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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------
SCHEDULE 13E-3/A
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
(Amendment No. 4)
Milestone Properties, Inc.
(Name of the Issuer)
Milestone Properties, Inc.
Concord Assets Group, Inc.
Leonard S. Mandor
Robert A. Mandor
(Name of Person(s) Filing Statement)
$.78 Convertible Series A Preferred Stock
(Title of Class of Securities)
599358207
(CUSIP Number of Class of Securities)
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<S> <C>
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)
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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
have acquired in the transaction at the time of the initial filing of
this Schedule 13E-3 (because of conversions, only 2,993,663 shares of
such preferred stock would be available for acquisition as of November 13,
1998) 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.
+ The Issuer has previously paid the filing fee in connection with the
initial filing of this Schedule 13E-3.
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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, Concord Assets Group, Inc. ("Concord"), a New York corporation,
Leonard S. Mandor and Robert A. Mandor in connection with a proposed settlement
of a purported class action and derivative lawsuit. Concord, Leonard S. Mandor
and Robert A. Mandor are affiliates of MPI. Concord beneficially owns
approximately 71% (approximately 40% on a fully diluted basis) of the
outstanding shares of MPI's common stock, par value $.01 per share (the "MPI
Common Stock"). Leonard S. Mandor and Robert A. Mandor are the only shareholders
of Concord and serve as executive officers and directors of MPI and Concord.
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 1, that is to be distributed to all
holders of record of shares of MPI Preferred Stock as of October 23, 1995 and
their successors in interest and to all holders of shares of MPI Common Stock as
of the close of business on August 25, 1998 and their successors in interest.
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Summary of the Rule 13e-3 Transaction
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Schedule 13E-3. Any reference in this
Schedule 13E-3 to MPI Preferred Stockholders who "opt out" of the Proposed
Settlement refers only to 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 (as discussed herein).
Background
This Schedule 13E-3 relates to the proposed settlement (the
"Proposed Settlement") of a purported class action and derivative lawsuit (the
"Pending Actions") which are discussed herein. If the Proposed Settlement were
approved, MPI would settle the Pending Actions by acquiring up to 2,993,663
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) resulting in a Rule 13e-3 transaction. The
terms of the Proposed Settlement have been memorialized in the Stipulation and
Agreement of Settlement (the "Settlement Agreement") entered into on August 5,
1998 between counsel for John Winston, the named plaintiff in the Pending
Actions, and counsel for the named defendants (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 that are
the subject of the Pending Actions were approved and effected), MPI and Concord
(collectively, the "Defendants")). A copy of the Settlement Agreement is annexed
hereto as Exhibit 2.
Terms of the Proposed Settlement
All holders of shares of MPI Preferred Stock as of October 23, 1995 and
their successors in interest through the date that the final order of the Court
of Chancery of the State of Delaware (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 (the "Settlement Effective
Date"), except for the Defendants, members of their families, their affiliates
and their associates, are eligible to participate in the Proposed Settlement.
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 (collectively, the "Settlement Class") would be required
to 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 that are the subject of the
Pending Actions as of the Settlement Effective Date in exchange for $3.00 in
cash for each share of MPI Preferred Stock surrendered (see the responses set
forth in Items 3(a) and (b), paragraphs (i), (ii) and (iv) and Item 4(a) of this
Schedule 13E-3 for a discussion regarding the transactions that are the subject
of the Pending Actions). 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 (see the response set forth
to Item 4(a) of this Schedule 13E-3 for a discussion regarding how an MPI
Preferred Stockholder who is eligible to participate in the Proposed Settlement
may properly 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
other conditions which may be
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waived at the option of the Defendants. Notice of the hearing (the "Settlement
Hearing") of the Court will be sent to all holders of record of shares of MPI
Preferred Stock as of October 23, 1995 and their successors in interest through
the Settlement Effective Date and to all holders of record of shares of MPI
Common Stock as of August 25, 1998 (the date that MPI has established as the
record date for purposes of determining who may opt out of the Proposed
Settlement (the "Record Date")) and their successors in interest through the
Settlement Effective Date. The Settlement Agreement provides that the Settlement
Notice initially will be sent at least 60 days prior to the Settlement Hearing
to all holders of record of shares of MPI Preferred Stock as of October 23, 1995
and their successors in interest through the close of business on the Record
Date and to all holders of record of shares of MPI Common Stock as of the close
of business on the Record Date.
Anyone who owned shares of MPI Preferred Stock as of October 23, 1995
and their successors in interest through the date that is one day prior to the
Settlement Hearing who do not opt out of the Proposed Settlement, and anyone who
owned shares of MPI Common Stock as of the close of business on August 25, 1998
and their successors in interest through the date that is one day prior to the
Settlement Hearing, may submit objections to the Proposed Settlement by
appearing in person or by his or her attorney at the Settlement Hearing and
presenting evidence or arguments that may be proper and relevant. However, no
person other than the named plaintiff to the Pending Actions and his counsel and
the Defendants and their counsel are entitled to be heard, and no papers,
briefs, pleadings or other documents submitted by any such persons will be
received and considered by the Court (except if the Court, in its discretion,
otherwise directs upon application of such person and for good cause shown),
unless no later than 10 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, are
served by hand or first class mail, postage prepaid, with the Register in
Chancery and the respective counsel of the named plaintiff to the Pending
Actions and the Defendants, as provided for in the Order Scheduling Fairness
Hearing and Approving Notice, the form of which is annexed to the Settlement
Agreement as Exhibit A. Any person who fails to object in the foregoing manner
will be deemed to have waived such objections and will be forever barred from
raising such objections or otherwise contesting the Proposed Settlement at the
Settlement Hearing or in any other action or proceeding. Any person eligible to
submit objections at the Settlement Hearing but who does not, or believes that
he did not, receive a copy of the Settlement Notice with sufficient time to
object in the foregoing manner would need to apply to the Court for leave and
show good cause therefore in order to be heard.
MPI Preferred Stockholders who are eligible to participate in the
Proposed Settlement and who opt out of the Proposed Settlement cannot appear at
the Settlement Hearing and object to the Proposed Settlement. Such holders
cannot participate in the Settlement Hearing because by electing not to
participate in the Proposed Settlement, they would neither be bound by the terms
of the Settlement Agreement nor be eligible to receive the benefits of the
Proposed Settlement. Therefore, their rights as holders would not be affected in
any meaningful way by the outcome of the Settlement Hearing.
MPI Preferred Stockholders who are eligible to participate in the
Proposed Settlement and who do not opt out of the Proposed Settlement are
entitled to appear, or be otherwise represented, at the Settlement Hearing and
object to the terms of the Proposed Settlement. However, such holders would not
thereafter be eligible to opt out of the Proposed Settlement
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even if their objections are not accepted by the Court and the Proposed
Settlement is not modified in such a way as to incorporate such objections.
MPI Preferred Stockholders who acquired (or acquire) their shares of
MPI Preferred Stock after August 25, 1998 are not entitled to opt out of the
Proposed Settlement and, if the Proposed Settlement is approved, would only be
entitled to receive the settlement consideration if they hold shares of MPI
Preferred Stock on the Settlement Effective Date. MPI Preferred Stockholders who
acquired (or acquire) their shares of MPI Preferred Stock after the Record Date
are not eligible to opt out of the Proposed Settlement because by acquiring
their shares of MPI Preferred Stock after the Proposed Settlement was publicly
announced, they effectively "opted into" (or will effectively "opt into") the
Proposed Settlement. Since, pursuant to the Settlement Agreement, the Defendants
have the right not to proceed with the Proposed Settlement if holders of more
than 10% of the outstanding shares of MPI Preferred Stock opt out of the
Proposed Settlement, it was deemed practical and fair to all parties to the
Settlement Agreement for administrative purposes to set a date for determining
with certainty the actual number of opt out shares and the stockholders who
could exercise such right.
Effect of Settlement
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 in the manner and within
the time period provided for in the Settlement Agreement, all claims of such
holder against any and all of the Defendants relating to the transactions that
are the subject of the Pending Actions 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 the
certificates representing their shares of MPI Preferred Stock (or some other
indicia of ownership thereof acceptable to MPI) in order to receive the
settlement consideration. MPI Preferred Stockholders who are eligible to
participate in the Proposed Settlement but who properly opt out would retain
their shares of MPI Preferred Stock and all of the rights incidental thereto,
including the liquidation and dividend preferences (see Item 8(b) of this
Schedule 13E-3), and would not receive any settlement consideration and would
not release their claims against the Defendants relating to the transactions
that are the subject of the Pending Actions.
If the Proposed Settlement is consummated, MPI believes that
immediately subsequent to acquiring shares of the MPI Preferred Stock in the
Rule 13e-3 transaction, 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 would 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
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other companies, may occur; and (iv) adverse changes in the properties owned by
MPI could require the expenditure of funds to fix or maintain such properties.
Also, MPI has proposed to acquire additional properties. In order to consummate
such acquisitions, MPI would need to raise additional funds (see of Item 5(d) of
this Schedule 13E-3).
If the Proposed Settlement were to be effected (which would not be
expected to occur prior to the end of 1998) and none or only a small number of
the eligible MPI Preferred Stockholders opted out of the Proposed Settlement,
then, absent changes in MPI's business activities and/or a sale of its
wraparound mortgage positions, it is currently anticipated that for 1999 and
thereafter it is likely that MPI would be classified for federal income tax
purposes as a personal holding company. In such event, it could be necessary for
1999 and thereafter for MPI to cause "consent" or "deficiency" dividends to be
deemed paid to its stockholders to avoid personal holding company tax. If this
were done, MPI's stockholders would be required to pay tax on such deemed
dividends for which they would receive no cash to pay the tax thereon. MPI would
seek to minimize its stockholders' exposure to income tax as a result of consent
or deficiency dividends.
If the Proposed Settlement is consummated, Concord and its affiliates
would continue to own beneficially approximately 71% of the outstanding shares
of MPI Common Stock and, if none of the MPI Preferred Stockholders eligible to
participate in the Proposed Settlement opt out of the Proposed Settlement,
Concord and its affiliates would own beneficially a majority of the outstanding
shares of MPI Preferred Stock. Therefore, Concord and its affiliates would
control the vote on all matters submitted to holders of either class of MPI's
stock, including the election of directors and extraordinary corporate
transactions, such as mergers. 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 (see
Item 8(b) of this Schedule 13E-3). However, if holders of a sufficient number of
shares of MPI Preferred Stock participate in the Proposed Settlement, the
possibility that Concord and its affiliates would lose absolute control
(although Concord probably would not lose effective control) of MPI would be
eliminated (Concord and its affiliates currently would own beneficially
approximately 40% of the outstanding shares of MPI Common Stock on a fully
diluted basis, as each share of MPI Preferred Stock is currently convertible,
for no consideration, into 1.1 shares of MPI Common Stock). Generally, holders
of shares of MPI Preferred Stock do not have voting rights except in connection
with the election of one director to MPI's Board of Directors (or two directors
if, as is currently the case, MPI does not pay dividends on the MPI Preferred
Stock for a period of time) and, under Delaware law and the Certificate of
Designations of the MPI Preferred Stock, in connection with certain
extraordinary corporate actions that could affect the rights of holders of
shares of MPI Preferred Stock (i.e., by amending the terms and provisions of the
MPI Preferred Stock in a manner which would adversely affect the rights or
preferences of the MPI Preferred Stock (e.g., by creating a class of stock (or
security convertible into a class of stock) that ranks pari passu or is superior
to the MPI Preferred Stock, or by increasing the authorized number of shares of
MPI Preferred Stock)). Concord and its affiliates do not currently have any
intention to take any such action.
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.
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Fairness of Settlement
Each of the Filers believes that the Rule 13e-3 transaction would be
fair to the unaffiliated stockholders of MPI. 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, which was established
through arms-length negotiations between the parties to the Pending Actions, is
fair to MPI, the Settlement Class and the MPI Common Stockholders, both
substantively and procedurally. The belief is also based upon the cash premium
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) and the MPI Preferred Stock's current market price ($2.13
per share as of the close of business on November 13, 1998). In addition, each
of the Filers believes that the Rule 13e-3 transaction is fair because the
opportunity to receive the proposed settlement consideration would enable MPI
Preferred Stockholders to liquidate their holdings in an otherwise illiquid
market for the MPI Preferred Stock.
Each of the Filers also believes that the Rule 13e-3 transaction would
be fair because the terms of the Proposed Settlement, including the amount of
the cash payment, was established through protracted arms-length negotiations by
the adversarial parties to the Pending Actions. Each side was also represented
by counsel in such negotiations. The required Court approval of the terms of the
Proposed Settlement is also significant to the belief of each of the Filers 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.
The Filers' belief regarding the fairness of the Rule 13e-3 transaction
is also based upon their belief that 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. Even after the public announcement of the Proposed Settlement,
the market price per share of the MPI Preferred Stock did not rise to the level
of the cash payment to be made for each share of MPI Preferred Stock pursuant to
the terms of the Proposed Settlement, nor did the market for the MPI Preferred
Stock become liquid. The Proposed Settlement, therefore, provides the MPI
Preferred Stockholders with a premium to market values and an opportunity to
liquidate their investment in an otherwise illiquid market for the MPI Preferred
Stock. In addition, while the net book value of the MPI Preferred Stock was
$8.18 per share as of September 30, 1998 and each share of MPI Preferred Stock
has a $10 liquidation preference, unlike the proposed payment of the settlement
consideration, there is no current likelihood of MPI Preferred Stockholders
realizing the net book value (or liquidation preference) of the MPI Preferred
Stock, because such holders cannot force MPI's liquidation and there is no
current intention to liquidate by MPI. Furthermore, even if MPI were to be
liquidated, any cash received from the 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 a liquidation available to MPI Preferred
Stockholders, on a per share basis, would be significantly lower than the net
book value of such shares, which is less than the full $10 per share liquidation
preference. In addition, 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
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Stockholders have no means to compel dividends to be declared or paid. MPI is
also under no obligation to redeem the MPI Preferred Stock. 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.
Each of the Filers 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 to MPI associated with continued litigation.
Concord and its affiliates, to the Filers' knowledge, own in the
aggregate 5,672 shares of MPI Preferred Stock and certain of the Defendants and
other persons who are associated with Concord and MPI own in the aggregate an
additional 372 shares of MPI Preferred Stock. Since Concord and its affiliates
(as well as the other Defendants, members of their families, their affiliates
and their associates who are not affiliated with Concord) are prohibited from
participating in the Proposed Settlement under the terms of the Settlement
Agreement, unless holders of at least 5,300 shares of the MPI Preferred Stock
opt out of the Rule 13e-3 transaction (or holders of at least 6,044 shares of
the MPI Preferred Stock if the other Defendants and their associates who are
prohibited from participating in the Proposed Settlement and who own 372 shares
of the MPI Preferred Stock act in concert with Concord), Concord and its
affiliates (together with such other Defendants and their associates acting in
concert with Concord and its affiliates, if applicable) would own beneficially a
majority, and therefore control any vote by the holders, of the MPI Preferred
Stock. Nonetheless, even if Concord and its affiliates gain control of the vote
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 approximate 71% beneficial
ownership of the MPI Common Stock. However, subject to the fulfillment of the
fiduciary obligations owed by MPI's Board of Directors to the unaffiliated
holders of shares of MPI's Common Stock, Concord and its affiliates would be in
a position to approve corporate actions that benefit the holders of shares of
MPI Preferred Stock but adversely affect the holders of shares of MPI Common
Stock, although there is no current intention on the part of Concord to take any
such action.
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 November 13, 1998,
there were 2,999,707 shares of MPI Preferred Stock outstanding which were held
by 1,593 holders of record.
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(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) and on
September 10, 1998, the SEC issued an order granting the NYSE's application to
delist the MPI Preferred Stock (and the MPI Common Stock). Effective as of the
opening of the trading session on September 11, 1998, the MPI Preferred Stock
(and the MPI Common Stock) was delisted from the NYSE. 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 November 13, 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 November 13, 1998) 2-3/8 7/8
</TABLE>
On November 13, 1998, the last reported bid quotation for the MPI
Preferred Stock on the OTC Bulletin Board was $2.13 per share.
(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.
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(f) None of the Filers 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.
This Schedule 13E-3 is being filed by MPI, the issuer of the class of
equity securities (the MPI Preferred Stock) which is the subject of the Rule
13e-3 transaction, and Concord, Leonard S. Mandor and Robert A. Mandor, each of
whom is an affiliate of MPI (collectively, the "Filers"). The Rule 13e-3
transaction which is the subject of this Schedule 13E-3, is part of a larger
transaction involving the Proposed Settlement. The Filers are defendants in such
litigation. See Item 4(a) of this Schedule 13E-3 for additional information
regarding the Proposed Settlement.
Concord, a New York corporation, owns beneficially approximately 71% of
the outstanding shares of MPI Common Stock (approximately 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's principal
activity is the acquisition, ownership and operation, 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. 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 are the only shareholders, 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.
(a), (b), (c), (d) and (g) Information required to be disclosed
regarding the Filers and, with respect to MPI and Concord, their respective
directors and officers, 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.
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 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.
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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) None of the Filers and no 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) None of MPI, Leonard S. Mandor and Robert A. Mandor and no
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. However, 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 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, and providing for the payment of a monetary penalty.
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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 of 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" 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 (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.
i. In October 1995, MPI acquired an aggregate of 35 interests in
real estate properties consisting of 32 wraparound mortgage interests and
three fee properties from Castle Plaza, Inc., a Delaware corporation, Mountain
View Mall, Inc., a Delaware corporation, Concord Income Realty Partners VI,
L.P., a Delaware limited partnership, and Concord Income Realty Partners IX,
L.P., a Delaware limited partnership, all of which were then and are now
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 (approximately
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 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 in which Concord agreed to guaranty
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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. ("UPI"), a former wholly owned subsidiary of MPI which was spun-off in
November 1995 to the holders of record of MPI's Common Stock as of October 31,
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 on a share-for-share basis.
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
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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 in connection with the sale of certain properties,
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.
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
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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 MPI in 1996. In addition, Concord owes MPI $69,910
for various services provided by MPI 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 net cash proceeds of $515,965 and a
book gain of $393,768 to MPI. In conjunction with the sale of such property,
Centaur Leasing Company, Inc., a wholly owned subsidiary of MPI ("Centaur")
and the lessee 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 net cash proceeds of
$245,280 and a book loss of $127,020 to MPI. In conjunction with the sale of
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such property, Centaur, as the lessee on the master lease on such property,
cancelled such master lease.
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,
Centaur, as the lessee 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 net cash proceeds
of $986,108 and a book gain of approximately $200,000 to MPI. In conjunction
with the sale of such property, Centaur, as the lessee 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,
and it is estimated that it will result in a book gain to MPI of approximately
$82,000.
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 cash proceeds from the sale of approximately
$319,200 and it is estimated that MPI will realize a book gain of
approximately $947,000.
xviii. On September 21, 1998, a wraparound note held by MPI on a
property located in Vestivia Hills, Alabama 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 $1,640,000, resulting in net cash
proceeds of $875,334 and a book gain of approximately $338,000 to MPI. In
conjunction with the sale of such property, Centaur, as the lessee on the master
lease on such property, cancelled such master lease.
xix. On October 1, 1998, a wraparound note held by MPI on a
property located in South Williamson, Kentucky 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 $14,873,655, resulting in net cash proceeds
of $100,000 and a book gain of approximately $4,400,000 to MPI. In conjunction
with the sale of such property, Centaur, as the lessee on the master lease on
such property, cancelled such master lease.
xx. 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
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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 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", which is incorporated herein by reference. In general, such
transaction arises out of a proposed settlement of a purported class action and
derivative lawsuit. 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, alleges 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). Pursuant to the Settlement Agreement, each MPI Preferred Stockholder
that is
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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.
To properly opt out of the Proposed Settlement, an MPI Preferred
Stockholder who is eligible to participate in the Proposed Settlement must mail
a letter to the Register in Chancery and to each counsel of record for the
parties to the Pending Actions prior to the day that is 45 days from the date
that the Settlement Notice is first mailed to MPI Preferred Stockholders setting
forth (i) his or her name, address, social security number or employer
identification number, as applicable, and telephone number, (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 of MPI Preferred Stock,
(iii) if the shares of MPI Preferred Stock are not or were not held of record or
registered in such holder's name on the books and records of MPI, the letter
must indicate the name or brokerage firm and account in which such shares of MPI
Preferred Stock were registered and include evidence of such holder's ownership
thereof, and (iv) that he or she elects to opt out of the Proposed Settlement.
Any MPI Preferred Stockholder who is eligible to participate in the Proposed
Settlement but does not return an opt-out election meeting the above
requirements on or prior to the time set forth above will be deemed a member of
the Settlement Class and will be bound by, and subject to, the terms and
conditions of the Settlement Agreement and all court orders affecting the
Settlement Class. 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 other 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 as of the close of business 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 Settlement
Hearing will be sent to all holders of record of shares of MPI Preferred Stock
as of October 23, 1995 and their successors in interest through the Settlement
Effective Date and to all holders of record of shares of the MPI Common Stock as
of the Record Date and their successors in interest through the Settlement
Effective Date. The Settlement Agreement provides that the Settlement Notice
initially will be sent at least 60 days prior to the Settlement Hearing to all
holders of record of shares of MPI Preferred Stock as of October 23, 1995 and
their successors in interest through the close of business on the Record Date
and to all holders of record of shares of MPI Common Stock as of the close of
business on the Record Date.
The Settlement Notice initially will be sent to all holders of record
of shares of MPI Preferred Stock as of October 23, 1995 and their successors in
interest through the close of business on the Record Date and to all holders of
record of shares of MPI Common Stock as of the close of business on the Record
Date for the purpose of providing such persons with substantive information
regarding the terms of the Proposed Settlement and their rights in connection
therewith, as well as providing them with the procedural guidelines to be
followed for purposes of opting out of the Proposed Settlement and for
participating in the Preferred Settlement but appearing and objecting to the
terms of the Proposed Settlement at the Settlement Hearing. The Settlement
Notice will also be sent to the successor holders in interest of each class of
MPI stock who acquired (or acquire) their shares of MPI stock after the Record
Date through the Settlement Effective Date for the purpose of providing such
persons with substantive information regarding the terms of the Proposed
Settlement and their rights in connection therewith, and, in connection with
persons receiving the Settlement Notice prior to the
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Settlement Hearing, procedural guidelines in connection with appearing and
objecting to the terms of the Proposed Settlement at the Settlement Hearing.
The Defendants, members of their families, their affiliates and their
associates are not eligible to participate in the Proposed Settlement.
Anyone who owned shares of MPI Preferred Stock as of October 23, 1995
and their successors in interest through the date that is one day prior to the
Settlement Hearing who do not opt out of the Proposed Settlement, and anyone who
owned shares of MPI Common Stock as of the close of business on August 25, 1998
and their successors in interest through the date that is one day prior to the
Settlement Hearing, may submit objections to the Proposed Settlement by
appearing in person or by his or her attorney at the Settlement Hearing and
presenting evidence or arguments that may be proper and relevant. However, no
person other than the named plaintiff to the Pending Actions and his counsel and
the Defendants and their counsel are entitled to be heard, and no papers,
briefs, pleadings or other documents submitted by any such persons will be
received and considered by the Court (except if the Court, in its discretion,
otherwise directs upon application of such person and for good cause shown),
unless no later than 10 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, are
served by hand or first class mail, postage prepaid, with the Register in
Chancery and the respective counsel of the named plaintiff to the Pending
Actions and the Defendants, as provided for in the Order Scheduling Fairness
Hearing and Approving Notice, the form of which is annexed to the Settlement
Agreement as Exhibit A. Any person who fails to object in the foregoing manner
will be deemed to have waived such objections and will be forever barred from
raising such objections or otherwise contesting the Proposed Settlement at the
Settlement Hearing or in any other action or proceeding. MPI Preferred
Stockholders who are eligible to participate in the Proposed Settlement and who
opt out of the Proposed Settlement cannot appear at the Settlement Hearing and
object to the Proposed Settlement. Such holders cannot participate in the
Settlement hearing because, by electing not to participate in the Proposed
Settlement, they would neither be bound by the terms of the Settlement Agreement
nor be eligible to receive the benefits of the Proposed Settlement. Therefore,
their rights as holders would not be affected in any meaningful way by the
outcome of the Settlement Hearing. Any person eligible to submit objections at
the Settlement Hearing but who does not, or believes that he did not, receive a
copy of the Settlement Notice with sufficient time to object in the foregoing
manner would need to apply to the Court for leave and show good cause therefor
in order to be heard.
MPI Preferred Stockholders who are eligible to participate in the
Proposed Settlement and who do not opt out of the Proposed Settlement are
entitled to appear, or be otherwise represented, at the Settlement Hearing and
object to the terms of the Proposed Settlement. However, such holders would not
thereafter be eligible to opt out of the Proposed Settlement even if their
objections are not accepted by the Court and the Proposed Settlement is not
modified in such a way as to incorporate such objections.
MPI Preferred Stockholders who acquired (or acquire) their shares of
MPI Preferred Stock after August 25, 1998 are not entitled to opt out of the
Proposed Settlement and, if the Proposed Settlement is approved, would only be
entitled to receive the settlement consideration if they hold shares of MPI
Preferred Stock on the Settlement Effective Date. MPI Preferred Stockholders who
acquired (or acquire) their shares of MPI Preferred Stock after the Record
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Date are not eligible to opt out of the Proposed Settlement because by acquiring
their shares of MPI Preferred Stock after the Proposed Settlement was publicly
announced, they effectively "opted into" (or will effectively "opt into") the
Proposed Settlement. Since, pursuant to the Settlement Agreement, the Defendants
have the right not to proceed with the Proposed Settlement if holders of more
than 10% of the outstanding shares of MPI Preferred Stock opt out of the
Proposed Settlement, it was deemed practical and fair to all parties to the
Settlement Agreement for administrative purposes to set a date for determining
with certainty the actual number of opt out shares and the stockholders who
could exercise such right.
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
responses set forth in this Schedule 13E-3 to parts (b), (d) and (e) of Item
5, there are no plans or proposals of any of the Filers 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, in July
1998, a 22,589 square foot shopping center property located in Boca Raton,
Florida for $2,075,000, in September 1998, a 16,642 square foot shopping center
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property located in West Palm Beach, Florida for $1,100,000, in October
1998, a 63,346 square foot shopping center property located in Jacksonville,
Florida for $4,650,000, in October 1998, a 40,408 square foot shopping center
property located in Fort Lauderdale, Florida for $3,200,000, and in November
1998, a 46,190 square foot shopping center property located in Davie, Florida
for $3,840,000.
(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.
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, MPI is considering opportunities to
acquire additional properties which would require MPI to raise funds through a
public or private sale of debt or equity securities, by conducting rights
offerings, by selling or realizing on assets (including, but not limited to, a
Proposed Transaction (as discussed in the response set forth in this Schedule
13E-3 to parts (b) and (e) of Item 5 of Schedule 13E-3) or other sales of its
properties and interests in wraparound mortgage notes), through corporate
borrowings, or by other means. Because of (i) the conditional nature of any
Proposed Transaction, (ii) the considerable time horizon necessary to consummate
a Proposed Transaction once one is negotiated, and (iii) the current condition
of the domestic economic market which, in MPI's belief, is not favorable to
other alternatives, MPI would probably conduct a rights offering if it decided
that it would be beneficial to raise additional capital. In a rights offering,
MPI would offer existing holders of shares of MPI Common Stock rights to acquire
additional shares of MPI Common Stock in exchange for monetary consideration in
order to obtain funds to be used to finance potential property acquisitions. The
foregoing is a forward looking statement and there can be no assurances that MPI
will be able to undertake successfully, if at all, such a transaction. If MPI
conducts a rights offering, it would need to issue additional shares of MPI
Common Stock and to amend its Certificate of Incorporation in order to authorize
the issuance of such additional shares of MPI Common Stock. MPI's Certificate of
Incorporation currently authorizes it to issue up to 10,000,000 shares of MPI
Common Stock and, as of November 13, 1998, 4,251,042 shares thereof were
outstanding. If MPI conducts such a rights offering, holders of shares of MPI
Common Stock who do not participate therein would have the aggregate value of
their shares of MPI Common Stock, as well as their ownership interest in MPI,
diluted.
(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.
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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 $8,980,989. Additional expenses of approximately $1,400,000 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 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, the Filers, 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.
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(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 500,000
Miscellaneous 20,000
-----------
Total $10,382,621
The aggregate amount of MPI's legal fees and expenses, incurred and
estimated to be incurred, set forth above, includes amounts previously paid.
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 effected 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 the Filers 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 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
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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 memorializing 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 Settlement Effective
Date. 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 in the manner and
within the time period provided for in the Settlement Agreement, all claims of
such holder against any and all of the Defendants relating to the Transactions
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 the certificates representing their shares of
MPI Preferred Stock (or some other indicia of ownership thereof acceptable to
MPI) 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. In approving the Proposed Settlement, the
Court would be required under Delaware law to determine that the Proposed
Settlement is fair, reasonable, adequate and in the best interests of MPI and
its stockholders and the Settlement Class.
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(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 $10.4
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 ($500,000 (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
September 30, 1998 were approximately $13.2 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 would 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
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, MPI is considering opportunities to
acquire additional properties which would require MPI to raise funds through a
public or private sale of debt or equity securities, by conducting rights
offerings, by selling or realizing on assets (including, but not limited to, a
Proposed Transaction (as discussed in the response set forth to parts (b) and
(e) to Item 5 of Schedule 13E-3) or other sales of its properties and interests
in wraparound mortgage notes), through corporate borrowings, or by other means.
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 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
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"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 (which would not be
expected to occur prior to the end of 1998) 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,
thereafter would be owned, directly or indirectly, by five or fewer individuals.
Absent changes in MPI's business activities and/or a sale of its wraparound
mortgage positions, it is currently anticipated that for 1999 and thereafter,
MPI would derive more than 60% of its consolidated gross taxable income from
passive sources such as interest and, therefore, it is likely that MPI would be
classified for federal income tax purposes as a PHC for 1999 and thereafter. 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 restructuring
its holdings and/or its corporate structure, or 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. It
may be necessary for 1999 and thereafter for MPI to cause "consent" or
"deficiency" dividends to be deemed paid to its stockholders to avoid the PHC
tax. If this were done, MPI's stockholders would be required to pay tax on such
deemed dividends for which they would receive no cash to pay the tax thereon.
MPI will seek to minimize its stockholders' exposure to income tax as a result
of consent or deficiency dividends.
Concord and its affiliates would continue to own beneficially
approximately 71% of the outstanding shares of MPI Common Stock and, if none of
the MPI Preferred Stockholders eligible to participate in the Proposed
Settlement opt out of the Proposed Settlement, Concord and its affiliates would
own beneficially a majority of the outstanding shares of MPI Preferred Stock.
Therefore, Concord and its affiliates could control the vote on all matters
submitted to holders of either class of MPI's stock, including the election of
directors and extraordinary corporate transactions, such as mergers. 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. However, if holders of a sufficient number of shares
of MPI Preferred Stock participate in the Proposed Settlement, the possibility
that Concord and its affiliates would lose absolute control (although Concord
probably would not lose effective control) of MPI would be eliminated (Concord
and its affiliates currently would own beneficially approximately 40% of the
outstanding shares of MPI Common Stock on a fully diluted basis, as each share
of MPI Preferred Stock is currently convertible, for no consideration, into 1.1
shares of MPI Common Stock). Generally, holders of shares of MPI Preferred Stock
do not have voting rights except in connection with the election of one director
to MPI's Board of Directors (or two directors if, as is currently the case, MPI
does not pay dividends on the MPI Preferred Stock for a period of time) and,
under Delaware law and the Certificate of Designations of the MPI Preferred
Stock, in connection with certain extraordinary corporate actions that could
affect the rights of holders of shares of MPI Preferred Stock (i.e., by amending
the terms and provisions of the MPI Preferred Stock in a manner which would
adversely affect the rights or preferences of the MPI Preferred Stock (e.g., by
creating a class of stock (or security convertible into a class of stock) that
ranks pari passu or is superior to the MPI Preferred Stock, or by increasing the
authorized number of shares of MPI Preferred Stock)). Concord and its affiliates
do not currently have any intention to take any such action.
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
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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 the certificates representing their shares of
MPI Preferred Stock (or some other indicia of ownership thereof acceptable to
MPI) in order to receive the settlement consideration. There are currently
approximately 1,594 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 (such capital gain (or loss)
should result whether or not the settlement proceeds are allocable to the
redemption of the MPI Preferred Stock or to the release of claims against the
Defendants). However, to the extent 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) Each of the Filers believes that the Rule 13e-3 transaction would
be fair to the unaffiliated stockholders of MPI. No director of MPI 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, which was established through arms-length negotiations
between the parties to the Pending Actions, is fair to MPI, the
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Settlement Class and the MPI Common Stockholders, both substantively and
procedurally. The belief is also based upon the cash premium 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) and the MPI
Preferred Stock's current market price ($2.13 per share as of the close of
business on November 13, 1998). In addition, each of the Filers believes that
the Rule 13e-3 transaction is fair because the opportunity to receive the
proposed settlement consideration would enable MPI Preferred Stockholders to
liquidate their holdings in an otherwise illiquid market for the MPI Preferred
Stock.
Each of the Filers also believes that the Rule 13e-3 transaction would
be fair because the terms of the Proposed Settlement, including the amount of
the cash payment, was established through protracted arms-length negotiations
by the adversarial parties to the Pending Actions. Each side was also
represented by counsel in such negotiations. The required Court approval of
the terms of the Proposed Settlement is also significant to the belief of the
Filers 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.
The Filers' belief regarding the fairness of the Rule 13e-3 transaction
is also based upon their belief that 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. Even after the public announcement of the Proposed Settlement,
the market price per share of the MPI Preferred Stock did not rise to the level
of the cash payment to be made for each share of MPI Preferred Stock pursuant to
the terms of the Proposed Settlement, nor did the market for the MPI Preferred
Stock become liquid. The Proposed Settlement, therefore, provides the MPI
Preferred Stockholders with a premium to market values and an opportunity to
liquidate their investment in an otherwise illiquid market for the MPI Preferred
Stock. 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 of
such holder against any and all of the Defendants relating to the Transactions
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
28
<PAGE>
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.
In addition, while the net book value of the MPI Preferred Stock was
$8.18 per share as of September 30, 1998, 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). Furthermore, even if MPI were to be
liquidated, any cash received from the 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 $8.18 per share as of September 30, 1998),
which is less than the full $10 per share liquidation preference. 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
September 30, 1998 was $3.25 per share, which is not substantially more than the
$3.25 per share (including the portion thereof allocable to the release of
claims) that MPI Preferred Stockholders would receive in the Proposed
Settlement.
The Filers also believe 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 to MPI associated with continued litigation.
Concord and its affiliates, to the Filers' knowledge, own in the
aggregate 5,672 shares of MPI Preferred Stock and certain of the Defendants and
other persons who are associated with Concord and MPI own in the aggregate an
additional 372 shares of MPI Preferred Stock. Since Concord and its affiliates
(as well as the other Defendants, members of their families, their affiliates
and their associates who are not affiliated with Concord) are prohibited from
participating in the Proposed Settlement under the terms of the Settlement
Agreement unless holders of at least 5,300 shares of the MPI Preferred Stock
opt out of the Rule 13e-3 transaction (or holders of at least 6,044 shares of
the MPI Preferred Stock if the other Defendants and their associates who are
prohibited from participating in the Proposed Settlement and who own 372 shares
of the MPI Preferred Stock act in concert with Concord), Concord and its
affiliates (together with such other Defendants and their associates acting in
concert with Concord and its
29
<PAGE>
affiliates, if applicable) would own beneficially a majority, and therefore
control any vote by the holders, of the MPI Preferred Stock. Nonetheless, even
if Concord and its affiliates gain control of the vote 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 approximate 71% beneficial ownership of the MPI Common
Stock. However, subject to the fulfillment of the fiduciary obligations owed by
MPI's Board of Directors to the unaffiliated holders of shares of MPI's Common
Stock, Concord and its affiliates would be in a position to approve corporate
actions that benefit the holders of shares of MPI Preferred Stock but adversely
affect the holders of shares of MPI Common Stock, although there is no current
intention on the part of Concord to take any such action.
(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 as of the close of business 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.
(f) No firm offers have been made during the last 18 months, to the
knowledge of the Filers, 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.
30
<PAGE>
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 expired 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 was 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 was fair to the unaffiliated holders of the MPI Preferred
Stock or the MPI Common Stock, respectively, and MPI 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 was
significantly lower than both the cash amount of the settlement consideration
($3.00 per share) and the market price of shares of MPI Preferred Stock during
the time that the Salvage Offer was open (the MPI Preferred Stock traded on the
OTC Bulletin Board between August 10, 1998 and September 11, 1998 at a range of
$1.80 to $2.33 per share) and the cash offered for each share pursuant to the
Peachtree Offer was significantly lower than the market price of shares of MPI
Common Stock during the time that the Peachtree Offer was open (the MPI Common
Stock traded on the OTC Bulletin Board between August 10, 1998 and September 11,
1998 at a range of $0.87 to $1.13 per share). MPI has learned that 2,771 shares
of MPI Common Stock have been transferred to Peachtree.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) None of the Filers has 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, 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.
31
<PAGE>
Item 10. Interest in Securities of the Issuer.
(a) The following table sets forth the beneficial ownership interests
of the persons identified in 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, Concord or any of their
respective 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, a former executive officer of Concord, and a Defendant, directly owns 272
shares of MPI Preferred Stock.
(b) Neither MPI nor any of the other 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 any
Filer or any executive officers or directors of MPI or Concord on one hand and
any other person on the other hand 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" for a description of the terms of the Settlement
Agreement. Such information is incorporated herein by reference.
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 the Filers'
knowledge, own in the aggregate, 5,772 of the 2,999,707 shares of MPI
Preferred Stock outstanding as of November 13, 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.
32
<PAGE>
(b) None of the Filers, after making reasonable inquiry, believes that
any person named in paragraph (a) of this Item 12 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. MPI Preferred Stockholders
who are eligible to participate in the Proposed Settlement but who opt out
would retain their shares of MPI Preferred Stock and all of the rights
incidental thereto, including the liquidation and dividend preferences (see
Item 8(b) of this Schedule13E-3), and would not receive any settlement
consideration and would not release their claims against the Defendants
relating to the Transactions. Effective September 11, 1998, shares of the MPI
Preferred Stock (as well as the MPI Common Stock) have been delisted from the
NYSE. 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 or Concord's corporate files (except as otherwise required by law) or
with counsel or appraisal services at the expense of any Filer. 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 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 set forth in MPI's Quarterly Report on Form 10-Q
for the quarterly periods ended March 31, June 30 and September 30, 1998,
copies of each of which are annexed hereto as Exhibit 5, Exhibit 6 and Exhibit
7, respectively, and incorporated herein by reference;
33
<PAGE>
(3) Earnings for the years ended December 31, 1997 and 1996, and
for the quarterly periods ended March 31, June 30 and September 30, 1998, were
not adequate to cover fixed charges by $4,151,965, $2,120,536, $1,021,332,
$2,556,418 and $2,552,786, 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, June 30 and September 30, 1998, as set
forth in MPI's Quarterly Report on Form 10-Q for the quarterly periods ended
March 31, June 30 and September 30, 1998, copies of which are annexed hereto as
Exhibit 5, Exhibit 6 and Exhibit 7, 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 $1.4 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 and Concord, 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.
34
<PAGE>
Item 17. Material to be Filed as Exhibits.
1. Form of Notice of Pendency of Class and Derivative Action, Proposed
Settlement, Settlement Hearing and Right to Appear.
2. 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.
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.
7. MPI's Quarterly Report on Form 10-Q for the Quarterly Period Ended
September 30, 1998.
No other documents are required to be filed as exhibits to this
Schedule 13E-3.
35
<PAGE>
SIGNATURE
After due inquiry and to the best of his or its knowledge and belief,
each of the undersigned certifies that the information set forth in this
statement is true, complete and correct.
November 17, 1998
-------------------------------------------
(Date)
MILESTONE PROPERTIES, INC.
By: /s/ Robert A. Mandor
----------------------------------------
Robert A. Mandor, President
CONCORD ASSETS GROUP, INC.
By: /s/ Robert A. Mandor
----------------------------------------
Robert A. Mandor, President
/s/ Leonard S. Mandor
-------------------------------------------
Leonard S. Mandor
/s/ Robert A. Mandor
-------------------------------------------
Robert A. Mandor
<PAGE>
EXHIBIT INDEX
Exhibit No.
1. Form of Notice of Pendency of Class and Derivative Action, Proposed
Settlement, Settlement Hearing and Right to Appear.
2. 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.
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.
7. MPI's Quarterly Report on Form 10-Q for the Quarterly Period Ended
September 30, 1998.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE 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
----------------------------------------------------
(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 November 11, 1998, 4,251,042 shares of the registrant's common
stock, par value $.01 per share and 2,999,707 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
September 30, 1998 (Unaudited) and December 31, 1997
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------ ------------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 13,199,644 $ 13,435,237
Restricted cash 222,000 222,000
Loans receivable 1,462,031 1,512,744
Accounts receivable 828,205 1,265,625
Accrued interest receivable 5,557,352 8,465,528
Due from related party 651,976 391,851
Prepaid expenses and other 2,026,246 1,034,613
------------ ------------
Total current assets 23,947,454 26,327,598
Property, improvements and equipment, net 9,991,104 19,610,060
Wraparound notes, net 51,657,136 59,402,931
Deferred income tax asset, net 5,572,999 4,058,358
Investments in preferred stock 892,100 2,228,600
Management contract rights, net 220,909 290,926
Goodwill and other, net 793,614 304,639
------------ ------------
Total assets $ 93,075,316 $112,223,112
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,392,197 $ 2,015,942
Accrued interest payable 299,182 259,116
Master lease payable 10,148,536 13,637,564
Current portion of mortgages and notes payable 20,539,980 38,456,766
Income taxes payable 2,822,119 2,822,119
------------ ------------
Total current liabilities 35,202,014 57,191,507
Mortgages and notes payable 33,323,838 29,282,798
------------ ------------
Total liabilities 68,525,852 86,474,305
------------ ------------
Commitments and Contingencies
Stockholders' equity:
Common stock ($0.01 par value, 10,000,000 shares
authorized, 4,943,633 and 4,905,959 issued and
outstanding in 1998 and 1997, respectively) 49,436 49,060
Preferred stock (Series A $0.01 par value, $10
liquidation preference 10,000,000 shares
authorized, 2,999,707 and 3,033,995 shares issued
and outstanding in 1998 and 1997, respectively) 29,999 30,341
Additional paid-in surplus 48,105,394 48,105,428
Accumulated deficit (20,194,947) (18,995,604)
Shares held in treasury - 692,591 shares at cost (3,440,418) (3,440,418)
------------ ------------
Total stockholders' equity 24,549,464 25,748,807
------------ ------------
Total liabilities and stockholders' equity $ 93,075,316 $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 September 30, 1998 and 1997
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
----------- -----------
<S> <C> <C>
REVENUES:
Rent $ 2,414,928 $ 2,621,451
Interest income 2,216,211 3,301,217
Revenue from management company operations 143,012 166,223
Tenant reimbursements 200,322 228,049
Management and reimbursement income 26,480 49,085
Percentage rent 46,050 87,090
Gain on sale of real estate and real estate related assets 1,284,617 0
Amortization of discount - available-for-sale securities 0 99,273
Unrealized (loss) on treasury notes sold short 0 (243,438)
----------- -----------
Total revenues 6,331,620 6,308,950
----------- -----------
EXPENSES:
Master lease expense 3,421,815 3,445,833
Interest expense 1,345,002 2,266,653
Depreciation and amortization 87,881 221,518
Salaries, general and administrative 583,014 641,704
Property expenses 348,797 388,318
Expenses for management company operations 242,988 244,578
Professional fees 298,491 119,512
----------- -----------
Total expenses 6,327,988 7,328,116
----------- -----------
Income (loss) before income taxes 3,632 (1,019,166)
(Benefit) provision for income taxes (367,821) 166,297
----------- -----------
Net Income (loss) $ 371,453 $(1,185,463)
=========== ===========
Income (loss) attributable to common stockholders $ 0.09 $ (0.28)
=========== ===========
Weighted average common shares outstanding 4,230,245 4,211,275
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
(Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
------------ ------------
<S> <C> <C>
REVENUES:
Rent $ 7,759,148 $ 7,968,967
Interest income 6,684,142 9,970,738
Revenue from management company operations 358,016 450,665
Tenant reimbursements 733,924 786,783
Management and reimbursement income 82,466 357,228
Percentage rent 357,057 288,528
Gain on sale of real estate and real estate related assets 1,366,507 0
Amortization of discount - available-for-sale securities 0 278,709
Unrealized loss on treasury notes sold short 0 (194,073)
Loss on sale of available-for-sale securities 0 (784,121)
------------ ------------
Total revenues 17,341,260 19,123,424
------------ ------------
EXPENSES:
Master lease expense 10,313,481 10,423,492
Interest expense 4,445,607 6,905,585
Depreciation and amortization 493,902 602,434
Salaries, general and administrative 1,787,370 1,924,738
Property expenses 1,261,268 1,281,214
Expenses for management company operations 766,288 812,622
Professional fees 826,130 555,294
------------ ------------
Total expenses 19,894,046 22,505,379
------------ ------------
Loss before income taxes (2,552,786) (3,381,955)
(Benefit) provision for income taxes (1,353,443) 259,685
------------ ------------
Net loss $ (1,199,343) $ (3,641,640)
============ ============
Loss attributable to common stockholders $ (0.28) $ (0.87)
============ ============
Weighted average common shares outstanding 4,229,979 4,196,233
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
MILESTONE PROPERTIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Common Stock Preferred Stock
----------------------------- -----------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance January 1, 1998 4,905,959 $ 49,060 3,033,995 $ 30,341
Conversion of preferred stock into common stock 37,674 376 (34,342) (342)
Net loss for the nine months ended September 30, 1998
---------------------------------------------------------------
Balance September 30, 1998 4,943,633 $ 49,436 2,999,653 $ 29,999
============ ============ ============ ============
<CAPTION>
Treasury Stock Additional
----------------------------- Paid-in Accumulated
Shares Cost Surplus Deficit
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance January 1, 1998 (692,591) $ (3,440,418) $ 48,105,428 $(18,995,604)
Conversion of preferred stock into common stock (34)
Net loss for the nine months ended September 30, 1998 (1,199,343)
--------------------------------------------------------------
Balance September 30, 1998 (692,591) $ (3,440,418) $ 48,105,394 $(20,194,947)
============ ============ ============ ============
<CAPTION>
Stockholders'
Equity
------------
<S> <C>
Balance January 1, 1998 $ 25,748,807
Conversion of preferred stock into common stock
Net loss for the nine months ended September 30, 1998 (1,199,343)
------------
Balance September 30, 1998 $ 24,549,464
============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
MILESTONE PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net loss $ (1,199,343) $ (3,641,640)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 493,902 602,434
Deferred benefit taxes (1,514,641) 334,282
Unrealized gain on treasury notes sold short 0 194,073
Amortization of discount-available-for-sale securities 0 (278,709)
Realized loss on sale of available-for-sale securities 0 784,122
Gain on sale of real estate and real estate related assets (1,366,507) 0
Change in operating assets and liabilities, net:
Decrease in accounts receivable 437,420 386,047
(Increase) decrease in due from related party (260,125) 282,621
Decrease in accrued interest receivable 2,908,176 2,794,080
Increase in prepaid expenses and other (1,536,320) (2,405)
Decrease in accounts payable and accrued expenses (542,624) (859,880)
Increase (decrease) in accrued interest payable 40,066 (648,716)
Decrease in master lease payable (3,489,028) (4,021,859)
Decrease in income taxes payable 0 (906,819)
Decrease in due to related party 0 (61,688)
------------ ------------
Net cash used in operating activities (6,029,024) (5,044,057)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments on loans receivable 50,713 155,601
Principal repayments on wraparound notes 5,017,620 4,727,684
Investment in wraparound notes (108,838) 0
Purchase of building and land (6,825,000) (1,100,000)
Purchase of leasehold improvements (302,465) (183,836)
Proceeds from realization of wraparound notes 950,334 0
Proceeds from the sale of property 319,230 0
Proceeds from the sale of available-for-sale securities 0 9,498,529
Proceeds from redemption of investments in preferred stock 1,336,500 1,285,334
Proceeds from redemption of reverse repurchase agreements 0 9,415,301
Purchase of treasury notes 0 (9,166,015)
------------ ------------
Net cash provided by investing activities 438,094 14,632,598
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgages and notes payable 9,180,000 0
Principal payments on mortgages and notes payable (3,824,663) (2,084,200)
Principal payment on loans payable 0 (4,436,882)
Amounts received on treasury notes payable 0 194,073
------------ ------------
Net provided by (cash used in) financing activities 5,355,337 (6,327,009)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (235,593) 3,261,532
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,435,237 3,141,839
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,199,644 $ 6,403,371
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 4,405,541 $ 7,554,301
============ ============
Cash paid during the period for income taxes $ 185,472 $ 854,429
============ ============
</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 hereinafter 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 September 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. Currently, the Company possesses 35 interests in commercial real
estate properties consisting of (i) 10 fee interests (the "Fee Properties")
and (ii) Wrap Debt (as defined herein) interests in 25 commercial real
properties (the "Underlying Properties"). At September 30, 1998 the Company
possessed interests in 33 commercial real estate properties consisting of
(i) seven Fee Properties and (ii) Wrap Debt interests in 26 Underlying
Properties. At September 30, 1997, the Company possessed interests in 32
commercial real estate properties consisting of (i) four Fee Properties and
(ii) Wrap Debt interests in 28 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 November 10, 1998, the Company completed the purchase of Lincoln Park, a
46,190 square foot shopping center located in Davie, Florida (Broward
County), from an unrelated party for $3,840,000. In connection with the
purchase, the Company obtained a $3,219,000 first mortgage loan which bears
interest at a rate of 7.58% per annum. Such first mortgage requires monthly
principal and interest payments of $22,684 based upon a 30 year self
liquidating amortization schedule, with a balloon payment of approximately
$2,800,000 due November 1, 2008. The shopping center is currently 97%
occupied by local tenants who are subject to operating leases ranging from
one to five years with various renewal options.
On October 27, 1998, the Company completed the purchase of Pine Crest, a
40,408 square foot shopping center located in Fort Lauderdale, Florida
(Broward County), from an unrelated party for $3,200,000. In connection with
the purchase, the Company obtained a $2,400,000 first mortgage loan which
bears interest at a rate of 7.0% per annum. Such first mortgage requires
monthly principal and interest payments of $15,967 based upon a 30 year self
liquidating amortization schedule, with a balloon payment of approximately
$2,063,428 due November 11, 2008. The shopping center is currently 97%
occupied by local tenants who are subject to operating leases ranging from
one to 19 years with various renewal options.
6
<PAGE>
On October 13, 1998, the Company completed the purchase of Mandarin Central,
a 63,346 square foot shopping center located in Jacksonville, Florida (Duval
County), from an unrelated party for $4,650,000. In connection with the
purchase, the Company obtained a $3,950,000 first mortgage loan which bears
interest at a rate of 8.0% per annum. Such first mortgage requires monthly
principal and interest payments of $28,984 based upon a 30 year self
liquidating amortization schedule, with a balloon payment of approximately
$3,542,488 due October 1, 2008. The shopping center is currently 99%
occupied by local tenants who are subject to operating leases ranging from
one to 16 years with various renewal options.
On October 1, 1998, a wraparound note held by the Company on a 285,655
square foot shopping center property located in South Williamson, Kentucky
(the "South Williamson Property"), was paid as a result of the sale of the
South Williamson Property by its owner, an affiliate of the Company (the
partnership that owned the South Williamson Property), to an unrelated
party. In connection with the sale of the South Williamson Property, the
Company, as the master lessee on a master lease on the South Williamson
Property, canceled such master lease. The negotiated sale price of the South
Williamson Property was approximately $14,873,655 which included acquiring
the property subject to the $14,773,655 remaining balance of the underlying
mortgage debt on the South Williamson Property (which represented
approximately 21% of the Company's total liabilities at such time). The
wraparound note on the South Williamson Property represented approximately
13% of the Company's total assets at such time. As a result of the sale of
the South Williamson Property, the payment of the wraparound note and the
satisfaction of the underlying mortgage debt, the Company realized
approximately $100,000 in cash and will realize a book gain of approximately
$4,400,000 in the fourth quarter of 1998.
On September 21, 1998, a wraparound note held by the Company on a 35,946
square foot shopping center property located in Vestivia Hills, Alabama (the
"Vestivia Hills Property"), was paid as a result of the sale of the Vestivia
Hills Property by its owner, an affiliate of the Company (the partnership
that owned the Vestivia Hills Property), to an unrelated party. In
connection with the sale of the Vestivia Hills Property, the Company, as the
master lessee on a master lease on the Vestivia Hills Property, canceled
such master lease. The negotiated sale price of the Vestivia Hills Property
was approximately $1,640,000. Of the gross proceeds, $722,638 was used to
satisfy the underlying mortgage debt on the Vestivia Hills Property (which
represented approximately 1% of the Company's total liabilities). The
wraparound note on the Vestivia Hills Property represented approximately 3%
of the Company's total assets at such time. As a result of the sale of the
Vestivia Hills Property, the payment of the wraparound note and the
satisfaction of the underlying mortgage debt, the Company realized net cash
proceeds of approximately $875,000 and a book gain of approximately $338,000
in the third quarter of 1998.
On September 11, 1998, the Company completed the purchase of Country Grove
Plaza, a 16,642 square foot shopping center located in West Palm Beach,
Florida (Palm Beach County), from an unrelated party for $1,100,000. In
connection with the purchase, the Company obtained a $880,000 first mortgage
loan which bears interest at a rate of 7.51% per annum. Such first mortgage
requires monthly principal and interest payments of $6,159 based upon a 30
year self liquidating amortization schedule, with a balloon payment of
approximately $780,150 due September 1, 2008. The shopping center is
currently 96% occupied by local tenants who are subject to operating leases
ranging from one to 13 years with various renewal options.
7
<PAGE>
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 approximately
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 approximately $17,750,000. The Company realized cash 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 at such time) and used 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 realized a
book gain of approximately $947,000 in the third quarter of 1998.
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 approximately 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 on its Regency Walk property 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 is currently approximately 92% occupied by local
tenants who are subject to operating leases ranging from two to nine years
with various renewal options.
On February 9, 1998, a wraparound note held by the Company on a 128,864
square foot shopping center property located in Chili, New York (the "Chili
Property"), was assigned to an unrelated party for $75,000 in cash. The
Company, as the master lessee on a master lease on the Chili Property,
terminated such master lease on April 30, 1996. The assignment resulted in
the relief of the underlying mortgage debt, by the Company, on the Chili
Property. As a result of the assignment of the wraparound note on the Chili
Property, the payment of the wraparound note and the relief of the
underlying mortgage debt, the Company realized a book gain of approximately
$82,000 in the first quarter of 1998.
8
<PAGE>
As previously reported, the Company and Societe Generale Securities
Corporation ("SGSC") entered into an 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 of the 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. In September 1998, certain negotiations in connection with a
Proposed Sale between the Company and the Affiliates on one hand and an
unrelated third party on the other hand terminated.
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 July 14, 1998, the Company announced that it had reached a 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, if it is approved and consummated, (i) each
holder of Series A Preferred Stock eligible to participate in the Winston
Settlement who does not properly opt out of the Winston Settlement and who
owns shares of the Series A Preferred Stock on the date that the Winston
Settlement is consummated would 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 Transactions in exchange for $3.00 in cash, payable by
Milestone, (ii) all of the Company's stockholders would release all
derivative claims against Milestone and the other named defendants in
connection with the Transactions, (iii) each holder of Series A Preferred
Stock between October 23, 1995 and the date on which the Winston Settlement
is consummated would release any claims he or she may have against Milestone
and the other name defendants in connection the Transaction and (iv) the
Winston Action would be dismissed. 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 eligible to
participate in the Winston Settlement and owning more than 10% of the Series
A Preferred Stock as of the close of business on August 25, 1998 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.
9
<PAGE>
The foregoing description of the Winston Settlement is qualified in its
entirety by reference to the Winston Settlement Agreement, a copy of which
was filed as Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998.
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 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. As previously reported, pursuant to an earlier proposed
settlement of the Winston Action (the "Initial Winston Settlement") which
was never consummated because independent counsel for the Series A Preferred
Stockholders withdrew its support of such earlier proposed settlement,
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 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, 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. National Union has reviewed the Winston Settlement
Agreement and has informed the Company that its basic position, denying
coverage, has not changed and, therefore, it is likely that the Company will
assert a claim against National Union. If Stonewall also asserts that the
Winston Settlement is not a covered loss under the Stonewall Policy, it is
likely that the Company would assert a claim against Stonewall. At this
time, the Company is not in a position to render an opinion as to the
likelihood of success of any such 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
would be approximately $9,000,000. Additional expenses of approximately
$1,400,000 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 and proceeds
from the redemption of the Kranzco Series C Cumulative Redeemable Preferred
Stock.
10
<PAGE>
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 nine months ended
September 30, 1998. For the three months ended September 30, 1997 the
Company had components of comprehensive income, as defined in SFAS No. 130,
of approximately $1,207,500 of unrealized gains (net of tax of $805,000) on
available-for-sale securities. Under SFAS No. 130 the Company had
comprehensive income of approximately $1,599,000 for the three months ended
September 30, 1997. For the nine months ended September 30, 1997 the Company
had components of comprehensive income, as defined in SFAS No. 130, of
approximately $2,113,000 of unrealized gains (net of tax of $1,414,000) on
available-for-sale securities. Under SFAS No. 130 the Company had
comprehensive income of approximately $934,000 for the nine months ended
September 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, and Section 21E of the Securities Exchange Act of 1934, as
amended. 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.
11
<PAGE>
The Company is engaged in the business of owning, acquiring, managing,
developing and investing in commercial real estate and real estate related
assets. Currently, the Company possesses 35 interests in commercial real
estate properties consisting of (i) 10 fee interests (the "Fee Properties")
and (ii) Wrap Debt (as defined herein) interests in 25 commercial real
properties (the "Underlying Properties"). At September 30, 1998, the Company
possessed interests in 33 commercial real estate properties consisting of
(i) seven Fee Properties and (ii) Wrap Debt interests in 26 Underlying
Properties. At September 30, 1997, the Company possessed interests in 32
commercial real estate properties consisting of (i) four Fee Properties and
(ii) Wrap Debt interests in 28 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
Year 2000 compliance programs and information systems modifications were
initiated by the Company in early 1998 in an attempt to ensure that these
systems and key processes will remain functional. This objective is expected
to be achieved either by modifying present systems using existing internal
and external programming resources or by installing new systems, and by
monitoring supplier and other third party interfaces. Review of the systems
affecting the Company and its properties is progressing. The costs of the
Company's Year 2000 program to date have not been material and the Company
does not anticipate that the costs of any required modifications to its
information technology or embedded technology systems will have a material
adverse effect on its financial position, results of operations or
liquidity, although there can be no assurances that this will be the case.
In the event that the Company or material third parties fail to complete
their Year 2000 compliance programs successfully and on time, the Company's
ability to operate its properties or to bill or collect its revenue in a
timely manner could be adversely affected. Management does not expect that
any such failure would have a material adverse effect on the financial
position, results of operations or liquidity of the Company, although there
can be no assurance that this will be the case. The Company has day-to-day
operational contingency plans, and management is in the process of updating
these plans for possible Year 2000 specific operational requirements.
Recent Developments
On November 10, 1998, the Company completed the purchase of Lincoln Park, a
46,190 square foot shopping center located in Davie, Florida (Broward
County), from an unrelated party for $3,840,000. In connection with the
purchase, the Company obtained a $3,219,000 first mortgage loan which bears
interest at a rate of 7.58% per annum. Such first mortgage requires monthly
principal and interest payments of $22,684 based upon a 30 year self
liquidating amortization schedule, with a balloon payment of approximately
$2,800,000 due November 1, 2008. The shopping center is currently 97%
occupied by local tenants who are subject to operating leases ranging from
one to five years with various renewal options.
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On October 28, 1998, the Company dismissed the accounting firm of Deloitte &
Touche LLP as the Company's independent auditor to audit the Company's
financial statements. The dismissal of Deloitte & Touche LLP was not the
result of any disagreements between the Company and Deloitte & Touche LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. On November 2, 1998, the Company
retained the accounting firm of Ahearn, Jasco + Company, P.A. as its new
independent auditor to audit the Company's financial statements for the
fiscal year ending December 31, 1998. The decision to change accounting
firms as the Company's independent auditor to audit the Company's financial
statements was approved by the Audit Committee of the Company's Board of
Directors on October 27, 1998.
On October 27, 1998, the Company completed the purchase of Pine Crest, a
40,408 square foot shopping center located in Fort Lauderdale, Florida
(Broward County), from an unrelated party for $3,200,000. In connection with
the purchase, the Company obtained a $2,400,000 first mortgage loan which
bears interest at a rate of 7.0% per annum. Such first mortgage requires
monthly principal and interest payments of $15,967.26 based upon a 30 year
self liquidating amortization schedule, with a balloon payment of
approximately $2,063,428 due November 11, 2008. The shopping center is
currently 97% occupied by local tenants who are subject to operating leases
ranging from one to 19 years with various renewal options.
On October 13, 1998, the Company completed the purchase of Mandarin Central,
a 63,346 square foot shopping center located in Jacksonville, Florida (Duval
County), from an unrelated party for $4,650,000. In connection with the
purchase, the Company obtained a $3,950,000 first mortgage loan which bears
interest at a rate of 8.0% per annum. Such first mortgage requires monthly
principal and interest payments of $28,984 based upon a 30 year self
liquidating amortization schedule, with a balloon payment of approximately
$3,542,488 due October 1, 2008. The shopping center is currently 99%
occupied by local tenants who are subject to operating leases ranging from
one to 16 years with various renewal options.
On October 1, 1998, a wraparound note held by the Company on a 285,655
square foot shopping center property located in South Williamson, Kentucky
(the "South Williamson Property"), was paid as a result of the sale of the
South Williamson Property by its owner, an affiliate of the Company (the
partnership that owned the South Williamson Property), to an unrelated
party. In connection with the sale of the South Williamson Property, the
Company, as the master lessee on a master lease on the South Williamson
Property, canceled such master lease. The negotiated sale price of the South
Williamson Property was approximately $14,873,655 which included acquiring
the property subject to the $14,773,655 remaining balance of the underlying
mortgage debt on the South Williamson Property (which represented
approximately 21% of the Company's total liabilities at such time). The
wraparound note on the South Williamson Property represented approximately
13% of the Company's total assets at such time. As a result of the sale of
the South Williamson Property, the payment of the wraparound note and the
satisfaction of the underlying mortgage debt, the Company realized
approximately $100,000 in cash and will realize a book gain of approximately
$4,400,000 in the fourth quarter of 1998.
On September 21, 1998, a wraparound note held by the Company on a 35,946
square foot shopping center property located in Vestivia Hills, Alabama (the
"Vestivia Hills Property"), was paid as a result of the sale of the Vestivia
Hills Property by its owner, an affiliate of the Company (the partnership
that owned the Vestivia Hills Property), to an unrelated party. In
connection with the sale of the Vestivia Hills Property, the Company, as the
master lessee on a master lease on the Vestivia Hills Property, canceled
such master lease. The negotiated sale price of the Vestivia Hills Property
was approximately $1,640,000. Of the gross proceeds, $722,638 was used to
satisfy the underlying mortgage debt on the Vestivia Hills Property (which
represented approximately 1% of the Company's total liabilities). The
wraparound note on the Vestivia Hills Property represented approximately 3%
of the Company's total assets at such time. As a result of the sale of the
Vestivia Hills Property, the payment of the wraparound note and the
satisfaction of the underlying mortgage debt, the Company realized net cash
proceeds of approximately $875,000 and a book gain of approximately $338,000
in the third quarter of 1998.
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On September 11, 1998, the Company completed the purchase of Country Grove
Plaza, a 16,642 square foot shopping center located in West Palm Beach,
Florida (Palm Beach County), from an unrelated party for $1,100,000. In
connection with the purchase, the Company obtained a $880,000 first mortgage
loan which bears interest at a rate of 7.51% per annum. Such first mortgage
requires monthly principal and interest payments of $6,159 based upon a 30
year self liquidating amortization schedule, with a balloon payment of
approximately $780,150 due September 1, 2008. The shopping center is
currently 96% occupied by local tenants who are subject to operating leases
ranging from one to 13 years with various renewal options.
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 approximately
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 approximately $17,750,000. The Company realized cash 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 at such time) and used 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 realized a
book gain of approximately $947,000 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 Company has learned that on or about July 6, 1998, a
market began to be 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. The Exchange subsequently applied to the
Securities and Exchange Commission (the "Commission") to delist the Series A
Preferred Stock and Common Stock and on September 10, 1998, the Commission
issued an order granting the Exchange's application to delist the Series A
Preferred Stock and Common Stock. Effective as of the opening of the trading
session on September 11, 1998, the Series A Preferred Stock and Common Stock
were delisted from the Exchange.
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 approximately 95% occupied by local tenants who are subject to
operating leases ranging from two to six years with various renewal options.
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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 on its Regency Walk property 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 is currently approximately 92% occupied by local
tenants who are subject to operating leases ranging from two to nine years
with various renewal options.
On February 9, 1998, a wraparound note held by the Company on a 128,864
square foot shopping center property located in Chili, New York (the "Chili
Property"), was assigned to an unrelated party for $75,000 in cash. The
Company, as the master lessee on a master lease on the Chili Property,
terminated such master lease on April 30, 1996. The assignment resulted in
the relief of the underlying mortgage debt, by the Company, on the Chili
Property. As a result of the assignment of the wraparound note on the Chili
Property, the payment of the wraparound note and the relief of the
underlying mortgage debt, the Company realized a book gain of approximately
$82,000 in the first quarter of 1998.
As previously reported, the Company and Societe Generale Securities
Corporation ("SGSC") entered into an 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 of the 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. In September 1998, certain negotiations in connection with a
Proposed Sale between the Company and the Affiliates on one hand and an
unrelated third party on the other hand terminated.
Results of Operations
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
The Company recognized net income of $371,453 for the three months ended
September 30, 1998 as compared to a net loss of $1,185,463 for the same
period in 1997 due to the following factors:
Revenues for the three months ended September 30, 1998 were $6,331,620, an
increase of $22,670 or less than 1% from $6,308,950 for the three months
ended September 30, 1997. Such increase was primarily due to the net of: (1)
a decrease in rent revenue of $206,523 resulting primarily from the net of
(a) a decrease in rent revenue of approximately $419,000 from the sale of
the Bend Property on July 7, 1998 and (b) an increase in rent revenue of
approximately $248,000 from an increase in the number of Fee Properties
owned by the Company to seven for the three months ended September 30, 1998
from four for the same period in 1997; (2) a decrease in interest income of
$1,085,006 resulting primarily from a decrease in the number of
available-for-sale securities held by the Company to none for the three
months ended September 30, 1998 from two for the same period in 1997; (3) a
decrease in revenue from management company operations of $23,211 due to the
sale of the Bend Property on July 7, 1998; (4) a decrease in tenant
reimbursements of $27,727 resulting primarily from (a) the sale of the Bend
Property on July 7, 1998 and (b) an increase in the number of Fee Properties
owned by the Company to seven for the three months ended September 30, 1998
from four for the same period in 1997; (5) a decrease in percentage rent
revenue of $41,040 due to the sale of the Bend Property on July 7, 1998; (6)
a gain on the sale of real estate and real estate related assets of
$1,284,617 for the three months ended September 30, 1998
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<PAGE>
compared to no gain or loss on the sale of real estate related assets for
the same period in 1997; (7) a decrease in amortization of discount on
available-for-sale securities of $99,273 for the three months ended
September 30, 1998 due to a decrease in the number of available-for-sale
securities held to none for the three months ended September 30, 1998 from
two for the same period in 1997 and (8) no unrealized gain or loss on U.S.
Treasury Notes sold short for the three months ended September 30, 1998
compared to an unrealized holding loss of $243,438 on U.S. Treasury Notes
sold short for the same period in 1997.
Operating expenses for the three months ended September 30, 1998 were
$4,895,105, an increase of $55,160, or 1% from $4,839,945 for the three
months ended September 30, 1997. Such increase was primarily due to the net
of: (1) a decrease in master lease expenses of $24,018 due to a decrease in
the number of properties leased by the Company to 26 for the three months
ended September 30, 1998 from 28 for the same period in 1997; (2) a decrease
in salaries, general and administrative expenses of approximately $58,690
due primarily to (a) a decrease in rental expense for the corporate offices
of approximately $141,000 for the three months ended September 30, 1998
compared to the same period in 1997; (b) an increase in acquisition and
financing costs of approximately $27,000 for the three months ended
September 30, 1998 compared to the same period in 1997 due to the increase
in the number of Fee Properties purchased by the Company to two from one,
respectively and (c) an increase of approximately $54,000 in general
operating expenses of the Company; (3) a decrease in property expenses of
$39,521 due to (a) an increase in the number of Fee Properties owned by the
Company to seven for the three months ended September 30, 1998 from four in
the same period in 1997 and (b) the sale of the Bend Property on July 7,
1998 and (4) an increase in professional fees of $178,979 due to fees
associated with the settlement (the "Winston Settlement") of a certain
purported class action and derivative lawsuit (the "Winston Action") brought
against Milestone and certain of its present and former directors and
officers. See Part II-Other Information, Item 1. Legal Proceedings for a
discussion of the Winston Action and Winston Settlement.
Interest expense for the three months ended September 30, 1998 was
$1,345,002, a decrease of $921,651, or 41% from $2,266,653 for the three
months ended September 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 September
30, 1998 from two for the same period in 1997 resulting in a decrease in
interest expense of approximately $702,000.
Depreciation and amortization expense for the three months ended September
30, 1998 was $87,881, a decrease of $133,637, or 60% from $221,518 for the
three months ended September 30, 1997. Such decrease was primarily due to
the sale of the Bend Property on July 7, 1998 which represented
approximately 17% of the Company's total assets.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
The Company recognized a net loss of $1,199,343 for the nine months ended
September 30, 1998 as compared to a net loss of $3,641,640 for the same
period in 1997 due to the following factors:
Revenues for the nine months ended September 30, 1998 were $17,341,260, a
decrease of $1,782,164 or 9% from $19,123,424 for the nine months ended
September 30, 1997. Such decrease was primarily due to the net of: (1) a
decrease in rent revenue of $209,819 for the nine months ended September 30,
1998 resulting from the net of (a) a decrease in rent revenue of
approximately $633,000 as a result of various property sales as well as unit
vacancies and (b) an increase in rent revenue of approximately $423,000 due
to an increase in the number of fee properties owned at September 30, 1998
to seven from four for the same period in 1997; (2) a decrease in interest
income of $3,286,596 resulting primarily from (a) a decrease in interest
income of $2,835,963 resulting from a decrease in the number of
available-for-sale securities held by the Company to none for the nine
months ended September 30, 1998 from two for the same period in 1997 and (b)
a decrease in interest income of
16
<PAGE>
approximately $266,000 resulting primarily from a decrease in the number of
properties with interest bearing wraparound notes to 26 for the nine months
ended September 30, 1998 from 28 for the same period in 1997; (3) a decrease
in management and reimbursement income of $274,762 resulting primarily from
the termination of the Management Services Agreement between Union Property
Investors, Inc. and the Company in February 1997; (4) a gain on the sale of
real estate and real estate related assets of $1,366,507 for the nine months
ended September 30, 1998 compared to no gain or loss on the sale of real
estate and real estate related assets for the same period in 1997; (5) a
decrease in amortization of discount on available-for-sale securities of
$278,709 for the nine months ended September 30, 1998 due to a decrease in
the number of available-for-sale securities held by the Company to none for
the nine months ended September 30, 1998 from two for the same period in
1997; (6) no unrealized gain or loss on U.S. Treasury Notes sold short for
the nine months ended September 30, 1998 compared to an unrealized holding
loss of $194,073 on U.S. Treasury Notes sold short for the same period in
1997 and (7) no gain or loss on the sale of available-for-sale securities
for the nine months ended September 30, 1998 compared to a loss of $784,122
on the sale of available-for-sale securities for the nine months ended
September 30, 1997.
Operating expenses for the nine months ended September 30, 1998 were
$14,954,537, a decrease of $42,823, or less than 1% from $14,997,360 for the
nine months ended September 30, 1997. Such decrease was primarily due to the
net of: (1) a decrease in master lease expense of $110,011 due to a decrease
in the number of properties leased by the Company to 26 for the nine months
ended September 30, 1998 from 28 for the same period in 1997; (2) a decrease
in salaries, general and administrative expenses of approximately $137,368
due to the net of (a) a decrease in rental expense of approximately $422,000
for the corporate offices for the nine months ended September 30, 1998
compared to the same period in 1997; (b) an increase in acquisition and
financing costs of approximately $86,000 for the nine months ended September
30, 1998 compared to the same period in 1997 due to the increase in the
number of Fee Properties purchased to four from one, respectively and (c) an
increase of approximately $197,000 in general operating expenses of the
Company; (3) a decrease in property expenses of $19,946 due to (a) the sale
of the Bend Property in July of 1998 and (b) an increase in the number of
Fee Properties owned by the Company to seven for the nine months ended
September 30, 1998 as compared to four for the same period in 1997; (4) a
decrease of $46,344 in expenses for management company operations due to a
decrease in general operating expenses and (5) an increase in professional
fees of $270,836 due to fees associated with the Winston Settlement. See
Part II-Other Information, Item 1. Legal Proceedings for a discussion of the
Winston Action and Winston Settlement.
Interest expense for the nine months ended September 30, 1998 was
$4,445,607, a decrease of $2,459,978, or 36% from $6,905,585 for the nine
months ended September 30, 1997. Such decrease was primarily due to: (1) a
decrease in interest expense of approximately $1,973,000 due to a decrease
in financing arrangements related to the available-for-sale securities held
by the Company to none for the nine months ended September 30, 1998 from two
for the same period in 1997 and (2) a decrease in interest expense of
approximately $467,000 due to (a) the sale of the Bend Property in July of
1998 and (b) an increase in the number of Fee Properties owned by the
Company to seven for the nine months ended September 30, 1998 as compared to
four for the same period in 1997.
Depreciation and amortization expense for the nine months ended September
30, 1998 was $493,902, a decrease of $108,532, or 18% from $602,434 for the
nine months ended September 30, 1997. Such decrease was primarily due to the
sale of the Bend Property in July of 1998 which represented approximately
17% of the Company's total assets.
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Liquidity and Capital Resources
The Company, as the holder of 89,360 shares of Kranzco Series C Cumulative
Redeemable Preferred Shares as of September 30, 1998, is entitled to receive
from the redemption of such shares, in two equal installments over the next
4 months, an aggregate amount of cash equal to approximately $893,600, plus
interest at the rate of 8% per annum on the applicable outstanding balance
of such shares.
On July 1, 1998, the first mortgage loan on the Underlying Property located
in Quincy, Illinois, (the "Quincy Property") matured. The Company, as the
wraparound mortgagee, is seeking to realize its position in its Wrap Debt on
the Quincy property.
On May 1, 1998, the Company secured a $1,160,000 first mortgage loan on its
16,994 square foot shopping center 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 May 1, 1998, the first mortgage loan on the Fee Property located in
Zanesville, Ohio, (the "Zanesville Property") matured. The Company, as the
owner of the Zanesville Property, is seeking to extend the terms of the
first mortgage loan.
On April 17, 1998, the owner of the 92,646 square foot shopping center
located in Natchez, Mississippi (the "Natchez Property"), an affiliate of
the Company (the partnership that owns the Natchez Property), completed the
refinancing of the underlying mortgage debt on behalf of the Company. 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.
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.
Cash generated by the (i) redemption of the Kranzco Series C Cumulative
Redeemable Preferred Stock and (ii) the cash on hand at September 30, 1998,
may be used to fund (a) 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 and the Winston Settlement is
consummated), (x) approximately $750,000 in plaintiff attorney fees (if the
Winston Settlement is consummated), (y) approximately $500,000 in the
Company's attorney fees and (z) approximately $150,000 in accounting,
printing, mailing and other miscellaneous fees and expenses, (b) the
Company's real estate investment, acquisition and development activities (to
the extent that funds are not used to pay the Winston Settlement if
consummated), 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 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.
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The Company believes that immediately subsequent to the consummation of the
Winston Settlement it would have sufficient cash to continue operating in
the ordinary course of business. However, the Company is considering
opportunities to acquire additional properties which would require it to
raise funds through a public or private sale of debt or equity securities,
by conducting rights offerings, by selling or realizing on assets
(including, but not limited to sales of its properties and interests in the
Wraparound Notes), through corporate borrowings, or by other means. Because
of the current condition of the domestic financial markets which, in the
Company's belief, is not favorable to other alternatives, the Company would
probably conduct a rights offering if it decided that it would be beneficial
to raise additional capital. In a rights offering, the Company would offer
existing holders of shares of its Common Stock rights to acquire additional
shares of its Common Stock in exchange for monetary consideration in order
to obtain funds to be used to finance potential property acquisitions. The
foregoing is a forward looking statement and there can be no assurances that
the Company will be able to undertake successfully, if at all, such a
transaction. If the Company conducts a rights offering, it would need to
issue additional shares of Common Stock and to amend its Certificate of
Incorporation in order to authorize the issuance of such additional shares
of Common Stock. The Company's Certificate of Incorporation currently
authorizes it to issue up to 10,000,000 shares of Common Stock and, as of
November 11, 1998, [4,251,042] shares thereof were outstanding. If the
Company conducts such a rights offering, holders of shares of the Company's
Common Stock who do not participate therein would have the aggregate value
of their shares of Common Stock, as well as their ownership interest in the
Company, diluted.
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.
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 $6,029,024 for the nine months
ended September 30, 1998 included (1) a net loss of $1,199,343; (2)
adjustments for non-cash items of $2,387,246 and (3) a net change in
operating assets and liabilities of $2,442,435, compared to net cash used in
operating activities of $5,044,057 for the nine months ended September 30,
1997, which included (1) a net loss of $3,641,640; (2) adjustments of
$1,636,202 for non-cash items and (3) a net change of $3,038,619 in
operating assets and liabilities.
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Net cash provided by investing activities of $438,094 for the nine months
ended September 30, 1998 included (1) proceeds from principal repayments on
loans receivable and wraparound notes of $5,068,333; (2) investments in
wraparound notes of $108,838; (3) the purchase of building and land for
$6,825,000; (4) the purchase of leasehold improvements of $302,465; (5)
proceeds from the realization of wraparound notes of $950,334; (6) proceeds
from the sale of property of $319,320 and (6) proceeds from redemption of
investments in preferred stock of $1,336,500, compared to net cash provided
by investing activities of $14,632,598 for the nine months ended September
30, 1997, which included: (1) principal repayments of $4,883,285 on loans
receivable and wraparound notes; (2) the purchase of building and land of
$1,100,000; (3) the purchase of leasehold improvements of $183,836; (4)
proceeds of $9,498,529 from the sale of available-for-sale securities; (5)
proceeds of $1,285,334 from redemption of investments in preferred stock;
(6) proceeds of $9,415,301 from the redemption of reverse repurchase
agreements and (7) purchase of U.S. Treasury Notes for $9,166,015.
Net cash provided by financing activities of $5,355,337 for the nine months
ended September 30, 1998 included (1) proceeds from mortgages and notes
payable of $9,180,000 and (2) principal payments on mortgages and notes
payable of $3,824,663, compared to net cash used in financing activities of
$6,327,009 for the nine months ended September 30, 1997, which included (1)
principal payments of $2,084,200 on mortgages and notes payable; (2)
principal payments of $4,436,882 on loans payable and (3) $194,073 received
on U.S. Treasury Notes payable.
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 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, 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, if it is approved and consummated, (i) each holder of
Series A Preferred Stock eligible to participate in the Winston Settlement
who does not properly opt out of the Winston Settlement and who owns shares
of the Series A Preferred Stock on the date that the Winston Settlement is
consummated would 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
Transactions in exchange for $3.00 in cash, payable by Milestone, and (ii)
all of the Company's stockholders would release all derivative claims
against Milestone and the other named defendants in connection with the
Transactions, (iii) each holder of Series A Preferred Stock between October
23, 1995 and the date on which the Winston Settlement is consummated would
release any claims he or she may have against Milestone and the other named
defendants in connection with the Transactions and (iv) the Winston Action
would be dismissed. 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 eligible to
participate in the Winston Settlement and owning more than 10% of the Series
A Preferred Stock as of the close of business on August 25, 1998 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
was filed as Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998.
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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 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. As previously reported, pursuant to an earlier proposed
settlement of the Winston Action (the "Initial Winston Settlement") which
was never consummated because independent counsel for the Series A Preferred
Stockholders withdrew its support of such earlier proposed settlement,
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 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, 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. National Union has reviewed the Winston Settlement
Agreement and has informed the Company that its basic position, denying
coverage, has not changed and, therefore, it is likely that the Company will
assert a claim against National Union. If Stonewall also asserts that the
Winston Settlement is not a covered loss under the Stonewall Policy, it is
likely that the Company would assert a claim against Stonewall. At this
time, the Company is not in a position to render an opinion as to the
likelihood of success of any such 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
would be approximately $9,000,000. Additional expenses of approximately
$1,400,000 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 and proceeds
from the redemption of the Kranzco Series C Cumulative Redeemable Preferred
Stock.
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 during the nine months ended September 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.
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After September 30, 1995, holders of the Series A Preferred Stock, which has
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 are generally entitled to elect one member of the
Board of Directors, became 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.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are 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 nine month period ended September 30, 1998, and is
qualified in its entirety by reference to such financial
statements.
(b) Reports on Form 8-K:
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 Winston 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.
On October 16, 1998, a Form 8-K was filed with the Commission
reporting the sale of the South Williamson property located in
South Williamson, Kentucky.
On November 4, 1998, a Form 8-K was filed with the Commission
reporting changes in the Company's certifying accountant.
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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: November 16, 1998 By /s/ Robert A. Mandor
--------------------
Robert A. Mandor
President and Chief Financial Officer
Date: November 16, 1998 By /s/ Patrick S. Kirse
--------------------
Patrick S. Kirse
Vice President of Accounting
(Principal Accounting Officer)
24
