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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ________________ to _______________
Commission File No. 001-12056
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THE TOWN AND COUNTRY TRUST
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(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 52-6613091
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
100 S. Charles Street
Baltimore, Maryland 21201
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(Address of Principal Executive Office) (ZIP Code)
(410) 539-7600
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Shares of
Beneficial Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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[Cover Continued on Following Page]
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[Cover Continued From Previous Page]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the Registrant
as of March 10, 1999: $216,015,190.
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Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practical date:
15,767,148 Common Shares of Beneficial Interest,
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$.01 Par Value, at March 10, 1999.
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DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Document In Which Incorporated
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Portions of the Registrant's I and III
Notice of Annual Meeting and
Proxy Statement dated
March 18, 1999
Portions of the Registrant's II and IV
1998 Annual Report to Shareholders
Neither the Report of the Compensation Committee of the Board of Trustees on
Executive Compensation nor the Performance Graph contained in the Registrant's
Notice of Annual Meeting and Proxy Statement dated March 18, 1999 shall be
deemed incorporated by reference herein.
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SAFE HARBOR STATEMENT
With the exception of historical information, the matters discussed in this
Annual Report on Form 10-K are forward-looking statements that involve risks and
uncertainties and actual results could differ materially from those discussed.
Certain statements herein and in future filings by the Registrant with the
Securities and Exchange Commission and in written and oral statements made by or
with the approval of any authorized executive officer of the Registrant
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
The Registrant intends that such forward-looking statements be subject to the
safe harbors created by such Acts. The words and phrases "looking ahead," "we
are confident," "should be," "will be," "predicted," "believe," "expect,"
"anticipate," and similar expressions identify forward-looking statements. These
forward-looking statements reflect the Registrant's current views in respect of
future events and financial performance, but are subject to many uncertainties
and factors relating to the Registrant's operations and business environment
which may cause the actual results of the Registrant to differ materially from
any future results expressed or implied by such forward-looking statements.
Examples of such uncertainties include, but are not limited to, interest rate
fluctuations, competition for tenants and acquisitions from others, many of whom
may have greater financial resources than the Registrant; changes in rental
rates which may be charged by the Registrant in response to market rental rate
changes or otherwise; Year 2000 readiness; changes in federal income tax laws
and regulations; any changes in the Registrant's capacity to acquire additional
apartment properties and any changes in the Registrant's financial condition or
operating results due to the acquisition of apartment properties or adverse
weather conditions in the geographic locations of the Registrant's apartment
properties; and local economic and business conditions, including, without
limitation, conditions which may affect public securities markets generally, the
real estate investment trust industry, or the markets in which the Registrant's
apartment properties are located. The Registrant undertakes no obligation to
update publicly or revise any forward-looking statements whether as a result of
new information, future events or otherwise.
PART I
ITEM 1. BUSINESS
GENERAL
The Registrant is a self-administered and self-managed real estate
investment trust that was formed to continue and expand the Registrant's
predecessor's business of owning, managing and
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acquiring multifamily properties. The Registrant was organized in Maryland on
May 19, 1993 and commenced operations on August 23, 1993 upon completion of its
initial public offering of 15,511,765 common shares of beneficial interest.
The Registrant currently owns and operates 39 multifamily properties (the
"Properties") comprising 14,771 apartment units located in Maryland,
Pennsylvania, Virginia, Delaware, North Carolina and Florida. Of the Properties,
twenty-six (the "Original Properties") had been owned and managed as a single
business since 1979 by the Registrant's predecessor, The TC Companies, which was
comprised of twenty-six general partnerships (the "Original Property
Partnerships") and The Town and Country Management Corporation ("Town and
Country"). Each of the Original Property Partnerships was established to acquire
a specific Original Property and was owned 50% by a limited partnership
beneficially owned by Alfred Lerner and 50% by a limited partnership of which
Harvey Schulweis is a general partner. The Original Properties had been managed
since 1979 by Town and Country, a company exclusively engaged in the management
of those Properties, under the direction of the Registrant's executive officers.
In connection with the Registrant's initial public offering, Town and Country
became a division of The TC Operating Limited Partnership ("Operating
Partnership"). Concurrently with the closing of the Registrant's initial public
offering, the Registrant acquired six multifamily properties, comprising 1,817
apartment units, for an aggregate consideration of $120.1 million. In fiscal
1994, the Registrant acquired three additional multifamily properties,
comprising 896 apartment units, for an aggregate consideration of $52.759
million. In fiscal 1998, the Registrant acquired four additional multifamily
properties, comprising 1,140 apartment units (the "1998 Acquisition
Properties"), for an aggregate consideration of $68.2 million. Three of the 1998
Acquisition Properties were paid for with funds drawn on the Registrant's lines
of credit. The remaining 1998 Acquisition Property was paid for in part with
funds drawn on the Registrant's line of credit and in part by the assumption of
the existing mortgage debt on such Property. Each of the Properties is owned by
a separate general partnership which, collectively, are referred to herein as
the "Property Partnerships".
The Registrant and a wholly-owned subsidiary are the sole general partners
of and together own an 86.0% general partnership interest in the Operating
Partnership, which was formed in connection with the Registrant's initial public
offering. The remaining 14.0% limited partnership interest in the Operating
Partnership was retained by certain of the predecessor owners of The TC
Companies, including Messrs. Lerner and Schulweis, as consideration for their
contribution to the Operating Partnership of the majority interests in The TC
Companies. As a general partner of the Operating Partnership, the Registrant has
full and
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complete control over the management of the Operating Partnership and, through
wholly-owned subsidiaries, over each of the Properties. The Registrant and the
Operating Partnership together indirectly own 100% of each Property.
INDEBTEDNESS
In September, 1997, the Registrant, the Property Partnerships other than
those which own the 1998 Acquisition Properties, the Registrant's wholly-owned
subsidiaries, the Operating Partnership and The TC Property Company (a general
partnership of which the Operating Partnership and a wholly-owned subsidiary of
the Registrant are the sole partners) entered into a financing agreement with
Washington Mortgage Financial Group, Ltd. (the "Lender"). Pursuant to this
financing agreement, the Registrant is permitted to borrow up to $375 million,
which amount may be increased, in certain circumstances, to up to $450 million.
$300 million has been advanced and is outstanding under this financing
agreement, which amount bears interest at a fixed rate of 6.91% and matures on
April 1, 2008. The remaining $75 million is available as a revolving credit
facility bearing interest at an imputed variable rate which is the aggregate of
the market interest rate for certain Fannie Mae-backed obligations at the time
of each such advance plus an agreed-upon spread. At December 31, 1998, $54.5
million in revolving credit advances were outstanding at a variable rate of
interest of 5.51%. At March 10, 1999, such advances bore interest at the rate of
5.33%. The Registrant has purchased an interest rate protection contract which
limits the maximum variable interest rate to 10.5%. Each revolving credit
advance shall mature not less than three nor more than nine months from the date
of such advance, and in no event later than April 1, 2008. At the Registrant's
option, any outstanding portion of the $75 million revolving credit facility can
be converted to a fixed-rate loan maturing on April 1, 2008. This financing
agreement is secured, inter alia, by first- and second-priority mortgages on
each of the Properties other than the 1998 Acquisition Properties and by
guaranties executed by each of the Property Partnerships (other than the owners
of the 1998 Acquisition Properties) in favor of the Lender. A portion of the
funds provided under this financing agreement was used to refinance the
Registrant's outstanding publicly-issued and bank mortgage indebtedness of $290
million, which had scheduled maturities of August, 1998.
In September, 1998, the Registrant, the Operating Partnership, and The TC
Property Company II (a general partnership of which the Operating Partnership
and a wholly-owned subsidiary of the Registrant are the sole partners) obtained
a $50 million revolving credit facility from The First National Bank of
Maryland, which amount may be advanced for the purpose of acquiring or
refinancing apartment properties. Such facility bears interest at a variable
rate equal to 120 basis points over
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the LIBOR rate. At December 31, 1998, $24.054 million in revolving credit
advances were outstanding at a variable rate of interest of 6.75%. On March 22,
1999, all outstanding advances under this credit facility were repaid. The
initial term of this credit facility expires in September, 2001.
On March 16, 1999, three of the Property Partnerships (each of which owns a
1998 Acquisition Property) entered into separate financing arrangements with
Legg Mason Real Estate Services, Inc. as assignee to and servicer for The
Federal Home Loan Mortgage Corporation. Pursuant to these arrangements, such
Property Partnerships borrowed, in the aggregate, $33.175 million. Such
borrowings were used to repay the advances outstanding under The First National
Bank of Maryland credit facility described above and to repay to the Operating
Partnership sums advance by it to fund the acquisition of the 1998 Acquisitions
Properties. Each loan is secured by a first-priority mortgage on the 1998
Acquisition Property owned by the respective Property Partnership. Each of the
three loans has a term of ten years and bears interest at a fixed rate of 6.81%
per annum.
COMPETITION
All of the Properties are located in developed areas. There are numerous
other apartment properties within the market area of each Property. The number
of competitive apartment properties in such area could have a material effect on
the rental market for the apartments at a Property and the rents which may be
charged for such apartments. The Registrant competes for tenants and
acquisitions with others who may have greater financial resources than the
Registrant.
ENVIRONMENTAL MATTERS
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for costs of
removal or remediation of certain hazardous or toxic substances on, under or in
such property. Such enactments often impose liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure properly to
remediate such substances, may affect adversely the owner's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances also may
be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for release
of asbestos-containing materials ("ACMs") into the air and third parties may
seek recovery from owners or operators of real property for personal injury
associated with
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ACMs. In connection with its ownership and operation of the Properties, the
Registrant, the Operating Partnership, or any of their respective direct or
indirect subsidiaries, as the case may be, potentially may be liable for such
costs. A number of the Properties formerly contained underground fuel oil
storage tanks. The Registrant has removed all of these tanks.
EMPLOYEES
As of December 31, 1998 the Registrant had 434 employees.
ITEM 2. PROPERTIES.
The Properties consist of 39 multifamily properties comprising 14,771
apartment units located in suburban Baltimore, Maryland, suburban Washington,
D.C., southeastern Pennsylvania, Delaware, Charlotte, North Carolina and
Orlando, Florida.
Each of the Properties (other than the 1998 Acquisition Properties) is
owned by a separate Property Partnership in which The TC Property Company owns a
99% general partnership interest and in which The Town and Country Holding
Corporation, a wholly-owned subsidiary of the Registrant, owns a 1% general
partnership interest. The TC Property Company is a special purpose general
partnership owned 99% by the Operating Partnership and 1% by The Town and
Country Holding Corporation. Each of the 1998 Acquisition Properties is owned by
a separate Property Partnership in which The TC Property Company II owns a 99%
general partnership interest and in which The Town and Country Holding
Corporation II, a wholly-owned subsidiary of the Registrant, owns a 1% general
partnership interest. The TC Property Company II is a special purpose general
partnership owned 99% by the Operating Partnership and 1% by The Town and
Country Holding Corporation II.
The average occupancy rate for all Properties for fiscal 1998 and fiscal
1997 was 94.1% and 92.9%, respectively. Tenant leases are generally for one-year
terms, with automatic two-month renewals after the completion of the first year,
and often require security deposits. Approximately 96% of the apartments in the
Properties are one-bedroom and two-bedroom apartments. The balance are
three-bedroom apartments. The Properties typically consist of two- and
three-story buildings in a landscaped setting, many with amenities such as
swimming pools, tennis courts, playgrounds and community buildings. All
apartments offer air conditioning. The majority of such buildings are of brick
construction and all of the Original Properties are located in mature,
fully-developed neighborhoods. In 1997, the Registrant commenced a two-year
program that provides for approximately $25 million in capital improvements.
The capital improvements include paving, roofs, vinyl siding and the expansion
of an ongoing program to make such revenue-
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enhancing improvements as the modernization of kitchens and bathrooms and the
installation of washers, dryers and carpeting within certain apartment units.
The following table presents certain additional information concerning the
Properties:
<TABLE>
<CAPTION>
1998
SQUARE NUMBER AVERAGE
PROPERTY NAME FOOTAGE (1) OF UNITS OCCUPANCY (2)
- ------------- ----------- -------- -------------
<S> <C> <C> <C>
SUBURBAN BALTIMORE, MARYLAND
T & C Bowleys Quarters 348,005 462 91.6%
Baltimore, Maryland
T & C Charlesmont 411,349 565 92.3%
Dundalk, Maryland
T & C Cockeysville 502,878 540 95.4%
Cockeysville, Maryland
T & C Foxhaven 404,628 460 84.7%
Baltimore, Maryland
T & C Gardenwood 427,760 492 93.7%
Baltimore, Maryland
T & C Hallfield 63,276 75 97.3%
Perry Hall, Maryland
T & C Harford 297,077 336 94.5%
Carney, Maryland
T & C Hollows 291,091 336 95.6%
Glen Burnie, Maryland
T & C Ridgeview 217,849 257 92.4%
Rossville, Maryland
T & C Rolling Road 324,401 384 95.7%
Baltimore, Maryland
T & C Rossville 532,264 692 94.0%
Rossville, Maryland
T & C West/Greensview 1,199,359 1,350 95.6%
West Commercial
Elliott City, Maryland
T & C Woodhill 281,860 334 94.4%
Glen Burnie, Maryland
</TABLE>
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<TABLE>
<CAPTION>
1998
SQUARE NUMBER AVERAGE
PROPERTY NAME FOOTAGE (1) OF UNITS OCCUPANCY (2)
- ------------- ----------- -------- -------------
<S> <C> <C> <C>
T & C Woodmoor 341,188 424 84.5%
Baltimore, Maryland
Versailles-North Charles 252,669 210 98.8%
Towson, Maryland
Stonegate 282,072 260 96.6%
Elkton, Maryland
SUBURBAN WASHINGTON, D.C.
T & C Montgomery Knolls 198,330 210 95.1%
Gaithersburg, Maryland
T & C Tall Oaks 368,224 352 89.2%
Laurel, Maryland
T & C Willow Lake 380,748 456 93.1%
Laurel, Maryland
Fox Run 210,891 218 96.1%
Germantown, Maryland
SOUTHEASTERN PENNSYLVANIA
T & C Hidden Village 223,006 264 95.1%
Allentown, Pennsylvania
T & C Colonial Crest 275,379 329 94.4%
Emmaus, Pennsylvania
T & C Hanover 186,366 215 93.1%
Hanover, Pennsylvania
T & C Colonial Park 507,224 626 94.0%
Harrisburg, Pennsylvania
T & C Union Deposit 378,374 468 87.9%
Harrisburg, Pennsylvania
T & C Lancaster 343,350 413 95.7%
Lancaster, Pennsylvania
T & C Oakview 228,294 272 94.9%
Lancaster, Pennsylvania
T & C York 313,940 396 89.7%
York, Pennsylvania
</TABLE>
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<TABLE>
<CAPTION>
1998
SQUARE NUMBER AVERAGE
PROPERTY NAME FOOTAGE (1) OF UNITS OCCUPANCY (2)
- ------------- ----------- -------- -------------
<S> <C> <C> <C>
Rolling Hills 145,100 184 96.3%
York, Pennsylvania
VIRGINIA PROPERTIES
Barton's Crossing 436,876 532 96.3%
Alexandria, Virginia
University Heights 400,122 466 97.0%
Ashburn, Virginia
The Glen at Leesburg 123,950 134 98.9%
Leesburg, Virginia
The Village at 220,748 283 96.3%
McNair Farms
Herndon, Virginia
Carlyle Station 386,545 408 96.2%
Manassas, Virginia
DELAWARE PROPERTY
Christina Mill 182,604 228 96.9%
Newark, Delaware
NORTH CAROLINA PROPERTIES
The Village of 333,258 330 94.2%
Forest Ridge
Charlotte, North
Carolina (3)
The Fairington 267,300 250 93.5%
Charlotte,
North Carolina (4)
FLORIDA PROPERTIES
Windermere Lakes 223,332 276 93.1%
Orlando, Florida (5)
Twelve Oaks 222,692 284 96.5%
Orlando, Florida (6)
Total 12,734,379 14,771
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</TABLE>
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(1) Represents total square footage of apartment units at each Property.
(2) Average occupancy is defined as gross potential rent less vacancy allowance
divided by gross potential rent for the period, expressed as a percentage.
(3) 1998 Acquisition Property acquired on March 31, 1998.
(4) 1998 Acquisition Property acquired on October 15, 1998.
(5) 1998 Acquisition Property acquired on December 10, 1998.
(6) 1998 Acquisition Property acquired on December 10, 1998.
MANAGEMENT OF THE PROPERTIES
Each of the Properties is managed on a day-to-day basis by Town and
Country, which has managed the Original Properties since 1979. Town and Country
became a division of the Operating Partnership in connection with the
Registrant's initial public offering.
Prior to the Registrant's initial public offering, Mr. Lerner, Michael H.
Rosen and Jennifer C. Munch had served as President, Executive Vice President,
responsible for all day-to-day operations, and Controller, responsible for all
financial operations, respectively, of Town and Country since 1979.
Mr. Schulweis had been a Vice President of Town and Country since 1979. Prior to
1979, Mr. Rosen and Mrs. Munch had served in similar capacities for the
predecessor owners of the Original Properties since 1975 and 1968, respectively.
Town and Country emphasizes involved, hands-on management in the operation
of the Properties. Town and Country's two Senior Vice President/Regional
Managers generally visit each Property in their respective regions at least once
a week, while Mr. Rosen generally visits every Property at least monthly. The
Regional Managers supervise the Property Managers at each Property in their
region, who in turn supervise the Assistant Property Managers, leasing
representatives and office, maintenance, custodial and grounds personnel at each
Property. The performance of each Property is evaluated regularly by senior
management.
Since 1979, Town and Country has operated its own internal credit and
collection bureau, headquartered in suburban Baltimore with an additional office
in Pennsylvania. This unit investigates the credit and verifies the references
of all tenant
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applications to the Properties through various means, including access to major
national credit bureaus. The credit and collection bureau also actively seeks to
recover any delinquent rental payments from former tenants of the Properties.
The Registrant's management manages all of the Properties and makes all
strategic decisions concerning, and retains final authority over, all operating
matters at the Properties. The Registrant's management continues to supervise
Town and Country, which performs day-to-day property management functions at the
Properties and will manage any additional properties purchased by the Registrant
in the future. These functions include rental management, data processing,
maintenance, accounting, marketing, promotion and security. A program of regular
preventive maintenance has been and will continue to be used by Town and
Country, together with renovations and refurbishing, to preserve and enhance the
value of the Registrant's portfolio.
ITEM 3. LEGAL PROCEEDINGS
There were no legal proceedings pending at December 31, 1998 or as of the
date of this report to which the Registrant, the Operating Partnership or any of
the Property Partnerships is a party or to which the Properties are subject that
are likely to have a material adverse impact on the Registrant's operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The age (as of March 10, 1999), business experience during the past five
years and offices presently held by Messrs. Lerner and Schulweis are set forth
under the caption "Election of Trustees" in the Registrant's Proxy Statement
dated March 18, 1999, previously filed with the Commission (Exhibit 99), which
information is incorporated herein by reference. Such information in respect of
each of the Registrant's Executive Officers who are not Trustees is reported
below. The Registrant's Bylaws provide that officers shall hold office until
their successors are elected and qualified.
Michael H. Rosen: Age 55. Mr. Rosen has served as Executive Vice President
of the Registrant since the Registrant's initial public offering. Prior to such
time, he had served as Executive Vice President of Town and Country, responsible
for all day-to-day operations, since 1979.
Jennifer C. Munch: Age 51. Mrs. Munch has served as Vice President--
Treasurer of the Registrant since the Registrant's
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initial public offering. Prior to such time, she had served as Controller of
Town and Country, responsible for all financial operations, since 1979, Vice
President--Controller since 1983, and Senior Vice President--Controller since
December 1991. Mrs. Munch is a Certified Public Accountant.
Alan W. Lasker: Age 52. Mr. Lasker has served as Vice President-Finance of
the Registrant since July 24, 1997 and as Senior Vice President of Schulweis
Realty, Inc., real estate ownership and management, since 1991. Mr. Lasker is a
Certified Public Accountant.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES OF BENEFICIAL INTEREST AND RELATED
SHAREHOLDER MATTERS
Information in response to this Item is set forth on the inside back cover
page of the Registrant's 1998 Annual Report to Shareholders (Exhibit 13), which
information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information in response to this item is set forth on page 28 of the
Registrant's 1998 Annual Report to Shareholders (Exhibit 13), which information
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information in response to this Item is set forth on pages 25 through 27 of
the Registrant's 1998 Annual Report to Shareholders (Exhibit 13), which
information is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrant is exposed to market risk principally from interest rate
risk associated with secured and unsecured notes payable. A large portion of the
Registrant's market risk is exposure to short-term interest rates from variable
rate borrowings outstanding under its various credit facilities, which totaled
$78.554 million at December 31, 1998.
At December 31, 1998, the Registrant had an interest rate protection
agreement for the purpose of managing interest rate risk on borrowings totalling
$54.5 million. This interest rate protection agreement limits the maximum
variable rate of interest
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on such indebtedness to 10.5%. At December 31, 1998, the fair market value of
the Registrant's interest rate protection agreement was $12,000.
If market interest rates for the Registrant's variable-rate debt of $78.554
million at December 31, 1998, average 25 basis points higher in 1999 than such
rates at December 31, 1998, the Registrant's interest expense on such debt,
after considering the effects of its interest rate protection, would increase,
and the Registrant's net income would decrease, by $196,500. If market interest
rates for fixed-rate debt average 25 basis points more or less in 1999 than such
rates in 1998, the fair market value of the Registrant's fixed-rate debt would
change by $5.843 million and $5.721 million, respectively. These amounts are
determined by considering the impact of the hypothetical interest rates on the
Registrant's borrowing cost. These analyses do not consider the effects of the
reduced level of overall economic activity that could exist in such an
environment or any efforts by the Registrant's management to mitigate the
Registrant's exposure to such changes. Further, this sensitivity analysis
assumes no changes in the Registrant's financial structure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) FINANCIAL STATEMENTS
The financial statements, together with the report thereon of Ernst & Young
LLP dated January 29, 1999, appearing on page 24 of the Registrant's 1998 Annual
Report to Shareholders (Exhibit 13), are incorporated herein by reference.
(b) SUPPLEMENTARY DATA
Information in response to this Item is set forth in the financial
statement schedules set forth on pages F-1 through F-3 of this Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Registrant's Trustees is set forth under the
captions "Election of Trustees" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Registrant's Proxy Statement dated March
18, 1999, previously filed with the Commission (Exhibit 99), which information
is incorporated herein by reference. The information required by this
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Item in respect of the Registrant's Executive Officers who are not Trustees is
set forth in Item 4 on pages 10 and 11 of this Form 10-K and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is set forth under the caption
"Compensation of Executive Officers" in the Registrant's Proxy Statement dated
March 18, 1999, previously filed with the Commission (Exhibit 99), which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is set forth under the caption
"Ownership of Common Shares of Beneficial Interest" in the Registrant's Proxy
Statement dated March 18, 1999, previously filed with the Commission
(Exhibit 99), which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is set forth under the caption
"Election of Trustees--Certain Related Transactions; Compensation Committee
Interlocks and Insider Participation" in the Registrant's Proxy Statement dated
March 18, 1999, previously filed with the Commission (Exhibit 99), which
information is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
PAGE
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(1) FINANCIAL STATEMENTS:
Report of Independent Auditors 24*
Consolidated Balance Sheets of
the Registrant at December 31, 1998 14*
and at December 31, 1997
Consolidated Statements of
Operations of the Registrant for
the years ended December 31, 1998,
December 31, 1997 and December 31, 15*
1996
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Consolidated Statements of
Shareholders' Equity of the
Registrant for the years ended
December 31, 1998, December 31,
1997 and December 31, 1996 16*
Consolidated Statements of Cash
Flows of the Registrant for the
years ended December 31, 1998,
December 31, 1997 and
December 31, 1996 17*
Notes to Consolidated
Financial Statements of the
Registrant 18*
*Incorporated by reference from the indicated page of the Registrant's 1998
Annual Report to Shareholders. With the exception of this information and the
information incorporated in Items 5, 6, 7 and 8, the 1998 Annual Report to
Shareholders is not deemed filed as part of this report.
(2) FINANCIAL STATEMENT SCHEDULES:
Schedule III--Real Estate and
Accumulated Depreciation F-1
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) EXHIBITS
EXHIBIT
NUMBER
- -------
3.1 First Amended and Restated Declaration of Trust (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on
Form S-11 (No. 33-63150)).
3.2 By-Laws (incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-ll (No. 33-63150)).
10.1 Amended and Restated Agreement of Limited Partnership of The TC
Operating Limited Partnership dated as of January 26, 1995 (incorporated
by reference to Exhibit 10.1(b) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994).
-14-
<PAGE> 17
10.2* Registrant's Amended and Restated 1993 Long Term Incentive Plan
(incorporated by reference to Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993).
10.3* Registrant's 1997 Long Term Incentive Plan (incorporated by reference to
Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
10.4 Master Credit Facility Agreement, dated as of September 26, 1997,
entered into by and among the Registrant, the TC Operating Limited
Partnership, The Town and Country Holding Corporation, The TC Property
Company, The Town and Country Oriole Corporation, each of the Property
Partnerships and Washington Mortgage Financial Group, Ltd. (incorporated
by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).
10.5 Form of Payment Guaranty executed by each of the Property Partnerships
in favor of Washington Mortgage Financial Group, Ltd. (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).
10.6 Form of Amended and Restated Multifamily Deed of Trust, together with
Riders thereto, executed by each of the Property Partnerships
(incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997).
10.7 Form of Amended and Restated Indemnity Multifamily Deed of Trust,
together with Riders thereto, executed by each of the Property
Partnerships (incorporated by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997).
10.8 Financing Agreement dated September 25, 1998, by and among the
Registrant, The TC Operating Limited Partnership, The TC Property
Company II and The First National Bank of Maryland (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998).
10.9* Adoption Agreement for Benefit Designers of Maryland, Inc.
Non-Standardized 401(k) Profit Sharing Plan and Trust of The Town and
Country Management Company.
13 The Registrant's 1998 Annual Report to Shareholders
-15-
<PAGE> 18
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
24 Powers of Attorney
27 Financial Data Schedule(1)
99 The Registrant's Notice of Annual Meeting and Proxy Statement dated
March 18, 1999
*Compensation plan or arrangement required to be filed as an exhibit hereto.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
Registrant's fiscal year ended December 31, 1997.
- -------------------
(1) Filed only in electronic format pursuant to Item 601(b)(27) of
Regulation S-K.
-16-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE TOWN AND COUNTRY TRUST
By: /s/ Harvey Schulweis
--------------------
Harvey Schulweis,
President
Dated: March 31, 1999
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Harvey Schulweis Principal Executive March 31, 1999
- -------------------- Officer, Principal --------------
Harvey Schulweis Financial Officer and
Trustee
/s/ Jennifer C. Munch Principal Accounting March 31, 1999
- --------------------- Officer --------------
Jennifer C. Munch
Alfred Lerner* Trustee
James H. Berick* Trustee
H. Grant Hathaway* Trustee
Milton A. Wolf* Trustee
*By: /s/ Harvey Schulweis March 31, 1999
-------------------- --------------
Harvey Schulweis,
Attorney-in-Fact
- ----------------
*Powers of attorney authorizing Harvey Schulweis to sign this annual report on
Form 10-K on behalf of certain Trustees of the Registrant are being filed with
the Securities and Exchange Commission herewith (Exhibit 24).
-17-
<PAGE> 20
<TABLE>
<CAPTION>
Schedule III--Real Estate and Accumulated Depreciation
The Town and Country Trust
December 31, 1998
SUBSEQUENT TO GROSS AMOUNT AT WHICH
INITAL COST(c) ACQUISITION (d) CARRIED AT CLOSE OF PERIOD
------------------------------------------------------------------------------
NON-RECOURSE BUILDINGS, BUILDINGS, BUILDINGS,
PROPERTY MORTGAGE EQUIPMENT & EQUIPMENT & EQUIPMENT & TOTAL
DESCRIPTION (a) DEBT (b) LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS (e)
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
MARYLAND
Foxhaven $8,397 $1,849 $11,929 $1,749 $1,849 $13,678 $15,527
Gardenwood 11,080 0 17,182 2,076 0 19,258 19,258
West/Greensview/
West Commercial 32,688 8,824 37,783 5,102 8,824 42,885 51,709
Montgomery Knolls 5,058 1,505 6,889 912 1,505 7,801 9,306
Hollows 7,230 1,424 10,401 1,351 1,424 11,752 13,176
Rolling Road 8,491 0 13,376 2,158 0 15,534 15,534
South 6,602 1,317 10,097 1,525 1,317 11,622 12,939
Woodmoor 7,081 1,690 11,110 1,859 1,690 12,969 14,659
Hallfield 1,535 320 2,240 166 320 2,406 2,726
Ridgeview 5,382 1,138 7,513 922 1,138 8,435 9,573
Charlesmont 10,292 2,049 13,972 2,358 2,049 16,330 18,379
East 8,692 1,795 10,549 2,194 1,795 12,743 14,538
Harford 7,398 1,474 10,511 921 1,474 11,432 12,906
Laurel 8,718 1,397 9,845 1,302 1,397 11,147 12,544
Montpelier 10,233 1,781 14,088 4,958 1,781 19,046 20,827
North 12,429 2,749 18,151 3,602 2,749 21,753 24,502
Northeast 14,456 3,136 19,944 2,518 3,136 22,462 25,598
Versailles 7,010 1,599 10,921 2,256 1,599 13,177 14,776
Fox Run 500 2,498 11,412 333 2,498 11,745 14,243
Stonegate 10,993 2,887 13,261 287 2,887 13,548 16,435
PENNSYLVANIA
Allentown 5,416 1,229 7,447 738 1,229 8,185 9,414
Harrisburg East 7,748 2,181 12,531 1,382 2,181 13,913 16,094
Emmaus 8,077 1,394 9,577 1,594 1,394 11,171 12,565
Hanover 3,837 590 4,946 938 590 5,884 6,474
Harrisburg West 12,349 3,033 16,905 2,525 3,033 19,430 22,463
Lancaster East 5,432 812 8,249 1,387 812 9,636 10,448
Lancaster West 8,322 1,285 12,794 2,015 1,285 14,809 16,094
York 8,047 1,951 10,622 1,098 1,951 11,720 13,671
Rolling Hills 4,750 1,282 5,842 371 1,282 6,213 7,495
VIRGINIA
Barton's Crossing 25,250 7,320 33,845 1,619 7,320 35,464 42,784
The Glen 500 1,157 5,269 209 1,157 5,478 6,635
McNair Farms 500 3,564 16,237 634 3,564 16,871 20,435
University Heights 500 5,789 26,371 376 5,789 26,747 32,536
Carlyle Station 15,101 4,259 19,610 672 4,259 20,282 24,541
DELAWARE
Christina Mill 8,906 2,288 10,454 195 2,288 10,649 12,937
NORTH CAROLINA
Forest Ridge 12,192 3,370 15,705 172 3,370 15,877 19,247
Fairington 11,862 3,306 15,061 23 3,306 15,084 18,390
FLORIDA
Windermere - 2,806 12,783 1 2,806 12,784 15,590
Twelve Oaks 6,745 3,098 13,706 3 3,098 13,709 16,807
MISCELLANEOUS INVESTMENTS 55,500 0 814 1,501 0 2,315 2,315
---------------------------------------------------------------------------------------------
Total $385,299 $90,146 $519,942 $56,002 $90,146 $575,944 $666,090
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
PROPERTY DEPRECIATION DATE USEFUL
DESCRIPTION (a) (f) ACQUIRED LIFE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MARYLAND
Foxhaven $8,351 1993 (i) (h)
Gardenwood 11,315 1993 (i) (h)
West/Greensview/
West Commercial 24,243 1993 (i) (h)
Montgomery Knolls 4,262 1993 (i) (h)
Hollows 6,924 1993 (i) (h)
Rolling Road 8,810 1993 (i) (h)
South 6,933 1993 (i) (h)
Woodmoor 7,769 1993 (i) (h)
Hallfield 1,571 1993 (i) (h)
Ridgeview 5,090 1993 (i) (h)
Charlesmont 9,228 1993 (i) (h)
East 6,650 1993 (i) (h)
Harford 7,398 1993 (i) (h)
Laurel 6,183 1993 (i) (h)
Montpelier 9,046 1993 (i) (h)
North 12,069 1993 (i) (h)
Northeast 13,166 1993 (i) (h)
Versailles 7,108 1993 (i) (h)
Fox Run 3,016 1993 (h)
Stonegate 2,174 1994 (h)
PENNSYLVANIA
Allentown 5,024 1993 (i) (h)
Harrisburg East 8,614 1993 (i) (h)
Emmaus 5,914 1993 (i) (h)
Hanover 3,594 1993 (i) (h)
Harrisburg West 11,865 1993 (i) (h)
Lancaster East 5,340 1993 (i) (h)
Lancaster West 8,196 1993 (i) (h)
York 7,424 1993 (i) (h)
Rolling Hills 1,657 1993 (h)
VIRGINIA
Barton's Crossing 9,427 1993 (h)
The Glen 1,489 1993 (h)
McNair Farms 4,536 1993 (h)
University Heights 7,279 1993 (h)
Carlyle Station 3,128 1994 (h)
DELAWARE
Christina Mill 1,678 1994 (h)
NORTH CAROLINA
Forest Ridge 355 1998 (h)
Fairington 168 1998 (h)
FLORIDA
Windermere 100 1998 (h)
Twelve Oaks 104 1998 (h)
MISCELLANEOUS INVESTMENTS 1,213 1993 (h)
-------------------------
Total $248,411
=========================
F-1
</TABLE>
<PAGE> 21
NOTES TO SCHEDULE III
THE TOWN AND COUNTRY TRUST
(IN THOUSANDS)
(a) All properties are garden apartment communities with the exception of one
commercial building included in the West/Greensview/West Commercial
Partnership.
(b) See description of mortgages payable in Note 4 of Notes to Consolidated
Financial Statements of the Company.
(c) Initial cost for properties originally acquired from the Predecessor (see
note (i) below) represents the historical cost as of August 23, 1993 plus
the acquisition of non-controlled interests in the Predecessor on August
23, 1993. The initial cost of all other property acquisitions represents
the cost to purchase the property at the date of acquisition.
(d) The aggregate cost of land, buildings and equipment on a Federal Income Tax
basis is $540,289,215 at December 31, 1998.
<TABLE>
<CAPTION>
(e) Reconciliation of Real Estate Properties
---------------------------------------------
<S> <C>
Balance at January 1, 1994 $ 491,489
Acquisitions of new partnerships 53,259
Other additions, net of dispositions during 1994 6,595
------------------
Balance at December 31, 1994 551,343
Other additions, net of dispositions during 1995 6,757
------------------
Balance at December 31, 1995 558,100
Other additions, net of dispositions during 1996 6,343
------------------
Balance at December 31, 1996 564,443
Other additions net of dispositions 9,509
------------------
Balance at December 31, 1997 573,952
Acquisitions of new partnerships 69,835
Other additions net of dispositions 22,303
==================
Balance at December 31, 1998 $ 666,090
==================
(f) Reconciliation of Accumulated Depreciation
---------------------------------------------
Balance at January 1, 1994 $ 127,124
1994 depreciation expense, net of retirements 23,380
------------------
Balance at December 31, 1994 150,504
1995 depreciation expense, net of retirements 24,047
------------------
Balance at December 31, 1995 174,551
1996 depreciation expense, net of retirements 24,138
------------------
Balance at December 31, 1996 198,689
1997 depreciation expense, net of retirements 24,257
------------------
Balance at December 31, 1997 222,946
1998 depreciation expense, net of retirements 25,465
==================
Balance at December 31, 1998 $ 248,411
==================
</TABLE>
F-2
<PAGE> 22
Notes to Schedule III (continued)
The Town and Country Trust
(In thousands)
(h) Depreciation is computed based upon the following estimated lives:
<TABLE>
<CAPTION>
Assets acquired Assets acquired
prior to subsequent to December
January 1, 1994 31, 1993
-------------------------------------------------------
<S> <C> <C>
Buildings 27.5 years 40 years
Building improvements 15 to 19 years 20 years
Furniture, fixtures and equipment 3 to 7 years 5 to 12 years
(i) Denotes property originally purchased in 1979 by the Predecessor.
F-3
</TABLE>
<PAGE> 1
Exhibit 10.9
Adoption Agreement For Benefit Designers of Maryland, Inc. Non-Standardized
401(k) Profit Sharing Plan and Trust of The Town and Country Management Company
<PAGE> 2
ADOPTION AGREEMENT FOR
BENEFIT DESIGNERS OF MARYLAND, INC.
NON-STANDARDIZED 401(K) PROFIT SHARING
PLAN AND TRUST
The undersigned Employer adopts the BENEFIT DESIGNERS OF MARYLAND, INC.
Non-Standardized 401(k) Profit Sharing Plan and Trust for those Employees who
shall qualify as Participants hereunder, to be known as the
A1 THE TOWN AND COUNTRY MANAGEMENT COMPANY 401(K) RETIREMENT PLAN
-----------------------------------------------------------------------------
(Enter Plan Name)
It shall be effective as of the date specified below. The Employer hereby
selects the following Plan specifications:
CAUTION: The failure to properly fill out this Adoption Agreement may result in
disqualification of the Plan.
EMPLOYER INFORMATION
B1 Name of Employer THE TOWN AND COUNTRY MANAGEMENT COMPANY
-----------------------------------------------------------
-----------------------------------------------------------
B2 Address 100 S. CHARLES STREET, 17TH FLOOR
--------------------------------------------------------------------
BALTIMORE 21201
-----------------------,------------------------ -------------------
City State Zip
Telephone (410) 539-7600
----------------------
B3 Employer Identification Number 52-1838097
----------------------------
B4 Date Business Commenced 1979
-----------------------
B5 TYPE OF ENTITY
a. ( ) S Corporation
b. ( ) Professional Service Corporation
c. ( ) Corporation
d. ( ) Sole Proprietorship
e. (X) Partnership
f. ( ) Other
------------------------------
AND, is the Employer a member of...
g. a controlled group? (X) Yes ( ) No
h. an affiliated service group? ( ) Yes (X) No
1
<PAGE> 3
B6 NAME(S) OF TRUSTEE(S)
a. ALFRED LERNER
--------------------------------------------------------------------------
b. MICHAEL ROSEN
--------------------------------------------------------------------------
c. JENNIFER MUNCH
--------------------------------------------------------------------------
d. DENNIS SMITH
--------------------------------------------------------------------------
e. PAUL KENNEY
--------------------------------------------------------------------------
B7 TRUSTEES' ADDRESS
a. (X) Use Employer Address
b. ( )
-----------------------------------------------------------------------
Street
-----------------------------,--------------------------- -------------
City State Zip
B8 LOCATION OF EMPLOYER'S PRINCIPAL OFFICE:
a. (X) State b. ( ) Commonwealth of c. MARYLAND and this Plan and Trust
--------
shall be governed under the same.
B9 EMPLOYER FISCAL YEAR means the 12 consecutive month period:
Commencing on a. January 1st (e.g., January 1st) and
------------------------
month day
ending on b. December 31st .
-----------------------------
month day
2
<PAGE> 4
PLAN INFORMATION
C1 EFFECTIVE DATE
This Adoption Agreement of the BENEFIT DESIGNERS OF MARYLAND, INC.
Non-Standardized 401(k) Profit Sharing Plan and Trust shall:
a. ( ) establish a new Plan and Trust effective as of (hereinafter called
-----
the "Effective Date").
b. (X) constitute an amendment and restatement in its entirety of a
previously established qualified Plan and Trust of the Employer which
was effective JANUARY 1, 1987 (hereinafter called the "Effective
---------------
Date"). Except as specifically provided in the Plan, the effective
date of this amendment and restatement is JANUARY 1, 1998 (For TRA '86
---------------
amendments, enter the first day of the first Plan Year beginning in
1989).
C2 PLAN YEAR means the 12 consecutive month period:
Commencing on a. January 1st (e.g., January 1st) and
---------------------
ending on b. December 31st .
-------------------------
IS THERE A SHORT PLAN YEAR?
c. (X) No
d. ( ) Yes, beginning
-------------------------
and ending .
-------------------------
C3 ANNIVERSARY DATE of Plan (Annual Valuation Date)
a. December 31st
----------------------------
month day
C4 PLAN NUMBER assigned by the Employer (select one)
a.( )001 b.(X)002 c.( )003 d.( )Other
-----------
3
<PAGE> 5
C5 NAME OF PLAN ADMINISTRATOR (Document provides for the Employer to appoint an
Administrator. If none is named, the Employer will become the Administrator.)
a. (X) Employer (Use Employer Address)
b. ( ) Name
-----------------------------------------------------------------
Address ( ) Use Employer Address
-------------------------------------------------------------
-----------------------,------------------------ ------------
City State Zip
Telephone
---------------------------
Administrator's I.D. Number
------------------
C6 PLAN'S AGENT FOR SERVICE OF LEGAL PROCESS
a. (X) Employer (Use Employer Address)
b. ( ) Name
-----------------------------------------------------------------
Address
--------------------------------------------------------------
--------------------------------------------------------------
4
<PAGE> 6
ELIGIBILITY, VESTING AND RETIREMENT AGE
D1 ELIGIBLE EMPLOYEES (Plan Section 1.15) shall mean:
a. ( ) all Employees who have satisfied the eligibility requirements.
b. (X) all Employees who have satisfied the eligibility requirements except
those checked below:
1. ( ) Employees paid by commissions only.
2. ( ) Employees hourly paid.
3. ( ) Employees paid by salary.
4. (X) Employees whose employment is governed by a collective bargaining
agreement between the Employer and "employee representatives"
under which retirement benefits were the subject of good faith
bargaining. For this purpose, the term "employee
representatives" does not include any organization more than
half of whose members are employees who are owners, officers, or
executives of the Employer.
5. ( ) Highly Compensated Employees.
6. (X) Employees who are non-resident aliens who received no earned
income (within the meaning of Code Section 911(d)(2)) from the
Employer which constitutes income from sources within the United
States (within the meaning of Code Section 861(a)(3)).
7. ( ) Other
-------
NOTE: For purposes of this section, the term Employee shall include all
Employees of this Employer and any leased employees deemed to be
Employees under Code Section 414(n) or 414(o).
D2 EMPLOYEES OF AFFILIATED EMPLOYERS (Plan Section 1.16)
Employees of Affiliated Employers:
a. ( ) will not or N/A
b. (X) will
be treated as Employees of the Employer adopting the Plan.
NOTE: If D2b is elected, each Affiliated Employer should execute this
Adoption Agreement as a Participating Employer.
D3 HOURS OF SERVICE (Plan Section 1.31) will be determined on the basis of
the method selected below. Only one method may be selected. The method
selected will be applied to all Employees covered under the Plan.
a. (X) On the basis of actual hours for which an Employee is paid or
entitled to payment.
b. ( ) On the basis of days worked. An Employee will be credited with
ten (10) Hours of Service if under the Plan such Employee would
be credited with at least one (1) Hour of Service during the
day.
c. ( ) On the basis of weeks worked. An Employee will be credited
forty-five (45) Hours of Service if under the Plan such Employee
would be credited with at least one (1) Hour of Service during
the week.
d. ( ) On the basis of semi-monthly payroll periods. An Employee will be
credited ninety-five (95) Hours of Service if under the Plan such
Employee would be credited with at least one (1) Hour of Service
during the semi-monthly payroll period.
e. ( ) On the basis of months worked. An Employee will be credited with
one hundred ninety (190) Hours of Service if under the Plan such
Employee would be credited with at least one (1) Hour of Service
during the month.
5
<PAGE> 7
D4 CONDITIONS OF ELIGIBILITY (Plan Section 3.1)
(Check either a OR b and c, and if applicable, d)
Any Eligible Employee will be eligible to participate in the Plan if such
Eligible Employee has satisfied the service and age requirements, if any,
specified below:
a. ( ) NO AGE OR SERVICE REQUIRED.
b. (X) SERVICE REQUIREMENT. (may not exceed 1 year)
1. ( ) None
2. (X) 1/2 Year of Service
3. ( ) 1 Year of Service
4. ( ) Other
-----------
NOTE: If the Year(s) of Service selected is or includes a fractional year,
an Employee will not be required to complete any specified number of
Hours of Service to receive credit for such fractional year. If
expressed in Months of Service, an Employee will not be required to
complete any specified number of Hours of Service in a particular
month.
c. (X) AGE REQUIREMENT (may not exceed 21)
1. ( ) N/A - No Age Requirement.
2. (X) 20 1/2
3. ( ) 21
4. ( ) Other
-----------
d. ( ) FOR NEW PLANS ONLY - Regardless of any of the above age or service
requirements, any Eligible Employee who was employed on the
Effective Date of the Plan shall be eligible to participate
hereunder and shall enter the Plan as of such date.
D5 EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2)
An Eligible Employee shall become a Participant as of:
a. ( ) the first day of the Plan Year in which he met the requirements.
b. ( ) the first day of the Plan Year in which he met the requirements, if
he met the requirements in the first 6 months of the Plan Year, or
as of the first day of the next succeeding Plan Year if he met the
requirements in the last 6 months of the Plan Year.
c. ( ) the earlier of the first day of the seventh month or the first day of
the Plan Year coinciding with or next following the date on which he
met the requirements.
d. (X) the first day of the Plan Year next following the date on which he
met the requirements. (Eligibility must be 1/2 Year of Service or
less or 1 1/2 Years of Service or less and age 20 1/2 or less.)
e. ( ) the first day of the month coinciding with or next following the date
on which he met the requirements.
f. ( ) Other: , provided that an Employee who has satisfied
-----------------
the maximum age and service requirements that are permissible in
Section D4 above and who is otherwise entitled to participate, shall
commence participation no later than the earlier of (a) 6 months
after such requirements are satisfied, or (b) the first day of the
first Plan Year after such requirements are satisfied, unless the
Employee separates from service before such participation date.
6
<PAGE> 8
D6 VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b))
The vesting schedule, based on number of Years of Service, shall be as
follows:
a. ( ) 100% upon entering Plan. (Required if eligibility requirement is
greater than one (1) Year of Service.)
b. ( ) 0-2 years 0% c. ( ) 0-4 years 0%
3 years 100% 5 years 100%
d. ( ) 0-1 year 0% e. ( ) 1 year 25%
2 years 20% 2 years 50%
3 years 40% 3 years 75%
4 years 60% 4 years 100%
5 years 80%
6 years 100%
f. ( ) 1 year 20% g. (X) 0-2 years 0%
2 years 40% 3 years 20%
3 years 60% 4 years 40%
4 years 80% 5 years 60%
5 years 100% 6 years 80%
7 years 100%
h. ( ) Other - Must be at least as liberal as either c or g above.
Years of Service Percentage
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
7
<PAGE> 9
D7 FOR AMENDED PLANS (Plan Section 6.4(f)) If the vesting schedule has been
amended to a less favorable schedule, enter the pre-amended schedule below:
a. (X) Vesting schedule has not been amended or amended schedule is more
favorable in all years.
b. ( ) Years of Service Percentage
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
D8 TOP HEAVY VESTING (Plan Section 6.4(c)) If this Plan becomes a Top Heavy
Plan, the following vesting schedule, based on number of Years of Service,
for such Plan Year and each succeeding Plan Year, whether or not the Plan is
a Top Heavy Plan, shall apply and shall be treated as a Plan amendment
pursuant to this Plan. Once effective, this schedule shall also apply to any
contributions made prior to the effective date of Code Section 416 and/or
before the Plan became a Top Heavy Plan.
a. ( ) N/A (D6a, b, d, e or f was selected)
b. (X) 0-1 year 0% c. ( ) 0-2 years 0%
2 years 20% 3 years 100%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
NOTE: This section does not apply to the Account balances of any Participant
who does not have an Hour of Service after the Plan has initially
become top heavy. Such Participant's Account balance attributable to
Employer contributions and Forfeitures will be determined without
regard to this section.
8
<PAGE> 10
D9 VESTING (Plan Section 6.4(h)) In determining Years of Service for vesting
purposes, Years of Service attributable to the following shall be EXCLUDED:
<TABLE>
<CAPTION>
<S> <C>
a. ( ) Service prior to the Effective Date of the Plan or a predecessor plan. b.(X)N/A.
c. ( ) Service prior to the time an Employee attained age 18. d.(X)N/A.
</TABLE>
D10 PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER
a. ( ) No.
b. (X) Yes: Years of Service with TOWN AND COUNTRY MANAGEMENT CORPORATION
---------------------------------------
shall be recognized for the purpose of this Plan.
NOTE: If the predecessor Employer maintained this qualified Plan, then Years
of Service with such predecessor Employer shall be recognized
pursuant to Section 1.74 and b. must be marked.
D11 NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.42) means:
a. (X) the date a Participant attains his 65TH birthday. (not to exceed
----
65th)
b. ( ) the later of the date a Participant attains his birthday (not to
------
exceed 65th) or the c. (not to exceed 5th) anniversary of the
------
first day of the Plan Year in which participation in the Plan
commenced.
D12 NORMAL RETIREMENT DATE (Plan Section 1.43) shall commence:
a. ( ) as of the Participant's "NRA."
OR (must select b. or c. AND 1. or 2.)
b. ( ) as of the first day of the month...
c. (X) as of the Anniversary Date...
1. ( ) coinciding with or next following the Participant's "NRA."
2. (X) nearest the Participant's "NRA."
D13 EARLY RETIREMENT DATE (Plan Section 1.12) means the:
a. ( ) No Early Retirement provision provided.
b. ( ) date on which a Participant...
c. ( ) first day of the month coinciding with or next following the date on
which a Participant...
d. (X) Anniversary Date coinciding with or next following the date on which
a Participant...
AND, if b., c. or d. was selected...
1. (X) attains his 55TH birthday and has
----
2. (X) completed at least 10 Years of Service.
--
9
<PAGE> 11
CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
E1 a. COMPENSATION (Plan Section 1.9) with respect to any Participant means:
1. ( ) "415 Compensation."
2. (X) Compensation reportable as wages on Form W-2.
b. COMPENSATION shall be
1. (X) actually paid (must be selected if Plan is integrated)
2. ( ) accrued
c. HOWEVER, FOR NON-INTEGRATED PLANS, Compensation shall exclude (select all
that apply):
1. (X) N/A. No exclusions
2. ( ) overtime
3. ( ) bonuses
4. ( ) commissions
5. ( ) other
-------
d. FOR PURPOSES OF THIS SECTION E1, Compensation shall be based on:
1. ( ) the Plan Year.
2. ( ) the Fiscal Year coinciding with or ending within the Plan Year.
3. (X) the Calendar Year coinciding with or ending within the Plan Year.
NOTE: The Limitation Year shall be the same as the year on which
Compensation is based.
e. HOWEVER, for an Employee's first year of participation, Compensation
shall be recognized as of:
1. (X) the first day of the Plan Year.
2. ( ) the date the Participant entered the Plan.
f. IN ADDITION, COMPENSATION and "414(s) Compensation" 1. (X) shall 2. ( )
shall not include compensation which is not currently includible in the
Participant's gross income by reason of the application of Code Sections
125, 402(a)(8), 402(h)(1)(B) or 403(b).
10
<PAGE> 12
E2 SALARY REDUCTION ARRANGEMENT - ELECTIVE CONTRIBUTION (Plan Section 11.2) Each
Employee may elect to have his Compensation reduced by:
a. ( ) %
----
b. (X) up to 20 %
--
c. ( ) from % to %
---- - ---
d. ( ) up to the maximum percentage allowable not to exceed the limits of
Code Sections 401(k), 404 and 415.
AND...
e. (X) A Participant may elect to commence salary reductions as of JANUARY 1
---------
(ENTER AT LEAST ONE DATE OR PERIOD). A Participant may modify the
amount of salary reductions as of JANUARY 1 AND JULY 1 (ENTER AT
--------------------
LEAST ONE DATE OR PERIOD).
AND...
Shall cash bonuses paid within 2 1/2 months after the end of the Plan
Year be subject to the salary reduction election?
f. ( ) Yes
g. (X) No
11
<PAGE> 13
E3 FORMULA FOR DETERMINING EMPLOYER'S MATCHING CONTRIBUTION (Plan Section
11.1(b))
a. (X) N/A. There shall be no matching contributions.
b. ( ) The Employer shall make matching contributions equal to %
----
(e.g. 50%) of the Participant's salary reductions.
c. ( ) The Employer may make matching contributions equal to a discretionary
percentage, to be determined by the Employer, of the Participant's
salary reductions.
d. ( ) The Employer shall make matching contributions equal to the sum
of % of the portion of the Participant's salary reduction which
---
does not exceed % of the Participant's Compensation plus % of
---- ---
the portion of the Participant's salary reduction which exceeds %
---
of the Participant's Compensation, but does not exceed % of the
----
Participant's Compensation.
e. ( ) The Employer shall make matching contributions equal to the
percentage determined under the following schedule:
Participant's Total Matching Percentage
Years of Service
------- -------
------- -------
------- -------
FOR PLANS WITH MATCHING CONTRIBUTIONS
f. ( ) Matching contributions g. ( ) shall h. ( ) shall not be used in
satisfying the deferral percentage tests. (If used, full vesting and
restrictions on withdrawals will apply and the match will be deemed
to be an Elective Contribution).
i. ( ) Shall a Year of Service be required in order to share in the matching
contribution?
With respect to Plan Years beginning after 1989...
1. ( ) Yes (Could cause Plan to violate minimum participation and
coverage requirements under Code Sections 401(a)(26) and 410)
2. ( ) No
With respect to Plan Years beginning before 1990...
1. ( ) N/A, new Plan, or same as years beginning after 1989
2. ( ) Yes
3. ( ) No
j. ( ) In determining matching contributions, only salary reductions up to
% of a Participant's Compensation will be matched. k. ( ) N/A
----
l. ( ) The matching contribution made on behalf of a Participant for any
Plan Year shall not exceed $ . m. ( ) N/A
----
n. ( ) Matching contributions shall be made on behalf of
1. ( ) all Participants.
2. ( ) only Non-Highly Compensated Employees.
12
<PAGE> 14
E4 WILL A DISCRETIONARY EMPLOYER CONTRIBUTION BE PROVIDED (OTHER THAN A
DISCRETIONARY MATCHING OR QUALIFIED NON-ELECTIVE CONTRIBUTION) (Plan Section
11.1(c))?
a. ( ) No.
b. ( ) Yes, the Employer may make a discretionary contribution out of its
current or accumulated Net Profit.
c. (X) Yes, the Employer may make a discretionary contribution which is not
limited to its current or accumulated Net Profit.
IF YES (b. or c. is selected above), the Employer's discretionary
contribution shall be allocated as follows:
d. ( ) FOR A NON-INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be allocated
in the same ratio as each Participant's Compensation bears to the total of
such Compensation of all Participants.
e. (X) FOR AN INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be allocated
in accordance with Plan Section 4.3(b)(2) based on a Participant's
Compensation in excess of:
f. ( ) The Taxable Wage Base.
g. ( ) The greater of $10,000 or 20% of the Taxable Wage Base.
h. (X) 3% of the Taxable Wage Base. (See Note below)
---
i. ( ) $ . (see Note below)
-----
NOTE: The integration percentage of 5.7% shall be reduced to:
1. 4.3% if h. or i. above is more than 20% and less than or equal to
80% of the Taxable Wage Base.
2. 5.4% if h. or i. above is less than 100% and more than 80% of the
Taxable Wage Base.
13
<PAGE> 15
E5 QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Plan Section 11.1(d))
a. (X) N/A. There shall be no Qualified Non-Elective Contributions except as
provided in Sections 11.5(b) and 11.7(h).
b. ( ) The Employer shall make a Qualified Non-Elective Contribution equal
to % of the total Compensation of all Participants eligible
-----
to share in the allocations.
c. ( ) The Employer may make a Qualified Non-Elective Contribution in an
amount to be determined by the Employer.
E6 FORFEITURES (Plan Section 4.3(e))
a. Forfeitures of contributions other than matching contributions shall
be...
1. (X) added to the Employer's contribution under the Plan.
2. ( ) allocated to all Participants eligible to share in the
allocations in the same proportion that each Participant's
Compensation for the year bears to the Compensation of all
Participants for such year.
b. Forfeitures of matching contributions shall be...
1. (X) N/A. No matching contributions or match is fully vested.
2. ( ) used to reduce the Employer's matching contribution.
3. ( ) allocated to all Participants eligible to share in the
allocations in proportion to each such Participant's Compensation
for the year.
4. ( ) allocated to all Non-Highly Compensated Employee's eligible to
share in the allocations in proportion to each such Participant's
Compensation for the year.
E7 ALLOCATIONS TO ACTIVE PARTICIPANTS (Plan Section 4.3) With respect to Plan
Years beginning after 1989, a Participant...
a. (X) shall (Plan may become discriminatory)
b. ( ) shall not
be required to complete a Year of Service in order to share in any
Non-Elective Contributions (other than matching contributions) or Qualified
Non-Elective Contributions. For Plan Years beginning before 1990, the Plan
provides that a Participant must complete a Year of Service to share in the
allocations.
14
<PAGE> 16
E8 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.3(k)) Any Participant
who terminated employment during the Plan Year (i.e. not actively employed
on the last day of the Plan Year) for reasons other than death, Total and
Permanent Disability or retirement:
a. With respect to Employer Non-Elective Contributions (other than matching),
Qualified Non-Elective Contributions, and Forfeitures:
1. For Plan Years beginning after 1989,
i. ( ) N/A, Plan does not provide for such contributions.
ii. ( ) shall share in the allocations provided such Participant
completed more than 500 Hours of Service.
iii. (X) shall share in such allocations provided such Participant
completed a Year of Service.
iv. ( ) shall not share in such allocations, regardless of Hours of
Service.
2. For Plan Years beginning before 1990,
i. (X) N/A, new Plan, or same as for Plan Years beginning after
1989.
ii. ( ) shall share in such allocations provided such Participant
completed a Year of Service.
iii. ( ) shall not share in such allocations, regardless of Hours of
Service.
NOTE: If a.1.iii or iv is selected, the Plan could violate minimum
participation and coverage requirements under Code Sections 401(a)(26)
and 410.
b. With respect to the allocation of Employer Matching Contributions, a
Participant:
1. For Plan Years beginning after 1989,
i. (X) N/A, Plan does not provide for matching contributions.
ii. ( ) shall share in the allocations, regardless of Hours of
Service.
iii. ( ) shall share in the allocations provided such Participant
completed more than 500 Hours of Service.
iv. ( ) shall share in such allocations provided such Participant
completed a Year of Service.
v. ( ) shall not share in such allocations, regardless of Hours of
Service.
2. For Plan Years beginning before 1990,
i. (X) N/A, new Plan, or same as years beginning after 1989.
ii. ( ) shall share in the allocations, regardless of Hours of
Service.
iii. ( ) shall share in such allocations provided such Participant
completed a Year of Service.
iv. ( ) shall not share in such allocations, regardless of Hours of
Service.
NOTE: If b.1.iv or v is selected, the Plan could violate minimum
participation and coverage requirements under Code Section 401(a)
(26) and 410.
15
<PAGE> 17
E9 ALLOCATIONS OF EARNINGS (Plan Section 4.3(c))
Allocations of earnings with respect to amounts contributed to the Plan after
the previous Anniversary Date or other valuation date shall be determined...
a. ( ) by using a weighted average.
b. ( ) by treating one-half of all such contributions as being a part of the
Participant's nonsegregated account balance as of the previous
Anniversary Date or valuation date.
c. (X) by using the method specified in Section 4.3(c).
d. ( ) other
--------------
E10 LIMITATIONS ON ALLOCATIONS (Plan Section 4.4)
a. If any Participant is or was covered under another qualified defined
contribution plan maintained by the Employer, or if the Employer maintains
a welfare benefit fund, as defined in Code Section 419(e), or an
individual medical account, as defined in Code Section 415(l)(2), under
which amounts are treated as Annual Additions with respect to any
Participant in this Plan:
1. ( ) N/A.
2. (X) The provisions of Section 4.4(b) of the Plan will apply.
3. ( ) Provide the method under which the Plans will limit total Annual
Additions to the Maximum Permissible Amount, and will properly
reduce any Excess Amounts, in a manner that precludes Employer
discretion.
b. If any Participant is or ever has been a Participant in a defined benefit
plan maintained by the Employer:
1. ( ) N/A.
2. (X) In any Limitation Year, the Annual Additions credited to the
Participant under this Plan may not cause the sum of the Defined
Benefit Plan Fraction and the Defined Contribution Fraction to
exceed 1.0. If the Employer's contribution that would otherwise be
made on the Participant's behalf during the limitation year would
cause the 1.0 limitation to be exceeded, the rate of contribution
under this Plan will be reduced so that the sum of the fractions
equals 1.0. If the 1.0 limitation is exceeded because of an Excess
Amount, such Excess Amount will be reduced in accordance with
Section 4.4(a)(4) of the Plan.
3. ( ) Provide the method under which the Plans involved will satisfy the
1.0 limitation in a manner that precludes Employer discretion.
16
<PAGE> 18
E11 DISTRIBUTIONS UPON DEATH (Plan Section 6.6(h)) Distributions upon the death
of a Participant prior to receiving any benefits shall...
a. (X) be made pursuant to the election of the Participant or beneficiary.
b. ( ) begin within 1 year of death for a designated beneficiary and be
payable over the life (or over a period not exceeding the life
expectancy) of such beneficiary, except that if the beneficiary is
the Participant's spouse, begin within the time the Participant
would have attained age 70 1/2.
c. ( ) be made within 5 years of death for all beneficiaries.
d. ( ) other
-------
E12 LIFE EXPECTANCIES (Plan Section 6.5(f)) for minimum distributions required
pursuant to Code Section 401(a)(9) shall...
a. ( ) be recalculated at the Participant's election.
b. (X) be recalculated.
c. ( ) not be recalculated.
E13 CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION
Distributions upon termination of employment pursuant to Section 6.4(a) of
the Plan shall not be made unless the following conditions have been
satisfied:
a. ( ) N/A. Immediate distributions may be made at Participant's election.
b. ( ) The Participant has incurred 1-Year Break(s) in Service.
---
c. ( ) The Participant has reached his or her Early or Normal Retirement Age.
d. (X) Distributions may be made at the Participant's election on or after
the Anniversary Date following termination of employment.
e. ( ) Other
--------
E14 FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6)
Distributions under the Plan may be made...
a. 1. (X) in lump sums.
2. ( ) in lump sums or installments.
b. AND, pursuant to Plan Section 6.13,
1. ( ) no annuities are allowed (avoids Joint and Survivor rules).
2. (X) annuities are allowed (Plan Section 6.13 shall not apply).
NOTE: b.1. above may not be elected if this is an amendment to a plan which
permitted annuities as a form of distribution or if this Plan has
accepted a plan to plan transfer of assets from a plan which permitted
annuities as a form of distribution.
c. AND, may be made in...
1. (X) cash only (except for insurance or annuity contracts).
2. ( ) cash or property.
17
<PAGE> 19
TOP HEAVY REQUIREMENTS
F1 TOP HEAVY DUPLICATIONS (Plan Section 4.3(i)): When a Non-Key Employee is a
Participant in this Plan and a Defined Benefit Plan maintained by the
Employer, indicate which method shall be utilized to avoid duplication of
top heavy minimum benefits.
a. (X) The Employer does not maintain a Defined Benefit Plan.
b. ( ) A minimum, non-integrated contribution of 5% of each Non-Key
Employee's total Compensation shall be provided in this Plan, as
specified in Section 4.3(i). (The Defined Benefit and Defined
Contribution Fractions will be computed using 100% if this choice is
selected.)
c. ( ) A minimum, non-integrated contribution of 7 1/2% of each Non-Key
Employee's total Compensation shall be provided in this Plan, as
specified in Section 4.3(i). (If this choice is selected, the Defined
Benefit and Defined Contribution Fractions will be computed using 125%
for all Plan Years in which the Plan is Top Heavy, but not Super Top
Heavy.)
d. ( ) Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude Employer
discretion and avoid inadvertent omissions, including any adjustments
required under Code Section 415(e).
F2 PRESENT VALUE OF ACCRUED BENEFIT (Plan Section 2.2) for Top Heavy purposes
where the Employer maintains a Defined Benefit Plan in addition to this Plan,
shall be based on...
a. (X) N/A. The Employer does not maintain a defined benefit plan.
b. ( ) Interest Rate:
-----
Mortality Table:
-------
F3 TOP HEAVY DUPLICATIONS: Employer maintaining two (2) or more Defined
Contribution Plans.
a. (X) N/A.
b. ( ) A minimum, non-integrated contribution of 3% of each Non-Key
Employee's total Compensation shall be provided in the Money Purchase
Plan (or other plan subject to Code Section 412), where the Employer
maintains two (2) or more non-paired Defined Contribution Plans.
c. ( ) Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude Employer
discretion and avoid inadvertent omissions, including any adjustments
required under Code Section 415(e).
18
<PAGE> 20
MISCELLANEOUS
G1 LOANS TO PARTICIPANTS (Plan Section 7.4)
a. ( ) Yes, loans may be made up to $50,000 or 1/2 Vested interest.
b. (X) No, loans may not be made.
If YES, (check all that apply)...
c. ( ) loans shall be treated as a Directed Investment.
d. ( ) loans shall only be made for hardship or financial necessity.
e. ( ) the minimum loan shall be $1,000.
f. ( ) 10,000 de minimis loans may be made regardless of Vested interest. (If
selected, Plan may need security in addition to Vested interest.)
NOTE: Department of Labor Regulations require the adoption of a SEPARATE
written loan program setting forth the requirements outlined in Plan
Section 7.4.
G2 DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.8) are permitted for the
interest in any one or more accounts.
a. (X) Yes, regardless of the Participant's Vested interest in the Plan.
b. ( ) Yes, but only with respect to the Participant's Vested interest in the
Plan.
c. ( ) Yes, but only with respect to those accounts which are 100% Vested.
d. ( ) No directed investments are permitted.
G3 TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.6)
a. (X) Yes, transfers from qualified plans (and rollovers) will be allowed.
b. ( ) No, transfers from qualified plans (and rollovers) will not be
allowed.
AND, transfers shall be permitted...
c. (X) from any Employee, even if not a Participant.
d. ( ) from Participants only.
G4 EMPLOYEES' VOLUNTARY CONTRIBUTIONS (Plan Section 4.7)
a. ( ) Yes, Voluntary Contributions are allowed subject to the limits of
Section 4.10.
b. (X) No, Voluntary Contributions will not be allowed.
NOTE: TRA '86 subjects voluntary contributions to strict discrimination
rules.
19
<PAGE> 21
G5 HARDSHIP DISTRIBUTIONS (Plan Sections 6.11 and 11.8)
a. ( ) Yes, from any accounts which are 100% Vested.
b. ( ) Yes, from Participant's Elective Account only.
c. ( ) Yes, but limited to the Participant's Account only.
d. (X) No.
NOTE: Distributions from a Participant's Elective Account are limited to the
portion of such account attributable to such Participant's Deferred
Compensation and earnings attributable thereto up to December 31, 1988.
Also hardship distributions are not permitted from a Participant's
Qualified Non-Elective Account.
G6 PRE-RETIREMENT DISTRIBUTION (Plan Section 6.10)
a. ( ) If a Participant has reached the age of , distributions may be
-----
made, at the Participant's election, from any accounts which are 100%
Vested without requiring the Participant to terminate employment.
b. (X) No pre-retirement distribution may be made.
NOTE: Distributions from a Participant's Elective Account and Qualified
Non-Elective Account are not permitted prior to age 59 1/2.
G7 LIFE INSURANCE (Plan Section 7.2(d)) may be purchased with Plan
contributions.
a. ( ) No life insurance may be purchased.
b. ( ) Yes, at the option of the Administrator.
c. (X) Yes, at the option of the Participant.
AND, the purchase of initial or additional life insurance shall be subject to
the following limitations: (select all that apply)
d. ( ) N/A, no limitations.
e. (X) each initial Contract shall have a minimum face amount of $ 50000 .
----------
f. (X) each additional Contract shall have a minimum face amount of $ 10000 .
---------
g. (X) the Participant has completed 3 Years of Service.
---
h. ( ) the Participant has completed Years of Service while a
------
Participant in the Plan.
i. ( ) the Participant is under age on the Contract issue date.
----
j. ( ) the maximum amount of all Contracts on behalf of a Participant shall
not exceed $ .
-----------
k. ( ) the maximum face amount of life insurance shall be $ .
------
20
<PAGE> 22
The adopting Employer may not rely on an opinion letter issued by the National
Office of the Internal Revenue Service as evidence that the plan is qualified
under Code Section 401. In order to obtain reliance with respect to plan
qualification, the Employer must apply to the appropriate Key District Office
for a determination letter.
This Adoption Agreement may be used only in conjunction with basic Plan document
01. This Adoption Agreement and the basic Plan document shall together be known
as BENEFIT DESIGNERS OF MARYLAND, INC. Non-Standardized 401(k) Profit Sharing
Plan and Trust #01-005.
The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisors.
BENEFIT DESIGNERS OF MARYLAND, INC. will notify the Employer of any amendments
made to the Plan or of the discontinuance or abandonment of the Plan provided
this Plan has been acknowledged by BENEFIT DESIGNERS OF MARYLAND, INC. or its
authorized representative. Furthermore, in order to be eligible to receive such
notification, we agree to notify BENEFIT DESIGNERS OF MARYLAND, INC. of any
change in address.
21
<PAGE> 23
IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be
executed on MAY 14, 1998 . Furthermore, this Plan may not be used unless
------------
acknowledged by BENEFIT DESIGNERS OF MARYLAND, INC. or its authorized
representative.
EMPLOYER:
THE TOWN AND COUNTRY MANAGEMENT COMPANY
By:
-------------------------------
/s/ Jennifer C. Munch /s/ Michael H. Rosen
- ---------------------------------- ----------------------------------
TRUSTEE TRUSTEE
/s/ Alfred Lerner /s/ Paul M. Kenney
- ---------------------------------- ----------------------------------
TRUSTEE TRUSTEE
/s/ Dennis E. Smith
- ----------------------------------
TRUSTEE
PARTICIPATING EMPLOYER:
The Town and Country Management Company
- ---------------------------------------
(enter name)
By:/s/ Jennifer C. Munch
-------------------------------
Senior Vice President
This Plan may not be used, and shall not be deemed to be a Regional Prototype
Plan, unless an authorized representative of BENEFIT DESIGNERS OF MARYLAND, INC.
has acknowledged the use of the Plan. Such acknowledgment is for administerial
purposes only. It acknowledges that the Employer is using the Plan but does not
represent that this Plan, including the choices selected on the Adoption
Agreement, has been reviewed by a representative of the sponsor or constitutes a
qualified retirement plan.
BENEFIT DESIGNERS OF MARYLAND, INC.
By: /s/ William Whitescarver
-------------------------------
22
<PAGE> 1
Exhibit 13
Registrant's 1998 Annual Report to Shareholders
<PAGE> 2
TCT [EMBOSSED]
[BLUE WATERMARK OF LEAVES]
The Town and Country Trust
--------------------------------------
A Real Estate Investment Trust
[Photo: Watermark of an apartment
building at Versailles-North Charles
in Towson, Maryland]
--------------------------------------
Annual Report nineteen
98
--------------------------------------
<PAGE> 3
The Town and Country Trust (NYSE: TCT) is a self-administered and self-managed
real estate investment trust which owns and manages 14,771 residential units in
major markets along the Eastern seaboard. Town and Country is recognized as a
leading provider of quality rental housing for middle-income residents in the
communities we serve. A great strength of the Trust is its senior management,
which has been working together as a team in this business for twenty years.
<PAGE> 4
1998 was a significant year.
<PAGE> 5
HIGHLIGHTS OF FINANCIAL RESULTS
-------------------------------
FUNDS FROM OPERATIONS
1995 1996 1997 1998
$29,277,000 $30,547,000 $31,771,000 $32,605,000
(baseline $27,000,000)
FFO PER SHARE
(ASSUMING DILUTION)
1995 1996 1997 1998
$1.63 $1.69 $1.75 $1.80
(baseline $1.50)
NET OPERATING INCOME
1995 1996 1997 1998
$52,033,000 $52,545,000 $53,981,000 $58,315,000
(baseline $50,000,000)
OPERATING REVENUES
1995 1996 1997 1998
$88,904,000 $90,637,000 $92,085,000 $98,262,000
(baseline $85,000,000)
<PAGE> 6
98
Dear Shareholder:
1998 has been an interesting and productive year for the Town and Country
Trust. When we refinanced all of the Trust's outstanding debt in
September 1997, we created opportunities that we hoped would benefit
us in 1998 and beyond. The results to date have been very gratifying.
We have been able to expand our portfolio by entering two new
markets that we believe will provide consistent growth in the years to
come. The addition of 580 apartment units in two properties in
Charlotte, North Carolina and 560 apartment units in two properties in
Orlando, Florida has increased our portfolio to a total of 14,771
units. We have additional liquidity to continue our acquisition
program into 1999.
In addition, we have continued to upgrade our core portfolio
significantly with an investment of over $17 million during the year.
Our program of remodeling kitchens and bathrooms, adding washers and
dryers and other appliances, and expanding resident amenities has been
very successful, resulting in higher average rents as well as higher
occupancies. The remodeling and upgrading program, our unyielding
commitment to resident satisfaction and our attention to a strict and
high level of maintenance of our properties have allowed us to achieve
very satisfactory results for 1998. The continuation of this program
is part of our 1999 business plan.
Funds from operations for 1998 were $32,605,000, or $1.80 per
share compared to $31,771,000 or $1.75 per share for the prior year.
We accomplished this result even though we absorbed net additional
interest expenses in 1998 resulting from the higher interest rate that
applied to the debt refinanced in late 1997. Net operating income grew
8% to $58,315,000 compared to $53,981,000 for 1997. The net operating
income for properties owned during 1998 and 1997 ("same store") was
$56,551,000 for 1998, as compared to $53,981,000 for 1997, an increase
of 4.8%. Economic occupancy for the entire portfolio was 94.1% for
1998 as compared to 92.9% for 1997.
We have declared a dividend of $0.41 per share for the fourth
quarter, thereby increasing the annual rate of dividend payment during
1999 to $1.64 as compared to $1.60 for 1998. We have taken this step,
the first increase in our quarterly dividend since 1994, on the
strength of our performance during 1998 and the promising prospects
for 1999 and beyond.
We continue to retain and motivate our senior executive group that
will celebrate its twentieth anniversary during 1999 as the management
team of the Trust and its predecessor entity.
We are proud of what the Trust accomplished in 1998 and are
optimistic that we will be able to sustain the positive momentum that
has been generated. We appreciate your continued support.
/s/ Alfred Lerner /s/ Harvey Schulweis
Alfred Lerner Harvey Schulweis
Chairman President and
Chief Executive Officer
<PAGE> 7
reinvestments
<PAGE> 8
98 Progress According To Plan
The new financing we arranged in 1997 repositioned us for the future by
providing funds for acquisitions and for the expansion of our capital
improvement program, while eliminating the perceived risk posed by debt
maturities in 1998. It consisted of a $300 million long-term collateralized
financing at a fixed rate of 6.91%, as well as additional borrowing capacity up
to $150 million at what we believe to be favorable rates.
The proceeds were put to work in 1998 to grow the Trust according to
plan.
Town and Country's business plan focuses on controlled growth built on
the three fundamentals of our business: properties that provide the best
middle-income rental accommodations in their markets; stable East Coast markets
with above-average economic and population growth and promising continued strong
demand for housing; and the strength, experience and continuity of our
management.
NEW ACQUISITIONS IN NEW MARKETS
- -------------------------------
In 1998, we acquired two properties with 580 units in Charlotte, NC for $36.5
million and two in Orlando, FL, containing 560 units, for $31.7 million. The
properties and the markets perfectly match our criteria. All four apartment
communities are high quality for their price range, well-located, family-sized
and equipped with a variety of amenities. Charlotte is the regional center for
the country's fifth largest urban region and the second largest banking center
(after New York) in the U.S. Orlando, as a top recreational and tourist
attraction and one of the fastest-growing high-tech regions, is expected to be a
leader in growth rate for the next decade.
REINVESTMENT IN CORE PROPERTIES
- ------------------------------
The Trust continues to devote substantial funds to the maintenance and
improvement of the core portfolio. In 1998 alone, more than $17 million has been
invested in our upgrading program, including remodeling kitchens and bathrooms,
adding washers, dryers and dishwashers, alarm systems and other amenities, and
in such other improvements as new roofing, siding, balconies and parking lots.
This program is essential to achieving our objectives of maintaining our
reputation for quality, adding value and rentability to our properties,
increasing rent and occupancy levels and enhancing the lifestyle of our
residents.
[PHOTO: Pool and apartment building at The Villages at Forest Ridge in
Charlotte, North Carolina]
In Charlotte, we acquired The Villages at Forest Ridge for $18.5 million. Its
330 apartments are mostly 2-bedroom units, and all have air conditioning and
fireplaces. The Fairington, in the prestigious South Park section, has 250 units
and was purchased for $18 million. Each property has two swimming pools, tennis
courts and other attractive amenities.
[PHOTO: Apartment building at The Fairington in Charlotte, North Carolina]
<PAGE> 9
8%
[Watermark of a percent sign]
4.8%
(INCREASE IN NET OPERATING INCOME)
TOTAL / SAME STORE
<PAGE> 10
98 IMPROVING PERFORMANCE
In 1998, the Trust achieved increases in occupancy and rent, while tightly
controlling expenses. As a result, financial performance showed improvement,
including a significant increase in funds from operations (FFO) even after the
higher interest charges required by the refinancing in 1997.
Increased occupancy and rentals are obviously key to improved
performance. Our overall occupancy rate was 94.1% for 1998, compared with 92.9%
in 1997. This improvement is directly attributable to our unremitting attention
to the competitive appeal of our properties.
OPERATING RESULTS
- -----------------
Our growth in net operating revenues for properties owned since January 1, 1997
was 3.8% for the year while the increase in property operating expenses was kept
to 2.5%. These results produced a growth in same-store property operating income
of 4.8%. Overall net operating income improved by 8%.
[GRAPH]
<TABLE>
<CAPTION>
SAME-STORE REVENUES
1995 1996 1997 1998
<S> <C> <C> <C>
$88,904,000 $90,637,000 $92,085,000 $95,592,000
</TABLE>
(baseline $85,000,000)
IMPROVED FFO DESPITE HIGHER
- ---------------------------
INTEREST EXPENSE
- ----------------
Funds from operations, generally considered the most important measure of
performance, increased to $1.80 per share from $1.75 per share in 1997. We take
particular note of this, because it was achieved even with an increase in the
interest rate following our major refinancing in late 1997, which amounted to
about $.04 per share. This means that, without the effect of the incremental
interest expense, there was a net growth in FFO of $.09 per share.
<PAGE> 11
98
THE POWER OF STRONG MANAGEMENT
[Photo: Apartment building at Town and Country Cockeysville in Cockeysville,
Maryland]
[Photo: Apartment building at Versailles-North Charles in Towson, Maryland]
[Photo: Two apartment buildings and pond at Stonegate in Elkton, Maryland]
[Photo: Apartment building at University Heights in Ashburn, Virginia]
[Photo: Two apartment buildings at Versailles-North Charles in Towson, Maryland]
The Trust's properties are superbly maintained and operated, creating a level of
resident satisfaction and loyalty which, in turn, produces high occupancy and
low turnover. This is the direct result of the professionalism and service
orientation of our highly-experienced management team.
Town and Country properties are managed with a hands-on approach, by
people who are experts in the business. The entire organization, from top to
bottom, is imbued with a spirit of caring service, all directed toward resident
satisfaction. As a result, our portfolio is enjoying some of the lowest turnover
in the country. The same talents are responsible for the strategies of our
capital improvement program and the effectiveness with which they are
implemented.
EXPERIENCED, MOTIVATED
- ----------------------
SENIOR MANAGEMENT
- -----------------
Our management group has been working together as a unit for twenty years, since
the core Town and Country portfolio was created in 1979. Their dedicated and
committed leadership has inspired loyalty, pride and longevity throughout the
organization and provided strong career paths for our personnel. Among all our
employees, 25% have more than ten years of service and 40% have been with us for
more than five years. Motivation was bolstered further in 1998 by a revamped
bonus system, based on an industry-wide study, which provides the management
group with new performance-related incentives.
Active involvement
- ------------------
The emphasis on the well-being of our residents is a reflection of the "whatever
it takes" philosophy which puts our team at their disposal 24 hours a day, seven
days a week. Senior operating management regularly visit all of the properties
and are intimately familiar with the entire portfolio. Management intensity is
sustained by sophisticated training and retraining of our staff at every level
and by open lines of communication not only internally but also with our
residents. We operate our own credit and collection departments so that rent
collection is managed aggressively.
<PAGE> 12
20
20 [Shown rotated 90 degrees to the right]
20 [Shown upside down]
20 [Shown rotated 90 degrees to the left]
(YEARS OF SENIOR MANAGEMENT CONTINUITY)
<PAGE> 13
4
+2
---
6
(STATES REPRESENTED IN PORTFOLIO)
<PAGE> 14
98
CHOOSING NEW MARKETS
We invest in markets that enjoy broad-based economic strength, job growth and
low unemployment and are recognized as desirable places to live. We try to avoid
volatility. Our focus on the mid-Atlantic region was extended southward to
Charlotte and Orlando by our 1998 acquisitions.
We are devoted to meeting the housing needs of middle-income families
and are a premier player in this niche in markets that are growing faster than
the national rate. About 50% of our properties are in suburban Baltimore and the
balance, other than our 1998 acquisitions, are in the surrounding area of
Maryland, Delaware, southeastern Pennsylvania and the Washington, DC suburbs. We
believe that demand for quality moderately-priced rental housing in these
markets will be strong for years to come.
BALTIMORE - BECOMING WHITE-COLLAR
- ---------------------------------
Baltimore is steadily evolving from a blue-collar to a white-collar business
environment and growing in importance as an attractive area for investment. It
is a center for marine biotechnology and, as the heart of the Maryland/Delaware
corridor, gains from the proximity of such major employers as Johns Hopkins
University and Health Systems, Northrop Grumman, Bell Atlantic, Baltimore Gas
and Electric and the University of Maryland Medical System.
CHARLOTTE - A REGIONAL CENTER
- -----------------------------
Charlotte is the largest city in the nation's fifth largest urban region and the
second-ranking banking center in the country. Its economic base is highly
diverse, with 291 of the Fortune "500" represented by facilities in the city or
county. No single employment sector dominates and foreign business is growing
rapidly. Quality of life is excellent, highlighted by superlative educational
systems, 25 colleges and universities and a national arts center.
ORLANDO - LEADING THE NATION IN GROWTH
- ---------------------------------------
Orlando is not just a world class recreational, convention and cultural center
and home of the Kennedy Space Center, it is one of the fastest-growing high-tech
and software development areas. Major corporate residents include Lockheed
Martin, AT&T and Universal Studios film and TV production studios. With high
in-migration and fast job creation, it is expected to lead the nation in growth
for the next ten years. Unlike many other Florida population centers, it is not
a retirement community; 21% of the population is under 15 years of age, only 11%
over 65 and the median age is 32. Enjoying low taxes, low cost-of-living and low
unemployment, it is highly ranked on Money Magazine's list of best places to
live.
[PHOTO: Pool and apartment building at Windermere Lakes in Orlando, Florida]
Twelve Oaks and Windermere Lakes are adjacent properties in Orlando with a
combined 560 units, which we acquired for $31.7 million. Apartments are 1-, 2-
and 3-bedrooms, some with fireplaces. Both communities offer pools, tennis,
clubhouses and fitness centers.
[PHOTO: Pool and apartment building at Twelve Oaks in Orlando, Florida]
<PAGE> 15
98
PORTFOLIO
[MAP of the states and the locations of the properties listed below]
- -------------------------------------------------------------------
Name Location Number of Units
- -------------------------------------------------------------------
MARYLAND
- --------
(2) Fox Run Germantown 218
(3) Stonegate Elkton 260
(1) Town & Country Bowley's Quarters Baltimore 462
(1) Town & Country Charlesmont Dundalk 565
(1) Town & Country Cockeysville Cockeysville 540
(1) Town & Country Foxhaven Baltimore 460
(1) Town & Country Gardenwood Baltimore 492
(1) Town & Country Hallfield Perry Hall 75
(1) Town & Country Harford Carney 336
(1) Town & Country Hollows Glen Burnie 336
(1) Town & Country Montgomery Knolls Gaithersburg 210
(1) Town & Country Ridgeview Rossville 257
(1) Town & Country Rolling Road Baltimore 384
(1) Town & Country Rossville Rossville 692
(1) Town & Country Tall Oaks Laurel 352
(1) Town & Country West/Greensview Ellicott City 1,350
(1) Town & Country Willow Lake Laurel 456
(1) Town & Country Woodhill Glen Burnie 334
(1) Town & Country Woodmoor Baltimore 424
(1) Versailles - North Charles Towson 210
PENNSYLVANIA
- ------------
(1) Colonial Crest Emmaus Emmaus 329
(1) Hidden Village Allentown 264
(2) Rolling Hills York 184
(1) Town & Country Colonial Park Harrisburg 626
(1) Town & Country Hanover Hanover 215
(1) Town & Country Lancaster West Lancaster 413
(1) Town & Country Lancaster East Lancaster 272
(1) Town & Country Union Deposit Harrisburg 468
(1) Town & Country York York 396
VIRGINIA
- ---------
(2) Barton's Crossing Alexandria 532
(3) Carlyle Station Manassas 408
(2) The Glen at Leesburg Leesburg 134
(2) University Heights Ashburn 466
(2) The Village at McNair Farms Herndon 283
DELAWARE
- ---------
(3) Christina Mill Newark 228
NORTH CAROLINA
- --------------
(4) Villages at Forest Ridge Charlotte 330
(4) The Fairington Charlotte 250
FLORIDA
- -------
(4) Twelve Oaks Orlando 284
(4) Windermere Lakes Orlando 276
TOTAL UNITS 14,771
(1) Core Portfolio (3) 1994 Acquisitions
(2) 1993 Acquisitions (4) 1998 Acquisitions
<PAGE> 16
[Watermark of numbers]
FINANCIAL REPORT
<PAGE> 17
14
CONSOLIDATED BALANCE SHEETS The Town and Country Trust
<TABLE>
<CAPTION>
(in thousands, except share data) DECEMBER 31, 1998 1997
---- ----
ASSETS
- ------
<S> <C> <C>
Real estate assets:
Land $ 90,146 $ 77,566
Buildings and improvements 571,680 492,482
Other 4,264 3,904
---------------------------
666,090 573,952
Less accumulated depreciation (248,411) (222,946)
---------------------------
417,679 351,006
Cash and cash equivalents 3,784 4,259
Restricted cash 1,455 1,125
Receivables 1,871 2,030
Prepaid expenses and other assets 4,162 4,240
Deferred financing costs, net of allowance for amortization
(1998 - $488; 1997 - $114) 3,433 3,591
---------------------------
Total assets $ 432,384 $ 366,251
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Mortgages payable $ 385,299 $ 300,000
Accrued interest 1,847 1,756
Accounts payable and other liabilities 6,539 4,731
Security deposits 2,097 1,698
Minority interest 4,994 7,948
---------------------------
Total liabilities 400,776 316,133
Shareholders' equity:
Common shares of beneficial interest ($.01 par value),
500,000,000 shares authorized 158 158
Additional paid-in capital 319,141 319,061
Accumulated deficit (285,415) (266,440)
Unearned compensation - restricted stock (2,276) (2,661)
---------------------------
31,608 50,118
---------------------------
Total liabilities and shareholders' equity $ 432,384 $ 366,251
===========================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 18
15
CONSOLIDATED STATEMENTS OF OPERATIONS The Town and Country Trust
<TABLE>
<CAPTION>
(in thousands, except per share data) YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Revenue from rental operations $98,262 $92,085 $90,637
Other 628 563 526
-------------------------------------
98,890 92,648 91,163
Expenses:
Utilities 5,954 5,886 5,868
Other property operations 15,841 15,287 15,614
Real estate taxes 7,106 6,837 6,969
Depreciation 25,564 24,311 24,282
Marketing and advertising 3,903 3,577 3,321
Repairs and maintenance 7,143 6,517 6,320
General and administrative 3,233 2,414 2,333
-------------------------------------
68,744 64,829 64,707
Interest expense 22,529 18,601 17,750
Interest expense related to the amortization of
deferred financing costs 374 1,559 2,166
-------------------------------------
91,647 84,989 84,623
-------------------------------------
Income before minority interest and extraordinary item 7,243 7,659 6,540
Income allocated to minority interest 993 1,048 895
-------------------------------------
Income before extraordinary item 6,250 6,611 5,645
Extraordinary item - cost related to refinancing of debt
(net of $397 minority interest) -- (2,512) --
-------------------------------------
Net income $ 6,250 $ 4,099 $ 5,645
=====================================
Weighted average common shares outstanding - basic 15,523 15,513 15,512
Dilutive effect of outstanding options and restricted shares 159 176 47
-------------------------------------
Weighted average common shares outstanding - diluted 15,682 15,689 15,559
=====================================
Per common share - basic and diluted:
Income before extraordinary item $ .40 $ .42 $ .36
Extraordinary item -- (.16) --
-------------------------------------
Net income $ .40 $ .26 $ .36
====================================
Dividends declared and paid per share outstanding $ 1.60 $ 1.60 $ 1.60
====================================
Tax treatment of dividends (unaudited):
Ordinary income $ 1.14 $ 1.08 $ 1.23
====================================
Return of capital $ .46 $ .52 $ .37
====================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 19
16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY The Town and Country Trust
<TABLE>
<CAPTION>
Common Shares of Additional
Beneficial Interest Paid-In Accumulated Unearned
(in thousands, except per share data) Shares Amount Capital Deficit Compensation
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 15,662 $ 157 $ 317,584 $(225,964) $ (1,876)
Net income -- -- -- 5,645 --
Common shares of beneficial interest
issued under Long Term Incentive Plan 15 -- 203 -- (203)
Dividends declared and paid
($1.60 per share) -- -- -- (25,072) --
Earned compensation under Long Term
Incentive Plan -- -- -- -- 267
Share options exercised 1 -- 4 -- --
--------------------------------------------------------------
Balance at December 31, 1996 15,678 157 317,791 (245,391) (1,812)
Net income -- -- -- 4,099 --
Common shares of beneficial interest
issued under Long Term Incentive Plan 76 1 1,164 -- (1,165)
Dividends declared and paid
($1.60 per share) -- -- -- (25,148) --
Earned compensation under Long Term
Incentive Plan -- -- -- -- 316
Share options exercised 7 -- 106 -- --
--------------------------------------------------------------
Balance at December 31, 1997 15,761 158 319,061 (266,440) (2,661)
Net income -- -- -- 6,250 --
Dividends declared and paid
($1.60 per share) -- -- -- (25,225) --
Earned compensation under Long Term
Incentive Plan -- -- -- -- 385
Share options exercised 6 -- 80 -- --
--------------------------------------------------------------
Balance at December 31, 1998 15,767 $ 158 $ 319,141 $(285,415) $ (2,276)
==============================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 20
17
CONSOLIDATED STATEMENTS OF CASH FLOWS The Town and Country Trust
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
Operating activities
- --------------------
<S> <C> <C> <C>
Income before minority interest and extraordinary item $ 7,243 $ 7,659 $ 6,540
Adjustments to reconcile income before minority interest and
extraordinary item to net cash provided by operating activities:
Depreciation 25,564 24,311 24,282
Interest expense related to the amortization of deferred
financing costs 374 1,559 2,166
Amortization of unearned compensation 385 316 267
Changes in operating assets and liabilities:
(Increase) decrease in restricted cash (330) (120) 30
Decrease (increase) in funds deposited with mortgagee -- 6,030 (307)
Decrease (increase) in receivables, prepaid expenses and
other assets 237 (1,000) (292)
Increase (decrease) in accounts payable, other liabilities,
accrued interest and security deposits 2,298 (2,814) 1,598
--------------------------------------
Net cash provided by operating activities 35,771 35,941 34,284
Investing activities
- --------------------
Property acquisitions (69,835) -- --
Additions of real estate assets, net of disposals (4,638) (4,378) (4,120)
Additions pursuant to value-added capital improvements program (17,764) (5,185) (2,277)
--------------------------------------
Net cash used in investing activities (92,237) (9,563) (6,397)
Financing activities
- --------------------
Borrowings on mortgages payable 85,308 300,000 --
Payments on mortgages payable (9) (232,000) --
Payments on notes payable -- (58,409) --
Proceeds from exercise of share options 80 106 4
Borrowings on notes payable -- -- 1,600
Costs related to refinancing of debt -- (742) --
Increase in deferred financing costs (216) (3,705) (61)
Dividends and distributions (29,172) (29,094) (29,018)
--------------------------------------
Net cash provided by (used in) financing activities 55,991 (23,844) (27,475)
--------------------------------------
(Decrease) increase in cash and cash equivalents (475) 2,534 412
Cash and cash equivalents at beginning of period 4,259 1,725 1,313
--------------------------------------
Cash and cash equivalents at end of period $ 3,784 $ 4,259 $ 1,725
======================================
Cash interest paid $ 22,727 $ 21,709 $ 17,982
======================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 21
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Town and Country Trust
Note 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
ORGANIZATION The Town and Country Trust (the "Trust"), in conjunction with its
subsidiaries (collectively the "Company"), is a self-administered and
self-managed Real Estate Investment Trust organized within one defined business
segment to own, manage and acquire multifamily residential properties. The
Company was organized in Maryland on May 19, 1993 and commenced operations on
August 23, 1993 upon completion of its initial public offering of 15,511,765
common shares of beneficial interest. Concurrent with the equity offering, The
Town and Country Funding Corporation, an affiliated special purpose corporation,
acting as an agent for The TC Property Partnerships, made a public offering of
$232,000,000 of secured notes.
In conjunction with the consummation of the equity and debt offerings, a
series of transactions occurred: the Company acquired an 86% general partnership
interest in The TC Operating Limited Partnership (the "Operating Partnership");
the remaining 14% limited partnership interest in the Operating Partnership was
retained by the minority interest owners as consideration for their contribution
to the Operating Partnership of controlled interests in The Town and Country
Management Corporation and 26 property partnerships (the "TC Companies"). The TC
Companies, along with the property partnerships acquired concurrent with and
subsequent to the public offering, total 39 property partnerships located in
Maryland, Pennsylvania, Virginia, Delaware, North Carolina and Florida and are
collectively referred to as "The TC Property Partnerships." All operating
expenses of the Trust will be borne pro rata by the general and limited partners
of the Operating Partnership in proportion to their respective interests in the
properties.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the Company
include the accounts of the Trust and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
RECLASSIFICATIONS Certain amounts previously reported have been reclassified to
conform with the 1998 presentation.
INCOME TAXES The Trust has made an election to be taxed as a Real Estate
Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code. As a REIT, the Trust generally will not be subject to Federal income tax
to the extent that it distributes at least 95% of its REIT taxable income to its
shareholders. If the Trust fails to qualify as a REIT in any taxable year, the
Trust will be subject to Federal income tax (including any applicable
Alternative Minimum Tax) at regular corporate rates on its taxable income. Even
if the Trust qualifies for taxation as a REIT, the Trust may be subject to
certain state and local taxes on its income and property and to Federal income
and excise taxes on its undistributed income.
The Company makes a number of special allocations for tax purposes only. In
general, 100% of the interest deductions related to $232,000,000 of borrowings
will be allocated to the Trust and 85% of depreciation deductions related to 32
of the properties will be allocated to the minority interest ownership.
REAL ESTATE AND DEPRECIATION Real estate assets are stated at cost, net of
accumulated depreciation, unless an impairment indicator exists. If impairment
conditions exist, the Company makes an assessment of the recoverability of the
carrying amounts of the properties by estimating the future undiscounted cash
flows, excluding interest charges. If the carrying amount exceeds the aggregate
future cash flows, the Company would recognize an impairment loss to the extent
the carrying amount exceeds the discounted fair value of the property. Any
long-lived assets to be disposed of are valued at estimated fair value less cost
to sell. Based on such periodic assessments, no impairments have been determined
and, therefore, no real estate carrying amounts have been adjusted.
All costs related to the improvement or replacement of fixed assets are
capitalized. Maintenance and repairs are charged to expense as incurred.
Provision for depreciation is computed using the straight-line method over the
estimated useful lives of the assets, as follows:
---------------------------------------------------
Buildings 40 years
Major Improvements 20 years
Furniture, Fixtures and Equipment 5 to 12 years
CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
<PAGE> 22
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Town and Country Trust
DEFERRED FINANCING COSTS Deferred financing costs consist of certain fees
incurred in the financing of indebtedness which are being amortized to interest
expense using the straight-line method, which approximates the effective yield
method, over the term of the related debt.
INTEREST RATE RISK MANAGEMENT The Company uses an interest rate protection
agreement to reduce the potential impact of increases in interest rates relating
to the floating rate portion of certain borrowings. Unamortized premiums paid
for the agreement are included in deferred financing costs in the Company's
balance sheet. Amounts received under the agreement are credited as a reduction
of interest expense.
INCOME RECOGNITION Revenues from rental property are recognized when due from
tenants. Leases are generally for one year or less.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions, such as depreciable lives of assets, that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
NOTE 2 RESTRICTED CASH
- ------------------------
Pursuant to Maryland, Delaware, North Carolina and Florida state law, the
Company maintains certificates of deposit to cover the aggregate amount of
tenant security deposits retained by the properties in those states. At December
31, 1998, and 1997, the amount of the certificates of deposit, with a maturity
of three months or less, was $1,455,000 and $1,125,000, respectively.
NOTE 3 REAL ESTATE ACQUISITIONS
- ----------------------------------
During the year ended December 31, 1998, the Company purchased the following
apartment communities:
<TABLE>
<CAPTION>
PROPERTY LOCATION DATE OF ACQUISITION NUMBER OF UNITS CONTRACT AMOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Villages of Forest Ridge Charlotte, NC March 31, 1998 330 $18,500,000
The Fairington Charlotte, NC October 15, 1998 250 $18,000,000
Windermere Lakes Orlando, FL December 10, 1998 276 $15,200,000
Twelve Oaks Orlando, FL December 10, 1998 284 $16,500,000
</TABLE>
These acquisitions were funded through the use of the Company's revolving loan
facilities, and in one case, the assumption of existing mortgage debt. Results
of operations for the property partnerships listed above are included in the
Company's statement of operations for the period from the date of acquisition
through December 31, 1998.
NOTE 4 MORTGAGES PAYABLE
- --------------------------
In September, 1997 the Company entered into an agreement that provides a
$375,000,000 collateralized financing facility. The initial borrowing under the
facility of $300,000,000 matures in 2008 and bears a fixed interest rate of
6.91%.
A portion of the proceeds was used to refinance the Company's existing
publicly-issued and bank mortgage indebtedness which had scheduled maturities of
August, 1998. As a result of the refinancing of the publicly-issued and bank
mortgage indebtedness, in 1997 the Company recorded an extraordinary expense of
$2,512,000, net of minority interest of $397,000. The expense consisted of the
write-off of $2,167,000 of unamortized deferred financing costs and other costs
in the amount of $742,000.
The remaining $75,000,000 is available as a 10-1/2 year, variable rate
revolving credit facility. As of December 31, 1998 $54,500,000 had been borrowed
under the revolving credit facility at a variable rate (5.51% at December 31,
1998). As of December 31, 1997, no amounts were outstanding under the facility.
Any outstanding portion can be converted to a fixed rate
<PAGE> 23
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Town and Country Trust
term loan maturing in 2008 at the Company's option. These funds will be
available for property acquisitions and to expand the ongoing extensive capital
improvement program for certain of the Company's existing properties. The
Company purchased an interest rate protection contract which limits the maximum
floating interest rate to approximately 10.5%. In association with the
refinancing, the Company committed to a two-year program to provide $25,000,000
in capital improvements to certain properties. Through the year ended December
31, 1998, $20,830,000 in costs have been incurred related to this program.
During 1998, the Company has arranged a $50,000,000 revolving line of
credit with a bank to be used for acquisitions. Borrowings under this facility
will bear interest at 120 basis points over LIBOR (6.75% at December 31, 1998).
Individual draws under the facility mature in eighteen months, and the initial
term of the facility expires in September, 2001. As of December 31, 1998
$24,054,000 had been borrowed under this facility.
In conjunction with the acquisition of a property during 1998, the Company
assumed an amortizing mortgage which resulted in a non-cash investing activity.
At December 31, 1998 the mortgage had an outstanding balance of $6,745,000,
matures in 2003 and bears a fixed interest rate of 7.45%.
NOTE 5 MINORITY INTEREST
- --------------------------
In conjunction with the formation of the Company and its majority-owned
Operating Partnership, persons contributing interests in properties to the
Operating Partnership have received limited partnership interests in the
Operating Partnership. The aggregate outstanding limited partnership interests
are convertible into common shares of the Company, and the interests have the
same economic characteristics as 2,466,535 common shares inasmuch as they share
proportionally in the net income or loss and any distributions of the Operating
Partnership. Since the limited partnership interests have the same economic
characteristics as shares, these interests have no impact on earnings per share
calculations.
Minority interest in the accompanying consolidated financial statements
relates to such limited partnership interests.
NOTE 6 EMPLOYEE BENEFIT PLANS
- -------------------------------
SHARE OPTION PLANS In 1993 the Company established a long-term incentive plan
for the purpose of attracting and retaining executive officers, other key
employees and non-employee trustees (the "1993 Plan"). The 1993 Plan provides
for the granting of restricted stock and incentive share options and
non-qualified share options to purchase up to 750,000 shares of the Company's
common shares at a price not less than the fair market value at the date the
options are granted. During 1997 the Company established an additional long-term
incentive plan (the "1997 Plan" and together with the 1993 Plan, the "Plans").
The 1997 Plan provides for the granting of options to purchase up to 1,200,000
of the Company's common shares at a price not less than the fair market value at
the date the options are granted. The Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25") and related interpretations in accounting for its employee stock options as
permitted under FASB Statement No. 123, Accounting for Stock-Based Compensation,
("Statement 123"). Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Under the Plans, options generally become exercisable in equal installments
over a three-year period, commencing with the first anniversary of the date of
grant. All options expire ten years from the date of grant. During the year
ended December 31, 1998, 6,000 options were granted pursuant to the 1993 Plan at
an exercise price of $17.625.
An additional 1,112,800, 1,115,650, and 111,375 common shares have been
authorized for issuance in future grants of options under the Plans as of
December 31, 1998, 1997 and 1996, respectively. The option price of future
grants may not be less than the fair market value of the shares on the date of
grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions:
<PAGE> 24
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Town and Country Trust
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate 5.3% 6.1% 5.4%
Dividend yield 9.1% 10.6% 11.8%
</TABLE>
The model assumed a volatility factor of the expected market price of the
Company's common stock of 0.18 and a weighted-average expected life of the
options of five 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 the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except for earnings per share
information):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Pro forma net income $6,221 $4,057 $5,614
Pro forma net income per share - basic and diluted $ .40 $ .26 $ .36
</TABLE>
<TABLE>
<CAPTION>
Details of share options are as follows:
Number of Shares
------------------------
Incentive Non-qualified Option Weighted Average
Options Options Price Exercise Price
--------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Shares under option at January 1, 1996 287,269 182,731 $14.00-22.00 $14.75
Granted -- 6,000 $13.50 $13.50
Exercised (300) -- $14.00 $14.00
Forfeited (3,500) -- $14.00-14.75 $14.25
------- -------
Shares under option at December 31, 1996 283,469 188,731 $13.50-22.00 $14.75
Granted 99,672 26,328 $14.75-15.125 $15.10
Exercised (7,350) -- $14.00-14.75 $14.50
Forfeited (6,150) -- $14.00-15.125 $14.60
------- -------
Shares under option at December 31, 1997 369,641 215,059 $13.50-22.00 $14.80
Granted -- 6,000 $17.625 $17.625
Exercised (5,733) -- $14.00-15.125 $14.05
Forfeited (3,150) -- $14.00-15.125 $14.65
------- -------
Shares under option at December 31, 1998 360,758 221,059 $13.50-22.00 $14.80
======= =======
Shares exercisable at December 31, 1998 295,265 207,507 $13.50-22.00 $14.75
======= =======
Shares exercisable at December 31, 1997 237,706 183,461 $13.50-22.00 $14.75
======= =======
Shares exercisable at December 31, 1996 155,183 122,550 $13.50-22.00 $14.875
======= =======
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1998, 1997 and 1996 was $.87, $.59 and $.34, respectively. The
weighted average remaining contractual life of options granted is 6.5 years.
<PAGE> 25
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Town and Country Trust
PENSION PLAN The Company maintained a non-contributory defined contribution plan
(the "Pension Plan") for the benefit of employees which was terminated June 30,
1998. Effective June 30, 1998 the Company implemented a contributory defined
contribution 401(k) benefit plan (the "401(k) Plan") covering substantially all
employees who have attained the age of 20-1/2 and have 6 months of service.
Assets of the Pension Plan were transferred to the 401(k) Plan, and all
participants became 100% vested. The Company also makes discretionary
contributions to the 401(k) Plan for each participant. Employees qualify for
benefits upon reaching the age of sixty-five and early retirees qualify provided
they have reached the age of fifty-five and have completed ten years of service.
After three years of service, employees become 20% vested in employer
contributions which are based on current compensation levels. From the fourth
through the seventh years, vesting increases until full vesting occurs. The
aggregate cost of these contributions to the Plans by the Company was $260,000,
$245,000, and $195,000 for the years ended December 31, 1998, 1997, and 1996,
respectively.
RESTRICTED STOCK During the period 1995 through 1997 the Company granted 242,000
restricted Common Shares to certain officers pursuant to the 1993 Plan. The
officers become fully vested in the shares upon retirement from the Company.
Should such officers leave the Company prior to retirement, the shares revert
back to the Company. The market value as of the dates of grant of the shares
awarded, $3,431,000, has been recorded as unearned compensation - restricted
stock and is shown as a separate component of shareholders' equity. Unearned
compensation is being amortized into expense over the vesting period. The
amortization amounted to $385,000, $316,000, and $267,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
SUPPLEMENTAL EMPLOYEES RETIREMENT PLAN The Company has established a
split-dollar life insurance plan for certain officers pursuant to the 1993 Plan.
The Company advances the premiums on life insurance policies for these officers.
The policies are assigned to the Company. In the event of retirement or death,
the Company will be repaid the aggregate amount of premiums paid from the cash
surrender value at the time the benefits are paid. The remaining cash surrender
value is paid to the employee or beneficiary. The cash surrender values of the
policies are recognized as an asset to the Company.
NOTE 7 LEASES
- ---------------
The Company leases certain office facilities and equipment under noncancellable
operating leases. Future minimum rental commitments under noncancellable leases
with remaining terms in excess of one year are as follows at December 31, 1998:
(in thousands)
<TABLE>
<CAPTION>
-------
<S> <C> <C>
1999 $ 391
2000 410
2001 410
2002 410
2003 410
After 2003 337
------
Total lease commitments $2,368
======
</TABLE>
Total rent expense for the years ended December 31, 1998, 1997, and 1996, was
approximately $394,000, $374,000, and $366,000, respectively.
NOTE 8 RELATED PARTY TRANSACTIONS
- -------------------------------------
At December 31, 1998 and 1997, the Company had an unsecured loan to an officer,
the balance of which was $340,000. $300,000 of the loan balance bears an
interest rate comparable to the rate earned on the Company's invested funds. The
remaining portion of the loan is non-interest bearing.
A Trustee of the Company is chairman of a law firm which is general counsel
to the Company.
<PAGE> 26
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Town and Country Trust
NOTE 9 FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------------
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments as of December 31, 1998 and 1997. FASB
Statement No. 107, Disclosures about Fair Value of Financial Instruments,
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------------------------------------
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Financial assets
Deferred financing costs
(interest rate protection agreement) $ 57 $ 12 $ 73 $ 51
Financial liabilities
Mortgages payable
Fixed rate notes $306,745 $317,589 $300,000 $308,441
Floating rate notes 78,554 78,554 -- --
===========================================================
</TABLE>
The carrying amounts shown in the above table are included in the balance sheet
under the indicated captions. The following methods and assumptions were used to
estimate the fair values of each class of financial instruments:
Deferred financing costs: The amounts reported relate to the interest rate
protection agreement. The carrying amount is comprised of the unamortized
premiums paid for this agreement. The fair value represents what the Company
would pay for a similar agreement at December 31, 1998 and 1997 based upon
quotes from the agreement's counterparty.
Mortgages Payable: The fair value of the fixed rate portion of the
Company's mortgages payable is estimated by discounting expected cash flows
based on the Company's incremental borrowing rate for similar types of borrowing
arrangements. The floating rate portion of the Company's mortgages payable
approximated market.
NOTE 10 UNAUDITED QUARTERLY RESULTS OF OPERATIONS
- ---------------------------------------------------
The following is a summary of quarterly results of operations for the years
ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
(in thousands, except per share data) QUARTER ENDED March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1998
- ----
<S> <C> <C> <C> <C>
Revenues $23,249 $24,625 $25,213 $25,803
Income from property operations 6,870 7,294 7,605 8,377
Net income 1,335 1,414 1,624 1,877
Net income per share - basic and diluted .09 .09 .10 .12
1997
- ----
Revenues $22,848 $23,000 $23,402 $23,398
Income from property operations 6,499 6,726 6,732 7,862
Income before extraordinary item 1,328 1,509 1,573 2,201
Extraordinary item (net of minority interest) -- -- (2,512) --
Net income (loss) 1,328 1,509 (939) 2,201
Net income (loss) per share - basic and diluted .09 .10 (.06) .14
</TABLE>
<PAGE> 27
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Town and Country Trust
NOTE 11 SUBSEQUENT EVENT
- --------------------------
On February 10, 1999 the Company's Board of Trustees declared a dividend for the
quarter ended December 31, 1998 of $.41 per share, aggregating $6,464,530.
Concurrent with the payment of the dividend, a $1,011,279 limited partnership
ownership distribution will be made to the minority interest holders. The
dividend and distribution will be paid on March 10, 1999 to holders of record on
February 19, 1999.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
THE TOWN AND COUNTRY TRUST
We have audited the accompanying consolidated balance sheets of The Town and
Country Trust and subsidiaries (the "Company") as of December 31, 1998, and
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Town and
Country Trust and subsidiaries at December 31, 1998, and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 29, 1999
<PAGE> 28
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL THE TOWN AND COUNTRY TRUST
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
The following discussion is based primarily on the consolidated financial
statements of The Town and Country Trust and its subsidiaries (the "Company") as
of December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997,
and 1996. This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
On August 23, 1993, the Company completed its initial public offering of
15,511,765 common shares of beneficial interest. The Town and Country Funding
Corporation, a special purpose corporation affiliated with the Company,
concurrently offered $232,000,000 of secured notes to the public. Upon
consummation of these offerings, the Company acquired a majority ownership
interest in The TC Operating Limited Partnership, the twenty-six original
property partnerships and six additional property partnerships.
The Company believes that funds from operations provides an indicator of
its financial performance. Funds from operations is defined as net income (loss)
excluding adjustments for unconsolidated partnerships and joint ventures as well
as gains (losses) from debt restructuring and sales of property, plus
depreciation of revenue producing real property. This definition of funds from
operations is consistent with the National Association of Real Estate Investment
Trusts (NAREIT) definition. Funds from operations is affected by the financial
performance of the properties and the capital structure of the Company. Funds
from operations does not represent cash flow from operations as defined by
generally accepted accounting principles and is not necessarily indicative of
cash available to fund all cash flow needs. Funds from operations should not be
considered as an alternative to net income as an indicator of operating
performance or as an alternative to cash flow as a measure of liquidity.
RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 Revenues
for the year ended December 31, 1998 were $98,890,000 compared to $92,648,000
for the year ended December 31, 1997, an increase of $6,242,000, or 6.7%. Same
store revenues (i.e., those properties owned by the Company for all of 1998 and
1997) increased by $3,558,000 or 3.8% due to increases in rental rates,
increased occupancy and the impact of revenue-enhancing capital improvements.
Properties acquired during 1998 contributed $2,684,000 in revenue during the
year. Occupancy for the year ended December 31, 1998 was 94.1% for all
properties and 94.2% on a same store basis compared to 92.9% for the year ended
December 31, 1997. Funds from operations before minority interest, using the
NAREIT definition, increased to $32,605,000 for the year ended December 31, 1998
from $31,771,000 for the year ended December 31, 1997.
Total expenses, excluding depreciation and interest, were $43,180,000 for
the year ended December 31, 1998 compared to $40,518,000 from the previous year,
an increase of $2,662,000. Of this increase, $905,000 is due to the
newly-acquired properties. Same store expenses, excluding general and
administrative expenses and depreciation, increased by $938,000 or 2.5% over
1997.
Interest expense for the year ended December 31, 1998 increased by
$3,928,000 over that expense for the same period in 1997 due to increases in the
amount of borrowings and interest rates that resulted from the expanded
financing facility and borrowings under the new line of credit related to the
property acquisitions.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Revenues
for the year ended December 31, 1997 were $92,648,000 compared to $91,163,000
for the year ended December 31, 1996. This increase of $1,485,000, or 1.6%, was
due to increased rental rates and the impact of revenue-enhancing capital
improvements. Occupancy for the year ended December 31, 1997 was 92.9%, which
was slightly lower than the 94.0% that the Company experienced for the year
ended December 31, 1996. Funds from operations before minority interest, using
the NAREIT definition, increased by 4.0% to $31,771,000 for the year ended
December 31, 1997 from $30,547,000 for the year ended December 31, 1996.
As a result of management's continued efforts to control costs, total
expenses, excluding depreciation and interest, were $40,518,000 for the year
ended December 31, 1997, compared to $40,425,000 for the year ended December 31,
1996, an increase of $93,000 or 0.2%. Utilities and other operating expenses
decreased by $309,000. All other expenses, except depreciation, increased by
only $402,000 in the aggregate.
Interest expense for the year ended December 31, 1997 increased by
$851,000 from that expense for the same period in 1996 due to increases in the
amount of borrowings and interest rate that resulted from the new financing
facility.
<PAGE> 29
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL THE TOWN AND COUNTRY TRUST
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Operating activities provided unrestricted cash for the year ended December 31,
1998 of $35,771,000, of which $29,172,000 was paid out in dividends and
distributions.
In 1995, the Company initiated a multi-year program that provided for
approximately $6,500,000 in revenue-enhancing capital improvements to certain
properties. The improvements included the modernization of kitchens and
bathrooms as well as the initial installation of washers, dryers and carpeting
within certain apartment units. The initial program was completed during 1997.
In 1997, the Company commenced a two-year program that provides for
approximately $25,000,000 in capital improvements to certain properties. The
improvements include paving, roofs, vinyl siding and the expansion of the
on-going program to make such revenue-enhancing improvements as the
modernization of kitchens and bathrooms and the installation of washers, dryers
and carpeting within certain apartment units. $20,830,000 in costs were incurred
related to this new program through December 31, 1998. The Company has a
collateralized financing facility which allows for draws to finance this capital
improvement program.
During 1998, the Company acquired four properties, comprising 1,140 units,
located in Charlotte, North Carolina and Orlando, Florida. The total purchase
price of these acquisitions was $69,835,000. The acquisitions were financed
through borrowings on the revolving credit facility, the revolving line of
credit, assumption of property specific debt and funds generated from
operations.
In September, 1997 the Company entered into an agreement that provides a
$375,000,000 collateralized financing facility. The initial borrowing under the
facility of $300,000,000 matures in 2008 and bears a fixed interest rate of
6.91%. The remaining $75,000,000 is available as a 10-1/2 year, variable rate
revolving credit facility which can be converted to a fixed-rate term loan
maturing in 2008 at the Company's option. The Company intends to use these funds
for property acquisitions and to expand the ongoing extensive capital
improvement program for certain of the Company's existing properties. Total
borrowings under the collateralized financing facility as of December 31, 1998
were $354,500,000. The Company uses an interest rate protection agreement to
reduce the potential impact of increases in interest rates related to
$54,500,000 of the floating rate borrowings. The interest rate protection
contract limits the maximum floating interest rate to approximately 10.5%.
The Company has arranged a $50,000,000 revolving line of credit with a bank
to be used for acquisitions. Borrowing under this facility will bear interest at
120 basis points over LIBOR. Individual draws under the facility mature in
eighteen months, and the initial term of the facility expires in September,
2001.
As of December 31, 1998, $24,054,000 had been borrowed under this facility.
The following table sets forth certain information regarding the Company's
outstanding indebtedness as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
December 31, 1998
Amount % of Debt Interest Rate Maturity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed Rate Debt: Collateralized facility $300,000 77.9% 6.91% April, 2008
Conventional mortgage 6,745 1.8% 7.45% July, 2003
-------- ----
306,745 79.7%
-------- ----
Floating Rate Debt: Revolving credit facility 54,500 14.1% 5.51% April, 2008
Line of credit 24,054 6.2% 6.75% June, 2000
-------- ----
78,554 20.3%
-------- ----
Total mortgage debt $385,299 100.0% 6.71%
======== =====
</TABLE>
Rental income from the properties is received on a monthly basis. All cash
accumulated for the payment of quarterly dividends is invested in short-term
instruments. Management believes that the Company will have access to the
capital resources necessary to expand and develop its business. The Company
expects that adequate cash will be available to fund its operating and
administrative expenses, capital expenditures, debt service obligations and
payments of dividends in the foreseeable future.
INFLATION
- ---------
Substantially all of the leases of the properties are for a term of one year or
less, which enables the Company to seek increased rents upon renewal or
reletting of apartment units. Such short-term leases minimize the risk of the
adverse effects of inflation; however, as a general rule, such leases permit
tenants to leave at the end of the lease term without penalty.
<PAGE> 30
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL THE TOWN AND COUNTRY TRUST
CONDITION AND RESULTS OF OPERATIONS
IMPACT OF THE YEAR 2000
- -----------------------
As a result of computer programs being written using two digits rather than four
to define the applicable year, any of the Company's computer programs that have
time-sensitive hardware and software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, collect rents, or engage in
similar normal business activities.
Management has completed its assessment of its information technology
("IT") systems and non-IT systems to assess their year 2000 readiness. Critical
systems include, but are not limited to accounts receivable and rent
collections, fixed assets, and security systems. In order for these systems to
function properly with respect to the year 2000 and thereafter, the Company may
need to modify or replace portions of its software. The Company will utilize
both internal and external resources to modify or replace software. The total
cost of the Company's year 2000 project is estimated to be $50,000, $30,000 of
which has been incurred to date. Management anticipates that the aforementioned
modifications, which are currently in process and are expected to be completed
by September 30, 1999, will remediate any year 2000 problems.
Various third-party vendors have been queried on their year 2000 readiness.
To date, Management is not aware of any significant suppliers or vendors with a
year 2000 issue that could materially impact the Company. However, lack of
readiness by utilities, financial institutions or governmental agencies could
pose significant impediments to the Company's ability to carry on normal
operations. There can be no assurances that the systems of other companies, on
which the Company's systems rely, will be converted timely and would not have an
adverse effect on the Company's systems.
Management believes it has an effective program in place to resolve the
year 2000 issue in a timely manner. Contingency plans involve system
enhancement, manual workarounds, and adjusting staffing strategies.
Nevertheless, Management believes that it could continue its normal business
operations if compliance is delayed. The Company does not believe that the year
2000 issue will materially impact its results of operations, liquidity, or
capital resources.
SAFE HARBOR STATEMENT
- ---------------------
With the exception of historical information, the matters discussed in this
Annual Report to Shareholders are forward- looking statements that involve risks
and uncertainties and actual results could differ materially from those
discussed. Certain statements herein and in future filings by the Trust with the
Securities and Exchange Commission and in written and oral statements made by or
with the approval of any authorized executive officer of the Trust constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Trust
intends that such forward-looking statements be subject to the safe harbors
created by such Acts. The words and phrases "looking ahead," "we are confident,"
"should be," "will be," "predicted," "believe," "expect," "anticipate," and
similar expressions identify forward-looking statements. These forward-looking
statements reflect the Trust's current views in respect of future events and
financial performance, but are subject to many uncertainties and factors
relating to the Trust's operations and business environment which may cause the
actual results of the Trust to differ materially from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties include, but are not limited to, interest rate fluctuations;
competition for tenants and acquisitions from others, many of whom may have
greater financial resources than the Trust; changes in rental rates which may be
charged by the Trust in response to market rental rate changes or otherwise;
Year 2000 readiness; changes in federal income tax laws and regulations; any
changes in the Trust's capacity to acquire additional apartment properties and
any changes in the Trust's financial condition or operating results due to the
acquisition of additional apartment properties; unanticipated increases in
operating expenses due to factors such as casualties to the Trust's apartment
properties or adverse weather conditions in the geographic locations of the
Trust's apartment properties; and local economic and business conditions,
including, without limitation, conditions which may affect public securities
markets generally, the real estate investment trust industry, or the markets in
which the Trust's apartment properties are located. The Trust undertakes no
obligation to update publicly or revise any forward-looking statements whether
as a result of new information, future events or otherwise.
<PAGE> 31
SELECTED FINANCIAL DATA The Town and Country Trust
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
OPERATING DATA
- --------------
<S> <C> <C> <C> <C> <C>
Revenue $ 98,890 $ 92,648 $ 91,163 $ 89,455 $ 86,077
Other operating related expenses 39,947 38,104 38,092 36,871 35,893
Depreciation 25,564 24,311 24,282 24,147 23,399
General and administrative expenses 3,233 2,414 2,333 2,389 2,775
-------- -------- -------- -------- --------
Income from operations 30,146 27,819 26,456 26,048 24,010
Interest expense 22,529 18,601 17,750 18,427 16,000
Interest expense related to the amortization
of deferred financing costs 374 1,559 2,166 2,556 1,986
-------- -------- -------- -------- --------
Income before minority interest and
extraordinary item 7,243 7,659 6,540 5,065 6,024
Income allocated to minority interest 993 1,048 895 695 826
-------- -------- -------- -------- --------
Income before extraordinary item 6,250 6,611 5,645 4,370 5,198
Extraordinary item - cost related
to refinancing of debt
(net of minority interest) -- (2,512) -- -- --
-------- -------- -------- -------- --------
Net income $ 6,250 $ 4,099 $ 5,645 $ 4,370 $ 5,198
=============================================================
Per common share - basic and diluted:
Income before extraordinary item $ .40 $ .42 $ .36 $ .28 $ .34
Extraordinary item -- (.16) -- -- --
-------- -------- -------- -------- --------
Net income $ .40 $ .26 $ .36 $ .28 $ .34
-------- -------- -------- -------- --------
Dividends declared per share $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60
-------- -------- -------- -------- --------
Funds from operations before minority
interest $ 32,605 $ 31,771 $ 30,547 $ 29,277 $ 29,271
Funds from operations applicable to the
Trust's shareholders $ 28,135 $ 27,424 $ 26,366 $ 25,263 $ 25,255
</TABLE>
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
BALANCE SHEET DATA AT YEAR-END
- ------------------------------
<S> <C> <C> <C> <C> <C>
Real estate assets, before accumulated
depreciation $666,090 $573,952 $564,443 $558,100 $551,343
Net real estate assets 417,679 351,006 365,754 383,549 400,839
Total assets 432,384 366,251 383,396 402,405 422,205
Total mortgages payable 385,299 300,000 232,000 232,000 232,000
Total notes payable -- -- 58,409 56,809 52,510
Shareholders' equity 31,608 50,118 70,745 89,901 110,343
Minority interest 4,994 7,948 11,243 14,294 17,545
</TABLE>
Note: All funds from operations information has been presented under the 1995
NAREIT definition. The earnings per share amounts prior to 1997 have been
restated as required to comply with Statement of Financial Accounting Standards
No. 128, Earnings Per Share. For further discussion of earnings per share and
the impact of Statement No. 128, see the notes to the consolidated financial
statements.
<PAGE> 32
INVESTOR INFORMATION The Town and Country Trust
BOARD OF TRUSTEES
- -----------------
ALFRED LERNER
Chairman
HARVEY SCHULWEIS
President and Chief Executive Officer
JAMES H. BERICK, ESQ.
Chairman,
Berick, Pearlman & Mills Co., LPA
H. GRANT HATHAWAY
Retired Vice Chairman,
MNC Financial Inc.
and Maryland National Bank
DR. MILTON A. WOLF
United States Ambassador, Retired;
Chairman, Milton A. Wolf Investors;
Chairman, Zehman Wolf Management
EXECUTIVE OFFICERS
ALFRED LERNER
Chairman
HARVEY SCHULWEIS
President and Chief Executive Officer
MICHAEL H. ROSEN
Executive Vice President and
Chief Operating Officer
JENNIFER C. MUNCH
Vice President and Treasurer
ALAN W. LASKER
Vice President - Finance
GENERAL COUNSEL
- ---------------
Berick, Pearlman & Mills Co., LPA
Cleveland, Ohio 44114
Independent Auditors
- --------------------
Ernst & Young LLP
Baltimore, Maryland 21201
Transfer Agent
- -------------------
National City Bank
Cleveland, Ohio 44114
Telephone: 800.622.6757
Annual Meeting
- --------------
The annual meeting will be held at the Center Club, 100 Light Street, Baltimore,
Maryland on April 29, 1999 at 11:00 a.m.
Common Stock Market Prices and Dividends
<TABLE>
<CAPTION>
Sales Price Cash
-------------------- Dividends
High Low Declared
<S> <C> <C> <C>
March 31, 1997 $15-7/8 $14-1/8 $.40
June 30, 1997 $15-3/4 $14-5/8 $.40
September 30, 1997 $19-1/8 $15-3/16 $.40
December 31, 1997 $19 $16-7/8 $.40
March 31, 1998 $17-15/16 $15-15/16 $.40
June 30, 1998 $17-13/16 $15-3/4 $.40
September 30, 1998 $16-3/4 $13-3/4 $.40
December 31, 1998 $16-5/16 $13-5/16 $.40
</TABLE>
On February 10, 1999, a cash dividend of $.41 per share was declared, payable
March 10, 1999, to shareholders of record as of February 19, 1999.
At December 31, 1998, the approximate number of record holders of the Trust's
shares was 569. This does not include beneficial owners for whom Cede & Co. or
others act as nominee.
FORM 10-K
- ----------
The Trust will be pleased to provide, without charge, a copy of its 1998 Annual
Report on Form 10-K, filed with the Securities and Exchange Commission, to any
shareholder upon written request to Harvey Schulweis, President, The Town and
Country Trust, 100 South Charles Street, Baltimore, Maryland 21201.
STOCK EXCHANGE LISTING
- ----------------------
New York Stock Exchange
Symbol: TCT
CORPORATE HEADQUARTERS
- -----------------------
The Town and Country Trust
100 South Charles Street
Baltimore, Maryland 21201
Telephone: 410.539.7600
Website Address
- ----------------
www.tctrust.com
[LOGO-NAREIT]
[LOGO-TCT LISTED NYSE]
<PAGE> 33
[Blue Watermark of Leaves]
[LOGO: Town & Country]
The Town and Country Trust
100 South Charles Street
Baltimore, Maryland 21201
<PAGE> 1
Exhibit 21
Subsidiaries of the Registrant
<PAGE> 2
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
JURISDICTION
NAME OF INCORPORATION
- ---- ----------------
The Town and Country Holding Corporation Delaware
The Town and Country Oriole Corporation Delaware
The Town and Country Holding Corporation II Delaware
PARTNERSHIPS OF WHICH THE REGISTRANT, DIRECTLY OR
INDIRECTLY, IS A GENERAL PARTNER
JURISDICTION
NAME OF ORGANIZATION
- ---- ---------------
The TC Operating Limited Partnership Maryland
The TC Property Company Maryland
The TC Property Company II Maryland
The TC-Hallfield Company Maryland
The TC-Ridgeview Company Maryland
The TC-East Company Maryland
The TC-Harford Company Maryland
The TC-North Company Maryland
The TC-Northeast Company Maryland
The TC-Versailles Company Maryland
The TC-Charlesmont Company Maryland
The TC-Hollows Company Maryland
The TC-Laurel Company Maryland
The TC-Montgomery Company Maryland
The TC-Montpelier Company Maryland
The TC-South Company Maryland
The TC-Foxhaven Company Maryland
The TC-Gardenwood Company Maryland
The TC-West/Greensview Company Maryland
The TC-Rolling Road Company Maryland
The TC-Woodmoor Company Maryland
The TC-Allentown Company Maryland
The TC-Harrisburg East Company Maryland
The TC-Emmaus Company Maryland
The TC-Hanover Company Maryland
The TC-Harrisburg Company Maryland
The TC-Lancaster East Company Maryland
The TC-Lancaster West Company Maryland
The TC-York Company Maryland
<PAGE> 3
JURISDICTION
NAME OF ORGANIZATION
- ---- ---------------
The TC-University Heights Company Maryland
The TC-Barton's Crossing Company Maryland
The TC-Glen Company Maryland
The TC-Fox Run Company Maryland
The TC-McNair Farms Company Maryland
The TC-Rolling Hills Company Maryland
The TC-Stonegate Company Maryland
The TC-Christina Mill Company Maryland
The TC-Carlyle Station Company Maryland
The TC-Forest Ridge Company Maryland
The TC-Fairington Company Maryland
The TC-Windermere Lakes Company Maryland
The TC-Twelve Oaks Company Maryland
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Town and Country Trust of our report dated January 29, 1999 included in
the 1998 Annual Report to Shareholders of The Town and Country Trust.
Our audits also included the financial statement schedule of The Town and
Country Trust listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-82932) pertaining to The Town and Country Trust Amended and
Restated 1993 Long Term Incentive Plan of our report dated January 29, 1999,
with respect to the consolidated financial statements and schedule of The Town
and Country Trust included or incorporated by reference in the Annual Report
(Form 10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Baltimore, Maryland
March 29, 1999
<PAGE> 1
Exhibit 24
Powers of Attorney
<PAGE> 2
POWER OF ATTORNEY
The undersigned Chairman of the Board of Trustees of The Town and Country
Trust (the "Trust"), a Maryland real estate investment trust, which anticipates
filing with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K for the Trust's fiscal year ended December 31, 1998, hereby
constitutes and appoints HARVEY SCHULWEIS and JAMES H. BERICK, and each of them,
with full power of substitution and resubstitution, as attorneys or attorney to
sign for the undersigned and in my name, place and stead, as Trustee of said
Trust, said Annual Report and any and all amendments and exhibits thereto, and
any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorney, and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of February,
1999.
/s/ Alfred Lerner
-----------------------------------------
Alfred Lerner
<PAGE> 3
POWER OF ATTORNEY
The undersigned Trustee of The Town and Country Trust (the "Trust"), a
Maryland real estate investment trust, which anticipates filing with the
Securities and Exchange Commission, Washington, D.C., under the provisions of
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the Trust's fiscal year ended December 31, 1998, hereby constitutes and
appoints ALFRED LERNER, HARVEY SCHULWEIS and JAMES H. BERICK, and each of them,
with full power of substitution and resubstitution, as attorneys or attorney to
sign for the undersigned and in my name, place and stead, as Trustee of said
Trust, said Annual Report and any and all amendments and exhibits thereto, and
any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorney, and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of February,
1999.
/s/ H. Grant Hathaway
-----------------------------------------
H. Grant Hathaway
<PAGE> 4
POWER OF ATTORNEY
The undersigned Trustee of The Town and Country Trust (the "Trust"), a
Maryland real estate investment trust, which anticipates filing with the
Securities and Exchange Commission, Washington, D.C., under the provisions of
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the Trust's fiscal year ended December 31, 1998, hereby constitutes and
appoints ALFRED LERNER and HARVEY SCHULWEIS, and each of them, with full power
of substitution and resubstitution, as attorneys or attorney to sign for the
undersigned and in my name, place and stead, as Trustee of said Trust, said
Annual Report and any and all amendments and exhibits thereto, and any and all
applications and documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report, with full power and authority to do
and perform any and all acts and things whatsoever requisite, necessary or
advisable to be done in the premises, as fully and for all intents and purposes
as the undersigned could do if personally present, hereby approving the acts of
said attorney, and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of February,
1999.
/s/ James H. Berick
-----------------------------------------
James H. Berick
<PAGE> 5
POWER OF ATTORNEY
The undersigned Trustee of The Town and Country Trust (the "Trust"), a
Maryland real estate investment trust, which anticipates filing with the
Securities and Exchange Commission, Washington, D.C., under the provisions of
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the Trust's fiscal year ended December 31, 1998, hereby constitutes and
appoints ALFRED LERNER, HARVEY SCHULWEIS and JAMES H. BERICK, and each of them,
with full power of substitution and resubstitution, as attorneys or attorney to
sign for the undersigned and in my name, place and stead, as Trustee of said
Trust, said Annual Report and any and all amendments and exhibits thereto, and
any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorney, and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of February,
1999.
/s/ Milton A. Wolf
-----------------------------------------
Milton A. Wolf
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AT DECEMBER 31, 1998 AND 1997 AND CONSOLIDATED STATEMENTS OF
OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,239
<SECURITIES> 0
<RECEIVABLES> 1,871
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,272
<PP&E> 666,090
<DEPRECIATION> 248,411
<TOTAL-ASSETS> 432,384
<CURRENT-LIABILITIES> 10,483
<BONDS> 385,299
0
0
<COMMON> 158
<OTHER-SE> 31,450
<TOTAL-LIABILITY-AND-EQUITY> 432,384
<SALES> 0
<TOTAL-REVENUES> 98,890
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 68,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,903
<INCOME-PRETAX> 7,243
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,250
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
<PAGE> 1
Exhibit 99
Proxy Statement dated March 18, 1999.
<PAGE> 2
THE TOWN AND COUNTRY TRUST
------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------------------------------------------------
Notice is hereby given that the Annual Meeting of Shareholders of The Town
and Country Trust will be held at The Center Club, 100 Light Street, Baltimore,
Maryland on Thursday, April 29, 1999 at 11:00 A.M., local time, for the purpose
of considering and acting upon:
1. The election of five (5) Trustees, each to hold office until the
next Annual Meeting of Shareholders and until his successor shall be
elected and qualified; and
2. The transaction of any other business which properly may come
before the meeting and any adjournments thereof.
Shareholders of The Town and Country Trust of record at the close of
business on March 10, 1999 are entitled to vote at the Annual Meeting and any
adjournments thereof.
By order of the Board of Trustees
Daniel G. Berick
Secretary
Baltimore, Maryland
March 18, 1999
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
<PAGE> 3
March 18, 1999
THE TOWN AND COUNTRY TRUST
100 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201
---------------------------
PROXY STATEMENT
---------------------------
The accompanying proxy is solicited by the Trustees of The Town and Country
Trust (the "Trust") for use at the Annual Meeting of Shareholders to be held on
April 29, 1999 and any adjournments thereof.
Shareholders of record at the close of business on March 10, 1999 (the
record date) will be entitled to vote at the Annual Meeting and any adjournments
thereof. At that date the Trust had issued and outstanding 15,767,148 Common
Shares of Beneficial Interest (the "Common Shares"), par value $.01 per Common
Share. Each such Common Share is entitled to one vote on all matters properly
coming before the Annual Meeting. At least 7,883,575 Common Shares must be
represented at the Annual Meeting in person or by proxy in order to constitute a
quorum for the transaction of business.
This Proxy Statement and the accompanying form of proxy were first mailed
to Shareholders on March 18, 1999.
ELECTION OF TRUSTEES
At this Annual Meeting, five Trustees are to be elected for a term expiring
at the 2000 Annual Meeting of Shareholders and until their respective successors
are duly elected and qualified. Unless a Shareholder requests that voting of the
proxy be withheld for any one or more of the nominees for Trustee in accordance
with the instructions set forth on the proxy, it presently is intended that
Common Shares represented by proxies solicited hereby will be voted for the
election as Trustees of the five nominees named in the table below. All nominees
have consented to being named in this Proxy Statement and to serve if elected.
Should any nominees subsequently decline or be unable to accept such nomination
or to serve as a Trustee, an event which the Trustees do not now expect, the
persons voting the Common Shares represented by proxies solicited hereby may
either vote such Shares for a slate of five persons which includes a substitute
nominee or for a reduced number of nominees, as they may deem advisable. For
election as a Trustee, a nominee must receive the affirmative vote of a
plurality of the Common Shares voted at the Annual Meeting in person or by
proxy. Neither abstentions nor broker non-votes will be counted as votes cast
and neither will have any effect on the result of the vote, although both will
count toward the determination of the presence of a quorum.
The information concerning the nominees set forth in the following table is
based in part on information received from the respective nominees and in part
on the Trust's records. Each of the nominees first became a Trustee in
connection with the formation of the Trust in 1993.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------- --- --------------------------------------------------
<S> <C> <C>
Alfred Lerner 65 Chairman of the Board of the Trust
Harvey Schulweis 58 Chief Executive Officer and President of the Trust
James H. Berick 65 Chairman of Berick, Pearlman & Mills Co., L.P.A.,
attorneys
H. Grant Hathaway 71 Retired, formerly Vice Chairman, MNC Financial,
Inc., bank holding company
Milton A. Wolf 73 President of Milton A. Wolf Investors,
investments, and Chairman of Zehman-Wolf
Management, Inc., real estate management and
development
</TABLE>
1
<PAGE> 4
Mr. Lerner has been the Chairman of the Board of the Trust since its
formation in May 1993. In addition, Mr. Lerner served as the Chief Executive
Officer of the Trust from May 1993 until October 1997. Since September 1998, Mr.
Lerner has been the Chairman of the Board of Cleveland Browns Football Company
LLC. Mr. Lerner also has served as the Chairman of the Board and Chief Executive
Officer of MBNA Corporation, a bank holding company, since its inception as a
public company in 1991. From 1979 until 1993, Mr. Lerner was the President of
The Town and Country Management Corporation. He is a member of the Boards of
Trustees of Columbia University, the Cleveland Clinic Foundation and Case
Western Reserve University. He also is the President of the Cleveland Clinic
Foundation.
Mr. Schulweis has been the Chief Executive Officer of the Trust since
October 1997 and the President of the Trust since its formation in May 1993. Mr.
Schulweis has been the President of Schulweis Realty, Inc., real estate
ownership and management, since 1991. He is a Certified Public Accountant and a
member of the Executive Committee of the National Realty Committee and is a past
member of the Board of Governors of the Real Estate Board of New York.
Mr. Berick has been a Trustee of the Trust since its formation in May 1993.
He has been the Chairman of Berick, Pearlman & Mills Co., L.P.A., since July
1986 and was the President and Treasurer of Realty ReFund Trust, a real estate
investment trust, from 1990 through January 1998. Mr. Berick is a Director of
MBNA Corporation.
Mr. Hathaway, now retired, has been a Trustee of the Trust since its
formation in May 1993. In addition, he served as the Vice Chairman of MNC
Financial, Inc. from 1990 until 1993. He also served as Vice Chairman of
Maryland National Bank from 1990 until 1993 and was its President and Chief
Executive Officer in 1991. Mr. Hathaway was the President and Chief Executive
Officer of American Security Bank, N.A. in 1991 and the Chairman and Chief
Executive Officer of Equitable Bank, N.A. from 1979 until 1990. Mr. Hathaway
also served as the President of Equitable Bancorporation from 1975 until 1990
and as its Chief Executive Officer from 1981 until 1990. Mr. Hathaway is a
member of The Kennedy Krieger Institute Development and Resource Board.
Dr. Wolf has served as a Trustee of the Trust since its formation in May
1993. In addition, he has served as the President of Milton A. Wolf Investors
and as the Chairman of Zehman-Wolf Management, Inc. since 1980. Dr. Wolf was the
United States Ambassador to Austria from 1977 until 1980. From 1981 until 1987,
Ambassador Wolf served as a Distinguished Professorial Lecturer in Economics at
Case Western Reserve University. Ambassador Wolf holds a Ph.D in Economics from
Case Western Reserve University and holds honorary doctoral degrees from
Cleveland State University and Case Western Reserve University. He is Chairman
of the American Austrian Foundation, Vice Chairman of the Council of American
Ambassadors and is a member of the Council on Foreign Relations, the Academy of
Political Science and the American Economic Association. Ambassador Wolf serves
on the Boards of Trustees of Case Western Reserve University and the Cleveland
Clinic Foundation.
The Board of Trustees has established an Audit Committee and a Compensation
Committee. James H. Berick, H. Grant Hathaway and Milton A. Wolf comprise the
Audit Committee and the Compensation Committee. The Trust does not have a
nominating committee. The functions of such committee are performed by the Board
of Trustees.
The Audit Committee has been established to (i) make recommendations to the
Trustees concerning the engagement of the Trust's independent public
accountants, (ii) review with the independent public accountants the plans and
results of the audit engagement, (iii) approve professional services provided by
the independent public accountants, (iv) review the independence of the
independent public accountants, (v) consider the range of audit and non-audit
fees, and (vi) review the adequacy of the Trust's internal accounting controls.
The Audit Committee met twice during the fiscal year.
The Compensation Committee is responsible for administering the Trust's
Amended and Restated 1993 Long Term Incentive Plan, the Trust's 1997 Long Term
Incentive Plan and for reviewing benefits and executive compensation, including
incentive compensation. While the Compensation Committee
2
<PAGE> 5
did not meet during the fiscal year, its members approved the benefits and
executive compensation paid in respect of such year.
The Board of Trustees held four meetings during the year ended December 31,
1998. All Trustees attended each meeting of the Trustees and of the Committees
thereof.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR EACH NOMINEE FOR TRUSTEE.
CERTAIN RELATED TRANSACTIONS; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Michael H. Rosen, the Executive Vice President of the Trust, is indebted to
the Trust in connection with the consolidation of certain personal indebtedness,
in the amount of $340,000, as of March 10, 1999. $300,000 of this indebtedness
bears interest at a rate comparable to the rate earned on the Trust's invested
funds. As of March 10, 1999, such rate was 4.43%. The balance of the
indebtedness does not bear interest; however, the Trust has deferred
compensation otherwise due Mr. Rosen in the amount of such balance.
James H. Berick, a Trustee, is Chairman of the law firm Berick, Pearlman &
Mills Co., L.P.A., general counsel to the Trust, which received legal fees from
the Trust during the year ended December 31, 1998 in the amount of $405,224.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Mr. Schulweis has been both an owner and an investor in a significant
number of real estate projects. Of such projects in which Mr. Schulweis or an
affiliate is a general partner, two were sold through foreclosure proceedings,
one in 1994 and one in 1996.
COMPENSATION OF TRUSTEES
The Trust pays an annual fee of $25,000, plus a fee of $2,500 for each
meeting attended, to its Trustees who are not employees of the Trust or any of
its subsidiaries. Trustees who are employees of the Trust are not paid any
Trustees' fees. The Trust reimburses the Trustees for travel expenses incurred
in connection with their activities on behalf of the Trust.
Pursuant to the Amended and Restated 1993 Long Term Incentive Plan (the
"1993 Plan") adopted by the Trust, each Trustee who is not otherwise an employee
of the Trust or its subsidiaries or affiliates automatically receives, on each
January 2, an annual grant of options to purchase 2,000 Common Shares having an
exercise price equal to 100% of the fair market value of the Common Shares at
the date of grant of such option. In addition, each of the Trust's current
non-employee Trustees, upon joining the Board, received an initial grant of
options to purchase 2,000 Common Shares at an exercise price equal to the
initial public offering price of $22.00. Should any additional Trustees be
elected in the future, each such Trustee would receive an initial grant of
options to purchase 2,000 Common Shares having an exercise price equal to 100%
of the fair market value of the Common Shares as of such date. Future option
grants to non-employee Trustees may be made pursuant to either the 1993 Plan or
the 1997 Long Term Incentive Plan (the "1997 Plan"). The provisions of the 1997
Plan in respect of grants of options to non-employee Trustees are identical to
the provisions in respect thereof under the 1993 Plan. However, the 1997 Plan
provides that annual option grants to non-employee Trustees under the 1997 Plan
shall not duplicate any such grants under the 1993 Plan.
3
<PAGE> 6
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report describes the Trust's executive compensation programs and the
basis on which fiscal 1998 compensation determinations were made by the members
of the Compensation Committee in respect of the executive officers of the Trust,
including Mr. Schulweis, the Trust's Chief Executive Officer.
The Trust's compensation program provides annual cash compensation to
executive officers that recognizes short-term individual and Trust performance
and long-term compensation that encourages executive officers to focus on the
future. The program is designed to reward current performance in proper context
with the long-term health of the Trust and to provide for continuity of
management of the Trust's properties, which the Board of Trustees considers to
be of critical importance. Annual cash compensation consists of salary and
bonus. Long-term incentive programs include grants of share options and
restricted and unrestricted share awards.
The members of the Compensation Committee approved annual salaries and
bonuses for the Trust's executive officers in respect of fiscal 1998. For
purposes of comparison, the members of the Compensation Committee considered
salaries and bonuses paid to executive officers of other publicly-held real
estate investment trusts. Salaries are based on responsibilities with the Trust,
experience, and individual and Trust performance. Bonuses for executive officers
are based on Trust and individual performance. Bonuses for 1998 for executive
officers were approved by the members of the Compensation Committee based
primarily on the Trust's performance in 1998 relative to plans, goals and
objectives, including financial goals such as growth in funds from operations,
management of costs and acquisitions of new properties, and nonfinancial goals
such as tenant satisfaction, employee turnover and management of internal
systems and growth.
Mr. Schulweis' salary and bonus (in the amounts set forth in the Summary
Compensation Table, below) were determined in accordance with the above
criteria.
To provide long-term incentives, the Compensation Committee may grant share
options and restricted and unrestricted share awards to officers and key
employees under either the 1993 Plan or the 1997 Plan. While no such share
options were granted in 1998, both the 1993 Plan and the 1997 Plan provide that
options, when granted, are granted at an option price equal to the fair market
value of the Trust's Common Shares on the date of grant. Options vest over a
period of three years beginning on the first anniversary of the date of grant
and expire ten years after the grant date. No restricted Common Shares were
awarded in 1998. However, under both the 1993 Plan and the 1997 Plan, when
restricted Common Shares are granted, the restrictions thereon lapse on
termination of the officer's employment due to death, disability, retirement or
a change in control of the Trust. Upon termination of employment for any other
reason, all restricted Common Shares as to which the restrictions have not
lapsed are forfeited to the Trust. Holders of restricted Common Shares have all
of the rights of holders of Common Shares, including the right to receive
dividends and to vote.
The Compensation Committee
James H. Berick
H. Grant Hathaway
Milton A. Wolf
4
<PAGE> 7
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid or to be paid by the
Trust or its subsidiaries in respect of services rendered during the Trust's
fiscal year ended December 31, 1998 to the Trust's Chief Executive Officer and
each of the Trust's other executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL -----------------------
COMPENSATION RESTRICTED
-------------------- STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS AWARDS(1) (SHARES) COMPENSATION
--------------------------- ----------- -------- -------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Alfred Lerner, 1998 $200,000 $ 0 $ 0 0 $ 0
Chairman of the Board 1997 $200,000 $ 0 $ 0 0 $ 0
1996 $200,000 $ 0 $ 0 0 $ 0
Harvey Schulweis, 1998 $200,000 $100,000 $ 0 0 $ 0
President, Chief Executive 1997 $200,000 $ 0 $ 756,250 40,000 $ 0
Officer 1996 $200,000 $ 0 $ 203,125 0 $ 0
Michael H. Rosen, 1998 $175,000 $ 95,000 $ 0 0 $96,160(2)
Executive Vice President 1997 $175,000 $ 75,000 $ 94,531 20,000 $96,250
1996 $175,000 $ 75,000 $ 0 0 $95,731
Jennifer C. Munch, 1998 $110,000 $ 50,000 $ 0 0 $33,971(2)
Vice President--Treasurer 1997 $110,000 $ 50,000 $ 32,141 10,000 $34,061
1996 $110,000 $ 40,000 $ 0 0 $33,542
Alan W. Lasker, 1998 $115,000 $ 35,000 $ 0 0 $ 7,524(2)
Vice President--Finance 1997 $110,000 $ 15,000 $ 272,250 15,000 $ 6,114
1996 $110,000 $ 10,000 $ 0 0 $ 5,667
</TABLE>
- ---------
(1) The total number of restricted shares and the aggregate market value thereof
at December 31, 1998 are as follows: Mr. Lerner held no restricted shares;
Messrs. Schulweis and Rosen each held 100,000 restricted shares having an
aggregate market value of $1,606,250; Mrs. Munch held 24,000 restricted
shares having an aggregate market value of $385,500; and Mr. Lasker held
18,000 restricted shares having an aggregate market value of $289,125.
Dividends accrue and are paid on the restricted shares. The aggregate market
value is based on the fair market value at December 31, 1998 of $16.0625 per
share.
(2) Amounts shown include the following: Trust or subsidiary contributions to
defined-contribution plan--$7,548 for each of Mr. Rosen and Mrs. Munch and
$6,948 for Mr. Lasker; Trust or subsidiary payments of term life insurance
premiums--$864 for Mr. Rosen, $522 for Mrs. Munch and $576 for Mr. Lasker;
and Trust or subsidiary payments of split-dollar life insurance
premiums--$87,748 for Mr. Rosen and $25,901 for Mrs. Munch.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during fiscal year 1998 to the named executive officers. In accordance
with the rules of the Securities and Exchange Commission, the table shows the
hypothetical gains or "option spreads" that would exist for the respective
options. The gains are based on assumed rates of annual compounded share price
appreciation of 5% or 10% from the date the options were granted over the full
option term of ten years. No gain to the optionees is possible without an
increase in share price which will benefit all Shareholders proportionately.
Regardless of the theoretical value of an option, its ultimate value will depend
on the market value of the Common Shares at a future date and that value will
depend on a variety of factors, including the overall condition of the stock
market and the Trust's results of operations and financial condition. There can
be no assurance that the values reflected in this table will be achieved.
5
<PAGE> 8
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NO. OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED ON VALUE FISCAL YEAR END FISCAL YEAR END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Alfred Lerner 0 $0 0/0 $0/$0
Harvey Schulweis 0 $0 113,333/26,667 $162,500/$25,000
Michael H. Rosen 0 $0 76,666/13,334 $113,124/$12,501
Jennifer C. Munch 0 $0 43,333/6,667 $63,125/$6,250
Alan W. Lasker 0 $0 15,000/10,000 $25,313/$9,375
</TABLE>
PERFORMANCE GRAPH
The following graph compares total Shareholder returns from December 31,
1993 through December 31, 1998 to the Standard & Poor's 500 Stock Index ("S&P
500") and to the National Association of Real Estate Investment Trusts, Inc.'s
Equity REIT Total Return Index ("NAREIT"). The graph assumes that the value of
the investment in the Trust's Common Shares and each index was $100 at December
31, 1993 and that all dividends were reinvested. The Shareholder return shown on
the following graph is not necessarily indicative of future performance.
The following graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Trust specifically incorporates this information
by reference and otherwise shall not be deemed filed under such Acts.
<TABLE>
<CAPTION>
TRUST S&P 500 NAREIT
----- ------- ------
<S> <C> <C> <C> <C>
December 31, 1993 100 100 100
December 31, 1994 76.87 101.31 103.17
December 31, 1995 78.83 139.23 118.92
December 31, 1996 99.28 171.19 160.86
December 31, 1997 132.1 228.32 193.45
December 31, 1998 129.72 293.57 159.59
</TABLE>
6
<PAGE> 9
RETIREMENT PLAN
An affiliate of the Trust, The TC Operating Limited Partnership, maintained
a non-contributory, defined-contribution plan established by its predecessor for
the benefit of employees. Effective June 30, 1998, such plan was terminated and
a contributory defined-contribution 401(k) benefit plan was implemented in lieu
thereof. Assets of the prior plan were transferred to the 401(k) plan and all
participants became fully vested in those assets. The 401(k) plan covers
substantially all employees who are twenty and one-half years old with six
months or more of service. Discretionary employer contributions may be made to
the 401(k) plan for each participant. Participants qualify for benefits upon
reaching the age of sixty-five and early retirees qualify provided they have
reached the age of fifty-five and have completed ten years of service. After
three years of service, participants become 20% vested in employer contributions
which are based on current compensation levels. From the fourth through the
seventh years, vesting increases by 20% each year until full vesting occurs. For
the fiscal year ended December 31, 1998, $7,548 was contributed to the plan
accounts of each of Mr. Rosen and Mrs. Munch and $6,948 was contributed to the
plan account of Mr. Lasker. Messrs. Lerner and Schulweis are not participants in
such plan.
OWNERSHIP OF COMMON SHARES OF BENEFICIAL INTEREST
The following table sets forth information as of March 10, 1999 in respect
of beneficial ownership of Common Shares by each person known to the Trust to
own 5% or more of its Common Shares, by each Trustee, by each named executive
officer and by all Trustees and executive officers as a group.
<TABLE>
<CAPTION>
SHARES % OF OWNERSHIP TOTAL SHARES
BENEFICIALLY OUTSTANDING OF SHARE AND SHARE
NAME OWNED(1)(2)(3) SHARES EQUIVALENTS(4) EQUIVALENTS/%(5)
---- -------------- ------ -------------- ----------------
<S> <C> <C> <C> <C>
Alfred Lerner
25875 Science Park Drive
Beachwood, Ohio 44122............ 1,000,000 6.3% 2,152,299 3,152,299/17.3%
Harvey Schulweis................... 323,333 2.1% 215,230 538,563/3.0%
James H. Berick.................... 19,900(6) * -- --
H. Grant Hathaway.................. 64,000 * -- --
Milton A. Wolf..................... 81,300(7) * -- --
Michael H. Rosen................... 176,666 1.1% -- --
Jennifer C. Munch.................. 76,285(8) * -- --
Alan W. Lasker..................... 34,000 * -- --
All Trustees and Executive Officers
as a Group (8 persons)........... 1,775,484 11.3%
</TABLE>
- ---------
* Less than 1% of the Common Shares outstanding
(1) Includes the following number of Common Shares which are not owned but can
be purchased within 60 days upon the exercise of options granted under the
1993 Plan: 14,000 by each of James H. Berick, H. Grant Hathaway and Milton
A. Wolf; 100,000 by Mr. Schulweis; 70,000 by Mr. Rosen; 40,000 by Mrs.
Munch; 10,000 by Mr. Lasker; and 262,000 by all Trustees and executive
officers as a group.
(2) Includes the following number of Common Shares which are not owned but can
be purchased within 60 days upon the exercise of options granted under the
1997 Plan: 13,333 by Mr. Schulweis, 6,666 by Mr. Rosen, 3,333 by Mrs.
Munch, 5,000 by Mr. Lasker, and 28,332 by all Trustees and executive
officers as a group.
(3) Includes the following number of restricted Common Shares awarded under the
1993 Plan: 100,000 for Mr. Schulweis, 100,000 for Mr. Rosen, 24,000 for
Mrs. Munch, 18,000 for Mr. Lasker, and 242,000 for all Trustees and
executive officers as a group.
7
<PAGE> 10
(4) In consideration of the contributions of their interests in the Trust's
original properties as part of the formation of the Trust, Messrs. Lerner
and Schulweis retained beneficial ownership of their limited partnership
interests in the Operating Partnership, in which the Trust is an 86.00%
general partner. As of March 10, 1999, Messrs. Lerner and Schulweis owned
12.04% and 1.20% limited partnership interests, respectively, in the
Operating Partnership. The limited partners of the Operating Partnership
share proportionately with the Trust, as general partner, in the net income
or loss and any distributions of the Operating Partnership; therefore, Mr.
Lerner's 12.04% limited partnership interest in the Operating Partnership
is the economic equivalent of 2,152,299 Common Shares of the Trust and Mr.
Schulweis' 1.20% limited partnership interest in the Operating Partnership
is the economic equivalent of 215,230 Common Shares of the Trust. Pursuant
to the partnership agreement of the Operating Partnership, Messrs. Lerner
and Schulweis each may convert his limited partnership interest into such
number of Common Shares.
(5) Percentage shown calculated based on conversion of all share equivalents
into Common Shares.
(6) Includes 1,200 shares held solely by Mr. Berick's wife, beneficial
ownership of which Mr. Berick disclaims.
(7) Includes 4,500 shares held solely by Dr. Wolf's wife and 1,300 shares held
solely by Dr. Wolf's wife as guardian for their adult child, beneficial
ownership of which Dr. Wolf disclaims.
(8) Includes 776 shares held solely by Mrs. Munch's husband, beneficial
ownership of which Mrs. Munch disclaims.
SELECTION OF ACCOUNTANTS
The Trustees have selected Ernst & Young LLP as independent accountants for
the Trust for the fiscal year ending December 31, 1999. Ernst & Young LLP were
the independent accountants for the Trust for the fiscal year ended December 31,
1998 and are considered by the Trustees to be well qualified.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so
and to be available to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Trust's
officers and Trustees, and persons who own more than 10% of the Trust's Common
Shares, to file reports of ownership and changes in ownership of the Trust's
Common Shares with the Securities and Exchange Commission. Dr. Wolf, a Trustee
of the Trust, filed his statement of beneficial ownership on Form 4 reporting a
June 1998 transaction subsequent to the due date for such filing.
OTHER MATTERS
The Trustees know of no matters to be presented for action at the Annual
Meeting other than those described in this Proxy Statement. Should other matters
come before the meeting, the Common Shares of the Trust represented by proxies
solicited hereby will be voted in respect thereof in accordance with the best
judgment of the proxy holders.
SHAREHOLDER PROPOSALS
If a Shareholder intends to present a proposal in accordance with Rule
14a-8 of the Securities and Exchange Commission at the Annual Meeting of
Shareholders presently scheduled for April 2000, such proposal must be received
by the Trust on or before November 27, 1999 in order to be considered for
inclusion in the Trust's Proxy Statement and form of proxy relating to that
meeting. If a Shareholder
8
<PAGE> 11
intends to present a proposal outside of the requirements of such Rule at such
Annual Meeting, such proposal must be received by the Trust on or before
February 10, 2000.
REVOCATION OF PROXIES
A proxy may be revoked at any time before a vote is taken or the authority
granted otherwise is exercised. Revocation may be accomplished by the execution
of a later proxy in respect of the same shares or by giving notice in writing or
in open meeting.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Trust. The Trust does
not expect to pay for the solicitation of proxies, but may pay brokers,
nominees, fiduciaries and custodians their reasonable expenses for sending proxy
materials to principals and obtaining their instructions. In addition to
solicitation by mail, proxies may be solicited in person, by telephone or
telegraph or by officers, Trustees and regular employees of the Trust.
By order of the Board of Trustees
Daniel G. Berick
Secretary
March 18, 1999
9
