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 (I.R.S. Employer Identification No.)
of 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
<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.
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<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.
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<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
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<PAGE>
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 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. 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.
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
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<PAGE>
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 non- executive 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
Securities Payouts
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.
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<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
$0.50 per share with a 10 year expiry. As a result of Joan LeVine resigning as
an officer of the Company on October 3, 1997, all options to purchase shares of
the Company's Common Stock then held by her expired on such date. The Board of
Directors of the Company believes that the cancellations and the simultaneous
reissuances of such options were in the best interests of the Company and its
stockholders and were important in satisfying the Company's compensation goals
and congruous with the Company's compensation philosophy after taking into
consideration, among other things, that the then outstanding options did not
effectively function as the performance incentives for which they were
originally intended because the exercise prices of such options were
significantly higher than the prevailing market value of the underlying shares
of the Company's Common Stock.
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<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information with respect to the value at
December 31, 1997 of unexercised stock options held by the Named Executive
Officers. No options were exercised by any Named Executive Officer and no SARs
were granted by the Company during the year ended December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Fiscal Year-End Options
Shares Acquired Value (1) at Fiscal Year-End(2)
on Exercise Realized Exercisable / Unexercisable Exercisable / Unexercisable
Name (#) ($) (#) ($)
- ---- ----- ----- ----- ----
<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
Name Period Until Estimated Future Payouts Under
Number of Shares, Units Maturation Non-Stock
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.
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<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,
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<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 were based
14
<PAGE>
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. Palmetto Park Road, 4th Floor,
Boca Raton, Florida 33432.
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<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
