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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
(Amendment No. )
Milestone Properties, Inc.
(Name of the Issuer)
Milestone Properties, Inc.
(Name of Person(s) Filing Statement)
$.78 Convertible Series A Preferred Stock
(Title of Class of Securities)
599358207
(CUSIP Number of Class of Securities)
Leonard S. Mandor with a copy to:
Chairman and Chief Executive Officer Joel A. Yunis, Esq.
Milestone Properties, Inc. Mark D. Fischer, Esq.
150 E. Palmetto Park Road, 4th Floor Rosenman & Colin LLP
Boca Raton, Florida 33432 575 Madison Avenue
(561-394-9533) New York, New York 10022
(Name, Address and Telephone Number of Person (212-940-8800)
Authorized to Receive Notices and Communications
on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the
appropriate box):
a. |_| The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. |_| The filing of a registration statement under the Securities Act of
1933.
c. |_| A tender offer.
d. |X| None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. |_|
Calculation of Filing Fee
- --------------------------------------------- ----------------------------------
Transaction
Valuation* Amount of Filing Fee
- --------------------------------------------- ----------------------------------
$8,982,621 $1,797
- --------------------------------------------- ----------------------------------
|_| Check box if any part of the fee is offset as provided by Rule
0-11(a) (2) and identify the filing with which the offsetting fee
was previously paid. Identify the previous filing by registration
statement number, or the form or schedule and the date of its
filing.
Amount previously paid:
Form or registration no.:
Filing party:
Date filed:
---------------------
* The transaction value is based on a maximum of 2,994,207 shares of
the Issuer's $.78 Convertible Series A Preferred Stock which the
Issuer could acquire in the transaction multiplied by the $3.00 per
share that would be paid for the release of claims and each such
share as part of a proposed settlement of a purported class action
and derivative lawsuit brought by holders of the $.78 Convertible
Series A Preferred Stock against the Issuer, certain of its former
and present directors and executive officers, and its principal
stockholder. Even though a portion of the $3.00 per share settlement
payment is allocable to the release of claims (and not entirely to
the surrender of each share), the Issuer has, nonetheless,
calculated the transaction value based on the entire $3.00 per share
settlement payment. The settlement payment was negotiated as part of
the proposed settlement. Such proposed settlement must be approved
by the Court of Chancery of the State of Delaware before the Rule
13e-3 transaction can be effected.
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Explanatory Note
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (this
"Schedule 13E-3") is being filed by Milestone Properties, Inc. ("MPI"), a
Delaware corporation, in connection with a proposed settlement of a purported
class action and derivative lawsuit (as discussed herein) pursuant to which
MPI would settle such action and acquire up to 2,994,207 shares of its $.78
Convertible Series A preferred stock, par value $.01 per share (the "MPI
Preferred Stock"), for $3.00 per share (including a portion allocable to
releases of claims), upon the terms and subject to the conditions set forth in
the Stipulation and Agreement of Settlement (the "Settlement Agreement")
entered into on August 5, 1998 on behalf of the parties to the litigation, a
copy of which is annexed hereto as Exhibit 1. All of the shares of MPI
Preferred Stock acquired by MPI in the Rule 13e-3 transaction would be
cancelled. Unless an MPI Preferred Stockholder who is entitled to participate
in the proposed settlement properly "opts out" thereof, the terms of the
Settlement Agreement provide that if the proposed settlement is approved (see
the discussion in the following paragraph), then upon the effective date of
such approval (see Item 7(c) of this Schedule 13E-3), all shares of MPI
Preferred Stock owned by such MPI Preferred Stockholder must be acquired by
MPI, all rights of such holder with respect to such shares would immediately
terminate and such shares represent only the right of such holder to receive
the settlement consideration with respect thereto. Any reference in this
Schedule 13E-3 to MPI Preferred Stockholders who "opt out" of the Proposed
Settlement shall refer to only those MPI Preferred Stockholders who properly
opt out of the Proposed Settlement in the manner and within the time period
provided for in the Settlement Agreement.
A copy of this Schedule 13E-3 is to be attached as an exhibit to the
Notice of Pendency of Class and Derivative Action, Proposed Settlement,
Settlement Hearing and Right to Appear (the "Settlement Notice"), a copy of
the form of which is annexed hereto as Exhibit 2, that is to be distributed to
all holders of record as of August 25, 1998 of shares of MPI Preferred Stock
and of MPI's common stock, par value $.01 per share (the "MPI Common Stock")
in connection with the hearing before the Court of Chancery of the State of
Delaware (the "Court") at which approval of such proposed settlement is to be
sought by the parties to the litigation.
Forward-looking statements in this Schedule 13E-3, including, without
limitation, statements relating to the plans, strategies, objectives,
expectations and intentions of MPI, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. MPI
stockholders are cautioned that such forward-looking statements are inherently
subject to risks and uncertainties, many of which cannot be predicted with
accuracy, and some of which might not be anticipated, including, without
limitation, the following: (i) MPI's plans, strategies, objectives,
expectations and intentions are subject to change at any time at the
discretion of MPI; (ii) general economic and business conditions, which may,
among other things, affect the demand for retail space or retail goods,
availability, and creditworthiness of prospective tenants, lease rents and the
terms and availability of financing, are subject to change at any time; (iii)
adverse changes in real estate markets including, among other things,
competition with other companies; (iv) adverse changes in the properties owned
by MPI which could require the expenditure of funds to fix or maintain such
properties; (v) risks of real estate development and acquisition; (vi)
governmental actions and initiatives; (vii) environmental and safety
requirements; and (viii) other risks and uncertainties indicated from time to
time in MPI's filing with the Securities and Exchange Commission (the "SEC").
Future events and actual results, financial and otherwise, could
differ materially from those set forth in or contemplated by the
forward-looking statements herein.
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Item 1. Issuer and Class of Securities Subject to the Transaction.
(a) Milestone Properties, Inc., a Delaware corporation, is the issuer
of the MPI Preferred Stock, the class of equity security that is the subject
of the Rule 13e-3 transaction. MPI's principal executive office is located at
150 E. Palmetto Park Road, 4th Floor, Boca Raton, Florida 33432.
(b) MPI's $.78 Convertible Series A preferred stock, par value $.01
per share, is the subject of the Rule 13e-3 transaction. As of August 10,
1998, there were 3,000,251 shares of MPI Preferred Stock outstanding which
were held by 1,611 holders of record.
(c) The MPI Preferred Stock was traded on The New York Stock Exchange
(the "NYSE") from January 29, 1991 through July 3, 1998. The NYSE suspended
trading in shares of the MPI Preferred Stock (and the MPI Common Stock) prior
to the market opening on July 6, 1998 because the NYSE determined that MPI had
fallen below certain of its continued listing criteria relating to net income
and market value of publicly held shares. The NYSE subsequently applied to the
SEC to delist the MPI Preferred Stock (and the MPI Common Stock). MPI has
learned that on or about July 6, 1998, a market began to be made for shares of
the MPI Preferred Stock (and the MPI Common Stock) on the Over-The-Counter
Bulletin Board (the "OTC Bulletin Board"). The following table sets forth the
high and low sales prices of the MPI Preferred Stock, as reported on the NYSE,
for each quarterly period for the past two calendar years and the current year
and for the period from July 1, 1998 through July 3, 1998. In addition, the
table sets forth the high and low bid quotations for the MPI Preferred Stock,
as reported on the OTC Bulletin Board, for the period from July 6, 1998
through August 31, 1998.
<TABLE>
<CAPTION>
Sales Price
-----------
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended December 31, 1996
First Quarter 3-1/4 2
Second Quarter 2-5/8 1-1/8
Third Quarter 1-1/4 26/32
Fourth Quarter 1-1/8 5/8
Fiscal Year Ended December 31, 1997
First Quarter 7/8 5/8
Second Quarter 11/16 1/2
Third Quarter 1-5/16 7/16
Fourth Quarter 1-5/16 1-3/16
Fiscal Year Ending December 31, 1998
First Quarter 1-3/4 1-1/4
Second Quarter 1-3/8 1-5/16
Third Quarter
NYSE (through July 3, 1998) 1-1/2 1-7/16
OTC Bulletin Board (July 6, 1998 through August 31, 1998) 2-3/8 7/8
</TABLE>
On August 31, 1998, the last reported bid quotation for the MPI
Preferred Stock on the OTC Bulletin Board was $2.13 per share.
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(d) No dividends have been paid on the MPI Preferred Stock for more
than the past two years and MPI is not obligated to declare dividends on the
MPI Preferred Stock. However, the MPI Preferred Stock has a preferential right
to receive a quarterly, noncumulative dividend of $.195 per share before
dividends can be paid on the MPI Common Stock.
(e) No public offering of the MPI Preferred Stock has been made in
the last three years.
(f) Neither MPI nor any affiliate of MPI has purchased any shares of
MPI Preferred Stock during the two most recently completed fiscal years of MPI
or during MPI's current fiscal year.
Item 2. Identity and Background.
The person filing this Schedule 13E-3 is MPI, the issuer of the class
of equity securities (the MPI Preferred Stock) which is the subject of the
Rule 13e-3 transaction. Concord Assets Group, Inc. ("Concord"), a New York
corporation and an affiliate of MPI, beneficially owns approximately 71% of
the outstanding shares of MPI Common Stock (40% on a fully diluted basis after
giving effect to the conversion into MPI Common Stock of all of the
outstanding shares of MPI Preferred Stock -- each share of MPI Preferred Stock
is currently convertible, for no consideration, into 1.1 shares of MPI Common
Stock -- and the exercise of all outstanding options to purchase shares of MPI
Common Stock) and may therefore be deemed to control MPI. Concord has its
principal executive offices at 150 E. Palmetto Park Road, 4th Floor, Boca
Raton, Florida 33432.
Leonard S. Mandor and Robert A. Mandor, the only shareholders of
Concord, are the only directors and the Chief Executive Officer and Chief
Financial Officer, respectively, of Concord and may be considered controlling
persons of MPI. Leonard S. Mandor and Robert A. Mandor are also directors and
executive officers of MPI. The Rule 13e-3 transaction which is the subject of
this Schedule 13E-3, is part of a larger transaction involving the Proposed
Settlement (as defined in Item 4(a) of this Schedule 13E-3). Leonard S. Mandor
and Robert A. Mandor are defendants in such litigation. See Item 4(a) of this
Schedule 13E-3 for additional information regarding the Proposed Settlement.
(a), (b), (c), (d) and (g) Information required to be disclosed
regarding the directors and officers of MPI and Concord in response to parts
(a), (b), (c), (d) and (g) of Item 2 to Schedule 13E-3 is set forth below:
Leonard S. Mandor has served as Chairman of the Board and Chief
Executive Officer of MPI since it began operations in December 1990. MPI is
engaged in the business of acquiring, owning, managing and developing real
estate, primarily consisting of shopping centers. Mr. Mandor is also the
Chairman of the Board and Chief Executive Officer of Concord. Mr. Mandor has
been associated with Concord since its inception in 1981. Concord's principal
activity is the acquisition, through its wholly owned subsidiaries and other
affiliates, of investment retail properties, primarily community and
neighborhood shopping centers, small regional malls and single-tenant
commercial properties.
Robert A. Mandor has served as President, Chief Financial Officer and
a director of MPI since it began operations in December 1990. Mr. Mandor is
also the President, Chief Financial
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Officer and a director of Concord. Mr. Mandor has been associated with Concord
since its inception in 1981.
Joseph P. Otto was appointed a director of MPI by the Board in
November 1996 and has served as a Vice President of MPI since it began its
operations in December 1990. Mr. Otto is also a Vice President of Concord.
Mr. Otto has been associated with Concord since 1984.
Harvey Shore has served as Secretary and a Senior Vice President of
MPI since it began operations in December 1990. Mr. Shore is also a Senior
Vice President and Secretary of Concord. Mr. Shore has been
associated with Concord since 1983.
Patrick S. Kirse was appointed Vice President of Accounting of MPI in
September 1997 and as Controller in October 1997. He had served as a
non-executive Vice-President from February 1996 to September 1997 after
joining MPI in March 1995. From January 1992 until March 1995, Mr. Kirse, a
Certified Public Accountant, was an accountant with Deloitte & Touche LLP.
Geoffrey S. Aaronson has been a director of MPI since December 1990.
Mr. Aaronson is a shareholder of the law firm of Schantz, Schatzman, Aaronson
& Perlman, P.A. in Miami, Florida, and has been with such firm since 1983. Mr.
Aaronson's business address is 200 South Biscayne Boulevard, Suite 3650,
Miami, Florida 33131.
Harvey Jacobson has been a director of MPI since December 1990. Mr.
Jacobson has been the Chief Executive Officer of Glencraft Lingerie
Corporation since 1985. Mr. Jacobson's business address is 38 East 32nd
Street, New York, New York 10016.
Gregory McMahon was elected as a director of MPI by the holders of
the Preferred Stock in 1991. Mr. McMahon is a Certified Public Accountant and
has been a partner in the accounting firm of John McMahon & Sons for more than
17 years. Mr. McMahon's business address is 60 East 42nd Street, Suite 2118,
New York, New York 10165.
Except as otherwise set forth above, the business address of all
persons identified in the response to this Item 2 is 150 E. Palmetto Park
Road, 4th Floor, Boca Raton, Florida 33432.
All of the persons identified in the response to this Item 2 are
citizens of the United States of America.
(e) Neither MPI nor Concord nor any executive officer or director of
either MPI or Concord has, during the past five years, been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
(f) Neither MPI nor any executive officer or director of either MPI
or Concord has, during the past five years, been a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction and, as a
result, was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violations of such laws.
In February 1995, the SEC filed a civil complaint against Concord in
connection with the proxy solicitation conducted in connection with the merger
into MPI of two limited partnerships which were predecessors to MPI. The
complaint alleged that Concord had violated the antifraud provisions of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), through
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the forgery of investor signatures on proxy cards and that Concord had failed
timely to provide certain investors with partnership lists, as required under
the proxy rules. In April 1995, Concord consented, without admitting or
denying the SEC's allegations, to a judgment enjoining it from committing
future violations of the proxy rules under the Exchange Act and related rules
under the Securities Act of 1933, as amended (the "Securities Act"), and
providing for the payment of a monetary penalty.
Item 3. Past Contacts, Transactions or Negotiations.
(a) and (b) Other than with respect to the Rule 13e-3 transaction and
certain negotiations which terminated in September 1998 in connection with a
proposed transaction between certain affiliates of MPI and MPI, on one hand,
and an unrelated third party on the other hand, for the sale of two retail
properties owned by MPI and 23 retail properties owned by such affiliates, 22
of which are subject to wraparound mortgages held by MPI which would have to
have been released if such proposed transaction had been consummated, none of
the persons identified in Item 2 to this Schedule 13E-3 have engaged in any of
the types of transactions or had any of the contacts or negotiations of the
type referred to in the text to parts (a) and (b) of Item 3 to Schedule 13E-3,
during the two-year period referred to therein or in the amounts contemplated
thereby. With respect to the Rule 13e-3 transaction, reference is made to the
Settlement Notice and, in particular, the discussion therein under the heading
"Background and Description of the Actions" appearing at pages 7-11 for a
description of the contacts and negotiations leading up to the Rule 13e-3
transaction, which is incorporated herein by reference. Additional information
regarding the terminated potential sale to an unrelated third party of two
retail properties owned by MPI and 23 retail properties owned by certain of
its affiliates is set forth in the response in this Schedule 13E-3 to Item
8(f) of Schedule 13E-3. The negotiations regarding such sale arose from a
solicitation conducted on behalf of MPI and certain of its affiliates by
Societe Generale Securities Corporation. See the response in this Schedule
13E-3 to Items 5(b) and 5(e) of Schedule 13E-3 for information regarding the
plans and proposals of MPI and such affiliates regarding the sale of
properties.
Certain of the persons identified in Item 2 of this Schedule 13E-3
have, however, engaged in transactions (and all of which have been previously
disclosed in MPI's reports under the Exchange Act) that may be of the type
required to be disclosed under Item 3 of Schedule 13E-3, except that none of
them meet the criteria for disclosure because (i) the amounts involved are
below the thresholds established for disclosure under such Item or (ii) they
occurred more than two years ago. Such transactions are described below. In
addition, although neither Concord nor any other affiliate of MPI is the filer
of this Schedule 13E-3, the response set forth in this Item 3 includes
disclosure of the types of transactions contemplated by the text to part (a)
of Item 3 to Schedule 13E-3 when an affiliate is the filer.
i. In October 1995, MPI acquired 35 interests in real estate
properties consisting of 32 wraparound mortgage interests and three fee
properties from affiliates of Concord (the "Concord Sellers") for
approximately $700,000 in cash and 2,545,000 shares of MPI Common Stock (the
"Acquisition"). As a result of the Acquisition, (i) Concord's beneficial
ownership was increased to approximately 69% of the outstanding shares of MPI
Common Stock (37% on a fully diluted basis after giving effect to the
conversion into MPI Common Stock of all outstanding shares of MPI Preferred
Stock and the exercise of all outstanding options to purchase shares of MPI
Common Stock), (ii) Concord's ownership position gave it the ability to elect
all of MPI's directors, other than the directors that are elected by the
holders of the MPI Preferred
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Stock, and (iii) Concord's ownership position gave it the ability, subject to
certain limitations, to approve all matters submitted to a vote of the MPI
Common Stockholders, including all fundamental corporate transactions.
ii. Pursuant to certain agreements executed in connection with the
Acquisition (the "Acquisition Agreements"), and as security for any claims
against any Concord Seller for a breach of any covenant, representation or
warranty under any Acquisition Agreement, MPI and Concord entered into an
agreement on October 23, 1995 whereby Concord agreed to guaranty and indemnify
MPI (the "Concord Guaranty") for one year for up to $1,000,000 in the
aggregate, for a breach by any Concord Seller of any covenant, representation
or warranty under any Acquisition Agreement. The Concord Guaranty permitted
the payment by Concord of any of its liabilities or obligations thereunder in
cash and/or shares of MPI Common Stock. To secure its obligations under the
Concord Guaranty, Concord executed and delivered to MPI a pledge agreement
(the "Concord Pledge Agreement") creating a security interest in favor of MPI
with respect to (i) 137,930 shares of MPI Common Stock beneficially owned by
Concord, and (ii) 137,930 shares of common stock of Union Property Investors,
Inc., a former wholly owned subsidiary of MPI ("UPI") which was spun-off to
the holders of MPI's Common Stock in October 1995, which shares were
beneficially owned by Concord. Each of the Concord Guaranty and the Concord
Pledge Agreement expired on October 23, 1996. No claims were made thereunder.
iii. On August 4, 1995 and October 30, 1995, MPI transferred (the
"Transfer") five and 11 retail properties, respectively, to UPI. In November
1995, MPI assigned to UPI a $3,000,000 line of credit that MPI had obtained
from First Union National Bank of Florida in February 1995 which was
collateralized by one of the properties transferred to UPI in the Transfer.
iv. UPI was recapitalized and spun-off in November 1995, when MPI
distributed (the "Distribution") all of the outstanding shares of UPI common
stock to the holders of record of the MPI Common Stock as of October 31, 1995
on a share-for-share basis and for no consideration. In the Distribution,
Concord and its affiliates acquired approximately 75% of UPI's common stock.
Leonard S. Mandor and Robert A. Mandor served as directors and executive
officers of UPI.
v. As a result of and immediately following UPI's recapitalization,
MPI owned all 650,000 outstanding shares of UPI's preferred stock, par value
$.01 per share, with a 9% cumulative dividend (subject to adjustment to 8% in
certain events) and a $10 per share liquidation preference and redemption
value (the "UPI Preferred Stock"). Between March 22, 1996 and February 25,
1997, UPI redeemed an aggregate of 293,600 shares of the UPI Preferred Stock
owned by MPI at a price of $10 per share for a total redemption price of
$2,936,000 plus the accrued and unpaid dividends on such redeemed shares. As a
result of such redemptions, the dividend rate on the UPI Preferred Stock was
reduced to 8% per annum as of January 1, 1996.
vi. On February 27, 1997, UPI was merged (the "UPI Merger") into a
wholly owned subsidiary of Kranzco Realty Trust, a Maryland real estate
investment trust ("Kranzco"). In connection with the UPI Merger, the 356,400
shares of the UPI Preferred Stock which MPI owned as of the date of the UPI
Merger were converted into shares of Kranzco's Series C Cumulative Redeemable
Preferred Shares (the "Kranzco Series C Shares") on a share-for-share basis.
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vii. On March 26, 1993, the United States District Court for the
Southern District of New York approved a settlement (the "CMI Settlement") of
a consolidated class action which had been filed against MPI, Concord, Leonard
S. Mandor, Robert A. Mandor, certain of MPI's other present and former
affiliates, and Shareholder Communications Corporation, the proxy solicitation
firm engaged by MPI in connection with the merger of two limited partnerships
which were predecessors to MPI, The Concord Milestone Income Fund, L.P. and
Concord Milestone Income Fund II, L.P., into MPI on December 18, 1990. Under
the terms of the CMI Settlement, MPI among other things, was required to pay
$1,360,000 in legal fees and expenses to plaintiffs' counsel over a period of
three years. As of December 31, 1996, MPI paid the final $215,000 of legal
fees and expenses remaining under the CMI Settlement.
viii. A lawsuit (the "Rabin Litigation") purporting to be a class
action against, among others, Concord, Leonard S. Mandor, Robert A. Mandor and
certain partnerships and affiliates of Concord, was filed in September 1989
alleging various federal and common law claims relating to the sales of
interests in such partnerships. In November 1991, the Rabin Litigation was
settled pursuant to the terms of a court-approved settlement agreement (the
"Rabin Settlement Agreement"). The plaintiffs in the Rabin Litigation
subsequently filed a Notice of Motion with the court seeking to enforce the
Rabin Settlement Agreement and for declaratory and other relief. The
plaintiffs asserted, inter alia, that the defendants breached the Rabin
Settlement Agreement by improperly allocating transaction expenses against the
payment to be made to the selling partnerships in certain circumstances
pursuant to the Rabin Settlement Agreement and breached their fiduciary duties
to the plaintiffs. Although MPI was not a party to such action, had the
plaintiffs been successful in their claim for certain transaction expenses,
the value of certain wraparound mortgages held by MPI could have been
adversely affected. Concord and one of its subsidiaries have agreed to
indemnify MPI for any losses, up to $200,000 in the aggregate, resulting from
any such transaction fees, costs or expenses incurred by MPI as a result of
such event. Concord and its subsidiary can satisfy their indemnification
obligation to MPI by delivery of shares of MPI Common Stock.
In connection with the motion to enforce the Rabin Settlement
Agreement filed by the plaintiffs in such action, the plaintiffs alleged, in
part, that the sale of properties by the general partner (the "General
Partner") of any partnership selling properties was premature, without valid
business justification with respect to such partnership and a breach of the
General Partner's fiduciary duty. If such aspect of the litigation had been
determined adversely to the General Partner (or if the General Partner agreed
to a settlement restricting its ability to sell properties prior to maturity),
the ability of the General Partner to sell partnership properties, including
the partnerships' commercial real properties (the "Underlying Properties")
which secure certain wraparound notes and wraparound mortgages held by MPI
(together, the "Partnership Wrap Debt"), prior to the maturity of the related
Partnership Wrap Debt, whether by acceleration or at stated maturity, would
have been limited and could have materially and adversely affected MPI's
ability to realize upon the value of the Partnership Wrap Debt.
The parties settled the action to enforce the Rabin Settlement
Agreement pursuant to a Stipulation and Order approved by the court on October
27, 1997, under which the plaintiffs withdrew their breach of fiduciary duty
claims and withdrew with prejudice, in exchange for a payment by the
defendants, including Concord, of $600,000, their claim that the defendants
improperly allocated transaction costs, thereby breaching the Rabin Settlement
Agreement. In addition, the Stipulation and Order provides for a formula
relating to the allocation of transaction expenses in connection with the
future sale of properties owned by the partnerships, including the Underlying
Properties.
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ix. In December 1990, MPI entered into an executive management
agreement, as amended (the "Executive Management Agreement"), with Concord,
pursuant to which MPI provides management services and assists Concord in the
management of properties (the "Concord Properties") owned by Concord and its
affiliates, including limited partnerships controlled by Concord or affiliates
of Concord. Pursuant to the Executive Management Agreement, which is renewable
annually, MPI makes available to Concord certain personnel of MPI to provide
management services (the "Management Services") to Concord in connection with
which Concord is required to reimburse MPI based upon the hourly wage rate of
such personnel, and MPI provides Concord with office space and general office
services. The Management Services include overseeing all financing,
acquisitions, dispositions and operational functions of the Concord
Properties. The operational functions of the Management Services include
procuring and maintaining insurance, leasing, supervising and administering
expansion and maintenance projects, and performing all other necessary
services for maintaining the Concord Properties. Under the Executive
Management Agreement, affiliates of Concord engaged in real estate brokerage
activities may receive brokerage or leasing commissions in connection with the
purchase, sale or leasing of properties by MPI. In March 1995, the Executive
Management Agreement was amended to reduce by 50% the quarterly fee paid by
Concord to MPI for Management Services to its present fee of $12,500 and to
reduce by 50% the amount reimbursed by Concord for office space and general
office services. This reduction was occasioned by a significant decrease in
properties owned by Concord and, accordingly, a corresponding decrease in the
Management Services. Pursuant to the Executive Management Agreement, Concord
owes MPI $163,188 for expenses incurred by MPI in 1997 and Concord reimbursed
MPI for expenses totaling $155,857 incurred by the Company in 1996. In
addition, Concord owes MPI $69,910 for various services provided by the
Company to Concord in 1997 pursuant to the Executive Management Agreement and
Concord paid MPI $68,681 for similar services provided to Concord in 1996.
x. Milestone Properties Management, Inc. ("MPMI"), one of MPI's
wholly owned subsidiaries, is a party to a property management agreement (the
"Property Management Agreement") with Concord under which MPMI manages certain
properties owned by Concord and its affiliates, including limited partnerships
controlled by Concord or affiliates of Concord. MPMI received $95,020 and
$9,747 in termination fees and incurred $64,762 and $7,608 of accelerated
amortization in connection with the termination of management agreements for
the years ended December 31, 1997 and 1996, respectively, resulting from the
sale or foreclosure of properties owned by limited partnerships syndicated by
Concord. As of June 30, 1998, MPMI performed property management and leasing
services for seven of Concord's shopping centers pursuant to the Property
Management Agreement.
xi. In connection with the UPI Merger, on February 26, 1997, UPI
terminated a property management agreement it had entered into with MPMI in
November 1995 (the "UPI Property Management Agreement") and a management
services agreement it had entered into with MPI in November 1995 (the "UPI
Management Services Agreement"). The aggregate fees paid by UPI to MPMI and
MPI for services provided to UPI under the UPI Property Management Agreement
and the UPI Management Services Agreement were $21,669 and $86,919,
respectively, in 1997 and $975,807 and $260,024, respectively, in 1996.
xii. On May 24, 1996, a wraparound note held by MPI on a property
located in Roanoke, Virginia was paid as a result of the sale of such property
by its owner, an MPI affiliate, to an unrelated party. The sale price was
approximately $2,150,000, resulting in a book gain of $393,768 to MPI. In
conjunction with the sale of such property, Centaur Leasing Company, Inc.,
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a wholly owned subsidiary of MPI ("Centaur") and the lessor under the master
lease on such property, cancelled such master lease.
xiii. On November 1, 1996, a wraparound note held by MPI on a
property located in Southington, Connecticut was paid as a result of the sale
of such property by its owner, an MPI affiliate, to an unrelated party. The
sale price was approximately $2,745,000, resulting in a book loss of $127,020
to MPI. In conjunction with the sale of such property, Centaur, as lessor,
cancelled the master lease on such property.
xiv. On June 12, 1997, a wraparound note and a non-recourse
underlying mortgage held by MPI on a property located in Prattville, Alabama
were satisfied as a result of the foreclosure sale of such property by the
lender of the underlying mortgage, resulting in a book gain of approximately
$120,000 to MPI. In conjunction with the foreclosure sale of such property,
MPI, as the lessor on the master lease on such property, canceled such master
lease.
xv. On October 30, 1997, a wraparound note held by MPI on a property
located in Marion, Ohio was paid as a result of the sale of such property by
its owner, an MPI affiliate, to an unrelated party. The sale price of the
property was approximately $2,750,000, resulting in a book gain of
approximately $200,000 to MPI. In conjunction with the sale of such property,
MPI, as the lessor on the master lease on such property, canceled such master
lease.
xvi. On February 9, 1998, a wraparound note held by MPI on a property
located in Chili, New York was assigned to an unrelated party. At the time,
such wraparound note had a carrying value of $1,477,010 and was assigned for
$75,000 in cash and the relief of a non-recourse underlying mortgage
obligation of MPI that had a principal balance outstanding of $1,477,010,
resulting in a book gain to MPI of approximately $75,000.
xvii. On July 7, 1998, MPI completed the sale of the Mountain View
Mall located in Bend, Oregon, to an unrelated party, for approximately
$17,750,000. After paying expenses and satisfying the balance of the
underlying first mortgage debt on the Bend property, which was approximately
$17,065,000, MPI realized net proceeds from the sale of approximately $319,200
and a book gain of approximately $948,000.
xviii. From August 1994 to November 1997, one of the focuses of MPI
was on investment opportunities and, in particular, the purchasing of issues
of mortgage loan securitizations which were backed by mortgage loans on
commercial and multi-family dwellings ("CMBSs"). To facilitate the purchase of
CMBSs, short term borrowing arrangements ("Loans Payable") were entered into
with the brokers from which such securitizations were purchased. MPI engaged
in a variety of interest rate management techniques in order to attempt to
manage the effective maturity and/or interest rate risks associated with the
CMBSs. Such techniques included selling short U.S. Treasury Notes which were
collateralized by reverse repurchase agreements.
MPI had $32,314,853 and $37,594,939 of CMBS as of December 31, 1996
and 1995, respectively, and $23,829,335 and $27,450,954 of associated Loans
Payable as of December 31, 1996 and 1995, respectively. Additionally, MPI had
$33,952,346 and $32,823,439 of U.S. Treasury Notes sold short as of December
31, 1996 and 1995, respectively, and $34,718,749 and $33,119,375 of associated
reverse repurchase agreements as of December 31, 1996 and 1995.
On January 23, 1997, MPI sold its ownership of the CMBS consisting of
a Nomura Series 1994-MD1 B3A (the "MD1 Certificate") to an unrelated party and
repaid the associated
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Loan Payable. At the time of the sale of the MD1 Certificate, MPI had
outstanding U.S. Treasury Note short positions totaling $10,000,000 associated
with the MD1 Certificate. In connection with the sale of the MD1 Certificate,
MPI closed $9,500,000 of U.S. Treasury Note short positions. As a result of
the sale, MPI realized a book loss of approximately $1,100,000.
On November 10, 1997, MPI sold its remaining ownership of the CMBSs
consisting of a Nomura Series 1996-MDV B2 certificate (the "MDV Certificate"),
a DLJ 1994-MF11 B2 certificate (the "B2 Certificate"), and a DLJ 1994-MF11 B3
certificate (the "B3 Certificate") (the MDV Certificate, the B2 Certificate
and the B3 Certificate may be referred to collectively herein as the
"Certificates") to unrelated parties and repaid the associated Loans Payable.
At the time of the sale of the Certificates, MPI had outstanding U.S. Treasury
Note short positions totaling $25,500,000 associated with the Certificates. In
connection with the sale of the Certificates, MPI closed all such remaining
U.S. Treasury Note short positions. As a result of the sale, MPI realized a
book gain of approximately $3,500,000.
Item 4. Terms of the Transaction.
(a) Information regarding the material terms of the Rule 13e-3
transaction is set forth in the Settlement Notice under the caption "The
Settlement" at pages 12-15, which is incorporated herein by reference. In
general, such transaction arises out of a proposed settlement (the "Proposed
Settlement") of a purported class action and derivative lawsuit (the "Pending
Actions"). In the Pending Actions, John Winston, the named plaintiff and an
MPI Preferred Stockholder purporting to bring the action on behalf of himself
and the other MPI Preferred Stockholders and derivatively on behalf of MPI,
alleged that in connection with (i) the Acquisition (see the response set
forth in Items 3(a) and (b), paragraph (i), of this Schedule 13E-3), (ii) the
Transfer (see the response set forth in Items 3(a) and (b), paragraph (iii),
of this Schedule 13E-3) and (iii) the Distribution (see the response set forth
in Items 3(a) and (b), paragraph (iv), of this Schedule 13E-3) (the
Acquisition, the Transfer and the Distribution are collectively referred to
herein as the "Transactions"), MPI and its directors engaged in self-dealing
and breached their fiduciary duties of good faith and fair dealing to the MPI
Preferred Stockholders. The plaintiff claimed, among other things, that, as a
result of the Transactions, MPI would not have sufficient funds to pay
dividends on the MPI Preferred Stock and that the properties acquired in the
Acquisition were grossly inferior to the UPI Properties.
The Proposed Settlement would be effected pursuant to the Settlement
Agreement that was entered into on August 5, 1998 between counsel for John
Winston, the named plaintiff in the Pending Actions, and counsel for the named
defendants therein (Leonard S. Mandor, Robert A. Mandor, Joan LeVine, Harvey
Jacobson, Gregory McMahon and Geoffrey S. Aaronson (each of whom was a
director of MPI at the time that the Transactions were approved and effected),
MPI and Concord (collectively, the "Defendants")). Pursuant to the Settlement
Agreement, each MPI Preferred Stockholder that is eligible to participate in
the Proposed Settlement and who does not opt out of the Proposed Settlement
would be required to exchange all of such holders shares of MPI Preferred
Stock with MPI for $3.00 in cash for each share of MPI Preferred Stock
surrendered to MPI by such holder and the release by such holder of all claims
against the Defendants relating to the Transactions. (MPI Preferred
Stockholders will have 45 days from the date of the initial mailing of the
Settlement Notice to MPI Preferred Stockholders to opt out of the Proposed
Settlement.) All shares of MPI Preferred Stock acquired by MPI pursuant to the
Proposed Settlement would be cancelled. Consummation of the Proposed
Settlement is subject to the approval of the Court as to the fairness of the
Proposed Settlement as well as a number of
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conditions which may be waived at the option of the Defendants, including the
condition that holders eligible to participate in the Proposed Settlement who
hold more than 10% of the shares of MPI Preferred Stock outstanding on August
25, 1998, the date that MPI has set as the record date for the Rule 13e-3
transaction, do not opt out of the Proposed Settlement. Notice of the hearing
of the Court will be sent to all of MPI's stockholders who were holders of
record at the close of business on August 25, 1998, at least 60 days prior to
the hearing date. The Defendants, members of their families, their affiliates
and their associates are not eligible to participate in the Proposed
Settlement.
Pursuant to Rule 13e-3(a)(3), the acquisition of the MPI Preferred
Stock by MPI is a "Rule 13e-3 transaction." See Item 5(f) of this Schedule
13E-3.
(b) There is no term or arrangement concerning the Rule 13e-3
transaction relating to any security holder of MPI which is not identical to
that relating to other security holders of the same class of securities of
MPI, except that, as described above, the Defendants and their affiliates are
not eligible to participate in the Proposed Settlement.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a) Except for the cancellation of all shares of MPI Preferred Stock
acquired by MPI as part of the Proposed Settlement and as described in the
response set forth in parts (b) and (e) of this Item 5, there are no plans or
proposals of MPI which relate to or would result in an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving MPI or
any of its subsidiaries.
(b) and (e) MPI entered into an agreement (the "SGSC Agreement") on
January 9, 1998, effective December 24, 1997, with Societe Generale Securities
Corporation ("SGSC") pursuant to which MPI and certain of its affiliates
retained SGSC to act as a financial advisor in connection with a transaction
(a "Proposed Transaction") involving the proposed sale by the partnerships
(the "Partnerships") of which affiliates of MPI and Concord are general
partners, of a number of shopping center properties owned by such affiliates
and the proposed sale by MPI of two retail properties. Certain of the shopping
center properties to be sold by the Partnerships are subject to wraparound
mortgages held by MPI which would need to be satisfied and released prior to
the consummation of a Proposed Transaction. The fee properties to be sold and
the wraparound mortgage debt to be repaid to MPI in connection with a Proposed
Transaction could represent a substantial portion of MPI's real estate related
assets.
MPI and the Partnerships have been considering a Proposed Transaction
because they believe that the market for selling the types of properties
(community and neighborhood shopping centers and large, single-tenant
properties) being offered is favorable to their respective interests. A
Proposed Transaction involving the sale of community shopping centers and
other large properties (and related assets) would enable MPI to capitalize on
current market conditions and to continue to re-focus its efforts on the
ownership of smaller unanchored retail properties, in part by providing MPI
with cash to acquire additional smaller commercial properties and for other
corporate purposes. As part of this strategy, MPI purchased in September 1997,
a 16,994 square foot shopping center property located in Sunrise, Florida for
approximately $1,100,000, in April 1998, a 34,436 square foot shopping center
property located in Jacksonville, Florida for $2,150,000, in April 1998, a
21,509 square foot shopping center property located in Orange Park, Florida
for $1,500,000, and, in July 1998, a 22,589 square foot shopping center
property located in Boca Raton, Florida for $2,075,000.
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In addition, one of the Partnerships has entered into a contract to
sell a single tenant property encumbered by a wraparound mortgage held by MPI
which will need to be satisfied and released by MPI prior to its sale. The
sale price for such property will be used to pay MPI the balance of the
related wraparound mortgage and is expected to yield $850,000 in cash and
result in a book gain to MPI of approximately $190,000. There can be no
assurance that such transaction will ultimately be consummated or, if it is
consummated, there can be no assurance that it will be consummated on the
terms set forth in the contract. Factors which could affect such sale include
changes in the local, regional and national economies, in the condition of
such property and in the potential purchaser's financial condition and
business direction.
(c) MPI has not paid dividends on the MPI Preferred Stock for more
than the past two years. As a result, the holders of the MPI Preferred Stock
have the right to elect an additional director to MPI's Board of Directors at
MPI's 1998 Annual Meeting of Stockholders or at a special meeting of
stockholders held for such purpose.
(d) Although MPI has not paid (and was not required to pay) dividends
on the MPI Preferred Stock for more than the past two years (nor is it
obligated to declare or pay dividends thereon in the future), it is not
precluded from paying dividends on the MPI Preferred Stock and may determine
to do so at any time in the future. Any decision as to the payment of
dividends in the future on the MPI Preferred Stock will depend, in part, on
MPI's results of operations and financial condition at that time and on such
other factors as MPI's Board of Directors deems relevant.
(f) If holders of a sufficient number of shares of the MPI Preferred
Stock participate in the Rule 13e-3 transaction pursuant to the Proposed
Settlement, the MPI Preferred Stock would become eligible for termination of
registration.
(g) There are no plans or proposals of MPI which relate to or would
result in the suspension of MPI's obligation to file reports pursuant to
Section 15(d) of the Exchange Act.
Item 6. Source and Amount of Funds or Other Consideration.
(a) The total amount of funds necessary for the purchase of the
maximum number of shares of MPI Preferred Stock to be acquired in the Rule
13e-3 transaction is $8,982,621. Additional expenses of approximately
$1,200,000 are anticipated to be incurred in connection with the Rule 13e-3
transaction. The source of the funds necessary to effectuate such transaction
would be from MPI's existing cash reserves.
MPI maintains a directors and officers insurance and company
reimbursement policy (the "National Policy") issued by National Union Fire
Insurance Company of Pittsburgh, PA ("National Union") with a $2,000,000 limit
and an excess directors and officers liability and company reimbursement
policy (the "Stonewall Policy") with Stonewall Surplus Lines Insurance Company
("Stonewall") with a $2,000,000 limit. MPI believes that the amounts that it
would have to pay pursuant to the Proposed Settlement and in connection with
the Pending Actions would be covered losses under both the National Union
Policy and the Stonewall Policy. In addition, MPI believes that the legal fees
and other expenses incurred by MPI and the other Defendants in connection with
the Pending Actions are also covered losses under the National Union and
Stonewall Policies. In connection with a previous proposed settlement of the
Pending Actions which was never consummated, the terms of which are described
in the response to Item 7(b) of this Schedule 13E-3, National Union and
Stonewall both refused to contribute to such
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proposed settlement, asserting that such proposed settlement did not encompass
any covered loss (as defined in the National Policy and the Stonewall Policy,
respectively). On January 29, 1998, MPI along with the other Defendants
commenced a lawsuit in the United States District Court for the Southern
District of New York against National Union and Stonewall in connection with
such refusal to contribute to such proposed settlement. In the complaint, the
plaintiffs alleged that National Union and Stonewall wrongfully failed to
contribute to the proposed settlement and sought reimbursement from National
Union and Stonewall up to the limits of their respective policies. National
Union and Stonewall both answered the complaint and denied liability. As a
result of the termination of the previously proposed settlement, MPI on one
hand, and Stonewall and National Union, on the other hand, agreed to dismiss
such action without prejudice and such action was dismissed on May 29, 1998 by
the United States District Court for the Southern District of New York. MPI
has given National Union and Stonewall notices of the Proposed Settlement and
has provided each of them with a copy of the Settlement Agreement. National
Union has reviewed the Proposed Settlement and has informed MPI that its basic
position, denying coverage, has not changed and, therefore, it is likely that
MPI will assert a claim against National Union. If Stonewall also asserts that
the Proposed Settlement is not a covered loss under the Stonewall Policy, it
is likely that MPI would assert a claim against Stonewall. MPI is not in a
position to render an opinion as to the likelihood of success of any such
action if one is commenced.
(b) The expenses incurred or estimated to be incurred in connection
with the Rule 13e-3 transaction, which would be paid by MPI, are as follows:
Plaintiff's attorneys' fees and expenses $ 750,000
Cash payment 8,982,621
Printing and mailing 100,000
Accounting fees 15,000
Exchange agent fees 15,000
MPI's legal fees and expenses 300,000
Miscellaneous 20,000
-----------
Total $ 10,182,621
The aggregate amount of MPI's legal fees and expenses, incurred and
estimated to be incurred, set forth above, includes amounts previously paid.
(c) No part of such funds discussed in paragraph (b) of this Item 6
or any other consideration is expected to be, directly or indirectly, borrowed
for the purpose of the Rule 13e-3 transaction.
(d) No part of the funds to be used in the Rule 13e-3 transaction is
to be from a loan made by a bank.
Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a) The Rule 13e-3 transaction is being affected in connection with
the Proposed Settlement, which is described in Item 4(a) of this Schedule
13E-3 and in the Settlement Notice.
(b) The Proposed Settlement arose from arm's length negotiations
between counsel to MPI and the other Defendants, on one hand, and independent
counsel for the MPI Preferred Stockholders (the plaintiff class in the
purported class action), on the other hand. As originally
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proposed, the MPI Preferred Stockholders would have received $.50 in cash and
a $2.50 principal amount non-interest bearing eight-year note for each share
of MPI Preferred Stock and the release of all claims against any and all of
the Defendants relating to the Transactions. After negotiations with
independent counsel for the MPI Preferred Stockholders, the terms of the
Proposed Settlement were modified, at such counsel's request, to $.75 in cash
and a $2.25 redeemable preferred share of an affiliate of Concord in exchange
for each share of MPI Preferred Stock and the release of all claims against
any and all of the Defendants relating to the Transactions, and a settlement
agreement, subject to certain conditions similar to those of the Proposed
Settlement, including court approval, was entered into memorializing such
terms. The closing price on the NYSE of the MPI Preferred Stock on the day
immediately prior to the public announcement of the first proposed settlement
was $.50 per share. In connection with such proposed settlement, the
Defendants' counsel sent a letter (the "No-Action Request") to the Office of
the Chief Counsel of the Division of Corporate Finance of the SEC requesting
that the staff (the "Staff") of the SEC affirmatively concur with certain
determinations of MPI and its counsel relating to certain exemptions from
registration regarding the redeemable preferred stock of the Concord affiliate
and other filing requirements and notice procedures implicated by such
settlement agreement. During the period of time after such settlement
agreement was entered into by the parties to the Pending Actions and while the
Defendants and their counsel were communicating with the Staff regarding the
issues presented in the No-Action Request, MPI's financial condition improved
and the SGSC Agreement was entered into, making the consummation of a Proposed
Transaction more likely. As a result, independent counsel for the MPI
Preferred Stockholders withdrew its support of such settlement agreement.
After further negotiations between independent counsel for the MPI Preferred
Stockholders and counsel to MPI and the other Defendants, the terms of the
proposed settlement were again modified, pursuant to a proposal by independent
counsel to the MPI Preferred Stockholders, to the current terms of $3.00 in
cash, payable by MPI, for each share of MPI Preferred Stock and the release of
all claims against any and all of the Defendants relating to the Transactions,
and the Settlement Agreement was entered into memoralizing such terms. The
closing price on the OTC Bulletin Board of the MPI Preferred stock on the day
immediately prior to the public announcement of the Proposed Settlement was
$.875 per share.
Other resolutions of the Pending Actions (including judicial
determination of the Pending Actions) may not have resulted in a Rule 13e-3
transaction.
(c) The Rule 13e-3 transaction was structured as an acquisition by
MPI of each share of MPI Preferred Stock held by MPI Preferred Stockholders or
their successors in interest eligible to participate in the Proposed
Settlement who do not properly opt out of the Proposed Settlement and the
release of all claims against any and all of the Defendants relating to the
Transactions by such MPI Preferred Stockholders, or such successors in
interest, for $3.00 per share, payable in cash by MPI. To receive his or her
settlement consideration, an MPI Preferred Stockholder (other than any of the
Defendants, members of their families, their affiliates and their associates,
none of whom are entitled to participate in the Proposed Settlement at the
request of the independent counsel to the MPI Preferred Stockholders) must
surrender for acquisition by MPI all (and not less than all) of the shares of
MPI Preferred Stock owned by such holder together with a letter of transmittal
which provides for the release of all claims such holder may have against the
Defendants in connection with the Transactions as of the effective date of the
Proposed Settlement (the "Settlement Effective Date") which shall be the date
that the final order of the Court approving the Proposed Settlement becomes
final and is no longer subject to appeal due to the expiration of the 30 day
appeal period without an appeal being filed, the affirmation of the approval
on appeal, or otherwise. As a result of, and upon, the
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consummation of the Proposed Settlement, unless an MPI Preferred Stockholder who
is eligible to participate in the Proposed Settlement opts out of the Proposed
Settlement in the manner and within the time period provided for in the
Settlement Agreement, all claims against any and all of the Defendants relating
to the Transactions of such holder would be released and all shares of MPI
Preferred Stock held by such MPI Preferred Stockholder would cease to be
outstanding and would be cancelled and retired and would cease to exist as of
the Settlement Effective Date, and such holder would thereafter cease to have
any rights with respect to such shares, except the right to receive, without
interest, the settlement consideration, in each case, whether or not such MPI
Preferred Stockholder has delivered to MPI certificates representing his or her
shares of MPI Preferred Stock (or some other indicia of ownership thereof
acceptable to MPI) and/or a letter of transmittal therefor. MPI Preferred
Stockholders who do not opt out of the Proposed Settlement must surrender their
shares of MPI Preferred Stock in order to receive the settlement consideration.
The transaction would allow the MPI Preferred Stockholders (the plaintiff class)
to obtain cash immediately for their claims against the Defendants and shares of
MPI Preferred Stock and allow both sides to avoid the costs and risks of
continued litigation. The Rule 13e-3 transaction would be entered into pursuant
to the Court's order approving the Proposed Settlement. By approving the
Proposed Settlement, the Court necessarily would be making the determination
that the Proposed Settlement is fair, reasonable, adequate and in the best
interests of the parties involved.
(d) The Rule 13e-3 transaction is expected to have the following
economic effects on MPI, its affiliates, and its unaffiliated security
holders:
There will be a reduction of MPI's cash reserves by approximately
$10.2 million as a result of the payment of the cash portion of the Proposed
Settlement ($9.0 million), the legal fees and expenses of the plaintiff class
attorneys ($750,000) and MPI's counsel ($300,000 (including amounts already
paid)) and other estimated expenses to be incurred in connection with the
Proposed Settlement ($100,000). (MPI's unrestricted cash reserves as of June
30, 1998 were approximately $12.8 million, and can fluctuate significantly
with the acquisition and disposition of properties.) MPI believes that
immediately subsequent to the Proposed Settlement, it would have sufficient
cash to continue operating in the ordinary course of business for the next 12
months. The foregoing is a forward-looking statement and there can be no
assurances that this will be the case. Factors which could cause such a
statement to become untrue include the fact that (i) MPI's plans, strategies,
objectives, expectations and intentions are subject to change at any time at
the discretion of MPI; (ii) general economic and business conditions, which,
among other things, affect the demand for retail space or retail goods,
availability, and creditworthiness of prospective tenants, lease rents and the
terms and availability of financing, are subject to change; (iii) adverse
changes in the real estate markets including, among other things, competition
with other companies, may occur; and (iv) adverse changes in the properties
owned by MPI which could require the expenditure of funds to fix or maintain
such properties. Although MPI believes that immediately subsequent to the
Proposed Settlement it would have sufficient cash to continue operating in the
ordinary course of business for the next 12 months, if MPI were to pursue
opportunities to acquire additional properties, it would need to raise funds
through a public or private sale of debt or equity securities, by conducting
rights offerings, by selling assets, through corporate borrowings, or by other
means. In addition, if MPI consummates a Proposed Transaction as discussed in
Item 5(b) and Item 5(e) of this Schedule 13E-3, it may generate additional
cash for operations and investments.
To the extent that the costs incurred by MPI in connection with the
Proposed Settlement, including, without limitation, the cash settlement
consideration to be paid to the MPI Preferred
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Stockholders who do not opt out of the Proposed Settlement, attorneys' fees
and other expenses, are allocable to the acquisition of the shares of MPI
Preferred Stock to be acquired by MPI pursuant to the Proposed Settlement, no
federal income tax benefits will be available to MPI as a result thereof. To
the extent, if any, that the costs incurred by MPI in connection with the
Proposed Settlement, including, without limitation, the cash settlement
consideration to be paid to the MPI Preferred Stockholders who do not opt out
of the Proposed Settlement, attorneys' fees and other expenses, are allocable
to the release of claims provided for pursuant to the Proposed Settlement, MPI
may be entitled to a federal income tax deduction in such amounts, although
this matter is not free from doubt.
A corporation that is a personal holding company ("PHC") is subject
not only to regular federal corporate income tax (at rates as high as 35%),
but is also subject to an additional tax of 39.6% on undistributed personal
holding company income (generally, the net income after taxes of the PHC on a
consolidated basis with any subsidiaries, subject to certain adjustments, to
the extent not distributed to stockholders). A PHC is any corporation (i) more
than 50% of the stock of which, measured by value, is owned, directly or
indirectly, by five or fewer individuals (the "stock test") and (ii) which
receives 60% or more of its consolidated gross income, subject to certain
adjustments, from certain passive sources (the "income test").
If the Proposed Settlement were to be effected and none or only a
small number of the eligible MPI Preferred Stockholders opted out of the
Proposed Settlement, more than 50% of the outstanding shares of all stock of
MPI, by value, would be owned, directly or indirectly, by five or fewer
individuals. Furthermore, it is currently anticipated that for 1998 MPI will
derive more than 60% of its consolidated gross taxable income from passive
sources such as interest. Therefore, it is likely that MPI would be classified
as a PHC for 1998 if the Proposed Settlement is consummated in 1998. However,
MPI does not currently anticipate having consolidated net taxable income in
1998. Therefore, if the Proposed Settlement were to be effected in 1998 and,
as a result, MPI satisfied the stock test, MPI does not currently anticipate
being subject to the PHC tax for 1998. If, as a result of the Proposed
Settlement, MPI satisfies the stock test, MPI intends to manage its affairs
for 1999 and thereafter so as to attempt to avoid or minimize the imposition
of the PHC tax, including by means of failing the income test by changing its
business and investment strategies to alter the nature of its income to the
extent consistent with its other business goals, but no assurances can be
given in this regard.
Concord and its affiliates would continue to control 71% of the
outstanding MPI Common Stock and, if none of the MPI Preferred Stockholders
eligible to participate in the Proposed Settlement properly opt out of the
Proposed Settlement, Concord would control all of the outstanding MPI
Preferred Stock. This would not have any immediate effect on the unaffiliated
MPI Common Stockholders, since Concord and its affiliates already control MPI
and the unaffiliated MPI Common Stockholders' shares are already subject to
the MPI Preferred Stock liquidation and dividend preferences. Another effect
on the unaffiliated stockholders, if holders of a sufficient number of shares
of MPI Preferred Stock participate in the Proposed Settlement, is the
elimination of the possibility that Concord and its affiliates would lose
absolute control (although Concord probably would not lose effective control)
of MPI if a significant number of shares of the MPI Preferred Stock were
converted into shares of MPI Common Stock (MPI Preferred Stock is currently
convertible, for no consideration, into 1.1 shares of MPI Common Stock).
Concord and its affiliates currently have a 71% ownership interest in the MPI
Common Stock and, on a fully diluted basis would control 40% of the
outstanding shares of MPI Common Stock.
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As a result of, and upon, the consummation of the Proposed
Settlement, unless an MPI Preferred Stockholder who is eligible to participate
in the Proposed Settlement opts out of the Proposed Settlement, all shares of
MPI Preferred Stock held by such MPI Preferred Stockholder would cease to be
outstanding and would be cancelled and retired and would cease to exist as of
the Settlement Effective Date, and such holder would thereafter cease to have
any rights with respect to such shares, except the right to receive, without
interest, the settlement consideration upon the surrender to MPI of his or her
certificates representing such shares (or some other indicia of ownership
thereof acceptable to MPI). MPI Preferred Stockholders who are eligible to
participate in the Proposed Settlement and who do not opt out of the Proposed
Settlement would receive $3.00 in cash from MPI in exchange for each share of
MPI Preferred Stock surrendered to MPI and the release of all claims of such
holders against the Defendants relating to the Transactions. MPI Preferred
Stockholders who are eligible to participate in the Proposed Settlement but
opt out will retain their shares of MPI Preferred Stock and all of the rights
incidental thereto, including the liquidation and dividend preferences, and
will not release their claims against the Defendants relating to the
Transactions. MPI Preferred Stockholders who do not opt out of the Proposed
Settlement must surrender their shares of MPI Preferred Stock in order to
receive the settlement consideration. There are currently approximately 1,611
holders of the MPI Preferred Stock. If a sufficient number of holders of the
MPI Preferred Stock participate in the Rule 13e-3 transaction pursuant to the
Proposed Settlement (i.e., by not "opting out") and, as a result, there are
fewer than 300 MPI Preferred Stockholders, the MPI Preferred Stock would
become eligible for termination of registration pursuant to Section 12(g) of
the Exchange Act and the rules promulgated thereunder.
In general, for U.S. federal income tax purposes, the Proposed
Settlement should result in a holder of MPI Preferred Stock who does not opt
out realizing gain (or loss) equal to the amount by which the settlement
proceeds paid to such holder exceeds (or is less than) such holder's tax basis
in his or her MPI Preferred Stock. The gain (or loss) generally should be
capital gain (or loss) if such holder holds the MPI Preferred Stock as a
capital asset, and generally should be long-term capital gain or loss if such
holder has held his or her MPI Preferred Stock in excess of one year. To the
extent, if any, that a portion of a settlement payment to a holder of MPI
Preferred Stock is properly allocable to a release of claims against the
Defendants, and not to the redemption of the MPI Preferred Stock, the Internal
Revenue Service could take the position that such amount (or a portion
thereof) is appropriately characterized as ordinary income and not capital
proceeds. This matter is not free from doubt.
See Item 8(b) of this Schedule 13E-3 for a discussion of certain
economic benefits MPI believes will be received by each of the MPI Preferred
Stockholders and the MPI Common Stockholders.
Item 8. Fairness of the Transaction.
(a) MPI believes that the Rule 13e-3 transaction would be fair to the
unaffiliated stockholders of MPI. No director dissented to or abstained from
voting on the Proposed Settlement, which, if effected, would result in the
Rule 13e-3 transaction.
(b) The foregoing belief is based principally upon the fact that the
Proposed Settlement cannot be consummated unless the Court concludes after a
hearing (in which all interested parties are invited to participate) that the
Proposed Settlement is fair to the MPI Preferred Stockholders (as well as the
MPI Common Stockholders) both substantively and
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procedurally. The belief is also based upon the cash to be received by the
holders of the MPI Preferred Stock as compared to such stock's market price
immediately prior to the public announcement of the Proposed Settlement (and
prior to the public announcement of an earlier settlement proposal), the MPI
Preferred Stock's current market price ($2.13 per share on August 31, 1998),
and the illiquidity of the market for the MPI Preferred Stock.
The Rule 13e-3 transaction would provide significant value to the
holders of the MPI Preferred Stock. Immediately prior to the public
announcement of the Proposed Settlement, the MPI Preferred Stock traded
sporadically, in low volume, and had a market value of approximately $.875 per
share. MPI is not obligated to declare or pay (and has not paid for more than
two years) any dividends on such stock. The MPI Preferred Stockholders have no
means to compel dividends to be declared or paid. In addition, MPI is under no
obligation to redeem the MPI Preferred Stock. Under the terms of the Proposed
Settlement, as soon as practicable after the Settlement Effective Date, MPI
would acquire from MPI Preferred Stockholders who are eligible to participate
in the Proposed Settlement and who do not opt out of the Proposed Settlement,
all of such holders' shares of MPI Preferred Stock and their release of all
claims against the Defendants relating to the Transactions for $3.00 in cash
per share, payable by MPI. As a result of, and upon, the consummation of the
Proposed Settlement, unless an MPI Preferred Stockholder who is eligible to
participate in the Proposed Settlement opts out of the Proposed Settlement,
all claims against any and all of the Defendants relating to the Transactions
of such holder would be released and all shares of MPI Preferred Stock held by
such MPI Preferred Stockholder would cease to be outstanding and would be
cancelled and retired and would cease to exist as of the Settlement Effective
Date, and such holder would thereafter cease to have any rights with respect
to such shares, except the right to receive, without interest, the settlement
consideration, in each case, whether or not such MPI Preferred Stockholder has
delivered to MPI certificates representing his or her shares of MPI Preferred
Stock (or some other indicia of ownership thereof acceptable to MPI) and/or a
letter of transmittal therefor. Any eligible MPI Preferred Stockholder who
does not opt out of the Proposed Settlement must exchange all (and not less
than all) of such holders shares of MPI Preferred Stock together with a letter
of transmittal providing for his or her release of claims with MPI in order to
receive his or her settlement consideration. MPI would cancel all shares so
acquired. Although the MPI Preferred Stock has a $10 liquidation preference,
there is no current intention to liquidate by MPI and no means for the MPI
Preferred Stockholders to force liquidation and realize such preference.
However, MPI's Board of Directors has the power to declare dividends and to
recommend to the MPI Common Stockholders that MPI be liquidated and would
continue to have such power if the Proposed Settlement is consummated, and
there can be no assurance that MPI would not thereafter declare dividends on
the MPI Preferred Stock or seek to effect a liquidation.
The net book value of the MPI Common Stock (assuming conversion of
all of the outstanding shares of MPI Preferred Stock into MPI Common Stock at
a rate of 1.1 shares of MPI Common Stock for each share of MPI Preferred Stock
converted) as of June 30, 1998 was $3.20 per share, which is not substantially
more than the $3.00 per share (including the portion thereof allocable to the
release of claims) that MPI Preferred Stockholders would receive in the
Proposed Settlement. The net book value of the MPI Preferred Stock was $8.06
per share as of June 30, 1998. However, unlike the proposed payment of the
settlement consideration, there is no current likelihood of MPI Preferred
Stockholders realizing the net book value of the MPI Preferred Stock (or the
net book value of the MPI Common Stock, after conversion of the MPI Preferred
Stock), because such holders cannot force MPI's liquidation and there is no
current intention to liquidate by MPI (although the MPI Board of Directors
always has the right to seek liquidation). In addition, even if MPI were to be
liquidated, any cash received from the
19
<PAGE>
disposition of its assets would be offset by expenses, which could be
significant, including, but not limited to, wind-down expenses, lease
termination fees, taxes and termination and severance payments. After payment
of cash expenses and the satisfaction of all debts having priority over the
MPI Preferred Stockholders' liquidation preference, MPI estimates that the net
proceeds of the liquidation available to MPI Preferred Stockholders, on a per
share basis, would be significantly lower than the net book value of such
shares (which was $8.06 per share as of June 30, 1998), which is less than the
full $10 per share liquidation preference.
The required Court approval of the Proposed Settlement is also
significant to the belief of MPI that the Rule 13e-3 transaction is fair
because in approving the Proposed Settlement, the Court would be necessarily
passing upon the fairness, reasonableness and adequacy of the consideration to
be received by the MPI Preferred Stockholders.
MPI also believes that the Rule 13e-3 transaction is fair because the
unaffiliated holders of the MPI Common Stock would benefit from the Proposed
Settlement. The claims in the purported class action include a claim that the
conversion ratio for the MPI Preferred Stock should be significantly higher
than the current ratio of 1.1 shares of MPI Common Stock for each share of MPI
Preferred Stock. If the plaintiff were to be successful on such claim, the
ownership interests of the MPI Common Stockholders could be significantly
diluted. In addition, the MPI Common Stockholders would benefit from the
elimination of the plaintiff's other claims which could result in significant
cost and expense associated with continued litigation which MPI could incur.
However, unless holders of at least 6,044 shares of the MPI Preferred Stock
opt out of the Rule 13e-3 transaction, Concord and its affiliates, which, to
MPI's knowledge, own in the aggregate 6,044 shares of MPI Preferred Stock,
would gain control of the MPI Preferred Stock (since they are prohibited from
participating in the Proposed Settlement under the terms of the Settlement
Agreement). Nonetheless, even if Concord and its affiliates gain control of
the MPI Preferred Stock, there would be no legal effect on the rights of
unaffiliated MPI Common Stockholders because the preferential terms of the MPI
Preferred Stock vis-a-vis the MPI Common Stock will be unchanged and Concord
and its affiliates already control MPI via their 71% ownership of the MPI
Common Stock.
(c) The Proposed Settlement will be submitted to the Court for
approval, but if MPI Preferred Stockholders who are eligible to participate in
the Proposed Settlement and who hold more than 10% of the shares of MPI
Preferred Stock that are outstanding on August 25, 1998, the date that MPI has
set as the record date for the Rule 13e-3 transaction, opt out of the Proposed
Settlement, MPI would not be required to effect the Proposed Settlement. MPI
may, nonetheless, waive such condition and proceed with the Proposed
Settlement. Substantially all of the MPI Preferred Stock is held by
non-affiliates of MPI.
(d) The non-employee directors of MPI did not retain any
representative to act solely on behalf of unaffiliated security holders for
purposes of negotiating the Rule 13e-3 transaction or preparing a fairness
opinion because the plaintiff security holders were represented by independent
counsel, the terms of the Proposed Settlement were negotiated by such counsel
and the terms of the Proposed Settlement (and, therefore, effectively, the
Rule 13e-3 transaction) are required to be approved as fair by the Court.
(e) The Proposed Settlement, which would result in the Rule 13e-3
transaction, was approved unanimously by the MPI Board of Directors, including
all of its non-employee directors.
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<PAGE>
(f) No firm offers have been made during the last 18 months, to the
knowledge of MPI, by any unaffiliated person for the merger or consolidation
of MPI into an unaffiliated person or of an unaffiliated person into MPI, for
the purchase or transfer of all or a substantial portion of MPI's assets, or
for the acquisition of control of MPI. Certain offers, which are described
below, have been made that may be of the type required to be disclosed under
Item 8(f) of Schedule 13E-3, except that none of them meet the criteria for
disclosure because, in the case of paragraph (i) below, the offer was not firm
and, in the case of paragraph (ii) below, the proposed transaction would not
enable the acquirer of MPI securities to exercise control of MPI.
i. During 1998, MPI engaged in negotiations with an unrelated third
party regarding a Proposed Transaction pursuant to which such third party
would have acquired two retail properties from MPI and 23 retail properties
from the Partnerships. Twenty-two of the properties which were to be sold by
the Partnerships are subject to wraparound mortgages held by MPI which would
have to have been released if such Proposed Transaction had been consummated.
In September 1998, such negotiations terminated and the Proposed Transaction
was not consummated. The retail properties which would have been sold by MPI
and the wraparound mortgage debt which would have been repaid to MPI in
connection with such Proposed Transaction represent a substantial portion of
MPI's real estate related assets.
ii. On August 19, 1998, MPI became aware of purported tender offers
to purchase shares of both the MPI Preferred Stock and the MPI Common Stock
from the holders thereof. In an undated document, Salvage Investors
("Salvage") offered (the "Salvage Offer") to purchase up to 125,000 shares of
MPI Preferred Stock, on a first-come, first-buy basis, for $1.18 per share. In
a document dated August 10, 1998, Peachtree Partners ("Peachtree") offered
(the "Peachtree Offer") to purchase up to 148,000 shares of MPI Common Stock,
on a first-come, first-buy basis, for $0.32 per share. Both the Salvage Offer
and the Peachtree Offer are set to expire on September 11, 1998. Neither
Salvage nor Peachtree are affiliated with MPI or any of the Defendants. It is
MPI's belief that neither the Salvage Offer nor the Peachtree Offer is in
compliance with Section 14(d) of the Exchange Act, and the rules and
regulations promulgated thereunder. In addition, MPI does not believe that
either the Salvage Offer or the Peachtree Offer is fair to the unaffiliated
holders of the MPI Preferred Stock or the MPI Common Stock, respectively, and
MPI has so advised the MPI Preferred Stockholders and the MPI Common
Stockholders. The cash offered for each share of MPI Preferred Stock pursuant
to the Salvage Offer is significantly lower than both the cash amount of the
settlement consideration ($3.00 per share) and the current market price of
shares of MPI Preferred Stock, which last traded on the OTC Bulletin Board on
August 31, 1998, for $2.13 per share and the cash offered for each share
pursuant to the Peachtree Offer is significantly lower than the current market
price of shares of MPI Common Stock, which last traded on the OTC Bulletin
Board on August 31, 1998 for $1.13 per share.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) MPI has not received any report, opinion or appraisal from an
outside party that is materially related to the Rule 13e-3 transaction. The
fairness of the Proposed Settlement will be submitted for approval by the
Court pursuant to Rules 23e and 23.1 of Delaware Chancery Rules. A copy of the
Court's proposed order is annexed hereto as Exhibit 3. Certain information
regarding the properties and assets being offered to potential acquirers by
SGSC is set forth in Item 2., Table 1. Summary of Properties and Underlying
Debt and Table 2. Summary of Wraparound Notes of MPI's Annual Report on Form
10-K for the year ended December 31,
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1997, as amended, a copy of which is annexed hereto as Exhibit 4, and
incorporated herein by reference.
(b) and (c) Not applicable, as no report, opinion or appraisal from
an outside party that is materially related to the Rule 13e-3 transaction
exists.
Item 10. Interest in Securities of the Issuer.
(a) The following table sets forth the beneficial ownership interests
of the persons identified in response to Item 2 of this Schedule 13E-3 who own
shares of MPI Preferred Stock. No shares of MPI Preferred Stock are owned by
any pension, profit sharing or similar plan of MPI or any of its other
affiliates.
Name of Beneficial Owner Number of Shares
------------------------ ----------------
Robert A. Mandor 5,346
Leonard S. Mandor 2,500
Concord Assets Group, Inc. 2,500
Joseph P. Otto 326
Gregory McMahon 100
The 5,346 shares of MPI Preferred Stock beneficially owned by Robert
A. Mandor includes 2,846 shares of MPI Preferred Stock owned directly by
Robert A. Mandor and 2,500 shares of MPI Preferred Stock owned directly by
Concord. The 2,500 shares of MPI Preferred Stock beneficially owned by Leonard
S. Mandor are all directly owned by Concord.
In addition, Joan LeVine, a former director and executive officer of
MPI and a Defendant, directly owns 272 shares of MPI Preferred Stock.
Neither MPI nor any of its affiliates nor any of the persons referred
to in part (a) to this Item 10 has effected any transaction involving the MPI
Preferred Stock in the last 60 days.
Item 11. Contracts, Arrangements or Understandings With Respect to the Issuer's
Securities.
There are no contracts, arrangements, understanding or relationships
relating, directly or indirectly, to the Rule 13e-3 transaction between MPI,
any of the executive officers or directors of MPI, Concord, or any of its
executive officers or directors and any person with respect to any securities
of MPI (including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any
such securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss, or the giving or withholding of
proxies, consents or authorizations) other than the Settlement Agreement.
Reference is made to the Settlement Notice and, in particular, to the
discussion therein under the heading "The Settlement" appearing at pages 12-15
for a description of the terms of the Settlement Agreement. Such information is
incorporated herein by reference.
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Item 12. Present Intention and Recommendation of Certain Persons With Regard to
the Transaction.
(a) The executive officers, directors and affiliates of MPI and the
other persons identified in Item 2 of this Schedule 13E-3 (who, to MPI's
knowledge, own in the aggregate, 6,044 of the 3,000,251 shares of MPI
Preferred Stock outstanding as of August 10, 1998), pursuant to the terms of
the Settlement Agreement, do not have the right to (and therefore will not)
exchange any shares of MPI Preferred Stock in the Rule 13e-3 transaction.
(b) MPI, after making reasonable inquiry, believes that no person
named in paragraph (a) of this item has made a recommendation in support of or
opposed to the Rule 13e-3 transaction, except that Leonard S. Mandor, Robert
A. Mandor and Joseph P. Otto, in their capacity as directors of MPI, have
approved the Rule 13e-3 transaction as being in the best interests of MPI and
its stockholders, which approval appears in the Settlement Notice to be
provided to all MPI stockholders and, as a result, may be perceived to be a
recommendation to the Court and the MPI Stockholders in favor of the Proposed
Settlement.
Item 13. Other Provisions of the Transaction.
(a) No appraisal rights are provided under applicable law with
respect to the Rule 13e-3 transaction, nor will any be provided. In lieu of
participating in the Proposed Settlement, MPI Preferred Stockholders may opt
out of the class and continue to hold their stock. The NYSE has suspended
trading in shares of the MPI Preferred Stock and has applied to the SEC to
delist the MPI Preferred Stock. The MPI Preferred Stock is currently being
traded on the OTC Bulletin Board. Subsequent to the effectuation of the
Proposed Settlement, there can be no assurance that the MPI Preferred Stock
will continue to have a market on the OTC Bulletin Board or that MPI will not
seek to deregister the MPI Preferred Stock pursuant to Section 12(g)(4) under
the Exchange Act if it becomes eligible to be deregistered (although it has no
current intention to do so).
(b) MPI Preferred Stockholders are not to be provided with access to
MPI's corporate files (except as otherwise required by law) or to obtain
counsel or appraisal services at MPI's expense. Subject to Court approval, MPI
would be paying the fees and expenses of the independent counsel to the
plaintiff class of up to $750,000.
(c) Not applicable, as the Rule 13e-3 transaction does not involve
the exchange of debt securities of the issuer for the equity securities held
by security holders of MPI who are not affiliates of MPI.
Item 14. Financial Information.
(a) The following information of MPI is provided in this Schedule
13E-3:
(1) Audited financial statements as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997,
as set forth in MPI's Annual Report on Form 10-K for the year ended December
31, 1997, as amended, a copy of which is annexed hereto as Exhibit 4 and
incorporated herein by reference;
(2) Unaudited balance sheets and comparative year-to-date
statements of revenues and expenses and statements of cash flows and related
earnings per share amounts, as
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<PAGE>
set forth in MPI's Quarterly Report on Form 10-Q for the quarterly periods
ended March 31 and June 30, 1998, copies of each of which are annexed hereto
as Exhibit 5 and Exhibit 6, respectively, and incorporated herein by
reference;
(3) Earnings for the years ended December 31, 1997 and 1996,
and for the quarterly periods ended March 31 and June 30, 1998, were not
adequate to cover fixed charges by $4,151,965, $2,120,536, $1,021,332 and
$2,556,418, respectively; and
(4) Book value per share as of December 31, 1997 and 1996,
as set forth in MPI's Annual Report on Form 10-K for the year ended December
31, 1997, as amended, a copy of which is annexed hereto as Exhibit 4 and
incorporated herein by reference, and as of March 31 and June 30, 1998, as set
forth in MPI's Quarterly Report on Form 10-Q for the quarterly periods ended
March 31 and June 30, 1998, copies of which are annexed hereto as Exhibit 5
and Exhibit 6, respectively, and incorporated herein by reference.
(b) The Rule 13e-3 transaction is not expected to have a material
effect on MPI's balance sheet, statement of revenues and expenses, earnings
per share amounts, ratio of earnings to fixed charges or book value per share,
other than as a result of the payment of up to $9.0 million in cash (of which
approximately $6.3 million will be expensed in the statement of revenues and
expenses) to acquire shares of MPI Preferred Stock pursuant to the Settlement
Agreement and an estimated $1.2 million to cover expenses in connection with
the Proposed Settlement which will be reflected on MPI's balance sheet as a
reduction of unrestricted cash reserves.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) Operational and financial personnel of MPI have been employed as
part of their normal responsibilities in preparing the financial statements
and other documentation for the Rule 13e-3 transaction, including this
Schedule 13E-3. They are not expected to be used in any other manner in
connection with the Rule 13e-3 transaction.
(b) The directors and officers of MPI, in their capacities as such,
have approved the Proposed Settlement and have assisted in the negotiation of
the Proposed Settlement and the preparation of the Settlement Notice, the
Settlement Agreement and this Schedule 13E-3. Other than as set forth in the
preceding sentence, no person will be employed, retained or compensated to
make solicitations or recommendations in connection with the Rule 13e-3
transaction.
Item 16. Additional Information.
No additional information is required to make the statements in this
Schedule 13E-3, in light of the circumstances under which they are made, not
materially misleading.
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<PAGE>
Item 17. Material to be Filed as Exhibits.
1. Stipulation and Agreement of Settlement, dated August 5, 1998, by and
among John Winston and Leonard S. Mandor, Robert A. Mandor, Joan
LeVine, Harvey Jacobson, Gregory McMahon, Geoffrey S. Aaronson,
Milestone Properties, Inc. and Concord Assets Group, Inc.
2. Form of Notice of Pendency of Class and Derivative Action, Proposed
Settlement, Settlement Hearing and Right to Appear.
3. Proposed Form of Final Order and Judgment of the Court of Chancery of
the State of Delaware.
4. Annual Report on Form 10-K of MPI for the Year Ended December 31,
1997 and Amendment No. 1 to Annual Report on Form 10-K/A of MPI for
the Year Ended December 31, 1997.
5. MPI's Quarterly Report on Form 10-Q for the Quarterly Period Ended
March 31, 1998.
6. MPI's Quarterly Report on Form 10-Q for the Quarterly Period Ended
June 30, 1998.
No other documents are required to be filed as exhibits to this Schedule
13E-3.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
September 3, 1998
----------------------------
(Date)
/s/ Robert A. Mandor
----------------------------
Robert A. Mandor, President
<PAGE>
EXHIBIT INDEX
Exhibit No.
1. Stipulation and Agreement of Settlement, dated August 5, 1998, by and
among John Winston and Leonard S. Mandor, Robert A. Mandor, Joan LeVine,
Harvey Jacobson, Gregory McMahon, Geoffrey S. Aaronson, Milestone
Properties, Inc. and Concord Assets Group, Inc.
2. Form of Notice of Pendency of Class and Derivative Action, Proposed
Settlement, Settlement Hearing and Right to Appear.
3. Proposed Form of Final Order and Judgment of the Court of Chancery of the
State of Delaware.
4. Annual Report on Form 10-K of MPI for the Year Ended December 31, 1997 and
Amendment No. 1 to Annual Report on Form 10-K/A of MPI for the Year Ended
December 31, 1997.
5. MPI's Quarterly Report on Form 10-Q for the Quarterly Period Ended March
31, 1998.
6. MPI's Quarterly Report on Form 10-Q for the Quarterly Period Ended June
30, 1998.
<PAGE>
EXHIBIT 1
Stipulation and Agreement of Settlement
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
JOHN WINSTON, )
)
Plaintiff, )
)
v. ) C.A. Nos. 14807 & 15416
)
LEONARD S. MANDOR, ROBERT A. MANDOR, )
JOAN LEVINE, HARVEY JACOBSON, )
GREGORY MCMAHON, GEOFFREY S. AARONSON, )
MILESTONE PROPERTIES, INC. and )
CONCORD ASSETS GROUP, INC., )
)
Defendants. )
)
)
)
STIPULATION AND AGREEMENT OF SETTLEMENT
THIS STIPULATION AND AGREEMENT OF SETTLEMENT (together with all exhibits,
the "Stipulation") is entered into this 5th day of August, 1998 by and among (i)
JOHN WINSTON (the "Plaintiff"), suing on his own behalf, purportedly on behalf
of all holders of the $.78 Convertible Series A preferred stock, par value $.01
per share (the "MPI Preferred Stock") of MILESTONE PROPERTIES, INC. ("MPI"), a
Delaware corporation, and derivatively on behalf of MPI, and (ii) LEONARD S.
MANDOR, ROBERT A. MANDOR, JOAN LEVINE, HARVEY JACOBSON, GREGORY MCMAHON,
GEOFFREY S. AARONSON, MPI and CONCORD ASSETS GROUP, INC., a New York corporation
("Concord") (collectively, the "Defendants") through their undersigned counsel.
<PAGE>
WHEREAS:
A. MPI, through its own operations and those of its subsidiaries, is
engaged in the business of acquiring, owning, managing and developing real
estate, and other real estate related businesses.
B. Defendants Leonard S. Mandor, Robert A. Mandor, Geoffrey Aaronson,
Harvey Jacobson and Gregory McMahon are directors and/or executive officers of
MPI, and at the time of the Transactions (as defined herein) were, along with
Defendant Joan LeVine, directors and/or executive officers of MPI.
C. Defendants Geoffrey Aaronson, Harvey Jacobson and Gregory McMahon were,
at the time of the Transactions, the only members of the Related Party
Transaction Committee of MPI's Board of Directors, which committee was appointed
by the Board to evaluate the fairness of possible transactions with parties
related to MPI, including the Acquisition (as defined herein) challenged by the
Plaintiff.
D. In September 1995, MPI distributed to each holder of MPI common stock,
par value $.01 per share (the "MPI Common Stock"), and to each holder of MPI
Preferred Stock, a Proxy Statement - Information Statement dated September 12,
1995 (the "Proxy Statement") describing certain transactions to be considered
and approved at a Special Meeting of MPI's stockholders held on October 23,
1995, whereby: (i) MPI would acquire certain wraparound notes, wraparound
mortgages and fee interests from subsidiaries and affiliates of Concord in
exchange for $500,005 in cash and the
2
<PAGE>
issuance to such subsidiaries and affiliates of Concord of 2,544,654 shares of
MPI Common Stock (the "Acquisition"); (ii) 16 properties owned by MPI would be
transferred (the "Transfer") to Union Property Investors, Inc. ("UPI"), a
Delaware corporation and a then wholly-owned subsidiary of MPI; and (iii) UPI
would be recapitalized (the "Recapitalization") and thereafter, all of the
outstanding shares of UPI's Common Stock would be distributed to the holders of
MPI Common Stock (the "MPI Common Stockholders") on a share-for-share basis and
for no consideration (the "Spin-Off") (the Acquisition, the Transfer, the
Recapitalization, the Spin-Off, and the transactions contemplated thereby,
including, without limitation, the actions undertaken at and in connection with
the Special Meeting of MPI's stockholders held on October 23, 1995, and the
documents prepared in connection therewith, including, without limitation, the
Proxy Statement, are collectively referred to herein as the "Transactions"). The
Acquisition required the approval of a majority of the shares of MPI Common
Stock, and the Transfer and Spin-Off were contingent on the approval of the
Acquisition. On October 23, 1995, the MPI Common Stockholders approved the
Acquisition. The Transfer and the Spin-Off were completed in October 1995 and
November 1995, respectively.
E. On January 30, 1996, the Plaintiff, a holder of MPI Preferred Stock,
filed a class action complaint (the "Complaint") on behalf of all holders of
shares of MPI Preferred Stock (the "MPI Preferred Stockholders") in the Delaware
Court of Chancery (the "Court"), Civil Action No. 14807, claiming that the
3
<PAGE>
Transactions breached the Defendants' fiduciary duty and an implied obligation
of good faith owed to the holders of the MPI Preferred Stock (the "First
Action"). On February 12, 1996, the Defendants moved to dismiss the Complaint
pursuant to Chancery Court Rule 12(b)(6) for failure to state a claim.
F. The Plaintiff filed an Amended Class Action Complaint on June 5, 1996
(the "Amended Complaint") that included additional counts challenging the
Transactions as violating Section 271 of the Delaware General Corporation Law
("Section 271") and several provisions of the Certificate of Designations
governing the MPI Preferred Stock (the "Certificate of Designations"). On June
19, 1996, the Defendants moved to dismiss the Amended Complaint. On October 25,
1996, the Court ruled that the remedy of rescission would not be available in
the action. See Winston v. Mandor, Del. Ch., C.A. No. 14807, Steele, V.C.
G. While the remainder of the Defendants' motion to dismiss was before the
Court, the Plaintiff, on December 9, 1996, filed a second action against the
same defendants, Civil Action No. 15416 (the "Second Action"), and sought
dismissal, without prejudice, of the First Action (collectively, the "Actions").
The Second Action contained a single claim alleging that the Transactions
constituted a breach of fiduciary duty to the MPI Preferred Stockholders. The
Defendants moved to dismiss, or in the alternative, to stay the Second Action.
H. By Memorandum Opinion and Order dated May 12, 1997, the Court granted in
part and denied in part the Defendants' motions to
4
<PAGE>
dismiss. The Court dismissed the Second Action in its entirety, dismissed the
breach of fiduciary duty claim in the First Action for failure to state a claim,
and dismissed the Section 271 claim on the ground that the Plaintiff had no
standing to sue under such section. The Court also denied the motion to dismiss
the Plaintiff's contractual claims in the First Action against MPI alleging
breaches of the Certificate of Designations, and granted leave to further amend
the Amended Complaint to assert a derivative claim challenging the fairness of
the Acquisition. The Plaintiff subsequently filed an amended complaint asserting
a breach of fiduciary duty claim.
I. On June 4, 1997, the Plaintiff appealed the May 12, 1997 Order of the
Court (the "Appeal") dismissing the Second Action. On June 11, 1997, the
Defendants moved to dismiss the Plaintiff's appeal and cross-appealed from the
portion of the Order which denied the motion to dismiss certain causes of action
in the First Action (the "Cross Appeal").
J. On October 30, 1997, the parties hereto entered into a certain
Stipulation and Agreement of Settlement (the "Prior Stipulation") in connection
with a previous proposed settlement (the "Prior Settlement") of the Actions.
Pursuant to the terms of the Prior Settlement, if approved and consummated, MPI
and its stockholders would have released all derivative claims arising in
connection with the Transactions and the holders of the MPI Preferred Stock
between October 23, 1995 and the date on which the Prior Settlement was
consummated would have released any claims
5
<PAGE>
they may have had against MPI and the other named Defendants arising out of the
Transactions. Each MPI Preferred Stockholder who did not opt out of the Prior
Settlement and who owned shares of the MPI Preferred Stock on the date that the
Prior Settlement was consummated would surrender their shares of MPI Preferred
Stock to a wholly-owned subsidiary of Concord, and receive in exchange for each
share of MPI Preferred Stock surrendered, $0.75 in cash payable by MPI plus one
share of Preferred Stock of such Concord subsidiary. The Preferred Stock of the
Concord subsidiary would have had a liquidation preference of $2.25 per share,
would have been required to be redeemed by the Concord subsidiary at $2.25 per
share after five years, and would have had no voting or dividend rights. In
addition, any holder of the Concord subsidiary's preferred stock who did not
want to wait the full five years for such shares to be redeemed could have had
shares redeemed by the Concord subsidiary at the following prices prior to the
fifth year: within 2 years after the Prior Settlement - $1.00 per share; 2-3
years after the Prior Settlement - $1.40 per share; 3-4 years after the Prior
Settlement - $1.60 per share; 4 - 5 years after the Prior Settlement - $1.90 per
share. The Concord subsidiary's redemption obligations would have been secured
by a Letter of Credit.
K. Upon executing the Prior Stipulation, the parties asked the Supreme
Court of the State of Delaware (the "Supreme Court") to remand the matter to the
Court for consideration of the terms of the Prior Stipulation and the actions to
be undertaken thereby as required by Chancery Court Rules 23(e) and 23.1.
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L. By correspondence of April 22, 1998, Defendants' counsel informed the
Supreme Court and the Court that the Plaintiff had withdrawn from the Prior
Settlement. By order of June 11, 1998, the Supreme Court dismissed the Appeal
and the Cross Appeal as interlocutory appeals not taken in compliance with
Delaware Supreme Court Rule 42, but said that the dismissal ruling did not
preclude the Court from determining, upon appropriate application, whether a
final judgment should be entered pursuant to Rule 54(b) of the Court.
M. The Plaintiff enters into this Stipulation after taking into account (i)
the benefits to the MPI Preferred Stockholders and MPI from the Settlement, (ii)
the risks of continued litigation, (iii) the desirability of permitting the
Settlement to be consummated as provided by the terms of this Stipulation, and
(iv) the conclusion by the Plaintiff and his counsel that the terms and
conditions of the Settlement are fair, reasonable, adequate, and in the best
interests of MPI and the MPI Preferred Stockholders.
N. The Defendants enter into this Stipulation after taking into account (i)
MPI's indemnification obligations to the individual Defendants under its
Certificate of Incorporation, as amended, and its By-laws, (ii) the Settlement's
resolution of all claims or potential claims by the MPI Preferred Stockholders
and derivative claims by the stockholders of MPI relating to, or arising from,
the Transactions (iii) the Settlement's beneficial impact on the MPI Common
Stockholders by settling claims of MPI Preferred
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Stockholders relating to the right of MPI Preferred Stockholders to convert
their shares into MPI Common Stock at a higher ratio as part of the
Transactions, and (iv) avoiding delay and significant expenses associated with
continued litigation.
O. The Defendants have denied and continue to deny that any of them has
committed or has threatened to commit any violations of law or breaches of duty
to MPI, the Plaintiff or the MPI Preferred Stockholders, but because of the
expense, inconvenience and uncertainty of continued litigation, consider it
desirable that the Actions be settled and dismissed.
P. The parties hereto desire to settle and dismiss with prejudice the
Actions and any and all claims that have been or could have been asserted
therein directly or indirectly by any and all members of the Settlement Class
(as defined herein) and any derivative claims arising out of or relating to the
Transactions (the "Settlement Claims") on the terms and subject to the
conditions set forth in this Stipulation.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows, subject to court approval
as set forth below:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Stipulation, except as otherwise
expressly provided or unless the context otherwise requires:
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(a) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Stipulation as a whole and not to any particular
Article, Section or other subdivision;
(b) the words "including," "include," and "includes" followed by one or
more examples are intended to be illustrative and shall not be deemed to limit
the scope of the classification or category to the examples listed, and shall be
read to mean "including, without limiting the scope or generality of the
foregoing;" and
(c) the following capitalized terms shall have the meanings respectively
assigned to them below, and include the plural as well as the singular:
"Acquisition" shall have the meaning set forth in the Recitals;
"Actions" shall have the meaning set forth in the Recitals;
"Amended Complaint" shall have the meaning set forth in the Recitals;
"Appeal" shall have the meaning set forth in the Recitals;
"Business Day" is a day on which the New York Stock Exchange is open for
trading;
"Cash Payment" shall have the meaning set forth in Section 2.1;
"Certificate of Designations" shall have the meaning set forth in the
Recitals;
"Class Claims" shall have the meaning set forth in Section 3.1(a);
"Complaint" shall have the meaning set forth in the Recitals;
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"Concord" shall have the meaning set forth in the Introduction;
"Court" shall have the meaning set forth in the Recitals;
"Cross-Appeal" shall have the meaning set forth in the Recitals;
"Defendants" shall have the meaning set forth in the Introduction;
"Defendants' Affiliates" shall have the meaning set forth in Section
3.1(a);
"Derivative Claims" shall have the meaning set forth in Section 3.1(b);
"Exchange Act" means the Securities Exchange Act of 1934, as amended;
"Exchange Agent" shall have the meaning set forth in Section 4.6;
"Final Opt-Out Date" shall have the meaning set forth in Section 4.3;
"Final Order" shall have the meaning set forth in Section 4.5;
"First Action" shall have the meaning set forth in the Recitals;
"Letter of Transmittal" shall have the meaning set forth in Section 4.6;
"MPI" shall have the meaning set forth in the Introduction;
"MPI Certificate" shall have the meaning set forth in Section 4.6;
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"MPI Common Stock" shall have the meaning set forth in the Recitals;
"MPI Common Stockholders" shall have the meaning set forth in the Recitals;
"MPI Preferred Stock" shall have the meaning set forth in the Introduction;
"MPI Preferred Stockholders" shall have the meaning set forth in the
Recitals;
"Opt-Out Shares" are shares of MPI Preferred Stock held by Record MPI
Preferred Stockholders who (i) formally file a notice in the manner set forth in
Section 4.3 herein informing the Court of their desire to opt out of the
Settlement and not be considered members of the Settlement Class and (ii) do not
sell, transfer, assign or otherwise convey such shares of MPI Preferred Stock
prior to the Settlement Effective Date;
"Plaintiff" shall have the meaning set forth in the Introduction;
"Potential Settlement Class Members" means all holders of shares of MPI
Preferred Stock as of October 23, 1995 and their successors in interest through
the Settlement Effective Date, including the Record MPI Preferred Stockholders
but excluding Defendants and Defendants' Affiliates;
"Prior Settlement" shall have the meaning set forth in the Recitals;
"Prior Stipulation" shall have the meaning set forth in the Recitals;
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"Proxy Statement" shall have the meaning set forth in the Recitals;
"Recapitalization" shall have the meaning set forth in the Recitals;
"Record Date" shall have the meaning set forth in Section 4.2;
"Record MPI Preferred Stockholders" means all holders of shares of MPI
Preferred Stock as of the Record Date, excluding Defendants and Defendants'
Affiliates;
"Released Persons" shall have the meaning set forth in Section 3.1(a);
"Scheduling Order" shall have the meaning set forth in Section 4.1;
"SEC" shall mean the Securities and Exchange Commission;
"Second Action" shall have the meaning set forth in the Recitals;
"Section 271" shall have the meaning set forth in the Recitals;
"Securities Act" means the Securities Act of 1933, as amended;
"Settled Claims" shall have the meaning set forth in Section 3.1(c);
"Settlement" shall have the meaning set forth in the Recitals;
"Settlement Claims" shall have the meaning set forth in the Recitals;
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"Settlement Class" means all Potential Settlement Class Members who do not
opt out of the Settlement, temporarily certified by the Court solely for
purposes of the Settlement;
"Settlement Consideration" means the Cash to be paid to the Settlement
Consideration Recipients;
"Settlement Consideration Recipients" means Settlement Class members who
own shares of MPI Preferred Stock as of the Settlement Effective Date;
"Settlement Effective Date" means the date on which the Final Order
approving the Settlement becomes final and is no longer subject to appeal,
whether by the passage of time, affirmance on appeal or otherwise;
"Settlement Hearing" shall have the meaning set forth in Section 4.4;
"Settlement Notice" shall have the meaning set forth in Section 4.1;
"Spin-Off" shall have the meaning set forth in the Recitals;
"Stipulation" shall have the meanings set forth in the Introduction;
"Supreme Court" shall have the meaning set forth in the Recitals;
"Transactions" shall have the meaning set forth in the Recitals;
"Transfer" shall have the meaning set forth in the Recitals; and
"UPI" shall have the meaning set forth in the Recitals.
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ARTICLE II
THE EXCHANGE OF MPI PREFERRED STOCK AND RELEASES
FOR THE CASH PAYMENT
Section 2.1 Settlement Consideration. As of the Settlement Effective Date,
each Settlement Consideration Recipient shall, in consideration of the releases
and discharge of the Settled Claims provided for in this Stipulation and the
transfer to MPI of each share of MPI Preferred Stock held by such Settlement
Consideration Recipient as of the Settlement Effective Date, be entitled to
receive $3.00 in cash (the "Cash Payment" or the "Settlement Consideration")
from MPI on behalf of the Defendants.
ARTICLE III
DISCHARGE OF CLAIMS
Section 3.1. Release of Claims. In consideration of the benefits to MPI and
the Settlement Class described in the Recitals and Section 2.1 hereof, and
subject to the approval of the Court as provided for herein, the Class Claims
and the Derivative Claims, as described below, shall be released as follows:
(a) Release of Class Claims. MPI, the Plaintiff and each Settlement Class
member shall fully, finally and forever compromise, settle, release and dismiss
with prejudice pursuant to the terms and conditions as set forth herein, any and
all claims, rights, demands, liabilities, actions, causes of action, suits,
damages, losses, obligations, matters and issues, whether asserted or
unasserted, contingent or absolute, known or unknown, suspected or unsuspected,
disclosed or undisclosed, matured or
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unmatured, material or immaterial, legal or equitable, (i) which have been,
could have been, or in the future can or might be, asserted in the Actions or
otherwise by the Plaintiff or any member of the Settlement Class, whether
individual or class, (including, without limitation, claims arising under the
federal securities laws), against any of the Defendants in the Actions or any of
their families, affiliates, associates and subsidiaries, and each of their
respective present or former officers, directors, stockholders, agents,
employees, attorneys, representatives, financial and other advisors, investment
or commercial bankers, trustees, general and limited partners and partnerships,
heirs, executors, personal representatives, estates, administrators,
predecessors, successors and assigns (collectively, the "Defendants'
Affiliates") and any other person or entity acting for or on behalf of any
Defendant (collectively, the "Released Persons"), and (ii) which arise out of or
relate in any manner whatsoever, directly or indirectly, to any of the
allegations, facts, events, transactions, occurrences, acts, representations,
statements, misrepresentations or omissions, or any other matter, thing or cause
whatsoever, or any series thereof, involved, embraced, set forth or otherwise
referred or related directly or indirectly to the Transactions, the Actions, the
adjustment made to the conversion ratio for the MPI Preferred Stock in
connection with the Transactions, or any public filings or other statements that
were issued in connection with the Transactions by any Released Person in the
Actions (the "Class Claims").
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(b) Release of Derivative Claims. MPI, the Plaintiff, each Settlement Class
member, each MPI Common Stockholder and each MPI Preferred Stockholder shall
fully, finally and forever compromise, settle, release and dismiss with
prejudice pursuant to the terms and conditions as set forth herein, any and all
claims, rights, demands, liabilities, actions, causes of action, suits, damages,
losses, obligations, matters and issues, whether asserted or unasserted,
contingent or absolute, known or knowable, matured or unmatured, material or
immaterial, legal or equitable (i) which have been, could have been, or in the
future can or might be, asserted in the Actions (including, without limitation,
claims arising under the federal securities laws) or otherwise by or on behalf
of MPI against any of the Defendants in the Actions or against any Released
Person, and (ii) which arise out of or relate in any manner whatsoever, directly
or indirectly, to any of the allegations, facts, events, transactions,
occurrences, acts, representations, statements, misrepresentations or omissions,
or any other matter, thing or cause whatsoever, or any series thereof, involved,
embraced, set forth or otherwise referred or related directly or indirectly to
the Transactions, the Actions, the adjustment made to the conversion ratio for
the MPI Preferred Stock in connection with the Transactions, or any public
filings or other statements that were issued in connection with the Transactions
by any Released Person in the Actions (the "Derivative Claims").
(c) The Class Claims and the Derivative Claims will be referred to
collectively herein as the "Settled Claims". The
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term "Settled Claims" does not include claims arising pursuant to this
Stipulation.
ARTICLE IV
IMPLEMENTATION
Section 4.1 The Scheduling Order just one. Forthwith after this Stipulation
has been signed with due authorization by all counsel for the parties, counsel
for the parties shall jointly submit this Stipulation to the Court and shall
jointly apply for a scheduling order substantially in the form annexed hereto as
Exhibit A (the "Scheduling Order") establishing a date for a hearing to
determine the fairness and adequacy of the Settlement, granting conditional
class certification, and approving the proposed Notice of Pendency of Class and
Derivative Action, Proposed Settlement, Settlement Hearing and Right to Appear
to the Settlement Class (the "Settlement Notice") in substantially the form
annexed hereto as Exhibit B. The parties hereto hereby consent to the
conditional certification of the Settlement Class solely for the purposes of
this Stipulation as set forth herein. In the event that this Stipulation shall
terminate or be cancelled, or the Settlement shall not become effective for any
reason, the conditional class certification and notice order described in this
Section 4.1 shall be vacated and Defendants shall be free to assert any claims
or defenses with respect to any subsequent action or proceeding involving or
relating to class certification.
Section 4.2 Notice of Proposed Settlement. MPI shall set a record date (the
"Record Date"), which shall be no later than the
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15th day following entry of the Scheduling Order, to determine the MPI Common
Stockholders who shall be entitled to receive the Settlement Notice and to
determine the Potential Settlement Class Members who shall be afforded an
opportunity to opt out of the Settlement. Promptly after the Record Date, MPI
shall cause the Settlement Notice to be sent to the Plaintiff, each Potential
Settlement Class Member, and each MPI Common Stockholder as of the Record Date
in the manner directed and approved by the Court. Costs of printing, mailing and
publication of the Settlement Notice shall be paid by MPI. MPI will instruct its
transfer agent to distribute a copy of the Settlement Notice together with any
certificates of shares of MPI Preferred Stock that may be issued after the
Record Date. The Settlement Notice shall direct brokers, nominees and others who
hold of record for the account of another to provide copies of the Settlement
Notice to any persons for whose account they purchase MPI Preferred Stock after
the Record Date.
Section 4.3 Settlement Opt-Out. The Potential Settlement Class Members
(other than those who acquire shares of MPI Preferred Stock after the Record
Date) shall have 45 days from the date of the mailing of the Settlement Notice
in which to opt out of the Settlement Class and the Settlement (the 45th day
shall be referred to herein as the "Final Opt-Out Date") by mailing a letter to
the Register in Chancery and to each counsel of record prior to the Final
Opt-Out Date setting forth (i) his, her or its name, address, social security
number or employer identification number, as applicable, and telephone number,
(ii) the number of shares of MPI
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Preferred Stock owned and, if available, the certificate number(s) of the stock
certificate(s) representing such shares of Stock, (iii) if the shares of MPI
Preferred Stock are not or were not held of record or registered in such
member's name on the books and records of MPI, the letter shall indicate the
name or brokerage firm and account in which such shares of MPI Preferred Stock
were registered and shall include evidence of such member's ownership thereof,
and (iv) that he, she or it elects to opt out of the Settlement. Any Potential
Settlement Class Member who does not return an opt-out election meeting the
requirements of this Section 4.3 on or prior to the Final Opt-Out Date shall be
deemed a member of the Settlement Class and shall be bound by, and subject to,
the terms and conditions of this Stipulation, the Settlement and all court
orders affecting the Settlement Class. Any Potential Settlement Class Member who
elects to opt out of the Settlement and, prior to the Settlement Effective Date,
sells, transfers, assigns or otherwise conveys his, hers or its shares of MPI
Preferred Stock, shall not be entitled to receive the Settlement Consideration
and his, hers or its shares of MPI Preferred Stock shall not be deemed to be
Opt-Out Shares. MPI Preferred Stockholders who acquire their shares of MPI
Preferred Stock after the Record Date shall not be entitled to opt out of the
Settlement.
Section 4.4 Settlement Hearing. A settlement hearing (the "Settlement
Hearing") shall be held at such time after the Final Opt-Out Date and at such
place as shall be designated by the Court. In connection with the Settlement
Hearing, the parties hereto shall
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file such papers as their counsel believe to be necessary. At the Settlement
Hearing, the Court shall consider the fairness of the terms and conditions of
the Settlement and all of the transactions contemplated by this Stipulation and
whether the Settled Claims should be dismissed with prejudice.
Section 4.5 Entry of Order. At the Settlement Hearing, counsel for the
parties shall submit for entry by the Court an agreed upon proposed Final Order
(the "Final Order") in substantially the form annexed hereto as Exhibit C,
providing as follows:
(a) Approving the Stipulation, the Settlement and the transactions
contemplated thereby as fair, just, reasonable, adequate and in the best
interest of the Settlement Class and the members thereof, and directing the
performance of the acts set forth in, and reserving jurisdiction to supervise
the administration and consummation of, this Stipulation and the Settlement;
(b) Determining that the requirements of Rules 23.1 and 23(e) of the
Chancery Court Rules and due process have been satisfied, including inter alia,
certification of a Settlement Class and that the class and derivative interests
have been adequately represented;
(c) Dismissing the Actions with prejudice on the merits, extinguishing,
discharging and releasing any and all Settled Claims as against any and all
Released Persons, and permanently barring the parties, including Plaintiff and
all members of the Settlement
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Class, from asserting, commencing, prosecuting or continuing, either directly,
individually, representatively, derivatively or in any other capacity any of the
Settled Claims as against any and all Released Persons; and
(d) Containing provision for the Final Order to be vacated upon notice to
the Court of the nonfulfillment or impossibility of fulfillment of any of the
conditions set forth in Article V hereof.
Section 4.6 Cash Distribution. (a) The Defendants shall designate an
exchange agent reasonably acceptable to the Plaintiff (the "Exchange Agent") to
act as such in connection with effecting the settlement distribution
contemplated by Section 2.1.
(b) Within ten days after the Settlement Effective Date, MPI, on behalf of
the Defendants, shall deliver to the Exchange Agent an amount equal to the
aggregate Cash Payment to be paid to the Settlement Consideration Recipients
pursuant to Section 2.1. In no event shall interest be paid or accrue on any
Cash Payment.
(c) As soon as practicable after the Settlement Effective Date, the
Defendants shall cause the Exchange Agent to distribute to each Settlement
Consideration Recipient a letter of transmittal (the "Letter of Transmittal") in
a form reasonably acceptable to Plaintiff's counsel which shall specify (i) the
manner by which to effect the surrender of the certificate(s) representing such
Settlement Consideration Recipient's shares of MPI Preferred Stock (the "MPI
Certificates") in exchange for the Cash Payment due to such Settlement
Consideration Recipient, and (ii) that delivery shall be effected, and risk of
loss and title to MPI Certificates
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shall pass, upon proper delivery thereof to the Exchange Agent. Upon surrender
of an MPI Certificate together with a Letter of Transmittal, duly executed, and
in the form and having such other provisions as MPI shall reasonably request,
the holder of such MPI Certificate shall be entitled to receive the Cash Payment
provided for in Section 2.1 hereof in exchange therefor from the Exchange Agent,
and such MPI Certificate shall thereafter be cancelled. The Exchange Agent shall
be directed by MPI to take reasonable steps to contact all Settlement
Consideration Recipients and to assist such Settlement Consideration Recipients
in surrendering their MPI Certificates in exchange for the Settlement
Consideration.
(d) From and after the Settlement Effective Date, each MPI Certificate
shall be deemed to be conveyed, assigned and transferred to and for the benefit
of MPI, shall be cancelled and retired, and shall not evidence as to any holder
or former holder thereof any interest in MPI other than the right of the
Settlement Consideration Recipients to receive the Settlement Consideration for
each share of MPI Preferred Stock formerly represented by such MPI Certificate.
If a Cash Payment is to be made to a person other than the one in whose name the
MPI Certificate surrendered in exchange therefor is registered, it shall be a
condition to such issuance and payment that such MPI Certificate be properly
endorsed (or accompanied by an appropriate instrument of transfer), with
signatures guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution that is a member of a
recognized signature guarantee medallion program within the meaning of Rule
17Ad-15 under the Securities Exchange
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Act of 1934, as amended, and accompanied by evidence that any applicable stock
transfer taxes have been paid or provided for.
(e) Any Cash Payments made available to the Exchange Agent pursuant to
Section 4.6(b) and not paid out in exchange for MPI Certificates within one year
after the Settlement Effective Date shall be repaid to MPI by the Exchange
Agent. MPI shall deposit all such Cash Payments repaid to it pursuant to the
previous sentence in trust, in either an interest or a non-interest bearing
account, as determined by MPI in its sole discretion, for such Settlement
Consideration Recipients who have not exchanged their MPI Certificates for a
Cash Payment within one year after the Settlement Effective Date. Any interest
accrued on any such funds so deposited shall belong to MPI and be paid to it
from time to time. Any funds so deposited and not exchanged for MPI Certificates
within seven years after the Settlement Effective Date need not be maintained in
trust for such Settlement Consideration Recipients who have not, at such time,
exchanged their MPI Certificates for a Cash Payment. After the first anniversary
of the Settlement Effective Date, any Settlement Consideration Recipient who has
not theretofore delivered or surrendered his or her MPI Certificate to the
Exchange Agent shall, subject to applicable law, look to MPI for the Cash
Payment to be paid pursuant to Section 2.1. Notwithstanding the foregoing, none
of the Exchange Agent, MPI or any other party hereto shall be liable to a
Settlement Consideration Recipient for any Cash Payment delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
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(f) The Exchange Agent and MPI shall be entitled to deduct and withhold
from the payment of any Settlement Consideration payable to any Settlement
Consideration Recipient, such amounts as the Exchange Agent or MPI may be
required to deduct and withhold under the Internal Revenue Code of 1986, as
amended from time to time, or any provision of any state, local or foreign law.
To the extent that any amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Stipulation as having been paid to such
Settlement Consideration Recipient.
(g) In the event that any MPI Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such MPI Certificate to be lost, stolen or destroyed, and, if required by MPI,
in its sole discretion, the posting by such person of a bond in such reasonable
amount as MPI may direct as indemnity against any claim that may be made against
it with respect to such MPI Certificate, the Exchange Agent or MPI shall
exchange for such lost, stolen or destroyed MPI Certificate such Cash Payment to
which such person would otherwise have been entitled had such MPI Certificate
been surrendered in accordance with Section 4.6(c).
ARTICLE V
CONDITIONS
Section 5.1 The Defendants' agreement to settle the Actions on the terms
stated herein is contingent upon, and subject to the fulfillment of, each of the
following conditions, any or all of which may be waived in writing by the
Defendants:
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(a) The Scheduling Order and the Final Order shall have been approved and
entered by the Court in substantially the forms annexed hereto as Exhibit A and
Exhibit C, respectively;
(b) The number of Opt-Out Shares shall not at any time exceed 10% of the
shares of MPI Preferred Stock outstanding on the Record Date;
(c) The Settlement Class shall not be modified by the Court in any manner
adverse to the Defendants;
(d) MPI shall have complied with all applicable requirements of Rule 13(e)
of the Exchange Act or received a "no-action letter" from the SEC or separate
opinions of counsel from counsel for the Plaintiff and counsel for the
Defendants reasonably satisfactory to MPI that the transactions contemplated by
the Settlement need not comply with and/or are exempt from, the requirements set
forth in Rule 13(e) of the Exchange Act;
(e) All necessary state securities or "blue sky" filings, permits or
approvals required to consummate the Settlement and the other transactions
contemplated hereby shall have been made or obtained, the cost of making such
filings and obtaining such permits and approvals shall not be greater than
$50,000, and no stop order or proceedings seeking a stop order with respect to
any such filings, permits or approvals shall be in effect;
(f) The Defendants shall have made all filings and registrations and shall
have received (in form and substance reasonably satisfactory to the Defendants)
all consents, authorizations, declarations and approvals necessary to consummate
the Settlement and the other transactions contemplated hereby;
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(g) No court, agency or other authority shall have issued any order, decree
or judgment to set aside, restrain, enjoin or prevent, and no statute, rule,
regulation, executive order, decree or injunction shall have been enacted,
entered, promulgated or enforced by any United States court or governmental
entity of competent jurisdiction which prohibits, restrains, enjoins, sets aside
or prevents, the consummation of the Settlement or the transactions contemplated
hereby and no action, suit, investigation or proceeding shall be pending, or
threatened in writing, seeking such relief or damages from any or all of the
Defendants related to the Transactions or the Settled Claims which the
Defendants reasonably believe would not or might not be barred by the releases
given in connection with this Settlement or by the res judicata effect of entry
of the Final Order dismissing the Actions with prejudice; and
(h) The Settlement Effective Date shall not be after June 30, 1999.
Section 5.2 Termination. In the event that at any time after the date
hereof, any of the conditions set forth in Section 5.1 fail to be fulfilled or
become impossible of fulfillment, or either party terminates this Stipulation
without prejudice, upon notice to the Court and the other parties hereto of the
non-fulfillment of any of said conditions, or the impossibility of the
fulfillment of any of said conditions, the Court shall vacate the Final Order
(if it has been entered) which shall thereafter be of no further force and
effect.
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ARTICLE VI
COVENANTS
Section 6.1 Cooperation. The parties hereto and their attorneys agree to
cooperate fully with one another in seeking the Court's approval of this
Stipulation and the Settlement, obtaining the entry of the Final Order,
effectuating the Settlement and the transactions contemplated hereby, and
fulfilling the conditions set forth in Article V hereof.
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ARTICLE VII
MISCELLANEOUS
Section 7.1 Purpose of Agreement. Counsel for Plaintiff have represented
that they have sufficiently investigated the facts and researched the applicable
law regarding the claims advanced by the Plaintiff in the Actions and the
potential defenses which have been or may be asserted thereto by the Released
Persons. However, by entering into this Stipulation, none of the parties hereto
agrees or concedes that the claims or defenses heretofore asserted by any of the
other parties hereto, whether in the Actions or otherwise, have merit or do not
have merit. The parties acknowledge that this Stipulation is being entered into
for the purposes of the Settlement only, there having been no finding of
liability of any kind, and to avoid the expense and length of continued
proceedings, taking into account the uncertainty and risk inherent in any
litigation, especially in complex matters such as the Actions. The parties
further acknowledge that this Stipulation will not be disclosed, referred to or
offered in evidence in the Actions or in any other proceeding if this
Stipulation is terminated for any reason.
Section 7.2 Stipulation Not Admission. Neither this Stipulation or any
exhibit or document referenced herein, nor any action taken to effectuate or
further this Stipulation or the Settlement set forth herein is, may be construed
as, or may be used as an admission by or against any other parties of any fault,
wrongdoing or liability whatsoever, or as a waiver or limitation of
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any defenses otherwise available to any of the parties. Entering into or
carrying out of this Stipulation, the exhibits hereto, and any negotiations or
proceedings related thereto shall not in any event be construed as, or deemed to
be evidence of, an admission or concession by any of the parties, or to be a
waiver of any applicable defense, and shall not be offered or received in
evidence in any action or proceeding against any party hereto in any court,
administrative agency or other tribunal for any purpose whatsoever other than to
enforce or effectuate the provisions of this Stipulation or the provision of any
of the exhibits to this Stipulation. No one other than MPI, the Plaintiff, the
Defendants and the other parties hereto, the members of the Settlement Class and
MPI Common Stockholders is entitled to rely upon this Stipulation. The parties
hereto each specifically reserve all rights, claims, demands, defenses, actions
or causes of action which each party presently has, or claims to have, against
any of the others and nothing contained herein will be deemed to affect the
same, until the Settlement Effective Date.
Section 7.3 Attorneys' Fees. Plaintiff will apply to the Court, at the
Settlement Hearing, for an award of legal fees and expenses reasonably incurred
by Plaintiff's counsel in connection with the Actions, this Stipulation and the
Settlement, in an aggregate amount not to exceed $750,000, which application and
amount shall not be challenged by the Defendants. The amounts awarded by the
Court shall be paid by MPI, without interest, on the later to occur of the
Settlement Effective Date or November 1,
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1999. No other legal fees and expenses will be sought by Plaintiff's counsel
from the Defendants nor from the Settlement Consideration to be paid under this
Settlement.
Section 7.4 Notices. Any and all notices, requests, consents, directives or
communications by any party intended for any other party shall be in writing,
shall be given personally, by telecopy (with confirmation acknowledged), or by
postage prepaid certified or registered mail, return receipt requested, and
shall be deemed delivered on the earlier of (a) the date received and (b) the
date four Business Days after the date of a deposit in a United States Postal
Depository, and shall be addressed as follows:
If to Plaintiff:
Rosenthal, Monhait Gross & Goddess
Suite 1401
Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899
Attention: Joseph A. Rosenthal, Esq.
Telephone: (302) 656-4433
Telecopy: (302) 658-7567
If to Defendants:
Milestone Properties, Inc.
150 E. Palmetto Park Road, 4th Floor
Boca Raton, FL 33432
Attention: President
Telephone: (561) 394-9533
Telecopy: (561) 392-8311
With a copy to:
Prickett, Jones, Elliott, Kristol & Schnee
1310 King Street
P.O. Box 1328
Wilmington, DE 19899
Attention: Michael Hanrahan, Esq.
Telephone: (302) 888-6500
Telecopy: (302) 658-8111
30
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and
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attention: Joel A. Yunis, Esq.
Telephone: (212) 940-8666
Telecopy: (212) 940-8776
Any party may, from time to time, change the address to which such written
notice, requests, consents, directive or communications are to be mailed, by
giving the other parties ten days' prior written notice of the changed address
in the manner herein above provided.
Section 7.5 Costs and Expenses. All reasonable costs and expenses related
to the Settlement shall, except as otherwise provided herein, be paid by MPI.
Section 7.6 Release and Discharge. When the Final Order approving the
Settlement becomes final and is no longer subject to appeal, whether by the
passage of time, affirmance on appeal or otherwise, and subject to the
contingencies contained herein, MPI and its stockholders and each member of the
Settlement Class shall be deemed to release and forever discharge each of the
Released Persons from the Settled Claims.
Section 7.7 Settlement Not Enforceable. In the event (a) the Settlement
proposed herein is not approved by the Court, (b) the Court approves the
Stipulation, but such approval is reversed or vacated on appeal and such order
reversing or vacating the Settlement becomes final by lapse of time or
otherwise, or (c) if any of the other conditions to such Settlement are not
fulfilled on
31
<PAGE>
or prior to June 30, 1999, then the Settlement proposed herein shall be of no
further force or effect and the Stipulation and any amendment thereof shall be
null and void and without prejudice to any party hereto, and each party shall be
restored to his or its respective position as it existed prior to the execution
of the Stipulation.
Section 7.8 Authority to Execute. Each of the attorneys executing the
Stipulation on behalf of one or more parties hereto warrants and represents that
he or she has been duly authorized and empowered to execute the Stipulation on
behalf of his or her respective clients.
Section 7.9 Extensions of Time. Without further order of this Court, the
parties hereto may agree to reasonable extensions of time to carry out any of
the provisions of the Stipulation beyond June 30, 1999.
Section 7.10 Entire Agreement/Modifications. This Stipulation and the
exhibits hereto constitute the entire agreement among these parties and no
representations, warranties or inducements have been made to the Plaintiff or
its counsel concerning this Stipulation or its exhibits other than those
representations, warranties and covenants contained herein and in the exhibits
hereto. No waiver, modification or amendment of the terms of this Stipulation
shall be valid unless in writing signed by the party to be charged and only to
the extent therein set forth. Any failure by any party to insist upon the strict
performance by any other party of any of the provisions of this Stipulation
32
<PAGE>
shall not be deemed a waiver of any of the provisions hereof, and such party,
notwithstanding such failure, shall have the right thereafter to insist upon the
strict performance of any and all of the provisions of this Stipulation to be
performed by such other party.
Section 7.11 Binding Agreement. This Stipulation, upon execution and
subject only to subsequent approval by the Court and satisfaction of the
conditions stated herein, shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, heirs, transferees,
successors in interest and assigns and upon any corporation, partnership or
other entity into or with which any party may merge or consolidate; provided,
however, that no assignment by any party hereto shall operate to relieve such
party hereto of its obligations hereunder.
Section 7.12 Third Parties. Nothing in this Stipulation, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Stipulation on any persons other than the members of Settlement Class, MPI
Common Stockholders, MPI, the Defendants and the Defendants' Affiliates, and the
other parties hereto, and their respective successors and assigns, nor is
anything in this Stipulation intended to relieve or discharge the obligations or
liabilities of any third parties to any party to this Stipulation, nor shall any
provision give any third parties any right of subrogation or action over or
against any party to this Stipulation.
33
<PAGE>
Section 7.13 Exhibits. All of the exhibits hereto are incorporated by
reference as if set forth herein verbatim, and the terms of all exhibits are
expressly made part of this Stipulation.
Section 7.14 Counterparts. This Stipulation may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
Section 7.15 Captions. Captions contained in this Stipulation are inserted
only as a matter of convenience and in no way define, limit, extend or describe
the scope of this Stipulation or the intent of any provision hereof.
Section 7.16 Arm's-Length Negotiations. This Stipulation and the exhibits
hereto were executed after significant arm's-length negotiations among the
parties and reflect the conclusion of counsel for all of the parties to this
Stipulation that this Stipulation and the Settlement contemplated hereby are in
the best interests of all the parties hereto.
Section 7.17 Choice of Law. This Stipulation shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware,
without regard to conflict of law principles.
Section 7.18 Waiver. The waiver by any party of any breach of this
Stipulation shall not be deemed or construed as a waiver of any other breach,
whether prior, subsequent, or contemporaneous, of this Stipulation.
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<PAGE>
IN WITNESS WHEREOF, the undersigned, thereunto duly authorized, have
executed this Stipulation as of August 5, 1998.
ROSENTHAL, MONHAIT, GROSS
& GODDESS
By: /s/ Joseph A. Rosenthal
-----------------------------------
Joseph A. Rosenthal
Kevin Gross
Suite 1401, Mellon Bank Center
Wilmington, DE 19899
302-656-4433
Attorneys for Plaintiff
PRICKETT, JONES, ELLIOTT
KRISTOL & SCHNEE
By: /s/ April Caso Ishak
-----------------------------------
Michael Hanrahan
April Caso Ishak
1310 King Street
P.O. Box 1328
Wilmington, DE 19899
302-888-6500
Attorneys for Defendants
35
<PAGE>
EXHIBIT A
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
JOHN WINSTON, )
)
Plaintiff, )
)
v. ) C.A. Nos. 14807 & 15416
)
LEONARD S. MANDOR, ROBERT A. )
MANDOR, JOAN LEVINE, HARVEY )
JACOBSON, GREGORY MCMAHON, )
GEOFFREY S. AARONSON, )
MILESTONE PROPERTIES, INC. and )
CONCORD ASSETS GROUP, INC., )
)
Defendants.
ORDER SCHEDULING FAIRNESS HEARING AND APPROVING NOTICE
WHEREAS, the parties to the above-captioned actions (the "Actions") have
applied pursuant to Chancery Court Rules 23(a) and 23.1 for an Order to approve
the proposed settlement of the Actions in accordance with the Stipulation and
Agreement of Settlement entered into by the parties (the "Stipulation");
NOW, this ____ day of ____________ 1998, upon application of Plaintiffs and
Defendants, IT IS HEREBY ORDERED as follows:
1. A hearing (the "Settlement Hearing") pursuant to Chancery Court Rules
23(e) and 23.1 shall be held on _______, 199_, at __.m. in the Court of
Chancery, _____________ County Courthouse, ______________________, Delaware to
determine the fairness, reasonableness and adequacy of the Stipulation and the
Settlement (as defined in the Stipulation) and whether the Stipulation and the
Settlement should be finally approved by the Court and judgment entered thereon,
to consider the adequacy of the class and
<PAGE>
derivative representative, to conditionally certify the Settlement Class (as
defined in the Stipulation) in accordance with Chancery Court Rule 23, to hear
and determine any objection to the Settlement, and to consider Plaintiff's
application for an award of attorney's fees and expenses.
2. The Court reserves the right to adjourn the Settlement Hearing without
further notice other than by announcement at the Settlement Hearing or any
adjournment thereof.
3. The Court reserves the right to approve the Settlement at or after the
Settlement Hearing with such modifications as may be consented to by the parties
to the Stipulation and without further notice to the members of the Settlement
Class or to MPI Common Stockholders (as defined in the Stipulation).
4. No later than 60 days prior to the date of the Settlement Hearing,
counsel for the Defendants shall cause to be mailed to members of the Settlement
Class and to MPI Common Stockholders, by first-class mail, postage prepaid, a
Notice of Pendency of Class and Derivative Action, Proposed Settlement and
Settlement Hearing (the "Settlement Notice") substantially in the form attached
hereto as Exhibit 1. Upon request, MPI shall make available additional copies of
the Settlement Notice to enable record holders to provide copies thereof to
beneficial owners. Milestone Properties, Inc. ("MPI") will instruct its transfer
agent to send a copy of the Settlement Notice together with any certificates of
shares of MPI Preferred Stock (as defined in the Stipulation) issued after the
Record Date (as defined in the Stipulation). The Settlement Notice
2
<PAGE>
shall direct brokers, nominees and others who hold of record for the account of
another to provide copies of the Settlement Notice to any persons for whose
account they purchase MPI Preferred Stock after the Record Date.
5. The form and method of notice specified herein is the best notice
practicable and shall constitute due and sufficient notice of the Settlement
Hearing to all persons entitled to receive such notice. Milestone Properties,
Inc. shall, on or before the date of the Settlement Hearing directed herein,
file proofs of mailing of the Settlement Notice as directed herein.
6. Any Settlement Class member and any MPI Common Stockholder who objects
to the Settlement may appear in person or by his, her or its attorney at the
Settlement Hearing and present any evidence or argument that may be proper and
relevant; provided, however, that no person other than the Plaintiff and
Defendants and their counsel in the Actions shall be heard, and no papers,
briefs, pleadings or other documents submitted by any such person shall be
received and considered by the Court (unless the Court in its discretion shall
thereafter otherwise direct, upon application of such person and for good cause
shown), unless no later than ten days prior to the Settlement Hearing (i) a
written notice of the intention to appear, (ii) a detailed statement of such
person's objections to any matter before the Court, and (iii) the grounds
therefor or the reasons why such person desires to appear and to be heard, as
well as all documents and writings which such person desires the Court to
consider, shall be served by hand or first
3
<PAGE>
class mail, postage prepaid, with the Register in Chancery and the following
counsel of record at the respective addresses listed below:
REGISTER IN CHANCERY
1020 North King Street
Wilmington, DE 19801
PRICKETT, JONES, ELLIOTT, KRISTOL & SCHNEE
Michael Hanrahan
April Caso Ishak
1310 King Street
P.O. Box 1328
Wilmington, DE 19899
Attorneys for Defendants
ROSENTHAL, MONHAIT, GROSS & GODDESS
Joseph A. Rosenthal
Kevin Gross
Suite 1401, Mellon Bank Center
Wilmington, DE 19899
Attorneys for Plaintiff and the Class
7. For Settlement purposes only, these actions are provisionally certified
as class actions on behalf of the Settlement Class.
8. Any person who fails to object in the manner prescribed above shall be
deemed to have waived such objection and shall be forever barred from raising
such objection or otherwise contesting the Settlement in this or any other
action or proceeding.
9. The Potential Settlement Class Members (as defined in the Stipulation,
other than those who acquire their shares of MPI Preferred Stock after the
Record Date) shall have 45 days from the
4
<PAGE>
date of the mailing of the Settlement Notice in which to opt out of the
Settlement Class and the Settlement (the 45th day shall be referred to herein as
the "Final Opt-Out Date") by mailing a letter to the Register in Chancery and to
each counsel of record prior to the Final Opt-Out Date setting forth (i) his,
her or its name, address, telephone number and social security number or
employer identification number, as applicable, (ii) the number of shares of MPI
Preferred Stock owned and, if available, the certificate number(s) of the stock
certificate(s) representing such shares, (iii) if the shares of MPI Preferred
Stock are not or were not held of record or registered in such member's name on
the books and records of MPI, the letter shall indicate the name or brokerage
firm and account in which such shares of MPI Preferred Stock were registered and
shall include evidence of such member's ownership thereof, and (iv) that he, she
or it elects to opt out of the Settlement. Any Potential Settlement Class Member
who does not return an opt-out election in accordance with the provisions of
this Paragraph 9 shall be deemed a member of the Settlement Class.
10. Pending final determination of whether the Stipulation should be
approved, Plaintiff and all members of the Settlement Class and, as to the
derivative claim, MPI and its stockholders, or any of them, are barred and
enjoined from commencing or prosecuting any action in any forum asserting any
claims, either directly, representatively, derivatively or in any other
capacity, against any of the Defendants or any other persons or entities which
5
<PAGE>
have been or could have been asserted, or which arise out of, or relate in any
way to the Settled Claims (as defined in the Stipulation).
11. If the Settlement provided for in the Stipulation shall be approved by
the Court following the Settlement Hearing, a Final Order and Judgment shall be
entered in substantially the form of Exhibit 1 to the Settlement Notice attached
as Exhibit 1 hereto.
12. If the parties withdraw from the Stipulation or if the Stipulation,
including any amendment made in accordance with its terms, is not approved by
the Court or is terminated or shall not become effective for any reason
whatever, this action shall proceed, completely without prejudice to any party
as to any matter of law or fact, as if the Stipulation had not been made and had
not been submitted to the Court, and neither the Stipulation nor any provision
contained in the Stipulation nor any action undertaken pursuant thereto nor the
negotiation thereof by any party shall be deemed an admission or offered or
received in evidence at any proceeding in this action or any other action or
proceeding.
----------------------------
Vice Chancellor
6
<PAGE>
EXHIBIT B
NOTICE OF PENDENCY OF CLASS AND DERIVATIVE ACTION, PROPOSED
SETTLEMENT, SETTLEMENT HEARING AND RIGHT TO APPEAR
The Form of Notice of Pendency of Class and Derivative Action, Proposed
Settlement, Settlement Hearing and Right to Appear is attached as Exhibit 2 to
the Schedule 13E-3.
<PAGE>
EXHIBIT C
FINAL ORDER AND JUDGEMENT
The Proposed Form of Final Order and Judgement is attached as Exhibit 3
to the Schedule 13E-3.
<PAGE>
EXHIBIT 2
Form of Notice of Pendency of Class and Derivative Action, Proposed Settlement,
Settlement Hearing and Right to Appear
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
JOHN WINSTON, )
)
Plaintiff, )
)
v. ) C.A. Nos. 14807 & 15416
)
LEONARD S. MANDOR, ROBERT A. )
MANDOR, JOAN LEVINE, HARVEY )
JACOBSON, GREGORY MCMAHON, )
GEOFFREY S. AARONSON, )
MILESTONE PROPERTIES, INC. and )
CONCORD ASSETS GROUP, INC., )
)
Defendants.
NOTICE OF PENDENCY OF CLASS AND DERIVATIVE ACTION,
PROPOSED SETTLEMENT, SETTLEMENT HEARING AND RIGHT TO APPEAR
TO: TO ALL HOLDERS OF THE $.78 CONVERTIBLE SERIES A PREFERRED STOCK OF
MILESTONE PROPERTIES, INC. AS OF OCTOBER 23, 1995, AND THEIR
SUCCESSORS IN INTEREST; and
TO ALL HOLDERS OF COMMON STOCK OF MILESTONE PROPERTIES, INC. AS OF
AUGUST 25, 1998:
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATIONS TO THE CONTRARY IS UNLAWFUL.
PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS WILL BE
AFFECTED BY THE LEGAL PROCEEDINGS IN THIS LITIGATION. IF THE COURT APPROVES THE
PROPOSED SETTLEMENT, THE SETTLEMENT CLASS (EXCEPT FOR PERSONS WHO OPT OUT OF THE
SETTLEMENT) AND, AS TO THE DERIVATIVE CLAIM, MPI AND ALL OF ITS STOCKHOLDERS,
WILL BE FOREVER BARRED FROM CONTESTING THE FAIRNESS, REASONABLENESS OR ADEQUACY
OF THE SETTLEMENT, OR FROM PURSUING THE SETTLED CLAIMS (AS DEFINED BELOW).
<PAGE>
IF THE COURT APPROVES THE PROPOSED SETTLEMENT, EACH OUTSTANDING SHARE OF
$.78 CONVERTIBLE SERIES A PREFERRED STOCK OF MILESTONE PROPERTIES, INC. ("MPI")
(EXCEPT FOR SHARES HELD BY DEFENDANTS OR BY PERSONS WHO OPT OUT OF THE
SETTLEMENT) WILL BE EXCHANGED FOR $3.00 IN CASH, PAYABLE BY MPI.
IF THE COURT APPROVES THE PROPOSED SETTLEMENT AND THE PROPOSED SETTLEMENT
IS CONSUMMATED, SUBSTANTIALLY ALL OF THE SHARES OF THE $.78 CONVERTIBLE SERIES A
PREFERRED STOCK OF MPI WILL BE ACQUIRED AND CANCELLED BY MPI. UNDER RULE 13e-3
PROMULGATED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, SUCH TRANSACTION
MUST BE DISCLOSED IN A SCHEDULE 13E-3. A SCHEDULE 13E-3 HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, A COPY OF WHICH IS ANNEXED HERETO AS EXHIBIT
A AND INCORPORATED BY REFERENCE HEREIN. IN ADDITION, SUCH SCHEDULE CONTAINS
CERTAIN DISCLOSURE REGARDING THE POTENTIAL SALES BY MPI AND CERTAIN OF ITS
AFFILIATES OF CERTAIN PROPERTIES WHICH COULD REPRESENT A SUBSTANTIAL PORTION OF
MPI'S REAL ESTATE RELATED ASSETS. THE SCHEDULE 13E-3 HAS NOT BEEN APPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON OR ENDORSED THE ACCURACY OR ADEQUACY OF THE DISCLOSURES
IN SUCH SCHEDULE.
SPECIAL FACTORS
CERTAIN INFORMATION REGARDING (i) THE PURPOSES, ALTERNATIVES, REASONS AND
EFFECTS OF THE TRANSACTIONS CONTEMPLATED BY THE PROPOSED SETTLEMENT, (ii) THE
FAIRNESS OF THE TRANSACTIONS CONTEMPLATED BY THE PROPOSED SETTLEMENT, AND (iii)
REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS IN CONNECTION WITH THE
TRANSACTION CONTEMPLATED BY THE PROPOSED SETTLEMENT ARE SET FORTH IN ITEMS 7, 8
AND 9 OF THE SCHEDULE 13E-3 WHICH HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, A COPY OF WHICH IS ANNEXED HERETO AS EXHIBIT A AND
INCORPORATED BY REFERENCE HEREIN. EACH MPI STOCKHOLDER IS URGED TO READ THE
SCHEDULE 13E-3, INCLUDING SUCH ITEMS, IN ITS ENTIRETY.
THE FOLLOWING DESCRIPTIONS OF THE ACTIONS AND OF THE PROPOSED SETTLEMENT
ARE BASED ON REPRESENTATIONS MADE TO THE COURT BY COUNSEL FOR THE PARTIES AND
DOES NOT CONSTITUTE THE FINDINGS OF THE COURT.
2
<PAGE>
SUMMARY OF NOTICE
The following is a summary of certain information contained in this notice
(the "Settlement Notice") and the Exhibit hereto. This summary does not purport
to be complete and is qualified in its entirety by reference to the more
detailed information set forth elsewhere herein and in the Exhibit hereto.
The purpose of this notice is to advise all stockholders of MPI that at
__:__ 0 __.m (Eastern Time) on ____________, 1998, a hearing will be held before
The Honorable Myron T. Steele, Vice Chancellor of the Court of Chancery at the
Kent County Courthouse, 38 The Green, Dover Delaware, to decide whether to
approve a proposed Settlement (as defined in the Stipulation and Agreement of
Settlement (the "Stipulation") entered into by the parties to the
above-captioned action) of certain class and derivative actions which will
directly affect the rights and interests of MPI and its stockholders.
The proposed Settlement provides that MPI Preferred Stockholders (as
defined in the Stipulation) who owned their shares as of August 25, 1998 and who
do not "opt out" of the Settlement (i.e., send in a written request to be
excluded from the Settlement) will surrender their shares of MPI Preferred
Stock, which prior to the public announcement of the Settlement had a market
value of approximately $0.875 per share, and receive in exchange from MPI on
behalf of the Defendants, $3.00 per share in cash.
The MPI Preferred Stock has been listed on the New York Stock Exchange (the
"NYSE") since January 29, 1991 and is publicly traded. Because MPI had fallen
below certain of the NYSE's continued listing criteria relating to net income
and market value of publicly held shares of MPI's Preferred Stock and Common
Stock, the NYSE suspended trading in shares of MPI's Preferred Stock and Common
Stock prior to the market opening on July 6, 1998 and subsequently applied to
the Securities and Exchange Commission (the "SEC") to delist such
3
<PAGE>
issues. MPI has been advised that on or about July 6, 1998, a market developed
for trading shares of MPI's Preferred Stock and Common Stock on the
Over-The-Counter Bulletin Board (the "OTC Bulletin Board"). There can be,
however, no assurance as to the prices at which the MPI Preferred Stock will
trade prior to or after the consummation of the Settlement or whether an active
trading market will develop, or if developed, will continue, for such shares. A
Schedule 13E-3 (the "Schedule 13E-3"), a copy of which is annexed hereto as
Exhibit A and incorporated by reference herein, was filed by MPI with the SEC on
September __, 1998. The Schedule discloses that if the Settlement is approved
and consummated, substantially all of the MPI Preferred Stock will be acquired
and cancelled by MPI. In addition, the Schedule contains certain disclosure
regarding the potential sale by MPI and certain of its affiliates of certain
properties which could represent a substantial portion of MPI's real estate
related assets. As of the date of this Settlement Notice, the SEC has neither
approved the Schedule nor reviewed, passed upon or endorsed the accuracy or
adequacy of the disclosures contained therein.
The proposed Settlement would extinguish the claims raised in the class and
derivative actions. Several of the claims allege that the rights of MPI
Preferred Stockholders were violated in 1995 when MPI transferred certain
shopping centers and other commercial properties to its then wholly-owned
subsidiary, Union Property Investors, Inc. ("UPI"), and subsequently distributed
all of the outstanding common stock of UPI to the MPI Common Stockholders. The
other claim raised in the actions alleges that MPI paid too high a purchase
price to acquire certain wraparound notes, mortgages and other properties from
Concord Assets Group, Inc. ("Concord") in 1995. MPI and the other defendants
contend that these claims do not have any merit.
4
<PAGE>
The proposed Settlement also provides that, subject to court approval, MPI
will pay the plaintiffs' attorneys fees and expenses in connection with the
class and derivative actions and the Settlement in an amount up to $750,000,
which amount will be payable without interest on the first anniversary of the
date on which the final order of the Court approving the Settlement becomes
final and is no longer subject to appeal (the "Settlement Effective Date").
Anyone who owned shares of MPI Preferred Stock after October 23, 1995 or
who owned shares of MPI Common Stock as of August 25, 1998 may submit objections
to the proposed Settlement at the settlement hearing by complying with certain
specified procedures; alternatively, MPI Preferred Stockholders who owned their
shares prior to August 25, 1998 may opt out and be excluded from the Settlement.
If MPI Preferred Stockholders who own more than 10% of the shares of MPI
Preferred Stock outstanding as of August 25, 1998 choose to opt out and be
excluded from the Settlement, MPI and the other defendants to the actions may
elect not to proceed with the Settlement. Shares of MPI Preferred Stock held by
stockholders who elect to opt out of the Settlement and who, prior to the
effective date of the Settlement, sell or otherwise transfer their shares of MPI
Preferred Stock, will not be counted towards such 10% threshold.
THOSE MPI STOCKHOLDERS WHO ARE IN FAVOR OF THE PROPOSED SETTLEMENT NEED NOT
DO ANYTHING AT THIS TIME. If the proposed Settlement is approved by the Court
after a hearing on the fairness of the Settlement, all claims raised in these
class and derivative actions will be dismissed with prejudice and the Defendants
will forever be released by MPI Preferred Stockholders and, with respect to the
derivative claim only, by MPI and all of its stockholders. MPI Preferred
Stockholders who own their shares at the time the Settlement becomes effective
and who do not opt out of the Settlement will receive instructions for
surrendering their shares of MPI Preferred Stock and
5
<PAGE>
receiving the cash payment from MPI. MPI Preferred Stockholders who sell or
otherwise transfer their shares of MPI Preferred Stock prior to the time the
Settlement becomes effective will be bound by the Settlement as described above,
but will not be entitled to receive the cash payment.
If the proposed Settlement is not approved, the actions will continue, and
it may be several years before any final determination is made by the courts on
the merits of the claims.
RULE 13E-3 TRANSACTION
If approved and consummated, the proposed Settlement will result in the
acquisition and cancellation by MPI of substantially all of the outstanding
shares of MPI Preferred Stock, a transaction which would require MPI to file a
Schedule 13E-3 pursuant to Section 13(e) of the Securities Exchange Act of 1934,
as amended. On September __, 1998, MPI filed such Schedule with the SEC, a copy
of which is annexed hereto as Exhibit A and incorporated by reference herein.
Each MPI stockholder is urged to read the Schedule in its entirety. As of the
date of this Settlement Notice, the SEC has neither approved the Schedule 13E-3
nor reviewed, passed upon or endorsed the accuracy or adequacy of the
disclosures contained therein.
THE SETTLEMENT CLASS
All persons who owned shares of MPI's $.78 Convertible Series A preferred
stock as of October 23, 1995 and their successors in interest are "Potential
Settlement Class Members." Potential Settlement Class Members who do not opt out
of the Settlement will be referred to herein as members of the "Settlement
Class" and will be bound by the Settlement if the Court approves it. Since the
Settlement entails, among other things, the exchange of MPI Preferred Stock for
cash payments, only those members of the Settlement Class who are holders of MPI
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<PAGE>
Preferred Stock as of date on which the Settlement becomes effective (the
"Current MPI Preferred Stockholders") and who do not opt out of the Settlement
will receive the settlement consideration described herein. Potential Settlement
Class Members who sell or otherwise transfer their shares of MPI Preferred Stock
prior to the Settlement Effective Date will still be bound by and subject to the
terms of the Settlement, but will transfer their right to receive the settlement
consideration described herein to the acquirer of their shares of MPI Preferred
Stock. MPI Preferred Stockholders who acquire their shares of MPI Preferred
Stock after August 25, 1998 will not be permitted to opt out, but, if they own
their shares on the Settlement Effective Date, will be entitled to receive the
settlement consideration.
BACKGROUND AND DESCRIPTION OF THE ACTIONS
MPI is a Delaware corporation which, through its own operations and those
of its subsidiaries, is engaged in the business of acquiring, owning, managing
and developing real estate, and other real estate related businesses. Leonard S.
Mandor, Robert A. Mandor, Geoffrey Aaronson, Harvey Jacobson and Gregory
McMahon, are directors and/or executive officers of MPI, and, at the time of the
Transactions (as defined herein) were, along with Defendant Joan LeVine,
directors and/or officers of MPI. Defendants Geoffrey Aaronson, Harvey Jacobson
and Gregory McMahon were also the only members of the Related Party Transaction
Committee of MPI's Board of Directors, which committee was appointed by the
Board to evaluate the fairness of possible transactions with parties related to
MPI, including the Acquisition (defined herein) challenged by Plaintiff.
In September 1995, MPI distributed to each holder of common stock of MPI
("MPI Common Stock") and to each holder of MPI Preferred Stock, a Proxy
Statement - Information Statement (the "Proxy Statement") describing certain
transactions to be considered
7
<PAGE>
and approved at a Special Meeting of MPI's stockholders held on October 23,
1995, whereby: (i) MPI would acquire certain wraparound notes, wraparound
mortgages and fee interests from subsidiaries and affiliates of Concord in
exchange for $500,005 in cash and the issuance to such subsidiaries and
affiliates of Concord of 2,544,654 shares of MPI Common Stock (the
"Acquisition"); (ii) 16 properties owned by MPI would be transferred (the
"Transfer") to UPI which was then a wholly-owned subsidiary of MPI; and (iii)
UPI would be recapitalized (the "Recapitalization") and thereafter, all of the
outstanding shares of UPI's common stock would be distributed to of MPI Common
Stockholders on a share-for-share basis and for no consideration (the
"Spin-Off") (the Acquisition, Transfer, Recapitalization and Spin-Off and the
transactions contemplated thereby, including the Proxy Statement and the special
meeting of MPI's stockholders held on October 23, 1995 and the actions
contemplated thereby are collectively referred to herein as the "Transactions").
The Acquisition required the approval of a majority of the shares of MPI Common
Stock, and the Transfer and Spin-Off were contingent on the approval the
Acquisition. On October 23, 1995, the holders of MPI Common Stock approved the
Acquisition. The Transfer and the Spin-Off were completed in October 1995 and
November 1995, respectively.
On January 30, 1996, the Plaintiff, a holder of MPI's Preferred Stock,
filed a class action complaint on behalf of the MPI Preferred Stockholders in
the Delaware Chancery Court (the "Court") claiming that the Transactions
breached the Defendants' fiduciary duty and an implied obligation of good faith
owed to the holders of the MPI Preferred Stock. On February 12, 1996, the
Defendants moved to dismiss the complaint for failure to state a claim.
The Plaintiff filed an amended complaint on June 5, 1996 that included
additional counts challenging the Transactions as violating Section 271 of the
Delaware General
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Corporation Law and several provisions of the Certificate of Designations
governing the MPI Preferred Stock. On June 19, 1996, the Defendants moved to
dismiss the amended complaint and on October 26, 1996, the Court ruled that the
remedy of rescission would not be available in the action.
While the remainder of the Defendants' motion to dismiss was before the
Court, the Plaintiff, on December 9, 1996, commenced a second action and sought
dismissal, without prejudice, of the first action. The second action contained a
single claim alleging that the Transactions constituted a breach of fiduciary
duty to the MPI Preferred Stockholders. The Defendants moved to dismiss, or in
the alternative, to stay the second action.
On May 12, 1997, the Court dismissed the second action in its entirety and
dismissed the breach of fiduciary duty claim in the first action. The Court also
dismissed the claim under Section 271 of the Delaware General Corporation Law on
the ground that the Plaintiff had no standing to sue for violation of that
statute. The Court denied the motion to dismiss the Plaintiff's contractual
claims against MPI which alleges breaches of the Certificate of Designations
governing the MPI Preferred Stock, and granted leave to further amend the
complaint in the first action to assert a derivative claim challenging the
fairness of the Acquisition. The Plaintiff subsequently filed a second amended
complaint asserting a breach of fiduciary duty claim.
On June 4, 1997, the Plaintiff appealed the Court's ruling of May 12, 1997
insofar as it dismissed the second action and, thereafter, the Defendants moved
to dismiss the appeal and cross-appealed from the Court's decision insofar as it
declined to dismiss the claims in the first action based on the Certificate of
Designations.
9
<PAGE>
On October 30, 1997, the parties hereto entered into a previous stipulation
and agreement of settlement (the "Prior Settlement") pursuant to which MPI's
stockholders would release all derivative claims arising in connection with the
Transactions and the holders of the MPI Preferred Stock between October 23, 1995
and the date on which the Prior Settlement was consummated would release any
claims they may have had against MPI and the other named Defendants arising out
of the Transactions. Each MPI Preferred Stockholder who did not opt out of the
Prior Settlement and who then owned shares of the MPI Preferred Stock would
transfer his or her shares of MPI Preferred Stock to a wholly-owned subsidiary
of Concord and receive, in exchange for each share, $0.75 in cash to be paid by
MPI plus one share of Preferred Stock of the Concord subsidiary. The Preferred
Stock of the Concord subsidiary would have had a liquidation preference of $2.25
per share, would have been required to be redeemed by the Concord subsidiary at
$2.25 per share after five years, and would have had no voting or dividend
rights. In addition, any stockholder of the Concord subsidiary's preferred stock
who did not want to wait the full five years for such shares to be redeemed
could have had shares redeemed by the Concord subsidiary at the following prices
prior to the fifth year: within 2 years after the Prior Settlement - $1.00 per
share; 2-3 years after the Prior Settlement - $1.40 per share; 3-4 years after
the Prior Settlement - $1.60 per share; 4-5 years after the Prior Settlement -
$1.90 per share. The Concord subsidiary's redemption obligations would have been
secured by a Letter of Credit.
By correspondence of April 22, 1998, Defendants' counsel informed the
Supreme Court and the Court that the Plaintiff had withdrawn from the Prior
Settlement. By order of June 11, 1998, the Supreme Court dismissed the Appeal
and the Cross Appeal as interlocutory appeals not taken in compliance with
Delaware Supreme Court Rule 42, but said that the dismissal ruling
10
<PAGE>
did not preclude the Court from determining, upon appropriate application,
whether a final judgment should be entered pursuant to Rule 54(b) of the Court.
The Plaintiff entered into the Stipulation after taking into account (i)
the benefits to the MPI Preferred Stockholders and MPI from the Settlement, (ii)
the risks of continued litigation, (iii) the desirability of permitting the
Settlement to be consummated as provided by the terms of this Stipulation, and
(iv) the conclusion by the Plaintiff and his counsel that the terms and
conditions of the Settlement are fair, reasonable, adequate, and in the best
interests of MPI and the MPI Preferred Stockholders.
MPI and the other Defendants agreed to enter into the Stipulation after
taking into account (i) MPI's indemnification obligations to the individual
Defendants under its Certificate of Incorporation, as amended, and its By-laws,
(ii) the Settlement's resolution of all claims or potential claims by the MPI
Preferred Stockholders and derivative claims by the stockholders of MPI relating
to, or arising from, the Transactions, (iii) the Settlement's beneficial impact
on the MPI Common Stockholders by settling claims of MPI Preferred Stockholders
relating to the right of MPI Preferred Stockholders to convert their shares into
MPI Common Stock at a higher ratio as part of the Transactions, and (iv)
avoiding delay and significant expenses associated with continued litigation.
As part of the Settlement, the parties desired to settle and dismiss with
prejudice the Actions and any and all claims that have been or could have been
asserted therein by MPI or any and all members of the Settlement Class and any
derivative claims arising out of or relating to Transactions (the "Claims") on
the terms and conditions reflected in the Stipulation.
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<PAGE>
THE SETTLEMENT
The Settlement will bind everyone who owned MPI Preferred Stock since
October 23, 1995 except for those who choose to opt out of the Settlement, and
provides that each Current MPI Preferred Stockholder who does not opt out of the
Settlement shall, in exchange for each share of his or her MPI Preferred Stock,
receive $3.00 in cash (the "Cash Payment" or the "Settlement Consideration").
The MPI Preferred Stock has been listed on the New York Stock Exchange
since January 29, 1991 and is publicly traded. Because MPI had fallen below
certain of the NYSE's continued listing criteria relating to net income and
market value of publicly held shares of MPI's Preferred Stock and Common Stock,
the NYSE suspended trading in shares of MPI's Preferred Stock and Common Stock
prior to the market opening on July 6, 1998 and subsequently applied to the
Commission to delist such issues. MPI has been advised that on or about July 6,
1998, a market developed for trading shares of MPI's Preferred Stock and Common
Stock on the OTC Bulletin Board. There can be, however, no assurance as to the
prices at which the MPI Preferred Stock will trade prior to or after the
consummation of the Settlement or whether an active trading market will develop,
or if developed, will continue, for such shares. A Schedule 13E-3 was filed by
MPI with the SEC on September __, 1998, disclosing that, if the Settlement is
approved and consummated, substantially all of the MPI Preferred Stock will be
acquired and cancelled by MPI. In addition, the Schedule 13E-3 contains certain
disclosure regarding the potential sale by MPI and certain of its affiliates of
certain properties which could represent a substantial portion of MPI's real
estate related assets. As of the date of this Settlement Notice, the Commission
has neither approved the Schedule 13E-3 nor reviewed, passed upon or endorsed
the accuracy or adequacy of the disclosures contained therein.
12
<PAGE>
If you owned shares of MPI Preferred Stock at any time between October 23,
1995 and August 25, 1998 (the "Record Date") and do not wish to be a member of
the Settlement Class, you may opt out of and be excluded from the Settlement by
following the procedures set forth in the section of this Settlement Notice
entitled "RIGHT TO OPT OUT."
Pursuant to the terms of the Stipulation, if Current MPI Preferred
Stockholders owning more than 10% of the shares of MPI Preferred Stock
outstanding on the Record Date choose to opt out and be excluded from the
Settlement, MPI and the other Defendants may elect not to proceed with the
Settlement. Shares of MPI Preferred Stock held by stockholders who elect to opt
out of the Settlement and who, prior to the effective date of the Settlement,
sell or otherwise transfer their shares of MPI Preferred Stock, will not be
counted towards such 10% threshold.
Current MPI Preferred Stockholders who opt out of the Settlement, Potential
Settlement Class Members who sell or transfer their shares of MPI Preferred
Stock prior to the effective date of the Settlement, and MPI Common Stockholders
will not receive the Settlement Consideration under the terms of the
Stipulation.
If the Settlement is approved by the Court, (a) the Plaintiff and each
Settlement Class member will be releasing all claims alleged in these actions or
which relate to the transactions that are the subject of these actions, shall
fully, finally and forever compromise, settle, release and dismiss with
prejudice, any and all claims, rights, demands, liabilities, actions, causes of
action, suits, damages, losses, obligations, matters and issues, whether
asserted or unasserted, contingent or absolute, known or unknown, suspected or
unsuspected, disclosed or undisclosed, matured or unmatured, material or
immaterial, legal or equitable, (i) which have been, could have been, or in the
future can or might be, asserted in the Actions or otherwise by
13
<PAGE>
the Plaintiff or any member of the Settlement Class, whether individual or
class, (including, without limitation, claims arising under the federal
securities laws), against any of the Defendants in the Actions or any of their
families, affiliates, associates and subsidiaries, and each of their respective
present or former officers, directors, stockholders, agents, employees,
attorneys, representatives, financial and other advisors, investment or
commercial bankers, trustees, general and limited partners and partnerships,
heirs, executors, personal representatives, estates, administrators,
predecessors, successors and assigns (collectively, the "Defendants'
Affiliates") and any other person or entity acting for or on behalf of any
Defendant (collectively, the "Released Persons"), and (ii) which arise out of or
relate in any manner whatsoever, directly or indirectly, to any of the
allegations, facts, events, transactions, occurrences, acts, representations,
statements, misrepresentations or omissions, or any other matter, thing or cause
whatsoever, or any series thereof, involved, embraced, set forth or otherwise
referred or related directly or indirectly to the Transactions, the Actions, the
adjustment made to the conversion ratio for the MPI Preferred Stock in
connection with the Transactions, or any public filings or other statements that
were issued in connection with the Transactions by any Released Person in the
Actions (the "Class Claims"), and (b) MPI, the Plaintiff, each Settlement Class
Member, each MPI Common Stockholder and each MPI Preferred Stockholder shall
fully, finally and forever compromise, settle, release and dismiss with
prejudice, any and all claims, rights, demands, liabilities, actions, causes of
action, suits, damages, losses, obligations, matters and issues, whether
asserted or unasserted, contingent or absolute, known or knowable, matured or
unmatured, material or immaterial, legal or equitable (i) which have been, could
have been, or in the future can or might be, asserted in the Actions (including,
without limitation, claims arising under the federal securities laws) or
otherwise by or on behalf of MPI against any of the
14
<PAGE>
Defendants in the Actions or against any Released Person, and (ii) which arise
out of or relate in any manner whatsoever, directly or indirectly, to any of the
allegations, facts, events, transactions, occurrences, acts, representations,
statements, misrepresentations or omissions, or any other matter, thing or cause
whatsoever, or any series thereof, involved, embraced, set forth or otherwise
referred or related directly or indirectly to the Transactions, the Actions, the
adjustment made to the conversion ratio for the MPI Preferred Stock in
connection with the Transactions, or any public filings or other statements that
were issued in connection with the Transactions by any Released Person in the
Actions (the "Derivative Claims"). The Class Claims and the Derivative Claim
will be referred to collectively herein as the "Settled Claims". The term
"Settled Claims" does not include claims arising pursuant to the Stipulation.
The Settlement will become effective at such time as the Final Order and
Judgment approving the Settlement, if entered by the Court, shall become final
and not subject to further appeal or review. In the event that the Settlement is
not approved, the Stipulation shall be of no further force and effect and each
party shall be restored to his, her or its respective position prior to entering
into the Stipulation, except that all costs and expenses of providing this
Settlement Notice to the Settlement Class and to MPI Common Stockholders shall
be paid by MPI.
The release and dismissal with prejudice described above shall not become
effective unless and until the Final Order becomes final and no longer subject
to appeal or other contingencies.
REASONS FOR THE SETTLEMENT
Plaintiff and his counsel have agreed to and are recommending the
Settlement based upon the following considerations. First, the Settlement
Consideration will provide
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<PAGE>
significant value to Settlement Class members who own their shares of MPI
Preferred Stock as of the effective date of the Settlement. Prior to the public
announcement of the Settlement, the MPI Preferred Stock had a market value of
approximately $0.875 per share. Under the terms of the Settlement, on the
effective date of the Settlement, each share of MPI Preferred Stock will be
exchanged for $3.00 in cash. Second, there are significant risks in continued
litigation. While Plaintiff and his counsel believe the claims asserted are
meritorious, there is a possibility of an adverse outcome on liability or
damages. Defendants have presented a number of defenses, and already have
succeeded in obtaining dismissal of several of the Plaintiff's claims. Third,
proceeding with the litigation could result in a substantial delay before the
Settlement Class would obtain any recovery. The Delaware Supreme Court had
refused to consider the interlocutory appeal of the Court's rulings dismissing
portions of Plaintiff's claims. Resolution of further motions, discovery and
trial, and ultimately, the issuance of a detailed opinion by the Court after
trial could take years to complete before the Plaintiff would be able to raise
on appeal the issues which were the subject of his dismissed interlocutory
appeal. Following a decision after trial, there may well be an appeal by
Defendants of any adverse judgment. Thus, as much as two years or more could
pass before the litigation would finally be concluded and MPI and the Settlement
Class members could actually recover on a judgment. After considering the
foregoing, the Plaintiff and counsel for the Settlement Class have concluded
that the Settlement is fair to and in the interest of MPI, the Settlement Class
and the members thereof.
SETTLEMENT HEARING
The Settlement Hearing is scheduled for __:__0 __.m. (Eastern Time) on
__________, 199__, before the Honorable Myron T. Steele, Vice Chancellor of the
Court of Chancery at ______________, _____________, _____________, Delaware.
16
<PAGE>
At the Settlement Hearing the parties will ask the Court (i) to determine
whether the Settlement, as reflected in the terms of the Stipulation, is fair,
reasonable, adequate and in the best interests of the Settlement Class, the
members thereof and MPI, (ii) to determine whether judgment should be entered in
the Actions pursuant to the Settlement which will, among other things dismiss
the Actions with prejudice, and (iii) to rule on such other matters as the Court
may deem appropriate.
If you were a holder of shares of MPI Preferred Stock between October 23,
1995 and August 25, 1998 and held the stock beneficially for others, or if you
were a holder of shares of MPI Common Stock as of August 25, 1998 and held the
stock beneficially for others, you are requested to forward this Notice to the
beneficial owner. In addition, if you acquire stock for the account of others
after the Record Date, you are requested to forward this Notice to the
beneficial owner of such shares. Additional copies of the Settlement Notice will
be made available to you for this purpose upon request directed to MPI at:
Milestone Properties, Inc.
150 E. Palmetto Park Road, 4th Floor
Boca Raton, FL 33432
Attention: Director of Stockholder Services
RIGHT TO APPEAR AT SETTLEMENT HEARING
Any Potential Settlement Class Member who does not opt out of the
Settlement and any MPI Common Stockholder who objects to the Stipulation or the
Settlement, or who otherwise wishes to be heard, may appear in person or by
counsel at the Settlement Hearing and present any evidence or argument that may
be proper and relevant; provided, however, that no person other than the
plaintiffs, defendants and their counsel in these actions shall be heard, and no
papers, briefs, pleadings or other documents submitted by any such person shall
be received and considered by the Court (unless the Court in its discretion
shall thereafter otherwise direct,
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<PAGE>
upon application of such person and for good cause shown), unless no later than
ten days prior to the Settlement Hearing, (i) a written notice of the intention
to appear, (ii) a detailed statement of such person's objections to any matter
before the Court, and (iii) the grounds therefor or the reasons why such person
desires to appear and to be heard, as well as all documents and writings which
such person desires the court to consider, shall be served by hand or first
class mail, postage prepaid, with the Register in Chancery and the following
counsel of record at the respective addresses listed below:
REGISTER IN CHANCERY
1020 North King Street
Wilmington, DE 19801
PRICKETT, JONES, ELLIOTT, KRISTOL SCHNEE
Michael Hanrahan
April Caso Ishak
1310 King Street
P.O. Box 1328
Wilmington, DE 19899
Attorneys for Defendants
ROSENTHAL, MONHAIT, GROSS & GODDESS
Joseph A. Rosenthal
Kevin Gross
Suite 1401, Mellon Bank Center
Wilmington, DE 19899
Attorneys for Plaintiff and the Class
Any person who fails to object in the manner prescribed above shall be
deemed to have waived such objection and shall be forever barred from raising
such objection or otherwise contesting the Settlement in this or any other
action or proceeding.
RIGHT TO OPT OUT
Potential Settlement Class Members (other than those who acquire shares of
MPI Preferred Stock after the Record Date) shall have 45 days from the date of
this Settlement Notice
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<PAGE>
in which to opt out of the Settlement Class and the Settlement (the 45th day
shall be referred to herein as the "Final Opt-Out Date") by mailing a letter
prior to the Final Opt-Out Date to the Register in Chancery and to each counsel
of record at the addresses listed in "RIGHT TO APPEAR AT SETTLEMENT HEARING"
above, which letter shall set forth (i) the name, address, telephone number and
social security number or employer identification number, as applicable, of such
stockholder (ii) the number of shares of MPI Preferred Stock owned by such
stockholder and, if available, the certificate number(s) of the stock
certificate(s) representing such shares, (iii) if the shares of MPI Preferred
Stock owned by such stockholder are not or were not held of record or registered
in such stockholder's name on the books and records of MPI, the letter shall
indicate the name or brokerage firm and account in which such shares of MPI
Preferred Stock were registered and shall include evidence of such member's
ownership thereof, and (iv) that such stockholder elects to opt out of the
Settlement. Any Potential Settlement Class Member who does not return an opt-out
election on or prior to the Final Opt-Out Date shall be deemed a member of the
Settlement Class and shall be bound by, and subject to, the terms and conditions
of the Stipulation and all court orders affecting the Settlement Class. Any
Potential Settlement Class Member who elects to opt out of the Settlement and,
prior to the effective date of the Settlement, sells or otherwise transfers his
or her shares of MPI Preferred Stock shall not be entitled to receive the
Settlement Consideration and his or her shares of MPI Preferred Stock shall not
be included in determining the total number of shares for which opt-out
elections have been submitted. In addition, any MPI Preferred Stockholder who
acquires his or her shares of MPI Preferred Stock after the Record Date will not
be entitled to opt out of the Settlement, although such stockholder will be
entitled to receive the Settlement Consideration if such stockholder holds his
or her shares of MPI Preferred Stock on the Settlement Effective Date.
19
<PAGE>
INFORMATION CONCERNING MPI
MPI is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and may be
available at the following Regional Offices of the Commission: Chicago Regional
Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such materials can be obtained
at prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a Web site at "http://www.sec.gov" that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission.
IN ADDITION TO THE EXHIBIT ANNEXED TO THIS NOTICE, EACH MPI STOCKHOLDER
IS URGED TO REVIEW THE FOLLOWING PUBLICLY FILED DOCUMENTS OF MPI AND DISCUSS THE
TERMS OF THE SETTLEMENT WITH THEIR FINANCIAL AND OTHER ADVISORS:
1. Annual Report of MPI on Form 10-K, as amended, for the Year
Ended December 31, 1997;
2. Quarterly Report of MPI on Form 10-Q for the Quarterly Period Ended
March 31, 1998;
3. Quarterly Report of MPI on Form 10-Q for the Quarterly Period Ended
June 30, 1998; and
4. The description of the MPI Common Stock and MPI Preferred Stock
contained in the Proxy Statement dated September 12, 1995.
20
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DOCUMENTS RELATING TO MPI (OTHER THAN EXHIBITS TO SUCH DOCUMENTS) ARE
AVAILABLE TO EACH MPI PREFERRED STOCKHOLDER AND MPI COMMON STOCKHOLDER TO WHOM
THIS NOTICE IS DELIVERED, UPON WRITTEN OR ORAL REQUEST FROM MPI AT 150 E.
PALMETTO PARK ROAD, 4TH FLOOR, BOCA RATON, FL 33432, ATTENTION: KAREN RENZA
(TELEPHONE NO. 561-394-9260). IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY _________________, 1998.
ATTORNEYS' FEES
If the Settlement is approved by the Court at the Settlement Hearing or at
such later time as the Court may direct, Defendants have agreed not to oppose an
application by the Plaintiff for attorneys' fees and expenses of Plaintiff's
counsel in connection with the Settlement in an aggregate amount not to exceed
$750,000. MPI will pay such fees and expenses in the amount awarded by the
Court, without interest, on the later to occur of the of the Settlement
Effective Date or November 1, 1999.
BAR AGAINST FILING OTHER LAWSUITS
Pending final determination of whether the Stipulation should be approved,
the Plaintiff and all members of the Settlement Class and, as to the derivative
claim, MPI and its stockholders, shall not commence or prosecute any action in
any form asserting any claims, either directly, representatively, derivatively
or in any other capacity, against the defendants or any other person or entities
which have been or could have been asserted, or which arise out of or relate in
any way to, the Settled Claims.
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SCOPE OF THIS NOTICE AND FURTHER INQUIRIES
THIS SETTLEMENT NOTICE DOES NOT PURPORT TO BE A COMPREHENSIVE DESCRIPTION
OF THE CONSOLIDATED ACTION OR THE PLEADINGS, THE TERMS OF THE SETTLEMENT OR THE
SETTLEMENT HEARING. For more complete information concerning the litigation and
the proposed Settlement, you may inspect the pleadings, the Stipulation, and
other papers and documents filed with the Court in these actions, during normal
business hours at the Office of the Register in Chancery of the Court of
Chancery of the State of Delaware, Daniel L. Herrmann Courthouse, 1020 King
street, New Castle County, Wilmington, Delaware.
BY ORDER OF THE COURT:
-----------------------------------
Register in Chancery 1998
Dated __________________, 1998
22
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EXHIBIT A
SCHEDULE 13E-3
This Notice of Pendency of Class and Derivative Action, Proposed
Settlement, Settlement Hearing and Right to Appear is attached to the Schedule
13E-3.
<PAGE>
EXHIBIT 3
Proposed Form of Final Order and Judgment
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
JOHN WINSTON, )
)
Plaintiff, )
)
v. ) C.A. Nos. 14807 & 15416
)
LEONARD S. MANDOR, ROBERT A. )
MANDOR, JOAN LEVINE, HARVEY )
JACOBSON, GREGORY MCMAHON, )
GEOFFREY S. AARONSON, )
MILESTONE PROPERTIES, INC. and )
CONCORD ASSETS GROUP, INC., )
)
Defendants. )
FINAL ORDER AND JUDGMENT
A hearing having been held before this Court on ___________________,
pursuant to the Court's Order of __________ __, 1998 (the "Scheduling Order"),
upon a Stipulation and Agreement of Settlement, dated __________ __, 1998 (the
"Stipulation"), of the above-captioned actions (the "Actions"), which
Stipulation and Scheduling Order are incorporated herein by reference; it
appearing that due notice of said hearing has been given in accordance with the
aforesaid Scheduling Order; the respective parties having appeared by their
attorneys of record; the Court having heard and considered evidence in support
of the proposed Settlement (as defined in the Stipulation); the attorneys for
the respective parties having been heard; an opportunity to be heard having been
given to all other persons requesting to be heard or desiring to opt out of the
Settlement in accordance with the
<PAGE>
Scheduling Order; the Court having determined that notice to the Settlement
Class certified in the Actions and to the MPI Common Stockholders as of the
Record Date (as each of such terms is defined in the Stipulation) pursuant to
the aforesaid Scheduling Order was adequate and sufficient and the entire matter
of the proposed Settlement having been heard and considered by the Court;
IT IS HEREBY ORDERED, ADJUDGED AND DECREED this ____ day of ____________,
1998, that:
1. The form and manner of notice given to the members of the Settlement
Class and to the MPI Common Stockholders as of the Record Date is hereby
determined to have been the best practicable notice under the circumstances and
to have been given in full compliance with the requirements of due process and
of Chancery Court Rules 23 and 23.1.
2. Certification of a class is appropriate because (i) the Settlement Class
is so numerous that joinder of all members is impracticable, (ii) there are
questions of law or fact common to the Settlement Class, (iii) the claims of
Settlement Class Plaintiff are typical of the claims of the other Settlement
Class members, and (iv) the Settlement Class Plaintiff has fairly and adequately
protected the interests of the Settlement Class. The Court further finds that
the Settlement Class meets the criteria of Chancery Court Rule 23(b)(3) in that
questions of law or fact common to the members of the Settlement Class
predominate over any questions affecting only individual members and a class
2
<PAGE>
action is superior to other available methods for the fair and efficient
adjudication of the controversy. Settlement Class members objecting to the
Settlement who acquired their shares of MPI Preferred Stock prior to the Record
Date had ample opportunity to object to the Settlement or opt out of the
Settlement Class. With respect to Settlement Class Members who acquire their
shares of MPI Preferred Stock subsequent to the Record Date, the criteria of
Chancery Court Rule 23(b)(2) are met because Milestone Properties, Inc. ("MPI")
has acted with respect to the rights of such stockholders in a manner generally
consistent with Settlement Class Members who acquired their shares of MPI
Preferred Stock prior to the Record Date, and their claim relating to the MPI
Preferred Stock would be for injunctive relief or corresponding declaratory
relief.
3. In approving settlement of the class and derivative claims, the Court
has considered (a) the probability of the validity of Plaintiff's claims; (b)
the apparent difficulty of enforcing claims through the courts; (c) the
collectability of any judgments; (d) the delay, expense and trouble of
litigation; (e) the consideration to be received by the Settlement Class as
compared with the potential recovery for the Settlement Class if the Actions
were litigated to a conclusion; (f) the views of the parties as to the terms of
the Settlement, both pro and con; and (g) the adequacy of representation by
counsel for the Plaintiff.
4. The Settlement is approved as fair, reasonable, adequate and in the best
interests of the Settlement Class, the members thereof, MPI and its stockholders
and shall be consummated by the parties to the Stipulation in accordance with
its terms and subject to its conditions.
3
<PAGE>
5. The Actions are hereby dismissed with prejudice against Plaintiff and
each member of the Settlement Class on the merits, each party to bear its own
costs, except as provided herein, and (a) MPI, the Plaintiff and each Settlement
Class member shall fully, finally and forever compromise, settle, release and
dismiss with prejudice, any and all claims, rights, demands, liabilities,
actions, causes of action, suits, damages, losses, obligations, matters and
issues, whether asserted or unasserted, contingent or absolute, known or
unknown, suspected or unsuspected, disclosed or undisclosed, matured or
unmatured, material or immaterial, legal or equitable, (i) which have been,
could have been, or in the future can or might be, asserted in the Actions or
otherwise by the Plaintiff or any member of the Settlement Class, whether
individual or class, (including, without limitation, claims arising under the
federal securities laws), against any of the Defendants in the Actions or any of
their families, affiliates, associates and subsidiaries, and each of their
respective present or former officers, directors, stockholders, agents,
employees, attorneys, representatives, financial and other advisors, investment
or commercial bankers, trustees, general and limited partners and partnerships,
heirs, executors, personal representatives, estates, administrators,
predecessors, successors and assigns (collectively, the "Defendants'
Affiliates") and any other person or entity acting for or on behalf of any
Defendant (collectively, the "Released Persons"), and (ii) which arise out of or
relate in any manner whatsoever, directly or indirectly, to any of the
allegations, facts, events, transactions, occurrences, acts, representations,
statements, misrepresentations or omissions, or any other matter, thing or cause
whatsoever, or any series thereof, involved, embraced, set forth or otherwise
referred or related directly or indirectly to the Transactions, the Actions, the
adjustment made to the
4
<PAGE>
conversion ratio for the MPI Preferred Stock in connection with the
Transactions, or any public filings or other statements that were issued in
connection with the Transactions by any Released Person in the Actions (the
"Class Claims"), and (b) MPI, the Plaintiff, each Settlement Class Member, each
MPI Common Stockholder and each MPI Preferred Stockholder shall fully, finally
and forever compromise, settle, release and dismiss with prejudice, any and all
claims, rights, demands, liabilities, actions, causes of action, suits, damages,
losses, obligations, matters and issues, whether asserted or unasserted,
contingent or absolute, known or knowable, matured or unmatured, material or
immaterial, legal or equitable (i) which have been, could have been, or in the
future can or might be, asserted in the Actions (including, without limitation,
claims arising under the federal securities laws) or otherwise by or on behalf
of MPI against any of the Defendants in the Actions or against any Released
Person, and (ii) which arise out of or relate in any manner whatsoever, directly
or indirectly, to any of the allegations, facts, events, transactions,
occurrences, acts, representations, statements, misrepresentations or omissions,
or any other matter, thing or cause whatsoever, or any series thereof, involved,
embraced, set forth or otherwise referred or related directly or indirectly to
the Transactions, the Actions, the adjustment made to the conversion ratio for
the MPI Preferred Stock in connection with the Transactions, or any public
filings or other statements that were issued in connection with the Transactions
by any Released Person in the Actions (the "Derivative Claims"). The Class
Claims and the Derivative Claim will be referred to collectively herein as the
"Settled Claims". The term "Settled Claims" does not include claims arising
pursuant to the Stipulation.
5
<PAGE>
6. Notwithstanding any other provision of this Order, the dismissal with
prejudice and releases provided for in paragraph 5 of this order shall not
become effective as to any Released Person until the Final Order approving the
Settlement becomes final and is no longer subject to appeal, whether by the
passage of time, affirmance on appeal or otherwise, and subject to the
satisfactory completion of obligations and contingencies contained in the
Stipulation.
7. The Plaintiff and all members of the Settlement Class and, as to the
derivative claim, MPI and all stockholders of MPI, directly, representatively,
derivatively or in any other capacity, are permanently barred and enjoined from
instigating, instituting, commencing, asserting, prosecuting, continuing or
participating in any way in the maintenance of any of the Settled Claims in any
court or tribunal of this or any other jurisdiction.
8. The attorneys for the Plaintiff are awarded attorneys fees and expenses
in the aggregate amount of $_________ to be paid by MPI in accordance with the
terms of the Stipulation.
9. Without affecting the finality of this Final Order and Judgment in any
way, this Court reserves jurisdiction over all matters relating to the
administration and consummation of the settlement.
---------------------------
Myron T. Steele
Vice Chancellor
<PAGE>
EXHIBIT 4
Annual Report on Form 10-K of MPI for the Year Ended December 31, 1997
Amendment No. 1 to Annual Report on Form 10-K/A of MPI for the Year Ended
December 31, 1997
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 1-10641
MILESTONE PROPERTIES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 65-0158204
--------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
150 E. Palmetto Park Rd. 4th Floor Boca Raton, FL 33432
- ------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (561) 394-9533
--------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ---------------------------- -----------------------
Common Stock, $.01 par value New York Stock Exchange
$.78 Convertible Series A
- -------------------------------
Preferred Stock, $.01 par value New York Stock Exchange
Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. x
----- -----
Yes No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or by any
amendment to this Form 10-K. [x]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the last sale price on March 20, 1998, was
approximately $ 19/16 for the Common Stock and $1 7/16 for the $.78 Convertible
Series A Preferred Stock.
The Registrant's revenues for the fiscal year ended December 31, 1997 were
$30,091,911.
As of March 20, 1998, 4,213,368 shares of the Registrant's Common Stock and
3,033,995 shares of the Registrant's $.78 Convertible Series A Preferred Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant's Proxy Statement for its 1998 Annual Meeting of Stockholders is
hereby incorporated by reference into Part III of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C> <C>
Item 1. Business......................................................................................................1
Item 2. Description of Property......................................................................................10
Item 3. Legal Proceedings............................................................................................13
Item 4. Submission of Matters to a Vote of Security Holders..........................................................15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................................16
Item 6. Selected Financial Data......................................................................................18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................................................18
Item 8. Financial Statements and Supplementary Data..................................................................24
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.....................................................................................24
PART III
Item 10. Directors and Executive Officers of the Registrant...........................................................25
Item 11. Executive Compensation.......................................................................................25
Item 12. Security Ownership of Certain Beneficial Owners and Management...............................................25
Item 13. Certain Relationships and Related Transactions...............................................................25
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K...............................................26
SIGNATURES.................................................................................................................31
Financial Statements......................................................................................................F-1
</TABLE>
<PAGE>
PART I
Item 1. Business.
Introduction
Milestone Properties, Inc. ("Milestone"), directly and through its
wholly owned subsidiaries, is engaged in the business of owning, acquiring,
managing, developing and investing in commercial real estate and real estate
related assets. Milestone, together with its subsidiaries, is hereinafter
referred to as the "Company." The Company is primarily engaged in a single
business industry, commercial real estate, which currently involves the
ownership, operation and management of 32 interests in commercial real estate
properties consisting of (i) 4 fee interests (the "Fee Properties") and (ii)
wraparound notes (the "Wraparound Notes") and wraparound mortgages (the
"Wraparound Mortgages" and, together with the Wraparound Notes, the "Wrap Debt")
which are secured by 28 commercial real properties (the "Underlying Properties"
and, together with the Fee Properties, the "Properties"). The Company also
serves as the master lessee under individual leases on each of the Underlying
Properties. The Properties are broken out by type in the following table which
should be read in conjunction with Table 1. Summary of Properties and Underlying
Debt located at Item 2. Description of Property:
Property Type No. of Properties GLA (Sq.Ft.)
------------- ----------------- ------------
Fee Properties 4 537,189
Underlying Properties 28 2,104,859
-- ---------
Totals 32 2,642,048
-- ---------
-- ---------
The Company's objectives are to realize upon, maintain and improve the
value of the Company's real estate holdings and to generate cash flow. To
accomplish these objectives, the Company may (i) continue to operate the
Properties, (ii) sell some or all of the Properties, (iii) acquire additional
commercial properties to develop and/or hold for investment, (iv) expand,
improve or redevelop the Properties or properties owned by affiliates of the
Company or third parties through the acquisition and development of adjacent
parcels, (v) engage in management services for affiliates of the Company and/or
others, (vi) invest in real-estate backed or related securities, (vii) acquire
related businesses and/or (viii) engage in such other activities or businesses
as are consistent with the Company's overall objectives. In connection with its
activities, the Company may also consider selling one or more of its Fee
Properties and/or financing or refinancing one or more of the Properties or
additional properties acquired by the Company in order to fund its business
activities. In addition, the Company may enter into joint ventures or similar
arrangements with developers or owners of shopping centers or other commercial
properties. These ventures may take the form of joint ownership, participation
in general or limited partnerships, or other forms of investment, and may
provide for the payment of preferential distributions, guaranteed returns and/or
fees for services. The Company may also make secured real estate mortgage loans,
including mortgages junior to institutional or other indebtedness, in connection
with the acquisition, development, redevelopment or improvement of properties,
either to affiliated or unaffiliated parties.
The Company's business is operated as a single segment for financial
reporting purposes. For financial information regarding the Company for the
fiscal years ended December 31, 1997, 1996 and 1995, see the consolidated
financial statements and the notes thereto contained herein.
1
<PAGE>
Background
Milestone was incorporated on November 30, 1989 under the laws of the
State of Delaware. On December 18, 1990, Concord Milestone Income Fund, L.P.
("CMIF") and Concord Milestone Income Fund II, L.P. ("CMIF II") (collectively,
the "Predecessor Partnerships") were merged with and into Milestone (the
"Merger"). In the Merger, Milestone succeeded to the business and operations of
the Predecessor Partnerships and the partnership interests in the Predecessor
Partnerships were converted into shares of Milestone's common stock, par value
$.01 per share (the "Common Stock") and Milestone's $.78 Convertible Series A
preferred stock, par value $.01 per share, $10 liquidation preference (the
"Series A Preferred Stock").
In October 1995, the Company entered into various agreements with
affiliates of Concord Assets Group, Inc. ("Concord") pursuant to which the
Company acquired (the "Acquisition"), for approximately $700,000 in cash and
2,545,000 shares of Common Stock, certain of the Fee Properties and certain of
the Wrap Debt and certain other wraparound notes and wraparound mortgages.
Certain positions in the wraparound notes and wraparound mortgages (together,
the "Realized Wrap Debt") and interests in real property which were acquired in
the Acquisition have been realized since the Acquisition. Certain directors and
executive officers of Concord are also directors and executive officers of
Milestone and, at December 31, 1997, Concord beneficially owned approximately
69% of the Common Stock of the Company.
In October 1995, the Company also completed the transfer (the
"Transfer") of 16 of its retail properties (the "UPI Properties") to its then
wholly-owned subsidiary, Union Property Investors, Inc. ("UPI"). UPI was
recapitalized and spun-off in November 1995 when Milestone distributed all of
the outstanding shares of common stock of UPI to Milestone's Common Stockholders
(the "Distribution"). On February 27, 1997, UPI was merged (the "UPI Merger")
into a wholly-owned subsidiary of Kranzco Realty Trust, a Maryland real estate
investment trust ("Kranzco"). In connection with the UPI Merger, UPI terminated
its property management and management services agreements with the Company.
During 1997, the Company sold its remaining ownership of certain
issues of mortgage loan securitizations which were backed by mortgage loans on
commercial and multi-family dwellings. See Acquisition and Disposition of Real
Estate Related Assets.
Effective as of November 12, 1997 and December 17, 1997, the Company
entered into contracts in connection with contemplated purchases of certain
strip malls in the Jacksonville, Florida area. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Recent Developments.
Effective as of December 24, 1997, the Company entered into an
agreement with Societe Generale Securities Corporation ("SGSC") pursuant to
which the Company retained SGSC to act as a financial advisor to the Company and
two of its affiliates (the "Affiliates") in connection with any transaction
involving (i) a proposed sale of certain shopping center properties owned by the
Affiliates on which the Company owns wraparound mortgages and (ii) certain of
the Company's Fee Properties, which together could represent a substantial
portion of the Company's real estate interests.
Effective as of March 6, 1998, the Company entered into an agreement,
subject to certain conditions, in connection with a contemplated sale of its
Mountain View Mall property located in Bend, Oregon. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Recent Developments.
2
<PAGE>
The Wrap Debt
Certain material terms generally appearing in the Wrap Debt are
described below. Since the provisions of the Wrap Debt are complex and extensive
and provisions vary among the Wraparound Notes and Wraparound Mortgages, no
attempt has been made to describe in detail or to summarize all provisions of
the Wrap Debt.
Certain of the Wrap Debt and the Realized Wrap Debt were issued by
certain limited partnerships sponsored by Concord (the "Partnerships") to
affiliates of Concord which were formed for the purpose of (i) acquiring the
Underlying Properties and other commercial real properties which secured the
Realized Wrap Debt, (ii) selling such properties to the Partnerships for cash
and issuing certain of the Wrap Debt and the Realized Wrap Debt and (iii)
leasing the Underlying Properties and other commercial real properties which
secured the Realized Wrap Debt back from the Partnerships pursuant to Master
Leases (the "Master Leases"). Certain directors and officers of the Company are
also directors, officers and controlling stockholders of the General Partner of
each of the Partnerships. In October 1995, the Company acquired certain of the
Wrap Debt and became the lessee under the Master Leases in connection with the
Acquisition.
As the holder of the Wrap Debt, the Company is required to satisfy the
obligations under notes and mortgages held by lenders (typically banks or other
commercial lenders) on each Underlying Property with a priority senior to that
of the Company, including, without limitation, debt owed under any purchase
money notes issued by the Partnerships which own the Underlying Property to the
prior owner of such property in connection with the acquisition of such
Underlying Property (all such senior indebtedness being referred to herein
collectively as the "Underlying Debt"). See Table 1 in Item 2. Description of
Property. The Partnerships are obligated to the Company for the Wrap Debt which
wraps around and includes the obligation to pay the Underlying Debt, and is
secured by a mortgage on the Underlying Property. The Wrap Debt is in a second
priority position behind the Underlying Debt and, in some instances, may be in a
third priority position overall, behind a bank or commercial lender and a seller
or other second priority lender.
The Wraparound Notes
The Company is the holder of 40 Wraparound Notes relating to the
Underlying Properties. The maturity dates of the Wraparound Notes range from
1998 to 2017 . Each of the Wraparound Notes is a non-recourse obligation of the
issuing Partnership and includes the obligation to satisfy the Underlying Debt
for the corresponding Underlying Property. The Underlying Debt associated with
an Underlying Property in some instances consists of multiple notes and
mortgages which may have different priorities in relation to one another but all
of which are superior in right to the Wraparound Note and the Wraparound
Mortgage relating to an Underlying Property. A Wraparound Note may be prepaid by
the Partnership issuing such note by (i) the payment of the excess of (a) the
outstanding balance of a Wraparound Note, including accrued interest and any
discount element over (b) the then aggregate outstanding balance, including
accrued interest, of the Underlying Debt associated with the particular
Underlying Property, and (ii) the assumption of the borrower's obligations
pursuant to the Underlying Debt associated with the particular Underlying
Property. The wraparound mortgagor's (i.e., the Partnership owning the
Underlying Property) source of debt service payments on the Wraparound Note is
the rent it receives as lessor under the Master Leases. Additionally, any
percentage rent payable to the Partnership pursuant to the Master Leases will be
paid to the Company as the holder of the Wraparound Note as prepayment under the
Wraparound Note.
3
<PAGE>
A description of the current balances, interest rates, annual debt
service, maturity dates and amounts of any balloon payments with respect to the
Wraparound Notes is set forth in Table 2 in Item 2. Description of Property.
The Wraparound Mortgages
The Company is the holder of 40 Wraparound Mortgages relating to the
Underlying Properties. The Wraparound Mortgages provide that, on a non-recourse
basis, the Company, as the wraparound mortgagee, will pay, or cause to be paid,
all payments required by the Underlying Debt so long as the wraparound mortgagor
(i.e., the Partnership that owns the related Underlying Property) makes all
payments under the Wraparound Notes. If the Company fails to make any payment
required to be made by it within 30 days after the due date of such payment, the
wraparound mortgagor may make such payment and deduct the amount of such payment
from the next succeeding payments required to be made under the Wraparound Note.
The Partnerships, as wraparound mortgagors, are obligated under the terms of the
Wraparound Mortgages not to perform any act which would constitute a breach of
the mortgage(s) securing the applicable Underlying Debt.
The Wraparound Mortgages provide that the wraparound mortgagor (i.e.,
the Partnership that owns the Underlying Property) will maintain all buildings,
equipment and other improvements on the related Underlying Property. In the
event that the buildings and any other improvements are damaged or destroyed, in
whole or in part, or in the event of a taking of a portion of the premises under
the power of eminent domain, the wraparound mortgagor is required to restore the
same as nearly as possible to the condition they were in immediately prior to
the casualty or taking. Insurance proceeds and condemnation awards will be made
available, subject to the wraparound mortgagee's control, and subject to the
rights of the holders of the underlying mortgages, to the extent necessary to
comply with the foregoing. The wraparound mortgagee is required to maintain
property, casualty and public liability insurance on the Underlying Property and
cannot remove improvements or fixtures or structurally alter any building.
Pursuant to the terms of the Wraparound Mortgages, the outstanding
balance of each corresponding Wraparound Note becomes due and payable upon the
occurrence of certain specified events, subject to grace periods and cure
rights, including, without limitation, (i) the failure of the wraparound
mortgagor to make any payment or perform any covenant required under the related
Wraparound Mortgage, (ii) the commencement of any action or proceeding to
foreclose any lien senior to the lien created by such Wraparound Mortgage and
(iii) the Partnerships, as wraparound mortgagor, becoming the debtor in a
bankruptcy or insolvency proceeding. In addition, after any default by the
wraparound mortgagor under a Wraparound Mortgage, the Company, as the wraparound
mortgagee, may exercise certain rights of the wraparound mortgagor with respect
to the management of the related Underlying Property.
The Company, as the wraparound mortgagee, has the right to refinance,
restructure, alter, increase, renew or rearrange the Underlying Debt subject to
certain terms and conditions, including, without limitation, that (i) the
refinanced portion of the Underlying Debt cannot increase the obligations of the
wraparound mortgagor, except in certain limited circumstances, (ii) the rents
payable on the Underlying Properties pursuant to the operating leases (the
"Operating Leases") on the related Underlying Properties should reasonably be
expected to satisfy the debt service obligations on the refinanced portion of
the Underlying Debt and (iii) the wraparound mortgagor is to cooperate in the
execution of documents necessary to effectuate the refinancing, so long as it is
not required to become obligated thereon.
See Item 3. Legal Proceedings, for a description of a motion which has
been filed to enforce a settlement agreement relating to the Underlying
Properties and the Wrap Debt.
4
<PAGE>
The Master Leases
Certain material terms generally appearing in the Master Leases are
described below. Since the provisions of the Master Leases are complex and
extensive, and provisions vary among the Master Leases, no attempt has been made
to describe in detail or to summarize all provisions of the Master Leases.
The Company is the Master Lessee under individual leases of each of
the Underlying Properties. As master lessee, the Company leases an entire
Underlying Property (i.e., a shopping center or single tenant commercial
property) from the owner and re-leases it under operating leases to the
tenant(s) who occupy such property.
The Master Leases were initially entered into by affiliates of
Concord, as tenants, and limited partnerships sponsored by Concord, as
landlords, and are coterminous with the Wraparound Notes and Wraparound
Mortgages. The rent payable by the lessee under each Master Lease for an
Underlying Property is approximately the same amount as the debt service due
under each Wraparound Note for such Underlying Property. The Company is both the
holder of each Wrap Debt and the lessee under the Master Leases relating to the
Underlying Properties. Prior to the Acquisition, certain of Concord's affiliates
and the lessor under the Master Leases (i.e., the Partnership that owns the
related Underlying Property) amended the Master Leases pursuant to which, among
other things, the rent payable under the Master Leases was reduced by the amount
of the fees, if any, payable by the lessor to the general partner of the lessor.
The Partnerships consented to and ratified such lease amendments. As the Master
Lessee and the wraparound mortgagee, the Company collects the rents under the
Operating Leases and applies such amounts to the operating expenses of the
Underlying Property and the Underlying Debt. The obligations of the lessee under
the Master Leases are guaranteed by Concord. Such guaranty was not affected by
the transfer and assignment of the lessee interest in the Master Leases to the
Company pursuant to the Acquisition and the Company is not obligated to
indemnify Concord with respect to such guaranty. The Master Leases are subject
and subordinate to the Underlying Debt.
As between the Company, as lessor, and the operating tenants, as
lessees, the tenants are generally responsible for payment of rents to the
Company and for all or a portion of their pro rata share of operating expenses
and, in some instances, for the maintenance and repair of the property.
Pursuant to the Master Leases, the Company, as lessee, (i) pays a
fixed base rent to the applicable Partnership, as lessor, (ii) is entitled to
receive the revenues payable under the Operating Leases and (iii) is responsible
for operating the Underlying Property. The Company is also obligated to pay
percentage rent to the lessor equal to certain percentages of net operating
income in excess of certain threshold amounts which are subject to adjustment.
The Partnership, as lessor under the Master Lease, is responsible for
the maintenance, repair and replacement of the physical property when necessary.
The Company, as lessee, can cause the lessor, subject to certain limitations, to
borrow additional Wrap Debt to finance improvements to the related property.
Pursuant to each of the Master Leases, the Company, as lessee, is
responsible for compliance with all applicable laws and regulations and is
required to keep the property insured at certain minimum levels for certain
specified losses. The Company's management believes that the Properties are
adequately insured. The Master Leases also have termination and assignment
provisions.
5
<PAGE>
As of April 30, 1996, the Company terminated, by written notice, the
Master Lease (the "Chili Lease") on the Property located in Chili, New York
(the "Chili Property"). As a result of the termination of the Chili Lease, the
Company, the tenant under such lease, assigned all of its rights, title and
interest in the Chili Property to Valley Plaza Associates ("VPA"), the landlord
under the Chili Lease, and VPA assumed all of the Company's related obligations
under the Chili Lease. Neither VPA nor the Company have made the full required
payment on the underlying mortgage loan for the Chili Property since May 1,
1996, however VPA has made certain partial payments thereon which have been
credited against the Wraparound Note associated with the Chili Property. On
February 9, 1998 the Wraparound Note was assigned, resulting in the relief of
the non-recourse underlying mortgage.
The amount of annual rents due with respect to each of the Master
Leases and the termination dates thereof are set forth in Table 2 in Item 2.
Description of Property.
Acquisition and Disposition of Real Estate Related Assets
In July 1996, the Underlying Debt of $2,325,000 associated with the
Property located in Prattville, Alabama (the "Prattville Property") came due,
and the mortgagor extended the balance due to December 1996. Although the
Underlying Debt associated with the Prattville Property had not been paid off,
regular monthly debt payments had been made by the Company through February
1997. On March 3, 1997, the mortgagor stated its intention to commence
foreclosure proceedings. During 1997, as a result of the foreclosure sale by the
bank, the Company realized its position in its wraparound note on the Prattville
Property. Such sale resulted in the relief of the non-recourse underlying
mortgage, which resulted in a book gain of approximately $120,000 to the
Company. In conjunction with the foreclosure sale, the Company, as the lessor on
the Master Lease on the Prattville Property, canceled such Master Lease.
On September 24, 1997, the Company completed the purchase of Pine Oak
Plaza, a 16,994 square foot shopping center located in Sunrise, Florida (Broward
County), from REC I Corporation for approximately $1,100,000 in cash. The
shopping center is occupied by local tenants subject to operating leases ranging
from 4 to 13 years with various renewal options and is currently 93.5% occupied.
This property can be classified as a neighborhood or community unanchored strip
center and is located in a secondary type market.
On October 30, 1997, the Company realized its position in its
wraparound note on a property located in Marion, Ohio (the "Marion Property") as
a result of the sale of the property by the owners. The sale price of the Marion
Property was approximately $2,750,000, which resulted in a book gain of
approximately $200,000 to the Company. In conjunction with the sale of the
Marion Property, the Company, as the lessor on the Master Lease on the Marion
Property, canceled such Master Lease.
From August 1994 to November 1997, the Company bought and subsequently
sold various issues of mortgage loan securitizations which were backed by
mortgage loans on commercial and multi-family dwellings ("CMBSs"). To facilitate
the purchase of such CMBSs, short term borrowing arrangements ("Loans Payable")
were entered into with the brokers from which CMBSs were purchased. The Company
engaged in a variety of interest rate management techniques in order to attempt
to manage the effective maturity and/or interest rate risks associated with the
CMBSs. Such techniques included selling short U.S. Treasury Notes which were
collateralized by reverse repurchase agreements.
The Company had $32,314,853 and $37,594,939 of CMBSs as of December
31, 1996 and 1995, respectively; and $23,829,335 and $27,450,954 of associated
Loans Payable as of December 31, 1996 and 1995, respectively. Additionally, the
Company had $33,952,346 and $32,823,439 of U.S.
6
<PAGE>
Treasury Notes sold short as of December 31, 1996 and 1995, respectively; and
$34,718,749 and $33,119,375 of associated reverse repurchase agreements as of
December 31, 1996 and 1995.
On January 23, 1997, the Company sold its ownership of the CMBS
consisting of the Nomura Series 1994-MD1 B3A (the "MD1 Certificate") and repaid
the associated Loan Payable. At the time of the sale of the MD1 Certificate, the
Company had outstanding U.S. Treasury Note short positions totaling $10,000,000
associated with the MD1 Certificate. In connection with the sale of the MD1
Certificate, the Company closed $9,500,000 of U.S. Treasury Note short
positions. As a result of the sale, the Company realized a book loss of
approximately $1,100,000. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources.
On November 10, 1997, the Company sold its remaining ownership of the
CMBSs consisting of a Nomura Series 1996-MDV B2 certificate (the "MDV
Certificate"), a DLJ 1994-MF11 B2 certificate (the "B2 Certificate"), and a DLJ
1994-MF11 B3 certificate (the "B3 Certificate") ( the MDV Certificate, the B2
Certificate and the B3 Certificate may be referred to collectively herein as the
"Certificates") and repaid the associated Loans Payable. At the time of the sale
of the Certificates, the Company had outstanding U.S. Treasury Note short
positions totaling $25,500,000 associated with the Certificates. In connection
with the sale of the Certificates, the Company closed all such remaining U.S.
Treasury Note short positions. As a result of the sale, the Company realized a
book gain of approximately $3,500,000. See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and Capital
Resources.
From time to time the Company sells, or may take actions to sell,
certain real estate assets which it does not believe to be material to the
overall business or financial position of the Company.
Investment Policy
There are no limitations on the percentage of assets which may be
invested in any one investment or on the type of investments the Company may
make. The Company has no present intention of investing in or acquiring the
securities of other companies for the purpose of exercising control over other
companies. The Company does not currently intend to expand its operations to
include non-real estate related activities, but may do so if the Company's Board
of Directors determines it to be in the best interest of the Company. The
Company's policies towards its investments are not subject to the vote of the
Company's stockholders.
Currently, the Company is not required to register as an investment
company under the Investment Company Act of 1940 (the "Investment Company Act").
The Company intends to operate its businesses so that it will not be deemed to
be an investment company under Section 3(a)(3) of the Investment Company Act or
would qualify for an exemption from registration under the Investment Company
Act (e.g. Rule 3a-1 or the real estate interest exemption under Section
3(c)(5)(C)).
Real Estate Revenues
For the years ended December 31, 1997, 1996 and 1995, no tenant
accounted for more than 10% of the Company's total revenues. However, K-Mart
Corporation accounted for approximately 32%, 30% and 40 %, respectively, of rent
revenue.
7
<PAGE>
Potential Environmental Risks
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may be
held liable for the costs of removal or remediation of certain hazardous or
toxic substances, including, without limitations, asbestos-containing materials,
that could be located on, in or under such property. Such laws and regulations
often impose liability whether or not the owner or operator know of, or was
responsible for, the presence of the hazardous or toxic substances. The costs of
any required remediation or removal of these substances could be substantial and
the liability of an owner or operator as to any property is generally not
limited under such laws and regulations, and could exceed the property's value
and the aggregate assets of the owner or operator. The presence of these
substances or failure to remediate such substances properly may also adversely
affect the owner's ability to sell or rent the property, or to borrow using the
property as collateral. Under these laws and regulations, an owner, operator or
any entity who arranges for the disposal of hazardous or toxic substances, such
as asbestos-containing materials, at a disposal site may also be liable for
these costs, as well as certain other costs, including governmental fines and
injuries to persons or properties. To date, the Company has not incurred any
costs of removal or remediation of such hazardous or toxic substances. However,
the presence, with or without the Company's knowledge, of hazardous or toxic
substances at any property held or operated by the Company could have an adverse
effect on the Company's business, operating results and financial condition. The
Company is not aware of any environmental conditions.
Competition
Any rental property owned or hereafter acquired by the Company
(whether retail, office, industrial or residential) will have substantial
competition from similar properties in the vicinity in which such property is
located. Such competition is generally for the retention of existing tenants and
for new tenants upon space becoming vacant. The Company believes that the
profitability of each of the Properties is based, in part, upon its geographic
location, the operations and identity of the property's tenants, the performance
of the property and leasing managers, the maintenance and appearance of the
property, the ease of access to the property and the adequacy of property
related facilities. The Company also believes that general economic
circumstances and trends as well as the character and quality of new and
existing properties which may be located in the vicinity of the Properties are
factors that may affect the operation and competitiveness of the property.
The Company competes with other investors, managers and developers to
acquire desirable properties and engages in a continuing effort to identify
desirable properties for acquisition. Management believes that the Company can
continue to compete effectively in the current real estate environment because
of its experience in real estate investments, tenant selection and lease
negotiation. However, many other investors in real property who compete with the
Company have far greater resources than the Company.
Employees
The Company employs 38 people, 5 of whom are officers. Pursuant to a
management and service agreement, the Company has made available to Concord
certain of its employees to perform a variety of management and administrative
services for Concord. Except for services provided by certain employees pursuant
to such agreements, all of the employees are employed full-time by the Company.
8
<PAGE>
Forward-Looking Statements
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Such forward-looking statements include
statements regarding the intent, belief or current expectations of the Company
and its management and involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the following: general economic and
business conditions, which will, among other things, affect the demand for
retail space or retail goods, availability and creditworthiness of prospective
tenants, lease rents and the terms and availability of financing; adverse
changes in the real estate markets including, among other things, competition
with other companies; risks of real estate development and acquisition;
governmental actions and initiatives; and environment/safety requirements.
9
<PAGE>
Item 2. Description of Property.
The Company's executive offices are located at 150 E. Palmetto Park
Road, 4th Floor, Boca Raton, Florida, 33432 where it leases approximately 8,000
square feet of office space.
The company is engaged in the ownership and operation of 32 commercial
real estate properties consisting of shopping centers, strip malls and free
standing department stores. The following tables describe and summarize certain
data for each of the properties. See also Item 1. Business, for a description of
additional terms relating to the Properties and the Company's investment
policies.
Table 1. Summary of Properties and Underlying Debt.
Table 2. Summary of Wraparound Notes.
10
<PAGE>
Table 1. Summary of Properties and Underlying Debt
<TABLE>
<CAPTION>
Amortization
Provisions - Balance at
Underlying Monthly Payments Maturity
GLA Occupancy Debt at Interest of Principal & Prepayment Maturity (Assuming no
Location Property (Sq.Ft.) Rate(%) 12/31/97 Rate(%) Interest Provisions Date Prepayment)
- -------- -------- -------- -------- ---------- -------- ---------------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(1)Bend, OR Mountain View 346,923 95 $17,179,016 9.00 148,925 - 67% of Yield maintenance 6/1/98 $17,077,113
Mall cash flow as plus participation
defined in per formula
the note
(2)Deland, FL Deland Plaza 68,337 100 932,726 8.875 14,016 1% premium 4/1/03 343,437
(2)Rochester,
NY Ridgemont Plaza 84,181 100 1,156,461 9.25 15,992 1% premium 1/1/02 747,266
Pascagoula,
MS Gulf Coast Plaza 125,803 79 0 - - - - 0
Janesville,
WI Blackhawk Village 88,500 86 990,092 9.00 14,060 - 7/31/02 540,492
118,196 9.00 1,529 - 8/1/07 0
(2)Marietta, OH Kmart Corporation 87,543 100 2,040,000 5.75- Variable semi None until 2002; 3/15/07 0
6.70 annual payments then 3% declining
1% annually to par
(2)Mt. Pleasant,
PA Kmart Corporation 83,552 100 1,365,000 6.50- Variable semi None until 2001; 5/1/07 76,197
6.80 annual payments then 3% declining
1% annually to par
(2)North Canton,
OH Kmart Corporation 84,180 100 2,116,132 9.00 21,669 Prepayable at a 9/30/12 0
discount
(2)Owensboro, KY Kmart Corporation 68,337 100 1,600,000 6.50- Variable semi None until 2001; 12/1/07 0
6.80 annual payments then 3% declining
1% annually to par
Quincy, IL Harrison Street 149,954 99 3,042,405 7.75 27,912 Prepayable at par 7/1/98 2,992,016
Plaza
Natchez, MS Morgantown Plaza 92,646 100 1,833,519 12.50 Available cash 6% declining 1% 4/1/07 1,076,197
flow annually to par
(2)Streetsboro,
OH Kmart Corporation 84,800 100 1,385,000 6.35- Variable semi None until 2001; 12/1/06 0
6.70 annual payments then 3% declining
1% annually to par
(2)Dubois, PA Sandy Plaza 34,019 100 1,490,000 7.00 Variable semi None until 2004; 12/1/06 0
annual payments then 3% declining
1% annually
(2)Franklin
Township, PA Franklin Plaza 31,170 100 1,465,000 6.00 Variable semi None until 2004; 12/15/07 0
annual payments then 3% declining
1% annually
(2)Clarksville,
TN Kmart Corporation 88,100 100 1,565,000 6.00- Variable semi None until 2002; 10/1/06 0
6.80 annual payments then 3% declining
0.5% annually to
par
Montgomery,
AL Chisolm Shopping 39,075 100 1,277,608 8.75 14,500 None until 1998; 4/1/07 396,073
Center then 5% declining
1% annually to a
2% minimum
Paris, TN Paris Plaza 102,453 98 590,753 13.50 8,859 None until 1998; 4/1/08 0
then 4% declining
1% annually to par
355,949 9.25 8,467 7% declining 7/1/03 0
1% annually until
par
(3)Chili, NY Chili Plaza - - 1,477,009 9.63 21,688 1% premium 8/1/04 0
<PAGE>
South
Williamson,
KY Southside Mall 285,655 97 15,088,951 9.00 144,833 - 10/1/98 14,463,542
Savannah, TN Savannah Plaza 46,400 100 323,794 9.50 6,612 - 1/31/03 0
Danville, IL Holiday Square 50,978 100 475,636 9.625 9,663 1% premium 9/1/02 64,250
(2)Warsaw, VA Richmond Plaza 43,200 100 817,913 13.125 11,373 5% declining 10/1/09 0
1% annually to a
2% minimum
(2)Southwick, MA Greenwood Plaza 45,000 100 793,343 11.50 9,857 1% premium 9/1/09 0
in advance
(2)Walpole, NH Kendiana Plaza 32,400 100 793,343 11.50 9,857 1% premium 9/1/09 0
in advance
Baton Rouge,
LA Capitol Heights 52,700 100 2,066,293 12.00 33,583 5% declining 12/1/05 0
1% annually to
a 2% minimum
(1)Sunrise, FL Pine Oak Plaza 16,994 94 0 - - - - 0
(2)Palatka, FL Walmart 91,840 100 1,196,901 12.00 17,247 5% declining 11/1/07 0
Corporation 1% annually to
a 2% minimum
(2)Vestiva
Hills, AL Columbiana 35,946 100 745,292 13.00 13,759 5% declining 1% 11/1/04 0
Crossing annually to
a 2% minimum
(2)Columbus, NE Cottonwood 64,890 100 1,360,287 12.00 17,201 - 9/1/10 9,274
Plaza 63,918 9.50 697 - 7/1/11 0
(2)Hamilton, NY Alexander 43,200 100 822,687 13.125 11,373 5% declining 12/1/09 0
Plaza 1% annually to
a 2% minimum
(1)Zanesville, Sunrise
OH Shopping 130,072 55 1,199,650 9.50 14,295 - 5/31/98 1,170,645
Center
(1)Blackstone, Family
VA Dollar 43,200 21 0 - - - - 0
</TABLE>
(1) Fee Property
(2) Annual real estate taxes are the responsibility of the tenant.
(3) Property was under receivership at December 31, 1997. On February 9, 1998
the Wraparound Note was assigned resulting in the relief of the non-recourse
underlying mortgage.
11
<PAGE>
Table 2. Summary of Wraparound Notes at December 31, 1997
<TABLE>
<CAPTION>
Face Annual Balance at
Interest Carrying Amount Amount of Payments Final Maturity Annual
Rate of Wraparound Wraparound of Principal Maturity (Assuming No Master lease Master lease
Location (%) Notes Notes & Interest Date Prepayment) Payment Termination
- -------------------- --------- --------------- ------------- ----------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Baton Rouge, LA 9.75 $ 4,006,610 $4,469,548 $ 630,350 12/31/99 $3,890,656 $630,350 12/31/99
Chili, NY 10.00 1,477,009 4,883,737 674,340 12/31/99 3,152,116 674,340 12/31/99
Clarksville, TN 9.75 1,754,804 3,759,873 554,822 12/31/99 2,969,232 554,822 12/31/99
Columbus, NE 9.75 2,172,024 2,436,955 309,207 12/31/99 2,235,677 309,207 12/31/99
Danville, IL 9.75 886,939 1,851,308 275,730 12/31/99 1,564,040 275,730 12/31/99
Deland, FL 9.70 1,411,835 1,929,531 207,550 12/31/99 1,890,294 207,550 12/31/99
Dubois, PA 10.00 1,484,336 3,057,647 475,498 12/31/99 1,995,528 475,498 12/31/99
Ellwood City
(Franklin
Township), PA 10.00 1,484,336 3,057,647 475,498 12/31/99 1,995,528 475,498 12/31/99
Hamilton, NY 9.75 1,089,447 1,493,689 210,745 12/31/99 1,229,940 210,745 12/31/99
Janesville, WI 10.25 1,434,849 2,173,824 268,502 12/31/15 0 268,502 12/31/15
Marietta, OH 8.32 2,958,338 3,165,088 371,533 12/31/14 0 371,533 12/31/14
11.00 20,000 25,148 0 12/31/14 160,313 - -
Montgomery, AL 9.75 940,941 2,251,243 295,516 12/31/99 2,032,563 295,516 12/31/99
Mt. Pleasant, PA 9.18 2,334,042 2,545,423 290,345 12/31/15 0 290,345 12/31/15
11.00 12,626 12,976 0 12/31/14 83,481 - -
Natchez, MS 10.00 1,574,516 3,825,382 516,210 12/31/98 3,097,131 516,210 12/31/98
No. Canton, OH 9.11 2,207,236 2,873,770 333,272 12/31/14 0 333,272 12/31/14
11.00 26,575 33,958 0 12/31/14 216,478 - -
11.00 25,650 29,026 0 12/01/14 186,725 - -
Owensboro, KY 10.00 2,784,791 2,787,357 337,955 12/31/15 0 337,955 12/31/15
Palatka, FL 9.75 1,765,532 2,446,691 407,745 12/31/99 1,921,922 407,745 12/31/99
11.00 24,650 24,816 0 12/31/99 30,891 - -
Paris, TN 10.00 1,551,337 3,364,006 555,860 12/31/99 2,687,003 555,860 12/31/99
11.00 51,016 65,515 0 12/31/99 80,814 - -
Southwick, MA 9.75 868,168 1,420,480 196,750 12/31/99 1,248,385 196,750 12/31/99
So. Williamson, KY 9.88 13,674,922 24,521,288 4,181,000 12/31/99 19,052,522 4,181,000 12/31/99
Streetsboro, OH 9.68 1,793,315 2,298,679 276,986 12/31/14 0 276,986 12/31/14
11.00 21,447 27,640 0 12/31/14 176,200 - -
11.00 19,600 22,180 0 12/01/14 142,686 - -
11.00 10,000 10,169 0 12/31/14 65,418 - -
Vestivia Hills, AL 9.75 1,360,003 1,800,257 257,306 12/31/99 1,555,772 257,306 12/31/99
Walpole, NH 9.75 1,006,457 1,420,480 196,750 12/31/99 1,248,385 196,750 12/31/99
Pascagoula, MS 9.75 1,225,566 2,070,634 246,507 12/31/17 0 270,266 12/31/17
12.00 175,125 187,335 23,759 12/31/17 187,335 - -
11.00 34,658 35,620 0 12/31/16 285,255 - -
Quincy, IL 10.00 2,545,600 6,293,133 920,890 12/31/98 4,904,390 920,890 12/31/98
<PAGE>
Rochester (Greece),
NY 9.70 1,507,843 1,788,998 220,906 12/31/14 0 220,906 12/31/14
10.00 130,625 166,167 0 12/31/14 910,735 - -
Savannah, TN 9.88 500,590 1,228,035 197,500 12/31/99 993,633 197,500 12/31/99
Warsaw, VA 9.75 1,049,573 1,406,491 175,974 12/31/99 1,547,507 175,974 12/31/99
</TABLE>
12
<PAGE>
Item 3. Legal Proceedings.
A lawsuit (the "Rabin Litigation") purporting to be a class action
against, among others, Concord, Leonard S. Mandor, Robert A. Mandor and certain
partnerships (the "Concord Partnerships") and affiliates of Concord, was filed
in September 1989 in the United States District Court for the Southern District
of New York alleging various federal and common law claims relating to the sales
of interests in such Concord Partnerships. In November 1991, the Rabin
Litigation was settled pursuant to the terms of the court-approved settlement
agreement (the "Rabin Settlement Agreement"). A motion brought by the plaintiffs
in the Rabin Litigation seeking to enforce the Rabin Settlement Agreement and
for declaratory and other relief was settled by a Stipulation and Order (the
"Rabin Stipulation and Order") entered and approved by the United States
District Court on October 24, 1997. The plaintiffs asserted, inter alia, that
the defendants breached the Rabin Settlement Agreement by improperly allocating
transaction expenses against the payment to be made to the selling Concord
Partnerships in certain circumstances pursuant to the Rabin Settlement Agreement
and breached their fiduciary duties to the plaintiffs by prematurely selling
properties without valid business justification.
Under the Rabin Stipulation and Order, the plaintiffs withdrew their
breach of fiduciary duty claims and withdrew with prejudice their claim that
defendants breached the Rabin Settlement Agreement by their allocation of
transaction expenses from the sale of certain properties in exchange for a
payment of $600,000 from the defendants. The settlement payment has been made.
In addition, the Rabin Stipulation and Order provides for a formula relating to
the allocation of transaction expenses in connection with the future sale of
certain properties owned by the Concord Partnerships, including the Underlying
Properties subject to the Wrap Debt. Generally, under such formula, if a
Property (as defined in the Rabin Settlement Agreement) is sold for a price less
than the sum of (a) the outstanding Wrap Debt, (b) the Permitted Additional Wrap
Debt (as defined in the Rabin Settlement Agreement) and (c) the amount to be
paid to the holder of the Wrap Debt pursuant to the Rabin Settlement Agreement,
then 82.25% of the transaction expenses shall be the obligation of the selling
Concord Partnership, and shall be deducted from the 11% of net proceeds (as
defined in the Rabin Settlement Agreement) to be distributed to the selling
Concord Partnership, and the Company, as the holder of the Wrap Debt, will be
responsible for paying the remaining 17.75% of the transaction expenses incurred
in such sale. In the event a Property is sold for a price in excess of the sum
of (a) the outstanding Wrap Debt, (b) the Permitted Additional Wrap Debt and (c)
the amount to be paid to the holder of the Wrap Debt pursuant to the Rabin
Settlement Agreement, then the transaction expenses shall be deducted from the
proceeds in excess of such existing debt, and, if such excess proceeds are not
sufficient to pay all such transaction expenses, 82.25% of the balance of such
transaction expenses shall be paid out of the 11% of the net proceeds
distributed to the selling Concord Partnership, and the Company will be
responsible for paying the remaining 17.75% of the transaction expenses incurred
in such sale. Concord and one of its subsidiaries have agreed to indemnify the
Company for any losses, up to $200,000 in the aggregate, resulting from any such
additional transaction fees, costs or expenses incurred by the Company as a
result of such events. The Company does not believe that the Rabin Stipulation
and Order materially adversely affects the Company. There can be no assurance,
however, that the plaintiffs will not pursue the breach of fiduciary duty claims
against Concord and the General Partners of the Concord Partnerships which own
the Underlying Properties which were withdrawn under the terms of the Rabin
Stipulation and Order.
On January 30, 1996, Milestone, its Board of Directors and Concord
were named as defendants in an action (the "Winston Action") commenced in the
Court of Chancery of the State of Delaware (the "Delaware Court"). In the
action, the plaintiff, a Series A Preferred Stockholder purporting to bring the
action on behalf of himself and other Series A Preferred Stockholders, alleged
that in connection with the Acquisition, the Transfer and the Distribution (the
Acquisition, the Transfer and the Distribution are collectively referred to
herein as the "Transactions"), Milestone and its directors engaged in
self-dealing and breached their fiduciary duties and faith and fair dealing to
the Series A Preferred Stockholders. The plaintiff claimed, among other things,
that, as a result of the Transactions, Milestone would not have sufficient funds
to pay dividends on the Series A Preferred Stock
13
<PAGE>
and that the Properties were grossly inferior to the UPI Properties. The
defendants moved to dismiss the plaintiff's original complaint, and thereafter,
the plaintiff amended his complaint to allege further causes of action,
including a claim of rescission. The defendants moved to dismiss the amended
complaint and, after hearing arguments thereon, the Delaware Court dismissed the
plaintiff's claim for rescission of both the Transfer and the Distribution and
reserved decision on the defendants' motion to dismiss the plaintiff's claim for
damages and other relief. On December 9, 1996, the plaintiff requested that the
Delaware Court dismiss the amended complaint, and filed a purported new class
action. On January 14, 1997, the defendants filed a motion to dismiss or stay
the purported new class action. On May 12, 1997, the Delaware Court issued a
decision on such motion and dismissed the plaintiff's breach of fiduciary duty
and statutory claims (although the Delaware Court had allowed the plaintiff to
replead the fiduciary duty claim as a derivative claim brought on behalf of
Milestone), but did not dismiss the plaintiff's claim that the Transfer and the
Distribution did not comply with the Certificate of Designations for the Series
A Preferred Stock. On June 4, 1997, the plaintiff appealed the Delaware Court's
dismissal of the fiduciary duty claim and, on June 11, 1997, the defendants
filed a cross-appeal. The plaintiff thereafter filed an amended complaint.
On October 30, 1997, Milestone entered into a Stipulation of
Settlement (the "Winston Settlement Agreement") providing for the settlement
(the "Winston Settlement") of the purported class action lawsuit. The Winston
Settlement is subject to approval by the Delaware Court after a hearing, and is
also subject to a number of conditions which may be waived at the option of the
Company and the other defendants, including the condition that stockholders
owning more than 10% of the Series A Preferred Stock do not opt out of the
Winston Settlement.
If the Winston Settlement is approved and consummated, the Winston
Action will be dismissed, Milestone's stockholders will release all derivative
claims arising in connection with the Transactions and the holders of the Series
A Preferred Stock between October 23, 1995 and the date on which the Winston
Settlement is consummated will release any claims they may have against
Milestone and the other named defendants arising out of the Transactions. Each
Series A Preferred Stockholder who does not opt out of the Winston Settlement
and who owns shares of the Series A Preferred Stock on the date the Winston
Settlement is consummated will received $0.75 per share in cash from the Company
and one share of preferred stock of Concord Milestone Preferred, Inc., a
Delaware corporation affiliated with Concord ("CMP") ( the "CMP" Preferred
Stock), in exchange for each share of Series A Preferred Stock surrendered. The
CMP Preferred Stock will have a liquidation preference of $2.25 per share, will
be required to be redeemed by CMP at $2.25 per share after five years, and will
have no voting or dividend rights; in addition, the CMP Preferred Stock will be
subject to optional redemption in accordance with a schedule during the five
year period prior to mandatory redemption. CMP's redemption obligations will be
secured by a letter of credit.
The ultimate consummation of the Winston Settlement as set forth in
the Winston Settlement Agreement is subject to numerous conditions, some of
which are not in the control of the Company, such as approval by the Delaware
Court, and therefore is inherently uncertain. Accordingly, no dollar amount has
been included in the Company's accompanying financial statements to reflect the
potential Winston Settlement. If the Winston Settlement is consummated, the
Company does not anticipate that the Company's portion of such settlement costs
will exceed $3,000,000. There can be no assurance, however, that any fees,
expenses or other costs associated with the ultimate resolution of the Winston
Action will not differ from such estimate.
The foregoing description of the Winston Settlement and the Winston
Settlement Agreement is qualified in its entirety by reference to the Winston
Settlement Agreement, a copy of which was filed with the Securities and Exchange
Commission on November 12, 1997 as Exhibit 2 to Milestone's Form 8-K.
14
<PAGE>
On January 29, 1998, Milestone, along with certain of its directors,
commenced a lawsuit in the United States District Court for the Southern
District of New York against National Union Fire Insurance Company of
Pittsburgh, Pa. ("National Union") and Stonewall Surplus Lines Insurance Company
("Stonewall"). National Union had issued a directors and officers insurance and
company reimbursement policy (the "National Policy") for Milestone and its
directors with a limit of $2,000,000. Stonewall had issued an excess directors
and officers liability and company reimbursement policy (the "Stonewall Policy")
for Milestone and its directors with a limit of $2,000,000. Pursuant to the
Winston Settlement Agreement, if the Winston Settlement is consummated,
Milestone will be required to pay, in cash, $0.75 per share for each of the
outstanding 3,033,995 shares of Series A Preferred Stock, to each Series A
Preferred Stockholder who does not opt out of the Winston Settlement, plus the
plaintiff's legal fees in an amount not to exceed $650,000 and will incur other
legal expenses. Milestone believes that the amount it and certain of its
directors will be required to pay, pursuant to the Winston Settlement Agreement
and as a result of the litigation, if the Winston Settlement is consummated, are
covered losses under both the National Union Policy and the Stonewall Policy. In
addition, the Company has incurred approximately $250,000 in legal fees in
defending Milestone and its directors in connection with the Winston Action,
which it believes is a covered loss under the National Union and Stonewall
policies. National Union has refused to contribute to the Winston Settlement, as
set forth in the Winston Settlement Agreement, asserting that the Winston
Settlement does not encompass any covered loss (as defined in the National
Policy). Stonewall has also refused to contribute to the Winston Settlement. In
the complaint, the plaintiffs allege that National Union and Stonewall have
wrongfully failed to contribute to the Winston Settlement and seek reimbursement
from National Union and Stonewall up to the limits of their respective policies.
National Union has answered the complaint and has denied liability. Stonewall
has until April 6, 1998 to answer the complaint. At this time, the Company is
not in a position to render an opinion as to the outcome of this action.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1997.
15
<PAGE>
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock and the Series A Preferred Stock have traded on the
New York Stock Exchange ("NYSE") under the symbols "MPI" and "MPI PRA",
respectively, since January 29, 1991.
The quarterly high and low sales prices in 1997 and 1996 for the
Common Stock and the Series A Preferred Stock, as reported by Bloomberg, were as
follows:
Common Stock High Low
------------ ---- ---
1997
First Quarter $ 7/8 $ 9/16
Second Quarter 9/16 7/16
Third Quarter 9/16 7/16
Fourth Quarter 11/16 1/2
1996
First Quarter $ 2 1/8 $ 1 1/2
Second Quarter 1 7/8 1 1/8
Third Quarter 1 1/8 11/16
Fourth Quarter 1 1/8 5/8
Series A Preferred Stock High Low
------------------------ ---- ---
1997
First Quarter $ 7/8 $ 5/8
Second Quarter 11/16 1/2
Third Quarter 1 5/16 7/16
Fourth Quarter 1 5/16 1 3/16
1996
First Quarter $ 3 1/4 $ 2
Second Quarter 2 5/8 1 1/8
Third Quarter 1 1/4 26/32
Fourth Quarter 1 1/8 5/8
On March 20, 1998, the last reported sale price of the Common Stock
was $1 9/16 and the last reported sale price of the Series A Preferred Stock was
$1 7/16. On March 20, 1998, there were approximately 1,899 record holders of the
Common Stock and 1,651 record holders of the Series A Preferred Stock.
16
<PAGE>
Dividend Policy
Common Stock
Milestone has never paid any cash dividends on its Common Stock and
has no present intention to declare or pay cash dividends on the Common Stock in
the foreseeable future. While there are no restrictions on Milestone's ability
to pay dividends, except for the preference of the Series A Preferred Stock
(discussed below), the Company anticipates that in the future earnings will be
retained to finance the Company's operations. Any decision as to the future
payment of dividends on the Common Stock will depend on the results of
operations and the financial condition of the Company and such other factors as
Milestone's Board of Directors, in its discretion, deems relevant. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources.
Series A Preferred Stock
Milestone's Board of Directors determined not to pay any dividends on
the Series A Preferred Stock during the years ended December 31, 1996 and 1997
and for the quarter ended March 31, 1998. The last dividend declared by
Milestone was for the quarter ended December 31, 1995 and was paid on February
15, 1996 at $0.195 per share of Series A Preferred Stock.
After September 30, 1995, holders of the Series A Preferred Stock
having a liquidation preference of $10.00 per share, were no longer entitled to
receive dividends on a cumulative basis. Pursuant to the Certificate of
Designations of the Series A Preferred Stock, after such date, no cash dividend
may be paid on the Common Stock unless full dividends of $0.195 on all
outstanding shares of Series A Preferred Stock for the then current quarterly
dividend period are declared and either paid or sufficient sums for the payment
thereof are set apart. As a result of Milestone's Board of Directors'
determination not to pay a dividend for the quarter ended June 30, 1997, which
was the sixth consecutive quarter for which no dividend was paid, the number of
persons entitled to serve as directors on Milestone's Board of Directors has
been increased by one, and the holders of the Series A Preferred Stock, who
currently elect one member of the Board of Directors, are entitled to elect a
second member of the Board of Directors to fill such newly created directorship.
Any decision as to the future payment of dividends on the Series A Preferred
Stock will depend on the results of operations and the financial condition of
the Company and such other factors as Milestone's Board of Directors, in its
discretion, deems relevant. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation - Liquidity and Capital Resources.
17
<PAGE>
Item 6. Selected Financial Data
(Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $30,092 $33,722 $25,768 $19,404 $14,494
Total expenses 34,244 35,843 26,261 16,951 14,278
(Loss)income before income taxes (4,152) (2,121) (493) 2,453 216
Benefit (provision) for income taxes 721 (366) (317) (1,161) (377)
Net (loss)income (3,431) (2,487) (810) 1,292 (161)
Distributions on preferred stock 0 0 (2,732) (2,772) (2,807)
--------- --------- --------- --------- ---------
Loss attributable to common stockholders ($3,431) ($2,487) ($3,542) ($1,480) ($2,968)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Loss per common share ($0.82) ($0.65) ($2.13) ($1.28) ($2.06)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares
outstanding 4,207 3,846 1,665 1,160 1,441
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total assets $112,223 $182,095 $198,413 $137,785 $87,390
Mortgages and notes payable 67,739 71,563 79,278 47,105 43,253
</TABLE>
Milestone has never paid any cash dividends on its Common Stock and has no
present intention to declare or pay cash dividends on the Common Stock or on the
Series A Preferred Stock in the foreseeable future. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources.
For a discussion regarding new accounting standards, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations - New
Accounting Standards.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements of the Company and the notes thereto
appearing in Item 14 of this report.
General
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. See Item 1. Business - Forward Looking Statements.
The Company is engaged in the business of owning, acquiring, managing,
developing and investing in commercial real estate and real estate related
assets.
18
<PAGE>
Year 2000 Compliance
The Company has and will continue to make certain investments in its
software systems and applications to ensure that the Company is year 2000
compliant. It is anticipated that the project will be completed by internal
staff without significant contributions from outside contractors. Management
believes that the financial impact to the Company of ensuring its year 2000
compliance has not been and will not be material to the Company's financial
position or results of operations.
Recent Developments
On March 6, 1998, the Company entered into a contract in connection
with the contemplated sale of its Mountain View Mall property located in Bend,
Oregon (the "Bend Property"). Under the terms of the contract, which is in the
feasibility stage, the potential purchaser is not yet obligated to purchase the
Bend Property and the Company is not yet obligated to sell the Bend Property,
and any such obligation for the purchase or sale of such property is conditional
upon the occurrence or non-occurrence of certain events and/or determinations,
some or all of which may not be in the control of the Company. Accordingly,
there can be no assurance that the contemplated transaction will occur.
On February 9, 1998, the Company realized its position in its
wraparound note on the property located in Chili, New York, as a result of the
assignment of the wraparound note. Such assignment resulted in the relief of the
non-recourse underlying mortgage, which resulted in a net book gain of
approximately $75,000 to the Company.
The Company entered into an agreement with SGSC (the "SGSC Agreement")
on January 9, 1998, effective as of December 24, 1997, pursuant to which the
Company retained SGSC to act as a financial advisor to the Company and two of
its affiliates (the "Affiliates"), in connection with any transaction involving
a proposed sale (a "Proposed Sale") by the Affiliates of certain shopping center
properties and any proposed sale by the Company of certain of its Fee
Properties. The shopping center properties to be sold by the Affiliates are
subject to Wrap Debt held by the Company which would need to be released prior
to the consummation of any transaction. The Properties to be sold and the Wrap
Debt to be repaid in connection with a Proposed Sale could represent a
substantial portion of the Company's real estate related assets.
Neither the Company nor the Affiliates have entered into any
commitment, agreement or understanding with any prospective purchaser with
respect to a Proposed Sale, and there can be no assurance that SGSC will be able
to identify suitable candidates to undertake a Proposed Sale, or that if
identified, the Company and the Affiliates will be willing and able to
consummate a Proposed Sale on terms acceptable to them.
On November 21, 1997 and December 17, 1997, the Company entered into
contracts (the "Purchase Contracts") in connection with the contemplated
purchase of two strip mall shopping centers in the Jacksonville, Florida area.
Pursuant to the Purchase Contracts any obligations to purchase such properties
are subject to the occurrence or non-occurrence of certain events and/or
determinations, some or all of which may not be in the control of the Company.
Accordingly, there can be no assurance that the contemplated transactions will
occur.
19
<PAGE>
Results of Operations
Calendar Year 1997 Compared to Calendar Year 1996
The Company recognized a net loss of $3,430,731 for the year ended
December 31, 1997 as compared to a net loss of $2,486,974 for the same period in
1996 due to the following factors:
Revenues for 1997 were $30,091,911, a decrease of $3,630,531 or 11%,
from $33,722,442 for 1996. Such decrease was primarily due to the net of: (1) a
decrease in interest income of $4,299,059 resulting primarily from (a) a
decrease in interest income of approximately $994,000 due to a decrease in the
number of wraparound notes held by the Company to 28 for the year ended December
31, 1997 from 30 for the same period in 1996 and (b) a decrease in interest
income of approximately $3,196,900 due to the sale by the Company of all four of
its mortgage backed securities, (2) a decrease in rental income of $1,102,272
resulting from a decrease in the number of properties leased by the Company to
28 for the year ended December 31, 1997 from 30 for the same period in 1996, (3)
an unrealized holding loss on U.S. Treasury Notes sold short of $316,887 for
1997 compared to an unrealized holding gain of $1,217,186 for 1996 and (4) a
gain on the sale of available-for-sale securities of $3,511,560 for 1997
compared to a loss on the sale of available-for-sale securities of $350,699 for
1996.
Operating expenses for the year ended December 31, 1997 were
$21,686,805, a decrease of $1,221,139, or 5%, from $22,907,944 for the year
ended December 31, 1996. Such decrease was primarily due to the net of: (1) a
decrease in net lease expenses of $1,221,258 due to a decrease in the number or
properties leased by the Company to 28 for the year ended December 31, 1997 from
30 for the same period in 1996, (2) a decrease in property expenses of $299,903
due to the decrease in the number of properties leased by the Company, (3) a
decrease in professional fees of $139,627 due to non-recurring transaction costs
associated with the disposition of real estate related assets in 1996 and (4) an
increase in salaries, general and administration expenses of $416,800 due to an
increase in bonuses for several executive officers of the Company.
Interest expense for the year ended December 31, 1997 was $9,119,554,
a decrease of $2,842,226, or 24%, from $11,961,780 for the year ended December
31, 1996. Such decrease was primarily due to a decrease in financing
arrangements related to the disposition during 1997 by the Company of all four
of the mortgage backed securities then held by the Company resulting in a
decrease in interest expense of approximately $2,560,800.
Valuation allowance, which is a reduction in the carrying value of the
Wraparound Notes, for the year ended December 31, 1997 was $2,590,132, an
increase of $2,400,279 from $189,853 for the year ended December 31, 1996. The
value of the underlying collateral was determined by internal analysis and
independent appraisals.
Depreciation and amortization for the year ended December 31, 1997 was
$847,385, an increase of $63,984, or 8%, from $783,401 for the year ended
December 31, 1996. Such increase was primarily due to approximately $1,253,000
of property improvements purchases made during 1997.
Calendar Year 1996 Compared to Calendar Year 1995
Revenues for 1996 were $33,722,442, an increase of $7,954,932, or 31%,
from $25,767,510 in 1995. Such increase was primarily due to the net of: (1) an
increase in rental income of $1,506,092 attributable to the Properties acquired
in the Acquisition, (2) an increase in interest income of $8,637,435 resulting
primarily from (a) Wraparound Note receivable interest of approximately
$7,875,000, and (b) interest income relating to the mortgage backed securities
purchased in March 1995 and March 1996 of approximately $398,000, (3) an
unrealized holding gain on U.S. Treasury Notes sold short of $1,217,186 in 1996
compared to an unrealized holding loss of
20
<PAGE>
$4,137,225 for such securities in 1995, (4) a gain on sale of real estate
related assets of $260,239 for 1996 as compared to a gain of $6,326,231 on sale
of property in 1995 and (5) a loss on the sale of available-for-sale securities
of $350,699 in 1996 compared to a gain of $1,561,721 for such securities in
1995.
Operating expenses for 1996 were $23,097,797, an increase of
$9,140,312, or 65%, from $13,957,485 in 1995. Such increase was primarily due to
the net of: (1) an increase in lease expense of $11,953,480 attributable to the
Master Leases acquired in the Acquisition, (2) an increase in property expenses
of $782,070 due to the Underlying Properties relating to the Master Leases, (3)
an increase in expenses for management company operations of $653,300 due to
additional properties managed by the Company in 1996 and (5) a decrease in
professional fees of $3,979,434 for 1996 compared to 1995, when the Company
consumated the Acquisition, the Transfer and the Distribution.
Interest expense for 1996 was $11,961,780, an increase of $3,046,016,
or 34%, from $8,915,764 in 1995. Such increase was primarily due to: (1) debt
service on the Underlying Properties and (2) additional interest charges
relating to the mortgage backed securities purchased in March 1995 and March
1996.
Depreciation and amortization expense for 1996 was $783,401, a
decrease of $2,604,001, or 77%, from $3,387,402 in 1995. Such decrease was
primarily due to: (1) a decrease in depreciable real estate assets to three
properties in 1996 from 18 properties in 1995, amounting to a decrease in
property depreciation of approximately $583,270 in 1996 and (2) a net decrease
in amortization of management contract rights of approximately $191,798 in 1996.
Liquidity and Capital Resources
During 1997, the Company sold its $16,700,000 par MDV Certificate for
$14,680,344, using $10,251,093 to pay off the balance of the financing
associated with the MDV Certificate and keeping net proceeds of $4,429,251.
During 1997, the Company sold its $5,000,000 par B2 and its $8,560,000 par B3
Certificates for $12,556,138, using $9,373,175 to pay off the balance of the
financing associated with the B2 and B3 Certificates and keeping net proceeds of
$3,182,963. In connection with the sale of the Certificates and the close of the
U.S. Treasury Note short positions and the proceeds therefrom, the Company has
paid bonuses of approximately $669,460 to several executive officers of the
Company pursuant to a long term incentive plan for management. The Company does
not currently anticipate investing in additional certificates.
The Company, as the holder of 222,860 shares of Kranzco Series C
Cumulative Redeemable Preferred Shares is entitled to receive from the
redemption of such shares, in 5 equal installments over the next 13 months, an
aggregate amount of cash equal to approximately $2,228,600, plus interest at the
rate of 8% per annum on the applicable outstanding balance of such shares. Such
funds will be available to fund the Company's obligations and its real estate
investment and development activities.
Milestone has no present intention to declare or pay cash dividends on
the Series A Preferred Stock or Common Stock in the foreseeable future. The
cumulative period relating to the payment of dividends on the Series A Preferred
Stock expired on September 30, 1995. The Company anticipates that approximately
$3,000,000 of cash will be required in connection with the implementation of the
Winston Settlement and that additional sums of cash will be required in
connection with potential purchases of community shopping centers and strip
malls that are currently being contemplated. If Milestone declares further
dividends on the Series A Preferred Stock or the Common Stock and the payment
thereof utilizes all, or substantially all, of its available cash flow after
taxes and expenses, the Company will require other sources of funding to allow
it to implement the Winston Settlement, effect the contemplated purchases and
accomplish its other long-term goals. Accordingly, no assurance can be given
that Milestone will declare or pay dividends on the Series A Preferred Stock or,
subject to the preference on the Series A Preferred Stock, the Common Stock, in
the future, and currently has no intention to do so. Any decision as to the
future payment of dividends on the Series A Preferred Stock or Common Stock will
depend on the results of
21
<PAGE>
operations, investment opportunities for available funds, the financial
condition of the Company and such other factors as Milestone's Board of
Directors deems relevant. See Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.
Cash generated by the sale of the Certificates, the redemption of the
Kranzco Series C Cumulative Redeemable Preferred Stock and the cash on hand at
December 31, 1997 may be used to fund (i) the cash payments to be made by the
Company pursuant to the Winston Settlement, (ii) expenses relating to the
Winston Settlement, (iii) bonus payments to be made to several executive
officers of the Company under a long term incentive plan, (iv) the Company's
real estate investment, acquisition and development activities and (v) other
general corporate purposes. See Item 3. Legal Proceeding for a description of
the terms of the Winston Settlement.
The Company's existing borrowings and the encumbrances on the
Properties securing those borrowings may inhibit or result in increased costs to
the Company in connection with its ability to incur future indebtedness and/or
raise substantial equity capital in the marketplace.
The Company has invested available funds in secure, short-term,
interest bearing investments. The Company believes that its levels of working
capital, liquidity and funds from operations, are sufficient to support present
operations and to continue to fund future growth and business opportunities as
the Company seeks to maximize shareholder value. Other than as described herein,
management is not aware of any other trends, events, commitments or
uncertainties that will, or are likely to, materially impact the Company's
liquidity.
Cash Flows
Net cash used in operating activities of $6,073,949 for the year ended
December 31, 1997 included (1) a net loss of $3,430,731, (2) adjustments for
non-cash items of $1,172,247 and (3) a net change in operating assets and
liabilities of $1,470,971, compared to net cash used in operating activities of
$2,783,859 for the year ended December 31, 1996, which included (1) net loss of
$2,486,974, (2) adjustments of $728,499 for non-cash items and (3) a net change
in operating asset and liabilities of $431,614, compared to net cash provided by
operating activities of $637,203 for the year ended December 31, 1995, which
included (1) a net loss of $809,649, (2) adjustments for non-cash items of
$4,530,845 and (3) a net change in operating assets and liabilities of
$5,977,697.
Net cash provided by investing activities of $47,421,221 for the year
ending December 31, 1997 included (1) proceeds from principal repayments on
loans receivable and Wraparound Notes of $4,750,010, (2) the issuance of
Wraparound Notes of $81,934, (3) purchase of building, land and leasehold
improvements of $1,363,153; (4) proceeds from the sale of real estate related
assets of $5,258,708, (5) proceeds from the sale of available-for-sale
securities of $36,360,354, (6) proceeds from the redemption of investments in
preferred stock of $1,730,833, (7) proceeds from redemption of reverse
repurchase agreements of $35,035,636 and (8) purchase of U.S. Treasury Notes of
$34,269,233, compared to net cash provided by investing activities of
$14,021,098 for the year ended December 31, 1996, which included (1) proceeds
from principal repayments of $4,817,864 on loans receivable and Wraparound
Notes, (2) issuance of Wraparound Notes of $45,550, (3) purchase of leasehold
improvements of $213,186, (4) proceeds from the sale of real estate related
assets of $4,325,177, (5) proceeds from the sale of available-for-sale
securities of $23,201,402, (6) proceeds from the redemption of investments of
$2,541,667, (7) purchase of $20,142,060 of available-for-sale securities, (8)
proceeds from U.S. Treasury Notes sold short of $13,989,844, (9) proceeds from
the redemption of reverse repurchase agreements of $9,203,125, (10) purchase of
U.S. Treasury Notes of $9,143,750 and (11) purchase of reverse repurchase
agreements of $14,513,435. Net cash provided by investing activities of
$21,712,986 for the year ended December 31, 1995 included (1) purchase of
building, land and leasehold improvements of $796,561, (2) proceeds from the
principal repayments on loans receivable of $49,771, (3) proceeds from the sale
of real estate related assets of $25,079,214, (4) proceeds from the sale of
available-for-sale securities of $25,285,441, (5) proceeds from U.S. Treasury
Notes payable of $2,590,951, (6) purchase of reverse repurchase agreements of
$2,240,011 and (7) purchase of $28,255,819 of available-for-sale securities.
22
<PAGE>
Net cash used in financing activities of $31,053,874 for the year
ended December 31, 1997 included (1) principal payments on mortgages and notes
payable of $6,685,652, (2) principal payments on loans payable of $23,829,335,
(3) amounts paid on U.S. Treasury Notes payable of $316,887 and (4) amounts in
restricted cash of $222,000, compared to net cash used in financing activities
of $10,657,906 for the year ended December 31, 1996, which included (1)
distributions of $666,622 to Series A preferred stockholders, (2) principal
repayments of $7,586,850 on mortgages and notes payable, (3) proceeds of
$14,522,045 from loans payable, (4) principal payments of $18,143,665 on loans
payable and (5) proceeds of $1,217,186 received on U.S. Treasury Notes payable.
Net cash used in financing activities of $21,606,887 for the year ended December
31, 1995 included (1) distributions paid to Series A Preferred Stockholders of
$2,732,243, (2) principal payments on mortgages payable of $19,733,850, (3)
proceeds from loans payable of $22,630,146, (4) principal repayments on loans
payable of $17,344,127, (5) amounts paid on U.S. Treasury Notes payable of
$4,137,225 and (6) payments to common and preferred claimants of $289,588.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting and
displaying of comprehensive income and its components in a full set of general
purpose financial statements.
SFAS No. 130 mandates that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence with all
other financial statements. It does not require a specific format for such
financial statements but requires that an enterprise display an amount
representing total comprehensive income for the period in such a financial
statement.
SFAS No. 130 is applicable to all entities that provide a full set of
financial statements. Enterprises that have no comprehensive income items in any
period presented are excluded from the scope of SFAS No. 130.
SFAS No. 130 is effective for both interim and annual periods
beginning after December 15, 1997. Comparative financial statements provided for
earlier periods are required to be reclassified to reflect the provisions of
SFAS No. 130. SFAS No. 130 will not have a material effect on current or prior
period financial statement displays presented by the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information". SFAS
No. 131 establishes standards for the way public business enterprises are to
report information about operating segments in annual financial statements and
requires those enterprises to report selected information about operation
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures concerning products and services,
geographic areas and major customers.
SFAS No. 131 is effective for both interim and annual periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated, unless it is
impracticable to do so. SFAS No. 131 need not be applied to interim financial
statements in the initial year of its application, but comparative information
for interim periods in the initial year of application shall be reported in
financial statements for interim periods in the second year of application. SFAS
No. 131 will not have any material effect on disclosures presented by the
Company, as the Company operates as a single segment.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits". SFAS No. 132 revises employers' disclosure requirements concerning
pension and other postretirement benefit plans by standardizing such disclosure
requirements
23
<PAGE>
to the extent practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminate certain disclosures that are no longer as
useful as they were when FASB Statements No. 87, "Employers' Accounting for
Pensions", No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits", and No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", were
issued. SFAS No. 132 suggests combined formats for presentation of pension and
other postretirement benefit disclosures and permits reduced disclosures for
nonpublic entities.
SFAS No. 132 is effective for fiscal years beginning after December
15, 1997. SFAS No. 132 will not have any material effect on disclosures
presented by the Company.
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements and the notes thereto
appear in Item 14 of this report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
24
<PAGE>
PART III
Certain information required by Part III is omitted from this report
since the Company plans to file with the Securities and Exchange Commission a
definitive proxy statement for its 1998 Annual Meeting of Stockholders (the
"Proxy Statement") no later than 120 days after the end of the fiscal year
covered by this report, and certain information included therein is incorporated
herein by reference.
Item 10. Directors and Executive Officers of the Registrant.
The information regarding the Company's directors required by this
Item is incorporated by reference to the section in the Proxy Statement entitled
"Election of Directors."
The information regarding the Company's executive officers required by
this Item is incorporated by reference to the section in the Proxy Statement
entitled "Executive Officers."
The information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 by the directors, executive officers and
beneficial owners of more than 10% of the Common Stock or the Series A Preferred
Stock required by this Item is incorporated by reference to the section in the
Proxy Statement entitled "Section 16(a) Beneficial Ownership Reporting
Compliance."
Item 11. Executive Compensation.
The information regarding compensation of directors and executive
officers of the Company required by this Item is incorporated by reference to
the sections in the Proxy Statement entitled "Executive Compensation" and
"Compensation of Directors."
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information regarding security ownership of certain beneficial
owners and management required by this Item is incorporated herein by reference
to the section in the Proxy Statement entitled "Security Ownership of Certain
Beneficial Owners and Management."
Item 13. Certain Relationships and Related Transactions.
The information regarding certain relationships and related
transactions required by this Item is incorporated by reference to the section
in the Proxy Statement entitled "Certain Relationships and Related
Transactions."
25
<PAGE>
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a)(1) Financial Statements and Financial Statement Schedule.
The following consolidated financial statements of the Company are filed as part
of this report:
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1997 and 1996 F-2
Consolidated Statements of Revenues and Expenses -
Years Ended December 31, 1997, 1996 and 1995 F-3
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
Consolidated Schedule.
III. Real Estate and Accumulated Depreciation at F-24
December 31, 1997
</TABLE>
Note. All schedules, other than those indicated above, are
omitted because of the absence of the conditions under
which they are required or because the required information
is included in the consolidated financial statements or the
notes to the consolidated financial statements.
(a)(2) Exhibits.
The exhibits to this report are listed below.
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
2.1 Master Purchase and Sale Agreement dated as of February 17, 1995, as amended, between the
Company and Castle Plaza, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Form
8-K filed with the Securities and Exchange Commission (the "Commission") on November 7,
1995).
2.2 Short-Form Contracts, dated as of February 17, 1995, between the Company and Castle Plaza, Inc.
(incorporated by reference to Exhibit 2.2 to the Company's Form 8-K filed with the Commission
on November 7, 1995).
2.3 Purchase and Sale Agreement, dated as of February 17, 1995, as amended between the Company
and Mountain View Mall, Inc. (incorporated by reference to Exhibit 2.3 to the Company's Form
8-K filed with the Commission on November 7, 1995).
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
- ------ -----------
<S> <C>
2.4 Purchase and Sale Agreement, dated as of February 17, 1995, as
amended between the Company and Concord Income Realty Partners VI,
L.P. (incorporated by reference to Exhibit 2.4 to the Company's Form
8-K filed with the Commission on November 7, 1995).
2.5 Purchase and Sale Agreement, dated as of February 17, 1995, as
amended between the Company and Concord Income Realty Partners IX,
L.P. (incorporated by reference to Exhibit 2.5 to the Company's Form
8-K filed with the Commission on November 7, 1995).
3.1 Certificate of Amendment to Certificate of Incorporation of the
Company, filed on December 18, 1990 (incorporated by reference to
Exhibit 3.1 to the Company's Form 10-K filed with the Commission on
March 29, 1991).
4.1 Certificate of Designations of $.78 Convertible Series A Preferred
Stock of the Company, filed on December 18, 1990 (incorporated by
reference to Exhibit 4.1 to the Company's Form 10-K filed with the
Commission on March 29, 1991).
4.1A Certificate of Amendment to Certificate of Designations of $.78
Convertible Series A Preferred Stock of the Company filed on June 9,
1994 (incorporated by reference to Exhibit 4.5 to the Company's Form
10-QSB filed with the Commission on August 15, 1994).
4.2 Specimen form of Common Stock Certificate (incorporated by reference
to Exhibit 4.2 to the Company's Form 10-K filed with the Commission
on March 29, 1991).
4.3 Specimen form of Series A Preferred Stock Certificate (incorporated
by reference to Exhibit 4.3 to the Company's Form 10-K filed with the
Commission on March 29, 1991).
4.4 Rights Agreement, dated as of March 31, 1993 between the Company
and The Bank of New York, as Rights Agent (incorporated by reference
to Exhibit 1 to the Company's Form 8-A filed with the Commission on
March 31, 1993).
10.1 Asset purchase agreement among the Company, Milestone Property
Management, Inc., Concord Assets Group, Inc. and Concord Assets
Management, Inc. (incorporated by reference to Item 7(c) to the
Company's Form 8-K filed with the Commission on January 3, 1993).
10.2 Settlement agreement dated as of January 31, 1993 relating to the
settlement of a class action litigation (incorporated by reference to
Exhibit 10.22 to the Company's Form 10-KSB filed with the Commission
on March 30, 1993).
10.3 Letter agreement related to employment dated March 31, 1993 between
the Company and Leonard S. Mandor (incorporated by reference to
Exhibit 10.23 to the Company's Form 10-QSB filed with the Commission
on May 14, 1993).
10.3A Amendment to letter agreement related to employment dated March 31,
1993 between the Company and Leonard S. Mandor, dated May 2, 1996
(incorporated by reference to Exhibit 10.1 to the Company's Report on
Form 10-QSB filed with the Commission on May 16,1996).
10.4 Letter agreement related to employment dated March 31, 1993 between
the Company and Robert A. Mandor (incorporated by reference to
Exhibit 10.24 to the Company's Form 10-QSB filed with the Commission
on May 14, 1993).
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
10.4A Amendment to letter agreement related to employment dated March 31,
1993 between the Company and Robert A. Mandor, dated May 2, 1996
(incorporated by reference to Exhibit 10.2 to the Company's Report on
Form 10-QSB filed with the Commission on May 16, 1996).
10.5 Letter agreement related to employment dated March 31, 1993 between
the Company and Harvey Shore (incorporated by reference to Exhibit
10.25 to the Company's Form 10-QSB filed with the Commission on May
14, 1993).
10.5A Amendment to letter agreement related to employment dated March 31,
1993 between the Company and Harvey Shore, dated May 2, 1996
(incorporated by reference to Exhibit 10.4 to the Company's Report on
Form 10-QSB filed with the Commission on May 16, 1996).
10.6 Letter agreement related to employment dated March 31, 1993 between
the Company and Joan LeVine (incorporated by reference to Exhibit
10.26 to the Company's Form 10-QSB filed with the Commission on May
14, 1993).
10.6A Amendment to letter agreement related to employment dated March 31,
1993 between the Company and Joan LeVine, dated May 2, 1996
(incorporated by reference to Exhibit 10.3 to the Company's Report on
Form 10-QSB filed with the Commission on May 16, 1996).
10.7 Letter agreement related to employment dated March 31, 1993 between
the Company and Joseph P. Otto (incorporated by reference to Exhibit
10.27 to the Company's Form 10-QSB filed with the Commission on May
14, 1993).
10.7A Amendment to letter agreement related to employment dated March 31,
1993 between the Company and Joseph P. Otto, dated May 2, 1996
(incorporated by reference to Exhibit 10.5 to the Company's Report on
Form 10-QSB filed with the Commission on May 16, 1996).
10.8 Key Executive Employment and Severance Agreements entered into
between the Company and: a. Leonard S. Mandor b. Robert A. Mandor c.
Harvey Shore d. Joan LeVine e. Joe Otto (incorporated by reference to
Exhibit 10.29 to the Company's Form 10-QSB filed with the Commission
on May 14, 1993).
10.9 Purchase money promissory note purchase money mortgage and security
agreement with The Benderson 85-1 Trust for the Tonawanda, New York,
property (incorporated by reference to Exhibit 10.33 to the Company's
Form 10-QSB filed with the Commission on August 14, 1993).
10.10 Amended indemnification agreement between the Company and related
parties (incorporated by reference to Exhibit 19.2 to the Company's
Form 10-Q filed with the Commission on May 14, 1992).
10.11 Second amended and restated management and reimbursement agreement
between the Company and Concord (incorporated by reference to Exhibit
19.3 to the Company's Form 10-Q filed with the Commission on March
30, 1993).
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
10.12 1993 Employee Stock Option Plan (incorporated by reference to Exhibit
10.20 to the Company's Form 10-KSB filed with the Commission on March
31, 1994).
10.13 1993 Non-Employee Director Stock Option Plan (incorporated by
reference to Exhibit 10.21 to the Company's Form 10-KSB filed with
the Commission on March 31, 1994).
10.14 Pre-sale Wet Ink Funding Facility between ("MMC") and Nomura Asset
Capital Corporation (incorporated by reference to Exhibit 10.32 to
the Company's Form 10-QSB filed with the Commission on August 15,
1994).
10.15 Guaranty between the Company and Nomura Asset Capital Corporation
(incorporated by reference to Exhibit 10.33 to the Company's Form
10-QSB filed with the Commission on August 15, 1994).
10.16 Global master Repurchase Agreement between Nomura Grand Cayman, Ltd.
and MMC (incorporated by reference to Exhibit 10.34 to the Company's
Form 10-QSB filed with the Commission on August 15, 1994).
10.17 Master Repurchase Agreement between DLJ Mortgage Acceptance
Corporation and MMC (incorporated by reference to Exhibit 10.35 to
the Company's Form 10-QSB filed with the Commission on August 15,
1996).
10.18 Management Services Agreement dated November 20, 1995, between the
Company and Union Property Investors, Inc. (incorporated by reference
to Exhibit 10.30 to the Company's Form 10- KSB filed with the
Commission on March 30, 1996).
10.19 Property Management Agreement, dated November 20, 1995, between the
Company and Milestone Property Management, Inc. (incorporated by
reference to Exhibit 10.31 to the Company's Form 10- KSB filed with
the Commission on April 1, 1996).
10.20 Stipulation and Agreement of Settlement dated October 30, 1997 by and
among John Winston, the plaintiff, and Leonard S. Mandor, Robert M.
Mandor, Joan LeVine, Harvey Jacobson, Gregory McMahon, Geoffrey S.
Aaronson, Milestone and Concord (incorporated by reference to Exhibit
2 to the Company's 8-K filed with the Commission on November 12,
1997.
21 Subsidiaries of the Company.
27 Financial Data Schedule Article 5 included for Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) purposes only. This
Schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of revenues
and expenses and is qualified in its entirety by reference to such
financial statements.
</TABLE>
29
<PAGE>
(b) Reports on Form 8-K.
On November 12, 1997, a Form 8-K was filed with the Commission
reporting the Winston Settlement and Winston Settlement Agreement
entered into on October 30, 1997.
On November 21, 1997, a Form 8-K was filed with the Commission
reporting the sale of the remaining holdings of available-for-sale
securities and containing (i) a pro forma balance sheet as of
September 31, 1997 and (ii) a pro forma consolidated statements of
revenue and expenses for the nine months ended September 30, 1997 and
the year ended December 31, 1996.
On January 15, 1998, a Form 8-K was filed with the Commission
reporting that the Company entered into an agreement with Societe
Generale Securities Corporation pursuant to which the Company retained
SGSC to act as financial advisor involving a proposed sale of certain
properties.
30
<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.
MILESTONE PROPERTIES, INC.
By: /s/ Leonard S. Mandor
--------------------------
Leonard S. Mandor
Chairman of the Board and
Chief Executive Officer
DATE: March 20, 1998
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 capacities and on the dates indicated.
Signature and Title Date
- ------------------- ----
/s/ Leonard S. Mandor March 20, 1998
- ------------------------------------
Leonard S. Mandor
Chairman of the Board and
Chief Executive Officer
/s/ Robert A. Mandor March 20, 1998
- ------------------------------------
Robert A. Mandor
President, Chief Financial
Officer and Director
/s/ Joseph P. Otto March 20, 1998
- ------------------------------------
Joseph P. Otto
Vice President and Director
/s/ Patrick S. Kirse March 20, 1998
- ------------------------------------
Patrick S. Kirse
Vice President of Accounting
(Principal Accounting Officer)
/s/ Geoffrey S. Aaronson March 20, 1998
- ------------------------------------
Geoffrey S. Aaronson
Director
/s/ Harvey Jacobson March 20, 1998
- ------------------------------------
Harvey Jacobson
Director
/s/ Gregory McMahon March 20, 1998
- ------------------------------------
Gregory McMahon
Director
<PAGE>
INDEPENDENT AUDITORS' REPORT
Milestone Properties, Inc.:
We have audited the accompanying consolidated balance sheets of Milestone
Properties, Inc. and subsidiaries (the "Company") as of December 31, 1997 and
1996 and the related consolidated statements of revenues and expenses,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. Our audits also included the financial statement
schedule of real estate and accumulated depreciation. These consolidated
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
the consolidated financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Milestone
Properties, Inc. and subsidiaries at December 31, 1997 and 1996 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
/s/ Deloitte & Touche, LLP
New York, New York
March 20, 1998
F-1
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 13,435,237 $ 3,141,839
Restricted cash 222,000 0
Loans receivable 1,512,744 1,684,585
Accounts receivable 1,265,625 1,360,621
Accrued interest receivable 8,465,528 9,646,886
Due from related party 391,851 599,093
Prepaid expenses and other 1,034,613 430,603
Reverse repurchase agreements 0 34,718,749
Available-for-sale securities 0 32,314,853
---------- -----------
Total current assets 26,327,598 83,897,229
Property, improvements and equipment, net 19,610,060 18,884,467
Wraparound notes, net 59,402,931 71,431,945
Deferred income tax asset, net 4,058,358 3,272,873
Investments in preferred stock 2,228,600 3,959,433
Management contract rights, net 290,926 426,467
Goodwill and other, net 304,639 222,863
----------- -----------
Total assets $ 112,223,112 $ 182,095,277
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 2,015,942 $ 2,031,513
Accrued interest payable 259,116 1,139,941
Master lease payable 13,637,564 14,445,351
Due to related party 0 61,688
Current portion of mortgages and notes payable 5,997,687 2,862,274
Income taxes payable 2,822,119 3,250,744
Loans payable 0 23,829,335
Treasury notes sold short 0 33,952,346
---------- ------------
Total current liabilities 24,732,428 81,573,192
Mortgages and notes payable 61,741,877 71,562,942
----------- -----------
Total liabilities 86,474,305 153,136,134
----------- -----------
Commitments and Contingencies
Stockholders' equity:
Common stock ($.01 par value, 10,000,000
shares authorized, 4,905,959 and
4,743,155 issued and outstanding in
1997 and 1996, respectively: 692,591
shares in treasury) 49,060 47,433
Preferred stock (Series A $0.01 par value,
$10 liquidation preference, 10,000,000
shares authorized, 3,033,995 and 3,182,184
shares issued and outstanding in 1997 and
1996, respectively) 30,341 31,822
Additional paid-in surplus 48,105,428 48,105,575
Unrealized holding loss - available-for-sale
securities (Net of tax benefit of
$151,552 in 1996) 0 (220,396)
Accumulated deficit (18,995,604) (15,564,873)
Shares held in treasury - at cost (3,440,418) (3,440,418)
------------ -----------
Total stockholders' equity 25,748,807 28,959,143
----------- -----------
Total liabilities and stockholders' equity $ 112,223,112 $ 182,095,277
----------- -----------
----------- -----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-2
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
For the Years Ended December 31, 1997,1996 and 1995
<TABLE>
<CAPTION>
December 31,1997 December 31, 1996 December 31, 1995
---------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES:
Rent $ 10,280,548 $ 11,382,820 $ 9,876,728
Interest income 13,355,849 17,654,908 9,017,473
Revenue from management company operations 512,303 976,983 1,034,321
Tenant reimbursements 1,261,217 1,184,462 926,791
Management and reimbursement income 407,286 835,811 499,806
Percentage rent 450,423 266,653 428,739
Amortization of discount - available-for-sale
securities 313,551 294,079 232,925
Unrealized (loss)gain on treasury notes
sold short (316,887) 1,217,186 (4,137,225)
Gain on sale of real estate related assets 316,061 260,239 6,326,231
Gain (loss)on sale of available-for-sale securities 3,511,560 (350,699) 1,561,721
----------- ------------ ----------
Total revenues 30,091,911 33,722,442 25,767,510
---------- ---------- ----------
EXPENSES:
Master lease expense 13,787,465 15,008,723 3,055,243
Interest expense 9,119,554 11,961,780 8,915,764
Depreciation and amortization 847,385 783,401 3,387,402
Valuation allowance on wraparound notes 2,590,132 189,853 0
Salaries, general and administration 3,955,434 3,538,634 3,997,591
Property expenses 1,718,346 2,018,249 1,236,179
Expenses for management company operations 1,304,166 1,281,317 628,017
Professional fees 921,394 1,061,021 5,040,455
---------- ---------- ----------
Total expenses 34,243,876 35,842,978 26,260,651
---------- ---------- ----------
Loss before income taxes (4,151,965) (2,120,536) (493,141)
(Benefit) Provision for income taxes (721,234) 366,438 316,508
--------- --------- ---------
Net loss (3,430,731) (2,486,974) (809,649)
Distributions on preferred stock 0 0 (2,732,242)
--------- --------- ---------
Loss attributable to common stockholders $ (3,430,731) $ (2,486,974) $ (3,541,891)
------------- ------------- ------------
------------- ------------- ------------
Loss per common share $ (0.82) $ (0.65) $ (2.13)
------------- ------------- ------------
------------- ------------- ------------
Weighted average common shares outstanding 4,206,550 3,845,546 1,664,956
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
MILESTONE PROPERTIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
--------------------------- ----------------------- ----------------------
Shares Amount Shares Amount Shares Cost
------ ------ ------ ------ ------- ----
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 1,852,921 $18,529 3,549,578 $35,496 (692,591) $(3,440,418)
Conversion of preferred
stock into common stock 85,852 859 (131,023) (1,310)
Cash distributions declared -
$0.78 per preferred claimant share
Cash distributions declared -
$0.78 per preferred share
Purchase of Acquisition Assets 2,544,654 25,447
Spin-off of UPI
Net loss for the year ended
December 31, 1995
Unrealized holding gain -
available-for-sale securities
--------- ------ --------- ------ -------- ----------
Balance December 31, 1995 4,483,427 44,835 3,418,555 34,186 (692,591) (3,440,418)
--------- ------ --------- ------ -------- ----------
Conversion of preferred stock
into common stock 259,728 2,598 (236,371) (2,364)
Net loss for the year ended
December 31, 1996
Unrealized holding loss -
available-for-sale securities
--------- ------ --------- ------ -------- ----------
Balance December 31, 1996 4,743,155 47,433 3,182,184 31,822 (692,591) (3,440,418)
--------- ------ --------- ------ -------- ----------
Conversion of preferred stock
into common stock 162,804 1,627 (148,189) (1,481)
Net loss for the year ended
December 31, 1997
Realization of unrealized
holding loss - available-
for-sale securities
--------- ------ --------- ------ -------- ----------
Balance December 31, 1997 4,905,959 $49,060 3,033,995 $30,341 (692,591) $(3,440,418)
--------- ------ --------- ------ -------- ----------
--------- ------ --------- ------ -------- ----------
<CAPTION>
Unrealized
Holding (Loss)/
Additional Gain on
Paid-in Available-for- Accumulated Stockholders'
Surplus Sale Securities Deficit Equity
--------- --------------- ------------ -------------
Balance December 31, 1994 $ 51,326,392 $(900,111) $ (9,536,007) $37,503,881
Conversion of preferred
stock into common stock 451 0
Cash distributions declared -
$0.78 per preferred claimant share (289,588) (289,588)
Cash distributions declared -
$0.78 per preferred share (2,732,243) (2,732,243)
Purchase of Acquisition Assets 12,285,779 12,311,226
Spin-off of UPI (15,217,225) (15,217,225)
Net loss for the year ended
December 31, 1995 (809,649) (809,649)
Unrealized holding gain -
available-for-sale securities 1,749,093 1,749,093
---------- --------- ----------- ----------
Balance December 31, 1995 48,105,809 848,982 (13,077,899) 32,515,495
---------- --------- ----------- ----------
Conversion of preferred stock
into common stock (234) 0
Net loss for the year ended
December 31, 1996 (2,486,974) (2,486,974)
Unrealized holding loss -
available-for-sale securities (1,069,378) (1,069,378)
---------- --------- ----------- ----------
Balance December 31, 1996 48,105,575 (220,396) (15,564,873) 28,959,143
---------- --------- ----------- ----------
Conversion of preferred stock
into common stock (146) 0
Net loss for the year ended
December 31, 1997 (3,430,731) (3,430,731)
Realization of unrealized
holding loss - available-
for-sale securities 220,396 220,396
----------- ------- ------------ -----------
Balance December 31, 1997 $48,105,428 $0 $(18,995,604) $25,748,807
---------- --------- ----------- ----------
---------- --------- ----------- ----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
MILESTONE PROPERTIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Loss $ (3,430,731) $ (2,486,974) $ (809,649)
Adjustments to reconcile net loss to
net cash (used in )provided by operating activities:
Depreciation and amortization 847,385 783,401 3,387,402
Deferred benefit taxes (785,479) (280,948) (3,934,595)
Valuation allowance on wraparound notes 2,590,132 189,853 0
Unrealized loss (gain) on treasury notes sold short 316,887 (1,217,186) 4,137,225
Amortization of discount - available-for-sale securities (313,551) (294,079) (232,925)
Realized loss (gain) on sale of available-for-sale securities (3,511,560) 350,699 (1,561,721)
Gain on sale of real estate related assets (316,061) (260,239) (6,326,231)
Change in operating assets and liabilities net:
Decrease (increase) in accounts receivable 94,996 26,743 (528,548)
Decrease(increase) in due from related party 207,242 (442,959) 795,267
Decrease (increase) in accrued interest receivable 1,181,358 1,751,144 (2,201,377)
(Increase) decrease in prepaid expenses and other (760,071) 59,044 561,559
(Decrease) increase in accrued expenses (15,571) 196,295 657,952
(Decrease) increase in accrued interest payable (880,825) 194,390 514,656
(Decrease) increase in master lease payable (807,787) (1,347,380) 3,042,770
(Decrease) increase in income taxes payable (428,625) 75,913 2,992,154
(Decrease) increase in due to related party (61,688) (81,576) 143,264
---------- ----------- ----------
Net cash (used in) provided by operating activities (6,073,949) (2,783,859) 637,203
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments on loans receivable 171,841 53,460 49,771
Principal repayments on wraparound notes 4,578,169 4,764,404 0
Issuance of wraparound notes (81,934) (45,550) 0
Purchase of building and land (1,100,000) 0 (745,092)
Purchase of leasehold improvements (263,153) (213,186) (51,469)
Proceeds from realization of real estate related assets 5,258,708 4,325,177 25,079,214
Proceeds from the sale of available-for-sale securities 36,360,354 23,201,402 25,285,441
Proceeds from redemption of investments in preferred stock 1,730,833 2,541,667 0
Purchase of available-for-sale securities 0 (20,142,060) (28,255,819)
Proceeds from treasury notes sold short 0 13,989,844 2,590,951
Proceeds from redemption of reverse repurchase
agreements 35,035,636 9,203,125 0
Purchase of treasury notes (34,269,233) (9,143,750) 0
Purchase of reverse repurchase agreements 0 (14,513,435) (2,240,011)
---------- ----------- ----------
Net cash provided by investing activities 47,421,221 14,021,098 21,712,986
---------- ----------- ----------
---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to preferred stockholders 0 (666,622) (2,732,243)
Principal payments on mortgages and notes payable (6,685,652) (7,586,850) (19,733,850)
Proceeds from loans payable 0 14,522,045 22,630,146
Principal payments on loans payable (23,829,335) (18,143,665) (17,344,127)
Amounts (paid) received on treasury notes payable (316,887) 1,217,186 (4,137,225)
Payments to common and preferred stock claimants 0 0 (289,588)
Amounts in restricted cash (222,000) 0 0
---------- ----------- ----------
Net cash used in financing activities (31,053,874) (10,657,906) (21,606,887)
---------- ----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,293,398 579,333 743,302
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,141,839 2,562,506 1,819,204
---------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,435,237 $ 3,141,839 $ 2,562,506
---------- ----------- ----------
---------- ----------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for interest $ 10,000,379 $ 11,767,390 $ 8,518,507
---------- ----------- ----------
---------- ----------- ----------
Cash paid during the period for income taxes $ 854,429 $ 451,986 $ 754,501
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
MILESTONE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Milestone Properties, Inc. ("Milestone"), directly and through its wholly
owned subsidiaries, is engaged in the business of owning, acquiring, managing,
developing and investing in commercial real estate and real estate related
assets. Milestone, together with its subsidiaries, is herein referred to as
the "Company". Milestone was incorporated on November 30, 1989 under the laws
of the State of Delaware. On December 18, 1990, the Concord Milestone Income
Fund, L.P. ("CMIF") and Concord Milestone Income Fund II, L.P. ("CMIF II")
(collectively, the "Predecessor Partnerships") were merged with and into the
Company (the "Merger"). In the Merger, the Company succeeded to the business
and operations of the Predecessor Partnerships and the partnership interests
in the Predecessor Partnerships were converted into shares of Milestone's
common stock, par value $.01 per share (the "Common Stock"), and Milestone's
$.78 Convertible Series A preferred stock, par value $.01 per share, $10
liquidation preference (the "Series A Preferred Stock").
In October 1995, the Company entered into various agreements with affiliates
of Concord Assets Group, Inc. ("Concord") pursuant to which the company
acquired certain real estate related assets for approximately $700,000 in cash
and approximately 2,545,000 shares of Common Stock (the "Acquisition"). The
Acquisition was treated in a manner similar to a pooling of interests, and
therefore the assets and liabilities have been transferred at the historical
cost basis of Concord.
In October 1995, the Company also completed the transfer (the "Transfer") of
16 of its retail properties (the "UPI Properties") to its then wholly-owned
subsidiary Union Property Investors, Inc. ("UPI"). UPI was then recapitalized
and spun-off in November 1995, when the Company distributed all of the
outstanding shares of common stock of UPI to the Company's Common Stockholders
(the "Distribution"). On February 27, 1997, UPI was merged (the "UPI Merger")
into a wholly-owned subsidiary of Kranzco Realty Trust, a Maryland real estate
investment trust ("Kranzco"). In connection with the UPI Merger, UPI
terminated its property management and management services agreements with the
Company.
2. Summary of Significant Accounting Policies
Business
The Company primarily is the owner of Wraparound Notes, secured by mortgages
on commercial retail properties, as well as the master lessee of such
properties which are located in 16 states throughout the United States. The
Company also invests directly in real estate and real estate related assets.
Principles of Consolidation
The consolidated financial statements include the accounts of Milestone
Properties, Inc. and its subsidiaries. Intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
Basis of Accounting, Fiscal Year
The Company records are maintained on the accrual basis of accounting for both
financial and tax reporting purposes. Its fiscal year is the calendar year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-6
<PAGE>
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents. The carrying value of these
investments approximates fair market value. The Company has restricted cash of
$222,000 at December 31, 1997, as a compensating balance for a Letter of
Credit related to a guarantee of performance associated with the lease of
office space for the Company's corporate offices. Restricted cash is held in
an interest bearing account and becomes available for general operating
purposes of the Company on December 31, 2000. Currently, no amounts are
outstanding on the Letter of Credit.
Available-for-Sale Securities
Gains and losses relating to available-for-sale securities are excluded from
earnings and reported as a separate component of stockholders' equity, net of
tax effect, until such amounts are generally realized through the sale or
redemption of the securities. Realized gains and losses are determined based
on the specific identification method.
Property, Improvements and Equipment and Related Depreciation and Amortization
Properties are stated at cost, less depreciation computed on a straight-line
basis over their estimated useful lives of 26.5- 50 years. Building
improvements and equipment are stated at cost, and depreciated on a
straight-line basis using an estimated useful life of five years. Leasehold
improvements and leasing commissions are amortized on a straight-line basis
over the lesser of the estimated useful life or the remaining term of the
applicable lease.
Investment in Wraparound Notes
Investment in Wraparound Notes is stated at the lower of the unamortized note
balance or the estimated value of the underlying collateral. The Company does
not recognize income from the discount portion of certain original issue
discount notes due to the uncertainty regarding realization of such amounts.
Impairment
The Company assesses at least annually the probability that the amounts
collectible under the contractual terms of each Wraparound Note will equal or
exceed the carrying amount of such Wraparound Note. When management believes
that a Wraparound Note has been impaired, the Company measures impairment
based on the estimated value of the underlying collateral, using internal
analysis and independent appraisals when necessary. For the years ended
December 31, 1997 and 1996, the Company provided valuation allowances of
$2,590,132 and $189,853, respectively; no allowance was required in 1995.
The Company reviews each of its property investments for possible impairment
at least annually, and more frequently if circumstances warrant. Impairment is
determined to exist when estimated amounts recoverable through future cash
flows from operations on an undiscounted basis is less than the property's
carrying value. If a property is determined to be impaired, it is written down
to its estimated fair value to the extent that the carrying amount exceeds the
fair value of the property. No write downs for impairment of property
investments were recorded in 1997, 1996 or 1995.
The determination of impairment is based, not only upon future cash flows,
which rely upon estimates and assumptions including expense growth, occupancy
and rental rates, but also upon market capitalization and discount rates as
well as other market indicators. The Company believes that the estimates and
assumptions used are appropriate in evaluating the carrying amount of the
Company's Wraparound Notes and properties. However, changes in market
conditions and circumstances may occur in the near term which would cause
these estimates and assumptions to change, which, in turn, could cause the
amounts ultimately realized upon the sale or other disposition of the
Wraparound Notes and properties to differ materially from their carrying
value. Such changes may also require write-downs in future years.
F-7
<PAGE>
Management Contract Rights and Goodwill
Management contract rights and goodwill are being amortized over a period of
approximately seven years. The amortization for the management contract rights
has been accelerated for those agreements that are terminated prior to the
expiration of the initial lease term.
Income Taxes
Deferred taxes are provided for the temporary differences between the tax
bases of the assets and liabilities and the amounts reported in the financial
statements.
Loss Per Common Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings per Share" which establishes standards for computing and presenting
earnings per share. The new standard replaces the presentation of primary
earnings per share prescribed by Accounting Principles Board Opinion No. 15
("APB 15"), "Earnings per Share" with a presentation of basic earnings per
share and also requires dual presentation of basic and diluted earnings per
share on the face of the statement of operations for all entities with complex
capital structures. Basic earnings per share excludes dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share
is computed similarly to fully-diluted earnings per share pursuant to APB 15.
The Company adopted SFAS No. 128 in the fourth quarter of fiscal 1997 and has
restated all prior periods in its financial statements.
Basis and diluted earnings per share are based on the same weighted-average
number of shares of common stock and common stock equivalents outstanding of
4,206,550, 3,845,546 and 1,664,956 for the years ending December 31, 1997,
1996 and 1995, respectively. Convertible Series A Preferred Stock amounts have
been excluded from weighted-average shares for 1997, 1996 and 1995 as
inclusion would be anti-dilutive. Options to purchase 313,700, 176,000, and
168,500 shares of common stock in 1997, 1996 and 1995, respectively, were
outstanding at each year end but were not included in the computation of
diluted earnings per share because the weighted-average exercise prices of the
options were greater than the average market price of the common stock for the
respective period and inclusion would therefore be anti-dilutive.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1997
financial presentation.
3. Acquisition and Dispositions of Real Estate and Real Estate Related
Assets
On October 30, 1997, the Company realized its position in its wraparound note
on a property located in Marion, Ohio as a result of the sale of such property
by the owners. The sale price of the property was approximately $2,750,000,
which resulted in a book gain of approximately $200,000 to the Company. In
conjunction with the sale of such property, the Company, as the lessor on the
Master Lease on such property, canceled such Master Lease.
On September 24, 1997, the Company completed the purchase of Pine Oak Plaza, a
16,944 square foot shopping center located in Sunrise (Broward County),
Florida, from REC I Corporation for approximately $1,100,000 in cash. The
shopping center is occupied by local tenants subject to operating leases
ranging from four to thirteen years with various renewal options and is
currently 93.5% occupied. This property can be classified as a neighborhood or
community unanchored strip center and is located in a secondary type market.
Also, during 1997, the Company realized its position in its wraparound note on
the property located in Prattville, Alabama as a result of the foreclosure
sale of the associated property by the bank. Such sale resulted in the relief
of the non-recourse underlying mortgage, which also resulted in a book gain of
approximately $120,000 to the Company. In conjunction with
F-8
<PAGE>
the foreclosure sale of such property, the Company, as the lessor on the
Master Lease on such property, canceled such Master Lease.
On November 1, 1996, the Company realized its position in the wraparound notes
on the property located in Southington, Connecticut as a result of the sale of
such property by its owners. The sale price was approximately $2,745,000,
resulting in a book loss of $127,020 to the Company. In conjunction with the
sale of such property, the Company, as the lessor on the Master Lease on such
property, canceled such Master Lease.
On May 24, 1996, the Company realized its position in the wraparound note on
the property located in Roanoke, Virginia as a result of the sale of such
property by its owners. The sale price was approximately $2,150,000, resulting
in a book gain of $393,768 to the Company. In conjunction with the sale of
such property, the Company, as the lessor on the Master Lease on such
property, canceled such Master Lease.
From August 1994 to November 1997 one of the focuses of the Company was on
investment opportunities and purchasing issues of mortgage loan
securitizations which were backed by mortgage loans on commercial and
multi-family dwellings ("CMBSs"). To facilitate the purchase of CMBSs, short
term borrowing arrangements ("Loans Payable") were entered into with the
brokers from which such securitizations were purchased. The Company engaged in
a variety of interest rate management techniques in order to attempt to manage
the effective maturity and/or interest rate risks associated with the CMBSs.
Such techniques included selling short U.S. Treasury Notes which were
collateralized by reverse repurchase agreements.
The Company had $32,314,853 and $37,594,939 of CMBS as of December 31, 1996
and 1995, respectively; and $23,829,335 and $27,450,954 of associated Loans
Payable as of December 31, 1996 and 1995, respectively. Additionally, the
Company had $33,952,346 and $32,823,439 of U.S. Treasury Notes sold short as
of December 31, 1996 and 1995, respectively; and $34,718,749 and $33,119,375
of associated reverse repurchase agreements as of December 31, 1996 and 1995.
On November 10, 1997, the Company sold its remaining ownership of the CMBS and
repaid the associated Loans Payable (the "Sale"). At the time of the Sale, the
Company also closed its remaining U.S. Treasury Note short positions.
The $12,089,000 MD1 Certificate was sold for $9,520,088. The Company received
net proceeds of $2,852,060, and used the remaining $6,668,028 to pay off the
balance of the financing associated with the MD1 Certificate. As a result of
such sale, the Company realized a book loss of approximately $1,100,000.
The $16,700,000 par MDV Certificate was sold for $14,680,344. The Company
received net proceeds of $4,429,251, and used the remaining $10,251,093 to pay
off the balance of the associated financing. The $5,000,000 par B2 and the
$8,560,000 par B3 Certificates were sold for $12,556,138. The Company received
net proceeds of $3,182,963 and used the remaining $9,373,175 to pay off the
balance of the associated financing. As a result of such sale, the Company
realized a book gain of $3,511,560. The Company has paid bonuses of
approximately $669,000 to several executive officers of the Company pursuant
to a long term incentive plan for management.
On March 6, 1998, the Company entered into a contract in connection with the
contemplated sale of its Mountain View Mall property located in Bend, Oregon
(the "Bend Property"). Under the terms of the contract, which is in the
feasibility stage, the potential purchaser is not yet obligated to purchase
the Bend Property and the Company is not yet obligated to sell the Bend
Property, and any such obligation for the purchase or sale of such property is
conditional upon the occurrence or non-occurrence of certain events and/or
determinations, some or all of which may not be in the control of the Company.
Accordingly, there can be no assurance that the contemplated transaction will
occur.
On November 21, 1997 and December 17, 1997, the Company entered into contracts
(the "Purchase Contracts") in connection with the contemplated purchase of two
strip mall shopping centers in the Jacksonville, Florida area. Pursuant to the
Purchase Contracts any obligations to purchase such properties are subject to
the occurrence or non-occurrence of certain events and/or determinations, some
or all of which may not be in the control of the Company. Accordingly, there
can be no assurance that the contemplated transactions will occur.
F-9
<PAGE>
4. Property and Improvements
Property and improvements at December 31, 1997 and 1996 consisted of the
following:
December 31, 1997 December 31, 1996
Land $ 1,140,000 $ 1,030,000
Building 24,181,311 23,191,311
Leasehold Improvements
and Equipment 692,609 429,458
------------- --------------
26,013,920 24,650,769
Less: Accumulated Depreciation
and Amortization (6,403,860) (5,766,302)
------------- --------------
Total $ 19,610,060 $ 18,884,467
------------- --------------
------------- --------------
5. Investment in Wraparound Notes
Investment in Wraparound Notes represents notes due from limited partnerships
(the "Partnerships") which had previously been syndicated by Concord and
certain of its affiliates. Certain directors and officers of the Company are
also directors, officers and controlling stockholders of the general partner
of each of the Partnerships. The syndication of a Partnership by Concord
typically involved the sale of a property (the "Concord Property") owned by
Concord to the Partnership for cash and certain non-recourse promissory notes
(the "Wraparound Notes"), payment of which was secured by the Underlying
Property. The related Wraparound Notes were subordinate to the Underlying
Property Mortgage Debt ("the Underlying Debt") of the Concord Property.
Concord then master leased (the "Master Lease") the Concord Property back from
the Partnership for a fixed annual rental fee which entitled Concord to all
rents under the tenant operating leases. Concord was required to satisfy all
other landlord obligations. Pursuant to the Acquisition, the Company acquired
35 Wraparound Notes, assumed the Underlying Debt and was assigned the interest
in the Master Leases. The Partnerships are obligated to make fixed payments of
principal and interest on certain Wraparound Notes. Such payments approximate
the Master Lease obligations. The payments received by the Company are used to
make the Master Lease payments to the Partnerships.
Upon sale of the Underlying Property, proceeds are initially applied to
satisfy the Underlying Debt, and the balance, to the extent proceeds are
available, is divided between a preferred return to the Partnership's limited
partners and then repayment of the Wraparound Note.
The Wraparound Notes have maturities ranging from 1998 to 2017. The scheduled
principal receipts of the Wraparound Notes are as follows (dollar amounts in
thousands):
Year Ending
December 31
1998 $ 3,717
1999 5,562
2000 36,452
2001 360
2002 395
Thereafter (excluding
$11,202 of the
original issue discount) 12,917
--------
Total $ 59,403
--------
--------
F-10
<PAGE>
The following schedule depicts Wraparound Notes which are subordinate to the
underlying mortgages on such properties:
<TABLE>
<CAPTION>
Final Face Amount Carrying Amount
Closing Interest Maturity of Mortgage of Mortgage Interest Due
Location Date Rate (%) Date Loans Loans and Accrued
-------- ------- -------- -------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Baton Rouge, LA 10/23/95 9.75 12/31/99 $ 4,469,548 $ 4,006,610 $ 455,792
Clarksville, TN 10/23/95 9.75 12/31/99 3,759,873 a 1,754,804 226,186
Columbus, NE 10/23/95 9.75 12/31/99 2,436,955 2,172,024 248,514
Danville, IL 10/23/95 9.75 12/31/99 1,851,308 886,939 188,792
Deland, FL 10/23/95 9.70 12/31/99 1,929,531 1,411,835 195,715
Dubois, PA 10/23/95 10.00 12/31/99 3,057,647 a 1,484,336 155,782
Ellwood City, PA 10/23/95 10.00 12/31/99 3,057,647 a 1,484,336 155,782
Hamilton, NY 10/23/95 9.75 12/31/99 1,493,689 1,089,447 152,322
Janesville, WI 10/23/95 10.25 12/31/15 2,173,824 1,434849 233,654
Marietta, OH 10/23/95 8.32 12/31/14 3,165,088 2,958,338 307,837
Marietta, OH 10/23/95 11.00 12/31/14 25,148 20,000 -
Montgomery, AL 10/23/95 9.75 12/31/99 2,251,243 940,941 229,575
Mt. Pleasant, PA 10/23/95 9.18 12/31/15 2,545,423 2,334,042 243,708
Mt. Pleasant, PA 10/01/97 11.00 12/31/14 12,976 12,626 -
Natchez, MS 10/23/95 10.00 12/31/98 3,825,382 a 1,574,516 170,199
No. Canton, OH 10/23/95 9.11 12/31/14 2,873,770 2,207,236 272,969
No. Canton, OH 10/23/95 11.00 12/31/14 33,958 26,575 -
No. Canton, OH 10/15/96 11.00 12/01/14 29,026 25,650 -
Owensboro, KY 10/23/95 10.00 12/31/15 2,787,357 2,784,791 291,915
Palatka, FL 10/23/95 9.75 12/31/99 2,446,691 1,765,532 249,503
Palatka, FL 12/09/97 11.00 12/31/99 24,816 24,650 -
Paris, TN 10/23/95 10.00 12/31/99 3,364,006 1,551,337 352,256
Paris, TN 10/23/95 11.00 12/31/99 65,515 51,016 -
Southwick, MA 10/23/95 9.75 12/31/99 1,420,480 868,168 144,857
So. Williamson, KY 10/23/95 9.88 12/31/99 24,521,288 13,674,922 2,534,138
Streetsboro, OH 10/23/95 9.68 12/31/14 2,298,679 1,793,315 232,625
Streetsboro, OH 10/23/95 11.00 12/31/14 27,640 21,447 -
Streetsboro, OH 10/15/96 11.00 12/01/14 22,180 19,600 -
Streetsboro, OH 11/07/97 11.00 12/31/14 10,169 10,000 -
Vestivia Hills, AL 10/23/95 9.75 12/31/99 1,800,257 1,360,003 183,586
Walpole, NH 10/23/95 9.75 12/31/99 1,420,480 1,006,457 144,857
Pascagoula, MS 10/23/95 9.75 12/31/17 2,070,634 1,225,566 211,158
Pascagoula, MS 10/23/95 12.00 12/31/17 187,335 175,125 -
Pascagoula, MS 10/01/97 11.00 12/31/16 35,620 34,658 -
Quincy, IL 10/23/95 10.00 12/31/98 6,293,133 a 2,545,600 261,064
Rochester, NY 10/23/95 9.70 12/31/14 1,788,998 1,507,843 182,438
Rochester, NY 10/23/95 10.00 12/31/14 166,167 130,625 -
Savannah, TN 10/23/95 9.88 12/31/99 1,228,035 500,590 126,911
Warsaw, VA 10/23/95 9.75 12/31/99 1,406,491 1,049,573 143,431
------------ ----------- -----------
Totals 92,378,007 57,925,922 8,295,566
Temporary receiver - Chili Plaza, New York 4,883,737 1,477,009 169,962
------------ ------------ ----------
Total $ 97,261,744 $ 59,402,931 $ 8,465,528
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
a - Includes discount elements totaling in aggregate $11,202,305.
F-11
<PAGE>
The following schedule represents the roll forward of Wraparound Notes for the
years ended December 31, 1997 and 1996:
Balance at January 1, 1996 $80,941,328
Add:
Issuance of wraparound notes 45,250
Less:
Principal repayments (4,506,963)
Notes satisfied - property sales (4,857,817)
Valuation allowance (189,853) (9,554,633)
---------- -----------
Balance at December 31, 1996 71,431,945
----------
Add:
Issuance of wraparound notes 81,934
Less:
Principal repayments (4,578,169)
Notes satisfied - property sales (4,942,647)
Valuation allowance (2,590,132) (12,110,948)
----------- ------------
Balance at December 31, 1997 $59,402,931
-----------
-----------
At December 31, 1997 and 1996 the Wraparound Notes had a valuation allowance
of $2,590,132 and $189,853, respectively. The aggregate carrying value of the
Wraparound Notes adjusted by the valuation allowance is $12,160,890 and
$26,042,452, respectively.
Included in the Wraparound Notes carrying amount is $8,795,921, which
represents the non-discount portion, and $11,202,305, which represents the
discount portion, of certain original issue discount mortgage notes (the
"Discount Notes"). The carrying value of the Wraparound Notes exclude such
discount portion of the Discount Notes. The Partnerships are obligated to make
fixed payments on the non-discount portion of the Discount Notes and are not
obligated to make any principal payments on the discount portion of the
Discount Notes. The Company does not recognize income from the discount
portion of the Discount Notes due to uncertainty regarding the realization of
such amounts.
Each of the Wraparound Notes gives the Company a lien on the Underlying
Property as well as the Partnership's interest in the Master Lease. The
Wraparound Notes are subordinate to the Underlying Debt.
6. Investments
On February 27, 1997, UPI was merged (the "UPI Merger") into a wholly-owned
subsidiary of Kranzco Realty Trust, a Maryland real estate investment trust
("Kranzco"). In connection with the UPI Merger, the 356,400 shares of UPI
Preferred Stock which the Company owned as of the date of the UPI Merger were
converted into 356,400 shares of Kranzco's Series C Cumulative Redeemable
Preferred Shares (the "Kranzco Series C Shares"). The Company believes that
the terms of the Kranzco Series C Shares are similar to the terms of the UPI
Preferred Stock, because the Kranzco Series C Shares (i) have the same
redemption price and liquidation preference and price ($10 per share) as the
UPI Preferred Stock, (ii) pay cumulative dividends at the rate paid on the UPI
Preferred Stock as of the date of the UPI Merger (8%), and (iii) are required
to be redeemed ratably on a quarterly basis over a two-year period from the
date of the UPI Merger, as compared to the UPI Preferred Stock, which was not
required to be redeemed until the year 2002 (although UPI could, at its
option, redeem shares of UPI Preferred Stock at any time).
F-12
<PAGE>
The Company, as the holder of 222,860 shares of Kranzco Series C Cumulative
Redeemable Preferred Shares is entitled to receive from the redemption of such
shares, in 5 equal installments over the next 13 months, an aggregate amount
of cash equal to approximately $2,228,600, plus interest at the rate of 8% per
annum on the applicable outstanding balance of such shares.
7. Leases
As Lessor
The Properties have gross leasable area of approximately 2,642,048 and
2,935,493 square feet of which approximately 94% and 95% was leased as of
December 31, 1997 and 1996, respectively.
Minimum base rental income under tenant lease agreements relating to the
Properties having remaining lease terms ranging from one to twenty years at
December 31, 1997 is as follows (dollar amounts in thousands):
Year Ending
December 31
-----------
1998 $ 10,614
1999 9,738
2000 8,727
2001 7,899
2002 6,427
Thereafter 26,945
For the years ended December 31, 1997, 1996 and 1995, no tenant accounted for
more than 10% of the Company's total revenue. However, Kmart Corporation
accounted for approximately 32%, 30% and 40%, respectively, of rent revenue.
As Lessee
Minimum rental expense under the Master Leases, having original lease terms
ranging from 1998 to 2017 years, at December 31, 1997 is as follows (dollar
amounts in thousands):
Year Ending
December 31
-----------
1998 $13,411
1999 11,974
2000 2,370
2001 2,370
2002 2,370
Thereafter 30,646
Although the Company's lease payments are not contingent upon receiving rent
from the Properties, such payments are expected to be made from such receipts
and the receipt of interest and principal payments from the Wraparound Notes.
F-13
<PAGE>
8. Mortgages and Notes Payable
The mortgages and notes payable are non-recourse to the Company and are
collateralized by the Properties. The scheduled principal payments of the
mortgages and notes payable at December 31, 1997 are as follows (dollar
amounts in thousands):
Year Ending
December 31
-----------
1998 $5,998
1999 2,924
2000 3,235
2001 3,465
2002 881
Thereafter 51,236
--------
Total $ 67,739
--------
--------
The interest rates on the mortgages and notes payable range from 5.75% to
13.5%.
The mortgages and notes payable and related terms at December 31, 1997 for the
Properties are summarized as follows (amounts in thousands, except as noted):
<TABLE>
<CAPTION>
Monthly
Payment
Principal Provisions
Balance Stated
December 31 Interest in Actual
Property/Location 1997 Rate (%) Dollars Maturity Date (4)
----------------- ----------- -------- ----------- -----------------
<S> <C> <C> <C> <C>
Dubois, PA $1,490 7.00 $ (1) 12/01/2006
Franklin Township, PA 1,465 6.00 (1) 12/15/2007
Clarksville, TN 1,565 6.00-6.80 (1) 10/01/2006
Montgomery, AL 1,278 8.75 14,500 04/01/2007
Paris, TN 591 13.50 8,859 04/01/2008
Paris, TN 356 9.25 8,467 07/01/2003
Chili, NY 1,477 9.63 21,687 08/01/2004
South Williamson, KY 15,089 9.00 144,833 10/01/1998
Savannah, TN 324 9.50 6,612 01/31/2003
Danville, IL 476 9.625 9,663 09/01/2002
Warsaw, VA 818 13.125 11,373 10/01/2009
Southwick, MA 793 11.50 9,857 09/01/2009
Walpole, NH 793 11.50 9,857 09/01/2009
Baton Rouge, LA 2,066 12.00 33,583 12/01/2005
Palatka, FL 1,197 12.00 17,247 11/01/2007
Vestivia Hills, AL 745 13.00 13,759 11/01/2004
Columbus, NE 1,360 12.00 17,201 09/01/2010
Columbus, NE 64 9.50 697 07/01/2011
Hamilton, NY 823 13.125 11,373 12/01/2009
Bend, OR (3) 17,179 9.00 148,925 (5) 06/01/1998
Bend, OR 11 10.75 242 11/17/2002
Zanesville, OH 1,200 9.50 14,295 05/31/1998
Deland, FL 933 8.875 14,016 04/01/2003
Rochester, NY 1,156 9.25 15,992 01/01/2002
Janesville, WI 990 9.00 14,060 07/31/2002
Janesville, WI 118 9.00 1,529 (6) 08/01/2007
Marietta, OH 2,040 5.75-6.70 (1) 03/15/2007
Mt. Pleasant, PA 1,365 6.50 (1) 05/01/2007
North Canton, OH 2,116 9.00 21,669 09/30/2012
Owensboro, KY 1,600 6.50 - 6.80 (1) 12/01/2007
Quincy, IL 3,042 7.75 27,912 07/01/1998
Natchez, MS 1,834 12.50 (2) 04/01/2007
Streetsboro, OH 1,385 6.35-6.70 (1) 12/01/2006
-------
Total Balance $67,739
-------
-------
</TABLE>
(1) Principal and interest serviced through a bond fund with variable
semi-annual payments.
(2) Monthly payments of principal and interest equal to available cash flow.
(3) At maturity, the mortgagee is entitled to 50% of (i) the property's value
(as determined by sale or appraisal) less (ii) the outstanding balance,
plus $1,500,000.
(4) Certain mortgages and notes contain various terms regarding prepayment
penalties.
(5) Plus 67% of annual cash flow.
(6) Monthly payments subject to available cash flow.
F-14
<PAGE>
The following schedule represents the roll forward of the mortgages and notes
payable activity:
Balance at January 1, 1996 $82,012,066
Principal payments (7,586,850)
-----------
Balance at December 31, 1996 74,425,216
Principal payments (6,685,652)
-----------
Balance at December 31, 1997 $ 67,739,564
------------
------------
9. Capital Stock
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock and 10,000,000 shares of Series A Preferred Stock.
The shares of Common Stock are entitled to one vote per share. The Series A
Preferred Stock has limited voting rights. The Series A Preferred Stock has a
$10.00 liquidation preference and has a preferential right to receive a
quarterly dividend of $0.195 per share before dividends can be paid on the
Common Stock.
On December 21, 1995 the conversion ratio for the Series A Preferred Stock was
adjusted to provide for the receipt of one share of Common Stock upon the
conversion of .91 shares of Series A Preferred Stock. Previously, the
conversion ratio was 1.6 shares of Series A Preferred Stock for one share of
Common Stock. The new conversion ratio, which was effective as of November 1,
1995, was determined pursuant to the Certificate of Designations for the
Series A Preferred Stock, which required the adjustment to be made in
connection with the Distribution.
After September 30, 1995, holders of the MPI Preferred Stock were no longer
entitled to receive dividends on a cumulative basis. As a result of the
Company's Board of Director's determination not to pay a dividend for the
quarter ended June 30, 1997, which was the sixth consecutive quarter for which
no dividend was paid, the number of persons entitled to serve as directors on
the Company's Board of Directors has been increased by one, and the holders of
the Series A Preferred Stock, who currently elect one member of the Board of
Directors, are entitled to elect a second member of the Board of Directors to
fill such newly created directorship.
Milestone's Board of Directors determined not to pay any dividends on the MPI
Preferred Stock for the years ended December 31, 1997 and 1996. The last
dividend declared by the Company was for the quarter ended December 31, 1995
and was paid on February 15, 1996 at $0.195 per share of Series A Preferred
Stock.
In May 1994, the Common Stockholders approved the adoption of the 1993
Employee Stock Option Plan (the "Employee Stock Option Plan"). The total
number of shares of Common Stock of the Company which may be issued pursuant
to the exercise of options granted under the Employee Stock Option Plan is
300,000. The Compensation Committee of the Board of Directors (the
"Compensation Committee") made initial grants in December 1993 under such plan
totaling 153,000 options (the "Initial Grant") which are exercisable for
153,000 shares of Common Stock at a per option exercise price of $4.75. In
June 1997, the Compensation Committee canceled the Original Issue and reissued
153,000 options which are exercisable for 153,000 shares of Common Stock at a
per option exercise price of $0.50. At the same time, the Compensation
Committee granted 154,000 options which are exercisable for 154,000 shares of
Common Stock at a per option exercise price of $0.50. Options granted under
the Employee Stock Option Plan expire on the tenth anniversary of the date of
their grant, or upon termination of the grantee's employment with the Company.
During the year ended December 31, 1997, 1996 and 1995, 23,800, 0 and 7,000
such options were canceled upon resignation of an employee, respectively.
F-15
<PAGE>
In May 1994, the Common Stockholders also approved the adoption of the 1993
Non-Employee Director Stock Option Plan ("the "Non-Employee Director Stock
Option Plan"). Options granted under such plan expire on the tenth anniversary
of the date of their grant, or upon the grantee's removal or resignation from
the Board of Directors. The exercise price for each option granted under the
Non-employee Director Stock Option Plan is determined by averaging the high
and low trading prices of the Common Stock as reported on the New York Stock
Exchange on the date of such options. Under the Non-Employee Director Stock
Option Plan, the Company granted 2,500 options to each non-employee director
in each of 1993 (upon the adoption of the plan), 1994,1995,1996 and 1997, at a
per option exercise price of $4.75, $4.375, $1.375, $1.6875 and $0.50,
respectively. As of December 31, 1997, all of the non-employee director
options granted in 1993 thru 1995 are exercisable, one half of the options
granted in 1996 are exercisable, and none of the non-employee director options
granted in 1997 are exercisable. Pursuant to such plan, each non-employee
director was granted 2,500 options upon adoption of such plan in 1994 and is
granted 2,500 options at each annual meeting of the stockholders of the
Company.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 requires expanded disclosure of
stock-based compensation arrangements with employees, and encourages, but does
not require compensation cost be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply Accounting Principles Board Opinion No. 25 ("APB 25"), which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB 25 to its stock-based
compensation awards. Accordingly, no compensation cost has been recognized in
the consolidated financial statements of the Company.
No options were exercised and, other than the options granted under the
Non-Employee Director Stock Option Plan, no employee options were granted
during the years ended December 31, 1996 and 1995. The Company has evaluated
the pro forma effects of the options granted under the Employee Stock Option
Plan during the year ended December 31, 1997 and determined such effects not
to be material to the Company's consolidated financial position or results of
operations. The pro forma disclosure provisions of SFAS No. 123 for the years
ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Net loss As reported $(3,430,731) $(2,486,974) $(809,649)
Pro-forma (3,443,748) (2,486,974) (809,649)
Loss per common share As reported $(0.82) $(0.65) $(2.13)
Pro-forma (0.79) (0.65) (2.13)
</TABLE>
For the purposes of providing the pro forma disclosures, the fair value of
options granted were estimated using the Black Scholes options pricing model
with the following weighted average assumptions; a risk free interest rate of
5.06%, an expected life of one year, volatility of 42.20% and no dividends.
The estimated fair value compensation cost of the related options was
amortized to expense over the options' vesting period.
F-16
<PAGE>
Certain information relating to the options granted and outstanding under the
Employee Stock Option Plan and the Non- Employee Director Stock Option Plan
during the years ended December 31, 1997, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1996 December 31, 1997
------------------------------------ ------------------------------------------------------------------
Number Weighted Number Weighted Number Weighted
of Average of Average of Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at 168,000 $ 4.73 168,500 $ 4.58 176,000 $ 4.46
January 1
Granted 7,500 1.375 7,500 1.6875 307,500 0.50
Exercised 0 0 0
Forfeited (7,000) 4.75 0 (169,800) 4.15
------------ --------- ----------
Outstanding at 168,500 $ 4.58 176,000 $ 4.46 313,700 $ 0 .74
December 31
------------ --------- ----------
------------ --------- ----------
Options exercised
at December 31 0 0 0
------------ --------- ----------
------------ --------- ----------
</TABLE>
10. Income Taxes
The Company recognizes deferred taxes for the temporary differences between
the tax bases of its assets and liabilities and the amounts reported in the
financial statements at enacted statutory rates.
The provision for income taxes for the years ended December 31, 1997, 1996 and
1995 consists of the following:
<TABLE>
<CAPTION>
Current Tax: 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal $ 0 $ 524,317 $3,293,167
State and other 64,245 123,069 957,936
----------- ----------- ----------
Total current 64,245 647,386 4,251,103
----------- ----------- ----------
Deferred Tax:
Federal (667,657) (11,894) (3,049,311)
State and other (117,822) (269,054) (885,284)
----------- ----------- ----------
Total deferred (785,479) (280,948) (3,934,595)
----------- ----------- ----------
Total (benefit) provision
for income taxes $ (721,234) $ 366,438 $ 316,508
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
Temporary differences between the amount reported in the consolidated
financial statements and the tax bases of assets and liabilities result in
deferred taxes. There was a (decrease) increase in the valuation allowance of
($340,576) and $1,355,576 for the year ended December 31, 1997 and 1996,
respectively. Realization of remaining deferred tax assets is dependent, in
part, on generating sufficient taxable income in the future. Although
realization is not assured, the Company believes that it is more likely than
not that such deferred tax assets will be realized. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced. The Company has a net
operating loss carryforward of $1,520,664 at December 31, 1997. Deferred tax
assets and liabilities at December 31, 1997, 1996 and 1995 were as follows:
F-17
<PAGE>
<TABLE>
<CAPTION>
Deferred Tax Assets: 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Acquisition costs $ 1,025,222 $ 1,078,538 $ 1,128,897
Unrealized holding loss on U.S. Treasury Notes sold short 0 517,553 1,116,073
Principal amortization on Wraparound Notes 2,000,385 2,210,868 341,546
Unrealized holding loss on Available-for-Sale Securities 0 146,531 0
Valuation allowance on Wraparound Notes 1,380,811 344,758 0
Other 880,897 421,409 350,086
----------- ------------- -----------
Gross deferred tax assets 5,287,315 4,719,657 2,936,602
Less: Valuation allowance (1,015,000) (1,355,576) 0
----------- -------------- -----------
Deferred tax asset net of valuation allowance 4,272,315 3,364,081 2,936,602
Deferred Tax Liabilities: ----------- ------------- -----------
Accelerated depreciation 213,957 91,208 91,208
Unrealized holding gain on Available-for-Sale Securities 0 0 565,988
----------- ------------- ------------
Gross deferred tax liabilities 213,957 91,208 657,196
Net deferred tax asset $ 4,058,358 $ 3,272,873 $ 2,279,406
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
The provision for total income tax differs from the amount obtained by
applying the statutory federal income tax rate to pre-tax income for the
following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Amount computed on pre-tax income (35.0)% (35.0)% (35.0)%
Increase (Decrease) in taxes:
Increase in taxes from State and other
taxes net of Federal tax benefit 2.1 (5.2) 9.7
Valuation Allowance 15.5 55.9 0
Non-deductible Acquisition Costs 0 0 90.2
Other 0 1.6 (0.6)
----- ---- -----
(17.4)% 17.3% 64.3%
------- ----- -----
------- ----- -----
</TABLE>
11. Fair Values of Financial Instruments
The following estimated fair values were determined by the Company using
available market information and valuation methodologies considered
appropriate by management. However, considerable judgement is necessary to
interpret and apply market data to develop specific fair value estimates for
given financial instruments, and the use of different market assumptions
and/or estimation methodologies could have a material effect on reported fair
value amounts. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that could be realized upon disposition of the
Company's financial instruments.
Cash and cash equivalents, account and loan receivables and accounts payable
and accrued expenses are reflected in the consolidated balance sheets at
amounts considered by management to reasonably approximate fair value due to
their short-term nature. The Company estimates the fair value of its long-term
fixed rate mortgage loans generally using discounted cash flow analysis based
on the Company's current borrowing rates for similar types of debt. At
December 31, 1997 and 1996, the carrying value of the notes and mortgages
payable and the fair value of such instruments was not considered to be
significantly different.
F-18
<PAGE>
The fair value of the Wraparound Notes has been estimated by management based
on the estimated fair value of the Underlying Properties. At December 31, 1997
and 1996, the fair value of the Wraparound Notes was estimated to be
$65,997,009 and $80,643,928 compared to a carrying amount of $59,402,931 and
$71,431,945, respectively.
For the investment in Kranzco Series C Cumulative Redeemable Preferred Shares
the estimated fair value, which approximates the carrying amount, is based on
the applicable mandatory redemption price and the dividend interest rates and
is evaluated using interest rates currently offered on like securities with
similar remaining maturities.
The fair value estimates presented herein are based on information available
as of December 31, 1997 and 1996. Although management is not aware of any
factors that would significantly affect the estimated fair value amounts, a
comprehensive reevaluation has not been performed for purposes of these
financial statement disclosures and current estimates of fair value may differ
significantly from the amounts presented herein.
12. Related Party Transactions
The Company is a party to a management agreement (the "Management Agreement")
with Concord pursuant to which the Company provides management services,
assists in the management of Concord Properties, provides certain personnel
and office space and general office service to Concord which the Company
receives reimbursements from Concord. The Management Agreement is renewable
annually. For the years ended December 31, 1997, 1996 and 1995 reimbursed
expenses to the Company were $338,394, $420,743 and $981,302, respectively.
As of December 31, 1997 and 1996, the Company has recorded receivables from
Concord of $391,851 and $599,093, respectively. Such receivable consist of
management fees due to the Company and expenses for general office services as
well as salary reimbursements.
Concord is wholly owned by Leonard S. Mandor and Robert A. Mandor, both of
whom are executive officers and directors of Concord and the Company, and both
of whom may be deemed to beneficially own more than a majority of the voting
stock of the Company.
Concord beneficially owns 2,901,098 shares of Common Stock at December 31,
1997 and 1996. The wholly-owned subsidiaries of Concord own 2,698,765 shares
and the two limited partnerships, which are the sole general partners of the
wholly owned subsidiaries of Concord, own 202,333 shares at December 31, 1997
and 1996.
In addition, the Company received property management fees of $107,725,
$107,007 and $116,359 during 1997, 1996 and 1995, respectively, from a
partnership whose general partner is an affiliate of the Company.
In connection with the UPI Merger, UPI terminated its property management and
management services agreements with the Company. The Company does not expect
the termination of these agreements to have a materially adverse effect on the
operations or financial condition of the Company. The aggregate annual fee by
UPI to the Company under these agreements for the years ended December 31,
1997, 1996 and 1995 was $108,588, $1,235,831 and $155,018, respectively.
F-19
<PAGE>
13. Commitments and Contingent Liabilities
The Company's office facility in Boca Raton is subject to a noncancellable
five year operating lease agreement commencing January 1, 1998 and expiring
December 31, 2002. Aggregate annual rental payments for the years ended
December 31, 1997, 1996 and 1995 for the Company were $758,193, $752,344 and
$720,751, respectively. Future minimum annual payments under the
noncancellable operating lease agreement, as of December 31, 1997, are as
follows:
1998 $176,374
1999 183,479
2000 190,805
2001 198,421
2002 206,358
--------
Total $955,437
--------
--------
Under a long term incentive bonus plan, the Company has accrued $669,460 and
$818,964 for bonuses to be paid to certain officers relating to the years
ended December 31, 1997 and 1996, respectively.
The Company has accrued performance related bonuses to certain executive
officers in the amount of $426,870 and $55,566 for the years ended December
31, 1997 and 1996, respectively.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
held liable for the costs of removal or remediation of certain hazardous or
toxic substances, including, without limitations, asbestos-containing
materials, that could be located on, in or under such property. Such laws and
regulations often impose liability whether or not the owner or operator know
of, or was responsible for, the presence of the hazardous or toxic substances.
The costs of any required remediation or removal of these substances could be
substantial and the liability of an owner or operator as to any property is
generally not limited under such laws and regulations, and could exceed the
property's value and the aggregate assets of the owner or operator. The
presence of these substances or failure to remediate such substances properly
may also adversely affect the owner's ability to sell or rent the property, or
to borrow using the property as collateral. Under these laws and regulations,
an owner, operator or any entity who arranges for the disposal of hazardous or
toxic substances, such as asbestos-containing materials, at a disposal site
may also be liable for these costs, as well as certain other costs, including
governmental fines and injuries to persons or properties. To date, the Company
has not incurred any costs of removal or remediation of such hazardous or
toxic substances. However, the presence, with or without the Company's
knowledge, of hazardous or toxic substances at any property held or operated
by the Company could have an adverse effect on the Company's business,
operating results and financial condition.
14. Legal Proceedings.
A lawsuit (the "Rabin Litigation") purporting to be a class action against,
among others, Concord, Leonard S. Mandor, Robert A. Mandor and certain
partnerships (the "Concord Partnerships") and affiliates of Concord, was filed
in September 1989 in the United States District Court for the Southern
District of New York alleging various federal and common law claims relating
to the sales of interests in such Concord Partnerships. In November 1991, the
Rabin Litigation was settled pursuant to the terms of the court-approved
settlement agreement (the "Rabin Settlement Agreement"). A motion brought by
the plaintiffs in the Rabin Litigation seeking to enforce the Rabin Settlement
Agreement and for declaratory and other relief was settled by a Stipulation
and Order (the "Rabin Stipulation and Order") entered and approved by the
United States District Court on October 24, 1997. The plaintiffs asserted,
inter alia, that the defendants breached the Rabin Settlement Agreement by
improperly allocating transaction expenses against the payment to be made to
the selling Concord Partnerships in certain circumstances pursuant to the
Rabin Settlement Agreement and breached their fiduciary duties to the
plaintiffs by prematurely selling properties without valid business
justification.
F-20
<PAGE>
Under the Rabin Stipulation and Order, the plaintiffs withdrew their breach of
fiduciary duty claims and withdrew with prejudice their claim that defendants
breached the Rabin Settlement Agreement by their allocation of transaction
expenses from the sale of certain properties in exchange for a payment of
$600,000 from the defendants. The settlement payment has been made. In
addition, the Rabin Stipulation and Order provides for a formula relating to
the allocation of transaction expenses in connection with the future sale of
certain properties owned by the Concord Partnerships, including the Underlying
Properties subject to the Wrap Debt. Generally, under such formula, if a
Property (as defined in the Rabin Settlement Agreement) is sold for a price
less than the sum of (a) the outstanding Wrap Debt, (b) the Permitted
Additional Wrap Debt (as defined in the Rabin Settlement Agreement) and (c)
the amount to be paid to the holder of the Wrap Debt pursuant to the Rabin
Settlement Agreement, then 82.25% of the transaction expenses shall be the
obligation of the selling Concord Partnership, and shall be deducted from the
11% of net proceeds (as defined in the Rabin Settlement Agreement) to be
distributed to the selling Concord Partnership, and the Company, as the holder
of the Wrap Debt, will be responsible for paying the remaining 17.75% of the
transaction expenses incurred in such sale. In the event a Property is sold
for a price in excess of the sum of (a) the outstanding Wrap Debt, (b) the
Permitted Additional Wrap Debt and (c) the amount to be paid to the holder of
the Wrap Debt pursuant to the Rabin Settlement Agreement, then the transaction
expenses shall be deducted from the proceeds in excess of such existing debt,
and, if such excess proceeds are not sufficient to pay all such transaction
expenses, 82.25% of the balance of such transaction expenses shall be paid out
of the 11% of the net proceeds distributed to the selling Concord Partnership,
and the Company will be responsible for paying the remaining 17.75% of the
transaction expenses incurred in such sale. Concord and one of its
subsidiaries have agreed to indemnify the Company for any losses, up to
$200,000 in the aggregate, resulting from any such additional transaction
fees, costs or expenses incurred by the Company as a result of such events.
The Company does not believe that the Rabin Stipulation and Order materially
adversely affects the Company. There can be no assurance, however, that the
plaintiffs will not pursue the breach of fiduciary duty claims against Concord
and the General Partners of the Concord Partnerships which own the Underlying
Properties which were withdrawn under the terms of the Rabin Stipulation and
Order.
On January 30, 1996, Milestone, its Board of Directors and Concord were named
as defendants in an action (the "Winston Action") commenced in the Court of
Chancery of the State of Delaware (the "Delaware Court"). In the action, the
plaintiff, a Series A Preferred Stockholder purporting to bring the action on
behalf of himself and other Series A Preferred Stockholders, alleged that in
connection with the Acquisition, the Transfer and the Distribution (the
Acquisition, the Transfer and the Distribution are collectively referred to
herein as the "Transactions"), Milestone and its directors engaged in
self-dealing and breached their fiduciary duties and faith and fair dealing to
the Series A Preferred Stockholders. The plaintiff claimed, among other
things, that, as a result of the Transactions, Milestone would not have
sufficient funds to pay dividends on the Series A Preferred Stock and that the
Properties were grossly inferior to the UPI Properties. The defendants moved
to dismiss the plaintiff's original complaint, and thereafter, the plaintiff
amended his complaint to allege further causes of action, including a claim of
rescission. The defendants moved to dismiss the amended complaint and, after
hearing arguments thereon, the Delaware Court dismissed the plaintiff's claim
for rescission of both the Transfer and the Distribution and reserved decision
on the defendants' motion to dismiss the plaintiff's claim for damages and
other relief. On December 9, 1996, the plaintiff requested that the Delaware
Court dismiss the amended complaint, and filed a purported new class action.
On January 14, 1997, the defendants filed a motion to dismiss or stay the
purported new class action. On May 12, 1997, the Delaware Court issued a
decision on such motion and dismissed the plaintiff's breach of fiduciary duty
and statutory claims (although the Delaware Court had allowed the plaintiff to
replead the fiduciary duty claim as a derivative claim brought on behalf of
Milestone), but did not dismiss the plaintiff's claim that the Transfer and
the Distribution did not comply with the Certificate of Designations for the
Series A Preferred Stock. On June 4, 1997, the plaintiff appealed the Delaware
Court's dismissal of the fiduciary duty claim and, on June 11, 1997, the
defendants filed a cross-appeal. The plaintiff thereafter, filed an amended
complaint.
On October 30, 1997, Milestone entered into a Stipulation of Settlement (the
"Winston Settlement Agreement") providing for the settlement (the "Winston
Settlement") of the purported class action lawsuit. The Winston Settlement is
subject to approval by the Delaware Court after a hearing, and is also subject
to a number of conditions which may be waived at the option of the Company and
the other defendants, including the condition that stockholders owning more
than 10% of the Series A Preferred Stock do not opt out of the Winston
Settlement.
F-21
<PAGE>
If the Winston Settlement is approved and consummated, the Winston Action will
be dismissed, Milestone's stockholders will release all derivative claims
arising in connection with the Transactions and the holders of the Series A
Preferred Stock between October 23, 1995 and the date on which the Winston
Settlement is consummated will release any claims they may have against
Milestone and the other named defendants arising out of the Transactions. Each
Series A Preferred Stockholder who does not opt out of the Winston Settlement
and who owns shares of the Series A Preferred Stock on the date the Winston
Settlement is consummated will received $0.75 per share in cash from the
Company and one share of preferred stock of Concord Milestone Preferred, Inc.,
a Delaware corporation affiliated with Concord ("CMP") ( the "CMP" Preferred
Stock), in exchange for each share of Series A Preferred Stock surrendered.
The CMP Preferred Stock will have a liquidation preference of $2.25 per share,
will be required to be redeemed by CMP at $2.25 per share after five years,
and will have no voting or dividend rights; in addition, the CMP Preferred
Stock will be subject to optional redemption in accordance with a schedule
during the five year period prior to mandatory redemption. CMP's redemption
obligations will be secured by a letter of credit.
The ultimate consummation of the Winston Settlement as set forth in the
Winston Settlement Agreement is subject to numerous conditions, some of which
are not in the control of the Company, such as approval by the Delaware Court,
and therefore is inherently uncertain. Accordingly, no dollar amount has been
included in the Company's accompanying financial statements to reflect the
potential Winston Settlement. If the Winston Settlement is consummated, the
Company does not anticipate that the Company's portion of such settlement
costs will exceed $3,000,000. There can be no assurance, however, that any
fees, expenses or other costs associated with the ultimate resolution of the
Winston Action will not differ from such estimate.
The foregoing description of the Winston Settlement and the Winston Settlement
Agreement is qualified in its entirety by reference to the Winston Settlement
Agreement, a copy of which was filed with the Securities and Exchange
Commission on November 12, 1997 as Exhibit 2 to Milestone's Form 8-K.
On January 29, 1998, Milestone, along with certain of its directors, commenced
a lawsuit in the United States District Court for the Southern District of New
York against National Union Fire Insurance Company of Pittsburgh, Pa.
("National Union") and Stonewall Surplus Lines Insurance Company
("Stonewall"). National Union had issued a directors and officers insurance
and company reimbursement policy (the "National Policy") for Milestone and its
directors with a limit of $2,000,000. Stonewall had issued an excess directors
and officers liability and company reimbursement policy (the "Stonewall
Policy") for Milestone and its directors with a limit of $2,000,000. Pursuant
to the Winston Settlement Agreement, if the Winston Settlement is consummated,
Milestone will be required to pay, in cash, $0.75 per share for each of the
outstanding 3,033,995 shares of Series A Preferred Stock, to each Series A
Preferred Stockholder who does not opt out of the Winston Settlement, plus the
plaintiff's legal fees in an amount not to exceed $650,000 and will incur
other legal expenses. Milestone believes that the amount it and certain of its
directors will be required to pay, pursuant to the Winston Settlement
Agreement and as a result of the litigation, if the Winston Settlement is
consummated, are covered losses under both the National Union Policy and the
Stonewall Policy. In addition, the Company has incurred approximately $250,000
in legal fees in defending Milestone and its directors in connection with the
Winston Action, which it believes is a covered loss under the National Union
and Stonewall policies. National Union has refused to contribute to the
Winston Settlement, as set forth in the Winston Settlement Agreement,
asserting that the Winston Settlement does not encompass any covered loss (as
defined in the National Policy). Stonewall has also refused to contribute to
the Winston Settlement. In the complaint, the plaintiffs allege that National
Union and Stonewall have wrongfully failed to contribute to the Winston
Settlement and seek reimbursement from National Union and Stonewall up to the
limits of their respective policies. National Union has answered the complaint
and has denied liability. Stonewall has until April 6, 1998 to answer the
complaint. At this time, the Company is not in a position to render an opinion
as to the outcome of this action.
F-22
<PAGE>
15. Subsequent Events
The Company entered into an agreement (the "SGSC Agreement") on January 9,
1998, effective as of December 24, 1997, with Societe Generale Securities
Corporation ("SGSC") pursuant to which the Company retained SGSC to act as a
financial advisor to the Company and two of its affiliates (the "Affiliates"),
in connection with any transaction (a "Transaction") involving a proposed sale
by the Affiliates of certain shopping center properties and a proposed sale by
the Company of certain of its Fee Properties. The shopping center properties
to be sold by the Affiliates are subject to Wrap Debt held by the Company
which would need to be released prior to the consummation of a Transaction.
The Properties to be sold and the Wrap Debt to be repaid in connection with
any Transaction could represent a substantial portion of the Company's real
estate related assets.
Neither the Company nor the Affiliates have entered into any commitment,
agreement or understanding with any prospective purchaser with respect to any
Transaction, and there can be no assurance that SGSC will be able to identify
suitable candidates to undertake any Transaction, or that if identified, the
Company and the Affiliates will be able to consummate any Transaction on terms
acceptable to them.
On February 9, 1998, the Company realized its position in its Wraparound Note
on the property located in Chili, New York as a result of the assignment of
the Wraparound Note. Such assignment resulted in the relief of the
non-recourse underlying mortgage, which resulted in a net book gain of
approximately $75,000 to the Company.
16. Consolidated Quarterly Summary of Operations
The following is summary financial information with respect to the Company's
operations for the four fiscal quarters during fiscal year 1997.
<TABLE>
<CAPTION>
Fourth Third Second First
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $10,968,487 (1) $6,308,950 $5,966,201 $6,848,273
Total expenses 11,738,497 7,328,116 7,657,032 7,520,231
----------- ---------- ---------- ----------
Loss before income taxes (770,010) (1,019,166) (1,690,831) (671,958)
(Benefit) provision for income taxes (980,919) 166,297 416,309 (322,921)
----------- ---------- ---------- ----------
Net income (loss) 210,909 (1,185,463) (2,107,140) (349,037)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Net income(loss) per common share $0.05 ($0.28) ($0.50) ($0.08)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Weighted average common shares outstanding 4,213,368 4,211,275 4,192,211 4,188,451
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
Note:
(1) Includes approximately $3,511,560 of gain on sale of available-for-sale
securities (see Note 2. "Summary of Significant Accounting Policies").
F-23
<PAGE>
MILESTONE PROPERTIES, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 1997
<TABLE>
<CAPTION>
Initial Cost
------------ Cost of Accumulated Date Depreciation
Location Encumbrances Land Building Improvements Total Depreciation Acquired Life
-------- ------------ ---- -------- ------------ ----- ------------ -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mountain View Mall $17,179,016 $1,030,000 $19,866,183 $79,338 $20,975,521 ($4,472,989) 10/23/95 50
Bend, Oregon
Pine Oak Plaza - 110,000 990,000 45,145 1,145,145 (7,207) 09/24/97 50
Sunrise, Florida
Sunrise Shopping
Center 1,199,650 - 2,530,219 91,904 2,622,123 (1,022,012) 10/23/95 50
Zanesville, Ohio
Family Dollar Stores - - 794,909 8,607 803,516 (563,743) 10/23/95 26.65
Blackstone, Virginia
----------- ---------- ----------- -------- ----------- -----------
Totals $18,378,666 $1,140,000 $24,181,311 $224,994 $25,546,305 ($6,065,951)
----------- ---------- ----------- -------- ----------- -----------
----------- ---------- ----------- -------- ----------- -----------
</TABLE>
Reconciliation of Property and Improvements
- -------------------------------------------
Balance at January 1, 1995 $84,160,584
Pooling -
Acquisitions $24,221,311
Dispositions (84,160,584)
Balance at December 31, 1995 24,221,311
-----------
Improvements 46,999
Balance at December 31, 1996 24,268,310
-----------
Acquisitions 1,100,000
Improvements 177,995
Balance at December 31, 1997 $25,546,305
-----------
-----------
Reconciliation of Accumulated Depreciation
- ------------------------------------------
Balance at January 1, 1995 ($13,848,604)
Dispositions $13,848,604
Pooling-Accumulated
Depreciation (4,965,798)
Depreciation Expense (97,380)
Balance at December 31, 1995 (5,063,178)
-----------
Depreciation expense (481,840)
Balance at December 31, 1996 (5,545,018)
-----------
Depreciation expense (520,933)
Balance at December 31, 1997 ($6,065,951)
-----------
-----------
At December 31, 1997 the tax basis of the Company's owned real estate was
approximately $25,406,248.
F-24
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-K/A
Amendment No. 1
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-10641
MILESTONE PROPERTIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 65-0158204
- --------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
150 E. Palmetto Park Rd. 4th Floor, Boca Raton, FL 33432
- -------------------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (561) 394-9533
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------------ ---------------------------
Common Stock, $.01 par value New York Stock Exchange
$.78 Convertible Series A
Preferred Stock, $.01 par value New York Stock Exchange
1
<PAGE>
Indicate by check mark whether the Registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. x
_____ ____
Yes No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-K contained in this form, and no disclosure will be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or by any
amendment to this Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the last sale price on March 20, 1998,
was approximately $ 1 9/16 for the Common Stock and $1 7/16 for the $.78
Convertible Series A Preferred Stock.
The Registrant's revenues for the fiscal year ended December 31, 1997 were
$30,091,911.
As of April 23, 1998, 4,213,368 shares of the Registrant's Common Stock and
3,033,995 shares of the Registrant's $.78 Convertible Series A Preferred Stock
were outstanding.
2
<PAGE>
Explanatory Note
The purpose of this amendment is to (i) provide information required
by Items 10, 11, 12 and 13 of Part III of Form 10-K and (ii) provide updated
disclosure concerning the current status of the Winston Action (See Item 3.
Legal Proceedings). The information referenced in (i) above is being provided
by amendment because the Registrant's Form 10-K for its fiscal year ended
December 31, 1997 incorporated by reference this information from the
Registrant's Proxy Statement for its 1998 Annual Meeting of Stockholders (the
"Proxy Statement") and the definitive Proxy Statement will not be filed with
the Securities and Exchange Commission by April 30, 1998.
3
<PAGE>
Part II
Item 3. Legal Proceedings.
A lawsuit (the "Rabin Litigation") purporting to be a
class action against, among others, Concord, Leonard S. Mandor, Robert A. Mandor
and certain partnerships (the "Concord Partnerships") and affiliates of Concord,
was filed in September 1989 in the United States District Court for the Southern
District of New York alleging various federal and common law claims relating to
the sales of interests in such Concord Partnerships. In November 1991, the Rabin
Litigation was settled pursuant to the terms of the court-approved settlement
agreement (the "Rabin Settlement Agreement"). A motion brought by the plaintiffs
in the Rabin Litigation seeking to enforce the Rabin Settlement Agreement and
for declaratory and other relief was settled by a Stipulation and Order (the
"Rabin Stipulation and Order") entered and approved by the United States
District Court on October 24, 1997. The plaintiffs asserted, inter alia, that
the defendants breached the Rabin Settlement Agreement by improperly allocating
transaction expenses against the payment to be made to the selling Concord
Partnerships in certain circumstances pursuant to the Rabin Settlement Agreement
and breached their fiduciary duties to the plaintiffs by prematurely selling
properties without valid business justification.
Under the Rabin Stipulation and Order, the plaintiffs
withdrew their breach of fiduciary duty claims and withdrew with prejudice their
claim that defendants breached the Rabin Settlement Agreement by their
allocation of transaction expenses from the sale of certain properties in
exchange for a payment of $600,000 from the defendants. The settlement payment
has been made. In addition, the Rabin Stipulation and Order provides for a
formula relating to the allocation of transaction expenses in connection with
the future sale of certain properties owned by the Concord Partnerships,
including the Underlying Properties subject to the Wrap Debt. Generally, under
such formula, if a Property (as defined in the Rabin Settlement Agreement) is
sold for a price less than the sum of (a) the outstanding Wrap Debt, (b) the
Permitted Additional Wrap Debt (as defined in the Rabin Settlement Agreement)
and (c) the amount to be paid to the holder of the Wrap Debt pursuant to the
Rabin Settlement Agreement, then 82.25% of the transaction expenses shall be the
obligation of the selling Concord Partnership, and shall be deducted from the
11% of net proceeds (as defined in the Rabin Settlement Agreement) to be
distributed to the selling Concord Partnership, and the Company, as the holder
of the Wrap Debt, will be responsible for paying the remaining 17.75% of the
transaction expenses incurred in such sale. In the event a Property is sold for
a price in excess of the sum of (a) the outstanding Wrap Debt, (b) the Permitted
Additional Wrap Debt and (c) the amount to be paid to the holder of the Wrap
Debt pursuant to the Rabin Settlement Agreement, then the transaction expenses
shall be deducted from the proceeds in excess of such existing debt, and, if
such excess proceeds are not sufficient to pay all such transaction expenses,
82.25% of the balance of such transaction expenses shall be paid out of the 11%
of the net proceeds distributed to the selling Concord Partnership, and the
Company will be responsible for paying the remaining 17.75% of the transaction
expenses incurred in such sale. Concord and one of its subsidiaries have agreed
to indemnify the Company for any losses, up to $200,000 in the aggregate,
resulting from any such additional transaction fees, costs or expenses incurred
by the Company as a result of such events. The Company does not believe that the
Rabin Stipulation and Order materially adversely affects the Company. There can
be no assurance, however, that the plaintiffs will not pursue the breach of
fiduciary duty claims against Concord and the General Partners of the Concord
Partnerships which own the Underlying Properties which were withdrawn under the
terms of the Rabin Stipulation and Order.
On January 30, 1996, Milestone, its Board of Directors
and Concord were named as defendants in an action (the "Winston Action")
commenced in the Court of Chancery of the State of Delaware (the "Delaware
Court"). In the action, the plaintiff, a Series A Preferred Stockholder
purporting to bring the action on behalf of himself and other
4
<PAGE>
Series A Preferred Stockholders, alleged that in connection with the
Acquisition, the Transfer and the Distribution (the Acquisition, the Transfer
and the Distribution are collectively referred to herein as the "Transactions"),
Milestone and its directors engaged in self-dealing and breached their fiduciary
duties and duties of good faith and fair dealing to the Series A Preferred
Stockholders. The plaintiff claimed, among other things, that, as a result of
the Transactions, Milestone would not have sufficient funds to pay dividends on
the Series A Preferred Stock and that the Properties were grossly inferior to
the UPI Properties. The defendants moved to dismiss the plaintiff's original
complaint, and thereafter, the plaintiff amended his complaint to allege further
causes of action, including a claim of rescission. The defendants moved to
dismiss the amended complaint and, after hearing arguments thereon, the Delaware
Court dismissed the plaintiff's claim for rescission of both the Transfer and
the Distribution and reserved decision on the defendants' motion to dismiss the
plaintiff's claim for damages and other relief. On December 9, 1996, the
plaintiff requested that the Delaware Court dismiss the amended complaint, and
filed a purported new class action. On January 14, 1997, the defendants filed a
motion to dismiss or stay the purported new class action. On May 12, 1997, the
Delaware Court issued a decision on such motion and dismissed the plaintiff's
breach of fiduciary duty and statutory claims (although the Delaware Court had
allowed the plaintiff to replead the fiduciary duty claim as a derivative claim
brought on behalf of Milestone), but did not dismiss the plaintiff's claim that
the Transfer and the Distribution did not comply with the Certificate of
Designations for the Series A Preferred Stock. On June 4, 1997, the plaintiff
appealed the Delaware Court's dismissal of the fiduciary duty claim and, on June
11, 1997, the defendants filed a cross-appeal. The plaintiff thereafter filed an
amended complaint.
On October 30, 1997, Milestone entered into a
Stipulation and Agreement of Settlement (the "Winston Settlement Agreement")
providing for the settlement (the "Winston Settlement") of the Winston Action.
If the Winston Settlement had been approved and consummated, the Winston Action
would have been dismissed, Milestone's stockholders would have released all
derivative claims arising in connection with the Transactions and the holders of
the Series A Preferred Stock between October 23, 1995 and the date on which the
Winston Settlement was consummated would have released any claims they may have
had against Milestone and the other named defendants arising out of the
Transactions. Each Series A Preferred Stockholder who did not opt out of the
Winston Settlement and who owned shares of the Series A Preferred Stock on the
date the Winston Settlement was consummated would have received $0.75 per share
in cash from the Company and one share of preferred stock of Concord Milestone
Preferred, Inc., a Delaware corporation affiliated with Concord ("CMP") (the
"CMP" Preferred Stock), in exchange for each share of Series A Preferred Stock
surrendered. The CMP Preferred Stock would have had a liquidation preference of
$2.25 per share, would have been required to be redeemed by CMP at $2.25 per
share after five years, and would have had no voting or dividend rights; in
addition, the CMP Preferred Stock would have been subject to optional redemption
in accordance with a schedule during the five year period prior to mandatory
redemption. CMP's redemption obligations would have been secured by a letter of
credit. The Winston Settlement was subject to approval by the Delaware Court
after a hearing, and was also subject to a number of conditions which may have
been waived at the option of the Company and the other defendants, including the
condition that stockholders owning more than 10% of the Series A Preferred Stock
did not opt out of the Winston Settlement.
In April 1998, counsel for the plaintiff to the Winston
Action advised the Company that the plaintiff would not proceed with the Winston
Settlement Agreement.
The foregoing description of the Winston Settlement and
the Winston Settlement Agreement is qualified in its entirety by reference to
the Winston Settlement Agreement, a copy of which was filed with the Securities
and Exchange Commission on November 12, 1997 as Exhibit 2 to Milestone's Form
8-K.
5
<PAGE>
On January 29, 1998, Milestone, along with certain of
its directors, commenced a lawsuit in the United States District Court for the
Southern District of New York against National Union Fire Insurance Company of
Pittsburgh, Pa. ("National Union") and Stonewall Surplus Lines Insurance Company
("Stonewall"). National Union had issued a directors and officers insurance and
company reimbursement policy (the "National Policy") for Milestone and its
directors with a limit of $2,000,000. Stonewall had issued an excess directors
and officers liability and company reimbursement policy (the "Stonewall Policy")
for Milestone and its directors with a limit of $2,000,000. Pursuant to the
Winston Settlement Agreement, had the Winston Settlement been consummated,
Milestone would have paid approximately $2,225,000, plus the plaintiff's legal
fees in an amount not to exceed $650,000 and would have incurred other legal
expenses. Milestone believes that the amount it and certain of its directors
would have paid pursuant to the Winston Settlement Agreement and as a result of
the litigation, had the Winston Settlement been consummated, are covered losses
under both the National Union Policy and the Stonewall Policy. In addition, the
Company has incurred approximately $440,000 in legal fees in defending Milestone
and its directors in connection with the Winston Action, which it believes is a
covered loss under the National Union and Stonewall policies. National Union
refused to contribute to the Winston Settlement, as set forth in the Winston
Settlement Agreement, asserting that the Winston Settlement does not encompass
any covered loss (as defined in the National Policy). Stonewall also refused to
contribute to the Winston Settlement. In the complaint, the plaintiffs allege
that National Union and Stonewall wrongfully failed to contribute to the Winston
Settlement and seek reimbursement from National Union and Stonewall up to the
limits of their respective policies. National Union and Stonewall have both
answered the complaint and have denied liability. As a result of the termination
of the Winston Settlement Agreement, Milestone and its directors will request
that the court put the action against Stonewall and National Union on the
suspense calendar. At this time, the Company is not in a position to render an
opinion as to the outcome of this action.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors
Leonard S. Mandor, age 51, has served as Chairman of the
Board and Chief Executive Officer of the Company since the Company began
operations on December 18, 1990. Mr. Mandor's current term of office as a
director expires at the annual meeting of stockholders in 1999. Mr. Mandor is
also the Chief Executive Officer and a director of Concord and has been
associated with Concord since its inception in 1981.
Robert A. Mandor, age 46, has served as President, Chief
Financial Officer and a director of the Company since it began operations on
December 18, 1990. Mr. Mandor's current term of office as a director expires at
the annual meeting of stockholders in 1998. Mr. Mandor is also the President
and a director of Concord and has been associated with Concord since its
inception in 1981.
Joseph P. Otto, age 44, was appointed a director of the
Company by the Board in November 1996 to fill a vacancy and has served as a Vice
President of the Company since it began its operations in December 1990. Mr.
Otto's current term of office as a director expires at the annual meeting of
stockholders in 2000. Mr. Otto is also a Vice President, Treasurer and
Secretary of Concord and has been associated with Concord since 1984.
6
<PAGE>
Geoffrey S. Aaronson, age 47, is a shareholder of the
law firm of Schantz, Schatzman, Aaronson & Perlman, P.A. in Miami, Florida. He
has been with such firm since 1983. Mr. Aaronson's practice emphasizes
corporate and business financial reorganizations. Mr. Aaronson has been a
director of the Company since December 1990 and his current term of office
expires at the annual meeting of stockholders in 2000.
Harvey Jacobson, age 55, has been the Chief Executive
Officer of Glencraft Lingerie Corporation since 1985. Mr. Jacobson has been a
director of the Company since December 1990 and his current term of office
expires at the annual meeting of stockholders in 1998.
Gregory McMahon, age 47, was elected as a director of
the Company by the holders of the Preferred Stock in 1991, is a Certified Public
Accountant and has been a partner in the accounting firm of John McMahon & Sons
for more than 17 years. Mr. McMahon specializes in taxation and real estate.
Mr. McMahon's current term of office expires at the annual meeting of
stockholders in 1999.
Leonard S. Mandor and Robert A. Mandor are brothers.
There are no other family relationships among any other directors or executive
officers of the Company.
7
<PAGE>
Executive Officers
In addition to the persons described below, Leonard S.
Mandor, Robert A. Mandor and Joseph P. Otto are also executive officers of the
Company, holding the offices described above. There are no arrangements between
the Company and any Named Executive Officer (as defined herein) other than the
agreements between the Company and each of Leonard S. Mandor, Robert A. Mandor,
Harvey Shore and Joseph P. Otto described under Item 11. Executive Compensation
- - Employment Arrangements and Compensation Plans.
Harvey Shore, age 53, has served as Secretary and a
Senior Vice President of the Company since it began operations on December 18,
1990. Mr. Shore is also a Senior Vice President of Concord and has been
associated with Concord since 1983.
Patrick S. Kirse, age 29, was appointed Vice President
of Accounting of the Company in September 1997 and has served as Controller of
the Company since October 1997. Mr. Kirse had served as a nonexecutive Vice
President of the Company from February 1996 until September 1997 and has been
associated with the Company since March 1995. From January 1992 until March
1995, Mr. Kirse, a Certified Public Accountant, was an accountant with Deloitte
& Touche LLP.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company's executive officers, directors and persons who
beneficially own greater than 10% of a registered class of the Company's equity
securities to file certain reports ("Section 16 Reports") with the Securities
and Exchange Commission with respect to ownership and changes in ownership of
the Common Stock, the Preferred Stock and other equity securities of the
Company. Based solely on the Company's review of the Section 16 Reports
furnished to the Company and written representations from certain reporting
persons, all Section 16(a) requirements applicable to its officers, directors
and greater than 10% beneficial owners were complied with during the year ended
December 31, 1997.
8
<PAGE>
Item 11. Executive Compensation.
The following table sets forth certain information
concerning compensation paid by the Company to the Company's Chief Executive
Officer and each of the Company's four most highly compensated executive
officers (together, the "Named Executive Officers") for services rendered in all
capacities to the Company and its subsidiaries for each of the Company's last
three fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
------------------------------------- --------------------------------
Awards
---------- Payouts
Securities --------
Underlying LTIP
Name and Salary Bonus Options Payouts
Principal Position Year ($) ($) (#) ($)
- ------------------ ---- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Leonard S. Mandor 1997 405,168 182,326 111,100(2) ---
Chairman and Chief 1996 385,875 --- --- 409,482
Executive Officer 1995 367,500 165,375 --- ---
Robert A. Mandor 1997 347,287 156,279 111,100(2) ---
President and Chief 1996 330,750 --- --- 409,482
Financial Officer 1995 315,000 141,750 --- ---
Harvey Shore 1997 144,050 41,556 28,000(3) ---
Senior Vice President 1996 137,200 20,580 --- ---
and Secretary 1995 130,667 32,667 --- ---
Joseph P. Otto 1997 155,696 46,709 26,000(4) ---
Vice President 1996 137,200 20,580 --- ---
1995 130,667 64,067 --- ---
Joan LeVine 1997 65,935 --- 23,800(5) ---
Former Senior Vice President, 1996 96,040 14,406 --- ---
Treasurer and Controller (1) 1995 112,742 28,186 --- ---
</TABLE>
- ---------------------
(1) Joan LeVine resigned as Senior Vice President, Treasurer and
Controller of the Company on October 3, 1997. After resigning
as an employee of the Company, Ms. LeVine received $50,000 to
provide financial consulting services to the Company on an as
requested basis.
(2) Includes options to purchase 53,000 shares of the Company's
Common Stock at an exercise price equal to $0.50 per share
which were granted to such executive officer upon the
cancellation of exercisable options to purchase 53,000 shares
of the Company's Common Stock at an exercise price equal to
$4.75 per share then held by the executive officer, pursuant
to the Company's 1993 Employee Stock Option
9
<PAGE>
Plan (the "1993 Employee Stock Option Plan") (see "Repricing
of Options" contained herein for a discussion concerning such
repricing).
(3) Includes options to purchase 14,000 shares of the Company's
Common Stock at an exercise price equal to $0.50 per share
which were granted to Mr. Shore upon the cancellation of
exercisable options to purchase 14,000 shares of the
Company's Common Stock at an exercise price equal to $4.75
per share then held by Mr. Shore, pursuant to the 1993
Employee Stock Option Plan (see "Repricing of Options"
contained herein for a discussion concerning such repricing).
(4) Includes options to purchase 12,000 shares of the Company's
Common Stock at an exercise price equal to $0.50 per share
which were granted to Mr. Otto upon the cancellation of
exercisable options to purchase 12,000 shares of the
Company's Common Stock at an exercise price equal to $4.75
per share then held by Mr. Otto, pursuant to the 1993
Employee Stock Option Plan (see "Repricing of Options"
contained herein for a discussion concerning such repricing).
(5) Includes options to purchase 14,000 shares of the Company's
Common Stock at an exercise price equal to $0.50 per share
which were granted to Ms. LeVine upon the cancellation of
exercisable options to purchase 14,000 shares of the
Company's Common Stock at an exercise price equal to $4.75
per share then held by Ms. LeVine, pursuant to the 1993
Employee Stock Option Plan. (See "Repricing of Options"
contained herein for a discussion concerning such repricing.)
All such options terminated on October 3, 1997 as a result of
Ms. LeVine's resignation as an officer of the Company on such
date.
Other than under the Company's Long-Term Incentive Bonus Plan (the "LTIP")
described below, and except as set forth above, no other annual compensation,
restricted stock awards, stock appreciation rights ("SARs") or other
compensation, were awarded to, earned by or paid to, any of the Named
Executive Officers during any of the last three fiscal years.
Option Grants in Last Fiscal Year
The following table sets forth certain information for each of the persons
named in the Summary Compensation Table with respect to stock options granted
to such executive officers under the Company's 1993 Employee Stock Option Plan
during the year ended December 31, 1997.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------
Percent of
Number of Total
Securities Options
Underlying Granted to
Options Employees Exercise Grant
Granted in Fiscal Price Expiration Date Present
Name (#) (1) Year(%) ($/Sh) Date Value($)(2)
- ---- --------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Leonard S. Mandor 111,100(3) 37.0 $0.50 6/25/07 65,549
Robert A. Mandor 111,100(3) 37.0 $0.50 6/25/07 65,549
Harvey Shore 28,000(4) 9.3 $0.50 6/25/07 16,520
Joseph P. Otto 26,000(5) 8.7 $0.50 6/25/07 15,340
Joan LeVine 23,800(6) 7.9 $0.50 6/25/07 14,042
</TABLE>
- -------------------
(1) Each option is exercisable for one share of Common Stock.
10
<PAGE>
(2) The grant date value was estimated using the Black-Scholes
option pricing model with the following weighted average
assumptions: a risk-free interest rate of 5.06%, an expected
life of one year, volatility of 42.20% and no dividends.
(3) Includes options to purchase 53,000 shares of the Company's
Common Stock at an exercise price equal to $0.50 per share
which were granted to such executive officer upon the
cancellation of exercisable options to purchase 53,000 shares
of the Company's Common Stock at an exercise price equal to
$4.75 per share then held by the executive officer, pursuant
to the 1993 Employee Stock Option Plan (see "Repricing of
Options" contained herein for a discussion concerning such
repricing).
(4) Includes options to purchase 14,000 shares of the Company's
Common Stock at an exercise price equal to $0.50 per share
which were granted to Mr. Shore upon the cancellation of
exercisable options to purchase 14,000 shares of the
Company's Common Stock at an exercise price equal to $4.75
per share then held by Mr. Shore, pursuant to the 1993
Employee Stock Option Plan (see "Repricing of Options"
contained herein for a discussion concerning such repricing).
(5) Includes options to purchase 12,000 shares of the Company's
Common Stock at an exercise price equal to $0.50 per share
which were granted to Mr. Otto upon the cancellation of
exercisable options to purchase 12,000 shares of the
Company's Common Stock at an exercise price equal to $4.75
per share then held by Mr. Otto, pursuant to the 1993
Employee Stock Option Plan (see "Repricing of Options"
contained herein for a discussion concerning such repricing).
(6) Includes options to purchase 14,000 shares of the Company's
Common Stock at an exercise price equal to $0.50 per share
which were granted to Ms. LeVine upon the cancellation of
exercisable options to purchase 14,000 shares of the
Company's Common Stock at an exercise price equal to $4.75
per share then held by Ms. LeVine, pursuant to the 1993
Employee Stock Option Plan (see "Repricing of Options"
contained herein for a discussion concerning such repricing.)
All such options terminated on October 3, 1997 as a result of
Ms. LeVine's resignation as an officer of the Company on such
date.
The Company does not currently have (and has not previously had) any plan
pursuant to which any SARs may be granted.
Repricing of Options
On June 26, 1997, the Compensation Committee and the Board of Directors of
the Company approved the cancellation and simultaneous reissuance of options
to purchase shares of the Company's Common Stock then held by Leonard S.
Mandor, Robert A. Mandor, Harvey Shore, Joseph P. Otto and Joan LeVine,
pursuant to the Company's 1993 Employee Stock Option Plan. The original
options were all granted on December 28, 1993, were all exercisable, had an
expiration date of December 27, 2003 and had an exercise price equal to $4.75
per share. The new options, which were granted on June 26, 1997 to purchase
the same number of shares of the Company's Common Stock that were cancelled in
the name of each such officer (53,000 options for each of Leonard S. Mandor
and Robert A. Mandor, 14,000 options for each of Harvey Shore and Joan LeVine,
and 12,000 options for Joseph P. Otto) became exercisable on December 25, 1997
at an exercise price equal to $0.50 per share with a 10 year expiry. As a
result of Joan LeVine resigning as an officer of the Company on October 3,
1997, all options to purchase shares of the Company's Common Stock then held
by her expired on such date. The Board of Directors of the Company believes
that the cancellations and the simultaneous reissuances of such options were
in the best interests of the Company and its stockholders and were important
in satisfying the Company's compensation goals and congruous with the
Company's compensation philosophy after taking into consideration, among other
things, that the then outstanding options did not effectively function as the
performance incentives for which they were originally intended because the
exercise prices of such options were significantly higher than the prevailing
market value of the underlying shares of the Company's Common Stock.
11
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
The following table sets forth information with respect to the value at
December 31, 1997 of unexercised stock options held by the Named Executive
Officers. No options were exercised by any Named Executive Officer and no SARs
were granted by the Company during the year ended December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Fiscal Year-End Options
Shares Acquired Value (1) at Fiscal Year-End(2)
on Exercise Realized Exercisable / Unexercisable Exercisable / Unexercisable
Name (#) ($) (#) ($)
- ---- ----------- -------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Leonard S. Mandor 0 0 111,100/0 13,888/0
Robert A. Mandor 0 0 111,100/0 13,888/0
Harvey Shore 0 0 28,000/0 3,500/0
Joan LeVine(3) 0 0 0/0 0/0
Joseph P. Otto 0 0 26,000/0 3,250/0
</TABLE>
- ---------------------
(1) Each option is exercisable for one share of Common Stock.
(2) Based upon the closing price of the Common Stock of $0.625 on
December 31, 1997, less the exercise price.
(3) Pursuant to the 1993 Employee Stock Option Plan, all options held
by Ms. LeVine terminated on October 3, 1997 as a result of Ms.
LeVine's resignation as an officer of the Company on such date.
Long-Term Incentive Plans - Awards Last Fiscal Year
The following table sets forth the value of the bonuses accrued for Leonard
S. Mandor and Robert A. Mandor as of December 31, 1997 under the Company's
LTIP. None of the other Named Executive Officers were eligible to receive
awards under such plan.
<TABLE>
<CAPTION>
Performance
Period Until Estimated Future Payouts
Number of Shares, Units Maturation Under Non-Stock
Name or Other Rights or Payout Price-Based Plans
- ---- ------------------------ ------------ -------------------------
<S> <C> <C> <C>
Leonard S. Mandor 1(1) 12/31/97 334,730(2)
Robert A. Mandor 1(1) 12/31/97 334,730(2)
</TABLE>
- ---------------------
(1) Under the LTIP, Leonard S. Mandor and Robert A. Mandor were
each entitled to cash bonuses based upon 9% of the adjusted
pre-tax profits for 1994, 1995, 1996 and 1997 of Milestone
Asset Management, Inc. ("MAMI"), a wholly-owned subsidiary of
the Company formerly known as Milestone Mortgage Corporation.
(2) Bonuses accrued under the LTIP as of December 31, 1997 of
$334,730 for each of Leonard S. Mandor and Robert A. Mandor
were paid to each of Leonard S. Mandor and Robert A Mandor on
January 6, 1998. On March 20, 1997, the Company made a payout
of bonuses of $409,482 under the LTIP to each of Leonard S.
Mandor and Robert A. Mandor, which bonuses were accrued for
during the years ended December 31 1994, 1995 and 1996.
12
<PAGE>
Compensation of Directors
The Board of Directors currently has (i) an Audit Committee consisting of
Messrs. Aaronson, Jacobson and McMahon whose function is to assist the Board of
Directors in fulfilling its fiduciary responsibilities relating to accounting
and reporting, and to maintain an independent line of communication between the
Board of Directors, the Company's auditors and the Company's internal accounting
staff; (ii) a Compensation Committee consisting of Messrs. Aaronson, Jacobson
and McMahon whose function is to recommend to the Board of Directors the
appropriate level of compensation (including incentive compensation based upon
performance-related criteria) to be paid to the Company's executives as well as
being responsible for administering and making grants under the 1993 Employee
Stock Option Plan; (iii) an Executive Committee consisting of Leonard S. Mandor,
Robert A. Mandor and Joseph P. Otto whose function is to exercise certain powers
of the Board of Directors, when necessary or appropriate for the efficient
management of the business and affairs of the Company, between meetings of the
Board of Directors; and (iv) a Related Party Transaction Committee (the "RPT
Committee") consisting of Messrs. Aaronson, Jacobson and McMahon whose function
is to evaluate the appropriateness of entering into, the terms of, and
enforcing, transactions with affiliates and related parties.
Each of the Company's directors who is not an employee of the Company
receives an annual fee of $20,000 for serving as a director, and each member of
the Compensation Committee, the RPT Committee and the Audit Committee receives a
fee of $600 for each such committee meeting attended. All directors are also
entitled to be reimbursed for their reasonable out-of-pocket expenses in
connection with all meetings of the Board of Directors and committee meetings
attended.
Under the Company's 1993 Nonemployee Director Stock Option Plan (the
"Nonemployee Director Stock Option Plan"), each director who is not an employee
of the Company is granted options to purchase 2,500 shares of Common Stock on
the director's first election to the Board of Directors, and, thereafter through
December 28, 2003, is granted options to purchase an additional 2,500 shares of
Common Stock at each annual meeting of stockholders for his or her prior year of
service as a director. One-half of each such grant of 2,500 options becomes
exercisable on the first anniversary of the date of the grant and the other half
of such grant becomes exercisable on the second anniversary of the date of the
grant. On May 23, 1997, Geoffrey S. Aaronson, Harvey Jacobson and Gregory
McMahon, the Company's nonemployee directors, were each granted options to
purchase 2,500 shares of Common Stock at an exercise price of $0.50 per share
under the Nonemployee Director Stock Option Plan.
Employment Arrangements and Compensation Plans
In March 1993, the Board approved three-year employment agreements for
each of the Named Executive Officers, effective as of January 1, 1993. These
employment agreements provide for annual base salaries as well as certain fringe
benefits, including health care and life insurance. The employment of any Named
Executive Officer under his or her employment agreement may be terminated on 30
days written notice by either the Company or the executive officer. In February
1994, the Compensation Committee recommended and the Board of Directors
approved, an increase in the base salaries of each of the Named Executive
Officers for 1994. On March 30, 1995, the Compensation Committee recommended,
and the Board of Directors approved, an additional 5% increase in the base
salaries for each of the Named Executive Officers for 1995 and amendments to the
respective employment agreements of Harvey Shore, Joan LeVine and Joseph P. Otto
to provide for six months' base salary as severance pay in the event of the
termination of their employment with the Company without cause. Effective July
1, 1995,
13
<PAGE>
Ms. LeVine's base salary for 1995 was reduced in connection with the
reduction of her work schedule. In April 1996, the Compensation Committee
recommended, and the Board of Directors approved, three-year extensions,
effective as of January 1, 1996, to the employment agreements of each of the
Named Executive Officers pursuant to which the Company agreed to increase the
base salaries of each of the Named Executive Officers by 5%. On March 20, 1997,
the Compensation Committee recommended, and the Board of Directors approved, an
additional 5% increase in the base salaries of each of the Named Executive
Officers, effective as of January 1, 1997. On October 3, 1997 Joan LeVine's
employment agreement with the Company terminated upon her resignation as Senior
Vice President, Treasurer and Controller of the Company. After resigning as an
officer of the Company, Ms. LeVine received $50,000 to provide financial
consulting services to the Company on an as requested basis. Effective August 1,
1997, Joseph P. Otto's base salary was raised in connection with an increased
work load and greater responsibilities. On April 1, 1998, the Compensation
Committee recommended, and the Board of Directors approved, an additional 5%
increase in the base salaries of each of the Named Executive Officers of the
Company (except for Joan LeVine) for 1998. Accordingly, the base salaries of the
Named Executive Officers of the Company as of January 1, 1998 are as follows:
Leonard S. Mandor -- $425,427 per year; Robert A. Mandor -- $364,652 per year;
Joseph P. Otto -- $183,750 per year; and Harvey Shore -- $151,263 per year.
In March 1993, the Board also approved separate severance agreements (the
"Severance Agreements") with each of the Named Executive Officers. The Severance
Agreements provide that if the applicable executive's employment is terminated
by the Company without "cause" or by the executive for "good reason" within
three years of a "change in control" of the Company, the Company will pay to the
executive a termination payment of up to three times the executive's annual
salary plus certain bonuses, will pay to the executive all accrued fringe
benefits and will continue to provide insurance coverage as in effect on the
date of termination. For purposes of the Severance Agreements, "cause" includes
certain misconduct by the executive, conviction of the executive of certain
felonies and neglect of the executive's duties; "good reason" includes a breach
by the Company of the executive's employment agreement or severance agreement,
removal of the executive from any positions without cause or a significant
adverse change in the executive's working conditions or status; and "change in
control" includes certain acquisitions of voting securities giving a person 20%
or more of the combined voting power of the Company, certain changes in the
composition of the Company's Board of Directors, certain mergers,
consolidations, reorganizations or dispositions of assets or the liquidation or
dissolution of the Company.
In February 1994, the Compensation Committee recommended, and the Board of
Directors of the Company approved, the creation of (i) an annual incentive bonus
program for Leonard S. Mandor and Robert A. Mandor under which bonuses are
calculated based on the Company's adjusted pre-tax net profits and the
performance of the Common Stock and the Preferred Stock, (ii) an annual
incentive bonus program for two of the Company's other current executive
officers, Harvey Shore and Joseph P. Otto, under which bonuses are calculated
based on (a) the Company's adjusted pre-tax net profits and the performance of
the Common Stock and the Preferred Stock, and (b) the achievement of certain
individual performance objectives, and (iii) the LTIP for Leonard S. Mandor and
Robert A. Mandor providing for a bonus to be determined by the profitability of
MAMI in 1994, 1995 and 1996, which was subsequently extended to 1997. Based on
the achievement of certain Company performance objectives, the Compensation
Committee recommended and the Board of Directors approved and awarded Leonard S.
Mandor and Robert A. Mandor bonuses for 1997 of $182,326 and $156,279,
respectively, under their annual incentive bonus program. In April 1998,
pursuant to their annual incentive bonus program, each of Harvey Shore and
Joseph P. Otto was awarded a bonus for 1997 equal to 30% of their respective
base salaries. Pursuant to the LTIP, as of December 31, 1997, each of Leonard S.
Mandor and Robert A. Mandor had accrued bonuses of $334,730 which
14
<PAGE>
were based on an amount equal to 9% of MAMI's 1997, adjusted pre-tax profits.
Such bonuses and the LTIP accrual were approved by the Compensation Committee
and the Board on April 1, 1998.
Compensation Committee Interlocks and Insider Participation
Geoffrey S. Aaronson, Harvey Jacobson and Gregory McMahon all served as
members of the Compensation Committee during 1997. All of the members of the
Compensation Committee are non-employee directors of the Company.
15
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information with respect to the
beneficial ownership of securities of the Company as of the close of business on
April 23, 1998 by (i) each person known by the Company to beneficially own more
than 5% of any class of the Company's voting securities, (ii) each director and
nominee for director of the Company, (iii) the Company's Chief Executive Officer
and each other executive officer and (iv) all directors, nominees for director
and executive officers of the Company as a group. The information in the table
reflects the current conversion ratio for the Preferred Stock (which is
convertible at any time into Common Stock) of 0.91 shares of Preferred Stock to
be surrendered for each share of Common Stock to be received upon conversion.
Except as noted below, each person has sole voting and investment power with
respect to the shares beneficially owned by such person. No person is known by
the Company to beneficially own more than 5% of the Preferred Stock. The Common
Stock is the only voting security of the Company, except that holders of the
Preferred Stock currently have the right to elect two directors to serve on the
Company's Board of Directors (See Item 5 - Dividend Policy). A person is deemed
to beneficially own a security if he or she has or shares the power to vote or
dispose of the security or has the right to acquire it within 60 days.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
----------------------------------- ---------------------------------
Percent Percent
Name of Beneficial Owner (1) Number of Shares of Class Number of Shares of Class
- ---------------------------- ---------------- -------- ---------------- --------
<S> <C> <C> <C> <C>
Robert A. Mandor 3,067,662 (2) 70.8% 5,346 (3) *
Leonard S. Mandor 3,063,945 (4) 70.8 2,500 (5) *
Concord Assets Group, Inc. 2,903,845 (6) 68.9 2,500 *
Castle Plaza, Inc. 2,260,564 53.7 - -
Concord Milestone, 274,910 (7) 6.5 - -
Incorporated
Concord Fund Incorporated 274,910 (8) 6.5 - -
Harvey Shore 29,180 (9) * - -
Joseph P. Otto 26,462 (10) * 326 *
Joan LeVine 386 (11) * 272 *
Gregory McMahon 8,860 (12) * 100 *
Geoffrey S. Aaronson 8,750 (13) * - -
Harvey Jacobson 8,750 (13) * - -
Patrick S. Kirse - - - -
All directors, nominees for 3,261,150 (15) 72.1 6,044 *
director and executive officers
as a group (9 persons) (14)
</TABLE>
- ---------------------------
* Less than 1%
(1) The address of each of the indicated stockholders is c/o Milestone
Properties, Inc., 150 E. se wi 80 Palmetto Park Road, 4th Floor,
Boca Raton, Florida 33432.
16
<PAGE>
(2) Includes (a) 111,100 shares of Common Stock subject to
currently exercisable options; (b) 3,127 shares of Common
Stock issuable upon the conversion of 2,846 shares of
Preferred Stock; (c) 590 shares of Common Stock owned
directly; (d) 2,903,845 shares of Common Stock beneficially
owned by Concord (see footnote (7)); and (e) 49,000 shares of
Common Stock owned by Mill Neck Associates. Mill Neck
Associates is a general partnership in which Leonard S.
Mandor and Robert A. Mandor each own a 50% general
partnership interest. Therefore, each of them has the power
to vote and dispose of the 49,000 shares and, as a result of
such power, are each deemed to beneficially own all of such
49,000 shares. Robert A. Mandor is an officer, director and
stockholder of Concord and, therefore, may be deemed to be a
beneficial owner of the shares of Common Stock beneficially
owned by Concord. Robert A. Mandor disclaims beneficial
ownership of the shares of Common Stock beneficially owned by
Concord pursuant to Rule 13d-4 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), by virtue of the ownership by Leonard S. Mandor of
more than a majority of the outstanding capital stock of
Concord, thereby giving Leonard S. Mandor the ultimate power
to control the voting and disposition of the shares of Common
Stock beneficially owned by Concord.
(3) Includes 2,846 shares of Preferred Stock owned directly and
2,500 shares of Preferred Stock owned by Concord.
(4) Includes (a) 111,100 shares of Common Stock subject to
currently exercisable options; (b) 2,903,845 shares of Common
Stock beneficially owned by Concord (see footnote (7)); and (c)
49,000 shares of Common Stock owned by Mill Neck Associates
(see footnote (3)).
(5) Represents 2,500 shares of Preferred Stock owned by Concord.
(6) Includes (a) 274,910 shares of Common Stock held in the name
of Concord Associates and beneficially owned by Concord
Milestone, Incorporated ("CMI"), a wholly-owned subsidiary of
Concord; (b) 81,534 shares of Common Stock owned by Concord
Milestone Partners, L.P., whose general partner, Concord
Milestone Income II, Inc., is a wholly-owned subsidiary of
Concord; (c) 2,747 shares of Common Stock which Concord has
the right to acquire upon conversion of 2,500 shares of the
Preferred Stock directly owned by Concord; (d) 2,260,564
shares of Common Stock owned by Castle Plaza, Inc. ("CPI"), a
wholly-owned subsidiary of Concord; (e) 163,291 shares of
Common Stock owned by Mountain View Mall, Inc., a
wholly-owned subsidiary of Concord; and (f) 120,799 shares of
Common Stock owned by Concord Income Realty Partners VI,
L.P., a limited partnership, the sole general partner and
sole limited partner of which are wholly-owned subsidiaries
of Concord ((a) through (f) are collectively referred to as
the "Concord Stock").
(7) Consists of the 274,910 shares of Common Stock beneficially
owned by Concord Fund Incorporated ("CFI"). CFI is a
wholly-owned subsidiary of CMI.
(8) Owned as successor to Concord Associates, the registered
owner of such shares.
(9) Includes 1,180 shares of Common Stock and 28,000 shares of
Common Stock subject to currently exercisable options.
(10) Includes (a) 358 shares of Common Stock issuable upon
conversion of 326 shares of Preferred Stock; (b) 26,000 shares
of Common Stock subject to currently exercisable options; and
(c) 104 shares of Common Stock.
17
<PAGE>
(11) Includes (a) 299 shares of Common Stock issuable upon
conversion of 272 shares of Preferred Stock and (b) 87 shares
of Common Stock.
(12) Includes (a) 110 shares of Common Stock issuable upon
conversion of 100 shares of Preferred Stock and (b) 8,750
shares of Common Stock subject to options, 6,250 of which are
currently exercisable and 2,500 of which will become
exercisable within 60 days.
(13) Consists of 8,750 shares of Common Stock subject to options,
6,250 of which are currently exercisable and 2,500 of which
will become exercisable within 60 days.
(14) The shares of Common Stock beneficially owned by Concord
Assets Group, Inc. ("Concord") (see footnote (7)), and Mill
Neck Associates (see footnote (3)) may be deemed to be
beneficially owned by both Leonard S. Mandor and Robert A.
Mandor. Such shares, however, are only included once in the
computation of shares beneficially owned by directors,
nominees for director and executive officers as a group.
(15) Includes (a) 294,950 shares of Common Stock subject to
currently exercisable options; (b) 7,500 shares of Common
Stock subject to options which will become exercisable within
60 days and (c) 6,641 shares of Common Stock issuable upon
the conversion of 6,044 shares of Preferred Stock.
Item 13. Certain Relationships and Related Transaction.
As a result of the Acquisition in October 1995, Concord (i) beneficially
owns approximately 69% of the Company's Common Stock and approximately 40% of
the Common Stock on a fully diluted basis (i.e., if there were to be a full
conversion of the Preferred Stock and exercise of currently outstanding options
for Common Stock), (ii) has the ability to elect all of the Company's directors,
other than the directors elected by the holders of the Preferred Stock, and
(iii) has the ability, subject to certain limitations, to approve all matters
submitted to a vote of the Common Stockholders, including all fundamental
corporate transactions. Concord is wholly owned by Leonard S. Mandor and Robert
A. Mandor, both of whom are executive officers and directors of both Concord and
the Company.
As a result of and immediately following UPI's recapitalization and
spin-off in November 1995, Concord and its affiliates acquired approximately 75%
of UPI's common stock and the Company owned all 650,000 outstanding shares of
UPI's preferred stock, par value $.01 per share, with a 9% cumulative dividend
subject to adjustment to 8% in certain events and a $10 per share liquidation
preference and redemption value (the "UPI Preferred Stock"). Between March 22,
1996 and February 25, 1997, UPI redeemed an aggregate of 293,600 shares of the
UPI Preferred Stock owned by the Company at a price of $10.00 per share for a
total redemption price of $2,936,000 plus the accrued and unpaid dividends on
such redeemed shares. In connection with the UPI Merger in February 1997,
356,400 shares of the UPI Preferred Stock which the Company owned as of the date
of the UPI Merger were converted into shares of Kranzco's Series C Cumulative
Redeemable Preferred Shares (the "Kranzco Series C Shares") on a share for share
basis. The Company believes that the terms of the Kranzco Series C Shares are
similar to the terms of the UPI Preferred Stock, since the Kranzco Series C
Shares (i) have the same redemption price and liquidation preference and price
($10 per share) as the UPI Preferred Stock, (ii) pay cumulative dividends at the
rate paid on the UPI Preferred Stock as of the date of the UPI Merger (8%) and
(iii) are required to be redeemed ratably on a quarterly basis over a two-year
period from the date of the UPI Merger, as compared to the UPI Preferred Stock,
which was not required to be redeemed until the year 2002 (although UPI could
have, at its option, redeemed shares of UPI Preferred Stock at any time).
18
<PAGE>
In connection with the Rabin Litigation and pursuant to the Rabin
Stipulation and Order, although the Company is not a party to such action, a
portion of certain transaction expenses (up to 17.75%) will now be required to
be paid by the Company, as the holder of certain Wrap Debt, in connection with
future sales of certain properties owned by the Concord Partnerships. Concord
and one of its subsidiaries have agreed to indemnify the Company for any losses,
up to $200,000 in the aggregate, resulting from any such additional transaction
fees, costs or expenses incurred by the Company as a result of such an event.
The Company does not believe that its obligations under the Rabin Stipulation
and Order will be materially adverse to the Company. (See Item 3. Legal
Proceedings).
In December 1990, the Company entered into an executive management
agreement, as amended (the "Executive Management Agreement"), with Concord,
pursuant to which the Company provides management services and assists Concord
in the management of certain properties (the "Concord Properties") owned by
Concord and its affiliates, including limited partnerships controlled by Concord
or affiliates of Concord. Pursuant to the Executive Management Agreement, which
is renewable annually, the Company makes available to Concord certain personnel
of the Company to provide management services (the "Management Services") to
Concord in connection with which Concord is required to reimburse the Company
based upon the hourly wage rate of such personnel, and the Company provides
Concord with office space and general office services. The Management Services
include overseeing all financing, acquisitions, dispositions and operational
functions of the relevant Concord Properties. The operational functions of the
Management Services include procuring and maintaining insurance, leasing,
supervising and administering expansion and maintenance projects, and performing
all other necessary services for maintaining the Concord Properties involved.
Under the Executive Management Agreement, affiliates of Concord engaged in real
estate brokerage activities may receive brokerage or leasing commissions in
connection with the purchase, sale or leasing of properties by the Company. In
March 1995, the Executive Management Agreement was amended to reduce by 50% the
monthly fee paid by Concord to the Company for Management Services to its
present fee of $12,500 and to reduce by 50% the amount reimbursed by Concord for
office space and general office services. This reduction was occasioned by a
significant decrease in properties leased by Concord and, accordingly, a
corresponding decrease in the Management Services. Pursuant to the Executive
Management Agreement, Concord owes the Company $163,188 for expenses incurred by
the Company in 1997 and Concord reimbursed the Company for expenses totalling
$155,857 incurred by the Company in 1996. In addition, Concord owes the Company
$69,910 for various services provided by the Company to Concord in 1997 pursuant
to the Executive Management Agreement, and Concord paid the Company$68,681 for
similar services provided to Concord in 1996.
Milestone Properties Management, Inc. ("MPMI"), one of the Company's
wholly-owned subsidiaries, is a party to a property management agreement (the
"Property Management Agreement") with Concord under which MPMI manages certain
properties owned by Concord and its affiliates, including limited partnerships
controlled by Concord or affiliates of Concord. MPMI received $95,020 and $9,747
in termination fees and incurred $64,762 and $7,608 of accelerated amortization
in connection with the termination of management agreements for the years ended
December 31, 1997 and 1996, respectively, resulting from the sale or foreclosure
of properties owned by limited partnerships syndicated by Concord. As of
December 31, 1997, MPMI performed property management and leasing services for 7
of Concord's shopping centers pursuant to the Property Management Agreement.
In connection with the UPI Merger, on February 26, 1997, UPI terminated
the property management agreement it had entered into with MPMI in November 1995
(the "Property Management Agreement") and the management services agreement it
had entered into with the Company in November 1995 (the "Management Services
Agreement"). The aggregate fees paid in 1997 by UPI to MPMI and the Company for
services provided to UPI under the Property Management Agreement and the
Management Services Agreement were $21,669 and $86,919, respectively.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
MILESTONE PROPERTIES, INC.
By: /s/ Patrick S Kirse
-----------------------------
Patrick S Kirse
Vice President of Accounting
(Principal Accounting Officer)
Date: April 28, 1998
20
<PAGE>
EXHIBIT 5
MPI's Quarterly Report on Form 10-Q for the Quarterly Period Ended
March 31, 1998
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________________ to _________________
Commission file number 1-10641
-------
MILESTONE PROPERTIES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
Delaware 65-0158204
- -------------------------------------------------------------- ---------------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
150 E. Palmetto Park Rd. 4th Floor, Boca Raton, FL 33432
- ---------------------------------------------------- -------------------------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(561) 394-9533
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 / /
As of May 8, 1998, 3,033,995 shares of the registrant's common stock, par value
$.01 per share, and 4,213,368 shares of the registrant's $.78 Convertible Series
A preferred stock, par value $.01 per share, were outstanding.
<PAGE>
Part I: Financial Information
Item 1. Financial Statements
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 (Unaudited) and December 31, 1997
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents ...................... $ 12,230,077 $ 13,435,237
Restricted Cash ................................ 222,000 222,000
Loans receivable ............................... 1,496,176 1,512,744
Accounts receivable ............................ 1,154,306 1,265,625
Accrued interest receivable .................... 1,870,514 8,465,528
Due from related party ......................... 469,805 391,851
Prepaid expenses and other ..................... 978,399 1,034,613
------------- -------------
Total current assets ...................... 18,421,277 26,327,598
Property, improvements and equipment, net ...... 19,540,217 19,610,060
Wraparound notes, net .......................... 52,849,581 59,402,931
Deferred income tax asset, net ................. 4,586,209 4,058,358
Investments in preferred stock ................. 1,783,100 2,228,600
Management contract rights, net ................ 263,723 290,926
Goodwill and other, net ........................ 743,068 304,639
------------- -------------
Total assets .............................. $ 98,187,175 $ 112,223,112
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses .......... $ 615,417 $ 2,015,942
Accrued interest payable ....................... 355,381 259,116
Master lease payable ........................... 3,439,381 13,637,564
Due to related party ........................... 100,680 0
Current portion of mortgages and notes payable . 38,169,505 38,456,766
Income taxes payable ........................... 2,822,119 2,822,119
------------- -------------
Total current liabilities ................. 45,502,483 57,191,507
Mortgages and notes payable .................... 27,470,179 29,282,798
------------- -------------
Total liabilities ......................... $ 72,972,662 86,474,305
------------- -------------
Commitments and Contingencies
Stockholders' equity:
Common stock ($0.01 par value, 10,000,000
shares authorized, 4,905,959
issued and outstanding:
692,591 shares in treasury) ................. 49,060 49,060
Preferred stock (Series A $0.01 par value, $10
liquidation preference 10,000,000 shares
authorized, 3,033,995 shares issued and
outstanding) ................................ 30,341 30,341
Additional paid-in surplus ..................... 48,105,428 48,105,428
Accumulated deficit ............................ (19,529,898) (18,995,604)
Shares held in treasury - 692,591 shares at cost (3,440,418) (3,440,418)
------------- -------------
Total stockholders' equity ................ 25,214,513 25,748,807
------------- -------------
Total liabilities and stockholders' equity $ 98,187,175 $ 112,223,112
------------- -------------
------------- -------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
1
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
(Unaudited)
For the Three Months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
REVENUES:
Rent ..................................................... $ 2,745,805 $ 2,871,450
Interest income .......................................... 2,240,556 3,376,327
Revenue from management company operations ............... 195,842 200,691
Tenant reimbursements .................................... 257,384 357,989
Management and reimbursement income ...................... 29,051 263,132
Percentage rent .......................................... 109,248 70,076
Amortization of discount - available-for-sale securities.. 0 89,300
Unrealized gain on treasury notes sold short ............. 0 403,430
Gain on realization of wraparound notes .................. 81,890 0
Loss on sale of available-for-sale securities ............ 0 (784,122)
----------- -----------
Total revenues ........................................... 5,659,776 6,848,273
----------- -----------
EXPENSES:
Master lease expense ..................................... 3,445,833 3,531,826
Interest expense ......................................... 1,519,598 2,263,277
Depreciation and amortization ............................ 208,073 193,108
Salaries, general and administrative ..................... 576,328 605,018
Property expenses ........................................ 443,666 434,724
Expenses for management company operations ............... 268,265 285,340
Professional fees ........................................ 219,345 206,938
----------- -----------
Total expenses ........................................... 6,681,108 7,520,231
----------- -----------
Loss before income taxes ...................................... (1,021,332) (671,958)
Benefit for income taxes ...................................... (487,038) (322,921)
----------- -----------
Net loss ...................................................... $ (534,294) $ (349,037)
----------- -----------
----------- -----------
Loss attributable to common stockholders ...................... $ (0.13) $ (0.08)
----------- -----------
----------- -----------
Weighted average common shares outstanding .................... 4,213,368 4,188,451
----------- -----------
----------- -----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
MILESTONE PROPERTIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock Additional
---------------- ---------------- ---------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Shares Costs Surplus Deficit Equity
------ ------ ------ ------ ------ ----- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998........ 4,905,959 $49,060 3,033,995 $30,341 (692,591) $(3,440,418) $48,105,428 $(18,995,604) $25,748,807
Net loss for the three
months ended March 31, 1998.. (534,294) (534,294)
--------- ------- --------- ------- -------- ----------- ----------- ------------ -----------
Balance March 30, 1998......... 4,905,959 $49,060 3,033,995 $30,341 (692,591) $(3,440,418) $48,105,428 $(19,529,898) $25,214,513
--------- ------- --------- ------- -------- ----------- ----------- ------------ -----------
--------- ------- --------- ------- -------- ----------- ----------- ------------ -----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Net loss ...................................................... $ (534,294) $ (349,037)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization ............................ 208,073 193,108
Deferred income taxes ................................... (527,851) 280,032
Unrealized gain on treasury notes sold short ............. 0 (403,430)
Amortization of discount - available-for-sale securities.. 0 (89,300)
Realized loss on sale of available-for-sale securities ... 0 784,122
Gain on realization of wraparound notes .................. 81,890 0
Change in operating assets and liabilities net:
Decrease in accounts receivable ........................ 111,319 437,000
Increase in due from related party ..................... (77,954) (239,786)
Decrease in accrued interest receivable ................ 6,595,014 7,231,812
Decrease (increase) in prepaid expenses and other ...... (400,786) 210,873
Decrease in accounts payable and accrued expenses ...... (1,400,525) (1,452,816)
Increase (decrease) in accrued interest payable ........ 96,265 (654,360)
Decrease in master lease payable ....................... (10,198,183) (10,735,449)
Decrease in income taxes payable ....................... 0 (645,724)
Increase (decrease) in due to related party ............ 100,680 (61,688)
------------ ------------
Net cash used in operating activities .................. (5,946,352) (5,494,643)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments on loans receivable ................. 16,568 124,072
Principal repayments on wraparound notes ................. 5,061,340 4,727,683
Issuance of wraparound notes ............................. 15,000 0
Purchase of leasehold improvements ....................... (92,456) (9,965)
Proceeds from realization of wraparound notes ............ 75,000 0
Proceeds from the sale of available-for-sale securities .. 0 9,498,529
Proceeds from redemption of investments in preferred
stock .................................................. 445,500 394,333
Proceeds from redemption of reverse repurchase agreements. 0 9,803,443
Purchase of treasury notes ............................... 0 (9,166,015)
------------ ------------
Net cash provided by investing activities .............. 5,520,952 15,372,080
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgages and notes payable ........ (779,760) (962,167)
Principal payments on loans payable ...................... 0 (6,533,401)
Amounts received on treasury notes payable ............... 0 403,430
------------ ------------
Net cash used in financing activities .................. (779,760) (7,092,138)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS .............................................. (1,205,160) 2,785,299
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................ 13,435,237 3,141,839
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 12,230,077 $ 5,927,138
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for interest ................. $ 1,423,333 $ 2,917,637
------------ ------------
------------ ------------
Cash paid during the period for income taxes ............. $ 40,813 $ 64,823
------------ ------------
------------ ------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
MILESTONE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying consolidated financial statements of Milestone Properties, Inc
("Milestone") and its wholly owned subsidiaries (together with Milestone, the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The financial statements as of and for the
periods ended March 31, 1998 and 1997 are unaudited. The results of operations
for the interim periods are not necessarily indicative of the results of
operations for the fiscal year. Certain information for 1997 has been
reclassified to conform to the 1998 presentation. These consolidated financial
statements should be read in conjunction with the financial statements and
footnotes included thereto in Milestone's Annual Report on Form 10-K for the
year ended December 31, 1997.
1. Disposition and Acquisition of Real Estate Related Assets
On February 9, 1998, the Company realized its position in its wraparound note
that had a carrying value of $1,477,010 on the property located in Chili, New
York as a result of the assignment of the wraparound note on such property for
$75,000 in cash. The assignment resulted in the relief of a non-recourse
underlying mortgage on such property that had a principal balance outstanding of
$1,477,010.
On April 1, 1998, the Company completed the purchase of Regency Walk Shopping
Center, a 34,436 square foot shopping center located in Jacksonville, Florida
(Duval County), from Ashman, a Florida general partnership, for $2,150,000 in
cash. The shopping center is occupied by local tenants who are subject to
operating leases ranging from two to nine years with various renewal options and
is currently 92% occupied. Subsequently, on April 2, 1998, the Company secured a
$1,840,000 first mortgage loan from Secore Financial Corporation which bears
interest at a rate of 7.87%. Such first mortgage requires monthly principal and
interest payments of $13,335 based upon a 30 year self liquidating amortization
schedule, with a balloon payment of $1,643,670 due May 1, 2008.
On April 17, 1998, the Company completed the purchase of Orange Park Shopping
Center, a 21,509 square foot shopping center located in Orange Park, Florida
(Clay County), from Makela Development Group, a Florida general partnership, for
$1,500,000 in cash and debt financing. Simultaneously with the purchase, the
Company obtained a $1,300,000 first mortgage loan from Heller Financial, Inc.
The shopping center is occupied by local tenants who are subject to operating
leases ranging from two to six years with various renewal options and is
currently 95% occupied. The first mortgage bears interest at a rate of 7.39% and
requires monthly principal and interest payments of $8,992 based upon a 30 year
self liquidating amortization schedule, with a balloon payment of $1,147,640 due
April 1, 2008.
On April 17, 1998, the Company as the wraparound mortgagee, completed the
refinancing of Morgantown Plaza, located in Natchez, Mississippi, on behalf of
the wraparound mortgagor (i.e. the Partnership that owns the related property).
The $2,200,000 first mortgage loan from Secore Financial Corporation bears
interest at a rate of 7.59% and requires monthly principal and interest payments
of $15,519 based upon a 30 year self liquidating amortization schedule, with a
balloon payment of $1,951,893 due May 1, 2008. The Company also extended the
wraparound mortgage on such property to mature May 1, 2008. Such wraparound
mortgage will require cash flow payments beginning after December 31, 1998.
5
<PAGE>
On May 1, 1998 the Company secured a $1,160,000 first mortgage loan from Heller
Financial, Inc. on its Pine Oak property located in Sunrise Florida, which bears
interest at a rate of 7.48%. Such first mortgage requires monthly principal and
interest payments of $8,095 based upon a 30 year self liquidating amortization
schedule, with a balloon payment of $1,027,679 due May 1, 2008.
2. Legal Proceedings
As previously reported, on January 30, 1996 Milestone, its Board of Directors
and Concord Assets Group, Inc. ("Concord"), a New York corporation, the
executive officers and directors of which are also executive officers and
directors of Milestone, were named as defendants in a purported class action
lawsuit (the "Winston Action") which was brought by a Series A Preferred
Stockholder purporting to bring the action on behalf of himself and other
holders of the Company's $.78 Convertible Series A Preferred Stock (the "Series
A Preferred Stock"), par value $.01 per share, $10 liquidation preference, in
connection with (i) Milestone's acquisition in October 1995 of certain
wraparound notes, wraparound mortgages and fee properties from certain
affiliates of Concord, (ii) the transfer in August and October 1995 of 16 of
Milestone's retail properties to Union Property Investors, Inc. ("UPI"), a then
wholly-owned Delaware subsidiary of Milestone and (iii) the subsequent
distribution of all of the issued and outstanding shares of UPI's common stock
to Milestone's common stockholders on a share-for-share basis and for no
consideration (the events referred to in clauses (i) through (iii) above are
collectively referred to herein as the "Transactions").
Also as previously reported, on October 30, 1997, Milestone entered into a
Stipulation and Agreement of Settlement (the "Winston Settlement Agreement")
providing for the settlement (the "Winston Settlement") of the Winston Action.
If the Winston Settlement had been approved and consummated, the Winston Action
would have been dismissed, Milestone's stockholders would have released all
derivative claims arising in connection with the Transactions and the holders of
the Series A Preferred Stock between October 23, 1995 and the date on which the
Winston Settlement was consummated would have released any claims they may have
had against Milestone and the other named defendants arising out of the
Transactions. Each Series A Preferred Stockholder who did not opt out of the
Winston Settlement and who owned shares of the Series A Preferred Stock on the
date the Winston Settlement was consummated would have received $0.75 per share
in cash from the Company and one share of preferred stock of Concord Milestone
Preferred, Inc., a Delaware corporation affiliated with Concord ("CMP") ( the
"CMP" Preferred Stock), in exchange for each share of Series A Preferred Stock
surrendered. The CMP Preferred Stock would have had a liquidation preference of
$2.25 per share, would have been required to be redeemed by CMP at $2.25 per
share after five years, and would have had no voting or dividend rights; in
addition, the CMP Preferred Stock would have been subject to optional redemption
in accordance with a schedule during the five year period prior to mandatory
redemption. CMP's redemption obligations would have been secured by a letter of
credit. The Winston Settlement was subject to approval by the Delaware Court
after a hearing, and was also subject to a number of conditions which may have
been waived at the option of the Company and the other defendants, including the
condition that stockholders owning more than 10% of the Series A Preferred Stock
did not opt out of the Winston Settlement.
In April 1998, counsel for the plaintiff to the Winston Action advised the
Company that the plaintiff would not proceed with the Winston Settlement
Agreement and counsel for the Company advised the Court of Chancery of the State
of Delaware that the parties would resume litigation of the matter.
The foregoing description of the Winston Settlement and the Winston Settlement
Agreement is qualified in its entirety by reference to the Winston Settlement
Agreement, a copy of which was filed with the Securities and Exchange Commission
on November 12, 1997 as Exhibit 2 to Milestone's Form 8-K.
6
<PAGE>
As previously reported, on January 29, 1998, Milestone, along with certain of
its directors, commenced a lawsuit in the United States District Court for the
Southern District of New York against National Union and Stonewall. National
Union had issued a directors and officers insurance and company reimbursement
policy (the "National Policy") for Milestone and its directors with a limit of
$2,000,000. Stonewall had issued an excess directors and officers liability and
company reimbursement policy (the "Stonewall Policy") for Milestone and its
directors with a limit of $2,000,000. Pursuant to the Winston Settlement
Agreement, had the Winston Settlement been consummated, Milestone would have
paid approximately $2,225,000, plus the plaintiff's legal fees in an amount not
to exceed $650,000 and would have incurred other legal expenses. Milestone
believes that the amount it and certain of its directors would have paid
pursuant to the Winston Settlement Agreement and as a result of the litigation,
had the Winston Settlement been consummated, are covered losses under both the
National Union Policy and the Stonewall Policy. In addition, the Company has
incurred approximately $440,000 in legal fees in defending Milestone and its
directors in connection with the Winston Action, which it believes is a covered
loss under the National Union and Stonewall policies. National Union refused to
contribute to the Winston Settlement, as set forth in the Winston Settlement
Agreement, asserting that the Winston Settlement does not encompass any covered
loss (as defined in the National Policy). Stonewall also refused to contribute
to the Winston Settlement. In the complaint, the plaintiffs allege that National
Union and Stonewall wrongfully failed to contribute to the Winston Settlement
and seek reimbursement from National Union and Stonewall up to the limits of
their respective policies. National Union and Stonewall have both answered the
complaint and have denied liability. As a result of the termination of the
Winston Settlement Agreement, Milestone and its directors will request that the
United States District Court for the Southern District of New York put on the
suspense calendar the action against Stonewall and National Union. At this time,
the Company is not in a position to render an opinion as to the outcome of this
action.
3. Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting and displaying of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 mandates that all items that are required to
be recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed in equal prominence with
all other financial statements. It does not require a specific format for such
financial statements, but requires that an enterprise display an amount
representing total comprehensive income for the period in such a financial
statement. SFAS No. 130 is effective for both interim and annual periods
beginning after December 15, 1997. Comparative financial statements provided for
earlier periods are required to be reclassified to reflect the provisions of
SFAS No. 130.
The Company adopted SFAS No. 130 in the first quarter of 1998. There are no
components of comprehensive income for the three months ended March 31, 1998.
For the three months ended March 31, 1997 the Company had components of
comprehensive income, as defined in SFAS No. 130, of approximately $329,000 of
unrealized gains (net of tax of $72,795) on available-for-sale securities. Under
SFAS No. 130 the Company has a comprehensive loss of approximately $21,000.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
General
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Such forward-looking statements include
statements regarding the intent, belief or current expectations of Milestone
Properties, Inc. ("Milestone") and its wholly-owned subsidiaries (together,
Milestone with its subsidiaries is hereinafter referred to as the "Company") and
its management and involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the following: general economic and
business conditions, which will, among other things, affect the demand for
retail space or retail goods, availability and creditworthiness of prospective
tenants, lease rents and the terms and availability of financing; adverse
changes in the real estate markets including, among other things, competition
with other companies; risks of real estate development and acquisition;
governmental actions and initiatives; and environment/safety requirements.
The Company is engaged in the business of owning, acquiring, managing,
developing and investing in commercial real estate and real estate related
assets.
Recent Developments
The Company and Societe Generale Securities Corporation ("SGSC") entered into an
agreement (the "SGSC Agreement") on January 9, 1998, effective as of December
24, 1997, pursuant to which the Company retained SGSC to act as a financial
advisor to the Company and two of its affiliates (the "Affiliates"), in
connection with any transaction involving a proposed sale (a "Proposed Sale") by
the Affiliates of certain shopping center properties and any proposed sale by
the Company of certain fee interest properties owned by the Company. The
shopping center properties to be sold by the Affiliates are subject to
wraparound notes (the "Wraparound Notes") and wraparound mortgages (the
"Wraparound Mortgages" and, together with the Wraparound Notes, the "Wrap Debt")
which are secured by commercial properties. Such Wrap Debt is held by the
Company and would need to be released prior to the consummation of any
transaction. The properties to be sold and the Wrap Debt to be repaid in
connection with a Proposed Sale could represent a substantial portion of the
Company's real estate related assets.
Neither the Company nor the Affiliates have entered into any commitment,
agreement or understanding with any prospective purchaser for a Proposed Sale,
and there can be no assurance that SGSC will be able to identify suitable
candidates to undertake a Proposed Sale, or that if identified, the Company and
the Affiliates will be willing and able to consummate a Proposed Sale on terms
acceptable to them.
On February 9, 1998, the Company realized its position in its wraparound note
that had a carrying value of $1,477,010 on the property located in Chili, New
York as a result of the assignment of the wraparound note on such property for
$75,000 in cash. The assignment resulted in the relief of a non-recourse
underlying mortgage on such property that had a principal balance outstanding of
$1,477,010.
On March 6, 1998, the Company entered into a contract in connection with the
contemplated sale of its Mountain View Mall property located in Bend, Oregon
(the "Bend Property"). Under the terms of the contract, the potential purchaser
has deposited a total of $400,000 as a good faith deposit of which $100,000 has
become non-refundable. The sale of the Bend Property, if consummated, would
represent approximately 17% of the Company's total assets and would relieve the
Company of approximately 23% of its total liabilities.
8
<PAGE>
On April 1, 1998, the Company completed the purchase of Regency Walk Shopping
Center, a 34,436 square foot shopping center located in Jacksonville, Florida
(Duval County), from Ashman, a Florida general partnership, for $2,150,000 in
cash. The shopping center is occupied by local tenants who are subject to
operating leases ranging from two to nine years with various renewal options and
is currently 92% occupied. Subsequently, on April 2, 1998, the Company secured a
$1,840,000 first mortgage loan from Secore Financial Corporation which bears
interest at a rate of 7.87%. Such first mortgage requires monthly principal and
interest payments of $13,335 based upon a 30 year self liquidating amortization
schedule with a balloon payment of $1,641,114 due May 1, 2008.
On April 17, 1998, the Company completed the purchase of Orange Park Shopping
Center, a 21,987 square foot shopping center located in Orange Park, Florida
(Clay County), from Makela Development Group, a Florida general partnership, for
$1,500,000 in cash and debt financing. Simultaneously with the purchase, the
Company obtained a $1,300,000 first mortgage loan from Heller Financial, Inc.
The shopping center is occupied by local tenants who are subject to operating
leases ranging from two to six years with various renewal options and is
currently 100% occupied. The first mortgage bears interest at a rate of 7.39%
and requires monthly principal and interest payments of $8,992 based upon a 30
year self liquidating amortization schedule with a balloon payment of $1,149,319
due April 1, 2008.
In April 1998, counsel for the plaintiff in a purported class action lawsuit
(John Winston v. Leonard S. Mandor, Robert A. Mandor, Joan LeVine, Harvey
Jacobson, Gregory McMahon, Geoffrey Aaronson, Milestone Properties, Inc. and
Concord Assets Group, Inc. ("Concord"), a New York corporation, the executive
officers and directors of which are also executive officers and directors of
Milestone), (the "Winston Action") brought in the Court of Chancery of the State
of Delaware (the "Delaware Court") by a holder of Milestone's $.78 Convertible
Series A Preferred Stock (the "Series A Preferred Stock"), par value $.01 per
share, $10 liquidation preference, on behalf of himself and other Series A
Preferred Stockholders against Milestone and certain of its directors (as
previously reported) advised the Company that the plaintiff would not proceed
with a certain Stipulation and Agreement of Settlement (the "Winston Settlement
Agreement") which had been entered into by the parties to the Winston Action on
October 30, 1997 (as previously reported). Counsel for the Company has advised
the Delaware Court that the parties will resume litigation of the matter. See
Part II-Other Information, Item 1. Legal Proceedings.
As a result of the termination of the Winston Settlement Agreement, the Company
and its directors will request that the United State District Court for the
Southern District of New York put on the suspense calendar the action brought by
Milestone and certain of its directors against National Union Fire Insurance
Company of Pittsburgh, Pa. ("National Union") and Stonewall Surplus Lines
Insurance Company ("Stonewall"), in connection with certain costs and expenses
associated with the Winston Action and the settlement of the Winston Action (as
previously reported). See Part II-Other Information, Item 1. Legal Proceedings.
The Company has received communications from the New York Stock Exchange (the
"Exchange") with respect to the Company's compliance with certain continued
listing criteria in connection with the Company's Common Stock, par value $.01
per share, and Preferred Stock. The Company's management and its counsel have
had a meeting with representatives of the Exchange with respect to such issues.
Although the Exchange has made no decision to delist any class of the Company's
stock at the present time, there can be no assurances that it will not do so in
the future.
9
<PAGE>
Results of Operations
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
The Company recognized a net loss of $534,294 for the three months ended March
31, 1998 as compared to a net loss of $349,037 for the same period in 1997 due
to the following factors:
Revenues for the three months ended March 31, 1998 were $5,659,776, a decrease
of $1,188,497 or 17%, from $6,848,273 for the three months ended March 31, 1997.
Such decrease was primarily due to the net of: (1) a decrease in interest income
of $1,135,771 resulting primarily from (a) a decrease in the number of
properties with interest bearing wraparound notes to 27 for the three months
ended March 31, 1998 from 29 for the same period in 1997 resulting in a decrease
in interest income of approximately $132,000 and (b) a decrease in
available-for-sale securities held by the Company to none for the three months
ended March 31, 1998 from two for the same period in 1997 resulting in a
decrease in interest income of $915,580; (2) a decrease in management and
reimbursement income of $234,081 resulting primarily from the termination of the
Management Services Agreement between Union Property Investors and the Company
in February 1997; (3) no gain or loss on the sale of available-for-sale
securities for the three months ended March 31, 1998 compared to a loss of
$784,122 on the sale of available-for-sale securities for the same period in
1997; (4) no unrealized gain or loss on U.S. Treasury Notes sold short for the
three months ended March 31, 1998 compared to an unrealized holding gain of
$403,430 on U.S. Treasury Notes sold short for the same period in 1997; (5) a
gain on the realization of wraparound notes of $81,890 compared to no gain or
loss on the realization of wraparound notes for the same period in 1997; (6) a
net decrease in rental income of $125,645 resulting primarily from a net
decrease in the number of properties leased by the Company to 31 for the three
months ended March 31, 1998 from 32 for the same period in 1997 and (7) no
amortization of discount on available-for-sale securities for the three months
ended March 31, 1998 compared to amortization of $89,300 for the same period in
1997.
Operating expenses for the three months ended March 31, 1998 were $4,953,437, an
increase of $110,409, or 2%, from $5,063,846 for the three months ended March
31, 1997. Such increase was primarily due to the net of: (1) a decrease in
master lease expense of $85,993 due to a decrease in the number of properties
leased by the Company to 27 for the three months ended March 31, 1998 from 29
for the same period in 1997; (2) a decrease in salaries, general and
administrative expenses of approximately $28,690 due to a decrease in rental
expense for the three months ended March 31, 1998 compared to the same period in
1997; (3) a decrease in expenses for management company operations of $17,075
due to a decrease in the number of properties leased by the Company; and (4) an
increase in professional fees of $12,407 due to fees associated with the
reduction of real estate taxes for the leased properties.
Interest expense for the three months ended March 31, 1998 was $1,519,598, a
decrease of $743,679, or 33%, from $2,263,277 for the three months ended March
31, 1997. Such decrease was primarily due to a decrease in financing
arrangements related to the available-for-sale securities held by the Company to
none for the three months ended March 31, 1998 from two for the same period in
1997 resulting in a decrease in interest expense of approximately $599,000.
Depreciation and amortization for the three months ended March 31, 1998 was
$208,073, an increase of $14,965, or 8%, from $193,108 for the three months
ended March 31, 1997. Such increase was primarily due to approximately $353,153
of property improvement purchases made during 1997.
10
<PAGE>
Liquidity and Capital Resources
The Company, as the holder of 178,360 shares of Kranzco Series C Cumulative
Redeemable Preferred Shares as of March 31, 1998, is entitled to receive from
the redemption of such shares, in four equal installments over the next 10
months, an aggregate amount of cash equal to approximately $1,178,360, plus
interest at the rate of 8% per annum on the applicable outstanding balance of
such shares.
Milestone has no present intention to declare or pay cash dividends on the
Series A Preferred Stock or Common Stock in the foreseeable future. The
cumulative period relating to the payment of dividends on the Series A Preferred
Stock expired on September 30, 1995. If Milestone declares further dividends on
the Series A Preferred Stock or the Common Stock and the payment thereof
utilizes all, or substantially all, of its available cash flow after taxes and
expenses, the Company will require other sources of funding to allow it to
effect the contemplated purchases of additional commercial real estate and
accomplish its other long-term goals. Accordingly, no assurance can be given
that Milestone will declare or pay dividends on the Series A Preferred Stock or,
subject to the preference on the Series A Preferred Stock, the Common Stock, in
the future, and currently has no intention to do so. Any decision as to the
future payment of dividends on the Series A Preferred Stock or Common Stock will
depend on the results of operations, investment opportunities for available
funds, the financial condition of the Company and such other factors as
Milestone's Board of Directors deems relevant. See Part II-Other Information,
Item 5. Other Information.
Cash generated by the (i) redemption of the Kranzco Series C Cumulative
Redeemable Preferred Stock and (ii) financing of properties previously purchased
for cash as well as the cash on hand at March 31, 1998, may be used to fund (i)
the Company's real estate investment, acquisition and development activities,
(ii) ongoing legal fees including expenses relating to the Winston Action and
the terminated Winston Settlement Agreement and (iii) other general corporate
purposes. See Part II-Other Information, Item 1. Legal Proceedings for a
discussion of the Winston Action and the Winston Settlement Agreement.
The Company's existing borrowings and the encumbrances on the properties
securing those borrowings may inhibit or result in increased costs to the
Company in connection with its ability to incur future indebtedness and/or raise
substantial equity capital in the marketplace.
The Company has invested available funds in secure, short-term, interest bearing
investments. The Company believes that its levels of working capital, liquidity
and funds from operations are sufficient to support present operations and to
continue to fund future growth and business opportunities as the Company seeks
to maximize shareholder value.
Other than as described herein, management is not aware of any other trends,
events, commitments or uncertainties that will, or are likely to, materially
impact the Company's liquidity.
Cash Flows
Net cash used in operating activities of $5,946,352 for the three months ended
March 31, 1998 included (1) a net loss of $534,294; (2) adjustments for non-cash
items of $237,888 and (3) a net change in operating assets and liabilities of
$5,174,170, compared to net cash used in operating activities of $5,494,643 for
the three months ended March 31, 1997, which included (1) a net loss of
$349,037; (2) adjustments of $764,532 for non-cash items and (3) a net change of
$5,910,138 in operating assets and liabilities.
Net cash provided by investing activities of $5,520,952 for the three months
ended March 31, 1998 included (1) proceeds from principal repayments on loans
receivable and wraparound notes of $5,077,908; (2) the issuance of Wraparound
Notes of $15,000; (3) the purchase of leasehold improvements of $92,456; (4)
proceeds from redemption of investment in preferred stock of $445,500 and (5)
proceeds from the realization of wraparound notes of $75,000, compared to net
cash provided by investing activities of $15,372,080 for the three months ended
March 31, 1997, which included: (1) principal repayments of $4,851,755 on loans
receivable and wraparound notes; (2)
11
<PAGE>
proceeds of $394,333 from redemption of investment in preferred stock; (3)
proceeds of $9,498,529 from the sale of available-for-sale securities; (4)
purchase of U.S. Treasury Notes for $9,166,015; (5) proceeds of $9,803,443 from
the redemption of reverse repurchase agreements and (6) the purchase of
leasehold improvements of $9,965.
Net cash used in financing activities of $779,760 for the three months ended
March 31, 1998 included principal payments on mortgages and notes payable of
$779,760, compared to net cash used in financing activities of $7,092,138 for
the three months ended March 31, 1997, which included; (1) principal payments of
$962,167 on mortgages and notes payable; (2) principal payments of $6,533,401 on
loans payable and (3) $403,430 received on U.S. Treasury Notes payable.
See Part II-Other Information, Item 1. Legal Proceedings and Item 5. Other
Information for a description of certain transactions which occurred subsequent
to March 31, 1998 which may impact the Company's future cash flows.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As previously reported, on January 30, 1996 Milestone, its Board of Directors
and Concord were named as defendants in the Winston Action which was brought by
a Series A Preferred Stockholder purporting to bring the action on behalf of
himself and other Series A Preferred Stockholders in connection with (i)
Milestone's acquisition in October 1995 of certain wraparound notes, wraparound
mortgages and fee properties from certain affiliates of Concord, (ii) the
transfer in August and October 1995 of 16 of Milestone's retail properties to
Union Property Investors, Inc.("UPI"), a then wholly-owned Delaware subsidiary
of Milestone and (iii) the subsequent distribution of all of the issued and
outstanding shares of UPI's common stock to Milestone's common stockholders on a
share-for-share basis and for no consideration (the events referred to in
clauses (i) through (iii) above are collectively referred to herein as the
"Transactions").
Also as previously reported, on October 30, 1997, Milestone entered into a
Stipulation and Agreement of Settlement (the "Winston Settlement Agreement")
providing for the settlement (the "Winston Settlement") of the Winston Action.
If the Winston Settlement had been approved and consummated, the Winston Action
would have been dismissed, Milestone's stockholders would have released all
derivative claims arising in connection with the Transactions and the holders of
the Series A Preferred Stock between October 23, 1995 and the date on which the
Winston Settlement was consummated would have released any claims they may have
had against Milestone and the other named defendants arising out of the
Transactions. Each Series A Preferred Stockholder who did not opt out of the
Winston Settlement and who owned shares of the Series A Preferred Stock on the
date the Winston Settlement was consummated would have received $0.75 per share
in cash from the Company and one share of preferred stock of Concord Milestone
Preferred, Inc., a Delaware corporation affiliated with Concord ("CMP") ( the
"CMP" Preferred Stock), in exchange for each share of Series A Preferred Stock
surrendered. The CMP Preferred Stock would have had a liquidation preference of
$2.25 per share, would have been required to be redeemed by CMP at $2.25 per
share after five years, and would have had no voting or dividend rights; in
addition, the CMP Preferred Stock would have been subject to optional redemption
in accordance with a schedule during the five year period prior to mandatory
redemption. CMP's redemption obligations would have been secured by a letter of
credit. The Winston Settlement was subject to approval by the Delaware Court
after a hearing, and was also subject to a number of conditions which may have
been waived at the option of the Company and the other defendants, including the
condition that stockholders owning more than 10% of the Series A Preferred Stock
did not opt out of the Winston Settlement.
In April 1998, counsel for the plaintiff to the Winston Action advised the
Company that the plaintiff would not proceed with the Winston Settlement
Agreement and counsel for the Company advised the Delaware Court that the
parties would resume litigation of the matter.
The foregoing description of the Winston Settlement and the Winston Settlement
Agreement is qualified in its entirety by reference to the Winston Settlement
Agreement, a copy of which was filed with the Securities and Exchange Commission
on November 12, 1997 as Exhibit 2 to Milestone's Form 8-K.
As previously reported, on January 29, 1998, Milestone, along with certain of
its directors, commenced a lawsuit in the United States District Court for the
Southern District of New York against National Union and Stonewall. National
Union had issued a directors and officers insurance and company reimbursement
policy (the "National Policy") for Milestone and its directors with a limit of
$2,000,000. Stonewall had issued an excess directors and officers liability and
company reimbursement policy (the "Stonewall Policy") for Milestone and its
directors with a limit of $2,000,000. Pursuant to the Winston Settlement
Agreement, had the Winston Settlement been consummated, Milestone would have
paid approximately $2,225,000, plus the plaintiff's legal fees in an amount not
to exceed $650,000 and would have incurred other legal expenses. Milestone
believes that the amount it and certain of its directors would have paid
pursuant to the Winston Settlement Agreement and as a result of the litigation,
had
13
<PAGE>
the Winston Settlement been consummated, are covered losses under both the
National Union Policy and the Stonewall Policy. In addition, the Company has
incurred approximately $440,000 in legal fees in defending Milestone and its
directors in connection with the Winston Action, which it believes is a covered
loss under the National Union and Stonewall policies. National Union refused to
contribute to the Winston Settlement, as set forth in the Winston Settlement
Agreement, asserting that the Winston Settlement does not encompass any covered
loss (as defined in the National Policy). Stonewall also refused to contribute
to the Winston Settlement. In the complaint, the plaintiffs allege that National
Union and Stonewall wrongfully failed to contribute to the Winston Settlement
and seek reimbursement from National Union and Stonewall up to the limits of
their respective policies. National Union and Stonewall have both answered the
complaint and have denied liability. As a result of the termination of the
Winston Settlement Agreement, Milestone and its directors will request that the
United States District Court for the Southern District of New York put on the
suspense calendar the action against Stonewall and National Union. At this time,
the Company is not in a position to render an opinion as to the outcome of this
action.
Item 5. Other Information.
Milestone's Board of Directors determined not to pay any dividends on the Series
A Preferred Stock during the years ended December 31, 1996 and 1997 and for the
quarter ended March 31, 1998. The last dividend declared by Milestone was for
the quarter ended December 31, 1995 and was paid on February 15, 1996 at $0.195
per share of Series A Preferred Stock.
After September 30, 1995, holders of the Series A Preferred Stock having a
liquidation preference of $10.00 per share, were no longer entitled to receive
dividends on a cumulative basis. Pursuant to the Certificate of Designations of
the Series A Preferred Stock, after such date, no cash dividend may be paid on
the Common Stock unless full dividends of $0.195 on all outstanding shares of
Series A Preferred Stock for the then current quarterly dividend period are
declared and either paid or sufficient sums for the payment thereof are set
apart. As a result of Milestone's Board of Directors' determination not to pay a
dividend for the quarter ended June 30, 1997, which was the sixth consecutive
quarter for which no dividend was paid, the number of persons entitled to serve
as directors on Milestone's Board of Directors has been increased by one, and
the holders of the Series A Preferred Stock, who currently elect one member of
the Board of Directors, are entitled to elect a second member of the Board of
Directors to fill such newly created directorship. Any decision as to the future
payment of dividends on the Series A Preferred Stock will depend on the results
of operations and the financial condition of the Company and such other factors
as Milestone's Board of Directors, in its discretion, deems relevant. See Part
I-Financial Information, Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation - Liquidity and Capital Resources.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibit is included herein:
Exhibit 27 - Financial Data Schedule Article 5 included for
Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
purposes only. This Schedule contains summary financial
information extracted from the consolidated balance sheets and
consolidated statements of revenues and expenses of the
Company as of and for the three month period ended March 31,
1998, and is qualified in its entirety by reference to such
financial statements.
(b) On January 15, 1998, a Form 8-K was filed with the Commission
reporting that the Company entered into an agreement with
Societe Generale Securities Corporation pursuant to which the
Company retained SGSC to act as financial advisor involving a
proposed sale of certain properties.
(c) On April 29, 1998, a Form 8-K was filed with the Commission
reporting that the plaintiff in the Winston Action will not
proceed with a previously announced settlement agreement.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MILESTONE PROPERTIES, INC.
--------------------------
(Registrant)
Date: May 8, 1998 /s/ Robert A. Mandor
-----------------------------
Robert A. Mandor
President and Chief Financial Officer
Date: May 8, 1998 /s/ Patrick S. Kirse
--------------------------------
Patrick S. Kirse
Vice President of Accounting
(Principal Accounting Officer)
16
<PAGE>
EXHIBIT 6
MPI's Quarterly Report on Form 10-Q for the Quarterly Period Ended
June 30, 1998
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________________ to _______________
Commission file number 1-10641
-------
MILESTONE PROPERTIES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 65-0158204
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
150 E. Palmetto Park Rd. 4th Floor, Boca Raton, FL 33432
- -------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(561) 394-9533
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
---- ----
As of August 10, 1998, 4,250,445 shares of the registrant's common stock, par
value $.01 per share, and 3,000,251 shares of the registrant's $.78 Convertible
Series A preferred stock, par value $.01 per share, were outstanding.
<PAGE>
Part I: Financial Information
Item 1. Financial Statements
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1998 (Unaudited) and December 31, 1997
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents ........................... $ 12,865,320 $ 13,435,237
Restricted cash ..................................... 222,000 222,000
Loans receivable .................................... 1,479,274 1,512,744
Accounts receivable ................................. 897,520 1,265,625
Accrued interest receivable ......................... 3,779,958 8,465,528
Due from related party .............................. 485,444 391,851
Prepaid expenses and other .......................... 1,625,507 1,034,613
------------- -------------
Total current assets ........................... 21,355,023 26,327,598
Property, improvements and equipment, net ........... 23,167,422 19,610,060
Wraparound notes, net ............................... 52,874,991 59,402,931
Deferred income tax asset, net ...................... 5,114,060 4,058,358
Investments in preferred stock ...................... 1,337,600 2,228,600
Management contract rights, net ..................... 242,316 290,926
Goodwill and other, net ............................. 601,938 304,639
------------- -------------
Total assets ................................... $ 104,693,350 $ 112,223,112
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ............... $ 1,097,264 $ 2,015,942
Accrued interest payable ............................ 242,019 259,116
Master lease payable ................................ 6,911,321 13,637,564
Current portion of mortgages and notes payable ...... 37,742,544 38,456,766
Income taxes payable ................................ 2,822,119 2,822,119
------------- -------------
Total current liabilities ...................... 48,815,267 57,191,507
Mortgages and notes payable ......................... 31,700,071 29,282,798
------------- -------------
Total liabilities .............................. 80,515,338 86,474,305
------------- -------------
Commitments and Contingencies
Stockholders' equity:
Common stock ($0.01 par value, 10,000,000 shares
authorized, 4,943,036 and 4,905,959 issued and
outstanding in 1998 and 1997, respectively) ...... 49,431 49,060
Preferred stock (Series A $0.01 par value, $10
liquidation preference 10,000,000 shares
authorized, 3,000,251 and 3,033,995 shares issued
and outstanding in 1998 and 1997, respectively) .. 30,004 30,341
Additional paid-in surplus .......................... 48,105,395 48,105,428
Accumulated deficit ................................. (20,566,400) (18,995,604)
Shares held in treasury - 692,591 shares at cost .... (3,440,418) (3,440,418)
------------- -------------
Total stockholders' equity ..................... 24,178,012 25,748,807
------------- -------------
Total liabilities and stockholders' equity ..... $ 104,693,350 $ 112,223,112
------------- -------------
------------- -------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
1
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
(Unaudited)
For the Three Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
REVENUES:
Rent ................................................... $ 2,598,415 $ 2,476,066
Interest income ........................................ 2,227,375 3,293,194
Revenue from management company operations ............. 99,203 83,751
Tenant reimbursements .................................. 276,218 200,745
Management and reimbursement income .................... 26,935 45,011
Percentage rent ........................................ 201,759 131,363
Amortization of discount - available-for-sale
securities ........................................... 0 90,136
Unrealized (loss) on treasury notes sold short ......... 0 (354,065)
----------- -----------
Total revenues ......................................... 5,429,905 5,966,201
----------- -----------
EXPENSES:
Master lease expense ................................... 3,445,833 3,445,833
Interest expense ....................................... 1,581,007 2,375,655
Depreciation and amortization .......................... 197,948 187,808
Salaries, general and administrative ................... 588,632 661,902
Property expenses ...................................... 548,846 458,172
Expenses for management company operations ............. 294,431 298,818
Professional fees ...................................... 308,294 228,844
----------- -----------
Total expenses ......................................... 6,964,991 7,657,032
----------- -----------
Loss before income taxes .................................... (1,535,086) (1,690,831)
(Benefit) provision for income taxes ........................ (498,584) 416,309
----------- -----------
Net loss .................................................... $(1,036,502) $(2,107,140)
----------- -----------
----------- -----------
Loss attributable to common stockholders .................... $ (0.25) $ (0.50)
----------- -----------
----------- -----------
Weighted average common shares outstanding .................. 4,225,727 4,192,211
----------- -----------
----------- -----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
(Unaudited)
For the Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
REVENUES:
Rent ................................................... $ 5,344,220 $ 5,347,516
Interest income ........................................ 4,467,931 6,669,521
Revenue from management company operations ............. 295,045 284,442
Tenant reimbursements .................................. 533,602 558,734
Management and reimbursement income .................... 55,986 308,143
Percentage rent ........................................ 311,007 201,439
Amortization of discount - available-for-sale
securities .......................................... 0 179,436
Unrealized gain on treasury notes sold short ........... 0 49,365
Gain on realization of wraparound notes ................ 81,890 0
Loss on sale of available-for-sale securities .......... 0 (784,122)
------------ ------------
Total revenues ......................................... 11,089,681 12,814,474
------------ ------------
EXPENSES:
Master lease expense ................................... 6,891,666 6,977,659
Interest expense ....................................... 3,100,605 4,638,932
Depreciation and amortization .......................... 406,021 380,916
Salaries, general and administrative ................... 1,164,960 1,192,209
Property expenses ...................................... 992,512 892,896
Expenses for management company operations ............. 562,696 658,869
Professional fees ...................................... 527,639 435,782
------------ ------------
Total expenses ......................................... 13,646,099 15,177,263
------------ ------------
Loss before income taxes .................................... (2,556,418) (2,362,789)
(Benefit) provision for income taxes ........................ (985,622) 93,388
------------ ------------
Net loss .................................................... $ (1,570,796) $ (2,456,177)
------------ ------------
------------ ------------
Loss attributable to common stockholders .................... $ (0.37) $ (0.59)
------------ ------------
------------ ------------
Weighted average common shares outstanding .................. 4,219,548 4,192,211
------------ ------------
------------ ------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
MILESTONE PROPERTIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock Additional
--------------- ----------------- --------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Shares Cost Surplus Deficit Equity
------ ------ ------ ------ ------ ---- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998...... 4,905,959 $49,060 3,033,995 $30,341 (692,591) $(3,440,418) $48,105,428 $(18,995,604) $25,748,807
Conversion of preferred
stock into common stock.... 37,077 371 (33,744) (337) (33)
Net loss for the six months
ended June 30, 1998........ (1,570,796) (1,570,796)
Balance June 30, 1998........ --------- ------- --------- ------- -------- ----------- ----------- ------------ -----------
4,943,036 $49,431 3,000,251 $30,004 (692,591) $(3,440,418) $48,105,395 $(20,566,400) $24,178,012
--------- ------- --------- ------- -------- ----------- ----------- ------------ -----------
--------- ------- --------- ------- -------- ----------- ----------- ------------ -----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES June 1998 June 1997
--------- ---------
<S> <C> <C>
Net loss ...................................................... $ (1,570,796) $ (2,456,177)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ............................ 406,021 380,916
Deferred benefit taxes ................................... (1,055,702) 138,407
Unrealized gain on treasury notes sold short ............. 0 (49,365)
Amortization of discount-available-for-sale securities ... 0 (179,436)
Realized loss on sale of available-for-sale securities ... 0 784,122
Gain on sale of property ................................. 81,890 0
Change in operating assets and liabilities, net:
Decrease in accounts receivable ........................ 368,105 680,112
Increase in due from related party ..................... (93,592) (141,642)
Decrease in accrued interest receivable ................ 4,685,570 4,921,944
(Increase) decrease in prepaid expenses and other ...... (925,335) 294,830
Decrease in accounts payable and accrued expenses ...... (918,678) (1,410,540)
Decrease in accrued interest payable ................... (17,097) (338,319)
Decrease in master lease payable ....................... (6,726,243) (7,264,000)
Decrease in income taxes payable ....................... 0 (816,371)
Decrease in due to related party ....................... 0 (61,688)
------------ ------------
Net cash used in operating activities .................. (5,765,857) (5,517,207)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments on loans receivable ................. 33,470 139,680
Principal repayments on wraparound notes ................. 5,025,520 4,727,684
Issuance of wraparound notes ............................. 25,410 0
Purchase of building and land ............................ (3,650,000) 0
Purchase of leasehold improvements ....................... (227,631) (43,668)
Proceeds from realization of wraparound notes ............ 75,000 0
Proceeds from the sale of available-for-sale securities .. 0 9,498,529
Proceeds from redemption of investments in preferred
stock ................................................. 891,000 839,834
Proceeds from redemption of reverse repurchase
agreements ............................................ 0 9,436,884
Purchase of treasury notes ............................... 0 (9,166,017)
------------ ------------
Net cash provided by investing activities .............. 2,172,769 15,432,926
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgages and notes payable ................ 6,497,746
Principal payments on mortgages and notes payable ........ (3,474,575) (1,517,846)
Principal payment on loans payable ....................... 0 (5,985,822)
Amounts received on treasury notes payable ............... 0 49,365
------------ ------------
Net provided by (cash used in) financing activities .... 3,023,171 (7,454,303)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .......... (569,917) 2,461,416
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................ 13,435,237 3,141,839
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 12,865,320 $ 5,603,255
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest ............... $ 3,117,702 $ 4,977,251
------------ ------------
------------ ------------
Cash paid during the period for income taxes ........... $ 70,080 $ 793,651
------------ ------------
------------ ------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
MILESTONE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying consolidated financial statements of Milestone Properties, Inc.
("Milestone") and its wholly owned subsidiaries (together, Milestone with its
subsidiaries is herein referred to as the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The financial statements as of and for the periods ended June 30, 1998
and 1997 are unaudited. The results of operations for the interim periods are
not necessarily indicative of the results of operations for the fiscal year.
Certain information for 1997 has been reclassified to conform to the 1998
presentation. These consolidated financial statements should be read in
conjunction with the financial statements and footnotes included thereto in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The Company is engaged in the business of owning, acquiring, managing,
developing and investing in commercial real estate and real estate related
assets. As of June 30, 1998 (and currently), the Company possessed interests in
33 commercial real estate properties consisting of (i) six fee interests (the
"Fee Properties") and (ii) Wrap Debt (as defined herein) interests in 27
commercial real properties (the "Underlying Properties"). At June 30, 1997, the
Company possessed interests in 33 commercial real estate properties consisting
of (i) three Fee Properties and (ii) Wrap Debt interests in 30 Underlying
Properties. The Underlying Properties are secured by and subject to wraparound
notes (the "Wraparound Notes") and wraparound mortgages (the "Wraparound
Mortgages" and, together with the Wraparound Notes, the "Wrap Debt"). Most of
the Fee Properties are multi-tenanted as compared to the Underlying Properties
of which most are single-tenanted.
1. Acquisition and Disposition of Real Estate Related Assets
On July 15, 1998, the Company completed the purchase of Teeca Plaza, a 22,589
square foot shopping center located in Boca Raton, Florida (Palm Beach County),
from an unrelated party for $2,075,000. In connection with the purchase, the
Company obtained a $1,800,000 first mortgage loan which bears interest at a rate
of 7.39% per annum. Such first mortgage requires monthly principal and interest
payments of $12,450 based upon a 30 year self liquidating amortization schedule,
with a balloon payment of approximately $1,591,100 due July 1, 2008. The
shopping center is currently 97% occupied by local tenants who are subject to
operating leases ranging from three to 28 years with various renewal options.
On July 7, 1998, the Company completed the sale of its Mountain View Mall
property located in Bend, Oregon (the "Bend Property") to an unrelated party for
$17,750,000. The Company realized net proceeds from the sale of approximately
$319,200, after paying off the balance of the underlying first mortgage of
$17,065,000 (which represented approximately 23% of the Company's total
liabilities) and using a portion of the funds for closing costs and net credits
to the buyer. At the time of the sale, the Bend Property represented
approximately 17% of the Company's total assets with a carrying value, net of
accumulated depreciation, of approximately $16,482,000. As a result of the sale,
the Company will realize a book gain of approximately $948,000 in the third
quarter of 1998.
6
<PAGE>
On May 1, 1998, the Company secured a $1,160,000 first mortgage loan on its Pine
Oak property located in Sunrise Florida, which bears interest at a rate of 7.48%
per annum. Such first mortgage requires monthly principal and interest payments
of $8,095 based upon a 30 year self liquidating amortization schedule, with a
balloon payment of approximately $1,027,700 due May 1, 2008.
On April 17, 1998, the Company completed the purchase of Orange Park Shopping
Center, a 21,509 square foot shopping center located in Orange Park, Florida
(Clay County), from an unrelated party for $1,500,000. In connection with the
purchase, the Company obtained a $1,300,000 first mortgage loan which bears
interest at a rate of 7.39% per annum. Such first mortgage requires monthly
principal and interest payments of $8,992 based upon a 30 year self liquidating
amortization schedule, with a balloon payment of approximately $1,147,600 due
April 1, 2008. The shopping center is currently 95% occupied by local tenants
who are subject to operating leases ranging from two to six years with various
renewal options.
On April 17, 1998, the wraparound mortgagor (i.e. the Partnership that owns the
related Underlying Property) completed the refinancing of Morgantown Plaza, a
92,646 square foot shopping center located in Natchez, Mississippi, on behalf of
the Company, as the wraparound mortgagee. The $2,200,000 first mortgage loan
bears interest at a rate of 7.59% per annum, and requires monthly principal and
interest payments of $15,519 based upon a 30 year self liquidating amortization
schedule, with a balloon payment of approximately $1,951,900 due May 1, 2008.
The Company also extended the Wraparound Mortgage on such property to mature May
1, 2008.
On April 1, 1998, the Company completed the purchase of Regency Walk Shopping
Center, a 34,436 square foot shopping center located in Jacksonville, Florida
(Duval County), from an unrelated party for $2,150,000. On April 2, 1998, the
Company secured a $1,840,000 first mortgage loan which bears interest at a rate
of 7.87% per annum. Such first mortgage requires monthly principal and interest
payments of $13,335 based upon a 30 year self liquidating amortization schedule,
with a balloon payment of approximately $1,643,700 due May 1, 2008.The shopping
center, which is currently 92% occupied, is occupied by local tenants who are
subject to operating leases ranging from two to nine years with various renewal
options.
On February 9, 1998, the Company realized its position in its wraparound note
that had a carrying value of $1,477,010 on the property located in Chili, New
York as a result of the assignment of the wraparound note on such property to an
unrelated party for $75,000. The assignment resulted in the relief of a
non-recourse underlying mortgage on such property that had a principal balance
outstanding of $1,477,010, which resulted in a book gain of $81,890 to the
Company.
As previously reported, the Company and Societe Generale Securities Corporation
("SGSC") entered into an agreement (the "SGSC Agreement") on January 9, 1998,
effective as of December 24, 1997, pursuant to which Milestone and certain of
its affiliates retained SGSC to act as a financial advisor to the Company and
certain of its affiliates (the "Affiliates") in connection with any transaction
involving a proposed sale (a "Proposed Sale") by the Affiliates of certain
shopping center properties and any proposed sale by Milestone of certain Fee
Properties owned by Milestone. The shopping center properties to be sold by the
Affiliates are subject to Wrap Debt secured by Underlying Properties. Such Wrap
Debt is held by the Company and would need to be released prior to the
consummation of any transaction. The properties to be sold and the Wrap Debt to
be repaid in connection with a Proposed Sale could represent a substantial
portion of the Company's real estate related assets. Currently, the Company and
the Affiliates are negotiating the terms of a Proposed Sale. However there can
be no assurance that such negotiation will result in a sale contract for a
Proposed Sale, nor can there be any assurance that if a sale contract is reached
that a Proposed Sale will be consummated.
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2. Legal Proceedings
As previously reported, on January 30, 1996, Milestone, certain former and
present members of its Board of Directors and executive officers, and Concord
Assets Group, Inc. ("Concord"), a New York corporation, the executive officers
and directors of which are also executive officers and directors of Milestone,
were named as defendants in a purported class action and derivative lawsuit (the
"Winston Action") which was brought by a Series A Preferred Stockholder on
behalf of himself and purportedly on behalf of all holders of the Company's $.78
Convertible Series A Preferred Stock (the "Series A Preferred Stock"), par value
$.01 per share, $10 liquidation preference, and derivatively on behalf of
Milestone, in connection with (i) Milestone's acquisition in October 1995 of
certain wraparound notes, wraparound mortgages and fee properties from certain
affiliates of Concord, (ii) the transfer in August and October 1995 of 16 of
Milestone's retail properties to Union Property Investors, Inc. ("UPI"), a then
wholly-owned Delaware subsidiary of Milestone and (iii) the subsequent
distribution of all of the issued and outstanding shares of UPI's common stock
to Milestone's common stockholders on a share-for-share basis and for no
consideration (the events referred to in clauses (i) through (iii) above are
collectively referred to herein as the "Transactions").
On October 30, 1997, Milestone had entered into a Stipulation and Agreement of
Settlement (the "Initial Winston Settlement Agreement") providing for the
settlement of the Winston Action. In April 1998, counsel for the plaintiff to
the Winston Action advised the Company that the plaintiff would not proceed with
such settlement and counsel for the Company advised the Court of Chancery of the
State of Delaware that the parties would resume litigation of the matter. If
such settlement had been approved and consummated, the Winston Action would have
been dismissed and Milestone's stockholders who did not opt out of such
settlement would have been required to surrender each share of Series A
Preferred Stock held by such stockholder and release all claims against any and
all of the defendants in the Winston Action arising in connection with the
Transactions in exchange for $0.75 per share in cash from Milestone and one
share of preferred stock of an affiliate of Concord having a $2.25 per share
liquidation preference and which would have been required to be redeemed at
$2.25 per share after five years.
On July 14, 1998, the Company announced that it had reached a new settlement
(the "Winston Settlement") with plaintiff's counsel relating to the Winston
Action. On August 5, 1998, a Stipulation and Agreement of Settlement (the
"Winston Settlement Agreement") was entered into between the parties to the
Winston Action setting forth the terms of the Winston Settlement. Pursuant to
the Winston Settlement, each holder of Series A Preferred Stock eligible to
participate in the Winston Settlement who does not opt out of the Winston
Settlement will be required to surrender each share of Series A Preferred Stock
held by such stockholder and release all claims he or she may have against
Milestone and the other named defendants in connection with the Winston Action
in exchange for $3.00 in cash, payable by Milestone. The defendants in the
Winston Action and their affiliates are not eligible to participate in the
Winston Settlement. The Winston Settlement is subject to approval by the Court
of Chancery of the State of Delaware after a hearing, and is also subject to a
number of conditions which may be waived at the option of Milestone and the
other defendants, including the condition that stockholders owning more than 10%
of the Series A Preferred Stock do not opt out of the Winston Settlement. The
ultimate consummation of the Winston Settlement is subject to numerous
conditions, some of which are not in the control of the Company, such as
approval by the Court of Chancery of the State of Delaware, and therefore is
inherently uncertain.
The foregoing description of the Winston Settlement is qualified in its entirety
by reference to the Winston Settlement Agreement, a copy of which is being filed
as Exhibit 10.01 hereto.
As previously reported, on January 29, 1998, Milestone, along with certain of
its directors, commenced a lawsuit in the United States District Court for the
Southern District of New York against National Union Fire Insurance
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Company of Pittsburgh, Pa. ("National Union") and Stonewall Surplus Lines
Insurance Company ("Stonewall"). National Union had issued a directors and
officers insurance and company reimbursement policy (the "National Policy") for
Milestone and its directors with a limit of $2,000,000. Stonewall had issued an
excess directors and officers liability and company reimbursement policy (the
"Stonewall Policy") for Milestone and its directors with a limit of $2,000,000.
Pursuant to the Initial Winston Settlement Agreement, had such proposed
settlement been consummated, Milestone would have paid approximately $2,225,000,
plus plaintiff's legal fees in an amount not to exceed $650,000 and would have
incurred other legal expenses. Milestone believes that the amount it and certain
of its directors would have paid pursuant to the initial proposed settlement and
as a result of the litigation, had such proposed settlement been consummated,
would have been covered losses under both the National Union Policy and the
Stonewall Policy. In addition, the Company incurred approximately $550,000 in
legal fees in defending Milestone and its directors in connection with the
Winston Action, which it believes is a covered loss under the National Union and
Stonewall policies. National Union refused to contribute to such proposed
settlement, as set forth in the Initial Winston Settlement Agreement, asserting
that such proposed settlement did not encompass any covered loss (as defined in
the National Policy). Stonewall also refused to contribute to such proposed
settlement. In the complaint, the plaintiffs alleged that National Union and
Stonewall wrongfully failed to contribute to the initial proposed settlement and
sought reimbursement from National Union and Stonewall up to the limits of their
respective policies. National Union and Stonewall both answered the complaint
and denied liability. As a result of the termination of the Initial Winston
Settlement Agreement, Milestone, on one hand, and Stonewall and National Union,
on the other hand, agreed to dismiss such action without prejudice and such
action was dismissed on May 29, 1998 by the United States District Court for the
Southern District of New York. The Company has given National Union and
Stonewall notice of the Winston Settlement and has provided each of them with a
copy of the Winston Settlement Agreement. It is possible that the Company will
assert a claim against National Union and Stonewall in connection with covered
losses under the National Policy and the Stonewall Policy relating to the
Winston Settlement. At this time, the Company is not in a position to render an
opinion as to the outcome of such an action if one is commenced.
If the Winston Settlement is consummated and all of the holders of shares of the
Series A Preferred Stock eligible to participate in the Winston Settlement
participate in such settlement, the total amount of funds necessary for
Milestone to acquire such shares of Series A Preferred Stock is approximately
$9,000,000. Additional expenses of approximately $1,200,000 are anticipated to
be incurred in connection with the Winston Settlement. The source of such funds
necessary to effectuate the Winston Settlement would be from the Company's
existing cash reserves.
3. Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting and displaying of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 mandates that all items that are required to
be recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed in equal prominence with
all other financial statements. It does not require a specific format for such
financial statements, but requires that an enterprise display an amount
representing total comprehensive income for the period in such a financial
statement. SFAS No. 130 is effective for both interim and annual periods
beginning after December 15, 1997. Comparative financial statements provided for
earlier periods are required to be reclassified to reflect the provisions of
SFAS No. 130.
The Company adopted SFAS No. 130 in the first quarter of 1998. There are no
components of comprehensive income for the three months or six months ended June
30, 1998. For the three months ended June 30, 1997 the Company had components of
comprehensive income, as defined in SFAS No. 130, of approximately $577,000
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of unrealized gains (net of tax of $385,000 ) on available-for-sale securities.
Under SFAS No. 130 the Company has a comprehensive loss of approximately
$1,530,000 for the three months ended June 30, 1997. For the six months ended
June 30, 1997 the Company had components of comprehensive income, as defined in
SFAS No. 130, of approximately $906,000 of unrealized gains (net of tax of
$609,000) on available-for-sale securities. Under SFAS No. 130 the Company has a
comprehensive loss of approximately $1,550,000 for the six months ended June 30,
1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
General
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Such forward-looking statements include
statements regarding the intent, belief or current expectations of Milestone
Properties, Inc. ("Milestone") and its wholly-owned subsidiaries (together,
Milestone with its subsidiaries is hereinafter referred to as the "Company") and
its management and involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the following: general economic and
business conditions, which will, among other things, affect the demand for
retail space or retail goods, availability and creditworthiness of prospective
tenants, lease rents and the terms and availability of financing; adverse
changes in the real estate markets including, among other things, competition
with other companies; risks of real estate development and acquisition;
governmental actions and initiatives; and environmental and safety requirements.
The Company is engaged in the business of owning, acquiring, managing,
developing and investing in commercial real estate and real estate related
assets. As of June 30, 1998 (and currently), the Company possessed interests in
33 commercial real estate properties consisting of (i) six fee interests (the
"Fee Properties") and (ii) Wrap Debt (as defined herein) interests in 27
commercial real properties (the "Underlying Properties"). At June 30, 1997, the
Company possessed interests in 33 commercial real estate properties consisting
of (i) three Fee Properties and (ii) Wrap Debt interests in 30 Underlying
Properties. The Underlying Properties are secured by and subject to wraparound
notes (the "Wraparound Notes") and wraparound mortgages (the "Wraparound
Mortgages" and, together with the Wraparound Notes, the "Wrap Debt"). Most of
the Fee Properties are multi-tenanted as compared to the Underlying Properties
of which most are single-tenanted.
Year 2000 Compliance
The Company has and will continue to make certain investments in its software
systems and applications to ensure that the Company is year 2000 compliant. It
is anticipated that the project will be completed by internal staff without
significant contributions from outside contractors. Management believes that the
financial impact to the Company of ensuring its year 2000 compliance has not
been and will not be material to the Company's financial position or results of
operations.
Recent Developments
On August 5, 1998, Milestone and the other parties to a purported class and
derivative lawsuit (the "Winston Action") which was brought against Milestone,
certain former and present members of its Board of Directors and executive
officers, and Concord Assets Group Inc. ("Concord"), a New York corporation,
entered into a Stipulation and Agreement of Settlement (the "Winston Settlement
Agreement"), setting forth the terms of a
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proposed settlement (the "Winston Settlement") relating to the Winston Action
which was publicly announced on July 14, 1998. In April 1998, counsel for the
plaintiff to the Winston Action had advised the Company that the plaintiff would
not proceed with a previous settlement. Pursuant to the Winston Settlement, each
holder of shares of Milestone's $.78 Convertible Series A preferred stock (the
"Series A Preferred Stock), par value $.01 per share, $10 liquidation
preference, who is eligible to participate in the Winston Settlement and who
does not opt out of the Winston Settlement will be required to surrender all of
such holders' shares of Series A Preferred Stock and release all claims such
holder may have against Milestone and the other named defendants in connection
with the Winston Action in exchange for $3.00 in cash, payable by Milestone. The
Winston Settlement is subject to approval by the Court of Chancery of the State
of Delaware after a hearing, and is also subject to a number of conditions which
may be waived at the option of Milestone and the other defendants, including the
condition that stockholders owning more than 10% of the Series A Preferred Stock
do not opt out of the Winston Settlement. The ultimate consummation of the
Winston Settlement is subject to numerous conditions, some of which are not in
the control of the Company, such as approval by the Court of Chancery of the
State of Delaware, and therefore is inherently uncertain. See Part II-Other
Information, Item 1. Legal Proceedings.
If the Winston Settlement is consummated and all of the holders of shares of the
Series A Preferred Stock eligible to participate in the Winston Settlement
participate in such settlement, the total amount of funds necessary for
Milestone to acquire such shares of Series A Preferred Stock would be
approximately $9,000,000. Additional expenses of approximately $1,200,000 are
anticipated to be incurred in connection with the Winston Settlement. The source
of such funds necessary to effectuate the Winston Settlement would be from the
Company's existing cash reserves. See Part I-Financial Information, Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operation, Liquidity and Capital Resources.
On July 15, 1998, the Company completed the purchase of Teeca Plaza, a 22,589
square foot shopping center located in Boca Raton, Florida (Palm Beach County),
from an unrelated party for $2,0750,000. In connection with the purchase, the
Company obtained a $1,800,000 first mortgage loan which bears interest at a rate
of 7.39% per annum. Such first mortgage requires monthly principal and interest
payments of $12,450 based upon a 30 year self liquidating amortization schedule,
with a balloon payment of approximately $1,591,100 due July 1, 2008. The
shopping center is currently 97% occupied by local tenants who are subject to
operating leases ranging from three to 33 years with various renewal options.
On July 7, 1998, the Company completed the sale of its Mountain View Mall
property located in Bend, Oregon (the "Bend Property") to an unrelated party for
$17,750,000. The Company realized net proceeds from the sale of approximately
$319,200, after paying off the balance of the underlying first mortgage of
$17,065,000 (which represented approximately 23% of the Company's total
liabilities) and using a portion of the funds for closing costs and net credits
to the buyer. At the time of the sale, the Bend Property represented
approximately 17% of the Company's total assets with a carrying value, net of
accumulated depreciation, of approximately $16,482,000. As a result of the sale,
the Company will realize a book gain of approximately $948,000 in the third
quarter of 1998.
The New York Stock Exchange (the "Exchange") suspended trading in shares of the
Series A Preferred Stock and Common Stock prior to the market opening on July 6,
1998 because the Exchange had determined that Milestone had fallen below certain
of its continued listing criteria relating to net income and market value of
publicly held shares of the Series A Preferred Stock and Common Stock. The
Exchange subsequently applied to the Securities and Exchange Commission to
delist the Series A Preferred Stock and Common Stock. The Company has learned
that on or about July 6, 1998, a market was being made for shares of the Series
A Preferred Stock and Common Stock on the Over-The-Counter Bulletin Board with
the ticker symbols MPRPP and MPRP, respectively.
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On April 17, 1998, the Company completed the purchase of Orange Park Shopping
Center, a 21,509 square foot shopping center located in Orange Park, Florida
(Clay County), from an unrelated party for $1,500,000. In connection with the
purchase, the Company obtained a $1,300,000 first mortgage loan which bears
interest at a rate of 7.39% annum. Such first mortgage requires monthly
principal and interest payments of $8,992 based upon a 30 year self liquidating
amortization schedule, with a balloon payment of approximately $1,147,600 due
April 1, 2008.The shopping center is currently 95% occupied by local tenants who
are subject to operating leases ranging from two to six years with various
renewal options.
On April 1, 1998, the Company completed the purchase of Regency Walk Shopping
Center, a 34,436 square foot shopping center located in Jacksonville, Florida
(Duval County), from an unrelated party for $2,150,000. On April 2, 1998, the
Company secured a $1,840,000 first mortgage loan which bears interest at a rate
of 7.87% per annum. Such first mortgage requires monthly principal and interest
payments of $13,335 based upon a 30 year self liquidating amortization schedule,
with a balloon payment of approximately $1,643,700 due May 1, 2008.The shopping
center, which is currently 92% occupied, is occupied by local tenants who are
subject to operating leases ranging from two to nine years with various renewal
options.
On February 9, 1998, the Company realized its position in its wraparound note
that had a carrying value of $1,477,010 on the property located in Chili, New
York as a result of the assignment of the wraparound note on such property to an
unrelated party for $75,000. The assignment resulted in the relief of a
non-recourse underlying mortgage on such property that had a principal balance
outstanding of $1,477,010, which resulted in a book gain of $81,890 to the
Company.
As previously reported, the Company and Societe Generale Securities Corporation
("SGSC") entered into an agreement (the "SGSC Agreement") on January 9, 1998,
effective as of December 24, 1997, pursuant to which Milestone and certain of
its affiliates retained SGSC to act as a financial advisor to the Company and
certain of its affiliates (the "Affiliates"), in connection with any transaction
involving a proposed sale (a "Proposed Sale") by the Affiliates of certain
shopping center properties and any proposed sale by Milestone of certain Fee
Properties owned by Milestone. The shopping center properties to be sold by the
Affiliates are subject to Wrap Debt secured by Underlying Properties. Such Wrap
Debt is held by the Company and would need to be released prior to the
consummation of any transaction. The properties to be sold and the Wrap Debt to
be repaid in connection with a Proposed Sale could represent a substantial
portion of the Company's real estate related assets. Currently, the Company and
the Affiliates are negotiating the terms of a Proposed Sale. However there can
be no assurance that such negotiation will result in a contract for a Proposed
Sale, nor can there be any assurance that if a sale contract is reached that a
Proposed Sale will be consummated.
Results of Operations
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
The Company recognized a net loss of $1,036,502 for the three months ended June
30, 1998 as compared to a net loss of $2,107,140 for the same period in 1997 due
to the following factors:
Revenues for the three months ended June 30, 1998 were $5,429,905, a decrease of
$536,296 or 9%, from $5,966,201 for the three months ended June 30, 1997. Such
decrease was primarily due to the net of: (1) a decrease in interest income of
$1,065,819 comprised mostly of a decrease in interest income of $951,500
resulting from a decrease in the number of available-for-sale securities held by
the Company to none for the three months ended June 30, 1998 from two for the
same period in 1997; (2) an increase in rents of $122,349 resulting from an
increase in the number of Fee Properties owned by the Company to six for the
three months ended June 30, 1998 from three for the same period in 1997; (3) an
increase in tenant reimbursements of $75,473 resulting
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from an increase in the number of Fee Properties owned by the Company to six for
the three months ended June 30, 1998 from three for the same period in 1997; (4)
an increase in percentage rents, as a function of annual sales reported by
certain tenants, of $70,396 for the three months ended June 30, 1998 resulting
from increased annual sales reported by certain tenants as compared to the same
period in 1997; (5) no amortization of discount on available-for-sale securities
for the three months ended June 30, 1998 compared to amortization of $90,136 for
the same period in 1997 and (6) no unrealized gain or loss on U.S. Treasury
Notes sold short for the three months ended June 30, 1998 compared to an
unrealized holding loss of $354,065 on U.S. Treasury Notes sold short for the
same period in 1997.
Operating expenses for the three months ended June 30, 1998 were $5,186,036, an
increase of $92,467, or 2%, from $5,093,569 for the three months ended June 30,
1997. Such increase was primarily due to the net of: (1) a decrease in salaries,
general and administrative expenses of approximately $73,270 due to the net of
(a) a decrease in rental expense for the corporate offices of approximately
$147,000 for the three months ended June 30, 1998 compared to the same period in
1997; (b) an increase in insurance expense of approximately $19,000 for the
three months ended June 30, 1998 compared to the same period in 1997 due to the
increase in the number of Fee Properties owned by the Company to six from three,
respectively and (c) an increase in closing costs of approximately $46,000 for
the three months ended June 30, 1998 compared to the same period in 1997 due to
the increase in the number of Fee Properties purchased by the Company to three
from none, respectively; (2) an increase in property expenses of $90,674 due to
the increase in the number of Fee Properties owned by the Company to six for the
three months ended June 30, 1998 from three for the same period in 1997 and (3)
an increase in professional fees of $79,450 due to fees associated with the
Winston Settlement with plaintiff's counsel relating to the Winston Action.
Interest expense for the three months ended June 30, 1998 was $1,581,007, a
decrease of $794,648, or 33%, from $2,375,655 for the three months ended June
30, 1997. Such decrease was primarily due to a decrease in financing
arrangements related to the available-for-sale securities held by the Company to
none for the three months ended June 30, 1998 from two for the same period in
1997 resulting in a decrease in interest expense of approximately $672,000.
Depreciation and amortization for the three months ended June 30, 1998 was
$197,948, an increase of $10,140, or 5%, from $187,808 for the three months
ended June 30, 1997. Such increase was primarily due to property improvement
purchases made during 1997.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
The Company recognized a net loss of $1,570,796 for the six months ended June
30, 1998 as compared to a net loss of $2,456,177 for the same period in 1997 due
to the following factors:
Revenues for the six months ended June 30, 1998 were $11,089,681, a decrease of
$1,724,793 or 13%, from $12,814,474 for the six months ended June 30, 1997. Such
decrease was primarily due to the net of: (1) a decrease in interest income of
$2,201,590 comprised mostly of (a) a decrease in interest income of $1,867,068
resulting from a decrease in the number of available-for-sale securities held by
the Company to none for the six months ended June 30, 1998 from two for the same
period in 1997 and (b) a decrease in the number of properties with interest
bearing wraparound notes to 27 for the six months ended June 30, 1998 from 30
for the same period in 1997 resulting in a decrease in interest income of
approximately $199,000; (2) a decrease in management and reimbursement income of
$252,157 resulting primarily from the termination of the Management Services
Agreement between Union Property Investors, Inc. and the Company in February
1997; (3) an increase in percentage rents, as a function of annual sales
reported by certain tenants, of $109,568 for the six months ended June 30, 1998
resulting from increased annual sales reported by the certain tenants as
compared to the same period in 1997; (4) no amortization of discount on
available-for-sale securities for the six months ended June 30,
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1998 compared to amortization of $179,436 for the same period in 1997; (5) no
unrealized gain or loss on U.S. Treasury Notes sold short for the six months
ended June 30, 1998 compared to an unrealized holding gain of $49,365 on U.S.
Treasury Notes sold short for the same period in 1997; (6) a gain on the
realization of wraparound notes of $81,890 compared to no gain or loss on the
realization of wraparound notes for the same period in 1997 and (7) no gain or
loss on the sale of available-for-sale securities for the six months ended June
30, 1998 compared to a loss of $784,122 on the sale of available-for-sale
securities for the six months ended June 30, 1997.
Operating expenses for the six months ended June 30, 1998 were $10,139,473, a
decrease of $17,942, or 0.2%, from $10,157,415 for the six months ended June 30,
1997. Such decrease was primarily due to the net of: (1) a decrease in master
lease expense of $85,993 due to a decrease in the number of properties leased by
the Company to 27 for the six months ended June 30, 1998 from 30 for the same
period in 1997; (2) a decrease in salaries, general and administrative expenses
of approximately $118,081 due to the net of: (a) a decrease in rental expense
for the corporate offices for the six months ended June 30, 1998 compared to the
same period in 1997 of $281,110; (b) an increase in closing costs of
approximately $24,000 for the six months ended June 30, 1998 compared to the
same period in 1997 due to the increase in the number of Fee Properties
purchased to three from none, respectively; (c) a decrease in the number of
employees from 1998 to 1997 resulting in a decrease in salary expense of
approximately $37,000; (d) an increase in insurance expense of approximately
$49,000 for the six months ended June 30, 1998 compared to the same period in
1997 due to the increase in the number of Fee Properties owned by the Company to
six from three, respectively and (e) an increase in other office expense (i.e.
relocation, computers, storage, etc.) related to the corporate offices move in
January 1998 of approximately $53,000 for the six months ended June 30, 1998;
(3) an increase in property expenses of $99,616 due to an increase in the number
of Fee Properties owned by the Company to six for the six months ended June 30,
1998 as compared to three for the same period in 1997 and (4) an increase in
professional fees of $91,857 due to fees associated with the Winston Settlement
with plaintiff's counsel relating to the Winston Action.
Interest expense for the six months ended June 30, 1998 was $3,100,605, a
decrease of $1,538,327, or 33%, from $4,638,932 for the six months ended June
30, 1997. Such decrease was primarily due to a decrease in financing
arrangements related to the available-for-sale securities held by the Company to
none for the six months ended June 30, 1998 from two for the same period in 1997
resulting in a decrease in interest expense of approximately $1,271,000.
Depreciation and amortization for the six months ended June 30, 1998 was
$406,021, an increase of $25,105, or 7%, from $380,916 for the six months ended
June 30, 1997. Such increase was primarily due to property improvement purchases
made during 1997.
Liquidity and Capital Resources
The Company, as the holder of 133,860 shares of Kranzco Series C Cumulative
Redeemable Preferred Shares as of June 30, 1998, is entitled to receive from the
redemption of such shares, in three equal installments over the next 7 months,
an aggregate amount of cash equal to approximately $1,338,600, plus interest at
the rate of 8% per annum on the applicable outstanding balance of such shares.
The first mortgage loan on the Underlying Property located in Quincy, Illinois
matured on July 1, 1998 and the first mortgage loan on the Underlying Property
located in South Williamson, Kentucky is due to mature October 1, 1998. The
Company, as the wraparound mortgagee, is seeking either an extension of terms on
the first mortgage loans or to realize its position in its Wrap Debt on both
properties.
Milestone has no present intention to declare or pay cash dividends on the
Series A Preferred Stock or Common Stock in the foreseeable future. The
cumulative period relating to the payment of dividends on the Series A Preferred
Stock expired on September 30, 1995. If Milestone declares further dividends on
the Series A
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Preferred Stock or the Common Stock and the payment thereof utilizes all, or
substantially all, of its available cash flow after taxes and expenses, the
Company will require other sources of funding to allow it to effect the
contemplated purchases of additional commercial real estate and accomplish its
other long-term goals. Accordingly, no assurance can be given that Milestone
will declare or pay dividends on the Series A Preferred Stock or, subject to the
preference on the Series A Preferred Stock, the Common Stock, in the future, and
currently has no intention to do so. Any decision as to the future payment of
dividends on the Series A Preferred Stock or Common Stock will depend on the
results of operations, investment opportunities for available funds, the
financial condition of the Company and such other factors as Milestone's Board
of Directors deems relevant. See Part II-Other Information, Item 5. Other
Information.
Cash generated by the (i) redemption of the Kranzco Series C Cumulative
Redeemable Preferred Stock and (ii) the cash on hand at June 30, 1998, may be
used to fund (a) the Company's real estate investment, acquisition and
development activities, (b) costs associated with the Winston Action and the
Winston Settlement of (w) approximately $9,000,000, payable by Milestone to
Series A Preferred Stockholders (assuming all eligible stockholders participate
in the Winston Settlement), (x) approximately $750,000 in plaintiff attorney
fees, (y) approximately $300,000 in the Company's attorney fees and (z)
approximately $150,000 in accounting, printing, mailing and other miscellaneous
fees and expenses, and (c) other general corporate purposes. See Part II-Other
Information, Item 1. Legal Proceedings for a discussion of the Winston Action
and the Winston Settlement.
The Company's existing borrowings and the encumbrances on the properties
securing those borrowings may inhibit or result in increased costs to the
Company in connection with its ability to incur future indebtedness and/or raise
substantial equity capital in the marketplace.
The Company has invested available funds in secure, short-term, interest bearing
investments. The Company believes that its levels of working capital, liquidity
and funds from operations are sufficient to support present operations, make any
payments required by the Winston Settlement and to continue to fund future
growth and business opportunities as the Company seeks to maximize shareholder
value.
Other than as described herein, management is not aware of any other trends,
events, commitments or uncertainties that will, or are likely to, materially
impact the Company's liquidity.
Cash Flows
Net cash used in operating activities of $5,765,857 for the six months ended
June 30, 1998 included (1) a net loss of $1,570,796; (2) adjustments for
non-cash items of $567,791 and (3) a net change in operating assets and
liabilities of $3,627,270, compared to net cash used in operating activities of
$5,517,207 for the six months ended June 30, 1997, which included (1) a net loss
of $2,456,177; (2) adjustments of $1,074,644 for non-cash items and (3) a net
change of $4,135,674 in operating assets and liabilities.
Net cash provided by investing activities of $2,172,769 for the six months ended
June 30, 1998 included (1) proceeds from principal repayments on loans
receivable and wraparound notes of $5,058,990; (2) the issuance of wraparound
notes of $25,410; (3) the purchase of building and land for $3,650,000; (4) the
purchase of leasehold improvements of $227,631; (5) proceeds from the
realization of wraparound notes of $75,000 and (6) proceeds from redemption of
investment in preferred stock of $891,000, compared to net cash provided by
investing activities of $15,432,926 for the six months ended June 30, 1997,
which included: (1) principal repayments of $4,867,364 on loans receivable and
wraparound notes; (2) the purchase of leasehold improvements of $43,668; (3)
proceeds of $9,498,529 from the sale of available-for-sale securities; (4)
proceeds of $839,834 from redemption of investment in preferred stock; (5)
proceeds of $9,436,884 from the redemption of reverse repurchase agreements and
(6) purchase of U.S. Treasury Notes for $9,166,017.
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Net cash provided by financing activities of $3,023,171 for the six months ended
June 30, 1998 included proceeds from mortgages and notes payable of $6,497,746
and principal payments on mortgages and notes payable of $3,474,575, compared to
net cash used in financing activities of $7,454,303 for the six months ended
June 30, 1997, which included (1) principal payments of $1,517,846 on mortgages
and notes payable; (2) principal payments of $5,985,822 on loans payable and (3)
$49,365 received on U.S. Treasury Notes payable.
See Part II-Other Information, Item 1. Legal Proceedings and Item 5. Other
Information for a description of certain transactions which occurred subsequent
to June 30, 1998 which may impact the Company's future cash flows.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, on January 30, 1996, Milestone, certain former and
present members of its Board of Directors and executive officers, and Concord, a
New York corporation, the executive officers and directors of which are also
executive officers and directors of Milestone, were named as defendants in the
Winston Action which was brought by a Series A Preferred Stockholder on behalf
of himself and purportedly on behalf of all holders of the Series A Preferred
Stock, and derivatively on behalf of Milestone, in connection with (i)
Milestone's acquisition in October 1995 of certain wraparound notes, wraparound
mortgages and fee properties from certain affiliates of Concord, (ii) the
transfer in August and October 1995 of 16 of Milestone's retail properties to
Union Property Investors, Inc. ("UPI"), a then wholly-owned Delaware subsidiary
of Milestone and (iii) the subsequent distribution of all of the issued and
outstanding shares of UPI's common stock to Milestone's common stockholders on a
share-for-share basis and for no consideration (the events referred to in
clauses (i) through (iii) above are collectively referred to herein as the
"Transactions").
On October 30, 1997, Milestone had entered into a Stipulation and Agreement of
Settlement (the "Initial Winston Settlement Agreement") providing for the
settlement of the Winston Action. In April 1998, counsel for the plaintiff to
the Winston Action advised the Company that the plaintiff would not proceed with
such settlement and counsel for the Company advised the Court of Chancery of the
State of Delaware that the parties would resume litigation of the matter. If
such settlement had been approved and consummated, the Winston Action would have
been dismissed and Milestone's stockholders who did not opt out of such
settlement would have been required to surrender each share of Series A
Preferred Stock held by such stockholder and release all claims against any and
all of the defendants in the Winston Action arising in connection with the
Transactions in exchange for $0.75 per share in cash from Milestone and one
share of preferred stock of an affiliate of Concord having a $2.25 per share
liquidation preference and which would have been required to be redeemed at
$2.25 per share after five years.
On July 14, 1998, the Company announced that it had reached the Winston
Settlement with plaintiff's counsel relating to the Winston Action. On August 5,
1998, the Winston Settlement Agreement was entered into between the parties to
the Winston Action setting forth the terms of the Winston Settlement. Pursuant
to the Winston Settlement, each holder of Series A Preferred Stock eligible to
participate in the Winston Settlement who does not opt out of the Winston
Settlement will be release all claims he or she may have against Milestone and
the other named defendants in connection with the Winston Action in exchange for
$3.00 in cash, payable by Milestone. The defendants in the Winston Action and
their affiliates are not eligible to participate in the Winston Settlement. The
Winston Settlement is subject to approval by the Court of Chancery of the State
of Delaware after a hearing, and is also subject to a number of conditions which
may be waived at the option of Milestone and the other defendants, including the
condition that stockholders owning more than 10% of the Series A Preferred Stock
do not opt out of the Winston Settlement. The ultimate consummation of the
Winston Settlement is subject to numerous conditions, some of which are not in
the control of the Company, such as approval by the Court of Chancery of the
State of Delaware, and therefore is inherently uncertain.
The foregoing description of the Winston Settlement is qualified in its entirety
by reference to the Winston Settlement Agreement, a copy of which is being filed
as Exhibit 10.01 hereto.
As previously reported, on January 29, 1998, Milestone, along with certain of
its directors, commenced a lawsuit in the United States District Court for the
Southern District of New York against National Union Fire Insurance Company of
Pittsburgh, Pa. ("National Union") and Stonewall Surplus Lines Insurance Company
("Stonewall"). National Union had issued a directors and officers insurance and
company reimbursement policy (the "National
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Policy") for Milestone and its directors with a limit of $2,000,000. Stonewall
had issued an excess directors and officers liability and company reimbursement
policy (the "Stonewall Policy") for Milestone and its directors with a limit of
$2,000,000. Pursuant to the Initial Winston Settlement Agreement, had such
proposed settlement been consummated, Milestone would have paid approximately
$2,225,000, plus plaintiff's legal fees in an amount not to exceed $650,000 and
would have incurred other legal expenses. Milestone believes that the amount it
and certain of its directors would have paid pursuant to the initial proposed
settlement and as a result of the litigation, had such proposed settlement been
consummated, would have been covered losses under both the National Union Policy
and the Stonewall Policy. In addition, the Company incurred approximately
$550,000 in legal fees in defending Milestone and its directors in connection
with the Winston Action, which it believes is a covered loss under the National
Union and Stonewall policies. National Union refused to contribute to such
proposed settlement, as set forth in the Initial Winston Settlement Agreement,
asserting that such proposed settlement did not encompass any covered loss (as
defined in the National Policy). Stonewall also refused to contribute to such
proposed settlement. In the complaint, the plaintiffs alleged that National
Union and Stonewall wrongfully failed to contribute to the initial proposed
settlement and sought reimbursement from National Union and Stonewall up to the
limits of their respective policies. National Union and Stonewall both answered
the complaint and denied liability. As a result of the termination of the
Initial Winston Settlement Agreement, Milestone, on one hand, and Stonewall and
National Union, on the other hand, agreed to dismiss such action without
prejudice and such action was dismissed on May 29, 1998 by the United States
District Court for the Southern District of New York. The Company has given
National Union and Stonewall notice of the Winston Settlement and has provided
each of them with a copy of the Winston Settlement Agreement. It is possible
that the Company will assert a claim against National Union and Stonewall in
connection with covered losses under the National Policy and the Stonewall
Policy relating to the Winston Settlement. At this time, the Company is not in a
position to render an opinion as to the outcome of such an action if one is
commenced.
Item 5. Other Information
Milestone's Board of Directors determined not to pay any dividends on the Series
A Preferred Stock during the years ended December 31, 1996 and 1997 and for the
six months ended June 30, 1998. The last dividend declared by Milestone was for
the quarter ended December 31, 1995 and was paid on February 15, 1996 at $0.195
per share of Series A Preferred Stock.
After September 30, 1995, holders of the Series A Preferred Stock having a
liquidation preference of $10.00 per share, were no longer entitled to receive
dividends on a cumulative basis. Pursuant to the Certificate of Designations of
the Series A Preferred Stock, after such date, no cash dividend may be paid on
the Common Stock unless full dividends of $0.195 on all outstanding shares of
Series A Preferred Stock for the then current quarterly dividend period are
declared and either paid or sufficient sums for the payment thereof are set
apart. As a result of Milestone's Board of Directors' determination not to pay a
dividend for the quarter ended June 30, 1997, which was the sixth consecutive
quarter for which no dividend was paid, the number of persons entitled to serve
as directors on Milestone's Board of Directors has been increased by one, and
the holders of the Series A Preferred Stock, who currently elect one member of
the Board of Directors, are entitled to elect a second member of the Board of
Directors to fill such newly created directorship. Any decision as to the future
payment of dividends on the Series A Preferred Stock will depend on the results
of operations and the financial condition of the Company and such other factors
as Milestone's Board of Directors, in its discretion, deems relevant. See Part
I-Financial Information, Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation, Liquidity and Capital Resources.
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Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit 10.01 - Stipulation and Agreement of Settlement, dated
August 5, 1998, by and among John Winston and Leonard S. Mandor,
Robert A. Mandor, Joan LeVine, Harvey Jacobson, Gregory McMahon,
Geoffrey S. Aaronson, Milestone Properties, Inc. and Concord
Assets Group, Inc.
Exhibit 27 - Financial Data Schedule Article 5 included for
Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
purposes only. This Schedule contains summary financial
information extracted from the consolidated balance sheets and
consolidated statements of revenues and expenses of the Company as
of and for the six month period ended June 30, 1998, and is
qualified in its entirety by reference to such financial
statements.
(b) Reports on Form 8-K:
On April 29, 1998, a Form 8-K was filed with the Commission
reporting that the plaintiff in the Winston Action will not
proceed with a previously announced settlement agreement.
On July 21, 1998, a Form 8-K was filed with the Commission
reporting; (i) the Sale of the Mountain View Mall property located
in Bend, Oregon; (ii) the proposed settlement with plaintiff's
counsel relating to the Winston Action and (iii) the suspension of
trading of shares of the Series A Preferred Stock and Common Stock
by the New York Stock Exchange.
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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.
MILESTONE PROPERTIES, INC.
(Registrant)
Date: August 14, 1998 /s/ Robert A. Mandor
-------------------------------------
Robert A. Mandor
President and Chief Financial Officer
Date: August 14, 1998 /s/ Patrick S. Kirse
-----------------------------
Patrick S. Kirse
Vice President of Accounting
(Principal Accounting Officer)
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