<PAGE>
As filed with the Securities and Exchange Commission on July 17, 1998.
REGISTRATION NO. 333-52743
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
KRANZCO REALTY TRUST
(Exact name of registrant as specified in its charter)
-------------------------
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<S> <C> <C>
Maryland 6798 23-2691327
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification no.)
</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
President and 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:
Alan S. Pearce, Esq.
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
(212) 541-2000
--------------------------------------------
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. |_|
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
--------------------------------------------
<PAGE>
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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 17, 1998
PROSPECTUS
Offer to Exchange $8,000,000 Kranzco Realty Trust
___% Callable Convertible Subordinated Notes due 2008
for
10,379,531 Outstanding
Shares of New America Network, Inc.
---------------
THIS OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5 P.M. ON
_____________, 1998, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE"). NAI
SHARES (AS DEFINED HEREIN) WHICH ARE TENDERED PURSUANT TO THE OFFER MAY BE
WITHDRAWN ANY TIME PRIOR TO THE EXPIRATION DATE.
Kranzco Realty Trust, a Maryland real estate investment trust
("Kranzco"), hereby offers, upon the terms and subject to the conditions set
forth herein and in the related Letter of Transmittal (collectively, the
"Offer" or the "Exchange Offer"), to exchange $0.7707 of the $8,000,000
Kranzco Realty Trust ___% Callable Convertible Subordinated Notes due 2008
(the "Offer Consideration"), for each outstanding share of common stock, par
value $0.01 per share (each, an "NAI Share" and collectively, the "NAI
Shares"), of New America Network, Inc., a Delaware corporation which conducts
business under the name New America International ("NAI"), validly tendered on
or prior to the Expiration Date and not properly withdrawn, not to exceed
10,379,531 NAI Shares. As of June 30, 1998, there were 12,974,414 NAI Shares
outstanding.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF MATERIAL
RISKS WHICH SHOULD BE CONSIDERED BY NAI STOCKHOLDERS WITH RESPECT TO THE
EXCHANGE OFFER.
The ___% Callable Convertible Subordinated Notes Due 2008 (the
"Notes") of Kranzco are convertible, in whole or in part, at the option of the
holder (the "Holder") at any time after two years following the date of
original issuance thereof, or earlier upon a Change in Control (as defined
herein) or an Event of Default (as defined herein) (but in no event prior to
one year after the date of original issuance), and prior to the close of
business on the business day immediately preceding the maturity date, unless
previously redeemed, into Common Shares of Beneficial Interest, par value
$0.01 per share, of Kranzco ("Kranzco Common Shares"), at a conversion price
of $20 per Kranzco Common Share (equivalent to a conversion rate of one Common
Share per $20 principal amount of Notes), subject to adjustment in certain
circumstances. The Notes and the Kranzco Common Shares issuable upon the
conversion thereof are referred to collectively as the "Securities" unless the
context requires otherwise. Each Note is redeemable, in whole or in part, at
the option of Kranzco at any time on or after two years from the date of
original issuance, upon payment of an amount equal to the principal amount of
the Note, or part thereof being redeemed, plus accrued and unpaid interest on
the Note, or part thereof being redeemed, to the date of redemption. No
sinking fund is provided for the Notes. The Notes are general unsecured
obligations of Kranzco, subordinated in right of payment to the prior payment
in full of all Senior Indebtedness (as defined herein) of Kranzco and
(continued on next page)
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Dated
<PAGE>
(continued from cover)
effectively subordinated in right of payment to the prior payment in full of
all indebtedness of Kranzco's subsidiaries. The Indenture does not restrict
Kranzco's ability to incur Senior Indebtedness or additional indebtedness or
Kranzco's subsidiaries' ability to incur additional indebtedness. At March 31,
1998, Senior Indebtedness and indebtedness of Kranzco's subsidiaries was
approximately $257,201,000. See "Description of Notes--Subordination." The
Kranzco Common Shares are traded on the New York Stock Exchange under the
symbol "KRT." On July 14, 1998, the closing sale price of the Kranzco Common
Shares was $18.50 per share. The Notes will not be listed on any securities
exchange or quotation system.
KRANZCO'S OBLIGATION TO EXCHANGE THE OFFER CONSIDERATION FOR NAI
SHARES PURSUANT TO THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE
SATISFACTION OR, WHERE APPLICABLE, WAIVER OF THE FOLLOWING CONDITIONS: (I)
THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A
NUMBER OF NAI SHARES WHICH WILL CONSTITUTE 80% OF THE OUTSTANDING NAI SHARES
(THE "MINIMUM TENDER CONDITION"), (II) THE REPRESENTATIONS AND WARRANTIES OF
NAI CONTAINED IN THE EXCHANGE AGREEMENT (AS DEFINED HEREIN), BEING TRUE AND
CORRECT ON THE EXPIRATION DATE AND RELATED CLOSING DATE, AND (III) THE
SATISFACTION OF OTHER CONDITIONS SET FORTH IN THE EXCHANGE AGREEMENT. SEE "THE
OFFER--CONDITIONS OF THE OFFER." SUBJECT TO THE TERMS OF THE EXCHANGE
AGREEMENT, KRANZCO EXPRESSLY RETAINS THE RIGHT TO AMEND, TERMINATE OR WITHDRAW
THE OFFER AT ANY TIME PRIOR TO THE CONSUMMATION OF THE EXCHANGE OFFER.
------------------
THIS 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 NAI SHARES TO WHOM THIS PROSPECTUS IS DELIVERED, WITHOUT
CHARGE, 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 __________ ___, 1998.
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes certain statements that may be deemed to be
"forward-looking statements." All statements, other than statements of
historical facts, included in this Prospectus that address activities, events
or developments that Kranzco or NAI expects, believes or anticipates will or
may occur in the future, including, with respect to Kranzco, such matters as
future capital expenditures, distributions and acquisitions (including the
amount and nature thereof), expansion and other development trends of the real
estate industry, business strategies, expansion and growth of Kranzco's
operations and other similar matters and, with respect to NAI, such matters as
future capital expenditures, the acquisition or development of real estate or
Real Estate-Related Services (as defined below) (including the amount and
nature thereof), the consolidation or expansion trends of the commercial real
estate brokerage industry, business strategies, expansion and growth of NAI's
operations and other similar matters. Such statements are forward-looking
statements and are based on assumptions and expectations which may not be
realized and are inherently subject to risks and uncertainties, many of which
cannot be predicted with accuracy and some of which might not even be
anticipated. Prospective investors are cautioned that any such statements are
not guarantees of future performance and that actual results or developments
may differ materially from those anticipated in the forward-looking
statements. Risks and other factors that might cause differences from
Kranzco's expectations, some of which could be material, include, but are not
limited to: the burden of Kranzco's substantial debt obligations; the
necessity of future financings to repay the "balloon" payments required at the
maturity of certain of Kranzco's debt obligations; the highly competitive
nature of the real estate leasing market; adverse changes in the real estate
markets including, among other things, competition with other companies;
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; risks of
real estate acquisition, expansion and renovation; governmental actions and
initiatives; environmental/safety requirements; possible failure by Kranzco to
achieve the benefits contemplated by it as set forth in this Prospectus and
the Intercompany Agreement; and other changes and factors referenced in this
Prospectus. In addition, certain of these risks may also effect NAI's
expectations, including, the possible failure by NAI to achieve the benefits
contemplated by it as set forth in this Prospectus and the Intercompany
Agreement and other changes and factors referenced in this Prospectus. See
"Risk Factors."
AVAILABLE INFORMATION
Kranzco is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, including annual reports on
Form 10-K which include audited financial statements, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). The reports, proxy statements and other information filed by
Kranzco with the Commission in accordance with the Exchange Act can be
inspected and copied at the Commission's Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Seven World Trade Center, 13th Floor, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, Kranzco Common Shares, Kranzco's 9.75% Series B-1
Cumulative Convertible Preferred Shares of Beneficial Interest, par value $.01
per share (the "Series B-1 Preferred Shares"), and Kranzco's 9.5% Series D
Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01
per share (the "Series D Preferred Shares"), are listed on the New York Stock
Exchange ("NYSE") and similar information concerning Kranzco can be inspected
and copied at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
Kranzco has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities. This Prospectus does not contain all of the information set forth
in the Registration Statement, certain
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portions of which have been omitted as permitted by the rules and regulations
of the Commission. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or to previous filings made
by Kranzco with the Commission, each such statement being qualified in all
respects by such reference and the exhibits and schedules thereto. For further
information regarding Kranzco and the Securities, reference is hereby made to
the Registration Statement, the previous filings made by Kranzco with the
Commission and the exhibits and schedules thereto, which may be obtained from
the Commission (i) at its principal office in Washington, D.C., upon payment
of the fees prescribed by the Commission or (ii) by consulting the
Commission's web site at the address of http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by Kranzco under the
Exchange Act of 1934, as amended (the "Exchange Act"), with the Commission and
are incorporated herein by reference:
1. Kranzco's Annual Report on Form 10-K (File No. 1-11478) for the
fiscal year ended December 31, 1997.
2. Kranzco's Quarterly Report on Form 10-Q (File No. 1-11478) for the
quarter ended March 31, 1998.
3. Kranzco's Current Report on Form 8-K (File No. 1-11478) dated
February 27, 1997, filed March 14, 1997, as amended by Form 8-K/A (File No.
1-11478) dated May 6, 1997, filed May 8, 1997.
4. Kranzco's Current Report on Form 8-K (File No. 1-11478) dated
November 27, 1997, filed November 25, 1997.
5. Kranzco's Current Report on Form 8-K (File No. 1-11478) dated
March 23, 1998, filed on March 23, 1998.
6. Kranzco's Current Report on Form 8-K (File No. 1-11478) dated July
16, 1998, filed on July 16, 1998.
7. The description of Kranzco Common Shares contained in the
Registration Statement on Form S-11 (File No. 33-49434), and the documents
incorporated therein by reference, as amended by Amendment No. 1, 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.
8. The description of Kranzco's Series A-1 Preferred Shares of
Beneficial Interest, par value $.01 per share (the "Series A-1 Preferred
Shares"), contained in the Registration Statement on Form S-4 (File No.
333-18249), and the documents incorporated therein by reference, as amended by
Amendment No. 1, filed with the Commission on January 29, 1997.
9. The description of Kranzco's Series B-1 Preferred Shares contained
in the Registration Statement on Form 8-A (File No. 1-11478), and the
documents incorporated therein by reference, as amended by Amendment No. 1,
filed with the Commission on June 2, 1997.
10. The description of Kranzco's Series B-2 Preferred Shares of
Beneficial Interest, par value $.01 per share (the "Series B-2 Preferred
Shares") and Kranzco's Series C Preferred Shares of Beneficial Interest, par
value $.01 per share (the "Series C Preferred Shares"), contained in Kranzco's
Current Report on Form 8-K (File No. 1-11478) dated February 27, 1997.
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11. The description of Kranzco's Series D Preferred Shares (as
defined below) contained in the Registration Statement on Form 8-A (File No.
1-11478), and the documents incorporated therein by reference, filed with the
Commission on December 10, 1997.
All reports and other documents filed by Kranzco pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the consummation of the Offer shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is 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 Prospectus.
-----------------------------
In connection with the Exchange Offer, Kranzco is delivering its 1997 Annual
Report to Shareholders to the holders of NAI Shares, along with this
Prospectus.
-----------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY KRANZCO OR NAI. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF KRANZCO OR NAI SINCE THE DATE HEREOF OR THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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NAI INFORMATION
On _______ __, 1998, Kranzco, NAI, and Gerald C. Finn and Jeffrey M.
Finn, individually, and as trustee of a trust for the benefit of Jeffrey M.
Finn (collectively, the "Finns"), entered into an Exchange Agreement (the
"Exchange Agreement") pursuant to which, subject to the terms and conditions
of the Exchange Agreement, Kranzco agreed to conduct the Exchange Offer, and
the Finns agreed to tender 80% (and up to 90% in certain circumstances) of
their respective NAI Shares in the Exchange Offer, and pursuant to which the
Finns and NAI made certain representations and warranties regarding NAI as an
inducement for Kranzco to enter into the Exchange Offer. See "Proposed Related
Transactions--The Exchange Agreement." In accordance with the Exchange
Agreement, NAI has provided Kranzco with the information regarding NAI
contained herein, and has represented to Kranzco, in connection with the
filing of the Registration Statement with the Commission, that the information
regarding NAI contained in this Prospectus and the Registration Statement of
which this Prospectus is a part, does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made not misleading.
IMPORTANT
Any stockholder of NAI (an "NAI Stockholder") desiring to tender all
or any portion of his or her NAI Shares should complete and sign the Letter of
Transmittal or a facsimile copy thereof in accordance with the instructions in
the Letter of Transmittal, and mail or deliver the Letter of Transmittal or
such facsimile and any other required documents to First Union National Bank
(the "Exchange Agent") and deliver the certificates for such NAI Shares to the
Exchange Agent along with the Letter of Transmittal. Any NAI Stockholder that
desires to tender NAI Shares and whose certificates for such NAI Shares are
not immediately available or who cannot deliver all required documents to the
Exchange Agent prior to the Expiration Date, should contact the Exchange Agent
immediately at (800) 829-8432.
Although the Finns have agreed to tender up to 90% of the NAI Shares
owned by them, such number of NAI Shares is not sufficient to meet the Minimum
Tender Condition without other NAI Stockholders joining in the tender.
Accordingly, if other NAI Stockholders do not tender a number of NAI Shares,
that together with the NAI Shares to be tendered by the Finns, would meet the
Minimum Tender Condition, the Exchange Offer will not be consummated and NAI
will continue to conduct its business as a private company. See "The Exchange
Agreement."
Questions and requests for assistance may be directed to the Exchange
Agent at its address and telephone number set forth on the back cover of this
Prospectus. Requests for additional copies of this Prospectus and the Letter
of Transmittal may be directed to the Exchange Agent.
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TABLE OF CONTENTS
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Page
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................i
AVAILABLE INFORMATION..................................................i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................ii
NAI INFORMATION.......................................................iv
IMPORTANT.............................................................iv
PROSPECTUS SUMMARY.....................................................1
RISK FACTORS..........................................................18
KRANZCO'S OPERATING, ACQUISITION AND FINANCING STRATEGIES.............29
KRANZCO'S GENERAL INVESTMENT STRATEGIES...............................31
RATIOS OF EARNINGS TO FIXED CHARGES...................................32
KRANZCO CAPITALIZATION................................................33
KRANZCO SELECTED FINANCIAL AND OPERATING DATA.........................35
KRANZCO REALTY TRUST PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION.....................37
NAI CAPITALIZATION....................................................44
NAI SELECTED FINANCIAL AND OPERATING DATA.............................45
NEW AMERICA NETWORK, INC. PRO FORMA
CONDENSED FINANCIAL INFORMATION..............................47
NAI MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............54
NAI BUSINESS..........................................................58
THE OFFER.............................................................67
DESCRIPTION OF NOTES..................................................73
MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS.....................81
COMPARISON OF RIGHTS OF HOLDERS.......................................89
THE EXCHANGE AGREEMENT................................................96
PROPOSED RELATED TRANSACTIONS........................................103
THE DISTRIBUTION.....................................................107
THE RIGHTS OFFERING..................................................108
THE CONCURRENT OFFERING..............................................109
REASONS FOR THE OFFER AND THE PROPOSED RELATED TRANSACTIONS..........113
MANAGEMENT OF NAI AFTER EXCHANGE OFFER...............................115
PRINCIPAL STOCKHOLDERS...............................................128
CERTAIN RELATED PARTY TRANSACTIONS...................................129
DESCRIPTION OF SECURITIES OF NAI.....................................130
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF NAI MARYLAND'S CHARTER AND BYLAWS........................132
EXPERTS ............................................................135
LEGAL MATTERS........................................................135
INDEX TO FINANCIAL STATEMENTS OF NAI.................................F-1
</TABLE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed financial and other information appearing elsewhere in this
Prospectus, or incorporated herein or therein by reference. Upon consummation
of the Exchange Offer, New America Network, Inc., a Delaware corporation which
conducts business as New America International ("NAI Delaware"), will merge
(the "Reincorporation Merger") with and into New America International, Inc.,
a Maryland corporation and a wholly-owned subsidiary of NAI Delaware ("NAI
Maryland"). Unless otherwise stated, this Prospectus assumes that all
Underlying Shares (as defined below) and Additional Shares (as defined below)
are purchased in the Rights Offering (as defined below) and the Concurrent
Offering (as defined below). Unless otherwise indicated, the financial
information contained herein does not give effect to the Southeast Acquisition
(defined below). Unless the context otherwise requires, references in this
Prospectus to (i) "Kranzco" shall refer to Kranzco Realty Trust, a Maryland
real estate investment trust, and its subsidiaries and affiliated entities;
(ii) "NAI" shall refer to NAI Delaware prior to the Reincorporation Merger,
and NAI Maryland after the Reincorporation Merger, as the case may be, and in
each case, its subsidiaries and affiliated entities; (iii) "NAI Delaware
Shares" shall refer to the shares of common stock, par value $0.01 per share,
of NAI Delaware; (iv) "NAI Maryland Shares" shall refer to the shares of
common stock, par value $0.01 per share, of NAI Maryland; and (v) "NAI Shares"
shall refer to NAI Delaware Shares prior to the Reincorporation Merger and NAI
Maryland Shares after the Reincorporation Merger, as the case may be.
Kranzco
Kranzco Realty Trust is a self-administered and self-managed equity
real estate investment trust (a "REIT") engaged in the business of owning,
managing, operating, leasing, acquiring and expanding neighborhood and
community shopping centers and, to a lesser extent, free-standing retail
properties. Kranzco owns and operates 48 neighborhood and community shopping
centers and 11 free-standing properties (collectively, the "Properties"),
aggregating approximately 7.6 million square feet of gross leasable area
("GLA") located primarily in the Northeast, Mid-Atlantic and Southern regions
of the United States with a diverse base of approximately 550 tenants.
On June 26, 1998 Kranzco entered into an agreement to acquire nine
community shopping centers in five midwestern and southern states for
approximately $85 million (the "Southeast Acquisition"). The purchase price
will be financed through a first mortgage financing and borrowings under the
Salomon Facility (defined below). Five of the centers are in Georgia and the
others are in Ohio, Tennessee, Florida and Virginia. The centers have a total
of 1.4 million square feet of GLA and an overall leased rate of approximately
99%. Wal-Mart is a tenant in nine of the centers and has vacated its space at
two of the centers but continues to pay rent in accordance with its leases.
Wal-Mart has subleased space at one of these two centers to a third party.
Besides Wal-Mart, other well-known anchor retailers are Eckerd Drug, Food
Lion, Radio Shack, and CVS. After the purchase, Kranzco will own 68 properties
in 19 states with a total of nine million square feet of GLA, an approximate
15 percent increase in GLA. The purchase is subject to customary due diligence
and is expected to close by August 31, 1998.
Kranzco's primary business objective is to achieve growth in its
funds from operations by enhancing the operating performance of the Properties
and, through selective acquisitions, the value of its portfolio. Kranzco's
operating strategies are to: (i) focus on the neighborhood and community
shopping center business; (ii) actively manage its properties for long-term
growth in funds from operations and capital appreciation; (iii) increase
portfolio occupancy by capitalizing on management's reputation and
long-standing relationships with national and regional tenants and extensive
experience in marketing to local tenants, as well as the negotiating leverage
inherent in a large portfolio of properties; (iv) maintain, renovate, expand
and reconfigure its properties; (v) optimize the tenant mix in each shopping
center; (vi) develop or ground lease outparcels or expansion areas existing
from time to time at its properties for use as restaurants, banks, auto
centers, cinemas or other facilities; and (vii) benefit from economies of
scale by spreading overhead expenses over a larger asset base. As of June 30,
1998, the Properties were approximately 92% leased. Additionally, Kranzco has
no single tenant which accounted for greater than 5.2% of Kranzco's 1997
minimum rent.
Kranzco's acquisition strategy is to opportunistically acquire
properties which have been over-leveraged, which need replacement anchor
tenants or where Kranzco's management and leasing expertise can enhance value.
That strategy includes acquiring and rehabilitating properties in new markets
with strong demographic characteristics in order to reduce Kranzco's
sensitivity to regional economic cycles.
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Kranzco was formed on June 17, 1992 as a Maryland real estate
investment trust. Kranzco's executive offices are located at 128 Fayette
Street, Conshohocken, Pennsylvania 19428, and its telephone number is (610)
941-9292.
NAI
New America Network, Inc., which conducts business as New America
International ("NAI"), operates a network (the "Network") of independently
owned, licensed real estate brokers ("Broker Members") throughout the United
States and, more recently, abroad. NAI, directly and through its Broker
Members, provides commercial real estate brokerage services to local,
regional, national and international businesses ("Clients"). NAI has
approximately 130 affiliated Broker Members, which employ approximately 2,600
agents, operating in approximately 300 markets, including North, Central and
South America and Western Europe. NAI believes it is represented in more North
American market areas than any national commercial real estate brokerage
company. Unlike other real estate broker networks, in addition to managing
real estate transactions generated by its Broker Members, NAI generates its
own source of real estate transactions for its Broker Members and actively
manages and tracks those transactions on behalf of Clients. In order to
increase the portfolio of services marketed to Clients and Broker Members, NAI
has entered into several alliance agreements with entities ("Alliance
Members") which provide real estate related services which complement NAI's
brokerage capabilities, including sealed-bid sales, real estate auctions, real
estate financing and appraisal services. As of June 30, 1998, the Network had
an inventory of approximately 1,683 assignments to buy, sell or lease real
property (approximately 77% of which are exclusive to NAI), with a transaction
value of approximately $927 million, and which would generate fees to NAI of
approximately $6.8 million, if consummated. There is no assurance that such
inventory will result in any revenues to NAI.
NAI earns revenues primarily from the sharing of brokerage
commissions with Broker Members who earn commissions from the acquisition,
disposition or leasing of real property assigned to them by NAI (approximately
$2,686,000 or 46% of NAI's net revenues for fiscal year 1997). NAI also earns
revenues from (i) the sharing of brokerage commissions with Broker Members who
earn commissions from the acquisition and/or disposition or leasing of real
estate referred to them by other Broker Members (approximately $1,063,000 or
18% of NAI's net revenues for fiscal year 1997), (ii) the sharing of fees
received from Alliance Members in sealed-bid sales, auction transactions and
other real estate-related services (approximately $170,000 or 3% of NAI's net
revenues for fiscal year 1997), and (iii) the collection of annual membership
fees paid by Broker Members and Alliance Members (approximately $1,282,000 or
22% of NAI's net revenues for fiscal year 1997). See "NAI Business."
NAI began forming the Network in 1978 in order to meet the growing
real estate needs of large national and international corporations in multiple
markets. NAI meets the multiple market needs of its Clients and its Broker
Members by combining local representation with the management and control
capabilities of its centralized Corporate Services Department. NAI's Corporate
Services Department is responsible for establishing and developing
relationships with Clients in order to generate assignments for the Network
and its Broker Members. Currently, NAI has 13 staff members in its Corporate
Services Department serving over 100 Clients. These Clients include retail
chains (such as Woolworth Corp.), international companies (such as
International Paper Company), service businesses (such as Roadway Services,
Inc.), and other larger owners of real estate (such as the United States
Postal Service, a new Client of NAI). NAI's Clients are often involved in real
estate transactions in multiple markets. In addition, NAI has an Investment
Sales Department which specializes in the acquisition and disposition of real
estate for Clients who are seeking to acquire, or currently own, real estate
for investment purposes. See "NAI Business--Broker and Client Relations,"
"--Corporate Services Department" and "--Investment Sales."
NAI maintains a proprietary information sharing and research
intranet, in order to efficiently and effectively coordinate with its Broker
Members to meet its Clients' needs. NAI's information systems consist of a
transaction management system and a central database information system. NAI's
computerized transaction management system allows Broker Members, the
Corporate Services Department and Clients to manage and track the progress of
transactions assigned to Broker Members, including those generated by its
Broker Members. NAI's databases include, among other things, real estate
market data, demographic information, Broker Member profiles, Broker Member
listings, transaction histories, Client relationship information and Client
profiles. See "NAI Business--NAI Technology and Information Services."
NAI's objective is to increase profitability by continuing to grow
its brokerage business, increase its international coverage, expand its
Corporate Services and Investment Sales Departments and to further develop its
non-brokerage real estate-related services, including sealed-bid sales and
real estate auctions, and to acquire or develop additional real estate-related
services (collectively, "Real Estate-Related Services"). To the extent funds
are available
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from the proceeds of the Rights Offering and the Concurrent Offering referred
to below, NAI's strategy will be to (i) expand NAI's Corporate Services
Department and Investment Sales Department to generate business from
additional Clients and in new markets, (ii) invest in or acquire brokerage
firms (including certain of those owned by Broker Members) and firms which
provide Real Estate-Related Services, (iii) train and support Broker Members
to generate additional business for the Network; (iv) continue to expand the
Network into international markets, (v) generate additional revenue by
providing brokerage and Real Estate-Related Services to Kranzco, (vi) expand
and enhance NAI's real estate technology and information services, (vii)
opportunistically acquire and develop real estate for its own account, and
(viii) utilize Real Estate-Related Services to create and develop
relationships with Clients.
NAI's management team has extensive experience in the real estate
brokerage industry. Gerald C. Finn, founder and Chief Executive Officer of
NAI, has over 25 years experience in the real estate industry. Jeffrey M.
Finn, Gerald Finn's son and President, Chief Operating Officer and Treasurer
of NAI, has over 10 years experience in the commercial real estate services
industry.
NAI was incorporated under the laws of the State of Delaware on
February 5, 1974. The executive offices of NAI are located at 572 Route 130,
Hightstown, New Jersey 08520 and its telephone number is (609) 448-4700.
Transaction Summary
Kranzco is offering, upon the terms and subject to the conditions set
forth herein, to exchange an aggregate of $8,000,000 of Notes, for an
aggregate of 10,379,531 NAI Shares, which represent approximately 80% of the
outstanding NAI Shares. Upon consummation of the Exchange Offer, NAI will
effect the Reincorporation Merger in order to reincorporate NAI as a Maryland
corporation for corporate reasons as well as to reduce certain franchise taxes
which are payable by NAI. The Reincorporation Merger will result in each NAI
Delaware Share being converted into 1.318087 NAI Maryland Shares and the
adoption of certain anti-takeover provisions.
Immediately following the consummation of the Exchange Offer and the
Reincorporation Merger, NAI and Kranzco will, among other things, reconstitute
NAI's Board of Directors to include members nominated by both NAI and Kranzco
and enter into an Intercompany Agreement between Kranzco and NAI which will
provide for certain rights of first opportunity and first notification which
the companies will grant each other and will also provide for the provision of
certain consulting services by Kranzco to NAI. In connection with the Exchange
Offer and the Reincorporation Merger, NAI (i) adopted a management incentive
plan which provides for the issuance of 1,700,000 NAI Shares, which may be
awarded in the form of options, share appreciation rights, reload options,
restricted share awards, performance-based awards, and share purchase awards
(80% of the NAI Shares will be reserved for officers, employees or consultants
of NAI who are not also employees of Kranzco and 20% of the NAI Shares will be
reserved for officers, employees or consultants of NAI who are also employees
of Kranzco); (ii) adopted an employee incentive compensation plan pursuant to
which certain employees of NAI would be entitled to aggregate incentive
compensation payable in up to 8,500,000 NAI Shares issuable over 10 years;
(iii) adopted a stock option plan pursuant to which it is expected to grant
options to purchase an aggregate of 3,536,853 NAI Shares to officers,
directors, employees and consultants of NAI immediately following the
reincorporation Merger; and (iv) expects to grant immediately following the
Reincorporation Merger, options to purchase an aggregate of 60,000 NAI Shares
to directors and trustees of NAI and Kranzco. The foregoing transactions,
together with the Reincorporation Merger, the Distribution, the Rights
Offering and the Concurrent Offering (as defined below), are collectively
referred to herein as the "Proposed Related Transactions." See
"Management--NAI 1998 Management Incentive Plan," "--NAI 1998 Employee
Incentive Compensation Plan," "--NAI 1998 Stock Option Plan," "The Exchange
Agreement" and "Proposed Related Transactions."
Immediately following the consummation of the Exchange Offer and the
Reincorporation Merger, Kranzco will distribute (the "Distribution")
approximately 70.2% of the outstanding NAI Shares to holders of Kranzco Common
Shares and holders of the outstanding Series B-1 Preferred Shares and Series
B-2 Preferred Shares (together, the "Kranzco Series B Preferred Shares") of
Kranzco, on the basis of one NAI Share for each Kranzco Common Share and one
NAI Share for each Kranzco Common Share into which the Kranzco Series B
Preferred Shares are convertible (a "Kranzco Common Share Equivalent"). See
"The Distribution." Upon the consummation of the Distribution, NAI will be an
independent public company, and the NAI Shares will be eligible for trading on
the OTC Bulletin Board. Kranzco will own approximately 9.8% of the outstanding
NAI Shares, Kranzco shareholders will own approximately 70.2% of the
outstanding NAI Shares, and the persons who owned NAI Shares prior to the
Exchange Offer will own an aggregate of approximately 20% of the NAI Shares.
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Immediately following the consummation of the Exchange Offer and the
Reincorporation Merger, and simultaneously with the Distribution, NAI will
distribute to each holder of NAI Shares, including the Kranzco shareholders
who receive NAI Shares in the Distribution, rights (the "Rights") to purchase
an aggregate of 17,101,403 NAI Shares at a subscription price of $2 per NAI
Share (the "Subscription Price") on the basis of one Right to purchase one NAI
Share (the "Basic Subscription Privilege"), for each NAI Share held by NAI
Stockholders. The exercise of Rights is irrevocable once made, and no
underlying NAI Shares (the "Underlying Shares") will be issued until the
closing of the Rights Offering. The distribution of the Rights and the offer
and sale of the Underlying Shares is referred to herein as the "Rights
Offering." Upon exercise of the Basic Subscription Privilege, each holder of
Rights will also be entitled to purchase at the Subscription Price a pro rata
portion of any Underlying Shares that are not otherwise subscribed for
pursuant to the exercise of Basic Subscription Privileges (the
"Oversubscription Privilege").
Concurrently with the Rights Offering, NAI is offering (the
"Concurrent Offering") the right to purchase any Underlying Shares that are
not otherwise subscribed for pursuant to the Rights Offering ("Excess
Shares"), first, to officers, directors and trustees of NAI and Kranzco (the
"Executive Group"), and then, to NAI's Broker Members and the principals,
shareholders, partners, officers, managers and licensed real estate agents of
NAI's Broker Members in the United States (as defined herein) (the "Broker
Member Group"). In order to ensure that the Broker Member Group will in
aggregate have the right to purchase a minimum of 2,000,000 NAI Shares, NAI
has authorized an additional 2,000,000 NAI Shares ("Additional Shares") for
issuance pursuant to the Broker Member Group Subscription Privilege. See "The
Rights Offering" and "The Concurrent Offering."
The net proceeds to be received by NAI from the Rights Offering and
the Concurrent Offering depends on the number of Rights exercised and the
number of Underlying Shares and Additional Shares purchased, as the case may
be. If all Rights are exercised and all of the Additional Shares are
purchased, NAI expects the net proceeds available to it from the Rights
Offering and the Concurrent Offering to be approximately $38,000,000. After
paying the expenses of the Rights Offering, the Concurrent Offering and the
Proposed Related Transactions, the proceeds from the Rights Offering and the
Concurrent Offering will be used to (i) repay $202,000 principal amount of
indebtedness incurred in connection with the repurchase of 101,000 shares of
Series A Preferred Stock of NAI for an aggregate repurchase price of $202,000,
(ii) repay approximately $715,000 of indebtedness (which includes
approximately $72,000 of accrued interest), (iii) grow NAI's Corporate
Services Department and Investment Sales Department, and (iv) strategically
acquire and develop Real Estate-Related Services. The balance of any proceeds
will be invested in short-term commercial paper at a rate of approximately
5.5% per annum until used for general corporate and working capital purposes
and to opportunistically acquire real estate. See "Risk Factors--No
Commitments to Purchase and No Minimum Size of Rights Offering" and "The
Concurrent Offering--Use of Proceeds."
Reasons for the Offer
Kranzco is a self-administered and self-managed equity REIT engaged
in the business of owning, managing, operating, leasing, acquiring and
expanding neighborhood and community shopping centers and, to a lesser extent,
free-standing retail properties. Kranzco is limited in its activities by the
investment limitations imposed by Federal income tax laws applicable to REITs,
which (i) limit the amount of income that a REIT can realize from certain
services that are not customarily furnished or rendered in connection with the
rental of real property in a particular geographic area, and (ii) limit
Kranzco's ownership in corporations other than REITs and qualified REIT
subsidiaries (a) to 10% of the outstanding voting securities of such
corporation, and (b) in that the value of any one corporation's securities
cannot exceed 5% of the value of Kranzco's total assets. Kranzco believes that
significant opportunities are available to investors in entities which provide
brokerage and Real Estate-Related Services, own properties other than
neighborhood and community shopping centers, and which are not limited in
their activities by the investment limitations imposed by Federal income tax
laws applicable to REITs. Accordingly, in light of the limitations on
investments imposed on REITs, Kranzco believes that effecting the Exchange
Offer, the Distribution, the Rights Offering and the Concurrent Offering, and
establishing an intercompany relationship between Kranzco and NAI will yield
significant benefits to Kranzco and its shareholders similar to those which
may be obtained by investors who are not so limited, while preserving
Kranzco's REIT status. For Kranzco, these benefits include:
o increased opportunities to acquire retail properties which become
available for sale through the Network, which might not otherwise be
available to Kranzco;
o greater access to a diverse range of tenants, in order to re-tenant
vacant space owned by Kranzco, including access to non-retail
tenants looking for space appropriate for office, warehouse or other
non-retail uses;
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o the ability to enter into agreements with NAI to have NAI develop
new shopping centers or re-develop distressed shopping centers for
sale to Kranzco;
o the ability to enter into new geographic areas with the assistance
of NAI's real estate professionals;
o NAI disseminating Kranzco's acquisition criteria to Broker Members
throughout the Network, in order to create additional opportunities
to purchase retail properties;
o increased opportunities to purchase additional retail properties
which are included in portfolios with non-retail properties,
utilizing NAI to purchase the non-retail properties or find a
purchaser for the non-retail properties;
o access to NAI's sophisticated, real estate oriented computer
network, which includes information on real estate transactions,
market conditions and demographics;
o the ability to purchase Real Estate-Related Services at competitive
prices;
o the ability to own an equity interest in a company which owns real
estate and provides Real Estate-Related Services which Kranzco, as a
REIT, could not directly own or provide; and
o access to local property managers where Kranzco may own retail
properties, and the opportunity for Kranzco to manage retail
properties owned by NAI.
NAI operates a network of independently owned, licensed real estate
Broker Members throughout the United States and, more recently, abroad, to
provide commercial real estate services to regional, national and
international Clients. NAI believes that a strategic relationship between
companies which provide real estate brokerage and services, such as NAI, and
companies which own and operate real estate, such as Kranzco, would provide
significant benefits and opportunities. For NAI, the benefits of entering into
the strategic relationship and consummating the Proposed Related Transactions
(and under certain circumstances, to the extent proceeds are available through
the Rights Offering and the Concurrent Offering) include:
o the opportunity as a public company, to raise additional capital
through the Rights Offering and the Concurrent Offering and, to the
extent possible, future equity and debt offerings;
o the ability to expand its Corporate Services Department, Investment
Sales Department and Broker Services Department;
o the ability to invest in or acquire Broker Members or other real
estate service firms in order to strengthen the Network;
o access to new transactions by providing real estate brokerage
services to Kranzco through NAI's Network;
o the ability to accelerate the development of information services
and technology infrastructure to more efficiently deliver services;
o the opportunity to offer to Kranzco Real Estate-Related Services
which NAI may develop;
o the opportunity to further develop existing Real Estate-Related
Services and to acquire or develop businesses that provide Real
Estate-Related Services;
o the ability to accelerate Network growth in international markets;
o providing Broker Members the opportunity to manage selected Kranzco
shopping centers;
o the opportunity to enter into agreements with Kranzco to have NAI
develop new shopping centers or re-develop distressed shopping
centers for sale to Kranzco; and
o expansion of its business through access to the real estate
expertise of Kranzco's management.
In the past Kranzco and NAI have worked together in a mutually
beneficial relationship. In December 1997, NAI's Investment Sales Department
assisted Kranzco in arranging for the acquisition of five shopping centers,
aggregating approximately 650,000 square feet of GLA, for approximately $44
million. NAI's Investment Sales Department initiated this opportunity, and
assisted Kranzco in acquiring the properties. Kranzco's acquisition of such
properties generated $100,000 in fee income to NAI. Kranzco and NAI expect
that the Intercompany Agreement will set forth a framework for a mutually
beneficial relationship in the future. See "Proposed Related Transactions--The
Intercompany Agreement."
Risk Factors
The Notes offered hereby and the Proposed Related Transactions which
NAI and Kranzco intend to enter into involve a high degree of risks and
uncertainties. These risks and uncertainties include, among others:
o Risks related to the substantial debt obligations of Kranzco which,
at March 31, 1998, after giving effect to the Proposed Related Transactions
would be $265,201,000.
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<PAGE>
o Risks related to the existence of balloon payments on Kranzco
indebtedness for the outstanding principal balance at maturity.
o Risks resulting from approximately $20,000,000 of Kranzco
indebtedness which bears interest at variable interest rates.
o Risks resulting from the fact that the Notes are unsecured and
subordinated in right of payment in full to all existing and future senior
indebtedness of Kranzco, and the fact that the Indenture governing the Notes
does not contain financial covenants and does not permit or limit the
incurrence of additional senior indebtedness by Kranzco and its subsidiaries.
o Risks related to the balloon payment on the Notes, and the fact
that Kranzco's ability to pay the outstanding principal balance of its debt at
maturity may depend upon its ability to refinance such debt.
o General real estate investment risks which may affect Kranzco,
including adverse changes in general or local economic conditions, the
illiquidity of real estate investments, possible environmental liabilities and
the geographic concentration of Kranzco's properties.
In addition, NAI Stockholders should consider the effect of the
Proposed Related Transactions on NAI, since NAI Stockholders, in aggregate,
will retain ownership of 20% of the outstanding NAI Shares after the
consummation of the Exchange Offer. Accordingly, NAI Stockholders should
consider risks related to the Proposed Related Transactions, which include,
among others:
o Risks related to the fact that certain officers and directors of
NAI have an interest in the Proposed Related Transactions. Certain proceeds of
the Rights Offering and the Concurrent Offering will be used to repay
indebtedness to affiliates of NAI. In addition, certain officers and directors
of NAI will receive options to purchase NAI Shares, and two executives will
enter into employment agreements with NAI, in connection with the Proposed
Related Transaction.
o Risks related to the uncertainty of the Rights Offering and
Concurrent Offering. NAI does not have a written commitment from any person to
purchase any of NAI Shares being offered in the Rights Offering or the
Concurrent Offering, and no minimum amount of proceeds is required for NAI to
consummate the Rights Offering or the Concurrent Offering. NAI may not be able
to achieve all the benefits it would otherwise anticipate from the strategic
relationship with Kranzco and the Proposed Related Transactions if less than
all of the Underlying Shares and Additional Shares are sold.
o Risks related to NAI's plans to expand the scope of its business
beyond its current focus on real estate brokerage transaction to the broader
delivery of its Real Estate-Related Services.
o Certain risks related to the Intercompany Agreement and related
restrictions on NAI's opportunities
o Risk related to potential conflicts of interests created by the
fact that Kranzco and NAI have several common members on its Board of Trustees
and Board of Directors, as the case may be, and have certain common executive
officers.
o Risks related to the institution of anti-takeover measures in
connection with the Reincorporation Merger, and the anti-takeover effect of
certain provisions of Maryland law and of NAI's Charter and Bylaws
Prospective investors in the Notes should review "Risk Factors"
beginning on page 18 for a discussion of the material risks involved in an
investment in the Notes and the Kranzco Common Shares issuable upon conversion
thereof.
The Offer
General................................ Kanzco is offering, upon the terms
and subject to the conditions set
forth herein and in the related
Letter of Transmittal, to exchange
$0.7707 of the aggregate Offer
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<PAGE>
Consideration, of $8,000,000 of
Notes, for each outstanding NAI
Share, up to a maximum of
10,379,531 NAI Shares (80% of the
outstanding NAI Shares).
Immediately following the
consummation of the Exchange Offer,
NAI and Kranzco will effect the
Proposed Related Transactions (as
defined below), including the
Distribution, the Rights Offering
and the Concurrent Offering. See
"Proposed Related Transactions,"
"The Distribution," "The Rights
Offering" and "The Concurrent
Offering." Kranzco's obligation to
exchange the aggregate Offer
Consideration for 10,379,531 NAI
Shares pursuant to the Offer is
subject to (i) the Minimum Tender
Condition, (ii) the representations
and warranties of NAI contained in
the Exchange Agreement (as defined
herein) being true and correct on
the Expiration Date and related
closing date, and (iii) the
satisfaction of other conditions
set forth in the Exchange
Agreement. See "The
Offer--Conditions of the Offer." As
of June 30, 1998, there were
12,974,414 NAI Shares outstanding.
Timing of the Offer.................... The Offer is currently scheduled to
expire on __________, 1998;
however, Kranzco has the right,
subject to the Exchange Agreement,
to extend or amend the Offer at any
time or from time to time, as the
case may be, and may choose to
extend the Offer as necessary until
all conditions to the Offer have
been satisfied or waived. See
"--Extension, Termination and
Amendment." Kranzco may also
terminate the Offer if the
conditions precedent to the Offer
have not been satisfied. See "The
Offer--Conditions of the Offer."
Extension, Termination and Amendment... Kranzco expressly reserves the
right (but will not be obligated),
in its sole discretion, at any time
or from time to time, and
regardless of whether any of the
events set forth under
"--Conditions of the Offer" shall
have occurred or shall have been
determined by Kranzco to have
occurred, to extend the period of
time during which the Offer is to
remain open by giving oral or
written notice of such termination
or extension to the Exchange Agent,
which extension will be announced
no later than 9:00 a.m., Eastern
time, on the next business day
after the termination of the
previously scheduled Expiration
Date. During any such extension,
all NAI Shares previously tendered
and not withdrawn will remain
subject to the Offer, subject to
the right of a tendering NAI
Stockholder to withdraw his or her
NAI Shares. See "--Withdrawal
Rights."
Kranzco also reserves the right, in
its sole discretion, at any time or
from time to time, (i) to delay the
exchange of any NAI Shares for
Notes pursuant to the Offer, or,
subject to the terms of the
Exchange Agreement, to withdraw or
terminate the Offer and not accept
for exchange or exchange any NAI
Shares for Notes not theretofore
accepted for exchange, or
exchanged, upon the failure of any
of the conditions of the Offer to
be satisfied or for any other
reason and (ii) to waive any
condition or otherwise amend the
Offer in any respect. See "The
Offer--Extension, Termination and
Amendment" and "--Conditions of the
Offer."
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Exchange of Notes for NAI Shares;
Delivery of Offer Consideration........ Upon the terms and subject to the
conditions of the Offer (including,
if the Offer is extended or
amended, the terms and conditions
of any such extension or
amendment), Kranzco will accept for
exchange, and will exchange, Notes
for a maximum of 10,379,531 NAI
Shares validly tendered and not
properly withdrawn as promptly as
practicable following the
Expiration Date. See "The
Offer--Exchange of NAI Shares;
Delivery of Offer Consideration."
Upon the terms and subject to the
conditions of the Offer, including
Kranzco's rights to terminate,
amend or extend the offer, Kranzco
will accept for exchange a maximum
of 10,379,531 validly tendered NAI
Shares, which represents 80% of the
outstanding NAI Shares. Each NAI
Stockholder may tender all or any
portion of his or her NAI Shares.
If Kranzco determines to consummate
the Offer, Kranzco will accept for
exchange from each NAI Stockholder
a number of validly tendered NAI
Shares representing (i) 80% of such
stockholder's NAI Shares
("Guaranteed Minimum Tender"), or,
(ii) if such NAI Stockholder
tendered less than 80% of such
stockholder's NAI Shares, then such
lesser number of NAI Shares. NAI
Stockholders may validly tender for
exchange NAI Shares in excess of
his or her Guaranteed Minimum
Tender. If after aggregating the
NAI Shares validly tendered
pursuant to the Guaranteed Minimum
Tender, the Minimum Tender
Condition has not been met, Kranzco
will accept for exchange such
number of validly tendered NAI
Shares as would be required to meet
the Minimum Tender Condition on a
pro rata basis from among all the
NAI Shares tendered in excess of
each NAI Stockholder's Guaranteed
Minimum Tender (with appropriate
adjustments to avoid purchases of
fractional shares).
Pursuant to the Exchange Agreement,
the Finns agreed to tender 80% of
their respective NAI Shares in the
Exchange Offer, and, in the event
that less than 80% of the issued
and outstanding NAI Shares are
tendered by other NAI Stockholders
in the Exchange Offer, the Finns
agreed to tender up to an
additional 10% of their NAI Shares,
as may be required to reach the
Minimum Tender Condition. Although
the Finns have agreed to tender up
to 90% of the NAI Shares owned by
them, such number of NAI Shares is
not sufficient to meet the Minimum
Tender Condition without other NAI
Stockholders joining in the tender.
Accordingly, if other NAI
Stockholders do not tender a number
of NAI Shares that, together with
the NAI Shares to be tendered by
the Finns, would meet the Minimum
Tender Condition, the Exchange
Offer will not be consummated and
NAI will continue to conduct its
business as a private company. See
"The Exchange Agreement."
Withdrawal Rights...................... Tenders of NAI Shares made pursuant
to the Offer are irrevocable,
except that NAI Shares tendered
pursuant to the Offer may be
withdrawn pursuant to the
procedures set forth herein under
the heading "The Offer-- Withdrawal
Rights" at any time prior to the
Expiration Date, and, unless
theretofore accepted for exchange
and exchanged by Kranzco
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<PAGE>
for the Offer Consideration
pursuant to the Offer, may also be
withdrawn at any time after
________, 1998. See "The
Offer--Withdrawal Rights."
Procedure for Tendering................ For an NAI Stockholder to validly
tender NAI Shares pursuant to the
Offer, a properly completed and
duly executed Letter of Transmittal
(or manually executed facsimile
thereof), together with any
required signature guarantees, and
any other required documents, must
be transmitted to and received by
the Exchange Agent at its address
set forth on the back cover of this
Prospectus and certificates for
tendered NAI Shares must be
received by the Exchange Agent at
such address prior to the
Expiration Date. Any NAI
Stockholder who desires to tender
NAI Shares and whose certificates
for such NAI Shares are not
immediately available or who cannot
deliver all required documents to
the Exchange Agent prior to the
Expiration Date, should contact the
Exchange Agent immediately at (800)
829-8432.
THE METHOD OF DELIVERY OF SHARE
CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK
OF THE TENDERING STOCKHOLDER, AND
THE DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE TIMELY DELIVERY.
Conditions of the Offer................ The Offer is conditioned upon,
among other things, (i) there being
validly tendered and not withdrawn
prior to the Expiration Date
10,379,531 NAI Shares, (ii) the
representations and warranties of
NAI contained in the Exchange
Agreement (as defined herein) being
true and correct on the Expiration
Date and related closing date, and
(iii) the satisfaction of other
conditions set forth in the
Exchange Agreement. See "The
Offer--Conditions of the Offer."
See "The Offer--Conditions to
Offer."
The Exchange Agreement................. On __________ __, 1998, Kranzco,
NAI and the Finns entered into the
Exchange Agreement, pursuant to
which Kranzco agreed to conduct the
Exchange Offer, and the Finns
agreed to tender 80% of their
respective NAI Shares owned by them
in the Exchange Offer, and, in the
event that less than 80% of the
issued and outstanding NAI Shares
are tendered by other NAI
Stockholders in the Exchange Offer,
the Finns agreed to tender up to an
additional 10% of their NAI Shares,
as may be required to reach the
Minimum Tender Condition. Although
the Finns have agreed to tender up
to 90% of the NAI Shares owned by
them, such number of NAI Shares is
not sufficient to meet the Minimum
Tender Condition without other NAI
Stockholders joining in the tender.
Accordingly, if other NAI
Stockholders do not tender a number
of NAI Shares that, together with
the NAI Shares to be tendered by
the Finns, would meet the Minimum
Tender Condition, the Exchange
Offer will not be consummated and
NAI will
-9-
<PAGE>
continue to conduct its business as
a private company. See "The
Exchange Agreement."
In addition, unless the Exchange
Agreement is terminated in
accordance with its terms, NAI and
the Finns have agreed not to (a)
solicit or encourage any
acquisition or purchase of 10% or
more of the assets of, or any 5% or
greater equity interest in, NAI or
any of its subsidiaries or any
tender offer (including a self
tender offer) or exchange offer,
merger, consolidation, business
combination, sale of 10% or more of
the assets, sale of securities,
recapitalization, liquidation,
dissolution or similar transaction
involving NAI or its subsidiaries
or any other transaction the
consummation of which would or
could reasonably be expected to
impede, interfere with, prevent or
materially delay any of the
Proposed Related Transactions or
materially dilute the benefits to
Kranzco of such transactions (an
"Other Transaction Proposal") or
agree to or endorse any Other
Transaction Proposal, (b) propose
or enter into any discussions or
negotiations regarding an Other
Transaction Proposal, or (c) sell,
transfer or encumber any real
property investments or partnership
or joint venture interests of NAI
or enter into any agreement to do
so. However, the Exchange Agreement
does not prohibit, among other
things, (i) furnishing information,
or (ii) engaging in discussions in
connection with any bona fide Other
Transaction Proposal which is not
as a result of a breach of the
Exchange Agreement, after the Board
of Directors of NAI concludes in
good faith that such action is
necessary for the Board of NAI to
comply with its fiduciary
obligations under applicable law.
In certain instances, if the
Exchange Agreement is terminated,
and any Other Transaction Proposal
relating to in excess of 10% of
NAI's assets or outstanding capital
stock is consummated within 180
days of December 31, 1998 or at any
time thereafter pursuant to a
definitive agreement entered into
within such 180-day period, NAI and
the Finns shall immediately pay in
cash to Kranzco a termination fee
of $1,000,000. See "The Exchange
Agreement--Effect of Termination
and Abandonment."
Accounting Treatment................... Kranzco will account for the
acquisition of NAI Shares pursuant
to the Offer using the purchase
method of accounting. Accordingly,
the purchase price will be
allocated to assets acquired and
liabilities assumed based on their
estimated fair values at the
acquisition date. Subsequent to the
Transaction, Kranzco will account
for its 9.8% investment in NAI
using the equity method of
accounting.
Tax Consequences....................... The exchange by an NAI Stockholder
of its NAI Shares for Notes is
intended to qualify as an
installment sale. See "Material
United States Federal Tax
Considerations--Federal Income
Taxation of the Exchange Offer" for
a detailed discussion of the
federal income tax consequences of
the Exchange Offer.
The Notes
The Notes.............................. $8,000,000 aggregate principal
amount of ___% Callable Convertible
Subordinated Notes due 2008.
-10-
<PAGE>
Maturity Date.......................... _________________, 2008.
Interest Payment Dates................. Interest on the Notes will be
payable quarterly on January 1,
April 1, July 1 and October 1
commencing ____________, 1998.
Sinking Fund........................... None.
Conversion Rights...................... The Notes are convertible, in whole
or in part, at the option of the
Holder at any time after two years
following the date of original
issuance thereof and prior to the
close of business on the business
day immediately preceding the
maturity date, unless previously
redeemed into Kranzco Common
Shares, at a conversion price of
$20 per Kranzco Common Share
(equivalent to a conversion rate of
one Common Share per $20 principal
amount of Notes), subject to
adjustment in certain circumstances
as described herein (the
"Conversion Price").
The Finns and Norma Finn, Mr.
Gerald Finn's wife, have agreed not
to convert the Notes into Kranzco
Common Shares until three years
from the date of issuance;
provided, however, that in the
event that Kranzco issues a notice
of redemption relating to the Notes
prior to the end of such three-year
period, then the Finns and Norma
Finn may earlier convert the Notes
issued to them, in accordance with
the terms of such Notes.
Unless the Notes are previously
converted, during the period from
the date Kranzco resolves to take
any action that would constitute a
Change in Control (as defined
below) until five days prior to the
consummation of such Change in
Control transaction, the holders of
the Notes shall have the right to
make an election to convert all or
any Notes conditioned upon approval
of such Change in Control by the
holders entitled to vote on such
matter, in which case, if such
Change in Control is approved,
conversion of such Notes as to
which a conditional election has
been made shall occur upon the
later of (i) immediately prior to
such Change in Control, or (ii) the
date one year after the date of
original issuance of the Notes. A
"Change in Control" shall be deemed
to have occurred upon (i) the
merger or consolidation of Kranzco
with or into any entity, unless (A)
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
(B) effective provision is made in
the merger documents of the
surviving entity or otherwise for
the recognition, preservation and
protection of the preferences,
conversion and other rights, of the
holders of the Notes, or (ii) the
sale, lease, transfer, spin-off, or
other disposal or distribution of
all or substantially all of the
assets of Kranzco. The Notes will
be convertible immediately upon an
Event of Default; however, if an
Event of Default occurs prior to
one year from the date of original
issuance of the Notes, any
conversion of such Notes will not
be permitted until one year from
the date of original issuance of
the Notes, and then will only be
permitted
-11-
<PAGE>
if such Event of Default has not
been cured prior to one year from
the date of original issuance of
the Notes. See "Description of
Notes--Events of Default." The
Notes may be converted at any time
after a notice of redemption prior
to the Redemption Date (as defined
below).
Optional Redemption.................... The Notes are redeemable, in whole
or in part, at the option of
Kranzco at any time on or after two
years from the date of original
issuance, upon payment of an amount
equal to the principal amount of
the Note, or part thereof being
redeemed, plus accrued and unpaid
interest on the Note, or part
thereof being redeemed, to the date
of redemption. The Notes will
remain convertible after a notice
of redemption until the close of
business on the Business Day (as
defined herein) immediately
preceding the Redemption Date. See
"Description of Notes--Optional
Redemption by Kranzco" and
"--Conversion Rights."
Ranking................................ The Notes are general unsecured
obligations of Kranzco,
subordinated in right of payment to
the prior payment in full of all
Senior Indebtedness (as defined in
the Indenture) of Kranzco and
effectively subordinated in right
of payment to the prior payment in
full of all indebtedness of
Kranzco's subsidiaries. The
Indenture does not restrict
Kranzco's ability to incur Senior
Indebtedness or additional
indebtedness or Kranzco's
subsidiaries' ability to incur
additional indebtedness. At March
31, 1998, Senior Indebtedness and
indebtedness of Kranzco's
subsidiaries was approximately
$257,201,000. See "Description of
Notes-- Subordination."
Transferability........................ The Notes are not transferable and
will not be listed for trading. The
Kranzco Common Shares are traded on
the NYSE under the symbol "KRT." On
July 14, 1998, the closing sale
price of the Kranzco Common Shares
was $18.50 per share.
Comparison of Rights of Holders
Certain differences exist between the rights of holders of the Notes
(and the underlying Kranzco Common Shares) and the rights of holders of NAI
Delaware Shares.
The Notes are unsecured debt obligations of Kranzco and the Note
holders' rights are governed by the terms of the Notes and the Indenture. NAI
Shares are equity securities of NAI and the rights of holders of such shares
are governed by the Delaware General Corporation Law (the "DGCL") and the
Amended and Restated Certificate of Incorporation (the "Certificate") and the
Bylaws of NAI Delaware. Kranzco Common Shares are equity securities of Kranzco
and the rights of holders of such shares are governed by Title 8 ("Title 8")
and certain other provisions of the Annotated Code of Maryland, the
Declaration of Trust and the Kranzco Bylaws.
Differences between the rights of a holder of NAI Delaware Shares and
a holder of the Notes and, after conversion, a holder of Kranzco Common
Shares, include, among others, the following: (i) holders of the Notes are not
entitled to any vote on matters submitted to a vote of the holders of Kranzco
Common Shares, whereas each NAI Share entitles the holder thereof to one vote
on all matters submitted to a vote of holders of NAI Shares; (ii) the Notes
will bear interest at a rate of ____% per year from ________, 1998, payable
quarterly, but are not entitled to receive distributions on Kranzco Common
Shares, whereas the holders of NAI Shares are entitled to distributions if, as
and when declared by the NAI Board; (iii) the Notes are not negotiable and are
not transferable except upon death of a holder in accordance with the laws of
descent and distribution or in connection with a gift without consideration,
whereas there are no restrictions on the transferability of NAI Shares under
the DGCL, the Certificate or the NAI
-12-
<PAGE>
Delaware Bylaws; (iv) the Kranzco Bylaws may be amended only by the Kranzco
Board and not by the holders of Kranzco Common Shares or holders of the Notes,
whereas the NAI Delaware Bylaws may be amended by the NAI Board or by the
holders of NAI Shares; (v) 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 than the Delaware
business combination statute; (vi) Maryland law provides more limited rights
of inspection to shareholders of Kranzco than Delaware law provides to
stockholders of NAI Delaware; (vii) Kranzco is subject to certain restrictions
on the type of assets it may own (and on the use thereof) to which NAI
Delaware is not subject; and (viii) the Notes will be convertible into Kranzco
Common Shares in accordance with a specific conversion ratio, which ratio is
subject to adjustment upon certain antidilutive events, whereas the NAI
Delaware Shares are not convertible into another security. See "Comparison of
Rights of Holders" for a more detailed comparison of the rights of holders of
Notes, NAI Delaware Shares and Kranzco Common Shares.
Also, see "Description of Securities of NAI," "Certain Provisions of
Maryland Law and of NAI Maryland's Charter and Bylaws" and "Risk
Factors--Institution of Anti-takeover Measures; Anti-takeover Effect of
Certain Provisions of Maryland Law and of NAI Maryland's Charter and Bylaws."
-13-
<PAGE>
Kranzco Summary Financial and Operating Data
(In thousands, except ratio, property and per share data )
The following sets forth summary financial, operating and other data
on a historical basis for Kranzco. Also set forth below are summary pro forma
financial, operating and other data for Kranzco at and for the three months
ended March 31, 1998 and the year ended December 31, 1997. The pro forma
balance sheet data as of March 31, 1998 has been prepared as if the Exchange
Offer, the subsequent Distribution and the Southeast Acquisition had occurred
on March 31, 1998. The pro forma operating and other data for the three months
ended March 31, 1998 have been prepared as if the Exchange Offer, the
subsequent Distribution and the Southeast Acquisition had occurred on January
1, 1997. The pro forma operating and other data for the year ended December
31, 1997 have been prepared as if the foregoing transactions had occurred on
January 1, 1997. The pro forma financial and operating data do not give effect
to the Concurrent Offering and the Rights Offering, and are not necessarily
indicative of what the actual financial position or results of operations of
Kranzco would have been as of the date or for the periods indicated, nor do
they purport to represent the results of operations or financial position for
future periods. The five year summary historical data is incorporated by
reference from Kranzco's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -------------------------------------------
Pro Forma Historical Pro Forma Historical
--------- ---------- --------- ----------------------------
1998 1998 1997 1997 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited)(unaudited)(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Minimum rent........................... $ 15,484 $ 13,407 $ 10,929 $ 61,679 $ 47,579 $ 41,665 $ 40,259
Percentage rent........................ 330 310 268 1,382 1,163 1,042 1,044
Expense reimbursements................. 3,017 2,839 2,697 12,812 11,165 11,732 10,988
Interest income........................ 123 123 54 278 278 624 902
Other income........................... 158 28 31 586 127 117 277
--------- --------- --------- --------- --------- --------- ---------
Total revenue.......................... 19,112 16,707 13,979 76,737 60,312 55,180 53,470
========= ========= ========= ========= ========= ========= =========
Expenses:
General and administrative, interest
and property operating costs.......... 11,712 9,585 8,654 46,624 36,694 35,514 32,690
Depreciation and amortization.......... 4,044 3,450 2,859 16,160 12,534 11,194 10,903
Income before extraordinary charge and
before preferred distributions............ 3,356 3,672 2,466 13,953 11,084 8,472 9,877
Extraordinary charge from early
extinguishment of debt and
debt refinancing....................... 0 0 0 0 467 11,052 0
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).......................... $ 3,356 $ 3,672 $ 2,466 $ 13,953 $ 10,617 $ (2,580) $ 9,877
Income before extraordinary
items per share ........................ $ 0.13 $ 0.16 $ 0.19 $ 0.54 $ 0.73 $ 0.75 $ 0.91
Distributions per share ................... $ 0.48 $ 0.48 $ 0.48 $ 1.92 $ 1.92 $ 1.92 $ 1.92
Other Data (unaudited):
Cash flows provided by (used in)
Operating.................................. (1) 6,875 5,910 (1) 24,720 18,459 20,449
Investing.................................. (1) (3,557) (3,118) (1) (27,551) (3,059) (4,524)
Financing.................................. (1) (8,293) (2,598) (1) 8,953 (16,228) (13,720)
Funds from operations (2).................. $ 5,285 $ 4,962 $ 4,723 $ 20,920 $ 19,428 $ 18,313 $ 19,278
Preferred share distributions.............. $ 2,013 $ 2,013 $ 465 $ 8,368 $ 3,565 $ 695 $ 485
Ratio of earnings to fixed charges (3)..... 1.11 1.19 1.37 1.13 1.27 1.41 1.50
Ratio of funds from operations to
fixed charges (4)........................ 1.54 1.64 1.89 1.54 1.77 1.97 2.05
Total Properties (at end of period)........ 68 59 54 68 59 38 38
Total gross leasable area in sq. ft.
(at end of period, in thousands)......... 9,000 7,600 7,000 9,000 7,600 5,700 5,700
Balance Sheet Data (at end of
period):
Real estate, before accumulated
depreciation............................. $ 578,091 $ 491,091 $ 438,454 $ 484,741 $ 370,491 $ 368,073
Total assets............................... $ 554,630 $ 465,650 $ 423,117 $ 466,220 $ 359,157 $ 372,983
Total debt................................. $ 353,201 $ 257,201 $ 246,034 $ 255,124 $ 212,590 $ 204,247
Kranzco Series C Preferred Shares.......... $ 1,782 $ 1,782 $ 3,564 $ 2,228 $ 0 $ 0
Beneficiaries' equity...................... $ 188,320 $ 195,340 $ 153,501 $ 198,112 $ 137,013 $ 159,882
</TABLE>
-14-
<PAGE>
- ---------------
(1) Pro forma information relating to cash flows from operating, investing
and financing activities has not been included because management
believes that the information would not be meaningful due to the number
of assumptions required in order to calculate this information.
(2) Funds from Operations
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -------------------------------------------
Pro Forma Historical Pro Forma Historical
--------- ---------- --------- ----------------------------
1998 1998 1997 1997 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited)(unaudited)(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income available to
common shareholders 1,438 1,659 2,001 5,118 7,052 (3,274) 9,392
Loss on sale of real estate and
extraordinary items - - - 467 467 11,115 -
Amortization of leasing costs 86 86 63 385 385 337 228
Depreciation of investment in
real estate 3,761 3,217 2,659 14,950 11,524 10,135 9,658
Funds from Operations 5,285 4,962 4,723 20,920 19,428 18,313 19,278
</TABLE>
Management generally considers Funds from Operations to be a useful
measure of the operating performance of an equity REIT because, together
with net income and cash flows, Funds From Operations provides investors
with an additional basis to evaluate the ability of a REIT to incur and
service debt and to fund acquisitions and other capital expenditures.
Funds From Operations has been calculated in accordance with the
definition of "funds from operations" clarified by the National
Association of Real Estate Investment Trusts, Inc. ("NAREIT") generally
as net income, computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt restructuring and sales
of property, plus depreciation and amortization (in each case only on
real estate related assets) and after adjustments for unconsolidated
partnerships and joint ventures, less preferred share distributions.
Funds From Operations does not represent net income or cash flows from
operating, investing or financing activities as defined by GAAP. Funds
from operations should not be considered as a substitute for net income
as an indication of Kranzco's performance or as a substitute for cash
flows as a measure of its liquidity. Furthermore, Funds From Operations
as disclosed by other REIT's may not be comparable to Kranzco's
calculation of Funds From Operations.
(3) For purposes of these computations, earnings consist of income before
extraordinary charges, if any, plus preferred share distributions,
interest expense and amortization of debt expense. Fixed charges include
interest, whether expensed or capitalized, amortization of debt expense
and preferred share distributions.
(4) For purposes of these computations, funds from operations include
interest and preferred share distributions and excludes amortization of
debt expense.
-15-
<PAGE>
NAI Summary Financial and
Operating Data (In thousands, except
ratio, property and per share data )
The following sets forth summary financial, operating and other data
on a historical basis for NAI. Also set forth below are summary pro forma
financial, operating and other data for NAI at and for the nine months ended
March 31, 1998 and the year ended June 30, 1997. The pro forma balance sheet
data as of March 31, 1998 has been prepared as if the Exchange Offer and the
Distribution had occurred on March 31, 1998. The pro forma operating and other
data for the nine months ended March 31, 1998 have been prepared as if the
consummation of the Exchange Offer and the Distribution had occurred on July
1, 1996. The pro forma operating and other data for the year ended June 30,
1997 have been prepared as if the foregoing transactions had occurred on July
1, 1996. The pro forma financial and operating data do not give effect to the
Concurrent Offering and the Rights Offering, and are not necessarily
indicative of what the actual financial position or results of operations of
NAI would have been as of the date or for the periods indicated, nor do they
purport to represent the results of operations or financial position for
future periods. This data should be read in conjunction with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended March 31, Year Ended June 30,
--------------------------- -------------------
Pro Forma Historical Pro Forma Historical
--------- ---------- --------- ----------
1998 1998 1997 1997 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited) (unaudited)(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Commissions.............................. $ 2,836 $ 2,836 $ 2,910 $ 4,001 $ 4,001 $ 4,124 $ 4,371
License fees............................. 1,128 1,128 923 1,282 1,282 1,373 1,158
Other.................................... 474 474 563 618 618 523 470
Interest................................. 0 0 0 0 0 0 0
-- - - -- - - -
Total revenue............................ 4,438 4,438 4,396 5,901 5,901 6,020 5,999
----- ----- ----- ----- ----- ----- -----
Costs and expenses:
Commission expense....................... 602 602 788 1,143 1,143 1,782 1,485
Sales and marketing...................... 277 277 194 321 321 285 324
Compensation and benefits................ 1,832 1,832 1,911 2,528 2,528 2,438 1,981
Operating expense........................ 1,953 1,578 1,187 2,144 1,644 1,475 1,336
Depreciation and amortization............ 40 40 37 52 52 56 45
Interest, net............................ 47 47 47 60 60 48 46
-- -- -- -- -- -- --
Total costs and expenses................. 4,751 4,376 4,164 6,248 5,748 6,084 5,217
----- ----- ----- ----- ----- ----- -----
Income (loss) from operations............ (313) 62 232 (347) 153 (64) 782
---- -- --- ---- --- --- ---
Other expenses:
Equity in loss of affiliate.............. 12 12 15 25 25 5 0
Loss on sale of real estate.............. 0 0 0 0 0 0 65
- - - - - - --
Total other expenses..................... 12 12 15 25 25 5 65
-- -- -- -- -- - --
Income (loss) from continuing operations
before income taxes...................... (325) 50 217 (372) 128 (69) 717
---- ----
Income taxes............................. 5 5 0 0 0 0 35
- - - - - - --
Income (loss) from continuing operations. (330) 45 217 (372) 128 (69) 682
---- ----
Loss from discontinued operations........ 0 0 162 0 223 128 392
- - --- - --- --- ---
Net income (loss)........................ (330) 45 55 (372) (95) (197) 290
---- ----
Preferred share distributions............ 0 7 8 0 11 13 15
- - - - -- -- --
Net income (loss) available to common
shareholders........................... $ (330) $ 38 $ 47 $ (372) $ (106) $ (210) $ 275
====== ======= ======= ========= ====== ======= ======
Net income (loss) per share.............. $ (0.02) $ 0.00 $ 0.00 $ (0.02) $(0.01) $ (0.02) $ 0.02
======= ======= ======= ========= ======= ======== ======
Other data (unaudited):
Cash flows provided by (used in)
Operating.................................. (1) 189 313 (1) 233 158 593
Investing.................................. (1) (41) (196) (1) (260) (277) (260)
Financing.................................. (1) 11 (8) (1) 13 (7) (156)
Common shares outstanding.................. 17,101 12,974 12,888 16,965 12,871 12,863 12,782
Weighted average shares outstanding........ 17,075 12,954 12,888 16,981 12,883 12,860 12,648
Ratio of EBITDA to fixed charges(2)........ (2.74) 1.46 3.27 (2.32) 1.95 0.30 7.62
EBITDA(2).................................. $ (238) $ 137 $ 301 $ (260) $ 240 $ 35 $ 808
Balance sheet data (1995 unaudited):
Total assets............................... $ 1,829 $ 1,829 $ 1,807 $ 1,689 $ 1,732 $ 1,649
Total debt................................. $ 643 $ 643 $ 550 $ 575 $ 496 $ 441
Shareholders deficit....................... $(1,026) $(1,026) $ (983) $(1,090) $ (1,008) $ (837)
</TABLE>
-16-
<PAGE>
(1) Pro forma information relating to cash flows from operating, investing
and financing activities has not been included because management
believes that the information would not be meaningful due to the number
of assumptions required in order to calculate this information.
(2) For purposes of these computations, EBITDA consists of income before
interest expense, taxes, depreciation and amortization. Fixed charges
include interest expense, depreciation and amortization, and preferred
share distributions. Management believes that EBITDA provides additional
information about the Company's ability to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not a
measure of financial performance under GAAP and should not be considered
an alternative either to net income as an indicator of NAI's performance
or to cash flows as a measure of its liquidity. EBITDA as disclosed by
other Companies may not be comparable to the Company's calculation of
EBITDA.
-17-
<PAGE>
RISK FACTORS
An investment in the Notes involves various risks. Prospective
investors should consider carefully the following factors, in addition to
other information contained in this Prospectus and incorporated herein and
therein by reference, in connection with an investment in the Notes offered
hereby.
Substantial Debt Obligations
The pro forma debt of Kranzco at March 31, 1998, after giving effect
to the consummation of the Exchange Offer, the subsequent Distribution and the
Southeast Acquisition, would be $353,201,000, of which approximately
$352,355,000 would be 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 March 31, 1998,
after giving effect to the consummation of the Exchange Offer, the subsequent
Distribution and the Southeast Acquisition, would be approximately 57%. The
incurrence of new debt subsequent to the consummation of the Exchange Offer
and subsequent Distribution, 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. The $353,201,000 of pro forma debt of Kranzco referred
to above will be due as follows: $846,000 in 1998; $7,637,000 in 1999;
$43,440,000 in 2000; $4,576,000 in 2001; $3,600,000 in 2002; and $293,102,000
thereafter. In addition, 52 of the Properties are security for mortgage
indebtedness of Kranzco.
Balloon Payments on Debt
All of Kranzco's outstanding debt instruments require "balloon"
payments for the outstanding principal balance at maturity. Kranzco's
$50,000,000 secured first mortgage loan facility with Salomon Brothers Realty
Corp. (the "Salomon Facility") is secured by 14 Properties and is due February
2000; Kranzco's seven-year real estate loan (the "Mortgage Loan") in the
principal amount of $181,700,000, is secured by 27 Properties and is due in
June 2003. The remainder of Kranzco's eleven mortgages have balloon
indebtedness with due dates ranging from August 1999 to February 2009. See
"Capitalization-Summary of Indebtedness" for the principal amounts, interest
rates, and maturity dates on Kranzco indebtedness. 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 its debt at maturity may depend upon its
ability to refinance such debt, or to sell Properties. Kranzco has no
commitments with respect to refinancing its debt. There can be no assurance
that refinancing will be available on reasonable terms and conditions, that
such sales are possible or that the amounts received from such refinancing or
sales will be sufficient to make the required balloon payment on its debt. In
fact, there are substantial restrictions on the ability to remove 27
Properties from the lien under the Mortgage Loan and similar restrictions may
exist with respect to future indebtedness. If Kranzco cannot make a balloon
payment when due, the lenders under its other debt may foreclose on the
Properties securing the debt, which foreclosure would have a material adverse
effect on Kranzco's business, assets and results of operations.
Floating Rate Debt
The Salomon Facility, which as of March 31, 1998 had an outstanding
principal balance of $14,000,000, and indebtedness of Kranzco with respect to
Kranzco's East Main Centre in Spartanburg, South Carolina and Park Centre in
Columbia, South Carolina, which currently have outstanding principal balances
of approximately $2,800,000 and $4,480,000, respectively, currently bear
interest at variable rates. As a result of variable interest rates on such
debt and 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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Subordination; Absence of Financial Covenants
The Notes are unsecured and subordinated in right of payment in full
to all existing and future Senior Indebtedness of Kranzco. As a result of such
subordination, in the event of bankruptcy, liquidation or reorganization of
Kranzco or upon acceleration of the Notes due to an Event of Default under the
Indenture and in certain other events, the assets of Kranzco will be available
to pay obligations on the Notes only after all Senior Indebtedness has been
paid in full, and there may not be sufficient assets remaining to pay amounts
due on the Notes then outstanding. The Indenture does not contain financial
covenants and does not prohibit or limit the incurrence of Senior Indebtedness
or the incurrence of other indebtedness and other liabilities by Kranzco and
its subsidiaries, and the incurrence of additional indebtedness and other
liabilities by Kranzco and its subsidiaries could adversely affect Kranzco's
ability to pay its obligations on the Notes. Kranzco anticipates that from
time to time Kranzco and its subsidiaries will incur additional indebtedness,
including Senior Indebtedness. See "Description of Notes--Subordination."
Balloon Payment on the Note
Unless all or a portion of the Notes are converted prior to maturity,
the entire principal amount of the Notes will be due at maturity. Kranzco's
ability to pay the outstanding principal balance of its debt at maturity may
depend upon its ability to refinance such debt, or to sell Properties. Kranzco
has no commitments with respect to refinancing the Notes. There can be no
assurance that refinancing will be available on reasonable terms and
conditions, that such sales are possible or that the amounts received from
such refinancing or sales will be sufficient to make the required balloon
payment on the Notes.
Competition
The leasing of real estate is highly competitive. All of 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 generally 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. 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.
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),
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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
Kranzco's performance is 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 and
Kranzco may not be able to obtain debt or equity financing on reasonable terms
and conditions.
Leasing Risks
The ability of Kranzco to rent or relet unleased space is affected by
many factors, which may include certain covenants typically found in leases
with tenants in shopping centers, such as covenants which restrict the use of
other space at such shopping center to those which are not competitive with
such tenant. 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, 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 believes the Properties to be in substantial
compliance with all material federal, state and local regulatory requirements.
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, the possibility of taxes
imposed on a REIT such as Kranzco by the Internal Revenue Code of 1986, as
amended (the "Code"), upon the sale of properties held for fewer than four
years and restrictions placed on Kranzco on the removal of 27 of the
Properties from the lien of the 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 comprehensive liability, fire, flood, extended
coverage and rental loss insurance for the Properties with policy
specifications, limits and deductibles customarily carried for similar
properties. Kranzco currently believes it is adequately insured for all
material risks of loss. However, there is no assurance that all such insurance
will be available in the future or will be available at commercially
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reasonable rates. In addition, 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.
During 1997, three of Kranzco's anchor tenants, Bradlees, Caldor and
Rickels, were in bankruptcy under Chapter 11 of the United States Bankruptcy
Code. In general, in a Chapter 11 proceeding, the tenant is required to pay
the full rental to the landlord for the store on a current basis unless the
lease is disaffirmed.
The Bradlees stores are located in Bethlehem, Pennsylvania,
Whitehall, Pennsylvania and Groton, Connecticut and are approximately 85,899,
85,120 and 85,120 square feet, respectively. The Bradlees stores represent
approximately $2.2 million or 3.6% of Kranzco's annualized revenues; however,
Stop & Shop Companies, Inc. is primarily liable for all payments and other
obligations set forth in the three leases. Kranzco believes that these three
leases are at or below market rental rates and, therefore, Kranzco would not
have significant difficulty in leasing these stores if the leases were
rejected. The average annual rent paid by Bradlees for these locations is
approximately $6.50 per square foot. Bradlees has closed its stores in Groton,
Connecticut and Whitehall, Pennsylvania and has disaffirmed the leases. The
Stop & Shop Companies, Inc. has commenced paying rent under the Groton,
Connecticut and Whitehall, Pennsylvania leases.
The Caldor stores are located in Towson, Maryland, Bristol,
Pennsylvania and Hamilton Township, New Jersey and are approximately 94,600,
113,160 and 119,935 square feet, respectively. The Caldor stores represent
approximately $2.5 million or 4.1% of Kranzco's annualized revenues. The
Towson lease is guaranteed by The May Company. Effective November 1, 1996,
Kranzco entered into an agreement to reduce the common area maintenance and
real estate tax reimbursements at one of the Caldor locations by approximately
$230,000 for each year in a five year period. Kranzco believes that these
three leases are at or below market rental rates and, therefore, Kranzco would
not have significant difficulty in leasing these stores if the leases were
rejected. The average annual rent paid by Caldor for these locations is
approximately $6.15 per square foot.
The Rickels stores were located in Phillipsburg, New Jersey and
Yonkers, New York and both are approximately 50,000 square feet. Rickels
disaffirmed the lease for the store located at Phillipsburg in November 1996.
The rental for this store amounted to approximately $300,000 per year
including reimbursements for operating expenses. Kranzco is actively pursuing
a replacement tenant for the vacant Phillipsburg location. Rickels affirmed
the lease at the Yonkers location. Rental for this store is approximately $1.1
million per year including reimbursements for operating expenses. Effective
May 5, 1998, this lease was assigned to National Wholesale Liquidators Inc.
Other tenants in Kranzco's portfolio that continue to pay current
rent and operate their stores under Chapter 11 constitute individually and in
the aggregate less than 1% of Kranzco's annualized 1997 revenues. Kranzco
believes that it has adequately reserved for these tenants.
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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 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.
None of the Properties is currently subject to an environmental
claim, nor is Kranzco aware of any threatened environmental claim with respect
to any of the Properties. Kranzco obtains Phase I environmental reports with
respect to all properties prior to acquisition. In addition, Kranzco believes
it is in substantial compliance with state and federal environmental laws.
However, there can be no assurance that the Properties will not be subject to
environmental claims in the future.
Consequences of Failure to Maintain Status as a REIT
Kranzco has qualified to be taxed as a REIT commencing with its
taxable year ended December 31, 1992 and intends to continue to qualify to be
taxed 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 may impact its
ability to qualify as a REIT under the Code. 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. In addition, during the period of disqualification, Kranzco
would no longer be required by the Code to make any distributions as a
condition to REIT qualification. 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.
The President's fiscal year 1999 budget proposal contains certain
provisions that would affect the rules pertaining to the qualification and
taxation of a REIT. None of these proposals, if enacted, is anticipated to
have any material adverse tax consequences for Kranzco.
Reliance on Major Tenants
As of March 31, 1998 Kranzco's four largest tenants were Pathmark
Supermarkets, Caldor, Bradlees and Kmart, which represented approximately 5%,
4%, 4% and 3%, respectively, of Kranzco's annualized minimum rents. Both
Caldor and Bradlees filed for bankruptcy under Chapter 11 of the United States
Bankruptcy Code. See "-Real Estate Investment Risks" and "- Default by
Tenants; Financial Distress and Bankruptcy of Tenants." No other tenant
represented more than 2% of the aggregate annualized minimum rents of the
Properties as of such date. The financial position of Kranzco and its ability
to make distributions may be adversely affected by financial difficulties
experienced by any such tenants, or any other major tenant of Kranzco,
including a bankruptcy, insolvency or general downturn in the business of any
such tenant, or in the event any such tenant does not renew its leases as they
expire.
Geographic Considerations
All of the Properties are located in 16 states (Arizona, Connecticut,
Georgia, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,
New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South
Carolina and Virginia). In addition, Properties located in the Commonwealth of
Pennsylvania and the states of New York, Connecticut and Maryland generated
36% or $21,700,000 of revenues, 14% or $8,400,000 of revenues, 12% or
$7,400,000 of revenues and 11% or $6,900,000 of revenues, respectively of
Kranzco's revenues in fiscal year 1997, without giving effect to the Georgia
Acquisition and the Southeast Acquisition. To the extent that general economic
or other relevant conditions in the states in which the Properties are located
decline and result in a decrease in consumer demand in these areas, the income
from, and value of, these Properties may be adversely affected. The impact of
any such general decline would affect Kranzco more significantly if it
affected the states of Pennsylvania, New York, Connecticut and Maryland, or
the Eastern United States as a whole.
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 approximately 100% 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, 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
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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, Maryland Law and a Staggered Board
Under Kranzco's Declaration of Trust, not more than 50% in value of
its outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). 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 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 shares of
beneficial interest of Kranzco would result in the termination of Kranzco's
status as a REIT. In connection with the acquisition of certain properties
from Union Property Investors, Inc. ("UPI"), pursuant to the terms of the
Series B Preferred Shares, the Kranzco Board granted an exemption from such
ownership limitations to Leonard Mandor, the Chairman of the UPI Board and the
Chief Executive Officer of UPI; Robert Mandor, the President and a director of
UPI; and certain of their affiliates. In addition to the foregoing, the
Articles Supplementary with respect to the Series D Preferred Shares authorize
the Kranzco Board to take such action as may be required to preserve its
qualification as a REIT for federal income tax purposes and to limit any
person, other than persons who may be excepted by the Board, to direct or
indirect ownership of 10% of the lesser of the number or the value of the
total Series D Preferred Shares outstanding. Based on the foregoing, there can
be no assurance that there will not be five or fewer individuals who will own
more than 50% in value of the outstanding shares of beneficial interest of
Kranzco, thereby causing Kranzco to fail to qualify as a REIT.
Under the Maryland General Corporation Law, as amended (the "MGCL"),
as applicable to a Maryland REIT, certain "business combinations" (including a
merger, consolidation, share exchange or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities) between a
Maryland REIT and any person who beneficially owns 10% or more of the voting
power of the trust's shares or an affiliate of the trust who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting shares
(an "Interested Shareholder") or an affiliate thereof are prohibited for five
years after the most recent date on which the Interested Shareholder becomes
an Interested Shareholder. 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 (a) 80% of the votes entitled to be cast by
holders of outstanding voting shares of the trust and (b) two-thirds of the
votes entitled to be cast by holders of voting shares of the trust other than
shares held by the Interested Shareholder with whom (or with whose affiliate)
the business combination is to be effected, unless, among other conditions,
the trust's common shareholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Shareholder for its shares.
These provisions of the MGCL do not apply, however, to business combinations
that are approved or exempted by the board of trustees prior to the time that
the Interested Shareholder becomes an Interested Shareholder.
The ownership limits, as well as the ability of Kranzco to issue
other classes of common and preferred shares of beneficial interest and
certain other provisions of Maryland law, may delay, defer or prevent a change
in control of Kranzco or other transaction that may be in the best interests
of the shareholders and also may (i) deter tender offers for the Series D
Preferred Shares, which offers may be
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attractive to the shareholders, or (ii) limit the opportunity for shareholders
to receive a premium for their Series D Preferred Shares that might otherwise
exist if an investor attempted to assemble a block of shares of beneficial
interest of Kranzco in excess of 9.8% of the lesser of the number or value of
the outstanding shares of beneficial interest of Kranzco or 10% of the lesser
of the number or the value of the total Series D Preferred Shares outstanding
or otherwise to effect a change in control of Kranzco.
The Kranzco Board is divided into three classes of trustees. The
terms of the first, second and third classes expire in 1998, 1999 and 2000,
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 in 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 in 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. The loss of his services could have an
adverse effect on Kranzco's business, assets or results of operations.
Control by Trustees and Executive Officers
Trustees and executive officers of Kranzco currently own beneficially
approximately 3.26% of the outstanding Kranzco Common Shares (approximately
8.41% 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 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. See
"Kranzco General Investment Strategies."
Shares Available for Future Sale
No prediction can be made as to the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price of the Common Stock. Sales of substantial amounts of shares of
Common Stock in the public market or the perception that such sales might
occur could adversely affect the market price of the shares of Common Stock.
As of July 2, 1998, there were (i) 12,005,185 Kranzco Common Shares and
Kranzco Common Share Equivalents outstanding and options outstanding to
purchase an aggregate of 932,850 Kranzco Common Shares.
The conversion of Kranzco Series B Preferred Shares into Kranzco
Common Shares, the exercise of currently outstanding options 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 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,
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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 price of
the Kranzco Common Shares.
Absence of Market For Notes; Liquidity of Common Shares
Although the Notes have been registered under the Securities Act,
there has been no public market for the Notes prior to this Exchange Offer,
and there will be no public market for the Notes subsequent to the
consummation of the Exchange Offer. The Notes are not transferable, other than
by the laws of descent or distribution. Accordingly, the Notes are a highly
illiquid investment. Kranzco plans to apply to have the underlying Kranzco
Common Shares approved for listing on the NYSE, subject to official notice of
issuance; however, except under limited circumstances, the Notes are not
convertible into Kranzco Common Shares until a period of two years from the
date of issuance. However, the Finns and Norma Finn have agreed not to convert
the Notes into Kranzco Common Shares until three years from the date of
issuance. There can be no assurance that, upon listing, Kranzco will continue
to meet the criteria for continued listing of the Kranzco Common Shares on the
NYSE. Prices for the Kranzco Common Shares will be determined in the
marketplace and may be influenced by many factors, including interest rates,
the liquidity of the market for the Kranzco Common Shares, investor
perceptions of Kranzco, the market for similar securities, the volume of
Kranzco Common Shares available for sale and general industry and economic
conditions.
Potential Conflicts of Interest
Upon consummation of the Exchange Offer and the Reincorporation
Merger, Kranzco and NAI will have several common members on its Board of
Trustees or Board of Directors, as the case may be, and have certain common
executive officers. Kranzco and NAI will operate in a relationship governed by
the Intercompany Agreement. In their relationship with Kranzco as a Client of
NAI, Kranzco and NAI may have conflicting views on the manner in which
services and opportunities are provided to Kranzco by NAI, or the manner in
which opportunities are provided to NAI by Kranzco, pursuant to the
Intercompany Agreement, and in the enforcement of the Intercompany Agreement.
As a result, the trustees and executives of Kranzco (who serve in similar
capacities at NAI) may well be presented with several decisions which provide
them the opportunity to benefit Kranzco to the detriment of NAI or benefit NAI
to the detriment of Kranzco. Such potential conflicts of interest will be
present in all of the numerous transactions between Kranzco and NAI. There is
a risk that the common management and members of the Boards of NAI and Kranzco
will lead to conflicts of interest in connection with transactions between the
two companies and opportunities presented to each of the companies. Although,
the Intercompany Agreement attempts to minimize the conflicts which may arise
due to the common management and Board membership, there is no assurance that
it will successfully cover all conflicts, or that such conflicts may not
negatively effect one or both companies. See "Proposed Related
Transaction--The Intercompany Agreement" for a description of the relationship
between Kranzco and NAI and the Intercompany Agreement.
It is intended that each of Gerald C. Finn, Co-Chairman and Chief
Executive Officer of NAI, and Jeffrey M. Finn, President and Chief Operating
Officer of NAI, will be required to spend all of his respective business time
working for NAI. However, Mr. Finn is a nominee to the Board of Trustees of
Kranzco, and will also owe a duty to the shareholders of Kranzco. In addition,
pursuant to the Intercompany Agreement, NAI has agreed to cause Norman M.
Kranzdorf to serve as the Co-Chairman of NAI, Robert H. Dennis to serve as the
Chief Financial Officer of NAI, and Michael Kranzdorf to serve as the Chief
Information Officer of NAI, in each case for a period of three years. Each of
Messrs. N. Kranzdorf, Dennis and M. Kranzdorf are also officers of Kranzco and
will devote a majority of their time to Kranzco. Although each of Messrs. N.
Kranzdorf, Dennis, and M. Kranzdorf is committed to the success of NAI they
are also committed to the
-26-
<PAGE>
success of Kranzco, and none of Messrs. N. Kranzdorf, Dennis, and M. Kranzdorf
is committed to spending a particular amount of time on NAI's or Kranzco's
affairs, nor will any of them devote his full time to NAI or Kranzco.
Risks of Intercompany Agreement; Restrictions on NAI's Opportunities
NAI and Kranzco are entering into an Intercompany Agreement to
provide both Kranzco and NAI with first opportunity rights or first
notification rights with respect to certain business opportunities. See
"Proposed Related Transactions--Intercompany Agreement." While the
Intercompany Agreement grants NAI certain first notification rights with
respect to providing certain brokerage and Real Estate-Related Services to
Kranzco, Kranzco is not required to enter into an agreement to purchase such
services from NAI. Accordingly, there is no assurance that the Intercompany
Agreement will result in any revenues to NAI, or that the benefits anticipated
therefrom will be realized. Similarly, although the Intercompany Agreement
provides Kranzco with certain first opportunity rights with respect to retail
properties for sale which NAI is aware of through the Network or otherwise,
there is no assurance that NAI will provide Kranzco with any opportunities or
that Kranzco will be able to, or will desire to, purchase such properties.
Accordingly, the benefit to Kranzco of having greater access to retail
properties which become available for sale, and the benefit to NAI, of
increased revenue from transactions with Kranzco, may not be realized.
The Intercompany Agreement restricts NAI's opportunities in certain
instances. Although NAI does not currently invest in real estate, it may
determine to acquire properties in the future. Under the Intercompany
Agreement, NAI has agreed not to acquire or make investments in retail
properties unless it has notified Kranzco of the acquisition or investment
opportunity, and Kranzco has determined not to pursue such acquisition or
investment. In addition, the Intercompany Agreement provides that NAI may not
enter into any type of strategic relationship with any other REIT or real
estate investment or operating type entity without the prior written consent
of Kranzco. NAI, however, is permitted under the Intercompany Agreement to
solicit assignments from other REITs or real estate investment or operating
type entities with respect to the purchase, sale or lease of real estate or
the provision of Real Estate-Related Services, subject to Kranzco's first
opportunity rights. See "Proposed Related Transactions--Intercompany
Agreement." The restrictions imposed by the Intercompany Agreement may
prohibit NAI from pursuing business opportunities which it believes may be
beneficial.
Limited Experience in Certain Areas
NAI anticipates expanding the scope of its business beyond its
current focus on real estate brokerage transactions to the broader delivery of
its Real Estate-Related Services. NAI is not currently engaged in any
negotiations to provide for the acquisition or development of such Real
Estate-Related Services, and there is no assurance that NAI will be able to
acquire, develop or provide additional Real Estate-Related Services in the
future.
Effects of Reincorporation Merger
Immediately following the consummation of the Exchange Offer, NAI
Delaware will merge with and into NAI Maryland. The Reincorporation Merger
will result in each NAI Delaware Share being converted into 1.318087 NAI
Maryland Shares and the adoption of certain anti-takeover provisions. See
"--Institution of Anti-takeover Measures; Anti-takeover Effect of Certain
Provisions of Maryland Law and of NAI Maryland's Charter and Bylaws" below for
a description of certain anti-takeover provisions. NAI Stockholders should
consider the effect of the Reincorporation Merger in making the decision as to
whether to tender because, in aggregate, NAI Stockholders will retain
ownership of 20% of the outstanding NAI Shares after the consummation of the
Exchange Offer.
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<PAGE>
No Commitments to Purchase and No Minimum Size of Rights Offering or
Concurrent Offering
NAI does not have a written commitment from any person to purchase
any of the Underlying Shares pursuant to the Rights Offering or to purchase
any Excess Shares or Additional Shares pursuant to the Concurrent Offering.
However, the Finns have advised NAI that they intend to exercise Rights to
purchase an aggregate of 500,000 NAI Shares and Kranzco has advised NAI that
it intends to exercise such number of Rights to purchase NAI Shares that would
result in Kranzco owning approximately 9.8% of the issued and outstanding NAI
Shares, before the issuance of any Additional Shares. In addition, no minimum
amount of proceeds is required for NAI to consummate the Rights Offering or
the Concurrent Offering. Accordingly, no assurances can be given as to the
amount of gross proceeds that NAI will realize from the Rights Offering or the
Concurrent Offering. NAI may not be able to achieve all the benefits it would
otherwise anticipate from the strategic relationship with Kranzco and the
Proposed Related Transactions if less than all of the Underlying Shares and
Additional Shares are sold. See "The Rights Offering" and "The Concurrent
Offering."
Certain Proceeds of the Rights Offering and the Concurrent Offering to
Affiliates; Benefits to Insiders
Approximately $441,235 of the proceeds of the Rights Offering and the
Concurrent Offering will be used to repay principal indebtedness owed by NAI
and its subsidiaries to Gerald C. Finn, a director and officer of NAI, and
Norma J. Finn, an officer of NAI, which bear interest at rates ranging from
10% to 12%. See "The Concurrent Offering--Use of Proceeds" for a description
of such indebtedness.
In connection with the Proposed Related Transactions, NAI has entered
into employment agreements with each of Gerald C. Finn and Jeffrey M. Finn.
See "Management--Employment Agreements." In addition, in connection with the
Proposed Related Transactions, certain officers and directors of NAI will
receive options to purchase NAI Shares under the NAI 1998 Stock Option Plan,
and will be eligible to participate in the NAI 1998 Bonus Compensation Plan
and the NAI 1998 Incentive Plan. See "NAI Management--1998 Incentive Plan" and
"--1998 Stock Option Plan."
Institution of Anti-takeover Measures; Anti-takeover Effect of Certain
Provisions of Maryland Law and of NAI Maryland's Charter and Bylaws
Certain provisions of NAI Maryland's Charter (the "Charter") and
bylaws (the "Bylaws") could have the effect of discouraging a third party from
pursuing a non-negotiated takeover of NAI or could delay, defer or prevent a
transaction or a change in control of NAI that might involve a premium price
for the NAI Shares or otherwise be in the best interests of NAI Stockholders.
Staggered Board. NAI's Board of Directors is divided into three
classes of directors. The initial terms of the first, second and third classes
will expire in 1999, 2000 and 2001, respectively. Beginning in 1999, directors
of each class will be chosen for three-year terms upon the expiration of their
current terms and each year one class of directors will be elected by the
stockholders. The staggered terms of directors may reduce the possibility of a
tender offer or an attempt to change control of NAI even though a tender offer
or change in control might be in the best interest of the stockholders. See
"Certain Provisions of Maryland Law and of NAI's Charter and Bylaws --
Classification of the Board of Directors."
Blank Check Stock. The Charter authorizes the Board of Directors to
cause NAI to issue additional authorized but unissued shares of NAI common
stock and to classify or reclassify any unissued shares of stock of NAI in one
or more classes or series of stock and to set the preferences, rights and
other terms of such classified or unclassified shares. See "Description of
Securities -- Common Stock" and "--Preferred Stock" and "-- Power to Issue
Additional Shares of Common Stock and Preferred Stock."
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<PAGE>
Although the Board of Directors has no such intention at the present time, it
could establish a series of NAI Preferred Stock that could, depending on the
terms of such series, delay, defer or prevent a transaction or a change in
control of NAI that might involve a premium price for the NAI Shares or
otherwise be in the best interest of the stockholders.
Maryland Business Combination Law. Under the Maryland
General Corporation Law, as amended ("MGCL"), certain "business combinations"
(including certain issuances of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares (an "Interested Stockholder") or an
affiliate thereof are prohibited for five years after the most recent date on
which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be approved by two
super-majority stockholder votes unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Stockholder for its common
shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The business combination provisions of the MGCL may
have the effect of delaying, deferring or preventing a transaction or a change
in control of NAI that might involve a premium price for the NAI Shares or
otherwise be in the best interest of the stockholders. See "Certain Provisions
of Maryland Law and of NAI's Charter and Bylaws--Business Combinations."
Control Share Acquisitions. The MGCL provides that "control
shares" of a Maryland corporation acquired in a "control share acquisition"
have no voting rights except to the extent approved by a vote of two-thirds of
the votes entitled to be cast on the matter, excluding shares of stock owned
by the acquiror, by officers or by directors who are employees of the
corporation.
The control share acquisition statute does not apply (a) to
shares acquired in a merger, consolidation or share exchange if the
corporation is a party to the transaction or (b) to acquisitions approved or
exempted by the charter or bylaws of the corporation.
The Bylaws of NAI contain a provision exempting from the
control share acquisition statute any and all acquisitions by any person of
NAI's shares of stock. There can be no assurance that such provision will not
be amended or eliminated at any time in the future. If such provision is
amended or eliminated, the control share acquisition provisions of the MGCL
could have the effect of delaying, deferring or preventing a transaction or a
change in control of NAI that might involve a premium price for the NAI Shares
or otherwise be in the best interest of the stockholders. See "Certain
Provisions of Maryland Law and of NAI's Charter and Bylaws--Control Share
Acquisitions."
Other Provisions. The Charter and Bylaws of NAI also contain
other provisions that may delay, defer or prevent a transaction or a change in
control of NAI that might involve a premium price for the NAI Shares or
otherwise be in the best interest of the stockholders. See "Certain Provisions
of Maryland Law and of NAI's Charter and Bylaws--Removal of Directors" and
"--Advance Notice of Director Nominations and New Business."
KRANZCO'S OPERATING, ACQUISITION AND FINANCING STRATEGIES
Operating Strategies
Kranzco's primary business objective is to achieve growth in its
funds from operations by enhancing the operating performance of the Properties
and, through selective acquisitions, the value of its portfolio. Kranzco's
operating strategies are to: (i) focus on the neighborhood and community
shopping center
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<PAGE>
business; (ii) actively manage its properties for long-term growth in funds
from operations and capital appreciation; (iii) increase portfolio occupancy
by capitalizing on management's reputation and long-standing relationships
with national and regional tenants and extensive experience in marketing to
local tenants, as well as the negotiating leverage inherent in a large
portfolio of properties; (iv) maintain, renovate, expand and reconfigure its
properties; (v) optimize the tenant mix in each shopping center; (vi) develop
or ground lease outparcels or expansion areas existing from time to time at
its properties for use as restaurants, banks, auto centers, cinemas or other
facilities; and (vii) benefit from economies of scale by spreading overhead
expenses over a larger asset base.
Acquisition Strategies
Kranzco intends to make acquisitions in a manner consistent with the
requirements of the Code applicable to REITs and related regulations with
respect to the composition of Kranzco's portfolio and the derivation of income
unless, because of circumstances or changes in the Code (or any related
regulation), the Kranzco Board determines that it is no longer in the best
interests of Kranzco to qualify as a REIT. Kranzco's acquisition strategy is
to opportunistically acquire properties which need replacement anchor tenants
or where Kranzco's management expertise and reputation can enhance value. That
strategy includes acquiring and rehabilitating properties in new markets with
strong demographic characteristics in order to reduce Kranzco's sensitivity to
regional economic cycles. Kranzco does not intend to invest in excess of 15%
of its assets in any single property.
Kranzco will generally acquire a 100% fee simple or leasehold
interest in real property consistent with Kranzco's acquisition strategies set
forth above. However, Kranzco may make equity investments through joint
ventures with developers, owners or other persons which may provide for, among
other terms, (i) a cumulative preference as to cash distributions; (ii) a
participation in net cash flows from operations; and (iii) a participation in
the appreciation of the value of the underlying real property. Kranzco
contemplates that it would maintain at least equal control over the underlying
real property to be operated by any joint venture (including possibly the
day-to-day management of the real property) and additional investments in or
sale or financing of such underlying real property. Kranzco may also acquire
investments in real property or real estate oriented companies through
issuance of debt or equity securities in exchange for investments or by such
other methods as the Trustees deem to be in the best interests of Kranzco. In
the past, Kranzco has not invested in real estate mortgages, and does not
currently intend to invest in such securities in the future.
Financing Strategies
Kranzco intends to maintain a conservative ratio of debt to estimated
value of Kranzco's real estate assets (as determined by the Kranzco Board,
taking into consideration the tenants in occupancy, gross rental revenues,
geographic location and other factors affecting the value of Kranzco's
properties) ("Debt Ratio") of generally not more than 60%. At March 31, 1998,
on a pro forma basis after giving effect to the Exchange Offer, the Proposed
Related Transactions and the Southeast Acquisition, Kranzco had a Debt Ratio
of approximately 57% and a ratio of debt to total market capitalization, based
upon the closing price of Kranzco's stock on the New York Stock Exchange as of
March 31, 1998, of approximately 56%. Kranzco intends to finance acquisitions
with the most appropriate sources of capital, as determined by the Trustees,
which may include available cash flows from operations, the issuance of equity
securities, the sale of investments and, within the debt guidelines described
above, bank and other institutional borrowings and the issuance of debt
securities. Future borrowings by Kranzco for acquisitions may be either on a
secured or unsecured basis. In this regard, in addition to its $181,700,000
Mortgage Loan, Kranzco has obtained several credit facilities as described
below.
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<PAGE>
In 1995, Kranzco obtained a $1.0 million unsecured credit facility
from Corestates Bank, N.A. (the "Corestates Facility"). Amounts borrowed under
the line of credit bear interest at the bank's prime rate. As of March 31,
1998, there were no borrowings outstanding under the Corestates Facility. The
facility was extended in 1997 through December 31, 1998.
In November 1996, Kranzco obtained a $3.0 million secured line of
credit facility from Bank Leumi Trust Company of New York (the "Bank Leumi
Facility"). Amounts borrowed under the Bank Leumi Facility will bear interest
at 50 basis points above that bank's reference rate. Borrowings under the Bank
Leumi Facility are secured by a first mortgage lien on the Golfland Shopping
Center in Orange, Connecticut. There were no borrowings outstanding under this
facility as of March 31, 1998. The expiration date of the Bank Leumi Facility
was extended in 1997 to June 30, 1998. Kranzco is currently engaged in
discussions regarding the extension of the Bank Leumi Facility.
In February 1997, Kranzco obtained the Salomon Facility, a secured
first mortgage loan facility of up to $50 million from Salomon Brothers Realty
Corp. (the "Salomon Facility"). Fourteen of Kranzco's properties secure the
Salomon Facility. Amounts borrowed under the Salomon Facility will bear
interest at a rate equal to one month London Interbank Offering Rate ("LIBOR")
plus 175 basis points. The term of the Salomon Facility is for two years, with
an option for a one year renewal. As of March 31, 1998, Kranzco had $14
million of outstanding borrowings under this facility. The Salomon Facility
provides that the consolidated debt of Kranzco may not exceed 70% of Kranzco's
market capitalization, including Kranzco's outstanding preferred shares of
beneficial interest. In addition, the Salomon Facility provides that the ratio
of consolidated income available for service cannot be less than 1.75 to 1.
Kranzco does not have a policy limiting the number or amount of
mortgages that may be placed on any particular property, but mortgage
financing instruments usually limit additional indebtedness on such
properties. There are currently no restrictions on the amount of debt that
Kranzco may incur.
KRANZCO'S GENERAL INVESTMENT STRATEGIES
Permitted Investments and Activities
Kranzco intends to make acquisitions in a manner consistent with the
requirements of the Code applicable to REITs and related regulations with
respect to the composition of Kranzco's portfolio and the derivation of its
income. See "Material United States Federal Income Tax Considerations."
Kranzco has the authority to offer its shares of beneficial interest or other
senior securities in exchange for property and to repurchase or otherwise
reaquire Shares or any other securities.
Kranzco may acquire securities of other REITs or other issuers or
purchase or otherwise acquire its own Shares. However, except for the Exchange
Offer and the Proposed Related Transactions, Kranzco does not anticipate
investing in issuers of securities, other than REITs, for the purpose of
exercising control or underwriting securities of other issuers or acquiring
any investments primarily for sale in the ordinary course of business or to
hold any investments with a view to making short-term profits from their sale.
In any event, Kranzco does not intend that its investments in securities will
require Kranzco to register as an "investment company" under the Investment
Company Act of 1940, and Kranzco will divest securities before any such
registration would be required. In addition, Kranzco may, except as set forth
below, make loans to other entities or persons.
The Declaration of Trust of Kranzco permits the trustees, without the
approval of shareholders, to alter Kranzco's operating, acquisition, financing
and investment strategies if they determine in the future that such a change
is in the best interests of Kranzco and its shareholders.
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<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to
fixed charges for Kranzco for the periods indicated:
KRANZCO REALTY TRUST
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Three Months Ended March 31, For the 12 Months Ended Dec. 31,
----- ------ ----- ----- --- ---------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings
to Fixed Charges 1.19 1.27(1) 1.41(2) 1.50 1.72 1.99
====== ==== ==== ==== ==== ====
</TABLE>
(1) Excludes a $467,000 extraordinary loss on early extinguishment of debt.
(2) Excludes $11,052,000 extraordinary loss on refinancing.
(3) After giving effect to the Southeast Acquisition, the ratio of earnings
to fixed charges would have been 1.10 for the three months ended March
31, 1998 and 1.13 for the 12 months ended December 31, 1997.
For purposes of computing the ratio of earnings to fixed charges: (a)
earnings have been based on income (loss) from continuing operations before
fixed charges (exclusive of interest capitalized) and (b) fixed charges
consist of interest and amortization of deferred financing costs (including
amounts capitalized) and distributions on the Series A-1 Preferred Shares of
Beneficial Interest of Kranzco, the Series B Preferred Shares, the Series C
Preferred Shares of Beneficial Interest of Kranzco and the Series D Preferred
Shares of Beneficial Interest of Kranzco.
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<PAGE>
KRANZCO CAPITALIZATION
Capital Structure
The following table sets forth the consolidated capitalization of
Kranzco (i) as of March 31, 1998 and (ii) as adjusted to give effect to the
consummation of the Exchange Offer, the subsequent Distribution and the
Southeast Acquisition.
<TABLE>
<CAPTION>
As of March 31, 1998
--------------------
(In thousands)
Actual As adjusted
------ -----------
<S> <C> <C>
Debt:
Mortgage Loan ............................................... $ 181,700 $ 181,700
Credit Facilities ........................................... 14,000 36,000
Mortgage Loans .............................................. 61,501 127,501
____% Callable Convertible Subordinated Notes ............... 0 8,000
--------- ---------
Total debt ....................................... 257,201 353,201
--------- ---------
Redeemable preferred shares:
Series C cumulative redeemable preferred shares of
beneficial interest, 395,834 shares authorized,
178,200 shares issued and outstanding ..................... 1,782 1,782
--------- ---------
Beneficiaries' equity:
Series A-1 increasing rate
cumulative convertible preferred shares of
beneficial interest, 11,155 shares authorized,
11,155 shares issued and outstanding ...................... 1 1
Series B-1 and B-2 cumulative convertible preferred shares of
beneficial interest, 2,470,000 shares authorized,
1,183,331 shares issued and outstanding ................... 12 12
Series D cumulative redeemable preferred shares
of beneficial interest, 2,070,000
shares authorized, 1,800,000 issued and
outstanding ............................................... 18 18
Common shares of beneficial interest, $0.01 par
value per share; 10,444,054 shares issued
and outstanding ........................................... 104 104
Capital in excess of par value .............................. 261,647 261,647
Cumulative net income available for
common shareholders ....................................... 35,465 35,465
Cumulative distributions on common
shares of beneficial interest ............................. (101,784) (108,804)
--------- ---------
195,463 188,443
Unearned compensation on restricted
shares of beneficial interest ............................. (123) (123)
--------- ---------
Total beneficiaries' equity ...................... 195,340 188,320
--------- ---------
Total capitalization ............................. $ 454,323 $ 543,303
========= =========
</TABLE>
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<PAGE>
Summary of Indebtedness
The following is a summary, as of March 31, 1998, of the significant
terms of the indebtedness of Kranzco which will remain outstanding after the
Offer. The amounts reflected below are in thousands, other than the interest
rates.
<TABLE>
<CAPTION>
Principal Balance Interest
Indebtedness Property and Location March 31, 1998 Rate Maturity Date
- ------------ --------------------- -------------- ---- -------------
<S> <C> <C> <C> <C>
Mortgage Loan................... 27 Properties in $181,700 7.96% June 2003
various locations
Salomon Facility................ 14 Properties in 14,000 7.44%(1) February 2000
various locations
Mortgage........................ Marumsco-Jefferson 15,744 9.38% July 2004
Plaza in Woodbridge, VA
Mortgage........................ The Village at 10,557 9.22% August 2006
Mableton in Atlanta, GA
Mortgage........................ Park Plaza in Douglasville, GA 3,345 8.25% September 2001
Mortgage........................ Holcomb Bridge Crossing 6,490 8.20% November 2000
in Roswell, GA
Mortgage........................ Builder's Square in Flint, MI 2,769 8.50% October 2006
Mortgage........................ East Main Centre in 2,800 7.88% January 2003
Spartanburg, SC
Mortgage........................ Park Centre in Columbia, SC 4,480 7.63% April 2003
Mortgage........................ Campus Village in 2,660 8.00% December 2002
College Park, MD
Mortgage........................ Coral Hills in Coral Hills, MD 6,513 10.50% August 1999
Mortgage........................ Cary Plaza in Cary, NC 1,440 7.88% February 2009
Mortgage........................ Northpark Plaza in Macon, GA 4,703 7.75% January 2003
Callable Subordinated Con-
vertible Notes due 2008......... 8,000 _.__% _____ 2008
-----
Total $265,201
========
</TABLE>
- ------------------
(1) The Salomon Facility bears interest at a rate equal to one month LIBOR
plus 175 basis points, which interest rate was 7.44% at March 31, 1998.
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KRANZCO SELECTED FINANCIAL AND
OPERATING DATA (In thousands, except
ratio, property and per share data )
The following table sets forth selected financial, operating and
other data on a historical basis for Kranzco. Also set forth below are
selected pro forma financial, operating and other data for Kranzco at and for
the three months ended March 31, 1998 and the year ended December 31, 1997.
The pro forma balance sheet data as of March 31, 1998 has been prepared as if
the Exchange Offer, the subsequent Distribution, the Rights Offering and the
Concurrent Offering had occurred on March 31, 1998. The pro forma operating
and other data for the three months ended March 31, 1998 have been prepared as
if the Exchange Offer, the subsequent Distribution, the Rights Offering and
the Concurrent Offering had occurred on January 1, 1998. The pro forma
operating and other data for the year ended December 31, 1997 have been
prepared as if the foregoing transactions had occurred on January 1, 1997. The
pro forma financial and operating data do not give effect to the Concurrent
Offering and the Rights Offering, and are not necessarily indicative of what
the actual financial position or results of operations of Kranzco would have
been as of the date or for the periods indicated, nor do they purport to
represent the results of operations or financial position for future periods.
The five year selected historical data is incorporated by reference from
Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -----------------------
Pro Forma Historical Pro Forma Historical
--------- --------------- ---------- ----------------------------
1998 1998 1997 1997 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(unaudited)(unaudited)(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Minimum rent................................. $15,484 $13,407 $10,929 $ 61,679 $ 47,579 $ 41,665 $ 40,259
Percentage rent.............................. 330 310 268 1,382 1,163 1,042 1,044
Expense reimbursements....................... 3,017 2,839 2,697 12,812 11,165 11,732 10,988
Interest income.............................. 123 123 54 278 278 624 902
Other income................................. 158 28 31 586 127 117 277
------- ------- ------ ------ -------- ------- --------
Total revenue................................ 19,112 16,707 13,979 76,737 60,312 55,180 53,470
======= ======= ====== ====== ======== ====== ========
Expenses:
General and administrative, interest
and property operating costs................ 11,712 9,585 8,654 46,624 36,694 35,514 32,690
Depreciation and amortization................ 4,044 3,450 2,859 16,160 12,534 11,194 10,903
Income before extraordinary charge and
before preferred distributions................ 3,356 3,672 2,466 13,953 11,084 8,472 9,877
Extraordinary charge from early
extinguishment of debt and debt refinancing.. 0 0 0 0 467 11,052 0
------- ------- ------ ---------- -------- --------- --------
Net income (loss).............................. $3,356 $3,672 $2,466 $ 13,953 $ 10,617 $ (2,580) $ 9,877
======= ======= ====== ========== ======== ========= ========
Income before extraordinary
items per share ............................ $0.13 $0.16 $0.19 $ 0.54 $ 0.73 $ 0.75 $ 0.91
Distributions per share ....................... $0.48 $0.48 $0.48 $ 1.92 $ 1.92 $ 1.92 $ 1.92
Other Data (unaudited):
Cash flows provided by (used in)
Operating...................................... (1) 6,875 5,910 (1) 24,720 18,459 20,449
Investing...................................... (1) (3,557) (3,118) (1) (27,551) (3,059) (4,524)
Financing...................................... (1) (8,293) 2,598) (1) 8,953 (16,228) (13,720)
Funds from operations (1)...................... $ 5,285 $ 4,962 $ 4,723 $ 20,920 $ 19,428 $ 18,313 $ 19,278
Preferred share distributions.................. $ 2,013 $ 2,013 $ 465 $ 8,368 $ 3,565 $ 695 $ 485
Ratio of earnings to fixed charges (2)......... 1.11 1.19 1.37 1.13 1.27 1.41 1.50
Ratio of funds from operations to fixed
charges (3) 1.54 1.64 1.89 154 1.77 1.97 2.05
Total Properties (at end of period)............ 68 59 54 68 59 38 38
Total gross leasable area in sq. ft.
(at end of period, in thousands)............. 9,000 7,600 7,000 9,000 7,600 5,700 5,700
Balance Sheet Data (at end of
period):
Real estate, before accumulated
depreciation................................. $578,091 $491,091 $438,454 $484,741 $ 370,491 $368,073
Total assets................................... $554,630 $465,650 $423,117 $466,220 $ 359,157 $372,983
Total debt..................................... $353,201 $257,201 $246,034 $255,124 $ 212,590 $204,247
Kranzco Series C Preferred Shares.............. $ 1,782 $ 1,782 $ 3,564 $ 2,228 $ 0 $ 0
Beneficiaries' equity.......................... $188,320 $195,340 $153,501 $198,112 $ 137,013 $159,882
</TABLE>
-35-
<PAGE>
- ---------------
(1) Pro forma information relating to cash flows from operating, investing
and financing activities has not been included because management
believes that the information would not be meaningful due to the number
of assumptions required in order to calculate this information.
(2) Funds from Operations
<TABLE>
<CAPTION>
Three Months Ended March 31 Year Ended December 31
------------------------------------ -----------------------------------------------------
Pro Forma Historical Pro Forma Historical
-------------- -------------------- ------------ --------------------------------------
1998 1998 1997 1997 1997 1996 1995
-------------- ---------- -------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income available to common
shareholders 1,438 1,659 2,001 5,118 7,052 (3,274) 9,392
Loss on sale of real estate and
extraordinary items - - - 467 467 11,115 -
Amortization of leasing costs 86 86 63 385 385 337 228
Depreciation of investment in
real estate 3,761 3,217 2,659 14,950 11,524 10,135 9,658
Funds from Operations 5,285 4,962 4,723 20,920 19,428 18,313 19,278
</TABLE>
Management generally considers Funds From Operations to be a useful
measure of the operating performance of an equity REIT because, together
with net income and cash flows, Funds From Operations provides investors
with an additional basis to evaluate the ability of a REIT to incur and
service debt and to fund acquisitions and other capital expenditures.
Funds From Operations has been calculated in accordance with the
definition of funds from operations" clarified by the National
Association of Real Estate Investment Trusts, Inc. ("NAREIT") generally
as net income, computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt restructuring and sales
of property, plus depreciation and amortization (in each case only on
real estate related assets) and after adjustments for unconsolidated
partnerships and joint ventures, less preferred share distributions.
Funds From Operations does not represent net income or cash flows from
operating, investing or financing activities as defined by GAAP. Funds
From Operations should not be considered as a substitute for net income
as an indication of Kranzco's performance or as a substitute for cash
flows as a measure of its liquidity. Furthermore, Funds From Operations
as disclosed by other REIT's may not be comparable to Kranzco's
calculation of Funds From Operations.
(3) For purposes of these computations, earnings consist of income before
extraordinary charges, if any, plus preferred share distributions,
interest expense and amortization of debt expense. Fixed charges include
interest, whether expensed or capitalized, amortization of debt expense
and preferred share distributions.
(4) For purposes of these computations, funds from operations include
interest and preferred share distributions and excludes amortization of
debt expense.
-36-
<PAGE>
KRANZCO REALTY TRUST PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
The accompanying financial statements present the unaudited pro forma
combined condensed Balance Sheet of Kranzco as of March 31, 1998 and the
unaudited pro forma combined condensed Statements of Operations of Kranzco for
the three months ended March 31, 1998 and for the year ended December 31,
1997, in each case after giving effect to the Exchange Offer and the
subsequent Distribution (the "Transactions") and the Southeast Acquisition.
The unaudited pro forma combined condensed Balance Sheet as of March
31, 1998 is presented as if the Transactions and the Southeast Acquisition
occurred on March 31, 1998. The unaudited pro forma combined condensed
Statements of Operations for the three months ended March 31, 1998 and for the
year ended December 31, 1997 are presented as if the Transactions and the
Southeast Acquisition had occurred on January 1, 1997. However, the unaudited
pro forma combined condensed Balance Sheet as of March 31, 1998 and the
unaudited pro forma condensed statements of operations for the three months
ended March 31, 1998 and for the year ended December 31, 1997 do not reflect
the impact of the Rights Offering or the Concurrent Offering.
Preparation of the pro forma financial information was based on
assumptions deemed appropriate by the management of Kranzco. The assumptions
give effect to the Transactions and the Southeast Acquisition in accordance
with generally accepted accounting principles, the entity qualifying as a
REIT, distributing all of its taxable income and, therefore, incurring no
federal income tax expense during the periods presented. The pro forma
financial information is unaudited and is not necessarily indicative of the
results which actually would have occurred if the transactions had been
consummated at the beginning of the periods presented, nor does it purport to
represent 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 incorporated by reference into this
Prospectus.
-37-
<PAGE>
KRANZCO REALTY TRUST
PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Kranzco Southeast Exchange Pro Forma
(Historical) Acquisition Offer Distribution Total
------------ ----------- -------- ------------ ---------
(A) (B) (C)
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Shopping centers, at cost, net...................... $ 441,063 $ 87,000 $ 0 $ 0 $ 528,063
Cash and marketable securities...................... 6,448 0 0 0 6,448
Restricted cash..................................... 1,185 0 0 0 1,185
Rents and other receivables, net.................... 9,732 0 0 0 9,732
Prepaid expenses.................................... 2,067 0 0 0 2,067
Deferred financing costs, net....................... 1,828 1,000 0 0 2,828
Other deferred costs, net........................... 2,155 0 0 0 2,155
Other assets........................................ 1,172 0 0 0 1,172
Investment in NAI................................... 0 8,000 (7,020) 980
------------ --------- -------- -------- ---------
Total assets........................................ $ 465,650 $ 88,000 $ 8,000 $ (7,020) $ 554,630
============ -------- ======== ======== ==========
Liabilities:
Mortgages and notes payable......................... $ 257,201 $ 88,000 $ 8,000 $ 0 $ 353,201
Tenant security deposits............................ 1,364 0 0 0 1,364
Accounts payable and accrued expenses............... 2,772 0 0 0 2,772
Other liabilities................................... 574 0 0 0 574
Distributions payable............................... 6,617 0 0 0 6,617
------------ --------- -------- -------- ---------
Total liabilities................................... 268,528 88,000 8,000 0 364,528
------------ --------- -------- -------- ---------
Series C Preferred Shares........................... 1,782 0 0 0 1,782
Beneficiaries Equity:
Common shares and Preferred shares.................. 135 0 0 0 135
Capital in excess of par value...................... 261,647 0 0 0 261,647
Cumulative net income available to common
shareholders...................................... 35,465 0 0 0 35,465
Cumulative distributions on common shares........... (101,784) 0 0 (7,020) (108,804)
----------- --------- -------- ------- --------
195,463 0 0 (7,020) 188,443
Unearned compensation on restricted common shares... (123) 0 0 0 (123)
----------- --------- -------- -------- --------
Total beneficiaries' equity......................... 195,340 0 0 (7,020) 188,320
------------ --------- -------- -------- ---------
Total liabilities, Series C Preferred Shares
and beneficiaries' equity......................... $ 465,650 $ 88,000 $ 8,000 $ (7,020) $ 554,630
============ ========= ======== ========= ==========
</TABLE>
-38-
<PAGE>
NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA COMBINED
CONDENSED BALANCE SHEET FOR KRANZCO REALTY TRUST
As of March 31, 1998
<TABLE>
<CAPTION>
(Dollar and share
amounts in
Acquired Recapitalized thousands)
-------- ------------- --------------
<S> <C> <C> <C>
(A) Adjustment to reflect the Southeast Acquisition:
Purchase Price $ 84,750
Costs 2,250
-----------
Total 87,000
Deferred financing costs 1,000
-----------
Total assets $ 88,000
============
First mortgage $ 66,000
Credit lines 22,000
------------
Total debt $ 88,000
============
(B) Adjustment to reflect acquisition of 80% of NAI:
Shares 10,380 13,661
Purchase Price $ 8,000
-----------
Issuance of Callable Subordinated Convertible Notes $ 8,000
===========
(C) To reflect the distribution of NAI shares to Kranzco's shareholders:
Shares distributed 11,987 Basis $ 7,020
============
</TABLE>
-39-
<PAGE>
KRANZCO REALTY TRUST
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
for the Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Kranzco Southeast Kranzco
(Historical) Acquisition Transactions (Pro Forma)
------------ ----------- ------------ -----------
(I)
(Dollar and share amounts in thousands except per share amounts)
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent...................................... $ 13,407 $ 2,077 $ 0 $ 15,484
Percentage rent................................... 310 20 0 330
Expense reimbursements............................ 2,839 178 0 3,017
Other income...................................... 28 0 130(C) 158
Interest income................................... 123 0 0 123
----------- -------- ------ ---------
Total revenue..................................... 16,707 2,275 130 19,112
----------- -------- ------ ---------
EXPENSES:
Interest.......................................... 4,871 1,733 (J) 120(C) 6,724
Depreciation and amortization..................... 3,450 594 (K) 0 4,044
Real estate taxes................................. 1,804 123 0 1,927
Operations and maintenance........................ 2,101 151 0 2,252
General and administrative........................ 809 0 0 809
----------- -------- ------ ---------
Total expenses.................................... 13,035 2,601 120 15,756
----------- -------- ------ ---------
Net Income........................................ 3,672 (326) 10 3,356
DISTRIBUTIONS ON PREFERRED SHARES................. 2,013 0 0 2,013
----------- -------- ------ ---------
Net income attributable to common shareholders.... $ 1,659 $ (326) $ 10 $ 1,343
=========== -------- ======= ==========
Basic Earnings Per Common Share................... $ 0.16 $ 0.13
=========== ==========
Diluted Earnings Per Common Share................. $ 0.16 $ 0.13
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OF BENEFICIAL INTEREST..................... 10,424 10,424
</TABLE>
The accompanying notes and management's assumptions are an integral
part of this statement.
-40-
<PAGE>
KRANZCO REALTY TRUST
PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
for the Year Ended December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Georgia
Acquisition/
UPI Issuance of Payoff
Kranzco Acquisition (A) Preferred of existing Kranzco
(Historical) (1/1-2/27/97) Shares (B) Debt Total
------------ ------------- ------------- ----------- -------
(Dollar and share amounts in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
REVENUE:
Minimum rent.......................... $ 47,579 $ 1,194 $ 4,668 $ 0 $ 53,441
Percentage rent....................... 1,163 4 0 0 1,167
Expense reimbursements................ 11,165 152 692 0 12,009
Other income.......................... 127 0 0 0 127
Interest income....................... 278 0 0 0 278
---------- ----------- ----------- ---------- ----------
Total revenue......................... 60,312 1,350 5,360 0 67,022
---------- ----------- ----------- ---------- ----------
EXPENSES:
Interest.............................. 18,887 498 1,765(D) (1,862)(E) 19,288
Depreciation and amortization......... 12,534 228(F) 1,023(G) 0 13,785
Real estate taxes..................... 6,584 83 394 0 7,061
Operations and maintenance............ 8,346 96 482 0 8,924
General and administrative............ 2,877 0 0 0 2,877
---------- ----------- ----------- ---------- ----------
Total expenses........................ 49,228 905 3,664 (1,862) 51,935
---------- ----------- ----------- --------- ----------
Net income............................ 11,084 445 1,696 1,862 15,087
DISTRIBUTIONS ON PREFERRED
SHARES................................ 3,565 528 4,275(H) 0 8,368
---------- ----------- ----------- ---------- ----------
Net income attributable to common
shareholders.......................... $ 7,519 $ (83) $ (2,579) $ 1,862 $ 6,719
========== =========== =========== ========== ==========
Basic Earnings Per Common Share....... $ 0.73 $ 0.64
========== ==========
Diluted Earnings Per Common Share..... $ 0.73 $ 0.64
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OF BENEFICIAL
INTEREST.............................. 10,342 10,426
<CAPTION>
Southeast Kranzco
Acquisition Transactions (Pro Forma)
----------- ------------ -----------
(I)
(Dollar and share amounts in thousands
except per share amounts)
<S> <C> <C> <C>
REVENUE:
Minimum rent.......................... $ 8,238 $ 0 $ 61,679
Percentage rent....................... 215 0 1,382
Expense reimbursements................ 803 0 12,812
Other income.......................... 0 459 (C) 586
Interest income....................... 0 0 278
-------- -------- ---------
Total revenue......................... 9,256 631 76,737
-------- -------- ---------
EXPENSES:
Interest.............................. 6,930 (J) 480 (C) 26,698
Depreciation and amortization......... 2,375 (K) 0 16,160
Real estate taxes..................... 420 0 7,481
Operations and maintenance............ 644 0 9,568
General and administrative............ 0 0 2,877
-------- -------- ---------
Total expenses........................ 10,369 480 62,784
-------- -------- ---------
Net income............................ (1,113) (21) 13,953
DISTRIBUTIONS ON PREFERRED
SHARES................................ 0 0 8,368
-------- -------- ---------
Net income attributable to common
shareholders.......................... $(1,113) $ (21) $ 5,585
======= ======== =========
Basic Earnings Per Common Share....... $ 0.54
=========
Diluted Earnings Per Common Share..... $ 0.54
==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OF BENEFICIAL
INTEREST.............................. 10,426
</TABLE>
The accompanying notes and management's assumptions are an integral
part of this statement.
-41-
<PAGE>
Footnotes to Pro Forma Combined Condensed Statement of Operations (Unaudited)
The extraordinary loss of $467 on early extinguishment of debt recorded in the
fourth quarter of 1997 by Kranzco has been excluded from the pro forma
presentation of the Statement of Operations.
(A) In February 1997, Kranzco acquired from Union Property Investors, Inc.
("UPI") 16 properties located in 11 states for approximately $65 million,
aggregating approximately 1.3 million square feet of GLA (the "UPI
Acquisition"). This adjustment reflects the operations of UPI.
(B) In December 1997, Kranzco acquired five shopping centers in the Atlanta
metropolitan area (the "Georgia Properties") aggregating approximately
650,000 square feet of GLA, for approximately $44 million (the "Georgia
Acquisition"). This adjustment reflects the operations of the Georgia
Properties.
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- ------------
<S> <C> <C>
(C) To reflect interest expense relating to the Transactions, consulting
fees paid to Kranzco by NAI and Kranzco's share (9.8%) of the income
of NAI.
Shares acquired (80% of the outstanding shares) 10,380 10,380
Acquisition price $8,000 $8,000
Interest rate (assumed for purposes of pro forma statements) 6.00% 6.00%
Interest expense $120 $480
Fees payable to Kranzco under the Intercompany Agreement $125 $500
NAI's Income (for the three months ended March 31, 1998
and for the twelve months ended December 31, 1997) $53 $(420)
Kranzco's share $5 $(41)
The following reflects Kranzco's share of NAI's net income (loss) at
the three different scenarios relating to the number of Underlying
shares, Excess shares and Additional shares issued:
Maximum $ 47 $ 126
Moderate $ 27 $ 46
Minimum $ 5 $ (41)
(D) To reflect the interest expense on the mortgages assumed in the Georgia
Acquisition as follows:
Debt assumed N/A $20,435
Interest expense N/A $1,862
(E) To record the repayment of debt outstanding and the related reduction of
interest expense as follows:
Principal amount of debt repayment N/A $19,894
Interest expense reduction on debt repayment N/A $1,862
(F) The depreciation and amortization amounts include pro forma adjustments
as a result of the UPI Acquisition. N/A $228
(G) To reflect depreciation expense over a 30 year life as a result of the
Georgia Acquisition as follows:
Depreciable basis of property N/A $30,702
Depreciation expense N/A $1,023
</TABLE>
-42-
<PAGE>
(H) To record the distributions on the issuance of Series D Preferred Shares:
Shares issued N/A 1,800
Face amount per share N/A $25.00
Gross Proceeds N/A $45,000
Distribution rate N/A 9.50%
Distributions N/A $4,275
(I) To reflect operating results of the Southeast Acquisition properties.
(J) To record interest on the debt incurred in connection with the Southeast
Acquisition:
<TABLE>
<CAPTION>
Rate Debt
<S> <C> <C> <C> <C>
First Mortgage 7.50% $ 66,000 $ 1,238 $ 4,950
Credit Lines 9.00% 22,000 495 1,980
---------- -------- --------
Total $ 88,000 $ 1,733 $ 6,930
======== ========
</TABLE>
<TABLE>
<S> <C> <C> <C>
(K) To record depreciation and
amortization on the Southeast
Acquisition properties:
Purchase price $ 84,750
Costs 2,250
---------
Total depreciation $ 87,000 $ 544 $ 2,175
Amortization on $1,000 of deferred
financing costs $ 50 $ 200
-------- --------
Total depreciation and amortization $ 594 $ 2,375
======== ========
</TABLE>
-43-
<PAGE>
NAI CAPITALIZATION
The following table sets forth the capitalization of NAI (i) as of
March 31, 1998 and (ii) as adjusted to give effect to the consummation of the
Exchange Offer, the subsequent Distribution, the Rights Offering and the
Concurrent Offering and assuming all of the Underlying Shares and Additional
Shares are purchased.
<TABLE>
<CAPTION>
As of March 31, 1998
--------------------
(In thousands)
--------------
Actual As adjusted(1)
------ --------------
<S> <C> <C>
Debt:
Stockholders loans..................................................... $ 441 $ 0
Long-term debt ..................................................... 75 0
-- -
Total debt........................................... 516 0
--- -
Convertible Preferred Stock; $0.01 par value per share;
101,000 shares issued and outstanding; (0 as adjusted)................. 202 0
-------- ------------
Stockholders' equity (deficit):
Common stock, $.01 par value; 200,000,000 authorized,
12,974,414 shares issued and outstanding; (36,202,812
as adjusted) ..................................................... 134 362
Capital in excess of par value......................................... 2,553 39,245(3)(4)
Retained earnings (deficit)............................................ (3,479) (3,479)
------- -------
(792) 36,128
Treasury stock, at cost ............................................... (234)(2) 0(3)
------- -------------
Total stockholders' equity (deficit)................. (1,026) 36,128
------- -------------
Total capitalization................................. $ (308) $ 36,128
======== =============
</TABLE>
(1) The following table presents the capitalization of NAI, as adjusted to
give effect to the consummation of the Exchange Offer, the subsequent
Distribution, the Rights Offering and the Concurrent Offering and assuming the
purchase of (a) a minimum number of Underlying Shares, Excess Shares and
Additional Shares (an aggregate of 930,000 NAI Shares) and (b) a moderate
number of Underlying Shares, Excess Shares and Additional Shares (an aggregate
of 10,000,000 NAI Shares):
<TABLE>
<CAPTION>
Pro Forma
------------------------------------
(In thousands)
(Minimum) (Moderate)
(a) (b)
<S> <C> <C>
Total debt...................................... $ 0 $ 0
Convertible preferred stock..................... $ 0 $ 0
Common stock.................................... $ 180 $ 271
Capital in excess of par value.................. $ 3,133(3)(4) $ 21,182(3)(4)
Retained earnings (deficit)..................... $ (3,479) $ (3,479)
Treasury stock.................................. $ 0(3) $ 0(3)
Total capitalization....................... $ (166) $ 17,974
NAI Shares outstanding.......................... 18,032 27,101
</TABLE>
(2) Includes 434,675 NAI Shares issued and held as treasury stock as of March
31, 1998.
(3) Represents the retirement of 434,675 NAI Shares of treasury stock valued
at $233,868, as adjusted.
(4) Includes approximately $1,000,000 of transaction costs reflected as a
reduction of equity.
-44-
<PAGE>
NAI SELECTED FINANCIAL AND
OPERATING DATA (In thousands, except ratio,
property data and per share data)
The following sets forth selected financial, operating and other data
on an historical basis for NAI. Also set forth below are selected pro forma
financial, operating and other data for NAI at and for the nine months ended
March 31, 1998 and the year ended June 30, 1997. The pro forma balance sheet
data as of March 31, 1998 has been prepared as if the Exchange Offer and the
Distribution had occurred on March 31, 1998. The pro forma operating and other
data for the nine months ended March 31, 1998 have been prepared as if the
consummation of the Exchange Offer and the Distribution had occurred on July
1, 1997. The pro forma operating and other data for the year ended June 30,
1997 have been prepared as if the foregoing transactions had occurred on July
1, 1996. The pro forma financial and operating data do not give effect to the
Concurrent Offering and the Rights Offering, and are not necessarily
indicative of what the actual financial position or results of operations of
NAI would have been as of the date or for the periods indicated, nor do they
purport to represent the results of operations or financial position for
future periods. This data should be read in conjunction with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended March 31, Year Ended June 30,
--------------------------------------- ------------------------------------------
Pro Forma Historical Pro Forma Historical
--------- --------------------- --------- --------------------
1998 1998 1997 1997 1997 1996
---- ---- ---- ---- ---- ----
OPERATING DATA: (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Commissions .................... $ 2,836 $ 2,836 $ 2,910 $ 4,001 $ 4,001 $ 4,124
License fees ................... 1,128 1,128 923 1,282 1,282 1,373
Other .......................... 474 474 563 618 618 523
Interest ....................... 0 0 0 0 0 0
-------- -------- -------- -------- --------
Total revenue .................. 4,438 4,438 4,396 5,901 5,901 6,020
-------- -------- -------- -------- -------- --------
Costs and expenses:
Commission expense ............. 602 602 788 1,143 1,143 1,782
Sales and marketing ............ 277 277 194 321 321 285
Compensation and benefits ...... 1,832 1,832 1,911 2,528 2,528 2,438
Operating expense .............. 1,953 1,578 1,187 2,144 1,644 1,475
Depreciation and amortization .. 40 40 37 52 52 56
Interest, net .................. 47 47 47 60 60 48
-------- -------- -------- -------- -------- --------
Total costs and expenses ....... 4,751 4,376 4,164 6,248 5,748 6,084
-------- -------- -------- -------- -------- --------
Income (loss) from operations .. (313) 62 232 (347) 153 (64)
-------- -------- -------- -------- -------- --------
Other expenses:
Equity in loss of affiliate .... 12 12 15 25 25 5
Loss on sale of real estate .... 0 0 0 0 0 0
-------- -------- -------- -------- -------- --------
Total other expenses ........... 12 12 15 25 25 5
-------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes (325) 50 217 (372) 128 (69)
Income taxes ................... 5 5 0 0 0 0
-------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations ................... (330) 45 217 (372) 128 (69)
Loss from discontinued
operations ................... 7 0 162 0 223 128
-------- -------- -------- -------- -------- --------
Net income (loss) .............. (330) 45 55 (372) (95) (197)
Preferred share distributions .. 0 7 8 0 11 13
-------- -------- -------- -------- -------- --------
Net income (loss) available to
common shareholders ............ $ (330) $ 38 $ 47 $ (372) $ (106) $ (210)
======== ======= ========= =======
Net income (loss) per share .... $ (0.02) $ 0.00 $ 0.00 $ (0.02) $ (0.01) $ (0.02)
======== ======== ======== ======== ======== ========
Other data (unaudited):
Cash flows provided by (used in)
Operating ........................ (1) 189 313 (1) 233 158
Investing ........................ (1) (41) (196) (1) (260) (277)
Financing ........................ (1) 11 (8) (1) 13 (7)
Common shares outstanding ........ 17,101 12,974 12,888 16,965 12,871 12,863
Weighted average shares
outstanding ...................... 17,075 12,954 12,888 16,981 12,883 12,860
Ratio of EBITDA to fixed charges . (2.74) 1.46 3.27 (2.32) 1.95 0.30
EBITDA ........................... $ (238) $ 137 $ 301 $ (260) $ 240 $ 35
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------
Historical
------------------------------------------
1995 1994 1993
---- ---- ----
OPERATING DATA: (unaudited) (unaudited)
<S> <C> <C> <C>
Revenue:
Commissions .................... $ 4,371 $ 2,312 $ 2,563
License fees ................... 1,158 1,081 1,007
Other .......................... 470 427 384
Interest ....................... 0 0
-------- -------- --------
Total revenue .................. 5,999 3,820 3,954
-------- -------- --------
Costs and expenses:
Commission expense ............. 1,485 839 790
Sales and marketing ............ 324 274 283
Compensation and benefits ...... 1,981 1,895 1,648
Operating expense .............. 1,336 1,161 1,018
Depreciation and amortization .. 45 53 152
Interest, net .................. 46 37 43
-------- -------- --------
Total costs and expenses ....... 5,217 4,259 3,934
-------- -------- --------
Income (loss) from operations .. 782 (439) 20
-------- -------- --------
Other expenses:
Equity in loss of affiliate .... 0 0 0
Loss on sale of real estate .... 65 0 0
-------- -------- --------
Total other expenses ........... 65 0 0
-------- -------- --------
Income (loss) from continuing
operations before income taxes 717 (439) 20
Income taxes ................... 35 0 0
-------- -------- --------
Income (loss) from continuing
operations ................... 682 (439) 20
Loss from discontinued
operations ................... 392 0 0
-------- -------- --------
Net income (loss) .............. 290 (439) 20
Preferred share distributions .. 15 0 0
-------- -------- --------
Net income (loss) available to
common shareholders ............ $ 275 $ (439) $ 20
======== ======== ========
Net income (loss) per share .... $ 0.02 $ (0.03) $ 0.00
======== ======== ========
Other data (unaudited):
Cash flows provided by (used in)
Operating ........................ 593 10 141
Investing ........................ (260) (113) (241)
Financing ........................ (156) 48 (73)
Common shares outstanding ........ 12,782 12,523 12,655
Weighted average shares
outstanding ...................... 12,648 12,589 12,652
Ratio of EBITDA to fixed charges . 7.62 (3.88) 1.10
EBITDA ........................... $ 808 ($ 349) $ 215
</TABLE>
-45-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance sheet data (1995 unaudited):
Total assets.................. $ 1,829 $ 1,829 $ 1,807 $ 1,689 $ 1,732 $1,649 $ 1,177 $ 1,447
Total debt.................... $ 643 $ 643 $ 550 $ 575 $ 496 $ 441 $ 482 $ 358
Shareholders' deficit......... $(1,026) $(1,026) $ (983) $(1,090) $(1,008) $(837) $ (1,176) $(44)
</TABLE>
- -----------------------------------
(1) Pro forma information relating to cash flows from operating, investing
and financing activities has not been included because management
believes that the information would not be meaningful due to the number
of assumptions required in order to calculate this information.
(2) For purposes of these computations, EBITDA consists of income before
interest expense, taxes, depreciation and amortization. Fixed charges
include interest expense, depreciation and amortization, and preferred
share distributions. Management believes that EBITDA provides additional
information about the Company's ability to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not a
measure of financial performance under GAAP and should not be considered
an alternative either to net income as an indicator of NAI's performance
or to cash flows as a measure of its liquidity. EBITDA as disclosed by
other Companies may not be comparable to the Company's calculation of
EBITDA.
-46-
<PAGE>
NEW AMERICA NETWORK, INC. PRO FORMA
CONDENSED FINANCIAL INFORMATION
The accompanying financial statements present the unaudited pro forma
condensed Balance Sheet of NAI as of March 31, 1998, the unaudited pro forma
condensed Statements of Operations of NAI for the nine months ended March 31,
1998 and for the year ended June 30, 1997, in each case after giving effect to
the Transactions.
The unaudited pro forma combined condensed Balance Sheet as of March
31, 1998 is presented as if the Transactions had occurred on March 31, 1998.
The unaudited pro forma condensed Statements of Operations for the nine months
ended March 31, 1998 and for the year ended June 30, 1997 are presented as if
the Transactions had occurred on July 1, 1996. However, the unaudited pro
forma combined condensed Balance Sheet as of March 31, 1998 and the unaudited
pro forma condensed Statements of Operations for the nine months ended March
31, 1998 and the year ended June 30, 1997 do not reflect the impact of the
Rights Offering or the Concurrent Offering.
Preparation of the pro forma financial information was based on
assumptions deemed appropriate by the management of NAI. The assumptions give
effect to the Transactions in accordance with generally accepted accounting
principles. The pro forma financial information is unaudited and is not
necessarily indicative of the results which actually would have occurred if
the Transactions had been consummated at the beginning of the periods
presented, nor does it purport to represent 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 NAI included
in this Prospectus.
-47-
<PAGE>
NEW AMERICA NETWORK, INC. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
As of March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
March 31,
Historical Reincorporation Merger(A) 1998
---------- ------------------------- ---------
<S> <C> <C> <C>
Assets:
Current assets:
Cash.............................................. $ 220 $ 0 $ 220
Accounts receivable............................... 787 0 787
Commissions receivable............................ 637 0 637
Notes and other receivables....................... 6 0 6
Other current assets.............................. 20 0 20
----------- ---------- -----------
Total current assets.............................. 1,670 0 1,670
----------- ---------- -----------
Property and equipment (net)........................... 156 0 156
Other assets........................................... 3 0 3
----------- ----------- -----------
Total assets...................................... $ 1,829 $ 0 $ 1,829
=========== =========== ===========
Liabilities and stockholders' equity:
Current liabilities
Accounts payable and accrued expenses............. $ 1,016 $ 0 $ 1,016
Accrued interest.................................. 72 0 72
Current portion of long-term debt................. 127 0 127
Stockholder loans................................. 441 0 441
Deferred revenue.................................. 922 0 922
----------- ----------- -----------
Total current liabilities......................... 2,578 0 2,578
----------- ----------- -----------
Long-term debt......................................... 75 0 75
-- ----------- -----------
Total liabilities................................. 2,653 0 2,653
----------- ----------- -----------
Redeemable convertible preferred stock................. 202 0 202
----------- ----------- -----------
Stockholders' equity:
Preferred stock................................... 0 0 0
Common stock...................................... 134 0 134
Additional paid-in capital........................ 2,553 (234) (E) 2,319
Accumulated deficit............................... (3,479) 0 (3,479)
Treasury stock, at cost........................... (234) 234 (E) -
----------- ----------- -----------
Total stockholders' equity........................ (1,026) 0 (1,026)
----------- ----------- -----------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity $ 1,829 $ 0 $ 1,829
=========== =========== ===========
</TABLE>
The accompanying notes and management's assumption are an integral
part of this statement.
-48-
<PAGE>
NOTES AND MANAGEMENT'S ASSUMPTIONS TO NAI'S PRO FORMA BALANCE SHEET
as of March 31, 1998
A) The pro forma balance sheet does not reflect the receipt of proceeds of the
Rights Offering and Concurrent Offering; because there is no standby
underwriter the proceeds of such offerings cannot be determined at this time.
The following supplemental adjusted pro forma information reflects the impact
of proceeds of the Rights Offering and Concurrent Offering based on three
different scenarios relating to the number of Underlying Shares, Excess Shares
and Additional Shares issued, as described in (B), (C), (D) and (E) below.
Adjusted Pro Forma Condensed Consolidating Balance Sheet
<TABLE>
<CAPTION>
Historical Adjusted Pro Forma March 31, 1998
---------------------------------
(Maximum) (Moderate) (Minimum)
<S> <C> <C> <C> <C>
Total assets (B) (D) $ 1,829 $ 38,113 $ 19,912 $ 1,772
--------- ---------- -------- ---------
Total liabilities (C) 2,653 1,938 1,938 1,938
Redeemable convertible preferred stock (D) 202 - - -
Stockholders' equity (E) (1,026) 36,175 17,974 (166)
-------- ---------- -------- --------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity $ 1,829 $ 38,113 $ 19,912 $ 1,772
========= ========== ======== =========
B) To reflect the recapitalization of NAI shares
(through the Reincorporation Merger) and reflect the
Rights Offering and the Concurrent Offering, net
of costs, at maximum, moderate and minimum levels. Maximum Moderate Minimum
------- -------- -------
12,974 12,974 12,974
Recapitalization factor 1.318087 1.318087 1.318087
NAI Shares outstanding after recapitalization 17,101 17,101 17,101
To reflect the Rights Offering and the Concurrent
Offering, net of costs:
Underlying Shares and Additional Shares issued 19,101 10,000 930
Subscription price per NAI Share $ 2.00 $ 2.00 $ 2.00
-------- -------- ---------
Gross proceeds from the Rights Offering
and the Concurrent Offering $ 38,202 $ 20,000 $ 1,860
Less: Offering costs $ 1,000 $ 1,000 $ 1,000
-------- -------- ---------
Net proceeds from the Rights Offering
and the Concurrent Offering $ 37,202 $ 19,000 $ 860
C) To reflect use of proceeds to pay down
outstanding notes, loans payable and accrued interest.
Accrued interest $ 72 $ 72 $ 72
Current Portion of Long-Term Debt 127 127 127
Stockholder Loans 441 441 441
Long-term Debt 75 75 75
-------- -------- ---------
Total liabilities $ 715 $ 715 $ 715
======== ======== =========
D) To reflect the settlement of the liabilities
associated with the redemption of the redeemable
convertible preferred shares. $ 202 $ 202 $ 202
E) To reflect the retirement of the Treasury Stock.
</TABLE>
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<PAGE>
NEW AMERICA NETWORK, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the Nine Months Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
March 31,
Historical Reincorporation Merger(A) 1998
---------- ------------------------- ---------
<S> <C> <C> <C>
Revenue:
Commissions....................................... $ 2,836 $ 0 $ 2,836
License fees...................................... 1,128 0 1,128
Other............................................. 474 0 474
Interest income................................... 0 0 0
- - -
Total revenue..................................... 4,438 0 4,438
----------- ---------- -----------
Costs and expenses:
Commission expense................................ 602 0 602
Sales and marketing............................... 277 0 277
Compensation and benefits......................... 1,832 0 1,832
Operating expense................................. 1,578 375 (B) 1,953
Depreciation and amortization..................... 40 0 40
Interest, net..................................... 47 0 47
----------- ---------- -----------
Total costs and expenses.......................... 4,376 375 4,751
----------- ---------- -----------
Income (loss) from operations.......................... 62 (375) (313)
Other expenses:
Loss in investment in NAIS............................. 12 0 12
----------- ---------- -----------
Total other expense............................... 12 0 12
----------- ---------- -----------
Income taxes........................................... 5 0 5
----------- ---------- -----------
Net income (loss)...................................... 45 (375) (330)
Preferred share distributions.......................... 7 (7) (E) 0
----------- ---------- -----------
Net income (loss) available to common shareholders..... $ 38 $ (368) $ (330)
=========== ========== ==========
Basic and diluted earnings per common share............ $ 0.00 $ (0.02)
=========== ===========
Basic and diluted earnings per recapitalized common share $ 0.00 $ (0.02)
=========== ===========
Weighted average number of
common shares outstanding............................ 12,954
Weighted average number of common
shares and equivalents outstanding................... 13,080
After recapitalization
- ----------------------
Weighted average number of
common shares outstanding............................ 17,075 17,075
Weighted average number of common shares and
equivalents outstanding.............................. 17,201 17,201
</TABLE>
-50-
<PAGE>
NEW AMERICA NETWORK, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the Year Ending June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
June,
Historical Reincorporation Merger(A) 30 1997
---------- ------------------------- -------
<S> <C> <C> <C>
Revenue:
Commissions....................................... $ 4,001 $ 0 $ 4,001
License fees...................................... 1,282 0 1,282
Other............................................. 618 0 618
Interest income................................... 0 0 0
----------- ---------- -----------
Total revenue..................................... 5,901 0 5,901
----------- ---------- -----------
Costs and expenses:
Commission expense................................ 1,143 0 1,143
Sales and marketing............................... 321 0 321
Compensation and benefits......................... 2,528 0 2,528
Operating expenses................................ 1,644 500 (B) 2,144
Depreciation and amortization..................... 52 0 52
Interest, net..................................... 60 0 60
----------- ---------- -----------
Total costs and expenses.......................... 5,748 500 6,248
----------- ---------- -----------
Income from operations................................. 153 (500) (347)
Other expenses:
Loss in investment in NAIS............................. 25 0 25
----------- ---------- -----------
Total other expenses.............................. 25 0 25
----------- ---------- -----------
Income taxes........................................... 0 0 0
----------- ---------- -----------
Net income (loss)...................................... 128 (500) (372)
Distributions on preferred shares...................... 11 (11) (E) 0
----------- ---------- -----------
Net income (loss) available to common shareholders..... $ 117 $ (489) $ (372)
=========== ========== ==========
Basic and diluted earnings per common share............ $ 0.01 $ (0.02)
=========== ==========
Basic and diluted earnings per recapitalized common share $ 0.01 $ (0.02)
=========== ==========
Weighted average number of
common shares outstanding............................ 12,883
Weighted average number of common
shares and equivalents outstanding.................. 13,035
After recapitalization
- ----------------------
Weighted average number of
common shares outstanding............................ 16,981 16,981
Weighted average number of common shares and
equivalents outstanding.............................. 17,133 17,133
</TABLE>
The accompanying notes and management's assumptions are
an integral part of this statement.
-51-
<PAGE>
Footnotes to NAI's Pro Forma Consolidated Statements of Operations for the
year ended June 30, 1997 and the Nine Months ended March 31, 1998.
The Loss from Discontinued Operations is eliminated for purposes of the Pro
Forma Consolidated Statements of Operations for the year ended June 30, 1997.
A) The pro forma balance sheet does not reflect the receipt of proceeds of the
Rights Offering and Concurrent Offering; because there is no standby
underwriter the proceeds of such offerings cannot be determined at this time.
The following supplemental adjusted pro forma information reflects the impact
of proceeds of the Rights Offering and Concurrent Offering based on three
different scenarios relating to the number of Underlying Shares, Excess Shares
and Additional Shares issued, as described in (B), (C), (D) and (E) below.
Pro Forma Statement of Operations for the nine months ended March 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma March 31, 1998
---------- ------------------------------------------------
(Maximum) (Moderate) (Minimum)
<S> <C> <C> <C> <C>
Total revenue (C) $ 4,438 $ 5,676 $ 5,057 $ 4,438
Total costs and expenses (B), (D) 4,376 4,704 4,704 4,704
--------- ---------- -------- ---------
Income (loss) from operations 62 972 353 (266)
Total other expense 12 12 12 12
Income taxes 5 5 5 5
--------- ---------- -------- ---------
Net income (loss) 45 955 336 (283)
Preferred share distributions (E) 7 - - -
--------- ---------- -------- ---------
Net income (loss) available for common
shareholders $ 38 $ 955 $ 336 $ (283)
--------- ---------- -------- ---------
Basic and diluted earnings per common share 0.00
Basic and diluted earnings per recapitalized
common share 0.00 0.03 0.01 (0.02)
</TABLE>
Pro Forma Statement of Operations for the year ended
June 30, 1997
<TABLE>
<CAPTION>
Historical Pro Forma June 30, 1998
---------- ------------------------------------------------
(Maximum) (Moderate) (Minimum)
<S> <C> <C> <C> <C>
Total revenue (C) $ 5,901 $ 7,551 $ 6,726 $ 5,901
Total costs and expenses (B), (D) 5,748 6,188 6,188 6,188
--------- ---------- -------- ---------
Income (loss) from operations 153 1,363 538 (287)
Total other expense 25 25 25 25
Income taxes - - -
--------- ---------- -------- ---------
Net income (loss) 128 1,338 513 (312)
Preferred share distributions (E) 11 - - -
--------- ---------- -------- ---------
Net income (loss) available for common shareholders $ 117 $ 1,338 $ 513 $ (312)
--------- ---------- -------- ---------
Basic and diluted earnings per common share 0.00
Basic and diluted earnings per recapitalized common
share 0.00 0.04 0.02 (0.02)
</TABLE>
-52-
<PAGE>
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
-------------- -------------
<S> <C> <C>
B) To reflect fees and costs payable under the Intercompany Agreement. $ 375 $ 500
</TABLE>
(C) To reflect the interest earned on an investment contract for the net
proceeds:
<TABLE>
<CAPTION>
Invested
Cash Rate Interest Earned
<S> <C> <C> <C> <C>
Maximum proceeds $ 30,000 5.50% $1,238 $1,650
Moderate proceeds 15,000 5.50% $ 619 $ 825
Minimum proceeds 0 5.50% 0 0
</TABLE>
D) To reflect the reduction of interest on the pay down of outstanding notes
and loans payable.
<TABLE>
<CAPTION>
Debt Repaid Interest Saved
<S> <C> <C> <C>
$ 643 $ 47 $ 60
E) To reflect the elimination of preferred
share distributions in connection with the
redemption of the redeemable convertible
preferred shares. $ 7 $ 11
</TABLE>
-53-
<PAGE>
NAI MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
New America Network, Inc., which conducts business as New America
International, operates a network of independently owned, licensed real estate
brokers throughout the United States and abroad. NAI, directly and through its
Broker Members, provides commercial real estate brokerage and other real
estate-related services to local, regional, national and international
businesses. Unlike other real estate broker networks, in addition to managing
real estate transactions generated by its brokers, NAI generates its own
source of real estate transactions for its brokers and actively manages and
tracks those transactions on behalf of its Clients. In order to increase the
portfolio of services marketed to Clients and Broker Members, NAI has entered
into several alliance agreements with entities which provide real
estate-related services which complement NAI's brokerage capabilities,
including sealed-bid sales, real estate auctions, real estate financing and
appraisals.
NAI earns revenue primarily from the sharing of brokerage commissions
with Broker Members who earn commissions from the acquisition, disposition or
leasing of real property assigned to them by NAI. Revenue from brokerage
commissions is largely transactional in nature and subject to economic cycles.
However, NAI's geographic coverage, number of transactions and continuing
client base tend to minimize the impact of economic cycles on annual revenue.
NAI also earns revenue from (i) the sharing of brokerage commissions with
Broker Members who earn commissions from the acquisition and/or disposition or
leasing of real estate referred to them by other Broker Members, (ii) the
sharing of fees received from Alliance Members in sealed-bid sales, auction
transactions and other Real Estate-Related Services and (iii) the collection
of annual membership fees paid by Broker Members and Alliance Members
("License fees"). Other revenues of NAI include primarily (i) marketing fees
for Broker Members, which is generally calculated as a percentage of the
Broker Members' License fees, and (ii) convention and meeting revenue. A major
expense to NAI is the commission expense which is a direct function of gross
commission revenue levels. In numerous instances, NAI collects a gross
commission and must subsequently pay the Broker Member their respective
portion of the gross commission. Other operating expenses of NAI includes
professional fees, advertising and promotion expenses, rental expenses and
various other general and administrative costs incurred by NAI in their day to
day operations.
Liquidity and Capital Resources
At March 31, 1998 NAI had approximately $220,000 of cash on hand.
NAI had loans outstanding of $643,000 at March 31, 1998. Of this
amount, $441,000 was due to related parties with interest rates ranging from
10% to 12%. These loans are due on demand. In addition, NAI had a bank loan
outstanding of $6,666 which requires monthly payments of principal of $3,333
with interest at the bank's prime rate (8.5% at March 31, 1998) plus 1%. NAI
also had a bank loan outstanding of $95,000 which requires monthly payments of
principal and interest of $1,667 with interest at the bank's prime rate (8.5%
at March 31, 1998) plus 1%. This loan matures in November 2002. NAI also has a
$100,000 line of credit with First Washington State Bank which expires October
2, 1998. Interest on any outstanding borrowings is at the bank's prime rate
(8.5% at March 31, 1998) plus 1%. This line was fully utilized at March 31,
1998.
Assuming all of the Underlying Shares and Additional Shares are
purchased in the Rights Offering and the Concurrent Offering, NAI expects to
receive proceeds of approximately $38,000,000. Management will use such
proceeds in the following order of priority: (i) pay the expenses of the
Rights Offering, the Concurrent Offering and the Proposed Related
Transactions, (ii) repay $202,000 principal amount of indebtedness incurred in
connection with the repurchase of shares of Series A Preferred Stock of NAI,
(iii) repay outstanding indebtedness, (iv) expand NAI's Corporate Services
Department and Investment Sales Department, and (v) acquire and develop Real
Estate-Related Services. See "The Concurrent Offering-Use of Proceeds". The
balance of any
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<PAGE>
proceeds will be invested in short-term commercial paper at a rate of
approximately 5.5% per annum until used for general corporate and working
capital purposes and to opportunistically acquire real estate. In the event
that the full proceeds of $38,000,000 are not received, management will use
any proceeds received in the above order.
Management believes it has adequate access to capital to continue to
meet its short-term requirements and objectives, including its needs over the
next 12 months. NAI's short-term needs are expected to be met from the
proceeds of the Rights Offering and the Concurrent Offering and cash flow from
operations.
NAI has established a Year 2000 compliance review process to assess
the impact of the Year 2000 on the company's business, operations and
financial condition. The process encompasses internal information technology
systems, office mechanical operation systems and the potential impact from
Broker Members and vendors. Management believes that NAI has no material
exposure to the Year 2000 issues at this time.
Commitments
In connection with a lease on NAI's corporate headquarters, NAI pays
an annual rent of $102,000, plus the payment of maintenance expenses. In
addition, pursuant to the Intercompany Agreement, NAI will be obligated to pay
an annual consulting services fee of $500,000, payable in equal monthly
installments of $41,666.
Results of Operations
Nine months ended March 31, 1998 versus the nine months ended March
31, 1997
Net income for common shareholders decreased $9,000, or 19%, from
$47,000 for the nine months ended March 31, 1997 to $38,000 for the same
period in 1998. This decrease is due to a combination of factors as described
below.
Revenue from commissions decreased $74,000, or 3%, from $2,910,000
for the nine months ended March 31, 1997 to $2,836,000 for the same period in
1998. This decrease is due to a decrease in broker to broker commissions which
is primarily the result of a lower dollar value of transactions in the broker
to broker area.
License fees increased $205,000, or 22%, from $923,000 for the nine
months ended March 31, 1997 to $1,128,000 for the same period in 1998. The
increase was due to an increase in the number of international broker members
(which resulted in approximately $125,000 of additional fees) and increased
revenue from existing membership renewals (which increased approximately 5%
per annum over prior year's fees).
Other revenue decreased $89,000, or 16%, from $563,000 for the nine
months ended March 31, 1997 to $474,000 for the nine months ended March 31,
1998. The decrease was due to a one time change in NAI's meeting and events
calendar in 1998 in which NAI did not hold one of its major meetings, the
National Council Symposium.
Commission expense decreased $186,000, or 24%, from $788,000 for the
nine months ended March 31, 1997 to $602,000 for the nine months ended March
31, 1998. NAI's commission expense is proportionately less on a Network to
Broker transaction than on a Broker to Broker transaction. Because a greater
percentage of NAI's 1998 revenue was generated from its Network to Broker
business than in 1997, the total commission expense decreased.
Sales and marketing expenses increased $83,000, or 43%, from $194,000
for the nine months ended March 31, 1997 to $277,000 for the nine months ended
March 31, 1998. This increase was due primarily to increased costs of NAI's
annual convention and meetings, which was offset by a decrease in costs as a
result of NAI not holding its National Council Symposium in 1998.
-55-
<PAGE>
Compensation and benefits decreased $79,000, or 4%, from $1,911,000
for the nine months ended March 31, 1997 to $1,832,000 for the nine months
ended March 31, 1998. This decrease was due primarily to the streamlining and
consolidation of staffing.
Other operating expenses increased $391,000, or 33%, from $1,187,000
for the nine months ended March 31, 1997 to $1,578,000 for the nine months
ended March 31, 1998. This increase was due to an increase in public relations
and advertising relating to the change in the corporate trade name from New
America Network, Inc. to New America International, Inc.
NAI had a loss from operations of discontinued businesses of $162,000
for the nine months ending March 31, 1997. NAI discontinued its New America
Financial Services ("NAFS") division which provided a wide array of financial
services. These services are currently provided by Alliance members. NAI had
no such loss for the same period in 1998.
Year ended June 30, 1997 versus the year ended June 30, 1996
Net income (loss) for common shareholders increased $104,000, or 50%,
from a loss of ($210,000) in 1996 to a loss of ($106,000) in 1997. This
increase is due to a combination of factors as described below.
Revenue from commissions decreased $123,000, or 3%, from $4,124,000
for the year ended June 30, 1996 to $4,001,000 for the year ended June 30,
1997. The decrease was primarily due to a decrease in broker to broker
transactions.
License fees decreased $91,000, or 7%, from $1,373,000 for the year
ended June 30, 1996 to $1,282,000 for the year ended June 30, 1997. The
decrease was due to the discontinuance of the property management services in
early fiscal 1997. Fees were recognized for the property management services
for the entire fiscal 1996 year.
Other revenue increased $95,000, or 18%, from $523,000 for the year
ended June 30, 1996 to $618,000 for the year ended June 30, 1997. The increase
was primarily due to a new contract in 1997 in which NAI was paid $42,000 for
the use of their Real Estate Planning Guide on the internet. The residual
increase was due to a general increase in marketing assessments.
Commission expense decreased $639,000, or 36%, from $1,782,000 for
the year ended June 30, 1996 to $1,143,000 for the year ended June 30, 1997.
The decrease was primarily due to a decrease in sealed bid transactions.
Sales and marketing expenses increased $36,000, or 13%, from $285,000
for the year ended June 30, 1996 to $321,000 for the year ended June 30, 1997.
This increase was due to increased costs of conventions and meetings.
Compensation and benefits increased $90,000, or 4%, from $2,438,000
for the year ended June 30, 1996 to $2,528,000 for the year ended June 30,
1997. This increase was due to the addition of personnel in the Corporate
Services and Brokerage Services areas.
Other operating expenses increased $169,000, or 11%, from $1,475,000
for the year ended June 30, 1996 to $1,644,000 for the year ended June 30,
1997. This increase was due to an increase in public relations and advertising
relating to changing the corporate trade name from New America Network, Inc.
to New America International, Inc.
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<PAGE>
The loss from operations of discontinued businesses increased
$95,000, or 74%, from $128,000 for the year ended June 30, 1996 to $223,000
for the year ended June 30, 1997. This loss represents the effect of the
discontinuance of NAFS in each respective year.
Preferred share distributions decreased $2,000, or 15%, from $13,000
for the year ended June 30, 1996 to $11,000 for the year ended June 30, 1997.
This decrease was due to a redemption of 25,000 shares of NAI's preferred
stock for $50,000.
Year ended June 30, 1996 versus the year ended June 30, 1995
Net income (loss) for common shareholders decreased $485,000 from
income of $275,000 in 1995 to a loss of ($210,000) in 1996. This decrease is
due to a combination of factors as described below.
Revenue from commissions decreased $247,000, or 6%, from $4,371,000
for the year ended June 30, 1995 to $4,124,000 for the year ended June 30,
1996. The decrease was primarily due to a decrease in the Network to Broker
commissions. In 1995, there were two major Network to Broker deals which
totaled approximately $439,000. While these fees were not similarly earned in
1996, the decrease was partially offset by an increase in sealed bids and
broker to broker commissions.
License fees increased $215,000, or 19%, from $1,158,000 for the year
ended June 30, 1995 to $1,373,000 for the year ended June 30, 1996. The
increase was primarily due to the fees earned by the property management
services ($166,000) which was a new service provided in 1996.
Other revenue increased $53,000, or 11%, from $470,000 for the year
ended June 30, 1995 to $523,000 for the year ended June 30, 1996. The increase
was primarily due to marketing assessment fees which were initiated in
mid-year in 1995 with a full year of revenues recognized in 1996.
Commission expense increased $297,000, or 20%, from $1,485,000 for
the year ended June 30, 1995 to $1,782,000 for the year ended June 30, 1996.
The increase was primarily due to an increase in sealed bid sales in fiscal
year 1996.
Sales and marketing expenses decreased $39,000, or 12%, from $324,000
for the year ended June 30, 1995 to $285,000 for the year ended June 30, 1996.
This decrease was due to NAI eliminating its regional meetings in 1996 and
thereby incurring no costs with respect to these meetings.
Compensation and benefits increased $457,000, or 23%, from $1,981,000
for the year ended June 30, 1995 to $2,438,000 for the year ended June 30,
1996. This increase was due to an increase in personnel in the Northeast and
Southeast brokerage services regions, Corporate Services, Property Management
and Headquarters staff.
Other operating expenses increased $139,000, or 10%, from $1,336,000
for the year ended June 30, 1995 to $1,475,000 for the year ended June 30,
1996. This increase was primarily due to an increase in travel expenses for
newly hired regional staff as well as an increase in advertising and
promotional expenses.
The loss from operations of discontinued businesses decreased
$264,000, or 67%, from $392,000 for the year ended June 30, 1995 to $128,000
for the year ended June 30, 1996. This decrease was due to NAI recording a
loss of approximately $245,000 in 1995 related to the discontinuance of
RealQuest, Inc., a wholly-owned subsidiary of NAI. NAI recorded a loss of
approximately $147,000 and $128,000 for the discontinuance of NAFS for the
years ended June 30, 1995 and 1996, respectively.
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<PAGE>
Preferred share distributions decreased $2,000, or 16%, from $15,000
for the year ended June 30, 1995 to $13,000 for the year ended June 30, 1996.
This decrease was due to a redemption of 25,000 shares of NAI's preferred
stock for $50,000.
Inflation
Most of NAI's revenue is derived from commissions on the sale or
lease of commercial property and therefore is protected from inflation since
an increase in the sales prices or lease rates would generate additional
revenue. The majority of the license agreements signed by the Broker Members
have fee increases built in for the term of the agreements which are based on
fixed increases or increases over the Consumer Price Index. These two factors
help decrease NAI's exposure to inflation.
NAI BUSINESS
General Description
NAI operates a Network of independently owned, licensed real estate
Broker Members throughout the United States and, more recently, abroad. NAI,
directly and through its Broker Members, provides commercial real estate
brokerage services to local, regional, national and international Clients. NAI
has approximately 130 affiliated Broker Members, which employ approximately
2,600 agents, operating in approximately 300 markets, including North, Central
and South America and Western Europe. NAI believes it is represented in more
North American market areas than any national commercial real estate brokerage
company. Unlike other real estate broker networks, in addition to managing
real estate transactions generated by its Broker Members, NAI generates its
own source of real estate transactions for its Broker Members and actively
manages and tracks those transactions on behalf of Clients. In order to
increase the portfolio of services marketed to Clients and Broker Members, NAI
has entered into several alliance agreements with Alliance Members which
provide real estate related services which complement NAI's brokerage
capabilities, including sealed-bid sales, real estate auctions, real estate
financing and appraisal services. As of June 30, 1998, the Network had an
inventory of approximately 1,683 assignments to buy, sell or lease real
property (approximately 77% of which are exclusive to NAI), with a transaction
value of approximately $927 million, and which would generate fees to NAI of
approximately $6.8 million, if consummated. There is no assurance that such
inventory will result in any revenues to NAI.
NAI earns revenues primarily from the sharing of brokerage
commissions with Broker Members who earn commissions from the acquisition,
disposition or leasing of real property assigned to them by NAI (approximately
$2,686,000 or 46% of NAI's net revenues for fiscal year 1997). NAI also earns
revenues from (i) the sharing of brokerage commissions with Broker Members who
earn commissions from the acquisition and/or disposition or leasing of real
estate referred to them by other Broker Members (approximately $1,063,000 or
18% of NAI's net revenues for fiscal year 1997), (ii) the sharing of fees
received from Alliance Members in sealed-bid sales, auction transactions and
other Real Estate-Related Services (approximately $170,000 or 3% of NAI's net
revenues for fiscal year 1997), and (iii) the collection of annual membership
fees paid by Broker Members and Alliance Members (approximately $1,282,000 or
22% of NAI's net revenues for fiscal year 1997).
NAI began forming the Network in 1978 in order to meet the growing
real estate needs of large national and international corporations in multiple
markets. NAI meets the multiple market needs of its Clients and its Broker
Members by combining local representation with the management and control
capabilities of its centralized Corporate Services Department. NAI's Corporate
Services Department is responsible for establishing and developing
relationships with Clients in order to generate assignments for the Network
and its Broker Members. Currently, NAI has 13 staff members in its Corporate
Services Department serving over 100 Clients. These Clients include retail
chains (such as Woolworth Corp.), international companies (such as
International Paper Company), service businesses (such as Roadway Services,
Inc.), and other larger owners of real estate (such as the United States
Postal Service, a new Client of NAI). NAI's Clients are often involved in real
estate transactions
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in multiple markets. In addition, NAI has an Investment Sales Department which
specializes in the acquisition and disposition of real estate for Clients who
are seeking to acquire, or currently own, real estate for investment purposes.
See "--Corporate Services Department" and "--Investment Sales."
NAI maintains a proprietary information sharing and research
intranet, in order to efficiently and effectively coordinate with its Broker
Members to meet its Clients' needs. NAI's information systems consist of a
transaction management system and a central database information system. NAI's
computerized transaction management system allows Broker Members, the
Corporate Services Department and Clients to manage and track the progress of
transactions assigned to Broker Members, including those generated by its
Broker Members. NAI's databases include, among other things, real estate
market data, demographic information, Broker Member profiles, Broker Member
listings, transaction histories, Client relationship information and Client
profiles. See "NAI Technology and Information Services."
NAI's objective is to increase profitability by continuing to grow
its brokerage business, increase its international coverage, expand its
Corporate Services and Investment Sales Departments and to further develop its
non-brokerage Real Estate-Related Services, including sealed-bid sales and
real estate auctions, and to acquire or develop additional Real Estate-Related
Services. To the extent funds are available from the proceeds of the Rights
Offering and the Concurrent Offering referred to below, NAI's strategy will be
to (i) expand NAI's Corporate Services Department and Investment Sales
Department to generate business from additional Clients and in new markets,
(ii) invest in or acquire brokerage firms (including certain of those owned by
Broker Members) and firms which provide Real Estate-Related Services, (iii)
train and support Broker Members to generate additional business for the
Network; (iv) continue to expand the Network into international markets, (v)
generate additional revenue by providing brokerage and Real Estate-Related
Services to Kranzco, (vi) expand and enhance NAI's real estate technology and
information services, (vii) opportunistically acquire and develop real estate
for its own account, and (viii) utilize Real Estate-Related Services to create
and develop relationships with Clients.
The Network
NAI began forming the Network in 1978 on the premise that local
commercial real estate brokers could not efficiently service the needs of
national and international businesses due to the extremely local nature of the
commercial real estate market. Previously, local commercial brokers could only
assist a business with respect to its needs in a limited market area; however,
large national and international corporations need real estate services in
multiple market areas. NAI's affiliated Network of Broker Members throughout
the United States enables NAI to simultaneously provide real estate services
to businesses with multiple requirements in a number of market areas. NAI,
with approximately 130 Broker Members in 46 states and 10 countries, provides
real estate services to its Clients throughout the United States and, more
recently, abroad. See "--Competition."
By agreeing to dispose of or acquire its real estate through the
Network, a Client can utilize one large brokerage network to simultaneously
execute numerous real estate transactions in different markets. Clients avoid
the time-consuming tasks of interviewing, establishing relationships with, and
negotiating with, different commercial real estate brokers, and minimize time
spent managing the status and progress of each transaction in multiple market
areas.
Through the use of the Network's facilities and the individual
marketing know-how of the Broker Members, a seller or lessor can quickly
establish whether there is a strong demand for its property, while a purchaser
or lessee can immediately determine which properties being offered across the
country meet its requirements. To facilitate this process, NAI maintains
computerized information on potential lessors and lessees, types of properties
sought or available for sale in numerous markets, preferred locations, rental
rates, price and mortgage financing requirements and other relevant
information.
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Broker Members
NAI established the Network as a nationally recognized marketer of
real estate services, by obtaining quality Broker Members in major
metropolitan areas and smaller cities throughout the United States, as well as
more recently in foreign countries. NAI selects its Broker Members based upon
a number of factors including (a) the Broker Member's reputation in the
industry, (b) the sales volume of the Broker Member in its local market, (c)
the Broker Member's ability and desire to work with NAI and NAI's stated
method of operations, (d) the professionalism of the sales associates as
evidenced by industry designations and memberships and (e) the Broker Member's
performance in interviews performed by NAI. As of June 30, 1998, NAI had
approximately 130 Broker Members in 46 states and 10 foreign countries.
Approximately 80 of the Network's Broker Members have been with NAI for 5
years or longer.
In order to ensure that the Network's standards for Broker Members
are consistently maintained, NAI has established a Broker Services Department.
The Broker Services Department, which consists of 11 members, focuses on
training Brokers to (i) develop and fulfill business on behalf of NAI, (ii)
adhere to NAI systems and processes, (iii) use the Network and its computer
tracking systems in order to manage real estate transactions assigned to them
through the Network and for their own internal use, (iv) effectively utilize
NAI's national and international identity, and (v) meet the needs of NAI's
Clients. After a Broker Member becomes a member of the Network, NAI performs
periodic reviews to determine whether such Broker Member is maintaining the
standards set forth in its Membership Agreement. In the past, NAI has replaced
certain Broker Members who have not met their obligations under the Membership
Agreements. NAI intends to continue this practice so that the Network can
continue to provide high quality service to its Clients.
Membership Agreements and Fees
Each Broker Member executes an agreement ("Membership Agreement")
which defines the legal relationship between NAI and the Broker Member,
including the Broker Member's obligations, the services to be provided by the
Network and the compensation to be paid for such services by the Broker Member
(including an annual membership fee and co-brokerage commission arrangements).
Under the terms of the Membership Agreement, the majority of Broker Members
obtain, in most instances, an exclusive territory and a license to use NAI's
service marks including "New America," "New America International," "NAI" and
the "NAI Globe" logo. Territories in the United States range in size from
single cities to several counties (sometimes in more than one state), or
statewide depending on the demographics of the area. International territories
range in size from single cities to, under certain circumstances, an entire
country.
In certain market areas, NAI has selected more than one Broker
Member. All such Broker Members are designated as "Specialty Members" as each
specializes in one or more types of real estate (i.e., Retail, Industrial or
Office). This practice was instituted to address situations in which no
individual commercial broker could be identified in a particular market area
meeting NAI's qualifications as a full service broker. It also reflects NAI's
recognition that in certain market areas the Network and its Clients could
best be served by Specialty Members.
Over the past 18 months NAI has been transitioning Broker Members to
a new form of Membership Agreement. The old form, which typically provided for
a three year term, permitted members to terminate the Membership Agreement at
any time upon 45 days notice. The new form of Membership Agreement, which
includes stronger identity and performance standards as well as increased
licensing fees, does not allow early termination of the Membership Agreement
except for cause. NAI may terminate such agreements for specified causes upon
forty-five (45) days written notice to a Broker Member. Approximately 60% of
the Broker Members have executed the new form of Membership Agreement.
Each Broker Member pays NAI an annual membership fee ("Membership
Fee"), which varies depending upon the population level of a Broker Member's
exclusive territory. Each Broker Member is also required to pay
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an annual marketing assessment equal to 15% of its Membership Fee. NAI has
agreed to spend a minimum of 3.5% of the total Membership Fees it receives to
marketing activities annually. NAI earns most of its revenue from the
co-brokerage provisions contained in the Membership Agreement. NAI's share of
any brokerage commission earned from such services ranges from 10% to 50%
depending on NAI's involvement in the transaction. Of NAI's net revenues for
fiscal year 1997, approximately $2,686,000 or 46% were earned through the
sharing of brokerage commissions with Broker Members who earn commissions from
the acquisition, disposition or leasing of real property assigned to them by
NAI, approximately $1,063,000 or 18% of NAI's net revenues were earned through
the sharing of brokerage commissions with Broker Members who earn commissions
from the acquisition and/or disposition or leasing of real estate referred to
them by other Broker Members, and approximately $1,282,000 or 22% of NAI's net
revenues were earned through the collection of annual membership fees paid by
Broker Members and Alliance Members.
NAI's percentage of the Broker Member compensation may be decreased
in instances where the Network Client was introduced to the Network by a
Broker Member or where an assignment was originally identified by a Broker
Member. In those instances, the Broker Member who made the introduction or
identified the listing may be entitled to a portion of the commission.
Broker Services Group
NAI believes that in addition to obtaining assignments and Clients
for Broker Members, the Network creates a framework within which Broker
Members can assist each other in their own businesses. In order to strengthen
the relationship among Broker Members, NAI conducts annual international
conventions and regional meetings on various aspects of utilizing the Network
and structuring transactions for all Broker Members. Also, the Network
maintains a Broker Member Advisory Council consisting of 24 Broker Members,
which offers advice to NAI regarding ways in which to improve the Network and
the services offered by it.
Additional publications, advertising, promotional materials and
public relations enhance NAI's image and reputation. NAI membership and
participation is maintained in industry trade associations including the
International Council of Shopping Centers ("ICSC"), International Association
of Corporate Real Estate Executives ("NACORE"), Industrial Development
Research Council ("IDRC") and other similar groups.
To further increase the Network's capabilities to service Clients,
NAI has established five Specialty Councils addressing various issues peculiar
to industrial, office, retail, land and investment properties. Each Specialty
Council is made up of Broker Members and/or sales persons associated with such
Broker Members who specialize in those areas. Through the personal
relationships which are established, NAI believes that council members gain a
greater recognition of each other's capabilities, local market knowledge and
general expertise.
Corporate Services Department
NAI's Corporate Services Department is responsible for establishing
and developing relationships with existing and potential Clients in order to
generate assignments for the Network and its Broker Members. NAI employs
persons with backgrounds in business and finance ("Corporate Service
Executives") to solicit and secure from existing and potential Clients,
exclusive assignments to acquire, dispose of or lease commercial real estate.
The current trend of downsizing corporate real estate departments has
increased the need for Corporate Services Executives, who can assist corporate
real estate departments with multiple transactions. The Corporate Services
Department assists Clients in managing multiple transactions through NAI's
technology and information systems, which facilitate up-to-date electronic
and/or written reports which are regularly sent to Clients and Broker Members.
See "--NAI Technology and Information Systems."
NAI's Corporate Services Department has ongoing relationships with
more than 100 Clients, including the Hertz Corporation, Pepsi-Cola, Airborne
Express, and the International Paper Company. Substantially all NAI-
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generated assignments from its Clients are exclusive to NAI and many
assignments referred from one Broker Member to another Broker Member are also
exclusive to the initiating Broker Member. These assignments include
acquisitions, dispositions, buy-outs, sales, leases and auctions of office,
industrial and retail properties. Assignments are obtained in NAI's name and
then directed to the Broker Members for execution. In certain circumstances
the assignment, although secured by NAI, is placed directly with the Broker
Member. Resulting commissions are shared with NAI as prescribed in the Broker
Members Membership Agreement. See "NAI Business--Membership Agreements and
Fees". In some instances NAI will structure a partner relationship with a
Broker Member pursuant to which the Broker Member will act as a Corporate
Service Executive with respect to a Network Client. This typically occurs when
a Broker Member has a significant relationship with a Client with national and
international real estate needs. As of June 30, 1998, NAI employed 13 staff
members for its Corporate Services Department. Currently, the majority of the
Clients of the Corporate Service Department are located in the eastern and
north central United States; however, upon consummation of the Exchange Offer,
the Distribution, the Rights Offering and the Concurrent Offering, NAI intends
to retain additional Corporate Service Executives to solicit Clients from
throughout the United States and abroad.
Investment Sales
In order to increase transactions generated for the Network, NAI has
established an Investment Sales Department, consisting of two real estate
professionals, which specializes in the acquisition and disposition of real
estate for Clients who are seeking to acquire, or who currently own, real
estate for investment purposes, rather than for the investor's business use. A
specific target of the Investment Sales Department is the identification and
sale of properties to REITs, as well as insurance companies or pension funds
which may be interested in the acquisition of real estate investments for
their portfolios.
The Investment Sales Department works with Broker Members to assist
them in pursuing investment opportunities which the Department has identified.
The Investment Sales Department also works closely with the members of NAI's
Specialty Council for Investment Sales to stimulate Broker-to-Broker
investment referrals and to obtain sources of financing for investment
transactions.
The Investment Sales Department has previously assisted Kranzco in
pursuing Kranzco's strategy of acquiring shopping centers. In December 1997,
Kranzco acquired five shopping centers, aggregating approximately 650,000
square feet of GLA, for approximately $44 million. NAI's Investment Sales
Department initiated this opportunity, and assisted Kranzco in acquiring the
properties. Kranzco's acquisition of such properties generated $100,000 in fee
income to NAI.
During the calendar year ended December 31, 1997, the Network
consummated 20 investment real estate transactions with a transaction value of
approximately $100,000,000, which resulted in approximately $400,000 of
revenues to NAI (which for financial purposes are reported as commissions).
Real Estate-Related Services
NAI is in the process of widening its focus from a transactional core
to include more Real Estate-Related Services. These services include real
estate auctions and sealed-bid sales, real estate tax, valuation and appraisal
services, real estate information services (providing sales and marketing data
and demographic information), lease audits (review of leases for tenants in
order to ensure no overpayments were made), loan sales (purchases of defaulted
mortgages), and senior citizen housing (an investment specialty focusing on
facilities for the growing population of senior citizens). In order to expand
into Real Estate-Related Services, NAI has entered into several agreements
with Alliance Members pursuant to which certain Real Estate-Related Services
are provided by Alliance Members to Broker Members and Clients. To date, the
only Real Estate-Related Services which have generated significant revenues,
in addition to the membership fees paid by Alliance Members, for NAI have
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related to national auctions and international sealed-bid sales. See "NAI
Business-- Accelerated Marketing Programs" below.
Each Alliance Member pays NAI an annual membership fee (an "Alliance
Membership Fee"), which varies depending upon the market opportunity and the
NAI Services to be provided. Of NAI's net revenues for calendar year 1997,
approximately $475,000 of NAI's net revenues were earned through the sharing
of fees received from Alliance Members in the sealed-bid sales and auction
transactions (which for financial purposes are reported as commissions) and
approximately $25,000 of NAI's net revenues were earned through the collection
of annual membership fees paid by Alliance Members (which for financial
purposes is reported as license fees). Other Real Estate-Related Services
which have not as yet provided significant revenues to NAI have been
strategically implemented in order to provide a full range of services which
may fulfill the real estate related needs of Clients. These services include
lease auditing, appraisal services and real estate information services.
Accelerated Marketing Program
Through its Accelerated Marketing Program, NAI markets commercial
real estate properties for disposition through alternative vehicles for real
estate sales, such as sealed-bid sales and auctions. In 1994, NAI entered into
agreements with Terra Marketing and Terra Marketing, East (collectively,
"Terra"), an Alliance Member and specialist in international sealed-bid sales.
In the sealed-bid process, Terra puts together a portfolio of commercial and
industrial properties for sale. NAI and its Broker Members may assist Terra in
creating the portfolio of properties. The properties may be in varied
locations and have different owners. Terra then markets these properties to
possible purchasers through a brochure. Purchasers interested in any property
may request additional due diligence materials for a small fee. NAI Broker
Members provide sales support by providing site tours and providing useful
local information for those purchasers interested in visiting the site. The
winning bids are selected by the seller of the property and Terra, together.
For the calendar year ended December 31, 1997, NAI and Terra produced
sealed-bid sales resulted in the sale of approximately 19 properties with
approximately $421,000 of revenues to NAI (which for financial purposes are
reported as commissions) and an additional $2,500,000 of revenues to Terra,
participating Broker Members and other brokers. Fees earned in sealed-bid
sales are paid by Terra to NAI and its Broker Members.
In 1989, NAI entered into an alliance agreement with Michael Fox
International, Inc., a specialist in national auction services ("Fox"). NAI
and local Broker Members work with Fox to provide and assist in auction sales.
NAI and Fox worked together on 15 auctions in the calendar year ended December
31, 1997. In the calendar year ended December 31, 1997, auction sales resulted
in approximately $50,000 of revenues to NAI and an additional $500,000 of
revenues to Fox, participating Broker Members and other brokers. Fees earned
in auction sales are paid by Fox to NAI and its Broker Members.
NAI Technology and Information Services
NAI has invested substantially in technology to create advanced
systems to deliver services to its Clients and Broker Members, as well as to
efficiently manage its operations. NAI believes that technology is important
to the continued growth of NAI's business and the real estate brokerage
industry generally. NAI continually refines its proprietary intranet in order
to efficiently manage and track assignments, and communicate with Broker
Members and Clients.
NAI's central information sharing and research intranet consists of
two proprietary software programs. REALTrac(TM), a transaction management
system, allows Broker Members, the Corporate Services Department and the
Investment Sales Department, to efficiently and effectively manage and track
the progress of transactions assigned to Broker Members. REALTrac(TM) allows NAI
staff to easily track multiple Client assignments, and produce portfolio
activity reports. REALNet(TM), NAI's central database information system,
includes, among other
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things, Broker Member profiles, Broker Member listings, transaction histories,
Client relationship information and Client profiles.
NAI maintains both public-access and secure, limited-access web sites
in order to provide computer access to NAI's Broker Members and Clients, as
well as the general public. Broker Members access REALTrac(TM) and REALNet(TM)
through www.members.naiweb.com, a secure, web-based system.
www.members.naiweb.com also hosts discussion groups; a site to post property
listings to NAI's internet site, www.naiweb.com; NAI's Marketing Resource
Center where Broker Members can download marketing presentations; current
press releases; and the "Market Maker" system which promotes Broker-to-Broker
opportunities. www.clients.naiweb is a secure site which has been designed to
allow Clients to log into NAI's information network and get immediate updates
on the status of any assignments which such Client has placed with the
Network. The information contained in this site is fed directly from the NAI
REALTrac(TM) system. This site also allows Clients to contact NAI staff that is
working on their assignments. NAI's website, www.naiweb.com, is a public site
which conveys NAI's image in the marketplace, houses interactive versions of
NAI's marketing materials, and NAI's annual Real Estate Planning Guide, a
comprehensive, market-by-market commercial real estate analysis of over 140
real estate markets. Additionally, this site maintains a global property
listings database with over 1,500 active commercial property listings which
are posted by Broker Members.
NAI provides Broker Members and Clients with key demographic, mapping
and site modeling services, through its New America Information Services
division ("NAIS"), previously operated through a joint venture which has been
terminated. NAI annually licenses demographic databases from national
information providers. The information contained in these databases is then
used to produce custom demographic reports and sophisticated mapping services.
Competition
NAI primarily seeks business from corporations, individual
owner/investors and national and international organizations with real estate
requirements in multiple market areas. NAI faces competition for clients on a
local, regional and national basis from national broker-owned companies with
global alliances, and national/global networks, as well as local and regional
commercial brokerage firms. Some of NAI's largest competitors include CB
Commercial Real Estate Services Group, Inc.; Cushman & Wakefield, Inc.; Grubb
& Ellis Company; and Trammel Crow Company. However, NAI believes that it is in
more North American market areas than any of these competitors. Real estate
broker networks with which NAI competes include Colliers International; Oncor
International; and The Commercial Network. NAI distinguishes itself from other
real estate broker networks by generating its own source of real estate
transactions for its Broker Members and actively managing those transactions,
and does not simply facilitate an exchange of transactions generated solely by
network members, as is the case in other broker networks.
NAI's ability to earn revenues is directly related to its ability to
attract and retain successful, independently owned, commercial and industrial,
licensed real estate brokers ("Commercial Real Estate Brokers") in a
substantial number of market areas as Broker Members. The number of brokers in
different market areas and their strength and reputation in their own local
markets may directly affect the anticipated volume of commissions generated
through the Network, as well as NAI's ability to obtain exclusive assignments
from a national client base. NAI is presently competing for Broker Members
with cooperative commercial broker networks, as well as large national and
regional commercial real estate brokerages. There has been a consolidation of
real estate brokerage and service companies, which are better known and have
greater resources than NAI that are actively seeking to acquire other real
estate brokerage and service companies. Certain of NAI's competitors, such as
CB Commercial and Grubb & Ellis, are attempting to grow their businesses
through acquisitions, as well as by entering into affiliation agreements with
independent Commercial Real Estate Brokers. To the extent these companies are
successful in acquiring or entering into affiliation agreements with
independent Commercial Real Estate Brokers, there may be a negative impact on
NAI's ability to attract and retain qualified Commercial Real Estate Brokers
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as part of the Network as Broker Members. However, approximately 80 Broker
Members have been members of the Network for 5 years or longer.
In addition, approximately 40% of NAI's Broker Members are party to a
Membership Agreement which permits Broker Members to terminate the Agreement
upon 45 days prior notice. Certain Broker Members may not view the Related
Transactions as favorable to them. Accordingly, there can be no assurance that
in light of the increased competition to retain or acquire Commercial Real
Estate Brokers, that Broker Members will not terminate, or renew, their
Membership Agreements.
Government Regulation
State Laws Governing Real Estate Brokers
Most states permit licensed real estate brokers to enter into
commission sharing agreements with licensed real estate brokers from other
jurisdictions. However, some states impose certain requirements with respect
to entering into such agreements. For example, some states allow only the
local broker to conduct negotiations. Other states require a written
commission-sharing agreement to be filed with the state real estate
commission. Still other states do not permit the out-of-state broker to
conduct brokerage activities within the state. NAI presently has real estate
brokerage licenses in New Jersey, Florida, New York, and Pennsylvania. See
"Certain Transactions." NAI presently shares commissions with brokers in 48
jurisdictions, including states in which it has a license. NAI does not
believe that it provides brokerage services or conducts negotiations in those
states in which it shares commissions. In certain instances, NAI has not filed
written fee-sharing agreements with state real estate commissions. To the
extent NAI has potentially violated any state law with respect to commission
sharing, it may not be able to enforce its Membership Agreement and may be
subject to civil liability or criminal penalties.
Laws Related to Franchising
The offer and sale of franchises is subject to federal law and
certain state laws. NAI believes that it is exempt from compliance with the
Federal Trade Commission's ("FTC") trade regulation rule entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures" (the "Franchise Rule"). The Franchise Rule requires a franchisor to
provide pre-sale disclosure to a prospective franchisee prior to the sale of a
franchise subject to the Franchise Rule. Many states have franchise sales laws
that require a franchisor, prior to the offer or sale of a franchise in the
state, to comply with registration or filing requirements, and, prior to the
sale of a franchise, to provide a prospective franchisee with a current
franchise offering circular. Certain other states have business opportunity
laws that apply to some franchise agreements that also may require a seller to
comply with applicable registration or filing requirements and to provide
pre-sale disclosure. State franchise sales laws and business opportunity laws
are described below as "State Laws." In addition, many states have laws that
regulate certain substantive aspects of the franchisor-franchisee
relationship, including termination or non-renewal of franchise agreements.
NAI believes that by offering and selling memberships to its Broker
Members it may have been offering a "franchise," as defined by the Franchise
Rule, but that the offer and sale of such memberships are a "fractional
franchise" and are exempt from compliance with the requirements of the
Franchise Rule. As defined in the Franchise Rule, a "fractional franchise" is
a commercial arrangement which meets the following two conditions: (a) the
franchisee or any of its current directors or executive officers has more than
2 years of prior management experience at any time in the past in the business
represented by the franchise and (b) the parties anticipated or should have
anticipated, at the time they entered into their agreement, that the sales of
the franchisee arising from the proposed relationship would represent no more
than 20% of the total dollar volume of the franchisee's projected gross sales
within at least one year after the franchisee commences selling the goods or
services under the parties' agreement.
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NAI believes that it is exempt from compliance with the Franchise
Rule, since (a) its Broker Members and their directors or executive officers
typically had more than 2 years' experience as Commercial Real Estate Brokers
at the time they entered into their agreements with NAI and (b) at the time a
Broker Member entered into its Membership Agreement, neither NAI nor the
Broker Member anticipated or should have anticipated that the sales proceeds
of any Broker Member arising from membership in NAI would represent 20% or
more of its sales.
As of the date of the Prospectus, NAI has neither prepared nor
distributed a franchise disclosure document ("Franchise Disclosure Document").
NAI believes that it is exempt from the requirements of many of the State Laws
in states in which it has entered into Member Agreements, based on various
exemptions, including, without limitation, applicable state "fractional
franchise" exemptions (or the functional equivalent), exemptions in connection
with the licensing of a registered trademark, or sophisticated purchaser
exemptions. However, NAI appears to have been subject to certain requirements
(e.g., registration or disclosure requirements) under State Laws in certain
other states in which it has agreements with Broker Members. In some states,
although no exemptions may have been available, past violations by NAI of
claims under those State Laws would be time barred.
NAI believes that there are approximately six (6) states with a State
Law in which NAI has entered into Membership Agreements for which NAI may not
be exempt, may have failed to comply with the filing or registration and
disclosure provisions of such State Law, and for which it may be subject to
certain sanctions or potential liability. Such sanctions or potential
liability would include that NAI may be subject to civil penalties imposed by
state regulatory agencies, and legal actions by existing Broker Members for
rescission of existing Membership Agreements, restitution, and damages as a
result of any violation of such law. NAI believes that, if any state
regulatory agencies or any of the Broker Members in such states sought such
remedies and any such action were successful, its potential liability could be
to refund certain payments made to NAI. NAI believes that it has strong
defenses to any alleged violation of any State Law. Notwithstanding, the
applicability of such laws is uncertain as applied to NAI's Membership
Agreements, and there can be no assurance that a court would not take the
position that NAI should have complied with such laws in connection with those
transactions. In the future NAI intends to comply with State Laws, where
necessary, by preparation and delivery to prospective Members of a Franchise
Disclosure Document, and registering or filing with necessary state
authorities, and/or by complying with available exemptions.
NAI has also recently entered into several Membership Agreements with
Members in foreign countries. NAI believes that it either is not subject to,
or would be exempt from, such laws. If NAI were subject to, or were not exempt
from, such laws, it could be subject to actions by regulatory agencies and
legal actions by existing Members, and subject to fines, penalties, and
damages. NAI intends to comply with such laws in the future.
Trademarks
NAI has a registered servicemark on the principal register with the
United States Patent and Trademark Office for the logo design eagle with the
initials "NAI" and the name "New America."
Legal Proceedings
There is no material litigation pending, or to its knowledge,
threatened against NAI or its properties.
Property
NAI leases approximately 8,100 square feet of office space as its
corporate headquarters located at Route 130 and Maple Stream Road, Hightstown,
New Jersey. The landlord, The Building Center, Inc., is wholly owned by Gerald
C. Finn and his wife. See "Certain Transactions." The lease provides for an
annual rental of $102,000 plus the payment of maintenance expenses. The
initial lease, which expired on August 31, 1989, has been
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extended by an Extension of Lease Agreement, dated April 15, 1998, which
provides for a one year term with automatic one year renewals, unless either
party gives 90 days written notice.
THE OFFER
General
Kranzco hereby offers, upon the terms and subject to the conditions
set forth herein and in the related Letter of Transmittal, to exchange $0.7707
of the aggregate Offer Consideration for each outstanding NAI Share, up to a
maximum of 10,379,531 NAI Shares, validly tendered on or prior to the
Expiration Date and not properly withdrawn. The aggregate Offer Consideration
consists of $8,000,000 of Notes. Tendering NAI Stockholders will not be
obligated to pay any charges or expenses of the Exchange Agent. Except as set
forth in the Instructions to the Letter of Transmittal, transfer taxes on the
exchange of NAI Shares pursuant to the Offer will be paid by or on behalf of
Kranzco. The purpose of the Offer is to enable Kranzco to acquire 80% of the
outstanding NAI Shares. Immediately following the consummation of the Exchange
Offer, Kranzco and NAI intend to consummate the transactions referred to under
the heading "Proposed Related Transactions" (generally referred to herein as
the "Proposed Related Transactions"), including the Distribution, the Rights
Offering and the Concurrent Offering. See "Proposed Related Transactions,"
"The Distribution," "The Rights Offering" and "The Concurrent Offering."
Kranzco's obligations to exchange the aggregate Offer Consideration for
10,379,531 NAI Shares pursuant to the Offer is subject to (i) the Minimum
Tender Condition, (ii) the representations and warranties of NAI contained in
the Exchange Agreement being true and correct on the Expiration Date and
related closing date, and (iii) the satisfaction of other conditions set forth
in the Exchange Agreement. See "The Offer--Conditions of the Offer." Subject
to the provisions of the Exchange Agreement, Kranzco expressly retains the
right to amend, terminate or withdraw the Offer at any time prior to the
consummation of the Exchange Offer. According to NAI, as of June 30, 1998,
there were 12,974,414 NAI Shares outstanding. The Finns have agreed to tender
80% of their respective NAI Shares in the Exchange Offer, and, in the event
that less than 80% of the issued and outstanding NAI Shares are tendered by
other NAI Stockholders in the Exchange Offer, the Finns agreed to tender up to
an additional 10% of their NAI Shares, as may be required to reach the Minimum
Tender Condition. Although the Finns have agreed to tender up to 90% of the
NAI Shares owned by them, such number of NAI Shares is not sufficient to meet
the Minimum Tender Condition without other NAI Stockholders joining in the
tender. Accordingly, if other NAI Stockholders do not tender a number of NAI
Shares, that together with the NAI Shares to be tendered by the Finns, would
meet the Minimum Tender Condition, the Exchange Offer will not be consummated
and NAI will continue to conduct its business as a private company.
Timing of the Offer
The Offer is currently scheduled to expire on __________, 1998;
however, Kranzco has the right, subject to the Exchange Agreement, to extend
or amend the Offer at any time or from time to time, as the case may be, and
may choose to extend the Offer as necessary until all conditions to the Offer
have been satisfied or waived. See "--Extension, Termination and Amendment."
Kranzco may also terminate the Offer if the conditions precedent to the Offer
have not been satisfied. See "The Offer--Conditions of the Offer." However,
the obligation of the Finns to tender NAI Shares owned by them will terminate
on December 31, 1998.
Extension, Termination and Amendment
Subject to the applicable rules and regulations of the Commission,
Kranzco also reserves the right, in its sole discretion, at any time or from
time to time, (i) to delay acceptance for, exchange of, or, regardless of
whether such NAI Shares were therefore accepted for exchange, exchange of any
NAI Shares for Notes pursuant to the Offer, or, subject to the provisions of
the Exchange Agreement, to terminate the Offer and not accept for exchange or
exchange any NAI Shares for Notes not theretofore accepted for exchange, or
exchanged, upon the failure of any of the conditions of the Offer to be
satisfied, or for any other reason and (ii) to waive any condition or, subject
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to the Exchange Agreement, otherwise amend the Offer in any respect, by giving
oral or written notice of such delay, termination or amendment to the Exchange
Agent and by making a public announcement thereof. Any such extension,
termination, amendment or delay will be followed as promptly as practicable by
public announcement thereof, such announcement in the case of an extension to
be issued no later than 9:00 a.m., Eastern time, on the next business day
after the previously scheduled Expiration Date. Subject to applicable law and
without limiting the manner in which Kranzco may choose to make any public
announcement, Kranzco shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by making a
release to the Dow Jones News Service. During any such extension, all NAI
Shares previously tendered and not withdrawn will remain subject to the Offer,
subject to the right of a tendering NAI Stockholder to withdraw his or her NAI
Shares. See "--Withdrawal Rights."
Kranzco confirms that if it makes a material change in the terms of
the Offer or the information concerning the Offer, or if it waives a material
condition of the Offer, Kranzco will extend the Offer to the extent required
under the Exchange Act. If, prior to the Expiration Date, Kranzco shall
increase or decrease the percentage of NAI Shares being sought or the
consideration offered to holders of NAI Shares, such increase or decrease
shall be applicable to all holders whose NAI Shares are accepted for exchange
pursuant to the Offer, and, if at the time notice of any such increase or
decrease is first published, sent or given to holders of NAI Shares, the Offer
is scheduled to expire at any time earlier than the tenth business day from
and including the date that such notice is first so published, sent or given,
the Offer will be extended until the expiration of such ten business day
period. For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or a federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, Eastern time.
Exchange of Notes for NAI Shares; Delivery of Offer Consideration
Upon the terms and subject to the conditions of the Offer (including,
if the Offer is extended or amended, the terms and conditions of any such
extension or amendment), Kranzco will accept for exchange, and will exchange,
Notes for NAI Shares validly tendered and not properly withdrawn as promptly
as practicable following the Expiration Date. In addition, subject to
applicable rules of the Commission, Kranzco expressly reserves the right to
delay acceptance of or the exchange of NAI Shares in order to comply with any
applicable law. In all cases, exchange of NAI Shares tendered and accepted for
exchange pursuant to the Offer will be made only after receipt by the Exchange
Agent of certificates for such NAI Shares, a properly completed and duly
executed Letter of Transmittal or facsimile thereof and any other required
documents. See "--Conditions of the Offer."
Upon the terms and subject to the conditions of the Offer and the
Exchange Agreement, including Kranzco's rights to terminate, amend or extend
the offer, Kranzco will accept for exchange a maximum of 10,379,531 validly
tendered NAI Shares, representing 80% of the outstanding NAI Shares. Each NAI
Stockholder may tender all or any portion of his or her NAI Shares. If Kranzco
determines to consummate the Offer, Kranzco will accept for exchange from each
NAI Stockholder a number of validly, tendered NAI Shares representing such
Stockholder's Guaranteed Minimum Tender (80% of such stockholder's NAI Shares
or, if such NAI Stockholder tendered less than 80% of such stockholder's NAI
Shares, then such lesser number of NAI Shares). NAI Stockholders may validly
tender for exchange NAI Shares in excess of his or her Guaranteed Minimum
Tender. If after aggregating the NAI Shares validly tendered pursuant to the
Guaranteed Minimum Tender, the Minimum Tender Condition has not been met,
Kranzco will accept for exchange such number of validly tendered NAI Shares as
would be required to meet the Minimum Tender Condition on a pro rata basis
from among all the NAI Shares tendered in excess of each NAI Stockholder's
Guaranteed Minimum Tender (with appropriate adjustments to avoid purchases of
fractional shares). Pursuant to the Exchange Agreement, the Finns agreed to
tender 80% of their respective NAI Shares in the Exchange Offer, and, in the
event that less than 80% of the issued and outstanding NAI Shares are tendered
by other NAI Stockholders in the Exchange Offer, the Finns agreed to tender up
to an additional 10% of their NAI Shares, as may be required to reach the
Minimum Tender Condition. Although the Finns have agreed to tender up to 90%
of the NAI Shares owned by them, such number of NAI Shares is not sufficient
to meet the Minimum Tender Condition without other NAI Stockholders joining in
the tender.
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Accordingly, if other NAI Stockholders do not tender a number of NAI Shares,
that together with the NAI Shares to be tendered by the Finns, would meet the
Minimum Tender Condition, the Exchange Offer will not be consummated and NAI
will continue to conduct its business as a private company. See "The Exchange
Agreement."
For purposes of the Offer, Kranzco will be deemed to have accepted
for exchange NAI Shares validly tendered and not withdrawn as, if and when
Kranzco gives oral or written notice to the Exchange Agent of its acceptance
of the tenders of such NAI Shares pursuant to the Offer. The Exchange Agent
will act as agent for tendering NAI Stockholders for the purposes of receiving
the Offer Consideration and transmitting such Offer Consideration to tendering
NAI Stockholders.
If any tendered NAI Shares are not accepted for exchange pursuant to
the terms and conditions of the Offer for any reason, or if certificates are
submitted for more NAI Shares than are tendered, certificates for such
unexchanged NAI Shares will be returned without expense to the tendering NAI
Stockholder, as soon as practicable following expiration or termination of the
Offer. If the Exchange Offer and the subsequent Reincorporation Merger are
consummated, any certificates representing unexchanged NAI Shares returned to
such tendering NAI Stockholder will reflect ownership of NAI Maryland Shares.
Since the existing NAI Shares are "restricted" securities within the meaning
of Rule 144 under the Securities Act, the certificates for such unexchanged
NAI Shares will bear a legend to such effect.
In general, under Rule 144 as currently in effect, if one year has
elapsed since the later of the date of acquisition of restricted shares from
NAI or any "affiliate" of NAI, as that term is defined under the Securities
Act, the acquiror or subsequent holder thereof is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1.0%
of the then outstanding NAI Shares or the average weekly trading volume of the
NAI Shares during the four calendar weeks preceding the date on which notice
of the sale is filed with the Commission. Sales under Rule 144 also are
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about NAI. If two years have
elapsed since the date of acquisition of restricted shares from NAI or from
any "affiliate" of NAI, and the acquiror or subsequent holder thereof is
deemed not to have been an "affiliate" of NAI at any time during the three
months preceding a sale, such person would be entitled to sell such shares in
the public market under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
Withdrawal Rights
Tenders of NAI Shares made pursuant to the Offer are irrevocable,
except that NAI Shares tendered pursuant to the Offer may be withdrawn
pursuant to the procedures set forth below at any time prior to the Expiration
Date, and, unless theretofore accepted for exchange and exchanged by Kranzco
for the Offer Consideration pursuant to the Offer, may also be withdrawn at
any time after ________, 1998.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Exchange Agent at its address set forth on the back cover of this Prospectus,
and must specify the name of the person having tendered the NAI Shares to be
withdrawn, the number of NAI Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such NAI
Shares. If certificates have been delivered or otherwise identified to the
Exchange Agent, the name of the registered holder and the serial numbers of
the particular certificates evidencing the NAI Shares withdrawn must also be
furnished to the Exchange Agent as aforesaid prior to the physical release of
such certificates.
All questions as to the form and validity (including time of receipt)
of any notice of withdrawal will be determined by Kranzco, in its sole
discretion, which determination shall be final and binding. Neither Kranzco,
the Exchange Agent, nor any other person will be under any duty to give
notification of any defects or
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irregularities in any notice of withdrawal or will incur any liability for
failure to give any such notification. Any NAI Shares properly withdrawn will
be deemed not to have been validly tendered for purposes of the Offer.
However, withdrawn NAI Shares may be retendered by following the procedure
described under "--Procedure for Tendering" at any time prior to the
Expiration Date.
Release Restrictions on NAI Shares Subject to Restricted Stock Agreements
Certain employees of NAI received their NAI Shares pursuant to
restricted stock agreements (the "Restricted Stock Agreement"). The Restricted
Stock Agreement restricts the transfer of such NAI Shares and subjects such
restricted NAI Shares to a repurchase right. The repurchase right grants NAI
the option, for a period of three years following the date of grant, to
repurchase the restricted NAI Shares if the employee's services to NAI are
terminated. NAI may repurchase restricted NAI Shares for a period of 90 days
after the date of any such termination at prices ranging from $.10 per NAI
Share in the first year after grant to $.30 per NAI Share in the third year
after grant. See "Management-Restricted Stock Agreements." In connection with
the Exchange Offer, NAI has agreed to permit the transfer to Kranzco of all
restricted NAI Shares which are validly tendered on or prior to the Expiration
Date, and not subsequently withdrawn. In addition, NAI has agreed to eliminate
the repurchase option with respect to all restricted NAI Shares owned by any
such employee after the consummation of the Exchange Offer, if such employee
tenders at least 80% of his or her restricted NAI Shares.
The release of any or all of the preceding restrictions could cause
the holders of restricted NAI Shares to immediately recognize ordinary income
in an amount equal to the excess of the fair market value of such NAI Shares
at the time the restrictions are released over any amounts paid to acquire
such NAI Shares. In addition, withholding taxes will be payable to NAI (or
withheld by NAI from amounts otherwise due such holders) in connection with
any such recognition of income. Holders of restricted NAI Shares are urged to
consult their tax advisors concerning the federal, state and local tax
consequences of the release of any restrictions on their NAI Shares.
Procedure for Tendering
For an NAI Stockholder validly to tender NAI Shares pursuant to the
Offer, a properly completed and duly executed Letter of Transmittal (or
manually executed facsimile thereof), together with any required signature
guarantees, and any other required documents, must be transmitted to and
received by the Exchange Agent at its address set forth on the back cover of
this Prospectus and certificates for tendered NAI Shares must be received by
the Exchange Agent at such address prior to the Expiration Date. Any NAI
Stockholder that desires to tender NAI Shares and whose certificates for such
NAI Shares are not immediately available or who cannot deliver all required
documents to the Exchange Agent prior to the Expiration Date, should contact
the Exchange Agent immediately at (800) 829-8432.
No signature guarantee is required on the Letter of Transmittal in
cases where the Letter of Transmittal is signed by the registered holder(s) of
the NAI Shares tendered therewith. If the certificates for NAI Shares are
registered in the name of a person other than the signer of the Letter of
Transmittal, or if certificates for unexchanged NAI Shares are to be issued to
a person other than the registered holder(s), the certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered owner or owners appear on the
certificates, with the signature(s) on the certificates or stock powers
guaranteed as aforesaid.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
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PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE TIMELY DELIVERY.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO THE
OFFER CONSIDERATION, A STOCKHOLDER MUST PROVIDE THE EXCHANGE AGENT WITH HIS OR
HER CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY WHETHER SUCH
STOCKHOLDER IS SUBJECT TO BACKUP WITHHOLDING OF FEDERAL INCOME TAX BY
COMPLETING THE SUBSTITUTE FORM W-9 INCLUDING IN THE LETTER OF TRANSMITTAL.
CERTAIN STOCKHOLDERS (INCLUDING, AMONG OTHERS, ALL CORPORATIONS AND CERTAIN
FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING AND REPORTING
REQUIREMENTS.
In all cases, exchanges of NAI Shares tendered and accepted for
exchange pursuant to the Offer will be made only after timely receipt by the
Exchange Agent of certificates for NAI Shares, properly completed and duly
executed Letter(s) of Transmittal (or facsimile(s) thereof), and any other
required documents.
All questions as to the validity, form, eligibility (including time
of receipt) and acceptance for exchange of any tender of NAI Shares will be
determined by Kranzco, in its sole discretion, which determination shall be
final and binding. Kranzco reserves the absolute right to reject any and all
tenders of NAI Shares determined by it not to be in proper form or the
acceptance of or exchange for which may, in the opinion of Kranzco's counsel,
be unlawful. Kranzco also reserves the absolute right to waive any of the
conditions of the Offer or any defect or irregularity in the tender of any NAI
Shares. No tender of NAI Shares will be deemed to have been validly made until
all defects and irregularities in tenders of NAI Shares have been cured or
waived. Neither Kranzco, the Exchange Agent nor any other person will be under
any duty to give notification of any defects or irregularities in the tender
of any NAI Shares or will incur any liability for failure to give any such
notification. Kranzco's interpretation of the terms and conditions of the
Offer (including the Letter of Transmittal and instructions thereto) will be
final and binding.
The tender of NAI Shares pursuant to any of the procedures described
above will constitute a binding agreement between the tendering NAI
Stockholder and Kranzco upon the terms and subject to the conditions of the
Offer.
Conditions of the Offer
In accordance with the Exchange Agreement, Kranzco's obligation to
consummate the Exchange Offer is subject to the fulfillment, at or prior to
the closing of the Exchange Offer of the following conditions: (i) the parties
to the Exchange Agreement are not subject to any order or injunction which
prohibits the consummation of the Exchange Agreement and the Proposed Related
Transactions; (ii) the Registration Statement shall have become effective and
all necessary state securities law approvals shall have been obtained and no
stop order with respect to any of the foregoing shall be in effect; (iii) 80%
of the total number of issued and outstanding NAI Shares shall have been
validly tendered and not withdrawn prior to the Expiration Date in the
Exchange Offer; (iv) Kranzco shall have obtained the approval for the listing
of Kranzco Common Shares issuable upon conversion of the Notes on the NYSE,
subject to official notice of issuance; (v) all required consents,
authorizations, orders and approvals of any governmental entity or third
parties shall have been obtained or made; (vi) each party to the Exchange
Agreement shall have delivered all such documents or certificates and
disclosed such information as the other party may reasonably request; (vii)
NAI and the Finns shall have performed their agreements contained in the
Exchange Agreement and the representations and warranties of NAI and the Finns
contained in the Exchange Agreement shall be true and correct in all material
respects as of the closing date, and Kranzco shall have received a certificate
of NAI and of each of the Finns certifying to such effect; (viii) the Finns
and an escrow agent shall have entered into an Escrow Agreement (as defined
below), and the principal amount of $800,000 of Notes issued to Gerald C. Finn
and the principal amount of $200,000 of Notes issued to Jeffrey M. Finn shall
be deposited with the escrow agent pursuant to the Escrow Agreement; (ix)
Kranzco shall have received evidence
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in writing that Matthew Arnold, Robert McMenamim and Marc Shegoski have
resigned from the Board of Directors of NAI, effective as of the closing date;
(x) Kranzco shall have received a legal opinion from NAI's counsel on certain
issues, including, among other things, the capitalization of NAI and the
ownership of NAI Shares, the organization and good standing of NAI and its
subsidiaries, the authority of NAI and the Finns, any required consents and
approvals, absence of violations of charter documents, compliance with
applicable law, and the accuracy of the information contained in the
Registration Statement; (xi) any consent or waiver of the holders of the NAI
Series A Preferred Stock shall have been obtained; (xii) from the date of the
Exchange Agreement through the closing, there shall not have occurred any
change in the financial condition, business, operations or prospects of NAI
and its subsidiaries, taken as a whole, that would have or would be reasonably
likely to have an NAI Material Adverse Effect (as defined in the Exchange
Agreement); and (xiii) Norma Finn shall have entered into a letter agreement
pursuant to which she agrees not to convert the Notes issued to her until
after three years following the issuance of the Notes other than upon the
occurrence of a Change in Control or an Event of Default but in no event prior
to the date one year after the date of issuance of the Notes. See "The
Exchange Agreement" for a summary of the terms of the Exchange Agreement.
In addition, the obligation of the Finns to tender the NAI Shares
owned by them is subject to fulfillment, at or prior to the closing of the
Exchange Offer of the conditions set forth in clauses (i) through (vi) above,
and the following conditions, unless waived by the Finns: (i) Kranzco shall
have performed its agreements contained in the Exchange Agreement and the
representations and warranties of Kranzco contained in the Exchange Agreement
shall be true and correct in all material respects as of the closing date, and
NAI and the Finns shall have received a certificate of Kranzco certifying to
such effect; (ii) NAI shall have received a legal opinion from Kranzco's
counsel on certain issues, including the organization and good standing of
Kranzco, the capitalization of Kranzco, the authority of Kranzco, and any
required consents and approvals, and absence of violations of charter
documents; and (iii) from the date of the Exchange Agreement through the
closing, there shall have not occurred any material adverse change in the
financial condition, business, operations or prospects of Kranzco (provided,
however, that a change in the price of Kranzco Common Shares does not
constitute a material adverse change).
Furthermore, the Exchange Agreement and the Exchange Offer may be
terminated by action of the Finns, the Board of Directors of NAI or the Board
of Trustees of Kranzco by mutual agreement, or, under certain circumstances,
including, if (a) the Exchange Offer shall not have been consummated by
December 31, 1998, or (b) a United States federal or state court of competent
jurisdiction or other Governmental Entity shall have issued an order, decree
or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Exchange Agreement
and such order, decree, ruling or other action shall have become final and
non-appealable, provided, that the party seeking to terminate the Exchange
Agreement pursuant to clause (b) shall have used all reasonable efforts to
remove such order, decree, ruling or injunction; and provided, in the case of
a termination pursuant to clause (a) above, that the terminating party shall
not have breached in any material respect its obligations under the Exchange
Agreement in any manner that shall have proximately contributed to the
occurrence of the failure referred to in said clause. See "Proposed Related
Transactions--The Exchange Agreement."
Notwithstanding any other provision of the Offer and subject to any
applicable rules and regulations of the Commission, including Rule 14e-1(c)
under the Exchange Act (relating to Kranzco's obligation to exchange or return
tendered NAI Shares promptly after the termination or withdrawal of the
Offer), and subject to the Exchange Agreement, Kranzco shall not be required
to accept for exchange or exchange any NAI Shares, may postpone the acceptance
for exchange or exchange for tendered NAI Shares and may, in its sole
discretion, terminate or amend the Offer as to any NAI Shares not then
exchanged for any reason, including, without limitation, if at the Expiration
Date any of the Minimum Tender Condition has not been satisfied or waived or
if on or after the date of this Prospectus and on or prior to the Expiration
Date, Kranzco believes that the representations and warranties of NAI
contained in the Exchange Agreement are not, at that point, true and correct.
Any conditions to this Offer are for the sole benefit of Kranzco and may be
asserted by Kranzco
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regardless of the circumstances giving rise to any such conditions (including
any action or inaction by Kranzco) or may be waived by Kranzco in whole or in
part. The determination as to whether any condition has been satisfied shall
be in the reasonable judgment of Kranzco and will be final and binding on all
parties. The failure by Kranzco at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right, and each such right
shall be deemed a continuing right which may be asserted at any time and from
time to time, prior to the consummation of the Exchange Offer. Notwithstanding
the fact that Kranzco reserves the right to assert the failure of a condition
following acceptance for exchange but prior to exchange in order to delay
exchange or cancel its obligation to exchange properly tendered NAI Shares,
Kranzco will either promptly exchange such NAI Shares or promptly return such
NAI Shares.
Kranzco will pay the Exchange Agent reasonable and customary
compensation for its services in connection with the Offer, plus reimbursement
for out-of-pocket expenses, and will indemnify the Exchange Agent against
certain liabilities and expenses in connection therewith, including
liabilities under the federal securities laws. Kranzco will not pay any fees
or commissions to any broker or dealer or other person for soliciting tenders
of NAI Shares pursuant to the Offer. Brokers, dealers, commercial banks and
trust companies will be reimbursed by Kranzco for customary mailing and
handling expenses incurred by them in forwarding material to their customers.
Accounting Treatment
Kranzco will account for the acquisition of NAI Shares pursuant to
the Offer using the purchase method of accounting. Accordingly, the purchase
price will be allocated to assets acquired and liabilities assumed based on
their estimated fair values at the acquisition date. NAI's financial position
and results of operations will not be included in Kranzco's consolidated
accounts prior to the consummation date of the Exchange Offer and the
Distribution. Subsequent to the Transaction, Kranzco will account for its 9.8%
interest in NAI using the equity method of accounting.
DESCRIPTION OF NOTES
The Notes will be issued under an indenture, to be dated as of the
closing of the Exchange Offer (the "Indenture"), between Kranzco and the
United States Trust Company of New York, as Trustee (the "Trustee"). The
following summary of certain provisions of the Indenture does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
all the provisions of the Indenture, copies of which will be available for
inspection at the Corporate Trust Office of the Trustee in New York, New York,
Capitalized terms used in this section, unless otherwise defined in this
Prospectus, are defined in the Indenture, and such definitions are
incorporated in their entirety herein by reference.
The following description of the Notes and the Indenture is a summary
of the provisions thereof, and does not purport to be complete and is
qualified in its entirety by reference to the Indenture. Certain capitalized
terms used below but not defined herein have the meanings ascribed to them in
the applicable Indenture.
General
The Notes will be unsecured, subordinated general obligations of
Kranzco, will mature on ________ __, 2008 and will be limited to an aggregate
principal amount of $8,000,000. The Notes will bear interest at a rate of ___%
per annum from ________ __, 1998, or from the most recent Interest Payment
Date on which interest has been paid or provided for, payable quarterly on
January 1, April 1, July 1 and October 1 of each year, commencing ___________,
1998, to the Persons in whose name the Notes are registered at the close of
business on the preceding March 15, June 15, September 15, or December 15
(whether or not a Business Day (as defined herein)), as the case may be. THE
NOTES ARE NOT NEGOTIABLE AND ARE NOT TRANSFERABLE
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EXCEPT UPON DEATH OF A HOLDER IN ACCORDANCE WITH THE LAWS OF DESCENT AND
DISTRIBUTION OR IN CONNECTION WITH A GIFT WITHOUT CONSIDERATION.
Interest on the Notes will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The Notes will be direct, unsecured obligations of Kranzco and will
rank equally with all other unsecured and unsubordinated indebtedness of
Kranzco from time to time. The Notes will be effectively subordinated to any
secured indebtedness of Kranzco to the extent of the value of the assets
securing such indebtedness. The Indenture will permit Kranzco to incur
additional secured and unsecured indebtedness.
The Notes will not be subject to any mandatory redemption or annual
sinking fund payments.
The Indenture does not contain any provisions that would limit the
ability of Kranzco to incur indebtedness or that would afford the holders of
the Notes (the "Holders") protection in the event of (i) a highly leveraged or
similar transaction involving Kranzco and (ii) a reorganization,
restructuring, merger or similar transaction involving Kranzco that may
adversely affect the Holders. In addition, Kranzco may, in the future, enter
into certain transactions such as the sale of all or substantially all of its
assets or the merger or consolidation of Kranzco that would increase the
amount of Kranzco's indebtedness or substantially reduce or eliminate
Kranzco's assets, which may have an adverse effect on Kranzco's ability to
service its indebtedness, including the Notes. Kranzco and its management have
no present intention of engaging in a highly leveraged or similar transaction
involving Kranzco.
Kranzco conducts certain of its operations through its subsidiaries.
The rights of Kranzco and its creditors, including the Holders, to participate
in the assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to the prior claims of the subsidiary's
creditors except to the extent that Kranzco may itself be a creditor with
recognized claims against the subsidiary.
Optional Redemption by Kranzco
Kranzco may redeem the Notes, at any time after ________ __, 2000, in
whole or from time to time in part, at the election of Kranzco, at a
redemption price equal to the sum of (i) the principal amount of the Notes
being redeemed and (ii) accrued interest thereon to the redemption date, if
any with respect to such Notes (the "Redemption Date").
From and after the date notice has been given as provided in the
Indenture, if funds for the redemption of any Notes called for redemption
shall have been made available on such redemption date, such Notes will cease
to bear interest on the date fixed for such redemption specified in such
notice and the only right of the Holders will be to receive payment of the
Redemption Price.
Notice of any optional redemption of any Notes will be given to
Holders at their addresses, as shown in the Note register, not more than 60
nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Notes to be redeemed by Holders. The Notes will remain
convertible after a notice of optional redemption until the close of business
on a Business Day immediately preceding the Redemption Date. See "--Conversion
Rights."
Kranzco will notify the Trustee at least 45 days prior to the
Redemption Date (or such shorter period as satisfactory to the Trustee) of the
aggregate principal amount of Notes to be redeemed and the Redemption Date. If
less than all the Notes are to be redeemed at the option of Kranzco, the
Trustee shall select, pro rata or by lot or by any other method that the
Trustee considers fair and appropriate under the circumstances, Notes of such
series to be redeemed in whole or in part. Notes may be redeemed in part in
the minimum authorized denomination for Notes or in any integral multiple
thereof.
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Form, Denomination and Registration
Except as set forth below, the Notes will be issued in the form
pursuant to the Indenture. The Notes will be issued only in fully registered
form, without exception. No service charge will be made for any registration
of transfer or exchange of Notes, but Kranzco may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Kranzco will appoint the Trustee as registrar, Paying Agent, transfer
agent, and conversion agent of the Notes. In such capacities, the Trustee will
be responsible for, among other things, (i) maintaining a record of the
Holders and their respective holdings and accepting Notes for exchange and
registration of transfer, (ii) ensuring that payments of principal and
interest with respect to the Notes received by the Trustee from Kranzco are
duly paid to the Holders, (iii) transmitting to Kranzco any notices from
Holders, (iv) accepting conversion notices and related documents, and
transmitting the relevant items to Kranzco, and (v) delivering certificates
for Kranzco Common Shares issued in conversion of the Notes.
Payments and Paying Agents
Payments of principal of and interest on the Notes will be made at
the office of the Trustee or, at the option of the Holder and subject to any
fiscal or other laws and regulations applicable thereto, at the corporate
trust office of the Trustee or any Paying Agent. Payment in respect of
principal on Notes will be made only against surrender of such Notes and will
be made by U.S. Dollar check. Payment in respect of interest on each Interest
Payment Date with respect to any such Note will be made to the Person in whose
name such Note is registered on the relevant Record Date by U.S. Dollar check.
If the due date for payment of any amount in respect of principal or
interest on any Note is not a Business Day at the place in which it is
presented for payment, the Holder thereof shall not be entitled to payment of
the amount due until the next succeeding Business Day at such place and shall
not be entitled to any further interest or other payment in respect of any
such delay. As used in the Indenture regarding payment, "Business Day" means a
day on which banks are open for business in the states of New York and
Pennsylvania and carrying out transactions in U.S. Dollars in the relevant
place of payment.
Subject to certain limitations set forth in the Indenture, Kranzco
reserves the right at any time to vary or terminate the appointment of the
Trustee or any Paying Agent with or without cause and to appoint another
Trustee or additional or other Paying Agents and to approve any change in the
specified offices through which any Paying Agent acts.
Conversion Rights
The Notes will be convertible, in whole or in part, into Kranzco
Common Shares at the option of the Holder at any time after two years from the
following date of original issuance thereof and prior to the close of business
on the Business Day immediately preceding the maturity date, unless previously
redeemed, at the conversion price stated on the cover page of this Prospectus.
The right to convert Notes called for redemption will terminate at the close
of business on the Business Day immediately preceding the Redemption Date
unless Kranzco defaults in making the payment due on the Redemption Date. The
Finns and Norma Finn have agreed not to convert the Notes into Kranzco Common
Shares until three years from the date of issuance; provided, however, that in
the event that Kranzco issues a notice of redemption relating to the Notes
prior the end of such three-year period, then the Finns and Norma Finn may
earlier convert the Notes issued to them, in accordance with the terms of such
Notes. See "Optional Redemption." Unless the Notes are previously convertible,
during the period from the date Kranzco resolves to take any action that would
constitute a Change in Control (as defined below) until five days prior to the
consummation of such Change in Control Transaction, the holders of the Notes
shall have the right to make an election to convert all or any Notes
conditional upon approval of such Change in
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Control by the holders entitled to vote on such matter, in which case, if such
Change in Control is approved, conversion of such Notes as to which a
conditional election has been made shall occur upon the later of (i)
immediately prior to such Change in Control, or (ii) the date one year after
the date of original issuance of the Notes. A "Change in Control" shall be
deemed to have occurred upon (i) the merger or consolidation of Kranzco with
or into any entity, unless (A) 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 (B)
effective provision is made in the merger documents of the surviving entity or
otherwise for the recognition, preservation and protection of the preferences,
conversion and other rights, of the holders of the Notes, or (ii) the sale,
lease, transfer, spin-off, or other disposal or distribution of all or
substantially all of the assets of Kranzco. The Notes will also be convertible
immediately upon an Event of Default; however, if an Event of Default occurs
prior to one year from the date of original issuance of the Notes, any
conversion of such Notes will not be permitted until one year from the date of
original issuance of the Notes, and then will only be permitted if such Event
of Default has not been cured prior to one year from the date of original
issuance of the Notes.
The conversion price will be subject to adjustment upon the
occurrence of certain events, including (i) the payment of dividends (and
other distributions) of Kranzco Common Shares on any class of capital stock of
Kranzco; (ii) the issuance to all holders of Kranzco Common Shares of rights,
warrants or options entitling them to subscribe for or purchase Kranzco Common
Shares at less than the current market price (as defined) thereof; and (iii)
subdivisions and combinations of Kranzco Common Shares. No adjustment of the
conversion price will be required to be made until cumulative adjustments
amount to 1% or more of the conversion price as last adjusted.
For example, if Kranzco declares a one for one share split or share
dividend, the conversion price will be adjusted to one-half of the conversion
price prior to the share split or share dividend. Similarly, if Kranzco
effects a reverse split, the conversion price will be proportionately
effected. Finally, if Kranzco makes a dividend or other distribution of its
Common Shares, the conversion price will be reduced by multiplying such
conversion price by a fraction of which the numerator shall be the number of
Common Shares outstanding plus the number of Common Shares which the aggregate
of the offering price of the total number of Common Shares so offered for
subscription or purchase would purchase at such current market price and the
denominator shall be the number of Common Shares outstanding plus the number
of Common Shares so offered for subscription or purchase.
In the event that Kranzco distributes rights or warrants (other than
those referred to in clause (ii) of the preceding paragraph) pro rata to
holders of Kranzco Common Shares, so long as any such rights or warrants have
not expired or been redeemed by Kranzco, the Holder of any Note surrendered
for conversion will be entitled to receive upon such conversion, in addition
to the Kranzco Common Shares issuable upon such conversion (the "Conversion
Shares"), a number of rights or warrants to be determined as follows: (i) if
such conversion occurs on or prior to the date for the distribution to the
holders of rights or warrants of separate certificates evidencing such rights
or warrants (the "Distribution Date"), the same number of rights or warrants
to which a holder of a number of Kranzco Common Shares equal to the number of
Conversion Shares is entitled to at the time of such conversion in accordance
with the terms and provisions of and applicable to the rights or warrants, and
(ii) if such conversion occurs after such Distribution Date, the same number
of rights or warrants to which a holder of the number of Kranzco Common Shares
into which such Note was convertible immediately prior to such Distribution
Date would have been entitled on such Distribution Date in accordance with the
terms and provisions of and applicable to the rights or warrants. The
conversion price of the Notes will not be subject to adjustment on account of
any declaration, distribution or exercise of such rights or warrants.
In the case of certain reclassifications, consolidations, mergers,
sales or transfers of assets or other transactions pursuant to which the
Kranzco Common Shares are converted into the right to receive other
securities, cash or other property, each Note then outstanding would, without
the consent of any Holders, become convertible only into the kind and amount
of securities, cash and other property receivable upon the transaction by a
Holder
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of the number of Kranzco Common Shares which would have been received by such
Holder immediately prior to such transaction if such Holder had converted its
Note.
Fractional Kranzco Common Shares will not be issued upon conversion,
but, in lieu thereof, Kranzco will pay a cash adjustment based upon market
price.
Except as described in this paragraph, no Holder will be entitled,
upon conversion of a Note, to any actual payment or adjustment on account of
accrued and unpaid interest (although such accrued and unpaid interest will be
deemed paid by the appropriate portion of the Kranzco Common Shares received
by the Holders upon such conversion) or on account of dividends on Kranzco
Common Shares issued in connection therewith. Notes surrendered for conversion
during the period from the close of business on any Regular Record Date to the
opening of business on the corresponding Interest Payment Date (except Notes
called for redemption on a Redemption Date within such period between and
including such Regular Record Date and such Interest Payment Date) must be
accompanied by payment to Kranzco of an amount equal to the interest payable
on such Interest Payment Date on the principal amount converted.
If at any time Kranzco makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of indebtedness
or assets of Kranzco, but generally not stock dividends or rights to subscribe
for capital stock) and, pursuant to the conversion price adjustment provisions
of the Indenture, the conversion price of the Notes is reduced, such reduction
may be deemed to be the receipt of taxable income to Holders of Notes.
In addition, Kranzco may make such reductions in the conversion price
as Kranzco's Board of Directors deems advisable to avoid or diminish any
income tax to holders of Kranzco Common Shares resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes or for any other reasons.
Consolidation, Merger and Sale of Assets
The Indenture will provide that Kranzco, without the consent of the
Holders, may consolidate with or merge into any other Person or convey,
transfer or lease its properties and assets substantially as an entirety to
any Person or may permit any Person to consolidate with or merge into, or
transfer or lease its properties substantially as an entirety to, Kranzco,
provided that (i) the successor, transferee or lessee is organized under the
laws of any United States jurisdiction; (ii) the successor, transferee or
lessee, if other than Kranzco, expressly assumes Kranzco's obligations under
the Indenture and the Notes by means of a supplemental indenture entered into
with the Trustee; (iii) after giving effect to the transaction, no Event of
Default and no event which, with notice or lapse of time, or both, would
constitute an Event of Default shall have occurred and be continuing; and (iv)
certain other conditions are met.
Under any consolidation by Kranzco with, or merger by Kranzco into,
any other Person or any conveyance, transfer or lease of the properties and
assets of Kranzco substantially as an entirety as described in the preceding
paragraph, the successor resulting from such consolidation or into which
Kranzco is merged or the transferee or lessee to which such conveyance,
transfer or lease is made will succeed to, and be substituted for, and may
exercise every right and power of, Kranzco under the Indenture, and
thereafter, except in the case of a lease, the predecessor (if still in
existence) will be released from its obligations and covenants under the
Indenture and the Notes.
Modification of the Indenture
Under the Indenture, with certain exceptions, the rights and
obligations of Kranzco with respect to the Notes and the rights of holders of
the Notes may be modified by Kranzco and the Trustee only with the consent
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of the holders of at least a majority in principal amount of the outstanding
Notes. However, without the consent of each holder of Notes affected, an
amendment, waiver or supplement may not (i) reduce the principal of, or rate
of interest on, any Notes; (ii) change the stated maturity date of the
principal of, or any installment of interest on, any Notes; (iii) waive a
default in the payment of the principal amount of, or the interest on, or any
premium payable on redemption of, any Notes; (iv) change the currency for
payment of the principal of, or premium or interest on, any Notes; (v) impair
the right to institute suit for the enforcement of any such payment when due;
(vi) reduce the amount of outstanding Notes necessary to consent to an
amendment, supplement or waiver provided for in the Indenture; or (vii) modify
any provisions of the Indenture relating to the modification and amendment of
the Indenture or waivers of past defaults, except as otherwise specified.
Modification and Waiver
The Indenture contains provisions permitting Kranzco and the Trustee,
with the consent of the Holders of not less than a majority in principal
amount of the Outstanding Notes, to enter into one or more supplemental
indentures adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture or modifying in any manner the rights
of the Holders of the Notes, except that no such modification or amendment
may, without the consent of the Holders of each of the Outstanding Notes
affected thereby, among other things, (i) change the Stated Maturity of the
principal of or any installment of interest on any Note; (ii) reduce the
principal amount thereof or any premium thereon or the rate of interest
thereon; (iii) adversely affect the right of any Holder to convert any Note as
provided in the Indenture; (iv) change the place of payment where, or the coin
or currency in which, the principal of any Note or any premium or interest
thereon is payable; (v) impair the right to institute suit for the enforcement
of any such payment on or with respect to any Note on or after the Stated
Maturity (or, in the case of redemption, on or after the Redemption Date);
(vi) modify the subordination provisions of the Indenture in a manner adverse
to the Holders; (vii) modify the redemption provisions of the Indenture in a
manner adverse to the Holders; (viii) modify the provisions of the Indenture
relating to Kranzco's requirement to offer to repurchase Notes upon a Change
in Control in a manner adverse to the Holders; (ix) reduce the percentage in
principal amount of the Outstanding Notes the consent of whose Holders is
required for any such modification or amendment of the Indenture or for any
waiver of compliance with certain provisions of, or of certain defaults under,
the Indenture; or (x) modify the foregoing requirements.
The Holders of a majority in principal amount of the Outstanding
Notes may, on behalf of the Holders of all Notes, waive compliance by Kranzco
with certain restrictive provisions of the Indenture. The Holders of a
majority in principal amount of the Outstanding Notes may, on behalf of the
Holders of all Notes, waive any past default under the Indenture and its
consequences, except a default in the payment of the principal of or any
premium or interest on any Note or in respect of a provision which under the
Indenture cannot be modified or amended without the consent of the Holders of
each Outstanding Note affected.
Subordination
The payment of the principal of and premium, if any, and interest on
the Notes will, to the extent set forth in the Indenture, be subordinated in
right of payment to the prior payment in full of all Senior Indebtedness. When
there is a payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshaling of assets or any bankruptcy, insolvency or
similar proceedings of Kranzco, the holders of all Senior Indebtedness will
first be entitled to receive payment in full of all amounts due or to become
due thereon, or provision for such payment in money or money's worth, before
the Holders will be entitled to receive any payment in respect of the
principal of or premium, if any, or interest on the Notes. No payments on
account of principal of, premium, if any, or interest on the Notes or on
account of the purchase or acquisition of Notes may be made if there has
occurred and is continuing a default in any payment with respect to Senior
Indebtedness or if any judicial proceeding is pending with respect to any such
default. The Notes are also effectively subordinated in right of payment to
the prior payment in full of all indebtedness of Kranzco's subsidiaries.
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By reason of such subordination, in the event of insolvency, Holders
of the Notes and other creditors of Kranzco who are not holders of Senior
Indebtedness may recover less, ratably, than holders of Senior Indebtedness.
"Senior Indebtedness" is defined in the Indenture as the principal of
and premium, if any, and interest on all indebtedness of Kranzco for borrowed
money, other than the Notes, whether outstanding on the date of execution of
the Indenture or thereafter created, incurred, guaranteed or assumed, except
such indebtedness that by the terms of the instrument or instruments by which
such indebtedness was created or incurred expressly provides that it (i) is
junior in right of payment to the Notes or any other indebtedness of Kranzco
or (ii) ranks pari passu in right of payment to the Notes. The term
"indebtedness for borrowed money" when used with respect to Kranzco is defined
to mean (a) any obligation of, or any obligation guaranteed by, Kranzco for
the repayment of borrowed money, whether or not evidenced by bonds,
debentures, notes or other written instruments, (b) all obligations of Kranzco
with respect to interest rate hedging arrangements to hedge interest rates
relating to Senior Indebtedness of Kranzco, (c) any deferred payment
obligation of, or any such obligation guaranteed by, Kranzco for the payment
of the purchase price of property or assets evidenced by a note or similar
instrument, and (d) any obligation of, or any such obligation guaranteed by,
Kranzco for the payment of rent or other amounts under a lease of property or
assets, which obligation is required to be classified and accounted for as a
capitalized lease on the balance sheet of Kranzco under generally accepted
accounting principles.
At March 31, 1998, Senior Indebtedness and indebtedness of Kranzco
and Kranzco's Subsidiaries was approximately $257,201,000. Kranzco and its
Subsidiaries expect from time to time to incur additional indebtedness. The
Indenture does not limit or prohibit the incurrence of additional Senior
Indebtedness or additional indebtedness of Kranzco or its Subsidiaries.
Defeasance
The Indenture will provide that (i) if applicable, Kranzco will be
discharged from any and all obligations in respect of the Outstanding Notes
(except for certain obligations to register the transfer or exchange of Notes,
to replace stolen, lost or mutilated Notes, to provide for conversion of the
Notes, to maintain Paying Agents and hold moneys for payment in trust and to
repurchase Notes in the event of a Change in Control) or (ii) if applicable,
Kranzco may decide not to comply with certain restrictive covenants, but not
including the obligation to provide for conversion of the Notes or repurchase
Notes in the event of a Change in Control, and that such decision will not be
deemed to be an Event of Default under the Indenture and the Notes, in either
of case (i) or (ii) upon irrevocable deposit with the Trustee, in trust, of
money and/or U.S. Government Obligations that will provide money in an amount
sufficient in the opinion of a nationally recognized firm of independent
public accountants expressed in written opinions thereof to pay the principal
of, premium, if any, and each installment of interest on the Outstanding
Notes. With respect to clause (ii), the obligations under the Indenture other
than with respect to such covenants and the Events of Default other than the
Event of Default relating to such covenants will remain in full force and
effect. Such trust may only be established if, among other things (a) with
respect to clause (i), Kranzco has delivered to the Trustee an Opinion of
Counsel to the effect that Kranzco has received from, or there has been
published by, the U.S. Internal Revenue Service a ruling or there has been a
change in law which, in the opinion of counsel to Kranzco, provides that
Holders will not recognize gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to
federal income tax on the same amount, in the same manner and at the same
times as would have been the case if such deposit, defeasance and discharge
had not occurred; or, with respect to clause (ii), Kranzco has delivered to
the Trustee an Opinion of Counsel to the effect that the Holders will not
recognize gain or loss for federal income tax purposes as a result of such
deposit and defeasance and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred; (b) no Event of Default (or
event that with notice or lapse of time, or both, would constitute an Event of
Default) shall have occurred or be continuing; (c) Kranzco has delivered to
the Trustee an Opinion of Counsel to the effect that such
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deposit shall not cause the Trustee or the trust so created to be subject to
the Investment Company Act of 1940, as amended; and (d) certain other
customary conditions precedent are satisfied.
Events of Default
An Event of Default is defined in the Indenture to be a (i) default
in the payment of any interest upon any of the Notes for 30 days or more after
such payment is due, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (ii) default in the payment of the
principal of and premium, if any, on any of the Notes when due, whether or not
such payment is prohibited by the subordination provisions of the Indenture;
(iii) default by Kranzco in the performance or breach of any of its other
covenants in the Indenture which will not have been remedied by the end of a
60-day period after written notice to Kranzco by the Trustee or to Kranzco and
the Trustee by the Holders of at least 50% in principal amount of the
Outstanding Notes; (iv) the default in the payment of principal or interest
when due which extends beyond any stated period of grace applicable thereto,
or an acceleration for any other reason, of the maturity of any indebtedness
of Kranzco, with an aggregate principal amount in excess of $30 million, and
(v) certain events of bankruptcy, insolvency or reorganization of Kranzco.
The Indenture will provide that if an Event of Default (other than of
a type referred to in clause (v) of the preceding paragraph) shall have
occurred and is continuing, either the Trustee or the Holders of at least 50%
in principal amount of the Outstanding Notes may declare the principal amount
of all Notes to be immediately due and payable. Such declaration may be
rescinded if certain conditions are satisfied. If an Event of Default of the
type referred to in clause (v) of the preceding paragraph shall have occurred,
the principal amount of the Outstanding Notes shall automatically become
immediately due and payable.
The Indenture will also provide that the Holders of not less than a
majority in principal amount of the Outstanding Notes may direct the time,
method and place of conducting any proceedings for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, provided
that such direction is not in conflict with any rule of law or with the
Indenture. The Trustee may take any other action deemed proper by it that is
not inconsistent with such direction.
The Indenture contains provisions entitling the Trustee, subject to
its duty during the continuance of an Event of Default to act with the
required standard of care, to be indemnified by the Holders before proceeding
to exercise any right or power under the Indenture at the request of the
Holders.
No Holder will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default and unless the Holders of at least 50% in aggregate principal
amount of the Outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as the
Trustee on behalf of the holders, and the Trustee shall not have received from
the Holders of a majority in aggregate principal amount of the outstanding
Notes a direction inconsistent with such request and shall have failed to
institute such proceeding within 30 days. However, such limitations do not
apply to a suit instituted by a Holder of a Note for enforcement of payment of
the principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note or of the right to convert such
Note in accordance with the Indenture.
The Indenture requires Kranzco to file annually with the Trustee a
certificate, executed by a designated officer of Kranzco, stating to the best
of his knowledge that Kranzco is not in default under certain covenants under
the Indenture or, if he has knowledge that Kranzco is in such default,
specifying such default.
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Information Concerning the Trustee
The Trustee under the Indenture will be United States Trust Company
of New York.
The Trustee will act as registrar and transfer agent for the Notes.
Registration of transfers of the Notes will be effected without charge by or
on behalf of Kranzco, but upon payment of any tax or other governmental
charges that may be imposed in connections with any transfer or exchange.
Following the offering hereunder, the Trustee shall have and be
subject to all the duties and responsibilities specified in the Indenture.
Subject to such provisions, the Trustee is under no obligation to exercise any
of the powers vested in it by the Indenture at the request of any holder of
Notes, unless offered reasonable indemnity by such holder against the costs,
expenses and liabilities which might be incurred thereby. The Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Trustee reasonably believes
that repayment or adequate indemnity is not reasonably assured to it.
Governing Law
The Indenture and the Notes will be governed by and construed in
accordance with the laws of the State of New York.
Additional Information
Anyone who receives this Offering Memorandum may obtain a copy of the
Indenture without charge by writing to Kranzco Realty Trust, 128 Fayette
Street, Conshohocken, Pennsylvania 19428, telephone number: (610) 941-9292,
Attention: Robert H. Dennis.
MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
The following general discussion summarizes certain of the material
U.S. federal income tax aspects of the acquisition, ownership, conversion and
disposition of the Notes or the Kranzco Common Shares acquired in conversion
of the Notes. This discussion is a summary for general information only and
does not consider all aspects of U.S. federal income tax that may be relevant
to the acquisition, ownership, conversion and disposition of the Notes or the
Kranzco Common Shares acquired in conversion of the Notes by an NAI
Stockholder in light of such Stockholder's personal circumstances.
This discussion is limited to the U.S. federal income tax
consequences relevant to an NAI Stockholder receiving Notes pursuant to this
offering, and who is (i) a citizen or resident (as defined in Section
7701(b)(1) of the Code) of the United States, (ii) treated as a domestic
corporation or a domestic partnership, or (iii) an estate or trust other than
a "foreign estate" or "foreign trust" as defined in Section 7701(a)(31) of the
Code (a "U.S. Holder"). This discussion does not address the tax consequences
to a Holder that is not a U.S. Holder. This discussion also does not address
the U.S. federal income tax consequences of the acquisition, the ownership,
conversion or disposition of the Notes or Kranzco Common Shares not held as
capital assets within the meaning of Section 1221 of the Code, or the U.S.
federal income tax consequences to NAI Stockholders subject to special
treatment under the U.S. federal income tax laws, such as dealers in
securities or foreign currency, tax-exempt entities, banks, thrift
institutions, insurance companies or other financial institutions, persons
that hold the Notes or the Kranzco Common Shares as part of a "straddle," a
"hedge" against currency risk or a "conversion transaction," persons that have
a "functional currency" other than the U.S. dollar, and investors in
pass-through entities. Moreover, the effect of any applicable state, local or
foreign tax laws is not discussed.
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This discussion is based on the Code, existing and proposed
regulations thereunder, and current administrative rulings and court
decisions. All the foregoing is subject to change, possibly on a retroactive
basis, and any such change could affect the continuing validity of this
discussion.
EACH NAI STOCKHOLDER CONSIDERING THE ACQUISITION OF A NOTE IS
STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR CONCERNING THE APPLICATION OF
FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION, TO ITS PARTICULAR SITUATION. THE CONTENTS OF THIS
PROSPECTUS ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH NAI
STOCKHOLDER SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR AND/OR TAX
ADVISOR AS TO LEGAL, BUSINESS OR TAX ADVICE.
Federal Income Taxation of the Exchange Offer
General
The exchange by an NAI Stockholder of its NAI Shares for Notes
pursuant to the Exchange Offer is intended to qualify as an installment sale,
as described below, unless such NAI Stockholder expressly makes a timely
election to have the installment sale rules not apply. If such an election is
made, the exchange will constitute a taxable sale and the electing NAI
Stockholder will recognize (i) a capital gain measured by the excess of the
Offer Consideration received over its adjusted tax basis in the NAI Shares
tendered, or (ii) a capital loss measured by the excess of its adjusted tax
basis in the NAI Shares tendered over the Offer Consideration received. In
general, the Offer Consideration will equal the fair market value of the Notes
received, in the case of a cash method taxpayer, and will equal the face
amount of the Notes received, in the case of an accrual method taxpayer.
The remainder of this tax discussion assumes that an election out of
the installment method will not be made. In the absence of an election, the
exchange is intended to qualify for installment sale treatment. In general,
installment sale treatment will be available provided, among other things,
that (i) the NAI Shares are not "traded on an established securities market,"
and (ii) the Notes will not be treated as being "readily tradable in an
established securities market," as those terms are used in Section 453 of the
Code. The Notes are not negotiable and are not transferable except upon death
of a holder in accordance with the laws of descent and distribution or in
connection with a gift without consideration. Thus, Kranzco intends that the
Notes will not be treated as "readily tradable in an established securities
market."
Under the installment method, a taxpayer will generally recognize
gain during each taxable year equal to the product of (i) the amount of cash
received (other than interest payments), if any, multiplied by (ii) the "gross
profit percentage." The taxpayer's "gross profit percentage" will generally be
equal to the product of (i) the total gain to be recognized by the taxpayer,
divided by (ii) the total consideration the taxpayer will receive for the
property sold.
Interest payable on a Note will be taxable to an NAI Stockholder as
ordinary interest income either at the time it accrues or is received,
depending on such NAI Stockholder's method of accounting for federal income
tax purposes.
Certain transactions can accelerate the recognition of gain under the
installment sale method, including (i) a redemption of the Notes by Kranzco,
(ii) any disposition (including a gift) or pledge of the Notes, or (iii)
certain grants of a security interest therein. In addition, the conversion of
a Note is treated as a taxable disposition, and gain (or loss) is measured by
the excess of the fair market value of the Kranzco Common Shares received in
the conversion over the adjusted tax basis in the Notes.
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Additionally, an NAI Stockholder must pay interest on its deferred
tax liability to the extent that it holds installment obligations with an
aggregate face amount in excess of $5 million and that arose during and are
outstanding as of the close of the taxable year. If applicable, the NAI
Stockholder must continue to pay interest on the deferred tax liability (as
may be reduced from time to time) for each subsequent taxable year in which an
amount of the installment obligation remains outstanding.
An NAI Stockholder's capital gain or loss will be long term if the
NAI Shares have been held more than one year, otherwise the gain or loss will
be short term. Currently, for individual taxpayers, net long term capital
gains reduced by net short term capital losses are taxed at a maximum 28%
federal income tax rate, or 20% where the NAI Shares have been held for more
than 18 months. Net short term capital gains are taxed at the same rate as
ordinary income. An individual may deduct only $3,000 of net capital losses
(net of capital gains) per year.
Deemed Dividends
Section 305 of the Code treats as a distribution taxable as a
dividend (to the extent of the issuing corporation's current or accumulated
earnings and profits) certain actual or constructive distributions of stock
with respect to stock or convertible securities. Under U.S. Treasury
regulations, an adjustment in the conversion price of a Note, or the failure
to make such an adjustment, may, under certain circumstances, be treated as a
constructive dividend to holders of Notes. Generally, an NAI Stockholder's tax
basis in a Note will be increased by the amount of any such constructive
dividend.
Conversion of Notes into Kranzco Common Shares
As described above, the conversion of the Notes into Kranzco Common
Shares is a taxable event. The tax basis for the Kranzco Common Shares
received upon conversion will be equal to the tax basis of the Notes converted
into Kranzco Common Shares plus any gain recognized in the conversion, and the
holding period of the Kranzco Common Shares will begin on the day following
the date of conversion.
Backup Withholding
A U.S. Holder of Notes or Kranzco Common Shares may be subject to
"backup withholding" at a rate of 31% with respect to certain "reportable
payments," including interest payments, dividend payments and, under certain
circumstances, principal payments on the Notes or proceeds from the
disposition of Kranzco Common Shares. These backup withholding rules apply if
the U.S. Holder, among other things, (i) fails to furnish a social security
number or other taxpayer identification number ("TIN") certified under
penalties of perjury within a reasonable time after the request therefor, (ii)
furnishes an incorrect TIN, (iii) fails to report properly interest or
dividends, or (iv) under certain circumstances, fails to provide a certified
statement, signed under penalties of perjury, that the TIN furnished is the
correct number and that such U.S. Holder is not subject to backup withholding.
A U.S. Holder who does not provide Kranzco with its correct TIN also may be
subject to penalties. Any amount withheld from a payment to a U.S. Holder
under the backup withholding rules is creditable against the U.S. Holder's
federal income tax liability, provided the required information is furnished
to the Service. Backup withholding will not apply, however, with respect to
payments made to certain holders, including corporations and tax-exempt
organizations, provided their exemption from backup withholding is properly
established.
Kranzco will report to the U.S. Holders of Notes and Kranzco Common
Shares and to the Service the amount of any "reportable payments" for each
calendar year and the amount of tax withheld, if any, with respect to such
payments.
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Federal Income Taxation of Kranzco
General
Kranzco has 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 in conformity with the requirements for qualification
as a REIT, and its method of operation enabled it to meet the requirements for
qualification and taxation as a REIT under the Code. 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.
If Kranzco qualifies for tax treatment as a REIT, it will generally
not be subject to 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.
Kranzco will be subject to 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 and,
effective for Kranzco's taxable years beginning January 1, 1998 and
thereafter, other than dispositions of property that occur due to an
involuntary conversion) 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
Kranzco acquires any asset from a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in certain transactions in which the
basis of the asset in the hands of Kranzco is determined by reference to the
basis of the asset (or any other property) in the hands of the C corporation,
and Kranzco recognizes gain on the disposition of such asset during the
10-year period (the "Recognition Period") beginning on the date on which such
asset was acquired by Kranzco, then, to the extent of the excess, if any, of
the fair market value over the adjusted basis of any such asset as of the
beginning of the Recognition Period, such gain will be subject to tax at the
highest regular corporate rate.
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 stock 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. 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 believes that it 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 NAI
Shares which are intended to assist Kranzco in continuing to satisfy the
shares ownership requirements described in (5) and (6) above.
Effective for Kranzco's taxable years commencing on and after January
1, 1998, if Kranzco complies with regulatory rules pursuant to which it is
required to send annual letters to certain of its shareholders requesting
information regarding the actual ownership of its stock, but does not know, or
exercising reasonable diligence would not have known, whether it failed to
meet the Five or Fewer Requirement, Kranzco will be treated as having met the
requirement described in (6) above. If Kranzco were to fail to comply with
these regulatory rules for any year, it would be subject to a $25,000 penalty.
If Kranzco's failure to comply was due to intentional disregard of the
requirements, the penalty is increased to $50,000. However, if Kranzco's
failure to comply was due to reasonable cause and not willful neglect, no
penalty would be imposed.
Kranzco owns and operates a number of properties through wholly owned
subsidiaries. Code Section 856(i) provides that a corporation which is a
"qualified REIT subsidiary" shall not be treated as a separate corporation,
and all assets, liabilities, and items of income, deduction, and credit of a
"qualified REIT subsidiary" shall be treated as assets, liabilities and such
items (as the case may be) of the REIT. Thus, in applying the requirements
described herein, Kranzco's "qualified REIT subsidiaries" will be ignored, and
all assets, liabilities and items of income, deduction, and credit of such
subsidiaries will be treated as assets, liabilities and items of Kranzco.
Income Tests
Effective for Kranzco's taxable years beginning on and after January
1, 1998, there are two 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. 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. 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;
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provided, however, Kranzco may directly perform certain services customarily
furnished or rendered in connection with the rental of real property in the
geographic area in which the property is located 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." Kranzco has represented that each of
the above requirements has been satisfied. In addition, for its 1998 taxable
year and thereafter, Kranzco is permitted to receive up to 1% of the gross
income from each property from the provision of non-customary services and
still treat all other amounts received from such property 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 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) a portion 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. Kranzco intends to make timely distributions sufficient to
satisfy these annual distribution requirements.
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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, among other things, (a) 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 taxable income of Kranzco, or (b) the payment of severance
benefits that may not be deductible to 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.
Failure to Qualify as a Real Estate Investment Trust
Kranzco's election to be treated as a REIT will be automatically
terminated if Kranzco fails to meet the requirements described above. In that
event, Kranzco will be subject to tax (including any applicable minimum tax)
on its taxable income at regular corporate rates, and distributions to
shareholders will not be deductible by Kranzco. All distributions to
shareholders will be taxable as ordinary income to the extent of current and
accumulated earnings and profits allocable to such distributions and will be
eligible for the 70% dividends received deduction for corporate shareholders
(although special rules apply in the case of any "extraordinary dividend" as
defined in Code Section 1059). Kranzco will not be eligible again to elect
REIT status until the fifth taxable year which begins after the year for which
Kranzco's election was terminated unless Kranzco did not willfully fail to
file a timely return with respect to the termination taxable year, inclusion
of incorrect information in such return was not due to fraud with intent to
evade tax, and Kranzco establishes that failure to meet the requirement was
due to reasonable cause and not willful neglect. Failure to qualify for even
one year could result in Kranzco incurring substantial indebtedness (to the
extent borrowings are feasible) or liquidating substantial investments in
order to pay the resulting taxes.
Federal Income Taxation of Shareholders
General
So long as Kranzco qualifies for taxation as a REIT, distributions
with respect to its shares of beneficial interest (the "Kranzco Shares") made
out of current or accumulated earnings and profits allocable thereto (and not
designated as capital gain dividends) will be includible by the shareholders
as ordinary income for Federal income tax purposes. For this purpose, the
current and accumulated earnings and profits of Kranzco will be allocated
first to distributions with respect to Series A-1 Preferred Shares, Series B
Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and
then to distributions with respect to Kranzco Common 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. For a U.S.
shareholder who is an individual or an estate or trust, such capital gain
dividends generally will be taxable at the 28% rate applicable to mid-term
capital gain (i.e., gains from the sale of capital assets held for more than
one year but not more than 18 months) except to the extent Kranzco designates
the capital gain dividend as a 20% rate distribution or a 25% rate
distribution, as the case may be, based on certain IRS guidelines. Corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income.
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Effective for Kranzco's taxable years beginning on and after January
1, 1998, if Kranzco elects to retain and pay income tax on any net long term
capital gain, domestic shareholders of Kranzco would include in their income
as long term capital gain their proportionate share of such net long term
capital gain. A domestic shareholder would also receive a refundable tax
credit for such shareholder's proportionate share of the tax paid by Kranzco
on such retained capital gains and an increase in its basis in the shares of
Kranzco in an amount equal to the shareholder's includible capital gains less
its share of the tax deemed paid.
Distributions 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 Kranzco Shares. Shareholders
will be required to reduce the tax basis of their Kranzco Shares by the amount
of such distributions until such basis has been reduced to zero, after which
such distributions will be taxable as capital gain (ordinary income in the
case of a shareholder who holds his Kranzco Shares as a dealer). The tax basis
as so reduced will be used in computing the capital gain or loss, if any,
realized upon sale of the Kranzco Shares. Any loss upon a sale or exchange of
Kranzco Shares by a shareholder who held such Kranzco 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 Shares.
Shareholders may not include in their individual 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 exchange of Kranzco Shares to or with a person other
than Kranzco or a sale or exchange of Kranzco Shares with Kranzco to the
extent not taxable as a dividend, a holder will recognize capital gain or loss
equal to the difference between the amount realized on such sale or exchange
and the holder's adjusted tax basis in such shares. Any capital gain or loss
recognized will generally be treated as mid-term capital gain or loss (taxable
at a maximum rate of 28%) if the holder held such shares for more than one
year but not more than 18 months, or as net adjusted capital gain or loss
(taxable at a maximum rate of 20%) if the holder held such shares for more
than 18 months.
Backup Withholding and Information Reporting
A noncorporate holder of Kranzco 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, the Kranzco 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 federal income tax liability or as a refund,
provided that the required information is furnished to the IRS. Holders should
consult their own tax advisors regarding their qualification for exemption
from backup withholding and the procedure for obtaining any applicable
exemption.
State, Local and Foreign Taxation
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 Federal income tax treatment described
above. Consequently, NAI Stockholders
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should consult their own tax advisors regarding the effect of state, local and
foreign tax laws on an investment in Kranzco.
COMPARISON OF RIGHTS OF HOLDERS
General
Certain differences exist between the rights of holders of the Notes
and the rights of holders of NAI Delaware Shares and between the rights of
holders of NAI Delaware Shares and the rights of holders of Kranzco Common
Shares. This comparison reviews the rights of holders of NAI Delaware Shares
rather than NAI Maryland Shares because if the Exchange Offer is not
consummated NAI will not effect the Reincorporation Merger and the NAI
Delaware Shares will not be converted into NAI Maryland Shares. See
"Description of Securities of NAI," "Certain Provisions of Maryland Law and of
NAI Maryland's Charter and Bylaws" and "Risk Factors--Institution of
Anti-takeover Measures; Anti-takeover Effect of Certain Provisions of Maryland
Law and of NAI Maryland's Charter and Bylaws."
The Notes are unsecured debt obligations of Kranzco and the Note
holders' rights are governed by the terms of the Notes and the Indenture. NAI
Shares are equity securities of NAI and the rights of holders of such shares
are governed by the Amended and Restated Certificate of Incorporation (the
"Certificate") and the Bylaws of NAI Delaware and the Delaware General
Corporation Law (the "DGCL"). Kranzco Common Shares are equity securities of
Kranzco and the rights of holders of such shares are governed by Title 8
("Title 8") and certain other provisions of the Annotated Code of Maryland,
the Declaration of Trust and the Kranzco Bylaws.
The DGCL 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.
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 some of these matters in its declaration of trust or
bylaws.
The discussion of the comparative rights of holders of NAI Shares,
holders of Kranzco Common Shares and holders of the Notes 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 Certificate and the Bylaws,
the Declaration of Trust, the Kranzco Bylaws and the Notes and the Indenture.
Voting Rights
Each NAI Share entitles the holder thereof to one vote on all matters
submitted to a vote of holders of NAI Shares, including the election of
directors. No action to be taken by NAI requires approval by the affirmative
vote of the holders of greater than a majority of the NAI Shares entitled to
vote on the matter, although certain matters also require the approval of
holders of two-thirds of the shares of Series A Redeemable Convertible
Preferred Stock of NAI.
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
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approval by the affirmative vote of the holders of greater than a majority of
the outstanding Kranzco Common Shares, although certain matters also require
the approval of holders of Kranzco Preferred Shares.
Neither Title 8 nor the Declaration of Trust entitles the holders of
the Notes to any vote on matter submitted to a vote of the holders of Kranzco
Common Shares. See "Description of Notes -- Consolidation, Merger and Sale of
Assets."
Standard of Conduct for Directors and Trustees
Under Delaware law, the standards of conduct for directors have
developed through written opinions of the Delaware courts in cases decided by
them. Generally, directors of Delaware corporations are subject to a duty of
loyalty, a duty of care and a duty of candor to the shareholders of the
corporation. The duty of loyalty has been said to require directors to refrain
from self-dealing. According to the Delaware Supreme Court, the duty of care
requires "directors . . . in managing the corporate affairs . . . to use that
amount of care which ordinarily careful and prudent men would use in similar
circumstances." Later case law has established "gross negligence" as the
standard for recovery of money damages for violations of the duty of care in
the process of decision-making by directors of Delaware corporations.
Under Title 8, the trustees of Kranzco owe no duties to the holders
of the Notes.
Under Maryland law, the standards of conduct for directors of
corporations are governed by statute. The MGCL requires a director of a
Maryland corporation to perform his duties in good faith, with a reasonable
belief that his actions are in the best interests of the corporation and with
the care of an ordinarily prudent person in a like position under similar
circumstances. Title 8 does not contain a similar provision concerning the
standard of conduct for trustees of a Maryland REIT, but Maryland courts may
look to Maryland corporation law in determining the appropriate standards for
trustees.
Dividends and Other Distributions
Holders of NAI Shares are entitled to distributions if, as and when
declared by the NAI Board. NAI has never paid any cash dividends on the NAI
Shares and has no present intention to declare or pay any cash dividends other
than as required by the terms of any existing or future outstanding shares of
preferred stock of NAI. Dividends may only be paid out of the surplus of NAI
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 quarterly
cash distribution of $.48 per Kranzco Common Share (which, on an annual basis,
equals $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 on the payment of dividends or other distributions
on the Kranzco Common Shares similar to the limits in the DGCL.
The Notes will bear interest at a rate of ____% per year from
________, 1998, payable quarterly, but holders of the Notes are not entitled
to receive any other distributions from Kranzco prior to conversion. See
"Description of Notes -- General."
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Restrictions on Transfer
There are no restrictions on the transferability of NAI Shares under
the DGCL, the Certificate or the Bylaws.
The Declaration of Trust restricts the transferability of Kranzco
Common Shares. 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 otherwise be in the
best interest of the shareholders of Kranzco.
The Notes are not negotiable and are not transferable except upon
death of a holder in accordance with the laws of descent and distribution or
in connection with a gift without consideration.
Amendment of Bylaws
The Bylaws may be amended by the NAI Board or by the holders of NAI
Shares. The Kranzco Bylaws may be amended only by the Kranzco Board and not by
the holders of Kranzco Common Shares or holders of the Notes.
Appraisal Rights
Under the DGCL, holders of shares of stock of NAI are entitled to
appraisal rights in connection with certain mergers of NAI into another
entity. Under Title 8, because the Kranzco Common Shares are listed on a
national securities exchange, holders of such shares have no appraisal rights.
Holders of the Notes have no appraisal rights. The Reincorporation Merger does
not give rise to appraisal rights with respect to the NAI Shares under the
DGCL.
NAI Board and Kranzco Board
The business and affairs of NAI are managed under the direction of a
seven-member board of directors. The business and affairs of Kranzco are
managed under the direction of a seven-member board of trustees.
The Bylaws provide that the number of directors of NAI shall be not
less than two nor more than nine and shall be seven until such number is
changed by the NAI Board from time to time. Vacancies occurring for any reason
(other than the removal of director without cause) may be filled by a majority
of the directors then in office. 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.
The Declaration of Trust provides that the number of trustees of
Kranzco cannot be less than two 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.
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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 otherwise be in the best interest of its
shareholders.
Special Meetings
Under the DGCL, a special meeting of the stockholders of NAI may be
called by the NAI Board or by any person authorized to do so by the
Certificate or the Bylaws. The Bylaws provide that a special meeting of the
stockholders of NAI may be called by its President and must be called by the
Secretary at the written request of a majority of the entire board of
directors or holders of at least 25% of the outstanding NAI Shares. 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 must 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.
Advance Notice for Shareholder Nominations for Directors and Trustees and
Proposals of New Business
Holders of NAI Shares are not required to provide advance notice to
nominate a director or to propose new business at NAI's annual meeting of
stockholders.
In order to nominate a trustee or to propose new business at a
meeting of Kranzco shareholders, a shareholder entitled to vote at the meeting
must comply with certain advance notice provisions in the Kranzco Bylaws,
which include the requirement that such Shareholder 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 NAI 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 shareholders 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 entitled to vote thereon.
Amendment of Certificate and Declaration of Trust
An amendment to the Certificate 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
under the Code or as a Maryland REIT, without the approval of the
shareholders. Other amendments require the affirmative vote of the holders of
a majority of the outstanding Kranzco Shares entitled to vote thereon except
that amendments to
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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.
Limitation of Liability of Directors, Trustees and Officers
Although the DGCL permits a Delaware corporation to include in its
certificate of incorporation a provision eliminating the liability of the
directors and officers of NAI to NAI or to any stockholder of NAI for monetary
damages for breach of fiduciary duty as a director or officers except for (a)
any breach of the director's duty of loyalty to NAI or the stockholders of
NAI, (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, the NAI certificate of incorporation includes no
such provision.
As permitted by Title 8, the Declaration of Trust contains a
provision eliminating the liability of trustees and officers of Kranzco to
Kranzco or to any shareholder of Kranzco for money damages in suits by or in
the right of Kranzco or by shareholders of Kranzco 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, Trustees and Officers
NAI 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 NAI to indemnify any person who was or is a
party or is threatened to be made a part 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 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 NAI to
indemnify any person for judgments or amounts paid in settlement in a suit by
or in the right of NAI. The Bylaws provide that the rights to indemnification
provided thereby are non-exclusive.
Kranzco is required by its Bylaws, 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 of 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 Certificate, the Bylaws, the Declaration of
Trust and the Kranzco Bylaws and the Notes may permit indemnification for
liabilities arising under the Securities Act or the Exchange Act. The NAI
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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.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to trustees, directors, officers or persons
controlling NAI or Kranzco pursuant to the foregoing provisions, NAI and
Kranzco have been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
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. However, the business
combination provisions of the DGCL do not currently apply to NAI because it
does not have a class of voting stock listed on a national securities
exchange, authorized for quotation on the NASDAQ Stock Market or held of
record by more than 2,000 stockholders.
Under the MGCL, 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 shares 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 Interested Shareholder are prohibited for
five years after the most recent date on which the Interested Shareholder
becomes an Interested Shareholder. 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 voting shares of the trust and (ii) two-thirds of votes
entitled to be cast by holders of voting shares other than shares held by the
Interested Shareholder with whom the business combination is to be effected,
unless, among other conditions, 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 the MGCL do not
apply, however, to business combinations that are approved or exempted 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 foregoing persons. The business combination statute could have
the effect of delaying, deferring or preventing a change in control of Kranzco
or other transaction that might be in the best interests of shareholders of
Kranzco.
Removal of Directors and Trustees
A director of NAI may be removed, with or without cause, by the
holders of a majority of NAI Shares. A trustee of Kranzco may be removed, with
or without 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. Holders of the Notes have no rights with respect to
the removal of trustees.
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Inspection of Books and Records
Any stockholder of NAI, 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 has owned 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. Holders of the Notes have no rights to inspect
the books and records 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 NAI, organized under the DGCL.
Conversion Rights
Holders of the Notes have the right, exercisable after
___________________, 2000, at any time and from time to time, to convert all
or any Notes into fully paid Kranzco Common Shares at a conversion price of
$20 per Kranzco Common Share (equivalent to a conversion rate of one Kranzco
Common Share per $20 principal amount of Notes). See "Description of Notes --
Conversion Rights." NAI Shares and Kranzco Common Shares are not convertible
into other securities of NAI or Kranzco.
Redemption Rights
The Notes are redeemable, in whole or in part, by Kranzco at any time
after ____________, 2000 at a redemption price equal to the sum of (i) the
principal amount of the Notes being redeemed and (ii) accrued interest thereon
to the redemption date with respect to such Notes. See "Description of Notes
- -- Optional Redemption by Kranzco." NAI Shares and Kranzco Common Shares are
not redeemable at the option of NAI or Kranzco, respectively.
Dissolution of NAI and Termination of Kranzco and REIT Status
NAI may be dissolved if (i) the NAI Board, by resolution adopted by a
majority of the directors of the NAI Board at any meeting called for that
purpose, deems such dissolution advisable and (ii) the holders of a majority
of the outstanding NAI Shares entitled to vote on the matter vote for the
proposed dissolution at a stockholders meeting called for the purpose of
acting upon such resolution. Dissolution of NAI may also be authorized without
action by the NAI Board if all stockholders entitled to vote thereon shall
consent thereto in writing.
Under the Declaration of Trust, 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 liquidation, dissolution or winding-up of the affairs of
Kranzco, before any distribution may be made to the holders of any equity
securities of Kranzco, including the Kranzco Common Shares, the holders of the
Notes shall be entitled to receive an amount equal to the principal amount
thereof plus all accrued and unpaid interest to the date of such liquidation,
dissolution or winding up. After payment of the full amount of the liquidating
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distributions to which they are entitled, the holders of the Notes 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
Preferred Shares.
THE EXCHANGE AGREEMENT
On _________ __, 1998, Kranzco, NAI and the Finns entered into the
Exchange Agreement, pursuant to which Kranzco agreed to conduct the Exchange
Offer, and the Finns agreed to tender 80% of their respective NAI Shares in
the Exchange Offer, and, in the event that less than 80% of the issued and
outstanding NAI Shares are tendered by other NAI Stockholders in the Exchange
Offering, the Finns agreed to tender up to an additional 10% of the NAI Shares
owned by them, as may be required to reach the Minimum Tender Condition.
Although the Finns have agreed to tender up to 90% of the NAI Shares owned by
them, such number of NAI Shares is not sufficient to meet the Minimum Tender
Condition without other NAI Stockholders joining in the tender. Accordingly,
if other NAI Stockholders do not tender a number of NAI Shares that, together
with the NAI Shares to be tendered by the Finns, would meet the Minimum Tender
Condition, the Exchange Offer will not be consummated and NAI will continue to
conduct its business as a private company.
Representations and Warranties
The Exchange Agreement contains various representations and
warranties regarding NAI and the Finns, relating to, among other things: (a)
the due organization and good standing of NAI and its subsidiaries; (b) the
capitalization of NAI and its subsidiaries and the ownership of the Finns' NAI
Shares; (c) the outstanding options to purchase NAI securities; (d) the
authorization, execution, delivery and enforceability of the Exchange
Agreement; (e) conflicts under charter and bylaws, violations of any
instruments or law and required consents or approvals; (f) the assets and
liabilities of NAI; (g) the insurance of NAI; (h) real property owned and
leased by NAI; (i) NAI's contracts and debt instruments; (j) the absence of
certain changes in NAI or certain specified events; (k) NAI's financial
statements and undisclosed liabilities; (l) NAI's books and records; (m) NAI's
taxes; (n) any related party transactions; (o) litigation involving NAI; (p)
compliance with applicable law; (q) there being no brokers or finders involved
in the Exchange Offer; (r) the absence of changes in benefit plans and ERISA
compliance; (s) employees and employee policies; (t) broker members, brokerage
and other services; (u) environmental compliance; (v) NAI's intellectual
property; (w) access to Kranzco's records; (x) the Finns receiving responses
to inquiries; (y) that there is no representation by Kranzco relating to
certain matters; (z) NAI being a private company and NAI's prior offerings;
(aa) the ability of the Finns to make an informed investment decision; and
(bb) receipt of the Registration Statement.
The Exchange Agreement contains various representations and
warranties regarding Kranzco, relating to, among other things: (a) the due
organization and good standing of Kranzco; (b) the authorization, execution,
delivery and enforceability of the Exchange Agreement; (c) conflicts under
charter and bylaws, violations of any instruments or law and required consents
or approvals; (d) the reservation of Kranzco Common Shares issuable upon
exercise of the Notes; (e) there being no brokers or finders involved in the
Exchange Offer; (f) Kranzco's SEC filings; (g) access to NAI's records; (h)
Kranzco receiving responses to inquiries; and (i) that there is no
representation by NAI relating to certain matters.
Certain Covenants
In addition, unless the Exchange Agreement shall have been
consummated or terminated in accordance with its terms, NAI and the Finns have
agreed not to, (a) solicit or encourage any acquisition or purchase of 10% or
more of the assets of, or any 5% or greater equity interest in, NAI or any of
its subsidiaries or any tender offer
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(including a self tender offer) or exchange offer, merger, consolidation,
business combination, sale of 10% or more of the assets, sale of securities,
recapitalization, liquidation, dissolution or similar transaction involving
NAI or its subsidiaries or any other transaction the consummation of which
would or could reasonably be expected to impede, interfere with, prevent or
materially delay any of the Proposed Related Transactions or materially dilute
the benefits to Kranzco of such transactions (any "Other Transaction
Proposal") or agree to or endorse any Other Transaction Proposal, (b) propose
or enter into any discussions or negotiations regarding any Other Transaction
Proposal, or (c) sell, transfer or encumber any real property investments or
partnership or joint venture interests of NAI or enter into any agreement to
do so. However, the Exchange Agreement does not prohibit (i) furnishing
information pursuant to an appropriate confidentiality letter concerning NAI
and its businesses, properties or assets to a third party who has made any
bona fide Other Transaction Proposal which is not as a result of a breach of
the Exchange Agreement, (ii) engaging in discussions or negotiations with such
a third party who has made any bona fide Other Transaction Proposal which is
not as a result of a breach of the Exchange Agreement, or (iii) taking and
disclosing to its stockholders a position with respect to any bona fide Other
Transaction Proposal which is not as a result of a breach of the Exchange
Agreement, but in each case, only after the Board of Directors of NAI
concludes in good faith following consultation with, and receipt of an opinion
of, outside counsel that such action is necessary for the Board of NAI to
comply with its fiduciary obligations under applicable law. If NAI receives
notice from a third party of any Other Transaction Proposal, NAI has agreed to
immediately inform Kranzco of the receipt thereof, and provide a general
summary of such proposal, and to keep Kranzco informed of the status of any
such proposal and any response to such proposal. In certain instances, if the
Exchange Agreement is terminated, and any Other Transaction Proposal relating
to in excess of 10% of NAI's assets or outstanding capital stock is
consummated within 180 days of December 31, 1998 or at any time thereafter
pursuant to a definitive agreement entered into within such 180-day period,
NAI and the Finns shall immediately pay in cash to Kranzco a termination fee
of $1,000,000. See "--Effect of Termination and Abandonment."
In addition, prior to the closing of the Exchange Offer, the Finns
and NAI agreed, among other things, to conduct NAI's operations according to
its usual, regular and ordinary course in substantially the same manner as
previously conducted and, among other things, not to, without the consent of
Kranzco: (i) amend NAI's Articles of Incorporation or Bylaws; (ii) issue any
shares of its capital stock, effect any stock split, reverse stock split,
stock dividend, recapitalization or other similar transaction; (iii) grant,
confer or award any option, warrant, conversion right or other right not
existing on the date the Exchange Agreement was executed to acquire any shares
of its capital stock; (iv) increase any compensation or enter into or amend
any employment agreement with any of its present or future officers or
directors; (v) adopt any new employee benefit plan (including any stock
option, stock benefit or stock purchase plan) or amend any existing employee
benefit plan in any material respect, except for changes which are less
favorable to participants in such plans; (vi) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any shares
of its capital stock; (vii) directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or capital stock of any of
its subsidiaries, or make any commitment for any such action except for the
redemption of the NAI Preferred Stock in accordance with its terms; (viii)
sell, lease or otherwise dispose of any of its capital stock of or other
interests in its subsidiaries or except in the ordinary course of business,
any of its other assets which are material, individually or in the aggregate;
(ix) make any loans, advances or capital contributions to, or investments in,
any other Person in excess of $1,000; (x) 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 business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against in,
or contemplated by, the most recent audited consolidated financial statements
(or the notes thereto) or incurred in the ordinary course of business
consistent with past practice; (xi) enter into any commitment, contract or
agreement which may result in total payments or liability by or to it in
excess of $10,000 (other than Membership Agreements or alliance member
agreements in the ordinary course of business); and (xii) enter into any
commitment, contract or agreement with any officer, director, consultant or
affiliate of NAI or any of its subsidiaries.
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Kranzco has also agreed in the Exchange Agreement not to effect any
share split, reverse share split, recapitalization or other similar
transaction prior to the closing of the Exchange Offer, without the prior
written consent of the Finns.
Restriction on Sales of Securities and Conversion of Notes
The Finns have agreed not to sell or transfer, directly or
indirectly, any NAI Shares, Notes or any Kranzco Common Shares issuable upon
conversion of the Notes held by the Finns for a period of three years from the
closing of the Exchange Offer, except that the Finns may transfer NAI Shares,
Notes (other than Notes held pursuant to the Escrow Agreement described
below), and Kranzco Common Shares issuable upon conversion of the Notes to
members of their immediate family; provided, however, in the event that
Kranzco issues a notice of redemption relating to the Notes prior the end of
such three-year period, then the Finns and Norma Finn may earlier convert the
Notes issued to them, in accordance with the terms of such Notes. The Finns'
Kranzco Common Shares, the Notes, the NAI Shares and the Rights shall bear
restrictive legends to the effect of the foregoing. The Finns also agreed not
to convert the Notes into Kranzco Common Shares until three years from the
date of issuance, other than upon the occurrence of a Change in Control or an
Event of Default but in no event prior to the date one year after the date of
issuance of the Notes.
Expenses
If the Proposed Related Transactions are consummated, all costs and
expenses incurred by all parties in connection with the Proposed Related
Transactions will be paid by NAI, including, without limitation, the filing
fee in connection with the filing of the Exchange Offer Registration Statement
with the SEC, accounting fees, attorney's fees and the expenses incurred in
connection with printing and mailing the Exchange Offer Registration
Statement.
The Reincorporation Merger; NAI Board
The Finns agreed to execute a non-unanimous written consent of the
shareholders of NAI, authorizing, among other things, the Reincorporation
Merger. Kranzco and NAI agreed that immediately following the consummation of
the Reincorporation Merger, the Board of Directors of NAI shall be
reconstituted to consist of Gerald C. Finn, Jeffrey M. Finn, Norman M.
Kranzdorf, Joseph Grossman, Peter O. Hanson, Robert H. Dennis, Bernard J.
Korman and Michael Kranzdorf.
Conditions to Each Party's Obligation to Consummate the Exchange Offer
The respective obligations of each of Kranzco, NAI and the Finns to
consummate the Exchange Offer are subject to the fulfillment at or prior to
the closing of the Exchange Offer of the following conditions: (i) the parties
to the Exchange Agreement are not subject to any order or injunction which
prohibits the consummation of the Exchange Agreement and the Proposed Related
Transactions; (ii) the Registration Statement shall have become effective and
all necessary state securities law approvals shall have been obtained and no
stop order with respect to any of the foregoing shall be in effect; (iii) 80%
of the total number of issued and outstanding NAI Shares shall have been
validly tendered and not withdrawn prior to the Expiration Date in the
Exchange Offer; (iv) Kranzco shall have obtained the approval for the listing
of Kranzco Common Shares issuable upon conversion of the Notes on the NYSE,
subject to official notice of issuance; (v) all required consents,
authorizations, orders and approvals of any governmental entity or third
parties shall have been obtained or made; and (vi) each party to the Exchange
Agreement shall have delivered all such documents or certificates and
disclosed such information as the other party may reasonably request.
The obligation of Kranzco to consummate the Exchange Offer is subject
to the fulfillment at or prior to the closing of the following conditions,
unless waived by Kranzco: (i) NAI and the Finns shall have performed
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their agreements contained in the Exchange Agreement and the representations
and warranties of NAI and the Finns contained in the Exchange Agreement shall
be true and correct in all material respects as of the closing date as if made
on the closing date, and Kranzco shall have received a certificate of NAI and
of each of the Finns certifying to such effect; (ii) the Finns, Kranzco and an
escrow agent shall have entered into an Escrow Agreement (the "Escrow
Agreement") and the principal amount of $800,000 of Notes issued to Gerald C.
Finn and the principal amount of $200,000 of Notes issued to Jeffrey M. Finn
shall be deposited with the escrow agent pursuant to the Escrow Agreement;
(iii) Kranzco shall have received evidence in writing that Matthew Arnold,
Robert McMenamim and Marc Shegoski have resigned from the Board of Directors
of NAI, effective as of the closing date; (iv) Kranzco shall have received a
legal opinion from NAI's counsel on certain issues; (v) any consent of the
holders of the NAI Series A Preferred Stock shall have been obtained; (vi)
from the date of the Exchange Agreement through the closing, there shall not
have occurred any change in the financial condition, business, operations or
prospects of NAI and its subsidiaries, taken as a whole, that would have or
would be reasonably likely to have an NAI Material Adverse Effect; and (vii)
Norma Finn shall have entered into a letter agreement pursuant to which she
agrees not to convert the Notes issued to her until after three years
following the issuance of the Notes.
The obligations of NAI and the Finns to consummate the Exchange Offer
is subject to the fulfillment at or prior to the closing date of the following
conditions, unless waived by the Finns: (i) Kranzco shall have performed its
agreements contained in the Exchange Agreement required to be performed on or
prior to the closing date and the representations and warranties of Kranzco
contained in the Exchange Agreement (without giving effect to any materiality
qualifications or exceptions contained therein) shall be true and correct in
all material respects as of the closing date as if made on the closing date,
and NAI and the Finns shall have received a certificate of Kranzco certifying
to such effect; (ii) NAI shall have received the opinion of counsel to Kranzco
regarding certain legal matters; and (iii) from the date of the Exchange
Agreement through the closing of the Exchange Offer, there shall have not
occurred any material adverse change in the financial condition, business,
operations or prospects of Kranzco (except that any change in the price at
which the Kranzco Common Shares trade will not constitute a material adverse
change).
Termination
The Exchange Agreement and the Exchange Offer may be terminated at
any time prior to the closing of the Offer, by the mutual written consent of
Kranzco, NAI and the Finns.
The Exchange Agreement may be terminated and the Exchange Offer may
be terminated by action of the Finns, the Board of Directors of NAI or the
Board of Trustees of Kranzco if (a) the Exchange Offer shall not have been
consummated by December 31, 1998, or (b) a United States federal or state
court of competent jurisdiction or other Governmental Entity shall have issued
an order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by the
Exchange Agreement and such order, decree, ruling or other action shall have
become final and non-appealable, provided, that the party seeking to terminate
the Exchange Agreement pursuant to clause (b) shall have used all reasonable
efforts to remove such order, decree, ruling or injunction; and provided, in
the case of a termination pursuant to clause (a) above, that the terminating
party shall not have breached in any material respect its obligations under
the Exchange Agreement in any manner that shall have proximately contributed
to the occurrence of the failure referred to in said clause.
The Exchange Agreement may be terminated and the Exchange Offer may
be terminated at any time prior to the closing date, by action of the Finns or
the Board of Directors of NAI, if (a) in the exercise of its good faith
judgment following consultation with, and receipt of an opinion of, outside
counsel that such action is necessary for the Board of Directors of NAI to
comply with its fiduciary duties to its shareholders imposed by law, the Board
of Directors of NAI determines that such termination is required by reason of
any Other Transaction Proposal being made; or (b) there has been a breach by
Kranzco of any representation or warranty contained in the
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Exchange Agreement which would be reasonably likely to materially impair
Kranzco's ability to consummate the transactions contemplated by the Exchange
Agreement, which breach is not curable by December 31, 1998; or (c) there has
been a material breach of any of the covenants or agreements set forth in the
Exchange Agreement on the part of Kranzco, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by NAI or the Finns to Kranzco; or (d) the consideration being offered
in the Exchange Offer for each NAI Share is reduced below $0.7707 of Notes,
without the consent of the Finns; or (e) after the date hereof: (i) any
domestic or international event or act or occurrence has materially disrupted,
or in the opinion of the Finns will in the immediate future materially
disrupt, the securities markets, (ii) a general suspension of, or a general
limitation on prices for, trading in securities on the NYSE or the American
Stock Exchange or in the over-the-counter market, (iii) a banking moratorium
shall have been declared either by Federal or New York State authorities, (iv)
there shall have occurred any outbreak or material escalation of hostilities
or other calamity or crises the effect of which on the financial markets of
the United States or on the United States is such as to make it, in the
judgment of the Finns, impracticable to consummate the Proposed Related
Transactions; or (v) any restriction materially adversely affecting the
Proposed Related Transactions which was not in effect on the date hereof shall
have become effective. Any termination of the Exchange Agreement pursuant to
clause (b), (c) or (d) is referred to herein as an "NAI Cause for
Termination". Any termination pursuant to clause (a) will only be effective
if, simultaneously with such termination, all sums that NAI and the Finns are
required to pay to Kranzco pursuant to the Exchange Agreement have been paid.
The Exchange Agreement may be terminated and the Exchange Offer may
be terminated at any time prior to the closing date, by action of the Board of
Trustees of Kranzco, if (a) after the date the Exchange Agreement is executed:
(i) any domestic or international event or act or occurrence has materially
disrupted, or in the opinion of Kranzco will in the immediate future
materially disrupt, the securities markets, (ii) a general suspension of, or a
general limitation on prices for, trading in securities on the NYSE or the
American Stock Exchange or in the over-the-counter market, (iii) a banking
moratorium shall have been declared either by Federal or New York State
authorities, (iv) there shall have occurred any outbreak or material
escalation of hostilities or other calamity or crises the effect of which on
the financial markets of the United States or on the United States is such as
to make it, in the judgment of Kranzco, impracticable to consummate the
Proposed Related Transactions; or (v) any restriction materially adversely
affecting the Proposed Related Transactions which was not in effect on the
date the Exchange Agreement was executed shall have become effective; (b)
there has been a breach by NAI or the Finns of any representation or warranty
contained in the Exchange Agreement which would have or would be reasonably
likely to have an NAI Material Adverse Effect or, materially impair NAI's or
the Finns' ability to consummate the transaction contemplated by the Exchange
Agreement, which breach is not curable by December 31, 1998; or (c) there has
been a material breach of any of the covenants or agreements set forth in the
Exchange Agreement on the part of NAI or the Finns which breach is not curable
or, if curable, is not cured within 30 days after written notice of such
breach is given by Kranzco to NAI and the Finns.
Effect of Termination and Abandonment
If an election is made to terminate the Exchange Agreement by NAI or
the Finns due to an Other Transactions Proposal or by Kranzco due to a breach
by NAI or the Finns of a representation or warranty set forth in the Exchange
Agreement or a breach of a covenant which is not curable, or if curable, which
is not cured within 30 days written notice, then (i) NAI and the Finns shall
immediately reimburse Kranzco for Kranzco's costs and expenses, including,
without limitation, legal and accounting fees, printing and filing fees,
incurred in connection with its due diligence and negotiation and efforts to
complete and process the Exchange Agreement, the Registration Statement and
the transactions contemplated thereby and (ii) if NAI and the Finns consummate
any Other Transaction Proposal relating to in excess of 10% of NAI's assets or
outstanding capital stock within 180 days of December 31, 1998 or at any time
thereafter pursuant to a definitive agreement entered into within such 180-day
period, NAI and the Finns shall immediately pay in cash to Kranzco a
termination fee of $1,000,000.
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If an election is made to terminate the Exchange Agreement pursuant
to an NAI Cause for Termination, Kranzco has agreed to immediately reimburse
NAI and the Finns for up to $100,000 of their costs and expenses, including,
without limitation, legal and accounting fees, incurred in connection with its
due diligence, negotiation and efforts to complete the Exchange Agreement, the
Registration Statement and the transactions contemplated thereby and hereby.
At any time prior to the closing date, any party to the Exchange
Agreement, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties to
the Exchange Agreement, (b) waive any inaccuracies in the representations and
warranties made to such party contained in the Exchange Agreement or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained therein. Any
agreement on the part of a party to the Exchange Agreement to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
Indemnification and Escrow
The Finns and, in the event the transactions contemplated by the
Exchange Agreement are not consummated, NAI, have agreed to indemnify and hold
harmless Kranzco and its affiliates (each an "indemnified person") from and
against, any Losses (as defined in the Exchange Agreement) incurred by such
indemnified person by reason of or arising out of or in connection with (i)
the breach of any representation or warranty made by or on behalf of NAI or
any Finn contained in the Exchange Agreement (or any other related documents);
(ii) the failure of NAI or any Finn to perform any agreement required by the
Exchange Agreement (or any other related documents) to be performed by such
person; and (iii) the allegation by any third party of the existence of any
state of facts which if it existed would constitute a breach of any
representation or warranty made by or on behalf of NAI or any Finn contained
in the Exchange Agreement (or any other related documents).
Kranzco has agreed to indemnify and hold harmless the Finns and
their respective affiliates (each an "indemnified person") from and
against, any Losses incurred by such indemnified person by reason of or
arising out of or in connection with (i) the breach of any representation
or warranty made by or on behalf of Kranzco contained in the Exchange
Agreement (or any other related document), (ii) the failure of Kranzco to
perform any agreement required by the Exchange Agreement (or any other
related document) to be performed by it, and (iii) the allegation by any
third party of the existence of any state of facts which if it existed
would constitute a breach of any representation or warranty made by or on
behalf of Kranzco contained in the Exchange Agreement(or any other
related document).
Neither the Finns, on the one hand, nor Kranzco, on the other hand,
shall be required to pay any amounts pursuant to clause (i) or (iii) of the
paragraphs immediately preceding this one (as the case may be) unless and
until the aggregate of all Losses incurred by all persons indemnified by such
indemnifying parties under such clauses exceeds $80,000, in which event such
indemnifying parties shall be liable, dollar-for-dollar, for the full amount
of such Losses; and, except as provided below, in no event shall the Finns be
liable to Kranzco for any Losses for which a claim is made against the Finns
under clause (i) or (iii) of the paragraph describing the Finns' obligation to
indemnify Kranzco above (other those arising out of or in connection with the
breach or alleged breach of the representations and warranties made in the
Exchange Agreement and set forth in the proviso below, in excess of
$1,000,000; provided that, notwithstanding the foregoing, the Finns are in all
events obligated to indemnify Kranzco on a dollar-for-dollar basis from and
against all Losses arising out of or in connection with the breach or alleged
breach of certain representations and warranties contained in the Exchange
Agreement, including, among others, those representation and warranties
relating to (a) the due organization and good standing of NAI and its
subsidiaries, (b) the capitalization of NAI and its subsidiaries and the
ownership of the Finns' NAI Shares, (c) the outstanding options to purchase
NAI securities, (d) the authorization, execution, delivery and enforceability
of the Exchange Agreement, (e) conflicts under charter and bylaws, violations
of any instruments or law and required consents or approvals, (f) litigation
involving NAI, (g) there being no brokers or finders
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involved in the Exchange Offer, (h) the absence of changes in benefit plans
and ERISA compliance, (i) NAI being a private company and NAI's prior
offerings, and (j) receipt of the Registration Statement; and Kranzco shall be
obligated to indemnify the Finns on a dollar-for-dollar basis from and against
all Losses arising out of or in connection with the breach or alleged breach
of certain representations and warranties contained in the Exchange Agreement,
including, among others, those representation and warranties relating to (i)
the due organization and good standing of Kranzco, (ii) the authorization,
execution, delivery and enforceability of the Exchange Agreement, (iii)
conflicts under charter and bylaws, violations of any instruments or law and
required consents or approvals, (iv) the reservation of Kranzco Common Shares
issuable upon exercise of the Notes, (v) there being no brokers or finders
involved in the Exchange Offer, and (vi) Kranzco's SEC filings.
In addition, NAI has agreed to indemnify and hold harmless Kranzco
and its affiliates (each an "indemnified person") from and against, any Losses
incurred by such indemnified person by reason of or arising out of or in
connection with the failure of NAI to comply with (i) any Laws (as defined
therein) relating to real estate brokers or (ii) any federal or state
franchise Laws.
In order to secure the obligations of the Finns to indemnify Kranzco
pursuant to the Exchange Agreement, on the closing date, G. Finn and J. Finn
are depositing with the escrow agent under the Escrow Agreement $800,000
principal amount of the Notes and $200,000 principal amount of the Notes,
respectively. In any instance in which Kranzco has a claim for indemnity under
the Exchange Agreement, Kranzco agrees that it will make a demand and a
reasonable effort under the circumstances (which shall not require Kranzco to
institute any suit or other action) to collect such claim against the funds,
to the extent of such funds, then held under the Escrow Agreement prior to
making any claim against the Finns with respect to such claim unless the claim
exceeds the amount of such funds.
Survival
All statements, certifications, indemnifications, representations and
warranties made in the Exchange Agreement by the parties to the Exchange
Agreement, and their respective covenants, agreements and obligations to be
performed pursuant to the terms thereof, shall survive the closing,
notwithstanding any examination by or on behalf of any party thereto,
notwithstanding any notice of a breach or of a failure to perform not waived
in writing and notwithstanding the consummation of the transactions thereby
contemplated with knowledge of such breach or failure, and (except with
respect to those made by NAI and the Finns relating to (a) the due
organization and good standing of NAI and its subsidiaries, (b) the
capitalization of NAI and its subsidiaries and the ownership of the Finns' NAI
Shares, (c) the outstanding options to purchase NAI securities, (d) the
authorization, execution, delivery and enforceability of the Exchange
Agreement, (e) conflicts under charter and bylaws, violations of any
instruments or law and required consents or approvals, (f) litigation
involving NAI, (g) there being no brokers or finders involved in the Exchange
Offer, (h) the absence of changes in benefit plans and ERISA compliance, (i)
NAI being a private company and NAI's prior offerings, and (j) receipt of the
Registration Statement; and those representations and warranties made by
Kranzco relating to (i) the due organization and good standing of Kranzco,
(ii) the authorization, execution, delivery and enforceability of the Exchange
Agreement, (iii) conflicts under charter and bylaws, violations of any
instruments or law and required consents or approvals, (iv) the reservation of
Kranzco Common Shares issuable upon exercise of the Notes, (v) there being no
brokers or finders involved in the Exchange Offer, and (vi) Kranzco's SEC
filings, which shall survive without limitation, and those relating to NAI's
taxes, which shall survive until the expiration of the statute of limitations
on the tax matters discussed therein) the representations and warranties made
thereby by the parties shall terminate on the second anniversary of the
closing date, except to the extent a party gives written notice to the other
parties of any breach thereof on or before such date, and then only with
respect to the matters described in such notice; provided, however, that
nothing therein contained shall modify or be construed to modify in any
respect whatsoever any covenant, agreement or obligation to be performed by
any party pursuant to the provisions of the Exchange Agreement.
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PROPOSED RELATED TRANSACTIONS
Reincorporation Merger and Related Matters
Immediately following the consummation of the Exchange Offer, NAI
Delaware will merge with and into NAI Maryland, a wholly-owned subsidiary of
NAI Delaware, pursuant to which NAI Maryland will be the surviving
corporation. NAI Delaware determined to pursue the Reincorporation Merger in
order to reincorporate NAI Delaware as a Maryland corporation for corporate
reasons, as well as to reduce certain franchise taxes which are payable by
NAI. The Reincorporation Merger will result in (i) each NAI Delaware Share
being converted into 1.318087 NAI Maryland Shares and the adoption of certain
anti-takeover provisions.
Following consummation of the Reincorporation Merger, NAI Maryland
will be the surviving corporation, and NAI Maryland's Charter and Bylaws will
become the Charter and Bylaws of NAI. NAI's Maryland's Charter and Bylaws
provide certain anti-takeover provisions which are typical for a public
company. See "Risk Factors--Institution of Anti-takeover Measures;
Anti-takeover Effect of Certain Provisions of Maryland Law and of NAI's
Charter and Bylaws." Upon consummation of the Reincorporation Merger, holders
of certificates representing NAI Delaware Shares may surrender such
certificates to the Transfer Agent and registrar, the certificate so
surrendered shall be canceled and a certificate representing NAI Maryland
Shares shall be issued. Until so surrendered, from and after the
Reincorporation Merger, each certificate representing NAI Delaware Shares will
be deemed to represent the right to receive 1.318087 NAI Maryland Shares,
rounded to the nearest whole share, for each share of NAI Delaware represented
by such certificate.
Upon consummation of the Reincorporation Merger, the Board of
Directors of NAI will be reconstituted to include Gerald C. Finn, Jeffrey M.
Finn, Joseph Grossman and Peter Hanson, current members of the Board, and
Norman M. Kranzdorf, Robert H. Dennis, Bernard J. Korman, and Michael
Kranzdorf. See "Management of NAI After Exchange Offer."
Intercompany Agreement
Immediately following consummation of the Exchange Offer and the
Distribution, Kranzco and NAI will enter into an Intercompany Agreement which
will provide for the manner in which NAI and Kranzco expect to create
opportunities for each other and for reducing potential conflicts of interest.
Kranzco Right of First Opportunity; Notification Right
The Intercompany Agreement provides that, if any REIT Opportunity (as
defined below) becomes available to NAI in which NAI is acting, intends to act
or will act as principal or participate for its own account (a "Principal REIT
Opportunity"), NAI will first offer such Principal REIT Opportunity to
Kranzco. If Kranzco rejects a Principal REIT Opportunity, or accepts such
Principal REIT Opportunity but thereafter provides, or is required by the
provisions of the Intercompany Agreement to provide, written notice to NAI
that it is no longer pursuing such Principal REIT Opportunity, NAI is, for a
period of one year thereafter, entitled to consummate the Principal REIT
Opportunity or provide any other person or entity the right to consummate such
Principal REIT Opportunity at a price, and on terms and conditions, that are
not more favorable to NAI in any material respect than the price and terms and
conditions made available to Kranzco relating to such Principal REIT
Opportunity. "REIT Opportunity" means any opportunity, principally within the
United States, to (i) acquire, develop, lease, sell or make any investment in
retail real estate, real estate mortgages, real estate derivatives, or
entities that invest exclusively in or have a substantial portion of their
assets in any of the foregoing, so long as such investment would be consistent
with the requirements of the Code and regulations relating to Kranzco's status
as a REIT; or (ii) make any REIT-Qualified Investment. "REIT-Qualified
Investment" means an investment, at least 95% of the gross income from which
would qualify under the 95% gross income test set forth in section 856(c)(2)
of the Code (or could be structured so to qualify) and the ownership of which
would not cause Kranzco to violate the asset
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limitations set forth in section 856(c)(4) of the Code (or could be structured
not to cause Kranzco to violate the section 856(c)(4) limitations) and which
otherwise meets the federal income tax requirements applicable to REITs, or
(ii) any other investments which may be structured in a manner so as to be
REIT-Qualified Investments, as determined by Kranzco. Kranzco may from time to
time provide written notice to NAI specifying certain criteria, reasonably
acceptable to NAI, for a REIT Opportunity in addition to the criteria
specified above in this definition of REIT Opportunity. Any such written
notice from Kranzco may be canceled by written notice given by Kranzco at any
time or, with NAI's consent, which shall not be unreasonably withheld,
modified by Kranzco by written notice at any time. The definition of REIT
Opportunity will be modified as appropriate from time to time in accordance
with any such written notices sent by Kranzco and reasonably acceptable to
NAI. A Principal REIT Opportunity does not include the receipt of any
commissions in cash or in kind (including an equity interest in a REIT
Opportunity) in connection with NAI serving as a broker or intermediary in
connection with the sale or lease of retail real estate.
The Intercompany Agreement also provides that NAI will immediately
notify Kranzco in writing of any REIT Opportunity that becomes available or
known to NAI (through its Broker Members or otherwise) and which is not a
Principal REIT Opportunity and which in the reasonable opinion of NAI meets
the acquisition and investment criteria of Kranzco (which will be provided to
NAI by Kranzco from time to time) (a "Non-Principal REIT Opportunity"). In the
event Kranzco determines to pursue such Non-Principal REIT Opportunity, NAI
shall use good faith efforts to cause its Broker Members to assist Kranzco in
considering and consummating such Non-Principal REIT Opportunity. In the event
Kranzco consummates a transaction that constitutes a Non-Principal REIT
Opportunity, Kranzco will pay NAI a fee to be mutually agreed to by NAI and
Kranzco.
In addition, if NAI develops or becomes aware of any acquisition or
investment opportunity with respect to real estate (other than a REIT
Opportunity) in which NAI intends to or has the opportunity to act as
principal or participate in for its own account, and NAI is not interested in
pursuing such opportunity, or the opportunity is otherwise unavailable to NAI,
NAI will immediately notify Kranzco in writing of such opportunity with such
writing to contain a description of all material terms concerning such
opportunity and be delivered to Kranzco with a copy of any written material or
information in NAI's possession regarding such opportunity.
NAI will also, without any additional consideration, (i) disseminate
acquisition and investment criteria provided by Kranzco to its Broker Members,
(ii) disseminate information regarding space available for lease from Kranzco
(including tenant criteria) to its Broker Members, (iii) provide Kranzco
reasonable access to NAI personnel, NAI Broker Members and NAI's computer data
bases (other than confidential client information), (iv) cooperate with
Kranzco to develop new shopping centers or re-develop distressed shopping
centers for sale to Kranzco in a mutually agreeable manner, (v) provide
Kranzco access to local property managers within areas in which Kranzco owns
retail properties and (vi) disseminate such other materials and information
regarding Kranzco and its properties as Kranzco may reasonably request.
Limitation on Strategic Alliance
NAI has agreed not to enter into, without the consent of Kranzco, any
type of strategic relationship with any other REIT or real estate investment
or operations type entity, including, without limitation, any equity
investment by any other REIT or real estate investment or operations type
entity in NAI (other than as a result of a purchase of NAI Shares in the
public market), any equity investment by NAI in any other REIT or real estate
investment or operations type entity, entering into any agreements which
provide such entities with rights of first opportunity or contain cooperation
provisions of the type or relating to the matters contained in the
Intercompany Agreement (other than with respect to consulting arrangements).
Notwithstanding the foregoing, NAI shall be permitted to solicit assignments
from other REITs or real estate investment or operations type entities with
respect to the purchase or sale of real estate or the provision of Real Estate
Related Services, subject to Kranzco's rights of first opportunity and
notification.
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NAI Right of First Opportunity for Services Opportunity
The Intercompany Agreement provides that if Kranzco requires Services
(as defined below) (a "Services Opportunity"), Kranzco shall engage in
discussions with NAI regarding such Services Opportunity prior to retaining
another service provider to perform such Services unless, in the reasonable
judgment of Kranzco, offering such Services Opportunity to NAI would be
detrimental to Kranzco. Notwithstanding the foregoing, (i) Kranzco shall have
no obligation to retain NAI to perform any Services for Kranzco and (ii) any
Services provided by NAI to Kranzco shall (a) be at market rates and (b) on
terms and conditions as attractive as the best available for comparable
services offered by NAI or, to the extent within NAI's control, any broker
member or affiliated member of NAI to third parties. "Services" means real
estate brokerage services, local management and other maintenance services,
and certain other Real Estate-Related Services then provided by NAI, including
sealed-bid sales, due diligence and real estate auctions.
The Intercompany Agreement also provides that in the event Kranzco
desires to purchase any retail real estate based upon an opportunity provided
to Kranzco by someone other than NAI (a "Purchase Opportunity"), Kranzco will
notify NAI of such Purchase Opportunity and will use its good faith efforts to
cause the broker for such Purchase Opportunity to share any brokerage
commissions for such Purchase Opportunity with NAI in accordance with industry
practice; provided, however, Kranzco is not required to comply with the
foregoing if the Purchase Opportunity is based upon an exclusive brokerage
arrangement or, if in the reasonable judgment of Kranzco, compliance with the
foregoing would be detrimental to the relationship between Kranzco and such
broker or would impede, inhibit or slow down the proposed transaction. In
connection with a Purchase Opportunity in which NAI will be sharing in the
brokerage commission, NAI agrees to perform, without any consideration, any
due diligence services requested by Kranzco.
In addition, in the event NAI desires to offer to Kranzco tenants any
Services currently provided by NAI (a "Tenant Services Opportunity"), NAI
shall notify Kranzco in writing of such Tenant Services Opportunity. Promptly
following the receipt of such notice, Kranzco has agreed to provide NAI with a
list of the mailing addresses of its tenants solely for purpose of NAI
soliciting such tenant with respect to such Tenant Services Opportunity. If
NAI notifies Kranzco of a Tenant Services Opportunity, Kranzco shall not for a
period of six months after NAI notifies Kranzco of a Tenant Services
Opportunity provide a list of the mailing addresses of its tenants to a
competitor of NAI with respect to such Tenant Services Opportunity.
Certain Employee Matters
NAI and Kranzco have agreed to make reasonable and ongoing efforts to
ensure that members of management of each of NAI and Kranzco are given
appropriate salary, bonus and options and other compensation as may be
reasonably necessary to incentivize management to enhance value to
shareholders of both NAI and Kranzco. The NAI Board and the Kranzco Board will
direct each of their compensation committees to take into consideration the
objective set forth in the previous sentence in establishing compensation
levels and performance criteria for management of NAI and Kranzco. In order to
further this objective, NAI will grant to selected directors, officers,
employees and consultants of NAI five-year options to purchase an aggregate of
1,378,800 NAI Shares at a price of $2.00 per NAI Share.
NAI and Kranzco also agreed to use their best efforts to cause, for a
period of three years from the date of the Intercompany Agreement, (i) Norman
Kranzdorf to serve as NAI's Co-Chairman, (ii) Robert Dennis to serve as NAI's
Chief Financial Officer, and (iii) Michael Kranzdorf to serve as NAI'S Chief
Information Officer. NAI acknowledged in the Intercompany Agreement that
Norman Kranzdorf, Robert Dennis and Michael Kranzdorf, as officers of Kranzco,
will have a primary responsibility to Kranzco and that none of such
individuals are committed to devoting a specific amount of time to NAI's
affairs.
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Consulting Services
Pursuant to the terms of the Intercompany Agreement, Kranzco has
agreed to provide NAI with such consulting services relating to management
administrative, corporate, accounting, financial, legal, equity offering,
insurance, tax, data processing, human resources and operational matters as
NAI shall from time to time reasonably request. In consideration for Kranzco
entering into the Intercompany Agreement and providing such consulting and
administrative services, NAI has agreed, during the term of the Intercompany
Agreement or until such earlier date as the consulting arrangement is
terminated in accordance with its terms, to pay Kranzco an annual fee of
$500,000, payable in equal monthly installments on the first day of each
month. NAI may terminate the consulting arrangement at any time after the
fifth anniversary of the date of the Intercompany Agreement, by providing
Kranzco 90 days prior written notice of its intention to terminate such
consulting arrangement.
REIT Compliance
Nothing in the Intercompany Agreement obligates any party to take any
action that could cause Kranzco to lose its qualification as a REIT under the
Code.
Cooperation in Equity Offerings
The Intercompany Agreement also provides that, if either Kranzco or
NAI desires to engage in a public or private offering of its debt or equity
securities, the other party shall cooperate and provide such information and
personnel as is reasonably required in connection with such offering.
Term
The Intercompany Agreement has a term of ten years and may be
terminated by a party only if the other party or any affiliate of such other
party is in default of the Intercompany Agreement or any other agreement
entered into by the parties thereto or any of their controlled affiliates, if
such default is material and remains uncured for fifteen days after receipt of
notice thereof.
Employee Incentive Plans
In connection with the Exchange Offer and the Proposed Related
Transactions, NAI adopted the following employee incentive plans:
o NAI 1998 Incentive Plan. In connection with the Exchange Offer and
the Reincorporation Merger, NAI adopted a management incentive plan for
approximately 1,700,000 NAI Shares, which may be the subject of awards in the
form of share options, including corresponding share appreciation rights and
reload options, restricted share awards, performance-based awards and share
purchase awards. Eighty percent of the NAI Shares would be reserved for
employees of NAI who are not also employees of Kranzco and 20% of the NAI
Shares would be reserved for employees of NAI who are also employees of
Kranzco. There will be no awards issued in connection with the Exchange Offer
or Reincorporation Merger pursuant to the 1998 Incentive Plan. See
"Management--NAI 1998 Management Incentive Plan."
o NAI 1998 Employee Bonus Compensation Plan. In connection with the
Exchange Offer and the Reincorporation Merger, NAI adopted the NAI 1998
Employee Bonus Compensation Plan. Pursuant to such plan, certain employees of
NAI would be entitled to aggregate incentive compensation payable in NAI
Shares, up to a maximum of 8,500,000 NAI Shares, assuming all of the Rights
are exercised. If less than all of the Underlying Shares are purchased
pursuant to the Rights Offering and the Concurrent Offering, the number of NAI
Shares available as incentive compensation under this plan will be decreased
by 25% of the amount by which 34 million NAI Shares exceeds the number of NAI
Shares outstanding after the Rights Offering and the Concurrent Offering.
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The 8,500,000 NAI Shares would be issuable over 10 years, beginning with the
fiscal year ended June 30, 1999, with the number of NAI Shares to be issued
each year equal to the product of 6.25% times NAI's pre-tax net income for
such year. See "Management--NAI 1998 Employee Incentive Compensation Plan."
o NAI 1998 Stock Option Plan. In connection with the Exchange Offer
and the Reincorporation Merger, NAI adopted a stock option plan for 3,536,853
NAI Shares, which will be the subject of awards in the form of options to
purchase NAI Shares. Certain officers, directors, employees and consultants of
NAI will upon consummation of the Exchange Offer and the Reincorporation
Merger receive five-year options to purchase an aggregate of 1,378,800 NAI
Shares at an exercise price of $2.00 per NAI Share. In addition, Gerald C.
Finn and Jeffrey M. Finn will each receive a five-year option to purchase
1,547,049 and 611,004 NAI Shares, respectively, at an exercise price of $2.00
per NAI Share; the exercise price of each NAI Share purchasable under such
options will increase $.12 each year during which such option remains
outstanding and unexercised. See "Management--NAI 1998 Stock Option Plan."
o Options to Directors. NAI will grant options to purchase an
aggregate of 30,000 NAI Shares to certain directors of NAI.
THE DISTRIBUTION
Kranzco believes that significant opportunities are available to
investors in entities which provide brokerage and Real Estate-Related
Services, own properties other than neighborhood and community shopping
centers, and which are not limited in their activities by the investment
limitations imposed by Federal income tax laws applicable to REITs.
Accordingly, in light of the limitations on investments imposed on REITs,
Kranzco believes that effecting the Exchange Offer, the Distribution, Rights
Offering and the Concurrent Offering, and establishing an intercompany
relationship between Kranzco and NAI will yield significant benefits to
Kranzco and its shareholders similar to those which may be obtained by
investors who are not so limited, while preserving Kranzco's REIT status.
A small number of REITs, operating under tax provisions that no
longer are available to other REITs, have shares that are "paired" or
"stapled" with shares of a related operating company. The NAI Shares and
Kranzco Common Shares are not, and will not be, paired or stapled in any
manner and may be owned and transferred separately and independently of each
other. However, shareholders who own NAI Shares and Kranzco Common Shares will
in effect have the economic equivalent of a paired investment in NAI and
Kranzco.
The Kranzco Board recognized in its planning that the Distribution
could result in a transaction taxable to Kranzco stockholders and possibly to
Kranzco depending on the fair market value of the NAI Shares on the date on
which the Distribution is effected (the "Distribution Date"). Upon review of
this and other relevant factors, the Kranzco Board concluded that the benefits
of the Distribution would more than offset any negative tax consequences of
the Distribution.
Distribution Agent
The Distribution Agent is First Union National Bank, 1525 West W.T.
Harris Boulevard, 3C3, Charlotte, North Carolina 28262-1153, telephone: (800)
829-8432.
Manner of Effecting the Distribution
Kranzco will effect the Distribution upon consummation of the
Exchange Offer by delivering 70.2% of the outstanding NAI Shares which Kranzco
receives in the Exchange Offer to the Distribution Agent for distribution to
the holders of the outstanding Kranzco Common Shares and Kranzco Common Share
Equivalents as of the close of business on the Distribution Record Date. The
Distribution will be made on the basis of one
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NAI Share for each Kranzco Common Share and each Kranzco Common Share
Equivalent held as of the close of business on the Distribution Record Date.
Based on 12,005,185 Kranzco Common Shares and Kranzco Common Share Equivalents
on the Distribution Record Date, approximately 12,005,185 NAI Shares will be
distributed to Kranzco shareholders. See "Proposed Related Transactions."
Results of the Distribution
After the Distribution, NAI will be an independent public company
which will continue to conduct its business of providing real estate brokerage
and related services. The number and identity of the holders of 70.2% of the
NAI Shares immediately after the Distribution will be similar to the number
and identity of the holders of Kranzco Common Shares and Kranzco Common Share
Equivalents. The initial holders of NAI Shares prior to the Exchange Offer
will retain an aggregate of 20% of NAI Shares. Also, after the Distribution
Kranzco will retain approximately a 9.8% ownership interest in NAI.
Immediately after the Distribution, NAI expects to have approximately 1,000
holders of record of NAI Shares and approximately 17,101,403 NAI Shares
outstanding based on the number of Kranzco shareholders of record on the
Distribution Record Date and the outstanding number of Kranzco Common Shares
and Kranzco Common Share Equivalents on the Distribution Record Date.
THE RIGHTS OFFERING
The Rights
NAI is distributing to the record holders of outstanding NAI Shares
immediately after the Distribution, including holders of Kranzco Common Shares
and Kranzco Common Share Equivalents who receive NAI Shares in the
Distribution, at no cost to them, transferable Rights to purchase additional
NAI Shares at a Subscription Price of $2.00 per NAI Share. NAI will distribute
one Right for each NAI Share held on the Distribution Date. Each Right will
entitle its Holder to purchase one NAI Share. The Rights to purchase NAI
Shares pursuant to the Basic Subscription Privilege and the Oversubscription
Privilege will be evidenced by transferable subscription certificates (the
"Subscription Certificates"). An aggregate of 17,101,403 Underlying Shares
will be sold if all Rights are exercised. The Finns have advised NAI that they
intend to exercise Rights to purchase an aggregate of 500,000 NAI Shares and
Kranzco has advised NAI that it intends to exercise such number of Rights to
purchase NAI Shares that would result in Kranzco owning approximately 9.8% of
the issued and outstanding NAI Shares, before the issuance of any Additional
Shares. To the extent Underlying Shares are not purchased in the Rights
Offering, such unsubscribed shares will be offered to the Executive Group and
the Broker Member Group in the Concurrent Offering. In order to ensure that
the Broker Member Group will have the right to purchase NAI Shares, NAI has
authorized an additional 2,000,000 NAI Shares for issuance pursuant to the
Broker Member Group Subscription Privilege. There is no minimum number of NAI
Shares required to be sold as a condition to the consummation of the Rights
Offering or the Concurrent Offering.
Subscription Privileges
Basic Subscription Privilege. Each Right will entitle the Holder
thereof to receive, upon payment of the Subscription Price, one NAI Share.
Certificates representing NAI Shares purchased pursuant to the Basic
Subscription Privilege will be delivered to subscribers as soon as practicable
after the closing date, irrespective of whether the Subscription Privilege is
exercised immediately prior to the Expiration Date or earlier. Holders
exercising their Subscription Privilege will not be stockholders of record
with respect to the shares issuable pursuant to such Subscription Privilege
until the closing of the Rights Offering, which is anticipated to occur five
Business Days after the Expiration Date.
Oversubscription Privilege. Subject to the allocation described
below, each Right also carries the right to subscribe at the Subscription
Price for any Underlying Shares not subscribed for through the exercise of
Basic Subscription Privileges by other Holders. If the remaining Underlying
Shares are not sufficient to satisfy all
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subscriptions pursuant to the Oversubscription Privilege, such Underlying
Shares will be allocated pro rata (subject to the elimination of fractional
shares) among those Holders exercising the Oversubscription Privilege, in
proportion, not to the number of shares requested pursuant to the
Oversubscription Privilege, but to the number of shares each Holder exercising
the Oversubscription Privilege subscribed for pursuant to the Basic
Subscription Privilege; provided, however, that if such pro rata allocation
results in any Holder being allocated a greater number of Underlying Shares
than such Holder subscribed for pursuant to the exercise of such holder's
Oversubscription Privilege, then such Holder will be allocated only such
number of Underlying Shares as such Holder subscribed for and the remaining
Underlying Shares will be allocated among all other Holders exercising the
Oversubscription Privilege. Only beneficial holders who exercise the Basic
Subscription privilege in full will be entitled to exercise the
Oversubscription Privilege. Certificates representing the Underlying Shares
purchased pursuant to the Oversubscription Privilege will be delivered to
subscribers as soon as practicable after the closing date and after all
prorations have been effected.
The Basic Subscription Privilege and the Oversubscription Privilege
are referred to herein as the "Subscription Privileges."
Limitation on Exercise of Rights
The Rights may not be exercised by residents of the state of
California unless such residents are "qualified purchasers" as such term is
defined in under the laws of the state of California, and the resident makes a
representation that such resident is purchasing the Underlying Shares for his
or her own account (or trust account, if such resident is a trustee) for
investment and not with a view to or for sale in connection with any
distribution of the Underlying Shares (the "California Representation"). The
Rights may not be exercised by residents of the state of North Dakota unless
such residents are holders of NAI Shares.
Expiration Date
The Rights will expire at 5:00 p.m., New York time, the 45th day
following the commencement of the Rights Offering, unless extended by NAI from
time to time.
No Revocation
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION
PRIVILEGE OR THE OVERSUBSCRIPTION PRIVILEGE SUCH EXERCISE MAY NOT BE REVOKED.
THE CONCURRENT OFFERING
The Concurrent Privileges
Executive Group Subscription Privilege. Simultaneously with the
Rights Offering, NAI is offering to the Executive Group the right to purchase
any Underlying Shares that are not otherwise subscribed for pursuant to the
Rights Offering ("Excess Shares"), at the Subscription Price, after the Basic
Subscription Privileges and Oversubscription Privileges have been fulfilled
(the "Executive Group Subscription Privilege"). If the number of Excess Shares
is not sufficient to satisfy all subscriptions pursuant to the Executive Group
Subscription Privilege, such Excess Shares will be allocated pro rata (subject
to the elimination of fractional shares) among those exercising the Executive
Group Subscription Privilege, in proportion to the number of Excess Shares
requested pursuant to the Executive Group Subscription Privilege. There is no
assurance that any Excess Shares will be available for purchase by the
Executive Group pursuant to the Executive Group Subscription Privilege.
Broker Member Group Subscription Privilege. Simultaneously with the
Rights Offering, NAI is offering to the Broker Member Group, the right to
purchase any Excess Shares, at the Subscription Price, after the
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<PAGE>
Executive Group Subscription Privileges have been fulfilled (the "Broker
Member Group Subscription Privilege," together with the Executive Group
Subscription Privilege, the "Concurrent Privileges"). NAI has authorized an
additional 2,000,000 Additional Shares in order to ensure that the Broker
Member Group will have the right to purchase an aggregate of 2,000,000 NAI
Shares. If, after fulfillment of the Executive Group Subscription Privilege,
the number of Excess Shares and Additional Shares is not sufficient to satisfy
all subscriptions pursuant to the Broker Member Subscription Privilege, such
Excess Shares and Additional Shares will be allocated pro rata (subject to the
elimination of fractional shares) among those exercising the Broker Member
Subscription Privilege, in proportion to the number of NAI Shares requested
pursuant to the Broker Member Subscription Privilege. There is no assurance
that any person subscribing pursuant to the Broker Member Group Subscription
Privilege will receive all of the NAI Shares for which such person subscribes.
Expiration Date
The Concurrent Privileges will expire at 5:00 p.m., New York time, on
the Expiration Date for the Rights Offering, unless extended in accordance
with the terms of the Rights Offering by NAI from time to time.
Limitations on Subscriptions by Certain Broker Members
The Broker Members and the principals, shareholders, partners,
officers, managers and licensed real estate agents of NAI's Broker Members in
the states of California (other than "qualified purchasers" under the laws of
the state of California who make the California Representation), Florida,
Maryland, North Dakota, South Dakota and Texas are not eligible to participate
in the Concurrent Offering. In addition, in connection with the securities
laws of other states, NAI reserves the right to limit, in its sole discretion,
the number of NAI Shares offered or sold in any state; accordingly, members of
the Broker Member Group in such other states may receive none, or a
proportionally lower number of NAI Shares than other Broker Members.
No Revocation
ONCE A MEMBER OF THE EXECUTIVE GROUP OR BROKER MEMBER GROUP HAS
EXERCISED THE EXECUTIVE GROUP SUBSCRIPTION PRIVILEGE OR THE BROKER MEMBER
GROUP SUBSCRIPTION PRIVILEGE, AS THE CASE MAY BE, SUCH EXERCISE MAY NOT BE
REVOKED.
Non Transferability of Concurrent Privileges
THE EXECUTIVE GROUP SUBSCRIPTION PRIVILEGE AND THE BROKER MEMBER
GROUP SUBSCRIPTION PRIVILEGE ARE NOT TRANSFERABLE.
Use of Proceeds
The net proceeds to be received from the Rights Offering and the
Concurrent Offering depend on the number of Rights exercised and the number of
Excess Shares and Additional Shares purchased. If all Rights are exercised and
all Additional Shares are purchased, NAI expects the net proceeds available to
it from the Rights Offering and the Concurrent Offering to be approximately
$38,000,000. After paying the expenses of the Rights Offering, the Concurrent
Offering and the Proposed Related Transactions, the proceeds from the Rights
Offering and the Concurrent Offering will be used, in the following order of
priority, to (i) repay $202,000 principal amount of indebtedness incurred in
connection with the repurchase of 101,000 shares of Series A Preferred Stock
of NAI for an aggregate repurchase price of $202,000, (ii) repay approximately
$715,000 of indebtedness described below (which includes approximately $72,000
of accrued interest), (iii) expand NAI's Corporate Services Department and
Investment Sales Department, and (iv) strategically acquire and develop Real
Estate-Related Services. The balance of any proceeds will be invested in
short-term commercial paper at a rate of approximately 5.5% per annum until
used for general corporate and working capital purposes and to
opportunistically acquire real estate.
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A portion of proceeds of the Rights Offering and the Concurrent
Offering will be used to repay (i) a 12% demand note, dated April 21, 1988,
with an outstanding principal balance of $110,500 issued by NAI to The
Building Center, Inc., an entity owned by Gerald and Norma Finn, (ii) two 10%
demand notes, dated August 12, 1994 and May 16, 1997, respectively, issued by
NAI to Gerald and Norma Finn, with outstanding principal balances of $35,000
and $50,000, respectively, (iii) a 12% demand note, dated April 24, 1988,
issued by NAI to Gerald and Norma Finn, with an outstanding principal balance
of $145,000, (iv) three 10% demand notes, dated August 6, 1993, September 14,
1993, and November 9, 1993, respectively, issued by RealQuest, Inc., a
wholly-owned subsidiary of NAI, to Gerald and Norma Finn, with outstanding
principal balances of $10,000, $20,000 and $10,000, respectively, (v) a 12%
demand note, dated April 24, 1991, issued by NAI to Gerald and Norma Finn,
with an outstanding principal balance of $58,235, (vi) a loan by Gerald Finn
and Norma Finn, dated December 8, 1993, in the principal amount of $2,500,
(vii) $6,666.74 aggregate principal amount outstanding under a demand
Promissory Note, dated April 29, 1996, issued by NAI to First Washington State
Bank ("FWSB"), which bears interest at a variable rate equaling FWSB's prime
rate plus one percent (8.5% as of June 30, 1998), (viii) $100,000 aggregate
principal amount outstanding under a Promissory Note, dated October 2, 1997,
issued by NAI to FWSB pursuant to a Line of Credit (the "Line of Credit"), due
October 2, 1998, which bears interest at a variable rate equaling FWSB's prime
rate plus one percent (8.5% as of June 30, 1998) and (ix) $95,000 aggregate
principal amount outstanding under a Promissory Note dated December 2, 1997,
issued by NAI to FWSB pursuant to a term loan due November 2002, which bears
interest at a variable rate equalling FWSB's prime rate plus one percent (8.5%
as of June 30, 1998). The proceeds from the Term Loan and the Line of Credit
were used for general corporate and working capital purposes.
In the event that all of the Underlying Shares, Excess Shares and
Additional Shares are not purchased, NAI has assumed a minimum number of
Underlying Shares, Excess Shares and Additional Shares being purchased (an
aggregate of 930,378 NAI Shares) ("Minimum NAI Shares") and a moderate number
of Underlying Shares, Excess Shares and Additional Shares being purchased (an
aggregate of 10,000,000 NAI Shares) ("Moderate NAI Shares"). The Minimum NAI
Shares were estimated by NAI to be the minimum amount of Underlying Shares and
Excess Shares to be purchased primarily by NAI, Kranzco and the officers and
directors of both Kranzco and NAI. The Moderate NAI Shares were estimated by
NAI to approximate the mid-point between the Minimum NAI Shares and the
Maximum NAI Shares being purchased. The sale of the Minimum NAI Shares will
result in gross proceeds to NAI of $1,860,756 and 18,006,938 NAI Shares being
outstanding. The sale of the Moderate NAI Shares will result in gross proceeds
to NAI of $20,000,000 and 27,801,483 NAI Shares being outstanding.
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The table below sets forth the use of proceeds of the Rights Offering and the
Concurrent Offering, assuming the Minimum NAI Shares, Moderate NAI Shares and
Maximum NAI Shares are sold:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Use of Proceeds Assuming
- -----------------------------------------------------------------------------------------------------------------------------------
Minimum Number of Moderate Number of Maximum Number
NAI Shares NAI Shares NAI Shares
(930,378 Shares) (10,000,000 Shares) (19,101,403 Shares)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Repayment of $202,000 23% $202,000 1% $202,000 .5%
Indebtedness related to
the Repurchase of Series
A Preferred Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Repayment of $658,756(1) 77% $715,000 4% $715,000 2%
Indebtedness (including
accrued interest of
approximately $72,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Expansion of NAI's $0 0% $2,000,000 10.5% $2,000,000 5.4%
Corporate Services
Department and
Investment Sales
Department.
- -----------------------------------------------------------------------------------------------------------------------------------
Acquisition and $0 0% $13,305,000 70% $27,446,860 74%
Development of Real
Estate-Related Services
- -----------------------------------------------------------------------------------------------------------------------------------
Opportunistic $0 0% $0 0% $1,910,140 5%
Acquisition of Real
Estate.
- -----------------------------------------------------------------------------------------------------------------------------------
General corporate and $0 0% $2,778,000 14.5% $4,928,806 13.1%
working capital purposes
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net Proceeds: $860,756 100% $19,000,000 100% $37,202,806 100%
</TABLE>
- ----------------
(1) $56,244 of the remaining indebtedness will be paid from NAI's cash on
hand.
NAI does not have a written commitment from any person to purchase
any of the Underlying Shares pursuant to the Rights Offering or Excess Shares
or Additional Shares in the Concurrent Offering. The Finns have advised NAI
that they intend to exercise Rights to purchase an aggregate of 500,000 NAI
Shares and Kranzco has advised NAI that it intends to exercise such number of
Rights to purchase NAI Shares that would result in Kranzco owning
approximately 9.8% of the issued and outstanding NAI Shares, before the
issuance of any Additional Shares. Accordingly, no assurances can be given as
to the amount of gross proceeds that NAI will realize from the Rights Offering
and the Concurrent Offering. No minimum amount of proceeds is required for NAI
to consummate the Rights Offering or the Concurrent Offering. See "Risk
Factors--No Commitments to Purchase and No Minimum Size of Rights Offering."
NAI may change the specific use or allocation of the net proceeds
from the Rights Offering and Concurrent Offering, except that in all events
NAI will use at least $202,000 to repay $202,000 principal amount
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of indebtedness incurred in connection with the repurchase of 101,000 shares
of Series A Preferred Stock of NAI for an aggregate repurchase price of
$202,000, and will repay approximately $715,000 of indebtedness of NAI
described above. Management of NAI will have broad discretion to change the
allocation of the net proceeds among expanding NAI's Corporate Services
Department and Investment Sales Department, strategically acquiring and
developing Real Estate-Related Services and the opportunistic acquisition of
real estate; any change in the allocation of the net proceeds will depend
upon, among other things, the opportunities which are available to NAI.
REASONS FOR THE OFFER AND THE PROPOSED RELATED TRANSACTIONS
Kranzco is a self-administered and self-managed equity REIT engaged
in the business of owning, managing, operating, leasing, acquiring and
expanding neighborhood and community shopping centers and, to a lesser extent,
free-standing retail properties. Kranzco is limited in its activities by the
investment limitations imposed by Federal income tax laws applicable to REITs,
which (i) limit the amount of income that a REIT can realize from certain
services that are not customarily furnished or rendered in connection with the
rental of real property in a particular geographic area, and (ii) limit
Kranzco's ownership in corporations other than REITs and qualified REIT
subsidiaries (a) to 10% of the outstanding voting securities of such
corporation, and (b) in that the value of any one corporation's securities
cannot exceed 5% of the value of Kranzco's total assets. Kranzco believes that
significant opportunities are available to investors in entities which provide
brokerage and Real Estate-Related Services, own properties other than
neighborhood and community shopping centers, and which are not limited in
their activities by the investment limitations imposed by Federal income tax
laws applicable to REITs. Accordingly, in light of the limitations on
investments imposed on REITs, Kranzco believes that effecting the Exchange
Offer, the Distribution, the Rights Offering and the Concurrent Offering, and
establishing an intercompany relationship between Kranzco and NAI will yield
significant benefits to Kranzco and its shareholders similar to those which
may be obtained by investors who are not so limited, while preserving
Kranzco's REIT status. For Kranzco, these benefits include:
o increased opportunities to acquire retail properties which become
available for sale through the Network, which might not otherwise be
available to Kranzco;
o greater access to a diverse range of tenants, in order to re-tenant
vacant space owned by Kranzco, including access to non-retail
tenants looking for space appropriate for office, warehouse or other
non-retail uses;
o the ability to enter into agreements with NAI to have NAI develop
new shopping centers or redevelop distressed shopping centers for
sale to Kranzco;
o the ability to enter into new geographic areas with the assistance
of NAI's real estate professionals;
o NAI disseminating Kranzco's acquisition criteria to Broker Members
through the Network, in order to create additional opportunities to
purchase retail properties;
o increased opportunities to purchase additional retail properties
which are included in portfolios with non-retail properties,
utilizing NAI to purchase the non-retail properties or find a
purchaser for the non-retail properties;
o access to NAI's sophisticated, real estate oriented computer
network, which includes information on real estate transactions,
market conditions and demographics;
o the ability to purchase Real Estate-Related Services at competitive
prices;
o the ability to own an equity interest in a company which owns real
estate and provides Real Estate-Related Services which Kranzco, as a
REIT, could not directly own or provide; and o access to local
property managers where Kranzco may own retail properties, and the
opportunity for Kranzco to manage retail properties owned by NAI.
NAI operates a network of independently owned, licensed real estate
Broker Members throughout the United States and, more recently, abroad, to
provide commercial real estate services to regional, national and
international Clients. NAI believes that a strategic relationship between
companies which provide real estate
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brokerage and services, such as NAI, and companies which own and operate real
estate, such as Kranzco, would provide significant benefits and opportunities.
For NAI, the benefits of entering into the strategic relationship and
consummating the Proposed Related Transactions (and under certain
circumstances, to the extent proceeds are available through the Rights
Offering and the Concurrent Offering) include:
o the opportunity as a public company, to raise additional capital
through the Rights Offering and the Concurrent Offering and, to the
extent possible, future equity and debt offerings;
o the ability to expand its Corporate Services Department, Investment
Sales Department and Broker Services Department;
o the ability to invest in or acquire Broker Members or other real
estate service firms in order to strengthen the Network;
o access to new transactions by providing real estate brokerage
services to Kranzco through NAI's Network;
o the ability to accelerate the development of information services
and technology infrastructure to more efficiently deliver services;
o the opportunity to offer to Kranzco Real Estate-Related Services
which NAI may develop;
o the opportunity to further develop existing Real Estate-Related
Services and to acquire or develop businesses that provide Real
Estate-Related Services; o the ability to accelerate Network growth
in international markets;
o providing Broker Members the opportunity to manage selected Kranzco
shopping centers;
o the opportunity to enter into agreements with Kranzco to have NAI
develop new shopping centers or re-develop distressed shopping
centers for sale to Kranzco; and
o expansion of its business through access to the real estate
expertise of Kranzco's management.
In the past Kranzco and NAI have worked together in a mutually
beneficial relationship. In December 1997, NAI's Investment Sales Department
assisted Kranzco in arranging for the acquisition of five shopping centers,
aggregating approximately 650,000 square feet of GLA, for approximately $44
million. NAI's Investment Sales Department initiated this opportunity, and
assisted Kranzco in acquiring the properties. Kranzco's acquisition of such
properties generated $100,000 in fee income to NAI. Kranzco and NAI expect
that the Intercompany Agreement will set forth a framework for a mutually
beneficial relationship in the future. Accordingly, Kranzco and NAI believe
that it is in the interest of their respective shareholders and stockholders
for Kranzco and NAI to enter into an Intercompany Agreement to set forth the
terms of a mutually beneficial relationship between the two companies, and for
there to be a commonality of ownership interests in Kranzco and NAI. See
"Proposed Related Transactions--Intercompany Agreement" and "The
Distribution."
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MANAGEMENT OF NAI AFTER EXCHANGE OFFER
Directors and Executive Officers
Upon consummation of the Exchange Offer and Reincorporation, NAI's
Board of Directors will consist of eight members who will be divided into
three classes as noted below. Class I consists of two directors whose terms
will expire at the 1999 Annual Meeting of Shareholders. Classes II and III
each consist of three directors whose terms will expire at the 2000 and the
2001 Annual Meetings of Shareholders, respectively. Upon consummation of the
Exchange Offer and the Reincorporation Merger, the names and ages of the
directors and executive officers of NAI and the positions held by them will be
as set forth in the following table:
<TABLE>
<CAPTION>
Name Age Position Term Expires
---- --- -------- ------------
<S> <C> <C> <C>
Gerald C. Finn 67 Co-Chairman of the Board, Chief Executive 2001
Officer and Director
Jeffrey M. Finn 35 President, Chief Operating Officer and 2000
Treasurer and Director
Norman M. Kranzdorf 67 Co-Chairman and Director 2001
Robert H. Dennis 51 Chief Financial Officer and Director 1999
Joseph Grossman 64 Director 1999
Peter O. Hanson 64 Director 2001
Bernard J. Korman 66 Director 2000
Michael Kranzdorf 37 Chief Information Officer and Director 2000
Norma J. Finn 65 Secretary
</TABLE>
Gerald C. Finn, NAI's principal founder, has served as the Chief
Executive Officer and a Director of NAI since 1974. He also served as NAI's
President from 1974 until 1995. He was elected as Chairman of the Board in May
1990. Mr. Finn will become Co-Chairman of the Board upon consummation of the
Exchange Offer and the Reincorporation Merger. Prior to his association with
NAI, Mr. Finn was an active real estate broker and developer for his own
account and for the account of various entities in which he had an equity
interest. He is a licensed real estate broker and a member of NACORE, ICSC and
IDRC, and is a founding member of the Wharton School Real Estate Center.
Jeffrey M. Finn, the son of Gerald C. Finn, has been employed full
time by NAI since January, 1984, and has served as Chief Operating Officer and
President since September 1995, as Treasurer of NAI since December 1987 and
has served as Executive Vice President of NAI from 1992 to 1995. He has worked
in various capacities including brokerage and corporate services, as well as
Investment Sales prior to becoming Vice President-Marketing in 1988. Mr. Finn
is a graduate of Boston University's School of Management and is a licensed
Real Estate Salesperson in the State of New Jersey. Mr. Finn is a member of
ICSC, IDRC, NACORE and the Wharton Real Estate Center Advisory Board.
Norman M. Kranzdorf, will become the Co-Chairman of the Board of
Directors of NAI upon consummation of the Exchange Offer and the
Reincorporation Merger. Mr. Kranzdorf, a co-founder of Kranzco, has been a
trustee and the President and Chief Executive Officer of Kranzco since its
organization in June 1992. Mr. Kranzdorf was the President of Kranzco Realty,
Inc., a general commercial real estate management and brokerage company
("Kranzco Realty"), from 1979, when he founded Kranzco Realty, to 1992. He
served as President of Amterre Development, Inc. ("Amterre") from 1972 to
1981. Amterre, the successor to Food Fair
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Properties, Inc., owned and operated over 50 shopping centers, as well as
other single-tenant retail properties, on the Eastern seaboard. Mr. Kranzdorf
was also an officer and director of Kranzco Management, Inc., a general
commercial real estate manager and brokerage company and a wholly-owned
subsidiary of Kranzco Realty, from 1980, when it was founded, to 1992. He is a
member of the Board of Governors of NAREIT and a former trustee of the ICSC.
Robert H. Dennis will become the Chief Financial Officer of NAI and a
member of the Board of Directors of NAI upon consummation of the
Reincorporation Merger. Mr. Dennis has been a trustee of Kranzco since June
1994 and the Chief Financial Officer and Treasurer of Kranzco since its
organization in June 1992. Prior thereto he was the Chief Financial Officer
and Assistant Secretary of Kranzco Realty from 1981 to 1992.
Michael Kranzdorf will become the Chief Information Officer of NAI
and a member of the Board of Directors of NAI upon consummation of the
Exchange Offer and the Reincorporation Merger. Mr. Kranzdorf was named
Director of Information Systems at Kranzco Realty Trust in 1994 and was
elected a Vice President of Kranzco in June 1996. He has been with Kranzco
since 1987 as a programmer and designer. Mr. Kranzdorf received his B.S. from
Tufts University and his M.S. from the University of Colorado, both in
Electrical Engineering. Prior to joining Kranzco, he held positions at Texas
Instruments, the University of Colorado and owned a consulting and publishing
company in Boulder, Colorado. Mr. Kranzdorf is a member of the ICSC and serves
on the Research Committee, and he has recently accepted the first Chairmanship
of NAREIT's Technology Committee.
Joseph Grossman has served as a Director of NAI since March, 1983.
Mr. Grossman has been an independent real estate developer since 1961 and has
developed shopping centers and industrial, residential and recreational
properties for his own account. Mr. Grossman is also one of the founding
members of the Tinton Falls State Bank and is a member of its Advisory Board.
Peter O. Hanson has been a member of the Board since July 1990. Mr.
Hanson is Chairman of James E. Hanson, Inc., a Broker Member of NAI. Mr.
Hanson has been active in Commercial/Industrial Brokerage and Development
since 1959. A very active member of The Society of Industrial and Office
Realtors ("SIOR"), Mr. Hanson has served that organization as a leader at the
state, regional and national level. He was SIOR's International President in
1985. In addition, Mr. Hanson has been an active member of NAI's Advisory
Board and has served as Chairman of such Board. Mr. Hanson is a member of the
Board of Trustees of Meridian Trust and Meridian Industrial Trust. Other civic
and industry groups have benefitted from his participation and leadership. A
1955 graduate of Colgate University (B.A. - Sociology), Mr. Hanson also was a
captain in the United States Air Force.
Bernard J. Korman will become a member of the Board of Directors of
NAI upon consummation of the Exchange Offer and the Reincorporation Merger.
Mr. Korman is Chairman of Graduate Health System, Inc., a non- profit
organization, and NutraMax Products, Inc., a consumer healthcare products
company. Mr. Korman served as President and Chief Executive Officer of MEDIQ
Incorporated from 1981 to 1995 and as chairman of PCI Services, Inc. from 1992
to 1996. Mr. Korman currently is a director of The Pep Boys, Inc., Today's
Man, Inc., The New America High Income Fund, Inc., InnoServ Technologies,
Inc., Omega Healthcare Investors, Inc., Omega Worldwide, Inc. and has been a
trustee of Kranzco since May 1997.
Norma J. Finn has served as the Secretary of NAI since its inception
in 1974. Ms. Finn attended the University of Delaware and has served as
secretary and a board member of a number of real estate development
corporations. She has been active in numerous charitable activities including
being President of Contact of Mercer County N.J. and on the national board of
Contact, and the board of the Delaware Valley United Fund.
Officers of NAI are elected by the Board and hold office until their
successors are chosen and qualified or until their death, resignation or
removal.
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Director Compensation
It is NAI's policy to pay non-employee directors of NAI fees of $500
per meeting, as well as reimbursements for expenses incurred in attending
meetings of the Board. However, in lieu of paying outstanding directors' fees,
in January 1998, NAI issued 5,000 NAI Shares to each of Matthew Arnold, Joseph
Grossman, Peter Hanson, Robert McMenamin and Marc Shegoski, the then
non-employee directors of NAI. Such non-employee directors were owed accrued
director fees as follows: Matthew Arnold, $5,500 for 11 meetings; Joseph
Grossman, $5,000 for 10 meetings; Peter Hanson, $6,500 for 13 meetings; Robert
McMenamin $2,000 for 4 meetings; and Marc Shegoski $4,000 for 8 meetings.
In fiscal year 1997, there were two meetings of the Board of
Directors of NAI; each director attended both of the meetings, other than Mr.
Matthew Arnold, then a director of NAI Delaware, and Mr. Joseph Grossman, who
each attended one meeting.
Executive Compensation
The following table sets forth certain information with respect to
the cash and other compensation paid or accrued by NAI for services rendered
by Gerald Finn, NAI's Chief Executive Officer, and NAI's four other most
highly compensated executive officers whose salary and bonus exceeded $100,000
(collectively, the "Named Executives"), during the fiscal year ended June 30,
1997.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation(1) Compensation
------------------------------------------------- ------------
Name & Principal Position Year Salary Bonus Restricted
- ------------------------- ------------------------------------------------- Stock Awards($)
($) ($) --------------
<S> <C> <C> <C> <C>
Gerald C. Finn 1997 $125,000 - $7,500(2)
Chairman and Chief
Executive Officer
Jeffrey M. Finn 1997 $110,000 $25,000 $2,250(2)
President, Chief
Operating Officer and
Treasurer
- ---------------
(1) The total value of all perquisites and other personal benefits received
by each individual was less than the lesser of $50,000 or ten percent of
the total salary of and bonus paid or accrued by NAI for services
rendered by each officer during the fiscal year.
(2) Reflects grant of 25,000 restricted NAI Shares and 7,500 restricted NAI
Shares to Gerald C. Finn and Jeffrey M. Finn, respectively. Such NAI
Shares were granted in fiscal year 1998 with respect to performance in
fiscal year1997, pursuant to a Restricted Stock Agreement. Such NAI
Shares were valued at $.30 per NAI Share, the value of the NAI Shares as
determined by the Board of Directors. See "Management -- Restricted Stock
Agreements".
Employment Agreements
NAI has entered into employment agreements with Messrs. G. Finn and
J. Finn (the "Senior Executives"), pursuant to which Mr. G. Finn serves as the
Co-Chairman of the Board of NAI and Mr. J. Finn serves as its President. Each
of the employment agreements with Messrs. G. Finn and J. Finn has
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a term of three years, which is automatically extended for successive one-year
periods unless either the Senior Executive or NAI gives prior notice not to
extend the employment agreement, as specified in the agreement. The employment
agreements provide for annual compensation of $175,000 to each of Messrs. G.
Finn and J. Finn for the first year of the term. Pursuant to the employment
agreements, each of the Senior Executives is also entitled to incentive
compensation to be determined by the Compensation Committee. After the first
year of each employment agreement, salary and bonus for the Senior Executives
will be determined by the Compensation Committee.
In the event that either of the Senior Executives is fired without
"cause," such Senior Executive shall be entitled to the lesser of (i) two
times the individual's annual base compensation or (ii) the individual's
annual base compensation remaining due under the terms of his employment
agreement; provided, however, that the Senior Executive shall not be entitled
to any such severance payment if he has received a payment upon a change in
control as described below. The employment agreements also contain certain
provisions relating to non-competition and confidentiality.
Each employment agreement provides that upon a change in control and
so long as such individual is an employee of NAI immediately prior to such a
change in control, (a) the individual shall receive a lump sum severance
payment equal to two times the individual's annual compensation during the
calendar year preceding the calendar year during which the change in control
has occurred, (b) restricted NAI Shares then owned by the individual shall
immediately vest and no longer be subject to repurchase or other forfeiture
restrictions, (c) NAI will continue to provide life, accident, medical and
dental insurance to the individual for the period of 18 months after the
change in control, and (d) in the event the individual holds any options to
purchase NAI Shares on the date of the change in control, such individual
shall be entitled to receive an amount equal to, generally, the number of
options to purchase NAI Shares then owned by the individual multiplied by the
amount, if any, that(i) the exercise price of the options or the closing price
of the NAI Shares on the date of the change in control, whichever is less,
exceeds (i) the average closing price of the NAI Shares during the sixth month
prior to the date of the change in control. If the closing price of the NAI
Shares as of the date of the change in control is greater than the exercise
price of such option then the individual can retain the option or receive in
exchange therefor cash equal to the number of shares underlying the options
multiplied by the amount by which the closing share value exceeds the exercise
price of the options. Each Employment Agreement provides that, to the extent
that any of the foregoing benefits granted to such individual would cause him
to be liable for excise tax liabilities, the benefits available to him shall
be reduced to an amount which would not require the payment of any such excise
tax, but only if doing so yields a greater after tax amount to such
individual.
Restricted Stock Agreements
In the past, NAI has granted restricted NAI Shares to certain persons
providing services to NAI, including employees and Broker Members (each, a
"grantee"). Each grantee of restricted NAI Shares executed a form of
Restricted Stock Agreement, which contains certain representations and
warranties made by NAI and the grantee, and sets forth the terms and
conditions of the grant, including the limited conditions under which the
grantee may transfer the restricted NAI Shares. The Restricted Stock Agreement
also provides NAI with an option for a period of three years following the
date of grant to repurchase the restricted NAI Shares if the grantee's
services to NAI are terminated (a "Termination"). NAI may repurchase
restricted NAI Shares, for a period of 90 days after the date of Termination,
at the following prices: $.10 per NAI Share for a termination during the first
year after the date of grant of the restricted NAI Shares; $.20 per NAI Share
for a termination during the year after the second anniversary of the date of
grant of the restricted NAI Shares; and $.30 per NAI Share for a termination
during the year after the third anniversary of the date of grant of the
restricted NAI Shares. In connection with the Exchange Offer, NAI has agreed
to permit the transfer to Kranzco of all restricted NAI Shares which are
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validly tendered on or prior to the Expiration Date, and not subsequently
withdrawn. In addition, NAI has agreed to eliminate the repurchase option with
respect to all restricted NAI Shares owned by NAI Stockholders after the
consummation of the Exchange Offer, if such NAI Stockholder tenders at least
80% of his or her restricted NAI Shares. The release of any or all of the
preceding restrictions could cause the holders of restricted NAI Shares to
immediately recognize ordinary income in an amount equal to the excess of the
fair market value of such NAI Shares at the time the restrictions are released
over any amounts paid to acquire such NAI Shares. In addition, withholding
taxes will be payable to NAI (or withheld by NAI from amounts otherwise due
such holders) in connection with any such recognition of income. Holders of
restricted NAI Shares are urged to consult their tax advisors concerning the
federal, state and local tax consequences of the release of any restrictions
on their NAI Shares.
NAI 1998 Incentive Plan
General. In connection with the Exchange Offer and the
Reincorporation Merger, NAI adopted the NAI 1998 Incentive Plan (the "1998
Plan"). The purpose of the 1998 Plan is to align the interests of NAI's
directors, officers and other employees and consultants with those of the
shareholders and to enable NAI to attract, compensate and retain selected
individuals to serve as directors, officers and employees and consultants who
will contribute to NAI's success and provide such individuals with appropriate
incentives and rewards for their performance.
Awards to directors, officers, employees and consultants under the
1998 Plan may take the form of cash, share options ("Options"), including
corresponding share appreciation rights ("SARs") and reload options,
restricted share awards, share purchase awards and performance based awards.
The maximum number of NAI Shares that may be the subject of awards under the
1998 Plan is 1,700,000 NAI Shares, or approximately 4.7% of the NAI Shares
outstanding as of June 30, 1998, assuming the Proposed Related Transactions
had occurred. The maximum number of NAI Shares that may be the subject of
awards to any employee during any fiscal year under the 1998 Plan is 250,000
NAI Shares.
NAI Share Authorization. NAI Shares covered by any unexercised
portions of terminated Options, NAI Shares forfeited by participants and NAI
Shares subject to any awards which are otherwise surrendered by a participant
without receiving any payment or other benefit with respect thereto may again
be subject to new awards under the 1998 Plan. In the event the purchase price
of an Option is paid in whole or in part through the delivery of NAI Shares,
the number of NAI Shares issuable in connection with the exercise of the
Option shall not again be available for the grant of awards under the 1998
Plan. NAI Shares subject to Options, or portions thereof, which have been
surrendered in connection with the exercise of SARs, are not again available
for the grant of awards under the 1998 Plan. The NAI Shares to be issued or
delivered under the 1998 Plan are authorized and unissued shares, or issued
NAI Shares that have been reacquired by NAI.
Incentive Plan Administration. The 1998 Plan will be administered by
a committee of two or more non-employee directors (the "Committee"), which
will initially consist of Messrs. Bernard J. Korman and Joseph Grossman. The
Committee will determine the directors, officers, employees and consultants
who will be eligible for and granted awards, determine the amount and type of
awards, establish rules and guidelines relating to the 1998 Plan, establish,
modify and terminate the terms and conditions of awards and take such other
action as may be necessary for the proper administration of the 1998 Plan. All
directors, employees and certain consultants are currently eligible to
participate in the 1998 Plan. Eighty percent of the NAI Shares which may be
the subject of awards under the 1998 Plan are reserved for employees of NAI
who are not also employees of Kranzco, and 20% of the NAI Shares which may be
the subject of awards under the 1998 Plan are reserved for employees and
consultants of NAI who are also employees of Kranzco.
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Options. "Incentive Options" meeting the requirements of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and
"Nonqualified Options" that do not meet such requirements are both available
for grant under the 1998 Plan. The term of each Option will be determined by
the Committee, but no Option will be exercisable more than five years after
the date of grant. Options may also be subject to restrictions on exercise,
such as exercise in periodic installments, as determined by the Committee. The
exercise price for both Incentive Options and Nonqualified Options must be at
least equal to 100% of the fair market value of the NAI Shares on the date of
grant. The exercise price can be paid in cash, or if approved by the
Committee, by tendering (actually or constructively) NAI Shares owned by a
participant.
Incentive Options are not transferable except by will or the laws of
descent and distribution and may be exercised only by the participant (or his
guardian or legal representative) during his or her lifetime, except as
provided below. With the Committee's consent, Nonqualified Options may be
transferable to family members and entities for the benefit of the participant
or his family members. If a participant's employment with NAI or service as a
director terminates for any reason (other than death or disability), any
unexercised or unexpired Options held by the participant (or its permitted
transferee) will be deemed canceled and terminated on the date of such
termination, unless the Committee decides to extend the term of such Options
for a period not exceeding three months. If a participant dies while employed
by NAI, including an employee who is also a director, any unexercised or
unexpired Options will, to the extent exercisable on the date of death, be
exercisable by the holder or by the participant's estate or by any person who
acquired such Options by bequest or inheritance, at any time generally within
one year after such death. If a participant becomes totally disabled and his
employment terminates as a result of such disability, including an employee
who is also a director, the holder or the participant (or his guardian or
legal representative) will have the unqualified right to exercise any
unexercised and unexpired Options held by the participant (or its permitted
transferee) generally for one year after such termination.
NAI Share Appreciation Rights. The 1998 Plan provides that SARs may
be granted in conjunction with a grant of Options. Each SAR must be associated
with a specific Option and must be granted at the time of grant of such
Option. A SAR is exercisable only to the extent the related Option is
exercisable. Upon the exercise of a SAR, the recipient is entitled to receive
from NAI, without the payment of any cash (except for any applicable
withholding taxes), up to, but no more than, an amount in cash or NAI Shares
equal to the excess of (A) the fair market value of one NAI Share on the date
of such exercise over (B) the exercise price of any related Option, times the
number of NAI Shares in respect of which such SAR shall have been exercised.
Upon the exercise of a SAR, the related share Option, or the portion thereof
in respect of which such SAR is exercised, will terminate. Upon the exercise
of an Option granted in tandem with a SAR, such tandem SAR will terminate.
Reload Options. The Committee may grant, concurrently with the award
of any Option (each an "Underlying Option") to such participants, one or more
reload options (each a "Reload Option") to purchase for cash or, if
permissible under the Underlying Option, NAI Shares, a number of NAI Shares
equal to the number of NAI Shares delivered (or deemed delivered) by the
participant to NAI to exercise the Underlying Option. Although an Underlying
Option may be an Incentive Option, a Reload Option is not intended to qualify
as an Incentive Option. A Reload Option may be granted in connection with the
exercise of an Option that is itself a Reload Option. Each Reload Option will
have the same expiration date as the Underlying Option and an exercise price
equal to the fair market value of the NAI Shares on the date of grant of the
Reload Option. A Reload Option is exercisable immediately.
Reload Options permit a participant to retain, through the term of
the original Option, his or her economic interest in the sum of the NAI Shares
covered by such Options as well as the already-owned NAI Shares that could be
used to exercise such Option, by granting options on the number of NAI Shares
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used to pay the exercise price of the original Option and subsequent Reload
Options. In this way, Reload Options provide a participant with the
opportunity to build up ownership of NAI Shares covered by an original Option
earlier during the Option term rather than through a single exercise at or
near the end of the Option term.
Restricted NAI Shares. NAI may award restricted NAI Shares to a
participant. Such a grant gives a participant the right to receive NAI Shares
subject to a risk of forfeiture based upon certain conditions. The forfeiture
restrictions on the NAI Shares may be based upon performance standards, length
of service or other criteria as the Committee may determine. Until all
restrictions are satisfied, lapsed or waived, NAI will maintain custody over
the restricted NAI Shares but the participant will be able to vote the NAI
Shares and will be entitled to an amount equal to all distributions, if any,
paid with respect to the NAI Shares, as provided by the Committee. During such
restrictive period, the restricted NAI Shares may not be sold, assigned,
transferred, pledged or otherwise encumbered. Upon termination of employment,
the participant generally forfeits the right to the NAI Shares to the extent
the applicable performance standards, length of service requirements, or other
measurement criteria have not been met.
NAI Share Purchase Awards. The 1998 Plan also permits the grant of
share purchase awards to participants. Participants who are granted a share
purchase award are provided with a share purchase loan to enable them to pay
the purchase price for the NAI Shares acquired pursuant to the award. The
terms of each share purchase loan will be determined by the Committee. The
purchase price of NAI Shares acquired with a share purchase loan is the fair
market value on the date of the award. The 1998 Plan provides that some or all
of the share purchase loan can be forgiven under terms determined by the
Committee. At the end of the loan term, the remainder of the share purchase
loan will be due and payable. The interest rate, if any, on a share purchase
loan will be determined by the Committee. NAI Share purchase loans may be
recourse or nonrecourse under terms determined by the Committee.
If a participant's employment with NAI is terminated for any reason,
the balance of the purchase loans to such participant will be immediately due
and payable provided, however, if a participant's employment terminates by
reason of death, disability, by NAI without "cause," or in the event of a
change in control, the balance of such participant's purchase loans may be
forgiven in whole or in part as of the date of such occurrence at the
discretion of the Committee.
Performance-Based Awards. Certain Awards granted under the 1998
Incentive Plan may be granted in a manner such that the Awards qualify as
"performance-based compensation"(as such term is used in Section 162(m) of the
Code and the regulations thereunder) and thus be exempt from the deduction
limitation imposed by Section 162(m) of the Code ("Performance-Based Awards").
In general to qualify as a Performance-Based Award, among other things, the
Committee must be comprised solely of two or more "outside directors." The
Committee shall have complete discretion in determining the number, amount and
timing of awards granted to each participant. Such Performance-Based Awards
may take the form of, without limitation, cash, Shares or any combination
thereof. The Committee shall set performance goals at its discretion which,
depending on the extent to which they are met, will determine the number
and/or value of such Performance-Based Awards that will be paid out to the
participants, and may attach to such Performance-Based Awards one or more
restrictions. The maximum cash amount of Performance-Based Awards to be
awarded to any employee during any fiscal year shall be $1,000,000.
The Committee may use the following performance measures, among
others, (either individually or in any combination) to set performance targets
with respect to Awards intended to qualify as Performance-Based Awards: net
sales; pretax income before allocation of corporate overhead and bonus;
budget; earnings per share; net income; division, group or corporate financial
goals; return on stockholders' equity; return on assets; attainment of
strategic and operational initiatives; appreciation in and/or maintenance of
the price of the NAI Shares or any other publicly-traded securities of NAI;
market
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share; gross profits; earnings before taxes; earnings before interest and
taxes; earnings before interest, taxes, depreciation and amortization;
economic value-added models; comparisons with various stock market indices;
and/or reductions in costs.
Antidilution Provisions. The number of NAI Shares authorized to be
issued under the 1998 Plan and subject to outstanding awards (and the grant or
exercise price thereof) may be adjusted to prevent dilution or enlargement of
rights in the event of any dividend or other distribution, recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase or exchange of NAI Shares or other
securities, the issuance of warrants or other rights to purchase NAI Shares or
other securities, or other similar capitalization change.
Certain Federal Income Tax Consequences of the 1998 Plan. The
following is a brief summary of the principal federal income tax consequences
of awards under the 1998 Plan. The summary is based upon current federal
income tax laws and interpretations thereof, all of which are subject to
change at any time, possibly with retroactive effect. The summary is not
intended to be exhaustive and, among other things, does not describe state,
local or foreign tax consequences.
A participant is not subject to federal income tax either at the time
of grant or at the time of exercise of an Incentive Option. However, upon
exercise, the difference between the fair market value of the NAI Shares and
the exercise price is an includible item subject to the possible application
of the alternative minimum tax. If a participant does not dispose of NAI
Shares acquired through the exercise of an Incentive Option in a
"disqualifying disposition" (i.e., no disposition occurs within two years from
the date of grant of the share option nor within one year of the transfer of
the NAI Shares to the participant), then the participant will be taxed only
upon the gain, if any, from the sale of such NAI Shares, and such gain will be
taxable as gain from the sale of a capital asset.
NAI will not be allowed any tax deduction on the exercise of an
Incentive Option or, if the above holding period requirements are met, on the
sale of the underlying NAI Shares. If there is a disqualifying disposition
(i.e., one of the holding period requirements is not met), the participant
will be treated as receiving compensation subject to ordinary income tax in
the year of the disqualifying disposition and NAI will be entitled to a
deduction for compensation expense in an amount equal to the amount included
in income by the participant. The participant generally will be required to
include in income an amount equal to the difference between the fair market
value of the NAI Shares at the time of exercise and the exercise price. Any
appreciation in value after the time of exercise will be taxed as capital gain
and will not result in any deduction by NAI.
If Nonqualified Options are granted to a participant, there are no
federal income tax consequences at the time of grant. Upon exercise of the
Option, the participant must report as ordinary income an amount equal to the
difference between the exercise price and the fair market value of the NAI
Shares on the date of exercise. NAI will be allowed a tax deduction in like
amount. Any appreciation in value after the time of exercise will be taxed as
capital gain and will not result in any deduction by NAI.
No income will be realized by a participant in connection with the
grant of any SAR. The participant must include in ordinary income the amount
of cash received and the fair market value on the exercise date of any NAI
Shares received upon the exercise of a SAR. NAI will be entitled to a
deduction equal to the amount included in such participant's income by reason
of the exercise of any SAR.
The receipt of a Reload Option by a holder of an Incentive Option or
a Nonqualified Option (including a Reload Option) who pays the exercise price
in full or in part with previously acquired NAI Shares should not affect the
tax treatment of the exercise of such Incentive or Nonqualified Option
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(including the amount of ordinary income, if any, recognized upon exercise). A
participant will not be subject to tax at the time a Reload Option is granted
(except for any income recognized upon the exercise of a Nonqualified Option
at the time of grant of the Reload Option). A Reload Option will constitute a
Nonqualified Option for federal income tax purposes and will be taxed as such
in the manner set forth above.
A grant of restricted NAI Shares does not constitute a taxable event
for either a participant or NAI. However, the participant will be subject to
tax, at ordinary income rates, when the NAI Shares are no longer subject to a
substantial risk of forfeiture or they become transferable. NAI will be
entitled to take a commensurate deduction at that time.
A participant may elect to recognize taxable ordinary income at the
time restricted NAI Shares are awarded in an amount equal to the fair market
value of the NAI Shares at the time of grant, determined without regard to any
forfeiture restrictions. If such an election is made, NAI will be entitled to
a deduction at that time in the same amount. Future appreciation on the NAI
Shares will be taxed at the capital gains rate when the NAI Shares are sold.
However, if, after making such an election, the NAI Shares are forfeited, the
participant will be unable to claim a deduction.
In general, a participant who receives a share purchase award incurs
no tax liability and NAI does not receive any deduction at the time NAI Shares
are acquired through a share purchase award. However, as the share purchase
loan is forgiven, the participant will be required to recognize income in an
amount equal to the forgiven portion of the loan. NAI will be entitled to take
a commensurate deduction at such time.
Applicable withholding taxes may be withheld in connection with any
award under the 1998 Plan. In that regard, the Committee has the discretion to
allow a participant to satisfy its withholding tax obligations with NAI
Shares.
Change in Control. Depending on the terms of a particular award as
determined by the Committee, upon the occurrence of a change in control of
NAI, all options and related SARs may become immediately exercisable, the
restricted NAI Shares may fully vest and share purchase loans may be forgiven
in full.
Termination, Amendment and ERISA Status. The 1998 Plan will terminate
by its terms and without any action by the Board on May 27, 2008. No awards
may be made after that date. Awards outstanding on such date will remain valid
in accordance with their terms.
The Committee may amend or alter the terms of awards under the 1998
Plan, including to provide for the forgiveness in whole or in part of share
purchase loans, the release of the NAI Shares securing such loans or the
termination or modification of the vesting or performance provisions of the
grants of restricted NAI Shares but no such action shall in any way impair the
rights of a participant under any award without such participant's consent.
The Committee may amend or terminate the 1998 Plan. No such
amendments or termination of the 1998 Plan shall in any way impair the rights
of a participant under any award previously granted without such participant's
consent. In addition, any amendment or termination will be subject to
shareholder approval if approval is required by Federal or state law or
regulation or rule of any stock exchange or quotation system on which the NAI
Shares are listed or quoted.
The 1998 Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1976, as amended ("ERISA").
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NAI 1998 Employee Bonus Compensation Plan
General. In connection with the Exchange Offer and the
Reincorporation Merger, NAI adopted the NAI 1998 Employee Bonus Compensation
Plan (the "Bonus Compensation Plan"). The purpose of the Bonus Compensation
Plan is to compensate outstanding performance by employees of NAI and to
enable NAI to attract, compensate and retain selected individuals to serve as
employees who will contribute to NAI's success and provide such individuals
with appropriate incentives and rewards for their performance.
Awards to employees under the Bonus Compensation Plan will be in the
form of grants of NAI Shares. The maximum number of NAI Shares that may be the
subject of awards under the Bonus Compensation Plan is 8,500,000 NAI Shares
(the "Award Shares"), assuming all of the Rights are exercised, or
approximately 23.5% of the NAI Shares outstanding as of June 30, 1998,
assuming the Proposed Related Transactions had occurred. If less than all of
the Underlying Shares are purchased pursuant to the Rights Offering and the
Concurrent Offering, the number of NAI Shares available under the Bonus
Compensation Plan will be decreased by 25% of the amount by which 34,000,000
NAI Shares exceeds the number of NAI Shares outstanding after the Rights
Offering and the Concurrent Offering are exercised. The NAI Shares to be
issued or delivered under the Bonus Compensation Plan are authorized and
unissued shares, or issued NAI Shares that have been reacquired by NAI.
NAI Share Award Formula. Subject to the maximum number of NAI Shares
remaining available under the Bonus Compensation Plan, each year there shall
be available for award under the Bonus Compensation Plan, a number of NAI
Shares equal to the product of 6.25% times NAI's pre-tax net income for such
year, adjusted to exclude any deduction for the payment of the consulting fee
to Kranzco under the Intercompany Agreement ("Annual Award Shares").
Bonus Compensation Plan Administration. The Board will make grants of
the Annual Award Shares within 6 months after the end of the fiscal year with
respect to which such Award Shares become available for grant based on the
recommendation of the Chief Executive Officer and the President of NAI. All
employees are currently eligible to participate in the Bonus Compensation
Plan. The selection of employees who participate in the Bonus Compensation
Plan will be determined solely at the discretion of the Board based on the
recommendation of the Chief Executive Officer and President of NAI.
Antidilution Provisions. The number of NAI Shares authorized to be
issued under the Bonus Compensation Plan and subject to outstanding awards may
be adjusted to prevent dilution or enlargement of rights in the event of any
dividend or other distribution, recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of NAI Shares or other securities, the issuance of
warrants or other rights to purchase NAI Shares or other securities, or other
similar capitalization change.
Certain Federal Income Tax Consequences of the Bonus Compensation
Plan. The following is a brief summary of the principal federal income tax
consequences of awards under the Bonus Compensation Plan. The summary is based
upon current federal income tax laws and interpretations thereof, all of which
are subject to change at any time, possibly with retroactive effect. The
summary is not intended to be exhaustive and, among other things, does not
describe state, local or foreign tax consequences.
A grant of Award Shares constitutes a taxable event for a
participant. The fair market value of the Award Shares on the date of grant is
reportable by the participant as income taxable at ordinary income rates, and
will be subject to applicable federal, state and local withholding taxes at
the time of
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grant. In that regard, the Board has the discretion to allow a participant to
satisfy its withholding tax obligations with NAI Shares. NAI will be entitled
to take a deduction at the time of grant equal to the amount of taxable income
reportable by the participant.
Termination, Amendment and ERISA Status. The employees will first be
eligible for Award Shares under the Bonus Compensation Plan with respect to
NAI's fiscal year ended June 30, 1999. The last year employees of NAI will be
eligible for Award Shares under the Bonus Compensation Plan will be with
respect to NAI's fiscal year ended June 30, 2009.
The Board may amend or terminate the Bonus Compensation Plan;
however, the Plan may not be amended or terminated without the consent of 80%
of the Board, including the consent of either Jeffrey Finn or Gerald Finn. No
such amendments or termination of the Bonus Compensation Plan shall in any way
impair the rights of a participant under any award previously granted without
such participant's consent. In addition, any amendment or termination will be
subject to shareholder approval if approval is required by Federal or state
law or regulation or rule of any stock exchange or quotation system on which
the NAI Shares are listed or quoted.
The Bonus Compensation Plan is not subject to the provisions of the
Employee Retirement Income Security Act of 1976, as amended.
NAI 1998 Stock Option Plan
General. In connection with the Exchange Offer and the
Reincorporation Merger, NAI adopted the NAI 1998 Stock Option Plan (the
"Option Plan"). The purpose of the Option Plan is to align the interests of
NAI's directors, officers, employees and consultants with those of the
shareholders and to enable NAI to attract, compensate and retain selected
individuals to serve as directors, officers, employees and consultants who
will contribute to NAI's success and provide such individuals with appropriate
incentives and rewards for their performance.
Awards to directors, officers, employees and consultants under the
Option Plan are in the form of share Options. The maximum number of NAI Shares
that may be the subject of awards under the Option Plan is 3,536,853 NAI
Shares, or approximately 9.8% of the NAI Shares outstanding as of June 30,
1998, assuming the Proposed Related Transactions had occurred. Options to
purchase all NAI Shares issuable under such plan will be granted upon
consummation of the Exchange Offer and Reincorporation Merger. The maximum
number of NAI Shares that may be the subject of awards to any employee during
any fiscal year under the Option Plan is 2,000,000 NAI Shares.
Stock Option Plan Administration. The Option Plan will be
administered by a committee of two or more non-employee directors (the "Option
Plan Committee"), which will initially consist of Messrs. Joseph Grossman and
Bernard Korman. The Option Plan Committee will determine the directors,
officers, employees and consultants who will be eligible for and granted
awards, determine the amount and type of awards, establish rules and
guidelines relating to the Option Plan, establish, modify and terminate the
terms and conditions of awards and take such other action as may be necessary
for the proper administration of the Option Plan. All directors, officers,
employees and consultants are currently eligible to participate in the Option
Plan.
Options. It is intended that all of the Options granted under the
Option Plan will be "Nonqualified Options" that do not meet the requirements
of Section 422 of the Internal Revenue Code
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of 1986, as amended. The exercise price can be paid in cash, or if approved by
the Option Plan Committee, by tendering (actually or constructively) NAI
Shares owned by a participant.
With the Option Plan Committee's consent, Nonqualified Options may be
transferable to family members and entities for the benefit of the participant
or his family members. If a participant's employment with NAI or service as a
director or consultant terminates for any reason (other than death or
disability), any unexercised or unexpired Options held by the participant (or
its permitted transferee) will be deemed canceled and terminated on the date
of such termination, unless the Option Plan Committee decides to extend the
term of such Options for a period not exceeding three months. If a participant
dies while employed by NAI, including an employee who is also a director, any
unexercised or unexpired Options will, to the extent exercisable on the date
of death, be exercisable by the holder or by the participant's estate or by
any person who acquired such Options by bequest or inheritance, at any time
generally within one year after such death. If a participant becomes totally
disabled and his employment terminates as a result of such disability,
including an employee who is also a director, the holder or the participant
(or his guardian or legal representative) will have the unqualified right to
exercise any unexercised and unexpired Options held by the participant (or its
permitted transferee) generally for one year after such termination.
Options Outstanding Under the Option Plan. Upon the consummation of
the Reincorporation Merger, there will be outstanding five-year Nonqualified
Options to purchase 3,536,853 NAI Shares under the Option Plan at an exercise
price of $2 per NAI Share. Directors of NAI will hold five-year Options to
purchase an aggregate of 1,016,150 NAI Shares under the Option Plan at an
exercise price of $2 per NAI Share. In addition, each of Gerald C. Finn and
Jeffrey M. Finn was granted a five-year Option under the Option Plan to
purchase 1,547,049 and 611,004 NAI Shares, respectively, at an exercise price
of $2 per NAI Share; the exercise price per NAI Share under each such Option
will automatically increase $.12 each year during which such Option remains
outstanding and unexercised.
Antidilution Provisions. The number of NAI Shares authorized to be
issued under the Option Plan and subject to outstanding awards (and the grant
or exercise price thereof) may be adjusted to prevent dilution or enlargement
of rights in the event of any dividend or other distribution,
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of NAI
Shares or other securities, the issuance of warrants or other rights to
purchase NAI Shares or other securities, or other similar capitalization
change.
Certain Federal Income Tax Consequences of the Option Plan. The
following is a brief summary of the principal federal income tax consequences
of awards under the Option Plan. The summary is based upon current federal
income tax laws and interpretations thereof, all of which are subject to
change at any time, possibly with retroactive effect. The summary is not
intended to be exhaustive and, among other things, does not describe state,
local or foreign tax consequences.
For Nonqualified Options, there are no federal income tax
consequences at the time of grant. Upon exercise of the Option, the
participant must report as ordinary income an amount equal to the difference
between the exercise price and the fair market value of the NAI Shares on the
date of exercise. NAI will be allowed a tax deduction in like amount. Any
appreciation in value after the time of exercise will be taxed as capital gain
and will not result in any deduction by NAI.
Applicable withholding taxes may be withheld in connection with the
exercise of any Nonqualified Option under the Option Plan. In that regard, the
Option Plan Committee has the discretion to allow a participant to satisfy its
withholding tax obligations with NAI Shares.
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Termination, Amendment and ERISA Status. The Option Plan will
terminate by its terms and without any action by the Board ten years from the
date the Option Plan was adopted. No awards may be made after that date.
Awards outstanding on such date will remain valid in accordance with their
terms.
The Option Plan Committee may amend or alter the terms of awards
under the Option Plan but no such action shall in any way impair the rights of
a participant under any award without such participant's consent.
The Option Plan Committee may amend or terminate the Option Plan. No
such amendments or termination of the Option Plan shall in any way impair the
rights of a participant under any award previously granted without such
participant's consent. In addition, any amendment or termination will be
subject to shareholder approval if approval is required by Federal or state
law or regulation or rule of any stock exchange or quotation system on which
the NAI Shares are listed or quoted.
The Option Plan is not subject to the provisions of ERISA.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of NAI Shares as of June 30, 1998 of: (i) each of NAI's
directors after the Exchange Offer and the Proposed Related Transactions; (ii)
the Named Executive Officers after the Exchange Offer and the Proposed Related
Transactions; (iii) NAI's executive officers and directors as a group after
the Exchange Offer and the Proposed Related Transactions; and (iv) all persons
known by NAI to be the beneficial owner of more than 5.0% of the outstanding
NAI Shares immediately prior to the Exchange Offer. The table gives NAI Share
ownership information prior to the Exchange Offer and after giving effect to
the Exchange Offer, the Distribution, the Rights Offering, the Concurrent
Offering and the other Proposed Related Transactions. The information
contained in this table assumes that the Reincorporation Merger occurred on
June 30, 1998, and each NAI Delaware Share was converted into 1.318087 NAI
Maryland Shares. See "Proposed Related Transactions" and "Management of NAI
After Exchange Offer."
</TABLE>
<TABLE>
<CAPTION>
Number of NAI Shares Percent of Class
-------------------- ----------------
After Exchange After Exchange
Offer, Distribution, Offer, Distribution,
Rights Offering and Rights Offering and
Before Concurrent Before Concurrent
Name and Address Exchange Offer(1) Offering(2) Exchange Offer(3) Offering(3)
- ---------------- -------------- -------- -------------- ---------------------
<S> <C> <C> <C> <C>
Gerald C. Finn(4) 12,605,380 4,718,179(5) 73.71% 11.85%
Jeffrey M. Finn(4)(6) 3,637,290 1,688,462(6) 21.27 4.24
Norman M. Kranzdorf(7) 0 835,972(8) 0.00 2.10
Robert H. Dennis(7) 0 110,890(9) 0.00 0.28
Joseph Grossman(3) 78,910 41,564(10) 0.46 0.10
Peter O. Hanson(3) 341,055 146,422(11) 1.99 0.37
Bernard J. Korman(3) 0 124,478(12) 0.00 0.31
Michael Kranzdorf(7) 0 57,232(13) 0.00 0.14
Kranzco Realty Trust(7) 0 3,351,875 0.00 8.41
Executive Officers & 14,662,635 7,177,965 85.74 18.04
Directors
as a group (9) persons
</TABLE>
- -------------------------------
(1) The numbers in this column reflect NAI Share ownership assuming
the Reincorporation Merger has occurred. The actual number of NAI Delaware
Shares beneficially owned by each person on June 30, 1998, was as follows:
Gerald Finn, 9,563,390 NAI Shares; Jeffrey Finn, 2,759,522 NAI Shares; Norman
M. Kranzdorf, no NAI Shares; Robert H. Dennis, no NAI Shares; Joseph Grossman,
59,867 NAI Shares; Bernard J. Korman, no NAI Shares; Michael Kranzdorf, no NAI
Shares; Peter O. Hanson, 258,750 NAI Shares; Kranzco Realty Trust, no NAI
Shares; and Estate of John McMenamin, 535,597 NAI Shares.
(2) The numbers in this column represent NAI Shares beneficially
owned by each such person, plus any NAI Shares which such person may acquire
pursuant to the Basic Subscription Privilege.
(3) Each beneficial owner's percentage ownership is determined
assuming (i) that all NAI Shares issuable upon exercise of the Rights will be
exercised, except that (x) Gerald Finn only exercises rights to purchase
400,000 NAI Shares, (y) Jeffrey Finn only exercises rights to purchase 100,000
NAI Shares and (z) Kranzco only exercises rights to purchase 1,675,937 NAI
Shares in order to maintain approximately a 9.8% ownership interest in the
outstanding NAI Shares; (ii) that all of the Additional Shares are purchased
in the Concurrent Offering, (iii) all other convertible securities, options or
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warrants held by such person (but not those held by any other person) and
which are exercisable within 60 days of June 30, 1998 have been exercised and
(iii) that each person who was an NAI Stockholder prior to the Exchange Offer
tendered 80% of his or her NAI Shares in the Exchange Offer.
(4) The address of all of the executive officers and directors of
NAI, who are not employees of Kranzco, is 572 Route 130, Hightstown, New
Jersey 08520.
(5) Includes (i) 3,944 NAI Shares owned by the Building Center, Inc.,
a corporation owned by Gerald and Norma Finn, (ii) 1,797,049 NAI Shares
issuable upon the exercise of options to purchase NAI Shares, (iii) 42,838 NAI
Shares owned by Mr. G. Finn's spouse, and (iv) 527,235 NAI shares held in
trust for Mr. J. Finn, of which, in the future, Mr. G. Finn may be entitled to
receive certain NAI Shares. Does not include (i) 44,156 NAI Shares owned by
Mr. G. Finn's children, or (ii) 4,943 NAI Shares held by Mr. G. Finn as
collateral for a loan to a stockholder of NAI; Mr. G. Finn disclaims
beneficial ownership of such NAI Shares.
(6) Includes (i) 11,863 NAI Shares held in trust for Mr. J. Finn's
minor children, (ii) 4,591 NAI Shares owned by Brooktree Swim & Tennis Club,
Inc., a corporation owned by Mr. J. Finn and his spouse, (iii) 861,004 NAI
Shares issuable upon the exercise of options to purchase NAI Shares; and (iv)
527,235 NAI Shares held in a trust for the benefit of Mr. J. Finn, of which
Mr. J. Finn is trustee.
(7) The address of Kranzco Realty Trust is 128 Fayette Street,
Conshohocken, Pennsylvania 19428, and the address of executive officers and
directors of NAI who are also employees of Kranzco is c/o Kranzco Realty Trust
at such address.
(8) Includes (i) 14,640 NAI Shares owned by Mr. Kranzdorf's spouse,
(ii) 36,000 NAI Shares owned by Mrs. Kranzdorf as trustee for the benefit of
Michael Kranzdorf and Betty Kranzdorf, (iii) 400,050 NAI Shares issuable upon
the exercise of options to purchase NAI Shares granted under the Option Plan.
See "Management."
(9) Includes (i) 200 NAI Shares owned by Mr. Dennis' spouse, and (ii)
74,100 NAI Shares issuable upon the exercise of options of to purchase NAI
Shares.
(10) Includes 10,000 NAI Shares issuable upon the exercise of options
to purchase NAI Shares.
(11) Includes (i) 236 NAI Shares owned by Mr. Hanson's spouse, (ii)
4,350 NAI Shares and 1,648 NAI Shares owned by James E. Hanson, Inc. and
Property Investors Associates, respectively, entities owned by Mr. Hanson, and
(iii) 10,000 NAI Shares issuable upon the exercise of options to purchase NAI
Shares granted under the Option Plan.
(12) Includes (i) 3,900 NAI Shares owned by Mr. Korman's spouse, and
(ii) 14,500 NAI Shares issuable upon the exercise of options to purchase NAI
Shares.
(13) Includes (i) 7,500 NAI Shares issuable upon the exercise of
options to purchase NAI Shares, and (ii) 18,000 NAI Shares held in trust for
Mr. M. Kranzdorf. See footnote 6.
Registration Rights
Kranzco and NAI will enter into a Registration Rights Agreement which
provides that at any time after the earlier of the date (i) one year from the
consummation of the Exchange Offer or (ii) that Kranzco determines, in its
sole discretion, that Kranzco is, or will in the future be, required to sell
the NAI Shares owned by it in order to maintain its status as a REIT, NAI
will, upon a written request of Kranzco, register any NAI Shares owned by
Kranzco in a Registration Statement under the Securities Act (the "Demand
Rights"). NAI has agreed to use all reasonable best efforts to keep such
Registration Statement effective for a period of two years commencing on the
effective date of the Registration Statement (or a shorter period if all the
NAI Shares owned by Kranzco have been sold or may be sold without any volume
limitations pursuant to Rule 144 under the Securities Act prior to the
expiration of such two year period). The Registration Rights Agreement
provides Kranzco with two Demand Rights, as well as piggyback Registration
Rights.
CERTAIN RELATED PARTY TRANSACTIONS
NAI currently leases space for its corporate offices in Hightstown,
New Jersey from The Building Center, Inc., a New Jersey corporation (the
"Building Center"), which is wholly owned by Gerald C. Finn and his wife,
Norma Finn. The lease provides for an annual rental of $102,000 plus the
payment of maintenance expenses. See "Business--Property." NAI believes that
the terms of this lease are at or below the fair market rental for comparable
facilities in the area.
NAI and its subsidiaries owe a director and an officer of NAI, Gerald
and Norma Finn, and an entity owned by them, an aggregate principal of
$441,235. Such indebtedness bears interest at rates ranging from 10% to 12%. A
portion of the proceeds of the Rights Offering and the Concurrent Offering
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will be used to repay such indebtedness. See "The Concurrent Offering-Use of
Proceeds" for a description of such indebtedness.
Peter O. Hanson, a director of NAI is the owner of James E. Hanson,
Inc., a Broker Member of the Network. In the fiscal year ended June 30, 1998,
James E. Hanson, Inc., paid to NAI approximately $90,000 in fees for services
and assignments received through the Network.
Gerald C. Finn is the licensed broker of record on the New Jersey
Real Estate Broker's License held by NAI upon which NAI's reciprocal real
estate broker's licenses in Pennsylvania and New York are based. Mr. Finn's
sister, Susan Finn, is the licensed broker of record on the Florida Real
Estate Broker's License held by NAI.
In connection with the Exchange Offer, Kranzco, NAI and the Finns
entered into an Exchange Agreement and certain related transactions. In
addition, NAI and Kranzco intend to enter into the Intercompany Agreement
immediately following the Distribution. See "The Exchange Agreement" and
"Proposed Related Transactions." In addition, in the calendar year ended
December 31, 1997, with the assistance of NAI's Investment Sales Department,
Kranzco purchased certain retail properties. See "NAI Business--Investment
Sales."
It is NAI's policy that material transactions and loans with
affiliated parties shall be on terms that are no less favorable than those
that can be obtained from unaffiliated third parties. Any forgiveness of loans
must be approved by a majority of NAI's independent directors who do not have
an interest in the transactions and who have access, at NAI's expense, to
NAI's or independent counsel.
All ongoing transactions have been ratified by a majority of the
issuer's independent directors who do not have an interest in the transactions
and who had access, at the issuer's expense, to its counsel or independent
counsel.
DESCRIPTION OF SECURITIES OF NAI
The following summary of the terms of the stock of NAI Maryland does
not purport to be complete and is subject to and qualified in its entirety by
reference to NAI Maryland's Charter and NAI Maryland's Bylaws, copies of which
are exhibits to the Registration Statement of which this Prospectus is a part.
See "Available Information." This description reviews the securities of NAI
Maryland rather than NAI Delaware, because after the Exchange Offer is
consummated, the Reincorporation Merger will be effected and all NAI Delaware
Shares will be converted into NAI Maryland Shares.
General
The Charter provides that NAI Maryland may issue up to 200,000,000
shares of common stock, $.01 par value per share (referred to herein as the
"NAI Shares"). As of June 30, 1997, after giving effect to the Reincorporation
Merger, there were 17,101,403 NAI Shares issued and outstanding, and 229
holders of record of such NAI Shares. Under Maryland law, stockholders
generally are not liable for the corporation's debts or obligations.
Common Stock
All NAI Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or series
of stock, holders of NAI Shares are entitled to
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<PAGE>
receive dividends on such NAI Shares if, as and when authorized and declared
by the Board of Directors of NAI Maryland out of assets legally available
therefor and to share ratably in the assets of NAI Maryland legally available
for distribution to its stockholders in the event of its liquidation,
dissolution or winding up after payment of or adequate provision for all known
debts and liabilities of NAI Maryland.
Each outstanding NAI Share entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors and, except as provided with respect to any other class or series of
stock, the holders of such shares will possess the exclusive voting power.
There is no cumulative voting in the election of directors, which means that
the holders of a majority of the outstanding NAI Shares can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of NAI Shares have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and have no preemptive rights to
subscribe for any securities of NAI Maryland. NAI Shares will have equal
dividend, liquidation and other rights.
Under the Maryland General Corporation Law (the "MGCL"), a Maryland
corporation generally cannot dissolve, amend its charter, merge, sell all or
substantially all of its assets, engage in a share exchange or engage in
similar transactions outside the ordinary course of business unless approved
by the affirmative vote of stockholders holding at least two thirds of the
shares entitled to vote on the matter unless a lesser percentage (but not less
than a majority of all of the votes entitled to be cast on the matter) is set
forth in the corporation's charter. The Charter of NAI Maryland provides for
approval of (i) a consolidation, (ii) a share exchange, (iii) a merger in
which NAI Maryland is the successor, and (iv) amendments to the Charter
(except for amendments to the sections of the Charter relating to the
classification and removal of directors) by the affirmative vote of
stockholders holding at least a majority of the shares entitled to vote on the
matter.
The Charter authorizes the Board of Directors to reclassify any
unissued shares of stock into other classes or series of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
Preferred Stock
The Charter authorizes the Board of Directors to classify any
unissued shares of Preferred Stock and to reclassify any previously classified
but unissued shares of any series, as authorized by the Board of Directors.
Prior to issuance of shares of each class or series, the Board is required by
the MGCL and the Charter of NAI Maryland to set, subject to the provisions of
the Charter regarding the restrictions on transfer of stock, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such series. Thus, the Board could authorize the issuance
of shares of Preferred Stock with terms and conditions which could have the
effect of delaying, deferring or preventing a transaction or a change in
control of NAI Maryland that might involve a premium price for holders of NAI
Shares or otherwise be in their best interest.
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<PAGE>
Power to Issue Additional Shares of Common Stock and Preferred Stock
NAI Maryland believes that the power of the Board of Directors to
issue additional authorized but unissued NAI Shares and to classify or
reclassify unissued shares of stock and thereafter to cause NAI Maryland to
issue such classified or reclassified shares of stock will provide NAI
Maryland with increased flexibility in structuring possible future financings
and acquisitions and in meeting other needs which might arise. The additional
classes or series, as well as the NAI Shares, will be available for issuance
without further action by NAI Maryland's stockholders, unless such action is
required by applicable law or the rules of any stock exchange or automated
quotation system on which NAI Maryland's securities may be listed or traded.
Although the Board of Directors has no intention at the present time of doing
so, it could authorize NAI Maryland to issue a class or series that could,
depending upon the terms of such class or series, delay, defer or prevent a
transaction or a change in control of NAI Maryland that might involve a
premium price for holders of NAI Shares or otherwise be in their best
interest. In addition, the issuance of a class or series of preferred stock
with voting or conversion rights may adversely affect the voting power of
common stockholders of NAI.
Rights to Purchase NAI Shares
Each NAI Share issued in the Distribution will be accompanied by a
Right to purchase one additional NAI Share. The Rights are exercisable for 45
days from the date of the Distribution at a Subscription Price of $2.00 per
share. See "The Rights Offering."
Transfer Agent and Registrar
The transfer agent and registrar for the NAI Shares and Rights will
be First Union National Bank.
Series A Preferred Stock of NAI Delaware
On July 15, 1998 NAI Delaware entered into a letter agreement with
the holder of the 101,000 outstanding shares of Series A Preferred Stock
pursuant to which NAI redeemed all of the outstanding shares of Series A
Preferred Stock for a promissory note in the principal amount of $202,000, due
November 12, 1998. A portion of the proceeds of the Rights Offering and the
Concurrent Offering will be used to repay such Note. See "The Concurrent
Offering--Use of Proceeds."
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF NAI MARYLAND'S CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of
the Charter and Bylaws of NAI Maryland does not purport to be complete and is
subject to and qualified in its entirety by reference to Maryland law and the
Charter and Bylaws, copies of which are exhibits to the Registration Statement
of which this Prospectus is a part. See "Available Information."
Classification of the Board of Directors
The Bylaws provide that the number of directors of NAI Maryland may
be established by the Board of Directors but may not be fewer than the minimum
number required by the MGCL (which is three, unless the corporation has less
than three stockholders) nor more than 15. Any vacancy will be filled, at any
regular meeting or at any special meeting called for that purpose, by a
majority of the
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<PAGE>
remaining directors, except that a vacancy resulting from an increase in the
number of directors must be filled by a majority of the entire Board of
Directors.
Pursuant to the Charter, the Board of Directors is divided into three
classes of directors. The initial terms of the Class I, Class II and Class III
directors will expire in 1999, 2000 and 2001, respectively. Beginning in 1999,
directors of each class will be chosen for three-year terms upon the
expiration of their current terms and each year one class of directors will be
elected by the stockholders. NAI Maryland believes that classification of the
Board of Directors will help to assure the continuity and stability of NAI
Maryland's business strategies and policies as determined by the Board of
Directors. Holders of NAI Shares will have no right to cumulative voting in
the election of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of the NAI Shares will be able to
elect all of the successors of the class of directors whose terms expire at
that meeting.
The classified board provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult. At least
two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board of Directors. Thus, the
classified board provision could increase the likelihood that incumbent
directors will retain their positions. The staggered terms of directors may
delay, defer or prevent a tender offer or an attempt to change control of NAI
Maryland, even though a tender offer or change in control might be in the best
interest of the stockholders.
Removal of Directors
The Charter provides that a director may be removed only for cause
(as defined in the Charter) and only by the affirmative vote of at least
two-thirds of the votes entitled to be cast in the election of directors. This
provision, when coupled with the provision in the Bylaws authorizing the Board
of Directors to fill vacant directorships, precludes stockholders from
removing incumbent directors except upon the existence of cause for removal
and a substantial affirmative vote and filling the vacancies created by such
removal with their own nominees.
Business Combinations
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of ten percent or more of the voting power of the
then-outstanding voting stock of the corporation (an "Interested Stockholder")
or an affiliate of such an Interested Stockholder are prohibited for five
years after the most recent date on which the Interested Stockholder becomes
an Interested Stockholder. Thereafter, any such business combination must be
recommended by the board of directors of such corporation and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by
holders of outstanding shares of voting stock of the corporation and (b)
two-thirds of the votes entitled to be cast by holders of voting stock of the
corporation other than shares held by the Interested Stockholder with whom (or
with whose affiliate) the business combination is to be effected, unless,
among other conditions, the corporation's common stockholders receive a
minimum price (as defined in the MGCL) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of the MGCL do not apply,
however, to business combinations that are approved or exempted by the board
of directors of the corporation prior to the time that the Interested
Stockholder
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<PAGE>
becomes an Interested Stockholder. Each of Kranzco, Gerald Finn, Jeffrey Finn
and Norman Kranzdorf may beneficially own more than ten percent of NAI
Maryland's voting shares and would, therefore, be subject to the business
combination provision of the MGCL. However, pursuant to the statute, NAI
Maryland has exempted any business combinations involving Kranzco and
consequently, the five-year prohibition and the super-majority vote
requirements will not apply to business combinations between any of them and
NAI Maryland. As a result, Kranzco may be able to enter into business
combinations with NAI Maryland that may not be in the best interest of its
stockholders without compliance by NAI Maryland with the super-majority vote
requirements and the other provisions of the statute.
Control Share Acquisitions
The MGCL provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on
the matter, excluding shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority, or (iii) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share
acquisition, upon satisfaction of certain conditions (including an undertaking
to pay expenses), may compel the board of directors of the corporation to call
a special meeting of stockholders to be held within 50 days of demand to
consider the voting rights of the shares. If no request for a meeting is made,
the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the corporation
may redeem any or all of the control shares (except those for which voting
rights have previously been approved) for fair value determined, without
regard to the absence of voting rights for the control shares, as of the date
of the last control share acquisition by the acquiror or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition.
The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the corporation is a
party to the transaction or (b) to acquisitions approved or exempted by the
charter or bylaws of the corporation.
The Bylaws of NAI Maryland contain a provision exempting from the
control share acquisition statute any and all acquisitions by any person of
NAI Maryland's shares of stock. There can be no assurance that such provision
will not be amended or eliminated at any time in the future.
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<PAGE>
Dissolution of NAI Maryland
The dissolution of NAI Maryland must be approved by the affirmative
vote of the holders of not less than two thirds of all of the votes entitled
to be cast on the matter.
Advance Notice of Director Nominations and New Business
The Bylaws of NAI Maryland provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (i) pursuant to NAI Maryland's notice of the meeting, (ii) by the
Board of Directors or (iii) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws and (b) with respect to special meetings of stockholders, only the
business specified in NAI Maryland's notice of meeting may be brought before
the meeting of stockholders and nominations of persons for election to the
Board of Directors may be made only (i) pursuant to NAI Maryland's notice of
the meeting, (ii) by the Board of Directors or (iii) provided that the Board
of Directors has determined that directors shall be elected at such meeting,
by a stockholder who is entitled to vote at the meeting and has complied with
the advance notice provisions set forth in the Bylaws.
Anti-takeover Effect of Certain Provisions of Maryland Law and of the Charter
and Bylaws
The business combination provisions (with respect to stockholders
other than Kranzco) and, if the applicable provision in the Bylaws is
rescinded, the control share acquisition provisions of the MGCL, the
provisions of the Charter on classification of the Board of Directors and
removal of directors and the advance notice provisions of the Bylaws could
delay, defer or prevent a transaction or a change in control of NAI Maryland
that might involve a premium price for holders of NAI Shares or otherwise be
in their best interest.
EXPERTS
The consolidated financial statements of Kranzco incorporated by
reference in this Prospectus and the consolidated financial statements of NAI
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, to the extent and for the periods indicated in
their reports, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
LEGAL MATTERS
Certain matters regarding the legality of the Notes and the
underlying Kranzco Common Shares offered hereby will be passed upon for
Kranzco by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland.
Certain other matters regarding the legality of the Notes and certain other
matters of law will be passed upon for Kranzco by Robinson Silverman Pearce
Aronsohn & Berman LLP, New York, New York.
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<PAGE>
INDEX TO NEW AMERICA NETWORK, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
Page
----
Index to Financial Statements..............................................F-1
Report of Independent Public Accountants...................................F-2
Consolidated Balance Sheets................................................F-3
Consolidated Statements of Operations......................................F-4
Consolidated Statements of Stockholders' Deficit...........................F-5
Consolidated Statements of Cash Flows......................................F-6
Notes to Consolidated Financial Statements.................................F-7
F-1
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of New America Network, Inc.:
We have audited the accompanying consolidated balance sheets of New America
Network, Inc. as of June 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
three years in the period ended June 30, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of New America Network, Inc. as of June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
May 8, 1998
F-2
<PAGE>
NEW AMERICA NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30
March 31, ------------------------------
1998 1997 1996
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 220,246 $ 61,506 $ 75,085
Accounts receivable (net of allowance of $20,000 and
$7,439 at June 30, 1997 and 1996) 787,408 576,924 716,378
Commissions receivable 636,541 856,194 726,941
Notes and other receivables 6,299 16,829 19,566
Other current assets 19,588 20,456 20,062
----------- ----------- -----------
Total current assets 1,670,082 1,531,909 1,558,032
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net 156,353 155,083 170,375
OTHER ASSETS, net 2,382 1,987 3,895
----------- ----------- -----------
Total assets $ 1,828,817 $ 1,688,979 $ 1,732,302
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,015,718 $ 1,051,859 $ 985,216
Accrued interest 71,887 127,495 95,193
Current portion of long-term debt 126,667 133,333 43,334
Stockholder loans 441,235 441,235 419,083
Deferred revenue 922,433 773,023 862,506
----------- ----------- -----------
Total current liabilities 2,577,940 2,526,945 2,405,332
----------- ----------- -----------
LONG-TERM DEBT 75,000 -- 33,333
----------- ----------- -----------
Total liabilities 2,652,940 2,526,945 2,438,665
----------- ----------- -----------
REDEEMABLE CONVERTIBLE PREFERRED
STOCK 202,000 252,000 302,000
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 8,
9 and 10)
STOCKHOLDERS' DEFICIT:
Common stock 134,091 132,939 132,687
Additional paid-in capital 2,552,779 2,526,969 2,498,604
Accumulated deficit (3,479,125) (3,517,206) (3,411,761)
Treasury stock, at cost (233,868) (232,668) (227,893)
----------- ----------- -----------
Total stockholders' deficit (1,026,123) (1,089,966) (1,008,363)
----------- ----------- -----------
Total liabilities, redeemable convertible preferred $ 1,828,817 $ 1,688,979 $ 1,732,302
stock and stockholders' deficit =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NEW AMERICA NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months For the Year Ended
Ended March 31 June 30
---------------------------- -----------------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE:
Commissions $ 2,836,365 $ 2,910,147 $ 4,001,168 $ 4,124,139 $ 4,370,999
License fees 1,127,575 923,100 1,281,861 1,373,418 1,157,960
Other 473,998 562,593 617,587 522,399 469,741
----------- ----------- ----------- ----------- -----------
Total revenue 4,437,938 4,395,840 5,900,616 6,019,956 5,998,700
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Commission expense 602,534 788,193 1,142,575 1,782,292 1,485,024
Sales and marketing 276,860 193,809 321,379 284,963 323,619
Compensation and benefits 1,831,783 1,911,151 2,527,676 2,437,395 1,980,962
Other operating 1,578,222 1,186,953 1,644,040 1,475,091 1,336,179
Depreciation 39,789 36,874 52,518 56,321 44,779
Interest, net 46,906 46,678 59,639 48,035 45,811
----------- ----------- ----------- ----------- -----------
Total costs and expenses 4,376,094 4,163,658 5,747,827 6,084,097 5,216,374
----------- ----------- ----------- ----------- -----------
Income (loss) from operations 61,844 232,182 152,789 (64,141) 782,326
----------- ----------- ----------- ----------- -----------
OTHER EXPENSES:
Equity in loss of affiliate 11,603 14,866 24,863 4,763 --
Loss on sale of real estate -- -- -- -- 65,323
----------- ----------- ----------- ----------- -----------
Total other expenses 11,603 14,866 24,863 4,763 65,323
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations before income taxes 50,241 217,316 127,926 (68,904) 717,003
INCOME TAXES 5,600 -- -- -- 35,000
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations 44,641 217,316 127,926 (68,904) 682,003
LOSS FROM OPERATIONS OF
DISCONTINUED BUSINESSES,
net of tax (Note 7) -- 161,938 222,791 128,096 392,412
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) 44,641 55,378 (94,865) (197,000) 289,591
Preferred share distributions 6,560 7,935 10,580 12,580 14,580
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) AVAILABLE $ 38,081 $ 47,443 $ (105,445) $ (209,580) $ 275,011
TO COMMON SHAREHOLDERS =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NEW AMERICA NETWORK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated Treasury
Shares Par Value Capital Deficit Stock Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1994* 12,523,120 $ 128,286 $ 2,349,943 $(3,477,192) $ (177,893) $(1,176,856)
Stock issued 358,970 3,590 80,850 84,440
Amortization of deferred compensation 30,169 30,169
Distributions on preferred stock (14,580) (14,580)
Treasury stock purchase (100,000) (50,000) (50,000)
Net income 289,591 289,591
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1995 12,782,090 131,876 2,460,962 (3,202,181) (227,893) (837,236)
Stock issued 81,110 811 811
Amortization of deferred compensation 37,642 37,642
Distributions on preferred stock (12,580) (12,580)
Net loss (197,000) (197,000)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996 12,863,200 132,687 2,498,604 (3,411,761) (227,893) (1,008,363)
Stock issued 25,170 252 252
Amortization of deferred compensation 28,365 28,365
Distributions on preferred stock (10,580) (10,580)
Treasury stock purchase (17,125) (4,775) (4,775)
Net loss (94,865) (94,865)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1997 12,871,245 132,939 2,526,969 (3,517,206) (232,668) (1,089,966)
Stock issued* 115,169 1,152 13,250 14,402
Amortization of deferred
compensation* 12,560 12,560
Distributions on preferred stock* (6,560) (6,560)
Treasury stock purchase* (12,000) (1,200) (1,200)
Net income* 44,641 44,641
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, MARCH 31, 1998* 12,974,414 $ 134,091 $ 2,552,779 $(3,479,125) $ (233,868) $(1,026,123)
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
*Unaudited
F-5
<PAGE>
NEW AMERICA NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months For the Year Ended
Ended March 31 June 30
---------------------- -----------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 44,641 $ 55,378 $ (94,865) $(197,000) $ 289,591
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Discontinued operations -- 161,938 222,791 128,096 392,412
Equity in loss of affiliate 11,603 14,866 24,863 4,763 --
Depreciation 39,789 36,874 52,518 56,321 44,779
Amortization of deferred compensation 26,962 22,092 28,617 38,453 114,609
Loss on sale of real estate -- -- -- -- 65,323
Changes in assets and liabilities-(Increase) decrease in-
Accounts receivable (210,484) 92,074 139,454 (82,409) (113,832)
Commissions receivable 219,653 (98,337) (129,253) (25,464) (412,959)
Notes and other receivables 10,530 (2,627) 2,737 (23,479) (3,567)
Other current assets (10,735) (5,074) (25,257) 14,021 (8,084)
Other assets (395) -- 1,908 (4,140) 388
Increase (decrease) in-
Accounts payable and accrued
expenses (91,749) 33,746 98,945 225,660 14,566
Deferred revenue 149,410 1,983 (89,483) 23,416 209,684
--------- --------- --------- --------- ---------
Net cash provided by operating activities 189,225 312,913 232,975 158,238 592,910
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Costs incurred by discontinued operations -- (161,938) (222,791) (128,096) (392,412)
Proceeds from sale of real estate -- -- -- -- 75,000
Disposal of property and equipment -- -- -- -- 57,706
Purchase of property and equipment (41,059) (33,602) (37,226) (149,060) --
--------- --------- --------- --------- ---------
Net cash used in investing activities (41,059) (195,540) (260,017) (277,156) (259,706)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Distributions paid on preferred stock (6,560) (7,935) (10,580) (12,580) (14,580)
Treasury stock purchase (1,200) (4,775) (4,775) -- (50,000)
Redemption of redeemable convertible
preferred stock (50,000) (50,000) (50,000) (50,000) (50,000)
Loan proceeds 100,000 99,999 150,000 110,531 2,105
Repayment of long-term debt (31,666) (45,675) (71,182) (55,365) (43,345)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities 10,574 (8,386) 13,463 (7,414) (155,820)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 158,740 108,987 (13,579) (126,332) 177,384
CASH, BEGINNING OF PERIOD 61,506 75,085 75,085 201,417 24,033
--------- --------- --------- --------- ---------
CASH, END OF PERIOD $ 220,246 $ 184,072 $ 61,506 $ 75,085 $ 201,417
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NEW AMERICA NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION AND OPERATIONS:
New America Network, Inc. (the "Company") is a Delaware corporation, which has
developed a network of independently owned licensed real estate brokers to
provide commercial real estate brokerage and other real estate-related
services. The Company services national and international businesses which own
or use real estate throughout the United States and, to a lesser extent,
abroad. The Company provides brokerage and real estate services to
institutional owners, lenders and large corporations.
The financial statements as of March 31, 1998 and for the nine-month periods
ended March 31, 1998 and 1997 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial statements for
the unaudited periods have been included. The results for the interim periods
are not necessarily indicative of the results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
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 these estimates.
Statements of Cash Flows
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents for purposes of the statements
of cash flows. Cash paid for interest was $27,337, $16,799 and $15,937 for the
years ended June 30, 1997, 1996 and 1995, respectively, and $102,514
(unaudited) and $16,491 (unaudited) for the nine month periods ended March 31,
1998 and 1997, respectively.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share ("SFAS") No. 128. SFAS No. 128 establishes
standards for computing and presenting earnings per share ("EPS") and applies
to entities with publicly held common stock or potential common stock. This
statement simplifies the standards for computing EPS previously found in APB
Opinion No. 15, "Earnings per Share," and makes them comparable to
international EPS standards.
F-7
<PAGE>
Basic EPS is based on the weighted average number of common shares
outstanding. The weighted average number of shares outstanding used in the
Basic EPS computations was 12,883,549, 12,860,322 and 12,648,300 for the years
ended June 30, 1997, 1996 and 1995, respectively, and 12,954,181 (unaudited)
and 12,887,632 (unaudited) for the nine-month periods ended March 31, 1998 and
1997, respectively.
The Diluted EPS computations have been adjusted to give effect to common share
equivalents; specifically, redeemable convertible preferred stock outstanding.
The weighted average number of shares outstanding used in the Diluted EPS
computations was 13,034,549, 13,036,322 and 12,849,300 for the years ended
June 30, 1997, 1996 and 1995, respectively, and 13,080,181 (unaudited) and
13,038,632 (unaudited) for the nine-month periods ended March 31, 1998 and
1997, respectively.
The Company's per common share data is as follows:
<TABLE>
<CAPTION>
March 31, March 31, June 30, June 30, June 30,
1998 1997 1997 1996 1995
---------------- -------------- --------------- -------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations $ -- $ .01 $ .01 $ (.01) $ .05
Discontinued operations -- (.01) (.02) (.01) (.03)
---------------- -------------- --------------- -------------- -------------
Basic and diluted net income (loss) $ -- $ -- $ (.01) $ (.02) $ .02
================ ============== =============== ============== =============
</TABLE>
Property and Equipment
Property and equipment are stated at cost. Major renewals and betterments are
capitalized while replacements, maintenance and repairs that do not improve or
extend the life of the asset are expensed. As assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is reflected.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<CAPTION>
June 30
Useful March 31, ---------------------------------------
Life 1998 1997 1996
---------------- ----------------- ------------------ -----------------
(unaudited)
<S> <C> <C> <C> <C>
Office equipment 7 years $ 135,614 $ 128,219 $ 128,912
Leasehold improvements 7 years 13,626 13,626 13,626
Computer equipment 3 years 185,342 151,679 127,508
----------------- ------------------ -----------------
334,582 293,524 270,046
Less - Accumulated depreciation (178,229) (138,441) (99,671)
----------------- ------------------ -----------------
Property and equipment, net $ 156,353 $ 155,083 $ 170,375
================= ================== =================
</TABLE>
F-8
<PAGE>
Investments
The Company accounts for its 50% investment in NAIS on the equity method. The
Company has a net (deficit) investment in NAIS of ($24,626) and $8,680 at June
30, 1997 and 1996, respectively, and is included in other current assets. The
joint venture was dissolved in February 1998.
The Company's share of NAIS' loss was $24,863, $4,763 and $0 for the years
ended June 30, 1997, 1996 and 1995, respectively.
Revenue Recognition and Deferred Revenue
License fees received from the Company's member broker firms are deferred and
recognized ratably over the term of the marketing service agreement, generally
over one to three years. Commissions from real estate sales brokered by the
Company are recognized at the time of the transfer of title. Commissions from
other network transactions are primarily recognized as they are earned. Such
commissions may be collected in installments over several years.
3. INDEBTEDNESS:
Notes Payable
The Company had available a $100,000 line of credit from First Washington Bank
which expired on October 2, 1997. The line was secured by a second mortgage on
the Company's office building. Borrowings against this line were $100,000 and
$0 as of June 30, 1997 and 1996, respectively. Interest was payable quarterly
on this line at a rate of prime plus 1%. This line was repaid on October 2,
1997.
On October 2, 1997, the Company entered into a $100,000 line of credit with
First Washington State Bank. The line is secured by a second mortgage on the
Company's office building and borrowings under the line bear interest at prime
plus 1% (8.5% (unaudited) at March 31, 1998) with a maturity date of October
1998. The Company had no outstanding borrowings against this line of credit at
June 30, 1997 and 1996, respectively, and $100,000 (unaudited) outstanding at
March 31, 1998.
The Company has a commercial installment loan in the amount of $80,000 from
First Washington Bank which is secured by equipment and personally guaranteed
by the Chief Executive Officer of the Company. The interest rate on this loan
is prime plus 1% which was 8.5% and 8.3% at June 30, 1997 and 1996,
respectively, and 8.5% (unaudited) at March 31, 1998. The outstanding
principal balance on this loan totaled $33,333 and $76,667 as of June 30, 1997
and 1996, respectively. At March 31, 1998 principal of $6,666 was outstanding
under this loan. Principal and interest payments of $3,333 are due monthly
with all outstanding principal and interest due in full at the loan maturity
date of May 1998.
At June 30, 1997, all outstanding indebtedness was payable within one year.
On December 2, 1997, the Company received $100,000 of proceeds from a term
loan with First Washington State Bank. The loan bears interest at the prime
rate plus 1% (8.5% (unaudited) at March 31, 1998), with monthly principal
payments of $1,667 and a maturity date of November 2002. The loan is secured
by a second mortgage on the Company's office building and personally
guaranteed by the Chief Executive Officer of the Company. At March 31, 1998,
principal of $95,000 was outstanding under this loan, with remaining principal
payments of $6,667 due in fiscal year 1998, $19,992 due in fiscal years 1999
through 2002 and $8,365 due thereafter.
F-9
<PAGE>
Stockholder Loans
The Company had loans outstanding of $441,235 and $419,083 as of June 30, 1997
and June 30, 1996, respectively, from certain of its stockholders. These
amounts are due on demand and interest is payable at rates ranging from 10% to
12%. During the years ended June 30, 1997 and 1996, the Company incurred
interest of $41,588 and $41,369 on these borrowings, respectively.
4. RELATED PARTY TRANSACTIONS:
The Company rents office space in Hightstown, New Jersey, under the terms of
an operating lease from an affiliate owned by two officers of the Company. The
minimum annual rent under the lease is $102,000 and the lease expires in April
1999. The lease automatically renews for successive one-year periods and
either party may terminate the lease on 90 days written notice. During fiscal
1997, 1996 and 1995 the Company paid $102,000 in rent expense.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
The Company issued 201,000 shares of Series A Redeemable Convertible Preferred
Stock ("Series A Preferred Stock"), par value $ .01 per share in April 1994
for $402,000. The Series A Preferred Stock has a distribution rate of 4
percent of the Exchange Price ($2.00). The distributions are payable in
arrears on July 1, October 1, January 1 and April 1.
The holders of shares of the Series A Preferred Stock are able to convert all
or part of such shares into shares of Common Stock of the Company equal to the
lesser of $2.00 or the average NASDAQ bid price per share, as defined. Upon
such conversion, the holder of shares of Series A Preferred Stock will also
receive a warrant to purchase, for one year, shares of common stock equal to
one share of common stock for every ten shares of Series A Preferred Stock
converted at a purchase price of $1 per share. No shares of Series A Preferred
Stock have been converted through June 30, 1997.
The Company is required to redeem in five consecutive annual installments of
at least 25,000 shares on October 1, 1994 through 1998, with all remaining
shares being redeemed on or before September 30, 1999. The Company has
redeemed 75,000 shares through June 30, 1997 for a total value of $150,000.
The Company paid distributions of $10,580, $12,580 and $14,580 for the years
ended June 30, 1997, 1996 and 1995, respectively.
6. STOCKHOLDERS' DEFICIT:
Common Stock
The Company had 200,000,000 shares of common stock, $.01 par value per share
authorized as of June 30, 1997 and 1996. The Company had 13,293,920 shares of
common stock issued and 12,871,245 shares outstanding as of June 30, 1997. The
Company had 13,268,750 shares of common stock issued and 12,863,200 shares
outstanding as of June 30, 1996. The Company had 13,409,089 (unaudited) shares
of common stock issued and 12,974,414 (unaudited) shares outstanding as of
March 31, 1998.
Treasury Stock
The Company repurchases common stock at a weighted average stock price at
management's discretion. At June 30, 1997 and 1996, the Company had 422,675
shares of treasury stock valued at $232,668 and 405,550 shares of treasury
stock valued at $227,893, respectively. At March 31, 1998, the Company had
434,675 (unaudited) shares of treasury stock valued at $233,868 (unaudited).
F-10
<PAGE>
7. INCOME TAXES:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
which adopts an asset and liability approach for financial
accounting and reporting for income taxes.
The Company files a consolidated federal tax return and state tax returns on a
separate company basis. At June 30, 1997, the Company had federal net
operating loss carryforwards of approximately $2,620,000 for application
against future taxable income.
The components of income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
For the Nine Months For the Year Ended
Ended March 31 June 30
---------------- --------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal $ -- $ -- $ -- $ -- $ --
State 5,600 -- -- -- --
----------- ------------ ------------- ------------ ------------
5,600 -- -- -- --
----------- ------------ ------------- ------------ ------------
Deferred:
Federal (7,140) (42,332) (56,444) 112,808 (61,028)
State -- -- -- -- 35,000
----------- ------------ ------------- ------------ ------------
(7,140) (42,332) (56,444) 112,808 (26,028)
----------- ------------ ------------- ------------ ------------
Valuation Allowance 7,140 42,332 56,444 (112,808) 61,028
----------- ------------ ------------- ------------ ------------
$ 5,600 $ -- $ -- $ -- $ 35,000
=========== ============ ============= ============ ============
</TABLE>
The reported provision for income taxes differs from that computed by
multiplying pre-tax income by the applicable statutory federal income tax rate
due primarily to state income taxes and the utilization of net operating loss
carryforwards.
F-11
<PAGE>
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
March 31, June 30
----------------------------------------
1998 1997 1996
-------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Net operating loss carryfowards $ 984,552 $ 1,012,048 $ 993,201
Other accruals and reserves (204,115) (232,313) (269,910)
-------------- --------------- ---------------
780,437 779,735 723,291
-------------- --------------- ---------------
Valuation allowance (780,437) (779,735) (723,291)
-------------- --------------- ---------------
Net $ - $ - $ -
============== =============== ===============
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
established a valuation allowance for the entire net deferred tax.
8. DISCONTINUED OPERATIONS:
During 1995 and 1997, the Company adopted plans to discontinue operations of
RealQuest, Inc. ("RealQuest") and New America Financial Services ("NAFS"),
respectively. Accordingly, the operating results of RealQuest and NAFS have
been segregated from continuing operations and reported as a separate line
item on the statement of operations for all periods presented.
Operating results from these discontinued operations are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C>
Total revenue $ 9,530 $ 26,250 $ 129,055
Costs and expenses:
Cost of services -- -- (44,177)
Operating expenses (232,321) (154,346) (477,290)
------------------- ------------------- -------------------
Loss from operations of $ (222,791) $ (128,096) $ (392,412)
discontinued businesses =================== =================== ===================
No deferred tax benefit was recorded for these discontinued operations due to
the net operating loss carryforwards.
9. SEVERANCE AGREEMENT:
On August 15, 1994, the Company entered into a severance agreement with an
employee. The Company agreed to pay the employee one year's full salary at the
higher of the employee's salary at the time of the agreement or
F-12
<PAGE>
at the time of termination. This employee terminated on June 28, 1996, but
remained as an independent contractor until November 25, 1996, at which time
severance payments began. Payments aggregating $100,000 are to be made over a
two-year period and are included in accrued expenses.
10. COMMITMENTS AND CONTINGENCIES:
All full-time employees over the age of 21 and who have completed one full
year of employment are eligible to participate in the Company's 401K plan. The
Company contributes to the plan at its own discretion. For the years ended
June 30, 1997, 1996 and 1995 the Company's contribution to the plan amounted
to $7,000, $7,089 and $8,277, respectively.
In the normal course of business, there are various claims which have been
brought or asserted against the Company. After consultation with legal
counsel, in management's opinion such actions or claims will not have a
material adverse effect on the Company's financial position or results of
operations.
11. SUBSEQUENT EVENTS:
In March 1998, the Company signed a letter of intent to enter into a strategic
alliance with Kranzco Realty Trust ("Kranzco") that will recapitalize the
Company as a public company. The transaction is subject to certain conditions.
Under the terms of the agreement, Kranzco will conduct an exchange offer for
80% of the outstanding common stock of the Company for $8,000,000 of Kranzco
convertible subordinated notes, convertible into common shares of beneficial
interest of Kranzco at $20 per share.
In connection with this transaction, the Company has agreed to effect a
reincorporation merger by merging into New America International, Inc., a
Maryland corporation and a wholly-owned subsidiary of the Company ("NAI
Maryland"). Upon the consummation of such merger, each share of the Company
will be converted into 1.316172 shares of NAI Maryland.
Kranzco is expected to spin off approximately 88% of its shares of the
Company, estimated to be approximately 12,000,000 shares or 70.2% of all
outstanding shares of the Company, to Kranzco's shareholders on a one-for-one
basis. After the spin off, the Company will issue rights to acquire additional
shares of common stock of the Company, at $2 per share, to all of its
stockholders on a one-for-one basis, exercisable for 45 days.
F-13
<PAGE>
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for NAI Shares and any other
required documents should be sent or delivered by each NAI Stockholder to the
Exchange Agent at its address set forth below.
THE EXCHANGE AGENT:
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
By Regular Mail: By Overnight Courier:
First Union National Bank First Union National Bank
1525 West W.T. Harris Boulevard, 3C3 1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28288-1153 Charlotte, North Carolina 28262
Telephone: (800) 829-8432 Telephone: (800) 829-8432
- ----------------------------------------------------------------------------------------------------------------
New York Drop: Facsimile Transmission:
First Union National Bank (704) 590-7628
40 Broad Street - 5th Floor, Suite 550 Confirm by Telephone:
New York, New York 10004 (800) 829-8432
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Any questions or requests for assistance or additional copies of the
Prospectus or the Letter of Transmittal may be directed to the Exchange Agent
at the above listed telephone number and location.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Trustees and Officers.
Under Maryland law, a real estate investment trust formed in Maryland
is permitted to eliminate, 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 (i) actual receipt of an
improper benefit or profit in money, property or services or (ii) involving
active and deliberate dishonesty established by a final judgment as being
material to the cause of action. Kranzco's Declaration of Trust contains such
a provision which eliminates such liability to the maximum extent permitted by
Maryland law.
Kranzco's Bylaws require it, to the maximum extent permitted by
Maryland law in effect from time to time, to indemnify (i) any present or
former trustee or officer 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 his
service in that capacity, against reasonable expenses incurred by him in
connection with the proceeding and (ii) any present or former trustee or
officer against any claim or liability to which he may become subject by
reason of service in that capacity unless it is established that (a) his act
or omission was committed in bad faith or was the result of active and
deliberate dishonesty, (b) he actually received an improper personal benefit
in money, property or services or (c) in the case of a criminal proceeding, he
had reasonable cause to believe that his act or omission was unlawful. In
addition, Kranzco'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 his status
as a trustee or officer provided that Kranzco shall have received (i) a
written affirmation by the trustee or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by Kranzco as
authorized by the Bylaws and (ii) a written undertaking by him or on his
behalf to repay the amount paid or reimbursed by Kranzco if it shall
ultimately be determined that the standard of conduct was not met. Kranzco's
Bylaws also (i) permit Kranzco to provide indemnification and payment or
reimbursement of expenses to a present or former trustee or officer who served
a predecessor of Kranzco in such capacity and to any employee or agent of
Kranzco or a predecessor of Kranzco, (ii) 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 and
payment or reimbursement of expenses under Section 2-418 of the MGCL for
directors of Maryland corporations and (iii) permit Kranzco to provide to the
trustees and officers such other and further indemnification or payment or
reimbursement of expenses as may be permitted by the MGCL for directors of
Maryland corporations.
The Maryland REIT Law permits a Maryland real estate investment trust
to indemnify and advance expenses to its trustees, officers, employees and
agents to the same extend as permitted by the Maryland General Corporation Law
(the "MGCL") for directors and officers of Maryland corporations. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services, or (c)
in the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, under the
MGCL, a Maryland corporation may not indemnify for an adverse judgment in a
suit by or in the right of the corporation or for a judgment of liability on
the basis that personal benefit was improperly
II-1
<PAGE>
received, unless in either case a court orders indemnification and then only
for expenses. In addition, the MGCL permits a corporation to advance
reasonable expenses to a director or officer upon the corporation's receipt of
(a) a written affirmation by the director or officer of his good faith belief
that he has met the standard of conduct necessary for indemnification by the
corporation and (b) a written undertaking by him or on his behalf to repay the
amount paid or reimbursed by the corporation if it shall ultimately be
determined that the standard of conduct was not met.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to trustees and officers of Kranzco pursuant
to the foregoing provisions or otherwise, Kranzco has been advised that,
although the validity and scope of the governing statute has not been tested
in court, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In addition, indemnification may be limited
by state securities laws.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Form of Exchange Agreement, among Kranzco Realty Trust, Gerald
Finn and Jeffrey Finn.
3.1 Amended and Restated Declaration of Kranzco Realty Trust.
(Incorporated by reference to Exhibit 3.4 of the Company's
Registration Statement NO. 33-49434.)
3.2 Amendment of Amended and Restated Declaration of Trust, dated
December 31, 1995. (Incorporated by reference to Exhibit 3.3 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
3.3 Amendment No. 2 of Amended and Restated Declaration of Trust,
dated June 4, 1997. (Incorporated by reference to Exhibit 4.1(c)
of the Company's Registration Statement on Form S-3 filed July 31,
1997.)
3.4 Amended and Restated Bylaws of Kranzco Realty Trust, as amended.
4.1 Specimen certificate for Common Shares of Beneficial Interest.
(Incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement NO. 33-49434.)
4.2 Articles Supplementary for the Series A Increasing Rate Cumulative
Convertible Preferred Shares of Beneficial Interest. (Incorporated
by reference to the Company's Report on Form 8-K dated May 4,
1995.)
4.3 Articles Supplementary Classifying 1,155 Shares of Beneficial
Interest as Series A-1 Increasing Rate Cumulative Convertible
Preferred Shares of Beneficial Interest. (Incorporated by
reference to Exhibit 4.5 of the Company's Registration Statement
on Form S-4 No. 33-18249.)
4.4 Articles Supplementary for the Company's Series B-1 Cumulative
Convertible Preferred Shares of Beneficial Interest. (Incorporated
by reference to Exhibit 3.4 of the Company's Registration
Statement on Form 8-A dated February 27, 1997.)
II-2
<PAGE>
4.5 Articles Supplementary for the Company's Series B-2 Cumulative
Convertible Preferred Shares of Beneficial Interest. (Incorporated
by reference to Exhibit 4.2 of the Company's Registration
Statement on Form S-4 No. 333-18249.)
4.6 Articles Supplementary for the Company's Series C Cumulative
Redeemable Preferred Shares of Beneficial Interest. (Incorporated
by reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-4 No. 333-18249.)
4.7 Articles Supplementary for the Company's Series D Redeemable
Preferred Shares of Beneficial Interest. (Incorporated by
reference to Exhibit 3.5 of the Company's Registration Statement
on Form 8-A filed December 10, 1997.)
4.8 Specimen of the Company's Series D Redeemable Preferred Shares of
Beneficial Interest. (Incorporated by reference to Exhibit 4.1 of
the Company's Registration Statement on Form 8-A filed December
10, 1997.)
4.9 Indenture for Kranzco Callable Convertible Subordinated Notes due
2008, including form of Note.
4.10 Form of Note (included in Indenture filed as Exhibit 4.9)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding
legality.
5.2 Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP
regarding legality.
8.1 Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP
regarding tax matters.
10.1 Kranzco Realty Trust 1992 Employees Share Option Plan, as amended.
(Incorporated by reference to Exhibit 10.10 of the Registrant's
Annual Report on From 10-K for the fiscal year ended December 31,
1992.)
10.2 Kranzco Realty Trust 1992 Employees Share Option Plan, amended.
(Incorporated by reference to Exhibit 10.11 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992.)
10.3 Kranzco Realty Trust 1995 Incentive Plan. (Incorporated by
reference to Exhibit 4.4 of the Company's Registration Statement
on Form S-8 No. 33-94294.)
10.4 Loan Agreement dated as of February 26, 1997 with Salomon Brothers
Realty Corp. (Incorporated by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K filed March 14, 1997.)
10.5 Global Promissory Note dated February 26, 1997 in the amount of
$50,000,000 executed in favor of Salomon Brothers Realty Corp.
(Incorporated by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K filed March 14, 1997.)
10.6 Unlimited Guaranty of Payment dated as of February 26, 1997 issued
by Kranzco Realty Trust in favor of Salomon Brothers Realty Corp.
(Incorporated by reference to Exhibit 10.3 of the Company's
Current Report on Form 8-K filed March 14, 1997.)
II-3
<PAGE>
10.7 Exemplar Open End Fee and Leasehold Mortgage, Assignment of Leases
and Rents, Security Agreement and Fixture Filing dated as of
February 26, 1997 issued in connection with the Line of Credit.
(Incorporated by reference to Exhibit 10.4 of the Company's
Current Report on Form 8-K filed March 14, 1997.)
10.8 Trust and Servicing Agreement, dated as of June 18, 1996, among
KRT Origination Corp., GE Capital Management Corporation and State
Street Bank and Trust Company. (Incorporated by reference to
Exhibit 10.43 of the Company's Current Report on Form 10-K for the
fiscal year ended December 31, 1996.)
10.9 Cash Collateral Account, Security, Pledge and Assignment
Agreement, dated as of June 18, 1996, among the Borrower, State
Street Bank and Trust Company, as Agent, and KRT Origination
Corp., as Lender. (Incorporated by reference to Exhibit 10.44 to
the Company's Annual Report on Form 10- K for the fiscal year
ended December 1, 1996.)
10.10 Cash Collateral Agreement, dated June 18, 1996, among the
Borrowers, and State Street Bank and Trust Company, as Agent.
(Incorporated by reference to Exhibit 10.45 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 1,
1996.)
10.11 $123,700,000.00 Class A Mortgage Note dated June 18, 1996 made by
the Borrowers in favor of KRT Origination Corp., as Lender.
(Incorporated by reference to Exhibit 10.46 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 1,
1996.)
10.12 $20,600,000.00 Class B Mortgage Note dated June 18, 1996 made by
the Borrowers in favor of KRT Origination Corp., as Lender.
(Incorporated by reference to Exhibit 10.47 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 1,
1996.)
10.13 $28,900,000.00 Class C Mortgage Note dated June 18, 1996 made by
the Borrowers in favor of KT Origination Corp., as Lender.
(Incorporated by reference to Exhibit 10.48 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 1,
1996.)
10.14 $8,500,000.00 Class D Mortgage Note dated June 18, 1996 made by
the Borrowers in favor of KT Origination Corp., as Lender.
(Incorporated by reference to Exhibit 10.49 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 1,
1996.)
10.15 Form of Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Leases,
Rents and Security Deposits made by the Borrowers, as grantor, for
the benefit of KRT Origination Corp., as mortgagee, and filed in
Connecticut, Maryland, New Jersey, New York and Pennsylvania with
respect to Groton Square in Groton, Connecticut, Manchester Kmart
in Manchester, Connecticut, Milford in Milford, Connecticut,
Orange in Orange, Connecticut, Fox Run in Prince Frederick,
Maryland, Hillcrest Plaza in Frederick, Maryland, Anneslie in
Baltimore, Maryland, Suburban Plaza in Hamilton, New Jersey,
Collegetown in Glassboro, New Jersey, Hillcrest Mall in
Phillipsburg, New Jersey, The Mall at Cross
II-4
<PAGE>
County in Yonkers, New York, Highridge Plaza in Yonkers, New York,
North Ridge in New Rochelle, New York, Village Square in
Larchmont, New York, A&P Mamaroneck in Mamaroneck, New York, Port
Washington in Port Washington, New York, Bethlehem in Bethlehem,
Pennsylvania, Whitehall Square in Whitehall, Pennsylvania, Bristol
Commerce Park in Bristol, Pennsylvania, Park Hills Plaza in
Altoona, Pennsylvania, Barn Plaza in Doylestown, Pennsylvania,
Best Plaza in Tredyffrin, Pennsylvania, Bensalem Square in
Bensalem, Pennsylvania, Street Road in Bensalem, Pennsylvania,
Pilgrim Gardens in Drexel Hill, Pennsylvania, 69th Street Plaza in
Upper Darby, Pennsylvania and MacArthur Road in Whitehall,
Pennsylvania (the "Properties"). (Incorporated by reference to
Exhibit 10.50 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)
10.16 Form of Unrecorded Indenture of Mortgage, Deed of Trust, Security
Agreement, Financing Statement, Fixture Filing and Assignment of
Leases, Rents and Security Deposits made by the Borrowers, as
grantor, for the benefit of KRT Origination Corp., and held in
escrow with respect to the Properties located in Maryland and in
New York. (Incorporated by reference to Exhibit 10.51 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
10.17 Escrow Agreement made among KRT Origination Corp., the Borrowers
and Robinson Silverman Pearce Aronsohn & Berman LLP, as escrow
agent with respect to the unrecorded second mortgages covering the
Properties located in New York and Maryland (Incorporated by
reference to Exhibit 10.52 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996).
10.18 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Norman M. Kranzdorf.
(Incorporated by reference to Exhibit 10.1 of the Company's Form
10-Q for the quarter ended June 30, 1997.)
10.19 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Robert H. Dennis. (Incorporated
by reference to Exhibit 10.2 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.20 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Edmund Barrett. (Incorporated by
reference to Exhibit 10.3 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.21 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Bengt Danielsson. (Incorporated
by reference to Exhibit 10.4 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.22 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Michael Warrington. (Incorporated
by reference to Exhibit 10.5 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.23 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Michael Kranzdorf. (Incorporated
by reference to Exhibit 10.6 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
II-5
<PAGE>
10.24 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Peter J. Linneman. (Incorporated
by reference to Exhibit 10.7 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.25 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and E. Donald Shapiro. (Incorporated
by reference to Exhibit 10.9 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.26 Agreement dated October 30, 1997 between Kranzco Realty Trust and
GP Development Corporation. (Incorporated by reference to Exhibit
2.1 of the Company's Current Report on Form 8-K dated November 25,
1997.)
10.27 Agreement and Plan of Merger dated October 30, 1997 between
Kranzco Realty Trust, GP Development Corporation, the shareholders
of GP Development Corporation and KR Atlanta, Inc. (Incorporated
by reference to Exhibit 2.2 of the Company's Current Report on
Form 8-K dated November 25, 1997.)
10.28 Mortgage Note for $6,700,000.00, dated as of October 5, 1990, from
Holcomb Bridge Partners, L.P., a Georgia limited partnership
("Holcomb"), in favor of Allstate Life Insurance Company
("Allstate") (relating to Holcomb Bridge Crossing). (Incorporated
by reference to Exhibit 2.3 of the Company's Current Report on
Form 8-K dated November 25, 1997.)
10.29 Modification of Mortgage Note, dated as of October 31, 1995,
between Holcomb and Harris Trust and Savings Bank ("Harris Trust")
(relating to Holcomb Bridge Crossing). (Incorporated by reference
to Exhibit 2.4 of the Company's Current Report on Form 8-K dated
November 25, 1997.)
10.30 Deed to Secure Debt, Assignment of Leases, Rents and Contracts,
Security Agreement and Fixture Filing ("Deed to Secure Debt") from
Holcomb to Allstate, dated as of October 5, 1990 (relating to
Holcomb Bridge Crossing). (Incorporated by reference to Exhibit
2.5 of the Company's Current Report on Form 8-K dated November 25,
1997.)
10.31 Modification of Deed to Secure Debt between Holcomb and Harris
Trust, dated as of October 31, 1995 (relating to Holcomb Bridge
Crossing). (Incorporated by reference to Exhibit 2.6 of the
Company's Current Report on Form 8-K dated November 25, 1997.)
10.32 Real Estate Note for $3,725,000.00 dated as of August 6, 1987,
from West Stewarts Mill Associates, Ltd., a Georgia limited
partnership ("West Stewarts"), in favor of Confederation Life
Insurance Company, a mutual insurance company incorporated in
Canada ("Confederation"), first amendment thereto dated as of
November 27, 1987, second amendment thereto dated as of November
1, 1993, third amendment thereto dated as of November 1, 1993 and
fourth amendment thereto dated as of February 21, 1995 (relating
to Park Plaza). (Incorporated by reference to Exhibit 2.7 of the
Company's Current Report on Form 8-K dated November 25, 1997.)
10.33 Deed to Secure Debt and Security Agreement between West Stewarts
and Confederation, dated as of August 6, 1987, first amendment
thereto dated as of November 27, 1987 and second amendment thereto
dated as of November 1, 1993 (relating to Park Plaza).
II-6
<PAGE>
(Incorporated by reference to Exhibit 2.8 of the Company's Current
Report on Form 8-K dated November 25, 1997.)
10.34 Escrow Agreement, dated as of November 1, 1993, between
Confederation and West Stewarts. (Incorporated by reference to
Exhibit 2.9 of the Company's Current Report on Form 8-K dated
November 25, 1997.)
10.35 Promissory Note for $10,670,000.00, dated as of July 31, 1996,
from Mableton Village Associates, L.L.C., a Georgia limited
liability company ("Mableton Village"), in favor of Lehman
Brothers Holdings, Inc. d/b/a Lehman Capital ("Lehman") (relating
to The Village at Mableton). (Incorporated by reference to Exhibit
2.10 of the Company's Current Report on Form 8-K dated November
25, 1997.)
10.36 Deed to Secure Debt and Security Agreement, dated as of July 31,
1996, between Mableton Village and Lehman (relating to The Village
at Mableton). (Incorporated by reference to Exhibit 2.11 of the
Company's Current Report on Form 8-K dated November 25, 1997.)
10.37 Form of Intercompany Agreement.
10.38 Sales Contract dated June 26, 1998 by and among Kranzco Realty
Trust, a Maryland real estate investment trust, and Europco
Property Investors II, Ltd., a Georgia limited partnership;
Europco Property Investors III, Ltd., a Georgia limited
partnership; Europco Property Investors IV, Ltd., a Georgia
limited partnership; Secured Properties Investors V, L.P., a
Georgia limited partnership; Secured Properties Investors VIII,
L.P., a Georgia limited partnership; Secured Properties Investors
IX, L.P. a Georgia limited partnership; and Tifton Partners, L.P.,
a Georgia limited partnership. (Incorporated by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K dated June
26, 1998, filed July 16, 1998)
12.1 Ratio of Earnings to Fixed Charges. (Incorporated by reference to
Kranzco's Registration Statement on form S-4 (Reg. No. 333-52743)
filed May 15, 1998.)
21.1 Subsidiaries of Kranzco Realty Trust. (Incorporated by reference
to Exhibit 21.1 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.)
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (contained in
Exhibit 5.1).
23.2 Consent of Robinson Silverman Pearce Aronsohn & Berman LLP
(contained in Exhibits 5.2 and 8.1).
23.3 Consent of Arthur Andersen LLP relating to Kranzco Realty Trust
and New America Network, Inc.
25.1 Statement of Eligibility of Trustee on Form T-1.
99.1 Letter of Transmittal
- -----------------------
* Previously filed with Registration Statement on Form S-1 filed May 15,
1998.
II-7
<PAGE>
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 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 every 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.
II-8
<PAGE>
(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.
(8) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(9) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being involved therein, that was not the subject of and included
in the registration statement when it became effective.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
has duly caused this Amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of
Conshohocken, State of Pennsylvania, on July 17, 1998.
KRANZCO REALTY TRUST
By: /s/ Norman 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 July 17, 1998
- --------------------------------- Officer and Trustee
Norman M. Kranzdorf (Principal Executive Officer)
/s/ Robert H. Dennis Chief Financial Officer, July 17, 1998
- ---------------------------------- Treasurer and Trustee
Robert H. Dennis (Principal Financial and
Accounting Officer)
* Chief Operating Officer, July 17, 1998
- ---------------------------------- Executive Vice President
Edmund Barrett and Trustee
* Trustee July 17, 1998
- ----------------------------------
Bernard J. Korman
* Trustee July 17, 1998
- ----------------------------------
Dr. Peter D. Linneman
* Trustee July 17, 1998
- ----------------------------------
E. Donald Shapiro
</TABLE>
By /s/ Norman M. Kranzdorf
--------------------------------
Norman M. Kranzdorf
Attorney-in-Fact
II-10
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Norman M. Kranzdorf his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
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.
Name Title Date
/s/ Gerald C. Finn Trustee July 17, 1998
- --------------------
Gerald C. Finn
II-11
<PAGE>
EXCHANGE AGREEMENT
among
KRANZCO REALTY TRUST,
NEW AMERICA NETWORK, INC.,
GERALD C. FINN,
JEFFREY M. FINN
and
JEFFREY M. FINN, AS TRUSTEE OF THE
GRANTOR RETAINED ANNUITY TRUST OF
GERALD C. FINN U/A DTD. MAY 12, 1998
Dated as of ____________, 1998
<PAGE>
<TABLE>
<CAPTION>
Article Page
- ------- ----
TABLE OF CONTENTS
<S> <C> <C>
1. Exchange Offer; Tendering of Shares; Closing.............................................................2
1.2. Tendering of Shares......................................................................................2
1.3. Closing ................................................................................................2
2. Representations and Warranties of NAI and the Sellers....................................................2
2.1. Organization and Good Standing...........................................................................2
2.2. Capitalization of NAI; Ownership of Seller Shares........................................................3
2.3. Organization and Good Standing of Subsidiaries...........................................................3
2.4. Options ................................................................................................4
2.5. Authority of NAI and the Sellers.........................................................................4
2.6. Consents and Approvals; No Violations....................................................................4
2.7. Assets and Liabilities...................................................................................5
2.8. Insurance................................................................................................5
2.9. Owned and Leased Real Property...........................................................................5
2.10. Contracts; Debt Instruments..............................................................................5
2.11. Absence of Certain Changes or Events.....................................................................5
2.12. Financial Statements, Undisclosed Liabilities............................................................6
2.13. Books and Records........................................................................................6
2.14. Taxes ................................................................................................6
2.15. Related Party Transactions...............................................................................7
2.16. Litigation...............................................................................................7
2.17. Compliance with Applicable Law...........................................................................7
2.18. No Brokers, Finders or Investment Bankers................................................................8
2.19. Absence of Changes in Benefit Plans; ERISA Compliance....................................................8
2.20. Employees & Employee Policies............................................................................8
2.21. Broker Members, Brokerage and Other Services.............................................................8
2.22. Environmental Representations............................................................................9
2.23. Intellectual Property Representations....................................................................9
2.24. Access to Records........................................................................................9
2.25. Responses from Buyer.....................................................................................9
2.26. No Representation Regarding Investment...................................................................9
2.27. Private Company; Prior Offerings........................................................................10
2.28. Informed Investment Decisions...........................................................................10
2.29. Receipt of Buyer Registration Statements................................................................10
3. Representations and Warranties of the Buyer.............................................................10
3.1. Organization and Good Standing..........................................................................10
3.2. Capitalization of the Buyer.............................................................................10
3.3. Authority of the Buyer..................................................................................11
3.4. Consents and Approvals; No Violations...................................................................11
3.5. Buyer Common Shares.....................................................................................11
3.6. No Brokers, Finders or Investment Bankers. ............................................................11
3.7. SEC Filings. ..........................................................................................12
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C> <C>
4. Covenants...............................................................................................12
4.1. Other Transaction Proposals.............................................................................12
4.2. Conduct of Businesses...................................................................................13
4.3. Filings; Other Action...................................................................................14
4.4. Inspection of Records; Opportunity to Ask Questions.....................................................15
4.5. Publicity...............................................................................................15
4.6. Listing Application.....................................................................................15
4.7. Further Action..........................................................................................15
4.8. Sale of Securities of NAI and the Buyer.................................................................15
4.9. Expenses ...............................................................................................16
5. Conditions..............................................................................................16
5.1. Conditions to Each Party's Obligation to Consummate the Exchange Offer..................................16
5.2. Conditions to Obligations of the Buyer to Consummate the Exchange Offer.................................17
5.3. Conditions to Obligation of NAI and the Sellers to Consummate the Exchange Offer........................18
6. Termination.............................................................................................19
6.1. Termination by Mutual Consent...........................................................................19
6.2. Termination by the Sellers, NAI or the Buyer............................................................19
6.3. Termination by the Sellers or NAI.......................................................................19
6.4. Termination by the Buyer................................................................................20
6.5. Effect of Termination and Abandonment...................................................................20
6.6. Extension; Waiver.......................................................................................20
7. Indemnification.........................................................................................21
7.1. By the Sellers..........................................................................................21
7.2. By the Buyer............................................................................................22
7.3. By NAI ...............................................................................................23
7.4. Limitation on Indemnification...........................................................................24
7.5. Escrow ...............................................................................................24
8. General Provisions......................................................................................25
8.1. Survival ...............................................................................................25
8.2. Notices ...............................................................................................25
8.3. Assignment; Binding Effect; Benefit.....................................................................26
8.4. Entire Agreement........................................................................................26
8.5. Amendment...............................................................................................26
8.6. Governing Law...........................................................................................26
8.7. Counterparts............................................................................................27
8.8. Headings ...............................................................................................27
8.9. Interpretation..........................................................................................27
8.10. Waivers ...............................................................................................27
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C> <C>
8.11. Incorporation...........................................................................................27
8.12. Severability............................................................................................27
8.13. Enforcement of Agreement................................................................................27
8.14. Non-Recourse............................................................................................27
Exhibit A Unanimous Written Consent of Shareholders of NAI
Exhibit B-1 Gerald Finn Employment Agreement
Exhibit B-2 Jeffrey Finn Employment Agreement
Exhibit C Escrow Agreement
</TABLE>
-iii-
<PAGE>
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (this "Agreement"), dated as of ____________,
1998, among Kranzco Realty Trust, a Maryland real estate investment trust (the
"Buyer"), New America Network, Inc., a Delaware corporation, which conducts
business under the name New America International ("NAI"), Gerald C. Finn ("G.
Finn"), Jeffrey M. Finn, ("J. Finn" and together with G. Finn, the "Finns")
and Jeffrey M. Finn, as Trustee of the Grantor Retained Annuity Trust of
Gerald C. Finn u/a dtd. May12, 1998, the "Trust", and together with the Finns,
the "Sellers").
RECITALS
WHEREAS, the Buyer desires to exchange $8,000,000 of ten-year
convertible subordinated notes of the Buyer (the "Buyer Notes") for 80% of the
issued and outstanding shares of common stock, par value $.01 per share, of
NAI ("NAI Common Stock") pursuant to an exchange offer (the "Exchange Offer")
to be conducted in accordance with a prospectus included as part of a
Registration Statement on Form S-4 (the "Exchange Offer Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act");
WHEREAS, subject to the terms and conditions of this Agreement, the
Buyer will conduct the Exchange Offer in accordance with the Exchange Offer
Registration Statement;
WHEREAS, the Sellers own an aggregate of 10,082,997 shares of NAI
Common Stock, representing 77.7% of the issued and outstanding shares of NAI
Common Stock;
WHEREAS, in connection with the Exchange Offer, on March 20, 1998,
the Buyer, NAI and the Finns entered into a letter of intent (the "Letter of
Intent"), pursuant to which, subject to the terms and conditions of this
Agreement, the Sellers agreed, among other things, (i) to tender 80% of their
shares of NAI Common Stock to the Buyer in the Exchange Offer, (ii) in the
event that less than 80% of all of the issued and outstanding shares of NAI
Common Stock are tendered to the Buyer in connection with the Exchange Offer,
to tender such additional number of their shares of NAI Common Stock such that
at least 80% of all of the issued and outstanding shares of NAI Common Stock
are tendered to the Buyer in connection with the Exchange Offer (provided that
in no event shall the Sellers be required to tender more than 90% of the
shares of NAI Common Stock owned by the Sellers) and (iii) make certain
representations and warranties to the Buyer in respect of NAI and the
information contained in the Exchange Offer Registration Statement and the
Distribution Registration Statement (as defined below) relating to NAI;
WHEREAS, the parties hereto desire to enter into this Agreement in
order to formalize the matters agreed to in the Letter of Intent and certain
other matters; and
WHEREAS, immediately following the consummation of the Exchange
Offer, (i) NAI intends to reincorporate as a Maryland corporation, through the
merger of NAI with and into a wholly-owned subsidiary of NAI, (ii) the Buyer
intends to distribute 70.2% of the issued and outstanding shares of NAI Common
Stock to its shareholders (the "Distribution") and (iii) immediately following
the Distribution, NAI intends to distribute to its shareholders (including the
shareholders of the Buyer who receive NAI Common Stock as part of the
Distribution) rights ("Rights") to purchase one share of NAI Common Stock at a
price of $2.00 per share, each as more fully described in the prospectus
included as part of a Registration Statement on Form S-1 (the "Distribution
Registration Statement") under the Securities Act;
-1-
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
1. Exchange Offer; Tendering of Shares; Closing
1.1. Exchange Offer. Subject to the terms and conditions of this
Agreement, the Buyer agrees to conduct the Exchange Offer in accordance with
the Exchange Offer Registration Statement.
1.2. Tendering of Shares. The Sellers hereby agree that each of
them will tender 80% of his shares of NAI Common Stock in the Exchange Offer;
provided, however, that in the event that less than 80% of the issued and
outstanding shares of NAI Common Stock are tendered to the Buyer in connection
with the Exchange Offer, the Sellers shall tender such additional number of
their own shares of NAI Common Stock such that at least 80% of the issued and
outstanding shares of NAI Common Stock are tendered to the Buyer in connection
with the Exchange Offer; provided further, however, that in no event shall the
Sellers be required to tender more than 90% of the shares of NAI Common Stock
owned by the Sellers.
1.3. Closing. Subject to the terms and conditions of this Agreement
and the Exchange Offer Registration Statement, the closing of the Exchange Offer
(the "Closing") shall take place at the offices of Robinson Silverman Pearce
Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York, New York, as
promptly as practicable following the Expiration Date (as defined in the
Exchange Offer Registration Statement) and in accordance with the Exchange Offer
Registration Statement. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date".
ARTICLE 2
2. Representations and Warranties of NAI and the Sellers. NAI and
the Sellers, jointly and severally, represent and warrant to the Buyer as
follows:
2.1. Organization and Good Standing. NAI 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. NAI is licensed and qualified to do
business as a foreign corporation and is in good standing in all the states,
countries and jurisdictions listed on Schedule 2.1 hereto, which is a true,
complete and correct list of all of the states, countries and jurisdictions in
which NAI is required to be licensed and qualified to do business as a foreign
corporation or in which it owns or leases property other than any state,
country or jurisdiction where the failure to be so licensed or qualified would
not have a material adverse effect on the condition (financial or otherwise),
business, prospects, properties, net worth or results of operations of NAI and
its subsidiaries taken as a whole. NAI and the Sellers have delivered
to Buyer true, complete and correct copies of the Certificate of Incorporation
of NAI and its Bylaws, in each case, as amended and/or restated.
2.2. Capitalization of NAI; Ownership of Seller Shares. The
authorized stock of NAI consists of 20,000,000 shares of NAI Common Stock and
1,000,000 shares of preferred stock ("NAI Preferred Stock") of which 201,000
shares have been designated as Series A Redeemable Convertible Preferred Stock
("NAI Series A Preferred Stock"). As of the date hereof, there are 12,974,414
shares of NAI Common Stock issued and outstanding and there are no shares of
NAI Series A Preferred Stock are issued and outstanding.
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All of the issued and outstanding shares of NAI Common Stock are owned
beneficially and of record by the shareholders of NAI, and to the best of the
Sellers' knowledge after due inquiry, are free of any liens, claims, actions,
rights of first refusal or other encumbrances. All such shares 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.
There are no notations on the share certificates or in the stock records as to
any liens, claims, actions or rights of first refusal or other encumbrances. NAI
also has 534,675 shares of treasury stock (the "NAI Treasury Stock"). Set forth
as Schedule 2.2 is a true, complete and correct listing of each shareholder of
NAI, the number of shares owned by each such shareholder and the dates of
issuance of all such shares.
G. Finn is the record and beneficial owner of 7,385,890 shares of NAI
Common Stock (excluding shares of NAI Common Stock owned by the Trust), J. Finn
is the record and beneficial owner of 697,107 shares of NAI Common Stock
(excluding shares of NAI Common Stock owned by the Trust) and the Trust is the
record and beneficial owner of 2,000,000 shares of NAI Common Stock
(collectively, the "Seller Shares"). The Seller Shares are, and as of the
closing of the Exchange Offer will be, free and clear of any liens, claims,
actions, rights of first refusal and other circumstances.
2.3. Organization and Good Standing of Subsidiaries. (a) Each
Subsidiary (as defined below) of NAI (an "NAI Subsidiary") is a corporation
duly organized, validly existing and in good standing under the laws of its
state of jurisdiction 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. Each NAI Subsidiary is licensed and
qualified to do business and is in good standing in all the states, countries
and jurisdictions listed on Schedule 2.3(a) hereto, which is a true, complete
and correct list of all of the states, countries and jurisdictions in which
each NAI Subsidiary is required to be licensed and qualified to do business or
in which it owns or leases property other than any state, country or
jurisdiction where the failure to be so licensed or qualified would not have a
material adverse effect on the condition (financial or otherwise), business,
prospects, properties, net worth or results of operations of such NAI
Subsidiary, taken as a whole. NAI and the Sellers have delivered to the Buyer
true, complete and correct copies of the Articles of Incorporation and Bylaws,
in each case, as amended and/or restated for each NAI Subsidiary.
(b) Each NAI Subsidiary is wholly-owned by NAI and the
ownership interest of NAI in each NAI Subsidiary, is free of any liens, claims
or other encumbrances. All shares of each NAI Subsidiary 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. Set forth on Schedule 2.3(b) is a true, complete and correct listing
of each NAI Subsidiary. "Subsidiary" of any Person means any corporation,
partnership, limited liability company, joint venture or other legal entity of
which such Person (either directly or through or together with another
Subsidiary of such Person) owns any of the capital stock or other equity
interests of such corporation, partnership, limited liability company, joint
venture or other legal entity. As used herein, "Person" means an individual,
corporation, partnership, limited liability company, joint venture,
association, trust, unincorporated organization or other entity.
2.4. Options. Except as set forth as Schedule 2.4, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which NAI or any NAI
Subsidiary is a party or by which such entity is bound, obligating NAI or any
NAI Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of stock, voting securities or other ownership
interest of NAI or any NAI Subsidiary or obligating NAI or any NAI Subsidiary
to issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking (other than to
NAI or an NAI Subsidiary).
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2.5. Authority of NAI and the Sellers. NAI and the Sellers have all
requisite power (corporate, in the case of NAI, and trust, in the case of the
Trust) and authority to execute and deliver this Agreement, the other
documents set forth as Schedule 2.5 and any other documents contemplated by
this Agreement or such documents or the transactions contemplated thereby (the
"Transaction Documents"), to consummate the transactions contemplated by the
Transaction Documents and to take all other actions required to be taken by
them pursuant to the provisions hereof and thereof. The execution, delivery
and performance by NAI and the Sellers and the consummation by NAI and the
Sellers of the transactions contemplated by the Transaction Documents, have
been approved by all requisite corporate action of NAI and trust action on the
part of the Trust, and no other corporate or trust proceedings on the part of
NAI or the Trust, as the case may be, are necessary to authorize the
execution, delivery and performance of the Transaction Documents. The
Transaction Documents have been duly and validly executed and delivered by NAI
and the Sellers, as the case may be, and constitute valid and binding
agreements of NAI and the Sellers, as the case may be, enforceable against NAI
and the Sellers in accordance with their respective terms.
2.6. Consents and Approvals; No Violations. Except as set forth in
Schedule 2.6 hereto, 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 NAI or the
Sellers of the Transaction Documents or the consummation of the transactions
contemplated thereby. The execution, delivery and performance by NAI and the
Sellers of the Transaction Documents and the transactions contemplated
thereby, will not (i) constitute any violation or breach of any provision of
the charter or By-laws of NAI or any NAI Subsidiary or the trust agreement of
the Trust, 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 liens, pledges,
mortgages, deeds of trust, security interests, claims against title, charges,
options or other encumbrances ("Encumbrances") upon any of the assets of NAI,
any NAI Subsidiary or the Sellers under, or result in being declared void,
voidable or without further binding effect, any of the terms, conditions or
provisions under (A) the Certificate of Incorporation or the By-laws of NAI or
the comparable charter or organizational documents or partnership or similar
agreement (as the case may be) of any NAI Subsidiary, each as amended or
supplemented to the date of this Agreement, or (B) any loan or credit
agreement, note, bond, mortgage, indenture, reciprocal easement agreement,
lease or other agreement, license, franchise, permit, concession, contract, or
other instrument, or other obligation to which NAI, any NAI Subsidiary or the
Sellers is a party, or by which NAI, any NAI Subsidiary, the Sellers or any of
their properties is bound or affected, or (iii) conflict with or constitute
any violation of any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to NAI, any NAI Subsidiary or the Sellers.
2.7. Assets and Liabilities. NAI and each NAI Subsidiary has good
and valid title to all assets used in their respective businesses, free and
clear of any Encumbrances. The assets reflected on the balance sheet being
delivered pursuant to Section 2.12 hereto constitute all of the assets used in,
and are sufficient for, the operation of NAI's business as it is presently
conducted.
2.8. Insurance. NAI and the Sellers acknowledge that NAI and each
NAI Subsidiary has adequate insurance coverage for their respective assets.
Schedule 2.8 is a true, complete and correct listing of all property and
casualty policies in effect for NAI and its Subsidiaries and copies of all such
property and casualty policies have been delivered to the Buyer. All such
policies are in full force and effect and no notice of cancellation, threatened
cancellation, default or non-compliance has been received with respect thereto.
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2.9. Owned and Leased Real Property. Neither NAI nor any NAI
Subsidiary owns any real property. Set forth on Schedule 2.9 is a true,
complete and accurate list of all leases of real property under which NAI or
any NAI Subsidiary is either the lessor or lessee. To the best knowledge of
the Sellers, each such lease is the legal, valid and binding obligation of the
lessor and lessee thereof, enforceable in accordance with its terms. True,
complete and correct copies of all leases have been delivered to the Buyer.
2.10. Contracts; Debt Instruments. Neither NAI, any NAI Subsidiary
nor the Sellers has received a written notice that NAI or any NAI Subsidiary
is in violation of or in default under (nor to the best knowledge of NAI and
the Sellers does there exist any condition which upon the passage of time or
the giving of notice or both would cause such a violation of or default under)
any loan or credit agreement, note, bond, mortgage, indenture, lease, permit,
concession, franchise, license or any other contract, agreement, arrangement
or understanding, to which it is a party or by which it or any of its
properties or assets is bound, except as set forth in Schedule 2.10(a) hereto,
nor to the best knowledge of NAI and the Sellers does such a violation or
default exist, except to the extent that such violation or default,
individually or in the aggregate, would not have a material adverse effect on
the business, assets, properties, financial condition or results of operations
of NAI and the NAI subsidiaries taken as a whole (an "NAI Material Adverse
Effect"). Set forth on Schedule 2.10(b) is a true, complete and correct list
of all contracts and agreements to which NAI or any NAI Subsidiary is a party
which are not set forth on another Schedule hereto. NAI and the Sellers have
delivered to the Buyer true, correct and complete copies of the contracts and
agreements listed on Schedule 2.10(c).
Set forth as Schedule 2.10(d) is a true, complete and correct list of
each loan or credit agreement, note, bond, mortgage, indenture and any other
agreement and instrument pursuant to which any indebtedness of NAI or any NAI
Subsidiary is outstanding or may be incurred. Neither NAI nor any NAI
Subsidiary is in default under any such loan or credit agreement, note, bond,
mortgage, indenture or any other agreement.
2.11. Absence of Certain Changes or Events. Since the date of the
most recent audited financial statements ("NAI Financial Statement Date") NAI
and the NAI Subsidiaries have conducted their business only in the ordinary
course (including the acquisition of properties and issuance of securities)
and there has not been (a) any material adverse change in the business,
financial condition, or results of operations or prospects of NAI and the NAI
Subsidiaries taken as a whole (an "NAI Material Adverse Change"), nor has
there been any occurrence or circumstance that with the passage of time would
reasonably be expected to result in an NAI Material Adverse Change, (b) any
split, combination or reclassification of any of NAI's
shares of Common Stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for, or
giving the right to acquire by exchange or exercise, shares of its Common
Stock or any issuance of an ownership interest in, any NAI Subsidiary, (c) any
damage, destruction or loss, whether or not covered by insurance, that has or
would have an NAI Material Adverse Effect, (d) any change in accounting
methods, principles or practices by NAI or any NAI Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles ("GAAP") or
(e) any amendment of any employment, consulting, severance, retention or any
other agreement between NAI or any NAI Subsidiary and any officer of NAI or
any NAI Subsidiary, true, complete and correct copies of which agreements and
amendments thereof are listed on Schedule 2.11 hereto, or (f) any redemption
of the shares of NAI's capital stock other than the redemption of the
outstanding NAI Series A Preferred Stock for $202,000. There is no employment
or severance contract, or other agreement requiring payments, or cancellation
of indebtedness to which NAI or an NAI Subsidiary is a party or other
obligation required to be made or satisfied by NAI or any NAI Subsidiary upon
a change of control or otherwise as a result of the execution of the
Transaction Documents or the consummation of any of the transactions
contemplated by the Transactions Documents.
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2.12. Financial Statements, Undisclosed Liabilities. The
consolidated financial statements of NAI for the last three fiscal years ended
June 30, 1997 and six months ended December 31, 1997 have been prepared in
accordance with GAAP, applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly presented, in
accordance with the applicable requirements of GAAP. Neither NAI nor any of the
NAI Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on
a consolidated balance sheet of NAI or in the notes thereto) other than as set
forth in such financial statements. The Sellers and NAI have delivered to the
Buyer copies of all financial statements of NAI and its Subsidiaries for the
three fiscal years ended June 30, 1995, 1996, 1997 and the six months ended
December 31, 1997.
2.13. Books and Records. The books of account and all other
financial records of NAI and each NAI Subsidiary are true, complete and correct
in all material respects, have been maintained in accordance with good business
practices, and are accurately reflected in all material respects in the
financial statements delivered by NAI. The minute books and other records of NAI
and each NAI Subsidiary have been made available to the Buyer, contain accurate
records of all meetings and accurately reflect in all material respects all
other actions of the shareholders, the directors and any committees.
2.14. Taxes. Except as set forth in Schedule 2.14, NAI and each NAI
Subsidiary has timely filed all federal, state, local and foreign tax returns
required to be filed by it (after giving effect to any filing extension properly
granted by a Governmental Entity having authority to do so) through the date
hereof and such returns are complete, accurate and comply with all applicable
laws and NAI and each NAI Subsidiary has timely paid all Taxes (as defined
below) required to be paid by them. True, correct and complete copies of all
federal, state, local and foreign tax returns filed by NAI and each NAI
Subsidiary and all communications relating thereto have been delivered to the
Buyer. There are no claims or assessments for the collection of any taxes from
NAI or any NAI Subsidiary, which have been asserted, are pending, or, to the
knowledge of the Sellers and NAI, threatened. There are no audits relating to
Taxes of NAI or any NAI Subsidiary pending, or, to the knowledge of the Sellers
and NAI, threatened. The most recent audited financial statements reflect an
adequate reserve for all material Taxes payable by NAI and each NAI Subsidiary
for all taxable periods and portions thereof through the date of such financial
statements. Neither NAI nor any NAI Subsidiary has incurred any liability for
Taxes other than in the ordinary course of business. No event has occurred, and
no condition or circumstance exists, which presents a risk that any Tax
described in the preceding sentence will be imposed upon NAI or any NAI
Subsidiary. To the best knowledge of NAI and the Sellers, no deficiencies for
any Taxes have been proposed, asserted or assessed against NAI or any NAI
Subsidiary, and no requests for waivers of the time to assess any such Taxes are
pending. As used in this Agreement, "Taxes" shall include all federal, state,
local and foreign income, property, withholding, sales, franchise, employment,
excise and other taxes, tariffs or governmental charges of any nature
whatsoever, together with penalties, interest or additions to Tax with respect
thereto. No outstanding waivers or comparable consents regarding the application
of the statute of limitations with respect to any Taxes or tax returns has been
given by or on behalf of NAI. No federal, state, local or foreign audits or
other administrative proceedings or court proceedings ("Audits") exist or have
been initiated with regard to any Taxes or tax returns of NAI and NAI has not
received any written notice that such an Audit is pending or threatened with
respect to any Taxes due from or with respect to NAI or any tax return filed by
or with respect to NAI. NAI has not filed a consent pursuant to Section 341(f)
of the Internal Revenue Code of 1986 (the "Code") (or any predecessor provision)
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 NAI. NAI has no liability for Taxes of any person pursuant to Treasury
Regulation ss.1.1502-6 (or any similar provision of state, local or foreign law)
and NAI is not a party to any tax sharing agreement. NAI is not a party to any
contract, agreement or other arrangement which could result in the payment of
amounts that could be nondeductible by reason of Section 280G of the Code.
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2.15. Related Party Transactions. Set forth on Schedule 2.15 hereto
is a true, complete and correct list of all arrangements, agreements and
contracts entered into by NAI or any NAI Subsidiary with (a) any consultant,
(b) any person who is an officer, director, employee, Affiliate or shareholder
of NAI or any NAI Subsidiary, any relative of any of the foregoing or any
entity of which any of the foregoing is an Affiliate or shareholder, officer,
director or employee. "Affiliate" shall have the same meaning as such term is
defined in Rule 405 promulgated under the Securities Act.
2.16. Litigation. There are no actions, suits or proceedings
pending, or to the best knowledge of the Sellers and NAI, threatened in writing
against or affecting NAI or any NAI Subsidiary, at law or in equity, that
individually or in the aggregate, could reasonably be expected to (i) have an
NAI Material Adverse Effect, or (ii) prevent the consummation of any of the
transactions contemplated by the Transaction Documents, nor are there any
orders, injunctions, judgements or decrees of any court, arbitrator or other
Governmental Entity, to which NAI and any NAI Subsidiary is or has been a party
or by which NAI and any NAI Subsidiary's properties are, or have been, bound or
which, insofar as reasonably can be foreseen in the future would have, any such
effect.
2.17. Compliance with Applicable Law. (a) Except as set forth on
Schedule 2.17(a), neither NAI nor any NAI Subsidiary is in violation of any
order of any Governmental Entity, or any law, ordinance, governmental rule or
regulation ("Laws") to which NAI or any NAI Subsidiary is subject, except for
such violations that, individually or in the aggregate would not have an NAI
Material Adverse Effect.
(b) Neither NAI nor any NAI Subsidiary has either prepared or
distributed a franchise disclosure document. Except as set forth on Schedule
2.17(b), NAI has not offered a franchise as that term is defined by the
federal and state franchise laws. Except as set forth on Schedule 2.17 (b),
NAI is exempt from and has not violated any federal or state franchise laws.
2.18. No Brokers, Finders or Investment Bankers. Neither NAI, nor
any of its officers or directors, or the Sellers, has employed any broker or
finder or investment banker or incurred any liability which remains unsatisfied
for any brokerage or finder's fee or commission or similar payments in
connection with this Agreement and the transactions contemplated hereby.
2.19. Absence of Changes in Benefit Plans; ERISA Compliance. Except
as set forth on Schedule 2.19, there has not been any adoption of any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical or other
employee benefit plan, arrangement or understanding (whether or not legally
binding) providing benefits to any current or former employee, officer or
director of NAI, any NAI Subsidiary, or any person Affiliated with NAI under
Section 414(b), (c), (m) or (o) of the Code (collectively, "NAI Benefit
Plans").
All NAI Benefit Plans, including any such plan that is an "employee
benefit plan" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), are in compliance in all material
respects with all applicable requirements of law, including but not limited to
ERISA and the Code and neither NAI nor any NAI Subsidiary has any material
liabilities or obligations with respect to any such NAI Benefit Plan, whether
accrued, contingent or otherwise. The execution of, and performance of the
transactions contemplated by the Transaction Documents will not (either alone
or upon the occurrence of any additional or subsequent events) constitute an
event under any NAI Benefit Plan, policy, arrangement or agreement or any
trust or loan that will or may result in any payment (whether of severance pay
or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in
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benefit or obligation to fund benefits with respect to any employee or director.
There are no severance agreements or severance policies applicable to employees
of NAI or any NAI Subsidiary.
2.20. Employees & Employee Policies. Set forth as Schedule 2.20(a)
is a true, complete and correct list of each employee and such employee's
position and salary as of the date hereof. A copy of each employee handbook of
NAI currently in effect has previously been made available to the Buyer. Such
handbook fairly and accurately summarizes all material employee policies,
vacation policies and payroll practices of NAI and each NAI Subsidiary.
2.21. Broker Members, Brokerage and Other Services. Set forth as
Schedule 2.21(a) is a true, complete and correct list of each real estate broker
that is a member of the NAI network (the "Broker Member") and each agreement
between NAI and a Broker Member (the "Broker Member Agreement"). The Sellers and
NAI have delivered to the Buyer true, correct and complete copies of the Broker
Member Agreements. To the best of the Sellers' and NAI's knowledge after due
inquiry, each Broker Member is licensed as a real estate broker in each
jurisdiction where such Broker Member is required to be licensed. Each Broker
Member Agreement is in full force and effect and no party to any Broker Member
Agreement has given notice of termination or its intent to terminate any Broker
Member Agreement. Except as listed on Schedule 2.21(b) hereto, (i) each Broker
Member is current in the payment of license transactional fees due NAI and, as
of the date hereof, there are no commissions due any Broker Member by NAI or any
NAI Subsidiary. Set forth on Schedule 2.21(c) is a true, complete and correct
listing of each assignment in progress. Set forth on Schedule 2.21(d) is a true,
complete and correct listing of all corporate and institutional clients and
true, complete and correct copies of all contracts with corporate and
institutional clients still in effect has been provided to the Buyer. Set forth
on Schedule 2.21(e) is a true, complete listing of all ancillary services
contracts, and true, complete and correct copies of all ancillary services
contracts have been delivered to the Buyer.
2.22. Environmental Representations. None of NAI or any NAI
Subsidiaries or, to the best of NAI's and the Sellers' knowledge after due
inquiry, any other person has caused or permitted (a) the unlawful presence of
any hazardous substances, hazardous materials, toxic substances or waste
materials (collectively, "Hazardous Materials") on any of the properties of
NAI or any NAI Subsidiary (the "NAI Properties"), or (b) any unlawful spills,
releases, discharges or disposal of Hazardous Materials to have occurred or be
presently occurring on or from the NAI Properties as a result of any
construction on or operation and use of such properties, which presence or
occurrence would, individually or in the aggregate, have an NAI Material
Adverse Effect; and in connection with the construction on or operation and
use of the NAI Properties, NAI and the NAI Subsidiaries have not failed to
comply in any material respect with all applicable local, state and federal
environmental laws, regulations, ordinances and administrative and judicial
orders relating to the generation, recycling, reuse, sale, storage, handling,
transport and disposal of any Hazardous Materials, except to the extent such
failure to comply, individually or in the aggregate, would not have an NAI
Material Adverse Effect.
2.23. Intellectual Property Representations. NAI and each NAI
Subsidiary has valid, legal rights to use, all trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights,
whether or not registered (collectively, the "Intellectual Property Rights"),
which are necessary to, or used in, their respective businesses. Neither NAI
nor any NAI Subsidiary is a defendant in any claim, suit, action or proceeding
relating to their respective businesses which involves a claim of infringement
of any trademarks or service marks. Neither the Sellers nor NAI has any
knowledge of any existing infringement by another person of any of the
Intellectual Property Rights belonging to NAI or any NAI Subsidiary. Neither
the Sellers nor NAI has received notice of the infringement by NAI or any NAI
Subsidiary of any
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infringement of any Intellectual Property Rights of a third party. Set forth on
Schedule 2.23 is a true, complete and correct list of all Intellectual Property
Rights of NAI or any NAI Subsidiary.
2.24. Access to Records. NAI and the Sellers have been afforded full
and complete access to all information and other materials relating to the
Buyer and its affiliates and the properties, business, financial condition and
operations of the Buyer and any other matters, relating to the Buyer or the
Transaction Documents and the transactions contemplated thereby which NAI or
the Sellers have requested, or deemed necessary in evaluating the merits and
risks of acquiring the Buyer Notes and the Buyer Common Shares (as defined
herein), and have been afforded the opportunity to obtain any additional
information necessary to verify the accuracy of any information provided. NAI
and the Sellers acknowledge that they have received copies of the documents
filed by the Buyer with the Securities and Exchange Commission (the "SEC") as
set forth on Schedule 2.24 (the "SEC Documents").
2.25. Responses from Buyer. The Sellers have had the opportunity to
ask and have answered any questions concerning the financial condition,
business or operations or any other matter with respect to the Buyer and its
affiliates or with respect to the merits and risks of an acquisition of the
Buyer Notes or the Buyer Common Shares, and NAI and the Sellers have received
complete and satisfactory answers to all such questions.
2.26. No Representation Regarding Investment. No representation to
NAI or the Sellers has been made with respect to any tax or economic benefits
to be derived from an investment in the Buyer Notes or the Buyer Common Shares
or as to any other matter. NAI and the Sellers are relying solely upon their
own knowledge and upon the advice of their personal advisors with respect to
the tax, economic and other aspects of an investment in the Buyer Notes or the
Buyer Common Shares issuable upon conversion of the Notes.
2.27. Private Company; Prior Offerings. NAI is not now, nor has it
ever been, subject to section 12 or 15 of the Securities Exchange Act of 1934,
as amended. Each offer and issuance of securities by NAI has been pursuant to
a valid exemption from registration under the Securities Act, and applicable
state securities laws and have been conducted in compliance with all federal
and state securities laws. The NAI Common Stock has never been traded on an
"established securities market" within the meaning of Section 453(k)(2) of the
Code.
2.28. Informed Investment Decisions. The Sellers have carefully
reviewed and understand the SEC Documents and other information provided by
the Buyer and they have such knowledge and experience in financial, business
and real estate matters that they are capable of evaluating the merits and
risks of an acquisition of the Buyer Notes and the Buyer Common Shares and of
making an informed investment decision. NAI and the Sellers have retained
their own counsel, accountant and/or other advisors as to the legal, tax and
related matters concerning the acquisition of the Buyer Notes and the Buyer
Common Shares.
2.29. Receipt of Buyer Registration Statements. Sellers have
received and reviewed copies of the Exchange Offer Registration Statement and
the Distribution Registration Statement (collectively, the "Registration
Statements"). Such Registration Statements do not contain an untrue statement of
a material fact relating to NAI or any NAI Subsidiary or their respective
officers, directors or stockholders or omit to state any material fact relating
to NAI or any NAI Subsidiary or their respective officers, directors or
stockholders required to be stated herein, or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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ARTICLE 3
3. Representations and Warranties of the Buyer. The Buyer
represents and warrants to the Sellers as follows:
3.1. Organization and Good Standing. (i) The Buyer 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 Assessment
and Taxation of Maryland ("SDAT") and (ii) the Buyer has all requisite trust
power to own and operate, lease and encumber its properties and assets and to
carry on its business as it is now being conducted.
3.2. Capitalization of the Buyer. The authorized shares of
beneficial interest of the Buyer consist of 100,000,000 shares of beneficial
interest. As of December 31, 1997, the Buyer had issued and outstanding 222,750
Series C cumulative redeemable preferred shares of beneficial interest; 11,155
Series A-1 increasing rate cumulative convertible preferred shares of beneficial
interest; 1,183,331 Series B cumulative convertible preferred shares of
beneficial interest; 1,800,000 Series D cumulative convertible preferred shares
of beneficial interest; and 10,415,427 common shares of beneficial interest. All
of the issued and outstanding shares of beneficial interest of the Buyer have
been duly authorized and are validly issued, fully paid and nonassessable.
Except as set forth on Schedule 3.2 hereto, as of the date hereof, there are no
outstanding options or warrants to purchase shares of beneficial interest of the
Seller.
3.3. Authority of the Buyer. The Buyer has all requisite trust
power and authority to execute and deliver this Agreement and the other
Transactions Documents and to consummate the transactions contemplated by this
Agreement and the other Transaction Documents and to take all other actions
required to be taken by it pursuant to the provisions hereof and thereof. The
execution, delivery and performance by the Buyer of this Agreement and the other
Transaction Documents and the consummation by the Buyer of the transactions
contemplated by this Agreement and the other Transaction Documents have been
duly and validly authorized and approved by all requisite trust action of the
Buyer and no other trust proceedings on the part of the Buyer are necessary to
authorize the execution, delivery and performance of this Agreement and the
other Transaction Documents or to consummate the transactions contemplated
thereby. This Agreement and the other Transaction Documents have been duly and
validly executed and delivered by the Buyer and constitute valid and binding
agreements of the Buyer enforceable against the Buyer in accordance with their
terms.
3.4. Consents and Approvals; No Violations. Except for applicable
requirements of state Blue Sky laws, if any, and as set forth in Schedule 3.4
hereto, 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 the Buyer of this
Agreement or the other Transaction Documents or the consummation of the
transactions contemplated by this Agreement and the other Transaction
Documents. Neither the execution, delivery and performance by the Buyer of
this Agreement or the other Transaction Documents nor the consummation by the
Buyer of the transactions contemplated by this Agreement or the other
Transaction Documents will (i) conflict with or constitute any violation or
breach of any provision of the Declaration of Trust of the Buyer, (ii)
conflict with or 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) 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
Buyer under, or result in being declared void, voidable or without further
binding effect, any of the terms, conditions or provisions of any agreement,
or any license, franchise, permit, concession, lease, contract, or other
instrument, or other obligation to which the Buyer is a party, or by which the
Buyer or any of its
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properties is bound or affected or (iii) conflict with or constitute any
violation of any judgment, order, decree, statute, law, ordinance rule or
regulation applicable to the Buyer.
3.5. Buyer Common Shares. The Buyer has reserved for issuance a
sufficient number of Common Shares of the Buyer (the "Buyer Common Shares") to
satisfy its obligations to issue common shares of the Buyer upon the
conversion of the Buyer Notes. The Buyer Common Shares to be issued upon
conversion of the Buyer Notes will be validly issued, fully paid and
non-assessable shares at the time so issued. There are no preemptive rights
with respect to the Buyer Common Shares.
3.6. No Brokers, Finders or Investment Bankers. Neither the Buyer,
nor any of its officers or directors has employed any broker or finder or
investment banker or incurred any liability which remains unsatisfied for any
brokerage or finder's fee or commission or similar payments in connection with
this Agreement and the transactions contemplated hereby.
3.7. SEC Filings. As of the date hereof, the Buyer has filed timely
all reports and any definitive proxy or information statements required to be
filed by the Seller with the Securities and Exchange Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act.
3.8. Access to Records. The Buyer has been afforded full and
complete access to all information and other materials relating to NAI and the
business, financial condition and operations of NAI and any other matters,
relating to NAI or the Transaction Documents and the transactions contemplated
thereby which the Buyer has requested, or deemed necessary in evaluating the
merits and risks of acquiring the NAI Common Stock, and has been afforded the
opportunity to obtain any additional information necessary to verify the
accuracy of any information provided.
3.9. Responses from NAI. The Buyer has had the opportunity to ask
and have answered any questions concerning the financial condition, business or
operations or any other matter with respect to NAI or with respect to the merits
and risks of an acquisition of the NAI Common Stock, and the Buyer has received
complete and satisfactory answers to all such questions.
3.10. No Representation Regarding Investment. Except as set forth in
this Agreement, no representation to the Buyer has been made with respect to any
tax or economic benefits to be derived from an investment in the NAI Common
Stock or as to any other matter. The Buyer is relying solely upon its own
knowledge and upon the advice of its personal advisors with respect to the tax,
economic and other aspects of an investment in the NAI Common Stock.
ARTICLE 4
4. Covenants.
4.1. Other Transaction Proposals. Unless and until this Agreement
shall have been terminated in accordance with its terms, neither NAI nor the
Sellers shall, nor shall NAI permit any of its subsidiaries or Affiliates, or
any of its or their respective officers, directors or employees, or any
investment banker, financial advisor, attorney, accountant for, or other
representative of, retained by them to, (a) solicit, initiate, encourage
(including by way of furnishing information) or facilitate, any inquiry or the
making of any proposal which constitutes, or may reasonably be expected to lead
to, any acquisition or purchase of 10% or more of the assets of, or any 5% or
greater equity interest in, NAI or any of its subsidiaries or any tender offer
(including a self tender offer) or exchange offer, merger, consolidation,
business combination, sale of
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10% or more of the assets, sale of securities, recapitalization, liquidation,
dissolution or similar transaction involving NAI or any of its subsidiaries or
any other transaction the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or materially delay any of the
transactions contemplated by the Transaction Documents, the Exchange Offer
Registration Statement or the Distribution Registration Statement (the "Proposed
Transactions") or materially dilute the benefits to the Buyer of such
transactions (any "Other Transaction Proposal") or agree to or endorse any Other
Transaction Proposal, (b) propose, or enter into or participate in any
discussions or negotiations regarding any of the foregoing, furnish to any other
person any information with respect to its business, properties or assets or any
of the foregoing, or otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing set forth in subsection (a) above or
this subsection (b), or (c) sell, transfer or encumber any real property
investments or partnership or joint venture interests of NAI or enter into any
agreement to do so. The preceding sentence shall not prohibit (i) furnishing
information pursuant to an appropriate confidentiality letter concerning NAI and
its businesses, properties or assets to a third party who has made any bona fide
Other Transaction Proposal after the date hereof which is not as a result of a
breach of this Section 4.1, (ii) engaging in discussions or negotiations with
such a third party who has made any bona fide Other Transaction Proposal after
the date hereof which is not as a result of a breach of this Section 4.1, or
(iii) taking and disclosing to its stockholders a position with respect to any
bona fide Other Transaction Proposal which is not as a result of a breach of
Section 4.1, but in each case referred to in the foregoing clauses (i) through
(iii) only after the Board of Directors of NAI concludes in good faith following
consultation with, and receipt of an opinion of, outside counsel that such
action is necessary for the Board of NAI to comply with its fiduciary
obligations under applicable law. If NAI receives notice from a third party of
any Other Transaction Proposal after the date hereof, then NAI shall immediately
inform the Buyer of the receipt thereof, and provide a general summary of such
proposal, and shall keep the Buyer informed of the status of any such proposal
and any response to such proposal. Nothing in this Section 4.1 shall (x) permit
NAI or the Sellers to terminate this Agreement (except as specifically provided
in Article 6 hereof), (y) permit NAI or the Sellers to enter into any agreement
with respect to any Other Transaction Proposal during the term of this Agreement
(it being agreed that during the term of this Agreement, neither NAI, the NAI
Subsidiaries nor the Sellers shall enter into any agreement with any person that
provides for, or in any way facilitates, any Other Transaction Proposal), or (z)
affect any other obligation of any party under this Agreement.
4.2. Conduct of Businesses.
(i) Prior to the Closing, unless the other party has consented in
writing thereto, the Buyer, NAI and the Sellers (with respect to NAI):
(a) Shall use their reasonable best efforts, and shall cause
each of their respective Subsidiaries to use their reasonable best
efforts, to preserve intact their business organizations and goodwill
and keep available the services of their respective officers and
employees;
(b) Shall promptly notify the other of any material
emergency or other material change in the condition (financial or
otherwise), business, properties, assets, liabilities, prospects or
the normal course of their businesses or in the operation of their
properties, any material complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of or
before any Governmental Entity, or the breach in any material respect
of any representation or warranty contained herein; and
(c) Shall promptly deliver to the other true and correct
copies of any report, statement or schedule filed with the SEC
subsequent to the date of this Agreement.
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(ii) Prior to the Closing Date, unless the Buyer has consented in
writing thereto, NAI and each of the NAI Subsidiaries shall, and the Sellers
shall cause NAI and each of the NAI Subsidiaries to:
(a) Conduct their operations according to their usual,
regular and ordinary course in substantially the same manner as
heretofore conducted;
(b) Not amend their Certificate of Incorporation or Bylaws
or other organizational documents, in each case as amended,
supplemented and/or restated to the date hereof;
(c) Not (i) issue any shares of their capital stock, effect
any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction, (ii) grant, confer or
award any option, warrant, conversion right or other right not
existing on the date hereof to acquire any shares of their capital
stock, (iii) increase any compensation or enter into or amend any
employment agreement with any of its present or future officers or
directors, or (iv) adopt any new employee benefit plan (including any
stock option, stock benefit or stock purchase plan) or amend any
existing employee benefit plan in any material respect, except for
changes which are less favorable to participants in such plans;
(d) Not (i) declare, set aside or pay any dividend or make
any other distribution or payment with respect to any shares of its
capital stock, or (ii) directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or capital stock of
any of the NAI Subsidiaries, or make any commitment for any such
action except for the redemption of the NAI Preferred Stock in
accordance with its terms; and
(e) Not sell, lease or otherwise dispose of (i) any of its
capital stock of or other interests in the NAI Subsidiaries or (ii)
except in the ordinary course of business, any of its other assets
which are material, individually or in the aggregate;
(f) Not make any loans, advances or capital contributions
to, or investments in, any other Person in excess of $1,000;
(g) Not 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 business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent audited consolidated
financial statements (or the notes thereto) of NAI delivered to the
Buyer in accordance with Section 2.12 hereof or incurred in the
ordinary course of business consistent with past practice;
(h) Not enter into any commitment, contract or agreement
which may result in total payments or liability by or to it in excess
of $10,000, other than broker membership agreements or affiliate
member agreements entered into in the ordinary course of business;
and
(i) Not enter into any commitment, contract or agreement
with any officer, director, consultant or affiliate of NAI or any of
the NAI Subsidiaries.
(iii) Prior to the Closing Date, unless the Sellers have consented
in writing thereto, the Buyer shall not effect any stock split, reverse stock
split, recapitalization or other similar transactions.
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4.3. Filings; Other Action. Subject to the terms and conditions
herein provided, each of the parties hereto shall: (a) use all reasonable best
efforts to cooperate with one another in (i) determining which filings are
required to be made prior to the Closing Date with, and which consents,
approvals, permits or authorizations are required to be obtained prior to the
Closing Date from, Governmental Entities in connection with the execution and
delivery of this Agreement and the consummation of the Proposed Transactions and
(ii) timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations; (b) use all reasonable best efforts to
obtain in writing any consents required from third parties in form reasonably
satisfactory to NAI, the Sellers and the Buyer necessary to effectuate the
Proposed Transactions, and (c) use all reasonable best 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 and make effective the Proposed
Transactions. If, at any time after the Closing Date, any further action is
necessary or desirable to carry out the purpose of this Agreement, the proper
officers and directors of NAI, the Buyer and the Sellers shall take all such
necessary action.
4.4. Inspection of Records; Opportunity to Ask Questions. From the
date hereof to the Closing, NAI shall allow all designated officers,
attorneys, accountants and other representatives of the Buyer access at all
reasonable times to the records and files, correspondence, audits and
properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs, of NAI and the NAI Subsidiaries. NAI and the Sellers will continue to
cause the managerial employees, counsel, regular independent certified public
accountants and consultants of NAI and each of the NAI Subsidiaries to be
available upon reasonable notice to answer questions of the Buyer and its duly
authorized representatives. Any investigation carried out by the Buyer or its
authorized representatives shall not affect or mitigate NAI's or the Sellers'
covenants, representations and warranties in this Agreement, which shall
continue in full force and effect.
4.5. Publicity. The Buyer and NAI shall, subject to their legal
obligations (including requirements of stock exchanges and other similar
regulatory bodies) consult with each other before issuing any press release or
making any other public statement, or making any disclosure to any third
party, with respect to the Proposed Transactions, and shall not issue any such
press release, make any such public statement, or make any such disclosure,
without the prior written consent of the other party which consent shall not
be unreasonably withheld. It is further agreed that in determining whether or
not a press release or other public statement or disclosure should be issued
or made and its contents, the overriding concerns shall be that the Buyer is a
public company and its obligations as a result thereof and all issues shall be
resolved with that in mind.
4.6. Listing Application. The Buyer shall promptly prepare and
submit to the NYSE a supplemental listing application covering the Buyer Common
Shares, and shall use its reasonable efforts to obtain, prior to the Closing
Date, approval for the listing of such Buyer Common Shares, subject to official
notice of issuance.
4.7. Further Action. Each party hereto shall, subject to the
fulfillment at or before the Closing Date by the other party of each of the
conditions of performance set forth herein or the waiver thereof, perform such
further acts and execute such documents as may reasonably be required to
effect the Proposed Transactions.
4.8. Sale of Securities of NAI and the Buyer. The Sellers shall not
sell or transfer, directly or indirectly, any shares of NAI Common Stock, any
Buyer Notes, any Buyer Common Shares or any Rights held by the Sellers,
directly or indirectly, for a period of three years from the Closing Date,
except that (i) the Finns may transfer shares of NAI Common Stock, Buyer Notes
(other than Buyer Notes held in Escrow
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pursuant to Section 7.5 hereof), and Buyer Common Shares to members of their
immediate family (subject to such transferees agreeing to be bound by this
Agreement) and (ii) the Trust may transfer shares of NAI Common Stock, Buyer
Notes (other than Buyer Notes held in escrow pursuant to Section 7.5 herein),
and Buyer Common Shares to the Finns). The Buyer Common Shares, the Buyer Notes
and the NAI Common Stock shall bear restrictive legends to the effect of the
foregoing.
4.9. Expenses. If the Proposed Transactions are consummated, all
costs and expenses incurred by all parties in connection with the Proposed
Transactions shall be paid by NAI, including, without limitation, the filing
fee in connection with the filing of the Exchange Offer Registration Statement
with the SEC, accounting fees, attorneys' fees and the expenses incurred in
connection with printing and mailing the Exchange Offer Registration
Statement.
4.10. Reincorporation Merger. On the date hereof, the Sellers have
entered into a nonunanimous written consent (the "Written Consent") of the
shareholders of NAI, in the form attached hereto as Exhibit A, authorizing,
among other things, the merger of NAI with and into New America International,
Inc., a Maryland corporation and a wholly-owned subsidiary of NAI. The Finns
agree that they will not take any action to modify, revoke, rescind or in any
other way affect the Written Consent and the transactions authorized therein
without the written consent of the Buyer.
4.11. Board of Directors of NAI. The Buyer and the Sellers agree
that immediately following the consummation of the Exchange Offer, the Board of
Directors of NAI shall be reconstituted to consist of Gerald C. Finn, Jeffrey
M. Finn, Joseph Grossman, Norman M. Kranzdorf, Robert H. Dennis, Michael
Kranzdorf, Peter O. Hanson and Bernard J. Korman.
4.12. Restriction on Convertibility of the Buyer Notes.
Notwithstanding the fact that the Buyer Notes, by their terms, become
convertible into Buyer Common Shares two years after the Closing Date, the
Sellers agree that they will not convert the Buyer Notes issued to them into
Buyer Common Shares until a date at least three years after the Closing Date;
provided, however, that in the event that (i) the Buyer, in accordance with
the terms of the Buyer Notes, sends out a notice of redemption relating to the
Buyer Notes prior to a date three years after the Closing or (ii) there is a
Change in Control or an Event of Default (each as defined in the Exchange
Offer Registration Statement), then the Sellers may convert the Buyer Notes
issued to them, in accordance with the terms of the Buyer Notes, prior to a
date three years after the Closing but in no event prior to the date one year
after the date of issuance of the Buyer Notes.
ARTICLE 5
5. Conditions.
5.1. Conditions to Each Party's Obligation to Consummate the
Exchange Offer. The respective obligation of each party to consummate the
Exchange Offer shall be subject to the fulfillment at or prior to the Closing
Date of the following conditions:
(a) Neither of the parties hereto shall be subject to any
order or injunction of a court of competent jurisdiction which prohibits the
consummation of the Proposed Transactions. In the event any such order or
injunction shall have been issued, each party agrees to use its reasonable
best efforts to have any such injunction lifted.
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(b) The Exchange Offer Registration Statement and the
Distribution Registration Statement shall have become effective and all
necessary state securities law or "Blue Sky" permits or approvals required to
carry out the Proposed Transactions shall have been obtained and no stop order
with respect to any of the foregoing shall be in effect.
(c) 10,379,531 shares of NAI Common Stock, representing 80%
of the total number of issued and outstanding shares of NAI Common Stock have
been validly tendered and not withdrawn prior to the Expiration Date pursuant
to the Exchange Offer Registration Statement.
(d) The Buyer shall have obtained the approval for the
listing of the Buyer Common Shares on the NYSE, subject to official notice of
issuance.
(e) All consents, authorizations, orders and approvals of
(or filings or registrations with) any Governmental Entity or third parties
required in connection with the Proposed Transactions shall have been obtained
or made.
(f) Each party shall have delivered all such documents or
certificates and disclosed such information as the other party may reasonably
request.
5.2. Conditions to Obligations of the Buyer to Consummate the
Exchange Offer. The obligation of the Buyer to consummate the Exchange Offer
shall be subject to the fulfillment at or prior to the Closing of the
following conditions, unless waived by the Buyer:
(a) NAI and the Sellers shall have performed their
agreements contained in this Agreement required to be performed on or
prior to the Closing and the representations and warranties of NAI
and the Sellers contained in this Agreement (without giving effect to
any materiality qualifications or exceptions contained therein) shall
be true and correct in all material respects as of the Closing Date
as if made on the Closing Date, and the Buyer shall have received a
certificate of the President or a Vice President of NAI and of each
of the Sellers, dated the Closing Date, certifying to such effect;
(b) NAI and the Finns shall have entered into employment
agreements (the "Employment Agreements"), substantially in the form
of Exhibits B-1 and B-2 hereto.
(c) The Sellers and an escrow agent shall have entered into
an Escrow Agreement (the "Escrow Agreement"), substantially in the
form of Exhibit C hereto, and the principal amount of $800,000 of the
Buyer Notes issued to G. Finn and the principal amount of $200,000 of
the Buyer Notes issued to J. Finn shall be deposited with the escrow
agent pursuant to the Escrow Agreement.
(d) The Buyer shall have received evidence in writing that
Matthew Arnold, Robert McMenamin, and Marc Shegoski have resigned
from the Board of Directors of NAI, effective as of the Closing Date.
(e) The Buyer shall have received the opinion of Greenbaum,
Rowe, Smith, Ravin, Davis & Himmel LLP, dated the Closing Date, to the
effect set forth in Sections 2.1 (except with respect to foreign
qualification for which no opinion need be given), 2.2, 2.3 (except
with respect to foreign qualification for which no opinion need be
given), 2.5, 2.6, 2.17 (except with respect to laws governing brokerage
commissions and franchise laws as to which no opinion need be given),
2.27 and 2.29, subject to customary assumptions, limitations and
qualifications.
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(f) Any waiver or consent of the holders of the NAI
Preferred Stock required in connection with the Proposed Transactions
shall have been obtained.
(g) From the date of this Agreement through the Closing,
there shall not have occurred any change in the financial condition,
business, operations or prospects of NAI and the NAI Subsidiaries,
taken as a whole, that would have or would be reasonably likely to
have an NAI Material Adverse Effect.
(h) Norma Finn shall have entered into a letter agreement
pursuant to which she has agreed not to convert the Buyer Notes
issued to her until a date at least three years following the Closing
Date; provided, however, that in the event that (i) the Buyer, in
accordance with the terms of the Buyer Notes, sends out a notice of
redemption relating to the Buyer Notes prior to a date three years
after the Closing or (ii) there is a Change of Control or an Event of
Default (each as defined in the Exchange Offer Registration
Statement), then Norma Finn may convert the Buyer Notes issued to
her, in accordance with the terms of the Buyer Notes, prior to a date
three years after the Closing but in no event prior to the date one
year after the date of issuance of the Buyer Notes..
5.3. Conditions to Obligation of NAI and the Sellers to Consummate
the Exchange Offer. The obligations of NAI and the Sellers to consummate the
Exchange Offer shall be subject to the fulfillment at or prior to the Closing
Date of the following conditions, unless waived by the Sellers:
(a) The Buyer shall have performed its agreements contained
in this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of the Buyer contained in
this Agreement (without giving effect to any materiality
qualifications or exceptions contained therein) shall be true and
correct in all material respects as of the Closing Date as if made on
the Closing Date, and NAI and the Sellers shall have received a
certificate of the President or a Vice President of the Buyer, dated
the Closing Date, certifying to such effect.
(b) NAI shall have received the opinion of Robinson
Silverman Pearce Aronsohn & Berman LLP or Ballard Andrews & Ingersoll
LLP, dated the Closing Date, substantially to the effect set forth in
Sections 3.1, 3.2, 3.3 and 3.4, subject to customary assumptions,
limitations and qualifications.
(c) NAI and the Finns shall have entered into the Employment
Agreements.
(d) From the date of this Agreement through the Closing,
there shall have not occurred any material adverse change in the
financial condition, business, operations or prospects of the Buyer
and its subsidiaries taken as a whole; provided, however, that any
change in the stock price of the Buyer will not constitute a material
adverse change under this Section 5.3(d).
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ARTICLE 6
6. Termination.
6.1. Termination by Mutual Consent. This Agreement and the Exchange
Offer may be terminated at any time prior to the Closing Date, by the mutual
written consent of the Buyer and NAI.
6.2. Termination by the Sellers, NAI or the Buyer. This Agreement
may be terminated and the Exchange Offer may be terminated by action of the
Sellers, the Board of Directors of NAI or the Board of Trustees of the Buyer if
(a) the Exchange Offer shall not have been consummated by December 31, 1998, or
(b) a United States federal or state court of competent jurisdiction or other
Governmental Entity shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable, provided, that the
party seeking to terminate this Agreement pursuant to this clause (b) shall have
used all reasonable efforts to remove such order, decree, ruling or injunction;
and provided, in the case of a termination pursuant to clause (a) above, that
the terminating party shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have proximately
contributed to the occurrence of the failure referred to in said clause.
6.3. Termination by the Sellers or NAI. This Agreement may be
terminated and the Exchange Offer may be terminated at any time prior to the
Closing Date, by action of the Sellers or the Board of Directors of NAI, if (a)
in the exercise of its good faith judgment following consultation with, and
receipt of an opinion of, outside counsel that such action is necessary for the
Board of Directors of NAI to comply with its fiduciary duties to its
shareholders imposed by law, the Board of Directors of NAI determines that such
termination is required by reason of any Other Transaction Proposal being made,
or (b) there has been a breach by the Buyer of any representation or warranty
contained in this Agreement which would have or would be reasonably likely to
materially impair the Buyer's ability to consummate the transactions
contemplated by the Transaction Documents, which breach is not curable by
December 31, 1998, (c) there has been a material breach of any of the covenants
or agreements set forth in this Agreement on the part of the Buyer, which breach
is not curable or, if curable, is not cured within 30 days after written notice
of such breach is given by NAI or the Sellers to the Buyer, (d) the
consideration being offered in the Exchange Offer for each share of NAI Common
Stock is reduced below $.7707 of the Buyer Notes, without the consent of the
Sellers, or (e) after the date hereof: (i) any domestic or international event
or act or occurrence has materially disrupted, or in the opinion of the Sellers
will in the immediate future materially disrupt, the securities markets; (ii) a
general suspension of, or a general limitation on prices for, trading in
securities on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market; (iii) a banking moratorium shall have been declared
either by Federal or New York State authorities; (iv) there shall have occurred
any outbreak or material escalation of hostilities or other calamity or crises
the effect of which on the financial markets of the United States or on the
United States is such as to make it, in the judgment of the Sellers,
impracticable to consummate the Proposed Transactions; or (v) any restriction
materially adversely affecting the Proposed Transactions which was not in effect
on the date hereof shall have become effective. Notwithstanding the foregoing,
any termination pursuant to this Section 6.3(a) shall only be effective if,
simultaneously with such termination, all sums that NAI and the Sellers are
required to pay to the Buyer pursuant to Section 6.5 have been paid.
6.4. Termination by the Buyer. This Agreement may be terminated and
the Exchange Offer may be terminated at any time prior to the Closing Date, by
action of the Board of Trustees of the Buyer, if (a) after the date hereof: (i)
any domestic or international event or act or occurrence has materially
disrupted, or in the opinion of the Buyer will in the immediate future
materially disrupt, the securities markets; (ii) a
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general suspension of, or a general limitation on prices for, trading in
securities on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market; (iii) a banking moratorium shall have been
declared either by Federal or New York State authorities; (iv) there shall
have occurred any outbreak or material escalation of hostilities or other
calamity or crises the effect of which on the financial markets of the United
States or on the United States is such as to make it, in the judgment of the
Buyer, impracticable to consummate the Proposed Transactions; or (v) any
restriction materially adversely affecting the Proposed Transactions which was
not in effect on the date hereof shall have become effective; (b) there has
been a breach by NAI or the Sellers of any representation or warranty
contained in this Agreement which would have or would be reasonably likely to
have an NAI Material Adverse Effect or, materially impair NAI's or the
Seller's ability to consummate the transaction contemplated by the Transaction
Documents, which breach is not curable by December 31, 1998, or (c) there has
been a material breach of any of the covenants or agreements set forth in this
Agreement on the part of NAI or the Sellers which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the Buyer to NAI and the Sellers.
6.5. Effect of Termination and Abandonment.
(a) If an election is made to terminate this Agreement pursuant to
Section 6.3(a), 6.4(b) or 6.4(c), (i) NAI and the Sellers shall immediately
reimburse the Buyer for the Buyer's costs and expenses, including, without
limitation, legal and accounting fees, printing and filing fees, incurred in
connection with its due diligence and negotiation and efforts to enter into
this Agreement, prepare, file and process the Registration Statements and
consummate transactions contemplated hereby and thereby and (ii) if NAI and
the Sellers consummate any Other Transaction Proposal relating to in excess of
10% of NAI's assets or outstanding capital stock within 180 days of December
31, 1998 or at any time thereafter pursuant to a definitive agreement entered
into within such 180-day period, NAI and the Sellers shall immediately pay in
cash to the Buyer a termination fee of $1,000,000.
(b) If an election is made to terminate this Agreement pursuant to
Section 6.3(b) 6.3(c) or 6.3(d), the Buyer shall immediately reimburse NAI and
the Sellers for up to $100,000 of their costs and expenses, including, without
limitation, legal and accounting fees, incurred in connection with its due
diligence, negotiation and efforts to enter into this Agreement, prepare, file
and process the Registration Statements and consummate the transactions
contemplated hereby and thereby.
(c) In the event of termination of this Agreement and the
termination of the Exchange Offer pursuant to this Article 6, all obligations of
the parties hereto shall terminate, except the obligations of the parties
pursuant to this Section 6.5 and except for the provisions of Sections 8.3, 8.4,
8.5, 8.6, 8.7, 8.9, 8.10, 8.12, 8.13, and 8.14.
6.6. Extension; Waiver. At any time prior to the Closing Date, any
party hereto, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto or
(c) waive compliance with any of the agreements or conditions for the benefit
of such party 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 an instrument
in writing signed on behalf of such party.
ARTICLE 7
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7. Indemnification.
7.1. By the Sellers. The Sellers and, in the event the transactions
contemplated by this Agreement are not consummated, NAI, jointly and
severally, agree to indemnify and hold harmless the Buyer and its respective
Affiliates, and their respective shareholders, partners, trustees, directors,
officers, employees, agents, successors and assigns (each an "indemnified
person") from and against, and to reimburse any such indemnified person when
incurred with respect to, any loss, damage, liability claim, cost and expense,
including reasonable attorneys' fees ("Losses") incurred by such indemnified
person by reason of or arising out of or in connection with (i) the breach of
any representation or warranty made by or on behalf of NAI or any Seller
contained in this Agreement, any other Transaction Document or any exhibit
hereto or thereto or in any schedule or certificate furnished or to be
furnished to the Buyer pursuant to or in connection with this Agreement, any
other Transaction Document or any of the transactions hereby contemplated;
(ii) the failure of NAI or any Seller to perform any agreement required by
this Agreement or any other Transaction Document to be performed by such
Person; and (iii) the allegation by any third party of the existence of any
state of facts which if it existed would constitute a breach of any
representation or warranty made by or on behalf of NAI or any Seller contained
in this Agreement, any other Transaction Document or any exhibit hereto or
thereto or in any schedule or certificate furnished or to be furnished to the
Buyer pursuant to or in connection with this Agreement any other Transaction
Document or any of the transactions hereby contemplated.
Each indemnified person agrees to give prompt notice to the Sellers
of any claim by any third party for which such indemnified party may request
indemnification under this Section 7.1 (except any failure or delay to give
such notice shall not relieve any Seller of its obligations hereunder unless
and only to the extent, if at all, any such Person has been irrevocably
prejudiced directly by reason of such failure or delay).
If (a) any such third party claim shall be a claim solely for
monetary damages, (b) the entire amount of such claim shall not be subject to
the limitations on indemnification set forth in Section 7.4 hereof, and (c)
the Sellers shall agree in writing within ten business days after receipt of
notice of such claim that they are required, pursuant to this Section 7.1, to
indemnify for the full amount of such claim, then the Sellers shall be
entitled to control the contest, defense, settlement or compromise of any such
claim (including the engagement of counsel in connection therewith), at their
own cost and expense, including the cost and expense of attorneys' fees in
connection with such contest, defense, settlement or compromise and each
indemnified person shall have the right to participate in the contest,
defense, settlement or compromise of any such claim at its cost and expense,
including the cost and expense of attorneys' fees in connection with such
participation; provided, however, that, the Sellers shall not settle or
compromise any such claim without the prior written consent of the indemnified
persons, unless the sole relief provided is monetary damages that are paid in
full by the Sellers and such settlement includes an unconditional release of
the indemnified persons of all liabilities in respect of such claims.
If such claim shall not be solely a claim for monetary damages and/or
such claim shall be subject, in whole or in part, to the limitations on
indemnification set forth in Section 7.4, but the Sellers shall agree in
writing within ten business days after receipt of notice of such claim that
they are required, pursuant to this Section 7.1 (but subject to the
limitations set forth in Section 7.4), to indemnify each indemnified person
for the full amount of such claim, then the contest, defense, settlement and
compromise of such claim shall be controlled jointly by the Sellers, on the
one hand, and the indemnified persons, on the other hand (and any counsel
engaged in connection therewith shall be acceptable to both such groups), at
the cost and expense of the Sellers, including the cost and expense of
attorneys' fees in connection with such contest, defense, settlement or
compromise, and such claim shall not be settled or compromised unless the
indemnified persons, on the one hand, and the Sellers, on the other hand,
jointly approve such settlement or compromise.
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If such claim shall not be a claim for monetary damages or the
Sellers do not agree in writing within ten business days after receipt of
notice of such claim that the Sellers are required, pursuant to this Section
7.1, to indemnify the indemnified persons for the full amount of such claim,
then the indemnified persons shall control the contest, defense, settlement or
compromise of any such claim (including the engagement of counsel in
connection therewith), at the Sellers' cost and expense, including the cost
and expense of attorneys' fees in connection with such contest, defense,
settlement or compromise, and the Sellers shall have the right to participate
in the contest, defense, settlement or compromise of any such claim at their
own cost and expense, including the cost and expense of attorneys' fees in
connection with such participation; provided, however, that the indemnified
persons shall diligently defend any such claim and shall not settle or
compromise any such claim without the prior written consent of the Sellers,
which consent shall not be unreasonably withheld.
7.2. By the Buyer. The Buyer agrees to indemnify and hold harmless
the Sellers and their respective Affiliates, and their respective
shareholders, partners, directors, officers, employees, agents, successors and
assigns (each an "indemnified person") from and against, and to reimburse any
such indemnified person when incurred with respect to, any and all Losses
incurred by such indemnified person by reason of or arising out of or in
connection with (i) the breach of any representation or warranty made by or on
behalf of the Buyer contained in this Agreement, any other Transaction
Document or any exhibit hereto or thereto or in any schedule or certificate
furnished or to be furnished to the Sellers pursuant to or in connection with
this Agreement, any other Transaction Document or any of the transactions
hereby contemplated, (ii) the failure of the Buyer to perform any agreement
required by this Agreement or any other Transaction Document to be performed
by it, and (iii) the allegation by any third party of the existence of any or
state of facts which if it existed would constitute a breach of any
representation or warranty made by or on behalf of the Buyer contained in this
Agreement, any other Transaction Document or any exhibit hereto or in any
schedule or certificate furnished or to be furnished to the Sellers pursuant
to or in connection with this Agreement, any other Transaction Document or any
of the transactions hereby contemplated.
Each indemnified person agrees to give prompt notice to the Buyer of
any claim by any third party for which such indemnified party may request
indemnification under this Section 7.2 (except any failure or delay to give
such notice shall not relieve the Buyer of its obligations hereunder unless
and only to the extent, if at all, that the Buyer has been irrevocably
prejudiced directly by reason of such failure or delay).
If (a) any such third party claim shall be solely for monetary
damages and (b) the Buyer shall agree in writing within ten business days
after receipt of notice of such claim that it is required, pursuant to this
Section 7.2, to indemnify for the full amount of such claim, then the Buyer
shall be entitled to control the contest, defense, settlement or compromise of
any such claim (including the engagement of counsel in connection therewith),
at its own cost and expense, including the cost and expense of attorneys' fees
in connection with such contest, defense, settlement or compromise and each
indemnified person shall have the right to participate in the contest,
defense, settlement or compromise of any such claim at its own cost and
expense, including the cost and expense of attorneys' fees in connection with
such participation; provided, however, that, the Buyer shall not settle or
compromise any such claim without the prior written consent of the indemnified
persons, unless the sole relief provided is monetary damages that are paid in
full by the Buyer and such settlement includes an unconditional release of the
indemnified persons of all liabilities in respect of such claims.
If such claim shall not be solely a claim for monetary damages, but
the Buyer shall agree in writing within ten business days after receipt of
notice of such claim that it is required, pursuant to this Section 7.2, to
indemnify each indemnified person for the full amount of such claim, then the
contest, defense, settlement and compromise of such claim shall be controlled
jointly by the Buyer, on the one hand, and the indemnified
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person, on the other hand (and any counsel engaged in connection therewith
shall be acceptable to both such groups), at the cost and expense of the
Buyer, including the cost and expense of attorneys' fees in connection with
such contest, defense, settlement or compromise, and such claim shall not be
settled or compromised unless the indemnified persons, on the one hand, and
the Buyer, on the other hand, jointly approve such settlement or compromise.
If such claim shall not be a claim for monetary damages or the Buyer
does not agree in writing within ten business days after receipt of notice of
such claim that it is required, pursuant to this Section 7.2 to indemnify the
indemnified persons for the full amount of such claim, then the indemnified
persons shall control the contest, defense, settlement or compromise of any
such claim (including the engagement of counsel in connection therewith), at
the Buyer's cost and expense, including the cost and expense of attorneys'
fees in connection with such contest, defense, settlement or compromise, and
the Buyer shall have the right to participate in the contest, defense,
settlement or compromise of any such claim at their own cost and expense,
including the cost and expense of attorneys' fees in connection with such
participation; provided, however, that the indemnified persons shall
diligently defend any such claim and shall not settle or compromise any such
claim without the prior written consent of the Buyer, which consent shall not
be unreasonably withheld.
7.3. By NAI. NAI agrees to indemnify and hold harmless the Buyer
and its respective Affiliates, and their respective shareholders, partners,
trustees, directors, officers, employees, agents, successors and assigns (each
an "indemnified person") from and against, and to reimburse any such indemnified
person when incurred with respect to, any Losses incurred by such indemnified
person by reason of or arising out of or in connection with the failure of NAI
to comply with (i) any Laws relating to real estate brokers or (ii) any federal
or state franchise Laws.
Each indemnified person agrees to give prompt notice to NAI of any
claim by any third party for which such indemnified party may request
indemnification under this Section 7.3 (except any failure or delay to give
such notice shall not relieve NAI of its obligations hereunder unless and only
to the extent, if at all, any such Person has been irrevocably prejudiced
directly by reason of such failure or delay).
If (a) any such third party claim shall be a claim solely for
monetary damages and (b) NAI shall agree in writing within ten business days
after receipt of notice of such claim that they are required, pursuant to this
Section 7.3, to indemnify for the full amount of such claim, then NAI shall be
entitled to control the contest, defense, settlement or compromise of any such
claim (including the engagement of counsel in connection therewith), at their
own cost and expense, including the cost and expense of attorneys' fees in
connection with such contest, defense, settlement or compromise and each
indemnified person shall have the right to participate in the contest,
defense, settlement or compromise of any such claim at its cost and expense,
including the cost and expense of attorneys' fees in connection with such
participation; provided, however, that, NAI shall not settle or compromise any
such claim without the prior written consent of the indemnified persons,
unless the sole relief provided is monetary damages that are paid in full by
NAI and such settlement includes an unconditional release of the indemnified
persons of all liabilities in respect of such claims.
If such claim shall not be a claim solely for monetary damages or NAI
does not agree in writing within ten business days after receipt of notice of
such claim that NAI is required, pursuant to this Section 7.3, to indemnify
the indemnified persons for the full amount of such claim, then the
indemnified persons shall control the contest, defense, settlement or
compromise of any such claim (including the engagement of counsel in
connection therewith), at NAI's cost and expense, including the cost and
expense of attorneys' fees in connection with such contest, defense,
settlement or compromise, and NAI shall have the right to participate in the
contest, defense, settlement or compromise of any such claim at its own cost
and expense,
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including the cost and expense of attorneys' fees in connection with such
participation; provided, however, that the indemnified persons shall
diligently defend any such claim and shall not settle or compromise any such
claim without the prior written consent of NAI, which consent shall not be
unreasonably withheld.
7.4. Limitation on Indemnification(s). Except as set forth in the
proviso to this sentence, neither the Sellers, on the one hand, nor the Buyer,
on the other hand, shall be required to pay any amounts pursuant to clause (i)
or (iii) of Section 7.1, or pursuant to clause (i) or (iii) of Section 7.2
hereof (as the case may be) unless and until the aggregate of all Losses
(other than those hereinafter referred to in the proviso to this sentence)
incurred by all persons indemnified by such indemnifying parties under such
clauses exceeds $80,000, in which event such indemnifying parties shall be
liable, dollar-for-dollar, for the full amount of such Losses; provided that,
notwithstanding the foregoing, the Sellers shall in all events be obligated to
indemnify on a dollar-for-dollar basis from and against all Losses arising out
of or in connection with the breach or alleged breach of the representations
and warranties made in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.16, 2.18,
2.19, 2.27 and 2.29 and the Buyer shall be obligated to indemnify on a
dollar-for-dollar basis from and against all Losses arising out of or in
connection with the breach or alleged breach of the representations and
warranties made in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7. In no event
shall the Sellers be liable to the Buyer for any Losses for which a claim is
made against the Sellers under Section 7.1(i) or 7.1(iii) (other than those
arising out of or in connection with the breach or alleged breach of the
representations and warranties made in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.6,
2.14, 2.16, 2.18, 2.19, 2.27 and 2.29) in excess of $1,000,000.
7.5. Escrow. In order to secure the obligations of the Seller to
indemnify the Buyer pursuant to this Article 7, on the Closing Date, G. Finn
and J. Finn are depositing with the escrow agent under the Escrow Agreement
$800,000 principal amount of Buyer Notes and $200,000 principal amount of
Buyer Notes, respectively. In any instance in which the Buyer has a claim for
indemnity under this Article 7, the Buyer agrees that it will make a demand
and a reasonable effort under the circumstances (which shall not require the
Buyer to institute any suit or other action) to collect such claim against the
funds, to the extent of such funds, then held under the Escrow Agreement,
prior to making any claim against the Sellers with respect to such claim
unless the claim exceeds the amount of such funds.
ARTICLE 8
8. General Provisions.
8.1. Survival. All statements, certifications, indemnifications,
representations and warranties made hereby by the parties to this Agreement,
and their respective covenants, agreements and obligations to be performed
pursuant to the terms hereof, shall survive the Closing, notwithstanding any
examination by or on behalf of any party hereto, notwithstanding any notice of
a breach or of a failure to perform not waived in writing and notwithstanding
the consummation of the transactions hereby contemplated with knowledge of
such breach or failure, and (except with respect to those made in Sections
2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.16, 2.18, 2.19, 2.27, 2.29, 3.1, 3.2, 3.3,
3.4, 3.5, 3.6 and 3.7 which shall survive without limitation, and those
contained in Section 2.14, which shall survive until the expiration of the
statute of limitations on the tax matters discussed therein) the
representations and warranties made hereby by the parties shall terminate on
the second anniversary of the Closing Date, except to the extent a party gives
written notice to the other parties of any breach thereof on or before such
date, and then only with respect to the matters described in such notice;
provided, however, that nothing herein contained shall modify or be construed
to modify in any respect whatsoever any covenant, agreement or obligation to
be performed by any party pursuant to the provisions of this Agreement.
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8.2. Notices. Any notice required to be given hereunder shall be in
writing and shall be sent by facsimile transmission (confirmed by any of the
methods that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to the Buyer:
Mr. Norman Kranzdorf, President
Kranzco Realty Trust
128 Fayette Street
Conshohocken, Pennsylvania 19428
Facsimile: (610) 941-9193
With a copy to:
Alan S. Pearce, Esq.
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile: (212) 541-4630
If to the Sellers or, prior to the Closing Date, NAI:
Mr. Gerald Finn, Chief Executive Officer
New America Network, Inc.
572 U.S. Route 130
Hightstown, New Jersey 08520
Facsimile: (609) 448-8126
With a copy to:
Hal W. Mandel, Esq..
Greenbaum, Rowe, Smith,
Ravin, Davis & Himmel LLP
Metro Corporate Campus One
99 Wood Avenue South
Iselin, New Jersey 08830
Facsimile: (732) 549-1881
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date
so delivered.
8.3. Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder 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 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, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or
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their respective heirs, successors, executors, administrators and assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
8.4. Entire Agreement. This Agreement, the Exhibits and the
Schedules and any documents delivered by the parties in connection herewith
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
8.5. Amendment. This Agreement may be amended by the parties
hereto. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
8.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its rules of conflict of laws. Each of NAI and the Sellers hereby irrevocably
and unconditionally 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 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 in any New York Court that such
litigation brought therein has been brought in an inconvenient forum.
8.7. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
8.8. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
8.9. 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.
8.10. Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.11. Incorporation. All Schedules and 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.
8.12. 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.
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8.13. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
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.
8.14. Non-Recourse. This Agreement and all documents, agreements,
understandings and arrangements relating hereto have been entered into or
executed on behalf of the Buyer by the undersigned in his capacity as a
trustee or officer of the Buyer, which has been formed as a Maryland real
estate investment trust pursuant to an Amended and Restated Declaration of
Trust of Kranzco, dated as of June 17, 1992, as amended and restated, and not
individually, and neither the trustees, officers nor shareholders of the Buyer
shall be personally bound or have any personal liability hereunder. NAI and
the Sellers shall look solely to the assets of the Buyer for satisfaction of
any liability of the Buyer with respect to this Agreement. NAI and the Sellers
will not seek recourse or commence any action against any of the shareholders
of the Buyer or any of their personal assets, and will not commence any action
for money judgments against any of the trustees or officers of the Buyer or
seek recourse against any of their personal assets, for the performance or
payment of any obligation of the Buyer hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year first
written above.
KRANZCO REALTY TRUST
By:
---------------------------
Name:
Title:
NEW AMERICA NETWORK, INC.
By:
---------------------------
Name:
Title:
------------------------------
Gerald C. Finn
------------------------------
Jeffrey M. Finn
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Jeffrey M. Finn, as trustee of the Grantor
Retained Annuity Trust of Gerald C. Finn
u/a dtd. May 12, 1998
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Exhibit 3.4
AMENDED AND RESTATED BY-LAWS OF
KRANZCO REALTY TRUST
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the
Trust shall be located at such place or places as the Trustees may designate.
Section 2. ADDITIONAL OFFICES. The Trust may have additional
offices at such places as the Trustees may from time to time determine or the
business of the Trust may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of shareholders shall be
held at the principal office of the Trust or at such other place within the
United States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the
shareholders for the election of Trustees and the transaction of any business
within the powers of the Trust shall be held during the second calendar
quarter of each year on a date and at the time set by the Trustees, beginning
with the year 1993.
Section 3. SPECIAL MEETINGS. The president or one-third of
the Trustees may call special meetings of the shareholders. Special meetings
of shareholders shall also be called by the secretary upon the written request
of the holders of shares entitled to cast not less than 40% of all the votes
entitled to be cast at such meeting. Such request shall state the purpose of
such meeting and the matters proposed to be acted on at such meeting. The
secretary shall inform such shareholders of the reasonably estimated cost of
preparing and mailing notice of the meeting and, upon payment to the Trust of
such costs, the secretary shall give notice to each shareholder entitled to
notice of the meeting. Unless requested by shareholders entitled to cast a
majority of all the votes entitled to be cast at such meeting, a special
meeting need not be called to consider any matter which is substantially the
same as a matter voted on at any special meeting of the shareholders held
during the preceding twelve months.
Section 4. NOTICE. Not less than ten nor more than 90 days
before each meeting of shareholders, the secretary shall give to each
shareholder entitled to vote at such meeting and to each shareholder not
entitled to vote who is entitled to notice of the meeting
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written or printed notice stating the time and place of the meeting and, in
the case of a special meeting or as otherwise may be required by statute, the
purpose for which the meeting is called, either by mail or by presenting it to
such shareholder personally or by leaving it at his residence or usual place
of business. If mailed, such notice shall be deemed to be given when deposited
in the United States mail addressed to the shareholder at his post office
address as it appears on the records of the Trust, with postage thereon
prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Trust may be
transacted at an annual meeting of shareholders without being specifically
designated in the notice, except such business as is required by statute to be
stated in such notice. No business shall be transacted at a special meeting of
shareholders except as specifically designated in the notice.
Section 6. QUORUM. At any meeting of shareholders, the
presence in person or by proxy of shareholders entitled to cast a majority of
all the votes entitled to be cast at such meeting shall constitute a quorum;
but this section shall not affect any requirement under any statute or the
Declaration of Trust for the vote necessary for the adoption of any measure.
If, however, such quorum shall not be present at any meeting of the
shareholders, the shareholders entitled to vote at such meeting, present in
person or by proxy, shall have power to adjourn the meeting from time to time
to a date not more than 120 days after the original record date without notice
other than announcement at the meeting. At such adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 7. VOTING. A plurality of all the votes cast at a
meeting of shareholders duly called and at which a quorum is present shall be
sufficient to elect a Trustee. Each share may be voted for as many individuals
as there are Trustees to be elected and for whose election the share is
entitled to be voted. A majority of the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient
to approve any other matter which may properly come before the meeting, unless
more than a majority of the votes cast is required by statute or by the
Declaration of Trust. Unless otherwise provided in the Declaration, each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of shareholders.
Section 8. PROXIES. A shareholder may vote the shares owned
of record by him, either in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the secretary of the Trust before or at the time of the meeting. No
proxy shall be valid after eleven months from the date of its execution,
unless otherwise provided in the proxy.
Section 9. VOTING OF SHARES BY CERTAIN HOLDERS. Shares
registered in the name of a corporation, partnership, trust or other entity,
if entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed
by any of the foregoing individuals, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of
the board of directors of such corporation or other entity presents a
certified copy of such bylaw or resolution,
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in which case such person may vote such shares. Any trustee or other fiduciary
may vote shares registered in his name as such fiduciary, either in person or by
proxy.
Shares of the Trust directly or indirectly owned by it shall
not be voted at any meeting and shall not be counted in determining the total
number of outstanding shares entitled to be voted at any given time, unless they
are held by it in a fiduciary capacity, in which case they may be voted and
shall be counted in determining the total number of outstanding shares at any
given time.
The Trustees may adopt by resolution a procedure by which a
shareholder may certify in writing to the Trust that any shares registered in
the name of the shareholder are held for the account of a specified person
other than the shareholder. The resolution shall set forth the class of
shareholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the share transfer books, the time after the record date or closing
of the share transfer books within which the certification must be received by
the Trust; and any other provisions with respect to the procedure which the
Trustees consider necessary or desirable. On receipt of such certification,
the person specified in the certification shall be regarded as, for the
purposes set forth in the certification, the shareholder of record of the
specified shares in place of the shareholder who makes the certification.
Notwithstanding any other provision of the Declaration of
Trust or these Bylaws, Title 3, Subtitle 7 of the Corporations and Associations
Article of the Annotated Code of Maryland (or any successor statute) shall not
apply to any acquisition by any person of shares of beneficial interest of the
Trust.
Section 10. INSPECTORS. At any meeting of shareholders, the
chairman of the meeting may, or upon the request of any shareholder shall,
appoint one or more persons as inspectors for such meeting. Such inspectors
shall ascertain and report the number of shares represented at the meeting
based upon their determination of the validity and effect of proxies, count
all votes, report the results and perform such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
shareholders.
Each report of an inspector shall be in writing and signed
by him or by a majority of them if there is more than one inspector acting at
such meeting. If there is more than one inspector, the report of a majority
shall be the report of the inspectors. The report of the inspector or inspectors
on the number of shares represented at the meeting and the results of the voting
shall be prima facie evidence thereof.
Section 11. REPORTS TO SHAREHOLDERS.
(a) Not later than 90 days after the close of each fiscal
year of the Trust, the Trustees shall deliver or cause to be delivered a
report of the business and operations of the Trust during such fiscal year to
the shareholders, containing a balance sheet and a statement of income
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and surplus of the Trust, accompanied by the certification of an independent
certified public accountant, and such further information as the Trustees may
determine is required pursuant to any law or regulation to which the Trust is
subject. A signed copy of the annual report and the accountant's certificate
shall be filed by the Trustees with the State Department of Assessments and
Taxation of Maryland, and with such other governmental agencies as may be
required by law and as the Trustees may deem appropriate.
(b) Not later than 45 days after the end of each of the
first three quarterly periods of each fiscal year, the Trustees shall deliver
or cause to be delivered an interim report to the shareholders containing
unaudited financial statements for such quarter and for the period from the
beginning of the fiscal year to the end of such quarter, and such further
information as the Trustees may determine is required pursuant to any law or
regulation to which the Trust is subject.
Section 12. NOMINATIONS AND SHAREHOLDER BUSINESS
(a) Annual Meetings of Shareholders. (1) Nominations of
persons for election to the Board of Trustees and the proposal of business to
be considered by the shareholders may be made at an annual meeting of
shareholders (i) pursuant to the Trust's notice of meeting, (ii) by or at the
direction of the Trustees or (iii) by any shareholder of the Trust who was a
shareholder of record at the time of giving of notice provided for in this
Section 12(a), who is entitled to vote at the meeting and who complied with
the notice procedures set forth in this Section 12(a).
(2) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant to clause (iii) of
paragraph (a)(l) of this Section 12, the shareholder must have given timely
notice thereof in writing to the secretary of the Trust. To be timely, a
shareholder's notice shall be delivered to the secretary at the principal
executive offices of the Trust not less than 60 days nor more than 90 days prior
to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 30 days or delayed by more than 60 days from such anniversary date,
notice by the shareholder to be timely must be so delivered not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made. Such shareholder's notice shall set forth (i) as to each person whom
the shareholder proposes to nominate for election or reelection as a Trustee all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Trustees, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a Trustee if elected); (ii) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such shareholder, as they appear on the Trust's books, and of
such beneficial owner
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and (y) the class and number of shares of the Trust which are owned
beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence
of paragraph (a)(2) of this Section 12 to the contrary, in the event that the
number of Trustees to be elected to the Board of Trustees is increased and there
is no public announcement naming all of the nominees for Trustee or specifying
the size of the increased Board of Trustees made by the Trust at least 70 days
prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this Section 12(a) shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the secretary at the principal executive
offices of the Trust not later than the close of business on the tenth day
following the day on which such public announcement is first made by the Trust.
(b) Specia1 Meetings of Shareholders. Only such business
shall be conducted at a special meeting of shareholders as shall have been
brought before the meeting pursuant to the Trust's notice of meeting.
Nominations of persons for election to the Board of Trustees may be made at a
special meeting of shareholders at which Trustees are to be elected pursuant
to the Trust's notice of meeting (i) by or at the direction of the Board of
Trustees or (ii) provided that the Board of Trustees has determined that
Trustees shall be elected at such special meeting, by any shareholder of the
Trust who is a shareholder of record at the time of giving of notice provided
for in this Section 12(b), who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section 12(b). In the
event the Trust calls a special meeting of shareholders for the purpose of
electing one or more Trustees to the Board of Trustees, any such shareholder
may nominate a person or persons (as the case may be) for election to such
position as specified in the Trust's notice of meeting, if the shareholder's
notice required by paragraph (a)(2) of this Section 12(b) shall be delivered
to the secretary at the principal executive offices of the Trust not earlier
than the 90th day prior to such special meeting and not later than the close
of business on the later of the 60th day prior to such special meeting or the
tenth day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Trustees to be
elected at such meeting.
(c) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 12 shall be eligible to
serve as Trustees and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 12. The presiding officer of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in accordance with
the procedures set forth in this Section 12 and, if any proposed nomination or
business is not in compliance with this Section 12, to declare that such
defective nomination or proposal be disregarded.
(2) For purposes of this Section 12, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable news service or in a document
publicly filed by the Trust with the Securities and Exchange Commission pursuant
to Sections 13, 14 or 15(d) of the Exchange Act.
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(3) Notwithstanding the foregoing provisions of this
Section 12, a shareholder shall also comply with all applicable requirements of
state law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 12. Nothing in this Section 12
shall be deemed to affect any rights of shareholders to request inclusion of
proposals in the Trust's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.
Section 13. INFORMAL ACTION BY SHAREHOLDERS. Any action
required or permitted to be taken at a meeting of shareholders may be taken
without a meeting if a consent in writing, setting forth such action, is
signed by each shareholder entitled to vote on the matter and any other
shareholder entitled to notice of a meeting of shareholders (but not to vote
thereat) has waived in writing any right to dissent from such action, and such
consent and waiver are filed with the minutes of proceedings of the
shareholders.
Section 14. VOTING BY BALLOT. Voting on any question or in
any election may be viva voce unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
ARTICLE III
TRUSTEES
Section 1. GENERAL POWERS: QUALIFICATIONS. The business and
affairs of the Trust shall be managed under the direction of its Board of
Trust ees. A Trustee shall be an individual at least 21 years of age who is not
under legal disability.
Section 2. ANNUAL AND REGULAR MEETINGS. An annual meeting of
the Trustees shall be held immediately after and at the same place as the
annual meeting of shareholders, no notice other than this Bylaw being
necessary. The Trustees may provide, by resolution, the time and place, either
within or without the State of Maryland, for the holding of regular meetings
of the Trustees without other notice than such resolution.
Section 3. SPECIAL MEETINGS. Special meetings of the Trustees
may be called by or at the request of the president or by a majority of the
Trustees then in office. The person or persons authorized to call special
meetings of the Trustees may fix any place, either within or without the State
of Maryland, as the place for holding any special meeting of the Trustees called
by them.
Section 4. NOTICE. Notice of any special meeting shall be
given by written notice delivered personally, telegraphed or mailed to each
Trustee at his business or residence address. Personally delivered or
telegraphed notices shall be given at least two days prior to the meeting.
Notice by mail shall be given at least five days prior to the meeting. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail properly addressed, with postage thereon prepaid. If given by
telegram, such notice shall be deemed to be given when the telegram is
delivered to the telegraph company. Neither the business to be transacted at,
nor
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the purpose of, any annual, regular or special meeting of the Trustees need be
stated in the notice, unless specifically required by statute or these Bylaws.
Section 5. QUORUM. A majority of the Trustees shall
constitute a quorum for transaction of business at any meeting of the
Trustees, provided that, if less than a majority of such Trustees are present
at said meeting, a majority of the Trustees present may adjourn the meeting
from time to time without further notice, and provided further that if,
pursuant to the Declaration of Trust or these Bylaws, the vote of a majority
of a particular group of Trustees is required for action, a quorum must also
include a majority of such group.
The Trustees present at a meeting which has been
duly called and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough Trustees to leave less than a quorum.
Section 6. VOTING. The action of the majority of the Trustees
present at a meeting at which a quorum is present shall be the action of the
Trustees, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 7. TELEPHONE MEETINGS. Trustees may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
Section 8. INFORMAL ACTION BY TRUSTEES. Any action required
or permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each Trustee and
such written consent is filed with the minutes of proceedings of the Trustees.
Section 9. VACANCIES. If for any reason any or all the
Trustees cease to be Trustees, such event shall not terminate the Trust or
affect these Bylaws or the powers of the remaining Trustees hereunder (even if
fewer than three Trustees remain). Any vacancy (including a vacancy created by
an increase in the number of Trustees) shall be filled, at any regular meeting
or at any special meeting called for that purpose, by a majority of the
Trustees. Any individual so elected as Trustee shall hold office for the
unexpired term of the Trustee he is replacing.
Section 10. COMPENSATION. Trustees shall not receive any
stated salary for their services as Trustees but, by resolution of the
Trustees, fixed sums per year and/or per meeting. Expenses of attendance, if
any, may be allowed to Trustees for attendance at each annual, regular or
special meeting of the Trustees or of any committee thereof; but nothing
herein contained shall be construed to preclude any Trustees from serving the
Trust in any other capacity and receiving compensation therefor.
Section 11. REMOVAL OF TRUSTEES. The shareholders may, at any
time, remove any Trustee in the manner provided in the Declaration of Trust.
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Section 12. LOSS OF DEPOSITS. No Trustee shall be liable for
any loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or shares
have been deposited.
Section 13. SURETY BONDS. Unless required by law, no Trustee
shall be obligated to give any bond or surety or other security for the
performance of any of his duties.
Section 14. RELIANCE. Each Trustee, officer, employee and
agent of the Trust shall, in the performance of his duties with respect to the
Trust, be fully justified and protected with regard to any act or failure to
act in reliance in good faith upon the books of account or other records of
the Trust, upon an opinion of counsel or upon reports made to the Trust by any
of its officers or employees or by the adviser, accountants, appraisers or
other experts or consultants selected by the Trustees or officers of-the
Trust, regardless of whether such counsel or expert may also be a Trustee.
Section 15. CERTAIN RIGHTS OF TRUSTEES, OFFICERS, EMPLOYEES
AND AGENTS. The Trustees shall have no responsibility to devote their full
time to the affairs of the Trust. Any Trustee or officer, employee or agent of
the Trust, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to those
of or relating to the Trust.
ARTICLE IV
COMMITTEES
Section 1. NUMBER. TENURE AND QUALIFICATIONS. The Trustees
may appoint from among its members an Executive Committee, an Audit Committee
and other committees, composed of two or more Trustees, to serve at the pleasure
of the Trustees.
Section 2. POWERS. The Trustees may delegate to committees
appointed under Section 1 of this Article any of the powers of the Trustees,
except as prohibited by law.
Section 3. MEETINGS. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another Trustee to act in the place of such
absent member.
Section 4. TELEPHONE MEETINGS. Members of a committee of the
Trustees may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means shall constitute presence in person at the meeting.
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Section 5. INFORMAL action BY COMMITTEES. Any action
required or permitted to be taken at any meeting of a committee of the
Trustees may be taken without a meeting, if a consent in writing to such
action is signed by each member of the committee and such written consent is
filed with the minutes of proceedings of such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust may
consist of a chairman of the board, a vice chairman of the board, a president,
one or more vice presidents, a treasurer, one or more assistant treasurers, a
secretary, and one or more assistant secretaries. In addition, the Trustees may
from time to time appoint such other officers with such powers and duties as
they shall deem necessary or desirable. The officers of the Trust shall be
elected annually by the Trustees at the first meeting of the Trustees held after
each annual meeting of shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor is elected and
qualifies or until his death, resignation or removal in the manner hereinafter
provided. Any two or more offices except president and vice president may be
held by the same person. In their discretion, the Trustees may leave unfilled
any office except that of president, treasurer and secretary. Election of an
officer or agent shall not of itself create contract rights between the Trust
and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of
the Trust may be removed by the Trustees if in their judgment the best
interests of the Trust would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Any officer of the Trust may resign at any time by giving written notice of
his resignation to the Trustees, the chairman of the board, the president or
the secretary. Any resignation shall take effect at any time subsequent to the
time specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a
resignation shall not be necessary to make it effective unless otherwise
stated in the resignation.
Section 3. VACANCIES. A vacancy in any office may be filled
by the Trustees for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Trustees may
designate a chief executive officer from among the elected officers. The chief
executive officer shall have responsibility for implementation of the policies
of the Trust, as determined by the Trustees, and for the administration of the
business affairs of the Trust.
Section 5. CHIEF OPERATING OFFICER. The Trustees may
designate a chief operating officer from among the elected officers. Said
officer will have the responsibilities and duties as set forth by the Trustees
or the chief executive officer.
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Section 6. CHIEF FINANCIAL OFFICER. The Trustees may
designate a chief financial officer from among the elected officers. Said
officer will have the responsibilities and duties as set forth by the Trustees
or the chief executive officer.
Section 7. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. In the
absence of the president, the chairman of the board shall preside over the
meetings of the Trustees and of the shareholders at which he shall be present.
In the absence of both the president and the chairman of the board, the vice
chairman of the board shall preside at such meetings at which he shall be
present. The chairman of the board and the vice chairman of the board shall
perform such other duties as may be assigned to him or them by the Trustees.
Section 8. PRESIDENT. The president shall preside over the
meetings of the Trustees and of the shareholders at which he shall be present
and shall in general supervise and control all of the business and affairs of
the Trust. In the absence of a designation of a chief executive officer by the
Trustees, the president shall be the chief executive officer and shall be ex
officio a member of all committees that may, from time to time, be constituted
by the Trustees. He may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Trustees or by these Bylaws to some other officer or agent of
the Trust or shall be required by law to be otherwise executed; and in general
shall perform all duties incident to the office of president and such other
duties as may be prescribed by the Trustees from time to time.
Section 9. VICE PRESIDENTS. In the absence of the president
or in the event of a vacancy in such office, the vice president (or in the
event there be more than one vice president, the vice presidents in the order
designated at the time of their election or, in the absence of any
designation, then in the order of their election) shall perform the duties of
the president and when so acting shall have all the powers of and be subject
to all the restrictions upon the president; and shall perform such other
duties as from time to time may be assigned to him by the president or by the
Trustees. The Trustees may designate one or more vice presidents as executive
vice president or as vice president for particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the
minutes of the proceedings of the shareholders, the Trustees and committees of
the Trustees in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these Bylaws or as
required by law; (c) be custodian of the trust records and of the seal of the
Trust; (d) keep a register of the post office address of each shareholder
which shall be furnished to the secretary by such shareholder; (e) have
general charge of the share transfer books of the Trust; and (f) in general
perform such other duties as from time to time may be assigned to him by the
president or by the Trustees.
Section 11. TREASURER. The treasurer shall have the custody
of the funds and securities of the Trust and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Trust and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Trust in such depositories as may be designated by the Trustees.
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He shall disburse the funds of the Trust as
may be ordered by the Trustees, taking proper vouchers for such disbursements,
and shall render to the president and Trustees, at the regular meetings of the
Trustees or whenever they may require it, an account of all his transactions as
treasurer and of the financial condition of the Trust.
If required by the Trustees, he shall give
the Trust a bond in such sum and with such surety or sureties as shall be
satisfactory to the Trustees for the faithful performance of the duties of his
office and for the restoration to the Trust, in case of his death, resignation,
retirement or removal from office, all books, papers, vouchers, moneys and other
property of whatever kind in his possession or under his control belonging to
the Trust.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
The assistant secretaries and assistant treasurers, in general, shall perform
such duties as shall be assigned to them by the secretary or treasurer,
respectively, or by the president or the Trustees. The assistant treasurers
shall, if required by the Trustees, give bonds for the faithful performance of
their duties in such sums and with such surety or sureties as shall be
satisfactory to the Trustees.
Section 13. SALARIES. The salaries of the officers shall be
fixed from time to time by the Trustees and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Trustee.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Trustees may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument
in the name of and on behalf of the Trust and such authority may be general or
confined to specific instances. Any agreement, deed, mortgage, lease or other
document executed by one or more of the Trustees or by an authorized person
shall be valid and binding upon the Trustees and upon the Trust when
authorized or ratified by action of the Trustees.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Trust shall be signed by such officer or officers,
agent or agents of the Trust and in such manner as shall from time to time be
determined by the Trustees.
Section 3. DEPOSITS. All funds of the Trust not otherwise
employed shall be deposited from time to time to the credit of the Trust in such
banks, trust companies or other depositories as the Trustees may designate.
ARTICLE VII
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SHARES
Section 1. CERTIFICATES. Each shareholder shall be entitled
to a certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him in the Trust. Each
certificate shall be signed by the president or a vice president and
countersigned by the secretary or an assistant secretary or the treasurer or an
assistant treasurer and may be sealed with the seal, if any, of the Trust. The
signatures may be either manual or facsimile. Certificates shall be
consecutively numbered; and if the Trust shall, from time to time, issue several
classes of shares, each class may have its own number series. A certificate is
valid and may be issued whether or not an officer who signed it is still an
officer when it is issued. Each certificate representing shares which are
restricted as to their transferability or voting powers, which are preferred or
limited as to their dividends or as to their allocable portion of the assets
upon liquidation or which are redeemable at the option of the Trust, shall have
a statement of such restriction, limitation, preference or redemption provision,
or a summary thereof, plainly stated on the certificate. In lieu of such
statement or summary, the Trust may set forth upon the face or back of the
certificate a statement that the Trust will furnish to any shareholder, upon
request and without charge, a full statement of such information.
Section 2. TRANSFERS. Certificates shall be treated as
negotiable and title thereto and to the shares they represent shall be
transferred by delivery thereof to the same extent as those of a Maryland
stock corporation. Upon surrender to the Trust or the transfer agent of the
Trust of a share certificate duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, the Trust shall issue a
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
The Trust shall be entitled to treat the
holder of record of any share or shares as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of the State of Maryland.
Section 3. LOST CERTIFICATE. The Trustees may direct a new
certificate to be issued in place of any certificate previously issued by the
Trust alleged to have been lost, stolen or destroyed upon the making of an
affidavit of that fact by the person claiming the certificate to be lost,
stolen or destroyed. When authorizing the issuance of a new certificate, the
Trustees may, in their discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
his legal representative to advertise the same in such manner as they shall
require and/or to give bond, with sufficient surety, to the Trust to indemnify
it against any loss or claim which may arise as a result of the issuance of a
new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD
DATE. The Trustees may set, in advance, a record date for the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or shareholders entitled to receive payment of any dividend or
the allotment of any other rights, or in order to
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make a determination of shareholders for any other proper purpose. Such date, in
any case, shall not be prior to the close of business on the day the record date
is fixed and shall be not more than 90 days and, in the case of a meeting of
shareholders not less than ten days, before the date on which the meeting or
particular action requiring such determination of shareholders is to be held or
taken.
In lieu of fixing a record date, the
Trustees may provide that the share transfer books shall be closed for a stated
period but not longer than 20 days. If the share transfer books are closed for
the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
days before the date of such meeting.
If no record date is fixed and the share
transfer books are not closed for the determination of shareholders, (a) the
record date for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders shall be at the close of business on the day
on which the notice of meeting is mailed or the 30th day before the meeting,
whichever is the closer date to the meeting; and (b) the record date for the
determination of shareholders entitled to receive payment of a dividend or an
allotment of any other rights shall be the close of business on the day on which
the resolution of the directors, declaring the dividend or allotment of rights,
is adopted.
When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof, except
where the determination has been made through the closing of the transfer books
and the stated period of closing has expired.
Section 5. STOCK LEDGER. The Trust shall maintain at its
principal office or at the office of its counsel, accountants or transfer
agent, an original or duplicate share ledger containing the name and address
of each shareholder and the number of shares of each class held by such
shareholder.
Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The
Trustees may issue fractional shares or provide for the issuance of scrip, all
on such terms and under such conditions as they may determine. Notwithstanding
any other provision of the Declaration or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in
a unit shall have the same characteristics as any identical securities issued
by the Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
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The Trustees shall have the power, from time to time, to fix
the fiscal year of the Trust by a duly adopted resolution.
ARTICLE IX
DIVIDENDS
Section 1. DECLARATION. Dividends upon the shares of the
Trust may be declared by the Trustees, subject to the provisions of law and the
Declaration of Trust. Dividends may be paid in cash, property or shares of the
Trust, subject to the provisions of law and the Declaration.
Section 2. CONTINGENCIES. Before payment of any dividends,
there may be set aside out of any funds of the Trust available for dividends
such sum or sums as the Trustees may from time to time, in its absolute
discretion, think proper as a reserve fund for contingencies, for equalizing
dividends, for repairing or maintaining any property of the Trust or for such
other purpose as the Trustees shall determine to be in the best interest of
the Trust, and the Trustees may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE X
SEAL
Section 1. SEAL. The Trustees may authorize the adoption of
a seal by the Trust. The seal shall have inscribed thereon the name of the Trust
and the year of its organization. The Trustees may authorize one or more
duplicate seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Trust is required to
place its seal to a document, it shall be sufficient to meet the requirements
of any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Trust.
ARTICLE XI
INDEMNIFICATION
To the maximum extent permitted by Maryland law in effect
from time to time, the Trust, without requiring a preliminary determination of
the ultimate entitlement to indemnification, shall indemnify (a) any Trustee,
officer or shareholder or any former Trustee, officer or shareholder
(including among the foregoing, for all purposes of this Article XI and
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without limitation, any individual who, while a Trustee and at the request of
the Trust, serves or has served another corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise), 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 such status, against reasonable expenses incurred by him in
connection with the proceeding, (b) any Trustee or officer or any former Trustee
or officer against any claim or liability to which he may become subject by
reason of such status 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 and (c) each shareholder or
former shareholder against any claim or liability to which he may become subject
by reason of his status as a shareholder or former shareholder. In addition, the
Trust shall pay or reimburse, in advance of final disposition of a proceeding,
reasonable expenses incurred by a Trustee, officer or shareholder or former
Trustee, officer or shareholder made a party to a proceeding by reason of his
status as a Trustee, officer or shareholder provided that, in the case of a
Trustee or officer, the Trust shall have received (i) a written affirmation by
the Trustee or officer of his good faith belief that he has met the applicable
standard of conduct necessary for indemnification by the Trust as authorized by
these Bylaws and (ii) a written undertaking by or on his behalf to repay the
amount paid or reimbursed by the Trust if it shall ultimately be determined that
the applicable standard of conduct was not met. The Trust may, with the approval
of its Trustees, provide such indemnification and payment or reimbursement of
expenses to any Trustee, officer or shareholder or any former Trustee, officer
or shareholder who served a predecessor of the Trust and to any employee or
agent of the Trust or a predecessor of the Trust. Neither the amendment nor
repeal of this Section, nor the adoption or amendment of any other provision of
the Declaration of Trust or these Bylaws inconsistent with this Section, shall
apply to or affect in any respect the applicability of this paragraph with
respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption. Any indemnification or payment or reimbursement of the
expenses permitted by these Bylaws shall be furnished in accordance with the
procedures provided for indemnification and payment or reimbursement of expenses
under Section 2-418 of the Maryland General Corporation Law (the "MGCL") for
directors of Maryland corporations. The Trust may provide to Trustees, officers
and shareholders such other and further indemnification or payment or
reimbursement of expenses as may be permitted by the MGCL, as in effect from
time to time, for directors of Maryland corporations.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the
purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The
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attendance of any person at any meeting shall constitute a waiver of notice of
such meeting, except where such person attends a meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
ARTICLE XIII
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter
or repeal any provision of these Bylaws and to make new Bylaws.
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INDENTURE
KRANZCO REALTY TRUST
to
UNITED STATES TRUST COMPANY OF NEW YORK, Trustee
___% Callable Convertible Subordinated Notes due 2008
Dated as of ______ __, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions and Other Provisions of General Application.......................1
SECTION 1.1 Definitions....................................................1
SECTION 1.2 Compliance Certificates and Opinions...........................7
SECTION 1.3 Form of Documents Delivered to Trustee.........................8
SECTION 1.4 Acts of Holders: Record Dates..................................8
SECTION 1.5 Notices to Trustee and Company................................10
SECTION 1.6 Notice to Holders; Waiver.....................................11
SECTION 1.7 Effect of Headings and Table of Contents......................11
SECTION 1.8 Successors and Assigns........................................11
SECTION 1.9 Separability Clause...........................................11
SECTION 1.10 Benefits of Indenture.........................................11
SECTION 1.11 Governing Law.................................................12
SECTION 1.12 Legal Holidays................................................12
ARTICLE II
Security Forms...............................................................12
SECTION 2.1 Forms Generally...............................................12
SECTION 2.2 Form of Face of Note..........................................12
SECTION 2.3 Form of Reverse of Note.......................................14
SECTION 2.4 Form of Trustee's Certificate of Authentication...............17
SECTION 2.5 Form of Conversion Notice.....................................18
SECTION 2.6 Form of ......................................................19
ARTICLE III
The Notes....................................................................19
SECTION 3.1 Title and Terms: Issuable in Series...........................19
SECTION 3.2 Denominations.................................................20
SECTION 3.3 Execution, Authentication, Delivery and Dating................20
SECTION 3.4 Registration: Registration of Transfer and Exchange...........21
SECTION 3.5 Mutilated, Destroyed, Lost and Stolen Notes...................22
SECTION 3.6 Payment of Interest: Interest Rights Preserved................23
SECTION 3.7 Persons Deemed Owners.........................................24
SECTION 3.8 Cancellation..................................................24
SECTION 3.9 Computation of Interest.......................................24
ARTICLE IV
Satisfaction and Discharge...................................................24
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Page
SECTION 4.1 Satisfaction and Discharge of Indenture.......................25
SECTION 4.2 Application of Trust Money....................................26
ARTICLE V
Remedies.....................................................................26
SECTION 5.1 Events of Default.............................................26
SECTION 5.2 Acceleration of Maturity, Rescission, Annulment
and Conversion.............................................28
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement
by Trustee.................................................29
SECTION 5.4 Trustee May File Proofs of Claim..............................30
SECTION 5.5 Trustee May Enforce Claims Without Possession of Notes........30
SECTION 5.6 Application of Money Collected................................31
SECTION 5.7 Limitation on Suits...........................................31
SECTION 5.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert........................32
SECTION 5.9 Restoration of Rights and Remedies............................32
SECTION 5.10 Rights and Remedies Cumulative................................32
SECTION 5.11 Delay or Omission Not Waiver..................................32
SECTION 5.12 Control by Holders............................................32
SECTION 5.13 Waiver of Past Defaults.......................................33
SECTION 5.14 Undertaking for Costs.........................................33
SECTION 5.15 Waiver of Usury, Stay or Extension Laws.......................33
ARTICLE VI
The Trustee...................................................................33
SECTION 6.1 Certain Duties and Responsibilities............................33
SECTION 6.2 Notice of Change in Control, Defaults and Events of Default....35
SECTION 6.3 Certain Rights of Trustee......................................35
SECTION 6.4 Not Responsible for Recitals or Issuance of Notes..............36
SECTION 6.5 May Hold Notes.................................................36
SECTION 6.6 Money Held in Trust............................................36
SECTION 6.7 Compensation and Reimbursement.................................36
SECTION 6.8 Disqualification: Conflicting Interests........................37
SECTION 6.9 Corporate Trustee Required: Eligibility........................37
SECTION 6.10 Resignation and Removal: Appointment of Successor.............38
SECTION 6.11 Acceptance of Appointment by Successor........................39
SECTION 6.12 Merger, Conversion, Consolidation or Succession
to Business.................................................39
SECTION 6.13 Preferential Collection of Claims Against Company.............39
SECTION 6.14 Appointment of Authenticating Agent...........................40
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Page
ARTICLE VII
Holders' Lists and Reports by Trustee and Company............................41
SECTION 7.1 Company to Furnish Trustee Names and Addresses of Holders.....41
SECTION 7.2 Preservation of Information: Communications to Holders........42
SECTION 7.3 Reports by Trustee............................................42
SECTION 7.4 Reports by Company............................................43
SECTION 7.5 Compliance Certificate........................................44
ARTICLE VIII
Change in Control; Disposal of Assets........................................44
SECTION 8.1 Company May Consolidate, Merge, Convey, Sell,
Lease or Transfer..........................................44
SECTION 8.2 Successor Substituted.........................................45
ARTICLE IX
Supplemental Indentures......................................................45
SECTION 9.1 Supplemental Indentures Without Consent of Holders............45
SECTION 9.2 Supplemental Indentures with Consent of Holders...............46
SECTION 9.3 Execution of Supplemental Indentures..........................47
SECTION 9.4 Effect of Supplemental Indentures.............................47
SECTION 9.5 Reference in Notes to Supplemental Indentures.................47
ARTICLE X
Covenants....................................................................48
SECTION 10.1 Payment of Principal, Premium and Interest...................48
SECTION 10.2 Maintenance of Office or Agency..............................48
SECTION 10.3 Money for Note Payments to Be Held in Trust..................48
SECTION 10.4 Statement by Officers as to Default..........................50
SECTION 10.5 Existence....................................................50
SECTION 10.6 Maintenance of Properties....................................50
SECTION 10.7 Payment of Taxes and Other Claims............................50
SECTION 10.8 Waiver of Certain Covenants..................................50
ARTICLE XI
Redemption of Notes..........................................................52
SECTION 11.1 Right of Redemption..........................................52
SECTION 11.2 Applicability of Article.....................................52
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Page
SECTION 11.3 Election to Redeem: Notice to Trustee.........................52
SECTION 11.4 Selection by Trustee of Notes to Be Redeemed..................52
SECTION 11.5 Notice of Redemption..........................................52
SECTION 11.6 Deposit of Redemption Price...................................53
SECTION 11.7 Notes Payable on Redemption Date..............................53
SECTION 11.8 Notes Redeemed in Part........................................54
SECTION 11.9 Conversion Arrangement on Call for Redemption.................54
ARTICLE XII
Subordination of Notes.......................................................55
SECTION 12.1 Notes Subordinate to Senior Indebtedness.....................55
SECTION 12.2 Payment over of Proceeds upon Dissolution....................55
SECTION 12.3 No Payment When Senior Indebtedness in Default...............56
SECTION 12.4 Payment Permitted If No Default..............................57
SECTION 12.5 Subrogation to Rights of Holders of Senior Indebtedness......57
SECTION 12.6 Provisions Solely to Define Relative Rights..................57
SECTION 12.7 Trustee to Effectuate Subordination..........................58
SECTION 12.8 No Waiver of Subordination Provisions........................58
SECTION 12.9 Notice to Trustee............................................58
SECTION 12.10 Reliance on Judicial Order or Certificate of
Liquidating Agent..........................................59
SECTION 12.11 Trustee Not Fiduciary for Holders of Senior Indebtedness.....59
SECTION 12.12 Rights of Trustee as Holder of Senior Indebtedness:
Preservation of Trustee's Rights...........................60
SECTION 12.13 Article Applicable to Paying Agents..........................60
SECTION 12.14 Certain Conversions Deemed Payment...........................60
ARTICLE XIII
Conversion of Notes..........................................................60
SECTION 13.1 Conversion Privilege and Conversion Price....................60
SECTION 13.2 Exercise of Conversion Privilege.............................61
SECTION 13.3 Fractions of Shares..........................................62
SECTION 13.4 Adjustment of Conversion Price...............................62
SECTION 13.5 Notice of Adjustments of Conversion Price....................64
SECTION 13.6 Notice of Certain Corporate Action...........................64
SECTION 13.7 Company to Reserve Common Shares.............................65
SECTION 13.8 Taxes on Conversions.........................................65
SECTION 13.9 Covenant as to Common Shares.................................66
SECTION 13.10 Cancellation of Converted Notes..............................66
SECTION 13.11 Provisions in Case of Reclassification, Consolidation,
Merger or Sale of Assets..................................66
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Page
ARTICLE XIV
Defeasance and Covenant Defeasance...........................................66
SECTION 14.1 Company's Option to Effect Defeasance or Covenant
Defeasance.................................................66
SECTION 14.2 Defeasance and Discharge.....................................66
SECTION 14.3 Covenant Defeasance..........................................67
SECTION 14.4 Conditions to Defeasance or Covenant Defeasance..............67
SECTION 14.5 Deposited Money and U.S. Government Obligations to
Be Held in Trust: Other Miscellaneous Provisions...........69
SECTION 14.6 Reinstatement................................................70
ARTICLE XV
Immunity.....................................................................70
SECTION 15.1 Personal Immunity of Incorporators, Shareholders,
Directors and Officers.....................................70
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INDENTURE, dated as of ______ __, 1998, between KRANZCO REALTY TRUST, a
real estate investment trust duly organized and existing under the laws of the
State of Maryland (herein called the "Company"), having its principal office at
128 Fayette Street, Conshohocken, PA 19428, and UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
indenture to provide for the issuance of its ___% Callable Convertible
Subordinated Notes due 2008 (herein called the "Notes"), to be issued as in this
Indenture provided.
All things necessary to make the Notes, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the acquisition of the
Notes by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 1.1 Definitions. For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
1. the terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular;
2. all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and, except as otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or permitted
hereunder shall mean such accounting principles as are generally accepted at the
date of such computation;
3. unless the context otherwise requires, any reference to an "Article"
or a "Section" refers to an Article or Section, as the case may be, of this
Indenture; and
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4. the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified
in Section 1.4(a).
"Affiliate" of any specified Person means any other Person who
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 6.14 to act on behalf of the Trustee to authenticate the
Notes.
"Board of Trustees" means either the board of trustees of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Trustees and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means a day on which banking institutions are open for
business in the states of New York and Pennsylvania and carrying out
transactions in Dollars at the relevant place of payment.
"Change in Control" has the meaning specified in Section 8.1.
"Closing Price" on any Trading Day with respect to the per share price
of Common Shares means the last reported sales price or, in case no such
reported sale takes place on such Trading Day, the average of the reported
closing bid and asked prices, in either case on the New York Stock Exchange or,
if the Common Shares are not listed or admitted to trading on the New York Stock
Exchange, 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 average of the closing bid and
asked prices in the over-the-counter market as furnished by any New York Stock
Exchange member firm that is selected from time to time by the Company for that
purpose and is reasonably acceptable to the Trustee.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act.
"Common Shares" means common shares of beneficial interest in the
Company, $0.01 par value per share, which have no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company and which are not subject
to redemption by the Company. However, subject to the provisions of Section
13.12,
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shares issuable on conversion of Notes shall include only shares of the class
designated as Common Shares of the Company at the date of this instrument or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company and which are not subject to redemption
by the Company; provided that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of shares of
all such classes resulting from all such reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its President or its Vice President, and by
its Treasurer or Secretary, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee in
the city at which at any particular time its corporate trust business shall be
administered. As of the date hereof, the Corporate Trust Office of the Trustee
is located at 770 Broadway, New York, NY 10003, 13th Floor, for presentations,
and 114 West 47th Street, New York, NY 10036, Attention: Corporate Trust
Administration, for notifications.
"Corporation" means a corporation, association, company, joint-stock
company or business trust.
"default" means any event which is, or after notice or lapse of time or
both would become, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 3.6.
"Distribution Date" has the meaning specified in Section 13.4(f).
"Dollar" or "U.S.$" and "U.S. Dollar" means a Dollar or other
equivalent unit in such coin or currency of the United States as at the time
shall be legal tender for the payment of public and private debts.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934 as it may be
amended from time to time, and any successor act thereto, and the rules and
regulations of the Commission promulgated thereunder.
"Expiration Date" has the meaning specified in Section 1.4(g).
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"Holder" means a Person in whose name a Note is registered in the Note
Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Issue Date" means the date of first issuance of the Notes under this
Indenture.
"junior securities" has the meaning set forth in Section 12.14.
"Maturity", when used with respect to any Note, means the date on which
the principal of such Note or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption, or otherwise.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 3.4(a).
"Notes" has the meaning stated in the first recital of this Indenture
and more particularly means any Notes authenticated and delivered under this
Indenture, and "Note" means one of such Notes, each in the form set forth in
Section 2.2 and 2.3.
"Notice of Default" means a written notice of the kind specified in
Section 5.1(c) or 5.1(d).
"Officers' Certificate" means a certificate signed by any of the
President or a Vice President, and by the Treasurer or Secretary, of the
Company, and delivered to the Trustee. One of the officers signing an Officers'
Certificate given pursuant to Section 10.4 shall be the principal executive,
financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company.
"Outstanding", when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore canceled by the Trustee or delivered
to the Trustee for cancellation;
(ii) Notes for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Notes; provided that, if such
Notes are to be redeemed, notice of such redemption shall have been
duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee shall have been made;
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(iii) Notes converted to Common Shares;
(iv) Notes which have been paid pursuant to Section 3.6 or in
exchange for or in lieu of which other Notes have been authenticated
and delivered pursuant to this Indenture, other than any such Notes in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser in
whose hands such Notes are valid obligations of the Company; and
(v) Notes which have been defeased pursuant to Section 14.2;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Notes have given, made or taken any request,
demand, authorization, direction, notice, consent, waiver or other action
hereunder as of any date, Notes owned by the Company or any other obligor upon
the Notes or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent, waiver or other action, only Notes
which the Trustee knows to be so owned shall be so disregarded. Notes so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Notes and that the pledgee is not the Company or any
other obligor upon the Notes or any Affiliate of the Company or of such other
obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Notes on behalf of the
Company.
"Person" means any individual, corporation, limited liability company,
limited liability partnership, partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.
"Redemption Date", when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed as set forth in the Notes.
"Regular Record Date" for the interest payable on any Interest Payment
Date means December 15, March 15, June 15 or September 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
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"Responsible Officer", when used with respect to the Trustee, means any
officer of the Trustee assigned to the Corporate Trust Office of the Trustee.
"Securities Act" means the Securities Act of 1933 as it may be amended
from time to time, and any successor act thereto, and the rules and regulations
of the Commission promulgated thereunder.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on all indebtedness of the Company for borrowed money, other than the
Notes, whether outstanding on the date of execution of the Indenture or
thereafter created, incurred, guaranteed or assumed, except such indebtedness
that by the terms of the instrument or instruments by which such indebtedness
was created or incurred expressly provides that it (i) is junior in right of
payment to the Notes or any other indebtedness of the Company for borrowed money
or (ii) ranks pari passu in right of payment to the Notes. The term
"indebtedness for borrowed money" when used with respect to the Company is
defined to mean (i) any obligation of, or any obligation guaranteed by, the
Company for the repayment of borrowed money, whether or not evidenced by bonds,
debentures, notes or other written instruments, (ii) all obligations of the
Company with respect to interest rate hedging agreements to hedge interest rates
relating to Senior Indebtedness of the Company, (iii) any deferred payment
obligation of, or any such obligation guaranteed by, the Company for the payment
of the purchase price of property or assets evidenced by a note or similar
instrument, and (iv) any obligation of, or any such obligation guaranteed by,
the Company for the payment of rent or other amounts under a lease of property
or assets which obligation is required to be classified and accounted for as a
capitalized lease on the balance sheet of the Company under generally accepted
accounting principles.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.6(a).
"Stated Maturity", when used with respect to any Note or any
installment of principal thereof or interest thereon, means the date specified
in such Note as the fixed date on which the principal of such Note or such
installment of principal or interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Surrendered Notes" means those Notes presented or surrendered for
transfer, exchange or conversion as set forth in the Transfer Certificate.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on the applicable
securities exchange or in the applicable securities market.
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"transfer" has the meaning set forth in Section 3.4(c).
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed and the rules and
regulations thereunder; provided, however, that in the event the Trust Indenture
Act of 1939 or such rules and regulations are amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 and such rules and regulations as so amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"United States" means the United States of America (including the
States thereof and the District of Columbia), its territories, its possessions
and other areas subject to its jurisdiction.
"U.S. Government Obligation" has the meaning specified in Section
14.4(a).
SECTION 1.2 Compliance Certificates and Opinions. Upon any application
or request by the Company to the Trustee to take any action under any provision
of this Indenture, the Company shall furnish to the Trustee an Officers'
Certificate, if to be given by an officer of the Company, or an Opinion of
Counsel, if to be given by counsel, stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with.
Every certificate or opinion with respect to compliance with a
condition provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate
or opinion has read such condition and the definitions herein relating
thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition has been complied with.
SECTION 1.3 Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion
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with respect to some matters and one or more other such Persons as to other
matters, and any such Person may certify or give an opinion as to such matters
in one or several documents.
Any certificate of an officer of the Company or opinion may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4 Acts of Holders: Record Dates. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given or taken by Holders may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
by such Holders in person or by an agent duly appointed in writing; and, except
as herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 6.1)
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Note shall bind every future
Holder of the same Note and the Holder of every Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Note.
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(e) The Company may set any day as a record date for the
purpose of determining the Holders of Outstanding Notes entitled to give or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given or taken by Holders
of Notes; provided that the Company may not set a record date for, and the
provisions of this paragraph shall not apply with respect to, the giving or
making of any notice, declaration, request or direction referred to in the next
paragraph. If any record date is set pursuant to this paragraph, the Holders of
Outstanding Notes on such record date, and no other Holders, shall be entitled
to take the relevant action, whether or not such Holders remain Holders after
such record date; provided that no such action shall be effective hereunder
unless taken on or prior to the applicable Expiration Date by Holders of the
requisite principal amount of Outstanding Notes on such record date; and
provided, further, that for the purpose of determining whether Holders of the
requisite principal amount of such Notes have taken such action, no Note shall
be deemed to have been Outstanding on such record date unless it is also
Outstanding on the date such action is to become effective. Nothing in this
paragraph shall prevent the Company from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be canceled and of no effect), nor shall anything in
this paragraph be construed to render ineffective any action taken by Holders of
the requisite principal amount of Outstanding Notes on the date such action is
taken. Promptly after any record date is set pursuant to this paragraph, the
Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Trustee in writing and to each Holder of Notes in the manner set forth in
Section 1.6.
(f) The Trustee may set any day as a record date for the
purpose of determining the Holders of Outstanding Notes entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(b) or (iv) any direction referred to in
Section 5.12. If any record date is set pursuant to this paragraph, the Holders
of Outstanding Notes on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Notes on such record date; and provided, further, that for the purpose of
determining whether Holders of the requisite principal amount of such Notes have
taken such action, no Note shall be deemed to have been Outstanding on such
record date unless it is also Outstanding on the date such action is to become
effective. Nothing in this paragraph shall be construed to prevent the Trustee
from setting a new record date for any action (whereupon the record date
previously set shall automatically and without any action by any Person be
canceled and of no effect), nor shall anything in this paragraph be construed to
render ineffective any action taken by Holders of the requisite principal amount
of Outstanding Notes on the date such action is taken. Promptly after any record
date is set pursuant to this paragraph, the Trustee, at the Company's expense,
shall cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Company in writing and to each
Holder of Notes in the manner set forth in Section 1.6.
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<PAGE>
(g) With respect to any record date set pursuant to this
Section, the party hereto that sets such record date may designate any day as
the "Expiration Date" and from time to time may change the Expiration Date to
any earlier or later day, provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Notes in the manner set forth in Section 1.6, at
least five (5) Business Days before the proposed new Expiration Date.
Notwithstanding the foregoing, no Expiration Date shall be later than the 180th
day after the applicable record date and, if an Expiration Date is not
designated with respect to any record date set pursuant to this Section, the
party hereto that set such record date shall be deemed to have designated the
180th day after such record date as the Expiration Date with respect thereto.
(h) Without limiting the foregoing, a Holder entitled
hereunder to take any action hereunder with regard to any particular Note may do
so with regard to all or any part of the principal amount of such Note or by one
or more duly appointed agents, each of which may do so pursuant to such
appointment with regard to all or any part of such principal amount.
SECTION 1.5 Notices to Trustee and Company. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,
(a) the Trustee by any Holder or by the Company shall be
sufficiently given if made, given, furnished or filed in writing to or
with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Administration, or at any other address previously furnished in
writing to the Company by the Trustee, or
(b) the Company by the Trustee or by any Holder shall be
sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company,
addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 1.6 Notice to Holders; Waiver. Where this Indenture provides
for notice to Holders of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Note Register, not later than the latest date (if
any), and not earlier than the earliest date (if any), prescribed for the giving
of such notice. In any case where notice to Holders is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
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In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder; provided, that
this paragraph shall not apply to any notice required by the Trust Indenture Act
to be transmitted by mail.
SECTION 1.7 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 1.8 Successors and Assigns. All covenants and agreements in
this Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 1.9 Separability Clause. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 1.10 Benefits of Indenture. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, the holders of Senior Indebtedness and
the Holders of Notes, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
SECTION 1.11 Governing Law. THIS INDENTURE AND THE NOTES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
SECTION 1.12 Legal Holidays. In any case where any Interest Payment
Date, Redemption Date or Stated Maturity of any Note or the last date on which a
Holder has the right to convert his Notes shall not be a Business Day then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of interest or principal (and premium, if any) or conversion of the Notes need
not be made on such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on the Interest Payment Date,
Redemption Date or at the Stated Maturity, or on such last day for conversion,
provided that no interest shall accrue for the period from and after such
Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.
ARTICLE II
Security Forms
SECTION 2.1 Forms Generally. The Notes, the conversion notice and the
Trustee's certificates of authentication shall be in substantially the forms set
forth in this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities
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exchange or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution of the Notes.
The Notes shall be printed, lithographed or engraved on steel engraved
borders or may be produced in any other manner, all as determined by the
officers executing such Notes, as evidenced by their execution of such Notes.
SECTION 2.2 Form of Face of Note.
THIS NOTE IS NON-NEGOTIABLE AND MAY ONLY BE TRANSFERRED IN ACCORDANCE
WITH THE LAWS OF DESCENT AND DISTRIBUTION OR IN CONNECTION WITH A GIFT WITHOUT
CONSIDERATION. THE COMPANY SHALL NOT RECOGNIZE OR RECORD ON ITS NOTE REGISTER A
TRANSFER OF THIS NOTE BY ANY MEANS OTHER THAN AS SET FORTH IN THE PRECEDING
SENTENCE HEREOF.
Kranzco Realty Trust
___% Callable Convertible Subordinated Notes due ______ __, 2008
No. ____ $ _______
Kranzco Realty Trust, a real estate investment trust duly organized and
existing under the laws of the state of Maryland (herein called the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to ______________, or
registered assigns, the principal sum of ____________________________ ($
_________) (which, taken together with the principal amounts of all other
Outstanding Notes, shall not exceed U.S.$8,000,000 in the aggregate at any time)
on ______ __, 2008, and to pay interest thereon from ______ __, 1998, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, quarterly on January 1, April 1, July 1 and October 1 in each
year, commencing _______ 1, 1998, at the rate of ___% per annum, until the
principal hereof is paid or made available for payment. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of business on the
Regular Record Date for such interest, which shall be the December 15, March 15,
June 15 or October 15 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this Note
(or one or more Predecessor Notes) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Notes not less than ten
(10) days prior to such Special Record Date, or be paid at any time in any other
lawful manner, as more fully provided in said Indenture.
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Payment of the principal of, premium, if any, and interest on this Note
will be made at the Corporate Trust Office, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts by a U.S. Dollar check.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
[Corporate Seal] KRANZCO REALTY TRUST
By:
------------------------------------
Name:
Title:
Attest:
- -----------------------------
Name:
Title:
SECTION 2.3 Form of Reverse of Note. This Note is one of a duly
authorized issue of Notes of the Company designated as its ___% Callable
Convertible Subordinated Notes due 2008 (herein called the "Notes"), limited in
aggregate principal amount to U.S.$8,000,000, issued under an Indenture, dated
as of ______ __, 1998 (herein called the "Indenture"), between the Company and
_______________ ________________________, as Trustee for the Holders of Notes
issued under said Indenture (herein called the "Trustee", which term includes
any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the
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Company, the Trustee, the holders of Senior Indebtedness and the Holders of the
Notes and of the terms upon which the Notes are, and are to be, authenticated
and delivered.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Note is entitled, at his option, at any time after ______ __,
2000, but on or before the close of business on the Business Day immediately
preceding ______ __, 2008, or in case this Note or a portion hereof is called
for redemption, then in respect of this Note or such portion hereof until and
including, but (unless the Company defaults in making the payment due upon
redemption) not after, the close of business on the Business Day immediately
preceding the Redemption Date, to convert this Note (or any portion of the
principal amount hereof), at the principal amount hereof, or of such portion,
into fully paid and non-assessable Common Shares of the Company at a conversion
price equal to U.S.$20.00 aggregate principal amount of Notes for each Common
Share (or at the current adjusted conversion price if an adjustment has been
made as provided in Article XIII of the Indenture) by surrender of this Note,
duly endorsed or assigned to the Company or in blank, to the Company at its
office accompanied by the conversion notice hereon executed by the Holder hereof
evidencing such Holder's election to convert this Note, or if less than the
entire principal amount hereof is to be converted, the portion hereof to be
converted, and, in case such surrender shall be made during the period from the
close of business on any Regular Record Date to the opening of business on the
corresponding Interest Payment Date (unless this Note or the portion hereof
being converted has been called for redemption on a Redemption Date within such
period between and including such Regular Record Date and such Interest Payment
Date), also accompanied by payment in funds acceptable to the Company of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount of this Note then being converted. Subject to the aforesaid
requirement for payment of interest and, in the case of a conversion after the
close of business on any Regular Record Date and on or before the corresponding
Interest Payment Date, to the right of the Holder of this Note (or any
Predecessor Note) of record at such Regular Record Date to receive an
installment of interest (even if the Note has been called for redemption on a
Redemption Date within such period), no payment or adjustment is to be made on
conversion for interest accrued hereon or for dividends on the Common Shares
issued on conversion. Upon an Event of Default (as set forth in Sections 5.2 and
6.2 of the Indenture) or Change in Control (as defined in Section 8.1 of the
Indenture), the Holder of this Note shall, at his option, have the right to
convert this Note (or any portion of the principal amount hereof), pursuant to
the terms above, but in no event may the holder of this Note convert prior to
one year after the date of original issuance. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but instead of
any fractional interest the Company shall pay a cash adjustment or round up to
the next higher whole share as provided in Article XIII of the Indenture. The
conversion price is subject to adjustment as provided in Article XIII of the
Indenture. In addition, the Indenture provides that in case of certain
reclassifications, consolidations, mergers, sales or transfers of assets or
other transactions pursuant to which the Common Shares are converted into the
right to receive other securities, cash or other property, the Indenture shall
be amended, without the consent of any Holders of Notes, so that this Note, if
then outstanding, will be convertible thereafter, during the period this Note
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon the transaction by a holder
of the number of Common Shares into which this Note might have been converted
immediately prior to such transaction (assuming such holder of Common
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Shares failed to exercise any rights of election and received per share the kind
and amount received per share by a plurality of non-electing shares).
The Company will furnish to any Holder, upon request and without
charge, copies of the Certificate of Incorporation and By-laws of the Company
then in effect. Any such request may be addressed to the Company or to the
Security Registrar.
The Notes are subject to redemption, as a whole or from time to time in
part, at the option of the Company upon not less than twenty (30) days' or more
than sixty (60) days' notice by mail, at any time on or after ______ __, 2000,
through ______ __, 2008, at 100.00% of the principal amount, plus accrued and
unpaid interest on the Notes, or part thereof being redeemed, to the date of
redemption.
The Notes do not have the benefit of any sinking fund.
In the event of redemption or conversion of this Note in part only, a
new Note or Notes for the unredeemed, unconverted portion hereof will be issued
in the name of the Holder hereof upon the cancellation hereof.
The indebtedness evidenced by this Note is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Note is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Note, by
accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Notes may be declared due and payable in the manner and with the effect
provided in Article V of the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Notes at the time Outstanding. The
indenture also contains provisions permitting the Holders of a majority in
aggregate principal amount of the Notes at the time Outstanding, on behalf of
the Holders of all the Notes, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note shall
be conclusive and binding upon such Holder and upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in
exchange hereof or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the
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principal of, premium, if any, and interest on this Note at the times, place and
rate, and in the coin or currency, herein prescribed or to convert this Note as
provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable in the Note Register, upon
surrender of this Note for registration of transfer at the Corporate Trust
Office duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Note Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Notes are issuable only in registered form without coupons in any
denomination. There shall be no minimum denomination. As provided in the
Indenture and subject to certain limitations therein set forth, Notes are
exchangeable for a like aggregate principal amount of Notes as requested by the
Holder surrendering the same.
No service charge shall be made to a Holder for any such registration
of transfer or exchange, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not payment of or on this Note is overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
Interest on this Note shall be computed on the basis of a 360-day year
of twelve 30-day months.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 2.4 Form of Trustee's Certificate of Authentication.
This is one of the ___% Callable Convertible Subordinated Notes due
__________ __, 2008 referred to in the within-mentioned Indenture.
Dated:
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee
By:
------------------------------------
Authorized Signatory
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SECTION 2.5 Form of Conversion Notice.
To: Kranzco Realty Trust
The undersigned Holder of this ___% Callable Convertible Subordinated
Note of Kranzco Realty Trust due ____________ __, 2008 hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is U.S.
$______ or an integral multiple thereof) below designated into Common Shares in
accordance with the terms of the Indenture referred to in this Note, and directs
that the shares issuable and deliverable upon conversion, together with any
check in payment for a fractional share and any Note representing any
unconverted principal amount hereof, be issued and delivered to the registered
owner hereof unless a different name has been provided below. If shares or any
portion of this Note not converted are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith a certificate in proper form
certifying that the applicable restrictions on transfer have been complied with.
Any amount required to be paid by the undersigned on account of interest
accompanies this Note.
The Applicant hereby agrees that, promptly after request of the
Company, he or it will furnish such proof in support of this certification as
the Company or the Note Registrar for the Common Shares may, from time to time,
request.
Dated:
--------------------------------------
Signature*
If shares or Notes are to be Principal amount to be converted (if
registered in the name of a Person less than all):
other than the Holder, please print $_____,000
such Person's name and address:*
- --------------------------------------- --------------------------------------
Name Social Security Number or
Tax Payer Identification Number
- ---------------------------------------
Street Address
- ---------------------------------------
City, State and Zip Code
* Signature(s) must be guaranteed by an eligible guarantor institution (banks,
stock brokers, savings and loan associations and credit unions with membership
in an approved signature guarantee medallion program) pursuant to Notes and
Exchange Commission Rule 17Ad-15 if Common Shares are to be delivered, or
unconverted Notes are to be issued, other than to and in the name of the
registered owner.
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SECTION 2.6 Form of Certification. Whenever any certification is
required to be given to evidence compliance with certain restrictions relating
to transfers of Notes contemplated by Section 2.5, such certification shall be
provided substantially in the form of the following certificate, with only such
changes as shall be approved by the Company and the Note Registrar.
TRANSFER CERTIFICATE
The undersigned Holder hereby certifies with respect to U.S.$_________
principal amount of the above-captioned securities presented or surrendered on
the date hereof (the "Surrendered Notes") for transfer, exchange or conversion
where the securities issuable upon such exchange or conversion are to be
registered in a name other than that of the undersigned Holder (each such
transaction being a "transfer"), that such transfer complies with the legend set
forth on the face of the Surrendered Notes:
Dated: _____________________*
* To be dated the date of surrender.
--------------------------------------
Signature
(If the registered owner is a
corporation, partnership or fiduciary,
the title of the Person signing on
behalf of such registered owner must
be stated.)
ARTICLE III
The Notes
SECTION 3.1 Title and Terms: Issuable in Series. The aggregate
principal amount of Notes which may be authenticated and delivered under this
Indenture is limited to U.S.$8,000,000, except for Notes authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Notes of the series pursuant to Sections 3.4, 3.5, 9.5, 11.8 or 13.2 and
except for Notes which, pursuant to Section 3.3, are deemed never to have been
authenticated and delivered hereunder.
The Stated Maturity of the Notes shall be ______ __, 2008, and they
shall bear interest at the rate of ____% per annum, payable quarterly on January
1, April 1, July 1 and October 1, commencing ____, 1998, until the principal
thereof is paid or made available for payment.
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Payment of the principal of, premium, if any, and interest on this Note
will be made at the Corporate Trust Office, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts by a U.S. Dollar check drawn on an account
maintained with a bank in the states of New York, New Jersey, Maryland or
Pennsylvania.
The Notes shall be redeemable by the Company as provided in Article XI.
The Notes shall be subordinated in right of payment to the prior
payment in full of Senior Indebtedness as provided in Article XII.
The Notes shall be convertible as provided in Article XIII.
SECTION 3.2 Denominations. The Notes shall be issuable only in
registered form without coupons in any denomination. There shall be no minimum
denomination.
SECTION 3.3 Execution, Authentication, Delivery and Dating. The Notes
shall be executed on behalf of the Company by any of its President or a Vice
President, under its corporate seal reproduced thereon and attested by its
Secretary. The signature of any of these officers on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes; and the Trustee in accordance with
such Company Order shall authenticate and deliver such Notes as in this
Indenture provided and not otherwise.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder.
SECTION 3.4 Registration: Registration of Transfer and Exchange.
(a) The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (referred to as the "Note Register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of Notes and of transfers and exchanges thereof. The Trustee is
hereby appointed "Note Registrar" for the purpose of registering Notes and
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transfers and exchanges thereof as herein provided. The Notes are only
transferable in accordance with the laws of descent and distribution or in
connection with a gift without consideration. Upon surrender for registration of
transfer or exchange of any Note at an office or agency of the Company
designated pursuant to Section 10.2 for such purpose, accompanied by a written
instrument of transfer or exchange in the form provided by the Company, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Notes of the
same series, of a like aggregate principal amount. The Company shall not
recognize or record on its Note Register a transfer of any Note other than in
accordance with the laws of descent and distribution or in connection with a
gift without consideration.
(i) Transfer and Exchange of Notes. When Notes are presented
to the Note Registrar with a request:
(A) to register the transfer of such Notes; or
(B) to exchange such Notes for an equal principal amount of
Notes,
the Note Registrar shall register the transfer or make the
exchange as requested if its reasonable requirements for such
transaction are met; provided, however, that the Notes surrendered for
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company
and the Note Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
(b) Every Note shall be subject to the restrictions on transfer
provided in the legends required by Section 2.1. Whenever any Note is presented
or surrendered for registration of transfer or for exchange for a Note
registered in a name other than that of the Holder, such Note must be
accompanied by a certificate in substantially the form set forth in Section 2.6,
dated the date of such surrender and signed by the Holder of such Note, as to
compliance with such restrictions on transfer. The Note Registrar shall not be
required to accept for such registration of transfer or exchange any Note not so
accompanied by a properly completed certificate.
(c) As used in the preceding two paragraphs of this Section 3.4, the
term "transfer" encompasses any sale, pledge, transfer, hypothecation or other
disposition of any Note.
(d) No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 9.5, 11.8, or 13.2 not involving any transfer.
(e) Except as permitted by Section 11.9 and 13.1, the Company shall not
be required (i) to issue, register the transfer of or exchange any Note during a
period beginning at the opening of business fifteen (15) days before the day of
the mailing of a notice of redemption of Notes selected for redemption under
Section 11.4 and ending at the close of business on the day of such mailing, or
(ii) to register the transfer of or exchange any Note so selected for redemption
in whole or in part, except the unredeemed portion of any Note being redeemed in
part.
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SECTION 3.5 Mutilated, Destroyed, Lost and Stolen Notes. If any
mutilated Note is surrendered to the Trustee, the Company shall execute and the
Trustee shall authenticate and deliver in exchange therefor a new Note of like
tenor and principal amount and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Note and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Note has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Note, a new Note of like
tenor and principal amount and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion, but
subject to any conversion rights, may, instead of issuing a new Note, pay such
Note.
Upon the issuance, authentication and delivery by the Trustee of any
new Note under this Section, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith.
Every new Note issued, authenticated and delivered by the Trustee
pursuant to this Section in lieu of any destroyed, lost or stolen Note shall
constitute an original additional contractual obligation of the Company, whether
or not the destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 3.6 Payment of Interest: Interest Rights Preserved. Interest on
any Note which is payable, and is punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the Person in whose name that Note (or
one or more Predecessor Notes) is registered at the close of business on the
Regular Record Date for payment of such interest.
If the Company shall be required by law to deduct any taxes from any
sum of interest payable hereunder to a Holder, (i) the Company shall make such
deductions and shall pay the full amount deducted to the relevant taxing
authority in accordance with applicable law and (ii) the amount of such
deduction shall be treated for purposes hereof as a payment of interest.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable
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to the Holder on the relevant Regular Record Date, and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in Clause
(a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Note and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause (a) provided. Thereupon,
the Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than fifteen (15) days and
not less than ten (10) days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it
appears in the Note Register, not less than ten (10) days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so mailed,
such Defaulted Interest shall be paid to the Persons in whose names the
Notes (or their respective Predecessor Notes) are registered at the
close of business on such Special Record Date and shall no longer be
payable pursuant to the following Clause (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
Clause (b), such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
In the case of any Note which is converted after any Regular Record
Date and on or prior to the corresponding Interest Payment Date, interest on
such Note whose Stated Maturity is on such Interest Payment Date shall be deemed
to continue to accrue and shall be payable on such Interest Payment Date
notwithstanding such conversion and notwithstanding that such Note may have been
called for redemption on a Redemption Date within such period, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Note (or one or more Predecessor Notes) is registered
at the close of business on such Regular Record Date. Except as otherwise
expressly provided in the immediately preceding sentence, in the case of any
Note which is converted, interest whose Stated Maturity is after the date of
conversion of such Note
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shall not be payable (although such accrued and unpaid interest will be deemed
paid by the appropriate portion of the Common Shares received by the holders
upon such conversion).
SECTION 3.7 Persons Deemed Owners. Prior to due presentment of a Note
for registration of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the Person in whose name such Note is
registered as the owner of such Note for the purpose of receiving payment of
principal of, premium, if any, and (subject to Section 3.6) interest on such
Note and for all other purposes whatsoever, whether or not such Note be overdue,
and neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 3.8 Cancellation. All Notes surrendered for payment,
redemption, registration of transfer or exchange or conversion shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by it. The Company may at any time deliver to the
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Notes so delivered shall be promptly canceled by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided in
this Section, except as expressly permitted by this Indenture. All canceled
Notes held by the Trustee shall be disposed of as directed by a Company Order.
SECTION 3.9 Computation of Interest. Interest on the Notes of each
series shall be computed on the basis of a 360-day year of twelve 30-day months.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
shall upon Company request cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of Notes
herein expressly provided for), and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when
(a) either
(i) all Notes theretofore authenticated and delivered (other
than (A) Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 3.5 and (B) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section 10.3)
have been delivered to the Trustee for cancellation; or
(ii) all such Notes not theretofore delivered to the Trustee
for cancellation:
(A) have become due and payable, or
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(B) will become due and payable at their Stated
Maturity within one year, or
(C) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (A), (B) or (C) above, has
deposited or caused to be deposited irrevocably with the
Trustee as trust funds in trust for the benefit of Holders of
Outstanding Notes an amount sufficient to pay and discharge
the entire indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and
premium, if any) and interest to the date of such deposit (in
the case of Notes which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be;
(b) the Company has irrevocably paid or caused to be irrevocably paid
all other sums payable hereunder by the Company;
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that (i) all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with and (ii) such
deposit will not result in any breach or violation of Article XII and
the money so deposited with the Trustee is not subject to the
provisions of Article XII in any respect; and
(d) no Event of Default which, with notice or lapse of time, or both,
would become an Event of Default with respect to the Notes shall have
occurred and be continuing on the date of such deposit.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Trustee to any Authenticating Agent under Section 6.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of Clause (a) of
this Section, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 10.3 shall survive.
SECTION 4.2 Application of Trust Money. Subject to the provisions of
the last paragraph of Section 10.3, all money deposited with the Trustee
pursuant to Section 4.1 shall be held in trust and applied by it, in accordance
with the provisions of the Notes and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal (and premium, if any) and interest for whose payment such money
has been deposited with or received by the Trustee. All moneys deposited with or
received by the Trustee pursuant to Section 4.1 (and held by it or any Paying
Agent) for the payment of Notes subsequently converted shall be returned to the
Company upon Company Request.
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ARTICLE V
Remedies
SECTION 5.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be occasioned by the provisions of Article
XII or be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) default in the payment of any interest upon any Note when
it becomes due and payable, and continuance of such default for a
period of thirty (30) days (whether or not such payment is prohibited
by the provisions of Article XII); or
(b) default in the payment of the principal of (or premium, if
any, on) any Note at its Maturity (whether or not such payment is
prohibited by the provisions of Article XII); or
(c) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default
or breach for a period of sixty (60) days after there has been given,
by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 50% in principal
amount of the Outstanding Notes a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(d) a default under any bonds, debentures, notes or other
evidences of indebtedness for money borrowed by the Company under any
mortgages, indentures or instruments under which there may be issued or
by which there may be secured or evidenced any indebtedness for money
borrowed by the Company, whether such indebtedness now exists or shall
hereafter be created, which indebtedness, individually has an aggregate
principal amount outstanding in excess of U.S.$30,000,000, which
default shall constitute a failure to pay any portion of the principal
or interest of such indebtedness when due and payable after the
expiration of any applicable grace or cure period with respect thereto
or shall have resulted in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise have
become due and payable, without such indebtedness having been
discharged, or such acceleration having been rescinded or annulled,
within a period of three (3) days after there shall have been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 50% in principal
amount of the Outstanding Notes a written notice specifying such
default and requiring the Company to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled and
stating that such notice is a "Notice of Default" hereunder; or
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(e) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company
under any applicable Federal or State law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or of any substantial part of their respective
properties, or ordering the winding up or liquidation of the affairs of
the Company, and the continuance of any such decree or order for relief
or any such other decree or order unstayed and in effect for a period
of sixty (60) consecutive days; or
(f) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by
either the Company to the entry of a decree or order for relief in
respect of the Company in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against either the Company, or the filing
by either the Company of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State law, or
the consent by either the Company to the filing of such petition or to
the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Company or of any substantial part of their respective
properties, or the making by either the Company of an assignment for
the benefit of creditors, or the admission by either the Company in
writing of an inability to pay the debts of either the Company
generally as they become due, or the taking of corporate action by the
Company in furtherance of any such action; provided, however, that,
subject to the provisions of Section 6.1 and 6.2, the Trustee shall not
be deemed to have knowledge of any default under Section 5.1(d) unless
either (A) a Responsible Officer of the Trustee in its Corporate Trust
Department shall have actual knowledge of such default or (B) the
Trustee shall have received written notice thereof from the Company,
from any Holder, from the holder of any such indebtedness, or from the
trustee under any such mortgage, indenture or other instrument.
SECTION 5.2 Acceleration of Maturity, Rescission, Annulment and
Conversion.
(a) If an Event of Default (other than an Event of Default specified in
Section 5.1(e) or 5.1(f)) occurs and is continuing, then in every such case the
Trustee or the Holders of not less than 50% in principal amount of the
Outstanding Notes may declare the principal of all the Notes to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by Holders), and upon any such declaration such principal and any
accrued interest thereon shall become immediately due and payable. If an Event
of Default specified in Section 5.1(e) or 5.1(f) occurs, the principal of, and
accrued interest on, all the Notes shall automatically, and without any
declaration or other action on the part of the Trustee or any Holder, become
immediately due and payable.
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(b) At any time after such a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article V; provided, the Holders of a
majority in principal amount of the Outstanding Notes, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(i) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Notes,
(B) the principal of (and premium, if any, on) any Notes which
have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Notes,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Notes, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(ii) all Events of Default, other than the non-payment of the principal
of Notes which have become due solely by such declaration of acceleration, have
been cured or waived as provided in Section 5.13.
(c) No such rescission shall affect any subsequent default or impair
any right consequent thereon.
(d) Notwithstanding anything else contained herein, the Holders of the
Notes shall have the right to exercise their rights of conversion pursuant to
Article XIII immediately upon an Event of Default; however, if an Event of
Default occurs prior to one year from the date of original issuance of the
Notes, any conversion of such Notes will not be permitted until one year from
the date of original issuance of the Notes, and then will only be permitted if
such Event of Default has not been cured prior to one year from the date of
original issuance of the Notes.
(e) Upon the consolidation with or merger into any other Person by the
Company or, the sale, lease, transfer, spin-off, or other disposal or
distribution of all or substantially all of the Company's properties and assets
to any Person, the Company shall deliver to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating whether such consolidation, merger,
sale, lease, transfer, spin-off, or other disposal or distribution causes an
Event of Default.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee. If
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(a) default is made in the payment of any interest on any Note when
such interest becomes due and payable and such default continues for a period of
thirty (30) days, or
(b) default is made in the payment of the principal of (or premium, if
any, on) any Note at the Maturity thereof,
the Trustee is authorized to recover judgment as trustee on behalf of the
Holders against the Company for the whole amount then due and payable on such
Notes for principal (and premium, if any) and interest, and, to the extent that
payment of such interest shall be legally enforceable, interest on any overdue
principal (and premium, if any) and on any overdue interest, at the rate borne
by the Notes, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.4 Trustee May File Proofs of Claim. In case of any judicial
proceeding relative to the Company (or any other obligor upon the Notes), its
property or its creditors, the Trustee shall be entitled and empowered, by
intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claim and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.7.
No provision of this Indenture shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding; provided, however, that
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the Trustee may, on behalf of the Holders, vote for the election of a trustee in
bankruptcy or similar official and be a member of a creditors' or other similar
committee.
SECTION 5.5 Trustee May Enforce Claims Without Possession of Notes. All
rights of action and claims under this Indenture or the Notes may be prosecuted
and enforced by the Trustee without the possession of any of the Notes or the
production thereof in any proceeding relating thereto, and any such proceeding
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders
of the Notes in respect of which such judgment has been recovered.
SECTION 5.6 Application of Money Collected. Any money collected by the
Trustee pursuant to this Article V shall be applied in the following order, at
the date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, upon
presentation of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: to the payment of all amounts due the Trustee under
Section 6.7;
SECOND: subject to Article XII to the payment of the amounts
then due and unpaid for first, interest on, and, second, for principal
of (and premium, if any, on) the Notes in respect of which or for the
benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Notes for interest and principal (and premium, if any)
respectively; and
THIRD: the balance, if any, to the Person or Persons entitled
thereto, as their interest may appear or as a court of competent
jurisdiction shall direct.
SECTION 5.7 Limitation on Suits. No Holder of any Note shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Holders of not less than 50% in principal amount of
the Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default as Trustee on
behalf of the Holders;
(c) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for thirty (30) days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
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(e) no direction inconsistent with such written request has
been given to the Trustee during such 30-day period by the Holders of a
majority in principal amount of the Outstanding Notes;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 5.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert. Notwithstanding any other provision in this
Indenture, the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of (and premium, if any) and
(subject to Section 3.6) interest on such Note on the respective Stated
Maturities expressed in such Note (or, in the case of redemption, on the
Redemption Date) and to convert such Note in accordance with Article XIII and to
institute suit for the enforcement of any such payment and right to convert, and
such rights shall not be impaired without the consent of such Holder.
SECTION 5.9 Restoration of Rights and Remedies. If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then and in
every such case, subject to any determination in such proceeding, the Company,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 5.10 Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Notes in the last paragraph of Section 3.5, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11 Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder of any Notes to exercise any right or remedy accruing
upon any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article V or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
SECTION 5.12 Control by Holders. The Holders of a majority in principal
amount of the Outstanding Notes shall have the right to direct the time, method
and place of conducting any
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proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(c) the Trustee may refuse to follow any direction which, in the
opinion of counsel to the Trustee, is unduly prejudicial to other Holders or
would subject the Trustee to personal liability.
SECTION 5.13 Waiver of Past Defaults. The Holders of not less than a
majority in principal amount of the Outstanding Notes may on behalf of the
Holders of all the Notes waive any past default hereunder and its consequences,
except a default
(a) in the payment of the principal of (or premium, if any) or interest
on any Note, or
(b) in respect of a covenant or provision hereof which under Article IX
cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 5.14 Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture, or in any suit against the Trustee for
any action taken, suffered or omitted by it as Trustee, a court may require any
party litigant in such suit to file an undertaking to pay the costs of such
suit, and may assess costs against any such party litigant, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
provided, that this Section 5.14 shall not be deemed to authorize any court to
require such an undertaking or to make such an assessment in any suit instituted
by the Company or in any suit for the enforcement of the right to convert any
Note in accordance with Article XIII.
SECTION 5.15 Waiver of Usury, Stay or Extension Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any usury, stay or extension law wherever enacted, now
or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
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The Trustee
SECTION 6.1 Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this
Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(i) this paragraph (c) shall not be construed to limit the
effect of paragraph (a) of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of a majority in principal amount of
the Outstanding Notes relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture; and
(iv) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers.
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(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee (as Trustee, Paying Agent, Authenticating
Agent or Note Registrar) shall be subject to the provisions of this Section.
SECTION 6.2 Notice of Change in Control, Defaults and Events of
Default. Within sixty (60) days after the occurrence of any Change in Control,
Event of Default or default hereunder, the Trustee shall give the Holders, in
the manner provided in Section 1.6, notice of such Change in Control, Event of
Default or default hereunder actually known to a Responsible Officer of the
Trustee; provided, however, that in the case of any default of the character
specified in Section 5.1(a), no such notice to Holders shall be given until at
least thirty (30) days after the occurrence thereof, and in the case of any
default of the character specified in Section 5.1(c), no such notice to Holders
shall be given until at least sixty (60) days after the occurrence thereof. The
Trustee shall not be deemed to have notice of a Change in Control, Event of
Default or default unless (a) the Trustee has received written notice thereof
from the Company or any Holder or (b) a Responsible Officer of the Trustee shall
have actual knowledge thereof. For the purpose of this Section, the term
default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default.
SECTION 6.3 Certain Rights of Trustee. Subject to the provisions of
Section 6.1:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Trustees shall be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may
require and, in the absence of bad faith on its part, rely upon an
Officers' Certificate or Opinion of Counsel;
(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
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indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder; and
(h) the Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or
within its rights or power; provided, however, that the Trustee's
conduct does not constitute willful misconduct or negligence.
SECTION 6.4 Not Responsible for Recitals or Issuance of Notes. The
recitals contained herein and in the Notes, except the Trustee's certificates of
authentication, shall be taken as the statements of the Company, and neither the
Trustee nor any Authenticating Agent assumes any responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Notes. Neither the Trustee nor any
Authenticating Agent shall be accountable for the use or application by the
Company of Notes or the proceeds thereof.
SECTION 6.5 May Hold Notes. The Trustee, any Authenticating Agent, any
Paying Agent, any Note Registrar or any other agent of the Company, in its
individual or any other capacity, may become the owner or pledgee of Notes and,
subject to Section 6.8 and Section 6.13, may otherwise deal with the Company
with the same rights it would have if it were not Trustee, Authenticating Agent,
Paying Agent, Note Registrar or such other agent.
SECTION 6.6 Money Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the Company.
SECTION 6.7 Compensation and Reimbursement. The Company agrees:
(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable
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compensation and the expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence,
willful misconduct or bad faith on its part, arising out of or in
connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance of any of
its powers or duties hereunder. The Trustee shall notify the Company of
any claim asserted against it for which it may seek indemnity. Failure
by the Trustee to so notify the Company shall not relieve the Company
of its obligations hereunder. The Company shall defend the claim and
the Trustee may have separate counsel, the reasonable fees and expenses
of which shall be paid by the Company.
All indemnifications and releases from liability granted
hereunder to the Trustee shall extend to its officers, directors,
employees, agents, successors and assigns.
When the Trustee incurs expenses or renders services after the
occurrence of any Event of Default specified in Section 5.1, the
expenses and the compensation for the services are intended to
constitute expenses of administration under any bankruptcy, insolvency
or similar laws.
The obligations of the Company under this Section shall
survive the satisfaction and discharge of this Indenture.
SECTION 6.8 Disqualification: Conflicting Interests. If the Trustee has
or shall acquire a conflicting interest within the meaning of the Trust
Indenture Act, the Trustee shall either eliminate such interest or resign, to
the extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Indenture.
SECTION 6.9 Corporate Trustee Required: Eligibility. There shall at all
times be a Trustee hereunder which shall be a corporation organized and doing
business under the laws of the United States, authorized under such laws to
exercise corporate trust powers, which shall have (or, in the case of a
corporation included in a bank holding company system, the related bank holding
company shall have) a combined capital and surplus of at least U.S.$50,000,000,
subject to supervision or examination by federal or state authority, in good
standing and having an established place of business or agency in the states of
New York, New Jersey, Maryland or Pennsylvania. If such corporation or related
bank holding company publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
corporation or related bank holding company shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
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SECTION 6.10 Resignation and Removal: Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.11.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If the instrument of acceptance by a successor Trustee required
by Section 6.11 shall not have been delivered to the Trustee within thirty (30)
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Notes, delivered to the Trustee
and to the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 6.8 after
written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Note for at least six months, or
(ii) the Trustee shall cease to be eligible under Section 6.9
and shall fail to resign after written request therefor by the Company
or by any such Holder, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case,
(i) the Company by a Board Resolution may remove the Trustee, or (ii)
subject to Section 5.14, any Holder who has been a bona fide Holder of
a Note for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 6.11, become the successor Trustee and to
that extent supersede the successor Trustee appointed by the Company. If no
successor Trustee shall have been so appointed by the Company or the Holders and
accepted appointment in the manner required by Section 6.11, any Holder who has
been a bona fide Holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
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(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 1.6. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 6.11 Acceptance of Appointment by Successor. Every successor
Trustee appointed hereunder shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on the request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 6.12 Merger, Conversion, Consolidation or Succession to
Business. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee (including the trust created by this Indenture) shall be the
successor of the Trustee hereunder, provided such corporation shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Notes shall have been authenticated, but not delivered, by the Trustee then
in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Notes so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Notes.
SECTION 6.13 Preferential Collection of Claims Against Company. If and
when the Trustee shall be or become a creditor of the Company (or any other
obligor upon the Notes), the Trustee shall be subject to the provisions of the
Trust Indenture Act regarding the collection of claims against the Company (or
any such other obligor).
SECTION 6.14 Appointment of Authenticating Agent. The Trustee may
appoint an Authenticating Agent or Agents which shall be authorized to act on
behalf of the Trustee to authenticate Notes issued upon original issue and upon
exchange, registration of transfer, partial conversion or partial redemption,
pursuant to Section 3.3, and Notes so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes as
if authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Notes by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
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Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States, authorized under such laws
to act as Authenticating Agent, which shall have (or, in the case of a
corporation included in a bank holding company system, the related bank holding
company shall have) a combined capital and surplus of not less than
U.S.$50,000,000 and shall be subject to supervision or examination by Federal or
State authority. If such Authenticating Agent publishes reports of condition at
least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Authenticating Agent or related bank holding company shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time an Authenticating Agent shall
cease to be eligible in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent (including the
authenticating agency contemplated by this Indenture), shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Note Register. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become vested with all
the rights, powers and duties of its predecessor hereunder, with like effect as
if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 6.7.
If an appointment is made pursuant to this Section, the Notes may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:
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This is one of the ___% Callable Convertible Subordinated Notes due
2008 described in the within-mentioned Indenture.
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
--------------------------------
As Authenticating Agent
By:
--------------------------------
Authorized Signatory
ARTICLE VII
Holders' Lists and Reports by Trustee and Company
SECTION 7.1 Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) quarterly, not more than fifteen (15) days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within
thirty (30) days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than fifteen (15) days prior to
the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Note Registrar.
SECTION 7.2 Preservation of Information: Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Note Registrar.
The Trustee may destroy any list furnished to it as provided in Section 7.1 upon
receipt of a new list so furnished.
(b) Every Holder of Notes, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders.
SECTION 7.3 Reports by Trustee.
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(a) Within 60 days after July _______________ of each year commencing
with the year 1999, the Trustee shall transmit by mail to all Holders, as their
names and addresses appear in the Security Register, a brief report dated as of
such July with respect to:
(i) its eligibility under Section 6.9 and its qualifications
under Section 6.8., or in lieu thereof, if to the best of its knowledge
it has continued to be eligible and qualified under said Sections, a
written statement to such effect;
(ii) the character and amount of any advances (and if the
Trustee elects so to state, the circumstances surrounding the making
thereof) made by the Trustee (as such) which remain unpaid on the date
of such report, and for the reimbursement of which it claims or may
claim a lien or charge, prior to that of the Notes, on any property or
funds held or collected by it as Trustee, except that the Trustee shall
not be required (but may elect) to report such advances if such
advances so remaining unpaid aggregate not more than 1/2 of 1% of the
principal amount of the Notes outstanding on the date of such report;
(iii) the amount, interest rate and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the
Notes) to the Trustee in its individual capacity, on the date of such
report, with a brief description of any property held as collateral
security therefor, except for such indebtedness;
(iv) the property and funds, if any, physically in the
possession of the Trustee as such on the date of such report;
(v) any additional issue of Notes which the Trustee has not
previously reported; and
(vi) any action taken by the Trustee in the performance of its
duties hereunder which it has not previously reported and which in its
opinion materially affects the Securities, except action in respect of
a default, notice of which has been or is to be withheld by the Trustee
in accordance with Section 6.2.
(b) The Trustee shall transmit by mail to all Holders, as their names
and addresses appear in the Register, a brief report with respect to the
character and amount of any advances (and if the Trustee elects so to state, the
circumstances surrounding the making thereof) made by the Trustee (as such)
since the date of the last report transmitted pursuant to Subsection (a) of this
Section (or if no such report has yet been so transmitted, since the date of
execution of this instrument) for the reimbursement of which it claims or may
claim a lien or charge, prior to that of the Notes, on property or funds held or
collected by it as Trustee and which it has not previously reported pursuant to
this Subsection, except that the Trustee shall not be required (but may elect)
to report such advances if such advances remaining unpaid at any time aggregate
10% or less of the principal amount of the Notes outstanding at such time, such
report to be transmitted within 90 days after such time.
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(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which any
Notes are listed, with the Commission and with the Company. The Company will
notify the Trustee when any Securities are listed on any stock exchange.
SECTION 7.4 Reports by Company.
The Company shall:
(a) file with the Trustee, within 20 days after the Company is required
to file the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934;
or, if the Company is not required to file information, documents or reports
pursuant to either of said Sections, then it shall file with the Trustee and the
Commission, in accordance with rules and regulations prescribed from time to
time by the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the
Securities Exchange Act of 1934 in respect of a security listed and registered
on a national securities exchange as may be prescribed from time to time in such
rules and regulations;
(b) file with the Trustee and the Commission in accordance with rules
and regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(c) transmit by mail to all Holders, as their names and address appear
in the Note Register, within 20 days after the filing thereof with the Trustee,
such summaries of any information, documents and reports required to be filed by
the Company pursuant to paragraphs (1) and (2) of this Section as may be
required by the rules and regulations prescribed from time to time by the
Commission.
SECTION 7.5 Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company, an Officers' Certificate stating that a
review of the activities of the Company and its subsidiaries during the
preceding Fiscal Year has been made under the supervision of the signing
officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such officer signing such certificate, that to the best of
his knowledge the Company has kept, observed, performed and fulfilled each and
every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions hereof
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he may have knowledge and what action the
Company is taking or proposes to take with respect thereto and the status
thereof) and that to the best of his knowledge no event has occurred and remains
in existence
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by reason of which payments on account of the principal of or interest, if any,
on the Securities are prohibited or if such event has occurred, a description of
the event and what action the Company is taking or proposes to take with respect
thereto and the status thereof.
(b) The Company will, so long as any of the Securities are outstanding,
deliver to the Trustee, forthwith upon any officer becoming aware of (i) any
Default, Event of Default or default in the performance of any covenant,
agreement or condition contained in this Indenture or (ii) any event of default
under any other mortgage, indenture or instrument as that term is used in
Section 5.1 (d) an Officers' Certificate specifying such Default, Event of
Default or default and what action the Company is taking or proposes to take
with respect thereto and the status thereof.
ARTICLE VIII
Change in Control; Disposal of Assets
SECTION 8.1 Company May Consolidate, Merge, Convey, Sell, Lease or
Transfer.
(a) The merger or consolidation of the Company with or into any other
Person or, the sale, lease, transfer, spin-off, or other disposal or
distribution of all or substantially all of the Company's properties and assets,
shall be a change in control ("Change in Control"), the occurrence of which
shall permit the Holders of Notes to exercise their rights of conversion
pursuant to Article XIII prior to _________, 2000 pursuant to Section 5.2 or
Section 13.12, unless:
(i) 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 the Company's
issued and outstanding voting securities immediately prior to
such merger or consolidation; and
(ii) effective provision is made in the merger documents of
the surviving entity or otherwise for the recognition,
preservation and protection of the preferences, conversion and
other rights, of the Holders of the Notes.
(b) Upon the consolidation with or merger into any other Person by the
Company or, the sale, lease, transfer, spin-off, or other disposal or
distribution of all or substantially all of the Company's properties and assets
to any Person, the Company shall deliver to the Trustee an Officers' Certificate
stating whether such consolidation, merger, sale, lease, transfer, spin-off, or
other disposal or distribution is a Change in Control or causes an Event of
Default under clause (ii) above.
SECTION 8.2 Successor Substituted. Upon any consolidation of the
Company with, or merger of the Company into, any other Person or any conveyance,
transfer or lease of the properties and assets of the Company substantially as
an entirety in accordance with Section 8.1, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor
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Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be released from its obligations and
covenants under this Indenture and the Notes.
ARTICLE IX
Supplemental Indentures
SECTION 9.1 Supplemental Indentures Without Consent of Holders. Without
the consent of any Holders, the Company, when authorized by a Board Resolution,
and the Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company herein and in the Notes; or
(b) to add to the covenants of the Company for the equal and
ratable benefit of the Holders, or to surrender any right or power
herein conferred upon the Company; or
(c) to secure the Company's obligations in respect of the
Notes; or
(d) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Article XIII; or
(e) to make any changes or modifications to this Indenture
necessary in connection with the registration of any Notes under the
Securities Act, provided that such action pursuant to this clause (e)
shall not adversely affect the interests of the Holders of Notes; or
(f) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, to correct or supplement any provision herein which limits,
qualifies or conflicts with a provision of the Trust Indenture Act
which is required under such Trust Indenture Act to be a part of and
govern this Indenture, in any case to the extent necessary to qualify
this Indenture under the Trust Indenture Act, or to make any other
provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this
Indenture; provided that such action pursuant to this clause shall not
adversely affect the interests or legal rights of the Holders in any
material respect.
SECTION 9.2 Supplemental Indentures with Consent of Holders. With the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Notes, by the Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto
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for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby,
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the place of payment where, or the coin
or currency in which, any Note or any premium or interest thereon is
payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the
case of redemption, on or after the Redemption Date), or adversely
affect the right to convert any Note as provided in Article XIII
(except as permitted by Section 9.1(d)), or modify the provisions of
this Indenture with respect to the subordination of the Notes in a
manner adverse to the Holders, or modify the redemption provisions in a
manner adverse to the Holders, or
(b) modify any of the provisions of this Section 9.2, Section
5.13 or Section 10.8, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be
modified or waived without the consent of the Holder of each
Outstanding Note affected thereby, or
(c) modify the obligation of the Company to maintain an office
or agency in the states of New York or Pennsylvania pursuant to Section
10.2, or
(d) reduce the percentage in principal amount of the
Outstanding Notes, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article IX or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1
and Section 6.3) shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture, complies with its terms and will, upon the
execution and delivery thereof, be valid and binding upon the Company in
accordance with its terms. The Trustee may, but shall not be obligated to, enter
into any such supplemental indenture which affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise.
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SECTION 9.4 Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture under this Article, this Indenture shall be modified
in accordance therewith, and such supplemental indenture shall form a part of
this Indenture for all purposes; and every Holder of Notes theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
SECTION 9.5 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article may, and shall if required by the Trustee, bear a
notation in form approved by the Trustee as to any maker provided for in such
supplemental indenture. If the Company shall so determine, new Notes so modified
as to conform, in the judgment of the Trustee and the Company, to any such
supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
ARTICLE X
Covenants
SECTION 10.1 Payment of Principal, Premium and Interest. The Company
will duly and punctually pay the principal of (and premium, if any) and interest
on the Notes in accordance with the terms of the Notes and this Indenture.
SECTION 10.2 Maintenance of Office or Agency. The Company will maintain
in the states of New York or Pennsylvania an office or agency where Notes may be
presented or surrendered for payment, where Notes may be surrendered for
registration of transfer or exchange, where Notes may be surrendered for
conversion and where notices and demands to or upon the Company in respect of
the Notes and this Indenture may be served. The Company will give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the states of New
York or Pennsylvania for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
SECTION 10.3 Money for Note Payments to Be Held in Trust. If the
Company shall at any time act as its own Paying Agent, it will, on or before
each due date of the principal of (and
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premium, if any) or interest on any of the Notes, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of (and premium, if any) or interest on
any Notes, deposit with a Paying Agent a sum sufficient to pay such amount, such
sum to be held in trust for the benefit of the Persons entitled to such
principal, premium, if any, or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section 10.3,
that such Paying Agent will
(a) hold all sums held by it for the payment of the principal
of, premium, if any, or interest on Notes in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or
any other obligor upon the Notes) in the making of any payment of
principal, premium, if any, or interest; and
(c) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Note and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Note shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English
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language, customarily published on each Business Day and of general circulation
in the Philadelphia, notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than thirty (30) days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 10.4 Statement by Officers as to Default. The Company will, so
long as any of the Notes are outstanding, deliver to the Trustee forthwith upon
any officer becoming aware of (i) any Default, Event of Default or default in
the performance of any covenant, agreement or condition contained in this
Indenture or (ii) any Event of Default under any other mortgage, indenture or
instrument as that term is used in Section 5.1(d), an Officer's Certificate
specifying such Default, Event of Default or default and what action the Company
is taking or proposes to take with respect thereto and the status thereof.
SECTION 10.5 Existence. Subject to Article VIII, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence, rights (charter and statutory) and franchises; provided,
however, that the Company shall not be required to preserve any such right or
franchise if the Board of Trustees shall determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company and that
the loss thereof is not disadvantageous in any material respect to the Holders.
SECTION 10.6 Maintenance of Properties. The Company will cause all
properties used or useful in the conduct of its business or the business of any
Subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company from discontinuing the operation or maintenance of any of such
properties, or disposing of any of them, if such discontinuance or disposition
is, in the judgment of the Company, desirable in the conduct of its business or
the business of any Subsidiary and not disadvantageous in any material respect
to the Holders.
SECTION 10.7 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary, and (b) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Company or any Subsidiary; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 10.8 Waiver of Certain Covenants. The Company may omit in any
particular instance to comply with any covenant or condition set forth in
Sections 10.5 to 10.7, inclusive, if before the time for such compliance the
Holders of at least a majority in principal amount of the
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Outstanding Notes shall, by Act of such Holders, either waive such compliance in
such instance or generally waive compliance with such covenant or condition, but
no such waiver shall extend to or affect such covenant or condition except to
the extent so expressly waived, and, until such waiver shall become effective,
the obligations of the Company and the duties of the Trustee in respect of any
such covenant or condition shall remain in full force and effect.
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ARTICLE XI
Redemption of Notes
SECTION 11.1 Right of Redemption. The Notes may be redeemed at the
election of the Company, as a whole or from time to time in part, at any time on
or after ___________ __, 2000 at the Redemption Prices specified in the form of
Note hereinbefore set forth, together with accrued interest to (but not
including) the Redemption Date.
SECTION 11.2 Applicability of Article. Redemption of Notes at the
election of the Company or otherwise, as permitted or required by any provision
of this Indenture, shall be made in accordance with such provision and this
Article XI.
SECTION 11.3 Election to Redeem: Notice to Trustee. The election of the
Company to redeem any Notes pursuant to Section 11.1 shall be evidenced by a
Board Resolution. In case of any redemption at the election of the Company, the
Company shall, at least forty-five (45) days prior to the Redemption Date fixed
by the Company (unless a shorter notice shall be satisfactory to the Trustee),
notify the Trustee of such Redemption Date and of the principal amount of Notes
to be redeemed.
SECTION 11.4 Selection by Trustee of Notes to Be Redeemed. If less than
all the Notes are to be redeemed, the particular Notes to be redeemed shall be
selected not less than ten (10) days or more than thirty (30) days prior to the
Redemption Date by the Trustee (unless a shorter time period shall be
satisfactory to the Trustee), from the Outstanding Notes not previously called
for redemption, by such method as the Trustee shall deem fair and appropriate in
the circumstances.
The Trustee shall promptly notify the Company and each Note Registrar
in writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Notes redeemed or to be redeemed only in part, to the portion of
the principal amount of such Notes which has been or is to be redeemed.
SECTION 11.5 Notice of Redemption. Notice of redemption shall be given
by first-class mail, postage prepaid, mailed not less than thirty (30) nor more
than sixty (60) days prior to the Redemption Date, to each Holder of Notes to be
redeemed, at his address appearing in the Note Register.
All notices of redemption shall state:
(a) the Redemption Date,
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(b) the Redemption Price,
(c) if less than all the Outstanding Notes are to be redeemed,
the identification (and, in the case of partial redemption of any
Notes, the principal amounts) of the particular Notes to be redeemed,
(d) that on the Redemption Date the Redemption Price will
become due and payable upon each such Note to be redeemed and that
interest thereon will cease to accrue on and after said date,
(e) the conversion price, the date on which the right to
convert the Notes to be redeemed will terminate and the place or places
where such Notes may be surrendered for conversion, and
(f) the place or places where such Notes are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company, and shall be irrevocable.
SECTION 11.6 Deposit of Redemption Price. Prior to any Redemption Date,
the Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.3) an amount of money sufficient to pay the Redemption
Price of, and (except if the Redemption Date shall be an Interest Payment Date)
accrued interest on, all the Notes which are to be redeemed on that date other
than any Notes called for redemption on that date which have been converted
prior to the date of such deposit.
If any Note called for redemption is converted, any money deposited
with the Trustee or with any Paying Agent or so segregated and held in trust for
the redemption of such Note shall (subject to any right of the Holder of such
Note or any Predecessor Note to receive interest as provided in the last
paragraph of Section 3.6) be paid to the Company upon Company Request or, if
then held by the Company, shall be released from such trust.
SECTION 11.7 Notes Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Notes so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified, and from and after such date (unless the Company shall default in the
payment of the Redemption Price and accrued interest) such Notes shall cease to
bear or accrue any interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest to (but not including) the
Redemption Date.
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If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear and accrue interest from the Redemption Date at the rate borne by the Note.
SECTION 11.8 Notes Redeemed in Part. Any Note which is to be redeemed
only in part shall be surrendered at an office or agency of the Company
designated for that purpose pursuant to Section 10.2 (with, if the Company or
the Trustee so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney-in-fact duly authorized in writing), and the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder of
such Note without service charge, a new Note or Notes, as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal amount of the Note so surrendered.
SECTION 11.9 Conversion Arrangement on Call for Redemption. The Holders
of Notes shall have the right to exercise their rights of conversion, pursuant
to Article XIII, prior to any redemption by the Company. In connection with any
redemption of Notes, the Company may arrange for the purchase and conversion of
any Notes by an agreement with one or more investment bankers or other
purchasers to purchase such Notes by paying to the Trustee in trust for the
Holders, on or before the Redemption Date, an amount not less than the
applicable Redemption Price, together with interest accrued to the Redemption
Date, of such Notes. Notwithstanding anything to the contrary contained in this
Article XI, the obligation of the Company to pay the Redemption Price of such
Notes, together with interest accrued to, but excluding, the date fixed for
redemption, shall be deemed to be satisfied and discharged to the extent such
amount is so paid by such purchasers. If such an agreement is entered into, a
copy of which will be filed with the Trustee prior to the Redemption Date, any
Notes not duly surrendered for conversion by the Holders thereof may, at the
option of the Company, be deemed, to the fullest extent permitted by law,
acquired by such purchasers from such Holders and (notwithstanding anything to
the contrary contained in Article XIII) surrendered by such purchasers for
conversion, all as of immediately prior to the close of business on the
Redemption Date (and the right to convert any such Notes shall be deemed to have
been extended through such time), subject to payment of the above amount as
aforesaid. At the direction of the Company, the Trustee shall hold and dispose
of any such amount paid to it in the same manner as it would monies deposited
with it by the Company for the redemption of Notes. Without the Trustee's prior
written consent, no arrangement between the Company and such purchasers for the
purchase and conversion of any Notes shall increase or otherwise affect any of
the powers, duties, responsibilities or obligations of the Trustee as set forth
in this Indenture, and the Company agrees to indemnify the Trustee from, and
hold it harmless against, any loss, liability or expense arising out of or in
connection with any such arrangement for the purchase and conversion of any
Notes between the Company and such purchasers to which the Trustee has not
consented in writing, including the costs and expenses incurred by the Trustee
in the defense of any claim or liability arising out of or in connection with
the exercise or performance of any of its powers, duties, responsibilities or
obligations under this Indenture. Nothing in the preceding sentence shall be
deemed to limit the rights and protections afforded to the Trustee in Article VI
hereof, including, but not limited to, the right to indemnification pursuant to
Section 6.7.
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ARTICLE XII
Subordination of Notes
SECTION 12.1 Notes Subordinate to Senior Indebtedness. The Company
covenants and agrees, and each Holder of a Note, by his acceptance thereof,
likewise covenants and agrees, that, to the extent and in the manner hereinafter
set forth in this Article XII, the indebtedness represented by the Notes and the
payment of the principal of (and premium, if any) and interest on each and all
of the Notes and all obligations of the Company under this Indenture are hereby
expressly made subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness.
SECTION 12.2 Payment over of Proceeds upon Dissolution. In the event of
(a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to the Company or to its creditors, as such, or to its
assets, or (b) any liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (c) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company, then and in any such event
the holders of Senior Indebtedness shall be entitled to receive payment in full
of all amounts due or to become due on or in respect of all Senior Indebtedness,
or provision shall be made for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior Indebtedness, before
the Holders of the Notes are entitled to receive any payment on account of
principal of (or premium, if any) or interest on the Notes, and to that end the
holders of Senior Indebtedness shall be entitled to receive, for application to
the payment thereof, any payment or distribution of any kind or character,
whether in cash, property or securities, which may be payable or deliverable in
respect of the Notes in any such case, proceeding, dissolution, liquidation or
other winding up or event.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Note shall have received any payment
or distribution of assets of the Company prohibited by the foregoing paragraph
of any kind or character, whether in cash, property or securities, before all
Senior Indebtedness is paid in full or payment thereof provided for, and if such
fact shall, at or prior to the time of such payment or distribution, have been
made actually known to a Responsible Officer of the Trustee or, as the case may
be, such Holder, then and in such event such payment or distribution shall be
paid over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making payment
or distribution of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
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For purposes of this Article XII only, the words "cash, property or
securities" shall not be deemed to include shares of capital stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment which in
either case are subordinated in right of payment to all Senior Indebtedness
which may at the time be outstanding to substantially the same extent as, or to
a greater extent than, the Notes are so subordinated as provided in this Article
XII. The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
conveyance or transfer of its properties and assets substantially as an entirety
to another Person upon the terms and conditions set forth in Article VIII shall
not be deemed a dissolution, winding up, liquidation, reorganization, assignment
for the benefit of creditors or marshaling of assets and liabilities of the
Company for the purposes of this Section 12.2 if the Person formed by such
consolidation or into which the Company is merged or which acquires by
conveyance or transfer such properties and assets substantially as an entirety,
as the case may be, shall, as a part of such consolidation, merger, conveyance
or transfer, comply with the conditions set forth in Article VIII.
SECTION 12.3 No Payment When Senior Indebtedness in Default.
(a) In the event and during the continuation of any default in the
payment of principal of (or premium, if any) or interest on any Senior
Indebtedness beyond any applicable grace period with respect thereto (unless and
until such payment default shall have been cured or waived in writing by the
holders of such Senior Indebtedness), or in the event any judicial proceeding
shall be pending with respect to any such default, then no payment shall be made
by the Company on account of principal of (or premium, if any) or interest on
the Notes or on account of the purchase or other acquisition of Notes (including
pursuant to Articles XI and XIII); and
(b) In the event that, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Note prohibited by the
foregoing provisions of this Section 12.3, and if such fact shall, at or prior
to the time of such payment, have been made actually known to a Responsible
Officer of the Trustee or, as the case may be, such Holder, then and in such
event such payment shall be paid over and delivered forthwith to the Company.
The provisions of this Section 12.3 shall not apply to any payment with
respect to which Section 12.2 would be applicable.
SECTION 12.4 Payment Permitted If No Default. Nothing contained in this
Article XII or elsewhere in this Indenture or in any of the Notes shall prevent
(a) the Company, at any time except during the pendency of any case, proceeding,
dissolution, liquidation or other winding up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the Company referred
to in Section 12.2 or under the conditions described in Section 12.3, from
making payments at any time of principal of (and premium, if any) or interest on
the Notes, or (b) the application by the Trustee of any money deposited with it
hereunder to the payment of or on account of the principal of (and premium, if
any) or interest on the Notes or the retention of such payment by the Holders,
if, at the time of such application by the Trustee, a Responsible
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Officer of the Trustee did not have actual knowledge that such payment would
have been prohibited by the provisions of this Article XII.
SECTION 12.5 Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, and until the Notes
are paid in full, the Holders of the Notes shall be subrogated (equally and
ratably with the holders of all indebtedness of the Company which by its express
terms is subordinated to indebtedness of the Company to substantially the same
extent as the Notes are subordinated and is entitled to like rights of
subrogation) to the rights of the holders of such Senior Indebtedness to receive
payments and distributions of cash, property and securities applicable to the
Senior Indebtedness to the extent that payments and distributions otherwise
payable to Holders of Notes have been applied to the payment of Senior
Indebtedness as provided by this Article XII. For purposes of such subrogation,
no payments or distributions to the holders of the Senior Indebtedness of any
cash, property or securities to which the Holders of the Notes or the Trustee
would be entitled, except for the provisions of this Article XII, and no
payments over pursuant to the provisions of this Article XII to the holders of
Senior Indebtedness by Holders of the Notes or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Indebtedness and the Holders
of the Notes, be deemed to be a payment or distribution by the Company to or on
account of the Senior Indebtedness.
SECTION 12.6 Provisions Solely to Define Relative Rights. The
provisions of this Article XII are and are intended solely for the purpose of
defining the relative rights of the Holders of the Notes on the one hand and the
holders of Senior Indebtedness on the other hand. Nothing contained in this
Article XII or elsewhere in this Indenture or in the Notes is intended to or
shall (a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Notes, the obligation of the Company,
which is absolute and unconditional (and which, subject to the rights under this
Article XII of the holders of Senior Indebtedness, is intended to rank equally
with all other general obligations of the Company), to pay to the Holders of the
Notes the principal of (and premium, if any) and interest on the Notes as and
when the same shall become due and payable in accordance with their terms; or
(b) affect the relative rights against the Company of the Holders of the Notes
and creditors of the Company other than the holders of Senior Indebtedness; or
(c) prevent the Trustee or the Holder of any Note from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article XII of the holders of Senior
Indebtedness to receive cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder.
SECTION 12.7 Trustee to Effectuate Subordination. Each holder of a Note
by his acceptance thereof authorizes and directs the Trustee on his behalf to
take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article XII and appoints the Trustee his
attorney-in-fact for any and all such purposes.
SECTION 12.8 No Waiver of Subordination Provisions. No right of any
present or future holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company
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or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the Notes,
without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article XII or the
obligations hereunder of the Holders of the Notes to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (b) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c)
release any Person liable in any manner for the collection of Senior
Indebtedness; (d) exercise or refrain from exercising any rights against the
Company and any other Person; (e) apply any and all sums received from time to
time to the Senior Indebtedness.
SECTION 12.9 Notice to Trustee. The Company shall give prompt written
notice to the Trustee of any fact known to the Company which would prohibit the
making of any payment to or by the Trustee in respect of the Notes.
Notwithstanding the provisions of this Article XII or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts which would prohibit the making of any payment to or by the Trustee
in respect of the Notes, unless and until the Trustee shall have received
written notice thereof from the Company or a holder of Senior Indebtedness or
from any trustee therefor; and, prior to the receipt of any such written notice,
the Trustee, subject to the provisions of Section 6.1, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 12.9 at
least two (2) Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of (and premium, if any) or interest on any Note),
then, anything herein contained to the contrary notwithstanding, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purpose for which such money was received and shall not be affected by
any notice to the contrary which may be received by it within two (2) Business
Days prior to such date.
Subject to the provisions of Section 6.1, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a holder of Senior Indebtedness (or a trustee therefor) to
establish that such notice has been given by a holder of Senior Indebtedness (or
a trustee therefor). In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Senior Indebtedness to participate in any payment or distribution pursuant to
this Article XII, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article XII, and if such evidence is not furnished, the
Trustee may defer
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any payment to such Person pending judicial determination as to the right of
such Person to receive such payment.
SECTION 12.10 Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Company referred to in
this Article XII, the Trustee, subject to the provisions of Section 6.1, and the
Holders of the Notes shall be entitled to rely upon any order or decree entered
by any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the benefit of creditors,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the Holders of Notes, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of the
Senior Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XII.
SECTION 12.11 Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and shall not be liable to any such holders if it shall in
good faith mistakenly pay over or distribute to Holders of Notes or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article XII or
otherwise.
SECTION 12.12 Rights of Trustee as Holder of Senior Indebtedness:
Preservation of Trustee's Rights. The Trustee in its individual capacity shall
be entitled to all the rights set forth in this Article XII with respect to any
Senior Indebtedness which may at any time be held by it, to the same extent as
any other holder of Senior Indebtedness, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder.
Nothing in this Article XII shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 6.7.
SECTION 12.13 Article Applicable to Paying Agents. In case at any time
any Paying Agent other than the Trustee shall have been appointed by the Company
and be then acting hereunder, the term "Trustee" as used in this Article XII
shall in such case (unless the context otherwise requires) be construed as
extending to and including such Paying Agent within its meaning as fully for all
intents and purposes as if such Paying Agent were named in this Article XII in
addition to or in place of the Trustee; provided, however, that Section 12.12
shall not apply to the Company or any Affiliate of the Company if it or such
Affiliate acts as Paying Agent.
SECTION 12.14 Certain Conversions Deemed Payment. For the purposes of
this Article XII only, (a) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article XIII shall not be deemed to
constitute a payment or distribution on account of the principal of or premium
or interest on Notes or on account of the purchase or other acquisition of
Notes, and (b) the payment, issuance or delivery of cash, property or securities
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(other than junior securities) upon conversion of a Note shall be deemed to
constitute payment on account of the principal of such Note. For the purposes of
this Section 12.14, the term "junior securities" means (x) shares of any stock
of any class of the Company and (y) securities of the Company which are
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness which may be outstanding at the time of issuance or delivery of
such securities to substantially the same extent as, or to a greater extent
than, the Notes are so subordinated as provided in this Article XII. Nothing
contained in this Article XII or elsewhere in this Indenture or in the Notes is
intended to or shall impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Notes, the right, which is
absolute and unconditional, of the Holder of any Note to convert such Note in
accordance with Article XIII.
ARTICLE XIII
Conversion of Notes
SECTION 13.1 Conversion Privilege and Conversion Price. Subject to and
upon compliance with the provisions of this Article XIII, at the option of the
Holder thereof, any Note or any portion of the principal amount thereof may be
converted at the principal amount thereof, or of such portion thereof, into
fully paid and nonassessable Common Shares of the Company at any time after two
(2) years following the date of original issuance of Notes at the conversion
price, determined as hereinafter provided, in effect at the time of conversion,
or earlier upon a Change in Control (as defined in Section 8.1) or an Event of
Default (as defined in Section 5.1) but in no event prior to one year after the
date of original issuance. Such conversion right shall expire at the close of
business on the Business Day immediately preceding ______ __, 2008. In case a
Note or portion thereof is called for redemption at the election of the Company,
such conversion right in respect of the Note or portion so called shall expire
at the close of business, Philadelphia time, on the Business Day immediately
preceding the corresponding Redemption Date, unless the Company defaults in
making the payment due upon redemption.
The price at which Common Shares shall be delivered upon conversion
(herein called the "conversion price") shall be initially U.S.$20.00 per Common
Share. The conversion price shall be adjusted in certain instances as provided
in Section 13.4.
SECTION 13.2 Exercise of Conversion Privilege. In order to exercise the
conversion privilege, the Holder of any Note to be converted shall surrender
such Note, duly endorsed or assigned to the Company or in blank, at any office
or agency maintained by the Company pursuant to Section 10.2, accompanied by
written notice (as set forth in Section 2.5 herein) to the Company at such
office or agency that the Holder elects to convert such Note or, if less than
the entire principal amount thereof is to be converted, the portion thereof to
be converted.
Except as described in the last paragraph of Section 3.6, no Holder of
Notes will be entitled upon conversion thereof to any payment or adjustment on
account of accrued and unpaid interest thereon (although such accrued and unpaid
interest will be deemed paid by the appropriate portion of the Common Shares
received by the holders upon such conversion) or on
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account of dividends on the shares of Common Shares issued in connection
therewith. Notes surrendered for conversion during the period from the close of
business on any Regular Record Date to the opening of business on the
corresponding Interest Payment Date (except Notes called for redemption on a
Redemption Date within such period between and including such Regular Record
Date and such Interest Payment Date) must be accompanied by payment to the
Company in New York Clearing House Funds or other funds acceptable to the
Company of an amount equal to the interest payable on such Interest Payment Date
on the principal amount converted.
Notes shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Notes for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Notes as Holders shall cease, and the Person or Persons entitled
to receive the Common Shares issuable upon conversion shall be treated for all
purposes as the record holder or holders of such Common Shares at such time. As
promptly as practicable on or after the conversion date, the Company shall issue
and shall deliver at such office or agency a certificate or certificates for the
number of Common Shares issuable upon conversion, together with payment in lieu
of any fraction of a share as provided in Section 13.3.
In the case of any Note which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Note or
Notes in aggregate principal amount equal to the unconverted portion of the
principal amount of such Note.
SECTION 13.3 Fractions of Shares. No fractional Common Shares shall be
issued upon conversion of Notes. If more than one Note shall be surrendered for
conversion at one time by the same Holder, the number of full shares which shall
be issuable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Notes (or specified portions thereof) so
surrendered. Instead of any fractional Common Shares which would otherwise be
issuable upon conversion of any Note or Notes (or specified portions thereof),
the Company shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the Closing Price per Common Share at the close of
business on the day of conversion (or, if such day is not a Business Day, on the
Business Day immediately preceding such day) or, alternatively, the Company
shall round up to the next higher whole share.
SECTION 13.4 Adjustment of Conversion Price.
(a) In case the Company shall pay or make a dividend or other
distribution on its Common Shares exclusively in Common Shares or shall pay or
make a dividend or other distribution on any other class of capital stock of the
Company which dividend or distribution includes Common Shares, the conversion
price in effect at the opening of business on the day next following the date
fixed for the determination of shareholders entitled to receive such dividend or
other distribution shall be reduced by multiplying such conversion price by a
fraction of which the numerator shall be the number of Common Shares outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution,
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such reduction to become effective immediately after the opening of business on
the day next following the date fixed for such determination. For the purposes
of this paragraph (a), the number of Common Shares at any time outstanding shall
not include shares held in the treasury of the Company but shall include shares
issuable in respect of scrip certificates issued in lieu of fractions of Common
Shares. The Company shall not pay any dividend or make any distribution on
Common Shares held in the treasury of the Company.
(b) In case the Company shall pay or make a dividend or other
distribution on its Common Shares consisting exclusively of, or shall otherwise
issue to all holders of its Common Shares, rights, warrants or options entitling
the holders thereof to subscribe for or purchase Common Shares at a price per
share less than the current market price per share (determined as provided at
the end of this paragraph (b) of this Section 13.4) of the Common Shares on the
date fixed for the determination of shareholders entitled to receive such
rights, warrants or options, the conversion price in effect at the opening of
business on the day following the date fixed for such determination shall be
reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of Common Shares outstanding at the close of
business on the date fixed for such determination plus the number of Common
Shares which the aggregate of the offering price of the total number of Common
Shares so offered for subscription or purchase would purchase at such current
market price and the denominator shall be the number of Common Shares
outstanding at the close of business on the date fixed for such determination
plus the number of Common Shares so offered for subscription or purchase, such
reduction to become effective immediately after the opening of business on the
day following the date fixed for such determination. For the purposes of this
paragraph (b), the number of Common Shares at any time outstanding shall not
include shares held in the treasury of the Company but shall include shares
issuable in respect of scrip certificates issued in lieu of fractions of Common
Shares. The Company shall not issue any rights, warrants or options in respect
of Common Shares held in the treasury of the Company. For the purpose of any
computation under paragraph (b) of this Section 13.4, the current market price
per Common Share on any date in question shall be deemed to be the average of
the daily Closing Prices for the five (5) consecutive Trading Days selected by
the Company commencing not more than twenty (20) Trading Days before, and ending
not later than, the date in question.
(c) In case outstanding Common Shares shall be subdivided into a
greater number of Common Shares, the conversion price in effect at the opening
of business on the day following the day upon which such subdivision becomes
effective shall be proportionately reduced, and, conversely, in case outstanding
Common Shares shall each be combined into a smaller number of Common Shares, the
conversion price in effect at the opening of business on the day following the
day upon which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day upon
which such subdivision or combination becomes effective.
(d) The Company may make such reductions in the conversion price, in
addition to those required by paragraphs (a) and (b) of this Section, as it
considers to be advisable in order
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that any event treated for Federal income tax purposes as a dividend of stock or
stock rights shall not be taxable to the recipients.
(e) No adjustment in the conversion price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
conversion price; provided, however, that any adjustments which by reason of
this paragraph (5) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(f) In the event that the Company distributes rights or warrants (other
than those referred to in paragraph (b) above) pro rata to holders of Common
Shares, so long as any such rights or warrants have not expired or been redeemed
by the Company, the Company shall make proper provision so that the Holder of
any Note surrendered for conversion will be entitled to receive upon such
conversion, in addition to the Conversion Shares, a number of rights and
warrants to be determined as follows: (i) if such conversion occurs on or prior
to the date for the distribution to the holders of rights or warrants of
separate certificates evidencing such rights or warrants (the "Distribution
Date"), the same number of rights or warrants to which a holder of a number of
Common Shares equal to the number of Conversion Shares is entitled at the time
of such conversion in accordance with the terms and provisions of and applicable
to the rights or warrants, and (ii) if such conversion occurs after such
Distribution Date, the same number of rights or warrants to which a holder of
the number of Common Shares into which the principal amount of such Note so
converted was convertible immediately prior to such Distribution Date would have
been entitled on such Distribution Date in accordance with the terms and
provisions of and applicable to the rights or warrants.
SECTION 13.5 Notice of Adjustments of Conversion Price. Whenever the
conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 13.4 and deliver to the Trustee an Officers'
Certificate setting forth the adjusted conversion price and showing in
reasonable detail the facts upon which such adjustment is based, and
such Officers' Certificate shall forthwith be filed at each office or
agency maintained for the purpose of conversion of Notes pursuant to
Section 10.2; and
(b) a notice stating that the conversion price has been
adjusted and setting forth the adjusted conversion price shall be
mailed by the Company to all Holders at their last addresses as they
shall appear in the Note Register promptly after the conversion price
has been adjusted. Unless and until a Responsible Officer of the
Trustee shall have received an Officers' Certificate setting forth an
adjustment of the conversion price or stating that an action described
in Section 13.6 has occurred, the Trustee shall not be deemed to have
knowledge of such adjustment or action and may assume without inquiry
(i) that the conversion price has not been adjusted, (ii) that the last
conversion price of which the Trustee had knowledge remains in effect,
and (iii) that no action described in Section 13.6 has occurred.
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SECTION 13.6 Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Shares payable otherwise than exclusively
in cash; or
(b) the Company shall authorize the granting to the holders of
its Common Shares of rights, warrants or options to subscribe for or
purchase any shares of capital stock of any class or of any other
rights (excluding employee stock options); or
(c) of any reclassification of the Common Shares of the
Company (other than a subdivision or combination of its outstanding
Common Shares), or of any consolidation or merger to which the Company
is a party and for which approval of any shareholders of the Company is
required, or of the sale or transfer of all or substantially all of the
assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company;
(e) the Company or any Subsidiary of the Company shall
commence a tender or exchange offer for all or a portion of the
Company's outstanding Common Shares (or shall amend any such tender or
exchange offer);
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Notes pursuant to Section 10.2, and shall cause to
be mailed to all Holders at their last addresses as they shall appear in the
Note Register, at least twenty (20) days (or ten (10) days in any case specified
in clause (a) or (b) above) prior to the applicable record, effective or
expiration date hereinafter specified, a notice (which shall be in the form of
an Officers' Certificate in the case of the notice delivered to the Trustee)
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or granting of rights, warrants or options, or, if a
record is not to be taken, the date as of which the holders of Common Shares of
record to be entitled to such dividend, distribution, rights, warrants or
options are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Shares of record shall be entitled to exchange their Common
Shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up, or (z) the date on which such tender offer commenced,
the date on which such tender offer is scheduled to expire unless extended, the
consideration offered and the other material terms thereof (or the material
terms of any amendment thereto).
SECTION 13.7 Company to Reserve Common Shares. The Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Shares, solely for the purpose of effecting the
conversion of Notes, the whole number of Common Shares then issuable upon the
conversion in full of all outstanding Notes.
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SECTION 13.8 Taxes on Conversions. The Company will pay any and all
excise and transfer taxes that may be payable in respect of the issue or
delivery of Common Shares on conversion of Notes pursuant hereto. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of Common Shares in a name
other than that of the Holder of the Note or Notes to be converted, and no such
issue or delivery shall be made unless and until the Person requesting such
issue has paid to the Company the amount of any such tax, or has established to
the satisfaction of the Company that such tax has been paid.
SECTION 13.9 Covenant as to Common Shares. The Company covenants that
all Common Shares which may be issued upon conversion of Notes will upon issue
be newly issued (and not treasury shares) and be duly authorized, validly
issued, fully paid and nonassessable and, except as provided in Section 13.8,
the Company will pay all taxes, liens and charges with respect to the issue
thereof.
SECTION 13.10 Cancellation of Converted Notes. All Notes delivered for
conversion shall be delivered to the Trustee to be canceled by or at the
direction of the Trustee, which shall dispose of the same as provided in Section
3.8.
SECTION 13.11 Provisions in Case of Reclassification, Consolidation,
Merger or Sale of Assets. Unless the Notes were previously converted, during the
period from the date the Company resolves to take any action that would
constitute a Change in Control (as defined in Section 8.1) until five days prior
to the consummation of such Change in Control Transaction, the Holders of the
Notes shall have the right to make an election to convert all or any Notes in
accordance with Section 13.1 conditional upon approval of such Change in Control
by the holders entitled to vote on such matter, in which case, if such Change in
Control is approved, conversion of such Notes as to which a conditional election
has been made shall occur upon the later of (a) immediately prior to such Change
in Control, or (b) the date one year after the date of original issuance of the
Notes. The Company or the person formed by such consolidation or resulting from
such merger or which acquired such assets or which acquired the Company's
shares, as the case may be, shall execute and deliver to the Trustee a
supplemental indenture establishing such rights. Such supplemental indenture
shall provide for adjustments which, for events subsequent to the effective date
of such supplemental indenture, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. The above
provisions of this Section 13.11 shall similarly apply to successive
transactions of the foregoing type.
ARTICLE XIV
Defeasance and Covenant Defeasance
SECTION 14.1 Company's Option to Effect Defeasance or Covenant
Defeasance. The Company may at its option by Board Resolution, at any time,
elect to have either Section 14.2 or
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Section 14.3 applied to the Outstanding Notes upon compliance with the
conditions set forth below in this Article XIV.
SECTION 14.2 Defeasance and Discharge. Upon the Company's exercise of
the option provided in Section 14.1 applicable to this Section, the Company and
the Trustee shall be deemed to have been discharged from their obligations with
respect to the Outstanding Notes (other than those specified below), and the
provisions of Article XII hereof shall cease to be effective, on the date the
conditions set forth below are satisfied (hereinafter, "defeasance"). For this
purpose, such defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the Outstanding Notes, the
Company and the Trustee shall be deemed to have satisfied all their other
obligations under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of such Notes to receive, solely from the trust fund described in
Section 14.4 and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any and interest on such Notes when such payments
are due, (b) the Company's obligations with respect to such Notes under Sections
3.4, 3.5, 3.6, 10.2, 10.3 and Article XIII, (c) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and (d) this Article XIV. Subject
to compliance with this Article XIV, the Company may exercise its option under
this Section 14.2 notwithstanding the prior exercise of its option under Section
14.3.
SECTION 14.3 Covenant Defeasance. Upon the Company's exercise of the
option provided in Section 14.1 applicable to this Section, (a) the Company
shall be released from its obligations under Section 10.6 and Section 10.7, (b)
the occurrence of an event specified in Section 5.1(d) shall not be deemed to be
an Event of Default and (c) the provisions of Article XII hereof shall cease to
be effective on and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance
means that the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such Section or
Article, whether directly or indirectly by reason of any reference elsewhere
herein to any such Section or Article or by reason of any reference in any such
Section or Article to any other provision herein or in any other document, but
the remainder of this Indenture and such Notes shall be unaffected thereby.
SECTION 14.4 Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
14.2 or Section 14.3 to the then Outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 6.9 who shall agree to comply with the
provisions of this Article XIV applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Notes, (i) money in an amount, or (ii) U.S. Government
Obligations which through the scheduled payment of
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principal and interest in accordance with their terms will provide, not
later than one day before the due date of any payment, money in an
amount, or (iii) a combination thereof, sufficient, in the written
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, the
principal of, premium, if any, and each installment of interest on the
Notes on the Stated Maturity of such principal or installment of
interest in accordance with the terms of this Indenture and of such
Notes. For this purpose, "U.S. Government Obligations" means securities
that are (x) direct obligations of the United States of America for the
payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the payment
of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act) as custodian with respect to any
such U.S. Government Obligation or a specific payment of principal of
or interest on any such U.S. Government Obligation held by such
custodian for the account of the holder of such depository receipt,
provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder
of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of
principal of or interest on the U.S. Government Obligation evidenced by
such depository receipt;
(b) In the case of an election under Section 14.2, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (ii) since the date of this
Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion
shall confirm that, the Holders of the Outstanding Notes will not
recognize gain or loss for Federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to Federal
income tax on the same amount, in the same manner and at the same times
as would have been the case if such deposit, defeasance and discharge
had not occurred;
(c) In the case of an election under Section 14.3, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the Outstanding Notes will not recognize gain or
loss for Federal income tax purposes as a result of such deposit and
covenant defeasance and will be subject to Federal income tax on the
same amount, in the same manner and at the same times as would have
been the case if such deposit and covenant defeasance had not occurred;
(d) The Company shall have delivered to the Trustee an
Officers' Certificate to the effect that the Notes, if then listed on
any securities exchange, will not be delisted as a result of such
deposit;
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<PAGE>
(e) Such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest as defined in Section 6.8;
(f) At the time of such deposit: (i) no default in the payment
of all or a portion of principal of (or premium, if any) or interest on
or other obligations in respect of any Senior Indebtedness shall have
occurred and be continuing, and no event of default with respect to any
Senior Indebtedness shall have occurred and be continuing and shall
have resulted in such Senior Indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise have
become due and payable and (ii) no other event with respect to any
Senior Indebtedness shall have occurred and be continuing permitting
(after notice or the lapse of time, or both) the holders of such Senior
Indebtedness (or a trustee on behalf of the holders thereof) to declare
such Senior Indebtedness due and payable prior to the date on which it
would otherwise have become due and payable, or, in the case of either
Clause (a) or Clause (b) above, each such default or event of default
shall have been cured or waived or shall have ceased to exist;
(g) No Event of Default or event which with notice or lapse of
time or both would become an Event of Default shall have occurred and
be continuing on the date of such deposit or, insofar as subsections
5.1(e) and (f) are concerned, at any time during the period ending on
the 121st day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of
such period);
(h) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, any other
material agreement or instrument to which the Company is a party or by
which it is bound;
(i) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 14.2 or the covenant defeasance under Section 14.3 (as
the case may be) have been complied with; and
(j) Such defeasance or covenant defeasance shall not result in
the trust arising from such deposit constituting an investment company
as defined in the Investment Company Act of 1940, as amended, or such
trust shall be qualified under such act or exempt from regulation
thereunder.
SECTION 14.5 Deposited Money and U.S. Government Obligations to Be Held
in Trust: Other Miscellaneous Provisions. Subject to the provisions of the last
paragraph of Section 10.3, all money and U.S. Government Obligations (including
the proceeds thereof) deposited with the Trustee (or other qualifying
trustee-collectively, for purposes of this Section 14.5, the "Trustee") pursuant
to Section 14.4 in respect of the Notes shall be held in trust and applied by
the Trustee, in accordance with the provisions of such Notes and this Indenture,
to the payment, either directly or through any Paying Agent (including the
Company acting as its own Paying Agent) as the Trustee may determine, to the
Holders of such Notes, of all sums due and to become due
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<PAGE>
thereon in respect of principal, premium, if any, and interest. Money so held in
trust shall not be subject to the provisions of Article XII.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 14.4 or the principal and interest received other
than any such tax, fee or other charge which by law is for the account of the
Holders of the Outstanding Notes.
Anything in this Article XIV to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 14.4 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
SECTION 14.6 Reinstatement. If the Trustee or the Paying Agent is
unable to apply any money in accordance with Section 14.2 or 14.3 by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the Company's
obligations under this Indenture and the Notes shall be revived and reinstated
as though no deposit had occurred pursuant to this Article XIV until such time
as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 14.2 or 14.3; provided, however, that if the Company
makes any payment of principal of, premium, if any, or interest on any Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or the Paying Agent.
ARTICLE XV
Immunity
SECTION 15.1 Personal Immunity of Incorporators, Shareholders,
Directors and Officers. No recourse for the payment of the principal of or
interest on the Notes, and no recourse under or upon any obligation, covenant or
agreement contained in this Indenture or in any indenture supplemental hereto,
or in the Notes, or because of any indebtedness evidenced thereby, shall be had
against any incorporator, or against any past, present or future shareholder,
officer, director, trustee, partner, member, as such, of the Company or any
successor entity, either directly or through the Company or any successor
entity, under any rule of law, statute or constitutional provision or by the
enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the
acceptance of the Notes by the Holders thereof and as part of the consideration
for the issue of the Notes. Each and every Holder of the Notes, by receiving and
holding the same, agrees to the provisions of this Section 15.1 and waives and
releases any and all such recourse, claim and liability.
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<PAGE>
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed, all
as of the day and year first above written.
KRANZCO REALTY TRUST
By:
-------------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW YORK
By:
-------------------------------------
Name:
Title:
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<PAGE>
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL]
FILE NUMBER
865374
July 16, 1998
Kranzco Realty Trust
128 Fayette Street
Conshohocken, Pennsylvania 19428
Re: Kranzco Realty Trust
Registration Statement on Form S-4
Registration No. 333-52743
-----------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Kranzco Realty Trust, a Maryland
real estate investment trust (the "Company"), in connection with certain
matters of Maryland law arising out of the registration of (a) $8,000,000 of
its Callable Convertible Subordinated Notes due 2008 (the "Notes") and (b)
400,000 Common Shares (the "Conversion Shares") of Beneficial Interest, par
value $.01 per share, of the Company ("Common Shares") issuable upon conversion
of the Notes, in connection with the Company's offer to exchange (the "Exchange
Offer") $.7707 of Notes for each outstanding share of common stock, par value
$.01 per share (each, an "NAI Share" and collectively, the "NAI Shares") of New
America Network, Inc., a Delaware corporation ("NAI"), validly tendered on or
prior to the Expiration Date and not properly withdrawn, not to exceed
10,379,531 NAI Shares, as described in the above-referenced Registration
Statement, as amended (the "Registration Statement"), under the Securities Act
of 1933, as amended (the "1933 Act"). Capitalized terms used but not defined
herein shall have the meanings given to them in the Registration Statement.
In connection with our representation of the Company, and as a basis for
the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
<PAGE>
Kranzco Realty Trust
July 16, 1998
Page 2
1. The Registration Statement in the form in which it was transmitted to
the Securities and Exchange Commission (the "Commission"), including the
related form of Prospectus (the "Prospectus") included therein;
2. The Amended and Restated Declaration of Trust of the Company, as
amended (the "Declaration of Trust") certified as of a recent date by the State
Department of Assessments and Taxation of Maryland (the "SDAT");
3. The Bylaws of the Company, certified as of a recent date by its
Secretary;
4. Resolutions adopted by the Board of Trustees, or a duly authorized
committee thereof, relating to (i) the issuance of the Notes and (ii) the
authorization of the sale, issuance and registration of the Conversion Shares,
certified as of a recent date by the Secretary of the Company;
5. The Exchange Agreement;
6. The form of Indenture (the "Indenture") attached as an Exhibit to the
Registration Statement;
7. The form of certificates evidencing the Notes (the "Note Certificate")
included in the Indenture;
8. The form of certificate evidencing Common Shares (the "Share
Certificate") attached as an Exhibit to the Registration Statement;
9. A certificate of the SDAT, as of a recent date, as to the good standing
of the Company;
10. A certificate executed by the Secretary of the Company, dated the date
hereof; and
11. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far as
is known to us there are no facts inconsistent with, the following:
<PAGE>
Kranzco Realty Trust
July 16, 1998
Page 3
1. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding and are enforceable in accordance with all stated
terms.
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so.
3. Each individual executing any of the Documents, whether on behalf of
such individual or another person, is legally competent to do so.
4. All Documents submitted to us as originals are authentic. The form and
content of any Documents submitted to us as unexecuted drafts do not differ in
any respect relevant to this opinion from such Documents as executed and
delivered. All Documents submitted to us as certified or photostatic copies
conform to the original documents. All signatures on all such Documents are
genuine. All public records reviewed or relied upon by us or on our behalf are
true and complete. All statements and information contained in the Documents
are true and complete, however, we have not relied upon such statements and
information to the extent that they constitute matters of Maryland law as to
which we express an opinion herein. There has been no modification or amendment
to any provision of any of the Documents and there has been no waiver of any
provision of any of the Documents, by action or conduct of the parties or
otherwise.
5. The Board of Trustees, or a duly authorized committee thereof, will set
the interest rate of the Notes prior to the issuance of any of the Notes.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations and
qualifications stated herein, it is our opinion that:
1. The Company is a real estate investment trust duly formed and validly
existing under and by virtue of the laws of the State of Maryland and is in
good standing with the SDAT.
<PAGE>
Kranzco Realty Trust
July 15, 1998
Page 4
2. The Company has duly authorized the issuance of the Notes pursuant to
the Indenture by all necessary Trust action.
3. The Conversion Shares have been duly authorized and, upon issuance on
conversion of the Notes in accordance with the terms of the Indenture and
delivery of the Conversion Shares in the form of the Share Certificate, such
Conversion Shares will be (assuming that upon any such issuance the total
number of Common Shares issued and outstanding will not exceed the total number
of Common Shares that the Company is then authorized to issue under the
Declaration of Trust) validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the substantive laws of the State of
Maryland and we do not express any opinion herein concerning any other law. We
express no opinion as to compliance with the securities (or "blue sky") laws of
the State of Maryland.
We assume no obligation to supplement this opinion if any applicable law
changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for your submission to the
Commission as an exhibit to the Registration Statement and, accordingly, may
not be relied upon by, quoted in any manner to, or delivered to any other
person or entity without, in each instance, our prior written consent.
Notwithstanding the foregoing, Robinson Silverman Pearce Aronsohn & Berman LLP,
counsel to the Company, may rely upon this opinion for the purpose of
delivering its opinion with respect to the Notes.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm in the section
entitled "Legal Matters" in the Registration Statement. In giving this consent,
we do not admit that we are within the category of persons whose consent is
required by Section 7 of the 1933 Act.
We further consent to the use of this opinion as an exhibit to the
Company's applications to the Securities Commissioners of various states of the
United States in connection with the registration or qualification of the Notes
and/or the Conversion Shares.
<PAGE>
Kranzco Realty Trust
July 15, 1998
Page 5
Very truly yours,
/s/ Ballard Spahr
Andrews & Ingersoll LLP
<PAGE>
[Robinson Silverman Pearce Aronsohn & Berman LLP Letterhead]
July 16, 1998
Kranzco Realty Trust
128 Fayette Street
Conshohocken, Pennsylvania 19428
Re: Kranzco Realty Trust Registration Statement
on Form S-4 (Registration No. 333-52743)
-------------------------------------------
Ladies and Gentlemen:
We are rendering this opinion in connection with the registration by
Kranzco Realty Trust, a Maryland real estate investment trust (the "Company"),
pursuant to the above-captioned Registration Statement (the "Registration
Statement") under the Securities Act of 1933, as amended, of $8,000,000
aggregate principal amount of the Company's ___ % Callable Convertible Notes
due 2008 (the "Notes").
In rendering this opinion, we have assumed (i) the Company 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
Assessment and Taxation of Maryland, (ii) the Company has all requisite trust
power and authority to execute and deliver the Indenture and the Notes and
(iii) the execution, delivery and performance by the Company of the Indenture
and the Notes have been duly and validly authorized and approved by all
requisite trust action of the Company. In addition, we have examined the
Indenture, the Notes and the Company's Registration Statement. Furthermore, we
have examined such questions of law and fact as we have considered necessary or
appropriate for purposes of this opinion.
Based on the foregoing, it is our opinion that each of the Notes, when
issued in accordance with the terms of the governing Indenture, will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium, marshalling and other similar laws relating to
creditors' rights generally or by general principles of equity (whether
considered in an action at law or in equity) and to the discretion of the court
before which any such proceeding may be brought. As the Company is a Maryland
real estate investment trust, we express no opinion as to the validity of the
Kranzco Common Shares into which the Notes are convertible.
<PAGE>
Kranzco Realty Trust
July __, 1998
Page 2
Capitalized terms used and not defined herein shall have the respective
meanings ascribed thereto in the Registration Statement.
The opinions expressed herein are limited to the laws of the State of New
York, and we express no opinion as to the affect on the matters covered by this
letter of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus.
We further consent to the use of this letter as an exhibit to applications
to the Securities Commissioners of various States of the United States for
registration or qualification of the Notes under securities laws of such
States.
Very truly yours,
/s/
Robinson Silverman Pearce
Aronsohn & Berman LLP
<PAGE>
<PAGE>
Exhibit 8.1
[Robinson Silverman Pearce Aronsohn & Berman LLP Letterhead]
July 16, 1998
Kranzco Realty Trust
128 Fayette Street
Conshohocken, Pennsylvania 19428
Ladies and Gentlemen:
We have acted as United States counsel to Kranzco Realty Trust, its
subsidiaries and affiliates (the "Company") in connection with the exchange
offer whereby the Company would acquire approximately 80% of the outstanding
stock of New America Network, Inc. in exchange for $8 million of the Company's
convertible subordinated notes, as more fully described in the Company's
Registration Statement on Form S-4 (Registration Number 333- 52743), as amended
(the "Registration Statement").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of the Registration Statement and such corporate records,
agreements, documents and other instruments, and such certificates or
comparable documents of public officials and of officers and representatives of
the Company, and have made such inquiries of such officers and representatives,
as we have deemed relevant and necessary as a basis for the opinions
hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified or
photostatic copies and to all questions of fact material to this opinion that
have not been independently established, we have relied upon certificates of
officers and representatives of the Company and upon the representations,
warranties and covenants of the Company.
Based on the foregoing, and subject to the qualifications stated herein,
we are of the opinion that:
The statements under the caption "Material United States Federal Tax
Considerations" in the Registration Statement, subject to the limitations set
forth therein, fairly summarize in all material respects the information
described therein.
<PAGE>
Kranzco Realty Trust
July 16, 1998
Page 2
The opinion herein is limited to the federal income tax laws of the United
States, and we express no opinion as to the effect on the matters covered by
this opinion of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the aforesaid Registration Statement and
to the use of our name therein. We hereby further consent to the use of this
opinion as an exhibit to filings with the securities commissioners of various
states of the United States as required by the securities laws of such states.
This opinion is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by
any other person and may not be disclosed, quoted, filed with a governmental
agency or otherwise referred to without our prior written consent except as
noted above.
Very truly yours,
Robinson Silverman Pearce
Aronsohn & Berman LLP
<PAGE>
INTERCOMPANY AGREEMENT
THIS INTERCOMPANY AGREEMENT (the "Agreement") is made and entered into as
of the ___ day of ______, 1998, by and between Kranzco Realty Trust, a Maryland
real estate investment trust ('Kranzco"), and New America International, Inc.,
a Maryland corporation, which conducts business under the name New America
International (together with its subsidiaries and affiliated entities "NAI").
W I T N E S S E T H:
WHEREAS, Kranzco is a real estate investment trust (a "REIT") under
sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code") primarily engaged in the business of owning, managing, operating,
leasing, acquiring and expanding neighborhood and community shopping centers;
WHEREAS, NAI, among other things, operates a network (the "NAI Network")
of independently owned, licensed real estate brokers throughout the United
States;
WHEREAS, Kranzco may in certain circumstances determine that it is
prevented from pursuing, or is limited in the manner in which it pursues,
various business opportunities due to its status as a REIT; and
WHEREAS, it is the objective of the parties hereto that to the extent of
their common interests, each party will provide the other with a right of first
opportunity or notification with respect to certain business opportunities made
to each of them, as more fully described herein;
NOW, THEREFORE, in consideration of the premises and mutual undertakings
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
undersigned parties hereby agree as follows:
1. Definitions. Except as may be otherwise herein expressly provided,
the following terms and phrases shall have the meanings set forth below:
(a) "REIT Opportunity" means any opportunity, principally within the
United States, to (i) acquire, develop, lease, sell or make any investment in
retail real estate, real estate mortgages, real estate derivatives, or entities
that invest exclusively in or have a substantial portion of their assets in any
of the foregoing, so long as such investment would be consistent with the
requirements of the Code and regulations relating to Kranzco's status as a
REIT; or (ii)
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<PAGE>
make any REIT-Qualified Investment. "REIT-Qualified Investment" means an
investment, at least 95% of the gross income from which would qualify under the
95% gross income test set forth in section 856(c)(2) of the Code (or could be
structured so to qualify) and the ownership of which would not cause Kranzco to
violate the asset limitations set forth in section 856(c)(4) of the Code (or
could be structured not to cause Kranzco to violate the section 856(c)(4)
limitations) and which otherwise meets the federal income tax requirements
applicable to REITs, or (ii) any other investments which may be structured in a
manner so as to be REIT-Qualified Investments, as determined by Kranzco.
Kranzco shall have the right from time to time to provide written notice to NAI
specifying certain criteria, reasonably acceptable to NAI, for a REIT
Opportunity in addition to the criteria specified above in this definition of
REIT Opportunity. Any such written notice from Kranzco may be canceled by
written notice given by Kranzco at any time or, with NAI's consent, which shall
not be unreasonably withheld, modified by Kranzco by written notice at any
time. The definition of REIT Opportunity shall be modified as appropriate from
time to time in accordance with any such written notices sent by Kranzco and
reasonably acceptable to NAI.
(b) "Services" means real estate brokerage services, local management
and other maintenance services, and certain other real estate related services
then provided by NAI, including sealed bid sales, due diligence, real estate
auctions and trade barter.
2. Kranzco Right of First Opportunity; Notification Right.
(a) Right of First Opportunity.
(i) During the term of this Agreement, if any REIT Opportunity
becomes available to NAI in which NAI is acting, intends to act or will act as
principal or participate for its own account (a "Principal REIT Opportunity"),
NAI shall first offer such Principal REIT Opportunity to Kranzco. The offer
shall be made by written notice (the "NAI Notice") from NAI to Kranzco, which
NAI Notice shall contain a detailed description of the material terms and
conditions of the Principal REIT Opportunity. Kranzco shall have ten days (the
"Ten-Day Period") from the date of receipt of the NAI Notice to notify NAI in
writing that it has accepted or rejected the Principal REIT Opportunity. If
Kranzco does not respond by the end of the Ten-Day Period, Kranzco shall be
deemed to have rejected the Principal REIT Opportunity. If Kranzco accepts a
Principal REIT Opportunity, but subsequently decides not to pursue such
opportunity, or for any other reason fails to consummate the Principal REIT
Opportunity, Kranzco shall immediately provide written notice that it is no
longer pursuing such Principal REIT Opportunity to NAI. A Principal REIT
Opportunity shall not include the receipt of any commissions in cash or in kind
(including an equity interest in a REIT Opportunity) in connection with NAI
serving as a broker or intermediary in connection with the sale or lease of
retail real estate.
(ii) If Kranzco rejects a Principal REIT Opportunity, or accepts
such Principal REIT Opportunity but thereafter provides, or is required by the
provisions hereof to
-2-
<PAGE>
provide, written notice to NAI that it is no longer pursuing such Principal
REIT Opportunity, NAI shall, for a period of one year after the Kranzco
Withdrawal Date (as hereinafter defined), be entitled to consummate the
Principal REIT Opportunity or provide any other person or entity the right to
consummate such Principal REIT Opportunity (A) at a price, and on terms and
conditions, that are not more favorable to NAI in any material respect than the
price and terms and conditions set forth in the NAI Notice relating to such
Principal REIT Opportunity (in the case of price, a change of 10% or more shall
be deemed to be material) or (B) if Kranzco, at any time after the NAI Notice,
negotiated a different price, terms or conditions with a third party where such
Principal REIT Opportunity is derived from, or made available by, a third party
and such different price, terms or conditions were communicated to NAI, then at
a price, and on terms and conditions, that are not more favorable to NAI in any
material respect, than, the price and terms and conditions negotiated by
Kranzco with such third party. If NAI does not enter into a binding agreement
to consummate the Principal REIT Opportunity within such one-year period, or if
the price and terms and conditions are more favorable to NAI in any material
respect than the price and terms and conditions set forth in the NAI Notice
(or, if applicable, than the price and terms and conditions negotiated by
Kranzco with a third party subsequent to the NAI Notice), NAI shall again be
required to comply with the procedures set forth above in Section 2(a)(i) if it
desires to consummate such Principal REIT Opportunity. Kranzco Withdrawal Date
means any one of the following dates, as applicable: (A) the date that Kranzco
notifies NAI that Kranzco has rejected the Principal REIT Opportunity, (B) if
Kranzco does not respond to NAI regarding the Principal REIT Opportunity, the
expiration date of the Ten-Day Period, or (C) if Kranzco accepts the Principal
REIT Opportunity but subsequently ceases to pursue the opportunity, the earlier
of (i) 30 days after the date on which Kranzco ceases to pursue the Principal
REIT Opportunity, (ii) the date of receipt by NAI of written notice from
Kranzco that Kranzco is no longer pursuing the Principal REIT Opportunity or
(iii) notice from NAI, without objection within 15 days from Kranzco, that NAI
asserts Kranzco is not pursuing the Principal REIT Opportunity.
(iii) NAI agrees to use good faith efforts to assist Kranzco in
structuring and consummating any Principal REIT Opportunity which Kranzco is
considering or has accepted on terms determined by Kranzco (including without
limitation structuring such opportunity as a "REIT-Qualified Investment").
(b) Notification of Certain Non-Principal REIT Opportunities. In
addition to the right of first opportunity provided in Section 2(a) hereof with
respect to Principal REIT Opportunities, during the term of this Agreement NAI
shall notify Kranzco in writing of any REIT Opportunity that becomes available
or known to NAI (through its broker members or otherwise) and which is not a
Principal REIT Opportunity and which in the reasonable opinion of NAI meets the
acquisition and investment criteria of Kranzco (provided to NAI by Kranzco from
time to time) (a "Non-Principal REIT Opportunity"). In the event Kranzco
determines to pursue such Non-Principal REIT Opportunity, NAI shall use
good-faith efforts to cause its broker members to, assist Kranzco in
considering and consummating such Non-Principal REIT
-3-
<PAGE>
Opportunity. In the event Kranzco consummates a transaction that constitutes a
Non-Principal REIT Opportunity, Kranzco shall pay NAI a fee to be mutually
agreed to by NAI and Kranzco.
(c) Notification Right of Other Investment Opportunities. In the
event that NAI develops or becomes aware of any acquisition or investment
opportunity with respect to real estate during the term of this Agreement
(other than a REIT Opportunity) in which NAI intends to or has the opportunity
to act as principal or participate in for its own account, and NAI is not
interested in pursuing such opportunity, or the opportunity is otherwise
unavailable to NAI, NAI shall immediately notify Kranzco in writing of such
opportunity with such writing to contain a description of all material terms
concerning such opportunity and be delivered to Kranzco with a copy of any
written material or information in NAI's possession regarding such opportunity.
(d) Other Obligations of NAI with respect to the Kranzco Right of
First Opportunity. In furtherance of providing REIT Opportunities for Kranzco
and the resulting rights of first opportunity granted to it hereunder, NAI,
without any additional consideration, shall (i) disseminate acquisition and
investment criteria provided by Kranzco to NAI's broker members, (ii)
disseminate information regarding space available for lease from Kranzco
(including tenant criteria) to its broker members, (iii) provide Kranzco
reasonable access to NAI personnel, NAI broker members and NAI's computer data
bases (other than confidential client information), (iv) cooperate with Kranzco
to develop new shopping centers or re-develop distressed shopping centers for
sale to Kranzco in a mutually agreeable manner, (v) provide Kranzco access to
local property managers within areas in which Kranzco owns retail properties
and (vi) disseminate such other materials and information regarding Kranzco and
its properties as Kranzco may reasonably request.
(e) Limitation on Strategic Alliance. Without the consent of Kranzco,
NAI shall not enter into any type of strategic relationship with any other REIT
or real estate investment or operations type entity, including, without
limitation, any equity investment by any other REIT or real estate investment
or operations type entity in NAI (other than as a result of a purchase of
Common Stock of NAI in the public market), any equity investment by NAI in any
other REIT or real estate investment or operations type entity, entering into
any agreements which provide such entities with rights of first opportunity or
contains cooperation provisions of the type or relating to the matters
contained in this Agreement (other than with respect to consulting
arrangements). Notwithstanding the foregoing, NAI shall be permitted to solicit
assignments from other REITs or real estate investment or operations type
entities with respect to the purchase or sale of real estate or the provision
of real estate related services, subject to Kranzco's rights of first
opportunity and notification contained in this Section 2.
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<PAGE>
3. NAI Opportunity to Provide Services.
(a) During the term of this Agreement, if Kranzco requires Services
(a "Services Opportunity"), Kranzco shall engage in discussions with NAI
regarding such Services Opportunity prior to retaining another service provider
to perform such Services unless, in the reasonable judgment of Kranzco,
offering such Services Opportunity to NAI in accordance with this Section 3(a)
would be detrimental to Kranzco. Notwithstanding the foregoing, (1) Kranzco
shall have no obligation to retain NAI to perform any Services for Kranzco and
(2) any Services provided by NAI to Kranzco shall (i) be at market rates and
(ii) on terms and conditions as attractive as the best available for comparable
services offered by NAI or any broker member or affiliated member (to the
extent within NAI's control) of NAI to third parties.
(b) In the event Kranzco desires to purchase any retail real estate
based upon an opportunity provided to Kranzco by someone other than NAI (a
"Purchase Opportunity"), Kranzco shall notify NAI of such Purchase Opportunity
and shall use good-faith efforts to cause the broker for such Purchase
Opportunity to share any brokerage commissions for such Purchase Opportunity
with NAI in accordance with industry practice; provided, however, Kranzco shall
not be required to comply with this Section 3(b) if the Purchase Opportunity is
based upon an exclusive brokerage arrangement or, if in the reasonable judgment
of Kranzco, compliance with this Section 3(b) would be detrimental to the
relationship between Kranzco and such broker or would impede, inhibit or slow
down the proposed transaction. In connection with a Purchase Opportunity in
which NAI will be sharing in the brokerage commission, NAI agrees to perform,
without any consideration, any due diligence services requested by Kranzco.
(c) In the event NAI desires to offer to Kranzco tenants any Services
currently provided by NAI, (a "Tenant Services Opportunity"), NAI shall notify
Kranzco in writing of such Tenant Services Opportunity. Promptly following the
receipt of such notice, Kranzco shall provide NAI with a list of the mailing
addresses of its tenants solely for purpose of NAI soliciting such Tenant
Services Opportunity. If NAI notifies Kranzco of a Tenant Services Opportunity,
Kranzco shall not for a period of six months after NAI notifies Kranzco of a
Tenant Services Opportunity provide a list of the mailing addresses of its
tenants to a competitor of NAI with respect to such Tenant Services
Opportunity.
4. General Terms and Conditions for Rights of First
Opportunity/Notification Rights.
(a) Unless waived or unless agreed upon in connection with a REIT
Opportunity or opportunity to perform Services, each party shall bear its own
expenses with respect to any opportunity to which this Agreement is applicable,
and each party agrees that it shall not be entitled to any compensation from
the other party with respect to any such opportunity.
-5-
<PAGE>
(b) A party shall not be required to comply with the right of first
opportunity and notification requirements set forth in this Agreement during
any period in which the other party or any Controlled Affiliate (as hereinafter
defined) of such other party is in default of this Agreement or any other
agreement entered into by the parties hereto or any of their Controlled
Affiliates, if such default is material and remains uncured for fifteen days
after receipt of notice thereof. A "Controlled Affiliate" of a party means any
entity controlled by, controlling or under common control with such party, but
shall not include NAI member brokers not owned by NAI.
(c) Any opportunity which is offered to and accepted by Kranzco under
this Agreement may be entered into by or on behalf of Kranzco or by any
designee which is a Controlled Affiliate of Kranzco. Any opportunity which is
offered to and accepted by NAI under this Agreement may be entered into by or
on behalf of NAI or by any designee which is a Controlled Affiliate of NAI.
(d) All right of first opportunity and notification rights set forth
in this Agreement shall be subordinated to any third party consent and
confidentiality requirements; no party shall be required to comply with the
first opportunity and notification rights set forth in this Agreement if such
compliance would violate any third party requirements.
(e) While it is the intention of the parties to align their businesses
in accordance with the terms of this Agreement, each party shall act
independently in its own best interests, and neither party shall be considered
a partner or agent of the other party or to owe any fiduciary or other common
law duties to the other party.
5. Certain Employee Matters.
(a) NAI and Kranzco shall make reasonable and ongoing efforts to
ensure that members of management of each of NAI and Kranzco are given
appropriate salary, bonus options and other compensation as may be reasonably
necessary to incentivize management to enhance value to shareholders of both
NAI and Kranzco. The Board of Directors of NAI and the Board of Trustees of
Kranzco shall direct each of their compensation committees to take into
consideration the objective set forth in the previous sentence in establishing
compensation levels and performance criteria for management of NAI and Kranzco.
(b) In furtherance of the objective set forth in Section 5(a) hereof,
NAI will grant to each director, officer, employee and consultant of NAI set
forth on Schedule I, five-year options to purchase the number of shares of
Common Stock of NAI (set forth opposite his or her name on Schedule I hereto)
at a price of $2.00 per share, in accordance with the 1998 NAI Stock Option
Plan. In addition, NAI will grant to each of three persons listed on Schedule
II, five-year options to purchase 10,000 NAI Shares at an exercise price of
$2.00 per share.
(c) In connection with the transaction contemplated by this
Agreement, NAI and Kranzco agree to use their best efforts to cause, for a
period of three years from the date of
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<PAGE>
this Agreement, (i) Norman Kranzdorf (President and Chief Executive Officer of
Kranzco) to serve as NAI's Co-Chairman, (ii) Robert Dennis (Chief Financial
Officer of Kranzco) to serve as NAI's Chief Financial Officer, and (iii)
Michael Kranzdorf (Vice President of Kranzco) to serve as NAI'S Chief
Information Officer. NAI hereby acknowledges that Norman Kranzdorf, Robert
Dennis and Michael Kranzdorf, as officers of Kranzco, will have a primary
responsibility to Kranzco and that none of such individuals are committed to
devoting a specific amount of time to NAI's affairs.
6. Consulting Services.
(a) During the term of this Agreement, Kranzco shall provide NAI with
such consulting services relating to management, administrative, corporate,
accounting, financial, legal, equity offerings, insurance, tax, data
processing, human resources and operational matters as NAI shall from time to
time reasonably request; provided, however, that NAI may terminate the
consulting arrangements provided for in this Section 6(a), such terminations to
be effective any time on or after the fifth anniversary of the date of this
Agreement, by providing Kranzco 90 days prior written notice of its intention
to terminate such consulting arrangement,
(b) In consideration for Kranzco entering into this Agreement, and
providing the consulting services set forth in Section 6(a), NAI shall, during
the terms of this Agreement (or until such earlier date as the consulting
agreement is terminated pursuant to Section 6(a) hereof), pay Kranzco an annual
fee of $500,000, payable in equal monthly installments on the first day of each
month.
7. Cooperation in Equity Offerings. If either Kranzco or NAI shall desire
to engage in a public or private offering of its debt or equity securities (the
"Issuing Party"), then such Issuing Party shall give notice to the other party
and such other party shall cooperate with the Issuing Party in connection with
such offering and shall provide such information and personnel as is reasonably
required in connection with such offering, including, without limitation,
making available the personnel and information necessary to permit the Issuing
Party to (i) prepare any required disclosure documents, (ii) prepare any
required filings with the Securities and Exchange Commission or other
regulatory agencies and (iii) obtain any required consents.
8. General Cooperation. Kranzco and NAI hereby agree that it is in the
best interest of both entities and their shareholders that they cooperate to
the fullest extent possible in the conduct of their respective operations with
the goal of enhancing value to their respective shareholders.
9. Confidentiality. The parties hereto acknowledge that the terms and
conditions of any proposed or consummated REIT Opportunity and opportunity to
perform Services are confidential in nature and will not disclose any
information relating thereto or the fact that the other party is considering
such opportunity, except as otherwise permitted by this Agreement.
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<PAGE>
10. Specific Performance. Each party hereto hereby acknowledges that the
obligations undertaken by it pursuant to this Agreement are unique and that the
other party hereto would likely have no adequate remedy at law if such party
shall fail to perform its obligations hereunder, and such party therefore
confirms that the other party's right to specific performance of the terms of
this Agreement is essential to protect the rights and interests of the other
party. Accordingly, in addition to any other remedies that a party hereto may
have at law or in equity, such party shall have the right to have all
obligations, covenants, agreements and other provisions of this Agreement
specifically performed by the other party hereto and the right to obtain a
temporary restraining order or a temporary or permanent injunction to secure
specific performance and to prevent a breach or threatened breach of this
Agreement by the other party hereto. Each party submits to the jurisdiction of
the courts of the State of Maryland for this purpose.
11. Affiliates. Each party hereto shall cause all entities that are under
its control to comply with the terms hereof.
12. Term. The term of this Agreement shall commence as of the date first
written above and shall terminate on ________, 2008. Notwithstanding the
foregoing, a party hereto may terminate this Agreement if the other party or
any Controlled Affiliate of such other party is in default of this Agreement or
any other agreement entered into by the parties hereto or any of their
Controlled Affiliates, if such default is material and remains uncured for
fifteen days after receipt of notice thereof.
13. Miscellaneous.
(a) Notices. Notices shall be sent to the parties at the following
addresses:
If to Kranzco:
Mr. Norman Kranzdorf, President
Kranzco Realty Trust
128 Fayette Street
Conshohocken, Pennsylvania 19428
Facsimile: (610) 941-9193
If to NAI (including any of its subsidiaries and affiliated
entities):
Mr. Gerald Finn, Chief Executive Officer
New America International, Inc.
572 U.S. Route 130
Hightstown, New Jersey 08520
Facsimile: (609) 448-8126
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<PAGE>
Notices may be sent be certified mail, return receipt requested, Federal
Express or comparable overnight delivery service, or facsimile. Notice will be
deemed received on the fourth business day following deposit in U.S. mail and
on the first business day following deposit with Federal Express or other
delivery service, or transmission by facsimile. Any party to this Agreement may
change its address for notice by giving written notice to the other party at
the address and in accordance with the procedures provided above.
(b) Reasonable and Necessary Restrictions. Each of the parties hereto
hereby acknowledges and agrees that the restrictions, prohibitions and other
provisions of this Agreement are reasonable, fair and equitable in scope, term
and duration, are necessary to protect the legitimate business interests of the
parties hereto and are a material inducement to the parties hereto to enter
into the transactions described in and contemplated by the recitals hereto.
Each party hereto covenants that it will not sue to challenge the
enforceability of this Agreement or raise any equitable defense to its
enforcement.
(c) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns. This Agreement shall not be assigned without the express written
consent of each of the parties hereto. Notwithstanding the foregoing, this
Agreement may be assigned without the consent of any party hereto in connection
with any merger, consolidation, reorganization or other combination of a party
with or into another entity where such party is not the surviving entity.
(d) Amendments; Waivers. No termination, cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless such change or waiver is specifically set
forth in a writing signed by the party or parties to be bound thereby. The
waiver of any right or remedy with respect to any occurrence on one occasion
shall not be deemed a waiver of such right or remedy with respect to such
occurrence on any other occasion.
(e) Choice of Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by the laws of the State of Maryland,
without regard to the principles of choice of law thereof.
(f) Severability. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
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<PAGE>
(g) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(i) constitutes the entire agreement and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral, between
the parties hereto with respect to the subject matter hereof, so that no such
external or separate agreement relating to the subject matter of this Agreement
shall have any effect or be binding, unless the same is referred to
specifically in this Agreement or is executed by the parties after the date
hereof; and (ii) is not intended to confer upon any other person any rights or
remedies hereunder, and shall not be enforceable by any party not a signatory
to this Agreement.
(h) Gender; Number. As the context requires, any word used herein in
the singular shall extend to and include the plural, any word used in the
plural shall extend to and include the singular and any word used in any gender
or the neuter shall extend to and include each other gender or be neutral.
(i) Headings. The headings of the sections hereof are inserted for
convenience of reference only and are not intended to be a part of or affect
the meaning or interpretation of this Agreement or of any term or provision
hereof.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
(k) Non-Recourse. This Agreement and all documents, agreements,
understandings and arrangements relating hereto have been entered into or
executed on behalf of Kranzco by the undersigned in his capacity as a trustee
or officer of Kranzco, which has been formed as a Maryland real estate
investment trust pursuant to an Amended and Restated Declaration of Trust of
Kranzco, dated as of June 17, 1992, as amended and restated, and not
individually, and neither the trustees, officers nor shareholders of Kranzco
shall be personally bound or have any personal liability hereunder. NAI shall
look solely to the assets of Kranzco for satisfaction of any liability of
Kranzco with respect to this Agreement. NAI will not seek recourse or commence
any action against any of the shareholders of Kranzco or any of their personal
assets, and will not commence any action for money judgments against any of the
trustees or officers of Kranzco or seek recourse against any of their personal
assets, for the performance or payment of any obligation of Kranzco hereunder.
14. REIT Compliance. Notwithstanding anything in this Agreement to the
contrary, no party to this Agreement shall (i) be obligated to take any action
or inaction, or (ii) take or cause to be taken any action or inaction that could
cause Kranzco to lose its qualification as a REIT under the Code.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by one of its duly authorized corporate officers, as of the date
first above written.
KRANZCO REALTY TRUST
By:
---------------------------
Name:
Title:
NEW AMERICA INTERNATIONAL, INC.
By:
---------------------------
Name:
Title:
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<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated May 8, 1998 on the consolidated financial statements of New America
Network, Inc. and to the incorporation by reference of our reports dated
February 23, 1998 included in Kranzco Realty Trust's Form 10-K for the year
ended December 31, 1997 (and to all references to our Firm) included in this
Registration Statement on Form S-4 of Kranzco Realty Trust.
/s/ Arthur Andersen LLP
July 17, 1998
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
--------------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
--------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation or (I. R. S. Employer
organization if not a U. S. national bank) Identification Number)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
--------------------------
KRANZCO REALTY TRUST
(Exact name of obligor as specified in its charter)
Maryland 23-2691327
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
128 Fayette Street 19428
Conshohoeken, PA (Zip code)
(Address of principal executive offices)
--------------------------
% Convertible Subordinated Notes due 2008
(Title of the indenture securities)
<PAGE>
- 2 -
GENERAL
1. General Information
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Reserve Bank of New York (2nd District), New York, New
York (Board of Governors of the Federal Reserve System). Federal
Deposit Insurance Corporation, Washington, D. C. New York State
Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3,4,5,6,7,8,9,10,11,12,13,14 and 15.
The obligor is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is
Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11,
12, 13, 14 and 15 of Form T-1 are not required under General
Instruction B.
16. List of Exhibits
----------------
T-1.1 -- Organization Certificate, as amended, issued by
the State of New York Banking Department to
transact business as a Trust Company, is
incorporated by reference to Exhibit T-1.1 to Form
T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990
(Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. List of Exhibits (continued)
T-1.4 -- The By-laws of the United States Trust Company
of New York, as amended, is incorporated by
reference to Exhibit T-1.4 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration
No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b)
of the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of July 14, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U. S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United
States Trust Company of New York and its parent company, U. S. Trust
Corporation.
In answering Item 2 in this statement of eligibility, as to matters
peculiarly within the knowledge of the obligor or its directors, the
trustee has relied upon information furnished to it by the obligor
and will rely on information to be furnished by the obligor and the
trustee disclaims responsibility for the accuracy or completeness of
such information.
---------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust Company of New York, a corporation
organized and existing under the laws of the State of New York, has
duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in the City of New
York, and State of New York, on the 14th day of July, 1998.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: /s/ Patricia Stermer
------------------------------
Patricia Stermer
Assistant Vice President
<PAGE>
Exhibit T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
------------------------
By: /S/Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1998
($ IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 303,692
Short-Term Investments 325,044
Securities, Available for Sale 650,954
Loans 1,717,101
Less: Allowance for Credit Losses 16,546
---------
Net Loans 1,700,555
Premises and Equipment 58,868
Other Assets 120,865
---------
Total Assets $3,159,978
---------
LIABILITIES
Deposits:
Non-Interest Bearing $ 602,769
Interest Bearing 1,955,571
---------
Total Deposits 2,558,340
Short-Term Credit Facilities 293,185
Accounts Payable and Accrued Liabilities 136,396
---------
Total Liabilities $2,987,921
---------
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 105,214
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,307
---------
Total Stockholder's Equity 172,057
---------
Total Liabilities and
Stockholder's Equity $3,159,978
---------
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory
authority and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
May 6, 1998
<PAGE>
KRANZCO REALTY TRUST
LETTER OF TRANSMITTAL
Dear Stockholder of New America Network, Inc.:
This Letter of Transmittal enables you to exchange your shares of
common stock, par value $0.01 per share ("NAI Shares") of New America Network,
Inc., a Delaware corporation which conducts business as New America
International ("NAI") for Kranzco Realty Trust ("Kranzco") ___% Convertible
Subordinated Notes (the "Notes"), as described more fully in the Prospectus
dated _________ ___, 1998. Please follow the instructions in this letter in
order to exchange your NAI Shares and receive the benefits of our Offer.
Capitalized terms used herein and not defined herein have the meanings
ascribed to them in the Prospectus. Simply complete and sign pages 3 and 5 and
return your certificate(s) in the enclosed envelope.
Our Offer will expire at 5:00 p.m., Eastern Time, on ________, 1998
(the "Expiration Date") unless extended. The Offer may also be terminated or
amended by Kranzco, in accordance with the terms of the Offer as set forth in
the Prospectus. NAI Shares which are tendered may be withdrawn at any time
prior to the Expiration Date, provided that proper notice in writing or via
telegraph, or facsimile transmission is timely received by the Exchange Agent
listed in this Letter of Transmittal.
Kranzco's obligation to exchange the aggregate Offer Consideration
for 10,379,531 NAI Shares pursuant to the Offer is subject to (i) there being
validly tendered and not withdrawn prior to the expiration date a number of
NAI Shares which will constitute 80% of the outstanding NAI Shares (the
"Minimum Tender Condition"), (ii) the representations and warranties of NAI
contained in the Exchange Agreement (as defined herein) being true and correct
on the Expiration Date and related closing date, and (iii) the satisfaction of
other conditions set forth in the Exchange Agreement.
Gerald C. Finn and Jeffrey M. Finn, individually, and as trustee of a
trust for the benefit of Jeffrey M. Finn (collectively, the "Finns") have
agreed to tender 80% (and up to 90% in certain circumstances) of their
respective NAI Shares in the Exchange Offer. Although the Finns have agreed to
tender up to 90% of the NAI Shares owned by them, such number of NAI Shares is
not sufficient to meet the Minimum Tender Condition without other NAI
Stockholders joining in the tender. Accordingly, if other NAI Stockholders do
not tender a number of NAI Shares, that together with the NAI Shares to be
tendered by the Finns, would meet the Minimum Tender Condition, the Exchange
Offer will not be consummated and NAI will continue to conduct its business as
a private company.
Kranzco will accept for exchange a maximum of 10,379,531 validly
tendered NAI Shares, representing 80% of the outstanding NAI Shares. Kranzco
will accept for exchange from each Stockholder a number of validly tendered
NAI Shares representing that Stockholder's Guaranteed Minimum Tender which is
equivalent to 80% of your NAI Shares, unless you tender a lesser number of NAI
Shares. You may also tender NAI Shares in excess of the Guaranteed Minimum
Tender. If after aggregating the NAI Shares validly tendered pursuant to the
Guaranteed Minimum Tender, the Minimum Tender Condition has not been met,
Kranzco will accept for exchange such number of validly tendered NAI Shares as
would be required to meet the Minimum Tender Condition on a pro rata basis
from among all the NAI Shares tendered in excess of each NAI Stockholder's
Guaranteed Minimum Tender (with appropriate adjustments to avoid purchases of
fractional shares).
For further information or assistance regarding our Offer please call
our representatives listed on the back.
Thank you for your time and assistance in this matter.
Sincerely,
KRANZCO REALTY TRUST
<PAGE>
NAI STOCKHOLDER REPRESENTATION
The NAI Stockholder executing the Letter of Transmittal, or on whose
behalf the Letter of Transmittal is executed (the "Tendering NAI
Stockholder"), hereby makes the following representations and warranties:
1. The Tendering NAI Stockholder acknowledges receipt of the Kranzco
Prospectus dated __________, 1998 (the "Prospectus") relating to the Exchange
Offer.
2. Upon the terms and subject to the conditions of the Offer, subject
to, and effective upon, acceptance of the NAI Shares tendered with the Letter
of Transmittal in accordance with the terms of the Offer, the Tendering NAI
Stockholder sells, assigns and transfers to, or upon the order of, Kranzco,
all right, title and interest in and to all of the NAI Shares that are being
tendered and any and all NAI Shares and other securities issued or issuable in
respect thereof, and irrevocably constitutes and appoints the Exchange Agent
the true and lawful agent and attorney-in-fact of the Tendering NAI
Stockholder with respect to such NAI Shares, with full power of substitution
(such power of attorney being deemed to be an irrevocable power coupled with
an interest), to the full extent of the Tendering NAI Stockholder's rights
with respect to such NAI Shares, to present such NAI Shares for transfer on
the books of NAI and receive all benefits and otherwise exercise all rights of
beneficial ownership of such NAI Shares all in accordance with the terms and
the conditions of the Offer.
3. The Tendering NAI Stockholder has full power and authority to
tender, sell, assign and transfer the NAI Shares tendered and that when the
same are accepted for exchange by Kranzco, Kranzco will acquire good,
marketable and unencumbered title thereto, free and clear of all liens,
restrictions, claims, charges and encumbrances, and the same will not be
subject to any adverse claim. The Tendering NAI Stockholder will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or Kranzco to be necessary or desirable to complete the sale,
assignment, and transfer of the NAI Shares tendered.
4. All authority conferred or agreed to be conferred pursuant to the
Letter of Transmittal shall not be affected by and shall survive the death or
incapacity of the Tendering NAI Stockholder and any obligation of the
Tendering NAI Stockholder hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the Tendering NAI Stockholder.
Subject to the withdrawal rights set forth under "The Offer--Withdrawal
Rights" in the Prospectus, the tender of NAI Shares made is irrevocable.
5. The Tendering NAI Stockholder understands that tenders of NAI
Shares pursuant to any one of the procedures described under "The
Offer--Procedure for Tendering" in the Prospectus and in the instructions to
the Letter of Transmittal and acceptance of such NAI Shares will constitute a
binding agreement between the Tendering NAI Stockholder and Kranzco upon the
terms and subject to the conditions set forth in the Offer.
-2-
<PAGE>
IN ORDER TO TENDER YOUR NAI SHARES, SIMPLY:
1. SIGN BY THE "X" IN THE BOX BELOW AND DATE
2. COMPLETE THE SUBSTITUTE FORM W-9 ON PAGE 5.
I certify that I have read the instructions enclosed with and constituting a
part of this Letter of Transmittal and that I comply with the NAI Stockholder
Representation included with such Instructions.
PLEASE SIGN HERE.
Signature(s) of NAI Stockholder(s) x
------------------------------------
Dated: , 1998
(Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s). If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the following information
and see Instruction 4.)
Name(s) ________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (Full Title) __________________________________________________________
Address ________________________________________________________________________
City/State/Zip Code ____________________________________________________________
______________________________________
(Area Code and Telephone Number)
Complete the box below only if you wish to tender less than
all the NAI Shares evidenced by your certificate(s)
________________________________________________________________________________
CERTIFICATE NUMBER(S) AND NAI SHARES TENDERED (ATTACH ADDITIONAL LIST
IF NECESSARY)
________________________________________________________________________________
Certificate Total Number of NAI Shares Number of
Number(s) Evidenced by Certificate(s) NAI Shares Tendered*
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Total NAI Shares
________________________________________________________________________________
- --------
* You must indicate if you are tendering less than all NAI Shares evidenced
by any certificate(s) delivered to the Exchange Agent. See Instruction 3.
-3-
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, an NAI Stockholder (a "Holder") whose
tendered NAI Shares are accepted for payment is required to provide the
Exchange Agent with such Holder's current TIN on Substitute Form W-9 below. If
such Holder is an individual, the TIN is his or her Social Security number. If
the Exchange Agent is not provided with the correct TIN, the Holder or other
payee may be subject to a $50 penalty imposed by the Internal Revenue Service.
In addition, any Offer Consideration paid to such Holder or other payee with
respect to Notes acquired pursuant to the Offer may be subject to 31% backup
withholding tax.
Certain Holders (including, among others, corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that Holder must submit to the Exchange Agent a properly completed
Internal Revenue Service Form W-8 (a "Form W-8"), signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to
withhold 31% of any Offer Consideration or Consent Payment paid to the Holder
or other payee. Backup withholding is not an additional tax. Rather, the
federal income tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
Purpose of Substitute Form W-9
To prevent backup withholding on any Offer Consideration or Consent
Payment paid to a Holder or other payee with respect to NAI Shares acquired
pursuant to the Offer, the Holder is required to notify the Exchange Agent of
the Holder's current TIN (or the TIN of any other payee) by completing the
form below, certifying that the TIN provided on Substitute Form W-9 is correct
(or that such Holder is awaiting TIN) and that (i) the Holder has not been
notified by the Internal Revenue Service that the Holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the Internal Revenue Service has notified the Holder that the Holder is no
longer subject to backup withholding.
What Number to Give the Exchange Agent
The Holder is required to give the Exchange Agent the TIN (e.g.,
Social Security number or Employer Identification Number) of the record owner
of the NAI Shares. If the NAI Shares are registered in more than one name or
are not registered in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9," for additional guidance on which number to report.
-4-
<PAGE>
THIS PAGE MUST BE COMPLETED BY ALL TENDERING NAI STOCKHOLDERS.
Please fill in your social security number and sign below.
Please see Instruction 7 for additional information.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
PAYOR'S NAME: FIRST UNION NATIONAL BANK
____________________________________________________________________________________________________________________________________
Part I - PLEASE PROVIDE YOUR TIN IN THE Social Security number(s) or
BOX AT RIGHT AND CERTIFY BY SIGNING Employer Identification Number(s)
AND DATING BELOW.
-----------------------------
<S> <C>
SUBSTITUTE Part 2 - Certification - Under penalties of perjury, I certify that:
FORM W-9
(1) The number shown on this form is my correct taxpayer identification number (or I am
Department of the waiting for a number to be issued for me), and
Treasury Internal (2) I am not subject to backup withholding because: (a) I am exempt from backup
Revenue Service withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I
am subject to backup withholding as a result of a failure to report all interest or dividends,
Payer's Request or (c) the IRS has notified me that I am no longer subject to backup withholding.
for Taxpayer Certification Instructions - You must cross out item (2) above if you have been notified by
Identification the IRS that you are currently subject to backup withholding because of underreporting interest
Number ("TIN") or dividends on your tax return.
________________________________________________________________________________________________________
Signature ______________________________________________
Part 3 - Awaiting TIN |_|
Date __________________________________________________
<CAPTION>
____________________________________________________________________________________________________________________________________
<S> <C>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50
PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP
WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO
MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 3 OF THE SUBSTITUTE FORM W-9.
</TABLE>
________________________________________________________________________________
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all reportable cash payments made to me will be
withheld until I provide a taxpayer identification number.
Signature _______________________________________ Date _____________________
________________________________________________________________________________
-5-
<PAGE>
OPTIONAL
If you would like the Notes to be delivered to a different address,
complete the box below.
________________________________________________________________________________
Special Delivery Instructions
To be completed ONLY if the Notes are to be sent to the undersigned at an
address other than that shown on the address label.
Mail the Notes to Holder at the following address:
Name ___________________________________________________________________________
(Please Type or Print)
Address ________________________________________________________________________
City/State/Zip Code ____________________________________________________________
________________________________________________________________________________
-6-
<PAGE>
The Exchange Agent for the Offer is:
FIRST UNION NATIONAL BANK
________________________________________________________________________________
By Regular Mail: By Overnight Courier:
First Union National Bank First Union National Bank
1525 West W.T. Harris Boulevard, 3C3 1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28288-1153 Charlotte, North Carolina 28262
Telephone: (800) 829-8432 Telephone: (800) 829-8432
________________________________________________________________________________
New York Drop: Facsimile Transmission:
(704) 590-7628
First Union National Bank
40 Broad Street - 5th Floor, Suite 550
New York, New York 10004
________________________________________________________________________________
ANY NAI STOCKHOLDER THAT DESIRES TO TENDER NAI SHARES AND WHOSE CERTIFICATES
FOR SUCH NAI SHARES ARE NOT IMMEDIATELY AVAILABLE OR WHO CANNOT DELIVER ALL
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE, SHOULD
CONTACT THE EXCHANGE AGENT IMMEDIATELY AT (800) 829-8432.
-7-
<PAGE>
KRANZCO REALTY TRUST
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Delivery of Letter of Transmittal and Certificates. The Letter of
Transmittal is to be used when certificates are to be tendered in the Exchange
Offer. Certificates for all physically tendered NAI Shares ("NAI Share
Certificates"), as well as the Letter of Transmittal or facsimile thereof,
properly completed and duly executed, and any other documents required by the
Letter of Transmittal, must be received by the Exchange Agent at one of its
addresses set forth herein on or prior to the Expiration Date (as defined in
the Prospectus).
The method of delivery of NAI Share Certificates and all other
required documents is at the option and risk of the tendering NAI Stockholder,
and the delivery will be deemed made only when actually received by the
Exchange Agent. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. In all cases, sufficient time
should be allowed to ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted
and no fractional NAI Shares will be accepted. All tendering NAI Stockholders,
by execution of the Letter of Transmittal (or facsimile thereof) waive any
right to receive any notice of the acceptance of their NAI Shares for
exchange.
2. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of NAI Shares should be listed on a
separate piece of paper and returned with the Letter of Transmittal.
3. Partial Tenders. If fewer than all the NAI Shares evidenced by any
certificate submitted are to be tendered, fill in the number of NAI Shares
which are to be tendered in the box on page 3 of the Letter of Transmittal. In
such cases, new certificate(s) for the remainder of the NAI Shares that were
evidenced by your old certificate(s) will be sent to you as soon as
practicable after the Expiration Date. All NAI Shares represented by
certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
4. Signatures on Letter of Transmittal; Stock Powers and
Endorsements. The signature(s) on the Letter of Transmittal must correspond
with the name(s) as written on the face of the certificates without
alteration, enlargement or any change whatsoever.
If any of the NAI Shares tendered are owned of record by two or more
joint owners, all such owners must sign the Letter of Transmittal.
If you wish to tender NAI Shares and have more than one certificate
and those certificates are registered in more than one name, it will be
necessary to complete, sign and submit as many separate Letters of Transmittal
as there are different registrations of certificates.
If the Letter of Transmittal or any certificates or stock powers are
signed by trustees, executors, administrators, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative
-1-
<PAGE>
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to Kranzco of their authority so to act must be submitted.
5. Stock Transfer Taxes. Kranzco will pay or cause to be paid any
stock transfer taxes with respect to the transfer and sale of NAI Shares to it
or its order pursuant to the Offer.
6. Requests for Assistance or Additional Copies. Questions or
requests for assistance may be directed to, or additional copies of the
Prospectus, the Letter of Transmittal and other exchange offer materials may
be obtained from, the Exchange Agent at their its telephone number and/or
address set forth on the back of the Letter of Transmittal.
7. Substitute Form W-9. Each tendering NAI Stockholder is required to
provide the Exchange Agent with a correct Taxpayer Identification Number
("TIN"), generally the Stockholder's social security or federal employer
identification number, on Substitute Form W-9 on page 5 of the Letter of
Transmittal. If a NAI Stockholder fails to provide a TIN to the Exchange
Agent, such Stockholder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, any Offer Consideration paid to such
Holder or other payee with respect to Notes acquired pursuant to the Offer may
be subject to 31% backup withholding tax. The box in Part 3 of the Substitute
Form W-9 may be checked if the tendering Stockholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future. If the box in Part 3 is checked and the Exchange Agent is not provided
with a TIN within 60 days, the Exchange Agent will withhold 31% of all
payments of cash thereafter until a TIN is provided to the Exchange Agent. The
Stockholder is required to give the Exchange Agent the social security number
or employer identification number of the record owner of the NAI Shares or of
the last transferee appearing on the stock powers attached to, or endorsed on,
the NAI Shares. If the NAI Shares are in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance
on which number to report.
IMPORTANT: The Letter of Transmittal or a facsimile copy thereof
together with NAI Share certificates and all other required documents) must be
received by the Exchange Agent on or prior to the Expiration Date.
-2-
<PAGE>
The Exchange Agent for the Offer is:
FIRST UNION NATIONAL BANK
________________________________________________________________________________
By Regular Mail: By Overnight Courier:
First Union National Bank First Union National Bank
1525 West W.T. Harris Boulevard, 3C3 1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28288-1153 Charlotte, North Carolina 28262
Telephone: (800) 829-8432 Telephone: (800) 829-8432
________________________________________________________________________________
New York Drop: Facsimile Transmission:
First Union National Bank (704) 590-7628
40 Broad Street - 5th Floor, Suite 550
New York, New York 10004
________________________________________________________________________________
ANY NAI STOCKHOLDER THAT DESIRES TO TENDER NAI SHARES AND WHOSE CERTIFICATES
FOR SUCH NAI SHARES ARE NOT IMMEDIATELY AVAILABLE OR WHO CANNOT DELIVER ALL
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE, SHOULD
CONTACT THE EXCHANGE AGENT IMMEDIATELY AT (800) 829-8432.
-3-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer.-Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
For this type of account: Give the
SOCIAL SECURITY
number of--
- ------------------------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first individual
on the account(1)
3. Husband and wife The actual owner of the
(joint account) account or, if joint funds,
either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minor Act)
5. Adult and minor The adult or, if the minor
(joint account) is the only contributor,
the minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for incompetent person(3)
a designated ward, minor,
or incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or
valid trust under State
law
8. Sole proprietorship account The owner(4)
For this type of account: Give the
EMPLOYER
IDENTIFICATION
number of--
- ------------------------------------------------------------------------------
9. A valid trust, estate, or The legal entity (Do not
person trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity itself
is not designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held The partnership
in the name of the
business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State or
local government, school
district, or prison) that
receives agricultural
program payments
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you don't have a taxpayer identification number or; you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments include the
following:
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan.
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
o An international organization or any agency, or instrumentality thereof.
o A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of 1940.
o A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under section 1441.
o Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid in
money.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
o Payments described in section 6049(b)(5) to non-resident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYOR, CERTIFY YOUR TAXPAYER
IDENTIFICATION NUMBER ON PART II OF THE FORM, WRITE "EXEMPT" ON THE FACE OF THE
FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYOR, IF THE PAYMENTS ARE
INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS.
Certain payments other than interest, dividends and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6042, 6044, 6045, 6049, 6050A, and 6050N.
Privacy Act Notice. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payors must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payors must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payor.
Certain penalties may also apply.
Penalties:
(1) Penalties for Failure to Furnish Taxpayer Identification Number. -- If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. -- If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be subject to a penalty
of 20% on any portion of an underpayment attributable to that failure unless it
is shown that you acted with reasonable cause and in good faith.
(3) Civil Penalty for False Information With Respect to Withholding. -- If you
make a false statement with no reasonable basis which results in imposition of
backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. -- Falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT
YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
