fees. These fees and commissions
will be subordinated to the repayment to shareholders of their Capital
Contributions plus certain minimum returns on their Invested Capital.
In no event will the disposition fees exceed an amount equal to 15% of
Disposition Proceeds remaining after the shareholders have received an
amount equal to their Capital Contributions plus a return on Invested
Capital of 6% per annum, cumulative and noncompounded. No disposition
fees or sales commissions have been earned as of August 31, 1995.
Financial and investor servicing expenses represent reimbursements to an
affiliate of the Advisor for providing certain financial, accounting and
investor communication services to the Company. Effective March 1, 1995, the
Advisor agreed that it will not be reimbursed for providing these services to
the Company. As with the
E-38
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
management fees described above, the Advisor has agreed to waive these
servicing fees for a period of at least one year in order to maximize the
Company's earnings and cash flow while certain strategic plans regarding the
Company's future operations are evaluated and implemented. For the period
September 1, 1994 through February 28, 1995 and the years ended August 31,
1994 and 1993, the Company paid $111,000, $260,000 and $262,000, respectively,
to this affiliate for providing such services to the Company.
Mitchell Hutchins Institutional Investors, Inc. ("Mitchell Hutchins")
provides cash management services with respect to the Company's cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc.,
an independently operated subsidiary of PaineWebber. For the years ended
August 31, 1995, 1994 and 1993, Mitchell Hutchins earned fees of $8,000,
$8,000 and $40,000, respectively, for managing the Company's cash assets.
Accounts payable--affiliates at August 31, 1995 and 1994 includes $4,000 and
$5,000, respectively, payable to Mitchell Hutchins.
The Company has engaged the services of a consulting firm for certain
professional services related to its mortgage loan refinancing and acquisition
due diligence activities. The consulting firm is a partnership in which Mr.
Robert J. Pansegrau is one of two current partners. Mr. Pansegrau is formerly
a Senior Vice President of the Company who resigned effective March 31, 1993.
The consulting firm received fee compensation from the Company totalling
approximately $186,000, $282,000 and $215,000 for the years ended August 31,
1995, 1994 and 1993, respectively. The consulting firm also received
reimbursement for out-of-pocket expenses of approximately $79,000, $167,000
and $83,000 for the years ended August 31, 1995, 1994 and 1993, respectively.
In June 1995, the Company secured a new mortgage loan in the amount of
$4,000,000 to repay a portion of the first mortgage loan held by PWPI which
was secured by the Applewood Village operating property in the amount of
$5,175,000 (see Note 5). PWPI agreed to make an unsecured loan for the
difference, in the amount of $1,175,000, which has a 15-year term and carries
an interest rate tied to PWPI's cost of funds, not to exceed 8% per annum. The
note is fully amortizing over its term and requires monthly payments of
principal and interest through maturity in June 2010. The balance of this note
payable to affiliate as of August 31, 1995 was $1,168,000. Interest expense
incurred by the Company in fiscal 1995 under the terms of this note agreement
totalled $12,000.
4. OPERATING INVESTMENT PROPERTIES
Through August 31, 1995, the Company had acquired 22 Wal-Mart anchored
shopping centers. The ownership of the Company's operating properties
described below is legally held by four limited partnerships in which the
Company is the sole general partner. These partnerships were created in order
to, among other things, facilitate the communication of income tax information
to the Company's shareholders. The limited partner of the partnerships is
PaineWebber Properties Incorporated ("PWPI"), which is the general partner of
the Advisor (see Note 3). The economic interest of PWPI in the partnerships is
generally limited to a share of the Company's Disposition Proceeds, as
defined, to which the Advisor was originally entitled through the Disposition
Fee, as defined in the Company's original offering prospectus. Per the terms
of the limited partnership agreements, all distributions of operating cash
flow generated to date have been allocated to the Company. Furthermore, as a
limited partner in the partnerships, PWPI has no control over the operations
of the partnerships or of the operating properties, other than in its capacity
as a partner of the Advisor. The legal ownership of the Company's operating
investment properties by the partnerships has virtually no impact on the
Company's financial position or results of operations. Accordingly, the
partnerships are consolidated with the Company for financial reporting
purposes. The name, location and size of the acquired properties, along with
information related to the respective purchase prices and adjusted cost basis
as of August 31, 1995, are as follows (in thousands):
E-39
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
COSTS
NAME ACQUISITION CAPITALIZED MASTER ADJUSTED
LOCATION DATE PURCHASE FEES AND SUBSEQUENT TO LEASE COST AT
SIZE ACQUIRED PRICE(1) EXPENSES(2) ACQUISITION PAYMENTS(3) 8/31/95
- -------- -------- -------- ----------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Village Plaza........... 8/16/89 $23,975 $394 $826 $618 $24,577
Augusta, GA
490,970 square feet
Logan Place............. 1/18/90 4,917 189 16 232 4,890
Russellville, KY
114,748 square feet
Piedmont Plaza.......... 1/19/90 13,500 263 29 107 13,685
Greenwood, SC
249,052 square feet
Artesian Square......... 1/30/90 6,990 203 989 392 7,790
Martinsville, IN
177,428 square feet
Sycamore Square......... 4/26/90 4,970 172 23 130 5,035
Ashland City, TN
93,304 square feet
Audubon Village......... 5/22/90 6,350 215 30 -- 6,595
Henderson, KY
124,592 square feet
Crossroads Centre....... 6/15/90 9,914 246 35 -- 10,195
Knoxville, TN
242,430 square feet
East Pointe Plaza....... 8/07/90 13,936 269 437 306 14,336
Columbia, SC
238,722 square feet
Walterboro Plaza - ..... 12/19/90 6,645 284 14 136 6,807
Phases I and II
Walterboro, SC
132,130 square feet
Cypress Bay Plaza....... 12/19/90 12,235 215 88 522 12,016
Morehead City, NC
258,245 square feet
Cross Creek Plaza....... 12/19/90 13,565 302 15 525 13,357
Beaufort, SC
237,801 square feet
Lexington Parkway
Plaza.................. 3/05/91 10,290 251 70 208 10,403
Lexington, NC
210,190 square feet
Roane County Plaza...... 3/05/91 7,000 197 -- 43 7,154
Rockwood, TN
160,198 square feet
Franklin Square......... 6/21/91 9,018 232 45 26 9,269
Spartanburg, SC
237,062 square feet
Barren River Plaza...... 8/09/91 11,788 412 49 57 12,192
Glasgow, KY
234,795 square feet
Cumberland Crossing..... 8/09/91 7,458 370 31 116 7,743
LaFollette, TN
144,734 square feet
</TABLE>
E-40
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
COSTS
NAME ACQUISITION CAPITALIZED MASTER ADJUSTED
LOCATION DATE PURCHASE FEES AND SUBSEQUENT TO LEASE COST AT
SIZE ACQUIRED PRICE(1) EXPENSES(2) ACQUISITION PAYMENTS(3) 8/31/95
- -------- -------- -------- ----------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Applewood Village....... 10/25/91 $ 6,965 $ 389 $ -- $ 25 $ 7,329
Fremont, OH
140,039 square feet
Aviation Plaza.......... 8/31/92 8,349 337 -- -- 8,686
Oshkosh, WI
174,715 square feet
Crossing Meadows Plaza.. 8/31/92 12,100 356 6 -- 12,462
Onalaska, WI
233,984 square feet
Southside Plaza......... 10/21/92 9,200 356 7 -- 9,563
Sanford, NC
172,293 square feet
College Plaza........... 4/29/93 9,900 461 -- 2 10,359
Bluefield, VA
178,431 square feet
Marion Towne Center..... 6/23/93 7,907 624 -- -- 8,531
Marion, SC
156,558 square feet
-------- ------ ------ ------ --------
$216,972 $6,737 $2,710 $3,445 $222,974
======== ====== ====== ====== ========
</TABLE>
- --------
(1) At the closing of certain property acquisitions, a portion of the purchase
price amounts were retained by the Company to pay for certain items deemed
to be the responsibility of the sellers. These amounts are included in
security deposits and other liabilities on the accompanying balance sheet
and totalled approximately $62,000 at August 31, 1994. All such amounts
had been released as of August 31, 1995.
(2) Acquisition fees and expenses include the 3% fee payable to PWPI (see Note
3) and other capitalized costs incurred in connection with the acquisition
of the properties (e.g. legal fees, appraisal fees, other closing costs,
etc.). Certain expenses incurred to investigate potential investments are
recorded as other assets pending the closing of a transaction and are
reclassified after acquisition to the cost basis of the related property.
Expenses incurred to review potential investments which are subsequently
not acquired by the Company are charged to investment analysis expense
once the Company stops pursuing the acquisition.
(3) The Company originally entered into master lease agreements with the
sellers and certain of their affiliates (the "Guarantors") of each of the
operating properties acquired. The master lease agreements generally
provide that, for a period of up to 36 to 60 months (depending on the
credit status of the tenant in occupancy) from the date of the acquisition
of the operating property, the Guarantors will guarantee that the
aggregate cash flow from all non-anchor tenants will not be less than the
aggregate pro-forma net cash flow from non-anchor tenants projected at the
time of the purchase. In the event that the actual aggregate net cash flow
is less than the guaranteed amount, the Guarantors are obligated to make
cash payments to the Company equal to any such deficit. All amounts earned
under the master lease agreements are treated as purchase price
adjustments and recorded as reductions to the carrying values of the
related operating property for financial reporting purposes. Certain of
the Guarantors secured their guarantees with cash collateral held by the
Company or with letters of credit. During the quarter ended February 28,
1995, the Company entered into a settlement agreement related to the
outstanding master lease obligations on the Southside Plaza and Collage
Plaza properties, which were both with the only remaining lessee for which
the Company held cash collateral. During the quarter ended May 31, 1995,
the Company entered into a similar settlement agreement related to the
Aviation Plaza and Crossing Meadows master lease obligations. As part of
these settlement agreements, the Company agreed to the early termination
of the respective
F-41
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
master leases and to the release of the related cash collateral or letters
of credit in return for the agreement of the related management agent to
certain changes to the property management contracts. The master leases
which were terminated as part of these settlements related to properties
which currently do not generate any master lease payments based on their
present leasing status. Applewood Village is the only property remaining
under a master lease and currently is not generating any master lease
payments based on the present leasing level. The Applewood Village master
lease is scheduled to expire in November 1996.
As discussed in Note 1, as a result of the decision by the Board of
Directors to solicit offers to purchase the Company's portfolio of properties
in the near term, the accompanying statement of operations for fiscal 1995
includes a loss of $3,850,000 to reflect the writedown of the individual
operating investment properties and certain related assets to the lower of
adjusted cost or net realizable value as of August 31, 1995. Such loss applies
only to the properties for which losses are expected based on the estimated
fair values. The expected gains on properties for which the estimated fair
value less costs to sell exceeds the adjusted cost basis will be recognized in
the period in which a sale transaction is completed. The Company will continue
to recognize depreciation on its assets held for sale through the date of
disposal. Operating investment properties held for sale on the accompanying
balance sheet as of August 31, 1995 is comprised of the following amounts (in
thousands):
<TABLE>
<S> <C>
Land............................................................. $ 37,845
Buildings and improvements....................................... 175,453
Furniture and equipment.......................................... 9,676
--------
222,974
Less: accumulated depreciation................................... (27,409)
--------
195,565
Deferred rent receivable......................................... 305
Deferred leasing commissions, net................................ 291
--------
196,161
Less: Allowance for possible impairment loss..................... (3,850)
--------
$192,311
========
</TABLE>
E-42
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. MORTGAGE NOTES PAYABLE
Mortgage notes payable, reduced by unamortized loan buydown fees (see below),
at August 31, 1995 and 1994 consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Mortgage notes payable to a financial institution which
are secured by Village Plaza, $ 49,005 $ 76,495
Piedmont Plaza, Artesian Square, Logan Place, Sycamore
Square and Crossroads (2,504) (3,104)
-------- --------
Centre as of August 31, 1995. In addition, notes 46,501 73,391
secured by Cross Creek Plaza, Cypress Bay Plaza and
Walterboro Plaza in the aggregate principal amount of
$22,710, which were due to mature in December 1994,
were refinanced in December 1994, and the mortgage
note secured by Audubon Village in the amount of
$4,780, which was due to mature on September 1, 1995,
was refinanced in June 1995. Maturity dates for the
six remaining loans range from November 1, 1999 to
July 1, 2000. The balance of these mortgage notes
require monthly payments of interest only at 8% for
the first seven years and then principal and interest
at 8% until maturity. These notes contain certain
cross default and cross collateral provisions. See
discussion of effective interest rates and loan
buydown fees below.
Mortgage notes payable to a financial institution which
are secured by East Pointe 24,678 24,917
Plaza, Cumberland Crossing and Barren River Plaza. The
mortgage note on East (1,022) (1,160)
-------- --------
Pointe Plaza, in the principal amount of $11,150, 23,656 23,757
calls for monthly interest only payments at 8% per
annum through June 1996. The balance of these mortgage
notes require monthly payments of principal and
interest at 8% through June 1996. After June 1996,
monthly payments of principal and interest, at a rate
to be determined by the lender, are due on all three
notes until maturity on June 10, 2001. These notes
contain certain cross default and cross collateral
provisions. See discussion of effective interest rates
and loan buydown fees below.
Mortgage note payable to a financial institution
secured by Franklin Square as of 6,600 26,400
August 31, 1995. In addition, the note secured by
Applewood Village in the amount (83) (670)
-------- --------
of $5,175, which was payable to PWPI and due to mature 6,517 25,730
on November 1, 1995, was refinanced in June 1995; the
note secured by Walterboro Phase II in the amount of
$1,650, due to mature on July 1, 1995, was refinanced
in December 1994; and the notes secured by Lexington
Parkway Plaza and Roane County Plaza in the aggregate
principal amount of $12,975, which were payable to
PWPI and due to mature in April 1996, were refinanced
in February 1995. The remaining note requires monthly
interest only payments at 8% per annum until maturity
on June 21, 1996. See discussion of effective interest
rates and loan buydown fees below.
Mortgage note payable to a financial institution se- 23,680 --
cured by Cross Creek Plaza, Cypress Bay Plaza and Wal-
terboro Plaza (Phases I and II). The loan bears inter-
est at a variable rate equal to 30-day LIBOR plus
3.50% per annum for the first twelve months (9.56% as
of August 31, 1995), 30-day LIBOR plus 3.75% for the
next twelve months and 30-day LIBOR plus 4.25% for the
final twelve months. Monthly payments of interest and
principal (based on a 15-year amortization schedule)
are due until maturity on December 10, 1997. The Com-
pany purchased an interest rate cap which covers the
first twelve months of the loan period. The interest
rate cap limits the Company's exposure to the variable
interest rate in the event that 30-day LIBOR rates in-
crease above 8% per annum, which would limit the in-
terest rate on the loan to a maximum of 11.5% through
December 1995.
</TABLE>
E-43
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Mortgage notes payable to a financial institution $ 17,487 $ --
secured by Audubon Village, Lexington Parkway Plaza
and Roane County Plaza. The notes secured by the
Lexington and Roane properties bear interest at a
fixed rate of 9.125% per annum and require monthly
payments of principal and interest aggregating $119
through maturity on March 1, 2015. The note secured by
Audubon Village bears interest at 8.75% per annum and
requires monthly payments of principal and interest of
$43 through maturity on June 1, 2000.
Mortgage notes payable to a financial institution which
are secured by Aviation Plaza 16,321 16,405
and Crossing Meadows. Monthly payment terms for the
loan secured by Aviation (815) (991)
-------- --------
Plaza, in the principal amount of $6,800,000, call for 15,506 15,414
interest only payments at 8% per annum through August
1, 1995 and principal and interest payments at 8%
thereafter until maturity. The loan secured by
Crossing Meadows requires monthly payments, including
interest at 8% per annum, of $71 until maturity. Both
notes are scheduled to mature on June 1, 1999. See
discussion of effective interest rates and loan
buydown fees below.
Mortgage note payable to a financial institution which
is secured by Southside Plaza. 6,686 6,779
The note requires monthly payments, including interest
at 6.83% per annum, of $46 (219) (283)
-------- --------
until maturity on November 5, 1997. See discussion of 6,467 6,496
effective interest rates and loan buydown fees below.
Mortgage note payable to a bank which is secured by 6,898 6,939
College Plaza. Interest on the note accrues at prime
plus .75% per annum (9.5% as of August 31, 1995).
Monthly payments equal to the greater of $58 or ac-
crued interest for such month are payable until matu-
rity on April 23, 1996.
Mortgage note payable to a financial institution which 5,817 5,872
is secured by Marion Towne Center. The note, which was
issued on June 23, 1993, calls for monthly payments,
including interest at 8% per annum, of $44 until matu-
rity on July 1, 2002. The lender has the option, upon
120 days' written notice, to call the loan due at the
end of each of the third year and the sixth year of
the loan. If the loan is not called at such time, the
lender may adjust the interest rate.
Mortgage note payable to a financial institution se- 3,979 --
cured by Applewood Village. The note bears interest at
9% per annum and requires monthly principal and inter-
est payments of $41 until maturity on June 10, 2010.
-------- --------
Total mortgage notes payable, net $156,508 $157,599
======== ========
SUMMARY OF OUTSTANDING MORTGAGE NOTES PAYABLE
Total outstanding mortgage principal balances as of
August 31, 1995 and August 31, 1994 $161,151 $163,807
Aggregate unamortized loan buydown fees (4,643) (6,208)
-------- --------
Total mortgage notes payable, net $156,508 $157,599
======== ========
</TABLE>
At the time of the closing of certain of the mortgage notes listed above,
the Company paid fees to the lenders in return for the lenders' agreement to
reduce the stated interest rate on the loans to 8% per annum (6.83% in the
case of Southside Plaza) over the terms of the loans. The fees have been
recorded as reductions of the outstanding principal amounts and are being
amortized, using the effective interest method, over the terms of the
respective loans. The effective interest rates on these outstanding loans
ranged from 8.47% to 9.76% per annum as of August 31, 1995.
E-44
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As discussed further in Note 1, the Company is currently in the process of
soliciting offers for the purchase of the operating investment properties
which serve as collateral for the above mortgage loans. The obligation to
repay the lenders with respect to such loans at the time of any potential sale
transaction would be equal to the outstanding mortgage principal balance prior
to unamortized loan buydown fees. In conjunction with a sale transaction, the
amount of any remaining unamortized buydown fees would be written off as a
loss on the early extinguishment of debt. In addition, certain of the
Company's outstanding mortgage loans include substantial prepayment penalties.
In the event that the Company proceeds with a portfolio sale transaction in
the near term, such penalties would be payable to the lenders unless the
prospective buyer agrees to assume the outstanding loan, if permitted under
the terms of the loan agreement, or unless the Company can negotiate any
reduction in the contractual amounts owed. Any prepayment penalties paid by
the Company would be recorded as a loss on the early extinguishment of debt.
The Company is not in technical compliance with provisions in certain of the
above mortgage loan agreements which require formal lender approval of all
property expansions and lease modifications. Under the terms of the loan
agreements, failure to comply with such terms may constitute events of
default. Management has been working with the lenders to obtain the necessary
approvals and believes that all instances of non-compliance will be cured
during fiscal 1996. The instances of non-compliance relate to six loans with
three different lenders. Such loans had aggregate principal balances of
approximately $58,322,000 as of August 31, 1995. The summary of scheduled debt
maturities presented below shows the adjusted maturities which reflect the
changes which would occur if the lenders on these six loans were to declare
defaults and accelerate the loan obligations as a result of these
circumstances. The lenders have not indicated that they have any intentions of
declaring defaults on the related mortgage loans in connection with these
administrative matters and management would not expect them to do so as long
as diligent efforts continue to be made to resolve the outstanding issues.
Aggregate maturities of mortgage notes payable for the next five years and
thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT AS
ADJUSTED TO
REFLECT LOANS
IN TECHNICAL DEFAULT
YEAR ENDED AUGUST 31: AS DUE IMMEDIATELY
--------------------- --------------------
<S> <C>
1996.................................................. $ 66,784
1997.................................................. 1,851
1998.................................................. 21,424
1999.................................................. 17,128
2000.................................................. 22,085
Thereafter............................................ 31,879
--------
$161,151
========
</TABLE>
E-45
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. RENTAL INCOME
The Company derives rental income from leasing shopping center space. All of
the Company's leasing agreements are operating leases expiring in one to
twenty years. Base rental income of $22,183,000, $21,958,000 and $19,982,000
was earned for the years ended August 31, 1995, 1994 and 1993, respectively.
The following is a schedule of minimum future lease payments from
noncancellable operating leases as of August 31, 1995 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31:
---------------------
<S> <C>
1996.............................................................. $ 21,397
1997.............................................................. 19,617
1998.............................................................. 17,876
1999.............................................................. 16,921
2000.............................................................. 15,546
Thereafter........................................................ 129,929
--------
$221,286
========
</TABLE>
Total minimum future lease payments do not include percentage rentals due
under certain leases, which are based upon lessees' sales volumes. Percentage
rentals of approximately $160,000, $92,000 and $48,000 were earned for the
years ended August 31, 1995, 1994 and 1993, respectively. Virtually all tenant
leases also require lessees to pay all or a portion of real estate taxes and
certain property operating costs.
Rental income of approximately $7,913,000, $7,913,000 and $7,237,000 was
received from leases with Wal-Mart and its affiliates for the years ended
August 31, 1995, 1994 and 1993 respectively. Such amounts comprise 36% of
total base rental income for each of those years. No other tenant has
accounted for more than 10% of the Company's rental income during any period
since inception.
7. CONTINGENCIES
In November 1994, a series of purported class actions (the "New York Limited
Partnership Actions") were filed in the United States District Court for the
Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership interests and common stock,
including the securities offered by the Company. The lawsuits were brought
against PaineWebber Incorporated and Paine Webber Group, Inc. (together,
"PaineWebber"), among others, by allegedly dissatisfied investors. In March
1995, after the actions were consolidated under the title In re PaineWebber
Limited Partnership Litigation, the plaintiffs amended their complaint to
assert claims against a variety of other defendants, including PaineWebber
Properties Incorporated, which is the General Partner of the Advisor. The
Company is not a defendant in the New York Limited Partnership Actions. On May
30, 1995, the court certified class action treatment of the claims asserted in
the litigation.
The amended complaint in the New York Limited Partnership Actions alleges,
among other things, that, in connection with the sale of common stock of the
Company, the defendants (1) failed to provide adequate disclosure of the risks
involved; (2) made false and misleading representations about the safety of
the investments and the Company's anticipated performance; and (3) marketed
the Company to investors for whom such investments were not suitable. The
plaintiffs, who are not shareholders of the Company but are suing on behalf of
all persons who invested in the Company, also allege that following the sale
of the common stock of the Company the defendants misrepresented financial
information about the Company's value and performance. The amended complaint
alleges that the defendants violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
seek unspecified damages, including reimbursement for
E-46
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
all sums invested by them in the Company, as well as disgorgement of all fees
and other income derived by PaineWebber from the Company. In addition, the
plaintiffs also seek treble damages under RICO.
The defendant's time to move against or answer the complaint has not yet
expired, but the Company is informed that PWPI intends to vigorously contest
the allegations of this litigation. The Advisory Agreement and the Company's
Articles of Incorporation require the Company to indemnify the Advisor and
other PaineWebber affiliates for costs and liabilities of litigation in
certain limited circumstances. Management has had discussions with
representatives of PaineWebber, and, based on such discussions, the Company
does not believe that PaineWebber intends to invoke the indemnity. However, if
PaineWebber were to demand the indemnity and such obligation were deemed
applicable and enforceable in connection with the New York Limited Partnership
Actions, the indemnity could have a material adverse effect on the Company's
financial statements, taken as a whole. The ultimate outcome of this matter
cannot be determined at the present time. Accordingly, no provision for any
liability that may result from such indemnification has been made in the
accompanying financial statements.
The Company is a party to certain other legal actions in the normal course
of business. Management believes these actions will be resolved without
material adverse effect on the Company's financial statements, taken as a
whole.
8. SUBSEQUENT EVENTS
As reported in the Special Update to Shareholders dated March 15, 1996, the
Company announced the execution of a definitive agreement for the sale of its
assets to Glimcher Realty Trust ("GRT"). Under the original terms of the
agreement, GRT was to have purchased the properties of the Company subject to
certain indebtedness and leases for an aggregate purchase price of
approximately $203 million plus prepayment penalties on debt to be prepaid and
assumption fees on debt to be assumed, subject to certain adjustments. As of
May 14, 1996, the terms of the purchase contract were amended to reduce the
aggregate purchase price to $197 million plus prepayment penalties and
assumption fees. The sale transaction closed into escrow on June 27, 1996 with
GRT depositing the net proceeds required to close the transaction in the form
of bank letters of credit. Consummation of the sale remains subject to
approval by the shareholders of the Company and may also be terminated by the
Company in accordance with the fiduciary obligations of its Board of
Directors. During the escrow period in which the Company will seek to obtain
the required shareholder approval, the Company's operating properties will be
managed by GRT pursuant to a management agreement which is cancellable in the
event that the sale is not completed. Under the terms of the management
agreement, GRT will receive a base fee of 3% of the gross operating revenues
of the properties. In addition, in the event that the sale is successfully
consummated, GRT would earn an incentive management fee equal to the net cash
flow of the properties attributable to the period commencing on May 14, 1996
and ending on the date of the final closing of the sale transaction. If the
sale is completed, the Company will be entitled to interest earnings during
the escrow period on net proceeds of approximately $37,401,000 at a rate
equivalent to the published market rate on 6-month U.S. Treasury Bills as of
June 20, 1996. The sale agreement with GRT calls for GRT to receive certain
compensatory payments in the event that the sale is not consummated for
certain specified reasons. A proxy statement regarding the sale transaction is
currently being prepared, and it is expected that the Board will distribute it
to the Company's shareholders for approval during the fourth quarter of fiscal
1996. A Special Meeting of the shareholders is expected to be held in October
1996 to vote on the transaction and the complete liquidation and dissolution
of the Company. Pursuant to the Company's Articles of Incorporation and
Virginia law, the sale of all, or substantially all, of the Company's real
estate assets requires shareholder approval. Approval by two-thirds of the
Company's outstanding shares would be required in order to proceed with the
sale transaction. In the event that the sale transaction is approved and
completed, the Company is expected to be liquidated within a reasonable time
frame following the closing of the transaction.
E-47
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As discussed in Note 7, an affiliate of the Advisor to the Company was named
as a defendant in a class action lawsuit against PaineWebber Incorporated
("PaineWebber") and a number of its affiliates relating to PaineWebber's sale
of 70 direct investment offerings, including the offering of shares of the
Company's common stock. In January 1996, PaineWebber signed a memorandum of
understanding with the plaintiffs in this class action outlining the terms
under which the parties have agreed to settle the case. Pursuant to that
memorandum of understanding, PaineWebber irrevocably deposited $125 million
into an escrow fund under the supervision of the United States District Court
for the Southern District of New York to be used to resolve the litigation in
accordance with a definitive settlement agreement and a plan of allocation
which the parties expect to submit to the court for its consideration and
approval within the next several months. Until a definitive settlement and
plan of allocation is approved by the court, there can be no assurance what,
if any, payment or non-monetary benefits will be made available to
shareholders in Retail Property Investors, Inc. Under certain limited
circumstances, pursuant to the Advisory Agreement and other contractual
obligations, PaineWebber affiliates could be entitled to indemnification for
expenses and liabilities in connection with this litigation. However, by
written agreement dated April 1, 1996 PaineWebber and its affiliates have
waived all such rights with regard to this litigation and any other similar
litigation that has been or may be threatened, asserted or filed by or on
behalf of purchasers of the Company's common stock. Thus, the Advisor believes
that these matters will have no material effect on the Company's financial
statements, taken as a whole.
E-48
<PAGE>
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
RETAIL PROPERTY INVESTORS, INC.
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AUGUST 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST TO GROSS AMOUNT AT WHICH CARRIED AT
PARTNERSHIP CLOSE OF PERIOD
-------------------- COSTS -----------------------------------
BUILDINGS CAPITALIZED BUILDINGS,
IMPROVEMENTS (REMOVED) IMPROVEMENTS TOTAL, LESS
& PERSONAL SUBSEQUENT TO & PERSONAL ALLOWANCE FOR ACCUMULATED
DESCRIPTION ENCUMBRANCES (A) LAND PROPERTY ACQUISITION (B) LAND PROPERTY IMPAIRMENT (C) DEPRECIATION
----------- ---------------- ------- ------------ --------------- ------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Cen- $ 18,900 $ 6,307 $ 18,062 $ 208 $ 6,307 $ 18,270 $ 24,577 $3,741
ter.............
Augusta, GA
Shopping Cen-
ter.............
Greenwood, SC 10,125 1,532 12,231 (78) 1,532 12,153 13,685 2,234
Shopping Cen-
ter.............
Russellville, KY 3,715 448 4,659 (245) 448 4,442 4,890 817
(28)
--------
4,862
Shopping Cen-
ter.............
Martinsville, IN 5,340 730 6,464 596 730 7,060 7,790 1,263
Shopping Cen-
ter.............
Ashland City, TN 3,595 616 4,527 (576) 616 4,419 5,035 887
(468)
--------
4,567
Shopping Cen-
ter.............
Henderson, KY 4,506 704 5,860 (226) 704 5,891 6,595 1,000
(257)
--------
6,338
Shopping Cen-
ter.............
Knoxville, TN 7,330 1,813 8,347 (83) 1,813 8,382 10,195 1,441
(118)
--------
10,077
Shopping Cen-
ter.............
Columbia, SC 11,150 4,244 9,965 (250) 4,244 10,092 14,336 1,815
(377)
--------
13,959
Shopping Cen- 9,785 3,292 10,578 (513) 3,292 10,065 13,357 1,513
ter.............
Beaufort, SC
Shopping Cen- 9,002 1,104 11,346 (434) 1,104 10,912 12,016 1,724
ter.............
Morehead City,
NC
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
INCOME
DATE OF DATE STATEMENT
DESCRIPTION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ------------ -------- -------------
<S> <C> <C> <C>
Shopping Cen- 1988 8/16/89 12-40 yrs.
ter.............
Augusta, GA
Shopping Cen-
ter.............
Greenwood, SC 1990 1/19/90 12-40 yrs.
Shopping Cen-
ter.............
Russellville, KY 1988 1/18/90 12-40 yrs.
Shopping Cen-
ter.............
Martinsville, IN 1989 1/30/90 12-40 yrs.
Shopping Cen-
ter.............
Ashland City, TN 1990 4/26/90 12-40 yrs.
Shopping Cen-
ter.............
Henderson, KY 1989 5/22/90 12-40 yrs.
Shopping Cen-
ter.............
Knoxville, TN 1990 6/15/90 12-40 yrs.
Shopping Cen-
ter.............
Columbia, SC 1990 8/7/90 12-40 yrs.
Shopping Cen- 1990 12/19/90 12-40 yrs.
ter.............
Beaufort, SC
Shopping Cen- 1989 12/19/90 12-40 yrs.
ter.............
Morehead City,
NC
</TABLE>
E-49
<PAGE>
<TABLE>
<CAPTION>
INITIAL COST TO GROSS AMOUNT AT WHICH CARRIED AT
PARTNERSHIP CLOSE OF PERIOD
-------------------- COSTS -----------------------------------
BUILDINGS CAPITALIZED BUILDINGS,
IMPROVEMENTS (REMOVED) IMPROVEMENTS TOTAL, LESS
& PERSONAL SUBSEQUENT TO & PERSONAL ALLOWANCE FOR ACCUMULATED
DESCRIPTION ENCUMBRANCES (A) LAND PROPERTY ACQUISITION (B) LAND PROPERTY IMPAIRMENT (C) DEPRECIATION
----------- ---------------- ------- ------------ --------------- ------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Cen- 4,893 929 6,001 (361) 929 5,878 6,807 793
ter............ (238)
Walterboro, SC --------
6,569
Shopping Cen- 7,729 2,438 8,103 (275) 2,438 7,965 10,403 1,269
ter............ (137)
Lexington, NC --------
10,266
Shopping Cen- 5,252 1,280 5,918 (44) 1,280 5,874 7,154 918
ter............
Rockwood, TN
Shopping Cen- 6,600 2,361 6,888 20 2,361 6,908 9,269 1,032
ter............
Spartanburg, SC
Shopping Cen- 8,279 929 11,275 (152) 929 11,263 12,192 1,517
ter............ (140)
Glasgow, KY --------
12,052
Shopping Cen- 5,249 737 7,093 (177) 737 7,006 7,743 969
ter............ (90)
LaFollette, TN --------
7,653
Shopping Cen- 3,979 728 6,626 (1,372) 728 6,601 7,329 814
ter............ (1,347)
Fremont, OH --------
5,982
Shopping Cen- 6,795 1,806 6,880 -- 1,806 6,880 8,686 661
ter............
Osh Kosh, WI
Shopping Cen- 9,526 2,570 9,886 6 2,570 9,892 12,462 924
ter............
Onalaska, WI
Shopping Cen- 6,686 1,274 8,282 (274) 1,274 8,289 9,563 765
ter............ (281)
Sanford, NC --------
9,282
Shopping Cen- 6,898 1,626 8,735 (2) 1,626 8,733 10,359 693
ter............
Bluefield, VA
Shopping Cen- 5,817 377 8,153 (368) 377 8,154 8,531 619
ter............ -------- ------- -------- ------- ------- -------- (369) -------
Marion, SC --------
8,162
--------
$161,151 $37,845 $185,879 $(4,600) $37,845 $185,129 $219,124 $27,409
======== ======= ======== ======= ======= ======== ======== =======
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
INCOME
DATE OF DATE STATEMENT
DESCRIPTION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ------------ -------- -------------
<S> <C> <C> <C>
Shopping Cen- 1989 12/19/90 12-40 yrs.
ter............
Walterboro, SC
Shopping Cen- 1990 3/5/91 12-40 yrs.
ter............
Lexington, NC
Shopping Cen- 1989 3/5/91 12-40 yrs.
ter............
Rockwood, TN
Shopping Cen- 1987 6/21/91 12-40 yrs.
ter............
Spartanburg, SC
Shopping Cen- 1990 8/9/91 12-40 yrs.
ter............
Glasgow, KY
Shopping Cen- 1990 8/9/91 12-40 yrs.
ter............
LaFollette, TN
Shopping Cen- 1990 10/25/91 12-40 yrs.
ter............
Fremont, OH
Shopping Cen- 1990 8/31/92 12-40 yrs.
ter............
Osh Kosh, WI
Shopping Cen- 1991 8/31/92 12-40 yrs.
ter............
Onalaska, WI
Shopping Cen- 1991 10/21/92 3-40 yrs.
ter............
Sanford, NC
Shopping Cen- 1992 4/29/93 12-40 yrs.
ter............
Bluefield, VA
Shopping Cen- 1992 6/23/93 12-40 yrs.
ter............
Marion, SC
</TABLE>
E-50
<PAGE>
Notes
(A) See Note 5 of Notes to Financial Statements for a description of the debt
encumbering the properties.
(B) Included in Costs Capitalized (Removed) Subsequent to Acquisition are
certain master lease payments earned that are recorded as reductions in the
cost basis of the properties for financial reporting purposes. See Note 4
to the financial statements for a further description of these payments.
Also included in Costs Capitalized (Removed) Subsequent to Acquisition is
the provision for impairment loss described in Note C below.
(C) The gross amount reflected above includes an impairment loss of $3,850
recognized in fiscal 1995 to writedown the operating investment properties
to the lower of adjusted cost or net realizable value. See Notes 1, 2 and 4
for a further discussion. The aggregate cost of real estate owned at August
31, 1995 for Federal income tax purposes is approximately $219,529.
(D) Reconciliation of real estate owned:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year................... $222,814 $222,373 $193,310
Acquisitions and improvements.................. 178 767 29,772
Disposal of fully depreciated tenant improve-
ments......................................... (18) -- --
Reduction of basis due to master lease payments
received...................................... -- (326) (708)
Provision for loss on impairment of assets held
for sale...................................... (3,850) -- --
-------- -------- --------
Balance at end of year......................... $219,124 $222,814 $222,374
======== ======== ========
(E) Reconciliation of accumulated depreciation:
Balance at beginning of year................... $ 21,080 $ 14,863 $ 9,334
Depreciation expense........................... 6,347 6,217 5,529
Disposal of fully depreciated tenant improve-
ments......................................... (18) -- --
-------- -------- --------
Balance at end of year......................... $ 27,409 $ 21,080 $ 14,863
======== ======== ========
</TABLE>
E-51
<PAGE>
ANNEX F
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MAY 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-18247
RETAIL PROPERTY INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 04-3060233
(STATE ORGANIZATION) (I.R.S.EMPLOYER
IDENTIFICATION NO.)
1285 AVENUE OF THE AMERICAS, NEW YORK, 10019
NEW YORK (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(212) 713-4264
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ------------------- ------------------------
<S> <C>
Shares of Common Stocks None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
SHARES OF COMMON STOCK
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Shares of common stock outstanding as of May 31, 1996: 5,010,050. The
aggregate sales price of the shares sold was $100,201,000. This does not
reflect market value. There is no current market for these shares.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
BALANCE SHEETS
MAY 31, 1996 AND AUGUST 31, 1995 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
ASSETS
<CAPTION>
MAY 31 AUGUST 31
-------- ---------
<S> <C> <C>
Operating investment properties held for sale, net (Note
5)........................................................ $187,601 $192,311
Cash and cash equivalents.................................. 7,057 5,943
Escrowed cash.............................................. 1,167 1,067
Accounts receivable, net................................... 985 170
Other assets............................................... 45 77
Prepaid expenses........................................... 121 308
Capital improvement reserve................................ 1,331 1,201
Deferred expenses, net..................................... 1,100 1,467
-------- --------
$199,407 $202,544
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable--affiliates............................... $ 16 $ 4
Accounts payable and accrued expenses...................... 1,743 1,316
Mortgage interest payable.................................. 316 358
Security deposits and other liabilities.................... 153 768
Note payable--affiliate.................................... 1,136 1,168
Mortgage notes payable, net................................ 155,749 156,508
Shareholders' equity....................................... 40,294 42,422
-------- --------
$199,407 $202,544
======== ========
</TABLE>
See accompanying notes.
F-2
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 1996 AND 1995 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
-------------------- ------------------
1996 1995 1996 1995
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental income and expense reim-
bursements........................ $6,521 $6,501 $18,960 $19,108
Interest income.................... 118 89 363 217
--------- --------- -------- --------
6,639 6,590 19,323 19,325
Expenses:
Interest expense and related fees.. 3,661 3,654 11,093 11,240
Depreciation and amortization...... 1,598 1,590 4,837 4,775
Property operating expenses........ 648 675 1,933 1,759
Real estate taxes.................. 376 327 1,084 979
Portfolio sale expenses............ 551 -- 1,282 --
General and administrative ex-
penses............................ 290 352 676 1,237
Loss on impairment of assets held
for sale.......................... 128 -- 510 --
Bad debt expense................... 3 10 15 30
Cash management fees............... 10 2 21 6
Financial and investor servicing
expenses.......................... -- -- -- 111
REIT management fees............... -- -- -- 125
Investment analysis expense........ -- -- -- 101
--------- --------- -------- --------
7,265 6,610 21,451 20,363
--------- --------- -------- --------
Net loss............................. $ (626) $ (20) $ (2,128) $ (1,038)
========= ========= ======== ========
Net loss per share of common stock... $(0.12) $ (0.01) $ (0.42) $ (0.21)
========= ========= ======== ========
</TABLE>
The above net loss per share of common stock is based upon the 5,010,050
shares outstanding during each period.
See accompanying notes.
F-3
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MAY 31, 1996 AND 1995 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE ADDITIONAL
---------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Shareholders' equity at Au-
gust 31, 1994.............. 5,010 $ 50 $87,181 $(38,445) $ 48,786
Net loss.................... -- -- -- (1,038) (1,038)
------- ------ ------- -------- --------
Shareholders' equity at May
31, 1995................... 5,010 $ 50 $87,181 $(39,483) $ 47,748
======= ====== ======= ======== ========
Shareholders' equity at Au-
gust 31, 1995.............. 5,010 $ 50 $87,181 $(44,809) $ 42,422
Net loss.................... -- -- -- (2,128) (2,128)
------- ------ ------- -------- --------
Shareholders' equity at May
31, 1996................... 5,010 $ 50 $87,181 $(46,937) $ 40,294
======= ====== ======= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 1996 AND 1995 (UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (2,128) $ (1,038)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................ 4,837 4,775
Amortization of loan buydown fees........................ 732 1,169
Amortization of deferred financing costs................. 286 9
Loss on impairment of assets held for sale............... 510 --
Changes in assets and liabilities:
Accounts receivable..................................... (815) (722)
Other assets............................................ 32 (125)
Prepaid expenses........................................ 187 177
Deferred expenses....................................... (172) (128)
Accounts payable--affiliates............................ 12 (65)
Accounts payable and accrued expenses................... 427 (200)
Mortgage interest payable............................... (42) 190
Security deposits and other liabilities................. (615) (667)
-------- --------
Total adjustments...................................... 5,379 4,413
-------- --------
Net cash provided by operating activities.............. 3,251 3,375
-------- --------
Cash flows from investing activities:
Additions to operating investment properties.............. (384) (190)
Net (additions to) withdrawals from escrowed cash......... (100) 130
Additions to capital improvement reserve.................. (130) (2)
Master lease payments refunded............................ -- (3)
-------- --------
Net cash used in investing activities.................. (614) (65)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of mortgage notes payable.......... -- 37,300
Deferred loan costs....................................... -- (1,309)
Principal repayments on mortgage notes payable............ (1,491) (38,096)
Principal repayments on note payable--affiliate........... (32) --
-------- --------
Net cash used in financing activities.................. (1,523) (2,105)
-------- --------
Net increase in cash and cash equivalents.................. 1,114 1,205
Cash and cash equivalents, beginning of period............. 5,943 3,282
-------- --------
Cash and cash equivalents, end of period................... $ 7,057 $ 4,487
======== ========
Cash paid during the period for interest and related fees.. $ 10,117 $ 9,872
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL AND RECENT BUSINESS DEVELOPMENTS
The accompanying financial statements, footnotes, and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Company's Annual Report for the year ended August 31, 1995. In the opinion
of management, the accompanying financial statements, which have not been
audited, reflect all adjustments necessary to present fairly the results of
the interim period. All of the accounting adjustments reflected in the
accompanying interim financial statements are of a normal recurring nature.
As reported in the Special Update to Shareholders dated March 15, 1996, the
Company announced the execution of a definitive agreement for the sale of its
assets to Glimcher Realty Trust ("GRT"). Under the original terms of the
agreement, GRT was to have purchased the properties of the Company subject to
certain indebtedness for an aggregate purchase price of $203 million plus
prepayment penalties on debt to be prepaid and assumption fees on debt to be
assumed, subject to certain adjustments. As of May 14, 1996, the terms of the
purchase contract were amended to reduce the aggregate purchase price to $197
million plus prepayment penalties and assumption fees. The sale transaction
closed into escrow on June 27, 1996 with GRT depositing the net proceeds
required to close the transaction in the form of bank letters of credit.
Consummation of the sale remains subject to approval by the shareholders of
the Company and may also be terminated by the Company in accordance with the
fiduciary obligations of its Board of Directors. During the escrow period in
which the Company will seek to obtain the required shareholder approval, the
Company's operating properties will be managed by GRT pursuant to a management
agreement which is cancellable in the event that the sale is not completed.
Under the terms of the management agreement, GRT will receive a base fee of 3%
of the gross operating revenues of the properties. In addition, in the event
that the sale is successfully consummated, GRT would earn an incentive
management fee equal to the net cash flow of the properties attributable to
the period commencing on May 14, 1996 and ending on the date of the final
closing of the sale transaction. If the sale is completed, the Company will be
entitled to interest earnings during the escrow period on net proceeds of
approximately $37,401,000 at a rate equivalent to the published market rate on
6-month U.S. Treasury Bills as of June 20, 1996. The sale agreement with GRT
calls for GRT to receive certain compensatory payments in the event that the
sale is not consummated for certain specified reasons. A proxy statement
regarding the sale transaction is currently being prepared, and it is expected
that the Board will distribute it to the Company's shareholders for approval
during the fourth quarter of fiscal 1996. A Special Meeting of the
shareholders is expected to be held in October 1996 to vote on the transaction
and the complete liquidation and dissolution of the Company. Pursuant to the
Company's Articles of Incorporation and Virginia law, the sale of all, or
substantially all, of the Company's real estate assets requires shareholder
approval. Approval by two-thirds of the Company's outstanding shares would be
required in order to proceed with the sale transaction. In the event that the
sale transaction is approved and completed, the Company is expected to be
liquidated within a reasonable time period following the closing of the
transaction.
Because the sale of the Company's real estate assets remains contingent upon
the required shareholder approval, there can be no assurances that such a
transaction will be completed. Nonetheless, since the Board has committed to
pursue this course of action, the Company's financial statements as of May 31,
1996 andAugust 31, 1995 reflect the reclassification of operating investment
properties and certain related assets as operating investment properties held
for sale and the writedown of the individual operating properties to the lower
of adjusted cost or net realizable value. The Company recorded a loss for
financial reporting purposes of $3,850,000 for the year ended August 31, 1995
in connection with this accounting treatment. An additional loss of $510,000
was recognized for the nine months ended May 31, 1996 to reserve for certain
additional capitalized costs related to specific properties for which
impairment losses were recorded in fiscal 1995. See Note 5 for a further
discussion. The Company would adopt the liquidation basis of accounting,
whereby all assets and liabilities would be carried at their estimated
settlement amounts, upon approval of the sale transaction by the requisite
vote of the shareholders.
F-6
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. ESCROWED CASH
Escrowed cash consists of various lender escrows and real estate tax and
insurance premium escrows. The lender escrows are amounts held by one mortgage
lender to be released upon the completion of certain construction projects and
other events relating to the loan secured by Cross Creek Plaza, Cypress Bay
Plaza and Walterboro Plaza (see Note 6). The balance at both May 31, 1996 and
August 31, 1995 of the lender escrows amounted to $75,000. The Company
maintains separate real estate tax and insurance premium escrows for each
property. The balance of these escrows was $1,092,000 and $992,000 at May 31,
1996 and August 31, 1995, respectively. Real estate tax and insurance premium
escrows for Cross Creek Plaza, Cypress Bay Plaza, Marion Towne Center,
Southside Plaza and Walterboro Plaza are controlled by the respective mortgage
lenders. The remainder of the funds segregated for the payment of real estate
taxes and insurance premiums are not restricted by third parties.
3. CAPITAL IMPROVEMENT RESERVE
The Company maintains a capital improvement reserve to cover the cost of
potential future capital improvement expenditures related to the operating
investment properties. The balance of the capital improvement reserve at May
31, 1996 and August 31, 1995 was $1,331,000 and $1,201,000, respectively. The
Company funded $.06 per square foot of leasable space owned (approximately 4.4
million square feet) to the capital improvement reserve on an annual basis
through February 29, 1996. The Company discontinued funding this reserve
account in the third quarter of fiscal 1996 as a result of the proposed sale
of the Company's assets as discussed in Note 1. As of May 31, 1996, in
accordance with the terms of the sale agreement discussed in Note 1, the
Company remains obligated to fund approximately $500,000 in capital items
prior to the final closing of the sale transaction and to establish a repair
program for two roofs for which the Company is proceeding on claims against
the manufacturer. In the event that the sale transaction is completed, the
capital improvement reserve would be used for these two purposes and any
remaining funds would be available for distribution to the shareholders. The
capital improvement reserve is not restricted by any third parties.
4. RELATED PARTY TRANSACTIONS
For the six months ended February 28, 1995, the Advisor earned management
fees equal to .25% per annum of the capital contributions of the Company, or
$125,000, in accordance with the Advisory Agreement. In addition, an affiliate
of the Advisor was reimbursed for $111,000 for providing certain financial,
accounting and investor communication services to the Company for the six
months ended February 28, 1995. Effective March 1, 1995, the Advisor agreed to
waive its management fees and agreed that it will not be reimbursed for
providing certain financial, accounting and investor communication services to
the Company through the earlier to occur of March 1, 1997 or the date of the
annual meeting of the Board of Directors.
Mitchell Hutchins Institutional Investors, Inc. ("Mitchell Hutchins")
provides cash management services with respect to the Company's cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Assets Management,
Inc., an independently operated subsidiary of PaineWebber. For the nine-month
periods ended May 31, 1996 and 1995, Mitchell Hutchins earned fees totalling
$21,000 and $6,000, respectively, for managing the Company's cash assets.
Accounts payable--affiliates at May 31, 1996 and August 31, 1995 consist of
$16,000 and $4,000, respectively, payable to Mitchell Hutchins.
In September 1993, in order to take advantage of a negotiated prepayment
right which was due to expire, PaineWebber Properties Incorporated (PWP), a
general partner of the Advisor, purchased the mortgage note secured by
Applewood Village from the original lender at par for $5,175,000. The
Applewood Village mortgage loan was refinanced in June 1995 for $4,000,000
leaving a balance of $1,175,000 which PWP agreed to hold as
F-7
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
an unsecured note payable. Subsequent to the quarter ended May 31, 1996, PWP
agreed to release the Company from its remaining obligation under this
promissory note. Effective June 1, 1996, the outstanding balance of this note
payable to affiliate, of $1,136,000, was forgiven. The gain on forgiveness of
indebtedness resulting from this transaction will be recognized in the
Company's statement of operations in the fourth quarter of fiscal 1996.
5. OPERATING INVESTMENT PROPERTIES
The Company invested its initial net offering proceeds through the
acquisition of 22 Wal-Mart anchored shopping centers. The name, location and
size of the acquired properties, along with information related to the
respective purchase prices and carrying values as of May 31, 1996, are as
follows (in thousands):
<TABLE>
<CAPTION>
COSTS
NAME ACQUISITION CAPITALIZED MASTER ADJUSTED
LOCATION DATE PURCHASE FEES AND SUBSEQUENT TO LEASE COST AT
SIZE ACQUIRED PRICE EXPENSES (1) ACQUISITION PAYMENTS (2) 5/31/96
-------- -------- -------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Village Plaza........... 8/16/89 $23,975 $394 $826 $618 $24,577
Augusta, GA
490,970
square feet
Logan Place............. 1/18/90 4,917 189 16 232 4,890
Russellville, KY
114,748
square feet
Piedmont Plaza.......... 1/19/90 13,500 263 29 107 13,685
Greenwood, SC
249,052
square feet
Artesian Square......... 1/30/90 6,990 203 989 392 7,790
Martinsville, IN
177,428
square feet
Sycamore Square......... 4/26/90 4,970 172 23 130 5,035
Ashland City, TN
93,304
square feet
Audubon Village......... 5/22/90 6,350 215 30 -- 6,595
Henderson, KY
124,592
square feet
Crossroads Centre....... 6/15/90 9,914 246 42 -- 10,202
Knoxville, TN
242,430
square feet
</TABLE>
F-8
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
COSTS
NAME ACQUISITION CAPITALIZED MASTER ADJUSTED
LOCATION DATE PURCHASE FEES AND SUBSEQUENT TO LEASE COST AT
SIZE ACQUIRED PRICE EXPENSES (1) ACQUISITION PAYMENTS (2) 5/31/96
-------- -------- -------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
East Pointe Plaza....... 8/07/90 13,936 269 737 306 14,636
Columbia, SC
279,261
square feet
Walterboro Plaza--Phases
I and II............... 12/19/90 6,645 284 22 136 6,815
Walterboro, SC
132,130
square feet
Cypress Bay Plaza....... 12/19/90 12,235 215 94 522 12,022
Morehead City, NC
258,245
square feet
Cross Creek Plaza....... 12/19/90 13,565 302 20 525 13,362
Beaufort, SC
237,765
square feet
Lexington Parkway Pla-
za..................... 3/05/91 10,290 251 115 208 10,448
Lexington, NC
210,150
square feet
Roane County Plaza...... 3/05/91 7,000 197 -- 43 7,154
Rockwood, TN
160,198
square feet
Franklin Square......... 6/21/91 9,018 232 45 26 9,269
Spartanburg, SC
237,062
square feet
Barren River Plaza...... 8/09/91 11,788 412 49 57 12,192
Glasgow, KY
234,795
square feet
Cumberland Crossing..... 8/09/91 7,458 370 32 116 7,744
LaFollette, TN
144,734
square feet
Applewood Village....... 10/25/91 6,965 389 -- 25 7,329
Fremont, OH
140,039
square feet
</TABLE>
F-9
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
COSTS
NAME ACQUISITION CAPITALIZED MASTER ADJUSTED
LOCATION DATE PURCHASE FEES AND SUBSEQUENT TO LEASE COST AT
SIZE ACQUIRED PRICE EXPENSES (1) ACQUISITION PAYMENTS (2) 5/31/96
-------- -------- -------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Aviation Plaza.......... 8/31/92 8,349 337 -- -- 8,686
Oshkosh, WI
174,715
square feet
Crossing Meadows Plaza.. 8/31/92 12,100 356 6 -- 12,462
Onalaska, WI
233,984
square feet
Southside Plaza......... 10/21/92 9,200 356 7 -- 9,563
Sanford, NC
172,293
square feet
College Plaza........... 4/29/93 9,900 461 -- 2 10,359
Bluefield, VA
178,431
square feet
Marion Towne Center..... 6/23/93 7,907 624 12 -- 8,543
Marion, SC
156,543
square feet
-------- ------ ------ ------ --------
$216,972 $6,737 $3,094 $3,445 $223,358
======== ====== ====== ====== ========
</TABLE>
- --------
(1) Acquisition fees and expenses include a 3% fee paid to PWP and other
capitalized costs incurred in connection with the acquisition of the
properties (e.g. legal fees, appraisal fees, other closing costs, etc.).
Certain expenses incurred to investigate potential investments were
recorded as other assets pending the closing of a transaction and were
reclassified after acquisition to the cost basis of the related property.
Expenses incurred to review potential investments which were subsequently
not acquired by the Company were charged to investment analysis expense
once the Company stopped pursuing the acquisition.
(2) The Company originally entered into master lease agreements with the
sellers and certain of their affiliates (the "Guarantors") of each of the
operating properties acquired. The master lease agreements generally
provided that, for a period of up to 36 to 60 months (depending on the
credit status of the tenant in occupancy) from the date of the acquisition
of the operating property, the Guarantors guaranteed that the aggregate
cash flow from all non-anchor tenants would not be less than the aggregate
pro-forma net cash flow from non-anchor tenants projected at the time of
the purchase. In the event that the actual aggregate net cash flow was
less than the guaranteed amount, the Guarantors were obligated to make
cash payments to the Company equal to any such deficit. All amounts earned
under the master lease agreements were treated as purchase price
adjustments and recorded as reductions to the carrying values of the
related operating property for financial reporting purposes. Subsequent to
the quarter ended May 31, 1996, the final master lease covering the
Applewood Village property was terminated. As a result, the Company has no
further rights or obligations under the master leases.
F-10
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
As discussed in Note 1, as a result of the decision by the Board to pursue a
sale of the Company's portfolio of properties, the Company's operating
investment properties and certain related assets have been classified as
investment properties held for sale on the accompanying balance sheets at May
31, 1996 and August 31, 1995. The balances of investment properties held for
sale are net of an allowance for possible impairment loss of $4,360,000 and
$3,850,000 at May 31, 1996 and August 31, 1995, respectively, which reflect
the writedown of such assets to the lower of adjusted cost or net realizable
value. Such allowance applies only to the properties for which losses are
expected based on their estimated fair values. The expected gains on
properties for which the estimated fair value less costs to sell exceeds the
adjusted cost basis would be recognized in the period in which a sale
transaction is completed. Based on the proposed aggregate purchase price for
the Company's assets discussed in Note 1, the Company would have recognized a
net gain of approximately $9 million for financial reporting purposes if the
potential sale transaction had been completed as of May 31, 1996. The Company
will continue to recognize depreciation on its assets held for sale through
the date of disposal which would increase the amount of the aggregate gain
recognized upon the completion of the transaction. Costs to proxy the
Company's shareholders and complete the potential sale transaction will be
expensed as incurred.
Operating investment properties held for sale on the accompanying balance
sheets as of May 31, 1996 and August 31, 1995 are comprised of the following
amounts (in thousands):
<TABLE>
<CAPTION>
MAY 31 AUGUST 31
--------- ---------
<S> <C> <C>
Land................................................... $ 37,845 $ 37,845
Buildings and improvements............................. 175,837 175,453
Furniture and equipment................................ 9,676 9,676
--------- ---------
223,358 222,974
Less: accumulated depreciation......................... (32,131) (27,409)
--------- ---------
191,227 195,565
Deferred rent receivable............................... 305 305
Deferred leasing commissions, net...................... 429 291
--------- ---------
191,961 196,161
Less: Allowance for possible impairment loss........... (4,360) (3,850)
--------- ---------
$ 187,601 $ 192,311
========= =========
</TABLE>
F-11
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
6. MORTGAGE NOTES PAYABLE
Mortgage notes payable, reduced by unamortized loan buydown fees (see
below), at May 31, 1996 and August 31, 1995 consist of the following (in
thousands):
<TABLE>
<CAPTION>
MAY 31 AUGUST 31
-------- ---------
<S> <C> <C>
Mortgage notes payable to a financial institution which $ 49,005 $ 49,005
are secured by Village Plaza,
Piedmont Plaza, Artesian Square, Logan Place, Sycamore (2,156) (2,504)
Square and Crossroads Centre. -------- --------
These mortgage notes require monthly payments of interest 46,849 46,501
only at 8% for the first seven years and then principal
and interest at 8% until maturity which ranges from No-
vember 1, 1999 to July 1, 2000. These notes contain cer-
tain cross default and cross collateral provisions. See
discussion of effective interest rates and loan buydown
fees below.
Mortgage notes payable to a financial institution which 24,486 24,678
are secured by East Pointe Plaza,
Cumberland Crossing and Barren River Plaza. The mortgage (918) (1,022)
note on East Pointe Plaza, -------- --------
in the principal amount of $11,150, calls for monthly in- 23,568 23,656
terest-only payments at 8% per annum through June 1996.
The balance of these mortgage notes require monthly pay-
ments of principal and interest at 8% through June 1996.
Effective June 10, 1996, all three notes require monthly
payments of principal and interest at 8.75% per annum
through maturity on June 10, 2001. These notes contain
certain cross default and cross collateral provisions.
See discussion of effective interest rates and loan
buydown fees below.
Mortgage note payable to a financial institution secured
by Franklin Square. The note 6,600 6,600
requires monthly interest-only payments at 8% per annum (10) (83)
until maturity, which is -------- --------
scheduled for June 21, 1996. See discussion of effective 6,590 6,517
interest rates, loan buydown fees and terms of extension
agreement below.
Mortgage note payable to a financial institution secured 23,057 23,680
by Cross Creek Plaza, Cypress Bay Plaza and Walterboro
Plaza. The loan bears interest at a variable rate equal
to 30-day LIBOR plus 3.50% per annum for the first twelve
months (9.19% as of May 31, 1996), 30-day LIBOR plus
3.75% for the next twelve months and 30-day LIBOR plus
4.25% for the final twelve months. Monthly payments of
interest and principal (based on a 15-year amortization
schedule) are due until maturity on December 10, 1997.
Mortgage notes payable to a financial institution secured 17,207 17,487
by Audubon Village, Lexington Parkway Plaza and Roane
County Plaza. The notes secured by the Lexington and
Roane properties bear interest at a fixed rate of 9.125%
per annum and require monthly payments of principal and
interest aggregating $119 through maturity on March 1,
2015. The note secured by Audubon Village bears interest
at 8.75% per annum and requires monthly payments of prin-
cipal and interest of $43 through maturity on June 1,
2000.
Mortgage notes payable to a financial institution which 16,179 16,321
are secured by Aviation Plaza and
Crossing Meadows. Monthly payment terms for the loan se- (671) (815)
cured by Aviation Plaza, in -------- --------
the principal amount of $6,800, call for interest only 15,508 15,506
payments at 8% per annum through
August 1, 1995 and principal and interest payments at 8%
thereafter until maturity. The loan secured by Crossing
Meadows requires monthly payments, including interest at
8% per annum, of $71 until maturity. Both notes are
scheduled to mature on June 1, 1999. See discussion of
effective interest rates and loan buydown fees below.
</TABLE>
F-12
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31 AUGUST 31
-------- ---------
<S> <C> <C>
Mortgage note payable to a financial institution which is $ 6,610 $ 6,686
secured by Southside Plaza.
The note requires monthly payments, including interest at (156) (219)
6.83% per annum, of $46 until -------- --------
maturity on November 5, 1997. See discussion of effective 6,454 6,467
interest rates and loan buydown fees below.
Mortgage note payable to a bank which is secured by Col- 6,862 6,898
lege Plaza. Interest on the note accrued at prime plus
0.75% per annum (9.0% as of May 31, 1996). Monthly pay-
ments equal to the greater of $58 or accrued interest for
such month were payable until maturity, which was origi-
nally scheduled for April 23, 1996. See discussion below
regarding extension agreement.
Mortgage note payable to a financial institution which is 5,774 5,817
secured by Marion Towne
Center. The note, which was issued on June 23, 1993,
calls for monthly payments, including interest at 8% per
annum, of $44 until maturity on July 1, 2002. The lender
has the option, upon 120 days' written notice, to call
the loan due at the end of each of the third year and the
sixth year of the loan. If the loan is not called at such
time, the lender may adjust the interest rate.
Mortgage note payable to a financial institution secured 3,880 3,979
by Applewood Village. The note bears interest at 9% per
annum and requires monthly principal and interest pay-
ments of $41 until maturity on June 10, 2010.
-------- --------
Total mortgage notes payable, net $155,749 $156,508
======== ========
</TABLE>
SUMMARY OF OUTSTANDING MORTGAGE NOTES PAYABLE
<TABLE>
<S> <C> <C>
Aggregate unamortized loan buydown fees..................... (3,911) (4,643)
-------- --------
Total mortgage notes payable, net........................... $155,749 $156,508
======== ========
</TABLE>
F-13
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
At the time of the original closing of certain of the mortgage notes listed
above, the Company paid fees to the lenders in return for the lenders'
agreement to reduce the stated interest rate on the loans to 8% per annum
(6.83% in the case of Southside Plaza) over the terms of the loans. The fees
have been recorded as reductions of the outstanding principal amounts and are
being amortized, using the effective interest method, over the terms of the
respective loans. The effective interest rates on these outstanding loans
ranged from 8.47% to 9.76% per annum as of May 31, 1996.
As discussed further in Note 1, the Company has entered into a contract for
the sale of the operating investment properties which serve as collateral for
the above mortgage loans. The obligation to repay the lenders with respect to
such loans at the time of any potential sale transaction would be equal to the
outstanding mortgage principal balance prior to unamortized loan buydown fees.
In conjunction with a sale transaction, the amount of any remaining
unamortized buydown fees would be written off as a loss on the early
extinguishment of debt. In addition, certain of the Company's outstanding
mortgage loans include substantial prepayment penalties. Under the terms of
the potential portfolio sale transaction, the buyer has agreed to pay the
penalties and fees associated with prepaying or assuming the outstanding
mortgage loans.
During the quarter ended May 31, 1996, the Company reached an agreement with
the lender of the College Plaza and Franklin Square notes on terms for an
extension of the two notes. The maturity date of both notes was extended to
March 31, 1997. Subsequent to the original maturity dates, the interest rate
for both mortgage notes will be a variable rate equal to either prime plus
0.75% or LIBOR plus 2.75%, as selected by the Company. Formal closing of the
College Plaza extension agreement occurred in May 1996. Formal closing of the
Franklin Square extension agreement is expected to occur during the fourth
quarter of fiscal 1996.
F-14
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As reported in the Special Update to Shareholders dated March 15, 1996, the
Company announced the execution of a definitive agreement for the sale of its
assets to Glimcher Realty Trust ("GRT"). Under the original terms of the
agreement, GRT was to have purchased the properties of the Company subject to
certain indebtedness for an aggregate purchase price of $203 million plus
prepayment penalties on debt to be prepaid and assumption fees on debt to be
assumed, subject to certain adjustments. As of May 14, 1996, the terms of the
purchase contract were amended to reduce the aggregate purchase price to $197
million plus prepayment penalties and assumption fees. The sale transaction
closed into escrow on June 27, 1996 with GRT depositing the net proceeds
required to close the transaction in the form of bank letters of credit.
Consummation of the sale remains subject to approval by the shareholders of
the Company and may also be terminated by the Company in accordance with the
fiduciary obligations of its Board of Directors. During the escrow period in
which the Company will seek to obtain the required shareholder approval, the
Company's operating properties will be managed by GRT pursuant to a management
agreement which is cancellable in the event that the sale is not completed.
Under the terms of the management agreement, GRT will receive a base fee of 3%
of the gross operating revenues of the properties. In addition, in the event
that the sale is successfully consummated, GRT would earn an incentive
management fee equal to the net cash flow of the properties attributable to
the period commencing on May 14, 1996 and ending on the date of the final
closing of the sale transaction. If the sale is completed, the Company will be
entitled to interest earnings during the escrow period on net proceeds of
approximately $37,401,000 at a rate equivalent to the published market rate on
6-month U.S. Treasury Bills as of June 20, 1996. The sale agreement with GRT
calls for GRT to receive certain compensatory payments in the event that the
sale is not consummated for certain specified reasons. A proxy statement
regarding the sale transaction is currently being prepared, and it is expected
that the Board will distribute it to the Company's shareholders for approval
during the fourth quarter of fiscal 1996. A Special Meeting of the
shareholders is expected to be held in October 1996 to vote on the transaction
and the complete liquidation and dissolution of the Company. Pursuant to the
Company's Articles of Incorporation and Virginia law, the sale of all, or
substantially all, of the Company's real estate assets requires shareholder
approval. Approval by two-thirds of the Company's outstanding shares would be
required in order to proceed with the sale transaction. In the event that the
sale transaction is approved and completed, the Company is expected to be
liquidated within a reasonable time period following the closing of the
transaction.
As discussed further in the Annual Report, the Company's Board of Directors
engaged the investment banking firm of Lehman Brothers Inc. ("Lehman") in June
of 1995 to act as its financial adviser and to provide financial and strategic
advisory services to the Board regarding options available to the Company in
light of adverse changes in the market for REIT stocks at that time which
prohibited the Company from completing the final phase of its restructuring
plans. Such plans had included the conversion of the Company to a self-
administered REIT, the completion of a second equity offering and the listing
of the Company's common stock on a national securities exchange. The strategic
options which were considered included a recapitalization of the Company,
sales of the Company's assets and the exploration of merger opportunities.
Lehman's services have included the solicitation and identification of
potential transactions for the Company, the evaluation of these transactions,
and the provision of advice to the Board regarding them. In November 1995,
Lehman presented to the Board a summary of the proposals received to date. All
of the proposals were indications of interest from third parties to buy the
Company's real estate assets. In view of the existing capital market
conditions, the expectations that the Company's restructuring plans might not
be feasible in the near term, and the indications of interest received, the
Board concluded that it would be in the shareholders' best interests to
immediately initiate the process of soliciting offers to purchase the
Company's portfolio of operating investment properties. The
F-15
<PAGE>
Board instructed Lehman to work with the various third parties that expressed
an interest in such a transaction to obtain transaction terms most favorable
to the Company and its shareholders. During the second quarter of fiscal 1996,
the Board received three offers and, after evaluation of the proposals,
selected the offer from GRT and negotiated a purchase and sale agreement.
Subsequent to the completion of due diligence by GRT and final negotiations,
the sale transaction was closed into escrow as described above.
While the prospective selling price of the Company's assets significantly
exceeds the book value of the assets, net of accumulated depreciation and the
reserve for impairment loss discussed further below, the amount is below the
aggregate price at which the 22 properties were purchased by the Company
between August 1989 and June 1993. At the present time, real estate values for
retail shopping centers in many markets have been adversely impacted by the
effects of overbuilding and corporate restructurings and consolidations among
retailers which have resulted in an oversupply of space. In addition, the
conditions in the capital markets for public REIT stocks referred to above
have resulted in a drop off in acquisition demand from large institutional
buyers of retail properties. Furthermore, certain strategic changes in Wal-
Mart's corporate growth plans, which are discussed in more detail in the
Annual Report, appear to have resulted in potential buyers attributing a
higher leasing risk to the Company's portfolio of properties. In light of such
conditions, the Board believes that a bulk sale of the portfolio of properties
may result in higher net proceeds than if the properties were sold on an
individual basis, and therefore may represent the best available course of
action for the Company's shareholders. As previously reported, during the
first quarter of fiscal 1996 Wal-Mart announced plans to build a 200,000
square foot Supercenter on land secured by the Company adjacent to Audubon
Village, subject to various regulatory approvals. During the second quarter of
fiscal 1996, the Planning Board in Henderson, Kentucky rejected Wal-Mart's
proposal to construct the Supercenter adjacent to the Company's site. The
Company and Wal-Mart have been discussing potential options in light of this
development. During the third quarter, Wal-Mart decided to discontinue, for
the present time, its efforts to construct a Supercenter store and is
currently operating its existing store in Audubon Village. As discussed
further in the Annual Report, it was anticipated that Wal-Mart would vacate
its store at Applewood Village in Fremont, Ohio. During the second quarter of
fiscal 1996, Wal-Mart vacated, as expected, to relocate to a newly constructed
Supercenter several miles away. During the first quarter of fiscal 1996, the
Company learned that Wal-Mart is also expected to relocate from Piedmont Plaza
in Greenwood, South Carolina to a new Supercenter currently under construction
in that market. Wal-Mart will remain obligated to pay rent and its share of
expenses under the existing leases at Applewood Village and Piedmont Plaza
through the remainder of its lease terms, which run through January 2010 and
September 2009, respectively. Management will continue to work, in conjunction
with GRT during the escrow period, to establish a long-term strategy for these
assets.
At the present time, the leasing status of the Company's non-Wal-Mart space
remains strong. The Company's portfolio of 22 shopping centers was 98% leased
overall as of May 31, 1996, and leased shop space, excluding anchors, was 91%.
During the first quarter of fiscal 1996, Hamrick's, a regional clothing
manufacturer and retailer took occupancy of approximately 17,000 square feet
of space at Lexington Parkway Plaza. The Company spent approximately $87,000
on tenant improvements to prepare the space for this tenant which opened for
business in December 1995. During the second quarter, an agreement with a
third party developer to construct a JC Penney store and a mini-anchor space
on land adjacent to the Aviation Plaza shopping center was reached. The
construction of these stores, which is expected to be completed in the Fall of
1996, should enhance the appeal of and customer traffic at the property.
During the third quarter, the new Hamrick's and Superpetz anchor stores
totalling 40,000 square feet at East Pointe Plaza opened for business. The
Company spent approximately $379,000 to re-configure this space to accommodate
these two tenants. The only property with any significant vacancy is Sycamore
Square, which was 89% leased as of May 31, 1996. This shopping center, which
is located in Ashland City, Tennessee, is the smallest of the Company's
properties with 93,000 square feet of leasable space.
In addition to the general retail market conditions and Wal-Mart relocation
risk discussed above, the decision by the Board to pursue a sale of the
Company's real estate assets at the present time is also partly based on the
refinancing risk to which the Company has been and would remain subject in the
event that it continues
F-16
<PAGE>
to hold the operating properties for long-term investment purposes. The first
mortgage loans secured by the College Plaza and Franklin Square properties are
held by the same lender and were scheduled to mature during fiscal 1996. The
principal balance of the College Plaza loan at May 31, 1996 was $6,862,000 and
the original maturity date was April 23, 1996. The principal balance of the
Franklin Square loan at May 31, 1996 was $6,600,000 and the original maturity
date was June 21, 1996. During the quarter ended May 31, 1996, the Company
reached an agreement with the lender of the College Plaza and Franklin Square
notes on terms for an extension of the two notes. The maturity date of both
notes was extended to March 31, 1997. Subsequent to the original maturity
dates, the interest rate for both mortgage notes will be a variable rate equal
to either prime plus 0.75% or LIBOR plus 2.75%, as selected by the Company.
Formal closing of the College Plaza extension agreement occurred in May 1996.
Formal closing of the Franklin Square extension agreement is expected to occur
during the fourth quarter of fiscal 1996. The next significant loan maturities
are not scheduled until fiscal 1998. The obligation to repay the lenders with
respect to the outstanding mortgage loans at the time of any potential sale
transaction would be equal to the outstanding mortgage principal balance prior
to unamortized loan buydown fees. In conjunction with a sale transaction, the
amount of any remaining unamortized loan buydown fees ($3.9 million as of May
31, 1996) would be written off as a loss on the early extinguishment of debt.
In addition, certain of the Company's outstanding mortgage loans include
substantial prepayment penalties. Under the terms of the proposed portfolio
sale transaction, GRT has agreed to pay the penalties and fees associated with
prepaying or assuming the outstanding mortgage loans.
As a result of the Company's plans to pursue a course of action which is
expected to result in the sale of all of the operating investment properties
during calendar year 1996, the Company's financial statements as of May 31,
1996 and August 31, 1995 reflect the classification of the operating
investment properties and certain related assets as operating investment
properties held for sale and the writedown of the individual properties to the
lower of adjusted cost or net realizable value. The Company recorded an
impairment loss for financial reporting purposes of $3,850,000 for the year
ended August 31, 1995 in connection with this accounting treatment. An
additional loss of $510,000 was recognized for the nine months ended May 31,
1996 to reserve for certain additional capitalized costs related to specific
properties for which impairment losses were recorded in fiscal 1995. The
resulting allowance for possible impairment loss applies only to the
properties for which losses are expected based on their individual estimated
fair values. The expected gains on properties for which fair value less costs
to sell exceeds the adjusted cost basis would be recognized in the period in
which a sale transaction is completed. Based on the proposed aggregate
purchase price for the Company's assets discussed above, the Company would
have recognized a net gain of approximately $9 million for financial reporting
purposes if the potential sale transaction had been completed as of May 31,
1996. The Company will continue to recognize depreciation on its assets held
for sale through the date of disposal which would increase the amount of the
aggregate gain recognized upon the completion of the transaction. Costs to
proxy the Company's shareholders and complete the potential sale transaction
will be expensed as incurred.
As previously reported, in September 1993, in order to take advantage of a
negotiated prepayment right which was due to expire, PaineWebber Properties
Incorporated (PWP), a general partner of the Advisor, purchased the mortgage
note secured by Applewood Village from the original lender at par for
$5,175,000. The Applewood Village mortgage loan was refinanced in June 1995
for $4,000,000 leaving a balance of $1,175,000 which PWP agreed to hold as an
unsecured note payable. Subsequent to the quarter ended May 31, 1996, PWP
agreed to release the Company from its remaining obligation under this
promissory note. Effective June 1, 1996, the outstanding balance of this note
payable to affiliate, of $1,136,000, was forgiven. The gain on forgiveness of
indebtedness resulting from this transaction will be recognized in the
Company's statement of operations in the fourth quarter of fiscal 1996.
Based on the potential sale of the portfolio, pending the outcome of the
shareholder vote regarding the transaction, the Board has determined that the
payment of regular quarterly dividends will remain suspended for the present
time. As of May 31, 1996, the Company had available cash and cash equivalents
of $7,057,000. In the event that the proposed sale transaction is approved and
completed, a portion of such amount will be used for the Company's working
capital requirements (including portfolio sale expenses), as necessary,
through the
F-17
<PAGE>
date of the Company's liquidation, which would be expected to occur in late
calendar year 1996. If the sale transaction is not completed and the Company
continues its operations as a going concern, such amount would also be used
for leasing costs, financing expenses and, potentially, for dividends to the
shareholders. In addition, as of May 31, 1996 the Company had a capital
improvement reserve of $1,331,000 which is available, in part, to pay for
potential costs of required future capital improvements to the operating
properties. As of May 31, 1996, in accordance with the terms of the sale
agreement discussed above, the Company remains obligated to fund approximately
$500,000 in capital items prior to the final closing of the sale transaction
and to establish a repair program for two roofs for which the Company is
proceeding on claims against the manufacturer. In the event that the sale
transaction is completed, the capital improvement reserve would be used for
these two purposes and any remaining funds would be available for distribution
to the shareholders. The amount of the Company's available cash assets, net of
all disposition-related expenses and after the possible establishment of a
reserve for contingent obligations, would be paid out to the shareholders
following the closing of the proposed sale transaction in the event that such
transaction is successfully completed. Management is currently working to
finalize its estimates of disposition-related expenses and required reserves,
if any, for contingent liabilities. Until such analysis is complete, it is not
possible to determine the amount of any potential liquidating distribution to
the shareholders. In addition, certain net assets and liabilities of the
Company that could not be settled in cash prior to the Company's planned
liquidation date in late calendar year 1996 might be transferred into a
liquidating trust for the benefit of the shareholders. Under such
circumstances, a nominal residual payment to the shareholders out of the
liquidating trust would be expected to be made in a subsequent year. The
Company is generally obligated to distribute annually at least 95% of its
taxable income to its shareholders in order to continue to qualify as a REIT
under the Internal Revenue Code. The Company incurred a loss for both book and
tax purposes in 1995 and, therefore, was not required to pay a cash dividend
in order to retain its REIT status. Due to the non-cash depreciation and
amortization charges which will continue to be recognized for both book and
tax purposes, losses are expected to be reported in 1996 as well, prior to any
sale of the Company's operating investment properties.
RESULTS OF OPERATIONS
Three Months Ended May 31, 1996
The Company reported a net loss of $626,000 for the three months ended May
31, 1996 as compared to a net loss of $20,000 for the same three-month period
in fiscal 1995. The increase in net loss for the third quarter of fiscal 1996
resulted primarily due to costs totalling $551,000 incurred in the current
three-month period in connection with the pending portfolio sale transaction
and the recognition of an impairment loss of $128,000 for the current three-
month period, as discussed further above. The portfolio sale expenses include
certain legal and accounting expenses directly associated with the transaction
and the related shareholder approval process. Such costs will continue to be
expensed as incurred in future quarters. The unfavorable changes in the
Company's net operating results were partially offset by slight increases in
both rental and interest income and a decrease in general and administrative
expenses. Interest income increased by $29,000 for the current three-month
period due to the higher average invested cash reserve balances which have
resulted from the suspension of the Company's dividend payments to
shareholders. General and administrative expenses decreased by $62,000 for the
current three-month period primarily due to a reduction in certain recurring
professional fees.
Nine Months Ended May 31, 1996
The Company reported a net loss of $2,128,000 for the nine months ended May
31, 1996 as compared to a net loss of $1,038,000 for the same nine-month
period in fiscal 1995. This $1,090,000 increase in net loss resulted primarily
from the combined effect of expenditures totalling $1,282,000 incurred in the
current nine-month period in connection with the pending portfolio sale
transaction and the recognition of an impairment loss of $510,000 for the
current nine-month period, as discussed further above. In addition, rental
revenues decreased by $148,000 primarily due to a decrease in tenant
reimbursements during the nine-month period ended May 31, 1996 when compared
to the same period in fiscal 1995. The Company's portfolio of shopping center
properties was 98% leased overall for both nine-month periods ended May 31,
1996 and 1995. Leased shop space,
F-18
<PAGE>
excluding anchors, averaged 91% for the nine months ended May 31, 1996, down
from 92% for the same period in the prior year. An increase in property
operating expenses of $174,000, which resulted mainly from an increase in snow
removal costs at several properties from the record breaking snowfall levels
this winter, also contributed to the increase in the Company's net loss for
the current nine-month period. The unfavorable changes in the Company's net
operating results were partially offset by an increase in interest income and
decreases in the interest, general and administrative, REIT management fee and
financial and investor servicing expense categories. Interest income increased
by $146,000 due to the higher average invested cash reserve balances which
have resulted from the suspension of the Company's dividend payments to
shareholders. Interest expense decreased by $147,000 during the nine-month
period ended May 31, 1996 primarily due to the reduction in effective interest
rates associated with certain loans refinanced in fiscal 1995. General and
administrative expenses decreased by $561,000 mainly due to costs incurred in
the prior year related to an independent valuation of the Company's operating
properties which was commissioned in fiscal 1995 as part of management's
refinancing and portfolio management efforts. REIT management fees and
financial and investor servicing expenses declined by a total of $236,000 due
to the Advisor's decision to waive collection of such amounts effective March
1, 1995. As discussed further in the Annual Report, the Advisor agreed to
forego payments for its services as an accommodation to the Company in order
to maximize earnings and cash flow while the strategic plans regarding the
Company's future operations were evaluated and implemented.
F-19
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed, an affiliate of the Advisor to the Company was
named as a defendant in a class action lawsuit against PaineWebber
Incorporated ("PaineWebber") and a number of its affiliates relating to
PaineWebber's sale of 70 direct investment offerings, including the offering
of shares of the Company's common stock. The Company is not a defendant in
this action. In January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in this class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the
Southern District of New York to be used to resolve the litigation in
accordance with a definitive settlement agreement and a plan of allocation
which the parties expect to submit to the court for its consideration and
approval within the next several months. Until a definitive settlement and
plan of allocation is approved by the court, there can be no assurance what,
if any, payment or non-monetary benefits will be made available to
shareholders in Retail Property Investors, Inc.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests and REIT
stocks, including those offered by the Company. The complaint alleges, among
other things, that PaineWebber and its related entities committed fraud and
misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. The complaint seeks
compensatory damages of $15 million plus punitive damages. The eventual
outcome of this litigation and the potential impact, if any, on the Company's
shareholders cannot be determined at the present time.
In June 1996, approximately 50 plaintiffs filed an action entitled
Bandrowski v. PaineWebber Inc. in Sacramento, California Superior Court
against PaineWebber Incorporated and various affiliated entities concerning
the plaintiffs' purchases of various limited partnership interests and REIT
stocks, including those offered by the Company. The complaint is substantially
similar to the complaint in the Abbate action described above, and seeks
compensatory damages of $3.4 million plus punitive damages.
In July 1996, approximately 15 plaintiffs filed an action entitled Barstad
v. PaineWebber Inc. in Maricopa County, Arizona Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests and REIT
stocks, including those offered by the Company. The complaint is substantially
similar to the complaint in the Abbate action described above, and seeks
compensatory damages of $752,000 plus punitive damages.
Under certain limited circumstances, pursuant to the Advisory Agreement and
other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with this
litigation. However, PaineWebber and its affiliates have formally waived all
such rights with regard to this litigation and any other similar litigation
that has been or may be threatened, asserted or filed by or on behalf of
purchasers of the Company's common stock. Thus, the Advisor believes that
these matters will have no material effect on the Company's financial
statements, taken as a whole.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:NONE
(b) Reports on Form 8-K:
A Current Report dated March 12, 1996 on Form 8-K was filed by the
registrant during the third quarter of fiscal 1996, reporting the proposed
sale of the Company's real estate portfolio.
F-20
<PAGE>
RETAIL PROPERTY INVESTORS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Retail Property Investors, Inc.
By: /s/ Walter V. Arnold
_____________________________________
Walter V. Arnold Senior Vice
President and Chief Financial
Officer
Dated: July 9, 1996
F-21
<PAGE>
FOLD AND DETACH HERE
RETAIL PROPERTY INVESTORS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Walter V. Arnold and Linda Z. MacDonald, and
each of them, proxies and attorneys-in-fact of the undersigned, with the full
power of substitution, to represent and to vote, as designated below, all the
shares of Common Stock of Retail Property Investors, Inc. (the "Company") held
of record by the undersigned on August 21, 1996 at the Special Meeting of
Shareholders to be held on October 16, 1996, and at any adjournment or
postponement thereof.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Shareholders and Proxy Statement, each dated August 23, 1996.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL
(Continued and to be signed on other side)
<PAGE>
/X/ Pleasemark
your votes
as indicated
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" PROPOSAL NO. 1.
1.To approve and adopt the "Transaction," consisting of the sale of
substantially all of the Company's assets to Glimcher Realty Trust, a Maryland
real estate investment trust ("Glimcher"), pursuant to the Purchase and Sale
Agreement by and among Glimcher, the Company and the Company's affiliated
partnerships and joint venture, dated as of March 11, 1996, as amended, and the
complete and voluntary liquidation and dissolution of the Company, in
accordance with the terms of the Plan of Liquidation and Dissolution of the
Company (the "Plan"), each as more fully described in the accompanying Proxy
Statement and corresponding Annexes. A vote to approve the Transaction
constitutes approval of Fleet National Bank to act as trustee of a liquidating
trust and authorization of the transfer of all of the Company's remaining
assets to such liquidating trust in accordance with the Plan.
FOR AGAINST ABSTAIN
/ / / / / /
2. To vote, in their discretion, upon such other matters as may properly come
before the meeting or any adjournments or postponements thereof.
Dated ________________________________________
______________________________________________
Signature(s) of Shareholders _________________
PLEASE SIGN EXACTLY AS NAME APPEARS AT LEFT.
JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME
BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
(SEE OTHER SIDE)
Please indicate any change in the above address
FOLD AND DETACH HERE
