<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
KRANZCO REALTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 6798 23-2691327
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
128 FAYETTE STREET
CONSHOHOCKEN, PENNSYLVANIA 19428
(610) 941-9292
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
NORMAN M. KRANZDORF
CHIEF EXECUTIVE OFFICER
KRANZCO REALTY TRUST
128 FAYETTE STREET
CONSHOHOCKEN, PENNSYLVANIA 19428
(610) 941-9292
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
ALAN S. PEARCE, ESQ. JOEL A. YUNIS, ESQ.
ERIC I COHEN, ESQ. ROSENMAN & COLIN LLP
ROBINSON SILVERMAN PEARCE 575 MADISON AVENUE
ARONSOHN & BERMAN LLP NEW YORK, NEW YORK 10022
1290 AVENUE OF THE AMERICAS (212) 940-8666
NEW YORK, NEW YORK 10104
(212) 541-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Series B-1 Cumulative Convertible
Preferred Shares of Beneficial
Interest, par value $.01 per share,
each with a $25.00 per share
liquidation preference............. 1,235,000(2) $5.11 $6,483,750 $1,964.77
Series B-2 Cumulative Convertible
Preferred Shares of Beneficial
Interest, par value $.01 per share,
each with a $25.00 per share
liquidation preference............. 1,235,000(3) -- -- None
Common Shares of Beneficial
Interest, par value $.01 per
share.............................. (4) -- -- None
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) promulgated under the Securities Act of 1933,
as amended, based on the average of the bid and asked prices of the common
stock of Union Property Investors, Inc. ('UPI') as reported on the OTC
Electronic Bulletin Board on December 18, 1996 ($5.11) and the maximum
number of such shares (3,789,171) that may be exchanged for the securities
being registered.
(2) Reflects the maximum number of shares of (i) such presently indeterminable
number of shares of Series B-1 Cumulative Convertible Preferred Shares of
Beneficial Interest of Kranzco Realty Trust ('Kranzco'), par value $.01 per
share, each with a $25.00 per share liquidation preference (the 'Kranzco
Series B-1 Preferred Shares') issuable in connection with the merger of UPI
with and into KRT Union Corp., a wholly-owned subsidiary of Kranzco (the
'Merger'), and (ii) such presently indeterminable number of shares of
Kranzco Series B-1 Preferred Shares as may be required for issuance upon
conversion of Series B-2 Cumulative Convertible Preferred Shares of
Beneficial Interest of Kranzco, par value $.01 per share, each with a $25.00
per share liquidation preference (the 'Kranzco Series B-2 Preferred
Shares'). Pursuant to Rule 457(i) no additional registration fee is required
for the Kranzco Series B-2 Preferred Shares because such shares are being
registered at the same time as the Kranzco Series B-1 Preferred Shares into
which they are convertible.
(3) Reflects the maximum number of Kranzco Series B-2 Preferred Shares issuable
in connection with the Merger.
(4) Such presently indeterminable number of Common Shares of Beneficial Interest
of Kranzco as may be required for issuance upon conversion of Kranzco Series
B-1 Preferred Shares and the Kranzco Series B-2 Preferred Shares. No
registration fee is required for the Common Shares of Beneficial Interest of
Kranzco reserved for conversion because such shares will be issued for no
additional consideration.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
KRANZCO REALTY TRUST
CROSS REFERENCE SHEET SHOWING LOCATION IN PROXY STATEMENT/PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN FORM S-4
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROXY
ITEM OF FORM S-4 STATEMENT/PROSPECTUS
------------------------------------------------------ ------------------------------------------------------
A. INFORMATION ABOUT THE TRANSACTION
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Proxy Statement/Prospectus ........... Facing Page of the Registration Statement; Outside
Front Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of Proxy
Statement/Prospectus................................ Available Information; Incorporation of Documents by
Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................... Summary; Risk Factors; The Merger; The Merger
Agreement and Certain Ancillary Documents
4. Terms of the Transaction.............................. Summary; The Merger; The Merger Agreement and Certain
Ancillary Documents; Comparison of Rights of Holders
5. Pro Forma Financial Information....................... Summary; Selected Historical and Unaudited Pro Forma
Combined Condensed Financial Data
6. Material Contacts with the Company being Acquired..... The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters....... Not Applicable
8. Interests of Named Experts and Counsel................ The Merger; Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
<CAPTION>
B. INFORMATION ABOUT THE REGISTRANT
<S> <C> <C>
10. Information with Respect to S-3 Registrants........... Available Information; Incorporation of Documents by
Reference; The Companies
11. Incorporation of Certain Information by
Reference........................................... Available Information; Incorporation of Documents by
Reference
12. Information with Respect to S-2 or S-3 Registrants.... Not Applicable
13. Incorporation of Certain Information by Reference .... Not Applicable
14. Information with Respect to Registrants Other Than S-2
or S-3 Registrants.................................. Not Applicable
<CAPTION>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
<S> <C> <C>
15. Information with Respect to S-3 Companies............. Not Applicable
16. Information with Respect to S-2 or S-3 Companies...... Not Applicable
17. Information with Respect to Companies Other Than S-2
or S-3 Companies.................................... Available Information; Incorporation of Documents by
Reference
<CAPTION>
D. VOTING AND MANAGEMENT INFORMATION
<S> <C> <C>
18. Information if Proxies, Consents or Authorizations are
to be Solicited..................................... Outside Front Cover Page of Proxy
Statement/Prospectus; Available Information;
Incorporation of Documents by Reference; Summary; The
Special Meeting; The Merger; Stockholder Proposals
19. Information if Proxies, Consents or Authorizations are
not to be Solicited in an Exchange Offer............ Not Applicable
</TABLE>
<PAGE>
UNION PROPERTY INVESTORS, INC.
5200 Town Center Circle
Boca Raton, Florida 33486
, 1997
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Union Property Investors, Inc. ('UPI') to be held on ,
, 1997, at : .m. E.S.T. at (the
'Special Meeting').
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated November
12, 1996, as amended (the 'Merger Agreement'), by and among UPI, Kranzco Realty
Trust ('Kranzco') and KRT Union Corp., a wholly-owned subsidiary of Kranzco, and
the authorization of the merger of UPI with and into KRT Union Corp. (the
'Merger') and the other transactions contemplated by the Merger Agreement. If
the Merger Agreement is approved and the Merger is consummated, (i) each
outstanding share of UPI Common Stock, par value $.01 per share, will be
converted into the right to receive, at the election of the holder thereof and
subject to certain adjustments, either (a) 0.298 of one share of Series B-1
Cumulative Convertible Preferred Shares of Beneficial Interest of Kranzco, par
value $.01 per share, each with a $25.00 liquidation preference or (b) 0.298 of
one share of Series B-2 Preferred Cumulative Convertible Preferred Shares of
Beneficial Interest of Kranzco, par value $.01 per share, with a $25.00
liquidation preference, and (ii) each outstanding share of UPI Preferred Stock,
par value $.01 per share, each with a $10.00 liquidation preference, will be
converted into the right to receive one share of Series C Cumulative Redeemable
Preferred Shares of Beneficial Interest of Kranzco, par value $.01 per share,
each with a $10.00 per share liquidation preference. For more information
regarding the consideration to be received by UPI stockholders in connection
with the Merger, please refer to the accompanying Proxy Statement/Prospectus.
After careful consideration, the Board of Directors of UPI has unanimously
approved the Merger Agreement and authorized the Merger and the other
transactions contemplated by the Merger Agreement and has determined that the
Merger is fair to and in the best interests of UPI and its stockholders. The
Board of Directors of UPI unanimously recommends that you vote FOR the approval
and adoption of the Merger Agreement and the authorization of the Merger and the
other transactions contemplated by the Merger Agreement.
Details of the proposed Merger, the Merger Agreement and other important
information concerning UPI and Kranzco appear in the accompanying Proxy
Statement/Prospectus. Please give this material your careful attention.
It is important that your shares be represented and voted at the Special
Meeting. Therefore, whether or not you plan to attend the Special Meeting and
regardless of the number of shares you own, we request that you complete, sign
and date the enclosed proxy card and return it in the accompanying envelope,
which requires no postage if mailed in the United States. You may, of course,
attend the Special Meeting and vote in person, even if you have previously
returned your proxy card. You should not send any stock certificates with the
enclosed proxy card.
Sincerely,
Leonard S. Mandor
Chairman of the Board and
Chief Executive Officer
<PAGE>
UNION PROPERTY INVESTORS, INC.
5200 Town Center Circle
Boca Raton, Florida 33486
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
------------------------
To the Stockholders of Union Property Investors, Inc.:
A Special Meeting of Stockholders of UNION PROPERTY INVESTORS, INC.
('UPI'), a Delaware corporation, will be held at ,
on , , 1997, at : .m. E.S.T., for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated November 12, 1996 as amended (the 'Merger
Agreement'), by and among UPI, Kranzco Realty Trust ('Kranzco') and KRT
Union Corp., a wholly-owned subsidiary of Kranzco, and authorize the
merger of UPI with and into KRT Union Corp. (the 'Merger') and the
other transactions contemplated by the Merger Agreement, pursuant to
which (i) each outstanding share of UPI Common Stock, par value $.01
per share, would be converted into the right to receive, at the
election of the holder thereof and subject to certain adjustments,
either (a) 0.298 of one share of Series B-1 Cumulative Convertible
Preferred Shares of Beneficial Interest of Kranzco, par value $.01 per
share, each with a $25.00 liquidation preference, or (b) 0.298 of one
share of Series B-2 Cumulative Convertible Preferred Shares of
Beneficial Interest of Kranzco, par value $.01 per share, each with a
$25.00 per share liquidation preference, and (ii) each outstanding
share of UPI Preferred Stock, par value $.01 per share, each with a
$25.00 per share liquidation preference, would be converted into the
right to receive one share of Series C Cumulative Redeemable Preferred
Shares of Beneficial Interest of Kranzco, par value $.01 per share,
each with a $10.00 per share liquidation preference. A copy of the
Merger Agreement is attached as Annex A to the Proxy
Statement/Prospectus accompanying this Notice.
(2) To consider and act upon such other matters as may properly come before
the meeting or any adjournments thereof.
Only stockholders of record at the close of business on , 1997 are
entitled to notice of, and to vote at, the Special Meeting and any adjournments
or postponements thereof. Details of the proposed Merger, the Merger Agreement
and other important information concerning UPI and Kranzco appear in the
accompanying Proxy Statement/Prospectus.
All stockholders are cordially invited to attend the Special Meeting. To
ensure your representation at the Special Meeting, however, you are urged to
complete and sign the accompanying proxy card and promptly return it in the
enclosed prepaid envelope, whether or not you plan to attend the Special
Meeting. Any stockholder of record attending the Special Meeting may vote in
person even if that stockholder has already returned his or her proxy card.
By order of the Board of Directors,
HARVEY SHORE
Secretary
Boca Raton, Florida
, 1997
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL ENSURE THAT YOUR SHARES WILL BE
VOTED. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED WITHIN THE UNITED STATES.
<PAGE>
UNION PROPERTY INVESTORS, INC.
PROXY STATEMENT
KRANZCO REALTY TRUST
PROSPECTUS
This Proxy Statement and Prospectus ('Proxy Statement/Prospectus')
constitutes the Prospectus of Kranzco Realty Trust, a real estate investment
trust formed under the laws of the State of Maryland ('Kranzco'), with respect
to (i) the issuance of up to 310,000 shares of Series B-1 Cumulative Convertible
Preferred Shares of Beneficial Interest of Kranzco, par value $.01 per share,
each with a $25.00 per share liquidation preference (the 'Kranzco Series B-1
Preferred Shares'), to be issued to holders of common stock, par value $.01 per
share ('UPI Common Stock'), of Union Property Investors, Inc., a Delaware
corporation ('UPI'), in connection with the Merger (as hereinafter defined),
(ii) the issuance of up to 1,235,000 Series B-2 Cumulative Convertible Preferred
Shares of Beneficial Interest of Kranzco, par value $.01 per share, each with a
$25.00 per share liquidation preference (the 'Kranzco Series B-2 Preferred
Shares'), to be issued in connection with the Merger, and (iii) the issuance of
(a) a presently indeterminable number of Common Shares of Beneficial Interest,
par value $.01 per share, of Kranzco ('Kranzco Common Shares') to be issued upon
the conversion of the Kranzco Series B-1 Preferred Shares or Kranzco Series B-2
Preferred Shares, and (b) a presently indeterminable amount of Series B-1
Preferred Shares upon conversion of shares of Kranzco Series B-2 Preferred
Shares. See 'THE MERGER.'
This Proxy Statement/Prospectus is also being furnished to stockholders of
UPI in connection with the solicitation of proxies by the Board of Directors of
UPI ('UPI Board') for use at a Special Meeting of stockholders of UPI to be held
at the , on , 1997, at : 0 .m.,
E.S.T. and at any adjournments or postponements thereof (the 'Special Meeting').
This Proxy Statement/Prospectus relates to the proposed merger (the
'Merger') of UPI with and into KRT Union Corp., a Delaware corporation and a
wholly-owned subsidiary of Kranzco ('Newco'), pursuant to the Agreement and Plan
of Merger, dated November 12, 1996, as amended (the 'Merger Agreement'), by and
among Kranzco, Newco and UPI. See 'THE MERGER.' Upon consummation of the Merger
(i) each outstanding share of UPI Common Stock will be converted into the right
to receive, at the election of the holder thereof and subject to certain
adjustments, either 0.298 of one share of Kranzco Series B-1 Preferred Shares or
0.298 of one share of Kranzco Series B-2 Preferred Shares, (ii) each outstanding
share of UPI preferred stock, par value $.01 per share, each with a $10.00 per
share liquidation preference of UPI, will be converted into the right to receive
one share of Series C Cumulative Redeemable Preferred Shares of Beneficial
Interest of Kranzco, par value $.01 per share, each with a $10.00 liquidation
preference (the 'Kranzco Series C Preferred Shares'), and (iii) the separate
corporate existence of UPI shall cease and Newco shall be the surviving
corporation. Consummation of the Merger is subject to various conditions (which
must be satisfied or waived), including approval and adoption of the Merger
Agreement and authorization of the Merger and the other transactions
contemplated by the Merger Agreement by the holders of a majority of the
outstanding shares of UPI Common Stock at the Special Meeting. See 'THE MERGER
AGREEMENT AND CERTAIN ANCILLARY DOCUMENTS.' The stockholders of UPI will also
consider and vote upon such other business as may properly come before the
Special Meeting or any and all adjournments or postponements thereof. Neither
the Merger Agreement nor the Merger is being submitted to a vote of the
shareholders of Kranzco and no proxies are being solicited in respect thereof.
------------------------
FOR CERTAIN RISKS THAT SHOULD BE CONSIDERED IN EVALUATING THE MERGER, SEE
'RISK FACTORS' ON PAGE 15.
------------------------
All information contained in this Proxy Statement/Prospectus with respect
to Kranzco and Newco has been provided by Kranzco. All information contained in
this Proxy Statement/Prospectus with respect to UPI has been provided by UPI.
The Kranzco Common Shares are traded on the New York Stock Exchange, Inc.
('NYSE') under the symbol 'KRT' and the UPI Common Stock is traded on the OTC
Electronic Bulletin Board under the symbol 'UPIC.' On December 13, 1996, the
last reported sale price of the Kranzco Common Shares was $16.125 per share and
the last reported sale price of the UPI Common Stock was $5.0312 per share.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of UPI on or about , 1997.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-SION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1997.
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in 'SUMMARY' and under the captions 'RISK FACTORS,' 'THE
MERGER--UPI's Reasons for the Merger; Recommendations of the UPI Board,'
'--Opinion of Societe Generale Securities Corporation,' 'SELECTED HISTORICAL AND
UNAUDITED COMBINED CONDENSED PRO FORMA FINANCIAL DATA,' 'MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF UPI' and
elsewhere in this Proxy Statement/Prospectus constitute 'forward-looking
statements' within the meaning of the Private Securities Litigation Reform Act
of 1995 (the 'Reform Act'). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of UPI or Kranzco or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: expected cost savings from the Merger may not be
fully realized; general economic and business conditions, which will, among
other things, affect demand for retail space or retail goods, availability and
creditworthiness of prospective tenants and lease rents; financial condition and
bankruptcy of tenants, including disaffirmance of leases by bankrupt tenants;
the availability and terms of debt and equity financing; adverse changes in the
real estate market including, among other things, competition with other
companies; risks of real estate development and acquisition; governmental
actions and initiatives; environmental/safety requirements; and other changes
and factors referenced in this Proxy Statement/Prospectus. See 'RISK FACTORS.'
AVAILABLE INFORMATION
Kranzco and UPI are each subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'), and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the 'Commission'). Such
reports, proxy statements and other information filed may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and may be
available at the following Regional Offices of the Commission: Chicago Regional
Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such materials can be obtained
at prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a Web site at 'http://www.sec.gov' that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission. In addition, materials filed by Kranzco can
be inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005, on which the Kranzco Common Shares are listed.
Kranzco has filed with the Commission a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
'Registration Statement') under the Securities Act of 1933, as amended (the
'Securities Act'), with respect to the registration of the securities offered
hereby. This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement. Reference is made to such Registration
Statement for further information with respect to Kranzco and UPI. Statements
contained herein or incorporated herein by reference concerning the provisions
of documents are summaries of such documents, and each statement is qualified in
its entirety by reference to the copy of the applicable document if filed with
the Commission or attached as an annex hereto. The Registration Statement and
the previous filings made by Kranzco and UPI with the Commission may be obtained
from the Commission at its principal office in Washington, D.C., upon payment of
the fees prescribed by the Commission.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed by Kranzco with the Commission are
hereby incorporated by reference into this Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1995;
ii
<PAGE>
2. Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1996, June 30, 1996 and September 30, 1996;
3. Proxy Statement of Kranzco dated March 29, 1996; and
4. The description of the Kranzco Common Shares contained in the
Registration Statement on Form 8-A, and the documents incorporated therein
by reference, as amended by Amendment No. 1 to the Registration Statement
No. 33- 49434, filed with the Commission on October 16, 1992, Amendment No.
2, filed with the Commission on November 4, 1992 and Amendment No. 3, filed
with the Commission on November 10, 1992, dated November 10, 1992.
In addition, all reports and other documents filed by Kranzco pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the consummation of the Merger shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is incorporated or deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO KRANZCO
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER OF UPI COMMON STOCK, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST FROM KRANZCO AT 128 FAYETTE STREET,
CONSHOHOCKEN, PENNSYLVANIA 19428, ATTENTION: ROBERT H. DENNIS (TELEPHONE NO.
(610) 941-9292). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY , 1997.
---------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS MADE HEREBY, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY UPI OR KRANZCO. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION
OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY
SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF KRANZCO OR UPI SINCE THE DATE HEREOF
OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................... 1
Summary Historical and Unaudited Combined Condensed Pro Forma
Financial Data................................................... 11
RISK FACTORS.......................................................... 15
THE SPECIAL MEETING................................................... 23
Date, Time and Place of the Special Meeting......................... 23
Purpose of the Special Meeting...................................... 23
Record Date and Voting of Proxies................................... 23
Quorum.............................................................. 23
Vote Required and Voting Intentions of Certain Stockholders......... 24
Security Ownership of Certain Beneficial Owners and Management...... 24
Solicitation of Proxies............................................. 25
THE MERGER............................................................ 26
General............................................................. 26
Background of the Merger............................................ 26
UPI's Reasons for the Merger; Recommendations of the UPI Board...... 29
Opinion of Societe Generale Securities Corporation.................. 32
Interests of Certain Persons in the Merger.......................... 36
Appraisal Rights.................................................... 38
Accounting Treatment................................................ 39
Certain U.S. Federal Income Tax Considerations...................... 40
Federal Income Taxation of Kranzco.................................. 44
State, Local and Foreign Taxation of Kranzco and the Kranzco
Shareholders..................................................... 46
Resale Restrictions................................................. 46
Regulatory Approval................................................. 47
THE MERGER AGREEMENT AND CERTAIN ANCILLARY DOCUMENTS.................. 48
Merger Agreement.................................................... 48
The Merger; Merger Consideration................................. 48
No Fractional Shares; Cash Payments.............................. 50
Description of Kranzco Series B Preferred Shares and Kranzco
Series C Preferred Shares....................................... 50
Representations and Warranties................................... 50
Certain Covenants................................................ 51
Conditions to the Merger......................................... 54
Termination of the Merger Agreement.............................. 55
Effect of Termination of the Merger Agreement.................... 56
Fees............................................................. 57
Amendment and Waiver............................................. 57
Shareholders and Voting Trust Agreement............................. 57
Guaranty Agreement.................................................. 57
Registration Rights Agreement....................................... 58
SELECTED HISTORICAL AND UNAUDITED COMBINED CONDENSED PRO FORMA
FINANCIAL DATA...................................................... 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF UPI........................................ 67
THE COMPANIES......................................................... 71
Business of Kranzco................................................. 71
Business of UPI..................................................... 73
Combined Entities................................................... 85
MARKET PRICE OF AND DIVIDENDS ON UPI AND KRANZCO COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS......................................... 86
UPI Common Stock.................................................... 86
Kranzco Common Shares............................................... 87
</TABLE>
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<TABLE>
<S> <C>
DESCRIPTION OF UPI CAPITAL STOCK...................................... 88
UPI Common Stock.................................................... 88
UPI Preferred Stock................................................. 88
DESCRIPTION OF KRANZCO SHARES......................................... 89
General............................................................. 89
Kranzco Common Shares............................................... 89
Kranzco Preferred Shares............................................ 90
General.......................................................... 90
Kranzco Series A Preferred Shares................................ 90
Kranzco Series B-1 Preferred Shares and Kranzco Series B-2
Preferred Shares................................................ 93
Kranzco Series C Preferred Shares................................ 98
Warrants............................................................ 100
Classification or Reclassification of Kranzco Shares................ 100
Restrictions on Transfer Generally.................................. 100
COMPARISON OF RIGHTS OF HOLDERS....................................... 102
LEGAL MATTERS......................................................... 107
EXPERTS............................................................... 107
STOCKHOLDER PROPOSALS................................................. 108
OTHER MATTERS......................................................... 109
INDEX TO FINANCIAL STATEMENTS......................................... F-1
</TABLE>
Annexes:
A. Amended and Restated Agreement and Plan of Merger
B. Opinion of UPI's Financial Advisor: Societe Generale Securities
Corporation
B-1. Letter From UPI's Financial Advisor: Societe Generale Securities
Corporation
C. Text of Appraisal Rights Provisions (Section 262 of the Delaware General
Corporation Law)
D. Articles Supplementary for Kranzco Series B-1 Preferred Shares
E. Articles Supplementary for Kranzco Series B-2 Preferred Shares
ii
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus and the Annexes hereto. This summary does not
contain a complete statement of all material information relating to the
Agreement and Plan of Merger, dated November 12, 1996, as amended (the 'Merger
Agreement'), by and among Kranzco Realty Trust, a real estate investment trust
formed under the laws of the State of Maryland ('Kranzco'), KRT Union Corp., a
Delaware corporation and a wholly-owned subsidiary of Kranzco ('Newco'), and UPI
Property Investors, Inc., a Delaware corporation ('UPI'), and the proposed
merger of UPI with and into Newco (the 'Merger'), and is subject to, and is
qualified in its entirety by, the more detailed information and financial
statements contained or incorporated by reference in this Proxy
Statement/Prospectus and the Annexes hereto. Stockholders of UPI should read
carefully this Proxy Statement/Prospectus and the Annexes hereto in their
entirety. Unless the context indicates otherwise, all references to Kranzco
shall include Kranzco's subsidiaries and affiliated partnerships.
THE COMPANIES
Kranzco
Kranzco is a self-administered and self-managed equity real estate
investment trust ('REIT') formed under Maryland law in 1992, and is in the
business of owning, managing, operating, leasing, acquiring and expanding
neighborhood and community shopping centers. In addition to its own properties,
Kranzco provides management services for properties owned by third parties.
Kranzco owns and operates 38 neighborhood and community shopping centers
aggregating approximately 5.7 million square feet of gross leasable area located
in Connecticut, Maryland, New Jersey, New York, Pennsylvania, Rhode Island and
Virginia.
Kranzco's executive offices are located at 128 Fayette Street,
Conshohocken, Pennsylvania 19428, and its telephone number at that address is
(610) 941-9292.
Newco is a Delaware corporation and was incorporated on October 8, 1996
solely for the purpose of consummating the Merger and the other transactions
contemplated by the Merger Agreement. Newco's executive offices are located at
128 Fayette Street, Conshohocken, Pennsylvania 19428 and its telephone number at
that address is (610) 941-9292.
UPI
UPI is a corporation, incorporated under the laws of the State of Delaware
on November 1, 1994, and is currently engaged in the ownership of shopping
centers and single tenant commercial retail properties. UPI owns 16 retail
properties aggregating approximately 1.3 million square feet of gross leasable
area located in 11 states (the 'UPI Properties'). The 16 retail properties
consist of nine shopping centers and seven single tenant commercial retail
properties. In the event that the Merger is not consummated for any reason, UPI
will continue to pursue its business objectives of maximizing cash flow and
capital appreciation of its property portfolio through property management and
the acquisition and development of properties and holding its properties for
long-term investment.
UPI's executive offices are located at 5200 Town Center Circle, Boca Raton,
Florida 33486, and its telephone number at that address is (561) 394-9355.
THE SPECIAL MEETING
Time, Place and Date
A special meeting of stockholders of UPI will be held on ,
1997, at : 0 .m., E.S.T., at (the 'Special
Meeting').
<PAGE>
The Purpose of the Special Meeting
At the Special Meeting, holders of common stock, par value $.01 per share,
of UPI ('UPI Common Stock') will be asked to consider and vote upon a proposal
to approve and adopt the Merger Agreement and authorize the Merger and the other
transactions contemplated by the Merger Agreement.
Holders of UPI Common Stock will also consider and vote upon any other
matters that may properly come before the Special Meeting. The Board of
Directors of UPI (the 'UPI Board') does not intend to bring any matter before
the Special Meeting except as specifically indicated in the foregoing Notice of
Special Meeting, nor does the UPI Board know of any matters which anyone else
proposes to bring before the Special Meeting. If any other matters properly come
before the Special Meeting, the persons named in the accompanying proxy, or
their duly constituted substitutes acting at the Special Meeting, will be
authorized to vote or otherwise act thereon in accordance with their judgment on
such matters, unless such authorization is withheld. A holder of UPI Common
Stock who has given a proxy may revoke it at any time before it is exercised at
the Special Meeting by (i) delivering to the Secretary of UPI (by any means,
including facsimile) a written notice, bearing a date later than the proxy,
stating that the proxy is revoked, (ii) signing and delivering prior to the vote
at the Special Meeting a proxy relating to the same shares and bearing a later
date, or (iii) attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not, by itself, revoke a proxy).
Votes Required; Record Date
Approval and adoption of the Merger Agreement and authorization of the
Merger and the other transactions contemplated by the Merger Agreement require
the affirmative vote of the holders of a majority of the outstanding shares of
UPI Common Stock. Only holders of record of UPI Common Stock at the close of
business on , 1997 (the 'Record Date') are entitled to notice of and
to vote at the Special Meeting. Record holders of UPI Common Stock will be
entitled to one vote per share of UPI Common Stock. LEONARD MANDOR AND ROBERT
MANDOR, EACH OF WHOM IS A DIRECTOR AND AN EXECUTIVE OFFICER OF UPI, TOGETHER
BENEFICIALLY OWN, AND HAVE THE RIGHT TO VOTE OR DIRECT THE VOTE OF, A TOTAL OF
2,859,980 SHARES OF UPI COMMON STOCK AS OF DECEMBER 19, 1996, CONSTITUTING
APPROXIMATELY 75.5% OF THE OUTSTANDING UPI COMMON STOCK, AND HAVE AGREED TO VOTE
FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE AUTHORIZATION OF
THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
THE MERGER AGREEMENT
Merger Consideration
Upon consummation of the Merger, (a) each share of UPI Common Stock will be
converted into the right to receive at the election of the holder thereof and
subject to certain adjustments, either (i) 0.298 of one share of Series B-1
Cumulative Convertible Preferred Shares of Beneficial Interest of Kranzco, par
value $.01 per share, each with a $25.00 liquidation preference (the 'Kranzco
Series B-1 Preferred Shares'), or (ii) 0.298 of one share of Series B-2
Cumulative Convertible Preferred Shares of Beneficial Interest of Kranzco, par
value $.01 per share, each with a $25.00 liquidation preference (the 'Kranzco
Series B-2 Preferred Shares;' the Kranzco Series B-1 Preferred Shares and the
Kranzco Series B-2 Preferred Shares shall each be sometimes referred to
hereinafter as the 'Kranzco Series B Preferred Shares'), and (b) each share of
preferred stock, par value $.01 per share, each with a $10.00 liquidation
preference, of UPI (the 'UPI Preferred Stock'), will be converted into the right
to receive one share of Series C Cumulative Redeemable Preferred Shares of
Beneficial Interest of Kranzco, par value of $.01 per share, each with a $10.00
liquidation preference (the 'Kranzco Series C Preferred Shares'). In the event
that on the date of the consummation of the Merger (i) certain of UPI's expenses
in connection with the Merger and the other transactions contemplated by the
Merger Agreement (the 'Merger Expenses') that remain unpaid as of the date of
the consummation of the Merger are less than $2,000,000, (ii) the outstanding
principal amount of the UPI mortgage indebtedness or the outstanding amount of
UPI Preferred Stock on the date one day prior to the consummation of the Merger
is less than on September 30, 1996, and/or (iii) Total Current Assets of UPI
exceed Total Current Liabilities of UPI (each as defined in the Merger
Agreement), each share of UPI Common Stock will be converted into the right to
receive a number of additional Kranzco Series B Preferred Shares equal to the
net amount of (a) unpaid Merger Expenses less than $2,000,000, (b) reduction of
mortgage indebtedness and/or outstanding UPI Preferred Stock from September 30,
1996 through the date one day prior to the consummation of the Merger and/or (c)
the excess of Total Current Assets
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<PAGE>
over Total Current Liabilities, divided by $25, divided further by 3,789,171. In
the event that (i) on the date of the Merger certain of UPI's unpaid Merger
Expenses exceed $2,000,000 or (ii) Total Current Liabilities of UPI exceed Total
Current Assets of UPI, the number of Kranzco Series B Preferred Shares which
each share of the UPI Common Stock will be converted into the right to receive
will be reduced by a number of Kranzco Series B Preferred Shares equal to (a)
the unpaid Merger Expenses greater than $2,000,000 and/or (b) the excess of
Total Current Liabilities over Total Current Assets, divided by $25, divided
further by 3,789,171.
Leonard Mandor and Robert Mandor, both of whom are executive officers and
directors of UPI and who, together with certain of their affiliates,
beneficially own approximately 75.5% of the outstanding UPI Common Stock, have
informed UPI and Kranzco that they will elect to receive Kranzco Series B-2
Preferred Shares in the Merger in exchange for their shares of UPI Common Stock,
and have represented that they have no plan or intention to sell or transfer
such Kranzco Series B-2 Preferred Shares for at least one year following the
consummation of the Merger.
Effective Date of the Merger
If approved by the stockholders of UPI, the Merger shall become effective
upon the effective date of the filing of the certificate of merger providing for
the Merger with the Delaware Secretary of State in accordance with the Delaware
General Corporation Law (the 'DGCL'), or at such later time as the parties shall
have agreed upon and designated in the merger certificate in accordance with the
DGCL. Subject to the satisfaction or waiver of the other conditions to the
obligations of Kranzco and UPI to consummate the Merger, it is currently
expected that the Merger will be consummated as promptly as practicable after
the Special Meeting.
Exchange of UPI Stock Certificates
Promptly after the consummation of the Merger, First Union National Bank
NC, Charlotte, North Carolina will mail to each holder of record of a
certificate or certificates which, immediately prior to the consummation of the
Merger, represented shares of UPI Common Stock or UPI Preferred Stock
(collectively, the 'UPI Certificates' and individually, a 'UPI Certificate'), a
letter of transmittal which shall, (a) with respect to each holder of a UPI
Certificate representing shares of UPI Common Stock, instruct such holder to
elect to have each of such holder's shares of UPI Common Stock converted,
subject to adjustment, into either (A) 0.298 of one share of Kranzco Series B-1
Preferred Shares and the cash to be received, if any, in lieu of the issuance of
fractional shares of Kranzco Series B-1 Preferred Shares, or (B) 0.298 of one
share of Kranzco Series B-2 Preferred Shares and the cash to be received, if
any, in lieu of the issuance of fractional shares of Kranzco Series B-2
Preferred Shares, (b) with respect to each holder of a UPI Certificate
representing shares of UPI Preferred Stock, instruct such holder that upon
surrender of such certificate, each share of UPI Preferred Stock will be
converted into one share of Kranzco Series C Preferred Shares, and (c) specify
the manner by which to effect the surrender of UPI Certificates in exchange for
certificates representing shares of Kranzco Series B-1 Preferred Shares, Kranzco
Series B-2 Preferred Shares or Kranzco Series C Preferred Shares, respectively,
and cash in lieu of fractional shares, if applicable, after giving effect to any
required withholding tax. UPI Certificates should not be surrendered until the
letter of transmittal and instructions are received. In addition, the holders of
UPI Common Stock who determine to seek to exercise their appraisal rights should
not surrender their UPI Certificates.
Representations, Warranties and Covenants
Pursuant to the Merger Agreement, Kranzco and UPI each have made certain
representations, warranties and covenants customary in transactions of this
type.
Conditions to the Merger
The respective obligations of Kranzco, Newco and UPI to consummate the
Merger are subject to the fulfillment or waiver of each of the following
conditions, among others: (a) the other party shall have performed and complied
in all material respects with all obligations required by the Merger Agreement
to be performed or complied with prior to or on the date of the Merger; (b) from
November 12, 1996 through the date of the Merger, there shall not have occurred
any change in the financial condition, business, or operations of the other
party that could reasonably be expected to have a material adverse effect; and
(c) no court, agency or other authority shall
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<PAGE>
have issued any order, decree or judgment restraining, enjoining or preventing,
and no law shall have been enacted which restrains, enjoins or prevents, the
consummation of the Merger.
The obligation of Kranzco and Newco to effect the Merger is also subject to
the satisfaction or waiver of each of the following conditions, among others:
(a) the number of shares of UPI Common Stock held by holders who do not vote in
favor of the Merger Agreement and the Merger and who properly demand appraisal
rights in accordance with the DGCL shall not at any time exceed 7.5% of the
shares of UPI Common Stock outstanding at such time; (b) Kranzco shall have
obtained the approval for the listing of Kranzco's Common Shares of Beneficial
Interest, par value $.01 per share (the 'Kranzco Common Shares'), issuable upon
conversion of the Kranzco Series B Preferred Shares to be issued in connection
with the Merger on the New York Stock Exchange, Inc. ('NYSE'), subject to
official notice of issuance; (c) the Merger Agreement and the Merger shall have
been approved in the manner required by applicable law, by applicable
regulations of any applicable stock exchange or other regulatory body, and by
the holders of the required number of issued and outstanding shares of UPI
Common Stock on or before March 31, 1997; and (d) a person or entity designated
by UPI, that shall own of record, upon consummation of the Merger, Kranzco
Series B Preferred Shares having a liquidation preference of at least
$1,000,000, shall have executed and delivered a guaranty agreement in favor of
Kranzco.
At any time prior to the Merger, Kranzco and UPI may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties to the Merger Agreement, (ii) waive any
inaccuracies in the representations and warranties contained in the Merger
Agreement or any related documents and (iii) waive compliance with any of the
agreements or conditions contained in the Merger Agreement.
Termination
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the consummation of the Merger, before or after the Special
Meeting, in the following circumstances: (a) by the mutual consent of UPI and
Kranzco; (b) by either UPI or Kranzco, if (i) the Merger shall not have been
consummated by March 31, 1997, or (ii) any permanent injunction or other order,
decree or ruling of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable, provided,
that the party seeking to terminate the Merger Agreement shall have used all
reasonable efforts to remove such permanent injunction or other order, decree or
ruling; (c) by UPI, if (i) in the exercise of its good faith judgment as to its
fiduciary duties to its stockholders imposed by law, the UPI Board determines
that such termination is required by reason of a proposal for a sale of any of
its properties, or, except as permitted by the Merger Agreement, sale of any
assets of UPI, sale of shares of capital stock by UPI, or similar transactions
involving a third party or any of the third party's subsidiaries (a 'UPI
Acquisition Transaction') being made, (ii) there has been a breach or breaches
of a representation or warranty of Kranzco or Newco contained in the Merger
Agreement and such breach or breaches could reasonably be expected to have a
Kranzco Material Adverse Effect (as defined in the Merger Agreement as an
Acquiror Material Adverse Effect), (iii) there has been a material breach or
material breaches by Kranzco of any of the covenants or agreements of Kranzco or
Newco set forth in the Merger Agreement on the part of Kranzco or Newco, which
breach or breaches are not curable or, if curable, are not cured within 30 days
after written notice of such breach or breaches is given by UPI to Kranzco, (iv)
Kranzco amends, alters or repeals, whether by merger, consolidation or
otherwise, any of the provisions of its Amended and Restated Declaration of
Trust, as amended and supplemented (the 'Declaration of Trust'), so as to
adversely affect, in the reasonable opinion of UPI, the preferences, right to
convert, conversion price adjustments, notice rights, special conversion rights,
distribution and liquidation rights, preferences, restrictions or limitations,
redemption rights and privileges or voting powers or rights of Kranzco Series B
Preferred Shares, or (v) Kranzco reduces the dividend on Kranzco Common Shares
below $0.48 per share of Kranzco Common Shares for any calendar quarter ending
during the period from November 12, 1996 through the date of the consummation of
the Merger; or (d) by Kranzco, if (i) (A) the UPI Board fails to make, or
withdraws, materially modifies or changes in a manner adverse to Kranzco its
recommendation to the UPI stockholders of the Merger Agreement or the Merger and
the holders of a majority of the shares of the UPI Common Stock outstanding do
not or have not agreed to vote to approve the Merger Agreement and the Merger at
the Special Meeting or (B) the UPI Board shall have recommended that the UPI
stockholders accept or approve a UPI Acquisition Transaction with a person other
than Kranzco, (ii) the Special Meeting has been duly convened and held and the
approval of the UPI stockholders required by the Merger Agreement shall not have
been obtained at such meeting or any
4
<PAGE>
adjournment thereof, (iii) there has been a breach or breaches of a
representation or warranty of UPI contained in the Merger Agreement and such
breach or breaches could reasonably be expected to have a UPI Material Adverse
Effect (as defined in the Merger Agreement as a 'Target Material Adverse
Effect'), or (iv) there has been a material breach or material breaches by UPI
of any of the covenants or agreements of UPI set forth in the Merger Agreement,
which breach or breaches are not curable or, if curable, are not cured within 30
days after written notice of such breach is given by Kranzco to UPI.
Effect of Termination
If (a) Kranzco elects to terminate the Merger Agreement because (i) the UPI
Board fails to make, or withdraws, materially modifies or changes in a manner
adverse to Kranzco its recommendation to the UPI stockholders of the Merger
Agreement or the Merger and the holders of a majority of the shares of the UPI
Common Stock outstanding do not or have not agreed to vote to approve the Merger
Agreement and the Merger at the Special Meeting, (ii) the UPI Board shall have
recommended that the UPI stockholders accept or approve a UPI Acquisition
Transaction with a person other than Kranzco, (iii) there has been a breach or
breaches of a representation or warranty of UPI contained in the Merger
Agreement and such breach or breaches could reasonably be expected to have a UPI
Material Adverse Effect, or (iv) there has been a material breach or material
breaches by UPI of any of the covenants or agreements of UPI set forth in the
Merger Agreement, which breach or breaches are not curable or, if curable, are
not cured within 30 days after written notice of such breach is given by Kranzco
to UPI, provided that such breach or breaches of a covenant either (A) are
within the reasonable control of UPI or (B) could reasonably be expected to have
a UPI Material Adverse Effect; (b) Kranzco elects to terminate the Merger
Agreement because the Special Meeting has been duly convened and held and the
approval of the UPI stockholders required by the Merger Agreement shall not have
been obtained at such meeting or any adjournment thereof, or (c) in the exercise
of its good faith judgment as to its fiduciary duties to its stockholders
imposed by law, the UPI Board terminates the Merger Agreement by reason of a
proposal for a UPI Acquisition Transaction being made, then UPI (or the
successor thereto) shall, upon such termination, pay to Kranzco as liquidated
damages and not as a penalty or forfeiture $930,000 plus all documented
out-of-pocket costs and expenses, up to a maximum of $570,000, incurred by
Kranzco in connection with the Merger Agreement and the Merger.
If UPI elects to terminate the Merger Agreement because (a) there has been
a breach or breaches of a representation or warranty of Kranzco contained in the
Merger Agreement and such breach or breaches could reasonably be expected to
have a Kranzco Material Adverse Effect or (b) there has been a material breach
or material breaches by Kranzco of any of the covenants or agreements of Kranzco
set forth in the Merger Agreement, which breach or breaches are not curable or,
if curable, are not cured within 30 days after written notice of such breach is
given by UPI to Kranzco provided that such breach or breaches of a covenant
either (i) are within the reasonable control of Kranzco or (ii) could reasonably
be expected to have a Kranzco Material Adverse Effect then Kranzco shall, upon
such termination, pay to UPI as liquidated damages and not as a penalty or
forfeiture $930,000 plus all documented out-of-pocket costs and expenses, up to
a maximum of $570,000, incurred by UPI in connection with the Merger Agreement
and the Merger.
OPINION OF FINANCIAL ADVISOR TO UPI
UPI retained LSG Advisors, a predecessor of Societe Generale Securities
Corporation ('Societe Generale'), to act as its financial advisor in connection
with the Merger and related matters. Societe Generale has delivered to the UPI
Board its written opinion, dated November 12, 1996, and a letter, dated December
18, 1996, that, as of November 12, 1996 and subject to the various assumptions
and considerations set forth in its opinion and letter, the consideration to be
received by the holders of UPI Common Stock who elect to receive the Kranzco
Series B-1 Preferred Shares in the Merger was fair to such stockholders from a
financial point of view. Reference is made to the full text of Societe
Generale's opinion and letter, copies of which are reprinted herein in their
entirety as Annex B and Annex B-1 hereto, respectively. Stockholders of UPI are
urged to read the opinion and letter in their entirety. Societe Generale is not
delivering an opinion with respect to the consideration to be received by the
holders of UPI Common Stock who elect to receive Kranzco Series B-2 Preferred
Shares in the Merger. Holders of UPI Common Stock who elect to receive Kranzco
Series B-2 Preferred Shares in the Merger are urged to consult their own
financial advisors.
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<PAGE>
RECOMMENDATION OF THE UPI BOARD
THE UPI BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND AUTHORIZED
THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT AND
HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF UPI AND
THE STOCKHOLDERS OF UPI. THE UPI BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE AUTHORIZATION OF THE
MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
SUMMARY OF TERMS OF KRANZCO SERIES B PREFERRED SHARES
Distributions
The holders of Kranzco Series B Preferred Shares will be entitled to
receive from the day of the consummation of the Merger (the 'Initial Issue
Date') cumulative cash distributions at a rate of 9.75% per annum of the Series
B Liquidation Preference (defined below). Distributions on Kranzco Series B
Preferred Shares accrue and will be cumulative from the Initial Issue Date, and
will be payable quarterly in arrears for each calendar quarter on January 20,
April 20, July 20 and October 20 of each year, commencing on the first such date
following the consummation of the Merger.
Distributions Upon Liquidation
Upon any liquidation of Kranzco, the holders of Kranzco Series B Preferred
Shares will be entitled to receive liquidating distributions in cash or property
(or a combination thereof) in the amount of $25.00 per share (the 'Series B
Liquidation Preference') for each Kranzco Series B Preferred Share plus an
amount equal to all accrued and unpaid distributions to the date of such
liquidation.
Conversion
Kranzco Series B-1 Preferred Shares will, after the first anniversary of
the Initial Issue Date (unless convertible earlier upon the occurrence of a
Special Conversion Event, as hereinafter defined in this Proxy
Statement/Prospectus), at any time and from time to time, be convertible into
such number of fully paid Kranzco Common Shares as is obtained by: (i)
multiplying the number of Kranzco Series B Preferred Shares to be converted by
$25.00 and (ii) dividing the result by the following applicable conversion
prices: (A) the day after the first anniversary of the Initial Issue Date to and
including the second anniversary of the Initial Issue Date - $19.175; (B) the
day after the second anniversary of the Initial Issue Date to and including the
third anniversary of the Initial Issue Date -$18.6875; (C) the day after the
third anniversary of the Initial Issue Date to and including the fourth
anniversary of the Initial Issue Date -$18.20; (D) thereafter - $17.7125; (E) at
any time after a Special Conversion Event and prior to the delivery of a notice
of redemption - $17.7125; (F) at any time after a notice of redemption is
delivered by Kranzco pursuant to the terms of the Kranzco Series B-1 Preferred
Shares - $16.25.
Kranzco Series B-2 Preferred Shares will, after the third anniversary of
the Initial Issue Date (unless convertible earlier upon the occurrence of a
Special Conversion Event), automatically convert into an equal number of Kranzco
Series B-1 Preferred Shares which will then be convertible into Kranzco Common
Shares at the conversion ratios set forth above. Upon the occurrence of a
Special Conversion Event prior to the day after the third anniversary of the
Initial Issue Date, the Kranzco Series B-2 Preferred Shares will automatically
convert into an equal number of Kranzco Series B-1 Preferred Shares which will
then be convertible into Kranzco Common Shares at the conversion ratios set
forth above.
The conversion ratio of Kranzco Series B Preferred Shares is subject to
adjustment upon the occurrence of certain dilutive events.
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Voting
The holders of Kranzco Series B Preferred Shares will generally not be
entitled to vote at, or participate in, any meeting of shareholders of Kranzco,
and will have no right to vote, except in certain limited situations, such as
the issuance by Kranzco of any class of securities senior to Kranzco Series B
Preferred Shares, the amendment of Kranzco's Declaration of Trust so as to
adversely affect certain rights of the holders of the Series B Preferred Shares,
the occurrence of a Special Conversion Event or the failure of Kranzco to pay a
specified number of required distributions on the Kranzco Series B Preferred
Shares.
Redemption
At any time after the fifth anniversary of the Initial Issue Date, if the
aggregate Series B Liquidation Preference of all of the outstanding Kranzco
Series B-1 Preferred Shares is at any time less than $3,000,000, the Board of
Trustees of Kranzco (the 'Kranzco Board') may, at its option and in its sole
discretion, redeem the outstanding Kranzco Series B-1 Preferred Shares in whole,
subject to certain limitations, at a redemption price equal to the Series B
Liquidation Preference plus (i) all distributions accrued and unpaid on such
Kranzco Series B-1 Preferred Shares for past distribution periods and (ii) the
pro rata portion of the distributions on such Kranzco Series B Preferred Shares
for the current distribution period through the date of redemption.
Ranking
Upon issuance, Kranzco Series B Preferred Shares will rank on a parity as
to all distributions, including the distribution of assets upon any liquidation,
dissolution or winding up of the affairs of Kranzco, with the Series A
Increasing Rate Cumulative Convertible Preferred Shares of Beneficial Interest
of Kranzco, par value $.01 per share, each with a $1,000 liquidation preference
('Kranzco Series A Preferred Shares'), and the Kranzco Series C Preferred
Shares, and senior to the Kranzco Common Shares.
Differences between Kranzco Series B-1 Preferred Shares and Kranzco Series B-2
Preferred Shares
The Kranzco Series B-1 Preferred Shares and the Kranzco Series B-2
Preferred Shares will be indentical in all respects except as set forth below.
Subject to the occurrence of a Special Conversion Event, the Kranzco Series
B-1 Preferred Shares first become convertible into Kranzco Common Shares after
the first anniversary of the Initial Issue Date and the Kranzco Series B-2
Preferred Shares first become convertible into Kranzco Common Shares after the
third anniversary of the Initial Issue Date. After the third anniversary of the
Initial Issue Date, the Kranzco Series B-2 Preferred Shares will automatically
convert into Kranzco Series B-1 Preferred Shares.
After the time when the Kranzco Series B Preferred Shares first become
convertible for Kranzco Common Shares, the scheduled subsequent decreases in the
conversion price of the Kranzco Series B Preferred Shares pursuant to the terms
thereof, other than under certain anti-dilution provisions, would likely be
deemed to be the payment by Kranzco of a constructive distribution (which would
be taxable to the extent of earnings and profits allocable thereto) to the
holders of the Kranzco Series B Preferred Shares (other than those holders who
convert their Kranzco Series B Preferred Shares prior to the date of any such
decrease in conversion price), even though such holders would not receive any
actual cash distributions from Kranzco on account of such constructive
distributions. Accordingly, unless a Special Conversion Event were to occur,
holders of Kranzco Series B-1 Preferred Shares (unless such shares are converted
into Kranzco Common Shares) would likely receive constructive distributions
prior to the time when holders of Kranzco Series B-2 Preferred Shares would
likely receive constructive distributions.
Kranzco has agreed, if notified in writing by UPI, to use reasonable
efforts to cause the Kranzco Series B-1 Preferred Shares to be listed on the
NYSE. The Kranzco Series B-2 Preferred Shares will not be listed or traded on an
exchange.
7
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the UPI Board with respect to the
Merger Agreement and the Merger, UPI stockholders should be aware that certain
members of the management of UPI and the UPI Board have certain interests in the
Merger that are in addition to the interests of stockholders of UPI generally.
o Under the terms of the Merger Agreement, all of the outstanding UPI
Preferred Stock will, if and when the Merger is consummated, be
converted into the right to receive Kranzco Series C Preferred Shares.
All of the UPI Preferred Stock is owned by Milestone Properties, Inc.
('Milestone'). Additionally, Kranzco has agreed to indemnify Milestone
following the Merger for certain of Milestone's obligations related to
UPI. In considering the Merger, UPI's stockholders should be aware that
(i) Leonard Mandor, Robert Mandor and Joe Otto are directors and
executive officers of both UPI and Milestone, (ii) Joan LeVine is an
executive officer of both UPI and Milestone and was a director of both
UPI and Milestone when the UPI Board approved the Merger Agreement and
when it authorized the Merger and the other transactions contemplated by
the Merger Agreement, (iii) all of the other executive officers of UPI
are also executive officers of Milestone, and (iv) the directors and
executive officers of UPI beneficially own, in the aggregate,
approximately 78% of the outstanding UPI Common Stock and approximately
78% of Milestone's outstanding common stock.
o Pursuant to the Merger Agreement, Kranzco has agreed to indemnify the
officers and directors of UPI, with respect to actions taken in their
capacity as officers and/or directors of UPI, prior to or at the
consummation of the Merger, for a period of seven years following the
consummation of the Merger.
o Under the terms of the Merger Agreement, Kranzco has agreed to enter
into a registration rights agreement with UPI's officers and directors
and certain of their affiliates (the 'Registration Rights Agreement'),
pursuant to which they will be entitled to 'demand' and 'piggyback'
registration rights.
RISK FACTORS
In considering whether to approve the Merger Agreement, stockholders of UPI
should consider, in addition to the other information in this Proxy
Statement/Prospectus, the matters discussed under 'RISK FACTORS.' Such matters
include:
o Risks associated with (i) any increase in Kranzco's debt level after
giving effect to the Merger and any incurrence of new debt subsequent to
the Merger and (ii) Kranzco's potential inability to refinance
indebtedness and make balloon payments upon maturity.
o Risks generally associated with real estate investments, including,
without limitation, adverse changes in general or local economic
conditions, local competitive conditions, increased operating costs and
the loss, bankruptcy or financial distress of tenants.
o Certain differences between the rights of shareholders of Kranzco and
the rights of stockholders of UPI.
o Risks associated with the fact that certain cost savings or operating
efficiencies anticipated from the Merger may not be achieved or, if
achieved, may not be as substantial as anticipated.
o Possible conflicts of interest due to the fact that certain members of
the UPI Board and management of UPI have certain interests in, and will
receive certain benefits from, the Merger that are in addition to the
interests of and benefits to stockholders of UPI generally.
o Absence of a prior market for Kranzco Series B Preferred Shares and lack
of assurance that a market will develop or, if one does, that it will
provide liquidity.
8
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the 'Code').
For a more detailed discussion of certain U.S. Federal income tax consequences
of the Merger and certain other matters related thereto, see 'THE
MERGER--Certain U.S. Federal Income Tax Considerations.'
ACCOUNTING TREATMENT
Kranzco will account for the Merger in accordance with the purchase method
of accounting.
NEW YORK STOCK EXCHANGE LISTING
Kranzco has agreed to use its reasonable efforts to obtain, prior to the
Merger, approval for the listing of the Kranzco Common Shares issuable upon
conversion of Kranzco Series B-1 Preferred Shares and to pay the listing fee in
connection therewith. Prior to the Merger, Kranzco shall, if and when notified
in writing by UPI, use reasonable efforts to cause Kranzco Series B-1 Preferred
Shares to be listed on the NYSE, in which case UPI will pay the listing fee in
connection therewith. If UPI does not request listing of the Series B-1
Preferred Shares prior to the Merger, then, thereafter, Kranzco shall, if and
when notified in writing by holders of a majority of the Kranzco Series B-1
Preferred Shares, use reasonable efforts to cause the Kranzco Series B-1
Preferred Shares to be listed on the NYSE, in which case the holders of the
Kranzco Series B-1 Preferred Shares will pay the listing fee in connection
therewith.
The Kranzco Series B-2 Preferred Shares will not be listed or traded on an
exchange.
DISTRIBUTION AND DIVIDEND POLICY
UPI has never paid a cash dividend on the UPI Common Stock and has no
present intention to declare or pay cash dividends on the UPI Common Stock.
Under the terms of the Kranzco Series B Preferred Shares, following the Merger,
each holder thereof will be entitled to receive a cash distribution of $2.4375
per annum per Kranzco Series B Preferred Share (which is the equivalent of
$0.7264 per annum per share of UPI Common Stock to be exchanged in the Merger).
Kranzco currently pays a regular quarterly distribution of $0.48 per
Kranzco Common Share (which, if annualized, would equal $1.92 per Kranzco Common
Share).
Future distributions by Kranzco will be made at the discretion of the
Kranzco Board and will depend on the actual cash flow of Kranzco, its financial
condition, capital requirements, the annual distribution requirements under the
real estate investment trust provisions of the Code and such other factors as
the Kranzco Board deems relevant.
APPRAISAL RIGHTS
If the Merger is consummated, holders of UPI Common Stock who vote against
the Merger and who follow the procedures specified in Section 262 of the General
Corporation Law of the State of Delaware (the 'DGCL') will be entitled to have
their shares of UPI Common Stock appraised by the Court of Chancery of the State
of Delaware (the 'Delaware Court') and to receive the 'fair value' of such
shares ('UPI Dissenting Shares') in cash as determined by the Delaware Court in
lieu of the consideration that such stockholder would otherwise be entitled to
receive pursuant to the Merger Agreement. The Merger Agreement provides that if
there are UPI Dissenting Shares in excess of 7.5% of the outstanding UPI Common
Stock, Kranzco may terminate the Merger Agreement.
For a more detailed description of the appraisal rights available to
holders of UPI Common Stock, see 'THE MERGER--Appraisal Rights.' Additionally,
the full text of Section 262 of the DGCL is attached as Annex C to this Proxy
Statement/Prospectus.
9
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS
The rights of holders of UPI Common Stock are presently governed by the
DGCL, UPI's Certificate of Incorporation ('UPI Certificate of Incorporation')
and UPI's Bylaws ('UPI Bylaws'). Upon consummation of the Merger, holders of UPI
Common Stock will become holders of Kranzco Series B Preferred Shares. The
rights of holders of Kranzco Series B Preferred Shares are governed by Title 8
of the Corporations and Associations Article of the Annotated Code of Maryland
('Title 8') and certain other provisions of the Annotated Code of Maryland, the
Declaration of Trust of Kranzco (including the Articles Supplementary setting
the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption of the Kranzco Series B Preferred Shares and the Bylaws of Kranzco
(the 'Kranzco Bylaws'). The Kranzco Series B Preferred Shares are convertible
into Kranzco Common Shares. The rights of holders of Kranzco Common Shares are
governed by Title 8 and certain other provisions of the Annotated Code of
Maryland, the Declaration of Trust of Kranzco and the Kranzco Bylaws.
Differences between the rights of holders of UPI Common Stock and the
rights of Kranzco Series B Preferred Shares include, among others, the
following: (i) holders of Kranzco Series B Preferred Shares will not be entitled
to vote on any matters, except under specific circumstances set forth in the
Articles Supplementary for the Kranzco Series B Preferred Shares, whereas
holders of UPI Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders; (ii) holders of Kranzco Series B Preferred
Shares will be entitled to cumulative dividends at an annual rate of 9.75% of
the Series B Liquidation Preference, whereas holders of UPI Common Stock are
entitled to dividends, if, as and when declared by the UPI Board, and UPI has
never paid a cash dividend on the UPI Common Stock and has no present intention
to declare or pay any such dividend; (iii) the UPI Bylaws may be amended by the
UPI Board or Directors or by the stockholders of UPI, whereas the Kranzco Bylaws
may be amended only by the Kranzco Board; (iv) with certain exceptions, Kranzco
is subject to the provisions of the Maryland business combination statute which
is more likely to deter unsolicited bids for the Kranzco Common Shares then the
Delaware business combination statute; (v) Maryland law provides more limited
rights of inspection to shareholders of Kranzco than Delaware law provides to
stockholders of UPI; (vi) Kranzco is subject to certain restrictions on the type
of assets it may own (and on the use thereof) to which UPI is not subject; and
(vii) Kranzco Series B Preferred Shares, under certain circumstances, will be
convertible to Kranzco Common Shares in accordance with a specific conversion
ratio, which ratio is subject to adjustment upon certain antidilutive events,
whereas UPI Common Stock is not convertible into another security.
Differences between the rights of holders of UPI Common Stock and the
rights of holders of Kranzco Common Shares include, among others, the following:
(i) the differences between the rights of holders of UPI Common Stock and the
rights of Kranzco Series B Preferred Shares set forth in the preceding
paragraph, which apply to holders of Kranzco Common Shares as well as Kranzco
Series B Preferred Shares; and (ii) holders of Kranzco Common Shares are
entitled to distributions if, as and when authorized and declared by the Kranzco
Board out of assets legally available therefor and Kranzco currently pays a
regular quarterly distribution of $0.48 per Kranzco Common Share (which if
annualized would equal $1.92 per Kranzco Common Share), whereas holders of UPI
Common Stock are entitled to dividends if, as and when declared by the UPI
Board, and UPI has never paid a cash dividend on the UPI Common Stock and has no
present intention to declare or pay any such dividends.
10
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED COMBINED CONDENSED PRO FORMA FINANCIAL DATA
Summary Historical Financial Information for Kranzco Realty Trust and
Subsidiaries
The following table sets forth summary financial information for Kranzco and
its subsidiaries and the Kranzco Controlled Properties(1) on an historical cost
basis. This information should be read in conjunction with, and is qualified in
its entirety by, the historical financial statements (and the notes thereto) of
Kranzco incorporated by reference into this Proxy Statement/Prospectus. The
summary historical financial information for Kranzco and the Kranzco Controlled
Properties for the five years ended December 31, 1995 has been derived from
audited financial statements of Kranzco. The summary historical financial
information for the nine months ended September 30, 1996 and 1995 has been
derived from unaudited financial statements of Kranzco. The unaudited historical
financial statements of Kranzco for the nine months ended September 30, 1996 and
1995, in the opinion of Kranzco, include all adjustments necessary to present
fairly the information set forth therein. However, the results of operations for
the interim periods are not necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
KRANZCO CONTROLLED
PROPERTIES
KRANZCO REALTY TRUST --------------------------
---------------------------------------------------
FOR THE PERIOD FOR THE KRANZCO REALTY TRUST
FROM INCEPTION PERIOD FROM ------------------------
(JUNE 17, JANUARY 1,
1992) TO TO YEAR ENDED NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, NOVEMBER 18, DECEMBER 31, SEPTEMBER 30,
----------------------------------- -------------- ------------ ------------ ------------------------
1995 1994 1993 1992 1992 1991 1996 1995
----------- ---------- ---------- -------------- ------------ ------------ ---------- -----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Revenues:
Minimum rent...... $ 40,259 $ 33,166 $ 27,688 $ 3,151 $ 3,988 $ 4,200 $ 31,270 $ 29,735
Percentage rent... 1,044 1,000 695 64 252 318 726 791
Expense
reimbursements.. 10,988 9,455 7,759 720 1,048 1,083 8,852 7,496
Other income...... 277 434 2,619 162 949 1,334 83 444
Interest income... 902 985 948 26 0 0 523 673
----------- ---------- ---------- -------------- ------------ ------------ ---------- -----------
Total
revenues...... 53,470 45,040 39,709 4,123 6,237 6,935 41,454 39,139
Operating expenses,
exclusive of
interest,
depreciation and
amortization...... 16,482 15,638 13,252 1,451 3,166 3,736 13,970 11,856
Interest expense.... 16,208 10,469 8,877 1,064 2,512 2,993 12,753 11,853
Depreciation and
amortization...... 10,903 9,066 7,636 782 1,097 1,175 8,434 8,113
----------- ---------- ---------- -------------- ------------ ------------ ---------- -----------
Income (loss) before
extraordinary
items............. 9,877 9,867 9,944 826 (538) (969) 6,297 7,317
Extraordinary
items............. 0 0 0 0 0 0 (11,115) 0
----------- ---------- ---------- -------------- ------------ ------------ ---------- -----------
Net income (loss)... 9,877 9,867 9,944 826 (538) (969) (4,818) 7,317
Preferred
dividends......... 485 0 0 0 0 0 521 312
----------- ---------- ---------- -------------- ------------ ------------ ---------- -----------
Net income (loss)
available for
shareholders of
Kranzco........... $ 9,392 $ 9,867 $ 9,944 $ 826 ($ 538) ($ 969) ($ 5,339) $ 7,005
----------- ---------- ---------- -------------- ------------ ------------ ---------- -----------
----------- ---------- ---------- -------------- ------------ ------------ ---------- -----------
Ratio of Earnings to
Fixed Charges..... 1.50 1.72 1.99 1.78 .79 .68 1.40 1.51
EARNINGS PER SHARE:
Income (loss) before
extraordinary
items per Kranzco
Common Share...... $ 0.91 $ 0.96 $ 1.16 $ 0.11 $ 21.00 $(203.00) $ 0.61 $ 0.68
Net income (loss)
per Kranzco Common
Share............. $ 0.91 $ 0.96 $ 1.16 $ 0.11 $ 21.00 $(203.00) $ (0.52) $ 0.68
Distributions to
Shareholders of
Kranzco per
Kranzco Common
Share............. $ 1.92 $ 1.90 $ 1.84 $ .22 $ 0 $ 0 $ 1.44 $ 1.44
Weighted average
number of Kranzco
Common Shares
outstanding....... 10,322,858 10,315,497 8,590,850 8,064,497 1,000 1,000 10,326,086 10,318,184
BALANCE SHEET DATA:
Real estate, before
accumulated
depreciation...... $ 368,073 $ 318,870 $ 258,166 $ 225,596 $ 41,515 $ 40,675 $ 369,870 $ 367,618
Total assets........ $ 372,983 $ 331,779 $ 298,813 $ 251,720 $ 40,481 $ 40,369 $ 361,668 $ 373,728
Total mortgages and
notes payable..... $ 204,247 $ 160,771 $ 118,566 $ 119,798 $ 32,620 $ 32,204 $ 212,716 $ 201,705
</TABLE>
- ------------------
(1) The Kranzco Controlled Properties consist of substantially all of the net
assets of Kranzco Realty, Inc., a predecessor of Kranzco, and five of the
Kranzco Properties owned by a predecessor of Kranzco and acquired by Kranzco
in November 1992.
11
<PAGE>
Summary Historical Financial Information for UPI
The following table sets forth summary financial information for UPI on an
historical cost basis. This information should be read in conjunction with, and
is qualified in its entirety by reference to, UPI's financial statements
included elsewhere in this Proxy Statement/Prospectus. The summary historical
financial information for each of the five years in the period ended December
31, 1995 has been derived from audited financial statements. The summary
historical information for the nine months ended September 30, 1996 has been
derived from UPI's unaudited financial statements. On August 4, 1995 and October
30, 1995, Milestone Properties, Inc. ('Milestone') transferred to UPI (the 'UPI
Transfer') the UPI Properties which had been owned by Milestone. The financial
data presented in the table below includes amounts relating to the UPI
Properties, for periods prior to the applicable date of the UPI Transfer. Only
revenue and expense amounts from the applicable date of the UPI Transfer through
December 31, 1995 and September 30, 1996, respectively, are included below. The
financial data presented below for the years ended December 31, 1994 and 1995
prior to the UPI Transfer, gives effect to an allocation to UPI of (i) a portion
of the salaries of Milestone's officers and certain other general and
administrative expenses of Milestone and (ii) a portion of Milestone's income
tax expenses that UPI would have incurred had the UPI Transfer been effected
during such earlier periods.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- -------------------------
1995 1994 1993 1992 1991 1996 1995
--------- --------- --------- --------- --------- ------------- ---------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Revenue................................ $ 8,102 $ 7,908 $ 7,268 $ 5,396 $ 2,874 $ 6,173 $ 6,010
Net income before taxes................ 1,903 1,586 1,998 2,503 1,813 945 1,554
Net income after taxes................. 1,161 968 1,998 2,503 1,813 576 1,010
Net income after preferred dividends... 1,063 968 1,998 2,503 1,813 271 1,010
Net income per share of UPI Common
Stock(3)............................. n/a n/a n/a n/a n/a 0.07 n/a
Ratio of earnings to fixed charges and
preferred dividends(1)............... 1.72 1.63 1.99 3.90 13.56 1.18 1.94
BALANCE SHEET DATA:
Total assets........................... $ 51,650 $ 53,296 $ 52,371 $ 51,020 $ 27,602 $ 51,155 $ 51,917
Real estate assets..................... 50,780 52,277 51,539 50,351 27,276 49,643 51,080
Total debt............................. 29,042 29,704 24,967 17,807 3,840 30,545 29,212
UPI Preferred Stock.................... 6,500 0 0 0 0 4,229 0
Stockholders' equity................... 15,412 n/a n/a n/a n/a 15,390 0
Net assets............................. n/a 23,528 27,361 33,148 23,747 n/a
OTHER FINANCIAL DATA:
EBITDA(2).............................. $ 6,160 $ 5,879 $ 6,129 $ 4,824 $ 2,665 $ 4,092 $ 4,789
Cash flow provided by operations....... 3,419 2,660 3,964 3,695 2,520 1,620 2,968
OTHER REAL ESTATE DATA:
Number of UPI Properties............... 16 16 15 14 11 16 16
Total gross leasable area.............. 1,346,435 1,346,435 1,293,733 1,177,581 673,542 1,346,435 1,346,435
Occupancy %............................ 99.0% 92.5% 95.5% 98.24% 99.17% 99.0% 92.7%
</TABLE>
- ------------------
(1) The ratio of earnings to fixed charges represents the number of times fixed
charges were covered by earnings. For purposes of the foregoing
calculations, fixed charges include interest and preferred dividend
requirements increased to an amount representing pre-tax earnings which
would be required to cover such dividend requirements. Earnings, for
purposes of the ratio, are equal to earnings before income taxes plus
interest and amortization of debt financing costs.
(2) Earnings before interest, taxes, depreciation and amortization ('EBITDA') is
defined as total revenues less operating expenses. Operating expenses is
defined as property operating and maintenance expenses (before depreciation
and amortization and any valuation allowance), property management fees,
real estate taxes and general and administrative expenses. UPI believes that
EBITDA is a relevant financial measure used by companies within the real
estate industry to indicate a company's ability to service indebtedness.
EBITDA, however, should not be considered as an alternative to net
(Footnotes continued on next page)
12
<PAGE>
(Footnotes continued from previous page)
income (determined in accordance with generally accepted accounting
principles) as an indication of UPI's financial performance or to cash flow
from operating activities (determined in accordance with generally accepted
accounting principles) as a measure of liquidity.
(3) As a result of the UPI Transfer, historical earnings per share data has been
deleted as it does not provide meaningful information.
Summary Unaudited Combined Condensed Pro Forma Financial Information for
Kranzco and Subsidiaries
The following table sets forth summary unaudited combined condensed pro
forma financial information for Kranzco and its subsidiaries as of September 30,
1996, and for the nine months ended September 30, 1996 and operating data and
earnings per Kranzco Common Share for the year ended December 31, 1995. The pro
forma operating data has been presented in each case as if the Merger had
occurred as of January 1, 1995 and the pro forma balance sheet data has been
presented as if the Merger had occurred on September 30, 1996. Preparation of
the summary unaudited combined condensed pro forma financial information was
based on assumptions deemed appropriate by the management of Kranzco and UPI.
The assumptions give effect to the Merger under the purchase method of
accounting in accordance with generally accepted accounting principles and the
combined entity qualifying as a REIT, distributing all of its taxable income
and, therefore, incurring no federal income tax expense during the periods
presented. The summary unaudited pro forma financial information is based on
unaudited financial information and is not necessarily indicative of the results
of operations which actually would have occurred if the transactions had been
consummated at the beginning of the periods presented, nor does it purport to
represent or project the future financial position and results of operations for
future periods. The pro forma information should be read in conjunction with the
historical financial statements of Kranzco (and the notes thereto) incorporated
by reference into this Proxy Statement/Prospectus and the historical financial
statements of UPI (and the notes thereto) included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C>
OPERATING DATA:
Total revenue.............................................................. $ 47,627 $ 61,572
Operating income before interest, depreciation and amortization............ $ 32,553 $ 43,588
Interest expense........................................................... $ 14,665 $ 18,825
Depreciation and amortization.............................................. $ 9,991 $ 12,972
Net income before extraordinary items...................................... $ 7,897 $ 11,791
Preferred distributions.................................................... $ 2,877 $ 3,626
Net income available to common shareholders before extraordinary items..... $ 5,020 $ 8,165
EARNINGS PER KRANZCO COMMON SHARE:
Net income before extraordinary items for common shareholders.............. $ 0.49 $ 0.79
Weighted average number of shares outstanding.............................. 10,331,000 10,323,000
BALANCE SHEET DATA:
Total assets............................................................... $ 425,970 --
Mortgages and notes payable................................................ $ 243,261 --
Kranzco Series C Preferred Shares.......................................... $ 4,229 --
Beneficiaries' equity...................................................... $ 168,391 --
</TABLE>
13
<PAGE>
COMPARATIVE MARKET DATA
The following table sets forth the range of high and low sale prices for
the Kranzco Common Shares and the range of high and low bid prices for the UPI
Common Stock for each of the periods indicated.
The Kranzco Common Shares have traded on the NYSE since November 19, 1992
under the symbol 'KRT.' The UPI Common Stock has traded on the OTC Electronic
Bulletin Board since December 11, 1995 under the symbol 'UPIC.'
<TABLE>
<CAPTION>
UPI COMMON
KRANZCO COMMON SHARES STOCK
--------------------------------- --------------
HIGH LOW DISTRIBUTIONS HIGH LOW
------ ------ ------------- ----- -----
<S> <C> <C> <C> <C> <C>
1994:
First Quarter.......... $23.875 $21.125 $0.48 N/A N/A
Second Quarter......... $22.625 $20.75 $0.48 N/A N/A
Third Quarter.......... $21.625 $18.625 $0.48 N/A N/A
Fourth Quarter......... $19.875 $16.625 $0.48 N/A N/A
1995:
First Quarter.......... $19.50 $17.125 $0.48 N/A N/A
Second Quarter......... $19.00 $16.625 $0.48 N/A N/A
Third Quarter.......... $18.75 $16.75 $0.48 N/A N/A
Fourth Quarter......... $17.00 $14.00 $0.48 $1.00 $0.50
1996:
First Quarter.......... $16.25 $14.75 $0.48 $1.125 $0.75
Second Quarter......... $16.00 $14.125 $0.48 $1.50 $1.125
Third Quarter.......... $16.25 $14.125 $0.48 $1.50 $0.875
Fourth Quarter (through
December 13,
1996)............... $16.125 $15.00 $0.48 $5.188 $0.75
</TABLE>
The following table sets forth the last reported sales prices per share of
Kranzco Common Shares and UPI Common Stock on November 11, 1996, the last
trading day preceding public announcement of the Merger, and on December 13,
1996, the most recent date for which prices were available prior to printing
this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
KRANZCO UPI
COMMON COMMON
SHARES STOCK
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<S> <C> <C>
November 11, 1996........ $15.375 $0.9375
December 13, 1996........ $16.125 $5.0312
</TABLE>
BECAUSE THE RATIO AT WHICH SHARES OF UPI COMMON STOCK WILL BE CONVERTIBLE
INTO THE RIGHT TO RECEIVE KRANZCO SERIES B PREFERRED SHARES IN THE MERGER IS
FIXED AND THE MARKET PRICE OF THE KRANZCO COMMON SHARES IS SUBJECT TO
FLUCTUATION, THE VALUE OF THE KRANZCO SERIES B PREFERRED SHARES THAT HOLDERS OF
UPI COMMON STOCK WILL RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO
THE DATE AND TIME THE MERGER BECOMES EFFECTIVE. STOCKHOLDERS OF UPI ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR KRANZCO COMMON SHARES AND UPI COMMON STOCK.
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RISK FACTORS
Stockholders of Union Properties Investors, Inc. ('UPI') should carefully
consider, among other things, the following risk factors. Certain statements set
forth below under this caption may constitute 'forward-looking' statements
within the meaning of the Private Securities Litigation Reform Act of 1995. See
'SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS' for additional factors
relating to such statements.
SUBSTANTIAL DEBT OBLIGATIONS; BALLOON PAYMENTS
Kranzco Realty Trust ('Kranzco') had pro forma debt at September 30, 1996,
after giving effect to the proposed merger (the 'Merger') of UPI with and into
KRT Union Corp. ('Newco'), of $243,261,000, of which approximately $232,420,000
would have been long-term debt. The pro forma ratio of Kranzco's debt to
estimated value of Kranzco's real estate assets (as estimated by Kranzco's Board
of Trustees (the 'Kranzco Board')) (the 'Debt Ratio') at September 30, 1996,
after giving effect to the Merger would have been approximately 52%. This Debt
Ratio may be increased by Kranzco without a vote of the shareholders of Kranzco.
The increase in Kranzco's indebtedness resulting from the Merger or the
incurrence of new debt subsequent to the Merger could increase the debt service
charges and the risk of default under instruments or agreements creating
Kranzco's debt, which would have an adverse effect on Kranzco's net income and
cash available for distributions to shareholders. There is no limitation on the
amount of debt that Kranzco may incur.
In June 1996, certain subsidiary corporations and partnerships of Kranzco
completed a refinancing of substantially all of Kranzco's variable rate debt and
a portion of its fixed rate debt by entering into a seven-year, secured real
estate loan in the principal amount of $181,700,000 (the 'REMIC Mortgage Loan').
The REMIC Mortgage Loan bears fixed interest rates with respect to principal
amounts thereof as follows: $123,700,000, 7.76% per annum; $20,600,000, 7.98%
per annum; $28,900,000, 8.28% per annum; and $8,500,000, 8.92% per annum. The
outstanding principal balance of the REMIC Mortgage Loan is due in June 2003.
Repayment of the REMIC Mortgage Loan is secured by a first mortgage lien on 27
of the 38 neighborhood and community shopping centers currently owned by
Kranzco. The 38 shopping centers currently owned by Kranzco are referred to
herein as the 'Kranzco Properties'.
In addition, Kranzco had four mortgages outstanding as of September 30,
1996 which Kranzco assumed in connection with its acquisition of certain
shopping centers in April 1995. The mortgages have maturity dates ranging from
1999 through 2004. Three of these four mortgages have fixed interest rates
ranging from 8.0% to 10.5%. The aggregate outstanding principal balance on these
three mortgages as of September 30, 1996 was approximately $25,399,000. The
fourth mortgage has an interest rate of prime plus 0.5%. The outstanding
principal balance of the fourth mortgage as of September 30, 1996 was
approximately $5,617,000.
UPI had ten mortgages outstanding as of September 30, 1996. The mortgages
have maturity dates ranging from March 31, 1997 through 2009. Seven of the
mortgages have fixed interest rates ranging from 7.5% to 10.0%. The other three
mortgages have variable interest rates ranging from 7.125% to 8.02% as of
September 30, 1996. The aggregate outstanding principal balance on these ten
mortgages as of September 30, 1996 was approximately $30,545,000.
The REMIC Mortgage Loan requires a lump-sum or 'balloon' payment for the
outstanding principal balance at maturity in June 2003. An aggregate of
approximately $61,248,000 of other mortgage debt of Kranzco, assuming
consummation of the Merger, is due as follows: $10,841,000 in 1997; $1,314,000
in 1998; $9,374,000 in November 1999; $6,514,000 in October 2000; $1,546,000 in
2001; thereafter, $31,659,000. In addition, Kranzco may finance future
acquisitions with debt which may require a 'balloon' payment for the outstanding
principal balance at maturity. Kranzco's ability to pay the outstanding
principal balance of the REMIC Mortgage Loan, or such other debt, at maturity
may depend upon its ability to refinance the REMIC Mortgage Loan or such other
debt, or to sell properties. Kranzco has no commitments with respect to
refinancing the REMIC Mortgage Loan or such debt. In addition, there are
substantial restrictions on the ability to remove Kranzco Properties from the
lien of the REMIC Mortgage Loan. There can be no assurance that refinancing will
be available on reasonable terms and conditions, that sales of properties are
possible or that the amounts received from such refinancing or sales will be
sufficient to permit Kranzo to make the required balloon payment on the REMIC
Mortgage Loan or such other debt. If Kranzco cannot make a balloon payment when
due, the lenders under the REMIC Mortgage Loan or such other debt may foreclose
on the Kranzco Properties securing the REMIC Mortgage Loan or such other debt,
which foreclosure would have a material adverse effect on Kranzco's business,
assets and results of operations. In addition, as a result of variable interest
rates on existing debt or any other debt Kranzco may incur in the future, an
increase in interest rates could have an adverse effect on Kranzco's net income
and cash available for distributions.
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DISSIMILAR NATURE OF INVESTMENTS
The rights of stockholders of UPI are presently governed by the General
Corporation Law of the State of Delaware (the 'DGCL'), UPI's Certificate of
Incorporation, as amended (the 'UPI Certificate of Incorporation'), and UPI's
Bylaws (the 'UPI Bylaws'). Upon consummation of the Merger, stockholders of UPI
will become shareholders of Kranzco, and their rights as shareholders of Kranzco
will be governed by Title 8 of the Corporations and Associations Article of the
Annotated Code of Maryland ('Title 8'), Kranzco's Amended and Restated
Declaration of Trust, as amended and supplemented (the 'Declaration of Trust')
including the Articles Supplementary relating to the Series A Increasing Rate
Cumulative Convertible Preferred Shares of Beneficial Interest of Kranzco, par
value $.01 per share, each with a $1,000 liquidation preference (the 'Kranzco
Series A Preferred Shares'), the Series B-1 Cumulative Convertible Preferred
Shares of Beneficial Interest of Kranzco, par value $.01 per share, each with a
$25.00 liquidation preference (the 'Kranzco Series B-1 Preferred Shares'), the
Series B-2 Cumulative Convertible Preferred Shares of Beneficial Interest of
Kranzco, par value $.01 per share, each with a $25.00 liquidation preference
(the 'Kranzco Series B-2 Preferred Shares;' the Kranzco Series B-1 Preferred
Shares and the Kranzco Series B-2 Preferred Shares shall each be sometimes
referred to as the 'Kranzco Series B Preferred Shares'), and the Series C
Cumulative Redeemable Preferred Shares of Beneficial Interest of Kranzco, par
value $.01 per share, each with a $10.00 liquidation preference (the 'Kranzco
Series C Preferred Shares'; the Kranzco Series A Preferred Shares, the Kranzco
Series B Preferred Shares and the Kranzco Series C Preferred Shares,
collectively, being sometimes referred to as the 'Kranzco Preferred Shares' and
the Kranzco Preferred Shares together with the Kranzco Common Shares being
sometimes collectively referred to as the 'Kranzco Shares') and Kranzco's Bylaws
(the 'Kranzco Bylaws').
Both Title 8 and the Declaration of Trust of Kranzco provide that no
shareholder of Kranzco will be personally liable for any obligation of Kranzco
solely by reason of his being a shareholder of Kranzco. The Kranzco Bylaws
further provide that Kranzco shall indemnify each shareholder against any claim
or liability to which the shareholder may become subject by reason of his being
or having been a shareholder and that Kranzco shall reimburse each shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. In addition, it is Kranzco's policy to include a
clause in its contracts which provides that shareholders assume no personal
liability for obligations entered into on behalf of Kranzco. However, with
respect to tort claims, contractual claims where shareholder liability is not so
negated, claims for taxes and certain statutory liability, a shareholder of
Kranzco may, in some jurisdictions, be personally liable to the extent that such
claims are not satisfied by Kranzco. Inasmuch as Kranzco carries public
liability insurance which it considers adequate, any risk of personal liability
to shareholders is limited to situations in which Kranzco's assets plus its
insurance coverage would be insufficient to satisfy the claims against Kranzco
and its shareholders.
For a detailed discussion of the differences between the rights of
stockholders of UPI and shareholders of Kranzco, see 'COMPARISON OF RIGHTS OF
HOLDERS.'
DISTRIBUTION AND LIQUIDATION PREFERENCES OF KRANZCO PREFERRED SHARES
The Kranzco Preferred Shares rank senior to the Kranzco Common Shares, and
on a parity with each other with respect to distribution rights and liquidation
preference. To the extent there are insufficient funds to pay the preferences of
the Kranzco Preferred Shares, available funds will be allocated and paid with
respect to the Kranzco Preferred Shares on a pro rata basis, based on the amount
payable with respect to each class of Kranzco Preferred Shares based upon their
proportionate liquidation preferences and accrued but unpaid distributions.
The Kranzco Series C Preferred Shares must be redeemed in eight equal
quarterly installments commencing in the first quarter after the consummation of
the Merger. See 'DESCRIPTION OF KRANZCO SHARES--Kranzco Preferred Shares' with
respect to a description of the amounts of the distribution and liquidation
preferences of each such class of shares.
If Kranzco fails to discharge its mandatory redemption obligation or fails
to pay a distribution on the outstanding Kranzco Series C Preferred Shares for
any quarter within five days of the distribution payment date therefor, or, in
certain situations, if Kranzco merges or consolidates with or into any entity,
then (i) Kranzco (or the surviving entity) will be prohibited from paying any
dividends or other distributions on the Kranzco Common Shares until all such
redemptions are made or such distribution amounts are paid on the Kranzco Series
C Preferred Shares or (ii) Kranzco (or the surviving entity) may be required to
immediately redeem all outstanding Kranzco Series C Preferred Shares.
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COMPETITION
The development, acquisition, disposition and leasing of real estate is
highly competitive. All of the Kranzco Properties and UPI's 16 retail properties
(the 'UPI Properties;' and the Kranzco Properties and the UPI Properties
sometimes collectively referred to as the 'Properties') are located in developed
retail and commercial areas and there are generally numerous other neighborhood
or community shopping centers within a five-mile radius of any given Property.
In addition, there are one or more regional malls within a ten-mile radius of
certain Properties.
There are numerous developers and real estate companies which compete with
Kranzco in seeking acquisition opportunities and locating tenants to lease
vacant space, some of which may have greater financial resources than Kranzco.
Such developers or real estate companies could offer lower rental rates, or have
lower operating costs, more favorable locations (including locations in the
vicinity of one or more of the Properties) or facilities more attractive to
potential tenants, than Kranzco can offer or has. In addition, such developers
or real estate companies may develop or acquire new shopping centers or regional
malls, or renovate, refurbish or expand existing shopping centers or regional
malls, in the vicinity of one or more of the Properties. Competition from such
developers and real estate companies could have a material adverse effect on
Kranzco's acquisition opportunities and ability to locate tenants to lease
vacant space.
Kranzco in the normal course of its business is continually evaluating a
number of potential mergers, acquisitions and entering into non-binding letters
of intent and may at any time or from time to time enter into contracts to
acquire and may acquire additional properties. There can be no assurance,
however, that Kranzco will have the opportunity to continue to make suitable
property acquisitions on terms favorable to Kranzco.
FAILURE TO OBTAIN ANTICIPATED COST SAVINGS
Kranzco expects to achieve certain benefits from the consummation of the
Merger, particularly cost savings and other operating efficiencies resulting
from a reduction of overhead and the elimination of management and
administrative fees and other property expenses. No assurance can be given that
any such cost savings anticipated from the Merger will be achieved or, if
achieved, will be as substantial as anticipated.
REAL ESTATE INVESTMENT RISKS
General
Various factors, many of which are beyond the control of and cannot be
predicted by Kranzco, may affect the economic viability of the Properties. The
Properties may be affected by risks generally associated with real estate
investments, including, without limitation, adverse changes in general or local
economic conditions, adverse changes in consumer spending patterns, local
competitive conditions such as the supply of retail or commercial space or the
existence or construction of new shopping centers, regional malls or other
retail or commercial space, increased operating costs (including maintenance,
insurance, debt service, lease payments and tenant improvement costs and real
estate and other taxes), the attractiveness of the Properties to tenants and
their customers, the need to comply with various federal, state and local laws,
ordinances and regulations (including zoning and other regulatory restrictions
on the use of the Properties), and the loss, bankruptcy or financial distress of
tenants. In addition, certain significant operating expenses associated with the
Properties (including maintenance, insurance, debt service, lease payment and
tenant improvement costs and real estate and other taxes) generally are not
reduced when circumstances cause a reduction in gross income from the
Properties. If the Properties do not generate gross income sufficient to meet
operating expenses, Kranzco's net income and ability to make cash distributions
would be adversely affected.
Dependence on Retail Industry
The Properties consist predominantly of neighborhood and community shopping
centers and single tenant retail properties. Kranzco's performance is therefore
significantly affected by the market for retail space and, indirectly, the
retail sector of the general or local economy. The market for retail space has
been adversely affected in recent years by consolidation in the retail sector,
the financial distress of certain large retailers and the excess amount of
retail space in certain markets. To the extent that these conditions persist,
they would have an adverse effect on Kranzco's net income and cash available for
distributions to shareholders. In addition, to the extent that investors and
lenders have a negative perception of the retail sector, the value of preferred
and common shares of Kranzco may be adversely affected and Kranzco may not be
able to obtain debt or equity financing on reasonable terms and conditions.
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Leasing Risks
Substantially all of Kranzco's income depends on the ability of tenants of
the Properties to pay and perform their rental and other obligations under their
respective leases. It also depends on Kranzco's ability to relet those
Properties with leases expiring where the related tenant does not elect to renew
its lease or Kranzco does not wish to relet to the related tenant, or where the
lease is terminated. The ability of Kranzco to rent or relet unleased space is
affected by many factors, including certain covenants typically found in leases
with tenants in shopping centers that restrict the use of other space at such
shopping centers. Changes in the abilities of tenants of the Properties to pay
and perform their rental and other obligations under their respective leases and
in Kranzco's ability to lease or relet Properties may cause fluctuations in
Kranzco's cash flow, which, in turn, may affect the cash available for
distributions to shareholders.
Changes in Laws
The Properties are subject to various federal, state and local regulatory
requirements, including, without limitation, the Americans with Disabilities Act
(the 'ADA'), which requires that buildings be made accessible to people with
disabilities. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or the award of damages to
private litigants. Kranzco and UPI believe the Properties to be in substantial
compliance with all material federal, state and local regulatory requirements.
Moreover, the terms of the leases for the Properties generally require the
tenants to comply with certain requirements at their sole expense. There can be
no assurance, however, that these regulatory requirements will not be changed or
that new regulatory requirements will not be imposed that would require
significant unanticipated expenditures by Kranzco or the tenants, which would
adversely affect Kranzco's net income and cash available for distributions to
shareholders.
Illiquidity of Real Estate
The illiquidity of real estate investments, substantial taxes imposed on a
REIT such as Kranzco by the Code upon the sale of properties held for fewer than
four years and restrictions placed on Kranzco on the removal of Kranzco
Properties from the lien of the REMIC Mortgage Loan, will each serve to limit
Kranzco's ability to vary its real estate holdings promptly in response to
changes in economic or other conditions.
Casualty; Sufficiency of Insurance
Kranzco carries, with respect to the Kranzco Properties, and will, in the
future for all the Properties, carry, comprehensive liability, fire, flood,
extended coverage and rental loss insurance for the Kranzco Properties with
policy specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses which may
be either uninsurable or not economically insurable. There can be no assurance
that every loss affecting the Properties will be covered by insurance or that
any such loss incurred by Kranzco will not exceed the limits of policies
obtained. Should an uninsured loss occur, Kranzco's net income and cash
available for distributions would be adversely affected.
Default by Tenants; Financial Distress and Bankruptcy of Tenants
Substantially all of Kranzco's income will be derived from rental payments
from tenants of the Properties under their respective leases. In the event of a
default by a tenant in its payment or performance of its rental or other
obligations under its lease, Kranzco may experience delays in enforcing its
rights and may incur substantial costs and experience significant delays
associated with protecting its investment, including costs incurred in making
substantial improvements or repairs to a property and re-leasing the property.
In the event that a substantial number of tenants become financially distressed
and so default, Kranzco's net income and cash available for distributions to
shareholders would be adversely affected.
Three of Kranzco's anchor tenants, Bradlees, Caldor and Rickels Home
Center, filed for bankruptcy under the United States Bankruptcy Code. Kranzco
has, as tenants of the Kranzco Properties, three Bradlees stores (representing
approximately $2.2 million, or 4%, of Kranzco's annual revenues), three Caldor
stores (representing approximately $2.5 million, or 5%, of Kranzco's annual
revenues, after giving effect to reduced common area maintenance and real estate
tax reimbursements which became effective November 1, 1996 at one location) and
two Rickels stores (representing approximately $1.4 million, or 2%, of Kranzco's
annual revenues). The Bradlees stores are located in Bethlehem, Pennsylvania,
Whitehall, Pennsylvania, and Groton, Connecticut and have approximately 85,900,
85,100 and 85,100 square feet of gross leasable area, respectively. All three of
these leases were originally entered into with the Stop & Shop Companies, Inc.
which remains liable thereunder. The Caldor stores are located in Towson,
Maryland, Bristol, Pennsylvania and Hamilton Township, New Jersey
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and have approximately 94,600, 113,200 and 119,900 square feet of gross leasable
area, respectively. The Towson lease is guaranteed by The May Company. The
Rickels stores are located in Phillipsburg, New Jersey and Yonkers, New York and
each have approximately 50,000 square feet of gross leasable area. Rickels has
rejected the lease on the Phillipsburg, New Jersey store which had annual
revenues of $0.3 million and has assumed the Yonkers, New York lease. Any such
rejected leases might, however, subject Kranzco to the risks set forth in the
immediately preceding paragraph.
Certain other tenants of the Kranzco Properties have filed for bankruptcy
protection under the United States Bankruptcy Code. Rents payable under the
leases of such tenants, however, represent only approximately 2.6% of Kranzco's
annual revenues.
There can be no assurance that any tenant of the Properties that has filed
for bankruptcy protection will continue to pay or perform its rental or other
obligations under its lease or that other tenants of the Properties will not
file for bankruptcy protection in the future. If certain other tenants were to
file for bankruptcy protection, a delay or substantial reduction in rental
payments may occur which would adversely affect Kranzco's net income and cash
available for distributions to shareholders.
Possible Environmental Liabilities
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances on, under or in such property. Such laws often impose such liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances, and the liability under certain
such laws may be strict, joint and several unless the harm is divisible and
there is a reasonable basis for allocating of responsibility. The costs of any
required remediation or removal of such substances may be substantial and the
owner's or operator's liability therefor as to any property is generally not
limited under such laws, ordinances and regulations and could exceed the value
of the property and/or the aggregate assets of the owner or operator. The
presence of hazardous or toxic substances, or the failure to properly remediate
property affected by such substances, may adversely affect the market value of
the affected property, as well as the owner's ability to sell or lease such
property or to obtain financing using such property as collateral.
All of the Properties have been subjected to Phase I or similar
environmental assessments (which involve inspection without soil sampling or
ground water analysis) by independent environmental consultants. These
environmental assessments have not revealed any material environmental
liability, nor is Kranzco aware of any environmental liability with respect to
the Properties that would have a material adverse effect on Kranzco's business,
assets or results of operations. There can be no assurance, however, that these
environmental assessments have revealed all environmental liabilities or the
presence of hazardous or toxic substances on, under or in any Property not known
to Kranzco.
CONSEQUENCES OF FAILURE TO MAINTAIN STATUS AS A REIT
Kranzco elected to be taxed as a REIT commencing with the tax filing period
ended December 31, 1992 and intends to continue to qualify as a REIT under the
Code. There can be no assurance that Kranzco will be able to continue to operate
in a manner so as to maintain its qualification as a REIT. Qualification as a
REIT involves the application of highly technical and complex Code provisions
for which there are only limited judicial or administrative interpretations and
the determination of various factual matters and circumstances not entirely
within Kranzco's control. See 'THE MERGER--Certain U.S. Federal Income Tax
Considerations--Federal Income Taxation of Kranzco.' In addition, no assurance
can be given that new legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. Kranzco, however, is not aware of any currently pending tax
legislation or regulations that would adversely affect its ability to maintain
its qualification as a REIT.
If Kranzco fails to maintain its qualification as a REIT, Kranzco will be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at corporate rates, and distributions, if any, to
shareholders will no longer be deductible by Kranzco. In addition, unless
entitled to relief under certain statutory provisions, Kranzco will also be
disqualified from treatment as a REIT for the four taxable years following the
year in which qualification was so lost. This treatment would reduce the net
earnings of Kranzco available for investment or distribution to shareholders
because of the additional tax liability to Kranzco for the year or years
involved. To the extent that distributions to shareholders would have been made
in anticipation of
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Kranzco's continuing to qualify as a REIT, Kranzco might be required to borrow
funds or to liquidate certain of its investments on adverse terms to pay the
applicable tax.
GEOGRAPHIC CONSIDERATIONS
All of the Kranzco Properties are located in seven states (Connecticut,
Maryland, New Jersey, New York, Pennsylvania, Rhode Island and Virginia). To the
extent that general economic or other relevant conditions in these states
decline and result in a decrease in consumer demand in these areas, the income
from, and value of, these Kranzco Properties may be adversely affected. While
the acquisition of the UPI Properties pursuant to the Merger which are located
in nine additional states would create geographic diversity which might help to
mitigate the negative effect of an economic decline in the seven states listed
above, Kranzco has not previously owned or operated properties in those states
and therefore is not as familiar with the retail real estate market as in the
states in which Kranzco currently owns and operates properties.
SHARES AVAILABLE FOR FUTURE SALE
As of September 30, 1996, there were (i) 10,331,475 Kranzco Common Shares
outstanding, (ii) options and warrants outstanding to purchase an aggregate of
1,006,429 Kranzco Common Shares and (iii) 11,155 shares of Kranzco Series A
Preferred Shares outstanding, which shares are convertible into an aggregate
number of Kranzco Common Shares not to exceed the greater of 500,000 Kranzco
Common Shares or 5% of the then issued and outstanding Kranzco Common Shares.
The conversion of Kranzco Series A Preferred Shares or Kranzco Series B
Preferred Shares into Kranzco Common Shares, the exercise of currently
outstanding options and warrants of Kranzco and the issuance and exercise of
additional options and warrants under Kranzco's 1992 Employee Share Option Plan,
1992 Trustee Share Option Plan and 1995 Management Incentive Plan, could
adversely affect the market prices of the Kranzco Series B Preferred Shares and
the Kranzco Common Shares and the terms upon which Kranzco may obtain additional
equity financing in the future.
In addition, Kranzco has, and may in the future, issue Kranzco Common
Shares or options or other securities convertible or exercisable into Kranzco
Common Shares pursuant to stock option, stock purchase, performance or other
remuneration plans adopted by the Kranzco Board from time to time. Kranzco may
also issue Kranzco Common Shares or such options or securities to its employees
in lieu of bonuses or to its trustees in lieu of trustee's fees. The issuance of
a substantial number of Kranzco Common Shares, or options or other securities
convertible or exercisable into a substantial number of Kranzco Common Shares,
could adversely affect the market prices of the Kranzco Series B Preferred
Shares and the Kranzco Common Shares.
ABSENCE OF PRIOR MARKET; LIMITED LIQUIDITY; TRADING PRICES
There has been no prior market for the Kranzco Series B Preferred Shares.
Although under the terms of the Agreement and Plan of Merger, dated November 12,
1996, as amended (the 'Merger Agreement'), by and among UPI, Kranzco and Newco,
Kranzco has agreed, if and when notified in writing by UPI prior to the Merger,
or holders of a majority of the Kranzco Series B-1 Preferred Shares at or after
the Merger, to use reasonable efforts to cause the Kranzco Series B-1 Preferred
Shares to be listed on the New York Stock Exchange, Inc. ('NYSE'), there can be
no assurance that the Kranzco Series B-1 Preferred Shares will be so listed or
that if listed, listing will be continued or that a secondary market for the
Kranzco Series B-1 Preferred Shares will develop or, if one does develop, that
it will provide the holders of the Kranzco Series B-1 Preferred Shares with
liquidity of investment.
The Kranzco Series B-2 Preferred Shares will not be listed or traded on an
exchange. In addition, Leonard Mandor and Robert Mandor and certain of their
affiliates, who, together with certain of their affiliates, beneficially own
approximately 75.5% of the outstanding UPI Common Stock, have informed UPI and
Kranzco that they will elect to receive Kranzco Series B-2 Preferred Shares in
the Merger and have represented that they have no plan or intention to sell or
transfer such shares for at least one year following the Merger, and as such,
there can be no assurance that a secondary market for the Kranzco Series B-2
Preferred Shares will develop or, if one does develop, that it will provide the
holders of the Kranzco Series B-2 Preferred Shares with liquidity of investment.
There can be no assurance as to the prices at which the Kranzco Series B
Preferred Shares will trade after the Merger. Prices for the Kranzco Series B
Preferred Shares will be determined in the marketplace and may be influenced by
many factors, including prevailing interest rates, the price of Kranzco Common
Shares, the market for similar securities and the volume of Kranzco Series B
Preferred Shares available for sale.
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EFFECT OF DISTRIBUTION REQUIREMENTS
In order to maintain its qualification as a REIT, Kranzco must make
distributions to shareholders aggregating annually at least 95% of its REIT
taxable income (which does not include net capital gains). Kranzco currently
distributes to shareholders in excess of 95% of its funds from operations
(exclusive of nonrecurring items), which is in excess of 95% of Kranzco's REIT
taxable income. The actual amount of Kranzco's future distributions to its
shareholders will be based on the cash flows from operations from the
Properties, Kranzco's other business activities and from any future investments
and on Kranzco's net income.
Under certain circumstances, Kranzco may be required to accrue as income
for tax purposes interest and rent earned but not yet received. In such event,
Kranzco could have taxable income without sufficient cash to enable Kranzco to
meet the distribution requirements of a REIT. Accordingly, Kranzco could be
required to borrow funds or to sell certain of its investments on adverse terms
to meet such distribution requirements.
Kranzco expects to continue to make acquisitions and sign leases that may
require tenant improvements. As Kranzco must distribute 95% of its REIT taxable
income to continue to qualify as a REIT, there may not be sufficient available
cash in excess of distributions to fund future acquisitions or required tenant
improvements. In such an event, the necessary funds for future acquisitions or
required tenant improvements would have to be obtained, to the extent available,
from net proceeds from the issuance of equity securities, the sale of existing
investments and, to the extent consistent with Kranzco's strategy to maintain a
conservative capital structure, bank and other institutional borrowings and the
issuance of debt securities.
ANTI-TAKEOVER EFFECTS OF OWNERSHIP LIMIT AND A STAGGERED BOARD
In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding Kranzco Common Shares may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). To enhance the likelihood that Kranzco will not fail to
qualify as a REIT under this test, the Declaration of Trust of Kranzco
authorizes the Kranzco Board to take such action as may be required to preserve
its qualification as a REIT and to limit any person, other than (i) Messrs.
Norman M. Kranzdorf and Marvin Williams and (ii) any person approved by the
Kranzco Board, to direct or indirect ownership of 9.8% of the lesser of the
number or value of the outstanding shares of beneficial interest of Kranzco;
provided, however, in no event may the Kranzco Board grant an exemption from the
foregoing ownership limitation to any person whose ownership, direct or
indirect, of in excess of 9.8% of the lesser of the number or value of the
outstanding Kranzco Shares would result in the termination of Kranzco's status
as a REIT. In addition, pursuant to the terms of the Kranzco Series B Preferred
Shares, the Kranzco Board will grant an exemption from such ownership
limitations to certain affiliates of UPI who currently beneficially own
approximately 78% of the outstanding shares of common stock, par value $.01 per
share, of UPI ('UPI Common Stock). Thus, there can be no assurance that there
will not be five or fewer individuals who will own more than 50% in value of the
Kranzco Common Shares, thereby causing Kranzco to fail to maintain its
qualification as a REIT.
The ownership limits, as well as the ability of Kranzco to issue other
classes of common and preferred Kranzco Shares, may delay, defer or prevent a
change in control of Kranzco and also may (i) deter tender offers for the
Kranzco Common Shares, which offers may be attractive to the shareholders, or
(ii) limit the opportunity for shareholders to receive a premium for their
Kranzco Common Shares that might otherwise exist if an investor attempted to
assemble a block of Kranzco Common Shares in excess of 9.8% in number or value
of the outstanding Kranzco Shares or otherwise to effect a change of control of
Kranzco. See 'DESCRIPTION OF KRANZCO SHARES--Restrictions on Transfer
Generally.'
The Kranzco Board is divided into three classes of trustees. The terms of
the first, second and third classes expire in 1997, 1998 and 1999, respectively.
Each year one class of the Kranzco Board is elected by the shareholders. The
staggered terms prevent the shareholders from voting on the election of more
than one class of trustees at each annual meeting and, thus, may delay a change
of control of Kranzco or deter a bid for control of Kranzco even in a case where
the holders of a majority of the outstanding Kranzco Common Shares believe a
change of control would be in their interest.
DEPENDENCE ON KEY PERSONNEL
Kranzco is dependent on the efforts of its executive officers and trustees,
particularly Norman M. Kranzdorf, the President and Chief Executive Officer and
a member of the Board of Trustees of Kranzco. The loss of his services could
have an adverse effect on Kranzco's business, assets or results of operations.
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<PAGE>
CONTROL BY TRUSTEES AND EXECUTIVE OFFICERS
Trustees and executive officers of Kranzco currently own beneficially
approximately 2.56% of the outstanding Kranzco Common Shares (approximately
7.44% if they exercise all options granted to them under Kranzco share option
plans and assuming all restricted shares are fully vested). Based on such share
ownership and their positions with Kranzco, trustees and executive officers of
Kranzco may have substantial influence on Kranzco and on the outcome of any
matters submitted to Kranzco's shareholders for approval.
CHANGES IN INVESTMENT AND FINANCING POLICIES
The investment and financing policies of Kranzco and its policies with
respect to certain other activities, including growth, capitalization, debt
levels, distributions, REIT status and operating policies, are determined by the
Kranzco Board. The Kranzco Board may amend or revise these policies from time to
time at its discretion without a vote of the shareholders of Kranzco.
STOCK PRICE FLUCTUATIONS
The ratio at which shares of UPI Common Stock will be convertible into
Kranzco Series B Preferred Shares upon the consummation of the Merger is fixed.
There can be no assurance that the price of Kranzco Common Shares will not
decline between the date of the Merger Agreement and the date of the
consummation of the Merger, which would reduce the value of the consideration to
be received by stockholders of UPI in the Merger. In addition, if the market
price of the Kranzco Common Shares does not increase to certain levels over
time, the value of the right to convert the Kranzco Series B Preferred Shares
into Kranzco Common Shares could be significantly reduced.
BENEFITS TO CERTAIN UPI DIRECTORS AND OFFICERS
In considering the recommendation of the UPI Board to approve the Merger,
stockholders of UPI should be aware that certain members of the UPI Board and
the management of UPI have certain interests in, and will receive benefits from,
the Merger that are in addition to the interests of, and benefits to,
stockholders of UPI generally, which may have resulted in conflicts of interest
with respect to the UPI Board's and management's obligations to UPI in
negotiating the Merger Agreement and in determining whether to recommend that
the stockholders of UPI consummate the Merger. These interests and benefits are
described below in 'THE MERGER--Interests of Certain Persons in the Merger.'
Generally, these interests and benefits include, among others: (i) shares of
UPI's preferred stock, par value $.01 per share, each with a liquidation
preference of $10.00 (the 'UPI Preferred Stock'), all of which are held by
Milestone Properties, Inc. ('Milestone'), will be converted into Kranzco Series
C Preferred Shares pursuant to the Merger--certain directors and officers of UPI
beneficially own approximately 78% of the outstanding common stock of Milestone
and also serve as directors and officers of Milestone; (ii) Kranzco's
indemnification of Milestone for certain of Milestone's obligations related to
UPI; (iii) indemnification to be provided to directors and officers of UPI; and
(iv) registration rights with respect to Kranzco Series B Preferred Shares to be
issued to certain directors, officers and certain of their affiliates and shares
of Kranzco Common Shares into which such Kranzco Series B Preferred Shares to be
issued will be convertible.
22
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
A special meeting of stockholders of UPI will be held on
, , 1997, at : .m. E.S.T. at
(the 'Special Meeting').
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, holders of the UPI Common Stock will consider and
vote upon a proposal to approve and adopt the Merger Agreement and to authorize
the Merger and the transactions contemplated by the Merger Agreement pursuant to
which, among other things, UPI would be merged with and into Newco, each
outstanding share of UPI Common Stock would be converted into the right to
receive, at the election of the holder thereof and subject to certain
adjustments, either 0.298 of one share of Kranzco Series B-1 Preferred Shares,
or 0.298 of one share of Kranzco Series B-2 Preferred Shares, and each
outstanding share of UPI Preferred Stock would be converted into the right to
receive one share of Kranzco Series C Preferred Shares. UPI stockholders will
also consider and vote upon any other matters that may properly come before the
Special Meeting.
RECORD DATE AND VOTING OF PROXIES
Only holders of record of UPI Common Stock at the close of business on
, 1997 (the 'Record Date') are entitled to notice of and to vote at
the Special Meeting. As of the close of business on the Record Date, there were
3,789,171 shares of UPI Common Stock issued and outstanding, each of which
entitles the holder thereof to one vote. All shares of UPI Common Stock
represented by properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated in
such proxies. If no instructions are indicated, such shares of UPI Common Stock
will be voted FOR the adoption and approval of the Merger Agreement and the
authorization of the Merger and the other transactions contemplated by the
Merger Agreement.
The UPI Board does not intend to bring any matter before the Special
Meeting except as specifically indicated in the Notice of Special Meeting, nor
does the UPI Board know of any matters which anyone else proposes to present for
action at the Special Meeting. If any other matters properly come before the
Special Meeting, the persons named in the accompanying proxy, or their duly
constituted substitutes acting at the Special Meeting, will be authorized to
vote or otherwise act thereon in accordance with their judgment on such matters,
unless such authorization is withheld. A holder of UPI Common Stock who has
given a proxy may revoke it at any time before it is exercised at the Special
Meeting by (i) delivering to the Secretary of UPI (by any means, including
facsimile) a written notice, bearing a date later than the proxy, stating that
the proxy is revoked, (ii) signing and delivering prior to the vote at the
Special Meeting a proxy relating to the same shares and bearing a later date, or
(iii) attending the Special Meeting and voting in person (although attendance at
the Special Meeting will not, by itself, revoke a proxy).
QUORUM
Under the DGCL and the UPI Bylaws, the presence in person or by proxy of a
majority of the outstanding shares of the UPI Common Stock is necessary to
constitute a quorum at the Special Meeting for the matters to be voted upon by
the holders of the UPI Common Stock at the Special Meeting. For purposes of
determining if a quorum is present at the Special Meeting, abstentions and
broker 'non-votes' will be included in the determination of the number of shares
present at the Special Meeting. Abstentions will have the same effect as
negative votes at the Special Meeting and broker 'non-votes' will not be counted
in the tabulations of the votes cast on proposals presented to stockholders
since shares held by a broker are not considered to be entitled to vote on
matters as to which broker authority is withheld. A broker 'non-vote' occurs
when a nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting power
with respect to that item and has not received instructions from the beneficial
owner.
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<PAGE>
VOTE REQUIRED AND VOTING INTENTIONS OF CERTAIN STOCKHOLDERS
Approval and adoption of the Merger Agreement and authorization of the
Merger and the other transactions contemplated by the Merger Agreement requires
the affirmative vote of the holders of a majority of the outstanding shares of
UPI Common Stock. LEONARD MANDOR AND ROBERT MANDOR, EACH OF WHOM IS A DIRECTOR
AND AN EXECUTIVE OFFICER OF UPI, TOGETHER BENEFICIALLY OWN, AND HAVE THE POWER
TO VOTE OR DIRECT THE VOTE OF, A TOTAL OF 2,859,980 SHARES OF UPI COMMON STOCK
AS OF DECEMBER 19, 1996, CONSTITUTING APPROXIMATELY 75.5% OF THE OUTSTANDING UPI
COMMON STOCK THEN OUTSTANDING, AND HAVE ENTERED INTO AN AGREEMENT WITH KRANZCO
TO VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
AUTHORIZATION OF THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the UPI Common Stock as of the close of business on
December 19, 1996 by (i) each person known by UPI to beneficially own more than
5% of the UPI Common Stock, (ii) each director of UPI who owns shares of UPI
Common Stock, (iii) UPI's Chief Executive Officer and each of UPI's four most
highly compensated executive officers and (iv) all directors and officers of UPI
as a group. Except as noted below, each person has sole voting and investment
power with respect to the shares beneficially owned by such person. All of the
UPI Preferred Stock is owned by Milestone Properties, Inc. ('Milestone') and may
be deemed to be beneficially owned by Concord Assets Group, Inc. and each of
Leonard Mandor and Robert Mandor. Leonard Mandor is the Chairman of the Board
and the Chief Executive Officer of both UPI and Milestone and Robert Mandor is
the President, the Chief Financial Officer and a director of both UPI and
Milestone. Leonard Mandor and Robert Mandor are directors, executive officers
and the only stockholders of Concord.
<TABLE>
<CAPTION>
UPI COMMON STOCK
NAME OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP* PERCENT
- ---------------------------------------- --------------------- -------
<S> <C> <C>
Robert A. Mandor........................ 2,859,980(2) 75.5
Leonard S. Mandor....................... 2,859,390(3) 75.5
Concord................................. 2,810,390(4) 74.2
Castle Plaza, Inc....................... 2,169,856 57.3
Concord Milestone, Incorporated......... 274,910(5) 7.3
Concord Fund Incorporated............... 274,910(6) 7.3
Joseph P. Otto.......................... 39,920 1.1
Harvey Shore............................ 26,626 **
Joan LeVine............................. 25,533 **
All directors and officers as a group (5
persons)(7)........................... 2,952,059 77.9
</TABLE>
- ------------------
* As set forth in further detail in the footnotes to this table, the aggregate
share and percentage ownership of the UPI Common Stock included in this
table includes shares owned by affiliates of each listed stockholder,
beneficial ownership of which is attributable to such stockholder pursuant
to Rule 13d-3 promulgated under the Exchange Act.
** Less than one percent.
(1) The address of each of the indicated stockholders is 5200 Town Center
Circle, Boca Raton, Florida 33486.
(2) Includes (a) 49,000 shares of UPI Common Stock owned by Mill Neck Associates
(Mill Neck Associates is a partnership owned 50% each by Leonard S. Mandor
and Robert A. Mandor and each of such persons is deemed to beneficially own
all of such 49,000 shares as a result of their shared voting and investment
power over such shares), (b) 2,810,390 shares of UPI Common Stock
beneficially owned by Concord (see footnote (4)), and (c) 590 shares of UPI
Common Stock owned directly. Robert A. Mandor is an officer, director and
stockholder of Concord and, therefore, may be deemed to be a beneficial
owner of the shares of UPI Common Stock beneficially owned by Concord.
Robert A. Mandor disclaims beneficial ownership of the shares of UPI Common
Stock beneficially owned by Concord pursuant to Rule 13d-4 promulgated under
the Exchange Act by virtue of the ownership by Leonard S. Mandor of more
than a majority of the outstanding
(Footnotes continued on next page)
24
<PAGE>
(Footnotes continued from previous page)
capital stock of Concord, thereby giving Leonard S. Mandor the ultimate
power to control the voting and disposition of the shares of UPI Common
Stock beneficially owned by Concord.
(3) Includes 49,000 shares of UPI Common Stock owned by Mill Neck Associates
(see footnote (2)) and 2,810,390 shares of UPI Common Stock beneficially
owned by Concord (see footnote (4)).
(4) Includes (a) 274,910 shares of UPI Common Stock held in the name of Concord
Associates and beneficially owned by Concord Milestone, Incorporated, an
indirect wholly owned subsidiary of Concord, (b) 81,534 shares of UPI Common
Stock owned by Concord Milestone Partners, L.P., whose general partner,
Concord Milestone Income II, Inc., is a wholly owned subsidiary of Concord,
(c) 163,291 shares of UPI Common Stock owned by Mountain View Mall, Inc., a
wholly owned subsidiary of Concord, (d) 120,799 shares of UPI Common Stock
owned by Concord Income Realty Partners VI, L.P., the general partner and
limited partner of which is a wholly owned subsidiary of Concord, and (e)
2,169,856 shares of UPI Common Stock owned by Castle Plaza, Inc., a wholly
owned subsidiary of Concord.
(5) Includes 274,910 shares of UPI Common Stock beneficially owned by Concord
Fund Incorporated, a wholly owned subsidiary of Concord, as successor to
Concord Associates, the registered owner of such shares.
(6) Owned as successor to Concord Associates, the registered owner of such
shares.
(7) The shares of UPI Common Stock beneficially owned by Concord and Mill Neck
Associates are deemed to be beneficially owned by both Robert A. Mandor and
Leonard S. Mandor. Such shares, however, are only included once in the
computation of shares beneficially owned by directors and officers as a
group. See also footnote (2) regarding Robert A. Mandor's disclaimer of
ownership of such shares.
SOLICITATION OF PROXIES
UPI and Kranzco will share equally all expenses incurred in connection with
the printing and mailing of this Proxy Statement/Prospectus and the solicitation
of proxies from holders of UPI Common Stock, except that Kranzco shall bear any
such expenses that, together with certain other expenses arising out of or
related to the Merger, are in excess of $400,000. In addition to solicitation by
mail, the directors and officers of UPI and UPI's employees (under UPI's
management services agreement with Milestone) may solicit proxies from
stockholders by telephone, facsimile, telegram, letter or in person. Following
the original mailing of proxies and other soliciting materials, UPI will request
brokers, custodians, nominees and other record holders to forward copies of the
proxy and other soliciting materials to persons for whom they hold shares of UPI
Common Stock and to request authority for the exercise of proxies. In such
cases, UPI, upon the request of the record holders, will reimburse such holders
for their reasonable expenses.
25
<PAGE>
THE MERGER
GENERAL
The Merger Agreement provides for a business combination between Kranzco
and UPI in which UPI will be merged with and into Newco, a wholly-owned
subsidiary of Kranzco, each share of UPI Common Stock will be converted into the
right to receive, at the election of the holder thereof and subject to certain
adjustments, either 0.298 of one share of Kranzco Series B-1 Preferred Shares or
0.298 of one share of Kranzco Series B-2 Preferred Shares, and each share of UPI
Preferred Stock will be converted into the right to receive one share of Kranzco
Series C Preferred Shares in a transaction intended to qualify as a purchase for
accounting purposes and as a tax-free reorganization for U.S. federal income tax
purposes.
BACKGROUND OF THE MERGER
UPI's Spin-Off from Milestone
UPI was incorporated as a wholly-owned subsidiary of Milestone on November
1, 1994 for the purpose of effecting the transfer from Milestone to UPI (the
'UPI Transfer') of the UPI Properties and the subsequent distribution of all of
the issued and outstanding shares of UPI Common Stock to Milestone's common
stockholders on a share-for-share basis for no consideration (the 'UPI
Spinoff'). Milestone, in addition to owning real estate assets, had been engaged
in certain property management operations through its subsidiaries, and was
considering a modification of its corporate structure which potentially could
afford Milestone greater access to capital and enhance Milestone's common
stockholder value. In January 1994, Milestone engaged LSG Advisors, a
predecessor of Societe Generale ('Societe Generale'), UPI's current financial
advisor with respect to the Merger, to advise Milestone in connection with
potential restructuring transactions which could enable Milestone to satisfy the
intended goal of enhancing its common stockholder value.
Both Societe Generale and Milestone believed throughout 1994 and 1995 that
opportunity existed for the enhancement of Milestone's common stockholder value
because the common stock of many companies owning portfolios of income-producing
properties, both REITs and non-REITs, were trading at higher values than
Milestone's common stock. Milestone believed, based, in part, upon the advice
and opinion of Societe Generale, that Milestone's common stockholder value was
most likely to be enhanced if, among other things, (i) Milestone were to effect
the UPI Transfer, (ii) Milestone were to effect a recapitalization of UPI and
the UPI Spin-Off, and (iii) UPI were (a) to elect to be treated as, and to
become qualified for treatment as, a REIT or (b) to merge with an existing REIT,
to sell all or substantially all of the UPI Properties to a REIT or to sell all
of the UPI Properties and to liquidate.
Societe Generale's advice was based, in part, on its conclusion that
investors would attribute a higher value to Milestone's assets if its
income-producing properties were held in an entity (i.e., UPI) which could
potentially qualify for treatment as a REIT or could be liquidated or sold to or
merged with an existing REIT, and which entity would not be subject to income
tax.
In September 1995, Milestone distributed a proxy statement-information
statement to its stockholders describing, among other things, the proposed UPI
Transfer and UPI Spin-Off, and informing its stockholders that, following the
consummation of the UPI Spin-Off, UPI would begin to explore alternatives to
enable it to either qualify for treatment as a REIT or to sell UPI's stock or
assets to, or merge with, a REIT. In October 1995, Milestone completed the UPI
Transfer and on November 20, 1995, Milestone completed the UPI Spin-Off.
UPI's Engagement of Societe Generale and Exploration of REIT Qualification or
a Possible Sale or Merger Transaction with or to a REIT
Subsequent to the UPI Spin-Off, UPI established its business of acquiring,
owning and developing the UPI Properties. On February 5, 1996, UPI entered into
an agreement with Societe Generale (the 'Societe Generale Agreement') under
which UPI retained Societe Generale to act as its exclusive financial advisor in
connection with the evaluation of strategic alternatives, including UPI's
qualification for treatment as a REIT or a possible sale of UPI's stock or
assets to, or merger with, a REIT. The UPI Board, with the assistance of Societe
Generale, reviewed the prospects for a sale of UPI, a liquidation of UPI or a
conversion to REIT status. The UPI Board determined that alternatives to a sale
or merger, including liquidation and conversion to REIT status, were
26
<PAGE>
impractical or potentially provided less value than could be anticipated from
the sale of UPI. UPI, with the assistance of Societe Generale, evaluated the
potential for a successful public offering of UPI Common Stock, which offering
would have been necessary to allow UPI to convert to REIT status and achieve a
size and leverage and coverage ratios consistent with comparable shopping center
REITs. From the date of the UPI Spin-Off until the UPI Board approved the Merger
on November 11, 1996, the Lehman Shopping Center REIT index underperformed the
Lehman REIT Index, the Lehman Hotel REIT Index, and the Lehman Office REIT
Index, demonstrating a weakness in the shopping center sector and a
correspondingly unfavorable initial public offering environment. No shopping
center REIT initial public offerings were consummated over that period.
Accordingly, the UPI Board concluded, based, in part, on the advice of Societe
Generale, that UPI should not attempt to commence a public offering for the
purpose of raising capital or qualifying for REIT status.
In February 1996, UPI and Societe Generale commenced the process of
searching for a third party with which UPI could enter into a sale or merger
transaction. During the spring of 1996, Societe Generale contacted 33
prospective purchasers on behalf of UPI, 17 of which received a confidential
descriptive memorandum describing UPI.
UPI's Negotiations with Kranzco and Other Third Parties
On May 7, 1996, Norman M. Kranzdorf, the President and Chief Executive
Officer of Kranzco, initially met at the International Council of Shopping
Centers ('ICSC') convention in Las Vegas with Robert Mandor, the President of
UPI, and representatives of Societe Generale, to discuss, in general, the
potential benefits of an acquisition of UPI by Kranzco. Robert Mandor and
representatives of Societe Generale also held meetings at the ICSC convention
with three other potential purchasers.
Initial indications of interest for the acquisition of UPI were delivered
in late May and early June 1996 from several potential acquirors, including
Kranzco. Members of the UPI Board, in consultation with Societe Generale, agreed
to pursue discussions with three of those parties, including Kranzco. On June
11, 1996, Norman M. Kranzdorf and representatives of Kranzco's financial
advisor, Merrill Lynch & Co., met with Robert Mandor and representatives of
Societe Generale at UPI's offices in Florida to discuss Kranzco's initial offer
of $18 million for all of the common equity of UPI and the form of consideration
to be paid by Kranzco, which, at the time, included cash, common shares and a
convertible preferred security. During May and June 1996, additional discussions
were held with Kranzco and Kranzco's financial advisors, the other bidders and
some previously unsolicited potential purchasers who attempted to enter the
process. The previously unsolicited potential purchasers either were not
qualified buyers, did not make formal bids or made bids that were not
competitive. On June 28, 1996, Kranzco increased its initial offer to acquire
all of the common equity of UPI to approximately $23 million to $26 million,
depending on the terms and structure of the transaction. The consideration
offered for all of the common equity of UPI was primarily a combination of
common shares and preferred shares with a small amount of cash.
On July 8, 1996, one of the other bidders made an offer to acquire all of
the common equity of UPI for approximately $24 million of convertible preferred
securities. On July 11, 1996, a second bidder increased its offer for all of the
common equity of UPI to approximately $26 million, which would consist primarily
of convertible preferred stock and/or convertible debt with a small amount of
cash. On July 24, 1996, Kranzco made an offer for all of the common equity of
UPI of approximately $28 million, consisting primarily of convertible preferred
stock. Neither of these other bidders was willing to increase its offer after
Kranzco had raised its offer. On July 27, 1996, the UPI Board and Societe
Generale determined that the Kranzco proposal was the most attractive proposal
and decided to commence negotiations with Kranzco. On August 7, 1996, Norman M.
Kranzdorf and Robert Mandor met and discussed the amount and the general form of
consideration which was to consist of (i) a convertible preferred security which
would pay an annual dividend of 9.75% and be convertible into Kranzco Common
Shares, (ii) cash equal to the transaction expenses, (iii) the assumption of
debt and (iv) the exchange of the UPI Preferred Stock for a comparable preferred
security. On August 7, 1996, Kranzco along with its legal counsel and financial
advisors met with UPI and its legal counsel and financial advisors to negotiate
other general terms of the proposed transaction, including break-up fees and,
with respect to the Kranzco Series B Preferred Shares, special events under
which such shares would be convertible into Kranzco Common Shares on an
accelerated basis.
27
<PAGE>
Commencing in September 1996, Robinson Silverman Pearce Aronsohn & Berman
LLP, counsel to Kranzco, and Rosenman & Colin LLP, counsel to UPI, had several
meetings to negotiate the terms of a definitive merger agreement. On September
19, 1996, Leonard Mandor, the Chairman of the UPI Board and Chief Executive
Officer of UPI, and UPI's legal counsel and financial advisors met in New York
with Norman M. Kranzdorf and Kranzco's legal counsel and financial advisors to
discuss various issues relating to the Merger, including voting rights and
certain anti-dilution protections for the Kranzco Series B Preferred Shares.
On October 3, 1996, Robert Mandor and UPI's legal counsel and financial
advisors met in New York with Norman M. Kranzdorf and Kranzco's legal counsel
and financial advisors, at which time Mr. Kranzdorf informed Mr. Mandor that
Kranzco would not be able to enter into a definitive merger agreement with UPI
unless and until the Court of Chancery of the State of Delaware (the 'Delaware
Court') acted on an action brought against Milestone and certain of its
affiliates seeking, in part, rescission of both the UPI Transfer and the UPI
Spin-Off. The action was filed in such court in June 1996 by a holder of
Milestone's preferred stock. See 'THE COMPANIES--Business of UPI--Legal
Proceedings' for a more complete description of the rescission claim.
As a result of a filing made with the Delaware Court seeking dismissal of
the rescission claim, on October 4, 1996 UPI issued a press release stating that
it was in negotiations with a REIT for the sale of UPI.
On October 11, 1996, the Delaware Court heard arguments on a motion to
dismiss and, on October 25, 1996, the Delaware Court dismissed the claim for
rescission of the UPI Transfer and the UPI Spin-Off.
On October 28, 1996, Robert Mandor, Leonard Mandor and Norman M. Kranzdorf
participated in a telephonic conference in which certain issues relating to the
anti-dilution protections for the Kranzco Series B Preferred Shares and the
mandatory redemption of the Kranzco Series C Preferred Shares were resolved.
Beginning in August 1996, the UPI Board, the directors of which are each
executive officers of UPI, held numerous informal meetings to discuss the terms
of the Merger Agreement and were closely involved in the determination of the
terms of the Merger and, as such, held no formal meetings to discuss the details
of the Merger until November 11, 1996, when the terms of the Merger Agreement
were finalized. On November 11, 1996, Norman M. Kranzdorf and Kranzco's legal
counsel and financial advisors met with Robert Mandor and UPI's legal counsel
and financial advisors and agreed that Kranzco would acquire (i) all of the
outstanding common equity of UPI for $28.2 million in Kranzco Series B-1
Preferred Shares, consisting of 0.298 of one share of Kranzco Series B-1
Preferred Shares for each outstanding share of UPI Common Stock (subject to
adjustment), and (ii) all of the outstanding UPI Preferred Stock of which each
share of UPI Preferred Stock would be convertible for one share of Kranzco
Series C Preferred Shares. See 'THE MERGER AGREEMENT AND CERTAIN ANCILLARY
DOCUMENTS.' At the November 11, 1996 meeting of the UPI Board, the UPI Board
discussed the terms of the proposed Merger Agreement and the Merger and the
transactions contemplated thereby, and Societe Generale presented its oral
opinion, as of the date of such meeting and, subject to various assumptions and
considerations set forth in such opinion, that the consideration to be received
by the holders of UPI Common Stock who elect to receive the Kranzco Series B-1
Preferred Shares in the Merger was fair to such stockholders from a financial
point of view. Following the presentation by Societe Generale, the UPI Board,
together with members of senior management, Societe Generale and UPI's legal
advisors, reviewed, among other things, (i) the background of the Merger; (ii)
the strategic rationale for the Merger; (iii) the potential benefits of the
Merger, including Kranzco's status as a REIT, the potential for greater
geographic diversification of the combined company, the equity interest in the
combined company to be received by UPI's stockholders, the structure of the
Merger as a 'stock for stock' tax-free transaction, the increased total market
capitalization of the combined company; and the terms of the Kranzco Series B-1
Preferred Shares and the Kranzco Series C Preferred Shares; and (iv) the
potential risks of the Merger, including the fact that a decline in the value of
the Kranzco Common Shares would decrease the value of the Kranzco Series B-1
Preferred Shares to be received by holders of UPI Common Stock, that holders of
the UPI Common Stock would not be able to convert their Kranzco Series B-1
Preferred Shares for a period of time following the Merger and that no
established trading market existed for the Kranzco Series B-1 Preferred Shares,
that the anticipated benefits of the Merger might not be realized, and the risk
that UPI might be required, under certain circumstances, to pay liquidated
damages to Kranzco and reimburse Kranzco for certain out-of-pocket expenses
under the Merger Agreement. See '--UPI's Reasons for the Merger; Recommendations
of the UPI Board.' After considering all of the foregoing factors, the UPI Board
then (i) determined that the Merger was fair to and in the best interests of the
UPI stockholders,
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(ii) approved the Merger Agreement and authorized the Merger and the other
transactions contemplated by the Merger Agreement, subject to approval by the
UPI stockholders, (iii) authorized the execution of the Merger Agreement and
(iv) recommended that the UPI stockholders approve and adopt the Merger
Agreement and authorize the Merger and the other transactions contemplated by
the Merger Agreement. The Merger Agreement was executed by UPI and Kranzco on
November 12, 1996.
Following the execution of the Merger Agreement, the UPI Board determined,
based in part upon the advice of its legal counsel, that, because of certain tax
consequences relating to the conversion ratio of the Kranzco Series B-1
Preferred Shares (see 'THE MERGER--Certain U.S. Federal Income Tax
Considerations--Tax Consequences to Holders of Kranzco Series B Preferred
Shares'), it would be advantageous to holders of shares of UPI Common Stock to
have the right to elect to exchange their shares of UPI Common Stock for Kranzco
Series B-1 Preferred Shares or Kranzco Series B-2 Preferred Shares since the
Kranzco Series B-2 Preferred Shares would not have some of the same tax
consequences as the Kranzco Series B-1 Preferred Shares originally to be issued
under the Merger Agreement. On December 17, 1996 the UPI Board met to discuss
amending the Merger Agreement to provide for such an election. At such meeting,
the UPI Board considered that holders of UPI Common Stock who elected to convert
their shares of UPI Common Stock for shares of Kranzco Series B-2 Preferred
Shares would, among other things, not be entitled to convert their Kranzco
Series B-2 Preferred Shares into Kranzco Common Shares for a period of three
years following the Initial Issue Date, as compared with Kranzco Series B-1
Preferred Shares, which would be convertible into Kranzco Common Shares after
one year after the Initial Issue Date. In this regard, the UPI Board noted that
the holders of UPI Common Stock would be given the choice to elect to receive in
the Merger either Kranzco Series B-1 Preferred Shares or Kranzco Series B-2
Preferred Shares in exchange for their shares of UPI Common Stock. At the
December 17, 1996 meeting of the UPI Board, Societe Generale presented a draft
letter to the UPI Board dated as of the date of such meeting which stated that,
subject to various assumptions and considerations set forth in such letter,
after reviewing the amendment to the Merger Agreement, Societe Generale's
written opinion as to the fairness, from a financial point of view, of the
consideration to be received by the holders of UPI Common Stock who elect to
receive Kranzco Series B-1 Preferred Shares in the Merger was still valid as of
November 12, 1996. On December 18, 1996, Societe Generale delivered its letter
to the UPI Board, and the amendment to the Merger Agreement was executed by UPI
and Kranzco. See '--Opinion of Societe Generale Securities Corporation.'
UPI'S REASONS FOR THE MERGER; RECOMMENDATIONS OF THE UPI BOARD
The UPI Board has unanimously determined that the Merger is fair to and in
the best interests of UPI and its stockholders and has approved the Merger
Agreement and authorized UPI to enter into and consummate the Merger and the
other transactions contemplated by the Merger Agreement. THE UPI BOARD
UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF UPI COMMON STOCK VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE AUTHORIZATION OF THE
MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED. PURSUANT TO THE MERGER
AGREEMENT, CERTAIN AFFILIATES OF UPI WHO BENEFICIALLY OWN, IN THE AGGREGATE,
APPROXIMATELY 75.5% OF THE UPI COMMON STOCK, HAVE AGREED TO VOTE THEIR SHARES
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE AUTHORIZATION OF THE
MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. SEE 'THE
SPECIAL MEETING--VOTE REQUIRED AND VOTING INTENTIONS OF CERTAIN STOCKHOLDERS'
FOR A DESCRIPTION OF THE AGREEMENT OF CERTAIN CONTROLLING STOCKHOLDERS OF UPI TO
VOTE IN FAVOR OF THE PROPOSED TRANSACTIONS.
In making its determination with respect to the Merger Agreement and the
Merger, the UPI Board consulted with UPI's management, as well as its financial
advisors and legal counsel and considered the short-term and long-term interests
of UPI and its stockholders based upon a number of factors, including, without
limitation, the factors listed below. The following discussion of the
information and the factors considered and given weight by the UPI Board is not
intended to be exhaustive. In view of the wide variety of factors considered by
the UPI Board, the UPI Board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in making its determination. In addition, individual members of the
UPI Board may have given different weights to different factors. Among the
factors that the UPI Board considered and deemed favorable were the following:
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(i) Kranzco's offer was the best offer reasonably available to UPI
stockholders. In seeking to maximize value to UPI stockholders, UPI, with
the assistance of Societe Generale, instituted a multi-step process
pursuant to which it solicited the interest of 33 prospective buyers, sent
information to 17 of the prospective buyers, received indications of
interest at various times from such buyers and from previously unsolicited
prospective buyers and, after conducting a formal bidding process, received
three proposals offering to acquire UPI or substantially all of UPI's
assets. Out of the final three proposals, Kranzco's proposal was the best
reasonably available to UPI;
(ii) The Merger represents the alternative which has the greatest
feasibility and offers the greatest potential to maximize stockholder
value. The UPI Board had considered possible alternatives to the Merger for
enhancing stockholder value, such as raising additional capital, attempting
to qualify UPI as a REIT and acquiring new properties. In this regard, the
UPI Board noted that the UPI Common Stock had failed to appreciate in value
since the UPI Spin-Off and that there were no feasible alternatives
available to UPI, other than the Merger, that were as likely in the near
term to provide significant market value appreciation. The UPI Board
believed that, without significant market value appreciation, UPI as a
stand-alone entity would likely continue to experience difficulty in
accessing the capital markets on acceptable terms in the future;
(iii) The terms of the Merger Agreement, which the UPI Board viewed as
favorable because it believed them to be fair to UPI and its stockholders
and because the terms were reached through a lengthy bidding process and
through arms-length negotiations;
(iv) The Merger, as a 'stock for stock' rather than a 'cash for stock'
transaction, would provide an opportunity for the holders of UPI Common
Stock to share in any future appreciation of Kranzco and UPI as combined
companies by virtue of the convertibility of the Kranzco Series B Preferred
Shares into Kranzco Common Shares. A 'cash for stock' transaction would
have terminated the equity interest of the holders of UPI Common Stock at a
time when UPI would have been a public company for a relatively short
period of time, and thus would not have had the opportunity to pursue
long-term strategies for increasing stockholder value;
(v) The fact that the Merger will be a tax-free reorganization for
U.S. federal income tax purposes, which the UPI Board viewed as favorable
because no gain or loss will be recognized by UPI or Kranzco as a result of
the Merger or by a stockholder of UPI who receives shares of Kranzco in
exchange for shares of UPI stock (except with respect to any cash received
in lieu of a fractional interest in Kranzco Common Shares);
(vi) The anticipated cost savings and operating efficiencies that
would be available to Kranzco as a result of the Merger, particularly in
the reduction of overhead expenses and the elimination of management and
administrative fees and other property expenses. The UPI Board believed
that such cost savings would have a positive effect on the operating
results of Kranzco following the Merger;
(vii) The UPI Board's belief that UPI, as a stand-alone,
externally-managed real estate company, would continue to be undervalued by
the market. The UPI Board believed that the Merger with Kranzco would
provide an opportunity for UPI stockholders to become shareholders in a
self-administered REIT with a larger and more geographically diversified
portfolio;
(viii) The total market capitalization of Kranzco will be larger than
UPI's current total market capitalization. The UPI Board believed that
Kranzco's total market capitalization would provide UPI's stockholders with
enhanced liquidity, would make Kranzco's Common Shares a more attractive
investment for institutional investors, and would likely provide Kranzco
with better access to the capital markets than UPI;
(ix) The UPI Board viewed as favorable that UPI has the ability to
terminate the Merger Agreement under certain circumstances, if required by
the fiduciary duties of the UPI Board. The UPI Board viewed such factor as
favorable to its determination because of its belief that, with the ability
to accept a third party offer in certain circumstances, a third party
wishing to make a financially superior acquisition proposal for UPI would
have an opportunity to do so;
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(x) The opinion, analyses and presentations of Societe Generale
described below under '--Opinion of Societe Generale Securities
Corporation,' including Societe Generale's opinion that, as of the date of
such opinion, and based upon and subject to certain assumptions and
considerations stated therein, the consideration to be received by the
holders of the UPI Common Stock who elect to receive the Kranzco Series B-1
Preferred Shares in the Merger was fair to such stockholders from a
financial point of view. The UPI Board viewed Societe Generale's opinion as
favorable to its determination because the independent conclusion reached
by Societe Generale was consistent with the opinion of UPI's management and
because Societe Generale is an internationally recognized investment
banking firm with experience in the valuation of businesses and their
securities in competitive bidding situations and in connection with mergers
and acquisitions; and
(xi) The terms of the Kranzco Series C Preferred Shares to be received
by the holder of the UPI Preferred Stock in exchange for its shares of UPI
Preferred Stock. The UPI Board believed, based, in part, on discussions
with Societe Generale, that the terms of the Kranzco Series C Preferred
Shares were at least as favorable to the holder of the UPI Preferred Stock
as the terms of the UPI Preferred Stock, since the Kranzco Series C
Preferred Shares (A) have the same redemption price and liquidation
preference and price as the shares of UPI Preferred Stock, (B) will pay
cumulative dividends at the rate currently paid on the UPI Preferred Stock
(8%), and (C) are required to be redeemed ratably on a quarterly basis over
a two-year period following the consummation of the Merger, as compared to
the UPI Preferred Stock, which is not required to be redeemed until the
year 2002 (although UPI may, at its option, redeem shares of UPI Preferred
Stock at any time). See 'DESCRIPTION OF KRANZCO SHARES--Kranzco Preferred
Shares.'
Among the factors that the UPI Board considered and deemed unfavorable with
respect to the Merger were the following:
(i) The conversion ratio at which the Kranzco Series B Preferred
Shares are convertible into Kranzco Common Shares includes a premium over
the market price of the Kranzco Common Shares (which is reduced over time)
that has the effective result of the holders of UPI Common Stock receiving
fewer Kranzco Common Shares per Kranzco Series B Preferred Share converted
than would be received had the conversion ratio for the Kranzco Series B
Preferred Shares not included such a premium;
(ii) The fact that the holders of the UPI Common Stock would be
restricted, subject to certain limited situations, from converting their
Kranzco Series B-1 Preferred Shares or, if elected, their Kranzco Series
B-2 Preferred Shares, to be received in the Merger into Kranzco Common
Shares for a period of one year and three years, respectively, following
the consummation of the Merger, that there is no established trading market
for the Kranzco Series B Preferred Shares, and that, unless holders of UPI
Common Stock elected to receive the Kranzco Series B-2 Preferred Shares in
the Merger, they might be subject to a tax resulting from the first two
decreases in the conversion price.
(iii) The UPI Board considered that, because the ratio at which shares
of UPI Common Stock will be converted into Kranzco Series B Preferred
Shares in the Merger is fixed, a decline in the value of Kranzco Common
Shares prior to the date of the consummation of the Merger would reduce the
value of the consideration to be received by the holders of UPI Common
Stock in the Merger.
(iv) The loss of control by the UPI Board and management of UPI
inherent in the Merger as well as the risk that the anticipated benefits of
the Merger may not be realized as a result of changes in the real estate
market in general or the inability of Kranzco to achieve the anticipated
reductions in expenses; and
(v) The possibility that UPI may be required, if the Merger Agreement
is terminated under certain circumstances, to pay Kranzco a termination fee
of $930,000 and to reimburse Kranzco for up to $570,000 of its
out-of-pocket expenses incurred in connection with the Merger (such fees,
in the aggregate, constitute approximately 2.3% of the transaction value of
the Merger). See 'THE MERGER AGREEMENT AND CERTAIN ANCILLARY
DOCUMENTS--Merger Agreement--Effect of Termination of the Merger
Agreement.' The UPI Board recognized that the inclusion of such terms in
the Merger Agreement would render it unlikely that a more attractive offer
for the acquisition of UPI would be presented to UPI and its stockholders;
however, the UPI Board believes that, based on its efforts to find a buyer
for UPI, the Merger represents the best offer reasonably available to UPI
and its stockholders. In addition, the UPI Board found
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reasonable the views of Societe Generale that a 2.3% termination fee was
within the normal range of fees payable in comparable transactions.
The UPI Board also was aware of the provisions of the Merger Agreement
affording indemnification and directors' and officers' insurance to the
directors and officers of UPI for actions and omissions of such persons
occurring prior to the consummation of the Merger (see '--Interests of Certain
Persons in the Merger'). These provisions were important to the UPI Board;
however, such provisions did not affect the UPI Board's evaluation or
recommendation of the Merger and the Merger Agreement, as such provisions are
customary in agreements relating to business combinations similar to the Merger.
In the view of the UPI Board, the negative factors described above were not
sufficient, either individually or collectively, to outweigh the positive
factors considered by the UPI Board in reaching its determination that the
Merger was fair to and in the best interests of UPI and its stockholders.
OPINION OF SOCIETE GENERALE SECURITIES CORPORATION
UPI engaged Societe Generale as its financial advisor in connection with
the Merger. Societe Generale was selected by UPI based on Societe Generale's
experience, expertise and familiarity with UPI and its business.
In connection with Societe Generale's engagement, UPI requested that
Societe Generale evaluate the fairness of the consideration to be received by
the holders of UPI Common Stock who elect to receive the Kranzco Series B-1
Preferred Shares in the Merger from a financial point of view. On November 11,
1996, at a special meeting of the UPI Board held to consider the proposed
Merger, Societe Generale rendered to the UPI Board an oral opinion (subsequently
confirmed by delivery of a written opinion dated November 12, 1996) to the
effect that, as of such date and subject to the various assumptions and
considerations set forth in such opinion, the consideration to be received by
the holders of UPI Common Stock who elect to receive the Kranzco Series B-1
Preferred Shares in the Merger was fair to such stockholders from a financial
point of view. On December 18, 1996, Societe Generale delivered the Societe
Generale Letter (defined below) to the UPI Board which stated that, subject to
the assumptions and considerations set forth in such letter and after reviewing
the amendment to the Merger Agreement, the Societe Generale Opinion (defined
below) was still valid as of November 12, 1996.
THE FULL TEXT OF SOCIETE GENERALE'S WRITTEN OPINION TO THE UPI BOARD DATED
NOVEMBER 12, 1996, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS PROXY
STATEMENT/PROSPECTUS (THE 'SOCIETE GENERALE OPINION') AND IS INCORPORATED HEREIN
BY REFERENCE. THE FULL TEXT OF SOCIETE GENERALE'S LETTER TO THE UPI BOARD DATED
DECEMBER 18, 1996 RELATING TO THE SOCIETE GENERALE OPINION IS ATTACHED AS ANNEX
B-1 TO THIS PROXY STATEMENT/PROSPECTUS (THE 'SOCIETE GENERALE LETTER') AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF UPI ARE URGED TO READ EACH OF
THE SOCIETE GENERALE OPINION AND THE SOCIETE GENERALE LETTER CAREFULLY IN THEIR
ENTIRETY. THE SOCIETE GENERALE OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
MERGER FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF THE UPI COMMON STOCK WHO
ELECT TO RECEIVE THE KRANZCO SERIES B-1 PREFERRED SHARES IN THE MERGER. THE
SOCIETE GENERALE OPINION DOES NOT ADDRESS, AND SOCIETE GENERALE WILL NOT DELIVER
AN OPINION WITH RESPECT TO, THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF
UPI COMMON STOCK WHO ELECT TO RECEIVE KRANZCO SERIES B-2 PREFERRED SHARES IN THE
MERGER. HOLDERS OF UPI COMMON STOCK WHO ELECT TO RECEIVE KRANZCO SERIES B-2
PREFERRED SHARES IN THE MERGER ARE URGED TO CONSULT THEIR OWN FINANCIAL
ADVISORS. THE SOCIETE GENERALE OPINION ALSO DOES NOT ADDRESS ANY OTHER ASPECT OF
THE MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SPECIAL
MEETING. THE SUMMARIES OF EACH OF THE SOCIETE GENERALE OPINION AND THE SOCIETE
GENERALE LETTER SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION AND LETTER,
RESPECTIVELY.
In arriving at its opinion, Societe Generale reviewed certain publicly
available business and financial information relating to UPI and to Kranzco, as
well as the Merger Agreement. Societe Generale also reviewed certain operating
and financial information, including financial forecasts, provided to Societe
Generale by UPI and Kranzco and met with management of UPI and Kranzco to
discuss the operations, historical financial statements and future prospects of
UPI and Kranzco, respectively. Societe Generale also considered certain publicly
available financial and stock market data of UPI and Kranzco and compared that
data with similar data for other publicly held companies in businesses similar
to those of UPI and Kranzco and considered the financial
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terms of certain other business combinations and other transactions recently
effected. Societe Generale also considered such other information, financial
studies and analyses and economic and market criteria that Societe Generale
deemed relevant.
In rendering its opinion, Societe Generale relied on the accuracy and
completeness of all information supplied or otherwise made available to Societe
Generale by UPI and Kranzco, and Societe Generale further relied on the
assurances of management of UPI and Kranzco that they are unaware of any facts
that would make the information provided to Societe Generale incomplete or
misleading. In arriving at its opinion, Societe Generale did not independently
verify such information or undertake an independent appraisal of the properties
or other assets of UPI or Kranzco. With respect to financial forecasts furnished
by UPI and Kranzco, Societe Generale assumed that they had been reasonably
prepared and reflect the best currently available estimates and judgment of
UPI's and Kranzco's respective management as to the expected future financial
performance of UPI and Kranzco. Societe Generale's conclusions were necessarily
based on the information available to them as of, and current market conditions
in effect on, the date of its opinion. Although Societe Generale evaluated the
consideration to be received by the holders of UPI Common Stock who elect to
receive the Kranzco Series B-1 Preferred Shares in the Merger from a financial
point of view, Societe Generale was not requested to, and did not, recommend
such consideration to UPI, which was determined through arm's-length
negotiations between UPI and Kranzco. No limitations were imposed by UPI on
Societe Generale with respect to the investigations made or procedures followed
by Societe Generale in rendering its opinion.
In rendering its opinion to the UPI Board, Societe Generale performed a
variety of financial and comparative analyses. The following is a summary of the
material financial analyses conducted by Societe Generale in providing its
opinion, but does not purport to be a complete description of the analyses
performed by Societe Generale. In performing such analyses, Societe Generale
noted that the aggregate Series B Liquidation Preference (as defined
hereinafter) for all of the Kranzco Series B Preferred Shares to be issued in
the Merger was above the range of implied equity values of UPI derived in
Societe Generale's Discounted Cash Flow Analysis, Historical Stock Price Trading
Analysis, Attaining REIT Status Analysis, Comparable Acquisitions Analysis and
Liquidation Values Analysis described below. Societe Generale noted that there
is currently no established market for the Kranzco Series B-1 Preferred Shares
and, if such a market were to exist, the Kranzco Series B-1 Preferred Shares
could trade at prices that may be higher or lower than the Series B Liquidation
Preference for such shares depending on many factors, including prevailing
interest rates, the price of Kranzco Common Shares, the market for similar
securities and the volume of Kranzco Series B-1 Preferred Shares available for
sale.
Discounted Cash Flow Analysis
Societe Generale performed discounted cash flow analyses of UPI based upon
UPI management's projections of UPI's respective net cash flows (defined as
operating income net of tax plus depreciation less change in working capital and
capital expenditures) for the years 1997 through 2003, inclusive, using discount
rates reflecting a weighted average cost of capital ranging from 12% to 14% and
terminal value determined by applying capitalization rates to estimated year end
2003 net operating income ranging from 9.0% to 11.0%. This analysis and its
underlying assumptions, yielded an implied range of values for UPI Common Stock
of $3.96 to $5.54 per share and an implied equity value of UPI to be
approximately $15.0 million to $21.0 million.
Historical Stock Price Trading Analysis
Societe Generale reviewed the history of trading prices and volume for UPI
Common Stock and Kranzco Common Shares for the period from December 4, 1995 to
November 5, 1996. The closing price of UPI Common Stock on November 5, 1996 was
$0.94 per share with a high price of $2.25 per share since December 4, 1995, or
an implied equity value of $3.6 million to $8.5 million.
The average trading price of Kranzco Common Shares for the 36 month period
ending November 5, 1996 was $18.13, with a high of $23.75 and a low of $14.13.
On November 5, 1996, the closing price for Kranzco Common Shares was $15.25 per
share, which, as of such date, would imply a 25.7% conversion premium with
respect to the conversion price of the Kranzco Series B-1 Preferred Shares after
the first anniversary of the issuance of the Kranzco Series B-1 Preferred
Shares.
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Attaining REIT Status Analysis
Societe Generale analyzed the scenario in which UPI would elect REIT
status. Societe Generale determined the aggregate value of UPI assuming it
became a REIT by applying the market values of comparable publicly traded REITs
as of November 5, 1996, as multiples of the preceding 12 months net income, the
preceding 12 months Funds From Operations (as defined by the new National
Association of Real Estate Investment Trusts' definition, the 'FFO'), the book
value as of June 30, 1996 and by calculating the total dividend paid by the
prospective REIT and applying a range of dividend yields. The total dividend
paid was calculated using a cash available for distribution ('CAD') ratio of
94.9% based on the mean CAD ratio of comparable public REITs.
The ranges for each parameter were based on the average of selected
comparable public REITs and the current Kranzco trading values for the
respective parameters. The following comparable public REITs were included in
the analysis: Agree Realty Corporation, Excel Realty Trust, Inc., JDN Realty
Corporation, Kranzco Realty Trust, Malan Realty Investors, Mark Centers Trust,
Mid-Atlantic Realty Trust, Regency Realty Corporation, Saul Centers Inc. and
Western Investment Real Estate Trust.
The range of dividend yields applied was 12.6% to 9.8%. The mean CAD ratio
of the comparable public REITs listed in the previous paragraph was 94.9% which
was applied to UPI's CAD to determine the appropriate dividend. The range of
multiples for the other parameters included the following: net income was 18.4x
to 22.7x, FFO was 8.8x to 10.3x and the book value was 1.2x to 1.6x. Based upon
this analysis, Societe Generale derived equity reference ranges for UPI of $21.2
million to $26.4 million or $5.59 to $6.97 per share of UPI Common Stock.
UPI and Societe Generale evaluated the potential for a successful offering
of UPI Common Stock, which offering would have been necessary to allow UPI to
elect REIT status and achieve size and leverage and coverage ratios consistent
with comparable shopping center REITs. From the date of the UPI Spin-Off until
the UPI Board approved the Merger on November 11, 1996, the Lehman Shopping
Center REIT index underperformed the Lehman REIT Index, the Lehman Hotel REIT
Index, and the Lehman Office REIT Index, demonstrating a weakness in the
shopping center sector and a correspondingly unfavorable initial public offering
environment, as reflected by the fact that no shopping center REIT initial
public offerings were priced over that period.
Comparable Acquisitions Analysis
Using publicly available information, Societe Generale reviewed the
purchase price and implied capitalization rates paid in eight shopping center
transactions announced in 1995 and 1996 (the 'Comparable Transactions') which
Societe Generale considered to be comparable to the present transaction. The
Comparable Transactions consisted of (acquiror/target): Colonial Properties
Trust/3 Shopping Centers, Simon Property Group/DeBartolo Realty Corporation,
Security Capital U.S. Realty/Regency Realty Corp., Glimcher Realty Trust/22
Retail Shopping Centers, Weingarten Realty/Shopping Center--Arizona, Weingarten
Realty/Shopping Center--Missouri, Weingarten Realty/Shopping Center--Texas and
Kranzco Realty Trust/Southern Management Acquisition Properties. Societe
Generale compared implied capitalization rates based on the latest 12 months net
operating income divided by the purchase price. The mean and median range of
capitalization rates for the Comparable Transactions were 10.5% to 10.3%
respectively and were applied to UPI management's estimated 1996 net operating
income for UPI. Based upon this analysis, Societe Generale derived equity
reference ranges for UPI of $21.7 million to $22.5 million or $5.73 to $5.95 per
share of UPI Common Stock.
Liquidation Value Analysis
Societe Generale also prepared an analysis in which UPI would sell all of
its assets and liquidate. Societe Generale determined the value of the assets by
dividing the UPI management's 1996 projected net operating income by
capitalization rates from 9.5% to 10.5%. Mortgages payable, taxes on gain on
sale, preferred stock outstanding and broker and transaction expenses were
deducted from, and net working capital was added back to, such value. Based upon
this analysis, Societe Generale derived equity reference ranges for UPI of $17.7
million to $21.5 million or $4.68 to $5.67 per share of UPI Common Stock.
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The following paragraphs describe Societe Generale's analysis of Kranzco:
Comparable Trading Company Analysis
Common Stock
Societe Generale reviewed, analyzed and compared certain operating,
financial and trading information including the range of dividend yields and
market values as of November 5, 1996, of comparable publicly traded REITs as
multiples of the preceding 12 months net income, the preceding 12 months FFO and
the book value as of June 30, 1996. The following comparable public REITs were
included in the analysis: Agree Realty Corporation, Excel Realty Trust, Inc.,
JDN Realty Corporation, Kranzco, Malan Realty Investors, Mark Centers Trust,
Mid-Atlantic Realty Trust, Regency Realty Corporation, Saul Centers Inc. and
Western Investment Real Estate Trust. The range of dividend yields applied was
12.6% to 9.8%. The range of multiples for the other parameters included the
following: net income was 18.4x to 22.7x, FFO was 8.8x to 10.3x and the book
value was 1.2x to 1.6x. Based upon this analysis, Societe Generale derived an
average equity reference range for Kranzco of $158.4 million to $199.1 million
or $15.35 to $19.28 per Kranzco Common Share.
Preferred Stock
Societe Generale analyzed the value of the Kranzco Series B-1 Preferred
Shares based on the comparison of certain operating, financial and trading
information of preferred stock issues offered by REIT companies. Societe
Generale analyzed the comparative coverage ratios (earnings before interest and
taxes ('EBIT') and earnings before interest, taxes, depreciation and
amortization ('EBITDA') divided by interest expense plus preferred dividends,
leverage ratios - (debt + preferred stock)/equity, equity market capitalization,
credit ratings, yield, conversion premium (as relevant) and property type.
Preferred securities of the following companies and REITs (the 'Preferred
Securities Group') were analyzed: Kimco Realty Series A, B and C, Public Storage
Series A, B, C, D, E, and F, Security Capital Pacific Series A and B, United
Dominion Realty Series A, Merry Land & Investment Series A and C, Security
Capital Industrial Series A, Equity Residential Prop., Wellsford Residential
Prop. Series A and B, Associated Estates Realty, National Health Investors,
Oasis Residential Inc. Series A, Tanger Factory Outlet Ctrs. Series A, Capstead
Mortgage Series A and B, First Washington Realty Series A, One Liberty
Properties, One Liberty Properties Series A, First Union Real Estate Investments
Series A, Kranzco Realty Trust Series A. The average yield for the Preferred
Securities Group is 8.4%, the average conversion premium at issue is 13.2% and
the average ratio of EBITDA/Interest and Preferred is 3.1x.
Societe Generale also analyzed a subset of the Preferred Securities Group
(the 'Selected Preferred Securities Group') which securities and REITS and/or
companies most closely resembled the Kranzco Series B-1 Preferred Shares and
compared the Kranzco Series B-1 Preferred Shares pro forma for the Merger
against the Selected Preferred Securities Group on four criteria including
yield, EBITDA coverage, leverage ratio and size as measured by equity market
capitalization. The Selected Preferred Securities Group consisted of Associated
Estates Realty, One Liberty Properties, First Washington Realty Series A,
Wellsford Residential Prop. Series B, Equity Residential Prop., United Dominion
Realty Series A and First Union Real Estate Investments Series A. The Kranzco
Series B-1 Preferred Shares ranked first based on yield, sixth based on EBITDA,
sixth based on leverage ratio and fifth based on size as measured by equity
market capitalization. Societe Generale also examined the daily trading volume
of the Selected Preferred Securities Group over the last twelve months and noted
that all but one had trading volumes of zero on some days and two had median
trading volumes of zero.
Pro Forma Merger Analysis
Societe Generale performed an analysis of the effect of the Merger on
Kranzco's FFO, provided by Kranzco's management, for the projected years ended
December 31, 1997 through December 31, 2000, which assumed that the Merger had
been consummated on January 1, 1997. Societe Generale combined the projected
operating results of UPI and Kranzco and estimated cost savings, based on
internal estimates provided by each company's management, to arrive at the
Kranzco pro forma projected FFO and FFO payout ratio. Pro forma for the Merger,
the Kranzco FFO payout ratio is estimated to decrease.
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General
No company or REIT used in the REIT status analysis and comparable trading
company analysis nor transaction used in the comparable acquisitions analysis
summarized above is identical to UPI, Kranzco or the Merger, respectively.
Accordingly, Societe Generale believed it was inappropriate to, and therefore
did not, rely solely on the quantitative results of such analyses but, also made
complex qualitative considerations and judgments concerning differences in the
potential financial and operating characteristics of the comparable companies
and other factors in relation to the trading and acquisition values of the
comparable companies or REITs and publicly announced transactions. The estimates
contained in such analyses and the ranges of valuations resulting from any
particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
The preparation of a fairness opinion is a complex analytic process and is
not necessarily susceptible to a partial analysis or summary description.
Societe Generale made qualitative judgments as to the significance and relevance
of each analysis and factor considered as a whole and believes that selecting
portions of its analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, Societe Generale made
numerous assumptions with respect to UPI and Kranzco, industry performance,
regulatory, general business, economic, market and financial considerations and
other matters, many of which are beyond the control of UPI and Kranzco.
Societe Generale's opinion and financial analyses were only one of many
factors considered by the UPI Board in its evaluation of the Merger and should
not be viewed as determinative of the views of the UPI Board or management with
respect to the consideration to be received by the holders of UPI Common Stock
who elect to receive the Kranzco Series B-1 Preferred Shares in the Merger.
Societe Generale is an internationally recognized investment banking firm
and is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, leveraged buyouts, competitive
biddings, private placements, public financings and valuations for corporate,
estate and other purposes.
Pursuant to the Societe Generale Agreement, Societe Generale will be paid a
fee of $1,137,500 with respect to the Merger subject to the consummation of the
Merger. UPI believes that Societe Generale's fee with respect to the Merger is
typical of the manner in which financial advisors are generally compensated in
corporate merger and acquisition transactions and also believes that the fee
structure should not have precluded, and in fact did not preclude, Societe
Generale from rendering independent and objective advice.
UPI also has agreed to reimburse Societe Generale for its reasonable
expenses (although any such expenses in excess of $23,000 shall be credited
against Societe Generale's success fee) and to indemnify Societe Generale and
its affiliates against certain liabilities and expenses, including liabilities
under federal securities laws.
Societe Generale has in the past performed certain investment banking
services for UPI and Milestone and has received customary fees for such
services. In the ordinary course of business Societe Generale may actively trade
the debt and equity securities of UPI, Milestone or Kranzco for its own account
or the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the UPI Board with respect to the
Merger Agreement and the Merger, UPI stockholders should be aware that certain
members of the management of UPI and the UPI Board have certain interests in the
Merger that are in addition to the interests of stockholders of UPI generally.
Interests of Certain Persons in Matters to be Acted Upon
Under the terms of the Merger Agreement, all of the outstanding shares of
UPI Preferred Stock will, if and when the Merger is consummated, be converted
into the right to receive Kranzco Series C Preferred Shares. All of the UPI
Preferred Stock is owned by Milestone, and both the management services
agreement and the property management agreement that UPI has entered into with
Milestone and a subsidiary of Milestone, respectively,
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will, pursuant to the terms of the Merger Agreement, be terminated if the Merger
is consummated. See 'THE COMPANIES--Business of UPI--Description of Business'
for a description of the management agreements. Additionally, Kranzco has agreed
to indemnify Milestone following the Merger for certain of Milestone's
obligations related to UPI. In considering the Merger, UPI's stockholders should
be aware that (i) Leonard Mandor, Robert Mandor and Joseph Otto are directors
and executive officers of both UPI and Milestone, (ii) Joan LeVine is an
executive officer of both UPI and Milestone and was a director of both UPI and
Milestone when the UPI Board approved the Merger Agreement and when it
authorized the Merger and the other transactions contemplated by the Merger
Agreement, (iii) all of the other executive officers of UPI are also executive
officers of Milestone, and (iv) the directors and executive officers of UPI
beneficially own, in the aggregate, approximately 78% of the outstanding UPI
Common Stock and approximately 78% of Milestone's outstanding common stock. The
terms of the Merger Agreement were the result of arms-length negotiations, and
UPI believes that the terms of the Merger Agreement and the consideration to be
received in the Merger were negotiated in good faith and are fair to and in the
best interests of UPI's stockholders.
Indemnification; Directors' and Officers' Liability Insurance
Pursuant to the Merger Agreement, and subject to the consummation of the
Merger, Kranzco has agreed to indemnify the officers and directors of UPI, with
respect to actions taken in their capacity as officers and/or directors of UPI
prior to or at the consummation of the Merger, as provided in the UPI
Certificate of Incorporation and the UPI Bylaws (including, without limitation,
in connection with the Merger and the other transactions contemplated by the
Merger Agreement) for a period of seven years following the consummation of the
Merger. In addition, Kranzco has agreed that, if UPI is unable to obtain an
extension of its directors' and officers' liability insurance policy (the 'UPI
D&O Insurance Liability Tail'), Kranzco will, through the first anniversary of
the Merger, indemnify the directors and officers of UPI covered by UPI's
existing directors' and officers' liability insurance policy on the same or
similar terms and conditions in effect under UPI's existing policy and the same
dollar limitations in effect under Kranzco's current directors' and officers'
liability policy.
Registration Rights Agreement
As a result of the Merger, all Kranzco Series B-1 Preferred Shares received
by holders of UPI Common Stock in the Merger will be freely transferable except
that Kranzco Series B Preferred Shares received by persons who are deemed
'affiliates' (as such term is defined under the Securities Act) of UPI prior to
the Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act, or as otherwise permitted under
the Securities Act. See '--Resale Restrictions.' Under the terms of the Merger
Agreement, Kranzco has agreed upon consummation of the Merger to enter into a
registration rights agreement with Robert A. Mandor, Leonard S. Mandor, Concord
Milestone Partners, L.P., Concord Associates, Concord Income Realty VI, L.P.,
Castle Plaza, Inc., Mill Neck Associates, Mountain View Mall, Inc., Joan LeVine,
Joseph Otto and Harvey Shore (the 'Holders') (the 'Registration Rights
Agreement').
Pursuant to the terms of the Registration Rights Agreement, Kranzco will
grant to the Holders the right to, following the third anniversary of the
consummation of the Merger, exercise (i) two 'demand' registrations under which
they may require Kranzco to register their Kranzco Series B Preferred Shares
and/or their Kranzco Common Shares for resale and (ii) an unlimited number of
'piggyback' registrations, subject to certain restrictions, under which they may
register their Kranzco Series B Preferred Shares and/or their Kranzco Common
Shares for resale under a registration statement filed by Kranzco. See 'THE
MERGER AGREEMENT AND CERTAIN ANCILLARY DOCUMENTS--Registration Rights
Agreement.'
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APPRAISAL RIGHTS
The following is a brief summary of Section 262 of the DGCL, which sets
forth the procedures for dissenting from the Merger and demanding statutory
appraisal rights, if such rights are available. This summary does not purport to
be a complete statement of the provisions of the DGCL relating to the rights of
UPI stockholders to an appraisal of the value of their shares, and is qualified
in its entirety by reference to Section 262, the full text of which is attached
as Annex C to this Proxy Statement/Prospectus. Failure to follow these
procedures exactly could result in the loss of appraisal rights.
If the Merger is consummated, dissenting holders of UPI Common Stock who
follow the procedures and satisfy all of the conditions specified in Section 262
of the DGCL are entitled to have their shares of UPI Common Stock appraised by
the Delaware Court and to receive the 'fair value' of such shares ('UPI
Dissenting Shares') in cash as determined by the Delaware Court in lieu of the
consideration that such stockholders would otherwise be entitled to receive
pursuant to the Merger Agreement. This Proxy Statement/Prospectus constitutes
notice to holders of UPI Common Stock concerning the availability of appraisal
rights under Section 262.
Under Section 262, a holder of record of UPI Common Stock wishing to assert
appraisal rights must hold his shares of UPI Common Stock on the date of the
making of a demand for appraisal rights with respect to such shares and must
continuously hold such shares through the date of the consummation of the
Merger. A holder of UPI Common Stock who desires to exercise his appraisal
rights also (i) must not vote for the adoption and approval of the Merger
Agreement and the authorization of the Merger and the other transactions
contemplated thereby, and (ii) must, prior to the taking of the vote at the
Special Meeting, file with UPI a written demand for appraisal of his shares.
Such demand for appraisal must be executed by or for the UPI stockholder of
record, fully and correctly, as such stockholder's name appears on the share
certificate. If the shares are owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, this demand must be executed by or for the
fiduciary. If the shares are owned by or for more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by or for all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, he is acting as agent for the record owner. A person
having a beneficial interest in UPI Common Stock held of record in the name of
another person must act promptly to cause the record holder to follow the steps
summarized below and in a timely manner to perfect whatever appraisal rights the
beneficial owners may have.
A record owner who holds UPI Common Stock as a nominee for others may
exercise his right of appraisal with respect to the shares for all or less than
all of the beneficial owners of shares as to which he is the record owner. In
such case, the written demand must set forth the number of shares covered by
such demand. Where the number of shares is not expressly mentioned, the demand
will be presumed to cover all shares outstanding in the name of such record
owner.
A holder of UPI Common Stock who elects to exercise appraisal rights should
mail or deliver his written demand to UPI at its address at 5200 Town Center
Circle, Boca Raton, Florida 33486, Attention: Secretary. The written demand for
appraisal should specify the stockholder's name and mailing address, and that
the stockholder is thereby demanding appraisal of his or her UPI Common Stock.
Within 10 days after the Merger, UPI must provide notice of the Merger to all of
the holders of UPI Common Stock who complied with Section 262 and who did not
vote for approval of the Merger and the Merger Agreement. Such holders of UPI
Common Stock who complied with Section 262 and who did not vote for approval of
the Merger and the Merger Agreement should not return their UPI Certificates
with the letter of transmittal to be sent to them by Kranzco after the Merger.
Within 120 days after the Merger (but not thereafter), either UPI or any
holder of UPI Common Stock who has complied with the required conditions of
Section 262 may file a petition in the Delaware Court demanding a determination
of the fair value of the UPI Dissenting Shares. UPI has no present intention to
file such a petition if demand for appraisal is made. At any time within 60 days
after the Merger, any holder of UPI Common Stock will have the right to withdraw
his demand for appraisal and to accept the terms offered in the Merger
Agreement. After this period, a holder of UPI Common Stock may withdraw his
demand for appraisal and receive payment for his shares as provided in the
Merger Agreement only with the consent of UPI. If no petition
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for appraisal is filed with the Delaware Court within 120 days after the Merger,
stockholders' rights to appraisal (if available) will cease. Inasmuch as UPI has
no obligation to file such a petition, any UPI stockholder who desires a
petition to be filed is advised to file it on a timely basis. No petition timely
filed in the Delaware Court demanding appraisal may be dismissed as to any
holder of UPI Common Stock without the approval of the Delaware Court, which
approval may be conditioned upon such terms as the Delaware Court deems just.
Within 120 days after the Merger, any holder of UPI Common Stock who has
satisfied the requirements of Section 262 may deliver to UPI a written demand
for a statement listing the aggregate number of shares not voted in favor of the
Merger and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares. UPI shall mail such written
statement to such stockholder within 10 days after his written request for such
a statement is received by UPI or within 10 days after the Special Meeting,
whichever is later.
Upon the filing of any petition by a UPI stockholder in accordance with
Section 262, service of a copy must be made upon UPI, which must, within 20 days
after service, file in the office of the Register in Chancery in which the
petition was filed, a duly verified list containing the names and addresses of
all UPI stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by UPI. If a
petition is filed by UPI, the petition must be accompanied by the verified list.
The Register in Chancery, if so ordered by the Delaware Court, will give notice
of the time and place fixed for the hearing of such petition by registered or
certified mail to UPI and to the UPI stockholders shown on the list at the
addresses therein stated, and notice will also be given by publishing a notice
at least one week before the day of the hearing in a newspaper of general
circulation published in the City of Wilmington, Delaware, or such publication
as the Delaware Court deems advisable. The forms of the notices given by mail
and by publication must be approved by the Delaware Court, and the costs thereof
shall be borne by UPI.
If a petition for an appraisal is filed in a timely fashion, after a
hearing on the petition, the Delaware Court will determine which UPI
stockholders are entitled to appraisal rights and will appraise the shares owned
by these stockholders, determining the fair value of such shares, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest to be paid, if any, upon the
amount determined to be the fair value. In determining fair value, the Delaware
Court is to take into account all relevant factors.
UPI stockholders considering seeking appraisal of their shares should note
that the fair value of their shares determined under Section 262 could be more,
the same or less than the consideration they would receive pursuant to the
Merger Agreement if they did not seek appraisal of their shares. The costs of
the appraisal proceeding may be determined by the Delaware Court and taxed
against the parties as the Delaware Court deems equitable under the
circumstances. Upon application of a dissenting stockholder, the Delaware Court
may order that all or a portion of the expenses incurred by a dissenting
stockholder in connection with the appraisal proceeding, including reasonable
attorneys' fees and the fees and expenses of experts, be charged pro rata
against the value of all shares entitled to appraisal. In the absence of a
determination or assessment, each party bears his own expenses.
Any UPI stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the Merger, be entitled to vote for any purpose the
shares subject to the demand or to receive payment of dividends or other
distributions on such shares, except for dividends or distributions payable to
UPI stockholders of record at a date prior to the Merger.
The Merger Agreement provides that if, after the Special Meeting, there are
Dissenting Shares in excess of 7.5% of the outstanding UPI Common Stock, Kranzco
may terminate the Merger Agreement.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting
for financial reporting purposes. Purchase accounting for a combination is
similar to the accounting treatment used in the acquisition of any asset group.
The fair market value of the consideration (i.e., cash, stock) given by the
acquiring firm will be used as the valuation basis of the combination. The
assets and liabilities of the acquired firm are revalued to their respective
fair market values at the combination date. The financial statements of the
acquiring company reflect the
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combined operations from the date of combination. Representatives of Deloitte &
Touche LLP, UPI's independent public accountants, will be present at the Special
Meeting, will have an opportunity to make a statement if they so desire to do so
and will be available to respond to appropriate questions from UPI stockholders.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a discussion of certain U.S. federal income tax matters
that are generally applicable to Kranzco, Newco, UPI, and holders of UPI Common
Stock. This discussion is based on currently existing provisions of the Code,
existing regulations thereunder (including final, temporary or proposed), and
current administrative rulings and court decisions, all of which are subject to
change. Any such change, which may or may not be retroactive, could alter the
tax consequences described herein.
The following discussion is intended only as a summary of certain principal
U.S. federal income tax consequences and does not purport to be a complete
analysis or listing of all of the potential tax effects relevant to a decision
on whether to vote in favor of approval and adoption of the Merger Agreement and
the Merger. In particular, this discussion does not deal with all U.S. federal
income tax considerations that may be relevant to particular UPI stockholders in
light of their particular circumstances, such as stockholders who are dealers in
securities, who are financial institutions, insurance companies or tax-exempt
organizations, who are subject to the alternative minimum tax provisions of the
Code, who are foreign persons, or who acquired their shares in connection with
stock warrants, stock option or stock purchase plans, or in other compensatory
transactions. Also, this discussion is limited to UPI stockholders who hold
their UPI Common Stock and will hold the Kranzco Series B Preferred Shares to be
issued in the Merger as 'capital assets' (generally, property held for
investment), within the meaning of Section 1221 of the Code. In addition, the
following discussion does not address income tax consequences under foreign,
state or local tax laws or any U.S. federal, state, local or foreign estate or
gift tax considerations.
ACCORDINGLY, UPI STOCKHOLDERS AND OTHERS AFFECTED BY THE MERGER ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES THEREOF, INCLUDING
U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES APPLICABLE TO THEM.
Tax Consequences of the Merger
The Merger has been structured with the intent that it be tax free to
Kranzco, UPI and their respective stockholders for U.S. federal income tax
purposes. As a condition to UPI's and Kranzco's obligations to consummate the
Merger (which condition may be waived), UPI and Kranzco are required to receive
opinions from Rosenman & Colin LLP, counsel to UPI, and Robinson Silverman
Pearce Aronsohn & Berman LLP, counsel to Kranzco, that the Merger, if
consummated on the terms described in this Proxy Statement/Prospectus, will
constitute a reorganization under Section 368(a)(1)(A) of the Code (a
'Reorganization'), and that Kranzco, Newco and UPI will each be a party to the
Reorganization within the meaning of Section 368(b) of the Code. The tax
opinions referenced above shall be collectively referred to herein as the 'Tax
Opinion.' The Tax Opinion will be based on and will be subject to certain
assumptions and limitations as well as representations received from Kranzco,
Newco and UPI, discussed below. An opinion of counsel only represents counsel's
best legal judgment, and has no binding effect or official status of any kind,
and no assurance can be given that contrary positions may not be taken by the
Internal Revenue Service (the 'IRS') or a court considering the issues. Neither
UPI nor Kranzco has requested or will request a ruling from the IRS with regard
to any of the U.S. federal income tax consequences of the Merger.
Tax Consequences Generally Applicable to Kranzco, Newco, UPI, and UPI
Stockholders
Subject to the limitations, qualifications and assumptions referred to
herein, tax counsel to Kranzco and tax counsel to UPI are of the opinion that
the following U.S. federal income tax consequences will result from the Merger:
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(i) The Merger will constitute a Reorganization if carried out in the
manner set forth in the Merger Agreement, and the agreements referred to
therein. In such event, no gain or loss will be recognized by holders of UPI
Common Stock upon exchange of such shares solely for Kranzco Series B Preferred
Shares in the Merger, except for cash received in lieu of a fractional share of
Kranzco Series B Preferred Shares. Cash payments received by holders of UPI
Common Stock in lieu of a fractional share of Kranzco Series B Preferred Shares
would be treated as if such fractional share had been issued in the Merger and
then redeemed by Kranzco. A holder of UPI Dissenting Shares receiving cash from
Kranzco generally would be treated as if such stockholder had sold its UPI
Common Stock to Kranzco for cash. A UPI stockholder receiving such cash in lieu
of a fractional share or as a holder of UPI Dissenting Shares generally will
recognize capital gain or loss, upon such payment, measured by the difference
(if any) between the amount of cash received and the stockholder's adjusted tax
basis in such fractional share or its UPI Common Stock, as the case may be. Such
capital gain or loss generally would be long-term if such stockholder held its
UPI Common Stock for more than one year at the time of the Merger;
(ii) The aggregate tax basis of the whole shares of Kranzco Series B
Preferred Shares received by UPI stockholders in the Merger will be the same as
the aggregate tax basis of the UPI Common Stock surrendered in exchange
therefor, reduced by the basis allocable to fractional shares;
(iii) The holding period of the Kranzco Series B Preferred Shares received
by each UPI stockholder in the Merger will include the period for which the UPI
Common Stock surrendered in exchange therefor were considered to be held,
provided that the UPI Common Stock so surrendered is held as a capital asset at
the time of the Merger; and
(iv) No gain or loss will be recognized by Kranzco, Newco or UPI in
connection with the Merger.
Limitations on Opinion and Discussion
The discussion of certain U.S. federal income tax consequences presented
above and the Tax Opinion to be delivered by Kranzco's and UPI's respective tax
counsels will be subject to certain assumptions and will be based on the
accuracy of the representations in the Merger Agreement, exhibits thereto, and
the agreements and documents referred to therein. Among the principal
assumptions upon which the above tax discussion and Tax Opinion will be based
include (i) that the Merger will be consummated pursuant to the Merger
Agreement, (ii) that Newco will continue the historic business of UPI as a
wholly-owned subsidiary of Kranzco, (iii) that more than fifty percent (50%) of
the total consideration received by UPI stockholders in the Merger in exchange
for their UPI Common Stock will consist of Kranzco Series B Preferred Shares,
and (iv) that all the significant historic stockholders of UPI have not disposed
of UPI Common Stock in contemplation of the Merger and do not have any plan or
intention, existing at or prior to the time of the Merger, to dispose of the
Kranzco Series B Preferred Shares to be received in the Merger such that the
continuity of interest requirement set forth in Treasury Regulation Section
1.368-1 would not be satisfied.
A successful IRS challenge to the status of the Merger as a Reorganization
would result in UPI being treated as if it had sold all of its assets (subject
to liabilities) to Kranzco in a taxable transaction and in UPI stockholders
(other than holders of UPI Dissenting Shares) being treated as if they had
exchanged their UPI Common Stock for Kranzco Series B Preferred Shares (plus any
cash received for fractional shares) in a taxable transaction. Also, even if the
Merger qualifies as a Reorganization, taxable gain may have to be recognized to
the extent that a UPI stockholder (other than a holder of UPI Dissenting Shares)
were treated as receiving (directly or indirectly) consideration other than
Kranzco Series B Preferred Shares in exchange for UPI Common Stock in the
Merger. A holder of UPI Dissenting Shares will be treated as described above.
Tax Consequences to Holders of Kranzco Series B Preferred Shares
To the extent of Kranzco's earnings and profits allocable thereto,
distributions of cash or other property received by holders of the Kranzco
Series B Preferred Shares generally will be taxable in the same manner
(discussed below) as a taxable distribution to holders of Kranzco Common Shares.
Under current IRS rulings, the rules for allocating the current earnings and
profits of Kranzco for the taxable year among actual distributions and
constructive distributions, discussed below, that arise from a decrease in the
conversion price of the Kranzco Series B Preferred Shares are complex and not
entirely clear. However, in the absence of further clarification,
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Kranzco intends to allocate the current earnings and profits of Kranzco (i)
first to actual distributions made with respect to the Kranzco Series B
Preferred Shares (and any other preferred shares of Kranzco) and (ii) any
remaining balance of such earnings and profits then will be allocated on a pro
rata basis to distributions made to the holders of Kranzco Common Shares and
constructive distributions, discussed below, that arise from a decrease in the
conversion price of the Kranzco Series B Preferred Shares. Distributions with
respect to Kranzco Series B Preferred Shares in excess of the earnings and
profits allocable thereto generally will have the same tax consequences
(discussed below) as such excess distributions with respect to Kranzco Common
Shares. See '-- Tax Consequences to Holders of Kranzco Common Shares,' below.
Upon a sale or other taxable disposition of its Kranzco Series B Preferred
Shares (including a sale to Kranzco), a holder generally will recognize gain or
loss measured by the difference (if any) between the holder's amount realized on
such disposition and its adjusted tax basis in the Kranzco Series B Preferred
Shares. Such gain or loss generally will be treated as capital gain or loss and
will be long-term capital gain or loss if the Kranzco Series B Preferred Shares
disposed of were held for more than one year.
The conversion of the Kranzco Series B Preferred Shares into Kranzco Common
Shares generally will not be a taxable event. A holder's tax basis in the
Kranzco Common Shares received on such conversion generally will be equal to the
holder's adjusted tax basis in its Kranzco Series B Preferred Shares at the time
of conversion (exclusive of any tax basis allocable to a fractional share), and
the holding period for the Kranzco Common Shares received on conversion
generally will include the holding period of the Kranzco Series B Preferred
Shares so converted. Following conversion of the Kranzco Series B Preferred
Shares into Kranzco Common Shares, a holder generally will be treated in the
same manner as any other holder of Kranzco Common Shares. See '--Tax
Consequences to Holders of Kranzco Common Shares.' A conversion of Kranzco
Series B-2 Preferred Shares into Kranzco Series B-1 Preferred Shares pursuant to
the terms thereof will likewise be a non-taxable event, with tax consequences
similar to those described in this paragraph for a conversion of Kranzco Series
B Preferred Shares into Kranzco Common Shares.
Under current rulings of the IRS, any cash received in lieu of a fractional
Kranzco Common Share upon conversion of Kranzco Series B Preferred Shares should
be treated as a payment in exchange for the fractional interest in such Kranzco
Common Share. Accordingly, the receipt of cash in lieu of a fractional Kranzco
Common Share at the time of conversion generally should result in capital gain
or loss measured by the difference (if any) between the cash received for the
fractional share interest and the holder's tax basis in such interest. Such
capital gain or loss generally would be long-term if the holder were deemed to
hold such fractional share interest for more than one year at the time of such
conversion.
After the time when the Kranzco Series B Preferred Shares first become
convertible (which, subject to the occurrence of a Special Conversion Event,
will occur after the first anniversary of the date of the consummation of the
Merger in the case of the Kranzco Series B-1 Preferred Shares and after the
third anniversary of the date of the consummation of the Merger in the case of
the Kranzco Series B-2 Preferred Shares), the scheduled subsequent decreases in
the conversion price of the Kranzco Series B Preferred Shares pursuant to the
terms thereof, other than under certain anti-dilution provisions, would likely
be deemed to be the payment by Kranzco of a constructive distribution to the
holders of the Kranzco Series B Preferred Shares (other than those holders who
convert their Kranzco Series B Preferred Shares prior to the date of any such
decrease in conversion price), even though such holders would not receive any
actual cash distributions from Kranzco on account of such constructive
distributions. The amount of any such constructive distribution would be the
fair market value of the additional Kranzco Common Shares (or fraction thereof)
that could be obtained by a holder of Kranzco Series B Preferred Shares upon a
conversion immediately after such conversion price adjustment. To the extent of
Kranzco's earnings and profits allocable thereto (as described more fully
above), such constructive distribution would be taxed in the same manner
(discussed below) as a taxable distribution to holders of Kranzco Common Shares.
The portion (if any) of such constructive distribution that exceeds Kranzco's
earnings and profits allocable thereto generally would not be taxable, but would
reduce a holder's adjusted tax basis in its Kranzco Series B Preferred Shares. A
holder's adjusted tax basis in its Kranzco Series B Preferred Shares then would
be increased by the full amount of any such constructive distribution for the
purpose of calculating the taxable gain or loss upon a subsequent sale of the
holder's Kranzco Series B Preferred Shares.
Noncorporate holders of Kranzco Series B Preferred Shares may be subject to
backup withholding and information reporting to the same extent as noncorporate
holders of Kranzco Common Shares. See '--Tax Consequences to Holders of Kranzco
Common Shares,' below.
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Tax Consequences to Holders of Kranzco Common Shares
General
So long as Kranzco qualifies for taxation as a REIT, distributions with
respect to the Kranzco Common Shares made out of current or accumulated earnings
and profits allocable thereto (and not designated as capital gain dividends)
will be, in the absence of further clarification, includible by the shareholders
as ordinary income for U.S. federal income tax purposes. As discussed above,
Kranzco intends to allocate its current earnings and profits first to actual
distributions with respect to Kranzco Series A Preferred Shares, Kranzco Series
B Preferred Shares and Kranzco Series C Preferred Shares, pari passu, and any
remaining balance of such earnings and profits then will be allocated on a pro
rata basis to distributions with respect to Common Shares and any constructive
distributions, discussed above, that arise from a decrease in the conversion
price of the Kranzco Series B Preferred Shares. None of these distributions will
be eligible for the dividends received deduction for corporate shareholders.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed Kranzco's actual net
capital gain for the taxable year) without regard to the period for which the
shareholder has held his shares. Corporate shareholders, however, may be
required to treat up to 20% of certain capital gain dividends as ordinary
income.
Distributions with respect to Kranzco Common Shares in excess of current or
accumulated earnings and profits will not be taxable to a shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's shares of
Kranzco Common Shares. Shareholders will be required to reduce the tax basis of
their Kranzco Common Shares by the amount of such excess distributions until
such basis has been reduced to zero, after which such distributions will be
taxable as capital gain (assuming such shares are held as a capital asset). The
tax basis as so reduced will be used in computing the capital gain or loss, if
any, realized upon a subsequent sale of the Kranzco Common Shares. Any loss upon
a sale or exchange of the Kranzco Common Shares by a shareholder who held such
Kranzco Common Shares for six months or less (after applying certain holding
period rules) will generally be treated as a long-term capital loss to the
extent such shareholder previously received capital gain distributions with
respect to such Kranzco Common Shares.
In general, net capital gains of noncorporate shareholders are taxed at a
maximum rate of 28%, while short-term capital gains and ordinary income are
taxed at a maximum rate of 39.6%. In general, net capital gains, short-term
capital gains and ordinary income of corporate shareholders are taxed at a
maximum rate of 34% (35% for taxable income in excess of $10 million).
Shareholders may not include in their individual U.S. federal income tax
returns any net operating losses or capital losses of Kranzco. In addition, any
distribution declared by Kranzco in October, November or December of any year
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by Kranzco and received by the shareholder on December
31 of such year, provided that the distribution is actually paid by Kranzco no
later than January 31 of the following year. Kranzco may be required to withhold
a portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status to Kranzco.
Upon the sale or other taxable disposition of Kranzco Common Shares
(including a sale to Kranzco), a holder will recognize capital gain or loss
equal to the difference, if any, between the amount realized on such disposition
and the holder's adjusted tax basis in such shares. Any capital gain or loss
recognized will generally be treated as long-term capital gain or loss if the
holder held such shares for more than one year.
Backup Withholding and Information Reporting
A noncorporate holder of Kranzco Common Shares who is not otherwise exempt
from backup withholding may be subject to backup withholding at the rate of 31%
with respect to distributions paid on, or the proceeds of a sale, exchange or
redemption of, such Kranzco Common Shares. Generally, backup withholding applies
only when the taxpayer (i) fails to furnish or certify his correct taxpayer
identification number to the payor in the manner requested, (ii) is notified by
the IRS that he has failed to report payments of interest or dividends properly,
or (iii) under certain circumstances, fails to certify that he has not been
notified by the IRS that he is subject to backup withholding for failure to
report interest or dividend payments. Any amounts withheld under the backup
withholding rules from a payment to a holder will be allowed as a credit against
the holder's U.S. federal income tax liability or as a refund, provided that the
required information is furnished to the IRS. Holders
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should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining any applicable
exemption.
Federal Income Taxation of Kranzco
General
Kranzco elected to be taxed as a REIT under Sections 856 through 860 of the
Code, commencing with its taxable year ended December 31, 1992. Kranzco believes
that, commencing with its taxable year ended December 31, 1992, it was organized
and operated in such a manner as to qualify for taxation as a REIT under the
Code, and Kranzco intends to continue to operate in such a manner, but no
assurance can be given that it will operate in a manner so as to qualify or
remain qualified.
As a REIT, Kranzco generally will not be subject to U.S. federal corporate
taxation on its net income to the extent currently distributed to its
shareholders. This substantially eliminates the 'double taxation' (at both the
corporate and stockholder levels) that typically results from the use of
corporate investment vehicles. For U.S. federal income tax purposes a qualified
REIT subsidiary of Kranzco, such as Newco, is not treated as a separate
corporation and all assets, liabilities and items of income, deduction and
credit of the qualified REIT subsidiary are treated as the assets, liabilities
and items of income, deduction and credit of Kranzco.
Kranzco is subject to U.S. federal income tax, however, as follows: first,
Kranzco will be taxed at regular corporate rates on its undistributed REIT
taxable income, including undistributed net capital gains. Second, under certain
circumstances, Kranzco may be subject to the 'alternative minimum tax' to the
extent that tax exceeds its regular tax. Third, if Kranzco has net income from
the sale or other disposition of 'foreclosure property' that is held primarily
for sale to customers in the ordinary course of business or other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, any net income that Kranzco has from
prohibited transactions (which are, in general, certain sales or other
dispositions of property other than foreclosure property held primarily for sale
to customers in the ordinary course of business) will be subject to a 100% tax.
Fifth, if Kranzco should fail to satisfy either the 75% or 95% gross income
tests (as discussed below), and has nonetheless maintained its qualification as
a REIT because certain other requirements have been met, it will be subject to a
100% tax on an amount equal to (a) the gross income attributable to the greater
of the amount by which Kranzco fails the 75% or 95% test, multiplied by (b) a
fraction intended to reflect Kranzco's profitability. Sixth, if Kranzco fails to
distribute during each year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain net income for such
year, and (iii) any undistributed taxable income from preceding periods, Kranzco
will be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, if an election is made pursuant
to IRS Notice 88-19 and if during the 10-year period commencing on the first day
of the first taxable year that Kranzco qualified as a REIT, Kranzco recognizes a
gain from the disposition of an asset held by Kranzco at the beginning of such
period, or if during the 10-year period commencing on the day on which an asset
acquired by Kranzco from a C corporation in a transaction in which Kranzco
inherits the tax basis of the asset from the C corporation, Kranzco recognizes a
gain from the disposition of such asset, then Kranzco will be subject to tax at
the highest regular corporate rate on the excess, if any, of the fair market
value over the adjusted basis of any such asset as of the beginning of the
relevant period (the 'Built-In-Gain Tax'). Kranzco intends to make the election
under IRS Notice 88-19 and the Built-In Gain Tax rules will apply to any such
gain recognized during the 10-year period commencing on the date of the Merger
from a sale or other taxable disposition of any of the UPI Properties acquired
by Newco in the Merger.
Requirements for Qualification
A REIT is defined in the Code as a corporation, trust or association: (1)
which is managed by one or more trustees or directors; (2) the beneficial
ownership of which is evidenced by transferable shares or by transferable
certificates of beneficial interest; (3) which would be taxable as a domestic
corporation, but for Sections 856 through 860 of the Code; (4) which is neither
a financial institution nor an insurance company subject to certain provisions
of the Code; (5) the beneficial ownership of which is held by 100 or more
persons; (6) not more than 50% in value of the outstanding shock of which is
owned during the last half of each taxable year, directly or indirectly, by or
for five or fewer individuals (as defined in the Code to include certain
entities) (the 'Five or Fewer Requirement'); and (7) which meets certain income
and asset tests described below. Conditions (1) to (4),
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inclusive, must be met during the entire taxable year and condition (5) must be
met during at least 335 days of a taxable year of 12 months or during a
proportionate part of a taxable year of less than 12 months. However, conditions
(5) and (6) will not apply until after the first taxable year for which an
election is made to be taxed as REIT. For purposes of conditions (5) and (6),
pension funds and certain other tax-exempt entities are treated as individuals,
subject to a 'look-through' exception in the case of condition (6).
Kranzco has satisfied the share ownership requirements set forth in (5) and
(6) above. In addition, Kranzco's Declaration of Trust provides restrictions
regarding the transfer of its Shares which are intended to assist Kranzco in
continuing to satisfy the share ownership requirements described in (5) and (6)
above. Such transfer restrictions are described in 'DESCRIPTION OF KRANZCO
SHARES--Restrictions on Transfer Generally.'
In addition to the foregoing, under applicable Treasury Regulations,
Kranzco cannot have any earnings and profits inherited from UPI as of the close
of its taxable year. Kranzco intends to comply with this requirement by reason
of having made sufficient distributions during such year to eliminate all
earnings and profits of UPI and Kranzco.
Income Tests
There are three percentage tests relating to the sources of Kranzco's gross
income. First, at least 75% of Kranzco's gross income (excluding gross income
from certain sales of property held primarily for sale and from discharge of
indebtedness) must be directly or indirectly derived each taxable year from
investments relating to real property or mortgages on real property or certain
temporary investments. Second, at least 95% of Kranzco's gross income (excluding
gross income from certain sales of property held primarily for sale and from
discharge of indebtedness) must be directly or indirectly derived each taxable
year from any of the sources qualifying for the 75% test and from dividends,
interest, and gain from the sale or disposition of stock or securities. Third,
in each taxable year short-term gains from sales of stock or securities, gains
from sales of property (other than foreclosure property) held primarily for sale
and gains from the sale or other taxable disposition of real property held for
less than four years (other than from involuntary conversions and foreclosure
property) must represent less than 30% of Kranzco's gross income. In applying
these tests, if Kranzco invests in a partnership, Kranzco will be treated as
realizing its share of the income and bearing its share of the loss of the
partnership, and the character of such income or loss, as well as other
partnership items, will be determined at the partnership level.
Rents received by Kranzco will qualify as 'rents from real property' for
purposes of satisfying the gross income tests for a REIT only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person, although rents generally will not
be excluded merely because they are based on a fixed percentage of receipts or
sales. None of the rents under Kranzco's existing leases are based on income or
profits of a kind that would disqualify such rents from being treated as rents
from real property. Second, rents received from a tenant will not qualify as
'rents from real property' if the REIT, or an owner of 10% or more of the REIT,
also directly or constructively owns 10% or more of such tenant. Third, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
'rents from real property.' Finally, for rents to qualify as 'rents from real
property,' the REIT generally must not operate or manage the property or furnish
or render services to the tenants of such property, other than through an
independent contractor from whom the REIT derives no income; provided, however,
Kranzco may directly perform certain services other than services which are
considered rendered to the occupant of the property. Kranzco will, in a timely
manner, hire independent contractors from whom it derives no revenue to perform
such services, except that Kranzco will directly perform services under certain
of its leases with respect to which it will receive an opinion of counsel or
otherwise satisfy itself that its performance of such services will not cause
the rents received with respect to such leases to fail to qualify as 'rents from
real property.'
The term 'interest' generally does not include any amount if the
determination of such amount depends in whole or in part on the income or
profits of any person, although an amount generally will not be excluded from
the term 'interest' solely by reason of being based on a fixed percentage of
receipts or sales.
If Kranzco fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if Kranzco's failure to meet such tests
was due to reasonable cause
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and not due to willful neglect, Kranzco attaches a schedule of the sources of
its income to its return, and any incorrect information on the schedule was not
due to fraud with intent to evade tax. It is not now possible to determine the
circumstances under which Kranzco may be entitled to the benefit of these relief
provisions. If these relief provisions apply, a 100% tax is imposed on the net
income attributable to the greater of the amount by which Kranzco failed the 75%
test or the 95% test.
Asset Tests
At the close of each quarter of its taxable year, Kranzco must also satisfy
several tests relating to the nature and diversification of its assets. First,
at least 75% of the value of Kranzco's total assets must be represented by real
estate assets, cash, cash items (including receivables arising in the ordinary
course of Kranzco's operation) and government securities. In addition, not more
than 25% of the value of Kranzco's total assets may be represented by securities
other than those includible in the 75% asset class. Moreover, of the investments
included in the 25% asset class, the value of any one issuer's securities owned
by Kranzco may not exceed 5% of the value of Kranzco's total assets. Finally, of
the investments included in the 25% asset class, Kranzco may not own more than
10% of any one issuer's outstanding voting securities.
Annual Distribution Requirements
Kranzco, in order to avoid being taxed as a regular corporation, is
required to make distributions (other than capital gain distributions) to its
shareholders which qualify for the dividends paid deduction in an amount at
least equal to (A) the sum of (i) 95% of Kranzco's 'REIT taxable income'
(computed without regard to the dividends paid deduction and Kranzco's net
capital gain) and (ii) 95% of the after- tax net income, if any, from
foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before Kranzco timely files its tax
return for such year and if paid on or before the first regular distribution
payment after such declaration. To the extent that Kranzco does not distribute
all of its net capital gain or distributes at least 95%, but less than 100%, of
its 'REIT taxable income,' as adjusted, it will be subject to tax thereon at
regular corporate tax rates. Finally, as discussed above, Kranzco may be subject
to an excise tax if it fails to meet certain other distribution requirements.
It is possible that Kranzco, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement, or to
distribute such greater amount as may be necessary to avoid income and excise
taxation, due to timing differences between (i) the actual receipt of income and
actual payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at the taxable income of Kranzco. In the
event that such timing differences occur, Kranzco may find it necessary to
arrange for borrowings or, if possible, pay taxable share distributions in order
to meet the distribution requirement.
Under certain circumstances, in the event of a deficiency determined by the
IRS, Kranzco may be able to rectify a resulting failure to meet the distribution
requirement for a year by paying 'deficiency dividends' to shareholders in a
later year, which may be included in Kranzco's deduction for distributions paid
for the earlier year. Thus, although Kranzco may be able to avoid being taxed on
amounts distributed as deficiency distributions, it will be required to pay
interest based upon the amount of any deduction taken for deficiency
distributions.
State, Local and Foreign Taxation of Kranzco and the Kranzco Shareholders
Kranzco and its shareholders may be subject to state, local or foreign
taxation in various state, local or foreign jurisdictions, including those in
which it or they transact business or reside. Such state, local or foreign
taxation may differ from the U.S. federal income tax treatment described above.
Consequently, each shareholder of Kranzco should consult his or her own tax
advisors regarding the effect of state, local and foreign tax laws on its status
as a shareholder in Kranzco.
RESALE RESTRICTIONS
All Kranzco Series B Preferred Shares received by holders of UPI Common
Stock in the Merger and, upon conversion thereof, Kranzco Common Shares, will be
freely transferable, except that such shares received in the Merger or upon such
conversion by persons who are deemed to be 'affiliates' (as such term is defined
under the
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Securities Act) of UPI prior to the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 in the case of such persons who become
affiliates of Kranzco) or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of Kranzco or UPI generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal shareholders of such party. The Merger Agreement
requires UPI to exercise its reasonable efforts to cause each of its affiliates
to execute a written agreement to the effect that such person will not offer to
sell, transfer of otherwise dispose of any of the Kranzco Series B Preferred
Shares issued to such person in or pursuant to the Merger or, upon conversion
thereof, the Kranzco Common Shares, unless (a) such sale, transfer or other
disposition has been registered under the Securities Act, (b) such sale,
transfer or other disposition is made in conformity with Rule 145 under the
Securities Act or (c) in the opinion of counsel, which opinion of counsel shall
be reasonably satisfactory to Kranzco, such sale, transfer, or other disposition
is exempt from registration under the Securities Act. Under the terms of the
Merger Agreement, Kranzco has agreed to grant to UPI's officers and directors
and certain of UPI's affiliates, upon consummation of the Merger, certain
registration rights.
REGULATORY APPROVAL
Other than (i) approvals in connection with compliance with applicable Blue
Sky or state securities laws, (ii) the filing of the certificate of merger with
the Secretary of State of Delaware, and (iii) the filing of such reports under
Section 13(a) of the Exchange Act as may be required in connection with the
Merger Agreement and the Merger, neither the management of Kranzco nor the
management of UPI believes that any filing with or approval of any governmental
authority is necessary in connection with the consummation of the Merger.
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THE MERGER AGREEMENT AND CERTAIN ANCILLARY DOCUMENTS
MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Merger Agreement.
Stockholders of UPI are encouraged to read carefully the Merger Agreement in its
entirety.
The Merger; Merger Consideration
Pursuant to the terms and conditions of the Merger Agreement, UPI will be
merged with and into Newco and, thereafter, Newco will continue as the Surviving
Corporation and the separate corporate existence of UPI will cease. The Merger
will have the effects specified in the DGCL. Immediately following the Merger,
the Surviving Corporation will (i) continue its corporate existence under the
laws of the State of Delaware, (ii) be a wholly-owned, qualified REIT subsidiary
of Kranzco, and (iii) succeed, without other transfer, to all rights, assets,
liabilities and obligations of UPI in accordance with the DGCL in the manner
provided by the DGCL.
UPI Common Stock
By reason of the Merger, each share of UPI Common Stock issued and
outstanding prior to the Merger will be converted into the right to receive in
addition to the cash to be received, if any, in lieu of the issuance of
fractional shares at the election of the holder thereof and subject to
adjustment as described below, (i) either 0.298 shares of one share of Kranzco
Series B-1 Preferred Shares or 0.298 of one share of Kranzco Series B-2
Preferred Shares, plus (ii) the number of shares of Kranzco Series B-1 Preferred
Shares or Kranzco Series B-2 Preferred Shares, as the case may be, equal to (A)
an amount equal to the result of dividing the sum of (1) the aggregate of the
payments made by UPI for the reduction of the principal amount of the
indebtedness secured by the UPI Properties, and (2) the amount paid for the
redemption of the UPI Preferred Stock, in each case from September 30, 1996
through the date one day prior to the consummation of the Merger, by $25,
divided by (B) 3,789,171, plus (iii) if the unpaid Merger Expenses (as defined
below) are equal to or less than $2,000,000, the number of shares of Kranzco
Series B-1 Preferred Shares or Kranzco Series B-2 preferred Shares, as the case
may be, equal to (A) an amount equal to the result of dividing the excess of
$2,000,000 over the aggregate of all unpaid Merger Expenses substantiated to
Kranzco's reasonable satisfaction, by $25, divided by (B) 3,789,171, minus (iv)
if the unpaid Merger Expenses are greater than $2,000,000, the number of shares
of Kranzco Series B-1 Preferred Shares or Kranzco Series B-2 Preferred Shares,
as the case may be, equal to (A) an amount equal to the result of dividing the
excess of the unpaid Merger Expenses over $2,000,000 by $25, divided by (B)
3,789,171. The right to receive Kranzco Series B-1 Preferred Shares or Kranzco
Series B-2 Preferred Shares, and the cash to be received, if any, in lieu of the
issuance of fractional shares of Kranzco Series B-1 Preferred Shares or Kranzco
Series B-2 Preferred Shares, is herein referred to as the 'UPI Common Stock
Consideration.'
The UPI Common Stock Consideration (i) shall be increased, as set forth
below, to the extent that the amount (the 'Adjustment Increase Amount') by which
the Total Current Assets of UPI (as defined in the Merger Agreement) (the 'Total
Current Assets') as of the close of business on the day immediately preceding
the date of the consummation of the Merger (the 'Adjustment Time') exceed the
Total Current Liabilities of UPI (as defined in the Merger Agreement) (the
'Total Current Liabilities') as of the Adjustment Time or (ii) shall be reduced,
as set forth below, to the extent that the amount (the 'Adjustment Decrease
Amount') by which the Total Current Liabilities (excluding unpaid Merger
Expenses) as of the Adjustment Time exceed the Total Current Assets as of the
Adjustment Time. The Total Current Assets will not include the net proceeds of
the transfer of an outparcel of UPI (if transferred by UPI) located in Columbia,
South Carolina and the Total Current Liabilities will not include (i) any unpaid
Merger Expenses, (ii) certain unpaid costs and expenses relating to the transfer
of the Columbia outparcel or (iii) up to $19,000 for income taxes accrued by UPI
in accordance with generally accepted accounting procedures but not paid on the
date of the consummation of the Merger arising from such transfer. The UPI
Common Stock Consideration shall be increased by the number of Kranzco Series B
Preferred Shares equal to (A) an amount equal to the result of dividing the
Adjustment Increase Amount, by $25, divided by (B) 3,789,171. The UPI Common
Stock Consideration shall be decreased by the number of Kranzco Series B
Preferred Shares equal to (A) an amount equal to the result of dividing the
Adjustment Decrease Amount, by $25, divided by (B) 3,789,171.
'Merger Expenses' means (i) all investment banking fees and disbursements
(including, without limitation, finders fees), legal fees and disbursements, and
accounting fees and disbursements, in each case incurred by UPI
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in connection with the negotiation, execution and delivery of the Merger
Agreement and the consummation of the Merger and other transactions contemplated
by the Merger Agreement, plus (ii) the lesser of (A) $200,000 and (B) one-half
of the following: all debt assumption and prepayment fees, printing expenses,
filing fees, property and other taxes payable in jurisdictions in which UPI is,
or is required to be, qualified to do business, property transfer taxes, any
other fees and expenses paid to obtain any required consents and approvals, and
any fees and expenses required to obtain a tail to UPI's existing directors' and
officers' liability insurance policy covering the period from the date of the
consummation of the Merger through the first anniversary thereof and having
substantially the same coverage and deductibles as UPI's existing directors' and
officers' liability insurance policy, in each case incurred in connection with
the negotiation, execution and delivery of the Merger Agreement and the
consummation of the Merger and other transactions contemplated by the Merger
Agreement.
Leonard Mandor and Robert Mandor, both of whom are executive officers and
directors of UPI and who, together with certain of their affiliates,
beneficially own approximately 75.5% of the outstanding UPI Common Stock, have
informed UPI and Kranzco that they will elect to receive Kranzco Series B-2
Preferred Shares in the Merger in exchange for their shares of UPI Common Stock,
and have represented that they have no plan or intention to sell or transfer
such Kranzco Series B-2 Preferred Shares for at least one year following the
consummation of the Merger.
UPI Preferred Stock
By reason of the Merger, each share of the UPI Preferred Stock issued and
outstanding prior to the Merger will be converted into the right to receive one
share of Kranzco Series C Preferred Shares.
Merger; Effect of the Merger
Upon the satisfaction or waiver of all conditions to the Merger, provided
that the Merger Agreement has not been terminated and unless Kranzco and UPI
otherwise agree, Newco and UPI will cause the Delaware Merger Certificate to be
duly executed, verified and delivered for filing and recording. In accordance
with the DGCL, the Merger will become effective upon the filing of the Delaware
Merger Certificate with the Secretary of State of Delaware or at such later time
as Kranzco and UPI have agreed upon and designated in such filing in accordance
with applicable law.
As a result of the Merger and without any action on the part of the holder
thereof, each share of common stock, par value $.01 per share, of Newco issued
and outstanding will remain outstanding and by reason of the Merger represent
one validly issued, fully paid and non-assessable share of common stock, par
value $.01 per share, of the Surviving Corporation.
As a result of the Merger and without any action by the holders thereof,
upon consummation of the Merger (i) all shares of UPI Common Stock will cease to
be outstanding and will be cancelled and retired and will cease to exist, and
each holder of a UPI Certificate representing shares of UPI Common Stock will
thereafter cease to have any rights with respect to such shares of UPI Common
Stock, except the right to receive, without interest, the UPI Common Stock
Consideration upon the surrender of such UPI Certificate (as described in
'--Exchange of Certificates') and (ii) all shares of UPI Preferred Stock will
cease to be outstanding and will be cancelled and retired and will cease to
exist, and each holder of a UPI Certificate representing shares of UPI Preferred
Stock will thereafter cease to have any rights with respect to such shares of
UPI Preferred Stock except the right to receive Kranzco Series C Preferred
Shares. Each share of UPI Common Stock issued and held in UPI's treasury at the
time of the Merger, if any, will, by virtue of the Merger, cease to be
outstanding and will be cancelled and retired without payment of any
consideration therefor.
Exchange of Certificates
Promptly after the Merger, the Exchange Agent will mail to each holder of
record of a UPI Certificate a letter of transmittal which shall, (a) with
respect to each holder of a UPI Certificate representing shares of UPI Common
Stock, (i) instruct such holder to elect to have each of such holder's shares of
UPI Common Stock converted into either (A) 0.298 of one share of Kranzco Series
B-1 preferred Shares and the cash to be received, if any, in lieu of the
issuance of fractional shares of Kranzco Series B-1 Preferred Shares, or (B)
0.298 of one share of Kranzco Series B-2 Preferred Shares and the cash to be
received, if any, in lieu of the issuance of fractional shares of Kranzco Series
B-2 Preferred Shares, (b) with respect to each holder of a UPI Certificate
representing shares of UPI Preferred Stock, instruct such holder that upon
surrender of such certificate, each share of UPI Preferred Stock will be
converted into one share of Kranzco Series C Preferred Shares, and (c)
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specify the manner by which to effect the surrender of UPI Certificates in
exchange for certificates representing shares of Kranzco Series B-1 Preferred
Shares, Kranzco Series B-2 Preferred Shares or Kranzco Series C Preferred
Shares, as the case may be, and cash in lieu of fractional shares, if
applicable, after giving effect to any required withholding tax.
Upon surrender of a UPI Certificate to the Exchange Agent, the UPI
Certificate so surrendered shall be cancelled. Until so surrendered, from and
after the Merger, each UPI Certificate will be deemed to represent only the
right to receive the above described consideration for each share of UPI Common
Stock or UPI Preferred Stock formerly represented by such UPI Certificate, and
shall not evidence any interest in Kranzco or the Surviving Corporation.
UPI STOCKHOLDERS SHOULD NOT SEND IN THEIR UPI CERTIFICATES UNTIL THEY
RECEIVE A LETTER OF TRANSMITTAL.
No Fractional Shares; Cash Payments
No certificate or scrip representing fractional Kranzco Series B Preferred
Shares shall be issued upon the surrender for exchange of UPI Certificates
representing shares of UPI Common Stock, and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a stockholder of
Kranzco. The fractional Kranzco Series B Preferred Shares to be received by each
holder of UPI Common Stock will be aggregated so that no holder of UPI Common
Stock will receive cash in an amount equal to or greater than the value of one
full Kranzco Series B Preferred Share. In lieu of any such fractional share, the
Exchange Agent will pay, subject to deduction and withholding requirements, to
each holder of UPI Common Stock who otherwise would be entitled to receive a
fractional Kranzco Series B Preferred Share an amount of cash determined by
multiplying $25 by the fraction of a Kranzco Series B Preferred Share to which
such holder would otherwise be entitled. In no event shall interest be paid or
accrued on any such cash payments. The cash amount to be paid to the holders of
UPI Common Stock for such fractional shares shall be rounded up to the nearest
cent. The transfer of cash to holders of UPI Common Stock in lieu of fractional
shares of Kranzco Series B Preferred Shares, if any, is solely for the purpose
of avoiding the expense and inconvenience to Kranzco of accounting for
fractional shares and does not represent separately bargained-for consideration.
Description of Kranzco Series B Preferred Shares and Kranzco Series C
Preferred Shares
For a description of the Kranzco Series B Preferred Shares, see
'DESCRIPTION OF KRANZCO SHARES-- Kranzco Preferred Shares--Kranzco Series B-1
Preferred Shares and Kranzco Series B-2 Preferred Shares.'
For a description of the Kranzco Series C Preferred Shares, see
'DESCRIPTION OF KRANZCO SHARES--Kranzco Preferred Shares--Kranzco Series C
Preferred Shares.'
Representations and Warranties
The Merger Agreement contains various representations and warranties
relating to, among other things: (a) the due organization, power, authority and
good standing of UPI, Kranzco, Newco and subsidiaries of Kranzco and similar
corporate matters; (b) the capital structure of UPI, Kranzco, Newco and
subsidiaries of Kranzco; (c) the authorization, execution, delivery and
enforceability of the Merger Agreement; (d) conflicts under charter, declaration
of trust or bylaws, violations of any instruments or law and required consents
or approvals; (e) certain documents filed by each of UPI and Kranzco with the
Securities and Exchange Commission (the 'Commission') and the accuracy of
information contained therein; (f) the UPI Properties and the Kranzco
Properties; (g) leases; (h) environmental matters; (i) insurance; (j) conduct of
business and the absence of certain changes or material adverse effects; (k)
absence of undisclosed liabilities; (l) litigation; (m) compliance with
applicable law and obtaining of all required licenses; (n) taxes; (o) financial
statements and condition; (p) ownership of Newco; (q) brokers' and finders'
fees; (r) investment interests of UPI, Kranzco and subsidiaries of Kranzco; (s)
retirement and other employee benefit plans; (t) labor matters; (u) related
party transactions; (v) books and records; (w) tenant improvements; (x) vote
required by UPI's stockholders to approve the Merger Agreement; (y) voting
shares of Kranzco owned by UPI and its affiliates and associates; (z) payment of
dividends by UPI on the UPI Preferred Stock; (aa) actions by certain affiliates
of UPI; (ab) receipt of fairness opinion by UPI; (ac) obligations of UPI
guaranteed by Milestone; (ad) directors' and officers' liability insurance
policy of UPI; and (ae) pending Milestone Action (as defined below).
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Certain Covenants
Each of UPI and Kranzco has agreed, among other things, during the period
from November 12, 1996 to the earlier of the consummation of the Merger or the
termination of the Merger Agreement (the 'Contract Period') and except as
expressly contemplated by the Merger Agreement or as set forth in the disclosure
letters provided by UPI and Kranzco, to (a) carry on its business in its usual,
regular and ordinary course and to use its reasonable efforts, and, in the case
of Kranzco, to cause each of its subsidiaries to use its reasonable efforts, to
preserve intact its business organization and goodwill and keep available the
services of its officers and employees; (b) confer on a regular basis with one
or more representatives of the other to report on material operational matters
and any proposals to engage in material transactions; and (c) promptly to notify
the other of any material change in the condition (financial or otherwise),
business, properties, assets, liabilities, or prospects, any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the material breach of any of
its representations or warranties (other than a representation or warranty
qualified by reference to materiality or a Kranzco Material Adverse Effect or a
UPI Material Adverse Effect (each, as defined in the Merger Agreement), as the
case may be), or the breach of any of its representations or warranties
qualified by reference to materiality or a Kranzco Material Adverse Effect or a
UPI Material Adverse Effect, as the case may be.
UPI has agreed, among other things, during the Contract Period and except
as expressly contemplated by the Merger Agreement or as set forth in its
disclosure letter thereto, to: (a) deliver to Kranzco draft copies in
substantially final form of any report, statement or schedule to be filed by UPI
with the Commission at least two business days prior to the filing thereof; (b)
make dividend payments on the UPI Preferred Stock required to be made pursuant
to the UPI Certificate of Incorporation, pay all accrued and unpaid dividends on
the UPI Preferred Stock pursuant to the terms of the UPI Preferred Stock and
redeem such amount of UPI Preferred Stock so that the applicable interest rate
used to determine dividends payable pursuant to its terms shall be 8% during the
Contract Period; (c) deliver to Kranzco within ten days after the end of each
month current rent rolls of UPI; (d) use reasonable efforts to obtain directors'
and officers' liability insurance; and (e) pay in full all obligations under
affiliate contracts that are due.
Kranzco has agreed, among other things, during the Contract Period and
except as expressly contemplated by the Merger Agreement or as set forth in its
disclosure letter thereto, to promptly deliver to UPI true and correct copies of
any report, statement or schedule filed by Kranzco with the Commission during
the Contract Period.
UPI has agreed during the Contract Period and except as expressly
contemplated by the Merger Agreement or as provided in its disclosure letter,
not to: (a) declare, set aside or pay any dividend or other distribution in
respect of any UPI Common Stock or UPI Preferred Stock, except that UPI shall be
allowed to make dividend payments on the UPI Preferred Stock as are required to
be made pursuant to the terms of the UPI Certificate of Incorporation; (b)
effect any stock split, reverse stock split, stock dividend, recapitalization or
other similar transaction, or issue any securities in respect of its capital
stock; (c) redeem, purchase or otherwise acquire any of its capital stock
(except, with respect to the UPI Preferred Stock, as expressly required by the
terms of the UPI Preferred Stock plus up to an aggregate of $270,000 of optional
redemptions of the UPI Preferred Stock); (d) amend the terms of any of its
securities; (e) authorize for issuance, issue, sell, deliver or agree to issue,
sell or deliver any stock of any class or any other securities or equity
equivalents or amend in any material respect any of the terms of any such
securities or contracts outstanding on November 12, 1996, except as expressly
permitted in the Merger Agreement; (f) amend the UPI Certificate of
Incorporation or the UPI Bylaws; (g) incur any indebtedness for borrowed money
or guarantee any such indebtedness or issue or sell any debt securities or
warrants, options or rights to acquire any debt securities of UPI or guarantee
any debt of others, make any loans, advances or capital contributions to, or any
investments in, any other person, or make, create or grant any mortgage, or
pledge or otherwise encumber any assets or suffer any material encumbrance
thereon, except for a refinancing of indebtedness for borrowed money which
becomes due and payable during the Contract Period which is in all respects
reasonably acceptable to Kranzco; (h) prepay any claims, liabilities or
obligations or pay, discharge or satisfy any claims, liabilities or obligations
other than the payment, discharge or satisfaction, in the ordinary course of
operating the UPI Properties in the substantially the same manner as previously
conducted, or in accordance with their terms, of claims, liabilities or
obligations reflected or reserved against in its financial statements; (i)
change any of the accounting principles or practices used by UPI; (j) increase
any compensation or enter into or amend any employment agreement with any of its
present or future officers or directors; (k) adopt
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any new employee benefit plan (including, without limitation, any stock option,
stock benefit or stock purchase plan) or amend any existing employee benefit
plan in any material respect; (l) acquire, enter into an option to acquire or
exercise an option or contract to acquire additional real property, incur
additional indebtedness, encumber assets or commence construction of, or enter
into any contract to develop or construct other real estate projects; (m) sell,
lease in its entirety or otherwise dispose of any of the UPI Properties, except
in the ordinary course of operating the UPI Properties, or any of its other
assets; (n) enter into any contract, borrowing, capital expenditure or
transaction which may result in total payments or liability by or to it in
excess of $10,000; (o) enter into any contract with certain affiliates of UPI;
(p) enter into any additional, or renew (except as may be required pursuant to
the terms of an existing lease or other agreement listed in its disclosure
letter), amend or otherwise modify any existing leases; or (q) agree to take any
of the foregoing actions or take or agree to take any action that is reasonably
likely to result in any of its representations or warranties being untrue, or
result in any of Kranzco's conditions to the Merger not being satisfied in any
material respect.
Kranzco has agreed during the Contract Period and except as expressly
contemplated by the Merger Agreement or as provided in its disclosure letter,
not to: (a) except pursuant to the exercise of options, warrants, conversion
rights and other contractual rights existing on November 12, 1996 and disclosed
pursuant to the Merger Agreement, effect any share split, reverse share split,
share dividend, recapitalization or other similar transaction; (b) declare, set
aside or pay any dividend or make any other distribution or payment with respect
to any Kranzco Shares, except for a dividend not to exceed $0.50 per Kranzco
Common Share for each calendar quarter ending during the Contract Period, and
dividends on Kranzco's Series A Increasing Rate Cumulative Convertible Preferred
Shares ('Kranzco Series A Preferred Shares') or Kranzco's Series A-1 Increasing
Rate Cumulative Convertible Preferred Shares ("Kranzco Series A-1 Preferred
Shares") in accordance with their terms; (c) issue any Kranzco Common Shares or
any evidence of indebtedness, Kranzco Shares or other securities which are or
may be convertible into or exchangeable for Kranzco Common Shares ('Kranzco
Convertible Securities'), or any warrant, option or other right to subscribe for
any Kranzco Convertible Securities or for any Kranzco Common Shares
(collectively, 'Kranzco Common Share Equivalents') except (i) such Kranzco
Common Shares as are issued upon conversion of any Kranzco Shares that by their
terms are convertible into Kranzco Common Shares, and that were outstanding on
November 12, 1996 or were issued during the Contract Period, to the extent not
prohibited by the terms of the Merger Agreement, (ii) such Kranzco Common Shares
as are issued pursuant to any dividend reinvestment plan or stock purchase plan
available to all holders of Kranzco Common Shares, (iii) such Kranzco Common
Shares or Kranzco Common Share Equivalents as are issued in any public offering
for an amount per Kranzco Common Share or Kranzco Common Share Equivalent
(including any amount payable on exercise of a Kranzco Common Share Equivalent)
equal to at least 92% or more of the closing price per share on the NYSE of the
Kranzco Common Shares on the last trading day immediately preceding the issue
date, less any underwriting discounts and commissions, (iv) the issuance of
preferred shares or any other equity security of Kranzco (other than Kranzco
Common Shares and Kranzco Common Share Equivalents) in any public offering for
fair value, (v) such Kranzco Common Shares or Kranzco Common Share Equivalents
as are issued for fair market value in connection with the acquisition of assets
or properties from any person or entity that is not affiliated with Kranzco
prior to such acquisition, (vi) Kranzco Series A-1 Preferred Shares if exchanged
for Kranzco Series A Preferred Shares, (vii) additional Kranzco Common Shares,
and additional Kranzco Common Share Equivalents, issued to affiliates of Kranzco
provided that such additional Kranzco Common Shares and the Kranzco Common
Shares into which such Kranzco Common Share Equivalents may be exercised or
converted do not exceed, in the aggregate, 250,000 Kranzco Common Shares; or (d)
agree to take any of the foregoing actions or take or agree to take any action
that is reasonably likely to result in any of Kranzco's representations or
warranties being untrue or result in any of UPI's conditions to the Merger not
being satisfied in any material respect.
UPI has agreed to cease any existing discussions or negotiations with any
third parties conducted prior to November 12, 1996 with respect to any merger,
business combination, sale of any UPI Properties, or, except as permitted by the
Merger Agreement, sale of any other assets of UPI, sale of shares of capital
stock by UPI or similar transaction involving such party or any of its
subsidiaries or divisions (a 'UPI Acquisition Transaction'). In addition,
neither UPI nor its directors, officers, partners, employees, bankers, attorneys
or other advisors or representatives may, directly or indirectly, solicit,
initiate or encourage any person or entity concerning any UPI Acquisition
Transaction, except that (i) the UPI Board may pursuant to its fiduciary duties,
enter into, or cause UPI's officers, representatives, agents or affiliates to
enter into, negotiations with or furnish information to a third
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party which has initiated contact with UPI without any solicitation, initiation
or encouragement in violation of the Merger Agreement and pass on to
stockholders of UPI information regarding any such third party proposal or
inquiry consistent with such fiduciary duties and (ii) UPI may participate in
negotiations with or furnish information to a third party which (without any
solicitation, initiation or encouragement from UPI) has initiated contact with
UPI with respect to a UPI Acquisition Transaction consistent with the fiduciary
obligations of the UPI Board. UPI has agreed to promptly advise Kranzco of the
receipt of any written offer for a UPI Acquisition Transaction, and, in the
event that UPI receives such a written offer, the UPI Board may approve such
proposal or recommend such UPI Acquisition Transaction to stockholders of UPI if
the UPI Board determines in good faith that the failure to take such action
would not be consistent with, or would result in a breach of, its fiduciary
duties, and in such case, the UPI Board may amend, withhold or withdraw its
recommendation regarding the Merger. In the event that UPI is prepared to accept
another proposal for a UPI Acquisition Transaction, UPI must notify Kranzco at
least 48 hours prior to terminating the Merger Agreement and entering into a
definitive agreement with respect to such other proposal, unless UPI receives an
opinion of counsel that compliance with its obligation to give 48 hours' notice
as required pursuant to the Merger Agreement would not be consistent with, or
would constitute a breach of, the fiduciary duties of the UPI Board.
Kranzco and Newco have agreed: that (a) all rights, if any, to
indemnification existing on November 12, 1996 in favor of the present or former
officers and directors of UPI (the 'Managers'), with respect to actions taken in
their capacity as officers and/or directors of UPI prior to or at the time of
the Merger as provided in the UPI Certificate of Incorporation and the UPI
By-laws (including, without limitation, in connection with the Merger and other
transactions contemplated by the Merger Agreement) shall survive the Merger for
a period of seven years following the consummation of the Merger; (b) Kranzco
and Newco will assume, honor and be bound by the terms of the UPI Certificate of
Incorporation and the UPI By-laws with respect to their actions and omissions in
such capacity taken prior to the Merger (including, without limitation, in
connection with the Merger) and the other transactions contemplated by the
Merger Agreement, whether or not such persons continue in their positions with
Newco following the Merger, and will continue in full force and effect following
the Merger for a period of seven years; and (c) all such rights, if any, in the
UPI Certificate of Incorporation and the UPI By-laws in effect as of November
12, 1996 between UPI and any Manager will survive the Merger and continue in
full force and effect in accordance with their terms as between such Managers
and Newco and Kranzco for a period of seven years.
UPI has agreed to use reasonable efforts to obtain the UPI D & O Insurance
Liability Tail for the period from the consummation of the Merger through the
first anniversary of the Merger, and having substantially the same coverage and
deductibles as, UPI's directors' and officers' liability insurance policy as in
effect on November 12, 1996 (the 'Existing UPI D & O Liability Insurance
Policy'). In the event that UPI is unable to obtain the UPI D & O Insurance
Liability Tail for such period, Kranzco has agreed, through the first
anniversary of the date of the consummation of the Merger, to indemnify the
directors and officers of UPI covered by the Existing UPI D&O Liability
Insurance Policy on the same or similar terms and conditions in effect under the
Existing UPI D & O Liability Insurance Policy, and the same dollar limitations
in effect under Kranzco's current directors' and officers' liability insurance
policy.
Kranzco has agreed to promptly prepare and submit to the NYSE a listing
application covering the Kranzco Common Shares issuable upon conversion of the
Kranzco Series B-1 Preferred Shares, to use its reasonable efforts to obtain,
prior to the Merger, approval for the listing of such Kranzco Common Shares on
the NYSE, subject to official notice of issuance, and to pay the listing fee in
connection therewith. Prior to the Merger, Kranzco shall, if and when notified
in writing by UPI, use reasonable efforts to cause the Kranzco Series B-1
Preferred Shares to be listed on the NYSE and UPI shall pay the listing fee in
connection therewith. If UPI does not request listing of the Kranzco Series B-1
Preferred Shares as aforesaid prior to the Merger, then after the Merger,
Kranzco shall, if and when notified in writing by holders of a majority of the
Kranzco Series B-1 Preferred Shares, use reasonable efforts to cause the Kranzco
Series B-1 Preferred Shares to be listed on the NYSE and holders of the Kranzco
Series B Preferred Shares shall pay the listing fee in connection therewith.
In the event of the destruction of or damage to any of the UPI Properties
by fire or other casualty, or any taking thereof by condemnation or eminent
domain, prior to the consummation of the Merger resulting in Target Costs (as
defined in the Merger Agreement) (without giving effect to insurance proceeds)
in excess of $5,000,000, Kranzco has the right, in its sole discretion, either
to (i) terminate the Merger Agreement or (ii) proceed to closing without any
abatement of the consideration to be received in the Merger by holders of UPI
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Common Stock or UPI Preferred Stock, and Kranzco's sole remedy would be, were it
to consummate the Merger, to succeed to UPI's claims, rights and proceeds,
whether from insurance or otherwise, by reason of the Merger.
UPI has agreed to use reasonable efforts to obtain and deliver to Kranzco
certain letters from UPI's 'affiliates,' as defined under Rule 145 promulgated
under the Securities Act. Kranzco has agreed to file reports required to be
filed by it under the Exchange Act and the rules and regulations promulgated
thereunder, and to take such further action as any affiliate of UPI may
reasonably request, all to the extent required from time to time to enable such
affiliate to sell Kranzco Series B Preferred Shares or, upon conversion, Kranzco
Common Shares upon conversion of Kranzco Series B Preferred Shares received by
such affiliate in the Merger without registration under the Securities Act
pursuant to Rule 145(d)(1) or any successor rule or regulation adopted by the
Commission.
UPI has agreed, among other things, to indemnify Kranzco and Newco, and
their respective affiliates, directors, trustees, shareholders, representatives,
employees and agents, from and against any and all damages, costs and expenses
up to an aggregate of $50,000 which are incurred by any or all of them by reason
of the action entitled John Winston vs. Leonard S. Mandor, Robert A. Mandor,
Joan LeVine, Harvey Jacobson, Gregory McMahon and Geoffrey S. Aaronson,
Milestone Properties, Inc. and Concord Assets Group, Inc. pending in the Court
in and for New Castle County, C.A. No. 14807 (the 'Pending Milestone Action') or
any other action or proceeding with respect to, or arising out of, the facts,
events and circumstances giving rise to the Pending Milestone Action. See 'THE
COMPANIES--Business of UPI--Legal Proceedings.'
After the Merger and to the extent Kranzco assumes any indebtedness or
other obligations as to which Milestone is liable pursuant to any Milestone
Obligation (as defined in the Merger Agreement), Kranzco has agreed to indemnify
Milestone, and its affiliates, directors, stockholders, representatives,
employees and agents, from and against any and all damages, costs and expenses
which are incurred by any or all of them by reason of the failure of Kranzco to
pay or perform any such indebtedness or other obligations in accordance with
their terms.
Conditions to the Merger
The respective obligations of Kranzco and Newco, on the one hand, and UPI,
on the other hand, to consummate the Merger are subject to the fulfillment or
waiver of each of the following conditions, among others: (a) the
representations and warranties of the other party (other than representations or
warranties qualified by reference to materiality or a Kranzco Material Adverse
Effect or a UPI Material Adverse Effect, as the case may be) being true in all
material respects, and the representations and warranties of the other party
qualified by reference to materiality or a Kranzco Material Adverse Effect or a
UPI Material Adverse Effect, as the case may be, being true, in each case, at
and as of the time of the Merger except for those representations and warranties
that were expressly made as of a specified earlier date; (b) the other party
shall have performed and complied in all material respects with all obligations
required by the Merger Agreement to be performed or complied with prior to or on
the time of the Merger; (c) receipt by each party of the other party's officer's
certificate certifying the fulfillment of the conditions specified in clauses
(b) and (c) above; (d) the other party shall have received an opinion of its
counsel that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code, and that
UPI and Kranzco will each be a party to that reorganization within the meaning
of Section 368(b) of the Code; (e) during the Contract Period, there shall not
have occurred any change in the financial condition, business, or operations of
the other party that could reasonably be expected to have a UPI Material Adverse
Effect or a Kranzco Material Adverse Effect, as the case may be; (f) no court,
agency or other authority shall have issued any order, decree or judgment
restraining, enjoining or preventing, and no law shall have been enacted which
restrains, enjoins or prevents, the consummation of the Merger; (g) the
Registration Statement shall have been declared effective under the Securities
Act and all necessary state securities or 'blue sky' permits or approvals
required to consummate the Merger shall have been obtained and no stop order
with respect to any of the foregoing shall be in effect; (h) Kranzco and UPI
shall have each received 'cold comfort' letters from the other party's
independent public accountants; and (i) the Shareholders and Voting Trust
Agreement (the 'Shareholders and Voting Trust Agreement') to be entered into
between Kranzco, on the one hand, and the UPI Affiliate Stockholders, on the
other hand, upon the consummation of the Merger, and the Registration Rights
Agreement shall have each been executed and delivered by the parties thereto.
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The obligation of Kranzco and Newco to effect the Merger is also subject to
the satisfaction or waiver of each of the following conditions, among others:
(a) the number of UPI Dissenting Shares shall not at any time exceed 7.5% of the
shares of UPI Common Stock outstanding at such time; (b) Kranzco shall have
received all filings, registrations, consents, authorizations, declarations or
approvals necessary to consummate the Merger, except where the failure to obtain
or make any such filings, registrations, consents, authorizations, declarations
or approvals, individually or in the aggregate, could not reasonably be expected
to have a Kranzco Material Adverse Effect; (c) Kranzco shall have obtained the
approval for the listing on the NYSE of the Kranzco Common Shares issuable upon
conversion of the Kranzco Series B Preferred Shares to be issued in the Merger,
subject to official notice of issuance; (d) the Merger Agreement and the Merger
shall have been approved on or before March 31, 1997 in the manner required by
applicable law by holders of the issued and outstanding shares of capital stock
or beneficial interest of UPI entitled to vote thereon and by applicable
regulations of any stock exchange or other regulatory body; (e) a person or
entity designated by UPI that shall own of record upon consummation of the
Merger Kranzco Series B Preferred Shares having a liquidation preference of at
least $1,000,000 (the 'Guarantor') shall have executed and delivered a Guaranty
Agreement in accordance with the Merger Agreement; (f) UPI shall have terminated
all of its contracts with its affiliates and shall have paid in full all of
UPI's obligations under such contracts; (g) UPI shall have redeemed such amount
of UPI Preferred Stock so that the applicable rate of interest used to determine
dividends shall have been 8% during the Contract Period; (h) UPI shall have
furnished certain estoppel certificates, as specified in the Merger Agreement;
(i) UPI shall have delivered certain financial statements, as specified by the
Merger Agreement, a statement of accounts receivable as of the date of the
consummation of the Merger and the Closing Adjustment Statement; and (j) Kranzco
shall have received title insurance policies for certain of the UPI Properties.
The obligation of UPI to effect the Merger is also subject to the
satisfaction or waiver of each of the following conditions, among others: (a)
UPI shall have received certain required consents; (b) the Merger Agreement and
the Merger shall have been approved in the manner required by applicable law by
the holders of the issued and outstanding shares of capital stock or beneficial
interest of UPI entitled to vote thereon and by applicable regulations of any
stock exchange or other regulatory body; (c) UPI shall have received the
Delaware Merger Certificate executed by Newco; (d) Kranzco shall have delivered
certain financial statements, as specified by the Merger Agreement; and (e)
either (i) UPI shall have caused Milestone to execute and deliver to Kranzco and
UPI a consent to the exchange of the Kranzco Series C Preferred Shares for the
UPI Preferred Stock in the Merger and a waiver of any claims with respect to the
fairness of such exchange or (ii) UPI shall have received the opinion of Societe
Generale or another investment banking firm to the effect that the consideration
to be paid to the holders of the UPI Preferred Stock pursuant to the Merger is
fair to the holders of UPI Preferred Stock from a financial point of view.
Termination of the Merger Agreement
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Merger, before or after the Special Meeting, in the
following circumstances: (a) by the mutual consent of UPI and Kranzco; (b) by
either UPI or Kranzco, if (i) the Merger shall not have been consummated by
March 31, 1997, unless the failure to consummate the Merger on or before such
date shall have proximately resulted from (A) a material breach or material
breaches by the terminating party of any of its representations or warranties
contained in the Merger Agreement (other than a representation or warranty
qualified by reference to materiality or a Kranzco Material Adverse Effect or a
UPI Material Adverse Effect, as the case may be), (B) a breach or breaches by
the terminating party of any of its representations or warranties contained in
the Merger Agreement qualified by reference to materiality or a Kranzco Material
Adverse Effect or a UPI Material Adverse Effect, as the case may be, or (C) a
material breach or material breaches of any agreement or covenant by the
terminating party contained in the Merger Agreement; or (ii) any permanent
injunction or other order, decree or ruling of a court or other competent
authority preventing the consummation of the Merger shall have become final and
nonappealable, provided, that the party seeking to terminate the Merger
Agreement shall have used all reasonable efforts to remove such permanent
injunction or other order, decree or ruling; (c) by UPI, if (i) in the exercise
of its good faith judgment as to its fiduciary duties to its stockholders
imposed by law, the UPI Board determines that such termination is required by
reason of a proposal for a UPI Acquisition Transaction being made; (ii) there
has been a breach or breaches of a representation or warranty of Kranzco or
Newco contained in the Merger Agreement and such breach or breaches could
reasonably be expected to have a Kranzco Material Adverse
55
<PAGE>
Effect; (iii) there has been a material breach or material breaches by Kranzco
of any of the covenants or agreements of Kranzco or Newco set forth in the
Merger Agreement on the part of Kranzco or Newco, which breach or breaches are
not curable or, if curable, are not cured within 30 days after written notice of
such breach or breaches is given by UPI to Kranzco; (iv) Kranzco amends, alters
or repeals, whether by merger, consolidation or otherwise, any of the provisions
of its Declaration of Trust so as to adversely affect, in the reasonable opinion
of UPI, the preferences, right to convert, conversion price adjustments, notice
rights, special conversion rights, distribution and liquidation rights,
preferences, restrictions or limitations, redemption rights and privileges or
voting powers or rights of Kranzco Series B Preferred Shares; or (v) Kranzco
reduces the dividend on Kranzco Common Shares below $0.48 per Kranzco Common
Share for any calendar quarter ending during the Contract Period, or (d) by
Kranzco, if (i) (A) the UPI Board fails to make, or withdraws, materially
modifies or changes in a manner adverse to Kranzco, its recommendation to the
UPI stockholders of the Merger Agreement or the Merger, or resolves to do any of
the foregoing (other than as a result of the occurrence of an event that, in the
good faith judgment of the UPI Board, has or could reasonably be expected to
have a Kranzco Material Adverse Effect) and the holders of a majority of the UPI
Common Stock outstanding do not promptly thereafter execute and deliver, or
shall not have previously executed and delivered, an agreement, in form and
substance reasonably satisfactory to Kranzco, pursuant to which such holders
agree to vote to approve the Merger Agreement and the Merger at the Special
Meeting and any adjournment thereof (provided, however, that if the Special
Meeting is held prior to the termination of the Merger Agreement by Kranzco and
the holders of a majority of the shares of UPI Common Stock outstanding vote to
approve the Merger Agreement and the Merger at such Special Meeting, then
Kranzco shall no longer have the right to terminate the Merger Agreement as
described in this clause (d)(i)(A)), or (B) the UPI Board shall have recommended
that the UPI stockholders accept or approve a UPI Acquisition Transaction with a
person other than Kranzco, or resolves to do the foregoing, (ii) the Special
Meeting has been duly convened and held and the approval of the UPI stockholders
required by the Merger Agreement shall not have been obtained at such meeting,
(iii) there has been a breach or breaches of a representation or warranty of UPI
contained in the Merger Agreement and such breach or breaches could reasonably
be expected to have a UPI Material Adverse Effect, or (iv) there has been a
material breach or material breaches by UPI of any of the covenants or
agreements of UPI set forth in the Merger Agreement, which breach or breaches
are not curable or, if curable, are not cured within 30 days after written
notice of such breach is given by Kranzco to UPI.
Effect of Termination of the Merger Agreement
If (i) Kranzco elects to terminate the Merger Agreement for the reasons
described in clauses (d)(i), (iii), or (iv) of '--Merger Agreement--Termination
of the Merger Agreement', provided in the case of clause (d)(iv) that such
breach or breaches of covenants either (A) are within the reasonable control of
UPI or (B) could reasonably be expected to have a UPI Material Adverse Effect;
(ii) Kranzco elects to terminate the Merger Agreement for the reason described
in clause (d)(ii) of '--Merger Agreement--Termination of the Merger Agreement',
unless certain affiliates of UPI used their best efforts to approve, and were
enjoined from approving, the Merger Agreement and the Merger; or (iii) UPI
elects to terminate the Merger Agreement for the reason described in clause
(c)(i) of '--Merger Agreement--Termination of the Merger Agreement', then UPI
(or the successor thereto) shall, upon such termination, pay to Kranzco as
liquidated damages and not as a penalty or forfeiture, $930,000 plus all
documented out-of-pocket costs and expenses, up to a maximum of $570,000,
incurred by Kranzco in connection with the Merger Agreement and the Merger. The
Merger Agreement provides for the placement by UPI of such amounts into escrow
in order to ensure Kranzco's compliance with certain limitations imposed by the
REIT provisions of the Code on certain types of income that may be realized by
Kranzco in connection with the receipt of such amounts. In the event of a
dispute between Kranzco and UPI as to the payment by UPI of such amounts,
Kranzco may not enjoin or seek to enjoin any merger, business combination, sale
of any of the UPI Properties, sale of any other assets, sale of shares of
capital stock or similar transaction by UPI, provided that UPI has entered into
arrangements reasonably satisfactory to Kranzco to secure the payment of such
amounts in the event such an amount is determined to be due and owing.
If UPI elects to terminate the Merger Agreement for the reasons described
in clause (c)(ii) or (iii) of '--Merger Agreement--Termination of the Merger
Agreement', provided in the case of clause (c)(iii) that such breach or breaches
of covenants either (i) are within the reasonable control of Kranzco or (ii)
could reasonably be expected to have a Kranzco Material Adverse Effect, then
Kranzco shall, upon such termination, pay to UPI as
56
<PAGE>
liquidated damages and not as a penalty or forfeiture, $930,000 plus all
documented out-of-pocket costs and expenses, up to a maximum of $570,000,
incurred by UPI in connection with the Merger Agreement and the Merger.
In the event of the termination of the Merger Agreement and the abandonment
of the Merger, all obligations of Kranzco, UPI and Newco will terminate, except
the obligations pursuant to Sections 8.02, 9.08, 9.10 of the Merger Agreement,
and the confidentiality agreements between UPI and Kranzco.
Fees
All costs and expenses incurred in connection with the negotiation and
execution of the Merger Agreement and the consummation of the Merger will be
paid by the party incurring such expenses, except for listing fees, certain
costs and expenses incurred by a party entitled to indemnification under the
Merger Agreement, certain enforcement costs, and as otherwise provided in the
Merger Agreement. The amount of certain costs and expenses incurred by UPI will
affect the amount of consideration received by the holders of UPI Common Stock,
as described in '--The Merger; Merger Consideration.'
Amendment and Waiver
The Merger Agreement may be amended by Kranzco and UPI at any time before
or after approval of the Merger Agreement and the Merger at the Special Meeting,
but, after any such approval, no amendment may be made which by law requires
further approval by the UPI stockholders without such further approval. At any
time prior to the Merger, Kranzco and UPI may, to the extent legally allowed,
(i) extend the time for the performance of any of the obligations or other acts
of the other parties to the Merger Agreement, (ii) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement or any related
documents and (iii) waive compliance with any of the agreements or conditions
contained in the Merger Agreement.
SHAREHOLDERS AND VOTING TRUST AGREEMENT
The UPI Affiliate Stockholders have agreed with Kranzco to enter into, upon
consummation of the Merger, the Shareholders and Voting Trust Agreement pursuant
to which the UPI Affiliate Stockholders will appoint Kranzco to act as proxy to
exercise the power to vote such UPI Affiliate Stockholders' Kranzco Common
Shares received upon conversion of such UPI Affiliate Stockholders' Kranzco
Series B Preferred Shares (the 'Subject Shares') for a period of up to 10 years
after the consummation of the Merger, subject to extension. Kranzco's right to
act as proxy with respect to any Subject Shares, however, shall terminate upon
the transfer of such Subject Shares in good faith to a bona fide third party who
is not a UPI Affiliate Stockholder or an affiliate of a UPI Affiliate
Stockholder provided, that such UPI Affiliate Stockholder does not retain any
economic benefit from, or control over the voting of, such Subject Shares. In
addition, Kranzco's right to act as proxy with respect to such Subject Shares
shall terminate upon a Special Conversion Event (as defined herein).
Each UPI Affiliate Stockholder also has agreed not to (i) convert any of
the Kranzco Series B Preferred Shares into Kranzco Common Shares until the
earlier of (a) the occurrence of a Special Conversion Event and (b) the third
anniversary of the consummation of the Merger, or (ii) transfer, or encumber any
of its Kranzco Series B Preferred Shares except to another UPI Affiliate
Stockholder or an affiliate of a UPI Affiliate Stockholder until after the third
anniversary of the consummation of the Merger unless the person to whom such
transfer is made agrees to become a party to the Shareholders and Voting Trust
Agreement. The Shareholders and Voting Trust Agreement does not prohibit the UPI
Affiliate Stockholders from transferring their Kranzco Series B Preferred Shares
at any time to a bona fide third party at which time the provisions of the
Shareholders and Voting Trust Agreement, with respect to such transferred
shares, will terminate.
GUARANTY AGREEMENT
The Guarantor will enter into the Guaranty Agreement with Kranzco and Newco
upon consummation of the Merger, pursuant to which the Guarantor will guarantee
to Kranzco and Newco the payment and/or reimbursement of all claims, losses,
costs and expenses incurred by Kranzco and Newco arising out of the breach by
UPI of any of its representations, warranties or covenants in the Merger
Agreement. The maximum obligation of the Guarantor is limited to $1 million plus
the cost of enforcing the Guaranty Agreement. The Guarantor will
57
<PAGE>
have the option to pay any amounts due under the Guaranty Agreement in cash or
by delivery of Kranzco Series B Preferred Shares based on a value of $25 per
Kranzco Series B Preferred Share. The Guaranty Agreement will be in effect with
respect to all claims made thereunder prior to the earlier of (a) twenty days
after the date of delivery to Kranzco of an audited opinion of Kranzco's
independent public accountants covering calendar year 1997 financial statements
and (b) fifteen months after the consummation of the Merger. The Guarantor will
agree that during the term of the Guaranty Agreement, the Guarantor will own
free and clear of any liens, claims and encumbrances (i) Kranzco Series B
Preferred Shares having an aggregate liquidation preference of at least $1
million, (ii) Subject Shares having an aggregate market value of at least $1
million, or (iii) any combination of (i) and (ii).
REGISTRATION RIGHTS AGREEMENT
Kranzco, upon consummation of the Merger, will enter into a Registration
Rights Agreement with the UPI Affiliate Stockholders pursuant to which Kranzco
will grant the UPI Affiliate Stockholders 'demand registration rights' and
'piggyback registration rights,' each as described below.
Under the demand registration rights, Kranzco will, after the third
anniversary of the consummation of the Merger, when requested by the Holders of
not less than 25% of the then outstanding Kranzco Series B Preferred Shares and
Kranzco Common Shares (collectively the 'Registrable Securities') owned by the
Holders in the aggregate, prepare and file a registration statement for the
registration of the requested amount of the Registrable Securities and use its
best efforts to have such registration statement declared effective by the
Commission and keep such registration statement effective until the earlier of
(i) such time as all of the Registrable Securities registered on such
registration statement are sold or (ii) three years from the date of the
effectiveness of such registration statement (a 'Demand Registration
Statement'). Kranzco shall only be required to file two such Demand Registration
Statements and the Holders shall pay substantially all fees, costs and expenses
associated with a Demand Registration Statement incurred by Kranzco.
In addition, under the piggyback registration rights, if at any time after
the third anniversary of the consummation of the Merger Kranzco proposes to file
a registration statement with the Commission under the Securities Act, the
Holders may elect to have any and all of the Registrable Securities owned by
them included in such registration statement (a 'Piggyback Registration
Statement'). The Holders shall pay substantially all incremental fees, costs and
expenses incurred by Kranzco as a result of the Registrable Securities being
included in a Piggyback Registration Statement. The Holders shall have the right
to exercise piggyback registration rights on any two occasions that Kranzco
shall determine to file a registration statement. Thereafter, the Holders of
Registrable Securities having an aggregate market value or liquidation
preference, as the case may be, of at least $1 million shall have the right to
exercise piggyback registration rights on any occasion that Kranzco proposes to
file a registration statement.
58
<PAGE>
SELECTED HISTORICAL AND UNAUDITED
COMBINED CONDENSED PRO FORMA FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL INFORMATION FOR KRANZCO AND SUBSIDIARIES
The following table sets forth selected financial information for Kranzco
and its subsidiaries and the Kranzco Controlled Properties(1) on an historical
cost basis. This information should be read in conjunction with and is qualified
in its entirety by, the historical financial statements (and the notes thereto)
of Kranzco and the Kranzco Controlled Properties incorporated by reference into
this Proxy Statement/Prospectus. The selected financial information for Kranzco
for the five years ended December 31, 1995 has been derived from audited
financial statements of Kranzco. The selected historical financial information
for the nine months ended September 30, 1996 and 1995 has been derived from
unaudited financial statements of Kranzco. The unaudited financial historical
statements of Kranzco for the nine months ended September 30, 1996 and 1995, in
the opinion of Kranzco, include all adjustments necessary to present fairly the
information set forth therein. However, the results of operations for the
interim periods are not necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
KRANZCO CONTROLLED
KRANZCO REALTY TRUST PROPERTIES
---------------------------------------------------- --------------------------
FOR THE PERIOD
FROM FOR THE KRANZCO REALTY TRUST
INCEPTION PERIOD FROM ------------------------
(JUNE 17, JANUARY 1,
1992) TO TO YEAR ENDED NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, NOVEMBER 18, DECEMBER 31, SEPTEMBER 30,
------------------------------------ -------------- ------------ ------------ ------------------------
1995 1994 1993 1992 1992 1991 1996 1995
----------- ----------- ---------- -------------- ------------ ------------ ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Revenues:
Minimum rent........ $ 40,259 $ 33,166 $ 27,688 $ 3,151 $ 3,988 $ 4,200 31,270 $ 29,735
Percentage rent..... 1,044 1,000 695 64 252 318 726 791
Expense
reimbursements.... 10,988 9,455 7,759 720 1,048 1,083 8,852 7,496
Other income........ 277 434 2,619 162 949 1,334 83 444
Interest income..... 902 985 948 26 0 0 523 673
----------- ----------- ---------- -------------- ------------ ------------ ----------- -----------
Total revenues.... 53,470 45,040 39,709 4,123 6,237 6,935 41,454 39,139
Operating expenses,
exclusive of
interest,
depreciation and
amortization........ 16,482 15,638 13,252 1,451 3,166 3,736 13,970 11,856
Interest expense...... 16,208 10,469 8,877 1,064 2,512 2,993 12,753 11,853
Depreciation and
amortization........ 10,903 9,066 7,636 782 1,097 1,175 8,434 8,113
----------- ----------- ---------- -------------- ------------ ------------ ----------- -----------
Income (loss) before
extraordinary
items............... 9,877 9,867 9,944 826 (538) (969) 6,297 7,317
Extraordinary items... 0 0 0 0 0 0 (11,115) 0
----------- ----------- ---------- -------------- ------------ ------------ ----------- -----------
Net income (loss)..... 9,877 9,867 9,944 826 (538) (969) (4,818) 7,317
Preferred dividends... 485 0 0 0 0 0 521 312
----------- ----------- ---------- -------------- ------------ ------------ ----------- -----------
Net income (loss)
available for common
shareholders of
Kranzco............. $ 9,392 $ 9,867 $ 9,944 $ 826 ($ 538) ($ 969) ($ 5,339) $ 7,005
----------- ----------- ---------- -------------- ------------ ------------ ----------- -----------
----------- ----------- ---------- -------------- ------------ ------------ ----------- -----------
Ratio of earnings to
fixed charges....... 1.50 1.72 1.99 1.78 0.79 0.68 1.40 1.51
EARNINGS PER SHARE:
Income (loss) before
extraordinary items
per Kranzco Common
Share............... 0.91 0.96 1.16 0.11 21.00 (203.00) 0.61 0.68
Net income (loss) per
Kranzco Common
Share............... 0.91 0.96 1.16 0.11 21.00 (203.00) (0.52) 0.68
Distributions to
Shareholders of
Kranzco per Kranzco
Common Share........ $ 1.92 $ 1.90 $ 1.84 $ .22 $ 0 $ 0 $ 1.44 $ 1.44
Weighted average
number of Kranzco
Common Shares
outstanding......... 10,322,858 10,315,497 8,590,850 8,064,497 1,000 1,000 10,326,086 10,318,184
BALANCE SHEET DATA:
Real estate, before
accumulated
depreciation........ $ 368,073 $ 318,870 $ 258,166 $ 225,596 $ 41,515 $ 40,675 $ 369,870 $ 367,618
Total assets.......... $ 372,983 $ 331,779 $ 298,813 $ 251,720 $ 40,481 $ 40,369 $ 361,668 $ 373,728
Total mortgages and
notes payable....... $ 204,247 $ 160,771 $ 118,566 $ 119,798 $ 32,620 $ 32,204 $ 212,716 $ 201,705
</TABLE>
- ------------------
(1) The Kranzco Controlled Properties consist of substantially all of the net
assets of Kranzco Realty, Inc., a predecessor of Kranzco, and the five of
the Kranzco Properties owned by a predecessor of Kranzco and acquired by
Kranzco in November 1992.
59
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION FOR UPI
The following table sets forth selected financial information for UPI on an
historical cost basis. This information should be read in conjunction with and
is qualified in its entirety by UPI's financial statements included elsewhere in
this Proxy Statement/Prospectus. The selected historical financial information
for each of the five years in the period ended December 31, 1995 has been
derived from audited financial statements. The selected historical information
for the nine months ended September 30, 1996 has been derived from unaudited
financial statements. The financial data presented in the table below includes
amounts relating to the UPI Properties for periods prior to the applicable date
of the UPI Transfer. Only revenue and expense amounts from the applicable date
of the UPI Transfer through December 31, 1995 and September 30, 1996,
respectively, are included below. The financial data presented below for the
years ended December 31, 1994 and 1995, prior to the UPI Transfer, gives effect
to an allocation to UPI of (i) a portion of the salaries of Milestone's officers
and certain other general and administrative expenses of Milestone and (ii) a
portion of Milestone's income tax expenses that UPI would have incurred had the
UPI Transfer been effected during such earlier periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------- -------------------------
1995 1994 1993 1992 1991 1996 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Revenue.................. $ 8,102 $ 7,908 $ 7,268 $ 5,396 $ 2,874 $ 6,173 $ 6,010
Net income before taxes.. 1,903 1,586 1,998 2,503 1,813 945 1,554
Net income after taxes... 1,161 968 1,998 2,503 1,813 576 1,010
Net income after
preferred dividends.... 1,063 968 1,998 2,503 1,813 271 1,010
Net income per share of
UPI Common Stock(3).... n/a n/a n/a n/a n/a 0.07 n/a
Ratio of earnings to
fixed charges and
preferred
dividends(1)........... 1.72 1.63 1.99 3.90 13.56 1.18 1.94
BALANCE SHEET DATA:
Total assets............. $ 51,650 $ 53,296 $ 52,371 $ 51,020 $ 27,602 $ 51,155 $ 51,917
Real estate assets....... 50,780 52,278 51,539 50,351 27,276 49,643 51,080
Total debt............... 29,043 29,704 24,967 17,807 3,840 30,545 29,212
UPI Preferred Stock...... 6,500 0 0 0 0 4,229 0
Stockholders' equity..... 15,412 n/a n/a n/a n/a 15,390 0
Net assets............... n/a 23,528 27,361 33,148 23,747 n/a $ 4,789
OTHER FINANCIAL DATA:
EBITDA(2)................ $ 6,160 $ 5,879 $ 6,129 $ 4,824 $ 2,665 $ 4,092 $ 4,789
Cash flow provided by
operations............. 3,419 2,660 3,964 3,695 2,520 1,620 2,968
OTHER REAL ESTATE DATA:
Number of UPI
Properties............. 16 16 15 14 11 16 16
Total gross leasable
area................... 1,346,435 1,346,435 1,293,733 1,177,581 673,542 1,346,435 1,346,435
Occupancy %.............. 99.0% 92.5% 95.5% 98.24% 99.17% 99.0% 92.7%
</TABLE>
- ------------------
(1) The ratio of earnings to fixed charges represents the number of times fixed
charges were covered by earnings. For purposes of the foregoing
calculations, fixed charges include interest and preferred dividend
requirements increased to an amount representing pre-tax earnings which
would be required to cover such dividend requirements. Earnings, for
purposes of the ratio, are equal to earnings before income taxes plus
interest and amortization of debt financing costs.
(2) Earnings before interest, taxes, depreciation and amortization ('EBITDA') is
defined as total revenues less operating expenses. Operating expenses is
defined as property operating and maintenance expenses (before depreciation
and amortization and any valuation allowance), property management fees,
real estates and general and administrative expenses. UPI believes that
EBITDA is a relevant financial measure used by companies within the real
estate industry to indicate a company's ability to service indebtedness.
EBITDA, however, should not be considered as an alternative to net income
(determined in accordance with generally accepted accounting principles) as
an indication of UPI's financial performance or to cash flow from operating
activities (determined in accordance with generally accepted accounting
principles) as a measure of liquidity.
(3) As a result of the UPI Transfer, historical earnings per share data has been
deleted as it does not provide meaningful information.
60
<PAGE>
SELECTED UNAUDITED COMBINED CONDENSED PRO FORMA FINANCIAL INFORMATION
FOR KRANZCO AND SUBSIDIARIES
The following tables set forth selected unaudited combined condensed pro
forma financial information for Kranzco and its subsidiaries as of September
30,1996, and for the nine months ended September 30, 1996 and for the year ended
December 31, 1995. The pro forma operating data has been presented in each case
as if the Merger had occurred as of January 1, 1995 and the pro forma balance
sheet has been presented as if the Merger had occurred on September 30, 1996.
Preparation of the selected unaudited combined condensed pro forma financial
information was based on assumptions deemed appropriate by the management of
Kranzco and UPI. The assumptions give effect to the Merger under the purchase
method of accounting in accordance with generally accepted accounting principles
and the combined entity qualifying as a REIT, distributing all of its taxable
income and, therefore, incurring no federal income tax expense during the
periods presented. The selected unaudited pro forma financial information is
based on unaudited financial information and is not necessarily indicative of
the results of operations which actually would have occurred if the transactions
had been consummated at the beginning of the periods presented, nor does it
purport to represent or project the future financial position and results of
operations for future periods. The pro forma information should be read in
conjunction with the historical financial statements of Kranzco (and the notes
thereto) incorporated by reference into this Proxy Statement/Prospectus and the
historical financial statements of UPI (and the notes thereto) included
elsewhere in this Proxy Statement/Prospectus.
61
<PAGE>
Pro Forma Combined Condensed Balance Sheet for Kranzco and Subsidiaries
as of September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
MERGER
KRANZCO UPI PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS TOTAL
------------ ------------ ----------- ---------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Shopping centers at cost, net.............................. $336,870 $ 48,938 $17,157(A) $402,965
Property held for sale, net................................ -- 705 -- 705
Cash and marketable securities............................. 7,195 471 (3,716)(B) 3,950
Restricted cash relating to mortgages...................... 278 -- -- 278
Rents and other receivables, net........................... 9,734 524 -- 10,258
Due from related party..................................... -- 41 (41)(C) 0
Prepaid expenses........................................... 2,776 273 -- 3,049
Deferred financing costs, net.............................. 1,911 203 (203)(C) 1,911
Other deferred costs, net.................................. 1,893 -- (50)(C) 1,843
Other assets............................................... 1,011 -- -- 1,011
------------ ------------ ---------
Total assets............................................... $361,668 $ 51,155 $425,970
------------ ------------ ---------
------------ ------------ ---------
LIABILITIES
Mortgages and notes payable................................ $212,716 $ 30,545 -- $243,261
Tenant security deposits................................... 1,126 -- -- 1,126
Accounts payable and accrued expenses...................... 1,732 734 -- 2,466
Due to related party....................................... -- 7 (7)(C) --
Other liabilities.......................................... 1,141 250 -- 1,391
Distributions Payable...................................... 5,106 -- -- 5,106
------------ ------------ ---------
Total liabilities.......................................... 221,821 31,536 253,350
------------ ------------ ---------
UPI Preferred Stock........................................ -- 4,229 (4,229)(E) --
Kranzco Series C Preferred Shares.......................... -- -- 4,229 (E) 4,229
BENEFICIARIES' EQUITY
Kranzco Common Shares and Kranzco Preferred Shares......... 104 38 (27)(D) 115
Capital in excess of par value............................. 187,129 15,180 13,353 (D) 215,662
Cumulative net income available for Kranzco Common
Shares................................................... 24,690 172 (172)(D) 24,690
Cumulative distributions on Kranzco Common Shares.......... (71,926) -- -- (71,926)
------------ ------------ ---------
139,997 15,390 168,541
------------ ------------ ---------
Unearned compensation on restricted Kranzco Common
Shares................................................... (150) -- -- (150)
------------ ------------ ---------
Total beneficiaries' equity................................ 139,847 15,390 -- 168,391
------------ ------------ ---------
Total liabilities and beneficiaries' equity................ $361,668 $ 51,155 -- $425,970
------------ ------------ ---------
------------ ------------ ---------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
62
<PAGE>
Notes and Management's Assumptions to Pro Forma Combined Condensed Balance Sheet
for Kranzco and Subsidiaries as of September 30, 1996
<TABLE>
<CAPTION>
Adjustment to reflect investment in properties at fair value and purchase price
(A) allocation:
(DOLLAR AMOUNTS
IN THOUSANDS)
---------------
Total Purchase Price.............................. $ 65,318
<S> <C> <C> <C>
Less: Other net assets acquired at fair value--
Cash.............................................. $ 471
Rents & Other receivables, net.................... 524
Due from related party............................ 41
Prepaid expenses.................................. 273
Accounts payable and accrued expenses............. (734)
Due to related party.............................. (7)
Other liabilities................................. (250) (318)
----------- ---------------
65,000
Plus: Acquisition costs........................... 1,800
---------------
66,800
Less: Historical book value of UPI Properties..... (49,643)
---------------
Net property adjustment........................... $ 17,157
---------------
---------------
(B) Adjustments to cash:
Property acquisition costs........................ $ 1,550
Preferred Share costs of registration............. 200
Cash merger expenses incurred by UPI.............. 2,000
Settlement of related party balances.............. 34
-----------
($3,716)
-----------
-----------
(C) To record closing adjustments:
Receipt of due from related party................. (41)
Reclassification of UPI costs in this transaction
to property..................................... (200)
Elimination of UPI's deferred financing costs not
related to this transaction..................... (203)
Reclassification of Kranzco's deferred transaction
costs........................................... (50)
Payment of due to related party................... (7)
(D) Adjustment to reflect purchase accounting in the equity section:
</TABLE>
<TABLE>
<CAPTION>
CAPITAL
COMMON AND IN EXCESS CUMULATIVE
PREFERRED SHARES OF PAR VALUE NET INCOME
---------------- ------------ -----------
<S> <C> <C> <C> <C>
Reverse UPI equity.............................................. ($38) ($15,180) ($172)
Issuance of Kranzco Series B Preferred Shares................... 11 28,733 --
Costs of Issuance............................................... -- (200) --
----- ------------ -----------
($27) $ 13,353 ($172)
----- ------------ -----------
----- ------------ -----------
</TABLE>
<TABLE>
<S> <C>
(E) To reflect the retirement of UPI Preferred Stock and the issuance of Kranzco Series
C Preferred Shares
</TABLE>
63
<PAGE>
Pro Forma Combined Condensed Statement Of Operations for Kranzco and
Subsidiaries
for the Nine Months Ended September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
MERGER
KRANZCO UPI PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS TOTAL
------------ ------------ ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Minimum rent.......................................... $ 31,270 $5,499 -- $ 36,769
Percentage rent....................................... 726 116 -- 842
Expense reimbursements................................ 8,852 502 -- 9,354
Interest income....................................... 523 -- -- 523
Other................................................. 83 56 -- 139
------------ ------------ ----------- -----------
Total revenues........................................ 41,454 6,173 -- 47,627
------------ ------------ ----------- -----------
Operating expenses:
Operations and maintenance............................ 7,099 438 -- 7,537
Real Estate Taxes..................................... 4,514 326 -- 4,840
General & Administrative.............................. 2,357 1,317 (977)(A) 2,697
------------ ------------ ----------- -----------
Total operating expenses.............................. 13,970 2,081 (977) 15,074
------------ ------------ ----------- -----------
Operating income...................................... 27,484 4,092 977 32,553
------------ ------------ ----------- -----------
Mortgage Interest..................................... 12,753 1,912 -- 14,665
Depreciation and amortization......................... 8,434 1,235 322(B) 9,991
------------ ------------ ----------- -----------
Net income before income taxes and extraordinary
items............................................... 6,297 945 655 7,897
Provision for income taxes............................ -- 369 (369)(C) --
------------ ------------ ----------- -----------
Net income before extraordinary items................. 6,297 576 1,024 7,897
------------ ------------ ----------- -----------
Preferred distributions:
Kranzco Series A Preferred Shares..................... 521 -- -- 521
Kranzco Series B Preferred Shares..................... -- -- 2,102(D) 2,102
Kranzco Series C Preferred Shares..................... -- 305 (51)(E) 254
------------ ------------ ----------- -----------
Total preferred share distributions................... 521 305 2,051 2,877
------------ ------------ ----------- -----------
Net income before extraordinary items for common
shareholders........................................ $ 5,776 $ 271 ($1,027) $ 5,020
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Net income before extraordinary items per common
share............................................... $ 0.56 $ 0.49
Weighted average Kranzco common shares outstanding.... 10,331,000 10,331,000
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
- ------------------
64
<PAGE>
Pro Forma Combined Condensed Statement Of Operations for Kranzco and
Subsidiaries
for the Year Ended December 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
UNION PROPERTY
KRANZCO REALTY INVESTORS, PRO FORMA
TRUST INC. ADJUSTMENTS TOTAL
-------------- -------------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Minimum rent.................................... $ 40,259 $ 7,156 -- $ 47,415
Percentage rent................................. 1,044 100 -- 1,144
Expense reimbursements.......................... 10,988 743 -- 11,731
Interest income................................. 902 -- -- 902
Other........................................... 277 103 -- 380
-------------- -------------- ----------- -----------
Total revenues.................................. 53,470 8,102 -- 61,572
-------------- -------------- ----------- -----------
Operating expenses:
Operations and maintenance...................... 7,605 544 -- 8,149
Real Estate Taxes............................... 5,948 482 -- 6,430
General & Administrative........................ 2,929 916 (440)(A) 3,405
-------------- -------------- ----------- -----------
Total operating expenses........................ 16,482 1,942 (440) 17,984
-------------- -------------- ----------- -----------
Operating income................................ 36,988 6,160 440 43,588
-------------- -------------- ----------- -----------
Mortgage Interest............................... 16,208 2,617 -- 18,825
Depreciation and amortization................... 10,903 1,640 429(B) 12,972
-------------- -------------- ----------- -----------
Net income before taxes......................... 9,877 1,903 11 11,791
Provision for income taxes...................... -- 742 (742)(C) --
-------------- -------------- ----------- -----------
Net income...................................... 9,877 1,161 753 11,791
-------------- -------------- ----------- -----------
Preferred distributions:
Kranzco Series A Preferred Shares............... 485 -- -- 485
Kranzco Series B Preferred Shares............... -- -- 2,803(D) 2,803
Kranzco Series C Preferred Shares............... -- 98 240(E) 338
-------------- -------------- ----------- -----------
Total preferred share distributions............. 485 98 3,043 3,626
-------------- -------------- ----------- -----------
Net income for common shareholders.............. $ 9,392 $ 1,063 ($ 2,290) $ 8,165
-------------- -------------- ----------- -----------
-------------- -------------- ----------- -----------
Net income per common share..................... $ 0.91 -- -- $ 0.79
Common shares outstanding....................... 10,323,000 -- -- 10,323,000
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
- ------------------
65
<PAGE>
The extraordinary loss of $11,052 on refinancing recorded in the second
quarter of 1996 and the loss of $63 on the sale of real estate recorded in the
first quarter of 1996 by Kranzco have been excluded from the pro forma
presentation of the Statement of Operations.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
(A) To eliminate general and administrative and management costs not incurred
after the Merger.
General and administrative................................................ $ 400 $ 527
Related party management fees............................................. 917 389
------------- ------------
1,317 916
Less: estimated general and administrative expenses....................... 340 476
------------- ------------
$ 977 $ 440
-------------
------------- ------------
------------
(B) To record additional depreciation incurred after the Merger.
Estimated adjustments to fair value upon Merger........................... $17,157 $ 17,157
------------- ------------
------------ ------------
Building portion of estimated adjustments to fair value upon Merger....... $12,868 $ 12,868
------------- ------------
------------- ------------
Depreciation expense calculated based on Kranzco's estimated useful life
of 30 years............................................................... $ 322 $ 429
------------- ------------
------------- ------------
(C) To eliminate income tax provision for Federal Income Tax.................. $ 369 $ 742
------------- ------------
------------- ------------
(D) To record preferred distributions of 9.75% on the Kranzco Series B
Preferred Shares..........................................................
Face value of the Kranzco Series B Preferred Shares....................... $28,744 $ 28,744
------------- ------------
------------- ------------
Distributions............................................................. $ 2,102 $ 2,803
------------- ------------
------------- ------------
(E) To record preferred distributions of 8% per year on $4,229 of the Kranzco
Series C Preferred Shares.
Face value of the Kranzco Series C Preferred Shares....................... $ 4,229 $ 4,229
------------- ------------
------------- ------------
Distributions............................................................. $ 254 $ 338
Less: previously recorded................................................. 305 98
------------- ------------
($51) $ 240
------------- ------------
------------- ------------
</TABLE>
66
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF UPI
GENERAL
UPI is currently engaged in the business of acquiring, owning and
developing real estate, primarily consisting of shopping centers and single
tenant commercial retail properties. Currently, UPI's business consists of
owning the UPI Properties.
Prior to entering into the Merger Agreement, UPI had been exploring certain
alternatives to enable it to qualify for treatment as a REIT or to sell UPI's
stock or assets to, or merge with, a REIT, to enhance its common stockholder
value and, to the extent it would enhance its common stockholder value to
qualify for treatment as a REIT, to explore opportunities for the acquisition of
additional REIT qualified assets, particularly income-producing properties.
RESULTS OF OPERATIONS
The revenue and expense amounts discussed in this management's discussion
and analysis for the years ended December 31, 1995 and 1994 include historical
revenue and expense amounts relating to the operation of the UPI Properties for
the years ended December 31, 1994 and 1993 and for the period from January 1,
1995 through October 30, 1995, the date of completion of the UPI Transfer. Such
amounts give effect to an allocation to UPI of a portion of the salaries of
Milestone's officers and general and administrative expenses related to
Milestone's corporate office and an allocation of Milestone's income taxes
associated with the historical revenue and expense amounts relating to the UPI
Properties that UPI would have incurred on a stand-alone basis. None of the
foregoing allocations were made with respect to UPI for the year ended December
31, 1993.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Revenues for the nine months ended September 30, 1996 increased by
$163,392, or 2.72%, to $6,173,467 from $6,010,075 for the nine months ended
September 30, 1995, primarily due to an increase in occupancy generating revenue
of approximately $160,000.
Operating expenses for the nine months ended September 30, 1996 increased
by $728,403, or 53.84%, to $2,081,259 from $1,352,856 for the nine months ended
September 30, 1995, primarily due to the net effect of (i) an increase in asset
and management fees to a related party of approximately $394,000 related to the
MPMI Agreement (as defined hereinafter) (ii) an increase in common area
maintenance expense of approximately $98,000 primarily due to increased snow
removal costs incurred in 1996, (iii) a decrease in insurance expense of
approximately $67,000 due to a lower insurance premium in 1996, and (iv) an
increase in professional fees of approximately $297,000 primarily due to
expenses incurred in connection with a possible sale or merger transaction.
Interest expense for the nine months ended September 30, 1996 increased by
$21,000, or 1.10%, to $1,911,899 from $1,890,899 for the nine months ended
September 30, 1995, primarily due to borrowings beginning in April 1996 drawn
against UPI's line of credit with First Union National Bank of Florida ('First
Union').
Depreciation and amortization for the nine months ended September 30, 1996
increased by $23,152, or 1.91%, to $1,235,729 from $1,212,577 for the nine
months ended September 30, 1995, primarily due to minor property improvements
incurred during 1995.
Calendar Year 1995 Compared to Calendar Year 1994
Revenues increased in 1995 by $194,413, or 2.46%, to $8,102,105 from
$7,907,692 in 1994, primarily due to the net effect of (i) an increase in base
rent revenue of approximately $133,000 due to a full year of operation of the
UPI Property located in Cary, North Carolina purchased on February 3, 1994 and a
general increase in occupancy, (ii) a decrease in percentage rent of
approximately $37,000 due to decreased tenant sales attributable to the
winding-down of operations at the Builders Square store at the UPI Property
located in Livonia, Michigan and the assignment of the operating lease at such
property to Musicland Group, Inc. and (iii) an increase in other
67
<PAGE>
income of approximately $101,000 primarily due to termination fee income
received in 1995 resulting primarily from the termination of a lease by PNC Bank
at the UPI Property located in Chambersburg, Pennsylvania.
Operating expenses decreased in 1995 by $86,708, or 4.27%, to $1,941,793
from $2,028,501 in 1994, primarily due to the net effect of (i) a decrease in
common area maintenance expenses of approximately $34,000 due to significant
expenses incurred in 1994 related to snow removal which were not incurred in
1995, (ii) a decrease in aggregate real estate tax expense of approximately
$25,000 due to lower assessments and/or lower tax rates in 1995, (iii) an
increase in management fees to a related party of approximately $137,000 due to
a change in the calculation of such fees in connection with the MPMI Agreement,
(iv) a decrease in insurance expense of approximately $55,000 due to a lower
premium in 1995 and (v) a decrease in salaries, general and administration, of
approximately $109,000 due to a reduction in corporate expenses.
Interest expense increased in 1995 by $137,858, or 5.56%, to $2,616,605
from $2,478,747 in 1994, due to a full year of interest expense in 1995
attributable to the financing secured by the mortgage on the UPI Property
located in Flint, Michigan, which financing was obtained on March 17, 1994, and
the mortgage on the UPI Property located in Cary, North Carolina obtained on
February 3, 1994.
Depreciation and amortization expense increased in 1995 by $51,042, or
3.21%, to $1,640,584 from $1,589,542 in 1994, primarily due to a full year of
depreciation expense in 1995 related to the UPI Property located in Cary, North
Carolina and due to additional building improvements of $119,387 paid for in
1995.
In 1994, Milestone recorded a valuation allowance of $224,488 for the UPI
Property located in Richmond, Virginia that was formerly leased to Ames
Department Store, Inc. in order to reflect its estimated net realizable value.
Ames rejected the lease on this property through its bankruptcy proceedings. In
1995, management determined that an additional write down of the property was
not necessary. Such property has been classified as property held for sale.
Calendar Year 1994 Compared to Calendar Year 1993
Revenues increased in 1994 by $639,864, or 9%, to $7,907,692 from
$7,267,828 in 1993, primarily due to (i) an increase of rental income of
$508,430 attributable to the acquisition in February 1994 of the UPI Property
located in Cary, North Carolina and a full year of rental income from the UPI
Property located in Columbus, Mississippi, which was acquired in April 1993, and
(ii) an increase in tenant reimbursements of $50,113 attributable primarily to
the UPI Property located in Cary, North Carolina.
Operating expenses increased in 1994 by $889,709, or 78%, to $2,028,501
from $1,138,792 in 1993, primarily due to (i) an increase in operating expenses
of $102,428 attributable to the acquisition of the UPI Property located in Cary,
North Carolina, (ii) an increase in operating expenses of $40,775 attributable
to a full year of operation for the UPI Property located in Columbus,
Mississippi, (iii) a general increase in common area maintenance expenses for
the UPI Properties and (iv) an increase in salaries, general and administration,
of approximately $575,000 as such costs were not allocable prior to fiscal year
1994.
Interest expense increased in 1994 by $465,148, or 23%, to $2,478,747 from
$2,013,599 in 1993, primarily due to (i) interest expenses of $185,311 and
$121,883 on the UPI Properties located in Flint, Michigan and Cary, North
Carolina, respectively, and (ii) increased interest expenses of $81,862 and
$61,054 on the UPI Properties located in Columbia, South Carolina and Columbus,
Mississippi, respectively. The interest expense for the Flint, Michigan property
is attributable to the indebtedness incurred on such property in March 1994,
which is secured by a mortgage on such property. The interest expense for the
Cary, North Carolina property is attributable to the acquisition of such
property in February 1994. The interest expense on the Columbia, South Carolina
property and the Columbus, Mississippi property increased in 1994 as a result of
such properties realizing interest expenses for a full year of operations as
compared with interest expenses on nine and eight months of operations,
respectively, for each such property in 1993.
Depreciation and amortization increased in 1994 by $83,135, or 6%, to
$1,589,542 from $1,506,407 in 1993, primarily due to depreciation increases of
$37,220 and $32,252 for the UPI Properties located in Cary, North Carolina and
Columbus, Mississippi, respectively.
68
<PAGE>
In 1994, Milestone recorded a valuation allowance of $224,488 for the UPI
Property located in Richmond, Virginia that was formerly leased to Ames
Department Store, Inc. in order to reflect its estimated net realizable value.
Ames Department Stores had previously leased such single tenant property but, in
the course of its Chapter 11 bankruptcy proceedings, had rejected the lease and
vacated the property in April 1993 pursuant to provisions of the U.S. Bankruptcy
Code and Ames' plan of reorganization. Such property has been classified as
property held for sale.
MERGER EXPENSES
On November 12, 1996, UPI entered into the Merger Agreement. Through the
first nine months of 1996, UPI incurred merger costs (comprised primarily of
legal, financial advisor and accounting fees) of approximately $200,000. UPI
expects to incur significant additional merger-related costs prior to
consummation of the Merger.
LIQUIDITY AND CAPITAL RESOURCES
A significant portion of UPI's cash flows from operations is currently
being used to pay principal and interest expenses on the mortgages underlying
the UPI Properties and to pay to Milestone (i) certain fees for administrative
and property management services pursuant to the MPMI Agreement and the
Management Services Agreement (as defined hereinafter) and (ii) dividends and
the quarterly redemption price for the UPI Preferred Stock.
Most of the UPI Properties are encumbered by first mortgages. As of
December 19, 1996, borrowings on the UPI Properties consisted of the following:
(1) a $1.6 million mortgage obtained in October 1989 encumbering the Livonia,
Michigan property; (2) a $2.2 million mortgage obtained in December 1991
encumbering the Harrodsburg, Kentucky property; (3) a $5.5 million mortgage
obtained in January 1992 encumbering the Chambersburg, Pennsylvania property;
(4) a $5.1 million mortgage obtained in June 1992 encumbering the Bainbridge,
Georgia property; (5) a $3.1 million mortgage obtained in December 1992
encumbering the Spartanburg, South Carolina property; (6) a $4.7 million
mortgage obtained in March 1993 encumbering the Columbia, South Carolina
property; (7) a $2.1 million mortgage obtained in April 1993 encumbering the
Columbus, Mississippi property; (8) a $1.6 million mortgage obtained in February
1994 encumbering the Cary, North Carolina property and (9) a $3.2 million
mortgage obtained in March 1994 encumbering the Flint, Michigan property.
As a result of UPI's redemptions of the UPI Preferred Stock, the dividend
rate on the UPI Preferred Stock decreased from 9% to 8% effective January 1,
1996. The 8% dividend rate will remain in effect to the extent that a minimum of
$270,833 of the UPI Preferred Stock is redeemed quarterly (see 'DESCRIPTION OF
UPI CAPITAL STOCK--UPI Preferred Stock'). On each of July 1, 1996 and October 1,
1996, UPI redeemed 27,083 shares of the UPI Preferred Stock for a per quarter
redemption price of $270,833.
UPI has a $3,000,000 line of credit with First Union with borrowings to
bear interest, at the option of UPI, at either prime plus 0.25% or LIBOR plus
2.2%. The line of credit, which was obtained by Milestone in February 1995 and
assigned to UPI in November 1995, has an 18-month term which may be extended and
is secured by a first mortgage encumbering the UPI Property located in
Morganton, North Carolina. Although, the term of such line came due on October
24, 1996, UPI entered into an agreement with First Union on December 19, 1996 to
extend the line until the earlier of March 31, 1997 or the consummation of the
Merger. As of September 30, 1996, UPI had borrowed $2,000,000 which was then
outstanding under such line of credit.
UPI's existing borrowings and the encumbrances on the UPI Properties
securing those borrowings may inhibit or result in increased costs to UPI in
connection with its ability to incur future indebtedness and/or raise
substantial equity capital in the marketplace.
UPI expects to meet its short term financing needs with cash generated from
the operation of the UPI Properties and funds available under its line of credit
with First Union. UPI is not aware of any trends or events, commitments or
uncertainties that will impact liquidity in a material way, and management
believes that the cash generated from operations, cash presently on hand, and
the availability of the First Union credit line will be sufficient to meet UPI's
cash needs through 1997.
69
<PAGE>
CASH FLOWS
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Net cash flow provided by operating activities of $1,619,785 for the nine
months ended September 30, 1996 included net income of $575,657, non-cash
adjustments to net income of $1,235,729 for depreciation and amortization
expense, and a net change in operating assets and liabilities of $191,601,
compared to net cash flow provided by operating activities of $2,389,014 for the
nine months ended September 30, 1995, which included net income of $1,009,933,
non-cash adjustments to net income of $1,212,577 for depreciation and
amortization expense, and a net change in operating assets and liabilities of
$166,504.
Net cash flow used in investing activities of $80,385 for the nine months
ended September 30, 1996 included capital expenditures for property
improvements. For the nine months ended September 30, 1995, no cash was used in
or provided by investing activities.
Net cash flow used in financing activities of $1,171,136 for the nine
months ended September 30, 1996 included principal repayments on mortgages and
notes payable of $497,927, proceeds from mortgage note payable of $2,000,000,
redemptions of $2,270,833 of UPI Preferred Stock, payment of dividends of
$304,579 on the UPI Preferred Stock, and a decrease in redeemable preferred
stock dividend payable of $97,797, compared to net cash flow used in financing
activities of $2,389,014 for the nine months ended September 30, 1995, which
included principal repayments on mortgages and notes payable of $492,271, and
net distributions to the corporate accounts of Milestone of $1,896,743.
Calendar Year 1995 Compared to Calendar Year 1994
Net cash flow provided by operating activities of $3,418,900 for the year
ended December 31, 1995 included net income of $1,160,905 adjusted for non-cash
items (depreciation and amortization) of $1,640,584 and a net change in
operating assets and liabilities of $617,411, compared to net cash flow provided
by operating activities of $2,660,279 for the year ended December 31, 1994,
which included net income of $967,713 adjusted for non-cash items (depreciation
and amortization and valuation allowance) of $1,814,030 and a net change in
operating assets and liabilities of $121,464.
Net cash flow used in investing activities of $119,387 for the year ended
December 31, 1995 included capital outlay for building improvements compared to
net cash flow used in investing activities of $827,697 for the year ended
December 31, 1994, which included a cash outlay of $575,000 for the purchase of
the UPI Property located in Cary, North Carolina and a capital outlay of
$252,697 for building improvements.
Net cash flow used in financing activities of $3,196,696 for the year ended
December 31, 1995 included principal repayments on mortgages and notes payable
of $661,477, payment of dividends on the UPI Preferred Stock of $97,797, and net
distributions of $2,535,219 to the corporate accounts of Milestone, compared to
net cash flow used in financing activities of $1,832,582 for the year ended
December 31, 1994, which included principal repayments on mortgage payable of
$538,368, proceeds for the Cary mortgage of $3,550,000, and net distributions of
$4,844,214 to the corporate accounts of Milestone.
70
<PAGE>
THE COMPANIES
BUSINESS OF KRANZCO
Kranzco is a self-administered and self-managed equity REIT, formed in
1992, and is in the business of owning, managing, operating, leasing, acquiring
and expanding neighborhood and community shopping centers. In addition to its
own properties, Kranzco provides management services for properties owned by
third parties. As of December 19, 1996, Kranzco owned and operated 38
neighborhood and community shopping centers aggregating approximately 5.7
million square feet of gross leasable area located in Connecticut, Maryland, New
Jersey, New York, Pennsylvania, Rhode Island and Virginia.
Kranzco's operating strategies are, among others, to focus on the
neighborhood and community shopping center business, actively manage its
properties for long-term growth in funds from operations and capital
appreciation, maintain, renovate, expand and reconfigure the properties and
develop or lease out parcels. Kranzco also intends to continue to make
acquisitions where the opportunity to do so on satisfactory terms and conditions
presents itself.
The following table sets forth certain information as of November 1, 1996
relating to the Kranzco Properties.
71
<PAGE>
<TABLE>
<CAPTION>
AVERAGE
GROSS TOTAL MINIMUM
SHOPPING LOCATION YEAR OWNERSHIP LAND LEASABLE ANNUALIZED RENT
CENTER OF SHOPPING DEVELOPED INTEREST/ AREA AREA MINIMUM PER
PROPERTY CENTER OR ACQUIRED (EXPIRATION) (ACRES) (SQ. FT.) RENT SQ. FT.
- ------------------- ---------------- ----------- ----------------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Connecticut
Golfland Orange 1984 Fee 6.20 60,580 $ 512,304 $ 8.46
Groton Square Groton 1987 Fee 17.74 191,278 1,943,178 $10.47
Manchester Kmart Manchester 1994 Fee 21.06 183,376 525,680 $ 3.13
Plaza
Milford Milford 1966 Leasehold (2020) 3.00 25,200 230,515 $ 9.15
Orange Orange 1967 Leasehold (2006) 3.43 27,000 163,350 $ 6.05
Parkway Plaza I Hamden 1982 Fee 6.55 72,630 570,082 $ 9.23
Parkway Plaza II Hamden 1985 Fee 8.00 154,634 503,220 $ 7.65
Stratford Square Stratford 1984 Fee 19.58 159,432 1,259,869 $ 8.55
Maryland
Anneslie Baltimore 1993 Fee 9.26 175,444 1,103,907 $ 6.29
Campus Village College Park 1995 Fee 1.89 25,529 371,263 $19.57
Coral Hills Coral Hills 1995 Fee 7.00 86,050 849,794 $10.50
Fox Run Prince Frederick 1994 Fee 40.87 288,278 2,337,928 $ 8.21
Hillcrest Plaza Frederick 1995 Fee 12 109,071 822,047 $ 8.44
New Jersey
Collegetown Glassboro 1989 Fee 23.00 250,223 1,165,137 $ 4.82
Hillcrest Mall Phillipsburg 1985 Fee 18.00 220,985 1,101,441 $ 6.19
Suburban Plaza Hamilton 1994 Fee 23.15 239,723 1,794,241 $ 7.48
New York
A & P Mamaroneck Mamaroneck 1976 Fee 2.17 24,978 177,000 $ 7.09
Cross County Yonkers 1986 Fee 10.07 216,018 3,400,157 $16.29
Square
High Ridge Yonkers 1977 Fee 8.90 88,501 1,127,595 $13.25
North Ridge New Rochelle 1971 Fee 2.80 43,265 696,367 $20.42
Port Washington Port Washington 1968 Leasehold (2067) 1.00 19,600 97,200 $ 5.40
Village Square Larchmont 1981 Fee 0.93 17,126 272,613 $17.70
Pennsylvania
69th Street Plaza Upper Darby 1994 Fee 2.96 42,500 423,224 $ 9.96
Barn Plaza Doylestown 1987 Fee 35.00 181,264 1,499,193 $ 8.71
Bensalem Square Bensalem 1983 Fee 16.38 72,683 711,086 $10.12
Best Plaza Tredyffrin 1993 Fee 11.14 113,000 1,004,746 $ 8.89
Bethlehem Square Bethlehem 1987 Fee 48.00 386,820 2,832,526 $ 7.32
Bradford Mall Bradford 1990 Fee (2) 30.00 287,389 589,016 $ 2.92
Bristol Commerce Bristol 1992 Fee 50.00 273,133 2,285,038 $ 8.53
Park
MacArthur Road Whitehall 1993 Fee 4.74 51,100 161,880 $ 5.89
Park Hills Plaza Altoona 1985 Fee 24.00 259,664 1,721,621 $ 6.63
Pilgrim Gardens Drexel Hill 1986 Fee 5.00 83,268 787,904 $ 9.60
Street Road Bensalem 1993 Fee 10.35 68,031 682,301 $10.49
Valley Forge Mall Phoenixville 1985 Fee 18.00 173,562 266,154 $ 4.16
Whitehall Square Whitehall 1986 Fee 30.44 298,023 2,615,564 $ 8.78
Rhode Island
Wampanoag Plaza East Providence 1989 Fee 18.00 235,325 1,096,649 $ 5.63
Virginia
Culpeper Town Mall Culpeper 1995 Fee 27.48 131,086 520,572 $ 4.50
Marumsco-Jefferson Woodbridge 1995 Fee 36.00 331,224 1,936,928 $ 7.18
Plz.
------- --------- -----------
Total 614.09 5,666,993 $40,159,290 $ 7.91
------- --------- -----------
------- --------- -----------
<CAPTION>
SHOPPING ANNUAL
CENTER PERCENTAGE PERCENT
PROPERTY RENT LEASED ANCHOR TENANTS (LEASE EXPIRATION/OPTION EXPIRATION)
- ------------------- ---------- ------- ---------------------------------------------------------------
<S> <C> <C> <C>
Connecticut
Golfland $ 0 100.00 % Pathmark (2008/2038)(1)
Groton Square 11,350 97.06 % Bradlees (2007/2027), Stop & Shop (2007/2027)
Manchester Kmart 0 91.55 % Kmart (1997/2022), Edward's Super Food Store (1998/2023),
Plaza Pep Boys (2016/2036)(1)
Milford 18,271 100.00 % Xpect Discount Drug (1999/2009)
Orange 0 100.00 % Pergament Express (2004/2004)
Parkway Plaza I 0 85.06 % Pathmark (2007/2037)(1)
Parkway Plaza II 0 42.52 % Kids R Us (2006/2026), Rickels (2005/2035)(1)
Stratford Square 0 92.43 % Pathmark (2009/2039), Marshalls (2000/2010)(1)
Maryland
Anneslie 0 100.00 % Caldor (2011/2041)
Campus Village 0 74.32 % None
Coral Hills 0 94.07 % Shoppers Food Warehouse (2004/2029)
Fox Run 591 98.79 % Kmart (2016/2066), Giant Foods (2021/2051), Peebles
(2012/2032),
Raley's Home Furnishings (2004/2014)
Hillcrest Plaza 1,636 89.27 % Shoppers Food Warehouse (1999/2024)
New Jersey
Collegetown 142,617 96.61 % Kmart (2001/2021), Acme (1999/2044), Pep Boys (2015/2035)
Hillcrest Mall 95,575 80.50 % Superfresh (1998/2008), Rickel Home Centers (2005/2030)
Staples (2010/2025), R & S Strauss (2010/2025)(3)
Suburban Plaza 0 100.00 % Caldor (2013/2033), Shop Rite (2002/2020)
New York
A & P Mamaroneck 0 100.00 % A & P (2006/2016)
Cross County 12,657 96.65 % Rickel Home Centers (2012/2032),Kids R Us (2008/2018),
Square The Sports Authority (2010/2025), T.J. Maxx (2004/2014)
High Ridge 9,431 96.19 % Pathmark (2003/2027)
North Ridge 0 78.83 % None
Port Washington 4,095 91.84 % North Shore Farms (1998/2033)
Village Square 0 89.92 % Don Emilio Restaurant (1997/2002) (4)
Pennsylvania
69th Street Plaza 0 100.00 % Drug Emporium (2000/2000)
Barn Plaza 92,950 94.98 % Acme (2007/2037), Marshalls (2004/2019), Toy Warehouse
(2004/2014)
Bensalem Square 0 96.68 % Pathmark (2009/2039)
Best Plaza 0 100.00 % Best Products (2010/2030)
Bethlehem Square 590 100.00 % Bradlees (2007/2025),T.J. Maxx (2006/2021),
Shop Rite (2010/2030), Toy Works (2000/2015), Home Depot
(2010/2040)
Bradford Mall 56,589 70.08 % Kmart (2004/2049), Consolidated Stores (2002/2012)
Bristol Commerce 0 98.06 % Superfresh (2008/2038), Caldor (2013/2033)
Park
MacArthur Road 0 53.79 % Frank's Nursery (2002/2032)
Park Hills Plaza 77,878 100.00 % Weis Market (1996/2014), Dunham's Sporting Goods(2004/2014),
Carmlike Cinemas (2006/2016), Toys R Us (2015/2035), Staples
(2010/2020), Superpetz (2005/2015)
Pilgrim Gardens 0 98.56 % Loehmann's (2003/2013), QVC Network, Inc. (1999/1999)
Street Road 0 95.59 % Drug Emporium (1997/2002), Frank's Nursery (2007/2022)
Valley Forge Mall 53,874 36.88 % Thrift Drug (2000/2010) (5)
Whitehall Square 0 100.00 % Bradlees (2006/2024), Phar Mor (2001/2016),
The Sports Authority (2006/2036), Kids R Us (2007/2027)
Rhode Island
Wampanoag Plaza 20,471 82.84 % Rx Drug (2001/2016), Cherry, Webb & Touraine (2000/2005),
Marshalls (2001/2001), Savers/TVI, Inc.(2010/2025)(1)
Virginia
Culpeper Town Mall 1,985 88.20 % Central Tractor(2000/2010), Schewel Furniture (2001/2006)
Marumsco-Jefferson 189,005 81.40 % Giant Food Store(2004/2024),Peebles (1999/2004),
Plz. Consolidated Stores (2002/2012), Hub Furniture(1997/2012)
----------
$789,565 89.55 %
----------
----------
</TABLE>
- ------------------
(1) Includes space for which rent is being paid but which is not presently
occupied.
(2) 84,692 square feet gross leasable area is subject to a ground lease which
expires in 2004.
(3) Rickels has rejected their lease and vacated Hillcrest Mall in November
1996.
(4) Don Emilio Restaurant vacated in November 1996.
(5) Kranzco signed a lease in November 1996 to lease 60,140 square feet to Ames
Realty II.
72
<PAGE>
BUSINESS OF UPI
General
UPI is currently engaged in the business of acquiring, owning and
developing real estate, primarily consisting of shopping centers and single
tenant commercial retail properties. Currently, UPI's operations consist of the
ownership of the UPI Properties.
UPI was incorporated under the laws of the State of Delaware on November 1,
1994, and, until November 20, 1995, was a wholly owned subsidiary of Milestone.
UPI was formed by Milestone for the purpose of effecting the UPI Transfer and
the UPI Spin-off. On October 30, 1995, Milestone completed the UPI Transfer, and
on November 20, 1995, Milestone effected the UPI Spin-Off.
There are no limitations on the percentage of assets of UPI which may be
invested in any one investment or on the type of investments UPI may make. UPI's
policies towards its investments are not subject to the vote of UPI's
stockholders. UPI does not intend to invest in the securities of other
companies.
Description of Business
UPI's operations currently consist of the ownership of the UPI Properties,
which are located in the following cities and states:
<TABLE>
<CAPTION>
Tucson, Arizona Brookhaven, Mississippi
<S> <C>
Bainbridge, Georgia Columbus, Mississippi
Harrodsburg, Kentucky Cary, North Carolina
Raynham, Massachusetts Morganton, North Carolina
Flint, Michigan Chambersburg, Pennsylvania
Livonia, Michigan Columbia, South Carolina
Minnetonka, Minnesota Spartanburg, South Carolina
Roseville, Minnesota Richmond, Virginia
</TABLE>
Management Agreements
UPI entered into a property management agreement (the 'MPMI Agreement') on
November 20, 1995 with Milestone Property Management, Inc. ('MPMI'), a wholly
owned subsidiary of Milestone, under which MPMI performs property management and
leasing services for the UPI Properties. Under the MPMI Agreement, MPMI is paid
an annual fee of $5,000 for each single tenant UPI Property managed and a fee
based on a percentage of the base rental incomes for the remaining UPI
Properties. UPI estimates that it will pay MPMI an aggregate fee of
approximately $257,000 for property management services provided by MPMI to UPI
in 1996 under the MPMI Agreement.
On November 20, 1995, UPI entered into a management services agreement (the
'Management Services Agreement') with Milestone. Under such agreement, (i)
Milestone is required to present to UPI asset acquisition opportunities
consistent with the policies and objectives of UPI and to furnish the UPI Board
with information concerning the acquisition, holding, performance and
disposition of portfolio assets, (ii) UPI is provided with office space in
Milestone's principal executive office and Milestone's employees, some of whom
are executive officers of UPI, provide all levels of employee services to UPI,
and (iii) UPI is obligated to pay Milestone a fee equal to approximately 1.5% of
the value of the UPI Properties based primarily on each UPI Property's net
operating income from the prior year. UPI estimates that it will pay Milestone
an aggregate fee of approximately $963,000 for general management services
provided by Milestone to UPI in 1996 under the Management Services Agreement.
Pursuant to the terms of the Merger Agreement, both the MPMI Agreement and
the Management Services Agreement will be terminated if and when the Merger is
consummated.
73
<PAGE>
The UPI Properties
The sixteen UPI Properties consist of seven single tenant commercial
properties and nine shopping centers having, in the aggregate, a gross leasable
area ('GLA') of approximately 1,346,000 square feet. The following tables
describe the UPI Properties by project type and geographical location:
<TABLE>
<CAPTION>
GLA PERCENTAGE
NUMBER OF (SQUARE OF
TYPE OF PROPERTY PROPERTIES FEET) TOTAL GLA
- ------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Single Tenant--Retail......... 5 284,840 21.2%
Single Tenant--Restaurant..... 2 8,948 .6
-- --------- ---------
Total Single Tenant......... 7 293,788 21.8
Shopping Centers.............. 9 1,052,648 78.2
-- --------- ---------
Total Properties............ 16 1,346,436 100.0%
-- --------- ---------
-- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
GLA PERCENTAGE
NUMBER OF (SQUARE OF
LOCATION PROPERTIES FEET) TOTAL GLA
- ---------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Northeast............................... 1 55,000 4.1%
Mid-Atlantic............................ 4 379,822 28.2
Central................................. 5 228,996 17.0
Southeast............................... 3 504,038 37.4
South................................... 2 163,740 12.2
Southwest............................... 1 14,840 1.1
-- --------- ---------
16 1,346,436 100.0%
-- --------- ---------
-- --------- ---------
</TABLE>
Nine of the UPI Properties can be classified as neighborhood or community
shopping centers while the other seven UPI Properties are single tenant
commercial buildings. Two of the single tenant buildings are contiguous to, or
part of, a larger shopping complex. In such cases, the entire complex is
governed by a reciprocal easement agreement, the intent of which is to generally
ensure that such contiguous properties are operated as one in terms of
availability and accessibility to all customers of the complex. Maintenance of
the respective areas, and the costs associated therewith, is the sole
responsibility of each of the owners of the portions of the complex. Management
believes that all of the UPI Properties are adequately insured.
Generally, the neighborhood and community shopping centers are located in
secondary type markets. These smaller cities are characterized by an employment
base which is predominantly light industrial augmented by employment in the
service and governmental sectors. In some cases, employment extends to the
agricultural sector. The majority of the single tenant properties and three of
the strip centers are located in suburbs of major metropolitan areas. No tenant
accounted for more than 10% of UPI's gross revenues from real estate in 1995.
Real Estate Taxes
Real estate taxes on the UPI Properties are subject to increases in the
future that may result from reassessment and/or increases in the tax rate. The
following table sets forth selected information relating to real estate taxes
and tax rates for each of the UPI Properties.
74
<PAGE>
<TABLE>
<CAPTION>
ANNUAL Y/E 1995
REAL ESTATE REALTY TAX FEDERAL DEPRECIATION
LOCATION PROPERTY GLA ACREAGE TAXES RATE TAX BASIS RATE(1)
- -------------------- ------------------------- ------- ------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bainbridge, GA...... Bainbridge Town Center 143,729 19.9 $ 23,604 2.560% $5,627,630 3.17%
Brookhaven, MS...... Brookway Village 47,587 6.0 $ 34,986 2.058% $2,584,733 2.50%
Cary, NC............ Cary Plaza 52,702 9.5 $ 42,348 1.252% $1,388,850 2.55%
Chambersburg, PA.... Franklin Center 167,554 26.9 $ 112,198 13.480% $5,813,334 3.17%
Columbia, SC........ Park Center 189,985 28.1 $ 76,696 1.757% $4,421,400 3.17%
Columbus, MS........ Towne Square 116,153 9.8 $ 74,825 2.339% $2,749,466 3.15%
Flint, MI........... Builders Square 80,000 8.2 N/A N/A $3,994,371 4.43%
Harrodsburg, KY..... Harrodsburg Marketplace 60,048 8.9 $ 24,241 0.916% $2,462,093 3.17%
Livonia, MI......... Builders Square 80,000 8.8 N/A N/A $3,513,498 2.97%
Minnetonka, MN...... Vicorp Rest. 3,881 1.3 N/A N/A $ 972,383 2.97%
Morganton, NC....... Magnolia Plaza 104,726 15.7 $ 40,067 1.021% $6,139,672 2.48%
Raynham, MA......... Ames 55,000 6.0 N/A N/A $2,109,948 4.43%
New Bridge Shopping
Richmond, VA........ Center 55,000 6.0 $ 17,405 N/A $1,684,183 4.43%
Roseville, MN....... Vicorp Rest. 5,067 1.3 N/A N/A $1,228,579 2.97%
Spartanburg, SC..... East Main Center 170,322 23.1 $ 50,612 2.337% $3,318,878 3.14%
Tucson, AZ.......... Insilco Corp. 14,840 0.7 N/A N/A $ 810,647 4.43%
<CAPTION>
LIFE
METHOD TAXABLE/NONTAXABLE
LOCATION TAXABLE/NONTAXABLE (YRS)
- -------------------- ------------------------- ------------------
<S> <<C> <C>
Bainbridge, GA...... Straight Line 31.5
Brookhaven, MS...... Straight Line 40
Cary, NC............ Straight Line 39
Chambersburg, PA.... Straight Line 31.5
Columbia, SC........ Straight Line 31.5
Columbus, MS........ Straight Line 31.5
ACRS Real Property /
Flint, MI........... Straight Line 19 / 40
Harrodsburg, KY..... Straight Line 31.5
MACRS Real Property /
Livonia, MI......... Straight Line 31.5 / 40
MACRS Real Property /
Minnetonka, MN...... Straight Line 31.5 / 40
Morganton, NC....... Straight Line 40
ACRS Real Property /
Raynham, MA......... Straight Line 19 / 40
ACRS Real Property /
Richmond, VA........ Straight Line 19 / 40
MACRS Real Property /
Roseville, MN....... Straight Line 31.5 / 40
Spartanburg, SC..... Straight Line 31.5
ACRS Real Property /
Tucson, AZ.......... Straight Line 19 / 40
</TABLE>
- ------------------
(1) The depreciation rate represents the combined rates for both the taxable and
the nontaxable portion of the assets, where applicable, for 1995.
75
<PAGE>
Mortgages on the UPI Properties
Ten of the UPI Properties are encumbered by first mortgages. The following
table sets forth selected information regarding the debt on the UPI Properties.
<TABLE>
<CAPTION>
PRINCIPAL
BALANCE AT
LOCATION 9/30/96 INTEREST RATE AMORTIZATION PROVISIONS PREPAYMENT PROVISIONS
- -------------------- ----------------- ----------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Livonia, MI......... $ 1,580,720 9.625% Monthly interest payments of No prepayment during first
$12,833 until 11/1/94; prin. five years
and int. payments of $13,600
based on 30 yr. amortization
until maturity
Harrodsburg, KY..... $ 2,183,341 9.75% until Dec Monthly payments of prin. and No prepayment penalty
93; 10% until int. of $19,245 until Jan.
maturity 1994; $19,658 from Feb. 94
until maturity
Chambersburg, PA.... $ 5,446,125 9.00% Monthly principal payments of No prepayment penalty
$3,525 plus interest on
outstanding balance based on
29.16 year amortization
schedule
Bainbridge, GA...... $ 5,074,001 10.00% Monthly payments of interest No prepayment during first
only until maturity five years
Spartanburg, SC..... $ 2,969,190 7.125% Monthly payments of principal 5% premium year 1; declines
and interest of $26,541 until .5% until maturity
Jan 99 when the interest rate
will be further adjusted
DColumbia, SC....... $ 4,612,770 7.625% Monthly payments of principal 5% premium year 1; declines
and interest of $36,360 until .5% until maturity
Apr. 99 when the interest rate
will be further readjusted
Columbus, MS........ $ 2,024,719 8.50% Monthly payments of principal No prepayment penalty
and interest of $29,837 until
maturity
Cary, NC............ $ 1,558,468 7.875% Monthly payments of principal 5% premium years 1 - 7;
and interest of $16,361 until declining % until maturity
maturity
Flint, MI........... $ 3,095,297 7.50% Monthly payments of principal No prepayment during first
& interest of $36,538 until five years
maturity
Morganton, NC....... $ 2,000,000 8.0242% Interest payments only, No prepayment penalty
adjusted to prime + .25% or
LIBOR + 2.2% every 90 days
<CAPTION>
BALANCE AT
MATURITY MATURITY (ASSUMING
LOCATION DATE NO PREPAYMENT)
- -------------------- ------------- -------------------
<S> <C> <C>
Livonia, MI......... Oct. 1, 1999 $ 1,539,978
Harrodsburg, KY..... Upon $ 2,178,635
consummation
of the Merger
Chambersburg, PA.... Feb. 1, 1999 $ 5,347,425
Bainbridge, GA...... Oct. 1, 2000 $ 5,074,001
Spartanburg, SC..... Jan. 1, 2003 $ 2,113,740
DColumbia, SC....... Apr. 1, 2003 $ 3,892,357
Columbus, MS........ May 1, 2004 $ -0 -
Cary, NC............ Feb. 1, 2009 $ -0 -
Flint, MI........... Oct. 1, 2006 $ -0 -
Morganton, NC....... Mar. 31, 1997 $ 2,000,000
</TABLE>
76
<PAGE>
Operating Leases
Lessees
The tenants of the UPI Properties can be classified generally in three
major groups: (1) 'Anchor Tenants,' typically discount retail department stores
such as Walmart and Kmart and supermarkets, including Kroger and Food Lion,
under leases ('Anchor Tenant Leases') for spaces in excess of 30,000 square feet
or more than 25% of the GLA of a property; (2) 'National and Regional Tenants,'
national or regional chains (e.g., Cato and Shoe Show) which typically enter
into leases for varied amounts of space ('National and Regional Tenant Leases');
and (3) 'Local Tenants,' which generally operate in small stores of typically
less than 3,000 square feet ('Local Tenant Leases'). The tenants at UPI's single
tenant properties that individually lease less than 15,000 square feet of space
are included as National and Regional Tenants herein. The short-term tenant at
the 55,000 foot UPI Property located in Richmond, Virginia is included herein as
a Local Tenant. Anchor Tenant Leases, National and Regional Tenant Leases and
Local Tenant Leases are referred to herein collectively as 'Operating Leases.'
Lease Expiration
The following table sets forth selected Operating Lease expiration
(assuming no renewals or cancellations) and vacancy information for the UPI
Properties.
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
YEAR # OF TENANTS SQUARE FOOTAGE SQUARE FOOTAGE BASE RENT BASE RENT
- ------------------------------- ------------ -------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Vacancies...................... 8 20,990 1.56% $ 0 0.00%
1996........................... 11 15,341 1.14 138,729 1.93
1997........................... 30 150,121 11.15 703,434 9.78
1998........................... 20 121,778 9.04 674,476 9.38
1999........................... 10 55,252 4.10 388,018 5.39
2000........................... 12 61,160 4.54 424,362 5.90
2001........................... 9 33,573 2.49 465,756 6.47
2002........................... 1 8,450 0.63 63,375 0.88
2003........................... 2 32,915 2.44 238,500 3.32
2004........................... 1 Outparcel 0.00 25,000 0.35
2005........................... 1 80,000 5.94 480,000 6.67
Thereafter..................... 15 766,854 56.95 3,592,699 49.94
--- -------------- ------ ---------- ----------
120 1,346,434 100% $7,194,350 100%
--- -------------- ------ ---------- ----------
--- -------------- ------ ---------- ----------
</TABLE>
77
<PAGE>
The following table sets forth selected Operating Lease expirations
(assuming no renewals or cancellations) and vacancy information for the UPI
Properties that, individually, account for more than 10% of UPI's total assets.
MAGNOLIA PLAZA--MORGANTON, NC
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
YEAR # OF TENANTS SQUARE FOOTAGE SQUARE FOOTAGE BASE RENT BASE RENT
- -------------------------------- ------------ -------------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Vacancies....................... 1 1,600 1.53% $ 0 0.00%
1996............................ 5 6,670 6.37 63,810 10.08
1997............................ 9 48,521 46.33 323,635 51.14
1998............................ 4 5,700 5.44 50,000 7.90
1999............................ 2 3,000 2.86 22,800 3.60
2000............................ 0 0 0.00 0 0.00
2001............................ 2 7,235 6.91 44,550 7.04
2002............................ 0 0 0.00 0 0.00
2003............................ 0 0 0.00 0 0.00
2004............................ 0 0 0.00 0 0.00
2005............................ 0 0 0.00 0 0.00
Thereafter...................... 1 32,000 30.56 128,000 20.23
--- -------------- ------ --------- ----------
24 104,726 100% $ 632,795 100%
--- -------------- ------ --------- ----------
--- -------------- ------ --------- ----------
</TABLE>
FRANKLIN CENTER--CHAMBERSBURG, PA
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
YEAR # OF TENANTS SQUARE FOOTAGE SQUARE FOOTAGE BASE RENT BASE RENT
- -------------------------------- ------------ -------------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Vacancies....................... 3 9,700 5.79% $ 0 0.00%
1996............................ 0 0 0.00 0 0.00
1997............................ 4 9,400 5.62 78,600 7.89
1998............................ 3 32,200 19.24 160,000 16.05
1999............................ 0 0 0.00 0 0.00
2000............................ 4 13,420 8.02 116,860 11.72
2001............................ 0 0 0.00 0 0.00
2002............................ 0 0 0.00 0 0.00
2003............................ 0 0 0.00 0 0.00
2004............................ 1 outparcel 0.00 25,000 2.51
2005............................ 0 0 0.00 0 0.00
Thereafter...................... 4 102,673 61.34 616,301 61.83
--- -------------- ------ --------- ----------
19 167,393 100% $ 996,761 100%
--- -------------- ------ --------- ----------
--- -------------- ------ --------- ----------
</TABLE>
78
<PAGE>
BAINBRIDGE TOWN CENTER--BAINBRIDGE, GA
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
YEAR # OF TENANTS SQUARE FOOTAGE SQUARE FOOTAGE BASE RENT BASE RENT
- -------------------------------- ------------ -------------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Vacancies....................... 0 0 0.00% $ 0 0.00%
1996............................ 1 1,200 0.83 9,600 1.16
1997............................ 2 4,100 2.85 36,200 4.39
1998............................ 2 7,500 5.22 65,316 7.92
1999............................ 2 5,500 3.83 45,500 5.52
2000............................ 3 12,750 8.87 107,208 13.01
2001............................ 1 1,200 0.83 12,600 1.53
2002............................ 0 0 0.00 0 0.00
2003............................ 0 0 0.00 0 0.00
2004............................ 0 0 0.00 0 0.00
2005............................ 0 0 0.00 0 0.00
Thereafter...................... 2 111,479 77.56 547,892 66.47
--- -------------- ------ --------- ----------
13 143,729 100% $ 824,316 100%
--- -------------- ------ --------- ----------
--- -------------- ------ --------- ----------
</TABLE>
PARK CENTRE--COLUMBIA, SC
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
YEAR # OF TENANTS SQUARE FOOTAGE SQUARE FOOTAGE BASE RENT BASE RENT
- -------------------------------- ------------ -------------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Vacancies....................... 1 4,290 2.26% $ 0 0.00%
1996............................ 1 1,870 0.98 24,300 3.01
1997............................ 3 5,400 2.84 59,220 7.34
1998............................ 0 0 0.00 0 0.00
1999............................ 0 0 0.00 0 0.00
2000............................ 0 0 0.00 0 0.00
2001............................ 1 2,640 1.39 26,400 3.27
2002............................ 1 8,450 4.45 63,375 7.86
2003............................ 0 0 0.00 0 0.00
2004............................ 0 0 0.00 0 0.00
2005............................ 0 0 0.00 0 0.00
Thereafter...................... 2 167,335 88.08 633,154 78.51
--- -------------- ------ --------- ----------
9 189,985 100% $ 806,449 100%
--- -------------- ------ --------- ----------
--- -------------- ------ --------- ----------
</TABLE>
79
<PAGE>
Occupancy Rate; Rental Per Square Foot
The following table sets forth as of December 31, 1995 the occupancy rate
and average annual net effective rent per square foot of the leased space for
(i) each of the nine shopping centers and (ii) the single tenant property
located in Richmond, Virginia constituting UPI Properties for each year during
the five-year period ended December 31, 1995. The other six single tenant
properties constituting a part of the UPI Properties have been 100% leased for
that period.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Bainbridge, GA....................................... N/A 99.70% 97.20% 99.00% 99.47%
$ 5.54 $ 5.46 $ 5.46 $ 5.66
Brookhaven, MS....................................... 100.00% 100.00% 100.00% 100.00% 100.00%
$ 6.88 $ 6.87 $ 6.91 $ 7.09 $ 7.04
Cary, NC............................................. N/A N/A N/A 99.30% 100.00%
$ 6.81 $ 6.95
Chambersburg, PA..................................... N/A 94.90% 100.00% 97.50% 96.00%
$ 5.39 $ 5.84 $ 6.11 $ 6.33
Spartanburg, SC...................................... N/A 92.90% 96.10% 99.00% 100.00%
$ 4.64 $ 4.64 $ 4.60 $ 5.00
Columbia, SC......................................... N/A 100.00% 100.00% 99.90% 100.00%
$ 5.27 $ 5.22 $ 5.10 $ 5.29
Columbus, MS......................................... N/A N/A 85.80% 85.80% 89.24%
$ 5.00 $ 5.26 $ 5.14
Harrodsburg, KY...................................... N/A 88.50% 100.00% 100.00% 100.00%
$ 6.29 $ 6.96 $ 6.99 $ 6.98
Morganton, NC........................................ 92.50% 99.30% 98.40% 99.60% 100.00%
$ 5.67 $ 5.17 $ 5.74 $ 5.85 $ 5.98
Richmond, VA......................................... 100.00% 100.00% 55.60% 0.00% 0.00%
$ 3.46 $ 3.46 $ 1.92 $ 0.00 $ 0.00
</TABLE>
Certain material terms generally appearing in the Operating Leases are
described below. Since the provisions of the Operating Leases are complex and
extensive, and provisions vary among the Operating Leases, no attempt has been
made to describe in detail or to summarize all provisions of all the Operating
Leases. Copies of the Operating Leases for each of the UPI Properties are on
file at UPI's principal executive office and are available for inspection during
normal business hours each business day.
General Lease Terms
The Operating Leases covering each of the UPI Properties generally specify
a base rent for the term of the Operating Lease and each renewal term, which is
not subject to adjustment. However, certain Operating Leases with non-Anchor
Tenants provide for increases in rent during the primary terms and others
provide for increases during renewal terms. Such increases typically will be
fixed or subject to increases to a referenced Consumer Price Index. Factors
influencing the level of base rent payable by lessees include, among other
things, the geographic location of the UPI Property, the location of a store
within a center, the store size, leasehold improvements and the length of the
lease term. The Operating Leases are generally for fixed terms and generally may
be renewed one or more times at the option of the lessee for a shorter fixed
period of time.
The Operating Leases generally provide that the tenant may sublet the
leased premises subject to minimal restrictions, although the original tenant
will remain obligated for all of its obligations as lessee through the entire
term of the lease regardless of whether the premises are vacant, sublet or
assigned to a new tenant. Nonetheless, in the case of Local Tenants, rent on the
premises vacated by such smaller businesses is often not paid unless the
premises are sublet or assigned. UPI believes the availability of the sublease
or assignment option and the subletting of premises or assignment of leases are
fairly common within this area of the commercial real estate industry, have no
effect on a property and, in fact, provide for a mechanism to allow a poorly
performing store to exit a property in favor of a tenant that believes it can
satisfactorily perform at such property.
Generally, the Operating Leases provide for reimbursements to the lessor of
the lessee's pro rata share of operating costs of the related property,
including, among other things, common area maintenance, real estate taxes and
public liability, fire and extended coverage insurance. Certain of the Anchor
Tenant Leases provide that the lessee is responsible for the structural
maintenance of the roof, building and parking lot. As is typical of
80
<PAGE>
leases with retail tenants, most Operating Leases provide for additional rental
payments equal to a percentage of sales by the lessee that exceed specified
breakpoints. However, in many instances the reimbursement of some or all of the
operating costs may be used to offset such percentage rentals. Certain Anchor
Tenant Leases provide the lessee the right of first refusal to purchase the
related property on terms equal to or better than offers received by third
parties.
Anchor Tenant Leases
There are 19 Anchor Tenant Leases relating to the UPI Properties consisting
of a total of approximately 996,000 square feet which represents approximately
74.0% of the aggregate GLA of the UPI Properties. The Anchor Tenant Leases
generate approximately 67.6% of the aggregate annual base rent payable under the
Operating Leases.
The Anchor Tenant Leases are at base rental rates ranging from $2.48 per
square foot per annum to $7.05 per square foot per annum and average $5.34 per
square foot per annum. Generally, the Anchor Tenant Leases require the Anchor
Tenant to reimburse UPI, as landlord, for the Anchor Tenant's pro rata share of
the operating costs of the related property, although some Anchor Tenant Leases
contain caps on such reimbursements and/or the Anchor Tenant Leases provide for
the tenant to reimburse UPI for the tenant's pro rata share of expenses which
exceed the base year (first year of occupancy).
Three Anchor Tenant Leases provide that the Anchor Tenant is responsible
for any and all structural repairs such as the roof and the parking lot. Two
Anchor Tenant Leases provide that the Anchor Tenant is responsible for the
maintenance, repair and replacement of the building and roof of the expanded
areas of their store space. The expansion portions were built by the Anchor
Tenants at their own expense. There is no additional rent payable with respect
to the expanded area of the store and the Anchor Tenants are responsible for the
maintenance of the expanded area because the Anchor Tenant owns that portion of
the building. UPI is the owner of the underlying property and would acquire
ownership of the expanded area of the building, without cost, when the Anchor
Tenant vacates the premises.
Of the Anchor Tenant Leases, three are to Food Lion, three are to Goody's
Department Stores, two are to the Wal-Mart Corporation, and two are to Builders
Square, Inc. Of the remaining nine Anchor Tenants, five are supermarkets, two
are discount department stores, one is a home improvement store and one is a
discount variety store. Builders Square has assigned its lease of the store in
Livonia, Michigan to The Musicland Group, Inc. which further assigned the lease
to its subsidiary, Media Play, Inc., although Builders Square and Kmart will
remain liable under such lease.
National and Regional Tenant Leases
There are 52 National and Regional Tenant Leases relating to the UPI
Properties. Such leases cover approximately 205,484 square feet in the
aggregate, representing approximately 15.3% of the aggregate GLA of the UPI
Properties, and two outparcels. These leases account for approximately 23.0% of
the total annual base rent payable under the Operating Leases on the UPI
Properties. UPI's National and Regional Tenants include Cato, Shoe Show, Advance
Auto, Baker's Square, Sinclair Paint, Crafts Plus, Subway, H&R Block, Super Cuts
and Revco Drug.
The National and Regional Tenant Leases related to the UPI Properties are
at base rental rates ranging from $2.75 per square foot per annum to $31.49 per
square foot per annum and average $8.95 per square foot per annum. Rite-Aid
Corporation, which leases space at the UPI Property located in Chambersburg,
Pennsylvania, has sublet its store to Dollar General, which itself is a National
and Regional Tenant. Pic-N-Pay, a National and Regional Tenant with store
locations at Bainbridge, Georgia; Columbia, South Carolina; and Spartanburg,
South Carolina, is currently in bankruptcy. Pic-N-Pay is current on its lease
payments, however, under applicable bankruptcy laws, Pic-N-Pay has a right to
reject its leases in its bankruptcy proceedings.
Local Tenant Leases
Local Tenants lease 45 store spaces at the UPI Properties covering
approximately 145,000 square feet, representing approximately 10.8% of the
aggregate GLA of the UPI Properties. The stores subject to Local Tenant Leases
aggregate approximately 9.4% of the total annual base rent payable under the
Operating Leases on the UPI Properties and are leased at base rental rates
ranging from $0.55 per square foot per annum to $13.00 per square foot per annum
and average $7.20 per square foot per annum.
81
<PAGE>
Other Lease Terms
The following table sets forth with respect to each UPI Property the name
of the lessee, lease termination date, current annual base rent and renewal
rental terms, if any, under the Operating Leases thereon. Approximately 95% of
the aggregate GLA of the UPI Properties is affected by and subject to Operating
Leases.
<TABLE>
<CAPTION>
LEASE YEAR RENEWAL
TENANT GLA ANNUAL RENTS EXPIRATION OPTION(1)
- ---------------------------------------- ------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Sinclair Paint - Tucson, AZ
Sinclair Paints....................... 14,840 $ 93,850 01/08/2000 3-5 Year
New Bridge Shopping Center - Richmond,
VA
USA Auctions.......................... 55,000 30,000 04/30/1997 N/A
Ames Center - Raynham, MA
Ames Department Store #259............ 55,000 235,200 01/02/2011 2-10 Year
Builders Square - Flint, MI
Builders Square Store 1461............ 80,000 459,200 10/31/2006 4-5 Year
Bakers Square - Roseville, MN
Bakers Square......................... 5,067 154,435 12/31/2001 4-5 Year
Bakers Square - Minnetonka, MN
Bakers Square......................... 3,881 122,231 12/31/2001 4-5 Year
Builders Square - Livonia, MI
Builders Square Store 1437............ 80,000 480,000 11/26/2005 4-5 Year
Brookway Village - Brookhaven, MS
Delchamps #116........................ 33,387 232,040 02/28/2008 4-5 Year
Cato Store #348....................... 7,600 55,100 01/31/1999 2-5 Year
It's Fashion #7038.................... 4,200 29,400 01/31/1997 N/A
Little Caesars Pizza.................. 1,200 9,000 02/28/1998 N/A
Personal Finance Corp................. 1,200 10,200 03/01/1998 N/A
Magnolia Plaza - Morganton, NC
Living Water Bible Book Store......... 1,200 9,660 09/30/1997 N/A
Tape Town............................. 1,200 11,400 10/19/1996 N/A
Cato Store #10........................ 6,400 52,800 01/31/1997 1-5 Year
Subway #3603.......................... 1,200 17,000 11/03/1996 N/A
Sun Fun Tans.......................... 1,500 10,500 11/30/1996 N/A
Goody's Store #60..................... 25,986 142,923 10/29/1997 1-5 Year
Shoe Show Store #234.................. 3,000 24,000 10/31/1997 2-5 Year
Sally Beauty #1262.................... 1,500 13,500 10/31/1998 1-5 Year
Burke Occupational Health............. 1,200 11,000 09/30/1998 N/A
Radio Shack........................... 1,800 15,300 04/30/1998 1-3 Year
Dragon Garden Chinese Cuisine......... 3,000 24,300 04/30/2001 N/A
Jams Shoes............................ 3,600 28,800 03/31/1997 N/A
Nail Salon............................ 1,200 12,000 08/31/1999 2-2 Year
General Nutrition Center.............. 1,200 9,900 09/14/2001 1-5 Year
KC Jewelers........................... 1,200 10,200 11/30/1998 N/A
Associates Financial Services......... 1,600 13,260 08/31/1997 1-5 Year
Olan Mills............................ 1,800 10,800 03/31/1999 N/A
Duke Power Company.................... 4,235 20,250 08/31/2001 N/A
Ingles Store #129..................... 32,000 128,000 09/30/2007 11-5 Year
Burke Rehabilitation Center........... 4,235 29,645 11/30/1996 N/A
Raffles............................... 900 8,100 03/14/1997 N/A
H & R Block........................... 1,570 15,010 11/30/1996 N/A
Mail Depot............................ 1,600 14,447 01/31/1997 N/A
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
LEASE YEAR RENEWAL
TENANT GLA ANNUAL RENTS EXPIRATION OPTION(1)
- ---------------------------------------- ------- ------------ ---------- ----------
Harrodsburg Marketplace - Harrodsburg,
KY
<S> <C> <C> <C> <C>
Impressions II........................ 1,800 11,236 12/31/1997 N/A
Little Caesars........................ 1,800 7,650 10/31/1997 3-5 Year
Presto Travel......................... 1,800 8,293 06/30/1997 1-5 Year
Wah Mei Chinese Restaurant............ 1,800 10,800 12/31/1997 1-5 Year
Movie Warehouse....................... 3,600 26,278 03/31/2001 1-5 Year
Cato Store #804....................... 5,400 27,000 01/31/1998 3-5 Year
Advance Auto Store #806............... 5,400 27,000 12/31/1997 2-5 Year
Kroger Store #363..................... 36,158 255,036 09/30/2007 4-5 Year
Arby's................................ 2,290 48,000 05/31/2003 3-5 Year
Franklin Center - Chambersburg, PA
Lowes................................. 71,272 383,601 09/30/2010 1-5 Year
All Brand Vacuum...................... 2,400 19,800 04/30/1997 1-5 Year
Schoeneman Beauty Supply.............. 3,500 28,000 10/31/2000 N/A
Little Craftique...................... 4,800 38,400 03/31/1998 N/A
Hair Cuttery #250..................... 1,200 11,700 10/31/2000 1-3 Year
Commercial Credit..................... 1,200 10,200 10/31/1997 1-5 Year
Hong Kong Chinese Restaurant.......... 2,400 19,200 11/30/2007 N/A
Mattress Plus......................... 2,000 15,000 04/30/2000 1-3 Year
Factory Direct Carpets................ 2,400 21,600 07/31/1998 N/A
Golf U.S.A............................ 2,800 23,100 08/31/1997 1-5 Year
Big Lots #379......................... 25,000 100,000 01/31/1998 2-5 Year
Rent A Center #1528................... 3,000 25,500 02/28/1997 N/A
Rite Aid #231 (Sub-lease)............. 6,720 62,160 10/31/2000 4-5 Year
Food Lion #883........................ 29,000 188,500 09/21/2010 4-5 Year
Boston Chicken........................ 1 25,000 12/18/2004 4-5 Year
Perkins Family Restaurant............. 1 25,000 01/15/2016 N/A
Bainbridge Town Center - Bainbridge, GA
K-Mart #3905.......................... 86,479 397,892 08/31/2015 10-5 Year
It's Fashion #7142.................... 4,000 32,000 01/31/1999 3-5 Year
Pic 'N Pay Store #2633................ 2,800 30,100 08/31/2000 1-5 Year
One Price Clothing #271............... 3,200 27,200 01/31/1997 N/A
New China............................. 1,500 13,500 07/31/1999 1-5 Year
General Nutrition Corp #3673.......... 1,200 12,600 04/30/2001 1-5 Year
Mac's Hair Cutters.................... 1,200 9,600 11/30/1996 2-5 Year
$.99 Store............................ 2,100 16,800 12/31/1998 N/A
Old Mexico Mexican Restaurant......... 1,500 15,000 06/30/2000 N/A
Alltel Communications................. 900 9,000 11/30/1997 1-3 Year
Revco Drugs #1236..................... 8,450 62,108 07/31/2000 4-5 Year
Food Lion #881........................ 25,000 150,000 08/31/2010 4-5 Year
Video Superstore...................... 5,400 48,516 12/31/1998 N/A
East Main Center - Spartanburg, SC
Wal-Mart #1281........................ 119,822 297,377 01/31/2009 6-5 Year
It's Fashion #7122.................... 3,200 25,600 01/31/1997 3-3 Year
Pic N Pay #2749....................... 3,000 26,250 05/31/1999 1-5 Year
Friedman Jewelers..................... 2,700 24,300 06/30/1997 3-3 Year
Subway #4673.......................... 1,200 15,000 06/21/1999 2-5 Year
Supercuts #932........................ 1,200 11,700 07/31/1998 1-5 Year
First Family Financial #5771.......... 1,500 18,000 02/28/2001 1-5 Year
Sally Beauty #1295.................... 1,500 14,250 05/31/1998 1-5 Year
Cato #953............................. 6,500 55,250 01/31/2000 3-5 Year
Goody's Store #85..................... 29,700 178,200 05/31/1999 2-5 Year
Park Centre - Columbia, SC
Wal-Mart #1339........................ 121,661 383,154 06/23/2009 6-5 Year
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
LEASE YEAR RENEWAL
TENANT GLA ANNUAL RENTS EXPIRATION OPTION(1)
- ---------------------------------------- ------- ------------ ---------- ----------
Radio Shack........................... 2,640 26,400 04/30/2001 2-5 Year
<S> <C> <C> <C> <C>
General Nutrition Corp #KK3980........ 1,870 24,300 07/31/2001 1-5 Year
Pic N Pay Store #1253................. 3,000 27,000 07/31/1997 2-5 Year
The Hair Cuttery #1398................ 1,200 16,620 10/31/1997 1-5 Year
Top Nail.............................. 1,200 15,600 10/31/1997 N/A
Revco Store #877...................... 8,450 63,375 08/31/2002 4-5 Year
Harris Teeter #189.................... 45,674 250,000 06/30/2012 3-5 Year
Town Square Shopping Center - Columbus,
MS
The Chalet............................ 2,400 10,200 12/31/1997 N/A
TCBY.................................. 1,600 10,800 02/28/1998 N/A
Baber's Inc........................... 3,200 18,800 11/30/2000 2-3 Year
Coggins Shoe Shop..................... 1,200 8,700 03/31/1999 N/A
Miami Nail Salon...................... 1,200 8,700 09/30/1997 1-2 Year
American General Finance.............. 1,600 11,400 10/31/1998 1-5 Year
Crafts Plus Inc....................... 19,878 54,665 09/30/1998 N/A
Goody's Store #70..................... 40,000 226,000 05/31/1998 2-5 Year
Jitney Jungle......................... 30,625 190,500 12/31/2003 N/A
Gold's Gym............................ 10,450 32,395 06/14/2000 2-5 Year
Cary Plaza - Cary, NC
Food Lion #773........................ 29,000 188,500 12/14/2010 4-5 Year
Revco Discount Drug #4034............. 8,450 61,262 02/28/2001 5-5 Year
Rondy Mckee Chang..................... 4,052 36,468 02/28/1999 1-3 Year
Cutting Edge Photography, Inc......... 1,400 13,999 12/31/1996 N/A
Michael's Pizza And Pasta............. 1,400 10,850 07/31/1998 1-5 Year
Cary Montissori School................ 1,400 9,520 11/30/1996 N/A
Kenneth Earl Hilliard................. 1,400 13,296 11/30/1998 N/A
Carolina Coatings..................... 2,800 17,500 12/06/1996 N/A
Calico Pony........................... 1,400 12,600 02/28/1997 N/A
Autozone(1)........................... -- -- -- --
</TABLE>
- ------------------
(1) The tenant will not take possession of its space until the tenant receives
all of its required permits and procures its leasehold title policy.
Potential Environmental Risks
Investments in real property create a potential for environmental liability
on the part of the owner, operator and developer of such real property. If
hazardous substances are discovered on or emanating from any of the UPI
Properties, UPI and/or others may be held strictly liable for all costs and
liabilities relating to the clean-up of such hazardous substances. UPI is not
currently aware of any environmental conditions at or on any of the UPI
Properties that would reasonably be expected to have a material impact on its
financial position or results of operations.
Competition
Any rental property owned or hereafter acquired by UPI (whether retail,
office, industrial or residential) will have substantial competition from
similar properties in the vicinity in which such property is located. Such
competition is generally for the retention of existing tenants and new tenants
upon space becoming vacant. UPI believes that the profitability of each UPI
Property is based, in part, upon its geographic location, the operations of the
UPI Property's tenants, the performance of the UPI Property and leasing
managers, the maintenance and appearance of the UPI Properties, the ease of
access to the UPI Properties and the adequacy of property related facilities.
UPI also believes that general economic circumstances and trends as well as the
character and quality of new and existing competitive properties which may be
located in the vicinity of the UPI Properties are factors that may affect the
operation and competitiveness of the UPI Properties.
84
<PAGE>
UPI competes with other investors to acquire desirable properties and
engages in a continuing effort to identify desirable properties for acquisition.
Management believes that UPI can continue to compete effectively in the current
real estate environment because of its experience in real estate investment,
tenant selection and lease negotiation. However, many other investors in real
property who compete with UPI have far greater resources than UPI.
Employees
UPI has no employees. Milestone provides management and administrative
services to UPI under the Management Services Agreement. Pursuant to such
agreement, UPI is provided with office space in Milestone's principal executive
office and Milestone employees, some of whom are the executive officers of UPI,
provide all levels of employee service to UPI.
Legal Proceedings
An action was commenced on January 30, 1996 in the Delaware Court against
Milestone, its Board of Directors and Concord Assets Group, Inc. ('Concord').
UPI was a wholly-owned subsidiary of Milestone until November 1995, and
Milestone currently owns all of the UPI Preferred Stock. Concord, which is owned
by Leonard Mandor and Robert Mandor, beneficially owns, together with its
affiliates, approximately 78% of the UPI Common Stock and Concord's executive
officers and directors are also executive officers and directors of UPI and
Milestone. The plaintiff, a preferred stockholder of Milestone purporting to
bring the action on behalf of himself and other preferred stockholders of
Milestone, brought the action seeking, among other things, damages from
Milestone, by reason of, among other things, the UPI Transfer and the UPI
Spin-Off. The defendants moved to dismiss the plaintiff's original complaint,
and thereafter, the plaintiff amended his complaint to allege further causes of
action, including a claim of rescission The defendants moved to dismiss the
amended complaint and after hearing arguments thereon, the Delaware Court
dismissed plaintiff's claim for rescission of both the UPI Transfer and the UPI
Spin-Off. The Delaware Court has, however, reserved decision on the defendants'
motion to dismiss plaintiff's claim for damages and other relief. On December 9,
1996, the plaintiff requested that the Delaware Court dismiss the amended
complaint, and filed a purported new class action.
An action was commenced on October 7, 1996 in the Fifth Judicial Circuit
Court of South Carolina against UPI for damages in excess of $10,000 as a result
of an alleged breach of contract and other ancillary allegations arising from an
agreement to sell and purchase real estate entered into between the plaintiff,
C.P.C.-1, a South Carolina limited liability company, as buyer, and UPI, as
Seller, of 3.8 acres of vacant land located at the UPI Property in Columbia,
South Carolina. The plaintiff filed a public notice (lis pendens) that the title
to the UPI Property in Columbia, South Carolina is in litigation, and UPI has
filed a motion to remove the lis pendens and has moved the case to federal court
where an answer shall be filed.
COMBINED ENTITIES
Upon consummation of the Merger, Kranzco will own 54 Properties containing
approximately 7,000,000 square feet of GLA located in the 16 states of Arizona,
Connecticut, Georgia, Kentucky, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island,
South Carolina and Virginia. Of the Properties, 43 are neighborhood and
community shopping centers, nine are single tenant retail properties and two are
single tenant restaurant properties. Following the Merger, Kranzco intends to
conduct its operations substantially in the same manner as it is currently
operating.
85
<PAGE>
MARKET PRICE OF AND DIVIDENDS ON UPI AND KRANZCO
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
UPI COMMON STOCK
Market Price Information
The UPI Common Stock began trading on the OTC Electronic Bulletin Board
(the 'EBB') on December 11, 1995 under the symbol 'UPIC.' Prior to December 11,
1995, there was no public market for the UPI Common Stock.
The following table sets forth the range of high and low bid prices for the
UPI Common Stock for each of the periods indicated. Such quotations reflect
inter-dealer prices or transactions solely between market-makers, without retail
mark-up, mark-down or commissions, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
BID PRICE
-----------------
HIGH LOW
------- ------
<S> <C> <C>
1995:
Fourth Quarter (from
December 11, 1995)....... $1.00 $0.50
1996:
First Quarter............... $1.125 $0.75
Second Quarter.............. $1.50 $1.125
Third Quarter............... $1.50 $0.875
Fourth Quarter (through
December 13, 1996)....... $5.1875 $0.75
</TABLE>
The UPI Common Stock is traded sporadically. On November 11, 1996, the most
recent trading day on which the UPI Common Stock traded prior to the public
announcement of the parties' execution of the Merger Agreement, the last
reported sale price of the UPI Common Stock on the EBB was $0.9375. On December
13, 1996, the most recent trading day as to which it is practicable to provide
market price information, the last reported sale price of the UPI Common Stock
on the EBB was $5.0312. As of December 13, 1996, there were approximately 1,917
holders of record of the UPI Common Stock.
Dividend Policy
UPI has never paid any cash dividends on the UPI Common Stock and has no
present intention to declare or pay cash dividends on the UPI Common Stock prior
to the consummation of the Merger. While there are no restrictions on UPI's
ability to pay dividends on the UPI Common Stock, except for the Merger
Agreement, which prohibits UPI from paying any dividends on the UPI Common Stock
prior to consummation of the Merger, and the preference of the cumulative UPI
Preferred Stock dividend (see 'DESCRIPTION OF UPI CAPITAL STOCK--UPI Preferred
Stock'), UPI anticipates that earnings will be retained to finance UPI's
operations. Any decision as to the future payment of dividends on the UPI Common
Stock will depend on the results of operations and the financial position of UPI
and such other factors as the UPI Board, in its discretion, deems relevant.
86
<PAGE>
KRANZCO COMMON SHARES
Market Price Information
The Kranzco Common Shares have traded on the NYSE (symbol 'KRT') since
November 19, 1992. The following table sets forth for each of the periods
indicated the range of high and low sales prices for the Kranzco Common Shares
reported by the NYSE Composite Tape and distributions paid with respect to the
Kranzco Common Shares.
<TABLE>
<CAPTION>
KRANZCO COMMON SHARES
-----------------------------------
SALES PRICES
-----------------------------------
HIGH LOW DISTRIBUTIONS
------- ------- -------------
<S> <C> <C> <C>
1994:
First Quarter............... $23.875 $21.125 $0.48
Second Quarter.............. $22.625 $20.75 $0.48
Third Quarter............... $21.625 $18.625 $0.48
Fourth Quarter.............. $19.875 $16.625 $0.48
1995:
First Quarter............... $19.50 $17.125 $0.48
Second Quarter.............. $19.00 $16.625 $0.48
Third Quarter............... $18.75 $16.75 $0.48
Fourth Quarter.............. $17.00 $14.00 $0.48
1996:
First Quarter............... $16.25 $14.75 $0.48
Second Quarter.............. $16.00 $14.125 $0.48
Third Quarter............... $16.125 $14.125 $0.48
Fourth Quarter (through
December 13, 1996)....... $16.125 $15.00 $0.48(1)
</TABLE>
- ------------------
(1) A distribution with respect to the Kranzco Common Shares was declared on
December 4, 1996, for holders of record on December 24, 1996, for payment on
January 20, 1997.
On November 11, 1996, the most recent trading day on which the Kranzco
Common Shares traded prior to the public announcement of the parties' execution
of the Merger Agreement, the last reported sale price of the Kranzco Common
Shares on the NYSE was $15.375. On December 13, 1996, the last reported sale
price of the Kranzco Common Shares on the NYSE was $16.125.
Distribution Policy
Kranzco currently pays a regular quarterly distribution of $0.48 per
Kranzco Common Share (which, if annualized, would equal $1.92 per Kranzco Common
Share).
While it is not currently intended that Kranzco will reduce distributions
on the Kranzco Common Shares, future distributions by Kranzco will be at the
discretion of the Kranzco Board and will depend on the actual cash flow of
Kranzco, its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as the
Kranzco Board deems relevant.
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<PAGE>
DESCRIPTION OF UPI CAPITAL STOCK
UPI COMMON STOCK
UPI is authorized to issue up to 20,000,000 shares of UPI Common Stock. As
of December 13, 1996, there were 3,789,171 shares of UPI Common Stock issued and
outstanding, and such shares were held of record by approximately 1,917
stockholders.
The holders of the UPI Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by the stockholders, and are
entitled to receive dividends when, as and if declared by the UPI Board out of
funds legally available therefor, after payment of all preferential dividends on
the UPI Preferred Stock. The holders of the UPI Common Stock have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the UPI Common Stock.
In the event of the liquidation, dissolution or winding up of UPI, the
holders of the UPI Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities and after
distribution in full of the preferential amounts to be distributed to the
holders of any shares of UPI Preferred Stock then outstanding. The outstanding
shares of the UPI Common Stock have been fully paid and are non assessable.
Transfer Agent
The transfer agent for the UPI Common Stock is The Bank of New York.
UPI PREFERRED STOCK
UPI is authorized to issue up to 650,000 shares of UPI Preferred Stock. As
of December 13, 1996, there were 395,834 shares of UPI Preferred Stock issued
and outstanding, all of which shares were held of record by Milestone.
Pursuant to the UPI Certificate of Incorporation, the UPI Board may, at its
option, redeem an unlimited number of shares of UPI Preferred Stock in each
calendar quarter through January 1, 2002. The redemption price per share of the
UPI Preferred Stock is $10.00 plus an amount equal to the accrued and unpaid
dividends thereon. On January 31, 2002, UPI is required to redeem all UPI
Preferred Stock then outstanding at a redemption price per share equal to $10.00
plus an amount equal to the accrued and unpaid dividends thereon.
The UPI Certificate of Incorporation, also provides for the holders of the
UPI Preferred Stock to receive, out of funds legally available therefor, a
dividend on the UPI Preferred Stock at a rate per annum initially set at 9%.
Each dividend is fully cumulative through January 31, 2002 (the 'Dividend
Contract Period'), provided that the outstanding shares of UPI Preferred Stock
are not redeemed in full prior to January 31, 2002. The dividend rate on the UPI
Preferred Stock is subject to a decrease from 9% to 8% per annum if and after
UPI meets an optional schedule of redemption and redeems no less than $270,833
of the Preferred Stock in any quarter (a 'Triggering Quarter') commencing
January 1, 1996 to and including the quarter commencing January 1, 2002. If,
however, subsequent to satisfying the requirements for the Triggering Quarter,
UPI fails to redeem at least $270,833 of the UPI Preferred Stock in any quarter
during the Dividend Contract Period, the dividend rate for such quarter and for
the remainder of the Dividend Contract Period is to be increased to and remain
fixed at an annual dividend rate of 9%. As a result of redemptions of the UPI
Preferred Stock by UPI, as of January 1, 1996, the annual dividend rate on the
UPI Preferred Stock is currently 8%.
In the event of the liquidation, dissolution or winding-up of UPI, and
provided there are sufficient assets after payment of all outstanding debts and
other liabilities, holders of the UPI Preferred Stock will be entitled to a
liquidation preference of $10.00 per share plus an amount per share equal to the
accrued and unpaid dividends thereon.
The holders of UPI Preferred Stock have no voting rights except as
expressly required by the DGCL. Holders of UPI Preferred Stock have no
conversion, preemptive or other subscription rights, and they have no other
redemption, dividend or liquidation rights other than those set forth above.
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<PAGE>
DESCRIPTION OF KRANZCO SHARES
GENERAL
The Declaration of Trust of Kranzco authorizes Kranzco to issue up to
100,000,000 Kranzco Shares, consisting of Kranzco Common Shares and such other
types or classes of Kranzco Shares as the Kranzco Board may create and authorize
from time to time and designate as representing a beneficial interest in
Kranzco. The Kranzco Board is granted the power to authorize the issuance of one
or more series of preferred shares of beneficial interest. As of September 30,
1996, the only Kranzco Shares issued and outstanding were 10,331,475 Kranzco
Common Shares and 11,155 Kranzco Series A Preferred Shares. On November 19, 1992
Kranzco issued to certain persons warrants to purchase up to 191,429 Kranzco
Common Shares exercisable within five years after issuance at an exercise price
equal to $26.00 per Kranzco Common Share. Kranzco has also outstanding options
to purchase an aggregate of 818,000 Kranzco Common Shares.
The Declaration of Trust provides that, subject to the provisions of any
class or series of Kranzco Shares then outstanding, the shareholders of Kranzco
are entitled to vote only on the following matters: (i) election or removal of
trustees; (ii) amendment of the Declaration of Trust; (iii) termination of
Kranzco; (iv) reorganization of Kranzco; and (v) merger or consolidation of
Kranzco or the sale or disposition of all or substantially all of Kranzco's
assets. Except with respect to the foregoing matters, no action taken by the
shareholders of Kranzco at any meeting shall in any way bind the Kranzco Board.
Both Title 8 of the Annotated Code of Maryland and the Declaration of Trust
provide that no shareholder of Kranzco will be personally liable for any
obligation of Kranzco. The Kranzco Bylaws further provide that Kranzco shall
indemnify each shareholder against any claim or liability to which the
shareholder may become subject by reason of his being or having been a
shareholder and that Kranzco shall reimburse each shareholder for all legal and
other expenses reasonably incurred by him in connection with any such claim or
liability. In addition, it is Kranzco's policy to include a clause in its
contracts which provides that shareholders assume no personal liability for
obligations entered into on behalf of Kranzco. However, with respect to tort
claims, contractual claims where shareholder liability is not so negated, claims
for taxes and certain statutory liability, a shareholder may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by Kranzco. Inasmuch as Kranzco carries public liability insurance
which it considers adequate, any risk of personal liability to shareholders is
limited to situations in which Kranzco's assets plus its insurance coverage
would be insufficient to satisfy the claims against Kranzco and its
shareholders.
The transfer agent and registrar for the Kranzco Common Shares and the
Kranzco Preferred Shares is First Union National Bank of NC, Charlotte, North
Carolina.
The following summaries of the terms and provisions of the Kranzco Series
B-1 Preferred Shares and the Kranzco Series B-2 Preferred Shares do not purport
to be complete and are qualified in their entirety by reference to the relevant
sections of the Articles Supplementary for the Kranzco Series B-1 Preferred
Shares and the Articles Supplementary for the Kranzco Series B-2 Preferred
Shares, copies of which are filed as Annexes D and E to this Proxy
Statement/Prospectus.
KRANZCO COMMON SHARES
Holders of Kranzco Common Shares are entitled to such distributions as may
be authorized and declared from time to time by the Kranzco Board out of assets
legally available therefor. Each outstanding Kranzco Common Share entitles the
holder to one vote on all matters submitted to a vote of holders of Kranzco
Common Shares, including the election of the trustees of the Kranzco Board.
There is no cumulative voting in the election of trustees, which means that the
holders of a majority of the outstanding Kranzco Common Shares can elect all of
the trustees to the Board of Trustees of Kranzco then standing for election.
All outstanding Kranzco Common Shares have been fully paid and are
nonassessable. In the event of any liquidation, dissolution or winding-up of the
affairs of Kranzco, holders of Kranzco Common Shares will be entitled to share
ratably in the assets of Kranzco remaining after provision for payment of
liabilities to creditors and any senior securities, including without
limitation, the Kranzco Preferred Shares.
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<PAGE>
Kranzco Common Shares have equal dividend, distribution, liquidation and
other rights and have no preference, preemptive, appraisal, conversion,
redemption or exchange rights.
KRANZCO PREFERRED SHARES
General
The preferred shares of beneficial interest may be issued from time to time
in one or more series in such amounts and with such preferences, conversion or
other rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms or conditions of redemption as may be fixed by the
Kranzco Board. Upon consummation of the Merger, preferred shares of beneficial
interest consisting of the Kranzco Series A Preferred Shares, the Kranzco Series
B Preferred Shares and the Kranzco Series C Preferred Shares will be
outstanding. Kranzco has no present plans to issue any additional preferred
shares of beneficial interest following the consummation of the Merger.
Kranzco Series A Preferred Shares
The Kranzco Board at a meeting held on March 14, 1995, adopted resolutions
authorizing, creating and classifying, out of the 100,000,000 authorized Kranzco
Shares, a separate class of preferred shares of beneficial interest consisting
of 11,155 preferred shares of beneficial interest, par value $.01 per share,
known as the 'Series A Increasing Rate Cumulative Convertible Preferred Shares
of Beneficial Interest.'
Ranking
The Kranzco Series A Preferred Shares will rank on a parity as to
distributions and as to the distribution of assets upon any liquidation,
dissolution or winding up of the affairs of Kranzco with the Kranzco Series B
Preferred Shares and the Kranzco Series C Preferred Shares, and senior to the
Kranzco Common Shares.
Distributions
The holders of Kranzco Series A Preferred Shares are also entitled to
receive, when, as and if authorized by the Kranzco Board out of assets of
Kranzco legally available therefor (and subject to the limitation described in
the last sentence of this paragraph), cumulative cash distributions on the
Kranzco Series A Preferred Shares from the date of original issue at the per
share annual rates set forth below:
<TABLE>
<CAPTION>
ANNUAL RATE PER
KRANZCO SERIES A CONTRACT PERIOD COVERED BY
PREFERRED SHARE ANNUAL RATE
- --------------------------- -------------------------------------
<C> <S>
$50.00 April 19, 1995 through April 18, 1996
52.50 April 19, 1996 through April 18, 1997
55.00 April 19, 1997 through April 18, 1998
57.50 April 19, 1998 through April 18, 1999
60.00 April 19, 1999 through April 18, 2000
62.50 April 19, 2000 through April 18, 2001
65.00 Thereafter
</TABLE>
Distributions are payable quarterly on January 1, April 1, July 1 and
October 1 of each year. Such distributions are cumulative from the date of
original issue of the Kranzco Series A Preferred Shares. If a holder converts
Kranzco Series A Preferred Shares into Kranzco Common Shares, then such holder,
in addition to all accrued and unpaid distributions with respect to prior
quarters, is entitled to receive a pro rata portion of the distribution which
would have been payable on such converted Kranzco Series A Preferred Shares had
such shares been outstanding for the entire such quarter determined by
multiplying the amount of the distribution which would have been payable on such
converted Kranzco Series A Preferred Shares had such shares been outstanding for
the entire such quarter by a fraction the numerator of which is the number of
days in such quarter elapsed through the day immediately preceding the date of
conversion of such converted Kranzco Series A Preferred Shares and the
denominator of which is the total number of days in such quarter.
No distribution or other payment with respect to redemption, purchase or
other acquisition of Kranzco Common Shares or of any other Kranzco Shares
ranking junior to the Kranzco Series A Preferred Shares as to
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<PAGE>
distribution rights and the liquidation preference (other than distributions in
Kranzco Common Shares or in any other Kranzco Shares ranking junior to the
Kranzco Series A Preferred Shares as to distribution rights and the liquidation
preference) may be declared or paid or set apart for payment or other
distribution upon the Kranzco Common Shares or upon any other Kranzco Shares
ranking junior to the Kranzco Series A Preferred Shares with respect to
distributions or the liquidation preference, unless full cumulative
distributions on the Kranzco Series A Preferred Shares have been paid or
declared and a sum sufficient for such full payment on the next distribution
date set apart in trust for payment for all past distribution periods.
Distributions payable on the Kranzco Series A Preferred Shares for any
period less than a full quarterly distribution period are computed on the basis
of a 360-day year and the actual number of days elapsed. Quarterly distributions
payable on the Kranzco Series A Preferred Shares are computed by dividing the
annual distribution rate by four.
Distributions Upon Liquidation, Dissolution or Winding Up
In the event of any liquidation, dissolution or winding up of the affairs
of Kranzco, whether voluntary or otherwise, after payment or provision for
payment of the debts and other liabilities of Kranzco, the holders of Kranzco
Series A Preferred Shares will be entitled to receive, in cash, out of the
remaining assets of Kranzco legally available therefor, the amount of $1,000.00
for each Kranzco Series A Preferred Share, plus an amount equal to all
distributions accrued and unpaid on each such share up to the date of such
distribution of assets, before any distribution shall be made to the holders of
Kranzco Common Shares or any other Kranzco Shares ranking (as to any such
distribution of assets) junior to the Kranzco Series A Preferred Shares. If upon
any liquidation, dissolution or winding up of Kranzco, the assets distributable
among the holders of Kranzco Series A Preferred Shares and all other classes and
series of preferred shares ranking (as to any such distribution of assets) on a
parity with the Kranzco Series A Preferred Shares are insufficient to permit the
payment in full to the holders of all such shares of all preferential amounts
payable to all such holders, then the entire assets of Kranzco thus
distributable shall be distributed ratably among the holders of Kranzco Series A
Preferred Shares and such other classes and series of preferred shares ranking
(as to any such distribution of assets) on a parity with the Kranzco Series A
Preferred Shares in proportion to the respective amounts that would be payable
per share if such assets were sufficient to permit payment in full.
Conversion
Holders of Kranzco Series A Preferred Shares have the right, exercisable at
any time and from time to time after April 18, 1999 and prior to 5:00 p.m. on
April 18, 2009, except in the case of the Kranzco Series A Preferred Shares
called for redemption, to convert all or any portion of such Kranzco Series A
Preferred Shares into such number of Kranzco Common Shares as would then receive
aggregate annual cash distributions based on the last quarterly distribution
paid to holders of such Kranzco Common Shares equal to the then aggregate annual
cash distributions such holders of the Kranzco Series A Preferred Shares are
entitled to receive on the number of Kranzco Series A Preferred Shares which
such holders elect to convert into Kranzco Common Shares; provided, however, not
more than the following number of Kranzco Series A Preferred Shares may be
converted during the following periods (commencing at 9:30 a.m. on the first day
of each period and ending at 5:00 p.m. on the last day of each period):
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
NUMBER OF NEW SHARES CONVERTIBLE DURING
CONTRACT PERIOD SHARES CONVERTIBLE CONTRACT PERIOD
- ---------------------------------------- ------------------ -------------------------
<S> <C> <C>
April 19, 1999 to April 18, 2000........ 1,860 1,860
April 19, 2000 to April 18, 2001........ 1,860 3,720
April 19, 2001 to April 18, 2002........ 1,860 5,578
April 19, 2002 to April 18, 2003........ 1,860 5,578
April 19, 2003 to April 18, 2004........ 1,860 5,578
April 19, 2004 to April 18, 2005........ 1,855 5,578
April 19, 2005 to April 18, 2009........ 0 5,578
</TABLE>
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<PAGE>
If (a) Kranzco were to be dissolved at the time of a distribution and,
after giving effect to amounts that would be needed to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights on dissolution
are superior to those receiving the distribution, Kranzco would not have been
permitted to make such distribution by dividend, redemption or other acquisition
of shares or otherwise under the Maryland General Corporation Law if such law
were applicable to Kranzco or (b) Kranzco issues any class or series of, or
rights to subscribe to or acquire, any security convertible into, any class or
series of Kranzco Shares ranking as to distribution rights or the liquidation
preference, senior to the Kranzco Series A Preferred Shares, then the holders of
the Kranzco Series A Preferred Shares shall have the right to immediately
convert all or any of the Kranzco Series A Preferred Shares into Kranzco Common
Shares.
In the case of Kranzco Series A Preferred Shares called for redemption, all
shares of Kranzco Series A Preferred Shares called for redemption may be
immediately converted to Kranzco Common Shares and such conversion right will
expire at the close of business on the last business day preceding the
Redemption Date. Upon conversion, such holders are entitled to receive cash
distributions payable on the number of Kranzco Series A Preferred Shares which
such holders elect to convert into Kranzco Common Shares.
Voting
The holders of Kranzco Series A Preferred Shares are not entitled to vote
at, or participate in, any meeting of shareholders of Kranzco, and have no other
right to vote, except as required by law and except in certain other limited
situations summarized below.
In addition to any other rights provided to the holders of the Kranzco
Series A Preferred Shares by applicable law, so long as any Kranzco Series A
Preferred Shares are outstanding, Kranzco may not, without the affirmative vote,
or the written consent as provided by law, of the holders of at least a majority
of the total number of outstanding Kranzco Series A Preferred Shares, voting as
a class, (i) amend any of the provisions of the Articles Supplementary of the
Kranzco Series A Preferred Shares so as to materially adversely affect the
preferences, rights or powers of the Kranzco Series A Preferred Shares unless at
or prior to the time when such change is to take effect, Kranzco has mailed a
notice of redemption and sufficient funds have been deposited in trust for the
redemption of all of the then outstanding Kranzco Series A Preferred Shares on
the date set forth in such notice or (ii) authorize, create or issue to any
seller of real property to Kranzco in consideration of the purchase price for
such real property, any class or series of, or rights to subscribe to or
acquire, any security convertible into, any class or series of Kranzco Shares
ranking as to distribution rights or the liquidation preference senior to the
Kranzco Series A Preferred Shares.
Trustees' Right to Refuse to Transfer Series A Preferred Shares; Limitation
on Holdings
Because the Kranzco Board believe that it is essential for Kranzco to
continue to qualify as a REIT, subject to certain exceptions, the Declaration of
Trust provides that in the event of any proposed transfer of Kranzco Series A
Preferred Shares that would jeopardize the status of Kranzco as a REIT under the
REIT provisions of the Code, the Kranzco Board has the right to refuse to permit
such transfer and to take any action to cause any such transfer not to occur. In
addition, any transfer of Kranzco Series A Preferred Shares that would (i)
create a direct or indirect owner of more than 75% of the lesser of the number
or the value of the total Kranzco Series A Preferred Shares outstanding other
than a person approved by the Kranzco Board; or (ii) result in Kranzco being
'closely held' within the meaning of Section 856(h) of the Code, will be void ab
initio and any such Kranzco Series A Preferred Shares so transferred may be
purchased by Kranzco. For a more detailed description of the transfer
restrictions contained in Kranzco's Declaration of Trust, see '--Restrictions on
Transfer Generally.'
Redemption
The Kranzco Series A Preferred Shares may be redeemed at the option of
Kranzco by resolution of the Kranzco Board, in whole or from time to time in
part, subject to the at the redemption price per share of $1,000, plus, in each
case, all distributions accrued and unpaid, whether for current or post
distribution periods, on the Kranzco Series A Preferred Shares up to the date of
such redemption.
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<PAGE>
Kranzco Series B-1 Preferred Shares and Kranzco Series B-2 Preferred Shares
General
The Kranzco Board at a meeting held on November 7, 1996 and by unanimous
written consent dated December 18, 1996, adopted resolutions authorizing,
creating and classifying, out of the 100,000,000 authorized Kranzco Shares, two
separate classes of preferred shares of beneficial interest consisting of
preferred shares of beneficial interest known as the 'Series B-1 Cumulative
Convertible Preferred Shares of Beneficial Interest', having a par value of $.01
per share, and preferred shares of beneficial interest known as the 'Series B-2
Cumulative Convertible Preferred Shares of Beneficial Interest, having a par
value of $.01 per share, respectively. In the Merger, each share of UPI Common
Stock will be convertible into the right to receive, at the election of the
holder thereof and subject to certain adjustments, either 0.298 of one share of
Kranzco Series B-1 Preferred Shares and cash in lieu of fractional shares or
0.298 of one share of Kranzco Series B-2 Preferred Shares and cash in lieu of
fractional shares.
Ranking
The Kranzco Series B Preferred Shares will rank on a parity as to all
distributions, including as to the distribution of assets upon any liquidation,
dissolution or winding up of the affairs of Kranzco, with the Kranzco Series A
Preferred Shares and the Kranzco Series C Preferred Shares, and senior to the
Kranzco Common Shares.
Distributions
The record holders of Kranzco Series B Preferred Shares will be entitled to
receive from the Initial Issue Date, when, as and if authorized by the Kranzco
Board, out of assets legally available for payment of distributions, cumulative
cash distributions at a rate of 9.75% per annum of the Series B Liquidation
Preference (defined below) computed on the basis of a 360-day year consisting of
twelve 30-day months. Distributions on the Kranzco Series B Preferred Shares
shall accrue and be cumulative from the date of the consummation of the Merger
('Initial Issue Date'). Distributions will be payable quarterly in arrears for
each Series B Distribution Period (defined below) when, as and if authorized by
the Kranzco Board, on January 20, April 20, July 20 and October 20 of each year
(each, a 'Distribution Payment Date'), commencing on the first Distribution
Payment Date following the Initial Issue Date. The amount of distributions
payable on Kranzco Series B Preferred Shares for each calendar quarter (each a
'Series B Distribution Period') will be computed by dividing by four the annual
distribution rate set forth above. Distributions payable in respect of any
period which is less than a full Series B Distribution Period in length will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Except as provided in the next sentence, so long as any Kranzco Series B
Preferred Shares are out- standing, no distributions (other than in Kranzco
Common Shares or other Kranzco Shares ranking junior to the Kranzco Series B
Preferred Shares ('Junior Shares')) may be authorized, declared, set apart for
payment or paid on any class or series of Kranzco Shares ranking junior to or on
a parity with the Kranzco Series B Preferred Shares ('Parity Shares') unless all
accrued distributions on the Kranzco Series B Preferred Shares for all prior
Series B Distribution Periods and the then current Series B Distribution Period
have been or contemporaneously are authorized, declared, set apart for payment
or paid. If distributions on the Kranzco Series B Preferred Shares are not so
paid in full, all distributions authorized or declared upon the Kranzco Series B
Preferred Shares will be authorized or declared pro rata with all Parity Shares.
Unless all accrued distributions on the Kranzco Series B Preferred Shares
have been or contemporaneously are authorized, declared, set apart for payment
or paid for all Series B Distribution Periods, no Junior Shares or Parity Shares
may be redeemed, purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption of any
such shares) by Kranzco (except by conversion into or exchange for Junior
Shares). Holders of the Kranzco Series B Preferred Shares shall not be entitled
to any distributions, whether payable in cash, property or Kranzco Shares, in
excess of accrued and cumulative distributions. No interest or sum of money in
lieu of interest will be payable in respect of any distribution payment or
payments on the Kranzco Series B Preferred Shares that may be in arrears.
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<PAGE>
Distributions Upon Liquidation, Dissolution or Winding Up.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of Kranzco, before any distribution may be made to the holders of
any Junior Shares, and subject to the payment or provision or reserve for
payment of the debts and liabilities (whether absolute, accrued, asserted or
unasserted, contingent or otherwise) and the preferences of Kranzco Shares
ranking senior to the Kranzco Series B Preferred Shares ('Senior Shares'), if
any, the holders of Kranzco Series B Preferred Shares shall be entitled to
receive, out of the assets of Kranzco legally available for payment of
distributions, liquidating distributions in cash (or property at its fair market
value as determined in good faith by the Kranzco Board (or a combination
thereof)) in the amount of $25.00 per share ('the Series B Liquidation
Preference') for each Kranzco Series B Preferred Share plus an amount equal to
all accrued and unpaid distributions (whether or not authorized or declared, and
whether or not there would be assets legally available for the payment of such
distributions) to the date of such liquidation, dissolution or winding up. After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Kranzco Series B Preferred Shares shall have no right
or claim to any of the remaining assets of Kranzco and will not be entitled to
any other distribution.
Notwithstanding the foregoing, in the event that, upon any such voluntary
or involuntary liquidation, dissolution or winding up of the affairs of Kranzco,
the assets legally available for payment of distributions are insufficient to
pay (i) the full amount of the liquidating distributions to which holders of
Kranzco Series B Preferred Shares would otherwise be entitled and (ii) the
corresponding amounts of the liquidating distributions to which holders of
Parity Shares would be entitled upon liquidation, dissolution or winding up of
the affairs of Kranzco, then the holders of the Kranzco Series B Preferred
Shares and the holders of the Parity Shares will share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they otherwise would be respectively entitled.
Kranzco Series B-1 Preferred Shares Conversion Rate; Right of Conversion
Holders of Kranzco Series B-1 Preferred Shares shall have the right,
exercisable after the first anniversary of the Initial Issue Date (unless
exercisable earlier as described below), at any time and from time to time, to
convert all or any Kranzco Series B-1 Preferred Shares (except that upon any
dissolution, liquidation or winding up of the affairs of Kranzco the right of
conversion shall terminate at the close of business on the business day fixed
for payment of the liquidating distributions to which holders of Kranzco Series
B-1 Preferred Shares are entitled) into such number of fully paid Kranzco Common
Shares as is obtained by: (i) multiplying the number of Kranzco Series B-1
Preferred Shares to be converted by $25.00 and (ii) dividing the result by the
conversion price listed below that will be in effect during the corresponding
date of conversion listed below:
<TABLE>
<CAPTION>
DATE OF CONVERSION CONVERSION PRICE
- ------------------------------------------------------------ ----------------
<S> <C>
Prior to the occurrence of a Special Conversion Event:
The day after the first anniversary of the Initial Issue
Date to and including the second anniversary of the
Initial Issue Date..................................... $19.175
The day after the second anniversary of the Initial Issue
Date to and including the third anniversary of the
Initial Issue Date..................................... $18.6875
The day after the third anniversary of the Initial Issue
Date to and including the fourth anniversary of the
Initial Issue Date..................................... $18.20
From and after the day after the fourth anniversary of the
Initial Issue Date..................................... $17.7125
At any time after a Special Conversion Event (defined below)
shall have occurred....................................... $17.7125
At any time after a notice of a Preferred Redemption
(defined below)........................................... $16.25
</TABLE>
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A 'Special Conversion Event' shall mean (i) Norman M. Kranzdorf ceasing to
be Chief Executive Officer, Chief Operating Officer or any other senior
executive officer of Kranzco having an active role in management of the business
of Kranzco, (ii) the merger or consolidation of Kranzco with or into any person
unless the holders of Kranzco Common Shares own more than 50% of the voting
securities of the surviving corporation and effective provisions are made by the
surviving corporation to protect the preferences and other rights of the Kranzco
Series B Preferred Shares, (iii) the sale, lease, transfer, spin-off or other
disposal or distribution of all or substantially all of the assets of Kranzco,
(iv) a successful tender offer or similar offer for at least a majority of the
voting shares of Kranzco is commenced and completed, (v) certain defaults on
indebtedness of Kranzco or any of its subsidiaries for borrowed money in excess
of $10,000,000 or capital lease obligations of Kranzco or any of its
subsidiaries in excess of $25,000,000, (vi) the commencement by or against
Kranzco of any insolvency, bankruptcy, dissolution, liquidation or receivership
proceedings with respect to Kranzco, (vii) Kranzco losing its status as a REIT
or (viii) Kranzco failing to pay a distribution on the Kranzco Series B
Preferred Shares for any Series B Distribution Period within five days of the
Distribution Payment Date therefor.
In connection with a Special Conversion Event described in clauses (ii) and
(iii) above, a holder of Kranzco Series B Preferred Shares shall have the right
to convert such shares into Kranzco Common Shares immediately prior to such
event, and the conversion ratio for such event shall be based on the conversion
price applicable to any Special Conversion Event.
For a discussion of the U.S. federal income tax consequences of the
decreases in the conversion prices of the Kranzco Series B-1 Preferred Shares
(as set forth above) on holders of the Kranzco Series B-1 Preferred Shares, see
'THE MERGER--Certain U.S. Federal Income Tax Considerations--Tax Consequences to
Holders of Kranzco Series B Preferred Shares.'
Kranzco Series B-2 Preferred Shares Conversion Rate; Right of Conversion
Kranzco Series B-2 Preferred Shares will, after the third anniversary of
the Initial Issue Date (unless converted earlier upon the occurrence of a
Special Conversion Event), automatically convert into an equal number of Kranzco
Series B-1 Preferred Shares which will then be convertible into Kranzco Common
Shares at the same conversion as set forth above in '--Kranzco Series B-1
Preferred Shares Conversion Rate; Right of Conversion.' Upon the occurrence of a
Special Conversion Event prior to the day after the third anniversary of the
Initial Issue Date, the Kranzco Series B-2 Preferred Shares will automatically
convert into an equal number of Kranzco Series B-1 Shares which will then be
convertible into Kranzco Common Shares at the same conversion as set forth above
in '--Kranzco Series B-1 Preferred Shares Conversion Rate; Right of Conversion.'
For a discussion of the U.S. federal income tax consequences of the
decreases in the conversion price of the Kranzco Series B-2 Preferred Shares on
holders of the Kranzco Series B-2 Preferred Shares, see 'THE MERGER--Certain
U.S. Federal Income Tax Considerations--Tax Consequences to Holders of Kranzco
Series B Preferred Shares.'
Distributions Following Conversion
Notwithstanding the surrender of Kranzco Series B Preferred Shares for
conversion into Kranzco Common Shares, all accrued distributions with respect to
such Kranzco Series B Preferred Shares for any past Series B Distribution
Periods that are in arrears at the time of such conversion will be paid to the
registered holder of such Kranzco Series B Preferred Shares in the same manner
as if such registered holder continued to be the registered holder of such
converted Kranzco Series B Preferred Shares following such conversion. In
addition, if any holder surrenders Kranzco Series B Preferred Shares for
conversion into Kranzco Common Shares, such holder shall be entitled to receive
a pro rata distribution on such Kranzco Series B Preferred Shares converted for
the portion of the current Series B Distribution Period such holder owned the
Kranzco Series B Preferred Shares surrendered for conversion, notwithstanding
that the record date for the distribution payable for the current Series B
Distribution Period may not have occurred. If a distribution period for the
Kranzco Common Shares overlaps with such current Series B Distribution Period,
an offset against the amount to be distributed to such holder with respect to
any such distribution period for the Kranzco Common Shares may be required.
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Reservation of Kranzco Common Shares; Valid Issuance
Kranzco will reserve and will at all times keep reserved out of its
authorized but unissued Kranzco Common Shares a sufficient number of Kranzco
Common Shares to permit the conversion of the then outstanding Kranzco Series B
Preferred Shares that may then be converted. All Kranzco Common Shares which may
be issued upon conversion of Kranzco Series B Preferred Shares will be validly
issued and fully paid, and will not be subject to preemptive or other similar
rights. In order that Kranzco may issue Kranzco Common Shares upon conversion of
Kranzco Series B Preferred Shares, Kranzco will endeavor to comply with all
applicable federal and state securities laws and will endeavor to list such
Kranzco Common Shares to be issued upon conversion on each securities exchange
on which the Kranzco Common Shares are then listed.
Adjustment of Conversion Rate
The conversion rate for the Kranzco Series B Preferred Shares in effect at
any time shall be subject to adjustment from time to time to protect against
certain dilutive events. In the case of any issuance of Kranzco Common Shares to
any non-affiliate of Kranzco for a price per share of less than 85% of the
average of the closing prices for a Kranzco Common Share for the thirty trading
days preceding the tenth trading day prior to such issuance of Kranzco Common
Shares (the 'Current Market Price'), the number of Kranzco Common Shares into
which each Kranzco Series B Preferred Share is convertible will be adjusted by
multiplying the number of Kranzco Common Shares into which each Kranzco Series B
Preferred Share was convertible immediately prior to such issuance by a fraction
of which the numerator shall be the number of Kranzco Common Shares outstanding
immediately prior to such issuance plus the number of Kranzco Common Shares
being issued, and of which the denominator shall be the number of Kranzco Common
Shares outstanding immediately prior to such issuance plus the number of Kranzco
Common Shares which the aggregate offering price of the Kranzco Common Shares to
be issued would purchase at the Current Market Price.
A similar type of adjustment to the conversion ratio will be made in the
case of any issuance of any security convertible or exercisable for Kranzco
Common Shares ('Kranzco Common Share Equivalents') where the aggregate of the
price of such Kranzco Common Share Equivalent and the price per share for which
Kranzco Common Shares may be issuable pursuant to such Kranzco Common Share
Equivalent is less than 85% of the Current Market Price. In the case of any
issuance of in excess of an aggregate of 250,000 Kranzco Common Shares and
Kranzco Common Shares into which Kranzco Common Share Equivalents which have
been issued are exercisable, exchangeable or convertible, in each case which
have been issued from and after November 12, 1996, to any officer, director or
other affiliate of Kranzco at a price per share of less than the Current Market
Price per Common Share then in effect on the date of such issuance, then a
similar type of adjustment to the conversion ratio will be made for each such
Kranzco Common Share and Kranzco Common Share Equivalent issued to any officer,
director or other affiliate of Kranzco at a price per share of less than the
Current Market Price then in effect on the date of such issuance.
In the case of (i) a share dividend, share split or any other distribution
in Kranzco Common Shares, (ii) a reclassification of Kranzco Common Shares into
shares of some other class or series of shares or (iii) a subdivision or
combination of Kranzco Common Shares, each Kranzco Series B Preferred Share will
be adjusted to be convertible into the number of Kranzco Common Shares the
holder of a Kranzco Series B Preferred Share would have been entitled to receive
if such holder had converted immediately prior to such event. In addition, if
the Kranzco Series A Preferred Shares are converted into more than 500,000
Kranzco Common Shares, each Kranzco Series B Preferred Share will be adjusted to
be convertible into the same percentage of the Kranzco Common Shares that such
share would have been convertible as if the Kranzco Series A Preferred Shares
had been converted into 500,000 Kranzco Common Shares and no more.
If Kranzco shall make a dividend or distribution of securities (other than
Kranzco Common Shares or Kranzco Common Share Equivalents) or other property to
the holders of Junior Shares and not to the holders of the Kranzco Series B
Preferred Shares, then, unless the holders of the Kranzco Series B Preferred
Shares are entitled to receive such distribution at a later time upon conversion
of the Kranzco Series B Preferred Shares and such distribution has been set
aside for such later distribution, each holder of Kranzco Series B Preferred
Shares shall receive at the time of payment or issuance of such dividend or
distribution, without payment or any consideration therefor, such securities or
other property which he would have owned immediately following such dividend or
distribution had such holder's Kranzco Series B Preferred Shares been converted
immediately prior thereto.
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Voting
The holders of Kranzco Series B Preferred Shares are generally not entitled
to vote at, or participate in, any meeting of shareholders of Kranzco, and have
no other right to vote, except as required by law and except in certain other
situations summarized below.
In addition to any other rights provided to the holders of the Kranzco
Series B Preferred Shares by applicable law, Kranzco may not, without the
affirmative vote of the holders of at least a majority of the total number of
outstanding Kranzco Series B-1 Preferred Shares and Kranzco Series B-2 Preferred
Shares, voting together as a separate class, (i) authorize, create or issue, or
increase the par value or authorized or issued amount of, any class or series of
Senior Shares, or rights to subscribe to or acquire, any security convertible
into, any class or series of Senior Shares, or reclassify any Kranzco Shares
into any such Senior Shares or reclassify any Junior Shares into Parity Shares;
(ii) amend, alter or repeal, whether by merger, consolidation or otherwise, any
of the provisions of the Declaration of Trust so as to adversely affect the
preferences, right to convert, conversion price adjustments, notice rights,
special conversion rights, distribution and liquidation rights, preferences,
restrictions or limitations, redemption rights or privileges, or voting powers
or rights of the Kranzco Series B Preferred Shares; or (iii) modify an express
contract right of the Kranzco Series B Preferred Shares.
If (a) Kranzco fails to pay the distributions on the outstanding Kranzco
Series B Preferred Shares for any two quarterly Series B Distribution Periods
(whether or not consecutive) or (b) a Special Conversion Event shall have
occurred (notwithstanding that such Special Conversion Event at any time
thereafter no longer continues), the holders of the Kranzco Series B Preferred
Shares shall immediately and at all times thereafter vote together with the
holders of the Kranzco Common Shares as a single class on all actions to be
taken by the holders of the Kranzco Common Shares. If Kranzco resolves to take
any action that would constitute a Special Conversion Event by reason of the
merger or consolidation of Kranzco with or into any third party or the sale,
lease, transfer, spin-off or other disposition of all or substantially all of
Kranzco's assets, and if the holders of the Kranzco Common Shares are entitled
to vote on such Special Conversion Event, then the holders of the Kranzco Series
B Preferred Shares shall be entitled to vote together with the holders of the
Kranzco Common Shares as a single class on such Special Conversion Event.
If Kranzco fails to authorize and pay or declare and set apart for payment
the distributions accumulated on the outstanding Kranzco Series B Preferred
Shares for any four quarterly Series B Distribution Periods (a 'Four Quarter
Preferential Distribution Non-Payment'), the number of trustees of the Kranzco
Board will be increased by one and the holders of the outstanding Kranzco Series
B-1 Preferred Shares and Kranzco Series B-2 Preferred Shares, voting together as
a separate class, shall be entitled to elect one additional trustee to the
Kranzco Board (a 'Preferred Shares Trustee') until the full distributions
accumulated on all outstanding Kranzco Series B Preferred Shares for such four
quarterly Series B Distribution Periods have been authorized and paid or
declared and set apart for payment. No Preferred Shares Trustee elected by the
holders of the Kranzco Series B Preferred Shares may be removed except by the
vote of the holders of a majority of the outstanding Kranzco Series B-1
Preferred Shares and Kranzco Series B-2 Preferred Shares, voting together as a
separate class, in person or by proxy, at a meeting called for such purpose. So
long as a Four Quarter Preferential Distribution Non-Payment shall continue, if
a Preferred Shares Trustee who has been elected by the holders of Kranzco Series
B Preferred Shares to serve on the Kranzco Board shall no longer serve on the
Kranzco Board by reason of resignation, death or removal, such vacancy may be
filled by holders of a plurality of the outstanding Kranzco Series B-1 Preferred
Shares and Kranzco Series B-2 Preferred Shares, voting together as a separate
class. If and when all accumulated distributions on the Kranzco Series B
Preferred Shares have been authorized and paid, the holders of the Kranzco
Series B Preferred Shares shall be divested of the special voting rights to
elect a Preferred Shares Trustee, subject to revesting in the event of each and
every subsequent Four Quarter Preferential Distribution Non-Payment. Upon
termination of such special voting rights attributable to all holders of the
Kranzco Series B Preferred Shares, the term of office of the Preferred Shares
Trustee shall terminate and the number of trustees constituting the entire
Kranzco Board shall be reduced by one.
Trustees' Right to Refuse to Transfer Series B Preferred Shares; Limitation
on Holdings
In the event of any proposed transfer of Kranzco Series B Preferred Shares
that would jeopardize the status of Kranzco as a REIT, the Kranzco Board has the
right to refuse to permit such transfer and to take any action to cause any such
transfer not to occur. In addition, any transfer of Kranzco Series B Preferred
Shares that would (i) create a direct or indirect owner of more than 9.8% of the
lesser of the number or the value of the total
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Kranzco Shares outstanding other than a person approved by the Kranzco Board (a
'Kranzco Series B Preferred Shares Excepted Person'); or (ii) result in Kranzco
being 'closely held' within the meaning of Section 856(h) of the Code, will be
void ab initio and any such Kranzco Series B Preferred Shares so transferred may
be purchased by Kranzco. See 'DESCRIPTION OF KRANZCO SHARES--Restrictions on
Transfer Generally' for a description of the procedure for purchasing and the
purchase price of such shares. Robert A. Mandor, Leonard S. Mandor and certain
of their affiliates have been approved by the Kranzco Board as Kranzco Series B
Preferred Shares Excepted Persons for so long as their direct or indirect
ownership of Kranzco Shares, individually or in the aggregate and in any
combination do not exceed certain levels. For a more detailed description of the
transfer restrictions contained in Kranzco's Declaration of Trust, see
'--Restrictions on Transfer Generally.'
Redemption
At any time after the fifth anniversary of the Initial Issue Date, if the
aggregate Series B Liquidation Preferences of all of the outstanding Kranzco
Series B-1 Preferred Shares are at any time less than $3,000,000, the Kranzco
Board may, at its option and in its sole discretion, redeem the Kranzco Series
B-1 Preferred Shares in whole, subject to the limitations set forth below, at a
redemption price equal to $25.00 per share (the 'Call Price'), plus (i) all
distributions accrued and unpaid on such Kranzco Series B-1 Preferred Shares for
past Series B Distribution Periods and (ii) the pro rata portion of the
distributions on such Kranzco Series B-1 Preferred Shares for the then current
Series B Distribution Period through the date of redemption (the 'Preferred
Redemption').
From and after the redemption date for the Preferred Redemption (unless
default shall be made by Kranzco in payment), (a) all distributions on the
Kranzco Series B-1 Preferred Shares shall cease to accrue, and all rights of the
holders thereof as shareholders of Kranzco will cease and terminate, except for
the right (i) to surrender their Kranzco Series B-1 Preferred Shares for
conversion into Kranzco Common Shares at any time prior to the Redemption Date
or (ii) to receive payment with respect to such Kranzco Series B-1 Preferred
Shares upon the surrender of certificates and (b) the Kranzco Series B-1
Preferred Shares shall no longer be deemed to be outstanding for any purpose
whatsoever.
If a notice of redemption is given by Kranzco, any holder of then
outstanding Kranzco Series B-1 Preferred Shares may, prior to the close of
business on the last business day preceding the date of redemption, give written
notice to Kranzco of the conversion of any or all of the Kranzco Series B-1
Preferred Shares to be redeemed held by such holder (accompanied by a
certificate or certificates for such shares, duly endorsed or assigned to
Kranzco), and such conversion shall occur in accordance with the terms of the
Kranzco Series B-1 Preferred Shares.
No Preemptive Rights
No holder of Series B Preferred Shares shall be entitled to any preemptive
rights to subscribe for or acquire any unissued Kranzco Shares (whether now or
hereafter authorized) or securities of Kranzco convertible including securities
into or carrying a right to subscribe to or acquire Kranzco Shares.
Kranzco Series C Preferred Shares
The Kranzco Board at a meeting held on November 7, 1996 adopted resolutions
authorizing, creating and classifying, out of the 100,000,000 authorized Kranzco
Shares, a separate class of preferred shares of beneficial interest consisting
of 395,834 preferred shares of beneficial interest known as the 'Series C
Cumulative Redeemable Preferred Shares of Beneficial Interest', having a par
value of $.01 per share.
Ranking
Upon issuance, Kranzco Series C Preferred Shares will rank on a parity with
the Kranzco Series A Preferred Shares and the Kranzco Series B Preferred Shares,
and senior to the Kranzco Common Shares with respect to distributions and
amounts payable upon liquidation, dissolution or winding up of the affairs of
Kranzco.
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Distributions
The holders of Kranzco Series C Preferred Shares will be entitled to
receive dividends, as and when declared by the Kranzco Board, out of funds
legally available for the purpose, at the rate of 8% per annum of the Series C
Liquidation Preference (defined below), payable in quarterly installments on the
last day of January, April, July and October of each year (each such date being
a 'Series C Distribution Payment Date') with respect to the immediately
preceding calendar quarter.
Each dividend is fully cumulative and accrues (whether or not declared), on
a daily basis without compounding and without interest, from the date of initial
issuance. The holders of Kranzco Series C Preferred Shares will be entitled to
receive dividends provided for in preference to and with priority over any
dividends on and other distributions in respect of the Kranzco Common Shares or
any other class or series of shares or equity securities of Kranzco heretofore
or hereafter authorized which by its terms are Junior Shares. So long as any
Kranzco Series C Preferred Shares are outstanding, Kranzco may not declare, pay
or set apart for payment any dividend on account of, or set apart for payment
money for a sinking or other similar fund for the purchase, redemption or other
retirement of any Junior Shares or any warrants, rights, calls or options
exercisable for or convertible into any Junior Shares or make any distribution
in respect thereof, either directly or indirectly, and whether in cash,
obligations or shares of Kranzco or other property (other than distributions or
dividends in Junior Shares to the holders of Junior Shares), unless full
dividends on all outstanding Kranzco Series C Preferred Shares have been paid in
full or a sum set apart sufficient for the full payment thereof.
Distributions Upon Liquidation, Dissolution or Winding Up
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of Kranzco, the holders of Kranzco Series C Preferred
Shares then outstanding shall be entitled to receive, out of the assets of
Kranzco, $10.00 per share (the 'Series C Liquidation Preference') plus an amount
per share equal to all accrued and unpaid dividends thereon, if any, up to the
date of liquidation, dissolution or winding up of the affairs of Kranzco, before
any distribution or payment is made on any class of Junior Shares. If upon any
liquidation, dissolution or winding up of the affairs of Kranzco, the assets
distributable among the holders of Kranzco Series C Preferred Shares and all
other classes and series of Kranzco Shares which by their terms rank (as to any
such distribution of assets) on a parity with the Kranzco Series C Preferred
Shares are insufficient to permit the payment in full to the holders of all such
shares of all preferential amounts payable to all such holders, then the entire
assets of Kranzco thus distributable shall be distributed ratably among the
holders of Kranzco Series C Preferred Shares and such other classes and series
of Kranzco Shares which by their terms rank (as to any such distribution of
assets) on a parity with the Kranzco Series C Preferred Shares in proportion to
the respective amounts that would be payable per share if such assets were
sufficient to permit payment in full.
Voting
The holders of Kranzco Series C Preferred Shares are not entitled to vote
at, or participate in, any meeting of shareholders of Kranzco, and have no other
right to vote, except as required by law and except in certain other situations
summarized below.
In addition to any other rights provided to the holders of the Kranzco
Series C Preferred Shares by applicable law, Kranzco may not, without the
affirmative vote of the holders of at least a majority of the total number of
outstanding Kranzco Series C Preferred Shares, voting together as a separate
class, (i) authorize, create or issue any class or series of, or rights to
subscribe to or acquire, any security convertible into, any class or series of
Kranzco Shares having mandatory redemption obligations on the part of Kranzco
senior to the Kranzco Series C Preferred Shares, or reclassify any Kranzco
Shares into any such senior shares; (ii) amend, alter or repeal, whether by
merger, consolidation or otherwise, any of the provisions of the Declaration of
Trust so as to adversely affect the preferences, notice rights, distribution and
liquidation rights, preferences, restrictions and limitations, redemption rights
and privileges or voting powers or rights of the Kranzco Series C Preferred
Shares; or (iii) modify an express contract right of the Kranzco Series C
Preferred Shares.
Mandatory Redemption
Kranzco is required, to the extent that funds are legally available
therefor, to redeem in eight equal quarterly installments on the last day of
January, April, July and October of each calendar year, beginning in the first
quarter following the Merger, all of the outstanding Kranzco Series C Preferred
Shares at a redemption price per
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Kranzco Series C Preferred Share (the 'Series C Redemption Price') equal to the
Series C Liquidation Preference plus an amount equal to the accrued and unpaid
dividends, if any, allocable to such Kranzco Series C Preferred Share. If
Kranzco (i) fails to discharge any mandatory redemption obligation for any
reason, (ii) fails to pay a distribution on the outstanding Kranzco Series C
Preferred Shares for any quarter within five days of the distribution payment
date therefor or (iii) merges or consolidates with or into any entity, unless
immediately following such merger or consolidation, more than 50% of the
surviving company's issued and outstanding voting securities are held by the
holders of Kranzco's issued and outstanding voting securities immediately prior
to such merger or consolidation and effective provision is made in the charter
documents of the surviving person or entity or otherwise for the recognition,
preservation and protection of the preferences, conversion and other rights,
voting powers, restrictions and limitations as to dividends or other
distributions of the Kranzco Series C Preferred Shares, then (x) no dividends or
other distributions shall be paid on the Kranzco Common Shares, any other class
of Junior Shares or any class or series of shares of equity securities of
Kranzco which by its terms ranks on a parity with the Kranzco Series C Preferred
Shares in respect of dividend rights and rights of liquidation, dissolution and
winding up of the affairs of Kranzco and (y) Kranzco shall immediately redeem
all outstanding Kranzco Series C Preferred Shares at the Series C Redemption
Price.
Optional Redemption
The Kranzco Board shall have the right at any time, and from time to time,
but not the obligation, to redeem an unlimited number of Kranzco Series C
Preferred Shares at the Series C Redemption Price plus on amount equal to the
accrued and unpaid dividends thereon if any.
WARRANTS
On November 19, 1992 Kranzco issued to certain persons warrants to purchase
up to 191,429 Kranzco Common Shares exercisable within five years after issuance
at an exercise price equal to $26.00 per Kranzco Common Share.
CLASSIFICATION OR RECLASSIFICATION OF KRANZCO SHARES
The Declaration of Trust authorizes the Kranzco Board to classify or
reclassify any unissued Kranzco Shares by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
distributions, qualifications or terms or conditions of redemption.
RESTRICTIONS ON TRANSFER GENERALLY
For Kranzco to continue to qualify as a REIT, not more than 50% in value of
its outstanding shares may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the last
half of a taxable year; the Shares must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year; and certain percentages of
Kranzco's gross income must be from particular activities. Because the Kranzco
Board believes it is essential for Kranzco to continue to qualify as a REIT, the
Declaration of Trust, subject to certain exceptions, provides that no holder
(other than (i) Norman M. Kranzdorf and Marvin Williams, (ii) Leonard Mandor,
Robert Mandor and their affiliates and (ii) any other person approved by the
trustees, at their option and in their discretion, provided that such approval
will not result in the termination of the status of Kranzco as a REIT) may own,
or be deemed to own by virtue of the attribution provisions of the Code, more
than 9.8% (the 'Ownership Limit') of the lesser of the number or value (in
either case as determined in good faith by the Kranzco Board) of the total
outstanding Shares. The Kranzco Board may also waive the Ownership Limit if
evidence satisfactory to the trustees and Kranzco's tax counsel is presented
that such ownership will not then or in the future jeopardize Kranzco's status
as a REIT. As a condition of such waiver, the intended transferee must give
written notice to Kranzco of the proposed transfer and must furnish such
opinions of counsel, affidavits, undertakings, agreements and information as may
be required by the Kranzco Board no later than the 15th day prior to any
transfer which, if consummated, would result in the intended transferee owning
Shares in excess of the Ownership Limit. The foregoing restrictions on
transferability and ownership will not apply if the Kranzco Board determines
that it is no longer in the best interests of Kranzco to attempt to qualify, or
to continue to qualify, as a REIT. Any transfer or issuance of Shares or any
security convertible into Shares that would (i) create a direct or indirect
ownership of Shares in excess of the Ownership Limit, (ii) with respect to
transfers only, result in the Shares being owned by fewer than 100 persons or
(iii) result in Kranzco being 'closely held' within the meaning of Section
856(h) of
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the Code, shall be null and void, and the intended transferee will acquire no
rights to the Shares. The Declaration of Trust provides that Kranzco, by notice
to the holder thereof, may purchase any or all Shares (the 'Excess Shares') that
are proposed to be transferred pursuant to a transfer which, if consummated,
would result in the intended transferee owning Shares in excess of the Ownership
Limit or would otherwise jeopardize the REIT status of Kranzco. The purchase
price of any Excess Shares which are Kranzco Common Shares or Kranzco Series A
Preferred Shares will be equal to the fair market value of such Shares reflected
in the closing sales price for the Shares, if then listed on a national
securities exchange, or such price for the Shares on the principal exchange if
then listed on more than one national securities exchange, or, if the shares are
not then listed on a national securities exchange, the latest bid quotation for
the Shares if then traded over-the-counter, or, if such quotation is not
available, the fair market value as determined by the Kranzco Board in good
faith, on the last trading day immediately preceding the day on which notice of
such proposed purchase is sent by Kranzco. The purchase price of any Excess
Shares which are Kranzco Series B Preferred Shares will be equal to the greatest
of (i) the average of the closing prices for a Kranzco Series B Preferred Share
for the thirty trading days preceding the day on which notice of such proposed
transfer is sent, (ii) the product of (x) the average of the closing prices for
a Kranzco Common Share for the thirty trading days preceding the day on which
notice of such proposed transfer is sent and (y) the number (including
fractions) of Kranzco Common Shares into which such Kranzco Series B Preferred
Share may be converted on such day and (iii) the sum of (x) the Series B
Liquidation Preference and (y) the accrued and unpaid distributions on such
Kranzco Series B Preferred Share. The closing price for such days will be the
last reported sale price regular way or, in case no such reported sale takes
place on such date, the average of the reported closing bid and asked prices
regular way, in either case on the NYSE, or if the Kranzco Series B Preferred
Shares or Kranzco Common Shares, as the case may be, are not listed or admitted
to trading on the NYSE, on the principal national securities exchange on which
the Kranzco Series B Preferred Shares or Kranzco Common Shares, as the case may
be, are listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange, the closing sale price of the Kranzco
Series B Preferred Shares or Kranzco Common Shares, as the case may be, or in
case no reported sale takes place, the average of the closing bid and asked
prices on NASDAQ or any comparable system. If the Kranzco Series B Preferred
Shares or Kranzco Common Shares, as the case may be, are not quoted on NASDAQ or
any comparable system, the Kranzco Board shall in good faith determine the
current market price on such basis as it considers appropriate. From and after
the date fixed for purchase by the Kranzco Board, the holder of such Excess
Shares to be purchased by Kranzco shall cease to be entitled to distributions,
voting rights and other benefits with respect to such Excess Shares excepting
only the right to payment of the purchase price for the Excess Shares. Any
dividend or distribution paid to a proposed transferee on Excess Shares prior to
the discovery by Kranzco that such Shares have been transferred in violation of
the provisions of the Declaration of Trust shall be repaid to Kranzco upon
demand. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any Excess Shares may be deemed, at the option of
Kranzco, to have acted as an agent on behalf of Kranzco in acquiring such Excess
Shares and to hold such Excess Shares on behalf of Kranzco.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% in number or value of the outstanding Shares must give a
written notice to Kranzco containing the information specified in the
Declaration of Trust by January 30 of each year. In addition, each shareholder
of Kranzco shall upon demand be required to disclose to Kranzco in writing such
information with respect to the direct, indirect and constructive ownership of
beneficial interests as the Kranzco Board deems necessary to comply with the
provisions of the Code applicable to a REIT, to comply with the requirements of
any taxing authority or governmental agency or to determine any such compliance.
Such ownership limitations may have the effect of precluding acquisition of
control of Kranzco unless the Kranzco Board determines that Kranzco's
maintenance of REIT status is no longer in the best interests of Kranzco.
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COMPARISON OF RIGHTS OF HOLDERS
GENERAL
UPI is organized as a corporation under the laws of the State of Delaware
and Kranzco is organized as a real estate investment trust under Title 8 ('a
Maryland REIT'). As a Delaware corporation, UPI is subject to the DGCL, which is
a general corporation statute dealing with a wide variety of matters, including
election, tenure, duties and liabilities of directors and officers; dividends
and other distributions; meetings of stockholders; and extraordinary actions,
such as amendments to the certificate of incorporation, mergers, sales of all or
substantially all of the assets and dissolution. The rights of holders of UPI
Common Stock are governed by the DGCL, the UPI Certificate of Incorporation and
the UPI Bylaws.
As a Maryland REIT, Kranzco is governed by Title 8 and certain other
provisions of the Annotated Code of Maryland. Title 8 covers some of the same
matters covered by the DGCL, including liabilities of the trust, shareholders,
trustees and officers; amendments of the declaration of trust; and mergers of a
Maryland REIT with other entities. There are, however, many matters that are
addressed in the DGCL that are not addressed by Title 8, and it is a general
practice for a Maryland REIT such as Kranzco to address a number of these
matters through provisions in its declaration of trust or bylaws. The rights of
holders of Kranzco Shares are governed by Title 8, the Declaration of Trust and
the Kranzco Bylaws.
The discussion of the comparative rights of holders of UPI Common Stock,
holders of Kranzco Common Shares and holders of Kranzco Series B Preferred
Shares set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to the DGCL and Title 8 and also to the
UPI Certificate of Incorporation and the UPI Bylaws, and the Declaration of
Trust, Kranzco Series A Articles Supplementary, the Kranzco Series B-1 Articles
Supplementary, the Kranzco Series B-2 Articles Supplementary, the Kranzco Series
C Articles Supplementary and the Kranzco Bylaws.
VOTING RIGHTS
Each share of UPI Common Stock entitles the holder thereof to one vote on
all matters submitted to a vote of holders of UPI Common Stock, including the
election of directors. No action to be taken by UPI requires approval by the
affirmative vote of the holders of greater than a majority of the shares of UPI
Common Stock entitled to vote on the matter.
Each Kranzco Common Share entitles the holder thereof to one vote on all
matters submitted to a vote of holders of Kranzco Common Shares, including the
election of trustees. The following actions must be approved by the affirmative
vote of the holders of at least two-thirds of the outstanding Kranzco Common
Shares: certain amendments to the Declaration of Trust; removal of trustees from
the Kranzco Board; merging Kranzco into another entity, consolidating Kranzco
with one or more other entities into a new entity or selling or otherwise
disposing of all or substantially all of the assets of Kranzco. No other action
to be taken by Kranzco requires approval by the affirmative vote of the holders
of greater than a majority of the outstanding Kranzco Common Shares.
Kranzco Series B Preferred Shares do not entitle the holder thereof to any
vote on matters submitted to a vote of the holders of Kranzco Common Shares,
including the election of trustees, except under certain limited circumstances,
including without limitation (i) the occurrence of a Special Conversion Event,
(ii) Kranzco's failure to pay the distributions accumulated on the outstanding
Kranzco Series B Preferred Shares for any two quarterly distribution periods
(whether or not consecutive) and (iii) Kranzco's failure to pay the
distributions accumulated on the outstanding Kranzco Series B Preferred Shares
for any four quarterly distribution periods. See 'DESCRIPTION OF KRANZCO
SHARES--Kranzco Preferred Shares--Kranzco Series B-1 Preferred Shares and
Kranzco Series B-2 Preferred Shares--Voting.'
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DIVIDENDS AND OTHER DISTRIBUTIONS
Holders of UPI Common Stock are entitled to distributions if, as and when
declared by the UPI Board. UPI has never paid any cash dividends on the UPI
Common Stock and has no present intention to declare or pay any cash dividends.
Dividends may only be paid out of the surplus of UPI or, if there is no surplus,
out of net profits for the year in which the dividend is declared and/or the
preceding fiscal year.
Holders of Kranzco Common Shares are entitled to distributions if, as and
when declared by the Kranzco Board. Kranzco currently pays a regular quarterly
cash distributions of $.48 per Kranzco Common Share (which, if annualized, would
equal $1.92 per Kranzco Common Share). However, future distributions are at the
discretion of the Kranzco Board. Under Title 8 and the Declaration of Trust,
there are no limits in Title 8 on the payment of dividends or other
distributions on the Kranzco Common Shares similar to the limits in the DGCL.
Holders of Kranzco Series B Preferred Shares are entitled to cumulative
dividends at an annual rate of 9.75% of the Series B Liquidation Preference.
Under Title 8 and the Declaration of Trust, there are no limits on the payment
of dividends or other distributions on the Kranzco Preferred Shares similar to
those provided by the DGCL.
RESTRICTIONS ON TRANSFER
There are no restrictions on the transferability of UPI Common Stock under
the DGCL, the UPI Certificate of Incorporation or the UPI Bylaws.
The Declaration of Trust restricts the transferability of Kranzco Common
Shares and Kranzco Preferred Shares. To ensure that Kranzco will not fail to
qualify as a REIT under various tests set forth under the Code, the Declaration
of Trust, subject to certain exceptions, authorizes the Kranzco Board to take
such actions as are necessary and desirable to preserve its qualification as a
REIT and to limit any person (other than (i) Norman Kranzdorf and Marvin
Williams, (ii) Leonard Mandor, Robert Mandor and certain of their affiliates and
(iii) certain other persons approved by the Kranzco Board, in its discretion,
provided that such approval will not result in the termination of Kranzco's
status as a REIT) to direct or indirect ownership of 9.8% (the 'Ownership
Limit') of the lesser of the number or value of the outstanding Kranzco Shares.
The Ownership Limit may delay, defer or prevent a transaction or a change in
control of Kranzco that might involve a premium price for the Kranzco Common
Shares or the Kranzco Series B Preferred Shares or otherwise be in the best
interest of the shareholders of Kranzco. See 'DESCRIPTION OF KRANZCO
SHARES--Restrictions on Transfer Generally.'
AMENDMENT OF BYLAWS
The UPI Bylaws may be amended by the UPI Board or by the holders of UPI
Common Stock. The Kranzco Bylaws may be amended only by the Kranzco Board and
not by the holders of Kranzco Common Shares or holders of Kranzco Series B
Preferred Shares.
APPRAISAL RIGHTS
Under the DGCL, shares of stock of UPI are entitled to appraisal rights in
connection with certain mergers of UPI into another entity. Under Title 8,
Kranzco Shares have no appraisal rights.
UPI BOARD AND KRANZCO BOARD
The business and affairs of UPI are managed under the direction of a
three-member board of directors. The business and affairs of Kranzco are managed
under the direction of a seven-member board of trustees.
The UPI Certificate of Incorporation and the UPI Bylaws provide that the
number of directors of UPI shall be as fixed by the UPI Board from time to time
(but in no case shall the number be less than one or more than seven). Vacancies
and newly created directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors then in office
or by a sole remaining director. All directors are elected at each annual
meeting for a term lasting until the next annual meeting and the election and
qualification of their successors.
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The Declaration of Trust provides that the number of trustees of Kranzco
cannot be less than three or more than 15. Any vacancy (including a vacancy
created by an increase in the number of trustees) will be filled, at any regular
meeting or at any special meeting of the trustees called for that purpose, by a
majority of the trustees. The Kranzco Board is divided into three classes, as
nearly equal in number as possible, with the term of one class expiring at each
annual meeting of shareholders. At each annual meeting, one class of trustees
will be elected for a term of three years and the trustees in the other two
classes will continue in office.
Kranzco believes the classification of the Kranzco Board will help to
assure the continuity and stability of Kranzco's business strategies and
policies as determined by the Kranzco Board.
The classified board provision could, however, have the effect of making
the replacement of incumbent trustees more time-consuming and difficult. At
least two annual meetings of shareholders, instead of one, will generally be
required to effect a change in a majority of the trustees on the Kranzco Board.
Thus, the classified board could increase the likelihood that incumbent trustees
will retain their positions. The staggered terms of trustees might have the
effect of delaying, deferring or preventing a change in control of Kranzco or
other transaction which might involve a premium price for Kranzco Common Shares
or the Kranzco Series B Preferred Shares or otherwise be in the best interest of
its shareholders.
SPECIAL MEETINGS
Under the DGCL, a special meeting of holders of UPI Common Stock may only
be called by the UPI Board. Under the UPI Bylaws, a special meeting of holders
of UPI Common Stock may be called by its President or a majority of its
directors and shall be called by the Secretary at the written request of holders
of at least a majority of the outstanding shares of UPI Common Stock. Under the
Kranzco Bylaws, a special meeting of holders of Kranzco Common Shares may be
called by the President or one-third of the trustees and shall be called upon
the written request of the holders of Kranzco Common Shares entitled to cast not
less than 40% of all the votes entitled to be cast at such meeting. Under the
Kranzco Series B Articles Supplementary, a special meeting of holders of Kranzco
Series B Preferred Shares shall be called by the Kranzco Board upon the request
of holders of at least 25% of the Kranzco Series B Preferred Shares, in certain
limited situations in which the holders of the Kranzco Series B Preferred Shares
are entitled to vote.
ADVANCE NOTICE FOR SHAREHOLDER NOMINATIONS FOR TRUSTEE AND PROPOSALS OF NEW
BUSINESS
Holders of UPI Common Stock are not required to provide advance notice to
nominate a director or to propose new business at UPI's annual meeting of
stockholders.
In order to nominate a trustee or to propose new business at a meeting of
shareholders, a shareholder entitled to vote at the meeting must give written
notice of not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting. Similar notice must be given
in connection with nominations for trustees at special meetings called for the
purpose of electing one or more trustees.
ACTION BY WRITTEN CONSENT
Any action required or permitted to be taken at an annual meeting or
special meeting of stockholders of UPI may be taken without a meeting if a
written consent to the action is signed by holders of outstanding shares of
stock having not less than the minimum number of votes required to authorize or
take the action at a meeting at which all shares entitled to vote thereon were
present and voted.
Any action required or permitted to be taken at an annual or special
meeting of stockholders of Kranzco may be taken without a meeting only if a
written consent to the action is signed by holders of all of the outstanding
shares of stock entitled to vote thereon.
AMENDMENT OF UPI CERTIFICATE OF INCORPORATION AND DECLARATION OF TRUST
An amendment to the UPI Certificate of Incorporation must be approved by
holders of a majority of the outstanding stock entitled to vote thereon. The
trustees of the Kranzco Board, by a two-thirds vote, may at any time amend the
Declaration of Trust of Kranzco to enable Kranzco to maintain its qualification
as a REIT or as a Maryland REIT, without the approval of the shareholders. Other
amendments require the affirmative vote of the
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holders of a majority of the outstanding Kranzco Shares entitled to vote thereon
except that amendments to the provisions of the Declaration of Trust relating to
the removal of trustees, the restrictions on transfer of Kranzco Shares,
reorganizations and mergers require the affirmative vote of the holders of
two-thirds of the outstanding Kranzco Shares entitled to vote thereon.
DISSOLUTION OF UPI AND TERMINATION OF KRANZCO AND REIT STATUS
UPI may be dissolved if (i) the UPI Board, by resolution adopted by a
majority of the directors of the UPI Board at any meeting called for that
purpose, deems such dissolution advisable and (ii) the holders of a majority of
the outstanding shares of UPI Common Stock votes for the proposed dissolution at
a stockholders meeting called for the purpose of acting upon such resolution.
Dissolution of UPI may also be authorized without action by the UPI Board if all
stockholders entitled to vote thereon shall consent thereto in writing.
Kranzco may be dissolved by the affirmative vote of the holders of a
majority of the outstanding Kranzco Common Shares at a meeting of shareholders
called for that purpose. The Kranzco Board may terminate the status of Kranzco
as a REIT at any time.
Upon any liquidation, dissolution or winding-up of the affairs of Kranzco,
before any distribution may be made to the holders of any Junior Shares,
including the Kranzco Common Shares, and subject to the payment or provision or
reserve for payment of the debts and liabilities and the preferences of Senior
Shares, if any, the holders of Kranzco Series B Preferred Shares shall be
entitled to receive, out of the assets of Kranzco legally available for payment
of distributions, liquidating distributions in cash or property (or a
combination thereof) in the amount of the Series B Liquidation Preference for
each Kranzco Series B Preferred Share plus an amount equal to all accrued and
unpaid distributions to the date of such liquidation, dissolution or winding up.
After payment of the full amount of the liquidating distributions to which they
are entitled, the holders of Kranzco Series B Preferred Shares shall have no
right or claim to any of the remaining assets of Kranzco and will not be
entitled to any other distribution.
Upon any liquidation, dissolution or winding-up of the affairs of Kranzco,
holders of Kranzco Common Shares will be entitled to share ratably in the assets
of Kranzco remaining after provision for payment of liabilities to creditors and
any senior securities, including without limitation, the Kranzco Series B
Preferred Shares.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
As permitted by the DGCL, the liability of the directors and officers of
UPI to UPI or to any stockholder of UPI for monetary damages for breach of
fiduciary duty as a director or officer has been eliminated except for (a) any
breach of the director's duty of loyalty to UPI or the stockholders of UPI, (b)
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (c) unlawful dividends or redemptions or purchases of
stock, or (d) any transaction from which the director derived an improper
personal benefit.
As permitted by Title 8, the liability of trustees and officers of Kranzco
to Kranzco or to any shareholder of Kranzco for money damages has been
eliminated except for (a) actual receipt of an improper personal benefit in
money, property or services and (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of action.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
UPI is required to indemnify, to the fullest extent permitted by the DGCL,
any and all persons that it shall have the power to indemnify under the DGCL.
The DGCL currently permits UPI to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer, employee or agent of a
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him in connection with such action, suit or proceeding if the
individual acted in good faith
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and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to a criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. However, the DGCL does not
permit UPI to indemnify any person for judgments or amounts paid in settlement
in a suit by or in the right of UPI. The UPI Certificate of Incorporation
provides that the rights to indemnification provided thereby are non-exclusive.
Kranzco is required, to the maximum extent permitted by Maryland law in
effect from time to time, to indemnify any trustee or officer, or former trustee
or officer, (a) against reasonable expenses incurred by him in the successful
defense (on the merits or otherwise) of any proceeding to which he is made a
party by reason of such status or (b) against any claim or liability to which he
may become subject by reason of such status unless it is established that (i)
the act or omission giving rise to the claim was committed in bad faith or was
the result of active and deliberate dishonesty, (ii) he actually received an
improper personal benefit in money, property or services or (iii) in the case of
a criminal proceeding, he had reasonable cause to believe that his act or
omission was unlawful. Maryland law permits indemnification for settlements (but
not judgments in) suits by or in the right of the trust. Kranzco is also
required by its Bylaws to pay or reimburse, in advance of a final disposition,
reasonable expenses of a trustee or officer made a party to a proceeding by
reason of his status as such upon receipt of a written affirmation by the
trustee or officer of his good faith belief that he has met the applicable
standard for indemnification under the Kranzco Bylaws and a written undertaking
to repay such expenses if it is ultimately determined that the applicable
standard was not met.
The DGCL, Title 8, the UPI Certificate of Incorporation, the UPI Bylaws,
the Declaration of Trust and the Kranzco Bylaws may permit indemnification for
liabilities arising under the Securities Act or the Exchange Act. The UPI Board
and the Kranzco Board have been advised that, in the opinion of the Commission,
indemnification for liabilities arising under the Securities Act or the Exchange
Act is contrary to public policy and is therefore unenforceable, absent a
decision to the contrary by a court of appropriate jurisdiction.
BUSINESS COMBINATIONS
Under the DGCL, certain 'business combinations' (including certain mergers,
consolidations, asset transfers and certain issuances or reclassifications of
securities) between a Delaware corporation and any person who owns 15% percent
or more of the outstanding voting stock of the corporation (an 'Interested
Stockholder') or certain affiliates of the Interested Stockholder are prohibited
for three years after the time that the Interested Stockholder became an
Interested Stockholder. This provision of the DGCL does not apply, however, to
certain business combinations, including any business combination or transaction
resulting in an Interested Stockholder becoming an Interested Stockholder if the
combination or transaction was approved by the board of directors of the
corporation prior to the time the Interested Stockholder became an Interested
Stockholder.
Under the Maryland General Corporate Law, as applicable to Maryland REITs,
certain 'business combinations' (including certain mergers, consolidations,
share exchanges, asset transfers and issuances or reclassifications of equity
securities) between a Maryland REIT and any person who beneficially owns 10% or
more of the voting power of the trust's stock or an affiliate of the trust who,
at any time within the two-year period before the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting shares of beneficial interest of the trust (an 'Interested
Shareholder') or an affiliate of the Interest Stockholder are prohibited for
five years after the most recent record date on which the Interested Stockholder
becomes an Interested Stockholder. Thereafter, any such business combination
must be recommended by the board of trustees of such trust and approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast by holders
of outstanding shares of voting stock of the trust and (ii) two-thirds of the
votes entitled to be cast by holders of outstanding shares of voting stock other
than stock held by the Interested Shareholder with whom the business combination
is to be effected, unless, among other things, the trust's common shareholders
receive a minimum price (as defined in the statute) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Shareholder for his shares. These provisions of Maryland law do not
apply, however, to business combinations that are approved or exempted for a
period of five years following the most recent date on which the Interested
Shareholder became an Interested Shareholder by the board of trustees of the
trust prior to the time that the Interested Shareholder becomes an Interested
Shareholder. The Board of Trustees has exempted from the Maryland statute any
business combination with Mr. Kranzdorf or Mr. Williams or any other person
acting in concert or as a group with either of the
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foregoing persons. The business combination statute could have the effect of
delaying, deferring or preventing offers to acquire Kranzco and of increasing
the difficulty of consummating any such offer.
REMOVAL OF DIRECTORS AND TRUSTEES
A director of UPI may be removed, with or without cause, by the holders of
a majority of the shares of UPI Common Stock. A trustee of Kranzco may be
removed only for cause, by the affirmative vote of holders of not less than
two-thirds of the Kranzco Common Shares outstanding and entitled to vote in the
election of trustees. Where a trustee has been elected by the holders of the
Kranzco Series B Preferred Shares, such trustee may not be removed except by the
vote of the holders of a majority of the outstanding Kranzco Series B Preferred
Shares, voting together as a separate class, at a meeting called for such
purpose.
INSPECTION OF BOOKS AND RECORDS
Any stockholder of UPI, upon making a written demand, may examine the
stockholders' list and may inspect any other corporate books and records for any
purpose reasonably related to the stockholder's interest as a stockholder. Any
shareholder of Kranzco may inspect and copy the Kranzco Bylaws, minutes of
proceedings of shareholders and annual statements of affairs of Kranzco. In
addition, any shareholder of record of Kranzco who owns at least five percent of
the outstanding shares of any class of beneficial interest for at least six
months will be entitled to inspect and copy Kranzco's books of account and stock
ledger and to require Kranzco to prepare and deliver a verified list of the name
and address of, and the number of shares owned by, each shareholder of Kranzco.
RESTRICTIONS ON INVESTMENT AND USE
A Maryland REIT must hold at least 75% of the value of its assets in real
estate assets, mortgages or mortgage related securities, government securities,
cash and cash equivalent items (including high grade short term securities and
receivables) and may not use or apply land for farming, agriculture,
horticulture or similar purposes. There are no such limits for corporations,
such as UPI, organized under the DGCL.
CONVERSION RIGHTS
Holders of Kranzco Series B-1 Preferred Shares and Kranzco Series B-2
Preferred Shares have the right, exercisable after the first anniversary and the
third anniversary, respectively, of the Initial Issue Date (unless exercisable
earlier, as described in 'DESCRIPTION OF KRANZCO SHARES--Kranzco Preferred
Shares-- Kranzco Series B-1 Preferred Shares and Kranzco Series B-2 Preferred
Shares'), at any time and from time to time, to convert all or any Kranzco
Series B-1 Preferred Shares or Kranzco Series B-2 Preferred Shares into fully
paid Kranzco Common Shares. In addition, after the third anniversary of the
Initial Issue Date, the Kranzco Series B-2 Preferred Shares automatically will
be converted into the Kranzco Series B-1 Preferred Shares.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be passed upon for
Kranzco by Robinson Silverman Pearce Aronsohn & Berman LLP, New York, New York.
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, will pass upon certain
matters relating to the validity of the securities offered hereby. Certain legal
matters in connection with the Merger will be passed upon for UPI by Rosenman &
Colin LLP, New York, New York.
EXPERTS
The financial statements and schedule of Kranzco incorporated by reference
in this Proxy Statement/Prospectus to the extent and for the periods indicated
in their reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
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The financial statements of UPI included in this Proxy Statement/Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as indicated
in their reports with respect thereto, and are included herein in reliance upon
their reports of such, given upon their authority as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS
If the stockholders of UPI do not approve and adopt the Merger Agreement
and authorize the Merger and the other transactions contemplated by the Merger
Agreement, or if the Merger is not consummated for any other reason, the UPI
Board will schedule the next annual meeting of UPI stockholders for a future
date and will make provision for presentation of proposals at the next such
annual meeting by its stockholders who are eligible under, and who have complied
with, the relevant regulations of the Commission.
OTHER MATTERS
The UPI Board does not intend to present and knows of no other person who
intend to present at the Special Meeting any matter or business other than that
set forth in the accompanying Notice of Special Meeting of Stockholders. If
other matters are properly brought before the Special Meeting, it is the
intention of the persons named in the accompanying form of proxy to vote any
proxies on such matters in accordance with their best judgment.
By order of the Board of Directors of
UPI,
Harvey Shore
Secretary
Boca Raton, Florida
, 1997
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................... F-2
Combined Statement of Net Assets as of December 31, 1994 and Balance
Sheets of Union Property Investors, Inc. as of December 31, 1995
and September 30, 1996 (unaudited).................................. F-3
Statements of Revenues and Expenses of Union Property Investors, Inc.
for the Years Ended December 31, 1995, 1994 and 1993 and the Nine
Months ended September 30, 1996 and 1995 (unaudited)................ F-4
Statements of Stockholders' Equity of Union Property Investors, Inc.
for the period from November 1, 1994 (date of inception) through
December 31, 1994, for the Year Ended December 31, 1995 and for the
Nine Months Ended September 30, 1996 (unaudited).................... F-5
Statements of Cash Flows of Union Property Investors, Inc. for the
Years Ended December 31, 1995, 1994 and 1993 and the Nine Months
Ended September 30, 1996 and 1995 (unaudited)....................... F-6
Notes to Financial Statements of Union Property Investors, Inc........ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Union Property Investors, Inc.
We have audited the accompanying balance sheet of Union Property Investors, Inc.
(the 'Company') as of December 31, 1995, the combined statement of net assets as
of December 31, 1994 and the related statements of revenues and expenses and
cash flows for the years ended December 31, 1995, 1994 and 1993 and the related
statements of stockholders' equity for the year ended December 31, 1995 and for
the period November 1, 1994 (Date of Incorporation) through December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and 1994
and the results of its operations and its cash flows for the years ended
December 31, 1995, 1994 and 1993 in conformity with generally accepted
accounting principles.
Deloitte & Touche, LLP
New York, NY
March 22, 1996
F-2
<PAGE>
UNION PROPERTY INVESTORS, INC.
COMBINED STATEMENT OF NET ASSETS
AS OF DECEMBER 31, 1994 AND
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 1)
Cash and cash equivalents
(note 2)................. $ 0 $ 102,817 471,081
Accounts receivable......... 536,740 64,849 468,599
Tax receivable.............. 0 0 55,203
Due from related party (note
10)...................... 0 406,836 40,511
Prepaid expenses and other
(note 10)................ 235,672 73,593 273,014
Property, improvements and
equipment, net (notes 1,
2 and 3)................. 51,527,195 50,055,740 48,937,806
Property held for sale
(notes 1, 2 and 3)....... 750,000 724,559 705,425
Debt financing costs, net
(note 2)................. 246,253 221,952 203,676
------------ ------------ -------------
Total Assets............. 53,295,860 51,650,346 51,155,315
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES (NOTE 1)
Mortgages and notes
payable.................. $ 29,704,035 $ 29,042,558 $ 30,544,631
Accrued interest payable.... 0 0 183,309
Accounts payable and accrued
expenses................. 64,183 192,001 551,411
Due to related party (note
10)...................... 0 155,928 6,850
Dividend payable to related
party (notes 6 and 13)... 0 97,797 0
Deferred income taxes (note
8)....................... 0 250,045 250,045
------------ ------------ -------------
Total Liabilities........ 29,768,218 29,738,329 31,536,246
------------ ------------ -------------
COMMITMENTS AND CONTINGENCIES
(NOTES 2 AND 11)
REDEEMABLE PREFERRED STOCK
(NOTES 6 AND 13)............ 0 6,500,000 4,229,167
STOCKHOLDERS' EQUITY (NOTES 1,
2 AND 7)
Common stock: ($.01 par
value, 20,000,000 shares
authorized, 3,789,171
issued and
outstanding.)............ 0 37,892 37,892
Additional paid-in
surplus.................. 0 15,180,333 15,180,333
Accumulated earnings........ 0 193,792 171,677
------------ ------------ -------------
Total Stockholders'
Equity................. 0 15,412,017 15,389,902
------------ ------------ -------------
Total Liabilities and
Stockholders' Equity... 0 $ 51,650,346 $ 51,155,315
------------ ------------ -------------
------------ -------------
Net Assets............... $ 23,527,642 N/A N/A
------------
------------
</TABLE>
See Accompanying Notes to Financial Statements
F-3
<PAGE>
UNION PROPERTY INVESTORS, INC.
STATEMENTS OF REVENUES AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1993 1996 1995
------------ ------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Base rents (notes 2 and 4)........... $7,115,763 $7,022,841 $6,410,499 $ 5,499,304 $ 5,341,165
Percentage rents..................... 100,020 136,678 161,994 115,997 148,602
Other income......................... 102,975 1,835 110 56,064 19,695
Expense reimbursements:
Real estate taxes................. 400,598 396,775 384,263 254,250 261,007
Common area maintenance........... 252,595 251,408 207,701 181,431 172,354
Insurance......................... 90,154 98,155 103,261 66,421 67,252
------------ ------------ ------------ ------------- -------------
Total Revenues.................. 8,102,105 7,907,692 7,267,828 6,173,467 6,010,075
------------ ------------ ------------ ------------- -------------
EXPENSES:
Mortgage interest (note 5)........... 2,616,605 2,478,747 2,013,599 1,911,899 1,890,899
Depreciation and amortization (notes
2 and 3).......................... 1,640,584 1,589,542 1,506,407 1,235,729 1,212,577
Valuation allowance (note 3) 0 224,488 611,482 0 0
Real estate taxes.................... 481,556 506,935 424,981 325,578 319,636
Management fees to related party
(note 10)......................... 388,768 251,619 220,902 917,786 523,643
Common area maintenance.............. 338,088 372,180 233,361 334,443 236,737
Insurance............................ 205,793 260,863 197,917 103,578 170,348
Salaries, general and administration
(note 1).......................... 527,588 636,904 61,631 399,874 102,492
------------ ------------ ------------ ------------- -------------
Total Expenses.................... 6,198,982 6,321,278 5,270,280 5,228,887 4,456,332
------------ ------------ ------------ ------------- -------------
Income before income taxes........... 1,903,123 1,586,414 1,997,548 944,580 1,553,743
Provision for income taxes (notes 2
and 8)............................ 742,218 618,701 0 368,923 543,810
------------ ------------ ------------ ------------- -------------
Net Income........................... 1,160,905 967,713 1,997,548 575,657 1,009,933
Distribution on preferred stock...... 0 0 0 304,583 0
------------ ------------ ------------ ------------- -------------
Net income attributable to common
shareholders(1)................... $1,160,905 $ 967,713 $1,997,548 $ 271,074 $ 1,099,933
------------ ------------ ------------ ------------- -------------
------------ ------------ ------------ ------------- -------------
Net income per share of common
stock............................. (1) (1) (1) $ 0.07 (1)
-------------
-------------
Weighted average number of shares of
common stock...................... (1) (1) (1) 3,789,171 (1)
-------------
-------------
</TABLE>
- ------------------
(1) As a result of the UPI Transfer and Distribution (each as defined in note 1
to the Financial Statements), historical earnings per share data has been
deleted as it does not provide meaningful information. See note 2 to
financial statements for pro forma per share data.
See Accompanying Notes to Financial Statements
F-4
<PAGE>
UNION PROPERTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM NOVEMBER 1, 1994 (DATE OF INCEPTION) THROUGH
DECEMBER 31, 1994, FOR THE YEAR ENDED DECEMBER 31, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS EQUITY
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
November 1, 1994--Initial
Capitalization............................. 100 $ 1 $ 999 $ 0 $ 1,000
No operations (note 1)....................... 0 0
--------- ------- ----------- ----------- -----------
Balance at December 31, 1994................. 100 1 999 0 1,000
Net income from August 4, 1995 through
December 31, 1995 (note 1)................. 291,589 291,588
Spin-off of UPI (note 1)..................... 3,789,171 37,892 15,179,334 15,217,225
Cash dividend declared--9% redeemable
preferred stock (note 6)................... (97,787) (97,797)
--------- ------- ----------- ----------- -----------
Balance at December 31, 1995................. 3,789,171 37,892 15,180,333 193,792 15,412,017
UNAUDITED
Net income for the nine months ended
September 30, 1996......................... 575,657 575,657
Cash dividend declared--8% redeemable
preferred stock............................ (304,579) (304,579)
Effective distribution to former parent...... (293,193) (293,193)
--------- ------- ----------- ----------- -----------
Balance at September 30, 1996................ 3,789,171 $37,892 $15,180,333 $ 171,677 $15,389,902
--------- ------- ----------- ----------- -----------
--------- ------- ----------- ----------- -----------
</TABLE>
See Accompanying Notes to Financial Statements
F-5
<PAGE>
UNION PROPERTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1993 1996 1995
------------ ------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $1,160,905 $ 967,713 $1,997,548 $ 575,657 $ 1,009,933
Adjustment to reconcile net revenues
less expenses to net cash provided
by operating activities:
Depreciation and amortization...... 1,640,584 1,589,542 1,506,407 1,235,729 1,212,577
Valuation allowance................ 0 224,488 611,482 0 0
Increase in deferred income taxes.. 8,733 8,400 0 0 0
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable....................... 65,055 (131,688) (25,256) (403,750) 143,147
Decrease (increase) in prepaid and
other assets..................... 162,080 (19,489) (103,931) (199,421) 23,357
Decrease in due from related
party............................ 0 0 0 73,132 0
Increase in taxes receivable....... 0 0 0 (55,203) 0
Increase in accrued interest
payable.......................... 0 0 0 183,309 0
Increase in accounts payable and
accrued expenses................. 381,543 21,313 (21,806) 359,410 0
Decrease in due to related party... 0 0 0 (149,078) 0
------------ ------------ ------------ ------------- -------------
Net cash provided by operating
activities......................... 3,418,900 2,660,279 3,964,444 1,619,785 2,389,014
------------ ------------ ------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property................. 0 (575,000) (3,300,977) 0 0
Purchase of building improvements.... (119,387) (252,697) 0 (80,385) 0
------------ ------------ ------------ ------------- -------------
Net cash used in investing
activities......................... (119,387) (827,697) (3,300,977) (80,385) 0
------------ ------------ ------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on mortgage
payable............................ (661,477) (538,368) (267,541) (497,927) (492,271)
Decrease in redeemable preferred
stock dividend payable............. 0 0 0 (97,797) 0
Proceeds from mortgages and notes
payable............................ 0 3,550,000 7,428,167 2,000,000 0
Preferred stock redemption........... 0 (2,270,833) 0
Payment of dividends................. 0 0 0 (304,579) 0
Distributions to Corporate (note
2)................................. (2,535,219) (4,844,214) (7,824,093) 0 (1,896,743)
------------ ------------ ------------ ------------- -------------
Net cash used in financing
activities......................... (3,196,696) (1,832,582) (663,467) (1,171,136) (2,389,014)
------------ ------------ ------------ ------------- -------------
Net Increase in Cash................. 102,817 0 0 368,264 0
Cash and Cash Equivalents,
Beginning of Year.................. 0 0 0 102,817 0
------------ ------------ ------------ ------------- -------------
Cash and Cash Equivalents,
End of Year........................ $ 102,817 $ 0 $ 0 $ 471,081 $ 0
------------ ------------ ------------ ------------- -------------
------------ ------------ ------------ ------------- -------------
Cash Paid For:
Interest........................... $2,616,605 $2,478,747 $2,013,599 $ 1,728,589 $ 1,890,899
------------ ------------ ------------ ------------- -------------
------------ ------------ ------------ ------------- -------------
Taxes.............................. $ 0 $ 0 $ 0 $ 467,217 $ 0
------------ ------------ ------------ ------------- -------------
------------ ------------ ------------ ------------- -------------
Supplemental Disclosure of
Non-Cash Activity
Assumption of Cary mortgage........ $ 0 $1,175,000 $1,175,000 $ 0 $ 1,175,000
------------ ------------ ------------ ------------- -------------
------------ ------------ ------------ ------------- -------------
</TABLE>
See Accompanying Notes to Financial Statements
F-6
<PAGE>
UNION PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS OR AS OTHERWISE INDICATED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Union Property Investors, Inc. ('UPI') was incorporated under the laws of
the State of Delaware on November 1, 1994 as a wholly-owned subsidiary of
Milestone Properties, Inc. ('Milestone').
UPI was spun-off from Milestone upon the distribution by Milestone (the
'Distribution') on November 20, 1995, of all of the outstanding shares of UPI's
common stock, par value $.01 per share (the 'Common Stock'), to Milestone's
common stockholders of record as of October 31, 1995, on a share-for-share basis
and for no consideration.
In connection with the Distribution, UPI amended its Certificate of
Incorporation on October 27, 1995 to effect a recapitalization and change the
1,000 authorized shares of Common Stock into 20,000,000 shares of Common Stock
and 650,000 shares of preferred stock, par value $.01 per share and a $10
redemption value per share (the 'Preferred Stock'). As part of such
recapitalization, the 100 shares of outstanding Common Stock which were then
held by Milestone were converted into an aggregate of 3,789,171 shares of Common
Stock and 650,000 shares of Preferred Stock on October 31, 1995. As of December
31, 1995, Milestone held all 650,000 shares of the Preferred Stock, which has
been recorded at its redemption value.
The Common Stock began trading on December 11, 1995 in the 'pink sheets' in
the over-the-counter market and on the OTC Bulletin Board. The Common Stock has
traded under the symbol 'UPIC' since such date. Prior to such date, there was no
public market for the Common Stock.
On August 4, 1995 and October 30, 1995, Milestone transferred to UPI five
and eleven retail properties (the 'UPI Transfer'), respectively (collectively,
the 'UPI Properties'). The UPI Transfer has been accounted for in a manner
similar to that in a pooling of interest accounting. Therefore, the assets and
liabilities transferred to UPI were reflected at the historical cost basis of
Milestone.
The Statements of Revenues and Expenses for the years ended December 31,
1995 and 1994 (the 'Statements') include historical revenue and expense amounts
relating to the operation of the UPI Properties prior to the UPI Transfer
('Historical Amounts'). Included in the Statements are Historical Amounts for
each UPI Property for the year ended December 31, 1994 and for the period
January 1, 1995 to the applicable date of UPI Transfer. The revenue and expense
amounts of each of the UPI Properties from the applicable date of UPI Transfer
through December 31, 1995 are included in the accumulated earnings of UPI. Prior
to August 4, 1995 UPI had no operations. The Statements give effect to (i) an
allocation to UPI of a portion of the salaries of Milestone's officers and
general and administrative expenses related to Milestone's corporate office, and
(ii) an allocation of Milestone's income taxes associated with the Historical
Amounts that UPI would have incurred on a stand-alone basis. No such allocation
has been made for the year ended December 31, 1993.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting, Fiscal Year
UPI's records are maintained on the accrual basis of accounting for both
financial reporting and tax purposes. UPI's fiscal year is the calendar year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
UPI considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. Prior to November 20, 1995 cash
was periodically distributed to and advanced from various corporate accounts of
Milestone.
F-7
<PAGE>
UNION PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS OR AS OTHERWISE INDICATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Property Improvements and Equipment and Related Depreciation and Amortization
Property and equipment are stated at cost, less depreciation using the
straight-line method over the estimated useful lives of between 25-39 years for
such property and/or equipment. Building improvements and equipment are stated
at cost and are depreciated on a straight-line basis using an estimated life of
five years. Leasehold improvements and leasing commissions are amortized using
the straight-line method over the remaining term of the applicable lease.
UPI records buildings and land at their estimated net realizable value for
properties held for sale.
UPI has adopted Statement of Financial Accounting Standards ('SFAS') No.
121--'Accounting for the Impairment of Long Lived Assets' (issued March 1995).
SFAS No. 121 requires UPI quarterly to assess any impairments to property value
by making comparisons of the current and projected operating cash flow of each
of its properties over the remaining useful life, on an undiscounted basis, to
the carrying amount of the properties. Such carrying amounts will be adjusted,
if necessary, to reflect impairments in the value of the properties. UPI
determined that an adjustment to the carrying amount of its real property
investments was not necessary for 1995.
Debt Financing Costs
The costs to obtain financing are capitalized and are amortized over the
life of a financing arrangement.
Base Rents
Base rents are recognized on a straight-line basis over the terms of the
related leases and include free rent, if any, and lease step-ups.
Income Taxes
Deferred tax assets and liabilities are (i) determined based on differences
between the financial reporting and tax bases of assets and liabilities and (ii)
measured using the enacted tax rates and laws that will be in effect when such
differences are expected to reverse. Prior to November 20, 1995 UPI filed as a
part of the consolidated tax return of Milestone. Accordingly all related income
taxes have been paid by Milestone.
Pro Forma Income Per Common Share
As a result of the UPI Transfer and Distribution, management has determined
that historical earnings per share data does not provide meaningful information
to the holders of UPI Common Stock. As such, the following pro forma per share
data, has been presented for the year ended December 31, 1995 (data presented in
actual dollars):
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Net income attributable to Common Stockholders.............. $1,160,905
----------
Pro forma adjustments:
Preferred stock dividend(1)............................ (585,000)
Management Fees(2)..................................... 388,768
Salaries, general & administrative(2).................. 521,301
MPMI Agreement(2)...................................... (225,000)
Management services agreement(2)....................... (985,000)
----------
Net pro forma adjustments.............................. (884,931)
Net income attributable to Common Stockholders.............. $ 275,974
----------
----------
Pro forma income per common share........................... $ 0.07
----------
----------
Common shares outstanding................................... 3,789,171(3)
----------
----------
</TABLE>
(footnotes continued on next page)
F-8
<PAGE>
UNION PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS OR AS OTHERWISE INDICATED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(footnotes from previous page)
- ------------------
(1) Amounts annualized to reflect dividend from January 1, 1995 to December 31,
1995.
(2) Allocable salaries, general and administrative expenses have been removed to
give effect to annualized fees associated with the MPMI Agreement and the
Management Services Agreement (see note 10).
(3) For purpose of computing pro forma income per common share, management has
assumed such shares were outstanding as of January 1, 1995. Shares of
Preferred Stock are redeemable (see note 6) and are not considered to be
equivalent to shares of Common Stock and, therefore, are not included in the
computation of pro forma income per common share. As such, primary and fully
dilative pro forma earnings per share are equivalent.
3. INVESTMENT IN REAL ESTATE PROPERTIES--NET
UPI's net investment in real estate properties at December 31, 1995
consisted of the following:
<TABLE>
<S> <C>
Land.............................................. $11,358
Building.......................................... 46,393
Leasehold Improvements and Equipment.............. 764
-------
58,515
Less Accumulated Depreciation and Amortization.... 8,458
-------
Total............................................. $50,056
-------
-------
Property held for sale--net....................... $ 725
-------
-------
</TABLE>
UPI is currently holding, as property held for sale, the UPI Property
located in Richmond, Virginia which was previously leased to Ames Department
Store. The lease on such property was rejected through bankruptcy proceedings
and the property was vacated by Ames as of April 1993. In 1994, Milestone wrote
down the value of this property by $224, to its estimated net realizable value.
4. PROPERTY OPERATING LEASES
Minimum base rental income under tenant lease agreements that have
remaining lease terms ranging from one to forty years as of December 31, 1995,
are listed as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
- -------------------------------------------------- -------
<S> <C>
1996.............................................. $ 7,187
1997.............................................. 6,811
1998.............................................. 6,144
1999.............................................. 5,566
2000.............................................. 5,238
2001.............................................. 2,036
Thereafter........................................ 33,536
-------
Total Minimum Base
Rental Income................................... $66,518
-------
-------
</TABLE>
F-9
<PAGE>
UNION PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS OR AS OTHERWISE INDICATED)
5. MORTGAGES PAYABLE
Mortgages payable balances as of December 31, 1995 consists of the
following:
<TABLE>
<S> <C>
Livonia, MI....................................... $ 1,589
Harrodsburg, KY................................... 2,182
Chambersburg, PA.................................. 5,478
Bainbridge, GA.................................... 5,074
Spartanburg, SC................................... 3,047
Columbia, SC...................................... 4,668
Columbus, MS...................................... 2,147
Flint, MI......................................... 3,245
Cary, NC.......................................... 1,612
-------
Total............................................. $29,042
-------
-------
</TABLE>
The maturity of the mortgages payable at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
- -------------------------------------------------- -------
<S> <C>
1996.............................................. $ 2,879
1997.............................................. 6,144
1998.............................................. 766
1999.............................................. 2,367
2000.............................................. 879
Thereafter........................................ 16,007
-------
Total............................................. $29,042
-------
-------
</TABLE>
Monthly payments of principal and interest have been stated in actual
dollars for the following discussion on the relevant terms of the mortgages
payable.
The mortgage on the UPI Property located in Harrodsburg, Kentucky accrues
interest at a rate of 10.0 percent from January 1, 1994 until December 1, 1996
(the 'Maturity Date') and, from February 1, 1994 until the Maturity Date,
requires monthly payments of principal and interest of $19,658. Such mortgage
may be prepaid in full or in part at any time without premium or penalty.
The mortgage on the UPI Property located in Chambersburg, Pennsylvania
requires monthly principal payments of $3,525 plus 8.75 percent per annum
interest on the outstanding principal balance based on (i) a 29.16 year
amortization until February 1, 1997 and (ii) an option to extend at 9.0 per
annum percent interest from March 1, 1997 until February 1, 1999. Such mortgage
may be prepaid in full or in part at any time without premium or penalty.
The mortgage on the UPI Property located in Bainbridge, Georgia accrues
interest at a rate of 10.0 percent per annum and requires monthly payments of
interest until October 2, 2000. Such mortgage may not be prepaid in full until
November 1, 1997. After such time, however, the mortgage may be prepaid in full
with a premium of 5 percent which will decline 1.0 percent in each succeeding
year to a minimum rate of 2.0 percent.
The mortgage on the UPI Property located in Spartanburg, South Carolina,
requires monthly payments of principal and interest of $27,195 at a rate of 7.5
percent per annum for the first three years based upon a nineteen year
self-liquidating amortization schedule. The remaining monthly payments of
principal and interest will be adjusted yearly to 0.125 percent below the
Moody's A Corporate Bond Index Daily Rate until such mortgage matures on
December 15, 2002. As of December 1993, such mortgage may be prepaid in full or
in part, at any time with a premium of 5 percent after which, if paid in part,
the premium will decrease 0.5 percent annually until maturity.
F-10
<PAGE>
UNION PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS OR AS OTHERWISE INDICATED)
5. MORTGAGES PAYABLE--(CONTINUED)
The mortgage on the UPI Property located in Columbus, Mississippi, accrues
interest at a rate of 8.5 percent and requires monthly payments of principal and
interest of $29,837 until such mortgage matures on May 1, 2004. Such mortgage
may be prepaid in full or in part at any time without premium or penalty.
The mortgage on the UPI Property located in Columbia, South Carolina,
accrues interest at a rate of 7.375 percent and requires monthly payments of
principal and interest of $35,630 until such mortgage matures on February 3,
2003. Such mortgage may be prepaid in full or in part at any time with a premium
of 3.5% as of December 1995, and decreasing 0.5% annually until maturity.
The mortgage on the UPI Property located in Cary, North Carolina bears
interest at a rate of 7.875 percent and requires monthly payments of principal
and interest of $16,361 until such mortgage matures on February 1, 2009. Such
mortgage may be prepaid in full or in part at any time with a premium of 5.0
percent until February 3, 2001, which will decline 0.5 percent in each
succeeding year to a minimum of 2.0 percent until such mortgage matures.
The mortgage on the UPI Property located in Livonia, Michigan, accrues
interest at a rate of 9.625 percent per annum and requires monthly principal and
interest payments of $13,600, based on a 30-year amortization schedule, until
October 1, 1999, at which time the remaining balance on such mortgage is due. As
of December 1994, such mortgage may be prepaid in full or in part at any time
with a premium of 5 percent after which, if paid in part, the premium will
decrease 0.5 percent annually until maturity.
The mortgage on the UPI Property located in Flint, Michigan obtained on
March 17, 1994, requires monthly payments of principal and interest of $36,538
at a rate of 7.5 percent per annum until such loan matures on October 1, 2006.
Such loan may not be prepaid in whole or in part until March 1999, after which
time such mortgage may be paid with a penalty equal to the greater of 1.0
percent or yield maintenance.
6. REDEEMABLE PREFERRED STOCK
UPI's Board of Directors may, at its option, redeem an unlimited number of
shares of Preferred Stock in each calendar quarter to and including the quarter
commencing January 1, 2002. The redemption price per share is $10.00 plus an
amount per share equal to the accrued and unpaid dividends thereon. On January
31, 2002, UPI is required to redeem all shares of the Preferred Stock that
remain outstanding at a redemption price per share equal to $10.00 plus an
amount equal to the accrued and unpaid dividends thereon.
The holders of the Preferred Stock are entitled to receive, out of funds
legally available therefor, a dividend on the Preferred Stock at a rate per
annum initially set at 9%. Each dividend is fully cumulative and accrues from
November 1, 1995 through January 31, 2002 (the 'Dividend Contract Period'),
provided that the outstanding shares of Preferred Stock are not redeemed in full
prior to January 31, 2002. Pursuant to the UPI Certificate of Incorporation the
dividend rate is subject to a decrease from 9 percent to 8 percent per annum if
and after UPI meets an optional schedule of redemption and redeems no less than
$271 of the Preferred Stock in any quarter (a 'Triggering Quarter') commencing
January 1, 1996 and continuing through the quarter commencing January 1, 2002.
If, however, subsequent to satisfying the requirements for the Triggering
Quarter, UPI fails to redeem at least $271 of the Preferred Stock in any quarter
during the Dividend Contract Period (the 'Reversion Quarter'), the dividend rate
for the Reversion Quarter and for the remainder of the Dividend Contract Period
will remain fixed at an annual dividend rate of 9 percent (see note 13).
As of December 31, 1995, UPI had accrued a liability of $98 for the payment
of dividends to Milestone.
In the event of the liquidation, dissolution or winding-up of UPI and
provided there are sufficient assets after payment of all outstanding debts and
other liabilities, holders of the Preferred Stock will be entitled to receive
$10.00 per share plus an amount per share equal to all accrued and unpaid
dividends thereon.
F-11
<PAGE>
UNION PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS OR AS OTHERWISE INDICATED)
7. COMMON STOCK
The holders of the Common Stock are entitled to receive dividends when, as
and if declared by UPI's Board of Directors out of funds legally available
therefor, after payment of all preferential dividends on the Preferred Stock.
The holders of the Common Stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
Common Stock.
In the event of the liquidation, dissolution or winding up of UPI, the
holders of the Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities and after
distribution in full of the preferential amounts to be distributed to the
holders of any shares of Preferred Stock then outstanding.
8. INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
The provision for income taxes consists of the following (data presented in
actual dollars):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current Tax:
Federal......................................... $623,462 $518,756
State and other................................... 110,023 91,545
-------- --------
Total current................................ 733,485 610,301
-------- --------
Deferred Tax Asset:
Federal......................................... $ 7,423 $ 7,140
State and other................................. 1,310 1,260
-------- --------
Total deferred............................... 8,733 8,400
-------- --------
Total provision for income taxes.................. $742,218 $618,701
-------- --------
-------- --------
</TABLE>
Temporary difference between the amount reported in the Company's financial
statements and the Federal tax basis of assets and liabilities result in
deferred taxes. There was no change in the valuation allowance for the year
ended December 31, 1995. Deferred tax assets and liabilities at December 31,
1995 were as follows (data presented in actual dollars):
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Deferred Tax Asset:
Property held for sale allowance.......................... $334,388
Less: Valuation allowance................................. 0
--------
Deferred tax asset--net of valuation allowance.............. 334,388
--------
Deferred Tax Liability:
Accelerated depreciation.................................. 584,433
--------
Net deferred tax liability.................................. $250,045
--------
--------
</TABLE>
F-12
<PAGE>
UNION PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS OR AS OTHERWISE INDICATED)
8. INCOME TAXES--(CONTINUED)
The difference between the income tax benefit actually provided and the
income tax benefit which would have been provided by applying the Federal income
tax rate to income before provision for income taxes were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Statutory Federal tax rate.................................. 34.0% 34.0%
Increase in taxes from state and other taxes
net of Federal tax benefit................................ 5.0% 5.0%
---- ----
39.0% 39.0%
---- ----
---- ----
</TABLE>
Prior to November 20, 1995, UPI filed its tax return as a component of the
consolidated tax return of Milestone. The income tax amount associated with the
above provision for UPI has been computed on a stand alone basis.
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107--'Disclosures about Fair Value of Financial Instruments'
requires that UPI disclose estimated fair values for certain of its financial
instruments. The following estimated fair values were determined by UPI using
available market information and valuation methodologies considered appropriate
by Management. However, considerable judgment is necessary to interpret and
apply market data to develop specific fair value estimates for given financial
instruments, and the use of different market assumptions and/or estimation
methodologies could have a material effect on reported fair value estimates.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that could be realized upon disposition of UPI's financial
instruments.
Cash and cash equivalents, accounts receivable, and accounts payable and
accrued expenses are reflected in the accompanying Balance Sheet at amounts
considered by management to reasonably approximate fair value due to their
short-term nature.
At December 31, 1995, the carrying value of the mortgage and notes payable
and the fair value of such instruments was not considered to be significantly
different. UPI estimates the fair value of mortgage and notes payable generally
using discounted cash flow analysis based on UPI's current borrowing rates for
similar types of debt and maturities.
Preferred Stock fair value, which approximates carrying value, is based on
the applicable mandatory redemption features, and the dividend rate, and has
been evaluated by management using interest rates currently offered on like
securities with similar remaining maturities.
The fair value estimates presented herein are based on information
available as of December 31, 1995. Although management is not aware of any
factors that would significantly affect the estimated fair value amounts, a
comprehensive reevaluation has not been performed for purposes of these
financial statement disclosures and current estimates of fair value may differ
significantly from the amounts presented herein.
10. RELATED PARTY TRANSACTIONS
In October 1995, Milestone completed the UPI Transfer of the UPI Properties
to UPI and effected the Distribution (see note 1).
UPI entered into a property management agreement (the 'MPMI Agreement') on
November 20, 1995 with Milestone Property Management, Inc. ('MPMI'), a wholly
owned subsidiary of Milestone, under which MPMI will perform property management
and leasing services for the UPI Properties. Under the MPMI Agreement, MPMI is
paid an annual fee of $5 for each single tenant UPI Property and a fee based on
a percentage of the base rental income for the remaining UPI Properties. The
aggregate annual fee to be paid by UPI to MPMI under the
F-13
<PAGE>
UNION PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS OR AS OTHERWISE INDICATED)
10. RELATED PARTY TRANSACTIONS--(CONTINUED)
MPMI Agreement is estimated to be approximately $225. UPI owes MPMI
approximately $29 under the MPMI Agreement for the year ended December 31, 1995.
On November 20, 1995, UPI entered into an agreement with Milestone to
provide to UPI certain management and administrative services (the 'Management
Services Agreement'). Under such agreement, Milestone is required to present to
UPI asset acquisition opportunities consistent with the policies and objectives
of UPI and to furnish UPI's Board of Directors with information concerning the
acquisition, holding, performance and disposition of portfolio assets. UPI is
provided with office space in Milestone's principal executive office and
Milestone's employees, some of whom are executive officers of UPI, provide all
levels of employee services to UPI. UPI is obligated to pay Milestone a fee
under the Management Service Agreement of an amount equal to approximately 1.5%
of the value of the UPI Properties based on each property's net operating income
from the prior year. The aggregate annual fee to be paid by UPI to Milestone
under the Management Services Agreement is estimated to be approximately $985.
UPI owes Milestone approximately $125 under the Management Services Agreement
for the year ended December 31, 1995.
Included in Amount Due from Related Party are net amounts due from
Milestone which are attributable to the results of operations of the UPI
Properties.
In November 1995, Milestone assigned to UPI a $3,000 line of credit
obtained by-Milestone from First Union National Bank of Florida (see note 11).
All of the Preferred Stock is owned by Milestone and may be deemed to be
beneficially owned by Concord Assets Group, Inc. ('Concord') and each of Leonard
S. Mandor and Robert A. Mandor. Leonard S. Mandor is the Chairman of the Board,
the Chief Executive Officer and a director of both UPI and Milestone, and Robert
A. Mandor is the President, the Chief Financial Officer and director of both UPI
and Milestone. Leonard S. Mandor and Robert A. Mandor are directors, executive
officers and the sole stockholders of Concord.
11. COMMITMENTS AND CONTINGENCIES
Investments in real property create a potential for environmental liability
on the part of the owner, operator and developer of such real property. If
hazardous substances are discovered on or emanating from any of the UPI
Properties, UPI and/or others may be held strictly liable for all costs and
liabilities relating to the clean-up of such hazardous substances. While none of
the UPI Properties is presently subject to any environmental actions, the
presence of such substances, may adversely affect the ability to sell or rent
the UPI Properties or to borrow using any of the UPI Properties as collateral.
In November 1995, Milestone assigned to UPI a $3,000 line of credit it had
obtained from First Union National Bank of Florida ('First Union'), with
borrowing to bear interest, at the option of UPI, at either prime plus .25% or
LIBOR plus 2.2%. The line of credit, which was obtained by Milestone in February
1995, has an 18 month term which may be extended and which is secured by a first
mortgage encumbering one of the Properties located in Morganton, North Carolina.
As of December 31, 1995, no amount had been drawn on this line of credit,
however, on March 21, 1996, UPI borrowed $2,000 under such line of credit in
partial payment of the redemption of 200,000 shares of Preferred Stock from
Milestone which had an approximate redemption price of $2,040 (see note 13). As
of March 22, 1996, UPI had borrowed $2,000 which was then outstanding under such
line of credit.
12. LEGAL PROCEEDINGS
UPI is not subject to any legal proceedings. An action (the 'Action') was
commenced on January 30, 1996 in the Delaware Court against Milestone and its
Board of Directors and Concord Assets Group, Inc. ('Concord'), which, together
with its affiliates owns approximately 75% of the Common Stock and who's
executive officers and directors are also executive officers and directors of
Milestone and UPI. In the Action, the plaintiff, a preferred stockholder of
Milestone purporting to bring the action on behalf of himself and other
preferred stockholders of Milestone, is seeking, among other things, damages
from Milestone and rescission of
F-14
<PAGE>
UNION PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS OR AS OTHERWISE INDICATED)
12. LEGAL PROCEEDINGS--(CONTINUED)
the UPI Transfer and the Distribution. Milestone has moved to dismiss the
complaint. UPI has not been named as a party in such action.
13. SUBSEQUENT EVENTS AS OF MARCH 22, 1996
UPI is exploring alternatives to enable it to qualify for treatment as a
REIT or to sell UPI's stock or assets to, or merge with, a REIT, to enhance
Common Stock value and, to the extent it would be beneficial to UPI's strategy
to attain REIT qualification, to explore opportunities for the acquisition of
additional REIT qualified assets, particularly income-producing properties, UPI
entered into an agreement with LSG Advisors, a division of Societe Generale
Securities Corporation ('LSG'), on February 5, 1996 (the 'LSG Agreement'), under
which it has retained LSG to act as UPI's exclusive financial advisor in
connection with UPI's qualification as a REIT or possible sale or merger
transaction with or to a REIT. LSG was one of Milestone's financial advisors in
connection with the Distribution. The LSG Agreement is terminable by either UPI
or LSG after August 5, 1996. If, during the period LSG is retained by UPI or
within six months thereafter, (i) UPI consummates a sale or merger transaction
or enters into a definitive agreement with any third party which subsequently
results in a sale or merger transaction and (ii) LSG identified, advised UPI
with respect to, or had discussions regarding such sale or merger transaction,
LSG will be entitled to a transaction fee equal to 1.75% of the aggregate
purchase consideration of such sale or merger.
On March 21, 1996, UPI borrowed $2,000 under the line of credit (see note
11) to pay for the redemption (the 'Redemption') on March 22, 1996 of 200,000
shares of the Preferred Stock from Milestone at $10.00 per share plus an amount
equal to the accrued and unpaid dividends thereon for a total redemption price
of approximately $2,040. As a result of a redemption of $2,000,000 of the UPI
Preferred Stock on March 22, 1996, the dividend rate on the UPI Preferred Stock
was decreased from 9% to 8% effective January 1, 1996. The 8% dividend rate will
be in effect to the extent that a minimum of $270,833 of the UPI Preferred Stock
is redeemed quarterly.
14. EVENTS SUBSEQUENT TO MARCH 22, 1996 (UNAUDITED)
On November 12, 1996, UPI entered into an Agreement and Plan of Merger (the
'Merger Agreement') with Kranzco Realty Trust, a Maryland real estate investment
trust ('Kranzco'), and KRT Union Corp., a Delaware corporation and a
wholly-owned subsidiary of Kranzco, dated November 12, 1996, as amended,
pursuant to which UPI has agreed to merge with and into KRT Union Corp. (the
'Merger'). Consummation of the Merger is subject to certain conditions,
including approval by the stockholders of UPI.
On each of July 1, 1996 and October 1, 1996, UPI redeemed 27,083 shares of
UPI Preferred Stock for a per quarter redemption price of $270,833.
An action was commended against UPI on October 7, 1996 in the Fifth
Judicial Circuit Court of South Carolina for damages in excess of $10,000 as a
result of an alleged breach of contract and other ancillary allegations arising
from an Agreement to Sell and Purchase Real Estate entered into between the
plaintiff, C.P.C.-1, a South Carolina limited liability company, as buyer, and
UPI, as Seller, of 3.8 acres of vacant land located at UPI's Columbia, South
Carolina property. Plaintiff has filed a public notice (lis pendens) that the
title to the Columbia property is in litigation, and UPI has filed a motion to
remove the lis pendens and has moved the case to Federal court where an answer
shall be filed.
In the Action, the Delaware Court dismissed, on October 25, 1996, the
plaintiff's claim for rescission of both the UPI Transfer and the Distribution.
The Delaware Court, however, reserved decision on the defendants' motion to
dismiss the plaintiff's claim for damages and other relief. On December 9, 1996,
plaintiff requested that the Delaware Court dismiss the amended complaint, and
filed a purported new class action.
UPI entered into an agreement with First Union on December 19, 1996, to
extend UPI's line of credit with UPI, which came due on October 24, 1996, until
the earlier of March 31, 1997 or the consummation of the Merger.
F-15
<PAGE>
Annex A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
BY AND AMONG UNION PROPERTY INVESTORS, INC.
KRANZCO REALTY TRUST AND KRT UNION CORP.
Dated November 12, 1996
(as amended by Amendment No. 1 to the Agreement
and Plan of Merger dated December 18, 1996)
<PAGE>
Annex A
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER....................................................-1-
SECTION 1.01 The Merger. ............................................1
SECTION 1.02 Effects of the Merger...................................2
SECTION 1.03 Merger Consideration....................................3
SECTION 1.04 Adjustment of Target Common Stock Consideration.........5
SECTION 1.05 Certificate of Incorporation; By-laws; Directors;
Officers..............................................6
ARTICLE II EXCHANGE OF SHARES.............................................6
SECTION 2.01 Target Common Stock Election; Surrender of Target
Certificates.........................................6
SECTION 2.02 No Fractional Shares for Acquiror Series B Preferred
Shares; Cash Payments................................8
SECTION 2.03 No Dividends............................................8
SECTION 2.04 Return to Acquiror......................................9
SECTION 2.05 No Further Transfer.....................................9
SECTION 2.06 Withholding Rights......................................9
SECTION 2.07 Lost, Stolen or Destroyed Certificates..................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF TARGET......................10
SECTION 3.01 Organization and Good Standing.........................10
SECTION 3.02 Capitalization of Target...............................11
SECTION 3.03 Authority of Target....................................11
SECTION 3.04 Consents and Approvals; No Violations..................12
SECTION 3.05 Public Reports.........................................13
SECTION 3.06 Real Property; Contracts and Leases Relating to Real
Property..........................................13
SECTION 3.07 Leases. ..............................................16
SECTION 3.08 Tenant Improvements....................................17
SECTION 3.09 Environmental Matters..................................17
SECTION 3.10 Insurance..............................................18
SECTION 3.11 Absence of Certain Changes.............................19
SECTION 3.12 No Undisclosed Liabilities.............................19
SECTION 3.13 Litigation.............................................19
SECTION 3.14 Compliance with Applicable Law.........................19
SECTION 3.15 Taxes..................................................20
SECTION 3.16 Financial Statements and Condition.....................21
<PAGE>
SECTION 3.17 Brokers or Finders......................................21
SECTION 3.18 Other Interests.........................................22
SECTION 3.19 Disclosure..............................................22
SECTION 3.20 Vote Required...........................................22
SECTION 3.21 Parent Shares...........................................22
SECTION 3.22 Target Preferred Stock..................................23
SECTION 3.23 Employee Benefit Plans..................................23
SECTION 3.24 Labor Matters...........................................23
SECTION 3.25 Related Party Transactions..............................23
SECTION 3.26 Actions of Holders of Target Common Stock...............24
SECTION 3.27 Books and Records.......................................24
SECTION 3.28 Fairness Opinion........................................24
SECTION 3.29 No Representation or Warranty...........................24
SECTION 3.30 Obligations of Milestone................................25
SECTION 3.31 Target Directors' and Officers' Liability
Insurance Policy.....................................25
SECTION 3.32 South Carolina Outparcel Agreement......................25
SECTION 3.33 Pending Milestone Action................................25
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND NEWCO............25
SECTION 4.01 Organization and Good Standing..........................25
SECTION 4.02 Capitalization of Acquiror and Newco....................26
SECTION 4.03 Authority of Acquiror and Newco.........................27
SECTION 4.04 Consents and Approvals; No Violations...................28
SECTION 4.05 Public Reports..........................................28
SECTION 4.06 Real Property; Contracts and Leases Relating to Real
Property...........................................29
SECTION 4.07 Leases. ...............................................31
SECTION 4.08 Environmental Matters...................................32
SECTION 4.09 Insurance...............................................33
SECTION 4.10 Absence of Certain Changes..............................33
SECTION 4.11 No Undisclosed Liabilities..............................33
SECTION 4.12 Litigation..............................................33
SECTION 4.13 Compliance with Applicable Law..........................34
SECTION 4.14 Taxes...................................................34
SECTION 4.15 Financial Statements and Condition......................35
SECTION 4.16 Newco...................................................35
SECTION 4.17 Brokers or Finders......................................36
SECTION 4.18 Other Interests.........................................36
SECTION 4.19 Disclosure..............................................36
SECTION 4.20 Employee Benefit Plans..................................36
<PAGE>
-2-
SECTION 4.21 Labor Matters...........................................37
SECTION 4.22 Related Party Transactions..............................37
SECTION 4.23 Books and Records.......................................37
SECTION 4.24 No Representation or Warranty...........................38
ARTICLE V COVENANTS.......................................................38
SECTION 5.01 Target Pre-Closing Obligations..........................38
SECTION 5.02 Acquiror Pre-Closing Obligations........................41
SECTION 5.03 Hart-Scott-Rodino and Other Filings.....................44
SECTION 5.04 Title Insurance.........................................44
SECTION 5.05 No Solicitations........................................44
SECTION 5.06 Access to Information...................................45
SECTION 5.07 Target Stockholder Meeting..............................46
SECTION 5.08 Target Proxy Statement..................................46
SECTION 5.09 Registration Statement..................................47
SECTION 5.10 Efforts to Consummate...................................48
SECTION 5.11 Letters of Accountants..................................49
SECTION 5.12 Indemnification of Managers.............................49
SECTION 5.13 No Breach of Representations and Warranties.............50
SECTION 5.14 Consents; Notices.......................................51
SECTION 5.15 Public Announcements....................................51
SECTION 5.16 Exchange Listing........................................51
SECTION 5.17 Filing of Articles Supplementary........................52
SECTION 5.18 Closing Certificates....................................52
SECTION 5.19 Reorganization..........................................52
SECTION 5.20 No Improvements; Damage or Destruction; Condemnation;
Environmental......................................52
SECTION 5.21 Affiliates of Target....................................53
SECTION 5.22 Estoppel Certificates...................................53
SECTION 5.23 Indemnification Obligations.............................53
SECTION 5.24 First Union Line of Credit..............................54
SECTION 5.25 Sale of South Carolina Outparcel........................54
SECTION 5.26 Termination of Management Agreements....................55
ARTICLE VI CONDITIONS TO ACQUIROR'S AND NEWCO'S OBLIGATIONS...............55
SECTION 6.01 Representations and Warranties..........................55
SECTION 6.02 Covenants...............................................56
SECTION 6.03 Officer's Certificate...................................56
SECTION 6.04 Opinion of Counsel......................................56
SECTION 6.05 Absence of Changes......................................56
SECTION 6.06 Number of Dissenting Shares.............................56
<PAGE>
-3-
SECTION 6.07 Approvals and Consents..................................56
SECTION 6.08 Injunctions.............................................56
SECTION 6.09 HSR Act.................................................57
SECTION 6.10 Effectiveness of Registration Statement.................57
SECTION 6.11 Stockholder Approval....................................57
SECTION 6.12 Accountants' Letters....................................57
SECTION 6.13 Shareholders and Voting Trust Agreement.................57
SECTION 6.14 Guaranty Agreement......................................57
SECTION 6.15 Registration Rights Agreement...........................58
SECTION 6.16 Termination of Target Affiliate Contracts...............58
SECTION 6.17 Redemption of Target Preferred Stock....................58
SECTION 6.18 Estoppel Certificates...................................58
SECTION 6.19 Statement of Accounts Receivable........................59
SECTION 6.20 Title Insurance Policies................................59
ARTICLE VII CONDITIONS TO TARGET'S OBLIGATIONS.............................59
SECTION 7.01 Representations and Warranties..........................59
SECTION 7.02 Covenants...............................................60
SECTION 7.03 Officer's Certificate...................................60
SECTION 7.04 Opinion of Counsel......................................60
SECTION 7.05 Absence of Changes......................................60
SECTION 7.06 Approvals and Consents..................................60
SECTION 7.07 Injunctions.............................................60
SECTION 7.08 HSR Act.................................................60
SECTION 7.09 Effectiveness of Registration Statement.................61
SECTION 7.10 Stockholder Approval....................................61
SECTION 7.11 Merger..................................................61
SECTION 7.12 Accountants' Letters....................................61
SECTION 7.13 Financial Statements....................................61
SECTION 7.14 Registration Rights Agreement...........................61
SECTION 7.15 Shareholders Agreement..................................61
SECTION 7.16 Fairness as to Target Preferred Stock...................62
ARTICLE VIII TERMINATION AND AMENDMENT......................................62
SECTION 8.01 Termination.............................................62
SECTION 8.02 Effect of Termination...................................64
ARTICLE IX MISCELLANEOUS..................................................66
SECTION 9.01 Survival of Agreements and Representations and
Warranties.........................................66
SECTION 9.02 Incorporation of Exhibits...............................66
SECTION 9.03 Notices.................................................67
<PAGE>
-4-
SECTION 9.04 Descriptive Headings...............................68
SECTION 9.05 Assignment; Binding Effect; Benefit................68
SECTION 9.06 Counterparts.......................................68
SECTION 9.07 Entire Agreement...................................68
SECTION 9.08 Governing Law and Consent to Jurisdiction..........68
SECTION 9.09 Fees and Expenses..................................69
SECTION 9.10 Non-Recourse.......................................69
SECTION 9.11 Enforcement........................................69
SECTION 9.12 Severability.......................................70
SECTION 9.13 Amendment..........................................70
SECTION 9.14 Extension; Waiver..................................70
SECTION 9.15 Knowledge..........................................70
SECTION 9.16 Interpretation.....................................70
SCHEDULES AND EXHIBITS
Schedule 1.04(a) Definitions of Total Current Assets and Total
Current Liabilities
Schedule 6.18 Tenants Required to Furnish Estoppel Certificates
Exhibit A Form of Articles Supplementary for Acquiror's 9.75%
Series B Cumulative Convertible Preferred Stock
Exhibit B Form of Articles Supplementary for Acquiror's Series C
Cumulative Redeemable Preferred Shares
Exhibit C Form of Affiliate Letter
Exhibit D Form of Estoppel Certificate
Exhibit E Form of Shareholder and Voting Trust Agreement
Exhibit F Form of Guaranty Agreement
Exhibit G Form of Registration Rights Agreement
-5-
<PAGE>
COMPOSITE AGREEMENT AND PLAN OF MERGER
COMPOSITE AGREEMENT AND PLAN OF MERGER, dated November 12, 1996, and
as amended by that certain Amendment No. 1 to the Agreement and Plan of Merger,
dated as of December 18, 1996, by and among Union Property Investors, Inc., a
Delaware corporation ("Target"), Kranzco Realty Trust, a Maryland real estate
investment trust ("Acquiror;" Acquiror and its directly or indirectly
majority-owned subsidiary corporations and partnerships, taken together on a
consolidated basis, are collectively referred to herein as the "Company;" and
such subsidiary corporations and partnerships are individually referred to
herein as "Acquiror Subsidiaries"), and KRT Union Corp. ("Newco"), a Delaware
wholly-owned subsidiary of Acquiror organized solely for the purpose of
consummating the merger and the other transactions hereby contemplated.
WHEREAS, the Board of Directors of each of Target and Acquiror have
determined that it is in the best interests of their respective entities and
stockholders to consummate the business combination transaction provided for
herein, pursuant to which Target will, on the terms and subject to the
conditions set forth herein, merge with and into Newco so that Newco will be the
surviving entity and a qualified real estate investment trust ("REIT")
subsidiary within the meaning of Section 856(i)(2) of the Internal Revenue Code
of 1986, as amended (the "Code");
WHEREAS, for federal income tax purposes, the merger is intended to be
treated as a reorganization pursuant to the provisions of Section 368(a)(1)(A)
of the Code, and for accounting purposes shall be accounted for as a "purchase";
and
WHEREAS, the parties hereto desire to make certain covenants,
representations, warranties and agreements in connection with the merger and
also to prescribe certain conditions to the merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger.
(a) Upon the terms and subject to the conditions hereof and in
accordance with Section 251 of the Delaware General Corporation Law (the
"DGCL"), on the first business day following the satisfaction or waiver of the
conditions set forth in Article VI and Article VII,
-6-
<PAGE>
unless the parties shall otherwise agree, a closing (the "Closing") of the
merger of Target with and into Newco in accordance with this Agreement with the
separate corporate existence of Target thereupon ceasing (the "Merger") shall
take place at the offices of Robinson Silverman Pearce Aronsohn & Berman LLP,
1290 Avenue of the Americas, New York, New York 10104, at 9:00 a.m. (local time)
or such other place or time as the parties shall agree in writing. The date on
which the Closing occurs is hereinafter referred to as the "Closing Date".
(b) Concurrently with the Closing, a certificate of merger (the
"Delaware Merger Certificate"), in form and substance reasonably satisfactory to
Acquiror and Target, providing for the merger of Target with and into Newco
shall be duly prepared, executed and filed by Newco, as the surviving
corporation (the "Surviving Corporation"), with the Delaware Secretary of State
in accordance with the relevant provisions of the DGCL and the Merger shall
become effective upon the effective date of the filing of the Delaware Merger
Certificate, or at such later time as the parties shall have agreed upon and
designated in the Delaware Merger Certificate in accordance with the DGCL. The
date and time the Merger becomes effective is referred to herein as the
"Effective Time".
SECTION 1.02 Effects of the Merger.
(a) The Merger shall have the effects set forth in the DGCL and as
hereinafter set forth. Immediately following the Merger, the Surviving
Corporation shall (i) continue its corporate existence under the laws of the
State of Delaware, (ii) be a wholly-owned, qualified REIT subsidiary of
Acquiror, and (iii) succeed to all rights, assets, liabilities and obligations
of Target and Newco in accordance with the DGCL. At the Effective Time, in
accordance with the relevant provision of the DGCL, the separate existence of
Target shall cease and the Surviving Corporation shall succeed, without other
transfer, to all the rights and property of each of Newco and Target and shall
be subject to all the debts and liabilities of each in the manner provided by
the DGCL.
(b) At the Effective Time each share of common stock, par value $.01
per share, of Newco issued and outstanding immediately prior to the Effective
Time shall remain outstanding and by reason of the Merger and without any action
by the holder thereof represent one validly issued, fully paid and
non-assessable share of common stock, par value $.01 per share, of the Surviving
Corporation. As a result of the Merger and without any action by the holder
thereof, (i) all shares of Target's common stock, par value $.01 per share (the
"Target Common Stock"), shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and, except as provided in Section 1.03(d),
each holder of a Target Certificate (as defined in Section 2.01) representing
any shares of Target Common Stock (a "Target Common Stockholder") shall
thereafter cease to have any rights with respect to such shares of Target Common
Stock, except the right to receive, without interest, the Target Common Stock
Consideration (as defined in Section 1.03 below) and cash in lieu of fractional
share interests upon the surrender of such Target Certificate in accordance with
this Agreement and (ii) all shares of Target's preferred stock, par value $.01
per share (the "Target Preferred Stock"), shall cease to be outstanding and
shall be cancelled and retired and shall cease to exist, and
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each holder of a Target Certificate (as defined in Section 2.01) representing
any shares of Target Preferred Stock shall thereafter cease to have any rights
with respect to such shares of Target Preferred Stock except the right to
receive Acquiror Series C Preferred Shares in accordance with Section 1.03.
(c) Each share of Target Common Stock issued and held in Target's
treasury at the Effective Time, if any, shall, by virtue of the Merger, cease to
be outstanding and shall be cancelled and retired and shall cease to exist
without payment of any consideration therefor.
SECTION 1.03 Merger Consideration.
(a) At the Effective Time, each share of Target Common Stock issued and
outstanding immediately prior to the Effective Time shall, by reason of the
Merger and without any action by the holder thereof, be converted into the right
to receive, subject to adjustment pursuant to Section 1.04 and in addition to
the cash to be received, if any, in lieu of the issuance of fractional shares of
Acquiror Series B Preferred Shares pursuant to Section 2.02), (i) at the
election of the holder thereof, 0.2980 of one of either (A) Acquiror's 9.75%
Series B- 1 Cumulative Convertible Preferred Shares, par value $.01 per share
each with a $25.00 per share liquidation preference (the "Acquiror Series B-1
Preferred Shares"), the form of Articles Supplementary for which is attached as
Exhibit A-1 hereto, or (B) Acquiror's 9.75% Series B- 2 Cumulative Convertible
Preferred Shares, par value $.01 per share each with a $25.00 per share
liquidation preference (the "Acquiror Series B-2 Preferred Shares"), the form of
Articles Supplementary for which is attached as Exhibit A-2 hereto (the Acquiror
Series B-1 Preferred Shares and the Acquiror Series B-2 Preferred Shares shall
each be sometimes referred to hereinafter as the "Acquiror Series B Preferred
Shares"), plus (ii) the number of shares of Acquiror Series B Preferred Shares
equal to (A) an amount equal to the result of dividing the sum of (1) the
aggregate of the payments made by Target for the reduction of the principal
amount of the Underlying Debt (as hereafter defined and listed in the Disclosure
Letter delivered by Target to Acquiror simultaneously with the execution and
delivery of this Agreement (the "Target Disclosure Letter")), and (2) the amount
paid for the redemption of the Target Preferred Stock, in each case from
September 30, 1996 through the date one day prior to the Closing Date (the
aggregate of such payments is referred to hereinafter as "Closing Adjustment
Payments"), by $25, divided by (B) 3,789,171, plus (iii) if the unpaid Merger
Expenses (as defined below) are equal to or less than $2,000,000, the number of
shares of Acquiror Series B Preferred Shares equal to (A) an amount equal to the
result of dividing the excess of $2,000,000 over the aggregate of all unpaid
Merger Expenses substantiated to Acquiror's reasonable satisfaction, by $25,
divided by (B) 3,789,171 minus (iv) if the unpaid Merger Expenses are greater
than $2,000,000, the number of shares of Acquiror Series B Preferred Shares
equal to (A) an amount equal to the result of dividing the excess of the unpaid
Merger Expenses over $2,000,000 by $25, divided by (B) 3,789,171. The right to
receive Acquiror Series B Preferred Shares pursuant to this Section 1.03(a) (as
adjusted pursuant to Section 1.04), and the cash to be received, if any, in lieu
of the issuance of fractional shares of Acquiror Series B Preferred Shares
pursuant to Section 2.02, is hereinafter referred to as the "Target Common Stock
Consideration". "Merger Expenses" shall mean (i) all investment
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banking fees and disbursements (including, without limitation, finders fees),
legal fees and disbursements, and accounting fees and disbursements, in each
case incurred by Target in connection with the negotiation, execution and
delivery of this Agreement and the consummation of the Merger and other
transactions contemplated by this Agreement and the Ancillary Documents (as
defined below), plus (ii) the lesser of (A) $200,000 and (B) one-half of the
following: all debt assumption and prepayment fees, printing expenses, filing
fees, property and other taxes payable in jurisdictions in which Target is, or
is required to be, qualified to do business, property transfer taxes, any other
fees and expenses paid to obtain any required consents and approvals, and any
fees and expenses required to obtain the Target D & O Liability Insurance Tail
(as defined below), in each case incurred in connection with the negotiation,
execution and delivery of this Agreement and the consummation of the Merger and
other transactions contemplated by this Agreement and the Ancillary Documents.
(b) At the Effective Time, each share of the Target Preferred Stock
(together with the Target Common Stock, the "Target Stock"), issued and
outstanding immediately prior to the Effective Time shall, by reason of the
Merger and without any action by the holder thereof, be converted into the right
to receive one share of Acquiror Series C Cumulative Redeemable Preferred
Shares, par value $.01 per share each with a $10.00 per share redemption value
and liquidation preference (the "Acquiror Series C Preferred Shares"), the form
of Articles Supplementary for which is attached as Exhibit B hereto.
(c) Notwithstanding Subsection 1.03(a), shares of Target Common Stock
issued and outstanding immediately prior to the Effective Time and held by a
holder of Target Common Stock ("Dissenting Shares") who has not voted in favor
of the Merger or consented thereto in writing and who has demanded appraisal for
such stock in accordance with the DGCL and is entitled thereto, shall not be
converted into the right to receive shares of Acquiror Series B Preferred Shares
unless such holder fails to perfect or withdraws or loses his right to
appraisal. If, after the Effective Time, such holder fails to perfect or
withdraws or loses the right to appraisal to which he is entitled, such shares
of Target Common Stock shall thereupon be deemed to have been converted into and
to represent the right to receive, at the Effective Time, the shares of Acquiror
Series B Preferred Shares pursuant to the terms of this Section 1.03, without
any interest thereon or addition thereto. Target shall give Acquiror prompt
notice of any written demands for appraisal or withdrawals of demands for
appraisal received by Target and, except with the prior written consent of
Acquiror, shall not make any payment with respect to, or settle or offer to
settle any such demands, and, prior to the Effective Time, Acquiror shall have
the right to participate in all negotiations and proceedings with respect to
such demands.
(d) Except as provided in this Section 1.03, (i) holders of Target
Common Stock shall, at and after the Effective Time, by reason of the Merger and
without any action by the holder thereof, cease to have any rights with respect
to such Target Common Stock, except the right to receive the Target Common Stock
Consideration, and (ii) holders of Target Preferred Stock shall, at and after
the Effective Time, by reason of the Merger and without any action by the holder
thereof, cease to have any rights with respect to such Target Preferred Stock,
except
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the right to receive Acquiror Series C Preferred Shares, in each case in
accordance with this Section 1.03.
SECTION 1.04 Adjustment of Target Common Stock Consideration.
(a) The parties agree that the number of shares of Acquiror Series B
Preferred Shares to be exchanged for each share of Target Common Stock (i) shall
be increased, as set forth in Section 1.04(b), to the extent that the amount
(the "Adjustment Increase Amount") by which the Total Current Assets (as defined
on Schedule 1.04(a) attached hereto) as of the close of business on the day
immediately preceding the Closing Date (the "Adjustment Time") exceeds the Total
Current Liabilities (as defined on Schedule 1.04(a) attached hereto) as of the
Adjustment Time or (ii) shall be reduced, as set forth in Section 1.04(b), by an
amount (the "Adjustment Decrease Amount") equal to the amount by which the Total
Current Liabilities (excluding unpaid Merger Expenses) as of the Adjustment Time
exceed Total Current Assets as of the Adjustment Time. For purposes of this
Section 1.04, (i) Total Current Assets shall not include the South Carolina
Outparcel Proceeds (as defined in Section 5.25) and (ii) Total Current
Liabilities shall not include (A) any unpaid Merger Expenses, (B) any unpaid
costs and expenses provided for in clauses (2) and (3) of Section 5.25 relating
to the South Carolina Outparcel Transfer or (C) up to $19,000 for income taxes
accrued by Target in accordance with GAAP but not paid on the Closing Date
arising from the South Carolina Outparcel Transfer. Except as otherwise provided
in this Agreement, Target shall not take any action after the date hereof, and
has not taken any action, that could reasonably be expected to change the Total
Current Assets or the Total Current Liabilities during the period from the
Adjustment Time to the Effective Time.
(b) The number of shares of Acquiror Series B Preferred Shares to be
exchanged for each share of Target Common Stock shall be increased by the number
of shares of Acquiror Series B Preferred Shares equal to (A) an amount equal to
the result of dividing the Adjustment Increase Amount, by $25, divided by (B)
3,789,171. The number of shares of Acquiror Series B Preferred Shares to be
exchanged for each share of Target Common Stock shall be decreased by the number
of shares of Acquiror Series B Preferred Shares equal to (A) an amount equal to
the result of dividing the Adjustment Decrease Amount, by $25, divided by (B)
3,789,171.
(c) In order to determine whether any adjustments are required pursuant
to this Section 1.04, the parties agree that Target will (i) calculate the
Adjustment Increase Amount or Adjustment Decrease Amount, as the case may be,
and (ii) deliver to Acquiror on or before the Closing Date an unaudited
financial statement (the "Closing Adjustment Statement") and supporting and
other substantiating documentation, setting forth in reasonable detail the Total
Current Assets and Total Current Liabilities of Target as of the Adjustment
Time, together with a letter from Deloitte & Touche, Target's independent public
accountants, describing the procedures performed by them concerning the accuracy
of the amounts and calculations set forth in, and otherwise containing such
statements and information with respect to the Closing Adjustment Statement, in
form and substance reasonably satisfactory to Acquiror. In making
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its calculations, Target shall apply the same accounting methods used by Target
in the preparation of Target's unaudited balance sheet as at September 30, 1996.
SECTION 1.05 Certificate of Incorporation; By-laws; Directors;
Officers.
(a) The Certificate of Incorporation and By-laws of Newco in effect on
the date hereof shall be the Certificate of Incorporation and By-laws of the
Surviving Corporation at the Effective Time, and thereafter may be amended in
accordance with their respective terms and applicable law.
(b) The directors of Newco immediately prior to the Effective Time
shall be the directors of the Surviving Corporation as of and following the
Effective Time.
(c) The officers of Newco immediately prior to the Effective Time shall
be the officers of the Surviving Corporation as of and following the Effective
Time.
ARTICLE II
EXCHANGE OF SHARES
SECTION 2.01 Target Common Stock Election; Surrender of Target
Certificates.
(a) Prior to the Effective Time, Acquiror shall make available to an
exchange agent selected by Acquiror, which shall be Acquiror's transfer agent,
or such other party reasonably acceptable to Target (the "Exchange Agent"), in
trust for the benefit of the holders of Target Common Stock and Target Preferred
Stock, for exchange in accordance with this Article II, the amount of cash
payable in lieu of fractional shares pursuant to Section 2.02 and the
certificates representing the shares of Acquiror Series B-1 Preferred Shares,
Acquiror Series B- 2 Preferred Shares and Acquiror Series C Preferred Shares to
be issued pursuant to Section 1.03. Promptly after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented shares of
Target Common Stock or Target Preferred Stock (collectively, the "Target
Certificates" and individually, a "Target Certificate") a letter of transmittal
(the "Target Letter of Transmittal") which shall, (i) with respect to each
holder of a Target Certificate representing shares of Target Common Stock, (A)
instruct such holder to elect to have such holder's shares of Target Common
Stock converted into either (x) Acquiror Series B-1 Preferred Shares and the
cash to be received, if any, in lieu of the issuance of fractional shares of
Acquiror Series B- 1 Preferred Shares, pursuant to Section 1.03(a), or (y)
Acquiror Series B-2 Preferred Shares and the cash to be received, if any, in
lieu of the issuance of fractional shares of Acquiror Series B-2 Preferred
Shares, pursuant to Section 1.03(a), and (ii) specify (A) the manner by which to
effect the surrender of such holder's Target Certificates in exchange for
certificates representing shares of Acquiror Series B-1 Preferred Shares,
Acquiror Series B-2 Preferred Shares or Acquiror Series C Preferred Shares, and
cash in lieu of fractional shares, after giving effect to any required
withholding taxes, and (B) that delivery shall be effected, and risk of
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loss and title to Target Certificates shall pass, only upon delivery of the
Target Certificates to the Exchange Agent.
(b) Upon surrender of a Target Certificate representing shares of
Target Common Stock to the Exchange Agent, together with the Target Letter of
Transmittal, duly executed, and such other documents as Acquiror or the Exchange
Agent shall reasonably request, the holder of such Target Certificate shall be
entitled to receive in exchange therefor a certificate or certificates of
Acquiror representing the number of shares of Acquiror Series B-1 Preferred
Shares or Acquiror Series B-2 Preferred Shares, and cash in lieu of fractional
shares, which such holder has the right to receive pursuant to Section 1.03,
subject to Section 2.06, and the Target Certificate so surrendered shall
forthwith be cancelled. If such holder fails to make a proper election on his
Letter of Transmittal with respect to whether to receive Acquiror Series B-1
Preferred Shares or Acquiror Series B-2 Preferred Shares in the Merger, such
holder will be deemed to have elected to receive Acquired Series B-1 Preferred
Shares in the Merger in exchange for such holder's shares of UPI Common Stock.
(c) Upon surrender of a Target Certificate representing shares of
Target Preferred Stock to the Exchange Agent, together with the Target Letter of
Transmittal, duly executed, and such other documents as Acquiror or the Exchange
Agent shall reasonably request, the holder of such Target Certificate shall be
entitled to receive in exchange therefor shares of Acquiror Series C Preferred
Shares pursuant to the terms of Section 1.03, and the Target Certificate so
surrendered shall forthwith be cancelled.
(d) Until surrendered as contemplated in this Article II, from and
after the Effective Time, each Target Certificate shall be deemed to represent
only the right to receive the above described consideration for each share of
Target Common Stock or Target Preferred Stock formerly represented by such
Target Certificate, and shall not evidence any interest in Acquiror or Newco. If
a certificate or certificates representing shares of Acquiror Series B-1
Preferred Shares, Acquiror Series B-2 Preferred Shares or Acquiror Series C
Preferred Shares is to be issued to and cash is to be paid in lieu of fractional
shares to a person other than the one in whose name the Target Certificate
surrendered in exchange therefor is registered, it shall be a condition to such
issuance or payment that such Target Certificate be properly endorsed (or
accompanied by an appropriate instrument of transfer), with signatures
guaranteed, if requested, and accompanied by evidence that any applicable stock
transfer taxes have been paid or provided for.
SECTION 2.02 No Fractional Shares for Acquiror Series B Preferred
Shares; Cash Payments.
(a) No certificate or scrip representing fractional shares of Acquiror
Series B Preferred Shares shall be issued upon the surrender for exchange of
Target Certificates representing shares of Target Common Stock, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Acquiror. The fractional shares of Acquiror Series B
Preferred Shares to be received by each Target Common
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Stockholder will be aggregated so that no Target Common Stockholder will receive
cash in an amount equal to or greater than the value of one full share of
Acquiror Series B Preferred Shares. In lieu of any such fractional share, the
Exchange Agent shall pay, subject to Section 2.06, to each Target Common
Stockholder who otherwise would be entitled to receive a fractional share of
Acquiror Series B Preferred Shares an amount of cash determined by multiplying
$25 by the fraction of a share of Acquiror Series B Preferred Shares to which
such holder would otherwise be entitled. The transfer of cash to Target Common
Stockholders in lieu of fractional shares of Acquiror Series B Preferred Shares,
if any, is solely for the purpose of avoiding the expense and inconvenience to
Acquiror of accounting for fractional shares and does not represent separately
bargained-for consideration.
(b) Acquiror shall make available to the Exchange Agent sufficient
funds as and when necessary to enable the Exchange Agent to make the cash
payments to be made in lieu of the issuance of fractional shares under Section
2.02. In no event shall interest be paid or accrued on any such cash payments.
The cash amount to be paid to the holders of Target Common Stock pursuant to
Section 2.02 shall be rounded up to the nearest cent.
SECTION 2.03 No Dividends. No dividends or other distributions declared
or made after the Effective Time with respect to Acquiror Series B Preferred
Shares or Acquiror Series C Preferred Shares with a record date after the
Effective Time shall be paid to the holder of any Target Certificate with
respect to the Acquiror Series B Preferred Shares or the Acquiror Series C
Preferred Shares represented thereby until the holder of record of such Target
Certificate shall surrender such Target Certificate for exchange as provided
herein. Dividends or other distributions with a record date after the Effective
Time payable in respect of Acquiror Series B Preferred Shares or Acquiror Series
C Preferred Shares held by the Exchange Agent shall be paid to the Exchange
Agent and held in trust for the benefit of such holders of Target Certificates.
Following surrender of any previously unsurrendered Target Certificate
surrendered for exchange as provided herein, there shall be paid to the record
holder of the certificates representing shares of Acquiror Series B Preferred
Shares or Acquiror Series C Preferred Shares issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to such shares of Acquiror Series B Preferred Shares or
Acquiror Series C Preferred Shares, respectively, and (ii) at the date of
payment of any dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender, the amount of such dividends or other distributions payable with
respect to such shares of Acquiror Series B Preferred Shares or Acquiror Series
C Preferred Shares, respectively.
SECTION 2.04 Return to Acquiror. Any shares of Acquiror Series B
Preferred Shares or Series C Preferred Shares and any cash in lieu of fractional
share interests made available to the Exchange Agent and not exchanged for
Target Certificates within 12 months after the Effective Time and any dividends
and distributions held by the Exchange Agent for payment or delivery to the
holders of unsurrendered Target Certificates representing Target Common Stock or
Target Preferred Stock and unclaimed at the end of such 12 month period
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shall be redelivered or repaid by the Exchange Agent to Acquiror, after which
time any holder of Target Certificates who has not theretofore delivered or
surrendered such Target Certificates to the Exchange Agent, subject to
applicable law, shall look only to Acquiror for the consideration to be paid
pursuant to the terms of Section 1.03 and, if applicable, the dividends or
distributions to be paid pursuant to Section 2.03. Notwithstanding the
foregoing, none of the Exchange Agent, the Surviving Corporation or any other
party hereto shall be liable to a holder of Target Common Stock or Target
Preferred Stock for any shares of Acquiror Series B Preferred Shares or Acquiror
Series C Preferred Shares, respectively, cash in lieu of fractional share
interests, if applicable, or dividends or distributions delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
SECTION 2.05 No Further Transfer. Following the Effective Time, there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Target Common Stock or Target Preferred
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Target Certificates issued prior to the Effective Time are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged for shares of Acquiror Series B Preferred Shares or Acquiror
Series C Preferred Shares as provided in this Article II. Target Certificates
surrendered for exchange by any person (an "Affiliate") constituting an
"affiliate" of Target for purposes of Rule 145(c) under the Securities Act of
1933, as amended (the "1933 Act"), shall not be exchanged until Acquiror has
received a written agreement from such person as provided in Section 5.21.
SECTION 2.06 Withholding Rights. The Exchange Agent and the Surviving
Corporation shall be entitled to deduct and withhold from the payment of any
Target Common Stock Consideration, cash in lieu of fractional share interests,
and any other consideration payable to any holder of the Target Stock (a "Target
Stockholder") pursuant to this Agreement, such amounts as the Exchange Agent or
the Surviving Corporation may be required to deduct and withhold under the Code,
or any provision of any state, local or foreign law. To the extent that any
amounts are so withheld, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to such Target Stockholder.
SECTION 2.07 Lost, Stolen or Destroyed Certificates. In the event that
any Target Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Target
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation in its sole discretion, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Target Certificate,
the Exchange Agent or the Surviving Corporation shall exchange for such lost,
stolen or destroyed Target Certificate such Acquiror Series B Preferred Shares,
Acquiror Series C Preferred Shares, cash, dividends and distributions to which
such person would otherwise have been entitled had such Target Certificate been
surrendered in accordance with Section 2.01.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to Acquiror and Newco as follows:
SECTION 3.01 Organization and Good Standing. Target is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
operate, lease and Encumber its properties and assets and to carry on its
business as it is now being conducted. Target is duly qualified or licensed to
do business as a foreign corporation, and is in good standing, under the laws of
(a) each jurisdiction listed in the Target Disclosure Letter and (b) each other
jurisdiction in which the character of the properties owned, operated, leased or
Encumbered by Target therein or in which the carrying on of its business makes
such qualification or licensing necessary, except where the failure to be so
qualified, licensed or in good standing could not reasonably be expected to have
a Target Material Adverse Effect. "Target Material Adverse Effect" means, with
respect to Target, any event or events that could, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, assets, results of operations or financial condition of Target or the
Target Properties (as defined in Section 3.06), taken as a whole. For the
purposes of this Agreement, a Target Material Adverse Effect shall be deemed to
have occurred to the extent that any one or more events, individually or in the
aggregate, could reasonably be expected to (i) adversely affect Target's gross
revenues by $500,000 or more during any 12-month period, or (ii) have a cost to
remedy, or result in an expense or liability to Target, the Company or Newco, or
acceleration of the payment of any obligation of Target (collectively, a "Target
Remediation Cost"), of $500,000 or more, or (iii) adversely affect the value of
the Target Properties by $2,500,000 or more. The amounts (i) of any effect on
Target's gross revenues and (ii) any Target Remediation Costs in case of each of
clauses (i), (ii) and (iii) that could reasonably be expected to result from
such one or more events, are hereinafter referred to as the "Target Costs."
Notwithstanding the foregoing, a Target Material Adverse Effect shall not be
deemed to have occurred if (A) any one or more of the events giving rise to a
Target Cost or loss of value is covered by insurance and Target has a right to
receive payments pursuant to such insurance policy as a result of such event or
events, (B) the aggregate amount of Target Costs and/or loss of value does not
exceed $2,500,000 or $5,000,000, respectively, and (C) after giving effect to
the application of such insurance proceeds, the aggregate amount of Target Costs
and/or the loss of value is less than $500,000 or $2,500,000, respectively.
Target has delivered to Acquiror true, correct and complete copies of its
Certificate of Incorporation and By-laws, each as amended to date. Any effects
on Target's gross revenues or the value of the Target Properties that is
attributable to any default, diminution of rent or rejection under any Target
Lease by any tenant that is the subject of any bankruptcy proceedings on the
date hereof shall not be included in any determination of whether a Target
Material Adverse Effect has occurred or in any calculation of Target Costs.
SECTION 3.02 Capitalization of Target. The authorized capital stock
of Target consists of (i) 20,000,000 shares of Target Common Stock, of which
3,789,171 shares are
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issued and outstanding as of the date hereof, and (ii) 650,000 shares of Target
Preferred Stock, of which 395,834 shares are issued and outstanding as of the
date hereof. All of the issued and outstanding shares of Target Common Stock and
Target Preferred Stock have been duly authorized and are validly issued, fully
paid and nonassessable and are free of preemptive rights with no personal
liability attaching to the ownership thereof. Target has no outstanding bonds,
debentures, notes, or other obligations the holders of which have the right to
vote (or are convertible into or exercisable for securities having the right to
vote) with the holders of Target Common Stock on any matter. Except as set forth
in the Target Disclosure Letter, Target does not have and is not bound by, and
at the Effective Time, will not have or be bound by, any outstanding
subscriptions, options, warrants, calls, convertible securities, rights, or
other contracts, commitments, agreements, arrangements or understandings
(collectively, "Contracts") of any character, to or by which Target is a party
or is bound, which, directly or indirectly, obligate Target to issue, deliver,
transfer or sell any shares of Target Common Stock or Target Preferred Stock or
any other equity or debt security of Target or any securities representing the
right to purchase or otherwise receive any shares of Target Common Stock or
Target Preferred Stock or any other equity or debt security of Target. After the
Effective Time, the Surviving Corporation will have no obligation to issue,
deliver, transfer or sell any shares of capital stock or other equity interest
of Target or the Surviving Corporation pursuant to any employee benefit plan of
Target.
SECTION 3.03 Authority of Target. Target has all requisite corporate
power and authority to execute and deliver this Agreement and the documents (the
"Ancillary Documents") needed to consummate the Merger and the other
transactions contemplated by this Agreement to which Target is a party, and,
subject to approval by the Target Stockholders in accordance with the DGCL, to
consummate the Merger and the other transactions contemplated by this Agreement
and the Ancillary Documents, and to take all other actions required to be taken
by it pursuant to the provisions hereof and the Ancillary Documents. The
execution, delivery and performance by Target of this Agreement and the
Ancillary Documents to which Target is a party, the consummation by Target of
the Merger and the other transactions contemplated by this Agreement and the
Ancillary Documents, have been duly and validly authorized and approved by all
requisite corporate action of Target and no other corporate proceedings on the
part of Target are necessary to authorize the execution, delivery and
performance of this Agreement or any of the Ancillary Documents, to consummate
the Merger and the other transactions contemplated by this Agreement and the
Ancillary Documents, other than the approval of the Merger and adoption of this
Agreement and the Ancillary Documents by the Target Stockholders in accordance
with the DGCL. This Agreement and each of the Ancillary Documents to which
Target is a party have been duly and validly executed and delivered by Target
and constitute valid and binding agreements of Target, enforceable against
Target in accordance with their respective terms, except as may be limited by
bankruptcy and other laws affecting the enforceability of creditors' rights
generally or laws governing the availability of specific performance or other
equitable remedies, or restrictions of the enforcement of securities
indemnification and contribution provisions imposed by public policy.
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SECTION 3.04 Consents and Approvals; No Violations. Except as set forth
in the Target Disclosure Letter and for applicable requirements of the 1933 Act,
Securities Exchange Act of 1934, as amended (the "1934 Act"), state Blue Sky
laws, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), if any, the filing and recordation of the Delaware Merger
Certificate, as required by the DGCL, and such filings, authorizations, orders
and approvals as may be required under State "control share acquisition",
"antitrust" or other similar statutes or regulations, or such filings,
authorizations, orders and approvals as may be required under the By-laws of the
National Association of Securities Dealers, Inc. ("NASD") (collectively, the
"Target Required Filings"), no filing or registration with, and no consent,
authorization, declaration or approval of, any governmental body, court,
arbitration board, tribunal or authority ("Governmental Entity"), or any third
party, is necessary for the execution, delivery and performance by Target of
this Agreement or any of the Ancillary Documents or the consummation of the
Merger and the other transactions contemplated by this Agreement and the
Ancillary Documents. The Target Disclosure Letter sets forth a true, correct and
complete list of all filings, registrations, consents, authorizations,
declarations or approvals necessary to consummate the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents (the
"Target Consents"). Except as set forth in the Target Disclosure Letter, subject
to approval by the Target Stockholders in accordance with the DGCL, neither the
execution, delivery and performance by Target of this Agreement or any of the
Ancillary Documents nor the consummation by Target of the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents will (i)
constitute any violation or breach of any provision of the Certificate of
Incorporation or By-laws of Target, or (ii) constitute any violation or breach
of any provision of, or constitute a default (or an event which, with the giving
of notice or the passage of time or both, would constitute a default) under, or
result in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any lien,
pledges, mortgages, deeds of trust, security interests, claims against title,
charges, options or other encumbrances ("Encumbrances") upon any of the
properties of Target under, or result in being declared void, voidable or
without further binding effect, any of the terms, conditions or provisions of
any Target Contract (as defined below), or any franchise, permit, concession,
Contract, or other instrument, or other obligation to which Target is a party,
or by which Target or any of its properties is bound or affected except, with
respect to this clause (ii), for those which could not have a Target Material
Adverse Effect.
SECTION 3.05 Public Reports. Target has delivered to Acquiror true,
correct and complete copies of (i) its Annual Report on Form 10-KSB for the year
ended December 31, 1995, (ii) its Quarterly Report on Form 10-QSB for the three
months ended March 31, 1996, (iii) its Quarterly Report on Form 10-QSB for the
six months ended June 30, 1996, and (iv) all other registration statements,
reports, proxy statements, information statements and other documents filed by
Target with the Securities and Exchange Commission since December 31, 1995 (the
"SEC"); in each case including all exhibits, amendments and supplements thereto
and each of such documents is in the form (including exhibits, amendments and
supplements thereto) filed with the SEC (collectively, the "Target SEC
Reports"). Each of the Target SEC Reports was filed with the SEC in a timely
manner. The Target SEC Reports constitute all
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registration statements, reports, proxy statements, information statements and
other documents required to be filed by Target since December 31, 1995 under the
1933 Act, the 1934 Act and the rules and regulations promulgated thereunder (the
"Securities Laws"). As of their respective dates, the Target SEC Reports (i)
complied in all material respects with the applicable requirements of the
Securities Laws and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading. Since December 31, 1995, Target has not received from
the SEC any comments, or requests for additional information, with respect to
any Target SEC Report.
SECTION 3.06 Real Property; Contracts and Leases Relating to Real
Property.
(a) The Target Disclosure Letter contains a true, correct and complete
list by street address of all of the real estate properties owned by Target. The
Target Disclosure Letter or the title reports and surveys with respect to the
real estate properties owned by Target listed in the Target Disclosure Letter
(collectively, the "Existing Target Title Documents") (in each case true,
correct and complete copies of which Existing Target Title Documents have been
delivered to Acquiror) set forth all improvements thereon (including, without
limitation, (i) the buildings and other structures and parking areas located
thereon and (ii) any easements, rights of way, privileges and appurtenances
thereto relating to such real estate properties). The real estate properties
owned by Target and improvements thereon (including, without limitation, (i) the
buildings and other structures and parking areas located thereon and (ii) any
easements, rights of way, privileges and appurtenances thereto relating to such
real estate properties) are hereinafter referred to as the "Target Properties."
Except as set forth in the Target Disclosure Letter or in the Existing Target
Title Documents, Target owns fee simple title to each of the Target Properties,
free and clear of Encumbrances, and the Target Properties are not subject to any
rights of way, written agreements, or Property Laws (as defined below) affecting
building use or occupancy, or reservations of an interest in title
(collectively, "Property Restrictions") except for (i) Property Restrictions
imposed or promulgated by law or any Governmental Entity with respect to real
property, including, without limitation, zoning regulations, that, individually
or in the aggregate, do not materially and adversely affect the current use of
the property or materially detract from the value of the property and (ii)
Property Restrictions disclosed on the Existing Target Title Documents.
(b) To Target's knowledge, except as set forth in the Target Disclosure
Letter or in the Existing Target Title Documents, Target has (i) all
certificates, permits and licenses from all Governmental Entities having
jurisdiction over any of the Target Properties and (ii) all agreements,
easements and other rights, that are necessary to permit the lawful use and
operation of the buildings and improvements on any and all of the Target
Properties or are necessary to permit the lawful use and operation of all
driveways, roads and other means of egress and ingress to and from any and all
of the Target Properties (any such agreement, easement or other right referred
to in this clause (ii) shall hereafter be referred to as a "Target REA
Agreement") except, in the case of clauses (i) and (ii) of this paragraph, those
the failure to obtain of which could not reasonably be expected to have a Target
Material Adverse Effect.
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Each Target REA Agreement is in full force and effect, and there is no pending
threat of modification or cancellation of any of same. Target is not, and to
Target's knowledge no person has asserted, or is threatening to assert, that
Target is, in default under any Target REA Agreement except for those which
could not have a Target Material Adverse Effect.
(c) Except as set forth in the Target Disclosure Letter or in the
Existing Target Title Documents, to Target's knowledge, (i) the Target
Properties, and the size of, use of, occupancy of, improvements on, construction
on, and access to, the Target Properties (the "Target Property Uses"), are in
compliance in all material respects with all federal, state and municipal laws,
ordinances, orders, regulations, codes, zoning regulations, certificates,
permits, licenses and requirements, including, without limitation, those
relating to subdivision, building, safety, fire, health, and sewage connection,
treatment and disposal ("Property Laws"), affecting all or any portion of all or
any of the Target Properties; (ii) the Target Properties, and the Target
Property Uses, are not, and no person or Governmental Entity has asserted, or is
threatening to assert, that the Target Properties, or the Target Property Uses,
are, in violation of any Property Laws; (iii) there are no pending or threatened
proceedings or actions that could reasonably be expected to in any manner
materially and adversely affect the Target Property Uses; and (iv) to Target's
knowledge, no betterment assessments have been levied against, and no
condemnation or rezoning proceedings, or proceedings requiring any public
installations or improvements, are pending or threatened with respect to, any of
the Target Properties.
(d) Except as set forth in the Target Disclosure Letter or in the
engineering reports, true, correct and complete copies of which Acquiror has
obtained prior to the date hereof, to Target's knowledge, (i) there is no Target
Property with building systems not in working order; (ii) there is no physical
damage to any Target Property in excess of $10,000 for which there is no
insurance in effect covering the full cost of the restoration, ordinary wear and
tear excepted; (iii) there are no structural defects relating to any of the
Target Properties; and (iv) there is no current renovation or restoration or
tenant improvements to any Target Property the cost of which exceeds $10,000.
(e) Target has delivered to Acquiror true, correct and complete copies
of (i) all of the following Contracts to which Target is a party relating to
real property owned or leased by Target: (A) all documents evidencing any
indebtedness secured by the Target Properties (the "Target Underlying Debt"),
(B) the Target Leases (as defined in Section 3.07), (C) all other service,
equipment, supply, maintenance, management and other Contracts providing for
payments in excess of $10,000 annually unless the same are terminable by Target
by notice of not more than 90 days for a cost of less than $10,000, (D)
outstanding Contracts relating to the development or construction of any Target
Properties, (E) all leases pursuant to which Target, as lessee, leases personal
property providing for payments in excess of $10,000 annually or leases real
property, (F) all outstanding options pursuant to which Target has granted, or
been granted, an option to purchase real property, and (G) any and all
amendments and supplements to all of the foregoing (collectively, as amended or
supplemented, the "Target Property Contracts"); (ii) all loan or credit
agreements, notes, debentures, bonds, mortgages,
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indentures, deeds of trust, or Contracts, instruments or other obligations for
borrowed money to which Target is a party, and all amendments and supplements to
all of the foregoing, (X) pursuant to which any indebtedness of Target in excess
of $10,000 is outstanding or may be incurred or is evidenced or (Y) which may
result in or evidences total payments or liabilities to Target in excess of
$10,000 (as amended or supplemented, the "Target Loan Contracts"); and (iii) all
joint venture, shareholder agreements, operating agreements, partnership
agreements or similar Contracts to which Target is a party (together with the
Target Property Contracts and the Target Loan Contracts, as amended or
supplemented, the "Target Contracts"). For purposes of this Section 3.06,
"indebtedness" shall mean, with respect to any person, without duplication, (i)
all indebtedness of such person for borrowed money, whether secured or
unsecured, (ii) all obligations of such person under conditional sale or title
retention agreements relating to property purchased by such person, (iii) all
capitalized lease obligations of such person, (iv) all obligations of such
person under interest rate or currency hedging transactions (valued at the
termination value thereof) and (v) all guarantees of such person of any
indebtedness of any other person. The Target Disclosure Letter contains a true,
correct and complete list of the Target Contracts. The Target Contracts are
valid, subsisting and in full force and effect with respect to Target, and, to
Target's knowledge, with respect to the other parties to the Target Contracts.
Target is not, and to Target's knowledge no person has asserted, or is
threatening to assert, that Target is, in material default under any Target
Contract providing for payments in excess of $10,000 annually. No existing use
of any of the Target Properties constitutes, and to Target's knowledge no person
has asserted, or is threatening to assert, that any existing use of any of the
Target Properties constitutes, a conflict with any exclusive rights granted to
any person under any of the Target Contracts providing for payments in excess of
$10,000 annually. To Target's knowledge, no party to any Target Contract
providing for payments in excess of $10,000 annually is in default under such
Target Contract. To Target's knowledge, there does not exist any condition
which, with the giving of notice or the passage of time or both, would cause
such a violation or default under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any Encumbrances upon any of the Target Properties
under, or result in being declared void, voidable or without further binding
effect, any of the terms, conditions or provisions of any Target Contract
providing for payments in excess of $10,000 annually, or any license, franchise,
permit or concession or other instrument, or other obligation to which Target is
a party, or by which Target or any of the Target Properties is bound or
affected. None of the Target Contracts (other than the Target Leases) contain
any provision which would prevent the Acquiror or the Surviving Corporation from
occupying and using all or any portion of the Target Properties, or any property
or assets leased by Target, in the same manner and on the same terms and
conditions as Target is so occupying or using it.
(f) Target has delivered to Acquiror true, correct and complete copies
of (i) each permanent or temporary Certificate of Occupancy with respect to any
of the Target Properties which Target has in its possession and (ii) all
manufacturers' and contractors' warranties and guarantees currently in effect
with respect to the Target Properties which Target has in its possession.
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(g) Each of the Target Properties is separately assessed for tax
purposes. Target has delivered to Acquiror true, correct and complete copies of
the most recent real estate tax bills for each of the Target Properties.
SECTION 3.07 Leases.
(a) The Target Disclosure Letter contains a true, correct and complete
rent roll for all leases, licenses and tenancies, each as amended and
supplemented ("Target Leases") covering all or each portion of the Target
Properties (the "Target Rent Roll"). The Target Rent Roll includes or describes
for each Target Lease, the name and address of the tenant, the space leased, the
current balances of security and other deposits, the current base rent the
tenant is obligated to pay thereunder, and the amount of percentage rent most
recently paid. Target has delivered to Acquiror a true, correct and complete
statement evidencing common area maintenance billings and real estate tax
escalations under each Target Lease.
(b) Except as set forth in the Target Disclosure Letter, (i) to
Target's knowledge, each of the Target Leases is valid and subsisting and in
full force and effect; (ii) no Tenant is controlled by, under common control
with or controls Target; (iii) the tenant under each of the Target Leases is in
actual possession of the leased premises; (iv) no tenant under any Target Lease
is in arrears for the payment of rent for any month preceding the month of the
date of this Agreement or to Target's knowledge otherwise in default of such
tenant's lease obligations; (v) to Target's knowledge, no tenant under any
Target Lease intends to vacate prior to the termination of its lease; (vi) there
are no pending summary proceedings or other legal actions by Target for eviction
under any Target Lease; (vii) all decorating, repairs, alterations, or other
work required to be performed by Target under the Target Leases, or the costs to
be reimbursed to any tenant under any Target Lease, has been performed or, if
required, reimbursed; (viii) no space subject to any Target Lease is occupied
rent free or at a rental rate reduced from the rates stated in the Target Rent
Roll; and (ix) none of the Target Leases and none of the rents or other amounts
payable thereunder have been assigned, pledged or encumbered, other than to
lenders, except as described in the Target Disclosure Letter. Target has not
collected payment of rent (other than security deposits) accruing for a period
which is more than one month beyond the date of collection. All brokerage or
leasing commissions payable by the landlord with respect to Target Leases have
been paid in full and there are no commissions payable with respect to renewals
or extensions of any Target Lease. There are no material unsatisfied obligations
wherein rent and/or other obligations of the tenant in other buildings or
improvements have been assumed by Target.
(c) Except as shown in the Target Disclosure Letter, to Target's
knowledge, no tenant, licensee or occupant under any of the Target Leases has
notified Target in writing of any claim, offset or defense which would
materially affect the collection of rent from such tenant.
(d) The Target Disclosure Letter sets forth a true, correct and
complete list of all written or oral legally enforceable commitments made by
Target to lease any of the Target
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Properties or any portion thereof which has not yet been reduced to a written
lease. To Target's knowledge, no person has asserted, or is threatening to
assert, that any of such written or oral commitments is not legally enforceable.
Target has delivered to Acquiror true, correct and complete copies of all such
written commitments and the Target Disclosure Letter provides with respect to
each such oral commitment the principal terms of such commitment, including, if
applicable, those items set forth in Section 3.07(a).
SECTION 3.08 Tenant Improvements. The Target Disclosure Letter contains
(i) a true, correct and complete list of all unpaid tenant improvements being
conducted by Target and (ii) to Target's knowledge, the aggregate amount of all
unpaid tenant improvements for all Target Properties do not exceed $25,000.
Target has delivered to Acquiror true, correct and complete copies of any and
all Contracts, plans, specifications and agreements in connection with all
uncompleted tenant improvements and all completed tenant improvements which have
not been fully paid for or with respect to which there exists a dispute between
Target, the tenant and/or any contractor or subcontractor with respect to such
improvements.
SECTION 3.09 Environmental Matters. Except as set forth in any of the
environmental assessments or other environmental reports (i) identified in the
Target Disclosure Letter and in the possession of Target with respect to the
Target Properties (the "Target Environmental Reports"), true, correct and
complete copies of which have been delivered to Acquiror or (ii) prepared for
Acquiror with respect to the Target Properties:
(a) the activities, operations and business carried out by Target at or
on the Target Properties are in compliance, in all material respects, with all
applicable federal, state or local environmental laws, ordinances, rules and
regulations including, without limitation, the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and Recovery
Act, as amended, and the rules and regulations adopted and promulgated pursuant
to each of the foregoing ("Environmental Laws");
(b) no lien has been imposed on the Target Properties by any federal,
state or local Governmental Entity in connection with a violation of any
Environmental Laws at or on the Target Properties;
(c) Target has no knowledge (i) of any pending or threatened litigation
or proceedings before any Governmental Entity in which any person or entity
alleges Target's violation or threatened violation of any Environmental Laws or
(ii) that any Governmental Entity has determined that Target is in violation of
any Environmental Laws in connection with the Target Properties; and
(d) to Target's knowledge, no hazardous substances ("Hazardous
Materials"), including, without limitation, any flammables, explosives,
radioactive materials, hazardous wastes, hazardous and toxic substances or
related materials, asbestos or any material containing asbestos (including,
without limitation, vinyl asbestos tile), or any other substance
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or material as defined by any Environmental Laws as hazardous have been treated,
stored or disposed of, or otherwise deposited in or on the Target Properties,
including, without limitation, the surface waters and subsurface waters of the
Target Properties; no spills, releases, discharges, or disposals of Hazardous
Materials have occurred or are presently occurring on or from any of the Target
Properties, in violation of any Environmental Law; there are no substances or
conditions in or on the Target Properties or any other parcels of land which may
affect the Target Properties or the use thereof or which may support a claim or
cause of action under any Environmental Law. To Target's knowledge, there are no
underground tanks at the Target Properties and no part of the Target Properties
lies in a flood plain or constitutes "wetlands." Target is not aware of any
inaccuracies in the Target Environmental Reports. For purposes of this Section,
Hazardous Materials shall not include substances sold or used by tenants under
the Target Leases provided such use or sale is in the ordinary course of such
tenant's business and is in compliance with all applicable laws, rules or
regulations.
SECTION 3.10 Insurance. True and complete copies of all insurance
policies carried by Target or pursuant to which the Target Properties are
insured have been provided to Acquiror, all of such policies are in full force
and effect as of the date hereof, all premiums due and payable in respect of
such policies have been paid, and, except as set forth in the Target Disclosure
Letter, no claims have been made against any such policies as of the date
hereof. Target has not received any written notice from any insurance company
which has issued a policy with respect to the Target Properties or from any
board of fire underwriters (or other body exercising similar functions) (i)
claiming any defects or deficiencies which have not been cured or corrected,
(ii) requesting the performance of any repairs, alterations or other work which
have not been performed, or (iii) stating, in effect, that any of such policies
will not be renewed or will be renewed at a higher premium than is presently
payable therefor.
SECTION 3.11 Absence of Certain Changes. Except as contemplated herein
or set forth in the Target Disclosure Letter, since September 30, 1996, (i)
Target has not suffered a Target Material Adverse Effect, or entered into any
transaction or conducted its business or operations other than in the ordinary
course of operating the Target Properties and other than in connection with
Target's exploration of alternatives leading to the execution of this Agreement,
(ii) Target has not entered into or made any Contract, borrowing, capital
expenditure or transaction (each, a "Commitment"), other than Commitments of not
more than $10,000 annually made in the ordinary course of operating the Target
Properties and (iii) Target has made no change in its accounting principles,
practices or methods.
SECTION 3.12 No Undisclosed Liabilities. Except as and to the extent
set forth or disclosed in the Target Disclosure Letter, the Target SEC Reports
or in this Agreement, (i) at September 30, 1996, Target did not have any
liabilities (whether absolute, accrued, asserted or unasserted, contingent or
otherwise), required by GAAP, consistently applied, to be reflected on a balance
sheet of Target, in excess of $10,000 in the aggregate, that were not reflected
on Target's September 30, 1996 balance sheet and (ii) since September 30, 1996,
Target has not incurred any liabilities (whether absolute, accrued, asserted or
unasserted, contingent or
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otherwise) which are required by GAAP, consistently applied, to be reflected on
a balance sheet of Target, except liabilities incurred in the ordinary course of
operating the Target Properties.
SECTION 3.13 Litigation. Except as set forth in the Target Disclosure
Letter, there are (i) no continuing orders, injunctions, judgements or decrees
of any court, arbitrator or other Governmental Entity, to which Target is a
party or by which any of the Target Properties are bound or, to Target's
knowledge, to which any of Target's directors, officers, employees or agents (in
each case, in his capacity as such) is a party or by which any of Target's
properties or assets are bound, that could reasonably be expected to have a
Target Material Adverse Effect or prevent or delay the consummation of Merger
and the other transactions contemplated by this Agreement and the Ancillary
Documents and (ii) there are no actions, suits or proceedings pending (or to
Target's knowledge, threatened), at law or in equity, against Target or, to
Target's knowledge, against any of Target's directors, officers, employees or
agents in their capacities as such, that seek equitable relief or claim damages
in excess of $10,000, or that could reasonably be expected to have a Target
Material Adverse Effect or prevent or delay the consummation of the Merger and
the other transactions contemplated by this Agreement and the Ancillary
Documents, or result in the rescission of the issuance of any Target Common
Stock.
SECTION 3.14 Compliance with Applicable Law. To Target's knowledge,
Target is not in violation of any order of any Governmental Entity, or any law,
ordinance, governmental rule or regulation to which Target or any of the Target
Properties is subject, where such violation or violations could reasonably be
expected to have a Target Material Adverse Effect. Target has obtained all
licenses, permits and other authorizations and has taken all actions required by
applicable law or governmental regulations in connection with its business as
now conducted, where the failure to obtain any such item or items or to take any
such action could reasonably be expected to have a Target Material Adverse
Effect. Without limiting the generality of the foregoing, to Target's knowledge
neither Target nor (i) any consultant or employee or (ii) any person who is or
was an officer, director or affiliate of Target, has, directly or indirectly,
made, promised to make, or authorized the making of, an offer, payment or gift
of money or anything of value to any government official, political party or
employee, agent or fiduciary of a customer, to obtain a Contract for or to
influence a decision in favor of Target where such offer, payment or gift was or
would be, if made, in violation of any applicable law, ordinance, governmental
rule or regulation, nor have any of them maintained for this purpose cash or
anything of value, in an account or otherwise, not properly and accurately
accounted for on the books and records of Target.
SECTION 3.15 Taxes. (a) Except as set forth in the Target Disclosure
Letter, Target has timely filed all federal, state, local and foreign tax
returns required to be filed by it through the date hereof and such returns are
complete, accurate and comply with all applicable law in all material respects.
True, correct and complete copies of all federal, state, local and foreign tax
returns filed by Target and all communications relating thereto have been
delivered to Acquiror. Target has not executed or filed with any tax authority
any Contract now in
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effect extending the period for assessment or collection of any income or other
Taxes (as defined below), and no extension of time with respect to any date on
which a tax return was or is to be filed by Target is in force. Except as set
forth in the Target Disclosure Letter, Target is not a party to any action or
proceeding for assessment or collection of Taxes, and no claim for assessment or
collection of Taxes has been asserted or threatened against it. There is no
dispute or claim concerning any tax liability of Target claimed by any tax
authority. To Target's knowledge, no claim has ever been made by a tax authority
in a jurisdiction where Target does not file tax returns that Target is or may
be subject to taxation in such jurisdiction. There are no security interests on
any of the Target Properties that arose in connection with any failure (or
alleged failure) of Target to pay Taxes. Target has never entered into a closing
agreement pursuant to Section 7121 of the Code.
(b) Target has timely paid or caused to be paid all Taxes (as defined
below), including, without limitation, all transfer Taxes, if any, (i) shown as
due on its returns, (ii) which have become due and payable pursuant to any
assessment, deficiency notice, 30-day letter or other notice received by Target,
(iii) which became due and payable as a result of the transfer by Milestone
Properties, Inc. ("Milestone") to Target of any assets or properties, or the
distribution by Milestone of Target Common Stock to the stockholders of
Milestone or (iv) are otherwise due and payable. Target has properly accrued all
Taxes for all periods subsequent to the periods covered by such returns. Except
as set forth in the Target Disclosure Letter, Target has withheld from employees
and paid over to the appropriate taxing authority all income, social security,
and other payroll Taxes required to be withheld and paid over. For purposes of
this Agreement, "Taxes" shall mean any and all taxes (including, without
limitation, transfer taxes), levies, duties or other assessments in the nature
of taxes imposed by any federal, state, local or foreign taxing authority.
(c) Target is not a "foreign person" within the meaning of Section
1445(b)(2) of the Code and Target will furnish Acquiror at Closing with an
affidavit to that effect.
(d) Target has not (i) filed a consent pursuant to Section 341(f) of
the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by Target or (ii) been a party to a tax sharing
agreement or similar arrangement.
(e) Target is not required and has not agreed to make any adjustments
pursuant to Section 481(a) of the Code or any similar provision of foreign,
state or local law by reason of a change in accounting method initiated by it or
any other relevant party, nor has any knowledge that the IRS or any taxing
authority has proposed any such adjustment or change in accounting method, nor
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that related to the business or assets of
Target.
(f) Target is not a party to any contract, agreement, plan or
arrangement covering any person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by reason of
Section 280G of the Code in connection with the Merger.
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(g) Target has not been party to an election under Section 338 of the
Code and Target has no liability for the taxes of any person (other than Target)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract or otherwise.
SECTION 3.16 Financial Statements and Condition. Except as set forth in
the Target Disclosure Letter, Target's (i) audited balance sheets and related
statements of revenues, cash flow and stockholders' equity, including the notes
thereto, at and for the year ended December 31, 1995 (the "Target Financial
Statements") and (ii) unaudited balance sheet and related statements of income
and cash flows at and for the nine month period ended September 30, 1996 (the
"Target Interim Financial Statements") are attached to the Target Disclosure
Letter or attached to the Target SEC Reports. The Target Financial Statements
and the Target Interim Financial Statements present fairly, in all material
respects, Target's financial position and results of operations at the dates and
for the periods reflected therein, all in conformity with GAAP applied on a
consistent basis, except as otherwise noted therein or, in the case of the
Target Interim Financial Statements, for normal audit and accrual adjustments.
SECTION 3.17 Brokers or Finders. Except as set forth in the Target
Disclosure Letter, Target has not entered into any Contract with any agent,
broker, investment banker, financial advisor or other firm or person which may
result in the obligation of Target, Acquiror or Newco to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the Merger and the
other transactions contemplated by this Agreement and the Ancillary Documents.
Except as set forth in the Target Disclosure Letter, to Target's knowledge, no
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments has been asserted in connection with the negotiations
leading to this Agreement or the consummation of the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents.
SECTION 3.18 Other Interests. Target does not own, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust, or other person.
SECTION 3.19 Disclosure. The representations and warranties of Target
in this Agreement do not contain any untrue statement of a material fact.
SECTION 3.20 Vote Required. The affirmative vote of a majority of the
outstanding shares of Target Common Stock is the only vote of the holders of any
class or series of Target's capital stock necessary under applicable law to
permit the execution, delivery and performance by Target of this Agreement and
the Ancillary Documents to which Target is a party, and the consummation by
Target of the Merger and the other transactions contemplated by this Agreement
and the Ancillary Documents.
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SECTION 3.21 Parent Shares. Except as set forth in this Agreement:
(a) Except as set forth in the Target Disclosure Letter, Target does
not, nor do any of its affiliates or associates, beneficially own any voting
shares of Acquiror, directly or indirectly.
(b) Target does not, nor do any of its affiliates or associates, (i)
have the right to acquire voting shares of Acquiror (whether such right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement, or understanding (other than this Agreement) or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise; or (ii) have the right to vote voting shares of Acquiror pursuant to
any agreement, arrangement or understanding.
(c) Target does not, nor do any of its affiliates or associates, have
any agreement, arrangement, or understanding for the purpose of acquiring,
holding, voting, or disposing of voting shares of Acquiror with any other person
or entity that beneficially owns, or whose affiliates or associates beneficially
own, directly or indirectly, such voting shares of Acquiror.
For purposes of this Section 3.21 only, (i) "affiliate" shall mean a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
a specified person or entity and (ii) "associate," when used to indicate a
relationship with any person or entity shall mean (A) any person or entity of
which such person or entity is an officer, director, or partner or is, directly
or indirectly, the beneficial owner of 10 percent or more of any class of equity
securities; or (B) any trust or other estate in which such person or entity has
a substantial beneficial interest or as to which such person or entity serves as
trustee or in a similar fiduciary capacity; or (C) any relative or spouse of
such person, or any relative of such spouse, who has the same home as such
person or who is a director or officer of the person or entity or any of its
affiliates.
SECTION 3.22 Target Preferred Stock. Target has paid all accrued and
payable dividends on the Target Preferred Stock pursuant to the terms of the
Target Preferred Stock through the date hereof.
SECTION 3.23 Employee Benefit Plans. Target has no employees. Target
has no employee benefits plans (within the meaning of Section 3(3) of ERISA) and
no other benefit arrangements covering employees of Target. Neither Target nor
any entity under common control with Target within the meaning of ERISA Section
4001 has contributed to, or been required to contribute to, any multiemployer
plan (as defined in Sections 3(37) and 4001(a)(3) of ERISA). Except as otherwise
required by Sections 601 through 608 of ERISA, Section 4980B of the Code and
applicable state laws, Target does not maintain or contribute to any plan or
arrangement which provides or has any liability to provide life insurance,
medical or other employee welfare benefits to any employee or former employee
upon his retirement or termination of employment and Target has never
represented, promised or contracted (whether
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in oral or written form) to any employee or former employee that such benefits
would be provided.
SECTION 3.24 Labor Matters. Target is not a party to, or bound by, any
collective bargaining agreement or other Contract with a labor union or labor
union organization. There is no unfair labor practice or labor arbitration
proceeding pending or, to Target's knowledge, threatened, against Target
relating to its business. To Target's knowledge, there are no organizational
efforts with respect to the formation of a collective bargaining unit presently
being made or threatened involving employees of Target.
SECTION 3.25 Related Party Transactions. Except as set forth in the
Target Disclosure Letter, Target has no arrangements, agreements or Contracts
with (i) any consultant or employee, (ii) any person who is an officer, director
or Affiliate of Target, any relative of any of the foregoing or any entity of
which any of the foregoing is an Affiliate, including, without limitation, those
persons and entities listed as Affiliates in the Target Disclosure Letter, or
(iii) to Target's knowledge, any person who owns more than 5% of the outstanding
Target Common Stock (collectively, "Target Affiliate Contracts"). Target has
delivered to Acquiror true, correct and complete copies of all Target Affiliate
Contracts. Except as set forth in the Target Disclosure Letter, Target has paid
in full or otherwise satisfied and discharged all obligations under the Target
Affiliate Contracts that are due.
SECTION 3.26 Actions of Holders of Target Common Stock. The Target
Disclosure Letter sets forth a true, correct and complete list of the number of
shares of Target Common Stock held by each Affiliate of Target. From the date
hereof until the Effective Time, none of such Affiliates shall sell, transfer or
otherwise Encumber his shares of Target Common Stock. Notwithstanding the
foregoing, any Affiliate of Target may sell or transfer his shares of Target
Common Stock to another Affiliate of Target, provided that (i) the selling or
transferring Affiliate shall, within one business day after the date of such
sale or transfer, deliver to the Company written notice thereof and (ii) such
sale or transfer occurs at least two business days prior to the Closing Date.
Each of such persons shall, on or prior to the date hereof, have executed and
delivered a letter to Acquiror pursuant to which he shall agree to approve this
Agreement, the Merger and the transactions contemplated by this Agreement and
the Ancillary Documents at the Target Stockholders Meeting.
SECTION 3.27 Books and Records.
(a) The books of account and other financial records of Target (i)
accurately reflect in all material respects the financial transactions and
business of Target in accordance with GAAP, and (ii) are consistent in all
material respects with the financial statements included in the Target SEC
Reports.
(b) The minute books and other records of Target have been made
available to Acquiror, contain in all material respects accurate records of all
meetings and accurately reflect in all material respects all other corporate
action taken at such meeting or by unanimous
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consent of the stockholders and directors of Target. There are no committees
of the Board of Directors of Target.
SECTION 3.28 Fairness Opinion. Target has received the opinion of
Societe Generale to the effect that the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents, and the
consideration to be paid by Acquiror to the holders of Target Common Stock
pursuant to the Merger and such other transactions, are fair to the holders of
Target Common Stock from a financial point of view.
SECTION 3.29 No Representation or Warranty. Except as set forth in this
Agreement, Target makes no representation or warranty as to the present or
former condition or uses of the Target Properties. Acquiror expressly waives any
claim whatsoever, except for breach of representation or warranty contained
herein, relating to or arising from the physical condition of the Target
Properties, including, without limitation, claims arising from the presence of
any Hazardous Materials on, at or beneath the Target Properties or otherwise
arising under any Environmental Law, whether now or hereinafter in force. Target
is not liable or bound in any manner by expressed or implied warranties,
guaranties or representations pertaining to the Target Properties or the Target
Leases made or furnished by any real estate broker, investment banker, agent,
attorney, employee, servant or other person representing or purporting to
represent Target, unless the same are specifically set forth herein.
SECTION 3.30 Obligations of Milestone. The Target Disclosure Letter
sets forth a true, correct and complete list of all guarantees and liabilities
of Milestone of any indebtedness or other obligations of Target in effect on the
date hereof (the "Milestone Obligations"). Target has delivered to Acquiror
true, correct and complete copies of all Milestone Obligations.
SECTION 3.31 Target Directors' and Officers' Liability Insurance
Policy. Target has delivered to Acquiror a true, correct and complete copy of
Target's directors' and officers' liability insurance policy, as currently in
effect (the "Existing Target D & O Liability Insurance Policy").
SECTION 3.32 South Carolina Outparcel Agreement. Target has delivered
to Acquiror a true, correct and complete copy of the Agreement to Sell and
Purchase Real Estate, dated December 1995, between Target and CPC-1, a South
Carolina limited liability company (the "South Carolina Outparcel Purchaser"),
and all amendments thereto (as amended, the "South Carolina Outparcel
Agreement"), concerning the sale by Target to the South Carolina Outparcel
Purchaser of the outparcel (the "South Carolina Outparcel") described in the
South Carolina Outparcel Agreement. Target has delivered to Acquiror true,
correct and complete copies of all documents filed with any court or served on
or by Target, or, to Target's knowledge, by any other person, in connection with
the action commenced by South Carolina Outparcel Purchaser relating to the South
Carolina Outparcel.
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SECTION 3.33 Pending Milestone Action. Target has delivered to Acquiror
true, correct and complete copies of all documents filed with any court or
served on or by Target, or, to Target's knowledge, by any other person, in
connection with the Pending Milestone Action (as defined below) or any other
action or proceeding with respect to, or arising out of, the facts, events and
circumstances giving rise to the Pending Milestone Action.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND NEWCO
Acquiror and Newco, jointly and severally, represent and warrant to
Target as follows:
SECTION 4.01 Organization and Good Standing. (i) Acquiror is a real
estate investment trust duly formed and existing by virtue of the laws of the
State of Maryland and is in good standing with the State Department of
Assessments and Taxation of Maryland, (ii) Newco is a corporation duly
incorporated, duly organized, validly existing and in good standing under the
laws of the State of Delaware, (iii) each Acquiror Subsidiary is duly
incorporated or formed, as the case may be, duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization and (iv)
each of Acquiror, Newco and each Acquiror Subsidiary, has all requisite trust or
corporate or partnership power, as the case may be, to own, operate, lease and
Encumber its properties and assets and to carry on its business as it is now
being conducted. Each of Acquiror, Newco and each Acquiror Subsidiary, is duly
qualified or licensed to do business as a foreign corporation or partnership,
and is in good standing, under the laws of each jurisdiction in which the
character of the properties owned, operated, leased or Encumbered by it therein
or in which the carrying on of its business makes such qualification or
licensing necessary, except where the failure to be so qualified, licensed or in
good standing could not reasonably be expected to have a Acquiror Material
Adverse Effect. "Acquiror Material Adverse Effect" means, with respect to the
Company, any event or events that could, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the business,
assets, results of operations or financial condition of the Company or the
Acquiror Properties (as defined in Section 4.06), taken as a whole. For the
purposes of this Agreement, an Acquiror Material Adverse Effect shall be deemed
to have occurred to the extent that any one or more events, individually or in
the aggregate, could reasonably be expected to (i) adversely affect Acquiror's
gross revenues by $1,000,000 or more during any 12-month period, or (ii) have a
cost to remedy, or result in an expense or liability to the Company, or
acceleration of the payment of any obligation of the Company (collectively, a
"Company Remediation Cost"), of $1,000,000 or more, or (iii) adversely affect
the value of the Acquiror Properties by $5,000,000 or more. The amounts (i) of
any effect on Acquiror's gross revenues, (ii) any Company Remediation Costs and
(iii) any expenses or liabilities to Target, the Company and Newco, in the case
of each of clauses (i), (ii) and (iii) that could reasonably be expected to
result from such one or more events, are hereinafter referred to as the
"Acquiror Costs." Notwithstanding the foregoing, an Acquiror Material Adverse
Effect shall not be deemed to have occurred if (A) any one or more of the events
giving rise to a Acquiror Cost or loss of value is covered by insurance and
Acquiror has
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a right to receive payments pursuant to such insurance policy as a result of
such event or events, (B) the aggregate amount of Acquiror Costs and/or loss of
value does not exceed $5,000,000 or $10,000,000, respectively, and (C) after
giving effect to the application of such insurance proceeds the aggregate amount
of Acquiror Costs and/or the loss of value, is less than $1,000,000 or
$5,000,000, respectively. Acquiror has delivered or made available to Target
true, correct and complete copies of its Declaration of Trust and Bylaws, and
Newco's Certificate of Incorporation and By-laws, each as amended to date. Any
effects on Acquiror's gross revenues or the value of the Acquiror Properties
that is attributable to any default, diminution of rent or rejection under any
Acquiror Lease by any tenant that is the subject of any bankruptcy proceedings
on the date hereof shall not be included in any determination of whether an
Acquiror Material Adverse Effect has occurred or in any calculation of Acquiror
Costs.
SECTION 4.02 Capitalization of Acquiror and Newco. The authorized
shares of beneficial interest of Acquiror consist of 100,000,000 shares of
beneficial interest. As of the date hereof, there were 10,332,784 issued and
outstanding shares of common stock, par value $.01 per share, of Acquiror (the
"Acquiror Common Shares") and (ii) (x) 11,155 issued and outstanding shares of
Series A Increasing Rate Cumulative Convertible Preferred Shares of Acquiror
(the "Acquiror Series A Preferred Shares") or (y) 11,155 issued and outstanding
shares of Series A-1 Increasing Rate Cumulative Convertible Preferred Shares of
Acquiror (the "Acquiror Series A-1 Preferred Shares"). The Acquiror Disclosure
Letter (as defined below) sets forth a true, correct and complete list of all
Acquiror Subsidiaries and the direct or indirect ownership interest of Acquiror
in each of such Acquiror Subsidiaries. The shares or interests of each Acquiror
Subsidiary owned by Acquiror are free and clear of Encumbrances and Acquiror has
good title to such shares or interests. All of the issued and outstanding shares
of beneficial interest of Acquiror have been duly authorized and are validly
issued, fully paid and nonassessable and are free of preemptive rights, except
that shareholders may be subject to further assessment with respect to claims
for tort, contract, taxes, statutory liability and otherwise in some
jurisdictions to the extent such claims are not satisfied by Acquiror. Acquiror
has no outstanding bonds, debentures, notes, or other obligations the holders of
which have the right to vote (or are convertible into or exercisable for
securities having the right to vote) with the holders of Acquiror Common Shares
on any matter. Except as set forth in the Disclosure Letter delivered by
Acquiror to Target simultaneously with the execution and delivery of this
Agreement (the "Acquiror Disclosure Letter"; together with the Target Disclosure
Letter, the "Disclosure Letters"), Acquiror does not have and is not bound by,
and at the Effective Time, will not have or be bound by, any outstanding
subscriptions, options, warrants, calls, convertible securities, rights, or
other Contracts of any character, to or by which Acquiror or Newco is a party or
is bound, which, directly or indirectly, obligate Acquiror or Newco to issue,
deliver, transfer or sell any shares of beneficial interest of Acquiror or any
other equity or debt security of Acquiror except (i) Acquiror Common Shares
issuable upon the conversion of the Acquiror Series A Preferred Shares or
Acquiror Series A-1 Preferred Shares and (ii) Acquiror Common Shares issuable
upon the exercise of stock options issued to employees and trustees pursuant to
Acquiror's 1992 Employee Share Option Plan, 1992 Trustee Share Option Plan and
the 1995 Management Incentive Plan or issued to
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Acquiror's trustees in lieu of payment of trustee fees. At the date hereof and
on the Closing Date, all of the issued and outstanding shares of common stock of
Newco are and will be owned by Acquiror.
SECTION 4.03 Authority of Acquiror and Newco. Each of Acquiror and
Newco has all requisite trust or corporate power and authority, as the case may
be, to execute and deliver this Agreement and the Ancillary Documents to which
it is a party, and needed to consummate the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents, and to take all
other actions required to be taken by it pursuant to the provisions hereof and
the Ancillary Documents. The execution, delivery and performance by each of
Acquiror and Newco of this Agreement and the Ancillary Documents to which it is
a party, the consummation by each of Acquiror and Newco of the Merger and the
other transactions contemplated by this Agreement and the Ancillary Documents,
have been duly and validly authorized and approved by all requisite corporate
action of Acquiror and Newco and no other corporate proceedings on the part of
Acquiror or Newco are necessary to authorize the execution, delivery and
performance of this Agreement or any of the Ancillary Documents, to consummate
the Merger and the other transactions contemplated by this Agreement and the
Ancillary Documents. This Agreement and each of the Ancillary Documents to which
Acquiror or Newco is a party have been duly and validly executed and delivered
by Acquiror or Newco, as the case may be, and constitute valid and binding
agreements of Acquiror or Newco, as the case may be, enforceable against
Acquiror or Newco, as the case may be, in accordance with their respective
terms, except as may be limited by bankruptcy and other laws affecting the
enforceability of creditors' rights generally or laws governing the availability
of specific performance or other equitable remedies, or restrictions of the
enforcement of securities indemnification and contribution provisions imposed by
public policy.
The issuance by Acquiror of shares of Acquiror Series B Preferred
Shares and Acquiror Series C Preferred Shares in connection with the Merger (i)
will not be subject to preemptive rights or other preferential rights of any
present or future stockholders of Acquiror, and (ii) will not result in a
change in conversion rights in any of Acquiror's options, warrants or other
securities.
SECTION 4.04 Consents and Approvals; No Violations. Except as set forth
in the Acquiror Disclosure Letter and for applicable requirements of the 1933
Act, the 1934 Act, state Blue Sky laws, the HSR Act, if any, the filing and
recordation of the Delaware Merger Certificate and the Target Required Filings,
no filing or registration with, and no consent, authorization, declaration or
approval of, any Governmental Entity, or any third party, is necessary for the
execution, delivery and performance by Acquiror or Newco of this Agreement or
any of the Ancillary Documents or the consummation of the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents. Except
as set forth in the Acquiror Disclosure Letter, neither the execution, delivery
and performance by Acquiror or Newco of this Agreement or any of the Ancillary
Documents nor the consummation by Acquiror or Newco of the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents will (i)
constitute any violation or breach of
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any provision of the charter documents of Acquiror or Newco, or (ii) constitute
any violation or breach of any provision of, or constitute a default (or an
event which, with the giving of notice or the passage of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any Encumbrances upon any of the properties of the
Company under, or result in being declared void, voidable or without further
binding effect, any of the terms, conditions or provisions of any Acquiror
Contract (as defined below), or any license, franchise, permit, concession,
lease, Contract, or other instrument, or other obligation to which the Company
is a party, or by which the Company or any of its properties is bound or
affected, except with respect to clause (ii), for those which could not have an
Acquiror Material Adverse Effect.
SECTION 4.05 Public Reports. Acquiror has delivered or made available
to Target true, correct and complete copies of (i) its Annual Report on Form
10-K for the year ended December 31, 1995, (ii) its Quarterly Report on Form
10-Q for the three months ended March 31, 1996, (iii) its Quarterly Report on
Form 10-Q for the six months ended June 30, 1996, (iv) its Quarterly Report on
Form 10-Q for the nine months ended September 30, 1996 and (v) those other
registration statements, reports, proxy statements, information statements and
other documents filed by Acquiror with the SEC that are listed in the Acquiror
Disclosure Letter; in each case including all exhibits, amendments and
supplements thereto and each of such documents is in the form (including
exhibits, amendments and supplements thereto) filed with the SEC (collectively,
the "Acquiror SEC Reports"). Each of the Acquiror SEC Reports was filed with the
SEC in a timely manner. The Acquiror SEC Reports constitute all registration
statements, reports, proxy statements, information statements and other
documents required to be filed by Acquiror since December 31, 1995 under the
Securities Laws. As of their respective dates, the Acquiror SEC Reports (i)
complied in all material respects with the applicable requirements of the
Securities Laws and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading. Since December 31, 1995, Acquiror has not received
from the SEC any comments, or requests for additional information, with respect
to any Acquiror SEC Report.
SECTION 4.06 Real Property; Contracts and Leases Relating to Real
Property.
(a) The Acquiror Disclosure Letter contains a true, correct and
complete list by street address of all of the real estate properties owned by
the Company. The Acquiror Disclosure Letter or the existing title reports and
surveys with respect to the real estate properties owned by Acquiror listed in
the Acquiror Disclosure Letter (the "Existing Acquiror Title Documents") (in
each case true, correct and complete copies of which Existing Acquiror Title
Documents have been made available to Target) set forth any improvements thereon
(including, without limitation, (i) the buildings and other structures and
parking areas located thereon and (ii) any easements, rights of way, privileges
and appurtenances thereto relating to such real estate properties). The real
estate properties owned by the Company and improvements thereon (including,
without limitation, (i) the buildings and other structures and
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parking areas located thereon and (ii) any easements, rights of way, privileges
and appurtenances thereto relating to such real estate properties) are
hereinafter referred to as the "Acquiror Properties". Except as set forth in the
Acquiror Disclosure Letter or the Existing Acquiror Title Documents, the Company
owns fee simple title to each of the Acquiror Properties, free and clear of
Encumbrances, and the Acquiror Properties are not subject to any Property
Restrictions except for (i) Property Restrictions imposed or promulgated by law
or any Governmental Entity with respect to real property, including, without
limitation, zoning regulations, that, individually or in the aggregate, do not
materially and adversely affect the current use of the property or materially
detract from the value of the property and (ii) Property Restrictions contained
in leases to tenants at Acquiror Properties.
(b) To Acquiror's knowledge, except as set forth in the Acquiror
Disclosure Letter or in the Existing Acquiror Title Documents, the Company has
(i) all certificates, permits or licenses from all Governmental Entities having
jurisdiction over any or all of the Acquiror Properties and (ii) all agreements,
easements and other rights, that are necessary to permit the lawful use and
operation of the buildings and improvements on any and all of the Acquiror
Properties or are necessary to permit the lawful use and operation of all
driveways, roads and other means of egress and ingress to and from any and all
of the Acquiror Properties (any such agreement, easement or other right referred
to in this clause (ii) shall hereafter be referred to as an "Acquiror REA
Agreement") except, in the case of clauses (i) and (ii) of this paragraph, those
the failure to obtain of which could not reasonably be expected to have an
Acquiror Material Adverse Effect. Each Acquiror REA Agreement is in full force
and effect, and there is no pending threat of modification or cancellation of
any of same. The Company is not, and to Acquiror's knowledge no person has
asserted, or is threatening to assert, that the Company is, in default under any
Acquiror REA Agreement except for those which could not reasonably be expected
to have an Acquiror Material Adverse Effect.
(c) Except as set forth in the Acquiror Disclosure Letter or in the
Existing Acquiror Title Documents, to Acquiror's knowledge, (i) the Acquiror
Properties, and the size of, use of, occupancy of, improvements on, construction
on, and access to, the Acquiror Properties (the "Acquiror Property Uses"), are
in compliance in all material respects with all Property Laws affecting all or
any portion of all or any of the Acquiror Properties; (ii) the Acquiror
Properties, and the Acquiror Property Uses, are not, and no person or
Governmental Entity has asserted, or is threatening to assert, that the Acquiror
Properties, or the Acquiror Property Uses, are, in violation of any Property
Laws; (iii) there are no pending or threatened proceedings or actions that could
reasonably be expected to in any manner materially and adversely affect the
Acquiror Property Uses; (iv) no betterment assessments have been levied against,
and no condemnation or rezoning proceedings, or proceedings requiring any public
installations or improvements, are pending or threatened with respect to, any of
the Acquiror Properties; and (v) all charges and fees for all certificates,
permits, licenses and approvals referred to in this paragraph have been paid.
(d) Except as set forth in the Acquiror Disclosure Letter, to
Acquiror's knowledge, (i) there is no Acquiror Property with building systems
not in working order; (ii) there is no
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physical damage to any Acquiror Property in excess of $10,000 for which there is
no insurance in effect covering the full cost of the restoration, ordinary wear
and tear excepted; (iii) there are no structural defects relating to any of the
Acquiror Properties; and (iv) there is no current renovation or restoration or
tenant improvements to any Acquiror Property the cost of which exceeds $10,000.
(e) Acquiror has made available to Target true, correct and complete
copies of (i) all loan or credit agreements, notes, debentures, bonds,
mortgages, indentures and deeds of trust, and all amendments and supplements to
all of the foregoing, (X) pursuant to which any indebtedness of the Company in
excess of $100,000 is outstanding or may be incurred or is evidenced or (Y)
which may result in or evidences total payments or liabilities to the Company in
excess of $100,000 and (ii) all joint venture, shareholder agreements, operating
agreements, partnership agreements or similar Contracts to which the Company is
a party (together with the Contracts referred to in clause (i) of this Section
4.06(e), as amended or supplemented, the "Acquiror Contracts"). For purposes of
this Section 4.06, "indebtedness" shall mean, with respect to any person,
without duplication, (i) all indebtedness of such person for borrowed money,
whether secured or unsecured, (ii) all obligations of such person under
conditional sale or title retention agreements relating to property purchased by
such person, (iii) all capitalized lease obligations of such person, (iv) all
obligations of such person under interest rate or currency hedging transactions
(valued at the termination value thereof) and (v) all guarantees of such person
of any indebtedness of any other person. The Acquiror Disclosure Letter contains
a true, correct and complete list of the Acquiror Contracts. The Acquiror
Contracts are valid, subsisting and in full force and effect with respect to the
Company, and, to the Company's knowledge, with respect to the other parties to
the Acquiror Contracts. The Company is not, and to Acquiror's knowledge no
person has asserted, or is threatening to assert, that the Company is, in
material default under any Acquiror Contract providing for payments in excess of
$10,000 annually. No existing use of any of the Acquiror Properties constitutes,
and to Acquiror's knowledge no person has asserted, or is threatening to assert,
that any existing use of any of the Acquiror Properties constitutes, a conflict
with any exclusive rights granted to any person under any of the Acquiror
Contracts providing for payments in excess of $10,000 annually. To Acquiror's
knowledge, no party to any of the Acquiror Contracts providing for payments in
excess of $10,000 annually is in default under such Acquiror Contract. To
Acquiror's knowledge, there does not exist any condition which, with the giving
of notice or the passage of time or both, would cause such a violation or
default under, or result in the termination or in a right of termination or
cancellation of, or accelerate the performance required by, or result in the
creation of any Encumbrances upon any of the Acquiror Properties under, or
result in being declared void, voidable or without further binding effect, any
of the terms, conditions or provisions of any Acquiror Contract providing for
payments in excess of $10,000 annually, or any material license, franchise,
permit or concession or other instrument, or other obligation to which the
Company is a party, or by which the Company or any of the Acquiror Properties is
bound or affected.
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SECTION 4.07 Leases.
(a) The Acquiror Disclosure Letter contains a true, correct and
complete rent roll for all leases, licenses and tenancies, each as amended and
supplemented ("Acquiror Leases") covering all or each portion of the Acquiror
Properties (the "Acquiror Rent Roll"). The Acquiror Rent Roll includes or
describes for each Acquiror Lease, the name of the tenant, the space leased the
current balances of security and other deposits, the current base rent the
tenant is obligated to pay thereunder, and the amount of percentage rent most
recently paid.
(b) Except as set forth in the Acquiror Disclosure Letter, (i) to
Acquiror's knowledge, each of the Acquiror Leases is valid and subsisting and in
full force and effect; (ii) no tenant is controlled by, under common control
with or controls the Company; (iii) the tenant under each of the Acquiror Leases
is in actual possession of the leased premises; (iv) no tenant under any
Acquiror Lease is in arrears for the payment of rent for any month preceding the
month of the date of this Agreement or, to Acquiror's knowledge, otherwise in
default of such tenant's lease obligations; (v) to Acquiror's knowledge, no
tenant under any Acquiror Lease intends to vacate prior to the termination of
its lease; (vi) there are no pending summary proceedings or other legal actions
by Acquiror for eviction under any Acquiror Lease; (vii) all decorating,
repairs, alterations, or other work required to be performed by the Company
under the Acquiror Leases, or the costs to be reimbursed to any tenant under any
Acquiror Lease, has been performed or, if required, reimbursed; (viii) no space
subject to any Acquiror Lease is occupied rent free or at a rental rate reduced
from the rates stated in the Acquiror Rent Roll; and (ix) none of the Acquiror
Leases and none of the rents or other amounts payable thereunder have been
assigned, pledged or encumbered, other than to lenders, as described in the
Acquiror Disclosure Letter. Except as set forth in the Acquiror Disclosure
Letter, the Company has not collected payment of rent (other than security
deposits) accruing for a period which is more than one month beyond the date of
collection. There are no material unsatisfied obligations wherein rent and/or
other obligations of the tenant in other buildings or improvements have been
assumed by the Company.
SECTION 4.08 Environmental Matters. Except as set forth in any of the
environmental assessments or other environmental reports identified in the
Acquiror Disclosure Letter and in the possession of the Company with respect to
the Acquiror Properties (the "Acquiror Environmental Reports"), true, correct
and complete copies of which have been made available to Target:
(a) the activities, operations and business carried out by the
Company at or on the Acquiror Properties are and have been in compliance, in
all material respects, with all applicable Environmental Laws;
(b) no lien has been imposed on the Acquiror Properties by any federal,
state or local Governmental Entity in connection with a violation of any
Environmental Laws at or on the Acquiror Properties;
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(c) Acquiror has no knowledge (i) of any pending or threatened
litigation or proceedings before any Governmental Entity in which any person or
entity alleges the Company's violation or threatened violation of any
Environmental Laws or (ii) that any Governmental Entity has determined that the
Company is in violation of any Environmental Laws in connection with the
Acquiror Properties; and
(d) to Acquiror's knowledge, no Hazardous Materials have been treated,
stored or disposed of, or otherwise deposited in or on the Acquiror Properties,
including, without limitation, the surface waters and subsurface waters of the
Acquiror Properties; no spills, releases, discharges, or disposals of Hazardous
Materials have occurred or are presently occurring on or from any of the
Acquiror Properties, in violation of any Environmental Law; there are no
substances or conditions in or on the Acquiror Properties or any other parcels
of land which may affect the Acquiror Properties or the use thereof or which may
support a claim or cause of action under any Environmental Law. To Acquiror's
knowledge, except as set forth in the Acquiror Disclosure Letter, there are no
underground tanks at the Acquiror Properties and no part of the Acquiror
Properties lies in a flood plain or constitutes "wet lands." Acquiror is not
aware of any inaccuracies in the Acquiror Environmental Reports. For purposes of
this Section, Hazardous Materials shall not include substances sold or used by
tenants under the Acquiror Leases provided such use or sale is in the ordinary
course of such tenant's business and is in compliance with all applicable laws,
rules or regulations.
SECTION 4.09 Insurance. True and complete copies of insurance policies
carried by the Company or pursuant to which the Acquiror Properties are insured
have been made available to Target, all of such policies are in full force and
effect as of the date hereof, all premiums due and payable in respect of such
policies have been paid, and, except as set forth in the Acquiror Disclosure
Letter, no claims have been made against any such policies as of the date
hereof. The Company has not received any written notice from any insurance
company which has issued a policy with respect to the Acquiror Properties or
from any board of fire underwriters (or other body exercising similar functions)
(i) claiming any defects or deficiencies which have not been cured or corrected,
(ii) requesting the performance of any repairs, alterations or other work which
have not been performed, or (iii) stating, in effect, that any of such policies
will not be renewed or will be renewed at a higher premium than is presently
payable therefor.
SECTION 4.10 Absence of Certain Changes. Except as disclosed in the
Acquiror SEC Reports, since September 30, 1996, (i) the Company has not suffered
a Acquiror Material Adverse Effect, or entered into any transaction or conducted
its business or operations other than in the ordinary course of the Company's
business and other than in connection with Acquiror's exploration of
alternatives leading to the execution of this Agreement and (ii) Acquiror has
made no change in its accounting principles, practices or methods.
SECTION 4.11 No Undisclosed Liabilities. Except as and to the extent
set forth or disclosed in the Acquiror Disclosure Letter, the Acquiror SEC
Reports or in this Agreement, (i) at September 30, 1996, the Company did not
have any liabilities (whether absolute,
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accrued, asserted or unasserted, contingent or otherwise), required by GAAP,
consistently applied, to be reflected on a balance sheet of Acquiror, in excess
of $50,000 in the aggregate, that were not reflected on Acquiror's September 30,
1996 balance sheet and (ii) since September 30, 1996, the Company has not
incurred any liabilities (whether absolute, accrued, asserted or unasserted,
contingent or otherwise) which are required by GAAP, consistently applied, to be
reflected on a balance sheet of Acquiror, except liabilities incurred in the
ordinary course of the Company's business.
SECTION 4.12 Litigation. There are (i) no continuing orders,
injunctions, judgements or decrees of any court, arbitrator or other
Governmental Entity, to which the Company is a party or by which any of the
Acquiror Properties are bound or, to Acquiror's knowledge, to which any of
Acquiror's directors, officers, employees or agents (in each case, in his
capacity as such) is a party or by which any of the Company's properties or
assets are bound, that could reasonably be expected to have a Acquiror Material
Adverse Effect or prevent or delay the consummation of Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents and (ii)
there are no actions, suits or proceedings pending (or to Acquiror's knowledge,
threatened), at law or in equity, against the Company or, to Acquiror's
knowledge, against any of Acquiror's or any Acquiror Subsidiary's directors,
officers, employees or agents in their capacities as such, that seek equitable
relief or claim damages in excess of $10,000, or that could reasonably be
expected to have a Acquiror Material Adverse Effect or prevent or delay the
consummation of the Merger and the other transactions contemplated by this
Agreement and the Ancillary Documents.
SECTION 4.13 Compliance with Applicable Law. To Acquiror's knowledge,
the Company is not in violation of any order of any Governmental Entity, or any
law, ordinance, governmental rule or regulation to which the Company or any of
the Acquiror Properties is subject, where such violation or violations could
reasonably be expected to have a Acquiror Material Adverse Effect. The Company
has obtained all licenses, permits and other authorizations and has taken all
actions required by applicable law or governmental regulations in connection
with its business as now conducted, where the failure to obtain any such item or
items or to take any such action could reasonably be expected to have a Acquiror
Material Adverse Effect. Without limiting the generality of the foregoing, to
Acquiror's knowledge neither the Company nor (i) any consultant or employee or
(ii) any person who is or was an officer, director or Affiliate of the Company,
has, directly or indirectly, made, promised to make, or authorized the making
of, an offer, payment or gift of money or anything of value to any government
official, political party or employee, agent or fiduciary of a customer, to
obtain a Contract for or to influence a decision in favor of the Company where
such offer, payment or gift was or would be, if made, in violation of any
applicable law, ordinance, governmental rule or regulation, nor have any of them
maintained for this purpose cash or anything of value, in an account or
otherwise, not properly and accurately accounted for on the books and records of
Acquiror.
SECTION 4.14 Taxes. Acquiror and each Acquiror Subsidiary has timely
filed all federal, state, local and foreign tax returns required to be filed by
it through the date hereof
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and such returns are complete, accurate and comply with all applicable law in
all material respects. True, correct and complete copies of all federal, state,
local and foreign tax returns filed by Acquiror and each Acquiror Subsidiary and
all communications relating thereto have been delivered or made available to
Target. Neither Acquiror nor any Acquiror Subsidiary has executed or filed with
any tax authority any Contract now in effect extending the period for assessment
or collection of any income or other Taxes, and no extension of time with
respect to any date on which a tax return was or is to be filed by Acquiror or
any Acquiror Subsidiary is in force. Except as set forth in the Acquiror
Disclosure Letter, neither Acquiror nor any Acquiror Subsidiary is a party to
any action or proceeding for assessment or collection of Taxes, and no claim for
assessment or collection of Taxes has been asserted or threatened against
Acquiror or any Acquiror Subsidiary. There is no dispute or claim concerning any
tax liability of Acquiror or any Acquiror Subsidiary claimed by any tax
authority. To the Company's knowledge, no claim has ever been made by a tax
authority in a jurisdiction where Acquiror or any Acquiror Subsidiary does not
file tax returns that Acquiror or any Acquiror Subsidiary is or may be subject
to taxation in such jurisdiction. There are no security interests on any of the
Acquiror Properties that arose in connection with any failure (or alleged
failure) of Acquiror or any Acquiror Subsidiary to pay Taxes. Acquiror and each
Acquiror Subsidiary has never entered into a closing agreement pursuant to
Section 7121 of the Code.
Acquiror and each Acquiror Subsidiary has timely paid or
caused to be paid all Taxes (i) shown as due on its returns, (ii) which have
become due and payable pursuant to any assessment, deficiency notice, 30-day
letter or other notice received by Acquiror or such Acquiror Subsidiary, or
(iii) are otherwise due and payable. Acquiror and each Acquiror Subsidiary has
properly accrued all Taxes for all periods subsequent to the periods covered by
such returns. Except as set forth in the Acquiror Disclosure Letter, Acquiror
and each Acquiror Subsidiary has withheld from employees and paid over to the
appropriate taxing authority all income, social security, and other payroll
Taxes required to be withheld and paid over.
Acquiror has (i) elected to be taxed as a REIT within the
meaning of the Code and has qualified as a REIT for 1995, and has complied with
all applicable laws, rules and regulations, including, without limitation, the
Code, relating to, its REIT status in 1995, (ii) has operated and intends to
continue to operate, in such a manner as to qualify as a REIT for 1996, and
(iii) has not taken or omitted to take any action which could result in, and the
executive officers of Acquiror have not received written notice of and have no
actual knowledge of, a challenge to its status as a REIT. Acquiror represents
that Newco and each of the other Acquiror Subsidiaries are qualified REIT
subsidiaries as defined in Section 856(i)(2) of the Code.
SECTION 4.15 Financial Statements and Condition. The financial
statements included in the Acquiror SEC Reports (the "Acquiror Financial
Statements") present fairly, in all material respects, the Company's financial
position and results of operations at the dates and for the periods reflected
therein, all in conformity with GAAP applied on a consistent basis, except as
otherwise noted therein and for normal audit and accrual adjustments.
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SECTION 4.16 Newco. Newco was formed solely for the purpose of engaging
in the transactions hereby contemplated, 100% of Newco's outstanding stock is,
has been and will be owned by Acquiror at all times during the period of Newco's
existence, and Newco has engaged in no other business activities and has
conducted its operations only as hereby contemplated.
SECTION 4.17 Brokers or Finders. Except as set forth in the Acquiror
Disclosure Letter, Acquiror has not entered into any Contract with any agent,
broker, investment banker, financial advisor or other firm or person which may
result in the obligation of Target, Acquiror or Newco to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the Merger and the
other transactions contemplated by this Agreement and the Ancillary Documents.
Except as set forth in the Acquiror Disclosure Letter, to Acquiror's knowledge,
no claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments has been asserted in connection with the negotiations
leading to this Agreement or the consummation of the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents.
SECTION 4.18 Other Interests. Except as set forth in the Acquiror
Disclosure Letter, neither the Acquiror nor any Acquiror Subsidiary owns,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, partnership, joint venture, business, trust, or entity. With
respect to such interests, the Acquiror or Acquiror Subsidiary is a partner or
shareholder in good standing, owns such interests free and clear of all
Encumbrances, is not in breach of any provision of any Contract governing the
Acquiror's or Acquiror Subsidiary's rights, as the case may be, in or to the
interests owned or held, all of which Contracts are set forth in the Acquiror
Disclosure Letter, are unmodified as described thereon, and are in full force
and effect and, to Acquiror's knowledge, the other parties to such Contracts are
not in breach of any of their respective obligations under such Contracts.
SECTION 4.19 Disclosure. The representations and warranties of Acquiror
and Newco in this Agreement do not contain any untrue statement of a material
fact.
SECTION 4.20 Employee Benefit Plans. All employee benefits plans
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) and other benefit arrangements covering
employees of the Company (the "Company Benefit Plans") are listed in the
Acquiror Disclosure Letter. Acquiror has delivered or made available to Target
true, correct and complete copies of the Company Benefit Plans. To the extend
applicable, the Company Benefit Plans have been administered in all material
respects in accordance with their terms and comply, in all material respects,
with the applicable requirements of ERISA and the Code. Any Company Benefit plan
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service (the "IRS") or
a determination letter request has been filed with the IRS with respect to any
such plan and is still pending. No Company Benefit Plan is covered by Title IV
of ERISA or Section 412 of the Code. Neither any Company Benefit Plan
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nor the Company has incurred any liability or penalty under Section 4975 of the
Code or Section 502(i) of ERISA. There are no pending or anticipated claims
against or otherwise involving any of the Company Benefit Plans and no suit,
action or other litigation (excluding claims for benefits incurred in the
ordinary course of Company Benefit Plan activities) has been brought against or
with respect to any such Company Benefit Plan. All material contributions
required to be made as of the date hereof to the Company Benefit Plans have been
made or provided for. The Company has no unfunded liabilities under any Company
Benefit Plan, except as set forth in the Acquiror Disclosure Letter. Neither the
Company nor any entity under common control with the Company within the meaning
of ERISA Section 4001 has contributed to, or been required to contribute to, any
multiemployer plan (as defined in Sections 3(37) and 4001(a)(3) of ERISA).
Except as otherwise required by Sections 601 through 608 of ERISA, Section 4980B
of the Code and applicable state laws, the Company does not maintain or
contribute to any plan or arrangement which provides or has any liability to
provide life insurance, medical or other employee welfare benefits to any
employee or former employee upon his retirement or termination of employment and
the Company has never represented, promised or contracted (whether in oral or
written form) to any employee or former employee that such benefits would be
provided. Except as disclosed in the Acquiror Disclosure Letter, the execution
and delivery of this Agreement, and the consummation of the transactions
contemplated by this Agreement and the Ancillary Documents, will not constitute
an event under any Company Benefit Plan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligations to fund
benefits with respect to any employee, director or consultant of the Company.
SECTION 4.21 Labor Matters. The Company is not a party to, or bound by,
any collective bargaining agreement or other Contract with a labor union or
labor union organization. There is no unfair labor practice or labor arbitration
proceeding pending or, to Acquiror's knowledge, threatened, against the Company
relating to its business. To Acquiror's knowledge, there are no organizational
efforts with respect to the formation of a collective bargaining unit presently
being made or threatened involving employees of the Company.
SECTION 4.22 Related Party Transactions. Except as set forth in the
Acquiror Disclosure Letter, the Company has no arrangements, agreements or
Contracts with (i) any consultant or employee, (ii) any person who is an
officer, director or affiliate of Acquiror or any Acquiror Subsidiary, any
relative of any of the foregoing or any entity of which any of the foregoing is
an affiliate or (iii) to Acquiror's knowledge, any person who owns more than 5%
of the outstanding Acquiror Common Shares (collectively, "Acquiror Affiliate
Contracts"). Acquiror has delivered or made available to Target true, correct
and complete copies of all Acquiror Affiliate Contracts.
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SECTION 4.23 Books and Records.
(a) The books of account and other financial records of Acquiror (i)
accurately reflect in all material respects the financial transactions and
business of the Company in accordance with GAAP, and (ii) are consistent in all
material respects with the financial statements included in the Acquiror SEC
Reports.
(b) The minute books and other records of Acquiror have been made
available to Target, contain in all material respects accurate records of all
meetings and accurately reflect in all material respects all other corporate
action taken at such meeting or by unanimous consent of the shareholders and
trustees and all committees of the Board of Trustees of Acquiror.
SECTION 4.24 No Representation or Warranty. Except as set forth in this
Agreement, Acquiror makes no representation or warranty as to the present or
former condition or uses of the Acquiror Properties. Target expressly waives any
claim whatsoever, except for breach of representation or warranty contained
herein, relating to or arising from the physical condition of the Acquiror
Properties, including, without limitation, claims arising from the presence of
any Hazardous Materials on, at or beneath the Acquiror Properties or otherwise
arising under any Environmental Law, whether now or hereinafter in force.
Acquiror is not liable or bound in any manner by expressed or implied
warranties, guaranties or representations pertaining to the Acquiror Properties
or the Acquiror Leases made or furnished by any real estate broker, investment
banker, agent, attorney, employee, servant or other person representing or
purporting to represent Acquiror, unless the same are specifically set forth
herein.
ARTICLE V
COVENANTS
SECTION 5.01 Target Pre-Closing Obligations.
(a) Except as expressly contemplated by this Agreement or as set forth
in the Target Disclosure Letter, during the period from the date of this
Agreement and continuing until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, Target will carry on
its business in its usual, regular and ordinary course, in substantially the
same manner as heretofore conducted, and use its reasonable efforts to preserve
intact its present business organizations and good will and keep available the
services of its present officers and employees.
(b) Except as expressly contemplated by this Agreement or as set forth
in the Target Disclosure Letter, during the period from the date of this
Agreement and continuing until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, Target shall not,
unless Acquiror otherwise has consented in writing:
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(i) (A) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any Target Common Stock or Target Preferred
Stock, except that Target shall be allowed to make dividend payments on
the Target Preferred Stock as are required pursuant to the terms of
Target's Certificate of Incorporation, as amended, (B) split, reverse
share split, stock dividend, combine or reclassify any of its capital
stock or Issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock, (C) redeem, purchase or otherwise acquire any of its
capital stock (except, with respect to the Target Preferred Stock, as
expressly required by the terms of the Target Preferred Stock plus up
to an aggregate of $270,000 of optional redemptions of the Target
Preferred Stock) by or (D) amend the terms of any of its securities, or
propose to do any of the foregoing except as expressly permitted
hereby;
(ii) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities
(including, without limitation, indebtedness having the right to vote)
or equity equivalents (including, without limitation, stock
appreciation rights) or amend in any material respect any of the terms
of any such securities or Contracts outstanding on the date hereof
except as expressly permitted hereby;
(iii) amend or propose to amend its Certificate of
Incorporation or By-laws;
(iv) incur any, indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or warrants,
options or rights to acquire any debt securities of Target or guarantee
(or become liable for) any debt of others or make any loans, advances
or capital contributions to, or any investments in, any other person,
or make, create or grant any mortgage, pledge or otherwise Encumber any
assets or suffer any material Encumbrance thereupon, except for the
refinancing of indebtedness for borrowed money which becomes due and
payable between the date hereof through the Closing Date which shall be
in all respects reasonably acceptable to Acquiror;
(v) (A) prepay any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) or
(B) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise)
other than the payment, discharge or satisfaction, in the ordinary
course of operating the Target Properties in substantially the same
manner as heretofore conducted, or in accordance with their terms, of
claims, liabilities or obligations reflected or reserved against in, or
contemplated by, the Target Financial Statements;
(vi) change any of the accounting principles or practices
used by it in the preparation of any of Target's financial statements
or make any tax elections;
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(vii) (A) increase any compensation or enter into or amend any
employment Contract with any of its present or future officers or
directors, or (B) adopt any new employee benefit plan (including,
without limitation, any stock option, stock benefit or stock purchase
plan) or amend any existing employee benefit plan in any material
respect;
(viii) acquire, enter into an option to acquire or exercise an
option or Contract to acquire additional real property, incur
additional indebtedness, encumber assets or commence construction of,
or enter into any Contract to develop or construct, or other real
estate projects.
(ix) sell, lease in its entirety or otherwise dispose of (A)
any Target Properties or (B) except in the ordinary course of operating
the Target Properties, any of its other assets;
(x) enter into any Contract, borrowing, capital expenditure
or transaction which may result in total payments or liability by or
to it in excess of $10,000;
(xi) enter into any Affiliate Contract or any other Contract,
borrowing, capital expenditure or transaction with (i) any consultant
or employee, (ii) any person who is an officer, director or affiliate
of Target, any relative of any of the foregoing or any entity of which
any of the foregoing is an affiliate or (iii) to Target's knowledge,
any person who owns 5% or more of the outstanding Target Common Stock;
(xii) enter into any additional, or renew (except as may be
required pursuant to the terms of an existing Target Lease or other
agreement listed in the Target Disclosure Letter), amend or otherwise
modify any existing, Target Leases, except with Acquiror's prior
written consent which shall not be unreasonably withheld or delayed;
provided, that Acquiror shall be deemed to have granted such consent if
it fails to notify Target of its grant or withholding of such consent
within five business days after its receipt of a written request
therefor; or
(xiii) (A) agree to take any of the foregoing actions or (B)
take or agree to take any action that is reasonably likely to result in
any of Target's representations or warranties contained in this
Agreement, the Ancillary Documents, or in the certificates and other
documents delivered pursuant hereto or thereto being untrue, or result
in any of the conditions to the Merger set forth in Article VI not
being satisfied in any material respect.
(c) During the period from the date of this Agreement and continuing
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, Target shall:
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(i) confer on a regular basis with one or more
representatives of Acquiror to report on material operational matters
and any proposals to engage in material transactions;
(ii) promptly notify Acquiror of any material change in the
Target Properties, or in Target's condition (financial or otherwise),
business, properties, assets, liabilities or the normal course of
Target's business or in the operation of its properties, any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the material breach
of any of Target's representations or warranties contained in this
Agreement, the Ancillary Documents, or in the certificates and other
documents delivered pursuant hereto or thereto (other than a
representation or warranty qualified by reference to materiality or a
Target Material Adverse Effect), or the breach of any of Target's
representations or warranties contained in this Agreement, the
Ancillary Documents, or in the certificates and other documents
delivered pursuant hereto or thereto qualified by reference to
materiality or a Target Material Adverse Effect;
(iii) deliver to Acquiror draft copies in substantially final
form of any report, statement or schedule to be filed with the SEC
subsequent to the date of this Agreement at least two business days
prior to the filing thereof;
(iv) (A) make dividend payments on the Target Preferred Stock
required to be made pursuant to the terms of Target's Certificate of
Incorporation, as amended, (B) pay all accrued and unpaid dividends on
the Target Preferred Stock pursuant to the terms of the Target
Preferred Stock and (C) redeem such amount of Target Preferred Stock so
that the applicable rate of interest used to determine dividends
payable pursuant to the terms of the Target Preferred Stock shall be 8%
from the date hereof through and including the Closing Date;
(v) deliver to Acquiror within ten days after the end of each
month current Target Rent Rolls, together with a detailed aging report
of all receivables;
(vi) use reasonable efforts to obtain the Target Directors'
and Officers' Liability Insurance Policy; and
(vii) pay in full or otherwise satisfy and discharge all
obligations under the Target Affiliate Contracts that are due.
SECTION 5.02 Acquiror Pre-Closing Obligations.
(a) Except as expressly contemplated by this Agreement or as set forth
in the Acquiror Disclosure Letter, during the period from the date of this
Agreement and continuing until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, Acquiror and the
Acquiror subsidiaries will each carry on their respective businesses
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(which includes the acquisition and disposition of assets and properties) in its
usual, regular and ordinary course, in substantially the same manner as
heretofore conducted, and use their reasonable efforts to preserve intact their
present business organizations and goodwill and keep available the services of
their present officers and employees.
(b) Except as expressly contemplated by this Agreement or as set forth
in the Acquiror Disclosure Letter, during the period from the date of this
Agreement and continuing until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, Acquiror shall not,
unless Target otherwise has consented in writing:
(i) except pursuant to the exercise of options, warrants,
conversion rights and other contractual rights existing on the date
hereof and disclosed pursuant to this Agreement, effect any share
split, reverse share split, share dividend, recapitalization or other
similar transaction;
(ii) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of beneficial
interest, except for a dividend not to exceed $0.50 per share of
Acquiror Common Shares for each calendar quarter ending during the
period from the date hereof through the Closing Date, and dividends on
Acquiror Series A Preferred Shares or Acquiror Series A-1 Preferred
Shares in accordance with their terms;
(iii) issue any Acquiror Common Shares or Acquiror Common
Share Equivalents except: (A) such Acquiror Common Shares as are issued
upon conversion of any shares of beneficial interest that by their
terms are convertible into Acquiror Common Shares, and that (1) are
outstanding on the date hereof or (2) have been issued after the date
hereof and prior to the Closing Date to the extent not prohibited by
the terms of this Section 5.02(b)(iii); (B) such Acquiror Common Shares
as are issued pursuant to any dividend reinvestment plan or stock
purchase plan available to all holders of Acquiror Common Shares; (C)
such Acquiror Common Shares or Acquiror Common Share Equivalents as are
issued in any public offering for an amount per Acquiror Common Share
or Acquiror Common Share Equivalent (including any amount payable on
exercise of a Acquiror Common Share Equivalent) equal to at least 92%
or more of the closing price per share on the New York Stock Exchange,
Inc. ("NYSE") of the Acquiror Common Shares on the last trading day
immediately preceding the issue date, less any underwriting discounts
and commissions; (D) the issuance of preferred shares or any other
equity security of Acquiror (other than Acquiror Common Shares or
Acquiror Common Share Equivalents) in any public offering for fair
value; (E) such Acquiror Common Shares or Acquiror Common Share
Equivalents as are issued for fair market value in connection with the
acquisition of assets or properties from any person or entity that is
not affiliated with Acquiror prior to such acquisition; (F) Acquiror
Series A-1 Preferred Shares in connection with Acquiror's exchange of
issued and outstanding Acquiror Series A Preferred Shares for Acquiror
Series A-1 Preferred Shares; and (F) additional Acquiror Common Shares,
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and additional Acquiror Common Share Equivalents, issued to Affiliates
of Acquiror provided that such additional Acquiror Common Shares and
the Acquiror Common Shares into which such Acquiror Common Share
Equivalents may be exercised or converted do not exceed, in the
aggregate, 250,000 Acquiror Common Shares, including, without
limitation, (1) Acquiror Common Shares issued to directors, officers,
employees, or trustees of Acquiror or any Acquiror Subsidiary and (2)
Acquiror Common Shares or Acquiror Common Share Equivalents issued
pursuant to stock option, stock purchase, performance or other
remuneration plans adopted by the Board of Trustees of Acquiror from
time to time (including, without limitation, Acquiror's 1992 Employee
Share Option Plan, 1992 Trustee Share Option Plan and 1995 Management
Incentive Plan, and any Acquiror Common Shares issued to employees of
Acquiror in lieu of bonuses or to trustees of Acquiror in lieu of
trustee's fees). "Acquiror Common Share Equivalent" shall mean any
evidence of indebtedness, shares of beneficial interest or other
securities which are or may be convertible into or exchangeable for
Acquiror Common Shares ("Acquiror Convertible Securities"), or any
warrant, option or other right to subscribe for any Acquiror
Convertible Securities or for any Acquiror Common Shares; or
(iv) agree to take any of the foregoing actions or take or
agree to take any action that is reasonably likely to result in any of
Acquiror's representations or warranties contained in this Agreement,
the Ancillary Documents, or in the certificates and other documents
delivered pursuant hereto or thereto being untrue or result in any of
the conditions to the Merger set forth in Article VII not being
satisfied in any material respect.
(c) During the period from the date of this Agreement and continuing
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, Acquiror shall:
(i) confer on a regular basis with one or more
representatives of Target to report on material transactions;
(ii) promptly notify Target of any material change in the
condition (financial or otherwise), business, properties, assets,
liabilities, prospects or the normal course of the Company's business
or in the operation of its properties, any material governmental
complaints, investigations or hearings (or communications indicating
that the same may be contemplated), or the material breach of any
representation or warranty (other than a representation or warranty
qualified by reference to materiality or an Acquiror Material Adverse
Effect), or the breach of any of Acquiror's or Newco's representations
or warranties contained in this Agreement, the Ancillary Documents, or
in the certificates and other documents delivered pursuant hereto or
thereto qualified by reference to materiality or an Acquiror Material
Adverse Effect; and
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(iii) deliver to Target true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement promptly after the filing thereof.
SECTION 5.03 Hart-Scott-Rodino and Other Filings. Subject to the terms
and conditions herein provided, Target and Acquiror shall: (i) to the extent
required, promptly make their respective filings and thereafter make any other
required submissions under the HSR Act with respect to the Merger; (ii) use all
reasonable efforts to cooperate with one another in (x) determining which
filings are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained prior
to the Effective Time from, governmental or regulatory authorities of the United
States, the several states and local and foreign jurisdictions in connection
with the execution, delivery and performance of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby and
thereby and (y) timely making all such filings and timely seeking all such
consents, approvals, permits or authorizations; (iii) use all reasonable efforts
to obtain in writing any consents required from third parties in form and
substance reasonably satisfactory to Target and Acquiror necessary to consummate
the Merger and the other transactions contemplated hereby and thereby; and (iv)
use all reasonable efforts to take, or cause to be taken, all other action and
do, or cause to be done, all other things necessary, proper or appropriate to
consummate the Merger and the other transactions contemplated by this Agreement
and the Ancillary Documents. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of Target and Acquiror shall take
all such necessary action.
SECTION 5.04 Title Insurance. Target shall cause a person or entity
acceptable to the Title Company (as defined below) that shall own of record upon
consummation of the Merger Acquiror Series B Preferred Shares having a
liquidation preference of at least $1,000,000, to deliver such affidavits,
indemnities and/or financial statements as shall have been agreed upon between
Target and the title company or companies chosen by Acquiror (collectively, the
"Title Company") prior to the date hereof so as to enable the Title Company to
issue the title insurance policies required by Section 6.20.
SECTION 5.05 No Solicitations. Target will immediately cease any
existing discussions or negotiations with any third parties conducted prior to
the date hereof with respect to any merger, business combination, sale of any
Target Properties, or, except as permitted by Section 5.01(b)(ix), sale of any
other assets of Target, sale of shares of capital stock by Target or similar
transaction involving such party or any of its subsidiaries or divisions (a
"Target Acquisition Transaction"). Neither Target, nor its directors, officers,
partners, employees, bankers, attorneys or other advisors or representatives
shall, directly or indirectly, solicit, initiate or encourage any person or
entity concerning any Target Acquisition Transaction (other than the
transactions contemplated by this Agreement and the Ancillary Agreements);
provided, however, that (i) nothing in this Agreement shall preclude Target's
Board of Directors, pursuant to its fiduciary duties as determined by Target's
Board of Directors after consultation with Rosenman & Colin LLP or another
nationally-recognized law
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firm, from entering into, or causing Target's officers, representatives, agents
or affiliates from entering into, negotiations with or furnishing information to
a third party which has initiated contact with Target without any solicitation,
initiation or encouragement in violation of this Section, from passing on to
Target Stockholders information regarding any such third party proposal or
inquiry consistent with such fiduciary duties, or otherwise fulfilling such
fiduciary duties, and (ii) Target may participate in negotiations with or
furnish information to a third party which (without any solicitation, initiation
or encouragement from Target) has initiated contact with Target with respect to
a Target Acquisition Transaction consistent with the fiduciary obligations of
its Board of Directors. Target shall promptly advise Acquiror of the receipt of
any written offer for an Target Acquisition Transaction, including, without
limitation, the terms thereof, and, in the event Target receives such a written
offer, nothing contained in this Agreement shall prevent Target's Board of
Directors from approving such proposal or recommending such Target Acquisition
Transaction to Target's Stockholders if Target's Board of Directors determines
in good faith that failure to take such action would not be consistent with, or
would result in a breach of, its fiduciary duties as determined by Target's
Board of Directors after consultation with Rosenman & Colin LLP or another
nationally-recognized law firm, and in such case the Board of Directors of
Target may amend, withhold or withdraw its recommendation regarding the Merger.
In the event that Target is prepared to accept another proposal for a Target
Acquisition Transaction, Target shall notify Acquiror at least 48 hours prior to
terminating this Agreement and entering into a definitive agreement with respect
to such other proposal, unless Target receives an opinion of counsel that
compliance with its obligation to give 48 hours' notice as required pursuant to
this Agreement would not be consistent with, or would constitute a breach of,
the fiduciary duties of Target's Board of Directors. Nothing in this Agreement
shall prevent Target or its Board of Directors from complying with the
provisions of the 1934 Act and the rules and regulations thereunder.
SECTION 5.06 Access to Information.
(a) Upon reasonable notice and subject to restrictions contained in
confidentiality Contracts listed in the Target Disclosure Letter to which it is
subject (from which it shall use reasonable efforts to be released), Target
shall afford to the officers, employees, accountants, counsel and other
representatives of Acquiror ("Acquiror Representatives"), reasonable access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, Contracts and records and, during such period, Target
shall furnish promptly to Acquiror all information concerning Target, its
business, properties and personnel as Acquiror may reasonably request. Acquiror
Representatives shall be permitted to make copies of and extracts from, the
accounts, minute books, other records, books of account, other books, deeds,
leases, title documents, insurance policies, Contracts, tax returns, records and
files of Target, and such other information relating to Target, and its
business, properties and personnel as Acquiror shall reasonably request.
(b) Upon reasonable notice and subject to restrictions contained in
confidentiality Contracts to which it is subject (from which it shall use
reasonable efforts to be released),
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Acquiror shall (and shall cause each of the Acquiror Subsidiaries to) afford to
the officers, employees, accountants, counsel and other representatives of
Target ("Target Representatives"), reasonable access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, Contracts, and records and, during such period, Acquiror shall (and shall
cause each of the Acquiror Subsidiaries to) furnish promptly to Target all
information concerning its business, properties and personnel as Target may
reasonably request. Target Representatives shall be permitted to make copies of
and extracts from, the accounts, minute books, other records, books of account,
other books, deeds, leases, title documents, insurance policies, Contracts, tax
returns, records and files of Acquiror, and such other information relating to
Acquiror, and its business, properties and personnel as Target shall reasonably
request.
SECTION 5.07 Target Stockholder Meeting. Target will take all action
necessary in accordance with Delaware law, Target's Certificate of
Incorporation, as amended, and its By-laws, to convene a special meeting of the
Target Stockholders (the "Target Stockholders Meeting") as promptly as
practicable following effectiveness of the registration statement on Form S-4
(the "S-4"), or other appropriate registration statement, of Acquiror and the
clearance by the SEC of the proxy statement (which will be included in the S-4
or other registration statement) relating to the Target Stockholders Meeting
(the "Target Proxy Statement") to consider and vote upon the approval of this
Agreement, the Merger and the transactions contemplated by this Agreement and
the Ancillary Documents. Target's Board of Directors shall, subject to its good
faith judgment as to its fiduciary obligations to Target's stockholders imposed
by law, recommend that the Target Stockholders vote in favor of this Agreement,
the Merger and the transactions hereby contemplated and cause Target to take all
lawful actions to solicit from the Target Stockholders proxies in favor of such
approval.
SECTION 5.08 Target Proxy Statement.
(a) Target shall prepare (and Acquiror shall assist where reasonable
and appropriate), as promptly as practicable upon execution of this Agreement,
the Target Proxy Statement and a form of proxy for use at the Target
Stockholders Meeting relating to the vote of the Target Stockholders with
respect to this Agreement, the Merger and the transactions hereby contemplated
(together with any amendments or supplements thereto, in each case in the form
or forms mailed to the Target Stockholders). Target shall cause the Target Proxy
Statement to be mailed to Target Stockholders at the earliest possible date.
Acquiror and Newco shall promptly furnish to Target such information regarding
each of Acquiror and Newco and their respective officers and directors as may be
reasonably requested by Target for inclusion in the Target Proxy Statement as
required by any law or by the SEC.
(b) Target covenants that none of the information concerning Target or
any of its affiliates, directors, officers, employees, agents or representatives
in the Target Proxy Statement (including, without limitation, such information
contained in the Target Proxy Statement as is based on Target's representations
and warranties herein) will, at the time the Registration Statement or any
amendment or supplement thereto is filed with the SEC or
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becomes effective and at the time of mailing of the Target Proxy Statement or
any amendment or supplement thereto to the Target Stockholders, not contain any
untrue statement of any material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Target covenants that the Target
Proxy Statement shall comply in all material respects with the applicable
provisions of the 1934 Act and the rules and regulations thereunder, except that
no covenant is made by Target with respect to statements made therein based on
information supplied by Acquiror or Newco or any of their affiliates, directors,
officers, employees, agents or representatives in writing for inclusion or
incorporation by reference therein or based upon Acquiror's or Newco's
representations or warranties made herein or in any Ancillary Documents or with
respect to omitted information regarding Acquiror or Newco so required to be
included in the Target Proxy Statement.
(c) Acquiror covenants that none of the information supplied or to be
supplied in writing by Acquiror or Newco or any of its affiliates, directors,
officers, employees, agents or representatives for inclusion or incorporation by
reference in the Target Proxy Statement (including, without limitation, such
information contained in the Target Proxy Statement as is based on Acquiror's
and Newco's representations and warranties herein) will, at the time the
Registration Statement or any amendment or supplement thereto is filed with the
SEC or becomes effective and at the time of mailing of the Target Proxy
Statement or any amendment or supplement thereto to the Target Stockholders, not
contain any untrue statement of any material fact, or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 5.09 Registration Statement.
(a) Acquiror shall register under the 1933 Act the Acquiror Series B
Preferred Shares to be issued in the Merger and the Acquiror Common Shares to be
issued upon the conversion of shares of Acquiror Series B Preferred Shares on a
registration statement on Form S-4 or another appropriate registration statement
(the "Acquiror Registration Statement") (which shall contain the Target Proxy
Statement) and shall keep such registration effective thereafter through the
third anniversary of the Closing Date. As promptly as practicable after the date
of this Agreement, Acquiror shall prepare, with the assistance of Target, as
appropriate, and file with the SEC the Acquiror Registration Statement together
with the prospectus to be included therein (the "Prospectus") and the Target
Proxy Statement included therein, and any other documents required by the 1933
Act or the 1934 Act in connection with the Merger. Each of Acquiror and Target
shall use reasonable efforts to respond promptly to any comments of the SEC and
to have the Acquiror Registration Statement declared effective under the 1933
Act as promptly as practicable after such filing. Acquiror shall use its
reasonable efforts to obtain, prior to the Effective Time, all necessary state
securities or "blue sky" permits or approvals required to consummate the Merger
and the other transactions contemplated by this Agreement and the Ancillary
Documents.
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Target shall promptly furnish to Acquiror all information concerning
Target and the Target Stockholders as may be reasonably required in connection
with any action contemplated by this Section 5.09. Each of Acquiror and Target
will notify the other promptly of the receipt of any comments from the SEC or
its staff and of any request by the SEC or its staff for amendments or
supplements to the Acquiror Registration Statement or the Prospectus or for
additional information and will supply the other with copies of all
correspondence with the SEC or its staff with respect to the Acquiror
Registration Statement or the Prospectus. Whenever any event occurs which should
be set forth in an amendment or supplement to the Acquiror Registration
Statement or the Prospectus, Acquiror or Target, as the case may be, shall
promptly inform the other of such occurrence and cooperate in filing with the
SEC or its staff, and/or mailing to stockholders of Target, such amendment or
supplement.
(b) Acquiror covenants that none of the information in the Acquiror
Registration Statement will, at the time the Acquiror Registration Statement is
filed with the SEC and at the time it becomes effective under the 1933 Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading, except
that no covenant is made by Acquiror with respect to statements made therein
based on information supplied in writing by Target for inclusion in the Acquiror
Registration Statement. Acquiror covenants that the Acquiror Registration
Statement and the Prospectus will comply in all material respects with the
provisions of the 1933 Act and the 1934 Act, as the case may be, and the rules
and regulations thereunder, except that no covenant is made by Acquiror with
respect to statements made therein based on information supplied by Target or
any of its affiliates, directors, officers, employees, agents or representatives
in writing for inclusion or incorporation by reference therein or based upon
Target's representations or warranties made herein or in any Ancillary Documents
or with respect to omitted information regarding Target so required to be
included in the Registration Statement.
(c) Target covenants that none of the information supplied in writing
by Target for inclusion or incorporation by reference in the Acquiror
Registration Statement or any amendments or supplements thereto to be filed with
the SEC in connection with the issuance of Acquiror Series B Preferred Shares
and, upon conversion, Acquiror Common Shares, pursuant to the transactions
hereby contemplated will, at the time the Acquiror Registration Statement or any
amendments or supplements thereto is filed with the SEC and at the time it
becomes effective under the 1933 Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstance under
which they were made, not misleading.
SECTION 5.10 Efforts to Consummate. Subject to the terms and conditions
of this Agreement, in addition to the matters otherwise specifically set forth
in this Article V, each of the parties hereto agrees to use reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
including, without limitation, (i) the preparation and filing of all other
forms, registrations and
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notices required to be filed to consummate the Merger and the transactions
hereby contemplated and the taking of such actions as are necessary to obtain
any requisite approvals, consents, orders, exemptions, or waivers (including,
without limitation, any Target Consents) by any public or private third party,
(ii) such actions as may be required to permit, on or prior to the Effective
Time, the Acquiror Series B-1 Preferred Shares to be issued pursuant to the
terms and conditions hereof and the Acquiror Common Shares to be issued upon
conversion to be listed on the NYSE (subject to official notice of issuance),
and (iii) such actions as may be reasonable to cause, concurrently with the
Effective Time, the delisting of Target's securities from the OTC Bulletin Board
and the deregistration of Target's securities under the 1934 Act; provided,
however, that in order to obtain any consent, approval, waiver, license, permit,
authorization, registration, qualification or other permission or action
referred to in clause (i) of this sentence, no party shall be required to (A)
pay any consideration, to divest itself of any of, or otherwise rearrange the
composition of, its assets or to agree to any conditions or requirements which
are materially adverse or burdensome or (B) amend, or agree to amend, in any
material respect any Contract. Each party shall promptly consult with the other
and provide any necessary information with respect to, and provide the other (or
its counsel) with copies of, all filings made by such party with any
Governmental Entity in connection with this Agreement, the Merger and the
transactions hereby contemplated.
SECTION 5.11 Letters of Accountants. Each of Target and Acquiror shall
use reasonable efforts to cause to be delivered to the other, letters from their
respective independent public accountants to each such party, dated a date no
later than the date on which the Acquiror Registration Statement and any
supplements or post-effective amendments thereto shall become effective and
addressed to the other, in form and substance reasonably satisfactory to the
other and customary in scope and substance for "cold comfort" letters delivered
by independent public accountants in connection with registration statements
similar to the Acquiror Registration Statement.
SECTION 5.12 Indemnification of Managers.
(a) Acquiror and Newco each agree that all rights, if any, to
indemnification existing on the date hereof in favor of the present or former
officers and directors of Target (the "Managers"), with respect to actions taken
in their capacity as officers and/or directors prior to or at the Effective Time
as provided in Target's Certificate of Incorporation and By-laws (including,
without limitation, in connection with the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents), shall, subject to
Delaware law, survive the Merger for a period of seven years. The Surviving
Corporation and Acquiror shall assume, honor and be bound by the terms of such
Certificate of Incorporation and By-laws with respect to their actions and
omissions in such capacity taken prior to the Effective Time (including, without
limitation, in connection with the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents), whether or not such
persons continue in their positions with the Surviving Corporation following the
Effective Time, and shall continue in full force and effect following the
Effective Time for a period of seven years, and all such rights, if any, in the
Certificate of Incorporation and By-laws in
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effect as of the date hereof between Target and any Manager shall survive the
Merger and continue in full force and effect in accordance with its terms as
between such Managers and the Surviving Corporation and Acquiror for a period of
seven years.
(b) Target shall use reasonable efforts to obtain a tail covering the
period from the Closing Date through the first anniversary of the Closing Date
to, and having substantially the same coverage and deductibles as, the Existing
Target D & O Liability Insurance Policy (the "Target D & O Insurance Liability
Tail"). The premium for such Target D & O Liability Insurance Tail shall not
exceed $75,000 and shall be a Merger Expense. In the event that Target is unable
to obtain the Target Directors' and Officers' Liability Insurance Policy for
such period, Acquiror agrees to indemnify, until the first anniversary of the
Closing Date, the directors and officers covered by the Existing Target D & O
Liability Insurance Policy on the same or similar terms and conditions in effect
under the Existing Target D & O Liability Insurance Policy, and the same dollar
limitations in effect under Acquiror's directors' and officers' liability
insurance policy, as currently in effect. Acquiror has delivered or made
available to Target a true, correct and complete copy of Acquiror's directors'
and officers' liability insurance policy, as currently in effect.
(c) The provisions of this Section 5.12 shall survive the Effective
Time and are intended to be for the benefit of, and shall be enforceable by,
each officer and director of Target and his or her heirs and representatives.
SECTION 5.13 No Breach of Representations and Warranties. Each of
Target, Acquiror and Newco agree that it will not take any action that would
cause or constitute, or would, if it had been taken prior to the date hereof,
have caused or constituted, a material breach of any of its respective
representations or warranties (other than those representations or warranties
qualified by reference to materiality or an Acquiror Material Adverse Effect or
a Target Material Adverse Effect, as the case may be), or the breach of any of
its respective representations or warranties qualified by reference to
materiality or an Acquiror Material Adverse Effect or a Target Material Adverse
Effect, as the case may be, contained in this Agreement, the Ancillary
Documents, or in the certificates and other documents delivered pursuant hereto
or thereto. Each of the parties hereto shall, in the event of, or promptly after
the occurrence of, or promptly after obtaining knowledge of the occurrence of or
the impending or threatened occurrence of, any fact or event which would cause
or constitute a Target Material Adverse Effect, with respect to Target, or a
Acquiror Material Adverse Effect, with respect to Acquiror or Newco, or a
material breach of any of the representations or warranties (other than those
representations or warranties qualified by reference to materiality or an
Acquiror Material Adverse Effect or a Target Material Adverse Effect, as the
case may be), or the breach of any of the representations or warranties
qualified by reference to materiality or an Acquiror Material Adverse Effect or
a Target Material Adverse Effect, as the case may be, contained in this
Agreement, the Ancillary Documents, or in the certificates and other documents
delivered pursuant hereto or thereto, as of the Closing Date, give detailed
notice thereof to the other parties hereto; and such notifying party shall use
its or their
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reasonable efforts to prevent or promptly to remedy such breach. The giving of
notice pursuant to this Section 5.13 shall not act as a waiver of any breach
hereunder.
SECTION 5.14 Consents; Notices.
(a) Target shall use reasonable efforts to make, and Acquiror shall use
all reasonable efforts to cooperate with Target in Target's making, the filings
and registrations with, and obtain the consents, authorizations, declarations
and approvals of, the Governmental Entities and other third parties, necessary
for the execution, delivery and performance by Target of this Agreement or any
of the Ancillary Documents or the consummation of the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents. Target
shall also deliver all notices to third parties required to be delivered in
connection with the execution of this Agreement and the consummation of the
Merger and the transactions hereby contemplated.
(b) Acquiror shall use reasonable efforts to obtain and deliver to
Target written consents identified in the Acquiror Disclosure Letter, in form
and substance reasonably satisfactory to Target required in connection with this
Agreement, the Merger or the transactions hereby contemplated. Target shall use
all reasonable efforts to cooperate with Acquiror in Acquiror's obtaining of
such consents. Acquiror shall also deliver all notices to third parties required
to be delivered in connection with the execution of this Agreement and the
consummation of the Merger and the transactions hereby contemplated.
SECTION 5.15 Public Announcements. Except as otherwise required by law
or the rules of the NASD or the NYSE, neither Target nor Acquiror shall, nor
shall Acquiror permit any of the Acquiror Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to
the Merger and the transactions contemplated by this Agreement and the Ancillary
Documents without prior written approval of the other party, which approval
shall not be unreasonably withheld.
SECTION 5.16 Exchange Listing. Acquiror shall promptly prepare and
submit to the NYSE a listing application covering the Acquiror Common Shares
issuable upon conversion of the Acquiror Series B Preferred Shares, and shall
use reasonable efforts to obtain, prior to the Effective Time, approval for the
listing of such Acquiror Common Shares, subject to official notice of issuance;
and Acquiror shall pay the listing fee in connection therewith. Prior to the
Effective Time, Acquiror shall, if and when notified in writing by Target, use
reasonable efforts to cause the Acquiror Series B-1 Preferred Shares to be
listed on the NYSE and Target shall pay the listing fee in connection therewith.
If Target does not request listing of the Acquiror Series B-1 Preferred Shares
as aforesaid prior to the Effective Time, then after the Effective Time,
Acquiror shall, if and when notified in writing by holders of a majority of the
Acquiror Series B-1 Preferred Shares, use reasonable efforts to cause the
Acquiror Series B-1 Preferred Shares to be listed on the NYSE and holders of the
Acquiror Series B-1 Preferred Shares shall pay the listing fee in connection
therewith.
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SECTION 5.17 Filing of Articles Supplementary.
(a) Acquiror shall, on or prior to the Closing Date, file with the
State Department of Assessments and Taxation of Maryland the Articles
Supplementary for each of the Acquiror Series B-1 Preferred Shares, the Acquiror
Series B-2 Preferred Shares and the Acquiror Series C Preferred Shares and shall
promptly deliver to Target evidence of such filings.
(b) When issued, the Acquiror Series B Preferred Shares, the Acquiror
Series C Preferred Shares, and the Acquiror Common Shares to be issued upon
conversion of the Acquiror Series B Shares, shall be duly authorized, validly
issued, fully paid and nonassessable except that shareholders may be subject to
further assessment with respect to claims for tort, contract, taxes, statutory
liability and otherwise in some jurisdictions to the extent such claims are not
satisfied by Acquiror. The Acquiror Series B-1 Preferred Shares, Acquiror Series
B-2 Preferred Shares, and Acquiror Series C Preferred Shares shall be as set
forth in the Articles Supplementary attached as Exhibit A-1, Exhibit A-2 and
Exhibit B hereto, respectively, with the completion of any blanks contained
therein.
SECTION 5.18 Closing Certificates. Target shall prepare and deliver to
Acquiror at the Closing the Closing Adjustment Statement and a certificate
setting forth all of the Merger Expenses.
SECTION 5.19 Reorganization. The parties intend to adopt this Agreement
and the Merger as a plan of reorganization under Section 368(a)(1)(A) of the
Code. Each of Acquiror, Newco and Target agree to use reasonable efforts not to
(i) knowingly take or fail to take any actions that would jeopardize
qualification of the Merger as a reorganization pursuant to the provisions of
Section 368(a)(1)(A) of the Code, (ii) enter into any Contract with respect to
the foregoing, or (iii) take a position inconsistent with this Section on any
tax return or otherwise unless otherwise required by law.
SECTION 5.20 No Improvements; Damage or Destruction; Condemnation;
Environmental.
(a) Acquiror specifically agrees that Target shall not be obligated to
do any restoration, repairs or other work in connection with the Target
Properties, and that Target shall not be responsible for any work or
improvements, including, without limitation, any clean-up or other environmental
remedial or removal work, necessary to cause the Target Properties to meet
applicable Environmental Laws or other laws, ordinances, regulations, or be
suitable for any particular use.
(b) Notwithstanding anything else in this Agreement, in the event of
the destruction of or damage to any of the Target Properties by fire or other
casualty, or any taking thereof by condemnation or eminent domain, prior to the
Closing resulting in Target Costs (without giving effect to insurance proceeds)
in excess of $5,000,000, Acquiror shall have the right, in its sole discretion,
either to (i) terminate this Agreement or (ii) proceed to closing hereunder
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without any abatement of the Merger consideration, it being agreed that
Acquiror's sole remedy would be to succeed to Target's claims, rights and
proceeds, whether from insurance or otherwise, by reason of the Merger.
SECTION 5.21 Affiliates of Target.
(a) At least 30 days prior to the Closing Date, Target shall deliver to
Acquiror a list of names and addresses of those persons who were, in Target's
reasonable judgment, on the record date for the Target Stockholders Meeting,
Affiliates of Target. Target shall provide Acquiror with such information and
documents as Acquiror shall reasonably request for purposes of reviewing such
list. Target shall use all reasonable efforts to deliver to Acquiror, prior to
the Closing Date, from each of the Affiliates identified in the foregoing list,
an Affiliate Letter in the form attached hereto as Exhibit C hereto (each, an
"Affiliate Letter"). Acquiror shall be entitled to place legends as specified in
such Affiliate Letters on the certificates evidencing any Acquiror Common
Shares, Acquiror Series B Preferred Shares and Acquiror Series C Preferred
Shares to be received by such Affiliates pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for the Acquiror Common Shares, Acquiror Series B Preferred Shares and
Acquiror Series C Preferred Shares consistent with the terms of such Affiliate
Letters.
(b) Acquiror shall file the reports required to be filed by it under
the 1934 Act and the rules and regulations promulgated thereunder, and it will
take such further action as any Affiliate may reasonably request, all to the
extent required from time to time to enable such Affiliate to sell Acquiror
Common Shares, Acquiror Series B Preferred Shares and Acquiror Series C
Preferred Shares received by such Affiliate in the Merger without registration
under the 1933 Act pursuant to (i) Rule 145, or (ii) any successor rule or
regulation hereafter adopted by the SEC.
SECTION 5.22 Estoppel Certificates. Target shall request an estoppel
certificate (an "Estoppel Certificate") from (i) each of the tenants of the
Target Properties in the form attached to or required by the applicable Target
Lease, or in the form commonly used by such tenant, or, if no form is attached
to or required by the applicable Target Lease, or commonly used by the
applicable tenant, then in the form of Exhibit D, (ii) each party to a Target
REA Agreement, in the form of Exhibit D and (iii) each mortgagee to each
mortgage encumbering any of the Target Properties, in the form of Exhibit D.
Target shall deliver to Acquiror true, correct and complete copies of all
Estoppel Certificates received by Target and shall notify Acquiror of any such
tenants, parties or mortgagees that refuse to deliver an Estoppel Certificate
and the reason for such refusal, if known.
SECTION 5.23 Indemnification Obligations.
(a) Target shall indemnify and hold harmless Acquiror and Newco, and
their affiliates, directors, trustees, shareholders, representatives, employees
and agents, from and against, and in respect of, any and all damages, claims,
losses, charges, actions, suits, proceedings, costs
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and expenses (including, without limitation, attorneys' fees and expenses) up to
an aggregate of $50,000 which are incurred or suffered by any or all of them by
reason of, with respect to, or arising from, the action entitled John Winston
vs. Leonard S. Mandor, Robert A. Mandor, Joan LeVine, Harvey Jacobson, Gregory
McMahon and Geoffrey S. Aaronson, Milestone Properties, Inc. and Concord Assets
Group, Inc. pending in the Court of Chancery of the State of Delaware in and for
New Castle County, C.A. No. 14807 (the "Pending Milestone Action") or any other
action or proceeding with respect to, or arising out of, the facts, events and
circumstances giving rise to the Pending Milestone Action.
(b) After the Effective Time and to the extent Acquiror assumes any
indebtedness or other obligations as to which Milestone is liable pursuant to
any Milestone Obligation, Acquiror shall indemnify and hold harmless Milestone,
and its affiliates, directors, shareholders, representatives, employees and
agents, from and against, and in respect of, any and all damages, claims,
losses, charges, actions, suits, proceedings, cost and expenses (including,
without limitation, attorneys' fees and expenses) which are incurred or suffered
by Milestone by reason of, with respect to, or arising from, the failure of
Acquiror to pay or perform any such indebtedness or other obligations in
accordance with their terms. The parties hereby agree that Milestone shall be a
third party beneficiary of this Section 5.23(b), and that this Section 5.23(c)
shall not be amended without the written agreement of Milestone.
SECTION 5.24 First Union Line of Credit. The aggregate amount of all
obligations of Target under the line of credit (the "First Union Line of
Credit") extended by First Union National Bank ("First Union") to Target
pursuant to the loan agreement dated April 24, 1995, between First Union and
Target (including, without limitation, obligations to pay the principal amount
of all loans made under the First Union Line of Credit and all interest thereon)
and the amount of all debt assumption, prepayment and other fees, shall not
exceed $2,000,000 at the Effective Time. At or prior to the Effective Time,
Acquiror shall transfer to another branch of First Union, pay or refinance, the
First Union Line of Credit, provided that the amount of all debt assumption,
prepayment and other fees do not exceed $2,000,000 at the Effective Time.
SECTION 5.25 Sale of South Carolina Outparcel. Notwithstanding anything
contained in this Agreement to the contrary, Target may transfer (the "South
Carolina Outparcel Transfer") to the South Carolina Outparcel Purchaser the
South Carolina Outparcel, in accordance with the terms of the South Carolina
Outparcel Agreement, in settlement of any dispute or litigation arising out of
or relating to the South Carolina Outparcel Agreement; provided, that (i) Target
obtains from the South Carolina Outparcel Purchaser a release, in form and
substance reasonably satisfactory to Acquiror, of all claims the South Carolina
Outparcel Purchaser may have arising out of or relating to the South Carolina
Outparcel Agreement, (ii) all of the South Carolina Outparcel Proceeds are cash
and (iii) Target deposits all of the South Carolina Outparcel Proceeds into a
segregated account. Target shall not expend, distribute, Encumber or commingle
the South Carolina Outparcel Proceeds with any other funds of Target or any
other person except payments pursuant to clauses (2) or (3) below. "South
Carolina Outparcel Proceeds" shall mean the gross proceeds of the transfer of
the South Carolina Outparcel, less (1) any out-of-pocket costs and expenses
(including
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reasonable attorneys' fees and customary and reasonable brokerage commissions)
incurred by Target to unrelated third parties in order to consummate the
transfer of the South Carolina Outparcel, (2) any costs required pursuant to
paragraphs 2 and 3 of that certain Lease Modification Agreement by and between
Harris Teeter, Inc., as tenant, and Target, as landlord (a true, correct and
complete of which has been delivered to Acquiror) and (3) payment of up to
$19,000 of income tax to any federal, state or local taxing authority that is
attributable to gain recognized from the South Carolina Outparcel Transfer;
provided, however, the amounts paid by Target pursuant to clauses (1) and (2) of
this Section 5.25 shall not exceed $60,000.
SECTION 5.26 Termination of Management Agreements. On or prior to the
Closing Date, Target shall terminate, without any cost, expense or liability to
Target, the Company or Newco, any and all management agreements relating to any
or all of the Target Properties, including, without limitation, those management
agreements listed in the Target Disclosure Letter.
ARTICLE VI
CONDITIONS TO ACQUIROR'S AND NEWCO'S OBLIGATIONS
All obligations of Acquiror and Newco under this Agreement are subject
to the fulfillment, at the Closing Date, of each of the following conditions,
any or all of which may be waived in whole or in part, at or prior to the
Closing Date, by Acquiror in its sole discretion:
SECTION 6.01 Representations and Warranties. (i) All representations
and warranties of Target contained in this Agreement, the Ancillary Documents,
or in the certificates and other documents delivered pursuant hereto or thereto
(other than representations or warranties qualified by reference to materiality
or a Target Material Adverse Effect), shall be true and correct in all material
respects, and (ii) all representations and warranties contained in this
Agreement, the Ancillary Documents, or in the certificates and other documents
delivered pursuant hereto or thereto qualified by reference to materiality or a
Target Material Adverse Effect shall be true and correct, in the case of each of
clause (i) and (ii), at and as of the Closing Date as though such
representations and warranties were made at and as of such time, except for
those representations and warranties that are expressly made as of a specified
earlier date. For the purposes of Section 6.01(i), the representations and
warranties of Target shall be deemed true and correct in all material respects
unless the breach of such representations and warranties, in the aggregate,
could reasonably be expected to have a Target Material Adverse Effect.
SECTION 6.02 Covenants. Target shall have performed and complied in all
material respects with all agreements and conditions on its part required by
this Agreement to be performed or complied with prior to or on the Closing Date.
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SECTION 6.03 Officer's Certificate. Acquiror shall have received a
certificate of an executive officer of Target, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Section 6.01 and
Section 6.02.
SECTION 6.04 Opinion of Counsel. Target shall have received an opinion
of counsel of Rosenman & Colin LLP, counsel for Target, dated the Closing Date,
in form and substance reasonably satisfactory to Acquiror, that, among other
things, shall be to the effect that the Merger will be treated for Federal
income tax purposes as a reorganization within the meaning of Section
368(a)(1)(A) of the Code, and that Target and Acquiror will each be a party to
that reorganization within the meaning of Section 368(b) of the Code.
SECTION 6.05 Absence of Changes. From the date of this Agreement
through the Effective Time, there shall not have occurred any change or changes
in the financial condition, business or operations of Target that could
reasonably be expected to have a Target Material Adverse Effect.
SECTION 6.06 Number of Dissenting Shares. If holders of shares of
Target Common Stock who did not vote in favor of this Agreement and the Merger
are entitled to demand appraisal rights in accordance with the DGCL, the number
of Dissenting Shares shall not at any time exceed 7.5% of the shares of Target
Common Stock outstanding at such time.
SECTION 6.07 Approvals and Consents. Acquiror shall have received (in
form and substance reasonably satisfactory to Acquiror) all filings,
registrations, consents, authorizations, declarations or approvals necessary to
consummate the Merger and the other transactions contemplated by this Agreement
and the Ancillary Documents, other than such filings, registrations, consents,
authorizations, declarations or approvals, the absence of which, individually or
in the aggregate, could not reasonably be expected to have an Acquiror Material
Adverse Effect if the transactions contemplated by this Agreement and the
Ancillary Documents were consummated without first obtaining such filings,
registrations, consents, authorizations, declarations or approvals. Acquiror
shall have obtained the approval for the listing of the Acquiror Common Shares
issuable in the Merger on the NYSE, subject to official notice of issuance.
SECTION 6.08 Injunctions. No court, agency or other authority shall
have issued any order, decree or judgment to set aside, restrain, enjoin or
prevent, and no statute, rule, regulation, executive order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any United States
court or Governmental Entity of competent jurisdiction which prohibits
restrains, enjoins, sets aside or prevents, the consummation of the Merger or
the transactions hereby contemplated.
SECTION 6.09 HSR Act. If applicable, Target shall have made all
pre-merger notification filings required to be made by it under the HSR Act, all
applicable waiting periods thereunder shall have expired or been terminated
without any request from any appropriate
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governmental agency for additional information or, if additional information has
been requested, all applicable extended waiting periods shall have expired.
SECTION 6.10 Effectiveness of Registration Statement. The Acquiror
Registration Statement shall have been declared effective under the 1933 Act,
all necessary state securities or "blue sky" permits or approvals required to
consummate the Merger and the other transactions contemplated by this Agreement
and the Ancillary Documents shall have been obtained, and no stop order or
proceedings seeking a stop order with respect to any of the foregoing shall be
in effect.
SECTION 6.11 Stockholder Approval. This Agreement and the Merger and
the other transactions contemplated by this Agreement and the Ancillary
Documents shall have been approved in the manner required by applicable law, and
by applicable regulations of any stock exchange or other regulatory body, by the
holders of the issued and outstanding shares of capital stock or beneficial
interest of Target entitled to vote thereon on or before March 31, 1997.
SECTION 6.12 Accountants' Letters. Acquiror shall have received "cold
comfort" letters from Deloitte & Touche LLP, Target's independent public
accountants, dated no later than the date of the effectiveness of the Acquiror
Registration Statement and any supplements and post-effective amendments
thereto, with respect to the operations of Target in the form and substance of
such letters delivered by independent public accountants in connection with the
Acquiror Registration Statement and reasonably satisfactory to Acquiror and its
counsel.
SECTION 6.13 Shareholders and Voting Trust Agreement. The Affiliates of
Target listed in the Target Disclosure Letter (other than Joseph Otto, Joan
LeVine and Harvey Shore) shall have executed and delivered a shareholders and
voting trust agreement with Acquiror, dated as of the Closing Date,
substantially in the form attached as Exhibit E hereto (the "Shareholders
Agreement"), which shall set forth certain terms, conditions and limitations
with respect to the shares of Acquiror Series B Preferred Shares to be received
by said parties pursuant to the Merger. The Shareholders Agreement, when
executed, shall be the legal, valid and binding obligation of the signatories
thereto, shall be enforceable in accordance with its terms (except as may be
limited by bankruptcy and other laws affecting the enforceability of creditors'
rights generally or laws governing the availability of specific performance or
other equitable remedies, or restrictions of the enforcement of securities
indemnification and contribution provisions imposed by public policy) and shall
not conflict with any other agreement to which any of the signatories thereto is
a party.
SECTION 6.14 Guaranty Agreement. A person or entity designated by
Target that shall own of record upon consummation of the Merger Acquiror Series
B Preferred Shares having a liquidation preference of at least $1,000,000 (the
"Guarantor") shall have executed and delivered a guaranty agreement with
Acquiror, dated as of the Closing Date (the "Guaranty Agreement"), as set forth
as Exhibit F hereto with the completion of any blanks therein. The Guaranty
Agreement shall continue in full force and effect with respect to any
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claims made prior to the date which is the earlier of (i) the date which is
twenty (20) days after the delivery to Acquiror by the Acquiror's independent
public accountant's of an audit opinion with respect to the Company's 1997
calendar year financial statements and (ii) the date which is fifteen (15)
months after the Closing Date. The maximum obligation of the Guarantor under the
Guaranty Agreement shall be limited to an aggregate of $1,000,000 payable, at
the guarantor's option, by cash or by delivery of Acquiror Series B Preferred
Shares (based on a value of $25 per Acquiror Series B Preferred Share).
SECTION 6.15 Registration Rights Agreement. The Affiliates of Target
listed in the Target Disclosure Letter shall have executed and delivered a
registration rights agreement with Acquiror, dated as of the Closing Date (the
"Registration Rights Agreement"), substantially in the form attached as Exhibit
G hereto, which shall set forth certain terms, conditions and limitations with
respect to the registration under the 1933 Act of the Acquiror Series B
Preferred Shares and the shares of the Acquiror Common Shares into which the
Acquiror Series B Preferred Shares are convertible. The Registration Rights
Agreement, when executed, shall be the legal, valid and binding obligation of
the signatories thereto, shall be enforceable in accordance with its terms
(except as may be limited by bankruptcy and other laws affecting the
enforceability of creditors' rights generally or laws governing the availability
of specific performance or other equitable remedies, or restrictions of the
enforcement of securities indemnification and contribution provisions imposed by
public policy), and shall not conflict with any other agreement to which any of
the signatories thereto is a party.
SECTION 6.16 Termination of Target Affiliate Contracts. All Target
Affiliate Contracts shall have been terminated and Target shall have paid in
full or otherwise satisfied and discharged all obligations under all Target
Affiliate Contracts.
SECTION 6.17 Redemption of Target Preferred Stock. Target shall have
redeemed such amount of Target Preferred Stock so that the applicable rate of
interest used to determine dividends payable pursuant to the terms of the Target
Preferred Stock shall be 8% from the date hereof through and including the
Closing Date.
SECTION 6.18 Estoppel Certificates. Target shall have furnished
Estoppel Certificates, substantially in the form required by Section 5.22, from
(a) each tenant listed on Schedule 6.18, (b) additional tenants under Target
Leases (the "Additional Tenants") leasing at least (75%) of the gross leasable
area of the Target Properties that is not leased by the tenants listed in
Schedule 6.18 (the "Non-Anchor GLA"), (c) each party to a Target REA Agreement,
provided that in the event Target is unable to obtain an Estoppel Certificate
from a party to a Target REA Agreement who is not required to provide same under
such agreement after exercising reasonable efforts to obtain same, the failure
to obtain such Estoppel Certificate shall not be a condition to Closing
hereunder and (d) each mortgagee with respect to each mortgage encumbering any
of the Target Properties. In the event that Additional Tenants leasing less than
75% of the Non-Anchor GLA shall have furnished Estoppel Certificates, provided
that Additional Tenants leasing at least 50% of the Non-Anchor GLA furnished
Estoppel Certificates, Concord Assets Group, Inc. and Castle Plaza, Inc. shall
have the right to
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satisfy the condition set forth in clause (b) above by furnishing to Acquiror
their own Estoppel Certificates with respect to a sufficient number of Target
Leases so that Estoppel Certificates covering at least 75% of the Non-Anchor GLA
shall have been furnished to Acquiror.
SECTION 6.19 Statement of Accounts Receivable. Target shall have
delivered to Acquiror (i) the Target Financial Statements and the Target Interim
Financial Statements, (ii) an unaudited balance sheet and related statements of
revenues and cash flows at and for the nine month period ended September 30,
1996, and, until the earlier of the Effective Time or the termination of this
Agreement, succeeding unaudited quarterly and unaudited annual balance sheet and
related statements of revenue in the event the Closing shall occur on or after
February 15, 1997 and (iii) a statement of all accounts receivable as of the
Effective Date, as determined in accordance with GAAP applied on a consistent
basis, and (iv) the Closing Adjustment Statement.
SECTION 6.20 Title Insurance Policies. Acquiror shall have received
from the Title Company a title insurance policy for such of the Target
Properties as Acquiror may elect, dated the Effective Date, in the form
initialled by each of the parties hereto and without further exception or
qualification other than those which, individually or in the aggregate with all
other breaches of representations, warranties and covenants of Target, could not
reasonably be expected to have a Target Material Adverse Effect.
ARTICLE VII
CONDITIONS TO TARGET'S OBLIGATIONS
All obligations of Target under this Agreement are subject to the
fulfillment, at the Closing Date, of each of the following conditions, any or
all of which may be waived in whole or in part, at or prior to the Closing Date,
by Target in its sole discretion:
SECTION 7.01 Representations and Warranties. (i) All representations
and warranties of Acquiror and Newco contained in this Agreement, the Ancillary
Documents, or in the certificates and other documents delivered pursuant hereto
or thereto (other than representations or warranties qualified by reference to
materiality or an Acquiror Material Adverse Effect), shall be true and correct
in all material respects, and (ii) all representations and warranties of
Acquiror and Newco contained in this Agreement, the Ancillary Documents, or in
the certificates and other documents delivered pursuant hereto or thereto and
qualified by reference to materiality or an Acquiror Material Adverse Effect
shall be true and correct, in the case of each of clause (i) and (ii), at and as
of the Closing Date as though such representations and warranties were made at
and as of such time, except for those representations and warranties that are
expressly made as of a specified earlier date. For the purposes of Section
7.01(i), the representations and warranties of Acquiror and Newco shall be
deemed true and correct in all material respects unless the breach of such
representations or warranties could reasonably be expected to have an Acquiror
Material Adverse Effect.
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SECTION 7.02 Covenants. Acquiror and Newco shall each have performed
and complied in all material respects with all agreements and conditions on
their respective parts required by this Agreement to be performed or complied
with prior to or on the Closing Date.
SECTION 7.03 Officer's Certificate. Target shall have received a
certificate of an executive officer of each of Acquiror and Newco, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Section 7.01 and Section 7.02.
SECTION 7.04 Opinion of Counsel. Acquiror shall have received an
opinion of counsel of Robinson Silverman Pearce Aronsohn & Berman LLP, counsel
for Acquiror, dated the Closing Date, in form and substance reasonably
satisfactory to Target, that, among other things, shall be to the effect that
the Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a)(1)(A) of the Code, and that Target and
Acquiror will each be a party to that reorganization within the meaning of
Section 368(b) of the Code.
SECTION 7.05 Absence of Changes. From the date of this Agreement
through the Effective Time, there shall not have occurred any change or changes
in the financial condition, business or operations of Acquiror that could
reasonably be expected to have a Acquiror Material Adverse Effect.
SECTION 7.06 Approvals and Consents. Target shall have received (in
form and substance reasonably satisfactory to Target) all Target Consents
designated as "required consents" in the Target Disclosure Letter.
SECTION 7.07 Injunctions. No court, agency or other authority shall
have issued any order, decree or judgment to set aside, restrain, enjoin or
prevent, and no statute, rule, regulation, executive order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any United States
court or Governmental Entity of competent jurisdiction which prohibits
restrains, enjoins, sets aside or prevents, the consummation of the Merger or
the transactions hereby contemplated.
SECTION 7.08 HSR Act. If applicable, Acquiror shall have made all
pre-merger notification filings required to be made by it under the HSR Act, all
applicable waiting periods thereunder shall have expired or been terminated
without any request from any appropriate governmental agency for additional
information or, if additional information has been requested, all applicable
extended waiting periods shall have expired.
SECTION 7.09 Effectiveness of Registration Statement. The Acquiror
Registration Statement shall have been declared effective under the 1933 Act,
all necessary state securities or "blue sky" permits or approvals required to
consummate the Merger and the other transactions contemplated by this Agreement
and the Ancillary Documents shall have been obtained, and no stop order or
proceedings seeking a stop order with respect to any of the foregoing shall be
in effect.
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SECTION 7.10 Stockholder Approval. This Agreement and the Merger and
the other transactions contemplated by this Agreement and the Ancillary
Documents shall have been approved in the manner required by applicable law, and
by applicable regulations of any stock exchange or other regulatory body, by the
holders of the issued and outstanding shares of capital stock or beneficial
interest of Target entitled to vote thereon.
SECTION 7.11 Merger. The Delaware Merger Certificate shall have been
executed and delivered by Newco to Target.
SECTION 7.12 Accountants' Letters. Target shall have received "cold
comfort" letters from Arthur Andersen LLP, Acquiror's independent public
accountants, dated no later than the date of the effectiveness of the Acquiror
Registration Statement (and the Target Proxy Statement included therein) and any
supplements and post-effective amendments thereto, with respect to the
operations of Acquiror in the form and substance of such letters delivered by
independent public accountants in connection with the Acquiror Registration
Statement and reasonably satisfactory to Target and its counsel.
SECTION 7.13 Financial Statements. Acquiror shall have delivered to
Target an unaudited balance sheet and related statements of revenues and cash
flows at and for the nine month period ended September 30, 1996, and succeeding
unaudited quarterly and unaudited annual balance sheet and related statements of
revenue in the event the Closing shall occur on or after February 15, 1997 in
conformity with GAAP applied on a consistent basis, except as otherwise noted
therein and for normal audit and accrual adjustments.
SECTION 7.14 Registration Rights Agreement. The Acquiror shall have
executed and delivered the Registration Rights Agreement. The Registration
Rights Agreement, when executed, shall be the legal, valid and binding
obligation of the signatories thereto, shall be enforceable in accordance with
its terms (except as may be limited by bankruptcy and other laws affecting the
enforceability of creditors' rights generally or laws governing the availability
of specific performance or other equitable remedies, or restrictions of the
enforcement of securities indemnification and contribution provisions imposed by
public policy), and shall not conflict with any other agreement to which any of
the signatories thereto is a party.
SECTION 7.15 Shareholders Agreement. The Acquiror shall have executed
and delivered the Shareholders Agreement. The Shareholders Agreement, when
executed, shall be the legal, valid and binding obligation of the signatories
thereto, shall be enforceable in accordance with its terms (except as may be
limited by bankruptcy and other laws affecting the enforceability of creditors'
rights generally or laws governing the availability of specific performance or
other equitable remedies, or restrictions of the enforcement of securities
indemnification and contribution provisions imposed by public policy) and shall
not conflict with any other agreement to which any of the signatories thereto is
a party.
SECTION 7.16 Fairness as to Target Preferred Stock. On or prior to the
Closing Date either (i) Target shall have caused Milestone to execute and
deliver to Acquiror and
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Target a consent to the exchange of the Series C Preferred Shares for the Target
Preferred Stock in the Merger and a waiver of any claims with respect to the
fairness of such exchange or (ii) Target shall have received the opinion of
Societe Generale or another investment banking firm to the effect that the
consideration to be paid to the holders of the Target Preferred Stock pursuant
to the Merger is fair to the holders of Target Preferred Stock from a financial
point of view.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the Target Stockholders Meeting:
(a) by mutual consent of Target and Acquiror;
(b) by either Target or Acquiror, if the Merger shall not have been
consummated by March 31, 1997, unless the failure to consummate the Merger on or
before such date shall have proximately resulted from (i) a material breach or
material breaches by the terminating party of any of its representations or
warranties contained in this Agreement (other than a representation or warranty
qualified by reference to materiality or an Acquiror Material Adverse Effect or
a Target Material Adverse Effect, as the case may be), (ii) a breach or breaches
by the terminating party of any of its representations or warranties contained
in this Agreement qualified by reference to materiality or an Acquiror Material
Adverse Effect or a Target Material Adverse Effect, as the case may be or (iii)
a material breach or material breaches of any agreement or covenant by the
terminating party contained in this Agreement;
(c) by either Target or Acquiror, if any permanent injunction or other
order, decree or ruling of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable; provided,
that the party seeking to terminate this Agreement pursuant to this Section
8.01(c) shall have used all reasonable efforts to remove such permanent
injunction or other order, decree or ruling;
(d) by action of the Board of Directors of Target, if (i) in the
exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, after consultation with Rosenman & Colin LLP or
another nationally recognized law firm, the Board of Directors of Target
determines that such termination is required by reason of a proposal relating to
a Target Acquisition Transaction being made, or (ii) there has been a breach or
breaches of a representation or warranty of Acquiror or Newco contained in this
Agreement and such breach or breaches could reasonably be expected to have an
Acquiror Material Adverse Effect or (iii) there has been a material breach or
material breaches by Acquiror of any of the covenants or agreements of Acquiror
or Newco set forth in this Agreement on the part of Acquiror or Newco, which
breach or breaches are not curable or, if curable, are not
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cured within 30 days after written notice of such breach or breaches is given
by Target to Acquiror;
(e) by action of the Board of Trustees of Acquiror, if (i) (A) the
Board of Directors of Target fails to make, or withdraws, materially modifies or
changes in a manner adverse to Acquiror its recommendation to the Target
Stockholders of this Agreement or the Merger, or resolves to do any of the
foregoing (other than as a result of the occurrence of an event that, in the
good faith judgment of the Board of Directors of Target, has or could reasonably
be expected to have a Acquiror Material Adverse Effect) and the holders of a
majority of the Target Common Stock outstanding do not promptly thereafter
execute and deliver, or shall not have previously executed and delivered, an
agreement, in form and substance reasonably satisfactory to Acquiror, pursuant
to which such holders agree to vote to approve this Agreement and the Merger at
the Target Stockholders Meeting and any adjournment thereof (provided, however,
if the Target Stockholders Meeting is held prior to the termination of this
Agreement by the Acquiror and the holders of a majority of the Target Common
Stock outstanding vote to approve this Agreement and the Merger at such Target
Stockholders Meeting, then Acquiror shall no longer have the right to terminate
this Agreement pursuant to this clause (e)(i)(A)), or (B) the Board of Directors
of Target shall have recommended that the Target Stockholders accept or approve
a Target Acquisition with a person other than Acquiror, or resolves to do the
foregoing, or (ii) the Target Stockholders Meeting has been duly convened and
held and the approval of the Target Stockholders required by Section 6.11 shall
not have been obtained at such meeting or any adjournment thereof, (iii) there
has been a breach or breaches of a representation or warranty of Target
contained in this Agreement and such breach or breaches could reasonably be
expected to have a Target Material Adverse Effect, or (iv) there has been a
material breach or material breaches by Target of any of the covenants or
agreements of Target set forth in this Agreement, which breach or breaches are
not curable or, if curable, are not cured within 30 days after written notice of
such breach or breaches is given by Acquiror to Target;
(f) by Target, if (i) Acquiror amends, alters or repeals, whether by
merger, consolidation or otherwise, any of the provisions of its Declaration of
Trust so as to adversely affect, in the reasonable opinion of Target, the
preferences, right to convert, conversion price adjustments, notice rights,
special conversion rights, distribution and liquidation rights, preferences,
restrictions or limitations, redemption rights and privileges or voting powers
or rights of the Acquiror Series B Preferred Shares or (ii) if Acquiror reduces
the dividend on Acquiror Common Shares below $0.48 per share of Acquiror Common
Shares for any calendar quarter ending during the period from the date hereof
through the Closing Date.
SECTION 8.02 Effect of Termination.
(a) If (i) Acquiror elects to terminate this Agreement pursuant to
Section 8.01(e)(i), (iii), or (iv), provided in the case of Section 8.01(e)(iv)
that such breach or breaches of covenants either (A) are within the reasonable
control of Target or (B) could reasonably be expected to have a Target Material
Adverse Effect, (ii) Acquiror elects to terminate this
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Agreement pursuant to Section 8.01(e)(ii), unless Robert A. Mandor, Leonard S.
Mandor, Concord Milestone Partners, L.P., Concord Associates, Concord Income
Realty VI, L.P., Castle Plaza, Inc., Mill Neck Associates, and Mountain View
Mall, Inc. used their best efforts to approve, and were enjoined from approving,
this Agreement and the Merger and the other transactions contemplated by this
Agreement and the Ancillary Documents, or (iii) Target elects to terminate this
Agreement pursuant to Section 8.01(d)(i), then Target (or the successor thereto)
shall, as liquidated damages and not as a penalty or forfeiture, pay to
Acquiror, from the Acquiror Liquidated Damage Amount (as defined below)
deposited into escrow in accordance with the next sentence, an amount equal to
the lesser of (m) the Acquiror Liquidated Damage Amount and (n) the sum of (1)
the maximum amount that can be paid to Acquiror without causing Acquiror to fail
to meet the requirements of Sections 856(c)(2) and (3) of the Code determined as
if the payment of such amount did not constitute income described in Sections
856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as
determined by Acquiror's certified public accountants, and (2) in the event
Acquiror receives a letter from Acquiror's counsel indicating that Acquiror has
received a ruling from the IRS described in Section 8.02(b)(ii) or (iii) or in
the event Acquiror receives an opinion of counsel described in Section
8.02(b)(iv), an amount equal to the Acquiror Liquidated Damage Amount less the
amount payable under clause (1) above. To secure Target's obligation to pay any
amounts due and owing upon termination of this Agreement pursuant to this
Section 8.02(a), Target shall deposit into escrow upon such termination an
amount in cash equal to $930,000, plus all documented out-of-pocket costs and
expenses, up to a maximum of $570,000, in connection with this Agreement and the
Merger and the other transactions contemplated by this Agreement incurred by
Acquiror (collectively, the "Acquiror Liquidated Damage Amount"), with an escrow
agent selected by Acquiror and on such terms (subject to Section 8.02(b)) as
shall be agreed upon by Acquiror and the escrow agent (as amended, supplemented
or otherwise modified from time to time, the "Escrow Agreement").
Notwithstanding anything contained in this Agreement to the contrary, in the
event of a dispute between Acquiror and Target as to the payment by Target of
the Acquiror Liquidated Damage Amount, Acquiror shall not enjoin or seek to
enjoin any merger, business combination, sale of any Target Properties, sale of
any other assets, sale of shares of capital stock or similar transaction by
Target, provided that Target has entered into arrangements reasonably
satisfactory to Acquiror to secure the payment of the Acquiror Liquidated Damage
Amount in the event such an amount is determined to be due and owing. Except as
otherwise provided in Section 8.01(d), the payment or deposit into escrow of the
Acquiror Liquidated Damage Amount pursuant to this Section 8.02(a) shall be by
wire transfer or bank check within three days of the termination.
(b) The Escrow Agreement shall provide that the amount in escrow or any
portion thereof shall not be released to Acquiror unless the escrow agent
receives any one or combination of the following: (i) a letter from Acquiror's
certified public accountants indicating the maximum amount that can be paid by
the escrow agent to Acquiror without causing Acquiror to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute Qualifying Income or a subsequent such
letter revising that amount, in which case the escrow agent shall release such
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amount to Acquiror, or (ii) a letter from Acquiror's counsel indicating that
Acquiror received a ruling from the IRS holding that the receipt by Acquiror of
the Acquiror Liquidated Damage Amount would either constitute Qualifying Income
or would be excluded from gross income within the meaning of Sections 856(c)(2)
and (3) of the Code, in which case the escrow agent shall release the remainder
of the Acquiror Liquidated Damage Amount to Acquiror, or (iii) a letter from
Acquiror's counsel indicating that Acquiror received a ruling from the IRS
holding that the receipt by Acquiror of the remaining balance of the Acquiror
Liquidated Damage Amount following the receipt of and pursuant to such ruling
would not be deemed constructively received prior thereto, or (iv) an opinion of
Acquiror's counsel to the effect that the receipt by Acquiror of the Acquiror
Liquidated Damage Amount would either constitute Qualifying Income or would be
excluded from gross income within the meaning of Sections 856(c)(2) and
856(c)(3) of the Code, in which case the escrow agent shall release the
remainder of the Acquiror Liquidated Damage Amount to Acquiror. Target agrees to
amend this Section 8.02 at the request of Acquiror in order to (x) maximize the
portion of the Acquiror Liquidated Damage Amount that may be distributed to
Acquiror hereunder without causing Acquiror to fail to meet the requirements of
Sections 856 (c)(2) and (3) of the Code or (y) improve Acquiror's chances of
securing a favorable ruling described in this Section 8.02(b), provided that no
such amendment may result in any additional cost or expense to Target. The
Escrow Agreement shall also provide that any portion of the Acquiror Liquidated
Damage Amount held in escrow for five years shall be released by the escrow
agent to Target. Target shall not be a party to such Escrow Agreement and shall
not bear any cost of or have liability resulting from the Escrow Agreement.
(c) If (i) Target elects to terminate this Agreement pursuant to
Section 8.01(d)(ii) or (iii), provided in the case of Section 8.01(d)(iii) that
such breach or breaches of covenants either (A) are within the reasonable
control of Acquiror or (B) could reasonably be expected to have an Acquiror
Material Adverse Effect, Acquiror shall upon such termination, as liquidated
damages and not as a penalty or forfeiture, pay to Target an amount equal to
$930,000, plus all documented out-of-pocket costs and expenses, up to a maximum
of $570,000, in connection with this Agreement and the Merger and the other
transactions contemplated by this Agreement incurred by Acquiror (collectively,
the "Target Liquidated Damage Amount"). Except as otherwise provided in Section
8.01(d), the payment of the Target Liquidated Damage Amount pursuant to this
Section 8.02(c) shall be by wire transfer or bank check within three days of the
termination. Notwithstanding anything contained in this Agreement to the
contrary, in the event of a dispute between Acquiror and Target as to the
payment by Acquiror of the Target Liquidated Damage Amount, Target shall not
enjoin or seek to enjoin any merger, business combination, sale of any Acquiror
Properties, sale of any other assets, sale of shares of capital stock or similar
transaction by Acquiror, provided that Acquiror has entered into arrangements
reasonably satisfactory to Target to secure the payment of the Target Liquidated
Damage Amount in the event such an amount is determined to be due and owing.
(d) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article VIII, all obligations of the parties
hereto shall terminate, except the obligations of the parties pursuant to this
Section 8.02, Section 9.08, Section 9.10 and the
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confidentiality agreements, dated April 16, 1996 and August 1996 (together, the
"Confidentiality Agreements"), between Target and Acquiror. Notwithstanding the
foregoing, in the event that either party is required to file suit to seek all
or a portion of any Acquiror Liquidated Damage Amount and it ultimately obtains
a judgment in its favor, it shall be entitled to all expenses, including,
without limitation, attorneys' fees and expenses, which it has incurred in
enforcing its rights hereunder.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Survival of Agreements and Representations and Warranties.
None of the agreements, representations and warranties contained in this
Agreement shall survive the Closing; provided, however, that (i) the agreements
contained in Article II, Section 5.03, Section 5.12, 5.16, Section 5.19, Section
5.21, Section 5.23, Section 8.02, Section 9.08, Section 9.10 and the
Confidentiality Agreements shall survive the Closing, (ii) all of the
representations and warranties of Target contained in this Agreement shall be
deemed to survive the Closing only for the purposes, and during the term, of the
Guaranty Agreement and (iii) all of the representations and warranties of
Acquiror contained in this Agreement shall be deemed to survive the Closing
until the Guaranty Termination Date. This Agreement has been entered into after
full investigation and neither party has relied upon any statement or
representation not embodied in this Agreement or the Confidentiality Agreements,
made by or on behalf of the other. Each of the parties hereto acknowledges and
agrees that the maximum obligation of the Company for amounts incurred or
suffered by Target, or any of its affiliates, directors, officers, stockholders,
representatives, employees or agents, by reason of, with respect to, or arising
from, any breach or breaches of any of its representations or warranties
contained in this Agreement shall be limited to an aggregate of $1,000,000
payable, at Acquiror's option, by cash or by delivery of Acquiror Series B
Preferred Shares (based on a value of $25 per Acquiror Series B Preferred
Share).
SECTION 9.02 Incorporation of Exhibits. The Disclosure Letters and all
of the Exhibits attached hereto and referred to herein are hereby incorporated
herein and made a part hereof for all purposes as if fully set forth herein. Any
capitalized terms used in either Disclosure Letter or any Exhibit but not
otherwise defined therein shall have the meaning as defined in this Agreement.
When a reference is made in a Disclosure Letter or an Exhibit to a Section, such
reference shall be to a Section of this Agreement unless otherwise indicated.
All references to Sections and Subsections refer to Sections and Subsections of
this Agreement.
SECTION 9.03 Notices. All notices and other communications hereunder
shall be in writing (and shall be deemed given upon receipt) if delivered
personally, sent by facsimile transmission (receipt of which is confirmed) or by
registered or certified mail, return receipt requested, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
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if to Target, to:
Union Property Investors, Inc.
5200 Town Center Circle
4th floor
Boca Raton, Florida 33486
Attention: Robert A. Mandor
Telecopy: (561) 392-8311
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attention: Joel A. Yunis, Esq.
Telecopy: (212) 940-8776
and
if to Acquiror or Newco, to:
Kranzco Realty Trust
128 Fayette Street
Conshohocken, Pennsylvania 19428
Attention: Norman M. Kranzdorf
Telecopy: (610) 941-9193
with a copy to:
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Alan S. Pearce, Esq.
Telecopy: (212) 541-4630
SECTION 9.04 Descriptive Headings. The descriptive headings herein are
inserted for convenience only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
SECTION 9.05 Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations hereunder or under any
of the Ancillary Documents shall be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other parties. Subject to the preceding sentence, this Agreement
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shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Notwithstanding anything contained in
this Agreement to the contrary, except for the provisions of Article II and
Section 5.12, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement or any of the
Ancillary Documents.
SECTION 9.06 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
SECTION 9.07 Entire Agreement. This Agreement, the Disclosure Letters
and each of the Exhibits hereto constitute the entire agreement and supersede
all prior contracts and understandings, both written and oral, among the parties
with respect to the subject matter hereof other than the Confidentiality
Agreements, any provisions of which are inconsistent with the transactions
contemplated by this Agreement being waived hereby but the provisions of which
that are not inconsistent shall survive.
SECTION 9.08 Governing Law and Consent to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to any applicable principles of conflicts of law. Each
of Target, Acquiror and Newco hereby consents to submit to the exclusive
jurisdiction of the courts of the state of New York and of the United States of
America located in the city and state of New York (the "New York Courts") for
any litigation arising out of or relating to this Agreement and the transactions
contemplated hereby and agrees not to commence any litigation relating thereto
except in such courts, waives any objection to the laying of venue of any such
litigation in the New York Courts and agrees not to plead or claim that such
litigation brought in any New York Court has been brought in an inconvenient
forum.
SECTION 9.09 Fees and Expenses. Except as otherwise set forth herein,
each of the parties hereto shall bear its own expenses associated with the
negotiation and execution of the Agreement and the consummation of the Merger
and the other transactions hereby by this Agreement and the Ancillary Documents
including, without limitation, investment banking, legal and accounting fees and
expenses.
SECTION 9.10 Non-Recourse.
(a) This Agreement and all documents, agreements, understandings and
arrangements relating hereto have been entered into or executed on behalf of
Acquiror by the undersigned in his capacity as a trustee or officer of Acquiror,
which has been formed as a Maryland real estate investment trust pursuant to an
Amended and Restated Declaration of Trust of Acquiror, as amended and restated,
and not individually. Neither the trustees, officers nor shareholders of
Acquiror shall be personally bound or have any personal liability hereunder.
Target shall
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look solely to the assets of Acquiror for satisfaction of any liability of
Acquiror with respect to this Agreement and the Ancillary Agreements to which it
is a party. Target will not seek recourse or commence any action against any of
the trustees, officers or shareholders of Acquiror or any of their personal
assets for the performance or payment of any obligation of Acquiror hereunder or
thereunder.
(b) This Agreement, and all documents, agreements, understandings and
arrangements relating hereto, have been entered into or executed on behalf of
Target by the undersigned in his or her capacity as an officer of Target, a
Delaware corporation, and not individually. Neither the officers nor
stockholders of Target shall be personally bound or have any personal liability
hereunder. Acquiror shall look solely to the assets of Target for satisfaction
of any liability of Target with respect to this Agreement and the Ancillary
Documents to which it is a party. Acquiror will not seek recourse or commence
any action against any of the stockholders, directors or officers of Target or
any of their personal assets for the performance or payment of any obligation of
Target hereunder or thereunder. Nothing contained in this paragraph shall affect
the rights or obligations of any person or entity under the Stockholders
Agreement, the Guaranty Agreement, the Registration Rights Agreement or the
Affiliate Letters.
SECTION 9.11 Enforcement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any New York Court, this being
in addition to any other remedy to which they are entitled at law or in equity.
Except as otherwise set forth herein, the prevailing party in any proceeding
brought to enforce any provision of the Agreement shall be entitled to recover
the reasonable fees and costs of its counsel, plus all other costs of such
proceeding.
SECTION 9.12 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 9.13 Amendment. This Agreement may be amended by the parties
hereto at any time before or after approval by the Target Stockholders of the
matters presented in connection with the Merger, but, after any such stockholder
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by a written instrument signed on behalf of each of the parties
hereto.
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SECTION 9.14 Extension; Waiver. At any time prior to the Effective
Time, the parties hereto may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained in this Agreement, the Ancillary Documents, or in the certificates and
other documents delivered pursuant hereto or thereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
SECTION 9.15 Knowledge. With respect to "knowledge", as such term is
used in this Agreement, Acquiror or Newco will be deemed to have "knowledge" or
received notice of a particular fact or other matter if any individual who is
serving as an director or officer of Acquiror or Newco, respectively, is
actually aware of such fact or other matter. With respect to "knowledge", as
such term is used in this Agreement, Target will be deemed to have "knowledge"
or received notice of a particular fact or other matter if any individual who is
serving as an director or officer of Target, Milestone Property Management, Inc.
or Milestone Properties, Inc. is actually aware of such fact or other matter.
SECTION 9.16 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
* * *
[The remainder of this page has been intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
KRANZCO REALTY TRUST UNION PROPERTY INVESTORS, INC.
By:/s/ Norman Kranzdorf By:/s/ Robert A. Mandor
Name:Norman Kranzdorf Name: Robert A. Mandor
Title: President Title: President
KRT UNION CORP.
By:/s/ Norman Kranzdorf
Name: Norman Kranzdorf
Title: President
<PAGE>
Annex B
[Letterhead of Societe Generale Securities Corporation]
November 12, 1996
Board of Directors
Union Property Investors, Inc.
5200 Town Center Circle, 4th Floor
Boca Raton FL 33486
Dear Sirs and Madam:
Union Property Investors, Inc. ("UPI" or the "Company"), and Kranzco Realty
Trust ("KRT" or the "Purchaser"), have agreed to enter into an agreement and
plan of merger dated November 12, 1996 (the "Agreement") which provides for the
Company to be merged into KRT Union Corporation, a wholly-owned subsidiary of
the Purchaser, organized solely for the purpose of executing such merger (the
"Merger"). At the effective time, each share of the Company's common stock, par
value $0.01 per share, issued and outstanding will be converted into the right
to receive, subject to closing and incurred expenses adjustments, 0.2980 shares
of Purchaser's 9.75% Series B Cumulative Convertible Preferred Shares, par
value $0.01 per share with a $25.00 per share liquidation preference (the
"Preferred Series B").
You have asked us whether, in our opinion, the proposed consideration in
aggregate to be received by the common shareholders of the Company is fair to
such common shareholders from a financial point of view.
In arriving at the opinion set forth below, we have reviewed certain publicly
available business and financial information relating to the Company and the
Purchaser, including the Agreement. We have also reviewed certain operating and
financial information, including financial forecasts, provided to us by the
Company and the Purchaser, and have met with members of management of the
Company and the Purchaser to discuss the operations, historical financial
statements and future prospects of the Company and the Purchaser.
We have also reviewed publicly available financial data and stock market
performance of the Company and KRT, and we have compared that data with similar
data for other public companies which we deemed generally comparable to the
Company and KRT and we have considered the financial terms of certain other
business combinations and other transactions which have recently been effected.
We also considered such other information, financial studies and analyses and
economic and market criteria which we deemed relevant, and performed such other
investigations and took into account such other matters as we deemed necessary.
INVESTMENT BANKING - SOCIETE GENERALE SECURITIES CORPORATION
1221 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10020
TEL. 212 278-5400, FAX 212 278-5387
<PAGE>
Board of Directors
Union Property Investors, Inc.
Page 2
In preparing our opinion, we have relied on the accuracy and completeness of all
information supplied or otherwise made available to us by the Company and KRT,
and we have further relied on the assurances of the management of the Company
and KRT that they are unaware of any facts that would make the information
provided to us incomplete or misleading. In arriving at our opinion, we have
not independently verified such information or undertaken an independent
appraisal of the properties or other assets of the Company or KRT. With respect
to financial forecasts furnished by the Company and KRT, we have assumed that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's and KRT's respective management
as to the expected future financial performance of the Company and KRT.
Our conclusions are necessarily based on the information available to us
as of, and current market conditions in effect on, the date hereof.
We are expressing no opinion as to the prices at which the Preferred
Series B or the KRT common stock will trade subsequent to the Merger,
and express no opinion and make no recommendation as to how the common
shareholders of the Company should vote at the shareholders' meeting to
be held in connection with the Merger.
It is understood that this letter is for the information of the Board of
Directors only in connection with its consideration of the Merger.
This letter may not be used, quoted in whole or in part, referred to or
disclosed in any document without our prior written consent except that
this opinion, in its entirety, may be included in any filing made by
the Company with the Securities and Exchange Commission with respect to
the Merger. Furthermore, it is understood that our opinion may not be
relied upon by Leonard S. and/or Robert M. Mandor or any entities under
their control (other than the Company) or for which they are the primary
beneficiaries, except in their capacity as directors of the Company.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services which is contingent upon
the consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed consideration in aggregate to be received by the common
shareholders pursuant to the Merger is fair to such common shareholders
from a financial point of view.
Very truly yours,
/s/ Societe Generale Securities Corporation
Societe Generale Securities Corporation
INVESTMENT BANKING - SOCIETE GENERALE SECURITIES CORPORATION
<PAGE>
Annex B-1
[Letterhead of Societe Generale Securities Corporation]
December 18, 1996
Board of Directors
Union Property Investors, Inc.
5200 Town Center Circle, 4th floor
Boca Raton, FL 33486
Dear Sirs:
We refer to our opinion letter addressed to you dated November 12, 1996
(the "Opinion Letter"). We have reviewed amendment No. 1 dated December
18, 1996 (the "Amendment") to the agreement and plan of merger (the
"Agreement") dated November 12, 1996 between Union Property Investors,
Inc. ("UPI") and Kranzco Realty Trust ("Kranzco"). The Amendment
provides that UPI common stockholders shall have the right to elect to
receive for each UPI common share .298 shares of either (i) Series B-1
convertible preferred stock to be issued by Kranzco ("Preferred Series
B-1," formerly known as, and defined in the Opinion Letter as, the
"Preferred Series B") or (ii) Series B-2 convertible preferred stock to
be issued by Kranzco (the "Preferred Series B-2"), which Preferred Series
B-2 shall have the terms, designations, preferences, conversion and
other rights, and restrictions set forth in Exhibit A-2 to the
Agreement.
You have asked us whether the opinion expressed in the Opinion Letter as
to the fairness, from a financial point of view, of the consideration in
aggregate to be received by the common stockholders of the Company in
the form of Preferred Series B-1 is still valid as of such date. We do
not opine as to the fairness, from a financial point of view, of the
consideration which may be elected to be received by the common
stockholders of UPI in the form of Preferred Series B-2.
Subject in all respects to the assumptions made and qualifications set
forth above and in the Opinion Letter, our opinion regarding the
Preferred Series B-1 is still valid as of November 12, 1996.
Very truly yours,
Societe Generale Securities Corporation
<PAGE>
ANNEX C
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
State of Delaware (the 'Delaware Court') of the fair value of his shares of
stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word 'stockholder' means a holder of
record of stock in a stock corporation and also a member of record of a nonstock
corporation; the words 'stock' and 'share' mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of a
nonstock corporation; and the words 'depository receipt' mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
SectionSection 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation there are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise
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entitled to appraisal rights, may file a petition in the Delaware Court demand a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware, or such publication
as the Court deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs thereof shall be borne
by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Delaware Court may be enforced, whether such surviving or
resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without
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limitation, reasonable attorney's fees and the fees and expenses of experts, to
be charged pro rata against the value of all the shares entitled to an
appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except the
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Delaware Court
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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Annex D
KRANZCO REALTY TRUST
ARTICLES SUPPLEMENTARY CLASSIFYING
[_____] SHARES OF BENEFICIAL INTEREST
AS
9.75% SERIES B-1 CUMULATIVE CONVERTIBLE PREFERRED SHARES
OF
BENEFICIAL INTEREST
(Pursuant to Section 8-203(b) of the
Corporations and Associations Article
of the Annotated Code of Maryland)
Kranzco Realty Trust, a real estate investment trust organized and
existing under the laws of the State of Maryland (the "Company"), and having its
executive office at 128 Fayette Street, Conshohocken, Pennsylvania 19428, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority granted to and vested in the Board
of Trustees of the Company (the "Board of Trustees") in accordance with the
Amended and Restated Declaration of Trust of the Company, dated November 4,
1992, as amended (the "Declaration of Trust"), the Board of Trustees at a
meeting duly convened and held on [_____] adopted resolutions authorizing,
creating and classifying, out of the 100,000,000 authorized shares of beneficial
interest of the Company (the "Shares"), a separate class of preferred shares of
beneficial interest consisting of [_____] preferred shares of beneficial
interest to be known as the "Series B-1 Cumulative Convertible Preferred Shares
of Beneficial Interest" (the "Series B-1 Preferred Shares"). The Series B-1
Preferred Shares shall have a par value of $.01 per share. The designation,
preferences, conversion and other rights, voting powers, restrictions, or
limitations as to dividends or other distributions of the Series B-1 Preferred
Shares, which shall be deemed to be part of Article VI of the Declaration of
Trust, are as follows:
9.75% SERIES B-1 CUMULATIVE CONVERTIBLE
<PAGE>
PREFERRED SHARES OF BENEFICIAL INTEREST
The Series B-1 Preferred Shares shall be identical in all respects to the 9.75%
Series B-2 Cumulative Convertible Preferred Shares of Beneficial Interest, $.01
par value per share, of the Company (the "Series B-2 Preferred Shares", and,
together with the Series B-1 Preferred Shares, the "Series B Preferred Shares"),
and shall have the same rights, privileges and preferences as the Series B-2
Preferred Shares in all circumstances, except with respect to the conversion
rights set forth in Subparagraph (D)(1) herein.
A. Certain Definitions.
Unless the context otherwise requires, the terms defined in this Paragraph
(A) shall have, for all purposes of the provisions of the Declaration of Trust
in respect of the Series B-1 Preferred Shares, the meanings herein specified
(with terms defined in the singular having comparable meanings when used in the
plural):
Additional Common Equity. The term "Additional Common Equity" shall
have the meaning set forth in Subparagraph (D)(6)(ii).
Adjustment Event. The term "Adjustment Event" shall mean any event
described in Subparagraph (D)(6).
Board of Trustees. The term "Board of Trustees" shall mean the Board
of Trustees of the Company.
Business Day. The term "Business Day" shall mean any day, other than a
Saturday or a Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York City are authorized or required by law to close.
Call Price. The term "Call Price" shall have the meaning set forth in
Subparagraph (G)(1).
Capital Gains Amount. The term "Capital Gains Amount" shall have the
meaning set forth in Subparagraph (B)(7).
Capital Lease. The term "Capital Lease" shall mean any lease of property,
real or personal, the obligations of the
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lessee in respect of which are required in accordance with generally accepted
accounting principles to be capitalized on the balance sheet of the lessee.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
Common Equity. The term "Common Equity" shall mean all shares now or
hereafter authorized of any class or series of common shares of beneficial
interest of the Company, including the Common Shares, and any other shares,
howsoever designated, which have the right (subject always to prior rights of
any class or series of preferred shares of beneficial interest) to participate
in the distribution of the assets and earnings of the Company without limit as
to per share amount.
Common Share Distribution. The term "Common Share Distribution" shall
have the meaning set forth in Subparagraph (D)(1).
Common Share Distribution Period. The term "Common Share Distribution
Period" shall have the meaning set forth in Subparagraph (D)(1).
Common Share Equivalent. The term "Common Share Equivalent" shall have
the meaning set forth in Subparagraph (D)(6)(ii).
Common Shares. The term "Common Shares" shall mean the Common Shares
of Beneficial Interest, $.01 par value per share, of the Company.
Company Affiliate. The term "Company Affiliate" shall have the meaning
set forth in Subparagraph (D)(6)(ii).
Converted Series B-1 Preferred Share Distribution. The term "Converted
Series B-1 Preferred Share Distribution" shall have the meaning set forth in
Subparagraph (D)(1).
Convertible Securities. The term "Convertible Securities" shall have
the meaning set forth in Subparagraph (D)(6)(ii).
Current Market Price per Common Share. The term "Current Market Price per
Common Share" shall mean the average of the closing prices for a Common Share
for the thirty trading days
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preceding the tenth trading day prior to the relevant date of determination. The
closing price for such days shall be the last reported sale price regular way
or, in case no such reported sale takes place on such date, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange, Inc., or if the Common Shares are not listed or admitted to
trading on the New York Stock Exchange, Inc., on the principal national
securities exchange on which the Common Shares are listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange,
the closing sale price of the Common Shares or in case no reported sale takes
place, the average of the closing bid and asked prices, on NASDAQ or any
comparable system. If the Common Shares are not quoted on NASDAQ or any
comparable system, the Board of Trustees shall in good faith determine the
current market price on such basis as it considers appropriate.
Distribution. The term "Distribution" or "Distributions" shall mean any
cash or other property paid or payable on or with respect to any share of
beneficial interest, common or preferred, including, without limitation, any
dividend or other distribution, whether in liquidation or otherwise.
Distribution Payment Date. The term "Distribution Payment Date" shall
have the meaning set forth in Subparagraph (B)(2).
Distribution Period. The term "Distribution Period" shall mean the period
from and including the Initial Issue Date to, but not including, the first
Distribution Payment Date and thereafter, each quarterly period from and
including any Distribution Payment Date to, but not including, the next
Distribution Payment Date.
Distributions Accrued and Accrued Distributions. The terms "Distributions
Accrued" and "Accrued Distributions" shall mean, with respect to any class or
series of preferred shares of beneficial interest, an amount which shall be
equal to distributions thereon at the annual distribution rates per share for
the respective class or series thereof from the date or dates on which such
distributions commence to accrue to the end of the then current distribution
period for such preferred shares, less the amount of all distributions paid,
with respect to such preferred shares for such period from the date such
distributions commenced to accrue.
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Excess Amount. The term "Excess Amount" shall have the meaning set
forth in Subparagraph (D)(1).
Excess Shares. The term "Excess Shares" shall have the meaning set
forth in Subparagraph (F)(4).
Four Quarter Preferential Distribution Non-Payment. The term "Four Quarter
Preferential Distribution Non-Payment" shall have the meaning set forth in
Subparagraph (E)(2)(ii).
Initial Issue Date. The term "Initial Issue Date" shall mean the date that
Series B-1 Preferred Shares are first issued by the Company.
Junior Shares. The term "Junior Shares" shall mean, as the case may be,
(i) the Common Equity and any other class or series of Shares which is not
entitled to receive any distributions in any Distribution Period unless all
distributions required to have been paid or declared and set apart for payment
on the Series B-1 Preferred Shares shall have been so paid or declared and set
apart for payment or (ii) the Common Equity and any other class or series of
Shares which is not entitled to receive any assets upon liquidation, dissolution
or winding up of the affairs of the Company until the Series B-1 Preferred
Shares shall have received the entire amount to which such Class B Preferred
Shares is entitled upon such liquidation, dissolution or winding up.
Liquidation Preference. The term "Liquidation Preference" shall mean
$25.00 per share.
Notice of Redemption. The term "Notice of Redemption" shall have the
meaning set forth in Subparagraph (G)(2).
Overlapping Period. The term "Overlapping Period" shall have the
meaning set forth in Subparagraph (D)(1).
Parity Shares. The term "Parity Shares" shall mean, as the case may be,
(i) any class or series of Shares which is entitled to receive payment of
distributions on a parity with the Series B-1 Preferred Shares or (ii) any class
or series of Shares which is entitled to receive assets upon liquidation,
dissolution or winding up of the affairs of the Company on a parity with the
Series B-1 Preferred Shares.
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Person. The term "Person" shall mean an individual, corporation,
partnership, estate, trust (including a trust classified under Section 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for or to be
used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company, limited liability company or other entity, and also
includes a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, but does not include an underwriter
which participates in a public offering of the Series B-1 Preferred Shares;
provided, that such ownership by such underwriter would not result in the
Company being "closely held" within the meaning of Section 856(h) of the Code,
or otherwise result in the Company failing to qualify as a REIT.
Preferred Shares Trustee. The term "Preferred Shares Trustee" shall
have the meaning set forth in Subparagraph (E)(2)(ii).
Record Date. The term "Record Date" shall mean the date designated by the
Board of Trustees at the time a distribution is declared; provided, that such
Record Date shall be the first day of the calendar month in which the applicable
Distribution Payment Date falls or such other date designated by the Board of
Trustees for the payment of distributions that is not more than ninety (90) days
prior to such Distribution Payment Date.
Redemption Date. The term "Redemption Date" shall have the meaning set
forth in Subparagraph (G)(2).
Redemption Distributions. The term "Redemption Distributions" shall
have the meaning set forth in Subparagraph (G)(1).
REIT. The term "REIT" shall mean a real estate investment trust under
Section 856 of the Code.
Senior Shares. The term "Senior Shares" shall mean, as the case may be,
(i) any class or series of Shares ranking senior to the Series B-1 Preferred
Shares in respect of the right to receive distributions or (ii) any class or
series of Shares ranking senior to the Series B-1 Preferred Shares in respect of
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the right to participate in any distribution upon liquidation, dissolution or
winding up of the affairs of the Company.
Series A Preferred Shares. The term "Series A Preferred Shares" shall mean
the Series A Increasing Rate Cumulative Convertible Preferred Shares of
Beneficial Interest, $.01 par value per share, of the Company.
Series A-1 Preferred Shares. The term "Series A-1 Preferred Shares" shall
mean the Series A-1 Increasing Rate Cumulative Convertible Preferred Shares of
Beneficial Interest, $.01 par value per share, of the Company.
Series A-1 Preferred Share Conversion Limit. The term "Series A-1
Preferred Share Conversion Limit" shall have the meaning set forth in
Subparagraph (D)(6).
Series B-1 Conversion Price. The term "Series B-1 Conversion Price" shall
have the meaning set forth in Subparagraph (D)(1).
Series B-1 Excess Shares. The term "Series B-1 Excess Shares" shall have
the meaning set forth in Subparagraph (F)(4).
Shares. The term "Shares" shall mean any transferable shares of
beneficial interest of the Company of any class or series.
Series B-1 Excepted Person. The term "Series B-1 Excepted Person" shall
have the meaning set forth in Subparagraph (F)(5).
Special Conversion Event. The term "Special Conversion Event" shall
mean:
(i) Norman M. Kranzdorf ceasing to be any of the following: (A)
Chief Executive Officer, (B) Chief Operating Officer or (C) any other
senior executive officer of the Company having an active role in such
capacity in the management of the business of the Company;
(ii) the merger or consolidation of the Company with or into any
Person, unless (A) immediately following such merger or consolidation,
more than 50% of the surviving company's issued and outstanding voting
securities are held
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by the holders of the Company's issued and outstanding voting securities
immediately prior to such merger or consolidation and (B) effective
provision is made in the charter documents of the surviving Person or
otherwise for the recognition, preservation and protection of the
preferences, conversion and other rights, voting powers, restrictions
and limitations as to dividends or other distributions of the Series B-1
Preferred Shares;
(iii) the sale, lease, transfer, spin-off, or other disposal or
distribution of all or substantially all of the assets of the Company;
(iv) a tender offer or other similar offer for at least a majority
of the voting shares of beneficial interest of the Company by any Person
or group of related Persons for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended, is commenced and completed,
and as a result thereof such Person or related group of Persons owns or
controls more than a majority of the issued and outstanding voting
securities of the Company;
(v) with respect to any agreements for, or notes or other
instruments evidencing, borrowed money of the Company or any of the
Subsidiaries for, individually or in the aggregate, $10,000,000 or more
(including as a result of any cross-default provisions), if (A) the
Company or any of the Subsidiaries defaults in any payment of principal or
interest, (B) a non-monetary default by the Company or any of the
Subsidiaries occurs which is not contested by the Company or the
applicable Subsidiary and is not cured within any applicable grace period
or waived or (C) a non-monetary default by the Company or any of the
Subsidiaries occurs which is contested by the Company or the applicable
Subsidiary and is not cured within 30 days after it is determined by a
court of competent jurisdiction that the Company or the applicable
Subsidiary has committed such default, and, in any case, the holders (or
trustees on behalf of such holders) of any indebtedness for borrowed money
of the Company or any of the Subsidiaries for an aggregate amount of
$10,000,000 or more, pursuant to such agreements, notes or instruments, or
any cross-default provisions contained in any agreements, notes or
instruments representing indebtedness for borrowed money, elect to
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accelerate the stated maturity or payment dates of such indebtedness;
(vi) with respect to any Capital Lease of the Company or any of the
Subsidiaries pursuant to which the Company or any of the Subsidiaries has
rental obligations in an aggregate amount of $25,000,000 or more over the
term of such Capital Lease (including as a result of any cross-default
provisions), if (A) a default by the Company or any of the Subsidiaries
occurs in any payment of any rental obligations, (B) a non-monetary
default by the Company or any of the Subsidiaries occurs which is not
contested by the Company or the applicable Subsidiary and is not cured
within any applicable grace period or waived or (C) a non-monetary default
by the Company or any of the Subsidiaries occurs which is contested by the
Company or the applicable Subsidiary and is not cured within 30 days after
it is determined by a court of competent jurisdiction that the Company or
the applicable Subsidiary has committed such default, and, in each case,
if the lessors of Capital Leases of the Company or any of the Subsidiaries
pursuant to which the Company or any of the Subsidiaries has rental
obligations in an aggregate amount of $25,000,000 or more over the term of
such Capital Leases, pursuant to such Capital Leases, or any cross-default
provisions contained in any Capital Leases, elect to accelerate all
remaining rental obligations under such Capital Leases to become due prior
to the stated payment dates thereof;
(vii) the commencement by or against the Company of any
insolvency, bankruptcy, dissolution, liquidation or receivership
proceedings with respect to the Company;
(viii) the loss of the Company's status as a REIT; or
(ix) if the Company shall have failed to pay a distribution on the
outstanding Series B-1 Preferred Shares for any quarterly Distribution
Period within five days of the Distribution Payment Date therefor.
Subsidiaries. The term "Subsidiaries" shall mean all corporations,
partnerships or other business entities of which more than 50% of the total
voting securities or equity securities are owned or controlled by the Company.
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Total Distributions. The term "Total Distributions" shall have the
meaning set forth in Subparagraph (B)(7).
B. Distributions.
1. The record holders of Series B-1 Preferred Shares shall be entitled to
receive from the Initial Issue Date, when, as and if authorized by the Board of
Trustees, out of assets legally available for payment of distributions,
cumulative cash distributions at a rate of 9.75% per annum of the Liquidation
Preference per Series B-1 Preferred Share, computed on the basis of a 360-day
year consisting of twelve 30-day months.
2. Distributions on the Series B-1 Preferred Shares shall accrue and be
cumulative from the Initial Issue Date. Distributions shall be payable quarterly
in arrears for each Distribution Period when, as and if authorized by the Board
of Trustees, on January 20, April 20, July 20 and October 20 of each year (each,
a "Distribution Payment Date"), commencing on the first Distribution Payment
Date following the Initial Issue Date. If any Distribution Payment Date occurs
on a day that is not a Business Day, any accrued distributions otherwise payable
on such Distribution Payment Date shall be paid on the next succeeding Business
Day. The amount of distributions payable on Series B-1 Preferred Shares for each
full Distribution Period shall be computed by dividing by four the annual
distribution rate set forth in Subparagraph (B)(1). Distributions payable in
respect of any Distribution Period which is less than a full Distribution Period
in length will be computed on the basis of a 360-day year consisting of twelve
30-day months. Subject to Subparagraph (D)(1), distributions shall be paid to
the record holders of the Series B-1 Preferred Shares as their names shall
appear on the share records of the Company at the close of business on the
Record Date for such distribution. Subject to Subparagraph (D)(1), distributions
in respect of any past Distribution Periods that are in arrears may be
authorized, declared, set apart for payment and paid at any time to record
holders on the Record Date therefor. Any distribution payment made on Series B-1
Preferred Shares shall be first credited against the earliest accrued but unpaid
distribution due which remains payable. Upon issuance, the Series B-1 Preferred
Shares will rank on a parity as to distributions with the Series A Preferred
Shares and the Series B-2 Preferred Shares.
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3. Except as provided in the next sentence, if any Series B-1 Preferred
Shares are outstanding, no distributions (other than in Junior Shares or Common
Shares) shall be authorized, declared, set apart for payment or paid on any
class or series of Junior Shares or Parity Shares unless all accrued
distributions on the Series B-1 Preferred Shares for all prior Distribution
Periods and the then current Distribution Period have been or contemporaneously
are authorized, declared, set apart for payment or paid. When distributions are
not so paid in full (or a sum sufficient for such full payment is not so set
apart for payment) upon the Series B-1 Preferred Shares and any other class or
series of Parity Shares, all distributions authorized or declared upon the
Series B-1 Preferred Shares and any such class or series of Parity Shares shall
be authorized or declared pro rata so that the amount of distributions
authorized or declared per share on the Series B-1 Preferred Shares and such
class or series of Parity Shares shall in all cases bear to each other the same
ratio that accrued and unpaid distributions per share on the Series B-1
Preferred Shares and such class or series of Parity Shares bear to each other.
4. Except as provided in Subparagraph (B)(3), unless all accrued
distributions on the Series B-1 Preferred Shares have been or contemporaneously
are authorized, declared, set apart for payment or paid for all prior
Distribution Periods and the then current Distribution Period, no Junior Shares
or Parity Shares shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such Shares) by the Company (except by conversion into or
exchange for Junior Shares or Common Shares). Holders of the Series B-1
Preferred Shares shall not be entitled to any distributions, whether payable in
cash, property or Shares, in excess of accrued and cumulative distributions as
herein provided. No interest or sum of money in lieu of interest shall be
payable in respect of any distribution payment or payments on the Series B-1
Preferred Shares that may be in arrears.
5. No distribution on Series B-1 Preferred Shares shall be required to be
authorized, declared, set apart for payment or paid by the Company to the extent
such authorization, declaration, setting apart for payment or payment shall be
restricted or
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prohibited by law. Notwithstanding that any distributions on Series B-1
Preferred Shares are restricted or prohibited by law, such distributions shall
accrue and be cumulative.
6. Distributions on the Series B-1 Preferred Shares, if not paid on the
applicable Distribution Payment Date, will accrue whether or not distributions
are authorized or declared for such Distribution Payment Date, whether or not
the Company has earnings and whether or not there are assets legally available
for the payment of such distributions.
7. If, for any taxable year, the Board of Trustees elects to designate as
"capital gain dividends" (as defined in Section 857 of the Code) any portion
(the "Capital Gains Amount") of the distributions paid or made available for the
year to holders of all classes of Shares (the "Total Distributions"), then the
portion of the Capital Gains Amount that shall be allocable to holders of the
Series B-1 Preferred Shares shall be the Capital Gains Amount multiplied by a
fraction, the numerator of which shall be the total distributions paid or made
available to the holders of the Series B-1 Preferred Shares for the year and the
denominator of which shall be the Total Distributions.
C. Distributions Upon Liquidation, Dissolution or Winding Up.
1. Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, before any distribution shall be made to the
holders of any Junior Shares, and subject to the payment or provision or reserve
for payment of the debts and liabilities (whether absolute, accrued, asserted or
unasserted, contingent or otherwise) and the preferences of Senior Shares, if
any, of the Company, the holders of Series B-1 Preferred Shares shall be
entitled to receive, out of the assets of the Company legally available for
payment of distributions, liquidating distributions in cash (or property at its
fair market value as determined in good faith by the Board of Trustees (or a
combination thereof)) in the amount of the Liquidation Preference for each
Series B-1 Preferred Share plus an amount equal to all accrued and unpaid
distributions pursuant to Paragraph (B) (whether or not authorized or declared,
and whether or not there would be assets legally available for the payment of
such distributions) to the date of such liquidation, dissolution or winding up.
After payment of the full amount of the liquidating distributions to which they
are entitled pursuant to this Subparagraph (C)(1), the holders of Series B-1
Preferred
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Shares will have no right or claim to any of the remaining assets of the Company
and shall not be entitled to any other distribution.
2. Notwithstanding any provision in Subparagraph (C)(1) to the contrary,
in the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the assets legally
available for payment of distributions are insufficient to pay (x) the full
amount of the liquidating distributions to which holders of Series B-1 Preferred
Shares would otherwise be entitled pursuant to Subparagraph (C)(1) and (y) the
corresponding amounts of the liquidating distributions to which holders of
Parity Shares would be entitled upon liquidation, dissolution or winding up of
the affairs of the Company, then the holders of the Series B-1 Preferred Shares
and the holders of the Parity Shares shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they otherwise would be respectively entitled. Upon issuance, the Series
B-1 Preferred Shares will rank on a parity with the Series A Preferred Shares
and the Series B-2 Preferred Shares as to the distribution of assets upon any
liquidation, dissolution or winding up of the affairs of the Company.
D. Conversion.
1. Holders of Series B-1 Preferred Shares shall have the right,
exercisable after _____, 1998 (unless otherwise exercisable earlier pursuant to
this Subparagraph (D)(1)), at any time and from time to time, to convert all or
any Series B-1 Preferred Shares (except that upon any dissolution, liquidation
or winding up of the affairs of the Company the right of conversion shall
terminate at the close of business on the Business Day fixed for payment of the
liquidating distributions to which holders of Series B-1 Preferred Shares are
entitled) into such number of fully paid Common Shares as is obtained by: (i)
multiplying the number of Series B-1 Preferred Shares to be converted by $25.00
and (ii) dividing the result by the conversion price listed below that will be
in effect during the corresponding date of conversion listed below:
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Date of Conversion Conversion Price
------------------ ----------------
Prior to the occurrence of a
Special Conversion Event:
_____, 1998 to and including
_____, 1999 $19.1750
_____, 1999 to and including
_____, 2000 $18.6875
_____, 2000 to and including
_____, 2001 $18.2000
_____, 2001 and thereafter $17.7125
At any time after a Special
Conversion Event shall have
occurred $17.7125
At any time after Notice of
Redemption pursuant to Paragraph
(G) hereof $16.2500
If, and each time, a conversion price listed above then in effect (the "Series
B-1 Conversion Price") shall be adjusted pursuant to the terms of these
Paragraphs (A) through (N), all of the conversion prices listed above shall be
so adjusted as though such conversion prices were in effect on the date of
adjustment. The Series B-1 Conversion Price shall be the conversion price as
last adjusted and then in effect. Notwithstanding anything else to the contrary,
(x) after any Special Conversion Event under clauses (i), (iv), (v), (vi),
(vii), (viii) or (ix) of the definition thereof and (y) immediately prior to any
Special Conversion Event under clauses (ii) or (iii) of the definition thereof,
holders of Series B-1 Preferred Shares shall have the right, exercisable at any
time, to convert, in accordance with the terms of this Paragraph (D), all or any
such Series B-1 Preferred Shares (except that upon any dissolution, liquidation
or winding up of the affairs of the Company the right of conversion shall
terminate at the close of business on the Business Day fixed for payment of the
liquidating distributions to which holders of Series B-1 Preferred Shares are
entitled) into such number of fully paid Common Shares as is obtained by: (x)
multiplying the number of Series B-1 Preferred Shares to be converted by $25.00
and (y) dividing the result by $17.7125, as adjusted pursuant to this Paragraph
(D).
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<PAGE>
Notwithstanding anything to the contrary, during the period from the
date the Company resolves to take any action that would constitute a Special
Conversion Event under clauses (ii) or (iii) of the definition thereof until the
consummation of such Special Conversion Event, the holders of Series B-1
Preferred Shares shall have the right to make an election to convert all or any
Series B-1 Preferred Shares conditional upon approval of such Special Conversion
Event by the holders entitled to vote on such matter, in which case, if such
Special Conversion Event is approved, conversion of such Series B-1 Preferred
Shares as to which a conditional election has been made shall occur immediately
prior to such Special Conversion Event.
In the event that a tender offer or other similar offer shall have
been commenced which if consummated would result in a Special Conversion Event
under clause (iv) of the definition thereof, holders shall have the right to
convert their Series B-1 Preferred Shares pursuant to the terms hereof within
the five business day period prior to the consummation of such tender offer or
other similar offer; provided, however, if such tender offer or other similar
offer is not consummated or, if consummated, does not result in a Special
Conversion Event under clause (iv) of the definition thereof, then the Company
shall have the right to redeem any and all Common Shares into which any Series
B-1 Preferred Shares were converted pursuant to such clause (iv) for the same
number of Series B-1 Preferred Shares converted pursuant thereto, upon written
notice from the Company notifying such holder of the election of the Company to
redeem such Series B-1 Preferred Shares stating the number of Common Shares to
be surrendered, the number of Series B-1 Preferred Shares to be issued therefor
and the date and the place(s) where the certificate(s) representing such Series
B-1 Preferred Shares are to be surrendered. On or after the date specified in
such notice, each such holder shall present and surrender his certificate or
certificates for such Common Shares to the Company at the place designated in
such notice for redemption and thereupon such holder shall be issued the same
number of Series B-1 Preferred Shares converted and each surrendered certificate
shall be cancelled. From and after the date of issuance of the number of Series
B-1 Preferred Shares set forth in the notice, (i) all distributions on the
Common Shares to be redeemed shall cease to accrue, and (ii) all rights of the
holders thereof as holders of Common Shares shall cease and terminate, except
for the right to receive the number of Series B-1 Preferred Shares
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<PAGE>
upon the surrender of Common Shares certificates as set forth in the notice.
In addition to any other notice required to be given hereunder, (i)
if a Special Conversion Event shall have occurred, or, (ii) if, prior to _____,
1998, an Adjustment Event shall have occurred, the Company shall, within five
Business Days of such occurrence, send notice to all holders of Series B-1
Preferred Shares (1) that the Series B-1 Preferred Shares are convertible and
not subject to any waiting period with respect to the conversion thereof, (2) of
the date as of which the Series B-1 Preferred Shares became convertible, (3) of
the ratio at which the Series B-1 Preferred Shares are convertible and (4) a
description of the nature of the Special Conversion Event or Adjustment Event,
as the case may be. The Company shall send notice to all holders of Series B-1
Preferred Shares describing any action that would constitute a Special
Conversion Event under clauses (ii) or (iii) of the definition thereof, together
with a form of conversion notice, at least 30 calendar days prior to any vote of
holders of the Common Shares required to approve such action, or, if no such
vote is so required, prior to the consummation of the transaction.
Notwithstanding the surrender of Series B-1 Preferred Shares for
conversion into Common Shares, all accrued distributions with respect to such
Series B-1 Preferred Shares for any past Distribution Periods that are in
arrears at the time of such conversion shall be paid to the registered holder of
such Series B-1 Preferred Shares in the same manner as if such registered holder
continued to be the registered holder of such converted Series B-1 Preferred
Shares following such conversion or, if upon conversion of such Series B-1
Preferred Shares there will be no more Series B-1 Preferred Shares outstanding,
then at the time of such conversion. In addition, if any holder surrenders
Series B-1 Preferred Shares for conversion into Common Shares, such holder shall
be entitled to receive a distribution on such Series B-1 Preferred Shares
converted for the portion of the current Distribution Period such holder owned
the Series B-1 Preferred Shares surrendered for conversion, notwithstanding that
the record date for the distribution payable for the current Distribution Period
may not have occurred, in an amount per Series B-1 Preferred Share converted
equal to the product of (i) the distribution payable on each Series B-1
Preferred Share converted for the current Distribution Period, multiplied by
(ii)
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<PAGE>
a fraction, the numerator of which is the number of calendar days in such
Distribution Period elapsed to (but not including) the date of conversion and
the denominator of which is the total number of calendar days in such
Distribution Period.
If any holder surrenders Series B-1 Preferred Shares for conversion
into Common Shares and as a result thereof such holder is or will be entitled to
receive distributions with respect to both such Series B-1 Preferred Shares
converted and such Common Shares into which such Series B-1 Preferred Shares
were converted for the same period of time (the "Overlapping Period"), then, at
the time of and as a condition precedent to such conversion (or, if at the time
of such conversion the amount of the distribution with respect to such Common
Shares has not yet been determined, at the time of such determination), the
Company shall withhold from any distribution payable on such Series B-1
Preferred Shares converted, an amount equal to the Excess Amount (defined
below), if any. If the amount of any distribution payable on such Series B-1
Preferred Shares converted shall not be sufficient to pay any Excess Amount,
such holder hereby authorizes the Company to withhold from any distribution
payable to such holder on any Series B-1 Preferred Shares owned by such holder
or, to the extent permissible, on any Common Shares owned by such holder, an
amount equal to the Excess Amount. "Excess Amount" shall mean an amount equal to
the product of (i) the sum of the distributions payable on each Common Share
into which such Series B-1 Preferred Shares were converted for the distribution
period relating to the Common Shares in which the Overlapping Period occurs,
multiplied by (ii) a fraction, the numerator of which is the number of calendar
days in the Overlapping Period and the denominator of which is the total number
of calendar days in such distribution period relating to the Common Shares in
which the Overlapping Period occurs.
2. Any holder of one or more Series B-1 Preferred Shares electing to
convert such Share or Shares shall deliver the certificate or certificates
therefor to the principal office of the transfer agent for the Common Shares,
with the form of notice of election to convert prescribed by the Company fully
completed and duly executed and (if so required by the Company or any conversion
agent) accompanied by instruments of transfer in form reasonably satisfactory to
the Company and to any conversion agent, duly executed by the registered holder
or his duly authorized attorney, and any payments (or evidence of payment)
- -17-
<PAGE>
required pursuant to Subparagraph (D)(4). The conversion right with respect to
any such Series B-1 Preferred Shares shall be deemed to have been exercised on
the date upon which the last of the conditions for conversion provided in this
Subparagraph (D)(2) have been satisfied by the holder of such Series B-1
Preferred Shares, and the Person or Persons entitled to receive the Common
Shares issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Shares on such date.
3. No fractional Common Share or scrip representing a fractional Common
Share shall be issued upon conversion of Series B-1 Preferred Shares. If more
than one Series B-1 Preferred Share shall be surrendered for conversion on any
day by the same holder, the number of full Common Shares which shall be issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of Series B-1 Preferred Shares so surrendered by such holder on such day.
Instead of any fractional Common Share which would otherwise be issuable upon
conversion of any Series B-1 Preferred Shares, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the Current Market Price per Common Share.
4. If a holder converts Series B-1 Preferred Shares, the Company shall
pay, at the time of and as a condition precedent to conversion, any documentary,
stamp or similar issue or transfer tax due on the issuance of Common Shares upon
the conversion. The holder, however, shall pay to the Company the amount of any
tax which is due (or shall establish to the satisfaction of the Company payment
thereof) if the shares are to be issued in a name other than the name of the
Person in whose name such Series B-1 Preferred Shares are registered.
5. The Company shall reserve and shall at all times keep reserved out of
its authorized but unissued Common Shares a sufficient number of Common Shares
to permit the conversion of the then outstanding Series B-1 Preferred Shares
that may then be converted. All Common Shares which may be issued upon
conversion of Series B-1 Preferred Shares shall be validly issued and fully
paid, and not subject to preemptive or other similar rights. In order that the
Company may issue Common Shares upon conversion of Series B-1 Preferred Shares,
the Company will endeavor to comply with all applicable Federal and State
securities laws and will endeavor to list such Common Shares to be issued upon
conversion
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<PAGE>
on each securities exchange on which the Common Shares are listed.
The Series B-1 Preferred Shares converted pursuant to the provisions
of this Paragraph (D) shall thereupon be retired and may not be reissued as
Series B-1 Preferred Shares but shall thereafter have the status of authorized
but unissued Shares.
6. The conversion rate in effect at any time shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(i) Distribution of Common Shares; Reclassification; Subdivision;
Combination. In case the Company shall (1) pay a dividend payable in,
effect a split up of, or make any other distribution in, Common Shares to
holders of the Common Shares, (2) reclassify the outstanding Common Shares
into Shares of some other class or series of Shares, (3) subdivide the
outstanding Common Shares into a greater number of Common Shares or (4)
combine the outstanding Common Shares into a smaller number of Common
Shares, the conversion rate immediately prior to such action shall be
adjusted so that the holder of any Series B-1 Preferred Shares thereafter
surrendered for conversion shall be entitled to receive the number of
Common Shares which he would have owned immediately following such action
had such Series B-1 Preferred Shares been converted immediately prior
thereto. An adjustment made pursuant to this Subparagraph (D)(6)(i) shall
become effective immediately after the record date in the case of a
distribution and shall become effective immediately after the effective
date in the case of a reclassification, subdivision or combination.
(ii) Issuance of Additional Common Equity. (A) If the Company shall
issue to a Person who is not a Company Affiliate (as defined below) at the
time of issuance any Additional Common Equity (as defined below) at a
price per share less than 85% of the Current Market Price per Common Share
then in effect on the date of such issuance, then the number of Common
Shares into which each Series B-1 Preferred Share shall be convertible
shall be adjusted so that the same shall be equal to the number determined
by multiplying the number of Common Shares into which such Series B-1
Preferred Share was convertible immediately prior to such issuance by a
fraction of which the numerator shall be the number of shares of Common
Equity outstanding immediately prior to such issuance plus the number of
shares of Additional Common Equity offered, and of which the denominator
shall be the number of shares of Common Equity outstanding immediately
prior to such
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<PAGE>
issuance by a fraction of which the numerator shall be the number of
shares of Common Equity outstanding immediately prior to such issuance
plus the nuber of shares of Additional commonEquity offered, and of shares
of Common Equity outstanding immediately prior to such issuance plus the
number of shares of Common Equity which the aggregate offering price of
the Additional Common Equity offered would purchase at such Current Market
Price per Share. Such adjustments shall become effective immediately after
such issuance.
(B) If the Company shall issue to a Person who is a Company
Affiliate at the time of issuance, in any one or a series of related
transactions, any Additional Common Equity at a price per share less than
the Current Market Price per Common Share then in effect on the date of
such issuance, then the number of Common Shares into which each Series B-1
Preferred Share shall be convertible shall be adjusted so that the same
shall be equal to the number determined by multiplying the number of
Common Shares into which such Series B-1 Preferred Share was convertible
immediately prior to such issuance by a fraction of which the numerator
shall be the number of shares of Common Equity outstanding immediately
prior to such issuance plus the number of shares of Additional Common
Equity offered, and of which the denominator shall be the number of shares
of Common Equity outstanding immediately prior to such issuance plus the
number of shares of Common Equity which the aggregate offering price of
the Additional Common Equity offered would purchase at such Current Market
Price per Share. Such adjustments shall become effective immediately after
such issuance.
"Additional Common Equity" shall mean all Common Equity issued by the
Company except: (1) the Common Shares issued upon conversion of the Series
B-1 Preferred Shares; (2) the Common Equity issued upon conversion of any
Senior Shares, Parity Shares, Common Share Equivalents or any other shares
of beneficial interest which, by their terms, are convertible into Common
Equity and (a) which were outstanding on November 12, 1996, (b) for which
no adjustment pursuant to this Subparagraph (D)(6) was required at the
time of issuance or the time of any amendment or
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<PAGE>
change thereto or (c) for which an adjustment is provided for in another
provision of this Paragraph (D)(6); (3) up to an aggregate of 250,000
shares of Common Equity and shares of Common Equity into which Common
Share Equivalents are exercisable, exchangeable or convertible, in each
case issued to Affiliates of the Company from and after November 12, 1996,
at a price per share less than the Current Market Price per Common Share
then in effect on the date of such issuance, including, without
limitation, shares of Common Equity or Common Share Equivalents issued to
directors, officers, employees, or trustees of the Company or any
Subsidiary of the Company and those issued pursuant to stock option, stock
purchase, performance or other remuneration plans adopted by the Board of
Trustees from time to time (including, without limitation, the Company's
1992 Employee Share Option Plan, 1992 Trustee Share Option Plan and 1995
Management Incentive Plan; (4) the issuance of shares of Common Equity
under any circumstances for which an adjustment is provided in
Subparagraph (D)(6)(i); or (5) Common Equity issued pursuant to a dividend
reinvestment plan or stock purchase plan available to all holders of
Common Equity.
"Company Affiliate" shall mean, with respect to any issuance of Additional
Common Equity, (i) any trustee, director, officer or employee of the
Company or of any subsidiary of the Company, (ii) any Person that is the
direct or indirect owner of more than five percent of the issued and
outstanding Common Equity of the Company, (iii) any Person that controls,
is controlled by or is under common control with, the Company, (iv) any
trustee, director, officer, employee or family member of any Person listed
in clauses (i), (ii) or (iii) of this definition or (v) any Person with
respect to which any Person listed in clauses (i) through (iv) of this
definition is a director, officer or the direct or indirect owner of more
than ten percent of the issued and outstanding equity securities of such
Person immediately prior to any such issuance.
"Common Share Equivalent" shall mean any evidence of indebtedness, shares
of stock or beneficial interest (other than Series B-1 Preferred Shares)
or other securities which are or may be convertible into or exchangeable
for Additional Common Equity ("Convertible Securities"), or any
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warrant, option or other right to subscribe for any Convertible
Securities or for any Additional Common Equity.
For purposes of this Subparagraph (D)(6)(ii), the number of Common Equity
at any time outstanding shall not include Common Equity held in the
treasury of the Company.
(iii) Issuance of Common Share Equivalents. (A) If the Company shall
issue to a Person who is not a Company Affiliate at the time of issuance
any Common Share Equivalent and the aggregate of the price per Common
Share Equivalent and the price per share for which shares of Additional
Common Equity may be issuable thereafter pursuant to such Common Share
Equivalent shall be below an amount equal to 85% of the Current Market
Price per Common Share on the record date for determination of the holders
of the Common Shares entitled to receive such issue, or, if, after any
such issuance, the price per share for which shares of Additional Common
Equity may be issuable thereafter is amended or changed and the aggregate
of such price, as so amended or changed, and the price per Common Share
Equivalent, shall be below an amount equal to 85% of the Current Market
Price per Common Share at the effective time of such amendment or change,
then the number of Common Shares into which each Series B-1 Preferred
Share shall be convertible shall be adjusted so that the same shall be
equal to the number determined by multiplying the number of Common Shares
into which such Series B-1 Preferred Share was convertible immediately
prior to such record date by a fraction of which the numerator shall be
the number of Common Shares outstanding on such record date plus the
number of Common Shares into which, or for which, the Common Share
Equivalents so offered are convertible or exercisable, and of which the
denominator shall be the number of Common Shares outstanding on such
record date plus the number of Common Shares which the aggregate offering
price of the Common Shares into which, or for which, the Common Share
Equivalents so offered are convertible or exercisable would purchase at
such Current Market Price per Common Share. Such adjustments shall become
effective immediately after such record date.
(B) If the Company shall issue to a Person who is a Company
Affiliate at the time of issuance, in any one or a
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series of related transactions, any Common Share Equivalents and the
aggregate of the price per Common Share Equivalent and the price per
share for which shares of Additional Common Equity may be issuable
thereafter pursuant to such Common Share Equivalent shall be below an
amount equal to the Current Market Price per Common Share on the date of
issue, or, if, after any such issuance, the price per share for which
shares of Additional Common Equity may be issuable thereafter is amended
or changed and the aggregate of such price, as so amended or changed, and
the price per Common Share Equivalent, shall be below an amount equal to
the Current Market Price per Common Share at the effective time of such
amendment or change, then the number of Common Shares into which each
Series B-1 Preferred Share shall be convertible shall be adjusted so that
the same shall be equal to the number determined by multiplying the number
of Common Shares into which such Series B-1 Preferred Share was
convertible immediately prior to such record date by a fraction of which
the numerator shall be the number of Common Shares outstanding on such
record date plus the number of Common Shares into which, or for which, the
Common Share Equivalents so offered are convertible or exercisable, and of
which the denominator shall be the number of Common Shares outstanding on
such record date plus the number of Common Shares which the aggregate
offering price of the Common Shares into which, or for which, the Common
Share Equivalents so offered are convertible or exercisable would purchase
at such Current Market Price per Common Share. Such adjustments shall
become effective immediately after such issuance.
(iv) Conversion of Series A Preferred Shares or Series A-1 Preferred
Shares. Notwithstanding anything to the contrary contained in this
Subparagraph (D)(6), if the aggregate number of Common Shares into which
the Series A Preferred Shares or Series A-1 Preferred Shares are converted
exceeds 500,000 Common Shares, subject to adjustment pursuant to
Subparagraph (D)(6)(i) (the "Series A Conversion Limit"), then the number
of Common Shares into which each Series B-1 Preferred Share shall be
convertible shall be adjusted so that the holder of any Series B-1
Preferred Shares thereafter surrendered for conversion shall be entitled
to receive such number of Common Shares as would have been received by
such holder of Series B-1 Preferred
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Shares having the same percentage of the then outstanding Common Shares
upon such conversion as such holder would have received upon conversion if
the aggregate number of Common Shares into which the Series A Preferred
Shares or Series A-1 Preferred Shares were converted equalled the Series A
Conversion Limit at the time of conversion of such Series B-1 Preferred
Shares.
(v) Additional Adjustments. In the event that the Company shall
issue to Affiliates of the Company in excess of an aggregate of 250,000
shares of Common Equity and shares of Common Equity into which Common
Share Equivalents are exercisable, exchangeable or convertible, in each
case which are issued from and after November 12, 1996, at a price per
share less than the Current Market Price per Common Share then in effect
on the date of such issuance, then the calculation of the number of Common
Shares into which each Series B-1 Preferred Share is convertible shall be
adjusted pursuant to the provisions of this Subparagraph (D)(6) for each
such shares of Common Equity and Common Share Equivalents to Affiliates of
the Company at a price per share less than the Current Market Price per
Common Share then in effect on the date of such issuance.
(vi) Limitation of Adjustments. For purposes of this Subparagraph
(D)(6), the number of Common Shares or Common Equity at any time
outstanding shall not include Common Shares or Common Equity held in the
treasury of the Company. No adjustment of the Series B-1 Conversion Price
shall be made under Subparagraph (D)(6)(iii), (1) upon the issuance of any
Convertible Security which is issued pursuant to the exercise of any
warrants or rights, if any adjustment shall previously have been made in
the Series B-1 Conversion Price then in effect upon the issuance of such
warrants or other rights pursuant to Subparagraph (D)(6)(iii) or otherwise
pursuant to this Subparagraph (D)(6) or (2) upon the issuance of the
Series A-1 Preferred Shares in exchange for all or any of the issued and
outstanding Series A Preferred Shares.
(vii) Additional Distributions. If the Company shall make a dividend
or distribution of securities (other than Common Shares or Common Share
Equivalents) or other property to the holders of Junior Shares and not to
the
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holders of the Series B-1 Preferred Shares, then, unless the holders
of the Series B-1 Preferred Shares are entitled to receive such
distribution at a later time upon conversion of the Series B-1 Preferred
Shares and such distribution has been set aside for such later
distribution, each holder of Series B-1 Preferred Shares shall receive at
the time of payment or issuance of such dividend or distribution, without
payment or any consideration therefor, such securities or other property
which he would have owned immediately following such dividend or
distribution had such holder's Series B-1 Preferred Shares been converted
immediately prior thereto; and an appropriate provision therefor shall be
made a part of any such dividend or distribution.
(viii) Computation of Consideration. In making adjustments to the
Series B-1 Conversion Price pursuant to this Subparagraph (D)(6), the
consideration received by the Company shall be deemed to be the following:
to the extent that any Additional Common Equity, any Common Share
Equivalents or rights shall be issued for a cash consideration, the
consideration received by the Company therefor, or, if such Additional
Common Equity or Common Share Equivalents are offered by the Company for
subscription, the subscription price paid to and received by the Company,
or, if such Additional Common Equity or Common Share Equivalents are sold
to underwriters or dealers for public offering without a subscription
offering, the initial public offering price, in each such case excluding
any amounts paid or receivable for accrued interest or accrued dividends
and without deduction of any compensation, discounts, commissions or
expenses paid or incurred by the Company for and in the underwriting of,
or otherwise in connection with, the issue thereof; to the extent that
such issuance shall be for a consideration other than cash, then, except
as herein otherwise expressly provided, the consideration received by the
Company shall be the fair market value of such consideration at the time
of such issuance as determined in good faith by the Board of Trustees. The
consideration for any Additional Common Equity issuable pursuant to any
Common Share Equivalents shall be the consideration received by the
Company for issuing such Common Share Equivalents, plus the additional
consideration payable to the Company upon the exercise,
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conversion or exchange of such Common Share Equivalents. In the case of
the issuance at any time of any Additional Common Equity or Common Share
Equivalents in payment or satisfaction of any dividend upon any class of
stock other than Common Shares, the Company shall be deemed to have
received for such Additional Common Equity or Common Share Equivalents a
consideration equal to the amount of such dividend so paid or satisfied.
In any case in which the consideration to be received or paid shall be
other than cash, the amount of the consideration other than cash received
by the Company shall be deemed to be the fair value of such consideration
as determined in good faith by the Board of Trustees, without deduction of
any expenses incurred or any underwriting commissions or concessions paid
or allowed by the Company in connection therewith.
7. No adjustment in the conversion rate shall be required until cumulative
adjustments result in a change of 1% or more of the conversion price as in
effect prior to the last adjustment of the conversion rate; provided, that any
adjustment which by reason of this Subparagraph (D)(7) is not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Paragraph (D) shall be rounded up to the
nearest cent ($.01) or to the nearest one-thousandth (1/1000) of a share, as the
case may be. No adjustment to the conversion rate shall be made for cash
dividends.
8. In the event that, as a result of an adjustment made pursuant to
Subparagraph (D)(6), the holder of any Series B-1 Preferred Shares thereafter
surrendered for conversion shall become entitled to receive any Shares other
than Common Shares, thereafter the number of such Shares so receivable upon
conversion of any Series B-1 Preferred Shares shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Shares contained in this Paragraph
(D).
9. The Company may make such increases in the number of Common Shares to
be received upon the conversion of Series B-1 Preferred Shares, in addition to
those required by Subparagraph (D)(6), as is considered to be advisable by the
Board of Trustees in order that any event treated for Federal income tax
purposes
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as a distribution of shares or share rights shall not be taxable to the
recipients thereof.
10. Whenever the conversion rate is adjusted, the Company shall, in
addition to any notice required to be delivered pursuant to Subparagraphs (D)(1)
or (D)(11), promptly, but in no event later than ten days following such
adjustment, send notice to all holders of Series B-1 Preferred Shares of the
adjustment and shall cause to be prepared a certificate signed by the principal
financial officer of the Company setting forth, in reasonable detail, the
adjusted conversion rate and a brief statement of the facts requiring such
adjustment and the computation thereof (including a description of the basis on
which the Board of Trustees made any determination relating to such adjustment);
such certificate shall forthwith be filed with each transfer agent for the
Series B-1 Preferred Shares.
11. Each holder of Series B-1 Preferred Shares shall be entitled to all
notices, including notice of the record dates for any votes with respect to the
Common Shares, delivered to holders of Common Shares. In addition, in the event
that:
(i) the Company resolves to take any action which, if it were to
occur, would require an adjustment in the conversion rate, or
takes such action, or
(ii) the Company resolves to take any action which, if it were to
occur, would constitute a Special Conversion Event, or a
Special Conversion Event occurs,
a holder of Series B-1 Preferred Shares, if it has a right to convert, may wish
to convert, at the applicable conversion ratio, some or all of such shares into
Common Shares prior to the record date for, or the effective date of, the
transaction so that it may receive the rights, warrants, securities or assets
which a holder of Common Shares on that date may receive. Therefore, the Company
shall, in addition to any notice required to be delivered pursuant to
Subparagraphs (D)(1) or (D)(10), send notice to all holders of Series B-1
Preferred Shares stating the proposed record or effective date of the
transaction described in clauses (ii) or (iii) of the definition of Special
Conversion Event at least 30 days before such date.
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In the event (a) that the Company shall authorize the granting to holders
of Common Shares of rights to subscribe for or purchase any shares of beneficial
interest of any class or of any other rights or (b) of any capital
reorganization or reclassification of the shares of beneficial interest of the
Company, then the Company shall provide to the holders of the Series B-1
Preferred Shares prompt notice stating (i) the date on which a record is to be
taken for the purpose of such distribution or subscription rights, or, if a
record is not to be taken, the date as of which the holders of Common Shares of
record would be entitled to such distribution or subscription rights or (ii) the
date on which a capital reorganization or reclassification is expected to become
effective.
12. In case of (i) any reclassification of outstanding Common Shares
issuable upon conversion of Series B-1 Preferred Shares, or (ii) any
consolidation or merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the surviving
corporation and which does not result in any reclassification of outstanding
Common Shares issuable upon such conversion), the rights of the holders of the
outstanding Series B-1 Preferred Shares shall be adjusted in the manner
described below:
(i) In the event that the Company is the surviving corporation, each
Series B-1 Preferred Share shall, without payment of additional consideration
therefor, be deemed modified so as to provide that upon conversion of each
Series B-1 Preferred Share, the holder thereof shall receive, in lieu of each
Common Share theretofore issuable upon such conversion, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, consolidation or merger by the holder of one Common Share
issuable upon such conversion had such conversion occurred immediately prior to
such reclassification, consolidation or merger. Such Series B-1 Preferred Share
shall be deemed to provide for adjustments which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Subparagraph
(D)(12). The provisions of this Subparagraph (D)(12)(i) shall similarly apply to
successive reclassifications, consolidations and mergers.
(ii) In the event that the Company is not the surviving corporation, (A)
effective provision shall be made in the charter documents of the surviving
Person or otherwise for the
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recognition, preservation and protection of the preferences, conversion and
other rights, voting powers, restrictions and limitations as to dividends or
other distributions of the Series B-1 Preferred Shares or (B) the surviving
corporation shall, without payment of any additional consideration therefor,
issue new Series B-1 Preferred Shares providing that, upon conversion thereof,
the holder thereof shall receive, in lieu of each Common Share theretofore
issuable upon conversion of the Series B-1 Preferred Shares, the kind and amount
of shares of stock, other securities, money and property receivable upon such
reclassification, consolidation or merger by the holder of one Common Share
issuable upon conversion of the Series B-1 Preferred Shares had such conversion
occurred immediately prior to such reclassification, consolidation or merger.
Such new Series B-1 Preferred Shares shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Subparagraph (D)(12)(ii). The provisions of this Subparagraph (D)(12)(ii)
shall similarly apply to successive reclassifications, consolidations and
mergers.
A change in par value, or from par value to no par value, or from no par value
to par value, or a change as a result of a subdivision or combination, shall not
be deemed a reclassification for purposes of these Paragraphs (A) through (N).
E. Voting Rights.
1. The holders of Series B-1 Preferred Shares shall not be entitled to
vote at, or participate in, any meeting of shareholders of the Company, and
shall have no other right to vote, except (i) as provided in Paragraph (L), (ii)
as provided in Subparagraph (E)(2), or (iii) as required by law.
2. (i) (A) If (x) the Company shall have failed to pay the distributions
on the outstanding Series B Preferred Shares for any two quarterly Distribution
Periods (whether or not consecutive) or (y) a Special Conversion Event shall
have occurred (notwithstanding that such Special Conversion Event at any time
thereafter no longer continues), the holders of the Series B Preferred Shares
shall immediately and at all times thereafter vote together with the holders of
the Common Shares as a single class on all actions to be taken by the holders of
the Common Shares. Each holder of Series B Preferred Shares shall be
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entitled to such number of votes as shall equal the number of Common Shares into
which his Series B Preferred Shares are then convertible, and be entitled to
notice of all shareholder meetings with respect to which the holders of Common
Shares are then entitled.
(B) If the Company resolves to take any action that would
constitute a Special Conversion Event under clauses (ii) or (iii) of the
definition thereof, and if the holders of the Common Shares are entitled to vote
on such Special Conversion Event, then the holders of the Series B Preferred
Shares shall be entitled to vote together with the holders of the Common Shares
as a single class on such Special Conversion Event. Each holder of Series B
Preferred Shares shall be entitled to such number of votes as shall equal the
number of Common Shares into which his Series B Preferred Shares are then
convertible, and be entitled to notice of all shareholder meetings with respect
to which the holders of Common Shares are then entitled with respect to such
resolution.
(ii) If the Company shall have failed to authorize and pay or
declare and set apart for payment the distributions accumulated on the
outstanding Series B Preferred Shares for any four quarterly Distribution
Periods (a "Four Quarter Preferential Distribution Non-Payment"), the number of
trustees of the Board of Trustees shall be increased by one and the holders of
the outstanding Series B Preferred Shares, voting together as a separate class,
shall be entitled to elect one additional trustee to the Board of Trustees (a
"Preferred Shares Trustee") until the full distributions accumulated on all
outstanding Series B Preferred Shares for such four quarterly Distribution
Periods have been authorized and paid or declared and set apart for payment.
The right of the holders of Series B Preferred Shares to elect a
Preferred Shares Trustee may be exercised at any annual meeting of shareholders,
or, within the limitations hereinafter provided, at a special meeting of holders
of Series B Preferred Shares held for such purpose. At any time after such
voting power shall have so vested in the holders of Series B Preferred Shares,
the Board of Trustees shall, at the request of holders of record of at least 25%
of the Series B Preferred Shares then outstanding, call a special meeting of the
holders of Series B Preferred Shares for the election of the Preferred
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Shares Trustee to be elected by the holders of Series B Preferred Shares, to be
held within 90 days after such call and at the place and upon the notice
provided by law and in the By-laws for the holding of meetings of shareholders;
provided, however, that the Board of Trustees shall not be required to call such
special meeting in the case of any such request received less than 90 days
before the date fixed for any annual meeting of shareholders. At any meeting so
called or at any annual meeting, (a) holders of a majority of the outstanding
Series B Preferred Shares, voting together as a separate class, in person or by
proxy, shall be sufficient to constitute a quorum for the election of a
Preferred Shares Trustee as provided in this Subparagraph (E)(2)(ii), and (b)
holders of a plurality of the outstanding Series B Preferred Shares, voting
together as a separate class, shall have the power to elect a Preferred Shares
Trustee. If any such special meeting required to be called as above provided
shall not be called by the Board of Trustees within 90 days of a request
pursuant to this Subparagraph (E)(2)(ii), then the holders of record of at least
25% of the Series B Preferred Shares then outstanding may designate in writing
one of their number to call such meeting, and the person so designated may, at
the Company's expense, call such meeting to be held at the place and upon the
notice above provided. No such special meeting and no adjournment thereof shall
be held on a date later than 30 days before the annual meeting of the
shareholders or a special meeting held in place thereof next succeeding the time
when the holders of Series B Preferred Shares become entitled to elect a
Preferred Shares Trustee as above provided. No Preferred Shares Trustee elected
by the holders of the Series B Preferred Shares may be removed except by the
vote of the holders of a majority of the outstanding Series B Preferred Shares,
voting together as a separate class, in person or by proxy, at a meeting called
for such purpose. So long as a Four Quarter Preferential Distribution
Non-Payment shall continue, if a Preferred Shares Trustee who has been elected
by the holders of Series B Preferred Shares to serve on the Board of Trustees
shall no longer serve on the Board of Trustees by reason of resignation, death
or removal, such vacancy shall be filled by holders of a plurality of the
outstanding Series B Preferred Shares, voting together as a separate class, at a
meeting called in accordance with the provisions of this Subparagraph
(E)(2)(ii).
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<PAGE>
If and when all accumulated distributions on the Series B Preferred
Shares have been authorized and paid or declared and set apart for payment, the
holders of the Series B Preferred Shares shall be divested of the special voting
rights provided by this Subparagraph (E)(2), subject to revesting in the event
of each and every subsequent Four Quarter Preferential Distribution Non-Payment.
Upon termination of such special voting rights attributable to all holders of
the Series B Preferred Shares, the term of office of the Preferred Shares
Trustee shall forthwith terminate and the number of trustees constituting the
entire Board of Trustees shall be reduced by one.
3. So long as any Series B Preferred Shares are outstanding, the number of
trustees constituting the entire Board of Trustees shall at all times be such
that the exercise, by the holders of the Series B Preferred Shares of the right
to elect a Preferred Shares Trustee under the circumstances provided for in
Subparagraph (E)(2) will not contravene any provision of the Declaration of
Trust restricting the number of trustees which may constitute the entire Board
of Trustees.
4. A Preferred Shares Trustee elected pursuant to Subparagraph (E)(2)
shall serve until the earlier of (x) the next annual meeting of the shareholders
of the Company and the election (by the holders of the Series B Preferred
Shares) and qualification of his successor or (y) the termination of the special
voting rights as provided for in Subparagraph (E)(2).
F. Trustees' Right to Refuse to Transfer Series B-1 Preferred
Shares; Limitation on Holdings.
1. The terms and provisions of this Paragraph (F) shall apply in addition
to, and not in limitation of, the terms and provisions of Section 6.6 of the
Declaration of Trust.
2. Each Person who owns directly or indirectly more than five percent in
number or value of the total Shares outstanding shall, by January 30 of each
year, give written notice to the Company stating the Person's name and address,
the number of Shares directly or indirectly owned by such Person, and a
description of the capacity in which such Shares are held. For purposes of this
Paragraph (F), the number and value of the total Shares outstanding shall be
determined by the Board of Trustees in good faith, which determination shall be
conclusive for all
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purposes hereunder. In addition, each direct or indirect holder of Shares,
irrespective of such shareholder's percentage "ownership" of outstanding Shares,
shall upon demand disclose to the Company in writing such information with
respect to the direct or indirect ownership of Shares as the Board of Trustees
deems reasonably necessary from time to time to enable the Board of Trustees to
determine whether the Company complies with the REIT Provisions of the Code (as
defined in Section 1.5 of the Declaration of Trust), to comply with the
requirements of any taxing authority or governmental agency or to ensure or
ascertain compliance with this Paragraph (F). For purposes of this Paragraph
(F), "ownership" shall be as defined in Subparagraph (F)(11).
3. If, in the opinion of the Board of Trustees, which shall be binding
upon any prospective acquiror of Series B-1 Preferred Shares, any proposed
transfer or issuance would jeopardize the status of the Company as a REIT under
the REIT Provisions of the Code, the Board of Trustees shall have the right, but
not the duty, to refuse to permit such transfer or issuance or refuse to give
effect to such transfer or issuance and to take any action to cause any such
transfer not to occur or to void any such issuance.
4. As a condition to any transfer and/or registration of transfer on the
books of the Company of any Series B-1 Preferred Shares which could result in
direct or indirect ownership of Shares exceeding 9.8% of the lesser of the
number or the value of the total Shares (such excess shares, the "Excess
Shares") by a Person other than a Series B-1 Excepted Person, such prospective
transferee shall give written notice to the Company of the proposed transfer and
shall furnish such opinions of counsel, affidavits, undertakings, agreements and
information as may be required by the Board of Trustees no later than the 15th
day prior to any transfer which, if consummated, would result in such ownership.
On each date of determination, the calculation of the number of the total Shares
outstanding on such date shall be made assuming the conversion or exercise of
all Series B-1 Preferred Shares, Common Share Equivalents and Convertible
Securities of such transferee on the date of determination in accordance with
the terms of these Paragraphs (A) through (N).
5. Any transfer or issuance of Series B-1 Preferred Shares that would (i)
create a direct or indirect owner of Excess Shares
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other than a Series B-1 Excepted Person; or (ii) result in the Company being
"closely held" within the meaning of Section 856(h) of the Code, shall be void
ab initio and the prospective acquiror shall not be entitled to any rights
afforded to owners of Series B-1 Preferred Shares hereunder and shall be deemed
never to have had an interest therein.
"Series B-1 Excepted Person" shall mean (i) any Person defined as an
"Excepted Person" pursuant to the Declaration of Trust, (ii) any Person approved
prior to the Initial Issue Date by the Board of Trustees, (iii) any Person
approved after the Initial Issue Date by the Board of Trustees, at its option
and in its sole discretion, and (iv) each Person listed below, for so long as
its direct or indirect ownership of Shares, individually or in the aggregate, in
any combination, with those of any or all other Persons listed below, do not and
could not exceed, the number of Shares or the percentage set forth below of the
lesser of the number or the value of the Shares outstanding. Notwithstanding
anything contained in these Paragraphs (A) through (N) to the contrary, the
Board of Trustees shall not grant approval to any Person, and no Person shall be
or be deemed a Series B-1 Excepted Person, if such Person's direct or indirect
ownership of Series B-1 Excess Shares would or could result, directly,
indirectly or as a result of attribution of ownership, in termination of the
status of the Company as a REIT under the REIT provisions of the Code.
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<PAGE>
<TABLE>
<CAPTION>
Names of Series B-1 Excepted Persons Aggregate Number of Shares or Percentage For All
Such Excepted Persons Combined
- ----------------------------------- ------------------------------------------------
<S> <C>
Robert A. Mandor, Leonard S. Mandor, The maximum number of shares of beneficial
Concord Milestone Partners L.P., interest of the Company, into which such
Concord Associates, Concord Income holders' Series B-1 Preferred Shares and Series
Realty VI, L.P., Castle Plaza, Inc., B-2 Preferred Shares are then convertible, plus
Mill Neck Associates and/or Mountain 33,200 Common Shares, less any shares of
View Mall, Inc. and/or their beneficial interest of the Company transferred
affiliates. by any such holders to any Person who is not one
of the Series B-1 Excepted Persons listed herein,
but in no event less than 9.8%.
</TABLE>
6. The Company, by notice to the holder, transferor or transferee thereof,
as the case may be, may purchase any or all Excess Shares (i) that are or
proposed to be transferred in violation of any of the provisions hereof or (ii)
that are or proposed to be transferred pursuant to a transfer which, in the
opinion of the Board of Trustees (which shall be binding upon any proposed
transferor or transferee of Series B-1 Preferred Shares), would result in any
Person acquiring Series B-1 Excess Shares, or would otherwise jeopardize the
status of the Company as a real estate investment trust under the REIT
Provisions of the Code. The Company shall have the power, by lot or other means
deemed equitable by the Board of Trustees in its sole discretion, to purchase
such Series B-1 Excess Shares. The purchase price for each Series B-1 Excess
Share shall be equal to the greatest of (i) the average of the closing prices
for a Series B-1 Preferred Share for the thirty trading days preceding the day
on which notice of such proposed transfer is sent, (ii) the product of (x) the
average of the closing prices for a Common Share for the thirty trading days
preceding the day on which notice of such proposed transfer is sent and (y) the
number (including fractions) of Common Shares into which such Series B-1
Preferred Share may be converted on such day and (iii) the sum of (x) the
Liquidation Preference for such Series B-1 Preferred Share and (y) the accrued
and unpaid distributions on such Series
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B-1 Preferred Share. The closing price for such days shall be the last reported
sale price regular way or, in case no such reported sale takes place on such
date, the average of the reported closing bid and asked prices regular way, in
either case on the New York Stock Exchange, Inc., or if the Series B-1 Preferred
Shares or Common Shares, as the case may be, are not listed or admitted to
trading on the New York Stock Exchange, Inc., on the principal national
securities exchange on which the Series B-1 Preferred Shares or Common Shares,
as the case may be, are listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, the closing sale price
of the Series B-1 Preferred Shares or Common Shares, as the case may be, or in
case no reported sale takes place, the average of the closing bid and asked
prices, on NASDAQ or any comparable system. If the Series B-1 Preferred Shares
or Common Shares, as the case may be, are not quoted on NASDAQ or any comparable
system, the Board of Trustees shall in good faith determine the current market
price on such basis as it considers appropriate. Prompt payment of the purchase
price shall be made in cash by the Company in such manner as may be determined
by the Board of Trustees, but in no event later than twenty Business Days after
the Board of Trustees elects to make such purchase. From and after the date
fixed for purchase by the Board of Trustees, and so long as payment of the
purchase price for the Series B-1 Preferred Shares to be so purchased shall have
been made or duly provided for, the holder of any Series B-1 Excess Shares so
called for purchase shall cease to be entitled to dividends, distributions,
voting rights and other benefits with respect to such Series B-1 Preferred
Shares, excepting only the right to payment of the purchase price fixed as
aforesaid. Any dividend or distribution paid to a proposed transferee of Series
B-1 Excess Shares prior to the discovery by the Company that the Series B-1
Preferred Shares have been transferred in violation of this Paragraph (F) shall
be repaid to the Company upon demand. The Series B-1 Preferred Shares purchased
pursuant to the provisions of this Subparagraph (F)(6) shall thereupon be
retired and may not be reissued as Series B-1 Preferred Shares but shall
thereafter have the status of authorized but unissued Shares.
7. If Subparagraph (F)(5), (6), (7) or (8) is determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
acquiror of Series B-1 Preferred Shares in violation of such subparagraphs shall
be deemed, at the option of the Company, to have acted as agent on behalf of the
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Company in acquiring such Series B-1 Preferred Shares on behalf of the
Company. The Company, by notice to the acquiror thereof, may purchase any or
all Series B-1 Preferred Shares so acquired in the manner designated by
Subparagraph (F)(6).
8. Subject to Subparagraph (F)(12), notwithstanding any other provision in
these Paragraphs (A) through (N) to the contrary, any purported transfer, sale
or acquisition of Series B-1 Preferred Shares (whether such purported transfer,
sale or acquisition results from the direct or indirect ownership, or
attribution of ownership, of Series B-1 Preferred Shares) which would result in
the termination of the status of the Company as a REIT under the REIT Provisions
of the Code shall be null and void ab initio. Any such Series B-1 Preferred
Shares may be treated by the Board of Trustees in the manner prescribed for
Series B-1 Excess Shares in Subparagraph (F)(6).
9. Subject to Subparagraph (F)(12), nothing contained in this Paragraph
(F) or in any other provision of these Paragraphs (A) through (N) shall limit
the authority of the Board of Trustees to take such other action as it deems
necessary or advisable to protect the Company and the interests of the
Shareholders by preservation of the Company's status as a REIT under the REIT
Provisions of the Code.
10. If any provision of this Paragraph (F) or any application of any such
provision is determined to be invalid by any federal or state court having
jurisdiction over the issues, the validity of the remaining provisions shall not
be affected and other applications of such provision shall be affected only to
the extent necessary to comply with the determination of such court. To the
extent this Paragraph (F) may be inconsistent with any other provision in these
Paragraphs (A) through (N), this Paragraph (F) shall be controlling.
11. For purposes of these Paragraphs (A) through (N), Series B-1 Preferred
Shares not owned directly shall be deemed to be owned indirectly by a Person if
that Person or a group of which he is a member would be the beneficial owner of
such Series B-1 Preferred Shares, as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, and/or would be considered to own such Series
B-1 Preferred Shares by reason of the REIT Provisions of the Code.
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12. Notwithstanding any other provision of Paragraph (F), nothing in these
Paragraphs (A) through (N) shall preclude the settlement of transactions entered
into through the facilities of the New York Stock Exchange, Inc. The fact that
the settlement of any transaction is permitted shall not negate the effect of
any other provision of this Paragraph (F) and any transferee in such a
transaction shall be subject to all of the provisions and limitations set forth
in this Paragraph (F).
G. Redemption at the Option of the Board of Trustees.
1. After the fifth anniversary of the Initial Issue Date, if the aggregate
Liquidation Preferences of all of the outstanding Series B-1 Preferred Shares
shall at any time be less than $3,000,000, the Board of Trustees may, at its
option and in its sole discretion, redeem the Series B-1 Preferred Shares in
whole, subject to the limitations set forth below, at a redemption price equal
to $25.00 per share (the "Call Price"), plus (i) all distributions accrued and
unpaid on such Series B-1 Preferred Shares for past Distribution Periods and
(ii) the pro rata portion of the distributions on such Series B-1 Preferred
Shares for the current Distribution Period through the Redemption
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Date (together, the "Redemption Distributions"), upon giving notice as provided
below.
2. At least 30 days but not more than 90 days prior to the date fixed for
the redemption of the Series B-1 Preferred Shares (the "Redemption Date"), the
Company shall mail a written notice (a "Notice of Redemption") to each holder of
record of the Series B-1 Preferred Shares in a postage prepaid envelope
addressed to such holder at his address as shown on the records of the Company,
notifying such holder of the election of the Company to redeem such Series B-1
Preferred Shares, stating the Redemption Date, the Call Price, the number of
Series B-1 Preferred Shares then outstanding and to be redeemed and the place(s)
where the certificate(s) representing such Series B-1 Preferred Shares are to be
surrendered for payment.
3. On or after the Redemption Date each holder of the Series B-1 Preferred
Shares shall present and surrender his certificate or certificates for such
Series B-1 Preferred Shares to the Company at the place designated in such
notice for redemption and thereupon the Call Price and the Redemption
Distributions for such Series B-1 Preferred Shares shall be paid to or on the
order of the person whose name appears on such certificate or certificates as
the owner thereof and each surrendered certificate shall be cancelled. From and
after the Redemption Date (unless default shall be made by the Company in
payment of the Call Price or the Redemption Distributions), (i) all
distributions on the Series B-1 Preferred Shares shall cease to accrue, and all
rights of the holders thereof as shareholders of the Company shall cease and
terminate, except for the right (x) to surrender their Series B-1 Preferred
Shares for conversion into Common Shares as provided for, and in accordance
with, the provisions of these Paragraphs (A) through (N) (including, without
limitation, Paragraph (D) hereof) at any time prior to the Redemption Date or
(y) to receive the Call Price and the Redemption Distributions with respect to
such Series B-1 Preferred Shares upon the surrender of certificates representing
the same, (ii) the Series B-1 Preferred Shares shall no longer be deemed to be
outstanding for any purpose whatsoever and (iii) the Series B-1 Preferred Shares
redeemed pursuant to the provisions of this Paragraph (G) shall thereupon be
retired and may not be reissued as Series B-1 Preferred Shares but shall
thereafter have the status of authorized but unissued Shares.
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4. If a Notice of Redemption has been given pursuant to Subparagraph
(G)(2) above and any holder of Series B-1 Preferred Shares shall, prior to the
close of business on the last Business Day preceding the Redemption Date, give
written notice to the Company pursuant to Paragraph (D) of the conversion of any
or all of the Series B-1 Preferred Shares to be redeemed held by such holder
(accompanied by a certificate or certificates for such shares, duly endorsed or
assigned to the Company), then such redemption shall not become effective as to
such Series B-1 Preferred Shares to be converted, such conversion shall become
effective as provided in Paragraph (D).
H. Exclusion of Other Rights.
Except as may otherwise be required by law, the Series B-1 Preferred
Shares shall not have any preferences, conversion or other rights, voting
powers, restrictions or limitations as to dividends or other distributions other
than as specifically set forth in the Declaration of Trust.
I. Headings of Subdivisions.
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
J. Severability of Provisions.
If any of the preferences, conversion or other rights, voting powers,
restrictions, or limitations as to dividends or other distributions of the
Series B-1 Preferred Shares set forth in the Declaration of Trust is invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other preferences, conversion or other rights, voting powers,
restrictions, or limitations as to distributions of Series B-1 Preferred Shares
set forth in the Declaration of Trust which can be given effect without the
invalid, unlawful or unenforceable provision thereof shall, nevertheless, remain
in full force and effect and no preferences, conversion or other rights, voting
powers, restrictions, or limitations as to dividends or other distributions of
the Series B-1 Preferred Shares herein set forth shall be deemed dependent upon
any other provision thereof unless so expressed therein.
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<PAGE>
K. Ranking.
With regard to rights to receive distributions and amounts payable upon
liquidation, dissolution or winding up of the Company, the Series B-1 Preferred
Shares shall rank senior to any Junior Shares, the Common Shares and any Common
Share Equivalent and on a parity with any other preferred shares issued by the
Company, unless the terms of such other preferred shares provide otherwise and,
if applicable, the requirements of Paragraph (L) hereof have been complied with.
However, the Company may authorize or increase any class or series of Parity
Shares or Junior Shares, or both, without the vote or consent of the holders of
the Series B-1 Preferred Shares.
L. Limitations.
In addition to any other rights provided to the holders of the Series B-1
Preferred Shares by applicable law, so long as any Series B-1 Preferred Shares
are outstanding, the Company shall not, without the affirmative vote of the
holders of at least a majority of the total number of outstanding Series B
Preferred Shares, voting together as a separate class,
(i) authorize, create or issue, or increase the par value or
authorized or issued amount of, any class or series of Senior
Shares, or rights to subscribe to or acquire, any security
convertible into, any class or series of Senior Shares, or
reclassify any shares of beneficial interest into any such Senior
Shares or reclassify any Junior Shares into Parity Shares;
(ii) amend, alter or repeal, whether by merger, consolidation or
otherwise, any of the provisions of the Declaration of Trust
(including these Paragraphs (A) through (N)) so as to adversely
affect the preferences, right to convert, conversion price
adjustments, notice rights, special conversion rights, distribution
and liquidation rights, preferences, restrictions or limitations,
redemption rights or privileges, or voting powers or rights of the
Series B-1 Preferred Shares; or
(iii) modify an express contract right of the Series B-1
Preferred Shares;
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<PAGE>
but (except as otherwise provided in these Paragraphs (A) through (N) or
required by applicable law) nothing herein contained shall require such a vote
or consent (i) in connection with any increase in the total number of authorized
Common Shares, or (ii) in connection with the authorization or increase of any
class or series of Parity Shares or Junior Shares. The Company with the written
consent or affirmative vote of the holders of a majority of the Series B
Preferred Shares shall have the right to amend, alter or repeal any of the
provisions of these Paragraphs (A) through (N) without the approval, consent or
vote of any other class of shares of beneficial interest of the Company.
M. No Preemptive Rights.
No holder of Series B-1 Preferred Shares shall be entitled to any
preemptive rights to subscribe for or acquire any unissued Shares (whether now
or hereafter authorized) or securities of the Company convertible, including
securities into or carrying a right to subscribe to or acquire Shares.
N. Notices.
Except as may otherwise be provided in the Declaration of Trust, all
notices to holders of Series B-1 Preferred Shares shall be written, and
delivered by first class mail, postage prepaid, addressed to record holders of
the Series B-1 Preferred Shares as their names shall appear on the share records
of the Company on the applicable record date, or, if no record date has been
set, then on the date of delivery of such notice.
SECOND: The Series B-1 Preferred Shares have been classified
by the Board of Trustees under a power contained in the Declaration of Trust.
THIRD: These Articles Supplementary have been approved by
the Board of Trustees in the manner and by the vote required by law.
FOURTH: Each of the undersigned acknowledges these Articles
Supplementary to be the act of the Company and as to all matters or facts
required to be verified under oath, the undersigned acknowledges that to the
best of his knowledge, information and belief, these matters and facts are true
in all
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<PAGE>
material respects and that this statement is made under the penalties for
perjury.
FIFTH: These Articles Supplementary and all documents,
agreements, understandings and arrangements relating hereto have been entered
into or executed on behalf of the Company by the undersigned in his capacity as
a trustee of the Company, which has been formed as a Maryland real estate
investment trust pursuant to a declaration of trust of the Company dated July
20, 1992, as amended and restated, and not individually, and neither the
trustees, officers nor shareholders of the Company shall be bound or have any
personal liability hereunder or thereunder. Holders of the Series B-1 Preferred
Shares shall look solely to the assets of the Company for satisfaction of any
liability of the Company in respect of these Articles Supplementary and all
documents, agreements, understandings and arrangements relating hereto and will
not seek recourse or commence any action against any of the trustees, officers
or shareholders of the Company or any of their personal assets for the
performance or payment of any obligation hereunder or thereunder. The foregoing
shall also apply to any future documents, agreements, understandings,
arrangements or transactions between the Company and holders of the Series B-1
Preferred Shares.
* * *
[The remainder of this page has been intentionally left blank]
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<PAGE>
These Articles Supplementary are executed on behalf of the Company
by its Board of Trustees this __ day of __________, 1997.
KRANZCO REALTY TRUST
(SEAL)
---------------------------------
Norman M. Kranzdorf
---------------------------------
Robert H. Dennis
---------------------------------
Irving B. Maizlish
---------------------------------
Dr. Peter D. Linneman
---------------------------------
James B. Selonick
---------------------------------
E. Donald Shapiro
---------------------------------
Edmund Barrett
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<PAGE>
Annex E
KRANZCO REALTY TRUST
ARTICLES SUPPLEMENTARY CLASSIFYING
[_____] SHARES OF BENEFICIAL INTEREST
AS
9.75% SERIES B-2 CUMULATIVE CONVERTIBLE PREFERRED SHARES
OF
BENEFICIAL INTEREST
(Pursuant to Section 8-203(b) of the
Corporations and Associations Article
of the Annotated Code of Maryland)
Kranzco Realty Trust, a real estate investment trust
organized and existing under the laws of the State of Maryland
(the "Company"), and having its executive office at 128 Fayette
Street, Conshohocken, Pennsylvania 19428, hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority granted to and vested
in the Board of Trustees of the Company (the "Board of Trustees")
in accordance with the Amended and Restated Declaration of Trust
of the Company, dated November 4, 1992, as amended (the
"Declaration of Trust"), the Board of Trustees at a meeting duly
convened and held on [_____] adopted resolutions authorizing,
creating and classifying, out of the 100,000,000 authorized
shares of beneficial interest of the Company (the "Shares"), a
separate class of preferred shares of beneficial interest
consisting of [_____] preferred shares of beneficial interest to
be known as the "Series B-2 Cumulative Convertible Preferred
Shares of Beneficial Interest" (the "Series B-2 Preferred
Shares"). The Series B-2 Preferred Shares shall have a par value
of $.01 per share. The designation, preferences, conversion and
other rights, voting powers, restrictions, or limitations as to
dividends or other distributions of the Series B-2 Preferred
Shares, which shall be deemed to be part of Article VI of the
Declaration of Trust, are as follows:
9.75% SERIES B-2 CUMULATIVE CONVERTIBLE
PREFERRED SHARES OF BENEFICIAL INTEREST
<PAGE>
The Series B-2 Preferred Shares shall be identical in all
respects to the 9.75% Series B-1 Cumulative Convertible Preferred
Shares of Beneficial Interest, $.01 par value per share, of the
Company (the "Series B-1 Preferred Shares", and, together with
the Series B-2 Preferred Shares, the "Series B Preferred
Shares"), and shall have the same rights, privileges and
preferences as the Series B-1 Preferred Shares in all
circumstances, except with respect to the conversion rights set
forth in Subparagraph (D)(1) herein.
A. Certain Definitions.
Unless the context otherwise requires, the terms defined in
this Paragraph (A) shall have, for all purposes of the provisions
of the Declaration of Trust in respect of the Series B-2
Preferred Shares, the meanings herein specified (with terms
defined in the singular having comparable meanings when used in
the plural):
Additional Common Equity. The term "Additional Common
Equity" shall have the meaning set forth in Subparagraph
(D)(6)(ii).
Adjustment Event. The term "Adjustment Event" shall mean
any event described in Subparagraph (D)(6).
Board of Trustees. The term "Board of Trustees" shall mean
the Board of Trustees of the Company.
Business Day. The term "Business Day" shall mean any day,
other than a Saturday or a Sunday, that is neither a legal
holiday nor a day on which banking institutions in New York City
are authorized or required by law to close.
Call Price. The term "Call Price" shall have the meaning
set forth in Subparagraph (G)(1).
Capital Gains Amount. The term "Capital Gains Amount" shall
have the meaning set forth in Subparagraph (B)(7).
Capital Lease. The term "Capital Lease" shall mean any
lease of property, real or personal, the obligations of the
lessee in respect of which are required in accordance with
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<PAGE>
generally accepted accounting principles to be capitalized on the
balance sheet of the lessee.
Code. The term "Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time.
Common Equity. The term "Common Equity" shall mean all
shares now or hereafter authorized of any class or series of
common shares of beneficial interest of the Company, including
the Common Shares, and any other shares, howsoever designated,
which have the right (subject always to prior rights of any class
or series of preferred shares of beneficial interest) to
participate in the distribution of the assets and earnings of the
Company without limit as to per share amount.
Common Share Distribution. The term "Common Share
Distribution" shall have the meaning set forth in Subparagraph
(D)(1).
Common Share Distribution Period. The term "Common Share
Distribution Period" shall have the meaning set forth in
Subparagraph (D)(1).
Common Share Equivalent. The term "Common Share Equivalent"
shall have the meaning set forth in Subparagraph (D)(6)(ii).
Common Shares. The term "Common Shares" shall mean the
Common Shares of Beneficial Interest, $.01 par value per share,
of the Company.
Company Affiliate. The term "Company Affiliate" shall have
the meaning set forth in Subparagraph (D)(6)(ii).
Converted Series B-2 Preferred Share Distribution. The term
"Converted Series B-2 Preferred Share Distribution" shall have
the meaning set forth in Subparagraph (D)(1).
Convertible Securities. The term "Convertible Securities"
shall have the meaning set forth in Subparagraph (D)(6)(ii).
Current Market Price per Common Share. The term "Current
Market Price per Common Share" shall mean the average of the
closing prices for a Common Share for the thirty trading days
preceding the tenth trading day prior to the relevant date of
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<PAGE>
determination. The closing price for such days shall be the last
reported sale price regular way or, in case no such reported sale
takes place on such date, the average of the reported closing bid
and asked prices regular way, in either case on the New York
Stock Exchange, Inc., or if the Common Shares are not listed or
admitted to trading on the New York Stock Exchange, Inc., on the
principal national securities exchange on which the Common Shares
are listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange, the closing sale
price of the Common Shares or in case no reported sale takes
place, the average of the closing bid and asked prices, on NASDAQ
or any comparable system. If the Common Shares are not quoted on
NASDAQ or any comparable system, the Board of Trustees shall in
good faith determine the current market price on such basis as it
considers appropriate.
Distribution. The term "Distribution" or "Distributions"
shall mean any cash or other property paid or payable on or with
respect to any share of beneficial interest, common or preferred,
including, without limitation, any dividend or other
distribution, whether in liquidation or otherwise.
Distribution Payment Date. The term "Distribution Payment
Date" shall have the meaning set forth in Subparagraph (B)(2).
Distribution Period. The term "Distribution Period" shall
mean the period from and including the Initial Issue Date to, but
not including, the first Distribution Payment Date and
thereafter, each quarterly period from and including any
Distribution Payment Date to, but not including, the next
Distribution Payment Date.
Distributions Accrued and Accrued Distributions. The terms
"Distributions Accrued" and "Accrued Distributions" shall mean,
with respect to any class or series of preferred shares of
beneficial interest, an amount which shall be equal to
distributions thereon at the annual distribution rates per share
for the respective class or series thereof from the date or dates
on which such distributions commence to accrue to the end of the
then current distribution period for such preferred shares, less
the amount of all distributions paid, with respect to such
preferred shares for such period from the date such distributions
commenced to accrue.
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<PAGE>
Excess Amount. The term "Excess Amount" shall have the
meaning set forth in Subparagraph (D)(1).
Excess Shares. The term "Excess Shares" shall have the
meaning set forth in Subparagraph (F)(4).
Four Quarter Preferential Distribution Non-Payment. The
term "Four Quarter Preferential Distribution Non-Payment" shall
have the meaning set forth in Subparagraph (E)(2)(ii).
Initial Issue Date. The term "Initial Issue Date" shall
mean the date that Series B-2 Preferred Shares are first issued
by the Company.
Junior Shares. The term "Junior Shares" shall mean, as the
case may be, (i) the Common Equity and any other class or series
of Shares which is not entitled to receive any distributions in
any Distribution Period unless all distributions required to have
been paid or declared and set apart for payment on the Series B-2
Preferred Shares shall have been so paid or declared and set
apart for payment or (ii) the Common Equity and any other class
or series of Shares which is not entitled to receive any assets
upon liquidation, dissolution or winding up of the affairs of the
Company until the Series B-2 Preferred Shares shall have received
the entire amount to which such Class B Preferred Shares is
entitled upon such liquidation, dissolution or winding up.
Liquidation Preference. The term "Liquidation Preference"
shall mean $25.00 per share.
Notice of Redemption. The term "Notice of Redemption" shall
have the meaning set forth in Subparagraph (G)(2).
Overlapping Period. The term "Overlapping Period" shall
have the meaning set forth in Subparagraph (D)(1).
Parity Shares. The term "Parity Shares" shall mean, as the
case may be, (i) any class or series of Shares which is entitled
to receive payment of distributions on a parity with the Series
B-2 Preferred Shares or (ii) any class or series of Shares which
is entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of the Company on a parity with the
Series B-2 Preferred Shares.
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<PAGE>
Person. The term "Person" shall mean an individual,
corporation, partnership, estate, trust (including a trust
classified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the
Code, association, private foundation within the meaning of
Section 509(a) of the Code, joint stock company, limited
liability company or other entity, and also includes a group as
that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, but does not include
an underwriter which participates in a public offering of the
Series B-2 Preferred Shares; provided, that such ownership by
such underwriter would not result in the Company being "closely
held" within the meaning of Section 856(h) of the Code, or
otherwise result in the Company failing to qualify as a REIT.
Preferred Shares Trustee. The term "Preferred Shares
Trustee" shall have the meaning set forth in Subparagraph
(E)(2)(ii).
Record Date. The term "Record Date" shall mean the date
designated by the Board of Trustees at the time a distribution is
declared; provided, that such Record Date shall be the first day
of the calendar month in which the applicable Distribution
Payment Date falls or such other date designated by the Board of
Trustees for the payment of distributions that is not more than
ninety (90) days prior to such Distribution Payment Date.
Redemption Date. The term "Redemption Date" shall have the
meaning set forth in Subparagraph (G)(2).
Redemption Distributions. The term "Redemption
Distributions" shall have the meaning set forth in Subparagraph
(G)(1).
REIT. The term "REIT" shall mean a real estate investment
trust under Section 856 of the Code.
Senior Shares. The term "Senior Shares" shall mean, as the
case may be, (i) any class or series of Shares ranking senior to
the Series B-2 Preferred Shares in respect of the right to
receive distributions or (ii) any class or series of Shares
ranking senior to the Series B-2 Preferred Shares in respect of
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<PAGE>
the right to participate in any distribution upon liquidation,
dissolution or winding up of the affairs of the Company.
Series A Preferred Shares. The term "Series A Preferred
Shares" shall mean the Series A Increasing Rate Cumulative
Convertible Preferred Shares of Beneficial Interest, $.01 par
value per share, of the Company.
Series A-1 Preferred Shares. The term "Series A-1 Preferred
Shares" shall mean the Series A-1 Increasing Rate Cumulative
Convertible Preferred Shares of Beneficial Interest, $.01 par
value per share, of the Company.
Series A-1 Preferred Share Conversion Limit. The term
"Series A-1 Preferred Share Conversion Limit" shall have the
meaning set forth in Subparagraph (D)(6).
Series B-2 Conversion Price. The term "Series B-2
Conversion Price" shall have the meaning set forth in
Subparagraph (D)(1).
Series B-2 Excess Shares. The term "Series B-2 Excess
Shares" shall have the meaning set forth in Subparagraph (F)(4).
Shares. The term "Shares" shall mean any transferable
shares of beneficial interest of the Company of any class or
series.
Series B-2 Excepted Person. The term "Series B-2 Excepted
Person" shall have the meaning set forth in Subparagraph (F)(5).
Special Conversion Event. The term "Special Conversion
Event" shall mean:
(i) Norman M. Kranzdorf ceasing to be any of the
following: (A) Chief Executive Officer, (B) Chief Operating
Officer or (C) any other senior executive officer of the
Company having an active role in such capacity in the
management of the business of the Company;
(ii) the merger or consolidation of the Company with or
into any Person, unless (A) immediately following such
merger or consolidation, more than 50% of the surviving
company's issued and outstanding voting securities are held
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<PAGE>
by the holders of the Company's issued and outstanding
voting securities immediately prior to such merger or
consolidation and (B) effective provision is made in the
charter documents of the surviving Person or otherwise for
the recognition, preservation and protection of the
preferences, conversion and other rights, voting powers,
restrictions and limitations as to dividends or other
distributions of the Series B-2 Preferred Shares;
(iii) the sale, lease, transfer, spin-off, or other
disposal or distribution of all or substantially all of the
assets of the Company;
(iv) a tender offer or other similar offer for at least
a majority of the voting shares of beneficial interest of
the Company by any Person or group of related Persons for
purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended, is commenced and completed, and as a
result thereof such Person or related group of Persons owns
or controls more than a majority of the issued and
outstanding voting securities of the Company;
(v) with respect to any agreements for, or notes or
other instruments evidencing, borrowed money of the Company
or any of the Subsidiaries for, individually or in the
aggregate, $10,000,000 or more (including as a result of any
cross-default provisions), if (A) the Company or any of the
Subsidiaries defaults in any payment of principal or
interest, (B) a non-monetary default by the Company or any
of the Subsidiaries occurs which is not contested by the
Company or the applicable Subsidiary and is not cured within
any applicable grace period or waived or (C) a non-monetary
default by the Company or any of the Subsidiaries occurs
which is contested by the Company or the applicable
Subsidiary and is not cured within 30 days after it is
determined by a court of competent jurisdiction that the
Company or the applicable Subsidiary has committed such
default, and, in any case, the holders (or trustees on
behalf of such holders) of any indebtedness for borrowed
money of the Company or any of the Subsidiaries for an
aggregate amount of $10,000,000 or more, pursuant to such
agreements, notes or instruments, or any cross-default
provisions contained in any agreements, notes or instruments
representing indebtedness for borrowed money, elect to
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<PAGE>
accelerate the stated maturity or payment dates of such
indebtedness;
(vi) with respect to any Capital Lease of the Company
or any of the Subsidiaries pursuant to which the Company or
any of the Subsidiaries has rental obligations in an
aggregate amount of $25,000,000 or more over the term of
such Capital Lease (including as a result of any cross-
default provisions), if (A) a default by the Company or any
of the Subsidiaries occurs in any payment of any rental
obligations, (B) a non-monetary default by the Company or
any of the Subsidiaries occurs which is not contested by the
Company or the applicable Subsidiary and is not cured within
any applicable grace period or waived or (C) a non-monetary
default by the Company or any of the Subsidiaries occurs
which is contested by the Company or the applicable
Subsidiary and is not cured within 30 days after it is
determined by a court of competent jurisdiction that the
Company or the applicable Subsidiary has committed such
default, and, in each case, if the lessors of Capital Leases
of the Company or any of the Subsidiaries pursuant to which
the Company or any of the Subsidiaries has rental
obligations in an aggregate amount of $25,000,000 or more
over the term of such Capital Leases, pursuant to such
Capital Leases, or any cross-default provisions contained in
any Capital Leases, elect to accelerate all remaining rental
obligations under such Capital Leases to become due prior to
the stated payment dates thereof;
(vii) the commencement by or against the Company of
any insolvency, bankruptcy, dissolution, liquidation or
receivership proceedings with respect to the Company;
(viii) the loss of the Company's status as a REIT; or
(ix) if the Company shall have failed to pay a distri-
bution on the outstanding Series B-2 Preferred Shares for
any quarterly Distribution Period within five days of the
Distribution Payment Date therefor.
Subsidiaries. The term "Subsidiaries" shall mean all
corporations, partnerships or other business entities of which
more than 50% of the total voting securities or equity securities
are owned or controlled by the Company.
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<PAGE>
Total Distributions. The term "Total Distributions" shall
have the meaning set forth in Subparagraph (B)(7).
B. Distributions.
1. The record holders of Series B-2 Preferred Shares shall
be entitled to receive from the Initial Issue Date, when, as and
if authorized by the Board of Trustees, out of assets legally
available for payment of distributions, cumulative cash
distributions at a rate of 9.75% per annum of the Liquidation
Preference per Series B-2 Preferred Share, computed on the basis
of a 360-day year consisting of twelve 30-day months.
2. Distributions on the Series B-2 Preferred Shares shall
accrue and be cumulative from the Initial Issue Date.
Distributions shall be payable quarterly in arrears for each
Distribution Period when, as and if authorized by the Board of
Trustees, on January 20, April 20, July 20 and October 20 of each
year (each, a "Distribution Payment Date"), commencing on the
first Distribution Payment Date following the Initial Issue Date.
If any Distribution Payment Date occurs on a day that is not a
Business Day, any accrued distributions otherwise payable on such
Distribution Payment Date shall be paid on the next succeeding
Business Day. The amount of distributions payable on Series B-2
Preferred Shares for each full Distribution Period shall be
computed by dividing by four the annual distribution rate set
forth in Subparagraph (B)(1). Distributions payable in respect
of any Distribution Period which is less than a full Distribution
Period in length will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Subject to Subparagraph
(D)(1), distributions shall be paid to the record holders of the
Series B-2 Preferred Shares as their names shall appear on the
share records of the Company at the close of business on the
Record Date for such distribution. Subject to Subparagraph
(D)(1), distributions in respect of any past Distribution Periods
that are in arrears may be authorized, declared, set apart for
payment and paid at any time to record holders on the Record Date
therefor. Any distribution payment made on Series B-2 Preferred
Shares shall be first credited against the earliest accrued but
unpaid distribution due which remains payable. Upon issuance,
the Series B-2 Preferred Shares will rank on a parity as to
distributions with the Series A Preferred Shares and the Series
B-1 Preferred Shares.
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3. Except as provided in the next sentence, if any Series
B-2 Preferred Shares are outstanding, no distributions (other
than in Junior Shares or Common Shares) shall be authorized,
declared, set apart for payment or paid on any class or series of
Junior Shares or Parity Shares unless all accrued distributions
on the Series B-2 Preferred Shares for all prior Distribution
Periods and the then current Distribution Period have been or
contemporaneously are authorized, declared, set apart for payment
or paid. When distributions are not so paid in full (or a sum
sufficient for such full payment is not so set apart for payment)
upon the Series B-2 Preferred Shares and any other class or
series of Parity Shares, all distributions authorized or declared
upon the Series B-2 Preferred Shares and any such class or series
of Parity Shares shall be authorized or declared pro rata so that
the amount of distributions authorized or declared per share on
the Series B-2 Preferred Shares and such class or series of
Parity Shares shall in all cases bear to each other the same
ratio that accrued and unpaid distributions per share on the
Series B-2 Preferred Shares and such class or series of Parity
Shares bear to each other.
4. Except as provided in Subparagraph (B)(3), unless all
accrued distributions on the Series B-2 Preferred Shares have
been or contemporaneously are authorized, declared, set apart for
payment or paid for all prior Distribution Periods and the then
current Distribution Period, no Junior Shares or Parity Shares
shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any such Shares) by the
Company (except by conversion into or exchange for Junior Shares
or Common Shares). Holders of the Series B-2 Preferred Shares
shall not be entitled to any distributions, whether payable in
cash, property or Shares, in excess of accrued and cumulative
distributions as herein provided. No interest or sum of money in
lieu of interest shall be payable in respect of any distribution
payment or payments on the Series B-2 Preferred Shares that may
be in arrears.
5. No distribution on Series B-2 Preferred Shares shall be
required to be authorized, declared, set apart for payment or
paid by the Company to the extent such authorization,
declaration, setting apart for payment or payment shall be
restricted or prohibited by law. Notwithstanding that any
distributions on Series B-2 Preferred Shares are restricted or
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prohibited by law, such distributions shall accrue and be
cumulative.
6. Distributions on the Series B-2 Preferred Shares, if
not paid on the applicable Distribution Payment Date, will accrue
whether or not distributions are authorized or declared for such
Distribution Payment Date, whether or not the Company has
earnings and whether or not there are assets legally available
for the payment of such distributions.
7. If, for any taxable year, the Board of Trustees elects
to designate as "capital gain dividends" (as defined in Section
857 of the Code) any portion (the "Capital Gains Amount") of the
distributions paid or made available for the year to holders of
all classes of Shares (the "Total Distributions"), then the
portion of the Capital Gains Amount that shall be allocable to
holders of the Series B-2 Preferred Shares shall be the Capital
Gains Amount multiplied by a fraction, the numerator of which
shall be the total distributions paid or made available to the
holders of the Series B-2 Preferred Shares for the year and the
denominator of which shall be the Total Distributions.
C. Distributions Upon Liquidation, Dissolution or Winding Up.
1. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, before
any distribution shall be made to the holders of any Junior
Shares, and subject to the payment or provision or reserve for
payment of the debts and liabilities (whether absolute, accrued,
asserted or unasserted, contingent or otherwise) and the
preferences of Senior Shares, if any, of the Company, the holders
of Series B-2 Preferred Shares shall be entitled to receive, out
of the assets of the Company legally available for payment of
distributions, liquidating distributions in cash (or property at
its fair market value as determined in good faith by the Board of
Trustees (or a combination thereof)) in the amount of the
Liquidation Preference for each Series B-2 Preferred Share plus
an amount equal to all accrued and unpaid distributions pursuant
to Paragraph (B) (whether or not authorized or declared, and
whether or not there would be assets legally available for the
payment of such distributions) to the date of such liquidation,
dissolution or winding up. After payment of the full amount of
the liquidating distributions to which they are entitled pursuant
to this Subparagraph (C)(1), the holders of Series B-2 Preferred
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Shares will have no right or claim to any of the remaining assets
of the Company and shall not be entitled to any other
distribution.
2. Notwithstanding any provision in Subparagraph (C)(1) to
the contrary, in the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up of the affairs
of the Company, the assets legally available for payment of
distributions are insufficient to pay (x) the full amount of the
liquidating distributions to which holders of Series B-2
Preferred Shares would otherwise be entitled pursuant to
Subparagraph (C)(1) and (y) the corresponding amounts of the
liquidating distributions to which holders of Parity Shares would
be entitled upon liquidation, dissolution or winding up of the
affairs of the Company, then the holders of the Series B-2
Preferred Shares and the holders of the Parity Shares shall share
ratably in any such distribution of assets in proportion to the
full liquidating distributions to which they otherwise would be
respectively entitled. Upon issuance, the Series B-2 Preferred
Shares will rank on a parity with the Series A Preferred Shares
and the Series B-1 Preferred Shares as to the distribution of
assets upon any liquidation, dissolution or winding up of the
affairs of the Company.
D. Conversion.
1. (a) Each outstanding Series B-2 Preferred Share shall,
without any action on the part of the holder thereof,
automatically be converted into one Series B-1 Preferred Share on
_______, 2000 (unless otherwise converted earlier pursuant to
this Subparagraph (D)(1)).
(b) Holders of Series B-2 Preferred Shares shall have the
right, exercisable after ______, 2000 (unless otherwise
exercisable earlier pursuant to this Subparagraph (D)(1), at any
time and from time to time, to convert all or any of their Series
B-2 Preferred Shares (except that upon any dissolution,
liquidation or winding up of the affairs of the Company the right
of conversion shall terminate at the close of business on the
Business Day fixed for payment of the liquidating distributions
to which holders of Series B-2 Preferred Shares are entitled)
into such number of fully paid Common Shares as is obtained by:
(i) multiplying the number of Series B-2 Preferred Shares to be
converted by $25.00 and (ii) dividing the result by the
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conversion price listed below that will be in effect during the
corresponding date of conversion listed below:
Date of Conversion Conversion Price
------------------ ----------------
Prior to the occurrence of a
Special Conversion Event:
_____, 2000 to and including
_____, 2001 $18.2000
_____, 2001 and thereafter $17.7125
At any time after a Special
Conversion Event shall have
occurred $17.7125
At any time after Notice of
Redemption pursuant to Paragraph
(G) hereof $16.2500
If, and each time, a conversion price listed above then in effect
(the "Series B-2 Conversion Price") shall be adjusted pursuant to
the terms of these Paragraphs (A) through (N), all of the
conversion prices listed above shall be so adjusted as though
such conversion prices were in effect on the date of adjustment.
The Series B-2 Conversion Price shall be the conversion price as
last adjusted and then in effect. Notwithstanding anything else
to the contrary, (x) after any Special Conversion Event under
clauses (i), (iv), (v), (vi), (vii), (viii) or (ix) of the
definition thereof and (y) immediately prior to any Special
Conversion Event under clauses (ii) or (iii) of the definition
thereof, each Series B-2 Preferred Share shall, without any
action on the part of the holder therof, immediately and
automatically be converted into one Series B-1 Preferred Share
and, holders of Series B-2 Preferred Shares shall have the right,
exercisable at any time, to convert, in accordance with the terms
of this Paragraph (D), all or any such Series B-2 Preferred
Shares (except that upon any dissolution, liquidation or winding
up of the affairs of the Company the right of conversion shall
terminate at the close of business on the Business Day fixed for
payment of the liquidating distributions to which holders of
Series B-2 Preferred Shares are entitled) into such number of
fully paid Common Shares as is obtained by: (x) multiplying the
number of Series B-2 Preferred Shares to be converted by $25.00
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and (y) dividing the result by $17.7125, as adjusted pursuant to
this Paragraph (D).
Notwithstanding anything to the contrary, during the
period from the date the Company resolves to take any action that
would constitute a Special Conversion Event under clauses (ii) or
(iii) of the definition thereof until the consummation of such
Special Conversion Event, the holders of Series B-2 Preferred
Shares shall have the right to make an election to convert all or
any Series B-2 Preferred Shares into Common Shares, conditional
upon approval of such Special Conversion Event by the holders
entitled to vote on such matter, in which case, if such Special
Conversion Event is approved, conversion of such Series B-2
Preferred Shares to Common Shares as to which a conditional
election has been made shall occur immediately prior to such
Special Conversion Event.
In the event that a tender offer or other similar offer
shall have been commenced which if consummated would result in a
Special Conversion Event under clause (iv) of the definition
thereof, holders shall have the right to convert their Series B-2
Preferred Shares pursuant to the terms hereof within the five
business day period prior to the consummation of such tender
offer or other similar offer; provided, however, if such tender
offer or other similar offer is not consummated or, if
consummated, does not result in a Special Conversion Event under
clause (iv) of the definition thereof, then the Company shall
have the right to redeem any and all Common Shares into which any
Series B-2 Preferred Shares were converted pursuant to such
clause (iv) for the same number of Series B-2 Preferred Shares
converted pursuant thereto, upon written notice from the Company
notifying such holder of the election of the Company to redeem
such Series B-2 Preferred Shares stating the number of Common
Shares to be surrendered, the number of Series B-2 Preferred
Shares to be issued therefor and the date and the place(s) where
the certificate(s) representing such Series B-2 Preferred Shares
are to be surrendered. On or after the date specified in such
notice, each such holder shall present and surrender his
certificate or certificates for such Common Shares to the Company
at the place designated in such notice for redemption and
thereupon such holder shall be issued the same number of Series
B-2 Preferred Shares converted and each surrendered certificate
shall be cancelled. From and after the date of issuance of the
number of Series B-2 Preferred Shares set forth in the notice,
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<PAGE>
(i) all distributions on the Common Shares to be redeemed shall
cease to accrue, and (ii) all rights of the holders thereof as
holders of Common Shares shall cease and terminate, except for
the right to receive the number of Series B-2 Preferred Shares
upon the surrender of Common Shares certificates as set forth in
the notice.
In addition to any other notice required to be given
hereunder, (i) if a Special Conversion Event shall have occurred,
or, (ii) if, prior to _____, 1998, an Adjustment Event shall have
occurred, the Company shall, within five Business Days of such
occurrence, send notice to all holders of Series B-2 Preferred
Shares (1) that the Series B-2 Preferred Shares are convertible
for Common Shares and not subject to any waiting period with
respect to the conversion thereof, (2) of the date as of which
the Series B-2 Preferred Shares became convertible for Common
Shares, (3) of the ratio at which the Series B-2 Preferred Shares
are convertible for Common Shares and (4) a description of the
nature of the Special Conversion Event or Adjustment Event, as
the case may be. The Company shall send notice to all holders of
Series B-2 Preferred Shares describing any action that would
constitute a Special Conversion Event under clauses (ii) or (iii)
of the definition thereof, together with a form of conversion
notice, at least 30 calendar days prior to any vote of holders of
the Common Shares required to approve such action, or, if no such
vote is so required, prior to the consummation of the
transaction.
Notwithstanding the surrender of Series B-2 Preferred
Shares for conversion into Common Shares, all accrued
distributions with respect to such Series B-2 Preferred Shares
for any past Distribution Periods that are in arrears at the time
of such conversion shall be paid to the registered holder of such
Series B-2 Preferred Shares in the same manner as if such
registered holder continued to be the registered holder of such
converted Series B-2 Preferred Shares following such conversion
or, if upon conversion of such Series B-2 Preferred Shares there
will be no more Series B-2 Preferred Shares outstanding, then at
the time of such conversion. In addition, if any holder
surrenders Series B-2 Preferred Shares for conversion into Common
Shares, such holder shall be entitled to receive a distribution
on such Series B-2 Preferred Shares converted for the portion of
the current Distribution Period such holder owned the Series B-2
Preferred Shares surrendered for conversion, notwithstanding that
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the record date for the distribution payable for the current
Distribution Period may not have occurred, in an amount per
Series B-2 Preferred Share converted equal to the product of (i)
the distribution payable on each Series B-2 Preferred Share
converted for the current Distribution Period, multiplied by (ii)
a fraction, the numerator of which is the number of calendar days
in such Distribution Period elapsed to (but not including) the
date of conversion and the denominator of which is the total
number of calendar days in such Distribution Period.
If any holder surrenders Series B-2 Preferred Shares
for conversion into Common Shares and as a result thereof such
holder is or will be entitled to receive distributions with
respect to both such Series B-2 Preferred Shares converted and
such Common Shares into which such Series B-2 Preferred Shares
were converted for the same period of time (the "Overlapping
Period"), then, at the time of and as a condition precedent to
such conversion (or, if at the time of such conversion the amount
of the distribution with respect to such Common Shares has not
yet been determined, at the time of such determination), the
Company shall withhold from any distribution payable on such
Series B-2 Preferred Shares converted, an amount equal to the
Excess Amount (defined below), if any. If the amount of any
distribution payable on such Series B-2 Preferred Shares
converted shall not be sufficient to pay any Excess Amount, such
holder hereby authorizes the Company to withhold from any
distribution payable to such holder on any Series B-2 Preferred
Shares owned by such holder or, to the extent permissible, on any
Common Shares owned by such holder, an amount equal to the Excess
Amount. "Excess Amount" shall mean an amount equal to the product
of (i) the sum of the distributions payable on each Common Share
into which such Series B-2 Preferred Shares were converted for
the distribution period relating to the Common Shares in which
the Overlapping Period occurs, multiplied by (ii) a fraction, the
numerator of which is the number of calendar days in the
Overlapping Period and the denominator of which is the total
number of calendar days in such distribution period relating to
the Common Shares in which the Overlapping Period occurs.
2. Any holder of one or more Series B-2 Preferred Shares
electing to convert such Share or Shares shall deliver the
certificate or certificates therefor to the principal office of
the transfer agent for the Common Shares, with the form of notice
of election to convert prescribed by the Company fully completed
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<PAGE>
and duly executed and (if so required by the Company or any
conversion agent) accompanied by instruments of transfer in form
reasonably satisfactory to the Company and to any conversion
agent, duly executed by the registered holder or his duly
authorized attorney, and any payments (or evidence of payment)
required pursuant to Subparagraph (D)(4). The conversion right
with respect to any such Series B-2 Preferred Shares shall be
deemed to have been exercised on the date upon which the last of
the conditions for conversion provided in this Subparagraph
(D)(2) have been satisfied by the holder of such Series B-2
Preferred Shares, and the Person or Persons entitled to receive
the Common Shares issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such Common
Shares on such date.
3. No fractional Common Share or scrip representing a
fractional Common Share shall be issued upon conversion of Series
B-2 Preferred Shares. If more than one Series B-2 Preferred
Share shall be surrendered for conversion on any day by the same
holder, the number of full Common Shares which shall be issuable
upon conversion thereof shall be computed on the basis of the
aggregate number of Series B-2 Preferred Shares so surrendered by
such holder on such day. Instead of any fractional Common Share
which would otherwise be issuable upon conversion of any Series
B-2 Preferred Shares, the Company shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction
of the Current Market Price per Common Share.
4. If a holder converts Series B-2 Preferred Shares, the
Company shall pay, at the time of and as a condition precedent to
conversion, any documentary, stamp or similar issue or transfer
tax due on the issuance of Common Shares upon the conversion.
The holder, however, shall pay to the Company the amount of any
tax which is due (or shall establish to the satisfaction of the
Company payment thereof) if the shares are to be issued in a name
other than the name of the Person in whose name such Series B-2
Preferred Shares are registered.
5. The Company shall reserve and shall at all times keep
reserved out of its authorized but unissued Common Shares a
sufficient number of Common Shares to permit the conversion of
the then outstanding Series B-2 Preferred Shares that may then be
converted. All Common Shares which may be issued upon conversion
of Series B-2 Preferred Shares shall be validly issued and fully
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<PAGE>
paid, and not subject to preemptive or other similar rights. In
order that the Company may issue Common Shares upon conversion of
Series B-2 Preferred Shares, the Company will endeavor to comply
with all applicable Federal and State securities laws and will
endeavor to list such Common Shares to be issued upon conversion
on each securities exchange on which the Common Shares are
listed.
The Series B-2 Preferred Shares converted pursuant to
the provisions of this Paragraph (D) shall thereupon be retired
and may not be reissued as Series B-2 Preferred Shares but shall
thereafter have the status of authorized but unissued Shares.
6. The conversion rate in effect at any time shall be
subject to adjustment from time to time upon the happening of
certain events as follows:
(i) Distribution of Common Shares; Reclassification;
Subdivision; Combination. In case the Company shall (1) pay
a dividend payable in, effect a split up of, or make any
other distribution in, Common Shares to holders of the
Common Shares, (2) reclassify the outstanding Common Shares
into Shares of some other class or series of Shares, (3)
subdivide the outstanding Common Shares into a greater
number of Common Shares or (4) combine the outstanding
Common Shares into a smaller number of Common Shares, the
conversion rate immediately prior to such action shall be
adjusted so that the holder of any Series B-2 Preferred
Shares thereafter surrendered for conversion shall be
entitled to receive the number of Common Shares which he
would have owned immediately following such action had such
Series B-2 Preferred Shares been converted immediately prior
thereto. An adjustment made pursuant to this Subparagraph
(D)(6)(i) shall become effective immediately after the
record date in the case of a distribution and shall become
effective immediately after the effective date in the case
of a reclassification, subdivision or combination.
(ii) Issuance of Additional Common Equity. (A) If the
Company shall issue to a Person who is not a Company
Affiliate (as defined below) at the time of issuance any
Additional Common Equity (as defined below) at a price per
share less than 85% of the Current Market Price per Common
Share then in effect on the date of such issuance, then the
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number of Common Shares into which each Series B-2 Preferred
Share shall be convertible shall be adjusted so that the
same shall be equal to the number determined by multiplying
the number of Common Shares into which such Series B-2
Preferred Share was convertible immediately prior to such
issuance by a fraction of which the numerator shall be the
number of shares of Common Equity outstanding immediately
prior to such issuance plus the number of shares of
Additional Common Equity offered, and of which the
denominator shall be the number of shares of Common Equity
outstanding immediately prior to such issuance plus the
number of shares of Common Equity which the aggregate
offering price of the Additional Common Equity offered would
purchase at such Current Market Price per Share. Such
adjustments shall become effective immediately after such
issuance.
(B) If the Company shall issue to a Person who is
a Company Affiliate at the time of issuance, in any one or a
series of related transactions, any Additional Common Equity
at a price per share less than the Current Market Price per
Common Share then in effect on the date of such issuance,
then the number of Common Shares into which each Series B-2
Preferred Share shall be convertible shall be adjusted so
that the same shall be equal to the number determined by
multiplying the number of Common Shares into which such
Series B-2 Preferred Share was convertible immediately prior
to such issuance by a fraction of which the numerator shall
be the number of shares of Common Equity outstanding
immediately prior to such issuance plus the number of shares
of Additional Common Equity offered, and of which the
denominator shall be the number of shares of Common Equity
outstanding immediately prior to such issuance plus the
number of shares of Common Equity which the aggregate
offering price of the Additional Common Equity offered would
purchase at such Current Market Price per Share. Such
adjustments shall become effective immediately after such
issuance.
"Additional Common Equity" shall mean all Common Equity
issued by the Company except: (1) the Common Shares issued
upon conversion of the Series B-2 Preferred Shares; (2) the
Common Equity issued upon conversion of any Senior Shares,
Parity Shares, Common Share Equivalents or any other shares
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of beneficial interest which, by their terms, are
convertible into Common Equity and (a) which were
outstanding on November 12, 1996, (b) for which no
adjustment pursuant to this Subparagraph (D)(6) was required
at the time of issuance or the time of any amendment or
change thereto or (c) for which an adjustment is provided
for in another provision of this Paragraph (D)(6); (3) up to
an aggregate of 250,000 shares of Common Equity and shares
of Common Equity into which Common Share Equivalents are
exercisable, exchangeable or convertible, in each case
issued to Affiliates of the Company from and after November
12, 1996, at a price per share less than the Current Market
Price per Common Share then in effect on the date of such
issuance, including, without limitation, shares of Common
Equity or Common Share Equivalents issued to directors,
officers, employees, or trustees of the Company or any
Subsidiary of the Company and those issued pursuant to stock
option, stock purchase, performance or other remuneration
plans adopted by the Board of Trustees from time to time
(including, without limitation, the Company's 1992 Employee
Share Option Plan, 1992 Trustee Share Option Plan and 1995
Management Incentive Plan; (4) the issuance of shares of
Common Equity under any circumstances for which an
adjustment is provided in Subparagraph (D)(6)(i); or (5)
Common Equity issued pursuant to a dividend reinvestment
plan or stock purchase plan available to all holders of
Common Equity.
"Company Affiliate" shall mean, with respect to any issuance
of Additional Common Equity, (i) any trustee, director,
officer or employee of the Company or of any subsidiary of
the Company, (ii) any Person that is the direct or indirect
owner of more than five percent of the issued and
outstanding Common Equity of the Company, (iii) any Person
that controls, is controlled by or is under common control
with, the Company, (iv) any trustee, director, officer,
employee or family member of any Person listed in clauses
(i), (ii) or (iii) of this definition or (v) any Person with
respect to which any Person listed in clauses (i) through
(iv) of this definition is a director, officer or the direct
or indirect owner of more than ten percent of the issued and
outstanding equity securities of such Person immediately
prior to any such issuance.
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"Common Share Equivalent" shall mean any evidence of
indebtedness, shares of stock or beneficial interest (other
than Series B-2 Preferred Shares) or other securities which
are or may be convertible into or exchangeable for
Additional Common Equity ("Convertible Securities"), or any
warrant, option or other right to subscribe for any
Convertible Securities or for any Additional Common Equity.
For purposes of this Subparagraph (D)(6)(ii), the number of
Common Equity at any time outstanding shall not include
Common Equity held in the treasury of the Company.
(iii) Issuance of Common Share Equivalents. (A) If
the Company shall issue to a Person who is not a Company
Affiliate at the time of issuance any Common Share
Equivalent and the aggregate of the price per Common Share
Equivalent and the price per share for which shares of
Additional Common Equity may be issuable thereafter pursuant
to such Common Share Equivalent shall be below an amount
equal to 85% of the Current Market Price per Common Share on
the record date for determination of the holders of the
Common Shares entitled to receive such issue, or, if, after
any such issuance, the price per share for which shares of
Additional Common Equity may be issuable thereafter is
amended or changed and the aggregate of such price, as so
amended or changed, and the price per Common Share
Equivalent, shall be below an amount equal to 85% of the
Current Market Price per Common Share at the effective time
of such amendment or change, then the number of Common
Shares into which each Series B-2 Preferred Share shall be
convertible shall be adjusted so that the same shall be
equal to the number determined by multiplying the number of
Common Shares into which such Series B-2 Preferred Share was
convertible immediately prior to such record date by a
fraction of which the numerator shall be the number of
Common Shares outstanding on such record date plus the
number of Common Shares into which, or for which, the Common
Share Equivalents so offered are convertible or exercisable,
and of which the denominator shall be the number of Common
Shares outstanding on such record date plus the number of
Common Shares which the aggregate offering price of the
Common Shares into which, or for which, the Common Share
Equivalents so offered are convertible or exercisable would
purchase at such Current Market Price per Common Share.
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Such adjustments shall become effective immediately after
such record date.
(B) If the Company shall issue to a Person who is
a Company Affiliate at the time of issuance, in any one or a
series of related transactions, any Common Share Equivalents
and the aggregate of the price per Common Share Equivalent
and the price per share for which shares of Additional
Common Equity may be issuable thereafter pursuant to such
Common Share Equivalent shall be below an amount equal to
the Current Market Price per Common Share on the date of
issue, or, if, after any such issuance, the price per share
for which shares of Additional Common Equity may be issuable
thereafter is amended or changed and the aggregate of such
price, as so amended or changed, and the price per Common
Share Equivalent, shall be below an amount equal to the
Current Market Price per Common Share at the effective time
of such amendment or change, then the number of Common
Shares into which each Series B-2 Preferred Share shall be
convertible shall be adjusted so that the same shall be
equal to the number determined by multiplying the number of
Common Shares into which such Series B-2 Preferred Share was
convertible immediately prior to such record date by a
fraction of which the numerator shall be the number of
Common Shares outstanding on such record date plus the
number of Common Shares into which, or for which, the Common
Share Equivalents so offered are convertible or exercisable,
and of which the denominator shall be the number of Common
Shares outstanding on such record date plus the number of
Common Shares which the aggregate offering price of the
Common Shares into which, or for which, the Common Share
Equivalents so offered are convertible or exercisable would
purchase at such Current Market Price per Common Share.
Such adjustments shall become effective immediately after
such issuance.
(iv) Conversion of Series A Preferred Shares or Series
A-1 Preferred Shares. Notwithstanding anything to the
contrary contained in this Subparagraph (D)(6), if the
aggregate number of Common Shares into which the Series A
Preferred Shares or Series A-1 Preferred Shares are
converted exceeds 500,000 Common Shares, subject to
adjustment pursuant to Subparagraph (D)(6)(i) (the "Series A
Conversion Limit"), then the number of Common Shares into
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which each Series B-2 Preferred Share shall be convertible
shall be adjusted so that the holder of any Series B-2
Preferred Shares thereafter surrendered for conversion shall
be entitled to receive such number of Common Shares as would
have been received by such holder of Series B-2 Preferred
Shares having the same percentage of the then outstanding
Common Shares upon such conversion as such holder would have
received upon conversion if the aggregate number of Common
Shares into which the Series A Preferred Shares or Series A-
1 Preferred Shares were converted equalled the Series A
Conversion Limit at the time of conversion of such Series B-
2 Preferred Shares.
(v) Additional Adjustments. In the event that the
Company shall issue to Affiliates of the Company in excess
of an aggregate of 250,000 shares of Common Equity and
shares of Common Equity into which Common Share Equivalents
are exercisable, exchangeable or convertible, in each case
which are issued from and after November 12, 1996, at a
price per share less than the Current Market Price per
Common Share then in effect on the date of such issuance,
then the calculation of the number of Common Shares into
which each Series B-2 Preferred Share is convertible shall
be adjusted pursuant to the provisions of this Subparagraph
(D)(6) for each such shares of Common Equity and Common
Share Equivalents to Affiliates of the Company at a price
per share less than the Current Market Price per Common
Share then in effect on the date of such issuance.
(vi) Limitation of Adjustments. For purposes of this
Subparagraph (D)(6), the number of Common Shares or Common
Equity at any time outstanding shall not include Common
Shares or Common Equity held in the treasury of the Company.
No adjustment of the Series B-2 Conversion Price shall be
made under Subparagraph (D)(6)(iii), (1) upon the issuance
of any Convertible Security which is issued pursuant to the
exercise of any warrants or rights, if any adjustment shall
previously have been made in the Series B-2 Conversion Price
then in effect upon the issuance of such warrants or other
rights pursuant to Subparagraph (D)(6)(iii) or otherwise
pursuant to this Subparagraph (D)(6) or (2) upon the
issuance of the Series A-1 Preferred Shares in exchange for
all or any of the issued and outstanding Series A Preferred
Shares.
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(vii) Additional Distributions. If the Company
shall make a dividend or distribution of securities (other
than Common Shares or Common Share Equivalents) or other
property to the holders of Junior Shares and not to the
holders of the Series B-2 Preferred Shares, then, unless the
holders of the Series B-2 Preferred Shares are entitled to
receive such distribution at a later time upon conversion of
the Series B-2 Preferred Shares and such distribution has
been set aside for such later distribution, each holder of
Series B-2 Preferred Shares shall receive at the time of
payment or issuance of such dividend or distribution,
without payment or any consideration therefor, such
securities or other property which he would have owned
immediately following such dividend or distribution had such
holder's Series B-2 Preferred Shares been converted
immediately prior thereto; and an appropriate provision
therefor shall be made a part of any such dividend or
distribution.
(viii) Computation of Consideration. In making
adjustments to the Series B-2 Conversion Price pursuant to
this Subparagraph (D)(6), the consideration received by the
Company shall be deemed to be the following: to the extent
that any Additional Common Equity, any Common Share
Equivalents or rights shall be issued for a cash
consideration, the consideration received by the Company
therefor, or, if such Additional Common Equity or Common
Share Equivalents are offered by the Company for
subscription, the subscription price paid to and received by
the Company, or, if such Additional Common Equity or Common
Share Equivalents are sold to underwriters or dealers for -
public offering without a subscription offering, the initial
public offering price, in each such case excluding any
amounts paid or receivable for accrued interest or accrued
dividends and without deduction of any compensation,
discounts, commissions or expenses paid or incurred by the
Company for and in the underwriting of, or otherwise in
connection with, the issue thereof; to the extent that such
issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the
consideration received by the Company shall be the fair
market value of such consideration at the time of such
issuance as determined in good faith by the Board of
Trustees. The consideration for any Additional Common
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<PAGE>
Equity issuable pursuant to any Common Share Equivalents
shall be the consideration received by the Company for
issuing such Common Share Equivalents, plus the additional
consideration payable to the Company upon the exercise,
conversion or exchange of such Common Share Equivalents. In
the case of the issuance at any time of any Additional
Common Equity or Common Share Equivalents in payment or
satisfaction of any dividend upon any class of stock other
than Common Shares, the Company shall be deemed to have
received for such Additional Common Equity or Common Share
Equivalents a consideration equal to the amount of such
dividend so paid or satisfied. In any case in which the
consideration to be received or paid shall be other than
cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair value
of such consideration as determined in good faith by the
Board of Trustees, without deduction of any expenses
incurred or any underwriting commissions or concessions paid
or allowed by the Company in connection therewith.
7. No adjustment in the conversion rate shall be required
until cumulative adjustments result in a change of 1% or more of
the conversion price as in effect prior to the last adjustment of
the conversion rate; provided, that any adjustment which by
reason of this Subparagraph (D)(7) is not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Paragraph (D) shall be
rounded up to the nearest cent ($.01) or to the nearest one-
thousandth (1/1000) of a share, as the case may be. No
adjustment to the conversion rate shall be made for cash divi-
dends.
8. In the event that, as a result of an adjustment made
pursuant to Subparagraph (D)(6), the holder of any Series B-2
Preferred Shares thereafter surrendered for conversion shall
become entitled to receive any Shares other than Common Shares,
thereafter the number of such Shares so receivable upon
conversion of any Series B-2 Preferred Shares shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
Common Shares contained in this Paragraph (D).
9. The Company may make such increases in the number of
Common Shares to be received upon the conversion of Series B-2
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Preferred Shares, in addition to those required by Subparagraph
(D)(6), as is considered to be advisable by the Board of Trustees
in order that any event treated for Federal income tax purposes
as a distribution of shares or share rights shall not be taxable
to the recipients thereof.
10. Whenever the conversion rate is adjusted, the Company
shall, in addition to any notice required to be delivered
pursuant to Subparagraphs (D)(1) or (D)(11), promptly, but in no
event later than ten days following such adjustment, send notice
to all holders of Series B-2 Preferred Shares of the adjustment
and shall cause to be prepared a certificate signed by the
principal financial officer of the Company setting forth, in
reasonable detail, the adjusted conversion rate and a brief
statement of the facts requiring such adjustment and the
computation thereof (including a description of the basis on
which the Board of Trustees made any determination relating to
such adjustment); such certificate shall forthwith be filed with
each transfer agent for the Series B-2 Preferred Shares.
11. Each holder of Series B-2 Preferred Shares shall be
entitled to all notices, including notice of the record dates for
any votes with respect to the Common Shares, delivered to holders
of Common Shares. In addition, in the event that:
(i) the Company resolves to take any action which, if
it were to occur, would require an adjustment in
the conversion rate, or takes such action, or
(ii) the Company resolves to take any action which, if
it were to occur, would constitute a Special
Conversion Event, or a Special Conversion Event
occurs,
a holder of Series B-2 Preferred Shares, if it has a right to
convert, may wish to convert, at the applicable conversion ratio,
some or all of such shares into Common Shares prior to the record
date for, or the effective date of, the transaction so that it
may receive the rights, warrants, securities or assets which a
holder of Common Shares on that date may receive. Therefore, the
Company shall, in addition to any notice required to be delivered
pursuant to Subparagraphs (D)(1) or (D)(10), send notice to all
holders of Series B-2 Preferred Shares stating the proposed
record or effective date of the transaction described in clauses
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<PAGE>
(ii) or (iii) of the definition of Special Conversion Event at
least 30 days before such date.
In the event (a) that the Company shall authorize the
granting to holders of Common Shares of rights to subscribe for
or purchase any shares of beneficial interest of any class or of
any other rights or (b) of any capital reorganization or
reclassification of the shares of beneficial interest of the
Company, then the Company shall provide to the holders of the
Series B-2 Preferred Shares prompt notice stating (i) the date on
which a record is to be taken for the purpose of such
distribution or subscription rights, or, if a record is not to be
taken, the date as of which the holders of Common Shares of
record would be entitled to such distribution or subscription
rights or (ii) the date on which a capital reorganization or
reclassification is expected to become effective.
12. In case of (i) any reclassification of outstanding
Common Shares issuable upon conversion of Series B-2 Preferred
Shares, or (ii) any consolidation or merger of the Company with
or into another corporation (other than a merger with another
corporation in which the Company is the surviving corporation and
which does not result in any reclassification of outstanding
Common Shares issuable upon such conversion), the rights of the
holders of the outstanding Series B-2 Preferred Shares shall be
adjusted in the manner described below:
(i) In the event that the Company is the surviving
corporation, each Series B-2 Preferred Share shall, without
payment of additional consideration therefor, be deemed modified
so as to provide that upon conversion of each Series B-2
Preferred Share, the holder thereof shall receive, in lieu of
each Common Share theretofore issuable upon such conversion, the
kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, consolidation or
merger by the holder of one Common Share issuable upon such
conversion had such conversion occurred immediately prior to such
reclassification, consolidation or merger. Such Series B-2
Preferred Share shall be deemed to provide for adjustments which
shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Subparagraph (D)(12). The
provisions of this Subparagraph (D)(12)(i) shall similarly apply
to successive reclassifications, consolidations and mergers.
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<PAGE>
(ii) In the event that the Company is not the surviving
corporation, (A) effective provision shall be made in the charter
documents of the surviving Person or otherwise for the
recognition, preservation and protection of the preferences,
conversion and other rights, voting powers, restrictions and
limitations as to dividends or other distributions of the Series
B-2 Preferred Shares or (B) the surviving corporation shall,
without payment of any additional consideration therefor, issue
new Series B-2 Preferred Shares providing that, upon conversion
thereof, the holder thereof shall receive, in lieu of each Common
Share theretofore issuable upon conversion of the Series B-2
Preferred Shares, the kind and amount of shares of stock, other
securities, money and property receivable upon such
reclassification, consolidation or merger by the holder of one
Common Share issuable upon conversion of the Series B-2 Preferred
Shares had such conversion occurred immediately prior to such
reclassification, consolidation or merger. Such new Series B-2
Preferred Shares shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments
provided for in this Subparagraph (D)(12)(ii). The provisions of
this Subparagraph (D)(12)(ii) shall similarly apply to successive
reclassifications, consolidations and mergers.
A change in par value, or from par value to no par value, or from
no par value to par value, or a change as a result of a
subdivision or combination, shall not be deemed a
reclassification for purposes of these Paragraphs (A) through
(N).
E. Voting Rights.
1. The holders of Series B-2 Preferred Shares shall not be
entitled to vote at, or participate in, any meeting of
shareholders of the Company, and shall have no other right to
vote, except (i) as provided in Paragraph (L), (ii) as provided
in Subparagraph (E)(2), or (iii) as required by law.
2. (i) (A) If (x) the Company shall have failed to pay the
distributions on the outstanding Series B Preferred Shares for
any two quarterly Distribution Periods (whether or not
consecutive) or (y) a Special Conversion Event shall have
occurred (notwithstanding that such Special Conversion Event at
any time thereafter no longer continues), the holders of the
Series B Preferred Shares shall immediately and at all times
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<PAGE>
thereafter vote together with the holders of the Common Shares as
a single class on all actions to be taken by the holders of the
Common Shares. Each holder of Series B Preferred Shares shall be
entitled to such number of votes as shall equal the number of
Common Shares into which his Series B Preferred Shares are then
convertible, and be entitled to notice of all shareholder
meetings with respect to which the holders of Common Shares are
then entitled.
(B) If the Company resolves to take any action
that would constitute a Special Conversion Event under clauses
(ii) or (iii) of the definition thereof, and if the holders of
the Common Shares are entitled to vote on such Special Conversion
Event, then the holders of the Series B Preferred Shares shall be
entitled to vote together with the holders of the Common Shares
as a single class on such Special Conversion Event. Each holder
of Series B Preferred Shares shall be entitled to such number of
votes as shall equal the number of Common Shares into which his
Series B Preferred Shares are then convertible, and be entitled
to notice of all shareholder meetings with respect to which the
holders of Common Shares are then entitled with respect to such
resolution.
(ii) If the Company shall have failed to authorize and
pay or declare and set apart for payment the distributions
accumulated on the outstanding Series B Preferred Shares for any
four quarterly Distribution Periods (a "Four Quarter Preferential
Distribution Non-Payment"), the number of trustees of the Board
of Trustees shall be increased by one and the holders of the
outstanding Series B Preferred Shares, voting together as a
separate class, shall be entitled to elect one additional trustee
to the Board of Trustees (a "Preferred Shares Trustee") until the
full distributions accumulated on all outstanding Series B
Preferred Shares for such four quarterly Distribution Periods
have been authorized and paid or declared and set apart for
payment.
The right of the holders of Series B Preferred Shares
to elect a Preferred Shares Trustee may be exercised at any
annual meeting of shareholders, or, within the limitations
hereinafter provided, at a special meeting of holders of Series B
Preferred Shares held for such purpose. At any time after such
voting power shall have so vested in the holders of Series B
Preferred Shares, the Board of Trustees shall, at the request of
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<PAGE>
holders of record of at least 25% of the Series B Preferred
Shares then outstanding, call a special meeting of the holders of
Series B Preferred Shares for the election of the Preferred
Shares Trustee to be elected by the holders of Series B Preferred
Shares, to be held within 90 days after such call and at the
place and upon the notice provided by law and in the By-laws for
the holding of meetings of shareholders; provided, however, that
the Board of Trustees shall not be required to call such special
meeting in the case of any such request received less than 90
days before the date fixed for any annual meeting of
shareholders. At any meeting so called or at any annual meeting,
(a) holders of a majority of the outstanding Series B Preferred
Shares, voting together as a separate class, in person or by
proxy, shall be sufficient to constitute a quorum for the
election of a Preferred Shares Trustee as provided in this
Subparagraph (E)(2)(ii), and (b) holders of a plurality of the
outstanding Series B Preferred Shares, voting together as a
separate class, shall have the power to elect a Preferred Shares
Trustee. If any such special meeting required to be called as
above provided shall not be called by the Board of Trustees
within 90 days of a request pursuant to this Subparagraph
(E)(2)(ii), then the holders of record of at least 25% of the
Series B Preferred Shares then outstanding may designate in
writing one of their number to call such meeting, and the person
so designated may, at the Company's expense, call such meeting to
be held at the place and upon the notice above provided. No such
special meeting and no adjournment thereof shall be held on a
date later than 30 days before the annual meeting of the
shareholders or a special meeting held in place thereof next
succeeding the time when the holders of Series B Preferred Shares
become entitled to elect a Preferred Shares Trustee as above
provided. No Preferred Shares Trustee elected by the holders of
the Series B Preferred Shares may be removed except by the vote
of the holders of a majority of the outstanding Series B
Preferred Shares, voting together as a separate class, in person
or by proxy, at a meeting called for such purpose. So long as a
Four Quarter Preferential Distribution Non-Payment shall
continue, if a Preferred Shares Trustee who has been elected by
the holders of Series B Preferred Shares to serve on the Board of
Trustees shall no longer serve on the Board of Trustees by reason
of resignation, death or removal, such vacancy shall be filled by
holders of a plurality of the outstanding Series B Preferred
Shares, voting together as a separate class, at a meeting called
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<PAGE>
in accordance with the provisions of this Subparagraph
(E)(2)(ii).
If and when all accumulated distributions on the Series
B Preferred Shares have been authorized and paid or declared and
set apart for payment, the holders of the Series B Preferred
Shares shall be divested of the special voting rights provided by
this Subparagraph (E)(2), subject to revesting in the event of
each and every subsequent Four Quarter Preferential Distribution
Non-Payment. Upon termination of such special voting rights
attributable to all holders of the Series B Preferred Shares, the
term of office of the Preferred Shares Trustee shall forthwith
terminate and the number of trustees constituting the entire
Board of Trustees shall be reduced by one.
3. So long as any Series B Preferred Shares are outstand-
ing, the number of trustees constituting the entire Board of
Trustees shall at all times be such that the exercise, by the
holders of the Series B Preferred Shares of the right to elect a
Preferred Shares Trustee under the circumstances provided for in
Subparagraph (E)(2) will not contravene any provision of the
Declaration of Trust restricting the number of trustees which may
constitute the entire Board of Trustees.
4. A Preferred Shares Trustee elected pursuant to
Subparagraph (E)(2) shall serve until the earlier of (x) the next
annual meeting of the shareholders of the Company and the
election (by the holders of the Series B Preferred Shares) and
qualification of his successor or (y) the termination of the
special voting rights as provided for in Subparagraph (E)(2).
F. Trustees' Right to Refuse to Transfer Series B-2
Preferred Shares; Limitation on Holdings.
1. The terms and provisions of this Paragraph (F) shall
apply in addition to, and not in limitation of, the terms and
provisions of Section 6.6 of the Declaration of Trust.
2. Each Person who owns directly or indirectly more than
five percent in number or value of the total Shares outstanding
shall, by January 30 of each year, give written notice to the
Company stating the Person's name and address, the number of
Shares directly or indirectly owned by such Person, and a
description of the capacity in which such Shares are held. For
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<PAGE>
purposes of this Paragraph (F), the number and value of the total
Shares outstanding shall be determined by the Board of Trustees
in good faith, which determination shall be conclusive for all
purposes hereunder. In addition, each direct or indirect holder
of Shares, irrespective of such shareholder's percentage
"ownership" of outstanding Shares, shall upon demand disclose to
the Company in writing such information with respect to the
direct or indirect ownership of Shares as the Board of Trustees
deems reasonably necessary from time to time to enable the Board
of Trustees to determine whether the Company complies with the
REIT Provisions of the Code (as defined in Section 1.5 of the
Declaration of Trust), to comply with the requirements of any
taxing authority or governmental agency or to ensure or ascertain
compliance with this Paragraph (F). For purposes of this
Paragraph (F), "ownership" shall be as defined in Subparagraph
(F)(11).
3. If, in the opinion of the Board of Trustees, which
shall be binding upon any prospective acquiror of Series B-2 Pre-
ferred Shares, any proposed transfer or issuance would jeopardize
the status of the Company as a REIT under the REIT Provisions of
the Code, the Board of Trustees shall have the right, but not the
duty, to refuse to permit such transfer or issuance or refuse to
give effect to such transfer or issuance and to take any action
to cause any such transfer not to occur or to void any such
issuance.
4. As a condition to any transfer and/or registration of
transfer on the books of the Company of any Series B-2 Preferred
Shares which could result in direct or indirect ownership of
Shares exceeding 9.8% of the lesser of the number or the value of
the total Shares (such excess shares, the "Excess Shares") by a
Person other than a Series B-2 Excepted Person, such prospective
transferee shall give written notice to the Company of the
proposed transfer and shall furnish such opinions of counsel,
affidavits, undertakings, agreements and information as may be
required by the Board of Trustees no later than the 15th day
prior to any transfer which, if consummated, would result in such
ownership. On each date of determination, the calculation of the
number of the total Shares outstanding on such date shall be made
assuming the conversion or exercise of all Series B-2 Preferred
Shares, Common Share Equivalents and Convertible Securities of
such transferee on the date of determination in accordance with
the terms of these Paragraphs (A) through (N).
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<PAGE>
5. Any transfer or issuance of Series B-2 Preferred Shares
that would (i) create a direct or indirect owner of Excess Shares
other than a Series B-2 Excepted Person; or (ii) result in the
Company being "closely held" within the meaning of Section 856(h)
of the Code, shall be void ab initio and the prospective acquiror
shall not be entitled to any rights afforded to owners of Series
B-2 Preferred Shares hereunder and shall be deemed never to have
had an interest therein.
"Series B-2 Excepted Person" shall mean (i) any Person
defined as an "Excepted Person" pursuant to the Declaration of
Trust, (ii) any Person approved prior to the Initial Issue Date
by the Board of Trustees, (iii) any Person approved after the
Initial Issue Date by the Board of Trustees, at its option and in
its sole discretion, and (iv) each Person listed below, for so
long as its direct or indirect ownership of Shares, individually
or in the aggregate, in any combination, with those of any or all
other Persons listed below, do not and could not exceed, the
number of Shares or the percentage set forth below of the lesser
of the number or the value of the Shares outstanding.
Notwithstanding anything contained in these Paragraphs (A)
through (N) to the contrary, the Board of Trustees shall not
grant approval to any Person, and no Person shall be or be deemed
a Series B-2 Excepted Person, if such Person's direct or indirect
ownership of Series B-2 Excess Shares would or could result,
directly, indirectly or as a result of attribution of ownership,
in termination of the status of the Company as a REIT under the
REIT provisions of the Code.
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<PAGE>
<TABLE>
<CAPTION>
Names of Series B-2 Excepted Aggregate Number of Shares or
Persons Percentage For All Such
Excepted Persons Combined
- -------------------------------------------------------------------------------------------
<S> <C>
Robert A. Mandor, Leonard S. The maximum number of shares of
Mandor, Concord Milestone beneficial interest of the
Partners L.P., Concord Company, into which such
Associates, Concord Income holders' Series B-1 Preferred
Realty VI, L.P., Castle Shares and Series B-2 Preferred
Plaza, Inc., Mill Neck Shares are then convertible,
Associates and/or Mountain plus 33,200 Common Shares, less
View Mall, Inc. and/or their any shares of beneficial
affiliates. interest of the Company
transferred by any such holders
to any Person who is not one of
the Series B-2 Excepted Persons
listed herein, but in no event
less than 9.8%.
</TABLE>
6. The Company, by notice to the holder, transferor or
transferee thereof, as the case may be, may purchase any or all
Excess Shares (i) that are or proposed to be transferred in
violation of any of the provisions hereof or (ii) that are or
proposed to be transferred pursuant to a transfer which, in the
opinion of the Board of Trustees (which shall be binding upon any
proposed transferor or transferee of Series B-2 Preferred
Shares), would result in any Person acquiring Series B-2 Excess
Shares, or would otherwise jeopardize the status of the Company
as a real estate investment trust under the REIT Provisions of
the Code. The Company shall have the power, by lot or other
means deemed equitable by the Board of Trustees in its sole
discretion, to purchase such Series B-2 Excess Shares. The
purchase price for each Series B-2 Excess Share shall be equal to
the greatest of (i) the average of the closing prices for a
Series B-2 Preferred Share for the thirty trading days preceding
the day on which notice of such proposed transfer is sent, (ii)
the product of (x) the average of the closing prices for a Common
Share for the thirty trading days preceding the day on which
notice of such proposed transfer is sent and (y) the number
(including fractions) of Common Shares into which such Series B-2
Preferred Share may be converted on such day and (iii) the sum of
(x) the Liquidation Preference for such Series B-2 Preferred
Share and (y) the accrued and unpaid distributions on such Series
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B-2 Preferred Share. The closing price for such days shall be
the last reported sale price regular way or, in case no such
reported sale takes place on such date, the average of the
reported closing bid and asked prices regular way, in either case
on the New York Stock Exchange, Inc., or if the Series B-2
Preferred Shares or Common Shares, as the case may be, are not
listed or admitted to trading on the New York Stock Exchange,
Inc., on the principal national securities exchange on which the
Series B-2 Preferred Shares or Common Shares, as the case may be,
are listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange, the closing sale
price of the Series B-2 Preferred Shares or Common Shares, as the
case may be, or in case no reported sale takes place, the average
of the closing bid and asked prices, on NASDAQ or any comparable
system. If the Series B-2 Preferred Shares or Common Shares, as
the case may be, are not quoted on NASDAQ or any comparable
system, the Board of Trustees shall in good faith determine the
current market price on such basis as it considers appropriate.
Prompt payment of the purchase price shall be made in cash by the
Company in such manner as may be determined by the Board of
Trustees, but in no event later than twenty Business Days after
the Board of Trustees elects to make such purchase. From and
after the date fixed for purchase by the Board of Trustees, and
so long as payment of the purchase price for the Series B-2
Preferred Shares to be so purchased shall have been made or duly
provided for, the holder of any Series B-2 Excess Shares so
called for purchase shall cease to be entitled to dividends,
distributions, voting rights and other benefits with respect to
such Series B-2 Preferred Shares, excepting only the right to
payment of the purchase price fixed as aforesaid. Any dividend
or distribution paid to a proposed transferee of Series B-2
Excess Shares prior to the discovery by the Company that the
Series B-2 Preferred Shares have been transferred in violation of
this Paragraph (F) shall be repaid to the Company upon demand.
The Series B-2 Preferred Shares purchased pursuant to the
provisions of this Subparagraph (F)(6) shall thereupon be retired
and may not be reissued as Series B-2 Preferred Shares but shall
thereafter have the status of authorized but unissued Shares.
7. If Subparagraph (F)(5), (6), (7) or (8) is determined
to be void or invalid by virtue of any legal decision, statute,
rule or regulation, then the acquiror of Series B-2 Preferred
Shares in violation of such subparagraphs shall be deemed, at the
option of the Company, to have acted as agent on behalf of the
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<PAGE>
Company in acquiring such Series B-2 Preferred Shares on behalf
of the Company. The Company, by notice to the acquiror thereof,
may purchase any or all Series B-2 Preferred Shares so acquired
in the manner designated by Subparagraph (F)(6).
8. Subject to Subparagraph (F)(12), notwithstanding any
other provision in these Paragraphs (A) through (N) to the
contrary, any purported transfer, sale or acquisition of Series
B-2 Preferred Shares (whether such purported transfer, sale or
acquisition results from the direct or indirect ownership, or
attribution of ownership, of Series B-2 Preferred Shares) which
would result in the termination of the status of the Company as a
REIT under the REIT Provisions of the Code shall be null and void
ab initio. Any such Series B-2 Preferred Shares may be treated
by the Board of Trustees in the manner prescribed for Series B-2
Excess Shares in Subparagraph (F)(6).
9. Subject to Subparagraph (F)(12), nothing contained in
this Paragraph (F) or in any other provision of these Paragraphs
(A) through (N) shall limit the authority of the Board of
Trustees to take such other action as it deems necessary or
advisable to protect the Company and the interests of the
Shareholders by preservation of the Company's status as a REIT
under the REIT Provisions of the Code.
10. If any provision of this Paragraph (F) or any applica-
tion of any such provision is determined to be invalid by any
federal or state court having jurisdiction over the issues, the
validity of the remaining provisions shall not be affected and
other applications of such provision shall be affected only to
the extent necessary to comply with the determination of such
court. To the extent this Paragraph (F) may be inconsistent with
any other provision in these Paragraphs (A) through (N), this
Paragraph (F) shall be controlling.
11. For purposes of these Paragraphs (A) through (N),
Series B-2 Preferred Shares not owned directly shall be deemed to
be owned indirectly by a Person if that Person or a group of
which he is a member would be the beneficial owner of such Series
B-2 Preferred Shares, as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, and/or would be
considered to own such Series B-2 Preferred Shares by reason of
the REIT Provisions of the Code.
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<PAGE>
12. Notwithstanding any other provision of Paragraph (F),
nothing in these Paragraphs (A) through (N) shall preclude the
settlement of transactions entered into through the facilities of
the New York Stock Exchange, Inc. The fact that the settlement
of any transaction is permitted shall not negate the effect of
any other provision of this Paragraph (F) and any transferee in
such a transaction shall be subject to all of the provisions and
limitations set forth in this Paragraph (F).
G. Redemption at the Option of the Board of Trustees.
1. After the fifth anniversary of the Initial Issue Date,
if the aggregate Liquidation Preferences of all of the
outstanding Series B-2 Preferred Shares shall at any time be less
than $3,000,000, the Board of Trustees may, at its option and in
its sole discretion, redeem the Series B-2 Preferred Shares in
whole, subject to the limitations set forth below, at a
redemption price equal to $25.00 per share (the "Call Price"),
plus (i) all distributions accrued and unpaid on such Series B-2
Preferred Shares for past Distribution Periods and (ii) the pro
rata portion of the distributions on such Series B-2 Preferred
Shares for the current Distribution Period through the Redemption
Date (together, the "Redemption Distributions"), upon giving
notice as provided below.
2. At least 30 days but not more than 90 days prior to the
date fixed for the redemption of the Series B-2 Preferred Shares
(the "Redemption Date"), the Company shall mail a written notice
(a "Notice of Redemption") to each holder of record of the Series
B-2 Preferred Shares in a postage prepaid envelope addressed to
such holder at his address as shown on the records of the
Company, notifying such holder of the election of the Company to
redeem such Series B-2 Preferred Shares, stating the Redemption
Date, the Call Price, the number of Series B-2 Preferred Shares
then outstanding and to be redeemed and the place(s) where the
certificate(s) representing such Series B-2 Preferred Shares are
to be surrendered for payment.
3. On or after the Redemption Date each holder of the
Series B-2 Preferred Shares shall present and surrender his
certificate or certificates for such Series B-2 Preferred Shares
to the Company at the place designated in such notice for
redemption and thereupon the Call Price and the Redemption
Distributions for such Series B-2 Preferred Shares shall be paid
-38-
<PAGE>
to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled. From and after the
Redemption Date (unless default shall be made by the Company in
payment of the Call Price or the Redemption Distributions), (i)
all distributions on the Series B-2 Preferred Shares shall cease
to accrue, and all rights of the holders thereof as shareholders
of the Company shall cease and terminate, except for the right
(x) to surrender their Series B-2 Preferred Shares for conversion
into Common Shares as provided for, and in accordance with, the
provisions of these Paragraphs (A) through (N) (including,
without limitation, Paragraph (D) hereof) at any time prior to
the Redemption Date or (y) to receive the Call Price and the
Redemption Distributions with respect to such Series B-2
Preferred Shares upon the surrender of certificates representing
the same, (ii) the Series B-2 Preferred Shares shall no longer be
deemed to be outstanding for any purpose whatsoever and (iii) the
Series B-2 Preferred Shares redeemed pursuant to the provisions
of this Paragraph (G) shall thereupon be retired and may not be
reissued as Series B-2 Preferred Shares but shall thereafter have
the status of authorized but unissued Shares.
4. If a Notice of Redemption has been given pursuant to
Subparagraph (G)(2) above and any holder of Series B-2 Preferred
Shares shall, prior to the close of business on the last Business
Day preceding the Redemption Date, give written notice to the
Company pursuant to Paragraph (D) of the conversion of any or all
of the Series B-2 Preferred Shares to be redeemed held by such
holder (accompanied by a certificate or certificates for such
shares, duly endorsed or assigned to the Company), then such
redemption shall not become effective as to such Series B-2
Preferred Shares to be converted, such conversion shall become
effective as provided in Paragraph (D).
H. Exclusion of Other Rights.
Except as may otherwise be required by law, the Series B-2
Preferred Shares shall not have any preferences, conversion or
other rights, voting powers, restrictions or limitations as to
dividends or other distributions other than as specifically set
forth in the Declaration of Trust.
I. Headings of Subdivisions.
-39-
<PAGE>
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
J. Severability of Provisions.
If any of the preferences, conversion or other rights,
voting powers, restrictions, or limitations as to dividends or
other distributions of the Series B-2 Preferred Shares set forth
in the Declaration of Trust is invalid, unlawful or incapable of
being enforced by reason of any rule of law or public policy, all
other preferences, conversion or other rights, voting powers,
restrictions, or limitations as to distributions of Series B-2
Preferred Shares set forth in the Declaration of Trust which can
be given effect without the invalid, unlawful or unenforceable
provision thereof shall, nevertheless, remain in full force and
effect and no preferences, conversion or other rights, voting
powers, restrictions, or limitations as to dividends or other
distributions of the Series B-2 Preferred Shares herein set forth
shall be deemed dependent upon any other provision thereof unless
so expressed therein.
K. Ranking.
With regard to rights to receive distributions and amounts
payable upon liquidation, dissolution or winding up of the
Company, the Series B-2 Preferred Shares shall rank senior to any
Junior Shares, the Common Shares and any Common Share Equivalent
and on a parity with any other preferred shares issued by the
Company, unless the terms of such other preferred shares provide
otherwise and, if applicable, the requirements of Paragraph (L)
hereof have been complied with. However, the Company may
authorize or increase any class or series of Parity Shares or
Junior Shares, or both, without the vote or consent of the
holders of the Series B-2 Preferred Shares.
L. Limitations.
In addition to any other rights provided to the holders of
the Series B-2 Preferred Shares by applicable law, so long as any
Series B-2 Preferred Shares are outstanding, the Company shall
not, without the affirmative vote of the holders of at least a
majority of the total number of outstanding Series B Preferred
Shares, voting together as a separate class,
-40-
<PAGE>
(i) authorize, create or issue, or increase the par
value or authorized or issued amount of, any class or
series of Senior Shares, or rights to subscribe to or
acquire, any security convertible into, any class or
series of Senior Shares, or reclassify any shares of
beneficial interest into any such Senior Shares or
reclassify any Junior Shares into Parity Shares;
(ii) amend, alter or repeal, whether by merger,
consolidation or otherwise, any of the provisions of
the Declaration of Trust (including these Paragraphs
(A) through (N)) so as to adversely affect the
preferences, right to convert, conversion price
adjustments, notice rights, special conversion rights,
distribution and liquidation rights, preferences,
restrictions or limitations, redemption rights or
privileges, or voting powers or rights of the Series
B-2 Preferred Shares; or
(iii) modify an express contract right of the Series
B-2 Preferred Shares;
but (except as otherwise provided in these Paragraphs (A) through
(N) or required by applicable law) nothing herein contained shall
require such a vote or consent (i) in connection with any
increase in the total number of authorized Common Shares, or (ii)
in connection with the authorization or increase of any class or
series of Parity Shares or Junior Shares. The Company with the
written consent or affirmative vote of the holders of a majority
of the Series B Preferred Shares shall have the right to amend,
alter or repeal any of the provisions of these Paragraphs (A)
through (N) without the approval, consent or vote of any other
class of shares of beneficial interest of the Company.
M. No Preemptive Rights.
No holder of Series B-2 Preferred Shares shall be entitled
to any preemptive rights to subscribe for or acquire any unissued
Shares (whether now or hereafter authorized) or securities of the
Company convertible, including securities into or carrying a
right to subscribe to or acquire Shares.
-41-
<PAGE>
N. Notices.
Except as may otherwise be provided in the Declaration of
Trust, all notices to holders of Series B-2 Preferred Shares
shall be written, and delivered by first class mail, postage
prepaid, addressed to record holders of the Series B-2 Preferred
Shares as their names shall appear on the share records of the
Company on the applicable record date, or, if no record date has
been set, then on the date of delivery of such notice.
SECOND: The Series B-2 Preferred Shares have been
classified by the Board of Trustees under a power contained in
the Declaration of Trust.
THIRD: These Articles Supplementary have been
approved by the Board of Trustees in the manner and by the vote
required by law.
FOURTH: Each of the undersigned acknowledges these
Articles Supplementary to be the act of the Company and as to all
matters or facts required to be verified under oath, the
undersigned acknowledges that to the best of his knowledge,
information and belief, these matters and facts are true in all
material respects and that this statement is made under the
penalties for perjury.
FIFTH: These Articles Supplementary and all docu-
ments, agreements, understandings and arrangements relating
hereto have been entered into or executed on behalf of the Com-
pany by the undersigned in his capacity as a trustee of the
Company, which has been formed as a Maryland real estate invest-
ment trust pursuant to a declaration of trust of the Company
dated July 20, 1992, as amended and restated, and not
individually, and neither the trustees, officers nor shareholders
of the Company shall be bound or have any personal liability
hereunder or thereunder. Holders of the Series B-2 Preferred
Shares shall look solely to the assets of the Company for
satisfaction of any liability of the Company in respect of these
Articles Supplementary and all documents, agreements,
understandings and arrangements relating hereto and will not seek
recourse or commence any action against any of the trustees,
-42-
<PAGE>
officers or shareholders of the Company or any of their personal
assets for the performance or payment of any obligation hereunder
or thereunder. The foregoing shall also apply to any future
documents, agreements, understandings, arrangements or
transactions between the Company and holders of the Series B-2
Preferred Shares.
* * *
[The remainder of this page has been intentionally left blank]
-43-
<PAGE>
These Articles Supplementary are executed on behalf of
the Company by its Board of Trustees this __ day of __________,
1997.
KRANZCO REALTY TRUST
(SEAL)
_________________________________
Norman M. Kranzdorf
_________________________________
Robert H. Dennis
_________________________________
Irving B. Maizlish
_________________________________
Dr. Peter D. Linneman
_________________________________
James B. Selonick
_________________________________
E. Donald Shapiro
_________________________________
Edmund Barrett
-44-
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Maryland law, a Maryland REIT is permitted to limit, by provision in
its declaration of trust, the liability of its trustees and officers to the
trust and its shareholders for money damages except for liability resulting from
(a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment
as being material to the cause of action. The Registrant's Declaration of Trust,
includes such a provision eliminating such liability to the maximum extent
permitted by Maryland law.
The Declaration of Trust authorizes the Registrant, to the maximum extent
provided in the Registrant's Bylaws, to obligate itself to indemnify and to pay
or reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any trustee or officer or (b) any individual who, while a trustee of the
Registrant and at the request of the Registrant, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer, partner, employee or agent of
such corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise. The Registrant's Bylaws require it to indemnify to the maximum
extent permitted by Maryland law (a) any present or former trustee, officer (or
any individual who, while a trustee, served or is serving as a trustee, officer,
director or partner of another entity at the Registrant's express request) who
has been successful, on the merits or otherwise, in the defense of a proceeding
to which he was made a party by reason of service in such capacity, against
reasonable expenses incurred by him in connection with the proceeding and (b)
any present or former trustee or officer against any claim or liability to which
he may become subject by reason of service in such capacity unless it is
established that (i) his act or omission was committed in bad faith or was the
result of active and deliberate dishonesty, (ii) he actually received an
improper personal benefit in money, property or services or (iii) in the case of
a criminal proceeding, he had reasonable cause to believe that his act or
omission was unlawful. In addition, the Registrant's Bylaws require it to pay or
reimburse, in advance of final disposition of a proceeding, reasonable expenses
incurred by a present or former trustee or officer made a party to a proceeding
by reason of such status provided that the Registrant shall have received (1) a
written affirmation by such person of his good faith belief that he has met the
standard of conduct necessary for indemnification by the Registrant as
authorized by the Bylaws and (2) a written undertaking by or on his behalf to
repay the amount paid or reimbursed by the Registrant if it shall ultimately be
determined that the applicable standard of conduct was not met. The Registrant's
Bylaws also (x) permit the Registrant to provide indemnification or payment or
reimbursement of expenses to a present or former trustee or officer who served a
predecessor of the Registrant, and to any employee or agent of the Registrant or
a predecessor of the Registrant, and to any employee or agent of the Registrant
or a predecessor of the Registrant, (y) provide that any indemnification or
payment or reimbursement of the expenses permitted by the Bylaws shall be
furnished in accordance with the procedures provided for indemnification or
payment or reimbursement of expenses under Section 2-418 of the MGCL for
directors of Maryland corporations and (z) permit the Registrant to provide to
the trustees and officers such other and further indemnification or payment or
reimbursement of expenses to the fullest extent permitted by the MGCL for
directors of Maryland corporations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----- ------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger, dated November 12,
1996 (the 'Merger Agreement') among Kranzco Realty
Trust, KRT Union Corp. and Union Property
Investors, Inc.
2.2 -- Amendment No. 1 to the Merger Agreement, dated
December 18, 1996, to the Merger Agreement.
4.1 -- Specimen certificate for Kranzco Common Shares of
Beneficial Interest.*
4.2 -- Amended and Restated Declaration of Trust, of
Kranzco Realty Trust.*
4.3 -- Amendment No. 1 to the Amended and Restated
Declaration of Kranzco Realty Trust.**
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----- ------------------------------------------------------
<S> <C>
4.4 -- Amended and Restated Bylaws of Kranzco Realty
Trust, as amended.*
5.1 -- Opinion of Ballard Spahr Andrews & Ingersoll
regarding legality.****
8.1 -- Opinion of Robinson Silverman Pearce Aronsohn &
Berman regarding certain income tax matters.****
8.2 -- Opinion of Rosenman & Colin LLP regarding certain
income tax matters.****
23.1 -- Consent of Ballard Spahr Andrews & Ingersoll
(contained in Exhibit 5.1).****
23.2 -- Consent of Robinson Silverman Pearce Aronsohn &
Berman LLP (contained in Exhibit 8.1).****
23.3 -- Consent of Rosenman & Colin LLP (contained in
Exhibit 8.2).****
23.4 -- Consent of Arthur Andersen LLP.***
23.5 -- Consent of Deloitte & Touche LLP.***
23.6 -- Consent of Societe Generale Securities Corporation***
</TABLE>
(b) Financial Statement Schedules*****
(c) The opinion of Societe Generale Securities Corporation is furnished as
Annex B to the Proxy Statement/Prospectus which is a part of this Registration
Statement.
- ------------------
* Previously filed as an exhibit to the Registration Statement on Form
S-11, Registration No. 33-49434 and incorporated herein by reference.
** Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-8, Registration No. 33-94294 and incorporated herein by
reference.
*** Filed herewith.
**** To be filed by amendment.
***** Previously filed as a schedule to the Registrant's Registration Statement
on Form 10-K for the fiscal year ended December 31, 1995.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the 'Calculation of
Registration Fee' table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
II-2
<PAGE>
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(5) That ever prospectus: (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(6) The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act of 1933,
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on December 19, 1996.
KRANZCO REALTY TRUST
By: /s/ NORMAN M. KRANZDORF
----------------------------------
Norman M. Kranzdorf
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---------------------------------------- ------------------------------ --------------------
<S> <C> <C>
/s/ NORMAN M. KRANZDORF President, Chief Executive December 19, 1996
- ---------------------------------------- Officer and Trustee (Principal
Norman M. Kranzdorf Executive Officer)
/s/ ROBERT H. DENNIS Chief Financial Officer, December 19, 1996
- ---------------------------------------- Treasurer and Trustee
Robert H. Dennis (Principal Financial and
Accounting Officer)
/s/ EDMUND BARRETT Chief Operating Officer, December 19, 1996
- ---------------------------------------- Executive Vice President and
Edmund Barrett Trustee
/s/ PETER LINNEMAN Trustee December 19, 1996
- ----------------------------------------
Dr. Peter D. Linneman
/s/ IRVIN B. MAIZLISH Trustee December 19, 1996
- ----------------------------------------
Irvin B. Maizlish
/s/ E. DONALD SHAPIRO Trustee December 19, 1996
- ----------------------------------------
E. Donald Shapiro
Trustee , 1996
- ----------------------------------------
James B. Selonick
</TABLE>
II-4
<PAGE>
FORM OF PROXY
UNION PROPERTY INVESTORS, INC.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON , 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF UNION PROPERTY
INVESTORS, INC.
The undersigned hereby appoints Leonard S. Mandor and Robert A. Mandor, or
either one of them, attorney with full power of substitution and revocation to
each, to vote for and in the name of the undersigned all of the shares of Common
Stock of Union Property Investors, Inc. ('UPI') which the undersigned is
entitled to vote at the Special Meeting of Stockholders of UPI to be held on
, , 1997 at : 0 .m., Eastern Standard Time, and at any
adjournments thereof, as follows:
To approve and adopt the Agreement and Plan of Merger dated November 12,
1996, as amended, by and among UPI, Kranzco Realty Trust ('Kranzco') and KRT
Union Corp., a wholly-owned subsidiary of Kranzco, and authorize the merger of
UPI with and into KRT Union Corp. and the other transactions contemplated by the
Agreement and Plan of Merger.
FOR / / AGAINST / / ABSTAIN / /
THE PROXY WILL BE VOTED AS YOU SPECIFY ABOVE WITH RESPECT TO THE MATTER SET
FORTH ABOVE. IF THIS PROXY IS EXECUTED BUT NO CHOICE IS INDICATED, THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF THE
AGREEMENT AND PLAN OF MERGER AND THE AUTHORIZATION OF THE MERGER OF UPI WITH AND
INTO KRT UNION CORP. AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE AGREEMENT
AND PLAN OF MERGER.
PLEASE BE SURE TO SIGN THE PROXY ON THE REVERSE SIDE.
(Continued and to be signed on reverse side)
<PAGE>
(Continued from other side)
If any other business properly comes before the Special Meeting, this Proxy
confers discretionary authority on the proxy nominees named herein to vote on
such other business.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Stockholders and Proxy Statement dated, in each case, , 1997.
NOTE: Please sign exactly as name or names appear hereon. If acting as
executor, administrator, trustee, guardian, etc., please give your full
title as it appears hereon. When signing as joint tenants, all parties in
the joint tenancy must sign. When a proxy is given by a corporation, it
should be signed by an authorized officer and the corporate seal affixed.
No postage is required if returned in the enclosed envelope and mailed in
the United States.
Dated_______________________, 1997
X___________________________(L.S.)
X___________________________(L.S.)
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- --------- ----------------------------------------------------------------------------------------- ----------
<S> <C> <C> <C>
2.1 -- Agreement and Plan of Merger, dated November 12, 1996 (the 'Merger Agreement')
among Kranzco Realty Trust, KRT Union Corp. and Union Property Investors, Inc.***
2.2 -- Amendment No. 1 to the Merger Agreement, dated December 18, 1996, to the Merger
Agreement.***
4.1 -- Specimen certificate for Kranzco Common Shares of Beneficial Interest.*
4.2 -- Amended and Restated Declaration of Trust, of Kranzco Realty Trust.*
4.3 -- Amendment No. 1 to the Amended and Restated Declaration of Kranzco Realty Trust.**
4.4 -- Amended and Restated Bylaws of Kranzco Realty Trust, as amended.*
5.1 -- Opinion of Ballard Spahr Andrews & Ingersoll regarding legality.****
8.1 -- Opinion of Robinson Silverman Pearce Aronsohn & Berman regarding certain income tax
matters.****
8.2 -- Opinion of Rosenman & Colin LLP regarding certain income tax matters.****
23.1 -- Consent of Ballard Spahr Andrews & Ingersoll (contained in Exhibit 5.1).****
23.2 -- Consent of Robinson Silverman Pearce Aronsohn & Berman LLP (contained in Exhibit
8.1).****
23.3 -- Consent of Rosenman & Colin LLP (contained in Exhibit 8.2).****
23.4 -- Consent of Arthur Andersen LLP.***
23.5 -- Consent of Deloitte & Touche LLP.***
23.6 -- Consent of Societe Generale Securities Corporation***
</TABLE>
(b) Financial Statement Schedules*****
(c) The opinion of Societe Generale Securities Corporation is furnished as
Annex B to the Proxy Statement/Prospectus which is a part of this Registration
Statement.
- ------------------
* Previously filed as an exhibit to the Registration Statement on Form
S-11, Registration No. 33-49434 and incorporated herein by reference.
** Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-8, Registration No. 33-94294 and incorporated herein by
reference.
*** Filed herewith.
**** To be filed by amendment.
***** Previously filed as a schedule to the Registrant's Registration Statement
on Form 10-K for the fiscal year ended December 31, 1995.
<PAGE>
Exhibit 2.1
PRIVILEGED AND CONFIDENTIAL
AGREEMENT AND PLAN OF MERGER
BY AND AMONG UNION PROPERTY INVESTORS, INC.
KRANZCO REALTY TRUST AND KRT UNION CORP.
Dated November 12, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER...................................................................................1
SECTION 1.01 The Merger. ..........................................................................1
SECTION 1.02 Effects of the Merger. ..............................................................2
SECTION 1.03 Merger Consideration. ...............................................................3
SECTION 1.04 Adjustment of Target Common Stock Consideration. .....................................5
SECTION 1.05 Certificate of Incorporation; Bylaws; Directors; Officers. ..........................6
ARTICLE II EXCHANGE OF SHARES...........................................................................6
SECTION 2.01 Surrender of Target Certificates......................................................6
SECTION 2.02 No Fractional Shares for Acquiror Series B Preferred Shares;
Cash Payments.........................................................................7
SECTION 2.03 No Dividends..........................................................................7
SECTION 2.04 Return to Acquiror....................................................................8
SECTION 2.05 No Further Transfer...................................................................8
SECTION 2.06 Withholding Rights....................................................................9
SECTION 2.07 Lost, Stolen or Destroyed Certificates................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF TARGET.....................................................9
SECTION 3.01 Organization and Good Standing........................................................9
SECTION 3.02 Capitalization of Target.............................................................10
SECTION 3.03 Authority of Target..................................................................11
SECTION 3.04 Consents and Approvals; No Violations................................................11
SECTION 3.05 Public Reports.......................................................................12
SECTION 3.06 Real Property; Contracts and Leases Relating to Real Property........................12
SECTION 3.07 Leases. ............................................................................15
SECTION 3.08 Tenant Improvements..................................................................16
SECTION 3.09 Environmental Matters................................................................17
SECTION 3.10 Insurance............................................................................18
SECTION 3.11 Absence of Certain Changes...........................................................18
SECTION 3.12 No Undisclosed Liabilities...........................................................18
SECTION 3.13 Litigation...........................................................................18
SECTION 3.14 Compliance with Applicable Law.......................................................19
SECTION 3.15 Taxes................................................................................19
SECTION 3.16 Financial Statements and Condition...................................................21
SECTION 3.17 Brokers or Finders...................................................................21
SECTION 3.18 Other Interests......................................................................21
SECTION 3.19 Disclosure...........................................................................21
SECTION 3.20 Vote Required........................................................................21
</TABLE>
-i-
<PAGE>
Table of Contents
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 3.21 Parent Shares........................................................................21
SECTION 3.22 Target Preferred Stock...............................................................22
SECTION 3.23 Employee Benefit Plans...............................................................22
SECTION 3.24 Labor Matters........................................................................22
SECTION 3.25 Related Party Transactions...........................................................23
SECTION 3.26 Actions of Holders of Target Common Stock............................................23
SECTION 3.27 Books and Records....................................................................23
SECTION 3.28 Fairness Opinion.....................................................................23
SECTION 3.29 No Representation or Warranty........................................................24
SECTION 3.30 Obligations of Milestone.............................................................24
SECTION 3.31 Target Directors' and Officers' Liability Insurance Policy...........................24
SECTION 3.32 South Carolina Outparcel Agreement...................................................24
SECTION 3.33 Pending Milestone Action.............................................................24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND
NEWCO.......................................................................................25
SECTION 4.01 Organization and Good Standing.......................................................25
SECTION 4.02 Capitalization of Acquiror and Newco.................................................26
SECTION 4.03 Authority of Acquiror and Newco......................................................27
SECTION 4.04 Consents and Approvals; No Violations................................................27
SECTION 4.05 Public Reports.......................................................................28
SECTION 4.06 Real Property; Contracts and Leases Relating to Real Property........................28
SECTION 4.07 Leases. ............................................................................31
SECTION 4.08 Environmental Matters................................................................31
SECTION 4.09 Insurance............................................................................32
SECTION 4.10 Absence of Certain Changes...........................................................32
SECTION 4.11 No Undisclosed Liabilities...........................................................32
SECTION 4.12 Litigation...........................................................................33
SECTION 4.13 Compliance with Applicable Law.......................................................33
SECTION 4.14 Taxes................................................................................34
SECTION 4.15 Financial Statements and Condition...................................................34
SECTION 4.16 Newco................................................................................35
SECTION 4.17 Brokers or Finders...................................................................35
SECTION 4.18 Other Interests......................................................................35
SECTION 4.19 Disclosure...........................................................................35
SECTION 4.20 Employee Benefit Plans...............................................................35
SECTION 4.21 Labor Matters........................................................................36
SECTION 4.22 Related Party Transactions...........................................................36
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SECTION 4.23 Books and Records....................................................................37
SECTION 4.24 No Representation or Warranty........................................................37
ARTICLE V COVENANTS...................................................................................37
SECTION 5.01 Target PreClosing Obligations........................................................37
SECTION 5.02 Acquiror Pre-Closing Obligations.....................................................41
SECTION 5.03 HartScottRodino and Other Filings....................................................43
SECTION 5.04 Title Insurance......................................................................43
SECTION 5.05 No Solicitations.....................................................................43
SECTION 5.06 Access to Information................................................................44
SECTION 5.07 Target Stockholder Meeting...........................................................45
SECTION 5.08 Target Proxy Statement...............................................................45
SECTION 5.09 Registration Statement...............................................................46
SECTION 5.10 Efforts to Consummate................................................................48
SECTION 5.11 Letters of Accountants...............................................................48
SECTION 5.12 Indemnification of Managers..........................................................49
SECTION 5.13 No Breach of Representations and Warranties..........................................49
SECTION 5.14 Consents; Notices....................................................................50
SECTION 5.15 Public Announcements.................................................................50
SECTION 5.16 Exchange Listing.....................................................................51
SECTION 5.17 Filing of Articles Supplementary.....................................................51
SECTION 5.18 Closing Certificates.................................................................51
SECTION 5.19 Reorganization.......................................................................51
SECTION 5.20 No Improvements; Damage or Destruction; Condemnation;
Environmental........................................................................52
SECTION 5.21 Affiliates of Target.................................................................52
SECTION 5.22 Estoppel Certificates................................................................53
SECTION 5.23 Indemnification Obligations..........................................................53
SECTION 5.24 First Union Line of Credit...........................................................53
SECTION 5.25 Sale of South Carolina Outparcel.....................................................54
SECTION 5.26 Termination of Management Agreements.................................................54
ARTICLE VI CONDITIONS TO ACQUIROR'S AND NEWCO'S OBLIGATIONS............................................55
SECTION 6.01 Representations and Warranties.......................................................55
SECTION 6.02 Covenants............................................................................55
SECTION 6.03 Officer's Certificate................................................................55
SECTION 6.04 Opinion of Counsel...................................................................55
SECTION 6.05 Absence of Changes...................................................................55
SECTION 6.06 Number of Dissenting Shares..........................................................56
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SECTION 6.07 Approvals and Consents...............................................................56
SECTION 6.08 Injunctions..........................................................................56
SECTION 6.09 HSR Act..............................................................................56
SECTION 6.10 Effectiveness of Registration Statement..............................................56
SECTION 6.11 Stockholder Approval.................................................................56
SECTION 6.12 Accountants' Letters.................................................................57
SECTION 6.13 Shareholders and Voting Trust Agreement..............................................57
SECTION 6.14 Guaranty Agreement...................................................................57
SECTION 6.15 Registration Rights Agreement........................................................57
SECTION 6.16 Termination of Target Affiliate Contracts............................................58
SECTION 6.17 Redemption of Target Preferred Stock.................................................58
SECTION 6.18 Estoppel Certificates................................................................58
SECTION 6.19 Statement of Accounts Receivable.....................................................58
SECTION 6.20 Title Insurance Policies.............................................................59
ARTICLE VII CONDITIONS TO TARGET'S OBLIGATIONS..........................................................59
SECTION 7.01 Representations and Warranties.......................................................59
SECTION 7.02 Covenants............................................................................59
SECTION 7.03 Officer's Certificate................................................................59
SECTION 7.04 Opinion of Counsel...................................................................59
SECTION 7.05 Absence of Changes...................................................................60
SECTION 7.06 Approvals and Consents...............................................................60
SECTION 7.07 Injunctions..........................................................................60
SECTION 7.08 HSR Act..............................................................................60
SECTION 7.09 Effectiveness of Registration Statement..............................................60
SECTION 7.10 Stockholder Approval.................................................................60
SECTION 7.11 Merger...............................................................................60
SECTION 7.12 Accountants' Letters.................................................................60
SECTION 7.13 Financial Statements.................................................................61
SECTION 7.14 Registration Rights Agreement........................................................61
SECTION 7.15 Shareholders Agreement...............................................................61
SECTION 7.16 Fairness as to Target Preferred Stock................................................61
ARTICLE VIII TERMINATION AND AMENDMENT...................................................................62
SECTION 8.01 Termination..........................................................................62
SECTION 8.02 Effect of Termination. ...................................................63
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ARTICLE IX MISCELLANEOUS...............................................................................66
SECTION 9.01 Survival of Agreements and Representations and Warranties............................66
SECTION 9.02 Incorporation of Exhibits............................................................66
SECTION 9.03 Notices..............................................................................66
SECTION 9.04 Descriptive Headings.................................................................67
SECTION 9.05 Assignment; Binding Effect; Benefit..................................................67
SECTION 9.06 Counterparts.........................................................................68
SECTION 9.07 Entire Agreement.....................................................................68
SECTION 9.08 Governing Law and Consent to Jurisdiction............................................68
SECTION 9.09 Fees and Expenses....................................................................68
SECTION 9.10 Non-Recourse.........................................................................68
SECTION 9.11 Enforcement..........................................................................69
SECTION 9.12 Severability.........................................................................69
SECTION 9.13 Amendment............................................................................69
SECTION 9.14 Extension; Waiver....................................................................70
SECTION 9.15 Knowledge............................................................................70
SECTION 9.16 Interpretation.......................................................................70
SCHEDULES AND EXHIBITS
Schedule 1.04(a) Definitions of Total Current Assets and Total Current Liabilities
Schedule 6.18 Tenants Required to Furnish Estoppel Certificates
Exhibit A Form of Articles Supplementary for Acquiror's 9.75% Series B
Cumulative Convertible Preferred Stock
Exhibit B Form of Articles Supplementary for Acquiror's Series C Cumulative
Redeemable Preferred Shares
Exhibit C Form of Affiliate Letter
Exhibit D Form of Estoppel Certificate
Exhibit E Form of Shareholder and Voting Trust Agreement
Exhibit F Form of Guaranty Agreement
Exhibit G Form of Registration Rights Agreement
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated November 12, 1996, by and among
Union Property Investors, Inc., a Delaware corporation ("Target"), Kranzco
Realty Trust, a Maryland real estate investment trust ("Acquiror;" Acquiror and
its directly or indirectly majority-owned subsidiary corporations and
partnerships, taken together on a consolidated basis, are collectively referred
to herein as the "Company;" and such subsidiary corporations and partnerships
are individually referred to herein as "Acquiror Subsidiaries"), and KRT Union
Corp. ("Newco"), a Delaware wholly-owned subsidiary of Acquiror organized solely
for the purpose of consummating the merger and the other transactions hereby
contemplated.
WHEREAS, the Board of Directors of each of Target and Acquiror have
determined that it is in the best interests of their respective entities and
stockholders to consummate the business combination transaction provided for
herein, pursuant to which Target will, on the terms and subject to the
conditions set forth herein, merge with and into Newco so that Newco will be the
surviving entity and a qualified real estate investment trust ("REIT")
subsidiary within the meaning of Section 856(i)(2) of the Internal Revenue Code
of 1986, as amended (the "Code");
WHEREAS, for federal income tax purposes, the merger is intended to be
treated as a reorganization pursuant to the provisions of Section 368(a)(1)(A)
of the Code, and for accounting purposes shall be accounted for as a "purchase";
and
WHEREAS, the parties hereto desire to make certain covenants,
representations, warranties and agreements in connection with the merger and
also to prescribe certain conditions to the merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger.
(a) Upon the terms and subject to the conditions hereof and in
accordance with Section 251 of the Delaware General Corporation Law (the
"DGCL"), on the first business day following the satisfaction or waiver of the
conditions set forth in Article VI and Article VII, unless the parties shall
otherwise agree, a closing (the "Closing") of the merger of Target
<PAGE>
with and into Newco in accordance with this Agreement with the separate
corporate existence of Target thereupon ceasing (the "Merger") shall take place
at the offices of Robinson Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue
of the Americas, New York, New York 10104, at 9:00 a.m. (local time) or such
other place or time as the parties shall agree in writing. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date".
(b) Concurrently with the Closing, a certificate of merger (the
"Delaware Merger Certificate"), in form and substance reasonably satisfactory to
Acquiror and Target, providing for the merger of Target with and into Newco
shall be duly prepared, executed and filed by Newco, as the surviving
corporation (the "Surviving Corporation"), with the Delaware Secretary of State
in accordance with the relevant provisions of the DGCL and the Merger shall
become effective upon the effective date of the filing of the Delaware Merger
Certificate, or at such later time as the parties shall have agreed upon and
designated in the Delaware Merger Certificate in accordance with the DGCL. The
date and time the Merger becomes effective is referred to herein as the
"Effective Time".
SECTION 1.02 Effects of the Merger.
(a) The Merger shall have the effects set forth in the DGCL and as
hereinafter set forth. Immediately following the Merger, the Surviving
Corporation shall (i) continue its corporate existence under the laws of the
State of Delaware, (ii) be a wholly-owned, qualified REIT subsidiary of
Acquiror, and (iii) succeed to all rights, assets, liabilities and obligations
of Target and Newco in accordance with the DGCL. At the Effective Time, in
accordance with the relevant provision of the DGCL, the separate existence of
Target shall cease and the Surviving Corporation shall succeed, without other
transfer, to all the rights and property of each of Newco and Target and shall
be subject to all the debts and liabilities of each in the manner provided by
the DGCL.
(b) At the Effective Time each share of common stock, par value $.01
per share, of Newco issued and outstanding immediately prior to the Effective
Time shall remain outstanding and by reason of the Merger and without any action
by the holder thereof represent one validly issued, fully paid and
non-assessable share of common stock, par value $.01 per share, of the Surviving
Corporation. As a result of the Merger and without any action by the holder
thereof, (i) all shares of Target's common stock, par value $.01 per share (the
"Target Common Stock"), shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and, except as provided in Section 1.03(d),
each holder of a Target Certificate (as defined in Section 2.01) representing
any shares of Target Common Stock (a "Target Common Stockholder") shall
thereafter cease to have any rights with respect to such shares of Target Common
Stock, except the right to receive, without interest, the Target Common Stock
Consideration (as defined in Section 1.03 below) and cash in lieu of fractional
share interests upon the surrender of such Target Certificate in accordance with
this Agreement and (ii) all shares of Target's preferred stock, par value $.01
per share (the "Target Preferred Stock"), shall cease to be outstanding and
shall be cancelled and retired and
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shall cease to exist, and each holder of a Target Certificate (as defined in
Section 2.01) representing any shares of Target Preferred Stock shall thereafter
cease to have any rights with respect to such shares of Target Preferred Stock
except the right to receive Acquiror Series C Preferred Shares in accordance
with Section 1.03.
(c) Each share of Target Common Stock issued and held in Target's
treasury at the Effective Time, if any, shall, by virtue of the Merger, cease to
be outstanding and shall be cancelled and retired and shall cease to exist
without payment of any consideration therefor.
SECTION 1.03 Merger Consideration.
(a) At the Effective Time, each share of Target Common Stock issued and
outstanding immediately prior to the Effective Time shall, by reason of the
Merger and without any action by the holder thereof, be converted into the right
to receive, subject to adjustment pursuant to Section 1.04 and in addition to
the cash to be received, if any, in lieu of the issuance of fractional shares of
Acquiror Series B Preferred Shares pursuant to Section 2.02), (i) 0.2980 shares
of Acquiror's 9.75% Series B Cumulative Convertible Preferred Shares, par value
$.01 per share each with a $25.00 per share liquidation preference (the
"Acquiror Series B Preferred Shares"), the form of Articles Supplementary for
which is attached as Exhibit A hereto, plus (ii) the number of shares of
Acquiror Series B Preferred Shares equal to (A) an amount equal to the result of
dividing the sum of (1) the aggregate of the payments made by Target for the
reduction of the principal amount of the Underlying Debt (as hereafter defined
and listed in the Disclosure Letter delivered by Target to Acquiror
simultaneously with the execution and delivery of this Agreement (the "Target
Disclosure Letter")), and (2) the amount paid for the redemption of the Target
Preferred Stock, in each case from September 30, 1996 through the date one day
prior to the Closing Date (the aggregate of such payments is referred to
hereinafter as "Closing Adjustment Payments"), by $25, divided by (B) 3,789,171,
plus (iii) if the unpaid Merger Expenses (as defined below) are equal to or less
than $2,000,000, the number of shares of Acquiror Series B Preferred Shares
equal to (A) an amount equal to the result of dividing the excess of $2,000,000
over the aggregate of all unpaid Merger Expenses substantiated to Acquiror's
reasonable satisfaction, by $25, divided by (B) 3,789,171 minus (iv) if the
unpaid Merger Expenses are greater than $2,000,000, the number of shares of
Acquiror Series B Preferred Shares equal to (A) an amount equal to the result of
dividing the excess of the unpaid Merger Expenses over $2,000,000 by $25,
divided by (B) 3,789,171. The right to receive Acquiror Series B Preferred
Shares pursuant to this Section 1.03(a) (as adjusted pursuant to Section 1.04),
and the cash to be received, if any, in lieu of the issuance of fractional
shares of Acquiror Series B Preferred Shares pursuant to Section 2.02, is
hereinafter referred to as the "Target Common Stock Consideration". "Merger
Expenses" shall mean (i) all investment banking fees and disbursements
(including, without limitation, finders fees), legal fees and disbursements, and
accounting fees and disbursements, in each case incurred by Target in connection
with the negotiation, execution and delivery of this Agreement and the
consummation of the Merger and other transactions contemplated by this Agreement
and the Ancillary Documents (as defined below), plus (ii) the lesser of (A)
$200,000 and (B) one-half of the following: all debt
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assumption and prepayment fees, printing expenses, filing fees, property and
other taxes payable in jurisdictions in which Target is, or is required to be,
qualified to do business, property transfer taxes, any other fees and expenses
paid to obtain any required consents and approvals, and any fees and expenses
required to obtain the Target D & O Liability Insurance Tail (as defined below),
in each case incurred in connection with the negotiation, execution and delivery
of this Agreement and the consummation of the Merger and other transactions
contemplated by this Agreement and the Ancillary Documents.
(b) At the Effective Time, each share of the Target Preferred Stock
(together with the Target Common Stock, the "Target Stock"), issued and
outstanding immediately prior to the Effective Time shall, by reason of the
Merger and without any action by the holder thereof, be converted into the right
to receive one share of Acquiror Series C Cumulative Redeemable Preferred
Shares, par value $.01 per share each with a $10.00 per share redemption value
and liquidation preference (the "Acquiror Series C Preferred Shares"), the form
of Articles Supplementary for which is attached as Exhibit B hereto.
(c) Notwithstanding Subsection 1.03(a), shares of Target Common Stock
issued and outstanding immediately prior to the Effective Time and held by a
holder of Target Common Stock ("Dissenting Shares") who has not voted in favor
of the Merger or consented thereto in writing and who has demanded appraisal for
such stock in accordance with the DGCL and is entitled thereto, shall not be
converted into the right to receive shares of Acquiror Series B Preferred Shares
unless such holder fails to perfect or withdraws or loses his right to
appraisal. If, after the Effective Time, such holder fails to perfect or
withdraws or loses the right to appraisal to which he is entitled, such shares
of Target Common Stock shall thereupon be deemed to have been converted into and
to represent the right to receive, at the Effective Time, the shares of Acquiror
Series B Preferred Shares pursuant to the terms of this Section 1.03, without
any interest thereon or addition thereto. Target shall give Acquiror prompt
notice of any written demands for appraisal or withdrawals of demands for
appraisal received by Target and, except with the prior written consent of
Acquiror, shall not make any payment with respect to, or settle or offer to
settle any such demands, and, prior to the Effective Time, Acquiror shall have
the right to participate in all negotiations and proceedings with respect to
such demands.
(d) Except as provided in this Section 1.03, (i) holders of Target
Common Stock shall, at and after the Effective Time, by reason of the Merger and
without any action by the holder thereof, cease to have any rights with respect
to such Target Common Stock, except the right to receive the Target Common Stock
Consideration, and (ii) holders of Target Preferred Stock shall, at and after
the Effective Time, by reason of the Merger and without any action by the holder
thereof, cease to have any rights with respect to such Target Preferred Stock,
except the right to receive Acquiror Series C Preferred Shares, in each case in
accordance with this Section 1.03.
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SECTION 1.04 Adjustment of Target Common Stock Consideration.
(a) The parties agree that the number of shares of Acquiror Series B
Preferred Shares to be exchanged for each share of Target Common Stock (i) shall
be increased, as set forth in Section 1.04(b), to the extent that the amount
(the "Adjustment Increase Amount") by which the Total Current Assets (as defined
on Schedule 1.04(a) attached hereto) as of the close of business on the day
immediately preceding the Closing Date (the "Adjustment Time") exceeds the Total
Current Liabilities (as defined on Schedule 1.04(a) attached hereto) as of the
Adjustment Time or (ii) shall be reduced, as set forth in Section 1.04(b), by an
amount (the "Adjustment Decrease Amount") equal to the amount by which the Total
Current Liabilities (excluding unpaid Merger Expenses) as of the Adjustment Time
exceed Total Current Assets as of the Adjustment Time. For purposes of this
Section 1.04, (i) Total Current Assets shall not include the South Carolina
Outparcel Proceeds (as defined in Section 5.25) and (ii) Total Current
Liabilities shall not include (A) any unpaid Merger Expenses, (B) any unpaid
costs and expenses provided for in clauses (2) and (3) of Section 5.25 relating
to the South Carolina Outparcel Transfer or (C) up to $19,000 for income taxes
accrued by Target in accordance with GAAP but not paid on the Closing Date
arising from the South Carolina Outparcel Transfer. Except as otherwise provided
in this Agreement, Target shall not take any action after the date hereof, and
has not taken any action, that could reasonably be expected to change the Total
Current Assets or the Total Current Liabilities during the period from the
Adjustment Time to the Effective Time.
(b) The number of shares of Acquiror Series B Preferred Shares to be
exchanged for each share of Target Common Stock shall be increased by the number
of shares of Acquiror Series B Preferred Shares equal to (A) an amount equal to
the result of dividing the Adjustment Increase Amount, by $25, divided by (B)
3,789,171. The number of shares of Acquiror Series B Preferred Shares to be
exchanged for each share of Target Common Stock shall be decreased by the number
of shares of Acquiror Series B Preferred Shares equal to (A) an amount equal to
the result of dividing the Adjustment Decrease Amount, by $25, divided by (B)
3,789,171.
(c) In order to determine whether any adjustments are required pursuant
to this Section 1.04, the parties agree that Target will (i) calculate the
Adjustment Increase Amount or Adjustment Decrease Amount, as the case may be,
and (ii) deliver to Acquiror on or before the Closing Date an unaudited
financial statement (the "Closing Adjustment Statement") and supporting and
other substantiating documentation, setting forth in reasonable detail the Total
Current Assets and Total Current Liabilities of Target as of the Adjustment
Time, together with a letter from Deloitte & Touche, Target's independent public
accountants, describing the procedures performed by them concerning the accuracy
of the amounts and calculations set forth in, and otherwise containing such
statements and information with respect to the Closing Adjustment Statement, in
form and substance reasonably satisfactory to Acquiror. In making its
calculations, Target shall apply the same accounting methods used by Target in
the preparation of Target's unaudited balance sheet as at September 30, 1996.
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SECTION 1.05 Certificate of Incorporation; By-laws; Directors;
Officers.
(a) The Certificate of Incorporation and By-laws of Newco in effect on
the date hereof shall be the Certificate of Incorporation and By-laws of the
Surviving Corporation at the Effective Time, and thereafter may be amended in
accordance with their respective terms and applicable law.
(b) The directors of Newco immediately prior to the Effective Time
shall be the directors of the Surviving Corporation as of and following the
Effective Time.
(c) The officers of Newco immediately prior to the Effective Time shall
be the officers of the Surviving Corporation as of and following the Effective
Time.
ARTICLE II
EXCHANGE OF SHARES
SECTION 2.01 Surrender of Target Certificates. Prior to the Effective
Time, Acquiror shall make available to an exchange agent selected by Acquiror,
which shall be Acquiror's transfer agent, or such other party reasonably
acceptable to Target (the "Exchange Agent"), in trust for the benefit of the
holders of Target Common Stock and Target Preferred Stock, for exchange in
accordance with this Article II, the amount of cash payable in lieu of
fractional shares pursuant to Section 2.02 and the certificates representing the
aggregate number of shares of Acquiror Series B Preferred Shares and Acquiror
Series C Preferred Shares, respectively, to be issued pursuant to Section 1.03.
Promptly after the Effective Time, the Exchange Agent shall mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time represented shares of Target Common Stock or Target Preferred
Stock (collectively, the "Target Certificates" and individually, a "Target
Certificate") a letter of transmittal and instructions for use in effecting the
surrender of Target Certificates in exchange for cash in lieu of fractional
shares, after giving effect to any required withholding tax, and certificates
representing shares of Acquiror Series B Preferred Shares or Acquiror Series C
Preferred Shares, respectively, and cash in lieu of fractional shares, if
applicable, after giving effect to any required withholding tax. The letter of
transmittal shall specify that delivery shall be effected, and risk of loss and
title to Target Certificates shall pass, only upon delivery of the Target
Certificates to the Exchange Agent, and shall be in such form and have such
other provisions as Acquiror shall reasonably specify. Upon surrender of a
Target Certificate representing shares of Target Common Stock to the Exchange
Agent, together with such letter of transmittal, duly executed, the holder of
such
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Target Certificate shall be entitled to receive in exchange therefor shares of
Acquiror Series B Preferred Shares and cash in lieu of fractional shares,
pursuant to Section 1.03 and subject to Section 2.06, for each share of Target
Common Stock formerly represented by such Target Certificate, and the Target
Certificate so surrendered shall forthwith be canceled. Upon surrender of a
Target Certificate representing shares of Target Preferred Stock to the Exchange
Agent, together with such letter of transmittal, duly executed, the holder of
such Target Certificate shall be entitled to receive in exchange therefor shares
of Acquiror Series C Preferred Shares pursuant to the terms of Section 1.03 and
the Target Certificate so surrendered shall be cancelled. Until surrendered as
contemplated by this Article II, from and after the Effective Time, each Target
Certificate shall be deemed to represent only the right to receive the above
described consideration for each share of Target Common Stock or Target
Preferred Stock formerly represented by such Target Certificate, and shall not
evidence any interest in Acquiror or Newco. If a certificate representing shares
of Acquiror Series B Preferred Shares or Acquiror Series C Preferred Shares is
to be issued to and cash is to be paid in lieu of fractional shares to a person
other than the one in whose name the Target Certificate surrendered in exchange
therefor is registered, it shall be a condition to such issuance or payment that
such Target Certificate be properly endorsed (or accompanied by an appropriate
instrument of transfer), with signatures guaranteed, if requested, and
accompanied by evidence that any applicable stock transfer taxes have been paid
or provided for.
SECTION 2.02 No Fractional Shares for Acquiror Series B Preferred
Shares; Cash Payments.
(a) No certificate or scrip representing fractional shares of Acquiror
Series B Preferred Shares shall be issued upon the surrender for exchange of
Target Certificates representing shares of Target Common Stock, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Acquiror. The fractional shares of Acquiror Series B
Preferred Shares to be received by each Target Common Stockholder will be
aggregated so that no Target Common Stockholder will receive cash in an amount
equal to or greater than the value of one full share of Acquiror Series B
Preferred Shares. In lieu of any such fractional share, the Exchange Agent shall
pay, subject to Section 2.06, to each Target Common Stockholder who otherwise
would be entitled to receive a fractional share of Acquiror Series B Preferred
Shares an amount of cash determined by multiplying $25 by the fraction of a
share of Acquiror Series B Preferred Shares to which such holder would otherwise
be entitled. The transfer of cash to Target Common Stockholders in lieu of
fractional shares of Acquiror Series B Preferred Shares, if any, is solely for
the purpose of avoiding the expense and inconvenience to Acquiror of accounting
for fractional shares and does not represent separately bargained-for
consideration.
(b) Acquiror shall make available to the Exchange Agent sufficient
funds as and when necessary to enable the Exchange Agent to make the cash
payments to be made in lieu of the issuance of fractional shares under Section
2.02. In no event shall interest be paid or accrued on any such cash payments.
The cash amount to be paid to the holders of Target Common Stock pursuant to
Section 2.02 shall be rounded up to the nearest cent.
SECTION 2.03 No Dividends. No dividends or other distributions declared
or made after the Effective Time with respect to Acquiror Series B Preferred
Shares or Acquiror Series C Preferred Shares with a record date after the
Effective Time shall be paid to the holder of any Target Certificate with
respect to the Acquiror Series B Preferred Shares or the Acquiror Series C
Preferred Shares represented thereby until the holder of record of such Target
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Certificate shall surrender such Target Certificate for exchange as provided
herein. Dividends or other distributions with a record date after the Effective
Time payable in respect of Acquiror Series B Preferred Shares or Acquiror Series
C Preferred Shares held by the Exchange Agent shall be paid to the Exchange
Agent and held in trust for the benefit of such holders of Target Certificates.
Following surrender of any previously unsurrendered Target Certificate
surrendered for exchange as provided herein, there shall be paid to the record
holder of the certificates representing shares of Acquiror Series B Preferred
Shares or Acquiror Series C Preferred Shares issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to such shares of Acquiror Series B Preferred Shares or
Acquiror Series C Preferred Shares, respectively, and (ii) at the date of
payment of any dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender, the amount of such dividends or other distributions payable with
respect to such shares of Acquiror Series B Preferred Shares or Acquiror Series
C Preferred Shares, respectively.
SECTION 2.04 Return to Acquiror. Any shares of Acquiror Series B
Preferred Shares or Series C Preferred Shares and any cash in lieu of fractional
share interests made available to the Exchange Agent and not exchanged for
Target Certificates within 12 months after the Effective Time and any dividends
and distributions held by the Exchange Agent for payment or delivery to the
holders of unsurrendered Target Certificates representing Target Common Stock or
Target Preferred Stock and unclaimed at the end of such 12 month period shall be
redelivered or repaid by the Exchange Agent to Acquiror, after which time any
holder of Target Certificates who has not theretofore delivered or surrendered
such Target Certificates to the Exchange Agent, subject to applicable law, shall
look only to Acquiror for the consideration to be paid pursuant to the terms of
Section 1.03 and, if applicable, the dividends or distributions to be paid
pursuant to Section 2.03. Notwithstanding the foregoing, none of the Exchange
Agent, the Surviving Corporation or any other party hereto shall be liable to a
holder of Target Common Stock or Target Preferred Stock for any shares of
Acquiror Series B Preferred Shares or Acquiror Series C Preferred Shares,
respectively, cash in lieu of fractional share interests, if applicable, or
dividends or distributions delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
SECTION 2.05 No Further Transfer. Following the Effective Time, there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Target Common Stock or Target Preferred
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Target Certificates issued prior to the Effective Time are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged for shares of Acquiror Series B Preferred Shares or Acquiror
Series C Preferred Shares as provided in this Article II. Target Certificates
surrendered for exchange by any person (an "Affiliate") constituting an
"affiliate" of Target for purposes of Rule 145(c) under the Securities Act of
1933, as amended (the "1933 Act"), shall not be exchanged until Acquiror has
received a written agreement from such person as provided in Section 5.21.
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SECTION 2.06 Withholding Rights. The Exchange Agent and the Surviving
Corporation shall be entitled to deduct and withhold from the payment of any
Target Common Stock Consideration, cash in lieu of fractional share interests,
and any other consideration payable to any holder of the Target Stock (a "Target
Stockholder") pursuant to this Agreement, such amounts as the Exchange Agent or
the Surviving Corporation may be required to deduct and withhold under the Code,
or any provision of any state, local or foreign law. To the extent that any
amounts are so withheld, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to such Target Stockholder.
SECTION 2.07 Lost, Stolen or Destroyed Certificates. In the event that
any Target Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Target
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation in its sole discretion, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Target Certificate,
the Exchange Agent or the Surviving Corporation shall exchange for such lost,
stolen or destroyed Target Certificate such Acquiror Series B Preferred Shares,
Acquiror Series C Preferred Shares, cash, dividends and distributions to which
such person would otherwise have been entitled had such Target Certificate been
surrendered in accordance with Section 2.01.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to Acquiror and Newco as follows:
SECTION 3.01 Organization and Good Standing. Target is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
operate, lease and Encumber its properties and assets and to carry on its
business as it is now being conducted. Target is duly qualified or licensed to
do business as a foreign corporation, and is in good standing, under the laws of
(a) each jurisdiction listed in the Target Disclosure Letter and (b) each other
jurisdiction in which the character of the properties owned, operated, leased or
Encumbered by Target therein or in which the carrying on of its business makes
such qualification or licensing necessary, except where the failure to be so
qualified, licensed or in good standing could not reasonably be expected to have
a Target Material Adverse Effect. "Target Material Adverse Effect" means, with
respect to Target, any event or events that could, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, assets, results of operations or financial condition of Target or the
Target Properties (as defined in Section 3.06), taken as a whole. For the
purposes of this Agreement, a Target Material Adverse Effect shall be deemed to
have occurred to the extent that any one or more events, individually or in the
aggregate, could reasonably be expected to (i) adversely affect Target's gross
revenues by $500,000 or more during any 12-month period, or (ii) have a cost to
remedy, or result in an expense or liability to Target, the Company or Newco, or
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acceleration of the payment of any obligation of Target (collectively, a "Target
Remediation Cost"), of $500,000 or more, or (iii) adversely affect the value of
the Target Properties by $2,500,000 or more. The amounts (i) of any effect on
Target's gross revenues and (ii) any Target Remediation Costs in case of each of
clauses (i), (ii) and (iii) that could reasonably be expected to result from
such one or more events, are hereinafter referred to as the "Target Costs."
Notwithstanding the foregoing, a Target Material Adverse Effect shall not be
deemed to have occurred if (A) any one or more of the events giving rise to a
Target Cost or loss of value is covered by insurance and Target has a right to
receive payments pursuant to such insurance policy as a result of such event or
events, (B) the aggregate amount of Target Costs and/or loss of value does not
exceed $2,500,000 or $5,000,000, respectively, and (C) after giving effect to
the application of such insurance proceeds, the aggregate amount of Target Costs
and/or the loss of value is less than $500,000 or $2,500,000, respectively.
Target has delivered to Acquiror true, correct and complete copies of its
Certificate of Incorporation and By-laws, each as amended to date. Any effects
on Target's gross revenues or the value of the Target Properties that is
attributable to any default, diminution of rent or rejection under any Target
Lease by any tenant that is the subject of any bankruptcy proceedings on the
date hereof shall not be included in any determination of whether a Target
Material Adverse Effect has occurred or in any calculation of Target Costs.
SECTION 3.02 Capitalization of Target. The authorized capital stock of
Target consists of (i) 20,000,000 shares of Target Common Stock, of which
3,789,171 shares are issued and outstanding as of the date hereof, and (ii)
650,000 shares of Target Preferred Stock, of which 395,834 shares are issued and
outstanding as of the date hereof. All of the issued and outstanding shares of
Target Common Stock and Target Preferred Stock have been duly authorized and are
validly issued, fully paid and nonassessable and are free of preemptive rights
with no personal liability attaching to the ownership thereof. Target has no
outstanding bonds, debentures, notes, or other obligations the holders of which
have the right to vote (or are convertible into or exercisable for securities
having the right to vote) with the holders of Target Common Stock on any matter.
Except as set forth in the Target Disclosure Letter, Target does not have and is
not bound by, and at the Effective Time, will not have or be bound by, any
outstanding subscriptions, options, warrants, calls, convertible securities,
rights, or other contracts, commitments, agreements, arrangements or
understandings (collectively, "Contracts") of any character, to or by which
Target is a party or is bound, which, directly or indirectly, obligate Target to
issue, deliver, transfer or sell any shares of Target Common Stock or Target
Preferred Stock or any other equity or debt security of Target or any securities
representing the right to purchase or otherwise receive any shares of Target
Common Stock or Target Preferred Stock or any other equity or debt security of
Target. After the Effective Time, the Surviving Corporation will have no
obligation to issue, deliver, transfer or sell any shares of capital stock or
other equity interest of Target or the Surviving Corporation pursuant to any
employee benefit plan of Target.
SECTION 3.03 Authority of Target. Target has all requisite corporate
power and authority to execute and deliver this Agreement and the documents (the
"Ancillary Documents") needed to consummate the Merger and the other
transactions contemplated by
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this Agreement to which Target is a party, and, subject to approval by the
Target Stockholders in accordance with the DGCL, to consummate the Merger and
the other transactions contemplated by this Agreement and the Ancillary
Documents, and to take all other actions required to be taken by it pursuant to
the provisions hereof and the Ancillary Documents. The execution, delivery and
performance by Target of this Agreement and the Ancillary Documents to which
Target is a party, the consummation by Target of the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents, have
been duly and validly authorized and approved by all requisite corporate action
of Target and no other corporate proceedings on the part of Target are necessary
to authorize the execution, delivery and performance of this Agreement or any of
the Ancillary Documents, to consummate the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents, other than the
approval of the Merger and adoption of this Agreement and the Ancillary
Documents by the Target Stockholders in accordance with the DGCL. This Agreement
and each of the Ancillary Documents to which Target is a party have been duly
and validly executed and delivered by Target and constitute valid and binding
agreements of Target, enforceable against Target in accordance with their
respective terms, except as may be limited by bankruptcy and other laws
affecting the enforceability of creditors' rights generally or laws governing
the availability of specific performance or other equitable remedies, or
restrictions of the enforcement of securities indemnification and contribution
provisions imposed by public policy.
SECTION 3.04 Consents and Approvals; No Violations. Except as set forth
in the Target Disclosure Letter and for applicable requirements of the 1933 Act,
Securities Exchange Act of 1934, as amended (the "1934 Act"), state Blue Sky
laws, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), if any, the filing and recordation of the Delaware Merger
Certificate, as required by the DGCL, and such filings, authorizations, orders
and approvals as may be required under State "control share acquisition",
"antitrust" or other similar statutes or regulations, or such filings,
authorizations, orders and approvals as may be required under the By-laws of the
National Association of Securities Dealers, Inc. ("NASD") (collectively, the
"Target Required Filings"), no filing or registration with, and no consent,
authorization, declaration or approval of, any governmental body, court,
arbitration board, tribunal or authority ("Governmental Entity"), or any third
party, is necessary for the execution, delivery and performance by Target of
this Agreement or any of the Ancillary Documents or the consummation of the
Merger and the other transactions contemplated by this Agreement and the
Ancillary Documents. The Target Disclosure Letter sets forth a true, correct and
complete list of all filings, registrations, consents, authorizations,
declarations or approvals necessary to consummate the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents (the
"Target Consents"). Except as set forth in the Target Disclosure Letter, subject
to approval by the Target Stockholders in accordance with the DGCL, neither the
execution, delivery and performance by Target of this Agreement or any of the
Ancillary Documents nor the consummation by Target of the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents will (i)
constitute any violation or breach of any provision of the Certificate of
Incorporation or By-laws of Target, or (ii) constitute any
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violation or breach of any provision of, or constitute a default (or an event
which, with the giving of notice or the passage of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, pledges, mortgages, deeds of trust, security
interests, claims against title, charges, options or other encumbrances
("Encumbrances") upon any of the properties of Target under, or result in being
declared void, voidable or without further binding effect, any of the terms,
conditions or provisions of any Target Contract (as defined below), or any
franchise, permit, concession, Contract, or other instrument, or other
obligation to which Target is a party, or by which Target or any of its
properties is bound or affected except, with respect to this clause (ii), for
those which could not have a Target Material Adverse Effect.
SECTION 3.05 Public Reports. Target has delivered to Acquiror true,
correct and complete copies of (i) its Annual Report on Form 10-KSB for the year
ended December 31, 1995, (ii) its Quarterly Report on Form 10-QSB for the three
months ended March 31, 1996, (iii) its Quarterly Report on Form 10-QSB for the
six months ended June 30, 1996, and (iv) all other registration statements,
reports, proxy statements, information statements and other documents filed by
Target with the Securities and Exchange Commission since December 31, 1995 (the
"SEC"); in each case including all exhibits, amendments and supplements thereto
and each of such documents is in the form (including exhibits, amendments and
supplements thereto) filed with the SEC (collectively, the "Target SEC
Reports"). Each of the Target SEC Reports was filed with the SEC in a timely
manner. The Target SEC Reports constitute all registration statements, reports,
proxy statements, information statements and other documents required to be
filed by Target since December 31, 1995 under the 1933 Act, the 1934 Act and the
rules and regulations promulgated thereunder (the "Securities Laws"). As of
their respective dates, the Target SEC Reports (i) complied in all material
respects with the applicable requirements of the Securities Laws and (ii) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading.
Since December 31, 1995, Target has not received from the SEC any comments, or
requests for additional information, with respect to any Target SEC Report.
SECTION 3.06 Real Property; Contracts and Leases Relating to Real
Property.
(a) The Target Disclosure Letter contains a true, correct and complete
list by street address of all of the real estate properties owned by Target. The
Target Disclosure Letter or the title reports and surveys with respect to the
real estate properties owned by Target listed in the Target Disclosure Letter
(collectively, the "Existing Target Title Documents") (in each case true,
correct and complete copies of which Existing Target Title Documents have been
delivered to Acquiror) set forth all improvements thereon (including, without
limitation, (i) the buildings and other structures and parking areas located
thereon and (ii) any easements, rights of way, privileges and appurtenances
thereto relating to such real estate properties). The real estate properties
owned by Target and improvements thereon (including, without limitation, (i) the
buildings and other structures and parking areas located thereon and (ii) any
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easements, rights of way, privileges and appurtenances thereto relating to such
real estate properties) are hereinafter referred to as the "Target Properties."
Except as set forth in the Target Disclosure Letter or in the Existing Target
Title Documents, Target owns fee simple title to each of the Target Properties,
free and clear of Encumbrances, and the Target Properties are not subject to any
rights of way, written agreements, or Property Laws (as defined below) affecting
building use or occupancy, or reservations of an interest in title
(collectively, "Property Restrictions") except for (i) Property Restrictions
imposed or promulgated by law or any Governmental Entity with respect to real
property, including, without limitation, zoning regulations, that, individually
or in the aggregate, do not materially and adversely affect the current use of
the property or materially detract from the value of the property and (ii)
Property Restrictions disclosed on the Existing Target Title Documents.
(b) To Target's knowledge, except as set forth in the Target Disclosure
Letter or in the Existing Target Title Documents, Target has (i) all
certificates, permits and licenses from all Governmental Entities having
jurisdiction over any of the Target Properties and (ii) all agreements,
easements and other rights, that are necessary to permit the lawful use and
operation of the buildings and improvements on any and all of the Target
Properties or are necessary to permit the lawful use and operation of all
driveways, roads and other means of egress and ingress to and from any and all
of the Target Properties (any such agreement, easement or other right referred
to in this clause (ii) shall hereafter be referred to as a "Target REA
Agreement") except, in the case of clauses (i) and (ii) of this paragraph, those
the failure to obtain of which could not reasonably be expected to have a Target
Material Adverse Effect. Each Target REA Agreement is in full force and effect,
and there is no pending threat of modification or cancellation of any of same.
Target is not, and to Target's knowledge no person has asserted, or is
threatening to assert, that Target is, in default under any Target REA Agreement
except for those which could not have a Target Material Adverse Effect.
(c) Except as set forth in the Target Disclosure Letter or in the
Existing Target Title Documents, to Target's knowledge, (i) the Target
Properties, and the size of, use of, occupancy of, improvements on, construction
on, and access to, the Target Properties (the "Target Property Uses"), are in
compliance in all material respects with all federal, state and municipal laws,
ordinances, orders, regulations, codes, zoning regulations, certificates,
permits, licenses and requirements, including, without limitation, those
relating to subdivision, building, safety, fire, health, and sewage connection,
treatment and disposal ("Property Laws"), affecting all or any portion of all or
any of the Target Properties; (ii) the Target Properties, and the Target
Property Uses, are not, and no person or Governmental Entity has asserted, or is
threatening to assert, that the Target Properties, or the Target Property Uses,
are, in violation of any Property Laws; (iii) there are no pending or threatened
proceedings or actions that could reasonably be expected to in any manner
materially and adversely affect the Target Property Uses; and (iv) to Target's
knowledge, no betterment assessments have been levied against, and no
condemnation or rezoning proceedings, or proceedings requiring any public
installations or improvements, are pending or threatened with respect to, any of
the Target Properties.
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(d) Except as set forth in the Target Disclosure Letter or in the
engineering reports, true, correct and complete copies of which Acquiror has
obtained prior to the date hereof, to Target's knowledge, (i) there is no Target
Property with building systems not in working order; (ii) there is no physical
damage to any Target Property in excess of $10,000 for which there is no
insurance in effect covering the full cost of the restoration, ordinary wear and
tear excepted; (iii) there are no structural defects relating to any of the
Target Properties; and (iv) there is no current renovation or restoration or
tenant improvements to any Target Property the cost of which exceeds $10,000.
(e) Target has delivered to Acquiror true, correct and complete copies
of (i) all of the following Contracts to which Target is a party relating to
real property owned or leased by Target: (A) all documents evidencing any
indebtedness secured by the Target Properties (the "Target Underlying Debt"),
(B) the Target Leases (as defined in Section 3.07), (C) all other service,
equipment, supply, maintenance, management and other Contracts providing for
payments in excess of $10,000 annually unless the same are terminable by Target
by notice of not more than 90 days for a cost of less than $10,000, (D)
outstanding Contracts relating to the development or construction of any Target
Properties, (E) all leases pursuant to which Target, as lessee, leases personal
property providing for payments in excess of $10,000 annually or leases real
property, (F) all outstanding options pursuant to which Target has granted, or
been granted, an option to purchase real property, and (G) any and all
amendments and supplements to all of the foregoing (collectively, as amended or
supplemented, the "Target Property Contracts"); (ii) all loan or credit
agreements, notes, debentures, bonds, mortgages, indentures, deeds of trust, or
Contracts, instruments or other obligations for borrowed money to which Target
is a party, and all amendments and supplements to all of the foregoing, (X)
pursuant to which any indebtedness of Target in excess of $10,000 is outstanding
or may be incurred or is evidenced or (Y) which may result in or evidences total
payments or liabilities to Target in excess of $10,000 (as amended or
supplemented, the "Target Loan Contracts"); and (iii) all joint venture,
shareholder agreements, operating agreements, partnership agreements or similar
Contracts to which Target is a party (together with the Target Property
Contracts and the Target Loan Contracts, as amended or supplemented, the "Target
Contracts"). For purposes of this Section 3.06, "indebtedness" shall mean, with
respect to any person, without duplication, (i) all indebtedness of such person
for borrowed money, whether secured or unsecured, (ii) all obligations of such
person under conditional sale or title retention agreements relating to property
purchased by such person, (iii) all capitalized lease obligations of such
person, (iv) all obligations of such person under interest rate or currency
hedging transactions (valued at the termination value thereof) and (v) all
guarantees of such person of any indebtedness of any other person. The Target
Disclosure Letter contains a true, correct and complete list of the Target
Contracts. The Target Contracts are valid, subsisting and in full force and
effect with respect to Target, and, to Target's knowledge, with respect to the
other parties to the Target Contracts. Target is not, and to Target's knowledge
no person has asserted, or is threatening to assert, that Target is, in material
default under any Target Contract providing for payments in excess of $10,000
annually. No existing use of any of the Target Properties constitutes, and to
Target's knowledge no person has asserted, or is threatening to assert, that
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any existing use of any of the Target Properties constitutes, a conflict with
any exclusive rights granted to any person under any of the Target Contracts
providing for payments in excess of $10,000 annually. To Target's knowledge, no
party to any Target Contract providing for payments in excess of $10,000
annually is in default under such Target Contract. To Target's knowledge, there
does not exist any condition which, with the giving of notice or the passage of
time or both, would cause such a violation or default under, or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, or result in the creation of any Encumbrances upon any
of the Target Properties under, or result in being declared void, voidable or
without further binding effect, any of the terms, conditions or provisions of
any Target Contract providing for payments in excess of $10,000 annually, or any
license, franchise, permit or concession or other instrument, or other
obligation to which Target is a party, or by which Target or any of the Target
Properties is bound or affected. None of the Target Contracts (other than the
Target Leases) contain any provision which would prevent the Acquiror or the
Surviving Corporation from occupying and using all or any portion of the Target
Properties, or any property or assets leased by Target, in the same manner and
on the same terms and conditions as Target is so occupying or using it.
(f) Target has delivered to Acquiror true, correct and complete copies
of (i) each permanent or temporary Certificate of Occupancy with respect to any
of the Target Properties which Target has in its possession and (ii) all
manufacturers' and contractors' warranties and guarantees currently in effect
with respect to the Target Properties which Target has in its possession.
(g) Each of the Target Properties is separately assessed for tax
purposes. Target has delivered to Acquiror true, correct and complete copies of
the most recent real estate tax bills for each of the Target Properties.
SECTION 3.07 Leases.
(a) The Target Disclosure Letter contains a true, correct and complete
rent roll for all leases, licenses and tenancies, each as amended and
supplemented ("Target Leases") covering all or each portion of the Target
Properties (the "Target Rent Roll"). The Target Rent Roll includes or describes
for each Target Lease, the name and address of the tenant, the space leased, the
current balances of security and other deposits, the current base rent the
tenant is obligated to pay thereunder, and the amount of percentage rent most
recently paid. Target has delivered to Acquiror a true, correct and complete
statement evidencing common area maintenance billings and real estate tax
escalations under each Target Lease.
(b) Except as set forth in the Target Disclosure Letter, (i) to
Target's knowledge, each of the Target Leases is valid and subsisting and in
full force and effect; (ii) no Tenant is controlled by, under common control
with or controls Target; (iii) the tenant under each of the Target Leases is in
actual possession of the leased premises; (iv) no tenant under any Target Lease
is in arrears for the payment of rent for any month preceding the month of the
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date of this Agreement or to Target's knowledge otherwise in default of such
tenant's lease obligations; (v) to Target's knowledge, no tenant under any
Target Lease intends to vacate prior to the termination of its lease; (vi) there
are no pending summary proceedings or other legal actions by Target for eviction
under any Target Lease; (vii) all decorating, repairs, alterations, or other
work required to be performed by Target under the Target Leases, or the costs to
be reimbursed to any tenant under any Target Lease, has been performed or, if
required, reimbursed; (viii) no space subject to any Target Lease is occupied
rent free or at a rental rate reduced from the rates stated in the Target Rent
Roll; and (ix) none of the Target Leases and none of the rents or other amounts
payable thereunder have been assigned, pledged or encumbered, other than to
lenders, except as described in the Target Disclosure Letter. Target has not
collected payment of rent (other than security deposits) accruing for a period
which is more than one month beyond the date of collection. All brokerage or
leasing commissions payable by the landlord with respect to Target Leases have
been paid in full and there are no commissions payable with respect to renewals
or extensions of any Target Lease. There are no material unsatisfied obligations
wherein rent and/or other obligations of the tenant in other buildings or
improvements have been assumed by Target.
(c) Except as shown in the Target Disclosure Letter, to Target's
knowledge, no tenant, licensee or occupant under any of the Target Leases has
notified Target in writing of any claim, offset or defense which would
materially affect the collection of rent from such tenant.
(d) The Target Disclosure Letter sets forth a true, correct and
complete list of all written or oral legally enforceable commitments made by
Target to lease any of the Target Properties or any portion thereof which has
not yet been reduced to a written lease. To Target's knowledge, no person has
asserted, or is threatening to assert, that any of such written or oral
commitments is not legally enforceable. Target has delivered to Acquiror true,
correct and complete copies of all such written commitments and the Target
Disclosure Letter provides with respect to each such oral commitment the
principal terms of such commitment, including, if applicable, those items set
forth in Section 3.07(a).
SECTION 3.08 Tenant Improvements. The Target Disclosure Letter contains
(i) a true, correct and complete list of all unpaid tenant improvements being
conducted by Target and (ii) to Target's knowledge, the aggregate amount of all
unpaid tenant improvements for all Target Properties do not exceed $25,000.
Target has delivered to Acquiror true, correct and complete copies of any and
all Contracts, plans, specifications and agreements in connection with all
uncompleted tenant improvements and all completed tenant improvements which have
not been fully paid for or with respect to which there exists a dispute between
Target, the tenant and/or any contractor or subcontractor with respect to such
improvements.
SECTION 3.09 Environmental Matters. Except as set forth in any of the
environmental assessments or other environmental reports (i) identified in the
Target Disclosure Letter and in the possession of Target with respect to the
Target Properties (the
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"Target Environmental Reports"), true, correct and complete copies of which have
been delivered to Acquiror or (ii) prepared for Acquiror with respect to the
Target Properties:
(a) the activities, operations and business carried out by Target at or
on the Target Properties are in compliance, in all material respects, with all
applicable federal, state or local environmental laws, ordinances, rules and
regulations including, without limitation, the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and Recovery
Act, as amended, and the rules and regulations adopted and promulgated pursuant
to each of the foregoing ("Environmental Laws");
(b) no lien has been imposed on the Target Properties by any federal,
state or local Governmental Entity in connection with a violation of any
Environmental Laws at or on the Target Properties;
(c) Target has no knowledge (i) of any pending or threatened litigation
or proceedings before any Governmental Entity in which any person or entity
alleges Target's violation or threatened violation of any Environmental Laws or
(ii) that any Governmental Entity has determined that Target is in violation of
any Environmental Laws in connection with the Target Properties; and
(d) to Target's knowledge, no hazardous substances ("Hazardous
Materials"), including, without limitation, any flammables, explosives,
radioactive materials, hazardous wastes, hazardous and toxic substances or
related materials, asbestos or any material containing asbestos (including,
without limitation, vinyl asbestos tile), or any other substance or material as
defined by any Environmental Laws as hazardous have been treated, stored or
disposed of, or otherwise deposited in or on the Target Properties, including,
without limitation, the surface waters and subsurface waters of the Target
Properties; no spills, releases, discharges, or disposals of Hazardous Materials
have occurred or are presently occurring on or from any of the Target
Properties, in violation of any Environmental Law; there are no substances or
conditions in or on the Target Properties or any other parcels of land which may
affect the Target Properties or the use thereof or which may support a claim or
cause of action under any Environmental Law. To Target's knowledge, there are no
underground tanks at the Target Properties and no part of the Target Properties
lies in a flood plain or constitutes "wetlands." Target is not aware of any
inaccuracies in the Target Environmental Reports. For purposes of this Section,
Hazardous Materials shall not include substances sold or used by tenants under
the Target Leases provided such use or sale is in the ordinary course of such
tenant's business and is in compliance with all applicable laws, rules or
regulations.
SECTION 3.10 Insurance. True and complete copies of all insurance
policies carried by Target or pursuant to which the Target Properties are
insured have been provided to Acquiror, all of such policies are in full force
and effect as of the date hereof, all premiums due and payable in respect of
such policies have been paid, and, except as set forth
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in the Target Disclosure Letter, no claims have been made against any such
policies as of the date hereof. Target has not received any written notice from
any insurance company which has issued a policy with respect to the Target
Properties or from any board of fire underwriters (or other body exercising
similar functions) (i) claiming any defects or deficiencies which have not been
cured or corrected, (ii) requesting the performance of any repairs, alterations
or other work which have not been performed, or (iii) stating, in effect, that
any of such policies will not be renewed or will be renewed at a higher premium
than is presently payable therefor.
SECTION 3.11 Absence of Certain Changes. Except as contemplated herein
or set forth in the Target Disclosure Letter, since September 30, 1996, (i)
Target has not suffered a Target Material Adverse Effect, or entered into any
transaction or conducted its business or operations other than in the ordinary
course of operating the Target Properties and other than in connection with
Target's exploration of alternatives leading to the execution of this Agreement,
(ii) Target has not entered into or made any Contract, borrowing, capital
expenditure or transaction (each, a "Commitment"), other than Commitments of not
more than $10,000 annually made in the ordinary course of operating the Target
Properties and (iii) Target has made no change in its accounting principles,
practices or methods.
SECTION 3.12 No Undisclosed Liabilities. Except as and to the extent
set forth or disclosed in the Target Disclosure Letter, the Target SEC Reports
or in this Agreement, (i) at September 30, 1996, Target did not have any
liabilities (whether absolute, accrued, asserted or unasserted, contingent or
otherwise), required by GAAP, consistently applied, to be reflected on a balance
sheet of Target, in excess of $10,000 in the aggregate, that were not reflected
on Target's September 30, 1996 balance sheet and (ii) since September 30, 1996,
Target has not incurred any liabilities (whether absolute, accrued, asserted or
unasserted, contingent or otherwise) which are required by GAAP, consistently
applied, to be reflected on a balance sheet of Target, except liabilities
incurred in the ordinary course of operating the Target Properties.
SECTION 3.13 Litigation. Except as set forth in the Target Disclosure
Letter, there are (i) no continuing orders, injunctions, judgements or decrees
of any court, arbitrator or other Governmental Entity, to which Target is a
party or by which any of the Target Properties are bound or, to Target's
knowledge, to which any of Target's directors, officers, employees or agents (in
each case, in his capacity as such) is a party or by which any of Target's
properties or assets are bound, that could reasonably be expected to have a
Target Material Adverse Effect or prevent or delay the consummation of Merger
and the other transactions contemplated by this Agreement and the Ancillary
Documents and (ii) there are no actions, suits or proceedings pending (or to
Target's knowledge, threatened), at law or in equity, against Target or, to
Target's knowledge, against any of Target's directors, officers, employees or
agents in their capacities as such, that seek equitable relief or claim damages
in excess of $10,000, or that could reasonably be expected to have a Target
Material Adverse Effect or prevent or delay the consummation of the Merger and
the other transactions
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contemplated by this Agreement and the Ancillary Documents, or result in the
rescission of the issuance of any Target Common Stock.
SECTION 3.14 Compliance with Applicable Law. To Target's knowledge,
Target is not in violation of any order of any Governmental Entity, or any law,
ordinance, governmental rule or regulation to which Target or any of the Target
Properties is subject, where such violation or violations could reasonably be
expected to have a Target Material Adverse Effect. Target has obtained all
licenses, permits and other authorizations and has taken all actions required by
applicable law or governmental regulations in connection with its business as
now conducted, where the failure to obtain any such item or items or to take any
such action could reasonably be expected to have a Target Material Adverse
Effect. Without limiting the generality of the foregoing, to Target's knowledge
neither Target nor (i) any consultant or employee or (ii) any person who is or
was an officer, director or affiliate of Target, has, directly or indirectly,
made, promised to make, or authorized the making of, an offer, payment or gift
of money or anything of value to any government official, political party or
employee, agent or fiduciary of a customer, to obtain a Contract for or to
influence a decision in favor of Target where such offer, payment or gift was or
would be, if made, in violation of any applicable law, ordinance, governmental
rule or regulation, nor have any of them maintained for this purpose cash or
anything of value, in an account or otherwise, not properly and accurately
accounted for on the books and records of Target.
SECTION 3.15 Taxes. (a) Except as set forth in the Target Disclosure
Letter, Target has timely filed all federal, state, local and foreign tax
returns required to be filed by it through the date hereof and such returns are
complete, accurate and comply with all applicable law in all material respects.
True, correct and complete copies of all federal, state, local and foreign tax
returns filed by Target and all communications relating thereto have been
delivered to Acquiror. Target has not executed or filed with any tax authority
any Contract now in effect extending the period for assessment or collection of
any income or other Taxes (as defined below), and no extension of time with
respect to any date on which a tax return was or is to be filed by Target is in
force. Except as set forth in the Target Disclosure Letter, Target is not a
party to any action or proceeding for assessment or collection of Taxes, and no
claim for assessment or collection of Taxes has been asserted or threatened
against it. There is no dispute or claim concerning any tax liability of Target
claimed by any tax authority. To Target's knowledge, no claim has ever been made
by a tax authority in a jurisdiction where Target does not file tax returns that
Target is or may be subject to taxation in such jurisdiction. There are no
security interests on any of the Target Properties that arose in connection with
any failure (or alleged failure) of Target to pay Taxes. Target has never
entered into a closing agreement pursuant to Section 7121 of the Code.
(b) Target has timely paid or caused to be paid all Taxes (as defined
below), including, without limitation, all transfer Taxes, if any, (i) shown as
due on its returns, (ii) which have become due and payable pursuant to any
assessment, deficiency notice, 30-day letter or other notice received by Target,
(iii) which became due and payable as a result of the
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transfer by Milestone Properties, Inc. ("Milestone") to Target of any assets or
properties, or the distribution by Milestone of Target Common Stock to the
stockholders of Milestone or (iv) are otherwise due and payable. Target has
properly accrued all Taxes for all periods subsequent to the periods covered by
such returns. Except as set forth in the Target Disclosure Letter, Target has
withheld from employees and paid over to the appropriate taxing authority all
income, social security, and other payroll Taxes required to be withheld and
paid over. For purposes of this Agreement, "Taxes" shall mean any and all taxes
(including, without limitation, transfer taxes), levies, duties or other
assessments in the nature of taxes imposed by any federal, state, local or
foreign taxing authority.
(c) Target is not a "foreign person" within the meaning of Section
1445(b)(2) of the Code and Target will furnish Acquiror at Closing with an
affidavit to that effect.
(d) Target has not (i) filed a consent pursuant to Section 341(f) of
the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by Target or (ii) been a party to a tax sharing
agreement or similar arrangement.
(e) Target is not required and has not agreed to make any adjustments
pursuant to Section 481(a) of the Code or any similar provision of foreign,
state or local law by reason of a change in accounting method initiated by it or
any other relevant party, nor has any knowledge that the IRS or any taxing
authority has proposed any such adjustment or change in accounting method, nor
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that related to the business or assets of
Target.
(f) Target is not a party to any contract, agreement, plan or
arrangement covering any person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by reason of
Section 280G of the Code in connection with the Merger.
(g) Target has not been party to an election under Section 338 of the
Code and Target has no liability for the taxes of any person (other than Target)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract or otherwise.
SECTION 3.16 Financial Statements and Condition. Except as set forth in
the Target Disclosure Letter, Target's (i) audited balance sheets and related
statements of revenues, cash flow and stockholders' equity, including the notes
thereto, at and for the year ended December 31, 1995 (the "Target Financial
Statements") and (ii) unaudited balance sheet and related statements of income
and cash flows at and for the nine month period ended September 30, 1996 (the
"Target Interim Financial Statements") are attached to the Target Disclosure
Letter or attached to the Target SEC Reports. The Target Financial Statements
and the Target Interim Financial Statements present fairly, in all material
respects, Target's
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financial position and results of operations at the dates and for the periods
reflected therein, all in conformity with GAAP applied on a consistent basis,
except as otherwise noted therein or, in the case of the Target Interim
Financial Statements, for normal audit and accrual adjustments.
SECTION 3.17 Brokers or Finders. Except as set forth in the Target
Disclosure Letter, Target has not entered into any Contract with any agent,
broker, investment banker, financial advisor or other firm or person which may
result in the obligation of Target, Acquiror or Newco to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the Merger and the
other transactions contemplated by this Agreement and the Ancillary Documents.
Except as set forth in the Target Disclosure Letter, to Target's knowledge, no
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments has been asserted in connection with the negotiations
leading to this Agreement or the consummation of the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents.
SECTION 3.18 Other Interests. Target does not own, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust, or other person.
SECTION 3.19 Disclosure. The representations and warranties of Target
in this Agreement do not contain any untrue statement of a material fact.
SECTION 3.20 Vote Required. The affirmative vote of a majority of the
outstanding shares of Target Common Stock is the only vote of the holders of any
class or series of Target's capital stock necessary under applicable law to
permit the execution, delivery and performance by Target of this Agreement and
the Ancillary Documents to which Target is a party, and the consummation by
Target of the Merger and the other transactions contemplated by this Agreement
and the Ancillary Documents.
SECTION 3.21 Parent Shares. Except as set forth in this Agreement:
(a) Except as set forth in the Target Disclosure Letter, Target does
not, nor do any of its affiliates or associates, beneficially own any voting
shares of Acquiror, directly or indirectly.
(b) Target does not, nor do any of its affiliates or associates, (i)
have the right to acquire voting shares of Acquiror (whether such right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement, or understanding (other than this Agreement) or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise; or (ii) have the right to vote voting shares of Acquiror pursuant to
any agreement, arrangement or understanding.
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(c) Target does not, nor do any of its affiliates or associates, have
any agreement, arrangement, or understanding for the purpose of acquiring,
holding, voting, or disposing of voting shares of Acquiror with any other person
or entity that beneficially owns, or whose affiliates or associates beneficially
own, directly or indirectly, such voting shares of Acquiror.
For purposes of this Section 3.21 only, (i) "affiliate" shall mean a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
a specified person or entity and (ii) "associate," when used to indicate a
relationship with any person or entity shall mean (A) any person or entity of
which such person or entity is an officer, director, or partner or is, directly
or indirectly, the beneficial owner of 10 percent or more of any class of equity
securities; or (B) any trust or other estate in which such person or entity has
a substantial beneficial interest or as to which such person or entity serves as
trustee or in a similar fiduciary capacity; or (C) any relative or spouse of
such person, or any relative of such spouse, who has the same home as such
person or who is a director or officer of the person or entity or any of its
affiliates.
SECTION 3.22 Target Preferred Stock. Target has paid all accrued and
payable dividends on the Target Preferred Stock pursuant to the terms of the
Target Preferred Stock through the date hereof.
SECTION 3.23 Employee Benefit Plans. Target has no employees. Target
has no employee benefits plans (within the meaning of Section 3(3) of ERISA) and
no other benefit arrangements covering employees of Target. Neither Target nor
any entity under common control with Target within the meaning of ERISA Section
4001 has contributed to, or been required to contribute to, any multiemployer
plan (as defined in Sections 3(37) and 4001(a)(3) of ERISA). Except as otherwise
required by Sections 601 through 608 of ERISA, Section 4980B of the Code and
applicable state laws, Target does not maintain or contribute to any plan or
arrangement which provides or has any liability to provide life insurance,
medical or other employee welfare benefits to any employee or former employee
upon his retirement or termination of employment and Target has never
represented, promised or contracted (whether in oral or written form) to any
employee or former employee that such benefits would be provided.
SECTION 3.24 Labor Matters. Target is not a party to, or bound by, any
collective bargaining agreement or other Contract with a labor union or labor
union organization. There is no unfair labor practice or labor arbitration
proceeding pending or, to Target's knowledge, threatened, against Target
relating to its business. To Target's knowledge, there are no organizational
efforts with respect to the formation of a collective bargaining unit presently
being made or threatened involving employees of Target.
SECTION 3.25 Related Party Transactions. Except as set forth in the
Target Disclosure Letter, Target has no arrangements, agreements or Contracts
with (i) any consultant or employee, (ii) any person who is an officer, director
or Affiliate of Target, any relative of any of the foregoing or any entity of
which any of the foregoing is an Affiliate,
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including, without limitation, those persons and entities listed as Affiliates
in the Target Disclosure Letter, or (iii) to Target's knowledge, any person who
owns more than 5% of the outstanding Target Common Stock (collectively, "Target
Affiliate Contracts"). Target has delivered to Acquiror true, correct and
complete copies of all Target Affiliate Contracts. Except as set forth in the
Target Disclosure Letter, Target has paid in full or otherwise satisfied and
discharged all obligations under the Target Affiliate Contracts that are due.
SECTION 3.26 Actions of Holders of Target Common Stock. The Target
Disclosure Letter sets forth a true, correct and complete list of the number of
shares of Target Common Stock held by each Affiliate of Target. From the date
hereof until the Effective Time, none of such Affiliates shall sell, transfer or
otherwise Encumber his shares of Target Common Stock. Notwithstanding the
foregoing, any Affiliate of Target may sell or transfer his shares of Target
Common Stock to another Affiliate of Target, provided that (i) the selling or
transferring Affiliate shall, within one business day after the date of such
sale or transfer, deliver to the Company written notice thereof and (ii) such
sale or transfer occurs at least two business days prior to the Closing Date.
Each of such persons shall, on or prior to the date hereof, have executed and
delivered a letter to Acquiror pursuant to which he shall agree to approve this
Agreement, the Merger and the transactions contemplated by this Agreement and
the Ancillary Documents at the Target Stockholders Meeting.
SECTION 3.27 Books and Records.
(a) The books of account and other financial records of Target (i)
accurately reflect in all material respects the financial transactions and
business of Target in accordance with GAAP, and (ii) are consistent in all
material respects with the financial statements included in the Target SEC
Reports.
(b) The minute books and other records of Target have been made
available to Acquiror, contain in all material respects accurate records of all
meetings and accurately reflect in all material respects all other corporate
action taken at such meeting or by unanimous consent of the stockholders and
directors of Target. There are no committees of the Board of Directors of
Target.
SECTION 3.28 Fairness Opinion. Target has received the opinion of
Societe Generale to the effect that the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents, and the
consideration to be paid by Acquiror to the holders of Target Common Stock
pursuant to the Merger and such other transactions, are fair to the holders of
Target Common Stock from a financial point of view.
SECTION 3.29 No Representation or Warranty. Except as set forth in this
Agreement, Target makes no representation or warranty as to the present or
former condition or uses of the Target Properties. Acquiror expressly waives any
claim whatsoever, except for breach of representation or warranty contained
herein, relating to or arising from the physical condition of the Target
Properties, including, without limitation, claims arising from the
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presence of any Hazardous Materials on, at or beneath the Target Properties or
otherwise arising under any Environmental Law, whether now or hereinafter in
force. Target is not liable or bound in any manner by expressed or implied
warranties, guaranties or representations pertaining to the Target Properties or
the Target Leases made or furnished by any real estate broker, investment
banker, agent, attorney, employee, servant or other person representing or
purporting to represent Target, unless the same are specifically set forth
herein.
SECTION 3.30 Obligations of Milestone. The Target Disclosure Letter
sets forth a true, correct and complete list of all guarantees and liabilities
of Milestone of any indebtedness or other obligations of Target in effect on the
date hereof (the "Milestone Obligations"). Target has delivered to Acquiror
true, correct and complete copies of all Milestone Obligations.
SECTION 3.31 Target Directors' and Officers' Liability Insurance
Policy. Target has delivered to Acquiror a true, correct and complete copy of
Target's directors' and officers' liability insurance policy, as currently in
effect (the "Existing Target D & O Liability Insurance Policy").
SECTION 3.32 South Carolina Outparcel Agreement. Target has delivered
to Acquiror a true, correct and complete copy of the Agreement to Sell and
Purchase Real Estate, dated December 1995, between Target and CPC-1, a South
Carolina limited liability company (the "South Carolina Outparcel Purchaser"),
and all amendments thereto (as amended, the "South Carolina Outparcel
Agreement"), concerning the sale by Target to the South Carolina Outparcel
Purchaser of the outparcel (the "South Carolina Outparcel") described in the
South Carolina Outparcel Agreement. Target has delivered to Acquiror true,
correct and complete copies of all documents filed with any court or served on
or by Target, or, to Target's knowledge, by any other person, in connection with
the action commenced by South Carolina Outparcel Purchaser relating to the South
Carolina Outparcel.
SECTION 3.33 Pending Milestone Action. Target has delivered to Acquiror
true, correct and complete copies of all documents filed with any court or
served on or by Target, or, to Target's knowledge, by any other person, in
connection with the Pending Milestone Action (as defined below) or any other
action or proceeding with respect to, or arising out of, the facts, events and
circumstances giving rise to the Pending Milestone Action.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND NEWCO
Acquiror and Newco, jointly and severally, represent and warrant to
Target as follows:
SECTION 4.01 Organization and Good Standing. (i) Acquiror is a real
estate investment trust duly formed and existing by virtue of the laws of the
State of Maryland and
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is in good standing with the State Department of Assessments and Taxation of
Maryland, (ii) Newco is a corporation duly incorporated, duly organized, validly
existing and in good standing under the laws of the State of Delaware, (iii)
each Acquiror Subsidiary is duly incorporated or formed, as the case may be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and (iv) each of Acquiror, Newco and each
Acquiror Subsidiary, has all requisite trust or corporate or partnership power,
as the case may be, to own, operate, lease and Encumber its properties and
assets and to carry on its business as it is now being conducted. Each of
Acquiror, Newco and each Acquiror Subsidiary, is duly qualified or licensed to
do business as a foreign corporation or partnership, and is in good standing,
under the laws of each jurisdiction in which the character of the properties
owned, operated, leased or Encumbered by it therein or in which the carrying on
of its business makes such qualification or licensing necessary, except where
the failure to be so qualified, licensed or in good standing could not
reasonably be expected to have a Acquiror Material Adverse Effect. "Acquiror
Material Adverse Effect" means, with respect to the Company, any event or events
that could, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the business, assets, results of operations or
financial condition of the Company or the Acquiror Properties (as defined in
Section 4.06), taken as a whole. For the purposes of this Agreement, an Acquiror
Material Adverse Effect shall be deemed to have occurred to the extent that any
one or more events, individually or in the aggregate, could reasonably be
expected to (i) adversely affect Acquiror's gross revenues by $1,000,000 or more
during any 12-month period, or (ii) have a cost to remedy, or result in an
expense or liability to the Company, or acceleration of the payment of any
obligation of the Company (collectively, a "Company Remediation Cost"), of
$1,000,000 or more, or (iii) adversely affect the value of the Acquiror
Properties by $5,000,000 or more. The amounts (i) of any effect on Acquiror's
gross revenues, (ii) any Company Remediation Costs and (iii) any expenses or
liabilities to Target, the Company and Newco, in the case of each of clauses
(i), (ii) and (iii) that could reasonably be expected to result from such one or
more events, are hereinafter referred to as the "Acquiror Costs."
Notwithstanding the foregoing, an Acquiror Material Adverse Effect shall not be
deemed to have occurred if (A) any one or more of the events giving rise to a
Acquiror Cost or loss of value is covered by insurance and Acquiror has a right
to receive payments pursuant to such insurance policy as a result of such event
or events, (B) the aggregate amount of Acquiror Costs and/or loss of value does
not exceed $5,000,000 or $10,000,000, respectively, and (C) after giving effect
to the application of such insurance proceeds the aggregate amount of Acquiror
Costs and/or the loss of value, is less than $1,000,000 or $5,000,000,
respectively. Acquiror has delivered or made available to Target true, correct
and complete copies of its Declaration of Trust and Bylaws, and Newco's
Certificate of Incorporation and By-laws, each as amended to date. Any effects
on Acquiror's gross revenues or the value of the Acquiror Properties that is
attributable to any default, diminution of rent or rejection under any Acquiror
Lease by any tenant that is the subject of any bankruptcy proceedings on the
date hereof shall not be included in any determination of whether an Acquiror
Material Adverse Effect has occurred or in any calculation of Acquiror Costs.
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SECTION 4.02 Capitalization of Acquiror and Newco. The authorized
shares of beneficial interest of Acquiror consist of 100,000,000 shares of
beneficial interest. As of the date hereof, there were 10,332,784 issued and
outstanding shares of common stock, par value $.01 per share, of Acquiror (the
"Acquiror Common Shares") and (ii) (x) 11,155 issued and outstanding shares of
Series A Increasing Rate Cumulative Convertible Preferred Shares of Acquiror
(the "Acquiror Series A Preferred Shares") or (y) 11,155 issued and outstanding
shares of Series A-1 Increasing Rate Cumulative Convertible Preferred Shares of
Acquiror (the "Acquiror Series A-1 Preferred Shares"). The Acquiror Disclosure
Letter (as defined below) sets forth a true, correct and complete list of all
Acquiror Subsidiaries and the direct or indirect ownership interest of Acquiror
in each of such Acquiror Subsidiaries. The shares or interests of each Acquiror
Subsidiary owned by Acquiror are free and clear of Encumbrances and Acquiror has
good title to such shares or interests. All of the issued and outstanding shares
of beneficial interest of Acquiror have been duly authorized and are validly
issued, fully paid and nonassessable and are free of preemptive rights, except
that shareholders may be subject to further assessment with respect to claims
for tort, contract, taxes, statutory liability and otherwise in some
jurisdictions to the extent such claims are not satisfied by Acquiror. Acquiror
has no outstanding bonds, debentures, notes, or other obligations the holders of
which have the right to vote (or are convertible into or exercisable for
securities having the right to vote) with the holders of Acquiror Common Shares
on any matter. Except as set forth in the Disclosure Letter delivered by
Acquiror to Target simultaneously with the execution and delivery of this
Agreement (the "Acquiror Disclosure Letter"; together with the Target Disclosure
Letter, the "Disclosure Letters"), Acquiror does not have and is not bound by,
and at the Effective Time, will not have or be bound by, any outstanding
subscriptions, options, warrants, calls, convertible securities, rights, or
other Contracts of any character, to or by which Acquiror or Newco is a party or
is bound, which, directly or indirectly, obligate Acquiror or Newco to issue,
deliver, transfer or sell any shares of beneficial interest of Acquiror or any
other equity or debt security of Acquiror except (i) Acquiror Common Shares
issuable upon the conversion of the Acquiror Series A Preferred Shares or
Acquiror Series A-1 Preferred Shares and (ii) Acquiror Common Shares issuable
upon the exercise of stock options issued to employees and trustees pursuant to
Acquiror's 1992 Employee Share Option Plan, 1992 Trustee Share Option Plan and
the 1995 Management Incentive Plan or issued to Acquiror's trustees in lieu of
payment of trustee fees. At the date hereof and on the Closing Date, all of the
issued and outstanding shares of common stock of Newco are and will be owned by
Acquiror.
SECTION 4.03 Authority of Acquiror and Newco. Each of Acquiror and
Newco has all requisite trust or corporate power and authority, as the case may
be, to execute and deliver this Agreement and the Ancillary Documents to which
it is a party, and needed to consummate the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents, and to take all
other actions required to be taken by it pursuant to the provisions hereof and
the Ancillary Documents. The execution, delivery and performance by each of
Acquiror and Newco of this Agreement and the Ancillary Documents to which it is
a party, the consummation by each of Acquiror and Newco of the Merger and the
other transactions contemplated by this Agreement and the Ancillary Documents,
have been duly
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and validly authorized and approved by all requisite corporate action of
Acquiror and Newco and no other corporate proceedings on the part of Acquiror or
Newco are necessary to authorize the execution, delivery and performance of this
Agreement or any of the Ancillary Documents, to consummate the Merger and the
other transactions contemplated by this Agreement and the Ancillary Documents.
This Agreement and each of the Ancillary Documents to which Acquiror or Newco is
a party have been duly and validly executed and delivered by Acquiror or Newco,
as the case may be, and constitute valid and binding agreements of Acquiror or
Newco, as the case may be, enforceable against Acquiror or Newco, as the case
may be, in accordance with their respective terms, except as may be limited by
bankruptcy and other laws affecting the enforceability of creditors' rights
generally or laws governing the availability of specific performance or other
equitable remedies, or restrictions of the enforcement of securities
indemnification and contribution provisions imposed by public policy.
The issuance by Acquiror of shares of Acquiror Series B
Preferred Shares and Acquiror Series C Preferred Shares in connection with the
Merger (i) will not be subject to preemptive rights or other preferential rights
of any present or future stockholders of Acquiror, and (ii) will not result in a
change in conversion rights in any of Acquiror's options, warrants or other
securities.
SECTION 4.04 Consents and Approvals; No Violations. Except as set forth
in the Acquiror Disclosure Letter and for applicable requirements of the 1933
Act, the 1934 Act, state Blue Sky laws, the HSR Act, if any, the filing and
recordation of the Delaware Merger Certificate and the Target Required Filings,
no filing or registration with, and no consent, authorization, declaration or
approval of, any Governmental Entity, or any third party, is necessary for the
execution, delivery and performance by Acquiror or Newco of this Agreement or
any of the Ancillary Documents or the consummation of the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents. Except
as set forth in the Acquiror Disclosure Letter, neither the execution, delivery
and performance by Acquiror or Newco of this Agreement or any of the Ancillary
Documents nor the consummation by Acquiror or Newco of the Merger and the other
transactions contemplated by this Agreement and the Ancillary Documents will (i)
constitute any violation or breach of any provision of the charter documents of
Acquiror or Newco, or (ii) constitute any violation or breach of any provision
of, or constitute a default (or an event which, with the giving of notice or the
passage of time or both, would constitute a default) under, or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, or result in the creation of any Encumbrances upon any
of the properties of the Company under, or result in being declared void,
voidable or without further binding effect, any of the terms, conditions or
provisions of any Acquiror Contract (as defined below), or any license,
franchise, permit, concession, lease, Contract, or other instrument, or other
obligation to which the Company is a party, or by which the Company or any of
its properties is bound or affected, except with respect to clause (ii), for
those which could not have an Acquiror Material Adverse Effect.
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SECTION 4.05 Public Reports. Acquiror has delivered or made available
to Target true, correct and complete copies of (i) its Annual Report on Form
10-K for the year ended December 31, 1995, (ii) its Quarterly Report on Form
10-Q for the three months ended March 31, 1996, (iii) its Quarterly Report on
Form 10-Q for the six months ended June 30, 1996, (iv) its Quarterly Report on
Form 10-Q for the nine months ended September 30, 1996 and (v) those other
registration statements, reports, proxy statements, information statements and
other documents filed by Acquiror with the SEC that are listed in the Acquiror
Disclosure Letter; in each case including all exhibits, amendments and
supplements thereto and each of such documents is in the form (including
exhibits, amendments and supplements thereto) filed with the SEC (collectively,
the "Acquiror SEC Reports"). Each of the Acquiror SEC Reports was filed with the
SEC in a timely manner. The Acquiror SEC Reports constitute all registration
statements, reports, proxy statements, information statements and other
documents required to be filed by Acquiror since December 31, 1995 under the
Securities Laws. As of their respective dates, the Acquiror SEC Reports (i)
complied in all material respects with the applicable requirements of the
Securities Laws and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading. Since December 31, 1995, Acquiror has not received
from the SEC any comments, or requests for additional information, with respect
to any Acquiror SEC Report.
SECTION 4.06 Real Property; Contracts and Leases Relating to Real
Property.
(a) The Acquiror Disclosure Letter contains a true, correct and
complete list by street address of all of the real estate properties owned by
the Company. The Acquiror Disclosure Letter or the existing title reports and
surveys with respect to the real estate properties owned by Acquiror listed in
the Acquiror Disclosure Letter (the "Existing Acquiror Title Documents") (in
each case true, correct and complete copies of which Existing Acquiror Title
Documents have been made available to Target) set forth any improvements thereon
(including, without limitation, (i) the buildings and other structures and
parking areas located thereon and (ii) any easements, rights of way, privileges
and appurtenances thereto relating to such real estate properties). The real
estate properties owned by the Company and improvements thereon (including,
without limitation, (i) the buildings and other structures and parking areas
located thereon and (ii) any easements, rights of way, privileges and
appurtenances thereto relating to such real estate properties) are hereinafter
referred to as the "Acquiror Properties". Except as set forth in the Acquiror
Disclosure Letter or the Existing Acquiror Title Documents, the Company owns fee
simple title to each of the Acquiror Properties, free and clear of Encumbrances,
and the Acquiror Properties are not subject to any Property Restrictions except
for (i) Property Restrictions imposed or promulgated by law or any Governmental
Entity with respect to real property, including, without limitation, zoning
regulations, that, individually or in the aggregate, do not materially and
adversely affect the current use of the property or materially detract from the
value of the property and (ii) Property Restrictions contained in leases to
tenants at Acquiror Properties.
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(b) To Acquiror's knowledge, except as set forth in the Acquiror
Disclosure Letter or in the Existing Acquiror Title Documents, the Company has
(i) all certificates, permits or licenses from all Governmental Entities having
jurisdiction over any or all of the Acquiror Properties and (ii) all agreements,
easements and other rights, that are necessary to permit the lawful use and
operation of the buildings and improvements on any and all of the Acquiror
Properties or are necessary to permit the lawful use and operation of all
driveways, roads and other means of egress and ingress to and from any and all
of the Acquiror Properties (any such agreement, easement or other right referred
to in this clause (ii) shall hereafter be referred to as an "Acquiror REA
Agreement") except, in the case of clauses (i) and (ii) of this paragraph, those
the failure to obtain of which could not reasonably be expected to have an
Acquiror Material Adverse Effect. Each Acquiror REA Agreement is in full force
and effect, and there is no pending threat of modification or cancellation of
any of same. The Company is not, and to Acquiror's knowledge no person has
asserted, or is threatening to assert, that the Company is, in default under any
Acquiror REA Agreement except for those which could not reasonably be expected
to have an Acquiror Material Adverse Effect.
(c) Except as set forth in the Acquiror Disclosure Letter or in the
Existing Acquiror Title Documents, to Acquiror's knowledge, (i) the Acquiror
Properties, and the size of, use of, occupancy of, improvements on, construction
on, and access to, the Acquiror Properties (the "Acquiror Property Uses"), are
in compliance in all material respects with all Property Laws affecting all or
any portion of all or any of the Acquiror Properties; (ii) the Acquiror
Properties, and the Acquiror Property Uses, are not, and no person or
Governmental Entity has asserted, or is threatening to assert, that the Acquiror
Properties, or the Acquiror Property Uses, are, in violation of any Property
Laws; (iii) there are no pending or threatened proceedings or actions that could
reasonably be expected to in any manner materially and adversely affect the
Acquiror Property Uses; (iv) no betterment assessments have been levied against,
and no condemnation or rezoning proceedings, or proceedings requiring any public
installations or improvements, are pending or threatened with respect to, any of
the Acquiror Properties; and (v) all charges and fees for all certificates,
permits, licenses and approvals referred to in this paragraph have been paid.
(d) Except as set forth in the Acquiror Disclosure Letter, to
Acquiror's knowledge, (i) there is no Acquiror Property with building systems
not in working order; (ii) there is no physical damage to any Acquiror Property
in excess of $10,000 for which there is no insurance in effect covering the full
cost of the restoration, ordinary wear and tear excepted; (iii) there are no
structural defects relating to any of the Acquiror Properties; and (iv) there is
no current renovation or restoration or tenant improvements to any Acquiror
Property the cost of which exceeds $10,000.
(e) Acquiror has made available to Target true, correct and complete
copies of (i) all loan or credit agreements, notes, debentures, bonds,
mortgages, indentures and deeds of trust, and all amendments and supplements to
all of the foregoing, (X) pursuant to which any indebtedness of the Company in
excess of $100,000 is outstanding or may be incurred or is evidenced or (Y)
which may result in or evidences total payments or liabilities to the
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Company in excess of $100,000 and (ii) all joint venture, shareholder
agreements, operating agreements, partnership agreements or similar Contracts to
which the Company is a party (together with the Contracts referred to in clause
(i) of this Section 4.06(e), as amended or supplemented, the "Acquiror
Contracts"). For purposes of this Section 4.06, "indebtedness" shall mean, with
respect to any person, without duplication, (i) all indebtedness of such person
for borrowed money, whether secured or unsecured, (ii) all obligations of such
person under conditional sale or title retention agreements relating to property
purchased by such person, (iii) all capitalized lease obligations of such
person, (iv) all obligations of such person under interest rate or currency
hedging transactions (valued at the termination value thereof) and (v) all
guarantees of such person of any indebtedness of any other person. The Acquiror
Disclosure Letter contains a true, correct and complete list of the Acquiror
Contracts. The Acquiror Contracts are valid, subsisting and in full force and
effect with respect to the Company, and, to the Company's knowledge, with
respect to the other parties to the Acquiror Contracts. The Company is not, and
to Acquiror's knowledge no person has asserted, or is threatening to assert,
that the Company is, in material default under any Acquiror Contract providing
for payments in excess of $10,000 annually. No existing use of any of the
Acquiror Properties constitutes, and to Acquiror's knowledge no person has
asserted, or is threatening to assert, that any existing use of any of the
Acquiror Properties constitutes, a conflict with any exclusive rights granted to
any person under any of the Acquiror Contracts providing for payments in excess
of $10,000 annually. To Acquiror's knowledge, no party to any of the Acquiror
Contracts providing for payments in excess of $10,000 annually is in default
under such Acquiror Contract. To Acquiror's knowledge, there does not exist any
condition which, with the giving of notice or the passage of time or both, would
cause such a violation or default under, or result in the termination or in a
right of termination or cancellation of, or accelerate the performance required
by, or result in the creation of any Encumbrances upon any of the Acquiror
Properties under, or result in being declared void, voidable or without further
binding effect, any of the terms, conditions or provisions of any Acquiror
Contract providing for payments in excess of $10,000 annually, or any material
license, franchise, permit or concession or other instrument, or other
obligation to which the Company is a party, or by which the Company or any of
the Acquiror Properties is bound or affected.
SECTION 4.07 Leases.
(a) The Acquiror Disclosure Letter contains a true, correct and
complete rent roll for all leases, licenses and tenancies, each as amended and
supplemented ("Acquiror Leases") covering all or each portion of the Acquiror
Properties (the "Acquiror Rent Roll"). The Acquiror Rent Roll includes or
describes for each Acquiror Lease, the name of the tenant, the space leased the
current balances of security and other deposits, the current base rent the
tenant is obligated to pay thereunder, and the amount of percentage rent most
recently paid.
(b) Except as set forth in the Acquiror Disclosure Letter, (i) to
Acquiror's knowledge, each of the Acquiror Leases is valid and subsisting and in
full force and effect; (ii) no tenant is controlled by, under common control
with or controls the Company; (iii) the
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tenant under each of the Acquiror Leases is in actual possession of the leased
premises; (iv) no tenant under any Acquiror Lease is in arrears for the payment
of rent for any month preceding the month of the date of this Agreement or, to
Acquiror's knowledge, otherwise in default of such tenant's lease obligations;
(v) to Acquiror's knowledge, no tenant under any Acquiror Lease intends to
vacate prior to the termination of its lease; (vi) there are no pending summary
proceedings or other legal actions by Acquiror for eviction under any Acquiror
Lease; (vii) all decorating, repairs, alterations, or other work required to be
performed by the Company under the Acquiror Leases, or the costs to be
reimbursed to any tenant under any Acquiror Lease, has been performed or, if
required, reimbursed; (viii) no space subject to any Acquiror Lease is occupied
rent free or at a rental rate reduced from the rates stated in the Acquiror Rent
Roll; and (ix) none of the Acquiror Leases and none of the rents or other
amounts payable thereunder have been assigned, pledged or encumbered, other than
to lenders, as described in the Acquiror Disclosure Letter. Except as set forth
in the Acquiror Disclosure Letter, the Company has not collected payment of rent
(other than security deposits) accruing for a period which is more than one
month beyond the date of collection. There are no material unsatisfied
obligations wherein rent and/or other obligations of the tenant in other
buildings or improvements have been assumed by the Company.
SECTION 4.08 Environmental Matters. Except as set forth in any of the
environmental assessments or other environmental reports identified in the
Acquiror Disclosure Letter and in the possession of the Company with respect to
the Acquiror Properties (the "Acquiror Environmental Reports"), true, correct
and complete copies of which have been made available to Target:
(a) the activities, operations and business carried out by the Company
at or on the Acquiror Properties are and have been in compliance, in all
material respects, with all applicable Environmental Laws;
(b) no lien has been imposed on the Acquiror Properties by any federal,
state or local Governmental Entity in connection with a violation of any
Environmental Laws at or on the Acquiror Properties;
(c) Acquiror has no knowledge (i) of any pending or threatened
litigation or proceedings before any Governmental Entity in which any person or
entity alleges the Company's violation or threatened violation of any
Environmental Laws or (ii) that any Governmental Entity has determined that the
Company is in violation of any Environmental Laws in connection with the
Acquiror Properties; and
(d) to Acquiror's knowledge, no Hazardous Materials have been treated,
stored or disposed of, or otherwise deposited in or on the Acquiror Properties,
including, without limitation, the surface waters and subsurface waters of the
Acquiror Properties; no spills, releases, discharges, or disposals of Hazardous
Materials have occurred or are presently occurring on or from any of the
Acquiror Properties, in violation of any Environmental Law; there are no
substances or conditions in or on the Acquiror Properties or any other parcels
of
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land which may affect the Acquiror Properties or the use thereof or which may
support a claim or cause of action under any Environmental Law. To Acquiror's
knowledge, except as set forth in the Acquiror Disclosure Letter, there are no
underground tanks at the Acquiror Properties and no part of the Acquiror
Properties lies in a flood plain or constitutes "wetlands." Acquiror is not
aware of any inaccuracies in the Acquiror Environmental Reports. For purposes of
this Section, Hazardous Materials shall not include substances sold or used by
tenants under the Acquiror Leases provided such use or sale is in the ordinary
course of such tenant's business and is in compliance with all applicable laws,
rules or regulations.
SECTION 4.09 Insurance. True and complete copies of insurance policies
carried by the Company or pursuant to which the Acquiror Properties are insured
have been made available to Target, all of such policies are in full force and
effect as of the date hereof, all premiums due and payable in respect of such
policies have been paid, and, except as set forth in the Acquiror Disclosure
Letter, no claims have been made against any such policies as of the date
hereof. The Company has not received any written notice from any insurance
company which has issued a policy with respect to the Acquiror Properties or
from any board of fire underwriters (or other body exercising similar functions)
(i) claiming any defects or deficiencies which have not been cured or corrected,
(ii) requesting the performance of any repairs, alterations or other work which
have not been performed, or (iii) stating, in effect, that any of such policies
will not be renewed or will be renewed at a higher premium than is presently
payable therefor.
SECTION 4.10 Absence of Certain Changes. Except as disclosed in the
Acquiror SEC Reports, since September 30, 1996, (i) the Company has not suffered
a Acquiror Material Adverse Effect, or entered into any transaction or conducted
its business or operations other than in the ordinary course of the Company's
business and other than in connection with Acquiror's exploration of
alternatives leading to the execution of this Agreement and (ii) Acquiror has
made no change in its accounting principles, practices or methods.
SECTION 4.11 No Undisclosed Liabilities. Except as and to the extent
set forth or disclosed in the Acquiror Disclosure Letter, the Acquiror SEC
Reports or in this Agreement, (i) at September 30, 1996, the Company did not
have any liabilities (whether absolute, accrued, asserted or unasserted,
contingent or otherwise), required by GAAP, consistently applied, to be
reflected on a balance sheet of Acquiror, in excess of $50,000 in the aggregate,
that were not reflected on Acquiror's September 30, 1996 balance sheet and (ii)
since September 30, 1996, the Company has not incurred any liabilities (whether
absolute, accrued, asserted or unasserted, contingent or otherwise) which are
required by GAAP, consistently applied, to be reflected on a balance sheet of
Acquiror, except liabilities incurred in the ordinary course of the Company's
business.
SECTION 4.12 Litigation. There are (i) no continuing orders,
injunctions, judgements or decrees of any court, arbitrator or other
Governmental Entity, to which the Company is a party or by which any of the
Acquiror Properties are bound or, to Acquiror's
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knowledge, to which any of Acquiror's directors, officers, employees or agents
(in each case, in his capacity as such) is a party or by which any of the
Company's properties or assets are bound, that could reasonably be expected to
have a Acquiror Material Adverse Effect or prevent or delay the consummation of
Merger and the other transactions contemplated by this Agreement and the
Ancillary Documents and (ii) there are no actions, suits or proceedings pending
(or to Acquiror's knowledge, threatened), at law or in equity, against the
Company or, to Acquiror's knowledge, against any of Acquiror's or any Acquiror
Subsidiary's directors, officers, employees or agents in their capacities as
such, that seek equitable relief or claim damages in excess of $10,000, or that
could reasonably be expected to have a Acquiror Material Adverse Effect or
prevent or delay the consummation of the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents.
SECTION 4.13 Compliance with Applicable Law. To Acquiror's knowledge,
the Company is not in violation of any order of any Governmental Entity, or any
law, ordinance, governmental rule or regulation to which the Company or any of
the Acquiror Properties is subject, where such violation or violations could
reasonably be expected to have a Acquiror Material Adverse Effect. The Company
has obtained all licenses, permits and other authorizations and has taken all
actions required by applicable law or governmental regulations in connection
with its business as now conducted, where the failure to obtain any such item or
items or to take any such action could reasonably be expected to have a Acquiror
Material Adverse Effect. Without limiting the generality of the foregoing, to
Acquiror's knowledge neither the Company nor (i) any consultant or employee or
(ii) any person who is or was an officer, director or Affiliate of the Company,
has, directly or indirectly, made, promised to make, or authorized the making
of, an offer, payment or gift of money or anything of value to any government
official, political party or employee, agent or fiduciary of a customer, to
obtain a Contract for or to influence a decision in favor of the Company where
such offer, payment or gift was or would be, if made, in violation of any
applicable law, ordinance, governmental rule or regulation, nor have any of them
maintained for this purpose cash or anything of value, in an account or
otherwise, not properly and accurately accounted for on the books and records of
Acquiror.
SECTION 4.14 Taxes. Acquiror and each Acquiror Subsidiary has timely
filed all federal, state, local and foreign tax returns required to be filed by
it through the date hereof and such returns are complete, accurate and comply
with all applicable law in all material respects. True, correct and complete
copies of all federal, state, local and foreign tax returns filed by Acquiror
and each Acquiror Subsidiary and all communications relating thereto have been
delivered or made available to Target. Neither Acquiror nor any Acquiror
Subsidiary has executed or filed with any tax authority any Contract now in
effect extending the period for assessment or collection of any income or other
Taxes, and no extension of time with respect to any date on which a tax return
was or is to be filed by Acquiror or any Acquiror Subsidiary is in force. Except
as set forth in the Acquiror Disclosure Letter, neither Acquiror nor any
Acquiror Subsidiary is a party to any action or proceeding for assessment or
collection of Taxes, and no claim for assessment or collection of Taxes has been
asserted or threatened against Acquiror or any Acquiror Subsidiary. There is no
dispute or claim
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concerning any tax liability of Acquiror or any Acquiror Subsidiary claimed by
any tax authority. To the Company's knowledge, no claim has ever been made by a
tax authority in a jurisdiction where Acquiror or any Acquiror Subsidiary does
not file tax returns that Acquiror or any Acquiror Subsidiary is or may be
subject to taxation in such jurisdiction. There are no security interests on any
of the Acquiror Properties that arose in connection with any failure (or alleged
failure) of Acquiror or any Acquiror Subsidiary to pay Taxes. Acquiror and each
Acquiror Subsidiary has never entered into a closing agreement pursuant to
Section 7121 of the Code.
Acquiror and each Acquiror Subsidiary has timely paid or
caused to be paid all Taxes (i) shown as due on its returns, (ii) which have
become due and payable pursuant to any assessment, deficiency notice, 30-day
letter or other notice received by Acquiror or such Acquiror Subsidiary, or
(iii) are otherwise due and payable. Acquiror and each Acquiror Subsidiary has
properly accrued all Taxes for all periods subsequent to the periods covered by
such returns. Except as set forth in the Acquiror Disclosure Letter, Acquiror
and each Acquiror Subsidiary has withheld from employees and paid over to the
appropriate taxing authority all income, social security, and other payroll
Taxes required to be withheld and paid over.
Acquiror has (i) elected to be taxed as a REIT within the
meaning of the Code and has qualified as a REIT for 1995, and has complied with
all applicable laws, rules and regulations, including, without limitation, the
Code, relating to, its REIT status in 1995, (ii) has operated and intends to
continue to operate, in such a manner as to qualify as a REIT for 1996, and
(iii) has not taken or omitted to take any action which could result in, and the
executive officers of Acquiror have not received written notice of and have no
actual knowledge of, a challenge to its status as a REIT. Acquiror represents
that Newco and each of the other Acquiror Subsidiaries are qualified REIT
subsidiaries as defined in Section 856(i)(2) of the Code.
SECTION 4.15 Financial Statements and Condition. The financial
statements included in the Acquiror SEC Reports (the "Acquiror Financial
Statements") present fairly, in all material respects, the Company's financial
position and results of operations at the dates and for the periods reflected
therein, all in conformity with GAAP applied on a consistent basis, except as
otherwise noted therein and for normal audit and accrual adjustments.
SECTION 4.16 Newco. Newco was formed solely for the purpose of engaging
in the transactions hereby contemplated, 100% of Newco's outstanding stock is,
has been and will be owned by Acquiror at all times during the period of Newco's
existence, and Newco has engaged in no other business activities and has
conducted its operations only as hereby contemplated.
SECTION 4.17 Brokers or Finders. Except as set forth in the Acquiror
Disclosure Letter, Acquiror has not entered into any Contract with any agent,
broker, investment banker, financial advisor or other firm or person which may
result in the obligation of Target,
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Acquiror or Newco to pay any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents. Except as set forth
in the Acquiror Disclosure Letter, to Acquiror's knowledge, no claim for payment
of any finder's fees, brokerage or agent's commissions or other like payments
has been asserted in connection with the negotiations leading to this Agreement
or the consummation of the Merger and the other transactions contemplated by
this Agreement and the Ancillary Documents.
SECTION 4.18 Other Interests. Except as set forth in the Acquiror
Disclosure Letter, neither the Acquiror nor any Acquiror Subsidiary owns,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, partnership, joint venture, business, trust, or entity. With
respect to such interests, the Acquiror or Acquiror Subsidiary is a partner or
shareholder in good standing, owns such interests free and clear of all
Encumbrances, is not in breach of any provision of any Contract governing the
Acquiror's or Acquiror Subsidiary's rights, as the case may be, in or to the
interests owned or held, all of which Contracts are set forth in the Acquiror
Disclosure Letter, are unmodified as described thereon, and are in full force
and effect and, to Acquiror's knowledge, the other parties to such Contracts are
not in breach of any of their respective obligations under such Contracts.
SECTION 4.19 Disclosure. The representations and warranties of Acquiror
and Newco in this Agreement do not contain any untrue statement of a material
fact.
SECTION 4.20 Employee Benefit Plans. All employee benefits plans
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) and other benefit arrangements covering
employees of the Company (the "Company Benefit Plans") are listed in the
Acquiror Disclosure Letter. Acquiror has delivered or made available to Target
true, correct and complete copies of the Company Benefit Plans. To the extend
applicable, the Company Benefit Plans have been administered in all material
respects in accordance with their terms and comply, in all material respects,
with the applicable requirements of ERISA and the Code. Any Company Benefit plan
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service (the "IRS") or
a determination letter request has been filed with the IRS with respect to any
such plan and is still pending. No Company Benefit Plan is covered by Title IV
of ERISA or Section 412 of the Code. Neither any Company Benefit Plan nor the
Company has incurred any liability or penalty under Section 4975 of the Code or
Section 502(i) of ERISA. There are no pending or anticipated claims against or
otherwise involving any of the Company Benefit Plans and no suit, action or
other litigation (excluding claims for benefits incurred in the ordinary course
of Company Benefit Plan activities) has been brought against or with respect to
any such Company Benefit Plan. All material contributions required to be made as
of the date hereof to the Company Benefit Plans have been made or provided for.
The Company has no unfunded liabilities under any Company Benefit Plan, except
as set forth in the Acquiror Disclosure Letter. Neither the Company nor any
entity under common control with the Company within the
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meaning of ERISA Section 4001 has contributed to, or been required to contribute
to, any multiemployer plan (as defined in Sections 3(37) and 4001(a)(3) of
ERISA). Except as otherwise required by Sections 601 through 608 of ERISA,
Section 4980B of the Code and applicable state laws, the Company does not
maintain or contribute to any plan or arrangement which provides or has any
liability to provide life insurance, medical or other employee welfare benefits
to any employee or former employee upon his retirement or termination of
employment and the Company has never represented, promised or contracted
(whether in oral or written form) to any employee or former employee that such
benefits would be provided. Except as disclosed in the Acquiror Disclosure
Letter, the execution and delivery of this Agreement, and the consummation of
the transactions contemplated by this Agreement and the Ancillary Documents,
will not constitute an event under any Company Benefit Plan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligations to fund benefits with respect to any employee, director or
consultant of the Company.
SECTION 4.21 Labor Matters. The Company is not a party to, or bound by,
any collective bargaining agreement or other Contract with a labor union or
labor union organization. There is no unfair labor practice or labor arbitration
proceeding pending or, to Acquiror's knowledge, threatened, against the Company
relating to its business. To Acquiror's knowledge, there are no organizational
efforts with respect to the formation of a collective bargaining unit presently
being made or threatened involving employees of the Company.
SECTION 4.22 Related Party Transactions. Except as set forth in the
Acquiror Disclosure Letter, the Company has no arrangements, agreements or
Contracts with (i) any consultant or employee, (ii) any person who is an
officer, director or affiliate of Acquiror or any Acquiror Subsidiary, any
relative of any of the foregoing or any entity of which any of the foregoing is
an affiliate or (iii) to Acquiror's knowledge, any person who owns more than 5%
of the outstanding Acquiror Common Shares (collectively, "Acquiror Affiliate
Contracts"). Acquiror has delivered or made available to Target true, correct
and complete copies of all Acquiror Affiliate Contracts.
SECTION 4.23 Books and Records.
(a) The books of account and other financial records of Acquiror (i)
accurately reflect in all material respects the financial transactions and
business of the Company in accordance with GAAP, and (ii) are consistent in all
material respects with the financial statements included in the Acquiror SEC
Reports.
(b) The minute books and other records of Acquiror have been made
available to Target, contain in all material respects accurate records of all
meetings and accurately reflect in all material respects all other corporate
action taken at such meeting or by unanimous
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consent of the shareholders and trustees and all committees of the Board of
Trustees of Acquiror.
SECTION 4.24 No Representation or Warranty. Except as set forth in this
Agreement, Acquiror makes no representation or warranty as to the present or
former condition or uses of the Acquiror Properties. Target expressly waives any
claim whatsoever, except for breach of representation or warranty contained
herein, relating to or arising from the physical condition of the Acquiror
Properties, including, without limitation, claims arising from the presence of
any Hazardous Materials on, at or beneath the Acquiror Properties or otherwise
arising under any Environmental Law, whether now or hereinafter in force.
Acquiror is not liable or bound in any manner by expressed or implied
warranties, guaranties or representations pertaining to the Acquiror Properties
or the Acquiror Leases made or furnished by any real estate broker, investment
banker, agent, attorney, employee, servant or other person representing or
purporting to represent Acquiror, unless the same are specifically set forth
herein.
ARTICLE V
COVENANTS
SECTION 5.01 Target Pre-Closing Obligations.
(a) Except as expressly contemplated by this Agreement or as set forth
in the Target Disclosure Letter, during the period from the date of this
Agreement and continuing until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, Target will carry on
its business in its usual, regular and ordinary course, in substantially the
same manner as heretofore conducted, and use its reasonable efforts to preserve
intact its present business organizations and good will and keep available the
services of its present officers and employees.
(b) Except as expressly contemplated by this Agreement or as set forth
in the Target Disclosure Letter, during the period from the date of this
Agreement and continuing until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, Target shall not,
unless Acquiror otherwise has consented in writing:
(i) (A) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any Target Common Stock or Target Preferred
Stock, except that Target shall be allowed to make dividend payments on
the Target Preferred Stock as are required pursuant to the terms of
Target's Certificate of Incorporation, as amended, (B) split, reverse
share split, stock dividend, combine or reclassify any of its capital
stock or Issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock, (C) redeem, purchase or otherwise acquire any of its
capital stock (except, with respect to the Target Preferred Stock, as
expressly required by the terms of the Target Preferred Stock plus up
to an aggregate of $270,000 of
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optional redemptions of the Target Preferred Stock) by or (D) amend the
terms of any of its securities, or propose to do any of the foregoing
except as expressly permitted hereby;
(ii) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any stock of any class or any other securities
(including, without limitation, indebtedness having the right to vote)
or equity equivalents (including, without limitation, stock
appreciation rights) or amend in any material respect any of the terms
of any such securities or Contracts outstanding on the date hereof
except as expressly permitted hereby;
(iii) amend or propose to amend its Certificate of
Incorporation or By-laws;
(iv) incur any, indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or warrants,
options or rights to acquire any debt securities of Target or guarantee
(or become liable for) any debt of others or make any loans, advances
or capital contributions to, or any investments in, any other person,
or make, create or grant any mortgage, pledge or otherwise Encumber any
assets or suffer any material Encumbrance thereupon, except for the
refinancing of indebtedness for borrowed money which becomes due and
payable between the date hereof through the Closing Date which shall be
in all respects reasonably acceptable to Acquiror;
(v) (A) prepay any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) or
(B) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise)
other than the payment, discharge or satisfaction, in the ordinary
course of operating the Target Properties in substantially the same
manner as heretofore conducted, or in accordance with their terms, of
claims, liabilities or obligations reflected or reserved against in, or
contemplated by, the Target Financial Statements;
(vi) change any of the accounting principles or practices used
by it in the preparation of any of Target's financial statements or
make any tax elections;
(vii) (A) increase any compensation or enter into or amend any
employment Contract with any of its present or future officers or
directors, or (B) adopt any new employee benefit plan (including,
without limitation, any stock option, stock benefit or stock purchase
plan) or amend any existing employee benefit plan in any material
respect;
(viii) acquire, enter into an option to acquire or exercise an
option or Contract to acquire additional real property, incur
additional indebtedness, encumber assets or
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commence construction of, or enter into any Contract to develop or
construct, or other real estate projects.
(ix) sell, lease in its entirety or otherwise dispose of (A)
any Target Properties or (B) except in the ordinary course of operating
the Target Properties, any of its other assets;
(x) enter into any Contract, borrowing, capital expenditure or
transaction which may result in total payments or liability by or to it
in excess of $10,000;
(xi) enter into any Affiliate Contract or any other Contract,
borrowing, capital expenditure or transaction with (i) any consultant
or employee, (ii) any person who is an officer, director or affiliate
of Target, any relative of any of the foregoing or any entity of which
any of the foregoing is an affiliate or (iii) to Target's knowledge,
any person who owns 5% or more of the outstanding Target Common Stock;
(xii) enter into any additional, or renew (except as may be
required pursuant to the terms of an existing Target Lease or other
agreement listed in the Target Disclosure Letter), amend or otherwise
modify any existing, Target Leases, except with Acquiror's prior
written consent which shall not be unreasonably withheld or delayed;
provided, that Acquiror shall be deemed to have granted such consent if
it fails to notify Target of its grant or withholding of such consent
within five business days after its receipt of a written request
therefor; or
(xiii) (A) agree to take any of the foregoing actions or (B)
take or agree to take any action that is reasonably likely to result in
any of Target's representations or warranties contained in this
Agreement, the Ancillary Documents, or in the certificates and other
documents delivered pursuant hereto or thereto being untrue, or result
in any of the conditions to the Merger set forth in Article VI not
being satisfied in any material respect.
(c) During the period from the date of this Agreement and continuing
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, Target shall:
(i) confer on a regular basis with one or more representatives
of Acquiror to report on material operational matters and any proposals
to engage in material transactions;
(ii) promptly notify Acquiror of any material change in the
Target Properties, or in Target's condition (financial or otherwise),
business, properties, assets, liabilities or the normal course of
Target's business or in the operation of its properties, any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the material breach
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of any of Target's representations or warranties contained in this
Agreement, the Ancillary Documents, or in the certificates and other
documents delivered pursuant hereto or thereto (other than a
representation or warranty qualified by reference to materiality or a
Target Material Adverse Effect), or the breach of any of Target's
representations or warranties contained in this Agreement, the
Ancillary Documents, or in the certificates and other documents
delivered pursuant hereto or thereto qualified by reference to
materiality or a Target Material Adverse Effect;
(iii) deliver to Acquiror draft copies in substantially final
form of any report, statement or schedule to be filed with the SEC
subsequent to the date of this Agreement at least two business days
prior to the filing thereof;
(iv) (A) make dividend payments on the Target Preferred Stock
required to be made pursuant to the terms of Target's Certificate of
Incorporation, as amended, (B) pay all accrued and unpaid dividends on
the Target Preferred Stock pursuant to the terms of the Target
Preferred Stock and (C) redeem such amount of Target Preferred Stock so
that the applicable rate of interest used to determine dividends
payable pursuant to the terms of the Target Preferred Stock shall be 8%
from the date hereof through and including the Closing Date;
(v) deliver to Acquiror within ten days after the end of each
month current Target Rent Rolls, together with a detailed aging report
of all receivables;
(vi) use reasonable efforts to obtain the Target Directors'
and Officers' Liability Insurance Policy; and
(vii) pay in full or otherwise satisfy and discharge all
obligations under the Target Affiliate Contracts that are due.
SECTION 5.02 Acquiror Pre-Closing Obligations.
(a) Except as expressly contemplated by this Agreement or as set forth
in the Acquiror Disclosure Letter, during the period from the date of this
Agreement and continuing until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, Acquiror and the
Acquiror subsidiaries will each carry on their respective businesses (which
includes the acquisition and disposition of assets and properties) in its usual,
regular and ordinary course, in substantially the same manner as heretofore
conducted, and use their reasonable efforts to preserve intact their present
business organizations and goodwill and keep available the services of their
present officers and employees.
(b) Except as expressly contemplated by this Agreement or as set forth
in the Acquiror Disclosure Letter, during the period from the date of this
Agreement and continuing until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, Acquiror shall not,
unless Target otherwise has consented in writing:
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(i) except pursuant to the exercise of options, warrants,
conversion rights and other contractual rights existing on the date
hereof and disclosed pursuant to this Agreement, effect any share
split, reverse share split, share dividend, recapitalization or other
similar transaction;
(ii) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of beneficial
interest, except for a dividend not to exceed $0.50 per share of
Acquiror Common Shares for each calendar quarter ending during the
period from the date hereof through the Closing Date, and dividends on
Acquiror Series A Preferred Shares or Acquiror Series A-1 Preferred
Shares in accordance with their terms;
(iii) issue any Acquiror Common Shares or Acquiror Common
Share Equivalents except: (A) such Acquiror Common Shares as are issued
upon conversion of any shares of beneficial interest that by their
terms are convertible into Acquiror Common Shares, and that (1) are
outstanding on the date hereof or (2) have been issued after the date
hereof and prior to the Closing Date to the extent not prohibited by
the terms of this Section 5.02(b)(iii); (B) such Acquiror Common Shares
as are issued pursuant to any dividend reinvestment plan or stock
purchase plan available to all holders of Acquiror Common Shares; (C)
such Acquiror Common Shares or Acquiror Common Share Equivalents as are
issued in any public offering for an amount per Acquiror Common Share
or Acquiror Common Share Equivalent (including any amount payable on
exercise of a Acquiror Common Share Equivalent) equal to at least 92%
or more of the closing price per share on the New York Stock Exchange,
Inc. ("NYSE") of the Acquiror Common Shares on the last trading day
immediately preceding the issue date, less any underwriting discounts
and commissions; (D) the issuance of preferred shares or any other
equity security of Acquiror (other than Acquiror Common Shares or
Acquiror Common Share Equivalents) in any public offering for fair
value; (E) such Acquiror Common Shares or Acquiror Common Share
Equivalents as are issued for fair market value in connection with the
acquisition of assets or properties from any person or entity that is
not affiliated with Acquiror prior to such acquisition; (F) Acquiror
Series A-1 Preferred Shares in connection with Acquiror's exchange of
issued and outstanding Acquiror Series A Preferred Shares for Acquiror
Series A-1 Preferred Shares; and (F) additional Acquiror Common Shares,
and additional Acquiror Common Share Equivalents, issued to Affiliates
of Acquiror provided that such additional Acquiror Common Shares and
the Acquiror Common Shares into which such Acquiror Common Share
Equivalents may be exercised or converted do not exceed, in the
aggregate, 250,000 Acquiror Common Shares, including, without
limitation, (1) Acquiror Common Shares issued to directors, officers,
employees, or trustees of Acquiror or any Acquiror Subsidiary and (2)
Acquiror Common Shares or Acquiror Common Share Equivalents issued
pursuant to stock option, stock purchase, performance or other
remuneration plans adopted by the Board of Trustees of Acquiror from
time to time (including, without limitation, Acquiror's 1992 Employee
Share Option Plan, 1992
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Trustee Share Option Plan and 1995 Management Incentive Plan, and any
Acquiror Common Shares issued to employees of Acquiror in lieu of
bonuses or to trustees of Acquiror in lieu of trustee's fees).
"Acquiror Common Share Equivalent" shall mean any evidence of
indebtedness, shares of beneficial interest or other securities which
are or may be convertible into or exchangeable for Acquiror Common
Shares ("Acquiror Convertible Securities"), or any warrant, option or
other right to subscribe for any Acquiror Convertible Securities or for
any Acquiror Common Shares; or
(iv) agree to take any of the foregoing actions or take or
agree to take any action that is reasonably likely to result in any of
Acquiror's representations or warranties contained in this Agreement,
the Ancillary Documents, or in the certificates and other documents
delivered pursuant hereto or thereto being untrue or result in any of
the conditions to the Merger set forth in Article VII not being
satisfied in any material respect.
(c) During the period from the date of this Agreement and continuing
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, Acquiror shall:
(i) confer on a regular basis with one or more representatives
of Target to report on material transactions;
(ii) promptly notify Target of any material change in the
condition (financial or otherwise), business, properties, assets,
liabilities, prospects or the normal course of the Company's business
or in the operation of its properties, any material governmental
complaints, investigations or hearings (or communications indicating
that the same may be contemplated), or the material breach of any
representation or warranty (other than a representation or warranty
qualified by reference to materiality or an Acquiror Material Adverse
Effect), or the breach of any of Acquiror's or Newco's representations
or warranties contained in this Agreement, the Ancillary Documents, or
in the certificates and other documents delivered pursuant hereto or
thereto qualified by reference to materiality or an Acquiror Material
Adverse Effect; and
(iii) deliver to Target true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement promptly after the filing thereof.
SECTION 5.03 Hart-Scott-Rodino and Other Filings. Subject to the terms
and conditions herein provided, Target and Acquiror shall: (i) to the extent
required, promptly make their respective filings and thereafter make any other
required submissions under the HSR Act with respect to the Merger; (ii) use all
reasonable efforts to cooperate with one another in (x) determining which
filings are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained
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prior to the Effective Time from, governmental or regulatory authorities of the
United States, the several states and local and foreign jurisdictions in
connection with the execution, delivery and performance of this Agreement and
the consummation of the Merger and the other transactions contemplated hereby
and thereby and (y) timely making all such filings and timely seeking all such
consents, approvals, permits or authorizations; (iii) use all reasonable efforts
to obtain in writing any consents required from third parties in form and
substance reasonably satisfactory to Target and Acquiror necessary to consummate
the Merger and the other transactions contemplated hereby and thereby; and (iv)
use all reasonable efforts to take, or cause to be taken, all other action and
do, or cause to be done, all other things necessary, proper or appropriate to
consummate the Merger and the other transactions contemplated by this Agreement
and the Ancillary Documents. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of Target and Acquiror shall take
all such necessary action.
SECTION 5.04 Title Insurance. Target shall cause a person or entity
acceptable to the Title Company (as defined below) that shall own of record upon
consummation of the Merger Acquiror Series B Preferred Shares having a
liquidation preference of at least $1,000,000, to deliver such affidavits,
indemnities and/or financial statements as shall have been agreed upon between
Target and the title company or companies chosen by Acquiror (collectively, the
"Title Company") prior to the date hereof so as to enable the Title Company to
issue the title insurance policies required by Section 6.20.
SECTION 5.05 No Solicitations. Target will immediately cease any
existing discussions or negotiations with any third parties conducted prior to
the date hereof with respect to any merger, business combination, sale of any
Target Properties, or, except as permitted by Section 5.01(b)(ix), sale of any
other assets of Target, sale of shares of capital stock by Target or similar
transaction involving such party or any of its subsidiaries or divisions (a
"Target Acquisition Transaction"). Neither Target, nor its directors, officers,
partners, employees, bankers, attorneys or other advisors or representatives
shall, directly or indirectly, solicit, initiate or encourage any person or
entity concerning any Target Acquisition Transaction (other than the
transactions contemplated by this Agreement and the Ancillary Agreements);
provided, however, that (i) nothing in this Agreement shall preclude Target's
Board of Directors, pursuant to its fiduciary duties as determined by Target's
Board of Directors after consultation with Rosenman & Colin LLP or another
nationally-recognized law firm, from entering into, or causing Target's
officers, representatives, agents or affiliates from entering into, negotiations
with or furnishing information to a third party which has initiated contact with
Target without any solicitation, initiation or encouragement in violation of
this Section, from passing on to Target Stockholders information regarding any
such third party proposal or inquiry consistent with such fiduciary duties, or
otherwise fulfilling such fiduciary duties, and (ii) Target may participate in
negotiations with or furnish information to a third party which (without any
solicitation, initiation or encouragement from Target) has initiated contact
with Target with respect to a Target Acquisition Transaction consistent with the
fiduciary obligations of its Board of Directors. Target shall promptly advise
Acquiror of the receipt of any written offer for an Target Acquisition
Transaction, including, without
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limitation, the terms thereof, and, in the event Target receives such a written
offer, nothing contained in this Agreement shall prevent Target's Board of
Directors from approving such proposal or recommending such Target Acquisition
Transaction to Target's Stockholders if Target's Board of Directors determines
in good faith that failure to take such action would not be consistent with, or
would result in a breach of, its fiduciary duties as determined by Target's
Board of Directors after consultation with Rosenman & Colin LLP or another
nationally-recognized law firm, and in such case the Board of Directors of
Target may amend, withhold or withdraw its recommendation regarding the Merger.
In the event that Target is prepared to accept another proposal for a Target
Acquisition Transaction, Target shall notify Acquiror at least 48 hours prior to
terminating this Agreement and entering into a definitive agreement with respect
to such other proposal, unless Target receives an opinion of counsel that
compliance with its obligation to give 48 hours' notice as required pursuant to
this Agreement would not be consistent with, or would constitute a breach of,
the fiduciary duties of Target's Board of Directors. Nothing in this Agreement
shall prevent Target or its Board of Directors from complying with the
provisions of the 1934 Act and the rules and regulations thereunder.
SECTION 5.06 Access to Information.
(a) Upon reasonable notice and subject to restrictions contained in
confidentiality Contracts listed in the Target Disclosure Letter to which it is
subject (from which it shall use reasonable efforts to be released), Target
shall afford to the officers, employees, accountants, counsel and other
representatives of Acquiror ("Acquiror Representatives"), reasonable access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, Contracts and records and, during such period, Target
shall furnish promptly to Acquiror all information concerning Target, its
business, properties and personnel as Acquiror may reasonably request. Acquiror
Representatives shall be permitted to make copies of and extracts from, the
accounts, minute books, other records, books of account, other books, deeds,
leases, title documents, insurance policies, Contracts, tax returns, records and
files of Target, and such other information relating to Target, and its
business, properties and personnel as Acquiror shall reasonably request.
(b) Upon reasonable notice and subject to restrictions contained in
confidentiality Contracts to which it is subject (from which it shall use
reasonable efforts to be released), Acquiror shall (and shall cause each of the
Acquiror Subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of Target ("Target Representatives"),
reasonable access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, Contracts, and records and, during
such period, Acquiror shall (and shall cause each of the Acquiror Subsidiaries
to) furnish promptly to Target all information concerning its business,
properties and personnel as Target may reasonably request. Target
Representatives shall be permitted to make copies of and extracts from, the
accounts, minute books, other records, books of account, other books, deeds,
leases, title documents, insurance policies, Contracts, tax returns, records and
files of Acquiror, and
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such other information relating to Acquiror, and its business, properties and
personnel as Target shall reasonably request.
SECTION 5.07 Target Stockholder Meeting. Target will take all action
necessary in accordance with Delaware law, Target's Certificate of
Incorporation, as amended, and its By-laws, to convene a special meeting of the
Target Stockholders (the "Target Stockholders Meeting") as promptly as
practicable following effectiveness of the registration statement on Form S-4
(the "S-4"), or other appropriate registration statement, of Acquiror and the
clearance by the SEC of the proxy statement (which will be included in the S-4
or other registration statement) relating to the Target Stockholders Meeting
(the "Target Proxy Statement") to consider and vote upon the approval of this
Agreement, the Merger and the transactions contemplated by this Agreement and
the Ancillary Documents. Target's Board of Directors shall, subject to its good
faith judgment as to its fiduciary obligations to Target's stockholders imposed
by law, recommend that the Target Stockholders vote in favor of this Agreement,
the Merger and the transactions hereby contemplated and cause Target to take all
lawful actions to solicit from the Target Stockholders proxies in favor of such
approval.
SECTION 5.08 Target Proxy Statement.
(a) Target shall prepare (and Acquiror shall assist where reasonable
and appropriate), as promptly as practicable upon execution of this Agreement,
the Target Proxy Statement and a form of proxy for use at the Target
Stockholders Meeting relating to the vote of the Target Stockholders with
respect to this Agreement, the Merger and the transactions hereby contemplated
(together with any amendments or supplements thereto, in each case in the form
or forms mailed to the Target Stockholders). Target shall cause the Target Proxy
Statement to be mailed to Target Stockholders at the earliest possible date.
Acquiror and Newco shall promptly furnish to Target such information regarding
each of Acquiror and Newco and their respective officers and directors as may be
reasonably requested by Target for inclusion in the Target Proxy Statement as
required by any law or by the SEC.
(b) Target covenants that none of the information concerning Target or
any of its affiliates, directors, officers, employees, agents or representatives
in the Target Proxy Statement (including, without limitation, such information
contained in the Target Proxy Statement as is based on Target's representations
and warranties herein) will, at the time the Registration Statement or any
amendment or supplement thereto is filed with the SEC or becomes effective and
at the time of mailing of the Target Proxy Statement or any amendment or
supplement thereto to the Target Stockholders, not contain any untrue statement
of any material fact, or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Target covenants that the Target Proxy Statement shall
comply in all material respects with the applicable provisions of the 1934 Act
and the rules and regulations thereunder, except that no covenant is made by
Target with respect to statements made therein based on information supplied by
Acquiror or Newco or any of their affiliates, directors, officers, employees,
agents or representatives in writing for inclusion or
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incorporation by reference therein or based upon Acquiror's or Newco's
representations or warranties made herein or in any Ancillary Documents or with
respect to omitted information regarding Acquiror or Newco so required to be
included in the Target Proxy Statement.
(c) Acquiror covenants that none of the information supplied or to be
supplied in writing by Acquiror or Newco or any of its affiliates, directors,
officers, employees, agents or representatives for inclusion or incorporation by
reference in the Target Proxy Statement (including, without limitation, such
information contained in the Target Proxy Statement as is based on Acquiror's
and Newco's representations and warranties herein) will, at the time the
Registration Statement or any amendment or supplement thereto is filed with the
SEC or becomes effective and at the time of mailing of the Target Proxy
Statement or any amendment or supplement thereto to the Target Stockholders, not
contain any untrue statement of any material fact, or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 5.09 Registration Statement.
(a) Acquiror shall register under the 1933 Act the Acquiror Series B
Preferred Shares to be issued in the Merger and the Acquiror Common Shares to be
issued upon the conversion of shares of Acquiror Series B Preferred Shares on a
registration statement on Form S-4 or another appropriate registration statement
(the "Acquiror Registration Statement") (which shall contain the Target Proxy
Statement) and shall keep such registration effective thereafter through the
third anniversary of the Closing Date. As promptly as practicable after the date
of this Agreement, Acquiror shall prepare, with the assistance of Target, as
appropriate, and file with the SEC the Acquiror Registration Statement together
with the prospectus to be included therein (the "Prospectus") and the Target
Proxy Statement included therein, and any other documents required by the 1933
Act or the 1934 Act in connection with the Merger. Each of Acquiror and Target
shall use reasonable efforts to respond promptly to any comments of the SEC and
to have the Acquiror Registration Statement declared effective under the 1933
Act as promptly as practicable after such filing. Acquiror shall use its
reasonable efforts to obtain, prior to the Effective Time, all necessary state
securities or "blue sky" permits or approvals required to consummate the Merger
and the other transactions contemplated by this Agreement and the Ancillary
Documents.
Target shall promptly furnish to Acquiror all information
concerning Target and the Target Stockholders as may be reasonably required in
connection with any action contemplated by this Section 5.09. Each of Acquiror
and Target will notify the other promptly of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Acquiror Registration Statement or the Prospectus or for
additional information and will supply the other with copies of all
correspondence with the SEC or its staff with respect to the Acquiror
Registration Statement or the Prospectus. Whenever any event occurs which should
be set forth in an amendment or supplement to the Acquiror Registration
Statement or the Prospectus, Acquiror or Target, as the case may be,
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shall promptly inform the other of such occurrence and cooperate in filing with
the SEC or its staff, and/or mailing to stockholders of Target, such amendment
or supplement.
(b) Acquiror covenants that none of the information in the Acquiror
Registration Statement will, at the time the Acquiror Registration Statement is
filed with the SEC and at the time it becomes effective under the 1933 Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading, except
that no covenant is made by Acquiror with respect to statements made therein
based on information supplied in writing by Target for inclusion in the Acquiror
Registration Statement. Acquiror covenants that the Acquiror Registration
Statement and the Prospectus will comply in all material respects with the
provisions of the 1933 Act and the 1934 Act, as the case may be, and the rules
and regulations thereunder, except that no covenant is made by Acquiror with
respect to statements made therein based on information supplied by Target or
any of its affiliates, directors, officers, employees, agents or representatives
in writing for inclusion or incorporation by reference therein or based upon
Target's representations or warranties made herein or in any Ancillary Documents
or with respect to omitted information regarding Target so required to be
included in the Registration Statement.
(c) Target covenants that none of the information supplied in writing
by Target for inclusion or incorporation by reference in the Acquiror
Registration Statement or any amendments or supplements thereto to be filed with
the SEC in connection with the issuance of Acquiror Series B Preferred Shares
and, upon conversion, Acquiror Common Shares, pursuant to the transactions
hereby contemplated will, at the time the Acquiror Registration Statement or any
amendments or supplements thereto is filed with the SEC and at the time it
becomes effective under the 1933 Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstance under
which they were made, not misleading.
SECTION 5.10 Efforts to Consummate. Subject to the terms and conditions
of this Agreement, in addition to the matters otherwise specifically set forth
in this Article V, each of the parties hereto agrees to use reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
including, without limitation, (i) the preparation and filing of all other
forms, registrations and notices required to be filed to consummate the Merger
and the transactions hereby contemplated and the taking of such actions as are
necessary to obtain any requisite approvals, consents, orders, exemptions, or
waivers (including, without limitation, any Target Consents) by any public or
private third party, (ii) such actions as may be required to permit, on or prior
to the Effective Time, the Acquiror Series B Preferred Shares to be issued
pursuant to the terms and conditions hereof and the Acquiror Common Shares to be
issued upon conversion to be listed on the NYSE (subject to official notice of
issuance), and (iii) such actions as may be reasonable to cause, concurrently
with the Effective Time, the delisting of Target's securities from the OTC
Bulletin Board and the deregistration of Target's
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securities under the 1934 Act; provided, however, that in order to obtain any
consent, approval, waiver, license, permit, authorization, registration,
qualification or other permission or action referred to in clause (i) of this
sentence, no party shall be required to (A) pay any consideration, to divest
itself of any of, or otherwise rearrange the composition of, its assets or to
agree to any conditions or requirements which are materially adverse or
burdensome or (B) amend, or agree to amend, in any material respect any
Contract. Each party shall promptly consult with the other and provide any
necessary information with respect to, and provide the other (or its counsel)
with copies of, all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions hereby
contemplated.
SECTION 5.11 Letters of Accountants. Each of Target and Acquiror shall
use reasonable efforts to cause to be delivered to the other, letters from their
respective independent public accountants to each such party, dated a date no
later than the date on which the Acquiror Registration Statement and any
supplements or post-effective amendments thereto shall become effective and
addressed to the other, in form and substance reasonably satisfactory to the
other and customary in scope and substance for "cold comfort" letters delivered
by independent public accountants in connection with registration statements
similar to the Acquiror Registration Statement.
SECTION 5.12 Indemnification of Managers.
(a) Acquiror and Newco each agree that all rights, if any, to
indemnification existing on the date hereof in favor of the present or former
officers and directors of Target (the "Managers"), with respect to actions taken
in their capacity as officers and/or directors prior to or at the Effective Time
as provided in Target's Certificate of Incorporation and By-laws (including,
without limitation, in connection with the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents), shall, subject to
Delaware law, survive the Merger for a period of seven years. The Surviving
Corporation and Acquiror shall assume, honor and be bound by the terms of such
Certificate of Incorporation and By-laws with respect to their actions and
omissions in such capacity taken prior to the Effective Time (including, without
limitation, in connection with the Merger and the other transactions
contemplated by this Agreement and the Ancillary Documents), whether or not such
persons continue in their positions with the Surviving Corporation following the
Effective Time, and shall continue in full force and effect following the
Effective Time for a period of seven years, and all such rights, if any, in the
Certificate of Incorporation and By-laws in effect as of the date hereof between
Target and any Manager shall survive the Merger and continue in full force and
effect in accordance with its terms as between such Managers and the Surviving
Corporation and Acquiror for a period of seven years.
(b) Target shall use reasonable efforts to obtain a tail covering the
period from the Closing Date through the first anniversary of the Closing Date
to, and having substantially the same coverage and deductibles as, the Existing
Target D & O Liability Insurance Policy (the "Target D & O Insurance Liability
Tail"). The premium for such Target D & O Liability
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Insurance Tail shall not exceed $75,000 and shall be a Merger Expense. In the
event that Target is unable to obtain the Target Directors' and Officers'
Liability Insurance Policy for such period, Acquiror agrees to indemnify, until
the first anniversary of the Closing Date, the directors and officers covered by
the Existing Target D & O Liability Insurance Policy on the same or similar
terms and conditions in effect under the Existing Target D & O Liability
Insurance Policy, and the same dollar limitations in effect under Acquiror's
directors' and officers' liability insurance policy, as currently in effect.
Acquiror has delivered or made available to Target a true, correct and complete
copy of Acquiror's directors' and officers' liability insurance policy, as
currently in effect.
(c) The provisions of this Section 5.12 shall survive the Effective
Time and are intended to be for the benefit of, and shall be enforceable by,
each officer and director of Target and his or her heirs and representatives.
SECTION 5.13 No Breach of Representations and Warranties. Each of
Target, Acquiror and Newco agree that it will not take any action that would
cause or constitute, or would, if it had been taken prior to the date hereof,
have caused or constituted, a material breach of any of its respective
representations or warranties (other than those representations or warranties
qualified by reference to materiality or an Acquiror Material Adverse Effect or
a Target Material Adverse Effect, as the case may be), or the breach of any of
its respective representations or warranties qualified by reference to
materiality or an Acquiror Material Adverse Effect or a Target Material Adverse
Effect, as the case may be, contained in this Agreement, the Ancillary
Documents, or in the certificates and other documents delivered pursuant hereto
or thereto. Each of the parties hereto shall, in the event of, or promptly after
the occurrence of, or promptly after obtaining knowledge of the occurrence of or
the impending or threatened occurrence of, any fact or event which would cause
or constitute a Target Material Adverse Effect, with respect to Target, or a
Acquiror Material Adverse Effect, with respect to Acquiror or Newco, or a
material breach of any of the representations or warranties (other than those
representations or warranties qualified by reference to materiality or an
Acquiror Material Adverse Effect or a Target Material Adverse Effect, as the
case may be), or the breach of any of the representations or warranties
qualified by reference to materiality or an Acquiror Material Adverse Effect or
a Target Material Adverse Effect, as the case may be, contained in this
Agreement, the Ancillary Documents, or in the certificates and other documents
delivered pursuant hereto or thereto, as of the Closing Date, give detailed
notice thereof to the other parties hereto; and such notifying party shall use
its or their reasonable efforts to prevent or promptly to remedy such breach.
The giving of notice pursuant to this Section 5.13 shall not act as a waiver of
any breach hereunder.
SECTION 5.14 Consents; Notices.
(a) Target shall use reasonable efforts to make, and Acquiror shall use
all reasonable efforts to cooperate with Target in Target's making, the filings
and registrations with, and obtain the consents, authorizations, declarations
and approvals of, the Governmental Entities and other third parties, necessary
for the execution, delivery and performance by
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Target of this Agreement or any of the Ancillary Documents or the consummation
of the Merger and the other transactions contemplated by this Agreement and the
Ancillary Documents. Target shall also deliver all notices to third parties
required to be delivered in connection with the execution of this Agreement and
the consummation of the Merger and the transactions hereby contemplated.
(b) Acquiror shall use reasonable efforts to obtain and deliver to
Target written consents identified in the Acquiror Disclosure Letter, in form
and substance reasonably satisfactory to Target required in connection with this
Agreement, the Merger or the transactions hereby contemplated. Target shall use
all reasonable efforts to cooperate with Acquiror in Acquiror's obtaining of
such consents. Acquiror shall also deliver all notices to third parties required
to be delivered in connection with the execution of this Agreement and the
consummation of the Merger and the transactions hereby contemplated.
SECTION 5.15 Public Announcements. Except as otherwise required by law
or the rules of the NASD or the NYSE, neither Target nor Acquiror shall, nor
shall Acquiror permit any of the Acquiror Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to
the Merger and the transactions contemplated by this Agreement and the Ancillary
Documents without prior written approval of the other party, which approval
shall not be unreasonably withheld.
SECTION 5.16 Exchange Listing. Acquiror shall promptly prepare and
submit to the NYSE a listing application covering the Acquiror Common Shares
issuable upon conversion of the Acquiror Series B Preferred Shares, and shall
use reasonable efforts to obtain, prior to the Effective Time, approval for the
listing of such Acquiror Common Shares, subject to official notice of issuance;
and Acquiror shall pay the listing fee in connection therewith. Prior to the
Effective Time, Acquiror shall, if and when notified in writing by Target, use
reasonable efforts to cause the Acquiror Series B Preferred Shares to be listed
on the NYSE and Target shall pay the listing fee in connection therewith. If
Target does not request listing of the Series B Preferred Shares as aforesaid
prior to the Effective Time, then after the Effective Time, Acquiror shall, if
and when notified in writing by holders of a majority of the Acquiror Series B
Preferred Shares, use reasonable efforts to cause the Acquiror Series B
Preferred Shares to be listed on the NYSE and holders of the Acquiror Series B
Preferred Shares shall pay the listing fee in connection therewith.
SECTION 5.17 Filing of Articles Supplementary.
(a) Acquiror shall, on or prior to the Closing Date, file with the
State Department of Assessments and Taxation of Maryland the Articles
Supplementary for the Acquiror Series B Preferred Shares (the "Acquiror Series B
Preferred Shares Articles Supplementary") and the Articles Supplementary for the
Acquiror Series C Preferred Shares and shall promptly deliver to Target evidence
of such filings.
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(b) When issued, the Acquiror Series B Preferred Shares, Acquiror
Series C Preferred Shares and the Acquiror Common Shares to be issued upon
conversion of the Acquiror Series B Preferred Shares shall be duly authorized,
validly issued, fully paid and nonassessable except that shareholders may be
subject to further assessment with respect to claims for tort, contract, taxes,
statutory liability and otherwise in some jurisdictions to the extent such
claims are not satisfied by Acquiror. The Acquiror Series B Preferred Shares and
the Acquiror Series C Preferred Shares shall be as set forth in the Articles
Supplementary attached as Exhibit A hereto and Exhibit B hereto, respectively,
with the completion of any blanks contained therein.
SECTION 5.18 Closing Certificates. Target shall prepare and deliver to
Acquiror at the Closing the Closing Adjustment Statement and a certificate
setting forth all of the Merger Expenses.
SECTION 5.19 Reorganization. The parties intend to adopt this Agreement
and the Merger as a plan of reorganization under Section 368(a)(1)(A) of the
Code. Each of Acquiror, Newco and Target agree to use reasonable efforts not to
(i) knowingly take or fail to take any actions that would jeopardize
qualification of the Merger as a reorganization pursuant to the provisions of
Section 368(a)(1)(A) of the Code, (ii) enter into any Contract with respect to
the foregoing, or (iii) take a position inconsistent with this Section on any
tax return or otherwise unless otherwise required by law.
SECTION 5.20 No Improvements; Damage or Destruction; Condemnation;
Environmental.
(a) Acquiror specifically agrees that Target shall not be obligated to
do any restoration, repairs or other work in connection with the Target
Properties, and that Target shall not be responsible for any work or
improvements, including, without limitation, any clean-up or other environmental
remedial or removal work, necessary to cause the Target Properties to meet
applicable Environmental Laws or other laws, ordinances, regulations, or be
suitable for any particular use.
(b) Notwithstanding anything else in this Agreement, in the event of
the destruction of or damage to any of the Target Properties by fire or other
casualty, or any taking thereof by condemnation or eminent domain, prior to the
Closing resulting in Target Costs (without giving effect to insurance proceeds)
in excess of $5,000,000, Acquiror shall have the right, in its sole discretion,
either to (i) terminate this Agreement or (ii) proceed to closing hereunder
without any abatement of the Merger consideration, it being agreed that
Acquiror's sole remedy would be to succeed to Target's claims, rights and
proceeds, whether from insurance or otherwise, by reason of the Merger.
SECTION 5.21 Affiliates of Target.
(a) At least 30 days prior to the Closing Date, Target shall deliver to
Acquiror a list of names and addresses of those persons who were, in Target's
reasonable judgment, on
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the record date for the Target Stockholders Meeting, Affiliates of Target.
Target shall provide Acquiror with such information and documents as Acquiror
shall reasonably request for purposes of reviewing such list. Target shall use
all reasonable efforts to deliver to Acquiror, prior to the Closing Date, from
each of the Affiliates identified in the foregoing list, an Affiliate Letter in
the form attached hereto as Exhibit C hereto (each, an "Affiliate Letter").
Acquiror shall be entitled to place legends as specified in such Affiliate
Letters on the certificates evidencing any Acquiror Common Shares, Acquiror
Series B Preferred Shares and Acquiror Series C Preferred Shares to be received
by such Affiliates pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Acquiror
Common Shares, Acquiror Series B Preferred Shares and Acquiror Series C
Preferred Shares consistent with the terms of such Affiliate Letters.
(b) Acquiror shall file the reports required to be filed by it under
the 1934 Act and the rules and regulations promulgated thereunder, and it will
take such further action as any Affiliate may reasonably request, all to the
extent required from time to time to enable such Affiliate to sell Acquiror
Common Shares, Acquiror Series B Preferred Shares and Acquiror Series C
Preferred Shares received by such Affiliate in the Merger without registration
under the 1933 Act pursuant to (i) Rule 145, or (ii) any successor rule or
regulation hereafter adopted by the SEC.
SECTION 5.22 Estoppel Certificates. Target shall request an estoppel
certificate (an "Estoppel Certificate") from (i) each of the tenants of the
Target Properties in the form attached to or required by the applicable Target
Lease, or in the form commonly used by such tenant, or, if no form is attached
to or required by the applicable Target Lease, or commonly used by the
applicable tenant, then in the form of Exhibit D, (ii) each party to a Target
REA Agreement, in the form of Exhibit D and (iii) each mortgagee to each
mortgage encumbering any of the Target Properties, in the form of Exhibit D.
Target shall deliver to Acquiror true, correct and complete copies of all
Estoppel Certificates received by Target and shall notify Acquiror of any such
tenants, parties or mortgagees that refuse to deliver an Estoppel Certificate
and the reason for such refusal, if known.
SECTION 5.23 Indemnification Obligations.
(a) Target shall indemnify and hold harmless Acquiror and Newco, and
their affiliates, directors, trustees, shareholders, representatives, employees
and agents, from and against, and in respect of, any and all damages, claims,
losses, charges, actions, suits, proceedings, costs and expenses (including,
without limitation, attorneys' fees and expenses) up to an aggregate of $50,000
which are incurred or suffered by any or all of them by reason of, with respect
to, or arising from, the action entitled John Winston vs. Leonard S. Mandor,
Robert A. Mandor, Joan LeVine, Harvey Jacobson, Gregory McMahon and Geoffrey S.
Aaronson, Milestone Properties, Inc. and Concord Assets Group, Inc. pending in
the Court of Chancery of the State of Delaware in and for New Castle County,
C.A. No. 14807 (the "Pending Milestone Action") or any other action or
proceeding with respect to, or arising out of, the facts, events and
circumstances giving rise to the Pending Milestone Action.
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(b) After the Effective Time and to the extent Acquiror assumes any
indebtedness or other obligations as to which Milestone is liable pursuant to
any Milestone Obligation, Acquiror shall indemnify and hold harmless Milestone,
and its affiliates, directors, shareholders, representatives, employees and
agents, from and against, and in respect of, any and all damages, claims,
losses, charges, actions, suits, proceedings, cost and expenses (including,
without limitation, attorneys' fees and expenses) which are incurred or suffered
by Milestone by reason of, with respect to, or arising from, the failure of
Acquiror to pay or perform any such indebtedness or other obligations in
accordance with their terms. The parties hereby agree that Milestone shall be a
third party beneficiary of this Section 5.23(b), and that this Section 5.23(c)
shall not be amended without the written agreement of Milestone.
SECTION 5.24 First Union Line of Credit. The aggregate amount of all
obligations of Target under the line of credit (the "First Union Line of
Credit") extended by First Union National Bank ("First Union") to Target
pursuant to the loan agreement dated April 24, 1995, between First Union and
Target (including, without limitation, obligations to pay the principal amount
of all loans made under the First Union Line of Credit and all interest thereon)
and the amount of all debt assumption, prepayment and other fees, shall not
exceed $2,000,000 at the Effective Time. At or prior to the Effective Time,
Acquiror shall transfer to another branch of First Union, pay or refinance, the
First Union Line of Credit, provided that the amount of all debt assumption,
prepayment and other fees do not exceed $2,000,000 at the Effective Time.
SECTION 5.25 Sale of South Carolina Outparcel. Notwithstanding anything
contained in this Agreement to the contrary, Target may transfer (the "South
Carolina Outparcel Transfer") to the South Carolina Outparcel Purchaser the
South Carolina Outparcel, in accordance with the terms of the South Carolina
Outparcel Agreement, in settlement of any dispute or litigation arising out of
or relating to the South Carolina Outparcel Agreement; provided, that (i) Target
obtains from the South Carolina Outparcel Purchaser a release, in form and
substance reasonably satisfactory to Acquiror, of all claims the South Carolina
Outparcel Purchaser may have arising out of or relating to the South Carolina
Outparcel Agreement, (ii) all of the South Carolina Outparcel Proceeds are cash
and (iii) Target deposits all of the South Carolina Outparcel Proceeds into a
segregated account. Target shall not expend, distribute, Encumber or commingle
the South Carolina Outparcel Proceeds with any other funds of Target or any
other person except payments pursuant to clauses (2) or (3) below. "South
Carolina Outparcel Proceeds" shall mean the gross proceeds of the transfer of
the South Carolina Outparcel, less (1) any out-of-pocket costs and expenses
(including reasonable attorneys' fees and customary and reasonable brokerage
commissions) incurred by Target to unrelated third parties in order to
consummate the transfer of the South Carolina Outparcel, (2) any costs required
pursuant to paragraphs 2 and 3 of that certain Lease Modification Agreement by
and between Harris Teeter, Inc., as tenant, and Target, as landlord (a true,
correct and complete of which has been delivered to Acquiror) and (3) payment of
up to $19,000 of income tax to any federal, state or local taxing authority that
is attributable to
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gain recognized from the South Carolina Outparcel Transfer; provided, however,
the amounts paid by Target pursuant to clauses (1) and (2) of this Section 5.25
shall not exceed $60,000.
SECTION 5.26 Termination of Management Agreements. On or prior to the
Closing Date, Target shall terminate, without any cost, expense or liability to
Target, the Company or Newco, any and all management agreements relating to any
or all of the Target Properties, including, without limitation, those management
agreements listed in the Target Disclosure Letter.
ARTICLE VI
CONDITIONS TO ACQUIROR'S AND NEWCO'S OBLIGATIONS
All obligations of Acquiror and Newco under this Agreement are subject
to the fulfillment, at the Closing Date, of each of the following conditions,
any or all of which may be waived in whole or in part, at or prior to the
Closing Date, by Acquiror in its sole discretion:
SECTION 6.01 Representations and Warranties. (i) All representations
and warranties of Target contained in this Agreement, the Ancillary Documents,
or in the certificates and other documents delivered pursuant hereto or thereto
(other than representations or warranties qualified by reference to materiality
or a Target Material Adverse Effect), shall be true and correct in all material
respects, and (ii) all representations and warranties contained in this
Agreement, the Ancillary Documents, or in the certificates and other documents
delivered pursuant hereto or thereto qualified by reference to materiality or a
Target Material Adverse Effect shall be true and correct, in the case of each of
clause (i) and (ii), at and as of the Closing Date as though such
representations and warranties were made at and as of such time, except for
those representations and warranties that are expressly made as of a specified
earlier date. For the purposes of Section 6.01(i), the representations and
warranties of Target shall be deemed true and correct in all material respects
unless the breach of such representations and warranties, in the aggregate,
could reasonably be expected to have a Target Material Adverse Effect.
SECTION 6.02 Covenants. Target shall have performed and complied in all
material respects with all agreements and conditions on its part required by
this Agreement to be performed or complied with prior to or on the Closing Date.
SECTION 6.03 Officer's Certificate. Acquiror shall have received a
certificate of an executive officer of Target, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Section 6.01 and
Section 6.02.
SECTION 6.04 Opinion of Counsel. Target shall have received an opinion
of counsel of Rosenman & Colin LLP, counsel for Target, dated the Closing Date,
in form and substance reasonably satisfactory to Acquiror, that, among other
things, shall be to the effect
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that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code, and that
Target and Acquiror will each be a party to that reorganization within the
meaning of Section 368(b) of the Code.
SECTION 6.05 Absence of Changes. From the date of this Agreement
through the Effective Time, there shall not have occurred any change or changes
in the financial condition, business or operations of Target that could
reasonably be expected to have a Target Material Adverse Effect.
SECTION 6.06 Number of Dissenting Shares. If holders of shares of
Target Common Stock who did not vote in favor of this Agreement and the Merger
are entitled to demand appraisal rights in accordance with the DGCL, the number
of Dissenting Shares shall not at any time exceed 7.5% of the shares of Target
Common Stock outstanding at such time.
SECTION 6.07 Approvals and Consents. Acquiror shall have received (in
form and substance reasonably satisfactory to Acquiror) all filings,
registrations, consents, authorizations, declarations or approvals necessary to
consummate the Merger and the other transactions contemplated by this Agreement
and the Ancillary Documents, other than such filings, registrations, consents,
authorizations, declarations or approvals, the absence of which, individually or
in the aggregate, could not reasonably be expected to have an Acquiror Material
Adverse Effect if the transactions contemplated by this Agreement and the
Ancillary Documents were consummated without first obtaining such filings,
registrations, consents, authorizations, declarations or approvals. Acquiror
shall have obtained the approval for the listing of the Acquiror Common Shares
issuable in the Merger on the NYSE, subject to official notice of issuance.
SECTION 6.08 Injunctions. No court, agency or other authority shall
have issued any order, decree or judgment to set aside, restrain, enjoin or
prevent, and no statute, rule, regulation, executive order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any United States
court or Governmental Entity of competent jurisdiction which prohibits
restrains, enjoins, sets aside or prevents, the consummation of the Merger or
the transactions hereby contemplated.
SECTION 6.09 HSR Act. If applicable, Target shall have made all
pre-merger notification filings required to be made by it under the HSR Act, all
applicable waiting periods thereunder shall have expired or been terminated
without any request from any appropriate governmental agency for additional
information or, if additional information has been requested, all applicable
extended waiting periods shall have expired.
SECTION 6.10 Effectiveness of Registration Statement. The Acquiror
Registration Statement shall have been declared effective under the 1933 Act,
all necessary state securities or "blue sky" permits or approvals required to
consummate the Merger and the other transactions contemplated by this Agreement
and the Ancillary Documents shall have been
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obtained, and no stop order or proceedings seeking a stop order with respect to
any of the foregoing shall be in effect.
SECTION 6.11 Stockholder Approval. This Agreement and the Merger and
the other transactions contemplated by this Agreement and the Ancillary
Documents shall have been approved in the manner required by applicable law, and
by applicable regulations of any stock exchange or other regulatory body, by the
holders of the issued and outstanding shares of capital stock or beneficial
interest of Target entitled to vote thereon on or before March 31, 1997.
SECTION 6.12 Accountants' Letters. Acquiror shall have received "cold
comfort" letters from Deloitte & Touche LLP, Target's independent public
accountants, dated no later than the date of the effectiveness of the Acquiror
Registration Statement and any supplements and post-effective amendments
thereto, with respect to the operations of Target in the form and substance of
such letters delivered by independent public accountants in connection with the
Acquiror Registration Statement and reasonably satisfactory to Acquiror and its
counsel.
SECTION 6.13 Shareholders and Voting Trust Agreement. The Affiliates of
Target listed in the Target Disclosure Letter (other than Joseph Otto, Joan
LeVine and Harvey Shore) shall have executed and delivered a shareholders and
voting trust agreement with Acquiror, dated as of the Closing Date,
substantially in the form attached as Exhibit E hereto (the "Shareholders
Agreement"), which shall set forth certain terms, conditions and limitations
with respect to the shares of Acquiror Series B Preferred Shares to be received
by said parties pursuant to the Merger. The Shareholders Agreement, when
executed, shall be the legal, valid and binding obligation of the signatories
thereto, shall be enforceable in accordance with its terms (except as may be
limited by bankruptcy and other laws affecting the enforceability of creditors'
rights generally or laws governing the availability of specific performance or
other equitable remedies, or restrictions of the enforcement of securities
indemnification and contribution provisions imposed by public policy) and shall
not conflict with any other agreement to which any of the signatories thereto is
a party.
SECTION 6.14 Guaranty Agreement. A person or entity designated by
Target that shall own of record upon consummation of the Merger Acquiror Series
B Preferred Shares having a liquidation preference of at least $1,000,000 (the
"Guarantor") shall have executed and delivered a guaranty agreement with
Acquiror, dated as of the Closing Date (the "Guaranty Agreement"), as set forth
as Exhibit F hereto with the completion of any blanks therein. The Guaranty
Agreement shall continue in full force and effect with respect to any claims
made prior to the date which is the earlier of (i) the date which is twenty (20)
days after the delivery to Acquiror by the Acquiror's independent public
accountant's of an audit opinion with respect to the Company's 1997 calendar
year financial statements and (ii) the date which is fifteen (15) months after
the Closing Date. The maximum obligation of the Guarantor under the Guaranty
Agreement shall be limited to an aggregate of $1,000,000 payable, at the
guarantor's option, by cash or by delivery of Acquiror Series B Preferred Shares
(based on a value of $25 per Acquiror Series B Preferred Share).
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SECTION 6.15 Registration Rights Agreement. The Affiliates of Target
listed in the Target Disclosure Letter shall have executed and delivered a
registration rights agreement with Acquiror, dated as of the Closing Date (the
"Registration Rights Agreement"), substantially in the form attached as Exhibit
G hereto, which shall set forth certain terms, conditions and limitations with
respect to the registration under the 1933 Act of the Acquiror Series B
Preferred Shares and the shares of the Acquiror Common Shares into which the
Acquiror Series B Preferred Shares are convertible. The Registration Rights
Agreement, when executed, shall be the legal, valid and binding obligation of
the signatories thereto, shall be enforceable in accordance with its terms
(except as may be limited by bankruptcy and other laws affecting the
enforceability of creditors' rights generally or laws governing the availability
of specific performance or other equitable remedies, or restrictions of the
enforcement of securities indemnification and contribution provisions imposed by
public policy), and shall not conflict with any other agreement to which any of
the signatories thereto is a party.
SECTION 6.16 Termination of Target Affiliate Contracts. All Target
Affiliate Contracts shall have been terminated and Target shall have paid in
full or otherwise satisfied and discharged all obligations under all Target
Affiliate Contracts.
SECTION 6.17 Redemption of Target Preferred Stock. Target shall have
redeemed such amount of Target Preferred Stock so that the applicable rate of
interest used to determine dividends payable pursuant to the terms of the Target
Preferred Stock shall be 8% from the date hereof through and including the
Closing Date.
SECTION 6.18 Estoppel Certificates. Target shall have furnished
Estoppel Certificates, substantially in the form required by Section 5.22, from
(a) each tenant listed on Schedule 6.18, (b) additional tenants under Target
Leases (the "Additional Tenants") leasing at least (75%) of the gross leasable
area of the Target Properties that is not leased by the tenants listed in
Schedule 6.18 (the "Non-Anchor GLA"), (c) each party to a Target REA Agreement,
provided that in the event Target is unable to obtain an Estoppel Certificate
from a party to a Target REA Agreement who is not required to provide same under
such agreement after exercising reasonable efforts to obtain same, the failure
to obtain such Estoppel Certificate shall not be a condition to Closing
hereunder and (d) each mortgagee with respect to each mortgage encumbering any
of the Target Properties. In the event that Additional Tenants leasing less than
75% of the Non-Anchor GLA shall have furnished Estoppel Certificates, provided
that Additional Tenants leasing at least 50% of the Non-Anchor GLA furnished
Estoppel Certificates, Concord Assets Group, Inc. and Castle Plaza, Inc. shall
have the right to satisfy the condition set forth in clause (b) above by
furnishing to Acquiror their own Estoppel Certificates with respect to a
sufficient number of Target Leases so that Estoppel Certificates covering at
least 75% of the Non-Anchor GLA shall have been furnished to Acquiror.
SECTION 6.19 Statement of Accounts Receivable. Target shall have
delivered to Acquiror (i) the Target Financial Statements and the Target Interim
Financial Statements, (ii)
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an unaudited balance sheet and related statements of revenues and cash flows at
and for the nine month period ended September 30, 1996, and, until the earlier
of the Effective Time or the termination of this Agreement, succeeding unaudited
quarterly and unaudited annual balance sheet and related statements of revenue
in the event the Closing shall occur on or after February 15, 1997 and (iii) a
statement of all accounts receivable as of the Effective Date, as determined in
accordance with GAAP applied on a consistent basis, and (iv) the Closing
Adjustment Statement.
SECTION 6.20 Title Insurance Policies. Acquiror shall have received
from the Title Company a title insurance policy for such of the Target
Properties as Acquiror may elect, dated the Effective Date, in the form
initialled by each of the parties hereto and without further exception or
qualification other than those which, individually or in the aggregate with all
other breaches of representations, warranties and covenants of Target, could not
reasonably be expected to have a Target Material Adverse Effect.
ARTICLE VII
CONDITIONS TO TARGET'S OBLIGATIONS
All obligations of Target under this Agreement are subject to the
fulfillment, at the Closing Date, of each of the following conditions, any or
all of which may be waived in whole or in part, at or prior to the Closing Date,
by Target in its sole discretion:
SECTION 7.01 Representations and Warranties. (i) All representations
and warranties of Acquiror and Newco contained in this Agreement, the Ancillary
Documents, or in the certificates and other documents delivered pursuant hereto
or thereto (other than representations or warranties qualified by reference to
materiality or an Acquiror Material Adverse Effect), shall be true and correct
in all material respects, and (ii) all representations and warranties of
Acquiror and Newco contained in this Agreement, the Ancillary Documents, or in
the certificates and other documents delivered pursuant hereto or thereto and
qualified by reference to materiality or an Acquiror Material Adverse Effect
shall be true and correct, in the case of each of clause (i) and (ii), at and as
of the Closing Date as though such representations and warranties were made at
and as of such time, except for those representations and warranties that are
expressly made as of a specified earlier date. For the purposes of Section
7.01(i), the representations and warranties of Acquiror and Newco shall be
deemed true and correct in all material respects unless the breach of such
representations or warranties could reasonably be expected to have an Acquiror
Material Adverse Effect.
SECTION 7.02 Covenants. Acquiror and Newco shall each have performed
and complied in all material respects with all agreements and conditions on
their respective parts required by this Agreement to be performed or complied
with prior to or on the Closing Date.
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SECTION 7.03 Officer's Certificate. Target shall have received a
certificate of an executive officer of each of Acquiror and Newco, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Section 7.01 and Section 7.02.
SECTION 7.04 Opinion of Counsel. Acquiror shall have received an
opinion of counsel of Robinson Silverman Pearce Aronsohn & Berman LLP, counsel
for Acquiror, dated the Closing Date, in form and substance reasonably
satisfactory to Target, that, among other things, shall be to the effect that
the Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a)(1)(A) of the Code, and that Target and
Acquiror will each be a party to that reorganization within the meaning of
Section 368(b) of the Code.
SECTION 7.05 Absence of Changes. From the date of this Agreement
through the Effective Time, there shall not have occurred any change or changes
in the financial condition, business or operations of Acquiror that could
reasonably be expected to have a Acquiror Material Adverse Effect.
SECTION 7.06 Approvals and Consents. Target shall have received (in
form and substance reasonably satisfactory to Target) all Target Consents
designated as "required consents" in the Target Disclosure Letter.
SECTION 7.07 Injunctions. No court, agency or other authority shall
have issued any order, decree or judgment to set aside, restrain, enjoin or
prevent, and no statute, rule, regulation, executive order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any United States
court or Governmental Entity of competent jurisdiction which prohibits
restrains, enjoins, sets aside or prevents, the consummation of the Merger or
the transactions hereby contemplated.
SECTION 7.08 HSR Act. If applicable, Acquiror shall have made all
pre-merger notification filings required to be made by it under the HSR Act, all
applicable waiting periods thereunder shall have expired or been terminated
without any request from any appropriate governmental agency for additional
information or, if additional information has been requested, all applicable
extended waiting periods shall have expired.
SECTION 7.09 Effectiveness of Registration Statement. The Acquiror
Registration Statement shall have been declared effective under the 1933 Act,
all necessary state securities or "blue sky" permits or approvals required to
consummate the Merger and the other transactions contemplated by this Agreement
and the Ancillary Documents shall have been obtained, and no stop order or
proceedings seeking a stop order with respect to any of the foregoing shall be
in effect.
SECTION 7.10 Stockholder Approval. This Agreement and the Merger and
the other transactions contemplated by this Agreement and the Ancillary
Documents shall have been approved in the manner required by applicable law, and
by applicable regulations of any
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stock exchange or other regulatory body, by the holders of the issued and
outstanding shares of capital stock or beneficial interest of Target entitled to
vote thereon.
SECTION 7.11 Merger. The Delaware Merger Certificate shall have been
executed and delivered by Newco to Target.
SECTION 7.12 Accountants' Letters. Target shall have received "cold
comfort" letters from Arthur Andersen LLP, Acquiror's independent public
accountants, dated no later than the date of the effectiveness of the Acquiror
Registration Statement (and the Target Proxy Statement included therein) and any
supplements and post-effective amendments thereto, with respect to the
operations of Acquiror in the form and substance of such letters delivered by
independent public accountants in connection with the Acquiror Registration
Statement and reasonably satisfactory to Target and its counsel.
SECTION 7.13 Financial Statements. Acquiror shall have delivered to
Target an unaudited balance sheet and related statements of revenues and cash
flows at and for the nine month period ended September 30, 1996, and succeeding
unaudited quarterly and unaudited annual balance sheet and related statements of
revenue in the event the Closing shall occur on or after February 15, 1997 in
conformity with GAAP applied on a consistent basis, except as otherwise noted
therein and for normal audit and accrual adjustments.
SECTION 7.14 Registration Rights Agreement. The Acquiror shall have
executed and delivered the Registration Rights Agreement. The Registration
Rights Agreement, when executed, shall be the legal, valid and binding
obligation of the signatories thereto, shall be enforceable in accordance with
its terms (except as may be limited by bankruptcy and other laws affecting the
enforceability of creditors' rights generally or laws governing the availability
of specific performance or other equitable remedies, or restrictions of the
enforcement of securities indemnification and contribution provisions imposed by
public policy), and shall not conflict with any other agreement to which any of
the signatories thereto is a party.
SECTION 7.15 Shareholders Agreement. The Acquiror shall have executed
and delivered the Shareholders Agreement. The Shareholders Agreement, when
executed, shall be the legal, valid and binding obligation of the signatories
thereto, shall be enforceable in accordance with its terms (except as may be
limited by bankruptcy and other laws affecting the enforceability of creditors'
rights generally or laws governing the availability of specific performance or
other equitable remedies, or restrictions of the enforcement of securities
indemnification and contribution provisions imposed by public policy) and shall
not conflict with any other agreement to which any of the signatories thereto is
a party.
SECTION 7.16 Fairness as to Target Preferred Stock. On or prior to the
Closing Date either (i) Target shall have caused Milestone to execute and
deliver to Acquiror and Target a consent to the exchange of the Series C
Preferred Shares for the Target Preferred Stock in the Merger and a waiver of
any claims with respect to the fairness of such exchange
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or (ii) Target shall have received the opinion of Societe Generale or another
investment banking firm to the effect that the consideration to be paid to the
holders of the Target Preferred Stock pursuant to the Merger is fair to the
holders of Target Preferred Stock from a financial point of view.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the Target Stockholders Meeting:
(a) by mutual consent of Target and Acquiror;
(b) by either Target or Acquiror, if the Merger shall not have been
consummated by March 31, 1997, unless the failure to consummate the Merger on or
before such date shall have proximately resulted from (i) a material breach or
material breaches by the terminating party of any of its representations or
warranties contained in this Agreement (other than a representation or warranty
qualified by reference to materiality or an Acquiror Material Adverse Effect or
a Target Material Adverse Effect, as the case may be), (ii) a breach or breaches
by the terminating party of any of its representations or warranties contained
in this Agreement qualified by reference to materiality or an Acquiror Material
Adverse Effect or a Target Material Adverse Effect, as the case may be or (iii)
a material breach or material breaches of any agreement or covenant by the
terminating party contained in this Agreement;
(c) by either Target or Acquiror, if any permanent injunction or other
order, decree or ruling of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable; provided,
that the party seeking to terminate this Agreement pursuant to this Section
8.01(c) shall have used all reasonable efforts to remove such permanent
injunction or other order, decree or ruling;
(d) by action of the Board of Directors of Target, if (i) in the
exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, after consultation with Rosenman & Colin LLP or
another nationally recognized law firm, the Board of Directors of Target
determines that such termination is required by reason of a proposal relating to
a Target Acquisition Transaction being made, or (ii) there has been a breach or
breaches of a representation or warranty of Acquiror or Newco contained in this
Agreement and such breach or breaches could reasonably be expected to have an
Acquiror Material Adverse Effect or (iii) there has been a material breach or
material breaches by Acquiror of any of the covenants or agreements of Acquiror
or Newco set forth in this Agreement on the part of Acquiror or Newco, which
breach or breaches are not curable or, if curable, are not cured within 30 days
after written notice of such breach or breaches is given by Target to Acquiror;
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(e) by action of the Board of Trustees of Acquiror, if (i) (A) the
Board of Directors of Target fails to make, or withdraws, materially modifies or
changes in a manner adverse to Acquiror its recommendation to the Target
Stockholders of this Agreement or the Merger, or resolves to do any of the
foregoing (other than as a result of the occurrence of an event that, in the
good faith judgment of the Board of Directors of Target, has or could reasonably
be expected to have a Acquiror Material Adverse Effect) and the holders of a
majority of the Target Common Stock outstanding do not promptly thereafter
execute and deliver, or shall not have previously executed and delivered, an
agreement, in form and substance reasonably satisfactory to Acquiror, pursuant
to which such holders agree to vote to approve this Agreement and the Merger at
the Target Stockholders Meeting and any adjournment thereof (provided, however,
if the Target Stockholders Meeting is held prior to the termination of this
Agreement by the Acquiror and the holders of a majority of the Target Common
Stock outstanding vote to approve this Agreement and the Merger at such Target
Stockholders Meeting, then Acquiror shall no longer have the right to terminate
this Agreement pursuant to this clause (e)(i)(A)), or (B) the Board of Directors
of Target shall have recommended that the Target Stockholders accept or approve
a Target Acquisition with a person other than Acquiror, or resolves to do the
foregoing, or (ii) the Target Stockholders Meeting has been duly convened and
held and the approval of the Target Stockholders required by Section 6.11 shall
not have been obtained at such meeting or any adjournment thereof, (iii) there
has been a breach or breaches of a representation or warranty of Target
contained in this Agreement and such breach or breaches could reasonably be
expected to have a Target Material Adverse Effect, or (iv) there has been a
material breach or material breaches by Target of any of the covenants or
agreements of Target set forth in this Agreement, which breach or breaches are
not curable or, if curable, are not cured within 30 days after written notice of
such breach or breaches is given by Acquiror to Target;
(f) by Target, if (i) Acquiror amends, alters or repeals, whether by
merger, consolidation or otherwise, any of the provisions of its Declaration of
Trust so as to adversely affect, in the reasonable opinion of Target, the
preferences, right to convert, conversion price adjustments, notice rights,
special conversion rights, distribution and liquidation rights, preferences,
restrictions or limitations, redemption rights and privileges or voting powers
or rights of the Acquiror Series B Preferred Shares or (ii) if Acquiror reduces
the dividend on Acquiror Common Shares below $0.48 per share of Acquiror Common
Shares for any calendar quarter ending during the period from the date hereof
through the Closing Date.
SECTION 8.02 Effect of Termination.
(a) If (i) Acquiror elects to terminate this Agreement pursuant to
Section 8.01(e)(i), (iii), or (iv), provided in the case of Section 8.01(e)(iv)
that such breach or breaches of covenants either (A) are within the reasonable
control of Target or (B) could reasonably be expected to have a Target Material
Adverse Effect, (ii) Acquiror elects to terminate this Agreement pursuant to
Section 8.01(e)(ii), unless Robert A. Mandor, Leonard S. Mandor, Concord
Milestone Partners, L.P., Concord Associates, Concord Income Realty VI, L.P.,
Castle Plaza, Inc., Mill Neck Associates, and Mountain View Mall, Inc. used
their best efforts
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to approve, and were enjoined from approving, this Agreement and the Merger and
the other transactions contemplated by this Agreement and the Ancillary
Documents, or (iii) Target elects to terminate this Agreement pursuant to
Section 8.01(d)(i), then Target (or the successor thereto) shall, as liquidated
damages and not as a penalty or forfeiture, pay to Acquiror, from the Acquiror
Liquidated Damage Amount (as defined below) deposited into escrow in accordance
with the next sentence, an amount equal to the lesser of (m) the Acquiror
Liquidated Damage Amount and (n) the sum of (1) the maximum amount that can be
paid to Acquiror without causing Acquiror to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code determined as if the payment of such
amount did not constitute income described in Sections 856(c)(2)(A)-(H) and
856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as determined by Acquiror's
certified public accountants, and (2) in the event Acquiror receives a letter
from Acquiror's counsel indicating that Acquiror has received a ruling from the
IRS described in Section 8.02(b)(ii) or (iii) or in the event Acquiror receives
an opinion of counsel described in Section 8.02(b)(iv), an amount equal to the
Acquiror Liquidated Damage Amount less the amount payable under clause (1)
above. To secure Target's obligation to pay any amounts due and owing upon
termination of this Agreement pursuant to this Section 8.02(a), Target shall
deposit into escrow upon such termination an amount in cash equal to $930,000,
plus all documented out-of-pocket costs and expenses, up to a maximum of
$570,000, in connection with this Agreement and the Merger and the other
transactions contemplated by this Agreement incurred by Acquiror (collectively,
the "Acquiror Liquidated Damage Amount"), with an escrow agent selected by
Acquiror and on such terms (subject to Section 8.02(b)) as shall be agreed upon
by Acquiror and the escrow agent (as amended, supplemented or otherwise modified
from time to time, the "Escrow Agreement"). Notwithstanding anything contained
in this Agreement to the contrary, in the event of a dispute between Acquiror
and Target as to the payment by Target of the Acquiror Liquidated Damage Amount,
Acquiror shall not enjoin or seek to enjoin any merger, business combination,
sale of any Target Properties, sale of any other assets, sale of shares of
capital stock or similar transaction by Target, provided that Target has entered
into arrangements reasonably satisfactory to Acquiror to secure the payment of
the Acquiror Liquidated Damage Amount in the event such an amount is determined
to be due and owing. Except as otherwise provided in Section 8.01(d), the
payment or deposit into escrow of the Acquiror Liquidated Damage Amount pursuant
to this Section 8.02(a) shall be by wire transfer or bank check within three
days of the termination.
(b) The Escrow Agreement shall provide that the amount in escrow or any
portion thereof shall not be released to Acquiror unless the escrow agent
receives any one or combination of the following: (i) a letter from Acquiror's
certified public accountants indicating the maximum amount that can be paid by
the escrow agent to Acquiror without causing Acquiror to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute Qualifying Income or a subsequent such
letter revising that amount, in which case the escrow agent shall release such
amount to Acquiror, or (ii) a letter from Acquiror's counsel indicating that
Acquiror received a ruling from the IRS holding that the receipt by Acquiror of
the Acquiror Liquidated Damage Amount would either constitute Qualifying Income
or would be excluded from gross income within the meaning of Sections 856(c)(2)
and (3) of the Code, in which case the escrow agent shall release the remainder
of the Acquiror Liquidated Damage Amount to Acquiror, or (iii) a letter from
Acquiror's counsel indicating that Acquiror received a ruling from the IRS
holding that the receipt by Acquiror of the remaining balance of the Acquiror
Liquidated Damage Amount following the receipt of and pursuant to such ruling
would not be deemed constructively received prior thereto, or (iv) an opinion of
Acquiror's counsel to the effect that the receipt by Acquiror of the Acquiror
Liquidated Damage Amount would either constitute Qualifying Income or would be
excluded from gross
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income within the meaning of Sections 856(c)(2) and 856(c)(3) of the Code, in
which case the escrow agent shall release the remainder of the Acquiror
Liquidated Damage Amount to Acquiror. Target agrees to amend this Section 8.02
at the request of Acquiror in order to (x) maximize the portion of the Acquiror
Liquidated Damage Amount that may be distributed to Acquiror hereunder without
causing Acquiror to fail to meet the requirements of Sections 856 (c)(2) and (3)
of the Code or (y) improve Acquiror's chances of securing a favorable ruling
described in this Section 8.02(b), provided that no such amendment may result in
any additional cost or expense to Target. The Escrow Agreement shall also
provide that any portion of the Acquiror Liquidated Damage Amount held in escrow
for five years shall be released by the escrow agent to Target. Target shall not
be a party to such Escrow Agreement and shall not bear any cost of or have
liability resulting from the Escrow Agreement.
(c) If (i) Target elects to terminate this Agreement pursuant to
Section 8.01(d)(ii) or (iii), provided in the case of Section 8.01(d)(iii) that
such breach or breaches of covenants either (A) are within the reasonable
control of Acquiror or (B) could reasonably be expected to have an Acquiror
Material Adverse Effect, Acquiror shall upon such termination, as liquidated
damages and not as a penalty or forfeiture, pay to Target an amount equal to
$930,000, plus all documented out-of-pocket costs and expenses, up to a maximum
of $570,000, in connection with this Agreement and the Merger and the other
transactions contemplated by this Agreement incurred by Acquiror (collectively,
the "Target Liquidated Damage Amount"). Except as otherwise provided in Section
8.01(d), the payment of the Target Liquidated Damage Amount pursuant to this
Section 8.02(c) shall be by wire transfer or bank check within three days of the
termination. Notwithstanding anything contained in this Agreement to the
contrary, in the event of a dispute between Acquiror and Target as to the
payment by Acquiror of the Target Liquidated Damage Amount, Target shall not
enjoin or seek to enjoin any merger, business combination, sale of any Acquiror
Properties, sale of any other assets, sale of shares of capital stock or similar
transaction by Acquiror, provided that Acquiror has entered into arrangements
reasonably satisfactory to Target to secure the payment of the Target Liquidated
Damage Amount in the event such an amount is determined to be due and owing.
(d) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article VIII, all obligations of the parties
hereto shall terminate, except the obligations of the parties pursuant to this
Section 8.02, Section 9.08, Section 9.10 and the confidentiality agreements,
dated April 16, 1996 and August __, 1996 (together, the "Confidentiality
Agreements"), between Target and Acquiror. Notwithstanding the foregoing,
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in the event that either party is required to file suit to seek all or a portion
of any Acquiror Liquidated Damage Amount and it ultimately obtains a judgment in
its favor, it shall be entitled to all expenses, including, without limitation,
attorneys' fees and expenses, which it has incurred in enforcing its rights
hereunder.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Survival of Agreements and Representations and Warranties.
None of the agreements, representations and warranties contained in this
Agreement shall survive the Closing; provided, however, that (i) the agreements
contained in Article II, Section 5.03, Section 5.12, 5.16, Section 5.19, Section
5.21, Section 5.23, Section 8.02, Section 9.08, Section 9.10 and the
Confidentiality Agreements shall survive the Closing, (ii) all of the
representations and warranties of Target contained in this Agreement shall be
deemed to survive the Closing only for the purposes, and during the term, of the
Guaranty Agreement and (iii) all of the representations and warranties of
Acquiror contained in this Agreement shall be deemed to survive the Closing
until the Guaranty Termination Date. This Agreement has been entered into after
full investigation and neither party has relied upon any statement or
representation not embodied in this Agreement or the Confidentiality Agreements,
made by or on behalf of the other. Each of the parties hereto acknowledges and
agrees that the maximum obligation of the Company for amounts incurred or
suffered by Target, or any of its affiliates, directors, officers, stockholders,
representatives, employees or agents, by reason of, with respect to, or arising
from, any breach or breaches of any of its representations or warranties
contained in this Agreement shall be limited to an aggregate of $1,000,000
payable, at Acquiror's option, by cash or by delivery of Acquiror Series B
Preferred Shares (based on a value of $25 per Acquiror Series B Preferred
Share).
SECTION 9.02 Incorporation of Exhibits. The Disclosure Letters and all
of the Exhibits attached hereto and referred to herein are hereby incorporated
herein and made a part hereof for all purposes as if fully set forth herein. Any
capitalized terms used in either Disclosure Letter or any Exhibit but not
otherwise defined therein shall have the meaning as defined in this Agreement.
When a reference is made in a Disclosure Letter or an Exhibit to a Section, such
reference shall be to a Section of this Agreement unless otherwise indicated.
All references to Sections and Subsections refer to Sections and Subsections of
this Agreement.
SECTION 9.03 Notices. All notices and other communications hereunder
shall be in writing (and shall be deemed given upon receipt) if delivered
personally, sent by facsimile transmission (receipt of which is confirmed) or by
registered or certified mail, return receipt requested, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
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if to Target, to:
Union Property Investors, Inc.
5200 Town Center Circle
4th floor
Boca Raton, Florida 33486
Attention: Robert A. Mandor
Telecopy: (561) 392-8311
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attention: Joel A. Yunis, Esq.
Telecopy: (212) 940-8776
and
if to Acquiror or Newco, to:
Kranzco Realty Trust
128 Fayette Street
Conshohocken, Pennsylvania 19428
Attention: Norman M. Kranzdorf
Telecopy: (610) 941-9193
with a copy to:
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Alan S. Pearce, Esq.
Telecopy: (212) 541-4630
SECTION 9.04 Descriptive Headings. The descriptive headings herein are
inserted for convenience only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
SECTION 9.05 Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations hereunder or under any
of the Ancillary Documents shall be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other parties. Subject to the preceding sentence, this
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Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions of
Article II and Section 5.12, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement or any
of the Ancillary Documents.
SECTION 9.06 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
SECTION 9.07 Entire Agreement. This Agreement, the Disclosure Letters
and each of the Exhibits hereto constitute the entire agreement and supersede
all prior contracts and understandings, both written and oral, among the parties
with respect to the subject matter hereof other than the Confidentiality
Agreements, any provisions of which are inconsistent with the transactions
contemplated by this Agreement being waived hereby but the provisions of which
that are not inconsistent shall survive.
SECTION 9.08 Governing Law and Consent to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to any applicable principles of conflicts of law. Each
of Target, Acquiror and Newco hereby consents to submit to the exclusive
jurisdiction of the courts of the state of New York and of the United States of
America located in the city and state of New York (the "New York Courts") for
any litigation arising out of or relating to this Agreement and the transactions
contemplated hereby and agrees not to commence any litigation relating thereto
except in such courts, waives any objection to the laying of venue of any such
litigation in the New York Courts and agrees not to plead or claim that such
litigation brought in any New York Court has been brought in an inconvenient
forum.
SECTION 9.09 Fees and Expenses. Except as otherwise set forth herein,
each of the parties hereto shall bear its own expenses associated with the
negotiation and execution of the Agreement and the consummation of the Merger
and the other transactions hereby by this Agreement and the Ancillary Documents
including, without limitation, investment banking, legal and accounting fees and
expenses.
SECTION 9.10 Non-Recourse.
(a) This Agreement and all documents, agreements, understandings and
arrangements relating hereto have been entered into or executed on behalf of
Acquiror by the undersigned in his capacity as a trustee or officer of Acquiror,
which has been formed as a Maryland real estate investment trust pursuant to an
Amended and Restated Declaration of Trust of
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Acquiror, as amended and restated, and not individually. Neither the trustees,
officers nor shareholders of Acquiror shall be personally bound or have any
personal liability hereunder. Target shall look solely to the assets of Acquiror
for satisfaction of any liability of Acquiror with respect to this Agreement and
the Ancillary Agreements to which it is a party. Target will not seek recourse
or commence any action against any of the trustees, officers or shareholders of
Acquiror or any of their personal assets for the performance or payment of any
obligation of Acquiror hereunder or thereunder.
(b) This Agreement, and all documents, agreements, understandings and
arrangements relating hereto, have been entered into or executed on behalf of
Target by the undersigned in his or her capacity as an officer of Target, a
Delaware corporation, and not individually. Neither the officers nor
stockholders of Target shall be personally bound or have any personal liability
hereunder. Acquiror shall look solely to the assets of Target for satisfaction
of any liability of Target with respect to this Agreement and the Ancillary
Documents to which it is a party. Acquiror will not seek recourse or commence
any action against any of the stockholders, directors or officers of Target or
any of their personal assets for the performance or payment of any obligation of
Target hereunder or thereunder. Nothing contained in this paragraph shall affect
the rights or obligations of any person or entity under the Stockholders
Agreement, the Guaranty Agreement, the Registration Rights Agreement or the
Affiliate Letters.
SECTION 9.11 Enforcement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any New York Court, this being
in addition to any other remedy to which they are entitled at law or in equity.
Except as otherwise set forth herein, the prevailing party in any proceeding
brought to enforce any provision of the Agreement shall be entitled to recover
the reasonable fees and costs of its counsel, plus all other costs of such
proceeding.
SECTION 9.12 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 9.13 Amendment. This Agreement may be amended by the parties
hereto at any time before or after approval by the Target Stockholders of the
matters presented in connection with the Merger, but, after any such stockholder
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further
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approval. This Agreement may not be amended except by a written instrument
signed on behalf of each of the parties hereto.
SECTION 9.14 Extension; Waiver. At any time prior to the Effective
Time, the parties hereto may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained in this Agreement, the Ancillary Documents, or in the certificates and
other documents delivered pursuant hereto or thereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
SECTION 9.15 Knowledge. With respect to "knowledge", as such term is
used in this Agreement, Acquiror or Newco will be deemed to have "knowledge" or
received notice of a particular fact or other matter if any individual who is
serving as an director or officer of Acquiror or Newco, respectively, is
actually aware of such fact or other matter. With respect to "knowledge", as
such term is used in this Agreement, Target will be deemed to have "knowledge"
or received notice of a particular fact or other matter if any individual who is
serving as an director or officer of Target, Milestone Property Management, Inc.
or Milestone Properties, Inc. is actually aware of such fact or other matter.
SECTION 9.16 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
KRANZCO REALTY TRUST UNION PROPERTY INVESTORS, INC.
By: /s/ Norman Kranzdorf By: /s/ Robert A. Mandor
Name: Norman Kranzdorf Name: Robert A. Mandor
Title: President Title: President
KRT UNION CORP.
By: /s/ Norman Kranzdorf
Name: Norman Kranzdorf
Title: President
<PAGE>
Exhibit 2.2
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 to that certain Agreement and Plan of Merger dated
November 12, 1996 (the "Merger Agreement") is made and entered into this 18th
day of December, 1996, by and among Union Property Investors, Inc., a Delaware
corporation ("UPI"), Kranzco Realty Trust, a Maryland real estate investment
trust ("Kranzco"), and KRT Union Corp., a Delaware corporation and a
wholly-owned subsidiary of Kranzco organized solely for the purpose of
consummating the transactions contemplated by the Merger Agreement.
WHEREAS, the Board of Directors of each of UPI and KRT Union Corp. and
the Board of Trustees of Kranzco have determined that it is in the best
interests of their respective companies and stockholders to modify and amend the
Merger Agreement as set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Section 1.03(a)(i) of the Merger Agreement is modified and amended in
its entirety to read as follows:
"(i) at the election of the holder thereof, 0.2980 of one of
either (A) Acquiror's 9.75% Series B-1 Cumulative Convertible
Preferred Shares, par value $.01 per share each with a $25.00 per share
liquidation preference (the "Acquiror Series B-1 Preferred Shares"),
the form of Articles Supplementary for which is attached as Exhibit A-1
hereto, or (B) Acquiror's 9.75% Series B-2 Cumulative Convertible
Preferred Shares, par value $.01 per share each with a $25.00 per share
liquidation preference (the "Acquiror Series B-2 Preferred Shares"),
the form of Articles Supplementary for which is attached as Exhibit A-2
hereto (the Acquiror Series B-1 Preferred Shares and the Acquiror
Series B-2 Preferred Shares shall each be sometimes referred to
hereinafter as the "Acquiror Series B Preferred Shares"), plus".
2. Section 2.01 of the Merger Agreement is modified and amended
in its entirety to read as follows:
"SECTION 2.01 Target Common Stock Election; Surrender
of Target Certificates.
(a) Prior to the Effective Time, Acquiror shall make available
to an exchange agent selected by Acquiror, which shall be Acquiror's
transfer agent, or such other party reasonably acceptable to Target
(the "Exchange Agent"), in trust for the benefit of the holders of
Target Common Stock and Target Preferred Stock, for exchange in
accordance with this Article II, the amount of cash payable in lieu of
fractional shares pursuant to Section 2.02 and the certificates
representing the shares of Acquiror Series B-1 Preferred Shares,
Acquiror Series B-2 Preferred Shares and Acquiror Series C Preferred
Shares to be issued pursuant to Section 1.03. Promptly after the
Effective Time, the Exchange Agent shall mail to each holder of record
of a certificate or certificates which immediately prior to the
Effective Time represented shares of Target Common Stock or Target
Preferred Stock (collectively, the "Target Certificates" and
individually, a "Target Certificate") a letter of transmittal (the
"Target Letter of Transmittal") which shall, (i) with respect to each
holder of a Target Certificate representing shares of Target Common
Stock, instruct such holder to elect to have such holder's shares of
Target Common Stock converted into either (x) Acquiror Series B-1
Preferred Shares and the cash to be received, if any, in lieu of the
issuance of fractional shares of Acquiror Series B-1 Preferred Shares,
1
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pursuant to Section 1.03(a), or (y) Acquiror Series B-2 Preferred
Shares and the cash to be received, if any, in lieu of the issuance of
fractional shares of Acquiror Series B-2 Preferred Shares, pursuant to
Section 1.03(a), and (ii) specify (A) the manner by which to effect the
surrender of such holder's Target Certificates in exchange for
certificates representing shares of Acquiror Series B-1 Preferred
Shares, Acquiror Series B-2 Preferred Shares or Acquiror Series C
Preferred Shares, and cash in lieu of fractional shares, after giving
effect to any required withholding taxes, and (B) that delivery shall
be effected, and risk of loss and title to Target Certificates shall
pass, only upon delivery of the Target Certificates to the Exchange
Agent.
(b) Upon surrender of a Target Certificate representing shares
of Target Common Stock to the Exchange Agent, together with the Target
Letter of Transmittal, duly executed, and in the form and having such
other provisions as Acquiror shall reasonably request, the holder of
such Target Certificate shall be entitled to receive in exchange
therefor a certificate or certificates of Acquiror representing the
number of shares of Acquiror Series B-1 Preferred Shares or Acquiror
Series B-2 Preferred Shares, and cash in lieu of fractional shares,
which such holder has the right to receive pursuant to Section 1.03,
subject to Section 2.06, and the Target Certificate so surrendered
shall forthwith be cancelled. If such holder fails to make a proper
election on the Target Letter of Transmittal with respect to whether to
receive Acquiror Series B-1 Preferred Shares or Acquiror Series B-2
Preferred Shares in the Merger, such holder will be deemed to have made
an election to receive Acquiror Series B-1 Preferred Shares in the
Merger in exchange for such holder's shares of UPI Common Stock.
(c) Upon surrender of a Target Certificate representing shares
of Target Preferred Stock to the Exchange Agent, together with the
Target Letter of Transmittal, duly executed, and such other documents
as Acquiror or the Exchange Agent shall reasonably request, the holder
of such Target Certificate shall be entitled to receive in exchange
therefor shares of Acquiror Series C Preferred Shares pursuant to the
terms of Section 1.03, and the Target Certificate so surrendered shall
forthwith be cancelled.
(d) Until surrendered as contemplated in this Article II, from
and after the Effective Time, each Target Certificate shall be deemed
to represent only the right to receive the above described
consideration for each share of Target Common Stock or Target Preferred
Stock formerly represented by such Target Certificate, and shall not
evidence any interest in Acquiror or Newco. If a certificate or
certificates representing shares of Acquiror Series B-1 Preferred
Shares, Acquiror Series B-2 Preferred Shares or Acquiror Series C
Preferred Shares is to be issued to and cash is to be paid in lieu of
fractional shares to a person other than the one in whose name the
Target Certificate surrendered in exchange therefor is registered, it
shall be a condition to such issuance or payment that such Target
Certificate be properly endorsed (or accompanied by an appropriate
instrument of transfer), with signatures guaranteed, if requested, and
accompanied by evidence that any applicable stock transfer taxes have
been paid or provided for."
3. Section 5.10 of the Merger Agreement is modified and amended to
delete the phrase "Acquiror Series B Preferred Shares" in the eleventh line
thereof and insert in its place the phrase "Acquiror Series B-1 Preferred
Shares".
4. Section 5.16 of the Merger Agreement is modified and amended to
delete the phrase "Acquiror Series B Preferred Shares" in the seventh, ninth,
eleventh, twelfth and thirteenth lines thereof and insert in its place the
phrase "Acquiror Series B-1 Preferred Shares".
2
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5. Section 5.17 of the Merger Agreement is modified and amended
in its entirety to read as follows:
"(a) Acquiror shall, on or prior to the Closing Date, file
with the State Department of Assessments and Taxation of Maryland the
Articles Supplementary for each of the Acquiror Series B-1 Preferred
Shares, the Acquiror Series B-2 Preferred Shares and the Acquiror
Series C Preferred Shares and shall promptly deliver to Target evidence
of such filings.
(b) When issued, the Acquiror Series B Preferred Shares, the
Acquiror Series C Preferred Shares, and the Acquiror Common Shares to
be issued upon conversion of the Acquiror Series B Shares, shall be
duly authorized, validly issued, fully paid and nonassessable except
that shareholders may be subject to further assessment with respect to
claims for tort, contract, taxes, statutory liability and otherwise in
some jurisdictions to the extent such claims are not satisfied by
Acquiror. The Acquiror Series B-1 Preferred Shares, Acquiror Series B-2
Preferred Shares, and Acquiror Series C Preferred Shares shall be as
set forth in the Articles Supplementary attached as Exhibit A-1,
Exhibit A-2 and Exhibit B hereto, respectively, with the completion of
any blanks contained therein."
6. Exhibits A, B, C, E, F and G to the Merger Agreement are amended and
restated in their entirety in the forms attached hereto as Exhibits A-1, B, C,
E, F and G, respectively, and Exhibit A-2 attached hereto shall be Exhibit A-2
to the Merger Agreement.
Upon the execution hereof, each reference in the Merger Agreement to
"this Agreement", "hereby", "hereunder", "herein", "hereof" or word of like
import referring to the Merger Agreement shall mean and refer to the Merger
Agreement as amended by this Amendment No. 1 to the Merger Agreement. All other
provisions of the Merger Agreement shall remain in full force and effect except
and to the extent explicitly amended hereby. This Amendment No. 1 to the Merger
Agreement shall be governed and construed in accordance with the laws of the
State of New York without regard to any applicable principles of conflicts of
law.
This amendment may be executed in any number of counterparts, each of
which together shall constitute one and the same amendment.
3
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to the Merger Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
UNION PROPERTY INVESTORS, INC.
/s/ Robert A. Mandor
Name: Robert A. Mandor
Title: President
KRANZCO REALTY TRUST
/s/ Robert H. Dennis
Name: Robert H. Dennis
Title: Vice President
KRT UNION CORP.
/s/ Robert H. Dennis
Name: Robert H. Dennis
Title: Vice President
4
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EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our reports dated February 21,
1996 included in Kranzco Realty Trust's Form 10-K for the year ended December
31, 1995 and to all references to our Firm included in this registration
statement.
/s/ Arthur Andersen LLP
Philadelphia, Pa.
December 18, 1996
<PAGE>
Exhibit 23.5
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the inclusion in this Registration Statement of
Kranzco Realty Trust on Form S-4 of our report dated March 22, 1996 on the
financial statements of Union Property Inventors, Inc. and to the reference to
us under the heading 'Experts' in the Prospectus, which is part of this
Registration Statement.
/s/ Deloitte & Touche LLP
New York, NY
December 17, 1996
<PAGE>
Exhibit 23.6
We hereby consent to the use of our opinion letter dated November 12, 1996,
as supplemented by the letter dated December 18, 1996, in each case to the Board
of Directors of Union Property Investors, Inc., a Delaware corportion ('UPI'),
included with the Proxy Statement/Prospectus which forms a part of the
Registration Statement on Form S-4 relating to the proposed merger of UPI with
and into KRT Union Corp., a Delaware corporation and a wholly-owned subsidiary
of Kranzco Realty Trust, a real estate investment trust formed under the laws of
the State of Maryland, and to the references to such opinion in such Proxy
Statement/Prospectus. In giving such consent, we do not admit and we disclaim
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations issued by the Securities and Exchange Commission thereunder.
Very truly yours,
Societe Generale Securities
Corporation
December 18, 1996
New York, New York
