<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Mark Centers Trust
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
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MARK An Organization of Specialists
===============================================================================
CENTERS TRUST [GRAPHIC OMITTED]
July 10, 1998
Dear Shareholder:
The Annual Meeting of Shareholders of Mark Centers Trust (the "Trust")
will be held on August 12, 1998 at 10:00 a.m., local time, at The Woodlands Inn
and Resort, 1073 Highway 315, Wilkes-Barre, Pennsylvania 18702.
At the Annual Meeting, you will be asked to consider and vote upon a
transaction pursuant to which, among other things: (i) Mark Centers Limited
Partnership, a majority owned subsidiary of the Trust of which the Trust also
serves as general partner, will acquire all or substantially all of the
ownership interests in 13 retail shopping centers, five multi-family apartment
complexes and one redevelopment property owned by certain real estate
investment partnerships and related entities in which RD Capital, Inc., a
Delaware corporation, or its affiliates serve as the general partner or in
another management capacity, as well as certain third party management
contracts and promissory notes, in exchange for approximately 1.8 million newly
issued common shares of beneficial interest of the Trust and approximately 11.1
million limited partnership interests in Mark Centers Limited Partnership, each
of which is exchangeable, on a one for one basis, for common shares; (ii) other
investment partnerships in which an affiliate of RD Capital serves as general
partner will purchase an aggregate of approximately 13.3 million newly issued
common shares in consideration for $100 million in cash; (iii) Ross Dworman and
Kenneth Bernstein, the President and Chief Executive Officer and Chief
Operating Officer, respectively, of RD Capital, will become the Chairman and
Chief Executive Officer and the President, respectively, of the Trust; and (iv)
Messrs. Dworman and Bernstein and two other designees of RD Capital will become
four of the seven trustees comprising the Board of Trustees of the Trust.
Additionally, at the Annual Meeting, you will be asked to elect six
trustees to hold office until the next Annual Meeting of Shareholders;
provided, however, that all but three of the newly elected trustees will resign
if the transaction with RD Capital is approved at the Annual Meeting and is
consummated. You will also be asked to consider and vote upon an amendment to
the Trust's Declaration of Trust to increase the number of shares which the
Trust has authority to issue from 50,000,000 to 100,000,000 shares, and to
consider and vote upon an amendment to the Trust's Declaration of Trust to
change the Trust's name from Mark Centers Trust to Acadia Realty Trust, to
become effective only if the Transaction is consummated.
THE BOARD OF TRUSTEES HAS UNANIMOUSLY APPROVED THE TRANSACTION DESCRIBED
IN THE ACCOMPANYING PROXY STATEMENT AND HAS DETERMINED THAT THE TRANSACTION
WITH RD CAPITAL IS FAIR TO THE TRUST AND ITS SHAREHOLDERS. THE BOARD OF
TRUSTEES RECOMMENDS THAT THE TRUST'S SHAREHOLDERS VOTE "FOR" EACH OF THE
PROPOSALS DESCRIBED IN THE PROXY STATEMENT, INCLUDING THE RD CAPITAL
TRANSACTION.
In the materials accompanying this letter, you will find a Notice of
Annual Meeting of Shareholders and a Proxy Statement relating to, among other
things, the actions to be taken by the Trust's shareholders at the Annual
Meeting, and a Proxy Card. Shareholders are urged to carefully review the
accompanying Proxy Statement which describes in detail the RD Capital
transaction and the other proposals which are being submitted to the
shareholders for their consideration and approval, as well as the attendant
risks associated with the foregoing.
All shareholders of the Trust's common shares are cordially invited to
attend the Annual Meeting in person. However, whether or not you plan to attend
the Annual Meeting, please complete, sign, date and return your Proxy Card in
the enclosed postage-paid envelope. If you attend the Annual Meeting, you may
vote in person if you wish, even though you previously have returned your Proxy
Card. It is important that your shares be represented and voted at the Annual
Meeting.
Sincerely,
/s/ Marvin L. Slomowitz,
----------------------------------------
Marvin L. Slomowitz,
Chairman of the Board and
Chief Executive Officer
<PAGE>
MARK CENTERS TRUST
600 Third Avenue
Kingston, Pennsylvania 18704
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Notice of Annual Meeting of Shareholders
---------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of Mark Centers Trust, a Maryland real estate investment trust (the
"Trust"), will be held on August 12, 1998, at 10:00 o'clock, local time, at The
Woodlands Inn and Resort, 1073 Highway 315, Wilkes-Barre, Pennsylvania 18702,
to consider and vote upon the following matters:
1. To consider and vote upon a transaction (the "Transaction"), as more
fully described in the Contribution and Share Purchase Agreement dated
April 15, 1998 (the "Contribution Agreement"), pursuant to which, among
other things: (i) Mark Centers Limited Partnership, a Delaware limited
partnership and a majority-owned subsidiary of the Trust of which the
Trust also serves as general partner (the "Operating Partnership"), will
acquire fee title to, or all or substantially all of the ownership
interests in, 13 retail shopping centers, five multi-family apartment
complexes and one redevelopment property owned by certain real estate
investment partnerships and related entities in which RD Capital, Inc., a
Delaware corporation ("RDC"), or its affiliates serve as the general
partner or in another similar management capacity, as well as certain
third party management contracts and promissory notes, in exchange for
approximately 11.1 million limited partnership interests ("Units") in the
Operating Partnership and approximately 1.8 million newly issued common
shares of beneficial interest, $.001 par value, of the Trust ("Common
Shares"); (ii) other investment partnerships in which an affiliate of RDC
serves as general partner will purchase an aggregate of approximately 13.3
million newly issued Common Shares in consideration of $100.0 million in
cash; (iii) Ross Dworman and Kenneth Bernstein, the President and Chief
Executive Officer and Chief Operating Officer, respectively, of RDC, will
become the Chairman and Chief Executive Officer and the President,
respectively, of the Trust; and (iv) Messrs. Dworman and Bernstein and two
other designees of RDC, neither of whom is an officer, trustee, director
or employee of the Trust or RDC or any of their respective affiliates,
will become four of the seven trustees comprising the Board of Trustees of
the Trust.
2. To elect six trustees to hold office until the next Annual Meeting of
Shareholders and until their successors are duly elected and qualified;
provided, however, that all but three of the newly elected trustees will
resign if the Transaction is consummated.
3. To consider and vote upon an amendment to the Trust's Amended and
Restated Declaration of Trust (the "Declaration of Trust") to increase the
number of Shares which the Trust has authority to issue from 50,000,000
Shares to 100,000,000 Shares.
4. To consider and vote upon an amendment to the Trust's Declaration of
Trust to change the Trust's name from "Mark Centers Trust" to "Acadia
Realty Trust," to become effective only if the Transaction is consummated.
5. To transact such other business as may properly come before the meeting.
The Board of Trustees has fixed the close of business on July 8, 1998 as
the record date for the Meeting. Only shareholders of the Trust of record as of
that date are entitled to notice of and to vote at the Meeting and any
adjournment and postponement thereof.
The accompanying form of Proxy is solicited by the Board of Trustees.
Reference is made to the attached Proxy Statement for further information
concerning the business to be transacted at the Meeting. Duly executed but
unmarked proxies will be voted "FOR" the Transaction, "FOR" the nominees for
election to the Board of Trustees and "FOR" the proposed amendments to the
Declaration of Trust.
<PAGE>
THE BOARD OF TRUSTEES HAS UNANIMOUSLY APPROVED THE CONTRIBUTION AGREEMENT
AND THE TRANSACTION DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT, AND HAS
DETERMINED THAT THE TRANSACTION IS FAIR TO THE TRUST AND THE SHAREHOLDERS. IN
ADDITION, IN CONNECTION WITH ITS APPROVAL OF THE CONTRIBUTION AGREEMENT AND THE
TRANSACTION, THE BOARD OF TRUSTEES HAS RECEIVED THE OPINION OF ITS FINANCIAL
ADVISOR, BEAR STEARNS & CO. INC., TO THE EFFECT THAT, AS OF THE DATE OF SUCH
OPINION AND BASED UPON AND SUBJECT TO CERTAIN QUALIFICATIONS AND ASSUMPTIONS
STATED THEREIN, THE CONSIDERATION TO BE PAID BY THE TRUST AND OPERATING
PARTNERSHIP TO RDC AND ITS AFFILIATES IN THE TRANSACTION WAS FAIR TO THE TRUST
FROM A FINANCIAL POINT OF VIEW. THE BOARD OF TRUSTEES RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE TRANSACTION.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD
AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN
PERSON IF YOU WISH TO DO SO EVEN IF YOU PREVIOUSLY SENT IN YOUR PROXY.
By Order of the Board of Trustees,
/s/ Marvin J. Levine
--------------------------------------------
Marvin J. Levine, Secretary
Kingston, Pennsylvania
July 10, 1998
<PAGE>
MARK CENTERS TRUST
PROXY STATEMENT
This Proxy Statement and the accompanying proxy are being sent to holders
of common shares of beneficial interest, par value $.001 per share ("Common
Shares"), of Mark Centers Trust, a Maryland real estate investment trust (the
"Trust"), in connection with the solicitation of proxies by the Board of
Trustees of the Trust for use at the Trust's 1998 Annual Meeting of
Shareholders (the "Meeting") to be held on August 12, 1998 at The Woodlands Inn
and Resort, 1073 Highway 315, Wilkes-Barre, Pennsylvania 18702, commencing at
10:00 o'clock, local time, or at any adjournment or postponement thereof, for
the purposes set forth in the foregoing notice.
At the Meeting, shareholders will be asked to consider and vote upon a
transaction (the "Transaction"), as more fully described in the Contribution
and Share Purchase Agreement dated April 15, 1998 (the "Contribution
Agreement"), pursuant to which, among other things: (i) Mark Centers Limited
Partnership, a Delaware limited partnership and a majority-owned subsidiary of
the Trust of which the Trust also serves as general partner (the "Operating
Partnership"), will acquire fee title to, or all or substantially all of the
ownership interests in, 13 retail shopping centers, five multi-family apartment
complexes and one redevelopment property owned by certain real estate
investment partnerships and related entities in which RD Capital, Inc., a
Delaware corporation ("RDC"), or its affiliates serve as the general partner or
in another similar management capacity, as well as certain third party
management contracts and promissory notes, in exchange for approximately 11.1
million limited partnership interests ("Units") in the Operating Partnership
(each of which is exchangeable, on a one-for-one basis, for Common Shares) and
approximately 1.8 million Common Shares; (ii) other investment partnerships in
which an affiliate of RDC serves as general partner (collectively, the "RDC
Funds") will purchase an aggregate of approximately 13.3 million newly issued
Common Shares in consideration of $100.0 million in cash; (iii) Ross Dworman
and Kenneth Bernstein, the President and Chief Executive Officer and Chief
Operating Officer, respectively, of RDC, will become the Chairman and Chief
Executive Officer and the President, respectively, of the Trust; and (iv)
Messrs. Dworman and Bernstein and two other designees of RDC, neither of whom
is an officer, trustee, director or employee of the Trust or RDC or any of
their respective affiliates, will become four of the seven trustees comprising
the Board of Trustees of the Trust. A copy of the Contribution Agreement is
attached to this Proxy Statement as Annex "I". Shareholders of the Trust are
not entitled to dissenters' rights of appraisal in connection with the
Transaction.
The Common Shares to be issued to the RDC Funds and to other RDC
affiliates in the Transaction will represent approximately 61.8% of the Common
Shares to be issued and outstanding immediately following the Transaction and,
together with the Common Shares issuable upon conversion of the Units to be
issued in the Transaction, the RDC Funds, together with other RDC affiliates,
will beneficially own approximately 71.2% of the Common Shares to be issued and
outstanding on a fully diluted basis, after giving effect to the exchange,
exercise and conversion of all securities exchangeable, exercisable to purchase
or convertible into Common Shares.
In addition to the Transaction, the shareholders are being asked to
consider and vote upon the election of trustees to serve until the next annual
meeting of shareholders and until their successors are duly elected and
qualified. In the event the Transaction is approved by the shareholders and
consummated, the newly elected trustees other than Marvin Slomowitz, Lawrence
Longua and Marvin Levine will resign as trustees of the Trust effective upon
the Closing Date (as defined herein). Shareholders are also being asked to
consider a proposal to amend the Trust's Amended and Restated Declaration of
Trust (the "Declaration of Trust") to increase the number of Shares which the
Trust is authorized to issue from 50,000,000 Shares to 100,000,000 Shares, and
a proposal to amend the Declaration of Trust to change the Trust's name from
"Mark Centers Trust" to "Acadia Realty Trust," which will become effective only
if the Transaction is consummated.
On July 8, 1998, the record date for shareholders entitled to notice of
and to vote at the Meeting, there were 9,357,977 Common Shares issued and
outstanding, each of which is entitled to one vote on all matters to be
presented at the Meeting. Approval of the Transaction and of the proposed
amendments to the Declaration of Trust requires the affirmative vote of the
holders of a majority of the issued and outstanding Common Shares entitled to
vote at the Meeting. Trustees will be elected by the affirmative vote of the
holders of a majority of the issued and outstanding Common Shares voting in
person or by proxy at the Meeting.
Information set forth herein concerning the Trust, the Operating
Partnership and their respective subsidiaries, assets and operations is
provided by the Trust. Information set forth herein concerning RDC, its
affiliates, their assets and operations is provided by RDC.
Shareholders are urged to review this Proxy Statement for further
information regarding the Transaction, RDC and its related entities, the real
estate and other assets to be contributed to the Trust and the proposed new
executive management of the Trust. Reference is also made to the information
set forth herein under "Risk Factors" for a discussion of certain factors that
should be considered by shareholders before voting on the Transaction.
This Proxy Statement is first being mailed to shareholders of the Trust on July
10, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Special Note Regarding Forward-Looking Statements ........................................ 3
Available Information .................................................................... 3
Incorporation of Certain Documents by Reference .......................................... 3
Summary .................................................................................. 5
Comparative Per Share Data ............................................................... 15
The Annual Meeting ....................................................................... 16
Mark Centers Trust Summary Financial Data ................................................ 18
RDC Group Summary Financial Data ......................................................... 20
Risk Factors ............................................................................. 21
Capitalization ........................................................................... 25
The Transaction .......................................................................... 25
The Contribution Agreement and Related Matters ........................................... 33
Interests of Certain Persons in the Transaction .......................................... 42
Management of the Trust Before and After the Transaction ................................. 44
Market Price Information and Dividend Policy ............................................. 46
Mark Centers Trust Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................................... 47
RDC Group Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................................. 53
Mark Centers Trust Selected Financial Information ........................................ 57
RDC Group Selected Financial Information ................................................. 59
Pro Forma Combined Financial Information ................................................. 60
Mortgage Debt Following the Transaction .................................................. 71
Certain Information Concerning Mark Centers Trust ........................................ 73
Certain Information Concerning RD Capital, Inc. .......................................... 73
Election of Trustees ..................................................................... 79
Certain Relationships and Related Transactions ........................................... 80
The Other Proposals ...................................................................... 81
Security Ownership of Certain Beneficial Owners and Management ........................... 83
Executive Compensation ................................................................... 85
Report of the Compensation and Share Option Plan Committees on Executive Compensation .... 87
Share Price Performance Graph ............................................................ 88
Compliance with Section 16(a) of the Securities Exchange Act of 1934 ..................... 89
Proposals of Security Holders ............................................................ 89
Independent Auditors ..................................................................... 89
Index to Financial Statements ............................................................ F-1
</TABLE>
Glossary
Annex I Contribution and Share Purchase Agreement
Annex II Opinion of Bear Stearns & Co. Inc.
Annex III Proposed Amendments to Declaration of Trust
2
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No persons have been authorized to give any information or to make any
representations other than those contained in this Proxy Statement in
connection with the solicitation of proxies made hereby and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Trust or any other person. This Proxy Statement does not
constitute the solicitation of a proxy to or from any person in any
jurisdiction to whom it is not lawful to make such solicitation in such
jurisdiction. The delivery of this Proxy Statement shall not under any
circumstances create an implication that there has been no change in the
affairs of the Trust or any of its subsidiaries since the date hereof or that
the information herein is correct as of any time subsequent to its date.
---------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Summary and under the captions "RISK FACTORS,"
"THE TRANSACTION--Reasons for the Transaction; Recommendation of the Board of
Trustees," and "--Opinion of Financial Advisor to the Trust," and elsewhere in
this Proxy Statement constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 (the "Reform Act").
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Trust, the Operating Partnership and one or more of the
real estate assets currently owned or to be acquired in the Transaction to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, which
will, among other things, affect demand for rental space, the availability and
creditworthiness of prospective tenants, lease rents and the availability of
financing; adverse changes in the Trust's real estate markets, including, among
other things, competition with other companies; risks of real estate
development and acquisition; governmental actions and initiatives;
environmental/safety requirements; and other changes and factors to which
reference is made in this Proxy Statement. See "RISK FACTORS."
AVAILABLE INFORMATION
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Trust with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at Seven World Trade Center,
Suite 1300, New York, New York 10048, and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material also
can be obtained from the Public Reference Section of the Commission, at 450
Fifth Street N.W., Washington, D.C. 20549, at prescribed rates. The Trust's
Common Shares are listed on the New York Stock Exchange ("NYSE") and such
reports, proxy statements and other information concerning the Trust are made
available for inspection at the offices of the NYSE, 20 Broad Street, New York,
New York 10005. Such information can also be reviewed through the Commission's
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR") which is
publicly available through the Commission's Web Site on the Internet
(http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Trust with the
Commission pursuant to the Exchange Act, are incorporated by reference in this
Proxy Statement/Prospectus:
1. The Trust's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
2. The Trust's Current Report on Form 8-K dated April 15, 1998 and filed
with the Commission on April 20, 1998.
3. The Trust's Form 10-K/A Amendment No. 1 to its Annual Report on Form
10-K, filed with the Commission on April 29, 1998.
4. The Trust's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998.
All documents and reports subsequently filed by the Trust pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement and prior to the date of the Meeting shall be deemed to be
incorporated by reference in this Proxy Statement and to be a part hereof from
the date of filing of such documents or reports. Any statement
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contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement 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, except as so modified or superseded, shall not be
deemed to constitute a part of this Proxy Statement.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. Such documents (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference)
are available to any person, including any beneficial owner of Common Shares,
to which this Proxy Statement is delivered, on written or oral request, without
charge, directed to 600 Third Avenue, Kingston, Pennsylvania 18704, telephone
(717) 288-4581, Attention: Chief Financial Officer. To ensure timely delivery
of these documents, any request should be made by July 27, 1998.
4
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this Summary is qualified in
its entirety by, the more detailed information contained, or incorporated by
reference, in this Proxy Statement and the Annexes hereto. Unless otherwise
defined herein, capitalized terms used herein shall have the meanings given
such terms elsewhere in this Proxy Statement. See the "Glossary" included in
this Proxy Statement. Shareholders are urged to read this Proxy Statement in
its entirety.
The Companies
Mark Centers Trust....... Mark Centers Trust (the "Trust"), a Maryland real
estate investment trust, together with its
subsidiaries, including Mark Centers Limited
Partnership, a Delaware limited partnership (the
"Operating Partnership") (the Trust, the Operating
Partnership and all such other subsidiaries
collectively being "Mark Centers" or the "Company"),
is a fully-integrated, self-managed and
self-administered equity real estate investment
trust which owns, acquires, develops and operates
primarily neighborhood and community shopping
centers in the eastern and southeastern United
States. At March 31, 1998, the Company owned and
operated 39 properties comprising approximately 7.3
million square feet of gross leasable area ("GLA"),
consisting of 34 neighborhood and community shopping
centers, three enclosed malls and two mixed use
(retail/office) properties located in ten states.
The principal executive offices of the Company are
located at 600 Third Avenue, Kingston, Pennsylvania
18704, and the telephone number is (717) 288-4581.
See "Certain Information Concerning Mark Centers
Trust."
RD Capital, Inc.......... RD Capital, Inc., a Delaware corporation ("RDC"),
is a fully integrated real estate operating company
formed in 1987 to acquire, redevelop, own and manage
neighborhood and community shopping centers and
multi-family properties located in the eastern and
midwestern regions of the United States. At June 30,
1998, RDC, together with partnerships and other
entities in which it or its affiliates serve as
general partner or in another management capacity
(collectively, the "RDC Property Partnerships"),
owned and operated 20 properties, consisting of 13
neighborhood and community shopping centers
aggregating approximately 2.2 million square feet of
GLA, five multi-family residential properties
containing 2,273 residential units, one
redevelopment property and one unimproved property
held for future development. All of these
properties, except the unimproved property, are
being contributed to the Company in the Transaction.
The unimproved property will be subject to a right
of first offer granted to the Company at Closing.
These properties are managed by an affiliated
company, Acadia Managment Company LLC, which,
together with Sound View Managment LLC, another
affiliated company also provide third party
management services. The principal executive office
of RDC is located at 805 Third Avenue, New York, New
York 10022, and the telephone number is (212)
421-8830. See "Certain Information Concerning RD
Capital, Inc."
5
<PAGE>
The RDC Funds............ The RDC Funds comprise three real estate
investment limited partnerships (RD Properties, L.P.
VI, RD Properties, L.P. VIA and RD Properties, L.P.
VIB). One of the RDC Funds will contribute two
Interim Premises to the Company. All of the RDC
Funds have been formed principally for the purpose
of purchasing the Common Shares to be issued in the
Transaction for an aggregate $100.0 million cash
investment. The principal executive offices of the
RDC Funds are located at 805 Third Avenue, New York,
New York 10022, and the telephone number is
(212) 421-8830.
The Meeting
Date, Time and Place of
Meeting................. The Annual Meeting of Shareholders of the Trust
(the "Meeting") will be held at 10:00 a.m., local
time, on August 12, 1998, at The Woodlands Inn and
Resort, 1073 Highway 315, Wilkes-Barre, Pennsylvania
18702.
Record Date; Shares
Entitled to Vote........ Holders of record of the Trust's Common Shares at
the close of business on July 8, 1998 are entitled
to notice of and to vote at the Meeting. As of the
record date for the Meeting, there were issued and
outstanding 9,357,977 Common Shares, of which
1,108,698 Common Shares, or approximately 11.85%,
were beneficially owned by the trustees and
executive officers of the Trust as a group. See "The
Annual Meeting -- Voting Securities; Record Date;
Quorum."
Purpose of the Meeting... Holders of Common Shares are being asked to
consider and vote upon: (i) a proposal to approve
and adopt the Transaction; (ii) the election of six
nominees for election as trustees to serve until the
next annual meeting of shareholders (if the
Transaction is consummated, however, and assuming
the nominees for trustee are elected at the Meeting,
all but three of the newly elected trustees will
resign as trustees); (iii) a proposal to amend the
Trust's Declaration of Trust to increase the number
of Shares which the Trust is authorized to issue
from 50,000,000 Shares to 100,000,000 Shares; and
(iv) a proposal to amend the Trust's Declaration of
Trust to change the Trust's name from "Mark Centers
Trust" to "Acadia Realty Trust," to become effective
only if the Transaction is consummated. See "The
Transaction" and "The Other Proposals."
Vote Required; Security
Ownership of Management
and Certain Other Persons The affirmative vote of the holders of a majority of
the issued and outstanding Common Shares entitled to
vote at the Meeting is required to approve and adopt
the Transaction and the proposed amendments to the
Trust's Declaration of Trust. The affirmative vote
of the holders of a majority of the issued and
outstanding Common Shares voting either in person or
by proxy at the Meeting is required to elect the
nominees for trustee as trustees of the Company.
Approximately 11.85% of the total number of issued
and outstanding Common Shares entitled to vote at
the Meeting was beneficially owned by the trustees
and executive management of the Trust as of
6
<PAGE>
the record date. Each of the trustees and executive
officers of the Trust has indicated his present
intention to vote for the Transaction, for the
nominees for election as trustees and for the other
proposals to be submitted to the shareholders at
the Meeting. See "The Annual Meeting -- Voting
Securities, Record Date, Quorum."
The Transaction
Principal Features of the
Transaction............. The Transaction will include a number of related
transactions that are expected to occur
simultaneously (the "Closing") on the closing date
of the Transaction (the "Closing Date"). Each of
these transactions is conditioned upon the
consummation of each other transaction. The
following summarizes these related transactions:
(i) RDC Properties Acquisition; Third Party
Management Contracts; Contributed Notes. The
Operating Partnership, either directly or through
one or more of its subsidiaries, will acquire fee
title to, or all or substantially all of the
ownership interests in, 13 retail shopping centers
aggregating approximately 2.2 million square feet
of GLA, five multi-family residential properties
containing 2,273 residential units and one
redevelopment property (collectively, the "RDC
Properties") currently owned by the RDC Property
Partnerships. As to six of the RDC Properties, the
interests to be acquired by the Company will
represent less than 100% of the ownership
interests therein. As to all of such RDC
Properties, the Company will constitute the
general partner or managing member, but as to two
of such RDC Properties, the Company's ownership
interest will constitute a minority ownership
interest therein. The Operating Partnership will
also acquire from two RDC affiliates the rights,
subject to the obligations thereunder, under
property management contracts with third parties
(the "RDC Management Contracts"), and will acquire
from another RDC affiliate, its rights under two
promissory notes which represent the substantial
economic benefits associated with one of the RDC
Properties to be acquired by the Operating
Partnership at Closing (the "Contributed Notes").
In consideration of the interests in the RDC
Properties, and the rights under the RDC
Management Contracts and Contributed Notes, the
Operating Partnership will: (i) issue an aggregate
of 11,100,000 limited partnership interests in the
Operating Partnership ("Units"), each of which is
exchangeable, on a one-for-one basis, for Common
Shares, and will issue approximately 1.8 million
Common Shares (subject to adjustment depending
upon the market price of the Common Shares during
the 20 day period prior to Closing (see --
"Agreement Concerning Interim Properties" below));
and (ii) will assume approximately $177.2 million
of mortgage and other related indebtedness
(including mortgage indebtedness which, pursuant
to the Contribution Agreement, may be incurred by
the RDC Property Partnerships between the date of
the Contribution Agreement and the Closing Date),
approximately $61.5 million of which will be
repaid at Closing from the proceeds of the Cash
Investment. The Units to be issued for the RDC
Properties, the RDC Management
7
<PAGE>
Contracts and the Contributed Notes will, in the
aggregate, constitute an approximately 30.5%
interest in the Operating Partnership. The Units
and Common Shares being issued for the RDC
Properties, the RDC Management Contracts and the
Contributed Notes are valued at $7.50 per Unit and
Common Share. The Operating Partnership is also
obligated to issue additional Units upon the
completion of certain improvements and the
commencement of rental payments from a designated
tenant at one of the RDC Properties to be acquired
at Closing. The number of additional Units to be
issued will equal $2.75 million divided by the
average per share market price of the Common Shares
for the 20 consecutive trading days ending on the
date the additional Units are to be issued.
(ii) Development Property. The Operating
Partnership will be obligated to acquire from an
RDC affiliate, and such RDC affiliate will be
obligated to contribute to the Operating
Partnership, its 25% ownership interests in the
limited partnerships which hold the fee and
leasehold interest in a 160,000 square foot retail
facility currently under construction (the
"Development Property"), upon completion of
construction and attainment of certain
predetermined tenant occupancy levels; provided,
however, that the obligation of the Operating
Partnership to acquire, and of the RDC affiliate
to contribute such ownership interests is
contingent upon all such conditions having been
met on or prior to January 1, 2000 and on the
consent of the general partners to such limited
partnerships to the transfer of such interests
having been obtained. In consideration for such
ownership interests, the Operating Partnership
will issue additional Units, equal to $5.5 million
divided by the average per share market price for
the Common Shares for the 20 consecutive trading
days ending on the date the additional Units are
issued. The purchase price for the Development
Property is subject to adjustment depending upon
any increase or decrease in the amount of mortgage
indebtedness encumbering the Development Property
on the date of its contribution to the Operating
Partnership compared to the amount of mortgage
indebtedness encumbering the Development Property
on the date of the Contribution Agreement.
(iii) The Cash Investment. The Trust will issue and
deliver to the RDC Funds an aggregate of
13,333,333 newly issued Common Shares for a $100.0
million cash investment, or $7.50 per Common Share
(the "Cash Investment"). The Common Shares to be
issued to the RDC Funds for the Cash Investment
will constitute approximately 54.4% of the Common
Shares to be issued and outstanding immediately
following the Transaction. Of the proceeds from
the sale of the Common Shares for the Cash
Investment, it is currently expected that
approximately $87.0 million will be used to
discharge mortgage and other indebtedness
encumbering or otherwise relating to certain
properties already owned by Mark Centers and
certain of the RDC Properties to be acquired at
Closing, and the balance will be used for working
capital, for reserves for deferred maintenance
costs and for various transaction costs. See
"Mortgage Debt Following the Transaction."
8
<PAGE>
(iv) Management Changes. Concurrently upon Closing,
Marvin Slomowitz will resign as Chairman of the
Board of Trustees and Chief Executive Officer of
the Trust, and Ross Dworman and Kenneth Bernstein
will become the Chairman and Chief Executive
Officer and the President, respectively, of the
Trust. Messrs. Dworman and Bernstein, together
with Martin L. Edelman and Gregory White, two
designees of RDC, neither of whom is an officer,
trustee, director or employee of the Trust or RDC
or any of their respective affiliates (the "RDC
Designees"), will be appointed to the Board of
Trustees, and all of the then incumbent trustees
other than Marvin Slomowitz, Lawrence Longua and
Marvin Levine, each of whom is a nominee for
reelection as trustee, will resign. Neither of the
RDC Designees has been previously affiliated with
the Trust. All of the trustees serving on the
Board of Trustees immediately following
consummation of the Transaction will serve until
the next annual meeting of the Trust's
shareholders and until their successors are duly
elected and qualified. Additionally, Messrs.
Dworman and Bernstein will enter into
non-competition agreements with the Trust,
pursuant to which each will agree not to engage in
certain activities competitive with those of the
Company. The Trust has been advised that following
Closing, Messrs. Dworman and Bernstein will seek
employment contracts with the Trust providing for
compensation and benefits, including options, in
amount and on terms to be commensurate with those
accorded executive management of similarly
situated public REITs and as approved by the then
disinterested trustees of the Trust.
(v) Registration Rights and Lock-Up Agreement. The
recipients of Units and Common Shares in the
Transaction will execute at Closing a Registration
Rights and Lock-Up Agreement (the "Registration
Agreement") pursuant to which (A) the holders of
such Common Shares and Units will agree not to
sell or otherwise transfer such Units or Common
Shares (or Common Shares issuable upon exchange of
the Units), subject to certain limited exceptions,
prior to the one year anniversary of the Closing
Date, and (B) the Trust will be obligated,
following the one year anniversary of the Closing
Date, to register under the Securities Act of
1933, as amended (the "Securities Act"), the
Common Shares being issued in the Transaction on
the Closing Date and the Common Shares issuable
from time to time upon exchange of the Units
issued in the Transaction. The holders of Common
Shares and the Unitholders, with respect to the
Common Shares underlying such Units, will also be
entitled to certain demand and piggyback
registration rights under the Registration
Agreement.
(vi) Voting Agreement and Proxies. Each RDC Fund
has agreed to appoint each of its partners as such
RDC Fund's proxy with respect to the Common Shares
to which such partner would be entitled upon a
dissolution of the RDC Fund and a distribution in
liquidation of such Common Shares among the
partners. If any partner declines to accept the
RDC Fund's proxy as to such Common Shares, the RDC
Fund will enter into a Voting Trust Agreement
appointing the Board of Trustees as voting trustee
with respect
9
<PAGE>
to those Common Shares owned by the RDC Fund and
not otherwise subject to a proxy held by its
partners for so long as Messrs. Dworman and
Bernstein remain as executive officers of the
Trust.
(vii) Agreement Concerning Interim Properties. The
Contribution Agreement provides that if, between
the date of the Contribution Agreement and the
Closing Date, RDC or any of its affiliates
acquires real property or any interest therein
(including, but not limited to, a leasehold
interest as ground lessee) (an "Interim
Premises"), the Trust will have the option to
acquire the Interim Premises at the Closing. The
purchase price payable at the Closing for the
Interim Premises will consist, at the option of
the seller of the Interim Premises, of either cash
or Units, valued on the basis of the average per
share market price of the Common Shares for the 20
consecutive trading days ending on the Closing
Date, equal to (i) the purchase price paid for the
Interim Premises, plus (ii) brokerage commissions
and legal fees, due diligence costs and
acquisition expenses and other closing costs
initially paid by the seller for the Interim
Premises, plus (iii) the documented costs for
renovation and improvement to the Interim Premises
incurred between the date of its purchase and the
Closing Date, plus (iv) an amount equal to 1% of
all of the foregoing for each month between the
date the Interim Premises was purchased and the
Closing Date, but in no event less than 3% of the
foregoing, and by subtracting therefrom any
acquisition financing or other mortgage
indebtedness assumed by the Operating Partnership
in connection with the purchase. As of the date of
this Proxy Statement, the Trust has exercised its
option to acquire two Interim Premises, which
currently comprise two of the RDC Properties
referred to herein, and has separately agreed to
pay the requisite purchase price in Common Shares
rather than in Units or cash. See "The
Contribution Agreement and Related Matters --
Certain Additional Covenants of RDC and the RDC
Funds."
Reasons for
the Transaction.......... The Board of Trustees believes that the Transaction
presents an opportunity for the Trust's shareholders
to benefit from a larger, financially stronger
company with new management. The combination of the
Trust's portfolio and RDC's portfolio of properties
will not only increase the size and diversity of the
Company's real estate portfolio, but will diversify
and strengthen the Company's tenant base. The
increase in the Company's size is also expected to
improve the Company's access to the capital markets
and its ability to obtain more favorable terms for
debt and equity financing. Additionally, the Cash
Investment to be made by the RDC Funds will be used
to deleverage the Company's balance sheet, thereby
reducing the Company's debt to market capitalization
ratio and providing new opportunities to raise
additional financing to support further development,
expansion and acquisition activities. The trustees
also considered the demonstrable success of RDC's
management in the acquisition, development and
management of the RDC Properties, and believes that
this new management will help to reposition the
Company in the public capital markets and improve
the marketability and performance of its Common
Shares. The Board of Trustees also considered the
possible impact on the Common Share market price of
its conclusion that, in the absence of a transaction
on terms
10
<PAGE>
such as those contemplated by the Transaction, the
Company would have suspended its dividend for the
foreseeable future (other than to meet REIT
distribution requirements) to use its available
cash flow to install tenants with which the Company
has signed leases. See "The Transaction -- Reasons
for the Transaction; Recommendation of the Board of
Trustees."
Recommendation of the Board
of Trustees............. The Board of Trustees has unanimously approved the
Contribution Agreement and the Transaction, and
recommends that the Trust's shareholders vote "FOR"
the Transaction. All of the trustees have indicated
their intention to vote the Common Shares owned by
them FOR the Transaction. See "The Transaction --
Reasons for the Transaction; Recommendation of the
Board of Trustees."
Opinion of
Financial Advisor........ The Trust retained Bear Stearns & Co. Inc. ("Bear
Stearns") to act as its financial advisor to render
its opinion as to whether the Units to be issued in
exchange for the RDC Properties and related assets
to be contributed to the Operating Partnership in
the Transaction, and the number of Common Shares to
be issued in consideration for the Cash Investment
(together, the "Contribution") is fair, from a
financial point of view, to the Trust. Bear Stearns
is an internationally recognized investment banking
firm and is continually engaged in the valuation of
businesses and their securities and in rendering
opinions in connection with mergers, acquisitions,
corporate transactions and other purposes. The Trust
retained Bear Stearns based on its qualifications,
expertise and reputation in providing advice to
companies with respect to similar transactions.
At a meeting held on April 13, 1998, Bear Stearns
orally advised the Board of Trustees of its
conclusions and subsequently delivered its written
opinion to the effect that, based upon and subject
to certain qualifications and assumptions set forth
in such opinion, as of the date of such opinion,
the Contribution was fair, from a financial point
of view, to the Trust. The summary of Bear Stearns'
opinion set forth in this Proxy Statement is
qualified in its entirety by reference to the full
text of such opinion, which is attached as Annex II
to this Proxy Statement. The Trust's shareholders
are urged to, and should, read such opinion
carefully in its entirety in connection with this
Proxy Statement for assumptions made, matters
considered and limits of the review by Bear
Stearns. See "The Transaction -- Opinion of
Financial Advisor of the Trust."
Interests of Certain
Persons in the
Transaction............ If the Transaction is approved by the shareholders
and consummated, Marvin Slomowitz, the current
Chairman of the Board of Trustees and the Chief
Executive Officer, and each of Messrs. Lawrence
Longua and Marvin Levine, two incumbent trustees and
nominees for reelection as trustee at the Meeting,
will remain as trustees of the Trust until the 1999
Annual Meeting of Shareholders. Additionally,
although it is expected that the Trust will relocate
its principal executive offices from Kingston,
Pennsylvania to New York City, the Trust will
continue to lease from a partnership controlled by
Mr. Slomowitz the Trust's current principal office
in
11
<PAGE>
Kingston, Pennsylvania. Further, concurrently with
the execution of the Contribution Agreement, the
Trust entered into an agreement with Mr. Slomowitz
providing, among other things, for the payment at
Closing to Mr. Slomowitz of a $600,000 severance
payment and for a payment of $100,000 to Mr.
Slomowitz in each of the next three years for his
agreement not to compete with the Company and for
certain consulting services. At Closing, the Trust
will also grant to Mr. Slomowitz ten year options
to purchase 300,000 Common Shares at an exercise
price of $9.00 per Common Share, exercisable in
three equal cumulative annual installments
commencing on the Closing. As part of the
Transaction, the Company will cancel Mr.
Slomowitz's currently exercisable options to
purchase 200,000 Common Shares at an exercise price
of $12.00 per Common Share. The Trust has also
agreed that, for a predetermined period following
the Closing Date, any sales or refinancings of
certain of the properties owned by the Operating
Partnership which were initially contributed by Mr.
Slomowitz in exchange for Units will be made only
in a manner designed to defer the recognition of
taxable gain for federal income tax purposes which
Mr. Slomowitz initially deferred when such
properties were originally contributed to the
Company. Additionally, the Company has also agreed
to pay to Mr. Slomowitz a brokerage commission of
2.0% of the sales price for nine designated
properties currently comprising a portion of the
Mark Centers property portfolio, provided that
total commissions payable to Mr. Slomowitz will not
exceed $600,000 in the aggregate. At Closing, the
Company and Mr. Slomowitz will also exchange
general releases. The Trust has also agreed to
provide for ongoing indemnification of the current
officers and trustees of the Trust following the
Closing and for the maintenance of trustee and
officer liability insurance for such persons for
six years following the Closing Date. See
"Interests of Certain Persons in the Transaction."
Conditions to the
Transaction;
Termination of the
Contribution Agreement... The obligations of RDC and of the Company to
consummate the Transaction are subject to certain
conditions, including, but not limited to: (a)
approval by the Trust's shareholders; (b) the
absence of legal challenges to the Transaction; (c)
the accuracy of the representations and warranties
made by the other party and compliance by the other
party with applicable covenants; and (d) the
delivery of all documents and other instruments
necessary to consummate the Transaction. The
Contribution Agreement may be terminated and the
Transaction abandoned prior to Closing, whether
before or after shareholder approval is obtained,
due to a number of events, including, but not
limited to: (i) by mutual consent of the parties;
(ii) by either party upon a breach by the other
party of its representations or warranties or
failure by such party to perform all covenants
required to be performed on or prior to Closing;
(iii) by either party if a permanent injunction or
other action preventing the Transaction shall become
non-appealable; (iv) by the Trust or RDC if approval
of the Transaction by the Trust's shareholders is
not obtained; (v) by the Trust or RDC if the Trust
has executed an agreement constitut-
12
<PAGE>
ing a Superior Proposal; (vi) by the Trust if there
has occurred an RDC Material Adverse Effect, or by
RDC if there has occurred a Trust Material Adverse
Effect; and (vii) by either party if the
Transaction is not consummated on or before October
30, 1998. If the Contribution Agreement is
terminated due to a Superior Proposal, the Trust
will be obligated to pay to RDC a break-up fee
equal to $1.75 million and to reimburse RDC for its
out-of-pocket costs and expenses in connection with
the Transaction, up to $1.25 million. In certain
other instances resulting in the termination of the
Contribution Agreement, principally due to the
other party's breach or misrepresentation of any of
its warranties or its failure to perform a
covenant, or in the event shareholder approval of
the Transaction is not obtained, the
non-terminating party will be required to reimburse
the terminating party for its out-of-pocket costs
and expenses in connection with the Transaction, up
to $1.25 million. See "The Contribution Agreement
and Related Matters -- Conditions of the
Transaction; Termination; Waiver and Amendment."
Regulatory Filings
or Approvals.............. Other than (i) approvals in connection with
applicable state securities laws associated with the
offer and sale of the Units and Common Shares, and
(ii) such filings as may be required for the payment
of realty transfer and associated taxes, neither the
management of RDC nor the management of the Trust
believes that any filings with or approval of any
governmental authority is necessary in connection
with the consummation of the Transaction. See "The
Contribution Agreement and Related Matters --
Regulatory Filings and Approvals."
New York Stock Exchange
Listing of
Common Shares........... The Trust has obtained preliminary approval, subject
to notice of issuance, for the listing on the NYSE
of the Common Shares to be issued on the Closing
Date and of the Common Shares issuable upon exchange
of the Units to be issued in the Transaction. See
"Summary of the Contribution Agreement and Related
Matters -- New York Stock Exchange Listing of Common
Shares."
Proposed NYSE Symbol..... "AKR."
Dissenters' Rights
of Appraisal............. Holders of Common Shares are not entitled
dissenters' rights of appraisal under Maryland law
in connection with the Transaction.
Federal Income Tax
Consequences............ The Trust does not expect that the Transaction
will have any specific Federal income tax
consequences to the Trust's current shareholders.
The Transaction has been structured so as to
preserve the Trust's qualification as a REIT under
Federal income tax law. See "The Contribution
Agreement and Related Matters -- Certain Federal
Income Tax Consequences of the Transaction."
Accounting Treatment of the
Transaction............. The Trust will account for the Transaction with
RDC and certain of its real estate investment
partnerships and related entities which are not
under common control (collectively, the "RDC Group")
as (i) a purchase of properties and other related
assets in exchange for Units and Common Shares and
the assumption of certain mortgage debt and other
liabilities using the purchase method of accounting
in accordance with generally accepted accounting
principles and,
13
<PAGE>
accordingly, 100% of the assets and liabilities of
the RDC Group will be adjusted to fair value and
the results of operations of the RDC Group will be
included in the results of operations of the Trust
for periods subsequent to Closing, and (ii) an
issuance of Common Shares for cash.
Risk Factors............. The Transaction, the RDC Properties and related
assets of RDC to be contributed to the Company and
the changes in management of the Trust is subject to
certain risks which all shareholders should consider
in evaluating the proposal to approve the
Transaction. See "Risk Factors."
The Other Proposals
Proposed Amendment to
Increase Authorized
Shares.................. At the Meeting, the Trust's shareholders are being
asked to consider and approve an amendment to the
Trust's Declaration of Trust to increase the number
of Shares which the Trust has authority to issue
from 50,000,000 Shares to 100,000,000 Shares. As a
result of the Transaction, the Trust will issue
approximately 15.1 million newly issued Common
Shares, including approximately 13.3 million Common
Shares to be issued to the RDC Funds for the Cash
Investment, and will be obligated to reserve
approximately 11.1 million additional Common Shares
for issuance upon exchange of Units to be issued in
the Transaction. RDC has also advised the Company
that, promptly following consummation of the
Transaction, new management intends to seek
authorization from the Board of Trustees to commence
an offering of preferred shares, convertible into
Common Shares, intended to raise approximately $75.0
million to $100.0 million of additional capital for
acquisition, development, expansion and other
working capital purposes. As a result of the
Transaction and the proposed offering of convertible
preferred shares, the number of Shares which would
be available for issuance from time to time for such
other corporate purposes that the Board of Trustees
may in the future deem advisable would be
diminished. The Board of Trustees believes that an
increase in the number of authorized Shares will
provide additional Shares for issuance, without the
delay and expense of further shareholder approval,
for such other corporate purposes as the Board of
Trustees may in the future deem advisable,
including, but not limited to, as consideration in
connection with acquisitions and to raise additional
capital for the Company. See "The Other Proposals --
Amendment to Declaration of Trust to Increase
Proposed Amendment to Change
Trust's Name............ At the Meeting, shareholders are being asked to
consider and approve a proposed amendment to the
Trust's Declaration of Trust to change the name of
the Trust from Mark Centers Trust to Acadia Realty
Trust. The change in the Trust's name, which would
be effective only if the Transaction is consummated,
is intended to reposition the Company in the
marketplace in light of the substantial changes
which are expected to occur to the Company as a
result of the Transaction, including, but not
limited to, the increase in size and diversity of
the Company's portfolio, the change in management,
the deleveraging of the Company's assets and the
increase in equity. See "The Other Proposals --
Amendment to Declaration of Trust to Approve Name
Change."
14
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below is certain information regarding the book value per Common
Share and income (loss) per Common Share of the Trust on an historical basis at
and for the periods indicated and on a pro forma basis assuming the Transaction
had been consummated at March 31, 1998 with respect to book value per Common
Share, and January 1, 1997 with respect to net (loss) income per Common Share.
See "Market Price Information and Dividend Policy" for information concerning
the dividends paid by the Trust on its Common Shares. Pro forma book value per
Common Share is based upon outstanding Common Shares of the Trust as adjusted
to give effect to the issuance of the Common Shares to the RDC Funds in the
Transaction (but does not give effect to the Common Shares which will be
reserved for issuance upon the exchange of Units to be issued in the
Transaction). The information set forth below should be read in conjunction
with both the historical consolidated financial statements of the Company,
including the notes thereto, and the unaudited pro forma combined condensed
consolidated financial statements, including the notes thereto, appearing
elsewhere herein.
<TABLE>
<CAPTION>
At and For the Three Months At and For the Year
Ended March 31, 1998 Ended December 31, 1997
--------------------------------- --------------------------------
Combined Combined
Pro Pro
Mark Centers(1) Forma(2)(3) Forma(3)
(unaudited) (unaudited) Mark Centers(1) (unaudited)
----------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Book value per Common Share ................ $ 5.64 $ 7.09 $ 5.70 n/a
Net (loss) income per Common Share ......... $(0.06) $ 0.06 $ (0.18) $ 0.23
</TABLE>
- -------------
(1) Book value per Common Share was computed by dividing shareholders' equity
at March 31, 1998 and December 31, 1997 by 8,554,177 Common Shares
outstanding on those dates. Net (loss) income per Common Share was
computed by dividing the net (loss) income for the three months ended
March 31, 1998 and the year ended December 31, 1997 by the weighted
average number of Common Shares outstanding during the period, or
8,554,177 and 8,551,930 Common Shares, respectively, for the three months
ended March 31, 1998 and the fiscal year ended December 31, 1997.
(2) Assumes 15,130,288 Common Shares are issued in connection with the
Transaction and 800,000 Common Shares are issued in connection with the
exchange of Units by a limited partner of the Operating Partnership for an
equivalent number of Common Shares, resulting in 24,484,465 Common Shares
used to compute book value per Common Share at March 31, 1988 after giving
effect to the Transaction for the period noted above.
(3) Assumes 15,130,288 Common Shares are issued in connection with the
Transaction and 800,000 Common Shares are issued in connection with the
exchange of Units by a limited partner of the Operating Partnership for an
equivalent number of Common Shares, resulting in 24,484,465 and 24,482,218
Common Shares at March 31, 1998 and December 31, 1997, respectively, used
to compute net (loss) income per Common Share after giving effect to the
Transaction for the periods noted above.
15
<PAGE>
THE ANNUAL MEETING
This Proxy Statement is being furnished to the holders of Common Shares in
connection with the solicitation of proxies by the Board of Trustees of the
Trust for use at the Trust's 1998 Annual Meeting of Shareholders to be held on
August 12, 1998, at 10:00 a.m., local time, at The Woodlands Inn and Resort,
1073 Highway 315, Wilkes-Barre, Pennsylvania 18702.
At the Meeting, shareholders will be asked to consider and vote upon the
proposal to approve and adopt the Transaction. In addition to the Transaction,
the holders of Common Shares are being asked to consider and vote upon (i) the
election of six trustees to hold office until the next annual meeting of
shareholders and until their successors are duly elected and qualified
(provided, that, if the Transaction is approved and consummated and, provided,
further that all of the nominees for election as trustee are elected at the
Meeting, all of the newly elected trustees other than Marvin Slomowitz,
Lawrence Longua and Marvin Levine will resign as trustees of the Trust
effective upon the Closing Date of the Transaction); (ii) an amendment to the
Declaration of Trust to change the Trust's name from Mark Centers Trust to
Acadia Realty Trust; (iii) an amendment to the Declaration of Trust to increase
the number of Shares which the Trust has authority to issue from 50,000,000
Shares to 100,000,000 Shares; and (iv) such other business as may properly come
before the Meeting or any adjournments or postponements thereof.
Under the terms of the Contribution Agreement, and subject to the
satisfaction or waiver of the conditions set forth therein: (i) the Operating
Partnership will acquire fee title to, or all or substantially all of the
ownership interests in, 13 shopping centers, five multi-family residential
developments and one redevelopment property owned by the RDC Property
Partnerships in exchange for an aggregate of approximately 11.1 million Units
and approximately 1.8 million Common Shares; (ii) the RDC Funds will purchase
an aggregate of approximately 13.3 million newly issued Common Shares in
consideration for $100.0 million in cash; (iii) Ross Dworman and Kenneth
Bernstein, the President and Chief Executive Officer and Chief Operating
Officer, respectively, of RDC, will become the Chief Executive Officer and
President, respectively, of the Trust; and (iv) Messrs. Dworman and Bernstein,
together with two additional independent designees of RDC, will comprise four
of the seven trustees on the Board of Trustees. Giving effect to the
Transaction, the RDC Funds will beneficially own an aggregate of approximately
61.8% of the Common Shares to be issued and outstanding immediately following
the Transaction and, together with the Common Shares issuable upon exchange of
the Units to be issued in the Transaction, the RDC Funds, together with other
RDC affiliates, will beneficially own an aggregate of approximately 71.2% of
the Common Shares to be issued and outstanding giving effect to the Transaction
and to the exercise, conversion or exchange of all securities exercisable,
convertible or exchangeable into Common Shares.
Solicitation of Proxies
The enclosed proxy is being solicited by the Board of Trustees for use in
connection with the Meeting and any postponement or adjournment thereof. All
Common Shares represented at the Meeting by properly executed proxies received
prior to or at the Meeting or any postponement or adjournment thereof and not
revoked in the manner described below will be voted in accordance with the
instructions indicated on such proxies. If no instructions are indicated, the
proxies will be voted in favor of the proposal to approve and adopt the
Transaction, for the nominees of the Board for election as trustee, for each of
the other proposals being submitted to shareholders at the Meeting for their
consideration and, at the discretion of the proxy holder, as to any other
matter which properly may come before the Meeting.
The Board of Trustees knows of no matter that will be presented for
consideration at the Meeting other than those matters set forth in the Notice
of Annual Meeting accompanying the Proxy Statement. If any other matters are
properly presented for action at the Meeting or any postponement or adjournment
thereof, the persons named in the enclosed proxy will have authority to vote on
such matters in their sole discretion.
If a quorum for the Meeting is not obtained or, as to any one or more
proposals, if fewer Common Shares are voted in favor of the proposal than the
number of Common Shares required for such approval, the Meeting may be
adjourned for the purpose of obtaining additional proxies or votes or for any
other purpose and, at any subsequent reconvening of the Meeting, all proxies
will be voted in the same manner as such proxies would have
16
<PAGE>
been voted at the original convening of the Meeting (except for any proxies
which have theretofore effectively been revoked or withdrawn), notwithstanding
that they may have been effectively voted on the same day for any other matter
at a previous meeting. Any proxies voted against the Transaction may not be
voted at the Meeting in favor of adjournment of the Meeting.
Proxies marked "abstain" and which have not voted on a particular proposal
are included in determining a quorum for the Meeting. Abstentions and broker
non-votes are not treated as votes cast in the election of trustees, and thus
are not the equivalent of votes against a nominee. An abstention will be
counted as present at the Meeting and is the equivalent of a vote against
matters other than the election of trustees (i.e., to take affirmative action,
the number of affirmative votes must exceed the combined number of "no votes"
and abstentions). For all matters on which a vote of a majority of the Common
Shares outstanding and entitled to vote is required (approval of the
Transaction and of the proposals to amend the Declaration of Trust), broker
non-votes will have the same effect as a vote against the proposal. Broker
non-votes on any matter on which the affirmative vote of plurality or a
majority of the votes cast at a meeting is required will not affect the vote
with respect to that matter.
The Company will bear the costs of the solicitation of its proxies in
connection with the Meeting, including the costs of preparing, assembling and
mailing proxy materials and the handling and tabulation of proxies received. In
addition to solicitation of proxies by mail, proxies in connection with the
Meeting may be solicited by trustees of the Company, at no additional
compensation, by telephone, telegram, personal interviews or otherwise.
Arrangements have also been made with brokerage firms, custodians, nominees and
fiduciaries to forward solicitation materials to beneficial owners of Common
Shares held of record by such persons or firms with their nominees, and in
connection therewith, such firms will be reimbursed for their reasonable
out-of-pocket expenses in forwarding such materials.
Additionally, the Trust has retained Morrow & Company, a proxy
solicitation firm, to assist in the solicitation of proxies. The Trust
anticipates that the cost of such proxy solicitation firm to the Trust, in the
aggregate, will not exceed $4,500, plus expenses. The telephone number of
Morrow & Company is (212) 754-8000. Other than as set forth above, neither the
Trust nor any other person acting on its behalf has retained any other person
to make solicitations or recommendations to shareholders with respect to the
approval of the Transaction or any other proposal submitted to the shareholders
for consideration at the Meeting.
Revocation of Proxies
Proxies may be revoked by those persons executing proxies at any time
before the authority granted thereby is exercised by (i) delivering to the
Secretary of the Trust at or prior to the Meeting a written notice of
revocation bearing a later date than the date of the proxy, (ii) duly executing
a subsequently dated proxy related to the same Common Shares and delivering it
to the Secretary of the Trust at or before the Meeting or (iii) attending the
Meeting and voting in person (although attendance at the Meeting will not in
and of itself constitute revocation of a proxy). Any written notice revoking a
proxy should be delivered at or prior to the Meeting to the attention of the
Secretary, Mark Centers Trust, 600 Third Avenue, Kingston, PA 18704.
Voting Securities, Record Date, Quorum
Only holders of Common Shares of record at the close of business on July
8, 1998 are entitled to notice of and to vote at the Meeting and at any
adjournment or postponement thereof. As of that date, there were 9,357,977
Common Shares issued and outstanding. Each Common Share entitles the holder
thereof of record to one vote, exercisable in person or by properly executed
proxy, on all matters which properly come before the Meeting or any adjournment
or postponement thereof.
The presence, in person or by proxy, of holders of Common Shares entitled
to cast at least a majority of the Common Shares outstanding on the record date
will constitute a quorum for purposes of the Meeting.
As of July 8, 1998, trustees and executive officers of the Trust as a
group beneficially owned 1,108,698 outstanding Common Shares, representing
approximately 11.85% of all votes entitled to be cast by the holders
17
<PAGE>
of Common Shares at the Meeting, and each such person has advised the Trust
that he intends to vote to approve and adopt the Transaction, to approve the
nominees for election as trustee and to approve each of the other proposals
submitted to shareholders for consideration at the Meeting.
The affirmative vote of the holders of a majority of the issued and
outstanding Common Shares entitled to vote is required to approve and adopt the
Transaction. The affirmative vote of the holders of a majority of the issued
and outstanding Common Shares entitled to vote is also required to approve and
adopt the proposals to amend the Trust's Declaration of Trust to change the
Trust's name and to increase the number of Shares authorized for issuance. The
approval of a plurality of the votes cast by holders of Common Shares in person
or by proxy at the Meeting in the election of trustees will be required to
approve the nominees for trustee at the Meeting. There is no cumulative voting
in the election of trustees.
MARK CENTERS TRUST SUMMARY FINANCIAL DATA
The selected historical consolidated financial information as of and for
each of the four years in the period ended December 31, 1997 and for the period
June 1, 1993 to December 31, 1993 is derived from the audited consolidated
financial statements of Mark Centers Trust. Reference is made to the historical
audited consolidated financial statements as of December 31, 1997 and for each
of the three years in the period then ended appearing elsewhere herein. The
selected historical financial information for Mark Development Group, the
Company's predecessor ("MDG"), for the period January 1, 1993 to May 31, 1993
is derived from the audited financial statements of MDG. The selected
historical consolidated financial information as of and for the fiscal quarters
ended March 31, 1998 and 1997 is unaudited, and has been prepared on a basis
consistent with the audited historical consolidated financial statements. In
the opinion of management, all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the unaudited summary
financial information have been made. The historical data should be read in
conjunction with the "Mark Centers Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein. All
of the data set forth below are qualified by reference to, and should be read
in conjunction with, the unaudited pro forma combined financial information and
notes thereto included elsewhere herein.
18
<PAGE>
MARK CENTERS TRUST
<TABLE>
<CAPTION>
Pro Forma Pro Forma Three Months Three Months
Combined Combined Ended Ended
3/31/98 12/31/97 3/31/98 3/31/97
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Minimum rents ........................... $ 16,107 $ 63,238 $ 8,464 $ 8,444
Percentage rents ........................ 840 3,676 565 684
Expense reimbursements .................. 2,993 11,732 1,753 1,777
Other ................................... 762 3,574 169 219
------------ ----------- ----------- -----------
Total revenue ......................... 20,702 82,220 10,951 11,124
------------ ----------- ----------- -----------
Operating expenses ...................... 8,612 33,585 4,176 4,539
Interest and other financing expense 5,224 21,473 3,923 3,736
Depreciation and amortization ........... 4,714 18,660 3,473 3,324
------------ ----------- ----------- -----------
18,550 73,718 11,572 11,599
------------ ----------- ----------- -----------
(Loss) income before gain on sale,
reorganization costs,
extraordinary items and minority
interest ............................... 2,152 8,502 (621) (475)
(Loss) gain on sale of land ............. -- (12) (12)
Reorganization costs .................... -- -- -- --
Extraordinary items ..................... -- -- -- --
------------ ----------- ----------- -----------
(Loss) income before minority
interest ............................... 2,152 8,490 (621) (487)
Minority interest ....................... (705) (2,780) 88 71
------------ ----------- ----------- -----------
Net (loss) income ....................... $ 1,447 $ 5,710 $ (533) $ (416)
============ =========== =========== ===========
Net (loss) income per Common
Share
-- basic and diluted ................... $ 0.06 $ 0.23 $ (0.06) $ (0.05)
============ =========== =========== ===========
Weighted average number of
Common Shares outstanding
-- basic ............................... 24,484,465 24,482,218 8,554,177 8,548,817
============ =========== =========== ===========
-- diluted(1) .......................... 24,488,265 24,486,018 8,554,177 8,548,817
============ =========== =========== ===========
Funds from Operations(2) ................ $ -- $ -- $ 2,642 $ 2,569
============ =========== =========== ===========
Funds from Operations per share(3) $ -- $ -- $ 0.26 $ 0.25
============ =========== =========== ===========
BALANCE SHEET DATA:
Real estate before accumulated
depreciation ........................... $ 576,111 N/A $ 311,541 $ 306,926
Total assets ............................ 524,433 N/A 255,787 262,815
Total mortgage indebtedness ............ 252,977 N/A 185,240 184,974
Minority interest -- Operating
Partnership ............................ 86,931 N/A 9,144 10,079
Total equity (deficit) .................. 173,691 N/A 48,267 53,312
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARK
DEVELOPMENT
GROUP
-------------
Seven Five
Year Ended Year Ended Year Ended Year Ended Months Ended Months Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 5/31/93
---------- ---------- ---------- ---------- ----------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Minimum rents ........................... $ 33,669 $ 33,695 $ 32,740 $ 27,543 $ 12,971 $ 9,267
Percentage rents ........................ 3,183 2,795 3,340 2,505 1,644 1,147
Expense reimbursements .................. 6,632 6,559 6,431 5,220 2,629 1,687
Other ................................... 1,014 747 821 1,065 961 72
----------- ----------- ----------- ----------- ----------- ---------
Total revenue ......................... 44,498 43,796 43,332 36,333 18,205 12,173
----------- ----------- ----------- ----------- ----------- ---------
Operating expenses ...................... 17,055 18,260 16,374 14,797 7,718 5,182
Interest and other financing expense 15,444 12,733 10,598 5,763 2,094 5,172
Depreciation and amortization ........... 13,768 13,398 11,820 9,066 3,945 2,934
----------- ----------- ----------- ----------- ----------- ---------
46,267 44,391 38,792 29,626 13,757 13,288
----------- ----------- ----------- ----------- ----------- ---------
(Loss) income before gain on sale,
reorganization costs,
extraordinary items and minority
interest ............................... (1,769) (595) 4,540 6,707 4,448 (1,115)
(Loss) gain on sale of land ............. 21 93 305 -- --
Reorganization costs .................... -- -- -- -- (2,629) --
Extraordinary items ..................... -- (190) -- -- 194 --
----------- ----------- ----------- ----------- ----------- ---------
(Loss) income before minority
interest ............................... (1,781) (764) 4,633 7,012 2,013 (1,115)
Minority interest ....................... 217 40 (833) (1,222) (321) 39
----------- ----------- ----------- ----------- ----------- ---------
Net (loss) income ....................... $ (1,564) $ (724) $ 3,800 $ 5,790 $ 1,692 $ (1,076)
=========== =========== =========== =========== =========== =========
Net (loss) income per Common
Share
-- basic and diluted ................... $ (0.18) $ (.08) $ 0.44 $ 0.68 $ 0.20
=========== =========== =========== =========== ===========
Weighted average number of
Common Shares outstanding
-- basic ............................... 8,551,930 8,546,553 8,540,631 8,533,688 8,445,493
=========== =========== =========== =========== ===========
-- diluted(1) .......................... 8,551,930 8,546,553 8,563,466 8,563,529 8,490,114
=========== =========== =========== =========== ===========
Funds from Operations(2) ................ $ 10,827 $ 12,372 $ 15,281 $ 14,831 $ 8,262
=========== =========== =========== =========== ===========
Funds from Operations per share(3) $ 1.06 $ 1.22 $ 1.50 $ 1.46 $ 0.81
=========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Real estate before accumulated
depreciation ........................... $ 311,688 $ 307,411 $ 291,157 $ 278,611 $ 210,133 $ 163,095
Total assets ............................ 254,500 258,517 249,515 242,483 180,083 127,968
Total mortgage indebtedness ............ 183,943 172,823 151,828 124,410 61,578 150,392
Minority interest -- Operating
Partnership ............................ 9,244 10,752 13,228 14,827 16,049 --
Total equity (deficit) .................. 48,800 56,806 69,779 78,183 84,606 (32,993)
</TABLE>
- ------------
(1) Due to a net loss for the quarter ended March 31, 1998 and for the years
ended December 31, 1997 and 1996, the weighted average number of Common
Shares outstanding on a diluted basis is not presented as the inclusion of
additional Common Shares is anti-dilutive.
(2) The Company, along with most industry analysts, consider funds from
operations ("FFO") as defined by the National Association of Real Estate
Investment Trusts ("NAREIT") as an appropriate supplemental measure of
operating performance. However, FFO does not represent cash generated from
operations as defined by generally accepted accounting principles and is
not indicative of cash available to fund cash needs. It should not be
considered as an alternative to net income for the purpose of evaluating
the Company's performance or to cash flows as a measure of liquidity.
Generally, NAREIT defines FFO as net income (loss) before gains (losses)
on sales of property, non recurring charges and extraordinary items,
adjusted for certain non-cash charges, primarily depreciation and
amortization of capitalized leasing costs.
(3) Includes Units.
19
<PAGE>
RDC GROUP SUMMARY FINANCIAL DATA
The summary historical combined financial information as of December 31,
1997, 1996 and 1995 and for the three years in the period ended December 31,
1997 is derived from the audited combined financial statements of RDC Group.
Reference is made to the historical audited combined financial statements as of
December 31, 1997 and 1996 and for each of the three years then ended appearing
elsewhere herein. The summary historical combined financial information as of
March 31, 1998 and 1997 and for the three month periods then ended, and as of
December 31, 1994 and 1993 and for the two years in the period ended December
31, 1994 is unaudited and has been prepared on a basis consistent with the
audited historical combined financial statements. In the opinion of management,
all adjustments (which consist only of normal recurring adjustments) necessary
to present fairly the selected financial information have been made. The
historical data should be read in conjunction with the "RDC Group Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. All of the data set forth below are qualified by
reference to, and should be read in conjunction with, the unaudited pro forma
combined financial information and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Three months ended Year Ended
3/31/98 3/31/97 12/31/97
(unaudited) (unaudited)
------------- ------------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Real estate before accumulated depre-
ciation ................................ $194,496 $167,964 $184,778
Total assets ............................ 190,478 170,748 179,710
Total mortgage indebtedness ............. 140,599 124,789 138,805
Total equity ............................ 39,342 31,849 30,541
Operating Data:
Revenue
Rental income and
reimbursements ......................... $ 8,244 $ 7,612 $ 31,495
Other ................................... 271 210 883
Equity in earnings of partnership ....... 59 169 745
Fees and commissions .................... 580 395 1,838
-------- -------- --------
Total Revenue .......................... 9,154 8,386 34,961
Operating expenses ...................... 4,142 3,573 15,359
Interest ................................ 2,941 2,858 11,879
Depreciation and amortization ........... 1,600 1,571 6,211
-------- -------- --------
Total Operating Expenses ............... 8,683 8,002 33,449
Operating income ......................... 471 384 1,512
Extraordinary item ...................... -- -- --
Net income/(loss) ........................ $ 471 $ 384 $ 1,512
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94 12/31/93
(unaudited) (unaudited)
------------- ------------ ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Real estate before accumulated depre-
ciation ................................ $157,961 $150,707 $147,877 $103,828
Total assets ............................ 160,112 156,764 144,120 99,661
Total mortgage indebtedness ............. 125,079 124,311 118,741 93,144
Total equity ............................ 20,851 18,298 18,049 1,251
Operating Data:
Revenue
Rental income and
reimbursements ......................... $ 27,665 $ 26,593 $ 25,919 $ 19,055
Other ................................... 915 695 122 79
Equity in earnings of partnership ....... 531 238 -- --
Fees and commissions .................... 1,595 2,474 1,816 1,254
-------- -------- -------- --------
Total Revenue .......................... 30,706 30,000 27,857 20,388
Operating expenses ...................... 14,540 14,504 13,809 10,548
Interest ................................ 11,526 11,272 7,964 5,970
Depreciation and amortization ........... 6,218 5,447 6,027 4,886
-------- -------- -------- --------
Total Operating Expenses ............... 32,284 31,223 27,800 21,404
Operating income ......................... (1,578) (1,223) 57 (1,016)
Extraordinary item ...................... 3,461 -- 3,334 --
Net income/(loss) ........................ $ 1,883 $ (1,223) $ 3,391 $ (1,016)
======== ======== ======== ========
</TABLE>
20
<PAGE>
RISK FACTORS
The Trust's shareholders should carefully consider, among other things,
the following risk factors before voting on the Transaction. Certain statements
set forth below under this caption may constitute "forward looking statements"
within the meaning of the Reform Act. See "Special Note Regarding Forward --
Looking Statements" for additional factors relating to such statements.
Conflicts of Interest Related to the Transaction
Conflicts of interest relating to the Transaction exist because certain
members of the Board of Trustees have certain interests in, and will receive
certain benefits from, the Transaction that are in addition to the interests of
and benefits to be received by the shareholders of the Trust. In this regard,
if the Transaction is approved and consummated, and if the nominees for
election as trustee are elected at the Meeting, each of Marvin Slomowitz,
Lawrence Longua and Marvin Levine, incumbent trustees of the Trust and nominees
for reelection as trustees at the Meeting, will remain on the Board of Trustees
of the Trust, while the other newly elected trustees of the Trust will resign
from the Board effective as of the Closing Date. Additionally, the Trust has
agreed to maintain for not less than six years following the Closing Date the
current trustee and officer liability insurance policies for the benefit of
those persons serving as trustees and officers of the Trust prior to the
Closing Date with respect to matters arising on or prior to the Closing Date,
and has further agreed that for the six year period following the Closing Date,
it will not to amend its Declaration of Trust or permit the Operating
Partnership to amend its Limited Partnership Agreement concerning
indemnification, advancement of expenses or limitation of liability for the
benefit of trustees, officers, employees and consultants in any manner
adversely affecting the rights of such persons.
Further, concurrently with the execution of the Contribution Agreement,
the Trust entered into an agreement with Mr. Slomowitz pursuant to which the
Company will pay to Mr. Slomowitz a $600,000 severance payment at Closing, will
grant to Mr. Slomowitz at Closing ten year options to purchase 300,000 Common
Shares at $9.00 per share, exercisable in three equal cumulative annual
installments commencing at Closing. As part of the Transaction, the Company
will cancel Mr. Slomowitz's currently exercisable options to purchase 200,000
Common Shares at an exercise price of $12.00 per Common Share. The Company also
will pay Mr. Slomowitz $100,000 annually for each of the next three years in
consideration for his agreement not to compete with the Company and for the
provision of certain consulting services. Mr. Slomowitz also will be entitled
to receive a brokerage commission of 2.0% of the sales price upon the sale of
nine designated properties in the Mark Centers portfolio, provided that total
brokerage commissions payable to Mr. Slomowitz will not exceed $600,000 in the
aggregate. Mr. Slomowitz and the Trust will also exchange general releases at
Closing. The Trust has also agreed that, for an approximately five year period
following the Closing Date, any sales or refinancings of certain properties
owned by the Company which were initially contributed by Mr. Slomowitz in
exchange for Units will be made only in a manner intended to defer the
recognition of taxable gain for federal income tax purposes which Mr. Slomowitz
deferred upon his initial contribution of the properties to the Company. As a
result, any such sales or refinancings may not be on terms or during periods
which would otherwise be most favorable to the Trust and its shareholders.
Additionally, although the Company's executive officers will be relocated
to New York City following the Transaction, the Trust will initially continue
to lease from a limited partnership controlled by Mr. Slomowitz its current
executive offices located in Kingston, Pennsylvania. See "Interests of Certain
Persons in the Transaction."
Change in Management and Control of Board of Trustees
In the event the Transaction is consummated, Ross Dworman and Kenneth
Bernstein, the President and Chief Executive Officer and Chief Operating
Officer, respectively, of RDC, together with Martin L. Edelman and Gregory
White, two additional designees of RDC, neither of whom is an officer, trustee,
director or employee of the Trust or RDC or any of their respective affiliates,
will become trustees of the Trust effective on the Closing Date, thereby
constituting four of the seven members of the Board of Trustees. Consequently,
RDC and its affiliates will have substantial influence and control over matters
to be considered by the Board of Trustees and as to those matters which the
Board determines to submit to shareholders for consideration. Additionally,
Messrs.
21
<PAGE>
Dworman and Bernstein will be appointed the Chairman and Chief Executive
Officer and the President, respectively, of the Trust effective on the Closing
Date. As the principal officers of the Trust, Messrs. Dworman and Bernstein
will have substantial influence over the Company's day-to-day operations.
Notwithstanding the foregoing, however, Messrs. Dworman and Bernstein have
agreed that any agreement or other transaction which would constitute a
conflict of interest or interested transaction involving the Company and RDC or
its affiliates shall be submitted to and determined by the disinterested
trustees of the Board of Trustees. Additionally, although Messrs. Dworman and
Bernstein have in excess of 25 years of combined experience in real estate
development and management, neither has any experience in managing a publicly
traded entity. See "Management of the Trust Before and After the Transaction."
Concentration of Share Ownership
Immediately following the Transaction, the RDC Funds, will collectively
beneficially own approximately 61.8% of the Common Shares to be issued and
outstanding. Additionally, the RDC Funds, together with other RDC affiliates,
will beneficially own approximately 71.2% of the Common Shares to be issued and
outstanding immediately following the Transaction, after giving effect to the
exercise, conversion and/or exchange of all securities exercisable to purchase
or convertible or exchangeable into Common Shares (including the Units to be
issued in the Transaction). As a result of the number of Common Shares to be
beneficially owned by the RDC Funds, the Board of Trustees has exercised its
authority to exempt from the excess share limitations of the Trust's
Declaration of Trust the RDC Funds as well as the other affiliates of RDC which
are receiving Units which, upon exchange of such Units into Common Shares,
would exceed the excess share limitations. In light of the substantial
concentration of ownership of the issued and outstanding Common Shares by the
RDC Funds, the RDC Funds have agreed to grant to each of their respective
partners a proxy, appointing such partners as proxy to vote the Common Shares
to which such partners would be entitled assuming a dissolution of the RDC
Funds and a distribution in liquidation of the Common Shares to the partners.
Nonetheless, it is anticipated that RDC may be able to exercise influence over
the manner in which such Common Shares are voted. See "Security Ownership of
Certain Beneficial Owners and Management."
Rights Granted to New Unit Holders in Connection with Sales or Transfers of RDC
Properties
The Company has agreed that, for a period of approximately five years
(determined on a weighted average basis among all of the RDC Properties)
following the Closing Date, the Partnership shall be prohibited from the sale,
transfer or other disposition of the RDC Properties (other than by way of
foreclosure), and from repaying mortgage indebtedness secured by one or more of
the RDC Properties, unless either: (i) the terms of any such transaction comply
with certain conditions intended to permit the transferring holders of
ownership interests in such RDC Properties to defer the recognition of gain for
federal income tax purposes which such persons would ordinarily recognize on
the sale of such property or satisfaction of such mortgage indebtedness (such
as a like-kind exchange for federal income tax purposes); or (ii) the
Partnership were to make a payment to such persons of an amount equal to the
tax which such persons would be obligated to pay in the absence of complying
with such conditions, and "grossed up" to cover the taxes imposed on the
receipt of such payment. As a result of these contractual agreements, the
Company may be prevented from entering into transactions during times or on
terms which might otherwise be in the best interests of the Trust's
shareholders or may incur certain costs or expenses in favor of such persons at
a time which might not be in the best interests of the Trust's shareholders.
See "The Contribution Agreement and Related Matters -- Certain Additional
Covenants of the Company."
Potential Adverse Effects of Combining Operations
Each of the Company and RDC is a large enterprise with substantial
operations in numerous states. There can be no assurance that costs or other
factors associated with the integration of the two companies would not
adversely affect future combined results of operations or the benefits of
expected cost savings to occur as a result of the Transaction. Additionally,
the timing and integration of the two separate business enterprises may cause
substantial fluctuations in operating results for the foreseeable future.
Establishment of the Relative Values of Assets Contributed
Pursuant to the terms of the Contribution Agreement, various interests in
the RDC Property Partnerships and the RDC Properties, as well as associated
real estate assets, will be acquired by the Company in exchange
22
<PAGE>
for approximately 11.1 million Units and approximately 1.8 million Common
Shares and the assumption of approximately $177.2 million of mortgage and
related indebtedness. The terms on which the ownership interests, RDC
Properties and related assets will be contributed to the Company were
negotiated between the Company and RDC on behalf of the RDC Property
Partnerships and the owners of the interests therein, but without any
appraisals of any of the RDC Properties or other real estate assets.
Consequently, no assurance can be given that the Company is not paying more
than the fair value for these assets.
Risks Associated with a Fixed Per Unit Purchase Price
The Common Shares and Units to be issued in the Transaction (other than
the Common Shares to be issued in consideration for the Interim Premises to be
purchased at Closing) have been valued for purposes of the Transaction at a
fixed price of $7.50 per Common Share or Unit, which price was below the
current market price for the Common Shares on the date the Contribution
Agreement was executed. If the Transaction is consummated at a time when the
market price for the Common Shares on the NYSE exceeds $7.50 per share, then
the persons receiving Common Shares and Units will be receiving a consideration
in the Transaction which has a market value in excess of the fixed price
attributable to such securities in the Contribution Agreement and, on the basis
of the market price of the securities to be issued, the Company may be
receiving assets having a value less than the aggregate market value
attributable to the securities issued as consideration for the contribution of
those assets. Changes in the market price of the Common Shares at the time of
the consummation of the Transaction will affect the value of the securities to
be issued in the Transaction.
Risks of Unenforceability of Non-Compete Agreements
At the Closing of the Transaction, each of Messrs. Dworman and Bernstein
will enter into a Non-Compete Agreement with the Company, the terms of which
will continue in effect so long as such person is an officer or trustee of the
Company or a beneficial owner of more than 10% of the Common Shares,
prohibiting him from engaging in activities involving the acquisition,
development or operation of shopping centers and multi-apartment dwellings
throughout the United States, with certain exceptions. Marvin Slomowitz will
also enter into an agreement prohibiting him from engaging in certain
activities deemed competitive with the Company. See "The Contribution Agreement
and Related Matters -- Certain Additional Covenants of RDC and
the RDC Funds -- Non-Compete Agreements" and "Interests of Certain Persons in
the Transaction." While the Company believes such agreements are enforceable as
drafted, there can be no assurance that, if subsequent to Closing, the terms of
such agreement should be contested in legal proceedings, a court may not rule
that such agreements are not fully enforceable in accordance with their terms.
Conflicts of Interests in Failure to Enforce Terms of Contribution Agreement
and Other Agreements
Following the Transaction, RDC, through Messrs. Dworman and Bernstein,
will have substantial influence over the Board of Trustees. Consequently, such
persons may have a conflict of interest with respect to their obligations as
officers and trustees to the extent the Trust or the Operating Partnership
attempts to enforce its rights under the Contribution Agreement or any other
agreement to which RDC or its affiliated entities are parties. As a result,
decisions regarding the enforcement of the terms of certain agreements
involving RDC and its affiliates will be made only by a majority vote of the
disinterested trustees. The failure to enforce the material terms of any such
agreement, particularly indemnification provisions and the remedy provisions
for breaches of representations and warranties or failures to perform
covenants, could result in a substantial monetary loss to or otherwise might
have a material adverse effect on the Trust and its shareholders.
Impact of Minority Partners with Respect to Certain RDC Properties
The Contribution Agreement provides that, in the case of six of the RDC
Properties to be contributed in the Transaction, less than 100% of the
ownership interests therein will be acquired by the Company. As to all of these
RDC Properties, the Company will constitute the general partner or managing
member, but, as to two of such RDC Properties, the Company will only own a
minority interest therein (although in the case of one of these properties, the
Company will be granted a proxy to vote an additional 1.0% of the interests,
bringing its effective ownership interest up to 50%). While the Company may
serve as general partner of and have a majority ownership in certain of these
RDC Properties, the Company will, under certain circumstances, have certain
23
<PAGE>
fiduciary responsibilities to those unaffiliated partners under applicable law
which it will need to consider when making decisions that affect those
properties (including decisions regarding the sale, refinancing and the timing
and amount of distributions therefrom) which might not fully reflect the
interests of the Company at such time. Despite having only a minority interest,
the ownership interests held by the minority partners will permit them to
exercise certain rights and impose certain restrictions on the Trust's right to
take certain action concerning these RDC Properties.
Shares Eligible for Future Sale
Sales of substantial amounts of Common Shares in the public market from
time to time following the Transaction could adversely affect prevailing market
prices of the Common Shares. In the Transaction, approximately 15.1 million
Common Shares will be issued to the RDC Funds and approximately 11.1 million
Common Shares will be issuable from time to time upon exchange of Units to be
issued to RDC and its affiliates in the Transaction. Additionally, the Trust
currently contemplates an offering of preferred shares which would be
convertible into Common Shares. It is anticipated that the Common Shares
issuable upon conversion of any such preferred shares would be freely
transferable under federal securities laws. Pursuant to the Registration Rights
and Lock-Up Agreement, the RDC Funds and the holders of Units, have agreed not
to sell, transfer or otherwise dispose of their Common Shares, including Common
Shares issued upon exchange of Units, for a period of 12 months following the
Closing Date, subject to certain limited exceptions. Pursuant to such
Agreement, however, the Trust has agreed to promptly file, following such 12
month "lock-up period," a registration statement with the Commission to
register under the federal securities laws the Common Shares issued to the RDC
Funds and the Common Shares issuable to Unitholders upon exchange or conversion
of such Units. Following the registration of such Common Shares, the sale in
the public market of such Common Shares could, and depending upon the number of
Common Shares involved, likely would, adversely affect prevailing market
prices. Such sales could reduce the market price of the Common Shares, and the
Trust's ability to raise additional capital through equity markets could
adversely be affected.
Status of RDC Funds Commitment to Raise Cash Investment
A condition to the Trust's consummation of the Transaction is the purchase
by the RDC Funds of approximately 13.3 million Common Shares in consideration
of a cash payment at Closing of $100.0 million. The RDC Funds are newly formed
investment limited partnerships which have been formed by RDC principally for
the purpose of making an investment in the Trust. As of the date of this Proxy
Statement, the RDC Funds have received binding commitments from third parties
to contribute 100% of the Cash Investment. There can be no assurance, however,
that investors in the Funds will make the capital contributions to the Fund in
accordance with their subscriptions as and when the funds are due at Closing.
In the event such funds are not available, the Trust has the right to terminate
the Agreement. See "The Contribution Agreement and Related Matters --
Conditions of the Transaction; Termination; Waiver and Amendment."
Dependence on Key Personnel
It is expected that the Trust will substantially depend upon the services
of certain key personnel, including Ross Dworman and Kenneth Bernstein,
following the consummation of the Transaction. Both the Trust's
management and RDC believe that the loss of the services of either of these key
personnel could have a material adverse effect on the future results of
operations of the Company. See "Management Before and After the Transaction."
Termination Payments if Transaction Fails to Occur
The Contribution Agreement provides that, in the event the Transaction is
not approved by the Trust's shareholders, or if the Contribution Agreement is
terminated by RDC prior to consummation of the Transaction as a result of a
breach of warranty or misrepresentation by the Company or a failure by the
Company to perform a covenant required to be performed prior to Closing, the
Trust would be obligated to pay to RDC the fees and expenses incurred by RDC in
connection with the Transaction, in an amount not to exceed $1.25 million. In
addition, if the Contribution Agreement is terminated either by RDC or by the
Company as a result of the execution by the Trust, in the exercise of the Board
of Trustees' fiduciary duties, of an agreement constituting a Superior
Proposal, the Company would be obligated to pay to RDC, in addition to the
foregoing fees and expenses, a "break-up fee" in the amount of $1.75 million.
See "The Contribution Agreement and Related Matters -- Conditions of the
Transaction; Termination; Waiver and Amendment."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of each of the Trust and
of the RDC Group, at March 31, 1998, and the pro forma combined capitalization
of the Trust as adjusted to give effect to the Transaction as if the
Transaction had occurred on March 31, 1998. The Transaction would have resulted
in the issuance of 15,130,288 Common Shares, resulting in an aggregate of
24,484,465 Common Shares to be issued and outstanding following the Transaction
(including the exchange of 800,000 Units for Common Shares by a limited partner
of the Operating Partnership), and in the application of approximately $87.0
million of the proceeds to be received upon sale of the Common Shares to
discharge outstanding mortgage and other related indebtedness. The following
table should be read in conjunction with the historical and pro forma financial
statements and related notes included elsewhere herein, or incorporated by
reference into, this Proxy Statement.
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------------------
(unaudited)
(in thousands)
Combined
Mark Centers RDC Pro Forma
Trust Group (unaudited)
-------------- ----------- ------------
<S> <C> <C> <C>
Debt ................................ $188,290 $144,085 $252,977
Minority Interest ................... 9,144 600 86,931
Shareholders' Equity:
Common Stock ....................... 9 -- 24
Additional Paid-in-Capital ......... 51,073 39,342 176,482
Deficit ............................ (2,815) -- (2,815)
-------- -------- --------
Total Shareholders' Equity .......... 48,267 39,342 173,691
-------- -------- --------
Total Capitalization ................ $245,701 $184,027 $513,599
======== ======== ========
</TABLE>
THE TRANSACTION
Purpose of the Transaction
The purpose of the Transaction is for the Company to acquire the real
estate operations and properties of RD Capital, Inc. and its affiliated
entities and to integrate those operations with those of the Company. To that
end, the Company will acquire fee title to, or all or substantially all of the
ownership interests in, the RDC Property Partnerships' 13 shopping centers,
five multi-family residential properties and one redevelopment property, and
the rights under all third party property management contracts and notes, in
exchange for an aggregate of approximately 11.1 million Units and approximately
1.8 million Common Shares and the assumption of approximately $177.2 million of
mortgage indebtedness (including mortgage indebtedness which, pursuant to the
terms of the Contribution Agreement, may be incurred by the RDC Property
Partnerships between the date of the Contribution Agreement and the Closing
Date). Additionally, other newly formed investment partnerships in which an
affiliate of RDC serves as general partner will purchase an aggregate of
approximately 13.3 million Common Shares in consideration for a cash payment to
the Trust at Closing of $100.0 million.
As a result of the Transaction, the Common Shares to be issued to the RDC
Funds will represent approximately 61.8% of the Common Shares to be issued and
outstanding following the Transaction, and, together with the Common Shares
issuable upon exchange of the Units to be issued in the Transaction, the RDC
Funds and other RDC affiliates will beneficially own approximately 71.2% of the
Common Shares to be issued and outstanding, after giving effect to the
exercise, conversion and/or exchange of all securities exercisable to purchase
and/or convertible or exchangeable into Common Shares. Additionally, as a
result of the Transaction, the Chairman and Chief Executive Officer and the
Chief Operating Officer, respectively, of RDC will become the Chairman and
Chief Executive Officer and the President, respectively, of the Trust and will
serve as trustees of the Trust's Board of Trustees.
Background of the Transaction
On December 13, 1996, the Trust engaged Bear Stearns to assist the Company
in evaluating its strategic alternatives. Following several months of due
diligence regarding the Company and its property portfolio, Bear
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<PAGE>
Stearns met with the Company's Board of Trustees on March 13, 1997 to review
its findings. At the meeting, the Board of Trustees authorized Bear Stearns to
initiate inquiries concerning a possible merger with a select group of
qualified public shopping center REITs identified by Bear Stearns based on
portfolio similarity, geographic synergies and financial strength. On March 18,
1997, the Company issued a press release announcing its fourth quarter earnings
for fiscal year 1996 as well as its engagement of Bear Stearns.
From March 1997 through May 1997, Bear Stearns initiated discussions with
a select group of public shopping center REITs. Due to the limited interest
expressed by the initial group in pursuing a transaction with the Company, Bear
Stearns expanded its discussions to include the remaining public shopping
center REITs. At a Board meeting on May 28, 1997, Bear Stearns reported to the
Board of Directors that three shopping center REITs had expressed an interest
regarding a possible transaction with the Company, although at valuations which
were substantially below the Board's expectation. At the meeting, the Board
concluded to continue discussions with interested parties as well as to
authorize Bear Stearns to begin discussions with private shopping center owners
which might be considering a public vehicle as part of their growth and
development objectives. The Board also authorized Bear Stearns to pursue the
possibility of raising private equity.
From June 1997 through August 1997, Bear Stearns contacted private
shopping center owners and private equity sources to determine whether they
would have an interest in pursuing a transaction with the Company. During this
time, meetings were held between Marvin Slomowitz, the Company's Chairman and
Chief Executive Officer, and interested parties. As a result of these
discussions, the Company received two proposals from private shopping center
owners to contribute assets and cash to the Company, one of which was RDC.
In July 1997, RDC contacted Bear Stearns to inquire about the Company and
to express an interest in possibly pursuing a transaction. On August 7, 1997,
Bear Stearns initiated an introductory meeting between Marvin Slomowitz and
Ross Dworman, the President and Chief Executive Officer of RDC. During August
and September 1997 Bear Stearns worked with RDC to evaluate the feasibility of
a transaction. On November 3, 1997, Mr. Slomowitz and Messrs. Dworman and
Bernstein met to discuss RDC's continuing level of interest regarding a
possible transaction with the Company, and the following day, RDC submitted an
initial proposal to the Company, providing extensively for a combination
transaction in which RDC would contribute substantially all of its affiliated
properties and other real estate assets and make a $100.0 million equity
investment in consideration for Units and Common Shares. The precise number of
Units and Common Shares was to be determined on the basis of valuations to be
conducted following a due diligence investigation. During the next several
weeks, Bear Stearns, together with Messrs. Larry Longua, Joseph Castle, John
Vincent Weber and Marvin Levine, four independent trustees, also engaged in
numerous discussions to discuss the status of conversations between the
Company, Bear Stearns and RDC. During the week of November 10, 1997, RDC and
the Company also continued to provide due diligence information to each other
for purposes of refining the proposed business terms.
On November 24, 1997, the Board of Trustees met to discuss the proposals
received from the two private shopping centers owners. At that meeting, the
Board concluded that the quality of the RDC portfolio in terms of physical
characteristics, geographic location, tenant profile and other factors would
provide greater benefit if combined with the Company's portfolio. The Board
concluded to further negotiate with RDC regarding their proposal. On November
28, 1997, Donaldson, Lufkin & Jenrette Securities Corporation, RDC's financial
adviser ("DLJ"), submitted a preliminary term sheet to Bear Stearns on behalf
of RDC. The term sheet confirmed the principal terms of the transaction,
providing for the issuance of 8,200,000 Units and 11,111,111 Common Shares,
valued on the basis of $9.00 per Common Share, for the RDC Properties and the
Cash Investment, all of which terms were contingent upon confirmation by RDC of
historical and projected financial data which had previously been delivered by
the Trust to RDC. The proposal called for a change in the composition of
executive management and in the Board of Trustees and for a break-up fee if the
Company were to complete an alternative transaction. On December 4, 1997, Bear
Stearns held a telephone conference call with the Board of Trustees to review
the term sheet, and on December 5, 1997, Bear Stearns on behalf of the Company
submitted a revised term sheet to RDC and DLJ.
On December 15, 1997, the Board of Trustees of the Company met to discuss
the RDC term sheet and the status of the negotiations. At that meeting, the
Board concluded to execute an agreement with RDC
26
<PAGE>
to continue negotiations of a transaction with RDC on an exclusive basis
through January 15, 1998. Shortly following the meeting, representatives of the
Trust and RDC held an organizational meeting to begin due diligence and the
Company instructed its counsel to begin the preparation of definitive
documentation.
From December 16, 1997 through February 10, 1998, each party and its
financial and legal representatives engaged in extensive due diligence
concerning the other party's properties, leases and financial results of
operations. Preliminary drafts of a proposed agreement were exchanged between
representatives of RDC and the Company on the basis of the term sheet which was
reviewed by the Board of Trustees at its December 15th meeting.
On February 11, 1998, Messrs. Dworman and Bernstein met with Messrs.
Slomowitz and Longua as well as with Bear Stearns to discuss RDC's reassessment
of the relative valuation of the Company's portfolio and RDC's portfolio based
upon the completion of the due diligence investigation. Messrs. Dworman and
Bernstein advised the Company's representatives at that meeting that their
valuation model of the combined companies indicated a greater relative value of
the RDC portfolio when compared to the Company's portfolio, as a result of,
among other factors, certain recent tenant bankruptcies, the impact of
co-tenancy requirements resulting from certain of these bankruptcies, and the
delay in installing certain signed tenants pending completion of required
tenant improvements. Messrs. Dworman and Bernstein also expressed concern
regarding the apparent deteriorating cash position of the Company as reflected
in preliminary fiscal year 1997 fourth quarter financial statements and 1998
preliminary first quarter results reviewed by RDC.
On February 13, 1998, RDC submitted a revised proposal, reducing the per
share valuation from $9.00 per Common Share to $7.50 per Common Share,
resulting in an increase in the number of Units and Common Shares to be issued
for the RDC Properties and the Cash Investment. Additionally, RDC's revised
proposal required that the Company sell five identified properties at a
designated price, and issue to RDC additional Units, valued at $7.50 per Common
Share, equal to any deficiency between the designated price and the actual
aggregate sales price for the properties. The other terms of the proposed
transaction, including, but not limited to, a change in the management and
composition of the Board of Trustees of the Company, as well as the amount of
the break-up fee, remained principally unchanged.
On February 17, 1998, the Board of Trustees met to discuss RDC's revised
proposal. At the meeting, the Board concluded that the requirement that the
Company sell certain designated properties at no less than a designated price
or be required to issue additional Units equal to the deficiency was
unacceptable. In considering that the proposed valuation of the Units and
Common Shares to be issued to RDC was below current market price, the Board
considered the impact on the Common Share market price once the Company's
fourth quarter and year-end earnings and funds from operations per share were
announced. The Board also reviewed its current cash position and its capital
commitments and concluded that if the RDC transaction or a similar transaction
was not consummated, the Board in all likelihood would have to suspend its
dividend for the foreseeable future to preserve cash to meet its capital
commitments and to install additional tenants to increase funds from
operations. The Board considered the impact on the market price of a suspension
of the Company's dividend. The Board also noted that, notwithstanding the
exclusivity period with RDC, the Company had not received any further
indications of interest from other third parties. Following a lengthy
discussion, the Board instructed Bear Stearns to renegotiate the revised
proposal of RDC to eliminate the additional Unit issuance requirement
associated with the sale of the five properties, and to attempt to increase the
$7.50 per share valuation. The Board also advised Bear Stearns to instruct RDC
that the Company was no longer willing to accept the impediment caused by a
substantial break-up fee in encouraging an alternative transaction since the
RDC proposal was then valued at below current market price for the Common
Shares.
Following several rounds of negotiation, RDC submitted a final term sheet
to the Company on February 26, 1998. The final term sheet retained the $7.50
per Common Share valuation, but eliminated the requirement for the sale of the
designated properties. The break-up fee remained unchanged. On February 27,
1998, the Board met to discuss the new term sheet as well as the Company's
current cash position and potential results of operations in the event it did
not pursue the transaction with RDC. The Board also considered the advice of
Bear Stearns concerning the lack of expressions of interest from other parties
concerning a possible transaction with the Company as well as the likelihood
that securing additional equity capital on financially attractive terms was
unlikely. Further, the Board considered that, in the absence of a transaction
on terms such as those contemplated
27
<PAGE>
by the Transaction, the Company would have suspended its dividend to use its
cash flow to install tenants with which the Company had signed leases. After
further discussion, the Board of Trustees concluded to accept RDC's final term
sheet, but only after a reduction in the break-up fee and expense reimbursement
cap. Following the Board meeting, the Company's counsel and Bear Stearns met
with Messrs. Dworman and Bernstein and their representatives concerning the
break-up fee. Over the next several days, further discussions ensued and an
agreement was reached to reduce the break-up fee from $2.5 million to $1.75
million. The Board of Trustees instructed its counsel to recommence negotiation
of definitive documentation giving effect to the revised terms.
From March 1 through April 13, 1998, counsel and representatives of RDC
and the Company continued negotiations concerning the definitive documentation.
On April 13, 1998, the Board of Trustees convened a meeting in New York to
discuss the status of the proposed agreement with RDC. At the meeting,
representatives of Bear Stearns and counsel for the Company reported to the
Board that the parties were close to agreement on substantially all substantive
issues. Bear Stearns then reviewed with the Company its analysis of the
proposed transaction and delivered to the Board its oral opinion, which was
subsequently confirmed in writing to the effect, that, as of the date of the
opinion and based upon and subject to certain qualifications and assumptions
described in its subsequent written opinion, the Contribution was fair, from a
financial point of view, to the Company (See "Opinion of Financial Advisor to
the Trust"). The Board also discussed the status of binding commitments which
had been received by RDC to date regarding the $100.0 million cash investment
as well as all other issues which continued to be the subject of negotiation
between the parties. At the meeting, the Board concluded to defer any decision
regarding the transaction with RDC until each of the Board members had an
opportunity to review in detail the materials presented to the Board by Bear
Stearns regarding its analysis of the proposed transaction. The Board agreed to
convene a meeting by conference telephone during the afternoon of April 14th at
which the trustees would have an opportunity to discuss with Bear Stearns any
questions or comments regarding the materials presented and to discuss the
final outcome of open issues. The Board also instructed counsel to continue
negotiations and finalization of the Contribution Agreement.
During the afternoon of April 14, 1998, the Board convened a meeting by
telephone conference to consider authorizing the execution of the Contribution
Agreement. Among other issues discussed by the Board was its determination that
RDC be required to deliver to the Company binding commitments for the $100.0
million cash investment within thirty days from the execution of the
Contribution Agreement, the failure of which would give rise to the Trust's
right to terminate the agreement and to recover its out-of-pocket expenses from
RDC. The Board instructed counsel to continue negotiations concerning this
issue, and agreed to reconvene the Board meeting that evening to discuss the
status of negotiations and again to consider approval of the Contribution
Agreement.
That evening, the Board of Trustees reconvened its earlier meeting by
telephone conference. Counsel for the Company advised the Board of Trustees
that RDC had agreed to the Board's demand regarding the timing of receipt of
binding commitments for the $100.0 million cash investment. After further
discussion with counsel regarding the final terms of the Contribution
Agreement, the Board unanimously approved the Transaction, concluding that the
Transaction was fair to and in the best interests of the Trust's shareholders,
authorized management of the Company to execute the Contribution Agreement, and
recommended that the Trust's shareholders adopt the Contribution Agreement and
approve the Transaction. On April 16, 1998, the Company issued a press release
to the effect that the definitive agreement had been executed.
Reasons for the Transaction; Recommendation of the Board of Trustees
The Board of Trustees believes that the Transaction is fair to, and in the
best interests of, the Trust and its shareholders. Accordingly, the Board of
Trustees has unanimously approved the Transaction and recommends that the
Trust's shareholders vote FOR approval and adoption of the Transaction. In
reaching its determination, the Board of Trustees consulted with its
management, its financial advisor, legal counsel and accountants, and
considered a variety of factors, including, but not limited to, the following:
1. Although the Board determined that the Company's available cash from
operations is sufficient to enable the Company to meet all debt service
payments, recurring capital improvements and its obligations to make
distributions required to maintain its status as a REIT, the Board of Trustees
concluded that, if the Transaction were not consummated, and in the absence of
additional external capital, the Company would have to suspend the payment of
its dividend to preserve its cash to complete tenant improvements necessary to
install
28
<PAGE>
new tenants currently under signed leases to generate additional cash flow and
increase funds from operations. Even if the dividend were suspended, however,
further development and expansion opportunities would be severely curtailed.
All or substantially all of the Company's properties are already encumbered by
mortgage indebtedness and there could be no assurance that additional external
financing could be obtained on commercially reasonable terms. Furthermore, the
Company had been unsuccessful in identifying any other strategic transaction or
other potential private equity on terms acceptable to the Board. Consequently,
the Board of Trustees concluded that the increase in the size and diversity of
the Company's portfolio of properties resulting from the Transaction, in
combination with the deleveraging of a substantial portion of its portfolio
from a portion of the proceeds of the equity investment, could be expected to
significantly improve the Trust's access to equity capital and debt financing,
thereby providing resources to permit the Company not only to meet its current
and anticipated capital requirements, including, but not limited to tenant
improvement and development obligations, but also to support continued
development and expansion of the Company's portfolio, including through
acquisition opportunities.
2. The Board considered that the increase in the size and diversity of the
Company's portfolio resulting from the Transaction, in combination with the
de-leveraging of the Company's balance sheet through the repayment of RDC's
debt and the Company's debt with the Cash Investment, could significantly
improve the Trust's access to financing on more financially attractive terms.
The Board believed that this improved access to financing would not only allow
the Company to improve the performance of certain of its properties through
expansion, renovation and re-tenanting, but also support external growth
through acquisitions and selective development.
3. The Board considered that the combination of the RDC Properties with
the properties currently owned by the Company will not only increase and
diversify the mix of retail tenants, but will also improve and strengthen the
quality of existing tenant relationships. It is expected that, as a result of
the Transaction, the Trust will be better able to manage the risks associated
with tenant delinquencies due to bankruptcy and other conditions which have
historically impacted tenants' ability to meet their leasing obligations. The
Board also considered that the Transaction will expand the diversity and
geographic location of its portfolio, making it less susceptible to regional
economic conditions and other factors which could adversely affect its ability
to attract and retain high quality tenants at market rents.
4. The Board also considered that the Transaction is expected to
significantly increase the market capitalization of the Company and generate
renewed interest in the Company among the financing community.
The Board believed that these factors would also increase the likelihood of
success in raising debt and equity capital.
5. The Board also considered the fact that Bear Stearns had been engaged
by the Company since December 1996 to identify potential candidates interested
in pursuing a strategic transaction with the Company and, to date, there had
been only limited interest from public and private shopping center owners and
equity investors in pursuing a transaction with the Company. Further, the Board
believed that the Transaction represented the only proposal to be of strategic
value to the Company and its shareholders on acceptable terms.
6. The Board also considered the demonstrable success of RDC's management
in the acquisition, development and management of the RDC Properties, and
believes that such management will provide tangible future benefits to the
Company.
7. The Board also considered the opinion of Bear Stearns, delivered orally
on April 13, 1998 and confirmed by means of its written opinion dated as of
such date, to the effect that, as of that date and based upon and subject to
certain qualifications and assumptions stated therein, the Contribution was
fair from a financial point of view to the Trust (See "Opinion of Financial
Advisor to the Trust").
The Board of Trustees also considered certain potentially negative factors
which could arise from the Transaction, including, but not limited to: (i) the
significant costs involved in connection with consummating the Transaction and
the substantial management time and effort required to effectuate the
Transaction and to integrate the businesses of the Trust and RDC and its
affiliates; and (ii) the substantial influence to be exercised by RDC and its
affiliates through its control of the executive management of the Trust and by
its serving as two of the seven trustees on the Board of Trustees, and through
the concentration of ownership of the Common Shares by the RDC Funds and, upon
the conversion or exchange of Units, by other RDC affiliates. The Board also
considered that, at the time the Board approved the Transaction, the market
price for the Common Shares exceeded
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<PAGE>
the price at which the Units and Common Shares to be issued in the Transaction
were valued. As to this factor, the Board considered the likely impact on the
market price for its Common Shares of its report on the fourth quarter and
fiscal year 1997 net income and funds from operations, in part due to tenant
bankruptcies and delays in the installation of tenants with signed leases, and
on its conclusion that, in the absence of the Transaction, it would have
suspended the dividend for the foreseeable future to preserve its cash to fund
operations and capital improvements. Finally, the Board of Trustees also
considered that the anticipated benefits to be derived from the Transaction
might not be fully realized. The Board of Trustees did not believe that the
negative factors were sufficient, either individually or collectively, to
outweigh the perceived advantages of the Transaction. Further, in view of the
variety of factors considered by the Board of Trustees in connection with its
evaluation of the Transaction, the Board of Trustees did not find it
practicable to, and did not quantify or otherwise assign relative weights, to
the specific factors considered in reaching its conclusion.
As a result of the foregoing, the Board of Trustees believes that the
Transaction is fair to and in the best interests of the Trust and its
shareholders and has approved the Transaction, and recommends that the
Transaction be approved and adopted by the shareholders at the Meeting. All of
the Trustees of the Trust have indicated their intention to vote the Common
Shares owned by them in favor of the Transaction at the Meeting. At July 8,
1998, the Trustees and executive officers of the Trust owned 1,108,698 Common
Shares entitled to vote at the Meeting, representing approximately 11.85% of
the Common Shares issued and outstanding on the record date and entitled to
vote at the Meeting.
Opinion of Financial Advisor to the Trust
The Trust retained Bear Stearns to act as its financial advisor and to
render its opinion as to whether the Contribution is fair, from a financial
point of view, to the Trust. Bear Stearns is an internationally recognized
investment banking firm and is continually engaged in the valuation of
businesses and their securities and in rendering opinions in connection with
mergers, acquisitions, corporate transactions and other purposes. The Trust
retained Bear Stearns based on its qualifications, expertise and reputation in
providing advice to companies with respect to similar transactions.
Bear Stearns has delivered its opinion dated April 13, 1998 to the effect
that, based upon and subject to certain qualifications and assumptions set
forth in such opinion, as of the date of such opinion, the Contribution was
fair, from a financial point of view, to the Trust. The summary of Bear
Stearns' opinion set forth in this Proxy Statement is qualified in its entirety
by reference to the full text of such opinion, which is attached as Annex II to
this Proxy Statement. The Trust's shareholders are urged to, and should, read
such opinion carefully in its entirety in connection with this Proxy Statement
for assumptions made, matters considered and limits of the review by Bear
Stearns.
In rendering its opinion, Bear Stearns did not opine as to any other
transactions or contractual arrangements to be entered into or payments to be
made by or to the Trust or any other person concurrently with the Transaction.
Bear Stearns' opinion was directed to the Board of Trustees of the Trust and
addresses solely the fairness, from a financial point of view, of the
Contribution to the Trust and does not address the Trust's underlying business
decision to effect the Transaction and is not a recommendation to the Trust's
shareholders as to whether to approve or vote for the Transaction. Although
Bear Stearns evaluated the fairness of the Contribution to the Trust, the
Transaction itself was determined by the Trust and RDC through arm's length
negotiations. The Trust did not provide specific instructions to, or place any
limitations upon, Bear Stearns with respect to the procedures to be followed or
factors to be considered by Bear Stearns in performing its analyses or
rendering its opinion. Bear Stearns does not intend to update its opinion based
on information since the date of its opinion.
In arriving at its opinion, Bear Stearns: (i) reviewed the Contribution
Agreement; (ii) reviewed the Trust's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the fiscal years ended December 31, 1994 through 1996,
and its Quarterly Reports on Form 10-Q for the periods ended March 31, 1997,
June 30, 1997 and September 30, 1997 and a draft of its Annual Report on Form
10-K for the year ended December 31, 1997; (iii) met with certain members of
the Trust's senior management to discuss the operations, historical financial
statements and future prospects of the Trust and their view of the business,
operational and strategic benefits, cost savings, potential synergies and other
implications of the Contribution; (iv) met with certain members of the RDC's
senior management to discuss the operations, historical financial statements
and future prospects of RDC and their view of the business, operational and
strategic benefits, cost savings, potential synergies and other
30
<PAGE>
implications of the Contribution; (v) reviewed historical stock prices and
trading activity of the Trust's Common Shares; (vi) reviewed publicly available
financial data and stock market performance data of companies that Bear Stearns
deemed generally comparable to the Trust and RDC; (vii) reviewed the terms, to
the extent available, of recent transactions that Bear Stearns deemed generally
comparable to the Contribution or otherwise relevant to their inquiry; (viii)
reviewed the Limited Appraisal Restricted Appraisal Report prepared by CB
Commercial dated April 1, 1998 concerning the Company's properties; and (ix)
considered such other information and conducted such other studies, analyses,
inquiries and investigations as Bear Stearns deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to it by the Trust and RDC. With respect to the
projected financial results of the Trust and RDC (including projected
divestitures, cost savings and synergies resulting from, and contemplated tax
and accounting effects of, the Contribution and related transactions), Bear
Stearns assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of the Trust and RDC as to the expected future performance of the Trust and
RDC. Bear Stearns was informed that, in light of the Trust's current cash
position, the Board of Trustees intended to suspend dividend distributions to
shareholders for the foreseeable future, if the Transaction was not to be
consummated. Bear Stearns does not assume any responsibility for the
information provided to it and has relied upon the assurances of the Trust and
RDC's management that they are unaware of any facts that would make the
information provided to Bear Stearns incomplete or misleading. Bear Stearns has
also assumed with the consent the Trust and RDC that the Contribution will be
consummated in accordance with the terms described in the Contribution
Agreement. In arriving at its opinion, Bear Stearns did not perform any
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Trust or RDC. With respect to the value of RDC's properties,
Bear Stearns relied on the estimates and analysis of the Trust's management.
In rendering its opinion, Bear Stearns considered: (i) the Trust's recent
financial performance, current financial condition and future prospects; (ii)
the Trust's prospects for raising debt and/or equity in the public and private
markets; and (iii) various terms and conditions of the Transaction relating to
the Contribution, including that the Contribution is subject to a vote of the
Trust's shareholders and that the no solicitation and termination provisions of
the Contribution Agreement provide the Board of Trustees with the flexibility
to exercise its fiduciary duty to pursue certain alternative transactions in
lieu of the Transaction.
The following is a summary of the principal financial and valuation
analyses that were performed by Bear Stearns to arrive at its opinion. Based on
these financial and valuation analyses and the other factors discussed herein,
Bear Stearns determined that, as of the date of its opinion, the Contribution
is fair, from a financial point of view, to the Trust. In arriving at its
opinion, Bear Stearns did not attribute any particular weight to any analysis
or factor considered by it, but rather made a single judgment as to fairness
based on its experience and professional judgment and the analyses as a whole.
Review of Trust's Financial and Operating Performance. Bear Stearns
reviewed the historical and financial performance of the Trust for the fiscal
years ended December 31, 1995, 1996 and 1997. This review considered the
Trust's revenues, earnings before interest expense, taxes, depreciation and
amortization ("EBITDA"), net income, funds from operations ("FFO") and cash
available for distribution ("CAD"). Bear Stearns noted that the Trust's
revenues were $43.3 million in 1995, $43.8 million in 1996 and $44.5 million in
1997; EBITDA was $27.0 million in 1995, $25.5 million in 1996 and $27.4 million
in 1997; net income was $3.8 million in 1995, ($.7) million in 1996 and ($1.6)
million in 1997; FFO was $15.3 million or $1.50 per share in 1995, $12.4
million or $1.22 per share in 1996 and $10.8 million or $1.06 per share in
1997; and CAD was $13.2 million or $1.30 per share in 1995, $10.3 or $1.01 per
share in 1996 and $6.2 million or $.61 per share in 1997.
Review of Limited Appraisal Restricted Appraisal Report. Bear Stearns
reviewed the Limited Appraisal Restricted Appraisal Report dated April 1, 1998,
prepared by CB Commercial Real Estate Group, Inc. Appraisal Services ("CB
Commercial") of the Trust's properties. Bear Stearns noted that CB Commercial
appraised each property in the Trust's portfolio utilizing the discounted cash
flow methodology. Bear Stearns also noted that the total appraised value of the
Trust's properties was $270 million. From the value determined by CB
Commercial, Bear Stearns subtracted (i) the Trust's outstanding indebtedness at
March 31, 1998; (ii) estimated costs the Trust could reasonably be expected to
incur in connection with the assumption/prepayment of its above market debt;
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and (iii) estimated transaction costs the Trust could reasonably be expected to
incur if it were to sell its properties in order to derive the net equity value
of the Trust's properties. Based on these calculations, the net equity value of
the Trust's properties as of April 1, 1998 was $73 million or $7.18 per share.
Bear Stearns observed that the net equity value per share as calculated was
below the current trading value of the Trust's common shares of $8.75 on April
9, 1998, the last trading day before Bear Stearns delivered its opinion. Bear
Stearns also observed that the net equity value per share as calculated was
below the $7.50 per share price used to determine the number of Units and
Common Shares to be issued in the Contribution.
Analysis of Selected Comparable Transactions. Bear Stearns reviewed and
analyzed the publicly available financial terms of nine transactions, four
involving public shopping center REITs acquiring private shopping center
companies/portfolios and five involving public multifamily REITs acquiring
private multifamily companies/portfolios. The shopping center transactions
consisted of (acquiror / target): Burnham Pacific Properties/Golden State
Properties; Ramco-Gershenson Properties Trust/15 shopping centers; Mid-Atlantic
Realty Trust/Pector Group; and Regency Realty Corporation/ Branch Properties.
The multifamily transactions consisted of Berkshire Realty/Questar Cos.;
Apartment and Investment Management Company/Winthrop Financial Associates;
Mid-America Apartments/Flournoy Development Co.; Equity Residential Properties
Trust/Capital Apartment Properties, Inc.; and Walden Residential
Properties/Drever Partners. Bear Stearns considered the implied net operating
income capitalization rate of each of these transactions. Bear Stearns noted
that the range of capitalization rates was 9.0% to 9.6% for the shopping center
transactions and 8.3% to 9.8% for the multifamily transactions. Bear Stearns
observed that the implied net operating income capitalization rates, based on
the number of Units and Common Shares to be issued in the Contribution, were
9.6% and 9.5% for RDC's shopping center and multifamily properties,
respectively.
Has / Gets Analysis. Bear Stearns compared the FFO, CAD and net book value
represented by a share of the Trust on a standalone basis (e.g., what a Trust
shareholder "Has") to the FFO, CAD and net book value represented by a share of
the Trust as a result of the Contribution (e.g., what a Trust shareholder
"Gets") based on management's internal projections. Bear Stearns noted that on
a Has basis in 1998, each Trust share represents FFO of $1.02 and CAD of $.53
compared to FFO of $.77 and CAD of $.55 on a Gets basis. Bear Stearns noted
that on a Has basis, each Trust share represents net book value at December 31,
1997 of $4.80 on a fully diluted basis compared to $6.38 on a Gets basis.
Relative Contribution Analysis. Bear Stearns compared the contribution of
the Trust and RDC to the Trust/RDC combined in terms of 1998, 1999 and 2000
management estimates of revenues, EBITDA, FFO and CAD. Bear Stearns noted that
based on these projections, the Trust's contribution to revenues was 55% in
1998, 54% in 1999 and 53% in 2000 compared to RDC's contribution of 45% in
1998, 46% in 1999 and 47% in 2000. The Trust's contribution to EBITDA was 54%
in 1998, 52% in 1999 and 51% in 2000 compared to RDC's contribution of 46% in
1998, 48% in 1999 and 49% in 2000. The Trust's contribution to FFO was 52% in
1998, 46% in 1999 and 44% in 2000 compared to RDC's contribution of 48% in
1998, 54% in 1999 and 56% in 2000. The Trust's contribution to CAD was 45% in
1998, 37% in 1999 and 35% in 2000 compared to RDC's contribution of 55% in
1998, 63% in 1999 and 65% in 2000. Bear Stearns observed that pro forma for the
Contribution, RDC would own approximately 52.7% of the fully diluted Common
Shares of the Trust before the $100 million cash investment and approximately
70.8% taking into account Common Shares issued in consideration for the $100
million cash investment.
Pro Forma Accretion/Dilution Analysis. Bear Stearns analyzed certain pro
forma effects resulting from the Contribution, including among other things,
the impact of the Contribution on the Trust's projected FFO per share and CAD
per share for the fiscal years ended 1998, 1999 and 2000 based on management's
internal estimates. The impact of the Contribution on FFO per share and CAD per
share was analyzed both before and after contribution of the $100 million cash
investment. The results of the pro forma accretion/dilution analysis before the
cash investment suggested that the Contribution would be dilutive to FFO in
1998 and accretive in 1999 and 2000. With respect to CAD, the pro forma
accretion/dilution analysis suggested that the Contribution would be accretive
in 1998, 1999 and 2000. The results of the pro forma accretion/dilution
analysis after the cash investment suggested that the Contribution would be
dilutive to FFO in 1998, 1999 and 2000. With respect to CAD, the pro forma
accretion/dilution analysis suggested that the Contribution would be accretive
in 1998, 1999 and 2000. The actual results achieved by the combined company may
vary from projected results and such variations may be material.
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Bear Stearns also analyzed the effect of the Contribution on the equity
market capitalization, total market capitalization and credit statistics of the
Trust. In this regard, Bear Stearns noted that the Contribution would create a
significant increase in the Trust's equity and total market capitalization.
Bear Stearns further observed that the Trust's credit statistics improved as
measured by the ratios of EBITDA to interest and debt to EBITDA.
The foregoing summary does not purport to be a complete description of the
analyses performed and factors considered by Bear Stearns in arriving at its
opinion, although it includes the material factors considered by Bear Stearns.
The preparation of a fairness opinion is a complex process and is not
susceptible to partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth above, without considering the
analysis as a whole, could create an incomplete view of the processes
underlying Bear Stearns' opinion. In arriving at its opinion, Bear Stearns
considered the results of all such reviews, calculations and analyses. No
company or transaction used in the analyses described above as a comparison is
identical to the Trust or the proposed transaction. Accordingly, an analysis of
the results of the foregoing is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading or private market values of the company or companies to which they are
being compared.
The analyses were prepared solely for purposes of providing Bear Stearns'
opinion as to the fairness, from a financial point of view, of the Contribution
to the Trust and does not purport to be appraisals or necessarily reflect the
prices at which businesses or securities might actually be sold to other
parties. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based on numerous factors or events beyond the
control of the parties or their respective advisors, neither the Trust, RDC,
Bear Stearns or any other person assumes responsibility if future results are
materially different from those forecast. The Bear Stearns opinion is
necessarily based on economic, market and other conditions, and the information
made available to Bear Stearns, as they existed and could be evaluated on the
date of the opinion. Bear Stearns' opinion does not imply any conclusion as to
the likely trading range for the Trust's securities either prior to or
following the consummation of the Transaction, which may vary depending upon,
among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities.
In the ordinary course of business, Bear Stearns may actively trade the
securities of the Trust, for its own account and for the account of customers
and, accordingly, may at any time hold a long or short position in such
securities.
Pursuant to a letter agreement dated December 13, 1996 between the Trust
and Bear Stearns, as amended by a letter agreement dated April 13, 1998, the
Trust agreed to pay Bear Stearns (i) an initial retainer of $150,000, (ii) an
additional fee of $300,000, of which one half was payable at the time Bear
Stearns rendered its written opinion and the balance of which became payable
upon mailing of this Proxy Statement and (iii) a success fee of $2.55 million
upon consummation of the Transaction. The Trust has agreed to reimburse Bear
Stearns for its out-of-pocket expenses up to $35,000. In addition, the Trust
has agreed to indemnify Bear Stearns and certain related persons against
certain liabilities in connection with the engagement of Bear Stearns,
including certain liabilities under the federal securities laws.
THE CONTRIBUTION AGREEMENT AND RELATED MATTERS
The following summary of the Contribution Agreement does not purport to be
complete and is qualified in its entirety by reference to the Contribution
Agreement, a copy of which is attached as Annex "I" to this Proxy Statement and
incorporated herein by reference. Shareholders of the Trust are urged to read
the Contribution Agreement in its entirety.
Principal Features of the Transaction; Effects of the Transaction
The Transaction will involve a number of related transactions that are
expected to occur simultaneously following approval of the Transaction and the
Contribution Agreement by the Trust's shareholders and the satisfaction or
waiver of the other conditions to the Transaction as set forth in the
Contribution Agreement.
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Contribution of RDC Properties; Third Party Management Contracts and
Contributed Notes. The Operating Partnership, either directly or through one or
more of its subsidiaries, will acquire 19 RDC Properties, consisting of 13
retail shopping centers, five multi-dwelling residential properties and one
redevelopment property, either through the acquisition of all or substantially
all of the ownership interests of the RDC Property Partnerships, or through the
conveyance by the RDC Property Partnerships of fee title or the ground
leasehold interest to such properties. As to six of the RDC Properties to be
acquired in the Transaction, less than 100% of the ownership interests therein
will be contributed to the Company. As to all of the RDC Properties, the
Company will constitute the general partner or managing member but, as to two
of such RDC Properties, it will only own a minority interest therein (although
in the case of one of these properties, the Company will be granted a proxy to
vote an additional 1.0% of the interests, bringing its effective ownership
interest up to 50%). As to one of the RDC Properties in which the Company will
own less than a 100% interest, RD Abington Associates Limited Partnership, the
Company will acquire an 89% capital interest and a 99% profit interest in the
limited partnership and, 37 months following the Closing Date, will acquire the
remaining capital interest and profit interest in such limited partnership.
Finally, the Operating Partnership will be assigned management contracts
pursuant to which two RDC affiliates currently provide third party property
management services, and will be assigned two notes held by another RDC
affiliate and another note held by an unaffiliated third party which provide
for the receipt of substantially all of the cash flow from one of the RDC
Properties being acquired at Closing (and which notes will be cancelled upon
Closing). In consideration of the RDC Properties to be acquired by the
Operating Partnership as well as the rights in and to the RDC Management
Contracts and Contributed Notes, the Trust will issue an aggregate of
approximately 1.8 million Common Shares, valued on the basis of the average per
share market price for the 20 consecutive trading days ending on the Closing
Date, the Operating Partnership will issue an aggregate of 11,100,000 Units,
each of which is exchangeable, on a one-for-one basis, for Common Shares and
valued at a price of $7.50 per Unit, and the Operating Partnership will assume
approximately $177.2 million of mortgage and related indebtedness encumbering
the RDC Properties (including mortgage indebtedness which, pursuant to the
Contribution Agreement, may be incurred by the RDC Property Partnerships
between the date of the Contribution Agreement and the Closing Date), of which
approximately $61.5 million is to be repaid at the Closing.
In addition to the foregoing Units, the Operating Partnership is also
obligated to issue additional Units upon completion of certain improvements and
the commencement of rental payments from a designated tenant at one of the RDC
Properties to be acquired at Closing. The number of additional Units to be
issued upon satisfaction of such conditions will be valued in the aggregate at
$2.75 million, and issued on the basis of the average market price for the
Common Shares for the 20 consecutive trading days ending on the date the
additional Units are issued. For information concerning the RDC Properties to
be acquired in the Transaction, reference is made to the information set forth
in this Proxy Statement under the caption "Certain Information Concerning RD
Capital, Inc. -- The RD Capital Properties."
Development Property Acquisition. The Operating Partnership will also be
obligated to acquire from an RDC affiliate, and such affiliate will be
obligated to contribute to the Operating Partnership, its 25% limited
partnership interest in each of two limited partnerships which own the
respective fee interest and leasehold interest in a shopping center currently
under construction (the "Development Property"), which obligation will arise
only upon completion of construction and improvements, the attainment of
certain tenant occupancy levels and receipt of consents by the general partners
of such limited partnerships to the transfer of such minority interests;
provided, however, that the Operating Partnership's obligation to acquire, and
the RDC affiliate's obligation to contribute, such interests shall terminate on
January 1, 2000 if the conditions are not then met. In consideration for such
ownership interests, the Operating Partnership will be obligated to issue
additional Units valued in the aggregate at $5.5 million, and issued on the
basis of the average market price for the Common Shares for the 20 consecutive
trading days ending on the date the additional Units are issued. The purchase
price for the Development Property is subject to adjustment depending upon any
increase or decrease in the amount of mortgage indebtedness encumbering the
Development Property on the date the interests therein are contributed to the
Operating Partnership compared to the amount of mortgage indebtedness
encumbering the Development Property on the date of the Contribution Agreement.
Cash Investment. In consideration for the payment of $100,000,000 in cash,
the Trust will issue and deliver to the RDC Funds an aggregate of 13,333,333
newly issued Common Shares, representing a purchase price of
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$7.50 per share. Of the proceeds to be received for the Common Shares, it is
currently expected that approximately $60.2 million will be used to discharge
mortgage indebtedness encumbering the RDC Properties to be contributed in the
Transaction and $25.5 million will be used to discharge mortgage and other
indebtedness relating to properties currently owned by the Trust. See "Mortgage
Debt Following the Transaction." The balance of the net proceeds from the Cash
Investment will be used by the Company for working capital, for reserves for
deferred maintenance costs and for various transaction costs and expenses.
Changes in Management; Change in Board of Trustees. Concurrently upon the
Closing, the Trust will appoint Ross Dworman and Kenneth Bernstein, the
President and Chief Executive Officer and Chief Operating Officer,
respectively, of RDC, as the Chairman and Chief Executive Officer and the
President, respectively, of the Trust. Messrs. Dworman and Bernstein, together
with Martin L. Edelman and Gregory White, two independent trustee designees of
RDC, will be appointed to the Board of Trustees, and all of the incumbent
trustees other than Marvin Slomowitz, the Trust's current Chairman and Chief
Executive Officer, and Messrs. Lawrence Longua and Marvin Levine will resign.
Representations and Warranties
The Contribution Agreement contains various customary representations and
warranties relating to the parties to the Contribution Agreement (including the
RDC Property Partnerships as well as the owners of the ownership interests in
such entities) as well as pertaining to the RDC Properties and interests
therein to be contributed to the Company at Closing. These representations and
warranties include, among other things: (i) the respective organization,
formation, corporate or similar structure and ownership, and other corporate
and partnership matters; (ii) the due authorization, execution, delivery,
performance and enforceability of the Contribution Agreement and related
matters; (iii) absence of conflicts in connection with the Transaction and the
Contribution Agreement arising under the charters and constituent documents, as
well as required consents and approvals from third parties; (iv)
representations pertaining to title and condition of the RDC Properties,
including, representations concerning title, environmental condition,
engineering, easements and similar rights of way and restrictions; (v)
representations and warranties concerning tenants, leases, management contracts
and other agreements and instruments; (vi) representations concerning absence
of liabilities and absence of any litigation which could adversely affect the
combined business or the acquired assets; (vii) compliance with applicable
licenses, regulations, rules and other orders; (viii) absence of certain
material adverse events, changes or effects; (ix) representations relating to
insurance, taxes, labor relations, and employment rules and regulations; and
(x) representations and warranties pertaining to audited and unaudited
financial statements and financial information and, as to the Trust, reports
and other documents filed with the Commission and other regulatory agencies.
Conditions of the Transaction; Termination; Waiver and Amendment
In addition to approval of the Transaction by the shareholders of the
Trust, the obligations of the Trust and the Operating Partnership to consummate
the Transaction are subject to the satisfaction or waiver of certain other
conditions, including, among others: (i) that all representations and
warranties of RDC and its affiliates as well as of the RDC Funds shall be true
in all material respects as of the Closing Date; (ii) that RDC, its affiliates
and the RDC Funds shall have performed all of their respective covenants and
obligations required to be performed by RDC, its affiliates and the RDC Funds
at or prior to Closing; (iii) that the title company selected by the parties
shall be unconditionally committed to issue the title insurance policies on
terms consistent with marked-up commitments in the form agreed upon by the
Trust and the Partnership; (iv) the receipt by the Partnership of tenant
estoppel certificates from a certain percentage of those tenants designated as
major tenants of the RDC Properties; (v) the receipt of binding commitments of
the partners of the RDC Funds to make the Cash Investment; (vi) the execution
and delivery by RDC and its affiliates and by the RDC Funds of certain
agreements and instruments, including, but not limited to, the Registration
Rights and Lock Up Agreement and the Non-Compete Agreements; and (vii) the
absence of any preliminary or permanent injunction which would prevent
consummation of the Transaction.
The obligations of RDC and its affiliates and of the RDC Funds to
consummate the Transaction are conditioned on the satisfaction or waiver of
certain other conditions, including, among others: (i) that all representations
and warranties of the Partnership and the Trust shall be true in all material
respects as of the Closing Date; (ii) that the Partnership and Trust shall have
performed all of their respective covenants and obligations required
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to be performed by the Trust and the Partnership at or prior to Closing; (iii)
that the Transaction shall have been approved by the Trust's shareholders; (iv)
that the Board of Trustees shall have taken all action necessary to authorize
an exemption from the excess share limitations provided in the Declaration of
Trust concerning the issuance of the Cash Investment Shares and the Units to be
issued in the Transaction; (v) the receipt by RDC of tenant estoppel
certificates from a certain percentage of those tenants designated as major
tenants of the properties within the Trust's portfolio; (vi) that the Trust
shall not have revoked its election to be taxed as a REIT and shall be in
material compliance with all applicable REIT rules and regulations; and (viii)
the execution and delivery by the Trust and the Partnership of certain
agreements and instruments.
The Contribution Agreement may be terminated and the Transaction abandoned
prior to the Closing Date, whether before or after approval by the Trust's
shareholders have been obtained: (i) by mutual written consent of the Trust and
RDC, acting on behalf of all of the RDC affiliates; (ii) by the Board of
Trustees or by RDC, on behalf of all of its affiliates, if a court or
governmental regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Transaction; (iii) by either the Company
or by RDC, on behalf of all of its affiliates, if the Closing Date shall not
have occurred on or before October 30, 1998, unless the absence of such
occurrence shall be due to the failure of the party seeking to terminate the
Contribution Agreement to perform in all material respects each of its
obligations required to be performed by it on or prior to the Closing Date;
(iv) by either the Company or RDC, on behalf of all of its affiliates, if the
Trust's shareholders do not approve the Transaction; (v) by the Company, if RDC
and its affiliates or the RDC Funds fail to perform in all material respects
their obligations under the Contribution Agreement; (vi) by RDC, on behalf of
all of its affiliates, if the Company fails to perform in all material respects
its obligations under the Contribution Agreement; (vii) by the Company if there
shall have occurred an "RDC Material Adverse Effect," (defined generally as a
change in the business, assets, properties, results of operations or financial
condition or prospects of RDC and its affiliates as a result of which there is
a reduction by more than 10% of the aggregate net operating income from all of
the RDC Properties to be contributed in the Transaction, determined on the
basis of aggregate net operating income for the twelve months as of December
31, 1997); (viii) by RDC, on behalf of all of its affiliates, if there shall
have occurred a "Trust Material Adverse Effect" (defined generally as a change
in the business, assets, properties, results of operations, financial condition
or prospects of the Trust's portfolio as a result of which there is a reduction
by more than 20% of the funds from operations from the Trust's properties,
determined on the basis of funds from operations for the twelve months ended
December 31, 1997); and (ix) by the Trust or by RDC, on behalf of its
affiliates, if the Company consummates a transaction constituting a "Superior
Proposal." See "No Solicitation; Board Action; Termination Payment."
In the event of a termination of the Contribution Agreement, neither of
the parties will be liable to the other as a result of the termination;
provided, that the termination of the Contribution Agreement will not relieve
any party from any liability for any willful breach or willful default of any
provision of the Contribution Agreement giving rise to the termination. In
addition, in the event the Agreement is terminated as a result of shareholder
approval not being obtained, or by RDC, on behalf of all of its affiliates, as
a result of a failure on the part of the Trust and the Operating Partnership to
perform in all material respects their obligations under the Contribution
Agreement, the Operating Partnership and the Trust will be jointly and
severally liable to pay to RDC, on behalf of all of its affiliates, all
out-of-pocket expenses, costs, and fees incurred in connection with the
Contribution Agreement and the fulfillment of their obligations in the
transactions contemplated thereunder, but in no event shall such payment exceed
$1.25 million. Similarly, in the event the Trust were to terminate the
Contribution Agreement as a result of the failure on the part of RDC, its
affiliates, or the RDC Funds to perform in all material respects their
obligations under the Contribution Agreement, each of the foregoing would be
jointly and severally liable to the Operating Partnership and the Trust for its
out-of-pocket costs, expenses and fees incurred, but in no event would such
payment exceed $1.25 million.
No change, amendment, modification or waiver of the Contribution Agreement
is permitted in the absence of a writing signed by the parties to the
Contribution Agreement who would be affected by such amendment, modification or
waiver.
No Solicitation; Board Action; Termination Payment
The Contribution Agreement provides that the Trust will not, directly or
indirectly, solicit or encourage (including, by way of furnishing information)
the initiation of any inquiries or proposals regarding any merger,
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amalgamation, take-over bid, reorganization, sale of substantial assets, sale
of Common Shares or Units (including, but not limited to, a tender offer) or a
similar transaction involving the Trust or the Operating Partnership (all of
which are defined in the Contribution Agreement as an "Acquisition Proposal").
Notwithstanding the foregoing, however, if, after consultation with its
financial advisors, and after receiving advice from its outside counsel to the
effect that the Board of Trustees of the Trust is required to do so in order to
discharge properly its fiduciary duties, the Board may consider, negotiate,
approve and recommend to the shareholders and to the limited partners of the
Partnership an unsolicited bona fide Acquisition Proposal which the Board of
Trustees determines in good faith would result in a transaction more favorable
to the shareholders of the Trust and to the limited partners of the Operating
Partnership than the Transaction (such transaction being a "Superior
Proposal").
The Trust is required to immediately notify RDC after its receipt of any
Acquisition Proposal or any request for non-public information relating to the
Trust, the Operating Partnership or any of their respective subsidiaries in
connection with an Acquisition Proposal or for access to the properties, books
or records of any of the foregoing by any person or entity that informs the
Board of Trustees that it is considering making, or has made, an Acquisition
Proposal. If the Board of Trustees receives a request for material non-public
information by a party who makes a bona fide Acquisition Proposal, then, and
only in such case, the Trust may, subject to the execution of a confidentiality
agreement, provide such party with access to information regarding the Trust.
If the Board of Trustees determines, in accordance with its fiduciary
obligations, to execute an agreement constituting a Superior Proposal, either
prior to Closing or within twelve months after the termination of the
Contribution Agreement by the Trust other than due to a default by RDC, its
affiliates or the RDC Funds, or due to a failure by any of the foregoing to
perform their obligations under the Contribution Agreement, then, upon the
execution of a definitive binding agreement between the Trust and the third
party providing for the Superior Proposal and containing the affirmative
recommendation of the Board of Trustees as to the Superior Proposal, and
provided that RDC and its affiliates shall have not theretofore otherwise
breached or failed to perform its obligations under the Contribution Agreement
which would permit the Trust to terminate the Contribution Agreement, the Trust
will be obligated to pay to RDC an amount equal to $1.75 million in liquidated
damages in addition to RDC's out-of-pocket costs and expenses, but not in
excess of $1.25 million.
Conduct of the Business of the Company and RDC Pending the Closing
Covenants of the Company. The Contribution Agreement provides that, except
as otherwise expressly permitted or contemplated by the Contribution Agreement
or as otherwise consented to by RDC on behalf of its affiliates, during the
period between the date of the Contribution Agreement and the Closing Date, the
Company: (i) will not take or suffer or permit any action which would render
untrue any of its representations or warranties, or omit to take any action,
the omission of which would render untrue any of its representations or
warranties; (ii) will, at its expense, make all repairs and replacements which
are required with respect to any portion of its properties to maintain the
properties in their present condition, ordinary wear and tear accepted; (iii)
will operate and manage the Company's portfolio in the same manner as it had
been operated and managed prior to the date of the Contribution Agreement and
in accordance with all Applicable Laws; (iv) will comply with all of its
obligations under Company leases, mortgages, service agreements and other
agreements and contractual arrangements by which the Company or any of its
properties is bound to affected, (without limiting the foregoing, the Operating
Partnership will not enter into any new service agreement without first
obtaining the prior consent of RDC unless the agreement is entered into in the
ordinary course of business and provides that the Operating Partnership may
terminate the agreement upon 30 days notice without the payment of a penalty or
termination payment); (v) will not encumber any of its properties with any
indebtedness; (vi) will not declare, set aside or pay any cash dividends or
make any cash distributions to shareholders or partners on account of their
Common Shares or Units other than those required to permit the Trust to
maintain its status as a REIT; and (vii) will seek the approval from RDC in
connection with any new proposed lease to be entered into for more than 10,000
square feet of GLA; provided, however, that RDC's approval shall not be
required for customary modifications to the Company's standard lease form so
long as the modifications do not affect square footage, tenant improvement or
tenant allowance costs, rent, percentage rent or obligations to pay
proportionate shares of taxes or common area maintenance charges.
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Covenants of RDC. The Contribution Agreement also provides that, except as
otherwise expressly permitted or contemplated by the Contribution Agreement, or
as otherwise consented to by the Company, during the period between the date of
the Contribution Agreement and the Closing Date, RDC and its affiliates: (i)
will not take, suffer or permit any action which would render untrue any of its
representations or warranties, or omit to take any action, the omission of
which would render untrue any of its representations or warranties; (ii) will
make all necessary repairs and replacements which are required with respect to
any of the RDC Properties to maintain them in their present condition, ordinary
wear and tear accepted. To the extent any bills, invoices, expenses, taxes,
assessments and other charges pertain to periods prior to the Closing Date, but
are not due and payable on or prior to the Closing Date, such items will be
treated as adjustments to the consideration to be paid for the RDC Properties
at Closing; (iii) will operate and manage the RDC Properties in the same manner
as they had been operated and managed prior to the date of the Contribution
Agreement and in accordance with Applicable Laws; (iv) will comply with all of
its obligations under its leases, mortgages, services agreements and other
agreements and contractual agreements by which it or any of its properties is
bound or affected; (v) will not encumber any of its properties with any
indebtedness; provided, however, that RDC may incur additional indebtedness to
the extent that the indebtedness is paid or satisfied prior to Closing out of
funds other than the Cash Investment; and provided, further, that, RDC is
permitted to incur additional mortgage indebtedness not to exceed amounts which
have been mutually determined are necessary to finance the improvements of
certain of the RDC Properties to be contributed at Closing in accordance with
construction budgets which had been delivered to the Operating Partnership
prior to the execution of the Contribution Agreement. To the extent that any
improvements financed from the additional indebtedness have been completed on
or prior to the Closing Date, such additional indebtedness shall be discharged
together with the other mortgage indebtedness to be discharged at Closing using
the proceeds from the Cash Investment; (vi) will seek the approval of the
Company in connection with any new proposed lease for more than 10,000 square
feet of GLA; provided, however, the Company's approval shall not be required
for customary modifications to RDC's standard lease form so long as the
modifications do not affect square footage, tenant improvement or other tenant
allowance costs, rent, percentage rent or obligations to pay proportionate
shares of taxes or common area maintenance charges.
Certain Additional Mutual Covenants
The Contribution Agreement provides that each of RDC and the Company will:
(i) cooperate with each other in preparing, responding to the Commission in
respect of, and causing to be mailed to the Trust's shareholders this Proxy
Statement; (ii) cooperate with one another in affording access to information
regarding their respective business and to hold in confidence non-public
information relating to the other party (subject to customary exceptions and
conditions); (iii) provide prompt notice to the other party of the obtaining by
such party of actual notice of any fact or the occurrence or failure to occur
of any event which would cause a misrepresentation or breach of warranty or any
material failure to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied under the Contribution Agreement; and (iv)
consult with each other prior to making any public statements regarding the
Contribution Agreement or the Transaction.
Certain Additional Covenants of the Company
Change in Board of Trustees. The Trust has covenanted and agreed that at
the Closing Date, the Trust will cause its Board of Trustees to consist of
seven trustees. At the Closing, the Board will appoint four trustees, two of
whom will be Messrs. Dworman and Bernstein, and two of whom will be designated
by RDC and who will be neither officers nor employees of the Trust, the
Partnership, RDC or any of their respective affiliates (i.e., Messrs. Edelman
and White), and the Board of Trustees will appoint two trustees reasonably
acceptable to Messrs. Dworman and Bernstein and who will also not be officers
or employees, the Trust, the Partnership, RDC or any of their respective
affiliates. As a result of the foregoing, and assuming the Transaction is
consummated, four of the seven trustees will comprise Messrs. Dworman and
Bernstein and two independent RDC designees, and the remaining three trustees
will comprise Mr. Slomowitz and two independent trustees designated by the
Board of Trustees (i.e., Messrs. Levine and Longua). All of such trustees shall
serve until the next annual meeting of shareholders of the Trust and until
their successors are duly elected and qualified.
Right to Market Company Property. The Company also has agreed that,
following receipt by the Company of evidence reasonably satisfactory to it that
(i) the RDC Funds have obtained binding and irrevocable commitments from its
partners to make capital contributions in an aggregate amount not less than
$50,000,000 in respect
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of its obligation to make the Cash Investment, and (ii) sufficient consents
have been obtained from those persons holding ownership interests in the RDC
Property Partnerships such that the RDC Properties will be contributed to the
Company as contemplated by the Contribution Agreement, RDC, on behalf of the
Company, will be entitled to negotiate and execute agreements concerning the
disposition and/or financing of properties currently within the Company's
portfolio; provided, however, that: (a) none of the Trust, the Operating
Partnership or any of its subsidiaries will have any obligations to any third
parties under any such agreements unless and until Closing will have occurred;
(b) none of the Trust, the Operating Partnership or any subsidiary will incur
any costs or expense in connection with RDC's rights granted by this covenant;
and (c) neither RDC nor any agent or affiliate of RDC will represent itself as
an agent or otherwise act on behalf of the Trust, the Operating Partnership or
any subsidiary, nor have any authority to bind any of the foregoing, except
upon consummation of the Closing and subject to any ratification which must
then be obtained by the Board of Trustees of the Trust.
Further Issuance of Preferred Stock. The Trust has agreed that following
Closing, if the Board of Trustees determines, in the exercise of its duties, to
engage in an offering of preferred stock convertible into Common Shares, then,
upon commencement of any such offering, the Trust shall use commercially
reasonable efforts to provide a right of first preference to those partners of
the RDC Funds who are equity owners of the RDC Funds on the Closing Date and
who have made capital contributions to permit the RDC Funds to meet their
obligations to make the Cash Investment at Closing, to purchase such
convertible preferred stock, on terms and conditions which will be identical to
the offer and sale of any preferred stock to investors other than such
partners, provided that any such rights of first preference shall be made only
and if to the extent permitted by applicable federal, state and securities laws
and that the terms of any such rights of first preference shall be only in a
manner determined fair and equitable to the Trust.
Certain Tax-Related Restrictions Affecting the RDC Properties. In order to
permit the RDC Property Partnership and the persons contributing ownership
interests therein (collectively, the "RDC Property Group") to avoid or defer
the recognition of gain for federal income tax purposes on the contribution of
the RDC Properties or interests therein to the Partnership, the Contribution
Agreement imposes certain limitations and restrictions on the Company with
respect to the RDC Properties or interests therein. Consequently: (i) the RDC
Property Group is permitted to guarantee portions of the Partnership's debt
with respect to the RDC Properties for specified periods averaging five years
among all of the RDC Properties (as to each RDC Property, a "Restricted
Period"); (ii) to that end, the Company has agreed to maintain an aggregate
Partnership indebtedness of at least $50,000,000 during the Restricted Period
and, thereafter, to maintain the debt which encumbers the RDC Properties (up to
60% of their fair market value); (iii) the Company has agreed not to dispose of
any of the RDC Properties during the Restricted Period, except for dispositions
(such as a tax-free exchange of like-kind properties) which would not result in
gain recognition and, if any RDC Property is nevertheless disposed of in a
taxable transaction (other than as a result of foreclosure) during the
Restricted Period, the Company must reimburse the RDC Property Group for an
amount equal to the taxes actually payable by the RDC Property Group by virtue
of the disposition, "grossed up" to cover the taxes imposed on the receipt of
the reimbursement payment; and (iv) if the Company desires to sell an RDC
Property during the two years following the Restricted Period, the RDC Property
Group may under certain circumstances elect to purchase that property and may
use a portion of its Units, or may cause the Partnership to encumber the RDC
Property with debt which the RDC Property Group will take subject to or assume,
in order to effectuate this purchase.
Indemnification of Trustees and Officers. The Company has also agreed that
those provisions of the Declaration of Trust and the Limited Partnership
Agreement of the Partnership with respect to indemnification, advancement of
expenses and limitation on liability for the benefit of trustees, officers,
employees and consultants will not be amended, repealed or otherwise modified
for a period of six years following the Closing Date in any manner that would
adversely affect the rights of the individuals to whom such indemnification
would be available.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to trustees, officers or persons controlling the Trust
pursuant to the foregoing provisions, the Trust has 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.
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Additionally, the Trust has agreed to maintain in effect for a period of
six years following the Closing Date the trustee and officer liability
insurance in effect on behalf of the officers and trustees of the Trust
immediately prior to the Closing Date; provided, however, that the Trust will
be obligated to pay only up to 200% of the annual premium with respect to such
policy during each year the policy is continued and, to the extent that
coverage cannot be maintained at such level, to purchase as much coverage as
possible at that amount of premium. At April 30, 1998, the Trust maintained a
$5.0 million trustee and officer liability insurance policy and paid an annual
premium of approximately $135,000 therefor.
Certain Additional Covenants of RDC and the RDC Funds
Covenants Pertaining to Interim Premises. RDC has agreed that if it or any
of its affiliates enters into an agreement to purchase real property or any
ownership interests therein, RDC or such affiliates shall cause the agreement
of sale to provide that the purchaser may assign its rights to the Company
which, upon such assignment, shall have a right to elect to assume the
obligations of the purchaser under the Purchase Agreement. Additionally, if,
between the date of the Contribution Agreement and the Closing Date, RDC or any
of its affiliates acquires real property or any ownership interests therein (an
"Interim Premises"), the Trust shall have the option to cause RDC or such
affiliate to convey at Closing either fee simple title to the Interim Premises
or 100% of the interests owned by such person in the Interim Premises on the
same terms and subject to the same conditions as if the Interim Premises
constituted a part of the RDC Properties to be contributed at Closing. At the
option of RDC or its affiliate, the consideration shall consist of either cash
or Units, the number of which would be determined based upon the average market
price of the Common Shares for the 20 consecutive trading days ending on the
Closing Date. The consideration for the Interim Premises shall mean the
aggregate of: (i) the purchase price paid for the Interim Premise (as reflected
in the Agreement of Sale) pursuant to which the Interim Premises was purchased,
plus (ii) brokerage fees, legal fees and due diligence costs and acquisition
expenses and commissions and other closing costs paid by the purchaser for the
Interim Premises, plus (iii) the documented costs, if any, for renovation or
other improvements to the Interim Premises incurred between the date of
purchase and the Closing Date, plus (iv) an amount equal to 1% of the sum of
the amounts determined by clauses (i) through (iii) above for each month which
has elapsed between the date the Interim Premises was purchased and the Closing
Date, but in no event less than the aggregate of 3%, and by subtracting from
such sum all indebtedness assumed by the Operating Partnership in connection
with the acquisition of the Interim Premises or the interests therein. The
Purchase Price is also subject to adjustment based on normal closing
adjustments in accordance with local custom. As of the date of this Proxy
Statement, the Trust has exercised its option to acquire two Interim Premises,
which currently comprise two of the RDC Properties referred to herein, and has
separately agreed to pay the requisite purchase price in Common Shares rather
than in Units or cash.
Further, RDC, on behalf of its affiliates, has also agreed to deliver to
the Operating Partnership a right of first offer agreement to purchase
following Closing those properties, or equity interests in those properties,
which, although initially anticipated to be contributed at Closing, will not be
contributed at Closing because certain required third party consents have not
been obtained. RDC, on behalf of its affiliates, has also delivered to the
Operating Partnership a right of first offer agreement to purchase following
Closing the unimproved property currently owned by RDC which is not being
contributed to the Operating Partnership at Closing because it is not currently
consistent with the Company's portfolio and investment strategy. See "Certain
Information Concerning RD Capital, Inc. -- Non-Contributed Properties."
Approval of Affiliated Transaction. RDC has agreed that, following the
Closing Date, and ending on the third anniversary of the Closing Date, any
transaction between the Partnership, the Trust or any of its respective
subsidiaries on the one hand, and Messrs. Dworman or Bernstein, any of their
designees to the Board of Trustees or any of their respective affiliates on the
other hand, shall require approval by a majority of the then disinterested
trustees of the Trust; provided, however, that any such agreement shall not be
deemed to prevent or otherwise impair the exercise by the Board of Trustees of
its obligations under applicable law in respect of corporate opportunities,
interested transactions and similar conflicts or alleged conflicts of interests
involving the Trust, the Operating Partnership or any of its respective
affiliates.
Proxies Granted to Partners of RDC Funds. Each RDC Fund has agreed that at
Closing, it will execute and deliver to its partners a proxy, appointing each
partner such RDC Fund's proxy with respect to those Common
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Shares to which such partner would be entitled upon a dissolution of such RDC
Fund and a distribution in liquidation of such Common Shares, with authority to
consent or withhold consent, in such partner's sole discretion, with respect to
any manner as to which shareholders may act pursuant to the Declaration of
Trust or Bylaws of the Trust. If, however, any partner of an RDC Fund
determines not to accept such RDC Fund's proxy concerning such Common Shares,
then such RDC Fund shall enter into a Voting Trust Agreement with the Trust,
appointing the Board of Trustees of the Trust as the Voting Trustee with
respect to those Common Shares to which such RDC Fund would otherwise be
entitled to vote for so long as Messrs. Dworman and Bernstein remain as
executive officers of the Trust. The Trust has been advised by RDC that RDC
contemplates that, proxies will be granted to partners of the RDC Funds as to
all of the Common Shares to be issued for the Cash Investment.
Registration Rights and Lock-Up Agreement. At Closing, each of the RDC
Funds and each of the persons to whom Units will be issued in consideration for
the RDC Properties, the RDC Management Contracts and Contributed Notes, or the
ownership interests therein, will enter into a Registration Rights and Lock-Up
Agreement with the Company and the Partnership (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, each recipient of
Common Shares or Units will agree not to sell, assign or otherwise transfer the
Units or Common Shares to be issued at Closing or the Common Shares issuable
upon exchange of Units to be issued at Closing, for 12 months from the Closing
Date, except under certain limited circumstances. Additionally, the
Registration Rights Agreement provides that the Trust shall grant certain
piggyback and demand registration rights to the holders of such Common Shares
and Units (but only as to the Common Shares issuable upon exchange of such
Units) following the first anniversary of the Closing Date, and will agree to
use commercially reasonable efforts to register for resale under the Securities
Act the Common Shares to be issued on the Closing Date and the Common Shares
issuable upon exchange or conversion of the Units, and to maintain the
effectiveness of such registration statement until the earlier of the date when
all of such Common Shares have been disposed of or three years after the
conversion or exchange of all Units issued in the Transaction. The Registration
Agreement contains customary covenants and agreements of the respective parties
concerning the registration of the Common Shares, the provision of certain
information and the incurrence of certain costs and expenses in connection with
the obligations of the parties thereunder, as well as the agreement of the
parties to provide customary indemnification from material misstatements or
omissions in connection with any registration of the Common Shares as required.
Non-Compete Agreement. At Closing, each of Kenneth Bernstein and Ross
Dworman will execute a non-compete agreement for the benefit of the Company
pursuant to which each agrees that, without the prior written consent of a
majority of the disinterested trustees of the Trust, neither will engage
directly or indirectly in the acquisition, ownership, development, operation,
management or leasing of shopping centers and residential multi-dwelling
properties within the Continental United States for a period ending on the
later to occur of the date on which such person is no longer an officer or
trustee of the Trust or the Operating Partnership and the date when such person
beneficially owns less than 10% of the Common Shares then issued and
outstanding. Additionally, Messrs. Dworman and Bernstein have agreed to
maintain the confidentiality of all information deemed confidential and
proprietary by the Trust and the Partnership.
New York Stock Exchange Listing Of Common Shares
The Trust has obtained the preliminary approval for the listing, subject
to notice of issuance, on the NYSE of the Common Shares to be issued in the
Transaction as well as the Common Shares issuable upon conversion and/or
exchange of Units to be issued in the Transaction. Approval of the listing of
such Common Shares for trading on the NYSE is a condition to the obligation of
RDC and its affiliates to consummate the Transaction.
Regulatory Approval
Other than approvals in connection with compliance with applicable federal
and state securities laws in connection with the offer and sale of the Units
and the Common Shares in the Transaction as well as the payment and filings
necessary in connection with realty transfer and other taxes associated with
the contribution of the RDC Properties and related real estate assets to the
Company, neither the management of RDC nor the management of the Trust believes
that any filing with or approval of any governmental authority is necessary in
connection with the consummation of the merger.
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Accounting Treatment
The Trust will account for the Transaction with the RDC Group as (i) a
purchase of properties and other related assets in exchange for Units and
Common Shares and the assumption of certain mortgage debt and other liabilities
using the purchase method of accounting in accordance with generally accepted
accounting principles and, accordingly, 100% of the assets and liabilities of
the RDC Group will be adjusted to fair value and the results of operations of
the RDC Group will be included in the results of operations of the Trust for
periods subsequent to Closing, and (ii) an issuance of Common Shares for cash.
Certain Federal Income Tax Consequences Of The Transaction
The Company does not expect that the Transaction will have any specific
federal income tax consequences to the Trust's current shareholders. Following
the Transaction, the Trust's shareholders will continue to own Common Shares as
before the Transaction, and the acquisition by RDC and its affiliates of Common
Shares or Units is not expected to alter the income tax effect of owning or
subsequently transferring Common Shares. In view of the individual nature of
each shareholder's income tax situation, shareholders are urged to consult
their own tax adviser with respect to the specific federal, state and local tax
consequences associated with the Transaction. Reference is also made to the
information set forth herein under the caption "Summary of the Contribution
Agreement -- Additional Covenants of the Company" for a discussion of certain
federal income tax aspects concerning the contribution of the RDC Properties.
Federal Securities Laws Consequences
All of the Common Shares and Units to be issued in the Transaction will be
offered and sold pursuant to an exemption from the registration provisions of
the Securities Act and, therefore, will be subject to restrictions on their
transferability. Moreover, pursuant to the Registration Agreement to be
executed and delivered at Closing, each of the RDC Funds receiving Common
Shares and each of the persons and entities receiving Units in the Transaction
will agree not to transfer such Common Shares or Units, or the Common Shares
issuable upon exchange of the Units, for a period of 12 months following the
Closing Date, subject to certain limited exceptions.
Following the foregoing 12 month "lock-up period," the Trust has granted
to the recipients of Common Shares and Units in the Transaction certain
piggyback and demand registration rights with respect to the Common Shares and
the Common Shares issuable upon exchange of the Units, and has agreed to
promptly file a registration statement with the Commission to register such
Common Shares under the Securities Act and to maintain the effectiveness of
such registration statement until the later of the date when all of the Common
Shares issuable to the RDC Funds and the other RDC affiliates have been
transferred pursuant to such registration statement or, as to the Common Shares
to be issued to the RDC Funds, 42 months and, as to the Common Shares issuable
upon conversion of the Units, three years, following the exchange of all Units
for Common Shares. See "Risk Factors -- Shares Eligible for Future Sale."
Dissenters' Rights Of Appraisal
Shareholders of the Trust are not entitled to dissenters' rights of
appraisal under Maryland law in connection with the Transaction.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Certain of the officers and trustees of the Trust have interests in the
Transaction in addition to their interests as shareholders of the Trust and, in
the case of Marvin Slomowitz, a partner in the Operating Partnership. The
following summary of these conflicts should be reviewed carefully by the
Trust's shareholders in evaluating the Transaction.
If the Transaction is consummated, Messrs. Slomowitz, Longua and Levine,
the Chairman of the Board of Trustees and Chief Executive Officer and incumbent
trustees, respectively, will remain trustees of the Trust (although Mr.
Slomowitz will resign as Chairman and Chief Executive Officer effective as of
the Closing Date), until the next annual meeting of the Trust and until their
respective successors are duly elected and qualified.
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The Trust's current Chief Operating Officer and Chief Financial Officer
are entitled to severance payments aggregating $554,410 in connection with the
execution of the Contribution Agreement, and are entitled to such sums
regardless of whether the Transaction is consummated. Additionally, five other
members of management are entitled to payments aggregating $239,078 if the
Transaction is consummated. Twenty-five additional persons currently employed
by the Company are entitled to varying amounts aggregating $695,649 if such
persons are terminated by the Company other than for cause within the six month
period following the Closing Date.
The Contribution Agreement provides that, following the Closing Date, the
Trust and the Operating Partnership will jointly and severally indemnify and
hold harmless each person who was or at any time prior to the date of the
Contribution Agreement or who becomes prior to the Closing Date an officer or
trustee of the Trust or the Operating Partnership against losses, claims,
damages, costs and expenses and similar amounts incurred by such persons on
account of claims arising on or prior to the Closing Date in connection with
the performance of their duties on behalf of the Trust or the Company. The
Trust and the Operating Partnership have also agreed that, for a period of six
years following the Closing Date, neither shall amend or otherwise modify those
provisions in the Declaration of Trust or Agreement of Limited Partnership of
the Operating Partnership pertaining to indemnification, advancement of
expenses or limitation of liability of such persons who were serving as
officers, trustees, employees and consultants of the Trust or Operating
Partnership which would adversely affect their rights thereunder. The Trust has
also agreed to maintain, following the Closing Date, the trustees and officers
liability insurance maintained by the Trust immediately prior to the Closing
Date, provided that the annual premium does not exceed 200% of the annual
premium paid for the policy period in which the Closing Date occurs.
Concurrently with the execution of the Contribution Agreement, the Trust
entered into an agreement with Mr. Slomowitz pursuant to which the Company
will: (i) pay Mr. Slomowitz at Closing $600,000 as a severance payment; (ii)
pay Mr. Slomowitz $100,000 annually for three years commencing on the Closing
Date for Mr. Slomowitz' agreement not to compete with the Company and for
certain consulting services; and (iii) grant Mr. Slomowitz ten year options to
purchase up to 300,000 Common Shares at an exercise price of $9.00 per Common
Share, exercisable in three equal annual installments commencing on the Closing
Date. As part of the Transaction, the Company will cancel Mr. Slomowitz's
currently exercisable options to purchase 200,000 Common Shares at an exercise
price of $12.00 per Common Share. The Company has also agreed that if the
Company sells any of nine designated properties currently owned by the
Operating Partnership, it will pay to Mr. Slomowitz a brokerage commission
equal to 2.0% of the sales price for such property, but in no event will the
aggregate amount of commissions payable to Mr. Slomowitz for all nine
properties exceed $600,000. At Closing, the Company and Mr. Slomowitz will also
exchange general releases, and Mr. Slomowitz will agree not to engage in
certain competitive activities with the Company for a period of three years
from the Closing Date.
Following the Transaction, the Trust will continue to lease from a
partnership controlled by Mr. Slomowitz the Kingston, Pennsylvania premises
currently serving as the Company's executive offices. Net rental payments,
excluding escalations, for fiscal year 1997 aggregated $104,000. See "Certain
Relationships and Related Transactions."
Further, the Company has agreed that, until the fifth anniversary of the
Closing Date, it will not sell or transfer certain of the Company's properties
which were contributed by Mr. Slomowitz to the Operating Partnership upon its
formation, in exchange for Units unless either the sale or transfer is made in
a like-kind exchange or similar method intended to avoid or defer the
recognition of gain for federal income tax purposes which Mr. Slomowitz would
ordinarily incur upon such sale or transfer, or unless the Company pays to Mr.
Slomowitz an amount equal to the tax payable by Mr. Slomowitz upon such sale or
transfer. The Trust has also agreed to maintain $55.0 million of mortgage
indebtedness secured by such properties or to otherwise permit Mr. Slomowitz to
guarantee certain indebtedness so as to allow Mr. Slomowitz to defer the
recognition of gain which Mr. Slomowitz was able to defer when he first
contributed the properties to the Company in exchange for Units. The terms of
the foregoing agreement between the Trust and Mr. Slomowitz are substantially
identical to the agreement between the Trust and RDC and its affiliates set
forth in the Contribution Agreement and pertaining to the RDC Properties to be
contributed to the Company at Closing. See "Summary of the Contribution
Agreement and Related Matters; Additional Covenants of the Company."
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MANAGEMENT OF THE TRUST BEFORE AND AFTER THE TRANSACTION
Board of Trustees Following the Transaction
The Contribution Agreement provides that, assuming the Transaction is
consummated, the Board of Trustees will consist of seven trustees, consisting
of Ross Dworman and Kenneth Bernstein, two other persons designated by RDC,
neither of whom is affiliated with any of the Trust, the Operating Partnership,
RDC or any affiliates of any of the foregoing (i.e., Martin Edelman and Gregory
White), Marvin Slomowitz and two designees of the current Board of Trustees
neither of whom is an officer or employee of the Trust, the Operating
Partnership, RDC or any of their respective affiliates (i.e., Lawrence Longua
and Marvin Levine). The aforementioned trustees will serve until the next
annual meeting of shareholders of the Trust and until their respective
successors are duly elected and qualified, and neither the Trust nor RDC shall
have the right to designate any person to serve as a trustee. The following
sets forth certain information concerning those persons who will serve as
trustees assuming the Transaction is consummated:
Name Age Trustee Since
---- --- -------------
Marvin Slomowitz ........... 68 1993
Ross Dworman ............... 38 --
Kenneth Bernstein .......... 36 --
Martin L. Edelman .......... 57 --
Gregory White .............. 42 --
Lawrence Longua ............ 56 1993
Marvin Levine .............. 48 1993
Each of Messrs. Slomowitz, Longua and Levine are incumbent trustees and
nominees of the Board of Trustees for reelection as trustee. For information
concerning the other incumbent trustees and the other nominees for election as
trustee, see "Election of Trustees."
Marvin Slomowitz has been Chairman of the Board of Trustees and Chief
Executive Officer of the Trust since the Trust's inception in March 1993. He
also served as President of the Trust from its inception until February 1994.
Mr. Slomowitz founded Mark Development Group, the Trust's predecessor ("MDG"),
in 1960 and had been Chairman of the Board and Chief Executive Officer of MDG
since its inception. Mr. Slomowitz is a director of Charming Shoppes, Inc., a
national retail clothing chain, and serves as a member of the board of
directors of SLE (Lupus) Foundation. Mr. Slomowitz is a member of the
International Council of Shopping Centers and the National Real Estate Board.
Ross Dworman has been President and Chief Executive Officer of RDC since
1987. From 1984 to 1987, Mr. Dworman was an associate at Odyssey Partners,
L.P., a hedge fund engaged in leveraged buy-outs and real estate investment,
and from 1981 until 1984, he was a Financial Analyst for Salomon, Inc. Mr.
Dworman received his Bachelor of Arts Degree from the University of
Pennsylvania.
Kenneth Bernstein has served as the Chief Operating Officer of RDC since
1990, and in such capacity, is responsible for overseeing the day-to-day
operations of RDC and its management companies, Acadia Management Company LLC
and Sound View Management LLC. Prior to joining RDC, Mr. Bernstein was
associated with the New York law firm of Battle Fowler, LLP, from 1986 to 1990.
Mr. Bernstein received his Bachelor of Arts Degree from the University of
Vermont and his Juris Doctorate from Boston University School of Law.
Martin L. Edelman is Of Counsel to Battle Fowler LLP, a New York City law
firm specializing in real estate and corporate law, which is counsel to RDC. He
is one of the managing partners of Chartwell Hotel Associates (an affiliate of
Fisher Brothers, the Getty Family and Soros Family Interests), which, together
with Remington Hotel Corporation, owns and operates in excess of 70 hotels. He
also is on the Board of Directors and Executive Committee of Grupo Chartwell de
Mexico, S.A. de C.V. an active hotel developer in Mexico. Mr. Edelman is a
graduate of Princeton University and Columbia University School of Law. He is
currently a director of Soros Realty, Cendant Incorporated, Northstar Capital
Investment Corporation, Avis-Rent-a-Car Inc. and Capital
44
<PAGE>
Trust. A number of purported class action suits and related cases
(approximately 60 separate actions) have been commenced against Cendant
Corporation and several of its current and former directors, officers,
employees and financial advisers, alleging various securities claims relating
to potential accounting irregularities at a division of CUC International Inc.
which merged with HPS Incorporated in late 1997 to form Cendant. The
allegations in these cases include claims of violations of Rule 10b-5, the
Securities Act of 1933, the Securities Exchange Act of 1934 and related common
law claims. The individual defendants (the current and former directors and
officers of Cendant) are not named as defendants in all of the cases.
Gregory White is a founding partner and Managing Director of Schroder
Mortgage Associates in New York, New York and has been associated with Schroder
Mortgage Associates since 1992. Schroder Mortgage Associates is an investment
adviser that specializes in commercial mortgages and commercial mortgage backed
securities. From 1988 to 1992, he was a Managing Director of the Salomon
Brothers Inc. real estate finance department. Mr. White also serves as a
trustee of New Plan Realty Trust. He has a degree in civil engineering from
Tufts University and an MBA from the Wharton School of Business. Mr. White is
also on the advisory board of the Guggenheim Realty Fund and is a visiting
professor of real estate finance at New York University.
Marvin J. Levine, Esq., has been a trustee of the Company since its
inception. Since July 1997, Mr. Levine has been a partner in the New York City
law firm of Wachtel & Masyr, LLP. Previously, he had been a partner in the New
York City law firms of Gold & Wachtel, LLP for three years and prior to that
Stadtmauer, Bailkin, Levine & Masyr for more than five years. Mr. Levine
represented MDG from 1982 until the Company's initial public offering. See
"Certain Relationships and Related Transactions."
Lawrence J. Longua, has been a trustee of the Company since its inception.
Mr. Longua has been Senior Managing Director of the Witkoff Group, LLC, an
owner and operator of major office properties in New York City, Philadelphia,
Newark and Dallas, since March 1998. From 1990 to February 1998, Mr. Longua had
been a Senior Vice President and Assistant General Manager of Mitsubishi Trust
& Banking Corporation where he had been manager of the Real Estate Finance
Group at the Bank's New York Branch, and responsible for the management of a
substantial portfolio of real estate properties. From 1984 to 1990, Mr. Longua
was a Vice President and Manager of Bankers Trust Company, responsible for
overseeing a $3.0 billion real estate loan portfolio. Mr. Longua currently is
the Chairman of the Board of Trustees of the Mortgage Bankers Association of
New York Scholarship Foundation. Mr. Longua is the former president of the
Mortgage Bankers Association of New York and is the former Director of the
Association of Foreign Investors in U.S. Real Estate.
Senior Management of the Trust Following the Transaction
The Contribution Agreement provides that, assuming the Transaction is
consummated, Marvin Slomowitz will resign as Chairman of the Board of Trustees
and Chief Executive Officer, and Ross Dworman and Kenneth Bernstein will be
appointed the Chairman and Chief Executive Officer and the President,
respectively. For information concerning Messrs. Dworman and Bernstein, see
"Board of Trustees Following the Transaction." For information concerning the
current executive management of the Trust, see "Senior Management of the Trust
Prior to the Transaction."
The Board of Trustees has been advised by RDC that, promptly following the
consummation of the Transaction, Messrs. Dworman and Bernstein will submit to
the Board's newly constituted compensation committee proposed employment
agreements which will include compensation and benefits, including share
options, which are expected to be commensurate in terms and amount with
compensation and benefits accorded executives of other similarly situated
public shopping center REITs. It is expected that the Board's compensation
committee will seek the advice of the Trust's investment bankers to assist in
determining "market rate" terms for the compensation of its senior management.
At Closing, each of Messrs. Dworman and Bernstein will enter into
Non-Compete Agreements with the Trust pursuant to which each agrees not to
engage in certain competitive activities for a designated period of time
following Closing. See "The Contribution Agreement and Related Matters --
Additional Covenants of RDC and the RDC Funds -- Non-Compete Agreement."
45
<PAGE>
Senior Management of the Trust Prior to the Transaction
Set forth below is certain information concerning the executive management
of the Trust as of the date of this Proxy Statement. For information concerning
Marvin Slomowitz, the Chairman of the Board of Trustees and Chief Executive
Officer, see "Board of Trustees Following the Transaction." For information
concerning payments to be made to the following officers in connection with the
Transaction, see "Interests of Certain Persons in the Transaction."
David S. Zook, age 50, has been Executive Vice President and Chief
Operating Officer of the Trust since December 1994. Previously, he had been
Senior Vice President and Director of Leasing of the Trust since its inception,
positions he previously held with MDG since 1984. Prior to joining MDG, Mr.
Zook held various executive positions at Oxford Development Company, where he
was General Manager from 1977-1984. From 1971 to 1977, Mr. Zook was employed at
Eagan Real Estate, Inc. and the Edward J. DeBartolo Corporation. All of the
foregoing entities have been engaged in shopping center development. Mr. Zook
is a member of the ICSC.
Joshua Kane, age 38, has been the Chief Financial Officer of the Company
since its inception, a position he previously held with MDG since 1986, and has
been Senior Vice President and Chief Financial Officer since December 1994.
From 1981 to 1986 he was employed as an accountant at Charles Hecht and
Company, most recently as Senior Accountant. Mr. Kane is a certified public
accountant and a member of the American Institute of Certified Public
Accountants and the Pennsylvania Institute of Certified Public Accountants.
MARKET PRICE INFORMATION AND DIVIDEND POLICY
Market Price Information
The Common Shares are designated for trading on the NYSE under the symbol
"MCT." The following table sets forth for the periods indicated the high and
low sales price for the Common Shares as reported on the NYSE, and cash
dividends paid or declared per Common Share for such periods:
Dividend
Quarter Ended High Low Per Share
------------- ---- --- ---------
March 31, 1996 ............. $12 3/4 $10 1/2 $ .36
June 30, 1996 .............. 11 9 3/4 .36
September 30, 1996 ......... 11 3/4 10 .36
December 31, 1996 .......... 11 1/4 9 3/4 .36
March 31, 1997 ............. 11 3/4 10 1/8 .36
June 30, 1997 .............. 10 7/8 8 7/8 .20
September 30, 1997 ......... 9 9/16 8 15/16 .20
December 31, 1997 .......... 9 7/16 8 3/4 -- (1)
March 31, 1998 ............. 9 5/16 8 11/16 -- (1)
June 30, 1998 .............. 9 7 7/16 -- (1)
- ------------
(1) Pursuant to the Contribution Agreement, the Trust has agreed not to pay,
declare or set aside for payment any dividend other than such as is
necessary to meet REIT qualification requirements until the earlier of
termination of the Contribution Agreement and Closing. See "The
Contribution Agreement and Related Matters -- Conduct of the Business of
the Company and RDC Pending the Closing."
On April 15, 1998, the last trading day prior to public announcement of
the Transaction, the closing price per Common Share as reported on the NYSE was
$8.50. On July 9, 1998, the most recent date for which a closing price for the
Common Shares on the NYSE was available prior to the date of this Proxy
Statement, the closing sale price was $7.50.
Dividend Policy
To maintain its qualification as a REIT under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended, and applicable treasury
regulations, the Trust is generally required to distribute to its shareholders
at least 95% of its taxable income after certain adjustments. The Trust's cash
flow from operations from
46
<PAGE>
which such dividends are typically payable is affected by a number of factors,
including the revenues received from rental properties, the operating expenses
of the Company and the interest expense on its indebtedness, the ability of the
Company's tenants to meet their rental obligations and unanticipated capital
expenditures. In the event funds from operations are insufficient to meet these
distribution requirements, the Trust could be required to borrow the amount of
the deficiency or sell assets to obtain the cash necessary to meet these REIT
distribution requirements.
The Trust has agreed in the Contribution Agreement that, between the date
of the Contribution Agreement and the Closing Date, the Trust will not declare,
set aside or pay any dividend other than to meet REIT distribution
requirements. If the Transaction is consummated, the amount and frequency of
any dividends will be determined by the Board of Trustees depending upon a
number of factors, including cash from operations, operating expenses, capital
requirements and other factors. If the Transaction is not consummated, the
Board of Trustees does not intend to pay a dividend, other than to meet REIT
distribution requirements, for the foreseeable future as it intends to use its
cash flow to meet capital requirements and for working capital.
The Trust currently maintains a dividend reinvestment program pursuant to
which shareholders may elect to reinvest their distributions automatically in
additional Common Shares.
MARK CENTERS TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
consolidated financial statements of the Company (including the related notes
thereto), and the pro forma combined financial information (and the notes
related thereto), appearing elsewhere in this Proxy Statement.
Results of Operations
Comparison of Three Months Ended March 31, 1998 ("1998") to Three Months Ended
March 31, 1997 ("1997")
Total revenue decreased $173,000, or 2%, to $11.0 million for 1998
compared to $11.1 million for 1997.
In total, minimum rents were essentially constant at $8.5 million for 1998
and 1997. Minimum rents increased at certain centers in 1998 following the
re-tenanting of various space at increased market rates as well as the effect
of Stern's at the Ledgewood Mall reverting to paying minimum rent of $138,000
in 1998. During 1997, Stern's was paying percentage rent in lieu of minimum
rent pursuant to anchor contenancy requirements with Jamesway which vacated the
Ledgewood Mall in 1996. These increases were offset by the $141,000 effect of
the State of Alabama Department of Public Health vacating its leased space at
the Normandale Mall following the expiration of its leases in April 1997, the
$32,000 effect of the sale of the Newberry Plaza in March 1997 and the $48,000
effect of Bruno's vacating its 48,000 square feet at the Martintown Plaza
following its Chapter 11 bankruptcy filing on January 2, 1998. On March 31,
1998, the Company signed a lease with Office Depot, Inc. for 30,000 square feet
of this space at a higher per square foot rent and is engaged in re-leasing
efforts for the balance of the space.
Percentage rents decreased $119,000, or 17%, to $565,000 for 1998 compared
to $684,000 for 1997. The decrease was primarily the result of Stern's at the
Ledgewood Mall paying minimum rent rather than percentage rent in 1998 as
discussed above.
Other income decreased $50,000 for 1998 primarily as a result of a
decrease in interest earning assets.
Total operating expenses of $7.6 million for 1998 decreased $214,000, or
3%, from $7.9 million for 1997.
Property operating expenses decreased $271,000 for 1998 compared to 1997
primarily due to a $287,000 decrease in winter related expenses following the
comparatively mild weather experienced in the Northeast in 1998.
Depreciation and amortization increased $149,000 for 1998 primarily due to
the Company's property development and expansion activities.
General and administrative expenses decreased $81,000 for 1998 primarily
as a result of lower salaries expense and certain professional fees.
Interest expense of $3.9 million for 1998 increased $187,000, or 5%, from
$3.7 million for 1997 primarily as a result of higher average outstanding
borrowings related to increased property development and expansion activities.
47
<PAGE>
As a result of the foregoing, the net loss for 1998 increased $117,000 to
a loss of $533,000 from a loss of $416,000 for 1997.
Comparison of the Year Ended December 31, 1997 ("1997") to the Year Ended
December 31, 1996 ("1996")
Total revenue increased $702,000, or 2%, to $44.5 million in 1997 compared
to $43.8 million in 1996. In total, minimum rents of $33.7 million for 1997
were essentially unchanged from 1996. Increases in minimum rents of $757,000
and $102,000 were achieved in 1997 following the completion of the development
of Phase I of the Union Plaza and completion of the initial lease-up of the
Pittston Plaza following its construction in 1996, respectively. A $680,000
increase in minimum rents was realized throughout the remaining portfolio,
except at those properties as noted below, primarily from rents received
following the installation of new tenants in excess of rents lost due to
vacating tenants. These increases were, however, offset by declines in minimum
rent for 1997 of (i)$1.1 million at the Ledgewood Mall and Auburn Plaza
following the loss of two anchor tenants during 1996 as well as certain
remaining tenants at these two centers paying percentage rent in lieu of
minimum rent pursuant to anchor cotenancy requirements, (ii)$338,000 at the
Normandale Mall primarily as a result of the State of Alabama Department of
Public Health vacating its leased space following the expiration of its leases
in April 1997 and (iii)$155,000 following the sale of the Newberry Plaza in
March 1997.
Percentage rents increased $388,000, or 14%, to $3.2 million for 1997
compared to $2.8 million for 1996 primarily as a result of tenants paying
percentage rent in lieu of minimum rents at the Ledgewood Mall and Auburn Plaza
as previously discussed.
Expense reimbursements of $6.6 million for 1997, which represent the
pass-through of certain property expenses to the tenants, were essentially
unchanged from 1996. Increases relating to the pass-through of higher real
estate taxes in 1997 were offset by a decline in expense reimbursements as a
result of a decrease in other property operating expenses in 1997, and by a
decrease in expense reimbursements following the loss of anchor tenants at the
Ledgewood Mall and Auburn Plaza as previously discussed.
Other income increased $267,000, or 36%, to $1.0 million for 1997 compared
to $747,000 for 1996 primarily as a result of an increase in interest earned on
mortgage escrows in connection with financings with Morgan Stanley Mortgage
Capital, Inc. and Nomura Asset Capital Corporation.
Total 1997 operating expenses decreased $443,000, or 1%, to $30.8 million
compared to $31.3 million in 1996.
Property operating expenses decreased $759,000, or 8%, to $9.0 million for
1997 from $9.8 million for 1996, primarily due to the establishment of a
$425,000 reserve in 1996 for estimated environmental remediation costs and
related consulting fees related to two properties and a decrease in winter
related costs due to the comparatively mild winter experienced in the Northeast
during 1997.
Real estate taxes increased $406,000, or 8%, to $5.7 million for 1997 from
$5.3 million for 1996 primarily due to the expiration of a ten-year development
abatement at the Greenridge Plaza and increases in assessed property values as
a result of recent development and expansion activities.
Depreciation and amortization increased $370,000, or 3%, to $13.8 million
for 1997 from $13.4 million for 1996 primarily due to an increase in
depreciation expense following the completion of the development of Phase I of
the Union Plaza in October 1996.
General and Administrative expense decreased $460,000, or 16%, to $2.4
million for 1997 from $2.8 million for 1996 primarily due to the write-off
during 1996 of non-recurring costs totalling $492,000 as a result of the
Company's decision to terminate certain acquisition and development activities.
Net interest expense increased $2.7 million, or 21%, to $15.4 million in
1997, compared to $12.7 million in 1996 due to higher borrowing levels
primarily associated with development and tenant replacement activities.
The loss before minority interest for 1997 was $1.8 million, representing
an increased loss of $1.0 million compared to the loss before minority interest
of $764,000 for 1996 due to the above items, as well as a $392,000 loss in 1996
on the reduction in the carrying value of certain property held for sale and
$190,000 in extraordinary expense for 1996 related to certain 1996
refinancings.
48
<PAGE>
Comparison of 1996 to the Year Ended December 31, 1995 ("1995")
Total revenue increased $464,000, or 1% to $43.8 million in 1996 compared
to $43.3 million in 1995. This increase was attributable to increases in
minimum rents and expense reimbursements partially offset by decreases in
percentage rents and other income.
Minimum rents increased $955,000, or 3%, in 1996 primarily as a result of
the inclusion of a full year of results from the acquisition of the Plaza 15
Shopping Center in July 1995 and the development of the Route 6 Mall opened in
April 1995, and from the development of the Pittston Plaza completed in June
1996 and completion of Phase I of development at the Union Plaza.
Expense reimbursements, which represent the pass-through of certain
property expenses to the tenants, increased $128,000, or 2%, from $6.4 million
in 1995 to $6.5 million in 1996. The increase was primarily due to increases in
property operating expenses and real estate taxes.
Percentage rents, representing the Company's participation in tenants'
gross sales above predetermined thresholds, decreased $545,000, or 16%, to $2.8
million in 1996 compared to $3.3 million in 1995. This decrease was primarily
attributable to timing differences effecting the period that tenant sales
figures were received and percentage rent recognized.
Additionally, 1996 revenues were unfavorably impacted by the loss of two
anchor tenants during 1996 as a result of bankruptcies (Jamesway at the
Ledgewood Mall, for which a replacement anchor tenant has been signed, and
Rich's at the Auburn Plaza) which resulted in a decline in total revenues at
the two properties totalling $984,000.
Total 1996 operating expenses, including depreciation and amortization
increased $3.1 million, or 11%, to $31.3 million compared to $28.2 million in
1995. Of this increase, a $1.4 million increase in depreciation expense was
related to increased investments in properties as a result of acquisition,
development and expansion activities. The remaining $1.7 million increase was a
result of several factors including: (i) a $496,000 increase in real estate
taxes due primarily to acquisition, development and expansion activities, (ii)
increased winter related costs of $469,000 due to the extremely harsh winter
experienced in the Northeast during the first quarter of 1996, (iii) the
establishment of a $425,000 reserve for estimated environmental remediation
costs and related consulting fees related to two properties and (iv) a $253,000
increase in bad debt expense primarily as a result of certain tenant
bankruptcies offset by repair work completed at certain properties below
initial insurance estimates.
Net interest expense and financing fees increased $2.1 million, or 20%, to
$12.7 million in 1996, compared to $10.6 million in 1995 primarily due to
higher borrowing levels associated with acquisition, development, expansion and
tenant replacement activities.
As a result of the foregoing, and in addition to a $392,000 reduction in
the carrying value of certain property held for sale in 1996 (See Note 13 to
the consolidated financial statements) and extraordinary expenses of $190,000
related to the write-off of deferred financing costs in 1996, the loss before
minority interest for 1996 was $764,000, representing a decrease of $5.4
million from income before minority interest of $4.6 million for 1995.
Liquidity and Capital Resources
During 1997, the Company invested $11.8 million in its property portfolio
(of which $3.3 million was included in accounts payable as of December 31,
1996), including $6.5 million for new development, $3.5 million for renovation
and tenant replacement at existing centers, $1.2 million for deferred leasing
and other charges and $624,000 for non-revenue generating capital expenditures
at the properties. Total debt outstanding at December 31, 1997 and 1996 was
$183.9 million and $172.8 million, respectively. The $11.1 million increase in
debt was primarily a result of funding the 1997 investment activity.
At March 31, 1998, the Company's capitalization consisted of $185.2
million of debt and $91.0 million of market equity. Interest rates on the
Company's mortgage indebtedness ranged from 7.7% to 10.0% with maturities that
ranged from July 1998 to November 2021. Of the total outstanding debt, $173.8
million, or 94% was
49
<PAGE>
carried at fixed interest rates and the remaining $11.4 million, or 6%, carried
at variable rates. Mortgage payments are due in monthly installments of
principal and/or interest. The loan agreements contain customary
representations, covenants and events of default. Certain loan agreements
require the Company to comply with certain affirmative and negative covenants,
including the maintenance of certain debt service coverage ratios.
Additionally, Mr. Slomowitz has personally guaranteed the repayment of mortgage
loans with an aggregate balance of $41.0 million at March 31, 1998 without
consideration from the Company. Of the total outstanding debt as of March 31,
1998, $99.5 million will become due by 2000, with scheduled maturities of $2.5
million in 1998, $2.1 million in 1999 and $94.9 million in 2000. As the Company
does not anticipate having sufficient cash on hand to repay such indebtedness,
it will need to refinance this indebtedness or select other alternatives based
on market conditions at that time. The Company believes that the current
loan-to-value ratios on the collateral properties are at levels which would
allow it to fully refinance these loans on commercially competitive terms.
As of March 31, 1998, the Company currently estimates capital outlays of
approximately $9.2 million will be required for tenant improvements, related
renovations and other property improvements primarily as a result of executed
leases under which the Company expects tenants to commence occupancy during the
next 12 months. Certain tenant improvement costs are being incurred earlier
than anticipated because of early termination of leases due to tenant
bankruptcies. Of this amount, approximately $3.1 million is expected to be
provided through existing construction financing.
Historically, the principal sources for funding operations, renovations,
expansion, development and acquisitions have been funds from operations,
construction and permanent secured debt financings, as well as short term
construction and line of credit borrowings from various lenders. The Company
anticipates that cash flow from operating activities will continue to provide
adequate capital for all debt service payments, recurring capital expenditures
and REIT distribution requirements. Consistent with past practice, the Company
anticipates that it will obtain construction financing related to capital
outlays for certain property development, property expansion and tenant
improvements. However, the Company may experience a cash shortfall in 1998, in
the absence of consummating the proposed RDC transaction, if there are delays
in obtaining construction financing to fund these anticipated capital outlays.
Any delays in construction financing will increase the Company's short term
reliance on cash from operations to meet these commitments.
On June 1, 1998, the Company closed on $20.7 million in short-term
financing with Credit Suisse First Boston Mortgage Capital LLC ("CS First
Boston") which is expected to fund a significant portion of the Company's
planned 1998 capital outlays for tenant improvements, related renovations and
other property improvements. The facility, which bears interest at LIBOR plus
312 basis points through the original term ending December 1, 1998 and LIBOR
plus 462 basis points during the extension period ending June 1, 1999, is
secured by four of the Company's properties (the "Properties"). The loan
agreement contains customary representations, events of default and certain
affirmative and negative covenants. $2.0 million was unfunded and held back for
certain planned construction at one of the Properties (which comprises $1.8
million of the Company's estimated 1998 capital outlays discussed above) as
well as an additional $2.0 million for an interest reserve and a ground lease
at one of the Properties. Approximately $10.9 million was used to refinance
existing debt and pay for transaction costs, $326,000 was deposited into
escrows and the remaining $5.5 million was available for working capital. At
closing, the Company paid $1.5 million from this available working capital to
Pharmhouse Corp., a tenant at the Ledgewood Mall who had obtained an injunction
against the installation of Walmart at the mall based on certain exclusive use
provisions within Pharmhouse Corp.'s lease. As a result of this agreed
settlement, the Company anticipates proceeding with the installation of Walmart
in approximately 120,000 square feet at the property.
The Company intends on repaying this loan with the cash to be invested by
affiliates of RD Capital following the closing of the RDC transaction. If the
Company is unable to close on the RDC transaction as anticipated and the
Company is unable to repay the loan by June 1, 1999, CS First Boston would then
have the option to (a) foreclose on the Properties or (b) convert the facility
to a permanent loan with a term of ten years and monthly payment of interest at
a rate equal to the applicable U.S. Treasury rate plus 300 basis points and
principal payments based on a thirty year amortization period.
On June 1, 1998, the Company completed an amendment with Fleet National
Bank whereby it terminated a Standby Letter of Credit in the amount of $1.7
million following the placement of $1.7 million in escrow with John Hancock
Mutual Life Insurance Co.
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<PAGE>
On March 24, 1998, the Company completed an initial amendment to and
extension of its existing agreement with Mellon Bank, N.A. which extended the
maturity date to July 2, 1998 and established minimum monthly payments equal to
the greater of (a) actual net operating income from the collateral property or
(b) $50,000 plus interest at the current rate of LIBOR plus 200 basis points.
On June 30, 1998, the maturity date was extended to September 30, 1998.
On January 28, 1998, the Company completed a closing on a construction
loan with Royal Bank of Pennsylvania in the maximum amount of $3.5 million. The
loan, which is secured by one of the Company's properties, requires monthly
payment of interest only at the lender's prime rate plus 150 basis points and
matures in February 1999 with additional extension periods through February
2000.
On September 18, 1997, the Company closed on a $5.5 million construction
loan with Firstrust Savings Bank ("Firstrust") which refinanced and expanded
the Company's existing $2.0 million credit facility with Firstrust. This
construction loan, which was for the expansion of the Mark Plaza in
Edwardsville, Pennsylvania, incurred interest, payable monthly, at the
Firstrust commercial reference rate plus 1% and was scheduled to mature in
March 1999. This facility was repaid in full on June 1, 1998 in connection with
the financing with CS First Boston as previously discussed.
On March 4, 1997, the Company closed on $23.0 million of fixed rate
financing from Nomura Asset Capital Corporation. The loan, which matures in
March 2022, is secured by a mortgage on one of the Company's properties, bears
interest at 9.02% and requires monthly payments of interest and principal
amortized over 25 years. Approximately $10.2 million of the proceeds were used
to retire existing debt with Fleet Bank of Massachusetts, NA, $673,000 was used
to pay financing costs, $3.0 million was deposited in escrows, and the
remaining proceeds were used for working capital. The Company is subject to
certain affirmative and negative covenants relating to this facility.
As part of the Company's ongoing strategic evaluation and realignment of
its property portfolio, the Company completed the sale of the Newberry Plaza on
March 5, 1997 for $1.3 million, collecting $1.2 million in net sales proceeds
after closing costs and adjustments. The proceeds were used to supplement
working capital.
Pro Forma Liquidity and Capital Resources
On a pro forma basis, after giving effect to the consummation of the
Transaction, the Company expects that cash flow from operating activities will
provide adequate capital for all debt service payments, recurring capital
improvements, as well as dividend payments in accordance with REIT
requirements. The Company expects that following the consummation of the
Transaction, the new Board of Trustees will determine whether and to what
extent the Trust will consider the payment of quarterly dividends in excess of
REIT distribution requirements. See "Market Price Information and Dividend
Policy."
The Company will require sources of capital in addition to cash from
operating activities to finance acquisition, tenant installation, development
and property expansion activities. Sources of this capital are planned to
include cash on hand, future equity or debt financings, including, for example,
the proposed offering of preferred shares following the consummation of the
Transaction which is intended to raise approximately $75 million to $100
million, and refinancing of its properties. With the repayment of approximately
$87.0 million of indebtedness at Closing from the Cash Investment, 13 retail
properties in the combined portfolio will become unencumbered. As a result, the
Company expects to be able to obtain a substantial credit facility on favorable
terms commensurate with the deleveraged balance sheet and the size and
diversity of the combined portfolio of properties. Further, the Company expects
that it will also from time to time issue Units as consideration in connection
with future property acquisitions.
Funds from Operations
The Company, along with most industry analysts, consider funds from
operations("FFO") as defined by the National Association of Real Estate
Investment Trusts ("NAREIT")as an appropriate supplemental measure of operating
performance. However, FFO does not represent cash generated from operations as
defined by generally accepted accounting principles and is not indicative of
cash available to fund cash needs. It should not be considered as an
alternative to net income for the purpose of evaluating the Company's
performance or to cash flows as a measure of liquidity. Generally, NAREIT
defines FFO as net income (loss) before gains (losses) on sales of property,
non-recurring charges and extraordinary items, adjusted for certain non-cash
charges, primarily depreciation and amortization of capitalized leasing costs.
51
<PAGE>
MARK CENTERS TRUST
FUNDS FROM OPERATIONS
For the Three Months Ended March 31, 1998 and 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
----------- ----------
<S> <C> <C>
Revenue
Minimum rents(a) ......................................................... $ 8,407 $ 8,349
Percentage rents ......................................................... 565 684
Expense reimbursements ................................................... 1,753 1,777
Other .................................................................... 169 219
-------- --------
Total revenue ......................................................... 10,894 11,029
-------- --------
Expenses
Property operating(b) .................................................... 2,262 2,553
Real estate taxes ........................................................ 1,428 1,439
General and administrative ............................................... 447 531
-------- --------
Total operating expenses .............................................. 4,137 4,523
-------- --------
Operating income ......................................................... 6,757 6,506
Interest expense ......................................................... 3,923 3,736
Amortization of deferred financing costs ................................. 145 149
Depreciation of non-real estate assets ................................... 47 52
-------- --------
Funds from operations .................................................... $ 2,642 $ 2,569
======== ========
Funds from operations per share (c) ...................................... $ 0.26 $ 0.25
======== ========
Reconciliation of funds from operations to net income
determined in accordance with Generally Accepted
Accounting Principles (GAAP)
Funds from operations above .............................................. $ 2,642 $ 2,569
Depreciation of real estate and amortization
of leasing costs ........................................................ (3,281) (3,123)
Straight-line rents and related write-offs (net) ......................... 29 94
Minority interest ........................................................ 88 71
Loss on sale of property ................................................. -- (12)
Other non-cash adjustments ............................................... (11) (15)
-------- --------
Net loss ................................................................ $ (533) $ (416)
======== ========
Net loss per share (d) .................................................. $ (0.06) $ (0.05)
======== ========
</TABLE>
- ------------
(a) Excludes income from straight-lining of rents.
(b) Represents all expenses other than depreciation, amortization, write-off of
unbilled rent receivables recognized on a straight-line basis and the
non-cash charge for compensation expense related to the Company's
restricted share plan.
(c) Assumes full conversion of 1,623,000 OP Units into common shares of the
Company for the three months ended March 31, 1998 and 1997, respectively,
for a total of 10,177,177 and 10,171,817 shares, respectively.
(d) Net loss per share (basic and diluted) is computed based on the weighted
average number of shares outstanding for the three months ended March 31,
1998 and 1997 of 8,554,177 and 8,548,817, respectively.
52
<PAGE>
Historical Cash Flow
The following discussion of historical cash flow compares the Company's
cash flows for 1997 with 1996.
Net cash provided by operating activities decreased $815,000 to $13.2
million in 1997 from $14.1 million in 1996. This decrease was primarily
attributable to a $1.3 million decrease in cash provided by net income as
adjusted for non-cash expenses including depreciation, amortization, property
carrying value adjustment and the write-off of deferred financing costs. This
was offset by a $525,000 increase in cash provided by changes in operating
assets, primarily an increase in accounts payable related to operations in
1997.
Investing activities used $10.5 million during 1997, a decrease of $9.5
million from $20.0 million for 1996 due primarily to greater development costs
paid associated with the Union Plaza in New Castle, Pennsylvania in 1996.
Net cash used in financing activities was $5.4 million for 1997,
representing a $12.2 million decrease from net cash provided by financing
activities of $6.8 million for 1996. This decrease is primarily attributable to
a decrease in borrowings related to property investment in 1997.
Inflation
The Company's long-term leases contain provisions designed to mitigate the
adverse impact of inflation on the Company's net income. Such provisions
include clauses enabling the Company to receive percentage rents based on
tenants' gross sales, which generally increase as prices rise, and/or, in
certain cases, escalation clauses, which generally increase rental rates during
the terms of the leases. Such escalation clauses are often related to increases
in the consumer price index or similar inflation indexes. In addition, many of
the Company's leases are for terms of less than 10 years, which permit the
Company to seek to increase rents upon re-rental at market rates if rents are
below the then existing market rates. Most of the Company's leases require the
tenants to pay their share of operating expenses, including common area
maintenance, real estate taxes, insurance and utilities, thereby reducing the
Company's exposure to increases in costs and operating expenses resulting from
inflation.
Year 2000 Compliance
The Company is in the process of evaluating its major information systems
to verify that they are Year 2000 compliant. If these systems are not
compliant, the appropriate upgrades will be purchased. The cost of any required
upgrades are not anticipated to be significant. In addition, the Company is
communicating with its customers, suppliers and service providers to determine
whether they are actively involved in projects to ensure that their products
and business systems will be Year 2000 compliant. The Company is not aware of
any significant Year 2000 issues involving its customers, suppliers or service
providers.
RDC GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "The RDC Group
Selected Financial Information" and the combined financial statements of the
RDC Group and the notes thereto, appearing elsewhere in this Proxy Statement.
At December 31, 1997, the RDC Properties consisted of 16 assets comprised
of eleven retail and five multi-family properties. During the quarter ending
March 31, 1998, the RDC Group acquired an additional retail property located in
Greenwich, Connecticut which is currently being redeveloped. Subsequent to
March 31, 1998, the RDC Group acquired two additional shopping centers
totalling 255,306 square feet which are located in Smithtown, New York and
Methuen, Massachusetts. As a result, the RDC Properties currently consist of 19
assets totaling approximately 4.1 million square feet and comprising 13 retail
properties, five multi-family properties and one redevelopment property.
The RDC retail properties, which currently approximate 2.2 million square
feet, are located primarily throughout the northeast/mid-atlantic and midwest
regions of the United States. Their occupancy rate was approximately 92% as of
both March 31, 1998 and December 31, 1997.
53
<PAGE>
The RDC multi-family properties, which have averaged over 90% occupancy
over the past three years, comprise five garden apartment communities
containing 2,273 units and are located in the mid-atlantic and midwest regions.
The occupancy rate for the multi-family properties was approximately 90% as of
March 31, 1998 and 91% as of December 31, 1997.
Results of Operations
Comparison of the Three Months Ended March 31, 1998 ("1998Q") to the Three
Months Ended March 31, 1997 ("1997Q")
Total revenues increased $0.8 million, or 9.2%, to $9.2 million for 1998Q
compared to $8.4 million for 1997Q.
Minimum rents increased $0.5 million, or 8.1% for 1998Q, primarily as a
result of the post March 31, 1997 acquisition of two shopping centers, The
Marketplace of Absecon and Town Line Plaza, and the re-anchoring and expansion
of the Merrillville Plaza Shopping Center. Construction related to this
expansion was completed in 1997 and the tenant, JC Penney Home Store, took
occupancy and commenced paying rent in January 1998.
Percentage rent decreased $46,000, or 32.4%, for 1998Q, primarily due to
the reinstatement of minimum rent for a tenant at the Merrillville Plaza
Shopping Center who had been paying percentage rent until the anchor tenant was
replaced as described above.
Expense reimbursements increased $155,000, or 14.9%, primarily due to post
March 31, 1997 acquisitions.
Fees and commissions increased $185,000, or 46.8%, primarily as a result
of additional leasing and construction management fees during 1998Q.
Equity in earnings of a 49% partnership interest in the Crossroads
Shopping Center decreased $110,000, or 65.1%, primarily due to additional
interest costs resulting from the refinancing of the underlying mortgage debt
in August 1997. The existing debt, which had a balance of $23.5 million, was
replaced with a new mortgage debt of $36 million. The excess refinancing
proceeds were distributed to the partners and used by the RDC Group to pay off
mezzanine debt which was used to finance the acquisition of this partnership
interest in September 1995.
Other income increased $61,000, or 29%, primarily as a result of
additional interest income earned for 1998Q.
Total operating expenses for 1998Q increased $0.7 million, or 8.5%, to
$8.7 million compared to $8 million for 1997Q.
Property operating expenses increased $332,000 or 16.7%, primarily as a
result of post March 31, 1997 acquisitions and non-recurring legal expenses
during 1998Q.
Real estate taxes increased $101,000 or 11%, primarily due to post March
31, 1997 acquisitions.
Interest expense increased $83,000 or 2.9%, primarily due to increases in
mortgage indebtedness associated with two shopping centers which were financed
after March 31, 1997, partially offset by a decrease in interest associated
with the payment of the mezzanine debt related to the Crossroads Shopping
Center which was described above.
General and administrative expenses increased $136,000, or 20.3%,
primarily due to increases in salaries attributable to additional senior
management and staff personnel hired during the current period.
Net income increased $87,000, or 22.7%, primarily due to the factors
discussed above.
Comparison of the Year Ended December 31, 1997 ("1997") to the Year Ended
December 31, 1996 ("1996")
Total revenues increased $4.3 million, or 13.9%, to $35 million in 1997
compared to $30.7 million in 1996, due primarily to increases in minimum rents
of $3.1 million and expense reimbursements from tenants of $0.8 million. These
increases were primarily due to two shopping center acquisitions in 1997 and in
1996. The Marketplace of Absecon and Town Line Plaza were acquired in April and
September, 1997, respectively (the "1997 Acquisitions"). In addition, Hobson
Plaza West and the Smithtown Shopping Center were acquired during the fourth
quarter of 1996 (the "1996 Acquisitions") resulting in partial year revenues
being included for 1996. The remaining increase in total revenues of $0.4
million was primarily attributable to additional fees and commissions and
increases in equity in earnings of an unconsolidated 49% partnership interest.
54
<PAGE>
Total operating expenses for 1997 increased $1.1 million, or 3.4%, to
$33.4 million compared to $32.3 million in 1996.
Property operating expenses increased $318,000, or 4.2%, to $7.8 million
for 1997 compared to $7.5 million in 1996, due primarily to the 1996 and 1997
Acquisitions offset by a decrease in snow removal costs due to the
comparatively mild winter experienced in the Northeast during 1997.
Real estate taxes increased $630,000, or 19.6%, to $3.8 million for 1997
from $3.2 million for 1996, primarily due to increases resulting from 1996 and
1997 Acquisitions and increases in tax rates and assessed valuations, offset by
a tax decrease at Glen Oaks Apartments resulting from a successful tax appeal.
Interest expense increased $353,000, or 3%, to $11.9 million in 1997,
compared to $11.5 million in 1996, primarily due to the increase in mortgage
indebtedness associated with 1997 and 1996 Acquisitions, partially offset by
decreases in the effective interest rates on variable rate debt resulting from
the refinancing or restructuring of certain loans.
General and administrative expenses decreased $129,000, or 3.4%, to $3.7
million for 1997 as compared to $3.8 million in 1996. This decrease was
primarily due to a non-recurring fee to an affiliate that was paid in 1996 in
the amount of $775,000 offset by increases in salaries attributable to
additional senior management and staff personnel hired in 1997 and additional
general and administrative expenses resulting from 1997 and 1996 Acquisitions.
Income before extraordinary item increased $3.1 million, or 195.8%, to
$1.5 million in 1997 compared to a loss of $1.6 million in 1996 due to the
factors discussed above.
An extraordinary gain of $3.5 million in 1996 resulted from the early
settlement of a mortgage obligation at a discount.
Comparison of the Year Ended December 31, 1996 ("1996") to the Year Ended
December 31, 1995 ("1995")
Total revenues increased $0.7 million, or 2.4% to $30.7 million in 1996
compared to $30 million in 1995.
Minimum rents increased $0.9 million, or 4%, in 1996, primarily as a
result of 1996 Acquisitions as well as new leasing and re-tenanting within the
portfolio at improved rental rates. In addition, the Colony Apartments were
acquired in May 1995 resulting in partial year revenues being included for 1995
(the "1995 Acquisition"). These increases were partially offset by the loss of
an anchor tenant at the Merrillville Shopping Center. This tenant was
subsequently replaced with a larger anchor, JC Penney Home Store, at increased
rental rates. Construction related to this expansion was completed in 1997 and
the tenant took occupancy and commenced paying rent in January 1998.
Percentage rent decreased $45,000, or 12.4%, in 1996, primarily due to a
lease modification and extension at the Elmwood Shopping Center that resulted
in a higher sales breakpoint offset by an increase in minimum rent.
Expense reimbursements increased $172,000, or 5%, primarily due to
increases in occupancy.
Other income increased $220,000, or 31.6%, primarily due to a real estate
tax refund applicable to earlier years.
Fees and commissions decreased $879,000, or 35.5% primarily as a result of
a third party asset management contract which expired in 1995 and a net
decrease in other third party fees.
Equity in earnings of a 49% partnership interest in the Crossroads
Shopping Center, which was acquired on September 7, 1995, increased $293,000,
or 123% as a result of the inclusion of a full year of operating results for
1996.
Total operating expenses for 1996 increased $1.1 million or 3.4%, to $32.3
million compared to $31.2 million in 1995. This increase is primarily due to an
$0.8 million increase in depreciation and amortization expense resulting from
the write-off of unamortized tenant improvements and leasing costs associated
with a tenant that
55
<PAGE>
vacated in 1996 and increased amortization of deferred loan costs and tenant
improvements due to a refinancing in December 1995 and renovations within the
existing portfolio. The increases in general and administrative expenses of
$0.3 million, which was due primarily to staffing increases, was offset against
a $0.3 million decrease in property operating expenses.
Interest expense increased $254,000, or 2.3%, to 11.5 million in 1996,
compared to $11.3 million in 1995, primarily due to the increase in mortgage
indebtedness associated with 1996 and 1995 Acquisitions, partially offset by
decreases in the effective interest rates on variable rate debt.
Loss before extraordinary item increased $0.4 million, or 28.9%, to $1.6
million in 1996 compared to a loss of $1.2 million in 1995 due to the factors
discussed above.
An extraordinary gain of $3.5 million in 1996 resulted from the early
settlement of a mortgage obligation at a discount.
Liquidity and Capital Resources
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and routine capital expenditures. Major
capital expenditures and property acquisitions have been historically financed
through partner capital contributions and mortgage debt. The RDC Group expects
to meet its short-term liquidity requirements generally through its working
capital and net cash provided by operating activities.
The RDC Group does not generally reserve funds to retire mortgages upon
maturity. Instead, The RDC Group seeks to refinance such debt at maturity. The
RDC Group anticipates that its available cash and cash equivalents and cash
flows from operating activities, together with cash available from borrowings
and partner contributions, will be adequate to meet The RDC Group s capital and
liquidity needs both in the short and long term.
Net cash provided by operating activities increased to $1.5 million in
1998Q from $1 million for 1997Q primarily due to increases in net income, which
were described in detail above, and net changes in operating assets and
liabilities (primarily receivables and prepaid expenses offsetting changes in
accounts payable).
Net cash provided by operating activities increased to $8 million in 1997
from $5.2 million for 1996 primarily due to the acquisition of new properties
during 1997, the realization of a full year's operations from properties
purchased in 1996 and improved property performance. Net cash provided by
operating activities increased to $5.2 million in 1996 from $2.9 million for
the year ended December 31, 1995 primarily due to net changes in operating
assets and liabilities.
Net cash used in investing activities decreased to $9.6 million in 1998Q
from $10.5 million for 1997Q. This decrease was primarily due to a slight
decrease in acquisition activity during the current quarter in the amount of
$0.6 million and additional distributions of operating cash flow of $0.4
million received from the investment (49% partnership interest) in the
Crossroads Shopping Center.
Net cash used in investing activities increased to $14.4 million in 1997
from $7.8 million for 1996. This increase was primarily attributable to an
increase in property acquisitions and related redevelopment, the expansion of
the Merrillville Plaza Shopping Center and the renovation of two residential
properties, which collectively totalled $12 million. The increase was partially
offset by additional distributions, totalling $5.6 million, received with
respect to the investment (49% partnership interest) in the Crossroads Shopping
Center. The majority of this distribution related to the refinancing of the
underlying partnership debt in 1997. Proceeds from this distribution were
primarily used to discharge debt, which approximated $5.3 million, that was
used to finance the acquisition of the partnership interest in 1995.
Net cash used in investing activities decreased to $7.8 million in 1996
from $16.4 million for 1995. This decrease was primarily attributable to the
purchase of the 49% partnership interest in Crossroads Shopping Center for $9
million and the refinancing of five of the properties in 1995 which resulted in
a net increase of deferred charges of approximately $2.3 million. This decrease
was partially offset against an increase attributable to additional property
acquisitions and improvements of $3.2 million in 1996.
56
<PAGE>
Net cash provided by financing activities increased to $10.7 million in
1998Q from $10.3 million for 1997Q. This increase was primarily attributable to
an increase in minority interest of $0.6 million and a net increase in mortgage
borrowings of $2 million which resulted from the net affect of property
acquisitions and refinancings, offset by a $2.5 million decrease in capital
contributions.
Net cash provided by financing activities increased to $7.8 million in
1997 from $5.2 million for 1996. This increase was primarily attributable to an
increase in capital contributions from partners of $10.1 million, which were
primarily used for property acquisitions and redevelopment. This increase was
partially offset by a $5.1 million repayment of a note associated with the 49%
partnership interest in the Crossroads Shopping Center and increases in
distributions to partners totalling $2.6 million.
Net cash provided by financing activities decreased by $8.4 million to
$5.2 million for 1996 compared to $13.6 million in the same period in 1995.
This decrease was primarily due to a $5.1 million reduction in borrowings
associated with the financing of the 49% partnership interest in the Crossroads
Shopping Center which was acquired in 1995. Additionally, there was a net
decrease in mortgage borrowings of $2.4 million which resulted from the net
affect of property acquisitions and the refinancing of five properties in 1995.
The remaining difference of approximately $0.9 million was primarily
attributable to an increase of $2.8 million in capital contributions, which
were primarily used for property acquisitions, offset against a net increase in
amounts distributed to the partners of $3.6 million.
MARK CENTERS TRUST SELECTED FINANCIAL INFORMATION
The selected historical consolidated financial information as of and for
each of the four years in the period ended December 31, 1997 and for the period
June 1, 1993 to December 31, 1993 is derived from the audited consolidated
financial statements of Mark Centers Trust. Reference is made to the historical
audited consolidated financial statements as of December 31, 1997 and for each
of the three years in the period then ended appearing elsewhere herein. The
selected historical financial information for Mark Development Group, the
Company's predecessor ("MDG"), for the period January 1, 1993 to May 31, 1993
is derived from the audited financial statements of MDG. The selected
historical consolidated financial information as of and for the fiscal quarters
ended March 31, 1998 and 1997 is unaudited, and has been prepared on a basis
consistent with the audited historical consolidated financial statements. In
the opinion of management, all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the unaudited summary
financial information have been made. The historical data should be read in
conjunction with the "Mark Centers Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein. All
of the data set forth below are qualified by reference to, and should be read
in conjunction with, the unaudited pro forma combined financial information and
notes thereto included elsewhere herein.
57
<PAGE>
MARK CENTERS TRUST
<TABLE>
<CAPTION>
Pro Forma Pro Forma Three Months Three Months
Combined Combined Ended Ended
3/31/98 12/31/97 3/31/98 3/31/97
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Minimum rents ........................... $ 16,107 $ 63,238 $ 8,464 $ 8,444
Percentage rents ........................ 840 3,676 565 684
Expense reimbursements .................. 2,993 11,732 1,753 1,777
Other ................................... 762 3,574 169 219
------------ ----------- ----------- -----------
Total revenue ......................... 20,702 82,220 10,951 11,124
------------ ----------- ----------- -----------
Operating expenses ...................... 8,612 33,585 4,176 4,539
Interest and other financing expense 5,224 21,473 3,923 3,736
Depreciation and amortization ........... 4,714 18,660 3,473 3,324
------------ ----------- ----------- -----------
18,550 73,718 11,572 11,599
------------ ----------- ----------- -----------
(Loss) income before gain on sale,
reorganization costs,
extraordinary items and minority
interest ............................... 2,152 8,502 (621) (475)
(Loss) gain on sale of land ............. -- (12) (12)
Reorganization costs .................... -- -- -- --
Extraordinary items ..................... -- -- -- --
------------ ----------- ----------- -----------
(Loss) income before minority
interest ............................... 2,152 8,490 (621) (487)
Minority interest ....................... (705) (2,780) 88 71
------------ ----------- ----------- -----------
Net (loss) income ....................... $ 1,447 $ 5,710 $ (533) $ (416)
============ =========== =========== ===========
Net (loss) income per Common
Share
-- basic and diluted ................... $ 0.06 $ 0.23 $ (0.06) $ (0.05)
============ =========== =========== ===========
Weighted average number of
Common Shares outstanding
-- basic ............................... 24,484,465 24,482,218 8,554,177 8,548,817
============ =========== =========== ===========
-- diluted(1) .......................... 24,488,265 24,486,018 8,554,177 8,548,817
============ =========== =========== ===========
Funds from Operations(2) ................ $ -- $ -- $ 2,642 $ 2,569
============ =========== =========== ===========
Funds from Operations per share(3) $ -- $ -- $ 0.26 $ 0.25
============ =========== =========== ===========
BALANCE SHEET DATA:
Real estate before accumulated
depreciation ........................... $ 576,111 N/A $ 311,541 $ 306,926
Total assets ............................ 524,433 N/A 255,787 262,815
Total mortgage indebtedness ............ 252,977 N/A 185,240 184,974
Minority interest -- Operating
Partnership ............................ 86,931 N/A 9,144 10,079
Total equity (deficit) .................. 173,691 N/A 48,267 53,312
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARK
DEVELOPMENT
GROUP
-------------
Seven Five
Year Ended Year Ended Year Ended Year Ended Months Ended Months Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 5/31/93
---------- ---------- ---------- ---------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Minimum rents ........................... $ 33,669 $ 33,695 $ 32,740 $ 27,543 $ 12,971 $ 9,267
Percentage rents ........................ 3,183 2,795 3,340 2,505 1,644 1,147
Expense reimbursements .................. 6,632 6,559 6,431 5,220 2,629 1,687
Other ................................... 1,014 747 821 1,065 961 72
----------- ----------- ----------- ----------- ----------- ---------
Total revenue ......................... 44,498 43,796 43,332 36,333 18,205 12,173
----------- ----------- ----------- ----------- ----------- ---------
Operating expenses ...................... 17,055 18,260 16,374 14,797 7,718 5,182
Interest and other financing expense 15,444 12,733 10,598 5,763 2,094 5,172
Depreciation and amortization ........... 13,768 13,398 11,820 9,066 3,945 2,934
----------- ----------- ----------- ----------- ----------- ---------
46,267 44,391 38,792 29,626 13,757 13,288
----------- ----------- ----------- ----------- ----------- ---------
(Loss) income before gain on sale,
reorganization costs,
extraordinary items and minority
interest ............................... (1,769) (595) 4,540 6,707 4,448 (1,115)
(Loss) gain on sale of land ............. 21 93 305 -- --
Reorganization costs .................... -- -- -- -- (2,629) --
Extraordinary items ..................... -- (190) -- -- 194 --
----------- ----------- ----------- ----------- ----------- ---------
(Loss) income before minority
interest ............................... (1,781) (764) 4,633 7,012 2,013 (1,115)
Minority interest ....................... 217 40 (833) (1,222) (321) 39
----------- ----------- ----------- ----------- ----------- ---------
Net (loss) income ....................... $ (1,564) $ (724) $ 3,800 $ 5,790 $ 1,692 $ (1,076)
=========== =========== =========== =========== =========== =========
Net (loss) income per Common
Share
-- basic and diluted ................... $ (0.18) $ (.08) $ 0.44 $ 0.68 $ 0.20
=========== =========== =========== =========== ===========
Weighted average number of
Common Shares outstanding
-- basic ............................... 8,551,930 8,546,553 8,540,631 8,533,688 8,445,493
=========== =========== =========== =========== ===========
-- diluted(1) .......................... 8,551,930 8,546,553 8,563,466 8,563,529 8,490,114
=========== =========== =========== =========== ===========
Funds from Operations(2) ................ $ 10,827 $ 12,372 $ 15,281 $ 14,831 $ 8,262
=========== =========== =========== =========== ===========
Funds from Operations per share(3) $ 1.06 $ 1.22 $ 1.50 $ 1.46 $ 0.81
=========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Real estate before accumulated
depreciation ........................... $ 311,688 $ 307,411 $ 291,157 $ 278,611 $ 210,133 $ 163,095
Total assets ............................ 254,500 258,517 249,515 242,483 180,083 127,968
Total mortgage indebtedness ............ 183,943 172,823 151,828 124,410 61,578 150,392
Minority interest -- Operating
Partnership ............................ 9,244 10,752 13,228 14,827 16,049 --
Total equity (deficit) .................. 48,800 56,806 69,779 78,183 84,606 (32,993)
</TABLE>
- ------------
(1) Due to a net loss for the quarter ended March 31, 1998 and for the years
ended December 31, 1997 and 1996, the weighted average number of Common
Shares outstanding on a diluted basis is not presented as the inclusion of
additional Common Shares is anti-dilutive.
(2) The Company, along with most industry analysts, consider funds from
operations ("FFO") as defined by the National Association of Real Estate
Investment Trusts ("NAREIT") as an appropriate supplemental measure of
operating performance. However, FFO does not represent cash generated from
operations as defined by generally accepted accounting principles and is
not indicative of cash available to fund cash needs. It should not be
considered as an alternative to net income for the purpose of evaluating
the Company's performance or to cash flows as a measure of liquidity.
Generally, NAREIT defines FFO as net income (loss) before gains (losses)
on sales of property, non-recurring charges and extraordinary items,
adjusted for certain non-cash charges, primarily depreciation and
amortization of capitalized leasing costs.
(3) Includes Units.
58
<PAGE>
RDC GROUP SELECTED FINANCIAL INFORMATION
The selected historical combined financial information as of December 31,
1997, 1996 and 1995 and for the three years in the period ended December 31,
1997 is derived from the audited combined financial statements of RDC Group.
Reference is made to the historical audited combined financial statements as of
December 31, 1997 and 1996 and for each of the years then ended appearing
elsewhere herein. The selected historical combined financial information as of
March 31, 1998 and 1997 and for the three month periods then ended, and as of
December 31, 1994 and 1993 and for the two years in the period ended December
31, 1994 is unaudited and has been prepared on a basis consistent with the
audited historical combined financial statements. In the opinion of management,
all adjustments (which consist only of normal recurring adjustments) necessary
to present fairly the selected financial information have been made. The
historical data should be read in conjunction with the "RDC Group Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. All of the data set forth below are qualified by
reference to, and should be read in conjunction with, the unaudited pro forma
combined financial information and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Three months ended Year Ended
3/31/98 3/31/97 12/31/97
(unaudited) (unaudited)
------------- ------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Real estate before accumulated depre-
ciation ................................ $194,496 $167,964 $184,778
Total assets ............................ 190,478 170,748 179,710
Total mortgage indebtedness ............. 140,599 124,789 138,805
Total equity ............................ 39,342 31,849 30,541
Operating Data:
Revenue
Rental income and
reimbursements ......................... $ 8,244 $ 7,612 $ 31,495
Other ................................... 271 210 883
Equity in earnings of partnership ....... 59 169 745
Fees and commissions .................... 580 395 1,838
-------- -------- --------
Total Revenue .......................... 9,154 8,386 34,961
Operating expenses ...................... 4,142 3,573 15,359
Interest ................................ 2,941 2,858 11,879
Depreciation and amortization ........... 1,600 1,571 6,211
-------- -------- --------
Total Operating Expenses ............... 8,683 8,002 33,449
Operating income ......................... 471 384 1,512
Extraordinary item ...................... -- -- --
Net income/(loss) ........................ $ 471 $ 384 $ 1,512
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94 12/31/93
(unaudited) (unaudited)
------------- ------------ ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Real estate before accumulated depre-
ciation ................................ $157,961 $150,707 $147,877 $103,828
Total assets ............................ 160,112 156,764 144,120 99,661
Total mortgage indebtedness ............. 125,079 124,311 118,741 93,144
Total equity ............................ 20,851 18,298 18,049 1,251
Operating Data:
Revenue
Rental income and
reimbursements ......................... $ 27,665 $ 26,593 $ 25,919 $ 19,055
Other ................................... 915 695 122 79
Equity in earnings of partnership ....... 531 238 -- --
Fees and commissions .................... 1,595 2,474 1,816 1,254
-------- -------- -------- --------
Total Revenue .......................... 30,706 30,000 27,857 20,388
Operating expenses ...................... 14,540 14,504 13,809 10,548
Interest ................................ 11,526 11,272 7,964 5,970
Depreciation and amortization ........... 6,218 5,447 6,027 4,886
-------- -------- -------- --------
Total Operating Expenses ............... 32,284 31,223 27,800 21,404
Operating income ......................... (1,578) (1,223) 57 (1,016)
Extraordinary item ...................... 3,461 -- 3,334 --
Net income/(loss) ........................ $ 1,883 $ (1,223) $ 3,391 $ (1,016)
======== ======== ======== ========
</TABLE>
59
<PAGE>
MARK CENTERS TRUST
PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The accompanying financial statements present the Trust's unaudited pro
forma combined Balance Sheet as of March 31, 1998 and its unaudited pro forma
combined Statements of Operations for the three-months ended March 31, 1998 and
the year ended December 31, 1997. The Trust will account for the Transaction
with RDC, and its certain real estate investment partnerships and related
entities which are not under common control (collectively, the "RDC Group") as
(i) a purchase of properties and other related assets in exchange for the
issuance of Common Shares and limited partnership interests in the Operating
Partnership and the assumption of certain mortgage debt and other liabilities
using the purchase method of accounting in accordance with generally accepted
accounting principles and, accordingly, 100% of the assets and liabilities of
the RDC Group will be adjusted to fair value and the results of operations of
the RDC Group will be included in the results of operations of the Trust for
periods subsequent to Closing, and (ii) an issuance of Common Shares for cash.
The unaudited pro forma combined Balance Sheet as of March 31, 1998 is
presented as if the Transaction had occurred on March 31, 1998. The unaudited
pro forma combined Statements of Operations for the three-months ended March
31, 1998 and the year ended December 31, 1997 is presented as if the
Transaction had occurred as of January 1, 1997 and carried forward through
March 31, 1998 and December 31, 1997, respectively. The pro forma combined
Statements of Operations do not reflect the payment of non-recurring expenses
aggregating $1,394,000 relating to contractual termination and change in
control payments to be made to certain members of management of the Trust in
connection with the Transaction.
The pro forma information is unaudited and is not necessarily indicative
of the results which actually would have occurred if the Transaction 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
consolidated historical financial statements of the Trust and the combined
historical financial statements of the RDC Group included in this Proxy
Statement.
60
<PAGE>
Mark Centers Trust
Pro Forma Combined Balance Sheet
March 31, 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
MCT Combined RDC
Historical Group Historical
(A) (A)
------------ ------------------
<S> <C> <C>
Assets
Investments in Properties,
Partnerships and Joint
Ventures, net .................. $228,437 $164,591
Cash and Cash Equivalents ....... 757 9,936
Cash in Escrow .................. 8,612 --
Rent Receivable, net ............ 4,105 4,675
Prepaid Expenses ................ 1,122 1,949
Due from Related Parties ........ 206 372
Furniture, Fixtures and
Equipment, net ................. 1,330
Deferred Charges, net ........... 11,625 5,166
Other Assets .................... 923 2,459
-------- --------
Total Assets .................... $255,787 $190,478
======== ========
Liabilities and Shareholders' Equity
Liabilities
Mortgage Notes Payable .......... $185,240 $140,559
Other Notes Payable ............. -- 3,526
Accounts Payable and
Accrued Expenses ............... 8,457 3,783
Due to Related Parties .......... -- 1,014
Note Payable to Principal
Shareholder .................... 3,050 --
Other Liabilities ............... 1,629 1,654
-------- --------
Total Liabilities ............... 198,376 150,536
Minority Interest ................ 9,144 600
Shareholders' Equity
Common Shares, $.001 par
value .......................... 9 --
Additional Paid-In Capital ...... 51,073 39,342
Retained Earnings (Deficit) ..... (2,815) --
-------- --------
Total Shareholders' Equity ...... 48,267 39,342
-------- --------
Total Liabilities and
Shareholders' Equity ........... $255,787 $190,478
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------------------------------------------
Acquisition of Pending Offering of Minority Pro Forma
RDC Group Property Common Stock Interest Combined
Acquisitions
(B) (C) (D) (E)
---------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Investments in Properties,
Partnerships and Joint
Ventures, net .................. $ 98,851 $1,128 $ $ $493,007
Cash and Cash Equivalents ....... (9,420) 3,380 4,653
Cash in Escrow .................. 8,612
Rent Receivable, net ............ (4,770) 4,010
Prepaid Expenses ................ (1,950) 75 1,196
Due from Related Parties ........ (417) (202) (41)
Furniture, Fixtures and
Equipment, net ................. (1,164) 166
Deferred Charges, net ........... (5,163) 11,628
Other Assets .................... (2,180) 1,202
-------- ------ --------- ---------- --------
Total Assets .................... $ 73,787 $ 926 $ 3,455 $ -- $524,433
======== ====== ========= ========== ========
Liabilities and Shareholders'
Equity
Liabilities
Mortgage Notes Payable .......... $ 8,912 $ 926 $ (82,660) $ $252,977
Other Notes Payable ............. (3,526) --
Accounts Payable and
Accrued Expenses ............... (3,746) 8,494
Due to Related Parties .......... (1,059) (45)
Note Payable to Principal
Shareholder .................... (3,050) --
Other Liabilities ............... (898) 2,385
-------- ------ --------- ---------- --------
Total Liabilities ............... (317) 926 (85,710) -- 263,811
Minority Interest ................ 1,750 75,437 86,931
Shareholders' Equity
Common Shares, $.001 par
value .......................... 2 13 24
Additional Paid-In Capital ...... 72,352 89,152 (75,437) 176,482
Retained Earnings (Deficit) ..... (2,815)
--------
Total Shareholders' Equity ...... 72,354 -- 89,165 (75,437) 173,691
-------- ------ --------- ---------- --------
Total Liabilities and
Shareholders' Equity ........... $ 73,787 $ 926 $ 3,455 $ -- $524,433
======== ====== ========= ========== ========
</TABLE>
The accompanying notes and management's assumptions are an integral part of
this statement.
61
<PAGE>
Mark Centers Trust
Notes to Pro Forma Combined Balance Sheet
March 31, 1998
(Dollars In Thousands)
(Unaudited)
(A) Represents the Trust and RDC Group historical balance sheets at March
31, 1998.
(B) Represents adjustments to record the purchase by the Trust of the RDC
Properties, RDC Management Contracts and Contributed Notes (including the
purchases of the Greenwich property (acquired by the RDC Group in January, 1998
for $9,046), the Branch shopping center (acquired in April, 1998 for a purchase
price, including closing costs, of $14,500 including debt of $9,800) and the
Methuen shopping center (acquired by the RDC Group in May, 1998 for a purchase
price of $4,465)) based upon an assumed purchase price of $96.7 million and the
assumption of certain mortgage debt and other liabilities based on a value of
MCT Common Shares of $7.50 and an exchange ratio of 1.0 for Operating
Partnership Units into Common Shares, as well as other events effecting the
capital structure of the RDC Group as follows:
<TABLE>
<CAPTION>
Total
(i) (ii) (iii) (iv) Adjustment
---------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Assets
Investments in Properties, Partnerships
and Joint Ventures, net ................ $ 98,851 $ $ $ $ 98,851
Cash and Cash Equivalents ............... (9,420) (9,420)
Cash in Escrow .......................... --
Rent Receivable, net .................... (3,029) (1,741) (4,770)
Prepaid Expenses ........................ (1,294) (656) (1,950)
Due from Related Parties ................ (417) (417)
Furniture, Fixtures and Equipment, net (1,164) (1,164)
Deferred Charges, net ................... (5,163) (5,163)
Other Assets ............................ (2,180) (2,180)
-------- --------- -------- ------ --------
Total Assets ............................ $ 89,495 $ (15,052) $ (656) $ -- $ 73,787
======== ========= ======== ====== ========
Liabilities
Mortgage Notes Payable .................. $ 9,800 $ (888) $ $ $ 8,912
Other Notes Payable ..................... (568) (2,958) (3,526)
Accounts Payable and Accrued
Expenses ............................... (2,956) (790) (3,746)
Due to Related Parties .................. (500) (559) (1,059)
Other Liabilities ....................... (898) (898)
-------- --------- -------- ------ --------
Total Liabilities ....................... 9,800 (5,810) (3,748) (559) (317)
-------- --------- -------- ------ --------
Minority Interest ....................... 1,750 -- -- -- 1,750
Common Shares, $ .001 par value ......... 2 -- -- -- 2
Additional Paid-In Capital .............. 77,943 (9,242) 3,092 559 72,352
Retained Earnings (Deficit) .............
Total Shareholders' Equity .............. 77,945 (9,242) 3,092 559 72,354
-------- --------- -------- ------ --------
Total Liabilities and Shareholders'
Equity ................................. $ 89,495 $ (15,052) $ (656) $ -- $ 73,787
======== ========= ======== ====== ========
</TABLE>
62
<PAGE>
Cost:
<TABLE>
<S> <C>
(i) 11,100,000 Operating Partnership Units and
1,796,955 Common Shares (multiplied by the
exchange ratio and the value of MCT Common
Shares of $7.50 per share)....................... $ 96,727
Mortgage notes assumed .................................. 150,359
Minority interests in properties ........................ 2,350
Assumed liabilities and other transaction costs ......... 5,169
--------
$254,605
Less: Historical book value of the RDC Group equity
acquired ............................................... 153,196
Adjustments to reflect certain assets and liabilities of
the RDC Group at fair value:
Straight-line rents receivable .......................... 3,029
Furniture, fixtures & equipment ......................... 1,324
Deferred charges, net ................................... 5,197
Investment in partnership ............................... 2,364
--------
Adjustment required to reflect investment in proper-
ties, partnerships and joint ventures, net at fair
value .................................................. $ 89,495
--------
</TABLE>
Final Distribution to the RDC Group:
(ii) In connection with the Transaction, represents a final distribution
of $9,242 representing the net working capital assets and liabilities of
the RDC Group after making provision for certain costs aggregating $1,589
related to the Transaction which were the responsibility of the RDC Group.
Other:
(iii) In connection with the Transaction, certain subordinated mortgage
notes payable to an affiliate having an aggregate outstanding balance of
$2,958 and accrued interest of $790 and certain receivables from limited
partners for capital contributions having an aggregate balance of $656
were extinguished and charged to equity.
(iv) In connection with the Transaction, $559 payable to a principal of
RDC was assumed to be reclassified as equity.
(C) To reflect the acquisition by the Trust of the Blackman Shopping
Center for a net purchase price of $1,128
(D) To record the issuance of 13,333,333 Common Shares with a par value of
$ .001 per share for $100 million and the use of proceeds therefrom, as
follows:
63
<PAGE>
Use of Proceeds:
Repayment of mortgage notes payable ................... $ 82,660
Repayment of note payable to shareholder .............. 3,050
Transaction costs allocable to stock issuance ......... 3,876
Transaction costs allocable to RDC Properties, RDC
Management Contracts and Contributed Notes ........... 3,881
Payment of liabilities assumed in connection with
acquisition of RDC Properties, RDC Management
Contracts and Contributed Notes ...................... 1,288
Prepayment and assumption fees on mortgage notes
repaid .............................................. 371
Contractual payments to Trust management person-
nel pursuant to severance and change in control
obligations ......................................... 1,494
Additions to working capital .......................... 3,380
--------
$100,000
========
(E) To reflect Minority Interest in the Trust attributable to Operating
Partnership Units at March 31, 1998 after giving effect to the Transaction, and
to the exchange of 800,000 Units for an equivalent number of Common Shares by a
limited partner as follows:
Total pro-forma stockholders' equity and minority
interest ............................................ $ 258,272
Minority interest ownership percentage ............... 32.7488%
------------
Minority interest in the equity of the Trust ......... $ 84,581
============
64
<PAGE>
Mark Centers Trust
Pro Forma Combined Statement of Operations
Three Months Ended March 31, 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
MCT Combined RDC
Historical Group Historical
(A) (A)
------------- ------------------
<S> <C> <C>
Minimum Rent ..................... $ 8,464 $6,954
Percentage Rent .................. 565 96
Expense Reimbursements ........... 1,753 1,194
Other ............................ 169 271
Fees & Commissions ............... -- 580
Equity in earnings of
partnership ..................... -- 59
----------- ------
Total Revenue ................... 10,951 9,154
Expenses
Property Operating ............... 2,292 2,322
Real Estate Taxes ................ 1,428 1,014
Depreciation and Amortization 3,473 1,600
General and Administrative ....... 456 806
----------- ------
Total Operating Expenses ........ 7,649 5,742
Operating Income .................. 3,302 3,412
Interest Expense .................. 3,923 2,941
Gain (Loss) on Sale of Land ....... --
----------- ------
(Loss)/Income before Minority
Interest ......................... (621) 471
Minority Interest ................. 88 --
----------- ------
Net (Loss)/Income ................. $ (533) $ 471
=========== ======
Net (Loss)/Income per common
share:
Basic .......................... $ (0.06)
===========
Diluted ........................ n/a
Weighted Average Shares
Outstanding (F):
Basic .......................... 8,554,177
===========
Diluted ........................ n/a
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------------------------------------
Acquisition of Pending Offering of Minority Pro Forma
RDC Group Property Common Stock Interest Combined
Acquisitions
(B) (C) (D) (E)
---------------- ------------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Minimum Rent ..................... $ 79 $ 610 $ $ $ 16,107
Percentage Rent .................. 179 840
Expense Reimbursements ........... 46 2,993
Other ............................ 440
Fees & Commissions ............... (317) 263
Equity in earnings of
partnership ..................... 59
------- ------- --------- ------ ------------
Total Revenue ................... 79 518 -- -- 20,702
Expenses
Property Operating ............... 142 4,756
Real Estate Taxes ................ 127 2,569
Depreciation and Amortization (468) 109 4,714
General and Administrative ....... 25 1,287
------- ------- --------- ------ ------------
Total Operating Expenses ........ (468) 378 25 -- 13,326
Operating Income .................. 547 140 (25) 7,376
Interest Expense .................. 20 (1,660) 5,224
Gain (Loss) on Sale of Land ....... --
------------
(Loss)/Income before Minority
Interest ......................... 547 120 1,635 -- 2,152
Minority Interest ................. -- (793) (705)
------- ------- --------- ------ ------------
Net (Loss)/Income ................. $ 547 $ 120 $ 1,635 $ (793) $ 1,447
======= ======= ========= ====== ============
Net (Loss)/Income per common
share:
Basic .......................... $ 0.06
============
Diluted ........................ $ 0.06
============
Weighted Average Shares
Outstanding (F):
Basic .......................... 24,484,465
============
Diluted ........................ 24,488,265
============
</TABLE>
The accompanying notes and management's assumptions are an integral part of
this statement.
65
<PAGE>
Mark Centers Trust
Notes to Pro Forma Combined Statement of Operations
March 31, 1998
(Dollars In Thousands)
(Unaudited)
(A) Represents the Trust and the RDC Group historical statements of
operations for the three-months ended March 31, 1998.
(B) (i) To adjust minimum rent on the RDC Group to reflect straight-line
amounts related to leases which will be reset in connection with the
Transaction, as follows:
Historical straight-lined rent ......... $166
Reset straight-lined rent .............. 245
----
$ 79
====
(ii) To reflect the decrease in depreciation on the RDC Group as a
result of recording the Transaction at acquisition value as opposed to
historical cost and the changes in estimated useful lives.
<TABLE>
<S> <C>
Historical depreciation and amortization expense ......... $1,589
Pro forma depreciation expense ........................... 1,121
------
$ 468
======
</TABLE>
(C) (i) To reflect revenues and expenses of properties acquired in 1998,
as follows:
<TABLE>
<CAPTION>
Blackman Branch Methuen Total
---------- -------- --------- ------
<S> <C> <C> <C> <C>
Minimum rent ...................... $ 59 $436 $115 $610
Percentage rent ................... 26 112 41 179
Expense reimbursements ............ 21 -- 25 46
---- ---- ---- ----
Total revenues ........................... 106 548 181 835
Property operating ................ 26 111 9 146
Real estate taxes ................. 20 82 25 127
Interest .......................... 20 -- -- 20
Depreciation and amortization ..... 7 79 23 109
---- ---- ---- ----
Total expenses ........................... 73 272 57 402
---- ---- ---- ----
Net income ........................ $ 33 $276 $124 $433
==== ==== ==== ====
</TABLE>
(ii) To eliminate management fees of $4 charged by the Trust to the
Blackman property in 1998
(iii) To eliminate fees of $313 for acquisition and advisory services
charged by RD Capital to affiliated entities in 1998 which would not have
been earned.
(D) To adjust interest and financing expense as a result of the reduction
in debt in connection with the use of proceeds from the issuance of common
stock and to reflect the payments to Marvin Slomowitz relating to a consulting
and non-compete agreement in connection with the Transaction, as follows:
<TABLE>
<CAPTION>
Trust RDC Total
------- --------- ---------
<S> <C> <C> <C>
Reduction in interest and financing
expense (a) ......................... $556 $1,104 $1,660
Consulting fees/Non-compete agreement $ 25 $ 25
</TABLE>
- ------------
(a) For the Trust, assumes repayment of specifically identified debt
aggregating $14,440 having associated historical interest expense of $301
and the repayment of other debt aggregating $10,977 having interest of
$255 assuming a weighted average interest rate of 9.28%. For the RDC
Group, assumes repayment of specifically
66
<PAGE>
identified debt aggregating $40,819 having associated historical interest
expense of $904, the repayment of other debt aggregating $9,674 having
interest of $200 assuming a weighted average interest rate of 8.26%, and the
repayment of debt of $9,800 relating to the Branch shopping center
simultaneous with the assumed acquisition of the properties.
(E) To reflect minority interest share in income, as follows:
<TABLE>
<S> <C>
Total pro-forma income before minority interest ......... $ 2,152
Minority interest ownership percentage .................. 32.7488%
------------
Minority interest in the equity of the Trust ............ $ 705
============
</TABLE>
(F) The pro-forma weighted average shares outstanding is computed as
follows:
<TABLE>
<CAPTION>
Basic Diluted
------------ ------------
<S> <C> <C>
Trust historical weighted average shares outstanding. 8,554,177 8,557,977
Exchange of 800,000 Units for Common Shares by
limited partner .................................... 800,000 800,000
Issuance of Trust shares in connection with the
Transaction ........................................ 15,130,288 15,130,288
---------- ----------
24,484,465 24,488,265
========== ==========
</TABLE>
67
<PAGE>
Mark Centers Trust
Pro Forma Combined Statement of Operations
Year Ended December 31, 1997
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
MCT Combined RDC
Historical Group Historical
(A) (A)
------------- ------------------
<S> <C> <C>
Minimum Rent ..................... $ 33,669 $26,769
Percentage Rent .................. 3,183 302
Expense Reimbursements ........... 6,632 4,424
Other ............................ 1,014 883
Fees & Commissions ............... -- 1,838
Equity in earnings of
partnership ..................... -- 1,058
----------- -------
Total Revenue ................... 44,498 35,274
Expenses
Property Operating ............... 9,013 7,813
Real Estate Taxes ................ 5,691 3,840
Depreciation and Amortization 13,768 6,211
General and Administrative ....... 2,351 3,706
----------- -------
Total Operating Expenses ........ 30,823 21,570
Operating Income .................. 13,675 13,704
Interest Expense .................. 15,444 11,879
Gain (Loss) on Sale of Land ....... (12) --
----------- -------
(Loss)/Income before Minority
Interest ......................... (1,781) 1,825
Minority Interest ................. 217 --
----------- -------
Net (Loss)/Income ................. $ (1,564) $ 1,825
=========== =======
Net (Loss)/Income per common
share:
Basic .......................... $ (0.18)
===========
Diluted ........................ n/a
Weighted Average Shares
Outstanding (F):
Basic .......................... 8,551,930
===========
Diluted ........................ n/a
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------------------------------------------
Acquisition of Pending Offering of Minority Pro Forma
RDC Group Property Common Stock Interest Combined
Acquisitions
(B) (C) (D) (E)
---------------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Minimum Rent ..................... $ 363 $ 2,437 $ $ $ 63,238
Percentage Rent .................. 191 3,676
Expense Reimbursements ........... 676 11,732
Other ............................ 1,897
Fees & Commissions ............... (1,219) 619
Equity in earnings of
partnership ..................... 1,058
--------- --------- --------- -------- ------------
Total Revenue ................... 363 2,085 -- -- 82,220
Expenses
Property Operating ............... 560 17,386
Real Estate Taxes ................ 511 10,042
Depreciation and Amortization (1,755) 436 18,660
General and Administrative ....... 100 6,157
--------- --------- --------- -------- ------------
Total Operating Expenses ........ (1,755) 1,507 100 -- 52,245
Operating Income .................. 2,118 578 (100) 29,975
Interest Expense .................. 81 (5,931) 21,473
Gain (Loss) on Sale of Land ....... (12)
------------
(Loss)/Income before Minority
Interest ......................... 2,118 497 5,831 -- 8,490
Minority Interest ................. -- (2,997) (2,780)
--------- --------- --------- -------- ------------
Net (Loss)/Income ................. $ 2,118 $ 497 $ 5,831 $ (2,997) $ 5,710
========= ========= ========= ======== ============
Net (Loss)/Income per common
share:
Basic .......................... $ 0.23
============
Diluted ........................ $ 0.23
============
Weighted Average Shares
Outstanding (F):
Basic .......................... 24,482,218
============
Diluted ........................ 24,486,018
============
</TABLE>
The accompanying notes and management's assumptions are an integral part of
this statement.
68
<PAGE>
Mark Centers Trust
Notes to Pro Forma Combined Statement of Operations
December 31, 1997
(Dollars In Thousands)
(Unaudited)
(A) Represents the Trust and the RDC Group historical statements of
operations for the year ended December 31, 1997.
(B) (i) To adjust minimum rent on the RDC Group to reflect straight-line
amounts related to leases which will be reset in connection with the
Transaction, as follows:
Historical straight-lined rent ......... $618
Reset straight-lined rent .............. 981
----
$363
====
(ii) To reflect the decrease in depreciation on the RDC Group as a
result of recording the Transaction at acquisition value as opposed to
historical cost and the changes in estimated useful lives.
Historical depreciation and amortization expense ......... $6,226
Pro forma depreciation expense ........................... 4,471
------
$1,755
======
(C) (i) To reflect revenues and expenses of properties acquired in 1998,
as follows:
<TABLE>
<CAPTION>
Blackman Branch Methuen Total
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
Minimum rent ...................... $222 $1,747 $468 $2,437
Percentage rent ................... 114 -- 77 191
Expense reimbursements ............ 83 447 146 676
---- ------ ---- ------
Total revenues ........................... 419 2,194 691 3,304
Property operating ................ 85 412 63 560
Real estate taxes ................. 80 326 105 511
Interest .......................... 81 -- -- 81
Depreciation and amortization ..... 28 315 93 436
---- ------ ---- ------
Total expenses ........................... 274 1,053 261 1,588
---- ------ ---- ------
Net income ........................ $145 $1,141 $430 $1,716
==== ====== ==== ======
</TABLE>
(ii) To eliminate management fees of $19 charged by the Trust to the
Blackman property in 1997
(iii) To eliminate fees of $1,200 for acquisition and advisory services
charged by RD Capital to affiliated entities in 1997 which would not have
been earned.
(D) To adjust interest and financing expense as a result of the reduction
in debt in connection with the use of proceeds from the issuance of common
stock and to reflect the payments to Marvin Slomowitz relating to a consulting
and non-compete agreement in connection with the Transaction, as follows:
Trust RDC Total
--------- --------- --------
Reduction in interest and financing
expense (a) ......................... $2,221 $3,710 $5,931
Consulting fees/Non-compete agreement $ 100 $ 100
- ------------
(a) For the Trust, assumes repayment of specifically identified debt
aggregating $12,763 having associated historical interest expense of
$1,064 and the repayment of other debt aggregating $12,654 having interest
of $1,157 assuming a weighted average interest rate of 9.15%. For the RDC
Group, assumes repayment of specifically identified debt aggregating
$38,687 having associated historical interest expense of $3,098, the
69
<PAGE>
repayment of other debt aggregating $11,806 having interest of $983 assuming
a weighted average interest rate of 8.32%, the repayment of debt of $9,800
relating to the Branch shopping center simultaneous with the assumed
acquisition of the properties on January 1, 1997, offset by $371 of
prepayment and assumption fees to be incurred in connection with the RDC
Group debt.
(E) To reflect minority interest share in income, as follows:
<TABLE>
<S> <C>
Total pro-forma income before minority interest ........ $ 8,490
Minority interest ownership percentage ................. 32.7488%
-------------
Minority interest in the equity of the Trust ........... $ 2,780
=============
</TABLE>
(F) The pro-forma weighted average shares outstanding is computed as
follows:
<TABLE>
<CAPTION>
Basic Diluted
------------ ------------
<S> <C> <C>
Trust historical weighted average shares outstanding. 8,551,930 8,555,730
Exchange of 800,000 Units for Common Shares by
limited partner .................................... 800,000 800,000
Issuance of Trust shares in connection with the
Transaction ........................................ 15,130,288 15,130,288
---------- ----------
24,482,218 24,486,018
========== ==========
</TABLE>
70
<PAGE>
MORTGAGE DEBT FOLLOWING THE TRANSACTION
In connection with the consummation of the Transaction, it is currently
contemplated that of the $100.0 million purchase price to be paid by the RDC
Funds for the Common Shares, approximately $61.5 million will be used to
discharge mortgage and other indebtedness encumbering the RDC Properties to be
contributed to the Company and approximately $25.5 million will be used to
discharge mortgage and other indebtedness relating to certain of the Company's
properties. Upon discharge of such mortgage indebtedness, the Company will have
reduced its total outstanding mortgage indebtedness, on a combined basis with
the mortgage indebtedness of RDC, from $375.8 million to $288.8 million. Of the
debt to be outstanding, $244.7 million, or 84.7%, will be carried at a fixed
rate and the remaining $44.1 million, or 15.3%, at variable rates. The weighted
average annual interest rate on the remaining mortgage debt will be 8.23%
(assuming variable debt in effect on June 30, 1998), and the weighted average
maturity of such indebtedness will be 93 months. The following table sets forth
certain information regarding the mortgage indebtedness encumbering the RDC
Properties and the Company's properties which will remain outstanding
immediately following consummation of the Transaction:
<TABLE>
<CAPTION>
Principal Estimated
Balance Balance Current
at at Interest
Co. Lender/Property Type 3/31/1998 Closing (1) Rate (2)
- -------- ------------------------ ---------- -------------- ------------------- ----------
<S> <C> <C> <C> <C>
MARK CENTERS TRUST
John Hancock
New Louden Fixed $ 9,787,000 $ 9,752,000 9.11%
Ledgewood Fixed 16,638,000 16,578,000 9.11%
Lebanon Fixed 2,936,000 2,925,000 9.11%
Towanda Fixed 10,765,000 10,727,000 9.11%
Tioga Fixed 3,181,000 3,169,000 9.11%
Berlin Fixed 4,649,000 4,632,000 9.11%
Honesdale Fixed 6,850,000 6,826,000 9.11%
Morgan Stanley
Allentown Fixed 3,170,000 3,153,000 8.84%
Danville Fixed 886,000 882,000 8.84%
Dothan Fixed 3,390,000 3,372,000 8.84%
Dunmore Fixed 1,130,000 1,123,000 8.84%
Easton Fixed 7,948,000 7,905,000 8.84%
Ft. Ogelthorpe Fixed 2,641,000 2,627,000 8.84%
Kingston Fixed 2,267,000 2,255,000 8.84%
Lewisburg Fixed 2,154,000 2,142,000 8.84%
Martintown Fixed 2,898,000 2,882,000 8.84%
Moosic Fixed 3,359,000 3,341,000 8.84%
Opelika Fixed 2,489,000 2,476,000 8.84%
Reading Fixed 2,875,000 2,860,000 8.84%
Shamokin Fixed 1,013,000 1,007,000 8.84%
Shamokin Dam Fixed 1,245,000 1,238,000 8.84%
Smyrna Beach Fixed 1,526,000 1,518,000 8.84%
Stroudsburg Fixed 3,787,000 3,767,000 8.84%
Troy Fixed 2,394,000 2,381,000 8.84%
Metropolitan Life
Valmont Fixed 6,100,000 6,100,000 7.75%
Luzerne Fixed 2,000,000 2,000,000 7.75%
Greenridge Fixed 6,700,000 6,700,000 7.75%
Brockton Fixed 12,000,000 12,000,000 7.75%
East End Fixed 14,200,000 14,200,000 7.75%
CS First Boston (a)
Blackman Plaza Floating -- 16,700,000(a) 8.78%
Mark Plaza Floating -- -- 8.78%
Union Plaza (New Castle) Floating -- -- 8.78%
Wesmark Plaza Floating -- -- 8.78%
Nomura - Northwood Fixed 22,775,000 22,680,000 9.02%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fixed/Index Debt Revised
+ Spread Amortization Interest Debt To Remaining Interest
Rate Maturity Period in $'s (3) Be Paid after Paydown in $'s
------------- ------------ -------------- ------------ ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
9.11% 4/1/2000 30 years $ 888,407 $ -- $ 9,752,000 $ 888,407
9.11% 4/1/2000 30 years 1,510,256 -- 16,578,000 1,510,256
9.11% 4/1/2000 30 years 266,468 -- 2,925,000 266,468
9.11% 4/1/2000 30 years 977,230 -- 10,727,000 977,230
9.11% 4/1/2000 30 years 288,696 -- 3,169,000 288,696
9.11% 4/1/2000 30 years 421,975 -- 4,632,000 421,975
9.11% 4/1/2000 30 years 621,849 -- 6,826,000 621,849
8.84% 11/1/2021 25 Years 278,725 -- 3,153,000 278,725
8.84% 11/1/2021 25 Years 77,969 -- 882,000 77,969
8.84% 11/1/2021 25 Years 298,085 -- 3,372,000 298,085
8.84% 11/1/2021 25 Years 99,273 -- 1,123,000 99,273
8.84% 11/1/2021 25 Years 698,802 -- 7,905,000 698,802
8.84% 11/1/2021 25 Years 232,227 -- 2,627,000 232,227
8.84% 11/1/2021 25 Years 199,342 -- 2,255,000 199,342
8.84% 11/1/2021 25 Years 189,353 -- 2,142,000 189,353
8.84% 11/1/2021 25 Years 254,769 -- 2,882,000 254,769
8.84% 11/1/2021 25 Years 295,344 -- 3,341,000 295,344
8.84% 11/1/2021 25 Years 218,878 -- 2,476,000 218,878
8.84% 11/1/2021 25 Years 252,824 -- 2,860,000 252,824
8.84% 11/1/2021 25 Years 89,019 -- 1,007,000 89,019
8.84% 11/1/2021 25 Years 109,439 -- 1,238,000 109,439
8.84% 11/1/2021 25 Years 134,191 -- 1,518,000 134,191
8.84% 11/1/2021 25 Years 333,003 -- 3,767,000 333,003
8.84% 11/1/2021 25 Years 210,480 -- 2,381,000 210,480
7.75% 6/1/2000 n/a 472,750 -- 6,100,000 472,750
7.75% 6/1/2000 n/a 155,000 -- 2,000,000 155,000
7.75% 6/1/2000 n/a 519,250 -- 6,700,000 519,250
7.75% 6/1/2000 n/a 930,000 -- 12,000,000 930,000
7.75% 6/1/2000 n/a 1,100,500 -- 14,200,000 1,100,500
L + 312 bps 12/1/98 n/a 1,466,260 (16,700,000) -- --
L + 312 bps 12/1/98 n/a -- -- -- --
L + 312 bps 12/1/98 n/a -- -- -- --
L + 312 bps 12/1/98 n/a -- -- -- --
9.02% 3/11/2022 25 Years 2,045,736 -- 22,680,000 2,045,736
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Principal Estimated
Balance Balance Current
at at Interest
Co. Lender/Property Type 3/31/1998 Closing (1) Rate (2)
- ------------------------------------------ ---------- ---------------- ------------------- ----------
<S> <C> <C> <C> <C>
Bankers Sec. - Manahawkin
K-Mart Fixed 6,039,000 5,886,000 7.70%
Anchor National - Pittston Fixed 4,009,000 3,977,000 7.93%
First Western-Union Plaza Floating 4,000,000 -- 9.50%
First Trust-Mark Plaza Floating 3,941,000 -- 9.50%
Mellon Credit Facility - Auburne Floating 2,487,000 2,237,000 7.66%
Principal Shareholder - Union Floating 3,030,000 3,030,000 7.66%
Royal Bank of PA - Manahawkin Floating 1,012,000 3,500,000 10.00%
---------- --------- ---------- -----
Total MCT Debt $ 188,271,000 $ 198,548,000 8.64%
RD CAPITAL GROUP
Sun America - Bloomfield Fixed $ 11,072,524 $ 11,012,500 7.75%
Sun America - Walnut Hill Fixed 9,568,408 9,508,258 7.75%
Sun America - Atrium Fixed 11,173,243 11,103,410 7.75%
Sun America - GHT Fixed 8,525,671 8,472,385 7.75%
Sun America - Village Fixed 8,847,166 8,786,496 7.75%
A&P - Absecon Floating 6,900,000 8,100,000(b) 8.25%
Manulife - Hobson Fixed 4,422,409 4,394,839 7.73%
Sun America - Colony Fixed 4,007,795 3,982,745 7.75%
Lehman Bros - Glen Oaks Fixed 18,255,788 18,192,080 8.32%
Lehman Bros - Merrillville Floating 14,750,000 14,750,000 7.11%
GECC - Soundview Floating 7,058,983 7,021,496 8.30%
GECC - Elmwood Floating 11,793,073 11,656,828 9.55%
Fleet Bank - Smithtown Floating 7,376,307 9,545,000(b) 7.44%
Kredietbank - Marley Run Floating 15,920,000 15,840,000 6.91%
TBD - Branch Floating 9,800,000 9,800,000 7.50%
TBD - Town Line Floating -- 6,300,000(b) 7.75%
Unconsolidated Partnerships
Bank of NY - Crossroads (4) 49% Floating 12,550,343 12,503,912 6.71%
Bank of NY - Crossroads (4) 49% Fixed 5,000,000 5,000,000 7.53%
------------- ------------- -----
Sub-Total RD Capital Debt $ 167,021,710 $ 175,969,949 7.73%
------------- ------------- -----
RD Capital Affliliate Debt
Heller - Evan Fraizer Fixed $ 699,939 $ 679,200 10.00%
Kawasaki - Evan Frazier Fixed 600,000 600,000 7.38%
------------- ------------- -----
Sub-Total RD Capital Affliliate
Debt $ 1,299,939 $ 1,279,200 8.77%
------------- ------------- -----
Total RD Capital Debt $ 168,321,649 $177,249,149 7.74%
------------- ------------- -----
Combined Debt $ 356,592,649 $ 375,797,149 8.22%
============= ============= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fixed/Index Debt Revised
+ Spread Amortization Interest Debt To Remaining Interest
Rate Maturity Period in $'s (3) Be Paid after Paydown in $'s
------------- ------------ -------------- --------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
7.70% 12/1/2008 15 Years 453,222 -- 5,886,000 453,222
7.93% 1/1/2004 22 Years 315,376 -- 3,977,000 315,376
P + 100 bps 3/27/1998 15 Years -- -- -- --
P + 100 bps 3/15/1999 n/a -- -- -- --
L + 200 bps 9/30/1998 n/a 171,354 (2,237,000) -- --
L + 200 bps 6/12/1999 n/a 232,098 (3,030,000) -- --
P + 150 bps n/a n/a 350,000 (3,500,000) -- --
------------- --------- -------------- ------- ---------- --------- -------
$ 17,158,150 $ (25,467,000) $ 173,081,000 $ 14,938,438
8.63%
7.75% 1/01/2001 25 Years $ 853,469 $ -- $ 11,012,500 $ 853,469
7.75% 1/01/2001 25 Years 736,890 -- 9,508,258 736,890
7.75% 1/01/2001 25 Years 860,514 -- 11,103,410 860,514
7.75% 1/01/2001 25 Years 656,610 -- 8,472,385 656,610
7.75% 1/01/2001 25 Years 680,953 (8,786,496) -- --
8.25% 12/31/1998 Int. Only 668,250 (8,100,000) -- --
7.73% 12/10/1999 25 Years 339,721 -- 4,394,839 339,721
7.75% 1/01/2001 25 Years 308,663 -- 3,982,745 308,663
8.32% 3/1/2004 25 Years 1,513,581 -- 18,192,080 1,513,581
L+145 bps 12/31/2000 25 Years 1,048,725 (7,500,000) 7,250,000 515,475
GECC + 275
bps 1/1/2002 25 Years 582,784 -- 7,021,496 582,784
GECC + 400
bps 11/30/1999 25 Years 1,113,227 (11,656,828) -- --
L +178 bps 5/31/2002 25 Years 710,148 (2,100,000) 7,445,000 553,908
L + 125 bps 12/31/2000 25 Years 1,094,544 (6,000,000) 9,840,000 679,944
tbd tbd tbd 735,000 (9,800,000) -- --
tbd tbd tbd 488,250 (6,300,000) -- --
-- --
L +105 bps 10/1/2007 25 Years 839,012 -- 12,503,912 839,012
7.53% 10/1/2007 Int. Only 376,500 -- 5,000,000 376,500
----- ---------- -------------- ------------ -------------- ------------- -------------
$ 13,606,842 $ (60,243,324) $ 115,726,625 $ 8,817,071
------------ -------------- ------------- -------------
10.00% 12/21/2000 10 Years $ 67,920 $ (679,200) -- --
7.38% 2/1/2004 Int. Only 44,280 (600,000) -- --
----- ---------- -------------- ------------ -------------- ------------- -------------
$ 112,200 $ (1,279,200) -- --
------------ -------------- ------------- -------------
$ 13,719,042 $ (61,422,524) $ 115,826,625 $ 8,824,511
------------ -------------- ------------- -------------
7.62%
$ 30,877,192 $ (86,939,524) $ 288,807,625 $ 23,755,509
============ ============== ============= =============
8.23%
</TABLE>
- --------
Notes:
1) Closing is assumed to occur on approximately August 15, 1998 and the
Principal Balance at Closing from above reflects the outstanding balance as
of that date.
2) With respect to the Current Interest Rate: the LIBOR and Prime rates were
5.66% and 8.50%, respectively, as of June 30, 1998. GECC: General Electric
Capital Corp. commercial paper was 5.55% as of June 30, 1998.
3) Interest in $'s is as of the estimated closing date of August 15, 1998.
4) Total debt collateralized by Crossroads is approximately $35.8 million. Of
this RD Capital Group's allocable debt is $17.5 million (from above).
(a) Credit Suisse First Boston loan of $16,700,000 is cross--collateralized by
Blackman, Mark, Union and Wesmark Plazas.
(b) Increase of Estimated Balance at Closing from 3/31/1998 is attributable to
anticipated construction costs incurred.
72
<PAGE>
CERTAIN INFORMATION CONCERNING MARK CENTERS TRUST
Mark Centers Trust was formed on March 4, 1993 as a Maryland Real Estate
Investment Trust ("REIT") to continue the business of its predecessor company,
Mark Development Group ("MDG" or the "Partnership"). The Company is a fully
integrated, self- managed and self-administered equity REIT which owns,
acquires, develops and operates primarily neighborhood and community shopping
centers in the eastern and southeastern United States. The Company currently
specializes in neighborhood and community shopping centers strategically
located in secondary markets where basic staple merchandise is not available in
adequate supply. The Company currently owns and operates 39 properties
totalling approximately 7.3 million square feet of gross leasable area ("GLA"),
consisting of 34 neighborhood and community shopping centers, three enclosed
malls, and two mixed use (retail/office) properties located in ten states.
The Company conducts substantially all of its activities through, and
substantially all of its properties are owned by the Operating Partnership, a
Delaware limited partnership, and its majority owned partnerships. The Company
owns an 84% interest in the Operating Partnership as the sole general partner.
Upon consummation of the Transaction, the Company's interest in the Operating
Partnership will be 62.8%. Concurrently with the consummation of the Company's
initial public offering (the "Offering") on June 1, 1993, the Operating
Partnership acquired 31 properties from Marvin L. Slomowitz, the founder of MDG
and the Company's Chairman and Chief Executive Officer, or from affiliates of
Mr. Slomowitz, in exchange for Units which are exchangeable, on a one-for-one
basis into Common Shares. The properties had been developed directly or
indirectly by Mr. Slomowitz from 1964 through 1992 and were operated under
MDG's direction. Mr. Slomowitz currently owns in excess of 99% of the remaining
16% of the Operating Partnership in the form of Units. The remaining Units,
which represent less than 1% ownership of the Operating Partnership, were
issued by the Company in July 1995 to an unrelated entity in consideration for
a property acquired by the Company. The Company at all times will be the
general partner of and own no less than a 51% interest in the Operating
Partnership.
Operating and administrative functions such as leasing, property
management, construction, finance and legal are provided by Company personnel,
providing for fully integrated property management. In addition, management
believes that the experience and tenant relationships developed through
in-house leasing and property management staff enhance the Company's ability to
attract and retain high quality tenants. Property operations are managed
centrally at the Company's headquarters and are augmented by regional
management and leasing offices at the Northwood Centre in Tallahassee, Florida,
the Normandale Mall in Montgomery, Alabama and in Columbia, South Carolina. The
Company also maintains property management offices at the Ledgewood Mall in
Ledgewood, New Jersey, the Northside Mall in Dothan, Alabama, and the Searstown
Mall in Titusville, Florida.
The Company has transacted its affairs so as to qualify as, and has
elected to be treated as, a real estate investment trust under sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code").
Under the Code, a real estate investment trust that meets applicable
requirements is not subject to Federal income tax to the extent it distributes
at least 95% of its REIT taxable income to its shareholders.
The Company's executive offices are located at 600 Third Avenue, Kingston,
Pennsylvania, and its telephone number is (717) 288-4581.
CERTAIN INFORMATION CONCERNING RD CAPITAL, INC.
General
RD Capital, Inc. ("RDC") is a fully integrated real estate operating
company formed in 1987 by Ross Dworman to acquire, redevelop, own and manage
neighborhood and community shopping centers and multi-family properties located
in the East and Midwest regions of the United States. In 1990, Kenneth F.
Bernstein joined Mr. Dworman as Chief Operating Officer.
RDC's investment strategy is to acquire sub-performing properties at
discounts to replacement cost, to create significant value through timely
capital improvements and property redevelopment, and to realize the need
73
<PAGE>
for and utilize financial engineering to enhance investor returns. In contrast
to opportunity funds which rely primarily on "value recognition" by simply
acquiring an undervalued sector and recognizing value as it recovers, RDC
"creates value" through active management and leasing.
Messrs. Dworman and Bernstein work closely with the members of RDC's
financial/acquisition, leasing, management, construction and legal teams to
integrate investment strategy with day-to-day operations. The successful
implementation of this strategy is accomplished by RDC's group of highly
experienced professionals using a vertically-integrated organization
specializing in acquisition, finance, asset and property management, leasing
and redevelopment.
By constantly educating and increasing its contacts with potential sources
of assets, RDC solicits over 1,200 property submissions annually. Its
acquisition team then quickly identifies opportunities, prices deals and
negotiates contracts. Since 1987, RDC has acquired, re-positioned and enhanced
operations at more than 40 commercial and residential properties valued in
excess of $500 million.
As RDC seeks to maximize asset values, it similarly seeks to maximize the
value of each facet of its organization. Property management's (accounting,
leasing, construction and legal) involvement is an essential component to a
successful acquisition and "value creation" program. Value maximization relies
on purchasing properties at an appropriate price and incorporating the property
management group into the acquisition process which results in acquisitions
that are appropriately priced giving effect to each asset's specific risks and
returns. This integration provides a carefully coordinated effort of
acquisition with property management members working in unison to accomplish
clearly defined objectives for each asset.
Because of property management's involvement with, and corresponding
understanding of, the acquisition process, management minimizes transition time
and can immediately execute an asset's strategic plan. RDC's property
management members have extensive experience in providing solutions to complex
management, construction and leasing issues as well as in-depth regional and
local market knowledge. Only by closely coordinating RDC's financial, leasing,
construction and legal efforts is each property and RDC's portfolio's cash
flows and values efficiently and effectively maximized.
The RD Capital Properties
The RDC Properties consist of 19 assets comprising 13 retail properties,
five multi-family properties and one redevelopment property. The retail
properties comprise an aggregate of 2.2 million square feet of GLA, range in
size from approximately 87,000 to 310,000 square feet of GLA, and average
171,000 square feet of GLA, while the multi-family properties total 2,273 units
and range in size from 282 to 600 units, averaging 455 units. As of December
31, 1997, the retail properties were leased to over 254 tenants and had a
weighted average occupancy rate of approximately 92%; weighted average
occupancy rate for the multi-family properties was approximately 91%. Upon
completion of construction, the redevelopment property will comprise
approximately 19,000 GLA of retail space and 21 residential units.
RDC's retail properties are located primarily throughout the
Northeast/Mid-Atlantic and Midwest regions of the continental United States.
These properties are generally well-established, anchored community and
neighborhood shopping centers situated in infill, densely populated areas
offering attractive trade area demographics. The shopping centers have good
visibility and access from major thoroughfares with layouts and features which
are attractive to current and prospective tenants.
The retail properties are leased to a variety of national, regional and
credit tenants, as well as a large number of local enterprises. Major tenants
include, among others, A&P (representing 8.4% of the base rent attributable to
the retail properties), Grand Union (2.8%) and TJ Maxx (2.0%) with Caldor,
Cineplex Odeon, Pergament, Shaw's Supermarket, JC Penney, Circuit City,
Walgreen's, King Kullen and Office Max each accounting for between 1.2% and
1.8% of the base rent attributable to the retail properties.
RDC's multi-family properties consist of good quality garden apartment
communities well positioned in their specific target markets. The properties
have maintained consistently high occupancy levels and achieved strong net
operating income growth.
The following table sets forth certain information concerning the RDC
Properties:
74
<PAGE>
RD CAPITAL
Portfolio Summary By Property
<TABLE>
<CAPTION>
Retail: Gross
Leasable %
Area (Sq. Ft.) Occupied Total
Year Built/ Ownership --------------------- as of Number of
Property/Location Renovated(1) Interest Multi-Family: Units 3/31/1998 (2) Tenants
- ---------------------------- -------------- ----------- --------------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
I. RETAIL:
Crossroads Shopping Center 1979/1994 Fee(a) 310,897 100% 43
Greenburgh, NY
Walnut Hill Plaza 1959/1989 Fee 260,988(b) 90% 23
Woonsocket, RI
Merrillville Plaza 1988/1997 Fee 235,420 97% 28
Hobart, IN
Bloomfield Town Square 1957/1994 Fee 216,303(c) 94% 20
Bloomfield Hills, MI
Town Line Plaza 1970/1998 Fee 192,752(d) 96%(e) 11
Rocky Hill, CT
Atrium Mall 1958/1989 Fee(f) 178,434 78% 12
Abington, PA
Soundview Marketplace 1950/1994 LI/Fee(g) 169,583(h) 92%(i) 22
Port Washington, NY
The Caldor Shopping Center 1974/1988 Fee 129,494 100% 4
Methuen, MA
Branch Shopping Center 1965/1995 LI(j) 125,812 100% 18
Village of the Branch, NY
Elmwood Park Plaza 1951 Fee 124,144(k) 84% 14
Elmwood Park, NJ
Hobson West Plaza 1989(l) Fee 99,950 90% 22
Naperville, IL
Smithtown Shopping Center 1955/1998 Fee(m) 87,180 84% 23
Smithtown, NY
Marketplace of Absecon 1995 Fee(n) 75,699(o) 97%(o) 14
Absecon, NJ
II. MULTIFAMILY:
Village Apartments 1970/1993 Fee 600 86% na
WinstonSalem, NC
Columbia Apartments (GHT) 1964/1991 Fee 592 90% na
Columbia, MO
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annualized Base Rent Tenants Leasing Current
In Place at 3/31/1998(3) Percentage 10% or More of Lease
------------------------------ of 1998 Gross Leasable/Area Expiration
Per Occupied Total Base Per Property (Lease Option
Property/Location Total ($000) Sq. Ft. Rent ($000) as of 3/31/98 Expiration)
- ---------------------------- -------------- -------------- ------------- -------------------------- --------------
<S> <C> <C> <C> <C> <C>
I. RETAIL:
Crossroads Shopping Center $4,677 $ 15.20 13.3% Caldor (32%) 2012 (2037)
Greenburgh, NY Waldbaum's (A&P) (12%) 2007 (2032)
Walnut Hill Plaza 1,557 6.63 4.4% Sears (21%) 2003 (2033)
Woonsocket, RI Shaw's Supermarket (18%) 2013 (2043)
Merrillville Plaza 2,086 9.04 5.9% JC Penney (21%) 2008 (2018)
Hobart, IN Office Max (12%) 2008 (2028)
TJ Maxx (12%) 2004 (2009)
Kids 'R Us (10%) 2014 (2029)
Bloomfield Town Square 1,788 8.98 5.1% Burlington Coat (19%) 2009 (2014)
Bloomfield Hills, MI Drug Emporium (16%) 2000 (2020)
TJ Maxx (16%) 2003 (2013)
Office Max (11%) 2010 (2025)
Town Line Plaza 511 5.54 1.5% Waldbaum's (A&P) (57%) 2017 (2052)
Rocky Hill, CT Goodwill Indus. (11%) 2008 (none)
Atrium Mall 1,783 12.81 5.1% SuperFresh (A&P) (25%) 2009 (2039)
Abington, PA Circuit City (18%) 2009 (2029)
Soundview Marketplace 2,063 13.22 5.9% King Kullen (23%) 2007 (2022)
Port Washington, NY Cineplex Odeon (14%) 2010 (2030)
McCrory's (11%) 2003 (none)
The Caldor Shopping Center 468 3.61 1.3% Caldor (66%) 2001 (2021)
Methuen, MA DeMoulas Market (24%) 2000 (2015)
Branch Shopping Center 1,778 14.13 5.1% Grand Union (50%) 2013 (2028)
Village of the Branch, NY Pergament (16%) 2004 (2019)
Elmwood Park Plaza 1,634 15.67 4.6% Grand Union (22%) 2001 (none)
Elmwood Park, NJ
Hobson West Plaza 857 9.32 2.4% Eagle Foods (52%) 2007 (2032)
Naperville, IL
Smithtown Shopping Center 1,381 19.80 3.9% Daffy's (19%) 2008 (2028)
Smithtown, NY Walgreens (10%) 2021 (none)
Marketplace of Absecon 1,031 14.04 2.9% SuperFresh (A&P) (40%) 2015 (2055)
Absecon, NJ
II. MULTIFAMILY:
Village Apartments 2,753 na 7.8% na
WinstonSalem, NC
Columbia Apartments (GHT) 2,228 na 6.3% na
Columbia, MO
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
Leasable % Retail: Gross
Area (Sq. Ft.) Occupied Total
Year Built/ Ownership --------------------- as of Number of
Property/Location Renovated(1) Interest Multi-Family: Units 3/31/1998 (2) Tenants
- ------------------------- -------------- ----------- --------------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Glen Oaks Apartments 1979/1995- Fee 463 94% na
Greenbelt, MD present
Marley Run Apartments 1990 Fee 336 97% na
Pasadena, MD
White Gate Village 1960's/1992 Fee 282 83% na
Apartments (The Colony)
Columbia, MO
III. REDEVELOPMENT:
239 Greenwich Avenue 1910/1998 Fee(p)
Greenwich, CT
Retail 19,199 na na
Multi-Family 21 na na
Total Retail: 2,225,855 na 254
Average: 171,220 92% 20
-------------------------------------------
Total Multifamily: 2,294 na na
Average: 459 90%(4) na
-------------------------------------------
Total Portfolio:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annualized Base Rent Tenants Leasing Current
In Place at 3/31/1998(4) Percentage 10% or More of Lease
------------------------------ of 1998 Gross Leasable/Area Expiration
Per Occupied Total Base Per Property (Lease Option
Property/Location Total ($000) Sq. Ft. Rent ($000) as of 3/31/98 Expiration)
- ------------------------- -------------- -------------- ------------- --------------------- --------------
<S> <C> <C> <C> <C> <C>
Glen Oaks Apartments $ 4,593 na 13.1% na
Greenbelt, MD
Marley Run Apartments 2,945 na 8.4% na
Pasadena, MD
White Gate Village 1,029 na 2.9% na
Apartments (The Colony)
Columbia, MO
III. REDEVELOPMENT:
239 Greenwich Avenue
Greenwich, CT
Retail na na na na na
Multi-Family na na na na
Total Retail: $21,614 na 61%
Average: 1,663 $ 10.52 na
------- ------- -------
Total Multifamily: 13,548 na 39%
Average: 2,710 na na
------- ------- -------
Total Portfolio: $35,162 na 100%
------- ------- ----
</TABLE>
Notes:
(1) Year of renovation is defined as the year in which the property incurred
capital costs of at least $1 million.
(2) Represents leased occupancy.
(3) Reflects March 1998 base rent, annualized.
(4) Does not include 239 Greenwich Avenue, which is currently under
redevelopment.
(a) It is expected that the Trust will only acquire a 49% interest in the two
partnerships that own the fee interests in the property.
(b) Excludes basement space of 29,592 gross leaseable square feet.
(c) Excludes non-retail space of 12,688 rentable square feet
(d) Includes a 92,500 gross leaseable square foot non-owned Caldor department
store. The property is being redeveloped and expanded by an additional
13,000 square feet of gross leaseable area to accommodate a 65,000 square
foot Waldbaums (A&P) Supermarket.
(e) Occupancy excludes the occupied and non-owned 92,500 gross leaseable square
foot Caldor department store.
(f) It is expected that the Trust will only acquire a 89% interest in the
partnership that owns the fee interest in the property.
(g) LI: Leasehold Interest -- A portion of the property is subject to a
long-term ground lease having at least 35 years remaining in term. It is
expected that the Trust will only acquire a 50% interest in the
partnership that owns the leasehold interest in the property.
(h) Property is comprised of retail: 161,340 gross leaseable square feet and
office: 22,128 rentable square feet, of which the Gross Leaseable Area
excludes to-be-built office space of 13,885 rentable square feet.
(i) Reflects retail gross leaseable area occupancy. Office occupancy is 37%,
inclusive of the to-be-built 13,885 rentable square feet.
(j) LI: Leasehold Interest The property is subject to a long-term ground lease
having at least 65 years remaining in term (including options) and the
existing rental rate is fixed until 2020.
(k) Property is currently 124,144 sq. ft., excluding a vacant office tower of
approximately 65,000 sq. ft. Owner is currently seeking township approval
to redevelop the property and construct additional gross leaseable area to
accommodate an A&P Supermarket.
(l) Property was built in two phases in 1980 and 1989.
(m) It is expected that the Trust will only acquire a 49% interest in the
partnership that owns the fee interest in the property.
(n) It is expected that the Trust will only acquire a 50% interest in the
partnership that owns the fee interest in the property.
(o) Property is currently 75,699 gross leaseable square feet and 97% occupied.
Ownership is currently constructing an additional 15,500 square feet of
which 12,247 square feet is pre-leased and has obtained township approval
to construct up to a total of approximately 42,000 square feet.
(p) Property is currently vacant and is being redeveloped. It is expected that
the Trust will only acquire a 75% interest in the partnership that owns
the fee interest in the property.
76
<PAGE>
Lease Expirations
The following table sets forth a schedule of the annual lease expirations
at the RDC Retail Properties with respect to leases in place as of March 31,
1998 for each of the next ten years and thereafter (assuming that no tenants
exercise renewal or cancellation options and that there are no tenant
bankruptcies or other defaults):
<TABLE>
<CAPTION>
Gross
Leaseable Weighted
Expiring No. of Leases Area % of GLA Current % of Avg. Rent
Year Expiring (GLA) Expiring Annual Rent Base Rent P.S.F.
- --------------- --------------- ----------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998 20 46,818 2.27% $ 755,723 3.44% $ 16.14
1999 28 74,502 3.61% 1,367,030 6.23% 18.35
2000 36 180,233 8.73% 1,816,561 8.28% 10.08
2001 27 187,499 9.08% 1,480,576 6.75% 7.90
2002 34 115,448 5.59% 1,900,018 8.66% 16.46
2003 17 175,470 8.50% 1,635,915 7.45% 9.32
2004 19 141,893 6.87% 1,769,512 8.06% 12.47
2005 16 75,778 3.67% 998,026 4.55% 13.17
2006 12 53,864 2.61% 828,889 3.78% 15.39
2007 13 181,354 8.79% 2,017,808 9.20% 11.13
-- ------- ------ ----------- ------ -------
Subtotal 222 1,232,859 59.72% $14,570,058 66.40% $ 11.82
Thereafter 40 831,473 40.28% 7,374,413 33.60% 8.87
--- --------- ------ ----------- ------ -------
Total 262 2,064,332 100.00% $21,944,471 100.00% $ 10.63
=== ========= ====== =========== ====== =======
</TABLE>
Non-Contributed Properties
Although RDC currently owns 20 properties, only 19 properties comprise the
RDC Properties to be contributed to the Company at Closing. The only property
not being contributed is an eight acre parcel of undeveloped land located in
Southampton, New York.
The Southampton property is a development property which is unimproved and
does not currently generate any cash flow. The Southampton property is not
currently consistent with the Company's portfolio and investment strategy.
Nonetheless, the Trust has been granted a right of first offer with respect to
this property, exercisable in the event RDC determines to sell such property,
all as set forth more fully in the Contribution Agreement.
Properties Which Represent Less Than 100% of the Ownership Interests or Which
Are Subject to Unresolved Conditions Precedent
As noted above, the Company will not acquire 100% of the following six
properties: Marketplace of Absecon (50%), Crossroads Shopping Center (49%, with
voting control over an additional 1%), Atrium Mall (89%), Smithtown Shopping
Center (49%), 239 Greenwich Avenue (75%) and Soundview Marketplace (50%). The
Pro Forma Financial Statements set forth in this Proxy Statement take into
account the fact that the Company is acquiring only a portion of the interests
in these properties, although the Company's economic interests in such
properties will generally be greater than such equity percentage interests.
Furthermore, as of the date of this Proxy Statement, RDC has not yet obtained
all consents necessary to permit it to contribute Soundview Marketplace
("Soundview") (or 100% of the interests in Soundview) to the Company. The
following is a summary of the status of RDC's efforts to obtain the necessary
consent for Soundview and the impact, if any, on the Pro Forma Financial
Statements if such consents are not obtained.
Soundview Marketplace. Soundview Marketplace is owned in a general
partnership (the "Soundview JV") which is 50% controlled by RDC and 50% by
unaffiliated third parties (the "JV Partners"). Due to the economics of the
structure of the Soundview JV, the RDC interests represent approximately 100%
of the economics of the investment. However, the JV Partners have the right to
approve the sale of Soundview to the Company and have asserted a right to
acquire RDC's ownership interest in the Soundview JV, which assertion has been
disputed by RDC.
As of the date of this Proxy Statement, RDC has not yet obtained consent
from, or resolved its dispute with, its JV Partners to allow the transfer of
RDC's interest to the Company. RDC believes that at the Closing it will obtain
the consent of the JV Partners to permit RDC to transfer its interest in the
Soundview JV to the Company, although there can be no assurance that RDC will
be successful in obtaining such consent.
77
<PAGE>
The pro forma financial information included elsewhere herein reflects the
Company's ownership of RDC's 50% ownership interest in the Soundview JV, which
entitles the Company to substantially all of the economic benefits of 100%
ownership of the property. If RDC is unable to obtain the consent of the JV
Partners to the transfer of the RDC interest to the Company, the impact on the
Pro Forma Financial Statements would be as follows:
<TABLE>
<CAPTION>
Proforma
Proforma as Adjusted
March 31, 1998 March 31, 1998
------------------- ------------------
<S> <C> <C>
Balance Sheet Data -- March 31, 1998 (unaudited)
Investment in properties, partnerships and joint ventures, net ......... $ 493,007 $ 481,341
Total assets ........................................................... 524,433 512,767
Total liabilities ...................................................... 263,811 256,752
Minority interest ...................................................... 86,931 83,899
Shareholders' equity ................................................... 173,691 172,116
Total liabilities and shareholders' equity ............................. 524,433 512,767
Book value per share(1) ................................................ $ 7.09 $ 7.03
================= =================
Income Statement Data -- Three months ended March 31, 1998
(unaudited)
Total revenue .......................................................... $ 20,702 $ 19,935
Total expenses ......................................................... 18,550 17,694
Minority interest ...................................................... 705 710
Net income ............................................................. 1,447 1,531
Net income per share(2)
Basic ............................................................... $ 0.06 $ 0.06
================= =================
Diluted ............................................................. $ 0.06 $ 0.06
================= =================
</TABLE>
<TABLE>
<CAPTION>
Proforma
Proforma as Adjusted
December 31, 1997 December 31, 1997
------------------- ------------------
<S> <C> <C>
Income Statement Data -- Year ended December 31, 1997
(unaudited)
Total revenue ....................................... $ 82,220 $ 79,182
Total expenses ...................................... 73,730 71,132
Minority interest ................................... 2,780 2,542
Net income .......................................... 5,710 5,508
Net income per share(3)
Basic ............................................ $ 0.23 $ 0.22
======== ========
Diluted .......................................... $ 0.23 $ 0.22
======== ========
</TABLE>
- ------------
(1) Book value per share is calculated by dividing total shareholders' equity
by the pro-forma Common Shares outstanding of 24,484,465.
(2) Net income per share is calculated by dividing net income by the pro-forma
basic and diluted weighted average Common Shares outstanding of 24,484,465
and 24,488,265, respectively, at March 31, 1998.
(3) Net income per share is calculated by dividing net income by the pro-forma
weighted basic and diluted Common Shares outstanding of 24,482,218 and
24,486,018. respectively, at December 31, 1997.
78
<PAGE>
ELECTION OF TRUSTEES
The Trust's By-laws provide that the Board of Trustee may be composed of
up to a maximum of 15 members. The Board of Trustees currently consists of six
trustees, each of whom serves until the next annual meeting of shareholders and
until his successor is duly elected and qualified. Election of each trustee
requires the affirmative vote of a majority of the Common Shares present in
person or by proxy at the Meeting. As stated elsewhere herein, the enclosed
proxy will be voted for the election as trustee of each nominee whose name is
set forth below unless a contrary instruction is given. All of the nominees
currently serve as trustees of the Trust. Management believes that all of its
nominees are willing and able to serve the Trust as a trustee. If any nominee
at the time of election is unable or unwilling to serve or is otherwise
unavailable for election, and as a consequence thereof, other nominees are
designated, the persons named in the enclosed proxy or their substitutes will
have the discretion and authority to vote or refrain from voting for other
nominees in accordance with their judgment. The Board of Trustees has a
nominating committee, but the nominating committee did not meet in connection
with the Meeting.
The following is a brief description of the nominees for election as
trustees of the Trust, other than Marvin Slomowitz, Marvin Levine and Lawrence
Longua. For information concerning Messrs. Slomowitz, Longua and Levine, see
"Management of the Trust Before and After the Transaction -- Board of
Trustees." As described elsewhere herein, if the Transaction is consummated,
the Board shall increase the number of trustees serving on the Board of
Trustees from six trustees to seven trustees. All of the then incumbent
trustees other than Messrs. Slomowitz, Longua and Levine (assuming each of such
persons is reelected a trustee at the Meeting) will resign as a trustee, and
Messrs. Dworman and Bernstein, and Messrs. Edelman and White, two independent
designees of RDC, will be appointed to the Board of Trustees, to serve until
the next annual meeting of shareholders and until his successor is duly elected
and qualified.
Harvey Shanus, age 67, has been a trustee of the Company since its
inception in March 1993 and, until February 1994, served as Executive Vice
President. Since February 1994, Mr. Shanus has been a private investor.
Previously, he served as Executive Vice President of MDG since 1978. From 1972
to 1978 he was a Vice President and Director of Construction of MDG. Mr. Shanus
is a member of the ICSC. See "Certain Relationships and Related Transactions."
Joseph L. Castle, II, age 65, has been a trustee of the Company since its
inception. Since 1981, Mr. Castle has been Chairman and Chief Executive Officer
and a director of Castle Energy Corporation, a public company engaged in oil
and gas exploration, and production. Mr. Castle also is a director of Comcast
Corporation and Charming Shoppes, Inc.
John Vincent ("Vin") Weber, age 45, has been a trustee of the Company
since its inception. Since December 1994, Mr Weber has been a partner of Clark
& Weinstock, a consulting firm. From 1980 through 1992, Mr. Weber was a United
States Congressman, representing Minnesota's Second Congressional District.
During his tenure in Congress, Mr. Weber was appointed to various committees
and subcommittees and held various leadership positions within the Republican
Party. In January 1993, Mr. Weber co-formed Empower America, a conservative
public policy advocacy group of which he was President until January 1994 when
he was appointed Vice Chairman. Mr. Weber is currently Co-director of Empower
America. Mr. Weber also is a director of Dept. 56, Inc., Twin Cities Federal
Bank and ITT Educational Systems, Inc.
Committees of the Board of Trustees
The Board's Audit Committee is empowered to review the scope and results
of the audit by the Trust's independent auditors. The Committee examines the
accounting practices and methods of control and the manner of reporting
financial results. These reviews and examinations include meetings with
independent auditors, staff accountants and representatives of management. The
results of the Committee's examinations and the choice of the Trust's
independent auditors are reported to the full Board. The Audit Committee
includes no officers or employees of the Trust or Operating Partnership.
Members of the Audit Committee during the last fiscal year were Messrs. Castle,
Longua and Shanus. The Committee met once during the last fiscal year.
The Board's Compensation Committee met once during the last fiscal year
for the purpose of evaluating key officers' salaries and bonuses. Members of
the Compensation Committee during the last fiscal year were Messrs. Weber,
Castle and Longua. See "Report of the Compensation and Share Option Plan
Committees on Executive Compensation."
79
<PAGE>
The Board's Share Option Plan Committee is responsible for administering
the Trust's Share Option Plan, including determining eligible participants, the
number and terms of options granted and other matters pertaining to the Share
Option Plan. The Trustees' Plan is administered by the Board of Trustees.
Members of the Share Option Plan Committee during the last fiscal year were
Messrs. Weber, Castle and Longua. The Committee met once during the last fiscal
year. See "Report of the Compensation and Share Option Plan Committees on
Executive Compensation."
The Board's Nominating Committee is responsible for recommending to the
Board of Trustees nominees for election as trustee and for supervising
procedures with respect to shareholder nominations for election as trustee. The
Committee did not meet during the last fiscal year. Members of the Nominating
Committee during the last fiscal year were Messrs. Castle, Shanus and Weber.
Trustees' Attendance at Meetings
The Board of Trustees held eight meetings during the last fiscal year.
Each incumbent trustee of the Trust attended at least 75% of the meetings of
the Board of Trustees and meetings held by all committees on which such trustee
served.
Trustees' Fees
Each trustee who is not also an officer and full-time employee of the
Trust or the Operating Partnership received an annual trustee fee in the amount
of $12,000 plus a fee of $1,000 for each Board meeting and each Board committee
meeting attended. Board committee chairmen received $2,000 for each committee
meeting attended. Trustees who are officers and full-time employees of the
Trust or the Operating Partnership receive no separate compensation for service
as a trustee or committee member. Additionally, Board members are reimbursed
for travel and lodging expenses associated with attending Board and committee
meetings. Additionally, pursuant to the 1994 Non-Employee Trustee's Share
Option Plan, non-employee trustees are entitled to automatic grants of options
to purchase 1,000 Common Shares on January 1 of each year during their service
as trustee, which options vest in five equal cumulative annual installments
commencing on the date of grant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal year 1997, the Company held an option to acquire 26 acres
contiguous to the Plaza 15 in Lewisburg, Pennsylvania from Mr. Slomowitz for
$1,325,000, which represents the fair market value as established by an
independent appraisal. The Company and Mr. Slomowitz agreed to terminate this
option in March 1998.
In 1996, the Company issued a note payable to Mr. Slomowitz for $3,030,000
for the purchase of the Union Plaza, located in New Castle, Pennsylvania. The
note, which bears interest payable monthly at a rate equal to that charged on
the Mellon Bank, N.A. facility, is payable in full on the earlier of (i) two
years following the date the Union Plaza is completed or (ii) on June 12, 1999.
This obligation will be paid from the proceeds of the Cash Investment if the
Transaction is consummated.
The Company leases office space from Mr. Slomowitz under the terms of a
noncancelable ten year operating triple net lease expiring June 2003, which
provides for annual rent of $104,000 for the first five years with annual
escalations thereafter based on increases in the consumer price index. Rent
expense, excluding escalations, for fiscal 1997 aggregated $104,000.
Marvin J. Levine, a trustee of the Company, became a partner in the law
firm of Wachtel & Masyr, LLP during fiscal 1997. Prior to that Mr. Levine was a
partner in the law firm of Gold & Wachtel, LLP. Payments to such firms
aggregated $272,197 for legal services rendered to the Trust during fiscal year
1997.
The Company has not recognized rental income for fiscal 1997 pursuant to a
ground lease on Blackman Plaza (a limited partnership in which Mr. Slomowitz is
the sole general partner owning a one percent economic interest) due to the
lessee's inability to pay the ground rent as a result of insufficient cash flow
from the property. The lease, which expires in the year 2051, provides the
Company with an option, exercisable between
80
<PAGE>
January 2, 1997 and August 2, 2001, to purchase the lessee's interests in the
shopping center. On January 7, 1998, the Company exercised its option to
purchase the lessee's interests in the Blackman Plaza with a closing date
anticipated to occur during fiscal 1998. All ground rent currently in arrears
will be applied as a credit towards the Company's purchase price.
Mr. Slomowitz is also a member of the Board of Directors of a tenant which
leases space in twelve of the Company's properties. Rental income from this
tenant for fiscal 1997 aggregated $885,389. Additionally, for fiscal 1995, the
Company paid approximately $1,050,000 for tenant improvements at three
properties for this tenant.
Harvey Shanus, a trustee of the Company, has provided consulting services
to the Company in connection with construction activities in which the Company
is engaged. Mr. Shanus was paid $100,000 by the Company during fiscal year 1997
for the provision of such consulting services.
THE OTHER PROPOSALS
Amendment to Declaration of Trust to Increase Authorized Shares
The Board of Trustees unanimously recommends that the shareholders approve
a proposal to amend Section 6.1 of the Declaration of Trust to increase the
number of Shares which the Trust has authority to issue from 50,000,000 Shares
to 100,000,000 Shares. Attached as Annex "III" to this Proxy Statement and
incorporated herein by reference is the complete text of the proposed amendment
to Section 6.1 of the Declaration of Trust.
At July 8, 1998, there were 8,554,177 Common Shares issued and
outstanding, representing 17.1% of the authorized Shares of the Trust.
Additionally, an aggregate of 1,961,300 Common Shares are reserved for issuance
upon exercise of outstanding options, for issuance upon conversion of
outstanding securities convertible or exchangeable into Common Shares,
including Units, and for issuance in connection with the Trust's Dividend
Reinvestment Plan.
Additionally, in connection with the Transaction, the Trust will issue an
additional 15.1 million Common Shares, and will reserve an additional 11.1
million Common Shares for issuance upon exchange of Units to be issued in the
Transaction. See "Summary of the Contribution Agreement and Related Matters --
Principal Features of the Transaction." Additionally, the Trust will be
obligated to reserve an additional 300,000 Common Shares for issuance upon
exercise of options to be granted to Mr. Slomowitz at Closing in exchange for
currently outstanding options to purchase 200,000 Common Shares. Consequently,
as a result of the Transaction, and giving effect to the obligation of the
Trust to reserve additional Common Shares as aforesaid, there would remain only
14,717,857 Shares authorized but unissued.
RDC has also advised the Trust that, promptly following consummation of
the Transaction, new management intends to seek authorization from the Board of
Trustees to commence an offering of Preferred Shares intended to raise
approximately $75.0 million to $100.0 million of additional capital for
acquisition, development, expansion and other working capital purposes.
Pursuant to the authority vested in the Board of Trustees and the Trust's
Bylaws, the Board would designate authorized but unissued Shares as Preferred
Shares with such designations, rights and preferences as the Board deemed
advisable, including the right to convert the Preferred Shares into Common
Shares.
As is the case with the existing Shares, under the current terms of the
Declaration of Trust, the additional Shares which would be authorized by the
proposed amendment could be designated as Common Shares or Preferred Shares as
the Board of Trustees determines, without further shareholder approval. In the
opinion of the Board of Trustees, the additional authorized Shares will benefit
the Trust by providing flexibility to the Board of Trustees, without requiring
further action or authorization by the Trust's shareholders (except as may be
required by law or the rules of any stock exchange on which the Trust's
securities may then be listed), to issue additional shares from time to time in
responding to business needs and opportunities as they arise, or for other
corporate purposes. These opportunities, needs and purposes might include, for
example, the obtaining of capital funds through public and private offerings of
shares or of securities convertible into shares, and the use of shares in
connection with structuring possible acquisitions or businesses and assets.
Additionally, the Board, in its discretion, could in the future declare share
splits or share dividends, or increase, establish or extend share
81
<PAGE>
options and other share award plans. The Company has no present plans,
arrangements or understandings with respect to possible acquisitions,
financings, splits, dividends or other actions requiring the availability of
the additional shares, other than in connection with the Transaction as
described above, the potential offer and sale of convertible preferred shares
and the reservation of shares in connection with the grant of additional
options to executives following the Transaction. See "Management of the Trust
Before and After the Transaction -- Senior Executives of the Trust Following
the Transaction."
The New York Stock Exchange, on which the Common Shares currently are
listed, requires shareholder approval as a prerequisite to listing shares in
instances where the issuance of shares in any transaction or series of related
transactions could result in an increase in the number of Common Shares
outstanding by 20% or more.
Although the Board of Trustees would only authorize the issuance of
additional shares based on its judgment as to the best interest of the Trust
and its shareholders, the issuance of additional authorized shares could have
the effect of diluting the voting power or book value per share of the
outstanding Common Shares. Moreover, the amendment, if approved, would
strengthen the position of management and might make the removal of management
more difficult, even if such removal would be generally beneficial to the
Trust's shareholders. The authorization to issue the additional Shares would
provide management with the capacity to negate the efforts of unfriendly tender
offerors through the issuance of securities to others who are friendly or
desirable to management. This proposal is not the result, however, of the
current or pending future management's knowledge of any specific effort to
accumulate the Trust's securities or obtain control of the Trust by means of a
merger, tender offer, proxy solicitation, solicitation in opposition to
management or otherwise. The Trust is not submitting this proposal to enable it
to frustrate any efforts by another party to acquire a controlling interest or
to seek Board representation. Moreover, the excess share limitations set forth
in the Declaration of Trust would effectively prevent concentration of share
ownership in any one or group of related shareholders without trustee approval.
The submission of this proposal is not part of any plan by the Trust's
management to adopt a series of amendments to the Declaration of Trust or
Bylaws so as to render a takeover of the Trust more difficult.
Approval of this amendment to the Declaration of Trust requires approval
by the holders of a majority of Common Shares entitled to vote thereon by
person or by proxy at the Meeting. As a result, any Common Shares not
affirmatively voted (whether by abstention, non-vote or otherwise) will have
the same effect as a vote against the proposal.
The Board of Trustees recommends that shareholders vote FOR the proposal
to approve this amendment.
Amendment to Declaration of Trust to Approve Name Change
The Board of Trustees unanimously recommends that the shareholders approve
a proposal to amend Section 1.1 of the Declaration of Trust to change the
Trust's name from "Mark Centers Trust" to "Acadia Realty Trust." Attached as
Annex "III" to this Proxy Statement and incorporated herein by reference is the
complete text of the proposed amendment to Section 1.1 of the Declaration of
Trust.
The change in the Trust's name, which would be effective only if the
Transaction is consummated, is intended to reposition the Company in the
marketplace in light of the substantial changes which are expected to occur to
the Company as a result of the Transaction, including, but not limited to, the
increase in size and diversity of the Company's portfolio, the change in
management, the deleveraging of the Company's assets and the increase in
equity.
Approval of this amendment to the Declaration of Trust requires approval
by the holders of a majority of Common Shares entitled to vote thereon by
person or by proxy at the Meeting. As a result, any Common Shares not
affirmatively voted (whether by abstention, non-vote or otherwise) will have
the same effect as a vote against the proposal.
The Board of Trustees recommends that shareholders vote FOR the proposal
to approve this amendment.
82
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 8, 1998 and as adjusted to give
effect to the Transaction, certain information concerning the holdings of each
person known to the Company to be the beneficial owner of more than five
percent (5%) of the Common Shares at July 8, 1998 and immediately following the
Transaction, and all Common Shares beneficially owned by each trustee, each
nominee for trustee, each executive officer named in the Executive Compensation
Summary table appearing elsewhere herein, by all trustees and executive
officers as a group and by each person appointed as a trustee in connection
with the Transaction. Each of the persons named below has sole voting power and
sole investment power with respect to the shares set forth opposite his name,
except as otherwise noted.
<TABLE>
<CAPTION>
Number of
Common
Shares
Beneficially Percent of
Beneficially Owned Owned Class As Adjusted
------------------ --------------------------- ----------- ------------
<S> <C> <C> <C>
Marvin L. Slomowitz(1) 2,038,840(2) 19.79% 5.58%
Joseph L. Castle, II 10,000(3) *
Marvin J. Levine 10,000(3)(4) * *
Lawrence J. Longua 11,000(3) * *
Harvey Shanus 10,000(3) *
John Vincent Weber 10,000(3) *
David S. Zook 15,879(5) * *
Joshua Kane 11,979(6) * *
Ross Dworman(7) 15,130,288(8) 61.79%
Kenneth Bernstein(7) 15,130,288(8) 61.79%
Martin L. Edelman --
Gregory White 10,000(9) *
RD Properties, L.P. VI(7) 7,600,000(10) 31.04%
RD Properties, L.P. VIA(7) 2,266,667(10) 9.26%
RD Properties, L.P. VIB(7) 5,263,621(10) 21.49%
Franklin Resources, Inc.
777 Mariners Island Blvd
6th floor
San Mateo, CA 94404 821,800(11) 8.78% 3.36%
Corbyn Investment
Management, Inc.
Suite 108
2330 W. Joppa Road
Lutherville, MD 21093 607,427(12) 6.49% 2.48%
First Manhattan Co.
437 Madison Avenue
New York, NY 10022 496,480(13) 5.31% 2.03%
All Executive Officers and
Trustees as a Group (8
persons, 9 persons as
adjusted for the Transaction) 2,117,698(2)-(6);
17,227,986(2)-(9) 20.21% 67.62%
</TABLE>
83
<PAGE>
- ------------
* Percentage less than 1% of class.
(1) Mr. Slomowitz's address is c/o Mark Centers Trust, 600 Third Avenue,
Kingston, PA 18704.
(2) Includes 821,000 Units which are immediately exchangeable into an
equivalent number of Common Shares, and immediately exercisable options to
purchase 120,000 Common Shares. Does not include 240 Common Shares held by
Mr. Slomowitz's children, as to which Mr. Slomowitz disclaims beneficial
interest.
(3) Represents immediately exercisable options to purchase 10,000 Common
Shares.
(4) Does not include 500 Common Shares held by Mr. Levine's wife, as to which
Mr. Levine disclaims beneficial interest.
(5) Represents immediately exercisable options to purchase 9,000 Common
Shares. Does not include 250 Common Shares held by Mr. Zook's daughter, as
to which Mr. Zook disclaims beneficial interest.
(6) Includes immediately exercisable options to purchase 9,000 Common Shares.
(7) The address of each of such persons and entities is c/o Acadia Management
Company LLC, 20 Soundview Marketplace, Port Washington, NY 11050
(8) Represents Common Shares issued to the RDC Funds of which an affiliate of
RDC, which is wholly-owned by Messrs. Dworman and Bernstein, serves as
general partner. Messrs. Dworman and Bernstein disclaim beneficial
ownership of all but 133,333 of such Common Shares. Does not include
11,100,000 Common Shares issuable upon exchange of Units which are owned
by entities in which RDC or its affiliates serve as the general partner or
in another similar management capacity, and which are not exchangeable
until one year following closing of the Transaction, and as to all but
1,466,000 of such Common Shares Messrs. Dworman and Bernstein disclaim
beneficial interest.
(9) Represents Common Shares owned by Mr. White's wife. Does not include
20,000 Common Shares issuable upon exchange of Units which are owned by
Mr. White's wife and which are not exchangeable until one year following
closing of the Transaction.
(10) Represents Common Shares issuable in the Transaction. The RDC Funds have
sole dispositive power, but no voting power, as to these Common Shares.
(11) Franklin Resources, Inc., consisting of a registered investment advisor
and an investment company, has sole voting and dispositive power with
respect to the Common Shares. This information has been obtained by
reference to a Schedule 13G filed by the named entity.
(12) Cobryn Investment Management, Inc., consisting of a registered investment
advisor and an investment company, has sole voting and dispositive power
with respect to the Common Shares. This information has been obtained by
reference to a Schedule 13G filed by the named entity.
(13) First Manhattan Co. is a registered investment advisor and has sole voting
and sole dispositive power with respect to 48,800 Common Shares. It has
shared voting and shared dispositive power with respect to 429,130 and
447,680 Common Shares, respectively. The total number of Common Shares
reported herein includes 27,300 shares owned by family members of general
partners of First Manhattan Co. which are reported for informational
purposes only. First Manhattan Co. disclaims dispositive power as to 4,700
of such Common Shares and beneficial ownership as to 25,100 of such Common
Shares. This information has been obtained directly from First Manhattan
Co.
84
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows for the fiscal years ended December 31, 1997,
1996 and 1995, the annual and long-term compensation paid and accrued by the
Company to the Company's Chief Executive Officer and to each of the executive
officers whose total annual compensation for fiscal year 1997 exceeded
$100,000.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------------------------- ------------------------------------------------------
Other Restricted Long-Term All
Annual Share Options/ Compensation Other
Fiscal Salary Bonus Compensation Awards SARs Payouts Compensation
Year ($) ($) ($) ($) ($) (#) ($)(1)
-------- ----------- ------- -------------- ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin L. Slomowitz 1997 $181,692 -- --(2) -- -- 100,000(3)(4) --
Chief Executive Officer 1996 $176,400 -- --(2) -- -- -- --
1995 $168,000 -- --(2) -- -- 100,000(3)(4) --
David S. Zook 1997 $146,003 -- --(2) -- -- 7,500(3) $1,480
Executive Vice President, 1996 $141,750 -- --(2) -- -- -- $1,457
President and Chief 1995 $135,000 -- --(2) -- -- 7,500(3) $1,446
Operating Officer
Joshua Kane 1997 $116,385 -- --(2) -- -- 7,500(3) $3,580
Senior Vice President and 1996 $ 94,500 -- --(2) -- -- -- $ 483
Chief Financial Officer 1995 $ 90,000 -- --(2) -- -- 7,500(3) $ 471
</TABLE>
- ------------
(1) Represents contributions made by the Company to the account of the named
executive officer under a 401(k) Plan.
(2) Did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus for the named executive officer.
(3) Represents options granted under the Company's 1994 Share Option Plan. The
options granted during fiscal 1995 vested as to 20% of the Common Shares
subject thereto upon the approval of the Plan on June 15, 1995. The
options granted during fiscal 1997 vested as to 20% of the Common Shares
subject thereto upon the grant date. The remaining options vest in 20%
increments over a four year period.
(4) If the Transaction is consummated, these options will be tendered to the
Trust in exchange for newly granted options to purchase 300,000 Common
Shares, exercisable in three equal cumulative annual installments
commencing on the Closing Date, at an exercise price of $9.00 per Common
Share.
85
<PAGE>
Share Option Grants, Exercises and Holdings
The following tables set forth certain information concerning share
options granted to the persons named in the Summary Compensation Table above
during fiscal year 1997 and unexercised share options held by such persons at
the end of fiscal year 1997.
Share Option Grants in Fiscal Year 1997
<TABLE>
<CAPTION>
Percentage of
Total Annual
Options/SARs Potential Realizable Value
Granted to At Assumed
Employees in Exercise or Annual Rate of Share Price
Option/SARs Fiscal Year Base Price/ for Option Term
Name(1) Granted(2) 1997 Per Share $(3) Expiration Date 5% 10%
- --------------------- ---------------- -------------- ---------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marvin L. Slomowitz 100,000(4) 78% $ 11.1875 3/12/2007 $703,582 $1,782,952
David S. Zook 7,500 6% $ 11.1875 3/12/2007 $ 52,769 $ 133,721
Joshua Kane 7,500 6% $ 11.1875 3/12/2007 $ 52,769 $ 133,721
</TABLE>
- ------------
(1) See Summary Compensation Summary Table for title of the persons named
above.
(2) Represents options granted under the 1994 Share Option Plan. The options
vested immediately as to 20% of the common shares subject thereto, with
the remainder to vest in 20% increments over a four year period.
(3) All options were granted at fair market value on the date of grant.
(4) If the Transaction is consummated, these options will be tendered to the
Trust in exchange for newly issued options to purchase 300,000 Common
Shares, exercisable in three equal cumulative annual installments
commencing on the Closing Date, at an exercise price of $9.00 per Common
Share.
1997 Fiscal Year End Option Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised in-the-Money
Options/SARs Options/SARs
at Fiscal at Fiscal
Year-End Year-End(2)
------------------------------ --------------
Shares
Acquired
on Value Exercisable/ Exercisable/
Name(1) Exercise Realized Unexercisable Unexercisable
- --------------------- ---------- ---------- ------------------------------ --------------
<S> <C> <C> <C> <C>
Marvin L. Slomowitz -- -- 100,000/100,000(3)(4) --/--
David S. Zook -- -- 7,500/7,500(3) --/--
Joshua Kane -- -- 7,500/7,500(3) --/--
</TABLE>
- ------------
(1) See Summary Compensation Table for title of the persons named above.
(2) At December 31, 1997, the exercise price for the options exceeded the fair
market value for the underlying Common Shares.
(3) Represents options granted under the 1994 Share Option Plan. The options
vested immediately as to 20% of the common shares subject thereto, with
the remainder to vest in 20% increments over a four year period.
(4) If the Transaction is consummated, these options will be tendered to the
Trust in exchange for newly issued options to purchase 300,000 Common
Shares, exercisable in three equal cumulative annual installments
commencing on the Closing Date, at an exercise price of $9.00 per Common
Share.
86
<PAGE>
REPORT OF THE COMPENSATION AND SHARE OPTION PLAN
COMMITTEES ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Trustees, composed of outside
trustees of the Board of Trustees of the Trust, reviews the performance of the
Trust's executive personnel and develops and makes recommendations to the Board
with respect to executive compensation policies, including the awarding of
appropriate bonuses. The Share Option Plan Committee, composed of outside
trustees of the Board of Trustees of the Trust, is empowered by the Board to
recommend to the Board those executive officers to whom share options and
restricted share awards should be granted and the number of common shares to
which such options and awards should be subject.
Each Committee has access to independent compensation data and is
authorized, if determined appropriate in any particular case, to engage outside
compensation consultants.
The objectives of each Committee are to support the achievement of desired
Trust performance, to provide compensation and benefits that will attract and
retain superior talent and reward performance and to fix a portion of
compensation to the outcome of corporate performance.
The executive compensation program is generally comprised of base salary,
discretionary performance bonuses and long term incentives in the form of share
options and restricted share awards. The compensation program also includes
various benefits, including health insurance plans and programs and pension and
profit sharing and retirement plans in which substantially all of the Trust's
employees participate.
Base salary levels for the Trust's executive officers are competitively
set relative to salaries of officers of companies comparable in business, size
and location. In each instance, base salary takes into account individual
experience and performance specific to the Trust.
The Compensation Committee is empowered to recommend for full Board
approval the payment of cash performance bonuses to employees, including
executive officers, of the Trust. Performance bonuses are paid based upon the
degree of achievement of a specified earnings goal. The Board of Trustees
determines annually both the targeted earnings goal and the maximum performance
bonus to be paid to each employee. The amount of the target bonus is determined
by each employee's level of responsibility and material contributions to the
success of the Trust. No bonuses were paid during the last fiscal year.
The Board of Trustees believes that employee equity ownership provides
significant additional motivation to executive officers to maximize value for
the Trust's shareholders and, therefore, has authorized the Share Option Plan
Committee to periodically recommend to the Board of Trustees grants of share
options and restricted share awards to the Trust's employees, including
executive officers. Share options are granted typically at prevailing market
price and, therefore, will only have value if the Trust's share price increases
over the exercise price. The Committee believes that the grant of share options
and restricted share awards provides a long term incentive to such persons to
contribute to the growth of the Trust and establishes a direct link between
compensation and shareholder return, measured by the same index used by
shareholders to measure Trust performance. The terms of options and restricted
share awards granted by the Board of Trustees, including vesting,
exercisability and term, are determined by the Share Option Plan Committee,
subject to requirements imposed by the plans under which such options and
awards may be granted, based upon relative position and responsibilities of
each executive officer, historical and expected contributions of each officer
to the Trust, previous option grants to executive officers and a review of
competitive equity compensation for executive officers of similar rank in
companies that are comparable to the Trust's industry, geographic location and
size. For information regarding recent options granted to the Trust's executive
officers, reference is made to the tables set forth in the Proxy Statement
under the caption "Executive Compensation."
The Compensation Committee is aware that a recent amendment to the
Internal Revenue Code of 1986 treats certain elements of executive compensation
in excess of $1.0 million a year as an expense not deductible by the Trust for
federal income tax purposes. Currently, no executive officer's compensation, as
determined in accordance with these regulations, exceeds the $1.0 million cap.
Accordingly, the Compensation Committee has not yet established a policy which
would address compensation to the Trust's executive officers in light of the
cap.
Compensation Committee and Share Option Plan Committee
Joseph L. Castle
John Vincent Weber
Lawrence J. Longua
87
<PAGE>
SHARE PRICE PERFORMANCE GRAPH
The following table compares the cumulative total shareholder return for
the Common Shares for the period commencing May 26, 1993 through December 31,
1997 with the cumulative total return on the Standard & Poor's 500 Stock Index
(the "S&P 500"), and the NAREIT Equity REIT Total Return Index (the "NAREIT
Index") over the same period. Total return values for the S&P 500, the NAREIT
Index and the Common Shares were calculated based upon cumulative total return
assuming the investment of $100 in each of the S&P 500, the NAREIT Index and
the Common Shares on May 26, 1993, and assuming reinvestment of such dividends.
The shareholder return as set forth in the graph below is not necessarily
indicative of future performance.
COMPARISON OF 55 MONTH CUMULATIVE TOTAL RETURN*
AMONG MARK CENTERS TRUST, THE S & P 500 INDEX AND THE NAREIT EQUITY INDEX
300-----------------------------------------------------------------------------
250-----------------------------------------------------------------------------
@ 247
185
200--------------------------------------------------------------------*--------
@ 199
*
151 166
150---------------------------------------------@-------------------------------
108 110 *
@* @* 122
100@#*--------------------------------------------------------------------------
103 106
# # # # #
76 75 74 75 72
50-----------------------------------------------------------------------------
0-----------------------------------------------------------------------------
5/27/93 12/93 12/94 12/95 12/96 12/97
# = MARK CENTERS TRUST @ = S&P 500 * = NAREIT EQUITY
5/27/93 12/93 12/94 12/95 12/96 12/97
------- ----- ----- ----- ----- -----
MARK CENTERS TRUST 100 76 75 74 75 72
S&P 500 100 106 110 151 185 217
NAREIT EQUITY 100 103 106 122 166 199
* $100 INVESTED ON 5/27/93 IN STOCK OR ON 4/30/93
IN INDEX - INCLUDING REINVESTMENT OF DIVIDENDS,
FISCAL YEAR ENDING DECEMBER 31.
88
<PAGE>
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers and
trustees and persons who own more than ten percent of the Company's Common
Shares (collectively, the "Reporting Persons") to file reports of ownership and
changes in ownership with the Commission and to furnish the Company with copies
of these reports. Based on the Company's review of the copies of these reports
received by it, the Company believes that all filings required to be made by
the Reporting Persons for the period January 1, 1997 through December 31, 1997
were made on a timely basis.
PROPOSALS OF SECURITY HOLDERS
All proposals of any shareholder of the Trust which the holder desires be
presented at the next Annual Meeting of Shareholders and be included in the
proxy statement and form of proxy prepared for that meeting must be received by
the Trust at its principal executive offices no later than March 10, 1999. All
such proposals must be submitted in writing to the Secretary of the Trust at
the address appearing on the notice accompanying this proxy statement.
INDEPENDENT AUDITORS
Ernst & Young LLP performed the customary auditing services for the Trust
for the year ended December 31, 1997. The Trust has selected Ernst & Young LLP
to perform these services for the next fiscal year. A representative of Ernst &
Young LLP is expected to be present at the Meeting and will be available to
respond to questions and will be afforded an opportunity to make any statement
which he may deem appropriate.
89
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
I. MARK CENTERS TRUST
Report of Independent Auditors ....................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 ......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1997, 1996
and 1995 ............................................................................. F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997,
1996 and 1995 ........................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996
and 1995 ............................................................................. F-6
Notes to Consolidated Financial Statements ........................................... F-8
Schedule III -- Real Estate and Accumulated Depreciation ............................. F-20
Unaudited Consolidated Balance Sheet as of March 31, 1998 ............................ F-23
Unaudited Consolidated Statements of Operations for the three months ended March 31,
1998 and 1997 ........................................................................ F-24
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31,
1998 and 1997 ........................................................................ F-25
Notes to Unaudited Consolidated Financial Statements ................................. F-26
II. THE RDC GROUP
Report of Independent Auditors ....................................................... F-29
Combined Balance Sheets as of December 31, 1997 and 1996 and March 31, 1998 (unau-
dited) and 1997 (unaudited) .......................................................... F-30
Combined Statements of Operations for the years ended December 31, 1997, 1996 and 1995
and the three months ended March 31, 1998 (unaudited) and 1997 (unaudited) ........... F-31
Combined Statements of Partners' and Members' Equity for the years ended December 31,
1997, 1996 and 1995 and the three months ended March 31, 1998 (unaudited) ............ F-32
Combined Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995 and the three months ended March 31, 1998 (unaudited) and March 31, 1997
(unaudited) .......................................................................... F-33
Notes to Combined Financial Statements ............................................... F-35
Schedule III -- Real Estate and Accumulated Depreciation ............................. F-42
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Trustees of
Mark Centers Trust
We have audited the accompanying consolidated balance sheets of Mark
Centers Trust (a Maryland Trust) and subsidiaries (the "Company") as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the financial
statement schedule listed in the Index to Financial Statements. These financial
statements and the schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 Mark Centers Trust and subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
April 8, 1998
F-2
<PAGE>
MARK CENTERS TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
1997 1996
ASSETS ------------ ------------
<S> <C> <C>
Rental property, at cost:
Land ....................................................................... $ 30,855 $ 31,084
Buildings and improvements ................................................. 274,165 271,423
Property under development ................................................. 6,668 4,904
-------- --------
311,688 307,411
Less: accumulated depreciation ............................................. 83,326 72,956
-------- --------
Net rental property ..................................................... 228,362 234,455
Cash and cash equivalents .................................................. 1,287 3,912
Cash in escrow ............................................................. 7,906 3,603
Rents receivable ........................................................... 4,802 4,956
Prepaid expenses ........................................................... 1,241 1,421
Due from related parties ................................................... 177 203
Deferred charges, net ...................................................... 9,710 9,034
Other assets ............................................................... 1,015 933
-------- --------
$254,500 $258,517
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ..................................................... $183,943 $160,168
Lines of credit ............................................................ -- 12,655
Accounts payable and accrued expenses ...................................... 7,553 9,397
Distributions payable ...................................................... -- 3,662
Note payable to Principal Shareholder ...................................... 3,050 3,050
Other liabilities .......................................................... 1,910 2,027
-------- --------
Total liabilities ....................................................... 196,456 190,959
-------- --------
Minority interest .......................................................... 9,244 10,752
-------- --------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value, authorized 50,000,000 shares, issued and out-
standing, 8,554,177 and 8,548,817 shares, respectively .................... 9 9
Additional paid-in capital ................................................. 51,073 57,521
Deficit .................................................................... (2,282) (724)
-------- --------
Total shareholders' equity .............................................. 48,800 56,806
-------- --------
$254,500 $258,517
======== ========
</TABLE>
See accompanying notes
F-3
<PAGE>
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenue
Minimum rents .......................................................... $ 33,669 $ 33,695 $ 32,740
Percentage rents ....................................................... 3,183 2,795 3,340
Expense reimbursements ................................................. 6,632 6,559 6,431
Other .................................................................. 1,014 747 821
--------- --------- ---------
Total revenue .......................................................... 44,498 43,796 43,332
--------- --------- ---------
Operating expenses
Property operating ..................................................... 9,013 9,772 8,834
Real estate taxes ...................................................... 5,691 5,285 4,789
Depreciation and amortization .......................................... 13,768 13,398 11,820
General and administrative ............................................. 2,351 2,811 2,751
--------- --------- ---------
Total operating expenses ............................................... 30,823 31,266 28,194
--------- --------- ---------
Operating income ....................................................... 13,675 12,530 15,138
Interest expense ....................................................... (15,444) (12,733) (10,598)
(Loss) gain on sale of land ............................................ (12) 21 93
Adjustment to carrying value of property held for sale ................. -- (392) --
--------- --------- ---------
(Loss) income before extraordinary item and minority interest .......... (1,781) (574) 4,633
Extraordinary item -- write-off of deferred financing costs ............ -- (190) --
--------- --------- ---------
(1,781) (764) 4,633
Minority interest ...................................................... 217 40 (833)
--------- --------- ---------
Net (loss) income ...................................................... $ (1,564) $ (724) $ 3,800
========= ========= =========
Basic and diluted net (loss) income per common share:
(Loss) income before extraordinary item ................................ $ (.18) $ (.06) $ .44
Extraordinary item ..................................................... -- (.02) --
--------- --------- ---------
Basic and diluted net (loss) income per common share ................... $ (.18) $ (.08) $ .44
========= ========= =========
</TABLE>
See accompanying notes
F-4
<PAGE>
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Shares of Retained Total
Common Common Additional Paid Earnings Shareholders'
Stock Stock in Capital (Deficit) Equity
----------- -------- ----------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ................. 8,536,765 9 $ 78,174 $ -- $ 78,183
Issuance of shares pursuant to the
Company's restricted share plan ........... 6,687 -- 93 -- 93
Issuance of Operating Partnership Units
in connection with the acquisition of
property .................................. -- -- (20) -- (20)
Income before minority interest ............ -- -- -- 4,633 4,633
Distributions paid to limited partners of
the Operating Partnership ................. -- -- -- (2,452) (2,452)
Dividends paid from accumulated
earnings ($0.16 per share) ................ -- -- -- (1,348) (1,348)
Dividends paid in excess of accumulated
earnings ($1.28 per share) ................ -- -- (10,949) -- (10,949)
Minority interest's equity ................. -- -- 2,472 (833) 1,639
--------- -- --------- -------- ---------
Balance, December 31, 1995 ................. 8,543,452 9 69,770 -- 69,779
Issuance of shares pursuant to the
Company's restricted share plan ........... 5,365 -- 57 -- 57
Loss before minority interest .............. -- -- -- (764) (764)
Distributions paid or declared to limited
partners of the Operating Partnership ..... -- -- (2,435) -- (2,435)
Dividends paid or declared in excess of
accumulated earnings ($1.44 per
share) .................................... -- -- (12,306) -- (12,306)
Minority interest's equity ................. -- -- 2,435 40 2,475
--------- -- --------- -------- ---------
Balance, December 31, 1996 ................. 8,548,817 9 57,521 (724) 56,806
Issuance of shares pursuant to the
Company's restricted share plan ........... 5,360 -- 52 -- 52
Adjustment to minority interest ............ -- -- -- 6 6
Loss before minority interest .............. -- -- -- (1,781) (1,781)
Distributions paid to limited partners of
the Operating Partnership ................. -- -- (1,285) -- (1,285)
Dividends paid in excess of accumulated
earnings ($0.76 per share) ................ -- -- (6,500) -- (6,500)
Minority interest's equity ................. -- -- 1,285 217 1,502
--------- -- --------- -------- ---------
Balance, December 31, 1997 ................. 8,554,177 $ 9 $ 51,073 $ (2,282) $ 48,800
========= === ========= ======== =========
</TABLE>
See accompanying notes
F-5
<PAGE>
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)income ............................................... $ (1,564) $ (724) $ 3,800
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Loss (gain) on sale of land ................................. 12 (21) (93)
Depreciation and amortization of leasing costs .............. 13,201 12,483 10,993
Amortization of deferred financing costs .................... 567 915 827
Write-off of deferred financing costs ....................... -- 190 --
Adjustment to carrying value of property held for sale -- 392 --
Minority interest ........................................... (217) (40) 833
Provision for bad debts ..................................... 833 972 721
Other ....................................................... 52 57 93
--------- --------- ---------
12,884 14,224 17,174
Changes in assets and liabilities:
Rents receivable .............................................. (679) (580) (1,846)
Prepaid expenses .............................................. 180 (69) (387)
Due from related parties ...................................... 26 31 408
Other assets .................................................. (290) 641 (959)
Accounts payable and accrued expenses ......................... 1,233 (756) 1,656
Other liabilities ............................................. (117) 561 51
--------- --------- ---------
Net cash provided by operating activities ................... 13,237 14,052 16,097
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements, inclusive
of payables related to construction activity ................ (10,558) (16,642) (21,671)
Payment to Principal Shareholder for acquisition of land -- -- (1,500)
Payment of deferred leasing charges ........................... (1,205) (3,399) (1,650)
Proceeds from sale of property ................................ 1,288 22 105
--------- --------- ---------
Net cash used in investing activities ....................... (10,475) (20,019) (24,716)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net funding of escrows ........................................ (4,303) (688) (2,014)
Principal payments on mortgages ............................... (14,835) (40,622) (49,491)
Payment of deferred finance costs ............................. (757) (2,415) (770)
Proceeds received on mortgage notes ........................... 25,955 61,617 75,690
Dividends paid ................................................ (9,577) (9,229) (12,297)
Distributions paid to Principal Shareholder ................... (1,870) (1,852) (2,452)
--------- --------- ---------
Net cash (used in) provided by financing activities ......... (5,387) 6,811 8,666
--------- --------- ---------
(Decrease) increase in cash and cash equivalents ............... (2,625) 844 47
Cash and cash equivalents, beginning of period ................. 3,912 3,068 3,021
--------- --------- ---------
Cash and cash equivalents, end of period ....................... $ 1,287 $ 3,912 $ 3,068
========= ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest, net of amounts
capitalized of $569, $897, and $978, respectively ............. $ 15,502 $ 12,950 $ 10,172
========= ========= =========
</TABLE>
F-6
<PAGE>
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
In connection with the exercise of the Company's options to acquire and
develop certain properties and the subsequent transactions as a result of
certain resolutions with the Principal Shareholder, the following assets and
liabilities were recorded:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
-------- ------------ ------------
<S> <C> <C> <C>
Contingent liability due to Principal Shareholder ......... $ -- $ (6,156) $ (8,133)
Establishment of note payable to the Principal Shareholder -- 3,031 --
----- -------- --------
Net decrease in cost of property acquired ................. $ -- $ (3,125) $ (8,133)
===== ======== ========
In connection with the acquisition of the Plaza 15 Shopping Center, the following assets and
liabilities were
recorded:
Assumption of mortgage .................................... $ -- $ -- $ 1,219
Application of balance due the Company under the ground
lease .................................................... -- -- 196
Operating Partnership Units issued ........................ -- -- 20
Cash received ............................................. -- -- (46)
----- -------- --------
Cost of property acquired ................................. $ -- $ -- $ 1,389
===== ======== ========
</TABLE>
See accompanying notes
F-7
<PAGE>
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Organization, Basis of Presentation and Summary of Significant Accounting
Policies
Mark Centers Trust (the "Company") was formed as a Maryland Real Estate
Investment Trust on March 4, 1993 by Marvin L. Slomowitz (the "Principal
Shareholder"), the principal owner of Mark Development Group (the
"Predecessor"), to continue the business of the Predecessor in acquiring,
developing, renovating, owning and operating shopping center properties. The
Company effectively commenced operations on June 1, 1993 with the completion of
its initial public offering, whereby it issued 8,350,000 common shares (the
"Offering"). The proceeds from the Offering were used to repay certain
property-related indebtedness, for costs associated with the Offering and the
transfer of the properties to the Company and for working capital. The
acquisition of the properties was recorded by the Company at the historical
cost reflected in the Predecessor's financial statements since these
transactions were conducted with entities deemed to be related parties. The
Company currently owns and operates 39 properties consisting of 34 neighborhood
and community shopping centers, three enclosed malls and two mixed-use
(retail/office space) properties. All of the Company's assets are held by, and
all of its operations are conducted through Mark Centers Limited Partnership
(the "Operating Partnership") and its majority owned partnerships. The Company
as of December 31, 1997 controlled, as the sole general partner, 84% of the
Operating Partnership. The Company will at all times be the sole general
partner of, and owner of a 51% or greater interest in, the Operating
Partnership. In excess of 99% of the minority interest in the Operating
Partnership is owned by the Principal Shareholder who is the principal limited
partner of the Operating Partnership.
Principles of Consolidation
The consolidated financial statements of Mark Centers Trust include the
accounts of the Company and its majority owned partnerships, including the
Operating Partnership. All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Properties
Real estate assets are stated at cost less accumulated depreciation. Such
carrying amounts would be adjusted, if necessary, to reflect any impairment in
the value of the assets. Expenditures for acquisition, development construction
and improvement of properties, as well as significant renovations are
capitalized. Interest costs are capitalized until construction is substantially
complete. Depreciation is computed on the straight-line method over estimated
useful lives of thirty to forty years for buildings and the shorter of the
useful life or lease term of improvements, furniture, fixtures and equipment.
Expenditures for maintenance and repairs are charged to operations as incurred.
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", the Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. During 1997 market
events and circumstances and the requirement for significant capital
expenditures indicated that $35,412 of real estate assets might be impaired.
However, the Company's estimate of undiscounted cash flows indicated that such
carrying amounts were expected to be recovered. Nonetheless, it is reasonably
possible that the estimate of undiscounted cash flows may change in the near
term resulting in the need to write-down those assets to fair value.
F-8
<PAGE>
Acquisition of Properties
On July 14, 1995, the Company acquired the equitable interest in the building
and other improvements constituting the Plaza 15 Shopping Center, located in
Lewisburg, Pennsylvania. The equitable interest in the land had already been
assigned to the Company by the Principal Shareholder in the Offering in
exchange for Operating Partnership Units ("OP Units"). The Company paid $1,389
for the equitable interest in the building and improvements held by an
unrelated third party under an industrial development authority installment
sales agreement through the issuance of 2,000 OP Units, the assumption of
$1,219 of mortgage debt and the application of other amounts due the Company.
In May 1995, the Company and Principal Shareholder agreed to terminate an
acquisition option which was obtained concurrent with the Offering to acquire
property in New Castle, Pennsylvania. In lieu of the option the Company
purchased the property from the Principal Shareholder in February 1996 for
$4,495.
Sale of Property
On March 5, 1997, the Company completed the sale of the Newberry Plaza for
$1,300. A $392 reduction in carrying value had been recorded as of December 31,
1996 to reflect the property at a fair value equal to the contract sales price
less direct selling costs.
Deferred Costs
Fees and costs incurred in the successful negotiation of leases have been
deferred and are being amortized on a straight-line basis over the terms of the
respective leases. Fees and costs incurred in connection with obtaining
financing have been deferred and are being amortized over the term of the
related debt obligation.
Revenue Recognition
Leases with tenants are accounted for as operating leases. Minimum rents are
recognized on a straight-line basis over the term of the respective leases. As
of December 31, 1997 and 1996, unbilled rents receivable relating to
straight-lining of rents were $1,652 and $1,476, respectively. Percentage
rents, which are additional rents based on tenants' sales, are accrued based on
historical tenant sales. Certain tenants pay percentage rent in lieu of minimum
rent pursuant to their leases. Reimbursements from tenants for real estate
taxes, insurance and other property operating expenses are recognized as
revenue in the period the expenses are incurred.
An allowance for doubtful accounts has been provided against certain tenant
accounts receivable which are estimated to be uncollectible. Rents receivable
at December 31, 1997 and 1996 are shown net of an allowance for doubtful
accounts of $972 and $544, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash and cash equivalents.
Cash in Escrow
Cash in escrow consists principally of cash held for real estate taxes,
property maintenance, insurance, lease renewals, environmental remediation and
minimum occupancy requirements at specific properties as required by certain
loan agreements.
Minority Interest
In excess of 99% of the minority interest represents the Principal
Shareholder's 16% interest as a limited partner of the Operating Partnership.
Such interest is held in the form of OP Units which are exchangeable on an
equivalent basis with common shares. The remaining interest is the result of
the issuance of OP Units to an unrelated third party in consideration for the
acquisition of a property.
F-9
<PAGE>
Income Taxes
The Company has made an election to be taxed, and believes it qualifies as a
real estate investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended. A REIT will generally not be subject
to federal income taxation on that portion of its income that qualifies as REIT
taxable income to the extent that it distributes at least 95% of its taxable
income to its shareholders and complies with certain other requirements.
Accordingly, no provision has been made for federal income taxes for the
Company in the accompanying consolidated financial statements. The Company is
subject to state income or franchise taxes in certain states in which some of
its properties are located. These state taxes, which in total are not
significant, are recorded as general and administrative expenses in the
accompanying consolidated financial statements.
Earnings Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128
(SFAS 128), Earnings Per Share. SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share (which were not separately presented historically as they
were either anti-dilutive or not materially dilutive). All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements.
For the years ended December 31, 1997, 1996 and 1995, basic earnings per share
was determined by dividing net income (loss) applicable to common shareholders
for the year by the weighted average number of common shares of beneficial
interest ("Common Shares") outstanding during each year.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue Common Shares were exercised or
converted into Common Shares or resulted in the issuance of Common Shares that
then shared in the earnings of the Company. For the years ended December 31,
1997 and 1996 no additional shares were reflected as the impact would be
anti-dilutive due to the net loss in such periods. For the year ended December
31, 1995 diluted earnings per share was determined by dividing net income
applicable to common shareholders for the year by the total of the weighted
average number of shares of common stock outstanding plus the dilutive effect
of the Company's nonvested restricted shares (which amounted to 22,835
additional shares). The Company's outstanding stock options were not considered
for the purpose of computing diluted earnings per share because their assumed
conversion is antidilutive.
Segment Reporting
In June, 1997 the Financial Accounting Standards Board issued Statement No. 131
(SFAS 131), Disclosure About Segments of an Enterprise and Related Information,
which is effective for financial statements issued for periods beginning after
December 15, 1997. SFAS 131 requires disclosures about segments of an
enterprise and related information regarding the different types of business
activities in which an enterprise engages and the different economic
environments in which it operates. The Company does not believe that the
implementation of SFAS 131 will have a material impact on its financial
statements.
Reclassifications
Certain 1996 and 1995 amounts were reclassified to conform with the 1997
presentation.
F-10
<PAGE>
2. Deferred Charges
Deferred charges consist of the following as of December 31, 1997 and 1996:
1997 1996
----------- -----------
Deferred financing costs $ 6,382 $ 5,822
Deferred leasing and other costs 8,054 7,063
-------- --------
14,436 12,885
Accumulated amortization (4,726) (3,851)
-------- --------
$ 9,710 $ 9,034
======== ========
3. Mortgage Loans
Mortgage Notes Payable
At December 31, 1997, mortgage notes payable aggregated $183,943 and were
collateralized by 37 properties and related tenant leases. Interest rates
ranged from 7.7% to 9.50%. Mortgage payments are due in monthly installments of
principal and/or interest and mature on various dates through 2022. The loan
agreements contain customary representations, covenants and events of default.
Certain loan agreements require the Company to comply with certain affirmative
and negative covenants, including the maintenance of certain debt service
coverage and leverage ratios. Additionally, the Principal Shareholder has
personally guaranteed the repayment of mortgage loans with an aggregate balance
of $41,000 at December 31, 1997 without consideration from the Company.
On September 18, 1997, the Company closed on a $5,500 construction loan with
Firstrust Savings Bank ("Firstrust") which refinanced and expanded the
Company's existing $2,000 credit facility with Firstrust. This construction
loan, which is for the expansion of the Mark Plaza in Edwardsville,
Pennsylvania, bears interest, payable monthly, at the Firstrust commercial
reference rate plus 1% (9.5% as of December 31, 1997) and matures in March
1999.
On March 4, 1997, the Company closed on $23,000 of fixed rate financing from
Nomura Asset Capital Corporation. The loan, which matures in March 2022, is
secured by a mortgage on one of the Company's properties, bears interest at
9.02% and requires monthly payments of interest and principal amortized over 25
years. Approximately $10,155 of the proceeds were used to retire existing debt
with Fleet Bank of Massachusetts, NA, $673 were used to pay financing costs,
$3,015 was deposited in escrows, and the remaining proceeds were used for
working capital. The Company is subject to certain affirmative and negative
covenants related to this facility.
F-11
<PAGE>
The following table summarizes lines of credit and mortgage indebtedness as of
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Lines of credit-variable rate
Fleet Bank of Massachusetts,
NA $ -- $ 10,155
Firstrust Savings Bank -- 2,500
-------- --------
Total-lines of credit -- 12,655
-------- --------
Construction loans-variable
rate
Firstrust Savings Bank 2,954 --
First Western Bank, NA 4,000 4,000
Mortgage notes
payable-variable rate
Mellon Bank, NA 2,759 3,396
Mortgage notes
payable-fixed rate
Metropolitan Life Insurance
Company 41,000 41,000
Morgan Stanley Mortgage
Capital 45,312 45,845
Anchor National Life
Insurance Company 4,028 4,100
Northern Life Insurance
Company 3,627 3,829
Bankers Security Life 2,501 2,641
John Hancock Mutual Life
Insurance Co. 54,922 55,357
Nomura Asset Capital
Corporation 22,840 --
-------- --------
Total-mortgage notes
payable 183,943 160,168
-------- --------
$183,943 $172,823
======== ========
</TABLE>
<TABLE>
<CAPTION>
Monthly
Interest Properties Payment
Rate Maturity Encumbered Terms
---------------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Lines of credit-variable rate
Fleet Bank of Massachusetts,
NA
Firstrust Savings Bank
Total-lines of credit
Construction loans-variable
rate
Firstrust Savings Bank Prime + 1% March 1999 (1) (11)
First Western Bank, NA Prime + 1% March 2013 (2) (11)
Mortgage notes
payable-variable rate
Mellon Bank, NA LIBOR + 200 basis April 1998 (3) (12)
points/Prime+ 1/2%
Mortgage notes
payable-fixed rate
Metropolitan Life Insurance
Company 7.750% June 2000 (4) (11)
Morgan Stanley Mortgage
Capital 8.840% November 2021 (5) $ 380(12)
Anchor National Life
Insurance Company 7.930% January 2004 (6) $ 33(12)
Northern Life Insurance
Company 7.700% December 2008 (7) $ 41(12)
Bankers Security Life 7.700% December 2008 (7) $ 28(12)
John Hancock Mutual Life
Insurance Co. 9.110% April 2000 (8)(9) $ 455(12)
Nomura Asset Capital
Corporation 9.020% March 2022 (10) $ 193(12)
Total-mortgage notes
payable
</TABLE>
F-12
<PAGE>
Notes:
(1) Mark Plaza
(2) Union Plaza
(3) Auburn Plaza
(4) Valmont Plaza
Luzerne Street Plaza
Green Ridge Plaza
Crescent Plaza
East End Centre
(5) Midway Plaza
Northside Mall
New Smyrna Beach
Cloud Springs Plaza
Troy Plaza
Martintown Plaza
Kings Fairgrounds
Shillington Plaza
Dunmore Plaza
Kingston Plaza
Twenty Fifth Street Shopping Center
Circle Plaza
Mountainville Plaza
Plaza 15
Birney Plaza
Monroe Plaza
Ames Plaza
(6) Pittston Plaza
(7) Manahawkin Shopping Center
(8) New Loudon Centre
Ledgewood Mall
Plaza 422
Berlin Shopping Center
Route 6 Mall
Tioga West
Bradford Towne Centre
(9) The following two properties are encumbered related to an outstanding
letter of credit held by the lender:
Wesmark Plaza
Searstown Mall
(10) Northwood Centre
(11) Interest only monthly
(12) Monthly principal and interest
F-13
<PAGE>
The scheduled maturities of all mortgage indebtedness as of December 31, 1997
are as follows:
1998 $ 4,506
1999 4,858
2000 96,423
2001 1,638
2002 1,784
Thereafter 74,734
--------
$183,943
========
4. Related Party Transactions
As of December 31, 1997 and 1996 amounts due from related parties consisted of
the following:
December 31,
1997 1996
-------- -------
Accrued ground rent and management fees
due from Blackman Plaza Partners $ 202 $ 232
Other net amounts due to Principal Shareholder (25) (29)
----- -----
$ 177 $ 203
===== =====
Included in other income are management fees earned on properties owned by the
Principal Shareholder or affiliates which for the years ended December 31,
1997, 1996 and 1995 aggregated $19, $36 and $166, respectively.
Included in rental income for the year ended December 31, 1995 is $140 of rent
earned pursuant to a ground lease on Blackman Plaza with Blackman Plaza
Partners, a limited partnership ("Lessee") in which the Principal Shareholder
is the sole general partner (owning a one percent economic interest). The
Company has not recognized rental income for the years ended December 31, 1997
and 1996 due to the Lessee's inability to pay the ground rent as a result of
insufficient cash flow from the property. The lease, which expires in the year
2051, provides the Company ("Lessor") with an option, exercisable between
January 2, 1997 and August 2, 2001, to purchase the Lessee's interests in the
shopping center.
In the event the Lessor's option is not exercised prior to August 2, 2001, the
Lessee may, until and including December 1, 2002, require the Lessor to
purchase its interest in the shopping center, thereby terminating the ground
lease. In addition, the ground lease provides the Lessee with an option,
exercisable at any time, to purchase the leased premises from the Lessor. The
purchase price with respect to each of the above options is defined in the
lease and is no less than the fair market value of the premises (See Note 16).
In 1996, the Company issued a note payable to the Principal Shareholder for
$3,030 for the purchase of the Union Plaza, located in New Castle,
Pennsylvania. The note, which bears interest payable monthly at a rate equal to
that charged on the Mellon Bank, N.A. facility, is payable in full the earlier
of (i) two years following the date the Union Plaza is completed or (ii) on
June 12, 1999. The note payable balance in the accompanying balance sheet also
reflects $20 of accrued interest as of December 31, 1997 and 1996.
The Company leases office space from the Principal Shareholder under the terms
of a noncancellable ten year operating triple net lease which provides for
annual rent of $104 for the first five years with annual escalations thereafter
based on increases in the consumer price index. Rent expense was $104 for each
of the years ended December 31, 1997, 1996 and 1995.
The Principal Shareholder is a member of the Board of Directors of a tenant
which leases space in 12 of the properties. Rental income from this tenant for
the years ended December 31, 1997, 1996 and 1995 aggregated $885, $909 and
$929, respectively, of which $100, $86 and $32 are receivable as of December
31, 1997, 1996 and 1995, respectively. Additionally, for the year ended
December 31, 1995, the Company paid $1,050 for tenant improvements as provided
by the respective lease agreements, at three properties for this tenant.
F-14
<PAGE>
5. Tenant Leases
Space in the shopping centers and other properties is leased to various tenants
under operating leases which usually grant tenants renewal options and
generally provide for additional rents based on certain operating expenses as
well as tenants' sales volume.
Minimum future rentals to be received under noncancelable leases as of December
31, 1997 are summarized as follows:
1998 $ 27,213
1999 24,507
2000 21,146
2001 19,044
2002 17,271
Thereafter 115,717
--------
$224,898
========
Minimum future rentals above include a total of $7,016 for six tenants which
have filed for bankruptcy protection. None of these leases have been rejected
or affirmed.
During the years ended December 31, 1997, 1996 and 1995, rental income
representing 10% or more of total revenues was earned from various governmental
agencies of the State of Florida. These agencies have the right, under certain
conditions, to cancel their leases upon three to six months written notice and
are therefore not included in the above table of minimum future rentals.
Rentals earned under these leases during the years ended December 31, 1997,
1996 and 1995 were $4,890, $4,735, and $4,389, respectively. During the year
ended December 31, 1996, the Company also earned greater than 10% of its rental
income from the Kmart Corporation at nine locations totaling $4,733. Rents from
Kmart were less than 10% of total revenues for the years ended December 31,
1997 and 1995, totalling $4,348 and $4,180, respectively.
6. Lease Obligations
The Company leases land at six of its shopping centers which are accounted for
as operating leases and generally provide the Company with renewal options. One
of the leases terminates in 2088, with no renewal options and a purchase option
for $1,600, that expires in 1999. Six of the leases terminate during the years
2006 to 2033 and provide the Company with options to renew the leases for
additional terms aggregating from 20 to 60 years. Another ground lease which
has no remaining renewal options, terminates in 2066. Additionally, the Company
leases office space from the Principal Shareholder under a non-cancelable lease
agreement for a term of ten years. Future minimum rental payments required for
leases having remaining non-cancelable lease terms in excess of one year are as
follows:
1998 $ 313
1999 313
2000 313
2001 313
2002 313
Thereafter 13,520
-------
$15,085
=======
7. Share Option Plan
On November 10, 1994, the Company terminated the original incentive and
nonqualified share option plan and adopted two new share option plans effective
as of that date, authorizing the issuance of 500,000 share options to employees
and 100,000 share options to non-employee trustees, respectively.
The Company has issued 200,000 share options to the Principal Shareholder and
64,500 to employees of the Company which vested 20% on the grant date and 20%
for each of the four remaining years. The options are exercisable at the
average fair market value as of the date preceding the grant date ($11.19 to
$12.69 per share)
F-15
<PAGE>
for a period of ten years. The Company has also issued a total of 65,000 share
options to non-employee trustees which vested 20% on the grant date and 20% for
each of the four remaining years, and are exercisable at the average fair
market price as of the date preceding the grant date ($10.13 to $12.75 per
share) for a period of ten years. In addition, each trustee is entitled to
1,000 share options on each January 1, subsequent to the initial grant date of
November 10, 1994.
The Company elected Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25"), and related interpretations in accounting
for its employee stock options. Under APB 25, no compensation expense is
recognized because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant. The
alternative fair value accounting provided for under SFAS 123, Accounting for
Stock-Based Compensation, is not applicable because it requires use of option
valuation models that were not developed for use in valuing employee stock
options.
Proforma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value for these
options was estimated at the date of the grant using a Black-Scholes option
pricing model with the following weighted-average assumptions: risk free
interest rates ranging from 6.14% to 6.49%, expected dividend yield of 8.95%,
volatility factor of the expected market price of the Company's common stock
based on historical results of .137; and an expected life of 4 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and changes in the subjective input
assumptions can materially affect the fair value estimate, management believes
the existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options. The Company has elected not to
present proforma information because the impact on the reported net income and
earnings per share is immaterial.
Changes in the number of shares under all option arrangements are summarized as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1997 1996 1995
------------------ ----------------- ------------
<S> <C> <C> <C>
Outstanding at beginning of period 217,000 234,500 234,500
Granted 152,500 5,000 5,000
Option price per share granted $ 10.13-$11.19 $ 11.38 $ 12.75
Cancelled 40,000 22,500 5,000
Exercisable at end of period 181,100 127,200 92,800
Exercised -- -- --
Expired -- -- --
Outstanding at end of period 329,500 217,000 234,500
Option prices per share outstanding $ 10.13-$12.75 $ 11.38-$12.75 $ 12.75
</TABLE>
As of December 31, 1997 the outstanding options had a weighted average
remaining contractual life of approximately 7.8 years and a weighted average
exercise price of $12.66.
8. Restricted Share Plan
The Company has established a restricted share plan which originally granted to
employees 47,722 restricted common shares. Restricted common shares aggregating
3,800 and 10,718 were granted, but not vested, as of December 31, 1997 and
1996, respectively. The restricted shares which were granted vest and are
issued 20% per year over a five year period which began June 1, 1994. Each plan
participant is entitled to receive additional compensation on a quarterly basis
equal to the dividend declared on their respective restricted shares granted
under the plan until such plan participants' restricted shares are vested. For
the years ended December 31, 1997, 1996 and 1995, compensation expense related
to such restricted shares vested in such periods amounted to $24, $46 and $68,
respectively.
F-16
<PAGE>
9. Employee 401(k) Plan
The Company maintains a 401(k) plan for employees under which the Company
matches 50% of a plan participant's contribution. A plan participant may
contribute up to a maximum of 15% of their compensation but not in excess of
$9.5 for the year ended December 31, 1997. The Company contributed $67, $67 and
$64 for the years ended December 31, 1997, 1996 and 1995, respectively.
10. Distributions Payable
On November 14, 1996, the Trustees declared a cash distribution of $0.36 per
common share and OP Unit which was subsequently paid on January 31, 1997.
The Company has determined that the cash distributed to the shareholders is
characterized as follows for federal income tax purposes:
1997 1996 1995
-------- -------- --------
Ordinary income 34% 35% 64%
Return of capital 66% 65% 36%
-- -- --
100% 100% 100%
=== === ===
11. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosures About Fair
Value of Financial Instruments", requires disclosure on the fair value of
financial instruments. Certain of the Company's assets and liabilities are
considered financial instruments. Fair value estimates, methods and assumptions
are set forth below.
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Accrued
Expenses
The carrying amount of these assets and liabilities approximates fair value due
to the short-term nature of such accounts.
Mortgage Notes Payable
As of December 31, 1997 and 1996, the Company has determined the estimated fair
value of its mortgage notes payable are approximately $206,491 and $153,668,
respectively, by discounting future cash payments utilizing a discount rate
equivalent to the rate at which similar mortgage notes payable would be
originated under conditions then existing.
13. Summary of Quarterly Financial Information (unaudited)
The separate results of operations of the Company for the years ended December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1997
---------------- ---------------
<S> <C> <C>
Revenue $ 11,124 $ 11,128
Loss before minority interest (487) (260)
Net loss (416) (242)
Net loss per share--basic and diluted $ (0.05) $ (0.03)
Cash dividends declared per share $ 0.36 $ 0.20
Weighted average shares outstanding -- basic
and diluted (1) 8,548,817 8,550,466
<CAPTION>
Sept 30, 1997 Dec 31, 1997 Total for Year
--------------- -------------- ---------------
<S> <C> <C> <C>
Revenue $ 10,874 $ 11,372 $ 44,498
Loss before minority interest (544) (490) (1,781)
Net loss (472) (434) (1,564)
Net loss per share--basic and diluted $ (0.06) $ (0.04) $ (0.18)
Cash dividends declared per share $ 0.20 $ 0.00(a) $ 0.76
Weighted average shares outstanding -- basic
and diluted (1) 8,554,177 8,554,177 8,551,930
</TABLE>
- ------------
(a) To be determined by the Trustees in 1998.
F-17
<PAGE>
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1996
---------------- ---------------
<S> <C> <C>
Revenue $ 11,235 $ 10,719
Income (loss) before gain from sale, extraordinary
item, and minority interest 186 18
Net income (loss) 134 (4)
Net income (loss) per share- basic and diluted $ 0.02 $ 0.00
Cash dividends declared per share $ 0.36 $ 0.36
Weighted average shares outstanding
-- basic 8,543,452 8,544,985
-- diluted (1) 8,563,053 8,544,985
<CAPTION>
Sept 30, 1996 Dec 31, 1996 Total for Year
--------------- -------------- ----------------
<S> <C> <C> <C>
Revenue $ 10,497 $ 11,345 $ 43,796
Income (loss) before gain from sale, extraordinary
item, and minority interest (204) (595) (595)
Net income (loss) (179) (675) (724)
Net income (loss) per share- basic and diluted $ (0.02) $ (0.08) $ (0.08)
Cash dividends declared per share $ 0.36 $ 0.36 $ 1.44
Weighted average shares outstanding
-- basic 8,548,717 8,548,717 8,546,553
-- diluted (1) 8,548,717 8,548,717 8,546,553
</TABLE>
- ------------
(1) Due to a net loss for the last three quarters in fiscal 1996 and all
quarters in fiscal 1997, the weighted average number of shares on a
diluted basis does not include additional incremental shares as they would
be anti-dilutive.
14. Legal Proceedings
On November 20, 1995, Jack Wertheimer, the former President of the Company,
filed a complaint against the Company, its Trustees including the Principal
Shareholder, and the Company's former in-house General Counsel and current
Chief Financial Officer in the United States District Court for the Middle
District of Pennsylvania. The complaint, which was filed in connection with the
termination of Mr. Wertheimer's employment, includes many of the allegations
raised in a state court proceeding commenced by Mr. Wertheimer in November
1994. The Federal court complaint also includes a civil RICO action in which
Mr. Wertheimer alleges that the Board of Trustees of the Company conspired with
the Principal Shareholder to terminate Mr. Wertheimer's employment as part of
the Principal Shareholder's breach of his duty of good faith and fair dealing.
Further, Mr. Wertheimer alleges that the above defendants engaged in securities
fraud in connection with the Offering and that the Principal Shareholder has
defrauded or overcharged the Company in corporate transactions. The Federal
complaint seeks treble damages under RICO, as well as damages arising from Mr.
Wertheimer's alleged termination of employment, invasion of privacy,
intentional infliction of emotional distress, fraud and misrepresentation. The
Company and all defendants filed motions to dismiss the RICO and tort claims
which the court, on December 9, 1996, granted in part and denied in part.
Specifically, the court dismissed Mr. Wertheimer's claims for wrongful
discharge, fraud and negligence misrepresentation, but declined to dismiss the
remainder of the claims at this time. On January 23, 1997, the defendants filed
an answer to Mr. Wertheimer's complaint. In the answer, the defendants denied
all allegations of wrongdoing, and intend to vigorously defend against all of
the counts. The Company and the Principal Shareholder have also filed
counterclaims against Mr. Wertheimer alleging Mr. Wertheimer made material
misrepresentations in connection with his hiring and breached his employment
contract and fiduciary duties to the Company.
The Company is involved in other various matters of litigation arising in the
normal course of business. While the Company is unable to predict with
certainty the amounts involved, the Company's management and counsel are of the
opinion that, when such litigation is resolved, the Company's resulting
liability, if any, will not have a significant effect on the Company's
consolidated financial position.
15. Contingencies
Upon conducting environmental site inspections in connection with obtaining the
Morgan Stanley financing during October 1996, certain environmental
contamination was identified at two of the collateral properties: soil
contamination at the Troy Plaza in Troy, New York and soil and ground water
contamination at the Cloud Springs Plaza in Fort Oglethorpe, Georgia. In each
case, the contamination was determined to have originated from a former tenant.
The Company has entered into a voluntary remedial agreement with the State of
New York for the remediation of the Troy Plaza. Environmental consultants
estimate that the total cost of such remediation will be approximately $80 for
which the Company has recorded a reserve for as of December 31, 1997 and for
which Morgan Stanley holds $228 in escrow to be released upon final
environmental remediation at this property. The Company has received
notification from the State of Georgia that the Cloud Springs Plaza will not be
listed on the State's Hazardous Site Inventory because it has no reason to
believe that contamination exceeding a reportable quantity has occurred at this
property. As such, there is no reserve for remediation costs at this site
recorded as of December 31, 1997.
F-18
<PAGE>
Management is not aware of any other environmental liability that they believe
would have a material adverse impact on the Company's financial position or
results of operations. Management is unaware of any instances in which it would
incur significant environmental costs if any or all properties were sold,
disposed of or abandoned.
16. Subsequent Events
On January 7, 1998, the Company exercised its option to purchase the Lessee's
interests in the Blackman Plaza (See Note 4) with a closing date anticipated to
occur during fiscal 1998.
On January 28, 1998, the Company completed a closing on a construction loan
with Royal Bank of Pennsylvania in the maximum amount of $3,500. The loan,
which is secured by one of the Company's properties, requires monthly payment
of interest only at the lender's prime rate plus 150 basis points and matures
in February 1999 with additional extension periods through February 2000.
On January 31, 1998, the Company entered into an agreement with Pharmhouse
Corp. (the "Tenant") to settle certain litigation. During 1997, the Tenant had
obtained an injunction against the installation of Walmart in the Ledgewood
Mall based on certain exclusive use provisions within the Tenant's lease. The
Company has agreed to pay the Tenant $1,675 on or before May 1, 1998, amend
certain terms of the Tenant's lease including rent and the lease expiration
date, and withdraw its appeal of this case in return for the Tenant's
withdrawal of all legal actions against the installation of Walmart at the
mall.
On March 16, 1998, the Company and the Principal Shareholder agreed to
terminate the option to purchase certain land owned by the Principal
Shareholder in Lewisburg, Pennsylvania.
16.1 Event (Unaudited) Subsequent To Date of Report of Independent Auditors
The Company is in the late stages of negotiation of a significant transaction
which will provide additional properties and capital to the Company. If the
transaction is completed in its current form, assuming execution of a
definitive agreement (the "Agreement") and satisfaction of all conditions to
the transaction, including approval by the Company's shareholders, the Company,
through Mark Centers Limited Partnership, a Delaware limited partnership
through which the Company conducts substantially all of its activities, and in
exchange for approximately 11 million Operating Partnership Units, will acquire
substantially all of the ownership interests in twelve retail shopping centers
and five multi-family apartment complexes controlled by a private New York real
estate company. Under the current proposal, the Company will also receive a
cash investment of $100 million in exchange for newly issued common shares of
beneficial interest valued at a price of $7.50 per share. Upon completion of
the transaction, it is contemplated that two senior executives of the New York
real estate company will become Chief Executive Officer and President of the
Company, respectively. Mr. Marvin Slomowitz, the current Chairman of the Board
and Chief Executive Officer, will remain as a board member and is expected to
continue as a consultant to the Company. The two new executives will serve on
the board together with two designees of the real estate company and two
designees (in addition to Mr. Slomowitz) of the existing board.
The transaction is subject to the completion of final negotiation and execution
of the Agreement, receipt of a fairness opinion from Bear, Stearns & Co. Inc.
(the Company's investment bankers), approval by the Company's Board of
Trustees, evidence of the receipt by the real estate company of the necessary
funds to make the cash investment and the completion of closing. The
transaction is a complex one involving many parties and there can be no
assurance that the Agreement will be executed or that the closing on this
transaction will be completed. The transaction is subject to the approval by
the shareholders of the Company at a meeting to be scheduled for that purpose
if and when the Agreement is signed.
F-19
<PAGE>
MARK CENTERS TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
---------------------------------------------------------------
Costs Capitalized
Building & Subsequent
Description Encumbrances Land Improvements to Acquisition
- ---------------------- --------------- --------- -------------- -------------------
Shopping Centers
<S> <C> <C> <C> <C>
Circle Plaza (1) $ -- $3,435 $ 13
Shamokin Dam, PA
Martintown Plaza (1) -- 4,625 1,252
N. Augusta, SC
Midway Plaza (1) 196 1,647 2,650
Opelika, AL
Northside Mall (1) 1,604 7,080 1,721
Dothan, AL
Searstown Mall (2) 491 4,854 3,155
Titusville, FL
New Smyrna Beach (1) 247 2,219 3,136
Shopping Center
New Smyrna
Beach, FL
Wesmark Plaza (2) 380 3,419 1,447
Sumter, SC
Kings Fairground (1) -- 1,426 171
Danville, VA
Cloud Springs Plaza (1) 159 2,712 1,189
Ft. Oglethorpe, GA
Crescent Plaza 12,000 1,147 7,425 481
Brocton, MA
New Loudon Center (3) 505 4,161 9,630
Latham, NY
Ledgewood Mall (3) 619 5,434 25,472
Ledgewood, NJ
Troy Plaza (1) 479 1,976 812
Troy, NY
Birney Mall (1) 210 2,979 931
Moosic, PA
Dunmore Plaza (1) 100 506 182
Dunmore, PA
Mark Plaza 2,954 -- 4,268 999
Edwardsville, PA
Kingston Plaza (1) 305 1,745 473
Kingston, PA
Luzerne St. Shopping 2,000 35 315 1,150
Center
Scranton, PA
Blackman Plaza -- 120 -- --
Wilkes-Barre, PA
East End Centre 14,200 1,086 8,661 3,164
Wilkes-Barre, PA
Green Ridge Plaza 6,700 1,335 6,314 595
Scranton, PA
Plaza 15 (1) 171 81 1,481
Lewisburg, PA
Plaza 422 (3) 190 3,004 429
Lebanon, PA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD
----------------------------------------------------------------------
Date of
Building & Accumulated Acquisition(A)
Description Land Improvements Total Depreciation Construction(C)
- ---------------------- --------- -------------- --------- -------------- ----------------
Shopping Centers
<S> <C> <C> <C> <C> <C>
Circle Plaza $ 2 $ 3,446 $ 3,448 $ 1,206 1978(C)
Shamokin Dam, PA
Martintown Plaza -- 5,877 5,877 1,981 1985(A)
N. Augusta, SC
Midway Plaza 196 4,297 4,493 1,700 1984(A)
Opelika, AL
Northside Mall 1,604 8,801 10,405 3,206 1986(A)
Dothan, AL
Searstown Mall 491 8,009 8,500 3,529 1984(A)
Titusville, FL
New Smyrna Beach 247 5,355 5,602 1,933 1983(A)
Shopping Center
New Smyrna
Beach, FL
Wesmark Plaza 370 4,876 5,246 1,704 1986(A)
Sumter, SC
Kings Fairground -- 1,597 1,597 279 1992(A)
Danville, VA
Cloud Springs Plaza 159 3,901 4,060 1,334 1985(A)
Ft. Oglethorpe, GA
Crescent Plaza 1,147 7,906 9,053 2,479 1984(A)
Brocton, MA
New Loudon Center 505 13,791 14,296 3,229 1982(A)
Latham, NY
Ledgewood Mall 619 30,906 31,525 10,755 1983(A)
Ledgewood, NJ
Troy Plaza 479 2,788 3,267 1,359 1982(A)
Troy, NY
Birney Mall 210 3,910 4,120 3,193 1968(C)
Moosic, PA
Dunmore Plaza 100 688 788 296 1975(A)
Dunmore, PA
Mark Plaza -- 5,267 5,267 3,312 1968(C)
Edwardsville, PA
Kingston Plaza 305 2,218 2,523 1,228 1982(C)
Kingston, PA
Luzerne St. Shopping 35 1,465 1,500 704 1983(A)
Center
Scranton, PA
Blackman Plaza 120 -- 120 -- 1968(C)
Wilkes-Barre, PA
East End Centre 1,086 11,825 12,911 4,367 1986(C)
Wilkes-Barre, PA
Green Ridge Plaza 1,335 6,909 8,244 2,373 1986(C)
Scranton, PA
Plaza 15 171 1,562 1,733 302 1976(C)
Lewisburg, PA
Plaza 422 190 3,433 3,623 1,866 1972(C)
Lebanon, PA
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
---------------------------------------------------------------
Costs Capitalized
Building & Subsequent
Description Encumbrances Land Improvements to Acquisition
- -------------------- -------------- ---------- -------------- -------------------
Shopping Centers
<S> <C> <C> <C> <C>
Tioga West (3) 48 1,238 3,414
Tunkhannock, PA
Mountainville (1) 420 2,390 491
Shopping Center
Allentown, PA
Monroe Plaza (1) 70 2,083 67
Stroudsburg, PA
Ames Plaza (1) 57 1,958 219
Shamokin, PA
Route 6 Mall (3) -- -- 12,696
Honesdale, PA
Pittston Plaza 4,028 -- -- 7,167
Pittston, PA
Valmont Plaza 6,100 522 5,591 1,027
W. Hazleton, PA
Manahawkin Village 6,128 2,400 9,396 260
Shopping Center
Manahawkin, NJ
25th St. Shopping (1) 2,280 9,276 184
Center
Easton, PA
Berlin Shopping (3) -- -- 6,887
Center
Berlin, NJ
Auburn Plaza 2,759 -- -- 13,287
Auburn, ME
Shillington Plaza (1) -- -- 4,109
Reading, PA
Union Plaza 4,000 -- -- 20,241
New Castle, PA
Bradford Towne (3) -- -- 16,087
Centre
Towanda, PA
Mixed Use
Properties
Northwood Centre 22,840 1,209 6,204 18,519
Tallahassee, FL
Normandale Centre -- 287 2,584 4,154
Montgomery, AL
Construction in -- -- -- 6,668
-------- ----- ----- ------
Progress
$183,943 $16,672 $119,006 $176,010
========= ======= ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD
-------------------------------------------------------------------------
Date of
Building & Accumulated Acquisition(A)
Description Land Improvements Total Depreciation Construction(C)
- -------------------- ---------- -------------- ----------- -------------- ----------------
Shopping Centers
<S> <C> <C> <C> <C> <C>
Tioga West 48 4,652 4,700 1,849 1965(C)
Tunkhannock, PA
Mountainville 420 2,881 3,301 1,324 1983(A)
Shopping Center
Allentown, PA
Monroe Plaza 70 2,150 2,220 903 1964(C)
Stroudsburg, PA
Ames Plaza 57 2,177 2,234 1,615 1966(C)
Shamokin, PA
Route 6 Mall 1,664 11,032 12,696 1,121 1995(C)
Honesdale, PA
Pittston Plaza 1,521 5,646 7,167 398 1995(C)
Pittston, PA
Valmont Plaza 522 6,618 7,140 2,444 1985(A)
W. Hazleton, PA
Manahawkin Village 2,400 9,656 12,056 1,066 1993(A)
Shopping Center
Manahawkin, NJ
25th St. Shopping 2,280 9,460 11,740 1,331 1993(A)
Center
Easton, PA
Berlin Shopping 1,332 5,555 6,887 678 1994(A)
Center
Berlin, NJ
Auburn Plaza 2,644 10,643 13,287 1,153 1994(A)
Auburn, ME
Shillington Plaza 809 3,300 4,109 362 1994(A)
Reading, PA
Union Plaza 5,426 14,815 20,241 505 1996(C)
New Castle, PA
Bradford Towne 816 15,271 16,087 1,806 1994(C)
Centre
Towanda, PA
Mixed Use
Properties
Northwood Centre 1,188 24,744 25,932 11,620 1985(A)
Tallahassee, FL
Normandale Centre 287 6,738 7,025 2,816 1985(A)
Montgomery, AL
Construction in -- 6,668 6,668 --
----- ------ ------ ------
Progress
$30,855 $280,833 $311,688 $83,326
======= ======== ======== =======
</TABLE>
See accompanying notes
F-21
<PAGE>
MARK CENTERS TRUST
NOTES TO SCHEDULE III
DECEMBER 31, 1997
(Dollars in thousands)
1. These seventeen properties serve as collateral for the financing with
Morgan Stanley Mortgage Capital, Inc.
2. These two properties serve as collateral for a letter of credit with Fleet
Bank.
3. These seven properties serve as collateral for the financing with John
Hancock Life Insurance.
4. Depreciation and investments in buildings and improvements reflected in
the statements of operations is calculated over the estimated useful live
of the assets as follows:
Buildings 30 to 40 years
Improvements Shorter of lease term or useful life
5. The aggregate gross cost of property included above for Federal income tax
purposes was $326,412 as of December 31, 1997:
6.(a)Reconciliation of Real Estate Properties:
The following reconciles the real estate properties from January 1, 1995 to
December 31, 1997:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
----------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of period $307,411 $291,157 $278,611
Additions during period
Acquisitions through purchase -- -- --
Acquisition through exercise of purchase option -- -- 1,446
Acquisitions and adjustments related to development
options and establishment of note payable to the
Principal Shareholder -- (3,125) (8,133)
Other improvements 7,480 19,380 19,242
Fully depreciated assets written off (998) -- --
Sale of property (2,205) (1) (9)
-------- ---------- ----------
Balance at end of period $311,688 $307,411 $291,157
======== ========== ==========
</TABLE>
(b) Reconciliation of accumulated depreciation:
The following table reconciles accumulated depreciation from January 1,
1995 to December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period $72,956 $61,269 $51,002
Sale of property (905) -- --
Fully depreciated assets written off (998) -- --
Depreciation related to real estate 12,273 11,687 10,267
------- ------- -------
Balance at end of period $83,326 $72,956 $61,269
======= ======= =======
</TABLE>
F-22
<PAGE>
MARK CENTERS TRUST
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
March 31,
1998
------------
(unaudited)
ASSETS
Rental property -- at cost:
Land ...................................................... $ 31,560
Buildings and improvements ................................ 271,331
Property under development ................................ 8,650
--------
311,541
Less: accumulated depreciation ............................ 83,104
--------
Net rental property ...................................... 228,437
Cash and cash equivalents ................................. 757
Cash in escrow ............................................ 8,612
Rents receivable .......................................... 4,105
Prepaid expenses .......................................... 1,122
Due from related parties .................................. 206
Deferred charges, net ..................................... 11,625
Other assets .............................................. 923
--------
$255,787
--------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable .................................... $185,240
Accounts payable and accrued expenses ..................... 8,457
Note payable to Principal Shareholder ..................... 3,050
Other liabilities ......................................... 1,629
--------
Total Liabilities ........................................ 198,376
--------
Minority Interest .......................................... 9,144
--------
Shareholders' Equity:
Common shares, $.001 par value, authorized 50,000,000
shares, issued and outstanding 8,554,177 shares ......... 9
Additional paid-in capital ................................. 51,073
Deficit .................................................... (2,815)
--------
Total Shareholders' Equity ............................... 48,267
--------
$255,787
--------
See accompanying notes
F-23
<PAGE>
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
----------- ----------
(unaudited)
<S> <C> <C>
Revenue:
Minimum rents ...................................... $ 8,464 $ 8,444
Percentage rents ................................... 565 684
Expense reimbursements ............................. 1,753 1,777
Other .............................................. 169 219
------- -------
Total revenue ..................................... 10,951 11,124
------- -------
Operating Expenses:
Property operating ................................. 2,292 2,563
Real estate taxes .................................. 1,428 1,439
Depreciation and amortization ...................... 3,473 3,324
General and administrative ......................... 456 537
------- -------
Total operating expenses .......................... 7,649 7,863
------- -------
Operating income .................................... 3,302 3,261
Loss on sale of property ............................ -- 12
Interest expense .................................... 3,923 3,736
------- -------
Loss before minority interest ....................... (621) (487)
Minority interest ................................... 88 71
------- -------
Net loss ............................................ $ (533) $ (416)
======= =======
Basic and diluted net loss per common share ......... $ (.06) $ (.05)
======== ========
</TABLE>
See accompanying notes
F-24
<PAGE>
MARK CENTERS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(in thousands)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
----------- ------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .............................................................. $ (533) $ (416)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization of leasing costs ........................ 3,328 3,175
Amortization of deferred financing costs .............................. 145 149
Minority interest ..................................................... (88) (71)
Provision for bad debts ............................................... 310 88
Loss on sale of property .............................................. -- 12
-------- ---------
3,162 2,937
Changes in assets and liabilities:
Rents receivable ...................................................... 387 1,025
Prepaid expenses ...................................................... 119 140
Due from related parties .............................................. (29) 43
Other assets .......................................................... 20 (191)
Accounts payable and accrued expenses ................................. (164) (37)
Other liabilities ..................................................... (281) (32)
-------- ---------
Net cash provided by operating activities ............................. 3,214 3,885
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate and improvements, inclusive of payables
related to construction activity ..................................... (3,810) (5,340)
Net proceeds from sale of property .................................... -- 1,288
Payment of deferred leasing charges ................................... (451) (64)
-------- ---------
Net cash used in investing activities ................................. (4,261) (4,116)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgages ....................................... (702) (10,849)
Proceeds received on mortgage notes ................................... 1,999 23,000
Net funding of escrows ................................................ (681) (3,159)
Payment of deferred financing costs ................................... (87) (884)
Dividends paid ........................................................ -- (3,078)
Distributions paid to Principal Shareholder ........................... (12) (602)
-------- ---------
Net cash provided by financing activities ............................. 517 4,428
-------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ...................... (530) 4,197
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........................ 1,287 3,912
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD .............................. $ 757 $ 8,109
======== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest, net of amounts capitalized of
$168 and $112, respectively .......................................... $ 3,509 $ 3,791
======== =========
</TABLE>
See accompanying notes
F-25
<PAGE>
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
1. THE COMPANY
Mark Centers Trust (the "Company") currently owns and operates thirty-nine
properties consisting of thirty-four neighborhood and community shopping
centers, three enclosed malls and two mixed use (retail/office) properties. All
of the Company's assets are held by, and all of its operations are conducted
through Mark Centers Limited Partnership, (the "Operating Partnership") and its
majority owned partnerships. As of March 31, 1998, the Company controlled 84%
of the Operating Partnership as the sole general partner. The Company will at
all times be the sole general partner of, and owner of a 51% or greater
interest in, the Operating Partnership. Marvin L. Slomowitz (the "Principal
Shareholder"), who is the principal limited partner of the Operating
Partnership, owns in excess of 99% of the minority interest in the Operating
Partnership. The Company is operating as a real estate investment trust
("REIT") for federal income tax purposes. On April 15, 1998 the Company entered
into a Contribution and Share Purchase Agreement which will provide additional
properties and capital to the Company (Note 8).
2. BASIS OF PRESENTATION
The consolidated financial statements include the consolidated accounts of
the Company and its majority owned partnerships, including the Operating
Partnership, and have been prepared in accordance with generally accepted
accounting principles for interim financial information and with instruction to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The information furnished in the
accompanying consolidated financial statements reflects all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
aforementioned consolidated financial statements for the interim periods.
Operating results for the three month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and accompanying footnotes included herein.
3. SHAREHOLDERS' EQUITY AND MINORITY INTEREST
The following table summarizes the change in the shareholders' equity and
minority interest since
December 31, 1997:
<TABLE>
<CAPTION>
Shareholders' Minority
Equity Interest
--------------- -----------
<S> <C> <C>
Balance at December 31, 1997 ..................................... $48,800 $ 9,244
Net loss for the period January 1 through March 31, 1998 ......... (533) (88)
Distributions to Principal Shareholder ........................... -- (12)
------- -------
Balance at March 31, 1998 ........................................ $48,267 $ 9,144
======= =======
</TABLE>
4. RELATED PARTY TRANSACTIONS
As of March 31, 1998 amounts due from related parties consisted of the
following:
<TABLE>
<S> <C>
Accrued ground rent due from Blackman Plaza Partners (a limited partnership in which the
Principal Shareholder is a 1% general partner) ........................................ $ 205
Other amounts (net) due from Principal Shareholder ..................................... 1
-----
$ 206
=====
</TABLE>
F-26
<PAGE>
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(in thousands, except per share amounts)
4. RELATED PARTY TRANSACTIONS -- (Continued)
On January 7, 1998, the Company exercised its option to purchase Blackman
Plaza Partners' interests in the Blackman Plaza with a closing date anticipated
to occur during fiscal 1998.
On March 16, 1998, the Company and the Principal Shareholder agreed to
terminate the option to purchase certain land owned by the Principal
Shareholder in Lewisburg, Pennsylvania.
5. MORTGAGE LOANS
On January 28, 1998, the Company completed a closing on a construction
loan with Royal Bank of Pennsylvania in the maximum amount of $3,500. The loan,
which is secured by one of the Company's properties, requires monthly payments
of interest only at the lender's prime rate plus 150 basis points and matures
in February 1999 with additional extension periods through February 2000.
On March 24, 1998, the Company completed an amendment and extension of its
existing agreement with Mellon Bank, N.A. which extended the maturity date to
July 2, 1998 and established minimum monthly payments of the greater of (a)
actual net operating income from the collateral property or (b) $50 plus
interest at the current rate of LIBOR plus 200 basis points.
6. PER SHARE DATA
Basic earnings per share was determined by dividing net loss applicable to
common shareholders by the weighted average number of common shares of
beneficial interest ("Common Shares") outstanding during each period consistent
with the guidelines of the Financial Accounting Standards Board Statement No.
128. The weighted average number of Common Shares for the three months ended
March 31, 1998 and 1997 totalled 8,554,177 and 8,548,817, respectively. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue Common Shares were exercised or
converted into Common Shares or resulted in the issuance of Common Shares that
then shared in the earnings of the Company. For the three months ended March
31, 1998 and 1997, no additional Common Shares were reflected as the impact
would be anti-dilutive due to the net loss in each period.
7. TENANT LEASES
On January 31, 1998, the Company entered into an agreement with Pharmhouse
Corp. (the "Tenant") to settle certain litigation. During 1997, the Tenant had
obtained an injunction against the installation of Walmart in the Ledgewood
Mall based on certain exclusive use provisions within the Tenant's lease. The
Company paid $200 to the Tenant on May 1, 1998 and has further agreed, pursuant
to the agreement as modified May 1, 1998, to pay the Tenant $1,525 on or before
May 31, 1998, amend certain terms of the Tenant's lease including rent and the
lease expiration date, and withdraw its appeal of this case in return for the
Tenant's withdrawal of all legal actions against the installation of Walmart at
the mall. The total of $1,725 is reflected in deferred charges as of March 31,
1998 in the accompanying financial statements.
8. SUBSEQUENT EVENTS
On April 15, 1998 the Company entered into a Contribution and Share
Purchase Agreement (the "Agreement") which will provide additional properties
and capital to the Company. Subject to the satisfaction of all conditions to
the transaction, including approval by the Company's shareholders at a meeting
expected to be held during the third quarter of 1998, the Company, through Mark
Centers Limited Partnership, a Delaware limited partnership through which the
Company conducts substantially all of its activities, and in exchange for
approximately 11.3 million Operating Partnership Units, will acquire
substantially all of the ownership interests in twelve retail shopping centers,
five multi-family apartment complexes, certain third party management contracts
and promissory notes owned by real estate investment partnerships and related
entities in which RD Capital, Inc.,
F-27
<PAGE>
MARK CENTERS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(in thousands, except per share amounts)
8. SUBSEQUENT EVENTS -- (Continued)
a Delaware corporation ("RD Capital"), or its affiliates serves as the general
partner or in another similar management capacity. In addition, the Company
will also receive a cash investment of $100 million from affiliates of RD
Capital in exchange for approximately 13.3 million newly issued common shares
of beneficial interest valued at a price of $7.50 per share. The Agreement also
provides that Ross Dworman and Kenneth Bernstein of RD Capital will become
Chairman of the Board and Chief Executive Officer and President of the Company,
respectively. Mr. Marvin Slomowitz, the current Chairman of the Board and Chief
Executive Officer, will remain as a board member and as a consultant to the
Company. The two new executives will serve on the board together with two
independent designees of RD Capital and two independent designees (in addition
to Mr. Slomowitz) of the existing board. The Company will change its name to
Acadia Realty Trust effective upon the closing of the transaction. The
transaction is subject to evidence of the receipt by RD Capital of the
necessary funds to make the cash investment and the completion of closing. The
transaction is a complex one involving many parties and there can be no
assurance that the closing on this transaction will be completed. The Company
has incurred costs totalling $530 related to this transaction as of March 31,
1998 which are reflected in deferred charges in the accompanying financial
statements.
On April 1, 1998, the Company completed an amendment with Fleet National
Bank which extended to June 15, 1998 the maturity of a standby letter of credit
in the amount of $1.7 million.
F-28
<PAGE>
Report of Independent Auditors
The Partners and Members of
The RDC Group
We have audited the accompanying combined balance sheets of The RDC Group, more
fully described in Note 1, as of December 31, 1997 and 1996, and the related
combined statements of operations, partners and members' equity and cash flows
for each of the three years in the period ended December 31, 1997. Our audits
also included the financial statement schedule listed in the Index to Financial
Statements. These financial statements and schedule are the responsibility of
The RDC Group's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The RDC
Group as of December 31, 1997 and 1996, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
April 10, 1998
F-29
<PAGE>
The RDC Group
Combined Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1996 1998 1997
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Rental property -- at cost:
Land .............................. $ 26,173 $ 21,864 $ 26,158 $ 23,811
Buildings and improvements ........ 158,253 136,097 158,940 144,153
Construction in progress .......... 352 -- 9,398 --
--------- --------- --------- ---------
184,778 157,961 194,496 167,964
Less accumulated depreciation ..... (31,235) (26,403) (32,269) (27,546)
--------- --------- --------- ---------
Net rental property ................ 153,543 131,558 162,227 140,418
Investment in partnership .......... 3,011 8,675 2,364 8,550
Cash and cash equivalents .......... 7,422 5,970 9,936 6,762
Rents receivable, net .............. 4,792 3,760 4,675 4,271
Prepaid expenses ................... 1,936 1,882 1,949 2,373
Due from affiliates ................ 285 359 372 159
Furniture, fixtures, and equipment,
net ............................... 1,455 1,215 1,330 1,275
Deferred charges, net .............. 4,989 3,981 5,166 4,100
Tenant security and other deposits . 2,277 2,712 2,459 2,840
--------- --------- --------- ---------
Total assets ....................... $ 179,710 $ 160,112 $ 190,478 $ 170,748
========= ========= ========= =========
Liabilities and partners' and mem-
bers' equity
Liabilities:
Mortgage notes payable ............ $ 138,805 $ 125,079 $ 140,559 $ 124,789
Other notes payable ............... 3,529 8,908 3,526 8,703
Accounts payable and accrued
expenses ........................ 4,218 3,171 3,783 3,426
Due to affiliates ................. 914 696 1,014 528
Rents received in advance and
tenant security deposits ........ 1,703 1,407 1,654 1,453
--------- --------- --------- ---------
Total liabilities .................. 149,169 139,261 150,536 138,899
Minority interest .................. -- -- 600 --
Commitments and contingencies ...... -- -- -- --
Partners' and members' equity ...... 30,541 20,851 39,342 31,849
--------- --------- --------- ---------
Total liabilities and partners' and
members' equity ................... $ 179,710 $ 160,112 $ 190,478 $ 170,748
========= ========= ========= =========
</TABLE>
See accompanying notes.
F-30
<PAGE>
The RDC Group
Combined Statements of Operations
(Dollars in thousands)
<TABLE>
<CAPTION>
Three-months ended
March
Year ended December 31, 31,
1997 1996 1995 1998 1997
---------- ---------- ------------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Minimum rents ...................... $26,769 $ 23,712 $ 22,767 $6,954 $6,431
Percentage rents ................... 302 319 364 96 142
Expense reimbursements ............. 4,424 3,634 3,462 1,194 1,039
Fees and commissions ............... 1,838 1,595 2,474 580 395
Equity in earnings of partnership 745 531 238 59 169
Other .............................. 883 915 695 271 210
------- -------- --------- ------ ------
Total revenue ....................... 34,961 30,706 30,000 9,154 8,386
------- -------- --------- ------ ------
Expenses:
Property operating ................. 7,813 7,495 7,776 2,322 1,990
Real estate taxes .................. 3,840 3,210 3,192 1,014 913
Interest and financing expense ..... 11,879 11,526 11,272 2,941 2,858
Depreciation and amortization ...... 6,211 6,218 5,447 1,600 1,571
General and administrative ......... 3,706 3,835 3,536 806 670
------- -------- --------- ------ ------
Total operating expenses ............ 33,449 32,284 31,223 8,683 8,002
------- -------- --------- ------ ------
Income (loss) before extraordinary
item ............................... 1,512 (1,578) (1,223) 471 384
Extraordinary item-cancellation of
debt ............................... -- 3,461 -- -- --
------- -------- --------- ------ ------
Net income (loss) ................... $ 1,512 $ 1,883 $ (1,223) $ 471 $ 384
======= ======== ========= ====== ======
</TABLE>
See accompanying notes.
F-31
<PAGE>
The RDC Group
Combined Statement of Partners' and Members' Equity
(Dollars in thousands)
Balance, December 31, 1994 .................. $ 18,049
Contributions ............................... 4,936
Distributions ............................... (3,464)
Net loss .................................... (1,223)
--------
Balance, December 31, 1995 .................. 18,298
Contributions ............................... 7,720
Distributions ............................... (7,050)
Net income .................................. 1,883
--------
Balance, December 31, 1996 .................. 20,851
Contributions ............................... 17,882
Distributions ............................... (9,704)
Net income .................................. 1,512
--------
Balance, December 31, 1997 .................. $ 30,541
Contributions ............................... 9,064
Distributions ............................... (734)
Net income .................................. 471
--------
Balance, March 31, 1998 (Unaudited) ......... $ 39,342
========
See accompanying notes.
F-32
<PAGE>
The RDC Group
Combined Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three-months ended
Year ended December 31, March 31,
1997 1996 1995 1998 1997
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Operating activities
Net income (loss): ................................ $ 1,512 $ 1,883 $ (1,223) $ 471 $ 384
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Equity in earnings of partnership .............. (745) (531) (238) (59) (169)
Depreciation of buildings and
improvements .................................. 4,949 5,113 4,583 1,276 1,267
Amortization of deferred costs ................. 1,262 1,105 864 324 304
Cancellation of debt ........................... -- (3,461) -- -- --
Net changes in operating assets and
liabilities:
Rents receivable ............................... (1,032) (601) (517) 117 (511)
Prepaid expenses ............................... (54) -- 1,711 (13) (491)
Due to affiliates .............................. 292 1,508 (1,608) 13 32
Tenant security and other deposits ............. 435 (87) (876) (182) (128)
Accounts payable and accrued
expenses ...................................... 1,047 (407) 15 (435) 255
Rents received in advance and tenants
security deposits ............................. 296 638 150 (49) 46
--------- -------- --------- ------ ---------
Net cash provided by operating activities ......... 7,962 5,160 2,861 1,463 989
--------- -------- --------- ------ ---------
Investing activities
Investment in partnership ......................... (73) (73) (8,951) (29) --
Distributions from partnership .................... 6,482 873 245 735 294
Acquisition of properties ......................... (18,492) (8,087) (4,859) (9,835) (10,404)
Deferred charges .................................. (2,270) (559) (2,815) (501) (424)
--------- -------- --------- ------ ---------
Net cash used in investing activities .......... (14,353) (7,846) (16,380) (9,630) (10,534)
--------- -------- --------- ------ ---------
</TABLE>
F-33
<PAGE>
The RDC Group
Combined Statements of Cash Flows (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three-months ended
Year ended December 31, March 31,
1997 1996 1995 1998 1997
----------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Financing activities
Contributions ..................................... 17,882 7,720 4,936 9,064 11,535
Distributions ..................................... (9,644) (7,050) (3,464) (734) (861)
Minority interest ................................. -- -- -- 600 --
Principal payments on mortgages ................... (19,555) (9,358) (32,872) (13,855) (19,123)
Repayments of other notes payable ................. (5,284) (221) (77) (3) (47)
Proceeds from mortgage notes ...................... 24,381 13,587 39,543 15,609 18,833
Proceeds from other notes payable ................. 63 500 5,526 -- --
------- ------ ------- ------------ -------
Net cash provided by financing activities ......... 7,843 5,178 13,592 10,681 10,337
------- ------ ------- ------------ -------
Increase (decrease) in cash and cash
equivalents ...................................... 1,452 2,492 73 2,514 792
Cash and cash equivalents, beginning of
period ........................................... 5,970 3,478 3,405 7,422 5,970
------- ------ ------- ------------ -------
Cash and cash equivalents, end of period .......... $ 7,422 $ 5,970 $ 3,478 $ 9,936 $ 6,762
========= ======== ========= ============ =========
Supplemental disclosures of cash flow
information
Cash paid for interest ............................ $ 12,268 $ 11,493 $ 11,120 $ 3,145 $ 3,175
========= ======== ========= ============ =========
Non-cash investing and financing
activities
Assumption of mortgage ............................ $ 8,900 $ -- $ -- $ -- $ --
Distribution of property .......................... $ 60 $ -- $ -- $ -- $ 60
</TABLE>
- ------------
See accompanying notes.
F-34
<PAGE>
The RDC Group
Notes to Combined Financial Statements
(Dollars in thousands)
December 31, 1997, 1996 and 1995
1. Organization
The RDC Group (not a legal entity) is engaged in the ownership and
operation of shopping center and multifamily properties located in the United
States ( the "Properties"). Each of the Properties is owned by a separate
partnership or limited liability company. Management, leasing and construction
services with respect to the Properties have been historically provided by
member companies of The RDC Group.
The following table sets forth the Properties included in The RDC Group as
of December 31, 1997:
<TABLE>
<CAPTION>
Year of
Property Acquisition Location Size
- ------------------------------------ ------------- ---------------------- -----------
<S> <C> <C> <C>
Retail Properties: .................
Atrium Mall ....................... 1990 Abington, PA 178,000 sf
Bloomfield Town Square ............ 1990 Bloomfield Hills, MI 229,000 sf
Walnut Hill Plaza ................. 1990 Woonsocket, RI 291,000 sf
Elmwood Park Plaza ................ 1994 Elmwood Park, NJ 122,000 sf
Merrillville Plaza ................ 1994 Hobart, IN 235,000 sf
Soundview Marketplace ............. 1994 Port Washington, NY 183,000 sf
Marketplace of Absecon ............ 1997 Absecon, NJ 115,000 sf
Hobson West Plaza ................. 1996 Naperville, IL 100,000 sf
Smithtown Shopping Center ......... 1996 Smithtown, NY 85,000 sf
Town Line Plaza ................... 1997 Rocky Hill, CT 193,000 sf
Crossroads (49% partnership
interest) ....................... 1995 Greenburgh, NY 310,000 sf
Residential Properties: ............
Glen Oaks Apartments .............. 1984 Greenbelt, MD 463 units
Colony Apartments ................. 1995 Columbia, MD 282 units
Gatehouse, Holiday House, Tiger
Village ......................... 1990 Columbia, MO 592 units
Marley Run Apartments ............. 1992 Baltimore, MD 336 units
Village Apartments ................ 1992 Winston-Salem, NC 600 units
</TABLE>
2. Basis of Presentation
The accompanying combined financial statements of the RDC Group have been
presented on a combined basis, which is considered to be the most meaningful,
due to the common general partners in partnerships or managing members in
limited liability companies and common management. In addition, the entities
are expected to be the subject of a business combination with Mark Centers
Trust and subsidiaries ("MCT"), a fully integrated, self administered, self
managed real estate investment trust. The business combination involves the
planned acquisition by MCT of substantially all of the interests of the
partners and members of the partnerships and limited liability companies in the
Properties with the exception of Crossroads (see Note 7), in which MCT will
acquire the RDC Group's 49% general partner interests, and with the exception
of the following properties, in which MCT will acquire substantially all of the
economic aspects of ownership but with the following partnership interests:
Soundview Marketplace 50%
Marketplace of Absecon 50%
Smithtown Shopping Center 49%
Atrium Mall 89%
Certain other properties and operations affiliated with The RDC Group have
been excluded from these financial statements as they are not included in the
anticipated business combination described above.
All significant intercompany accounts and transactions have been
eliminated in combination.
F-35
<PAGE>
The RDC Group
Notes to Combined Financial Statements -- (Continued)
(Dollars in thousands)
December 31, 1997, 1996 and 1995
3. Summary of Significant Accounting Policies
Rental Property
Real estate assets are stated at cost less accumulated depreciation. Such
carrying amounts would be adjusted, if necessary to reflect any impairment in
the value of the assets. Expenditures for acquisition, development construction
and improvement of properties, as well as significant renovations are
capitalized. Interest costs are capitalized until construction is substantially
complete. Depreciation is computed on the straight-line method over estimated
useful lives of thirty to forty years for buildings and the shorter of the
useful life or lease term of improvements, furniture, fixtures, and equipment.
Expenditures for maintenance and repairs are charged to operations as incurred.
Deferred Costs
Fees and costs incurred in the successful negotiation of leases have been
deferred and are being amortized on a straight-line basis over the terms of the
respective leases. Fees and costs incurred in connection with obtaining
financing have been deferred and are being amortized over the term of the
related debt obligation. Organization costs are amortized on a straight-line
basis over a period of five years.
Revenue Recognition
Leases with tenants are accounted for as operating leases. Minimum annual
rentals are generally recognized on a straight-line basis over the term of the
respective lease. As of December 31, 1997 and 1996 and March 31, 1998 and 1997
(unaudited), unbilled rents receivable included in rents receivable in the
accompanying balance sheets were $2,864 and $2,245 and $3,030 and $2,379,
respectively. Contingent rents based on percentage rents are accrued based on
historical tenants sales.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash and cash
equivalents.
Restricted Cash
Included in tenant security and other deposits and prepaid expenses are
restricted escrow and reserve funds for debt service, real estate taxes,
property insurance, capital and tenant improvements, and leasing costs of
$2,297 and $2,281 at December 31, 1997 and 1996, respectively and $2,759 and
$3,140 at March 31, 1998 and 1997 (unaudited), respectively.
Partners' and Members' Contributions, Distributions and Profit and Loss
Allocations
The individual partnership agreements and operating agreements specify the
required capital contributions of the partners and members and the procedures
for the allocation of profits, losses, distributions and the return of equity
to the partners and members. Generally, these items are allocated in proportion
to the respective ownership percentages of the partners and members.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-36
<PAGE>
The RDC Group
Notes to Combined Financial Statements -- (Continued)
(Dollars in thousands)
December 31, 1997, 1996 and 1995
3. Summary of Significant Accounting Policies -- (Continued)
Income Taxes
The entities included in the combined financial statements are
partnerships and limited liability companies which are not subject to federal
and state income taxes. The partners and members are required to report in
their individual federal and state income tax returns their share of income or
loss and other amounts. Accordingly, income taxes have not been provided for in
the accompanying financial statements.
Segment Reporting
In June 1997 the Financial Accounting Standards Board issued Statement No.
131 (SFAS 131), Disclosure About Segments of an Enterprise and Related
Information, which is effective for financial statements issued for periods
beginning after December 15, 1997. SFAS 131 requires disclosures about segments
of an enterprise and related information regarding different types of business
activities in which an enterprise engages and the different economic
environments in which it operates. Management does not believe that the
implementation of SFAS 131 will have a material effect on the disclosures in
its financial statements.
4. Deferred Charges, Net
Deferred charges, net are comprised of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1996 1998 1997
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Deferred leasing costs ........... $ 3,270 $ 2,384 $ 3,304 $ 2,504
Deferred financing costs ......... 4,942 4,594 5,159 4,896
Organization costs ............... 1,234 1,083 1,234 1,084
Other deferred costs ............. -- -- 250 --
-------- -------- -------- --------
9,446 8,061 9,947 8,484
Less -- accumulated
amortization .................... (4,457) (4,080) (4,781) (4,384)
-------- -------- -------- --------
Deferred charges, net ........... $ 4,989 $ 3,981 $ 5,166 $ 4,100
======== ======== ======== ========
</TABLE>
5. Mortgages Payable
The RDC Group has non-recourse mortgages payable which are collateralized
by one or more of the Properties included in these financial statements. The
mortgages are generally due in monthly installments of interest and in certain
cases principal based on amortization periods of 25 years, and mature at
various dates through 2004. The mortgages outstanding are as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1996 1998 1997
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Fixed Rate Mortgages:
SunAmerica Life
Insurance Company ............. $ 44,505 $ 45,099 $ 44,348 $ 44,954
Other .......................... 38,514 35,208 57,786 31,876
Variable Rate Mortgages ......... 55,786 44,772 38,425 47,959
--------- --------- --------- ---------
$ 138,805 $ 125,079 $ 140,559 $ 124,789
========= ========= ========= =========
</TABLE>
F-37
<PAGE>
The RDC Group
Notes to Combined Financial Statements -- (Continued)
(Dollars in thousands)
December 31, 1997, 1996 and 1995
5. Mortgages Payable -- (Continued)
SunAmerica Life Insurance Company
In December 1995, five of the RDC Group's properties were refinanced
through an aggregate $45.6 million borrowing from SunAmerica Life Insurance
Company ("Sun") evidenced by individual notes to each of the property owning
partnerships. The loans, which are cross-collateralized by the five properties,
amortize on a 25 year basis and bear interest at rates ranging from 8.26% --
9.27% per annum until maturity on January 10, 2001.
Under the terms of the loans, the five property partnerships are required
to deposit substantially all revenues from the properties into a cash
collection account under the control of an independent agent for Sun. Funds
from the cash collection account are used to fund debt service, real estate
taxes, insurance and required general reserves. Remaining funds are utilized to
fund operating expenses and capital expenses. Each of the loans bear yield
maintenance provisions.
Other Fixed Rate Mortgages
Interest rates on other fixed rate mortgages range from 7.73% to 10.5%, at
December 31, 1997.
During 1996, in connection with the recapitalization of the Soundview
Marketplace, $3,461 of the then outstanding balance of the mortgage encumbering
such property was canceled. Such amount is reflected in the accompanying
financial statements as an extraordinary gain.
Variable Rate Mortgages
The interest rate on variable rate mortgages are generally based upon
LIBOR plus spreads ranging from 1.05% to 1.75%. Two of the variable rate
mortgages having outstanding balances of $11,801 and $7,083 at December 31,
1997 have rates based upon the lenders commercial paper rate plus 4% and 2.75%,
respectively.
In addition to the stated rates of interest, the $11,801 mortgage on one
Property includes provisions for additional interest based on 10% of cash
flows, as defined, of the underlying property pledged under the mortgage. No
additional interest was incurred during the years ended December 31, 1997, 1996
and 1995 or the three-months ended March 31, 1998 (unaudited) and 1997
(unaudited).
Repayment Schedule
Scheduled principal repayments for the above mortgages at December 31,
1997 are as follows:
1998 ...................... $ 21,947
1999 ...................... 26,319
2000 ...................... 2,117
2001 ...................... 49,774
Thereafter ................ 38,648
---------
Total ..................... $ 138,805
=========
6. Related Party Transactions
Acadia Management Company, LLC occupies space in the Soundview Marketplace
property. Total rent income for the years ended December 31, 1997, 1996 and
1995 approximated $44, $42 and $41, respectively and $11and $11for the three
month periods ended March 31, 1998 and 1997 (unaudited), respectively.
F-38
<PAGE>
The RDC Group
Notes to Combined Financial Statements -- (Continued)
(Dollars in thousands)
December 31, 1997, 1996 and 1995
6. Related Party Transactions -- (Continued)
Certain member companies of The RDC Group provide leasing, management and
construction management services and charge the properties for the expenses
associated with such services, comprising principally of employee costs. For
the years ended December 31, 1997, 1996 and 1995, and the three month periods
ended March 31, 1998 and 1997 (unaudited), the charges which were capitalized
by the properties for such services were as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1996 1995 1998 1997
-------- -------- -------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Leasing commissions .................. $ 288 $ 163 $ 194 $ 64 $ 49
Construction management fees ......... 34 79 90 42 31
----- ----- ----- ----- ----
Totals ............................... $ 322 $ 242 $ 284 $ 106 $ 80
===== ===== ===== ===== ====
</TABLE>
7. Investment in Partnership
On September 7, 1995 the Company acquired a 49% interest in Crossroads
Joint Venture and Crossroads II Joint Venture (collectively "Crossroads") The
Company accounts for its investment in Crossroads using the equity method.
Condensed financial statements of Crossroads are as follows:
Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1997 1996 1998 1997
------------ ------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Land .............................. $ 731 $ 731 $ 731 $ 731
Building and improvements ......... 11,982 11,982 12,114 11,982
Accumulated depreciation .......... (3,703) (3,245) (3,728) (3,360)
Deferred costs, net ............... 436 350 640 350
Cash .............................. 3,008 1,381 2,099 1,593
Accounts receivable ............... 2,155 2,010 2,020 1,873
Other ............................. 519 431 147 548
--------- --------- --------- ---------
Total assets ...................... $ 15,128 $ 13,640 $ 14,023 $ 13,717
========= ========= ========= =========
Liabilities and Partners' Capital
Mortgage note payable ............. $ 35,910 $ 23,500 $ 35,817 $ 23,500
Accounts payable .................. 360 186 394 333
Other ............................. 464 376 523 401
--------- --------- --------- ---------
36,734 24,062 36,734 24,234
Partners' capital ................. (21,606) (10,422) (22,711) (10,517)
--------- --------- --------- ---------
Total liabilities and partners
capital .......................... $ 15,128 $ 13,640 $ 14,023 $ 13,717
========= ========= ========= =========
RDC Group investment .............. $ 3,011 $ 8,675 $ 2,364 $ 8,550
========= ========= ========= =========
</TABLE>
F-39
<PAGE>
The RDC Group
Notes to Combined Financial Statements -- (Continued)
(Dollars in thousands)
December 31, 1997, 1996 and 1995
7. Investment in Partnership -- (Continued)
<TABLE>
<CAPTION>
Year ended Three-months ended,
December 31, March 31
1997 1996 1995 1998 1997
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statements of Income
Revenues:
Minimum rent ......................... $ 4,646 $ 4,609 $ 4,621 $ 1,168 $ 1,163
Percentage rent ...................... 211 172 221 4 45
Expense reimbursements ............... 1,999 1,626 1,475 387 370
Other ................................ 98 109 138 53 11
------- ------- ------- ------- -------
Total revenues ........................ 6,954 6,516 6,455 1,612 1,589
Expenses:
Property operating .................... 951 961 650 175 181
Real estate taxes ..................... 1,069 1,012 888 279 266
Depreciation and amortization ......... 457 757 555 193 114
General and administrative ............ 25 24 21 12 12
Interest .............................. 2,292 2,039 2,124 673 510
------- ------- ------- ------- -------
Total expenses ........................ 4,794 4,793 4,238 1,332 1,083
------- ------- ------- ------- -------
Net income ............................ $ 2,160 $ 1,723 $ 2,217 $ 280 $ 506
======= ======= ======= ======= =======
RDC Group equity in earnings .......... $ 745 $ 531 $ 238 $ 59 $ 169
======= ======= ======= ======= =======
</TABLE>
8. Fair Value of Financial Instruments
The following disclosure of estimated fair value was determined by
management using available market information and appropriate valuation
methodologies. However, considerable judgment is necessary to interpret market
data and develop estimated fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts The RDC Group could
realize on disposition of the financial instruments at December 31, 1997. The
use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The carrying values of cash and cash equivalents, rents receivable,
prepaid expenses, due from affiliates, tenants security and other deposits,
accounts payable and accrued expenses, due to affiliates and rents received in
advance and tenant security deposits reasonably approximate their fair values.
The carrying values of mortgages payable approximates their estimated
aggregate fair value (excluding prepayment penalties) based upon then current
interest rates for debt with similar terms and remaining maturities.
Other notes payable with a carrying value of $2,958 (including accrued
interest) at December 31, 1997, consisting of subordinated liens against one of
the residential properties, have an estimated fair value of $1,500 based upon
management's evaluation of the collateral securing the notes.
F-40
<PAGE>
The RDC Group
Notes to Combined Financial Statements -- (Continued)
(Dollars in thousands)
December 31, 1997, 1996 and 1995
9. Commitments and Contingencies
Ground Lease
The RDC Group leases land at the Soundview Marketplace pursuant to a
ground lease expiring December 31, 2033. The RDC Group also leases office space
in New York City pursuant to an operating lease which expires on July 30, 2002.
The future minimum lease payments under these leases at December 31, 1997 are
as follows:
1998 ........................ $ 406
1999 ........................ 410
2000 ........................ 413
2001 ........................ 413
2002 ........................ 366
Thereafter .................. 15,910
--------
Total ....................... $ 17,918
========
The ground lease provides for additional ground rent based on a percent of
cash flow, as defined in the ground lease agreement.
Litigation
The RDC Group is subject to various legal proceedings and claims that
arise in the ordinary course of business. These matters are generally covered
by insurance. Management believes that the final outcome of such matters will
not have a material adverse effect on the financial position, results of
operation or liquidity of the RDC Group.
10. Tenant Leases
The Properties are leased to tenants under operating leases with various
expiration dates through 2017. Substantially all of the leases provide for
annual base rents plus recoveries and escalation charges based upon the
tenant's proportionate share of and/or increases in real estate taxes and
certain operating costs as defined and the pass through of charges of
electrical usage. Future minimum rentals to be received under non-cancelable
operating leases at December 31, 1997 are as follows:
1998 ........................ $ 14,322
1999 ........................ 14,215
2000 ........................ 13,312
2001 ........................ 12,181
2002 ........................ 10,981
Thereafter .................. 71,843
---------
Total ....................... $ 136,854
=========
11. Subsequent Events
On January 27, 1998, the RDC Group acquired a four story retail and
residential property containing approximately 40,000 square feet in Greenwich,
Connecticut for a purchase price of $8,810 plus closing costs. The property
will be redeveloped during 1998.
On April 7, 1998, the RDC Group acquired the Branch Shopping Center, a
126,000 square foot shopping center located in Smithtown, New York for a
purchase price of $14,143 plus closing costs.
12. Impact of Year 2000 (Unaudited)
Management has assessed the Year 2000 issue, and has developed an action
plan to address the issue. Management believes that its action plan will be
implemented and completed in a timely fashion, and that the Year 2000 issue
will not materially affect future operating results or future financial
condition.
F-41
<PAGE>
The RDC Group
Schedule III-Real Estate and Accumulated Depreciation
December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Initial Cost to Company
---------------------------------------------------------------
Costs Capitalized
Building & Subsequent to
Encumberances Land Improvements Acquisition
Property Description --------------- --------- -------------- -------------------
<S> <C> <C> <C> <C>
Retail
Atrium Mall, Abington, PA ............................. $ 11,672 $ 1,584 $ 8,979 $ 909
Bloomfield Town Square, Bloomfield Hills, MI .......... 11,107 1,695 9,246 3,734
Walnut Hill Plaza, Woonsocket, RI ..................... 10,063 1,498 8,488 1,488
Elmwood Park Plaza, Elmwood Park, NJ .................. 11,801 3,443 10,568 855
Merrillville Plaza, Hobart, IN ........................ 13,441 3,117 12,466 1,772
Soundview Marketplace, Port Washington, NY ............ 7,083 300 14,689 3,072
Marketplace of Absecon, Absecon, NJ ................... 6,900 1,809 7,348 --
Hobson West Plaza, Naperville, IL ..................... 4,439 1,265 5,059 58
Smithtown Shopping Center, Smithtown, NY .............. 6,545 1,900 7,600 1,055
Town Line Plaza, Rocky Hill, CT ....................... -- 600 2,391 405
Residential
Gatehouse, Holiday House, Tiger Village, Columbia, MO . 8,557 1,338 7,582 901
Village Apartments, Winston-Salem, NC ................. 8,882 923 8,308 2,608
Glen Oaks Apartments, Greenbelt, MD ................... 18,293 4,000 17,496 842
Colony Apartments, Columbia, MO ....................... 4,022 436 2,468 469
Marley Run Apartments, Baltimore, MD .................. 16,000 2,265 17,143 211
-------- ------- -------- -------
Totals ................................................ $138,805 $26,173 $139,831 $18,379
======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Gross Amounts At Which Carried At Close of Period
-----------------------------------------------------
Date of
Building & Accumulated Acquisition (A)
Land Improvements Total Depreciation Construction (C)
Property Description --------- -------------- ---------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Retail
Atrium Mall, Abington, PA ............................. $ 1,584 $ 9,888 $ 11,472 $ 2,459 1990 (A)
Bloomfield Town Square, Bloomfield Hills, MI .......... 1,695 12,980 14,675 4,382 1990 (A)
Walnut Hill Plaza, Woonsocket, RI ..................... 1,498 9,976 11,474 2,496 1990 (A)
Elmwood Park Plaza, Elmwood Park, NJ .................. 3,443 11,423 14,866 919 1994 (A)
Merrillville Plaza, Hobart, IN ........................ 3,117 14,238 17,355 1,257 1994 (A)
Soundview Marketplace, Port Washington, NY ............ 300 17,761 18,061 6,013 1994 (A)
Marketplace of Absecon, Absecon, NJ ................... 1,809 7,348 9,157 126 1997 (A)
Hobson West Plaza, Naperville, IL ..................... 1,265 5,117 6,382 148 1996 (A)
Smithtown Shopping Center, Smithtown, NY .............. 1,900 8,655 10,555 199 1997 (C)
Town Line Plaza, Rocky Hill, CT ....................... 600 2,796 3,396 18 1997 (C)
Residential
Gatehouse, Holiday House, Tiger Village, Columbia, MO . 1,338 8,483 9,821 1,608 1990 (A)
Village Apartments, Winston-Salem, NC ................. 923 10,916 11,839 2,846 1992 (A)
Glen Oaks Apartments, Greenbelt, MD ................... 4,000 18,338 22,338 6,030 1984 (A)
Colony Apartments, Columbia, MO ....................... 436 2,937 3,373 238 1990 (A)
Marley Run Apartments, Baltimore, MD .................. 2,265 17,354 19,619 2,288 1992 (A)
------- -------- -------- ------- ----
Totals ................................................ $26,173 $158,210 $184,383 $31,027
======= ======== ======== =======
</TABLE>
- --------
Note: The schedule above does not include leasehold improvements, at the
Company's principal offices, with a cost basis of $395 and accumulated
depreciation of $208.
F-42
<PAGE>
The RDC Group
Notes to Schedule III
December 31, 1997
(Dollars in Thousands)
Reconciliation of Real Estate Properties:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1997 1996 1995
----------- ----------- --------------
<S> <C> <C> <C>
Balance at Beginning of period ............... $157,961 $150,707 $146,658
Additions during period ......................
Acquisition through purchase ................. 16,020 -- --
Other improvements ........................... 11,132 7,695 4,058
Fully depreciated assets written off ......... -- (441) --
Sale of property and improvements ............ (335) -- (9)
-------- -------- --------
Balance at end of period ..................... $184,778 $157,961 $150,707
======== ======== ========
</TABLE>
Reconciliation of accumulated depreciation:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1997 1996 1995
---------- ---------- -------------
<S> <C> <C> <C>
Balance at Beginning of period .............. $26,403 $22,263 $17,832
Sale/Transfer of Property ................... (117) (594) (8)
Depreciation related to real estate ......... 4,949 4,734 4,439
------- ------- -------
Balance at end of period .................... $31,235 $26,403 $22,263
======= ======= =======
</TABLE>
F-43
<PAGE>
GLOSSARY
"Acadia" means Acadia Management Company LLC.
"Acquisition Proposal" means any inquiry or proposal regarding any merger,
amalgamation, take-over bid, reorganization, sale of substantial assets, sale
of Common Shares or Units (including, but not limited to, a tender offer) or a
similar transaction involving the Trust or the Operating Partnership.
"Bear Stearns" means Bear, Stearns & Co. Inc., the financial advisor of
the Trust.
"Bear Stearns Opinion" means that Bear Stearns fairness opinion dated
April 13, 1998 which sets forth the assumption made, matters considered, and
certain limitations in the scope of review undertaken by Bear Stearns in
connection with evaluating the fairness of the Transaction.
"Board of Trustees" means the Board of Trustees of the Trust.
"Cash Investment" means the $100.0 million cash investment to be made to
the Trust by the RDC Funds in exchange for the 13,333,333 newly issued Common
Shares being delivered to the RDC Funds in the Transaction.
"Closing Date" means the closing date of the Transaction.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the common shares of beneficial interest, par value
of $.01 per share, of the Trust.
"Company" or "Mark Centers" mean the Trust, collectively with the
Operating Partnership and all other subsidiaries of the Trust and of the
Operating Partnership.
"Contributed Notes" means two promissory notes which represent the
substantial economic benefit associated with one of the RDC Properties to be
acquired by the Operating Partnership at Closing.
"Contribution Agreement" means the Contribution and Share Purchase
Agreement dated April 15, 1998 pursuant to which the Transaction will occur.
"Declaration of Trust" means the Trust's Amended and Restated Declaration
of Trust.
"Development Property" means the 160,000 square foot shopping center
currently under construction in which an RDC affiliate owns 25% limited
partnership interests in each of two limited partnerships which own such
property.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation, RDC's
financial advisor.
"EDGAR" means the Commission's Electronic Data Gathering, Analysis and
Retrieval System.
"EIG" means Equity Investment Group.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FFO" means funds from operations.
"GLA" means gross leasable area.
"Interim Property" means any real property or any interest therein,
(including, but not limited to, a leasehold interest as ground lessee) acquired
by RDC or any of its affiliates between the date of the Contribution Agreement
and the Closing Date.
"MDG" or "Predecessor" means Mark Development Group, the Trust's
predecessor.
"Meeting" means the Trust's 1998 annual meeting of shareholders to be held
on August 12, 1998 at The Woodlands Inn and Resort, 1073 Highway 315,
Wilkes-Barre, Pennsylvania 87102, commencing at 10:00 o'clock, local time, or
at any adjournment or postponement thereof.
"NAREIT" means the National Association of Real Estate Investment Trusts.
<PAGE>
"NAREIT Index" means the Nareit Equity Rate Total Return Index.
"1995" means the year ended December 31, 1995.
"1996" means the year ended December 31, 1996.
"1997" means the year ended December 31, 1997.
"NYSE" means the New York Stock Exchange.
"Offering" means the Company's initial public offering.
"Operating Partnership" means Mark Centers Limited Partnership, a Delaware
limited partnership and a majority-owned subsidiary of the Trust of which the
Trust also serves as general partner.
"Principal Shareholder" means Marvin L. Slomowitz.
"RDC" means RD Capital, Inc. a Delaware corporation.
"RDC Group" means RDC, the RDC Property Partnerships, Acadia Management
Company LLC and Sound View Management LLC.
"RDC Designees" means Martin L. Edelman and Gregory White, two independent
designees of RDC who will be appointed to the Board of Trustees.
"RDC Funds" means investment partnerships in which an affiliate of RDC
serves as a general partner and which will make the Cash Investment in the
Transaction.
"RDC Management Contracts" means property management contracts for
third-parties owned by two RDC affiliates.
"RDC Material Adverse Effect" means a change in the business, assets,
properties, results of operations or financial condition or prospects of RDC
and its affiliates as a result of which there is a reduction by more than 10%
of the aggregate net operating income from all of the RDC Properties to be
contributed in the Transaction, determined on the basis of aggregate net
operating income for the 12 months as of December 31, 1997.
"RDC Properties" means 12 retail shopping centers aggregating
approximately 2.2 million square feet of GLA and five multi-family residential
properties containing 2,273 residential units currently owned by RDC Property
Partnerships.
"RDC Property Partnerships" means RDC, together with the partnerships and
other entities in which it or it affiliates serves as general partner or in
another similar management capacity.
"Reform Act" means the Private Securities Litigation Reform Act of 1995.
"Registration Agreement" means a Registration Rights and Lock-Up Agreement
to be executed at Closing pursuant to which (i) holders of Common Shares and
Units will agree not to sell or otherwise transfer such Units or Common Shares
(or Common Shares issuable upon exchange of the Unit), subject to certain
limited exceptions, prior to the one year anniversary of the Closing Date, and
(ii) the Trust will be obligated, following the one year anniversary of the
Closing Date, to register the Common Shares under the Securities Act.
"REIT" means a real estate investment trust.
"Reporting Persons" means the Company's officers and trustees and persons
who own more than 10% of the Company's Common Shares.
"Restricted Period" means as to each RDC Property, a specific period
during which a sale or transfer must be made on a tax-free basis.
"S&P 500" means the Standard & Poor's 500 stock index.
"Securities Act" means the Securities Act of 1933, as amended.
2
<PAGE>
"Superior Proposal" means an unsolicited bona fide Acquisition Proposal
which the Board of Trustees determine in good faith would result in a
transaction more favorable to the shareholders of the Trust and to the limited
partners of the Operating Partnership than the Transaction.
"Transaction" means a transaction pursuant to which, among other things:
(i) the Operating Partnership will acquire fee title to, or all or
substantially all of the ownership interests in, the RDC Properties, in
exchange for approximately 1.8 million Common Shares and approximately 11.1
million Units in the Operating Partnership (each of which is exchangeable, on a
one-for-one basis, for Common Shares); (ii) the RDC Properties will purchase an
aggregate of approximately 13.3 million newly issued Common Shares in
consideration of the Cash Investment; (iii) Ross Dworman and Kenneth Bernstein,
the President and Chief Executive Officer and Chief Operating Officer,
respectively, of RDC will become the Chief Executive Officer and President,
respectively, of the Trust; and (iv) Messrs. Dworman and Bernstein and two
other independent designees of RDC will become four of the seven Trustees
compromising the Board of Trustees of the Trust.
"Trust" means Mark Centers Trust, a Maryland real estate investment trust.
"Trust Material Adverse Effect" means a change in the business, assets,
properties, results of operations, financial condition of prospects of the
Trust's portfolio as a result of which there is a reduction by more than 20%
from the funds of operation from the Trust's properties, determined on the
basis of funds from operations for the 12 months ending December 31, 1997.
"Units" means limited partnership interests in the Operating Partnership.
3
<PAGE>
ANNEX I
<PAGE>
CONTRIBUTION AND SHARE PURCHASE AGREEMENT
(Real Estate Partnership Interests,
Fee Simple Interests
and Other Assets)
by and between
The Contributing Owners Identified on Exhibit "A"
The Contributing Entities Identified on Exhibit "A-1"
RD Properties, L.P. VI
RD Properties, L.P. VIA and
RD Properties, L.P. VIB
and
Mark Centers Limited Partnership
and Mark Centers Trust
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Caption Page
- ------- ------- ----
<S> <C> <C>
1. Contribution; Premises; Cash Investment for the Common Shares 2
2. Contribution Consideration; Cash Investment 3
3. Existing Mortgages; Other Liabilities to be Discharged at Closing 5
4. Closing 5
5. Condition of Title and Related Matters 9
6. Possession; Agreements and Leases 12
7. Adjustments to Contribution Consideration 13
8. Conditions to Closing 16
9. Representations and Warranties of Owners 19
10. Representations and Warranties of Contributing Owners; Representations and Warranties
of the Funds 30
11. Representations and Warranties of the Partnership and the Trust 32
12. Additional Agreements 44
13. Termination, Amendment and Waiver 56
14. Notices 58
15. Fire or Other Casualty 59
16. Condemnation 59
17. Brokers 60
18. Successors and Assigns 60
19. Captions or Headings; Cross-References 60
20. Amendments 60
21. Applicable Law 60
22. Maintenance of Records 60
23. Survival of Representations, Warranties and Covenants 61
24. Indemnification 61
25. Fees and Expenses 64
26. Counterparts 64
</TABLE>
i
<PAGE>
Exhibits
<TABLE>
<S> <C>
Exhibit A Contributing Owners; Contributing Entities; Contributed Management Contracts
Exhibit A-1 Development Property
Exhibit B Restated Partnership Agreement
Exhibit C Premises
Exhibit D Development and Elmwood Expansion and Conditions to Issuance of Additional
Operating Partnership Interests
Exhibit E Registration Rights and Lock-Up Agreement
Exhibit F Assignment of Ground Lease
Exhibit G Bill of Sale, Assignment and Assumption Agreement
Exhibit H Assumption of Sales Agreements
Exhibit I-1 Assignment and Assumption of Contributed Management Contracts
Exhibit I-2 Assignment of Contributed Notes
Exhibit J Second Amendment to Partnership Agreement
Exhibit K Tenant Estoppel Certificate
Exhibit L Owner Major Tenants
Exhibit M Contributing Owners Subject to Registration Rights and Lock-Up Agreement
Exhibit N Trust Major Tenants
Exhibit O Investment Letter
Exhibit P Non-Compete Agreements
Exhibit Q Right of First Offer Agreement
Exhibit R Assignment and Assumption Agreement of RDC Office Leases
</TABLE>
ii
<PAGE>
Schedules
<TABLE>
<S> <C>
Schedule 1(c)(ii) Acadia Management Company LLC and Sound View Management LLC Personal
Property
Schedule 2(a) Allocation of Contribution Consideration
Schedule 3(a) Existing Mortgages; Remaining Mortgages
Schedule 3(a)-1 Partnership Mortgage Indebtedness to be Satisfied
Schedule 3(b) Discharged Liabilities
Schedule 4(k) Third Party Partners
Schedule 4(k)-1 Premises Excluded from Target RDC NOI
Schedule 5(a) List of Title Commitments and Permitted Encumbrances
Schedule 5(b) Surveys
Schedule 6(a) Leases
Schedule 7(a)(x) Remaining Mortgage Escrows
Schedule 9(b) Required Partner Consents and Approvals
Schedule 9(c) Other Consents and Approvals
Schedule 9(d) Significant Agreements
Schedule 9(f) Litigation
Schedule 9(i)(i) Violations
Schedule 9(i)(ii) Notices of Proceedings
Schedule 9(i)(iii) Unperformed Obligations
Schedule 9(i)(v) Compliance with Insurance Company Policies
Schedule 9(j) Environmental Reports
Schedule 9(k) Engineering Reports
Schedule 9(k)(iii) Private Water and Sanitary Sewer
Schedule 9(l)(i) Real Estate Tax Proceedings
Schedule 9(l)(ii) Tax Parcels
Schedule 9(l)(iii) Notices of Assessments
Schedule 9(m)-1 Rights of First Refusal
Schedule 9(m)-2 Rent Roll
Schedule 9(m)-3 Lease Exceptions
Schedule 9(m)-4 Accrued and Unpaid Lease Obligations
Schedule 9(n)-1 Lease Rights; Access
Schedule 9(n)-2 Other Lease Purchase Options and Agreements
Schedule 9(p) Insurance Policies
Schedule 9(q) Non-Terminating Contracts
Schedule 9(r) Employee Instruments
Schedule 9(s) Employee Benefit Plans
Schedule 10(b)(v) Names and Addresses of the Partners of the Fund; Conditions Precedent to Capital
Contributions
Schedule 10(b)(vi) Fund Litigation
Schedule 11(a) Information Concerning Subsidiaries
Schedule 11(g)(i) Additional Options, Warrants and Rights
Schedule 11(g)(ii) Operating Partnership Interests Owned by Trust
Schedule 11(g)(iii) Other Equity Interests and Investments
Schedule 11(k)(ii) Pending Tax Proceedings
Schedule 11(l) Undisclosed Liabilities
Schedule 11(m) Trust Litigation
Schedule 11(o)(i) Trust Compliance with Applicable Laws
Schedule 11(o)(ii) Notices of Violations of Ordinances, Public Regulations, etc.
Schedule 11(o)(iii) Trust Compliance with Insurance Obligations
Schedule 11(o)(vi) Trust Unperformed Obligations
Schedule 11(p) Trust Environmental Reports
Schedule 11(q) Trust Engineering Reports
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Schedule 11(q)(ii) Flood Hazard Premises
Schedule 11(q)(iii) Exceptions to Engineering Reports; Private Water and Sanitary Sewer
Schedule 11(r)(i) Trust Real Estate Tax Proceedings
Schedule 11(r)(ii) Tax Parcels
Schedule 11(r)(iii) Trust Notice of Assessments
Schedule 11(s)-1 Partnership Leases
Schedule 11(s)-2 Trust Rent Roll
Schedule 11(s)-3 Partnership Lease Exceptions
Schedule 11(s)-4 Trust Accrued and Unpaid Lease Obligations
Schedule 11(t)-1 Partnership Lease Rights; Access
Schedule 11(t)-2 Other Partnership Lease Purchase Options and Agreements
Schedule 11(u) Insurance Policies
Schedule 11(v) Non Terminating Trust Contracts
Schedule 11(w) Employee Instruments
Schedule 11(x) Employee Benefit Plans
Schedule 11(z) Trust Financial Statement Exceptions
Schedule 11(aa) Trust Affiliate Transactions
Schedule 12(a)(v) Assumed Office Leases
Schedule 12(i)(v) Permitted Additional Premises Indebtedness
Schedule 12(i)(viii) Fund Property Subject to Option
Schedule 12(j)(ix) Property Subject to Right of First Offer Agreement
</TABLE>
iv
<PAGE>
DEFINITIONS
Section
Term Number
- ---- ------
1996 Form 10-K.......................................................11(g)(i)
Acquisition Proposal.................................................12(f)(i)
Acquisition Property................................................Recital F
Actions...........................................................9(r)(ii)(C)
Agreement of Sale..................................................12(i)(vii)
Applicable Laws......................................................9(i)(iv)
Cash Investment..........................................................2(c)
Cash Investment Shares...................................................1(d)
Claim...............................................................12(h)(ii)
Closing Date.............................................................4(a)
Code.....................................................................4(d)
Common Shares.......................................................Recital E
Consolidated Trust......................................................11(l)
Contracts.............................................................9(q)(i)
Contributed Management Contracts....................................Recital A
Contributed Notes...................................................Recital A
Contributed Properties..............................................Recital A
Contributing Entity..............................................Introduction
Contributing Entity s Premises......................................Recital B
Contributing Owner...............................................Introduction
Contribution Price.......................................................2(a)
Contribution Consideration...............................................2(a)
Deed................................................................4(b)(vii)
Development Property...............................................Recital F
Discharged Liabilities...................................................3(b)
Disclosing Party....................................................12(m)(ii)
Economic Terms.......................................................12(i)(x)
Economic Terms....................................................12(j)(viii)
Elmwood Expansion........................................................2(b)
Employee Benefit Plan.................................................9(s)(i)
Engineering Report.......................................................9(k)
Environmental Report.....................................................9(j)
Environmental Reports...................................................11(p)
Environmental Claim......................................................9(j)
Environmental Laws.......................................................9(j)
ERISA.................................................................9(s)(i)
ERISA Affiliate.......................................................9(s)(i)
Escrow Agent.............................................................4(i)
Exchange Act.............................................................2(b)
Exchange Act Filings....................................................11(e)
Existing Note............................................................7(e)
Existing Mortgage...................................................11(o)(ii)
Existing Mortgages.......................................................3(a)
FFO...............................................................13(a)(viii)
GAAP.................................................................11(z)(i)
Gap Undertaking..........................................................4(j)
GLA..................................................................12(i)(x)
Hazardous Materials......................................................9(j)
Improvements..........................................................9(n)(v)
Incentive Plan.......................................................11(g)(i)
Indemnified Parties.................................................12(h)(ii)
v
<PAGE>
Section
Term Number
- ---- ------
Indemnitee..............................................................24(d)
Indemnitor..............................................................24(d)
Industrial Establishment.............................................8(a)(vi)
Interests..........................................................Recital A
Interim Premises..................................................12(i)(viii)
Interim Premises Cost.............................................12(i)(viii)
IRS..................................................................9(s)(ii)
ISRA.................................................................8(a)(vi)
KB.......................................................................4(k)
Knowledge..................................................................23
Leases...................................................................6(a)
Limited Partnership Agreement............................................2(d)
Loan Repayment Documents.................................................4(i)
Losses..................................................................24(a)
Market Price.............................................................2(b)
Mark Centers Group...................................................11(k)(i)
Material Part...........................................................16(a)
MEPPA Plan...........................................................9(s)(iv)
NJDEPE...............................................................8(a)(vi)
Non-Compete Agreements..................................................12(c)
Notice of Breach...........................................................23
Offering Notice.................................................12(g)(iii)(A)
Operating Partnership Interests..........................................2(a)
Owner...............................................................Recital B
Owner Major Tenants......................................................6(c)
Partnership......................................................Introduction
Partnership Record Date..................................................2(f)
Partnership Significant Agreement.......................................11(d)
Partnership Service Agreements.......................................11(v)(i)
Partnership Leases...................................................11(s)(i)
Pennsylvania Contributing Owners....................................Recital C
Pension Plan........................................................9(s)(iii)
Permitted Encumbrances................................................5(a)(i)
Personal Property....................................................1(c)(ii)
PGBC.................................................................9(s)(ii)
Pre-Closing Month.....................................................7(a)(v)
Premises............................................................Recital B
Proxy Statement.........................................................12(d)
RD.......................................................................4(k)
RDC......................................................................2(a)
RDC Designees...........................................................12(a)
RDC Group Debt Amount................................................12(g)(i)
RDC Group...............................................................12(g)
RDC Material Adverse Effect.......................................13(a)(viii)
Release Date............................................................24(g)
Remaining Contributing Owners.......................................Recital C
Remaining Mortgages......................................................3(a)
Rent Roll...........................................................9(m)(iii)
Rents............................................................9(m)(iii)(D)
Restated Partnership Agreement...........................................1(a)
Restricted Period...................................................12(g)(ii)
Right of First Offering Agreement...................................12(i)(ix)
vi
<PAGE>
Section
Term Number
- ---- ------
Sale Agreement......................................................Recital F
Securities Act...........................................................2(e)
Security Deposits........................................................6(a)
Service Agreements.......................................................6(b)
Significant Agreement....................................................9(d)
Subsidiary..............................................................11(a)
Superior Proposal....................................................12(f)(i)
Survey...................................................................5(b)
Surveys.............................................................11(o)(ii)
Survival Period............................................................23
Surviving Indemnities......................................................23
Target RDC NOI....................................................13(a)(viii)
Target Trust FFO....................................................13(a)(ix)
Tax Returns.......................................................11(k)(v)(B)
Tax Payment.........................................................12(g)(ii)
Taxes.............................................................11(k)(v)(A)
Tenant...........................................................9(m)(iii)(B)
Tenant Estoppel Certificates.............................................6(c)
Third Party Partner Agreement............................................4(k)
Title Company............................................................4(j)
Trust............................................................Introduction
Trust Designees.........................................................12(a)
Trust Employee Benefit Plan..........................................11(x)(i)
Trust Engineering Report.............................................11(q)(i)
Trust ERISA Affiliate................................................11(x)(i)
Trust Major Tenants................................................8(c)(xiii)
Trust Material Adverse Effect.......................................13(a)(ix)
Trust MEPPA Plan....................................................11(x)(iv)
Trust Rent Roll....................................................11(s)(iii)
Trust Pension Plans................................................11(x)(iii)
Trust Portfolio.........................................................11(l)
Trust Property..........................................................11(l)
Warrantor...................................................................9
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CONTRIBUTION AND SHARE PURCHASE AGREEMENT
(Real Estate Partnership Interests, Fee Simple Estates and Other Assets)
This Agreement is made as of the 15th day of April, 1998, by and among the
parties identified as Contributing Owners on Exhibit "A" (individually, a
"Contributing Owner" and collectively, the "Contributing Owners"), the parties
identified as Contributing Entities on Exhibit "A" (individually, a
"Contributing Entity" and collectively, the "Contributing Entities"), RD
PROPERTIES, L.P. VI, RD PROPERTIES, L.P. VIA and RD PROPERTIES, L.P. VIB, each
a Delaware limited partnership (individually, a "Fund" and collectively, the
"Funds"), MARK CENTERS LIMITED PARTNERSHIP, a Delaware limited partnership (the
"Partnership"), and MARK CENTERS TRUST, a Maryland real estate investment trust
(the "Trust").
INTRODUCTION
A. Each Contributing Owner owns, and will own immediately prior to Closing
(as defined herein), a partnership interest, a membership interest or capital
stock (the "Interests") in one or more Contributing Entities which owns either
(i) title to or a ground leasehold interest in the properties (the "Contributed
Properties") which are owned directly or indirectly by one or more of certain
of the Contributing Owners, (ii) property management contracts with respect to
properties which are not Contributed Properties (the "Contributed Management
Contracts") or (iii) unsecured notes pertaining to certain Contributed
Properties (the "Contributed Notes"). The percentage interests owned by each
Contributing Owner in each Contributing Entity or in the Contributed
Properties, Contributed Management Contracts or Contributed Notes are set forth
on Exhibit "A". Except as set forth on Exhibit "A," the Contributing Owners
listed on Exhibit "A" in the aggregate own 100% of the partnership interests,
membership interests or capital stock in each Contributing Entity and are all
of the partners of such Contributing Entity, and own 100% of the interests in
the Contributed Properties, the Contributed Management Contracts and the
Contributed Notes.
B. Each Contributing Entity is a limited partnership, general partnership,
limited liability company or corporation and is the owner or ground leasee of:
(i) the property or properties identified as the property of such Contributing
Entity on Exhibit "A" (individually and collectively with the Contributed
Properties, the "Premises" and, as to each Contributing Entity, the
"Contributing Entity's Premises"); (ii) the Contributed Management Contracts
identified on Exhibit "A"; or (iii) the Contributed Notes identified on Exhibit
"A". The Contributing Entities, with respect to the Contributing Entity's
Premises, the Contributing Owners, as to the Contributed Properties, and the
Contributing Owners or Contributed Entities, as to the Contributed Management
Contracts and the Contributed Notes, are sometimes herein referred to
individually as "Owner" and collectively as "Owners."
C. It is intended that pursuant to this and other contemporaneously
executed agreements and assignments, the Partnership will acquire from the
Contributing Owners at Closing 100% of the interests in the Contributing
Entities, other than with respect to the Pennsylvania Contributing Entity (as
hereinafter defined), and the Contributed Properties (or the ground leasehold
interest in the Premises as described elsewhere herein). It is also intended
that pursuant to this Agreement and the Restated Partnership Agreement (as
defined below) the Partnership will acquire from the Contributing Owners which
own 100% of the interests in RD Abington Associates Limited Partnership (the
"Pennsylvania Contributing Entity"), an eighty-nine percent (89%) interest in
capital and ninety-nine percent (99%) interest in profits and losses as the
sole general partner in the Pennsylvania Contributing Entity and that such
Contributing Owners in the Pennsylvania Contributing Entity (the "Remaining
Contributing Owners") will immediately thereafter be the only partners other
than the Partnership in the Pennsylvania Contributing Entity, and the Remaining
Contributing Owners will immediately thereafter continue to own in the
aggregate an eleven percent (11%) interest in capital and a one percent (1%)
interest in profits and losses in the Pennsylvania Contributing Entity.
D. It is also intended that pursuant to this and other contemporaneously
executed agreements, the Partnership or its designee will acquire at Closing
the Contributed Management Contracts and the Contributed Notes from certain
Owners.
E. It is also intended that pursuant to this and other contemporaneously
executed agreements, the Funds will collectively purchase and acquire from the
Trust, and the Trust will issue and deliver to the Funds, Common Shares of
Beneficial Interest of the Trust, $0.01 per share ("Common Shares"), in
consideration of a cash investment to be made by the Funds.
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F. In connection with the transactions described herein, the Partnership
also will be obligated to acquire from certain of the Contributing Owners, and
such Contributing Owners will be obligated to contribute to the Partnership,
such Contributing Owners' Interests in Kips Bay Development, L.P., which holds
fee simple title to the Premises described on Exhibit "A-1" (the "Development
Property"), and in DFD Development Limited Partnership, which owns the
leasehold interest in the Development Property, pending satisfaction, or the
waiver thereof by the Partnership, of certain conditions relating to the
completion of the Development Property, as described on Exhibit "D".
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained and intending to be legally bound, hereby agree as
follows:
1. Contribution; Premises; Cash Investment for the Common Shares.
(a) The Contributing Owners agree to contribute to the Partnership, and
the Partnership agrees to accept from the Contributing Owners, upon the terms
and conditions hereinafter set forth, the Interests. The Partnership and each
Remaining Contributing Owner in the Pennsylvania Contributing Entity shall
cause the Partnership Agreement of the Pennsylvania Contributing Entity to be
substantially in the form of the Amended and Restated Limited Partnership
Agreement (the "Restated Partnership Agreement"), a copy of which is attached
to this Agreement as Exhibit "B". To the extent any one or more of the
Contributed Properties are being contributed by means of the contribution by
the Contributing Owners of 100% of the Interests of a Contributing Entity, the
Partnership shall direct that a portion of the Interests shall be contributed
to a designee of the Partnership in lieu of the Partnership and such Interests
are held by such designee (or another entity affiliated with the Partnership)
for a period of at least one (1) year.
(b) To the extent a Contributed Property or interest therein is to be
contributed to the Partnership or to its designee other than by a contribution
by the Contributing Owners of Interests in the Contributing Entity which owns
such Contributed Property or interest therein, the Contributing Owners shall
cause each such Contributing Entity to deliver to the Partnership, and such
Contributing Entity agrees to deliver to the Partnership, and the Partnership
agrees to accept from the Contributing Entity, upon the terms and conditions
hereinafter set forth, a deed for such Contributing Entity's Premises
evidencing succession to fee simple title to the Premises by the Partnership or
other entity designated herein by the Partnership, subject only to the
Permitted Encumbrances (as hereinafter defined), and in the case of Port Bay
Associates and RD Branch Associates, L.P., an assignment of the ground
leasehold interest of each such Contributing Entity in the respective Premises,
constituting each such Contributing Entity's respective entire right, title and
interest in and to such Premises. Additionally, as to each Contributing Entity
which owns a Contributed Management Contract or a Contributed Note, the
Contributing Owners of such Contributing Entity shall cause each such
Contributing Entity to assign to the Partnership, and each such Contributing
Entity agrees to assign to the Partnership, upon the terms and subject to the
conditions hereinafter set forth, all right, title and interest in, to and
under the Contributed Management Contracts and the Contributed Notes.
(c) All of the Premises consist of:
(i) all those certain lots or pieces of ground described on Exhibit "C"
and the buildings and improvements located thereon; the Premises also
include (A) all easements, rights-of-way or use, privileges, licenses,
appurtenances, interests and other rights of each Owner appurtenant to or
benefitting the Premises, including, without limitation, such Owner's
interest as lessee under any ground leases; (B) all right, title and
interest of any Owner in and to any land lying in the bed of any streets,
roads, or avenues, opened or unopened, existing or proposed, vacated or
hereafter to be vacated, public or private in front of, behind or adjoining
the Premises and also as they extend beyond the Premises for ingress,
egress and regress to or from the Premises or any part thereof and for the
installation, replacement, maintenance and use of utility facilities; (C)
all right, title and interest of each Owner in and to any award made for
condemnation of the Premises as provided in Section 16 hereof (or to be
made in lieu thereof) and in and to any unpaid award for damage to the
Premises by reason of change of grade of any street, road, highway, avenue
or alley, or otherwise; (D) all of each Owner's rights to connect with and
to utilize, for service to the Premises or any part thereof, any private or
public utility facilities as may now or hereafter be within or without the
boundaries of the Premises; (E) the Owner's interest in the Leases (as
hereafter defined); (F) all licenses, permits,
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certificates of occupancy and governmental approvals with respect to the
Premises; (G) all trade names used in connection with the Premises; (H) to
the extent in the Owner's possession after exercising diligent efforts to
obtain the same, all plans and specifications for improvements to the
Premises, including approved site plans; (I) all of each Owner's right,
title and interest in and to all contracts (including, but not limited to,
option agreements and agreements of sale to acquire real property and
Service Agreements (as hereinafter defined)), warranties and guarantees, if
any, with regard to the foregoing and the Personal Property (as hereinafter
defined) and contracts to which each Owner is a party or to which it has
the benefit and which relates to or inures, directly or indirectly, to the
benefit of the Premises; (J) all of each Owner's right, title and interest
in and to insurance proceeds by reason of a loss insured under any
insurance policy and which relate to or inure, directly or indirectly, to
the benefit of the Premises; and (K) all and singular the mineral rights,
waters, water courses, rights, liberties, privileges, hereditaments and
appurtenances whatsoever belonging to the Premises or in any way
appertaining thereto and the reversions and remainders, rents, issues and
profits thereof; and
(ii) the fixtures, furnishings, equipment and other items of personal
property owned by each Owner and located on or used in connection with the
operation of such Owner's Premises and, in the case of Acadia Management
Company LLC and Sound View Management LLC, owned by such entities and
located at their offices or used in connection with the performance of
their respective obligations under the Contributed Management Contracts,
including, but not limited to, that personal property set forth on Schedule
1 (c) (ii) (the "Personal Property").
(d) The Funds hereby agree to purchase and acquire from the Trust, and the
Trust hereby agrees to issue and deliver to the Funds, upon the terms and
subject to the conditions hereinafter set forth, an aggregate of 13,333,333
Common Shares (the "Cash Investment Shares") which, upon issuance, shall be
duly authorized, validly issued, fully paid and non-assessable.
2. Contribution Consideration; Cash Investment.
(a) The aggregate consideration (the "Contribution Consideration") to be
given by the Partnership to the Contributing Owners (other than in respect of
the Development Property and the Elmwood Expansion (as hereinafter defined))
shall consist of: (i) the assumption of the Remaining Mortgages pursuant to
Section 3 hereof and (ii) the issuance of 11,333,333 limited partnership
interests in the Partnership ("Operating Partnership Interests"), each of which
shall be exchangeable, on a one-for-one basis, for Common Shares, subject to
the restrictions and on the basis set forth in the Agreement of Limited
Partnership of the Partnership (including, without limitation, those provisions
providing for adjustment in the number of Common Shares into which Operating
Partnership Interests are convertible upon certain changes in the
capitalization of the Trust). No amendment to the Agreement of Limited
Partnership of the Partnership after the date hereof shall adversely modify the
exchange rights of the holders of Operating Partnership Interests without the
requisite consent of the holders thereof obtained in accordance with the terms
of the Agreement of Limited Partnership of the Partnership, except such
modifications as may be necessary to comply with law. The number of Operating
Partnership Interests to be given by the Partnership to each Owner (the
"Contribution Price") for the Interests, the Contributed Properties, the
Contributed Management Contracts and the Contributed Notes shall be the number
or percentage set forth next to the name of such Owner on Schedule 2(a). The
allocation of the Contribution Consideration among the Premises, the personal
property to be contributed pursuant to this Agreement, the Contributed
Management Contracts and the Contributed Notes shall be as set forth on
Schedule 2(a); provided, however, that RD Capital, Inc., a Delaware corporation
("RDC"), shall be authorized by each of the Owners which are signatories hereto
to adjust the allocation of the Contribution Consideration as set forth on
Schedule 2(a) upon two (2) business days prior notice to the Partnership (and
by their execution of this Agreement, each of the Owners does hereby
acknowledge and agree that RDC has been granted such authority and does hereby
indemnify and hold the Trust and the Partnership harmless from and against the
exercise by RDC of any such authority).
(b) In addition to the Contribution Consideration: (i) upon satisfaction
of the conditions set forth on Exhibit "D" to the extent satisfied on or prior
to January 1, 2000, and the contribution of the Interests owned by the
Contributing Owners in Kip's Bay Development, L.P., which holds fee simple
title to the Development Property, and in DFD Development Limited Partnership,
which owns the leasehold interest in the Development Property, all in
accordance with the terms and conditions of this Agreement as if the interests
in and to Development
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Property as aforesaid had been contributed to the Partnership on the Closing
Date (including, but not limited to, the making of representations and
warranties by the general partners of each of Kip's Bay Development, L.P. and
DFD Development Limited Partnership which own the Development Property and the
leasehold interest therein on the date the Contributing Owners Interests are
contributed to the Partnership); and (ii) upon satisfaction of the conditions
set forth on Exhibit "D" relating to the Premises described on Exhibit "D" (the
"Elmwood Expansion"), the Partnership shall issue such number of Operating
Partnership Interests to the Contributing Owners, as shall equal the quotient
obtained by (x) dividing $5.5 million, subject to adjustment, (in the case of
the Development Property) and $2.75 million (in the case of the Elmwood
Expansion) and (y) the average Market Price (as hereinafter defined) of the
Common Shares for the twenty (20) consecutive trading days ending upon the date
the Interests in respect of the Development Property are contributed to the
Partnership and upon satisfaction of the conditions set forth on Exhibit "D"
relating to the Elmwood Expansion, as the case may be. The term "Market Price"
means, as of any day, the closing sale price of the Common Shares on such day
on the New York Stock Exchange or the American Stock Exchange (or if the Common
Shares shall not then be listed on either such exchange, such closing sales
price on the principal (determined by highest volume average for a period of 20
consecutive business days prior to the day as to which "Market Price" is being
determined) national securities exchange (as defined in the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) on which the Common Shares may
then be listed or, if there shall have been no sales on such exchange or
exchanges on such day, the closing sales price of the Common Shares on such day
on the Nasdaq Stock Market National Market or, if there shall have been no
sales on such day on the Nasdaq Stock Market National Market, or if the Common
Shares are not included on the Nasdaq Stock Market National Market, the average
of the closing bid price at the end of such date quoted by three independent
market makers as reported by the Nasdaq Stock Market or, if the Common Shares
shall not then be so listed, the average of the closing bid prices at the end
of the day quoted by three independent market makers in the over-the-counter
market as reported by the Nasdaq Stock Market by the National Quotation Bureau,
Inc. or by any successor organization. The parties acknowledge that the
purchase price for the Development Property set forth in clause (x) of this
subsection 2(b) is based upon $57,000,000 principal amount of indebtedness
encumbering the Development Property on the date the Development Property is to
be contributed to the Partnership. The purchase price for the Development
Property shall be increased or decreased, as the case may be, by an amount
equal to 25% of any increase or decrease in the $57,000,000 of such
indebtedness, determined as of the date the Development Property is contributed
to the Partnership. If the conditions set forth in Exhibit "D" concerning the
Development Property are not satisfied on or prior to January 1, 2000, the
obligation of the Partnership and of the Contributing Owners to acquire and
sell, respectively, the Interests of the Contributing Owners in Kip's Bay
Development, L.P. and DFD Development Limited Partnership shall become null and
void.
(c) In consideration for the issuance of the Cash Investment Shares, the
Funds shall collectively pay at Closing to the Trust or to its designee(s)
which shall be identified to the Funds at least two (2) business days prior to
the Closing by the Trust or the Partnership the aggregate sum of $100,000,000
(the "Cash Investment"), which shall be paid by wire transfer to the account or
accounts as designated to the Funds in writing at least two (2) business days
prior to the Closing by the Trust or the Partnership. The number of Cash
Investment Shares to be issued and delivered to any Fund shall be in the same
proportion that the portion of the Cash Investment paid by such Fund shall bear
to the total Cash Investment.
(d) In the event that, prior to Closing, the outstanding Common Shares are
changed by reason of a reorganization, merger, consolidation, recapitalization,
reclassification, share split-up, combination or exchange of Common Shares and
the like (not including the issuance of Common Shares on the conversion of
other securities of the Trust which are outstanding on the date of the
Agreement and which are convertible into Common Shares), an adjustment in the
number of Common Shares into which the Operating Partnership Interests issuable
hereunder are convertible, an adjustment in the number of Cash Investment
Shares, and an adjustment in the number of Operating Partnership Interests in
the manner provided in the Agreement of Limited Partnership, as amended, of the
Partnership (the "Limited Partnership Agreement"), shall be made to reflect
such adjustment in the Company's capitalization.
(e) Each Contributing Owner and each Fund acknowledges and confirms that:
(i) none of the Operating Partnership Interests, the Common Shares into which
the Operating Partnership Interests may be converted or the Cash Investment
Shares have been registered under the Securities Act of 1933, as amended (the
"Securities
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Act"), or any state securities laws; (ii) there is no obligation to register
the Operating Partnership Interests, the Common Shares or the Cash Investment
Shares except pursuant to a certain Registration Rights and Lock-Up Agreement
attached hereto as Exhibit "E"; and (iii) none of the Operating Partnership
Interests, the Common Shares into which the Operating Partnership Interests may
be converted or Cash Investment Shares may be sold or otherwise transferred by
such Owner or Fund unless pursuant to registration under the Securities Act and
state securities laws or an exemption therefrom and then only in accordance
with this Agreement and the Agreement of Limited Partnership of the
Partnership. Each Owner and each Fund by execution of this Agreement hereby
acknowledges, represents and warrants that the Operating Partnership Interests
being acquired by such Owner and the Cash Investment Shares being acquired by
such Fund hereunder are being acquired by such Owner and such Fund,
respectively, for its, his or her own account and not for the account of any
other person or persons, for investment and not with a view to the disposition
thereof in violation of the Securities Act.
(f) With respect to the first Partnership Record Date (defined below) on
or after the Closing for distributions by the Partnership, the Owners receiving
Operating Partnership Interests shall receive distributions payable with
respect to the Operating Partnership Interests on a pro rata basis based upon
the number of days during the calendar quarter preceding such Partnership
Record Date that the Owners receiving Operating Partnership Interests held
Operating Partnership Interests. "Partnership Record Date" shall mean the
record date established by the general partner for any particular distribution
of Operating Cash Flow or Capital Cash Flow as defined in and pursuant to the
Limited Partnership Agreement which record date shall be the same as the record
date established by the general partner for distribution to its shareholders of
some or all of their portion of such distribution.
3. Existing Mortgages; Other Liabilities to be Discharged at Closing.
(a) As of Closing, the Premises shall be encumbered by the lien of those
certain Mortgages (collectively, the "Existing Mortgages") described on
Schedule 3(a) to this Agreement, which shall constitute the only indebtedness
secured by a mortgage on the Premises as of the Closing other than as permitted
in accordance with subsection 12(i)(v) hereof. At Closing, the Partnership
shall cause the payment and discharge, solely from the net proceeds of the Cash
Investment: (i) of all amounts then due and payable (or such portion of the
amount due and payable as designated on Schedule 3(a)) under each Existing
Mortgage (whether in respect of principal, accrued interest, prepaid real
estate taxes or otherwise, (but specifically excluding prepayment penalties, if
any, not set forth on Schedule 3(a) and accelerated or prepaid principal))
other than those Existing Mortgages designated on Schedule 3(a) to remain
outstanding in whole or in part (the "Remaining Mortgages") and (ii) of all
amounts then due and payable (or such portion of the amount due and payable as
designated on Schedule 3(a)-1) under each mortgage as to which the Partnership
or a Subsidiary (as defined herein) thereof is the mortgagor and which is
identified on Schedule 3(a)-1. Notwithstanding anything contained herein to the
contrary, in the event that prior to Closing, the mortgagee of a Remaining
Mortgage described on Schedule 3(a) shall require prepayment of such Remaining
Mortgage, whether in whole or in part, or shall require the payment of an
assumption fee or other fee or payment as a condition to obtaining a requisite
consent without which there would occur a default under a Remaining Mortgage,
the Partnership shall be under no obligation to provide for such prepayment,
even if the failure to make such prepayment would cause a termination of this
Agreement, but shall be obligated to pay such other assumption fees and other
payments, but only to the extent set forth on Schedule 3(a).
(b) At or immediately following Closing, the Owners shall cause the
payment and discharge from the net proceeds of the Cash Investment of each of
the liabilities and obligations of the Owners described on Schedule 3(b)
(collectively, the "Discharged Liabilities") (which Discharged Liabilities
shall include the amounts to be paid and discharged by the Owners under all of
the Existing Mortgages, other than the Remaining Mortgages, as provided in
paragraph 3(a) hereof).
4. Closing.
(a) Closing shall be held within five (5) days following the satisfaction
of all conditions to Closing as set forth in Section 8 hereof, but in no event
later than October 30, 1998 (the "Closing Date"), commencing at 10:00 a.m. at
the offices of Battle Fowler LLP, 75 East 55th Street, New York, New York,
unless the Contributing Owners, the Trust and the Partnership shall have
otherwise agreed in writing.
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(b) Closing is the event during which, among other things:
(i) the Partnership shall deliver the Contribution Consideration to the
Owners for the Interests, the Contributed Properties, the Contributed
Management Contracts and the Contributed Notes;
(ii) the Owners shall deliver to the Partnership an assignment of the
Interests, the Contributed Properties, the Contributed Management Contracts
and the Contributed Notes;
(iii) the Owners receiving Operating Partnership Interests in the
Partnership shall sign and deliver the Second Amendment to the Agreement of
Limited Partnership of the Partnership as limited partners (which will
evidence the Operating Partnership Interests given by the Partnership to
such Owners as part of the Contribution Consideration);
(iv) the Funds shall pay the Cash Investment to the Trust, and the Trust
shall issue and deliver the Cash Investment Shares to the Funds;
(v) the Partnership and the Remaining Contributing Owners of the
Pennsylvania Contributing Entity shall sign and deliver the Restated
Partnership Agreement;
(vi) the Trust shall provide to the Owners copies of resolutions of the
Board of Trustees of the Trust, certified as true and correct by the
Secretary of the Trust, authorizing the execution and delivery of this
Agreement and each of the other agreements and interests contemplated
hereby and the performance of the Trust's and Partnership's obligations as
contemplated hereby and thereby; and
(vii) the parties will sign and deliver such other documents and
instruments as may be required pursuant to this Agreement. Closing is also
the event during which, among other things, each Contributing Entity shall
deliver to the Partnership the deeds (either special warranty deed with
limited covenants or bargain and sale deed with covenant against grantor's
acts or such comparable form of deed as may be the customary means of
conveyance in the jurisdiction in which the Premises (individually, a
"Deed", collectively, the "Deeds") of such Contributing Entity is located),
bills of sale and other documents to be delivered by each Contributing
Entity hereunder, each without representation or warranty other than as set
forth in this Agreement.
(c) At or after Closing, the Contributing Owners and the Contributing
Entities shall execute and deliver to the Partnership and Trust, or other
entity designated by the Partnership or Trust, and the Partnership and Trust
shall execute and deliver to the Contributing Owners, such other documents or
instruments as in the reasonable opinion of the respective counsel for the
Trust and the Partnership and for the Contributing Owners may be necessary to
effectuate the transactions described in this Agreement and to transfer the
Interests, Contributed Properties, Contributed Management Contracts and
Contributed Notes, and to issue and deliver the Operating Partnership Interests
and the Cash Investment Shares as contemplated by this Agreement.
(d) The Partnership and the Contributing Owners acknowledge that upon the
contribution of the Interests at Closing hereunder, certain of the Contributing
Entities that are partnerships will terminate for federal tax purposes under
Section708(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
and a final partnership tax return will be filed. The Contributing Owners of
such terminating Contributing Entities shall prepare such final partnership tax
returns and deliver them to the Partnership for review and approval (which
approval shall not unreasonably be withheld) prior to filing.
(e) At the Closing and on the Closing Date, and in addition to any other
obligation which an Owner may have in connection with the Closing, each
Contributing Entity as to its Premises and each Contributing Owner as to its
Contributed Property shall do or perform the following:
(i) To the extent the Premises is being conveyed by a Deed in fee simple
rather than by a contribution of Interests, execute and deliver to the
Partnership (or to the Partnership's designee), a Deed, in recordable form
dated as of the date of Closing, evidencing the succession to fee simple
title to the Premises by the Partnership or other entity designated by the
Partnership, subject only to the Permitted Encumbrances (as hereinafter
defined).
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(ii) Execute and deliver to the Partnership an assignment, in recordable
form and substantially in the form of Exhibit "F," whereby any ground lease
or leasehold estate created by such ground lease is assigned by a
Contributing Owner or Contributing Entity to the Partnership, or any other
entity designated by the Partnership (other than through a contribution of
Interests of the Contributing Owner which is the ground lessee), subject
only to the Permitted Encumbrances. Such Contributing Entity will also
obtain and deliver to the Partnership any consents necessary to effectuate
such assignment.
(iii) Execute and deliver to the Partnership a Bill of Sale and
Assignment, substantially in the form of Exhibit "G,"; (A) transferring
title to the Personal Property to the Partnership or its designee, free and
clear of all liens, claims and encumbrances, except the Permitted
Encumbrances, and including a warranty of title by the relevant Owner with
respect to the Premises and the Contributing Owners as to their respective
Contributed Properties, but excluding all other warranties, of any nature
or kind, except to the extent specifically set forth in this Agreement; (B)
assigning (1) all of such Contributing Entity's and such Contributing
Owner's rights and interest under the Service Agreements (as hereinafter
defined), together with the original or duplicate original of each such
Service Agreement to the extent in the possession of the Owner, (2)
intangible property of the Owner to the extent required to be transferred
to the Partnership by this Agreement, (3) warranties and guaranties
relating to or inuring, directly or indirectly, to the benefit, directly or
indirectly, of the Premises and (4) other assets to be transferred and
assigned hereunder; and (C) assigning the Contributing Entity's interest,
and as to the Contributed Properties, the Contributing Owners' interests in
all existing Leases then in effect, which Bill of Sale and Assignment shall
contain an assumption by the Partnership of the Contributing Entity's, and
as to the Contributed Properties, the Contributing Owners' obligations
arising after the Closing.
(iv) Deliver the originals, to the extent in the Owner's possession
after exercising diligent efforts to obtain the same, of all Leases and
amendments thereto directly to the Partnership, or copies thereof certified
as true, correct and complete by the Owners.
(v) Deliver the originals, to the extent in the Owner's possession after
exercising diligent efforts to obtain the same, of all ground leases and
amendments thereto under which a Contributing Entity is a lessee, or copies
thereof certified as true, correct and complete by the Owners.
(vi) Execute and deliver a notice (suitable for reproduction) to the
tenants advising of the transfer of the Premises to the Partnership and
advising the tenants to pay all future rentals to the Partnership or other
entity designated by the Partnership.
(vii) Pursuant to Section 6, or pursuant to other actions as may be
required, deliver to the Partnership all tenant deposits, including
security deposits and other deposits, together with interest thereon if
required by law, contract or otherwise with respect to the Premises.
(viii) Cause to be furnished and delivered to the Partnership the title
policy or title commitments in accordance with Section 5(a)(i).
(ix) Deliver or make available to the Partnership copies of building
plans and specifications, including, but not limited to, approved site
plans, for the Premises, to the extent in the Owner's possession after
exercising diligent efforts to obtain the same.
(x) Deliver possession of the Premises to the Partnership, subject only
to the rights of tenants under their respective Leases and the Permitted
Encumbrances.
(xi) Deliver or make available to the Partnership copies of all
certificates of occupancy, licenses, permits, authorizations and approvals,
to the extent that such certificates of occupancy, licenses, permits
authorizations and approvals are in the Owner's possession or under its
control after exercising diligent efforts to obtain the same, required by
law and issued by all governmental authorities having jurisdiction over the
Premises, together with copies of all certificates issued by any local
board of fire underwriters (or other body exercising similar functions) if,
and to the extent that, such fire underwriters' certificates are in the
Contributing Entity's (or, as to the Contributing Properties, the
Contributing Owners') possession or control, and the original or copies of
each bill together with proof of payment thereof (if any of the same have
been paid) for current real estate and personal property taxes.
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(xii) Deliver to the Partnership a Non-Foreign Transferor Certificate,
certifying that each Contributing Owner is neither a "foreign person"
within the meaning of Section 1445(f) of the Code nor a "foreign partner"
within the meaning of Section 1446 of the Code.
(xiii) Deliver to the Partnership the legal opinions of each of Battle
Fowler LLP, local counsel and general counsel to Acadia Management Company,
LLC, Sound View Management, LLC and RDC in form and substance reasonably
satisfactory to the Trust and the Partnership.
(xiv) if applicable, execute and deliver to the Partnership an
Assignment, substantially in the form attached hereto as Exhibit "H,"
assigning its rights and obligations under any Agreement of Sale as to
which the Partnership exercises an election under subsection 12(i)(vii).
(xv) Execute and deliver to the Partnership such other documents or
instruments as in the reasonable opinion of counsel for the Partnership may
be necessary to effectuate the transactions described in this Agreement and
to transfer title to the Premises as contemplated by this Agreement.
(f) At the Closing and on the Closing Date, and in addition to any other
obligation which an Owner may have in connection with the Closing, each
Contributing Owner, as to its Contributed Management Contracts and Contributed
Notes, if any, shall assign to the Partnership or its designee, pursuant to
agreements of assignment and assumption in substantially the forms of Exhibit
"I-1" and Exhibit "I-2," respectively, all of its rights and obligations under
the Contributed Management Contracts and Contributed Notes.
(g) At the Closing and on the Closing Date, the Funds shall wire transfer
to the Trust or to its designees their respective allocable share of the Cash
Investment.
(h) At the Closing and on the Closing Date, and in addition to any other
obligation which the Trust or the Partnership may have in connection with the
Closing, the Partnership and the Trust shall do or perform the following:
(i) Execute and deliver to the Owners a Second Amendment to the
Agreement of Limited Partnership of the Partnership, substantially in the
form of Exhibit "J", evidencing the issuance of the Operating Partnership
Interests as a portion of the Contribution Consideration and other matters.
(ii) Deliver to the Funds certificates representing their respective
allocable share of the Cash Investment Shares.
(iii) Deliver to those of the Owners to whom Operating Partnership
Interests are to be issued, to the Funds and to the Contributing Entities
as to which Interests therein are not being contributed but whose assets
are being assigned to the Trust or the Partnership at Closing, the opinion
of Cozen and O'Connor in form and substance reasonably satisfactory to RDC
on behalf of the Owners and the Funds.
(iv) Execute and deliver to the Maryland Department of Assessments and
Taxation an Amendment to the Trust's Amended and Restated Declaration of
Trust reflecting, among other things, a change in the name of the Trust as
approved by the shareholders at the Special Meeting (as hereinafter
defined) and such other amendments as shall be approved by the shareholders
at the Special Meeting and as required by this Agreement.
(v) Execute and deliver to Owners an assignment and assumption agreement
substantially in the form of Exhibit "R" evidencing the assignment and
assumption of the office leases set forth on Schedule 12(a)(v).
(i) Each Owner shall use its best efforts to cause an escrow, with New
York Land Title Services, Inc. (the "Escrow Agent") as escrowee, to be created
at Closing for purposes of releasing the liens of Existing Mortgages (other
than the Remaining Mortgages). Each Owner shall use its best efforts to cause
documents reflecting the payment of indebtedness and release of liens securing
Existing Mortgages other than the Remaining Mortgages (the "Loan Repayment
Documents") to be delivered to the Escrow Agent on or before the Closing Date.
(j) This transaction shall be closed by means of a so-called "New York
Style Closing", with the concurrent delivery of the documents of title,
transfer of Interests, Contributed Management Contracts, Contributed Properties
and Premises, delivery of the title policies or marked-up title commitments,
the delivery of the Contribution Consideration and delivery of the Cash
Investment and the Cash Investment Shares. The Contributing
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Owners, as to their respective Premises, and the Contributing Entities, jointly
and severally as to all of the Premises, shall provide, if required by New York
Land Title Services, Inc. (the "Title Company"), an undertaking (the "Gap
Undertaking") to the Title Company necessary to effectuate the New York Style
Closing, in form and content reasonably acceptable to those providing the Gap
Undertaking.
(k) The parties acknowledge that, as of the date hereof, the Owners do not
have all consents necessary to consummate the transactions contemplated by this
Agreement. Ross Dworman ("RD") and Kenneth Bernstein ("KB") shall diligently
exercise all commercially reasonable efforts to obtain all necessary consents,
waivers and approvals from third parties, including, but not limited to those
third party partners identified on Schedule 4(k), constituting either (i) those
parties who are not signatories hereto but whose consent is necessary to
consummate the transactions contemplated hereby and to confirm the due and
valid execution and delivery of this Agreement by the Contributing Entities to
which such third party partners are partners or (ii) those parties who are not
signatories hereto on the date hereof but who are Owners and who are
contemplated to be contributing their Interests to the Partnership or its
designee as aforesaid, such that either: (A) 100% of the Interests of each
Contributing Entity shall be contributed to the Partnership at Closing as
contemplated by the Agreement (and such that such third party partners shall
become signatories to this Agreement as Contributing Owners to the extent their
signature is required or shall become signatories to an Agreement and Power of
Attorney (the "Third Party Partner Agreement") to the extent their signature to
this Agreement is not required) or (B) fee simple title to the Contributed
Property can be conveyed by deed to the Partnership or its designee or the
Contributed Management Contract or Contributed Note can be assigned, to the
extent such conveyance or assignment requires approval or consent by such third
parties. In the event RD and KB are unable to obtain the requisite consents,
waivers or approvals from any such third party and, as a consequence thereof,
the Premises, the Contributed Management Contracts or the Contributed Notes
cannot be conveyed, or 100% of the Interests of a Contributing Entity cannot be
contributed to the Partnership as contemplated hereby, and provided that this
Agreement is not otherwise terminated by the Trust to the extent permitted by
Section 13(a), the Partnership shall accept the contribution of only those
Interests in respect of a Contributing Entity from the Contributing Owners,
although constituting less than 100% of the interests in such Contributing
Entity, and those Premises, Contributed Management Contracts and Contributed
Notes for which all necessary consents, waivers and approvals have been
obtained. In such event, the total consideration payable hereunder shall be
reduced by the Contribution Consideration attributable to such Interests,
Contributed Property, Contributed Management Contract or Contributed Note, as
the case may be, as set forth on Schedule 2(a).
5. Condition of Title and Related Matters.
(a) Title. (i) At Closing, title to the Premises shall be such as will be
insured, solely in the Partnership's name (or in the name of the Partnership's
designee as grantee of such Premises), as good and marketable (at the
Partnership's expense) by the Title Company at regular rates pursuant to the
standard stipulations and conditions of the 1970 Form B ALTA Policy of Owner's
Title Insurance as revised in 1984, if available or such other form which is
promulgated as a matter of law or state insurance regulations, and as the same
may be modified by such endorsements, affirmative coverage and other matters
reasonably required by the Partnership, free and clear of all liens and
encumbrances, except for the Permitted Encumbrances. The term "Permitted
Encumbrances" as to each Premises shall mean (i) the liens of real estate
taxes, personal property taxes, water charges, and sewer charges, provided the
same are not yet due and payable, but subject to adjustment as provided herein;
(ii) the rights of those parties occupying space at any of the improvements, as
tenants only, pursuant to Leases existing on the date hereof and Leases
approved hereunder; (iii)(A) those restrictions, covenants, agreements,
easements, matters and things affecting title to the Premises as of the date
hereof and more particularly described in the marked-up title commitments
delivered to the Partnership prior to the date hereof and listed on Schedule
5(a); provided, however, if the Trust discovers prior to the date hereof any
exception on such title commitments (or any other exception that is
subsequently arising) which the Trust has identified in writing to the
Contributing Entity or Contributing Owner, as the case may be, on or prior to
the date hereof or if such exception arises after the date hereof, within five
(5) business days of the Trust's discovery thereof, and such exception
materially affects the value or marketability of the Premises or materially
impairs the use of the Premises for its current use, then such exception shall
not be deemed a Permitted Encumbrance, provided further that the Contributing
Entity or Contributing Owner, as the case may be, may, at its election,
undertake to eliminate such unacceptable exceptions, (it being agreed, however,
that the Contributing Entity or Contributing Owner, as the case may be, shall
be obligated to eliminate those unacceptable exceptions constituting (A) final,
unappealable judgments
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against such Contributing Entity or Contributing Owner, as the case may be, (B)
mortgages or other liens which can be satisfied by payment of a liquidated
amount, other than the Remaining Mortgages, (C) exceptions which can be removed
by payments not to exceed $25,000 for each Contributed Property and not to
exceed $100,000 in the aggregate for all title defects, and (D) payments to the
mortgagees which are currently required pursuant to existing loan documents in
order to cause the mortgagees to consent to the Partnership assuming the
Remaining Mortgages), and except as provided below (or as provided in the
immediately proceeding parenthetical), the Contributing Entity or Contributing
Owner, as the case may be, shall have no obligation to incur any expense or
bring any action in connection with curing such title exceptions. The
Contributing Entity or Contributing Owner, as the case may be, in its
discretion, may adjourn the Closing for up to sixty (60) days in order to
eliminate such unacceptable exceptions. If after complying with the foregoing
requirements, the Contributing Entity or Contributing Owner, as the case may
be, is unable to or elects not to eliminate all unacceptable exceptions in
accordance with the terms of this Agreement on or before such adjourned date
for the Closing, then the Partnership shall elect to (x) if such unacceptable
exceptions results in an RDC Material Adverse Effect, terminate this Agreement
in accordance with Section 13(a)(viii), (y) terminate this Agreement only as to
such Contributing Property (provided, however, that if this Agreement is
terminated as to such Contributing Property, then for purposes of an RDC
Material Adverse Effect thereafter, the FFO attributable to the first
Contributed Property (or Premises) as to which the Partnership exercises its
right to terminate this Agreement shall not be considered for calculating
Target RDC NOI), and the contribution thereof by the Owner or the Interests of
the corresponding Contributing Owners in their respective capacities as such,
whereupon this Agreement shall become null and void as to such Contributing
Owner (with respect to the applicable Contributing Entity) or Contributed
Property, and neither the Partnership nor such Contributing Owner or
Contributing Entity in its respective capacities as such shall have any further
rights or obligations under this Agreement with respect to such Premises, or
such Contributing Owner's Interest in such Contributing Entity or Contributed
Property and the total consideration payable hereunder shall be reduced by the
Contribution Consideration attributable to such Premises set forth on Schedule
2(a), or (z) to accept title subject to such unacceptable exceptions and
receive no credit against or reduction of the consideration to be given to the
Contributor hereunder; (iv) any other easements, covenants and restrictions
which are entered into with the consent of the Trust after the date hereof,
such consent not to be unreasonably withheld, delayed or conditioned; (v) any
and all laws, statutes, ordinances, codes, rules, regulations, requirements, or
executive mandates affecting the Premises, including, without limitation, those
related to zoning and land use, as of the date hereof; (vi) the state of facts
shown on the surveys listed on Schedule 5(b) for each of the individual
properties comprising the Premises and any other state of facts which a recent
and accurate survey of the Premises would actually show, provided that same
does not materially impair the use of the Premises as it is currently being
used and does not render title uninsurable at standard rates; (vii) the Service
Agreements; (viii) any installment not yet due and payable of assessments
imposed after the date hereof and affecting the Premises or any portion
thereof; (ix) any utility company rights, easements and franchises to maintain
poles, lines, wires, cables, pipes, boxes and other fixtures and facilities in,
over, under or upon the Premises, provided the same do not impair, other than a
de minimis manner, the present use of the Premises; (x) any prohibition against
the interference with the natural and unobstructed flow of any applicable brook
crossing the Premises or other riparian rights, provided the same does not
materially impair the use of the Premises as it is currently being used and
does not render title uninsurable at standard rates; (xi) such matters as the
Title Company shall be willing, without special premium, to omit as exceptions
to coverage, including minor variations between record lines and tax lot lines;
and (xii) the lien of the Existing Mortgages on those Premises encumbered by
the Existing Mortgages as of the date hereof (but on the terms and conditions
of this Agreement); provided, however, that the title insurance policy to be
issued promptly following Closing and consistent with the title commitments
described above will not show as a lien or encumbrance any mortgage, including
an Existing Mortgage, other than a Remaining Mortgage. At Closing, title to the
Personal Property associated with each Premises shall only be subject to the
Permitted Encumbrances as to such Premises and, with respect to a Contributing
Entity's Personal Property, shall be transferred to the Partnership (or to the
Partnership's designee). The Contributing Entities (and with respect to the
Contributed Properties, the Contributing Owners) and the Partnership shall
deliver to the Title Company such commercially reasonable instruments as the
Escrow Agent requires to issue non-imputation and other endorsements and other
coverages, in such form as the Partnership reasonably requires. The premiums
and other costs of title insurance shall be borne by the Partnership and paid
at Closing.
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(ii) In all cases in which there is an Existing Mortgage which is not a
Remaining Mortgage, the Contributing Entity or Contributing Owners, as the case
may be, shall diligently exercise commercially reasonable efforts to cause the
Loan Repayment Documents to be placed in escrow with the Escrow Agent, the
terms of the escrow to be reasonably acceptable to the Partnership. In the
event the Contributing Entity shall only cause the holder of such Existing
Mortgage to deliver a pay-off statement or agreement, such Contributing Entity
shall cause the Title Company to commit to omit such Existing Mortgage as an
exception to the title policy at Closing upon timely payment of the amount
indicated on the pay-off statement.
(iii) If title to any Premises is not, at Closing, insurable as set forth
in this subsection 5(a), and, as a result thereof, this Agreement is not
otherwise terminated to the extent permitted by subsection 13(a)(viii) hereof,
the Partnership shall nonetheless be obligated to consummate the transactions
contemplated hereby (subject to the prior satisfaction of all conditions
precedent to such obligation or the waiver thereof), but may elect, as its sole
right and remedy, to terminate this Agreement only as to such Premises and the
contribution thereof by the Owner thereof or the Interests of the corresponding
Contributing Owners in their respective capacities as such, whereupon this
Agreement shall become null and void as to such Contributing Owner (with
respect to the applicable Contributing Entity or Contributed Property), and
neither the Partnership nor such Contributing Owner or Contributing Entity in
their respective capacities as such shall have any further rights or
obligations under this Agreement with respect to such Premises or such
Contributing Owner's Interests in such Contributing Entity or Contributed
Property. In such event, the total Contribution Consideration payable hereunder
shall be reduced by that portion of the Contribution Consideration allocated to
the Premises or Interests of the Contributing Owners in respect thereof as set
forth on Schedule 2(a).
(b) Survey. Schedule 5(b) sets forth a true, correct and complete list of
each available existing as-built survey (the "Survey") of the Premises. At
Closing, the Premises shall be subject to no condition or other state of facts
which is less favorable to the Partnership, as reasonably determined by the
Partnership, than the condition and state of facts set forth on any Survey
delivered to the Partnership with respect to such Premises (other than changes
to those Premises identified on Schedule 5(b) as being under construction).
(c) UCC Searches. The Owners shall deliver to the Partnership prior to
Closing searches, dated no earlier than thirty (30) days from the Closing Date,
of all Uniform Commercial Code financing statements filed against the
Contributing Entities, the Contributing Owners identified on Exhibit "A", the
Contributed Properties, the Premises or the Personal Property, in each case
filed with the Secretary of State and/or county clerk in the state and county
in which the Contributing Entities have been formed, the Contributing Owners
are domiciled and the Contributed Properties and Premises are located, together
with tax lien searches in all such jurisdictions. It is a condition to Closing
by the Partnership that such searches, or new searches conducted prior to
Closing, reveal that, other than the Permitted Encumbrances, there are no
bankruptcies, actions, claims or liens against any of such parties or affecting
or encumbering or which might encumber the Interests, the Premises, the
Personal Property or any other interest in the Premises which will continue
after Closing and which, individually or in the aggregate, could constitute an
RDC Material Adverse Effect (as defined in Section 13(a)(viii)).
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6. Possession; Agreements and Leases.
(a) At Closing, each Owner will transfer to the Partnership (or to the
Partnership's designee) possession of such Owner's Premises and the Personal
Property as to such Premises subject to the leases for the Premises all as
previously disclosed by the Owners to the Partnership (other than those leases
which expire or are terminated or modified as contemplated by the provisions of
this subsection set forth below) and any new leases entered into after the date
hereof (hereinafter collectively, the "Leases"), all of which Leases which are
in existence on the date hereof being listed on Schedule 9(m)-2, and will
assign to the Partnership (or to the Partnership's designee as the case may be)
the landlord's interest in each Lease and any guarantees with regard to each
Lease (all of which are identified on Schedule 9(m)-2. Set forth on Schedule
6(a) is a description of each arrangement by which brokers are entitled to be
paid leasing brokerage commissions, finders or referral fees or similar
commissions. The Owners shall be obligated to pay at or prior to Closing all
accrued and unpaid leasing commissions, finders or referral fees or similar
commission due on or prior to Closing with respect to Leases existing on the
date hereof (other than those identified on Schedule 12 (i) (v)) or, at such
Owner's option, either (i) deposit a sufficient amount of cash at Closing with
the Partnership to pay such commissions and fees when due and payable or (ii)
reduce at Closing the number of Operating Partnership Interests otherwise
issuable by the Partnership to such Owner constituting such Owner's allocable
share of the Contribution Consideration by an amount (based upon $7.50 per
Operating Partnership Interest) equal to the amount the Partnership will be
obligated to pay for such commissions and fees when due and payable. Subject to
the limitations set forth in Sections 23 and 24 hereof, the Warrantors also
agree to jointly and severally indemnify, defend and hold the Partnership
harmless from and against any payments of any such commissions and fees payable
after Closing with respect to or on account of the Leases set forth on Schedule
9(m)-2, except to the extent set forth in the immediately succeeding sentences.
The Partnership, or its designee, shall, by its acceptance of such assignment,
be deemed to have assumed and promised to observe and perform all covenants and
obligations of the landlord under the Leases thereafter arising, including, but
not limited to, the assumption of any obligations of a Contributing Entity
associated with tenant security deposits and interest thereon, all of which are
listed on Schedule 9(m)-2 (the "Security Deposits"), and the obligation to pay
leasing brokerage commissions, finders or referral fees or similar commission
with respect to or on account of the renewal of Leases set forth on Schedule
9(m)-2, on or after the Closing Date or on account of new leases executed on or
after the date hereof. Each Contributing Entity and each Contributing Owner as
to the Contributed Properties covenants that after the date hereof, such Owner
shall not have entered into new Leases or modified or terminated any Lease
(except by reason of a default by the tenant thereunder) except as hereafter
provided in Section 12(i).
(b) Except as set forth on Schedule 9(d), there are no existing service
agreements (hereinafter collectively, and together with any substitute contract
mentioned below, called the "Service Agreements") which are not terminable
without cause or penalty upon not more than thirty (30) days' notice. The
Owners have advised the Partnership of existing Service Agreements and, except
as set forth in Section 9 below, the termination of any of the Service
Agreements prior to Closing by reason of the expiration of its term or by
reason of a default thereunder shall not excuse the Partnership from its
obligation to complete Closing and to pay the full Contribution Consideration,
provided that if the service in question is necessary or appropriate to the
proper operation of any Premises or the performance of a Contributed Management
Contract, as the case may be, the Owner of such Premises or of the Contributed
Management Contract, as the case may be, will obtain a substitute contract on
terms reasonably acceptable to the Partnership prior to Closing. All rights and
interests under the Service Agreements will be assigned by the Owners to the
Partnership (or to the Partnership's designee) at Closing by an assignment as
described in Section 4(e)(iv), and the Partnership (or its designee) shall be
deemed, by its acceptance of such assignment, to have assumed and promised to
observe and perform all obligations of the Owners thereunder arising after
Closing.
(c) Each Owner agrees to diligently exercise commercially reasonable
efforts to cause each tenant whose name is designated on Exhibit "L" ("Owner
Major Tenants") to deliver to the Partnership at or prior to Closing a written
statement ("Tenant Estoppel Certificate") substantially in the form of Exhibit
"K" attached hereto. If an Owner fails to obtain a Tenant Estoppel Certificate
from an Owner Major Tenant of the Premises of such Owner, after using
commercially reasonable efforts to obtain the same, then such Owner shall
deliver a certificate representing to the Partnership the facts that are to be
covered by the Tenant Estoppel Certificates. The Owner's representations shall
be deemed for all purposes hereunder to have been made under Section 9, and
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shall terminate as to any Owner Major Tenant as to which a Tenant Estoppel
Certificate from such Owner Major Tenant shall have been subsequently delivered
to the Trust so long as such Tenant Estoppel Certificate confirms in all
respects the representations of the Owner concerning such Owner Major Tenant in
the Owner's certificate previously delivered to the Trust.
(d) All realty transfer taxes or sales taxes accruing or payable regarding
the contribution of the Premises of such Owner's Contributed Entity or
Contributed Property shall be payable by the Partnership. It is not expected
that any realty transfer taxes or sales taxes shall accrue or be payable
regarding the contribution of Interests. However, if any realty transfer tax or
sales tax accrues or is payable in connection with the contribution of
Interests, such realty transfer tax or sales tax shall be payable by the
Partnership. If any inquiry or proceeding shall be commenced with respect to
realty transfer taxes or sales taxes in connection with this transaction
relating to the Interests, the Partnership will not enter into any settlement
or make any payment of such realty transfer taxes or sales taxes without the
approval of the Contributing Owners against whom the tax has been assessed;
provided, however, that if the pendency of any such proceeding threatens the
Partnership's title to the Interests or title to any Premises or creates a risk
of material liability to the Partnership, the Partnership may require the
posting of a bond or other collateral during the pendency of such proceeding,
or take any other action reasonably necessary to protect its interests. If any
inquiry or proceeding shall be commenced with respect to realty transfer taxes
or sales taxes in connection with this transaction relating to the Contributed
Properties contributed by the Contributing Owners, and the portion of the taxes
subject to such inquiry or proceeding is that typically paid by the seller of
the real property in accordance with the custom of the locale in which the real
property in question is located, such Contributing Owners shall undertake and
shall be entitled to respond to such inquiry and defend such proceeding, and
the Partnership will not enter into any settlement or make any payment of such
realty transfer taxes or sales taxes without the approval of the Contributing
Owners which have contributed interests in the Contributed Properties;
provided, however, that if the pendency of any such proceeding threatens the
Partnership's title to the Premises contributed by the Contributing Owners or
creates a risk of material liability to the Partnership, the Partnership may
require the posting of a bond or other collateral by one or more of the
Contributing Owners during the pendency of such proceeding, or take any other
action necessary to protect its interests.
7. Adjustments to Contribution Consideration.
(a) (i) Taxes, Rents, etc. Real estate taxes (on the basis of the due
dates of the tax bills for the period for which such taxes are assessed) on the
Premises, personal property taxes on the Personal Property, minimum water and
sewer rentals, rents, including, without limitation, expense pass throughs,
percentage rents, income from and expenses for electricity and other sums paid
by tenants, licensees and concessionaires and collected by the Owners prior to
Closing under the Leases, payments due under the Service Agreements which are
to be assigned to the Partnership, prepaid license fees, utility deposits and
other charges for licenses and permits for the Premises which will remain in
effect for the Partnership's benefit after Closing, rental under any ground
lease, municipal rubbish removal charges, lease rejection awards made in any
bankruptcy proceedings of a tenant, and prepaid insurance premiums for
insurance which will remain in effect for the Partnership's benefit after
Closing, if any, shall be apportioned pro rata between the Owners and the
Partnership on a per diem basis as of midnight on the day before the Closing
Date, so that the Owners shall bear all expenses with respect to the Premises
and benefit from all items of income with respect to the Premises through the
day before the Closing Date. To the extent that the amounts of the items to be
adjusted are not reasonably ascertainable as of the Closing Date, they shall be
adjusted as promptly after the Closing Date as the amounts thereof are
ascertained.
(ii) All rents and other sums collected by the Partnership after the
Closing Date, up to the respective amounts currently due the Partnership from
time to time, will be retained by the Partnership and applied on account of the
rents and other sums due to the Partnership. At Closing, the Owners shall
identify all tenants which are in arrears in the payment of rent or other sums
due under the Leases on the Closing Date. If any tenant shall pay to the
Partnership after the Closing Date a sum in excess of all rents and other sums
which have accrued to the Partnership, and which excess sum is on account of
arrearages which became due prior to Closing, the Partnership will remit to the
Owner of such Premises such excess net of a proportionate share of the cost of
collection based on the relative amounts recovered by each of the Owners and
the Partnership, to be
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applied on account of the arrearages due to the Owner. The Owners shall not
bring any suit or other proceeding against any tenant currently in occupancy
under the Leases after the Closing Date on account of rental delinquencies. The
Partnership assumes no obligation to collect or enforce the payment of any such
moneys which may be owing to an Owner. If the Partnership employs an agent to
collect rent under the Leases after Closing, such agent shall have the right to
deduct and retain from the Owners' share of any rent or other payments received
by the Partnership after the Closing Date a pro rata share of the compensation
payable to such agent by the Partnership, based on the relative amounts
recovered by each party.
(iii) Any refunds received by the Partnership under any of the Service
Agreements on account of payments which are applicable to periods prior to the
Closing Date shall be apportioned and paid by the Partnership to the Owners.
(iv) All amounts collected from tenants pursuant to provisions in the
Leases (or in any reciprocal easement agreements) on account of real estate
taxes shall be transferred to the Partnership on the Closing Date, subject to
any prior rights of mortgagees with respect to the Remaining Mortgages. The
Owners shall be responsible for the collection of all such amounts up to the
Closing Date and the Partnership shall be responsible for the collection of all
such amounts from and after the Closing Date. At Closing, the difference
between the aggregate amount collectable by an Owner under the Leases and
reciprocal easement agreements on account of real estate taxes for the tax
period in which the prorated taxes are due, and the amount of real estate taxes
for the Premises for the tax period in which the Closing Date occurs, shall be
credited through a cash adjustment to the Owner or the Partnership, as
applicable.
(v) Common area maintenance expenses which by the terms of the Leases (or
any reciprocal easement agreements) are recoverable in whole or in part from
tenants of the Premises (or parties to reciprocal easement agreements) shall be
calculated on the basis of the actual expenses incurred by the parties as of
the Closing Date. The Owner shall be responsible for the collection of all such
amounts up to the Closing Date and the Partnership shall be responsible for the
collection of all such amounts from and after the Closing Date. The Owners and
the Partnership recognize that the common area maintenance expense
contributions made by tenants or parties to reciprocal easement agreements
during the month in which Closing occurs will be applied by the Owners for the
common area maintenance expenses incurred for the Premises during the month
which precedes the month in which Closing occurs (the "Pre-Closing Month").
Notwithstanding such application, items of common area maintenance expense and
income shall be prorated as of the Closing Date in conformity with generally
accepted accounting principles applied on an accrual basis of accounting
excluding straight lining of rent, except that the parties shall defer the cash
adjustment to be made to the Partnership which arises from an Owners'
application of the common area maintenance expense contributions made during
the month in which Closing occurs to the expenses incurred during the
Pre-Closing Month until the year-end common area maintenance reconciliation is
made under the Leases. If an Owner shall have failed to have paid common area
maintenance expenses incurred for any period prior to the Pre-Closing Month, or
if an Owner shall have collected payments for such expenses for periods beyond
Closing, then there shall be a credit to the Partnership in the form of a cash
adjustment for the amount of such expense or excess.
(vi) If the apportionment of any percentage rents, "escalation" payments
relating to operating expenses, merchant's association dues or fees for
promotion, income and expenses for electricity or other payments received by
the Partnership after the Closing Date from a tenant under any of the Leases on
account of periods prior to the Closing Date or on account of sums which are
attributable to expenses incurred by the landlord for periods of time prior to
the Closing Date, cannot be precisely determined at the Closing Date, the Owner
and the Partnership shall reasonably estimate the apportionment of such sums
pro rata between the Partnership and the Owner on a per diem basis as of the
Closing Date. A post-closing adjustment and apportionments between the Owner
and the Partnership shall be made, if necessary, between the Partnership and
the Owner for such apportioned items when the amounts thereof can be
ascertained.
(vii) The apportionment of "percentage rent", and the amounts due by the
Partnership to the Owners, respectively, under each of the Leases for
"percentage rent", shall be made or paid with respect to the lease year (as
defined in such Lease) in which the Closing Date falls and the post-Closing
adjustment shall be made at the time that the accounting for the tenant's
percentage rent obligation for the lease year is determined under the Lease.
The amount to be apportioned shall be the total of the amounts collected by
both the Partnership and the
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Owner as percentage rent for such percentage rent lease year. The Owner's
portion thereof shall be an amount which bears the same ratio to the total
percentage rent for the applicable percentage rent lease year as the number of
days up to but excluding the Closing Date in such percentage rent lease year
shall bear to the full number of days in such percentage rent lease year; and
the Partnership shall be entitled to retain the remaining
portion.
(viii) If bills for real estate taxes on the Premises have not been issued
as of the Closing Date, and if the amount of real estate taxes for the then
current tax fiscal year is not then known, the apportionment of real estate
taxes shall be made at Closing on the basis of the prior year's real estate
taxes and a post-Closing adjustment shall be made when the actual amounts are
ascertained.
(ix) If, at Closing, the Premises or any part thereof is affected by an
assessment which is payable in installments of which the first installment is
then a charge or lien, or has been paid, then all unpaid installments of such
assessments shall be prorated between the parties as of the date of Closing as
follows: the Owner shall be responsible for those installments thereof for
years prior to the year in which Closing occurs and the Partnership shall be
responsible for those installments thereof for years following the year in
which Closing occurs; the installment due for the year in which Closing occurs
shall be prorated between the parties on a per diem basis.
(x) Any credit due to the Partnership pursuant to this Paragraph 7(a)
shall be paid, at the option of the Owners, either (i) in cash to the
Partnership at Closing and not applied as a credit against the Contribution
Price or (ii) by reduction at Closing in the number of Operating Partnership
Interests otherwise constituting Contribution Consideration by an amount (based
upon $7.50 per Operating Partnership Interest) equal to the amount of the
adjustment. Any credit due to the Owners pursuant to this Paragraph 7(a) shall
be paid by the Partnership to the Owners at Closing as an addition to the
Contribution Price, at the Owner's election either (i) in cash or (ii) by the
issuance of additional Operating Partnership Interests valued on the basis of
the Market Price per Common Share averaged for twenty (20) consecutive trading
days ending upon the date when the additional Operating Partnership Interests
are issued into which each Operating Partnership Interest may be exchanged;
provided that in no event will the issuance of additional Operating Partnership
Interests to the Owners cause the Trust to own less than 51% of the total
number of Operating Partnership Interests to be issued and outstanding
immediately following Closing . In addition to the foregoing, all amounts held
in escrow at Closing by a mortgagee of a Remaining Mortgage, shall be assigned
at Closing by the Owner which is the mortgagor of such Remaining Mortgage to
the Partnership upon payment to such Owner by the Partnership of an amount in
cash equal to the amount of the escrow at the Closing less amounts held in
escrow to fund obligations to which the Owners have contractually agreed herein
to remain liable following the Closing. The amounts escrowed by mortgagees of
Remaining Mortgages on the date hereof are as set forth on Schedule 7(a)(x).
Any amounts due to either party under this Agreement shall be promptly paid to
the party entitled thereto within ten (10) business days of the final
reconciliation of the amount due.
(b) Security Deposits. The total sum of all tenant security deposits,
together with all interest earned thereon as of the Closing Date which the
Owner is obligated to pay to tenants, shall be transferred to the Partnership
or its designee at Closing and not as a credit against the Contribution Price.
(c) Utility Meter Readings. At Closing, the Owners shall pay all charges
for the water, electric, gas and other utility meters servicing the Premises
(other than meters measuring exclusively utility consumption which is to be
paid in full by tenants under Leases) apportioned on the basis of the prior
month's readings. When the charges for the month during which Closing occurs
are ascertained, the parties shall make any necessary post-Closing adjustments.
The apportionment of items of expense and income for tenant contributions on
account of utilities shall be handled in the same manner as items of expense
and income for tenant contributions for common area maintenance are handled as
described in subparagraph 7(a)(v) above.
(d) Tenant Improvement Costs. The Owners shall pay at or prior to Closing
all tenant improvement costs, tenant allowances and other bona fide third party
costs, fees and expenses incurred or to be incurred in respect of Leases
entered into on or before the date hereof (including, but not limited to, fees
due to developers, construction managers and others, but excluding costs, fees
and expenses in connection with (i) the Elmwood Expansion and (ii) pertaining
to those properties identified on Schedule 12(i)(v), which costs, fees and
expenses pertaining to the Premises described in clauses (i) and (ii) are to be
paid by the Partnership) or at such Owner's
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option, either (i) deposit a sufficient amount of cash at Closing with the
Partnership to pay such costs, fees and expenses or (ii) reduce at Closing the
number of Operating Partnership Interests otherwise issuable by the Partnership
to such Owner constituting such Owner's allocable share of the Contribution
Consideration by an amount (based upon $7.50 per Operating Partnership
Interest) equal to the amount the Partnership will be obligated to pay for such
costs, fees and expenses when due and payable. Subject to the limitations set
forth in Sections 23 and 24, the Warrantors agree to jointly and severally
indemnify, defend and hold the Partnership harmless from and against any
liability associated with such costs, fees and expenses. If Closing occurs, the
Partnership shall pay all tenant improvement costs, tenant allowances, and
other bona fide third-party costs and expenses actually incurred in connection
with procuring the tenant for those Leases entered into after the date hereof.
(e) Interest on Existing Mortgage. Interest under the notes secured by the
Remaining Mortgages (the "Existing Note") is payable monthly or quarterly in
arrears. Therefore, the interest portion of the monthly or quarterly payment to
be made to the holder of an Existing Note on the Closing Date, if Closing
occurs on the first day of a calendar month or quarter, or to be made on the
first day of the first calendar month or first quarter after the Closing Date,
if Closing does not occur on the first day of a month or quarter, shall be
apportioned on a per diem basis for the monthly or quarterly period preceding
such payment, and the Partnership shall be paid at Closing for the portion of
such interest payment attributable to the period occurring prior to the Closing
Date. The Partnership shall pay, at or prior to Closing, any assumption fees
payable to a holder of a Remaining Mortgage in consideration of its consent to
the transfer of the Premises to the Partnership subject to the Remaining
Mortgage, but only to the extent the assumption fee is set forth on Schedule
3(a).
8. Conditions to Closing.
(a) The obligation of the Trust and the Partnership to consummate Closing
hereunder is conditioned upon the following:
(i) All representations and warranties of all Owners and of the Fund
shall be true in all material respects as of the date hereof and as of the
Closing Date.
(ii) Each Owner and the Fund shall have performed all of its respective
covenants and obligations to be performed at or prior to Closing,
including, but not limited to, the payment of the Cash Investment by the
Funds.
(iii) The Title Company shall be unconditionally committed to issue,
promptly following Closing, policies of title insurance or binding
marked-up commitments to issue title insurance policies described in
subsection 5(a)(i).
(iv) Except as permitted by subsection 6(c), Tenant Estoppel
Certificates acceptable to the Partnership shall have been obtained from no
less than 75% of the Owner Major Tenants and Owner's certificates as
described in subsection 6(c) shall have been delivered for Leases of all
other Owner Major Tenants, which certificates shall be subject to the
limitations set forth in Sections 23 and 24.
(v) Estoppel Certificates reasonably acceptable to the Partnership shall
have been obtained from lessors under any ground lease to be assigned.
(vi) For each portion of any Contributing Owner's Premises located in
the State of New Jersey and that constitutes an "Industrial Establishment"
within the meaning of the Industrial Site Recovery Act, New Jersey Statutes
annotated Sections 13:1K-6, et seq., as amended ("ISRA") if any, a
Contributing Owner of such Premises shall have delivered to the Partnership
(or to its designee) on or before Closing, a negative declaration approved
by the New Jersey Department of Environmental Protection and Energy
("NJDEPE") pursuant to ISRA. For each portion of any Contributing Owner's
Premises located in the State of New Jersey (other then vacant land) and
which does not constitute an "Industrial Establishment" within the meaning
of ISRA, the Contributing Owner shall deliver to the Partnership (or to its
designee) on or before Closing, a determination issued by the NJDEPE that
ISRA is not applicable to the transactions contemplated by this Agreement.
(vii) RD and KB shall have executed and delivered to the Partnership the
Non-Compete Agreement to which reference is made in subsection 12(c).
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(viii) (a) Each Contributing Owner who will receive Operating
Partnership Interests as all or part of the Contribution Consideration
shall have executed and delivered to the Trust the Investment Letter to
which reference is made in subsection 12(b).
(ix) Each Fund, as to those Cash Investment Shares for which a proxy
shall not have been granted by such Fund to the partners thereof, shall
have executed and delivered to the Trust the Voting Trust Agreement and, as
to all Cash Investment Shares, the Investment Letter to which reference is
made in subsection 12(b).
(x) Each Contributing Owner set forth on Exhibit "M" and each Fund shall
have executed and delivered the Registration Rights and Lock-Up Agreement
to which reference is made in subsection 2(e).
(xi) The Owners and the Funds shall have delivered the legal opinions of
Battle Fowler LLP, local counsel and general counsel to Acadia Management
Company LLC, Sound View Management LLC and RDC, to which reference is made
in subsection 4(a)(xiii).
(xii) Within thirty (30) days from the date hereof, the Funds shall have
received binding irrevocable written commitments from equity owners
(evidenced by execution of partnership agreements of the Funds) to make not
less than an aggregate of $100,000,000 in capital contributions for
purposes of funding the Cash Investment, subject only to the conditions
precedent set forth on Schedule 10(b)(v).
(xiii) The shareholders of the Trust shall have approved this Agreement
and the transactions contemplated hereby as required by Maryland law, the
rules of the New York Stock Exchange (or such other principal exchange on
which the Common Shares shall then be listed), and the Trust's Amended and
Restated Declaration of Trust.
(xiv) Bear Stearns & Co. Inc. shall have delivered its opinion to the
Trust's Board of Trustees that the Agreement and the transactions
contemplated by the Agreement are fair to the Trust's shareholders from a
financial point of view.
(xv) No preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority shall be in effect at Closing which would prevent the
consummation of the transactions contemplated by this Agreement.
(xvi) To the extent the assumption by the Partnership of the obligations
under any Remaining Mortgage is conditioned upon the payment of any
assumption fees other than principal or interest outstanding under such
Remaining Mortgage, the Partnership shall have paid such fees to the extent
set forth on Schedule 3(a), and the Contributing Owner which is the owner
of the Premises subject to such Remaining Mortgage shall have paid all
other assumption fees from sources other than the Contribution
Consideration or the Cash Investment.
(xvii) The Remaining Contributing Owners of the Pennsylvania
Contributing Entity shall have executed and delivered the Restated
Partnership Agreement.
(xviii) Each Owner to whom the Operating Partnership Interests shall be
issued hereunder shall have executed and delivered the Second Amendment to
the Agreement of Limited Partnership of the Partnership.
(xix) Each Owner which is not a signatory hereto shall have executed and
delivered to the Trust Third Party Partner Agreement to the extent such
Owner has consented to the transactions contemplated by this Agreement.
(xx) The Owners and the Funds shall have obtained all necessary
third-party consents, waivers and/or approvals.
(xxi) Each of the other documents and instruments required by this
Agreement to be delivered to the Partnership or the Trust at Closing shall
have been delivered.
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The Partnership, for itself and on behalf of the Trust, may waive any
condition to Closing in whole or in part (other than the condition set
forth in subsection 8(a)(xx)). As to any failure of a condition affecting
one or more of the Contributed Properties, Contributed Management
Contracts, Contributed Notes, Premises or Interests, and provided that this
Agreement is not otherwise terminated by the Trust to the extent permitted
by Section 13(a) hereof, the Partnership may decline to acquire only those
Interests, Premises, Contributed Properties, Contributed Management
Contracts and Contributed Notes as to which a condition to Closing has
failed, and to consummate Closing as to the remaining Interests, Premises,
Contributed Properties, Contributed Management Contracts and Contributed
Notes; provided, however, that, except as contemplated by subsection 4(k),
if the Partnership declines to acquire certain Interests, Premises,
Contributed Properties, Contributed Management Contracts or Contributed
Notes by reason of the failure of a condition to Closing, the Partnership
shall be obligated to decline to acquire all Interests and Premises
affected by the failure of such condition (and in such event, the total
consideration payable hereunder shall be reduced by the Contribution
Consideration attributable to such Interests, Contributed Property,
Contributed Management Contracts or Contributed Notes, as the case may be,
as set forth on Schedule 2(a)).
(b) The obligation of the Contributing Owners and of the Fund to
consummate Closing hereunder is conditioned upon the following:
(i) All representations and warranties of the Partnership and the Trust
shall be true in all material respects as of the date hereof and as of the
Closing Date;
(ii) The Partnership and the Trust each shall have performed all of its
respective covenants and obligations to be performed at or prior to
Closing;
(iii) All necessary Partnership and Trust actions shall have been taken
to confirm and ratify the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including, but not
limited to, receipt of requisite approval from the Trust's shareholders;
(iv) No preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority shall be in effect at Closing which would prevent the
consummation of the transactions contemplated hereby; and
(v) The Partnership shall have executed and delivered to the
Contributing Owners, to the Funds and to the partners of the Funds listed
on Schedule "M" the Registration Rights and Lock-Up Agreement to which
reference is made in subsection 2(e).
(vi) The Partnership shall have delivered the legal opinion of Cozen and
O'Connor to which reference is made in Section 4(h)(ii).
(vii) The Partnership shall have executed and delivered the Restated
Partnership Agreement.
(viii) The Trust, as general partner of the Partnership, shall have
executed and delivered the Second Amendment to the Agreement of Limited
Partnership of the Partnership.
(ix) The Board of Trustees shall have taken all necessary action to
authorize as an exemption from the Excess Share Limitations provided in the
Amended and Restated Declaration of Trust the issuance of the Cash
Investment Shares and Operating Partnership Interests to be issued
hereunder.
(x) The Trust shall not have revoked its prior election pursuant to
Section 856(c)(1) of the Code to be taxed as a REIT and shall be in
material compliance with all applicable federal income tax laws, rules and
regulations, including the Internal Revenue Code of 1986, as amended (the
"Code"), necessary to permit it to be taxed as a REIT; and any immaterial
non-compliance shall not prevent the Trust from being classified as a REIT.
The Trust shall not have taken any action or have failed to take any action
which would reasonably be expected to, alone or in conjunction with any
other factors, result in the loss of its status as a REIT for federal
income tax purposes.
(xi) Each of the other documents and instruments required by this
Agreement to be delivered to the Owners or the Funds at Closing shall have
been delivered.
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(xii) The Partnership shall have delivered to RDC Tenant Estoppel
Certificates executed by the tenants whose names are designated on Exhibit
"N" ("Trust Major Tenants"), or if Tenant Estoppel Certificates are
delivered as to less than seventy-five percent (75%) of such Trust Major
Tenants, than a certificate of the Partnership representing to the Owners
the facts that are to be covered by the Tenant Estoppel Certificates, which
certificate shall be subject to the limitations set forth in Sections 23
and 24.
RDC, for itself and on behalf of all of the Owners, may waive any
condition to Closing in whole or in part.
9. Representations and Warranties of Owners. The following representations
and warranties, severally as to each Contributing Entity and such Contributing
Entity's Premises, Contributed Management Contracts and Contributed Notes, are
made jointly and severally by (i) such Contributing Entity, (ii) each
Contributing Owner which is a general partner of such Contributing Entity which
is a partnership, each managing member and the managers, if any, of such
Contributing Entity which is a limited liability company, and the principal or
controlling shareholder and board of directors of such Contributing Entity
which is a corporation, (iii) RD and (iv) KB and, severally as to each Owner
which is a signatory to this Agreement and which is not a Contributing Entity,
jointly and severally by (i) such Owner, (ii) RDC and (iii) KB (except that
where any such representation and warranty is made to the knowledge of RD or KB
or such Contributing Entity's or Contributing Owner's general partner, member,
manager, shareholder or board of directors or such Owner, as the case may be,
such representation is made severally by each as to his, her or its own
knowledge). The foregoing parties making the representations and warranties are
hereinafter referred to individually as a "Warrantor" and collectively as
"Warrantors." Each Warrantor represents and warrants to the Trust and the
Partnership as follows:
(a) Organization; Authority. Each Contributing Entity which is a
partnership is a partnership duly formed, validly subsisting and in good
standing under the laws of its jurisdiction of formation and has the requisite
partnership power and authority to enter into and perform its obligations under
this Agreement. Each Contributing Entity which is a limited liability company
is a limited liability company duly formed and subsisting under the laws of its
jurisdiction of formation and has the requisite power and authority to enter
into and perform its obligations under this Agreement. Each Contributing Entity
which is a corporation is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement. Each Contributing Entity has all power and
authority to own and lease its Premises and carry on its business as it is now
being conducted.
(b) Due Authorization; Binding Agreement. Except as to those Owners
identified on Schedule 9(b), for which a consent from one or more of such
Owner's partners, shareholders or members must be obtained under the
organizational document of such Owner and as to which RD and KB are obligated
to use commercially reasonable efforts to obtain pursuant to Section 4(k), the
execution, delivery and performance of this Agreement by each Owner and of each
of the other agreements and instruments to be executed and delivered in
connection herewith have been duly and validly authorized by all necessary
action of the Owner. This Agreement has been duly executed and delivered by
each such Owner, or an authorized representative of each such Owner and
constitutes a legal, valid and binding obligation of such Owner, enforceable
against such Owner in accordance with the terms hereof.
(c) Consents and Approvals. No consent, waiver, approval or authorization
of, or filing, registration or qualification with, or notice to, any
governmental unit or any other person is required to be made, obtained or given
by any such Owner prior to or as a condition to the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, except as have been made, obtained or given or except as
set forth on Schedule 9(c), all of which shall have been made, obtained or
given on or prior to Closing, or as set forth on Schedule 9(b) for which a
consent from one or more of such Owner's partners, shareholders or members must
be obtained under the organizational document of such Owner and as to which RD
and KB are obligated to use commercially reasonable efforts to obtain pursuant
to Section 4(k).
(d) No Violation. None of the execution, delivery or performance of this
Agreement by each such Owner does or will, with or without the giving of
notice, lapse of time or both, (i) violate, conflict with or constitute a
default under any term or condition of (A) except as to those Owners identified
on Schedule 9(b), for which a
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consent from one or more of such Owner's partners, shareholders or members must
be obtained under the organizational document of such Owner and as to which RD
and KB are obligated to use commercially reasonable efforts to obtain pursuant
to Section 4(k), the organizational documents of such Owner or any material
provision of any Significant Agreement (as defined below) or other agreement to
which such Owner is a party or by which it or its assets or properties are
bound, or (B) any terms or provisions of any judgment, decree, order, statute,
injunction, rule or regulation of a governmental unit applicable to such Owner
or (ii) result in the creation of any lien or other encumbrance upon the assets
or properties of such Owner.
For purposes hereof, "Significant Agreement" means and includes any of the
following to which a Contributing Entity is a party or by which a Contributing
Entity or any of its assets or properties may be bound, in each such case as
amended and currently in effect, inclusive of any waivers relating thereto:
(i) all agreements, instruments and documents evidencing, securing, or
pertaining to the contractual obligations of a Contributing Entity that
involve annual payments or receipts in excess of $25,000 (including, but
not limited to, Contributed Management Contracts and Contributed Notes);
(ii) all leases where the Contributing Entity is the lessee (including
capital leases) which are not terminable without penalty on not more than
ninety (90) days' notice and that involve annual payments and receipts in
excess of $25,000;
(iii) all ground leases where the Contributing Entity is a ground
lessee;
(iv) all reciprocal easement agreements affecting the Premises; and
(v) all agreements representing obligations for borrowed money in excess
of $25,000.
There are no Significant Agreements of any Contributing Entity other than the
Existing Mortgages, the Leases, agreements which are Permitted Encumbrances,
the Service Agreements, the Contributed Management Contracts, the Contributed
Notes and any other agreement set forth in Schedule 9(d).
(e) Absence of Undisclosed Liabilities and Contractual Obligations. Except
for immaterial liabilities arising in the ordinary course of business, which
shall not exceed $250,000 in the aggregate as to all of the Contributing
Entities, and except for those matters disclosed in this Agreement and the
Exhibits and Schedules hereto, no Contributing Entities have any liabilities of
any nature, whether matured or unmatured, fixed or contingent, which would
have, individually or in the aggregate, a material adverse effect upon the
Owner or such Owner's Premises.
(f) Litigation. There are no claims, actions, suits, proceedings or
investigations pending or, to such Warrantor's knowledge, threatened in writing
before any court, governmental unit or any arbitrator against any Owner or its
assets or properties or with respect to the transactions contemplated by this
Agreement except the matters, if any, set forth on Schedule 9(f), none of
which, individually or in the aggregate, would have a material adverse effect
or would prohibit or restrain the consummation of the transactions contemplated
hereby.
(g) Attachment, Execution, Etc. No attachments, execution proceedings,
assignments for the benefit or creditors, insolvency, bankruptcy,
reorganization or other proceedings are pending or, to the knowledge of the
Warrantors, threatened in writing against any Owner or any of its assets, nor
are any of such proceedings contemplated by any Owner.
(h) All Equity Owners. Except as set forth on Schedule 4(k), the
Contributing Owners are all of the partners, members or shareholders of the
Contributing Entities or hold all of the equity interests in the Contributed
Properties.
(i) Operation of Premises; Compliance with Laws; Violations, Etc.
(i) As to each Contributing Entity, such Contributing Entity's sole
business is the operation and ownership of its Premises. Except for the
violations set forth on Schedule 9(i)(i), none of which, individually or in
the aggregate, are material, each Owner has complied in all material
respects with all laws applicable to the conduct of the business of such
Owner and the Owner's use and operation of its Premises and has obtained
all licenses, certificates, approvals and permits required for the conduct
thereof, (1) except where the failure to do so would not have, individually
or in the aggregate, an RDC Material Adverse Effect on
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the Owners or the Premises taken as a whole, (2) except as described in
engineering reports delivered to the Partnership in connection with this
Agreement, and (3) except to the extent that non-compliance is a result of
a change after the date hereof in the interpretation or enforcement of
existing laws and regulations and such Owner, before such change,
reasonably believed that it was in compliance. Such licenses, certificates,
approvals and permits are in full force and effect, such Owner has not
taken any action that would (or failed to take any action the omission of
which would) result in the revocation of such licenses, certificates,
approvals or permits and such Owner has not received any notice of
violation from any federal, state or municipal entity or notice of an
intention by any such government entity to modify or revoke any
certificate, approval, license or permit issued by it to such Owner that in
each case has not been cured or otherwise resolved to the satisfaction of
such government entity, except where such failure or such action would not
have a material adverse effect on such Owners or the Premises taken as a
whole.
(ii) Except as set forth on Schedule 9(i)(ii), no such Owner has
received and, to the knowledge of Warrantors, none of Owner's employees has
received any written notice with respect to such Owner's Premises or
associated parking rights from any public authority concerning any eminent
domain or condemnation proceeding, or any uncorrected violation of any
ordinance, public regulation, statute, permit, site plan approval, plan of
development, zoning or subdivision regulation, parking requirement or urban
redevelopment plan applicable to the Premises; and, except for the
Permitted Encumbrances, neither such Owner nor, to the knowledge of
Warrantors, any previous owner of the Premises, has sold, transferred,
conveyed, or entered into any agreement regarding transfer of "air rights,"
"excess floor area ratio," parking rights or other development rights
relating to the Premises.
(iii) Except as set forth on Schedule 9(i)(iii), each such Owner has
complied with all work orders, requirements and demands of each and every
insurance company insuring all or any part of the Premises.
(iv) To the knowledge of Warrantors, the continued maintenance,
operation and use of any buildings, structures or other improvements on the
Premises for their respective present purposes will not violate in a
material manner any federal, state, county or municipal laws, ordinances,
orders, codes, regulations or requirements affecting all or any portion of
the Premises, including, without limitation, housing, building, safety,
health, environmental, fire or zoning ordinances, codes and regulations of
the respective jurisdictions within which the Premises are located
(collectively, "Applicable Laws"), or the certificate(s) of occupancy
issued for the Premises.
(v) Except as set forth on Schedule 9(i)(v), there are no material
unperformed obligations relative to the Premises outstanding pursuant to
any written agreements with any governmental or quasi-governmental body or
authority.
(j) Environmental Matters. Each Owner has obtained and delivered to the
Partnership the environmental report listed next to the name of such Owner on
Schedule 9(j) (the "Environmental Report"). Except as disclosed in the
Environmental Report, (i) such Owner has not done anything to cause or permit
and, to the knowledge of Warrantors, no other person or entity has done
anything to cause or permit Hazardous Materials (as defined below) to be now,
or in the past, located on, in or under the Premises or released into the
environment, or discharged, placed or disposed of at, on or under the Premises
(except in small amounts used in the ordinary course for the operation or
maintenance of the Premises by such Owner in accordance with all applicable
laws or used by tenants of the Premises in the ordinary course of operation of
their business, which use by tenants is, and has been, to the knowledge of
Warrantors, in accordance with all Applicable Laws); (ii) except as set forth
on Schedule 9(j), to the knowledge of Warrantors, there are no underground
storage tanks located at the Premises now or in the past; (iii) such Owner has
not done anything to cause or permit and, to the knowledge of Warrantors, no
other person or entity has done anything to cause or permit the Premises to be
used to store, treat or dispose of Hazardous Materials (except in small amounts
used in the ordinary course for the operation or maintenance of the Premises by
such Owner in accordance with all Applicable Laws or used by tenants of the
Premises in the ordinary course of operation of their business, which use by
tenants is, and has been, to the knowledge of Warrantors, in accordance with
all Applicable Laws); and (iv) such Owner has not done anything to cause or
permit and, to the knowledge of Warrantors, no other person or entity has done
anything to cause or permit the Premises and its prior uses to fail to
materially comply with, at all times, any applicable Environmental Laws (as
defined below) or any other governmental law, regulation or requirement
relating to environmental
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matters or Hazardous Materials. Except as described in the Environmental
Reports, there currently exist no facts or circumstances that could reasonably
be expected to give rise to a material non-compliance with Environmental Laws,
material environmental liability or material Environmental Claim (as defined
below).
The term "Hazardous Materials" shall mean any substance, material, waste,
gas or particulate matter which is regulated by any local governmental
authority, the State or Commonwealth in which the subject Premises is located,
or the United States Government, including, but not limited to, any material or
substance which is or contains: (i) a "hazardous waste", "hazardous material",
"hazardous substance", "extremely hazardous waste", or "restricted hazardous
waste" or words of similar import, as defined under any provision of any
applicable Environmental Law; (ii) petroleum or petroleum products; (iii)
asbestos; (iv) polychlorinated biphenyls; (v) radioactive material; (vi) radon
gas; (vii) a "hazardous substance" designated pursuant to Section 311 of the
Clean Water Act, 33 U.S.C. Section1251 et seq. (33 U.S.C. Section1317); (viii)
a "hazardous waste" defined pursuant to Section 1004 of the Resource
Conservation and Recovery Act, 42 U.S.C. Section6901 et seq. (42 U.S.C.
Section6903); or (ix) a "hazardous substance" defined pursuant to Section 101
of the Comprehensive Environmental Response, Compensation, and Liability Act,
42 U.S.C. Section9601 et seq. (42 U.S.C. Section9601). The term "Environmental
Laws" shall mean all statutes specifically described in the foregoing sentence
and all federal, state and local environmental health and safety statutes,
ordinances, codes, rules, regulations, orders and decrees regulating, relating
to or imposing liability or standards concerning or in connection with
Hazardous Materials. The term "Environmental Claim" shall mean any
administrative, regulatory or judicial action, suit, demand, demand letter,
claim, lien, notice of non-compliance or violation, investigation or proceeding
relating in any way to any applicable Environmental Law or any permit issued
under any such applicable Environmental Law including, without limitation, (a)
by governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting
from Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment as a result of the presence of Hazardous
Materials.
(k) Engineering Matters.
(i) Each Owner has obtained and delivered to the Partnership the
engineering report(s) listed next to the name of such Owner on Schedule
9(k) (the "Engineering Report"). Except as disclosed in the Engineering
Report, there are neither material patent nor, to the knowledge of
Warrantors, latent defects in, mechanical failures of or damages to the
Improvements (as hereinafter defined), including the roof, structure,
elevators, walls, heating, ventilation, air conditioning, plumbing,
electrical, drainage, fire alarm, communications, sprinkler, security and
exhaust systems, or other improvements on or forming a part of the
Premises, all of which, to the knowledge of Warrantors, have been
constructed in a good and workerlike manner consistent with generally
accepted practices for first-class construction. Except as described in the
Engineering Report, to the knowledge of Warrantors, all of the personal
property used in connection with the operation of the Premises and all
improvements thereon are in good condition and working order, ordinary wear
and tear excepted.
(ii) All telephone and other public utilities and all storm water
drainage required by law or necessary for the operation of the Premises (A)
except as to the Premises described on Schedule 5(b), are installed,
connected and operating, with all installation and connection charges paid
in full, including, without limitation, connection and the permanent right
to discharge sanitary waste into the collector system of the appropriate
sewer authority, (B) are being utilized in compliance with all applicable
governmental and environmental protection authorities' laws, rules,
regulations and requirements, and (C) are adequate and, to the knowledge of
Warrantors, will continue to be adequate to service the Premises as
improved and presently used. To the knowledge of Warrantors, no moratorium,
proceeding or other fact or condition exists which (x) threatens to impair
continued furnishing of such services to the Premises at regular rates and
fees, or (y) could result in the discontinuance of such services presently
available or necessary. Except as set forth on Schedule 9(k)(iii), water
and sanitary sewer are public.
(l) Real Estate Taxes and Assessments.
(i) The copies of the real property tax bills for the Premises for the
current tax year which have been furnished by each such Owner to the
Partnership are true, correct and complete copies of all of such tax
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bills. All real estate taxes due and payable as of the Closing have been
paid in full and, except as set forth on Schedule 9(l)(i), there are no
pending or, to the knowledge of Warrantors, threatened proceedings for an
increase in the assessed valuation of the Premises for the current or prior
tax years.
(ii) Except as set forth on Schedule 9(l)(ii), the Premises alone
constitute one or more entire tax parcel(s) for real estate tax purposes,
and are not taxed as part of a larger tax parcel.
(iii) Except as set forth on Schedule 9(l)(iii), no Owner has received
any written notice that, and the Warrantors have no knowledge that: (A)
public improvements in the nature of off-site improvement, or otherwise,
have been ordered to be made or have heretofore been assessed; and (B)
special or general assessments (other than regular, annual real estate
taxes) are pending against or affecting the Premises or are being
considered in formal municipal or quasi-municipal proceedings.
(m) Leases
(i) Except for the Leases (and any seasonal sales leases which will be
terminated prior to Closing), no Owner has entered into any contracts for
the sale or leasing of the Premises or any portion thereof. There are no
outstanding rights of first refusal or options to purchase all or any
portion of the Premises except as set forth in Schedule 9(m)-1, none of
which becomes exercisable solely by reason of the transactions contemplated
by this Agreement, and except for those rights and options pertaining to
portions of any Premises constituting less than 5,000 square feet of gross
leaseable area. The exercise of termination rights by one or more tenants
under Leases pursuant to rights to terminate for reasons other than
casualty or condemnation or a default by the Owner of the Premises will not
have an RDC Material Adverse Effect on all Premises in the aggregate or the
cash flow therefrom, taken in the aggregate.
(ii) Subject to the right of governmental and law enforcement
authorities to enter the Premises for lawful business, as of the Closing,
no persons or entities, other than such Owner and the tenants under the
Leases and their permitted subtenants and licensees, shall have any right
to the possession, use or occupancy of the Premises or any portion thereof
for any reason whatsoever.
(iii) Schedule 9(m)-2 (the "Rent Roll") is true and correct in all
material respects as of the date noted thereon and discloses all Leases.
The Leases include all subleases, tenancies, licenses and other rights of
occupancy or use for all or any portion of the Premises pursuant to which
such Owner is landlord or licensor, all as amended, renewed and extended to
the date of the Rent Roll, whether oral or written. There has been no
material adverse change in the information set forth in the Rent Roll
between the effective date of the Rent Roll and date of Closing. The Rent
Roll specifies at least the following information as to each Lease:
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(A) a description (by rentable square feet) of the leased space;
(B) the name of the current tenant of the space (the "Tenant");
(C) the expiration dates of the current term and any renewal terms
thereof;
(D) the basic and additional rents (which include all escalators,
pass-throughs of taxes, expenses or other items, and percentage rents,
and all other sums payable by the Tenant to the lessor, including,
without limitation, utility charges) during the original and any renewal
terms thereof (collectively, "Rents"), and the extent of any
delinquencies thereof and the period of delinquency;
(E) rights of tenants for early termination other than by reason of
casualty or condemnation; and
(F) rights of tenants to purchase the Premises, if any;
(iv) Each Security Deposit has been and is held (or applied) by Owner or
its agent in compliance with the respective Lease and applicable law. There
are no unfulfilled obligations as to Security Deposits to tenants under
Leases the terms of which have expired or been terminated and there is no
suit, action or other claim made, or, to the knowledge of Warrantors,
pending or threatened with respect to any such Security Deposit, except as
set forth on Schedule 9(m)-2.
(v) The following is true with respect to each Lease:
(A) the Lease is valid and subsisting and in full force and effect in
accordance with its terms. No Lease has been modified, in writing or
otherwise, except as set forth on the Tenant Estoppel Certificate for
such Lease and Schedule 9(m)-2;
(B) except as set forth on Schedule 9(m)-4, all obligations of the
lessor thereunder arising on or prior to the date hereof have been
performed and paid for in full by such Owner on or prior to Closing;
(C) except as set forth in Schedule 9(m)-3 and except for
delinquencies in payment of rent of less than thirty (30) days, to the
knowledge of Warrantors, there has been no material default on the part
of the tenant thereunder or event which, with the giving of notice or
the lapse of time, or both, would constitute a default on the part of
the tenant thereunder and, except as set forth in Schedule 9(m)-3 the
tenant has not asserted in writing and, to the knowledge of Warrantors,
has no defense to or offset or claim against its rent or the performance
of its other obligations under the Lease;
(D) except as set forth on Schedule 9(m)-3, no tenant has prepaid any
rent for more than one (1) month if the lease term has commenced and two
(2) months if the lease term has not yet commenced.
(E) except as set forth on Schedule 9(m)-3, the Warrantors have no
knowledge of any tenant or any guarantor of a Lease to an Owner Major
Tenant being or becoming unable or unwilling to perform any of its
obligations under the Lease for any reason;
(F) to the knowledge of Warrantors, except as set forth on Schedule
9(m)-3, no other person has released or discharged any guarantor,
voluntarily or involuntarily or by operation of law, from any obligation
with respect to the Lease that such guarantor has guaranteed except in
accordance with the terms of such guarantee;
(G) at the time of Closing, no rents will have been assigned, pledged
or encumbered except to the Existing Mortgagee of each Premises;
(H) except as set forth on Schedule 9(m)-3, all of the Leases are
assignable by such Owner without the consent of any other party (except
the Existing Mortgagee of the Premises) (all of which consents shall be
obtained at or prior to Closing) and after such assignment all rights
and benefits thereunder shall automatically inure to the benefit of the
Partnership or its designee and the Partnership or such designee shall
assume all such obligations thereunder from and after the Closing Date;
and
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(I) except as set forth on Schedule 9(m)-3, no Owner owns, directly
or indirectly, (1) five percent (5%) or more of the total combined
earnings of all classes of stock entitled to vote, or five percent (5%)
or more of the total number of shares of all classes of stock, of any
tenant of the Premises or (2) an interest of five percent (5%) or more
in the assets or net profits of any tenant of the Premises.
(vi) Except as set forth in Schedule 9(m)-3, there has been no material
default or event which, with the giving of notice or the lapse of time, or
both, would constitute a default on the part of the Owner as lessee under
any ground lease.
(n) Title
(i) Such Owner has indefeasible, good and marketable legal and equitable
title to its respective interest in the Premises such as will be insured as
such by the Escrow Agent on the form of Owner's Policy specified in
subsection 5(a), subject only to the Permitted Encumbrances and the Leases.
(ii) There is no pending or, to the knowledge of Warrantors, threatened
eminent domain proceeding affecting the Premises or any part thereof or
affecting the sidewalks or any streets or public ways in front of or
adjoining the Premises.
(iii) There has been no material violation by such Owner or the Premises
of any provision, condition or agreement contained in any restrictive
covenant, cross-easement agreement or similar instrument or agreement
affecting the Premises or any portion thereof, which would have a material
adverse effect on such Owner or such Premises.
(iv) (A) The Premises enjoys the benefit of all easements and
cross-easements necessary for operating the Premises as currently operated,
and (B) all such easements and cross-easements are in full force and
effect, will survive the transactions contemplated by this Agreement and
will inure to the benefit of the Partnership.
(v) The Personal Property located on the Premises, other than that owned
by tenants, utility companies or contractors, is owned or leased by such
Owner or by an affiliate which is also an Owner hereunder or which is
separately contributing such Personal Property to the Partnership or its
designee, includes all the types and approximate quantities of personal
property heretofore owned or leased by such Owner and used in the
ownership, operation and maintenance of the improvements located on the
Premises (the "Improvements") and, if owned or leased by such Owner, is, or
as of Closing will be owned or leased by such Owner free and clear of any
liens or security interests of any kind, except for Permitted Encumbrances.
(vi) Except as set forth on Schedule 9(n)-1, the Premises are located
along and have unimpeded access to one or more adjoining public streets. To
the knowledge of Warrantors, any curb-cut and street-opening permits or
licenses required for vehicular access to and from the Premises to any
adjoining street or to any parking spaces utilized in connection with the
Premises have been obtained and paid for by the Owner, are in full force
and effect and shall inure to the benefit of the Partnership. To the
knowledge of Warrantors, no fact or condition exists which would result in
the termination or material impairment of access to the Premises from
adjoining public or private streets or ways.
(vii) To the knowledge of Warrantors, each Premises is an independent
unit which does not now rely on any facilities (other than facilities
covered by Permitted Encumbrances including, without limitation, any
reciprocal easement agreements or facilities of municipalities or public
utility and water companies and other than parking areas which the Premises
makes legal use of under any reciprocal easement agreements) located on any
property not included in such Premises to fulfill any municipal or
governmental requirement or for the furnishing to the Premises of any
essential building systems or utilities or services.
(viii) (A) Except as set forth on Schedule 9(n)-2, and on Schedule
9(m)-1 to the extent set forth in the Leases and except for Permitted
Encumbrances, and other than rights of first refusal or options to purchase
pertaining to portions of any Premises constituting less than 5,000 square
feet of gross leaseable area, there are no purchase contracts, options, or
any other agreements of any kind, written or oral, recorded or unrecorded,
whereby any person or entity other than the Partnership will have acquired
or will have any basis to assert any right, title or interest in, or right
to possession, use, enjoyment or proceeds of all or a portion
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of the Premises. (B) Except as set forth on Schedule 9(n)-1 or 9(n)-2 where
such right survives Closing, at Closing there will not be any rights,
subscriptions, warrants, options, conversion rights or agreements of any
kind outstanding to purchase or to otherwise acquire any interest or profit
participation of any kind in the Premises (or any portion thereof).
(o) Financial Matters
(i) There is no income derived from the Premises other than rental
income and interest income. All the rental income derived from the Premises
constitutes "rent from real property" as defined in Section856(d)(1) of the
Code. All the interest income derived from the operation of the Premises
constitutes "interest" as defined in Section856(c)(2)(B) of the Code.
(ii) The Owners covenant that Owners' profit from electricity
distributed by the Owners to tenants under the Leases is in compliance with
all Applicable Laws and that the provision by landlords of electricity to
their tenants in this manner is usual and customary in the geographical
area in which the Premises are located. The Owners also represent that the
profits received by the landlord from the sale of the electricity to its
tenants does not exceed in any year one percent (1%) of the total amount
received or accrued during the year.
(p) Insurance
(i) Schedule 9(p) sets forth an accurate and complete list of the
insurance policies relating to the Premises or any part thereof and naming
the Owner for such Premises as an insured; all such policies are in full
force and effect and all premiums thereunder have been paid to the extent
due; and no notice of cancellation has been received with respect thereto
and, to the knowledge of Warrantors, none is threatened in writing.
(ii) No Owner has received any notice from any insurance company of any
defect or inaccuracies in any of the Premises, or any parts thereof, which
would adversely affect the insurability of any of the Premises, or would
increase the cost of insurance beyond that which would ordinarily and
customarily be charged for similar properties in the vicinity of such
Premises. All of the Premises are fully insured in accordance with prudent
and customary practice.
(q) Service Agreements; Contributed Management Contracts; Contributed
Notes
(i) A current, complete and correct copy of each Service Agreement has
been delivered to the Partnership and there are no material construction,
management, leasing, service, equipment, supply, maintenance or concession
agreements (oral or written, formal or informal) with respect to or
affecting all or any portion of the Premises (collectively, "Contracts")
except as delivered to the Partnership. Each Service Agreement is valid and
binding and as of Closing all amounts due and payable on or prior to the
Closing Date will have been paid. Neither any such Owner nor any of its
agents is in default under any Service Agreement or has received any
written notice from any party to any Service Agreement claiming the
existence of any default or breach thereunder which would have a material
adverse effect on such Owner or the Premises and no event or omission has
occurred which, with the giving of notice or the lapse of time or both
would constitute such a default. Except as disclosed on Schedule 9(q), all
Contracts are terminable without cause on thirty (30) days' notice or less
without payment of any penalty or termination payment.
(ii) A current, complete and correct copy of each Contributed Management
Contract, to the extent available on the date hereof, has been delivered to
the Partnership and otherwise shall be delivered to the Partnership on or
prior to Closing. Each Contributed Management Contract is (or will be, as
applicable) valid and binding and, as of Closing, all amounts due and
payable on or prior to Closing will have been paid and all obligations to
be performed on or prior to Closing will have been performed. Neither any
Owner nor any of its agents is in default under any Contributed Management
Contract nor has any of the foregoing received written notice from any
party thereto claiming the existence of any default or breach thereunder
which would give rise to a termination of such Contributed Management
Contract, and no event or omission has occurred which, with the giving of
notice of the lapse of time or both, would constitute such a default.
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(iii) A current, complete and correct copy of each Contributed Note has
been delivered to the Partnership. Each Contributed Note is valid and
binding and, as of Closing, all amounts due and payable on or prior to
Closing in respect of the Contributed Note shall have been paid and all
obligations to be performed on or prior to Closing by the obligor
thereunder will have been performed. The obligor is not in default under
any Contributed Note, and no event or omission has occurred which, with the
giving of notice of the lapse of time or both, would constitute such a
default.
(r) Employee and Employment Matters
(i) There are no collective bargaining agreements or other agreements
requiring arbitration of employment disputes, or employment agreements or
severance agreements which have not been fully performed, to which any
Owner is a party or by which it is bound. Set forth on Schedule 9(r) is
also a list of all employees of each such Owner, broken down by location,
together with their title, original date of hire, length of service and
vacation benefits accrued to date (if payable in cash upon termination of
employment), and a list of all other individuals employed by such Owner as
independent contractors and who are expected to perform services for the
Owner, if any. Each such Owner has previously delivered to the Partnership
true and correct copies of all of the documents referred to on Schedule
9(r) and all of the personnel policies, employee and/or supervisor
handbooks, procedures and forms of employment applications relating to the
employees of each such Owner. Except as set forth on Schedule 9(r), there
is no union representing or purporting to represent any of the employees of
any such Owner and each such Owner is not subject to or currently
negotiating any collective bargaining agreements with any union
representing or purporting to represent the employees of any of the
foregoing.
(ii) Except as set forth on Schedule 9(r):
(A) There are no strikes, slow downs or other work stoppages,
grievance proceedings, arbitrations, labor disputes or representation
questions pending or, to the knowledge of Warrantors, threatened against
or involving any such Owner;
(B) To the knowledge of Warrantors, each such Owner has complied in
all material respects with all laws relating to labor, employment and
employment practices, including, without limitation, any provisions
thereof relating to wages, hours and other terms of employment,
collective bargaining, nondiscrimination, and the payment of social
security, unemployment compensation and similar taxes, and such Owner is
not (1) liable for any arrearages of wages or any taxes or penalties for
failure to comply with any of the foregoing or (2) delinquent in the
payment of any severance, salary, bonus, commission or other direct or
indirect compensation for services performed by any employee to the date
hereof, or any amount required to be reimbursed to any employee or
former employee; and
(C) There are no charges, suits, actions, administrative proceedings,
investigations and/or claims pending or, to the knowledge of Warrantors,
threatened against such Owner, whether domestic or foreign, before any
court, governmental agency, department, board or instrumentality, or
before any arbitrator (collectively "Actions"), concerning or in any way
relating to the employees or employment practices of such Owner with
respect thereto, including, without limitation, Actions involving unfair
labor practices, wrongful discharge and/or any other restrictions on the
right of the Owner to terminate its employees, employment
discrimination, occupational safety and health, and workers'
compensation.
Except as shown on Schedule 9(r), there are no express or implied
agreements, policies, practices, or procedures, whether written or oral,
pursuant to which any employee of any Owner is not terminable at will.
Except as may be a liability not assumed by the Partnership or any
affiliate thereof (and as to which the Partnership shall be entitled to
indemnification hereunder), no Owner is a party to any oral or written (A)
agreement with any executive officer or other key employee of such Owner (1)
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving such Owner of the
nature of the transactions contemplated by this Agreement, (2) providing any
term of employment or compensation guarantee extending for a period longer than
one year, or (3) providing severance benefits or other benefits after the
termination of employment of such executive officer or key employee regardless
of the reason for such termination of employment; or (B) agreement or plan,
including, without limitation, any stock option plan,
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stock appreciation right plan, restricted stock plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by this
Agreement.
No Owner has taken any action which required or, taken together with the
transactions contemplated hereby, would require the giving of any notice under
the Worker Adjustment Retraining and Notification Act or any comparable state
or local law or regulation.
(s) ERISA; Benefit Plans.
(i) Neither any Owner nor any ERISA Affiliate (as hereinafter defined)
maintains, sponsors, contributes to or has any liability under any
agreement, plan, practice or program, whether written or oral, providing
for bonus payments, child or dependent care benefits, death benefits,
accidental death and dismemberment benefits, deferred compensation
benefits, disability or other wage continuation benefits, educational
assistance or tuition benefits, health benefits, paid holidays benefits,
incentive compensation payments, leave of absence rights, medical expense
payments, reimbursement benefits, profit sharing, pension plan (as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) benefits or other benefits, retiree medical or retiree
life insurance benefits, stock option, stock appreciation rights or stock
purchase benefits, severance or termination pay or benefits (including
post-employment consulting arrangements or benefits), or vacation benefits,
except as set forth on Schedule 9(s). The items set forth on Schedule 9(s)
are individually referred to as an "Employee Benefit Plan" and collectively
referred to as "Employee Benefit Plans". Schedule 9(s) includes, but is not
limited to, each plan maintained by each such Owner or an ERISA Affiliate
(as hereinafter defined), which is an "an employee benefit plan" as such
term is defined in Section 3(3) of ERISA, other than a "multi-employer
plan" within the meaning of Section 3(37) of ERISA. Each such Owner has
delivered to the Partnership a true and complete copy of each Employee
Benefit Plan, including all texts, amendments and other agreements (whether
formal or informal) adopted in connection therewith. No employee or former
beneficiary thereof participates in or has any rights to benefits with
respect to employment with such Owner under any agreement, plan, practice,
or program not listed on Schedule 9(s), other than a multi-employer plan.
No person who is not a current or former employee (or a beneficiary
thereof) of such Owner participates in or is entitled to any benefits under
any Employee Benefit Plan listed on Schedule 9(s). For purposes of this
Agreement, "ERISA Affiliate" means each person, company and trade or
business which together with the Owner, are treated as a single employer
under Section 414(b), (c), (m), (n) and (o) of the Code.
(ii) Each Employee Benefit Plan has complied and currently complies in
form, and in all material respects in operation and administration, with
all applicable provisions of applicable law, including the Code and ERISA
and any contractual obligation. Each such Owner has delivered to the
Partnership with respect to each Employee Benefit Plan subject to ERISA
true and correct copies of (A) the annual return/report (Form 5500 Series)
with attached schedules and a financial statement for the three most recent
fiscal years, (B) the summary plan descriptions and all written
announcements or disclosures to participants, (C) the most recent Internal
Revenue Service ("IRS") determination letter, (D) each written description
intended to describe any Employee Benefit Plan and (E) all correspondence
from the IRS, Department of Labor and the Pension Guaranty Benefit
Corporation ("PGBC").
(iii) Each Employee Benefit Plan intended to be tax qualified under
Section 401(a) of the Code has been determined by the IRS to be so
qualified and each trust created thereunder has been determined to be
exempt from tax and, to the knowledge of Warrantors, nothing has occurred
which would cause the loss of such qualification or tax-exempt status. With
respect to each Employee Benefit Plan that is subject to Section 412 of the
Code or Title IV of ERISA (collectively, "Pension Plan") there has been no
failure to make any contribution or pay any amount due as required by
Section 412 of the Code, Section 302 of ERISA or the terms of any such
Pension Plan, and no request or receipt of any funding waiver has been
requested or received from the IRS. The present value of the benefit
liabilities (as defined in ERISA) of each Pension Plan that is subject to
Title IV of ERISA, as of any determination date, is less than the fair
market value of the assets of such Pension Plan, all determined using the
actuarial assumptions that would be used by PBGC in the event of a
termination of the Pension Plan on such determination date. Within the past
five
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(5) years, neither any Owner nor any ERISA Affiliate has transferred any
assets or liabilities of a Pension Plan subject to Section 412 of the Code
which had, at the date of such transfer, accrued benefits in excess of the
fair market value of its assets as of any determination date, determined
using the actuarial assumptions that would be used by PBGC in the event of
a termination of the Pension Plan on such determination date or has engaged
in a transaction which may reasonably be subject to Section 4212(c) or 4069
of ERISA. There has been no reportable event (as defined in Section 4043 of
ERISA) within the last five (5) years. Such Owner does not sponsor,
maintain or have obligations, direct, contingent or otherwise, with respect
to any Employee Benefit Plan that is subject to the laws of any country
other than the laws of the United States. With respect to the Employee
Benefit Plans subject to Title I Part 4 of ERISA or Section 4975 of the
Code, neither such Owner nor any other person has (i) engaged in a
"prohibited transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA which would subject the Partnership, the Trust or such
Owner to liability for a material tax or penalty imposed by Section 4975 of
the Code or Section 502 of ERISA, or (ii) committed a breach of its
fiduciary duties (as defined in Section 404 of ERISA) which could subject
the Partnership, the Trust or such Owner to any material liability. Except
as required by law, neither such Owner nor any ERISA Affiliate has made any
written or other binding commitment to amend any Employee Benefit Plan.
(iv) No Employee Benefit Plan provides for post-employment medical,
health or life insurance benefits for present or future retirees or present
or future terminated employees, except for continuation coverage provided
pursuant to the requirements of Section 4980B of the Code or Sections
601-608 of ERISA or a similar state law, or continued coverage under an
insurance policy for a period not to exceed sixty days (60) following
termination of employment. Each Owner and its respective ERISA Affiliates
have complied in all material respects with the notice and contribution
requirements of Section 4980(B) of the Code and Sections 601-608 of ERISA.
Any contribution or payment required to be made by such Owner to or on
behalf of any Employee Benefit Plan has been made on or before its due
date. Adequate accruals for all contributions or payments required to be
made by such Owner to or on behalf of any Employee Benefit Plan and
multi-employer pension plan to which the Owner and/or any of its ERISA
Affiliates makes contributions to or has any liabilities with respect
thereto ("MEPPA Plan") for all periods prior to December 31, 1997 have been
made on the books and records of such Owner and the same will be reflected
on any financial statements of such Owner delivered to the Trust on or
after the date hereof.
(v) With respect to the Employee Benefit Plans, no actions, suits or
claims: (i) with respect to the assets or liabilities thereof (other than
routine claims for benefits); (ii) against any such Owner or an ERISA
Affiliate; or (iii) against any fiduciary with respect to any Employee
Benefit Plan are pending or threatened in writing, and Warrantors have no
knowledge of any facts which could be reasonably be expected to give rise
to or result in any such actions, suits or claims. Neither any such Owner
nor any ERISA Affiliate: (i) has incurred a complete or partial withdrawal,
as those terms are defined in Section 4203 or 4205, respectively, of ERISA
with respect to which there remains any outstanding liability; (ii) has
engaged or intends to engage in a transaction or course of conduct which
could result in liability under Title IV of ERISA to a "multi-employer
plan" as defined in Section 4001(a)(3) of ERISA; (iii) has any outstanding
liability under Title IV of ERISA, contingent or otherwise; or (iv) will
incur any liability with respect to any Employee Benefit Plan or MEPPA Plan
solely as a result of undertaking the transactions contemplated by this
Agreement.
(t) Financial Statements; Cash Flow.
(i) The unaudited operating statements of each of the Contributing
Entities previously delivered to the Partnership fairly presented, in all
material respects, the results of operations (excluding non-cash
adjustments), net operating income and cash flows of each of the
Contributing Entities to which they relate for the periods set forth
therein.
(ii) Except as otherwise disclosed elsewhere herein or in any Exhibit or
Schedule hereto, since the date of the last unaudited operating statements
of each of the Contributing Entities delivered to the Partnership, there
has been no change in the aggregate cash flow of all of the Premises and no
variation in the aggregate income from all of the Leases which could, in
either case, constitute an RDC Material Adverse Effect and, since the date
of said last unaudited operating statements, each of the Premises has been
operated in the ordinary course of business consistent with past practice.
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10. Representations and Warranties of Contributing Owners; Representations
and Warranties of the Funds.
(a) Representations and Warranties of Contributing Owners. Each
Contributing Owner executing this Agreement severally, and not jointly and
severally, and each of KB and RD, jointly and severally with each such Owner,
represents and warrants to the Trust and the Partnership, as follows:
(i) Organization; Authority. Each Contributing Owner which is other than
a natural person is either (A) in the case of Contributing Owners which are
corporations, duly incorporated and in good standing or subsisting (to the
extent applicable) under the laws of its jurisdiction of incorporation, or
(B) in the case of Contributing Owners which are partnerships, limited
liability companies or trusts, a partnership, limited liability company or
trust, as the case may be, duly formed and in good standing or subsisting
(to the extent applicable) under the laws of its jurisdiction of formation.
Each Contributing Owner which is other than a natural person is duly
qualified and in good standing in each jurisdiction in which such
qualification is necessary, except where the failure to be so qualified
would not have a material adverse effect on the Contributing Owner, the
Interests or the Premises. Each Contributing Owner has the requisite
authority to enter into and perform this Agreement.
(ii) Due Authorization; Binding Agreement. Except as to those Owners
identified on Schedule 9(b), for which a consent from one or more of such
Owner's partners, shareholders or members must be obtained under the
organizational document of such Owner and as to which RD and KB are
obligated to use commercially reasonable efforts to obtain pursuant to
Section 4(k), the execution, delivery and performance of this Agreement by
each Contributing Owner and of each of the other agreements and instruments
to be executed and delivered in connection herewith have been duly and
validly authorized by all necessary action of such Contributing Owner. This
Agreement has been duly executed and delivered by such Contributing Owner,
or an authorized representative of such Contributing Owner, and constitutes
a legal, valid and binding obligation of such Contributing Owner
enforceable against the Contributing Owner in accordance with the terms
hereof.
(iii) Consents and Approvals. Except as to those Owners identified on
Schedule 9(b), for which a consent from one or more of such Owner's
partners, shareholders or members must be obtained under the organizational
document of such Owner and as to which RD and KB are obligated to use
commercially reasonable efforts to obtain pursuant to Section 4(k), no
consent, waiver, approval or authorization of, or filing, registration or
qualification with, or notice to, any governmental unit or any other person
is required to be made, obtained or given by such Contributing Owner prior
to or as a condition to the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby,
except such as have been obtained. Without limiting the foregoing, all
consents required under the organizational documents of each Contributing
Owner for the due and valid execution and delivery of the Agreement by the
Contributing Owner and for the performance of the transactions contemplated
hereby have been obtained.
(iv) No Violation. None of the execution, delivery or performance of
this Agreement by such Contributing Owner will, on the date hereof and at
Closing, and with or without the giving of notice, lapse of time or both,
(A) violate, conflict with or constitute a default under any term or
condition of, (1) except as to those Owners identified on Schedule 9(b),
for which a consent from one or more of such Owner's partners, shareholders
or members must be obtained under the organizational document of such Owner
and as to which RD and KB are obligated to use commercially reasonable
efforts to obtain pursuant to Section 4(k), as to Contributing Owners which
are not natural persons, the organizational documents of such Contributing
Owner, or (2) any material provision of any terms or provision of any
judgment, decree, order, statute, injunction, rule or regulation of a
governmental unit applicable to such Contributing Owner or any Significant
Agreement to which such Contributing Owner is a party or by which it or its
assets or properties are bound or (B) result in the creation of any lien or
other encumbrance upon the Interests of such Contributing Owner.
(v) Ownership of the Contributed Interests. Prior to and at Closing, the
Contributing Owner will be the sole owner of the Interests contributed by
such Contributing Owner to the Partnership and, at Closing, will deliver
title to such Interests, free and clear of all liens, encumbrances and
security interests. To the knowledge of the Contributing Owner, the
Contributing Owner's Interests have been issued in compliance with the
partnership agreements (as then in effect) of the Contributing Entity.
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(vi) Foreign Person. The Contributing Entity is neither a "foreign
person" within the meaning of Section 1445(f) of the Code nor a "foreign
partner" within the meaning of Section 1446 of the Code.
(vii) No Attachments, Etc. No attachments, execution proceedings,
assignments for the benefit or creditors, insolvency, bankruptcy,
reorganization or other proceedings are pending or, to the knowledge of the
Contributing Owner, threatened against the Contributing Owner or any of its
assets nor are any of such proceedings contemplated by the Contributing
Owner which would affect the ability of the Contributing Owner to perform
under this Agreement.
(b) Representations and Warranties of the Funds. Each Fund, severally and
not jointly (other than as provided in subsection 9(b)(v)(B), in which case,
jointly and severally), and KB and RD, jointly and severally with each Fund,
hereby represents and warrants to the Trust and the Partnership as follows:
(i) The Fund is duly formed, validly subsisting and in good standing
under the laws of its jurisdiction of formation, and is duly qualified and
in good standing in each jurisdiction in which such qualification is
necessary, except where the failure to be so qualified would not have a
material adverse effect on the Fund. The Fund has the requisite power and
authority to enter into this Agreement and to perform the transactions
contemplated hereby.
(ii) Due Authorization; Binding Agreement. The execution, delivery and
performance of this Agreement by the Fund and of each of the other
agreements and instruments to be executed and delivered in connection
herewith have been duly and validly authorized by all necessary partnership
action and proceedings. This Agreement has been duly executed and delivered
by the Fund, or its authorized representative, and constitutes a legal,
valid and binding obligation of the Fund, enforceable against it in
accordance with its terms.
(iii) Consents and Approvals. No consent, waiver, approval or
authorization of, or filing, registration or qualification with, or notice
to, any governmental unit or any other person is required to be made,
obtained or given by the Fund prior to, or as a condition to the execution,
delivery and performance of this Agreement, except such as has been
obtained. Without limiting the foregoing, the Fund has received all
necessary consents and approvals from its equity holders with respect to
the execution and delivery of this Agreement and the transactions
contemplated hereby.
(iv) No Violation. None of the execution, delivery or performance of
this Agreement by the Fund will, on the date hereof and at Closing, and
with or without the giving of notice, lapse of time or both violate,
conflict with or constitute a default under any term or condition of the
partnership agreement, certificate of incorporation, bylaws or other
constituent or organizational documents of the Fund or any material term or
provision of any agreement or instrument to which the Fund is a party or by
which its properties or assets are bound, or any material term or provision
of any judgment, decree, order, statute, injunction, rule or regulation of
a governmental unit applicable to the Fund or any Significant Agreement to
which the Fund is a party or by which it or its assets or properties are
bound.
(v) Irrevocable Commitments for Cash Investment; Deposit of Cash
Investment.
(A) The persons whose names and addresses are set forth on Schedule
10(b)(v) constitute all of the equity owners of the Fund as of the date
hereof, and the commitment set forth opposite such equity owner's name
accurately sets forth the binding, irrevocable commitment by such equity
owner to make a capital contribution to the Fund on or prior to the date
hereof, subject only to the conditions precedent set forth in the
partnership agreement of the Fund, and which conditions precedent, as
excerpted from such partnership agreements, are listed on Schedule
10(b)(v). Each Fund covenants and agrees that it shall not establish any
additional conditions precedent to the obligation of any equity owner to
make a capital contribution, or modify in any adverse respect any
condition precedent set forth on Schedule 10(b)(v). Each such equity
owner has duly executed all necessary agreements and instruments
establishing such equity owner's commitment to make the capital
contribution set forth opposite such equity owner's name on Schedule
10(b)(v), and each such agreement is enforceable against each equity
owner in accordance with its terms. The general partner of the Fund has
received no notice from any equity owner contesting or disputing such
equity owner's obligations to make the capital contribution
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set forth opposite such equity owner's name, and the Fund is not aware
of any facts or sets of circumstances which would lead the Fund to
reasonably conclude that any equity owner would breach or default in
such equity owner's obligations or become unable to meet its obligations
to make the capital contribution such equity owner is obligated to make
on or prior to the Closing Date.
(B) The Funds jointly and severally represent and warrant and hereby
covenant and agree that on the date hereof and at all time between the
date hereof and the Closing Date, the Funds shall have an aggregate net
worth, giving effect to all liabilities and other obligations, whether
known or unknown, liquidated or unliquidated, contingent or otherwise,
of not less than $10,000,000. Each Fund shall promptly notify the Trust
in writing of any dispute or challenge by any equity owner as to its
obligations under the organizational documents of such Fund or under the
agreements pursuant to which the equity owner has agreed to make the
capital contribution set forth opposite such equity owner's name, or a
default by any such equity owner in the performance or observance by
such equity owner of its obligations thereunder. RD and KB each
covenants and agrees to use commercially reasonable efforts to cause
each agreement or instrument pursuant to which each equity owner is
irrevocably obligated to make a capital contribution to a Fund in the
amount set forth opposite such equity owner's name on Schedule 10(b)(v)
to provide that, if the Closing shall occur notwithstanding the failure
of such equity owner to make the capital contribution to the Fund which
such equity owner is obligated to make, the Partnership shall have a
legal right to enforce the rights of such Fund to compel such equity
owner to make its capital contribution, or, if after having exercised
commercially reasonable efforts, RD and KB cannot cause any such
instrument or agreement to vest such right in the Partnership, then the
general partner of each Fund shall enter into an agreement to provide
the Partnership with the right to direct and compel the general partner
to enforce such Fund's rights to compel such equity owner to make its
capital contribution. Each Fund also shall deliver to the Trust all
agreements and other instruments received by such Fund evidencing any
obligation or commitment from any person or entity which is not an
equity owner of such Fund on the date hereof to make a capital
contribution to such Fund or to otherwise become an equity owner of such
Fund.
(vi) Litigation. There are no claims, actions, suits, proceedings or
investigations pending or, to the Fund's knowledge, threatened before any
court, governmental unit or any arbitrator against the Fund or any of its
assets or properties or with respect to the transactions contemplated by
this Agreement and except for the matters, if any, set forth on Schedule
10(b)(vi), none of which matters would have a material adverse effect on
the Fund or any of its assets or properties, or which would prohibit or
restrain the consummation of the transactions contemplated hereby.
11. Representations and Warranties of the Partnership and the Trust. The
Partnership and the Trust jointly and severally hereby represent and warrant to
the Owners as follows (the Owners hereby acknowledge and agree that any
reference to a Schedule in this Section 11 shall be deemed to be modified by,
and the information, if any, set forth therein shall be deemed to include, the
information disclosed in the Exchange Act Filings regardless of whether express
reference thereto is made herein or therein):
(a) Organization; Authority. The Partnership is a partnership duly formed,
validly subsisting and in good standing under the laws of the State of
Delaware. The Trust is a duly formed and validly subsisting real estate
investment trust in good standing under the laws of the State of Maryland. The
Trust and the Partnership each has full power and authority to own and lease
their real properties and to carry on their business as it is now being
conducted. Schedule 11(a) sets forth the name of each subsidiary of the Trust
or the Partnership (whether owned directly or indirectly through one or more
intermediaries) (individually, a "Subsidiary" and collectively,
"Subsidiaries"). All of the outstanding shares of capital stock of, or other
equity interests in, each of the Subsidiaries owned by the Trust or the
Partnership are duly authorized, validly issued, fully paid and nonassessable,
and are owned, directly or indirectly, by the Trust or the Partnership, free
and clear of all liens except as set forth on Schedule 11(a). The following
information for each Subsidiary is set forth in Schedule 11(a), if applicable:
(i) its name and jurisdiction of incorporation or organization, (ii) the type
of and interest held by the Trust or the Partnership in the Subsidiary and, in
the case of Subsidiaries, the partnership agreement or other organizational
documents of the Subsidiary, and (iii) any loans from the Trust or the
Partnership to, or priority payments due to the Trust or the Partnership from,
the Subsidiary, and the rate of return thereon. Except as set forth
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on Schedule 11(a), there are no existing options, warrants, calls,
subscriptions, convertible securities or other rights, agreements or
commitments which obligate the Trust or any of the Subsidiaries to issue,
transfer or sell any shares of capital stock or equity interests in any of the
Subsidiaries.
(b) Due Authorization; Binding Agreement. The execution, delivery and
performance of this Agreement by the Partnership and the Trust and of each of
the other agreements and instruments to be executed and delivered in connection
herewith have been duly and validly authorized by all necessary action. This
Agreement has been duly executed and delivered by the authorized
representatives of the Partnership and the Trust and constitutes a legal, valid
and binding obligation of each, enforceable against each in accordance with its
terms.
(c) Consents and Approvals. No consent, waiver, approval or authorization
of, or filing, registration or qualification with, or notice to any
governmental unit or any other person is required to be made, obtained or given
by the Partnership or the Trust prior to or as a condition to the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, except as shall have been obtained by
Closing.
(d) No Violation. None of the execution, delivery or performance of this
Agreement by the Partnership or the Trust does or will, with or without the
giving of notice, lapse of time or both, (i) violate, conflict with or
constitute a default under any term or condition of (A) the organizational
documents of the Partnership or the Trust or any material provision of any
Partnership Significant Agreement (as defined below) or other agreement to
which the Partnership or Trust is a party or by which it or its assets or
properties are bound, or (B) any terms or provisions of any judgment, decree,
order, statute, injunction, rule or regulation of a governmental unit
applicable to the Partnership or the Trust or (ii) result in the creation of
any lien or other encumbrance upon the assets or properties of the Partnership
or the Trust. Neither the Trust, the Partnership nor any of its Subsidiaries is
in material default under or in violation of any provision of its
organizational documents.
For purposes hereof, "Partnership Significant Agreement" means and
includes any agreement or instrument which is required to be filed as an
exhibit to any filings by the Trust under the Exchange Act.
(e) Securities Filings. The Partnership and the Trust have previously
delivered or made available to RDC on behalf of the Owners (i) the Trust's
Annual Report on Form 10-K for each of the fiscal years ended December 31,
1996, 1995 and 1994, and (ii) copies of the Trust's Quarterly Reports on Form
10-Q for the fiscal quarters ended March 31, 1997, June 30, 1997 and September
30, 1997, all as filed with the Commission (collectively, the "Exchange Act
Filings"). As of their respective filing dates with the Commission, the
Exchange Act Filings complied as to form in all material respects with the
applicable requirements of the Exchange Act, and the respective rules and
regulations promulgated thereunder, and the Exchange Act Filings did not
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. No event
has occurred since the filing of the Trust's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1997 which is required to be disclosed
in a report filed either by the Partnership or the Trust pursuant to Section 13
or 15(d) of the Exchange Act which has not been so disclosed. To the knowledge
of the Trust, there is no unresolved violation or position asserted in writing
by any governmental authority with respect to any of the Exchange Act Filings.
Except as disclosed in the Exchange Act Filings: (A) the Trust and each of its
Subsidiaries has conducted its business only in the ordinary course of
business, consistent with past practice and (B) all material assets of the
Trust are owned by the Trust, directly or indirectly through the Partnership or
their respective Subsidiaries.
(f) Status of Securities. The Operating Partnership Interests to be issued
to the Contributing Owners in accordance with Schedule 2(a), and the Cash
Investment Shares will be, when issued pursuant to this Agreement, duly
authorized, validly issued, fully paid and non- assessable, free and clear of
all liens, claims, security interests, pledges and encumbrances. The Common
Shares to be issued upon conversion or exchange of the Operating Partnership
Interests will be, when issued, duly authorized, validly issued, fully paid and
non-assessable, and no liability shall attach to the owner thereof. The
issuance of Operating Partnership Interests hereunder will not give any
shareholder in the Trust or any limited partner in the Partnership the right to
demand payment for Common Shares or Operating Partnership Interests (as the
case may be) under applicable law or give rise to any preemptive or similar
rights.
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(g) (i) Authorized Capital of Trust and Operating Partnership Interests.
The authorized capital of the Trust on the date hereof consists of
50,000,000 Common Shares. As of December 31, 1997, there were 8,554,177
shares of Common Shares issued and outstanding. All such issued and
outstanding Common Shares are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. The Trust has no outstanding
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or which are convertible into or exercisable for securities
the holders of which have the right to vote) with the shareholders of the
Trust on any matter. Except for the options awarded under the Trust's 1994
Share Option Plan (the "Incentive Plan"), the Trust's 1994 Non-Employee
Trustees' Share Option Plan, the Trust's Restricted Share Plan and the
Trust's Dividend Reinvestment Plan, there are no existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate the Trust to issue, transfer or
sell any Common Shares or other equity interests of the Trust or the
Partnership except: (A) as disclosed in the Trust's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "1996 Form 10-K");
(B) as disclosed on Schedule 11(g)(i); and (c) with respect to the right to
receive Operating Partnership Interests and Common Shares as provided in
this Agreement. The consummation of the transactions contemplated by this
Agreement will not give rise to any preemptive rights or anti-dilution
rights exercisable by any holder of Common Shares except for any such
rights which have been waived.
(ii) Schedule 11(g)(ii) sets forth the number of Operating Partnership
Interests which will be outstanding and owned by the Trust and each person
who is a limited partner of the Partnership as of the date hereof
immediately after the Closing (and giving effect to the transactions
contemplated hereby). Except as provided on Schedule 11(g)(ii), as
contemplated by this Agreement, and as disclosed in the 1996 Form 10-K,
there will be no other Operating Partnership Interests issued or
outstanding, or any other form of general or limited partnership interest
of the Partnership issued or outstanding, immediately after the Closing. As
of the Closing Date, the Partnership will not have issued or granted
securities convertible into interests in the Partnership, and will not be a
party to any outstanding commitments of any kind relating to, or any
agreements with respect to, interests in the Partnership, whether issued or
unissued, except for contribution agreements entered into for the
acquisition of properties by the Partnership as set forth on Schedule
11(g)(ii).
(iii) Except as set forth on Schedule 11(g)(iii) and except for
interests in the Subsidiaries of the Trust and the Partnership, none of the
Trust or any of its Subsidiaries owns, directly or indirectly, any interest
or investment (whether equity or debt) in any corporation, partnership,
joint venture, business, trust or other entity (other than investments in
short-term investment securities).
(h) Maryland Takeover Law. The terms of Section 3-602 and 3-702 of the
Maryland Corporation Code will not apply to the Owners or to the Fund with
respect to, or to any acquisition of Operating Partnership Interests and Common
Shares pursuant to, this Agreement, or as a result of the exchange or
conversion of Operating Partnership Interests issued hereunder into Common
Shares.
(i) Vote Required. The affirmative vote of the holders of a majority of
the outstanding Common Shares entitled to vote and duly present in person or by
proxy at a meeting duly called (and with each Common Share entitled to one vote
per Common Share) at which a quorum is present is the only vote of the holders
of any class or series of Common Shares necessary to approve, for the purposes
of the rules of the New York Stock Exchange or otherwise, the transaction
contemplated by this Agreement, including, without limitation, the issuance of
Common Shares or the exchange of Operating Partnership Interests issued
hereunder for Common Shares.
(j) Exemption from Ownership Restrictions. The Board of Trustees of the
Trust shall have adopted resolutions on or prior to Closing, exempting the Fund
from the ownership restrictions under Section 6.6 of the Amended and Restated
Declaration of Trust of the Trust.
(k) Tax Matters.
(i) REIT Status. The Trust, beginning with its taxable year ended
December 31, 1993 and through December 31, 1997: (A) has been subject to
taxation as a REIT within the meaning of the Code and has satisfied all
requirements to qualify as a REIT within the meaning of the Code, (B) to
its knowledge, has
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operated in such a manner as to qualify as a REIT for the tax year ending
December 31, 1998, and (C) to its knowledge, has not taken or omitted to
take any action which would reasonably be expected to result in a
successful challenge by the Internal Revenue Service to its status as a
REIT, and to the knowledge of the Trust, no such challenge is pending or
threatened. Neither the Trust, the Partnership nor any Subsidiary of the
Trust or the Partnership (collectively, the "Mark Centers Group") holds any
asset that is subject to a consent filed pursuant to Section 341(f) of the
Code and the regulations thereunder.
(ii) Tax Returns. To the knowledge of the Trust, each member of the Mark
Centers Group has (A) timely filed with the appropriate taxing authority
all Tax Returns required to be filed by it (after giving effect to any
filing extension granted by any governmental authority) and such Tax
Returns were complete and accurate in all material respects and (B) has
paid all Taxes shown as owed by each member of the Mark Centers Group on
any Tax Return, other than Taxes being contested in good faith and for
which adequate reserves have been taken. No member of the Mark Centers
Group has executed or filed with the Internal Revenue Service or any other
taxing authority any agreement now in effect extending the period for
assessment or collection of any Tax. Except as set forth in Schedule
11(k)(ii), no member of the Mark Centers Group is a party to any material
pending action or proceeding by any taxing authority for assessment or
collection of any Tax, and to the knowledge of the Trust, no material claim
for assessment or collection of any Tax has been asserted in writing
against it. Except as set forth on Schedule 11(k)(ii), to the knowledge of
the Trust, no claim has been made in writing by any authority in a
jurisdiction in which a member of the Mark Centers Group does not file Tax
Returns that such member is or may be subject to taxation by such
jurisdiction. Except as set forth in Schedule 11(k)(ii), there is no
material dispute or claim concerning any Tax liability of a member of the
Mark Centers Group claimed or raised by any taxing authority in writing,
and no member of the Mark Centers Group or the Subsidiaries has entered
into or intends to enter into any agreements with any taxing authority,
including but not limited to, closing agreements.
(iii) Certain Tax Liabilities. Since January 1, 1997, no member of the
Mark Centers Group has incurred (A) any material liability for Taxes under
Sections 856(b), 860(c) or 4981 of the Code, or (B) a material liability
for Taxes other than Taxes incurred in connection with the ordinary course
of business.
(iv) Tax Status of Subsidiaries. Each Subsidiary organized as a
partnership, including, without limitation, the Partnership (and any other
Subsidiary that files tax returns as a partnership for federal income tax
purposes) is not and has never been a publicly traded partnership within
the meaning of Section 7704 of the Code and the regulations promulgated
thereunder.
(v) Definitions. For purposes of this Section 11(k), the following
defined terms shall have the meanings set forth below:
(A) "Taxes" means all taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross
income, gross receipts, sales, use, service, service use, ad valorem,
transfer, franchise, profits, license, lease, withholding, social
security, payroll, employment, excise, estimated, severance, stamp,
recording, occupation, real and personal property, gift, windfall
profits or other taxes, customs, duties, fees, assessments or other
similar charges, whether computed on a separate consolidated, unitary,
combined or other basis, together with any interest, fines, penalties,
additions to tax or other additional amounts imposed thereof or with
respect thereto, in each and every case, imposed by any taxing authority
(domestic or foreign).
(B) "Tax Returns" means all federal, state, local and foreign income,
franchise, sales and other tax returns.
(l) Absence of Undisclosed Liabilities and Contractual Obligations. Except
for immaterial liabilities arising in the ordinary course of business, which
shall not exceed $250,000 in the aggregate as to the Trust, the Partnership and
their respective Subsidiaries on a consolidated basis (collectively, the
"Consolidated Trust") and except for those matters disclosed in this Agreement,
the Exhibits and Schedules hereto, the Exchange Act Filings or Schedule 11(1),
none of the Trust, the Partnership or any of their respective Subsidiaries has
any liabilities of any nature, whether matured or unmatured, fixed or
contingent, which would have, individually or in the aggregate, a material
adverse effect upon the Consolidated Trust, or upon the real property interests
in which the Consolidated Trust holds fee title or a leasehold interest as
ground lessee (individually, a "Trust Property" and collectively, the "Trust
Portfolio"), taken as a whole.
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(m) Litigation. There are no claims, actions, suits, proceedings or
investigations pending or, to the Trust's knowledge, threatened before any
court, governmental unit or any arbitrator against the Trust, the Partnership
or any of their respective Subsidiaries or their respective assets or
properties or with respect to the transactions contemplated by this Agreement
except as disclosed in the Exchange Act filings, and except for the matters, if
any, set forth on Schedule 11(m), none of which matters set forth on such
Schedule, individually or in the aggregate, would have a material adverse
effect on the Consolidated Trust or the Trust Portfolio or would prohibit or
restrain the consummation of the transactions contemplated hereby. There are no
material facts concerning any allegations made against the Trust in any
litigation disclosed in the Exchange Act filings or on Schedule 11(m) which
have not already been disclosed in pleadings filed on or prior to the date
hereof or during discovery conducted on or prior to the date hereof.
(n) Attachment, Execution, Etc. No attachments, execution proceedings,
assignments for the benefit or creditors, insolvency, bankruptcy,
reorganization or other proceedings are pending or, to the knowledge of the
Trust, threatened against the Trust, the Partnership or any of their respective
Subsidiaries or any of their respective assets, nor are any of such proceedings
contemplated by any of the foregoing.
(o) Compliance with Laws; Violations, Etc.
(i) Except for the violations set forth on Schedule 11(o)(i), none of
which, individually or in the aggregate, are material, the Consolidated
Trust has complied in all material respects with all laws applicable to the
conduct of its business and its use and operation of the Partnership
Portfolio, and has obtained all licenses, certificates, approvals and
permits required for the conduct thereof, (1) except where the failure to
do so would not have, individually or in the aggregate, a Trust Material
Adverse Effect on the Consolidated Trust or the Partnership Portfolio, (2)
except as described in engineering reports delivered by the Partnership to
RDC, on behalf of the Owners, in connection with this Agreement, and (3)
except to the extent that non-compliance is a result of a change after the
date hereof in the interpretation or enforcement of existing laws and
regulations and the Trust, before such change, reasonably believed that the
Consolidated Trust was in compliance. Such licenses, certificates,
approvals and permits are in full force and effect, the Trust and the
Partnership have not taken any action that would (or failed to take any
action the omission of which would) result in the revocation of such
licenses, certificates, approvals or permits, and the Trust and the
Partnership have not received any written notice of violation from any
federal, state or municipal entity or notice of an intention by any such
government entity to modify or revoke any certificate, approval, license or
permit issued by it to the Trust, the Partnership or any of their
respective Subsidiaries that in each case has not been cured or otherwise
resolved to the satisfaction of such government entity, except where such
failure or such action would not have a material adverse effect on the
Consolidated Trust or the Trust Portfolio.
(ii) Except as set forth on Schedule 11(o)(ii), neither the Trust nor
the Partnership has received any written notice and, to the knowledge of
the Trust, none of the Trust's or Partnership's employees has received any
written notice with respect to any Trust Property or associated parking
rights from any public authority concerning any eminent domain or
condemnation proceeding, or any uncorrected violation of any ordinance,
public regulation, statute, permit, site plan approval, plan of
development, zoning or subdivision regulation, parking requirement or urban
redevelopment plan applicable to such Trust Property; and, except for the
Permitted Encumbrances (which, for purposes of this Section 11, shall have
the meaning of Permitted Encumbrances as set forth in subsection 3(a)
hereof except that the terms "Premises" shall refer to a Trust Property,
"Leases" shall refer to Partnership Leases, the "surveys" shall refer to
those delivered by the Partnership to RDC, and "Existing Mortgage" shall
refer to all mortgage indebtedness encumbering the subject Trust Property,
none of the Partnership, the Trust or any of their respective Subsidiaries
or, to the knowledge of the Trust, any previous owner of the Trust
Property, has sold, transferred, conveyed, or entered into any agreement
regarding transfer of "air rights," "excess floor area ratio," parking
rights or other development rights relating to the Trust Property.
(iii) Except as set forth on Schedule 11(o)(iii), the Partnership has
complied with all work orders, requirements and demands of each and every
insurance company insuring all or any part of the Trust Portfolio.
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(iv) To the knowledge of the Trust, the continued maintenance, operation
and use of any buildings, structures or other improvements on the Trust
Portfolio for their respective present purposes will not violate in a
material manner any Applicable Laws or the certificate(s) of occupancy
issued for the Trust Portfolio.
(v) Except as set forth on Schedule 11(o)(v), there are no material
unperformed obligations relative to the Trust Portfolio outstanding
pursuant to any written agreements with any governmental or quasi-
governmental body or authority.
(p) Environmental Matters. The Partnership has delivered to RDC, on behalf
of the Owners, the environmental reports listed on Schedule 11(p) (the
"Environmental Reports"). Except as disclosed in the Environmental Reports or
in the Exchange Act Filings, (i) none of the Trust, the Partnership or any of
their respective Subsidiaries has done anything to cause or permit and, to the
knowledge of the Trust, no other person or entity has done anything to cause or
permit Hazardous Materials to be now, or in the past, located on, in or under
any Trust Property or released into the environment, or discharged, placed or
disposed of at, on or under any Trust Property (except in small amounts used in
the ordinary course for the operation or maintenance of the Trust Property by
the Partnership in accordance with all applicable laws or used by tenants of
the Trust Property in the ordinary course of operation of their business, which
use by tenants is, and has been, to the knowledge of the Trust, in accordance
with all Applicable Laws); (ii) except as set forth on Schedule 11(p), to the
knowledge of the Trust, there are no underground storage tanks located at any
Trust Property now or in the past; (iii) none of the Trust, the Partnership or
any of their respective Subsidiaries has done anything to cause or permit and,
to the knowledge of the Trust, no other person or entity has done anything to
cause or permit any Trust Property to be used to store, treat or dispose of
Hazardous Materials (except in small amounts used in the ordinary course for
the operation or maintenance of the Trust Property by the Partnership in
accordance with all Applicable Laws or used by tenants of the Trust Property in
the ordinary course of operation of their business, which use by tenants is,
and has been, to the knowledge of the Trust, in accordance with all Applicable
Laws); and (iv) none of the Trust, the Partnership or any of their respective
Subsidiaries has done anything to cause or permit and, to the knowledge of the
Trust, no other person or entity has done anything to cause or permit any Trust
Property and its prior uses to fail to materially comply with, at all times,
any applicable Environmental Laws or any other governmental law, regulation or
requirement relating to environmental matters or Hazardous Materials. Except as
described in the Environmental Reports or in the Exchange Act Filings, there
currently exist no facts or circumstances that could reasonably be expected to
give rise to a material non-compliance with Environmental Laws, material
environmental liability or material Environmental Claim.
(q) Engineering Matters.
(i) The Partnership has obtained and delivered to RDC, on behalf of the
Owners, the engineering report(s) listed on Schedule 11(q) (the "Trust
Engineering Report"). Except as disclosed in the Trust Engineering Reports
or in the Exchange Act Filings, there are neither material patent nor, to
the knowledge of the Trust, latent defects in, mechanical failures of or
damages to the Improvements, including the roof, structure, elevators,
walls, heating, ventilation, air conditioning, plumbing, electrical,
drainage, fire alarm, communications, sprinkler, security and exhaust
systems, or other improvements on or forming a part of any Trust Property,
all of which, to the knowledge of the Trust, have been constructed in a
good and workerlike manner consistent with generally accepted practices for
first-class construction. Except as described in the Trust Engineering
Reports or in the Exchange Act Filings, to the knowledge of the Trust, all
of the personal property used in connection with the operation of any Trust
Property and all improvements thereon are in good condition and working
order, ordinary wear and tear excepted.
(ii) Except as set forth on Schedule 11(q)(ii), no portion of the
buildings on any such Trust Property are located in an area designated by
any governmental entity as a flood hazard area.
(iii) All telephone and other public utilities and all storm water
drainage required by law or necessary for the operation of each Trust
Property (A) except as to the Trust Property described on Schedule
11(q)(iii), are installed, connected and operating, with all installation
and connection charges paid in full, including, without limitation,
connection and the permanent right to discharge sanitary waste into the
collector system of the appropriate sewer authority, (B) are being utilized
in compliance with all applicable governmental
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and environmental protection authorities' laws, rules, regulations and
requirements, and (C) are adequate and, to the knowledge of the Trust, will
continue to be adequate to service the Trust Property as improved and
presently used. To the knowledge of the Trust, no moratorium, proceeding or
other fact or condition exists which (x) threatens to impair continued
furnishing of such services to the Trust Property at regular rates and
fees, or (y) could result in the discontinuance of such services presently
available or necessary. Except as set forth on Schedule 11(q)(iii), water
and sanitary sewer are public.
(r) Real Estate Taxes and Assessments.
(i) The copies of the real property tax bills for each Trust Property
for the current tax year which have been furnished by the Partnership to
RDC on behalf of the Owners are true, correct and complete copies of all of
such tax bills. All real estate taxes due and payable as of the Closing
have been paid in full and, except as set forth on Schedule 11(r)(i), there
are no pending or, to the knowledge of the Trust, threatened proceedings
for an increase in the assessed valuation of any Trust Property for the
current or prior tax years.
(ii) Except as set forth on Schedule 11(r)(ii), each Trust Property
alone constitutes one or more entire tax parcel(s) for real estate tax
purposes, and is not taxed as part of a larger tax parcel.
(iii) Except as set forth on Schedule 11(r)(iii), neither the Trust nor
the Partnership has received any written notice that, and the Trust has no
knowledge that: (A) public improvements in the nature of off-site
improvement, or otherwise, have been ordered to be made or have heretofore
been assessed; and (B) special or general assessments (other than regular,
annual real estate taxes) are pending against or affecting any Trust
Property or are being considered in formal municipal or quasi-municipal
proceedings.
(s) Leases
(i) Except for the leases for any Trust Property or portion thereof and
any new leases entered into after the date hereof (collectively, the
"Partnership Leases"), all of which Partnership Leases which are in
existence on the date hereof being listed on Schedule 11(s)(i), neither the
Partnership nor any Subsidiary of the Trust or the Partnership has entered
into any contracts for the sale or leasing of any Trust Property or any
portion thereof. There are no outstanding rights of first refusal or
options to purchase all or any portion of any Trust Property or rights of
early termination by tenants other than by reason of casualty or
condemnation except as set forth in Schedule 11(s)-1, none of which becomes
exercisable solely by reason of the transactions contemplated by this
Agreement, and except for those rights and options pertaining to portions
of any Trust Property constituting less than 5,000 square feet of gross
leaseable area. Except as set forth on Schedule 11(s)-1, the exercise of
termination rights by one or more tenants under Partnership Leases pursuant
to rights to terminate for reasons other than casualty or condemnation or a
default by the Partnership will not have a Trust Material Adverse Effect on
the Trust Portfolio in the aggregate or the cash flow therefrom, taken in
the aggregate.
(ii) Subject to the right of governmental and law enforcement
authorities to enter a Trust Property for lawful business, as of the
Closing, no persons or entities, other than the Partnership and the tenants
under the Partnership Leases and their permitted subtenants and licensees,
shall have any right to the possession, use or occupancy of any Trust
Property or any portion thereof for any reason whatsoever.
(iii) Schedule 11(s)-2 (the "Trust Rent Roll") is true and correct in
all material respects as of the date noted thereon and discloses all
Partnership Leases. The Partnership Leases include all subleases,
tenancies, licenses and other rights of occupancy or use for all or any
portion of the Trust Property pursuant to which the Partnership or any
Subsidiary of the Trust or of the Partnership is landlord or licensor, all
as amended, renewed and extended to the date of the Trust Rent Roll,
whether oral or written. There has been no material change in the
information set forth in the Trust Rent Roll between the effective date of
the Trust Rent Roll and date of Closing. The Trust Rent Roll specifies at
least the following information as to each Lease:
(A) a description (by rentable square feet) of the leased space;
(B) the name of the current Tenant;
(C) the expiration dates of the current term; and
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(D) the basic and additional Rents during the original and any
renewal terms thereof and the extent of any delinquencies thereof and
the period of delinquency.
(iv) Each Security Deposit has been and is held (or applied) by the
Partnership or its agent in compliance with the respective Partnership
Lease and applicable law. There are no unfulfilled obligations as to
Security Deposits to tenants under Partnership Leases the terms of which
have expired or been terminated and there is no suit, action or other claim
made, or, to the knowledge of the Trust, pending or threatened with respect
to any such Security Deposit, except as set forth on Schedule 11(s)-2.
(v) The following is true with respect to each Partnership Lease:
(A) the Partnership Lease is valid and subsisting and in full force
and effect in accordance with its terms. No Partnership Lease has been
modified, in writing or otherwise, except as set forth on the tenant
estoppel certificate for such Lease and Schedule 11(s)-3;
(B) except as set forth on Schedule 11(s)-4, all obligations of the
lessor thereunder arising on or prior to the date hereof and required to
be performed prior to the date hereof have been performed on a timely
basis;
(C) except as set forth in Schedule 11(s)-3 and except for
delinquencies in payment of rent of less than thirty (30) days, to the
knowledge of the Trust, there has been no material default on the part
of the tenant thereunder or event which, with the giving of notice or
the lapse of time, or both, would constitute a default on the part of
the tenant thereunder and, except as set forth in Schedule 11(s)-3 the
tenant has not asserted and, to the knowledge of the Trust, has no
defense to or offset or claim against its rent or the performance of its
other obligations under the Partnership Lease;
(D) except as set forth on Schedule 11(s)-3, no tenant has prepaid
any rent for more than one (1) month if the lease term has commenced and
two (2) months if the lease term has not yet commenced;
(E) except as set forth on Schedule 11(s)-3, the Trust has no
knowledge of any tenant or any guarantor of a Partnership Lease to a
Trust Major Tenant being or becoming unable or unwilling to perform any
of its obligations under the Partnership Lease for any reason;
(F) to the knowledge of the Trust, except as set forth on Schedule
11(s)-3, no other person has released or discharged any guarantor,
voluntarily or involuntarily or by operation of law, from any obligation
with respect to the Partnership Lease that such guarantor has guaranteed
except in accordance with the terms of such guarantee;
(G) at the time of Closing, no rents will have been assigned, pledged
or encumbered except to an existing mortgagee of a Trust Property; and
(H) except as set forth on Schedule 11(s)-3, no Trustee of the Trust
or executive officer of the Trust owns, directly or indirectly, (1) five
percent (5%) or more of the total combined earnings of all classes of
stock entitled to vote, or five percent (5%) or more of the total number
of shares of all classes of stock, of any tenant of a Trust Property or
(2) an interest of five percent (5%) or more in the assets or net
profits of any tenant of a Trust Property, including all the types and
approximate quantities of Improvements owned or leased by the Trust, the
Partnership or such Subsidiary.
(vi) Except as set forth in Schedule 11(s)-3, there has been no material
default or event which, with the giving of notice or the lapse of time, or
both, would constitute a default on the part of the Partnership, the Trust
or any of their respective Subsidiaries as lessee under any ground lease.
(t) Title
(i) The Partnership or a Subsidiary of the Trust or the Partnership has
indefeasible, good and marketable legal and equitable title to its
respective interest in each Trust Property as insured by the title policy
pertaining to such Trust Property as previously delivered by the
Partnership to RDC on behalf of the Owners.
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(ii) There is no pending or, to the knowledge of the Trust, threatened
eminent domain proceeding affecting any Trust Property or any part thereof
or affecting the sidewalks or any streets or public ways in front of or
adjoining any Trust Property.
(iii) There has been no material violation by the Partnership or the
Trust Property of any provision, condition or agreement contained in any
restrictive covenant, cross- easement agreement or similar instrument or
agreement affecting the Trust Property or any portion thereof, which would
have a material adverse effect on the Consolidated Trust or the Trust
Portfolio.
(iv) (A) Each Trust Property enjoys the benefit of all easements and
cross-easements necessary for operating the Trust Property as currently
operated, and (B) all such easements and cross-easements are in full force
and effect, and will survive the transactions contemplated by this
Agreement.
(v) The personal property located on each Trust Property, other than
that owned by tenants, utility companies or contractors, is owned or leased
by the Trust, the Partnership or a Subsidiary of the Trust or the
Partnership free and clear of any liens or security interests of any kind,
except for liens and encumbrances in favor of mortgagees of the Trust, the
Partnership or a Subsidiary of either.
(vi) Except as set forth on Schedule 11(t)-1, each Trust Property is
located along and has unimpeded access to one or more adjoining public
streets. To the knowledge of the Trust, any curb-cut and street-opening
permits or licenses required for vehicular access to and from a Trust
Property to any adjoining street or to any parking spaces utilized in
connection with the Trust Property have been obtained and paid for by the
Consolidated Trust, and are in full force and effect. To the knowledge of
the Trust, no fact or condition exists which would result in the
termination or material impairment of access to a Trust Property from
adjoining public or private streets or ways.
(vii) To the knowledge of the Trust, each Trust Property is an
independent unit which does not now rely on any facilities (other than
facilities covered by Permitted Encumbrances including, without limitation,
any reciprocal easement agreements or facilities of municipalities or
public utility and water companies and other than parking areas which the
Trust Property makes legal use of under any reciprocal easement agreements)
located on any property not included in such Trust Property to fulfill any
municipal or governmental requirement or for the furnishing to the Trust
Property of any essential building systems or utilities or services.
(viii) Except as set forth on Schedule 11(t)-2, and on Schedule 11(s)-1
to the extent set forth in the Partnership Leases and except for Permitted
Encumbrances, and other than rights of first refusal or options to purchase
pertaining to portions of any Trust Property constituting less than 5,000
square feet of gross leaseable area, there are no purchase contracts,
options, or any other agreements of any kind, written or oral, recorded or
unrecorded, whereby any person or entity other than the Partnership will
have acquired or will have any basis to assert any right, title or interest
in, or right to possession, use, enjoyment or proceeds of all or a portion
of the Trust Property.
(u) Insurance
(i) Schedule 11(u) sets forth an accurate and complete list of the
insurance policies relating to the Partnership Portfolio or any part
thereof and naming the Partnership as an insured; all such policies are in
full force and effect and all premiums thereunder have been paid to the
extent due; and no notice of cancellation has been received with respect
thereto and, to the knowledge of the Trust, none is threatened.
(ii) None of the Trust, the Partnership or any of their respective
Subsidiaries has received any notice from any insurance company of any
defect or inaccuracies in any of the insurance policies, or any parts
thereof, which would adversely affect the insurability of any Trust
Property, or would increase the cost of insurance beyond that which would
ordinarily and customarily be charged for similar properties in the
vicinity of any Trust Property. All of the Partnership Portfolio is fully
insured in accordance with prudent and customary practice.
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(v) Service Agreements
(i) A current, complete copy of each Partnership Service Agreement
(collectively, Partnership Service Agreements ) has been delivered to RDC,
on behalf of the Owners and there are no material construction, management,
leasing, service, equipment, supply, maintenance or concession agreements
(oral or written, formal or informal) with respect to or affecting all or
any portion of the Trust Property except as delivered to RDC. Each
Partnership Service Agreement is valid and binding and as of Closing all
amounts due and payable thereunder will have been paid. Neither the
Partnership nor any of its agents is in default under any Partnership
Service Agreement or has received any written notice from any party to any
Partnership Service Agreement claiming the existence of any default or
breach thereunder which would have a material adverse effect on the
Consolidated Trust or the Trust Portfolio and no event or omission has
occurred which, with the giving of notice or the lapse of time or both
would constitute such a default. Except as set forth on Schedule 11(v),
each Partnership Service Agreement may be terminated without cause upon
thirty (30) days notice or less without the payment of a penalty or
termination payment, and each Partnership Service Agreement is with third
parties unaffiliated with the Consolidated Trust.
(w) Employee and Employment Matters
(i) Set forth on Schedule 11(w) is a list of:
(A) All collective bargaining agreements and other agreements
requiring arbitration of employment disputes, and any written amendments
thereto, as well as all arbitration awards decided under any such
agreements, and all oral assurances or modifications, past practices,
and/or arrangements made in relation thereto, to which the Trust, the
Partnership or any Subsidiary of either is a party or by which it is
bound; and
(B) All employment agreements, and all severance agreements which
have not been fully performed, to which the Trust, the Partnership or
any Subsidiary of either is a party or by which it is bound. Set forth
on Schedule 11(w) is also a list of all employees of the Trust, the
Partnership or any Subsidiary of either, and a list of all other
individuals employed by the Trust, the Partnership or any Subsidiary of
either. Each of the Trust, the Partnership and each Subsidiary of either
has previously delivered to RD true and correct copies of all of the
documents referred to on Schedule 11(w) and all of the personnel
policies, employee and/or supervisor handbooks, procedures and forms of
employment applications relating to the employees of the Trust, the
Partnership or any Subsidiary of either. There is no union representing
or purporting to represent any of the employees of the Trust, the
Partnership or any Subsidiary of either and the Trust, the Partnership
and each Subsidiary of either is not subject to or currently negotiating
any collective bargaining agreements with any union representing or
purporting to represent the employees of any of the foregoing.
(ii) Except as set forth on Schedule 11(w):
(A) There are no strikes, slow downs or other work stoppages,
grievance proceedings, arbitrations, labor disputes or representation
questions pending or, to the knowledge of the Trust, threatened against
or involving the Trust, the Partnership or any Subsidiary of either;
(B) To the knowledge of Trust, each of the Trust, the Partnership and
each Subsidiary of either has complied in all material respects with all
laws relating to labor, employment and employment practices, including,
without limitation, any provisions thereof relating to wages, hours and
other terms of employment, collective bargaining, nondiscrimination, and
the payment of social security, unemployment compensation and similar
taxes, and none of the Trust, the Partnership or any Subsidiary of
either is (1) liable for any arrearages of wages or any taxes or
penalties for failure to comply with any of the foregoing or (2)
delinquent in the payment of any severance, salary, bonus, commission or
other direct or indirect compensation for services performed by any
employee to the date hereof, or any amount required to be reimbursed to
any employee or former employee; and
(C) There are no Actions concerning or in any way relating to the
employees or employment practices of the Trust, the Partnership or any
Subsidiary of either, including, without limitation, Actions involving
unfair labor practices, wrongful discharge and/or any other restrictions
on the right of the Owner to terminate its employees, employment
discrimination, occupational safety and health, and workers'
compensation.
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Except as shown on Schedule 11(w), there are no express or implied
agreements, policies, practices, or procedures, whether written or oral,
pursuant to which any employee of the Trust, the Partnership or any Subsidiary
of either is not terminable at will.
Except as set forth on Schedule 11(w), none of the Trust, the Partnership
or any Subsidiary of either is a party to any oral or written (A) agreement
with any executive officer or other key employee of the Trust, the Partnership
or any Subsidiary of either (1) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Trust, the Partnership or any Subsidiary of either of the nature
of the transactions contemplated by this Agreement, (2) providing any term of
employment or compensation guarantee extending for a period longer than one
year, or (3) providing severance benefits or other benefits after the
termination of employment of such executive officer or key employee regardless
of the reason for such termination of employment; or (B) agreement or plan,
including, without limitation, any stock option plan, stock appreciation right
plan, restricted stock plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement.
None of the Trust, the Partnership or any Subsidiary of either has taken
any action which required or, taken together with the transactions contemplated
hereby, would require the giving of any notice under the Worker Adjustment
Retraining and Notification Act or any comparable state or local law or
regulation.
(x) ERISA; Benefit Plans.
(i) None of the Trust, the Partnership or any Subsidiary of either nor
any Trust ERISA Affiliate (as hereinafter defined) maintains, sponsors,
contributes to or has any liability under any agreement, plan, practice or
program, whether written or oral, providing for bonus payments, child or
dependent care benefits, death benefits, accidental death and dismemberment
benefits, deferred compensation benefits, disability or other wage
continuation benefits, educational assistance or tuition benefits, health
benefits, paid holidays benefits, incentive compensation payments, leave of
absence rights, medical expense payments, reimbursement benefits, profit
sharing, pension plan of ERISA benefits or other benefits, retiree medical
or retiree life insurance benefits, stock option, stock appreciation rights
or stock purchase benefits, severance or termination pay or benefits
(including post-employment consulting arrangements or benefits), or
vacation benefits, except as set forth on Schedule 11(x). The items set
forth on Schedule 11(x) are individually referred to as "Trust Employee
Benefit Plan" and collectively referred to as "Trust Employee Benefit
Plans". Schedule 11(x) includes, but is not limited to, each plan
maintained by the Trust, the Partnership or any Subsidiary of either or a
Trust ERISA Affiliate (as hereinafter defined), which is an "an employee
benefit plan" as such term is defined in Section 3(3) of ERISA, other than
a multi-employer plan" within the meaning of Section 3(37) of ERISA. The
Trust has delivered to RD a true and complete copy of each Trust Employee
Benefit Plan, including all texts, amendments and other agreements (whether
formal or informal) adopted in connection therewith. No employee or former
employee or any beneficiary thereof participates in or has any rights to
benefits with respect to employment with the Trust under any agreement,
plan, practice, or program not listed on Schedule 11(x), other than a
multi- employer plan. No person who is not a current or former employee (or
a beneficiary thereof) of the Trust, the Partnership or any Subsidiary of
either participates in or is entitled to any benefits under any Trust
Employee Benefit Plan listed on Schedule 11(x). For purposes of this
Agreement, "Trust ERISA Affiliate" means each person, company and trade or
business which together with the Trust, the Partnership or any Subsidiary
of either, are treated as a single employer under Section 414(b), (c), (m),
(n) and (o) of the Code.
(ii) Each Trust Employee Benefit Plan has complied and currently
complies in form, and in all material respects in operation and
administration, with all applicable provisions of applicable law, including
the Code and ERISA and any contractual obligation. The Trust has delivered
to RDC with respect to each Trust Employee Benefit Plan subject to ERISA
true and correct copies of (A) the annual return/report (Form 5500 Series)
with attached schedules and a financial statement for the three most recent
fiscal years, (B) the summary plan descriptions and all written
announcements or disclosures to participants, (C) the most recent (IRS)
determination letter, (D) each written description intended to describe any
Trust Employee Benefit Plan and (E) all correspondence from the IRS,
Department of Labor and PGBC.
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(iii) Each Trust Employee Benefit Plan intended to be tax qualified
under Section 401(a) of the Code has been determined by the IRS to be so
qualified and each trust created thereunder has been determined to be
exempt from tax and, to the knowledge of the Trust, nothing has occurred
which would cause the loss of such qualification or tax-exempt status. With
respect to each Trust Employee Benefit Plan that is subject to Section 412
of the Code or Title IV of ERISA (collectively, "Trust Pension Plans")
there has been no failure to make any contribution or pay any amount due as
required by Section 412 of the Code, Section 302 of ERISA or the terms of
any such Pension Plan, and no request or receipt of any funding waiver has
been requested or received from the IRS. The present value of the benefit
liabilities (as defined in ERISA) of each Trust Pension Plan that is
subject to Title IV of ERISA, as of any determination date, is less than
the fair market value of the assets of such Pension Plan, all determined
using the actuarial assumptions that would be used by PBGC in the event of
a termination of the Trust Pension Plan on such determination date. Within
the past five (5) years, none of the Trust, the Partnership or any
Subsidiary of either nor any Trust ERISA Affiliate has transferred any
assets or liabilities of a Trust Pension Plan subject to Section 412 of the
Code which had, at the date of such transfer, accrued benefits in excess of
the fair market value of its assets as of any determination date,
determined using the actuarial assumptions that would be used by PBGC in
the event of a termination of the Trust Pension Plan on such determination
date or has engaged in a transaction which may reasonably be subject to
Section 4212(c) or 4069 of ERISA. There has been no reportable event (as
defined in Section 4043 of ERISA) within the last five (5) years. None of
the Trust, the Partnership or any Subsidiary of either sponsors, maintains
or has obligations, direct, contingent or otherwise, with respect to any
Trust Employee Benefit Plan that is subject to the laws of any country
other than the laws of the United States. With respect to the Trust
Employee Benefit Plans subject to Title I Part 4 of ERISA or Section 4975
of the Code, none of the Trust, the Partnership or any Subsidiary of either
nor any other person has (i) engaged in a "prohibited transaction" within
the meaning of Section 4975 of the Code or Section 406 of ERISA which would
subject the Partnership or the Trust to liability for a material tax or
penalty imposed by Section 4975 of the Code or Section 502 of ERISA, or
(ii) committed a breach of its fiduciary duties (as defined in Section 404
of ERISA) which could subject the Partnership or the Trust to any material
liability. Except as required by law, none of the Trust, the Partnership or
any Subsidiary of either nor any Trust ERISA Affiliate has made any written
or other binding commitment to amend any Trust Employee Benefit Plan.
(iv) No Trust Employee Benefit Plan provides for post-employment
medical, health or life insurance benefits for present or future retirees
or present or future terminated employees, except for continuation coverage
provided pursuant to the requirements of Section 4980B of the Code or
Sections 601-608 of ERISA or a similar state law, or continued coverage
under an insurance policy for a period not to exceed sixty days (60)
following termination of employment. The Trust and its respective ERISA
Affiliates have complied in all material respects with the notice and
contribution requirements of Section 4980(B) of the Code and Sections
601-608 of ERISA. Any contribution or payment required to be made by such
Owner to or on behalf of any Trust Employee Benefit Plan has been made on
or before its due date. Adequate accruals for all contributions or payments
required to be made by the Trust, the Partnership and each Subsidiary of
either to or on behalf of any Trust Employee Benefit Plan and
multi-employer pension plan to which any of the foregoing and/or any of its
Trust ERISA Affiliates makes contributions to or has any liabilities with
respect thereto ("Trust MEPPA Plan") for all periods prior to December 31,
1997 have been made on the Warranted Balance Sheet.
(v) With respect to the Trust Employee Benefit Plans, no actions, suits
or claims: (i) with respect to the assets or liabilities thereof (other
than routine claims for benefits); (ii) against the Trust or an Trust ERISA
Affiliate; or (iii) against any fiduciary with respect to any Trust
Employee Benefit Plan are pending or threatened, and the Trust has no
knowledge of any facts which could be reasonably be expected to give rise
to or result in any such actions, suits or claims. Neither the Trust nor
any Trust ERISA Affiliate: (i) has incurred a complete or partial
withdrawal, as those terms are defined in Section 4203 or 4205,
respectively, of ERISA; (ii) has engaged or intends to engage in a
transaction or course of conduct which could result in liability under
Title IV of ERISA to a "multi-employer plan" as defined in Section
4001(a)(3) of ERISA; (iii) has any outstanding liability under Title IV of
ERISA, contingent or otherwise; or (iv) will incur any liability with
respect to any Trust Employee Benefit Plan or Trust MEPPA Plan solely as a
result of undertaking the transactions contemplated by this Agreement.
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(y) Cash Flow. Except as otherwise disclosed elsewhere herein or in any
Exhibit or Schedule hereto, since the last audited consolidated financial
statements of the Trust, there has been no change in the aggregate cash flow of
the Trust Portfolio and no variation in the aggregate income from all of the
Partnership Leases which, in either case, constitutes a Trust Material Adverse
Effect and, since the date of said last audited financial statements, each
Trust Property has been operated in the ordinary course of business consistent
with past practice.
(z) SEC and Other Documents.
(i) Except as set forth in Schedule 11(z), each of the balance sheets
included in or incorporated by reference into the Exchange Act Filings
(including the related notes and schedules) fairly presented in all
material respects the financial position of the entity or entities to which
it relates as of its date and each of the statements of operations,
stockholders equity (deficit) and cash flows included in or incorporated by
reference into the Exchange Act Filings (including any related notes and
schedules) fairly in all material respects presented the results of
operations, retained earnings or cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein,
in each case in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied during the periods involved except
as may be noted therein and except, in the case of the unaudited
statements, normal recurring year-end adjustments.
(ii) Except as disclosed in the Exchange Act filings, in Schedule 11(z)
or in any other Schedule to this Agreement, since September 30, 1997, the
Trust and each of its Subsidiaries has conducted its business only in the
ordinary course of such business and has not (i) sold or acquired any real
estate or interest therein, (ii) leased all or substantially all of any
property, (iii) entered into any financing arrangements in connection
therewith, (iv) granted an option to purchase or lease all or substantially
all of any property or (v) entered into a contract, letter of intent, term
sheet or other similar instrument to do any of the fore-going and there has
not been any change, circumstance or event that has resulted in a material
adverse effect on the business, properties, results of operations or
financial condition of the Trust, the Partnership and its Subsidiaries,
taken as a whole.
(aa) Affiliate Transactions. Schedule 11(aa) sets forth a complete and
accurate list of (i) all relationships and transactions, series of related
transactions or currently proposed transactions or series of related
transactions entered into by the Trust or any of its Subsidiaries since
December 31, 1996, which are of the type required to be disclosed by the Trust
pursuant to Item 404 of Regulation S-K of the Securities Act, the Exchange Act
and the rules and regulations promulgated thereunder and (ii) all agreements,
arrangements or policies of the Trust and/or the Subsidiaries of the Trust
(including the Partnership) concerning transactions with Affiliates or other
conflicts of interest. Each agreement, arrangement or policy described in
clause (ii) hereof and set forth in Schedule 11(aa) is in full force and
effect, and the Trust, each of its Subsidiaries, and the other parties thereto
are in compliance therewith, or such compliance has been waived by the Trust s
Board of Trustees as set forth in Schedule 11(aa). A true and complete copy of
all agreements or contracts relating to any such transaction has been made
available for inspection by the Owners.
12. Additional Agreements.
(a) Board Representation; Appointment of Executive Officers. The Board of
Trustees of the Trust covenants and agrees that at the Closing Date, the Trust
shall be governed by a Board of Trustees consisting of seven (7) Trustees. At
the Closing, the Board of Trustees of the Trust shall appoint four (4)
Trustees, two of whom shall be RD and KB, and two of whom shall be designated
by RDC and who shall be neither officers nor employees of the Trust, the
Partnership or of any Contributing Owner or Contributing Entity (the "RDC
Designees") (provided also that the RDC Designees shall be reasonably
acceptable to the Board of Trustees of the Trust, which acceptance shall not
unreasonably be withheld), and the Board of Trustees of the Trust shall also
appoint two (2) Trustees (provided that such designees shall be reasonably
acceptable to RD and KB, which acceptance shall not unreasonably be withheld)
(the "Trust Designees"). The appointment of the RDC Designees and the Trust
Designees shall be effective until the 1999 Annual Meeting of Shareholders of
the Trust and until their successors are duly elected and qualified.
Concurrently at the Closing, the Trustees of the Trust, other than the Trust
Designees (if they are then incumbent Trustees) and Marvin L. Slomowitz, shall
resign as Trustees from the Trust, Marvin L. Slomowitz shall resign as Chief
Executive Officer and the Board of Trustees shall appoint RD and KB to serve as
Chief Executive Officer and President, respectively.
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(b) Voting Trust Agreement; Investment Letter. At the Closing, each Fund
shall execute and deliver to each of its partners a proxy, appointing each
partner such Fund's proxy with respect to those Cash Investment Shares to which
such partner would be entitled upon a dissolution of such Fund and the
distribution of the Cash Investment Shares to such partner as a liquidating
distribution, with authority to consent or withhold consent, in such partner's
sole discretion, with respect to any matter as to which shareholders may act
pursuant to the Declaration of Trust and By-laws of the Trust; provided,
however, that if any partner of a Fund determines not to accept such Fund's
proxy as to those Cash Investment Shares to which it would otherwise be
entitled, then such Fund shall enter into a Voting Trust Agreement with the
Trust, appointing the Board of Trustees of the Trust (so long as KB and RD are
Trustees and executive officers of the Trust) as Voting Trustee with respect to
those Cash Investment Shares to which such Fund would otherwise be entitled to
vote, with authority to consent or withhold consent, in the Board of Trustees'
sole discretion, with respect to any matter as to which shareholders may act
pursuant to the Declaration of Trust and By-laws of the Trust. At Closing, each
Fund and each Contributing Owner to whom Operating Partnership Interests shall
be issued as part of the Contribution Consideration, shall execute and deliver
to the Trust and the Partnership an investment letter in the form attached as
Exhibit "O."
(c) Non-Compete Agreements. At Closing, RD and KB shall enter into the
non-compete agreements with the Partnership and the Trust in the form attached
as Exhibit "P" (the "Non-Compete Agreements").
(d) Proxy Statement; Listing on New York Stock Exchange. As promptly as
reasonably practicable after execution of this Agreement, the Trust, at its
expense, shall prepare and file with the Commission under the Exchange Act, and
shall use its best efforts to have approved by the Commission, a proxy
statement with respect to the meeting of the Trust's shareholders referred to
in subsection 12(e) (the "Proxy Statement"). Each of the Contributing Owners
and each Fund covenants and agrees to cooperate with the Trust in providing
such information as the Trust deems necessary to comply with the rules and
regulations of the Commission with respect to the Proxy Statement (including,
but not limited to, such information as the Trust deems necessary to respond to
any comments issued from time to time by the Commission staff concerning the
Proxy Statement and audited financial statements prepared in accordance with
generally accepted accounting principles and as may be required by the rules
and regulations of the Commission, and which shall reflect no material adverse
change in the financial condition or results of operations of the Contributing
Entities, and which the Warrantors covenant shall confirm as accurate the net
operating income of each Premises, each Contributed Management Contract and
each Contributed Note, all as reflected in the unaudited operating statements
of each of the Contribution Entities previously delivered to the Partnership).
The Trust and each of the Contributing Owners and each Fund agrees that the
information provided by each for inclusion in the Proxy Statement shall not,
when the Proxy Statement is first mailed to the Trust's shareholders and at the
Closing Date, contain any untrue statement of a material fact or omit to state
any material fact required to be stated in order to make such information, in
light of the circumstances in which it is made, not misleading. The Trust shall
notify RDC, on behalf of the Contributing Owners and the Funds, as promptly as
reasonably practicable of the receipt of any comments of the Commission and of
any request by the Commission for amendments or supplements to the Proxy
Statement, and will supply RDC, on behalf of the Contributing Owners and the
Funds, with copies of all correspondence between the Trust and/or its
representatives, on the one hand, and the Commission or the members of its
staff or any other appropriate government official, on the other hand, with
respect to the Proxy Statement. Each party shall use its best efforts to obtain
and furnish the information required to be included in the Proxy Statement;
shall use commercially reasonable efforts to respond promptly to any comments
made by the Commission with respect to the Proxy Statement, form of proxy, and
any preliminary version thereof, and the Trust shall cause the Proxy Statement
and related form of proxy to be mailed to its shareholders at the earliest
practicable time. The parties agree to correct, as promptly as practicable and,
in any event, prior to the date of the meeting of the Trust's shareholders
referred to in subsection 12(e) hereof, any such information provided by them
for use in the Proxy Statement which shall have become materially false or
misleading. Subject to the limitations set forth in Sections 23 and 24, the
Trust covenants and agrees that the Cash Investment Shares and the Common
Shares issuable from time to time upon conversion or exchange of the Operating
Partnership Interests shall be listed on the New York Stock Exchange or on such
other principal exchange as the Common Shares shall generally be listed on the
Closing Date.
(e) Meeting of Shareholders of the Trust. The Trust shall take all action
necessary, in accordance with the Maryland Law and its Amended and Restated
Declaration of Trust and By-laws, to duly call, give notice of and
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convene a meeting of its shareholders, as promptly as practicable, to consider
and vote upon (i) amendments to its Amended and Restated Declaration of Trust
authorizing a change in the Trust's name, the creation of a newly authorized
class of preferred stock and an increase in the number of Common Shares which
the Trust is authorized to issue, to be effective immediately upon the Closing;
and (ii) the approval and adoption of this Agreement and the transactions
contemplated hereby, including, but not limited to the Cash Investment and the
issuance of the Cash Investment Shares. The Proxy Statement shall contain the
determinations and affirmative recommendation of the Board of Trustees as to
each of the proposals set forth in this subsection 12(e).
(f) No Solicitation by the Trust.
(i) The Trust shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Trust, the Partnership
or any of its Subsidiaries, solicit or encourage (including by way of
furnishing information) the initiation of any inquiries or proposals
regarding any merger, amalgamation, take-over bid, reorganization, sale of
substantial assets, sale of Common Shares or Operating Partnership
Interests (including, without limitation, by way of a tender offer) or
similar transaction involving the Trust or the Partnership (any of the
foregoing inquiries or proposals being referred to herein as an
"Acquisition Proposal"); provided, however, that nothing contained in this
Agreement shall prevent the Board of Trustees of the Trust, after
consultation with its financial advisors, and after receiving advice from
outside counsel to the effect that the Board of Trustees of the Trust is
required to do so in order to discharge properly its fiduciary duties, from
considering, negotiating, approving and recommending to the shareholders of
the Trust and to the limited partners of the Partnership an unsolicited
bona fide Acquisition Proposal which the Board of Trustees of the Trust
determines in good faith would result in a transaction more favorable to
the shareholders of the Trust and to the limited partners of the
Partnership than the transaction contemplated by this Agreement (any such
Acquisition Proposal being referred to herein as a "Superior Proposal").
(ii) The Trust shall immediately notify RDC after receipt of any
Acquisition Proposal or any request for nonpublic information relating to
the Trust, the Partnership or any of their respective Subsidiaries in
connection with an Acquisition Proposal or for access to the properties,
books or records of the Trust, the Partnership or any of their respective
Subsidiaries by any person or entity that informs the Board of Trustees
that it is considering making, or has made, an Acquisition Proposal. Such
notice to RDC shall be made orally and in writing and shall indicate in
reasonable detail the identity of the offeror and the terms and conditions
of such proposal, inquiry or contract.
(iii) If the Board of Trustees of the Trust receives a request for
material nonpublic information by a party who makes a bona fide Acquisition
Proposal and the Board of Trustees of the Trust determines that such
proposal is a Superior Proposal, then, and only in such case, the Trust
may, subject to the execution of a confidentiality agreement, provide such
party with access to information regarding the Trust.
(iv) The Trust shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than with the
Contributing Owners and Contributing Entities) conducted heretofore with
respect to any of the foregoing.
(v) The Trust shall ensure that the officers, directors, trustees and
employees of the Trust, the Partnership and their respective Subsidiaries
and any investment banker or other advisor or representative retained by
the Trust are aware of the restrictions described in this subsection 12(g),
and shall be responsible for any breach of this Section by such bankers,
advisors and representatives.
(vi) In the event the Board of Trustees of the Trust determines, in
accordance with its fiduciary obligations, to execute an agreement
constituting a Superior Proposal prior to the Closing or within twelve (12)
months after the termination by the Trust of this Agreement other than by
reason of Sections 13(a)(i), (ii), (iii), (iv), (vi) or (viii), then upon
the execution of a definitive binding agreement between the Trust and the
third party providing for the consummation of the Superior Proposal and
containing the affirmative recommendation of a majority of the Board of
Trustees as to the Superior Proposal, and provided that the Owners shall
have not theretofore breached or otherwise been in default of any
obligation or condition to consummate the transactions contemplated by this
Agreement which would give rise to the Trust s right to terminate this
Agreement pursuant to Section 13(a)(i), (ii), (iii), (iv), (vi) or (viii),
the Trust shall pay to RDC or to its designees in cash the sum of One
Million Seven Hundred Fifty Thousand Dollars as liquidated damages, and not
as a penalty, in addition to any other amounts payable under Section 13(b).
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(g) Agreements Respecting Contributed Properties and Remaining Existing
Mortgages. The parties acknowledge that the Contributing Owners to whom
Operating Partnership Interests will be issued in exchange for Interests
(collectively, the "RDC Group") have structured the transactions contemplated
by this Agreement to defer recognition of gain for federal income tax purposes
at Closing, and to maintain such deferral thereafter to the extent provided
herein based upon the agreement of the Trust and the Partnership to abide by
certain covenants set forth in this Agreement. Based upon the foregoing, the
Trust and the Partnership hereby covenant as follows:
(i) Guaranty or Indemnity. At Closing, or at any time subsequent thereto
in accordance with the terms hereof, the Trust and the Partnership and its
respective Subsidiaries will permit the RDC Group to guarantee, or
indemnify the Trust, the Partnership and their respective Subsidiaries for,
the "bottom" portion (i.e., the least risky portion) of indebtedness of the
Partnership. In the event that other partners of the Partnership or any
Subsidiary (including future contributors) similarly require a guarantee or
indemnity of indebtedness of the Trust, the Partnership and/or their
respective Subsidiaries to defer the recognition of gain for federal income
tax purposes resulting from the contribution of property to the
Partnership, and such guarantee of indemnity of indebtedness is the
"bottom" portion of the indebtedness of the Partnership, then all such
partners (including the RDC Group) shall share pari pasu in the "bottom"
portion of such indebtedness. Notwithstanding the previous sentence, the
Trust and the Partnership agree to maintain (or make available for the
benefit of the RDC Group) (i) during the Restricted Period (as defined
below) an amount of indebtedness equal to $50,000,000, and (ii) after the
Restricted Period any debt encumbering the Contributed Properties, solely
for the RDC Group to guarantee (or indemnify the Trust, the Partnership or
their respective Subsidiaries for such indebtedness (the "RDC Group Debt
Amount")). In the event that the RDC Group guarantees or indemnifies the
Trust, the Partnership, or their respective Subsidiaries with respect to
indebtedness encumbering any property of the Trust, the Partnership or any
Subsidiary, such indebtedness shall not exceed 60% of the fair market value
of such property, as determined by a majority of the disinterested Trustees
of the Trust. The Trust and the Partnership agree, and shall cause their
respective Subsidiaries to agree, to take any and all action reasonably
designed so that the execution of each guarantee or indemnity by the RDC
Group results in tax basis for such RDC Group for federal income tax
purposes.
(ii) No Property Disposition. The Trust and the Partnership covenant
that they shall not sell, transfer, distribute or otherwise dispose, nor
permit any of their respective Subsidiaries to sell, transfer, distribute
or otherwise dispose, of the Contributed Properties (including, but not
limited to, the stock of any corporations) (or the properties, if any, that
are substituted or exchanged for the Contributed Properties) contributed by
the RDC Group, prior to the date set forth on Schedule 12(g)(ii) for such
Contributed Property or stock (the period of restriction for each such
property or stock being the "Restricted Period") other than an exchange or
other disposition which does not cause the RDC Group to recognize gain for
federal income tax purposes (including, without limitation, a transaction
pursuant to Section 1031 of the Code or any successor provision which would
not cause such recognition of gain). Before the end of the applicable
Restricted Period, the Trust, the Partnership or any of their respective
Subsidiaries shall have the right to dispose of or distribute any of the
Contributed Properties provided the Trust, the Partnership and/or such
Subsidiary pays to the RDC Group the Tax Payment (as defined below).
Nothing contained in Section 12(g)(ii) shall be deemed to be construed to
limit the rights of any lender or other secured party to foreclose on, or
otherwise dispose of, the Contributed Properties contributed by the RDC
Group or, of the Partnership to dispose of the Contributed Properties
contributed by the RDC Group; provided, however, the Trust, the Partnership
and/or such Subsidiary shall pay to the RDC Group the Tax Payment, if any,
triggered by any taxable disposition of the Contributed Properties
contributed by the RDC Group (other than as a result of a foreclosure)
prior to the expiration of the Restricted Period. The term "Tax Payment" as
used herein means an amount equal to the sum of (A) the federal, state, and
local income Taxes actually payable by the members of the Contributing
Owners resulting from the recognition of gain and (B) an additional payment
in an amount equal to the amount such that, after payment by the members of
the Contributing Owners of all Taxes (including interest and penalties) on
amounts received under clause (A) and this clause (B), the Contributing
Owners retain an amount equal to the amount described in clause (A).
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(iii) Right of Redemption.
(A) In the event that after the end of the Restricted Period and
prior to the second anniversary of the termination of the Restricted
Period, the Trust, the Partnership or any of their respective
Subsidiaries desires to sell or otherwise desire to dispose of (through
foreclosure or otherwise), or receive an unsolicited offer to purchase
any Contributed Property after the Restricted Period, which offer the
Trust, the Partnership or such Subsidiary wishes to accept, and provided
that the RDC Group has given notice to the Trust in December of the
calendar year immediately preceding the calendar year in which occurs
such proposed sale or disposition to the effect that the RDC Group
desires to receive any Offering Notice (as described below) required to
be sent during the next calendar year; the Trust, the Partnership or
such Subsidiary shall give notice (the "Offering Notice") thereof to RDC
or such other representatives as may be designated by the RDC Group from
time to time for such purpose. The Offering Notice shall specify the
nature of the sale and the consideration and other terms upon which it
intends to undertake such sale, and shall specify that the failure of
the RDC Group, through its authorized representative, to respond within
the time period set forth below shall be deemed an election by the RDC
Group not to purchase the Contributed Property. Within thirty (30) days
from the date of the Offering Notice, the RDC Group may elect, by
written notice to the Trust, to purchase the Contributed Property. If
the RDC Group elects to so purchase the Contributed Property as
aforesaid, then such purchase shall be consummated on the terms and
conditions set forth in the Offering Notice; provided, however, to the
extent that the Contributed Property is then subject to separately
allocated debt and the lender thereof consents to the RDC Group assuming
such debt at no cost, expense or liability to the Trust, the Partnership
or any Subsidiary, the Trust shall cause the Contributed Property to be
conveyed to the RDC Group subject to such debt.
(B) The RDC Group may use their Operating Partnership Interests as
currency, in whole or in part, in connection with the purchase of the
Contributed Property from the Trust, Partnership or any Subsidiary
pursuant to an election made in accordance with Section 12(g)(iii)(A).
In addition, as part of a transfer of the Contributed Property pursuant
to a foreclosure proceeding with respect to any debt secured by the
Contributed Property, if the RDC Group can cause the third party which
is otherwise to obtain title to the Property to accept Operating
Partnership Interests, in whole or in part, in lieu of obtaining title
to the Contributed Property (and without modifying any other terms in
the agreement of sale or transfer which has been executed in respect of
such Contributed Property), the RDC Group shall have the right to do so
provided that such third party agrees in writing for the benefit of the
Partnership to be bound by all of the terms and conditions of the
Agreement of Limited Partnership of the Partnership and, in accordance
therewith, compliance with all requirements pertaining to a transfer of
Operating Partnership Interests (other than the need to obtain the
consent of the general partner of the Partnership, which consent is
deemed to be given pursuant to the terms of this Section 12(g)(iii)); in
such event, title to the Property shall be transferred to the RDC Group
in redemption of the Operating Partnership Interests described above.
(C) If within the thirty (30) day period during which the RDC Group
has the right to elect to purchase the Contributed Property under the
Offering Notice, the RDC Group does not make the election or fails to
respond to the Offering Notice, the Trust, the Partnership or their
Subsidiary may undertake to sell the Contributed Property on such terms
and conditions as it shall elect; provided, however, that the sale of
the Contributed Property to which the Offering Notice pertains shall not
be consummated at less than ninety percent (90%) of the price as
specified in the Offering Notice unless the Trust, the Partnership or
the Subsidiary again offers the Contributed Property to the RDC Group
upon such more favorable terms and conditions. If the RDC Group notifies
the Trust of their intention not to purchase the Contributed Property as
set forth in the revised Offering Notice, or if the RDC Group does not
respond to the revised Offering Notice within the prescribed thirty (30)
day period, then the Trust, the Partnership or the Subsidiary may
consummate the sale at any time thereafter. In such event, the RDC Group
shall have no further right of redemption as against the party to whom
the Trust, the Partnership or the Subsidiary transferred title to the
Contributed Property; provided, however, that RDC Group's right of
redemption hereunder shall apply to any real property received by the
Trust, the Partnership or a Subsidiary and in an exchange for the
Contributed Property, whether said property represents all or only a
part of the consideration for the transfer of the Contributed Property.
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(D) In the event that the RDC Group elects to purchase the
Contributed Property pursuant to this Section 12(g)(iii), the Trust
agrees to cooperate with the RDC Group at no cost, expense or liability
to the Trust to cause debt to be placed on the Contributed Property
immediately prior to the closing of the conveyance of the Contributed
Property; provided that: (1) the RDC Group arranges for such debt at its
sole cost and expense; (2) the RDC Group is unconditionally and
irrevocably prepared to close such conveyance immediately after said
closing of the loan; and (3) the RDC Group agrees to assume the debt and
thereafter assumes the same at the closing and the Trust, the
Partnership and all of their respective Subsidiaries are released of all
liability thereunder immediately following the closing of the conveyance
of the Contributed Property.
(iv) Allocation Method. The Partnership covenants that the "traditional
method" (without curative allocations), as defined in Treas. Reg.
1.704-3(b), of allocating income, gain, loss and deduction to account for
the variation between the fair market value and adjusted basis of the
Contributed Properties for federal income tax purposes, shall be used (i)
with respect to the contribution of the Contributed Properties, and (ii)
with respect to any revaluation of the Property, pursuant to Treas. Reg.
Sections 1.704-l(b)(2)(iv)(f), 1.704l(b)(2)(iv)(g) and 1.704-3(a)(6).
(v) Tax Matters. The Contributing Owners will pay or provide for payment
of all Taxes (excluding all real estate taxes) due and payable on or after
the Closing and will file all Tax Returns and reports required to be filed
on or after the Closing with respect to Taxes imposed in connection with
the ownership and operation of the Contributed Properties for all taxable
periods (or portions thereof) ending on or prior to the Closing.
(h) Indemnification of Trustees and Officers.
(i) Those provisions of the Amended and Restated Declaration of Trust
and By-Laws of the Trust and of the Agreement of Limited Partnership of the
Partnership with respect to indemnification, advancement of expenses and
limitation on liability for the benefit of the trustees, officers,
employees and consultants set forth therein, shall not be amended,
repealed, or otherwise modified for a period of six (6) years after the
Closing Date in any manner that would adversely affect the rights
thereunder of individuals who at any time prior to the Closing Date were
trustees or officers of the Trust in respect of actions or omissions
occurring at or prior to the Closing Date (including, without limitation,
the transactions contemplated by this Agreement), unless such modification
is required by law.
(ii) From and after the Effective Time, the Trust and the Partnership
shall indemnify, defend and hold harmless the present and former officers
and trustees of the Trust (collectively, the "Indemnified Parties") against
all losses, expenses, claims, damages or liabilities, or amounts that are
paid in settlement of, or otherwise in connection with, any claim, action,
suit, proceeding or investigation (a "Claim"), based in whole or in part on
the fact that such person is or was a trustee, officer, employee or agent
of the Trust or any Subsidiary thereof (including the Partnership) and
arising out of actions or omissions occurring at or prior to the Closing
Date (including, without limitation, the transactions contemplated by this
Agreement), in each case to the full extent permitted under Maryland law as
it pertains to the Trust and under Delaware law as it pertains to the
Partnership (and shall pay in advance of the final disposition of any
action or proceeding to each Indemnified party to the fullest extent
permitted by Maryland law and Delaware law, as the case may be, upon
receipt from the Indemnified Party to whom expenses are advanced of an
undertaking to repay such advances in the event that it shall be finally
judicially determined that indemnification and the payment of such advances
is not permissible under applicable law).
(iii) Without limiting the foregoing, in the event any Claim is brought
against any Indemnified Party (whether arising before or after the Closing
Date) after the Closing Date: (A) the Indemnified Parties may retain the
Trust's regularly engaged independent legal counsel, or other independent
legal counsel satisfactory to them provided that such other counsel shall
be reasonably acceptable to the Trust; (B) the Trust shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; and (C) the Trust will use
their reasonable best efforts to assist in the vigorous defense of any such
matter, provided that the Trust shall not be liable for any settlement of
any Claim effected without its written consent, which consent shall not be
unreasonably withheld. Any Indemnified Party
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wishing to claim indemnification under this Section 12(h), upon learning of
any such Claim, shall notify the Trust (although the failure so to notify
the Trust shall not relieve the Trust from any liability which the Trust
may have under this Section 12(h) except to the extent such failure
prejudices the Trust, and shall deliver to the Trust and to the Partnership
the undertaking contemplated by the Maryland law and the Delaware law,
respectively). The Indemnified Parties as a group may retain one law firm
(in addition to local counsel) to represent them with respect to each such
matter unless there is, under applicable standards of professional conduct
(as reasonably determined by counsel to the Indemnified Parties), a
conflict on any significant issue between the positions of any two or more
Indemnified Parties in which event, such additional counsel as may be
required may be retained by the Indemnified Parties.
(iv) The Trust shall cause to be maintained in effect for not less than
six (6) years after the Closing Date the current policies of trustees' and
officers' liability insurance maintained by the Trust with respect to
matters occurring prior to the Closing Date; provided, however, that the
Trust may substitute therefor policies of substantially similar coverage
containing substantially similar terms and conditions to the extent
reasonably available and the Trust shall not be required to pay an annual
premium for such insurance in excess of 200% of the last annual premium
paid prior to the date of this Agreement, but in such case shall purchase
as much coverage as possible for such amount. In addition to, and not in
lieu of any other obligation of the Trust and the Partnership under this
Section 12(h), each of the Trust and the Partnership shall in all events
continue to be obligated under those agreements to which either is a party
pursuant to which either or both of the Trust and the Partnership has
agreed to indemnify and hold harmless the trustees and officers of the
Trust on account of claims and proceedings arising on or prior to the
Closing Date.
(v) This Section 12(h) is intended to be for the benefit of, and shall
be enforceable by, the Indemnified Parties, their heirs and personal
representatives, shall be binding on the Trust and its and their respective
successors and assigns, and shall not be amended or modified to adversely
affect any such party without the prior written consent of such party.
(i) Conduct of the Business of the Contributing Entities and Operation of
the Premises Pending the Closing. Between the date hereof and the Closing Date:
(i) The Owners will not take or suffer or permit any action which would
render untrue any of the representations or warranties of the Owners herein
contained, and not omit to take any action, the omission of which would
render untrue any such representation or warranty;
(ii) The Owners will, at their expense, make all repairs and
replacements, structural and non-structural, which are required with
respect to any portion of the Premises to maintain it in its present
condition ordinary wear and tear excepted. To the extent due and payable on
or prior to Closing, the Owners will pay in full, by the time of the
Closing, all bills and invoices for labor, goods, materials and services of
any kind and taxes due and assessments and utility charges payable relating
to the Premises, and each Contributing Entity shall pay in full at or prior
to the Closing, all expenses theretofore payable connected with the
negotiation, execution and delivery of each Lease, including, without
limitation, recording fees required to be paid by the lessor under any
Lease. To the extent any bills, invoices, expenses, taxes, assessments and
other charges pertain to periods prior to the Closing Date but are not due
and payable on or prior to the Closing Date, such items shall be treated as
adjustments to the Contribution Consideration in the manner provided in
Section 7. The Owners shall also complete, at their expense to the extent
that the expenses may not be passed through to tenants, all alterations,
repairs, capital and tenant improvements or other work required to have
been completed by such Owner under any reciprocal easement agreements,
Leases and other agreements to which it is a party, including, without
limitation, all alterations, improvements and other work or allowances
therefor required to prepare space for the initial occupancy of each tenant
under a Lease. The Owners shall cure, prior to the Closing Date or, at the
Partnership's sole option, as soon after the Closing Date as is reasonably
practical, any violation of Applicable Laws (as defined in Paragraph 9(h)
below) which existed prior to the Closing Date unless the cost to cure the
same shall exceed $125,000 as determined by a contractor acceptable to the
Partnership. If the cost to cure exceeds such amount, and the Partnership
nonetheless exercises its option to compel the Owner to cure the violation,
then the Owner shall have the right to terminate this Agreement, but only
as to such Premises, and the total consideration payable hereunder shall be
reduced by the Contribution Consideration attributable to such Premises as
set forth on Schedule 2(a).
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(iii) The Owners shall operate and manage the Premises in the same
manner as it has been operated and managed prior to the date of this
Agreement and in accordance with Applicable Laws. The Owners shall submit
to the Partnership monthly reports of rental collections, occupancy and
vacancies.
(iv) The Owners shall comply with all of the obligations of the Owners
under the Leases, the Existing Mortgages, the Service Agreements, the
Contributed Management Contracts and the Contributed Notes and all other
agreements and contractual arrangements by which the Owners and/or the
Premises are bound or affected. Without in any manner limiting the
generality of the foregoing, the Owners agree timely to pay to the holder
of the Existing Mortgage on or before the Closing Date all amounts of
principal, interest, prepaid real estate taxes, prepaid insurance premiums,
and all other sums due and payable under the Existing Mortgages on or
before the Closing Date. The Owners shall maintain their insurance policies
in full force and effect and shall pay all required premiums and other
charges.
(v) The Owners shall not encumber any Contributed Property with any
indebtedness other than for Existing Mortgages unless the instrument or
agreement giving rise to such indebtedness expressly permits the prepayment
of all principal and accrued interest at any time and from time to time
without the payment of any penalty or premium or unless the Owners shall
pay the prepayment penalty and premium. Notwithstanding the foregoing,
however:
(A) the Owners shall cause to be paid and satisfied prior to Closing,
all mortgage indebtedness on any Premises other than an Existing
Mortgage; and
(B) the Owners shall be permitted to incur additional mortgage
indebtedness (from affiliates of the Owners or otherwise), not to exceed
the amount, and encumbering only those Contributed Properties,
identified on Schedule 12(i)(v), solely for the purpose of financing the
improvements to such Contributed Properties in accordance with the
estimated construction budgets attached to Schedule 12(i)(v). Such
additional indebtedness (or additional equity contributed to the
Contributed Entity (from affiliates of the Owners or otherwise) in lieu
of incurring indebtedness as permitted hereby, but in no event in excess
of the amount of additional indebtedness permitted hereby), but only to
the extent the improvements financed thereby have been completed on or
prior to the Closing Date, shall be deemed an Existing Mortgage, to be
discharged in accordance with the terms of subsection 3(a) (provided
that no prepayment or other penalties or fees shall apply to any
repayment thereof). The Partnership shall be promptly notified in
advance of the incurrence of any additional mortgage indebtedness
permitted by this clause (B), and shall be advised of all relevant terms
and conditions thereof, all of which shall be commercially reasonable.
(vi) Promptly after receipt thereof by the Owners, the Owners shall
deliver to the Partnership the following:
(A) a copy of any notice of default or termination given or received
under any Existing Mortgage, Lease, Service Agreement, Contributed
Management Contract or Contributed Note;
(B) a copy of any tax bill, notice or statement of value, or notice
of change in a tax rate affecting or relating to the Premises;
(C) a copy of any notice of an actual or alleged violation of
Applicable Laws; and
(D) a copy of any notice of any condemnation proceedings with respect
to the Premises.
(vii) If a Contributing Owner or another entity in which RDC or an
affiliate of RDC (including, but not limited to, RD and KB) is a general
partner, manager or principal executive officer enters into an agreement
(an "Agreement of Sale") to purchase real property or any interest therein
(including, but not limited to, a leasehold interest as ground lessee),
such Contributing Owner or RDC, on behalf of a proposed purchaser which is
not a Contributing Entity, shall cause the Agreement of Sale to provide
that the purchaser may assign its rights under the Agreement of Sale to the
Trust, the Partnership or to a designee of the Trust, which, upon such
assignment, exercisable at the election of the Trust at Closing as provided
below, shall also assume the purchaser's obligations thereunder. Promptly
upon execution of any Agreement of Sale, a
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fully executed copy thereof, together with all addenda and exhibits
thereto, shall be delivered to the Trust. The Trust shall have the right to
conduct such due diligence concerning the property which is subject to the
Agreement of Sale as the Trust shall deem advisable and the Agreement of
Sale shall expressly permit the Trust to conduct such due diligence as
permitted hereby. The Trust shall notify RDC at or prior to Closing of its
election to exercise the option to obtain an assignment of the Agreement of
Sale and, if exercised, the proposed purchaser and the Trust (or its
designee) shall execute and deliver an Assignment and Assumption of Sales
Agreement as to such Agreement of Sale in the form of Exhibit "H".
(viii) If a Contributing Owner or another entity in which RDC or an
affiliate of RDC (including, but not limited to, RD and KB) is a general
partner, manager or principal executive officer acquires (after the date
hereof but prior to Closing) real property or any interest therein
(including, but not limited to, a leasehold interest as ground lessee) (the
"Interim Premises"), the Trust shall have the option, exercisable as set
forth below, to cause the Contributing Owner or such other person which is
not then a Contributing Owner to convey at Closing either fee simple title
to the Interim Premises or 100% of the interests in the Contributing Owner
or other person which owns of record the Interim Premises, on the same
terms and subject to the same conditions (including compliance with all of
the conditions to Closing as set forth in Section 8 hereof) as if the
Interim Premises constituted a Premises or the interests constituted
Interests as of the date of this Agreement and as if the Contributing Owner
or other person had executed and delivered this Agreement as of the date
hereof; provided, however, that, at the option of the Contributing Owner,
the consideration shall consist either of cash or Operating Partnership
Interests and, if Operating Partnership Interests, the number of Operating
Partnership Interests to be issued to the Contributing Owners at Closing
(which Operating Partnership Interests shall be allocated among the
Contributing Owners as shall be designated by RDC to the Partnership at
Closing) shall be equal to the quotient obtained by dividing (A) the
Interim Premises Cost and (B) the average of the Market Price (as defined
in subsection 2(b)) of the Common Shares for the twenty (20) consecutive
trading days ending on the Closing Date. The term "Interim Premises Cost"
shall mean the sum obtained by adding (1) the purchase price paid for the
Interim Premises as reflected in the Agreement of Sale pursuant to which
the Interim Premises was purchased, plus (2) brokerage fees, legal fees and
due diligence costs and acquisition expenses, and commissions and other
closing costs paid by the purchaser for the Interim Premises, all as
confirmed by the Trust, plus (3) the documented costs, if any, for
renovation or other improvements to the Interim Premises incurred between
the date of purchase and the Closing Date, plus (4) an amount equal to one
percent (1%) of the sum of the amounts determined in clauses (1) through
(3) above for each month which has elapsed between the date the Interim
Premises was purchased and the Closing Date (or a pro rata portion of such
one percent (1%) on the basis of the number of days elapsed for any partial
month), but in no event less than an aggregate of three percent (3%), and
by subtracting from such sum all indebtedness assumed by the Partnership
(or by its designee) in connection with the acquisition of the Interim
Premises or the interests (including, but not limited to, mortgage
indebtedness). The purchase price shall be adjusted at Closing subject to
normal closing adjustments in accordance with local custom. Without
limiting anything in this subsection 12(i) (viii), the aforementioned
option with respect to an Interim Premises shall be similarly granted by RD
Properties, L.P. VI and exercisable by the Trust, with respect to the
property described on Schedule 12(i) (viii).
(ix) The Owners agree that at Closing they shall cause to be delivered
to the Partnership from the holder of the fee interest in the real property
identified on Schedule 12(i)(viii) and any Interim Premises an agreement,
in the form of Exhibit "Q" (the "Right of First Offer Agreement"), granting
to the Partnership a right of first offer to purchase such real property on
the terms and subject to the conditions set forth in the Right of First
Offer Agreement.
(x) Subject to Section 6, the Owners and the Partnership agree that as
to proposed new Leases to be entered into for more than 10,000 square feet
of gross leasable area ("GLA"), the Owner will submit its completed
standard lease request form prior to negotiating the Lease, and the
Partnership shall have three (3) business days after receipt of such form
in which to object to or propose modifications to such proposed Lease. The
Partnership's failure to respond to the notice shall be deemed an
acceptance of the terms of such Lease. The Owner agrees to obtain the
Partnership's approval of any sub-sequent modifications to such economic
terms and the Partnership shall not unreasonably withhold, delay or
condition its consent to such subsequent modification, provided that the
Owner shall have the right to make customary modifications to
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its standard lease form so long as such modifications do not affect the
following terms (collectively the "Economic Terms"): (i) the term, (ii)
square footage, (iii) tenant improvement or tenant allowance amounts, (iv)
rent, (v) percentage rent or (vi) the obligation to pay a proportionate
share of taxes or common area maintenance (except to the extent that the
Owner customarily caps such charges or allows certain other modifications
to the scope of inclusions in common area maintenance clauses). The Owner
shall have the right to modify the terms of an existing Lease provided that
the Owner first gives to the Partnership prior written notice of any
proposed modifications to the Economic Terms of the existing Lease. The
Partnership shall have three (3) business days after receipt of such notice
to object to or propose modifications to the proposed terms. The
Partnership's failure to object to such proposed modification within such
three (3) business day period shall be deemed an acceptance of the terms of
such modification to the existing Lease. The termination of any of the
Leases prior to Closing as permitted herein shall not excuse the
Partnership from its obligation to complete Closing and to pay the full
Contribution Price, except as set forth in subsection 13(a)(vii) below.
(j) Conduct of the Business of the Trust and Partnership Pending the
Closing. Between the date hereof and the Closing Date:
(i) The Trust and the Partnership will not take or suffer or permit any
action which would render untrue any of the representations and warranties
of the Trust or Partnership herein contained, and not omit to take any
action, the omission of which would render untrue any of such
representations or warranties; and
(ii) The Partnership will, at its expense, make all repairs and
replacements, structural and non-structural, which are required with
respect to any portion of the Partnership Portfolio to maintain it in its
present condition, ordinary wear and tear excepted, including, without
limitation, all alterations, improvements or other work required to have
been completed by the Consolidated Trust under any reciprocal easement
agreements, Partnership Leases and other agreements to which it is a party,
including, without limitation, all alterations, improvements and other work
or allowances therefor required to prepare space for the initial occupancy
of each tenant under a Partnership Lease.
(iii) The Partnership will operate and manage the Partnership Portfolio
in the same manner as it has been operated and managed prior to the date of
this Agreement and in accordance with Applicable Laws. The Partnership
shall submit to RDC, on behalf of the Contributing Owners, monthly reports
of rental collections, occupancy and vacancies.
(iv) The Partnership will comply with all of its obligations under the
Partnership Leases, the Partnership's mortgages, the Partnership Service
Agreements and all other agreements and contractual arrangements by which
the Partnership and/or the Partnership Portfolio are bound or affected. The
Partnership shall not enter into any new Partnership Service Agreement
without first obtaining the prior approval of RDC, which approval shall not
be unreasonably withheld, delayed or conditioned, unless the new
Partnership Service Agreement is entered into in the ordinary course of
business and provides that the Partnership may terminate the Partnership
Service Agreement upon thirty (30) days notice without the payment of a
penalty or termination payment. Failure by RDC to respond to any request
for an approval or consent for a period of five days from the date of such
request shall be conclusive evidence of its approval as to the new
Partnership Service Agreement. The Partnership shall maintain its insurance
policies in full force and effect and shall pay all required premiums and
other charges.
(v) The Partnership shall not encumber any property of the Trust with
any indebtedness from the date hereof through the Closing Date without
first obtaining the prior written consent of RD, whichconsent shall not be
unreasonably withheld.
(vi) Neither the Trust nor the Partnership shall declare, set aside or
pay any cash dividends or make any other cash distributions to its
shareholders or partners on account of their Common Shares or Operating
Partnership Interests other than dividends by the Trust and distributions
by the Partnership which the Trust determines are necessary to comply with
and maintain its status as a REIT.
(vii) Promptly after receipt thereof by the Partnership, the Partnership
shall deliver to RDC, on behalf of the Contributing Owners, the following:
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(A) a copy of any notice of default given or received under any
Partnership Mortgage, Partnership Leases or Partnership Service
Agreements or any notices of termination given for any Partnership
Lease;
(B) a copy of any tax bill, notice or statement of value, or notice
of change in a tax rate affecting or relating to the Trust Portfolio;
(C) a copy of any notice of an actual or alleged violation of
Applicable Laws; and
(D) a copy of any notice of any condemnation proceedings with respect
to the Trust Portfolio.
(viii) The Owner and the Partnership agree that as to proposed new
Partnership Leases to be entered into for more than 10,000 square feet GLA,
the Partnership will submit its completed standard lease request form prior
to negotiating the Partnership Lease, and RDC, on behalf of the
Contributing Owners, shall have three (3) business days after receipt of
such form in which to object to or propose modifications to such proposed
Partnership Lease. RDC's failure to respond to the notice shall be deemed
an acceptance of the terms of such Partnership Lease. The Partnership
agrees to obtain RDC's approval of any subsequent modifications to such
economic terms and RDC shall not unreasonably withhold, delay or condition
its consent to such subsequent modification, provided that the Partnership
shall have the right to make customary modifications to its standard lease
form so long as such modifications do not affect the following terms
(collectively the "Economic Terms"): (i) the term, (ii) square footage,
(iii) tenant improvement or tenant allowance amounts, (iv) rent, (v)
percentage rent or (vi) the obligation to pay a proportionate share of
taxes or common area maintenance (except to the extent that the Partnership
customarily caps such charges or allows certain other modifications to the
scope of inclusions in common area maintenance clauses). The Partnership
shall have the right to modify the terms of an existing Partnership Lease
provided that the Partnership first gives to RDC, on behalf of the
Contributing Owners, prior written notice of any proposed modifications to
the Economic Terms of the existing Partnership Lease. RDC shall have three
(3) business days after receipt of such notice to object to or propose
modifications to the proposed terms. RDC's failure to object to such
proposed modification within such three (3) business day period shall be
deemed an acceptance of the terms of such modification to the existing
Partnership Lease. The termination of any of the Partnership Leases prior
to Closing as permitted herein shall not excuse the Owners from their
obligations to complete Closing except as set forth in subsection 13(a)(ix)
below.
(k) Conduct of the Funds Pending the Closing. Between the date hereof and
the Closing Date, none of the Funds will take or suffer or permit any action
which would render untrue any of its representations or warranties herein
contained, and not omit to take any action, the omission of which would render
untrue any such representation or warranty.
(l) Covenants Regarding Affiliated Transactions. The Contributing Owners
hereby covenant and agree that, except as otherwise expressly contemplated or
otherwise provided by the terms of this Agreement, commencing upon the Closing
Date and ending on the third anniversary of the Closing Date, the consummation
by the Trust or the Partnership of any transaction between the Partnership, the
Trust or any Subsidiary of the Partnership or the Trust, on the one hand, and
RD or KB, or any of their designees to the Board of Trustees or any of their
respective affiliates, on the other hand, shall require approval by a majority
of the then disinterested Trustees of the Trust; provided, however, that the
foregoing shall in no event be deemed to prevent or otherwise impair the
exercise by the Board of Trustees of its rights and the fulfillment of its
obligations under applicable law in respect of corporate opportunities,
interested transactions and similar conflicts or alleged conflicts of interest
involving the Trust, the Partnership or any of their respective affiliates.
(m) Right of RDC to Market Trust Property. The Trust and the Partnership
covenant and agree that following: (i) receipt by the Trust of evidence
reasonably satisfactory to the Trust that the Fund has obtained binding
irrevocable commitments from its partners to make capital contributions in an
aggregate amount not less than $50,000,000 in respect of the Cash Investment
and (ii) receipt by the Partnership of evidence reasonably satisfactory to the
Partnership that sufficient consents have been obtained pursuant to the
obligations of RD and KB under Section 4(k) such that the Partnership shall not
be entitled to terminate this Agreement pursuant to Section 13 (a)(viii), then
RD, on behalf of the Trust and the Partnership, shall be entitled to negotiate
and execute agreements concerning the disposition and/or financing of Trust
Property; provided that: (A) none of the Trust,
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the Partnership nor any Subsidiary of either shall have any obligations to any
third parties under any such agreements (including, but not limited to the
obligation to sell property or borrow funds) unless and until the Closing shall
have occurred; (B) none of the Trust, the Partnership nor any Subsidiary of
either shall incur any cost or expense in connection with any rights granted
RDC under this Section 12(m) unless and until the Closing shall have occurred;
(C) neither RDC nor any agent or affiliate of RDC shall represent itself as an
agent of or otherwise act on behalf of the Trust, the Partnership or any
Subsidiary, nor have any authority to bind any of the foregoing except upon
consummation of the Closing Date (and subject to any approvals or ratifications
that must be obtained from the Board of Trustees of the Trust or from the
general partner of the Partnership following the Closing Date; and (D) the
Warrantors [and the Fund] shall jointly and severally indemnify and hold the
Trust, the Partnership and each Subsidiary harmless from and against any and
all costs, expenses, damages, liabilities, claims, demands and actions
(including reasonable attorneys' fees and expenses) arising by reason of any
agreement or purported agreement or by reason of any action by RDC or any of
its agents under this Section 12(m) if the Closing shall not occur.
(n) Access to Information; Confidentiality.
(i) The Trust and the Partnership, on the one hand, and the Contributing
Owners and Funds, on the other hand, each shall cause their
representatives, officers, directors, trustees, employees, auditors and
other agents, to afford to each other and to their respective officers,
employees and agents, complete and unimpeded access at all reasonable times
to, from the date of this Agreement until the Closing Date, their officers,
employees, agents, properties, records and contracts, and shall furnish
such other party all financial, operating or other data and information as
such party, through its officers, employees or agents, may request.
(ii) In the event that transactions contemplated by this Agreement are
not consummated, no party may disclose, use or otherwise employ the
confidential information of another party in its business or otherwise
unless the party disclosing, using or otherwise employing such information
(the "Disclosing Party") shall establish either that the information (A)
came into the possession of the Disclosing Party on a nonconfidential basis
from a source other than the party asserting the confidentiality of such
information or from another party which is not known by the Disclosing
Party to be bound by a confidentiality or other obligation of secrecy to
the party asserting the confidentiality of the information or (B) has
become generally available to the public other than as a result of the
breach by the Disclosing Party of its obligations hereunder. In addition to
the foregoing, a Disclosing Party may disclose confidential information of
another party if required by law; provided, however, that the Disclosing
Party shall (x) give as much notice to the other party as is practicable
prior to making such disclosure, (y) cooperate with the other party at the
other party's cost and expense to obtain an appropriate protective order or
other reliable insurance to prevent or limit the disclosure of the
confidential information and (z) disclose only that portion of the
confidential information as such party, with the advice of its counsel,
deems necessary to comply with applicable law.
(o) Public Announcements. The Partnership and the Trust, on the one hand,
and RDC (for itself, all of the Owners and the Funds), on the other hand, will
consult with each other before issuing any press release or otherwise making
any public statement with respect to this Agreement or the transactions
contemplated hereby, and no party shall issue any press release or make any
such public announcement prior to such consultation, except as may be required
by law, the Commission or by the securities exchange on which the Common Shares
are then traded.
(p) Notification of Certain Matters. The Trust and the Partnership shall
give prompt written notice to RDC, and the Owners and the Funds shall given
prompt written notice to the Trust, of (a) the obtaining by it of actual
knowledge of any fact or (b) the occurrence, or failure to occur, of any event
(of which such party has actual knowledge) which fact would cause, or which
occurrence or failure to occur would be likely to cause, (i) any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect or (ii) any material failure of the Trust, the Partnership,
any Owner or any Fund, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
(q) Future Issuances of Convertible Preferred Stock. The Trust covenants
and agrees that if, following Closing, the Board of Trustees determines, in the
exercise of its duties, that it is in the interests of the Trust
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and its shareholders to engage in an offering of preferred stock
convertible into Common Shares, then upon commencement of any such
offering, the Trust shall use commercially reasonable efforts to provide to
those of the equity owners of the Fund who are equity owners of the Fund on
the Closing Date, a right of first preference to purchase such convertible
preferred stock, on terms and conditions which will be identical to the
offer and sale of the preferred stock to investors other than such equity
owners; provided that such right of first purchase shall be made only if
and to the extent permitted by all applicable federal and state securities
laws, rules and regulations, and provided that the terms of any such rights
of first preference shall be only in the manner determined fair and
equitable to the Trust.
13. Termination, Amendment and Waiver.
(a) Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned, by written notice promptly given to the
other parties hereto, at any time prior to the Closing Date, whether prior to
or after approval by the shareholders of the Trust:
(i) By mutual written consent of the Board of Trustees of the Trust and
the Board of Directors of RDC, acting on behalf of all of the Owners; or
(ii) By either the Board of Trustees of the Trust or by RDC, on behalf
of all of the Owners, if a court of competent jurisdiction or governmental,
regulatory administrative agency or commission shall have issued an order,
decree or ruling or shall have taken any other action, in each case
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 nonappealable; or
(iii) By either the Board of Trustees of the Trust or by RDC, on behalf
of all of the Owners, if the Closing Date shall not have occurred on or
before October 30, 1998, unless the absence of such occurrence shall be due
to the failure of the party seeking to terminate this Agreement to perform
in all material respects each of its obligations under this Agreement
required to be performed by it prior to the Closing Date; or
(iv) By either the Board of Trustees of the Trust or by RDC, on behalf
of all of the Owners, if at the Shareholders meeting referred to in
subsection 12(e) hereof (including any adjournment thereof) this Agreement
and the transactions contemplated hereby shall fail to be approved and
adopted by the requisite vote of shareholders of the Trust as required by
the applicable law; or
(v) By either the Board of Trustees of the Trust or by RDC, on behalf of
all of the Owners, if the Trust consummates a transaction constituting a
Superior Proposal.
(vi) By the Board of Trustees of the Trust, if the Contributing Owners,
Contributing Entities or any Fund fail to perform in all material respects
their obligations under this Agreement; or
(vii) By RDC, on behalf of all of the Owners, if the Trust and the
Partnership fail to perform in all material respects their respective
obligations under this Agreement; or
(viii) By the Trust, if there shall have occurred an RDC Material
Adverse Effect. For purposes of this Agreement, the term "RDC Material
Adverse Effect" shall mean a change in the business, assets, properties,
results of operations, financial condition or prospects of the Owners or
the Premises taken as a whole since the date of this Agreement which can
reasonably be expected to result in a reduction of the aggregate net
operating income ("NOI") from the Premises, the Contributed Management
Contracts, the Contributed Notes and other assets to be transferred by the
Owners to the Partnership pursuant to this Agreement, taken as a whole, by
more than 10% of the Target RDC NOI. The term Target RDC NOI shall mean the
actual aggregate net operating income from operations of all of the
Premises, for the twelve months ended December 31, 1997 as reflected in the
unaudited operating statements of each of the Contributing Entities
previously delivered by the Owners to the Partnership; provided, however,
that with respect to determining an "RDC Material Adverse Effect," the NOI
with respect to each Premises described on Schedule 13(a)(viii), but only
if such Premises is not contributed (by a contribution of Interest or
otherwise as provided herein), shall not be considered for purposes of
calculating Target RDC NOI.
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(ix) By RDC, on behalf of all of the Owners, if there shall have
occurred a Trust Material Adverse Effect. For purposes of this
Agreement, the term "Trust Material Adverse Effect" shall mean a change
in the business, assets, properties, results of operations, financial
condition or prospects of the Trust Portfolio taken as a whole since the
date of this Agreement which can reasonably be expected to result in a
reduction of the aggregate FFO from the Trust Portfolio taken as a whole
by more than 20% of the Target Trust FFO. The term Target Trust FFO
shall mean the actual aggregate FFO from operations of all of the Trust
Portfolio real properties for the twelve months ended December 31, 1997.
The aforementioned termination may occur notwithstanding approval of
this Agreement by the shareholders of the Trust.
(b) Effect of Termination. In the event of a termination of this Agreement
and abandonment of the transactions as contemplated hereby pursuant to
subsection 13(a), this Agreement shall become void, and, except as provided in
this subsection 13(b) and subsection 12(f), there shall be no liability on the
part of any of the parties hereto or of any of their respective officers,
directors, trustees, employees, agents or shareholders, regardless of whether
such termination and abandonment arose out of a breach of this Agreement by any
party or for any other reasons. Notwithstanding the termination of this
Agreement and the abandonment of the transactions contemplated hereby, nothing
in this Section 13(b) shall relieve (i) any party which is a signatory hereto
from any liability for any wilful breach or wilful default by such party of any
provision of this Agreement (including, but not limited to, attorneys' fees and
costs, court costs and other costs and expenses incurred in litigating the
cause of action and in enforcing its rights hereunder) (it being acknowledged
by the parties hereto that a termination of this Agreement by the Trust or by
RDC pursuant to subsection 13(a)(v) shall not be deemed a wilful breach or
wilful default by the Trust) or (ii) the Trust from its obligation to make the
payment to RDC, on behalf and for the benefit of the Owners as provided in
subsection 12(f) hereof. In addition to the foregoing: (x) in the event of a
termination of this Agreement by the Trust pursuant to subsection 13(a)(vi),
RD, KB and the Contributing Owners who are signatories to this Agreement shall
be jointly and severally liable for and shall promptly pay to the Trust and the
Partnership all out-of-pocket expenses and costs incurred by the Trust and the
Partnership in connection with this Agreement and the fulfillment of all
obligations hereby, including, but not limited to, legal, accounting,
investment banking and appraisal fees and due diligence costs and expenses and
printing costs and expenses associated with printing and mailing of the Proxy
Statement; and (y) in the event of a termination of this Agreement by RDC, on
behalf of all other Owners, pursuant to subsection 13(a)(iv) or subsection
13(a)(vii) or a termination of this Agreement by RDC, on behalf of all other
Owners, or by the Trust, in each case pursuant to subsection 13(a)(v), the
Partnership and the Trust shall be jointly and severally liable for and shall
promptly pay to RDC, on behalf and for the benefit of the Contributing Owners,
all out-of-pocket expenses, costs and fees incurred by the Contributing Owners
in connection with this Agreement and the fulfillment of their obligations and
the transactions contemplated hereunder including, but not limited to, due
diligence costs and expenses, legal, accounting, investment banking fees and
environmental and engineering fees and costs (but excluding costs and expenses
incurred in connection with the formation and capitalization of the Funds);
provided, however, that (A) in no event shall any payments under subsection
13(b)(x) or (y) exceed $1,250,000; and (B) in no event shall the Trust or
Partnership be obligated to make any payment if the termination of this
Agreement by RDC, on behalf and of the Owners, pursuant to subsection
13(a)(vii) arises by reason of a breach of the representations set forth in
subsection 11(m).
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14. Notices.
(a) All notices, demands, requests or other communications required or
permitted under the terms of this Agreement shall be in writing and, unless and
until otherwise specified in a written notice by any party addressed to and
delivered in the manner set forth in this Section 14, shall be sent to the
parties at the following addresses:
if intended for the Owners:
RD Capital, Inc.
805 Third Avenue
9th Floor
New York, NY 10022
Attention: Kenneth F. Bernstein, Chief
Operating Officer
Telecopy: (212) 421-2290
with a copy delivered in the
manner provided to:
Martin L. Edelman, Esquire
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
Telecopy: (212) 856-7808
-and-
Robert Masters, Esquire
Acadia Management Company LLC
20 Soundview Marketplace
Port Washington, NY 11050
Telecopy: (516) 767-8834
if intended for the Trust or
the Partnership:
Mark Centers Trust
600 Third Avenue
Kingston, PA 18704-1679
Attention: Joshua Kane, Senior Vice President
Telecopy: (717) 288-1028
with a copy sent in the
manner provided to:
Steven N. Haas, Esquire
Cozen and O'Connor
The Atrium
1900 Market Street
Philadelphia, PA 19103
Telecopy: (215) 665-2013
(b) Each such notice, demand, request or other communication shall be
deemed to have been properly served for all purposes if: (i) hand delivered
against a written receipt of delivery; (ii) mailed by registered or certified
mail of the United States Postal Service, return receipt requested, postage
prepaid; (iii) delivered to a nationally recognized overnight courier service
for next business day delivery, to its addressee at the address set forth above
in this Section; or (iv) delivered via telecopier or facsimile transmission to
the facsimile number listed in this Section, provided, however, that if such
communication is given via telecopier or facsimile transmission, an original
counterpart of such communication shall concurrently be sent in either the
manner specified in clause (i), (ii) or (iii) of this subsection (b).
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(c) Each such notice, demand, request or other communication shall be
deemed to have been received by its addressee upon the earlier of: (i) actual
receipt or refusal by the addressee (by facsimile or otherwise); or (ii) two
(2) business days after deposit thereof at any main or branch United States
post office, ifsent in accordance with clause (ii) of subsection 14(b), and one
(1) business day after delivery to the courier if sent pursuant to clause (iii)
of subsection 14(b).
15. Fire or Other Casualty.
(a) Each Owner shall maintain in full force and effect until the Closing
Date the fire and extended coverage insurance policies now in effect on the
Premises of such Owner.
(b) In the event that any building on the Premises shall have been
materially damaged by fire or other casualty in excess of $500,000 and (X)
tenants comprising 90% of the damaged Premises do not have a right (or have
waived their right) to terminate their Leases as a result of such casualty and
such tenants are not subject to rent insurance or (Y) the Premises cannot be
restored on a timely basis solely because the proceeds of insurance of such
Premises are insufficient to permit restoration of such Premises and the
Contributing Entities were not willing to jointly and severally indemnify and
hold harmless the Partnership for the shortfall, the Trust and the Partnership
shall have the right to terminate this Agreement as to such Premises by written
notice to such Owner. In the event of such termination, none of the
Partnership, the Trust or such Owner shall have any further rights or
obligations under this Agreement and as to such Premises or such Contributing
Owners' Interests in the Owner of such Premises, this Agreement shall be null
and void; but as to all other parties and as to any other Premises, this
Agreement shall remain in full force and effect and the total contribution
payable hereunder shall be reduced by the Contribution Consideration
attributable to such Premises as set forth on Schedule 2(a). If this Agreement
is not so terminated or if such casualty is unknown to the Partnership, then
the proceeds of the insurance policies attributable to the Premises or the
Personal Property paid by the insurer(s) and either (i) received by such Owner
prior to Closing and not used by such Owner for the repair of the Premises or
the Personal Property (and the Partnership hereby authorizes each Owner to use
the proceeds for such purpose), or (ii) not held by the holder of the Existing
Mortgage nor applied against the Existing Mortgage, shall be part of the assets
of the Owner contributed to the Partnership at Closing and, in either such
event, there shall be no reduction in the Contribution Consideration by reason
of any such unpaid claim. If with respect to the Premises of an Owner (i) the
Trust and the Partnership do not exercise their right to terminate this
Agreement as provided in this subsection or (ii) if such casualty as described
in this subsection is unknown to the Trust or the Partnership, and the proceeds
of the insurance policies attributable to such Premises or the Personal
Property have not been paid as of Closing by the insurer(s), such Owner shall
assign to the Partnership its entire interest in, and right to receive all
insurance proceeds payable in connection with such casualty. The assignment of
such interest and right shall be part of the assets of such Owner transferred
to the Partnership at Closing. There shall not be any reduction in the
Contribution Consideration by reason of such assignment.
(c) Each Owner will certify to the Trust and the Partnership at Closing
that to its knowledge, no damage by fire or other casualty has occurred, or, if
such has occurred, will describe in writing the nature and extent of such
damage and whether such damage has been restored.
16. Condemnation.
(a) If any of the Premises or any "material part" thereof shall be taken
by the exercise of the power of eminent domain after the date hereof and prior
to Closing, this Agreement may be terminated by the Trust and the Partnership
as to such Premises by written notice to the applicable Owners. In the event of
such termination, none of the Trust, the Partnership or such Owner shall have
any further rights or obligations under this Agreement and as to such Premises
or such Owner's Contributing Owner in their capacity as such, and this
Agreement shall be null and void, but as to all other parties and as to any
other Premises, this Agreement shall remain in full force and effect and the
total contribution payable hereunder shall be reduced by the Contribution
Consideration attributable to such Premises as set forth on Schedule 2(a). The
term "material part" means the institution of any proceedings, judicial,
administrative or otherwise, which would (i) reasonably be expected to reduce
the aggregate useable square footage of the Premises by at least 25% of gross
leasable area (ii) entitle one or more tenants occupying at least 25% of gross
leasable area to terminate its lease and such tenant does not waive such right
prior to Closing, (iii) cause access to the Premises to be taken or materially
diminished (i.e.,
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such taking does not provide access to a publicly dedicated street or is an
impediment to traffic flow from and to the Premises) or (iv) result in parking
no longer being in compliance with applicable zoning laws and the Contributing
Entity is unable to remedy such non-compliance prior to Closing. If this
Agreement as to such Premises or Interests of the Contributing Owners in such
Owner is not so terminated, then this Agreement as to such Premises or
Interests shall continue in full force and effect and there shall be no
reduction in the Contribution Consideration. As of Closing, each Owner shall
cause all of such Owner's rights and claims to any awards arising therefrom as
well as the amount of any money theretofore received by such Owner on account
thereof (and not retained by the holder of the Existing Mortgage), net of any
expenses incurred by such Owner, including, without limit thereto, reasonable
counsel fees, in collecting the award to be part of the assets of such Owner.
As of Closing, each Owner shall transfer to the Partnership all of such Owner's
rights and claims to any awards arising therefrom as well as the amount of any
money theretofore received by such Owner on account thereof (and not retained
by the holder of the Existing Mortgage), net of any expenses incurred by such
Owner, including, without limit thereto, reasonable counsel fees, in collecting
the award. With respect to any such taking after the date of this Agreement,
the affected Owner shall furnish to the Partnership a copy of the declaration
of taking promptly after Owner's receipt thereof.
(b) Each Owner will certify to the Trust and the Partnership at Closing
that no such taking has occurred, or, if such has occurred, will describe in
writing the nature and extent of such taking.
17. Brokers. The Trust, the Partnership and each Owner represents and
warrants to the other that he, she or it has dealt with no broker or other
intermediary in connection with the transactions contemplated by this Agreement
other than Bear, Stearns & Co., Inc., on behalf of the Trust, and Donaldson,
Lufkin & Jenrette, on behalf of the Owners. In the event that any broker or
other intermediary claims to have dealt with any of the Owners or with the
Trust or the Partnership in connection with the transactions contemplated by
this Agreement, to have introduced the Interests or the Premises to the Trust
or the Partnership for contribution, or to have been the inducing cause of the
contribution, each of the Contributing Owners and the Trust and the Partnership
shall indemnify, defend and save the others harmless from and against any claim
for commission or compensation by such broker or other intermediary, as well as
all costs and liabilities incurred by the others by reason thereof, if its
representation or warranty above is false.
18. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective heirs, executors, personal
representatives, successors and assigns. Except to the extent this Agreement
contemplates that one or more Subsidiaries of the Trust may act as designee of
the Partnership to receive title to certain of the Premises, this Agreement and
the rights arising hereunder may not be assigned by any party without the
consent of the other parties hereto.
19. Captions or Headings; Cross-References. The captions or headings of
the Sections of this Agreement are for convenience only, and shall not control
or affect the meaning or construction of any of the terms or provisions of this
Agreement. References in this Agreement to Sections and subsections are
references to Sections and subsections of this Agreement, unless expressly
stated to the contrary. References in this Agreement to Exhibits and Schedules
are, unless expressly stated to the contrary, references to Exhibits and
Schedules to this Agreement, each of which is part of this Agreement.
20. Amendments. No change, alteration, amendment, modification or waiver
of any of the terms or provisions of this Agreement shall be valid, unless in
writing and signed by the parties to this Agreement who are or will be affected
thereby.
21. Applicable Law. This Agreement shall be governed and construed
according to the laws of the jurisdiction in which the Premises is located as
to the contribution of such Premises and by the laws of the State of Maryland
as to all other matters arising hereunder.
22. Maintenance of Records. Each Owner shall deliver at Closing to the
Partnership, and the Partnership shall maintain or cause each Owner to maintain
at the Premises or at an office of the Partnership, all tenant files, tenant
correspondence, operating and capital budgets, blueprints, plans and
specifications, drawings and studies of the Premises in its possession after
exercising diligent efforts to obtain the same, for a period of seven (7) years
after Closing. Each Contributing Owner, upon reasonable prior notice to the
Partnership, shall for a period of seven (7) years after the Closing have
access to such records at any reasonable time and from time to time during
normal business hours and shall be entitled to copy such records at its
expense.
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23. Survival of Representations, Warranties and Covenants. All covenants
(other than those as to which performance thereof as a condition to Closing
have been expressly waived by the party entitled thereto), and all
representations and warranties contained in this Agreement, shall survive
Closing; provided, however, that no claim for a breach of any representation or
warranty or covenant contained in this Agreement (other than:
(w) those contained in subsection 10(a)(v); (x) a breach by the Trust of its
covenant to make the Tax Payment; (y) the breach by the Trust to make the
payment required by subsection 12(f) or required by subsection 13(b)(y) if
required to be so paid; and (z) a breach by RD, KB or the Contributing Owners
who are signatories hereto of their covenant to make the payment required by
subsection 13(b)(x) if required to be so paid (clauses (w) through (z)
collectively, the Surviving Indemnities ), which shall survive indefinitely),
may be maintained by any party alleging such breach or misrepresentation unless
such aggrieved party shall have delivered a written notice ("Notice of Breach")
specifying the details (to the extent known at such time) of such claimed
breach to the alleged breaching party within: (A) as to breaches of
representations and warranties (other than as contained in clause (w) above),
one (1) year from the Closing Date and (B), as to breaches or defaults in
covenants (other than those in clauses (x) through (z) above), one year from
the date the obligation to perform the covenant to which the breach or default
pertains first arises (the "Survival Period"). For purposes of this Agreement,
the term "knowledge" shall mean: (i) with respect to each Contributing Owner
which is other than a natural person, the actual knowledge of the Chief
Executive Officer, Chief Operating Officer and Chief Financial Officer of such
Contributing Owner or of the general partner of the Fund, as well as the
knowledge which such person would reasonably be expected to have in the
exercise of his duties on behalf of such Contributing Owner; (ii) with respect
to the Partnership and the Trust, the actual knowledge of the Chief Executive
Officer, Chief Operating Officer and Chief Financial Officer of the Trust, as
well as the knowledge which such person would reasonably be expected to have in
the exercise of his duties on behalf of the Trust, including as general partner
of the Partnership; (iii) with respect to each natural person who is also a
chief executive officer, chief operating officer or chief financial officer of
a corporation, of a general partner of a partnership or of a manager of a
limited liability company which is a Contributing Owner or a Fund, then the
actual knowledge of such person as well as the knowledge which such person
would reasonably be expected to have in the exercise of his duties in the
foregoing capacity on behalf of such Contributing Owner or Fund; and (iv) with
respect to each natural person other than as described in clause (iii) above,
the actual knowledge of such person. Each representation, warranty, covenant
and agreement contained herein, and each exception thereto, is independent of
all other warranties, representations, covenants, agreements and exceptions
contained therein (whether covering an identical or related subject matter) and
must be independently and separately complied with and satisfied. No such
representation or warranty shall be deemed to have been waived, affected or
impaired by any investigation made by the party to whom such representation or
warranty is given hereunder.
24. Indemnification.
(a) To the extent and in the manner provided in this Section 24 after the
Closing, each of the Warrantors, jointly and severally, hereby agrees to
indemnify and hold harmless the Trust, the Partnership, each Subsidiary of the
Trust or of the Partnership or any of their respective heirs, successors,
employees, officers, agents, trustees, directors, personal representatives and
assigns, from, against and in respect of all demands, claims, actions or causes
of action, assessments, taxes, losses, fines, penalties, damages, liabilities,
costs and expenses (including, without limitation, reasonable attorneys' fees
and expenses costs of litigation and reasonable fees and expenses of
accountants and including any such fees, costs and expenses with respect to any
actions to enforce the terms of this Section 24(a)) and charges (collectively,
"Losses") sustained or incurred by any of the foregoing:
(i) as a result of or arising out of any inaccuracy in or breach of any
representation or warranty of any of the Contributing Owners in this
Agreement or breach of any covenant or agreement to be performed
post-Closing by any of the Contributing Owners pursuant to this Agreement,
any assignment or other agreement (other than the Third Party Partner
Agreement, in the case of which the Trust shall seek recourse solely
against RD, KB and the signatory to such Third Party Partner Agreement,
jointly and severally) transferring assets or property (or interests
therein), or in any other agreement with respect to the assignment,
conveyance, contribution or transfer of the Premises (or interest therein),
assets, agreements, rights or other instruments conveyed, assigned,
contributed or otherwise transferred to the Trust, the Partnership or any
Subsidiary of the Trust or the Partnership; or
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(ii) obligations (1) accruing and arising prior to the Closing Date (or
arising after the Closing Date but pertaining to the period prior to the
Closing Date) under the Leases, ground leases, Service Agree-ments, Sales
Agreements, Agreements of Sale and any and all contracts as to which any of
the Con-tributing Owners are parties or by which any of them are bound or
(2) accruing or arising prior to the Closing Date (or arising after the
Closing Date but pertaining to the period prior to the Closing Date) with
respect to the ownership, operation or use of the Premises and, in each of
the cases described in clauses (1) and (2) above, except to the extent
expressly assumed by the Partnership or its designee by the terms of this
Agreement and/or the Schedules or transfer documents to be executed in
connection with the Closing (in the forms of the Exhibits attached hereto
or otherwise).
(b) To the extent and in the manner provided in this Section 24 after the
Closing, the Partnership and the Trust agree to and shall indemnify and hold
harmless the Owners and their respective heirs, successors, employees,
officers, agents, trustees, directors, personal representatives and assigns
from, against and in respect of any and all Losses sustained or incurred by any
of the foregoing:
(i) as a result of or arising out of any inaccuracy in or breach of any
representation or warranty of any of the Trust, Partnership, or Subsidiary
of the Trust in this Agreement or breach of any covenant or agreement to be
performed post-Closing by any of the Trust, Partnership, Subsidiary of the
Trust pursuant to this Agreement, in any assignment or other agreement
transferring assets or property (or interests) therein, or in any other
agreement with respect to the assignment, conveyance, contribution or
transfer of the Premises (or interest therein), assets, agreements, rights
or other instruments conveyed, assigned, contributed or otherwise
transferred to the Trust, the Partnership or any Subsidiary of the Trust or
the Partnership; or
(ii) obligations (1) accruing and arising after the Closing Date (other
than those arising after the Closing Date and pertaining to the period
prior to the Closing Date) under the Leases, ground leases, Service
Agreements, Sales Agreements and any and all contracts as to which any of
the Contributing Owners or Contributing Parties are parties or by which any
of them are bound or (2) accruing or arising after the Closing Date with
respect to the ownership, operation or use of the Premises and, in each of
the cases described in clauses (1) and (2) above, which are assumed by the
Partnership or its designee by the terms of this Agreement and/or the
Schedules or transfer documents to be executed in connection with the
Closing (in the forms of the Exhibits attached hereto or otherwise); or
(iii) as a result of the breach of any representation or warranty by the
Partnership or the Trust in connection with the assumption of any of the
Remaining Mortgages or the breach after the Closing Date of any
representation, warranty or covenant contained in any documents,
instruments or agreements evidencing or relating to the Remaining
Mortgages, or any modification, renewal, extension, supplement or
replacement thereof.
(c) To the extent and in the manner provided in this Section 24 after the
Closing, each Fund, severally, and KB and RD, jointly and severally with each
Fund (except that as to breaches arising under subsection 10(b)(v)(B), the
Funds, jointly and severally, and KB and RD, jointly and severally with the
Funds), hereby agrees to indemnify and hold harmless the Trust, the
Partnership, each Subsidiary of the Trust or of the Partnership or any of their
respective heirs, successors, employees, officers, agents, trustees, directors,
personal representatives and assigns, from, against and in respect of all
Losses sustained or incurred as a result of or arising out of any inaccuracy in
or breach of any representation or warranty of the Fund in this Agreement or
breach of any covenant or agreement to be performed post-Closing by the Fund.
(d) If a claim arises as to which a party hereto is entitled to
indemnification hereunder (an "Indemnitee"), such Indemnitee shall give prompt
notice of such claim to the party obligated to indemnify the Indemnitee (an
"Indemnitor") specifying the details of such claim of Loss (as to which notice
to the Partnership shall be considered sufficient notice as to all Indemnitors
who are obligated to indemnify the Indemnitee together with the Partnership and
as to which notice to RD shall be considered sufficient notice as to all
Indemnitors who are obligated to indemnify the Indemnitee together with RD);
provided, however, that the failure to provide notice as aforesaid shall not
relieve an Indemnitor from its indemnification obligations hereunder unless,
and only to the extent, that such failure materially prejudices the
Indemnitor's defense with regard to such claim.
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(e) Notwithstanding anything herein to the contrary:
(i) Other than Losses attributable to the Surviving Indemnities, no
claim for indemnity may be maintained with respect to Losses under
subsection 24(a)(i), 24(b)(i) or 24(c) unless an Indemnitee shall have
delivered the written notice required by subsection 24(c) to the Indemnitor
on or before the expiration of the Survival Period;
(ii) the obligation of any Warrantors to indemnify any party hereunder
for a Loss shall be reduced to the extent that the Partnership is entitled
to payment for all or a portion of such Loss under any title insurance
policy or policies issued to the Partnership hereunder;
(iii) the liability of any Contributing Owner signing this Agreement or
the Third Party Partner Agreement (other than RD, KB or RDC) hereunder
shall be limited to Losses directly from or arising out of the breach by
him, her or it of his, her or its representations and warranties contained
in Section 10 hereof or in the Third Party Partner Agreement;
(iv) The Trust, the Partnership and their respective Subsidiaries shall
not be entitled to seek indemnification for Losses under Section 24(a) and
Section 24(c) hereunder until the aggregate amount of Losses shall equal
$500,000, in which event the Trust, the Partnership and their respective
Subsidiaries shall be entitled to seek indemnification for the total amount
of Losses; provided, however, that the aggregate amount of Losses
attributable to the Surviving Indemnity described in clause (z) of Section
23 shall be recoverable without regard to the foregoing limitation (and the
amount of such Losses shall not be credited against the $500,000
deductible);
(v) The Contributing Owners and the Funds shall not be entitled to seek
indemnification for Losses under Section 24(b) hereunder until the
aggregate amount of Losses shall equal $500,000, in which event the
Contributing Owners and the Funds shall be entitled to seek indemnification
for the total amount of Losses; provided, however, that the aggregate
amount of Losses attributable to the Surviving Indemnities described in
clauses (x) and (y) of Section 23 shall be recoverable without regard to
the foregoing limitation (and the amount of such Losses shall not be
credited against the $500,000 deductible); and
(vi) The total amount of Losses to which the Trust, the Partnership and
their respective Subsidiaries shall be entitled to indemnification under
Section 24(a) and 24(c) hereunder shall not exceed $5,000,000, and the
total amount of Losses to which the Contributing Owners and the Funds shall
be entitled to indemnification under Section 24(b) hereunder shall not
exceed $5,000,000; provided, however, that for purposes of calculating the
maximum amount of indemnifiable Losses, Losses attributable to the
Surviving Indemnities described in clauses (w), (x), (y) and (z) shall be
excluded.
(f) Recourse for the indemnity obligations of the Contributing Owners
(including, but not limited to, RD and KB) set forth in subsection 24(a) above
shall be limited solely to the Indemnity Collateral (as defined below).
Recourse for the indemnity obligations of the Trust and the Partnership set
forth in subsection 24(b) shall be, at the option of the Indemnitee, to
Operating Partnership Interests or Common Shares (in each case valued at the
Market Price on the date on which the indemnification obligation is finally
established), or cash. Indemnity Collateral shall be, with respect to any
Contributing Owner: (i) the Operating Partnership Interests acquired by such
Contributing Owner in connection with the consummation of the transactions
contemplated hereby; (ii) any Common Shares received by such Contributing Owner
as a result of the exchange of Operating Partnership Interests for Common
Shares; and (iii) cash or in-kind distributions, share splits or other
securities received or receivable with respect to the Common Shares or
Operating Partnership Interests as described in clauses (i) and (ii) above.
(g) With respect to the indemnity obligations of RD, KB and RDC set forth
under subsection 24(a) hereof, RD, KB and RDC hereby grant to the Indemnified
Parties, a first and prior lien upon and a continuing security interest in the
Indemnity Collateral and in any proceeds or substitution thereof, whether now
existing or hereafter acquired. Any transfers permitted by the Agreement of
Limited Partnership of the Partnership or otherwise by RD, KB or RDC of their
Operating Partnership Interests or their Shares which may be received by them
upon exchange of their Operating Partnership Interests shall expressly remain
subject to the liens and security interests granted hereby until and unless
such liens and security interests are released in accordance with the
provisions of this subsection 24(g). In connection with the grant of such
security interests, RD, KB and RDC on the
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date of Closing shall deliver such instruments, including stock transfer powers
duly endorsed in blank, as shall be necessary to grant to the Trust and the
Partnership a fully perfected first priority security interest in any Common
Shares that may, after the date hereof, be issued to such persons by share
dividend, split or similar distribution, and shall execute and deliver UCC
Financing Statements and such other documents and take such other action
necessary to grant to the Trust and the Partnership a fully perfected first
priority security interest in all of their respective Operating Partnership
Interests. In the event RD, KB or RDC are determined to have an indemnification
obligation pursuant to Section 24 hereof, then each Indemnified Party shall
have all of the rights now or hereafter existing under applicable law, and all
rights as a secured creditor under the Uniform Commercial Code in all relevant
jurisdictions, and each of RD, KB and RDC agrees to take all such actions as
may be reasonably requested of them by an Indemnified Party to insure that the
Indemnified Party can realize on such security interest. The liens and security
interests with respect to one hundred percent (100%) in fair market value of
the Indemnity Collateral granted hereunder shall not be released until the
expiration of one (1) year from the Closing Date (the "Release Date");
provided, however, that if a claim for indemnification under Section 24 hereof
has been made and is continuing at the Release Date, that amount of the
Indemnity Collateral otherwise to be released at the Release Date, and equal to
200% of the amount of such claim shall not be released until the final
disposition of such indemnification claim. Upon satisfaction of the conditions
to the release of the liens and security interests and the Indemnity
Collateral, the Trust and the Partnership shall prepare and file all documents
and shall take all other action necessary to release such security interests in
the indemnity collateral, as applicable.
(h) If notice of a claim for indemnification under subsection 24(c) is
asserted under this Section 24, the person or entity to whom such notice of a
claim is asserted shall have the right, at its own expense, to participate in
the defense of any Claim asserted which resulted in the claim for
indemnification, and if such right is exercised, the party shall cooperate in
the defense of such Claim. If a Claim is asserted which is subject to possible
indemnification under this Section 24, the person against whom such Claim is
asserted shall give prompt notice thereof to such Indemnitor; provided,
however, that the failure to so provide prompt notice shall not relieve such
indemnitor from the indemnification obligations hereunder unless and to the
extent such failure materially prejudices the indemnitor's defense with regard
to such claim. Indemnification of the Indemnified Parties pursuant to this
Section 24 shall be the exclusive remedy of the Indemnified Parties for any
breach of any representation, obligation, warranty or covenant of any of the
Contributing Owners and the liability of all such parties shall be limited as
expressly provided in this Section 24.
25. Fees and Expenses. Except to the extent expressly provided in this
Agreement or in any Exhibit hereto to the contrary:
(a) each party shall bear its own fees, costs and expenses in connection
with the negotiation, execution and delivery of this Agreement and the
performance of its obligations hereunder;
(b) provided, however, that if Closing shall occur, the due diligence,
legal, accounting, investment banking, environmental, engineering and other
third party out-of-pocket fees, costs and expenses incurred by RDC, the
Owners and the Funds (other than any fees, costs and expenses incurred in
connection with the formation and capitalization of the Funds) in
connection with negotiation, execution and delivery of this Agreement, the
performance of their respective obligations hereunder and the consummation
by them of the transactions provided for herein, shall be borne by the
Trust and the Partnership.
26. Counterparts. This Agreement may be executed in counterparts, each of
which shall constitute an original, but all together shall constitute one and
the same Agreement.
64
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending legally to be bound,
have executed this Agreement as of the day and year first above written.
MARK CENTERS TRUST
By: /s/ Marvin L. Slomowitz
---------------------------------
Its: Chief Executive Officer
MARK CENTERS LIMITED PARTNERSHIP
By: Mark Centers Trust, General
Partner
By: /s/ Marvin L. Slomowitz
-----------------------------
Its: Chief Executive Officer
RD CAPITAL, INC.
By: /s/ Ross Dworman
---------------------------------
Name: Ross Dworman
Title: President
/s/ Ross Dworman
-------------------------------------
Ross Dworman
/s/ Kenneth F. Bernstein
-------------------------------------
Kenneth F. Bernstein
RD ABSECON ASSOCIATES, L.P.
By: RD Absecon, Inc., individually
and as General Partner of
RD Absecon Associates, L.P.
By: /s/ Kenneth F. Bernstein
---------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD PROPERTIES, L.P. V
By: RD New York, LLC, General
Partner
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Member
RD CROSSROADS ASSOCIATES, L.P.
By: RD Crossroads, Inc., General
Partner
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
PORT BAY ASSOCIATES
By: RD Soundview Associates, L.P.,
Managing General Partner
By: RD Soundview Associates,
Inc., General Partner
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
<PAGE>
RD SMITHTOWN LLC
By: RD Smithtown Associates, L.P.,
Managing Member
By: RD Smithtown Associates,
Inc., General Partner
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD ELMWOOD ASSOCIATES, L.P.
By: RD Elmwood Associates, Inc.,
individually and as General
Partner of RD Elmwood Associates,
L.P.
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD PROPERTIES, L.P. III
By: /s/ Ross Dworman
---------------------------------
Name: Ross Dworman
Title: General Partner
RD TOWN LINE ASSOCIATES LIMITED
PARTNERSHIP
By: RD Townline, Inc., General
Partner
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD HOBSON ASSOCIATES, L.P.
By: RD Hobson, Inc., individually
and as General Partner of
RD Hobson Associates, L.P.
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD ABINGTON ASSOCIATES LIMITED
PARTNERSHIP
By: RD Abington, Inc., individually
and as General Partner of
RD Abington Associates
Limited Partnership
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD PROPERTIES, L.P. II
By: /s/ Ross Dworman
---------------------------------
Name: Ross Dworman
Title: General Partner
<PAGE>
RD WOONSOCKET ASSOCIATES LIMITED
PARTNERSHIP
By: RD Woonsocket, Inc.,
individually and as General
Partner of RD Woonsocket
Associates Limited Partnership
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
EVAN FRAZIER PARTNERS
By: /s/ Kenneth F. Bernstein
---------------------------------
Name: Kenneth F. Bernstein
Title: Partner
RD BLOOMFIELD ASSOCIATES LIMITED
PARTNERSHIP
By: RD Bloomfield, Inc.,
individually and as
General Partner of RD Bloomfield
Associates Limited Partnership
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD TOWN SQUARE ASSOCIATES LIMITED
PARTNERSHIP
By: /s/ Ross Dworman
---------------------------------
Name: Ross Dworman
Title: General Partner
RD MERRILLVILLE ASSOCIATES, L.P.
By: RD Merrillville, Inc., General
Partner
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD BRANCH ASSOCIATES, L.P.
By: RD Branch, Inc., General Partner
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD WHITEGATE ASSOCIATES LIMITED
PARTNERSHIP
By: RD Whitegate, Inc., individually
and as General Partner of
RD Whitegate Associates
Limited Partnership
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
<PAGE>
G.O. ASSOCIATES LIMITED PARTNERSHIP
By: RD G.O. Properties, Inc.,
individually and as General
Partner of G.O. Associates
Limited Partnership
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD VILLAGE ASSOCIATES LIMITED
PARTNERSHIP
By: RD Village, Inc., individually
and as General Partner of
RD Village Associates
Limited Partnership
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD PROPERTIES, L.P. IV
By: /s/ Ross Dworman
---------------------------------
Name: Ross Dworman
Title: General Partner
RD COLUMBIA ASSOCIATES, L.P.
By: RD Missouri, Inc., individually
and as General Partner of RD
Columbia Associates, L.P.
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
COLUMBIA VGH INVESTORS
By: /s/ Ross Dworman
---------------------------------
Name: Ross Dworman
Title: Managing Partner
MARLEY/OAKWOOD PROPERTIES, INC.
By: /s/ Kenneth F. Bernstein
---------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
RD MARLEY PARTNERS
By: RD Marley, Inc., General Partner
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
<PAGE>
MARLEY ASSOCIATES LIMITED
PARTNERSHIP
By: RD Marley, Inc., General Partner
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
SOUND VIEW MANAGEMENT LLC
By: /s/ Kenneth F. Bernstein
---------------------------------
Name: Kenneth F. Bernstein
Title: Member
ACADIA MANAGEMENT COMPANY LLC
By: /s/ Kenneth F. Bernstein
---------------------------------
Name: Kenneth F. Bernstein
Title: Member
RD G.O. PROPERTIES, L.P.
By: RD Greenbelt, Inc., General
Partner
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: President
KCRF, L.L.C.
By: KCRF Management, Inc., Member
By: /s/ Kenneth F. Bernstein
------------------------------
Name: Kenneth F. Bernstein
Title: Vice President
<PAGE>
ANNEX II
<PAGE>
BEAR STEARNS & CO, INC.
BEAR
STEARNS
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
April 13,1998
Board of Trustees
Mark Centers Trust
600 Third Avenue
Kingston, Pennsylvania 18704
Gentlemen:
We understand that Mark Centers Limited Partnership and Mark Centers Trust
(collectively "Mark Centers") and certain real estate partnerships and related
entities controlled by RD Capital, Inc. or one of its affiliates (collectively
"RD Capital") intend to enter into a Contribution and Share Purchase Agreement
to be dated as of April 15, 1998 (the "Contribution Agreement"), pursuant to
which RD Capital will contribute certain assets into Mark Centers' operating
partnership in exchange for, the assumption of certain mortgage indebtedness and
the issuance of 11,333,333 exchangeable operating partnership units and will
invest $100 million in cash in Mark Centers in exchange for 13,333,333 Mark
Centers common shares (such contribution and investment collectively referred to
as the "Contribution").
You have asked us to render our opinion as to whether the Contribution is fair,
from a financial point of view, to Mark Centers.
In the course of our analyses for rendering this opinion, we have:
i. reviewed a draft of the Contribution Agreement;
ii. reviewed Mark Centers' Annual Reports to Shareholders and Annual
Reports on Form 10-K for the years ended December 31, 1994 through
1996, and its Quarterly Reports on Form 10-Q for the periods ended
March 31, 1997, June 30, 1997 and September 30, 1997 and a draft of its
Annual Report and on Form 10-K for the year ended December 31, 1997;
iii. met with certain members of Mark Centers' senior management to discuss
the operations, historical financial statements and future prospects of
Mark Centers and their view of the business, operational and strategic
benefits, cost savings, potential synergies and other implications of
the Contribution;
iv. met with certain members of RD Capital's senior management to discuss
the operations, historical financial statements and future prospects of
RD Capital and their view of the business, operational and strategic
benefits, cost savings, potential synergies and other implications of
the Contribution;
<PAGE>
Board of Trustees
April 13, 1998
Page 2
v. reviewed historical stock prices and trading activity of the Mark
Centers common shares;
vi. reviewed publicly available financial data and stock market performance
data of companies that we deemed generally comparable to Mark Centers
and RD Capital or otherwise relevant to our inquiry;
vii. reviewed the terms, to the extent publicly available, of recent
transactions that we deemed generally comparable to the Contribution or
otherwise relevant to our inquiry;
viii. reviewed the Limited Appraisal Restricted Appraisal Report prepared by
CB Commercial dated April 10, 1998; and
ix. considered such other information and conducted such other studies,
analyses, inquiries and investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by Mark Centers and RD Capital. With respect to
Mark Centers' and RD Capital's projected financial results (including projected
divestitures, cost savings and synergies resulting from, and contemplated tax
and accounting effects of, the Contribution and related transactions), we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of
Mark Centers and RD Capital as to the expected future performance of Mark
Centers and RD Capital, respectively. We understand that, in light of Mark
Centers' current cash position, the Board of Trustees intends to suspend
dividend distributions to shareholders for the foreseeable future. We have not
assumed any responsibility for the information provided to us and we have
further relied upon the assurances of the managements of Mark Centers and RD
Capital that they are unaware of any facts that would make the information
provided to us incomplete or misleading. We have also assumed with your consent
that the Contribution will be consummated in accordance with the terms described
in the Contribution Agreement. In arriving at our opinion, we have not performed
any independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of Mark Centers or RD Capital. With respect to the value of RD
Capital's properties, we have relied on the estimates and analysis of Mark
Centers' management.
<PAGE>
Board of Trustees
April 13, 1998
Page 3
Our opinion is necessarily based on economic, market and other conditions, and
the information made available to us, as they exist and can be evaluated as of
the date hereof. Our opinion as expressed below does not imply any conclusion as
to the likely trading range of Mark Centers common shares either prior to or
subsequent to the consummation of the Contribution, which may vary depending
upon, among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Our opinion as expressed below does not
address Mark Centers' underlying business decision to effect the Contribution,
and is not a recommendation to Mark Centers trustees or shareholders as to
whether to approve or vote for the Contribution. Our opinion as expressed below
is expressly limited to the Contribution and does not address any collateral
matters including, without limitation, any severance or other arrangements with
current or future management.
We have acted as financial advisor to Mark Centers in connection with the
Contribution and will receive a fee for such services, payment of a significant
portion of which is contingent upon the consummation of the Transaction. In the
ordinary course of our business, we may actively trade the securities of Mark
Centers for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
It is understood that this letter is intended for the benefit and use of the
Board of Trustees of Mark Centers and is not to be used for any other purpose,
or reproduced, disseminated, quoted or referred to at any time, in whole or in
part, without our prior written consent; provided, however, that this letter may
be included in its entirety in the proxy statement to be distributed to the
holders of Mark Centers common shares in connection with the Contribution.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Contribution is fair, from a financial point of view, to Mark
Centers.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/
----------------------------
Senior Managing Director
<PAGE>
ANNEX III
<PAGE>
PROPOSED AMENDMENTS TO THE DECLARATION OF TRUST,
AS AMENDED, OF MARK CENTERS TRUST
RESOLVED, that SECTION 1.1 of the Declaration of Trust of Mark Centers
Trust, as amended to the date hereof, be and it hereby is amended by
deleting therefrom the name "Mark Centers Trust" and by substituting in
lieu thereof the name "Acadia Realty Trust."
FURTHER RESOLVED, that SECTION 6.1 of the Declaration of Trust of Mark
Centers Trust, as amended to the date hereof, be and it hereby is
amended by deleting from the first sentence thereof the number
"50,000,000" and by substituting in lieu thereof the number
"100,000,000".
